Registration No. 333- [●]
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM S-4
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
HECLA MINING COMPANY
(Exact Name of Registrant as Specified in its Charter)
Delaware | 1400 | 77-0664171 | ||
(State or other jurisdiction of incorporation or organization) | (Primary Standard Industrial Classification Code Number) | (I.R.S. Employer Identification Number) |
6500 North Mineral Drive, Suite 200
Coeur d’Alene, Idaho 83815-9408
(208) 769-4100
(Address, including zip code, and telephone number, including area code, of Registrant’s principal executive offices)
David C. Sienko, Esq.
General Counsel
Hecla Mining Company
6500 North Mineral Drive, Suite 200
Coeur d’Alene, Idaho 83815-9408
(208) 769-4100
(Name, address, including zip code, and telephone number, including area code, of agent for service)
with copies to:
J. Craig Walker, Esq. K&L Gates LLP 70 West Madison Street, Suite 3100 Chicago, Illinois 60602-4207 (312) 372-1121 |
|
Approximate date of commencement of proposed sale to the public: As soon as practicable after the effective date of this registration statement and upon completion of the merger described in the enclosed proxy statement/prospectus.
If the securities being registered on this Form are being offered in connection with the formation of a holding company and there is compliance with General Instruction G, check the following box. ¨
If this Form is filed to register additional securities for an offering pursuant to Rule 462(b) under the Securities Act, please check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. ¨
If this Form is a post–post—effective amendment filed pursuant to Rule 462(d) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. ¨
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer”, “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer | x | Accelerated filer | ¨ | |||
Non-accelerated filer | ¨ (Do not check if a smaller reporting company) | Smaller reporting company | ¨ |
If applicable, place an X in the box to designate the appropriate rule provision relied upon in conducting this transaction:
Exchange Act Rule 13e-4(i) (Cross-Border Issuer Tender Offer) ¨
Exchange Act Rule 14d-1(d) (Cross-Border Third-Party Tender Offer) ¨
CALCULATION OF REGISTRATION FEE
| ||||||||
Title of Each Class of Securities to be Registered | Amount Registered(1) | Proposed Maximum Offering Price per unit(1) | Proposed Maximum Aggregate(2) Offering Price | Amount of Registration Fee(3) | ||||
Common Stock, par value $0.25 per share | 6,617,524 | N/A | $20,399,269.50 | $2,370.40 | ||||
|
| ||||||||
Title of Each Class of Securities to be Registered | Amount to be Registered(1) | Proposed Maximum Offering Price per unit(1) | Proposed Maximum Aggregate(2) Offering Price | Amount of Registration Fee(3) | ||||
Common Stock, par value $0.25 per share | 9,839,712 | N/A | $44,174,821 | $4,448.41 | ||||
| ||||||||
|
(1) | Represents the estimated maximum number of shares of the Registrant’s common stock to be issued in connection with the merger described herein. The number of shares of the Registrant’s common stock is based on the estimated number of shares of |
(2) | Estimated solely for purposes of calculating the registration fee required by Section 6(b) of the Securities Act, and calculated pursuant to Rules 457(f)(1), 457(f)(3) and 457(c) under the Securities Act. The proposed maximum aggregate offering price of the Registrant’s common stock was calculated based upon (i) the market value of shares of |
(3) | Determined in accordance with Section 6(b) of the Securities Act at a rate equal to |
The registrant hereby amends this registration statement on such date or dates as may be necessary to delay its effective date until the registrant shall file a further amendment which specifically states that this registration statement shall thereafter become effective in accordance with Section 8(a) of the Securities Act of 1933 or until the registration statement shall become effective on such date as the Commission, acting pursuant to said Section 8(a), may determine.
Information contained herein is subject to completion or amendment. A registration statement relating to these securities has been filed with the Securities and Exchange Commission. We may not sell these securities pursuant to this prospectus until the registration statement filed with the Securities and Exchange Commission becomes effective. This proxy statement/prospectus is not an offer to sell these securities, and we are not soliciting offers to buy these securities, in any state where the offer or sale is not permitted.
Subject to Completion, dated April 20, 2015June 29, 2016
MERGER PROPOSAL—YOUR VOTE IS VERY IMPORTANT
Revett Mining Company,
Mines Management, Inc., a Delawarean Idaho corporation (“Revett”Mines Management”), Hecla Mining Company, a Delaware corporation (“Hecla”), and RHL Holdings, Inc.HL Idaho Corp., a Delawarean Idaho corporation and a wholly-owned subsidiary of Hecla (“Merger Sub”), have entered into an Agreement and Plan of Merger, dated as of March 26, 2015May 23, 2016, as amended on June 29, 2016 (as amended and as it may be further amended from time to time, the “merger agreement”) pursuant to which Merger Sub will merge with and into RevettMines Management with RevettMines Management surviving the merger as a wholly-owned subsidiary of Hecla (the “merger”).
If the merger is completed, RevettMines Management stockholders will have the right to receive 0.16220.2218 of a share of Hecla common stock for each share of RevettMines Management common stock. Any stockholders entitled to receive a fractional share of Hecla common stock withshall receive cash paid in lieu of such fractional shares.share. This exchange ratio is fixed and will not be adjusted to reflect stock price changes prior to the closing of the merger.
Based on the estimated number of shares of RevettMines Management common stock outstanding on the record date for the special meeting of RevettMines Management stockholders, Hecla expects to issue approximately 6,252,6469,139,078 shares of Hecla common stock to RevettMines Management stockholders in the merger. Upon completion of the transaction, it is projected that holders of RevettMines Management common stock will own approximately 1.66%2.37% of Hecla’s outstanding common stock, while existing stockholders of Hecla will continue to own the remaining 98.34%97.63%. RevettMines Management common stock is currently listed for trading on the NYSE MKT LLC under the symbol “MGN” and the Toronto Stock Exchange under the symbol “RVM”.“MGT.” Following completion of the merger, Hecla common stock will continue to trade on the NYSE under the symbol “HL” and RevettMines Management common stock will cease to be listed for trading.
RevettMines Management will hold a special meeting of its stockholders on [ ], 2015August 10, 2016 in conjunction with the proposed merger. Hecla’s stockholders are not required to approve the proposed merger.
At the special meeting of RevettMines Management stockholders, RevettMines Management stockholders will be asked to consider and vote on (i) a proposal to approve and adopt the merger agreement (the “merger proposal”), (ii) a proposal to adjourn the special meeting, if necessary or appropriate, including to solicit additional proxies if there are not sufficient votes to approve and adopt the merger proposal (the “Revett adjournment“adjournment proposal”) and (iii) a non-binding, advisory proposal to approve the compensation that may become payable to Revett’sMines Management’s named executive officers in connection with the merger (the “compensation proposal”). Approval and adoption of the merger proposal, requires the affirmative vote of holders of a majority of the outstanding shares of Revett common stock entitled to vote thereon. Approval of the Revett adjournment proposal and the compensation proposal each requires the affirmative vote of holders of a majority of the sharesvotes cast by holders of RevettMines Management common stock present in person or represented by proxy at the special meeting and entitled to vote on the matter.matter, and a quorum must be present at the special meeting.
RevettMines Management cannot complete the merger unless its stockholders approve and adopt the merger proposal.Your vote is very important, regardless of the number of shares you own. Whether or not you expect to attend the special meeting in person, please submit a proxy as promptly as possible by (1)accessing the Internet website specified on your proxy card, (2)calling the toll-free number specified on your proxy card or (3)marking, signing, dating and returning all proxy cards that you receive in the postage-paid envelope provided, so that your shares may be represented and voted at the special meeting.
After careful consideration, the RevettMines Management board of directors, on March 25, 2015,May 21, 2016, unanimously approved, adopted and declared advisable the merger agreement and the merger, directed that the merger agreement be submitted to the stockholders of RevettMines Management for approval and adoption and determined that the terms of the merger agreement and the merger are fair toadvisable and in the best interests of Revett’sMines Management’s stockholders. The RevettMines Management board of directors accordingly unanimously recommends that the RevettMines Management stockholders vote “FOR” each of the merger proposal, the Revett adjournment proposal and the compensation proposal.
The obligations of RevettMines Management and Hecla to complete the transactions are subject to the satisfaction or waiver of several conditions set forth in the merger agreement. More information about Revett,Mines Management, Hecla and the merger is contained in this proxy statement/prospectus.Revett Mines Managementand Hecla encourage you to read this entire proxy statement/prospectus carefully, including the section entitled “Risk Factors” beginning on page 22,23, as well as the information incorporated herein by reference.
We look forward to the successful completion of the merger.
Sincerely,
|
Glenn M. Dobbs
|
Neither the Securities and Exchange Commission nor any state securities commission has approved or disapproved of the securities to be issued under this proxy statement/prospectus or determined that this proxy statement/prospectus is accurate or complete. Any representation to the contrary is a criminal offense.
This proxy statement/prospectus is dated July [ ], 2015●], 2016 and is first being mailed to the stockholders of RevettMines Management on or about July [ ], 2015.●], 2016.
Revett Mining Company,Mines Management, Inc.
11115 East Montgomery,905 West Riverside Avenue, Suite G311
Spokane, Valley, Washington 9920699201
(509) 921-2294838-6050
NOTICE OF SPECIAL MEETING OF STOCKHOLDERS
To Be Held On [ ], 2015be held on August 10, 2016
Dear StockholdersStockholder of Revett Mining Company,Mines Management, Inc.:
We are pleased to invite you to attend the special meeting of stockholders of Revett Mining Company,Mines Management, Inc., a Delawarean Idaho corporation (“Revett”Mines Management”), which will be held at [ ],the Lincoln Building, 811 W. Riverside, 2nd floor conference room, Spokane, Valley, Washington 99201, on [ ], 2015,Wednesday, August 10, 2016, at [ ] a.m.2:00 p.m., local time, for the following purposes:
RevettMines Management will transact no other business at the special meeting except such business as may be brought at the direction of the RevettMines Management board of directors. Please refer to the attached proxy statement/prospectus for further information with respect to the business to be transacted at the special meeting.
The RevettMines Management board of directors has fixed the close of business on [ ], 2015July 5, 2016 as the record date for determination of RevettMines Management stockholders entitled to receive notice of, and to vote at, the special meeting or any adjournments or postponements thereof. Only stockholders of record of RevettMines Management at the close of business on the record date are entitled to notice of, and to vote at, the special meeting and at any adjournment or postponement of the special meeting. A list of stockholders of record entitled to vote at the special meeting will be available for inspection by stockholders for any purpose germane to the special meeting of Revett at Revett’sMines Management’s executive offices and principal place of business at 11115 East Montgomery,905 West Riverside Avenue, Suite G,311, Spokane, Valley, Washington 9920699201 during ordinary business hours for a period of ten days before the special meeting. The list will also be available at the special meeting for examination by any stockholder of record present at the special meeting.
Approval and adoption of the merger proposal, requires the affirmative vote of holders of a majority of the outstanding shares of Revett common stock entitled to vote thereon. Certain stockholders of Revett holding approximately 14.73% of Revett common stock have entered into shareholder agreements, each dated March 26, 2015, pursuant to which each such stockholder has agreed, among other things, to vote its shares of Revett common stock in favor of the approval of the merger agreement. Approval of the Revett adjournment proposal and the compensation proposal each requires the affirmative vote of holders of a majority of the sharesvotes cast by holders of RevettMines Management common stock present in person or represented by proxy at the special meeting and entitled to vote on the proposal.proposal, and a quorum must be present at the special meeting.Certain stockholders of Mines Management have entered into shareholders agreements, each dated May 23, 2016, pursuant to which each such stockholder has agreed, among other things, to vote its shares of Mines Management common stock in favor of the approval and adoption of the
merger agreement. Shares representing approximately 17.6% of Mines Management common stock (which include 1,472,621 shares of Mines Management common stock subject to currently exercisable options) are subject to the shareholders agreements.
Under Idaho law, holders of Mines Management common stock will not be entitled to dissenters’ or appraisal rights.
Your vote is important. Whether or not you expect to attend in person, we urge you to submit your proxy as promptly as possible by (1)accessing the Internet website specified on your proxy card, (2)calling the toll-free number specified on your proxy card or (3)marking, signing, dating and returning the enclosed
proxy card in the postage-paid envelope provided, so that your shares may be represented and voted at the special meeting. If your shares are held in the name of a broker, bank, trust company or other nominee, please follow the instructions on the voting instruction card furnished to you by such record holder.
Please note that if you hold shares in different accounts, it is important that you vote the shares represented by each account.
The enclosed proxy statement/prospectus provides a detailed description of the merger and the merger agreement. We urge you to read the proxy statement/prospectus, including any documents incorporated by reference, and the appendices carefully and in their entirety. If you have any questions concerning the merger or the proxy statement/prospectus, would like additional copies, or need help submitting a proxy or voting your shares of Mines Management common stock, please contact Mines Management’s proxy solicitor:
Morrow & Co., LLC
470 West Ave. – 3rd Floor
Stamford, CT 06902
Stockholders call: (877) 787-9239
Banks and Brokers call: (203) 658-9400
By order of the Board of Directors,
John G. Shanahan
Glenn M. Dobbs
President and Chief Executive Officer
July [●], 2016
Spokane, Valley, Washington
[ ], 2015
ADDITIONAL INFORMATION
This proxy statement/prospectus incorporates by reference important business and financial information about Hecla Mining Company (“Hecla”) from other documents filed with the Securities and Exchange Commission (the “SEC”) that are not included in or delivered with this proxy statement/prospectus. See “Where You Can Find More Information.”
Documents incorporated by reference are available to you without charge upon written or oraltelephonic request. You can obtain any of these documents by requesting them in writing or by telephone from the appropriate party at the following addresses and telephone numbers.
Hecla Mining Company Investor Relations 6500 N. Mineral Drive, Suite 200 Coeur d’Alene, Idaho 83815-9408 (208) 769-4100 |
Investor Relations
Spokane, (509) | |
or | ||
Morrow & Co., LLC 470 West Ave. – 3rd Floor Stamford, CT 06902 Stockholders call: (877) 787-9239 Banks and Brokers call: (203) 658-9400 |
To receive timely delivery of the requested documents in advance of the special meeting, you should make your request no later than [ ], 2015●], 2016.
ABOUT THIS DOCUMENT
This document, which forms part of a registration statement on Form S-4 filed with the SEC by Hecla (File No. 333-[ ])●]), constitutes a prospectus of Hecla under Section 5 of the Securities Act of 1933, as amended (the “Securities Act”), with respect to the shares of Hecla common stock to be issued pursuant to the Agreement and Plan of Merger, dated as of March 26, 2015,May 23, 2016, by and among Hecla, RHL Holdings, Inc. (“Merger Sub”),Sub and Revett,Mines Management, as the sameamended on June 29, 2016 and as it may be further amended from time to time (the “merger agreement”).time. This document also constitutes a notice of meeting and a proxy statement under Section 14(a) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), with respect to the special meeting of RevettMines Management stockholders, at which RevettMines Management stockholders will be asked to consider and vote on, among other matters, a proposal to approve and adopt the merger agreement and the transactions contemplated thereby.
You should rely only on the information contained in or incorporated by reference into this proxy statement/prospectus. No one has been authorized to provide you with information that is different from that contained in, or incorporated by reference into, this proxy statement/prospectus. This proxy statement/prospectus is dated [ ], 2015.July [●], 2016. The information contained in this proxy statement/prospectus is accurate only as of that date or, in the case of information in a document incorporated by reference, as of the date of such document, unless the information specifically indicates that another date applies. Neither the mailing of this proxy statement/prospectus to RevettMines Management stockholders nor the issuance by Hecla of its common stock pursuant to the merger agreement will create any implication to the contrary.
This proxy statement/prospectus does not constitute an offer to sell, or a solicitation of an offer to buy, any securities, or the solicitation of a proxy, in any jurisdiction in which, or from any person to whom, it is unlawful to make any such offer or solicitation in such jurisdiction.
The information concerning Hecla contained in this proxy statement/prospectus or incorporated by reference has been provided by Hecla, and the information concerning RevettMines Management contained in this proxy statement/prospectus or incorporated by reference has been provided by Revett.Mines Management.
Unless otherwise indicated or as the context otherwise requires, all references in this proxy statement/prospectus to:
In addition, unless otherwise indicated or as the context otherwise requires, all references in this proxy statement/prospectus to:
Guide 7 Definitions
Additional Definitions
“siltite” means an indurated silt having the texture and composition of shale but lacking its fine lamination or fissility; a massive mudstone in which the silt predominates over clay; a nonfissile silt
shale. It tends to be flaggy, containing hard, durable, generally thin layers, and often showing various primary current structures; |
Prospectus
1 | ||||
The Special Meeting; Stockholders Entitled to Vote; Required Vote | ||||
14 | ||||
Recommendation of | ||||
Opinion of the Financial Advisor to | ||||
Interests of Directors and | ||||
19 | ||||
21 | ||||
22 | ||||
33 | ||||
Recommendation of the Board of Directors of | ||||
| ||||
i
105 | ||||
105 | ||||
CONSOLIDATED FINANCIAL STATEMENTS OF | F-1 | |||
A-1 | ||||
B-1 | ||||
C-1 | ||||
D-1 |
ii
Set forth below are questions that you, as a stockholder of Revett,Mines Management, may have regarding the merger, the adjournment proposal, the advisory compensation proposal and the special meeting, and brief answers to those questions. You are urged to read carefully this proxy statement/prospectus and the other documents referred to in this proxy statement/prospectus in their entirety, including the merger agreement, which is attached as Appendix A to this proxy statement/prospectus, and the documents incorporated by reference into this proxy statement/prospectus, because this section may not provide all of the information that is important to you with respect to the merger and the special meeting. You may obtain a list of the documents incorporated by reference into this proxy statement/prospectus in the section titled “Where You Can Find More Information” beginning on page 111.105.
Q: Why am I receiving this proxy statement/prospectus?
A:RevettMines Management and Hecla have agreed to a merger, pursuant to which RevettMines Management will merge with Merger Sub, awholly-owned subsidiary of Hecla (“Merger Sub”). RevettHecla. Mines Management will continue its existence as the surviving entity and become a wholly-owned subsidiary of Hecla, but will cease to be a publicly traded company. This transaction is sometimes referred to throughout this proxy statement/prospectus as the “Merger.“merger.” Please see “Proposal 1: The Approval and Adoption of the Merger Agreement—Effects of the Merger” on page 3739 of this proxy statement/prospectus and “Proposal 1: The Approval and Adoption of the Merger Agreement—The Merger Agreement” on page 5765 of this proxy statement/prospectus. A copy of the merger agreement is attached to this proxy statement/prospectus as Appendix A.
In order to complete the merger, RevettMines Management stockholders must vote to approve and adopt the merger agreement. RevettMines Management is holding a special meeting of its stockholders to obtain such stockholder approval. Revettapproval and adoption. Mines Management stockholders will also be asked to approve, on an advisory (non-binding) basis, the payments that will or may be paid by RevettMines Management to its named executive officers in connection with the merger.
In the merger, Hecla will issue shares of its common stock as the consideration to be paid to holders of RevettMines Management common stock. This document is being delivered to you as both a proxy statement of RevettMines Management and a prospectus of Hecla in connection with the merger. It is the proxy statement by which the board of directors of RevettMines Management is soliciting proxies from you to vote on the approval and adoption of the merger agreement and the transactions contemplated thereby at the special meeting or at any adjournment or postponement of the special meeting. It is also the prospectus by which Hecla is offering the shares of Hecla common stock it will issue to you in the merger.
Q: How does the board of directors of RevettMines Management recommend that its stockholders vote?
A:Revett’sMines Management’s board of directors unanimously approved, adopted and declared advisable the merger agreement and the merger, directed that the merger agreement be submitted to the stockholders of RevettMines Management for approval and adoption and determined that the terms of the merger agreement and the merger are fair toadvisable and in the best interests of Revett’sMines Management’s stockholders. The RevettMines Management board of directors accordingly unanimously recommends that the RevettMines Management stockholders vote “FOR” each of the merger proposal, the Revett adjournment proposal and the compensation proposal, seeproposal. See “Proposal 1: The Approval and Adoption of the Merger Agreement—Recommendation of Revett’sMines Management’s Board of Directors; Revett’sMines Management’s Reasons for the Merger” beginning on page 4246 of this proxy statement/prospectus.
Q: Am I being asked to vote on anything else?
A:Yes. Revett’sMines Management’s board of directors is asking you to consider and vote on the adjournment proposal and the advisory compensation proposal. See “Proposal 2: Possible Adjournment to Solicit Additional Proxies If
Necessary or Appropriate” on page 7281 of this proxy statement/prospectus and “Proposal 3: Advisory (Non-Binding) Vote on Compensation” beginning on page 7382 of this proxy statement/prospectus.
Q: Why are RevettMines Management stockholders being asked to approve, on a non-binding advisory basis, the compensation that may be paid or become payable to Revett’sMines Management’s named executive officers in connection with the completion of the merger?
A: The rules promulgated by the SEC under Section 14A of the Exchange Act require RevettMines Management to seek anon-binding, advisory vote with respect to certain compensation that may be paid or become payable to Revett’sMines Management’s named executive officers in connection with the merger. For more information regarding such payments, see the section entitled “Proposal 3: Advisory (Non-Binding) Vote on Compensation” beginning on page 73.82.
Q: What will RevettMines Management stockholders receive in the transaction?
A:If the transaction is completed, holders of RevettMines Management common stock will be entitled to receive 0.16220.2218 of a share of Hecla common stock for each share of RevettMines Management common stock they hold at the effective time. RevettAny stockholders will notentitled to receive anya fractional sharesshare of Hecla common stock in the merger. Instead, Hecla will payshall receive cash in lieu of anysuch fractional sharesshare. This exchange ratio is fixed and will not be adjusted to reflect stock price changes prior to the closing of Hecla common stock that a Revett stockholder would otherwise have been entitled to receive.the merger. Following the completion of the merger, RevettMines Management common stock will cease to trade on the New York Stock Exchange Market DivisionNYSE MKT LLC (“NYSE MKT”) and the Toronto Stock Exchange (“TSX”).
Q: What will happen to outstanding RevettMines Management options and warrants in the Merger?merger?
A:At the effective time, each option to purchase shares of RevettMines Managementcommon stock that is outstanding immediately prior to the effective time that has an exercise price per share greater than or equal to the product of the closing price of Hecla common stock on the NYSE on the trading day immediately preceding the closing date and 0.2218 will be cancelled without any payment being made in respect thereof. At the effective time, each other option to purchase shares of Mines Management common stock that is outstanding immediately prior to the effective time (whether or not(all of which are vested) that has anwill be cancelled in exchange for the right to receive shares of Hecla common stock (without interest, and subject to deduction for any required withholding tax, with cash being paid in lieu of issuing fractional shares of Hecla common stock) with a value equal to (i)(a) the product of the closing price of Hecla common stock on the NYSE on the trading day immediately preceding the closing date and 0.2218 minus (b) the exercise price per share greater thanunder such option multiplied by (ii) the merger consideration (which isnumber of shares subject to such option. At the caseoption of Hecla, in lieu of paying all or a portion of the amounts due to a holder of options with shares of Hecla common stock, Hecla may substitute for all currently outstanding options) will be cancelled without any payment being madesuch shares an equivalent amount in respect thereof, in accordance with the provisions of that plan.cash.
At the effective time, and in accordance with the terms of eachany warrant to purchase shares of Revett commonMines Managementcommon stock that is outstanding immediately prior to the effective time, Heclasuch warrant will issueeither be cancelled in accordance with its terms or a replacement warrant to each holder thereof that will be exercisable forissued giving the holder the right to purchase a number of shares of Hecla common stock (without interest, and subject to deduction for any required withholding tax, and no issuance of fractional shares and the number of such shares rounded down) equal to the product of (i) 0.16220.2218 and (ii) the number of shares of Revett subjectMines Management common stocksubject to such warrant, with an exercise price of $6.17$4.8765 per share of Hecla common stock, pursuant to and in accordance with such holder’s warrantswarrant (as amended).
Q: What happens if the market price of shares of Hecla common stock or shares of RevettMines Management common stock changes before the closing of the merger?
A:No change will be made to the exchange ratio of 0.16220.2218 if the market price of shares of RevettMines Management common stock or shares of Hecla common stock changes before the closing of the merger.
Q: How will RevettMines Management stockholders receive the merger consideration to which they are entitled?
A:After receiving the proper documentation from you, following the effective datetime of the merger, the exchange agent will forward to you (if you are the holder of record) or to your broker, bank, trust company or other nominee (if your shares are held through such entity)(each, a “broker”) the shares of Hecla common stock and cash in lieu of fractional shares to which you are entitled. For additional information about the exchange of RevettMines Management shares of common stock for Hecla shares of common stock, see the section entitled “Proposal 1: The Approval and Adoption of the Merger Agreement—Exchange of Shares in the Merger” beginning on page 55.62.
You do not need to take any action at this time.Please do not send your Revett Mines Managementstock certificates with your proxy card.
Q: How does Hecla common stock differ from RevettMines Management common stock?
A:Your rights as a Hecla stockholder will be different than your rights as a RevettMines Management stockholder. A chart comparing your rights as a RevettMines Management stockholder to your rights as a Hecla stockholder is included in this proxy statement/prospectus. Please see “Comparative Rights of Hecla Stockholders and RevettMines Management Stockholders” beginning at page 7684 of this proxy statement/prospectus.
Q: Will the shares of Hecla common stock issued in connection with the Mergermerger be listed for trading on a stock exchange?
A:Hecla’s outstanding common stock is currently listed on the New York Stock Exchange (the “NYSE”). Hecla has filed an application to have the Hecla shares issued as part of the merger approved for listing on the NYSE upon notice of issuance.
Q: When does RevettMines Management expect the transaction to be completed?
A:Hecla and RevettMines Management are working to complete the merger as quickly as practicable and currently expect that it couldwill be completed in the secondthird quarter of 2015,2016, promptly after the special meeting.
Q: What are the material United StatesU.S. federal income tax consequences of the transaction?
A:RevettMines Management is not expected to recognize any gain or loss for U.S. federal income tax purposes as a result of the merger. RevettMines Management stockholders that are U.S. holders are not expected to recognize any gain or loss for U.S. federal income tax purposes upon the merger, except for any gain or loss attributable to the receipt of cash in lieu of fractional shares of Hecla common stock received in the merger.
The aggregate tax basis of the Hecla common stock received in the merger (including fractional shares deemed received and redeemed) will be equal to the aggregate adjusted tax basis of the shares of RevettMines Management common stock surrendered for the Hecla common stock, and the holding period of the Hecla common stock (including fractional shares deemed received and redeemed) will include the period during which the shares of RevettMines Management common stock were held.
RevettMines Management has received the opinion of Randall | Danskin, P.S.Davis Graham & Stubbs LLP that more likely than not, the merger will qualify as a tax-free reorganization described in Section 368 of the United StatedStates Internal Revenue Code of 1986, as amended (the “Code”). You are encouraged to read the opinion, which is attached as Appendix C. In addition, you should also read the discussion in the section entitled “Proposal 1: The Approval and Adoption of the Merger Agreement—Material U.S. Federal Income Tax Consequences of the Merger” on page 5360 of this proxy statement/prospectus and consult your own tax advisors as to the United StatesU.S. federal income tax consequences of the merger, as well as the effects of state, local and foreign tax laws.
Q: What vote of RevettMines Management stockholders is required to approve and adopt the Merger?merger?
A:Approval of theand adoption of the merger requires the affirmative vote of the holders of a majority of the outstanding sharesvotes cast by holders of RevettMines Management common stock. stock present in person or represented by proxy at the special meeting and entitled to vote on the proposal, and a quorum must be present at the special meeting.Only holders of record of RevettMines Management common stock at the close of business on [ ],July 5, 2016, which is referred to as the record date, are entitled to notice of and to vote at the special meeting. As of the record date, there were [39,273,989][●] shares of RevettMines Management common stock outstanding and entitled to vote at the special meeting.
Q: Are any stockholders already committed to vote in favor of the Merger?merger?
A:Yes. Pursuant to Shareholder Agreementsshareholders agreements with Hecla, Revett’sMines Management’s stockholder Urion Holdings (Malta) Limited, a wholly-owned, indirect subsidiary of Trafigura Beheer B.V. Van Heuven (collectively “Trafigura’),Silver Wheaton Corp. and the following directors and officers of Revett: John G. Shanahan, Kenneth S. Eickerman, Douglas Miller, Monique Hayes, Timothy Lindsey, Albert F. Appleton, Larry M. Okada, and John B. McCombe,Mines Management have each agreed to vote all of the shares of RevettMines Management common stock (as set forth in such shareholder’s shareholders agreement) that they directly, indirectly or beneficially own or control at the special meeting in favor of the merger. These shares representmerger: Glenn Dobbs, Douglas Dobbs, Nicole Altenburg, Russell Babcock, Roy Franklin and Robert Russell. Shares representing approximately 14.73%17.6% of the outstandingMines Management common stock (which include 1,472,621 shares of RevettMines Management common stock subject to currently exercisable options) are subject to the shareholders agreements as of the date of this proxy statement/prospectus. For a more complete description of the ShareholderShareholders Agreements, see “Proposal 1: The Approval and Adoption of the Merger Agreement—ShareholderShareholders Agreements” beginning at page 5764 of this proxy statement/prospectus. The form of ShareholderShareholders Agreement is also attached to this proxy statement/prospectus as Appendix D.
Q: Are there any risks to me in approving and adopting the Merger?merger?
A:Yes. You should carefully review the section entitled “Risk Factors” beginning on page 22 this proxy statement/prospectus.23.
Q: What happens if the Mergermerger is not completed?
A:If the merger is not approved and adopted by the RevettMines Management stockholders or the merger does not occur for any other reason, neither RevettMines Management nor its stockholders will receive any shares of Hecla common stock. Instead, RevettMines Management will remain an independent public company, and Revett’sMines Management’s common stock willmay continue to be quoted on the NYSE MKT and TSX. See “Risk Factors—Risk Factors Relating to Mines Management.” Further, if the merger does not occur under specified circumstances, RevettMines Management may be required to pay Hecla a termination fee and reimburse Hecla for its expenses incurred under the merger agreement as described underin the section entitled “Proposal 1: The Approval and Adoption of the Merger Agreement—The Merger Agreement—Termination Fees and Expenses” beginning on page 69. Revett78. Mines Management is experiencing severe financial challenges, and stockholders should carefully review the discussion of such challenges set forth in “Risk Factors—Risk Factors Relating to Revett—Liquidity Considerations and Going Concern”Mines Management” beginning on page 26,28 and elsewhere in this proxy statement/prospectus. If the merger is not completed, RevettMines Management would have to seek additional financing, which may well be unavailable, or consider other alternatives, including a bankruptcy filing.
Q: Am I entitled to appraisal or dissenters’ rights?
A:No. Under DelawareIdaho law, holders of RevettMines Management common stock will not be entitled to dissenters’ or appraisal rights. Therefore, holders of RevettMines Management common stock as of the record date that are against the merger may vote against approval and adoption of the merger agreement but may not exercise dissenters’ or appraisal rights. See “No Appraisal Rights” beginning on page 85.93.
Q: When and where will the special meeting of RevettMines Management stockholders be held?
A:The special meeting of RevettMines Management stockholders will be held at [ ],the Lincoln Building, 811 W. Riverside, 2nd floor conference room, Spokane, Valley, Washington 99201, on [ ], 2015,Wednesday, August 10, 2016, at [ ] a.m.2:00 p.m., local time.
Q: Who can attend and vote at the special meeting?
A:All RevettMines Management stockholders of record as of the close of business on the record date are entitled to receive notice of, to attend and to vote at the special meeting.
Q: How can I attend the special meeting?
A:All of Revett’sMines Management’s stockholders are invited to attend the special meeting. Please be prepared to provide identification, such as a driver’s license or passport, before being admitted to the special meeting. If you hold your shares in “street name,” that is, if you hold your shares in a stock brokerage account or if your shares are held by a broker, bank, trust company or other nominee (that is, in “street name”), you will need to provide proof of ownership to be admitted to the special meeting. A brokerage statement or letter from your broker bank, trust company or other nominee proving ownership of the shares on the record date for the special meeting are examples of proof of ownership. To help RevettMines Management plan for the special meeting, please indicate whether you expect to attend by responding affirmatively when prompted during Internet or telephone proxy submission or by marking the attendance box on your proxy card.
Q: What constitutes a quorum at the special meeting?
A:The presence, in person or by proxy, of the holders of not less than one-thirda majority of the voting power of the RevettMines Management common stock entitled to vote at the special meeting shall constitute a quorum for the transaction of business. The inspectors of election will treat abstentionsAbstentions and broker non-votes will be counted as shares that are present and entitled to vote for purposes of determining the presence ofestablishing a quorum. A broker non-vote occurs when a broker or other nominee that holds shares on behalf of a street name“street name” stockholder returns a valid proxy card, but does not vote on a particular matter because it does not have discretionary authority to vote on that particular matter and has not received voting instructions from the street name“street name” stockholder.
Q: What should I do now in order to vote on the proposals being considered at the special meeting?
A:RevettMines Management stockholders as of the record date may vote by proxy by
If you hold shares of RevettMines Management common stock in “street name,” which means that your shares are held of record by a broker, bank or other nominee, please refer to the voting instruction form used by your broker bank or other nominee to see how to vote your shares.
Additionally, you may also vote in person by attending the special meeting. If you plan to attend the special meeting and wish to vote in person, you will be given a ballot at the special meeting. Please note, however, that if your shares are held in “street name,”name” and you wish to vote at the special meeting, you must bring a proxy from the record holder of the shares authorizing you to vote at the special meeting. Whether or not you plan to attend the special meeting, you should submit your proxy card or voting instruction form as described in this proxy statement/prospectus.
Q: If my shares are held in “street name” by my broker, will my broker automatically vote my shares for me?
A: No. If you hold your shares in a stock brokerage account or if your shares are held by a broker bank, trust company or other nominee (that is, in “street name”), your broker bank, trust company or other nominee (“broker”) cannot vote your shares on any of the proposals to be considered at the special
meeting as all such proposals are “non-routine” matters. You should instruct your broker as to how to vote your shares, following the directions from your broker bank, trust company or other nominee provided to you. Please check the voting form used by your broker. If you do not provide your broker with instructions, your shares Revettof Mines Management common stock will not be voted on any proposal at the special meeting. Please note that you may not vote shares held in street name“street name” by returning a proxy card directly to RevettMines Management or by voting in person at the applicable special meeting unless you provide a legal proxy, which you must obtain from your broker.
Q: What will happen if I abstain from voting or fail to vote?
A:RevettMines Management cannot complete the merger unless its stockholders approve and adopt the merger agreement and the transactions contemplated thereby. Because approval and adoption is based on the affirmative vote of at least a majority of the outstanding sharesvotes cast by holders of RevettMines Management common stock present in person or represented by proxy at the special meeting and entitled to vote on the proposal, assuming a Revettquorum is present, a Mines Management stockholder’s failure to vote an abstention from voting or the failure of a RevettMines Management stockholder who holds his or her shares in “street name” through a broker to give voting instructions to such broker will have the sameno effect as a vote “AGAINST” adoption ofon the merger agreement.proposal, assuming a quorum is present. If a Mines Management stockholder marks his or her proxy or provides voting instructions to abstain, it will have no effect on the merger proposal, assuming a quorum is present.
Q: What will happen if I sign my proxy without specifying my voting preference?
A:If you submit a signed proxy without specifying the manner in which you would like your shares to be voted, your shares will be voted “FOR” the merger proposal, “FOR” the adjournment proposal and “FOR” the compensation proposal.
Q: Can I change my vote after I have delivered my proxy?
A:Yes. You can change your vote at any time before your proxy is voted at the special meeting. If you are a holder of record, you can do this in one of three ways:
Q: What happens if I transfer my shares of RevettMines Management stock before the special meeting?
A:The record date for the special meeting is earlier than both the date of the special meeting and the date that the merger is expected to be completed. If you transfer your RevettMines Management shares after the record date for the special meeting, you will retain your right to vote at the special meeting, but you will have transferred the right to receive the merger consideration in the merger. In order to receive the merger consideration, you must hold your shares through the effective datetime of the merger.
Q: What should I do if I receive more than one set of voting materials for the special meeting?
A:You may receive more than one set of voting materials for the special meeting, including multiple copies of this proxy statement/prospectus and multiple proxy cards or voting instruction forms. For example, if you hold
your shares in more than one brokerage account, you will receive a separate voting instruction form for each brokerage account in which you hold shares. If you are a holder of record and your shares are registered in more than one name, you will receive more than one proxy card. For each and every proxy card and voting instruction form that you receive, please vote as soon as possible by completing, signing, dating and returning the enclosed proxy card in the postage-prepaid envelope enclosed for that purpose.purpose or by accessing the Internet website or by calling the toll-free number specified on your proxy cards.
Q: Who can help answer my questions?
A:If you have any questions about the merger or the merger agreement or how to submit your proxy, or if you need additional copies of this proxy statement/prospectus or the enclosed proxy card or voting instructions, you should contact:
Investor Relations
Spokane, (509) | Hecla Mining Company Investor Relations 6500 N. Mineral Drive, Suite 200 Coeur d’Alene, Idaho 83815-9408 (208) 769-4100 | |
or | ||
Morrow & Co., LLC 470 West Ave. – 3rd Floor Stamford, CT 06902 Stockholders call: (877) 787-9239 Banks and Brokers call: (203) 658-9400 |
CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS
This proxy statement/prospectus and the information incorporated by reference herein contains numerous forward-looking statements within the meaning of Section 27A of the Securities Act and Section 21E of the Exchange Act, including statements relating to the financial condition, results of operations, business strategies, operating efficiencies or synergies, projected timetable, expected tax treatment of the transaction, competitive positions, growth opportunities, plans and objectives of the management of each of Hecla and Revett,Mines Management, the merger and other transactions contemplated by the merger agreement, the markets for Hecla and RevettMines Management common stock and other matters. Such forward-looking statements may be identified by the use of words such as “believes,” “intends,” “expects,” “hopes,” “may,” “should,” “will,” “plan,” “projected,” “contemplates,” “anticipates” or similar words. Such forward-looking statements involve known and unknown risks, uncertainties and other factors which may cause actual results, performance or achievements to be materially different from any future results, performance or achievements expressed or implied by the forward-looking statements. The factors that could cause actual results to differ materially from those projected in the forward-looking statements include but are not limited to:
Given these risks and uncertainties, readers are cautioned not to place undue reliance on forward-looking statements. Projections and other forward-looking statements included in this proxy statement/prospectus have been prepared based on assumptions, which Hecla and RevettMines Management believe to be reasonable, but not in
accordance with United States generally accepted accounting principles (“GAAP”) or any guidelines of the SEC. Actual results may vary, perhaps materially. You are strongly cautioned not to place undue reliance on such projections and otherforward-looking statements. All subsequent written and oral forward-looking statements attributable to Hecla, Revett,Mines Management or to persons acting on each of their behalf are expressly qualified in their entirety by these cautionary statements. Except as required by federal securities laws, Hecla and RevettMines Management each disclaim any intention or obligation to update or revise any forward-looking statements, whether as a result of new information, future events or otherwise.
This summary highlights selected information from this proxy statement/prospectus. You are urged to read carefully the entire proxy statement/prospectus and the other documents referred to in this proxy statement/prospectus because the information in this section does not provide all of the information that might be important to you with respect to the merger agreement, the merger and the other matters being considered at the special meeting. See “Where You Can Find More Information” beginning on page 111.105. Each item in this summary refers to the page of this proxy statement/prospectus on which that subject is discussed in more detail.
Hecla.Hecla Mining Company is a Delaware corporation with its shares of common stock traded on the NYSE under the symbol “HL.” Hecla is a U.S.-based precious and base metals mining company engaged in the exploration, acquisition, development, production and marketing of silver, gold, lead and zinc. Incorporated inIn business since 1891, Hecla is among the oldest U.S.-based precious metals mining companies and one of the lowest-cost primary silver producers in North America.companies. Hecla produces both metal concentrates, which it sells to smelters, and unrefined gold and silver bullion bars (doré), which is either sold as doré or refined before sale to precious metals traders. Hecla’s executive offices are located at 6500 N. Mineral Drive, Suite 200, Coeur d’Alene, Idaho 83815-9408, and its telephone number is (208) 769-4100.
Revett.Merger Sub.Revett Mining Company,HL Idaho Corp. is an Idaho corporation and a wholly-owned subsidiary of Hecla. Upon completion of the merger, Merger Sub will be merged with and into Mines Management, with Mines Management surviving as a wholly-owned subsidiary of Hecla. Merger Sub has not conducted any significant activities other than those incidental to its formation and the matters contemplated by the merger agreement in connection with the merger.
Mines Management.Mines Management, Inc. (formerly known as Revett Minerals Inc.)is engaged in the business of acquiring and exploring, and if exploration is successful, developing, mineral properties, primarily those containing silver and associated base and precious metals. Mines Management was incorporated under the laws of the State of Idaho on February 20, 1947. Mines Management’s principal mineral property interest, the Montanore Project, is held by its wholly-owned subsidiaries, Newhi, Inc. and Montanore Minerals Corp. Mines Management’s properties, including the Montanore Project, are currently in Canada in August 2004 to acquire Revett Silver Company and undertake a public offeringthe exploration stage; none of its common shares, transactions that were completedproperties are currently in February 2005. Revett Silver Company, a Montana corporation, was organized in April 1999 to acquire the Troy mine (“Troy”) and the Rock Creek project (“Rock Creek”) from ASARCO Incorporated and Kennecott Montana Company, transactions that were completed in October 1999 and February 2000.production.
Revett changed its jurisdiction of incorporation (from Canada to Delaware) and its name (from Revett Minerals to Revett Mining Company) in February 2014. Revett presently conducts business through four Montana corporations, all subsidiaries of its wholly-owned subsidiary Revett Silver Company: Troy Mine, Inc., RC Resources, Inc., Revett Exploration, Inc. and Revett Holdings, Inc.
Revett’s common stockThe Montanore Project is traded on the NYSE MKT and on the Toronto Stock Exchange under the symbol “RVM”.
Troy is an underground silver and copper mine located in northwestern Montana. ASARCO Incorporated operatedMontana and from 1988 to 2002 was owned by Noranda Minerals Corporation (“Noranda”). During that time the mine from 1981project received an approved Environmental Impact Statement (“EIS”), Record of Decision (“ROD”) and all of its primary environmental permits, and conducted pre-evaluation construction activities on the property. From 1988 to 1993, and then placed it on care and maintenance because of low metals prices. Revett restarted mining operations in late 2004 and commenced commercial production in early 2005. Revett operated Troy continuously until December 2012, when operations were suspended due2002, Mines Management held royalty rights to unstable ground conditions in portionsa portion of the mine.deposit. In November 2013, Revett commenced construction of a new access decline from2002, Noranda announced that it was abandoning the main service aditproject, and subsequently transferred to Mines Management by quitclaim deed the patented and unpatented mining claims that control the mineral rights, and all drill core and intellectual property including geologic, environmental and engineering studies, relating to the North C Bed and to the undeveloped I Bed, and Revett successfully reached the North C Beds and resumed limited mining and milling operations in the fourth quarter of 2014. Despite these achievements, Revett was compelled to place Troy on care and maintenance in January 2015 due to low metals prices. This resulted in the cessation of development work to the I Beds, an orderly shutdown of milling operations and the transition to care and maintenance status, which were completed in February 2015. Although Revett took significant steps to improve its liquidity during the first quarter of 2014, it currently does not have sufficient cash on hand to re-start mining and milling operations or complete development to the I Beds. Montanore Project.
If the merger described in this proxy statement/prospectus is not consummated, RevettMines Management will necessarily havebe required to seek additional capital or consider other alternatives, which could include liquidating some or all of its assets in order to fund its capital spendingliquidity requirements. Bankruptcy is also a possibility. There is no assurance Revett’sMines Management’s financing efforts willwould be successful under current market conditions. Revett’s business has been materially
Mines Management common stock is currently listed for trading on the NYSE MKT under the symbol “MGN” and adversely affected by the decline in copper and silver prices and byTSX under the suspension of commercial mining operations at Troy.symbol “MGT.”
Rock Creek is a large development-stage silverMines Management’s executive offices and copper deposit also located in northwestern Montana. Revett has been engaged in permitting activities at Rock Creek since 1999, and expects to obtain final government agency approvals within the next eighteen months. Once Revett receives allprincipal place of the required permits, it will begin an extensive evaluation program to confirm and further define the economic and technical viability of the project.
Revett’s principal executive office isbusiness are located at 11115 East Montgomery,905 West Riverside Avenue, Suite G,311, Spokane, Valley, Washington 99206,99201, and its telephone number at that address is (509) 921-2294. Revett’s838-6050. Mines Management’s registered officeagent in DelawareIdaho is located at is 1209 Orange Street, Wilmington, Delaware 19801.921 S. Orchard St., Suite G, Boise, Idaho 83705.
Additional information about RevettMines Management and its subsidiaries is set forth under “Information Regarding Revett”Mines Management” beginning on page 87.94.
Subject to the terms and conditions of the merger agreement and in accordance with DelawareIdaho law, the merger agreement provides for the merger of Merger Sub with and into Revett. RevettMines Management. Mines Management will survive the merger and become a wholly-owned subsidiary of Hecla.
Merger Consideration (See page 55)66)
The Merger Agreementmerger agreement provides that, at the effective time, each share of RevettMines Management common stock issued and outstanding or deemed issued and outstanding as of immediately prior to the effective time (excluding shares of RevettMines Management common stock that are owned immediately prior to the effective time by Revett,Mines Management, Hecla, Merger Sub or any of their respective subsidiaries, which will be cancelled and cease to exist) will be converted into the right to receive 0.16220.2218 of a share of Hecla common stock (the “Merger Consideration”).stock.
Treatment of Options and Warrants (See page 55)66)
Stock Options. At the effective time, each option to purchase shares of RevettMines Managementcommon stock that is outstanding immediately prior to the effective time that has an exercise price per share greater than or equal to the product of the closing price of Hecla common stock on the NYSE on the trading day immediately preceding the closing date and 0.2218 will be cancelled without any payment being made in respect thereof. At the effective time, each other option to purchase shares of Mines Management common stock that is outstanding immediately prior to the effective time (whether or not(all of which are vested) that has anwill be cancelled in exchange for the right to receive shares of Hecla common stock (without interest, and subject to deduction for any required withholding tax, with cash being paid in lieu of issuing fractional shares of Hecla common stock) with a value equal to (i)(a) the product of the closing price of Hecla common stock on the NYSE on the trading day immediately preceding the closing date and 0.2218 minus (b) the exercise price per share greater thanunder such option multiplied by (ii) the merger consideration (which isnumber of shares subject to such option. At the caseoption of Hecla, in lieu of paying all or a portion of the amounts due to a holder of options, Hecla may substitute for all currently outstanding options) will be cancelled without any payment being madesuch shares an equivalent amount in respect thereof, in accordance with the provisions of that plan.cash.
Warrants. At the effective time, and in accordance with the terms of eachany warrant to purchase shares of Revett commonMines Managementcommon stock that is outstanding immediately prior to the effective time, (each a “Warrant” and collectively, the “Warrants”), Heclasuch warrant will issueeither be cancelled in accordance with its terms or a replacement warrant to each holder thereof that will be exercisable forissued giving the holder the right to purchase a number of shares of Hecla common stock (without interest, and subject to deduction for any required withholding tax, and no issuance of fractional shares and the number of such shares rounded down) equal to the product of (i) 0.16220.2218 and (ii) the number of shares of Revett subjectMines Managementcommon stocksubject to such Warrant,warrant, with an exercise price of $6.17$4.8765 per share of Hecla common stock, pursuant to and in accordance with such holder’s Warrantwarrants (as amended).
The Special Meeting; Stockholders Entitled to Vote; Required Vote (See page 33)35)
Meeting. The special meeting will be held at [ ],the Lincoln Building, 811 W. Riverside, 2nd floor conference room, Spokane, Washington 99201 on [ ], 2015,Wednesday, August 10, 2016, at [ ]2:00 p.m., local time. At the special meeting, RevettMines Management stockholders will be asked to vote on the following proposals:
Stockholders Entitled to Vote. Only RevettMines Management stockholders of record at the close of business on [ ], 2015July 5, 2016 will be entitled to receive notice of and to vote at the special meeting. As of the close of business on the record date of [ ], 2015,July 5, 2016, there were [39,273,989][●] shares of RevettMines Management common stock outstanding and entitled to vote at the meeting. Each holder of RevettMines Management common stock is entitled to one vote for each share of common stock owned as of the record date. As of the close of business on the record date of July 5, 2016, Mines Management’s directors and executive officers had the right to vote approximately [●] shares of the then-outstanding Mines Management common stock at the special meeting, collectively representing approximately [●]% of Mines Management common stock outstanding and entitled to vote at the special meeting.
Required Vote To adopt the merger agreement
Hecla Mining Company
Investor Relations
6500 N. Mineral Drive, Suite 200
Coeur d’Alene, Idaho 83815-9408
(208) 769-4100
Mines Management, Inc.
Investor Relations
905 West Riverside Avenue, Suite 311
Spokane, Washington 99201
(509) 838-6050
or
Morrow & Co., LLC
470 West Ave. – 3rd Floor
Stamford, CT 06902
Stockholders call: (877) 787-9239
Banks and the transactions contemplated thereby, holders of at least a majority of the outstanding shares of Revett common stock must vote in favor of such adoption. Revett cannot complete the merger unless itsBrokers call: (203) 658-9400
To receive timely delivery of the requested documents in advance of the special meeting, you should make your request no later than [●], 2016.
ABOUT THIS DOCUMENT
This document, which forms part of a registration statement on Form S-4 filed with the SEC by Hecla (File No. 333-[●]), constitutes a prospectus of Hecla under Section 5 of the Securities Act of 1933, as amended (the “Securities Act”), with respect to the shares of Hecla common stock to be issued pursuant to the Agreement and Plan of Merger, dated as of May 23, 2016, by and among Hecla, Merger Sub and Mines Management, as amended on June 29, 2016 and as it may be further amended from time to time. This document also constitutes a notice of meeting and a proxy statement under Section 14(a) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), with respect to the special meeting of Mines Management stockholders, at which Mines Management stockholders will be asked to consider and vote on, among other matters, a proposal to approve and adopt the merger agreement and the transactions contemplated thereby.
You should rely only on the information contained in or incorporated by reference into this proxy statement/prospectus. No one has been authorized to provide you with information that is different from that contained in, or incorporated by reference into, this proxy statement/prospectus. This proxy statement/prospectus is dated July [●], 2016. The information contained in this proxy statement/prospectus is accurate only as of that date or, in the case of information in a document incorporated by reference, as of the date of such document, unless the information specifically indicates that another date applies. Neither the mailing of this proxy statement/prospectus to Mines Management stockholders nor the issuance by Hecla of its common stock pursuant to the merger agreement will create any implication to the contrary.
This proxy statement/prospectus does not constitute an offer to sell, or a solicitation of an offer to buy, any securities, or the solicitation of a proxy, in any jurisdiction in which, or from any person to whom, it is unlawful to make any such offer or solicitation in such jurisdiction.
The information concerning Hecla contained in this proxy statement/prospectus or incorporated by reference has been provided by Hecla, and the information concerning Mines Management contained in this proxy statement/prospectus has been provided by Mines Management.
Unless otherwise indicated or as the context otherwise requires, all references in this proxy statement/prospectus to:
In addition, unless otherwise indicated or as the context otherwise requires, all references in this proxy statement/prospectus to:
Guide 7 Definitions
Additional Definitions
“siltite” means an indurated silt having the texture and composition of shale but lacking its fine lamination or fissility; a massive mudstone in which the silt predominates over clay; a nonfissile silt
1 | ||||
8 | ||||
11 | ||||
11 | ||||
12 | ||||
12 | ||||
12 | ||||
The Special Meeting; Stockholders Entitled to Vote; Required Vote | 13 | |||
13 | ||||
14 | ||||
| 14 | |||
14 | ||||
Opinion of the Financial Advisor to | 14 | |||
| 15 | |||
| 15 | |||
Interests of Directors and | 15 | |||
| 15 | |||
| 15 | |||
16 | ||||
16 | ||||
17 | ||||
19 | ||||
19 | ||||
19 | ||||
21 | ||||
22 | ||||
23 | ||||
Risk Factors Relating to the | 23 | |||
26 | ||||
28 | ||||
33 | ||||
33 | ||||
33 | ||||
33 | ||||
35 | ||||
35 | ||||
35 | ||||
35 | ||||
35 | ||||
36 | ||||
36 | ||||
36 | ||||
36 | ||||
36 | ||||
37 | ||||
37 | ||||
| 37 | |||
38 | ||||
38 |
i
PROPOSAL 1: THE APPROVAL AND ADOPTION OF THE MERGER AGREEMENT | 39 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Proposal 1: The Approval and Adoption of the Merger | 39 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
39 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
39 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Recommendation of Mines Management’s Board of Directors; Mines Management’s Reasons for the Merger | 46 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
49 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
57 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Interests of Mines Management’s Directors and Named Executive Officers in the Merger | 58 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
60 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Board of Directors and Management of Mines Management Following the Merger | 60 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
60 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
62 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| 62 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
62 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
63 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| 63 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
64 |
64 | 65 | PROPOSAL 2: POSSIBLE ADJOURNMENT TO SOLICIT ADDITIONAL PROXIES, IF NECESSARY OR APPROPRIATE 81 | 82 | 83 | COMPARATIVE RIGHTS OF HECLA STOCKHOLDERS AND MINES MANAGEMENT STOCKHOLDERS 84 | 93 | 93 | 93 | 94 | 94 | 94 | 99 | 99 | 99 | 100 | 101 | Quantitative and 103 | 103 | 105 | 105 | 105 | F-1 | A-1 | B-1 | C-1 | D-1 | |
ii
Set forth below are questions that you, as a stockholder of Mines Management, may have regarding the merger, the adjournment proposal, the compensation proposal and the special meeting, and brief answers to those questions. You are urged to read carefully this proxy statement/prospectus and the other documents referred to in this proxy statement/prospectus in their entirety, including the merger agreement, which is attached as Appendix A to this proxy statement/prospectus, and the documents incorporated by reference into this proxy statement/prospectus, because this section may not provide all of the information that is important to you with respect to the merger and the special meeting. You may obtain a list of the documents incorporated by reference into this proxy statement/prospectus in the section titled “Where You Can Find More Information” beginning on page 105.
Q: Why am I receiving this proxy statement/prospectus?
A:Mines Management and Hecla have agreed to a merger, pursuant to which Mines Management will merge with Merger Sub, a wholly-owned subsidiary of Hecla. Mines Management will continue its existence as the surviving entity and become a wholly-owned subsidiary of Hecla, but will cease to be a publicly traded company. This transaction is sometimes referred to throughout this proxy statement/prospectus as the “merger.” Please see “Proposal 1: The Approval and Adoption of the Merger Agreement—Effects of the Merger” on page 39 of this proxy statement/prospectus and “Proposal 1: The Approval and Adoption of the Merger Agreement—The Merger Agreement” on page 65 of this proxy statement/prospectus. A copy of the merger agreement is attached to this proxy statement/prospectus as Appendix A.
In order to complete the merger, Mines Management stockholders must vote to approve and adopt the merger agreement. Mines Management is holding a special meeting of its stockholders to obtain such stockholder approval and adoption. Mines Management stockholders will also be asked to approve, on an advisory (non-binding) basis, the payments that will or may be paid by Mines Management to its named executive officers in connection with the merger.
In the merger, Hecla will issue shares of its common stock as the consideration to be paid to holders of Mines Management common stock. This document is being delivered to you as both a proxy statement of Mines Management and a prospectus of Hecla in connection with the merger. It is the proxy statement by which the board of directors of Mines Management is soliciting proxies from you to vote on the approval and adoption of the merger agreement and the transactions contemplated thereby at the special meeting or at any adjournment or postponement of the special meeting. It is also the prospectus by which Hecla is offering the shares of Hecla common stock it will issue to you in the merger.
Q: How does the board of directors of Mines Management recommend that its stockholders vote?
A:Mines Management’s board of directors unanimously approved, adopted and declared advisable the merger agreement and the merger, directed that the merger agreement be submitted to the stockholders of Mines Management for approval and adoption and determined that the terms of the merger agreement and the merger are advisable and in the best interests of Mines Management’s stockholders. The Mines Management board of directors accordingly unanimously recommends that the Mines Management stockholders vote “FOR” each of the merger proposal, the adjournment proposal and the compensation proposal. See “Proposal 1: The Approval and Adoption of the Merger Agreement—Recommendation of Mines Management’s Board of Directors; Mines Management’s Reasons for the Merger” beginning on page 46 of this proxy statement/prospectus.
Q: Am I being asked to vote on anything else?
A:Yes. Mines Management’s board of directors is asking you to consider and vote on the adjournment proposal and the compensation proposal. See “Proposal 2: Possible Adjournment to Solicit Additional Proxies If
Necessary or Appropriate” on page 81 of this proxy statement/prospectus and “Proposal 3: Advisory (Non-Binding) Vote on Compensation” beginning on page 82 of this proxy statement/prospectus.
Q: Why are Mines Management stockholders being asked to approve, on a non-binding advisory basis, the compensation that may be paid or become payable to Mines Management’s named executive officers in connection with the completion of the merger?
A: The rules promulgated by the SEC under Section 14A of the Exchange Act require Mines Management to seek a non-binding, advisory vote with respect to certain compensation that may be paid or become payable to Mines Management’s named executive officers in connection with the merger. For more information regarding such payments, see the section entitled “Proposal 3: Advisory (Non-Binding) Vote on Compensation” beginning on page 82.
Q: What will Mines Management stockholders receive in the transaction?
A:If the transaction is completed, holders of Mines Management common stock will be entitled to receive 0.2218 of a share of Hecla common stock for each share of Mines Management common stock they hold at the effective time. Any stockholders entitled to receive a fractional share of Hecla common stock shall receive cash in lieu of such fractional share. This exchange ratio is fixed and will not be adjusted to reflect stock price changes prior to the closing of the merger. Following the completion of the merger, Mines Management common stock will cease to trade on the NYSE MKT LLC (“NYSE MKT”) and the Toronto Stock Exchange (“TSX”).
Q: What will happen to outstanding Mines Management options and warrants in the merger?
A:At the effective time, each option to purchase shares of Mines Managementcommon stock that is outstanding immediately prior to the effective time that has an exercise price per share greater than or equal to the product of the closing price of Hecla common stock on the NYSE on the trading day immediately preceding the closing date and 0.2218 will be cancelled without any payment being made in respect thereof. At the effective time, each other option to purchase shares of Mines Management common stock that is outstanding immediately prior to the effective time (all of which are vested) will be cancelled in exchange for the right to receive shares of Hecla common stock (without interest, and subject to deduction for any required withholding tax, with cash being paid in lieu of issuing fractional shares of Hecla common stock) with a value equal to (i)(a) the product of the closing price of Hecla common stock on the NYSE on the trading day immediately preceding the closing date and 0.2218 minus (b) the exercise price per share under such option multiplied by (ii) the number of shares subject to such option. At the option of Hecla, in lieu of paying all or a portion of the amounts due to a holder of options with shares of Hecla common stock, Hecla may substitute for such shares an equivalent amount in cash.
At the effective time, and in accordance with the terms of any warrant to purchase shares of Mines Managementcommon stock that is outstanding immediately prior to the effective time, such warrant will either be cancelled in accordance with its terms or a replacement warrant will be issued giving the holder the right to purchase a number of shares of Hecla common stock (without interest, and subject to deduction for any required withholding tax, and no issuance of fractional shares and the number of such shares rounded down) equal to the product of (i) 0.2218 and (ii) the number of shares of Mines Management common stocksubject to such warrant, with an exercise price of $4.8765 per share of Hecla common stock, pursuant to and in accordance with such holder’s warrant (as amended).
Q: What happens if the market price of shares of Hecla common stock or shares of Mines Management common stock changes before the closing of the merger?
A:No change will be made to the exchange ratio of 0.2218 if the market price of shares of Mines Management common stock or shares of Hecla common stock changes before the closing of the merger.
Q: How will Mines Management stockholders receive the merger consideration to which they are entitled?
A:After receiving the proper documentation from you, following the effective time of the merger, the exchange agent will forward to you (if you are the holder of record) or to your broker, bank, trust company or other nominee (each, a “broker”) the shares of Hecla common stock and cash in lieu of fractional shares to which you are entitled. For additional information about the exchange of Mines Management shares of common stock for Hecla shares of common stock, see the section entitled “Proposal 1: The Approval and Adoption of the Merger Agreement—Exchange of Shares in the Merger” beginning on page 62.
You do not need to take any action at this time.Please do not send your Mines Managementstock certificates with your proxy card.
Q: How does Hecla common stock differ from Mines Management common stock?
A:Your rights as a Hecla stockholder will be different than your rights as a Mines Management stockholder. A chart comparing your rights as a Mines Management stockholder to your rights as a Hecla stockholder is included in this proxy statement/prospectus. Please see “Comparative Rights of Hecla Stockholders and Mines Management Stockholders” beginning at page 84 of this proxy statement/prospectus.
Q: Will the shares of Hecla common stock issued in connection with the merger be listed for trading on a stock exchange?
A:Hecla’s outstanding common stock is currently listed on the New York Stock Exchange (the “NYSE”). Hecla has filed an application to have the Hecla shares issued as part of the merger approved for listing on the NYSE upon notice of issuance.
Q: When does Mines Management expect the transaction to be completed?
A:Hecla and Mines Management are working to complete the merger as quickly as practicable and currently expect that it will be completed in the third quarter of 2016, promptly after the special meeting.
Q: What are the material U.S. federal income tax consequences of the transaction?
A:Mines Management is not expected to recognize any gain or loss for U.S. federal income tax purposes as a result of the merger. Mines Management stockholders that are U.S. holders are not expected to recognize any gain or loss for U.S. federal income tax purposes upon the merger, except for any gain or loss attributable to the receipt of cash in lieu of fractional shares of Hecla common stock received in the merger.
The aggregate tax basis of the Hecla common stock received in the merger (including fractional shares deemed received and redeemed) will be equal to the aggregate adjusted tax basis of the shares of Mines Management common stock surrendered for the Hecla common stock, and the holding period of the Hecla common stock (including fractional shares deemed received and redeemed) will include the period during which the shares of Mines Management common stock were held.
Mines Management has received the opinion of Davis Graham & Stubbs LLP that the merger will qualify as a tax-free reorganization described in Section 368 of the United States Internal Revenue Code of 1986, as amended (the “Code”). You are encouraged to read the opinion, which is attached as Appendix C. In addition, you should also read the discussion in the section entitled “Proposal 1: The Approval and Adoption of the Merger Agreement—Material U.S. Federal Income Tax Consequences of the Merger” on page 60 of this proxy statement/prospectus and consult your own tax advisors as to the U.S. federal income tax consequences of the merger, as well as the effects of state, local and foreign tax laws.
Q: What vote of Mines Management stockholders is required to approve and adopt the merger?
A:Approval and adoption of the merger requires the affirmative vote of a majority of the votes cast by holders of Mines Management common stock present in person or represented by proxy at the special meeting and entitled to vote on the proposal, and a quorum must be present at the special meeting.Only holders of record of Mines Management common stock at the close of business on July 5, 2016, which is referred to as the record date, are entitled to notice of and to vote at the special meeting. As of the record date, there were [●] shares of Mines Management common stock outstanding and entitled to vote at the special meeting.
Q: Are any stockholders already committed to vote in favor of the merger?
A:Yes. Pursuant to shareholders agreements with Hecla, Mines Management’s stockholder Silver Wheaton Corp. and the following directors and officers of Mines Management have each agreed to vote the shares of Mines Management common stock (as set forth in such shareholder’s shareholders agreement) that they directly, indirectly or beneficially own or control at the special meeting in favor of the merger: Glenn Dobbs, Douglas Dobbs, Nicole Altenburg, Russell Babcock, Roy Franklin and Robert Russell. Shares representing approximately 17.6% of Mines Management common stock (which include 1,472,621 shares of Mines Management common stock subject to currently exercisable options) are subject to the shareholders agreements as of the date of this proxy statement/prospectus. For a more complete description of the Shareholders Agreements, see “Proposal 1: The Approval and Adoption of the Merger Agreement—Shareholders Agreements” beginning at page 64 of this proxy statement/prospectus. The form of Shareholders Agreement is also attached to this proxy statement/prospectus as Appendix D.
Q: Are there any risks to me in approving and adopting the merger?
A:Yes. You should carefully review the section entitled “Risk Factors” beginning on page 23.
Q: What happens if the merger is not completed?
A:If the merger is not approved and adopted by the Mines Management stockholders or the merger does not occur for any other reason, neither Mines Management nor its stockholders will receive any shares of Hecla common stock. Instead, Mines Management will remain an independent public company, and Mines Management’s common stock may continue to be quoted on the NYSE MKT and TSX. See “Risk Factors—Risk Factors Relating to Mines Management.” Further, if the merger does not occur under specified circumstances, Mines Management may be required to pay Hecla a termination fee and reimburse Hecla for its expenses incurred under the merger agreement as described in the section entitled “Proposal 1: The Approval and Adoption of the Merger Agreement—The Merger Agreement—Termination Fees and Expenses” beginning on page 78. Mines Management is experiencing severe financial challenges, and stockholders should carefully review the discussion of such challenges set forth in “Risk Factors—Risk Factors Relating to Mines Management” beginning on page 28 and elsewhere in this proxy statement/prospectus. If the merger is not completed, Mines Management would have to seek additional financing, which may be unavailable, or consider other alternatives, including a bankruptcy filing.
Q: Am I entitled to appraisal or dissenters’ rights?
A:No. Under Idaho law, holders of Mines Management common stock will not be entitled to dissenters’ or appraisal rights. Therefore, holders of Mines Management common stock as of the record date that are against the merger may vote against approval and adoption of the merger agreement but may not exercise dissenters’ or appraisal rights. See “No Appraisal Rights” beginning on page 93.
Q: When and where will the special meeting of Mines Management stockholders be held?
A:The special meeting of Mines Management stockholders will be held at the Lincoln Building, 811 W. Riverside, 2nd floor conference room, Spokane, Washington 99201, on Wednesday, August 10, 2016, at 2:00 p.m., local time.
Q: Who can attend and vote at the special meeting?
A:All Mines Management stockholders of record as of the close of business on the record date are entitled to receive notice of, to attend and to vote at the special meeting.
Q: How can I attend the special meeting?
A:All of Mines Management’s stockholders are invited to attend the special meeting. Please be prepared to provide identification, such as a driver’s license or passport, before being admitted to the special meeting. If you hold your shares in “street name,” that is, if you hold your shares in a stock brokerage account or if your shares are held by a broker, you will need to provide proof of ownership to be admitted to the special meeting. A brokerage statement or letter from your broker proving ownership of the shares on the record date for the special meeting are examples of proof of ownership. To help Mines Management plan for the special meeting, please indicate whether you expect to attend by responding affirmatively when prompted during Internet or telephone proxy submission or by marking the attendance box on your proxy card.
Q: What constitutes a quorum at the special meeting?
A:The presence, in person or by proxy, of the holders of a majority of the voting power of the Mines Management common stock entitled to vote at the special meeting shall constitute a quorum for the transaction of business. Abstentions and broker non-votes will be counted as present and entitled to vote for purposes of establishing a quorum. A broker non-vote occurs when a broker that holds shares on behalf of a “street name” stockholder returns a valid proxy card, but does not vote on a particular matter because it does not have discretionary authority to vote on that particular matter and has not received voting instructions from the “street name” stockholder.
Q: What should I do now in order to vote on the proposals being considered at the special meeting?
A:Mines Management stockholders as of the record date may vote by proxy by
If you hold shares of Mines Management common stock in “street name,” which means that your shares are held of record by a broker, please refer to the voting instruction form used by your broker to see how to vote your shares.
Additionally, you may also vote in person by attending the special meeting. If you plan to attend the special meeting and wish to vote in person, you will be given a ballot at the special meeting. Please note, however, that if your shares are held in “street name” and you wish to vote at the special meeting, you must bring a proxy from the record holder of the shares authorizing you to vote at the special meeting. Whether or not you plan to attend the special meeting, you should submit your proxy card or voting instruction form as described in this proxy statement/prospectus.
Q: If my shares are held in “street name” by my broker, will my broker automatically vote my shares for me?
A: No. If you hold your shares in a stock brokerage account or if your shares are held by a broker (that is, in “street name”), your broker cannot vote your shares on any of the proposals to be considered at the special
meeting as all such proposals are “non-routine” matters. You should instruct your broker as to how to vote your shares, following the directions from your broker provided to you. Please check the voting form used by your broker. If you do not provide your broker with instructions, your shares of Mines Management common stock will not be voted on any proposal at the special meeting. Please note that you may not vote shares held in “street name” by returning a proxy card directly to Mines Management or by voting in person at the special meeting unless you provide a legal proxy, which you must obtain from your broker.
Q: What will happen if I abstain from voting or fail to vote?
A:Mines Management cannot complete the merger unless its stockholders approve and adopt the merger agreement and the transactions contemplated thereby. Because approval and adoption is based on the affirmative vote of a majority of the votes cast by holders of Mines Management common stock present in person or represented by proxy at the special meeting and entitled to vote on the proposal, assuming a quorum is present, a Mines Management stockholder’s failure to vote or the failure of a Mines Management stockholder who holds his or her shares in “street name” through a broker to give voting instructions to such broker will have no effect on the merger proposal, assuming a quorum is present. If a Mines Management stockholder marks his or her proxy or provides voting instructions to abstain, it will have no effect on the merger proposal, assuming a quorum is present.
Q: What will happen if I sign my proxy without specifying my voting preference?
A:If you submit a signed proxy without specifying the manner in which you would like your shares to be voted, your shares will be voted “FOR” the merger proposal, “FOR” the adjournment proposal and “FOR” the compensation proposal.
Q: Can I change my vote after I have delivered my proxy?
A:Yes. You can change your vote at any time before your proxy is voted at the special meeting. If you are a holder of record, you can do this in one of three ways:
Q: What happens if I transfer my shares of Mines Management stock before the special meeting?
A:The record date for the special meeting is earlier than both the date of the special meeting and the date that the merger is expected to be completed. If you transfer your Mines Management shares after the record date for the special meeting, you will retain your right to vote at the special meeting, but you will have transferred the right to receive the merger consideration in the merger. In order to receive the merger consideration, you must hold your shares through the effective time of the merger.
Q: What should I do if I receive more than one set of voting materials for the special meeting?
A:You may receive more than one set of voting materials for the special meeting, including multiple copies of this proxy statement/prospectus and multiple proxy cards or voting instruction forms. For example, if you hold
your shares in more than one brokerage account, you will receive a separate voting instruction form for each brokerage account in which you hold shares. If you are a holder of record and your shares are registered in more than one name, you will receive more than one proxy card. For each and every proxy card and voting instruction form that you receive, please vote as soon as possible by completing, signing, dating and returning the enclosed proxy card in the postage-prepaid envelope enclosed for that purpose or by accessing the Internet website or by calling the toll-free number specified on your proxy cards.
Q: Who can help answer my questions?
A:If you have any questions about the merger or the merger agreement or how to submit your proxy, or if you need additional copies of this proxy statement/prospectus or the enclosed proxy card or voting instructions, you should contact:
CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS
This proxy statement/prospectus and the information incorporated by reference herein contains numerous forward-looking statements within the meaning of Section 27A of the Securities Act and Section 21E of the Exchange Act, including statements relating to the financial condition, results of operations, business strategies, operating efficiencies or synergies, projected timetable, expected tax treatment of the transaction, competitive positions, growth opportunities, plans and objectives of the management of each of Hecla and Mines Management, the merger and other transactions contemplated by the merger agreement, the markets for Hecla and Mines Management common stock and other matters. Such forward-looking statements may be identified by the use of words such as “believes,” “intends,” “expects,” “hopes,” “may,” “should,” “will,” “plan,” “projected,” “contemplates,” “anticipates” or similar words. Such forward-looking statements involve known and unknown risks, uncertainties and other factors which may cause actual results, performance or achievements to be materially different from any future results, performance or achievements expressed or implied by the forward-looking statements. The factors that could cause actual results to differ materially from those projected in the forward-looking statements include but are not limited to:
Given these risks and uncertainties, readers are cautioned not to place undue reliance on forward-looking statements. Projections and other forward-looking statements included in this proxy statement/prospectus have been prepared based on assumptions, which Hecla and Mines Management believe to be reasonable, but not in
accordance with United States generally accepted accounting principles (“GAAP”) or any guidelines of the SEC. Actual results may vary, perhaps materially. You are strongly cautioned not to place undue reliance on such projections and other forward-looking statements. All subsequent written and oral forward-looking statements attributable to Hecla, Mines Management or to persons acting on each of their behalf are expressly qualified in their entirety by these cautionary statements. Except as required by federal securities laws, Hecla and Mines Management each disclaim any intention or obligation to update or revise any forward-looking statements, whether as a result of new information, future events or otherwise.
This summary highlights selected information from this proxy statement/prospectus. You are urged to read carefully the entire proxy statement/prospectus and the other documents referred to in this proxy statement/prospectus because the information in this section does not provide all of the information that might be important to you with respect to the merger agreement, the merger and the other matters being considered at the special meeting. See “Where You Can Find More Information” beginning on page 105. Each item in this summary refers to the page of this proxy statement/prospectus on which that subject is discussed in more detail.
Hecla.Hecla Mining Company is a Delaware corporation with its shares of common stock traded on the NYSE under the symbol “HL.” Hecla is a U.S.-based precious and base metals mining company engaged in the exploration, acquisition, development, production and marketing of silver, gold, lead and zinc. In business since 1891, Hecla is among the oldest U.S.-based precious metals mining companies. Hecla produces both metal concentrates, which it sells to smelters, and unrefined gold and silver bullion bars (doré), which is either sold as doré or refined before sale to precious metals traders. Hecla’s executive offices are located at 6500 N. Mineral Drive, Suite 200, Coeur d’Alene, Idaho 83815-9408, and its telephone number is (208) 769-4100.
Merger Sub.HL Idaho Corp. is an Idaho corporation and a wholly-owned subsidiary of Hecla. Upon completion of the merger, Merger Sub will be merged with and into Mines Management, with Mines Management surviving as a wholly-owned subsidiary of Hecla. Merger Sub has not conducted any significant activities other than those incidental to its formation and the matters contemplated by the merger agreement in connection with the merger.
Mines Management.Mines Management, Inc. is engaged in the business of acquiring and exploring, and if exploration is successful, developing, mineral properties, primarily those containing silver and associated base and precious metals. Mines Management was incorporated under the laws of the State of Idaho on February 20, 1947. Mines Management’s principal mineral property interest, the Montanore Project, is held by its wholly-owned subsidiaries, Newhi, Inc. and Montanore Minerals Corp. Mines Management’s properties, including the Montanore Project, are currently in the exploration stage; none of its properties are currently in production.
The Montanore Project is located in northwestern Montana and from 1988 to 2002 was owned by Noranda Minerals Corporation (“Noranda”). During that time the project received an approved Environmental Impact Statement (“EIS”), Record of Decision (“ROD”) and all of its primary environmental permits, and conducted pre-evaluation construction activities on the property. From 1988 to 2002, Mines Management held royalty rights to a portion of the deposit. In 2002, Noranda announced that it was abandoning the project, and subsequently transferred to Mines Management by quitclaim deed the patented and unpatented mining claims that control the mineral rights, and all drill core and intellectual property including geologic, environmental and engineering studies, relating to the Montanore Project.
If the merger described in this proxy statement/prospectus is not consummated, Mines Management will be required to seek additional capital or consider other alternatives, which could include liquidating some or all of its assets in order to fund its liquidity requirements. Bankruptcy is also a possibility. There is no assurance Mines Management’s financing efforts would be successful under current market conditions.
Mines Management common stock is currently listed for trading on the NYSE MKT under the symbol “MGN” and the TSX under the symbol “MGT.”
Mines Management’s executive offices and principal place of business are located at 905 West Riverside Avenue, Suite 311, Spokane, Washington 99201, and its telephone number is (509) 838-6050. Mines Management’s registered agent in Idaho is located at 921 S. Orchard St., Suite G, Boise, Idaho 83705.
Additional information about Mines Management and its subsidiaries is set forth under “Information Regarding Mines Management” beginning on page 94.
Subject to the terms and conditions of the merger agreement and in accordance with Idaho law, the merger agreement provides for the merger of Merger Sub with and into Mines Management. Mines Management will survive the merger and become a wholly-owned subsidiary of Hecla.
Merger Consideration (See page 66)
The merger agreement provides that, at the effective time, each share of Mines Management common stock issued and outstanding or deemed issued and outstanding as of immediately prior to the effective time (excluding shares of Mines Management common stock that are owned immediately prior to the effective time by Mines Management, Hecla, Merger Sub or any of their respective subsidiaries, which will be cancelled and cease to exist) will be converted into the right to receive 0.2218 of a share of Hecla common stock.
Treatment of Options and Warrants (See page 66)
Stock Options. At the effective time, each option to purchase shares of Mines Managementcommon stock that is outstanding immediately prior to the effective time that has an exercise price per share greater than or equal to the product of the closing price of Hecla common stock on the NYSE on the trading day immediately preceding the closing date and 0.2218 will be cancelled without any payment being made in respect thereof. At the effective time, each other option to purchase shares of Mines Management common stock that is outstanding immediately prior to the effective time (all of which are vested) will be cancelled in exchange for the right to receive shares of Hecla common stock (without interest, and subject to deduction for any required withholding tax, with cash being paid in lieu of issuing fractional shares of Hecla common stock) with a value equal to (i)(a) the product of the closing price of Hecla common stock on the NYSE on the trading day immediately preceding the closing date and 0.2218 minus (b) the exercise price per share under such option multiplied by (ii) the number of shares subject to such option. At the option of Hecla, in lieu of paying all or a portion of the amounts due to a holder of options, Hecla may substitute for such shares an equivalent amount in cash.
Warrants. At the effective time, and in accordance with the terms of any warrant to purchase shares of Mines Managementcommon stock that is outstanding immediately prior to the effective time, such warrant will either be cancelled in accordance with its terms or a replacement warrant will be issued giving the holder the right to purchase a number of shares of Hecla common stock (without interest, and subject to deduction for any required withholding tax, and no issuance of fractional shares and the number of such shares rounded down) equal to the product of (i) 0.2218 and (ii) the number of shares of Mines Managementcommon stocksubject to such warrant, with an exercise price of $4.8765 per share of Hecla common stock, pursuant to and in accordance with such holder’s warrants (as amended).
The Special Meeting; Stockholders Entitled to Vote; Required Vote (See page 35)
Meeting. The special meeting will be held at the Lincoln Building, 811 W. Riverside, 2nd floor conference room, Spokane, Washington 99201 on Wednesday, August 10, 2016, at 2:00 p.m., local time. At the special meeting, Mines Management stockholders will be asked to vote on the following proposals:
Stockholders Entitled to Vote. Only Mines Management stockholders of record at the close of business on July 5, 2016 will be entitled to receive notice of and to vote at the special meeting. As of the close of business on the record date of July 5, 2016, there were [●] shares of Mines Management common stock outstanding and entitled to vote at the meeting. Each holder of Mines Management common stock is entitled to one vote for each share of common stock owned as of the record date. As of the close of business on the record date of July 5, 2016, Mines Management’s directors and executive officers had the right to vote approximately [●] shares of the then-outstanding Mines Management common stock at the special meeting, collectively representing approximately [●]% of Mines Management common stock outstanding and entitled to vote at the special meeting.
Hecla Mining Company
Investor Relations
6500 N. Mineral Drive, Suite 200
Coeur d’Alene, Idaho 83815-9408
(208) 769-4100
Mines Management, Inc.
Investor Relations
905 West Riverside Avenue, Suite 311
Spokane, Washington 99201
(509) 838-6050
or
Morrow & Co., LLC
470 West Ave. – 3rd Floor
Stamford, CT 06902
Stockholders call: (877) 787-9239
Banks and Brokers call: (203) 658-9400
To receive timely delivery of the requested documents in advance of the special meeting, you should make your request no later than [●], 2016.
ABOUT THIS DOCUMENT
This document, which forms part of a registration statement on Form S-4 filed with the SEC by Hecla (File No. 333-[●]), constitutes a prospectus of Hecla under Section 5 of the Securities Act of 1933, as amended (the “Securities Act”), with respect to the shares of Hecla common stock to be issued pursuant to the Agreement and Plan of Merger, dated as of May 23, 2016, by and among Hecla, Merger Sub and Mines Management, as amended on June 29, 2016 and as it may be further amended from time to time. This document also constitutes a notice of meeting and a proxy statement under Section 14(a) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), with respect to the special meeting of Mines Management stockholders, at which Mines Management stockholders will be asked to consider and vote on, among other matters, a proposal to approve and adopt the merger agreement and the transactions contemplated thereby.
You should rely only on the information contained in or incorporated by reference into this proxy statement/prospectus. No one has been authorized to provide you with information that is different from that contained in, or incorporated by reference into, this proxy statement/prospectus. This proxy statement/prospectus is dated July [●], 2016. The information contained in this proxy statement/prospectus is accurate only as of that date or, in the case of information in a document incorporated by reference, as of the date of such document, unless the information specifically indicates that another date applies. Neither the mailing of this proxy statement/prospectus to Mines Management stockholders nor the issuance by Hecla of its common stock pursuant to the merger agreement will create any implication to the contrary.
This proxy statement/prospectus does not constitute an offer to sell, or a solicitation of an offer to buy, any securities, or the solicitation of a proxy, in any jurisdiction in which, or from any person to whom, it is unlawful to make any such offer or solicitation in such jurisdiction.
The information concerning Hecla contained in this proxy statement/prospectus or incorporated by reference has been provided by Hecla, and the information concerning Mines Management contained in this proxy statement/prospectus has been provided by Mines Management.
Unless otherwise indicated or as the context otherwise requires, all references in this proxy statement/prospectus to:
In addition, unless otherwise indicated or as the context otherwise requires, all references in this proxy statement/prospectus to:
Guide 7 Definitions
Additional Definitions
“siltite” means an indurated silt having the texture and composition of shale but lacking its fine lamination or fissility; a massive mudstone in which the silt predominates over clay; a nonfissile silt
shale. It tends to be flaggy, containing hard, durable, generally thin layers, and often showing various primary current structures; |
1 | ||||
8 | ||||
11 | ||||
11 | ||||
12 | ||||
12 | ||||
12 | ||||
The Special Meeting; Stockholders Entitled to Vote; Required Vote | 13 | |||
13 | ||||
14 | ||||
14 | ||||
Recommendation of Mines Management’s Board of Directors and Their Reasons for the Merger | 14 | |||
Opinion of the Financial Advisor to Mines Management’s Board of Directors | 14 | |||
Hecla Stockholder Approval is | 15 | |||
15 | ||||
15 | ||||
Material U.S. Federal Income Tax Consequences of the | 15 | |||
15 | ||||
Certain Differences in | 16 | |||
16 | ||||
17 | ||||
19 | ||||
19 | ||||
Summary of Historical Financial Data of Hecla | 19 | |||
21 | ||||
22 | ||||
23 | ||||
23 | ||||
26 | ||||
28 | ||||
33 | ||||
33 | ||||
33 | ||||
33 | ||||
35 | ||||
35 | ||||
35 | ||||
Recommendation of the Board of Directors of Mines Management | 35 | |||
35 | ||||
36 | ||||
36 | ||||
36 | ||||
| 36 | |||
36 | ||||
37 | ||||
37 | ||||
37 | ||||
38 | ||||
38 |
i
PROPOSAL 1: THE APPROVAL AND ADOPTION OF THE MERGER AGREEMENT | 39 | |||
Proposal 1: The Approval and Adoption of the Merger Agreement | 39 | |||
39 | ||||
39 | ||||
46 | ||||
49 | ||||
57 | ||||
Interests of Mines Management’s Directors and Named Executive Officers in the Merger | 58 | |||
60 | ||||
Board of Directors and Management of Mines Management Following the Merger | 60 | |||
60 | ||||
62 | ||||
62 | ||||
62 | ||||
63 | ||||
63 | ||||
64 | ||||
| 64 | |||
64 | ||||
65 | ||||
PROPOSAL 2: POSSIBLE ADJOURNMENT TO SOLICIT ADDITIONAL PROXIES, IF NECESSARY OR APPROPRIATE | 81 | |||
82 | ||||
83 | ||||
COMPARATIVE RIGHTS OF HECLA STOCKHOLDERS AND MINES MANAGEMENT STOCKHOLDERS | 84 | |||
93 | ||||
93 | ||||
93 | ||||
94 | ||||
94 | ||||
94 | ||||
99 | ||||
99 | ||||
99 | ||||
100 | ||||
Management’s Discussion and Analysis of | 101 | |||
103 | ||||
Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters | 103 | |||
105 | ||||
105 | ||||
105 | ||||
F-1 | ||||
A-1 | ||||
B-1 | ||||
C-1 | ||||
D-1 |
ii
Set forth below are questions that you, as a stockholder of Mines Management, may have regarding the merger, the adjournment proposal, the compensation proposal and the special meeting, and brief answers to those questions. You are urged to read carefully this proxy statement/prospectus and the other documents referred to in this proxy statement/prospectus in their entirety, including the merger agreement, which is attached as Appendix A to this proxy statement/prospectus, and the documents incorporated by reference into this proxy statement/prospectus, because this section may not provide all of the information that is important to you with respect to the merger and the special meeting. You may obtain a list of the documents incorporated by reference into this proxy statement/prospectus in the section titled “Where You Can Find More Information” beginning on page 105.
Q: Why am I receiving this proxy statement/prospectus?
A:Mines Management and Hecla have agreed to a merger, pursuant to which Mines Management will merge with Merger Sub, a wholly-owned subsidiary of Hecla. Mines Management will continue its existence as the surviving entity and become a wholly-owned subsidiary of Hecla, but will cease to be a publicly traded company. This transaction is sometimes referred to throughout this proxy statement/prospectus as the “merger.” Please see “Proposal 1: The Approval and Adoption of the Merger Agreement—Effects of the Merger” on page 39 of this proxy statement/prospectus and “Proposal 1: The Approval and Adoption of the Merger Agreement—The Merger Agreement” on page 65 of this proxy statement/prospectus. A copy of the merger agreement is attached to this proxy statement/prospectus as Appendix A.
In order to complete the merger, Mines Management stockholders must vote to approve and adopt the merger agreement. Mines Management is holding a special meeting of its stockholders to obtain such stockholder approval and adoption. Mines Management stockholders will also be asked to approve, on an advisory (non-binding) basis, the payments that will or may be paid by Mines Management to its named executive officers in connection with the merger.
In the merger, Hecla will issue shares of its common stock as the consideration to be paid to holders of Mines Management common stock. This document is being delivered to you as both a proxy statement of Mines Management and a prospectus of Hecla in connection with the merger. It is the proxy statement by which the board of directors of Mines Management is soliciting proxies from you to vote on the approval and adoption of the merger agreement and the transactions contemplated thereby at the special meeting or at any adjournment or postponement of the special meeting. It is also the prospectus by which Hecla is offering the shares of Hecla common stock it will issue to you in the merger.
Q: How does the board of directors of Mines Management recommend that its stockholders vote?
A:Mines Management’s board of directors unanimously approved, adopted and declared advisable the merger agreement and the merger, directed that the merger agreement be submitted to the stockholders of Mines Management for approval and adoption and determined that the terms of the merger agreement and the merger are advisable and in the best interests of Mines Management’s stockholders. The Mines Management board of directors accordingly unanimously recommends that the Mines Management stockholders vote “FOR” each of the merger proposal, the adjournment proposal and the compensation proposal. See “Proposal 1: The Approval and Adoption of the Merger Agreement—Recommendation of Mines Management’s Board of Directors; Mines Management’s Reasons for the Merger” beginning on page 46 of this proxy statement/prospectus.
Q: Am I being asked to vote on anything else?
A:Yes. Mines Management’s board of directors is asking you to consider and vote on the adjournment proposal and the compensation proposal. See “Proposal 2: Possible Adjournment to Solicit Additional Proxies If
Necessary or Appropriate” on page 81 of this proxy statement/prospectus and “Proposal 3: Advisory (Non-Binding) Vote on Compensation” beginning on page 82 of this proxy statement/prospectus.
Q: Why are Mines Management stockholders being asked to approve, on a non-binding advisory basis, the compensation that may be paid or become payable to Mines Management’s named executive officers in connection with the completion of the merger?
A: The rules promulgated by the SEC under Section 14A of the Exchange Act require Mines Management to seek a non-binding, advisory vote with respect to certain compensation that may be paid or become payable to Mines Management’s named executive officers in connection with the merger. For more information regarding such payments, see the section entitled “Proposal 3: Advisory (Non-Binding) Vote on Compensation” beginning on page 82.
Q: What will Mines Management stockholders receive in the transaction?
A:If the transaction is completed, holders of Mines Management common stock will be entitled to receive 0.2218 of a share of Hecla common stock for each share of Mines Management common stock they hold at the effective time. Any stockholders entitled to receive a fractional share of Hecla common stock shall receive cash in lieu of such fractional share. This exchange ratio is fixed and will not be adjusted to reflect stock price changes prior to the closing of the merger. Following the completion of the merger, Mines Management common stock will cease to trade on the NYSE MKT LLC (“NYSE MKT”) and the Toronto Stock Exchange (“TSX”).
Q: What will happen to outstanding Mines Management options and warrants in the merger?
A:At the effective time, each option to purchase shares of Mines Managementcommon stock that is outstanding immediately prior to the effective time that has an exercise price per share greater than or equal to the product of the closing price of Hecla common stock on the NYSE on the trading day immediately preceding the closing date and 0.2218 will be cancelled without any payment being made in respect thereof. At the effective time, each other option to purchase shares of Mines Management common stock that is outstanding immediately prior to the effective time (all of which are vested) will be cancelled in exchange for the right to receive shares of Hecla common stock (without interest, and subject to deduction for any required withholding tax, with cash being paid in lieu of issuing fractional shares of Hecla common stock) with a value equal to (i)(a) the product of the closing price of Hecla common stock on the NYSE on the trading day immediately preceding the closing date and 0.2218 minus (b) the exercise price per share under such option multiplied by (ii) the number of shares subject to such option. At the option of Hecla, in lieu of paying all or a portion of the amounts due to a holder of options with shares of Hecla common stock, Hecla may substitute for such shares an equivalent amount in cash.
At the effective time, and in accordance with the terms of any warrant to purchase shares of Mines Managementcommon stock that is outstanding immediately prior to the effective time, such warrant will either be cancelled in accordance with its terms or a replacement warrant will be issued giving the holder the right to purchase a number of shares of Hecla common stock (without interest, and subject to deduction for any required withholding tax, and no issuance of fractional shares and the number of such shares rounded down) equal to the product of (i) 0.2218 and (ii) the number of shares of Mines Management common stocksubject to such warrant, with an exercise price of $4.8765 per share of Hecla common stock, pursuant to and in accordance with such holder’s warrant (as amended).
Q: What happens if the market price of shares of Hecla common stock or shares of Mines Management common stock changes before the closing of the merger?
A:No change will be made to the exchange ratio of 0.2218 if the market price of shares of Mines Management common stock or shares of Hecla common stock changes before the closing of the merger.
Q: How will Mines Management stockholders receive the merger consideration to which they are entitled?
A:After receiving the proper documentation from you, following the effective time of the merger, the exchange agent will forward to you (if you are the holder of record) or to your broker, bank, trust company or other nominee (each, a “broker”) the shares of Hecla common stock and cash in lieu of fractional shares to which you are entitled. For additional information about the exchange of Mines Management shares of common stock for Hecla shares of common stock, see the section entitled “Proposal 1: The Approval and Adoption of the Merger Agreement—Exchange of Shares in the Merger” beginning on page 62.
You do not need to take any action at this time.Please do not send your Mines Managementstock certificates with your proxy card.
Q: How does Hecla common stock differ from Mines Management common stock?
A:Your rights as a Hecla stockholder will be different than your rights as a Mines Management stockholder. A chart comparing your rights as a Mines Management stockholder to your rights as a Hecla stockholder is included in this proxy statement/prospectus. Please see “Comparative Rights of Hecla Stockholders and Mines Management Stockholders” beginning at page 84 of this proxy statement/prospectus.
Q: Will the shares of Hecla common stock issued in connection with the merger be listed for trading on a stock exchange?
A:Hecla’s outstanding common stock is currently listed on the New York Stock Exchange (the “NYSE”). Hecla has filed an application to have the Hecla shares issued as part of the merger approved for listing on the NYSE upon notice of issuance.
Q: When does Mines Management expect the transaction to be completed?
A:Hecla and Mines Management are working to complete the merger as quickly as practicable and currently expect that it will be completed in the third quarter of 2016, promptly after the special meeting.
Q: What are the material U.S. federal income tax consequences of the transaction?
A:Mines Management is not expected to recognize any gain or loss for U.S. federal income tax purposes as a result of the merger. Mines Management stockholders that are U.S. holders are not expected to recognize any gain or loss for U.S. federal income tax purposes upon the merger, except for any gain or loss attributable to the receipt of cash in lieu of fractional shares of Hecla common stock received in the merger.
The aggregate tax basis of the Hecla common stock received in the merger (including fractional shares deemed received and redeemed) will be equal to the aggregate adjusted tax basis of the shares of Mines Management common stock surrendered for the Hecla common stock, and the holding period of the Hecla common stock (including fractional shares deemed received and redeemed) will include the period during which the shares of Mines Management common stock were held.
Mines Management has received the opinion of Davis Graham & Stubbs LLP that the merger will qualify as a tax-free reorganization described in Section 368 of the United States Internal Revenue Code of 1986, as amended (the “Code”). You are encouraged to read the opinion, which is attached as Appendix C. In addition, you should also read the discussion in the section entitled “Proposal 1: The Approval and Adoption of the Merger Agreement—Material U.S. Federal Income Tax Consequences of the Merger” on page 60 of this proxy statement/prospectus and consult your own tax advisors as to the U.S. federal income tax consequences of the merger, as well as the effects of state, local and foreign tax laws.
Q: What vote of Mines Management stockholders is required to approve and adopt the merger?
A:Approval and adoption of the merger requires the affirmative vote of a majority of the votes cast by holders of Mines Management common stock present in person or represented by proxy at the special meeting and entitled to vote on the proposal, and a quorum must be present at the special meeting.Only holders of record of Mines Management common stock at the close of business on July 5, 2016, which is referred to as the record date, are entitled to notice of and to vote at the special meeting. As of the record date, there were [●] shares of Mines Management common stock outstanding and entitled to vote at the special meeting.
Q: Are any stockholders already committed to vote in favor of the merger?
A:Yes. Pursuant to shareholders agreements with Hecla, Mines Management’s stockholder Silver Wheaton Corp. and the following directors and officers of Mines Management have each agreed to vote the shares of Mines Management common stock (as set forth in such shareholder’s shareholders agreement) that they directly, indirectly or beneficially own or control at the special meeting in favor of the merger: Glenn Dobbs, Douglas Dobbs, Nicole Altenburg, Russell Babcock, Roy Franklin and Robert Russell. Shares representing approximately 17.6% of Mines Management common stock (which include 1,472,621 shares of Mines Management common stock subject to currently exercisable options) are subject to the shareholders agreements as of the date of this proxy statement/prospectus. For a more complete description of the Shareholders Agreements, see “Proposal 1: The Approval and Adoption of the Merger Agreement—Shareholders Agreements” beginning at page 64 of this proxy statement/prospectus. The form of Shareholders Agreement is also attached to this proxy statement/prospectus as Appendix D.
Q: Are there any risks to me in approving and adopting the merger?
A:Yes. You should carefully review the section entitled “Risk Factors” beginning on page 23.
Q: What happens if the merger is not completed?
A:If the merger is not approved and adopted by the Mines Management stockholders or the merger does not occur for any other reason, neither Mines Management nor its stockholders will receive any shares of Hecla common stock. Instead, Mines Management will remain an independent public company, and Mines Management’s common stock may continue to be quoted on the NYSE MKT and TSX. See “Risk Factors—Risk Factors Relating to Mines Management.” Further, if the merger does not occur under specified circumstances, Mines Management may be required to pay Hecla a termination fee and reimburse Hecla for its expenses incurred under the merger agreement as described in the section entitled “Proposal 1: The Approval and Adoption of the Merger Agreement—The Merger Agreement—Termination Fees and Expenses” beginning on page 78. Mines Management is experiencing severe financial challenges, and stockholders should carefully review the discussion of such challenges set forth in “Risk Factors—Risk Factors Relating to Mines Management” beginning on page 28 and elsewhere in this proxy statement/prospectus. If the merger is not completed, Mines Management would have to seek additional financing, which may be unavailable, or consider other alternatives, including a bankruptcy filing.
Q: Am I entitled to appraisal or dissenters’ rights?
A:No. Under Idaho law, holders of Mines Management common stock will not be entitled to dissenters’ or appraisal rights. Therefore, holders of Mines Management common stock as of the record date that are against the merger may vote against approval and adoption of the merger agreement but may not exercise dissenters’ or appraisal rights. See “No Appraisal Rights” beginning on page 93.
Q: When and where will the special meeting of Mines Management stockholders be held?
A:The special meeting of Mines Management stockholders will be held at the Lincoln Building, 811 W. Riverside, 2nd floor conference room, Spokane, Washington 99201, on Wednesday, August 10, 2016, at 2:00 p.m., local time.
Q: Who can attend and vote at the special meeting?
A:All Mines Management stockholders of record as of the close of business on the record date are entitled to receive notice of, to attend and to vote at the special meeting.
Q: How can I attend the special meeting?
A:All of Mines Management’s stockholders are invited to attend the special meeting. Please be prepared to provide identification, such as a driver’s license or passport, before being admitted to the special meeting. If you hold your shares in “street name,” that is, if you hold your shares in a stock brokerage account or if your shares are held by a broker, you will need to provide proof of ownership to be admitted to the special meeting. A brokerage statement or letter from your broker proving ownership of the shares on the record date for the special meeting are examples of proof of ownership. To help Mines Management plan for the special meeting, please indicate whether you expect to attend by responding affirmatively when prompted during Internet or telephone proxy submission or by marking the attendance box on your proxy card.
Q: What constitutes a quorum at the special meeting?
A:The presence, in person or by proxy, of the holders of a majority of the voting power of the Mines Management common stock entitled to vote at the special meeting shall constitute a quorum for the transaction of business. Abstentions and broker non-votes will be counted as present and entitled to vote for purposes of establishing a quorum. A broker non-vote occurs when a broker that holds shares on behalf of a “street name” stockholder returns a valid proxy card, but does not vote on a particular matter because it does not have discretionary authority to vote on that particular matter and has not received voting instructions from the “street name” stockholder.
