Document:

Exhibit 10.2.1

 

LOAN AGREEMENT

 

This Loan Agreement (this “Agreement”) is made as of January 23, 2018, by and among (i) MINERA PLATA REAL, S. DE R.L. DE C.V., a Mexico variable capital company (a “sociedad de responsabilidad limitada de capital variable” in Spanish) (“MPR”), OPERACIONES SAN JOSE DE PLATA, S. DE R.L. DE C.V., a Mexico variable capital company (a “sociedad de responsabilidad limitada de capital variable” in Spanish ), and SERVICIOS SAN JOSÉ DE PLATA S. DE R.L. DE C.V., a Mexico variable capital company, (collectively, the “Borrowers”), (ii) SUNSHINE SILVER MINING & REFINING CORPORATION, a corporation formed under the laws of the State of Delaware (the “Guarantor” or “SSMRC”), and (iii) DOWA METALS & MINING CO., LTD., a corporation incorporated under the laws of Japan (the “Lender” or “Dowa”). In consideration of the mutual covenants and agreements contained herein the parties hereto agree as follows:

 

RECITALS:

 

A.                                    The Lender and SSMRC are the direct and indirect shareholders of the Borrowers, as set forth in the Unanimous Omnibus Partner Agreement, dated as of January 1, 2015, among Borrowers, Lender and the other parties thereto, as amended, restated, supplemented or modified from time to time (the “Partner Agreement”).

 

B.                                    Borrowers require additional funds to complete the current Approved Program, which are to be funded by Remaining Required Capital Contributions, and SSMRC has notified the Lender that it is unable to fund its portion thereof.

 

C.                                    In accordance with Section 8 of the Partner Agreement Amendment, and after the completion of total actual Second Stage Contributions of $40,322,012.93, the Lender has agreed to advance an aggregate principal amount up to $65,677,987.07 to the Borrowers (the “Dowa MPR Loan”), representing all or a portion of the “Remaining SSMRC Capital” in the amount of $45,974,590.95 and the “Remaining Dowa Capital” in the amount of $19,703,396.12 under the Partner Agreement Amendment.

 

D.                                    The Guarantor is willing to guaranty seventy percent (70%) of the Dowa MPR Loan on the terms and subject to the conditions described herein in accordance with Section 8(c) of the Partner Agreement.

 

E.                                     The Borrowers, Guarantor and the Lender have agreed to evidence such loan by entering into this Loan Agreement.

 

ARTICLE 1

INTERPRETATION

 

1.1                                                                               Definitions

 

Any capitalized term used herein that is not otherwise defined shall have the meaning ascribed thereto in the Partner Agreement. For the purposes of this Agreement:

 

“Agreement” means this agreement as amended, restated or modified from time to time.

 

 

“Applicable Interest Rate” means LIBOR plus one and a half percent (1.5%).

 

“Banking Day” means any day (other than Saturday or Sunday) on which banks are generally open for business in Denver, Colorado, USA and Tokyo, Japan.

 

“Capital Contribution Date” means the date on which SSMRC funds any Capital Contribution (as defined in the Partner Agreement) to the Borrowers.

 

“Default” means any event or condition which, upon notice, lapse of time, or both, would constitute an Event of Default.

 

“Dowa” has the meaning given in the recitals.

 

“Dowa MPR Loan” has the meaning given in the recitals.

 

“Event of Default” has the meaning attributed to such term in Section 3.1.

 

“Guarantor” has the meaning attributed to such term in the recitals.

 

“Guaranty” means the Limited Guaranty, dated as of the date hereof, made by the Guarantor in favor of the Lender, as amended, restated, supplemented or modified from time to time, pursuant to which the Guarantor shall have guaranteed seventy percent (70%) of the Obligations.

