MERGER AND TERM LOAN AGREEMENTS

6 Months Ended

Jun. 30, 2016

MERGER AND TERM LOAN AGREEMENTS

MERGER AND TERM LOAN AGREEMENTS

NOTE 6 — MERGER AND TERM LOAN AGREEMENTS:

Merger Agreement:

On May 23, 2016, the Company entered into an agreement and plan of merger (“merger agreement”) with Hecla Mining Company (“Hecla”).  Pursuant to the merger agreement and subject to approval of the Company’s stockholders and the satisfaction of other conditions specified in the agreement, a subsidiary of Hecla (HL Idaho Corp.) would merge with and into the Company, with the Company continuing as the surviving corporation and as a direct wholly owned subsidiary of Hecla.  Each outstanding share of the Company’s common stock will be exchanged for 0.2218 shares of Hecla’s common stock per the terms of the merger agreement.  The merger agreement, as amended, may be terminated in certain circumstances prior to the closing, including by either party if the Company fails to obtain stockholder approval of the merger agreement or the merger is not consummated by the deadline.  The original merger agreement was amended on June 29, 2016 to clarify certain terms and provide additional information.  On July 29, 2016, the merger agreement was further amended to extend the deadline for consummating the merger agreement to September 30, 2016.

Term Loan Agreement:

On May 23, 2016, the Company and its subsidiaries entered into a term loan and security agreement with Hecla as lender (“the term loan agreement”).  The term loan agreement provides for a $2.3 million secured term loan which bears interest at a rate equal to the LIBOR rate plus five percent and, as amended, matures on the earlier of September 30, 2016 or the date the merger is completed.  The term loan becomes due and payable in full upon a change of control or event of default (as such terms are defined in the term loan agreement) or if the merger agreement is terminated for any reason other than a breach of the merger agreement by Hecla.   The term loan is secured, subject to certain permitted liens, by a security interest in substantially all of the Company’s assets, including the Montanore Project.  On July 29, 2016, the term loan agreement was amended to extend the maturity date from August 15, 2016 to the earlier of September 30, 2016 or the date the merger is completed.