Q: What should I do now in order to vote on the proposals being considered at the special meeting?
A:Mines Management stockholders as of the record date may vote by proxy by
If you hold shares of Mines Management common stock in “street name,” which means that your shares are held of record by a broker, please refer to the voting instruction form used by your broker to see how to vote your shares.
Additionally, you may also vote in person by attending the special meeting. If you plan to attend the special meeting and wish to vote in person, you will be given a ballot at the special meeting. Please note, however, that if your shares are held in “street name” and you wish to vote at the special meeting, you must bring a proxy from the record holder of the shares authorizing you to vote at the special meeting. Whether or not you plan to attend the special meeting, you should submit your proxy card or voting instruction form as described in this proxy statement/prospectus.
Q: If my shares are held in “street name” by my broker, will my broker automatically vote my shares for me?
A: No. If you hold your shares in a stock brokerage account or if your shares are held by a broker (that is, in “street name”), your broker cannot vote your shares on any of the proposals to be considered at the special
meeting as all such proposals are “non-routine” matters. You should instruct your broker as to how to vote your shares, following the directions from your broker provided to you. Please check the voting form used by your broker. If you do not provide your broker with instructions, your shares of Mines Management common stock will not be voted on any proposal at the special meeting. Please note that you may not vote shares held in “street name” by returning a proxy card directly to Mines Management or by voting in person at the special meeting unless you provide a legal proxy, which you must obtain from your broker.
Q: What will happen if I abstain from voting or fail to vote?
A:Mines Management cannot complete the merger unless its stockholders approve and adopt the merger agreement and the transactions contemplated thereby. Because approval and adoption is based on the affirmative vote of a majority of the votes cast by holders of Mines Management common stock present in person or represented by proxy at the special meeting and entitled to vote on the proposal, assuming a quorum is present, a Mines Management stockholder’s failure to vote or the failure of a Mines Management stockholder who holds his or her shares in “street name” through a broker to give voting instructions to such broker will have no effect on the merger proposal, assuming a quorum is present. If a Mines Management stockholder marks his or her proxy or provides voting instructions to abstain, it will have no effect on the merger proposal, assuming a quorum is present.
Q: What will happen if I sign my proxy without specifying my voting preference?
A:If you submit a signed proxy without specifying the manner in which you would like your shares to be voted, your shares will be voted “FOR” the merger proposal, “FOR” the adjournment proposal and “FOR” the compensation proposal.
Q: Can I change my vote after I have delivered my proxy?
A:Yes. You can change your vote at any time before your proxy is voted at the special meeting. If you are a holder of record, you can do this in one of three ways:
Q: What happens if I transfer my shares of Mines Management stock before the special meeting?
A:The record date for the special meeting is earlier than both the date of the special meeting and the date that the merger is expected to be completed. If you transfer your Mines Management shares after the record date for the special meeting, you will retain your right to vote at the special meeting, but you will have transferred the right to receive the merger consideration in the merger. In order to receive the merger consideration, you must hold your shares through the effective time of the merger.
Q: What should I do if I receive more than one set of voting materials for the special meeting?
A:You may receive more than one set of voting materials for the special meeting, including multiple copies of this proxy statement/prospectus and multiple proxy cards or voting instruction forms. For example, if you hold
your shares in more than one brokerage account, you will receive a separate voting instruction form for each brokerage account in which you hold shares. If you are a holder of record and your shares are registered in more than one name, you will receive more than one proxy card. For each and every proxy card and voting instruction form that you receive, please vote as soon as possible by completing, signing, dating and returning the enclosed proxy card in the postage-prepaid envelope enclosed for that purpose or by accessing the Internet website or by calling the toll-free number specified on your proxy cards.
Q: Who can help answer my questions?
A:If you have any questions about the merger or the merger agreement or how to submit your proxy, or if you need additional copies of this proxy statement/prospectus or the enclosed proxy card or voting instructions, you should contact:
Mines Management, Inc. Investor Relations 905 West Riverside Avenue, Suite 311 Spokane, Washington 99201 (509) 838-6050 | Hecla Mining Company Investor Relations 6500 N. Mineral Drive, Suite 200 Coeur d’Alene, Idaho 83815-9408 (208) 769-4100 | |
or | ||
Morrow & Co., LLC 470 West Ave. – 3rd Floor Stamford, CT 06902 Stockholders call: (877) 787-9239 Banks and Brokers call: (203) 658-9400 |
CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS
This proxy statement/prospectus and the information incorporated by reference herein contains numerous forward-looking statements within the meaning of Section 27A of the Securities Act and Section 21E of the Exchange Act, including statements relating to the financial condition, results of operations, business strategies, operating efficiencies or synergies, projected timetable, expected tax treatment of the transaction, competitive positions, growth opportunities, plans and objectives of the management of each of Hecla and Mines Management, the merger and other transactions contemplated by the merger agreement, the markets for Hecla and Mines Management common stock and other matters. Such forward-looking statements may be identified by the use of words such as “believes,” “intends,” “expects,” “hopes,” “may,” “should,” “will,” “plan,” “projected,” “contemplates,” “anticipates” or similar words. Such forward-looking statements involve known and unknown risks, uncertainties and other factors which may cause actual results, performance or achievements to be materially different from any future results, performance or achievements expressed or implied by the forward-looking statements. The factors that could cause actual results to differ materially from those projected in the forward-looking statements include but are not limited to:
Given these risks and uncertainties, readers are cautioned not to place undue reliance on forward-looking statements. Projections and other forward-looking statements included in this proxy statement/prospectus have been prepared based on assumptions, which Hecla and Mines Management believe to be reasonable, but not in
accordance with United States generally accepted accounting principles (“GAAP”) or any guidelines of the SEC. Actual results may vary, perhaps materially. You are strongly cautioned not to place undue reliance on such projections and other forward-looking statements. All subsequent written and oral forward-looking statements attributable to Hecla, Mines Management or to persons acting on each of their behalf are expressly qualified in their entirety by these cautionary statements. Except as required by federal securities laws, Hecla and Mines Management each disclaim any intention or obligation to update or revise any forward-looking statements, whether as a result of new information, future events or otherwise.
This summary highlights selected information from this proxy statement/prospectus. You are urged to read carefully the entire proxy statement/prospectus and the other documents referred to in this proxy statement/prospectus because the information in this section does not provide all of the information that might be important to you with respect to the merger agreement, the merger and the other matters being considered at the special meeting. See “Where You Can Find More Information” beginning on page 105. Each item in this summary refers to the page of this proxy statement/prospectus on which that subject is discussed in more detail.
Hecla.Hecla Mining Company is a Delaware corporation with its shares of common stock traded on the NYSE under the symbol “HL.” Hecla is a U.S.-based precious and base metals mining company engaged in the exploration, acquisition, development, production and marketing of silver, gold, lead and zinc. In business since 1891, Hecla is among the oldest U.S.-based precious metals mining companies. Hecla produces both metal concentrates, which it sells to smelters, and unrefined gold and silver bullion bars (doré), which is either sold as doré or refined before sale to precious metals traders. Hecla’s executive offices are located at 6500 N. Mineral Drive, Suite 200, Coeur d’Alene, Idaho 83815-9408, and its telephone number is (208) 769-4100.
Merger Sub.HL Idaho Corp. is an Idaho corporation and a wholly-owned subsidiary of Hecla. Upon completion of the merger, Merger Sub will be merged with and into Mines Management, with Mines Management surviving as a wholly-owned subsidiary of Hecla. Merger Sub has not conducted any significant activities other than those incidental to its formation and the matters contemplated by the merger agreement in connection with the merger.
Mines Management.Mines Management, Inc. is engaged in the business of acquiring and exploring, and if exploration is successful, developing, mineral properties, primarily those containing silver and associated base and precious metals. Mines Management was incorporated under the laws of the State of Idaho on February 20, 1947. Mines Management’s principal mineral property interest, the Montanore Project, is held by its wholly-owned subsidiaries, Newhi, Inc. and Montanore Minerals Corp. Mines Management’s properties, including the Montanore Project, are currently in the exploration stage; none of its properties are currently in production.
The Montanore Project is located in northwestern Montana and from 1988 to 2002 was owned by Noranda Minerals Corporation (“Noranda”). During that time the project received an approved Environmental Impact Statement (“EIS”), Record of Decision (“ROD”) and all of its primary environmental permits, and conducted pre-evaluation construction activities on the property. From 1988 to 2002, Mines Management held royalty rights to a portion of the deposit. In 2002, Noranda announced that it was abandoning the project, and subsequently transferred to Mines Management by quitclaim deed the patented and unpatented mining claims that control the mineral rights, and all drill core and intellectual property including geologic, environmental and engineering studies, relating to the Montanore Project.
If the merger described in this proxy statement/prospectus is not consummated, Mines Management will be required to seek additional capital or consider other alternatives, which could include liquidating some or all of its assets in order to fund its liquidity requirements. Bankruptcy is also a possibility. There is no assurance Mines Management’s financing efforts would be successful under current market conditions.
Mines Management common stock is currently listed for trading on the NYSE MKT under the symbol “MGN” and the TSX under the symbol “MGT.”
Mines Management’s executive offices and principal place of business are located at 905 West Riverside Avenue, Suite 311, Spokane, Washington 99201, and its telephone number is (509) 838-6050. Mines Management’s registered agent in Idaho is located at 921 S. Orchard St., Suite G, Boise, Idaho 83705.
Additional information about Mines Management and its subsidiaries is set forth under “Information Regarding Mines Management” beginning on page 94.
Subject to the terms and conditions of the merger agreement and in accordance with Idaho law, the merger agreement provides for the merger of Merger Sub with and into Mines Management. Mines Management will survive the merger and become a wholly-owned subsidiary of Hecla.
Merger Consideration (See page 66)
The merger agreement provides that, at the effective time, each share of Mines Management common stock issued and outstanding or deemed issued and outstanding as of immediately prior to the effective time (excluding shares of Mines Management common stock that are owned immediately prior to the effective time by Mines Management, Hecla, Merger Sub or any of their respective subsidiaries, which will be cancelled and cease to exist) will be converted into the right to receive 0.2218 of a share of Hecla common stock.
Treatment of Options and Warrants (See page 66)
Stock Options. At the effective time, each option to purchase shares of Mines Managementcommon stock that is outstanding immediately prior to the effective time that has an exercise price per share greater than or equal to the product of the closing price of Hecla common stock on the NYSE on the trading day immediately preceding the closing date and 0.2218 will be cancelled without any payment being made in respect thereof. At the effective time, each other option to purchase shares of Mines Management common stock that is outstanding immediately prior to the effective time (all of which are vested) will be cancelled in exchange for the right to receive shares of Hecla common stock (without interest, and subject to deduction for any required withholding tax, with cash being paid in lieu of issuing fractional shares of Hecla common stock) with a value equal to (i)(a) the product of the closing price of Hecla common stock on the NYSE on the trading day immediately preceding the closing date and 0.2218 minus (b) the exercise price per share under such option multiplied by (ii) the number of shares subject to such option. At the option of Hecla, in lieu of paying all or a portion of the amounts due to a holder of options, Hecla may substitute for such shares an equivalent amount in cash.
Warrants. At the effective time, and in accordance with the terms of any warrant to purchase shares of Mines Managementcommon stock that is outstanding immediately prior to the effective time, such warrant will either be cancelled in accordance with its terms or a replacement warrant will be issued giving the holder the right to purchase a number of shares of Hecla common stock (without interest, and subject to deduction for any required withholding tax, and no issuance of fractional shares and the number of such shares rounded down) equal to the product of (i) 0.2218 and (ii) the number of shares of Mines Managementcommon stocksubject to such warrant, with an exercise price of $4.8765 per share of Hecla common stock, pursuant to and in accordance with such holder’s warrants (as amended).
The Special Meeting; Stockholders Entitled to Vote; Required Vote (See page 35)
Meeting. The special meeting will be held at the Lincoln Building, 811 W. Riverside, 2nd floor conference room, Spokane, Washington 99201 on Wednesday, August 10, 2016, at 2:00 p.m., local time. At the special meeting, Mines Management stockholders will be asked to vote on the following proposals:
Stockholders Entitled to Vote. Only Mines Management stockholders of record at the close of business on July 5, 2016 will be entitled to receive notice of and to vote at the special meeting. As of the close of business on the record date of July 5, 2016, there were [●] shares of Mines Management common stock outstanding and entitled to vote at the meeting. Each holder of Mines Management common stock is entitled to one vote for each share of common stock owned as of the record date. As of the close of business on the record date of July 5, 2016, Mines Management’s directors and executive officers had the right to vote approximately [●] shares of the then-outstanding Mines Management common stock at the special meeting, collectively representing approximately [●]% of Mines Management common stock outstanding and entitled to vote at the special meeting.
Required Vote. To approve and adopt the merger agreement and the transactions contemplated thereby, a majority of the votes cast by holders of Mines Management common stock present in person or represented by proxy at the special meeting and entitled to vote on the proposal must vote in favor of the proposal, and a quorum must be present at the special meeting. A Mines Management stockholder’s failure to vote will have no effect on the merger proposal, assuming a quorum is present. If you are a Mines Management stockholder and you mark your proxy or voting instructions to abstain, it will have no effect on this proposal, assuming a quorum is present.
To approve the adjournment of the special meeting, if necessary to solicit additional proxies if there are not sufficient votes to approve and adopt the merger agreement at the special meeting, a majority of the votes cast by holders of Mines Management common stock present in person or represented by proxy at the special meeting and entitled to vote on the proposal must vote in favor of the proposal, and a quorum must be present at the special meeting. A Mines Management stockholder’s failure to vote will have no effect on the adjournment proposal, assuming a quorum is present. If you are a Mines Management stockholder and you mark your proxy or voting instructions to abstain, it will have no effect on this proposal, assuming a quorum is present.
To approve, on an advisory (non-binding) basis, the payments that will or may be paid by Mines Management to its named executive officers in connection with the merger, a majority of the votes cast by holders of Mines Management common stock present in person or represented by proxy at the special meeting and entitled to vote on the proposal must vote in favor of the proposal, and a quorum must be present at the special meeting. A Mines Management stockholder’s failure to vote will have no effect on the advisory vote, assuming a quorum is present. If you are a Mines Management stockholder and you mark your proxy or voting instructions to abstain, it will have no effect on this proposal, assuming a quorum is present.
Shareholders Agreements (See page 64)
In connection with the merger agreement, Hecla entered into shareholders agreements with Silver Wheaton Corp., a stockholder of Mines Management, and the following directors and officers of Mines Management:
Glenn Dobbs, Douglas Dobbs, Nicole Altenburg, Russell Babcock, Roy Franklin and Robert Russell. In the shareholders agreements, each of these stockholders has agreed to vote his, her, or its shares of Mines Management common stock (as set forth in such shareholder’s shareholders agreement) in favor of approval and adoption of the merger agreement. As of the date of this proxy statement/prospectus, there were 6,562,199 shares of Mines Management common stock (which include 1,472,621 shares of Mines Management common stock subject to currently exercisable options) subject to the shareholders agreements, which represent approximately 17.6% of the outstanding shares of Mines Management common stock as of that date.
No Dissenters’ or Appraisal Rights (See page 93)
Under Idaho law, holders of Mines Management common stock will not be entitled to dissenters’ or appraisal rights. Therefore, holders of Mines Management common stock as of the record date that are against the merger may vote against approval and adoption of the merger agreement but may not exercise dissenters’ or appraisal rights. See “No Appraisal Rights” beginning on page 93.
Regulatory Matters (See page 62)
Neither Mines Management nor Hecla is required to obtain any approvals from any federal or state regulatory authorities to consummate the merger. Hecla must comply with applicable federal and state securities laws and NYSE rules and regulations in connection with the issuance of shares of Hecla common stock in connection with the merger, including the filing with the SEC of the registration statement of which this proxy statement/prospectus is a part. In addition, the parties will be required to file a statement of merger with the Secretary of State of Idaho in order to effectuate the merger.
Recommendation of Mines Management’s Board of Directors and Their Reasons for the Merger (See page 46)
After careful consideration, the Mines Management board of directors, on May 21, 2016, unanimously approved, adopted and declared advisable the merger agreement and the merger, directed that the merger agreement be submitted to the stockholders of Mines Management for approval and adoption and determined that the terms of the merger agreement and the merger are advisable and in the best interests of Mines Management’s stockholders. For the factors considered by the Mines Management board of directors in reaching its decision to approve and adopt the merger agreement, see the section entitled “Proposal 1: The Approval and Adoption of the Merger Agreement—Recommendation of Mines Management’s Board of Directors; Mines Management’s Reasons for the Merger” beginning on page 46.TheMines Managementboard of directors unanimously recommends that theMines Management stockholders vote“FOR” each of the merger proposal, the adjournment proposal and the compensation proposal.
Opinion of the Financial Advisor to Mines Management’s Board of Directors (See page 49)
In connection with the transaction, Canaccord Genuity Corp. (“CG”), Mines Management’s financial advisor, delivered its opinion as of May 21, 2016 to the Mines Management board of directors, which was subsequently confirmed in writing, as to the fairness, from a financial point of view, to the Mines Management common stockholders of the consideration to be received by such holders pursuant to the merger agreement.
The full text of the written opinion of CG is included in this document as Appendix B. You should read the opinion carefully in its entirety for a description of the assumptions made, matters considered and limitations on the review undertaken by CG. The opinion of CG was provided for the information and assistance of the Mines Management board of directors in connection with its consideration of the transaction. The opinion of CG is not a recommendation as to how any stockholder should vote or as to any action that a stockholder should take with respect to the transaction.
Hecla Stockholder Approval is Not Required (See page 39)
Hecla stockholders are not required to adopt the merger agreement or approve the merger or the issuance of Hecla common stock in connection with the merger.
Ownership of Hecla After the Merger (See page 39)
Hecla will issue approximately 9,139,078 shares of Hecla common stock to former Mines Management stockholders pursuant to the merger. Based on the number of shares of Hecla common stock outstanding as of the date of this proxy statement/prospectus, immediately following the completion of the merger, Hecla expects to have approximately394,906,512 shares of common stock outstanding. Mines Management stockholders are therefore expected to hold approximately2.37% of the aggregate number of shares of Hecla common stock outstanding immediately after the merger.
Interests of Directors and Officers of Mines Management in the Merger (See page 58)
Mines Management’s directors and officers have financial interests in the merger that are different from, or in addition to, the interests of Mines Management stockholders generally. The members of Mines Management’s board of directors were aware of and considered these interests, among other matters, in evaluating and negotiating the merger agreement and the merger, and in recommending to Mines Management’s stockholders that the merger agreement be approved and adopted.
These interests include:
Material U.S. Federal Income Tax Consequences of the Merger (See page 60)
Mines Management is not expected to recognize any gain or loss for U.S. federal income tax purposes as a result of the merger. Mines Management stockholders that are U.S. holders are not expected to recognize any gain or loss for U.S. federal income tax purposes upon the merger, except for any gain or loss attributable to the receipt of cash in lieu of fractional shares of Hecla common stock received in the merger. The aggregate tax basis of the Hecla common stock received in the merger (including fractional shares deemed received and redeemed) will be equal to the aggregate adjusted tax basis of the shares of Mines Management common stock surrendered for the Hecla common stock, and the holding period of the Hecla common stock (including fractional shares deemed received and redeemed) will include the period during which the shares of Mines Management common stock were held.
Mines Management has received the opinion of Davis Graham & Stubbs LLP that the merger will qualify as a tax-free reorganization described in Section 368 of the Code. You are encouraged to read the opinion, which is attached as Appendix C. In addition, you should also read the discussion in the section entitled “Proposal 1: The Approval and Adoption of the Merger Agreement—Material U.S. Federal Income Tax Consequences of the Merger” beginning on page 60 of this proxy statement/prospectus and consult your own tax advisors as to the U.S. federal income tax consequences of the merger, as well as the effects of state, local and foreign tax laws.
Accounting Treatment of the Merger (See page 62)
In accordance with GAAP, Hecla will account for the merger using the acquisition method of accounting for business combinations.
Certain Differences in the Rights of Stockholders (See page 84)
Mines Management stockholders will own shares of Hecla common stock following the completion of the merger, and their rights associated with those shares of Hecla common stock will be governed by Hecla’s certificate of incorporation and bylaws, which differ in a number of respects from the Mines Management’s articles of incorporation and bylaws. In addition, Mines Management is an Idaho corporation, while Hecla is a Delaware corporation, and the rights of stockholders of Delaware corporations differ in certain respects from those of stockholders of Idaho corporations. See “Comparative Rights of Hecla Stockholders and Mines Management Stockholders” beginning on page 84.
Conditions to Completion of the Merger (See page 76)
Hecla and Mines Management currently expect to complete the merger in the third quarter of 2016, subject to receipt of required Mines Management stockholder approval and adoption and to the satisfaction or waiver of the other conditions to the transactions contemplated by the merger agreement described below.
As more fully described in this proxy statement/prospectus, each party’s obligation to complete the transactions contemplated by the merger agreement depends on a number of customary closing conditions being satisfied or, where legally permissible, waived, including, without limitation, the following:
The obligation of Hecla and Merger Sub to effect the merger is subject to the satisfaction or waiver of the following additional conditions:
The obligation of Mines Management to effect the merger is subject to the satisfaction or waiver of the following additional conditions:
Termination of the Merger Agreement (See page 77)
Hecla or Mines Management may terminate the merger agreement at any time prior to the effective time:
Termination Fees (See page 78)
Following termination of the merger agreement under specified circumstances Mines Management will be required to pay Hecla a termination fee of $1,000,000, plus all of Hecla’s actual and reasonably documented fees and expenses in an amount not to exceed $200,000 (including legal fees and expenses) in connection with the transactions contemplated by the merger agreement as described in “Proposal 1: The Approval and Adoption of the Merger Agreement—The Merger Agreement—Termination Fees and Expenses” beginning on page 78.
Interim Credit Agreement (See page 64)
As discussed in “Risk Factors—Risk Factors Relating to Mines Management” and elsewhere in this proxy statement/prospectus, Mines Management is experiencing severe financial challenges. In an effort to address Mines Management’s short-term liquidity needs, Hecla and Mines Management have entered into the Interim Credit Agreement, pursuant to which Hecla has agreed to provide one or more secured loans to Mines Management in an aggregate amount not to exceed $2,300,000. Loans bear interest at a rate per annum equal to LIBOR plus 5% and will be due and payable on the earlier of August 15, 2016, the date the merger is consummated or other specified events discussed in “Proposal 1: The Approval and Adoption of the Merger Agreement—Interim Credit Agreement” beginning on page 64. The loans are secured by substantially all of the assets of Mines Management, including the Montanore Project, and the equity interests in Newhi, Inc., Montanore Minerals Corp. and Montmin Resources Corp. Even if Mines Management borrows the maximum amount available under the Interim Credit Agreement, it currently expects that it would still run out of cash by the end of August 2016 if the merger does not occur.
Summary of Historical Financial Data of Hecla
The following table sets forth selected historical consolidated financial data as of and for each of the years ended December 31, 2011 through 2015 (in thousands, except per share amounts, common shares issued, stockholders of record, and employees) and is derived from Hecla’s audited financial statements. The table also sets forth selected historical consolidated financial data of Hecla for each of the three month periods ended March 31, 2015 and 2016, which is derived in part from the unaudited interim consolidated financial statements of Hecla incorporated by reference into this proxy statement/prospectus. The consolidated balance sheet data as of March 31, 2015 has been derived from Hecla’s unaudited consolidated financial statements for the quarter ended March 31, 2015, which have previously been filed with the SEC but which are not incorporated into this proxy statement/prospectus by reference. The data set forth below should be read in conjunction with, and is qualified in its entirety by, Hecla’s Consolidated Financial Statements and the Notes thereto, which are included in its most recent Annual Report on Form 10-K, and Hecla’s Unaudited Consolidated Financial Statements and Notes thereto, which are included in its most recent Quarterly Report on Form 10-Q. See “Where You Can Find More Information” beginning on page 105. Hecla’s historical consolidated financial information may not be indicative of the future performance of Hecla following the merger.
Three Months Ended March 31, | Years Ended December 31, | |||||||||||||||||||||||||||
2016 (Unaudited) | 2015 (Unaudited) | 2015 | 2014 | 2013(7) | 2012(7) | 2011 | ||||||||||||||||||||||
Sales of products | $ | 131,017 | $ | 119,092 | $ | 443,567 | $ | 500,781 | $ | 382,589 | $ | 321,143 | $ | 477,634 | ||||||||||||||
Net income (loss) | $ | (618 | ) | $ | 12,552 | $ | (86,968 | ) | $ | 17,824 | $ | (25,130 | ) | $ | 14,954 | $ | 151,164 | |||||||||||
Preferred stock dividends(1) | $ | (138 | ) | $ | (138 | ) | $ | (552 | ) | $ | (552 | ) | $ | (552 | ) | $ | (552 | ) | $ | (552 | ) | |||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||
Income (loss) applicable to common stockholders | $ | (756 | ) | $ | 12,414 | $ | (87,520 | ) | $ | 17,272 | $ | (25,682 | ) | $ | 14,402 | $ | 150,612 | |||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||
Basic income (loss) per common share | $ | — | $ | 0.03 | $ | (0.23 | ) | $ | 0.05 | $ | (0.08 | ) | $ | 0.05 | $ | 0.54 | ||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||
Diluted income (loss) per common share | $ | — | $ | 0.03 | $ | (0.23 | ) | $ | 0.05 | $ | (0.08 | ) | $ | 0.05 | $ | 0.51 | ||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||
Total assets | $ | 2,239,173 | $ | 2,259,951 | $ | 2,221,925 | $ | 2,262,064 | $ | 2,232,119 | $ | 1,378,290 | $ | 1,396,090 | ||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||
Accrued reclamation & closure costs(2) | $ | 96,718 | $ | 57,412 | $ | 95,538 | $ | 57,250 | $ | 105,191 | $ | 113,215 | $ | 153,811 | ||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||
Non-current portion of debt and capital leases(3) | $ | 507,958 | $ | 510,381 | $ | 509,040 | $ | 512,129 | $ | 505,058 | $ | 11,935 | $ | 6,265 | ||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||
Cash dividends paid per common share(4) | $ | 0.0025 | $ | 0.0025 | $ | 0.01 | $ | 0.01 | $ | 0.02 | $ | 0.06 | $ | 0.02 | ||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||
Cash dividends paid per Hecla Series B share(1) | $ | 0.875 | $ | 0.875 | $ | 3.50 | $ | 3.50 | $ | 3.50 | $ | 3.50 | $ | 3.50 | ||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||
Cash dividends paid per 6.5% Mandatory Convertible Preferred share(5) | $ | — | $ | — | $ | — | $ | — | $ | — | $ | — | $ | 1.62 | ||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||
Common shares issued and outstanding | 381,520,569 | 369,992,839 | 378,112,840 | 367,376,863 | 342,663,381 | 285,209,848 | 285,289,924 | |||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||
6.5% Mandatory Convertible Preferred shares issued and outstanding | — | — | — | — | — | — | — | |||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||
Hecla Series B shares issued and outstanding | 157,816 | 157,816 | 157,816 | 157,816 | 157,816 | 157,816 | 157,816 | |||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||
Stockholders of record | 4,376 | 5,414 | 4,392 | 5,571 | 6,435 | 6,630 | 6,943 | |||||||||||||||||||||
Employees(6) | 1,398 | 1,360 | 1,404 | 1,354 | 1,312 | 735 | 735 |
(1) | Hecla declared and paid all quarterly dividends on its Series B Cumulative Convertible Preferred Stock (“Hecla Series B”) shares for 2011, 2012, 2013, 2014 and 2015 totaling $0.6 million for each of |
(2) | In the fourth quarter of |
(3) | On April 12, 2013, Hecla completed an offering of $500 million in aggregate principal amount of its Senior Notes due May 1, 2021 in a |
(4) | In September 2011 and February 2012, Hecla’s board of directors adopted a common stock dividend policy that has two components: (1) a dividend that links the amount of dividends on common stock to Hecla’s average quarterly realized silver price in the preceding quarter,
|
Declaration date | (A) Silver- price- linked component per share | (B) Minimum annual component per share | (C) Special dividend per share | (A+B+C) Total dividend per share | Total dividend amount (in millions) | Month of | ||||||||||||||||
February 25, 2013 | $ | — | $ | 0.0025 | $ | 0.01 | $ | 0.0125 | $ | 3.6 | March 2013 | |||||||||||
May 10, 2013 | $ | — | $ | 0.0025 | $ | — | $ | 0.0025 | $ | 0.7 | June 2013 | |||||||||||
August 8, 2013 | $ | — | $ | 0.0025 | $ | — | $ | 0.0025 | $ | 0.9 | August 2013 | |||||||||||
November 5, 2013 | $ | — | $ | 0.0025 | $ | — | $ | 0.0025 | $ | 0.9 | December 2013 | |||||||||||
February 21, 2014 | $ | — | $ | 0.0025 | $ | — | $ | 0.0025 | $ | 0.9 | March 2014 | |||||||||||
May 5, 2014 | $ | — | $ | 0.0025 | $ | — | $ | 0.0025 | $ | 0.9 | June 2014 | |||||||||||
July 31, 2014 | $ | — | $ | 0.0025 | $ | — | $ | 0.0025 | $ | 0.9 | September 2014 | |||||||||||
November 5, 2014 | $ | — | $ | 0.0025 | $ | — | $ | 0.0025 | $ | 0.9 | December 2014 | |||||||||||
February 17, 2015 | $ | — | $ | 0.0025 | $ | — | $ | 0.0025 | $ | 0.9 | March 2015 | |||||||||||
May 6, 2015 | $ | — | $ | 0.0025 | $ | — | $ | 0.0025 | $ | 0.9 | June 2015 | |||||||||||
August 6, 2015 | $ | — | $ | 0.0025 | $ | — | $ | 0.0025 | $ | 0.9 | September 2015 | |||||||||||
November 3, 2015 | $ | — | $ | 0.0025 | $ | — | $ | 0.0025 | $ | 0.9 | December 2015 | |||||||||||
February 20, 2016 | $ | — | $ | 0.0025 | $ | — | $ | 0.0025 | $ | 0.9 | March 2016 |
Because the average realized silver price for the first quarter of 2016 and each quarter of 2013, 2014 and 2015 was below the minimum threshold of $30 according to the policy, no silver-price-linked component was declared or paid. However, on February 25, 2013, Hecla’s board of directors declared a special common stock dividend of $0.01 per share, in addition to the minimum dividend of $0.0025 per share, for an aggregate dividend of $3.6 million. Prior to 2011, no dividends had been declared on Hecla’s common stock since 1990. Hecla cannot pay dividends on its common stock if it fails to pay dividends on Hecla Series B shares. The declaration and payment of common stock dividends, whether pursuant to the policy or in addition thereto, is at the sole discretion of Hecla’s board of directors, and there can be no assurance that Hecla will continue to declare and pay common stock dividends in the future.
Additional information about Hecla and its subsidiaries is included in documents incorporated by reference in this proxy statement/prospectus. See “Where You Can Find More Information” beginning on page 111.
RHL Holdings, Inc., a wholly-owned subsidiary of Hecla, is a Delaware corporation. Upon completion of the merger, Merger Sub will be merged with and into Revett, with Revett surviving as awholly-owned subsidiary
of Hecla. Merger Sub has not conducted any significant activities other than those incidental to its formation, the acquisition of 725,000 shares of Revett common stock, and the matters contemplated by the merger agreement in connection with the merger.
Revett Mining Company, Inc.
11115 East Montgomery, Suite G
Spokane Valley, Washington 99206
(509) 921-2294
Overview. Revett Mining Company, Inc. (formerly known as Revett Minerals Inc.) was incorporated in Canada in August 2004 to acquire Revett Silver Company and undertake a public offering of its common shares, transactions that were completed in February 2005. Revett Silver Company, a Montana corporation, was organized in April 1999 to acquire the Troy mine (“Troy”) and the Rock Creek project (“Rock Creek”) from ASARCO Incorporated and Kennecott Montana Company, transactions that were completed in October 1999 and February 2000.
Revett changed its jurisdiction of incorporation (from Canada to Delaware) and its name (from Revett Minerals to Revett Mining Company) in February 2014. Revett presently conducts business through four Montana corporations, all subsidiaries of its wholly-owned Revett Silver Company subsidiary: Troy Mine, Inc., RC Resources, Inc., Revett Exploration, Inc. and Revett Holdings, Inc.
Revett’s common stock is traded on the NYSE MKT and on the TSX under the symbol “RVM”.
Revett’s principal executive office is located at 11115 East Montgomery, Suite G, Spokane Valley, Washington 99206, and its telephone number at that address is (509) 921-2294. Revett’s registered office in Delaware is located at is 1209 Orange Street, Wilmington, Delaware 19801.
Troy. Troy is an underground silver and copper mine located in Lincoln County, Montana, approximately fifteen miles south of the town of Troy.
(5) | The
|
(6) | The increase in the |
(7) | As a result of an
|
Comparative Per Share Information
The following table sets forth, for the year ended December 31, 2015 and for the three months ended March 31, 2016, selected per share information for Hecla common stock and Mines Management common stock on a historical basis and unaudited pro forma information using the acquisition method of accounting assuming (i) the merger occurred on the dates indicated, (ii) each option to purchase shares of Mines Managementcommon stock outstanding on June 28, 2016 that has an exercise price per share less than $1.04 was cancelled in exchange for the right to receive shares of Hecla common stock with a value of $4.71 per share, and (iii) all severance due to Messrs. Glenn Dobbs and Douglas Dobbs and Ms. Altenburg in connection with the merger was paid in the form of Hecla common stock with a value of $4.71 per share. The Mines Management unaudited pro forma combined equivalents show how each share of Mines Management common stock would have participated in the combined company’s earnings (loss) from continuing operations and book value if the pro forma events had occurred on the relevant dates and were calculated by multiplying the corresponding Hecla unaudited pro forma
combined data by the exchange ratio of 0.2218. You should read the data with (i) the historical consolidated financial statements and related notes of Mines Management appearing elsewhere in this proxy statement/prospectus, and (ii) the historical consolidated financial statements and related notes of Hecla contained in its Annual Report on Form 10-K for the year ended December 31, 2015 and in its quarterly report on Form 10-Q for the quarter ended March 31, 2016, which are incorporated by reference into this proxy statement/prospectus. See “Where You Can Find More Information” beginning on page 105. The pro forma information is presented for illustrative purposes only and is not necessarily indicative of the operating results or financial position of Hecla following the merger.
As of and for the Year Ended December 31, 2015 | As of and for (Unaudited) | |||||||
Hecla—Historical Per Share Data | ||||||||
(Loss) per basic and diluted share from continuing operations | $ | (0.23 | ) | $ | — | |||
Cash dividends declared per common share | $ | 0.01 | $ | 0.0025 | ||||
Cash dividends declared per Hecla Series B share | $ | 3.50 | $ | 0.875 | ||||
Book value per share | $ | 3.54 | $ | 3.53 | ||||
Mines Management—Historical Per Share Data | ||||||||
(Loss) per basic and diluted share | $ | (0.10 | ) | $ | (0.03 | ) | ||
Cash dividends per common share | $ | — | $ | — | ||||
Cash dividends declared per Mines Management Series B 6% Convertible Preferred Stock (“Mines Management Series B”) share | $ | 60.00 | $ | 15.00 | ||||
Book value per share | $ | 0.07 | $ | 0.04 | ||||
Hecla—Unaudited Pro Forma Combined Data | ||||||||
Unaudited pro forma per Hecla share: | ||||||||
(Loss) per basic and diluted share from continuing operations | $ | (0.24 | ) | $ | — | |||
Cash dividends declared per common share | $ | 0.01 | $ | 0.0025 | ||||
Cash dividends declared per Hecla Series B share | $ | 3.50 | $ | 0.875 | ||||
Book value per share | $ | 3.56 | $ | 3.55 | ||||
Mines Management—Unaudited Pro Forma Combined Equivalents Data | ||||||||
Unaudited pro forma per Mines Management common share: | ||||||||
(Loss) per basic and diluted share from continuing operations | $ | (0.05 | ) | $ | — | |||
Cash dividends declared per common share | $ | 0.0022 | $ | 0.0006 | ||||
Cash dividends declared per Mines Management Series B share | $ | — | $ | — | ||||
Book value per share | $ | 0.79 | $ | 0.79 |
Hecla common stock is traded on the NYSE under the symbol “HL.” Mines Management common stock is currently listed for trading on the NYSE MKT under the symbol “MGN” and the TSX under the symbol “MGT.” The following table presents trading information for shares of Hecla common stock on the NYSE and Mines Management common stock on the NYSE MKT on May 23, 2016, the last trading day before the public announcement of the execution of the merger agreement, and July [●], 2016, the latest practicable trading day before the date of this proxy statement/prospectus.
Hecla Common Stock | Mines Management Common Stock | |||||||||||||||||||||||
Date | High | Low | Close | High | Low | Close | ||||||||||||||||||
May 23, 2016 | $ | 4.33 | $ | 4.09 | $ | 4.24 | $ | 0.67 | $ | 0.62 | $ | 0.64 | ||||||||||||
July [●], 2016 | $ | [●] | $ | [●] | $ | [●] | $ | [●] | $ | [●] | $ | [●] |
In addition to the other information included and incorporated by reference into this proxy statement/prospectus, including the matters addressed in the section entitled “Cautionary Statement Regarding Forward-Looking Statements” beginning on page 8, you should carefully consider the following risks before deciding whether to vote for the merger proposal. In addition, you should read and consider the risks associated with the business of Hecla because these risks will also affect Hecla after the merger is final. Descriptions of some of these risks can be found in Hecla’s Annual Report on Form 10-K for the fiscal year ended December 31, 2015, updated by any subsequent Quarterly Reports on Form 10-Q, all of which are filed with the SEC and incorporated by reference into this proxy statement/prospectus. You should also read and consider the other information in this proxy statement/prospectus and the other documents incorporated by reference into this proxy statement/prospectus. See the section entitled “Where You Can Find More Information” beginning on page 105.
Risk Factors Relating to the Merger
The merger may not be completed on the terms or timeline currently contemplated or at all. Failure to complete the merger could negatively impact the stock prices and the future business and financial results of Hecla and Mines Management.
The completion of the transactions contemplated by the merger agreement is subject to certain conditions, including (1) approval and adoption by Mines Management stockholders, (2) the effectiveness of certain filings with the SEC, (3) the absence of certain legal impediments and (4) other customary closing conditions. See “Proposal 1: The Approval and Adoption of the Merger Agreement—The Merger Agreement—Conditions to Completion of the Merger” beginning on page 76. Hecla and Mines Management cannot assure you that the merger will be consummated on the terms or timeline currently contemplated, or at all. Hecla and Mines Management have expended and will continue to expend a significant amount of time and resources on the merger, and a failure to consummate the merger as currently contemplated, or at all, could have a material adverse effect on Hecla’s and Mines Management’s businesses and results of operations.
If the merger is not completed, the ongoing businesses of Hecla or Mines Management may be adversely affected and Hecla and Mines Management will be subject to several risks, including the following:
in each case, without realizing any of the anticipated benefits of having the merger completed. In addition, if the merger is not completed, Hecla and/or Mines Management may experience negative reactions from the financial markets and from their respective employees and other stakeholders. Hecla and/or Mines Management could also be subject to litigation related to any failure to complete the merger or to perform their respective obligations under the merger agreement. If the merger is not completed, Hecla and Mines Management cannot assure their respective stockholders that these risks will not materialize and will not materially affect the business, financial results and stock prices of Hecla or Mines Management.
The fairness opinion rendered to Mines Management’s board of directors by CG was based on CG’s financial analysis and considered factors such as market and other conditions then in effect, and other information made available to CG, as of the date of the opinion. As a result, the opinion does not reflect changes in events or circumstances after the date of such opinion. Mines Management’s board of directors has not obtained, and does not expect to obtain, an updated fairness opinion from CG reflecting changes in circumstances that may have occurred since the signing of the merger agreement.
The fairness opinion rendered to Mines Management’s board of directors by CG was provided in connection with, and at the time of, the evaluation of the merger and the merger agreement by Mines Management’s board of directors. The opinion was based on the financial analyses performed, which considered market and other conditions then in effect, and other information made available to CG, as of the date of the opinion, which may have changed, or may change, after the date of the opinion. Mines Management’s board of directors has not obtained an updated opinion as of the date of this proxy statement/prospectus from CG and does not expect to obtain an updated opinion prior to completion of the merger. Changes in the operations and prospects of Hecla or Mines Management, general market and economic conditions and other factors that may be beyond the control of Hecla or Mines Management, and on which the fairness opinion was based, may have altered the value of Hecla or Mines Management or the prices of Hecla common stock or Mines Management common stock since the date of such opinion, or may alter such values and prices by the time the merger is completed. The opinion does not speak as of any date other than the date of the opinion. For a description of the opinion that CG rendered to the Mines Management board of directors, please refer to “Proposal 1: The Approval and Adoption of the Merger Agreement—Opinion of Mines Management’s Financial Advisor” beginning on page 49.
The exchange ratio is fixed and will not be adjusted in the event of any change in either Hecla’s or Mines Management’s stock price.
Upon the closing of the merger, each share of Mines Management common stock (other than shares owned by Mines Management, Hecla or Merger Sub, which will be cancelled) will be converted into the right to receive 0.2218 of a share of Hecla common stock, with cash paid in lieu of fractional shares. This exchange ratio was fixed in the merger agreement and will not be adjusted for changes in the market price of either Hecla common stock or Mines Management common stock. Changes in the price of Hecla common stock prior to the effective time of the merger will affect the value of Hecla stock that Mines Management stockholders will receive in the merger. Stock price changes may result from a variety of factors (many of which are beyond the control of Hecla or Mines Management), including, without limitation, the following:
The price of Hecla common stock at the closing of the merger may vary from its price on the date the merger agreement was executed, on the date of this proxy statement/prospectus and on the date of the special meeting of Mines Management. As a result, the market value represented by the exchange ratio will also vary.
Any delay in completing the merger may reduce or eliminate the expected benefits from the merger.
In addition to the required Mines Management stockholder approval and adoption, the merger is subject to a number of other conditions beyond Hecla’s and Mines Management’s control that may prevent, delay or otherwise materially adversely affect its completion. Hecla and Mines Management cannot predict whether and when these other conditions will be satisfied. Furthermore, obtaining the required approval and adoption could delay the completion of the merger for a significant period of time or prevent it from occurring. Any delay in completing the merger could cause Hecla not to realize some or all of the benefits that it expects to achieve if the merger is successfully completed within its expected timeframe. See the section entitled “Proposal 1: The Approval and Adoption of the Merger Agreement—The Merger Agreement—Conditions to Completion of the Merger” beginning on page 76.
The merger agreement contains provisions that could discourage a potential competing acquiror of Mines Management or could result in any competing proposal being at a lower price than it might otherwise be.
The merger agreement contains “no shop” provisions that, subject to limited exceptions, restrict Mines Management’s ability to solicit, initiate or knowingly facilitate or encourage competing third-party proposals to acquire all or a significant part of Mines Management. In addition, Hecla generally has an opportunity to offer to modify the terms of the merger and the merger agreement in response to any competing acquisition proposals that may be made before Mines Management’s board of directors may withhold or withdraw (or modify in a manner adverse to Hecla) its recommendation. In some circumstances, upon termination of the merger agreement, Mines Management may be required to pay a termination fee to Hecla and/or reimburse Hecla for certain expenses. For additional information, see the sections entitled “Proposal 1: The Approval and Adoption of the Merger Agreement—The Merger Agreement—No Solicitation of Alternative Proposals” beginning on page 71, “—Changes in Board Recommendations” beginning on page 73, “—Termination” beginning on page 77 and “—Termination Fees and Expenses” beginning on page 78.
These provisions could discourage a potential competing acquiror that might have an interest in acquiring all or a significant part of Mines Management from considering or proposing such an acquisition, even if it were prepared to offer greater value than provided for under the merger agreement, or might result in a potential competing acquiror proposing to pay a lower price than it might otherwise have proposed to pay because of the added expense of the termination fee and/or reimbursement of certain expenses that may become payable in certain circumstances, which would represent an additional cost for a potential third party seeking a business combination with Mines Management.
The merger will involve substantial costs.
Hecla and Mines Management have incurred and expect to continue to incur substantial costs and expenses relating directly to the transaction, including fees and expenses payable to legal, accounting and financial advisors and other professional fees relating to the transaction, insurance premium costs, fees and costs relating to regulatory filings and notices, SEC filing fees, printing and mailing costs and other transaction-related costs, fees and expenses.
Mines Management’s officers and directors have interests in the transactions that may be different from, or in addition to, the interests of Mines Management’s stockholders generally.
Officers of Hecla and Mines Management negotiated, with oversight and input provided by their respective boards of directors, the terms of the merger agreement. Hecla’s board of directors approved the merger agreement and the issuance of shares of Hecla common stock to Mines Management stockholders in connection with the merger and determined that the merger agreement and the transactions contemplated thereby, including the merger and the issuance of shares of Hecla common stock to Mines Management stockholders in connection with the merger, are advisable and in the best interests of Hecla and its stockholders. Mines Management’s board of directors approved and adopted the merger agreement and determined that the merger agreement and the transactions contemplated thereby are advisable and in the best interests of Mines Management and its stockholders. In considering these facts and the other information contained in this proxy statement/prospectus, you should be aware that Mines Management’s officers and directors may have interests in the transactions that may be different from, or in addition to, the interests of Mines Management’s stockholders. See the section entitled “Proposal 1: The Approval and Adoption of the Merger Agreement—Interests of Mines Management’s Directors and Named Executive Officers in the Merger” beginning on page 58.
Mines Management stockholders will not be entitled to appraisal rights in the merger.
Appraisal rights are statutory rights that, if applicable, enable stockholders, in connection with certain mergers, to demand that the corporation pay the fair value for their shares as determined by a court in a judicial proceeding instead of receiving the consideration offered to stockholders in the merger. Under Idaho law, stockholders do not have appraisal rights if, among other circumstances, the shares of stock they hold at the record date are listed on the NYSE or the NYSE MKT.
Because Mines Management common stock is listed on the NYSE MKT, Mines Management stockholders will not be entitled to appraisal rights under Idaho law in the merger with respect to their shares of Mines Management common stock.
Risk Factors Relating to Hecla Following the Merger
Hecla will incur transaction and integration costs in connection with the merger.
Hecla and Mines Management expect to incur transaction fees and other costs related to the merger. In addition to transaction costs related to the merger, Hecla will incur integration costs following the completion of the merger as it integrates the Mines Management business with that of Hecla.
After completion of the merger, Hecla may fail to realize anticipated benefits.
The success of the merger will depend, in part, on Hecla’s ability to realize the anticipated benefits from the acquisition of Mines Management. If Hecla is not able to successfully integrate Mines Management into Hecla’s operations within the anticipated timeframe, or at all, the anticipated benefits of the merger may not be realized fully or at all or may take longer to realize than expected. For example, Hecla has viewed ownership of both its Rock Creek project and Mines Management’s nearby Montanore Project as the principal benefit of the merger. However, the proximity and any other relationship between those two projects could make obtaining all necessary permits for one or both of the projects to be more expensive or time consuming, or any such permit might not be obtained at all.
After completion of the merger, Mines Management may experience negative developments or outcomes in any of its pending litigation matters.
Mines Management is a party to several lawsuits which may impact its ability to access, develop or operate the Montanore Project. Mines Management is currently involved in three different lawsuits each of which
involves potential defects in title or parties seeking to limit Mines Management’s access to the properties comprising the Montanore Project. In addition, Mines Management has intervened in three lawsuits challenging environmental permits granted with respect to the Montanore Project. Should a development or outcome from one of these or any other lawsuit limit Mines Management’s ability to access, develop or operate the Montanore Project, then Hecla would likely be unable to realize the anticipated benefits from the acquisition of Mines Management. See “Risk Factors—Risk Factors Relating to Mines Management—The title to some of Mines Management’s properties may be uncertain or defective” beginning on page 31 and “Information Regarding Mines Management—Legal Proceedings” beginning on page 99.
The market price of Hecla common stock following the merger may decline as a result of the merger.
The market price of Hecla’s common stock following the merger may decline as a result of the merger for a number of reasons, including the unsuccessful integration of Mines Management and Hecla, the failure of Hecla to achieve the perceived benefits of the merger, including financial results, difficulties in the Montanore permitting process or declines in the mining industry, the market prices of silver, gold or copper, Hecla’s business or the economy as a whole. These factors are, to some extent, beyond the control of Hecla and Mines Management.
The shares of Hecla common stock to be received by Mines Management stockholders as a result of the merger will have different rights from the shares of Mines Management common stock currently held by Mines Management stockholders.
Upon completion of the merger, Mines Management stockholders will receive shares of Hecla common stock and their rights as stockholders of Hecla will be governed by Delaware law and Hecla’s certificate of incorporation and Hecla’s bylaws. The rights associated with Hecla common stock are different from the rights associated with Mines Management common stock, articles of incorporation and bylaws. See the section entitled “Comparative Rights of Hecla Stockholders and Mines Management Stockholders” beginning on page 84 for a discussion of the different rights associated with Hecla common stock.
Hecla will continue to face other existing and future business and financial risks.
Hecla faces numerous risks associated with its business, financial structure and related matters. These risks are described under Item 1A, Risk Factors in Hecla’s most recent Annual Report on Form 10-K, which is incorporated herein by reference and which you should read and carefully consider, and may be updated in Hecla’s Quarterly Reports on Form 10-Q.
If the merger does not qualify as a “reorganization” within the meaning of Section 368(a) of the Code, the stockholders of Mines Management may be subject to U.S. federal income tax on the merger.
Although Hecla and Mines Management intend that the merger qualify as a “reorganization” within the meaning of Section 368(a) of the Code, it is possible that the Internal Revenue Service may assert that the merger fails to qualify as such. If the Internal Revenue Service were to be successful in such assertion, or if for any other reason the merger were to fail to qualify as a “reorganization,” each U.S. holder (as defined on page 61) of shares of Mines Management common stock would recognize gain or loss with respect to its shares of Mines Management common stock based on the difference between (i) that U.S. holder’s tax basis in such shares and (ii) the fair market value of the shares of Hecla common stock received (and any cash received in lieu of a fractional share of Hecla common stock). For additional information, see the section entitled “Proposal 1: The Approval and Adoption of the Merger Agreement—Material U.S. Federal Income Tax Consequences of the Merger” beginning on page 60.
Risk Factors Relating to Mines Management
If the merger is not completed, Mines Management will require additional external financing to fund its continuing business activities in the future, and the terms of any such financing, if obtained, may have negative effects on Mines Management’s flexibility and future transactions.
Mines Management is an exploration stage mining company and currently does not have sufficient capital to continue its business activities as planned through 2016 or to fund the activities needed to establish the economic feasibility of the Montanore Project. Mines Management had approximately $0.4 million in cash and cash equivalents as of March 31, 2016, which is insufficient to fund its business and operations through 2016. Mines Management anticipates that its expenses in 2016 would total approximately $1.6 million for regulatory and environmental monitoring activities and $2.0 million of general and administrative expenses, assuming that Mines Management were able to obtain sufficient capital to continue operations. Mines Management estimates that, following the completion of environmental mitigation activities, the costs of completing the exploratory drilling program at the Montanore Project will be approximately $20.0 to $25.0 million, plus general and administrative expenses during the period in which the drilling program is being conducted. Uncertainties surrounding the exploratory drilling program and the permitting process could require the drilling program to take longer and cause costs to increase. Mines Management’s cash on hand is not sufficient to continue its business through 2016 or to commence the exploratory drilling program and a bankable feasibility study, and external financing will be required.
If the merger is not completed, Mines Management plans to continue its efforts to secure external financing but it presently does not have agreements from any source under which such financing will be received, and its recent efforts to obtain financing on acceptable terms or at all, other than from Hecla in connection with the merger, have been unsuccessful. There can be no assurance that Mines Management will be successful in obtaining external financing or entering into a sale of Mines Management, a sale or joint venture of the Montanore Project, or other type of transaction that will permit it to repay amounts due to Hecla under the Interim Credit Agreement or continue its business, or that the terms of any such financing or transaction would not make future financings or transactions more difficult or otherwise limit Mines Management’s flexibility or opportunities in the future. There can be no assurance that any financing obtained will not be highly dilutive to existing stockholders. In addition, it is uncertain that the amount of any financing that might be obtained would enable Mines Management to repay amounts due to Hecla under the Interim Credit Agreement or continue its business and operations for more than a few months. If no additional funding can be secured, Mines Management may not be able to remain in business or to complete a transaction with respect to the Montanore Project or any other transaction. Finally, the amounts owed to Hecla under the Interim Credit Agreement—currently $1.4 million—are secured by the Montanore Project, and if Mines Management is unable to repay Hecla, it could face the prospects of losing title to Montanore through foreclosure or other similar remedial measures.
If Mines Management is unable to comply with the NYSE MKT continued listing requirements, its common stock could be delisted from the NYSE MKT equities market. Delisting could negatively affect its stock price and investors’ ability to make transactions in its securities.
On July 1, 2015, Mines Management received a letter from NYSE MKT stating that Mines Management was not in compliance with the continued listing standards as set forth in Section 1003(a)(i-iv) of the NYSE MKT Company Guide (the “Company Guide”). In order to maintain its listing, Mines Management submitted a plan on August 3, 2015, in accordance with the NYSE MKT’s requirement, which addresses how it intends to regain compliance with the financial impairment standards set forth in Section 1003(a)(iv) of the Company Guide by December 31, 2015 and the equity standards set forth in Section 1003(a)(i)-(iii) of the Company Guide by December 31, 2016. During September 2015, the NYSE MKT accepted the Company’s compliance plan and granted Mines Management until September 30, 2015 to regain compliance with the financial impairment standards. On October 21, 2015, the NYSE MKT notified Mines Management that Mines Management had made a reasonable demonstration of its ability to regain compliance with financial impairment standards by the end of the revised plan period of December 31, 2015. In January 2016, the NYSE MKT granted Mines Management a
further extension to regain compliance with financial impairment standards to March 31, 2016. In April 2016, the NYSE MKT granted Mines Management an additional extension to June 30, 2016 because Mines Management had made a reasonable demonstration of its ability to regain compliance with Section 1003(a)(iv) of the NYSE MKT Company Guide by the end of the revised plan period. If the merger is not completed, it is uncertain that Mines Management will be able to obtain sufficient external financing to continue its business and operations for more than a few months, which would be unlikely to satisfy the NYSE MKT financial impairment listing requirements.
There can be no assurance that Mines Management common stock will remain listed on the NYSE MKT. If Mines Management is delisted from the NYSE MKT, Mines Management anticipates that its common stock will trade over the counter. If Mines Management common stock is delisted from the NYSE MKT, its stockholders may face material adverse consequences, including, but not limited to, a decrease in the price of its common stock and reduced liquidity in the trading market for its common stock. Some stockholders may sell their shares, and Mines Management’s ability to issue additional securities or obtain additional financing in the future may be negatively affected. Mines Management would no longer be able to use a short form Form S-3 registration statement (i) for a primary offering, if Mines Management public float is not at least $75.0 million as of a date within 60 days prior to the date of filing the Form S-3, or a re-evaluation date, whichever is later, and (ii) to register the resale of its securities by persons other than Mines Management. If Mines Management were unable to utilize a Form S-3 registration statement for primary and secondary offerings of Mines Management common stock, Mines Management would be required to file a Form S-1 registration statement, which, due to regulatory review periods, could delay Mines Management’s ability to raise funds in the future, may limit the type of offerings of common stock Mines Management could undertake and could increase the expenses of any offering.
If Mines Management common stock were delisted and determined to be a “penny stock,” a broker-dealer may find it more difficult to trade Mines Management common stock and an investor may find it more difficult to acquire or dispose of Mines Management common stock in the secondary market.
If Mines Management common stock were removed from listing with the NYSE MKT, it may be subject to the so-called “penny stock” rules. The SEC has adopted regulations that define a penny stock to be any equity security that has a market price per share of less than $5.00, subject to certain exceptions, such as any securities listed on a national securities exchange. For any transaction involving a penny stock, unless exempt, the rules impose additional sales practice requirements on broker-dealers, subject to certain exceptions. If Mines Management common stock were delisted and determined to be a penny stock, a broker-dealer may find it more difficult to trade Mines Management common stock, and an investor may find it more difficult to acquire or dispose of Mines Management common stock on the secondary market.
Mines Management has no proven or probable reserves.
Mines Management is currently in the exploration stage and has no proven or probable reserves, as those terms are defined by the SEC, on any of Mines Management’s properties, including the Montanore Project. The mineralized material identified to date in respect of the Montanore Project has not demonstrated economic viability and Mines Management cannot provide any assurance that mineral reserves with economic viability will be identified on that property.
In order to demonstrate the existence of proven or probable reserves under SEC guidelines, it would be necessary for Mines Management to advance the exploration of the Montanore Project by significant additional delineation drilling to demonstrate the existence of sufficient mineralized material with satisfactory continuity. If successful, the results of this drilling program would provide the basis for a feasibility study demonstrating with reasonable certainty that the mineralized material can be economically extracted and produced. Mines Management does not currently have sufficient data to support a feasibility study of the Montanore Project, and in order to perform the drilling to support such a feasibility study, Mines Management must first obtain external financing and complete environmental mitigation activities to continue its exploration efforts. It is possible that, even if Mines Management obtains sufficient geologic data to support a feasibility study on the Montanore
Project, the data will lead it to conclude that none of the identified mineral deposits can be economically and legally extracted or produced. If Mines Management cannot adequately confirm or discover any mineral reserves of precious metals at the Montanore Project, it may not be able to generate any revenues.
Even if Mines Management discovers mineral reserves at the Montanore Project in the future that can be economically developed, the initial capital costs associated with development and production of any reserves found is such that Mines Management might not be profitable for a significant time after the initiation of any development or production. The commercial viability of a mineral deposit once discovered is dependent on a number of factors beyond Mines Management’s control, including particular attributes of the deposit such as size, grade and proximity to infrastructure, as well as metal prices. In addition, development of a project as significant as the Montanore Project will likely require significant debt financing, the terms of which could contribute to a delay of profitability.
Even if Mines Management’s exploration efforts at the Montanore Project are successful, Mines Management may not be able to raise the funds necessary to develop the Montanore Project.
If Mines Management’s exploration efforts at the Montanore Project are successful, a Preliminary Economic Assessment completed in November 2010 indicated that it would cost approximately $550.0 million in additional financing to develop and construct the Montanore Project. If and when an updated assessment is completed, this amount could increase significantly. Sources of external financing could include bank debt financing, smelter offtake financings, equity financing or the sale of all or a portion of the Montanore Project. Even if a bankable feasibility study is completed, commodity prices, the then-current state of financial markets or other factors may render financing for the development of the Montanore Project difficult or impossible. Financing has become significantly more difficult to obtain in the current market environment. There can be no assurance that Mines Management will commence production at the Montanore Project or generate sufficient revenues to meet its obligations as they become due or obtain necessary financing on acceptable terms, if at all, and Mines Management may not be able to secure the financing necessary to begin or sustain production at the Montanore Project. If Mines Management cannot adequately finance its exploration of the Montanore property and its subsequent development, Mines Management will not be able to generate any revenues. In addition, should Mines Management incur significant losses in future periods, it may be unable to continue as a going concern, and realization of assets and settlement of liabilities in other than the normal course of business may be at amounts significantly different than those included in Mines Management’s periodic reports.
Additional permits will be required and may be delayed during advancement of the Montanore Project.
In the ordinary course of business, mining companies are required to seek governmental permits for expansion of existing operations or for the commencement of new operations. Although the final RODs were issued on February 12, 2016, additional permits will be required for advancement of the Montanore Project. Obtaining these permits has been and continues to be a complex and time consuming process involving numerous jurisdictions and often involves additional work and studies, public hearings, litigation and other costly undertakings. Mines Management has been engaged in renewing or pursuing permits since early 2005. Obtaining required permits for the Montanore Project has been and may continue to be more difficult due to its location within the Cabinet Wilderness Area and its proximity to a core habitat of certain protected species, including the grizzly bear and bull trout. In addition, Hecla is seeking to permit its Rock Creek mining project near the Montanore Project, and the impact of that operation on the environment and on wildlife in the area was taken into consideration in Mines Management’s permitting determinations and has lengthened its permitting process and made those determinations more difficult. Private political groups have been active in opposing permitting of projects in and near the Cabinet Wilderness Area and have taken and may in the future take actions to oppose or delay the Montanore Project. For example, Save Our Cabinets, Earthworks and Defenders of Wildlife filed a complaint in the United States District Court for the District of Montana against the U.S. Fish and Wildlife Service (“USFWS”) challenging the issuance of the Montanore biological opinion. Two other lawsuits challenging the permitting of the Montanore Project have since been filed. See “Information Regarding Mines Management—Legal Proceedings” beginning on page 99.
Mining projects require the evaluation of environmental impacts for air, water, vegetation, wildlife, cultural, historical, geological, geotechnical, geochemical, soil and socioeconomic conditions. Permits are required for, among other things, storm-water discharge, air quality, wetland disturbance, dam safety (for water storage and/or tailing storage), septic and sewage and water rights appropriation, and compliance must be demonstrated with the Endangered Species Act and the National Historical Preservation Act. Permitting costs through March 31, 2016 have totaled approximately $46.8 million, and it is possible that the costs and delays associated with compliance with such standards and regulations could become such that Mines Management would be unable to raise sufficient funds to proceed with the further exploration, development or operation of a mine at the Montanore Project.
Mines Management has a history of losses and expects losses to continue.
As an exploration stage company that has no production history, Mines Management has incurred losses since its inception, and it expects to continue to incur additional losses for the foreseeable future. For the fiscal years ended December 31, 2015 and 2014, Mines Management incurred losses of $2.8 million and $6.5 million, respectively. As of March 31, 2016, Mines Management had an accumulated deficit of $90.3 million. There can be no assurance that Mines Management will achieve or sustain profitability in the future.
The title to some of Mines Management’s properties may be uncertain or defective.
Although the Montanore deposit is held by patented mining claims, a significant portion of Mines Management’s United States mineral and surface use rights consist of “unpatented” mining and millsite claims created and maintained in accordance with the General Mining Law. Unpatented mining and millsite 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 and millsite claims is often uncertain. This uncertainty arises, in part, out of the complex federal and state laws and regulations that supplement the General Mining Law. Also, unpatented mining and millsite claims and related rights, including rights to use the surface, are subject to possible challenges by third parties or contests by the federal government. The validity of an unpatented mining or millsite 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 and millsite claims. Mines Management has not filed a patent application for any of its unpatented mining and millsite claims that are located on federal public lands in the United States and, under current law and possible future legislation to change the General Mining Law, patents may not be available. Mines Management has obtained a title opinion on some of the patented mining claims covering the Montanore deposit, but not on all of its patented mining claims. Mines Management has not obtained title opinions on any of its unpatented mining or millsite claims.
Mines Management’s ability to conduct exploration, development, mining and related activities may also be impacted by administrative actions taken by federal agencies. With respect to unpatented millsites, for example, the ability to use millsites and their validity has been subject to greater uncertainty since 1997. In November of 1997, the Secretary of the Interior approved a Solicitor’s Opinion which concluded that the General Mining Law imposed a limitation that only a singlefive-acre millsite may be claimed or used in connection with each associated and valid unpatented or patented lode mining claim. Subsequently, however, on October 7, 2003, the new Secretary of the Interior approved an Opinion by the Deputy Solicitor which concluded that the mining laws do not impose a limitation that only a singlefive-acre millsite may be claimed in connection with each associated unpatented or patented lode mining claim. Current federal regulations do not include the millsite limitation. There can be no assurance, however, that the Department of the Interior will not seek tore-impose the millsite limitation at some point in the future.
Other actions have been periodically brought, including one action that is currently ongoing, against the Department of the Interior, the Department of Agriculture, the Bureau of Land Management (BLM), and the U.S. Forest Service (USFS), seeking to impose thefive-acre millsite limitation, as well as to require mining claimants
to pay fair market value for their use of the surface of federal lands where those claimants have not demonstrated the validity of their unpatented mining claims and millsites. To date, such actions have not been successful, but there can be no assurances they or other actions will not be in the future.
In recent years, the U.S. Congress has considered a number of proposed amendments to the General Mining Law, as well as legislation that would make comprehensive changes to the law. Although no such legislation has been adopted to date, there can be no assurance that such legislation will not be adopted in the future. If adopted, such legislation, if it included concepts that have been part of previous legislative proposals, could, among other things, (i) adopt the millsite limitation discussed above, (ii) impose time limits on the effectiveness of plans of operation that may not coincide with mine life, (iii) impose more stringent environmental compliance and reclamation requirements, (iv) establish a mechanism that would allow states, localities and Native American tribes to petition for the withdrawal of identified tracts of federal land from the operation of the General Mining Law, (v) allow for administrative determinations that mining would not be allowed in situations where undue degradation of the federal lands in question could not be prevented and (vi) impose royalties on silver and copper production or fees on tons of material moved from unpatented mining claims located on federal lands or impose fees on production or tons of material moved from patented mining claims. If adopted, such legislation could have an adverse impact on earnings from Mines Management’s operations, could reduce estimates of any reserves Mines Management may establish and could curtail its future exploration and development activity on federal lands or patented claims.
While Mines Management does not believe that title to any of its properties is defective, title to mining properties is subject to potential claims by third parties claiming an interest in them. For example, in September 2007, Mines Management filed a declaratory judgment action captioned Mines Management, Inc., Newhi, Inc. and Montanore Minerals Corp. v. Tracie Fus et al., Cause No. DV07-248 in Montana Nineteenth Judicial District Court, Lincoln County. In this action, Mines Management sought a court judgment against certain of the defendants that the unpatented mining claims of such defendants allegedly located above portions of Mines Management’s adit and overlapping certain of its patented and unpatented mining claims, millsites and tunnel sites are invalid. The defendants then asserted trespass claims against Mines Management relating to Mines Management’s use of certain of its mining claims, millsites and the adit. The parties participated in a mediation in 2009, which resulted in a settlement with seven of the ten defendants. Inmid-March 2013 the court issued an order (i) enforcing the settlement with seven of the ten defendants, (ii) enjoining Mines Management from trespassing on certain mining claims owned by one of the defendants and (iii) finding that the mining claim of another defendant is valid and superior to certain of Mines Management’s claims. The claims with respect to which Mines Management was enjoined from trespass do not overlap the adit. The mining claim that the court determined was valid and superior to certain of Mines Management’s claims overlaps portions of the adit and portions of certain of its patented claims and unpatented mill sites and tunnel sites. Mines Management appealed to the Montana Supreme Court with respect to certain portions of the order. The Montana Supreme Court ruled in favor of Mines Management, remanding the case to the district court with instructions to vacate the injunction and to conduct further proceedings. Mines Management does not believe that this order, if re-entered by the district court, would affect its ability to use the adit or to conduct exploration and development operations as currently planned once Mines Management has obtained the required permits. See further details regarding this action under “Information Regarding Mines Management—Legal Proceedings” beginning on page 99.
Mines Management is obligated by a right of first refusal agreement relating to its future silver production that may affect the willingness of third parties to enter into silver purchase agreements with it.
In November 2007, Mines Management entered into a right of first refusal agreement with a significant stockholder that granted to that stockholder a20-year right of first proposal and a right to matchthird-party proposals to purchase a silver stream,i.e., all or any portion of silver mined, produced or recovered by Mines Management in the State of Montana. The right does not apply to trade sales and spot sales in the ordinary course of business or forward sales. The existence of this agreement may make other potential buyers less likely to negotiate with Mines Management to purchase silver Mines Management produces since they would be subject to this right of first refusal.
Hecla Mining Company
6500 N. Mineral Drive, Suite 200
Coeur d’Alene, Idaho 83815-9408
(208) 769-4100
Hecla is a Delaware corporation with its shares of common stock traded on the NYSE under the symbol “HL.” Hecla is a U.S.-based precious and base metals mining company engaged in the exploration, acquisition, development, production and marketing of silver, gold, lead and zinc. In business since 1891, Hecla is among the oldest U.S.-based precious metals mining companies and one of the lowest-cost primary silver producers in North America. Hecla produces both metal concentrates, which it sells to smelters and brokers, and unrefined gold and silver precipitate and bullion bars (doré), which is are sold as precipitate and doré, or are further refined before sale, to refiners and precious metals traders.
Additional information about Hecla and its subsidiaries is included in documents incorporated by reference in this proxy statement/prospectus. See “Where You Can Find More Information” beginning on page 105.
HL Idaho Corp., a wholly-owned subsidiary of Hecla, is an Idaho corporation. Upon completion of the merger, HL Idaho Corp. will be merged with and into Mines Management, with Mines Management surviving as a wholly-owned subsidiary of Hecla. HL Idaho Corp. has not conducted any significant activities other than those incidental to its formation and the matters contemplated by the merger agreement in connection with the merger.
Mines Management, Inc.
Investor Relations
905 West Riverside Avenue, Suite 311
Spokane, Washington 99201
(509) 838-6050
Overview. Mines Management, Inc. is engaged in the business of acquiring and exploring, and if exploration is successful, developing, mineral properties, primarily those containing silver and associated base and precious metals. Mines Management was incorporated under the laws of the State of Idaho on February 20, 1947. Mines Management’s principal mineral property interest, the Montanore Project, is held by its wholly-owned subsidiaries, Newhi, Inc. and Montanore Minerals Corp. Mines Management’s properties, including the Montanore property, are currently in the exploration stage; none of its properties are currently in production.
Mines Management common stock is currently listed for trading on the NYSE MKT under the symbol “MGN” and the TSX under the symbol “MGT.”
Mines Management’s executive offices and principal place of business are located at 905 West Riverside Avenue, Suite 311, Spokane, Washington 99201. Mines Management’s registered agent in Idaho is located at 921 S. Orchard St., Suite G, Boise, Idaho 83705.
Additional information about Mines Management and its subsidiaries is set forth under “Information Regarding Mines Management” beginning on page 94.
Montanore Project. The Montanore Project is located in northwestern Montana and from 1988 to 2002 was owned by Noranda. During that time the project received an approved EIS, ROD and all of its primary
environmental permits, and conducted pre-evaluation construction activities on the property. From 1988 to 2002, Mines Management held royalty rights to a portion of the deposit. In 2002, Noranda announced that it was abandoning the project, and subsequently transferred to Mines Management by quitclaim deed the patented and unpatented mining claims that control the mineral rights, and all drill core and intellectual property including geologic, environmental and engineering studies, relating to the Montanore Project.
In May 2006, Mines Management acquired two Noranda subsidiaries that held title to the property providing access to the 14,000 foot Libby adit and related permits. The Libby adit, when extended, will provide access to the Montanore deposit for Mines Management’s planned underground exploration and delineation drilling program. Mines Management submitted revisions to the operating permit that allowed it to reopen the Libby adit in 2006 and to proceed with dewatering and rehabilitation of the adit. In March 2008, Mines Management obtained authorization from the State of Montana to resume the exploration activities started by the previous owner. Until the environmental review process for the Montanore Project was completed, Mines Management was prohibited from conducting exploration activities at the Libby adit.
Since 2003, Mines Management has spent approximately $77.2 million on evaluation and updating of data, including that originating from previous owners, permitting activities, acquisition of equipment, construction of site infrastructure and development and construction of a dewatering system. As currently planned, the advanced exploration and delineation drilling program includes the following:
Results of the drilling program, if successful, would provide data to support the completion of a bankable feasibility study and further optimization of the mine plan. The advanced exploration and delineation drilling program, through completion of a bankable feasibility study, is expected to cost an additional $20.0 to $25.0 million.
Before Mines Management could advance the Montanore Project, it was required to obtain the requisite project approvals and permits from the USFS, Montana Department of Environmental Quality (“MDEQ”), the USFWS, and the US Army Corps of Engineers. A Draft EIS was issued by the USFS and the MDEQ in the first quarter of 2009. After the comment period expired, it was determined by the agencies that a Supplemental Draft EIS was necessary and this was completed in September 2011. The public comment period for the Supplemental Draft EIS closed in December 2011. The USFWS issued the final biological opinion for terrestrial and aquatic endangered species during the second quarter of 2014, indicating the Montanore Project posed no jeopardy to endangered species in the area around the Project. The USFS and the MDEQ continued to develop the Final EIS during 2014 and issued the preliminary Final EIS during the third quarter of 2014. A second preliminary Final EIS was completed late in 2014. Several drafts of the ROD were also completed during 2014 by the EIS contractor. The USFS and the MDEQ provided legal notice to the public on April 1, 2015 announcing the availability of the Final EIS and Draft ROD. Following a public objection and resolution process, the USFS and MDEQ integrated clarifying comments into the Final EIS. In December 2015, the USFS and MDEQ issued the Final EIS and, on February 12, 2016, issued RODs approving development of the Montanore Project. Mines Management plans to commence the extension of the underground adit and the underground evaluation and delineation drilling program after obtaining sufficient external financing and completing requisite environmental mitigation activities.
Additional Information. For additional information about RevettMines Management and its subsidiaries, see “Information Regarding Revett”Mines Management” beginning on page 87.94.
The special meeting of RevettMines Management stockholders is scheduled to be held at [ ],the Lincoln Building, 811 W. Riverside, 2nd floor conference room, Spokane, Valley, Washington 99201 on [ ], 2015,Wednesday, August 10, 2016, at [ ] a.m.2:00 p.m., local time.
Purpose of the Revett Special Meeting
At the special meeting, RevettMines Management stockholders will be asked:
Recommendation of the Board of Directors of RevettMines Management
After careful consideration, the RevettMines Management board of directors, on March 25, 2015,May 21, 2016, unanimously approved, adopted and declared advisable the merger agreement and the merger, directed that the merger agreement be submitted to the stockholders of RevettMines Management for approval and adoption and determined that the terms of the merger agreement and the merger are fair toadvisable and in the best interests of Revett’sMines Management’s stockholders.
The RevettMines Management board of directors accordingly unanimously recommends that the RevettMines Management stockholders vote “FOR” each of the merger proposal, the Revett adjournment proposal and the compensation proposal.
Approval and adoption of the merger proposal is subject to a vote by Revett’sMines Management’s stockholders separate from the vote on the approval of the compensation proposal. Approval of the compensation proposal is not a condition to completion of the merger.
RevettMines Management Record Date; Stockholders Entitled to Vote
Only holders of record of shares of RevettMines Management common stock at the close of business on [ ], 2015,July 5, 2016, the record date for the special meeting, will be entitled to notice of, and to vote at, the special meeting and at any adjournment or postponements thereof. A list of stockholders of record entitled to vote at the special meeting will be available for inspection by stockholders for ten days before the special meeting at RevettMines Management’s executive offices and principal place of business at 11115 East Montgomery,905 West Riverside Avenue, Suite G,311, Spokane, Valley, Washington 9920699201 during ordinary business hours for any purpose germane to the special meeting. The list will also be available at the special meeting for examination by any stockholder of record present at the special meeting.
As of the close of business on the record date, there were outstanding a total of [39,273,989][●] shares of RevettMines Management common stock entitled to vote at the special meeting. As of the close of business on the record date, approximately [4.58][●]% of the outstanding shares of RevettMines Management common stock were held by RevettMines Management directors and executive officers and their affiliates. Certain stockholders of Revett,Mines Management, including Revett’scertain Mines Management directors and certain of its executive officers, have entered into shareholders agreements, each dated March 25, 2015,May 23, 2016, pursuant to which each such stockholder has agreed, among other things, to vote its shares of common stock of RevettMines Management (as set forth in such stockholder’s shareholders agreement) in favor of the approval and adoption of the merger agreement.
As of the close of business on the record date, Phillips S. Baker, President and Chief Executive Officer of Hecla, owned 72,917 shares of Revett common stock which equaled approximately [0.19]% of the outstanding shares of Revett common stock.
Each share of RevettMines Management common stock owned on the record date is entitled to one vote on each proposal at the special meeting.
If you own shares of RevettMines Management common stock that are registered in the name of someone else, such as a broker, bank, trust company or other nominee, you are not a holder of record and instead hold your shares in “street name.” Holders in street name“street name” will need to direct thatthe organization in whose name their shares are registered to vote those shares or obtain authorization from them and vote the shares yourself at the special meeting, as described below.
A quorum is necessary to transact business at the special meeting. The presence, in person or by proxy, of the holders of one-thirda majority of the voting power of the RevettMines Management common stock entitled to vote at the special meeting shall constitute a quorum for the transaction of business. Abstentions and broker non-votes will be counted as present for purposes of establishing a quorum.
Approval and adoption of the merger proposal, the adjournment proposal and the compensation proposal requires the affirmative vote of holders of a majority of the outstanding shares of Revett common stock entitled to vote thereon. Approval of the Revett adjournment proposal and the compensation proposal each requires the affirmative vote ofvotes cast by holders of a majority of the shares of RevettMines Management common stock present in person or represented by proxy at the special meeting and entitled to vote on the proposal.matter, and a quorum must be present at the special meeting.
Abstentions and Broker Non-Votes
If you are a RevettMines Management stockholder and fail to submit a proxy or fail to instruct your broker or nominee to vote, it will have the effect of a vote against the merger proposal, but it will have no effect on the Revettmerger proposal, the adjournment proposal or the compensation proposal, assuming a quorum is present. If you are a RevettMines Management stockholder and you mark your proxy or provide voting instructions to abstain, it will have theno effect of a vote againston the merger proposal, the adjournment proposal and the compensation proposal.
If you plan to attend the special meeting and wish to vote in person, you will be given a ballot at the meeting. Please note, however, that if your shares are held in “street name,”name” and you wish to vote at the meeting, you must bring to the meeting a legal proxy executed in your favor from the record holder of the shares (your broker, bank, trust company or other nominee)broker) authorizing you to vote at the meeting.
In addition, please be prepared to provide proper identification, such as a driver’s license or passport. If you hold your shares in “street name,” you will need to provide proof of ownership, such as a recent account statement or letter from your broker bank, trust company or other nominee proving ownership on the record date, along with proper identification. Stockholders will not be allowed to use cameras, recording devices and other similar electronic devices at the meeting.
A proxy card is enclosed for your use. RevettMines Management requests that you mark, sign and date the accompanying proxy and return it promptly in the enclosed postage-paid envelope. When the accompanying proxy is properly executed and returned, the shares of RevettMines Management common stock represented by it will be voted at the special meeting or any adjournment or postponement thereof in accordance with the instructions contained in the proxy.
If a proxy is returned without an indication as to how the shares are to be voted with regard to a particular proposal, those shares will be voted in favorAs of each such proposal.
At the date hereof, management has no knowledge of any business that will be presented for consideration at the special meeting and which would be required to be set forth in this proxy statement/prospectus or the related proxy card other than the matters set forth in Revett’sMines Management’s Notice of Special Meeting of Stockholders. If any other matter is properly presented at the meeting for consideration, it is intended that the persons named in the enclosed form of proxy and acting thereunder will vote in accordance with their best judgment on such matter.
Your vote is important. Accordingly, please mark, sign, date and return the enclosed proxy card or submit a proxy via the Internet or by telephone whether or not you plan to attend the special meeting in person.
All shares represented by properly executed proxies received (including proxies received via the Internet or by telephone) in time for the special meeting will be voted at the meeting in the manner specified by the stockholder giving those proxies. Properly executed proxies that do not contain voting instructions with respect to the merger proposal, the Revett adjournment proposal or the compensation proposal will be voted “FOR” that proposal.
If you hold your shares in a stock brokerage account or if your shares are held by a broker bank, trust company or other nominee (that is, in “street name”), you must provide the record holder of your shares with instructions on how to vote your shares if you wish them to be counted. Please follow the voting instructions provided by your broker, bank, trust company or other nominee (“broker”).broker. Please note that you may not vote shares held in street name“street name” by returning a proxy card directly to RevettMines Management or by voting in person at yourthe special meeting unless you provide a legal proxy, which you must obtain from your broker. Further, brokers who hold shares of RevettMines Management common stock on behalf of their customers may not give a proxy to RevettMines Management to vote those shares without specific instructions from their customers.
If you are a RevettMines Management stockholder holding your shares in “street name” and you do not instruct your broker on how to vote your shares, your broker may not vote your shares, which will have the same effect as a vote against the merger proposal, but will have no effect on the merger proposal, the adjournment proposal andor the compensation proposal, assuming a quorum is present.
You have the power to revoke your proxy at any time before your proxy is voted at the special meeting. If you are a holder of record, you can revoke your proxy in one of three ways:
If you submit a signed notice of revocation or grant a new written proxy, your notice of revocation or your new proxy must be received by the Corporate Secretary of RevettMines Management at 11115 East Montgomery,905 West Riverside Avenue, Suite G,311, Spokane, Valley, Washington 9920699201 no later than the beginning of the special meeting. If you do so by telephone or through the Internet, your revised instructions must be received by 11:59 p.m. Eastern Time on [ ], 2015.[●], 2016.
If your shares are held in “street name” by your broker you should contact your broker to change your vote or revoke your proxy.
RevettMines Management has appointed one or more representatives of Computershare Investor Services,Broadridge Financial Solutions, Inc. to serve as the inspector of election for the special meeting. The inspector of election will, among other matters, determine the number of shares represented at the special meeting to confirm the existence of a quorum, determine the validity of all proxies and ballots and certify the results of voting on all proposals submitted to the stockholders.
In accordance with the merger agreement, the cost of proxy solicitation for the special meeting will be borne by Revett.Mines Management. In addition to the use of the mail, proxies may be solicited by officers and directors and regular employees of Revett,Mines Management, some of whom may be considered participants in the solicitation, without additional remuneration, by telephone, facsimile or otherwise. RevettMines Management will also request brokerage firms, nominees, custodians and fiduciaries to forward proxy materials to the beneficial owners of shares held of record on the record date and will provide customary reimbursement to such firms for the cost of forwarding these materials. Mines Management has retained Morrow & Co., LLC to assist it in its solicitation of proxies and has agreed to pay them a fee of $10,000 plus a fee of $6.50 per non-objecting beneficial owner, plus reasonable expenses, for these services.
If a quorum is not present or represented, the chairman of the meeting and the stockholders entitled to vote at the special meeting, present in person or represented by proxy, shall have the power to adjourn the meeting from time to time, without notice other than announcement at the meeting, until a quorum is present or represented. If a quorum is present at the meeting but there are not sufficient votes at the time of the meeting to approve and adopt the merger proposal, then RevettMines Management stockholders may be asked to vote on the adjournment proposal. The chairman of the meeting also has the power to adjourn the meeting. No notices of an adjourned meeting need be given unless the adjournment is for more than 30 days, in which case a notice of the adjourned meeting will be given to each stockholder of record entitled to vote at the meeting. If after the adjournment a new record date is fixed for the adjourned meeting, a notice of the adjourned meeting will be given to each stockholder of record entitled to vote at such adjourned meeting as of the record date for notice of such adjourned meeting. At any subsequent reconvening of the special meeting at which a quorum is present, any business may be transacted that might have been transacted at the original meeting and all proxies will be voted in the same manner as they would have been voted at the original convening of the special meeting, except for any proxies that have been effectively revoked or withdrawn prior to the time the proxy is voted at the reconvened meeting.
PROPOSAL 1: THE APPROVAL AND ADOPTION OF THE MERGER AGREEMENT
Proposal 1: The Approval and Adoption of the Merger Agreement
RevettMines Management is asking its stockholders to authorize the holder of any proxy solicited by Revett’sMines Management’s board of directors to approve and adopt the merger agreement pursuant to which Merger Sub will be merged with and into RevettMines Management (with RevettMines Management surviving the merger as a wholly-owned subsidiary of Hecla) and each outstanding share of common stock of RevettMines Management (other than shares owned by Revett,Mines Management, Hecla, or Merger Sub or any of their respective subsidiaries, which will be cancelled) will be converted into the right to receive 0.16220.2218 of a share of common stock of Hecla. Any stockholders entitled to receive a fractional share of Hecla withcommon stock shall receive cash paid in lieu of anysuch fractional shares.share.
Approval and adoption of the merger proposal requires the affirmative vote of holders of a majority of the outstanding sharesvotes cast by holders of RevettMines Management common stock present in person or represented by proxy at the special meeting and entitled to vote thereon.on the matter, and a quorum must be present at the special meeting.
If you are a RevettMines Management stockholder and fail to submit a proxy or fail to instruct your broker or nominee to vote, it will have theno effect of a vote againston the merger proposal.proposal, assuming a quorum is present. If you are a RevettMines Management stockholder and you mark your proxy or provide voting instructions to abstain, it will have theno effect of a vote againston the merger proposal.proposal, assuming a quorum is present.
Hecla stockholders are not required to adopt the merger agreement or approve the merger or the issuance of Hecla common stock in connection with the merger.
At the effective time, Merger Sub will merge with and into Revett,Mines Management, with RevettMines Management surviving the merger and becoming a wholly-owned subsidiary of Hecla. In the merger, each share of RevettMines Management common stock issued and outstanding immediately prior to the closing of the merger (other than shares owned by Revett,Mines Management, Hecla, or Merger Sub or any of their respective subsidiaries, which will be cancelled) will be converted into the right to receive 0.16220.2218 of a share of Hecla common stock. This exchange ratio is fixed and will not be adjusted to reflect stock price changes prior to closing of the merger. NoAny stockholders entitled to receive a fractional sharesshare of Hecla’sHecla common stock will be issued in the merger. Instead, Revett’s stockholders willshall receive cash in lieu of any such fractional shares.share.
Immediately following the consummation the merger, Hecla will own 100% of the issued and outstanding common stock of Revett.Mines Management. It is projected that holders of RevettMines Management common stock will own approximately 1.66%2.37% of Hecla’s outstanding common stock, while existing stockholders of Hecla will continue to own the remaining 98.34%97.63%.
The RevettMines Management board of directors has from time-to-timetime to time explored strategic options potentially available to RevettMines Management to finance the further exploration and development of the Montanore Project and enhance stockholder value. These have included multiple discussions with representatives of other exploration and mining companies concerning possible business combinations or joint ventures to explore and develop Rock Creek,the Montanore Project, and discussions with hedge funds, private equity funds and other financial institutions concerning either providing additional financing to RevettMines Management or acquiring RevettMines Management or all or a portion of its assets. Numerous confidentiality agreements have been executed to enable these other companies and institutions to conduct due diligence of either RevettMines Management in its entirety or the Rock Creek project alone, andMontanore Project alone. These efforts have, over the past several years, resulted in preliminary discussions with many such companies and institutions, including Hecla. None of these preliminary discussions resulted in a proposal that the RevettMines Management board of directors could recommend to RevettMines Management stockholders.
The necessity of a strategic option for Revett increased dramatically in November 2014, when metals prices for copper and silver declined significantly and Revett was forced to consider placing its Troy mine—its only source of revenue—on care and maintenance. The decline in metals prices was particularly harmful to Revett, since it had only recently completed the construction of a new access decline from the main service adit at Troy to the North C Bed, with plans to continue to the undeveloped I Bed, at a cost of approximately $12 million, and was in the process of resuming limited mining and milling operations.
Revett placed Troy on care and maintenanceFollowing issuance of the final EIS for the Montanore Project in January 2015. This resulted in the cessation of development work to the Troy I Beds and an orderly shutdown of milling operations. More importantly, it deprived Revett of any further revenue from operations. Although the company took significant steps to conserve remaining cash during the first quarter ofMarch 2015, by curtailing all but necessary expenses, it did not have sufficient cash to re-start mining and milling operationsMines Management initiated contact regarding financing, joint venture or complete development to the I Beds.
The Revett board of directors’ initial response to this financial crisis was to ascertain whether Revett could raise needed capital through a private placement of securities to one or more financial institutions. Revett’s management discussed the possibility of such financingbusiness combination transactions with eight financial institutions, including hedge funds andmultiple private equity funds in November and early December of 2014. Revett received one tentative financing proposal from these discussions, which was a proposal from a brokerage firm in late 2014 to privately place units, each comprised of one share of Revett common stock and one full warrant to purchase common stock, but it was not pursued. The amount of the proposed private placement was short of what the Revett board of directors reasonably believed was necessary to sustain the company until metals prices increasedexploration and mining operations at Troy could be returnedcompanies and entered into confidentiality agreements with certain interested parties, including Hecla, to full capacity. Moreover,enable those companies and institutions to conduct due diligence. Subsequently, in July 2015, Mines Management sent out requests for proposals to approximately fifty private equity funds and exploration and mining companies. As a result of those efforts, Mines Management received two responses containing proposals. Of these two responses, one was from Hecla and the private placementother was to have been conducted onfrom an unrelated third party with which Mines Management entered into a best efforts basis (as opposedconfidentiality agreement. Concurrently, Mines Management engaged a financial advisor concerning a possible debt or equity financing. Mines Management ended the engagement with the financial advisor in October 2015 due to a firm commitment basis) and therefore afforded no assurance that needed funds could be obtained. The unit pricelack of the tentative offering would have been substantially below the market price for Revett common stock at the time, and had it been pursued, would have resulted in substantial dilution to Revett stockholders and a corresponding diminutioninterest in the market value of Revett common stock.possible debt or equity financing. In October 2015, in order to improve its cash position and continue its business, Mines Management sold mining equipment for approximately $1.67 million.
Beginning in 2009at least as early as 2011 and continuing intermittentlyfrom time to time over the next fewseveral years, RevettMines Management and Hecla periodically had conversations regardingdiscussed a potential strategic transaction, including a joint venture with respect to the Montanore Project or a business combination. These principally tookinvolved discussions between Glenn M. Dobbs (Chairman of the formBoard of conversations between John Shanahan, PresidentDirectors and Chief Executive Officer of Revett,Mines Management) and Phillips S. Baker, PresidentJr. (President and Chief Executive Officer of Hecla.Hecla).
Throughout the summer of 2012, Mr. Dobbs and Mr. Baker met several times in Spokane, Washington to discuss the possibility of a joint venture between the companies.
In August 2013, Mr. Dobbs contacted Mr. Baker suggesting a meeting would be appropriate to discuss a joint venture in light of then imminent permitting developments for the Montanore Project, and the two met on August 29, 2013 in Spokane.
In November 2013, Mr. Dobbs again contacted Mr. Baker to inquire of Hecla’s interest in a joint venture based on positive permitting developments and indicated that a due diligence web site had been established by Mines Management to allow interested parties that signed a non-disclosure agreement to review technical data about the Montanore Project.The parties did not reach agreement regarding a transaction and terminated discussions.
On April 3, 2015, Mr. Dobbs and Mr. Baker met in Spokane to discuss Hecla’s interest in Mines Management and the Montanore Project. Hecla had recently announced the pending acquisition of Revett Mining Company, Inc. (“Revett”), which at the time owned the Rock Creek silver and copper project located near the Montanore Project. The acquisition of Revett was subsequently completed in June 2015. The USFS and MDEQ had recently provided notice to the public of the availability of the final EIS and draft ROD, a significant step towards issuance of the final ROD, following which underground exploration of the Montanore deposit could proceed. The parties agreed to continue discussions.
On May 8, 2015, Mines Management and Hecla entered into a confidentiality agreement in April 2009 (which expired in 2011)agreement.
On May 18, 2015, Hecla employees Luke Russell (Vice President—External Affairs), Steve Petroni (General Manager—Exploration), and Hecla engagedJohn Jordan (Vice President—Technical Services) met with Glenn Dobbs and Doug Dobbs (Director, President and Secretary of Mines Management) at Mines Management’s office in limited due diligence of Revett. No transaction ever materialized. In early 2012 Hecla updated its due diligence and made a non-binding offer to acquire Revett, which Revett rejected.
On June 5, 2013, Revett and Hecla entered into another confidentiality agreement, which expires in June 2015.
In November 2013, Hecla employees Steve Petroni, General Manager-Exploration, and John Taylor, Chief Resource Geologist (since retired) visited the Troy mine in an effort to assess its future potential. In December 2013 and January 2014, Mr. Shanahan and Mr. Baker met on two occasionsSpokane to discuss the restartMontanore Project.
Hecla continued due diligence on Mines Management and the Montanore Project in May and June 2015, and on June 24, 2015 representatives of Hecla and Mines Management met near Libby, Montana for a site visit to the Montanore Project, including the Libby adit. Present for Hecla were Luke Russell, Steve Petroni, Dave Holland (Senior Environmental Engineer) and Keith Blair (Chief Resource Geologist). Present for Mines Management were Glenn Dobbs, Rod MacLeod (Chief Geologist), Denver Winslow (Chief Engineer), and Erik Klepfer (environmental consultant).
Mines Management continued to experience deterioration of its financial condition, and on July 1, 2015, Mines Management was notified by the NYSE MKT that it was not in compliance with certain of the Troy mine.continued listing standards as set forth in the Company Guide.
As previously mentioned, in July 2015, Mines Management sent out requests for proposals regarding financing and Montanore Project joint venture or business combination transactions to approximately fifty private equity funds and exploration and mining companies, including Hecla. In mid-December 2014, followingaddition, Mr. Dobbs sent a letter dated July 14, 2015 to Mr. Baker requesting that Hecla propose by July 17, 2015 the onsetterms of Revett’sa joint venture pursuant to which Hecla could initially earn a 40% interest in the Montanore Project with the potential to increase its interest to 60%.
At Mr. Baker’s suggestion, Mr. Baker and Mr. Dobbs met on July 22, 2015 at Mines Management’s office in Spokane. They discussed Mines Management’s current financial crisis, Mr. Shanahan contacted Mr. Baker concerning a possible strategic transaction between Revett and Hecla. Mr. Shanahan and Mr. Baker discussed Revett’s current financial condition the prospects for completing development and returning to profitable mining operations at Troy and the status of Revett’sMines Management’s permitting and development activities at Rock Creek.the Montanore Project. Mr. Baker informed Mr. ShanahanDobbs that Hecla might be interested in a possible transaction with RevettMines Management and that he would discuss it with Hecla’s management.
On DecemberJuly 31, 2015, Hecla sent to Mines Management a non-binding indicative term sheet for a senior secured convertible debt facility to be made available to Mines Management and a joint venture between Hecla and Mines Management with respect to the Montanore Project. The letter proposed a $9.0 million revolving loan for Mines Management and a joint venture that would own the Montanore Project in which Hecla would have a 70% interest and Mines Management a 30% interest.
On August 4, 2015, Mines Management sent a letter to Hecla rejecting the July 31 proposal and instead proposed an upfront, non-refundable payment of $4.5 million by Hecla to Mines Management, followed by another $4.0 million payment upon execution of a joint venture agreement, pursuant to which Hecla could earn a 40% interest in the Montanore Project, increasing to a maximum of 60% upon completion of construction of a mine at the Montanore Project.
Throughout August, September and early October, the companies continued to negotiate the possible terms of a loan and joint venture transaction but did not reach an agreement. Discussions of these potential transactions terminated in mid-November 2015.
On February 12, 2016, the USFS and MDEQ issued RODs approving development of the Montanore Project, and Mines Management issued a news release regarding the issuance of the RODs. Mr. Dobbs sent a copy of the news release to Mr. Baker, who responded on February 17, 2014,2016 with an email congratulating Mr. ShanahanDobbs and suggesting that Hecla was interested in hearing details about the RODs.
On February 25, 2016, Mr. Dobbs sent an email to Mr. Baker that containedcongratulating Hecla on the issuance by the USFS of a summary of Revett’s capital structure, financial position, 2015 plan, the permitting timelinedraft supplemental EIS for theHecla’s Rock Creek project information concerning the closure and reclamation of the Troy mine, and Revett’s obligation to make payments to certain of its executive officers and other employees in the event their employment by Revett was terminated followingstated his view that a change in control of Revett. Mr. Shanahan estimated these payments (“parachute payments”) would be approximately $3.1 million in the aggregate.
In early January 2015, Revett actively sought to initiate discussions with other exploration and mining companies concerning either an investment in the company or its wholly-owned subsidiary, RC Resources, Inc., which owns the Rock Creek project. Many of the companies that were contacted by Revett’s representatives did not return the calls. Of those that did, only two companies expressed initial interest in a possible strategic transaction.
By mid-January 2015, silver prices had dropped to $15.50 per ounce and copper prices had dropped to $2.50 per pound, reductions of approximately 6% and 20%, respectively, from metals price levels just three months earlier. These prices were well below the prices at which Revett could conduct profitable mining operations at Troy.
On January 15, 2015, representatives of one of the two exploration and mining companies that had expressed interest in Revett met with Revett’s representatives at Troy. Several days later, this company informed Revett that it had no interest in pursuing further discussions.
On January 19, 2015, the Revett board of directors determined to place Troy on care and maintenance, which resulted in a significant decline in the market price of Revett common stock and diminished Revett’s prospects for raising additional capital through the sale of its securities. As of that date, Revett’s cash assets had declined to approximately $2.5 million. Further compounding the situation was the fact that Revett was being informed by its auditors that the closing of Troy would likely require Revett to take an impairment charge to its property, plant and equipment as of December 31, 2014. The net write down of these assets was not ascertained at such date but was later determined to be $54.7 million. Although the write down did not result in a change to Revett’s marginal cash position, it did significantly reduce the carrying value of its assets, and by implication, its ability to obtain financing using its assets as collateral. Revett’s auditors also advised Revett that their report on Revett’s financial statements for the year ended December 31, 2014 could contain a going concern provision if Revett did not obtain additional financing.
On January 21, 2015, Mr. Shanahan and Mr. Baker met in Spokane, Washington to discuss Revett’s decision to place Troy on care and maintenance, and other issues concerning a possible transaction between Hecla and Revett.Mines Management continued to make sense.
In early March 2016, following issuance of the federal and state RODs in February 2016, Mines Management engaged a financial advisor to pursue a possible debt or equity financing. The engagement ended in mid-March due to a lack of interest in a financing. Also, in March 2016, Mines Management initiated contact with multiple private equity funds and exploration and mining companies. On March 21, 2016, Mines Management announced that it had retained CG as financial advisor in order to assist Mines Management in reviewing and developing strategic options to enhance stockholder value.
In mid-March, Mines Management entered into negotiations with a mining company regarding a potential transaction. A number of alternatives were discussed, including the acquisition of a royalty interest in the Montanore Project, the acquisition of Mines Management common stock and a joint venture with respect to the Montanore Project. The parties were unable to reach an agreement, and discussions terminated in mid-April.
From March 22, 2016 to March 23, 2016, several conversations occurred between Mines Management, through Gunnar Eggertson and Ted Hirst of CG, and Hecla, through Rob Brown (Vice President—Corporate Development).
On January 27, 2015,April 1, 2016, a lawsuit challenging the permitting of the Montanore Project was filed by Earthworks, Save Our Cabinets and the Clark Fork Coalition in the U.S. District Court of Montana in Missoula. Another lawsuit challenging the permitting was filed on April 5, 2016. A third lawsuit challenging the permitting of the Montanore Project had previously been filed on June 17, 2015.
On April 4, 2016, Hecla sent a non-binding indicative letter of interest to Mines Management’s board of directors proposing that Hecla acquire Mines Management for a total consideration of $0.65 per share payable in shares of Hecla common stock using an exchange ratio of 0.2359 Hecla shares for each share of Mines Management common stock. The proposal represented a premium of 30% to Mines Management’s volume weighted average closing share price of $0.4974 for the 20 previous trading days ended April 1, 2016. The letter also proposed to address Mines Management’s short term liquidity needs in the form of secured loans in an aggregate amount not to exceed $1.0 million, made available pursuant to an interim credit agreement to be executed on the same date as the definitive acquisition agreement. The collateral securing the loan was proposed to be the Montanore property and a pledge by Mines Management of the stock of its subsidiaries. Loans would bear interest at a rate per annum equal to LIBOR plus 5% and would be due and payable on the sooner of (i) August 1, 2016 or (ii) as soon as practicable after the closing of the acquisition. The letter of interest was subject to due diligence and other customary conditions, and provided a deadline for execution by Mines Management of April 8, 2016. In addition, the non-binding indicative letter of interest prohibited Mines Management from soliciting an alternative to the proposed merger (but not from considering or accepting a non-solicited alternative proposal) until May 17, 2016 in consideration of Hecla’s time, effort and expense in pursuing the proposed merger.
Due to ongoing negotiations under an exclusivity arrangement between Mines Management and the third party mining company referred to above, Mines Management was unable to respond to Hecla’s April 4 letter of interest.
On April 8, 2016, Hecla sent a letter to Mines Management’s board extending the deadline to execute its April 4 letter of interest until April 18, 2016.
On April 15, 2016, Mines Management’s exclusivity arrangement with the third party terminated. Promptly following April 15, 2016, CG resumed discussions with Hecla about a potential acquisition of Mines Management.
On April 18, 2016, Hecla sent a letter to Mines Management’s board of directors extending the deadline to execute its April 4 letter of interest until April 21, 2016.
On April 20, 2016, Mines Management sent a non-binding letter in response to concerns raised byHecla’s April 4 letter of interest, proposing that Hecla about the amountacquire Mines Management for a total consideration of Revett’s golden parachute obligations, Mr. Shanahan informed Mr. Baker that$1.00 per share payable in shares of Hecla common stock using an exchange ratio of 0.2985 Hecla shares for each of the eight Revett employees who were entitled to such payments upon a change in control of Revett had agreed to amend their respective employment agreements to reduce their parachute payments by approximately 50%, thereby lowering the aggregate amount of such payments to approximately $1.6 million.
On January 30, 2015, Mr. Shanahan, Timothy Lindsey (Revett’s chairman), Douglas Stiles (Revett’s vice president of planning) and Paul Lammers (Revett’s director of environmental programs) met with Mr. Baker, Paul Glader (Hecla’s Corporate Environmental Director), and Luke Russell (Hecla’s Vice President—External Affairs) in Spokane, Washington to discuss the status of Revett’s permitting activities at Rock Creek.
On February 4, 2015, representatives of the second exploration and mining company that had expressed interest in Revett met with representatives of Revett at Troy. On February 6, 2015, this company submitted a non-binding indicative proposal to Revett wherein it would purchase $15 million of Revett units, each comprising one share of Revett common stock and one full warrant to purchase RevettMines Management common stock. The Revett common stockproposal represented a premium of 41% to Mines Management’s closing share price of $0.71 on April 19, 2016 and was based on Hecla’s closing share price of $3.35 on April 18, 2016. Mines Management also proposed that Hecla offer an interim credit agreement to be priced at 10% belowaddress Mines Management’s short term liquidity needs in the then current market priceform of secured loans in an aggregate amount not to exceed $2.0 million, with $0.5 million being advanced on April 29, 2016 and secured by Mines Management’s warehouse facility in Libby, Montana, and the exercise priceremaining $1.5 million advanced upon execution of a definitive acquisition agreement and secured by the Montanore property and a pledge by Mines Management of the warrantstock of its subsidiaries. Both loans would be due and payable on August 31, 2016 or, if the acquisition was tocompleted, the loans would be priced at 30% above the then current market price of Revett common stock.forgiven. In addition, the companyexclusivity period was shortened to obtain contractual rightsMay 13, 2016. The Mines Management letter was subject to controlcompletion of due diligence by Hecla before execution of the Revett boarddefinitive acquisition agreement and other customary conditions, and provided a deadline for execution of directorsApril 22, 2016.
On April 21, 2016, Messrs. Baker and Brown discussed the terms of Mines Management’s April 20 letter of interest with Mr. Eggertson of CG.
On April 21, 2016, in response to Mines Management’s April 20 letter of interest, Hecla sent a non-binding letter to Mines Management proposing that Hecla acquire Mines Management for a total consideration of $1.00 per share payable in shares of Hecla common stock using an exchange ratio of 0.2597 Hecla shares for each share of Mines Management common stock. The proposal represented a premium of 41% to Mines Management’s closing share price of $0.71 on April 19, 2016 and a royalty stream from future production.premium of 87% to the closing share price on April 4, 2016, the date of Hecla’s first 2016 letter of interest, and was based on Hecla’s closing share price of US$3.85 on April 19, 2016.The letter also proposed to address Mines Management’s short term liquidity needs through secured loans in an aggregate amount not to exceed $1.0 million, to be made available pursuant to an interim credit agreement to be executed on the same date as the definitive acquisition agreement and indicated that Hecla would consider advancing a loan prior to executing a definitive acquisition agreement to cover Mines Management’s accounts payable in arrears or other past due amounts which were demonstrated to Hecla’s reasonable satisfaction to pose a risk to Mines Management of bankruptcy or involuntary liquidation. The letter proposed that the loan would be secured by the Montanore property and a pledge by Mines Management of the stock of its subsidiaries, but that any loan made before the definitive acquisition agreement was executed would be secured by Mines Management’s warehouse facility in Libby, Montana, generators at the Montanore Project site and the water treatment plant at the Montanore Project site. Loans would bear interest at a rate per annum equal to LIBOR plus 5% and would be due and payable on the sooner of (i) August 1, 2016 or (ii) as soon as practicable after the closing of the acquisition. In addition, the letter proposed an extended exclusivity period to August 1, 2016. The Hecla letter was subject to due diligence and other customary conditions, and provided a deadline for execution of April 22, 2016.
On April 25, 2016, Mines Management sent to Hecla financial information showing its current financial position and its estimated expenses through August 2016.
Also on April 25, 2016, Mines Management sent a non-binding letter in response to Hecla’s April 21 letter of interest, and in the letter Mines Management proposed that Hecla acquire Mines Management for a total consideration of $1.00 per share payable in shares of Hecla common stock using an exchange rate to be determined at the time of signing the definitive acquisition agreement. The proposal represented a premium of 41% to Mines Management’s closing share price of $0.71 on April 19, 2016 and a premium of 87% to the closing share price on April 4, 2016, the date of Hecla’s first 2016 letter of interest.The letter also entailedproposed to address Mines Management’s short term liquidity needs in the form of secured loans in an aggregate amount not to exceed $2.0 million on the same terms as contained in Hecla’s April 21 letter. In addition, the exclusivity period was shortened to May 13, 2016. The letter of interest was subject to due diligence and other customary conditions, and provided a transferdeadline for execution of oneApril 25, 2016.
On April 25 and 26, 2016, Messrs. Baker and Brown discussed the terms of Mines Management’s April 25 letter of interest with Mr. Eggertson of CG.
On April 26, 2016, Mines Management sent a letter to Hecla revising its April 25 letter of interest by (1) changing the loan terms to a maturity of the company’s early stage mining projects into Revett,sooner of (i) August 15, 2016 or (ii) as soon as practicable after the closing of the acquisition, (2) changing the collateral to include only the Montanore property and a pledge by Mines Management of the stock of its subsidiaries and (3) eliminating the concept of any funds being loaned prior to the execution of the definitive acquisition agreement.
On April 26, 2016, Messrs. Baker and Brown discussed the terms of Mines Management’s April 26 letter of interest with Mr. Eggertson of CG.
On April 26, 2016, Hecla sent a revised non-binding indicative letter of interest consistent with the terms set forth in Mines Management’s April 26 letter of interest, which would have required Revett to obtain substantial capital in addition to what was required to develop Revett’s Rock Creek project,executed by both Hecla and would entail a longer development timeframe than Rock Creek. The Revett board of directors considered this proposal but rejected it, in part because the board of directors believed the price being offered for the units would be harmful to stockholder value, in part because the amount of money to be invested was not sufficient to meet Revett’s cash needs and advance the proposing company’s other mining projects, and in part because the Revett board of directors did not view the proposing company as having the knowledge, deep underground mining experience or financial resources to prosecute the permitting and development of Rock Creek.Mines Management.
AtOn April 29, 2016, Hecla sent to Mines Management: (i) a draft of an agreement and plan of merger among Hecla, HL Idaho Corp., a wholly-owned subsidiary of Hecla, and Mines Management, (ii) a draft of a shareholders agreement pursuant to which Mines Management’s directors, officers, and Silver Wheaton Corp., a shareholder of Mines Management, would agree to vote in favor of the transaction and (iii) a due diligence request list.
On or about the same time, a representativeMay 2, 2016, Hecla commenced its review of Revett and a representative of Randall | Danskin, P.S. (“Randall | Danskin”), legal counsel to Revett, met informally with a representative of another mining company to inquire whether that company had any interest in investing in Revett or purchasing any of its assets. The company did not express interest and no further discussions ensued.
In early February 2015, Revett createddue diligence materials provided by Mines Management on a data site to which it uploaded due diligence items for Hecla to review. Throughout February and March 2015,site. During May, Hecla conducted due diligence on Revett,Mines Management, which took the form of review of materials on the data site, as well as supplemental meetings and correspondence.
On February 27, 2015, Hecla sent Revett a non-binding letter of interest setting forth the general terms of a transaction whereby Hecla would acquire Revett in a stock-for-stock transaction. The letter of interest provided for an exchange ratio of approximately 0.1566 of a shareMay 2, 3 and 4, 2016, representatives of Hecla common stock for each outstanding sharemet with representatives of Revett common stock, representingMines Management at Mines Management’s office to discuss financial, accounting, information technology and related matters.
On or about May 6, 2016, Gunnar Eggertson of CG contacted representatives of Silver Wheaton Corp. to discuss the proposed agreement and plan of merger, including Hecla’s requirement that timeSilver Wheaton Corp. execute a premiumshareholders agreement irrevocably committing Silver Wheaton Corp. to vote in favor of 35% to Revett’s volume weighted average closing share pricethe transaction. Representatives of $0.39 forSilver Wheaton Corp. told Mr. Eggertson that Silver Wheaton Corp. would execute the 20 previous trading days ending February 26, 2015. The letter of interest wasrequested shareholders agreement subject to due diligence and other customary conditions.certain changes to the shareholders agreement that were accepted by Hecla.
On March 1, 2015,May 6, 2016, Mines Management provided Hecla with comments and suggested changes to the Revettdraft agreement and plan of merger.
On May 10, 2016, the Mines Management board of directors met telephonicallyheld a meeting to review and discuss the non-binding lettercurrent draft agreement and plan of interest from Hecla, and Revett’s preliminary financial statements for the year ended December 31, 2014. Among the matters discussed at the board meeting were the financial effect of placing Troy on care and maintenance and the associated impairment of Revett’s assets that would have to be reflected in its financial statements.merger. At the meeting, the RevettMines Management board of directors also appointed a special committee of the board, comprised of Timothy R. Lindsey (the Chairman of the Board of Revettindependent directors Russell Babcock, Roy Franklin, Jerry Pogue and the chairman of the compensation committee of the board), Larry M. Okada (a director of Revett and chairman of the audit committee of the board), Albert F. Appleton (a director of Revett and chairman of the environmental committee of the board), and John B. McCombe (a director of Revett and chairman of the safety committee of the board).Robert Russell. The special committee was mandatedformed to consider and evaluate the terms and conditions of the proposed transaction set forth in Hecla’s non-binding letter of interest;transaction; to obtain advice from Randall | Danskin, Revett’sDavis Graham & Stubbs LLP, Mines Management’s counsel, with respect to the proposed transaction; to obtain advice and an opinion from a financial advisor as to the fairness of the proposed transaction,merger consideration, from a financial point of view, to RevettMines Management’s stockholders; to determine whether the proposed transaction is in the best interests of RevettMines Management and its stakeholders;stockholders; to consider if appropriate alternatives to the proposed transaction existed and, if an alternatealternative transaction, offer or proposal was made to Revett,Mines Management, to consider and make recommendations to the RevettMines Management board of directors with respect to such other transaction; and to provide recommendations to the RevettMines Management board of directors in conjunction with the foregoing.
On March 1, 2015, Revett executedFollowing the letter of interest from Hecla.
On March 4, 2015, Hecla sent Revett a draft exclusivity agreement supplementingMay 10 board meeting, the terms and conditions of the transaction that was first proposed and outlined in Hecla’s February 27, 2015 non-binding letter of interest. The exclusivity letter sought to prohibit Revett from soliciting an alternative to the proposed merger (but not from considering or accepting a non-solicited alternative proposal) for a period of approximately 30 days, or until March 30, 2015, in consideration of Hecla’s time, effort and expense in pursuing the proposed merger.
On March 5, 2015, an organizational call was conducted with representatives of Revett and Randall | Danskin regarding Revett’s proposed due diligence of Hecla and Hecla’s proposed due diligence of Revett, including reviewing public and nonpublic documents.
Between March 5, 2015 and March 25, 2015, representatives of Revett responded to numerous due diligence requests from Hecla, and representatives of theMines Management special committee of the Revett board of directors reviewed Hecla’s public documents and other information in anticipation of a due diligence conference call with representatives of Hecla. During this period, Revett’s management and a representative of Randall | Danskin conferred numerous times about the agreement and plan of merger, and recommended certain changes to Hecla.
On March 10, 2015, Revett executed and returned the exclusivity letter to Hecla.
On March 11, 2015, representatives of Hecla met with representatives of Revett at Revett’s officesDavis Graham & Stubbs LLP. The Committee asked questions and received advice regarding certain provisions of the merger agreement and issues that remained subject to discuss financial, accounting, information technology and related matters.
On March 17, 2015, Hecla sent Revett a draftnegotiation. The special committee authorized management to proceed with negotiation of the agreement and plan of merger pertaining to the transaction that was first proposed and outlined in Hecla’s February 27, 2015 non-binding letter of interest, together with a draft form of shareholder agreement.merger.
On or about March 19, 2015, Revett provided Hecla with comments and suggested changes to the draft agreement and plan of merger. Among the suggested changes was a revision to the exchange ratio to take into account any decrease in the price of Hecla common stock between the date of the agreement and plan of merger and the closing date of the transaction, a change that Hecla rejected, because if it agreed to that it would have correspondingly demanded upside protection in the event that Hecla’s stock price increased, and Hecla did not believe Revett would agree to that.
On or about March 19, 2015, Mr. Shanahan contacted representatives of Trafigura to discuss the proposed agreement and plan of merger, including Hecla’s requirement that Trafigura execute a shareholders agreement irrevocably committing Trafigura to vote in favor of the transaction. Representatives of Trafigura told Mr. Shanahan that Trafigura would execute the requested shareholders agreement.
On March 20, 2015,May 10, 2016, Hecla sent RevettMines Management a revised agreement and plan of merger. The revised agreement contained many of the suggested changes that had been proposed by Revett’sMines Management’s management and Randall | Danskin.Davis Graham & Stubbs LLP.
On March 21, 2015, RevettMay 15, 2016, Mines Management provided Hecla with suggested additional changes to the revised agreement and plan of merger.
On March 22, 2015, Revett retained RFCMay 16, 2016, Hecla sent Mines Management a revised non-binding indicative letter of interest. The material changes to the non-binding indicative letter of interest were to decrease the consideration to $0.95 per share payable in Hecla common stock, increase the amount of the secured term loan to $2.3 million and extend the exclusivity period to May 24, 2016.
On May 17, 2016, the Mines Management board of directors held a meeting to discuss the revised non-binding indicative letter of interest. At the meeting, the Mines Management board of directors determined that Mines Management should send a revised non-binding indicative letter of interest to Hecla with total consideration of $1.00 per share payable in Hecla common stock. The Mines Management board authorized management to negotiate the per share price with Hecla, with a floor price of $0.95 per share.
On May 18, 2016, Mines Management sent Hecla a revised non-binding indicative letter of interest. The material changes to the non-binding indicative letter of interest were increasing the total consideration to $1.00 per share payable in Hecla common stock and extending the length of exclusivity only to May 20, 2016. Later that same day, Hecla sent Mines Management a revised non-binding indicative letter of interest. The material changes to the Hecla non-binding indicative letter of interest were decreasing the total consideration to $0.95 per share payable in Hecla common stock and extending the length of exclusivity to May 24, 2016. Each of the parties signed the revised Hecla non-binding indicative letter of interest on May 19, 2016.
On May 18, 2016, Hecla provided Mines Management with suggested additional changes to the revised agreement and plan of merger.
On May 19, 2016, Mines Management provided Hecla with suggested additional changes to the revised agreement and plan of merger. On that same day, Mines Management instructed CG to prepare an analysis of the merger transaction specified in the draft agreement and plan of merger and, if it could do so,consistent with CG’s analysis, prepare and deliver an opinion to the RevettMines Management board of directors that the merger transactionconsideration was fair, from a financial point of view, to RevettMines Management common stockholders.
On March 25, 2015May 21, 2016, the special committee of the RevettMines Management board of directors met telephonically with representatives of Revett’sMines Management’s management, a representativerepresentatives of Randall | DanskinDavis Graham & Stubbs LLP and representatives of RFCCG to review and discuss the Hecla merger proposal. With the management directors in attendance, the special committee received advice from counsel regarding the duties and obligations of the directors under Idaho law with respect to the merger proposal, information regarding the final terms of the agreement and plan of merger and the report of CG and its oral opinion (which was subsequently confirmed in writing) concerning the fairness, from a financial point of view, of the merger consideration to Mines Management common stockholders. The special committee unanimously approved and adopted the merger proposal and recommended its approval and adoption to the board of directors.
On May 21, 2016, following the special committee meeting, the Mines Management board of directors met telephonically with representatives of Davis Graham & Stubbs LLP and representatives of CG to review and discuss the Hecla merger proposal and the duties and obligations of the special committeeMines Management board of directors under DelawareIdaho law with respect to the merger proposal, and to hear the resultsrecommendation of the special committee’s due diligence of Hecla, and to receive the report of RFC concerning the fairness of the merger proposal to Revett stockholders.
Later on March 25, 2015, the full Revettcommittee. The Mines Management board of directors met telephonically withthereafter unanimously approved and adopted the merger proposal.
During May 23, 2016, representatives of Revett’s management, a representative of Randall | Danskin and representatives of RFC to review and discuss the Hecla merger proposal, the duties and obligations of the Revett board of directors under Delaware law with respect to the merger proposal, and the results of the special committee’s due diligence of Hecla, and to receive report and the preliminary written opinion of RFC concerning the fairness of the merger proposal to Revett stockholders. The Revett board of directors unanimously approved the merger proposal, subject to the condition that Revett’s management meet with Hecla’s representatives and renegotiate the exchange ratio set forth in the draft agreement and plan of merger to a ratio that was not less than 0.1600.
During the late afternoon of March 25, 2015, Mr. Shanahan telephoned Mr. Baker concerning the exchange ratio and the Revett board of directors’ decision that it would not approve the merger agreement unless an exchange ratio of not less than 0.1600 could be negotiated. Hecla agreed to increase the exchange ratio to 0.1622, a ratio that represented a 32% premium over Revett’s 20-day volume weighted average price of Revett common stock ($0.3964) based on the closing price of Hecla common stock on March 25, 2015 ($3.23). Following the telephone call and the successful renegotiation of the exchange ratio, RFC delivered its final fairness opinion verbally to Revett (which was subsequently confirmed in writing) and Mr. Shanahan convened a telephonic
meeting of the Revett board of directors to obtain the Revett board of directors’ consent and approval of the new exchange ratio. The Revett board of directors approved the new exchange ratio and directed Mr. Shanahan to execute the agreement and plan of merger on Revett’s behalf.
During the evening of March 25, 2015, representatives of RevettMines Management and Hecla, and their respective counsel, finalized the agreement and plan of merger.
On March 26, 2015,merger and the parties executed the agreement and plan of merger and Revettagreement.
On May 24, 2016, Mines Management and Hecla each issued a press release announcing that the parties had entered into the merger agreement.
On June 29, 2016, Mines Management and Hecla entered into Amendment No. 1 to the merger agreement (the “Amendment”). The Amendment clarified the definition of shareholder approval set forth in the merger agreement, the courts from which injunctive relief may be sought and that the merger is intended to qualify as a tax-free reorganization as described in Section 368 of the Code.
Recommendation of Revett’sMines Management’s Board of Directors; Revett’sMines Management’s Reasons for the Merger
At a special meeting held on March 25, 2015,May 21, 2016, the RevettMines Management board of directors unanimously (i) determined that the merger agreement and the merger are advisable fair to and in the best interests of RevettMines Management and its stockholders, (ii) approved and adopted the merger agreement and (iii) recommended the approval and adoption of the merger agreement by Revett’sMines Management’s stockholders. The RevettMines Management board of directors unanimously recommends that RevettMines Management stockholders vote “FOR” the merger proposal.
In evaluating the merger agreement and the merger, the RevettMines Management board of directors consulted with Revett’sMines Management’s management and legal and financial advisors. In deciding to approve and adopt the merger agreement and the merger transactions, including the merger, and to recommend that Revett’sMines Management’s stockholders vote to approve and adopt the merger agreement, the RevettMines Management board of directors considered various factors that it viewed as supporting its decision, including the material factors described below.
• | Strategic Benefits. The |
• | Fixed Exchange Ratio. The |
• | Ownership in the Combined Company. The |
• | Opinion of Financial Advisor. The |
• | Familiarity with Businesses. The |
knowledge of underground mining and its ability to prosecute successfully the permitting and development of large scale mining operations in environmentally sensitive locations such as |
• | Parties’ Commitment to Complete the Merger. The |
• | Terms and Conditions of the Merger Agreement. The |
The RevettMines Management board of directors also considered a variety of risks and other potentially negative factors concerning the merger agreement, the merger transactions and the merger, including the following material factors:
This discussion of the information and factors considered by the RevettMines Management board of directors in reaching its conclusion and recommendations is not intended to be exhaustive and is not provided in any specific order or ranking. In view of the wide variety of factors considered by the RevettMines Management board of directors in evaluating the merger agreement and the merger transactions, including the merger, and the complexity of these matters, the RevettMines Management board of directors did not find it practicable to, and did not attempt to, quantify, rank or otherwise assign relative weight to those factors. In addition, different members of the RevettMines Management board of directors may have given different weight to different factors.
The RevettMines Management board of directors did not reach any specific conclusion with respect to any of the factors considered and instead conducted an overall review of such factors and determined that, in the aggregate, the potential benefits considered outweighed the potential risks or possible negative consequences of approving and adopting the merger agreement.
The RevettMines Management board of directors unanimously recommends that RevettMines Management stockholders vote “FOR” the merger proposal.
The explanation of the reasoning of the RevettMines Management board of directors and all other information presented in this section is forward-looking in nature and, therefore, should be read in light of the factors discussed in the section entitled “Cautionary Statement Regarding Forward-Looking Statements” beginning on page 7.8.
Opinion of Revett’sMines Management’s Financial Advisor
On March 25, 2015, RFC provided its analysis of the revised Hecla proposal andMay 21, 2016, CG rendered its oral opinion to the Revettspecial committee of the Mines Management board of directors that, as of the date of such opinion and based upon and subject to the factors and assumptions set forth therein, the merger consideration to be paid to the RevettMines Management common stockholders (other than Hecla and its affiliates) pursuant to the transactiontransactions (including the merger) contemplated by the merger agreement (together, and only for purposes of this section “Opinion of Mines Management’s Financial Advisor,” the “transaction”) was fair from a financial point of view to Revettthe Mines Management common stockholders. The oral opinion was subsequently confirmed in writing.
The full text of the written opinion of RFC,CG, dated December March 26, 2015,May 21, 2016, which sets forth assumptions made, procedures followed, matters considered and limitations on the review undertaken in connection with the opinion, is included as Appendix B into this proxy statement/prospectus. RFCCG provided its opinion for the information and assistance of Revett’sMines Management’s board of directors in connection with its consideration of the transaction. The RFCCG opinion is not a recommendation as to how any RevettMines Management common stockholder should vote with respect to the merger or any other matter.
In connection with rendering the opinion described above and performing its related financial analyses, RFC,CG, among other things:
For purposes of rendering the opinion described above, RFC,CG, with Revett’sMines Management’s consent, relied upon and assumed the accuracy and completeness of all of the financial, legal, regulatory, tax, accounting and other information provided to, discussed with or reviewed by RFC,CG, without assuming any responsibility for independent verification thereof. In that regard, RFCCG assumed with Revett’sMines Management’s consent that all technical information provided to RFC hasCG had been reasonably prepared on a basis reflecting the best currently available estimates and judgements of the management of Mines Management regarding the future financial performance of Mines Management and the best currently available estimates and judgments of the management of RevettHecla regarding Revett and its properties and assets. RFCthe future financial performance of Hecla. CG did not make an independent evaluation, appraisal or geological or technical assessment of the assets and liabilities
(including (including any contingent, derivative or other off-balance-sheet assets and liabilities) of Revett,Mines Management, Hecla or any of their respective affiliates. RFC hasCG also assumed that all governmental, regulatory or other consents and approvals necessary for the consummation of the transaction will be obtained without any adverse effect on the expected benefits of the transaction in any way meaningful to RFC’sCG’s analysis. RFC hasCG further assumed that the transaction will be consummated on the terms set forth in the merger agreement, without the waiver or modification of any term or condition, the effect of which would be in any way meaningful to RFC’sCG’s analysis.
RFC’sCG’s opinion does not address the underlying business decision of RevettMines Management to engage in the transaction or the relative merits of the transaction as compared to any strategic alternatives that may be available to Revett;Mines Management, nor does it address any legal, regulatory, tax or accounting matters. RFC was not requested to solicit, and did not solicit, interest from other parties with respect to an acquisition of, or other business combination with, Revett or any other alternative transaction. RFC’sCG’s opinion addresses only the fairness from a financial point of view to RevettMines Management common stockholders, (other than Hecla and its affiliates), as of the date of the opinion, of the merger consideration to be received by such holders pursuant to the transaction.
RFC CG does not express any view on, and RFC’sCG’s opinion does not address any other term or aspect of, the merger agreement or the transaction or any term or aspect of any other agreement or instrument contemplated by the merger agreement or entered into or amended in connection with the transaction, including the fairness of the transaction to, or any consideration received in connection therewith by, the holders of any other class of securities, creditors or other constituencies of Revett;Mines Management, nor as to the fairness of the amount or nature of any compensation to be paid or payable to any of the officers, directors or employees of RevettMines Management, or class of such persons, in connection with the transaction, whether relative to merger consideration to be received by RevettMines Management common stockholders (other than Hecla and its affiliates) pursuant to the transaction or otherwise. RFC’sCG does not express any opinion as to the impact of the transaction on the solvency or viability of Mines Management or Hecla or the ability of Mines Management or Hecla to pay their respective obligations when they come due. CG’s opinion was necessarily based on economic, monetary, market and other conditions as in effect on, and the information made available to RFCCG as of, the date of the opinion, and RFCCG assumed no responsibility for updating, revising or reaffirming its opinion based on circumstances, developments or events occurring after the date of RFC’sCG’s opinion. RFC’sCG’s opinion represents the opinion of RFCCG as a firm. The form and content of the opinion was approved for release by a committee of directors and other professionals of CG, all of whom are experienced in merger, acquisition, divestiture, fairness opinion and valuation matters.
The following is a summary of the material financial analyses delivered by RFCCG to Revett’sMines Management’s board of directors in connection with rendering the opinion described above. The following summary, however, does not purport to be a complete description of the financial analyses performed by RFC,CG, nor does the order of analyses described represent the relative importance or weight given to those analyses by RFC.CG. Some of the summaries of the financial analyses include information presented in tabular format. The tables must be read together with the full text of each summary and are alone not a complete description of RFC’sCG’s financial analyses. Except as otherwise noted, the following quantitative information, to the extent that it is based on market data, is based on market data as it existed on or before March 26, 2015May 20, 2016 and is not necessarily indicative of current or future market conditions.
In connection with its analysis, RFCCG calculated the implied merger consideration pursuant to the merger agreement, which provides for at the effective time of the merger, the cancellation and conversion of each share of RevettMines Management common stock into the right to receive 0.16220.2218 of a share of Hecla common stock (the “Hecla consideration” as such“consideration”). The defined term is used inconsideration applies solely to this section, “Opinion of Revett’sMines Management’s Financial Advisor.”)
Approach to Fairness
In support of itsthe opinion, RFC hasCG performed certain analyses on RevettMines Management and the Hecla consideration, based on the methodologies and assumptions that RFCCG considered appropriate in the circumstances for the purposes of providing its opinion. RFC reviewed andIn the context of the opinion, CG considered the following:following principal approaches:
CG also considered but gave less weight to other approaches including relative contribution analysis to pro-forma Hecla.
Precedent Transactions Premium Analysis
CG reviewed historic spot, 20 day volume weighted average price (“VWAP”) and 30 day VWAP premiums paid in previous mining sector transactions since 2013 (the “Mining Premiums Database”) to compare against the transaction. CG recognized that none of the precedent transactions is directly comparable to the transaction, and that each of the selected mining sector transactions is: (i) unique in terms of size, geographic location, commodity mix, stage of development and transaction structure and (ii) reflective of the strategic rationale of both the respective acquiror and target. Nevertheless, the precedent mining sector transactions were selected by CG because they are transactions that were announced since the start of 2013 and are reflective of recent “en bloc” premiums paid in the mining sector.
Announce Date Target Acquiror 12-May-16 25-Apr-16 19-Apr-16 7-Apr-16 14-Mar-16 7-Mar-16 4-Mar-16 28-Feb-16 8-Feb-16 13-Jan-16 11-Jan-16 16-Nov-15 15-Oct-15 30-Jul-15 27-Jul-15 16-Jul-15 30-Jun-15 10-Apr-15 24-Apr-15 13-Apr-15 27-Mar-15 26-Mar-15 17-Feb-15 9-Feb-15 19-Jan-15 5-Jan-15 17-Dec-14 17-Nov-14 10-Nov-14 7-Nov-14 12-Oct-14 8-Oct-14 8-Sep-14 8-Sep-14 17-Jun-14 4-Jun-14 3-Jun-14 21-May-14 21-Apr-14 16-Apr-14 9-Feb-14 17-Dec-13 16-Dec-13 11-Dec-13 10-Dec-13 31-Oct-13 28-Oct-13 8-Oct-13 1-Oct-13 30-Sep-13 25-Sep-13 17-Sep-13 26-Aug-13 14-Aug-13 12-Jul-13 3-Jun-13 31-May-13 24-May-13 28-Mar-13 13-Feb-13 16-Jan-13 14-Jan-13 14-Jan-13 Spot
Premium 20 Day
VWAP
Premium 30 Day
VWAP
Premium Kaminak Gold Corp Goldcorp Inc. 32% 34% 38% Reservoir Minerals Inc. Nevsun Resources Ltd. 35% 24% 31% SnipGold Corp. Seabridge Gold Inc. 124% 115% 114% Adventure Gold Inc. Probe Metals Inc. 36% 25% 18% Calico Resources Corp. Paramount Gold Nevada Corp. 49% 50% 45% Claude Resources Inc. Silver Standard Resources Inc. 30% 25% 24% True Gold Mining Inc. Endeavour Mining Corp. 43% 33% 29% Amara Mining Plc. Perseus Mining Ltd. 41% 33% 32% Lake Shore Gold Corp. Tahoe Resources Inc. 15% 27% 31% Northair Silver Corp. Kootenay Silver Inc. 40% 29% 37% Niogold Mining Corp. Oban Mining Corp. 56% 62% 65% St. Andrew Goldfields Ltd. Kirkland Lake Gold Inc. 25% 46% 51% Carlisle Goldfields Ltd. Alamos Gold Inc. 63% 84% 89% Romarco Minerals Inc. OceanaGold Corp. 73% 78% 72% Silvercrest Mines Inc. First Majestic Silver Corp. 39% 39% 41% Temex Resources Corp. Lake Shore Gold Corp. 75% 119% 137% Lithium Americas Corp. Western Lithium Canada Corp. 36% 59% 69% Soltoro Ltd. Agnico Eagle Mines Ltd. 51% 49% 57% Mega Precious Metals Inc. Yamana Gold Inc. 124% 164% 192% Aurico Gold Inc. Alamos Gold Inc. (1%) 2% 0% Revett Mining Co. Inc. Hecla Mining Co. 11% 26% 31% Allana Potash Corp. Israel Chemicals Ltd. 52% 37% 42% Newstrike Capital Inc. Timmins Gold Corp. 20% 23% 22% Rio Alto Mining Ltd. Tahoe Resources Inc. 22% 20% 22% Probe Mines Ltd. Goldcorp Inc. 54% 36% 38% Uranerz Energy Corp. Energy Fuels Inc. 40% 48% 50% Paramount Gold & Silver Corp. Coeur Mining Inc. 53% 28% 27% Virginia Mines Inc. Osisko Gold Royalties Ltd. 41% 31% 26% Bayfield Ventures Corp. New Gold Mining Ltd. 50% 49% 51% US Silver & Gold Inc. Scorpio Mining Corp. 5% 8% 8% Orbis Gold Ltd. Semafo Inc. 104% 95% 96% Chaparral Mining Corp. Goldrock Mines Corp. / Waterton Precious Metals 20% 9% 10% Curis Inc. Taseko Mines Ltd. 13% 22% 24% Cayden Resources Inc. Agnico Eagle Mines Ltd. 13% 32% 41% Lumina Copper Corp. First Quantum Minerals Ltd. 24% 33% 36% Elgin Mining Inc. Mandalay Resources Corp. 85% 53% 58% Papillon Resources Ltd. B2Gold Corp. 21% 40% 47% Sulliden Gold Corp. Ltd. Rio Alto Mining Ltd. 43% 47% 45% Sandstorm Metals & Energy Ltd. Sandstorm Gold Ltd. 43% 38% 36% Osisko Mining Corp. Yamana Gold Inc. / Agnico Eagle Mines Ltd. 56% 68% 74% Augusta Resources Corp. Hudbay Minerals Inc. 31% 79% 81% PMI Gold Corp. Asanko Gold Inc. 58% 79% 69% Brigus Gold Corp. Primero Mining Corp. 51% 48% 48% Witwatersrand Cons. Gold Resources Ltd. Sibanye Gold Ltd. 41% 42% 39% Ampella Mining Ltd. Centamin Plc. 113% 79% 72% Glory Resources Ltd. Eldorado Gold Corp. 42% 55% 72% Volta Resources Inc. B2Gold Corp. 101% 78% 78% Pacific Rim Mining Corp. OceanaGold Corp. 73% 58% 67% International Minerals Corp. Hochschild Mining Plc. 22% 28% 30% Coventry Resources Inc. Chalice Gold Mines Ltd. 23% 16% 19% Kimber Resources Inc. Invecture Group SA de CV 67% 26% 28% Rockgate Capital Corpl. Denison Mines Corp. 47% 38% 58% Alpha Minerals Inc. Fission Uranium Corp. 15% 10% 13% Premier Royalty Inc. Sandstorm Gold Ltd. 1% 15% 16% Esperanza Resources Corp. Alamos Gold Inc. 29% 50% 35% Oromin Exploration LTd. Teranga Gold Corp. 67% 54% 55% Rainy River Resources Ltd. New Gold Mining Ltd. 43% 57% 61% Strathmore Minerals Corp. Energy Fuels Inc. 31% 31% 28% Azimuth Resources Ltd. Troy Resources Ltd. 78% 106% 99% Orko Silver Corp. Coeur Mining Inc. 66% 61% 62% Fission Energy Corp. Denison Mines Corp. 10% 15% 14% Aurizon Mines Ltd. Hecla Mining Co. 39% 39% 36% Uranium One Inc. ARMZ Uranium Holding 19% 31% 36% Average: 44.8% 46.6% 48.7% Standard Deviation: 28.3% 29.7% 32.1% Average - 1 Standard Deviation: 16.5% 16.9% 16.6% Average + 1 Standard Deviation: 73.1% 76.2% 80.8%
Based on the Mining Premiums Database, a spot premium range of 16.5% to 73.1% is calculated after applying a ± 1 standard deviation to the average spot premium of 44.8%. This spot premium range generates illustrative values in the range of $0.75 to $1.11 per share of Mines Management common stock.
Based on the Mining Premiums Database, a 20 day VWAP premium range of 16.9% to 76.2% is calculated after applying a ± 1 standard deviation to the average 20 day VWAP premium of 46.6%. This 20 day VWAP premium range generates illustrative values in the range of $0.78 to $1.18 per share of Mines Management common stock.
Based on the Mining Premiums Database, a 30 day VWAP premium range of 16.6% to 80.8% is calculated after applying a ± 1 standard deviation to the average 30 day VWAP premium of 48.7%. This 30 day VWAP premium range generates illustrative values in the range of $0.83 to $1.29 per share of Mines Management common stock.
Precedent Transactions Multiple Analysis
CG reviewed available public information for selected precedent precious metal transactions involving target companies at a comparable development stage as Mines Management. CG recognized that none of the transactions is directly comparable to the transaction, and that each of the selected precious metal developer transactions is: (i) unique in terms of size, resource quality, geographic location, commodity mix, stage of development and transaction structure and (ii) reflective of the strategic rationale of both the respective acquiror and target. Nevertheless, the precedent precious metal transactions were selected because they are transactions that were announced since the start of 2015 for projects at a similar stage of development as the Montanore Project in terms of resource development and released economic studies as well as financing status, and were primarily projects in the Americas. The primary criteria used in analyzing these transactions are enterprise value per attributable ounce of silver equivalent resource (“EV/Resource”) with the acquisition of Revett by Hecla (the “Revett Transaction”) thought to be the most directly comparable to the transaction due to the geological, resource size and grade similarities between the Montanore Project and Revett’s principal Rock Creek project located in close proximity to each other in Sanders County, Montana. The other transactions have been provided as a secondary benchmark.
Announce | Target | Acquiror | EV/Resource(1) ($/oz Ag Equivalent) | |||||
3-May-16 | 100% Cameron Gold Project | First Mining Finance Corp. | $ | 0.194 | ||||
13-Jan-16 | Northair Silver Corp. | Kootenay Silver Inc. | $ | 0.064 | ||||
11-Jan-16 | NioGold Mining Corp. | Oban Mining Corp. | $ | 0.263 | ||||
15-Oct-15 | Carlisle Goldfields Ltd. | Alamos Gold Inc. | $ | 0.072 | ||||
16-Jul-15 | Temex Resources Corp. | Lake Shore Gold Corp. | $ | 0.053 | ||||
24-Apr-15 | Mega Precious Metals Inc. | Yamana Gold Inc. | $ | 0.066 | ||||
27-Mar-15 | Revett Mining Co. Inc. | Hecla Mining Co. | $ | 0.074 | ||||
The Revett Transaction Precedent | $ | 0.074 | ||||||
+25% | $ | 0.093 | ||||||
-25% | $ | 0.056 | ||||||
All Transaction Precedents | $ | 0.112 | ||||||
+25% | $ | 0.141 | ||||||
-25% | $ | 0.084 |
(1) | Resources are based on all Measured, Indicated & Inferred resources, as defined by National Instrument 43-101, and are converted to silver equivalent using spot metal prices immediately prior to announcement. |
Based on the Revett Transaction precedent, an EV/Resource multiple range of $0.056 to $0.093/oz. is calculated after applying a ±25% factor to the Revett Transaction EV/Resource multiple of $0.074/oz. This EV/Resource multiple range generates illustrative values in the range of $0.67 to $1.12 per share of Mines Management common stock.
Based on the all transactions precedents, an EV/Resource multiple range of $0.084 to $0.141/oz. is calculated after applying a ±25% factor to the selected precedent precious metal developer transactions EV/Resource multiple of $0.112/oz. This EV/Resource multiple range generates illustrative values in the range of $1.02 to $1.70 per share of Mines Management common stock.
Comparable Companies Analysis
CG reviewed available public information for selected publicly traded precious metal companies that are at a comparable development stage as Mines Management. CG recognized that none of the comparable companies is directly comparable to Mines Management, and that each of the selected precious metal companies is unique in terms of size, grade, geographic location, commodity mix and stage of development. Nevertheless, the publicly traded comparable precious metal companies were selected because they were companies at a similar stage of development as Mines Management in terms of resource development and released economic studies as well as financing status, were primarily projects in the Americas and were similarly of a low grade comparable to the Montanore Project, and, as a result, companies with higher grade resources were considered and rejected. The primary criteria used in analyzing these transactions is EV/Resource after adjusting the average comparable company multiple for an assumed “en bloc” control premium so that it is comparable to the transaction. The control premium used to estimate “en bloc” value of the Hecla consideration;comparable companies is 44.8% and
Stock Market Value Approach
RFC considered the relative trading history of shares of Revett common stock and Hecla common stock and calculated the implied value of the Hecla consideration based on the exchange ratioaverage spot premium paid in the Mining Premiums Database.
Comparable Company | EV/Resource(2) ($/oz Ag Equivalent) | |||||
Apogee Silver Ltd. | $ | 0.019 | ||||
Freegold Ventures Ltd. | $ | 0.071 | ||||
NewCastle Gold Ltd. | $ | 0.098 | ||||
Rye Patch Gold Corp. | $ | 0.106 | ||||
TriMetals Mining Inc. | $ | 0.037 | ||||
“En Bloc” Multiple(3) | ||||||
Average Multiple | $ | 0.066 | $0.096 | |||
+25% Average Multiple | $ | 0.083 | $0.120 | |||
-25% Average Multiple | $ | 0.050 | $0.072 |
(2) | Resources are based on all Measured, Indicated & Inferred resources and are converted to silver equivalent using May 20, 2016 spot metal prices of $16.53/oz. Ag, $1,252/oz. Au, $0.76/lb Pb, $0.84/lb Zn, $2.08/lb Cu and $6.73/lb Mo. |
(3) | Trading multiple adjusted for 44.8% precedent premium to estimate “En Bloc” Multiple. |
Based on the comparable precious metal developer companies, an EV/Resource multiple range of 0.1622$0.072 to $0.120/oz. is calculated after applying a ±25% factor to the average EV/Resource multiple of $0.066/oz. and adjusting for an “en bloc” control premium of 44.8%. This EV/Resource multiple range generates illustrative values in the range of $0.87 to $1.46 per share of Mines Management common stock.
Value of the Consideration
Pursuant to the transaction, Mines Management stockholders will receive 0.2218 of a share of Hecla common stock for each share of RevettMines Management common stock. The shares of Hecla common stock received by Mines Management stockholders will represent a minority position in Hecla and will not allow such holders to affect control of Hecla. As such, and based on the transaction.analyses undertaken by and information made available to it, CG concluded that it was not appropriate to consider methodologies that utilize an “en bloc” valuation approach, and that an “en bloc” valuation is not required, in assessing the value of Hecla common shares.
In considering the value of the consideration being offered, CG relied upon the market trading approach. The market trading approach was deemed by CG to be an appropriate basis for valuing the consideration after considering the following factors:
• | Liquidity: the last 3-month trading volume of Hecla common stock averaged approximately 9.2 million shares per day, representing an average traded value of approximately $30.9 million per day; |
• | Market Float: the aggregate value of Hecla’s publicly traded common stock (excluding insiders and holders of greater than 10% of shares outstanding) is approximately $1.4 billion; |
• | Market Familiarity: Hecla is well-known to market professionals, with 10 analysts providing research coverage; and |
• | Size of the Transaction: upon completion of the transaction, Mines Management stockholders would own approximately 2% of the shares of Hecla common stock outstanding. |
Market Trading Approach
CG considered the trading history of shares of Hecla common stock. For the purposes of its opinion, RFCCG concluded that it was most appropriate to consider a range of relativetrading levels for shares of Hecla common stock as observed from recent trading activity based on volume weighted average price (“VWAP”)VWAP for recent1, 10, 20 and 30 trading days.
Period | VWAP | Implied Value of Hecla Consideration(3) | ||||||
1 Day | $ | 4.24 | $ | 0.94 | ||||
10 Days | $ | 4.28 | $ | 0.95 | ||||
20 Days | $ | 4.17 | $ | 0.92 | ||||
30 Days | $ | 3.96 | $ | 0.88 |
Source: Bloomberg. All trading on all USA exchanges and trading days and since Januaryfor the period ended May 20, 2015.2016. All VWAPs shown are rounded to two decimals.
(3) | Based on 0.2218 of a share of Hecla common stock for each share of Mines Management common stock. |
Hecla Consideration Summary
Based upon and subject to the analyses and assumptions set out in this section, RFCCG calculated that, based on the relative trading history of Revett common stock and Hecla common stock on March 25, 2015 and over the 10, 20 and 30-day periods ending on March 25, 2015, the impliedas at May 21, 2016, an illustrative value of the Hecla consideration to be received by RevettMines Management common stockholders pursuant to the transaction was $0.50 to $0.53$0.94 per share of RevettMines Management common stock.
Period Ending | Revett Mining NYSE-MKT:RVM | Hecla Mining NYSE:HL | Implied consideration to Revett stockholders | |||||||
March 25, 2015 | VWAP | Volume | VWAP | Volume | (per Revett share) | |||||
10 trading days | $0.393 | 553,434 | $3.120 | 63,581,687 | $0.506 | |||||
20 trading days | $0.396 | 1,169,818 | $3.081 | 112,585,413 | $0.500 | |||||
30 trading days | $0.405 | 1,504,918 | $3.265 | 168,347,675 | $0.530 | |||||
Since 20-Jan-15 | $0.395 | 2,304,284 | $3.218 | 255,794,406 | $0.522 |
The NAV AnalysisOther Approaches
RFC concluded Revett’s net asset value based on book value comprises 1.4%CG also considered, but gave less weight to, other approaches including relative contribution analysis to the pro-forma Hecla. The results of Hecla’s proforma net asset value. Since current Revett stockholders will hold 1.7%this analysis are reflected in CG’s opinion.
General
The preparation of Hecla common stock immediately following the merger, net asset values based on book values support the proforma ownership interest of Revett stockholders in Hecla upon completiona fairness opinion is a complex process and is not necessarily susceptible to partial analysis or a summary description. Selecting portions of the transaction.
Net Asset Values ($000s) | Revett(1) | Hecla(2) | Proforma Hecla(3) | |||||||||
Assets: | ||||||||||||
Rock Creek mineral properties | 8,022 | |||||||||||
Troy mineral properties, plant and equipment | 7,285 | |||||||||||
|
| |||||||||||
Total mineral properties, plant and equipment | 15,307 | 1,831,564 | 1,846,871 | |||||||||
Net working capital | 1,620 | 225,374 | 226,994 | |||||||||
Restricted cash and investments | 6,551 | 5,803 | 12,354 | |||||||||
Other assets | 1,714 | 108,338 | 110,052 | |||||||||
|
|
|
|
|
| |||||||
Total Assets | 25,192 | 2,171,079 | 2,196,271 | |||||||||
|
|
|
|
|
| |||||||
Liabilities: | ||||||||||||
Long-term debt | 512,129 | 512,129 | ||||||||||
Accrued reclamation and closure costs | 4,769 | 55,619 | 60,388 | |||||||||
Other long-term liabilities | 206,357 | 206,357 | ||||||||||
|
|
|
|
|
| |||||||
Total Liabilities | 4,769 | 774,105 | 778,874 | |||||||||
|
|
|
|
|
| |||||||
Net Asset Value | 20,423 | 1,396,974 | 1,417,397 | |||||||||
|
|
|
|
|
| |||||||
Percent of Proforma Hecla NAV | 1.4 | % | 98.6 | % |
Comparable Transactions Analysis
RFC reviewed recent transactions involving silver explorers and miners, and asset sales of silver properties. RFC noted that all of its analyses and did not attribute any particular weight to any factor or analysis considered by it. Rather, CG made its determination as to fairness on the transactions involved more advanced projects. The primary conclusion reached frombasis of its experience and professional judgement after considering the analysis was that, even thoughresults of all of its analyses. No transaction or company used in the transactions identified were for projects more advanced than Revett’s Rock Creek project,above analyses as a comparison is directly comparable to Mines Management, Hecla or the premium paid for Revett common stock compares favorably with the sample transactions.transaction.
Date | Target | Acquiror | Project Stage | Location | 20-day average premium | Transaction Amount ($000s) | ||||||||
Feb-15 | Cangold Ltd. | Great Panther Silver | PEA | Mexico | -21% | 1,700 | ||||||||
Dec-14 | Paramount Gold and Silver | Coeur Mining, Inc. | Feasibility | Mexico | 20% | 146,000 | ||||||||
Feb-13 | Orko Silver | Coeur Mining, Inc. | Feasibility | Mexico | 17% | 379,000 | ||||||||
Dec-12 | Mirasol Resources | Coeur Mining, Inc. | Feasibility | Argentina | Asset Sale | 60,000 | ||||||||
Apr-12 | Silvermex Resources | First Majestic Silver | Production | Mexico | 43% | 175,000 | ||||||||
Oct-14 | Revenue Silver Mine | Fortune Minerals | Production | United States | Private Seller | 38,000 | ||||||||
Oct-13 | International Resources | Hochschild Mining | Production | Peru | 30% | 271,000 | ||||||||
Mar-13 | Aurizon Mines | Hecla Mining Company | Production | Canada | 39% | 796,000 | ||||||||
Average | 21% | |||||||||||||
Average (excluding high and low) | 26% |
Hecla Consideration Summary
PursuantCG prepared these analyses for purposes of CG providing its opinion to the merger, Revett stockholders will receive 0.1622Mines Management board of directors as to the fairness from a sharefinancial point of Hecla common stock for each share of Revett common stock.
The Stock Market Value Approach based on 10, 20 and 30 day trading periods ending the day before the transaction announcement and the agreed exchange ratio indicates that the implied valueview of the Hecla consideration to be received by RevettMines Management common stockholders pursuant to the transaction. These analyses do not purport to be appraisals nor do they necessarily reflect the prices at which businesses or securities actually may be sold. Analyses based upon forecasts of future results are not necessarily indicative of actual future results, which may be significantly more or less favorable than suggested by these analyses. Because these analyses are inherently subject to uncertainty, being based upon numerous factors or events beyond the control of the parties or their respective advisors, none of Mines Management, Hecla, CG or any other person assumes responsibility if future results are materially different from those forecast.
The consideration to be paid pursuant to the transaction was $0.50determined through arm’s-length negotiations between Mines Management and Hecla and was approved and adopted by the Mines Management board of directors. CG provided advice to $0.53 per shareMines Management during these negotiations including advising and assisting Mines Management in evaluating and responding to transaction proposals and assisting Mines Management in its determination of Revett common stock. The range of implied value is at a premiumappropriate values to Revett’s average share price over these periods, hence the consideration offered to Revett stockholders is fair based on the Stock Market Value Approach.
The Net Asset Value Analysis indicates that Revett’s net asset value based on book value comprises 1.4% that of Proforma Hecla’s net asset value. Based on shares outstanding as at the transaction announcement date and the agreed exchange rate, current Revett shareholders will hold 1.7% of Proforma Hecla common shares, hence the consideration offered to Revett stockholders is fair based on Net Asset Value Analysis.
The Comparable Transactions Approach indicates that the premiumsbe paid in recent transactions involving silver explorers and miners ranges from a discountproposed transactions. CG was not, however, retained to recommend any specific amount of 21%consideration to a premiumMines Management or the Mines Management board of 43%, and average a premiumdirectors or to state whether any specific amount of 21%. The premium offered to Revett stockholders is above average based on a comparison of Revett and Hecla 20-day average share prices, henceconsideration constituted the only appropriate consideration offered to Revett stockholders is fair based on the Comparable Transactions Approach.
Under the merger, current Revett stockholders will become minority stockholders of Hecla. Considerations RFC deemed relevant to ownership of Hecla stock include:
Credentials of Financial Advisor
RFC is a specialized investment banking firm servicing mining, metals and other industries in North America, South America and Europe. Since 1997, RFC has advised numerous companies regarding acquisitions, mergers, divestitures and joint ventures, and has provided analyses of strategic options, valuations and the fairness of transactions. Revett selected RFC as its financial advisor because RFC has substantial experience in transactions similar to the transaction. Pursuant to a letter agreement dated March 22, 2015, Revett engaged RFC to act as its financial advisor in connection with the transaction. Pursuant to the terms of this engagement letter, Revett has agreed to pay RFC a fee equal to $50,000, no portion of which is contingent upon consummation of the transaction. In addition, Revett has agreed to reimburse certain of RFC’s expenses arising, and indemnify RFC against certain liabilities that may arise, out of its engagement.
Revett Board Consideration of Opinion
As described above, RFC’sbelow, CG’s opinion to the RevettMines Management board of directors was one of many factors taken into consideration by the RevettMines Management board of directors in making its determination to approve and adopt the merger agreement. The foregoing summary does not purport to be a complete description of the analyses performed by RFCCG in connection with the fairness opinion and is qualified in its entirety by reference to the written opinion of RFCCG attached hereto as Appendix B.
CG and its affiliates are engaged in advisory, underwriting and financing, principal investing, sales and trading, research, investment management and other financial and non-financial activities and services for various persons and entities. CG and its affiliates and employees, and funds or other entities they manage or in which they invest or have other economic interests or with which they co-invest, may at any time purchase, sell, hold or vote long or short positions and investments in securities, derivatives, loans, commodities, currencies, credit default swaps and other financial instruments of Mines Management, Hecla, any of their respective affiliates and third parties, including significant stockholders of Mines Management and Hecla. Except as otherwise disclosed in this proxy statement/prospectus, CG and its affiliates have not provided services to Mines Management, Hecla or their respective affiliates in the past two years.
Mines Management selected CG as its financial advisor because CG is the global capital markets division of Canaccord Genuity Group Inc.—a leading independent full financial services firm—and is a recognized investment banking firm that has substantial experience in transactions similar to the transaction. Pursuant to a letter agreement dated March 17, 2016, as amended on April 18, 2016 and May 19, 2016, Mines Management engaged CG to act as its financial advisor in connection with the transaction and certain other transactions. Pursuant to the terms of this engagement letter, Mines Management has agreed to pay CG a success fee if a change of control that relates to Mines Management is completed or a change of control that relates to Mines Management that is not supported by the Mines Management board of directors is fended off. In addition, Mines Management has agreed to pay CG a fairness opinion fee in the amount of $200,000 for providing the fairness opinion. This fairness opinion fee is not contingent on a successful consummation of the transaction. The fees referenced above may be paid in the form of freely tradeable common stock of Hecla. In addition, Mines Management has agreed to reimburse certain of CG’s expenses and indemnify CG against certain liabilities that may arise out of its engagement.
Hecla’s Reasons for the Merger;Merger
After careful consideration, Hecla’s board of directors approved the merger agreement and the transactions contemplated thereby, including the merger. In reaching their decision, Hecla’s board consulted with Hecla management and legal advisors and considered a number of factors that they believed supported their decision, including the following factors:
Hecla’s board also deliberated on a variety of risks and other considerations concerning the merger agreement and the merger, including the following:
Mines Management’s right, subject to certain conditions, to respond to and negotiate certain alternative acquisition proposals made prior to the time RevettMines Management stockholders approve and adopt the merger agreement, as well as Revett’s right, subject to certain conditions, to withhold or withdraw (or modify in a manner adverse to) or propose publicly to withhold or withdraw (or modify in a manner adverse to) its recommendation to its stockholders to vote “For”
merger agreement, as well as Mines Management’s right, subject to certain conditions, to withhold or withdraw (or modify in a manner adverse to Hecla or Merger Sub) or propose publicly to withhold or withdraw (or modify in a manner adverse to Hecla or Merger Sub) its recommendation to its stockholders to vote “FOR” the merger proposal; |
The above discussion of the factors considered by Hecla’s board of directors is not intended to be exhaustive. In reaching their determination, Hecla’s board did not quantify or assign any relative weights to the factors considered, and individual directors may have given different weights to different factors. Hecla’s board considered all these factors as a whole, including discussions with, and inquiry of, Hecla’s management and legal advisors, and overall considered these factors to be favorable to, and to support, their determination.
The explanation of the reasoning of the Hecla board and certain information presented in this section are forward-looking in nature and, therefore, the information should be read in light of the factors discussed in the section entitled “Cautionary Statement Regarding Forward-Looking Statements” beginning on page 78 of this joint proxy statement/prospectus.
Interests of Revett’sMines Management’s Directors and Named Executive Officers in the Merger
In considering the recommendation of the RevettMines Management board of directors that RevettMines Management stockholders vote to approve and adopt the merger proposal, RevettMines Management stockholders should be aware that some of Revett’sMines Management’s directors and named executive officers have interests in the merger that may be different from, or in addition to, the interests of RevettMines Management stockholders generally. The RevettMines Management board of directors wasand special committee were each aware of and considered these potential interests, among other things, in evaluating and negotiating the merger agreement and the related transactions, in approving and adopting the merger agreement and in recommending the approval and adoption of the merger proposal. For purposes of the employment
agreements described below, to the extent applicable, the completion of the merger will constitute a change of control, change“Change in control, or term of similar meaning.Control” (as defined in the applicable employment agreement). These interests are described in further detail below, and certain of them are quantified in the narrative and table below.
Executive Change in Control Payments
Each of Revett’sMessrs. Glenn Dobbs and Douglas Dobbs entered into amended and restated employment agreements with Mines Management (the “Amended and Restated Agreements”), effective January 1, 2012, that (i) set the minimum base salaries for Glenn Dobbs at $370,000 and for Douglas Dobbs at $210,000 (subsequently increased upon promotion to President), (ii) provide that, should the executive officers hasofficer’s employment be terminated by Mines Management without “Cause” or by the officer for “Good Reason” (in each case as defined in the Amended and Restated Agreements) in connection with a Change in Control, he will be entitled to receive a lump sum payment equal to three times the sum of his then current annual base salary and the amount of annual bonus, if any, paid by Mines Management to him for the year before the occurrence of the Change in Control and (iii) provide for an alternate severance that each officer may receive if his employment is terminated by Mines Management without “Cause” or by the officer for “Good Reason” but not in connection with a Change in Control, which severance consists of a lump sum payment equal to the sum of his then current annual base salary and the amount of annual bonus, if any, paid by Mines Management to him for the year before termination.
Ms. Altenburg entered into an employment agreement with our Revett Silver Company first-tier subsidiary. Each agreementMines Management, effective May 7, 2007, that provides that, should Ms. Altenburg’s employment be deemed terminated by Mines Management in connection with a “Change in Control, she will be entitled to receive severance payments equal to twenty four (24) months’ salary.
Upon termination of Messrs. Glenn Dobbs’ or Douglas Dobbs’ or Ms. Altenburg’s employment or service by Mines Management other than for Cause or by the officer for Good Reason in connection with a Change in Control, shares, options or other forms of securities issued by Mines Management and beneficially owned by such officer that are unvested, restricted or subject to similar restriction will vest automatically on the termination date and shall be exercisable for 90 days following such termination (or one year if termination of employment is a result of the officer’s disability or death). In addition, each executive will be entitled to continued coverage for health benefits for a termperiod of three yearsup to 24 months.
Each of the employment agreements contain confidentiality and is renewable annually thereafter,proprietary information covenants which protect Mines Management’s confidential information and rights to discoveries made by the executives.
On May 23, 2016, Mines Management entered into amendments to the employment agreements with each provides forof Messrs. Glenn Dobbs and Douglas Dobbs and Ms. Altenburg. The amendments provide that upon a Change in Control transaction any severance due to the paymentemployee can be paid, at the option of salary and medical and other fringe benefits,Mines Management, in Mines Management common stock or the awardstock of stock options, and severance payments inan entity that acquires control of Mines Management as a result of the event the executive officer’s employment is terminated without cause, upon the occurrence of a change in control event, or other than for good reason. A “change in control” event occurs under the agreements when a person or entity beneficially acquires 25% or more of voting securities, or when, in a contested election of directors, the persons who were directors immediately priortransaction.
On June 29, 2016, Mines Management entered into amendments to the election contest ceaseemployment agreements with each of Messrs. Glenn Dobbs and Douglas Dobbs. The amendments eliminate the gross-up benefits related to constitute a majoritySection 280G of the board of directors. “Good reason” is definedCode that had existed in each agreement to mean a material change in the executive officer’s duties and responsibilities, a reduction in his or her salary or medical and other fringe benefits or, following a change in control, our failure to enter into a reasonably satisfactory replacementsuch individual’s employment agreement with the executive officer. All severance payments under such employment agreements are lump sum payments.
Revett’s employment agreement with Mr. Shanahan is dated January 1, 2010 and was amended on January 30, 2015. It provides for an annual base salary of $330,000, subject to periodic adjustments. If Mr. Shanahan’s employment is terminated without cause, or if he is terminated following a change of control event or other than for good reason, he is entitled to 18 months of salary and twelve months of benefits. Mr. Shanahan may terminate the agreement unilaterally upon five days’ notice. On November 15, 2013, Mr. Shanahan agreed to temporarily reduce his annual base salary to $264,000.
Revett’s employment agreement with Kenneth Eickerman, Revett’s treasurer and chief financial officer, is dated May 30, 2007 and was amended on January 16, 2010 and again on January 30, 2015. It provides for a current base salary of $140,400, subject to periodic adjustment. If Mr. Eickerman’s employment is terminated without cause, or if he is terminated following a change of control event or other than for good reason, he is entitled to 18 months of salary and twelve months of benefits. Mr. Eickerman may terminate the agreement unilaterally upon 5 days’ notice.
Revett’s employment agreement with Douglas Miller, Revett’s vice president of operations, is dated April 1, 2004, and was amended on September 1, 2009, October 1, 2012 and January 30, 2015. It provides for a current base salary of $160,000, subject to periodic adjustment. If Mr. Miller’s employment is terminated without cause, or if he is terminated following a change of control event or other than for good reason, he is entitled to 18 months of salary and twelve months of benefits. Mr. Miller may terminate the agreement unilaterally upon five days’ notice.
Revett’s employment agreement with Monique Hayes, Revett’s secretary, is dated December 1, 2010 and was amended on January 30, 2015. It provides for a current base salary of $88,000, subject to periodic adjustment. If Ms. Hayes’s employment is terminated without cause, or if she is terminated following a change of control event or other than for good reason, she is entitled to 18 months of salary and twelve months of benefits. Ms. Hayes may terminate the agreement unilaterally upon five days’ notice.
Revett’s employment agreement with Douglas Stiles, Revett’s vice president of planning, is dated May 30, 2014 and was amended on January 30, 2015. It provides for a current base salary of $125,000, subject to periodic adjustment. If Mr. Stiles’ employment is terminated without cause, or if he is terminated following a change of control event or other than for good reason, he is entitled to 18 months of salary and twelve months of benefits. Mr. Stiles may terminate the agreement unilaterally upon five days’ notice.agreement.
For additional information regarding compensation that will be received by Revett’sMines Management’s named executive officers in connection with the merger, see “Golden Parachute Compensation” on page 53.59.
Golden Parachute Compensation
The merger is considered a change“Change in controlControl” under each RevettMines Management named executive officer’s employment agreement.
The following table sets forth the amounts of “golden parachute” compensation (for purposes of Item 402(t) of Regulation S-K) that each named executive officer of RevettMines Management could receive in connection with the merger. These amounts assume that the named executive officer’s employment will be terminated without “Cause” immediately following the closing of the merger such that the named executive officer will become
entitled to the full amount of severance benefits provided for which he or she is eligible pursuantin his or her employment agreement in respect of a termination without “Cause” in connection with a Change in Control (as described in more detail above).
For purposes of calculating suchSuch amounts we have assumedbeen calculated assuming that the closing date will be [ ], 2015,had taken place on June 27, 2016, which is therefore used as the date of the “change“Change in control”.Control.”
Name | Cash ($) | Equity ($) | Benefits(1) | Accrued Vacation | Total ($) | |||||||||||||||
John Shanahan | 495,000 | 0 | 20,528 | 19,038 | 534,566 | |||||||||||||||
Kenneth Eickerman | 210,600 | 0 | 20,528 | 10,800 | 241,928 | |||||||||||||||
Douglas Miller | 240,000 | 0 | 20,528 | 12,308 | 272,566 | |||||||||||||||
Monique Hayes | 132,000 | 0 | 11,948 | 6,769 | 150,717 | |||||||||||||||
Douglas Stiles | 187,500 | 0 | 23,288 | 9,615 | 220,403 |
Name | Cash ($)(1) | Equity ($)(2) | Perquisites/ benefits ($)(3) | Total ($) | ||||||||||||
Glenn Dobbs | 1,100,000 | — | 16,275 | 1,116,275 | ||||||||||||
Douglas Dobbs | 702,000 | — | 16,275 | 718,275 | ||||||||||||
Nicole Altenburg | 212,000 | — | 16,275 | 228,275 |
(1) |
(2) | All stock options were vested in full in accordance with their standard vesting terms no later than February 12, 2016. |
(3) | Represents estimated |
Interests of Hecla’s Directors and Officers in the Merger
Phillips S. Baker, Jr., the President and Chief Executive Officer of Hecla, owns 72,917 shares of Revett common stock, all of which were acquired using personal funds of Mr. Baker. Each share of Revett common stock directly owned by Mr. Baker will be treated in the same manner as the other outstanding shares of Revett common stock pursuant to the merger agreement.
No other director or officer of Hecla has any interest in the merger.
Board of Directors and ManagementsManagement of RevettMines Management Following the Merger
At the effective time, certain directors and executive officers of Hecla will become directors and executive officers of Revett.Mines Management.
Material U.S. Federal Income Tax Consequences of the Merger
The following discussion addresses the material U.S. federal income tax consequences of the merger to RevettMines Management and holders of RevettMines Management common stock. The discussion is based on the Code, Treasury regulations,Regulations, administrative rulings and judicial decisions, all as currently in effect and all of which are subject to change (possibly with retroactive effect) and to differing interpretations. This discussion applies only to stockholders that hold their RevettMines Management common stock as a capital asset within the meaning of Section 1221 of the Code. Further, this discussion does not address all aspects of U.S. federal income taxation that may be relevant to a particular stockholder in light of his, her or its personal circumstances or to stockholders subject to special treatment under the U.S. federal income tax laws, such as financial institutions, tax-exempt organizations, insurance companies, dealers in securities or foreign currency, traders in securities who elect to apply a mark-to-market method of accounting, pass-through entities and investors in such entities, stockholders who received their RevettMines Management common stock through the exercise of employee stock options, through a tax-qualified retirement plan or otherwise as compensation, and stockholders who hold RevettMines Management common stock as part of a hedge, straddle, constructive sale, conversion transaction or other integrated investment.
This discussion is limited to RevettMines Management stockholders that are “U.S. holders.” For purposes of this proxy statement/prospectus, a “U.S. holder” means a stockholder of RevettMines Management that, for U.S. federal income tax purposes, is:
In addition, the discussion does not address any alternative minimum tax or any state, local or foreign tax consequences of the merger, nor does it address any tax consequences arising under the unearned income Medicare contribution tax pursuant to the Health Care and Education Reconciliation Act of 2010.
This discussion does not address the tax treatment of partnerships (or entities or arrangements that are treated as partnerships for United StatesU.S. federal income tax purposes) or persons that hold their RevettMines Management common stock through partnerships or other pass-through entities for U.S. federal income tax purposes. If a partnership, including any entity or arrangement treated as a partnership for United StatesU.S. federal income tax purposes, holds shares of RevettMines Management common stock, the U.S. federal income tax treatment of a partner in such partnership will generally depend upon the status of the partner and the activities of the partnership. Such partners and partnerships should consult their own tax advisors regarding the particular tax consequences of the merger to them.
RevettMines Management stockholders should consult their tax advisors with respect to the particular tax consequences of the merger to them.
Consequences to RevettMines Management and RevettMines Management Stockholders
RevettMines Management and Hecla intend for the merger to be treated as a “reorganization” within the meaning of Section 368(a) of the Code for U.S. federal income tax purposes. Mines Management has received an opinion from Davis Graham & Stubbs LLP to the effect that, on the basis of facts, representations, assumptions and exclusions set forth or referred to in such opinion, the merger will qualify as a “reorganization” within the meaning of Section 368(a) of the Code. This opinion is based on representations, warranties and covenants contained in representation letters provided by Mines Management and on customary factual assumptions. The opinion is not binding on the Internal Revenue Service or any court. Mines Management and Hecla have not sought and will not seek any ruling from the Internal Revenue Service regarding any matters relating to the merger, and, as a result, there can be no assurance that the Internal Revenue Service will not assert, or that a court would not sustain, a position contrary to any of the conclusions set forth below. In addition, if any of the representations, warranties, covenants or assumptions upon which the opinion is based are inconsistent with the actual facts, the U.S. federal income tax consequences of the merger could be adversely affected. Assuming that, in accordance with the opinion described above, the merger will qualify as a “reorganization” within the meaning of Section 368(a) of the Code, the U.S. federal income tax consequences of the merger will be as follows:
Mines Management will not recognize any gain or loss for U.S. federal income tax purposes as a result of the merger. RevettMines Management stockholders will not recognize any gain or loss pursuant to the merger except in respect of cash received instead of a fractional share of Hecla common stock (as discussed below). The aggregate tax basis of the Hecla common stock received in the merger (including fractional shares deemed received and redeemed as discussed below) will be equal to the aggregate adjusted tax basis of the shares of RevettMines Management common stock surrendered for the Hecla common stock, and the holding period of the Hecla common stock (including fractional shares deemed received and redeemed) will include the period during which
the shares of RevettMines Management common stock were held. If a Mines Management stockholder acquired different blocks of Mines Management common stock at different times or at different prices, the Hecla common stock received by that stockholder will be allocated pro rata to each block of Mines Management common stock, and the basis and holding period of each block of Hecla common stock received by that stockholder will be determined on a block-for-block basis depending on the basis and holding period of the blocks of Mines Management common stock exchanged for such Hecla common stock.
A RevettMines Management stockholder that receives cash instead of a fractional share of Hecla common stock will generally be treated as having received such fractional share and then as having received such cash in redemption of the fractional share. Gain or loss will generally be recognized based on the difference between the amount of cash received instead of the fractional share and the portion of the holder’s aggregate adjusted tax basis in the shares of RevettMines Management common stock surrendered which is allocable to the fractional share. Such gain or loss generally will be long-term capital gain or loss if the holding period for such shares of RevettMines Management common stock is more than one year at the effective time of the merger.time. Long-term capital gains of non-corporate taxpayers are subject to reduced rates of taxation. The deductibility of capital losses is subject to limitations.
Information Reporting and Backup Withholding
Payments of cash to a U.S. holder of RevettMines Management common stock in lieu of fractional shares of Hecla common stock in the merger may be subject to information reporting, unless the U.S. holder provides proof of an applicable exemption. Payments that are subject to information reporting may also be subject to backup
withholding (currently at a rate of 28%), unless such U.S. holder provides an accurate taxpayer identification number and otherwise complies with the requirements of the backup withholding rules.
Backup withholding is not an additional tax. Any amount withheld will be credited against a U.S. holder’s U.S. federal income tax liability and may entitle such holder to a refund, provided the required information is timely supplied to the Internal Revenue Service.
Accounting Treatment of the Merger
In accordance with accounting principles generally accepted in the United States,GAAP, Hecla will account for the merger using the acquisition method of accounting for business combinations.
The MergerNeither Mines Management nor Hecla is subjectrequired to complianceobtain any approvals from any federal or state regulatory authorities to consummate the merger. Hecla must comply with applicable federal and state securities laws and Delaware laws.NYSE rules and regulations in connection with the issuance of shares of Hecla and Revett expect to make all required filings under applicable U.S. securities laws andcommon stock in connection with the rulesmerger, including the filing with the SEC of the NYSE.registration statement of which this proxy statement/prospectus is a part. In addition, the parties will be required to file a statement of merger with the Secretary of State of Idaho in order to effectuate the merger.
Exchange of Shares in the Merger
Prior to the effective time, Hecla will appoint an exchange agent reasonably acceptable to RevettMines Management to handle the exchange of RevettMines Management common stock for Hecla common stock.
Promptly following the effective time, Hecla will cause the exchange agent toshall mail to each holder of record of outstanding shares of RevettMines Management common stock a letter of transmittal specifying instructions for use in effecting the surrender of certificates representing outstanding shares of RevettMines Management common stock (or affidavits of loss in lieu thereof) or book-entry shares of RevettMines Management common stock in exchange for the merger consideration.
Revett
Mines Management stockholders will not receive, with respect to any fractional shares to which stockholders would be entitled based on the application of Hecla common stockthe exchange ratio, cash in the merger. Instead, each Revettlieu of fractional shares. Each Mines Management stockholder will be entitled to receive a cash payment in lieu of any fractional shares of Hecla common stock it otherwise would have received pursuant to the merger equal to the product obtained by multiplying (i) the fractional share interest to which such holder would otherwise be entitled (after taking into account all shares of RevettMines Management common stock exchanged by such holder) by (ii) the closing price of Hecla common stock on the NYSE on the trading day immediately preceding the closing date.
After the effective time, shares of RevettMines Management common stock will no longer be outstanding, will automatically be cancelled, and will cease to exist, and certificates or evidence of shares in book-entry form that, in each case, previously represented shares of RevettMines Management common stock will represent only the right to receive a number of shares of Hecla common stock (plus cash, if any, in lieu of fractional shares) as described above. Until holders of RevettMines Management common stock have surrendered their shares to the exchange agent for exchange, those holders will not receive dividends or distributions declared or made with respect to shares of Hecla common stock with a record date after the effective time. However, upon the surrender of their shares of RevettMines Management common stock, such holders will receive the amount of dividends or other distributions with respect to shares of Hecla common stock theretofore paid withhaving a record date after the effective time.time and payable with respect to such Hecla common stock between the effective time and the time of such surrender.
Merger Consideration; Treatment of RevettMines Management Stock Options; Treatment of RevettMines Management Warrants
RevettMines Management common stockholders will receive 0.16220.2218 of a share of Hecla common stock for each share of RevettMines Management common stock they hold, with cash paid in lieu of fractional shares. The exchange ratio is fixed and will not be adjusted for changes in the market value of the common stock of RevettMines Management or Hecla. Because of this, the implied value of the consideration to RevettMines Management stockholders may fluctuate between now and the completion of the merger.
At the effective time, each option to purchase shares of Revett commonMines Managementcommon stock granted under the Revett Minerals Inc. Amended and Restated Equity Incentive Plan dated June 21, 2011, that is outstanding immediately prior to the effective time (whether or not vested) that has an exercise price per share greater than or equal to the merger
consideration (which isproduct of the case for all currently outstanding options) shallclosing price of Hecla common stock on the NYSE on the trading day immediately preceding the closing date and 0.2218 will be cancelled without any payment being made in respect thereof,thereof. At the effective time, each other option to purchase shares of Mines Management common stock that is outstanding immediately prior to the effective time (all of which are vested) will be cancelled in accordanceexchange for the right to receive shares of Hecla common stock (without interest, and subject to deduction for any required withholding tax, with cash being paid in lieu of issuing fractional shares of Hecla common stock) with a value equal to (i)(a) the provisionsproduct of that plan.the closing price of Hecla common stock on the NYSE on the trading day immediately preceding the closing date and 0.2218 minus (b) the exercise price per share under such option multiplied by (ii) the number of shares subject to such option. At the option of Hecla, in lieu of paying all or a portion of the amounts due to a holder of options, Hecla may substitute for such shares an equivalent amount in cash.
At the effective time, and in accordance with the terms of eachany warrant to purchase shares of Mines Managementcommon stock that is outstanding immediately prior to the Warrants, Heclaeffective time, such warrant will issueeither be cancelled in accordance with its terms or a replacement warrant to each holder thereof that will be exercisable forissued giving the holder the right to purchase a number of shares of Hecla common stock (without interest, and subject to deduction for any required withholding tax, and no issuance of fractional shares and the number of such shares rounded down) equal to the product of (i) 0.16220.2218 and (ii) the number of shares subjectof Mines Managementcommon stocksubject to such Warrant,warrant, with an exercise price of $6.17$4.8765 per share of Hecla common stock, pursuant to and in accordance with such holder’s Warrantwarrants (as amended).
If between the date of the merger agreement and the effective time the number of outstanding shares of RevettMines Management common stock, or securities convertible or exchangeable into or exercisable for shares of Revett
Mines Management common stock, changes into a different number of shares or a different class by reason of any stock dividend (excluding, for the avoidance of doubt, cash dividends), subdivision, reclassification, recapitalization, split, reverse split, combination, exchange of shares or any other similar transaction, the exchange ratio will be correspondingly adjusted to reflect such stock dividend, subdivision, reclassification, recapitalization, split, reverse split, combination, exchange of shares or other similar transaction.
It is a condition to the completion of the merger that the shares of Hecla common stock to be issued to RevettMines Management stockholders pursuant to the merger be approved for listing on the NYSE, subject to official notice of issuance.
Litigation Related to the Merger
Since the announcement of the merger Revett, members of the Revett board of directors, Merger Sub, and Hecla, were named as defendants in two putative stockholder class actions, brought by purported stockholders of Revett, challenging the proposed merger. Both of the lawsuits were filed in Superior Court in Spokane County, Washington, and are captioned Okerberg v. Revett Mining Co., Inc., et al., No. 15201271-6 (Spokane Cnty, Wash. April 6, 2015), and Lokash v. Revett Mining Co., Inc., et al., No. 15201272-4 (Spokane Cnty, Wash. April 6, 2015).
The plaintiffs generally claim that (i) the members of the Revett board of directors breached their fiduciary duties to Revett stockholders by authorizing the merger with Hecla for what the plaintiff asserts is inadequate consideration and pursuant to an inadequate process, and (ii) Hecla and Merger Sub (and Revett in one of the lawsuits) aided and abetted the other defendants’ alleged breach of duties. The plaintiffs seek, among other things, to enjoin the merger, rescind the transaction or obtain rescissory damages if the merger is consummated, obtain other unspecified damages, and recover attorneys’ fees and costs.
Although it is not possible to predict the outcome of litigation matters with certainty, each of Revett, its directors, Hecla and Merger Sub believe that both lawsuits are without merit, and the parties intend to vigorously defend against all claims asserted.
As discussed in “Risk Factors—RisksRisk Factors Relating to Revett—Liquidity Considerations and Going Concern”Mines Management” beginning on page 26,28, and elsewhere in this proxy statement/prospectus, RevettMines Management is experiencing severe financial challenges. In an effort to address Revett’sMines Management’s short-term liquidity needs, Hecla and RevettMines Management have entered into a Term Loan and Securitythe Interim Credit Agreement, dated April 17, 2015, pursuant to which Hecla has agreed to provide one ouror more secured loans to RevettMines Management in an aggregate amount not to exceed $1,500,000.$2,300,000. Currently, loans totaling approximately $1.4 million have been made to Mines Management. Loans will bear interest at a rate per
annum equal to LIBOR plus 5%. The loans mature on the earlier of August 15, 2016 and will bethe date the merger is completed. In addition, the loans become due and payable on July 1, 2015. The loans will be secured by certain real estate holdingsin full upon a change of Revett’s subsidiary, Revett Holdings, Inc., and the equity interests in Revett Holdings, Inc. Even if Revett borrows the maximum amount available under the Term Loan and Security Agreement, it currently expects that it would still run outcontrol or event of cash by the end of August 2015default or if the merger doesagreement is terminated for any reason other than a breach of the merger agreement by Hecla. Mines Management and certain of its subsidiaries are jointly and severally liable for the obligations owing under the loans, and all of the obligations of Mines Management under the Interim Credit Agreement are guaranteed by certain of its subsidiaries. The loans are secured, subject to certain permitted liens, by a security interest in substantially all of Mines Management’s assets, including the Montanore Project. See “Risk Factors—Risk Factors Relating to Mines Management—If the merger is not occur.completed, Mines Management will require additional external financing to fund its continuing business activities in the future, and the terms of any such financing, if obtained, may have negative effects on Mines Management’s flexibility and future transactions.”
ShareholderShareholders Agreements
The following summarizes the material provisions of the shareholdershareholders agreements. This summary does not purport to be complete and may not contain all of the information about the shareholdershareholders agreements that is important to you. This summary is qualified in its entirety by reference to the shareholdershareholders agreements, a copy of the form of which is included as Appendix D to this proxy statement/prospectus and is incorporated by reference herein. Defined terms used but not otherwise defined in this section shall have the meaning assigned to such terms in the shareholdershareholders agreements.
In order to induce Hecla and Merger Sub to enter into the merger agreement, certain stockholders of RevettMines Management entered into shareholdershareholders agreements, each dated March 26, 2015,May 23, 2016, pursuant to which the stockholdereach shareholder agreed to vote theirhis, her or its shares of RevettMines Management common stock beneficially owned by them,such shareholder (as set forth in such shareholder’s shareholders agreement), and to cause any holder of record of shares of common stock beneficially owned by such stockholder (as set forth in such shareholder’s shareholders agreement) to vote: (i) in favor of the merger and the merger agreement, at every meeting of the stockholders of RevettMines Management at which such matters are considered and at every adjournment or postponement thereof; (ii) against (1) any takeover proposal (as defined in the merger agreement), (2) any action, proposal, transaction or agreement which could reasonably be expected to result in a breach of any covenant, representation or warranty or any other obligation or agreement of RevettMines Management under the merger agreement (except in the case of Silver Wheaton Corp.) or of the stockholder under the shareholdershareholders agreement and (3) any action, proposal, transaction or agreement that could reasonably be expected to impede, interfere with, delay, discourage, adversely affect or inhibit the timely consummation of the merger or the fulfillment of Revett’s, Mines Management’s,
Hecla’s or Merger Sub’s conditions under the merger agreement or change in any manner the voting rights of any class of shares of RevettMines Management (including any amendments to Revett’s certificateMines Management’s articles of incorporation and bylaws). Each of the stockholders agreed to grant an irrevocable proxy appointing Hecla as the stockholder’s proxy and attorney-in fact (with full power of substitution)substitution and resubstitution) to vote such stockholder’s shares at any meeting of the stockholders of RevettMines Management called with respect to any of the matters specified in the shareholdershareholders agreements, and in accordance and consistent with the above. The following stockholders are party to the shareholders agreements: Trafigura, John G. Shanahan, Kenneth S. Eickerman,Silver Wheaton Corp., Glenn Dobbs, Douglas Miller, Monique Hayes, Timothy Lindsey, Albert F. Appleton, Larry M. Okada,Dobbs, Nicole Altenburg, Russell Babcock, Roy Franklin and John B. McCombe.Robert Russell. Collectively, such stockholders directly own 5,784,6646,562,199 shares of RevettMines Management common stock (which include 1,472,621 shares of Mines Management common stock subject to currently exercisable options) are subject to the shareholders agreements, representing approximately 14.73%17.6% of the outstanding shares of RevettMines Management common stock as of the record date.date hereof. On June 29, 2016, the shareholders agreements with each of Glenn Dobbs and Douglas Dobbs were amended to correct the number of shares of Mines Management common stock owned by Glenn Dobbs and increase the number of derivative securities subject to the shareholders agreement entered into by Douglas Dobbs.
The following summarizes certain material provisions of the merger agreement. This summary does not purport to be complete and may not contain all of the information about the merger agreement that is important to you. The rights and obligations of the parties are governed by the express terms and conditions of the merger agreement and not by this summary or any other information contained in this proxy statement/prospectus. RevettMines Management stockholders are urged to read the merger agreement carefully and in its entirety, as well as this proxy statement/prospectus and the information incorporated herein by reference, before making any decisions regarding the merger. This summary is qualified in its entirety by reference to the merger agreement, a copy of which is included as Appendix A to this proxy statement/prospectus and is incorporated by reference herein. Defined terms used but not otherwise defined in this section shall have the meanings assigned to such terms in the merger agreement.
In reviewing the merger agreement and this summary, please remember that they have been included to provide you with information regarding the terms of the merger agreement and are not intended to provide any other factual information about Hecla, RevettMines Management or any of their subsidiaries. The Merger Agreementmerger agreement contains
representations and warranties and covenants by each of the parties to the merger agreement, which are summarized below. These representations and warranties have been made solely for the benefit of the other parties to the merger agreement and:
Moreover, information concerning the subject matter of the representations and warranties in the merger agreement and described below may have changed since the date of the merger agreement, and subsequent developments or new information qualifying a representation or warranty may have been included in this proxy statement/prospectus. In addition, if specific material facts arise that contradict the representations and warranties in the merger agreement, Hecla or Revett,Mines Management, as applicable, will disclose those material facts in the public filings that it makes with the SEC if it determines that it has a legal obligation to do so. Accordingly, the representations and warranties and other provisions of the merger agreement should not be read alone, but instead should be read together with the information provided elsewhere in this proxy statement/prospectus and in the documents incorporated by reference into this proxy statement/prospectus. See “Where You Can Find More Information” beginning on page 111.105.
The Merger
The Merger Agreementmerger agreement provides that, on the terms and subject to the conditions in the merger agreement, and in accordance with DelawareIdaho law, Merger Sub will merge with and into Revett.Mines Management. At the effective time, the separate corporate existence of Merger Sub will cease and RevettMines Management will continue as the surviving company in the merger as a wholly-owned subsidiary of Hecla.
Merger Consideration
RevettMines Management common stockholders will receive 0.16220.2218 of a share of Hecla common stock for each share of RevettMines Management common stock they hold, with cash paid in lieu of fractional shares of Hecla common stock.shares. The exchange ratio is fixed and will not be adjusted for changes in the market value of the common stock of RevettMines Management or Hecla. Because of this, the implied value of the consideration to RevettMines Management stockholders may fluctuate between now and the completion of the merger.
Treatment of RevettMines Management Stock Options
At the effective time, each option to purchase shares of RevettMines Managementcommon stock that is outstanding immediately prior to the effective time that has an exercise price per share greater than or equal to the product of the closing price of Hecla common stock on the NYSE on the trading day immediately preceding the closing date and 0.2218 will be cancelled without any payment being made in respect thereof. At the effective time, each other option to purchase shares of Mines Management common stock that is outstanding immediately prior to the effective time (whether or not(all of which are vested) that has anwill be cancelled in exchange for the right to receive shares of Hecla common stock (without interest, and subject to deduction for any required withholding tax, with cash being paid in lieu of issuing fractional shares of Hecla common stock) with a value equal to (i)(a) the product of the closing price of Hecla common stock on the NYSE on the trading day immediately preceding the closing date and 0.2218 minus (b) the exercise price per share greater thanunder such option multiplied by (ii) the merger consideration (which isnumber of shares subject to such option. At the caseoption of Hecla, in lieu of paying all or a portion of the amounts due to a holder of options, Hecla may substitute for all currently outstanding options) will be cancelled without any payment being madesuch shares an equivalent amount in respect thereof, in accordance with the provisions of that plancash.
Treatment of RevettMines Management Warrants
At the effective time, and in accordance with the terms of eachany warrant to purchase shares of Mines Managementcommon stock that is outstanding immediately prior to the Warrants, Heclaeffective time, such warrant will issueeither be cancelled in accordance with its terms or a replacement warrant that will be exercisable forissued giving the holder the right to purchase a number of shares of Hecla common stock (without interest, and subject to deduction for any required withholding tax, and no issuance of fractional shares and the number of such shares rounded down) equal to the product of (i) 0.16220.2218 and (ii) the number of shares subjectof Mines Managementcommon stocksubject to such Warrant,warrant, with an exercise price of $6.17$4.8765 per share of Hecla common stock, pursuant to and in accordance with such holder’s Warrantwarrants (as amended).
Treatment of Mines Management Series B
The merger agreement provides that, at the effective time, and in accordance with the terms of the Mines Management Series B, replacement preferred stock shall be issued to each holder of Mines Management Series B that is issued and outstanding immediately prior to the effective time, which shall have a conversion price of $3.5464 and contain such other terms as are required by the terms of the Mines Management Series B. There are currently no shares of Mines Management Series B outstanding; all previously outstanding shares of Mines Management Series B have been converted into common stock, and no further issuances of Mines Management Series B are expected.
Representations and Warranties
The merger agreement contains representations and warranties made by RevettMines Management to Hecla and Merger Sub and by Hecla and Merger Sub to Revett.Mines Management. Certain of the representations and warranties in the merger agreement are subject to materiality or material adverse effect qualifications (that is, they will not be deemed to be untrue or incorrect unless their failure to be true or correct is material or would result in a material adverse impact). In addition, certain of the representations and warranties in the merger agreement are subject to knowledge qualifications, which means that those representations and warranties would not be deemed untrue or incorrect as a result of matters of which certain officers or directors of the party making the representation did not have actual or constructive knowledge. Additionally, certain of the representations and warranties of RevettMines Management in the merger agreement are qualified by the RevettMines Management disclosure schedule.
The merger agreement provides that a “material adverse effect” means, with respect to Revett,Mines Management, any event, occurrence, fact, condition or change that is, or would reasonably be expected to become, individually or in the aggregate, materially adverse to (i) the business, results of operations, prospects, condition (financial or otherwise), or assets of RevettMines Management and its subsidiaries, taken as a whole, or (ii) the ability of RevettMines Management to consummate the transactions contemplated herebyunder the merger agreement on a timely basis; provided, however, that, for the purposes of clause (i), a “material adverse effect” will not be deemed to include events, occurrences, facts, conditions or changes arising out of, relating to or resulting from: (a) changes generally affecting the economy or financial or securities markets; (b) the announcement of the transactions contemplated by the merger agreement; (c) any outbreak or escalation of war or any act of terrorism; or (d) general conditions in the industryindustries in which RevettMines Management and its subsidiaries operate; provided further, however, that any event, change and effect referred to in clauses (a), (c) or (d) immediately above will be taken into account in determining whether a “material adverse effect” has occurred or would reasonably be expected to occur to the extent that such event, change or effect has a disproportionate effect (other than an effect that is disproportionate solely due to the financial condition of Mines Management and its subsidiaries) on RevettMines Management and its subsidiaries, taken as a whole, compared to other participants in the industries in which RevettMines Management and its subsidiaries conduct their businesses.
In the merger agreement, Hecla and Merger Sub, on the one hand, and Revett,Mines Management, on the other, have made representations and warranties including representations and warranties regarding the following topics:
In addition, RevettMines Management has made representations and warranties to Hecla and Merger Sub regarding, among other topics:
In addition Hecla and Merger Sub have made representations and warranties to RevettMines Management regarding, among other topics, the ownership of Merger Sub and no vote of Hecla’s stockholders being required to approve the merger agreement or the transactions contemplated thereby.
Conduct of Business
Subject to certain exceptions in the merger agreement and the RevettMines Management disclosure schedules,schedule, as applicable, or as required by law or with the prior written consent of Hecla, from the date of the merger agreement until the effective time, RevettMines Management has agreed to carry on, and has agreed to cause each of its subsidiaries to carry on, its business in the ordinary course consistent with past practice and to, and cause each of its subsidiaries to, use reasonable best efforts to preserve substantially intact its and its subsidiaries’ business organization, to keep available the services of its and its subsidiaries’ current officers and employees, and to preserve its and its subsidiaries’ present relationships with customers, suppliers, distributors, licensors, licensees and other persons having business relationships with it.Mines Management or its subsidiaries.
In addition, from the date of the merger agreement until the effective time, RevettMines Management has agreed to various specific restrictions relating to the conduct of the business of RevettMines Management and its subsidiaries, including with respect to the following (subject in each case to certain exceptions inrelating to the merger agreement and the Revett disclosure schedules,transactions contemplated by the Interim Credit Agreement, or as required by law):
Efforts to Obtain Required Stockholder Votes
Subject to its right in certain circumstances to adjourn, recess or postpone the RevettMines Management stockholder meeting, RevettMines Management has agreed to hold a meeting of its stockholders as promptly as practicable after the Registration Statement on Form S-4 of which this proxy statement/prospectus is a part is declared effective for the purpose of obtaining RevettMines Management stockholder approval and adoption of the merger proposal. RevettMines Management has agreed to, through its board of directors, recommend in accordance with applicable law that the holders of RevettMines Management common stock vote in favor of the approval and adoption of the merger agreement and the merger (the “Board Recommendation”). Subject to the ability of Revett’sMines Management’s board of directors in certain circumstances to fail to make, withdraw, amend, modify or materially qualify, in a manner adverse to Hecla or Merger Sub, the Board Recommendation, or recommend a Takeover Proposal, or fail to recommend against acceptance of any tender offer or exchange offer for the shares of RevettMines
Management common stock within 10 business days after the commencement of such offer, or make any public statement inconsistent with the Board Recommendation, or resolve or agree to take any of the foregoing actions (any of the foregoing, an “Adverse Recommendation Change”), RevettMines Management is required to use its best efforts to solicit stockholder approval and adoption of the merger proposal. Revett’sMines Management’s board of directors has approved and adopted the merger by a unanimous vote of the directors present at the relevant meeting and has adopted resolutions directing that the merger proposal be submitted to the RevettMines Management stockholders for their consideration.
No Solicitation of Alternative Proposals
RevettMines Management has agreed, subject to the exceptions described below, from the time of the execution of the merger agreement until the earlier of the effective time or the termination of the merger agreement, not to, has agreed to cause its subsidiaries not to, and has agreed not to permit or authorize any of its subsidiaries or any director, officer, employee, accountants, consultants, legal counsel, advisors and agents and other representatives (collectively, “Representatives”) of RevettMines Management or any of its subsidiaries (collectively, “Representatives”), directly or indirectly, to:
Additionally, except as set forth in the merger agreement and as described below, RevettMines Management is required to, and is required to cause its subsidiaries to, cease immediately and cause to be terminated, and shall not authorize or knowingly permit any Revett Representatives to continue, any and all existing activities, discussions or negotiations, if any, with any third party conducted prior to the date of the merger agreement with respect to any Takeover Proposal and will cause any such third party (or its agents or advisors) in possession of non-public information in respect of RevettMines Management or any of its subsidiaries that was furnished by or on behalf of RevettMines Management and its subsidiaries to return or destroy (and confirm destruction of) all such information.
Notwithstanding the above described restrictions, prior to the receipt of stockholder approval and adoption of the merger agreement and the transactions contemplated thereby, Revett’sMines Management’s board of directors, directly or indirectly through any Revett Representative, may, subject to certain restrictions:
(i) | participate in negotiations or discussions with any third party that has made (and not withdrawn) a bona fide, unsolicited Takeover Proposal in writing that |
combination, of greater than |
(ii) |
(iii) | following receipt of and on account of a Superior Proposal, make an Adverse Recommendation Change (as defined |
(iv) | take any action that any court of competent jurisdiction orders |
Revettbut in each case referred to in the foregoing clauses (i) through (iv), only if Mines Management’s board of directors determines in good faith, after consultation with outside legal counsel, that the failure to take such action would reasonably be expected to cause Mines Management’s board of directors to be in breach of its fiduciary duties under applicable law.
Mines Management has also agreed that its board of directors will not take any of the actions referred to in clauses (i) through (iv) of the preceding paragraph unless RevettMines Management has delivered to Hecla a prior written notice advising Hecla that it intends to take such action. RevettMines Management will notify Hecla promptly (but in no event later than 24 hours) after it obtains knowledge of the receipt by RevettMines Management (or any of Revett’s Representatives) of any Takeover Proposal, any inquiry that would reasonably be expected to lead to a Takeover Proposal or any request for non-public information relating to RevettMines Management or any of its subsidiaries or for access to the business, properties, assets, books or records of RevettMines Management or any of its subsidiaries by any third party. In such notice, RevettMines Management will identify the third party making, and details of the material terms and conditions of, any such Takeover Proposal, indication or request. RevettMines Management is required to keep Hecla fully informed, on a current basis, of the status and material terms of any such Takeover Proposal, indication or request, including any material amendments or proposed amendments as to price and other material terms of any such Takeover Proposal, indication, or request. RevettMines Management is required to provide Hecla with at least 48 hours prior notice of any meeting of Revett’sMines Management’s board of directors (or such lesser notice as is provided to the members of Revett’sMines Management’s board of directors) at which Revett’s Mines Management’s
board of directors is reasonably expected to consider any Takeover Proposal. RevettMines Management is required to promptly (but in no event later than 24 hours) provide Hecla with a list of any non-public information concerning Revett’sMines Management’s business, present or future performance, financial condition or results of operations provided to any third party, and, to the extent such information has not been previously provided to Hecla, copies of such information.
Changes in Board Recommendations
RevettMines Management has agreed that the Board Recommendation is to be included in this proxy statement/prospectus and that, with certain exceptions, neither Revett’sMines Management’s board of directors nor any committee thereof will make an Adverse Recommendation Change.
Except as described below, Revett’sMines Management’s board of directors will not make any Adverse Recommendation Change or enter into (or permit any subsidiary to enter into) an Acquisition Agreement. Notwithstanding the foregoing, atAt any time prior to the receipt of stockholder approval and adoption of the merger agreement and the transactions contemplated
thereby, Revett’sMines Management’s board of directors may make an Adverse Recommendation Change or enter into (or permit any Subsidiarysubsidiary to enter into) an Acquisition Agreement in response to a Superior Proposal, if: (i) RevettMines Management promptly notifies Hecla, in writing, at least fivethree business days (the “Notice Period”) before making an Adverse Recommendation Change or entering into (or causing a subsidiary to enter into) an Acquisition Agreement, of its intention to take such action with respect to a Superior Proposal, which notice will state expressly that RevettMines Management has received a Takeover Proposal that Revett’sMines Management’s board of directors intends to declare a Superior Proposal and that Revett’sMines Management’s board of directors intends to make an Adverse Recommendation Change or RevettMines Management intends to enter into an Acquisition Agreement; (ii) RevettMines Management attaches to such notice the most current version of the proposed agreementAcquisition Agreement (which version will be updated on a prompt basis) and the identity ofidentifies the third party making such Superior Proposal; (iii) RevettMines Management will, and will cause its subsidiaries to, and will use its reasonable best efforts to cause its Representatives to, during the Notice Period, negotiate with Hecla in good faith to make such adjustments in the terms and conditions of the merger agreement so that such Takeover Proposal ceases to constitute a Superior Proposal, if Hecla, in its discretion, proposes to make such adjustments (it being agreed that in the event that, after commencement of the Notice Period, there is any material revision to the terms of a Superior Proposal, including any revision in price, the Notice Period will be automatically extended, if applicable, to ensure that at least three Business Daystwo business days remains in the Notice Period subsequent to the time RevettMines Management notifies Hecla of any such material revision (it being understood that there may be multiple extensions)); and (iv) Revett’sMines Management’s board of directors determines in good faith, after consulting with outside legal counsel and an independent financial advisor, that such Takeover Proposal continues to constitute a Superior Proposal after taking into account any adjustments made by Hecla during the Notice Period in the terms and conditions of the merger agreement.agreement and that the failure to take accept such Superior Proposal would reasonably be expected to cause Mines Management’s board of directors to be in breach of its fiduciary duties under applicable law.
Efforts to Complete the Merger
Hecla, Merger Sub and RevettMines Management have agreed to each use its reasonable best efforts to take, or cause to be taken, and to cause each of their subsidiaries to take or cause to be taken, all actions, and to do, or cause to be done, and to assist and cooperate with the other parties in doing, all things necessary, proper or advisable to consummate and make effective, and to satisfy all conditions to, in the most expeditious manner practicable, the transactions contemplated by the merger agreement, including (i) the obtaining of all necessary permits, waivers, consents, approvals and actions or nonactions from governmental entities and the making of all necessary registrations and filings (including filings with governmental entities) and the taking of all steps as may be necessary to obtain an approval or waiver from, or to avoid an action or proceeding by, any governmental entities, (ii) the obtaining of all necessary consents or waivers from third parties and (iii) the execution and delivery of any additional instruments necessary to consummate the merger and to fully carry out the purposes of the merger agreement. Hecla will take all action necessary to cause Merger Sub to perform its obligations under the merger agreement and to consummate the merger on the terms and conditions set forth in the merger agreement. RevettMines Management and Hecla are required, subject to applicable law, to (x) cooperate and
coordinate with the other in the taking of the actions contemplated by clauses (i), (ii) and (iii) immediately above and (y) supply the other with any information that may be reasonably required in order to effectuate the taking of such actions. Each of Hecla, Merger Sub and RevettMines Management will promptly inform the other Parties,parties, as the case may be, of any communication from any governmental entity regarding any of the transactions contemplated by the merger agreement. If RevettMines Management or Hecla receives a request for additional information or documentary material from any governmental entity with respect to the transactions contemplated by the merger agreement, then such party will use reasonable best efforts to make, or cause to be made, as soon as reasonably practicable and after consultation with the other party, an appropriate response in compliance with such request, and, if permitted by applicable law and by any applicable governmental entity, provide the other party’s counsel with advance notice and the opportunity to attend and participate in any meeting with any governmental entity in respect of any filing made therewith in connection with the transactions contemplated by the merger agreement.
Mines Management has agreed to take all action required to render the BCA, the Mines Management shareholder rights plan and any other shareholder rights or other similar agreement with respect to any securities of Mines Management, inapplicable to any of the transactions contemplated by the merger agreement.
In the event that any administrative or judicial action or proceeding is instituted (or threatened to be instituted) by a governmental entity or private party challenging the merger or any other transaction contemplated by the merger agreement, or any other agreement contemplated thereby, RevettMines Management is required to cooperate in all respects with Hecla and Merger Sub and will use its reasonable best efforts to contest and resist
any such action or proceeding and to have vacated, lifted, reversed or overturned any Order, whether temporary, preliminary or permanent, that is in effect and that prohibits, prevents or restricts consummation of the transactions contemplated by the merger agreement. None of Hecla, Merger Sub or any of their affiliates is required to defend, contest or resist any action or proceeding, whether judicial or administrative, or to take any action to have vacated, lifted, reversed or overturned any Order, in connection with the transactions contemplated by the merger agreement.
None of Hecla, Merger Sub or any of their subsidiaries is required to, and RevettMines Management may not, without the prior written consent of Hecla, become subject to, consent to or offer or agree to, or otherwise take any action with respect to, any requirement, condition, limitation, understanding, agreement or order to (i) sell, license, assign, transfer, divest, hold separate or otherwise dispose of any assets, business or portion of business of Revett,Mines Management, the surviving company, Hecla, Merger Sub or any of their respective subsidiaries, (ii) conduct, restrict, operate, invest or otherwise change the assets, business or portion of business of Revett,Mines Management, the surviving company, Hecla, Merger Sub or any of their respective subsidiaries in any manner or (iii) impose any restriction, requirement or limitation on the operation of the business or portion of the business of Revett,Mines Management, the surviving company, Hecla, Merger Sub or any of their respective subsidiaries; provided that, if requested by Hecla, RevettMines Management will become subject to, consent to or offer or agree to, or otherwise take any action with respect to, any such requirement, condition, limitation, understanding, agreement or order so long as such requirement, condition, limitation, understanding, agreement or order is only binding on RevettMines Management in the event the Closing occurs.
Indemnification and Insurance
Hecla and Merger Sub have agreed that all rights to indemnification, advancement of expenses and exculpation by RevettMines Management now existing in favor of each Person who is now, or has been at any time prior to the date of the merger agreement or who becomes prior to the effective time an officer or director of RevettMines Management and its subsidiaries (each an “Indemnified Party”) as provided in Revett’s certificateMines Management’s articles of incorporation and bylaws, in each case as in effect on the date of the merger agreement, or pursuant to any other contracts in effect on the date of the merger agreement and disclosed on the Mines Management disclosure schedule, will be assumed by the surviving company in the merger, without further action, at the
effective time and will survive the merger and will remain in full force and effect in accordance with their terms, and, in the event that any proceeding is pending or asserted or any claim made during such period, until the final disposition of such proceeding or claim.
Hecla and the surviving company have agreed to, for a period of six years after the effective time and to the fullest extent permitted by law, indemnify, defend and hold harmless each Indemnified Party against all losses, claims, damages, Liabilities, fees, expenses, judgments and fines arising in connection with any claim brought by a third party arising out of actions or omissions in such Indemnified Party’s capacity as an officer or director of Mines Managements or its subsidiaries occurring at or prior to the effective time, and have agreed to reimburse each Indemnified Party for any legal or other expenses reasonably incurred by such Indemnified Party in connection with investigating or defending any such losses, claims, damages, Liabilities, fees, expenses, judgments and fines are incurred, subject to the receipt by the surviving company of an undertaking from such Indemnified Party to repay such fees or expenses paid in advance if it is ultimately determined that such Indemnified Party is not entitled to be indemnified under applicable law.
In addition, Hecla has agreed that, at the effective time, the surviving company will obtain a “tail” directors’ and officers’ liability insurance policy for RevettMines Management and its directors, officers and other persons who are currently covered by the existing directors’ and officers’ liability insurance coveragepolicy maintained by RevettMines Management that will provide such directors, officers and other persons with coverage for six years following the closing dateeffective time of not less than the existing coverage amount and have other terms not materially less favorable in the aggregate to the insured persons in comparison to Revett’sMines Management’s existing insurance coverage; provided, that in no event will Heclathe surviving company be obligated to pay an annual premium for such coverage in excess of 150%200% of the last annual premium paid by RevettMines Management for such insurance prior to the date of the merger agreement.
Other Covenants and Agreements
The Merger Agreementmerger agreement contains certain other covenants and agreements, including covenants relating to:
notification by Hecla or RevettMines Management of certain material communications received from any governmental entity, material communications from any personPerson alleging that the consent of such person is required in connection with the transactions contemplated by the merger agreement, any actioncertain material claims, actions and similar matters that may threaten the transactions contemplated by the merger
|
Conditions to Completion of the Merger
The obligations of the parties to effect the merger are subject to the satisfaction (or, to the extent permitted by law, waiver), at or prior to the closing date, of the conditions described below:
The obligations of Hecla and Merger Sub to effect the merger are subject to the satisfaction or waiver of the following additional conditions at or prior to the closing date:
The obligation of RevettMines Management to effect the merger is subject to the satisfaction or waiver of the following additional conditions at or prior to the closing date:
Termination
Hecla or RevettMines Management may terminate the merger agreement at any time prior to the effective time:
if (a) Hecla or Merger Sub hasshall have breached any of their respective covenants or agreements contained in the merger agreement such that the closing condition regarding covenants would not be satisfied or (b) there exists a breach of any of their respective representations and warranties contained in the merger agreement such that the closing condition regarding representations and warranties would not be satisfied, and, in the case of clause (a) or clause (b), such breach is incapable of being cured or, if capable of being cured, hasshall not been cured prior to the earlier of (x) July 26, 2015,August 15, 2016 and (y) twenty business days after Hecla or Merger Sub receives written notice of such breach from Revett;Mines Management; provided, however, that such right is subject to RevettMines Management being in material compliance with its covenants and agreements contained in the merger agreement and there not being a breach of any representation or warranty of Revett such that the closing conditions regarding representations and warranties or covenants would not be satisfied if the closing date were at the time of such termination; orMines
Management such that the closing conditions regarding representations and warranties or covenants would not be satisfied if the closing date were at the time of such termination; or |
Termination Fees and Expenses
RevettMines Management is obligated to pay to Hecla a termination fee in an amount equal to $825,000$1,000,000 plus all of Hecla’s actual and reasonably documented fees and expenses (including legal fees and expenses) in connection with the transactions contemplated by the merger agreement in an amount not to exceed $200,000 if:
RevettMines Management terminates the merger agreement prior to obtaining the stockholder approval and adoption of the merger agreement and the merger upon (a) Revett’sMines Management’s board of directors receiving a Superior Proposal,
|
RevettMines Management will be obligated to pay Hecla’s actual and reasonably documented fees and expenses (including legal fees and expenses) in connection with the transactions contemplated by the merger agreement in an amount not to exceed $200,000 if:
Hecla will be obligated to pay Revett’sMines Management’s actual and reasonably documented fees and expenses (including legal fees and expenses) in connection with the transactions contemplated by the merger agreement if:
Subject to the payment of expenses as described above and certain other exceptions set forth in the merger agreement, each party is generally required to pay all fees and expenses incurred by it in connection with the merger and the other transactions and agreements contemplated by the merger agreement.
Amendments, Extensions and Waivers
Amendment. At any time prior to the effective time, the merger agreement may be amended by the Partiesparties by action taken by or on behalf of their respective boards of directors; provided, however, that, after approval and adoption of the merger agreement by the stockholders of Revett,Mines Management, no amendment that, by law or in accordance with the rules of any relevant stock exchange, requires further approval and adoption by such stockholders may be made without such stockholder approval.approval and adoption.
Extension; Waiver. At any time prior to the effective time, Hecla or RevettMines Management may, to the extent permitted by applicable law, (a) extend the time for the performance of any of the obligations or other acts of the other Partyparty under the merger agreement, (b) waive any inaccuracies in the representations and warranties of the other Partyparty contained in the merger agreement or in any instrument delivered pursuant heretothereto or (c) waive compliance with any of the covenants or agreements of the other Partyparty or conditions to the obligations of the waiving Partyparty contained in the merger agreement; provided, however, that after any approval and adoption of the merger agreement by the stockholders of Revett,Mines Management, no extension or waiver that, by law or in accordance with the rules of any relevant stock exchange, requires further approval and adoption by such stockholders, may be made without such stockholder approval.approval and adoption. The failure or delay of any Partyparty to assert any of its rights under the merger agreement or otherwise shall not constitute a waiver of those rights, nor shall any single or partial exercise of any right under the merger agreement preclude any other or further exercise of any rights hereunder.thereunder.
Specific Enforcement
The Partiesparties are entitled to an injunction or injunctions to prevent breaches of the merger agreement and to enforce specifically the terms and provisions of the merger agreement, without the requirement of posting a bond or other security, exclusively in any state or federal court within the State of Idaho and any state appellate court therefrom within the State of Idahoin which appeals from such court may be taken, in addition to any other remedy to which any Partyparty is entitled, at law or in equity.
REVETT’SMINES MANAGEMENT’S BOARD OF DIRECTORS
RECOMMENDS THAT YOU VOTE “FOR” PROPOSAL 1.
PROPOSAL 2: POSSIBLE ADJOURNMENT TO SOLICIT ADDITIONAL PROXIES,
IF NECESSARY OR APPROPRIATE
RevettMines Management is asking its stockholders to authorize the holder of any proxy solicited by its board of directors to vote in favor of any adjournment of the special meeting, if necessary or appropriate, including to solicit additional proxies if there are not sufficient votes to approve and adopt the merger proposal.
The RevettMines Management board of directors does not intend to propose adjournment of the special meeting if there are sufficient votes to approve and adopt the merger proposal, unless RevettMines Management believes that such adjournment is necessary or advisable under applicable law.
Approval of the Revett adjournment proposal requires the affirmative vote of the holders of a majority of the sharesvotes cast by holders of RevettMines Management common stock present in person or represented by proxy at the special meeting and entitled to vote on the proposal, assumingand a quorum is present.must be present at the special meeting.
If you are a RevettMines Management stockholder and fail to submit a proxy or fail to instruct your broker or nominee to vote, it will have no effect on the adjournment proposal, assuming a quorum is present. If you are a RevettMines Management stockholder and you mark your proxy or voting instructions to abstain, it will have theno effect of a vote againston the adjournment proposal.proposal, assuming a quorum is present.
THE REVETTMINES MANAGEMENT BOARD OF DIRECTORS RECOMMENDS
THAT YOU VOTE “FOR” REVETT PROPOSAL 2.
PROPOSAL 3: ADVISORY (NON-BINDING) VOTE ON COMPENSATION
Under Section 14A of the Exchange Act and the applicable SEC rules issued thereunder, RevettMines Management is required to submit a proposal to its stockholders for a non-binding, advisory vote to approve certain compensation that may become payable to Revett’sMines Management’s named executive officers in connection with the completion of the merger. This proposal, which we refer to as the “compensation proposal”,proposal,” gives Revett’sMines Management’s stockholders the opportunity to vote, on a non-binding, advisory basis, on the compensation that may be paid or become payable to Revett’sMines Management’s named executive officers in connection with the merger. This compensation is summarized in the table in the section entitled “Proposal 1: The Approval and Adoption of the Merger Agreement—Interests of RevettMines Management’s Directors and Named Executive Officers in the Merger—Golden Parachute Compensation” beginning on page 53,59, including the footnotes to the table.
The RevettMines Management board encourages you to review carefully the named executive officer merger-related compensation information disclosed in this proxy statement/prospectus. The RevettMines Management board unanimously recommends that Revett’sMines Management’s stockholders approve, by advisory vote, the compensation that may become payable to Revett’sMines Management’s named executive officers in connection with the completion of the merger.
The vote on the compensation proposal is a vote separate and apart from the vote on the merger proposal. Accordingly, you may vote to approve and adopt the merger proposal and vote not to approve the compensation proposal and vice versa. Because the vote on the compensation proposal is advisory only, it will not be binding on either RevettMines Management or Hecla. Accordingly, if the merger agreement is approved and adopted and the merger is completed, the compensation will be payable, subject only to the conditions applicable thereto, regardless of the outcome of the vote on the compensation proposal.
Approval of the compensation proposal requires the affirmative vote of the holders of a majority of the sharesvotes cast by holders of RevettMines Management common stock present in person or represented by proxy at the special meeting and entitled to vote thereon.on the proposal, and a quorum must be present at the special meeting.
If you fail to submit a proxy or fail to instruct your broker or nominee to vote, it will have no effect on the compensation proposal, assuming a quorum is present. If you mark your proxy or voting instructions to abstain, it will have theno effect of a vote againston the compensation proposal.proposal, assuming a quorum is present.
THE REVETTMINES MANAGEMENT BOARD OF DIRECTORS RECOMMENDS
THAT YOU VOTE “FOR” PROPOSAL 3.
COMPARATIVE STOCKMARKET PRICES
Hecla common stock is traded on the NYSE under the symbol “HL”. Revett common stock is currently listed for trading on the NYSE MKT and the TSX under the symbol “RVM”. The following table presents trading information for shares of Hecla and Revett common stock on March 26, 2015, the last trading day before the public announcement of the execution of the merger agreement, and [ ], 2015, the latest practicable trading day before the date of this proxy statement/prospectus.
Hecla Common Stock | Revett Common Stock | |||||||||||||||||||||||
Date | High | Low | Close | High | Low | Close | ||||||||||||||||||
March 26, 2015 | $ | 3.32 | $ | 3.07 | $ | 3.11 | $ | 0.46 | $ | 0.42 | $ | 0.46 | ||||||||||||
[ ] | $ | [ | ] | $ | [ | ] | $ | [ | ] | $ | [ | ] | $ | [ | ] | $ | [ | ] |
Market Prices
The following tables setsets forth the high and low closing prices of Hecla’s common stock for the calendar quarters indicated.
High | Low | High | Low | |||||||||||||
Year Ended December 31, 2013 | ||||||||||||||||
First Quarter | $ | 6.15 | $ | 3.91 | ||||||||||||
Second Quarter | $ | 4.10 | $ | 2.65 | ||||||||||||
Third Quarter | $ | 3.98 | $ | 2.72 | ||||||||||||
Fourth Quarter | $ | 3.47 | $ | 2.63 | ||||||||||||
Year Ended December 31, 2014 | ||||||||||||||||
First Quarter | $ | 3.76 | $ | 2.98 | $ | 3.61 | $ | 3.03 | ||||||||
Second Quarter | $ | 3.48 | $ | 2.71 | $ | 3.45 | $ | 2.75 | ||||||||
Third Quarter | $ | 3.52 | $ | 2.47 | $ | 3.47 | $ | 2.48 | ||||||||
Fourth Quarter | $ | 2.91 | $ | 2.00 | $ | 2.86 | $ | 2.04 | ||||||||
Year Ending December 31, 2015 | ||||||||||||||||
Year Ended December 31, 2015 | ||||||||||||||||
First Quarter | $ | 3.48 | $ | 2.71 | $ | 3.48 | $ | 2.71 | ||||||||
Second Quarter (through [ ], 2015) | $ | $ | ||||||||||||||
Second Quarter | $ | 3.33 | $ | 2.63 | ||||||||||||
Third Quarter | $ | 2.66 | $ | 1.81 | ||||||||||||
Fourth Quarter | $ | 2.63 | $ | 1.83 | ||||||||||||
Year Ending December 31, 2016 | ||||||||||||||||
First Quarter | $ | 2.88 | $ | 1.52 | ||||||||||||
Second Quarter | $ | [●] | $ | [●] | ||||||||||||
Third Quarter (through July [●], 2016) | $ | [●] | $ | [●] |
The following tables settable sets forth the high and low closing prices of Revett’sMines Management’s common stock for the calendar quarters indicated. The pricesquotations reflectinter-dealer prices, without regard to retail mark-ups, markdownsmark-up,mark-down or commissions,commission and domay not necessarily reflectrepresent actual transactions.
High | Low | |||||||
Year Ended December 31, 2013 | ||||||||
First Quarter | $ | 2.76 | $ | 1.75 | ||||
Second Quarter | $ | 2.07 | $ | 0.65 | ||||
Third Quarter | $ | 1.46 | $ | 0.65 | ||||
Fourth Quarter | $ | 1.27 | $ | 0.60 | ||||
Year Ended December 31, 2014 | ||||||||
First Quarter | $ | 0.98 | $ | 0.73 | ||||
Second Quarter | $ | 1.16 | $ | 0.85 | ||||
Third Quarter | $ | 1.39 | $ | 0.99 | ||||
Fourth Quarter | $ | 1.25 | $ | 0.81 | ||||
Year Ending December 31, 2015 | ||||||||
First Quarter | $ | 0.80 | $ | 0.33 | ||||
Second Quarter (through [ ], 2015) | $ | $ |
Year Ended December 31, 2014 First Quarter Second Quarter Third Quarter Fourth Quarter Year Ended December 31, 2015 First Quarter Second Quarter Third Quarter Fourth Quarter Year Ending December 31, 2016 First Quarter Second Quarter Third Quarter (through July [●], 2016) NYSE MKT TSX High Low High Low (US$) (CDN$) $ 1.73 $ 0.60 $ 1.89 $ 0.66 $ 1.36 $ 0.82 $ 1.46 $ 0.92 $ 1.10 $ 0.61 $ 1.18 $ 0.73 $ 0.64 $ 0.47 $ 0.74 $ 0.46 $ 0.58 $ 0.43 $ 0.70 $ 0.50 $ 0.70 $ 0.47 $ 0.85 $ 0.50 $ 0.53 $ 0.26 $ 0.70 $ 0.34 $ 0.38 $ 0.15 $ 0.49 $ 0.20 $ 0.59 $ 0.27 $ 0.86 $ 0.42 $ [●] $ [●] $ [●] $ [●] $ [●] $ [●] $ [●] $ [●]
The market value of the shares of Hecla common stock to be issued in exchange for shares of RevettMines Management common stock upon the completion of the merger will not be known at the time of the special meeting. The above tables show only historical comparisons. Because the market prices of shares of Hecla and RevettMines Management common stock will likely fluctuate prior to the closing of the merger, these comparisons may not provide meaningful information to RevettMines Management stockholders in determining whether to approve and adopt the merger proposal. Therefore, current and historical market prices of Hecla common stock and RevettMines Management common stock are not reflective of the value that RevettMines Management stockholders will receive in the merger. Hecla stockholders and RevettMines Management stockholders are encouraged to review carefully the other information contained in this proxy statement/prospectus or incorporated by reference in this proxy statement/prospectus. See “Where You Can Find More Information” beginning on page 111.105.
COMPARATIVE RIGHTS OF HECLA STOCKHOLDERS AND REVETTMINES MANAGEMENT STOCKHOLDERS
The rights of Hecla stockholders are currently governed by the General Corporation Law of the State of Delaware (the “DGCL”) and the certificate of incorporation and bylaws of Hecla, in each case as amended from time to time. The rights of RevettMines Management stockholders are currently governed by the DGCLIdaho Business Corporation Act (the “IBCA”) and the certificatearticles of incorporation and bylaws of Revett,Mines Management, in each case as amended from time to time.
Below is a comparison of some of the important provisions in the certificate of incorporation and bylaws of Hecla and the certificatearticles of incorporation and bylaws of Revett.Mines Management. It is not practical to summarize all of these provisions in this proxy statement/prospectus, but the principal differences that could materially affect the rights of the stockholders include the following:
AUTHORIZED CAPITAL STOCK
Hecla | ||
Hecla’s certificate of incorporation authorizes it to issue 505,000,000 shares of capital stock, with a par value of $0.25 per share, of which: 500,000,000 are designated common stock; and 5,000,000 are designated preferred stock. | ||
As of
•
• 157,816 shares of Hecla Series B | As of
• • no shares of Mines Management Series B issued and outstanding; and
• | |
DIVIDENDS
Hecla | ||
The Hecla Series B
Subject to the rights of the holders of any outstanding shares of any preferred stock, holders of common stock are entitled to receive dividends as may be declared by the board of directors out of funds legally available therefor. | Subject to the rights of holders of any outstanding shares of preferred stock that may be designated by the board of directors in the future, holders of common stock are entitled to receive dividends as may be declared by the board of directors out of funds legally available therefor. |
VOTING RIGHTS
Hecla | ||
Holders of the common stock have the right to cast one vote for each share they hold of
Holders of the Hecla Series B | ||
each holder will be entitled to one vote per share. While any shares of Hecla Series B | The holders of common stock are entitled to one vote for each share held on all matters submitted to a vote of the stockholders of Mines Management. |
STOCKHOLDER ACTION
Hecla | ||
At all stockholders meetings, shares equal to at least a majority of the voting power of the issued and outstanding shares entitled to vote thereat, present in person or represented by proxy, will constitute a quorum requisite for the transaction of business.
Except as otherwise provided by the certificate of incorporation, the bylaws or the laws of the State of Delaware, all questions are decided by majority vote. For all director elections, the nominees for election as a director shall effectively be elected by a plurality of votes cast. For any such election, the candidate who receives the most “FOR” votes is the winner of such election (assuming a quorum is present at the meeting) because instructions to withhold authority, abstentions and broker non-votes are not considered to be votes cast for purposes of determining a majority vote under the bylaws. |
|
SIZE OF THE BOARD OF DIRECTORS
Hecla | ||
Hecla’s bylaws provide for a minimum of five and a maximum of nine directors. The exact number of directors within the minimum and maximum limitations shall be fixed from time to time by the board of directors. There are currently |
CLASSIFICATION OF THE BOARD
Hecla | ||
Each director serves a staggered three-year term, with approximately one-third of the directors to be elected at each annual meeting of stockholders. |
REMOVAL AND APPOINTMENT OF DIRECTORS
Hecla | ||
Hecla’s bylaws provide that subject to the rights of the holders of any series of preferred stock, newly created directorships resulting from any increase in the authorized number of directors or any vacancies in the board of directors resulting from death, resignation, retirement, disqualification, removal from office or other cause shall be filled only by majority vote of the directors then in office, and directors so chosen shall hold office for a term expiring at the annual meeting of stockholders at which the term of the class to which they have been elected expires. No decrease in the number of directors shall shorten the term of any incumbent director.
Hecla’s bylaws provide that subject to the rights of the holders of any series of preferred stock, any director, or the entire board of directors, may be removed from office at any time, but only for cause and only by the affirmative vote of the holders of at least 80% of the voting power of all of the shares of Hecla entitled to vote for the election of directors. |
|
SPECIAL STOCKHOLDER MEETINGS
Hecla | ||
Special meetings of the stockholders may be called only by the board of directors pursuant to resolution approved by a majority of the entire board of directors. |
Business transacted at any special meeting shall be limited to the purpose or purposes described in the notice of the |
STOCKHOLDER PROPOSALS
Hecla | ||
Mines Management | ||
Hecla stockholders must deliver timely notice regarding business to be conducted at an annual or special meeting of stockholders, including the nomination of directors, to the secretary.
Stockholders must deliver notice regarding business to be brought before an annual meeting at least 90 days, and not more than 120 days, prior to the first anniversary of the preceding year’s annual meeting. However, in the event that the annual meeting is more than 30 days before or more than 60 days after such anniversary date, notice by the stockholder to be timely must be so delivered not earlier than the 120th day prior to such annual meeting and not later than the close of business on the later of the 90th day prior to such annual meeting or the 10th day following the date on which public announcement of the date of such meeting is first made.
In the event Hecla calls a special meeting of the stockholders for the purpose of electing one or more directors, any such stockholder may nominate a person or persons for election to such position(s) as specified in Hecla’s notice of meeting, if notice is delivered not earlier than the 120th day prior to such special meeting and not later than the close of business on the later of the 90th day prior to such special meeting or the 10th day following the day on which public announcement is first made of the date of such meeting and of the nominees proposed by the board of directors to be elected at such meeting. |
Stockholders must deliver notice regarding business to be brought before an annual meeting or a special meeting at least 90 days, and not more than 120 days, prior to
|
ANTI-TAKEOVER PROVISIONS
Hecla | ||
Hecla’s certificate of incorporation generally prohibits “business combinations,” including (i) mergers, (ii) sales and leases of assets having an aggregate market value of $1,000,000 or more, (iii) issuances of securities and similar transactions by Hecla or a subsidiary having an aggregate value of $1,000,000 or more, (iv) the adoption of any plan or proposal for the liquidation or dissolution of Hecla proposed by or on behalf of an interested
• a majority of the members of the board of directors who are unaffiliated with the interested director approve the business combination; and
• certain price and procedure requirements set forth in the certificate of incorporation are met.
Section 203 of the DGCL generally prohibits “business combinations,” including mergers, sales and leases of assets, issuances of securities and similar transactions by a corporation or a subsidiary with an interested stockholder who beneficially owns 15% or more of a corporation’s voting stock, within three years after the person or entity becomes an interested stockholder, unless:
• the board of directors of the target corporation has approved, before the acquisition time, either the business combination or the transaction that resulted in the person becoming an interested stockholder;
• upon consummation of the transaction that resulted in the person becoming an interested stockholder, the person owns at least 85% of the corporation’s voting stock (excluding shares owned by directors who are officers and shares owned by employee stock plans in which participants do not have the right to |
determine confidentially whether shares will be tendered in a tender or exchange offer); or | The BCA prohibits a “business combination” (defined broadly to include mergers or consolidations, certain sales, sales of assets, liquidation or dissolution and other specified transactions) between a corporation and an “interested shareholder” (defined generally as a person or group that beneficially owns, directly or indirectly, 10% or more of the outstanding voting stock or an affiliate or associate of the corporation) within three years of the shareholder becoming an interested stockholder, unless, among other exceptions:
• the corporation’s articles of incorporation or bylaws include a provision, adopted in accordance with §30-1703 of the BCA, that expressly provides that the corporation is not subject to the statute (Mines Management does not have such a provision in its articles of incorporation or bylaws); • prior to the date the person became an interested shareholder, the board of directors approved either the business combination or the transaction which resulted in the person becoming an interested shareholder; • the business combination is approved by the affirmative vote of at least 66 2/3% of the outstanding voting stock not beneficially owned by the interested shareholder no earlier than three years after the interested shareholder’s share acquisition date; or • the business combination meets certain conditions, including that the consideration meet certain criteria as to amount and form and the business combination is consummated no earlier than three years after the interested shareholder’s share acquisition date. |
Hecla | Mines Management | |
• after the person or entity becomes an interested stockholder, the business combination is approved by the board of directors and authorized by the vote of at least two-thirds of the outstanding voting stock not owned by the interested stockholder.
These restrictions on interested stockholders do not apply under some circumstances, including if the corporation’s original certificate of incorporation contains a provision expressly electing not to be governed by the Delaware statute regulating business combinations, or if the corporation, by action of its stockholders, adopts an amendment to its certificate of incorporation or bylaws expressly electing not to be governed by these provisions of Delaware law (and such amendment is duly approved by the stockholders entitled to vote thereon).
Section 203 of the DGCL is applicable to Hecla. |
ACTION BY STOCKHOLDERS WITHOUT A MEETING
Hecla | ||
Any action required or permitted to be taken by the stockholders must be effected at a duly called annual meeting or special meeting of stockholders and may not be effected by any consent in writing by such stockholders. |
BOARD OF DIRECTORS MEETINGS
Hecla | ||
Regular meetings shall be held quarterly in the months of February, May (immediately after the annual meeting of stockholders), August and November, or at such other times as the board of directors may from time to time by resolution determine.
Special meetings may be called by the chief executive officer or by a majority of the board of directors whenever he or they may deem it necessary or expedient. |
Special meetings may be called by the president |
LIMITATION OF LIABILITY OF DIRECTORS
Hecla | ||
As permitted under Delaware law, Hecla’s certificate of incorporation provides that no director will be personally liable to Hecla or its stockholders for monetary damages for breach of fiduciary duty as a director, except for liability:
• for any breach of the director’s duty of loyalty to Hecla or its stockholders;
• for acts or omissions not in good faith or which involved intentional misconduct or a knowing violation of law;
• under Section 174 of the DGCL; or
• for any transaction from which the director derived any improper personal benefits. | Mines Management’s articles of incorporation • acts or omissions that involve intentional misconduct or knowing violation of the law by the director; • conduct that violates the IBCA and pertains to distributions to stockholders or loans to directors; and • any transaction from which the director will personally receive a benefit in money, property or services to which the director is not legally entitled. |
INDEMNIFICATION OF DIRECTORS AND OFFICERS
Hecla | ||
The DGCL provides that a corporation may indemnify any person who is made a party to any third-party action, suit or proceeding on account of being a director, officer, employee or agent of the corporation (or was serving at the request of the corporation in such capacity for another corporation, partnership, joint venture, trust or other enterprise) against expenses, including attorneys’ fees, judgments, fines and amounts paid in settlement actually and reasonably incurred by him or her in connection with the action, suit or proceeding through, among other things, a majority vote of a quorum consisting of directors who were not parties to the suit or proceeding, if the person:
• acted in good faith and in a manner he or she reasonably believed to be in or not opposed to the best interests of the corporation or, in some circumstances, at least not opposed to its best interests; and
• in a criminal proceeding, had no reasonable cause to believe his or her conduct was unlawful.
The DGCL also permits indemnification by a corporation under similar circumstances for expenses (including attorneys’ fees) actually and reasonably incurred by such persons in connection with the defense or settlement of a derivative action or suit, except that |
The IBCA requires that a corporation indemnify a director who was wholly successful, on the merits or otherwise, in the defense of any proceeding to which he or she was a party because he or she was a director of the corporation, against reasonable expenses incurred by him or her in connection with the proceeding. The IBCA permits a corporation to indemnify a director if either (A)(i) he or she conducted himself or herself in good faith and (ii) reasonably believed (a) in the case of conduct in his or her official capacity, that his or her conduct was in the best interests of the corporation, and (b) in all cases, that his or her conduct was at least not opposed to the best interests of the corporation, and (iii) in the case of any criminal proceeding, he or she had no reasonable cause to believe his or her conduct was unlawful, or (B) he or she engaged in conduct for which broader |
Hecla | ||
no indemnification may be made in respect of any claim, issue or matter as to which the person is adjudged to be liable to the corporation unless the Delaware Court of Chancery or the court in which the action or suit was brought determines upon application that the person is fairly and reasonably entitled to indemnity for the expenses which the court deems to be proper.
To the extent a director, officer, employee or agent is successful in the defense of such an action, suit or proceeding, the corporation is required by Delaware law to indemnify such person for reasonable expenses incurred thereby.
| ||
Expenses (including attorneys’ fees) incurred by such persons in defending any action, suit or proceeding may be paid in advance of the final disposition of such action, suit or proceeding upon receipt of an undertaking by or on behalf of that person to repay the amount if it is ultimately determined that such person is not entitled to be so indemnified. | ||
Hecla’s certificate of incorporation requires Hecla to indemnify, to the fullest extent currently or subsequently permitted by Delaware law, any person who was or is a party or is threatened to be made a party to or is otherwise involved in any action, suit or proceeding, whether civil, criminal, administrative or investigative, by reason of the fact that he or she is or was a director or officer of Hecla, or is or was serving at the request of Hecla as a director or officer of another corporation, partnership, joint venture, trust or other enterprise. |
| |
Hecla’s bylaws provide that expenses incurred by a director or officer in defending any civil, criminal, administrative or investigative action, suit or proceeding will be paid by Hecla in advance of the final disposition of such action, suit or proceeding upon receipt of an undertaking by or on behalf of the director or officer to repay such amount if it is ultimately determined that he is not entitled to be indemnified by Hecla. |
|
AMENDMENT OF CERTIFICATE OR ARTICLES OF INCORPORATION AND BYLAWS
Hecla | ||
Hecla’s certificate of incorporation may be amended subsequent to Hecla’s board of directors’ approval and the approval of a majority of the holders of the outstanding stock entitled to vote; provided, however, that Section 4 of Article IV and Articles VI, VII and VIII may be amended only by the affirmative vote of the |
Hecla | ||
holders of shares of the voting stock of Hecla representing 80% of the voting power of all the then outstanding shares of the voting stock voting together as a single class.
Hecla’s bylaws may be amended by the board of directors, or at any annual or special meeting of the stockholders if notice of the proposed amendment to be made is contained in the notice of such meeting, and the proposed amendment is approved by an affirmative vote of holders of a majority of the total voting power of all outstanding shares of the voting stock of Hecla.
Notwithstanding the foregoing, the affirmative vote of the holders of at least 80% of the voting power of all of the shares of the capital stock of Hecla entitled to vote generally in the election of directors, voting together as a single class, is required to alter, amend or repeal Section 4 or 6 of Article II, or Section 1, 2 or 3 of Article III, of the bylaws. |
Subject to the power of |
FORUM FOR ADJUDICATION OF CERTAIN DISPUTES
Hecla | ||
Hecla’s bylaws provide that, unless Hecla consents in writing to the selection of an alternative forum, the sole and exclusive forum for any proceeding brought on behalf of Hecla, any claim for breach of fiduciary duty owed by any director, officer or other employee of Hecla to Hecla or the | No comparable provision. |
Appraisal rights are statutory rights that, if applicable under law, enable stockholders in certain extraordinary transactions such as a merger to demand that the corporation pay the fair value for their shares as determined by a court in a judicial proceeding instead of receiving the consideration offered to stockholders in connection with the extraordinary transaction.
Appraisal rights are not available in all circumstances, and exceptions to these rights are provided under DelawareIdaho law. Stockholders do not have appraisal rights with respect to shares of any class or series of stock if, among other circumstances, such shares are either (i) listed on a national securities exchangethe NYSE or (ii) held of record by more than 2,000 holders, unless the stockholders receive in exchange for their shares anything other than (A) shares of stock of the surviving or resulting corporation (or depositary receipts in respect thereof), or of any other corporation that is publicly listed or held by more than 2,000 holders of record, (B) cash in lieu of fractional shares or fractional depositary receipts described above or (C) any combination of the foregoing.NYSE MKT. Therefore, because Revett’sMines Management’s common stock is listed on the NYSE MKT, and Revett stockholders will receive in the merger only shares of Hecla common stock, which will be publicly listed on the NYSE, and cash in lieu of fractional shares, RevettMines Management stockholders will not be entitled to appraisal rights under DelawareIdaho law in the merger with respect to their shares of RevettMines Management common stock.
The validity of the securities Hecla is offering under this proxy statement/prospectus will be passed upon by David C. Sienko, Vice President and General Counsel of Hecla.
Certain United StatesU.S. federal income tax consequences of the merger agreement will be passed upon by Randall | Danskin, P.S.Davis Graham & Stubbs LLP.
The consolidated financial statements of Hecla as of December 31, 20142015 and 20132014 and for each of the three years in the period ended December 31, 20142015 and management’s assessment of the effectiveness of internal control over financial reporting as of December 31, 2014 have been2015 incorporated by reference hereinin this proxy statement/prospectus have been so incorporated in reliance on the reportreports of BDO USA, LLP, an independent registered public accounting firm, incorporated herein by reference, given on the authority of said firm as experts in auditing and accounting.
The consolidated financial statements of RevettMines Management as of December 31, 20142015 and 2013,2014, and for the years then ended, included in this proxy statement/prospectus have been so included in reliance on the report of BDO USA, LLP,Tanner, LLC, an independent registered public accounting firm (the report on the consolidated financial statements contains an explanatory paragraph regarding Revett’sMines Management’s ability to continue as a going concern) appearing elsewhere herein, given on the authority of said firm as experts in auditing and accounting.
It is not expected that RevettMines Management will hold an annual meeting of stockholders for 20152016 unless the merger is not completed.
However, if the merger is not completed, andthen the Revett 2015Mines Management 2016 annual meeting of stockholders will be held more than thirty days from the anniversary of last year’s annual meeting. Accordingly, if the merger is held, while there are no formal procedures fornot completed, any stockholders to submitproposal, including director recommendations, the Corporate Governance and Nominating Committee will consider candidates recommended by stockholders in writing. Such written submissions should include the name, address and telephone number of the recommended candidate, along with a brief statement of the candidate’s qualifications to serve as a director. All such stockholder recommendations must signed by the stockholder recommending the director candidate for consideration and must be submitted to the attention of Larry M. Okada, chairman of the Corporate Governance and Nominating Committee, 11115 East Montgomery, Suite G, Spokane Valley, Washington 99206.
Revett stockholders may recommend candidates at any time, butnominations, intended to be considered by the Corporate Governance and Nominating Committeeincluded in Mines Management’s proxy materials for the annual electionmeeting of directors at the 2015 annual meeting, the recommendation must be received no later than 120 days before the first anniversary of the date of mailing the proxy statementstockholders for the 2015 annual meeting. Any candidates recommended by a stockholder will be reviewed and considered in the same manner as all other director candidates considered by the Corporate Governance and Nominating Committee. In considering director candidates recommended by stockholders, the Corporate Governance and Nominating Committee will also take into account such factors as it considers relevant, including the length of time that the submitting stockholder has been a stockholder of Revett and the aggregate amount of the submitting stockholder’s investment in Revett. Revett has never received any recommendations for director candidates from stockholders.
Under the regulations of the SEC, if the date of the 2015 annual meeting were to change by more than 30 days from the date of the 2014 annual meeting, any such proposal2016, must be received by RevettMines Management a reasonable time before printing and mailing its proxy materials in order for the proposals to be considered for inclusion in the 2015 proxy statement.
In addition, under the terms of Mines Management’s bylaws, a stockholder who intends to present an item of business at the 2016 annual meeting of stockholders, including director nominations (other than a proposal submitted for inclusion in Mines Management’s proxy materials), must provide notice of such business to Mines Management not less than 90 nor more than 120 days prior to the date of the 2016 annual meeting of stockholders; provided, that if public disclosure of the date of the meeting is first made less than 100 days prior to the date of the meeting, notice by the stockholder in order to be timely must be received no later than the close of business on the tenth day following the day on which such public disclosure of the date of the meeting is made. In addition, all notices must contain the additional information required by Mines Management’s bylaws. Such notice must be sent to Secretary, Mines Management, Inc., 905 West Riverside Avenue, Suite 311, Spokane, Washington 99201.
INFORMATION REGARDING REVETTMINES MANAGEMENT
Mines Management is engaged in the business of acquiring and exploring, and if exploration is successful, developing, mineral properties, primarily those containing silver and associated base and precious metals.
Mines Management’s principal mineral property interest, the Montanore Project, is a large exploration stage silver and copper deposit located in northwestern Montana. Noranda owned the Montanore Project from 1988 to 2002. Noranda completed an EIS, obtained a ROD for the Montanore Project and certain environmental permits and conducted pre-evaluation construction activities on the property. From 1988 to 2002 Mines Management held royalty rights to a portion of the deposit. In 2002, Noranda announced that it was abandoning the project, and subsequently transferred to Mines Management by quitclaim deed the patented and unpatented mining claims that control the mineral rights, and all drill core and intellectual property including geologic, environmental and engineering studies, relating to the Montanore Project. In 2006, Mines Management acquired from Noranda certain project permits and properties that provide access to the Libby adit, commenced by Noranda to access the Montanore deposit.
Montanore Property
The information that followsMontanore Project is based substantially on information disclosedlocated in Revett’s most recentSanders and Lincoln Counties in northwestern Montana and consists of a series of patented mining and unpatented mining claims, millsites and tunnel sites owned by Mines Management or one of its subsidiaries. The unpatented mining claims are held subject to a $155 per claim annual report filed on Form 10-K filed with the SEC on March 30, 2015. The headings below, including all references to “Items,” correspondmaintenance fee paid to the locationfederal government.
Mines Management’s ownership of the relevant disclosureMontanore deposit stems primarily from its ownership of two patented mining claims, identified as HR 133 and HR 134, which cover the surface outcrop or “apex” of the gently dipping mineralized beds. According to U.S. mining law, the holders of claims covering the apex of a
dipping, tabular deposit own the minerals to depth, even if the deposit passes from beneath the apex claim. For Mines Management’s claims at the Montanore Project, these “extralateral rights” have been confirmed by the U.S. Secretaries of Agriculture and Interior and upheld in U.S. District Court for the District of Montanta. In addition to the patented apex claims, Mines Management owns unpatented claims located along the fault which bounds the southwestern margin of the deposit and extends outside of the western border of the Cabinet Wilderness Area.
Mines Management’s property holdings for operational access and infrastructure support for the Montanore Project are located to the east of the deposit, south of the town of Libby, and are accessed from Libby by about 16 miles of secondary road up Libby Creek. The apex of the deposit can be reached from Noxon, the nearest town, by traveling east about two miles on Revett’s most recent annual report filedState Highway 200, north about five miles on Form 10-K:a secondary graveled road to the junction of the west and east forks of Rock Creek, and then about four miles on a Jeep trail behind a locked USFS gate. The deposit outcrops near the border of and, other than the outcrop that occurs on the patented claims HR 133 and HR 134, lies entirely within the Cabinet Wilderness Area. Because any future mining of the deposit would take place underground and Mines Management has access to the deposit from outside the Cabinet Wilderness Area (its patented mining claims and certain other mineral rights predate the wilderness area designation), Mines Management believes that future mining and associated surface activity would not have a material impact on the wilderness area.
BusinessIn May 2006, Mines Management acquired from Noranda State Hard Rock Operating Permit 150 that covers certain exploration activities and the Montana Pollutant Discharge Elimination System (“MPDES”) water discharge permit for the Montanore Project as well as title to properties providing access to the portal of the Libby adit. The 14,000 foot Libby adit, constructed in the early 1990s by Noranda, ends approximately 3,000 feet short of the deposit. If extended, the adit would provide access to the Montanore deposit for underground exploration and delineation.
Non-Reserves—Mineralized Material
Non-Reserves Reported in the United States.The Copperestimate of mineralized material set forth below was prepared by Mine Development Associates, or MDA, of Reno, Nevada in October 2005. The estimate was prepared in accordance with SEC Industry Guide 7.
Mineralized Material Estimate in accordance with U.S. SEC Industry Guide 7
Tons | Silver Grade (Ounces per ton) | Copper Grade | Cutoff Grade (Silver ounces per ton) | |||||||||||||
Mineralized Material | 81,506,000 | 2.04 | 0.75 | % | 1.0 |
“Mineralized material” as used in this proxy statement/prospectus, although permissible under SEC’s Industry Guide 7, does not indicate “reserves” by SEC standards. Mines Management cannot be certain that any part of the mineralized material at the Montanore Project will ever be confirmed or converted into SEC Industry Guide 7 compliant “reserves.” You should not assume that all or any part of the mineralized material will ever be confirmed or converted into reserves or that mineralized material can be economically or legally extracted.
Geology
The Montanore Project contains a strata-bound silver-copper deposit occurring in the Revett Formation, which is part of an extensive series of Precambrian-aged metasedimentary rocks belonging to the Belt Supergroup. The Revett Formation has been subdivided into three members (upper, middle and Silver Markets.lower) based on the contained amounts of quartzite, silty quartzite and siltite. The lower Revett Formation, which hosts the mineralized horizons, is composed primarily of quartzite with lesser interbeds of siltite and silty quartzite.
The silver-copper mineralization at Montanore is strata-bound in the upper portions of the lower Revett Formation. Copper and silver values are internationally traded metals whose pricescarried predominately in the minerals bornite, chalcocite, chalcopyrite and native silver in variable proportions and concentrations. Sulfide content of the mineralized rock rarely exceeds 3% to 4% and is commonly 1% to 2%.
The mineralized zone crops out at the surface and extends down dip at least 12,000 feet to the north-northwest. The mineralization is open ended in the down dip direction. Mineralization occurs in at least two sub-parallel horizons separated by a silver- and copper-deficient zone containing low-grade lead in the form of galena. The two horizons are determinedidentified as the B1 for the upper zone and the B for the lower and more extensive zone. Both zones dip to the northwest between 15 degrees and 30 degrees, with an average of just over 15 degrees. The width of the main (B) horizon, in plane view, is defined by global economic conditions of supplya fault on one side and demand.
Historical copper prices have been volatile. The following table sets forth the average annual prices of coppera fold axis on the London Metal Exchange (“LME”) since 2010, as reported byother, and varies from 804 feet to 3,540 feet. The property boundaries, however, limit the exchange. During this period, average annual copper prices have ranged from a lowcontrolled portion of $3.11 per pound in 2014the deposit to a highmaximum of $4.00 per pound2,000 feet. The average thickness for each of the two horizons is 35 feet, depending upon cutoff.
Advancement of the Montanore Project
Following the initial acquisition of the Montanore Project, Mines Management retained McIntosh Engineering and Hatch Ltd. to prepare a cost update study. McIntosh Engineering completed the study and generated a draft report in 2011.May 2006 that included engineering optimization, engineering review, cost updates, mine planning and other aspects of the project. As part of the mine planning effort, Mines Management incorporated the geologic information developed by Noranda and another previous owner into a Vulcan mine modeling package, a 3-dimensional geologic model that should assist in further evaluating mine planning activities and projection of ore zones. Mines Management used this information to develop underground drilling targets for an evaluation drilling program.
LME Average Cash Official Price (US$/Pound)When Mines Management acquired the additional claims providing access to the Libby adit in 2006, there were no plant, equipment or subsurface improvements other than the adit, which was plugged and in reclamation. In 2006, Mines Management reopened the adit and completed initial water testing to determine the treatment method for water discharged from the adit. In the fourth quarter of 2006, Mines Management obtained permit revisions for an underground evaluation drilling program, purchased generators to provide power for the initial evaluation drilling program and erected a warehouse building, shop, office and employee change facility at the Libby adit site.
In 2007, Mines Management completed the construction of site infrastructure to support the planned underground evaluation program at the Montanore Project including a $1.5 million water treatment plant to process all water pumped out of the Libby adit and a dry storage structure for inventory. Mines Management also acquired an initial fleet of surface and underground heavy equipment.
2014 | 2013 | 2012 | 2011 | 2010 | ||||||||||||
3.11 | 3.32 | 3.61 | 4.00 | 3.42 |
Although currently depressed, Revett believes copper prices could be favorableIn 2008 and 2009, Mines Management continued the testing and installation of the adit dewatering system in preparation for the planned 3,000 foot extension of the Libby adit and initiation of the drilling program, installed sumps and tested most of the mining equipment. In addition, Mines Management has worked to rehabilitate the adit including sealing the walls, installing new roof bolts and extending power, ventilation and dewatering infrastructure in the long term becauseadit. Infrastructure in the adit includes a refuge chamber, mine power center and temporary pump station, along with the previously installed sumps and pumping system. Mines Management dewatered the adit in 2009 and continued engineering and geology work during 2008 and 2009.
The decline has been on care and maintenance since the second quarter 2009, pending completion of the continued lack of investmentenvironmental review process. Operations at the Libby adit are currently limited to maintaining the water level at the 7,400 foot level in the adit and treating the water pumped from the adit.
Permitting and Environmental
Mines Management requires certain regulatory agency approvals and environmental permits to proceed with Montanore Project exploration and mine development duringproject development.
Final EIS and Record of Decision
In December 2015, the past decade. This has resulted in low to modest growth rates in supplies, compared to increasing consumption rates inUSFS and MDEQ issued a joint final EIS that assesses the developed economies of North America and Europe, and rapid industrialization and the emergence of consumer product markets in countries such as China and India.
Silver prices are also volatile, as both a precious metal and, as an industrial commodity. The following table illustrates the average annual London Bullion Market Association Silver Fix since 2010. These average annual prices have ranged from a low of $19.08 per ounce in 2014 to a high of $35.11 per ounce in 2011.
London Average Fix (US$/Ounce)
2014 | 2013 | 2012 | 2011 | 2010 | ||||||||||||
19.08 | 23.83 | 31.15 | 35.11 | 20.16 |
Although also currently depressed, Revett believes silver prices could be generally favorable in the long term because of strong demand in the electronics industry and consistent demand from institutions that purchase and hold silver for investment purposes.
Financial Information about Segments. Revett’s operations comprise a single business segment, located in the United States. Information concerning its revenues, losses, and total assets, liabilities and equity for the years ended December 31, 2014 and 2013 is set forth in the consolidated financial statements that appear elsewhere in this proxy statement/prospectus.
Environmental Matters. All mining companies doing business in the United States are subject to a variety of federal, state and local statutes, rules and regulations designed to protect the qualityenvironmental impacts of the airMontanore Project to endangered species, wetlands and water quality. After more than ten years of data collection, analyses and public involvement, the completed EIS describes the modifications to the proposed project that the agencies consider appropriate to minimize environmental impact utilizing mitigation measures and monitoring requirements. The USFS and MDEQ both issued their RODs on February 12, 2016 providing approval for development of the Montanore Project contingent upon meeting subsequent analysis, permitting milestones and environmental mitigation requirements.
Biological Opinion
As part of the permitting process, the USFS was required to prepare a biological assessment for both terrestrial and aquatic life. The USFWS reviewed these reports in connection with its biological opinion addressing the impact of the project on threatened orand endangered species, inincluding grizzly bear and bull trout. In the vicinityfirst quarter of its mining operations. These include permitting2014, the USFWS issued the final biological opinion concluding that the project, as mitigated, would not adversely impact endangered species. The EIS included slight changes to the project’s mitigation measures to reduce impacts to grizzly bear and bull trout, with which the USFWS concurred.
Section 404 Permit
The US Army Corps of Engineers (“USACE”) completed as part of the final EIS an analysis of potential project discharges of dredged or pre-operating approval requirements designed to ensure the environmental integrity of a proposed mining facility, operating requirements designed to mitigate the effects of discharges into the environment during mining operations, and reclamation or post-operation requirements designed to ensure water quality and to remediate the lands affected by mining activities once commercial operations have ceased. These laws are administered and
enforced by various federal and state agencies operating under parallel statutes and regulations. The principal environmental laws affecting Revett’s current and proposed operations at Troy and Rock Creek are set forth below:
The Federal Clean Water Act and the Montana Water Quality Act are the principal water quality laws regulating Revett’s operations at Troy and Rock Creek. The federal act imposes limitations on water dischargesfill material into waters of the United States including wetlands. These discharges from point sources such as mine facilities, and is administeredare regulated by Section 404 of the Clean Water Act which requires a permit for construction of the tailings facility. In 2012, the USACE completed a jurisdictional determination on the proposed tailings impoundment site, which required extensive aquatic habitat data. Mines Management completed a compensatory mitigation plan for aquatic resources affected by the U.S. Environmental Protection Agency. proposed tailings impoundment which was accepted by the USACE in 2014. Mines Management expects the USACE to issue the 404 permit during 2016.
The State of Montana must certify the USACE Section 404 authorization through the 401 certification process before the USACE can issue a permit. The State of Montana has been involved throughout the 404 review process and continued to work with the USACE during 2015.
Hardrock Operating Permit
Mines Management currently holds Permit 150 (Hardrock Operating Permit) which has remained in effect since its issuance in 1993. Permit 150 was amended with the issuance of the ROD on February 12, 2016, authorizing Mines Management to conduct exploration activities.
MPDES Permit
Mines Management currently holds MPDES Permit #0030279 that authorizes wastewater discharge from the Montanore Project. The project is currently operating under an administratively extended permit which will remain valid until an amended MPDES Permit is issued for the project. Since the beginning of 2015, the agency issued a draft MPDES permit amendment, conducted a public review process, assessed the comments received during the public review process and analyzed changes to the draft permit. Mines Management anticipates the MPDES permit amendment to be issued during the third quarter of 2016.
State Permits
Many of the state permits required by the project were initiated by the agencies during 2015. Those permits under review are issuable subsequent to the issuance of the ROD, which occurred in February 2016. Mines Management will be required to submit applications for other permits to coincide with required project activities.
MDEQ issued a transmission certificate concurrently with the ROD which authorizes Mines Management to construct a transmission line to supply power to the project and an air quality permit which covers the evaluation, construction and operational phases of the project.
The Montana act imposes similar limitationsDepartment of Natural Resources and Conservation (“DNRC”) is responsible for issuing water rights for the project during construction and operation. Reviews of water rights for the project were completed prior to 2015, but under state regulations, the water rights could not be issued until the USFS issued its ROD for the project. Mines Management anticipates the Montana DNRC will issue water rights during 2016.
Opposition
Private groups have been active in opposing permitting of projects in and near the Cabinet Wilderness Area and have taken and may in the future take actions to oppose or delay the Montanore Project. For example, Save Our Cabinets, Earthworks and Defenders of Wildlife have filed a complaint in the United States District Court for the District of Montana against the USFWS challenging the issuance of the Montanore biological opinion. The same groups (with one exception) also filed a separate lawsuit against the USFS challenging the issuance of the ROD. See “Information Regarding Mines Management—Legal Proceedings” beginning on discharges into state waterspage 99 for additional discussion.
Preliminary Economic Assessment
In December 2010, Mines Management announced the completion of a Preliminary Economic Assessment (“PEA”) for the Montanore Project. The PEA was prepared to provide guidance on the potential viability of the Montanore Project and the basis for the continuation of exploration activities. Because of the uncertainties associated with any mineral deposit that, like the Montanore Project, does not have reserves, the PEA should not be relied on to value the Montanore Project, nor should it be considered to be a feasibility or pre-feasibility study.
The PEA did not update the mineral resource analysis of the Montanore deposit completed in October 2005 by Mine Development Associates, Inc. (“MDA Report”). Mineralized material, as set forth in the MDA Report, is administered81.5 million short tons of material grading 2.04 ounces per short ton silver and 0.75% copper with a cutoff grade of 1.0 ounces per short ton silver.
The PEA assumed metals prices based on a three year trailing average at August 16, 2010 (i.e. $3.10 per pound for copper and $15.00 per ounce for silver) and developed cost estimates for development of the Montanore Project. Based on the effective date in the PEA report, the initial capital costs for the project were estimated to be $552.3 million (with a ± 35% accuracy). The PEA assumed that the project would utilize conventional grinding and flotation processing techniques at an initial processing rate of 12,500 short tons per day. The PEA concluded that the Montanore Project demonstrated favorable economic potential, which justified commencement of a resource evaluation program and subsequent pre-feasibility study.
On February 3, 2011, the PEA was filed in Canada in accordance with National Instrument 43-101—Standards of Disclosure for Mineral Projects. The technical report summarizing the results of the PEA was prepared by Mine and Quarry Engineering Services, Inc. of San Mateo, California. The independent “Qualified Persons” (as such term is defined in National Instrument 43-101) for the DEQ.
report were Mr. Chris Kaye and Mr. Geoffrey Challiner. The Endangered Species Act requires federal agencies to ensure that any action authorized, funded or carried out by such agencyPEA filed in Canada is not likelypart of this proxy statement/prospectus.
Description of Royalties on Patented Mining Claims
Under the HR 133 and HR 134 patented mining claims, which cover the Montanore deposit, Mines Management is required to jeopardize the continued existencepay a production payment royalty of any endangered or threatened species. ESA’s definitiontwenty cents ($.20) per ton of “species” includes any distinct population segment of any vertebrate fish or wildlifeore extracted and milled therefrom, pursuant to (i) that interbreeds when mature. In orderAmendment to facilitate the conservation of listed species, ESA establishes an interagency consultation process. WhenPurchase and Sale Agreement dated September 6, 1988, between Atlantic Goldfields Inc. and Montana Reserves Company and (ii) that Amendment to Purchase and Sale Agreement dated September 6, 1988, between Jascan Resources Inc. and Montana Reserves Company, a federal agency proposes an action that “may affect” a listed species, which includes grizzly bears and bull trout at Rock Creek, the Forest Service must provide a “biological assessment” of the effects of the proposed action. Unless the USFWS determines that the proposed action will have no adverse effect on listed species, it must review all of the information provided by the action agency, as well as any other relevant information, and prepare a “Biological Opinion” setting forth the effects of the proposed action. In preparing such an opinion, the USFWS must use the best available scientific and economic data to determine whether the proposed actionformer
joint venture partner with Noranda. The royalty is likely to jeopardize the species, the amount and extent of any incidental “taking” or harm to the species that may result from the action, and whether it should identify any conservation measures to promote the recovery of the listed species. ESA also provides that, once the interagency consultation process has been initiated, neither the federal agency nor the permit or license applicant may make any irreversible commitment of resourcespayable with respect to the proposed agency action that would haveamount of resources included in an independent feasibility study prepared for project financing purposes, is payable at six month intervals following the effectcommencement of foreclosing the formulation or implementation of any reasonable or prudent measures to avoid jeopardizing the listed species.
As previously noted in this proxy statement/prospectus, the USFWS issued a Biological Opinion in May 2003, which concluded that the proposed development of Rock Creek would not jeopardize the recovery of grizzly bears or bull trout. The opinion was challenged by several environmental advocacy groups on ESA grounds in a lawsuit brought in Federal District Court in Montana, and was remanded to the USFWS for further study. In October 2006 the USFWS issued a revised Biological Opinion reaffirming its earlier decision. The revised opinion was also challenged in Federal District Court. In May 2010, the District Court issued a decision dismissing the groups’ ESA challenge. The litigants appealed that dismissal to the Ninth Circuit Court of Appeals, which issued an opinion in November 2011 affirming the District Court’s decision and upholding the USFWS’s determination that the mine would entail “no adverse modification” to bull trout critical habitat and would result in “no jeopardy” to grizzly bears. On March 17, 2015, some of the environmental advocacy groups that were parties to these earlier proceedings filed a petition with the USFWS asking the agency to withdraw its revised Biological Opinion, arguing that the USFWS had received new information concerning Rock Creek’s potential impact on bull trout, and that this new information triggers an obligation for further consultation with the Forest Service under ESA.
The Wilderness Act of 1964 created a National Wilderness Preservation System composed of federally owned areas designated by Congresscommercial production as “wilderness areas.” Wilderness is generally defined in the Actreferenced agreements, and terminates when the reserve as “an area where the earth and its community of life are untrammelled by man, where man himself is a visitor who does not remain.” Once includeddefined in the system,feasibility study has been mined and milled.
Mines Management also owns certain patented and unpatented mining claims on zinc properties in northern Washington State, referred to as the act requires that these areas be administered by the federal department or agency having prior jurisdiction in the system in such a manner as to preserve their wilderness characterIroquois and leave them unimpaired for future use and enjoyment as wilderness. The Cabinet Mountains Wilderness Area overlays Rock Creek and was included in the National Wilderness Preservation System in 1964. The Wilderness Act does not affect mineral claimAdvance properties. No mining activities conducted prior to 1983, however it does authorize the Secretary of Agriculture (through the Forest Service) to impose such reasonable stipulations as are necessary to protect the wilderness character of the land for the purposes for which they are leased, permitted or licensed. In the case of Rock Creek, these stipulations have been conducted on these properties since the part1960s.
As of the focus of oppositionMarch 31, 2016, Mines Management had six employees located in Spokane, Washington and five employees in Libby, Montana. Outside consultants and contractors are engaged from time to Revett’s development of the project.
The Clean Air Act limits the ambient air discharge of certain materials deemedtime to be hazardous and establishes a federal air quality permitting program for such discharges.
The Montana Air Quality Act imposes limitations and permitting requirements similar to those of the Clean Air Act. Hazardous materials are defined in both acts and in their enabling regulations to include various metals. Revett holds all of the required air quality permits for its Troy operations.
The National Environmental Policy Act and the Montana Environmental Policy Act requires all governmental agencies to consider the impact of major federal actions on the human environment. The state act mandates similar considerations with respect to major state actions. Because Rock Creek is located on federal lands, an Environmental Impact Statement (“EIS”) was required to outline the environmental effects of proposed operations; and, to address Revett’s plans to limit the effects of Rock Creek’s operations. The Final EIS for Rock Creek was issued in 2001, and the Forest Service, the lead government agency on the project, released its Record of Decision on Revett’s proposed operating plan in June 2003. In May 2010, a Montana Federal District Court the 2003 Record of Decision backperform tasks related to the Forest Service to address NEPA deficiencies. The Forest Service is currently working to develop a Supplemental EIS that will comply with the Federal District Court’s decision.
The Federal Comprehensive Environmental Response, Compensation and Liability Act and the Montana Metal Mine Reclamation Act(“CERCLA”) imposes clean-up and reclamation obligations stemming from unlawful discharges into the environment, and establishes significant criminal and civil penalties against those persons who are primarily responsible for such discharges.
The Montana Metal Mine Reclamation Act (“MMRA”) is similar to CERCLA in principle, but focuses principally on the cleanup and reclamation of mining properties and unlawful discharges from mining operations. CERCLA is jointly administered and enforced by the Environmental Protection Agency and the DEQ. MMRA is administered and enforced by the DEQ.
The Multiple-Use Sustained Yield Act of 1960 (“MUSYA”) and The National Forest Management Act of 1974 direct the Secretary of the U.S. Department of Agriculture to administer Forest Service and other federal lands in ways that promote multiple uses of these resources (such as outdoor recreation, grazing, timber harvesting and mining) and are protective of watersheds, fish and wildlife, and to implement regulations that are consistent with MUSYA’s objectives.
The Resource Conservation and Recovery Act was designed and implemented to regulate the disposal of hazardous wastes. It mandates that such wastes be treated, disposed of or stored, and requires those doing so to obtain permits from the Environmental Protection Agency or the authorized state regulatory authority.
Employees. Revett had 16 full-time employees and one part-time employee at March 31, 2015. Eight of these employees work at Troy in care and maintenance capacities, and the remaining eight employees work at Revett’s corporate office or at Troy in management and administrative capacities. None of Revett’s employees are represented by a collective bargaining unit.
The Troy and Rock Creek Assets. Revett’s principal assets are Troy and Rock Creek, both located in northwestern Montana. Revett acquired these assets in February 2005 through acquisition of Revett Silver, which had earlier acquired them from ASARCO and Kennecott. Revett holds the Troy assets through Troy Mine, Inc., one of Revett’s second-tier operating subsidiaries. Revett holds the Rock Creek assets through RC Resources Inc., another of Revett’s second-tier operating subsidiaries.
Other Mining Assets. Revett also hold interests in the following additional mining assets:
Geology. The geology of the Troy and Rock Creek areas is characterized by a thick sedimentary Proterozoic-age sequence comprised of five major conformable zones or groups: the Lower Belt Group; the Ravalli Group; the Middle Belt Group; the Carbonate Group; and the Missoula Group. The Troy and Rock Creek deposits are found in the Ravalli Group, specifically in the Revett Formation, a mature, clastic, metamorphosed sandstone sequence of varying thickness lying within the group. Copper and silver sulfide mineralization occurs in varying degrees in quartzite subunits or beds throughout the formation. The mineralization is stratabound and disseminated, the result of migrating metal-bearing solutions through unconsolidated porous sediments prior to or during diagenesis; minor additional enriched mineralization also occurs as fracture-fillings. All of themineral-bearing beds contain lateral metal and mineral zones that are the result of primary ore-forming processes. These beds are depicted in the following diagram.
Copper is found in the Revett Formation in bornite and chalcocite, both sulfide minerals, and most often occurs as fine-grained disseminations with concentrations of less than six percent of the total sulfide along fractures, veinlets and bedding planes. The main copper sulfide zones are the chalcocite-chlorite and thebornite-calcite zones. Significant amounts of silver are found in zones within the copper sulfides and as enriched native silver. The thickness of these zones and their copper and silver grades are generally quite continuous across large areas, although there are segments that are thinner or of lower grade. Four additional concentric mineral zones that generally have no economic value envelop the chalcocite-chlorite and bornite-calcite zones: the chalcopyrite-ankerite zone is on the proximal side of the ore zones; the other three mineral zones, the chalcopyrite-calcite zone, the galena-calcite zone and pyrite-calcite zone, are sequentially located on the distal side of the ore zones.
Physiography, Climate and Infrastructure. The Cabinet Mountains are a rugged, 35 mile long range of glaciated peaks and valleys that extend southeast from a point near Libby, Montana. Altitudes vary from 2,200
feet in the valley floors to 7,700 feet at the peaks. The area’s topography is defined by the underlying rock types and structural features. The talus slopes and hogback ridges of the area are typically comprised of the more erosion resistant quartzite and limestone rocks.
The major land-forming features in the range were created by the Rocky Mountain uplift approximately 60 million years ago, and were subsequently modified by shifts in the earth’s crust, alpine glaciation and alluvial deposits. The northern portions of the range, including the Troy and Rock Creek areas, were influenced by Pleistocene-era alpine glaciers that carved the landscape into a series of cirques and horns characterized by nearly vertical cliffs, ledges, steep colluvial slopes and talus fields. These glaciers also scoured some lower elevation areas and deposited a veneer of glacial deposits, silt and clay in the low-elevation drainages averaging approximately 1,000 feet in thickness.
The climate of the area is characterized by a combination of Pacific maritime and continental climates. The maritime influences are strongest in the winter, when relatively warm, moist air from the Pacific Ocean is cooled as it is lifted over the mountains and mixes with colder Arctic air moving south. This results in snowfall with significant accumulations in the higher elevations. Continental influences are more prevalent in the summer with thundershowers during May and June, followed by hot, dry weather into mid-September. Annual precipitation totals vary from about 30 inches along the Clark Fork River valley to about 80 inches at the highest elevations in the Cabinet Mountains. Temperatures in the area are moderate. During the summer months, minimum night-time temperatures are in the 50 to 60 degrees Fahrenheit range. Winter cold waves occur, but mild weather is more common. The long-term annual average temperature is about 45 degrees Fahrenheit. The warmest month, July, averages 65 degrees Fahrenheit and the coldest month, January, averages 24 degrees Fahrenheit.
The Troy Mine is located in Lincoln County, Montana which is sparsely inhabited with several rural communities. The town of Troy is located 15 miles north of the mine and Libby, the county seat, is located approximately 32 miles northeast of the mine. The mine site is accessed by a seven mile paved mine road which connects to Montana Highway 56, a paved all-weather road connecting Montana Highway 200 to U.S. Highway 2. When in production, the copper-silver concentrates from Troy Mine are trucked to a leased load out facility and rail siding in Libby for rail shipment to a port as designated by Revett’s concentrate purchaser. The mine is connected to a power grid managed by a local electric cooperative.
The Rock Creek project is located in Sanders County, Montana, approximately five miles northeast of the town of Noxon. Thompson Falls, the county seat, is located approximately 37 miles southeast of Noxon along Montana Highway 200. High voltage electrical power, rail and highway transportation, water and other necessary infrastructure are available within four miles of the project site.
Development History. Development history at Troy and Rock Creek date back to 1963, when the Bear Creek Mining Company, a subsidiary of Kennecott Copper Corp., discovered stratabound copper and silver mineralization in the Cabinet Mountains. Over the next two decades, extensive exploration activity delineated both the Troy and Rock Creek deposits. The Troy and Rock Creek deposits share many similarities in geology, geochemistry and physiology. In 1973, ASARCO leased the Troy project from Kennecott and began permitting and development of the Troy mine. Production commenced in August 1981 and continued until April 1993, when operations were placed on care and maintenance due to low metal prices. The mine produced an average of approximately 4.0 million ounces of silver and 34 million pounds of copper during each of the twelve years ASARCO operated it.
ASARCO also acquired the Rock Creek claims from Kennecott in 1973, and thereafter commenced an exploration program comprising 121 boreholes. According to a final exploration report prepared in 1989 using polygonal methodology, the Rock Creek deposit contains an estimated mineral resource of 144 million tons of ore having an average copper grade of 0.68% and an average silver grade of 1.65 ounces per ton.
Troy
The Deposit. Significant mineralization occurs in a number of distinct stratigraphic quartzite subunits or beds at Troy Mine. The upper, middle and lower quartzite beds are located within the Upper Revett portion of the
formation and the A, C and I Beds 14 are located in the Lower Revett portion of the formation. The deposit measures approximately 7,500 feet by 1,800 feet and is generally flat in the vicinity of the mine, with a shallow dip of four degrees, the equivalent of a 7% grade.
Three styles of faults are common in the mine area: northwest-trending faults, typified by the East Fault, having brittle-ductile structures with common clay gouge; east-northeast to east-southeast trending faults, typified by the Cross Fault, which are high-angle reverse faults that separate the north and south ore bodies and have a zone with clay gouge and breccia; and east northeast trending structures, typified by the South Fault, which are late brittle and generally open faults with sandy infills and generally offset the mineralized sedimentary units.
The Troy deposit has been subdivided into three separate mining areas, the North Ore Body the South Ore Body and the East Ore Body. The bodies are principally delineated by the Cross Fault and the East Fault, which dissect the mineralized quartzite bends. The East Fault delineates the east boundary of the North Ore Body and the South Ore Body. The ore bodies are defined by assay-based determinations of economic copper and silver mineralization, zonation and outcrop on the north, west and south.
Mining operations in the North Ore Body and the South Ore Body has historically been confined to the Lower and Middle Quartzite subunits, and to a lesser extent, to the A and C Beds in the South Ore Body. Mining operations in the East Ore Body has historically been confined to the Middle and Upper Quartzite subunits. No economic copper and silver mineralization has been delineated in the Upper Quartzite subunit west of the East Fault or in the Lower Quartzite subunit east of the East Fault.
The following cross sectional view of Troy illustrates the location of these ore bodies, the quartzite subunits that Revett has historically mined, and the A and C and I Beds.
Reserves Estimates. The following tables set forth Revett’s estimates of Troy’s reserves, as of the dates indicated. A “mineral reserve” is the economically mineable part of a measured or indicated mineral resource demonstrated by at least a preliminary feasibility study. The study must include adequate information on mining, processing, metallurgical, economic and other relevant factors that demonstrate, at the time of reporting, that economic extraction can be justified, including dilutive materials and allowances for losses that may occur when the material is mined. Mineral reserves are subdivided into “proven and probable” classifications.
The Troy reserve estimates conform to SEC guidelines, Canadian Standards on Mineral Resources and Mineral Reserves Definitions and Guidelines (“CIM Guidelines”) and National Instrument 43-101 of Canadian Securities Administrators (“NI 43-101”) requirements, and were calculated by Larry Erickson, P. Eng., who is employed by Revett.
Current Troy Ore Reserve Estimates (January 31, 2015)
Category | Area | Million Tons | Ag Grade (opt) | Cu Grade (%) | Contained Ag (Moz) | Contained Cu (Mlb) | ||||||||||||||||
Proven Reserves | North Orebody | 1.38 | 1.42 | 0.70 | 1.95 | 19.30 | ||||||||||||||||
South Orebody | 0.00 | 0.00 | 0.00 | 0.00 | 0.00 | |||||||||||||||||
East Orebody | 0.08 | 1.26 | 0.63 | 0.09 | 0.95 | |||||||||||||||||
Lower Revett—A Bed | 0.00 | 0.00 | 0.00 | 0.00 | 0.00 | |||||||||||||||||
Lower Revett—C Bed | 0.09 | 1.26 | 0.48 | 0.12 | 0.88 | |||||||||||||||||
Lower Revett—I Bed | 0.00 | 0.00 | 0.00 | 0.00 | 0.00 | |||||||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||||
Total | Proven Reserves | 1.54 | 1.40 | 0.68 | 2.16 | 21.14 | ||||||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||||
Probable Reserves | North Orebody | 0.00 | 0.00 | 0.00 | 0.00 | 0.00 | ||||||||||||||||
South Orebody | 0.00 | 0.00 | 0.00 | 0.00 | 0.00 | |||||||||||||||||
East Orebody | 0.90 | 1.39 | 0.60 | 1.25 | 10.89 | |||||||||||||||||
Lower Revett—A Bed | 0.60 | 0.94 | 0.24 | 0.56 | 2.81 | |||||||||||||||||
Lower Revett—C Bed | 0.28 | 1.02 | 0.34 | 0.28 | 1.89 | |||||||||||||||||
Lower Revett—I Bed | 13.13 | 0.98 | 0.32 | 12.83 | 83.03 | |||||||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||||
Total | Probable Reserves | 14.91 | 1.00 | 0.33 | 14.93 | 98.62 | ||||||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||||
Proven & Probable | North Orebody | 1.38 | 1.42 | 0.70 | 1.95 | 19.30 | ||||||||||||||||
South Orebody | 0.00 | 0.00 | 0.00 | 0.00 | 0.00 | |||||||||||||||||
East Orebody | 0.98 | 1.38 | 0.61 | 1.35 | 11.84 | |||||||||||||||||
Lower Revett—A Bed | 0.60 | 0.94 | 0.24 | 0.56 | 2.81 | |||||||||||||||||
Lower Revett—C Bed | 0.37 | 1.08 | 0.37 | 0.40 | 2.77 | |||||||||||||||||
Lower Revett—I Bed | 13.13 | 0.98 | 0.32 | 12.83 | 83.03 | |||||||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||||
Total | Proven & Probable Reserves | 16.45 | 1.04 | 0.36 | 17.10 | 119.75 | ||||||||||||||||
|
|
|
|
|
|
|
|
|
|
The following key factors were used in determining the foregoing reserves:
Key Factors / Parameters | Silver | Copper | Other/Total | |||
Metal Prices (prior 5 year averages) | $24.69 | $3.35 | ||||
NSR Cutoff (Incl. Royalty) | $29.99 | |||||
Mining Recovery | 100% | |||||
Dilution (incl. reserve calc.) | 0% | |||||
Metallurgical Recoveries—LOM Avg. | 86% | 85% |
Operations. The following table sets forth information concerning Troy’s production for each of the five years ended December 31, 2014. As noted elsewhere in this proxy statement/prospectus, Revett suspended mining operations at Troy in December 2012 due to unstable ground conditions in the mine, and placed the mine on care and maintenance in January 2015 due to low metals prices.
Troy Mine Production | 2010 | 2011 | 2012 | 2013 | 2014 | Total | ||||||||||||||||||
Mill production ( tons x 1000) | 1,363 | 1,417 | 1,195 | — | 59 | 4,034 | ||||||||||||||||||
Grades: Silver (opt) | 0.87 | 1.07 | 1.08 | — | 0.56 | 1.00 | ||||||||||||||||||
Copper (%) | 0.40 | % | 0.46 | % | 0.38 | % | — | 0.15 | 0.41 | % | ||||||||||||||
Recovery: Silver (%) | 85.0 | % | 84.9 | % | 86.1 | % | — | 82.5 | % | 85.3 | % | |||||||||||||
Copper (%) | 81.2 | % | 82.0 | % | 82.5 | % | — | 89.5 | % | 82.0 | % | |||||||||||||
Production: Silver ( oz x1000) | 1,008 | 1,291 | 1,206 | — | 27 | 3,532 | ||||||||||||||||||
Copper (lbs x1000) | 8,794 | 10,651 | 8,564 | — | 159 | 28,168 |
Ongoing Exploration. Revett has been exploring beneath and adjacent to the current workings at Troy for the past several drilling seasons. Revett’s primary target has been stratabound copper and silver mineralization located in the I Bed of the lower portion of the Revett Formation, approximately 1,200 feet below the main ore body at the mine. ASARCO had initially identified mineralization in this bed during drill programs in the 1980s but did not follow up with subsequent drilling due to lower metals prices. Revett believes ore grade mineralization exists in this and other beds within the Lower Revett Formation, based on the results of Revett’s exploratory drilling and the understanding of the upper quartzite units of the Formation. Revett completed the first phase of drilling and re-assaying of ASARCO’s existing core in 2013, and plan to continue a confirmatory drill program once it resumes commercial mining operations at Troy. In the event the merger is not completed, Revett’s longer range goals are to step out from the immediate Troy Mine area to explore for additional resources that would extend the mine life at Troy and allow Revett to continue to use existing mine and processing infrastructure. Revett has initially targeted mineralization trends lying north and east of Troy Mine. Revett has expanded its claim holdings in these areas, as well as reviewing prior geophysical and drill data.
Mine Reclamation Plan. Upon conclusion of mining operations at Troy, Revett is obligated to reclaim and remediate the area in accordance with a revised reclamation plan issued by DEQ and the U.S. Forest Service in late 2012. Revett’s current bond of $12.9 million is covered by a surety bond and restricted cash account of $6.5 million. Revett does not presently know whether the revised reclamation plan will increase its bonding costs. Revett has accrued a discounted liability of $4.7 million as of December 31, 2014 relating to these obligations.
Rock Creek
The Deposit. The Rock Creek deposit is a large development-stage stratabound copper and silver deposit located in Sanders County, Montana. The project comprises 99 patented lode-mining claims, 370 unpatented lode-mining claims, five tunnel site claims, 85 mill site claims and 754 acres of fee land associated with project facilities. The patented claims lying within the Cabinet Mountain Wilderness Area convey mineral rights and other limited surface rights; while the patented claims lying outside the wilderness area convey both mineral and surface rights and title. The patented claims occupy an area of approximately 1,809 acres. All of the Rock Creek mining claims are believed to be in good standing.
The project is approximately sixteen air miles or 45 five road miles southeast of the Troy mine. Revett expects to access the ore body through an adit that will originate outside the Cabinet Mountain Wilderness area, near the valley floor. The project development plan is expected to be very similar to that used at Troy. If successfully permitted, developed and brought into production, Revett expects to mine ore at the rate of 10,000 tons per day and produce an average of 52 million pounds of copper and 6 million ounces of silver per year.
Mineral Resources. The stratigraphy in the vicinity of Rock Creek is nearly identical to that found at Troy. Bedrock exposed in the area consists primarily of the Revett and St. Regis Formations. In this area, Belt Supergroup rocks are gently folded and cut by several northwest-trending faults. In the vicinity of the deposit, two faults, the Copper Lake and Moran Faults, subdivide the deposit into three distinct segments: the Chicago Peak, St. Paul and North Basin blocks. The more significant portion of the Rock Creek deposit forms an oblong body measuring at least 16,000 feet by 7,200 feet. The long axis of the copper and silver mineralization is generally oriented in a north-south direction and occurs between elevations of 4,300 feet and 6,000 feet above means sea level within an anticlinal structure that plunges slightly to the northwest. As with Troy, mineralization occurs primarily within quartzite subunits of the Lower portion of the Revett Formation and subordinately within siltite and argillite subunits of the lower and middle portions of the formation. The Lower portion of the Revett Formation is locally subdivided into the same subunits as Troy, namely the A through I Beds. (See the graph at page 91 of this proxy statement/prospectus.) The bulk of the mineralization is confined to one layer, but locally there may be up to four vertically stacked, potentially minable layers. The copper and silver mineralization ranges in thickness from six feet to a maximum of 235 feet near the Copper Lake Fault. The average thickness is 27 feet.
Permitting History and Status. As previously noted in this proxy statement/prospectus, DEQ and the U.S. Forest Service jointly issued a Record of Decision in June 2003 approving Revett’s proposed plan of operation at Rock Creek. The Record of Decision was based on the Final EIS (“FEIS”) issued in 2001 and anon-jeopardy Biological Opinion issued by the USFWS in May 2003. The FEIS followed six years of public and inter-agency review and comment with subsequent project development modifications and mitigations, as required under NEPA. The Record of Decision was challenged by a number of national and regional conservation groups, and in May 2010 both the Record of Decision and Final EIS were remanded back to the Forest Service by the Federal District Court in Montana for completion of a Supplemental EIS to address specified NEPA deficiencies. All of the challenges to the Biological Opinion were dismissed by the Federal District Court in Montana, a decision that was subsequently upheld by the Ninth Circuit Court of Appeals in November 2011. On March 17, 2015 some of the environmental advocacy groups that were parties to the earlier proceedings challenging the Biological Opinion filed a petition with the USFWS asking the agency to withdraw its opinion. Their arguments include that the USFWS has received new information concerning Rock Creek’s potential impact on bull trout and grizzly bears and that this new information triggers an obligation for further consultation with the Forest Service under ESA.
Project Development. Revett has an office and core storage building at the Rock Creek site. If and when Revett receives all of the necessary permits, Revett expects to install remaining infrastructure (including improvements to the access road, power transmission and a water treatment facility) and construct an adit approximately 7,000 feet long to gain access into the deposit. If mineralization is reached (expected at approximately 3,500 feet), Revett would then collect data to support a full technical and economic feasibility study.Montanore Project.
ExceptIn September 2007, Mines Management filed a declaratory judgment action captioned Mines Management, Inc., Newhi, Inc. and Montanore Minerals Corp. v. Tracie Fus et al., Cause No. DV07-248 in Montana Nineteenth Judicial District Court, Lincoln County. In this action, Mines Management sought a court judgment against certain of the defendants that the unpatented mining claims of such defendants, allegedly located above portions of Mines Management’s Libby adit and overlapping certain of its patented and unpatented mining claims, millsites and tunnel sites are invalid. The defendants subsequently asserted trespass claims against Mines Management relating to its use of certain of its mining claims, millsites and the adit. The parties participated in a mediation in 2009, which resulted in a settlement with seven of the ten defendants. On March 21, 2013, the court issued an order (i) enforcing the settlement with seven of the ten defendants, (ii) enjoining Mines Management from trespassing on certain mining claims owned by one of the defendants and (iii) finding that the mining claim of another defendant is valid and superior to certain of Mines Management’s claims. The claims with respect to which Mines Management was enjoined from trespass do not overlap the adit. The mining claim that the court determined was valid and superior to certain of Mines Management’s claims overlaps portions of the adit and portions of certain of its patented claims and unpatented millsites and tunnel sites. Mines Management does not believe that this order affects its ability to use the adit or to conduct exploration and development operations as otherwise providedcurrently planned once Mines Management has obtained the required permits.
Mines Management appealed to the Montana Supreme Court, Case No. DA13-0240, with respect to certain portions of the order. The Supreme Court ruled in favor of Mines Management remanding the case to the District Court with instructions to vacate the injunction and to conduct further proceedings. In January 2014, the Montana Supreme Court reversed the District Court on the basis of lack of findings, existence of an issue of fact, lack of evidence regarding trespass and misplaced reliance on evidence that the District Court relied upon with respect to claim validity. In December 2015, the District Court set the case for trial in April 2016. The District Court subsequently vacated and has not reset the trial date.
On June 28, 2013, Mines Management filed a condemnation action captioned Montanore Minerals Corporation v. Easements and Rights of Way under through and across those certain unpatented lode mining claims et al., CauseNo. CV-00133-DLC, in the United States District Court for the District of Montana, Missoula Division. In this action, Mines Management sought to acquire easements and rights of way for the Montanore Project including for use of the adit and the construction and use of another underground tunnel and related equipment that are contemplated by the draft EIS for the Montanore Project and other draft permits. The defendants include the defendant in the case referenced in the preceding paragraphs whose claim was determined to be valid and overlaps the existing adit. Mines Management filed a motion for a preliminary condemnation
order and injunction to obtain immediate access to the easements andrights-of-way and a motion to have the court declare the subject mining claims void for failure to comply with an essential federal filing requirement. The primary defendant filed a motion requesting the court to dismiss without prejudice or stay the condemnation proceeding on abstention grounds and a motion to dismiss one of the two condemnation counts.
On April 29, 2014, the U.S. District Court in Missoula granted Mines Management’s motion for a preliminary condemnation order, which affirms Mines Management’s right of access through the Libby adit and its right to construct another tunnel that is planned in connection with the potential construction of a mine. In addition, the U.S. District Court granted Mines Management’s motion for a preliminary injunction for immediate right of possession, thereby preserving Mines Management’s ongoing access through the adit. Mines Management’s motion to declare the subject mining claims void was denied on abstention grounds. The primary defendant’s motions to dismiss without prejudice or stay the condemnation proceeding on abstention grounds were denied. The primary defendant’s motion to dismiss one of the condemnation counts was denied as moot. The court decisions referenced in this proxy statement/prospectus, Revettparagraph are subject to appeal. The hearing on the compensation phase of the condemnation case was held in April 2015. In their report issued in May 2015, the Commissioners appointed by the court to determine the just compensation for the taking resulting from the court’s preliminary condemnation order concluded that the amount of just compensation to the defendants is not$0. On August 7, 2015, the U.S. District Court issued its final ruling affirming the Commission’s decision. The defendants have appealed this ruling.
In July 2014, Frank R. Wall filed a partycomplaint in the Montana Nineteenth Judicial District Court, Lincoln County, Montana captioned Frank R. Wall v. Patent Lode Mining claims HR 133 and HR 134, et al., Case No. DV-14-140, arising out of the facts related to any materialthe litigation described above and claiming monetary damages, declaratory judgments and other relief. The complaint names Mines Management and its subsidiaries Newhi, Inc. and Montanore Minerals Corporation as defendants. Mines Management believes the allegations of the complaint are without merit.
In January 2016, Frank R. Wall filed a complaint in the United States Federal District Court for the District of Idaho captioned Frank Reginald Wall v. United States Department of Agriculture, et al., Cause No. CV-16-0043-BLW, claiming a violation of his constitutional rights and requesting an injunction against the USFS ROD for the issuance of permits to Mines Management for operations at the Montanore Project. Mines Management is named as one of the defendants. Mines Management believes the allegations of the complaint are without merit.
On May 27, 2016, Mines Management, through its wholly-owned subsidiary Montanore Minerals Corporation, filed motions to intervene in three cases pending or threatened legal proceedings.in the United States District Court for the District of Montana, Missoula Division captioned (i) Save Our Cabinets et al. v. United States Fish and Wildlife Service et al., Cause No. CV-15-69-M-DWM, (ii) Libby Placer Mining Company v. United States Forest Service et al., Cause No. CV-16-53-M-DWM, and (iii) Save Our Cabinets et al. v. United States Department of Agriculture, Cause No. CV-16-56-M-DWM. Each of the actions involve claims challenging the permitting of the Montanore Project. The motions to intervene were granted in early June 2016.
Market for Revett’sFor Mines Management’s Common Equity
Mines Management’s common stock commenced trading on the American Stock Exchange, now known as NYSE MKT LLC, under the symbol “MGN” on March 24, 2004. On January 10, 2006, Mines Management’s common stock began trading on the TSX under the symbol “MGT.”
The following table shows the high and Related Stockholder Matterslow closing sales prices for Mines Management’s common stock for each quarter since January 1, 2014. The quotations reflect inter-dealer prices, without retail mark-up, mark-down or commission and may not represent actual transactions. On July [●], 2016, the closing price of Mines Management’s common stock was $[●] on the NYSE MKT and CDN $[●] on the TSX.
Stockholders. Revett had 58
NYSE MKT | TSX | |||||||||||||||
High | Low | High | Low | |||||||||||||
(US$) | (CDN$) | |||||||||||||||
Year Ended December 31, 2014 | ||||||||||||||||
First Quarter | $ | 1.73 | $ | 0.60 | $ | 1.89 | $ | 0.66 | ||||||||
Second Quarter | $ | 1.36 | $ | 0.82 | $ | 1.46 | $ | 0.92 | ||||||||
Third Quarter | $ | 1.10 | $ | 0.61 | $ | 1.18 | $ | 0.73 | ||||||||
Fourth Quarter | $ | 0.64 | $ | 0.47 | $ | 0.74 | $ | 0.46 | ||||||||
Year Ended December 31, 2015 | ||||||||||||||||
First Quarter | $ | 0.58 | $ | 0.43 | $ | 0.70 | $ | 0.50 | ||||||||
Second Quarter | $ | 0.70 | $ | 0.47 | $ | 0.85 | $ | 0.50 | ||||||||
Third Quarter | $ | 0.53 | $ | 0.26 | $ | 0.70 | $ | 0.34 | ||||||||
Fourth Quarter | $ | 0.38 | $ | 0.15 | $ | 0.49 | $ | 0.20 | ||||||||
Year Ending December 31, 2016 | ||||||||||||||||
First Quarter | $ | 0.59 | $ | 0.27 | $ | 0.86 | $ | 0.42 | ||||||||
Second Quarter | $ | [●] | $ | [●] | $ | [●] | $ | [●] | ||||||||
Third Quarter (through July [●], 2016) | $ | [●] | $ | [●] | $ | [●] | $ | [●] |
As of July 5, 2016, there were [●] stockholders of record as of March 30, 2015.
Dividends. Revett has not declared or paid any cash or stock dividends on itsMines Management’s common stock since inception, and does not anticipate declaringapproximately [●] stockholders whose shares were held through banks, brokerage firms or payingother institutions.
Mines Management has never paid a dividend on common stock and anticipates that future earnings, if any, cash or stock dividends in the foreseeable future.will be retained to finance growth and development of its business.
Management’s Discussion and Analysis of Financial Condition and Results of OperationOperations
Explanatory Note:Note
The following discussion of Revett’sMines Management’s financial condition and results of operationoperations should be read in conjunction with its audited consolidated financial statements and notes as at December 31, 2014 and 2013 andfor the fiscal years ended December 31, 2015 and 2014 and 2013,its unaudited financial statements and notes for the three months ended March 31, 2016, which are set forth elsewhereappear in this proxy statement/prospectus commencing on page F-1.
Financial and include the accounts of Revett Mining Company. Inc. (formerly Revett Minerals, Inc.) and its wholly-owned subsidiary Revett Silver, and the accounts of Revett Silver’s wholly owned subsidiaries, Troy Mine, Inc., RC Resources, Inc., Revett Exploration, Inc. and Revett Holdings, Inc. These financial statements have been prepared in accordance with GAAP.
Overview.Operating Results Revett’s principal mining properties are Troy and Rock Creek. Troy is an underground silver and copper mine located in northwestern Montana. ASARCO operated the mine from 1981 to 1993, and then placed it on care and maintenance because of low metals prices. Revett resumed mining operations in late 2004 and commenced commercial production in early 2005. Revett operated Troy continuously until December 2012, when operations were suspended due to unstable ground conditions in portions of the mine. Revett developed an alternative route to the North C Bed area during the fourth quarter of 2014 and resumed limited mining and milling operations, but was later compelled to put Troy on care and maintenance due to low metals prices.
Rock Creek is a large development-stage silver and copper property located in Sanders County, Montana, approximately five miles northeast of Noxon. Revett has funded its permitting activities at Rock Creek with cash flows from Troy and, to a lesser extent, proceeds received from sales of securities.
Results of Operations
Comparison of Years Endedended December 31, 20142015 and 20132014. Revett suspended underground mining and surface milling operations at Troy in December 2012 because of unstable and unsafe ground conditions and consequently did not mine any ore during 2013 and only resumed limited mining and milling operations in November 2014. A comparison of Revett’s operating resultsMines Management reported a net loss for 2014 and 2013 is therefore not meaningful. The changes in Revett’s financial performance over these two periods are summarized below:
Revenue: During 2013 Revett had one sale of concentrate from inventory. This revenue was offset by the settlement of invoices relating to 2012 sales. During the year ended December 31, 2013, the LME price2015 of copper and silver averaged $3.32$2.8 million or $0.10 per pound and $23.83share compared to a net loss of $6.5 million or $0.22 per ounce, respectively.
Cost of Sales: Troy suspension-related costsshare for 2014 were $4.3 million. In May 2013 Revett laid off approximately 50% of the mine site employees in efforts to conserve cash.
Depreciation and depletion:The majority of the plant and equipment at Troy is depreciated using theunits-of-production method. The suspension of mining operations resulted in no depreciation expense for Troy.
Exploration and development: This expense includes no spending for exploration spending around Troy and $1.0 million in spending for Rock Creek. The spending in 2014 is much lower than the $1.4 million Revett spent in 2013 because of its cash conservation efforts during 2014.
General and administration costs: The decrease in the corporate administration costs during 2014 is a result of the suspension of mining activities at Troy and Revett’s resulting efforts to conserve cash. Revett’s chief executive officer’s salary and director fees were voluntarily reduced.
Change in ARO Liability. The change in ARO liability estimate is a result of an increase in the Troy mine life (from 2026 to 2027), which is itself due to the delays in mining at Troy. Revett recorded a slight increase in Revett’s estimated ARO liability, from $4.6 million to $4.8 million, as at December 31, 2014.
Impairment. As noted elsewhere in this proxy statement/prospectus, Revett determined that its property, plant and equipment was impaired at December 31, 2014 due to the fact that it placed Troy on care and maintenance
and has no assurance mining operations will be resumed. The impairment charge of $54.7 million was based on the value of the Hecla merger proposal, and was allocated to each property, plant and equipment asset class based on the relative carrying value of the asset on Revett’s financial statements.
Expenses pertaining to Rock Creek totaled $1.0 million during the year ended December 31, 2014 as2014. The following table summarizes expenses and other income by category and year:
2015 | 2014 | |||||||
(millions) | ||||||||
Montanore Project Expense | $ | 1.7 | $ | 2.2 | ||||
Administrative Expense | $ | 2.6 | $ | 3.3 | ||||
Depreciation | $ | 0.1 | $ | 0.8 | ||||
Non Cash Stock Based Compensation Expense | $ | 0.2 | $ | 0.3 | ||||
Other Income | $ | (1.8 | ) | $ | (0.1 | ) |
Montanore Project Expense includes fees, filing, licenses and technical services, including environmental, engineering and permitting expense. Montanore Project Expense decreased by $0.5 million during 2015 compared to $1.22014 primarily because of the reduction in fees paid to the contractor working on obtaining and maintaining project approvals and permits as well as a reduction in the baseline studies associated with the EIS.
Administrative Expense, which includes general overhead and office expense, legal, accounting, compensation, rent, taxes and investor relations expense, decreased by $0.7 million during 2015 compared to 2014. The following factors included within Administrative Expense are responsible for the change: (i) a decrease in payroll expenditures of $0.2 million as a result of having fewer employees during 2015 and not paying employee bonuses, (ii) a decrease of $0.1 million in 2013,fees paid to members of Mines Management’s board of directors during 2015, (iii) a decrease of $0.2 million due to the lack of costs in 2015 associated with the special proxy and were comprisedstockholders’ meeting held during 2014 to approve the financing completed by Mines Management in 2014 and (iv) a decrease of $0.2 million in legal, fees of approximately $0.2 million;accounting and consulting fees primarily associated with a litigation matter described in “Information Regarding Mines Management—Legal Proceedings” beginning on page 99.
Depreciation decreased by $0.7 million during 2015 as a result of approximately $0.7 million;equipment reaching the end of its depreciable life and publiclimited acquisitions of property and equipment during the past few years.
Non Cash Stock Based Compensation Expense (which is included in general and administrative and technical services expenses in Mines Management’s statement of operations) decreased by $0.1 million during 2015 because the number of options granted and the fair value of options granted during 2015 were less than those granted during 2014.
Other Income of $1.8 million in 2015 consisted of proceeds from the sale of idle equipment previously utilized for construction of infrastructure at the Montanore Project. During 2014, Other Income of $0.1 million consisted of a gain from the sale of Mines Management’s interest in an oil and gas lease during the year.
Comparison of Three Months ended March 31, 2016 and 2015. Mines Management reported a net loss of $1.0 million for the quarter ended March 31, 2016 compared to $1.5 million for the quarter ended March 31, 2015. The most significant differences in operating expenditures between those two quarters include: (i) a $0.1 million decrease in general and administrative expenses primarily due to a decrease in stock compensation and investor relations expenses during 2016, (ii) a decrease of $0.1 million in technical expenses in 2016 primarily due to the completion of the final EIS and miscellaneous expenditures, including fundingissuance of ongoing grizzly bear mitigation,the RODs, which resulted in reductions in fees paid to the contractors working on obtaining and maintaining project approvals and permits as well as a reduction in the baseline studies associated with the EIS, and (iii) a $0.3 million decrease in legal, accounting and consulting fees primarily associated with the conclusion of approximately $0.3 million.a litigation matter in the third quarter of 2015 as described in “Information Regarding Mines Management—Legal Proceedings” beginning on page 99.
Liquidity Considerations and Going Concern
The accompanying consolidated financial statements have beenwere prepared under the assumption that RevettMines Management will continue as a going concern. Revett doesMines Management reported in its report on Form 10-Q for the quarter ended March 31, 2016 that it did not have sufficient cash to fund normal operations and meet debt obligations forongoing operating expenses through the next twelve months without deferring payments on certain current liabilities and/or raising additional funds. Revett’s continued losses and lackend of capitalthe second quarter 2016. Mines Management had been unable to raise substantial doubt about Revett’s ability to continue as a going concern. Although Revett raised some additional capital in 2014, Revett has not raised sufficient external financing to meet its obligations and provide access to Troy mine ore reserves. Therefore, Revettongoing obligations. On May 23, 2016, Mines Management entered into anthe merger agreement and plan of merger with Hecla (see Note 20). Should the proposed merger not be completed, Revett will review alternatives to source adequate financing to meet its capital spending and debt service requirements. There is no assurance Revett’s financing efforts will be successful under current market conditions. Revett’s business has been materially and adversely affected by the decline in copper and silver prices and by the suspension of commercial mining operations at Troy. In light of this, Revett has placed all of its discretionary capital and exploration spending on hold in order to conserve cash.
At December 31, 2014, working capital was $1.6 million, including cash of $2.9 million. During the first quarter of 2014 Revett sold its available for sale securities for cash proceeds of $1.0 million and settled an outstanding insurance claim for damaged mine equipment and received cash proceeds of $1.9 million. In 2014, Revett sold 4.6 million shares of common stock and 2.2 million warrants for cash proceeds of $3.4 million.
Although placing the Troy Mine on care and maintenance in January 2015 significantly reduced operating costs, the costs associated with care and maintenance activities will continue to erode Revett’s cash and working capital.
Capital spending in 2014 totaled $6.2 million. This spending primary related to the construction of new, 7,500 foot decline from the main haulage route to the North C Beds, and, if completed, to the undeveloped I Bed at Troy.
Capital spending in 2013 totaled $1.1 million. This spending primary related to the construction of new 7,500 foot decline from the main haulage route to the North C Beds, and, if completed, to the undeveloped I Bed at Troy.
Financing Activities
During the year ended December 31, 2014, Revett issued 158,500 shares of common stock upon the exercise of outstanding stock options, resulting in cash proceeds of $79,000. During the year, Revett also sold 4,499,102 shares of common stock in a private placement and received cash proceeds of $3.3 million.
During the year ended December 31, 2013, Revett issued 49,000 shares of common stock upon the exercise of outstanding stock options, resulting in cash proceeds of $0.03 million, and issued 55,000 shares of common stock upon the exercise of outstanding warrants, resulting in cash proceeds of $0.1 million.
Off-Balance Sheet Arrangements.
Royal Gold, Inc. holds a 3% gross smelter royalty on a defined area of production from Troy and a 1% net smelter royalty on production from Rock Creek pursuant to the terms of an amended royalty agreement dated October 13, 2009.
Tabular Disclosure of Contractual Obligations.The following table sets forth information as of December 31, 2014 concerning Revett’s known debt obligations, royalty obligations, capital lease obligations and reclamation obligations.
Payments Due by Period (expressed in thousands of dollars) | ||||||||||||||||||||
Contractual Obligation | Total | < 1 Year | 1 to 3 Years | 3 to 5 Years | > 5 Years | |||||||||||||||
Accrued liabilities | $ | 1,805 | $ | 1,805 | $ | 0 | $ | 0 | $ | 0 | ||||||||||
Note payable obligations | $ | 4,377 | $ | 4,377 | 0 | $ | 0 | $ | 0 | |||||||||||
Operating leases | $ | 354 | $ | 354 | $ | 0 | $ | 0 | $ | 0 | ||||||||||
Long-term reclamation costs | $ | 12,743 | $ | 0 | $ | 0 | $ | 0 | $ | 12,743 | ||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||
Total contractual obligations | $ | 19,279 | $ | 6,536 | $ | 0 | $ | 0 | $ | 12,743 | ||||||||||
|
|
|
|
|
|
|
|
|
|
Revett’s long term debt at December 31, 2014 consisted of note payable obligations related to the purchase of equipment used at Troy.
Proposed Transactions. Revett announced on March 27, 2015 that on March 26, 2015 it had entered into an agreement and plan of merger with Hecla and Hecla’s wholly-owned merger subsidiary, pursuant to which, and subject to the approval and adoption of RevettMines Management’s stockholders and the satisfaction or waiver of other conditions specified in the merger agreement, Revetta subsidiary of Hecla would merge with and into HeclaMines Management in a share exchange transaction in which Revett’sMines Management’s stockholders would receive 0.16220.2218 of a share of Hecla common stock for each share of common stock of Revett. The proposed transaction is described more fullyMines Management. Also on May 23, 2016, Mines Management entered into the Interim Credit Agreement pursuant to which Hecla has agreed to provide secured loans to Mines Management in an aggregate amount of up to $2.3 million. As of the date of this proxy statement/prospectus, includingMines Management has borrowed approximately $1.4 million from Hecla pursuant to the Interim Credit Agreement.
The merger is subject to the approval and adoption of Mines Management’s stockholders, with the meeting to vote on the proposed merger currently scheduled for August 10, 2016. Should the proposed merger not be completed, the loan from Hecla would become immediately due and payable, and Mines Management would review alternatives to attempt to obtain adequate financing to fund its ongoing operating expenses. There can be no assurance that Mines Management would be successful in Note 20—Subsequent Eventsobtaining adequate financing that would permit it to Revett’s consolidated financial statements on page F-23.
Principal Risks and Uncertainties. As is described elsewhere in this proxy statement/prospectus, Revett suspended mining operations at Troy in December 2012 due to unstable and unsafe ground conditions and commenced constructioncontinue its business, or that the terms of the decline in November 2013 following receipt MSHA approval. After successfully reaching the North C Bedsany such financing would not make future financings or transactions more difficult or otherwise limit Mines Management’s flexibility or opportunities in the fourth quarter of 2014 and resuming limited ore production, Revett decided on January 20, 2015 to place the Troy Mine on care and maintenance due to low metals prices. Development work to the I Beds ceased immediately and milling operations continued through the end of January 2015. An orderly shutdown was completed during the month of February 2015, with the expectation that development and operations might resume once metals prices improved.
As isfuture. There can also described elsewhere in this proxy statement/prospectus, Revett’s proposed development of Rock Creek was challenged on environmental grounds by several regional and national environmental advocacy groups. Revett cannot predict with any degree of certainty whether any current or future challenges or impediments will succeed or arise. Rock Creek is the more significant of Revett’s two mining assets; continued court challenges will inevitably delay Revett from proceeding with its planned development and a successful challenge could prevent Revett from developing the project at all. If Revett is successful in defending these challenges, Revett still must comply with a number of requirements and conditions as development progresses, failing which Revett could be denied the ability to continue with its proposed activities at Rock Creek. Revett is also subject to other significant risks. See “Risk Factors” beginning on page 22.
Critical Accounting Estimates. Revett’s significant accounting policies are presented in the notes to its consolidated financial statements, which appear elsewhere in this proxy statement/prospectus. As described in the notes, Revett is required to make estimates and assumptions that affect the reported amounts and related
disclosures of assets, liabilities, revenue and expenses. Revett’s estimates are based on its experience and its interpretation of economic, political, regulatory and other factors that influence Revett’s business prospects. These estimates have a significant effect on the financial statements and actual results may differ significantly from Revett’s estimates.
Revett believes the most critical estimates pertain to future metal prices, its estimates of proven and probable reserves at Troy, the valuation of mineral property, plant and equipment, recoverability of deferred tax assets, and the estimate of the final reclamation and closure obligations at Troy. These estimates required Revett to make assumptions that were highly uncertain at the time the accounting estimates were made, and changes in them are reasonably likely to occur from time to time. The major critical accounting estimates include but are not limited to the following:
Future Metal Prices.The values of Revett’s more significant assets and liabilities are determined principally by prevailing metals prices and estimates. Prevailing metals prices are also a significant determinant in the cost and carrying value of Revett’s property, plant and equipment, inventories, future tax assets and liabilities, certain of Revett’s accounts receivable and the fair value of hedging contracts. Metal prices have historically been very volatile, with recent prices being near their highs for the last decade; these prices have influenced Revett’s property, plant and equipment carrying values and the estimates of Revett’s reserves. There is no assurance prices will continue at these levels. Changes in metal prices may result in volatility in the fair value of derivativesthat any financing obtained would not be highly dilutive to existing stockholders.
Mines Management’s cash and other financial instruments, as well as potential impairment charges on mineral property, plant and equipment and concentrate inventories.
Embedded Financial Derivatives.Some of Revett’s assets and liabilities may contain embedded derivatives for which no corresponding market value may be readily determined. This includes the estimates of future copper and silver prices in the pricing mechanism through which Revett sells its copper concentrate (what Revett refers to as the open quotational period). Revett makes estimates of the fair value of these instruments using quoted forward metal prices.
Mineral Resources and Reserves, and the Carrying Values of Mineral Properties, Plant, and Equipment.Mineral resources and reserves are estimated by professional geologists and engineers in accordance with recognized industry, professional and regulatory standards. Reserve estimates are based on future metal prices, future operating costs, mill throughput and various technical, geological, engineering, and construction parameters. Changes in any of these factors could cause a significant change in the resources and reserves estimated, which, in turn, could have a material effect on the carrying value of mineral property, plant and equipment.
Revett has completed a life of mine undiscounted cash flow analysis of Troy based upon its most recent proven and probable ore reserves, expected production rates and costs, and estimated revenues (which are in turn based on estimated metal prices for copper and silver of $3.35 per pound and $24.69 per ounce, respectively, in 2014, and $3.32 per pound and $24.69 per ounce, respectively, for years thereafter until the end of the mine life). However, these estimates are based on significant assumptions. While Revett has analyzed external and internal data in arriving at these assumptions, and while Revett believes they are reasonable, it is possible future conditions may change and that these changes could result in different assumptions which might result in an additional impairment of the carrying value of Revett’s mineral property, plant and equipment.
Revett capitalizes costs related to the acquisition of property and mineral rights, construction of production facilities and the development of mine infrastructure. Costs of permitting, evaluation and feasibility are capitalized upon completion of an analysis which demonstrates the economic viability of the mineral deposit. Drilling and related costs incurred on sites without an existing mine and on areas outside the boundary of a known mineral deposit that contains proven and probable reserves are accounted for as exploration expenditures and are expensed as incurred. Drilling and related costs incurred to define and delineate a residual minerals deposit that has not previously been classified as a proven or probable reserve at a development stage or production stage mine will only be capitalized when Revett’s management determines there is sufficient evidence
that the expenditure will result in a future economic benefit in the accounting period when the expenditure is made. Diversity of practice exists among participants in the mining industry regarding the accounting treatment of these costs. Some mining companies elect not to capitalize drilling and related costs to convert mineral resources to reserves at their development or productions stage properties, but, instead, treat them as expenses.
Revett’s management evaluates whether there is sufficient geologic and economic certainty to convert a mineral deposit into a proven or probable reserve based upon the known geology and metallurgy, existing or planned mining and processing facilities, and existing operating permits and environmental programs. Prior to capitalizing such costs, Revett’s management must determine whether there is a probable future economic benefit, whether Revett has or can obtain the economic benefit and control access to it, and whether the transaction or event giving rise to the economic benefit has already occurred. Once commercial production has commenced, these costs are amortized using the units-of-production method based on proven and probable reserves. Production facilities and equipment are stated at cost and are depreciated using the straight-line or units-of-production method at rates sufficient to depreciate the assets over their estimated useful lives, not to exceed the life of the mine to which the assets relate. Vehicles and office equipment are stated at cost and are depreciated using the straight-line method over estimated useful lives of three to six years. Maintenance and repairs are charged to operations as incurred. Betterments of a major nature are capitalized. When assets are retired or sold, the costs and related accumulated depreciation are eliminatedequivalents decreased from the accounts and any resulting gain or loss is reflected in the statement of operations. The carrying value of property, plant and equipment is dependent on the rates used for depreciation and depletion, which themselves are estimates.
Concentrate Receivables and Revenue. When it has production, Revett sells its silver and copper in concentrate based upon its own assays of metal content, moisture content and the estimated dry weight of the copper-silver concentrate loaded in rail cars. These weight and assay estimates are subject to final confirmation by the receiving smelter and are subject to change. In addition, Revett records the anticipated revenue to be received from the sale of each concentrate shipment based upon its determination of the weight and assays of each shipment and in accordance with the contract to which the sale relates. Preliminary payments are thus based upon copper and silver prices that are determined prior to the date of the provisional invoice, whereas the final price received is determined by quoted metal prices in agreed periods subsequent to the date of the provisional invoice. Changes in these estimates or in metal prices could result in a significant change to the results from operations.
Reclamation Obligations. Revett has a legal obligation to reclaim its mineral properties and has estimated the cost of these obligations in accordance with current standards of applicable laws and regulations. These estimates are reviewed by third party consultants and government authorities. In arriving at these estimates, Revett must also estimate the timing and magnitude of future payments for reclamation work, as well as prevailing rates of interest during the remediation period, in order to determine its periodic accretion and the depreciation expense. There were no material changes in Revett’s estimates of final reclamation and remediation costs during 2014 other than inflation, however, the end of mine life of Troy was extended in 2013, from 2020 to 2026, and was again extended in 2014 from 2026 to 2027, which required Revett to change the depreciation and accretion charges relating to its asset retirement obligation. Revett cannot predict the effect of a material increase in these estimates on its financial position.
Stock-Based Compensation Expense. Revett grants stock options to its employees, directors and service providers. Revett uses the Black-Scholes option pricing model to estimate a value for these options. This model requires Revett’s management to make estimates of the expected volatility of Revett’s common stock, the expected term of the option to exercise, the expected future forfeiture rate, and future interest rates. Changes in these estimates and the conditions underlying the grants of options could cause a significant change in the stock-based compensation expense charged in any period.
Valuation Allowances for Deferred Income Taxes. Revett is required to make estimates of the valuation allowances for future income taxes. This requires Revett to estimate whether it will attain certain levels of future
taxable income and thereby avail Revett, or lose, estimated tax assets. These estimates require Revett to estimate future metal prices, future operating costs and production levels; which are themselves subject to a high degree of uncertainty.
Financial and Other Instruments. Revett has in the past and may in the future, engage in hedging activities in order to protect the price of copper and silver that it has produced or will produce in future periods. These hedging activities are limited to less than 50% of Revett’s planned production in any one month.
Revett is required by applicable accounting standards to fair value (i.e., mark to market) the amount of the accounts receivable that has been shipped and provisionally priced, but for which final prices have not yet been determined. At each month end, Revett then adjusts its revenue to account for future prices. In order to do this, Revett must estimate the future prices that will prevail when the final prices are determined. Revett uses future contract prices in effect as at the end of each month to estimate these prices.
Forward sales with Revett’s customer that have not been shipped are designated as normal purchases and sales under applicable accounting standards and are not marked to market. Revett had no outstanding contracts to sell copper or silver$1.2 million at December 31, 2014.2015 to approximately $0.4 million at March 31, 2016. During the three months ended March 31, 2016, the net cash used in operating activities was approximately $0.8 million, which was $0.4 million less than the net cash used in operating activities during the same period in the prior year. Net cash utilized by financing activities during 2016 included approximately $0.1 million cumulative preferred stock dividends paid.
Quantitative and Qualitative Disclosures about Market Risk.Risk
Revett’s earningsMines Management’s cash balances and its long term investment certificates of deposit are denominated in U.S. dollars and held in local and national banking institutions. Mines Management manages the timing of cash flowrequired for review of the permitting and engineering of the Montanore Project and for general corporate purposes utilizing its money market account. Mines Management’s policy is to invest only in government securities rated “investment grade” or better.
The market prices of base and precious metals such as silver and copper fluctuate widely and are significantly affected by changes innumerous factors beyond the control of any mining company. These factors include expectations with regard to the rate of inflation, the exchange rates of the U.S. dollar and other currencies, interest rates, global or regional political, economic or banking crises, and a number of other factors. If the market price of silver or copper should decrease, the value of Mines Management’s Montanore Project could decline and silver. The prices of both metals can fluctuate widely andMines Management might not be able to recover its investment in that project. Any determination to develop or construct a mine would be made long before the first revenues from production would be received. Price fluctuations between the time that such decisions are influenced by numerous factors such as demand, production levels, and world political and economic eventsmade and the strengthcommencement of production could affect the economics of the US dollar relative to other currencies. During the past eighteen years the average annual price of copper has ranged from a low of $0.71 per pound to a high of $4.00 per pound. Average annual silver prices over this same period have ranged from a low of $3.95 per ounce to a high of $35.11. As disclosed elsewhere herein, it is unlikely mining activities at Troy will resume and should the price of copper or silver remain depressed, the exploration and development of Rock Creek could be at risk.mine.
Revett has approximately $750,000 cash on hand as of the date of this proxy statement/prospectus. Approximately $0.8 million of Revett’s cash equivalents were in the form of savings deposit denominated in U.S. dollars issued by a major Canadian chartered bank at December 31, 2014.
Changes in and Disagreements with Accountants on Accounting and Financial Disclosure.
There were no changes in or disagreements with the Revett’s accountants on accounting and financial disclosure during the year ended December 31, 2014.
Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters.Matters
Beneficial ownership is determined in accordance with the rules of the SEC and generally includes voting or investment power with respect to securities. Except as indicated by footnote, and except for community property laws where applicable, the persons named in the tables below have sole voting and investment power with respect to all shares of Mines Management common stock shown as beneficially owned by them. The percentage of beneficial ownership for each holder is based on 35,796,927 shares of Mines Management common stock outstanding as of June 24, 2016 plus, if any, the number of shares of Mines Management common stock underlying options currently exercisable by the holder or exercisable by the holder within 60 days following June 24, 2016.
Security Ownership of Certain Beneficial Owners.Owners
The following table sets forth information regarding beneficial owners of more than 5% of Mines Management common stock as of March 30, 2015June 24, 2016, except for the namesMines Management named executive officer and addressdirector who holds more than 5% of Mines Management common stock who is included in the subsequent table. The information in these tables is taken from or based upon ownership filings with the SEC made by or on behalf of such persons or upon information provided by or on behalf of such persons to Mines Management.
Shares Beneficially Owned | ||||||||
Name and Address of Beneficial Owner | Amount and Nature of Beneficial Ownership | Percent of Class (%) | ||||||
Silver Wheaton Corp.(1) | 2,500,000 | 6.98 | % |
(1) | This information is based on a Schedule 13G filed with the SEC by Silver Wheaton Corp. on November 9, 2007. The address of this reporting person is Suite 3150, 666 Burrard Street, Vancouver, British Columbia V6C 2X8, Canada. |
Security Ownership of Directors and numberManagement
The following table contains information about the beneficial ownership of shares beneficially owned by persons other than Revett’sMines Management common stock as of June 24, 2016 by:
Name of Beneficial Owner Address of Owner | Percent | Class of Security | Amount and Nature of Ownership (all direct unless otherwise noted) of Class | |||||||||
Silver Wheaton Corp. 666 Burrard Street, Suite 3400 Vancouver, British Columbia V6C 2X8 | 13.5 | % | common stock | 5,285,979 | ||||||||
Urion Holdings (Malta) Limited c/o Trafigura Beheer B.V. Van Heuven Goedhartlaan 937 P.O. Box 74135 1070 BC Amsterdam, The Netherlands | 10.6 | % | common stock | 4,147,435 | (1) |
Name of Beneficial Owner(1) | Amount and Nature of Beneficial Ownership(2) | Percent of Class (%)(3) | ||||||
Glenn M. Dobbs | 2,636,102 | (4) | 7.25 | % | ||||
Roy G. Franklin | 451,610 | (5) | 1.26 | % | ||||
Robert L. Russell | 562,980 | (6) | 1.55 | % | ||||
Jerry G. Pogue | 410,000 | (7) | 1.13 | % | ||||
Russell C. Babcock | 381,090 | (8) | 1.06 | % | ||||
Douglas D. Dobbs | 1,008,025 | (9) | 2.75 | % | ||||
Nicole Altenburg | 182,132 | (10) | 0.51 | % | ||||
Total of All Executive Officers and Directors (7 individuals) | 5,631,939 | (11) | 14.60 | % |
(1) |
(2) | All shares of common stock |
Security Ownership of Management.The following table sets forth as of March 30, 2015 the names of, and number of shares of Revett’s outstanding common stock beneficially owned by Revett’s directors and executive officers, and the number of shares owned by Revett’s directors and officers as a group.
(3) | ||||||
|
| |||||
| Mines Management common stock | |||||
| outstanding as of June 24, 2016 plus, if any, the appropriate number of shares of Mines Management common stock | |||||
| ||||||
| ||||||
| ||||||
| ||||||
| ||||||
| ||||||
| ||||||
underlying options currently exercisable by such holder or exercisable by such holder within 60 days following June 24, 2016. For the “Total of All |
(4) | Consists of |
(5) | Consists of |
(6) | Consists of |
(7) | Consists of |
(8) | Consists of |
(9) | Consists of |
(10) |
(11) | Consists of (i) 2,844,318 shares of Mines Management common stock and (ii) options to purchase 2,787,621 shares of Mines Management common stock at various exercise prices. |
Equity Compensation Plan Information. The following table sets forth certain information concerning options that have been granted pursuant to the Revett Mining Company, Inc. Incentive Plan as of December 31, 2014.
Revett Mining Company, Inc. Incentive Stock Option Plans | ||||||||||||
Number of Shares to be issued upon exercise | Weighted average exercise price of outstanding options, | Number of shares remaining available for issuance under the plan at year end | ||||||||||
Revett Mining Company, Inc. Incentive Plan (approved by stockholders) | 3,076,500 | $ | 2.50 | 1,930,039 |
This table does not include 2,249,349 stock purchase warrants at a $1.00 exercise price issued to investors and outstanding at December 31, 2014.
The following unaudited pro forma condensed combined financial statements give effect to the proposed merger and represent the combined company’s unaudited pro forma condensed combined balance sheet as of December 31, 2014 and unaudited pro forma condensed combined statement of operations for the year ended December 31, 2014. The unaudited pro forma condensed combined balance sheet gives effect to the proposed merger as if it had occurred on the date of such balance sheet. The accompanying unaudited pro forma condensed combined statement of operations gives effect to the proposed merger as if it had occurred on January 1, 2014.
For accounting purposes, the transaction will be accounted for using the acquisition method, pursuant to which assets and liabilities are recorded at fair values. The valuation of Hecla’s shares to be given as consideration was based upon an assumed closing price of Hecla’s common stock of $3.23 on March 25, 2015. See Note 2 to these unaudited pro forma condensed combined financial statements for additional information on the estimated purchase consideration and the impact thereon of changes in the per share price of Hecla’s stock.
The unaudited pro forma condensed combined balance sheet and statement of operations should be read in conjunction with the historical financial statements of Hecla and Revett including the notes thereto, which are incorporated by reference or included elsewhere in this registration statement.
The unaudited pro forma condensed combined financial statements are not necessarily indicative of the operating results or financial condition that would have been achieved if the proposed merger had been completed on the dates or for the periods presented, nor do they purport to project the results of operations or financial position of the combined entities for any future period or as of any future date. Actual amounts recorded upon consummation of the proposed merger will likely differ from those recorded in the unaudited pro forma condensed combined financial statements. The unaudited pro forma condensed combined financial statements do not reflect any special items such as integration costs or operating synergies that may be realized as a result of the proposed merger.
Hecla Mining Company
Unaudited Pro Forma Condensed Combined Balance Sheet
As of December 31, 2014
(in thousands)
As of December 31, 2014 | ||||||||||||||||||
Hecla | Revett | Acquisition adjustments | Pro forma combined | |||||||||||||||
(Notes 2 and 3) | ||||||||||||||||||
Assets: | ||||||||||||||||||
Cash and cash equivalents | $ | 209,665 | $ | 2,896 | $ | (425 | ) | (a) | $ | 212,136 | ||||||||
Accounts receivable | 34,880 | 8 | — | 34,888 | ||||||||||||||
Inventories | 47,473 | 4,573 | — | 52,046 | ||||||||||||||
Current deferred income taxes | 12,029 | — | — | 12,029 | ||||||||||||||
Other current assets | 12,312 | 325 | — | 12,637 | ||||||||||||||
|
|
|
|
|
|
|
| |||||||||||
Total current assets | 316,359 | 7,802 | (425 | ) | 323,736 | |||||||||||||
Non-current investments | 4,920 | — | (531 | ) | (b) | 4,389 | ||||||||||||
Non-current restricted cash and investments | 883 | 6,551 | — | 7,434 | ||||||||||||||
Properties, plants, equipment and mineral interests, net | 1,831,564 | 16,288 | (226 | ) | (c) | 1,847,626 | ||||||||||||
Non-current deferred income taxes | 98,923 | — | — | 98,923 | ||||||||||||||
Other non-current assets | 9,415 | 733 | — | 10,148 | ||||||||||||||
|
|
|
|
|
|
|
| |||||||||||
Total assets | $ | 2,262,064 | $ | 31,374 | $ | (1,182 | ) | $ | 2,292,256 | |||||||||
|
|
|
|
|
|
|
| |||||||||||
Liabilities: | ||||||||||||||||||
Accounts payable and other current liabilities | $ | 79,863 | $ | 1,805 | — | $ | 81,668 | |||||||||||
Current portion of capital leases and notes payable | 9,491 | 4,377 | — | 13,868 | ||||||||||||||
Current portion of accrued reclamation and closure costs | 1,631 | — | — | 1,631 | ||||||||||||||
|
|
|
|
|
|
|
| |||||||||||
Total current liabilities | 90,985 | 6,182 | — | 97,167 | ||||||||||||||
Accrued reclamation and closure costs | 55,619 | 4,769 | — | 60,388 | ||||||||||||||
Deferred tax liabilities | 153,300 | — | — | 153,300 | ||||||||||||||
Long-term debt and capital leases | 512,129 | — | — | 512,129 | ||||||||||||||
Other non-current liabilities | 53,057 | — | — | 53,057 | ||||||||||||||
|
|
|
|
|
|
|
| |||||||||||
Total liabilities | 865,090 | 10,951 | — | 876,041 | ||||||||||||||
|
|
|
|
|
|
|
| |||||||||||
Shareholders’ Equity: | ||||||||||||||||||
Series B preferred stock | 39 | — | 39 | |||||||||||||||
Common stock | 92,382 | 393 | 1,563 | (d) | 93,945 | |||||||||||||
(393 | ) | (e) | ||||||||||||||||
Capital surplus | 1,486,750 | 91,937 | 18,634 | (d) | 1,505,384 | |||||||||||||
(91,937 | ) | (e) | ||||||||||||||||
Accumulated deficit | (141,306 | ) | (71,907 | ) | 71,907 | (e) | (142,253 | ) | ||||||||||
(425 | ) | (a) | ||||||||||||||||
(522 | ) | (b) | ||||||||||||||||
Accumulated other comprehensive loss, net | (32,031 | ) | — | (9 | ) | (b) | (32,040 | ) | ||||||||||
Less treasury stock | (8,860 | ) | — | — | (8,860 | ) | ||||||||||||
|
|
|
|
|
|
|
| |||||||||||
Total shareholders’ equity | 1,396,974 | 20,423 | (1,182 | ) | 1,416,215 | |||||||||||||
|
|
|
|
|
|
|
| |||||||||||
Total liabilities and shareholders’ equity | $ | 2,262,064 | $ | 31,374 | $ | (1,182 | ) | $ | 2,292,256 | |||||||||
|
|
|
|
|
|
|
|
See accompanying notes2015, Mines Management had outstanding stock options that had been granted under its 2003 Stock Option Plan for employees, officers, consultants and affiliates of Mines Management, its 2007 Equity Incentive Plan for employees, directors (including any non-employee directors), consultants, affiliates or persons providing services to these unaudited pro forma condensed combined financial statements.
Hecla Mining Company
Unaudited Pro Forma Condensed Combined StatementMines Management and its 2012 Equity Incentive Plan, all of Operations
Forwhich were approved by stockholders. The following table contains information, as of the end of Mines Management’s fiscal year ended December 31, 2014
(dollars2015, with respect to its 2003 Stock Option Plan, 2007 Equity Incentive Plan and shares in thousands, except per share amounts)2012 Equity Incentive Plan.
Year ended December 31, 2014 | ||||||||||||||||
Hecla | Revett | Acquisition adjustments | Pro forma combined | |||||||||||||
(Notes 2, 3 and 4) | ||||||||||||||||
Sales of products | $ | 500,781 | $ | 6 | — | $ | 500,787 | |||||||||
|
|
|
|
|
|
|
| |||||||||
Cost of sales and other direct production costs | 304,446 | — | — | 304,446 | ||||||||||||
Depreciation, depletion and amortization | 111,134 | 110 | — | 111,243 | ||||||||||||
|
|
|
|
|
|
|
| |||||||||
415,580 | 110 | — | 415,690 | |||||||||||||
|
|
|
|
|
|
|
| |||||||||
Gross profit | 85,201 | (104 | ) | — | 85,097 | |||||||||||
|
|
|
|
|
|
|
| |||||||||
General and administrative | 31,538 | 3,519 | — | 35,057 | ||||||||||||
Exploration | 17,698 | 951 | — | 18,649 | ||||||||||||
Pre-developemnt | 1,969 | — | — | 1,969 | ||||||||||||
Impairment of property, plant and equipment | — | 54,724 | (f) | 54,724 | ||||||||||||
Provision for closed operations and environmental matters | 10,098 | — | — | 10,098 | ||||||||||||
Other operating expenses | 2,270 | 4,282 | — | 6,552 | ||||||||||||
|
|
|
|
|
|
|
| |||||||||
Income from operations | 21,628 | (63,580 | ) | — | (41,952 | ) | ||||||||||
|
|
|
|
|
|
|
| |||||||||
Other income (expense): | ||||||||||||||||
Net foreign exchange gain | 11,535 | — | — | 11,535 | ||||||||||||
Gain on derivative contracts | 9,134 | — | — | 9,134 | ||||||||||||
Interest expense, net of amounts capitalized | (26,775 | ) | (118 | ) | — | (26,893 | ) | |||||||||
Other income (expense) | (2,938 | ) | 1,775 | — | (1,163 | ) | ||||||||||
|
|
|
|
|
|
|
| |||||||||
(9,044 | ) | 1,657 | — | (7,387 | ) | |||||||||||
|
|
|
|
|
|
|
| |||||||||
Income before income taxes | 12,584 | (61,923 | ) | — | (49,339 | ) | ||||||||||
Income tax benefit (provision) | 5,240 | — | — | 5,240 | ||||||||||||
|
|
|
|
|
|
|
| |||||||||
Net income | 17,824 | (61,923 | ) | — | (44,099 | ) | ||||||||||
Preferred stock dividends | (552 | ) | — | — | (552 | ) | ||||||||||
|
|
|
|
|
|
|
| |||||||||
Income applicable to common shareholders | $ | 17,272 | $ | (61,923 | ) | $ | — | $ | (44,651 | ) | ||||||
|
|
|
|
|
|
|
| |||||||||
Basic and diluted income per common share after preferred stock dividends | $ | 0.05 | $ | (0.12 | ) | |||||||||||
Weighted average number of common shares outstanding—basic | 353,442 | 6,253 | (d) | 359,695 | ||||||||||||
Weighted average number of common shares outstanding—diluted | 357,435 | 6,253 | (d) | 363,688 |
See accompanying notes to these unaudited pro forma condensed combined financial statements.
Notes to Unaudited Pro Forma Condensed Combined Financial Statements
Note 1. Basis of presentation
Hecla Mining Company (“Hecla”) and Revett Mining Company (“Revett”) entered into a merger agreement (“merger” or “acquisition”) pursuant to which Hecla will acquire all of the issued and outstanding common shares of Revett (see Note 2 for more information). The merger is accounted for as a business combination. The unaudited pro forma condensed combined financial statements are prepared on that basis, and are presented to give effect to the acquisition of all of the outstanding common shares of Revett by Hecla. The unaudited pro forma condensed combined financial statements represent the combined company’s unaudited pro forma condensed combined balance sheet as of December 31, 2014, and unaudited pro forma condensed combined statement of operations for the year ended December 31, 2014. The unaudited pro forma condensed combined balance sheet gives effect to the acquisition as if it occurred on the date of such balance sheet. The unaudited pro forma condensed combined statement of operations gives effect to the acquisition as if it occurred on January 1, 2014. Historical information for Hecla and Revett has been derived from historical consolidated financial statements, which were prepared and presented in accordance with United States Generally Accepted Accounting Principles (“GAAP”).
The unaudited pro forma condensed combined financial statements are not necessarily indicative of the operating results or financial condition that would have been achieved if the merger had been completed on the dates or for the periods presented, nor do they purport to project the results of operations or financial position of the combined entities for any future period or as of any future date. Actual amounts recorded upon consummation of the merger will likely differ from those recorded in the unaudited pro forma condensed combined financial statements. The unaudited pro forma condensed combined financial statements do not reflect any special items such as integration costs or operating synergies that may be realized as a result of the merger.
The pro forma adjustments and allocations of the estimated consideration transferred are based on preliminary estimates of the fair value of assets to be acquired, liabilities to be assumed, and consideration to be transferred. As of the date of this registration statement, the merger has not yet been completed. The final determination of the consideration transferred and the related allocation will be completed after asset and liability valuations are finalized as of the date of completion of the merger. Changes to these adjustments may materially affect both the estimated value of the consideration transferred and the preliminary estimated fair value to the assets and liabilities as presented in the unaudited pro forma condensed combined financial statements.
In preparing the unaudited pro forma condensed combined balance sheet and statement of operations in accordance with GAAP, the following historical information was used:
The unaudited pro forma condensed combined balance sheet and statement of operations should be read in conjunction with the historical financial statements including the notes thereto, as listed above, which are incorporated by reference or included elsewhere herein.
Note 2. Summary of the acquisition of Revett
On March 26, 2015, Hecla and Revett entered into a merger agreement pursuant to which Hecla would acquire all of the issued and outstanding common shares of Revett for consideration valued at $0.52 per share.
Under the terms of the merger, each holder of Revett common shares will receive 0.1622 of a Hecla share per Revett share. Revett had 38,548,989 shares issued and outstanding common shares as of March 26, 2015, excluding 725,000 shares held by a wholly-owned subsidiary of Hecla which would be cancelled in the merger. For financial accounting purposes, the purchase price allocation is based upon the assumption of Hecla issuing 6,252,646 shares of Hecla common stock for total consideration valued at $20.2 million. The pro forma value of Hecla stock issued as consideration was based upon the closing price at March 25, 2015, the last full day before the merger agreement was entered into, of $3.23 per share. The closing price of Hecla’s common stock was $3.33 at April 15, 2015.
The following represents the preliminary estimated allocation of the consideration transferred as if the merger had occurred on December 31, 2014:
(US$, in thousands) | ||||
Consideration: | ||||
Hecla stock issued (6.3M shares @ $3.23 per share) | $ | 20,196 | ||
|
| |||
Fair value of net assets acquired: | ||||
Assets: | ||||
Cash | 2,896 | |||
Receivables | 8 | |||
Inventories | 4,573 | |||
Property, plant, and equipment and mineral interests | 16,061 | |||
Non-current restricted cash and investments | 6,551 | |||
Other assets | 1,058 | |||
|
| |||
Total assets | 31,147 | |||
|
| |||
Liabilities: | ||||
Accounts payable | 987 | |||
Payroll liabilities | 711 | |||
Income taxes payable | 107 | |||
Current portion of capital lease obligations and notes payable | 4,377 | |||
Accrued reclamation and closure costs | 4,769 | |||
|
| |||
Total liabilities | 10,951 | |||
|
| |||
Net assets | $ | 20,196 | ||
|
|
The actual value of consideration transferred will be based on the market price of Hecla’s common stock on the date the merger is consummated. A 10% change in the price per share of Hecla stock would result in a $2.0 million change in the amount of total consideration transferred in the merger.
Note 3. Effect of the merger on the unaudited pro forma condensed combined balance sheet
The unaudited pro forma condensed combined balance sheet includes the following adjustments:
a) To record payment of estimated acquisition related costs of $0.4 million. The adjustment for the estimated acquisition related costs is not reflected in the pro forma statement of operations, as it is considered to be non-recurring in nature.
b) To record cancelation of 725,000 shares of Revett’s common stock held by a wholly-owned subsidiary of Hecla.
c) To recognize the preliminary estimated fair value of Revett’s assets acquired and liabilities assumed in the merger. The adjustment includes the assumption that the allocation of the estimated difference between
consideration and the net fair value of assets acquired and liabilities assumed will be recorded to value beyond proven and probable reserves, with no amount allocated to goodwill. This allocation is preliminary and is subject to change due to several factors including: (1) detailed valuations of assets and liabilities which have not been completed as of the date of this registration statement; (2) subsequent changes in the fair values of Revett’s assets and liabilities up to the closing date of the merger; and (3) an assessment of the extent by which the merged company may realize Revett’s deferred tax assets, which have a full valuation allowance in Revett’s historical financial statements. These changes will not be known until after the closing date of the merger.
d) To record issuance of 6,252,646 shares of Hecla common stock to Revett shareholders, valued at $3.23 per share or $20.2 million, as discussed above.
e) To eliminate Revett’s equity accounts.
Note 4. The effect of the merger on the unaudited pro forma condensed combined statement of operations
The following is information on the unaudited pro forma condensed combined statement of operations:
f) Revett’s consolidated statement of operations and comprehensive income for the year ended December 31, 2014 included a $54.7 million expense for impairment of property, plant, and equipment. Revett recognized the impairment as of December 31, 2014, with the estimated fair value of long-lived assets based on the merger agreement between Hecla and Revett. Although the impairment is not eliminated through an adjustment to the unaudited pro forma condensed combined statement of operations, it is a nonrecurring item and is not reflective of the operating results for the combined entities after consummation of the merger.
Plan Category Equity compensation plans approved by security holders Equity compensation plans not approved by security holders Total Number of
securities to be
issued upon
exercise of
outstanding
options (a) Weighted-
average
exercise price
of outstanding
options (b) Number of securities
remaining available for
future issuance under
equity compensation plans
(excluding securities
reflected in column (a)) (c) 5,107,000 $ 0.57 736,000 — N/A — 5,107,000 $ 0.57 736,000
As of the date of this proxy statement/prospectus, Revett’sMines Management’s board of directors does not know of any matters that will be presented for consideration at the special meeting other than as described in this proxy statement/prospectus. If any other matters come before the meeting or any adjournments or postponements thereof and are voted upon, the enclosed proxies will confer discretionary authority on the individuals named as proxies to vote the shares represented by the proxies as to any other matters. The individuals named as proxies intend to vote in accordance with their best judgment as to any other matters.
The SEC has adopted rules that permit companies and intermediaries such as brokers to satisfy delivery requirements for proxy statements and annual reports with respect to two or more stockholders sharing the same address by delivering a single proxy statement or annual report, as applicable, addressed to those stockholders. This process, which is commonly referred to as “householding,” potentially provides extra convenience for stockholders and cost savings for companies.
If, at any time, you no longer wish to participate in householding and would prefer to receive a separate proxy statement/prospectus, or if you are receiving multiple copies of this proxy statement/prospectus and wish to receive only one, please contact RevettMines Management at its address identified below. RevettMines Management will promptly deliver, upon oraltelephonic or written request, a separate copy of this proxy statement/prospectus to any stockholder residing at an address to which only one copy was mailed. Requests for additional copies should be directed to: Revett Mining Company,Mines Management, Inc., 11115 East Montgomery,905 W. Riverside Ave., Suite G,311, Spokane, Valley, Washington 99206,99201, attention of Corporate Secretary (509) 921-2294.or by contacting Mines Management by telephone at 509-838-6050.
WHERE YOU CAN FIND MORE INFORMATION
RevettMines Management and Hecla file annual, quarterly and current reports, proxy statements and other information with the SEC. You may read and copy any reports, statements or other information filed by Hecla or RevettMines Management at the SEC’s Public Reference Room at 100 F Street, N.E., Washington, D.C. 20549. Please call the SEC at 1-800-SEC-0330 for further information on the operation of the Public Reference Room. You can also inspect reports, proxy statements and other information about Hecla at the offices of the New York Stock Exchange, 20 Broad Street, New York, New York 10005.
You may also obtain copies of this information by mail from the Public Reference Section of the SEC, 100 F Street, N.E., Room 1580, Washington, D.C. 20549, at prescribed rates, or from commercial document retrieval services.
The SEC maintains a website that contains reports, proxy statements and other information, including those filed by Hecla and Revett,Mines Management, at http://www.sec.gov. You may also access the SEC filings and obtain other information about Hecla through the website maintained by Hecla which is http://www.hecla-mining.com and about RevettMines Management through the website maintained by RevettMines Management which is http://www.revettmining.com.www.minesmanagement.com. The information contained in Hecla’s website and Mines Management’s website is not incorporated by reference into this proxy statement/prospectus.
As allowed by SEC rules, this proxy statement/prospectus does not contain all the information you can find in the registration statement on Form S-4 filed by Hecla to register the shares of Hecla common stock to be issued in connection with the merger and the exhibits to the registration statement. The SEC allows Hecla to “incorporate by reference” information into this proxy statement/prospectus, which means that it can disclose important information to you by referring you to other documents filed separately with the SEC. The information incorporated by reference is deemed to be part of this proxy statement/prospectus, except for any information
superseded by information in this proxy statement/prospectus. This proxy statement/prospectus incorporates by reference the documents set forth below that Hecla (Commission file number 1-8491) has previously filed with the SEC. These documents contain important information about Hecla and its financial condition.
Nothing in this proxy statement/prospectus shall be deemed to incorporate information furnished, but not filed, with the SEC, including pursuant to Item 2.02 or Item 7.01 of Form 8-K and corresponding information furnished under Item 9.01 of Form 8-K or included as an exhibit. Any statement contained in a document incorporated or deemed to be incorporated herein by reference, or contained in this proxy statement/prospectus, shall be deemed to be modified or superseded for purposes of this proxy statement/prospectus to the extent that a statement contained herein or in any other subsequently dated or filed document that also is or is deemed to be incorporated by reference herein modifies or supersedes such statement. Any such statement so modified or superseded shall not be deemed, except as so modified or superseded, to constitute a part of this proxy statement/prospectus.
All documents filed by Hecla pursuant to Section 13(a), 13(c), 14 or 15(d) of the Securities Exchange Act, of 1934, as amended, from the date of this proxy statement/prospectus to the date of the special meeting shall also be deemed to be incorporated herein by reference.
You may also obtain copies of any document incorporated in this proxy statement/prospectus, without charge, by requesting them in writing, by telephone or by e-mail from Hecla at the following address:
Hecla Mining Company
6500 North Mineral Drive, Suite 200
Coeur d’Alene, Idaho 83815-9408
Attention: Investor Relations
(208) 769-4100
http://www.hecla-mining.com
You may also obtain additional copies of this proxy statement/prospectus and the proxy card, and may ask any questions about the merger or the merger agreement, by contacting Morrow & Co., LLC at the following address:
Morrow & Co., LLC
470 West Ave. - 3rd Floor
Stamford, CT 06902
Stockholders call: (877) 787-9239
Banks and Brokers call: (203) 658-9400
Neither Hecla nor RevettMines Management has authorized anyone to give any information or make any representation about the merger or the special meeting that is different from, or in addition to, that contained in this proxy statement/prospectus or in any of the materials that are incorporated by reference into this proxy statement/prospectus. Therefore, if anyone does give you information of this sort, you should not rely on it. If you are in a jurisdiction where offers to exchange or sell, or solicitations of offers to exchange or purchase, the securities offered by this proxy statement/prospectus are unlawful, or if you are a person to whom it is unlawful to direct these types of activities, then the offer presented in this proxy statement/prospectus does not extend to you. The information contained in this proxy statement/prospectus speaks only as of the date of this document unless the information specifically indicates that another date applies.
Please direct all inquiries to:
If you have any questions about the information contained in this document or require assistance in completing your proxy form, please contact Mines Management’s proxy solicitation agent at:
Morrow & Co., LLC
470 West Ave. - 3rd Floor
Stamford, CT 06902
Stockholders call: 1-877-787-9239
Banks and Brokers call: 1-203-658-9400
CONSOLIDATED FINANCIAL STATEMENTS OF REVETT MINING COMPANY,MINES MANAGEMENT, INC.
CONSOLIDATED FINANCIAL STATEMENTS: | ||||
F-2 | ||||
Consolidated | F-3 | |||
F-4 | ||||
F-5 | ||||
F-6 | ||||
Consolidated statements of cash flows for the years ended December 31, 2015 and December 31, 2014 | F-7 | |||
Notes to | F-8 | |||
CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED): | ||||
Condensed consolidated balance sheets (unaudited) as of March 31, 2016 and December 31, 2015 | F-17 | |||
F-18 | ||||
F-19 | ||||
F-20 | ||||
F-21 |
Report of Independent Registered Public Accounting FirmREPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
Board of Directors and ShareholdersStockholders of
Revett Mining Company,Mines Management, Inc.
Spokane Valley, WA and Subsidiaries
We have audited the accompanying consolidated balance sheets of Revett Mining Company,Mines Management, Inc. (formerly Revett Minerals, Inc.)and subsidiaries (the Company) as of December 31, 20142015 and 20132014, and the related consolidated statements of operations, and comprehensive loss, shareholders’stockholders’ equity, and cash flows for the years then ended. These consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits.
We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the auditaudits to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. Our audits included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements,statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the consolidated financial position of Revett Mining Company,Mines Management, Inc. atand subsidiaries as of December 31, 2015 and 2014, and 2013, and the consolidated results of itstheir operations and itstheir cash flows for the years then ended in conformity with accounting principlesU.S. generally accepted in the United States of America.accounting principles.
The accompanying consolidated financial statements have been prepared assuming that the Company will continue as a going concern. As described in Note 1 to the consolidated financial statements, the Company has suffered recurring losses from operations and has a net capital deficiency thatdoes not have sufficient cash on hand to fund operations through the end of 2016. These matters raise substantial doubt about its ability to continue as a going concern. Management’s plans in regard to these matters are also described in Notes 1 and 20.Note 1. The consolidated financial statements do not include any adjustments that might result from the outcome of this uncertainty.
/s/ BDO USA, LLPTanner LLC
Spokane, WASalt Lake City, Utah
March 27, 201530, 2016
Revett Mining Company,Mines Management, Inc. and Subsidiaries
(expressed in thousands of United States dollars except share and per share amounts)CONSOLIDATED BALANCE SHEETS
December 31, | ||||||||
2014 | 2013 | |||||||
Assets | ||||||||
Current Assets | ||||||||
Cash and cash equivalents | $ | 2,896 | $ | 7,951 | ||||
Other receivables | 8 | 1,164 | ||||||
Inventories | 4,573 | 4,133 | ||||||
Prepaid expenses and deposits | 325 | 414 | ||||||
|
|
|
| |||||
Total current assets | 7,802 | 13,662 | ||||||
Property, plant, and equipment (net) | 16,288 | 65,108 | ||||||
Restricted cash | 6,551 | 6,542 | ||||||
Available for sale securities | — | 600 | ||||||
Other long term assets | 733 | 736 | ||||||
|
|
|
| |||||
Total assets | $ | 31,374 | $ | 86,648 | ||||
|
|
|
| |||||
Liabilities and shareholders’ equity | ||||||||
Current liabilities | ||||||||
Trade accounts payable | $ | 987 | $ | 954 | ||||
Payroll liabilities | 711 | 604 | ||||||
Income, property and mining taxes | 107 | 588 | ||||||
Royalty payable | — | 19 | ||||||
Current portion of capital lease obligations and notes payable | 4,377 | 925 | ||||||
|
|
|
| |||||
Total current liabilities | 6,182 | 3,090 | ||||||
Long-term portion of capital lease obligations and notes payable | — | 364 | ||||||
Reclamation liability | 4,769 | 4,613 | ||||||
Deferred income taxes | — | 25 | ||||||
|
|
|
| |||||
Total liabilities | 10,951 | 8,092 | ||||||
Commitments and contingencies (note 15) | ||||||||
Shareholders’ equity | ||||||||
Preferred stock, $0.01 par value, 25,000,000 authorized, no shares issued and outstanding | — | — | ||||||
Common stock, $0.01 par value 100,000,000 authorized, 39,273,989 and 34,596,387 shares issued and outstanding at December 31, 2014 and 2013, respectively | 393 | 88,495 | ||||||
Additional paid in capital | 91,937 | — | ||||||
Accumulated other comprehensive income | — | 45 | ||||||
Retained earnings (accumulated deficit) | (71,907 | ) | (9,984 | ) | ||||
|
|
|
| |||||
20,423 | 78,556 | |||||||
|
|
|
| |||||
Total liabilities and shareholders’ equity | $ | 31,374 | $ | 86,648 | ||||
|
|
|
|
December 31, | ||||||||
2015 | 2014 | |||||||
Assets | ||||||||
CURRENT ASSETS: | ||||||||
Cash and cash equivalents | $ | 1,203,048 | $ | 3,862,462 | ||||
Interest receivable | 4,459 | 4,484 | ||||||
Prepaid expenses and deposits | 335,201 | 307,951 | ||||||
|
|
|
| |||||
Total current assets | 1,542,708 | 4,174,897 | ||||||
|
|
|
| |||||
PROPERTY AND EQUIPMENT: | ||||||||
Buildings and leasehold improvements | 836,454 | 836,454 | ||||||
Equipment | 1,922,038 | 6,361,318 | ||||||
Office equipment | 344,657 | 343,897 | ||||||
|
|
|
| |||||
3,103,149 | 7,541,669 | |||||||
Less accumulated depreciation | 2,627,864 | 6,997,153 | ||||||
|
|
|
| |||||
475,285 | 544,516 | |||||||
|
|
|
| |||||
OTHER ASSETS: | ||||||||
Available-for-sale securities | 975 | 2,467 | ||||||
Reclamation deposits | 1,184,966 | 1,184,966 | ||||||
|
|
|
| |||||
1,185,941 | 1,187,433 | |||||||
|
|
|
| |||||
$ | 3,203,934 | $ | 5,906,846 | |||||
|
|
|
| |||||
Liabilities and Stockholders’ Equity | ||||||||
CURRENT LIABILITIES: | ||||||||
Accounts payable | $ | 389,973 | $ | 326,570 | ||||
Payroll and payroll taxes payable | 13,756 | 18,141 | ||||||
Dividends payable | 52,890 | 52,890 | ||||||
|
|
|
| |||||
Total current liabilities | 456,619 | 397,601 | ||||||
|
|
|
| |||||
LONG-TERM LIABILITIES: | ||||||||
Asset retirement obligation | 528,250 | 503,279 | ||||||
|
|
|
| |||||
Total liabilities | 984,869 | 900,880 | ||||||
|
|
|
| |||||
COMMITMENTS AND CONTINGENCIES | ||||||||
STOCKHOLDERS’ EQUITY: | ||||||||
Preferred stock—no par value, 10,000,000 shares authorized; Series B 6% convertible preferred shares—$1,000 stated value, 3,526 shares issued and outstanding | 3,526,000 | 3,526,000 | ||||||
Common stock—$0.001 par value, 100,000,000 shares authorized; 29,814,040 shares issued and outstanding | 29,814 | 29,814 | ||||||
Additional paid-in capital | 87,949,096 | 87,685,232 | ||||||
Accumulated deficit | (89,275,655 | ) | (86,226,382 | ) | ||||
Accumulated other comprehensive losses | (10,190 | ) | (8,698 | ) | ||||
|
|
|
| |||||
Total stockholders’ equity | 2,219,065 | 5,005,966 | ||||||
|
|
|
| |||||
$ | 3,203,934 | $ | 5,906,846 | |||||
|
|
|
|
See accompanying notes to the consolidated financial statements.
Revett Mining Company,Mines Management, Inc. and Subsidiaries
Consolidated Statements of Operations and Comprehensive Loss
(expressed in thousands of United States dollars except share and per share amounts)
Years Ended December 31, 2014 and 2013CONSOLIDATED STATEMENTS OF OPERATIONS
2014 | 2013 | |||||||
Revenues | $ | 6 | $ | 73 | ||||
Expenses: | ||||||||
Troy Mine suspension related costs | 4,282 | 12,141 | ||||||
Depreciation and depletion | 110 | 32 | ||||||
Exploration and development | 951 | 1,379 | ||||||
General & administrative: | ||||||||
Stock based compensation | 419 | 618 | ||||||
Other | 2,718 | 3,169 | ||||||
Gain on change in reclamation liability estimate | — | (2,276 | ) | |||||
Impairment of property, plant and equipment | 54,724 | — | ||||||
Accretion of reclamation liability | 382 | 476 | ||||||
|
|
|
| |||||
63,586 | 15,539 | |||||||
|
|
|
| |||||
Loss from operations | (63,580 | ) | (15,466 | ) | ||||
Other income (expenses): | ||||||||
Interest expense | (118 | ) | (662 | ) | ||||
Interest and other income | 1,346 | 29 | ||||||
Gain on warrant derivatives | — | 63 | ||||||
Gain (loss) on available for sale securities | 429 | (1,376 | ) | |||||
|
|
|
| |||||
Total other income (expenses) | 1,657 | (1,946 | ) | |||||
|
|
|
| |||||
Net loss before income taxes | (61,923 | ) | (17,412 | ) | ||||
Income tax benefit | ||||||||
Current income tax | — | (20 | ) | |||||
Deferred income tax | — | 5,857 | ||||||
|
|
|
| |||||
Net loss | $ | (61,923 | ) | $ | (11,575 | ) | ||
Other comprehensive income: | ||||||||
Unrealized (gain) loss on available for sale securities, net of tax | (45 | ) | 583 | |||||
|
|
|
| |||||
Comprehensive loss | $ | (61,968 | ) | $ | (10,992 | ) | ||
|
|
|
| |||||
Basic and diluted loss per share (note 18) | $ | (1.63 | ) | $ | (0.33 | ) | ||
|
|
|
| |||||
Weighted average number of basic and diluted shares outstanding | 38,095,792 | 34,592,121 | ||||||
|
|
|
|
Years Ended December 31, | ||||||||
2015 | 2014 | |||||||
REVENUE: | ||||||||
Royalties | $ | — | $ | 19,566 | ||||
|
|
|
| |||||
OPERATING EXPENSES: | ||||||||
General and administrative | 1,833,201 | 2,404,660 | ||||||
Technical services | 1,524,774 | 2,027,758 | ||||||
Depreciation | 69,992 | 760,930 | ||||||
Legal, accounting, and consulting | 1,065,560 | 1,194,789 | ||||||
Fees, filing, and licenses | 188,940 | 216,113 | ||||||
Total operating expenses | 4,682,467 | 6,604,250 | ||||||
|
|
|
| |||||
LOSS FROM OPERATIONS | (4,682,467 | ) | (6,584,684 | ) | ||||
|
|
|
| |||||
OTHER INCOME: | ||||||||
Gain from sale of property and equipment | 1,850,000 | 122,600 | ||||||
Interest income (expense), net | (5,246 | ) | 11,856 | |||||
|
|
|
| |||||
Total other income | 1,844,754 | 134,456 | ||||||
|
|
|
| |||||
NET LOSS | (2,837,713 | ) | (6,450,228 | ) | ||||
CUMULATIVE PREFERRED STOCK DIVIDENDS | (211,560 | ) | (89,455 | ) | ||||
|
|
|
| |||||
NET LOSS ATTRIBUTABLE TO COMMON STOCKHOLDERS | $ | (3,049,273 | ) | $ | (6,539,683 | ) | ||
|
|
|
| |||||
NET LOSS PER SHARE (basic and diluted) | $ | (0.10 | ) | $ | (0.22 | ) | ||
|
|
|
| |||||
WEIGHTED AVERAGE COMMON SHARES OUTSTANDING (basic and diluted) | 29,814,040 | 29,398,634 | ||||||
|
|
|
|
See accompanying notes to the consolidated financial statements.
Revett Mining Company,Mines Management, Inc. and Subsidiaries
Consolidated Statements of Cash FlowsCONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS
(expressed in thousands of United States dollars)
Years ended December 31, 2014 and 2013
2014 | 2013 | |||||||
Cash flows from operating activities: | ||||||||
Net loss | $ | (61,923 | ) | $ | (11,575 | ) | ||
Adjustment to reconcile net loss to net cash used in operating activities: | ||||||||
Depreciation and depletion | 110 | 32 | ||||||
Accretion of reclamation liability | 382 | 476 | ||||||
Deferred financing fee amortization | 3 | 556 | ||||||
Stock based compensation | 419 | 618 | ||||||
Gain on change in reclamation liability estimate | — | (2,276 | ) | |||||
Gain on disposal of fixed assets | — | (22 | ) | |||||
Deferred income tax benefit | — | (5,857 | ) | |||||
Gain on warrant derivative | — | (63 | ) | |||||
Gain on insurance recovery for damaged equipment | (785 | ) | — | |||||
Impairment of property, plant and equipment | 54,724 | — | ||||||
Accrued interest from restricted cash | (9 | ) | (10 | ) | ||||
Loss (gain) on sale of available for sale securities | (429 | ) | 407 | |||||
Loss on impairment of available for sale securities | — | 969 | ||||||
Adjustment for write down of inventory | 1,246 | 198 | ||||||
Changes in: | ||||||||
Concentrate settlement receivables | — | 363 | ||||||
Other receivables | 59 | (60 | ) | |||||
Inventories | (1,686 | ) | 169 | |||||
Prepaid expenses and deposits | 114 | 436 | ||||||
Accounts payable and accrued liabilities | (360 | ) | (3,113 | ) | ||||
|
|
|
| |||||
Net cash used in operating activities | (8,135 | ) | (18,752 | ) | ||||
|
|
|
| |||||
Cash flows from investing activities: | ||||||||
Sale of short term investments | — | 9,264 | ||||||
Proceeds from the sale of available for sale securities | 959 | 352 | ||||||
Proceeds from insurance recovery | 1,882 | — | ||||||
Proceeds from sale of fixed assets | — | 35 | ||||||
Purchase of plant and equipment | (6,240 | ) | (1,064 | ) | ||||
|
|
|
| |||||
Net cash provided by (used in) investing activities | (3,399 | ) | 8,587 | |||||
|
|
|
| |||||
Cash flows from financing activities: | ||||||||
Proceeds from the issuance of common stock, net | 3,416 | 120 | ||||||
Proceeds from new debt | 5,000 | — | ||||||
Loan fees | (25 | ) | — | |||||
Repayment of capital leases | (1,912 | ) | (990 | ) | ||||
|
|
|
| |||||
Net cash provided by (used in) financing activities | 6,479 | (870 | ) | |||||
|
|
|
| |||||
Net increase (decrease) in cash and cash equivalents | (5,055 | ) | (11,035 | ) | ||||
Cash and cash equivalents, beginning of year | 7,951 | 18,986 | ||||||
|
|
|
| |||||
Cash and cash equivalents, end of year | $ | 2,896 | $ | 7,951 | ||||
|
|
|
|
Years Ended December 31, | ||||||||
2015 | 2014 | |||||||
Net loss | $ | (2,837,713 | ) | $ | (6,450,228 | ) | ||
Adjustment to net unrealized loss on marketable securities | (1,492 | ) | (11,707 | ) | ||||
|
|
|
| |||||
COMPREHENSIVE LOSS | $ | (2,839,205 | ) | $ | (6,461,935 | ) | ||
|
|
|
|
See accompanying notes to the consolidated financial statements.
Revett Mining Company,Mines Management, Inc. and Subsidiaries
Consolidated Statements of Cash Flows, continuedCONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY
(expressed in thousands of United States dollars)
Years ended December 31,
2014 | 2013 | |||||||
Supplementary cash flow information: | ||||||||
Cash paid for interest | $ | 113 | $ | 57 | ||||
Cash paid for income taxes | — | 192 | ||||||
Non cash transactions: | ||||||||
Other receivable for insurance recovery on damaged equipment | — | 1,097 |
Preferred Stock |
Common Stock | Additional Paid-in Capital | Accumulated Deficit | Accumulated Other Comprehensive Income | Total | |||||||||||||||||||||||||||
Shares | Amount | Shares | Amount | |||||||||||||||||||||||||||||
BALANCES, December 31, 2013 | — | $ | — | 28,999,752 | $ | 29,000 | $ | 87,230,381 | $ | (79,686,699 | ) | $ | 3,009 | $ | 7,575,691 | |||||||||||||||||
Exercise of stock options | — | — | 211,696 | 212 | 177,538 | — | — | 177,750 | ||||||||||||||||||||||||
Stock-based compensation | — | — | — | — | 309,839 | — | — | 309,839 | ||||||||||||||||||||||||
Preferred stock issued for cash | 4,000 | 4,000,000 | — | — | (505,924 | ) | — | — | 3,494,076 | |||||||||||||||||||||||
Preferred stock converted to common stock | (474 | ) | (474,000 | ) | 602,592 | 602 | 473,398 | — | — | — | ||||||||||||||||||||||
Preferred stock dividends | — | — | — | — | — | (89,455 | ) | — | (89,455 | ) | ||||||||||||||||||||||
Adjustment to net unrealized gain on marketable securities | — | — | — | — | — | — | (11,707 | ) | (11,707 | ) | ||||||||||||||||||||||
Net loss | — | — | — | — | — | (6,450,228 | ) | — | (6,450,228 | ) | ||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||||
BALANCES, December 31, 2014 | 3,526 | 3,526,000 | 29,814,040 | 29,814 | 87,685,232 | (86,226,382 | ) | (8,698 | ) | 5,005,966 | ||||||||||||||||||||||
Stock-based compensation | — | — | — | — | 263,864 | — | — | 263,864 | ||||||||||||||||||||||||
Preferred stock dividends | — | — | — | — | — | (211,560 | ) | — | (211,560 | ) | ||||||||||||||||||||||
Adjustment to net unrealized loss on marketable securities | — | — | — | — | — | — | (1,492 | ) | (1,492 | ) | ||||||||||||||||||||||
Net loss | — | — | — | — | — | (2,837,713 | ) | — | (2,837,713 | ) | ||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||||
BALANCES, December 31, 2015 | 3,526 | $ | 3,526,000 | 29,814,040 | $ | 29,814 | $ | 87,949,096 | $ | (89,275,655 | ) | $ | (10,190 | ) | $ | 2,219,065 | ||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
See accompanying notes to the consolidated financial statements.
Revett Mining Company,Mines Management, Inc. and Subsidiaries
Consolidated Statements of Shareholders’ Equity
(expressed in thousands of United States dollars except for number of shares)CONSOLIDATED STATEMENTS OF CASH FLOWS
Common Stock | Additional Paid in Capital | Accumulated Other Comprehensive Income (Loss) | Retained Earnings (Accumulated Deficit) | Total Shareholders’ Equity | ||||||||||||||||||||
Shares | Amount | |||||||||||||||||||||||
Balance, January 1, 2013 | 34,492,387 | $ | 87,727 | — | $ | (538 | ) | $ | 1,591 | $ | 88,780 | |||||||||||||
Issue of shares for exercise of options | 49,000 | 25 | — | — | 25 | |||||||||||||||||||
Issue of shares for exercise of warrants | 55,000 | 125 | — | — | 125 | |||||||||||||||||||
Unrealized loss on marketable securities, net of tax | — | — | 583 | — | 583 | |||||||||||||||||||
Stock-based compensation on options granted | — | 618 | — | — | 618 | |||||||||||||||||||
Net loss for the year | — | — | — | (11,575 | ) | (11,575 | ) | |||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||
Balance, December 31, 2013 | 34,596,387 | 88,495 | — | 45 | (9,984 | ) | 78,556 | |||||||||||||||||
Reclassification due to change in par value of common shares | (88,149 | ) | 88,149 | — | — | — | ||||||||||||||||||
Issue of shares for exercise of options | 158,500 | 2 | 77 | — | — | 79 | ||||||||||||||||||
Issue of shares | 4,499,102 | 45 | 3,292 | — | — | 3,337 | ||||||||||||||||||
Issue of shares for compensation | 20,000 | — | 16 | — | — | 16 | ||||||||||||||||||
Reclassification of gain on sale of marketable securities, net of tax | — | — | — | (45 | ) | — | (45 | ) | ||||||||||||||||
Stock-based compensation on options granted | — | — | 403 | — | — | 403 | ||||||||||||||||||
Net loss for the year | — | — | — | — | (61,923 | ) | (61,923 | ) | ||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||
Balance, December 31, 2014 | 39,273,989 | $ | 393 | $ | 91,937 | $ | — | $ | (71,907 | ) | $ | 20,423 | ||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended December 31, | ||||||||
2015 | 2014 | |||||||
Increase (Decrease) in Cash and Cash Equivalents | ||||||||
CASH FLOWS FROM OPERATING ACTIVITIES: | ||||||||
Net loss | $ | (2,837,713 | ) | $ | (6,450,228 | ) | ||
Adjustments to reconcile net loss to net cash used in operating activities: | ||||||||
Stock-based compensation | 263,864 | 309,839 | ||||||
Depreciation | 69,992 | 760,930 | ||||||
Accretion of asset retirement obligation | 24,971 | 23,791 | ||||||
Gain on sale of property and equipment | (1,850,000 | ) | (122,600 | ) | ||||
Changes in operating assets and liabilities: | ||||||||
Interest receivable | 25 | 2,504 | ||||||
Prepaid expenses and deposits | (27,250 | ) | (70,665 | ) | ||||
Accounts payable | 63,403 | (54,735 | ) | |||||
Payroll and payroll taxes payable | (4,385 | ) | (5,217 | ) | ||||
|
|
|
| |||||
Net cash used in operating activities | (4,297,093 | ) | (5,606,381 | ) | ||||
|
|
|
| |||||
CASH FLOWS FROM INVESTING ACTIVITIES: | ||||||||
Purchase of property and equipment | (761 | ) | — | |||||
Proceeds from disposition of property and equipment | 1,850,000 | 122,913 | ||||||
Proceeds from certificates of deposit | — | 1,565,577 | ||||||
|
|
|
| |||||
Net cash provided by investing activities | 1,849,239 | 1,688,490 | ||||||
|
|
|
| |||||
CASH FLOWS FROM FINANCING ACTIVITIES: | ||||||||
Net proceeds from sale of preferred stock | — | 3,494,076 | ||||||
Net proceeds from sales of common stock | — | 177,750 | ||||||
Cumulative preferred stock dividends | (211,560 | ) | (36,565 | ) | ||||
|
|
|
| |||||
Net cash provided by (used in) financing activities | (211,560 | ) | 3,635,261 | |||||
|
|
|
| |||||
NET DECREASE IN CASH AND CASH EQUIVALENTS | (2,659,414 | ) | (282,630 | ) | ||||
CASH AND CASH EQUIVALENTS, BEGINNING OF YEAR | 3,862,462 | 4,145,092 | ||||||
|
|
|
| |||||
CASH AND CASH EQUIVALENTS, END OF YEAR | $ | 1,203,048 | $ | 3,862,462 | ||||
|
|
|
| |||||
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION: | ||||||||
Cash paid for interest | $ | 11,535 | $ | — | ||||
|
|
|
| |||||
SUPPLEMENTAL DISCLOSURE OF NONCASH INVESTING AND FINANCING ACTIVITIES: | ||||||||
Accrual of cumulative preferred stock dividends | $ | 52,890 | $ | 52,890 | ||||
|
|
|
| |||||
Preferred shares converted to common shares | $ | — | $ | 474,000 | ||||
|
|
|
|
See accompanying notes to the consolidated financial statements.
Revett Mining Company, Inc.
Notes to Consolidated Financial StatementsNOTE 1—ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Years ended December 31, 2014 and 2013Organization:
(expressed in thousands of United States dollars unless otherwise stated)
1. Nature of operations and Liquidity
Revett Mining Company,Mines Management, Inc. (“Company”(the “Company”) (formerly known as Revett Minerals Inc.) wasis a publicly held Idaho corporation incorporated in Canada in August 2004 to acquire Revett Silver Company and undertake a public offering of its common shares, transactions that were completed in February 2005. Revett Silver Company, a Montana corporation, was organized in April 1999 to acquire the Troy mine (“Troy”) and the Rock Creek project (“Rock Creek”) from ASARCO Incorporated and Kennecott Montana Company, transactions that were completed in October 1999 and February 2000. Revett Mining Company changed its jurisdiction of incorporation (from Canada to Delaware) and its name (from Revett Minerals to Revett Mining Company) on February 18, 2014, following approval by shareholders at a special meeting held on January 24, 2014.1947. The Company conducts business through four Montana corporations, all subsidiariesacquires, explores, and develops mineral properties in North and South America.
Summary of its wholly-owned Revett Silver Company subsidiary: Troy Mine, Inc., RC Resources Inc., Revett Exploration, Inc. and Revett Holdings, Inc.Significant Accounting Policies:
Troy is an underground silver and copper mine located in northwestern Montana. ASARCO operated the mine from 1981 to 1993, and then placed it on care and maintenance because of low metals prices. We restarted mining operations in late 2004 and commenced commercial production in early 2005. We operated Troy continuously until December 2012, when operations were suspended due to unstable ground conditions in portions of the mine. After an unsuccessful attempt to find an alternative route to our reserve mining areas, a decision was made to construct a new decline from the main haulage route to the North C Beds, giving access to the A and C Beds, and then continue to the undeveloped I Bed mining areas. After successfully reaching the North C Beds in the fourth quarter of 2014 and resuming limited ore production, the Company decided, due to low metal prices, to place the Troy Mine on care and maintenance. Development work to the I Beds ceased and the milling operations continued through the end of January 2015. An orderly shutdown took place during the month of February 2015 with the expectation that development and operations may resume in a more favorable metals price environment.
Liquidity Considerations and Going Concern
a. | Going concern |
The accompanying consolidated financial statements have been prepared under the assumption that the Company will continue as a going concern and do not include any adjustments that might be necessary should the Company be unable to continue as a going concern. The Company is an exploration stage company and has incurred losses since the inception of its exploration stage. The Company does not have sufficient cash to fund normal operations and meet debt obligations for the next twelve monthsbeyond April 2016 without deferring payments on certain current liabilities and/or raising additional funds. The Company currently does not have a recurring source of revenue sufficient to fund normal operations and its ability to continue as a going concern is dependent on the Company’s continued lossesability to secure sufficient funding for its future exploration and lackworking capital requirements, which may include the sale of capitalits equity or debt securities, and the eventual profitable exploitation of its mining properties. There can be no assurance that the Company will succeed in securing additional funding on terms acceptable to the Company or at all, or in generating future profitable operations. These factors raise substantial doubt about the Company’s ability to continue as a going concern. Although the Company has raised some additional capital in 2014 (See Note 11), the Company has not raised sufficient external financing to meet its obligations and provide access to Troy mine ore reserves. On March 26, 2015, the Company entered into an agreement and plan of merger with Hecla Mining Company (“Hecla”), pursuant to which, and subject to the approval of the Company’s shareholders and the satisfaction of other conditions specified in the agreement, the Company would merge with and into Hecla(See Note 20 – Subsequent events). If our proposed merger with Hecla is not completed, we will necessarily have to seek additional capital or consider other alternatives, which could include liquidating some or all of our assets in order to fund our debt and capital spending requirements. There is no assurance our financing efforts will be successful under current market conditions. Our business has been materially and adversely affected by the decline in copper and silver prices and by the suspension of commercial mining operations at Troy.
Since the Troy mine has been placed into care and maintenance there is no assurance that the mine will resume production and therefore, the Company determined that there was impairment of its property, plant and equipment as of December 31, 2014 (see Note 5).
b. | Principles of consolidation |
The Company’s earnings and cash flows are subject to copper and silver price volatility. In addition, the Company’s continuing operations in the long-term and the underlying value and recoverability of the Rock Creek property are dependent upon the existence of economically recoverable mineral reserves, obtaining the necessary operating permits for the Rock Creek property and future profitable production or sufficient proceeds from the sale of the Rock Creek property.
2. Changes affecting the 2014accompanying consolidated financial statements and future accounting changes:
In May 2014, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update No. 2014-09, Revenue from Contracts with Customers (“ASU 2014-09”), which supersedes nearly all existing revenue recognition guidance under U.S. GAAP. The core principle of ASU 2014-09 is to recognize revenues when promised goods or services are transferred to customers in an amount that reflects the consideration to which an entity expects to be entitled for those goods or services. ASU 2014-09 defines a five step process to achieve this core principle and, in doing so, more judgment and estimates may be required within the revenue recognition process than are required under existing U.S. GAAP.
The standard is effective for annual periods beginning after December 15, 2016, and interim periods therein, using either of the following transition methods: (i) a full retrospective approach reflecting the application of the standard in each prior reporting period with the option to elect certain practical expedients, or (ii) a retrospective approach with the cumulative effect of initially adopting ASU 2014-09 recognized at the date of adoption (which includes additional footnote disclosures). We are currently evaluating the impact of our pending adoption of ASU 2014-09 on our consolidated financial statements and have not yet determined the method by which we will adopt the standard in 2017.
In August 2014, the FASB issued ASU 2014-15, Disclosure of Uncertainties about an Entity’s Ability to Continue as a Going Concern. ASU 2014-15 introduces an explicit requirement for management to assess and provide certain disclosures if there is substantial doubt about an entity’s ability to continue as a going concern. ASU 2014-15 is effective for the annual period ending after December 15, 2016. Early adoption is permitted. The Company expects to adopt this guidance when effective, and upon adoption, will evaluate going concern based on this guidance.
3. Significant accounting policies
(a) Basis of presentation:
The consolidated financial statements of the Company have been prepared in accordance with accounting principles generally accepted in the United States of America (“U. S.U.S. GAAP”) and include the accounts of the Company’s wholly-owned subsidiary, Revett Silver,Mines Management, Inc., and Revett Silver’sits wholly owned subsidiaries. All inter-companysubsidiaries, Newhi, Inc., Montanore Minerals Corp., Montmin Resources Corp., and Minera Montanore Peru, SAC. Intercompany balances and transactions have been eliminated on consolidation.eliminated.
(b) Use of estimates:
c. | Exploration stage enterprise |
The preparation of financial statements requires management to make estimates and assumptions about future events that affect the amounts reportedCompany is in the financial statementsexploration stage of operation and accompanying notesdevotes substantially all of its efforts to acquiring and exploring mining interests that management believes should eventually provide sufficient net profits to sustain the disclosureCompany’s existence. Until such interests are engaged in commercial production, the Company will continue to seek additional funding to support the completion of contingent assetsits exploration and liabilities at the datedevelopment activities. The Company’s activities are subject to significant risks and uncertainties, including its ability to secure sufficient funding to continue operations, to obtain proven and probable reserves, to comply with industry regulations and obtain permits necessary for development of the financial statements. Significant areas requiring the use of estimates include the recoverability of mineral property, plant,Montanore project, as well as environmental risks and equipment, the determination of the reclamation, assumptions used in determining the fair value of stock-based compensation, determination of valuation allowances for recoverability of income tax assets, measurement of concentrate inventory, expected economic lives and rates for depreciation, depletion, and amortization, the fair value of certain financial instruments and the estimates of mineral reserves and mine life. Actual results may differ from these estimates.market conditions.
(c) Cash and cash equivalents:
d. | Cash and cash equivalents |
Cash and cash equivalents consistinclude cash on hand, cash in banks, investments in certificates of funds depositeddeposit with various financial institutions in accordance with our cash management policyoriginal maturities of 90 days or less, and all short-term money market instruments which, on acquisition, have an original maturity of three months or less. The Company’s cash and cash equivalents are not subject to any restrictions.
e. | Available for sale securities |
(d) Short-term investments and availableAvailable for sale securities:
The Company determines the appropriate classification of investments at the time of purchase and re-evaluates such determinations at each reporting date. Marketable equity securities are categorized as available for sale and carriedrecorded at fair market value, with changesunrealized gains or losses recorded as a component of equity, unless a decline in accumulatedvalue of the security is considered other comprehensive income (loss).
than temporary. Realized gains and losses on the sale of securities are recognized on a specific identification basis. Unrealized gains and losses are included as a component of accumulated other comprehensive income (loss), unless an other than temporary impairment in value has occurred, in which case such accumulated loss would be charged to current period net income (loss). Unrealized gains and losses originally included in accumulated other comprehensive income are reclassified to current period net income (loss) when the sale or determination of other than temporary impairment of securities occurs.
(e) Revenue recognition:
Revenue is recognized when persuasive evidence of an arrangement exists, delivery has occurred and no obligations remain, collection is reasonably assured, and price is reasonably determinable. When the Company is in production, copper and silver concentrates are sold under pricing arrangements where final prices are determined by quoted metal prices in periods subsequent to the date of sale. Revenues are recorded at the time of sale based on forward prices for the expected date of final settlement and are re-valued at each period end. Therefore, revenue from the sale of metals in concentrate are subject to mark-to-market adjustments and adjustment upon final settlement of estimated metal prices, weights, and assays. Adjustments to revenue for metal prices are recorded monthly and other adjustments are recorded on final settlement. The Company establishes a provision for losses on accounts receivable if it becomes probable it will not collect all or part of the outstanding balance. The Company has reviewed collectability of the receivable balance and concluded that no reserve for uncollectable receivables was necessary at December 31, 2014. The Company’s receivables from its one customer have had no history ofun-collectability.
(f) Stock-based compensation:
The Company has an equity incentive plan which is described in Note 11. The Company estimates the fair value of stock option grants using the Black-Scholes option pricing model. Compensation costs related to stock options are included in administrative and general expenses.
(g) Loss per share:
Basic loss per common share is calculated using the weighted average number of common shares issued and outstanding during the year. Diluted loss per common share is calculated using the treasury stock method, which assumes that the proceeds to be received on exercise of outstanding stock options and warrants are used to repurchase shares of the Company at the average market price of the common shares for the year. Stock options and warrants are included in the calculation of diluted earnings per common share only if earnings are positive and to the extent the market price of the common shares exceeds the exercise price of the stock options and warrants.
(h) Foreign currency translation:
The Company’s functional currency for all subsidiaries is the United States dollar. Transactions and account balances originally stated in currencies other than the United States dollar have been translated into United States dollars as follows:
Transaction gains and lossesimpairments are recorded in the statement of operations in the period in which they occur.operations.
(i) Inventories:
f. | Property and equipment |
Material and supplies are valued at the lower of average cost or market. Stockpiled ore and work-in-process inventory are valued at the lower of the average production cost or net realizable value after an allowance for additional processing costs. Finished goods inventory, which consists of copper and silver concentrate available for sale, is valued at the lower of the average production cost or net realizable value. Production costs include the cost of raw materials, direct labor, mine site overhead expenses, and depreciation and depletion of mineral property, plant, and equipment.
(j) Mineral property, plant and equipment:
Exploration costs are expensed as incurred. Costs related to the acquisition of property and mineral rights, construction of production facilities, and the development of mine infrastructure are capitalized. Costs of permitting, evaluation, and feasibility are only capitalized upon completion of an analysis which demonstrates the economic viability of the mineral deposit. Specifically, drilling and related costs incurred on sites without an existing mine and on areas outside the boundary of a known mineral deposit that contains proven and probable reserves are exploration expenditures and are expensed as incurred. Drilling and related costs incurred to define and delineate a residual mineral deposit that has not previously been classified as a proven or probable reserve at a development stage or production stage mine will only be capitalized when management determines there is sufficient evidence that the expenditure will result in a future economic benefit to the Company when the expenditure is made.
Management evaluates whether or not there is sufficient geologic and economic certainty of being able to convert a mineral deposit into a proven or probable reserve at a development stage property, based upon the known geology and metallurgy, existing or planned mining and processing facilities, and existing operating permits and environmental programs. Costs are only capitalized when the following conditions have been met: (i) there is a probable future economic benefit to the Company; (ii) the Company has or can obtain the economic benefit and control access to it; and (iii) the transaction or event giving rise to the economic benefit has already occurred. Once commercial production has commenced, these costs are amortized using the units-of-production method based on proven and probable reserves. Production facilitiesProperty and equipment are stated at cost less accumulated depreciation. Buildings and leasehold improvements are depreciated usingon the units-of-production method at rates sufficient to depreciate the assetsstraight line basis over theiran estimated useful lives, not to exceed the life of the mine to which the assets relate. Vehicles39 years. Plant and equipment and office equipment are stated at cost and aregenerally depreciated using the straight-line methodon a straight line basis over estimated useful lives ranging from 5 to 10 years. When assets are retired or sold, the costs and related allowances for depreciation are eliminated from the accounts and any resulting gain or loss is reflected in the statement of threeoperations.
g. | Mining properties, exploration and development costs |
All exploration expenditures, including costs to six years. Maintenanceacquire stationary equipment for use in exploration activities that have no significant alternative future use, are expensed as incurred. Significant property acquisition payments for active exploration properties are capitalized, including payments to acquire mineral rights. Once a feasibility study has been completed, approved by management, and repairsa decision is made to put the ore body into production, expenditures to develop new mines, to define further mineralization in existing ore bodies, and to expand the capacity of operating mines, are chargedcapitalized and amortized on the units of production basis over proven and probable reserves. The Company charges to operations as incurred.the allocable portion of capitalized costs attributable to properties sold. Capitalized costs are allocated to properties sold based on the proportion of claims sold to the claims remaining within the project area.
(k) Impairment of long-lived assets:
h. | Asset impairment |
The Company reviews and evaluates its long-livedlong lived assets for impairment when events or changes in circumstances indicate that the related carrying amountsamount may not be recoverable. RecoverabilityIf the sum of assets to be held and usedestimated future net cash flows on an undiscounted basis is measured by a comparison ofless than the carrying amount of anthe related asset grouping, asset impairment is considered to its estimated undiscounted future cash flows expected to be generatedexist. The related impairment loss is measured as the amount by the asset. Ifwhich the carrying amount exceeds the estimated undiscounted cash flows, an impairment loss is recognized based on the difference between the estimated fair value of the asset andexceeds its carryingfair value.
Management’s Changes in significant assumptions underlying future cash flow estimates are subject to risks and uncertainties of changes affecting the recoverability ofmay have a material effect on the Company’s investment in its mineral property, plant, equipment,financial position and mine development. Management’s estimatesresults of these factors are based on expected future conditions. Nonetheless, it is reasonably possible that in the near term, changes that would adversely affect management’s estimate of net cash flows expected to be generated from its properties could occur. At December 31, 2014 the Company determined that an impairment write down of the long-lived assets was required (See Note 5).
i. | Fair value measurements |
The Company’s mining and exploration activities are subject to various laws and regulations governing the protection of the environment. The Company recognizesdiscloses the inputs used to develop the fair value measurements for the Company’s financial assets and liabilities that are measured at fair value on a recurring basis as well as the level within the fair value hierarchy in which the fair value measurements in their entirety fall. The three levels of future reclamation andthe fair value hierarchy are as follows:
Level 1: Unadjusted quoted market prices in active markets for identical assets or liabilities that are accessible at the measurement date.
Level 2: Quoted prices in inactive markets for identical assets or liabilities, quoted prices for similar assets or liabilities in active markets, or other observable inputs either directly related to the asset or liability or derived principally from corroborated observable market data.
Level 3: Unobservable inputs due to the fact that there is little or no market activity.
j. | Asset retirement obligations |
A liability is recognized for the present value of estimated environmental remediation as a liability(asset retirement obligation), in the period in which it incurs a legal obligation associated with the retirement of a tangible long-lived asset that results from the acquisition, construction, development, and/or normal use of the asset,liability is incurred if a reasonable estimate of fair value can be made. The offsetting balance is charged to expense as an exploration cost if the liability is measured initially at fair value andincurred during the resulting cost capitalized into the carrying valueexploration stage of the related assets. In subsequent periods,mining project or as an asset if the related mining project is in production. Adjustments are made to the liability is adjusted for accretionchanges resulting from passage of time and changes to either the timing or amount of the discount and any change inoriginal present value estimate underlying the amount or timing of the underlying cash flows.obligation. The Company has an asset retirement cost capitalized to the related asset is depreciated over the remaining life of the asset.
It is reasonably possible that the ultimate cost of remediation and reclamation could change in the future due to uncertaintiesobligation associated with definingits underground evaluation program at the nature and extent of environmental contamination, the application of laws and regulations by regulatory authorities and changesMontanore Project, described more fully in remediation technology. The Company continually reviews its accrued liabilities as evidence becomes available indicating that its remediation and reclamation obligations may have changed. Any such increases in costs could materially impact the future amounts charged to operations for reclamation and remediation obligations and are accounted for as a change in estimate.note 6.
(m) Income taxes:
k. | Deferred income taxes |
The Company recognizes provision for income taxes based on the asset and liability method. The Company recognizes deferred income tax assets and liabilities and the expected income tax consequences of events that have been recognized in its financial statements. Deferred income tax assets and liabilities are determined based on the temporaryis provided for differences between the financial statement carrying amounts and the tax basis of assets and liabilities using enactedfor financial and income tax ratesreporting. A deferred tax asset, subject to a valuation allowance, is recognized for estimated future tax benefits of tax basis operating losses being carried forward. Uncertain tax positions are evaluated in a two step process, whereby (1) it is determined whether it is more likely than not that the tax positions will be sustained based on the technical merits of the position and (2) for those tax positions that meet the more likely than not recognition threshold, the largest amount of tax benefit that is greater than fifty percent likely to be realized upon ultimate settlement with the related tax authority would be recognized. If income tax related interest and penalties were to be assessed, the Company would charge interest to interest expense, and penalties to general and administrative expense.
l. | Stock based compensation |
The Company measures and records the costs of employee services received in exchange for an award of equity instruments based on the grant date fair value of the award, recognized over the period during which an employee is required to provide services in exchange for such award. Compensation cost is recognized for awards granted and for awards modified, repurchased or cancelled.
m. | Net loss per share |
Basic earnings or loss per share is computed on the basis of the weighted average number of shares outstanding during the period. Diluted earnings or loss per share is calculated on the basis of the weighted average number of shares outstanding during the period plus the effect inof potential dilutive shares during the period. Potential dilutive shares include outstanding stock options and warrants and convertible preferred stock. For periods in which a net loss is reported, potential dilutive shares are excluded because they are antidilutive. Therefore, basic loss per share is the temporary differences are expected to reverse. The effect on deferred income tax assets and liabilities of a change in tax rates is recognized in operations in the period that includes the date of enactment. The Company records a valuation allowance against any portion of those deferred income tax assets that management believes will not be realized.
(n) Hedging instruments:
The Company may utilize derivative financial instruments to reduce cash flow risk relating to copper and silver sales.
The Company recognizes derivative financial instruments on a mark-to-market basis with changes in fair value recognized in revenuessame as diluted loss per share for the period. Contracts designated as held for normal purchase and sale are not accounted for as derivatives and the effect of these contracts are accounted for only in the period of settlement.
(o) Other comprehensive income:
Other Comprehensive income (loss) includes all changes in equity from non-owner sources. All the activity in other comprehensive income (loss) relates to gains and losses on available for sale securities.
4. Inventory
The major components of the Company’s inventory accounts are as follows as of December 31:
2014 | 2013 | |||||||
Concentrate inventory | $ | 1,248 | $ | 530 | ||||
Material and supplies | 3,325 | 3,603 | ||||||
|
|
|
| |||||
$ | 4,573 | $ | 4,133 | |||||
|
|
|
|
The Company recognized a loss of $1.2 million and $0.2 million, respectively, during the years ended December 31, 20142015 and 2013 due2014.
n. | Assumptions and use of estimates |
The preparation of financial statements in accordance with U.S. GAAP requires management to make estimates and assumptions that affect the declinereported amounts of assets and liabilities, the disclosure of contingent assets and liabilities known to exist as of the date the financial statements are published, and the reported amounts of revenues and expenses during the reporting period. Significant areas requiring the use of management assumptions and estimates relate to asset impairments, including long lived assets and investments, asset retirement obligations, and valuation of stock based compensation and warrant derivatives. Uncertainties with respect to such estimates and assumptions are inherent in market value of concentrate inventory.
5. Mineral Property, Plant, Equipment, and Mine Development
The major componentsthe preparation of the Company’s consolidated financial statements; accordingly, it is possible that the actual results could differ from these estimates and assumptions, which could have a material effect on the reported amounts of the Company’s consolidated financial position and results of operations.
o. | Recent accounting pronouncements |
In August 2014, the FASB issued a new going concern standard which defines management’s responsibility to evaluate whether there is substantial doubt about an organization’s ability to continue as a going concern and to provide related footnote disclosures. This guidance is effective for the annual period ending after December 15, 2016, and for annual periods and interim periods thereafter. Adoption of this update is not anticipated to have a material impact on the Company’s consolidated financial statements.
In February 2016, the FASB issued a new standard,Leases (ASC 842). Under the new guidance, a lessee will be required to recognize assets and liabilities for leases with lease terms of more than twelve months and to disclose key information about leasing arrangements. This guidance is effective for fiscal years beginning after December 15, 2018. The Company is not able to reasonably estimate the impact on the Company’s consolidated financial statements at this time.
p. | Subsequent events |
The Company evaluated events and transactions subsequent to the balance sheet date of December 31, 2015, for potential recognition or disclosure in the consolidated financial statements.
NOTE 2—MINING PROPERTIES
Montanore:
The Montanore property is located in northwestern Montana and includes 10 patented mining claims and 861 unpatented mining claims. In August 2002, the Company acquired a controlling interest in the Montanore silver and copper deposit in Sanders and Lincoln Counties, Montana. The Company received a quitclaim deed from Noranda Mineral Corp. (“Noranda”) when Noranda elected to withdraw from the project. In December 2002, the Company received a quitclaim deed to all intellectual property connected with studies that Noranda carried out on the project.
Advance and Iroquois:
The Advance and Iroquois properties are located in northern Washington State. The Advance property consists of 720 acres of patented mineral rights. Although the Company does not own the overlying surface rights to its patented mineral rights, it does have right of access to explore and mine. The Iroquois property plant,consists of 62 acres of patented mineral and equipment accountssurface rights.
NOTE 3—CERTIFICATES OF DEPOSIT
The Company has a certificate of deposit pledged as security for a letter of credit to the Montana Department of Environmental Quality as a reclamation guarantee for the Montanore expansion evaluation program. This certificate of deposit was in the amount of $1,124,055 as of December 31, are as follows:
2014 | 2013 | |||||||
Troy: | ||||||||
Mineral reserves and development costs | $ | 2,460 | $ | 18,322 | ||||
Plant and equipment | 2,320 | 13,931 | ||||||
Construction in progress | 1,595 | 808 | ||||||
Buildings and structures | 910 | 5,613 | ||||||
|
|
|
| |||||
7,285 | 38,674 | |||||||
Rock Creek: | ||||||||
Mineral properties | 8,022 | 34,976 | ||||||
Other, corporate | 953 | 4,330 | ||||||
Other, mineral properties | 28 | 118 | ||||||
|
|
|
| |||||
16,288 | 78,098 | |||||||
Accumulated depreciation and depletion: | ||||||||
Troy property acquisition and development costs | — | (7,332 | ) | |||||
Troy plant and equipment | — | (3,861 | ) | |||||
Troy buildings and structures | — | (1,630 | ) | |||||
|
|
|
| |||||
— | (12,823 | ) | ||||||
Other corporate assets | — | (167 | ) | |||||
|
|
|
| |||||
— | (12,990 | ) | ||||||
|
|
|
| |||||
$ | 16,288 | $ | 65,108 | |||||
|
|
|
|
Due to2015 and 2014, respectively. It bore interest at the Troy mine being placed on care and maintenance and with no assurance that the mine will resume production, the Company determined that there was an impairmentrate of property, plant and equipment0.40% as of December 31, 2014. The estimated fair value2015 and had a maturity date of January 3, 2016. This certificate of deposit renews automatically each year and is included with reclamation deposits on the long-lived assets was determined using a market approach based on an accepted offer to sell the CompanyConsolidated Balance Sheets for $20.4 million (See Note 20 – Subsequent events). The impairment charge of $54.7 million was allocated to each long-lived asset class on a relative carrying value basis as per Accounting Standards Codification (“ASC”) 360-10. This impairment has resulted in a new cost basis for the property plant and equipment and future depreciation will be based on this carrying value.
During the first ten months of 2014 and all of 2013, there was no depreciation and depletion expense associated with the Troy operations because there was no production. In late 2014 the Company resumed limited mill production resulting in some depreciation in 2014. The net book value of assets under capital leases at December 31, 2014 and 2013 was nil and $2.1 million, respectively. During the years ended December 31, 20142015 and 2013,2014. The certificate was renewed on January 3, 2016 in the Company capitalized labor, supplies, and construction costs relating to the developmentamount of theI-Bed section of the Troy Mine.
During 2013, certain equipment$1,124,055 bearing interest at the Troy Mine with a net book valuerate of $1.1 million was damaged0.15% and deemed unusable. Included in Other Receivables at December 31, 2013 is $1.1 million which is the minimum amount expected to be recovered from our insurance carriers. The Company received $1.9 million in 2014 from the insurance carriers.expires on January 3, 2017.
Included in other corporate assets is Revett Holdings Inc., a wholly owned subsidiary of Revett Silver Company, mitigation lands with a carrying value of $0.8 million ($3.6 million less impairment adjustment of $2.8 million). This land and other land not essential to our mining operations are designated as grizzly bear habitat mitigation land. The property costs for Rock Creek will be amortized when the property is placed into production, or written off if Rock Creek cannot be developed.
6. Available for sale securitiesNOTE 4—AVAILABLE FOR SALE SECURITIES
Available for sale securities are comprised of publically traded common stocks which have been valued using quoted market prices in active markets. The following table summarizes the Company’s available for sale securities at December 31:securities:
2013 | ||||
Cost | $ | 1,499 | ||
Impairment charge | (969 | ) | ||
Unrealized gain | 70 | |||
|
| |||
Fair value | $ | 600 | ||
|
|
December 31, 2015 | December 31, 2014 | |||||||
Cost | $ | 11,165 | $ | 11,165 | ||||
Unrealized Losses | (10,190 | ) | (8,698 | ) | ||||
|
|
|
| |||||
Fair Market Value | $ | 975 | $ | 2,467 | ||||
|
|
|
|
DuringNOTE 5—FAIR VALUE MEASUREMENTS
The following table summarizes the Company’s financial assets and liabilities that were accounted for at fair value on a recurring basis as of December 31, 2015 and 2014, and the fair value calculation input hierarchy level determined to apply to each asset and liability category. Quoted market prices were used to determine the fair value of available for sale securities. The Company has no financial assets or liabilities that are measured at fair value on a nonrecurring basis.
Balance at December 31, 2015 | Balance at December 31, 2014 | Input Hierarchy Level | ||||||||||
Assets: | ||||||||||||
Available-for-sale securities | $ | 975 | $ | 2,467 | Level 1 | |||||||
Liabilities: | ||||||||||||
Asset retirement obligation | $ | 528,250 | $ | 503,279 | Level 3 |
The following table presents the fair value reconciliation of Level 3 liabilities measured at fair value during the year ended December 31, 2015:
Asset Retirement Obligation | ||||
Balance January 1, 2015 | $ | 503,279 | ||
Accretion expense | 24,971 | |||
|
| |||
Balance December 31, 2015 | $ | 528,250 | ||
|
|
NOTE 6—ASSET RETIREMENT OBLIGATIONS
The Company has an asset retirement obligation (“ARO”) associated with its underground evaluation program at the Montanore Project. The ARO resulted from the reclamation and remediation requirements of the Montana Department of Environmental Quality as outlined in the Company’s permit to carry out the evaluation program.
Estimated reclamation costs were discounted using a credit adjusted risk free interest rate of 4.78% from the time the Company expects to pay the retirement obligation to the time it incurred the obligation, which is estimated at 25 years. The following table summarizes activity in the Company’s ARO.
Year Ended December 31, 2015 | Year Ended December 31, 2014 | |||||||
Balance January 1, | $ | 503,279 | $ | 479,488 | ||||
Accretion expense | 24,971 | 23,791 | ||||||
|
|
|
| |||||
Balance December 31, | $ | 528,250 | $ | 503,279 | ||||
|
|
|
|
The Company has a certificate of deposit which is pledged as security for a Letter of Credit to the Montana Department of Environmental Quality as a reclamation guarantee for the Montanore expansion evaluation program which is discussed further in note 3.
NOTE 7—CONCENTRATION OF CREDIT RISK
The Company maintains most of its cash and cash equivalents in one financial institution. To date, the Company has not experienced a material loss or lack of access to its invested cash or cash equivalents; however, no assurance can be provided that access to the Company’s invested cash and cash equivalents will not be impacted by adverse conditions in the financial markets. The Company’s total uninsured bank deposit balance totaled approximately $2,200,000 as of December 31, 2015.
NOTE 8—STOCKHOLDERS’ EQUITY
Preferred Shares:
During July 2014, the Company sold allto one investor 4,000 units consisting of its availableone share of the Company’s Series B convertible preferred stock, no par value, and a warrant to purchase the Company’s common stock, par value $0.001 per share, at a stated value of $1,000 per unit. Each share of Series B convertible preferred stock is immediately convertible into shares of common stock at a conversion rate of approximately 1,271 shares of common stock for sale equity securitieseach share of Series B convertible preferred stock (equivalent to a conversion price of $0.7866 per share of common stock). The conversion rate is subject to downward adjustment upon the Company issuing or selling shares of the Company’s common stock for approximately $1.0a per share price less than the applicable conversion rate. The offering yielded gross proceeds, before offering expenses, of $4.0 million (net proceeds of $3.5 million after
deducting placement agent and recognized a gaininvestor fees and expenses and other offering expenses). The preferred stock has no voting rights but will entitle the holders to receive cumulative dividends at the rate of $0.4 million. During6% per annum per share, payable quarterly. The dividends are payable in either cash or common stock at the year endedCompany’s discretion. As of December 31, 2013,2015, 474 shares of the Series B convertible preferred stock had been converted into 602,592 shares of common stock. Upon the occurrence of certain events that the Company believes are within its control, the holders of the preferred shares may have the option to redeem or convert them into common shares or increase the dividend rate to 18% per annum.
Warrants: Each warrant is immediately exercisable at an exercise price of $1.0816 per share and allows the holder to purchase approximately 636 shares of the Company’s common stock. The warrants are not listed on a national securities exchange and do not have the rights or privileges of a holder of common stock, including any voting rights, until the holder exercises the warrant. Upon the occurrence of a Fundamental Transaction, as defined in the warrant, the Company or its successor may be required to purchase the unexercised portion of the warrant from the warrant holder. The Company does not currently anticipate that this will occur. The following table summarizes exercise prices and expiration dates of outstanding common stock purchase warrants as of December 31, 2015.
Number of Warrants | Exercise Price Per Share | Expiration Date | ||
4,000 | $1.0816 | November 30, 2018 |
Liquidation: Upon any dissolution, liquidation or winding up, whether voluntary or involuntary, holders of the preferred stock are entitled to receive distributions out of the Company’s assets, whether capital or surplus, before any distributions may be made on any other outstanding classes of stock. The amount received by holders of the preferred stock will be equal to the stated value of $1,000 per share of preferred stock plus any accrued and unpaid dividends thereon, and any other fees or liquidated damages then due and owing.
Common Shares:
During 2007, the Company sold a portion of its available for sale equity securities for gross proceeds of approximately $0.4 million and recognized a loss of $0.4 million. In addition, the Company recognized an impairment charge of $1.0 million during 2013.
7. Warrant derivative liability
Some of the Company’s issued and outstanding2,500,000 common share purchase warrants had exercise prices denominatedshares in a foreign currency (Canadian dollar). These warrants were requiredprivate placement to be treated as a derivative liability as the amount of cash the Company was to receive on exercise of the warrants varied depending on the exchange rate. These warrants were classified as a derivative liability and recognized at fair value. Changes in the fair value of these warrants were recognized in earnings until the warrants were exercised or expired. The Company recognized a gain of $63 thousand from the change in fair value of the warrants for the year ended December 31, 2013.
During the year ended December 31, 2013, warrant holders exercised 55,000 warrants for proceeds to the Company of $0.1 million.one investor. In conjunction with this exercise, the fair value of these warrants on the date of the exercise of $0.1 million was reclassified to common stock. The remainder of the unexercised warrants expired on August 24, 2013.
The following table presents the reconciliation of the fair value of the warrants for the year ended December 31, 2013:
2013 | ||||
Balance, beginning of year | $ | 93 | ||
Gain on warrant derivatives | (63 | ) | ||
Warrants exercised | (30 | ) | ||
|
| |||
Balance, end of year | $ | — | ||
|
|
8. Restricted cash and other assets
On March 29, 2005, the Company purchased from a North American insurance company an environmental risk transfer program (the “ERTP”). The total spending for the ERTP was $8.4 million. Of this $8.4 million paid, $6.5 million was deposited in an interest-bearing accountconnection with the insurer (the “Commutation Account”). The Commutation Account principal plus interest earned are reserved exclusively to pay the Company’s existing reclamation and mine closure liabilities at Troy. If the costs of reclaiming Troy are less than the value of the Commutation Account at that time, the Company will be entitled to a refund of the amount of the trust fund not expended. If the reclamation costs exceed the value of the Commutation Account, the insurance company will
fund the excess up to a maximum limit of $16.8 million of total expenditures (including the amount funded by the Commutation Account). The policy expires in 2020 and the Company has not recorded a receivable related to the ERTP since it is not probable that any amounts will be realized from the insurance company (other than the amount in the Commutation Account) prior to the expiration of the policy. At December 31, 2014 and 2013, the Commutation Account balance was $6.5 million.
The remaining $1.9 million paid comprises premiums paid to the insurer and Montana state taxes on the ERTP transaction. This remaining amount is being amortized over the life of the Troy Mine on a units-of-production basis. At December 31, 2014, the balance for the prepaid insurance was $0.7 million, which is included in long term assets.
9. Debt and capital lease obligations
At December 31, 2014 and 2013, the balance of the Company’s long-term debt and capital lease obligations were as follows:
2014 | 2013 | |||||||
Capital leases and note payable | $ | 4,377 | $ | 1,289 | ||||
Less current portion | (4,377 | ) | (925 | ) | ||||
|
|
|
| |||||
Long term portion | $ | — | $ | 364 | ||||
|
|
|
|
(a) Capital leases and note payable:
The Company entered into a new note payable in August 2014. The amount borrowed was $5 million with a 30 month term and a 6.25% interest rate. Monthly principal and interest payments are $0.2 million ($2.2 million annually). The note is collateralized by certain equipment at the Troy Mine. The Company used a portion of the proceeds to pay off the two remaining capital leases which principal balances were approximately $0.4 million. The total balance is recorded as current since the Company does not anticipate being able to pay the amounts due in 2015 and therefore, will be in default on the note.
(b) Revolving credit facility:
On December 10, 2011,stock sale, the Company entered into a revolving creditRight of First Refusal agreement with Societe Generale. No funds were drawn under the facility. In August 2014,(the “ROFR”) which grants a twenty-year right of first proposal and a right to match third-party proposals, to purchase all or any portion of silver mined, produced or recovered by the Company in the State of Montana. The ROFR does not apply to trade sales and Societe Generale mutually agreedspot sales in the ordinary course of business or to terminate this credit agreement. Duringforward sales, in each case, for which no upfront payment is received by the three months ended March 31, 2013, the Company expensed the remaining unamortized deferred loan fee balance of $0.6 million, which is included in interest expense.Company.
10. Reclamation and remediation liability
The Company’s mining properties 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 believes its operations are in compliance with all applicable laws and regulations.NOTE 9—STOCK OPTIONS
The Company has recorded a reclamation liability forhad four equity incentive plans: the estimated costs of reclaiming Troy. The Montana Department of Environmental Quality (“DEQ”) looks to2003 Stock Option Plan, the Company as primary obligor of2003 Consultant Stock Compensation Plan, the reclamation liabilities, and required the Company to post a reclamation bond in the amount of $12.9 million. The Company has purchased an environmental risk transfer program which will fund the expected reclamation and remediation liability at Troy and also provides cash collateral of $6.5 million as security to the DEQ for the required reclamation bond (Note 8).
Changes in the reclamation liability for the years ended December 31, 2014 and 2013 are as follows:
2014 | 2013 | |||||||
Reclamation and remediation liability, beginning of year | $ | 4,613 | $ | 5,598 | ||||
Reduction in present value of liability due to mine life extension and change in estimated costs, net | (226 | ) | (1,461 | ) | ||||
Accretion expense | 382 | 476 | ||||||
|
|
|
| |||||
Reclamation and remediation liability, end of year | $ | 4,769 | $ | 4,613 | ||||
|
|
|
|
In 2013, the estimated end of the operating life of Troy was extended from 2020 to 2026, as a result, the increase in mineral reserves resulted in an overall decrease of the reclamation and remediation liability for 2013. In 2014, the estimated end of the operating life of Troy was extended from 2026 to 2027. The total undiscounted amount, without consideration of inflation, of the estimated future expenditures required to settle the environmental remediation obligation at December 31, 2014 was $8.5 million. The environmental remediation expenditures are expected to start beginning in 2028. Without consideration of inflation, the Company discounted the obligation using the historical discount rate at the time the reclamation liability was established of 8.5%. The incremental increase in the liability as a result of additional inflation cost due to increase in mine life was added as new layers in 2014 and 2013, and discounted at the Company’s current credit-adjusted risk-free rate of 7.25% for both layers, respectively. Other assumptions used by management to determine the carrying amount of the asset retirement obligation are: labor costs based on current market place wages required to hire contractors to carry out reclamation activities; market risk premium for unforeseeable circumstances; and the rate of inflation, over the expected years to settlement.
11. Share Capital
Common stock:
During the first quarter 2014, the Company shareholders approved a change of jurisdiction of incorporation from Canada to the United States (the “Domestication”). As a result, the Company became Revett Mining Company, Inc., a Delaware corporation. As a result of this change, a par value of $0.01 was established for shares of common stock which previously had no par value. The Company has one class of $0.01 par value common stock of which 100,000,000 are authorized for issue. The holders of common stock are entitled to receive dividends without restriction when and if declared by the board of directors. Holders of the Company’s common stock are not entitled to preemptive rights to acquire additional shares of common stock and do not have cumulative voting rights.
During the year ended December 31, 2014, the Company issued 158,500 common shares on exercise of stock options for cash proceeds of $79 thousand, issued 4,499,102 common shares on sale of common shares through a private placement for cash proceeds of $3.3 million and issued 20,000 common shares for compensation with a fair value of $16 thousand.
During the year ended December 31, 2013, the Company issued 49,000 common shares on exercise of stock options for cash proceeds of $0.03 million, and issued 55,000 common shares on exercise of warrants for cash proceeds of $0.1 million.
Preferred Stock:
The Company is authorized to issue an unlimited number of no par preferred stock. The Company’s Board of Directors is authorized to create any series and, in connection with the creation of each series, to fix by resolution the number of shares of each series, and the designations, powers, preferences, and rights; including liquidation, dividends, conversion and voting rights, as they may determine. At December 31, 2014 and 2013, no preferred stock was issued or outstanding.
Stock options:
The Company has an2007 Equity Incentive Plan, (the “Plan”),and the purpose2012 Equity Incentive Plan (collectively, the “Plans”). Under all of which is to enable the Company to attract and retain employees and to provide a meansequity incentive plans, the option exercise price may not be less than 100% of compensating those employees, directors, officers and other individuals or entities integral to the Company’s success. The Plan is administered byfair market value per share on the Company’s Boarddate of Directors.
The Plan requiresgrant, the Company to reserve and have available for issue, 6,500,000 common shares, less that number of common shares reserved for issuance pursuant to stock options granted. The aggregate number of common shares that may be issued to any holder or awarded to any grantee underare exercisable within ten years from the Plan may not exceed 5%date of the outstanding common shares. Vestinggrant of the option, and the vesting schedule of the options is at the discretion of the Board of Directors.
Under the 2003 Stock Option Plan and Consultant Stock Compensation Plan, both of which expired in February 2014, the Company could grant options to purchase up to 3,000,000 shares and 700,000 shares of authorized and unissued common stock, respectively. The 2003 Stock Option Plan included both incentive stock options and nonqualified stock options.
Under the 2007 Equity Incentive Plan (the “2007 Plan”), which provides for the issuance of both incentive stock options and nonqualified stock options and restricted shares to directors, employees and consultants of the Company, the Company may issue up to 3,000,000 shares of the Company’s authorized but unissued common stock. No participant is eligible to be granted more than 500,000 common shares during any calendar year.
Under the 2012 Equity Incentive Plan (“2012 Plan”), the Company may grant options to purchase up to 3,000,000 shares of the Company’s authorized but unissued common stock, at the timediscretion of the Board. The 2012 Plan provides for the issuance of incentive stock options are granted.to employees and nonqualified stock options to directors, employees and consultants of the Company. No participant is eligible to be granted more than 200,000 common shares during any calendar year.
The Plan authorizesA summary of the Company to reserve and have available for issue 1,930,039 shares of common stockoption activity under the Plans as of December 31, 20142015, and 3,076,500 options are issued and outstanding. Aschanges during the year then ended, is presented below:
Number of Options | Weighted- Average Exercise Price | Weighted- Average Remaining Contractual Term | Aggregate Intrinsic Value | |||||||||||||
Outstanding at January 1, 2015 | 4,876,000 | $ | 1.31 | |||||||||||||
Granted | 770,000 | $ | 0.28 | |||||||||||||
Forfeited or expired | (539,000 | ) | $ | 2.48 | ||||||||||||
|
| |||||||||||||||
Outstanding at December 31, 2015 | 5,107,000 | $ | 0.57 | 2.76 | $ | 701,320 | ||||||||||
|
| |||||||||||||||
Exercisable at December 31, 2015 | 4,117,000 | $ | 0.61 | 2.23 | $ | 325,120 | ||||||||||
|
|
The fair value for each option award is estimated at the date of December 31, 2014,grant using the intrinsic value of options outstanding and exercisable was $ nil. As of December 31, 2014 and 2013, there was no unrecognized compensation cost related to unvested stock options.
As of December 31, 2014,Black Scholes option pricing model using the assumptions noted in the following table. Volatility for the years presented is based on the historical volatility of the Company’s common stock options were outstanding:over the expected life of the option. The risk free rate for periods within the expected term of the option is based on the U.S. Treasury yield curve in effect at the time of the grant. The Company does not foresee the payment of dividends on common stock in the near term.
Options Granted | Options Exercisable | Exercise Price | Expiration Date | |||||||||
183,000 | 183,000 | 2.15 | March 30, 2015 | |||||||||
10,000 | 10,000 | 1.17 | September 6, 2015 | |||||||||
7,500 | 7,500 | 2.16 | September 22, 2015 | |||||||||
6,500 | 6,500 | 4.98 | September 22, 2015 | |||||||||
7,000 | 7,000 | 4.18 | September 22, 2015 | |||||||||
25,000 | 25,000 | 0.79 | September 22, 2015 | |||||||||
20,000 | 20,000 | 2.50 | November 1, 2015 | |||||||||
2,500 | 2,500 | 5.93 | September 6, 2016 | |||||||||
20,000 | 20,000 | 1.17 | September 6, 2016 | |||||||||
470,500 | 470,500 | 4.98 | March 21, 2016 | |||||||||
15,000 | 15,000 | 1.26 | August 26, 2016 | |||||||||
60,000 | 60,000 | 0.79 | March 29, 2017 | |||||||||
596,500 | 596,500 | 4.18 | April 1, 2017 | |||||||||
20,000 | 20,000 | 3.77 | May 3, 2017 | |||||||||
610,500 | 610,500 | 2.16 | March 21, 2018 | |||||||||
957,500 | 957,500 | 0.79 | March 29, 2019 | |||||||||
30,000 | 30,000 | 0.77 | May 29, 2019 | |||||||||
20,000 | 20,000 | 1.00 | August 19, 2019 | |||||||||
15,000 | 15,000 | 1.20 | August 19, 2019 | |||||||||
|
|
|
|
|
| |||||||
3,076,500 | 3,076,500 | $ | 2.50 | |||||||||
|
|
|
|
|
|
Years Ended December 31, | ||||||||
2015 | 2014 | |||||||
Weighted average risk-free interest rate | 0.65 | % | 0.95 | % | ||||
Weighted average volatility | 80.88 | % | 69.00 | % | ||||
Expected dividend yield | — | — | ||||||
Weighted average expected life (in years) | 2.0 | 3.0 | ||||||
Weighted average grant-date fair value | $ | 0.12 | $ | 0.32 |
The summary of stock options granted and outstanding is as follows:
2014 | 2013 | |||||||||||||||
Number of shares | Weighted average exercise price | Number of shares | Weighted average exercise price | |||||||||||||
Outstanding, beginning of year | 2,511,500 | $ | 3.28 | 2,452,000 | $ | 3.86 | ||||||||||
Granted | 1,155,000 | 0.80 | 1,124,500 | 2.13 | ||||||||||||
Cancelled or forfeited | (431,500 | ) | 3.23 | (1,016,000 | ) | 3.54 | ||||||||||
Exercised | (158,500 | ) | 0.50 | (49,000 | ) | 0.52 | ||||||||||
|
|
|
|
|
|
|
| |||||||||
Outstanding, end of year | 3,076,500 | $ | 2.50 | 2,511,500 | $ | 3.28 | ||||||||||
|
|
|
|
|
|
|
| |||||||||
Options exercisable | 3,076,500 | $ | 2.50 | 2,511,500 | $ | 3.28 |
The weighted average fair value of options granted duringDuring the yearsyear ended December 31, 2014 and 2013 was $0.35 and $0.46 per share, respectively. The fair value of stock options granted was estimated using the Black-Scholes option pricing model with the following weighted average assumptions:
The Company has utilized the simplified method to determine the expected term assumption in the fair value calculation for stock options granted during the years ended December 31, 2014 and 2013. The mid-point between the vesting date and the maximum contractual expiration date is used as the expected term under this method.
Total stock-based compensation recognized during the years ended December 31, 2014 and 2013 was $0.4 million and $0.6 million, respectively. During 2014 and 2013, a total of $0.2 million and $0.4 million stock option compensation was attributable to the Troy Mine employees and is included in the amounts reported in general and administrative expense.
Stock Purchase Warrants:
There2015, there were no stock purchase warrants outstanding at December 31, 2013.options exercised. During the year ended December 31, 2014, the Company issued 2,249,549 stock purchase warrants for the purchase of common shares of Revett Mining Company, Inc. These warrants have anthere were 237,000 options exercised with a weighted average exercise price of $1.00 and expire in March 2016.
No warrants were$0.90. The total intrinsic value of the options exercised or expired during the year ended December 31, 2014. For2014 was $88,724.
A summary of the status of the Company’s nonvested options as of December 31, 2015 and changes during the year then ended is presented below:
Number of Options | Weighted- Average Grant-Date Fair Value | |||||||
Nonvested at January 1, 2015 | 900,000 | $ | 0.28 | |||||
Issued | 640,000 | $ | 0.12 | |||||
Vested | (550,000 | ) | $ | 0.31 | ||||
|
|
|
| |||||
Nonvested at December 31, 2015 | 990,000 | $ | 0.16 | |||||
|
|
|
|
As of December 31, 2015, there was $46,545 of unrecognized compensation cost related to nonvested share based compensation arrangements granted under the Plans. The cost is expected to be recognized over a weighted average period of less than one year.
Total compensation costs recognized for stock based employee compensation awards was $263,864 and $300,643 for the years ended December 31, 2013, no warrants2015 and 2014, respectively. These costs were issued, 55,000 warrantsincluded in general and administrative and technical services expenses on the Consolidated Statements of Operations. Total costs recognized for stock based compensation awards for services performed by outside parties were $0 and $9,196 for the years ended December 31, 2015 and 2014, respectively. Cash received from options exercised under all share based payment arrangements for the years ended December 31, 2015 and 1,108,438 warrants expired.2014 was $0 and $177,750, respectively.
12. Income taxesNOTE 10—DEFERRED INCOME TAX
As of December 31, 2015 and 2014, the Company had net deferred tax assets that were fully reserved by valuation allowances. Following are the components of such assets and allowances:
Years Ended December 31, | ||||||||
2015 | 2014 | |||||||
Deferred tax assets: | ||||||||
Net operating loss carryforwards | $ | 25,220,000 | $ | 24,270,000 | ||||
Stock-based compensation | 390,000 | 480,000 | ||||||
Property and equipment | 1,250,000 | 1,250,000 | ||||||
Asset retirement obligation | 180,000 | 170,000 | ||||||
|
|
|
| |||||
Total deferred tax assets | 27,040,000 | 26,170,000 | ||||||
Deferred tax liabilities: | ||||||||
Property and equipment | 240,000 | 210,000 | ||||||
|
|
|
| |||||
Net deferred tax asset before valuation allowance | 26,800,000 | 25,960,000 | ||||||
Less valuation allowance | (26,800,000 | ) | (25,960,000 | ) | ||||
|
|
|
| |||||
Net deferred tax assets | $ | — | $ | — | ||||
|
|
|
|
For the periods presented, the effective income tax rate differed from the expected rate because of the effects of changes in the deferred tax asset valuation allowance. Changes in the deferred tax asset valuation allowance for the years ended December 31, 2015 and 2014 relate only to corresponding changes in deferred tax assets for those periods.
As of December 31, 2015, the Company had federal tax basis net operating loss carryforwards totaling approximately $74,200,000 which will expire in various amounts from 2020 through 2035. The Company is subject to examination of its income tax filings in the United States and various state jurisdictions for the 2012 through 2015 tax years. Within each of these jurisdictions the Company has examined its material tax positions and determined that they would more likely than not be sustained.
NOTE 11—COMMITMENTS
Operating Leases:
The Company’s income tax benefitCompany leases office space and equipment under operating leases. As a result, the Company recognized rental expense of $53,104 and $52,186 for the years ending December 31, 2015 and 2014, respectively. The following is a schedule by years of future minimum rental payments required under operating leases that have initial or remaining noncancelable lease terms in excess of one year as follows:of December 31, 2015.
2014 | 2013 | |||||||
Federal: | ||||||||
Current | $ | — | $ | 20 | ||||
Deferred | — | (5,250 | ) | |||||
|
|
|
| |||||
Total Federal | — | (5,230 | ) | |||||
State: | ||||||||
Current | — | — | ||||||
Deferred | — | (607 | ) | |||||
|
|
|
| |||||
Total income tax benefit | $ | — | $ | (5,837 | ) | |||
|
|
|
|
Years ending December 31: | ||||
2016 | $ | 11,500 | ||
2017 | 3,100 | |||
2018 | 1,600 | |||
|
| |||
Total minimum payments required | $ | 16,200 | ||
|
|
DomesticEmployment Agreements:
The Company has employment agreements with certain executives. The agreements include a provision for severance pay equal to a multiple of each executive’s salary. To receive severance, termination must be without cause and foreign componentscannot be a result of loss from operations before income taxesdeath or disability. Additionally, severance must be paid if the executive resigns for the years ended December 31, are as follows:
2014 | 2013 | |||||||
Domestic | $ | (61,835 | ) | $ | (17,200 | ) | ||
Foreign | (88 | ) | (212 | ) | ||||
|
|
|
| |||||
Total | $ | (61,923 | ) | $ | (17,412 | ) | ||
|
|
|
|
The annual tax benefit is different from the amount that would be provided by applying the statutory federal income tax rate to the pre-tax loss. The reasons for the differences are as follows:
2014 | 2013 | |||||||||||||||
Income tax at statutory rate | $ | (21,673 | ) | (35.0 | %) | $ | (6,094 | ) | (35.0 | %) | ||||||
Effect of state taxes | (2,505 | ) | (4.0 | %) | (791 | ) | (4.4 | %) | ||||||||
Effect of foreign taxes | — | — | 25 | 0.1 | % | |||||||||||
Forfeiture of Canadian tax attributes | 2,787 | 4.5 | % | — | — | |||||||||||
Change in valuation allowance | 20,878 | 33.7 | % | 3,350 | 19.2 | % | ||||||||||
Percentage depletion | — | — | (2,503 | ) | (14.4 | %) | ||||||||||
Stock based compensation | 140 | 0.2 | % | 179 | 1.0 | % | ||||||||||
Other | 373 | 0.6 | % | (3 | ) | — | ||||||||||
|
|
|
|
|
|
|
| |||||||||
Income tax benefit | — | 0.0 | % | $ | (5,837 | ) | (33.5 | %) | ||||||||
|
|
|
|
|
|
|
|
The significant componentsgood reason within one year following a change in control of the Company’s deferred income tax assets and liabilities at December 31, 2014 and 2013 are as follows:
2014 | 2013 | |||||||
Deferred income tax assets: | ||||||||
Reclamation and remediation | $ | 1,865 | $ | 1,803 | ||||
Net operating losses: | ||||||||
United States | 20,722 | 16,826 | ||||||
Canada | — | 2,764 | ||||||
Mineral property, plant and equipment | 3,026 | — | ||||||
Other assets | 1,330 | 2,015 | ||||||
|
|
|
| |||||
26,943 | 23,408 | |||||||
Valuation allowance | (26,943 | ) | (6,065 | ) | ||||
|
|
|
| |||||
Deferred income tax assets | — | 17,343 | ||||||
Deferred income tax liabilities: | ||||||||
Mineral property, plant, and equipment | — | (17,343 | ) | |||||
Investments | — | (25 | ) | |||||
|
|
|
| |||||
Net deferred income tax liability | $ | — | $ | (25 | ) | |||
|
|
|
| |||||
Current deferred tax asset (liability) | $ | — | $ | — | ||||
Long term deferred tax asset (liability) | — | (25 | ) | |||||
|
|
|
| |||||
Net deferred income tax liability | $ | — | $ | (25 | ) | |||
|
|
|
|
Company. As of December 31, 2014 and 2013, management2015, the potential aggregate liability for severance pay under the agreements is $2,075,000.
Royalties on Patented Mining Claims:
Two of the Company’s patented mining claims, which cover the Montanore deposit, are burdened by a production payment obligation of $0.20 per ton of ore extracted and milled therefrom. The calculation and timing of the production payment are specifically defined by a Purchase and Sale Agreement.
Mines Management, Inc. and Subsidiaries
CONDENSED CONSOLIDATED BALANCE SHEETS (UNAUDITED)
March 31, 2016 | December 31, 2015 | |||||||
Assets | ||||||||
CURRENT ASSETS: | ||||||||
Cash and cash equivalents | $ | 393,244 | $ | 1,203,048 | ||||
Interest receivable | 406 | 4,459 | ||||||
Prepaid expenses and deposits | 289,550 | 335,201 | ||||||
|
|
|
| |||||
Total current assets | 683,200 | 1,542,708 | ||||||
|
|
|
| |||||
PROPERTY AND EQUIPMENT: | ||||||||
Buildings and leasehold improvements | 836,454 | 836,454 | ||||||
Equipment | 1,922,038 | 1,922,038 | ||||||
Office equipment | 344,657 | 344,657 | ||||||
|
|
|
| |||||
3,103,149 | 3,103,149 | |||||||
Less accumulated depreciation | 2,661,168 | 2,627,864 | ||||||
|
|
|
| |||||
441,981 | 475,285 | |||||||
|
|
|
| |||||
OTHER ASSETS: | ||||||||
Available-for-sale securities | 2,144 | 975 | ||||||
Reclamation deposits | 1,184,966 | 1,184,966 | ||||||
|
|
|
| |||||
1,187,110 | 1,185,941 | |||||||
|
|
|
| |||||
$ | 2,312,291 | $ | 3,203,934 | |||||
|
|
|
| |||||
Liabilities and Stockholders’ Equity | ||||||||
CURRENT LIABILITIES: | ||||||||
Accounts payable | $ | 434,630 | $ | 389,973 | ||||
Payroll and payroll taxes payable | 33,551 | 13,756 | ||||||
Dividends payable | 46,401 | 52,890 | ||||||
|
|
|
| |||||
Total current liabilities | 514,582 | 456,619 | ||||||
|
|
|
| |||||
LONG-TERM LIABILITIES: | ||||||||
Asset retirement obligation | 534,666 | 528,250 | ||||||
|
|
|
| |||||
Total liabilities | 1,049,248 | 984,869 | ||||||
|
|
|
| |||||
COMMITMENTS AND CONTINGENCIES | ||||||||
STOCKHOLDERS’ EQUITY: | ||||||||
Preferred shares — no par value, 10,000,000 shares authorized; Series B 6% convertible preferred shares — $1,000 stated value, 3,093 and 3,526 shares issued and outstanding, respectively | 3,093,370 | 3,526,000 | ||||||
Common shares — $0.001 par value, 100,000,000 shares authorized; 30,893,704 and 29,814,040 shares issued and outstanding, respectively | 30,894 | 29,814 | ||||||
Additional paid-in capital | 88,486,591 | 87,949,096 | ||||||
Accumulated deficit | (90,338,791 | ) | (89,275,655 | ) | ||||
Accumulated other comprehensive losses | (9,021 | ) | (10,190 | ) | ||||
|
|
|
| |||||
Total stockholders’ equity | 1,263,043 | 2,219,065 | ||||||
|
|
|
| |||||
$ | 2,312,291 | $ | 3,203,934 | |||||
|
|
|
|
See accompanying notes to condensed consolidated financial statements.
Mines Management, Inc. and Subsidiaries
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
Three Months Ended March 31, | ||||||||
2016 | 2015 | |||||||
OPERATING EXPENSES: | ||||||||
General and administrative | $ | 450,257 | $ | 551,902 | ||||
Technical services | 302,410 | 422,958 | ||||||
Depreciation | 33,304 | 27,837 | ||||||
Legal, accounting, and consulting | 213,740 | 465,624 | ||||||
Fees, filing, and licenses | 13,868 | 47,800 | ||||||
|
|
|
| |||||
Total operating expenses | 1,013,579 | 1,516,121 | ||||||
|
|
|
| |||||
LOSS FROM OPERATIONS | (1,013,579 | ) | (1,516,121 | ) | ||||
OTHER INCOME: | ||||||||
Interest income | 574 | 2,108 | ||||||
|
|
|
| |||||
NET LOSS | (1,013,005 | ) | (1,514,013 | ) | ||||
CUMULATIVE PREFERRED STOCK DIVIDENDS | (50,131 | ) | (52,890 | ) | ||||
|
|
|
| |||||
NET LOSS ATTRIBUTABLE TO COMMON STOCKHOLDERS | $ | (1,063,136 | ) | $ | (1,566,903 | ) | ||
|
|
|
| |||||
NET LOSS PER SHARE (basic and diluted) | $ | (0.03 | ) | $ | (0.05 | ) | ||
|
|
|
| |||||
WEIGHTED AVERAGE COMMON SHARES OUTSTANDING (basic and diluted) | 30,504,213 | 29,814,040 | ||||||
|
|
|
|
See accompanying notes to condensed consolidated financial statements.
Mines Management, Inc. and Subsidiaries
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS (UNAUDITED)
Three Months Ended March 31, | ||||||||
2016 | 2015 | |||||||
Net Loss | $ | (1,013,005 | ) | $ | (1,514,013 | ) | ||
Adjustment to net unrealized loss on marketable securities | 1,169 | 980 | ||||||
|
|
|
| |||||
COMPREHENSIVE LOSS | $ | (1,011,836 | ) | $ | (1,513,033 | ) | ||
|
|
|
|
See accompanying notes to condensed consolidated financial statements.
Mines Management, Inc. and Subsidiaries
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
Three Months Ended March 31, | ||||||||
2016 | 2015 | |||||||
CASH FLOWS FROM OPERATING ACTIVITIES: | ||||||||
Net loss | $ | (1,013,005 | ) | $ | (1,514,013 | ) | ||
Adjustments to reconcile net loss to net cash used in operating activities: | ||||||||
Stock-based compensation | 75,945 | 127,800 | ||||||
Depreciation | 33,304 | 27,837 | ||||||
Accretion of asset retirement obligation | 6,416 | 6,046 | ||||||
Changes in assets and liabilities: | ||||||||
Interest receivable | 4,053 | 3,406 | ||||||
Prepaid expenses and deposits | 45,651 | 46,385 | ||||||
Accounts payable | 44,657 | 131,220 | ||||||
Payroll and payroll taxes payable | 19,795 | 15,440 | ||||||
|
|
|
| |||||
Net cash used in operating activities | (783,184 | ) | (1,155,879 | ) | ||||
|
|
|
| |||||
CASH FLOWS FROM FINANCING ACTIVITIES: | ||||||||
Net proceeds from sales of common stock | 30,000 | — | ||||||
Cumulative preferred stock dividends | (56,620 | ) | (52,890 | ) | ||||
|
|
|
| |||||
Net cash used in financing activities | (26,620 | ) | (52,890 | ) | ||||
|
|
|
| |||||
NET DECREASE IN CASH AND CASH EQUIVALENTS | (809,804 | ) | (1,208,769 | ) | ||||
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD | 1,203,048 | 3,862,462 | ||||||
|
|
|
| |||||
CASH AND CASH EQUIVALENTS, END OF PERIOD | $ | 393,244 | $ | 2,653,693 | ||||
|
|
|
| |||||
SUPPLEMENTAL DISCLOSURE OF NONCASH FINANCING ACTIVITIES: | ||||||||
Accrual of cumulative preferred stock dividends | $ | 46,401 | $ | 52,890 | ||||
|
|
|
| |||||
Preferred shares converted to common shares | $ | 432,630 | $ | — | ||||
|
|
|
|
See accompanying notes to condensed consolidated financial statements.
NOTE 1—ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
Nature of Operations:
Mines Management, Inc. (the Company) is an Idaho corporation incorporated in 1947. The Company usedacquires, explores, and develops mineral properties in North America. The Company’s principal mineral property interest, the guidelines containedMontanore Project, is held by its wholly owned subsidiaries, Newhi Inc. and Montanore Minerals Corp. The Company’s properties, including the Montanore property, are currently in ASC 740the exploration stage; none of its properties are currently in production. The Company continues acquiring various permits for the Montanore Project and evaluatedis determining its feasibility for development. The Company’s business, operations and financial condition are subject to significant risks and uncertainties, including failing to secure additional funding to continue our business and execute our planned advanced evaluation and delineation drilling program at the positiveMontanore Project.
Summary of Significant Accounting Policies:
These unaudited interim financial statements have been prepared by the Company in accordance with U.S. generally accepted accounting principles (“U.S. GAAP”) for interim financial information, as well as the instructions to Form 10-Q. Accordingly, they do not include all of the information and negative evidence availablenotes required by U.S. GAAP for complete financial statements. In the opinion of the Company’s management, all adjustments (consisting solely of normal recurring adjustments) considered necessary for a fair presentation of the interim financial statements have been included.
The preparation of financial statements in accordance with U.S. GAAP requires the use of estimates and assumptions that affect the reported amounts of assets and liabilities, disclosure of contingent assets and liabilities known to determine whether a valuation allowance againstexist as of the deferred tax assets should be established. Management has determineddate the financial statements are published, and the reported amounts of revenues and expenses during the reporting period. Uncertainties with respect to such estimates and assumptions are inherent in the preparation of the Company’s condensed consolidated financial statements; accordingly, it is possible that the Company’s negative evidence ofactual results could differ from these estimates and assumptions, which could have a cumulative loss position after significant permanent differences andmaterial effect on the lack of future taxable income based on current conditions regarding the Troy mine outweighed the positive evidence. Management believes that it is more likely than not the deferred tax assets will not be recovered. Therefore a valuation allowance equal to 100%reported amounts of the net deferred tax assets has been recorded.
AtCompany’s consolidated financial position and results of operations. Operating results for the three month period ended March 31, 2016 are not necessarily indicative of the results that may be expected for the full year ending December 31, 20142016.
For further information, refer to the consolidated financial statements and 2013,notes thereto in the Company has United States net operating loss carry forwards of approximately $53.9 million and $43.8 million, respectively, that expire at various dates between 2024 and 2034. Montana State net operating losses of approximately $41.9 million and $34.4 million, respectively, expire at various dates between 2015 and 2021.
The Company has a net capital loss carry forward of approximately $0.1 million and $1.4 million that expires in 2017 and 2018, respectively, and $0.6 million of AMT credits that do not expire.
DuringCompany’s Annual Report on Form 10-K for the year ended December 31, 2014,2015.
(a) Going concern
The accompanying condensed consolidated financial statements have been prepared under the assumption that the Company exited Canada (see Note 1). Approximately $10.6 million of Canadian net operating loss carry forwards from 2013 were forfeited atwill continue as a going concern and do not include any adjustments that time.
might be necessary should the Company be unable to continue as a going concern. The Company is an exploration stage company and has no unrecognized tax benefits asincurred losses since the inception of December 31, 2014 or 2013, and there was no change in unrecognized tax benefits during the current year.its exploration stage. The Company hasdoes not provided for any interest or penalties associated with any uncertain tax positions. If interesthave sufficient cash to fund normal operations through the end of the second quarter of 2016 without raising additional funds. The Company currently does not have a recurring source of revenue sufficient to fund normal operations and penalties wereits ability to be assessed,continue as a going concern is dependent on the Company’s policyability to secure sufficient funding for its future exploration and working capital requirements, which may include the sale of its equity or debt securities, borrowing, or the sale of all or part of the Montanore project. There can be no assurance that the Company will succeed in securing additional funding on terms acceptable to the Company or at all, or in generating future profitable operations. These factors raise substantial doubt about the Company’s ability to continue as a going concern.
(b) Mining properties, exploration and development costs
All exploration expenditures are expensed as incurred. Significant property acquisition payments for active exploration properties are capitalized, including payments to acquire mineral rights. Once a feasibility study
has been completed and approved by management, and a decision is made to charge interestput the ore body into production, expenditures to interest expense,develop new mines, to define further mineralization in existing ore bodies, and penalties to otherexpand the capacity of operating expense. It is not anticipated that there will be any significant changesmines, are capitalized and amortized on the units of production basis over proven and probable reserves. The Company charges to unrecognized benefitsoperations the allocable portion of capitalized costs attributable to properties sold. Capitalized costs are allocated to properties sold based on the proportion of claims sold to the claims remaining within the next 12 months. Currently tax years 2012-2014 remain open for examination by the United States taxing authorities. Net operating losses prior to 2012 could be adjusted during an examination of open years.project area.
13. Comprehensive income
The components of other comprehensive income for the years ended December 31, are as follows:
2014 | 2013 | |||||||
Unrealized gain (loss) on available for sale securities before tax | $ | 359 | $ | (479 | ) | |||
Deferred tax benefit (expense) | — | 168 | ||||||
|
|
|
| |||||
Unrealized gain (loss) on available for sale securities, net of tax | 359 | (311 | ) | |||||
Reclassification of net (gain) loss on sale included in net loss | (429 | ) | 1,376 | |||||
Deferred tax provision | 25 | (482 | ) | |||||
|
|
|
| |||||
Unrealized (gain) loss on available for sale securities, net of tax | $ | (45 | ) | $ | 583 | |||
|
|
|
|
14. Derivative instruments
(c)Concentrate Sales Contracts Fair value measurements
The Company enters into concentrate sales contracts with third-party buyer. The contracts, in general, provide for a provisional payment based upon provisional assays and quoted metal prices anddiscloses the provisionally priced sales contain an embedded derivative that is requiredinputs used to be separated fromdevelop the host contract for accounting purposes. The host contract is the receivable from the sale of concentrates at the forward price at the time of sale. The embedded derivative, which is the final settlement based on a future price, does not qualify for hedge accounting. These embedded derivatives are recorded in Concentrate settlement and other receivables on the consolidated balance sheet and are adjusted to fair value through earnings each period until the date of final settlement.
Warrant Derivative Liabilities
Some ofmeasurements for the Company’s issuedfinancial assets and outstanding common share purchase warrants have exercise prices denominated in a foreign currency (Canadian dollar). These warrantsliabilities that are required to be treated as a derivative liability as the amount of cash the Company will receive on exercise of the warrants will vary depending on the exchange rate. These warrants are classified as a derivative liability and recognized at fair value. See discussion of the warrant derivative liabilities in Note 7.
The following represent changes in fair value gains on derivative instruments during the year ended December 31, 2013:
2013 | ||||
Revenue | $ | 628 | ||
Gain on warrant derivative | 63 |
15. Commitments and Contingencies
Litigation
As at December 31, 2014, there are no legal proceedings outstanding for either the Company or any of its subsidiaries.
Operating Leases
The Company has entered into a number of operating leases relating to equipment used in the production and transportation of the copper concentrate produced at Troy. All such leases expire in 2015 and many may be renewed annually. Total operating lease expense recognized for the years ended December 31, 2014 and 2013 was $0.4 million and $0.4 million, respectively. The obligations in 2015 under the terms of these leases are $0.4 million.
Royalty
There is a 3% gross smelter return payable to Royal Gold over the life of the Troy Mine commencing with production on and after July 1, 2010. There is also a 1% net smelter return payable to Royal Gold over the life of the Rock Creek Mine commencing when commercial production is achieved.
Retirement Plan
The Company maintains a discretionary defined contribution plan, which is available to all employees after completion of one month of service. The Company may, at its discretion, match an employee’s contribution up to 5% of the employee’s compensation. The Company can also choose to make additional contributions. The Company’s contributions were approximately $0.2 million in 2014 and $0.2 million in 2013.
16. Fair Value of Financial Instruments
The carrying values of cash and cash equivalents, accounts receivable, available for sale securities, restricted cash, and accounts payable and accrued liabilities approximate fair value due to their short time to maturity or ability to immediately convert them to cash in the normal course. The carrying value of concentrate settlement payable or receivable is marked to market each month using quoted forward prices as of the last trading day of each month, and accordingly are recognized at fair value. The carrying values of capital lease and notes payable obligations approximate fair market values as they are based on market rates of interest.
The Company classifies financial instruments recognizedmeasured at fair value in accordance withon a recurring basis as well as the level within the fair value hierarchy that prioritizesin which the inputs to valuation techniques used to measure fair value.value measurements in their entirety fall. The three levels of the fair value hierarchy are described below:as follows:
Level 1: Unadjusted quoted market prices in active markets for identical assets or liabilities that are accessible at the measurement date.
Level 2: Quoted prices in inactive markets for identical assets or liabilities, quoted prices for similar assets or liabilities in active markets, or other observable inputs either directly related to the asset or liability or derived principally from corroborated observable market data.
Level 3: Unobservable inputs due to the fact that there is little or no market activity.
(d) Stock compensation
The Company measures and records the costs of employee services received in exchange for an award of equity instruments based on the grant-date fair value of the award, recognized over the period during which an employee is required to provide services in exchange for such award. Compensation cost is recognized for awards granted and for awards modified, repurchased or cancelled.
(e) Net loss per share
Basic earnings or loss per share is computed on the basis of the weighted average number of shares outstanding during the period. Diluted earnings or loss per share is calculated on the basis of the weighted average number of shares outstanding during the period plus the effect of potential dilutive shares during the period. Potential dilutive shares include outstanding stock options and warrants. For periods in which a net loss is reported, potential dilutive shares are excluded because they are antidilutive. Therefore, basic loss per share is the same as diluted loss per share for the periods ended March 31, 2016 and 2015.
(f) Recent Accounting Pronouncements
In August 2014, the FASB issued Accounting Standards Update No. 2014-15,Disclosure of Uncertainties about an Entity’s Ability to Continue as a Going Concern, which defines management’s responsibility to evaluate whether there is substantial doubt about an organization’s ability to continue as a going concern and to provide related footnote disclosures. This guidance is effective for the annual period ending after December 15, 2016, and for annual periods and interim periods thereafter. Adoption of this update is expected to affect only the presentation and disclosures of the Company’s consolidated financial statements.
In February 2016, the FASB issued a new standard, Leases (ASC 842). Under the new guidance, a lessee will be required to recognize assets and liabilities for leases with lease terms of more than twelve months and to disclose key information about leasing arrangements. This guidance is effective for fiscal years beginning after December 15, 2018. The Company is not able to reasonably estimate the impact on the Company’s consolidated financial statements at this time.
In March 2016, the FASB issued Accounting Standards Update No. 2016-09,Compensation—Stock Compensation: Improvements to Employee Share-Based Payment Accounting, which is intended to simplify several areas of accounting for share-based compensation arrangements, including the income tax impact,
classification on the statement of cash flows, and forfeitures. This guidance is effective for years ending after December 31, 2016. The Company is currently assessing the impact, if any, on its consolidated financial statements.
(g) Subsequent events
The Company evaluated events and transactions subsequent to the balance sheet date of March 31, 2016 for potential recognition or disclosure in the condensed consolidated financial statements.
NOTE 2—CERTIFICATE OF DEPOSIT:
The Company has a certificate of deposit in the amount of $1,124,055 pledged as security for a Letter of Credit to the Montana Department of Environmental Quality as a reclamation guarantee for the Montanore expansion evaluation program. This certificate matures on January 3, 2017, bears interest at the rate of 0.15% and renews automatically each year. This certificate of deposit is included with reclamation deposits on the Condensed Consolidated Balance Sheets as of March 31, 2016 and December 31, 2015.
NOTE 3—AVAILABLE-FOR-SALE SECURITIES:
Available-for-sale securities are comprised of common stocks which have been valued using quoted market prices in active markets. The following table summarizes the Company’s available-for-sale securities:
Cost Unrealized Losses Fair Market Value NOTE 4—FAIR VALUE MEASUREMENTS: | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
|
The following table sets forthsummarizes the Company’s financial assets and liabilities measuredthat were accounted for at fair value on a recurring basis by level withinas of March 31, 2016, and the fair value hierarchy. Assetscalculation input hierarchy level determined to apply to each asset and liabilities are classified in their entirety based on the lowest level of input that is significantliability category. Quoted market prices were used to determine the fair value measurement.of available-for-sale securities. The Company has no financial assets or liabilities that are measured at fair value on a nonrecurring basis.
Fair Value Measurement on a Recurring Basis | ||||||||||||||||
Fair value at December 31, 2014 | ||||||||||||||||
Total | Level 1 | Level 2 | Level 3 | |||||||||||||
Cash and cash equivalents | $ | 2,896 | $ | 2,896 | $ | — | $ | — |
March 31, 2016 | December 31, 2015 | Input Hierarchy Level | ||||||||||
Assets: | ||||||||||||
Available-for-sale securities | $ | 2,144 | $ | 975 | Level 1 | |||||||
Liabilities: | ||||||||||||
Asset retirement obligation | $ | 534,666 | $ | 528,250 | Level 3 |
The following table presents the fair value reconciliation of Level 3 liabilities measured at fair value during the three months ended March 31, 2016 and 2015:
Fair value at December 31, 2013 | ||||||||||||||||
Total | Level 1 | Level 2 | Level 3 | |||||||||||||
Cash and cash equivalents | $ | 7,951 | $ | 7,951 | $ | — | $ | — | ||||||||
Available for sale securities | 600 | 600 | — | — |
Asset Retirement Obligation | ||||||||
2016 | 2015 | |||||||
Balance January 1 | $ | 528,250 | $ | 503,279 | ||||
Accretion expense | 6,416 | 6,046 | ||||||
|
|
|
| |||||
Balance March 31 | $ | 534,666 | $ | 509,325 | ||||
|
|
|
|
NOTE 5—CONCENTRATION OF CREDIT RISK:
The Company’sCompany maintains most of its cash and cash equivalent instruments are classified within Level 1 of the fair value hierarchy because they are valued using quoted market prices.
The Company’s available for sale securities are valued using quoted market prices, and accordingly, are includedequivalents in Level 1.
The Company’s concentrate receivable, which includes provisionally priced sales, are valued using pricing models andone financial institution. To date, the Company generally uses similar modelshas not experienced a material loss or lack of access to value similar instruments. Where possible,its invested cash or cash equivalents; however, no assurance can be provided that access to the Company verifiesCompany’s invested cash and cash equivalents will not be impacted by adverse conditions in the values produced by its pricing models to market prices. Valuation models require a varietyfinancial markets. The total uninsured bank deposit balance on the Company’s bank statements was approximately $1,279,000 as of inputs, including contractual terms, market prices, and correlations of such inputs. Such instruments are typically classified within Level 2 of the fair value hierarchy.March 31, 2016.
At December 31,NOTE 6—STOCKHOLDERS’ EQUITY:
Preferred Shares:
During July 2014, the Company recorded an impairment loss on its propertysold to one investor 4,000 units consisting of one share of the Company’s Series B convertible preferred stock, no par value, and equipment based upon its estimated faira warrant to purchase the Company’s common stock, par value as follows:
Fair Value Measurement on a Nonrecurring Basis | ||||||||
December 31, 2014 | ||||||||
Level 3 | Impairment Loss Recognized | |||||||
Property and Equipment | $ | 16,288 | $ | 54,724 |
The net carrying$0.001 per share, at a stated value of property and equipment was $71.0 million prior$1,000 per unit. Each share of Series B convertible preferred stock is immediately convertible into shares of common stock at a conversion rate of approximately 1,271 shares of common stock for each share of Series B convertible preferred stock (equivalent to the impairment loss.a conversion price of $0.7866 per share of common stock). The estimated fair value at December 31, 2014 was determined using the market approach which was basedconversion rate is subject to downward adjustment upon an accepted offer to sell the Company (See Note 20 – Subsequent events). The key variable utilized was the price per share included in the accepted offer. Because the fair value was based on unobservable inputs, the valuation is classified within Level 3 of the fair value hierarchy.
17. Segment Information
The Company considers itself to operate in a single segment being copper and silver mining and related activities including exploration, development, mining, and processing. All revenues earned and mineral, property, plant and equipment are located in the United States. For all periods presented, all revenues and concentrate settlements receivable are from one customer pursuant to a concentrate sales agreement.
18. Loss Per Common Share
Options and warrants to purchase 5,326,049 and 2,511,500issuing or selling shares of the Company’s common stock were excludedfor a per share price less than the applicable conversion rate. The offering yielded gross proceeds, before offering expenses, of $4.0 million (net proceeds of $3.5 million after deducting placement agent and investor fees and expenses and other offering expenses). The preferred stock has no voting rights but will entitle the holders to receive cumulative dividends at the rate of 6% per annum per share, payable quarterly. The dividends are payable in either cash or common stock at the Company’s discretion. As of March 31, 2016, 906.63 shares of the Series B 6% convertible preferred stock had been converted into 1,152,592 shares of common stock. Upon the occurrence of certain events the Company believes are within its control, the holders of the preferred shares may have the option to redeem or convert them into common shares or increase the dividend rate to 18% per annum.
Warrants: Each warrant is immediately exercisable and allows the holder to purchase approximately 636 shares of the Company’s common stock. The warrants are not listed on a national securities exchange and do not have the rights or privileges of a holder of common stock, including any voting rights, until the holder exercises the warrant. Upon the occurrence of a Fundamental Transaction, as defined in the warrant, the Company or its successor may be required to purchase the unexercised portion of the warrant from the computationwarrant holder. The following table sets forth the exercise price and expiration date of diluted earningsthe outstanding common stock purchase warrants as of March 31, 2016.
Number of Warrants | Exercise Price Per Share | Expiration Date | ||
4,000 | $ 1.0816 | November 30, 2018 |
Liquidation: Upon any dissolution, liquidation or winding up, whether voluntary or involuntary, holders of the preferred stock are entitled to receive distributions out of the Company’s assets, whether capital or surplus, before any distributions may be made on any other outstanding classes of stock. The amount received by holders of the preferred stock will be equal to the stated value of $1,000 per share of preferred stock plus any accrued and unpaid dividends thereon, and any other fees or liquidated damages then due and owing.
Common Shares:
During 2007, the Company sold 2,500,000 common shares in a private placement to one investor. In connection with the stock sale, the Company entered into a Right of First Refusal agreement (the “ROFR”) which grants a twenty-year right of first proposal and a right to match third-party proposals, to purchase all or any portion of silver mined, produced or recovered by the Company in the State of Montana. The ROFR does not apply to trade sales and spot sales in the ordinary course of business or to forward sales, in each case, for which no upfront payment is received by the Company.
NOTE 7—STOCK OPTIONS:
For a description of the Company’s Equity Incentive Plans, refer to the consolidated financial statements and notes thereto in the Company’s Annual Report on Form 10-K for the year ended December 31, 20142015. A summary of the option activity under the Company’s Equity Incentive Plans as of March 31, 2016, and 2013, respectively, because they were anti-dilutive.
19. Related Party Transactions
Trafigura AG has a contract to purchase the silver and copper concentrates produced at Troy. Trafigura Beheer B.V., which is affiliated with Trafigura AG, is the beneficial owner of more than five percent of our outstanding common shares, and is therefore a related party. Trafigura AG did not pay us anythingchanges during the yearsperiod then ended, December 31, 2014 and 2013, owing tois presented below:
Number of Options | Weighted- Average Exercise Price | Weighted- Average Remaining Contractual Term | Aggregate Intrinsic Value | |||||||||||||
Outstanding at January 1, 2016 | 5,107,000 | $ | 0.57 | |||||||||||||
Exercised | (784,000 | ) | $ | 0.21 | ||||||||||||
Forfeited or expired | (50,000 | ) | $ | 0.20 | ||||||||||||
|
| |||||||||||||||
Outstanding and exercisable at March 31, 2016 | 4,273,000 | $ | 0.63 | 2.86 | $ | 414,000 | ||||||||||
|
|
The fair value for each option award is estimated at the fact that we produced no concentrate at Troy duringdate of grant using the period.
20. Subsequent Events
On March 26, 2015,Black-Scholes option-pricing model. Volatility for the Company entered into an agreement and plan of merger with Hecla, pursuant to which, and subject to approvalperiods presented is based on the historical volatility of the Company’s shareholders andcommon shares over the satisfactionexpected life of other conditions specifiedthe option. The risk-free rate for periods within the expected term of the option is based on the U.S. Treasury yield curve in effect at the time of the grant. The Company does not foresee the payment of dividends in the agreement,near term. There were no options granted during the Company would mergethree month periods ended March 31, 2016 and 2015.
During the three months ended March 31, 2016, there were 784,000 stock options exercised with a weighted average exercise price of $0.21 and into Hecla in a share exchange transaction in whichtotal intrinsic value of $99,018. During the three months ended March 31, 2015 there were no stock options exercised.
A summary of the status of the Company’s stockholders would receive 0.1622 sharenonvested options as of Hecla common stock for each shareMarch 31, 2016 and changes during the period then ended is presented below:
Number of Options | Weighted- Average Grant-Date Fair Value | |||||||
Nonvested at January 1, 2016 | 990,000 | 0.16 | ||||||
Vested | (990,000 | ) | 0.16 | |||||
|
|
|
| |||||
Nonvested at March 31, 2016 | — | — | ||||||
|
|
|
|
As of common stock of the Company. Total consideration of $0.52 per share is payable in shares of Hecla’s common stock using an exchange ratio of 0.1622 of a share for every share of the Company. The total fair value of this offer is approximately $20.4 million. This offerMarch 31, 2016, there was no unrecognized compensation cost related to merge is not complete and is subject tononvested share-based compensation arrangements granted under the Company’s shareholders approval, which may or may not happen until mid-2015.Equity Incentive Plans.
Total compensation costs recognized for stock-based employee compensation awards was $75,945 and $127,800 for the three months ended March 31, 2016 and 2015, respectively. These costs were included in general and administrative expenses and technical services and exploration expenses on the Condensed Consolidated Statements of Operations. Total costs recognized for stock-based compensation awards for services performed by outside parties were $29,400 and $0 during the three months ended March 31, 2016 and 2015, respectively. Cash received from options exercised under all share-based payment arrangements during the three months ended March 31, 2016 and 2015 was $30,000 and $0, respectively.
Appendix A
EXECUTION VERSIONExecution Copy
Confidential
AGREEMENT AND PLAN OF MERGER
BY AND AMONG
REVETT MINING COMPANY,MINES MANAGEMENT, INC.
HECLA MINING COMPANY,
and
RHL HOLDINGS, INC.HL IDAHO CORP.
Dated as of
March 26, 2015
May 23, 2016
TABLE OF CONTENTS
Page | ||||||||
Article 1 Defined Terms and Interpretation | A-1 | |||||||
Section 1.1 | Definitions | A-1 | ||||||
Section 1.2 | Interpretation | |||||||
Article 2 The Merger | ||||||||
| ||||||||
| ||||||||
| A-9 | |||||||
Section |
| A-9 | ||||||
Section |
| A-9 | ||||||
Section |
| |||||||
Section 2.4 | Effect of the Merger | A-10 | ||||||
Section 2.5 | Articles of Incorporation; Bylaws | A-10 | ||||||
Section 2.6 | Directors and Officers | A-10 | ||||||
Article 3 Conversion of Securities; Exchange of Certificates | ||||||||
Section 3.1 |
| |||||||
| A-10 | |||||||
Section |
| A-11 | ||||||
Section |
| A-12 | ||||||
Section |
| |||||||
Section 3.5 | Stock Transfer Books | A-14 | ||||||
Article 4 Representations and Warranties of the Company | ||||||||
Section 4.1 | Organization and Qualification; Standing and Power; Charter Documents; Minutes; Subsidiaries | |||||||
Section 4.2 |
| |||||||
| A-15 | |||||||
Section |
| |||||||
Section |
| |||||||
Section |
| |||||||
| A-18 | |||||||
Section |
| A-18 | ||||||
Section |
| |||||||
Section |
| |||||||
Section | Employees and Benefits | A-20 | ||||||
| Material Contracts | A-22 | ||||||
Section |
| |||||||
| ||||||||
| ||||||||
| A-24 | |||||||
Section |
| |||||||
Section | Intellectual Property | A-24 | ||||||
| Taxes | A-24 | ||||||
Section 4.15 | Real Estate and Personal Property | A-26 | ||||||
Section |
| A-27 | ||||||
Section |
| |||||||
Section |
| |||||||
Section |
| |||||||
Section |
| |||||||
Section |
| |||||||
Section 4.22 | Insurance | A-30 | ||||||
Section 4.23 | Representations | A-30 | ||||||
Article 5 Representations and Warranties of Parent and Merger Sub | ||||||||
Section 5.1 | Organization and Qualification; Charter Documents | |||||||
| ||||||||
| ||||||||
| ||||||||
| ||||||||
| ||||||||
| ||||||||
| A-30 | |||||||
Section |
| |||||||
Section |
| |||||||
Section 5.4 | No Conflict; Required Filings and Consents | A-31 | ||||||
Section 5.5 | Orders | A-32 | ||||||
Section 5.6 | Ownership of Merger Sub | A-32 | ||||||
Section 5.7 | Vote Required | A-32 | ||||||
Section 5.8 | Brokers | A-32 | ||||||
Section 5.9 | Proxy Statement | A-32 |
Page | ||||||||
| Securities Filings; Financial Statements | |||||||
Section |
| |||||||
Section | Representations | A-33 | ||||||
| A-33 | |||||||
Section |
| |||||||
Section |
| |||||||
| A-36 | |||||||
Section |
| A-37 | ||||||
Section |
| |||||||
Section |
| |||||||
Section |
| |||||||
Section |
| |||||||
Section 6.8 | NYSE Listing | A-41 | ||||||
Section 6.9 | Indemnification of Directors and Officers | A-41 | ||||||
Section 6.10 | State Takeover Statutes | A-42 | ||||||
Section 6.11 | Section 16(b) Exemption | A-42 | ||||||
Article 7 Closing Conditions | ||||||||
Section 7.1 | Conditions to Obligations of Each Party Under This Agreement | |||||||
Section 7.2 | Additional Conditions to Obligations of Parent and Merger Sub | |||||||
Section 7.3 | Additional Conditions to Obligations of the Company | |||||||
Section 7.4 | Frustration of Closing Conditions | |||||||
Article 8 Termination, Amendment and Waiver | ||||||||
Section 8.1 |
| |||||||
| ||||||||
| ||||||||
| ||||||||
| ||||||||
| A-45 | |||||||
Section |
| |||||||
Section 8.3 | Fees and Expenses | A-47 | ||||||
Section 8.4 | Termination Fee and Expenses | A-47 | ||||||
Section 8.5 | Extension; Waiver | A-48 | ||||||
Section 8.6 | Amendment | A-48 | ||||||
Section 8.7 | Acknowledgment | A-48 | ||||||
Article 9 General Provisions | ||||||||
Section 9.1 | Non-Survival of Representations and Warranties | |||||||
Section 9.2 | Notices | |||||||
Section 9.3 | Headings | |||||||
Section 9.4 | Disclosure Schedules | |||||||
Section 9.5 | Severability | |||||||
Section 9.6 | Entire Agreement; Parties in Interest | |||||||
Section 9.7 | Assignment | |||||||
Section 9.8 | Mutual Drafting | |||||||
Section 9.9 | Governing Law; Consent to Jurisdiction; Remedies; Enforcement; Waiver of Trial by Jury | |||||||
Section 9.10 | Counterparts | |||||||
Section 9.11 | No Third Party Beneficiaries |
This Agreement and Plan of Merger (the(this “Agreement”), is entered into as of March 26, 2015,May 23, 2016, by and among Revett Mining Company,Mines Management, Inc., a Delawarean Idaho corporation (the “Company”), Hecla Mining Company, a Delaware corporation (“Parent”), and RHL Holdings, Inc.HL Idaho Corp., a Delawarean Idaho corporation and a direct wholly-owned Subsidiary (as defined below) of Parent (“Merger Sub”). Each of Parent, Merger Sub and the Company are referred to herein as a “Party” and together as “Parties.”
RECITALS
WHEREAS, the Boardboard of Directorsdirectors of the Company (the “Company Board”) has determined that it is in the best interests of the Company and its shareholders, and has declared it advisable, to enter into this Agreement with Parent and Merger Sub providing for the merger (the “Merger”) of Merger Sub with and into the Company in accordance with the GeneralIdaho Business Corporation Law ofAct, as amended (the “IBCA”), and the State of Delaware (“Idaho Model Entity Transactions Act, as amended (the “DGCLIMETA”), and the Company Board has approved this Agreement, upon the terms and subject to the conditions set forth herein, and has, upon such terms and subject to such conditions, recommended that the shareholders of the Company vote in favor of the approval of the principal terms of this Agreement and the Merger;
WHEREAS, the Boardboard of Directorsdirectors of Merger Sub has unanimously approved and declared advisable this Agreement;
WHEREAS, Parent, on its own behalf and as the sole shareholder of Merger Sub, has adopted this Agreement and approved the Merger and the other transactions contemplated hereby;
WHEREAS, concurrently with the execution of this Agreement, and as a condition and inducement to Parent’s willingness to enter into this Agreement, certain shareholdersSilver Wheaton Corp., a shareholder of the Company, and each of the directors and members of senior management of the Company are entering into a Shareholders Agreement with Parent substantially in the form ofExhibit A attached hereto (the “Shareholders Agreement”); and
WHEREAS, Parent, Merger Sub and the Company wish to make certain representations, warranties, covenants and agreements in connection with the Merger and also to prescribe certain conditions to the Merger, as set forth herein.
AGREEMENT
NOW, THEREFORE, in consideration of the foregoing and the respective representations, warranties, covenants and agreements set forth in this Agreement and intending to be legally bound hereby, the Parties agree as follows:
Article 1
Defined Terms and Interpretation
Section 1.1Definitions. For purposes of this Agreement, the term:
“Affiliate” shall mean, as to any Person, any other Person that directly or indirectly, through one or more intermediaries, controls, is controlled by, or is under common control with, such Person. For purposes of this definition, “control” (including the terms “controlled by” and “under common control with”), when used with respect to a specific Person, shall mean the possession, directly or indirectly, of the power to direct or cause the direction of the management or policies of such Person, whether through the ownership of voting securities, by Contract or otherwise.
“Agreement” shall have the meaning set formforth in the Preamble.
“BCA” shall have the meaning set forth inSection 4.19.
“Book-Entry Shares” shall have the meaning set forth inSection 3.3.2.
“Business Day” shall mean any day that is not a Saturday, Sunday, or a legal holiday under the Laws of the State of Idaho or the State of Delaware.
“Canadian Securities Laws” shall mean, as applicable, the securities legislation and securities lawsLaws of each of the Provincesprovinces and Territoriesterritories of Canada and the regulations and rules made thereunder and all published policy statements, blanket orders, notices, directions and rulings issued or adopted by the applicable securities commissions and other securities regulatory authorities in each of such Provincesprovinces and Territories,territories, as now in effect and as they may be promulgated or amended from time to time.
“Capitalization Date” shall have the meaning set forth inSection 4.2.1.
“Certificate of Merger” shall have the meaning set forth inSection 2.3.
“Certificates” shall have the meaning set forth inSection 3.3.2.
“Charter Documents” shall mean the certificatearticles of incorporation (including any certificate of designations), bylaws or like organizational documents, each as amended to date.
“Closing Date” shall have the meaning set forth inSection 2.2.
“Closing Date” shall have the meaning set forth inSection 2.2.
“COBRA” shall mean the Consolidated Omnibus Budget Reconciliation Act of 1985, as amended, and as codified in Section 4980B of the Code and Section 601 et. seq. of ERISA.
“Code” shall mean the United States Internal Revenue Code of 1986, as amended.
“Company” shall have the meaning set forth in the Preamble.
“Company Acquisition Agreement” shall have the meaning set forth inSection 6.4.1.
“Company Adverse Recommendation Change” shall have the meaning set forth inSection 6.4.1.
“Company Balance Sheet Date” shall mean December 31, 2013.2015.
“Company Board” shall have the meaning set forth in the Recitals.
“Company Contract” shall have the meaning set forth inSection 4.10.1.
“Company Disclosure Schedule” shall have the meaning set forth inArticle 4.
“Company Employee Plans” shall have the meaning set forth inSection 4.9.1.
“Company Employee Plans” shall have the meaning set forth inSection 4.9.1.
“Company Expenses” shall have the meaning set forth inSection 8.4.3.
“Company Financial Statements” shall have the meaning set forth inSection 4.6.2.
“Company IP Agreements” shall mean all licenses, sublicenses, consent to use agreements, covenants not to sue and permissions and other Contracts, including the right to receive royalties or any other consideration, whether written or oral, relating to Intellectual Property and to which the Company or any of its Subsidiaries is a party or under which the Company or any of its Subsidiaries is a licensor or licensee.licensee;provided that off-the shelf shrinkwrap, clickwrap or similar commercially available non-custom software other than mine modeling, mine planning, resource modeling and related mining software, shall not be considered “Company IP Agreements”.
“Company Leased Premises” shall have the meaning set forth inSection 4.15.1.
“Company Material Adverse Effect” shall mean any event, occurrence, fact, condition or change that is, or would reasonably be expected to become, individually or in the aggregate, materially adverse to (i) the business, results of operations, prospects, condition (financial or otherwise), or assets of the Company and its Subsidiaries, taken as a whole, or (ii) the ability of the Company to consummate the transactions contemplated hereby on a timely basis;provided, however, that, for the purposes of clause (i), a Company Material Adverse Effect shall not be deemed to include events, occurrences, facts, conditions or changes arising out of, relating to or resulting from: (a) changes generally affecting the economy or financial or securities markets; (b) the announcement of the transactions contemplated by this Agreement; (c) any outbreak or escalation of war or any act of terrorism; or (d) general conditions in the industryindustries in which the Company and its Subsidiaries operate;provided further,however, that any event, change and effect referred to in clauses (a), (c) or (d) immediately above shall be taken into account in determining whether a Company Material Adverse Effect has occurred or would reasonably be expected to occur to the extent that such event, change or effect has a disproportionate effect (other than an effect that is disproportionate solely due to the financial condition of the Company and its Subsidiaries) on the Company and its Subsidiaries, taken as a whole, compared to other participants in the industries in which the Company and its Subsidiaries conduct their businesses.
“Company Owned Properties” shall have the meaning set forth inSection 4.15.1.
“Company Permits” shall mean all licenses, clearances, authorizations and approvals from Governmental Entities owned or held by the Company and its Subsidiaries required to conduct their businesses or to use and occupy each Company Property for the business currently being conducted thereon.
“Company Preferred Stock” shall mean the Company’s Series B 6% Convertible Preferred Stock, no par value with a stated value equal to $1,000 per share.
“Company Properties” shall have the meaning set forth inSection 4.15.1.
“Company Recommendation” shall have the meaning set forth inSection 4.3.2.
“Company Representatives” shall have the meaning set forth inSection 6.3.1.
“Company Securities” shall have the meaning set forth inSection 4.2.2(ii)4.2.2(iii).
“Company Securities Filings” shall have the meaning set forth inSection 4.6.1.
“Company Shareholders’ Meeting” shall have the meaning set forth inSection 6.2.2.
“Company Stock” shall have the meaning set forth inSection 3.1.1.
“Company Stock Option” shall have the meaning set forth inSection 3.2.1.
“Company Stock PlanPlans” shall mean the Revett MineralsMines Management, Inc. Amended and Restated2003 Stock Option Plan, as amended, Mines Management, Inc. 2007 Equity Incentive Plan, dated June 21, 2011.
“Company” shall have the meaning set forth in the Preamble.and Mines Management, Inc. 2012 Equity Incentive Plan.
“Confidentiality Agreement” shall have the meaning set forth inSection 6.3.2.
“Contract” shall mean any contracts, agreements, licenses, notes, bonds, mortgages, indentures, leases or other binding instruments or binding commitments, whether written or oral.
“DGCL” shall have the meaning set forth in the Recitals.
“Effective Time” shall have the meaning set forth inSection 2.3.
“Enforceability Limitations” shall have the meaning set forth inSection 4.3.1.
“Environmental Laws” shall have the meaning set forth inSection 4.12.
“Equity Interest” shall mean any share, capital stock, partnership or membership unit or similar interest in any entity and any option, warrant, right, or security convertible, exchangeable or exercisable therefor.
“ERISA” shall mean the Employee Retirement Income Security Act of 1974, as amended.
“ERISA Affiliate” shall mean, with respect to any Person, any other Person that, together with such first Person, would be treated as a single employer within the meaning of Section 414(b), (c), (m) or (o) of the Code.
“Exchange Act” shall mean the United States Securities Exchange Act of 1934, as amended, and the rules and regulations promulgated thereunder.
“Exchange Agent”Agent” shall have the meaning set forth inSection 3.3.1.
“Exchange Ratio” shall have the meaning set forth inSection 3.1.1.
“Fairness Opinion” shall have the meaning set forth inSection 4.20.
“GAAP” shall mean United States generally accepted accounting principles.
“Governmental Entity” shall mean any supranational, national, state, municipal, local or foreign government, any instrumentality, subdivision, court, administrative agency or commission or other governmental authority, or any quasi-governmental or private body exercising any regulatory or other governmental or quasi-governmental authority.
“IBCA” shall have the meaning set forth in the Recitals.
“IMETA” shall have the meaning set forth in the Recitals.
“Indemnified Party” shall have the meaning set forth inSection 6.9.1.
“Insurance Policies” shall have the meaning set forth inSection 4.22.
“Intellectual Property” shall mean all intellectual property and other similar proprietary rights in any jurisdiction worldwide, whether registered or unregistered, including such rights in and to: (a) patents (including all reissues, divisions, provisionals, continuations and continuations-in-part, re-examinations, renewals and extensions thereof), patent applications, patent disclosures or other patent rights; (b) copyrights, design, design registration, and all registrations, applications for registration, and renewals for any of the foregoing, and any “moral” rights; (c) trademarks, service marks, trade names, business names, logos, trade dress, certification
marks and other indicia of commercial source or origin together with all goodwill associated with the foregoing, and all registrations, applications and renewals for any of the foregoing; (d) trade secrets and business, technical and know-how information, databases (including assay), data collections, and drawings, including any reports issued by any mining consultant including SRK Consulting, with respect to the Troy Mine orMontanore Project and any analytical data relating to the Rock Creekquality assurance / quality control program for drilling at the Montanore Project in support of drill core, sample rejects and sample pulps, and other confidential and proprietary information and all rights therein; (e) software, including data files, source code, object code, application programming interfaces, architecture, files, records, schematics, computerized databases and other software-related specifications and documentation; and (f) Internet domain name registrations.
“IRS” means the Internal Revenue Service.
“Knowledge” shall mean, when used with respect to an entity, the actual or constructive knowledge of any officer or director, after due inquiry and, when used with respect to an individual, the actual or constructive knowledge of such individual, after due inquiry.
“Law” shall mean any domestic or foreign laws, common law, statutes, ordinances, rules, regulations, codes, Orders or legally enforceable requirements enacted, issued, adopted, promulgated, enforced, ordered or applied by any Governmental Entity.
“Legal Action” shall mean claims, actions, suits, arbitration, proceedings or investigations.
“Liability” shall mean any liability, indebtedness or obligation of any kind (whether accrued, absolute, contingent, matured, unmatured, known or unknown, or otherwise, and whether or not required to be recorded or reflected on a balance sheet under GAAP).
“Liens” shall mean, with respect to any property or asset, all pledges, liens, mortgages, charges, encumbrances, hypothecations, options, rights of first refusal, rights of first offer and security interests of any kind or nature whatsoever.whatsoever, excluding, to the extent disclosed inSection4.16.2 of the Company Disclosure Schedule, production royalties, net proceeds or net profits interests, or other payment obligations based on mineral production.
“Maximum Premium” shall have the meaning set forth inSection 6.9.3.
“Merger” shall have the meaning set forth in the Recitals.
“Merger Consideration” shall have the meaning set forth inSection 3.1.1.
“Merger Consideration Closing Value” shall mean the (a) the closing price of Parent Common Stock on the NYSE on the trading day immediately preceding the Closing Date, multiplied by (b) the Exchange Ratio.
“Merger Consideration” shall have the meaning set forth inSection 3.1.1.
“Merger Sub” shall have the meaning set forth in the Preamble.
“Millsites” shall have the meaning set forth inSection 4.16.1.
“Mineral Properties” shall have the meaning set forth inSection 4.16.1.
“Mineral Rights” shall mean those mineral and metal concessions, claims, leases, licenses, permits, access rights, development rights and other rights and interests held, under the control of, or used by the Company or its Subsidiaries and necessary to explore for, develop, classify, mine, process or produce minerals, ore or metals for development purposes on the Mineral Properties.
“Montanore Project” shall have the meaning set forth inSection 4.15.2.
“Notice Period” shall have the meaning set forth inSection 6.4.4.
“NYSE” shall mean the New York Stock Exchange.
“NYSE MKT” shall mean the New YorkNYSE MKT LLC.
“Option Consent Agreement” shall mean the Option Consent Agreements to be entered into between the Company and the holders of the Company Stock Exchange/Market Division.Options pursuant toSection 3.2.1 in a form satisfactory to the Parties.
“Order” shall mean any order, judgment, writ, stipulation, award, injunction, decree, arbitration award or finding of any Governmental Entity.
“Parent” shall have the meaning set forth in the Preamble.
“Parent Common Stock” shall mean the common stock, par value $0.25 per share, of Parent.
“Parent Disclosure Schedule” shall have the meaning set forth inArticle 5.
“Parent Expenses” shall have the meaning set forth inSection 8.4.18.4.1(i).
“Parent Material Adverse Effect” shall mean any event, occurrence, fact, condition or change that is, or would reasonably be expected to become, individually or in the aggregate, materially adverse to (i) the business, results of operations, prospects, condition (financial or otherwise), or assets of the Parent and its Subsidiaries, taken as a whole, or (ii) the ability of the Parent to consummate the transactions contemplated hereby on a timely basis;provided, however, that, for the purposes of clause (i), a Parent Material Adverse Effect shall not be deemed to include events, occurrences, facts, conditions or changes arising out of, relating to or resulting from: (a) changes generally affecting the economy or financial or securities markets; (b) the announcement of the transactions contemplated by this Agreement; (c) any outbreak or escalation of war or any act of terrorism; or (d) general conditions in the industries in which the Parent and its Subsidiaries operate.
“Parent Preferred Stock” shall have the meaning set forth inSection 5.2.
“Parent Representatives” shall have the meaning set forth inSection 6.3.1.
“Parent Securities Filings” shall have the meaning set forth inSection 5.10.1.
“Parent Stock Option Plans” shall mean Parent’s 2010 Stock Incentive Plan, as amended, and Parent’s 1995 Option Plan for Non-employee Directors.Directors, as amended.
“Parent Stock Options” shall mean options to purchase shares of Parent Common Stock granted under the Parent Stock Option Plans.
“Party” or “Parties” shall have the meaning set forth in the Preamble.
“Patented Claims” shall have the meaning set forth inSection 4.16.1.
“Permitted Liens” shall mean (a) statutory Liens for current Taxes or other governmental charges not yet due and payable or the amount or validity of which is being contested in good faith (provided appropriate reserves required pursuant to GAAP have been made in respect thereof), (b) mechanics’, carriers’, workers’, repairers’ and similar statutory Liens arising or incurred in the ordinary course of business for amounts which are not delinquent or which are being contested by appropriate proceedings (provided appropriate reserves required
pursuant to GAAP have been made in respect thereof), (c) zoning, entitlement, building and other land use regulations imposed by Governmental Entities having jurisdiction over such Person’s owned or leased real property, which are not violated by the current use and operation of such real property, (d) covenants, conditions, restrictions, easements and other similar non-monetary matters of record affecting title to such Person’s owned or leased real property, which do not materially impair the occupancy or use of such real property for the purposes for which it is currently used in connection with such Person’s businesses, (e) any right of way or easement related to public roads and highways, which dodoes not materially impair the occupancy or use of such real property for the purposes for which it is currently used in connection with such Person’s businesses, (f) limitations, exceptions and (f)reservations set forth in the patents to the Patented Claims, (g) statutory rights of third parties to use the surface of the Unpatented Claims, the Millsites and the Tunnel Sites, (h) Liens arising under workers’ compensation, unemployment insurance, social security, retirement and similar legislation.legislation, and (i) Liens arising from that Right of First Refusal Agreement dated November 2, 2007 between the Company and Silver Wheaton Corp.
“Person” shall mean any individual, corporation, limited or general partnership, limited liability company, limited liability partnership, trust, association, joint venture, Governmental Entity and other entity and group (which term includes a “group” as such term is defined in Section 13(d)(3) of the Exchange Act).
“Property Agreements” shall mean the leases, licenses, options, purchase and sale agreements or other instruments pursuant to which any of the Mineral Properties or Mineral Rights are held.
“Proxy Statement” shall have the meaning set forth inSection 6.2.1.
“Real Property Leases” shall have the meaning set forth inSection 4.15.1.
“Representative” shall have the meaning set forth inSection 6.3.1.
“Rock Creek Project” shall have the meaning set forth inSection 4.15.2.
“S-4” shall have the meaning set forth inSection 6.2.1.
“Sarbanes-Oxley Act” shall mean the Sarbanes-Oxley Act of 2002, as amended (including the rules and regulations promulgated thereunder).
“SEC” shall mean the Securities and Exchange Commission.
“Securities Act” shall mean the United States Securities Act of 1933, as amended, and the rules and regulations promulgated thereunder.
“Shareholder Approval” shall have the meaning set forth inSection 4.3.1.
“Shareholder Rights Plan” shall mean the Rights Agreement, dated June 18, 2009, between Mines Management, Inc. and Computershare Trust Company, N.A.
“Shareholders Agreement” shall the meaning set forth in the Recitals.
“Statement of Merger” shall have the meaning set forth inSection 2.3.
“Stock Merger Exchange Fund” shall have the meaning set forth inSection 3.3.1.
“Subsidiary” or “Subsidiaries” of any Person shall mean any corporation, limited liability company, partnership or other legal entity of which such Person (either alone or through or together with any other Affiliate or Subsidiary thereof) owns, directly or indirectly, a majority of the stock or other Equity Interests, the holders of
which are generally entitled to vote for the election of the board of directors or other governing body of such corporation or other legal entity.
“Superior Proposal” shall mean a bona fide written Takeover Proposal involving the direct or indirect acquisition pursuant to a tender offer, exchange offer, merger, consolidation or other business combination, of greater than ninety percent 90%50% of the Company’s consolidated assets or greater than ninety percent (90%)50% of the outstanding Company Stock, that the Company Board determines in good faith (after consultation with outside legal counsel and an independent financial advisor) is more favorable from a financial point of view to the holders of Company Stock than the transactions contemplated by this Agreement, taking into account (a) all financial considerations, (b) the identity of the third party making such Takeover Proposal, (c) the anticipated timing, conditions (including any financing condition or the reliability of any debt or equity funding commitments) and prospects for completion of such Takeover Proposal, (d) the other terms and conditions of such Takeover Proposal and the implications thereof on the Company, including relevant legal, regulatory and other aspects of such Takeover Proposal deemed relevant by the Company Board and (e) any revisions to the terms of this Agreement and the Merger proposed by Parent during the Notice Period set forth inSection 6.4.4.
“Surviving Corporation” shall have the meaning set forth inSection 2.1.
“Takeover Proposal” shall mean a proposal or offer from, or indication of interest in making a proposal or offer by, any Person (other than Parent and its Subsidiaries, including Merger Sub) relating to any (a) direct or indirect acquisition of assets of the Company or its Subsidiaries (including any voting equity interestsEquity Interests of Subsidiaries, but excluding sales of assets in the ordinary course of business) equal to fifteen percent (15%)25% or more of the fair market value of the Company’s consolidated assets, or to which fifteen percent (15%) or more of the Company’s net revenues or net income on a consolidated basis are attributable, (b) direct or indirect acquisition of fifteen percent (15%)25% or more of the voting equity interestsEquity Interests of the Company, (c) tender offer or exchange offer that if consummated would result in any Person beneficially owning (within the meaning of Section 13(d) of the Exchange Act) fifteen percent (15%)25% or more of the voting equity interestsEquity Interests of the Company, (d) merger, consolidation, other business combination or similar transaction involving the Company or any of its Subsidiaries, pursuant to which such Person would own fifteen percent (15%)25% or more of the consolidated assets, net revenues or net income of the Company, taken as a whole, or (e) liquidation or dissolution (or the adoption of a plan of liquidation or dissolution) of the Company or the declaration or payment of an extraordinary dividend (whether in cash or other property) by the Company.
“Tax Return” shall mean any return, declaration, report, claim for refund, information return or statement or other document required to be filed with or provided to any taxing authority in respect of Taxes (including any information return required under Sections 6055 or 6056 of the Code), including any schedule or attachment thereto, and including any amendment thereof.
“Taxes” shall mean all federal, state, local, foreign and other income, gross receipts, sales, use, production, ad valorem, transfer, franchise, registration, profits, license, lease, service, service use, withholding, payroll, employment, unemployment, estimated, excise, severance, environmental, stamp, occupation, premium, property (real or personal), real property gains, windfall profits, customs, duties or other taxes, fees, assessments or charges of any kind whatsoever, however denominated or computed, together with any interest, additions or penalties with respect thereto and any interest in respect of such additions or penalties.
“Tax Returns” shall mean any return, declaration, report, claim for refund, information return or statement or other document required to be filed with or provided to any taxing authority in respect of Taxes, including any schedule or attachment thereto, and including any amendment thereof.
“Termination Date” shall have the meaning set forth inSection 8.1(ii)(b).
“Termination Fee” shall have the meaning set forth inSection 8.4.18.4.1(i).
“Third Party” shall mean any Person or “group” (within the meaning of Section 13(d)(3) of the Exchange Act) other than the Company, Parent or Merger Sub or any of their Subsidiaries.
“Troy Mine” shall mean the underground silver and copper mine located in Lincoln County, Montana, and all related mill, infrastructure, and property (personal and real).
“TSX” shall mean the Toronto Stock Exchange.
“Tunnel Sites” shall have the meaning set forth inSection 4.16.1.
“Unpatented Claims” shall have the meaning set forth inSection 4.16.1.
“Voting Debt” shall have the meaning set forth inSection 4.2.3.
“Warrants” shall have the meaning set forth inSection 3.2.2.
Section 1.2Interpretation. In this Agreement, unless otherwise specified, the following rules of interpretation apply:
(a) Unless otherwise indicated, all underlined references to Articles, Sections, Schedules, Exhibits clauses and Parties are references to articles, sections or subsections, schedules, exhibits and clauses of and parties to this Agreement;
(b) references to any Person include references to such Person’s successors and permitted assigns;
(c) words importing the singular include the plural and vice versa;
(d) words importing one gender include the other gender;
(e) references to months are to calendar months;
(f) the words “include,” “includes” or “including” and words of similar import mean “include, without limitation,” “includes, without limitation,” or “including, without limitation,” regardless of whether any reference to “without limitation” or words of similar import is made;
(g) the words “hereof,” “herein” and “hereunder” and words of similar import, when used in this Agreement, refer to this Agreement as a whole and not to any particular provision of this Agreement;
(h) references to “$” or “dollars” refer to U.S.United States dollars;
(i) a defined term has its defined meaning throughout this Agreement, and in each Exhibit and Schedule to this Agreement, the Company Disclosure Schedule and the Parent Disclosure Schedule, regardless of whether it appears before or after the place where it is defined;
(j) references to any specific provision of any Law shall also be deemed to be references to any successor provisions or amendments thereof and to any rules or regulations promulgated thereunder;
(k) the word “or” is not exclusive and is used in the inclusive sense of “and/or,” and
(l) the phrase “made available” shall mean (i) provided on a Company datasite accessible by the Company for postingParent, or (ii) otherwise distributed to theFiles-To-Go datasite administered by Parent.
Article 2
The Merger
Section 2.1The Merger. At the Effective Time, upon the terms and subject to satisfaction or valid waiver of the conditions set forth in this Agreement, and in accordance with the DGCL,IBCA and the IMETA, Merger Sub shall be merged with and into the Company. As a result of the Merger, the separate corporate existence of Merger Sub shall cease and the Company shall continue as the corporation surviving the Merger (the “Surviving Corporation”).
Section 2.2Closing. Upon the terms and subject to the conditions of this Agreement, the closing of the Merger (the “Closing”) shall take place on a day that is a Business Day (a) at the offices of Parent, no later than
the second Business Day following the satisfaction of the conditions set forth inArticle 7 (other than (i) those conditions that are waived in accordance with the terms of this Agreement by the Party or Parties for whose benefit such conditions exist and (ii) any such conditions that, by their terms, are not capable of being satisfied until the Closing) or (b) at such other place, time and/or date as the Parties may otherwise agree;provided,however, that this Agreement may be terminated pursuant to and in accordance withSection 8.1 such that the Parties shall not be required to effect the Closing. The date upon which the Closing shall occur is referred to herein as the “Closing Date.”
Section 2.3Effective Time. Subject to the provisions of this Agreement, at the Closing, the Company, Parent and Merger Sub Shallshall cause a certificatestatement of merger (the “CertificateStatement of Merger”) to be executed, acknowledged and filed with the Secretary of State of the State of DelawareIdaho in accordance with the relevant provisions of the DGCLIMETA and shall make all other filings or recordings required under the DGCL.IBCA and the IMETA. The Merger will become effective at such time as the CertificateStatement of Merger has been duly filed with the Secretary of State of the State of DelawareIdaho or at such later date or time as may be agreed by the Company and Parent in writing and specified in the CertificateStatement of Merger in accordance with the DGCLIMETA (the effective time of the Merger being hereinafter referred to as the “Effective Time”).
Section 2.4Effect of the Merger. At the Effective Time, the effect of the Merger shall be as provided in this Agreement and the applicable provisions of the DGCL.IBCA and the IMETA. Without limiting the generality of the foregoing, at the Effective Time, all the property, rights, privileges, immunities, powers, franchises, licenses and authority of the Company and Merger Sub shall vest in the Surviving Corporation, and all debts, liabilities,Liabilities, obligations, restrictions and duties of the Company and Merger Sub shall become the debts, liabilities,Liabilities, obligations, restrictions and duties of the Surviving Corporation.
Section 2.5CertificateArticles of Incorporation; Bylaws. At the Effective Time, the Certificatearticles of Incorporationincorporation of the Company (as amended), as in effect on the date hereof, shall be amended in itstheir entirety to read as set forth onExhibit B hereto, and, as so amended, shall be the certificatearticles of incorporation of the Surviving Corporation, until thereafter amended as provided therein and by applicable law.Law. At the Effective Time, the by-lawsbylaws of Merger Sub in effect immediately prior to the Effective Time shall be the by-lawsbylaws of the Surviving Corporation, until thereafter amended as provided therein and by applicable Law.
Section 2.6Directors and Officers. The directors of Merger Sub immediately prior to the Effective Time shall be the directors of the Surviving Corporation, each to hold office in accordance with the certificatearticles of incorporation and bylaws of the Surviving Corporation. The officers of Merger Sub immediately prior to the Effective Time shall be the officers of the Surviving Corporation, each to hold office in accordance with the certificatearticles of incorporation and bylaws of the Surviving Corporation.
Article 3
Conversion of Securities; Exchange of Certificates
Section 3.1Conversion of Securities. At the Effective Time, by virtue of the Merger and without any action on the part of Parent, Merger Sub, the Company or any of their shareholders, the following shall occur.
Section 3.1.1Conversion Generally. Each share of common stock of the Company, par value $0.01$.001 per share (“Company Stock”), issued and outstanding immediately prior to the Effective Time (other than any shares of Company Stock to be canceled pursuant toSection 3.1.2), shall be converted into the right to receive 0.16220.2218 (the “Exchange Ratio”) shares of Parent Common Stock (the “Merger Consideration”). All shares of Company Stock that have been converted into the right to receive the Merger Consideration as provided in thisSection 3.1.1 shall as of the Effective Time no longer be outstanding and shall automatically be canceled and retired and shall cease to exist, and each Certificate and each Book-Entry Share which immediately prior to the Effective Time represented such shares shall thereafter represent only the right to receive the Merger
Consideration therefor in accordance with the terms of this Agreement. Certificates and Book-Entry Shares previously
representing shares of Company Stock (other than any shares of Company Stock to be canceled pursuant toSection 3.1.2) shall be exchanged for the Merger Consideration, without interest, upon the surrender of such Certificates or Book-Entry Shares in accordance with the provisions ofSection3.3.
Section 3.1.2Cancellation of Certain Shares. Each share of Company Stock held (i) by Parent, Merger Sub, any Subsidiary of Parent or Merger Sub, (ii) in the treasury of the Company, or (iii) by any Subsidiary of the Company immediately prior to the Effective Time shall be automatically canceled and retired and shall cease to exist and no consideration shall be delivered in exchange therefor.
Section 3.1.3Merger Sub. Each share of common stock, par value $0.01 per share, of Merger Sub issued and outstanding immediately prior to the Effective Time shall be converted into and become one newly issued, fully paid and non-assessable share of common stock of the Surviving Corporation.
Section 3.1.4Change in SharesShares.. If between the date of this Agreement and the Effective Time the outstanding shares of Company Stock, or securities convertible or exchangeable into or exercisable for shares of Company Stock, shall have been changed into a different number of shares or a different class in accordance with this Agreement, by reason of any stock dividend (excluding, for the avoidance of doubt, cash dividends), subdivision, reclassification, recapitalization, split, reverse split, combination, exchange of shares or any other similar transaction, the Exchange Ratio shall be correspondingly adjusted to reflect such stock dividend, subdivision, reclassification, recapitalization, split, reverse split, combination, exchange of shares or other similar transaction.
Section 3.2Treatment of Stock Options, Warrants, and WarrantsPreferred Stock.
Section 3.2.1Stock Options. At the Effective Time, each option (each, a “Company Stock Option”) to purchase shares of Company Stock granted under the Company Stock PlanPlans that is outstanding immediately prior to the Effective Time (whether or not vested) that has anshall be deemed fully vested and shall be cancelled in exchange for the right to receive shares of Parent Common Stock (without interest, and subject to deduction for any required withholding Tax, with cash being paid in lieu of issuing fractional shares of Parent Common Stock) with a value equal to the product of (i) the excess (if any) of the Merger Consideration Closing Valueminus the exercise price per share under such Company Stock Option and (ii) the number of shares subject to such Company Stock Option;provided,however, that (a) if the exercise price per share of any such Company Stock Option is equal to or greater than the Merger Consideration (which is applicable to allClosing Value, such Company Stock Options)Option shall be cancelled without any payment being made in respect thereof.thereof, and (b) at the option of Parent, in lieu of paying all or a portion of the amounts due to a holder of Company Stock Options under this paragraph in shares of Parent Common Stock, Parent may substitute for such shares an equivalent amount in cash, and (c) such holders of Company Stock Options shall have delivered to the Company an executed Option Consent Agreement. For purposes of the preceding sentence, the shares of Parent Common Stock to be issued to holders of Company Stock Options shall be deemed to have a value equal to the closing price of Parent Common Stock on the NYSE on the trading day immediately preceding the Closing Date. Promptly following the Closing Date (and, in any event, within ten Business Days thereof), Parent shall (1) if any shares of Parent Common Stock are being issued to any holder of Company Stock Options, cause Parent’s transfer agent to issue such Parent Common Stock, and (2) if any cash payments are being made to any holder of Company Stock Options, cause the Company to process such payments through its payroll system.
Section 3.2.2Warrants. At the Effective Time, and in accordance with the terms of each warrant to purchase shares of Company Stock that is listed onSection 4.2.3 of the Company Disclosure Schedule (collectively, the “Warrants”) and that is issued and outstanding immediately prior to the Effective Time, unless otherwise elected by the holder of any such Warrant, Parent shall cause the Surviving Corporation to issue a replacement warrant shall be issued to each holder thereofof a Warrant providing that such replacement warrant shall be exercisable for a number of shares of Parent Common Stock (without interest, and subject to deduction for any required withholding Tax, and no issuance of fractional shares and the number of such shares rounded down) with a value equal to the product of (i) the Exchange Ratio and (ii) the number of shares subject to such Warrant, with an
exercise price of $6.17 per share of Parent Common Stock pursuant to and in accordance with such holder’s Warrant (as amended).$4.8765. From and after the Closing, Parent shall cause the Surviving Corporation to comply with all of the terms and conditions set forth in each such replacement warrant. Prior to
Section 3.2.3Company Preferred Stock. At the Closing, the board of directors of the Company shall approve amendments to the Warrants to reflect the treatment of the Warrants pursuant to thisSection 3.2.2 pursuant toEffective Time, and in accordance with Section 14(d)the terms of the Warrants.Company Preferred Stock, replacement preferred stock shall be issued to each holder of Company Preferred Stock that is listed onSection 4.2.3 of the Company Disclosure Schedule and that is issued and outstanding immediately prior to the Effective Time, providing that such replacement preferred stock shall have a conversion price of $3.5464 and contain such other terms as are required by the terms of the Company Preferred Stock. From and after the Closing, Parent shall comply with all of the terms and conditions set forth in such replacement preferred stock.
Section 3.2.3 3.2.4Termination of Company Stock Plans. Prior to the Effective Time, the Company shall provide such notice, if any, to the extent required under the terms of the applicable Company Stock Plans, obtain any necessary consents, adopt applicable resolutions, amend the terms of the Company Stock Plans or any outstanding awards, and take all other appropriate actions to: (i) give effect to the transactions contemplated inSectionsSection 3.2.1 andSection 3.2.2; (ii) terminate the Company Stock Plans as of the Effective Time; and (iii) ensure that after the Effective Time, neither anyno holder of Company Stock Options, or Warrants,nor any beneficiary thereof, nor any other participant in any Company Stock Plan, shall have any right thereunder to
acquire any securities of the Company or to receive any payment or benefit with respect to any award previously granted under the Company Stock Plans, except as provided inSectionsSection 3.2.1 andSection 3.2.2. As of the Effective Time, all Company Stock Plans shall be terminated and no further awards or other rights shall be granted thereunder.
Section 3.3Exchange of Certificates.
Section 3.3.1Exchange Agent. Prior to the Closing Date, Parent shall appoint an exchange agent reasonably acceptable to the Company (the “Exchange Agent”) for the purpose of exchanging shares of Company Stock for Merger Consideration. Prior to the Effective Time, Parent shall make available to the Exchange Agent, for the benefit of the holders of shares of Company Stock, shares of Parent Common Stock and, if applicable, cash in an amount equal to the aggregate Merger Consideration to be paid pursuant to thisArticle 3 (the certificates representing the shares of Parent Common Stock comprising such aggregate Merger Consideration and, theif applicable, cash in lieu of fractional shares, being referred to hereinafter as the “Stock Merger Exchange Fund”). The Exchange Agent shall, pursuant to irrevocable instructions, deliver the Merger Consideration out of the Stock Merger Exchange Fund. The Stock Merger Exchange Fund shall not be used for any purpose other than as set forth in this Agreement.
Section 3.3.2Exchange Procedures. Promptly following the Effective Time, the Exchange Agent shall mail to each holder of record of a certificate or certificates which immediately prior to the Effective Time represented outstanding shares of Company Stock (the “Certificates”) or of non-certificated shares of Company Stock represented by book-entry (“Book-Entry Shares”) (a) a letter of transmittal in customary form, which shall be subject to the reasonable approval of the Parties prior to the Effective Time, and (b) instructions for use in effecting the surrender of Certificates (or affidavits of loss in lieu thereof) or Book-Entry Shares in exchange for the Merger Consideration. Upon surrender of Certificates (or affidavits of loss and, if reasonably requested by Parent, appropriate bonds in lieu thereof), or in the case of Book-Entry Shares, upon adherence to the applicable procedures set forth in the letter of transmittal, for cancellation to the Exchange Agent together with such letter of transmittal, properly completed and duly executed in accordance with the instructions thereto, and such other documents as may be reasonably required by the Exchange Agent or pursuant to such instructions, the holder of such Certificates or Book-Entry Shares shall be entitled to receive in exchange therefor the Merger Consideration, without interest, allocable to such Certificates or Book-Entry Shares, and the Certificates or Book-Entry Shares so surrendered shall forthwith be canceled. In the event of a transfer of ownership of shares of Company Stock which is not registered in the transfer records of the Company, the Merger Consideration may be issued to a transferee if the Certificate representing such shares of Company Stock is presented to the Exchange Agent (or in the case of Book-Entry Shares, upon adherence to the applicable procedures set forth in the letter of
transmittal), accompanied by all documents required to evidence and effect such transfer and by evidence that any applicable stock transfer Taxes have been paid. Until surrendered as contemplated by thisSection 3.3, each Certificate and each Book-Entry Share shall be deemed at any time after the Effective Time to represent only the right to receive upon such surrender the Merger Consideration allocable to such Certificates or Book-Entry Shares. No dividends or other distributions with respect to Parent Common Stock issued in the Merger having a record date after the Effective Time and payable to the holders of record thereof after the Effective Time will be paid to Persons entitled by reason of the Merger to receive Parent Common Stock until such Persons surrender their Certificates (or in the case of Book-Entry Shares, upon adherence to the applicable procedures set forth in the letter of transmittal) as provided in thisSection 3.2.23.3.2. Upon such surrender, there shall be paid to the Person in whose name the Merger Consideration is issued any dividends or other distributions having a record date after the Effective Time and payable with respect to such Parent Common Stock between the Effective Time and the time of such surrender. After such surrender, at the appropriate payment date, there shall be paid to the Person in whose name the Merger Consideration is issued any dividends or other distributions on such Parent Common Stock with a payment date after such surrender which shall have a record date after the Effective Time. In no event shall the Persons entitled to receive such dividends or other distributions be entitled to receive interest on such dividends or other distributions.
Section 3.3.3Further Rights in Company Stock. All Merger Consideration paid in accordance with the terms hereof shall be deemed to have been issued in full satisfaction of all rights pertaining to such shares of Company Stock.
Section 3.3.4Termination of Stock Exchange Fund. Any portion of the Stock Merger Exchange Fund (including any interest received with respect thereto) which remains undistributed to the holders of Company Stock on the day that is six months after the Effective Time shall be delivered to Parent upon demand, and any holders of Company Stock who have not theretofore complied with thisArticle 3 shall thereafter look only to Parent (subject to abandoned property, escheat or other similar Laws) for payment of the Merger Consideration, without any interest thereon.
Section 3.3.5No Liability. Neither the Exchange Agent nor any of the Parties shall be liable to any holder of shares of Company Stock entitled to payment of the Merger Consideration under thisArticle 3 for any Merger Consideration (including any interest or cash in lieu of fractional shares) from the Stock Merger Exchange Fund properly delivered to a public official pursuant to any abandoned property, escheat or similar Law. The Exchange Agent shall not be entitled to vote or exercise any rights of ownership with respect to the Parent Common Stock held by it from time to time hereunder, except that it shall receive and hold all dividends or other distributions paid or distributed with respect to such Parent Common Stock for the account of the Persons entitled thereto.
Section 3.3.6Lost Certificates. If any Certificate shall have been lost, stolen or destroyed, upon the making of an affidavit of that fact by the Person claiming such Certificate to be lost, stolen or destroyed in the form required by the Exchange Agent and, if reasonably required by Parent, the posting by such Person of a bond, in such reasonable and customary amount as Parent may direct, as indemnity against any claim that may be made with respect to such lost, stolen or destroyed Certificate, the Exchange Agent will issue in exchange for such lost, stolen or destroyed Certificate the applicable Merger Consideration without any interest thereon.
Section 3.3.7Withholding. Each of Parent, the Surviving Corporation and the Exchange Agent shall be entitled to deduct and withhold from the consideration otherwise payable pursuant to this Agreement to any holder of Company Stock such amounts as Parent, the Surviving Corporation, or the Exchange Agent are required to deduct and withhold under the Code, or any applicable provision of state, local or foreign taxTax Law, with respect to the making of such payment. To the extent that amounts are so withheld by Parent, the Surviving Corporation, or the Exchange Agent and paid over to the applicable Governmental Entity, such withheld amounts shall be treated for all purposes of this Agreement as having been paid to the holder of Company Stock in respect
of whom such deduction and withholding was made by Parent, the Surviving Corporation or the Exchange Agent, as the case may be.
Section 3.4No Fractional Shares. No fractional shares of Parent Common Stock shall be issued in connection with the Merger. If a holder of shares of Company Stock is entitled to receive any fractional share of Parent Common Stock based on application of the Exchange Ratio to the total number of shares of Company Stock held by such holder immediately prior to the Effective Time, thesuch holder will be entitled to receive, at Parent’s option, either (i) such fractional share or (ii) cash in lieu of such fractional shares based on the Merger Consideration Closing Value.
Section 3.5Stock Transfer Books. At the Effective Time, the stock transfer books of the Company shall be closed and thereafter there shall be no further registration of transfers of shares of Company Stock outstanding on the records of the Company prior to the Effective Time. From and after the Effective Time, the holders of Certificates and Book-Entry Shares shall cease to have any rights with respect to the shares of Company Stock represented thereby except as otherwise provided herein or by Law. From and after the Effective Time, any Certificates presented to the Exchange Agent, Parent or the Surviving Corporation for transfer or any other reason shall be cancelled and exchanged for the applicable Merger Consideration as provided in, and in accordance with, thisArticle 3.
Article 4
Representations and Warranties of the Company
Except as set forth inon the Company disclosure schedule delivered by the Company to Parent on the date hereof (the “Company Disclosure Schedule”), the Company represents and warrants to Parent and Merger Sub as follows:
Section 4.1Organization and Qualification; Standing and Power; Charter Documents; Minutes; Subsidiaries.
Section 4.1.1Organization and Qualification; Standing and Power. The Company and each of its Subsidiaries is a corporation, limited liability company or other legal entity duly organized, validly existing and in good standing under the Laws of its jurisdiction of organization, and has the requisite corporate, limited liability company or other organizational, as applicable, power and authority to own, lease and operate its assets and to carry on its business as now conducted. Each of the Company and its Subsidiaries is duly qualified or licensed to do business as a foreign corporation, limited liability company or other legal entity and is in good standing in each jurisdiction where the character of the assets and properties owned, leased or operated by it or the nature of its business makes such qualification or license necessary, except where the failure to be so qualified or licensed, or to be in good standing, would not reasonably be expected to have, individually or in the aggregate, a material adverse impact on the Company and its Subsidiaries.Material Adverse Effect.
Section 4.1.2Charter DocumentsDocuments.. The Company has delivered or made available to Parent a true and correct copy of the Charter Documents of the Company and each of its Subsidiaries. Neither the Company nor any of its Subsidiaries is in violation of any of the provisions of its Charter Documents.
Section 4.1.3Minutes. The Company has made available to Parent true and correct copies of the minutes (or, in the case of minutes that have not yet been finalized, a brief summary of the meeting) of all meetings of stockholders,shareholders, the Company Board and each committee of the Company Board since August 25, 20042001 and stock recordsrecord books of the Company and its Subsidiaries. The minute books of the Company and its Subsidiaries contain true, correct and complete records of all meetings of the Company and its Subsidiaries, the Company Board or any Subsidiary board of directors, and any committees of the Company Board or any Subsidiary board of directors, and the stockholdersshareholders of the Company or any Subsidiary, and no meeting, or action taken by written consent, of the Company Board or committee or stockholdersshareholders of the Company or any Subsidiary (as applicable) has been held for which minutes have not been prepared and are not contained in such minute books. At the Closing, all of those books and records will be in the possession of the Company and its Subsidiaries.
Section 4.1.4 Subsidiaries.Subsidiaries.Section 4.1.4 of the Company Disclosure Schedule lists each of the Subsidiaries of the Company as of the date hereof and its place of organization.incorporation. Except as disclosed onSection 4.1.4 of the Company Disclosure Schedule, the Company, directly or indirectly, owns one hundred percent (100%)100% of the outstanding Equity InterestInterests of each Subsidiary of the Company. All of the outstanding shares of capital stock of, or other equity or voting interests in, each Subsidiary of the Company have been validly issued, were issued free of pre-emptive rights and are fully paid and non-assessable, and are free and clear of all Liens, including any restriction on the right to vote, sell or otherwise dispose of such capital stock or other equity or voting interests. Except foras disclosed onSection 4.1.4 of the capital stock of, or other equity or voting interestsCompany Disclosure Schedule and the Equity Interests in its Subsidiaries, the Company does not own, directly or indirectly, any capital stock of, or other equity or voting interests in, any Person.
Section 4.2Capital Structure.
Section 4.2.1Capital Stock.The entire authorized capital stock of the Company consists of 100,000,000 shares of common stock, par value $0.01$0.001 per share, of which 39,273,98931,743,704 shares are issued and outstanding as of the close of business on March 25, 2015May 20, 2016 (the “Capitalization Date”) and no shares are held in treasury and 25,000,00010,000,000 shares of preferred stock, no par value, $0.01 per share,of which (i) 40,000 shares are designated as Series A Junior Participating Preferred Stock, no par value, of which no shares are issued and outstanding as of the Capitalization Date and no shares are held in treasury.treasury as of the close of business on the Capitalization Date and (ii) 4,000 shares are designated as Series B 6% Convertible Preferred Stock, no par value and stated value equal to $1,000 per share, of which 2,424.76 shares are issued and outstanding as of the Capitalization Date and no shares are held in treasury as of the close of business on the Capitalization Date. All of the outstanding shares of Company Stock and Company Preferred Stock have been duly authorized, are validly issued, fully paid, and nonassessable, and have been issued in compliance with all applicable Laws and are not subject to any pre-emptive rights. TheExcept pursuant toSections 6.5.3 and7.2.6, the Company is not a party or subject to any
agreement or understanding, and there is no agreement or understanding between any Persons, that affects or relates to the voting or giving of written consents with respect to any securities of the Company or the voting by any director of the Company. No Subsidiary of the Company owns any Company Stock.
Section 4.2.2Stock Options.
(i) As of the Capitalization Date, an aggregate of 6,500,0004,273,000 shares of Company Stock were subject to issuance pursuant to Company Stock Options granted under the Company Stock Plan.Plans. Section 4.2.2(i) of the Company Disclosure Schedule sets forth a true, correct, and complete list of each outstanding Company Stock Option granted under the Company Stock PlanPlans and (a) the name of the holder of such Company Stock Option, (b) the number of shares of Company Stock subject to such outstanding Company Stock Option, (c) the exercise price of such Company Stock Option, (d) the date on which such Company Stock Option was granted or issued, (e) the applicable vesting schedule and the extent to which such Company Stock Option is vested and exercisable as of the date hereof, and (g) the date on which such Company Stock Option expires. All shares of Company Stock subject to issuance under the Company Stock Plan,Plans, upon issuance in accordance with the terms and conditions specified in the instruments pursuant to which they are issuable, will be duly authorized, validly issued, fully paid and non-assessable.
(ii) Each outstanding Company Stock Option was granted under the Company Stock PlanPlans, and theeach Company Stock Plan provides(a) was adopted, authorized and approved, and (b) has been operated in compliance with, all applicable Laws and regulations of NYSE MKT and TSX, including in connection with any changes made to the original exercise price of any outstanding or previously exercised Company Stock Option. Any grant of securities or changes in the terms of any prior grants, including with respect to Company Stock Options, was made in compliance with the terms of the relevant Company Stock Plan. The Company Stock Plans, other than the Mines Management, Inc. 2007 Equity Incentive Plan, provide that in the event of a Corporate Change of Control or Change in Control (as defined in the applicable Company Stock Plan), the Company has the power to cancel any Company Stock Option that has an exercise price that is less than the per share consideration to be paid under the
terms of the Corporate Change transaction, and there are no agreements with any holder of Company Stock Options to the contrary. There are noAll Company Stock Options that have a per share exercise price that is less than the per share Merger Consideration andClosing Value will be canceled as of the Closing, all Company Stock Options will be canceled and the holders thereof will not be entitled to any Merger Consideration or have any other rights after the Closing with respect to Company Stock Options.
(iii) OtherExcept as disclosed onSection 4.2.2(iii) of the Company Disclosure Schedule, other than the Company Stock Options, the Warrants and the WarrantsCompany Preferred Stock, there are no outstanding (a) securities of the Company or any of its Subsidiaries convertible into or exchangeable for Voting Debt or shares of capital stock of the Company, (b) options, warrants or other agreements or commitments to acquire from the Company or any of its Subsidiaries, or obligations of the Company or any of its Subsidiaries to issue, any Voting Debt or shares of capital stock of (or securities convertible into or exchangeable for shares of capital stock of) the Company or (c) restricted shares, restricted stock units, stock appreciation rights, performance shares, profit participation rights, contingent value rights, “phantom” stock or similar securities or rights that are derivative of, or provide economic benefits based, directly or indirectly, on the value or price of, any shares of capital stock of the Company, in each case that have been issued by the Company or its Subsidiaries (the items in clauses (a), (b) and (c), together with the capital stock of the Company, being referred to collectively as “Company Securities”). All outstanding shares of Company Stock, all outstanding Company Stock Options, all outstanding Warrants, all outstanding Company Preferred Stock, and all outstanding shares of capital stock, voting securities or other ownership interestsEquity Interests in any Subsidiary of the Company, have been issued or granted, as applicable, in compliance in all material respects with all applicable securities Laws.
(iv) ThereOther than the Company Preferred Stock and the Warrants, there are no outstanding Contracts requiring the Company or any of its Subsidiaries to repurchase, redeem or otherwise acquire any Company Securities. NeitherExcept with respect to the Shareholder Rights Plan, neither the Company nor any of its Subsidiaries is a party to any voting, shareholder rights or other similar agreement with respect to any Company Securities.
Section 4.2.3Voting Debt; WarrantsWarrants; Company Preferred Stock.. No bonds, debentures, notes or other indebtedness issued by the Company or any of its Subsidiaries (i) having the right to vote on any matters on which stockholdersshareholders or equityholders of the Company or any of its Subsidiaries may vote (or which is convertible into, or exchangeable for, securities having such right), or (ii) the value of which is directly based upon or derived from the capital stock, voting securities or other ownership interests of the Company or any of its Subsidiaries, are issued or outstanding (collectively, “Voting Debt”). An aggregate of 2,249,5502,542,588 shares of Company Stock are subject to, and 2,249,5502,542,588 shares of Company Stock are reserved for issuance upon exercise of, the Warrants, and all such
Warrants were granted pursuant to the formsform of Warrants for United States residents or Canadian residents made available to Parent.Section 4.2.3 of the Company Disclosure Schedule sets forth a true, correct, and complete list of each outstanding Warrant and (a) the name of the holder of such Warrant, (b) the number of shares of Company Stock subject to such outstanding Warrant, (c) the exercise price of such Warrant, (d) the date on which such Warrant was granted or issued, and (e) the date on which such Warrant expires. An aggregate of 3,082,583.27 shares of Company Stock are subject to, and 3,082,583.27 shares of Company Stock are reserved for issuance upon conversion of, the Company Preferred Stock. Section 4.2.3 of the Company Disclosure Schedule sets forth a true, correct, and complete list of each holder of Company Preferred Stock, including the number of shares held by such holder.
Section 4.2.4 Capital Structure Since December 31, 2014. (i) Except as disclosed onSection 4.2.4 of the Company Disclosure Schedule, since December 31, 2014, neither the Company nor any of its Subsidiaries has issued, delivered or sold, or authorized, proposed or agreed to the issuance, delivery, or sale of, any shares of the capital stock or stock incentives of the Company or any of its Subsidiaries (other than (i) Equity Interests of the Company pursuant to the terms of a Company Stock Plan or (ii) upon the exercise, conversion or exchange of any Equity Interests issued and outstanding on December 31, 2014), or securities convertible into or exchangeable for, or options, warrants, calls, commitments or rights of any kind to acquire, any shares of any class or series of the capital stock of the Company or any of its Subsidiaries.
Section 4.3Authority.
Section 4.3.1Company Authorization.The Company has all necessary corporate power and authority to execute and deliver this Agreement, to perform its obligations hereunder and to consummate the transactions contemplated hereby. The execution and delivery of this Agreement by the Company and the consummation by the Company of the transactions contemplated hereby have been duly and validly authorized by all necessary corporate action on the part of the Company, and no other corporate proceedings on the part of the Company are necessary to authorize this Agreement or to consummate the transactions contemplated hereby, other than (a) the affirmative vote of holders of a majority of the outstanding shares of (i) Company Stock and (ii) if and to the extent required under the IBCA and/or the Charter Documents of the Company, Company Preferred Stock, in each case voting as a separate class to approve the principal terms of this Agreement and the Merger at a validly called meeting with a quorum present (the “Shareholder Approval”) and (b) the filing of the CertificateStatement of Merger with the Secretary of State of the State of DelawareIdaho in accordance with the DGCL.IMETA. This Agreement has been duly authorized and validly executed and delivered by the Company and, assuming this Agreement is a valid and binding obligation of Parent and Merger Sub, this Agreement constitutes a legal, valid and binding obligation of the Company, enforceable against it in accordance with its terms, subject to the effect of bankruptcy, insolvency (including all Laws relating to fraudulent transfers), reorganization, moratorium and similar Laws relating to or affecting creditors’ rights or remedies and the effect of general principles of equity, whether considered in a proceeding in equity or at law (including the possible unavailability of specific performance or injunctive relief), and the discretion of the court before which a proceeding is brought (the “Enforceability Limitations”).
Section 4.3.2Board ActionAction.. Subject toSection 6.4, the Special Committee comprised of theCompany Board and an independent memberscommittee of the Company Board, by resolutions duly adopted at meetings duly called and held and, as of the date hereof, not subsequently rescinded or modified in any way, has,have unanimously, as of the date hereof, (i) determined that this Agreement and the transactions provided for herein are fair to and in the best interest of the Company and the holders of Company Stock, (ii) approved and declared advisable this Agreement and the transactions contemplated hereby, including the Merger and (iii) resolved to recommend in accordance with applicable Law that the holders of Company Stock vote in favor of the approval of this Agreement and the Merger (the “Company Recommendation”) and directed that such matter be submitted for consideration of the stockholdersshareholders of the Company at the Company Shareholders Meeting.Meeting (the “Board and Committee Approval”).
Section 4.4No Conflict; Required Filings and Consents.
Section 4.4.1No ConflictConflict.. The execution, delivery and performance by the Company of this Agreement do not, and the consummation by the Company of the transactions contemplated hereby will not, (i) assuming the Shareholder Approval is obtained, (i) contravene or conflict with, or result in any violation or breach of, the Charter Documents of the Company or any of its Subsidiaries, (ii) assuming that all consents, approvals and authorizations described inSection 4.4.2 have been obtained prior to the Effective Time and all filings and notifications described inSection 4.4.2 have been made and any waiting periods thereunder have terminated or expired prior to the Effective Time, conflict with or violate any Law applicable to the Company or by which any property or asset of the Company is bound, or (iii) require any consent or approval under, result in any breach of or any loss of any benefit under, or constitute a default (or an event which with notice or lapse of time or both would become a default) under, or give to others any right of termination, suspension, revocation, amendment, acceleration or cancellation of, or result in the creation of any Liens on any property or asset of the Company, other than Permitted Liens, pursuant to, any Contract to which the Company is a party or by which any of its properties or assets are bound, or (iv) require any consent or approval from the NYSE MKT, TSX, or other stock exchange, except where the failure to be in compliance with the foregoing would not reasonably be expected to have, individually or in the aggregate, a material adverse impact on the Company and its Subsidiaries.Material Adverse Effect.
Section 4.4.2 Consents. Consents.The execution, delivery and performance of this Agreement by the Company do not, and the consummation of the transactions contemplated hereby will not, require the Company to obtain any consent, approval or authorization of, or make any filing with or notification to, any Governmental Entity,
except (i) under the Exchange Act (including the filing of the Proxy Statement and the S-4) and any applicable state securities, takeover or “blue sky” Laws, (ii) the filing and recordation of the CertificateStatement of Merger or other documents as required by the DGCL,IBCA or the IMETA, and (iii) where the failure to obtain such consents, approvals or authorizations, or to make such filings or notifications, would not individually or in the aggregate reasonably be expected to have a material adverse impact on the Company and its Subsidiaries.Material Adverse Effect.
Section 4.5Compliance with Laws; Permits.
Section 4.5.1Compliance with LawsLaws.. The Company and each of its Subsidiaries is and, since January 1, 2010,2011, has been, in material compliance with all Laws orand Orders applicable to the Company or any of its Subsidiaries or by which the Company or any of its Subsidiaries or any of their respective businesses or properties is bound. Since January 1, 2010,2011, no Governmental Entity has issued any notice or notification stating that the Company or any of its Subsidiaries is not in material compliance with any Law.
Section 4.5.2 Permits.Permits.Section 4.5.2 of the Company Disclosure Schedule sets forth a true, correct and complete list of all the material Company Permits. The Company and its Subsidiaries hold, to the extent legally required to operate their respective businesses, all Company Permits. No suspension or cancellation of any Permits of the Company or any of its SubsidiariesPermits is pending or, to the Knowledge of the Company, threatened, except for any such suspension or cancellation which would not reasonably be expected to have, individually or in the aggregate, a Company Material Adverse Effect.threatened. The Company and each of its Subsidiaries isare and hashave been in material compliance with the terms of all Company Permits. Neither the transactions contemplated by this Agreement, nor to the Company’s Knowledge, any other event has occurred that, with or without notice or lapse of time or both, would or would reasonably be expected to result in the revocation, suspension, cancellation, lapse or limitation of any Company Permits.
Section 4.6Securities Filings; Financial Statements.
Section 4.6.1Company Securities FilingsFilings.. The Company has timely filed or furnished, as applicable, all reports, prospectuses, schedules, forms, statements or other documents (including exhibits and all other information incorporated by reference) required to be filed or furnished by it under Securities Act, the Exchange Act, or Canadian Securities Laws, as the case may be, since January 1, 20102011 (collectively, the “Company Securities Filings”). Each Company Securities Filing (i) as of its date, complied as to form in all material respects with the applicable requirements of the Securities Act, the Exchange Act, or Canadian Securities Laws, as the case may be, as in effect on the date so filed, (ii) did not, at the time it was filed (or, if subsequently amended or supplemented, at the time of such amendment or supplement), contain any untrue statement of a material fact or omit to state a material fact required to be stated therein or necessary in order to make the statements made therein, in the light of the circumstances under which they were made, not misleading, and (iii) included, in the case of those which contain annual financial statements, annual financial statements that have been audited by an independent certified public accounting firm. The Company has made availablenot received any comments from the staff of the SEC with respect to Parent all suchany Company Securities Filings that it has so filed or furnished prior to the date hereof.have not been resolved and that have not been made available on EDGAR. None of the Company’s Subsidiaries is required to file or furnish any forms, reports or other documents with the SEC or any Canadian securities regulatory authority.
Section 4.6.2Financial Statements. Each of the consolidated financial statements (including, in each case, any notes thereto) of the Company contained in the Company Securities Filings (collectively, the “Company Financial Statements”) (i) comply as to form in all material respects with the published rules and regulations of the SEC with respect thereto as of their respective dates; (ii) was prepared in accordance with GAAP applied on a consistent basis throughout the periods involved (except as may be indicated in the notes thereto and, in the case of unaudited interim financial statements, as may be permitted by the SEC for Quarterly
Reports on Form 10-Q); and (iii) fairly present the consolidated financial position of the Company and its consolidated Subsidiaries at the respective dates thereof and the consolidated results of the Company’s operations and cash flows for the periods indicated therein, subject, in the case of unaudited interim financial statements, to normal and year-end audit adjustments as permitted by GAAP and the applicable rules and regulations of the SEC.
Section 4.6.3No Undisclosed Liabilities. Neither the Company nor any of its Subsidiaries has any material Liability in excess of $25,000 except for those (i) that were incurred since the Company Balance Sheet Date in
the ordinary course of business, consistent with past practice, and which are disclosed inonSection4.6.3 of the Company Disclosure Schedule, (ii) that were expressly contemplated under this Agreement, or (iii) that were disclosed or reserved against in the Company Financial Statements (including the notes thereto). included in Company Securities Filings filed prior to May 13, 2016.
Section 4.6.4Internal ControlsControls.. The Company and each of its Subsidiaries has established and maintains a system of “internal controls over financial reporting” (as defined in Rules 13a-15(f) and 15d-15(f) of the Exchange Act) that is sufficient to provide reasonable assurance (i) regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with GAAP, (ii) that receipts and expenditures of the Company and its Subsidiaries are being made only in accordance with authorizations of management and the Company Board, and (iii) regarding prevention or timely detection of the unauthorized acquisition, use or disposition of the Company’s and its Subsidiaries’ assets that could have a material effect on the Company’s Financial Statements.
Section 4.6.5Disclosure Controls and ProceduresProcedures.. The Company’s “disclosure controls and procedures” (as defined in Rules 13a-15(e) and 15d-15(e) of the Exchange Act) are designed to ensure that all information (both financial and non-financial) required to be disclosed by the Company in the reports that it files or submits under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the rules and forms of the SEC, and that all such information is accumulated and communicated to the Company’s management as appropriate to allow timely decisions regarding required disclosure and to make the certifications of the chiefprincipal executive officer and chiefprincipal financial officer of the Company required under the Exchange Act with respect to such reports. The Company has disclosed, based on its most recent evaluation of such disclosure controls and procedures prior to the date of this Agreement, to the Company’s auditors and the audit committee of the Company Board and onSection 4.6.5 of the Company Disclosure Schedule (i) any significant deficiencies and material weaknesses in the design or operation of internal controls over financial reporting that could adversely affect in any material respect the Company’s ability to record, process, summarize and report financial information, and (ii) any fraud, whether or not material, that involves management or other employees who have a significant role in the Company’s internal controls over financial reporting. For purposes of this Agreement, the terms “significant deficiency” and “material weakness” shall have the meaning assigned to them in Public Company Accounting Oversight Board Auditing Standard 2, as in effect on the date of this Agreement.
Section 4.6.6Off-Balance Sheet ArrangementsArrangements.. Neither the Company nor any of its Subsidiaries is a party to, or has any commitment to become a party to, any joint venture, off balance sheet partnership or any similar Contract (including any Contract or arrangement relating to any transaction or relationship between or among the Company and any of its Subsidiaries, on the one hand, and any unconsolidated affiliate,Affiliate, including any structured finance, special purpose or limited purpose entity or person, on the other hand, or any “off balance sheet arrangements” (as defined in Item 303(a) of Regulation S-K under the Exchange Act)), where the result, purpose or intended effect of such Contract is to avoid disclosure of any material transaction involving, or material Liabilities of, the Company or any of its Subsidiaries in the Company’s or such Subsidiary’s published financial statements or other Company Securities Filings.
Section 4.6.7Sarbanes-Oxley ComplianceCompliance.. Each of the principal executive officer and the principal financial officer of the Company (or each former principal executive officer and each former principal financial officer of the Company, as applicable) has made all certifications required by Rule 13a-14 or 15d-14 under the
Exchange Act and Sections 302 and 906 of the Sarbanes-Oxley Act with respect to the Company Securities Filings, and the statements contained in such certifications are true and accurate in all material respects. For purposes of this Agreement, “principal executive officer” and “principal financial officer” shall have the meanings given to such terms in the Sarbanes-Oxley Act. Neither the Company nor any of its Subsidiaries has outstanding (nor has arranged or modified since the enactment of the Sarbanes-Oxley Act) any “extensions of credit” (within the meaning of Section 402 of the Sarbanes-Oxley Act) to directors or executive officers (as defined in Rule 3b-7 under the Exchange Act) of the Company or any of its Subsidiaries. TheExcept as set forth on
Section 4.6.7 of the Company Disclosure Schedule, the Company is otherwise in material compliance with all applicable provisions of the Sarbanes-Oxley Act and the applicable listing and corporate governance rules of the NYSE MKT and the TSX. The Company has never applied for or consentedcomplied, and is currently in compliance, with (i) that certain letter agreement, dated March 31, 2016, from NYSE MKT to listing onthe Company and (ii) those certain letter agreements, dated September 21, 2015 and January 14, 2016 to the extent any stock exchange other thanprovisions remain applicable to the TSXCompany, in each case of clauses (i) and (ii), regarding the Company’s plan of compliance with Sections 1003(a)(i)-(iv) of the NYSE MKT.MKT Company Guide.
Section 4.7Affiliate Transactions. NoExcept as set forth onSection 4.7 of the Company Disclosure Schedule, no executive officer or director of the Company or any of its Subsidiaries or any Person who beneficially owns five percent (5%) or more of the Company Stock (or any of such person’s immediate family members or Affiliates or associates) is a party to any Contract with or binding upon the Company or any of its Subsidiaries or any of their respective assets, rights, or properties or has any interest in any property owned by the Company or its Subsidiaries or has engaged in any transaction with any of the foregoing within the last twelve (12)24 months.
Section 4.8Absence of Certain Changes. Except as set forth onSection 4.8 of the Company Disclosure Schedule and except for the transactions contemplated hereby or related hereto, since December 31, 20132015 the business of the Company and each of its Subsidiaries has been conducted in the ordinary course of business, and there has not been or occurred: (i) any Company Material Adverse Effect or any event, condition, change or effect that could reasonably be expected to have, individually or in the aggregate, a Company Material Adverse Effect, or, (ii) any event, condition, action or effect that, if taken during the period from the date hereof through the Effective Time, would constitute a breach ofSection 6.1.
Section 4.9Employees and Benefits.
Section 4.9.1Schedule.Section 4.9.1 of the Company Disclosure Schedule contains ana true, correct, and complete list of each material plan, program, policy, agreement, collective bargaining agreement or other arrangement providing for compensation, severance, deferred compensation, performance awards, stock or stock-based awards, fringe, retirement, death, disability or medical benefits or other employee benefits or remuneration of any kind, including each employment, severance, retention, change in control or consulting plan, program arrangement or agreement, in each case whether written or unwritten or otherwise, funded or unfunded, including each “employee benefit plan,” within the meaning of Section 3(3) of ERISA, whether or not subject to ERISA, which is or has been sponsored, maintained, contributed to, or required to be contributed to, by the Company or any of its ERISA Affiliates for the benefit of any current or former employee, independent contractor, consultant or director of the Company or any of its ERISA Affiliates (each, a “Company Employee”), or with respect to which the Company or any of its ERISA Affiliates has or maycould reasonably be expected to have any material Liability (collectively, the “Company Employee Plans”).
Section 4.9.2 Documents.Documents. The Company has made available to Parent true, correct, and complete copies (or, if a plan is not written, a written description) of all Company Employee Plans and amendments thereto in each case that are in effect as of the date hereof, and, to the extent applicable, (i) all related trust agreements, funding arrangements and insurance contracts now in effect or required in the future as a result of the transactions contemplated by this Agreement or otherwise, (ii) the most recent determination or opinion letter received regarding the tax-qualified status of each Company Employee Plan that is a qualified retirement plan under the Code, (iii) the most recent financial statements for each Company Employee Plan for which financial statements are required, (iv) the Form 5500 Annual Returns/Reports for the three most recent plan yearyears for each Company Employee Plan that is an ERISA plan subject to Form 5500 filing requirements, (v) the current summary plan description for each Company Employee Plan that is an ERISA plan, (vi) the most recent actuarial valuation reports related to any Company Employee Plans for which actuarial valuation reports are required, and (vii) all coverage, nondiscrimination, top-heavy and Code Section 415 tests performed with respect to any Company Employee Plans subject to such Employee Benefit Planrequirements for the last three years.
Section 4.9.3Employee Plan ComplianceCompliance.. (i) Each Company Employee Plan has been established, administered, and maintained in all material respects in accordance with its terms and in material compliance with applicable Laws, including ERISA and the Code; (ii) all the Company Employee Plans that are intended to be qualified under Section 401(a) of the Code are so qualified and have received timely determination or opinion letters from the IRS, and no such determination or opinion letter has been revoked nor, to the Knowledge of the Company, has any such revocation been threatened, and to the Knowledge of the Company no circumstance exists that is likely to result in the loss of such qualified status under Section 401(a) of the Code; (iii) the Company and its ERISA Affiliates, where applicable, have timely made all material contributions and other material payments required by and due under the terms of each Company Employee Plan and applicable Law, and all benefits accrued under any unfunded Company Employee Plan have been paid, accrued or otherwise adequately reserved to the extent required by, and in accordance with, GAAP; (iv) except to the extent limited by applicable Law, each Company Employee Plan can be amended, terminated or otherwise discontinued after the Effective Time in accordance with its terms, without material liabilityLiability to Parent, the Company or any of its Subsidiaries (other than ordinary administration expenses and in respect of accrued benefits thereunder); (v) there are no audits, inquiries or Legal Actions pending or, to the Knowledge of the Company, threatened by the IRS or the U.S. Department of Labor, or any similar Governmental Entity with respect to any Company Employee Plan; (vi) there are no Legal Actions pending, or, to the Knowledge of the Company, threatened with respect to any Company Employee Plan (in each case, other than routine claims for benefits); and (vii) to the Knowledge of the Company, neither the Company nor any ERISA Affiliate of its ERISA Affiliatesthe Company has engaged in a transaction that could subject the Company or any ERISA Affiliate to a taxTax or penalty imposed by either Section 4975 of the Code or Section 502(i) of ERISA.ERISA; and (viii) neither the Company nor any of its ERISA Affiliates has been, and, to the Knowledge of the Company, neither the Company nor any of its ERISA Affiliates reasonably expect to be, subject to an employer shared responsibility payment under Section 4980H of the Code.
Section 4.9.4ERISA LiabilityLiability.. Neither the Company nor any Company ERISA Affiliate of the Company has incurred or reasonably expects to incur, either directly or indirectly, any material Liability under Title I or Title IV of ERISA, or related provisions of the Code or foreign Law or regulations relating to employee benefit plans. Neither the Company nor any ERISA Affiliate of the Company has sponsored or contributed to or been required to contribute to a multiemployer pension plan (as defined in Section 3(37) of ERISA) or other defined benefit plan subject to Title IV of ERISA at any time.
Section 4.9.5Certain Company Employee PlansPlans.. No Company Employee Plan is a multiemployer plan (as defined in Section 3(37) of ERISA), a multiple employer plan (as defined in Section 4063 or Section 4064 of ERISA or Section 413 of the Code), an employee benefit plan that is subject to Section 302 of ERISA, Title IV of ERISA or Section 412 of the Code, a defined benefit plan (as defined in Section 3(35) of ERISA), or a multiple employer welfare arrangement (as defined in Section 3(40) of ERISA.ERISA).
Section 4.9.6No Post-Employment ObligationsObligations.. No Company Employee Plan provides post-termination or retiree welfare benefits to any person for any reason, except as may be required by COBRA or other applicable Law, and neither the Company nor any ERISA Affiliate of its ERISA Affiliatesthe Company has any Liability to provide post-termination or retiree welfare benefits to any person or ever represented, promised or contracted to any Company Employee (either individually or to Company Employees as a group) or any other person that such Company Employee(s) or other person would be provided with post-termination or retiree welfare benefits, except to the extent required by COBRA or other applicable Law.
Section 4.9.7Examination and AuditAudit.. No Company Employee Plan is nor,has been, within the three years prior to the date hereof, has been, the subject of an examination or audit by a Governmental Entity or is the subject of an application or filing under, or is a participant in, an amnesty, voluntary compliance, self-correction or similar program sponsored by any Governmental Entity.
Section 4.9.8Section 409A ComplianceCompliance.. Each Company Employee Plan that is subject to Section 409A of the Code has been operated in compliance with such section and all applicable regulatory guidance (including proposed regulations, notices, rulings, and final regulations).
Section 4.9.9Group Health Plan ComplianceCompliance.. Each of the Company and its SubsidiariesERISA Affiliates complies in all material respects with the applicable requirements of COBRA, the Patient Protection and Affordable Care Act of 2010, as amended, and the Health Insurance Portability and Accountability Act of 1996, as amended, or any similar state, foreign or local Law with respect to each Company Employee Plan that is a group health plan within the meaning of Section 5000(b)(1) of the Code or such state, foreign or local Law.
Section 4.9.10Effect of TransactionTransaction.. Neither Except as set forth onSection4.9.10 of the Company Disclosure Schedule, neither the execution of this Agreement, the consummation of the Merger, nor any of the transactions contemplated by this Agreement will (either alone or upon the occurrence of any additional or subsequent events): (i) entitle any current or former director, employee, contractor or consultant of the Company to severance pay or any other payment except asother than the severance payments or other amounts set forth inonSection 4.9.10(i)4.9.10 of the Company Disclosure Schedule; (ii) accelerate the time of payment, funding, or vesting, or increase the amount of, compensation due to any such individual,individual; (iii) limit or restrict the right of the Company to merge, amend or terminate any Company Employee Plan,Plan; (iv) increase the amount payable or result in any other material obligation pursuant to any Company Employee Plan,Plan; or (v) result in “excess parachute payments” within the meaning of Section 280G(b) of the Code. The Company has made available to Parent true, correct and complete copies of any Code Section 280G calculations prepared (whether or not final) with respect to any disqualified individual in connection with the transactions contemplated by this Agreement. NeitherExcept as set forth onSection 4.9.10 of the Company Disclosure Schedule, neither the Company nor any of its Subsidiaries is party to an agreement or arrangement with any Person (i) which requires the Company or any of its Subsidiaries to pay a tax gross-up under Sections 409A, 280G or 4999 of the Code or (ii) that has resulted or would result, whether as a result of the Merger or the other transactions contemplated by this Agreement, separately or in the aggregate (either alone or together with any other event, including, any termination of employment) in the payment of (A) any “excess parachute payment” within the meaning of Code Section 280G or (B) any amount that will not be fully deductible as a result of Code Section 162(m).
Section 4.9.11Employment Law MattersMatters.. The Company and each of its Subsidiaries is in material compliance with all applicable Laws and agreements (i) respecting hiring, employment, termination of employment, plant closing and mass layoff, employment discrimination, harassment, retaliation and reasonable accommodation, leaves of absence, terms and conditions of employment, wages and hours of work, employee health and safety, leasing and supply of temporary and contingent staff, engagement of independent contractors, including proper classification of same, payroll taxes,Taxes, and immigration with respect to Company Employees and contingent workers; and (ii) relating to the relations between it and any labor organization, trade union, work council or other body representing Company Employees.
Section 4.9.12 Labor. Labor.Neither the Company nor any of its Subsidiaries is party to, or subject to, any collective bargaining agreement or other agreement with any labor organization, work council or trade union with respect to any of its or their operations. No material work stoppage, slowdown or labor strike against the Company or any of its Subsidiaries with respect to employees who are employed within the United States is pending, threatened or has occurred in the last two years. None of the Company Employees are represented by a labor organization, work council or trade union and, to the Knowledge of the Company, there is no organizing activity, Legal Action, election petition, union card signing or other union activity or union corporate campaign of or by any labor organization, trade union or work council directed at the Company or any of its Subsidiaries, or any Company Employees. There are no Legal Actions, government investigations, or labor grievances pending, or, to the Knowledge of the Company, threatened relating to any employment related matter involving any Company Employee or applicant, including charges of unlawful discrimination, retaliation or harassment, failure to provide reasonable accommodation, denial of a leave of absence, failure to provide compensation or benefits, unfair labor practices, or other alleged violations of Law, except for any of the foregoing which would not reasonably be expected to have, individually or in the aggregate, a material adverse impact on the Company and its Subsidiaries.Material Adverse Effect.
Section 4.10Material Contracts.
Section 4.10.1 Contracts.Contracts. Set forth inSection 4.10 of the Company Disclosure Schedule is a true, correct, and complete list of all of the following Contracts to which the Company or any of its Subsidiaries is a party or by which the Company or any of its Subsidiaries is bound:
(i) any Contract that, as of the date hereof, is a “material contract” (as such term is defined in Item 601(b)(10) of Regulation S-K promulgated by the SEC), whether or not filed by the Company with the SEC;
(ii) any Contract with respect to (i) any joint venture, partnership, or similar arrangements that are material to the Company or its Subsidiaries taken as a whole, or (ii) the purchase of any Equity Interest in any other entity;
(iii) any mortgages, indentures, guarantees, loans or credit agreements, security agreements or other Contracts, in each case relating to indebtedness for borrowed money, whether as borrower or lender, other than accounts receivables and payables;
(iv) any Contract relating to any lease or pending acquisition or disposition, directly or indirectly (by merger or otherwise), by the Company or its Subsidiaries of properties or assets;assets, including any Real Property Leases;
(v) any Contract which purports to limit in any material respect the right of the Company or any of its Subsidiaries (or, at any time after the consummation of the Merger, Parent or any of its Subsidiaries) (x) to engage in any line of business, or (y) to compete with any Person or operate in any geographical location;
(vi) any employment or consulting agreement, contractContract or commitment (in each case with respect to which the Company or any of its Subsidiaries has continuing obligations) with any officer, director, or employee of the Company or any of its Subsidiaries;
(vii) any employee collective bargaining agreement or other Contract with any labor union;
(viii) any Contract providing for indemnification or any guaranty by the Company or any Subsidiary thereof, in each case that is material to the Company and its Subsidiaries, taken as a whole, other than (a) any guaranty by the Company or a Subsidiary thereof of any of the obligations of the Company or another wholly-owned Subsidiary thereof, or (b) any Contract providing for indemnification of customers or other Persons pursuant to Contracts entered into in the ordinary course of business;thereof;
(ix)(viii) any Contract that contains any provision that requires the purchase of all of the Company’s or any of its Subsidiaries’ requirements for a given product or service from a given third party, which product or service is material to the Company and its Subsidiaries, taken as a whole;
(x)(ix) any Contract that obligates the Company or any of its Subsidiaries to conduct business on an exclusive or preferential basis with any third party or upon consummation of the Merger will obligate Parent, the Surviving Corporation or any of their respective Subsidiaries to conduct business on an exclusive or preferential basis with any third party;
(xi)(x) any Contract the performance of which will involve consideration in excess of $100,000$50,000 in the aggregate;
(xii)(xi) any Company IP Agreement;
(xiii)(xii) any Contract that relates to any interest in any real property, mining claim, mineral interest, or operating business, including any (A) Property Agreements and any environmental claim or remediation obligation relating thereto and (B) any Contract with any mining consultants or advisors, including SRK Consulting with respect to the Troy Mine or the Rock CreekMontanore Project;
(xiv)(xiii) any Contracts, including the Property Agreements, that provide for any royalty, participation, streaming, net smelter royalty/return/receipt, right of first refusal, right to match, earn-in right, or similar arrangement; or
(xv)(xiv) any Contract that is not otherwise described in clauses (i)-(xiv)(xiii) above that is material to the Company and its Subsidiaries, taken as a whole.
Each Contract of the type described in thisSection 4.10.1 is referred to herein as a “Company Contract.” The Company has made available to Parent true, correct, and complete copies of all Company Contracts, including any amendments thereto.
Section 4.10.2Binding Obligations.(i) All the Company Contracts are valid and binding on the Company or its applicable Subsidiary and, to the Knowledge of the Company, the other party thereto, enforceable against it in accordance with its terms, and are in full force and effect, (ii) neither the Company nor any of its Subsidiaries nor, to the Knowledge of the Company, any third party has violated any provision of, or failed to perform any obligation required under the provisions of, any Company Contract, and (iii) neither the Company nor any of its Subsidiaries nor, to the Knowledge of the Company, any third party is in breach, or has received written notice of breach, of any Company Contract.
Section 4.11Litigation. Except as set forth onSection 4.11 of the Company Disclosure Schedule, (i) Therethere are no Legal Actions pending or, to the Knowledge of the Company, threatened against the Company or any of its Subsidiaries or any of their respective properties or assets or, to the Knowledge of the Company, any executive officer or director of the Company or any of its Subsidiaries in their capacities as such and (ii) neither the Company nor any of its Subsidiaries is subject to any outstanding Order, and (iii) all Legal Actions pending and, to the Knowledge of the Company, threatened to which the Company or any of its Subsidiaries is a party or any of their respective properties or assets is subject or, to the Knowledge of the Company, to which any executive officer or director of the Company or any of its Subsidiaries is a party in their capacities as such, and any Order to which the Company or any of its Subsidiaries is subject and are disclosed inSection 4.11 of the Company Disclosure Schedule, except, in each case, that would not reasonably be expected to have, individually or in the aggregate, a material adverse impact on the Company and its Subsidiaries.Order. There are no SEC or Canadian securities regulatory authority inquiries or investigations, other governmental inquiries or investigations or internal investigations pending or, to the Knowledge of the Company, threatened, in each case regarding any accounting practices of the Company or any of its Subsidiaries or any malfeasance by any executive officer of the Company.
Section 4.12Environmental Matters. The Company and its Subsidiaries are, and have been, in material compliance with all applicable Laws relating to the protection of the environment or to occupational health and safety (“Environmental Laws”), which compliance includes the possession, maintenance of, compliance with, or application for, all Permitspermits required under applicable Environmental Laws for the operation of the business of the Company and its Subsidiaries as currently conducted, and to lease, own, use and operate its properties (including the Company Properties) and assets.assets as they are currently used and operated. There has been no release of any waste, material or substance defined as a “hazardous substance,” “hazardous material,” or “hazardous waste” under any applicable Environmental Law into the environment as a result of the operations or activities of the Company or its Subsidiaries at any of the Company Properties or to the Knowledge of the Company, any properties formerly owned or operated by the Company or its Subsidiaries, in each case that wouldcould reasonably be expected to result in any liabilityLiability to the Company or any of its Subsidiaries under any Environmental Law. Neither the Company nor any of its Subsidiaries has received written notice of and there is no Legal Action pending, or to the Knowledge of the Company, threatened against the Company or any of its Subsidiaries, alleging any Liability or responsibility under or non-compliance with any Environmental Law or seeking to impose any financial responsibility for any investigation, cleanup, removal, containment or any other remediation or compliance under any Environmental Law. Neither the Company nor any of its Subsidiaries is subject to any Order or written agreement by or with any Governmental Entity or third party imposing any material Liability or obligation with respect to any of the foregoing.
Section 4.13Intellectual Property.Section 4.13 of the Company Disclosure Schedule sets forth a true, correct, and complete list of all Intellectual Property owned by the Company or any of its Subsidiaries.Subsidiaries that is, or would reasonably be considered to be, material to the Montanore Project or that a prudent person operating the Montanore Project would find important. The Company or one of its Subsidiaries owns (free and clear of any Liens), or possesses valid rights to use, all Intellectual Property necessary to conduct the business of the Company as it is currently conducted, or is currently contemplated, and to lease, own, use and operate its properties (including the Company Properties) and assets.assets as currently leased and operated. To the Company’s Knowledge, no Third Party is currently infringing or misappropriating any material Intellectual Property owned by the Company or any of its Subsidiaries. Neither the Company nor any of its Subsidiaries has infringed or misappropriated any Intellectual Property of any Third Party or received any material written claim of infringement or misappropriation of any Intellectual Property of any Third Party.
Section 4.14Taxes.
Section 4.14.1Tax Returns and Payment of TaxesTaxes.. The Company and each of its Subsidiaries have duly and timely filed or caused to be filed (taking into account any valid extensions) all material Tax Returns required
to be filed by them. Such Tax Returns are true, complete and correct in all material respects. Neither the Company nor any of its Subsidiaries is currently the beneficiary of any extension of time within which to file any Tax Return other than extensions of time to file Tax Returns obtained in the ordinary course of business consistent with past practice. All material Taxes due and owing by the Company or any of its Subsidiaries (whether or not shown on any Tax Return) have been timely paid or, where payment is not yet due, the Company has made an adequate provision for such Taxes in the Company’s financial statements (in accordance with GAAP). The Company’s most recent financial statements reflect an adequate reserve (in accordance with GAAP) for all material Taxes payable by the Company and its Subsidiaries through the date of such financial statements. Neither the Company nor any of its Subsidiaries has incurred any material liabilityLiability for Taxes since the date of the Company’s most recent financial statements outside the ordinary course of business or otherwise inconsistent with past practice.
Section 4.14.2Availability of Tax ReturnsReturns.. The Company has made available to Parent true, correct, and complete copies of all federal, state, local and foreign income, franchise and other material Tax Returns filed by or on behalf of the Company or its Subsidiaries for any Tax period ending after January 1, 2010.2011.
Section 4.14.3 Withholding.Withholding. The Company and each of its Subsidiaries have withheld and paid each material Tax required to have been withheld and paid in connection with amounts paid or owing to any Company Employee, independent contractor, creditor, customer, shareholder or other party, and materially complied with all information reporting and backup withholding provisions of applicable Law.
Section 4.14.4 Liens.Liens. There are no Liens for material Taxes upon the assets of the Company or any of its Subsidiaries other than for current Taxes not yet due and payable or for Taxes that are being contested in good faith by appropriate proceedings and for which adequate reserves in accordance with GAAP have been made in the Company’s financial statements.
Section 4.14.5Tax Deficiencies and AuditsAudits.. No deficiency for any material amount of Taxes which has been proposed, asserted or assessed in writing by any taxing authority against the Company or any of its Subsidiaries remains unpaid. There are no waivers or extensions of any statute of limitations currently in effect with respect to Taxes of the Company or any of its Subsidiaries. There are no audits, suits, proceedings, investigations, claims, examinations or other administrative or judicial proceedings ongoing or pending with respect to any material Taxes of the Company or any of its Subsidiaries.
Section 4.14.6Tax JurisdictionsJurisdictions.. No claim has ever been made in writing by any taxing authority in a jurisdiction where the Company and its Subsidiaries do not file Tax Returns that the Company or any of its Subsidiaries is or may be subject to Tax in that jurisdiction. None of the Company or its Subsidiaries is subject to Tax in any jurisdiction other than its place of incorporation by virtue of (i) having a permanent establishment or other place of business or (ii) having a source of income in that jurisdiction.
Section 4.14.7Consolidated Groups, Transferee Liability and Tax AgreementsAgreements.. Neither the Company nor any of its Subsidiaries (i) has been a member of a group filing Tax Returns on a consolidated, combined,
unitary or similar basis, (ii) has any material liabilityLiability for Taxes of any Person (other than the Company or any of its Subsidiaries) under Treasury Regulation Section 1.1502-6 (or any comparable provision of local, state or foreign Law), as a transferee or successor, by Contract, or otherwise, or (iii) is a party to, bound by or has any material Liability under any Tax sharing, allocation or indemnification agreement or arrangement.
Section 4.14.8Change in Accounting MethodMethod.. Neither the Company nor any of its Subsidiaries has agreed to make, nor is it required to make, any adjustment under SectionsSection 481(a) of the Code or any comparable provision of state, local or foreign Tax Laws by reason of a change in accounting method or otherwise.
Section 4.14.9Post-Closing Tax ItemsItems.. The Company and its Subsidiaries will not be required to include any material item of income in, or exclude any material item of deduction from, taxable income for any
taxable period (or portion thereof) ending after the Closing Date as a result of any (i) “closing agreement” as described in Section 7121 of the Code (or any corresponding or similar provision of state, local or foreign income Tax Law) executed on or prior to the Closing Date, (ii) installment sale or open transaction disposition made on or prior to the Closing Date, or (iii) prepaid amount received on or prior to the Closing Date.Date, or (iv) intercompany transactions occurring at or prior to the Closing or any excess loss account in existence at Closing described in Treasury Regulations under Section 1502 of the Code (or any comparable provision of state, local or foreign Tax Laws), or (v) election under Section 108(i) of the Code.
Section 4.14.10Ownership ChangesChanges.. Without regard to this Agreement, neither the Company nor any of its Subsidiaries has undergone an “ownership change” within the meaning of Section 382 of the Code.
Section 4.14.11Publicly Traded StatusStatus.. All of the outstanding shares of Company Stock are currently regularly traded on the NYSE MKT within the meaning of Treasury Regulation Section 1.1445-2(c)(2), including any shares issued in a private placement.placement, and are listed and posted for trading on the TSX.
Section 4.14.12Section 355355.. Neither the Company nor any of its Subsidiaries has been a “distributing corporation” or a “controlled corporation” in connection with a distribution described in Section 355 of the Code.
Section 4.14.13Reportable TransactionsTransactions.. Neither the Company nor any of its Subsidiaries has been a party to, or a promoter of, a “reportable transaction” within the meaning of Section 6707A(c)(1) of the Code and Treasury Regulations Section 1.6011-4(b).
Section 4.14.14Section 280G or Section 162(m) Payments. There is no Contract covering any individual or entity treated as an individual that, individually or collectively, could give rise to the payment by the Company, Merger Sub or Parent of any material amount that would not be deductible by reason of Sections 280G or 162(m) of the Code.
Section 4.15Real Estate and Personal Property.
Section 4.15.1Real Estate.Section 4.15 of the Company Disclosure Schedule sets forth a true, correct, and complete list of all of the real property owned or leased by the Company and its Subsidiaries, other than the Patented Claims, the Unpatented Claims, the Millsites and all of their patented and unpatented mining claims.the Tunnel Sites. The Company or one or more of its Subsidiaries has good and marketable fee simple title to all of its owned real property disclosed inor required to be disclosed onSection 4.15 of the Company Disclosure Schedule (the “Company Owned Properties”), and the Company and each of its Subsidiaries has a valid and subsisting leasehold estate in all of its leased real property disclosed inor required to be disclosed onSection 4.15 of the Company Disclosure Schedule (the “Company Leased Premises,” and together with the Company Owned Properties, the “Company Properties”), in each case free and clear of all Liens other than Permitted Liens. Neither the Company nor any of its Subsidiaries (i) currently lease all or any part of the Company Owned Properties or (ii) has received written notice of any pending, and to the Knowledge of the Company there is no threatened, condemnation proceeding with respect to any of the Company Owned Properties. With respect to the Company Leased Premises, (a) all leases under which the Company or one of its Subsidiaries leases any Company Leased Premises (the “Real Property Leases”) are valid and in full force and effect and constitute binding obligations of the Company or one of its Subsidiaries and the counterparties thereto, in accordance with their respective terms, (b) there is not any existing default by the Company or any of its Subsidiaries under any of the Real Property Leases that would give
the lessor under such Real Property Lease the right to terminate such Real Property Lease or amend or modify such Real Property Lease in a manner adverse to the Company, and (c) neither the Company nor any of its Subsidiaries nor, to the Knowledge of the Company, any third party, has violated any provision of, or committed or failed to perform any act which, with or without notice, lapse of time or both would constitute a default under the provisions of, any Real Property Lease. Neither the Company nor any of its Subsidiaries has assigned, pledged, mortgaged, hypothecated or otherwise transferred any Real Property Lease nor has the Company or any of its Subsidiaries entered into with any other Person (other than another wholly-owned Subsidiary of the Company) any sublease,
license or other agreement that is material to the Company and its Subsidiaries, taken as a whole, and that relates to the use or occupancy of all or any portion of the Company Leased Premises. True, correct, and complete copies of all Real Property Leases, and, with respect to the Company Owned Properties, true, correct, and complete copies of all deeds, title insurance policies, and surveys have been delivered or otherwise made available to Parent by the Company.
Section 4.15.2Personal PropertyProperty.. The Company and each of its Subsidiaries has good title to, or a valid and binding leasehold interest in, all the personal property owned or used by it, free and clear of all Liens other than Permitted Liens, and such property includes drill core, sample rejects and sample pulps relating to the Montanore Project, the computers, servers, hard drives, thumb drives, DVDs/CDs or other media that contain Intellectual Property or other information relating to the Troy Mine or Rock CreekMontanore Project and is sufficient for the Company and its Subsidiaries to conduct their business, including the Rock CreekMontanore Project, as presently conducted and will be sufficient for Parent to conduct the business of the Company and its Subsidiaries, including the Rock CreekMontanore Project, after Closing. The “Rock CreekMontanore Project” means the proposed development by the Company and its Subsidiaries of Rock Creekthe 10 patented mining claims and 861 unpatented mining claims, Millsites and Tunnel Sites owned by the Company or one or more of its Subsidiaries located in Sanders County,and Lincoln Counties in northwest Montana.
Section 4.16Mineral Properties and Mineral Rights.
Section 4.16.1Mineral Properties.ScheduleSection 4.16.1 of the Company Disclosure Schedule sets forth a true, correct, and complete list of all patented andmining claims (“Patented Claims”), unpatented mining claims (“Unpatented Claims”), unpatented millsites (“Millsites”) and real estate intereststunnel sites (“Tunnel Sites;” together with the Patented Claims, the Unpatented Claims and the land associated therewith (theMillsites, collectively, the “Mineral Properties”) held by the Company or any of its Subsidiaries and identifies which entity holds each such mining claim or real estate interest.site.
Section 4.16.2Mineral Properties and Mineral Rights. With respect to the Mineral Properties and Mineral Rights:
(i) except as set forth onSection 4.16.2 of the Company Disclosure Schedule, and except with respect to any of the Millsites and the Tunnel Sites, the Company or one of its Subsidiaries is inhas the exclusive possession or control of the right to develop the minerals that are locatable under the Mining Law of 1872, as amended, located in, on or under such Mineral Properties and Mineral Rights;
(ii) except as set forth onSection 4.16.2 of the unpatented mining claimsCompany Disclosure Schedule, the Unpatented Claims and Millsites were properly laid out, monumented and the monuments of location for the mining claims are on Federalfederal public land open for mineral claim staking;
(iii) all required location work was properly performed;
(iv)for each of the Unpatented Claims, Millsites and Tunnel Sites, location notices, certificates and mining claim maps were properly recorded and filed with all appropriate Governmental Entities;
(v)(iv) all assessment work has been performed, or fee payments in lieu thereof made, as required to hold the unpatented mining claimsUnpatented Claims, the Millsites and the Tunnel Sites through the assessment year ending August 31, 2015;September 1, 2016;
(vi)(v) all affidavits of assessment work and other filings required to maintain the claimsUnpatented Claims, the Millsites and the Tunnel Sites in good standing have been properly and timely recorded or filed with appropriate Governmental Entities;
(vii)(vi) except as set forth onSection 4.16.2 of the Company Disclosure Schedule, the Company or one of its Subsidiaries has all surface and access rights, including as applicable fee simple estates, leases, easements, rights of way and permits, or licenses from landowners or Governmental Entities, permitting the use of land by
the Company or its Subsidiaries, and other interests that are required for
the current state of exploiting the development potential of the Mineral Properties and the Mineral Rights, and no third party or group holds any such rights that would be required to conduct mineral exploration and drilling activities on any of the Mineral Properties;
(viii)(vii) except as set forth onSection 4.16.2 of the Company Disclosure Schedule, there are no conflicting claims;patented or unpatented claims owned by third parties which overlay with any of the Mineral Properties;
(ix)(viii) there are no outstanding payment obligations due pursuant to the Property Agreements, and any and all payment obligations have been satisfied as of the date hereof;
(x)(ix) except as set forth on Section4.16.2 of the Company Disclosure Schedule, there are no existing mineral production royalties, net smelter royalties/returns/receipts, net profits or net proceeds interests or other payments of any kind which are payable with respect to the Mineral Properties, Mineral Rights, or any ores, minerals and mineral resources or anything else of value that may be mined and produced from the Mineral Properties;
(xi) Neither(x) neither the Company nor any of its Subsidiaries is party to any, and to the Knowledge of the Company, there is no, existing oral or written agreement of any kind which does or could have any adverse impact whatsoever on record or possessory title to the mineral estate of the Mineral Properties, the Mineral Rights, or the access to, exploration, development or mining of same;
(xii)(xi) other than the terms and conditions of the Company Permits and pursuant to applicable Law, there are no existing restrictions which would have any adverse effect on the right to explore, develop and mine mineral substances from the Mineral Properties; and
(xiii)(xii) there are no options, back-in rights, earn-in rights, rights of first refusal or similar provisions or rights which could affect ParentParent’s or the Surviving Corporation’s or any of its Subsidiaries’ interest in the Mineral Properties or Mineral Rights after the Closing. There are no restrictions on the ability of the Company or its Subsidiaries to use, transfer or exploit the Mineral Properties or Mineral Rights, except pursuant to applicable Law.Law and the terms and conditions of the Company Permits.
The Company makes no representation or warranty that any of the Unpatented Claims contains a discovery of valuable minerals, or as to the adequacy of its use of any of the Millsites.
Section 4.16.3 Encumbrances. Encumbrances.The Mineral Properties and Mineral Rights are free and clear of all defects, liens and encumbrancesLiens (other than Permitted Liens) and include all mineral concessions, claims, leases, licenses, permits, access rights, water rights, and other rights and interest necessary to explore for minerals, ores, or metals without any Liability to pay any commission, royalty, license fee, net smelter return,royalty/return/receipt, or any similar payment to any Person and to use transfer, or exploittransfer the Mineral Properties pursuant to applicable Law, except for Company Permits from Governmental Entities to develop, mine or produce minerals, ores or metals from the Mineral Properties.
Section 4.16.4Information. The Company has made available to Parent all information and data pertaining to the Mineral Properties and Mineral Rights in its possession or knowledge,Knowledge, including plans of operation; notices of intent; Company Permits, including those related to exploration drilling, pad and road construction; mining exploration; land and survey records; the existence of minerals within the Mineral Properties, including relevant reserve and resource estimates; metallurgical testwork and sampling data; drill data and assay results; the Property Agreements; any reclamation and bond release information; information related to wetlands and grizzly bear mitigation lands requirements related to the Montanore Project, including confidential lists from the U.S. Forest Service, State of Montana and U.S. Fish and Wildlife Service identifying priority habitat and mitigation credit for each, any agreements or commitments to acquire any of the identified property,
and wetland mitigation land requirements and commitments to acquire; and all information concerning record, possessory, legal or equitable title to the Mineral Properties and Mineral Rights which is within its knowledge, possession or control.
Section 4.16.5Mineral Reserves. The estimated proven and probable mineral reserves and estimated indicated, measured and inferred mineral resources publicly disclosed by the Company have been prepared and disclosed in all material respects in accordance with accepted mining, engineering, geoscience and other approved industry practices, and all applicable Laws. The information provided by the Company to the “qualified persons” (as defined in CanadianNational Instrument 43-101 – 43-101—Standards of Disclosure for Mineral Projects) in connection with the preparation of such estimates was complete and accurate at the time such information was furnished. There has been no material reduction in the aggregate amount of estimated mineral reserves or estimated mineral resources of the Company from the amounts so disclosed.
Section 4.17Proxy Statement; S-4. The Proxy Statement shall not at the time of the mailing of the Proxy Statement to the holders of Company Stock and Company Preferred Stock, at the time of the Company Shareholders’ Meeting, or at the time of
any amendments thereof or supplements thereto, contain any untrue statement of a material fact or omit to state any material fact required to be stated therein or necessary in order to make the statements therein, in light of the circumstances under which they were made, not misleading;providedthat no representation is made by the Company with respect to information supplied by or related to, or the sufficiency of disclosures related to, Parent, Merger Sub or any Parent Representative. The Proxy Statement shall comply as to form in all material respects with the requirements of the Exchange Act. None of the information supplied or to be supplied by the Company for inclusion or incorporation by reference in the S-4 will, at the time the S-4 is filed with the SEC, at any time it is amended or supplemented, or at the time it becomes effective under the Securities Act, contain any untrue statement of a material fact or omit to state any material fact required to be stated therein or necessary in order to make the statements therein, in light of the circumstances under which they were made, not misleading.misleading;provided that no representation is made by the Company with respect to information supplied by Parent, Parent’s Subsidiaries, or any Parent Representative.
Section 4.18Brokers. NoExcept as disclosed onSection4.18 of the Company Disclosure Schedule, no broker, finder, financial advisor, investment banker or other Person is entitled to any brokerage, finder’s, financial advisor’s or other similar fee or commission in connection with the Merger based upon arrangements made by or on behalf of the Company.
Section 4.19Takeover StatutesStatutes; Appraisal Rights. No “fair price,” “moratorium,” “control share acquisition,” “business combination” or other similar anti-takeover statute or regulation (including Section 203the Business Combination Act of the DGCL)State of Idaho (the “BCA”)) enacted under any federal, state, local or foreign lawsLaws applicable to the Company is applicable to this Agreement, the Merger or any of the other transactions contemplated by this Agreement. The Company Board has taken all actions so that the restrictions contained in Section 203 of the DGCLBCA applicable to a “business combination” (as defined in such Section 203)the BCA) will not apply to, and that a “triggering event” shall not be deemed to have occurred under the Shareholder Rights Plan as a result of, the execution, delivery or performance of this Agreement and the consummation of the Merger and the other transactions contemplated hereby. No holder of shares of Company Stock or Company Preferred Stock shall be entitled to appraisal, dissenter or similar rights under any Law, including the IBCA, or any of the Company’s Charter Documents as a result of the Merger or any of the transactions contemplated in this Agreement.
Section 4.20Fairness Opinion. The Company has received the opinion of an independent financial advisor (and, if it is in writing, has provided a copy of such opinion to Parent) to the effect that, as of the date of this Agreement and based upon and subject to the qualifications and assumptions set forth therein, the Merger Consideration is fair, from a financial point of view, to the holders of shares of Company Stock (the “Fairness Opinion”), and, as of the date of this Agreement, such opinion has not been withdrawn, revoked or modified.
Section 4.21Access to Information; Disclaimer. The Company acknowledges and agrees that it (a) has had an opportunity to discuss the business of Parent with the management of Parent, (b) has had reasonable access to
the books and records of Parent for purposes of the transactions contemplated by this Agreement, (c) has been afforded the opportunity to ask questions of and receive answers from the management of Parent, and (d) has conducted its own independent investigation of Parent, its businesses and the Merger and the other transactions contemplated hereby, and the Company has not relied on any representation, warranty or other statement by any Person on behalf of Parent or Merger Sub, other than the representations and warranties of Parent and Merger Sub expressly contained inArticle 5.
Section 4.22Insurance. Section 4.22 of the Company Disclosure SchedulesSchedule sets forth a true and complete list of all current policies or binders of reclamation, fire, liability, product liability, umbrella liability, real and personal property, workers’ compensation, vehicular, directors and officers’ liability, fiduciary liability and other casualty and property insurance maintained by the Company and its Subsidiaries and relating to the assets, business, operations, employees, officers and directors of the Company (collectively, the “Insurance Policies”), and true and complete copies of such Insurance Policies have been made available to Parent. The Insurance Policies are in full force and effect and shall remain in full force and effect following the consummation of the transactions contemplated by this Agreement. Neither the Company nor any of its Subsidiaries has received any written notice of cancellation of, premium increase with respect to, or alteration of coverage under, any of such Insurance Policies. All premiums due on such Insurance Policies have either been paid or, if due and payable prior to Closing, will be paid prior to Closing in accordance with the payment terms of each Insurance Policy. The Insurance Policies do not provide for any retrospective premium adjustment or other experience-based liability on the part of the Company. All such Insurance Policies (a) are valid and binding in accordance with their terms; (b) are provided by carriers who are financially solvent; and (c) have not been subject to any lapse in coverage.
There are no claims related to the business of the Company or its Subsidiaries pending under any such Insurance Policies as to which coverage has been questioned, denied or disputed or in respect of which there is an outstanding reservation of rights. Neither the Company nor any of its Subsidiaries is in default under, and none of them has not otherwise failed to comply with, in any material respect, any provision contained in any such Insurance Policy. The Insurance Policies are of the type and in the amounts customarily carried by Persons conducting a business similar to the Company and are sufficient for compliance with all applicable Laws and Contracts to which the Company or oneany of its Subsidiaries is a party or by which it is bound.
Section 4.23Representations. The representations and warranties of the Company contained in this Agreement (including the Company Disclosure Schedule and all other certificates and instruments delivered pursuant to this Agreement), are true and correct, and do not omit to state any fact necessary in order to make any statement contained herein or therein not false or misleading.
Article 5
Representations and Warranties of Parent and Merger Sub
Except as set forth on the Parent disclosure schedule delivered by Parent to the Company on the date hereof (the “Parent Disclosure Schedule”), Parent and Merger Sub each represent and warrant to the Company as follows:
Section 5.1Organization and Qualification; Charter Documents.
Section 5.1.1Organization and QualificationQualification.. Each Parent is a corporation duly organized, validly existing and in good standing under the Laws of ParentDelaware, and has the requisite corporate power and authority to own, lease and operate its assets and to carry on its business as now conducted, and Merger Sub is a corporation duly organized, validly existing and in good standing under the Laws of Delaware,Idaho, and has the requisite corporate power and authority to own, lease and operate its assets and to carry on its business as now conducted. Each of Parent and Merger Sub is duly qualified or licensed to do business as a foreign corporation and is in good standing in each jurisdiction where the character of the assets and properties owned, leased or operated by it or the nature of its business makes such qualification or license necessary, except where the failure to be so qualified or licensed or to be in good standing, would not reasonably be expected to have, individually or in the aggregate, a material adverse impact on Parent and Merger Sub.Material Adverse Effect.
Section 5.1.2Charter DocumentsDocuments.. Parent has delivered or made available to the Company a true and correct copy of the Charter Documents of Parent and Merger Sub. Neither Parent nor Merger Sub is in violation of any of the provisions of its Charter Documents.
Section 5.1.3Reporting Status. Parent is and has been a “reporting issuer” and not on the list of reporting issuers in default under Canadian Securities Laws for at least the four months preceding the date of this Agreement.
Section 5.2Capitalization. The entire authorized capital stock of Parent consists of 500,000,000 shares of Parent Common Stock and 5,000,000 shares of preferred stock, par value $0.25 per share (“Parent Preferred Stock”). As of the Capitalization Date, 372,426,357387,315,010 shares of Parent Common Stock are issued and outstanding, 2,435,725 3,302,612shares of Parent Common Stock are held in treasury, 157,816 shares of Parent Preferred Stock are issued and outstanding, and no shares of Parent Preferred Stock are held in treasury. As of the Capitalization Date, an aggregate of up to 244,342no shares of Parent Common Stock were issuable upon the exercise of Parent Stock Options, and there are 14,503,57912,482,857 shares available for future grant under the Parent Stock Option Plans. There are no securities of Parent or of any of its Subsidiaries outstanding which have the right to vote generally (or are convertible into or exchangeable for securities having the right to vote generally) with the holders of the outstanding Parent Common Stock on any matters. There are no outstanding contractual or other obligations of Parent or any of its Subsidiaries to repurchase, redeem or otherwise acquire any of its securities or with respect to the voting or disposition of any outstanding securities of any of its subsidiaries. There are no outstanding bonds, debentures or other evidences of indebtedness of Parent or any inof its subsidiariesSubsidiaries having the right to vote with the holders of the outstanding Parent Common Stock on any matters.
Section 5.3Authority. Each of Parent and Merger Sub has all requisite corporate power and authority to enter into and to perform its obligations under this Agreement and to consummate the transactions contemplated hereby. The execution and delivery of this Agreement by Parent and Merger Sub and the consummation by Parent and Merger Sub of the transactions contemplated hereby have been duly authorized by all necessary corporate action on the part of Parent and Merger Sub, and no other corporate proceedings on the part of Parent or Merger Sub are necessary to authorize the execution and delivery of this Agreement or to consummate the Merger and the other transactions contemplated hereby, subject only to the filing of the CertificateStatement of Merger pursuant to the DGCL.IMETA. This Agreement has been duly executed and delivered by Parent and Merger Sub and, assuming due execution and delivery by the Company, constitutes the valid and binding obligation of Parent and Merger Sub, enforceable against Parent and Merger Sub in accordance with its terms, except as such enforceability may be limited by bankruptcy, insolvency, moratorium and other similar Laws affecting creditors rights generally and by general principles of equity.Enforceability Limitations.
Section 5.4No Conflict; Required Filings and Consents.
Section 5.4.1No ConflictConflict.. The execution, delivery and performance of this Agreement by Parent and Merger Sub, and the consummation by Parent and Merger Sub of the transactions contemplated by this Agreement, do not and will not: (i) contravene or conflict with, or result in any violation or breach of, the Charter Documents of Parent or Merger Sub; (ii) subject to compliance with the requirements set forth in clauses (i)-(iv) ofSection 5.4.2, conflict with or violate any Law applicable to Parent or Merger Sub or any of their respective properties or assets; (iii) result in any breach of or constitute a default (or an event that with notice or lapse of time or both would become a default) under, or give to others any rights of termination, amendment, acceleration or cancellation, or require any consent or approval under any Contract to which either Parent or Merger Sub is a party or otherwise bound; or (iv) result in the creation of any Lien on any of the properties or assets of Parent or Merger Sub other than Permitted Liens, except, in the case of each of clauses (ii), (iii) and (iv), for any conflicts, violations, breaches, defaults, terminations, amendments, accelerations, cancellations or Liens, or where the failure to obtain any consents or approval, in each case, would not reasonably be expected to have, individually or in the aggregate, a material adverse impact on Parent’s and Merger Sub’s ability to consummate the transactions contemplated by this Agreement.Parent Material Adverse Effect.
Section 5.4.2 Consents. Consents.The execution, delivery and performance of this Agreement by each of Parent and Merger Sub do not, and the consummation of the transactions contemplated herebyby this Agreement will not,
require either Parent or Merger Sub to obtain any consent, approval or authorization of, or make any filing with or notification to, any Governmental Entity, except for: (i) the filing of the CertificateStatement of Merger with the Secretary of State of the State of DelawareIdaho and appropriate documents with the relevant authorities of other states in which the Company and/or Parent are qualified to do business; (ii) the filing of the Proxy Statement and the S-4 with the SEC in accordance with the Securities Act, and such reports under the Exchange Act as may be required in connection with this Agreement, the Merger and the other transactions contemplated by this Agreement; (iii) as may be required under applicable state securities or “blue sky” lawsLaws and the securities Laws of any foreign country or the rules and regulations of the NYSE; and (iv) where the failure to obtain such consents, approvals or authorizations, or to make such filings or notifications would not, individually or in the aggregate, reasonably be expected to have a material adverse impact on Parent’s and Merger Sub’s ability to consummate the transactions contemplated by this Agreement.Parent Material Adverse Effect.
Section 5.5Orders. No Order has been entered or issued which restrains, enjoins or prohibits the ability of either Parent or Merger Sub to consummate the Merger or any of the other transactions provided for herein.
Section 5.6Ownership of Merger Sub. Merger Sub Parent, a wholly owned Subsidiary of Parent, owns 100% of the issued and outstanding Equity Interests of Merger Sub.
Section 5.7Vote Required. No vote of the holders of any class or series of capital stock or other Equity Interests of Parent or Merger Sub, as the case may be, is necessary to approve or adopt this Agreement or the transactions contemplated hereby, other than the vote of Merger Sub Parent as the sole stockholdershareholder of Merger Sub, which has been received as of the date of this Agreement.
Section 5.8Brokers. No broker, finder, financial advisor, investment banker or other Person is entitled to any brokerage, finder’s, financial advisor’s or other similar fee or commission payable by the Company in connection with the Merger based upon arrangements made by or on behalf of Parent or Merger Sub, as the case may be.
Section 5.9Proxy Statement. None of the information supplied or to be supplied by Parent or Merger Sub, as the case may be, for inclusion or incorporation by reference in the Proxy Statement shall, at the time of the mailing of the Proxy Statement to holders of Company Stock and Company Preferred Stock, at the time of the Company Shareholders’ Meeting, or at the time of any amendments thereof or supplements thereto, contain any untrue statement of a material fact or omit to state any material fact required to be stated therein or necessary in order to make the statements therein, in light of the circumstances under which they were made, not misleading. The S-4 shall not, at the time the S-4 is filed with the SEC, at any time it is amended or supplemented, or at the time it becomes effective under the Securities Act, contain any untrue statement of a material fact or omit to state any material fact required to be stated therein or necessary in order to make the statements therein, in light of the circumstances under which they were made, not misleading;provided that no representation is made by Parent or Merger Sub with respect to information supplied by or related to, or the sufficiency of disclosures related to, the Company, the Company’s Subsidiaries, or any Company Representative.
Section 5.10Securities Filings; Financial Statements.
Section 5.10.1Parent Securities FilingsFilings.. Parent has timely filed or furnished, as applicable, all reports, prospectuses, schedules, forms, statements or other documents (including exhibits and all other information incorporated by reference) required to be filed or furnished by it under the Securities Act, the Exchange Act, or Canadian Securities Laws, as the case may be, since January 1, 20102011 (collectively, the “Parent Securities Filings”). Each Parent Securities Filing (i) as of its date, complied as to form in all material respects with the applicable requirements of the Securities Act, the Exchange Act, or Canadian Securities Laws, as the case may be, as in effect on the date so filed, (ii) did not, at the time it was filed (or, if subsequently amended or supplemented, at the time of such amendment or supplement), contain any untrue statement of a material fact or omit to state a material fact required to be stated therein or necessary in order to make the statements made therein, in the light of the circumstances under which they were made, not misleading, and (iii) included, in the case of those which contain annual financial statements, annual financial statements that have been audited by an
independent certified public accounting firm. Parent has made available to the Company all such Parent Securities Filings that it has so filed or furnished prior to the date hereof.
Section 5.10.2Financial StatementsStatements.. Each of the consolidated financial statements (including, in each case, any notes thereto) contained in the Parent Securities Filings (i) complied as to form in all material respects with the published rules and regulations of the SEC with respect thereto as of their respective dates; (ii) was prepared in accordance with GAAP applied on a consistent basis throughout the periods involved (except as may be indicated in the notes thereto and, in the case of unaudited interim financial statements, as may be permitted by the SEC for Quarterly Reports on Form 10-Q); and (iii) fairly presented in all material respects the consolidated financial position of Parent and its consolidated Subsidiaries at the respective dates thereof and the consolidated results of the Company’s operations and cash flows for the periods indicated therein, subject, in the case of unaudited interim financial statements, to normal and year-end audit adjustments as permitted by GAAP and the applicable rules and regulations of the SEC.
Section 5.11Access to Information; Disclaimer. Each of Parent and Merger Sub acknowledges and agrees that it (a) has had an opportunity to discuss the business of the Company and its Subsidiaries with the management of the Company, (b) has had reasonable access to the books and records of the Company and its Subsidiaries for purposes of the transactions contemplated by this Agreement, (c) has been afforded the opportunity to ask questions of and receive answers from the management of the Company, and (d) has conducted its own independent investigation of the Company, its Subsidiaries, its businesses and the Merger and the other transactions contemplated hereby, and each of Parent and Merger Sub has not relied on any representation, warranty or other statement by any Person on behalf of the Company or its Subsidiaries, other than the representations and warranties of the Company expressly contained inArticle 4.
Section 5.12Representations. The representations and warranties of Parent and Merger Sub contained in this Agreement (including the Parent Disclosure Schedule and all other certificates and instruments delivered pursuant to this Agreement), are true and correct, and do not omit to state any fact necessary in order to make any statement contained herein or therein not false or misleading.
Article 6
Covenants
Section 6.1Conduct of Business Pending the Closing.
Section 6.1.1Conduct of Business of the CompanyCompany.. The Company shall, and shall cause each of its Subsidiaries to, during the period from the date of this Agreement until the Effective Time, except as expressly contemplated by this Agreement or as required by applicable Law or with the prior written consent of Parent, conduct its business in the ordinary course of business consistent with past practice, and, to the extent consistent therewith, the Company shall, and shall cause each of its Subsidiaries to, use its reasonable best efforts to preserve substantially intact its and its Subsidiaries’ business organization, to keep available the services of its and its Subsidiaries’ current officers and employees, to preserve its and its Subsidiaries’ present relationships with customers, suppliers, distributors, licensors, licensees and other Persons having business relationships with it.the Company or any of its Subsidiaries. Without limiting the generality of the foregoing, between the date of this Agreement and the Effective Time, except as required by applicable Law, the transactions contemplated by this Agreement, or the transactions contemplated by the Term Loan and Security Agreement dated as of even date herewith between the Company, Parent and certain of the Company’s Subsidiaries, the Company shall not, nor shall it permit any of its Subsidiaries to, without the prior written consent of Parent:Parent;provided that, with respect to actions to be taken pursuant to and in accordance with the terms and conditions of the Company Preferred Stock or the Warrants, the prior written consent of Parent shall not be unreasonably withheld so that the Company can comply with the terms of the same:
(i) amend or propose to amend its certificate of incorporation or by-laws (or other comparable organizational documents);Charter Documents;
(ii) issue, deliver, sell, pledge or encumber, or authorize, propose or agree to the issuance, delivery, sale, pledge or encumbrance of, any shares of the capital stock of the Company or any of its SubsidiariesSecurities (other than shares of the capital stock of the Company Stock pursuant to the terms of any outstanding Company Stock Options), or securities convertible into or exchangeable for, or options, warrants, calls, commitments or rights of any kind to acquire, any shares of any class or series of the capital stock of the Company or any of its Subsidiaries;;
(iii) declare, set aside, make or pay any dividend or other distribution (whether payable in cash, stock, property or a combination thereof) with respect to, or enter into any Contract with respect to the voting of, any of its capital stock;
(iv) reclassify, combine, split, subdivide or redeem, repurchase or otherwise acquire, directly or indirectly, any Company Securities;
(v) acquire (including by merger, consolidation, or acquisition of stock or assets) or make any investment in any Equity Interest in any Person or any assets, loans or debt securities thereof, acquire or divest any Real Property Leases or other interest in real estate or enter into or amend or modify any material Contract, partnership, arrangement, joint development agreement or strategic alliance;
(vi) repurchase, prepay or incur any indebtedness for borrowed money or guarantee any such indebtedness of another Person, issue or sell any debt securities or options, warrants, calls or other rights to acquire any debt securities of the Company or any of its Subsidiaries, guarantee any debt securities of another Person, enter into any “keep well” or other Contract to maintain any financial statement condition of any other Person (other than any wholly-owned Subsidiary of it) or enter into any arrangement having the economic effect of any of the foregoing;
(vii) grant any Lien inon any of its material assets to secure any indebtedness for borrowed money;
(viii) enter into any new line of business outside of its existing business;
(ix) pay, discharge, settle or satisfy any Liabilities, other than (i) performance of contractual obligations in accordance with their terms, or (ii) payment, discharge, settlement or satisfaction in accordance with theirthe terms of Liabilities that have been (a) disclosed in the most recent Company Financial Statements (or
the notes thereto) included in the Company Securities Filings filed prior to the date hereof or contemplated by documents made available to Parent prior to the date hereof or (b) incurred since the date of such financial statements in the ordinary course of business consistent with past practice;
(x) adopt or enter into a plan of complete or partial liquidation, dissolution, merger, consolidation, restructuring, recapitalization or other reorganization of the Company or any of its Subsidiaries (other than the Merger);
(xi) institute, settle or compromise any Legal Actions pending or threatened before any arbitrator, court or other Governmental Entity, other than (i)(A) any Legal Action brought against Parent or Merger Sub arising out of a breach or alleged breach of this Agreement by Parent or Merger Sub, and (ii)(B) the settlement of claims, liabilitiesLiabilities or obligations reserved against on the most recent balance sheet of the Company included in the Company Securities Filings, in amounts not to exceed those so reserved;providedthat neither the Company nor any of its Subsidiaries shall settle or agree to settle any Legal Action which settlement involves a conduct remedy or injunctive or similar relief or has a restrictive impact on the Company’s business;
(xii) transfer, license, sell, lease or otherwise dispose of any material assets (whether by way of merger, consolidation, sale of stock or assets, or otherwise), including the capital stock or other equity interestsEquity Interests in any Subsidiary of the Company,provided that the foregoing shall not prohibit the Company and its Subsidiaries from transferring, licensing, selling, leasing or disposing of obsolete equipment or assets being replaced, in each case in the ordinary course of business consistent with past practice;
(xiii) except as required by applicable Tax Law, make or change any material election in respect of Taxes, adopt or change in any material respect any accounting method in respect of Taxes, file any material Tax Return or any amendment to a material Tax Return, enter into any closing agreement, settle any claim or assessment in respect of Taxes (except settlements effected solely through payment of immaterial sums of money), or consent to any extension or waiver of the limitation period applicable to any claim or assessment in respect of Taxes;
(xiv) make any material change in any method of financial accounting principles or practices, in each case except for any such change required by a change in GAAP or applicable Law;
(xv) except as required by applicable Law or by any Company Employee Plan or Contract in effect as of the date of this Agreement, (i) increase the compensation payable or that could become payable by the Company or any of its Subsidiaries to directors, officers or employees, (ii) enter into any new, or amend in any material respect any existing, employment, severance, retention or change in control agreement with any of its past or present officers or employees, (iii) promote any officers or employees, except as the result of the termination or resignation of any officer or employee, or (iv) establish, adopt, enter into, amend, terminate, exercise any discretion under, or take any action to accelerate rights under any Company Employee Plans or any plan, agreement, program, policy, trust, fund or other arrangement that would be a Company Employee Plan if it were in existence as of the date of this Agreement, or make any contribution to any Company Employee Plan, other than contributions required by Law, the terms of such Company Employee Plans as in effect on the date hereof or that are made in the ordinary course of business consistent with past practice;
(xvi) except in connection with actions permitted bySection 6.4 hereof, take any action to exempt any Person from, or make any acquisition of securities of the Company by any Person not subject to, any state takeover statute or similar statute or regulation that applies to the Company with respect to a Takeover Proposal or otherwise, including the restrictions on “business combinations” set forth in Section 203 of the DGCL,BCA, except for Parent, Merger Sub or any of their respective Subsidiaries or Affiliates, or the transactions contemplated by this Agreement;
(xvii) incur any material Liability except in the ordinary course of business consistent with past practice; or
(xvii)(xviii) commit or agree to take any of the actions described inSections6.1.1(i) through6.1.1(xvi)6.1.1(xvii) above or any action which would reasonably be expected to result in any of the conditions to the Merger set forth inArticle 7 not being satisfied.
Section 6.1.2Other ActionsActions.. From the date of this Agreement until the earlier to occur of the Effective Time or the termination of this Agreement in accordance with the terms set forth inArticle 7Section 8.1, the Company and Parent shall not, and shall not permit any of their respective Subsidiaries to, take, or agree or commit to take, any action that would reasonably be expected to, individually or in the aggregate, prevent, materially delay or materially impede the consummation of the Merger or the other transactions contemplated by this Agreement.
Section 6.1.3No Control of Other Party’s BusinessBusiness.. Nothing contained in this Agreement shall give Parent or Merger Sub, directly or indirectly, the right to control or direct the Company’s operations prior to the Effective Time, and nothing contained in this Agreement shall give the Company, directly or indirectly, the right to control or direct Parent’s or Merger Sub’s operations prior to the Effective Time. Prior to the Effective Time, each of the Company, Parent and Merger Sub shall exercise, consistent with the terms and conditions of this Agreement, complete and independent control and supervision over its and its Subsidiaries’ respective operations.
Section 6.2Proxy Statement and S-4 Registration Statement; Company Shareholders’Shareholders’ Meeting.
Section 6.2.1Proxy Statement and S-4 Registration Statement. Subject to the terms and conditions of this Agreement, as promptly as reasonably practicable after the date hereof, the Company and Parent shall prepare and file with the SEC a proxy statement/prospectus and a form of proxy relating to the Company Shareholders’ Meeting (such proxy statement/prospectus, as amended or supplemented from time to time, the “Proxy Statement”), and Parent shall prepare and file with the SEC a registration statement on Form S-4 (together with all amendments thereto, the “S-4”), in which the Proxy Statement shall be included as a prospectus, in connection with the registration under the Securities Act of the shares of Parent Common Stock issuable in connection with the Merger. Parent and Merger Sub shall furnish all information relating to Parent and Merger Sub as the Company may reasonably request (or as may be required to be included in the Proxy Statement) in connection with such actions and the preparation of the Proxy Statement. The Company shall furnish all information concerning the Company and the holders of the Company Stock as Parent may reasonably request in connection with such actions and the preparation of the S-4 and the Proxy Statement. Each of the Company and Parent shall use reasonable best efforts to have the S-4 declared effective under the Securities Act. Subject to the terms and conditions of this Agreement, as promptly as reasonably practicable after the S-4 is declared effective by the SEC, the Company shall mail the Proxy Statement to the holders of shares of Company Stock and Company Preferred Stock. Subject to and without limiting the rights of the Company Board pursuant toSection6.4.2, the Proxy Statement shall include the Company Recommendation and the Fairness Opinion. No filing of, or amendment or supplement to, the Proxy Statement or S-4, or correspondence to the SEC or its staff, will be made by the Company or Parent without providing the other Party a reasonable opportunity to review and comment thereon. Parent will advise the Company, promptly after it receives notice thereof, of the time when the S-4 has become effective or any supplement thereto has been filed, the issuance of any stop order, the suspension of the qualification of the shares of Parent Common Stock issuable in connection with the Merger for offering or sale in any jurisdiction, or any request by the SEC for amendment of the S-4 or comments thereon and responses thereto or requests by the SEC for additional information and will, as promptly as practicable, provide to the Company copies of all correspondence and filings with the SEC with respect to the S-4 and Proxy Statement. The Company will inform Parent, promptly after it receives notice thereof, of any request by the SEC for the amendment of the Proxy Statement or comments thereon and responses thereto or requests by the SEC for additional information and will, as promptly as practicable, provide to Parent copies of all correspondence and filings with the SEC with respect to the Proxy Statement. If at any time prior to the Effective Time, any information, event or circumstance relating to any Party, or their respective Affiliates or Representatives, should be discovered by any Party which should be set forth in an amendment or a supplement to either the Proxy Statement or the S-4 so that the Proxy Statement or the S-4 does not contain any untrue statement of material fact, or omit to state any material fact required to be stated therein in order to make the statements therein, in light of the circumstances under which they were made, not misleading, the Party discovering such information, event or circumstance shall promptly inform the other Parties and, to the extent required by Law, an appropriate amendment or supplement describing such information, event or circumstance shall be promptly prepared and filed with the SEC and, if required,
disseminated to the holders of shares of Company Stock and Company Preferred Stock. Parent shall also take any action required to be taken under state blue sky or other securities lawsLaws in connection with the issuance of Parent Common Stock in the Merger.
Section 6.2.2Company Shareholders’ MeetingMeeting.. Subject toSection 6.4, the Company shall take all action necessary to duly call, give notice of, convene and hold a meeting of the holders of Company Stock and any holders of Company Preferred Stock (the “Company Shareholders’ Meeting”) as promptly as reasonably practicable following the date on which the S-4 is declared effective by the SEC (but taking into account any advance notice or other requirements under applicable Law) for the purpose of obtaining the Shareholder Approval. Subject toSection 6.4.2, the Company shall use its best efforts to obtain Shareholder Approval and the unanimous vote in favor of the Merger at the Company Shareholders’ Meeting or any adjournment thereof. Once the Company Shareholders’ Meeting has been called and noticed, the Company shall not postpone or adjourn the Company Shareholders’ Meeting without the consent of Parent (other than (i) in order to obtain a quorum of its stockholdersshareholders or (ii) as reasonably determined by the Company to comply with applicable Law).
Section 6.3Access to Information; Confidentiality.
Section 6.3.1Access to Information. Subject toSection 6.3.2, from the date of this Agreement to the Effective Time or the earlier termination of this Agreement pursuant toSection 8.1, the Company shall, shall cause its Subsidiaries to, and shall instruct each of its and its SubsidiariesSubsidiaries’ directors, officers, employees, accountants, consultants, legal counsel, advisors, and agents and other representatives (collectively, “Company Representatives”) to: (a) provide to Parent and Merger Sub and each of their respective officers, directors, employees, accountants, consultants, legal counsel, advisors, agents and other representatives (collectively, “Parent Representatives,” and, each, together with each of the Company Representatives, a “Representative”) access at reasonable times, and upon reasonable prior notice to the Company or to the Company Representatives, as applicable, to the properties, offices and other facilities of the Company and its Subsidiaries and the books and records thereof, and (b) furnish, or cause to be furnished, such reasonably available information concerning the business, properties, Contracts, assets, liabilities,Liabilities, personnel and other aspects of the Company as Parent, Merger Sub or the Parent Representatives may reasonably request. Any such access and availability shall include access for Parent Representatives to conduct any environmental site assessments (including sampling) or inspection in respect of environmental matters at the Company Owned Properties and the Company Leased Premises, physical inspections of the assets of the Company and its Subsidiaries, and contact with the customers, vendors, suppliers and creditors of the Company and its Subsidiaries, in each case as PurchaserParent Representatives may reasonably request. No information or knowledge obtained in any investigation pursuant to thisSection6.3.1 shall affect or be deemed to modify any representation or warranty contained in this Agreement or the conditions to the obligations of the Parties to consummate the Merger. Notwithstanding the foregoing, the Company shall not be required to provide access to or disclose information where such access or disclosure would contravene any Law, binding Contract to which the Company is party or any privacy policy applicable to the Company’s customer information.
Section 6.3.2Confidentiality and RestrictionsRestrictions.. With Until the earlier of the Closing Date or termination of this Agreement underSection 8.1, with respect to any information (i) disclosed or provided by the Company or any Company Representative to Parent, Merger Sub or any Parent Representative, and (ii) disclosed or provided by Parent or any Parent Representative to the Company or any Company Representative pursuant to, or in accordance with, this Agreement, the Parties shall comply with, and shall cause the Parent Representatives and the Company Representatives, respectively, to comply with the confidentiality provisions (but only the confidentiality provisions and not any “standstill” provisions) contained in that certain confidentiality letter agreement, dated as of June 5, 2013,May 8, 2015, between the Company and Parent (as such agreement may be amended from time to time, the “Confidentiality Agreement”). The Confidentiality Agreement shall survive any termination of this Agreement.
Section 6.4No Solicitation of Transactions.
Section 6.4.1The Company shall not, and shall cause its Subsidiaries not to, and shall not authorize or permit any Company Representative to, directly or indirectly, solicit, initiate or knowingly take any action to
facilitate or encourage the submission of any Takeover Proposal or the making of any proposal that could reasonably be expected to lead to any Takeover Proposal, or, subject toSection 6.4.2,6.4.2, (i) (a) conduct or engage in any discussions or negotiations with, (b) disclose any non-public information relating to the Company or any of its Subsidiaries to, (c) afford access to the business, properties, assets, books or records of the Company or any of its Subsidiaries to, or (d) knowingly assist, participate in, facilitate or encourage any effort by, any third party that is seeking to make, or has made, any Takeover Proposal, (ii) (a) amend or grant any waiver or release under any standstill or similar agreement with respect to any class of equity securities of the Company or any of its Subsidiaries except a confidentiality agreement as contemplated bySection 6.4.2or (b) approve any transaction under, or any third party becoming an “interested stockholder”shareholder” under, Section 203 of the DGCL,BCA, or (iii) enter into any agreement in principle, letter of intent, term sheet, acquisition agreement, merger agreement, option agreement, joint venture agreement, partnership agreement or other Contract relating to any Takeover Proposal except a confidentiality agreement as contemplated bySection 6.4.2(each, a “Company Acquisition Agreement”). Subject toSection 6.4.2, neither the Company Board nor any committee thereof shall (v) fail to make, withdraw, amend, modify or
materially qualify, in a manner adverse to Parent or Merger Sub, the Company Recommendation, or(w) recommend a Takeover Proposal, (x) fail to recommend against acceptance of any tender offer or exchange offer for the shares of Company Stock within ten (10) Business Days after the commencement of such offer, or(y) make any public statement inconsistent with the Company Board Recommendation, or (z) resolve or agree to take any of the foregoing actions (any of the foregoing, a “Company Adverse Recommendation Change”). The Company shall, and shall cause its Subsidiaries to, cease immediately and cause to be terminated, and shall not authorize or knowingly permit any Company Representatives to continue, any and all existing activities, discussions or negotiations, if any, with any third party conducted prior to the date hereof with respect to any Takeover Proposal and shall use commercially reasonable efforts to cause any such third party (or its agents or advisors) in possession of non-public information in respect of the Company or any of its Subsidiaries that was furnished by or on behalf of the Company and its Subsidiaries to return or destroy (and confirm destruction of) all such information.
Section 6.4.2NotwithstandingSection 6.4.1, prior to the receipt of the Shareholder Approval, the Company Board, directly or indirectly through any Company Representative, may, subject toSection 6.4.3, and provided that the Company is not then in breach ofSection 6.4.1 (i) participate in negotiations or discussions with any third party that has made (and not withdrawn) a bona fide, unsolicited Takeover Proposal in writing that the Company Board believes in good faith, after consultation with outside legal counsel and an independent financial advisor, constitutes or would reasonably be expected to result in a Superior Proposal, (ii) thereafter furnish to suchthe third party that has made such Takeover Proposal non-public information relating to the Company or any of its Subsidiaries pursuant to an executed confidentiality agreement that contains confidentiality and standstill provisions that are no less favorable to the Company than those contained in the Confidentiality Agreement (a copy of which confidentiality agreement shall be promptly (in all events within 24 hours) provided for informational purposes only to Parent), except that such agreement need not contain any standstill or similar provision, (iii) following receipt of and on account of a Superior Proposal, make a Company Adverse Recommendation Change in accordance with the provisions ofSection 6.4.4, or (iv) take any action that any court of competent jurisdiction orders the Company to take (which orderOrder remains unstayed), but in each case referred to in the foregoing clauses (i) through (iv), only if the Company Board determines in good faith, after consultation with outside legal counsel, that the failure to take such action would reasonably be expected to cause the Company Board to be in breach of its fiduciary duties under applicable Law. Nothing contained herein shall prevent theThe Company Board from disclosingshall be permitted to disclose to the Company’s stockholdersshareholders a position, otherwise in compliance with the terms and conditions of this Agreement, contemplated by Rule 14d-9 and Rule 14e-2(a) promulgated under the Exchange Act with regard to a Takeover Proposal, if the Company determines, after consultation with outside legal counsel, that failure to disclose such position would constitute a violation of applicable Law. Nothing in this Agreement shall prohibit the Company Board from complying with its disclosure obligations under U.S. federal or state Law.
Section 6.4.3The Company Board shall not take any of the actions referred to in clauses (i) through (iv) ofSection 6.4.2 unless the Company shall have delivered to Parent a prior written notice advising Parent that it intends to take such action. The Company shall notify Parent promptly (but in no event later than 24 hours) after it obtains Knowledge of the receipt by the Company (or any of the Company Representatives) of any Takeover Proposal, any inquiry that would reasonably be expected to lead to a Takeover Proposal, or any request for non-public information relating to the Company or any of its Subsidiaries or for access to the business, properties, assets, books or records of the Company or any of its Subsidiaries by any third party. In such notice, the Company shall identify the third party making, and details of the material terms and conditions of, any such Takeover Proposal, indication or request. The Company shall keep Parent fully informed, on a current basis, of
the status and material terms of any such Takeover Proposal, indication or request, including any material amendments or proposed amendments as to price and other material terms thereof. The Company shall provide Parent with at least 48 hours prior notice of any meeting of the Company Board (or such lesser notice as is provided to the members of the Company Board) at which the Company Board is reasonably expected to consider any Takeover Proposal. The Company shall promptly (but in no event later than 24 hours) provide Parent with a list of any non-public information concerning the Company’s business, present or future performance, financial condition or results of operations provided to any third party in connection with the
receipt by the Company (or any of the Company Representatives) of any such Takeover Proposal, indication or request and copies of such information to the extent such information has not been previously provided to Parent, copies of such information.Parent.
Section 6.4.4Except as set forth in thisSection 6.4.4, the Company Board shall not make any Company Adverse Recommendation Change or enter into (or permit any Subsidiary to enter into) a Company Acquisition Agreement. Notwithstanding the foregoing, atAt any time prior to the receipt of the Shareholder Approval, in response to a Superior Proposal, the Company Board may make a Company Adverse Recommendation Change, take an action otherwise prohibited underSection 6.4.1(ii)or, subject to compliance withSection 8.1(iii)(b), enter into (or permit any Subsidiary to enter into) a Company Acquisition Agreement, if: (i) the Company promptly notifies Parent, in writing, at least fivethree Business Days (the “Notice Period”) before making a Company Adverse Recommendation Change, taking an action otherwise prohibited underSection 6.4.1(ii) or entering into (or causing a Subsidiary to enter into) a Company Acquisition Agreement, of its intention to take such action with respect to a Superior Proposal, which notice shall state expressly that the Company has received a Takeover Proposal that the Company Board intends to declare a Superior Proposal and that the Company Board intends to make a Company Adverse Recommendation Change, or take an action otherwise prohibited underSection 6.4.1(ii) or the Company intends to enter into a Company Acquisition Agreement; (ii) the Company attaches to such notice the most current version of the proposed agreementCompany Acquisition Agreement (which version shall be updated on a prompt basis) and the identity ofidentifies the third party making such Superior Proposal; (iii) the Company shall, and shall cause its Subsidiaries to, and shall use its reasonable best efforts to cause the Company Representatives to, during the Notice Period, negotiate with Parent in good faith to make such adjustments in the terms and conditions of this Agreement so that such Takeover Proposal ceases to constitute a Superior Proposal, if Parent, in its discretion, proposes to make such adjustments (it being agreed that, in the event that after commencement of the Notice Period, there is any material revision to the terms of a Superior Proposal, including any revision in price, the Notice Period shall, be extended, if applicable, to ensure that at least threeless than two Business Days remains inremain before the expiration of such Notice Period, subsequentbe automatically extended to two Business Days from the timedate on which the Company notifies Parent of any such material revision (it being understood that there may be multiple extensions)); and (iv) the Company Board determines in good faith, after consulting with outside legal counsel and an independent financial advisor, that such Takeover Proposal continues to constitute a Superior Proposal after taking into account any adjustments made by Parent during the Notice Period in the terms and conditions of this Agreement.Agreement and that the failure to accept such Superior Proposal would reasonably be expected to cause the Company Board to be in breach of its fiduciary duties under applicable Law.
Section 6.5Reasonable Best Efforts.
Section 6.5.1 General. General.Upon the terms and subject to the conditions set forth in this Agreement (including those contained in thisSection 6.5.1), each of the Parties shall, and shall cause its Subsidiaries to, use its reasonable best efforts to take, or cause to be taken, all actions, and to do, or cause to be done, and to assist and cooperate with the other Parties in doing, all things necessary, proper or advisable to consummate and make effective, and to satisfy all conditions to, in the most expeditious manner practicable, the transactions contemplated by this Agreement, including (i) the obtaining of all necessary permits, waivers, consents, approvals and actions or nonactions from Governmental Entities and the making of all necessary registrations and filings (including filings with Governmental Entities) and the taking of all steps as may be necessary to obtain an approval or waiver from, or to avoid an action or proceeding by, any Governmental Entities, (ii) the obtaining of all necessary consents or waivers from third parties, and (iii) the execution and delivery of any additional instruments necessary to consummate the Merger and to fully carry out the purposes of this Agreement. Parent shall take all action necessary to cause Merger Sub to perform its obligations under this Agreement and to consummate the Merger on the terms and conditions set forth in this Agreement. The Company and Parent shall, subject to applicable Law, promptly (x) cooperate and coordinate with the other in the taking of the actions contemplated by clauses (i), (ii) and (iii) immediately aboveof thisSection 6.5.1 and (y) supply the other with any information that may be reasonably required in order to effectuate the taking of such actions. Each Party
shall promptly inform the other Parties, as the case may be, of any communication from any Governmental Entity regarding any of the transactions contemplated by this Agreement. If the Company or Parent receives a request for additional information or documentary material from any Governmental Entity with respect to the transactions contemplated by this Agreement, then it shall use reasonable best efforts to make, or
cause to be made, as soon as reasonably practicable and after consultation with the other Party, an appropriate response in compliance with such request, and, if permitted by applicable Law and by any applicable Governmental Entity, provide the other Party’s counsel with advance notice and the opportunity to attend and participate in any meeting with any Governmental Entity in respect of any filing made theretotherewith in connection with the transactions contemplated by this Agreement. Parent shall take all action necessary to cause Merger Sub to perform its obligations under this Agreement and to consummate the Merger on the terms and conditions set forth in this Agreement.
Section 6.5.2 Challenge. BCA and Shareholder Rights Plan. The Company shall take all action required to render the BCA, the Shareholder Rights Plan, and any other shareholder rights or other similar agreement with respect to any Company Securities, inapplicable to any of the transactions contemplated by this Agreement.
Section 6.5.3Challenge.In the event that any administrative or judicial action or proceeding is instituted (or threatened to be instituted) by a Governmental Entity or private party challenging the Merger or any other transaction contemplated by this Agreement, or any other agreement contemplated hereby, the Company shall cooperate in all respects with Parent and Merger Sub and shall use its reasonable best efforts to contest and resist any such action or proceeding and to have vacated, lifted, reversed or overturned any Order, whether temporary, preliminary or permanent, that is in effect and that prohibits, prevents or restricts consummation of the transactions contemplated by this Agreement. Notwithstanding anything in this Agreement to the contrary, none of Parent, Merger Sub or any of their Affiliates shall be required to defend, contest or resist any action or proceeding, whether judicial or administrative, or to take any action to have vacated, lifted, reversed or overturned any Order, in connection with the transactions contemplated by this Agreement.
Section 6.5.3 Exceptions6.5.4. Exceptions.Notwithstanding anything to the contrary set forth in this Agreement, none of Parent, Merger Sub or any of their Subsidiaries shall be required to, and the Company may not, without the prior written consent of Parent, become subject to, consent to, or offer or agree to, or otherwise take any action with respect to, any requirement, condition, limitation, understanding, agreement or order to (i) sell, license, assign, transfer, divest, hold separate or otherwise dispose of any assets, business or portion of business of the Company, the Surviving Corporation, Parent, Merger Sub or any of their respective Subsidiaries, (ii) conduct, restrict, operate, invest or otherwise change the assets, business or portion of business of the Company, the Surviving Corporation, Parent, Merger Sub or any of their respective Subsidiaries in any manner, or (iii) impose any restriction, requirement or limitation on the operation of the business or any portion of the business of the Company, the Surviving Corporation, Parent, Merger Sub or any of their respective Subsidiaries;provided that,, if requested by Parent, the Company will become subject to, consent to, or offer or agree to, or otherwise take any action with respect to, any such requirement, condition, limitation, understanding, agreement or order so long as such requirement, condition, limitation, understanding, agreement or order is only binding on the Company in the event the Closing occurs.
Section 6.6Certain Notices. From and after the date of this Agreement until the earlier of the Effective Time or the termination of this Agreement pursuant toSection 8.1, the Company shall give prompt written notice to Parent, and Parent shall give prompt written notice to the Company, of (a) any material notice or other material communication received by such Party from any Governmental Entity in connection with this Agreement, the Merger or the other transactions contemplated hereby or from any Person alleging that the consent of such Person is or may be required in connection with this Agreement, the Merger or the other transactions contemplated hereby, (b) any material claims, actions, suits, proceedings or investigations commenced or, to such Party’s Knowledge, threatened against, relating to or involving or otherwise affecting such Party or any of its Subsidiaries which relate to this Agreement, the Merger or the other transactions contemplated hereby and (c) any fact, event or circumstance known to such Party that would cause or constitute, or would reasonably be expected to cause or constitute, a breach in any material respect of such Party’s representations, warranties, covenants or agreements contained herein or would prevent, delay or impede, or would reasonably be expected to prevent, delay or impede, the consummation of the Merger or any other transaction contemplated by this Agreement;provided,however, that the delivery of any notice pursuant to thisSection 6.6 shall not limit or
otherwise affect any remedies available to the Party receiving such notice or prevent or cure any misrepresentations, breach of warranty or breach of covenant or failure to satisfy the conditions to the obligations of the Parties under this Agreement.
Section 6.7Public Announcements. Except as set forth in thisSection 6.7, the Parties agree that Parent will prepare and disseminate any press release or public announcement pertaining to the Merger, and shall in good faith consult with the Company as to the text of any such press release or public announcement, provided that all decisions with respect to such press releases and public announcements shall ultimately rest with Parent. Except as set forth in the last sentence of thisSection 6.7, theThe Company shall not issue any press release or public statement pertaining to the Merger without consulting with, and obtaining the consent of, Parent, which consent shall not be unreasonably withheld or delayed, except as required to comply with any Law. The Parties will prepare a joint release for the announcement of the execution of this Agreement. John G. ShanahanGlenn Dobbs and Timothy R. Lindsey,Douglas Dobbs, as the representatives of the Company, are authorized to make public statements substantially as follows without the need to consult with or obtain the prior consent of Parent:
(i) In current market conditions, the Company will have difficulty developing the Montanore Project. The Company owes it to its shareholders and all stakeholders to be responsible in light of current realities.
(ii) The Montanore Project has received excellent support from the communities of northwest Montana, and is it important that this project be developed to the highest standards. Parent is a company that can do this.
Section 6.8NYSE Listing. Parent agrees to authorize for listing on the NYSE the shares of Parent Common Stock issuable in connection with the Merger, upon official notice of issuance. Parent shall take all steps reasonably necessary to maintain the listing of the Parent Common Stock on the NYSE.
Section 6.9Indemnification of Directors and Officers.
Section 6.9.1Parent and Merger Sub agree that all rights to indemnification, advancement of expenses and exculpation by the Company now existing in favor of each Person who is now, or has been at any time prior to the date hereof or who becomes prior to the Effective Time an officer or director of the Company and its Subsidiaries (each an “Indemnified Party”) as provided in the Company’s Charter Documents, in each case as in effect on the date of this Agreement, or pursuant to any other Contracts in effect on the date hereof and disclosed inonSection 6.96.9.1 of the Company Disclosure Schedule, shall be assumed by the Surviving Corporation in the Merger, without further action, at the Effective Time and shall survive the Merger and shall remain in full force and effect in accordance with their terms, and, in the event that any proceeding is pending or asserted or any claim made during such period, until the final disposition of such proceeding or claim.
Section 6.9.2For six years after the Effective Time, to the fullest extent permitted under applicable Law, Parent and the Surviving Corporation shall indemnify, defend and hold harmless each Indemnified Party against all losses, claims, damages, liabilities,Liabilities, fees, expenses, judgments and fines arising in connection with any claim brought by a third party arising in whole or in part out of actions or omissions in theirsuch Indemnified Party’s capacity as such occurring at or prior to the Effective Time (including in connection with the transactions contemplated by this Agreement), and shall reimburse each Indemnified Party for any legal or other expenses reasonably incurred by such Indemnified Party in connection with investigating or defending any such losses, claims, damages, liabilities,Liabilities, fees, expenses, judgments and fines as such expenses are incurred, subject to the Surviving Corporation’s receipt of an undertaking by such Indemnified Party to repay such legal and other fees and expenses paid in advance if it is ultimately determined in a final and non-appealable judgment of a court of competent jurisdiction that such Indemnified Party is not entitled to be indemnified under applicable Law;provided,however, that the Surviving Corporation shall not be liable for any settlement effected without the Surviving Corporation’s prior written consent.
Section 6.9.3The Surviving Corporation shall, and Parent shall cause the Surviving Corporation to, (i) maintain in effect for a period of six years after the Effective Time, if available, the current policies of directors’
and officers’ liability insurance maintained by the Company immediately prior to the Effective Time (provided that the Surviving Corporation may substitute therefor policies, of at least the same coverage and amounts and containing terms and conditions that are not less advantageous to the directors and officers of the Company and its Subsidiaries when compared to the insurance maintained by the Company as of the date hereof), or (ii) obtain as of the Effective Time “tail” insurance policies with a claims period of six years from the Effective Time with at least the same coverage and amounts and containing terms and conditions that are not less advantageous to the directors and officers of the Company and its Subsidiaries, in each case with respect to claims arising out of or relating to events which occurred before or at the Effective Time (including in connection with the transactions contemplated by this Agreement);provided,however, that in no event will the Surviving Corporation be required to expend an annual premium for such coverage in excess of one hundred fifty percent (150%)200% of the last annual premium paid by the Company for such insurance prior to the date of this Agreement which amount(the “Maximum Premium”). The Maximum Premium is set forth onSection 6.9.3 of the Company Disclosure Schedule (the “Maximum Premium”).Schedule. If such insurance coverage cannot be obtained at an annual premium equal to or less than the Maximum Premium, the Surviving Corporation will obtain, and Parent will cause the Surviving Corporation to obtain, that amount of directors’ and officers’ insurance (or “tail” coverage) obtainable for an annual premium equal to the Maximum Premium.
Section 6.9.4The obligations of Parent and the Surviving Corporation under thisSection 6.9 shall survive the consummation of the Merger and shall not be terminated or modified in such a manner as to adversely affect any Indemnified Party to whom thisSection 6.9 applies without the consent of such affected Indemnified Party (it being expressly agreed that the Indemnified Parties to whom thisSection 6.9 applies shall be third party beneficiaries of thisSection 6.9, each of whom may enforce the provisions of thisSection 6.9).
Section 6.9.5In the event Parent, the Surviving Corporation or any of their respective successors or assigns (i) consolidates with or merges into any other Person and shall not be the continuing or surviving corporation or entity in such consolidation or merger or (ii) transfers all or substantially all of its properties and assets to any Person, then, and in either such case, proper provision shall be made so that the successors and assigns of Parent or the Surviving Corporation, as the case may be, shall assume all of the obligations set forth in thisSection 6.9. The agreements and covenants contained herein shall not be deemed to be exclusive of any other rights to which any Indemnified Party is entitled, whether pursuant to Law, Contract or otherwise. Nothing in this Agreement is intended to, shall be construed to or shall release, waive or impair any rights to directors’ and officers’ insurance claims under any policy that is or has been in existence with respect to the Company or its officers, directors and employees, it being understood and agreed that the indemnification provided for in thisSection 6.9 is not prior to, or in substitution for, any such claims under any such policies.
Section 6.10State Takeover Statutes. If any state takeover statute or similar statute becomes applicable to this Agreement (including the Merger and the other transactions contemplated hereby), each of Parent, Merger Sub, the Company and their respective Boardsboards of Directorsdirectors shall take all reasonable action necessary so that such transactions may be consummated as promptly as practicable on the terms contemplated hereby or otherwise act to eliminate or minimize the effect of such statute or regulation on this Agreement or the transactions contemplated hereby.
Section 6.11Section 16(b) Exemption. Prior to the Effective Time, the Company shall take all actions reasonably necessary to cause the transactions contemplated by this Agreement and any other dispositions of equity securities of the Company (including “derivative securities” (as defined in Rule 16a-1(c) under the Exchange Act)) in connection with the transactions contemplated by this Agreement by each individual who is a director or executive officer of the Company to be exempt under Rule 16b-3 promulgated under the Exchange Act.
Article 7
Closing Conditions
Section 7.1Conditions to Obligations of Each Party Under This Agreement. The respective obligations of each Party to effect the Merger and the other transactions contemplated hereby shall be subject to the satisfaction, or waiver, at or prior to the Closing Date, of the following conditions:
Section 7.1.1Shareholder ApprovalApproval.. The Shareholder Approval shall have been obtained.
Section 7.1.2No Injunctions or RestraintsRestraints.. No Law or Order issued by any Governmental Entity of competent jurisdiction preventing the consummation of the Merger or any other transaction contemplated by this Agreement shall be in effect;provided,however, that the right to assert that this condition has not been satisfied shall not be available to any Party who has not used its reasonable best efforts to prevent, resist, appeal, obtain consent under, resolve or lift, as applicable, such Law or Order or who has not complied in all material respects with its obligations underSection 6.5.
Section 7.1.3Securities MattersMatters.. No The effectiveness of the S-4 shall have occurred, no stop order suspending the effectiveness of theS-4 or any part thereof shall have been issued, and no proceeding initiated for thatthe purpose of suspending the effectiveness of the S-4 or any part thereof shall have been initiated, and no similar proceeding in respect of the Proxy Statement shall have been initiated or threatened in writing by the SEC or any Canadian securities regulatory authority; and all requests for additional information on the part of the SEC or any Canadian securities regulatory authority shall have been complied with to the reasonable satisfaction of the Parties.
Section 7.1.4NYSE ListingListing.. The Parent Common Stock issuable to shareholders of the Company pursuant to this Agreement shall have been authorized for listing on the NYSE upon official notice of issuance.
Section 7.2Additional Conditions to Obligations of Parent and Merger Sub. The obligations of Parent and Merger Sub to effect the Merger and the other transactions contemplated hereby are also subject to the satisfaction of the following conditions, any one or more of which may be waived in writing by Parent in accordance withSection 8.5.
Section 7.2.1Representations and WarrantiesWarranties.. (i) The representations and warranties of the Company set forth inSections 4.1,4.2,4.3,4.6,4.8,4.11,4.12,4.16 and4.18 (a) shall have been true and correct in all respects other thande minimis inaccuracies as of the date of this Agreement, and (b) shall be true and correct in all respects other thande minimisinaccuracies as of the Closing Date as if made at and as of the Closing Date (except for those representations and warranties which address matters only as of an earlier date which shall have been true and correct as of such earlier date), and (ii) each of the other representations and warranties of the Company set forth inArticle 4 (a) shall have been true and correct in all respects as of the date of this Agreement, and (b) shall be true and correct as of the Closing Date as if made at and as of the Closing Date (except for those representations and warranties which address matters only as of an earlier date, which shall have been true and correct as of such earlier date), except for inaccuracies of representations and warranties the circumstances giving rise to which, individually or in the aggregate, do not constitute and would not reasonably be expected to result in a Company Material Adverse Effect (it being understood that, for purposes of determining the accuracy of such representations and warranties, all “Material Adverse Effect” qualifications and other materiality qualifications contained in such representations and warranties shall be disregarded).
Section 7.2.2Agreements and CovenantsCovenants.. The Company shall have performed or complied in all material respects with all agreements and covenants required by this Agreement to be performed or complied with by the Company on or prior to the Closing Date.
Section 7.2.3Company Material Adverse EffectEffect.. Since the date of this Agreement, there shall not have been any Company Material Adverse Effect or any event, change or effect that would, individually or in the aggregate, reasonably be expected to have a Company Material Adverse Effect.
Section 7.2.4Officer’s CertificateCertificate.. Parent shall have received a certificate of an officer of the Company confirming the satisfaction of the conditions set forth inSections 7.2.1,7.2.2, and7.2.3.
Section 7.2.5 Consents.Consents. All consents, filings, registrations, waivers and notifications necessary to permit the consummation of the transactions contemplated by this Agreement shall have been obtained or made, including all such consents, filings, registrations, waivers and notifications disclosed (or required to be disclosed) inSection 4.4.1,4.4.2, and4.5.2 of the Company Disclosure Schedule, if any.
Section 7.2.6Shareholders Agreement. The Company shall have delivered to Parent duly executed copies of a Shareholders Agreement from Silver Wheaton Corp. and each of the directors and officers of the Company set forth onSection 7.2.6 of the Company Disclosure Schedule.
Section 7.2.6 Troy Mine7.2.7.Board and Committee Approval. The environmental risk transfer programBoard and any other insurance policies in effectCommittee Approval shall have been obtained.
Section 7.2.8Director and Officer Resignations, Releases. Each of the directors and officers of the Company or its Subsidiaries, which are set forth onSection 7.2.8 of the Company Disclosure Schedule, shall have submitted their resignation from all such director and officer positions held with the Company or its Subsidiaries effective as of the date hereof providing coverage forEffective time, which resignations shall include releases of any claims of such persons against the Company’s or its Subsidiaries’ reclamationCompany;provided, however, that any such resignation shall not limit such individual’s status as an employee of the Company and mine closing Liabilities relatingany such release shall not limit in any way such individual’s right to receive, if applicable, severance from the Troy MineCompany pursuant to and in accordance with such individual’s employment agreement set forth onSection 4.9.10 of the Company Disclosure Schedule.
Section 7.2.9Compliance with Credit Agreement. The Company shall as determined by Parent in its sole discretion, be in full force and effect and shall apply to any reclamation plan relating tocompliance with the Troy Mine that is implemented or effected afterprovisions of the Credit Agreement dated the date hereof including as result of the 2012 Environmental Impact Statement (including any supplements thereto, whether completed or in progress) and associated Record of Decision (including any amendments or supplements thereto, whether completed or in progress) issued by the Montana Department of Environmental Quality and the United States Forest Service.
Section 7.2.7 Employment Agreement Amendments. The amendments to the Employment Agreements between the Company and certainParent.
Section 7.2.10Dissolution of its employees entered intoMinera Montanore Peru S.A.C. The Company shall have dissolved Minera Montanore Peru S.A.C. pursuant to and in Januaryaccordance with applicable Law, including applicable Peruvian corporation law.
Section 7.2.11280G Calculations. The Company shall have provided 280G calculations from the accounting firm as required by the employment agreements set forth onSection 4.9.10 of the Company Disclosure Schedule and February 2015such calculations shall be consistent in connectionall material respects with this Agreement shall remain in full forcethe 280G calculations prepared by the Company and effect.delivered to Parent on the date hereof.
Section 7.3Additional Conditions to Obligations of the Company. The obligation of the Company to effect the Merger and the other transactions contemplated hereby are also subject to the satisfaction of the following conditions, any one of which may be waived in writing by the Company in accordance withSection 8.5.
Section 7.3.1Representations and WarrantiesWarranties.. (i) The representations and warranties of Parent and Merger Sub set forth inSections 5.1,5.2,5.3,5.8, and5.10 shall have been true and correct in all respects other thande minimis inaccuracies as of the date of this Agreement, and shall be true and correct in all respects other thande minimisinaccuracies as of the Closing Date as if made at and as of the Closing Date (except for those representations and warranties which address matters only as of an earlier date which shall have been true and correct as of such earlier date), and (ii) each of the other representations and warranties of Parent and Merger Sub set forth inArticle 5 shall have been true and correct in all respects as of the date of this Agreement, and shall be true and correct as of the Closing Date as if made at and as of the Closing Date (except for those representations and warranties which address matters only as of an earlier date, which shall have been true and correct as of such earlier date), except for inaccuracies of representations and warranties the circumstances giving rise to which, individually or in the aggregate, do not constitute and would not reasonably be expected to have, individually or in the aggregate, a material adverse effect on Parent’s and Merger Sub’s ability to consummate the transactions
contemplated by this Agreement (it being understood that, for purposedpurposes of determining the accuracy of such representations and warranties, all materiality qualifications contained in such representations and warranties shall be disregarded).
Section 7.3.2Agreements and CovenantsCovenants.. Parent and Merger Sub shall have performed or complied in all material respects with all material agreements and covenants required by this Agreement to be performed or complied with by Parent and/or Merger Sub, as applicable, on or prior to the Closing Date.
Section 7.3.3 Officer’s CertificateParent Material Adverse Effect. Since the date of this Agreement, there shall not have been any Parent Material Adverse Effect or any event, change or effect that would, individually or in the aggregate, reasonably be expected to have a Parent Material Adverse Effect.
Section 7.3.4Officer’s Certificate.The Company shall have received a certificate of an officer of Parent confirming the satisfaction of the conditions set forth inSections 7.3.1,7.3.2 and7.3.27.3.3.
Section 7.4Frustration of Closing Conditions. None of the Company, Parent or Merger Sub may rely on the failure of any condition set forth inArticle 7 to be satisfied if such failure was caused by such Party’s failure to act in good faith to comply with this Agreement or use its reasonable best efforts to consummate and make effective the transactions provided for herein.
Article 8
Termination, Amendment and Waiver
Section 8.1Termination. This Agreement may be terminated, and the Merger contemplated hereby may be abandoned, at any time prior to the Effective Time, by action taken or authorized by the Boardboard of Directorsdirectors of the terminating Party, whether before or after the Shareholder Approval:
(i) by mutual written consent of Parent and the Company;
(ii) by either Parent or the Company:
(a) if the Shareholder Approval is not obtained at the Company Shareholders’ Meeting or any adjournment or postponement thereof at which adoption of this Agreement is voted upon;providedthat the Company’s right to terminate this Agreement under thisSection 8.1(ii)(a) shall not be available to the Company if the Company has not complied with its obligations underSections 6.2 and6.4 or Shareholder Approval is not obtained because of a breach of a Shareholders Agreement;
(b) if the Merger shall not have been consummated by the date that is four months from the date hereofAugust 15, 2016 (the “Termination Date”);provided,however, that the right to terminate this Agreement under thisSection 8.1(ii)(b) shall not be available to any Party if any action of such Party or the failure by any Party to perform any of its obligations under this Agreement has been the cause of, or resulted in, the failure of the Merger and the other transactions contemplated by this Agreement to be consummated on or before the Termination Date; or
(c) if (A) any Law prohibits or makes illegal the consummation of the Merger or (B) any Order of any Governmental Entity having competent jurisdiction is entered enjoining the Company, Parent or Merger Sub from consummating the Merger and such Order has become final and nonappealable, and, in either case, prior to termination pursuant to thisSection 8.1(ii)(c), the Party terminating this Agreement shall have used its reasonable best efforts to prevent, resist, appeal, obtain consent under, resolve or lift, as applicable, the Law or Order and shall have complied in all material respects with its obligations underSection 6.5;provided,however, that the right to terminate this Agreement pursuant to thisSection 8.1(ii)(c) shall not be available to any Party if any action of such Party or the failure by anysuch Party to perform any of its obligations under this Agreement has been the cause of, or resulted in, the imposition of any such Order or the failure of such Order to be resisted, resolved or lifted, as applicable;
(iii) by the Company:
(a) if (I) Parent or Merger Sub shall have breached any of the covenants or agreements contained in this Agreement to be complied with by Parent or Merger Sub such that the closing condition set forth inSection 7.3.2 would not be satisfied or (II) there exists a breach of any representation or warranty of Parent or Merger Sub contained in this Agreement such that the closing condition set forth inSection 7.3.1 would not be satisfied, and, in the case of clause (I) or clause (II), such breach is incapable of being cured or, if capable of being cured, shall not have been cured prior to the earlier of (x) the Termination Date, and (y) twenty (20)20 Business Days after Parent or Merger Sub receives written notice of such breach from the Company;provided,however, that the Company shall not have the right to terminate this Agreement pursuant to thisSection8.1(iii)(a)if the Company is then in material breach of any of its covenants or agreements contained in this Agreement or there exists a breach of any representation or warranty of the Company such that the closing condition set forth inSections 7.2.1 or7.2.2 would not be satisfied if the Closing Date were at the time of such termination; or
(b) if, prior to the obtaining of the Shareholder Approval, (I) the Company Board has received a Superior Proposal, (II) the Company Board has determined in good faith (after consultation with its outside legal counsel and independent financial advisor) that the failure to accept such Superior Proposal iswould reasonably likely
be expected to be inconsistent with the fiduciary duties of the members ofcause the Company Board to the holdersbe in breach of shares of Company Stockits fiduciary duties under applicable Law, (III) the Company has complied withSections 6.2 andSection 6.4, (IV) the Company concurrently enters into a Company Acquisition Agreement providing for such Superior Proposal, and (IV)(V) the Company pays the Termination Fee and Parent Expenses to Parent in accordance withSection 8.4; or
(iv) by Parent:
(a) if (I) the Company shall have breached any of the covenants or agreements contained in this Agreement to be complied with by the Company such that the closing condition set forth inSection 7.2.2 would not be satisfied or (II) there exists a breach of any representation or warranty of the Company contained in this Agreement such that the closing condition set forth inSection 7.2.1 would not be satisfied, and, in the case of clause (I) or clause (II), such breach is incapable of being cured or, if capable of being cured, shall not have been cured prior to the earlier of (x) the Termination Date, and (y) twenty (20)20 Business Days after the Company receives written notice of such breach from Parent;provided,however, that Parent shall not have the right to terminate this Agreement pursuant to thisSection 8.1(iv)(a) if Parent or Merger Sub is then in material breach of any of its covenants or agreements contained in this Agreement or there exists a breach of any representation or warranty of Parent or Merger Sub such that the closing condition set forth inSections 7.3.1 or7.3.2 would not be satisfied if the Closing Date were at the time of such termination; or
(b) if, prior to the obtaining of the Shareholder Approval, (I) a Company Adverse Recommendation Change shall have occurred, (II) the Company has failed to include the Company Recommendation in the Proxy Statement, (III) the Company Board approves, recommends or adopts, or publicly proposes to approve, recommend or adopt, a Takeover Proposal or approves or recommends that holders of Company Stock tender their shares of Company Stock in any tender offer or exchange offer that is a Takeover Proposal, or (IV) the Company shall have breached or failed to perform any of the covenants and agreements set forth inSections 6.26.2.2 or6.4.
Section 8.2Notice of Termination; Effect of Termination. The Party desiring to terminate this Agreement pursuant to thisArticle 8 (other than pursuant toSection 8.1(i)) shall deliver written notice of such termination to each other Party specifying with particularity the reason for such termination, and any such termination in accordance with thisSection 8.2 shall be effective immediately upon delivery of such written notice to the other Party. Except as otherwise set forth in thisSection8.2, in the event of a termination of this Agreement by either the Company or Parent as provided inSection8.1, this Agreement shall forthwith become void and there shall be no liabilityLiability or obligation on the part of Parent, Merger Sub or the Company hereunder;provided,however, that the provisions of thisSection8.2,Sections 6.3.2,8.3,8.4,8.5 andArticle9 and the Confidentiality Agreement shall remain in full force and effect and survive any
termination of this Agreement;provided,further, that no Party shall be relieved or released from any liabilitiesLiabilities or damages arising out of its willful or intentional material breach of any provision of this Agreement.
Section 8.3Fees and Expenses. Except as otherwise expressly set forth in this Agreement, all fees and expenses incurred in connection herewith and the transactions contemplated hereby shall be paid by the Party incurring, or required to incur, such expenses, whether or not the Merger is consummated, except that Parent and the Company shall each bear and pay 50 percent of the costs and expenses incurred in connection with the filing of the S-4 and the printing and mailing of the Proxy Statement (including any SEC filing fees).
Section 8.4Termination Fee and Expenses.
Section 8.4.1 Termination Fee.Fee.
(i) If this Agreement is terminated by the Company pursuant toSection8.1(iii)(b), then the Company shall pay to Parent (or as directed by Parent), by wire transfer of same day funds, (x) $825,000$1,000,000 (the “Termination Fee”) plus (y) all of Parent’s actual and reasonably documented fees and expenses (including legal fees and expenses) incurred by Parent and its Affiliates in connection with the transactions contemplated by this Agreement (the “Parent Expenses”) concurrently with, and as a condition precedent to, termination of this Agreement pursuant toSection 8.1(iii)(b).;provided that in no event shall the Parent Expenses exceed $200,000 in the aggregate.
(ii) If this Agreement is terminated by Parent pursuant toSection 8.1(ii)(a) (but only if Shareholder Approval is not obtained because of a breach by a shareholder of athe Company (other than Silver Wheaton Corp.) of such shareholder’s Shareholders Agreement) orSection 8.1(iv)(b), then the Company shall pay to Parent (or as directed by Parent), by wire transfer of same day funds, (x) the Termination Fee plus (y) the Parent Expenses within two Business Days after such termination, in each case by wire transfer of same-daysame day funds.
(iii) If this Agreement is terminated by: (a)by Parent pursuant toSection8.1(iv)(a), (providedthat the Shareholder Approval shall not have been obtained at the Company Shareholder Meeting) or (b) the Company or Parent pursuant to (x) Section 8.1(ii)(b) (providedthat Shareholder Approval shall not have been obtained at the Company Shareholders’ Meeting) or (y) Section 8.1(ii)(a)and, (I)(a) prior to such termination (in the case of termination pursuant toSection 8.1(ii)(b) orSection 8.1(iv)(a)) or the Company Shareholders’ Meeting (in the case of termination pursuant toSection 8.1(ii)(a)), a Takeover Proposal shall have been (1) publicly disclosed and not withdrawn (in the case of a termination pursuant toSection 8.1(ii)(a) orSection 8.1(ii)(b)) or (2) publicly disclosed or otherwise made or communicated to the Company or the Company Board, and not withdrawn, (in the case of a termination pursuant toSection 8.1(iv)(a)), and (II)(b) within 12 months following the date of any such termination, the Company shall have entered into a definitive agreement with respect to any Takeover Proposal or any Takeover Proposal shall have been consummated (provided that, for purposes of this clause (b), any reference in the definition of Takeover Proposal to (I) “25%” shall be deemed to be a reference to “50%” and (II) “consolidated assets” shall be deemed to be a reference to “consolidated assets, net revenues or net income”), then in any such event the Company shall pay to Parent (by wire transfer of immediately available funds), concurrently with, and as a condition precedent to consummating such transaction, the Termination Fee plus Parent’s Expenses.Expenses less any Parent Expenses previously paid.
(iv) If this Agreement is terminated by the Company or Parent pursuant to (a)Section 8.1(ii)(b) (providedthat Shareholder Approval shall not have been obtained at the Company Shareholders’ Meeting) or (b)Section 8.1(ii)(a) and, in each case under the immediately preceding clauses (a) and (b), (I) prior to such termination (in the case of termination pursuant toSection 8.1(ii)(b)) or the Company Shareholders’ Meeting (in the case of termination pursuant toSection 8.1(ii)(a)), a Takeover Proposal shall have been publicly disclosed and not withdrawn, and (II) within 12 months following the date of any such termination, the Company shall have entered into a definitive agreement with respect to any Takeover Proposal or any Takeover Proposal shall have been consummated (provided that, for purposes of this clause (II), any reference in the definition of Takeover Proposal to (y) “25%” shall be deemed to be a reference to “50%” and (z) “consolidated assets” shall be deemed to be a reference to “consolidated assets, net revenues or net income”), then in any such event the Company shall pay to Parent (by wire transfer of immediately available funds), concurrently with, and as a condition precedent to consummating such transaction, the Termination Fee plus Parent’s Expenses less any Parent Expenses previously paid.
Section 8.4.2Parent ExpensesExpenses.. If this Agreement is terminated by either the Company or Parent (subject toSection 8.4.1) pursuant toSection8.1(ii)(a) or by Parent pursuant toSection8.1(iv)(a), and neither
Parent nor Merger Sub is in material default under this Agreement at the time of such termination, then the Company shall pay to Parent (or as directed by Parent), by wire transfer of same day funds, the Parent Expenses as promptly as reasonably practicable (and, in any event, within two (2) Business Days following such termination).
Section 8.4.3Company ExpensesExpenses.. If this Agreement is terminated by the Company pursuant toSection8.1(iii)(a), and the Company is not in material default under this Agreement at the time of such termination, then Parent shall pay to the Company (or as directed by Parent)the Company), by wire transfer of same day funds, all of the Company’s actual and reasonably documented fees and expenses (including legal fees and expenses) incurred by the Company in connection with the transactions contemplated by this Agreement (the “Company Expenses”) as promptly as reasonably practicable (and, in any event, within two (2) Business Days following such termination).;provided, that in no event shall Company Expenses exceed $100,000, in the aggregate.
Section 8.4.4 Acknowledgement. Acknowledgement.The Parties acknowledge that the agreements contained in thisSection 8.4 are an integral part of the transactions contemplated by this Agreement and that, without these agreements, the Parties would not enter into this Agreement. If the Company fails to pay the Termination Fee and/or Parent Expenses when due, and, in order to obtain such payment Parent commences a suit which results in a judgment against the Company for all or any portion of the Parent Expenses, the Company shall pay to Parent itsthe reasonable out-of-pocket costs and expenses (including reasonable attorneys’ fees) incurred by Parent in connection with such suit. If Parent fails to pay the Company Expenses when due, and, in order to obtain such payment the Company commences a suit which results in a judgment against Parent for all or any portion of the Company Expenses, Parent shall pay to the Company itsthe reasonable out-of-pocket costs and expenses (including reasonable attorneys’ fees) incurred by the Company in connection with such suit. The Parties acknowledge and agree that in no event shall the Company be obligated to pay the Termination Fee on more than one occasion.
Section 8.5Extension; Waiver. At any time prior to the Effective Time, Parent or the Company may, to the extent permitted by applicable Law, (a) extend the time for the performance of any of the obligations or other acts of the other Party under this Agreement, (b) waive any inaccuracies in the representations and warranties of the other Party contained herein or in any instrument delivered pursuant hereto or (c) waive compliance with any of the covenants or agreements of the other Party or conditions to the obligations of the waiving Party contained herein;provided,however, that after any approval of this Agreement by the shareholders of the Company, no extension or waiver that, by Law or in accordance with the rules of any relevant stock exchange, requires further
approval by such shareholders may be made without such shareholder approval. Any agreement on the part of a Party to any such extension or waiver shall be valid only if set forth in a written instrument signed by such Party. The failure or delay of any Party to assert any of its rights under this Agreement or otherwise shall not constitute a waiver of those rights, nor shall any single or partial exercise of any right under this Agreement preclude any other or further exercise of any rights hereunder.
Section 8.6Amendment. At any time prior to the Effective Time, this Agreement may be amended by the Parties by action taken by or on behalf of their respective Boardsboards of Directors;directors;provided,however, that, after approval of thethis Agreement by the shareholders of the Company, no amendment that, by Law or in accordance with the rules of any relevant stock exchange, requires further approval by such shareholders may be made without such shareholder approval. This Agreement may not be amended except by an instrument in writing signed by Parent, Merger Sub and the Company.
Section 8.7Acknowledgment. The Parties acknowledge that the Termination Fee shall not be relevant in terms of determining levels of materiality for purposes of this Agreement.
Article 9
General Provisions
Section 9.1Non-Survival of Representations and Warranties. None of the representations and warranties of the Parties in this Agreement or in any instrument delivered pursuant to this Agreement (or the SchedulesExhibits attached
hereto or Exhibits attached heretothe Company Disclosure Schedule or Parent Disclosure Schedule delivered in connection herewith) shall survive the Effective Time. None of the covenants or agreements of the Parties in this Agreement shall survive the Effective Time, other than (a) the covenants and agreements of the Parties contained in thisArticle 9, inArticle 3 and inSection 6.3.26.9 and (b) those other covenants and agreements contained herein that by their terms apply, or that are to be performed in whole or in part, after the Effective Time, which shall survive the consummation of the Merger until fully performed.
Section 9.2Notices. Any notices or other communications required or permitted under, or otherwise made in connection with, this Agreement, shall be in writing and shall be deemed to have been duly given (a) when delivered in person, (b) upon confirmation of receipt when transmitted by facsimile transmission or by electronic mail (but, in the case of electronic mail, only if followed by transmittal by national overnight courier or hand delivery on the next Business Day), (c) upon receipt after dispatch by registered or certified mail, postage prepaid or (d) on the next Business Day if transmitted by national overnight courier (with confirmation of delivery), in each case, addressed as follows:
If to the Company, addressed to it at:
Revett Mining Company,Mines Management, Inc.
11115 East Montgomery,905 W. Riverside Avenue, Suite G311
Spokane, Valley, Washington 9920699201
Attention: Ken EickermanDouglas Dobbs
Facsimile: (509) 891 8901838-0486
Email:KEickerman@revettminerals.com ddobbs@minesmanagement.com
with a mandated copy (which shall not constitute notice) to:
Randall Danskin, P.S.Davis Graham & Stubbs LLP
1500 Bank of America Financial Center1550 17th St., Suite 500
601 West Riverside Avenue
Spokane, Washington 99201-0626Denver, Colorado 80121
Attention: DouglasDeborah J. SiddowayFriedman
Facsimile: (509) 624-2528(303) 893-1379
Email: djs@randalldanskin.comdeborah.friedman@dgslaw.com
If to Parent or Merger Sub, addressed to it at:
Hecla Mining Company
6500 N. Mineral Drive, Suite 200
Coeur d’Alene, Idaho 83815-9408
Attention: David Sienko
Facsimile: (208) 209-1278
Email: dsienko@hecla-mining.com
with a mandated copy (which shall not constitute notice) to:
K&L Gates LLP
70 West Madison Street, Suite 3100
Chicago, IL 60602-4207
Attention: J. Craig Walker
Facsimile: (312) 827-8179
Email: craig.walker@klgates.com
Section 9.3Headings. The headings and table of contents contained in this Agreement are for reference purposes only and shall not affect in any way the meaning or interpretation of this Agreement.
Section 9.4Disclosure Schedules.
Section 9.4.1Company Disclosure ScheduleSchedule.. Nothing in the Company Disclosure Schedule shall be deemed adequate to disclose an exception to a representation or warranty made inArticle 4 unless the Company
Disclosure Schedule identifies the exception with reasonable particularity and describes the relevant facts in reasonable detail. Without limiting the generality of the foregoing, the mere listing (or inclusion of a copy) of a document or other item shall not be deemed adequate to disclose an exception to a representation or warranty made herein (unless the representation or warranty has to do with the existence of the document or other item itself). The Company Disclosure Schedule will be arranged in sections and paragraphs corresponding to the lettered and numbered Sections and paragraphs contained inArticle 4.
Section 9.4.2Parent Disclosure ScheduleSchedule.. Nothing in the Parent Disclosure Schedule shall be deemed adequate to disclose an exception to a representation or warranty made inArticle 5 unless the Parent Disclosure Schedule identifies the exception with reasonable particularity and describes the relevant facts in reasonable detail. Without limiting the generality of the foregoing, the mere listing (or inclusion of a copy) of a document or other item shall not be deemed adequate to disclose an exception to a representation or warranty made herein (unless the representation or warranty has to do with the existence of the document or other item itself). The Parent Disclosure Schedule will be arranged in sections and paragraphs corresponding to the lettered and numbered Sections and paragraphs contained inArticle 5.
Section 9.5Severability. If any term or other provision of this Agreement is invalid, illegal or incapable of being enforced by reason of any rule of Law or public policy, all other conditions and provisions of this Agreement shall nevertheless remain in full force and effect so long as the economic or legal substance of the transactions contemplated hereby is not affected in any manner materially adverse to any Party. Upon a determination that any term or other provision of this Agreement is invalid, illegal or incapable of being enforced, the Parties shall negotiate in good faith to modify this Agreement so as to effect the original intent of the Parties as closely as possible in an acceptable manner to the end that the transactions contemplated hereby are fulfilled to the greatest extent possible.
Section 9.6Entire Agreement; Parties in Interest. This Agreement (together with the Exhibits, Parent Disclosure Schedule, Company Disclosure Schedule, and the other instruments delivered pursuant hereto) and the Confidentiality Agreement constitute the entire agreement of the Parties and supersede all prior agreements and
undertakings, both written and oral, among the Parties, or any of them, with respect to the subject matter hereof and thereof. Nothing in this Agreement, express or implied, shall confer upon any other Person any rights, benefits or remedies of any nature whatsoever under or by reason of this Agreement;provided that the provisions ofArticle 3 shall inure to the benefit of those Persons benefiting therefrom who are intended third-party beneficiaries thereof.
Section 9.7Assignment. Neither this Agreement nor any of the rights, interests or obligations hereunder shall be assigned by any of the Parties (whether by operation of Law or otherwise) without the prior written consent of the other Parties, and any such assignment shall be null and void. No assignment by any Party shall relieve such Party of any of its obligations hereunder. Subject to the foregoing, this Agreement shall be binding upon, inure to the benefit of and be enforceable by the Parties and their respective successors and permitted assigns.
Section 9.8Mutual Drafting. Each Party has participated in the drafting of this Agreement, which each Party acknowledges is the result of extensive negotiations between the Parties.
Section 9.9Governing Law; Consent to Jurisdiction; Remedies; Enforcement; Waiver of Trial by Jury.
Section 9.9.1Governing LawLaw.. This Agreement, and all claims and causes of action arising out of, based upon, or related to this Agreement or the negotiation, execution or performance hereof, shall be governed by, and construed, interpreted and enforced in accordance with, the Laws of the State of Delaware, without regard to choice or conflict of law principles that would result in the application of any Laws other than the Laws of the State of Delaware.Delaware, except and only to the extent that the IBCA and IMETA mandatorily apply.
Section 9.9.2Exclusive JurisdictionJurisdiction.. THE PARTIES HERETO IRREVOCABLY SUBMIT TO THE JURISDICTION OF THE DISTRICT COURT OF THE STATE OF IDAHO AND THE FEDERAL COURTS OF THE UNITED STATES OF AMERICA LOCATED IN THE STATE OF IDAHO SOLELY IN CONNECTION WITH ANY DISPUTE THAT ARISES IN RESPECT OF THE INTERPRETATION AND
ENFORCEMENT OF THE PROVISIONS OF THIS AGREEMENT AND THE DOCUMENTS REFERRED TO IN THIS AGREEMENT OR IN RESPECT OF THE TRANSACTIONS CONTEMPLATED HEREBY, AND HEREBY WAIVE, AND AGREE NOT TO ASSERT, AS A DEFENSE IN ANY ACTION, SUIT OR PROCEEDING FOR INTERPRETATION OR ENFORCEMENT HEREOF OR ANY SUCH DOCUMENT THAT IT IS NOT SUBJECT THERETO OR THAT SUCH ACTION, SUIT OR PROCEEDING MAY NOT BE BROUGHT OR IS NOT MAINTAINABLE IN SAID COURTS OR THAT VENUE THEREOF MAY NOT BE APPROPRIATE OR THAT THIS AGREEMENT OR ANY SUCH DOCUMENT MAY NOT BE ENFORCED IN OR BY SUCH COURTS, AND THE PARTIES HERETO IRREVOCABLY AGREE THAT ALL CLAIMS WITH RESPECT TO SUCH ACTION, SUIT OR PROCEEDING SHALL BE HEARD AND DETERMINED EXCLUSIVELY BY SUCH AN IDAHO STATE OR FEDERAL COURT. THE PARTIES HEREBY CONSENT TO AND GRANT ANY SUCH COURT JURISDICTION OVER THE PERSON OF SUCH PARTIES AND OVER THE SUBJECT MATTER OF SUCH DISPUTE AND AGREE THAT MAILING OF PROCESS OR OTHER PAPERS IN CONNECTION WITH SUCH ACTION, SUIT OR PROCEEDING IN THE MANNER PROVIDED INSECTION 9.2 OR IN SUCH OTHER MANNER AS MAY BE PERMITTED BY LAW SHALL BE VALID AND SUFFICIENT SERVICE THEREOF.
Section 9.9.3 Remedies. Remedies.Except as otherwise provided in this Agreement, any and all remedies expressly conferred upon the Parties will be cumulative with, and not exclusive of, any other remedy contained in this Agreement, at Law or in equity. The exercise by a Party of any one remedy will not preclude the exercise by it of any other remedy.
Section 9.9.4Right to Injunctive ReliefRelief.. The Parties agree that irreparable damage would occur in the event that any provision of this Agreement were not performed in accordance with its specific terms or was otherwise breached. It is accordingly agreed that the Parties shall be entitled to an injunction or injunctions to
prevent breaches of this Agreement and to enforce specifically the terms and provisions of this Agreement, without the requirement of posting a bond or other security, exclusively in any state or federal court within the State of Idaho and any state appellate court therefrom within the State of Idaho, and any such injunction shall be in addition to any other remedy to which any Party is entitled, at law or in equity.
Section 9.9.5Waiver of Jury TrialTrial.. EACH OF THE PARTIES HERETO IRREVOCABLY WAIVES TO THE FULLEST EXTENT PERMITTED BY APPLICABLE LAW ANY AND ALL RIGHT SUCH PARTY MAY HAVE TO TRIAL BY JURY IN ANY LEGAL ACTION, SUIT OR PROCEEDING BETWEEN THE PARTIES HERETO ARISING OUT OF, BASED UPON OR RELATING TO THIS AGREEMENT OR THE NEGOTIATION, EXECUTION OR PERFORMANCE HEREOF.
Section 9.9.6Attorneys’ Fees.If any Party brings an action to enforce its rights under this Agreement, the prevailing party shall be entitled to recover its costs and expenses, including reasonable legal fees, incurred in connection with such action, including any appeal of such action.
Section 9.10Counterparts. This Agreement may be executed by facsimile and in one or more counterparts, and by the different Parties in separate counterparts, each of which when executed shall be deemed to be an original but all of which taken together shall constitute one and the same agreement, and which shall become effective when one or more counterparts have been signed by each of the Parties and delivered (by facsimile or otherwise) to the other Parties.
Section 9.11No Third Party Beneficiaries. Except as provided inSection 6.9 (which shall be to the benefit of the parties referred to in such section), this Agreement is for the sole benefit of the Parties and their permitted assigns and respective successors, and nothing herein, express or implied, is intended to or shall confer upon any other Person or entity any legal or equitable right, benefit or remedy of any nature whatsoever under or by reason of this Agreement.
* * * * *
(signature page follows)
IN WITNESS WHEREOF, Parent, Merger Sub and the Company have caused this Agreement to be executed and delivered as of the date first written above.
MINES MANAGEMENT, INC. | ||
By: | /s/ |
Name: | ||
Title: |
HECLA MINING COMPANY | ||
By: | /s/ David C. Sienko |
Name: | David C. Sienko | |
Title: | Vice President & General Counsel |
HL IDAHO CORP. | ||
By: | /s/ Luther J. Russell | |
Name: | Luther J. Russell | |
Title: | President |
AMENDMENT NO. 1 TO AGREEMENT AND PLAN OF MERGER
This Amendment No. 1 to Agreement and Plan of Merger, dated June 29, 2016 (this “Amendment”), among Mines Management, Inc., an Idaho corporation (the “Company”), Hecla Mining Company, a Delaware corporation (“Parent”), and HL Idaho Corp., an Idaho corporation (“Merger Sub”, and together with the Company and Parent, the “Parties”, and each, a “Party”).
WHEREAS, the Parties have entered into that certain Agreement and Plan of Merger, dated May 23, 2016 (the “Merger Agreement”);
WHEREAS, the Parties desire to amend the Merger Agreement in order to clarify the definition of Shareholder Approval set forth in the Merger Agreement, clarify the courts under which injunctive relief may be sought and clarify the intended tax treatment of the Merger, on the terms and subject to the conditions set forth herein; and
WHEREAS, pursuant toSection 8.6 of the Merger Agreement, the Merger Agreement may be amended by the Parties by action taken by or on behalf of their respective boards of directors and an instrument in writing signed by the Parties.
NOW, THEREFORE, in consideration of the premises set forth above and other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the Parties agree as follows:
1. Definitions. Capitalized terms used and not defined in this Amendment have the respective meanings assigned to them in the Merger Agreement.
2. Amendments to the Merger Agreement. As of the date hereof, the Merger Agreement is hereby amended or modified as follows:
(a) Clause (a) ofSection 4.3.1 of the Merger Agreement defining “Shareholder Approval” is hereby deleted in its entirety and replaced with the following:
(a) the affirmative vote of a majority of the votes cast by holders of shares of (i) Company Stock and (ii) if and to the extent required under the IBCA and/or the Charter Documents of the Company, Company Preferred Stock, in each case voting as a separate class and entitled to vote to approve this Agreement and the Merger present in person or represented by proxy at a validly called special meeting with a quorum present (the “Shareholder Approval”) and
(b) The second sentence ofSection 9.9.4 of the Merger Agreement is hereby deleted in its entirety and replaced with the following:
It is accordingly agreed that the Parties shall be entitled to an injunction or injunctions to prevent breaches of this Agreement and to enforce specifically the terms and provisions of this Agreement, without the requirement of posting a bond or other security, exclusively in any state or federal court within the State of Idaho and any appellate court in which appeals from such court may be taken, and any such injunction shall be in addition to any other remedy to which any Party is entitled, at law or in equity.
(c) The following provision is hereby included as a newSection 2.7 underArticle II of the Merger Agreement:
Section 2.7Tax Treatment of Merger. For U.S. federal income tax purposes, the Parties intend that (i) the Merger shall qualify as a reorganization within the meaning of Section 368(a) of the Code and the Treasury Regulations promulgated thereunder and (ii) this Agreement constitute a “plan of reorganization” within the meaning of Treasury Regulations §§ 1.368-2(g) and 1.368-3(a).
3. Limited Effect. Except as expressly provided in this Amendment, all of the terms and provisions of the Merger Agreement are and will remain in full force and effect and are hereby ratified and confirmed by the Parties. Without limiting the generality of the foregoing, the amendments contained herein will not be construed as an amendment to or waiver of any other provision of the Merger Agreement or of any other Transaction Document (as defined below) or as a waiver of or consent to any further or future action on the part of either Party that would require the waiver or consent of the other Party. On and after the date hereof, each reference in the Merger Agreement to “this Agreement,” “the Agreement,” “hereunder,” “hereof,” “herein” or words of like import will mean and be a reference to the Merger Agreement as amended by this Amendment.
4. Representations and Warranties. Each Party hereby represents and warrants to the other Parties that:
(d) It has the full right, corporate power and authority to enter into this Amendment and to perform its obligations hereunder and under the Merger Agreement as amended by this Amendment.
(e) This Amendment has been executed and delivered by such Party and (assuming due authorization, execution and delivery by the other Parties hereto) constitutes the legal, valid and binding obligation of such Party, enforceable against such Party in accordance with its terms, except as may be limited by any Enforceability Limitations.
5. Miscellaneous.
(f) This Amendment, and all claims and causes of action arising out of, based upon, or related to this Amendment or the negotiation, execution or performance hereof, shall be governed by, and construed, interpreted and enforced in accordance with, the Laws of the State of Delaware, without regard to choice or conflict of law principles that would result in the application of any Laws other than the Laws of the State of Delaware, except and only to the extent that the IBCA and IMETA mandatorily apply.
(g) This Amendment is for the sole benefit of the Parties and their permitted assigns and respective successors, and nothing herein, express or implied, is intended to or shall confer upon any other Person or entity any legal or equitable right, benefit or remedy of any nature whatsoever under or by reason of this Amendment.
(h) The headings contained in this Amendment are for reference purposes only and shall not affect in any way the meaning or interpretation of this Amendment.
(i) This Amendment may be executed by facsimile and in one or more counterparts, and by the different Parties in separate counterparts, each of which when executed shall be deemed to be an original but all of which taken together shall constitute one and the same agreement, and which shall become effective when one or more counterparts have been signed by each of the Parties and delivered (by facsimile or otherwise) to the other Parties.
(j) This Amendment, together with the Merger Agreement (as amended by this Amendment) and the Exhibits, and Company Disclosure Schedule to the Merger Agreement, and the other instruments delivered pursuant to the Merger Agreement and the Confidentiality Agreement (collectively, the “Transaction Documents”), constitute the entire agreement of the Parties and supersede all prior agreements and undertakings, both written and oral, among the Parties, or any of them, with respect to the subject matter hereof and thereof.
* * * * *
(signature page follows)
IN WITNESS WHEREOF, the Parties have executed this Amendment as of the date first written above.
MINES MANAGEMENT, INC. | ||
By: | /s/ | |
Name: | Glenn M. Dobbs | |
Title: | Chief Executive Officer |
HECLA MINING COMPANY | ||
/s/ David C. Sienko | ||
Name: | David C. Sienko | |
Title: | Vice President & General Counsel |
[Signature Page to Agreement and Plan of Merger]
Appendix B
HL IDAHO CORP. | ||||
By: | /s/ Luther J. Russell | |||
Name: | Luther J. Russell | |||
Title: | President |
| P.O. Box 10337 Vancouver, BC Canada V7Y 1H2 T: 604.331.1444 F: 604.331.1446 TF: 800.663.1899 www.canaccordgenuity.com |
Tel (858) 832-8830May 21, 2016
rfriedrich@rfcltd.ca
March 26, 2015
The Board of Directors
Revett Mining Company,Mines Management, Inc.
11115 East Montgomery905 West Riverside Ave.
Spokane, Valley, WA 99206Washington 99201
Re: FairnessTo the Members of Proposed Agreementthe Board of Directors:
Dear Sirs:
We understandCanaccord Genuity Corp. (“Canaccord Genuity”, “we” or “us”) understands that Revett Mining Mines Management, Inc., an Idaho corporation (“Mines Management” or the “Company Inc. (“Revett””), Hecla Mining Company, a Delaware corporation (“Hecla”Parent”), and RHL Holdings (“RHL)HL Idaho Corp., aan Idaho corporation and an indirect wholly-owned subsidiary of Hecla intendParent (“Merger Sub”), propose to enter into ana definitive Agreement and Plan of Merger, under which they agree to combine their prospective businesses. We have reviewedsubstantially in the form of the draft dated May 20, 2016 (the “Agreement”), pursuant to which, among other things, Merger Sub will merge with and Plan of Merger received March 23, 2015into the Company (the “Agreement”“Merger”) and have been informed thatas a result of the issuedMerger the Company will become a wholly owned subsidiary of Parent and each outstanding share of the Company’s common stock, par value $0.001 per share (“Company Stock”), other than (x) shares of RevettCompany Stock held by Parent, Merger Sub, any subsidiary of Buyer or Merger Sub, (y) shares of Company Stock in the treasury of the Company, and (z) shares of Company Stock held by any subsidiary of the Company (holders described in the foregoing classes (x), (y) and (z) being referred to as, “Excluded Holders”), will be exchanged for commonconverted into the right to receive 0.2218 (the “Exchange Ratio”) shares of HeclaParent common stock, par value $0.25 per share (“Parent Common Stock”). Parent has also agreed to lend up to $2.3 million to the Company at an interest rate of LIBOR plus five percent to bridge the Company’s financial position through the closing of the Merger. The terms and conditions of the Merger and the other transactions contemplated by the Agreement (together, the “Transaction”) are more fully set forth in the ratio of 0.1622 common shares of Hecla for each one (1) common share of Revett.Agreement.
The Company has retained Canaccord Genuity to act as a financial advisor to the board of directors (the “Board”) of Revett (the “Board”) has retained Roman Friedrich & Company LLC. (“RFC”)Mines Management to provide itsadvice and assistance in evaluating the Transaction, including, the preparation and delivery of Canaccord Genuity’s written opinion (the “Fairness Opinion”“Opinion”) as to the fairness, of the Agreement, from a financial point of view, of the Exchange Ratio under the Agreement to Revettthe holders of shares of Company Stock (other than Excluded Holders) (the “Stockholders”).
Engagement
Canaccord Genuity was formally engaged by the Company through an agreement between the Company and Revett shareholders.Canaccord Genuity (the “Engagement Agreement”) dated March 17, 2016, as amended on April 18, 2016 and May 19, 2016. The Engagement Agreement provides the terms upon which Canaccord Genuity has agreed to act as a financial advisor to the Board in connection with the Transaction during the term of the Engagement Agreement (the “Engagement”). The terms of the Engagement Agreement provide that Canaccord Genuity is to be paid a fee for delivering this Opinion, no portion of which is conditional upon this Opinion being favourable
Certain capitalized
or that is contingent upon completion of the Transaction. In addition, Canaccord Genuity is to be paid an additional fee for other services provided, a substantial portion of which is contingent on a change of control that relates to the Company being completed or a change of control that relates to the Company that is not supported by the Board being fended off. In addition, Canaccord Genuity is to be reimbursed for its reasonableout-of-pocket expenses and to be indemnified by the Company in certain circumstances.
Canaccord Genuity consents to the inclusion of the Opinion in its entirety and a summary thereof in the proxy statement/prospectus which will be mailed to the Mines Management stockholders (the “Proxy Statement”) in connection with the Transaction, and to the filing thereof, as necessary, by the Company with the securities commissions or similar regulatory authorities in each province of Canada, in the United States and with the Toronto Stock Exchange, the NYSE and NYSE MKT, provided the contents of the Proxy Statement comply with applicable law (subject to the terms usedof the Engagement Agreement) and are approved in this Fairnesswriting by Canaccord Genuity, which approval shall not be withheld unreasonably.
Credentials of Canaccord Genuity Corp.
Canaccord Genuity is the international capital markets division of its parent, Canaccord Genuity Group Inc., and has investment banking operations including corporate finance, mergers and acquisitions, corporate restructuring, financial advisory services, institutional and retail equity sales and trading and investment research through our offices in Canada, the US, the UK, France, Ireland, Hong Kong, China, Australia and Dubai. The Opinion that are not definedexpressed herein represents the opinion of Canaccord Genuity as a firm. The form and content herein have the meanings ascribed to thembeen approved for release by a committee of officers and directors of Canaccord Genuity, each of whom is experienced in the Agreement.merger, acquisition, divestiture and fairness opinion matters.
Credentials of RFC
Roman Friedrich & Company is a specialized investment banking firm servicing mining, metals and other industries mostly in North and South America and Europe. Since 1997, RFC has advised numerous companies regarding acquisitions, mergers, divestitures, and joint ventures, and has provided analyses of strategic options, valuations and has provided numerous fairness opinions.
Roman Friedrich is the founder and Managing Partner of RFC. Mr. Friedrich has been an investment banker for over thirty-five years. Immediately prior to establishing RFC, he was the Managing Director at TD Securities responsible for its global mining M&A business. Early in his career he spent ten years at the Chase Manhattan Bank where among other positions he was Vice President for Latin America, President of Chase Manhattan Canada Limited, and Managing Director responsible for North American investment banking. From 1979 to April 1991 he was a partner at Burns Fry, a Managing Director at First Chicago and a partner at Wood Gundy. In 1991 he was a founding partner of the New York office of Lancaster Financial Corporation (a firm specializing in mergers and acquisitions) where he was responsible for the mining business of the firm. TD Securities, a subsidiary of Toronto Dominion Bank, acquired Lancaster in 1994.
CORPORATE FINANCE • ACQUISITIONS & DIVESTITURES • INVESTMENT ADVICE
Mr. Friedrich is on the Board of Directors of Zincore Metals Inc. He is a member of the Board of Trustees of the family of open and closed end mutual funds and ETF’s managed by Guggenheim Fund Investment Advisors, LLC, all traded on the NYSE.
Independence of RFCCanaccord Genuity Corp.
RFCNeither Canaccord Genuity, nor any of its affiliates, is not an affiliate, insider or associate (as those terms are defined under applicable Canadian securities laws or an associate or an affiliate (as those terms are defined in Section 12b-2the rules promulgated under the U.S. Securities Act of 1933, as amended) of the Securities Exchange ActCompany or Parent, or any of 1934) of Revett or Hecla, or their respective affiliatesassociates or associates. RFC hasaffiliates. Prior to the Engagement, Canaccord Genuity had not providedbeen engaged to provide any financial advisory services ornor had it participated in any financings involving the Company or Parent, or any of Revetttheir respective associates or Heclaaffiliates, within the past 24 months.two years. There are no understandings, agreements or commitments between Canaccord Genuity and the Company or Parent, or any of their respective associates or affiliates with respect to any future business dealings. However, Canaccord Genuity may in the future, in the ordinary course of its business, perform financial advisory or investment banking services for the Company, Parent, or any of their respective associates or affiliates.
Canaccord Genuity acts as a trader and dealer, both as principal and agent, in major financial markets and, in such capacity, may have had, or may in the future have positions in the securities of the Company or Parent, or any of their respective associates or affiliates and, from time to time, may have executed or may execute transactions on behalf of such companies or clients for which it received or may receive compensation. As an investment dealer, Canaccord Genuity conducts research on securities and may, in the ordinary course of its business, provide research reports and investment advice to its clients on investment matters, including with respect to the Company, Parent or the Transaction.
Scope of Review
Canaccord Genuity has not been asked to, nor does Canaccord Genuity offer any opinion as to the terms of the Transaction (other than in respect of the fairness from a financial point of view, of the Exchange Ratio to the Stockholders) or the form of agreements or documents related to the Transaction.
In connection with rendering the Fairness Opinion, RFC haswe have reviewed and relied upon and considered,or carried out, among other things, the following sources of information:following:
Management of Revett have represented to RFC that, to the best of their knowledge, there have been no prior valuations of Revett during the past twenty-four months.
RFCCanaccord Genuity has not, to the best of ourits knowledge, been denied access by Revettthe Company or Heclaany of its affiliates to any information under its or their control requested by RFC.
Fairness Opinion Procedures
In arriving at our opinion, we have, among other things,
Assumptions and Limitations
Canaccord Genuity has not prepared a formal valuation or appraisal of the Company or any of its securities, assets or liabilities and has not been provided with any such valuation or appraisal. This Opinion should not be construed as providing a formal valuation or appraisal of the Company or any of its securities, assets or liabilities. Canaccord Genuity has, however, conducted such analyses as it considered necessary in the circumstances. In addition, this Opinion is not, and should not be construed as, advice as to the price at which the Company Stock may trade at any future date. Canaccord Genuity was similarly not engaged to review any legal, tax or accounting aspects of the Transaction or otherwise in connection with the Transaction.
As provided for in an engagement letter between RFC andunder the Board, RFCEngagement Agreement, Canaccord Genuity has relied, without independent verification, upon and has assumed the completeness, accuracy and fair presentation of all of the financial and other information, data, advice, opinions or representations with respect to the Company and representationsParent obtained by usit from public
sources or otherwise provided to us by Revettor on behalf of the Company and Heclaits agents and advisors, directly or their respective affiliates, consultantsindirectly, orally or advisors. We havein writing, or otherwise obtained pursuant to the Engagement Agreement (collectively, the “Information”) and has assumed that this information was complete and accurate andthe Information did not omit to state any material fact or any fact necessary to be stated to make that informationInformation not misleading. The Fairness Opinion is conditional upon such completeness, accuracy and fair presentation. In accordance withpresentation of the terms of our engagement, but subjectInformation. Subject to the exercise of our professional judgment and except as expressly described herein, we have not conducted independent investigationattempted to verify independently the completeness, accuracy or accuracyfair presentation of any of the Information.
With respect to financial models, forecasts, projections and estimates provided to Canaccord Genuity and used in the analysis supporting the Opinion, we note that projecting future results of any company, including the Company and Parent, is inherently subject to uncertainty. We have assumed, with the approval of the Company, that such financial models, forecasts, projections and estimates have been prepared on bases reflecting the best currently available estimates and reasonable judgment of management of the Company as to the matters covered thereby, and in rendering the Opinion we express no view as to the reasonableness of such information. forecasts, projections, estimates or assumptions on which they are based.
Senior managementofficers of Revett hasthe Company have represented to usCanaccord Genuity in a certificate datedtheir capacity as senior officers in the Representation Letter delivered to Canaccord Genuity as of the date hereof, that among other things, that: (i) the informationInformation provided to us relating to itCanaccord Genuity by the Company, its affiliates or its affiliatesor their representatives for the purpose of the engagement under the Engagement Agreement taken as a whole was, at the date the Information was provided to Canaccord Genuity, and is, complete, true and correct in all material respects and thatdid not and does not contain any untrue statement of a material fact in respect of the Company, its affiliates and the Transaction and did not and does not omit to state a material fact in relation to the Company, its affiliates and the Transaction, in each case necessary to make the Information not misleading in light of the circumstances under which the Information was presented; and (ii) since the dates on which the informationInformation was provided to RFCCanaccord Genuity, other than as disclosed in the public disclosure record of the Company, there has been no material change, financial or otherwise, in the financial condition, assets, liabilities (contingent or otherwise), business, operations or prospects of Revettthe Company or any of its affiliates and no material change has occurred in the informationInformation or any part thereof which would have or which would reasonably be expected to have a material effect on the Fairness Opinion.
In rendering our Fairnesspreparing the Opinion, we have assumedCanaccord Genuity has made several assumptions, including among other things, that all the conditions required to complete the Transaction described in the Agreement will be completedsatisfied or waived, that all necessary consents, permissions, approvals, exemptions or orders required from third parties or governmental authorities will be obtained without adverse condition or qualification, that the Transaction will proceed as scheduled and without material additional costs to the Company or liabilities of the Company to third parties, that the procedures being followed to implement the Transaction are valid and effective and that the disclosure to be provided in any public filed disclosure document relating to the Transaction with respect to Mines Management and its subsidiaries and affiliates and the Transaction will be accurate in all material respects and comply with applicable securities laws.
This Opinion is rendered on the terms and conditions set forth therein without material modification, amendment or waiver.
The Fairness Opinion is based on thebasis of securities markets, economic, financial and general business and financial conditions prevailing onas at the date hereof and the conditionscondition and prospects, financial and otherwise, of Revettthe Company and Heclaits affiliates as they were reflected in the informationInformation. In its analyses and documents reviewedin preparing this Opinion, Canaccord Genuity made numerous assumptions with respect to industry performance, general business and economic conditions and other matters, many of which are beyond the control of Canaccord Genuity.
This Opinion has been provided for the use of and is to be relied upon by us. We believethe Board. This Opinion is given as of the date hereof and Canaccord Genuity disclaims any undertaking or obligation to advise any person of any change in any fact or matter affecting this Opinion that our analysismay come or be brought to Canaccord Genuity’s attention after the date hereof. Without limiting the foregoing, in the event that there is any material change in any fact or
matter affecting this Opinion after the date hereof, Canaccord Genuity reserves the right to change, modify or withdraw this Opinion with effect after the date hereof, but does not assume any obligation to update, revise or reaffirm this Opinion and Canaccord Genuity expressly disclaims any such obligation.
Canaccord Genuity believes that its analyses must be considered as a whole, and that selecting portions of our analysisthe analyses or the factors considered by it without considering all factors and analyses together, could create an incomplete anda misleading view of the methodologies and approachesprocess underlying our Fairnessthis Opinion. In our analysis and in connection with theThe preparation of the Fairnessan opinion is a complex process and is not necessarily susceptible to partial analyses or summary description. Any attempt to do so could lead to undue emphasis on any particular factor or analysis. This Opinion we have made numerous assumptions with respect to industry performance, general business, market and economic conditions and other matters which are beyond the control of RFC and Revett. Our opinion does not addressconstitute a recommendation to the tax consequencesBoard or any Stockholder as to whether the Stockholders should vote in favour of the Agreement to the holders of Revett common shares.Transaction.
In the event that there is a material change in any fact or matter affecting the Fairness Opinion after the date hereof, RFC reserves the right to change, modify or withdraw the Fairness Opinion.
Pursuant to the terms of its engagement RFC will receive a fee for the preparation of the Fairness Opinion. Revett has agreed to reimburse RFC for its out of pocket expenses and to indemnify RFC in certain circumstances. The compensation of RFC does not depend in whole or in part on the conclusions reached in the Fairness Opinion or the successful outcome of the Arrangement.
OpinionConclusion
Based upon and subject to the foregoing itand such other matters as we consider relevant, Canaccord Genuity is of the opinion of Roman Friedrich & Company LLC that, as of the date hereof, the ArrangementExchange Ratio is fair, from a financial point of view, to the shareholders of Revett.Stockholders.
VeryYours very truly, yours,
/s/ Canaccord Genuity Corp.
ROMAN FRIEDRICH & COMPANYLLCCanaccord Genuity Corp
Appendix C
Douglas J. Siddoway
djs@randalldanskin.comOpinion of Davis Graham & Stubbs LLP
[ ]TO BE PROVIDED]
Revett Mining Company, Inc.
11115 East Montgomery, Suite G
Spokane, Washington 99206
Ladies and Gentlemen:
We have acted as counsel to Revett Mining Company, Inc. (“Revett”), a Delaware corporation, in connection with the Agreement and Plan of Merger dated December March 26, 2015 (the “Agreement”), by and among Revett, Hecla Mining Company (“Hecla”), a Delaware corporation and RHL Holdings, Inc. (“Merger Sub”), a Delaware corporation and wholly-owned subsidiary of Hecla. Pursuant to the Agreement, Merger Sub will merge (the “Merger”) with and into Revett, with Revett surviving the Merger as a wholly-owned subsidiary of Hecla. We are delivering the opinion set forth herein (the “Opinion”) pursuant to the Agreement and in connection with the filing of the Registration Statement on Form S-4 of Hecla, which includes the Proxy Statement/Prospectus (the “Registration Statement”), filed with the Securities and Exchange Commission. Unless otherwise defined herein, capitalized terms used in this Opinion have the meanings specified in the Agreement.
For purposes of this Opinion, we have reviewed the Agreement and such other documents and matters of law and fact as we have considered necessary or appropriate, and we have assumed with your consent that the Merger will be completed in the manner set forth in the Agreement and in the Registration Statement, without the waiver or modification of any of the terms or conditions contained therein. In addition, in rendering this Opinion we have relied upon the factual representations set forth in the letters of representation from Revett and Hecla to us dated the date hereof (the “Representation Letters”). In rendering our Opinion, we have also assumed (without independent investigation or verification) that (a) the factual representations made in the Agreement, Registration Statement, Representation Letters and other documents referred to herein are, and will be as of the Effective Time, true and complete, (b) any representation set forth in the Agreement, Registration Statement, Representation Letters and other documents referred to herein that is qualified by knowledge, intention, belief or any similar qualifier is, and will be as of the Effective Time, true and complete without such qualification, (c) the Representation Letters have been executed by appropriate authorized officers of Revett and Hecla, (d) all other documents submitted to us have been or will be duly executed and validly signed (and filed, where applicable) to the extent required in the same form as they have been provided to us, (e) each document submitted to us will be legal, valid, binding and enforceable, and (f) all covenants agreed to by the parties pursuant to the documents referred to herein have been or will be performed or satisfied in accordance with their terms. Any inaccuracy of any of the preceding assumptions or representations, warranties, covenants or statements in the foregoing documents or the failure to consummate the Merger in accordance with the terms of the Agreement and as described in the Registration Statement may adversely affect our Opinion.
A Professional Service Corporation
1500 BANKOF AMERICA FINANCIAL CENTER | 601 WEST RIVERSIDE AVENUE | SPOKANE, WASHINGTON 99201
P: 509 747-2052 | F: 509 624-2528 | randalldanskin.com
Revett Mining Company, Inc.
[ ]
Page 2
Based upon the foregoing and in reliance thereon, we are of the opinion that, under currently applicable U.S. federal income tax law, (a) the Merger will qualify as a “reorganization” within the meaning of Section 368(a) of the Internal Revenue Code of 1986, as amended (the “Code”), and (b) subject to the limitations and qualifications set forth therein, the discussion in the section of the Registration Statement entitled “Material U.S. Federal Income Tax Consequences of the Merger” constitutes our opinion as to the material U.S. federal income tax consequences of the Merger to holders of Revett common stock.
This Opinion is being rendered solely in connection with the Merger and the filing of the Registration Statement. This Opinion is rendered only as of the date hereof, and we undertake no obligation to update the Opinion after the date hereof. This Opinion may be withdrawn if we do not receive the Representation Letters dated the date of the Effective Time confirming the accuracy of the representations set forth therein. Our Opinion is based upon the Code, applicable Treasury Regulations promulgated or proposed under the Code, published administrative rulings and procedures, judicial decisions and other applicable authorities, all as in effect on the date hereof, which are subject to change (possibly with retroactive effect) so as to affect the conclusions stated herein.
This Opinion addresses only the matters described above, and does not address any other U.S. federal, state, local or foreign tax consequences that may result from the Merger. No opinion is implied or may be inferred beyond the matters expressly stated herein.
We hereby consent to the reference to us under the headings “Material U.S. Federal Income Tax Consequences of the Merger” and “Legal Matters” in the Registration Statement and the filing of this Opinion as an exhibit to the Registration Statement. In giving this consent, we do not hereby admit that we are in the category of persons whose consent is required under Section 7 of the Securities Act of 1933, as amended, or the rules or regulations promulgated thereunder, nor do we thereby admit that we are experts with respect to any part of such Registration Statement within the meaning of the term “experts” as used in the Securities Act.
Very truly yours,
Appendix D
Form of
This Shareholders Agreement (this “Agreement”), dated as of [DATE], 2015,2016, is between the undersigned shareholder (“Shareholder”) of Revett Mining Company,Mines Management, Inc., a Delawarean Idaho corporation (the “Company”), and Hecla Mining Company, a Delaware corporation (“Parent”).
WHEREAS, concurrently with or following the execution of this Agreement, the Company, Parent and RHL Holdings, Inc.HL Idaho Corp., a Delawarean Idaho corporation and indirect wholly-owned subsidiary of Parent (“Merger Sub”), have entered, or will enter, into an Agreement and Plan of Merger (as the same may be amended from time to time, the “Merger Agreement”), providing for, among other things, the merger (the “Merger”) of Merger Sub into the Company pursuant to the terms and conditions of the Merger Agreement;
WHEREAS, as a condition to its willingness to enter into the Merger Agreement, Parent has required that Shareholder execute and deliver this Agreement; and
WHEREAS, in order to induce Parent to enter into the Merger Agreement, Shareholder is willing to make certain representations, warranties, covenants and agreements with respect to the shares of common stock, par value $0.01$0.001 per share, of the Company (“Company Stock”) beneficially owned by Shareholder and set forth below Shareholder’s signature on the signature page hereto (the “Original Shares” and, together with any additional shares of Company Stock Shareholder purchases or acquires as described inSection 6, the “Shares”).
NOW, THEREFORE, in consideration of the premises and for other good and valuable consideration, the receipt, sufficiency and adequacy of which are hereby acknowledged, the parties hereto agree as follows:
1.Definitions. For purposes of this Agreement, capitalized terms used and not defined herein shall have the respective meanings ascribed to them in the Merger Agreement.
2.Representations of Shareholder. Shareholder represents and warrants to Parent that:
(a) (i) Shareholder owns beneficially (as such term is defined in Rule 13d-3 under the Exchange Act), all of the Original Shares free and clear of all Liens, and (ii) except pursuant hereto, there are no options, warrants, preferred shares or other rights, agreements, arrangements or commitments of any character to which Shareholder is a party relating to the pledge, disposition or voting of any of the Original Shares, and there are no voting trusts or voting agreements with respect to the Original Shares.
(b) Shareholder does not beneficially own any shares of Company Stock other than [(i)] the Original Shares [and (ii) any options, warrants, preferred shares or other rights to acquire any additional shares of Company Stock or any security exercisable for or convertible into shares of Company Stock, set forth on the signature page of this Agreement (collectively, “Derivative Securities”)]1.
(c) Shareholder has full [corporate]2 power and authority [and legal capacity]3 to enter into, execute and deliver this Agreement and to perform fully Shareholder’s obligations hereunder (including the proxy described inSection 3(b) below)). This Agreement has been duly and validly executed and delivered by Shareholder and constitutes the legal, valid and binding obligation of Shareholder, enforceable against Shareholder in accordance with its terms.
1 | Note to Draft: To be deleted for each Shareholder that does not hold Derivative Securities. |
2 | Note to Draft: To be deleted for each individual Shareholder. |
3 | Note to Draft: To be deleted for each Shareholder that is a business entity. |
(d) None of the execution and delivery of this Agreement by Shareholder, the consummation by Shareholder of the transactions contemplated hereby, or compliance by Shareholder with any of the provisions hereof will conflict with or result in a breach, or constitute a default (with or without notice of
or lapse of time or both) under any provision, of any trust agreement, loan or credit agreement, note, bond, mortgage, indenture, lease or other agreement, instrument or Law applicable to Shareholder or to Shareholder’s property or assets.
(e) No consent, approval or authorization of, or designation, declaration or filing with, any Governmental Entity or other Person on the part of Shareholder is required in connection with the valid execution and delivery of this Agreement. [No consent of Shareholder’s spouse is necessary under any “community property” or other lawsLaws in order for Shareholder to enter into and perform its obligations under this Agreement.]4
3.Agreement to Vote Shares; Irrevocable Proxy.
(a) Shareholder agrees during the term of this Agreement to vote the Shares, and to cause any holder of record of Shares to vote: (i) in favor of the Merger and the Merger Agreement, at every meeting of the shareholders of the Company at which such matters are considered and at every adjournment or postponement thereof; (ii) against (1) any Takeover Proposal, (2) any action, proposal, transaction or agreement which could reasonably be expected to result in a breach of any covenant, representation or warranty or any other obligation or agreement of the Company under the Merger Agreement or of Shareholder under this Agreement and (3) any action, proposal, transaction or agreement that could reasonably be expected to impede, interfere with, delay, discourage, adversely affect or inhibit the timely consummation of the Merger or the fulfillment of Parent’s, the Company’s or Merger Sub’s conditions under the Merger Agreement or change in any manner the voting rights of any class of shares of the Company (including any amendments to the Charter Documents of the Company).
(b) Shareholder hereby appoints Parent and any designee of Parent, and each of them individually, its proxies and attorneys-in-fact, with full power of substitution and resubstitution, to vote during the term of this Agreement with respect to the Shares in accordance withSection 3(a). This proxy and power of attorney is given to secure the performance of the duties of Shareholder under this Agreement. Shareholder shall take such further action or execute such other instruments as may be necessary to effectuate the intent of this proxy. This proxy and power of attorney granted by Shareholder shall be irrevocable during the term of this Agreement, shall be deemed to be coupled with an interest sufficient in law to support an irrevocable proxy and shall revoke any and all prior proxies granted by Shareholder with respect to the Shares. The power of attorney granted by Shareholder herein is a durable power of attorney and shall survive the dissolution, bankruptcy, death or incapacity of Shareholder. The proxy and power of attorney granted hereunder shall terminate upon the termination of this Agreement.
4.No Voting Trusts or Other Arrangement. Shareholder agrees that Shareholder will not, and will not permit any entity under Shareholder’s control to, deposit any of the Shares in a voting trust, grant any proxies with respect to the Shares or subject any of the Shares to any arrangement with respect to the voting of the Shares other than agreements entered into with Parent.
5.Transfer and Encumbrance. Shareholder agrees that during the term of this Agreement, Shareholder will not, directly or indirectly, transfer, sell, offer, exchange, assign, pledge or otherwise dispose of or encumber (“Transfer”) any of the Shares or enter into any contract,Contract, option or other agreement with respect to, or consent to, a Transfer of, any of the Shares or Shareholder’s voting or economic interest therein. Any attempted Transfer of Shares or any interest therein in violation of thisSection 5 shall be null and void. ThisSection 5 shall not prohibit a Transfer of the Shares by Shareholder [to any member of Shareholder’s immediate family, or to a trust for the benefit of Shareholder or any member of Shareholder’s immediate family, or upon the death of
4 | Note to Draft: To be deleted for each Shareholder that is a business entity or an unmarried individual. |
Shareholder]/[to an Affiliate of Shareholder]5;provided, that a Transfer referred to in this sentence shall be permitted only if, as a precondition to such Transfer, the transferee agrees in a writing, reasonably satisfactory in form and substance to Parent, to be bound by all of the terms of this Agreement.
6.Additional Shares. Shareholder agrees that all shares of Company Stock that Shareholder purchases, acquires the right to vote or otherwise acquires beneficial ownership (as defined in Rule 13d-3 under the Exchange Act[, but excluding shares of Company Stock underlying unexercised Derivative Securities]6) of after the execution of this Agreement shall be subject to the terms of this Agreement and shall constitute Shares for all purposes of this Agreement.
7.Termination. This Agreement shall terminate upon the earliest to occur of (i)(a) the Effective Time and (ii)(b) the date on which the Merger Agreement is terminated in accordance with its terms.
8.No Agreement as Director or Officer. Shareholder makes no agreement or understanding in this Agreement in Shareholder’s capacity as a director or officer of the Company or any of its Subsidiaries (if Shareholder holds such office), and nothing in this Agreement: (a) will limit or affect any actions or omissions taken by Shareholder in Shareholder’s capacity as such a director or officer, including in exercising rights under the Merger Agreement, and no such actions or omissions shall be deemed a breach of this Agreement or (b) will be construed to prohibit, limit or restrict Shareholder from exercising Shareholder’s fiduciary duties as an officer or director to the Company or its Shareholders.
9.Specific Performance. Each party hereto acknowledges that it will be impossible to measure in money the damage to the other party if a party hereto fails to comply with any of the obligations imposed by this Agreement, that every such obligation is material and that, in the event of any such failure, the other party will not have an adequate remedy at law or damages. Accordingly, each party hereto agrees that injunctive relief or other equitable remedy, in addition to remedies at law or damages, is the appropriate remedy for any such failure and will not oppose the seeking of such relief on the basis that the other party has an adequate remedy at law. Each party hereto agrees that it will not seek, and agrees to waive any requirement for, the securing or posting of a bond in connection with the other party’s seeking or obtaining such equitable relief.
10.Entire Agreement. This Agreement supersedes all prior agreements, written or oral, between the parties hereto with respect to the subject matter hereof and contains the entire agreement between the parties with respect to the subject matter hereof. This Agreement may not be amended or supplemented, and no provisions hereof may be modified or waived, except by an instrument in writing signed by both of the parties hereto. No waiver of any provisions hereof by either party shall be deemed a waiver of any other provisions hereof by such party, nor shall any such waiver be deemed a continuing waiver of any provision hereof by such party.
5 | Note to Draft: First bracketed language to be deleted for each Shareholder that is a business entity. Second bracketed language to be deleted for each Shareholder that is an individual. |
6 | Note to Draft: To be deleted for each Shareholder that does not hold Derivative Securities. |
11.Notices. All notices, requests, claims, demands and other communications hereunder shall be in writing and shall be deemed to have been given (a) when delivered by hand (with written confirmation of receipt), (b) when received by the addressee if sent by a nationally recognized overnight courier (receipt requested), (c) on the date sent by facsimile or e-mail of a PDF document (with confirmation of transmission) if sent during normal business hours of the recipient, and on the next Business Day if sent after normal business hours of the recipient, or (d) on the third day after the date mailed, by certified or registered mail, return receipt requested, postage prepaid. Such communications must be sent to the respective parties at the following addresses (or at such other address for a party as shall be specified in a notice given in accordance with thisSection 11):
If to Parent or Merger Sub, addressed to it at:
Hecla Mining Company
6500 N. Mineral Drive, Suite 200
Coeur d’Alene, Idaho 83815-9408
Attention: David Sienko
Facsimile: (208) 209-1278
Email: dsienko@hecla-mining.com
with a mandated copy (which shall not constitute notice) to:
K&L Gates LLP
70 West Madison Street, Suite 3100
Chicago, IL 60602-4207
Attention: J. Craig Walker
Facsimile: (312) 827-8179
Email: craig.walker@klgates.com
If to Shareholder, to the address or facsimile number set forth for Shareholder on the signature page hereof.
12.Miscellaneous.
(a) This Agreement shall be governed by and construed in accordance with the internal lawsLaws of the State of Delaware without giving effect to any choice or conflict of law provision or rule (whether of the State of Delaware or any other jurisdiction) that would cause the application of Laws of any jurisdiction other than those of the State of Delaware.
(b) Each of the parties hereto irrevocably agrees that any legal action or proceeding with respect to this Agreement and the rights and obligations arising hereunder, or for recognition and enforcement of any judgment in respect of this Agreement and the rights and obligations arising hereunder, brought by the other party hereto or its successors or assigns shall be brought and determined exclusively in the district court of the State of Idaho, or in the event (but only in the event) that such court does not have subject matter jurisdiction over such action or proceeding, in the federal courts of the United States of America located in the State of Idaho. Each of the parties hereto agrees that mailing of process or other papers in connection with any such action or proceeding in the manner provided inSection 11 or in such other manner as may be permitted by applicable Laws, will be valid and sufficient service thereof. Each of the parties hereto hereby irrevocably submits with regard to any such action or proceeding for itself and in respect of its property, generally and unconditionally, to the personal jurisdiction of the aforesaid courts and agrees that it will not bring any action relating to this Agreement or any of the transactions contemplated by this Agreement in any court or tribunal other than the aforesaid courts. Each of the parties hereto hereby irrevocably waives, and agrees not to assert, by way of motion, as a defense, counterclaim or otherwise, in any action or proceeding with respect to this Agreement and the rights and obligations arising hereunder, or for recognition and enforcement of any judgment in respect of this Agreement and the rights and obligations arising hereunder (i) any claim that it is not personally subject to the jurisdiction of the above named courts for any reason other than the failure to serve process in accordance with thisSection 12(b), (ii) any claim that it or its property is exempt or immune from jurisdiction of any such court or from any legal process
commenced in such courts (whether through service of notice, attachment prior to judgment, attachment in aid of execution of judgment, execution of judgment or otherwise), and (iii) to the fullest extent permitted by the applicable Law, any claim that (x) the suit, action or proceeding in such court is brought in an inconvenient forum, (y) the venue of such suit, action or proceeding is improper or (z) this Agreement, or the subject matter hereof, may not be enforced in or by such courts.
(c) EACH PARTY ACKNOWLEDGES AND AGREES THAT ANY CONTROVERSY WHICH MAY ARISE UNDER THIS AGREEMENT IS LIKELY TO INVOLVE COMPLICATED AND DIFFICULT ISSUES AND, THEREFORE, EACH SUCH PARTY IRREVOCABLY AND UNCONDITIONALLY WAIVES ANY RIGHT IT MAY HAVE TO A TRIAL BY JURY IN RESPECT OF ANY LEGAL ACTION ARISING OUT OF OR RELATING TO THIS AGREEMENT OR THE TRANSACTIONS CONTEMPLATED BY THIS AGREEMENT. EACH PARTY TO THIS AGREEMENT CERTIFIES AND ACKNOWLEDGES THAT (A) NO REPRESENTATIVE OF ANY OTHER PARTY HAS REPRESENTED, EXPRESSLY OR OTHERWISE, THAT SUCH OTHER PARTY WOULD NOT SEEK TO ENFORCE THE FOREGOING WAIVER IN THE EVENT OF A LEGAL ACTION, (B) SUCH PARTY HAS CONSIDERED THE IMPLICATIONS OF THIS WAIVER, (C) SUCH PARTY MAKES THIS WAIVER VOLUNTARILY AND (D) SUCH PARTY HAS BEEN INDUCED TO ENTER INTO THIS AGREEMENT BY, AMONG OTHER THINGS, THE MUTUAL WAIVERS AND CERTIFICATIONS IN THISSECTION12(C).
(d) If any term or provision of this Agreement is invalid, illegal or unenforceable in any jurisdiction, such invalidity, illegality or unenforceability shall not affect any other term or provision of this Agreement or invalidate or render unenforceable such term or provision in any other jurisdiction. Upon such determination that any term or other provision is invalid, illegal or unenforceable, the parties hereto shall negotiate in good faith to modify this Agreement so as to effect the original intent of the parties as closely as possible in a mutually acceptable manner in order that the transactions contemplated hereby be consummated as originally contemplated to the greatest extent possible.
(e) This Agreement may be executed in one or more counterparts, each of which shall be deemed to be an original but all of which together shall constitute one and the same instrument.
(f) Each party hereto shall execute and deliver such additional documents as may be necessary or desirable to effect the transactions contemplated by this Agreement.
(g) All Section headings herein are for convenience of reference only and are not part of this Agreement, and no construction or reference shall be derived therefrom.
(h) The obligations of Shareholder set forth in this Agreement shall not be effective or binding upon Shareholder until after such time as the Merger Agreement is executed and delivered by the Company, Parent and Merger Sub, and the parties agree that there is not and has not been any other agreement, arrangement or understanding between the parties hereto with respect to the matters set forth herein.
(i) Neither party to this Agreement may assign any of its rights or obligations under this Agreement without the prior written consent of the other party hereto, except that Parent may assign, in its sole discretion, all or any of its rights, interests and obligations hereunder to any of its Affiliates. Any assignment contrary to the provisions of thisSection 12(i) shall be null and void.
[SIGNATURE PAGE FOLLOWS]
IN WITNESS WHEREOF, the parties hereto have executed and delivered this Agreement as of the date first written above.
HECLA MINING COMPANY |
By: |
|
Name: |
|
Title: |
|
[SHAREHOLDER] |
By: |
|
Name: |
|
Title: |
|
Number of Shares of Company Stock Beneficially Owned as of the Date of this Agreement: | ||
[Number of Derivative Securities Beneficially Owned as of the Date of this Agreement:]7 |
Street Address: |
|
City/State/Zip Code: |
|
Fax: |
|
7 |
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
Item 20. Indemnification of Directors and Officers.
General Corporation Law of the State of Delaware. Section 145 of the General Corporation Law of the State of DelawareDGCL grants a corporation the power to indemnify its officers and directors, under certain circumstances and subject to certain conditions and limitations as stated therein, against expenses, including attorneys’ fees, judgments, fines and amounts paid in settlement, actually and reasonably incurred by them as a result of threatened, pending or completed actions, suits or proceedings brought against them by reason of the fact that they are or were an officer or director of the corporation or served at the request of the corporation if they acted in good faith and in a manner they reasonably believed to be in or not opposed to the best interests of the corporation, and, with respect to any criminal action or proceeding, had no reasonable cause to believe their conduct was unlawful.
Certificate of Incorporation. Article IX, Section 1 of Hecla’s Certificate of Incorporation provides that, to the fullest extent permitted by Delaware law as the same exists or may hereafter be amended, no director will be personally liable to Hecla or its stockholders for monetary damages for breach of fiduciary duty as a director.
Bylaws. Article VIII of Hecla’s Bylaws requires indemnification and the advancement of defense expenses to directors, officers and employees to the fullest extent permitted by Delaware law. The rights to indemnification and advancement granted under Delaware law and the Bylaws are not exclusive of any other rights any person may have or acquire under any law, agreement, vote of stockholders or directors, provisions of a charter or bylaws or otherwise.
Hecla maintains insurance for the benefit of its directors and officers to insure these persons against certain liabilities, whether or not Hecla would have the power to indemnify them against these liabilities under Delaware law.
Hecla also has entered into certain indemnification agreements with its directors and officers. The indemnification agreements provide Hecla’s directors and officers with further indemnification, to the maximum extent permitted by Delaware law.
The foregoing summaries are subject to Hecla’s Certificate of Incorporation and Bylaws, each of which is an exhibit to this Registration Statement, the text of the DGCL, and the indemnification agreements referred to above (the form of which can be found filed as an exhibit to Hecla’s Quarterly Report on Form 10-Q for the quarter ended September 30, 2006), and are qualified in their entirety by reference thereto.
Item 21. Exhibits and Financial Statement Schedules.
See “Exhibit Index” below.
Item 22. Undertakings.
The undersigned registrant hereby undertakes:
1. | To file, during any period in which offers or sales are being made, a post-effective amendment to this registration statement: |
a. | To include any prospectus required by Section 10(a)(3) of the Securities Act; |
b. | To reflect in the prospectus any facts or events arising after the effective date of the registration statement (or the most recent post-effective amendment thereof) which, individually or in the aggregate, represent a fundamental change in the information set forth in the registration |
II-1
statement. Notwithstanding the foregoing, any increase or decrease in volume of securities offered (if the total dollar value of securities offered would not exceed that which was registered) and any deviation from the low or high end of the estimated maximum offering range may be reflected in the form of prospectus filed with the Commission pursuant to Rule 424(b) |
c. | To include any material information with respect to the plan of distribution not previously disclosed in the registration statement or any material change to such information in the registration statement; |
2. | That, for the purpose of determining any liability under the Securities Act, each such post-effective amendment shall be deemed to be a new registration statement relating to the securities offered therein, and the offering of such securities at that time shall be deemed to be the initial bona fide offering thereof. |
3. | To remove from registration by means of a post-effective amendment any of the securities being registered which remain unsold at the termination of the offering. |
4. | That, for the purpose of determining liability under the Securities Act |
5. | That, for the purpose of determining liability of the registrant under the Securities Act to any purchaser in the initial distribution of the securities, in a primary offering of securities of the undersigned registrant pursuant to this registration statement, regardless of the underwriting method used to sell the securities to the purchaser, if the securities are offered or sold to such purchaser by means of any of the following communications, the undersigned registrant will be a seller to the purchaser and will be considered to offer or sell such securities to such purchaser: (i) any preliminary prospectus or prospectus of the undersigned registrant relating to the offering required to be filed pursuant to Rule 424; (ii) any free writing prospectus relating to the offering prepared by or on behalf of the undersigned registrant or used or referred to by the undersigned registrant; (iii) the portion of any other free writing prospectus relating to the offering containing material information about the undersigned registrant or its securities provided by or on behalf of the undersigned registrant; and (iv) any other communication that is an offer in the offering made by the undersigned registrant to the purchaser. |
6. | That, for purposes of determining any liability under the Securities Act, each filing of the registrant’s annual report pursuant to Section 13(a) or 15(d) of the |
7. | That prior to any public reoffering of the securities registered hereunder through use of a prospectus which is a part of this registration statement, by any person or party who is deemed to be an |
II-2
underwriter within the meaning of Rule 145(c), the registrant undertakes that such reoffering |
II-2
prospectus will contain the information called for by the applicable registration form with respect to reofferings by persons who may be deemed underwriters, in addition to the information called for by the other items of the applicable form. |
8. | That every prospectus (i) that is filed pursuant to paragraph (7) above, or (ii) that purports to meet the requirements of Section 10(a)(3) of the Securities Act and is used in connection with an offering of securities subject to Rule 415, will be filed as a part of an amendment to this registration statement and will not be used until such amendment |
9. | Insofar as indemnification for liabilities arising under the Securities Act |
10. | To respond to requests for information that is incorporated by reference into the prospectus pursuant to Item 4, 10(b), 11 or 13 of this |
11. | To supply by means of a post-effective amendment all information concerning a transaction, and the company being acquired involved therein, that was not the subject of and included in this registration statement when it became effective. |
II-3
SIGNATURES OF ISSUER
Pursuant to the requirements of the Securities Act of 1933, the registrant has duly caused this registration statement to be signed on its behalf by the undersigned, thereunto duly authorized, in the City of Coeur d’Alene, State of Idaho on April 20, 2015.June 29, 2016.
HECLA MINING COMPANY | ||
By |
| |
Name: | Phillips S. Baker | |
Title: | Chief Executive Officer, President and Director |
POWER OF ATTORNEY
KNOW ALL PERSONS BY THESE PRESENTS, that each person whose signature appears below constitutes and appoints David C. Sienko and JamesDaniel A. Sabala,Nelson, and each of them, his or her true and lawful attorney-in-fact and agent, with full power of substitution and resubstitution, for him or her and in his or her name, place and stead, in any and all capacities, to sign any and all amendments (including post-effective amendments) to this registration statement, and any related registration statements to be filed pursuant to Rule 462(b) under the Securities Act of 1933, and to file the same, with all exhibits thereto and all other documents in connection therewith, with the Securities and Exchange Commission, granting unto said attorney-in-fact and agent full power and authority to do and perform each and every act and thing requisite and necessary to be done, as fully to all intents and purposes as he or she might or could do in person, hereby ratifying and confirming all that said attorney-in-fact and agent, or his or her substitute or substitutes, may lawfully do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, this registration statement has been signed by the following persons in the capacities indicated on the 20th29th day of April, 2015.June, 2016.
Signature | Title | |
/s/ Phillips S. Baker Phillips S. Baker | Chief Executive Officer, President and Director (principal executive officer) | |
/s/
|
(principal financial and accounting officer) | |
| ||
/s/ Ted Crumley Ted Crumley | Director | |
/s/ George R. Nethercutt, Jr. George R. Nethercutt, Jr. | Director | |
/s/ Terry V. Rogers Terry V. Rogers | Director |
II-4
|
| |
/s/ Charles B. Stanley Charles B. Stanley | Director | |
/s/ Anthony P. Taylor Anthony P. Taylor | Director | |
/s/ George R. Johnson George R. Johnson | Director | |
/s/ Stephen F. Ralbovsky Stephen F. Ralbovsky | Director |
II-5II-4
Exhibit Index
2.1 | Agreement and Plan of Merger, dated as of | |
3.1 | Restated Certificate of Incorporation of the Registrant. Filed as exhibit 3.1 to Registrant’s Current Report on Form 8-K filed on December 12, 2014 (File No. 1-8491), and incorporated herein by reference. | |
3.2 | Bylaws of the Registrant as amended to date. Filed as exhibit 3.1 to Registrant’s Current Report on Form 8-K filed on August 22, 2014 (File No. 1-8491), and incorporated herein by reference. | |
4.1(a) | Certificate of Designations, Preferences and Rights of Series A Junior Participating Preferred Stock of the Registrant. Filed as exhibit 3.1 to Registrant’s Form 10-Q for the quarter ended June 30, 2010 (File No. 1-8491), and incorporated herein by reference. | |
4.1(b) | Certificate of Designations, Preferences and Rights of Series B Cumulative Convertible Preferred Stock of the Registrant. Filed as exhibit 3.1 to Registrant’s Form 10-Q for the quarter ended June 30, 2010 (File No. 1-8491), and incorporated herein by reference. | |
| Indenture, dated as of April 12, 2013, among Hecla Mining Company, as Issuer, certain subsidiaries of Hecla Mining company, as Guarantors thereto, and The Bank of New York Mellon Trust Company, N.A., as Trustee. Filed as exhibit 10.1 to Registrant’s Current Report on Form 8-K filed on April 15, 2013 (File No. 1-8491), and incorporated herein by reference. | |
| Supplemental Indenture, dated as of April 14, 2014, among Hecla Mining Company, as Issuer, certain subsidiaries of Hecla Mining Company, as Guarantors thereto, and The Bank of New York Mellon Trust Company, N.A., as Trustee. Filed as exhibit 4.2 to Registrant’s S-3ASR filed on April 14, 2014 (File No. 1-8491), and incorporated herein by reference. | |
4.2(c) | Supplemental Indenture, dated August 5, 2015, among Revett Mining Company, Inc., Revett Silver Company, Troy Mine Inc., RC Resources, Inc., Revett Exploration, Inc., Revett Holdings, Inc., as Guaranteeing Subsidiaries, and The Bank of New York Mellon Trust Company, N.A., as Trustee. Filed as exhibit 4.2(d) to Registrant’s Annual Report on Form 10-K filed on February 23, 2016 (File No.1-8491), and incorporated herein by reference. | |
5.1 | ||
8.1 | ||
9.1 | Form of Shareholders Agreement (included as Appendix D to the proxy statement/prospectus forming part of this Registration Statement and incorporated herein by reference). | |
23.1 | Consent of David C. Sienko (included in Exhibit 5.1 hereto). | |
23.2 | Consent of | |
23.3 | Consent of BDO USA, LLP, independent public accountant for Hecla (filed herewith). | |
23.4 | Consent of | |
23.5 | Consent of | |
23.6 | ||
Consent of Roscoe Postle Associates Inc. (filed herewith). | ||
23.7 | Consent of Mine Development Associates, Inc. (filed herewith). | |
23.8 | Consent of Mine and Quarry Engineering Services, Inc. (filed herewith). | |
24.1 | Powers of Attorney of Directors and Officers of Hecla Mining Company (included on the signature pages herewith). | |
99.1 | Form of proxy card of | |
99.2 | Term Loan and Security Agreement, dated as of |
II-6II-5