 

“LIBOR” means the interest rate per annum determined by the Lender by dividing (the resulting quotient rounded upwards, if necessary, to the nearest l/100th of 1% per annum) (a) the ninety (90) day (the “Interest Period”) LIBOR rate administered by ICE Benchmark Administration on the applicable Reuters screen page (or such other commercially available source providing such quotations of LIBOR as designated by the Lender from time to time), or the rate which is quoted by another source selected by Lender in good faith as an authorized information vendor for the purpose of displaying rates at which U.S. dollar deposits are offered by leading banks in the London interbank deposit market (a “LIBOR Alternate Source”), at approximately 1:00 a.m., London time, two (2) Banking Days prior to the commencement of such Interest Period as the London interbank offered rate for U.S. Dollars for an amount comparable to such Advance and having a borrowing date and a maturity comparable to such Interest Period (or if there shall at any time, for any reason, no longer exist an applicable Reuters screen page (or any substitute page) or any LIBOR Alternate Source, a comparable replacement rate determined by the Lender at such time (which determination shall be conclusive absent manifest error)), by(b) a number equal to 1.00 minus the Reserve Percentage.

 

For the purpose of this definition of LIBOR, “Reserve Percentage” means as of any day the maximum effective percentage in effect on such day as prescribed by the Board of Governors of the Federal Reserve System (or any successor) for determining the reserve requirements (including supplemental, marginal and emergency reserve requirements) with respect to eurocurrency funding.

 

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“Loan Documents” means this Agreement, the Guaranty and any other agreements, instruments and documents delivered from time to time (both before and after the date of this Agreement) to the Lender by the Borrowers or Guarantor in connection with this Agreement, in each case as amended, supplemented, modified, restated or modified from time to time.

 

“Maturity Date” means the earlier of (i) June 30, 2019 or (ii) Substantial Completion (as defined in the Partner Agreement).

 

“MPR” has the meaning set forth in the recitals.

 

“Obligations” means all indebtedness, liabilities and other obligations of the Borrowers to the Lender hereunder or under any other Loan Document, whether actual or contingent, direct or indirect, matured or not, now existing or arising hereafter.

 

“Partner Agreement” has the meaning set forth in the recitals.

 

“Partner Agreement Amendment” means the Amendment to Partner Agreement, dated June 30, 2017, among the Borrowers, SSMRC and Lender, as amended, restated, supplemented or modified from time to time.

 

“Remaining Required Capital Contributions” has the meaning set forth in the Partner Agreement Amendment.

 

“SSMRC” has the meaning set forth in the recitals.

 

“TL Agreement” means the Term Loan Agreement, dated as of July 11, 2017, among the Borrowers, the Lender, SSMRC and Los Gatos Luxembourg S.a.r.l, as amended, restated, supplemented or modified from time to time.

 

1.2                                                                               Invalidity, etc.

 

Each of the provisions contained in this Agreement is distinct and severable and a declaration of invalidity, illegality or unenforceability of any such provision or part thereof by a court of competent jurisdiction shall not affect the validity or enforceability of any other provision hereof.

 

1.3                                                                               Currency

 

All monetary amounts in this Agreement are stated in U.S. dollars.

 

1.4                                                                               Governing Law

 

THIS AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK, EXCLUDING CHOICE OF LAW PRINCIPLES OF THE LAW OF SUCH STATE THAT WOULD REQUIRE OR PERMIT THE APPLICATION OF THE LAWS OF ANOTHER JURISDICTION.

 

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1.5                                                                                         Waiver Of Jury Trial; Submission to Jurisdiction; Venue

 

1.5.1                     THE PARTIES HERETO EACH HEREBY KNOWINGLY, VOLUNTARILY AND INTENTIONALLY WAIVE THE RIGHT EITHER OF THEM MAY HAVE TO A TRIAL BY JURY OF, UNDER OR IN CONNECTION WITH THIS AGREEMENT.

 

1.5.2                     EACH PARTY IRREVOCABLY AND UNCONDITIONALLY SUBMITS, FOR ITSELF AND ITS PROPERTY, TO THE NON-EXCLUSIVE JURISDICTION OF THE COURTS OF THE STATE OF NEW YORK AND OF THE UNITED STATES DISTRICT COURTS LOCATED IN THE COUNTY OF NEW YORK FOR ANY LAWSUITS, ACTIONS, OR OTHER PROCEEDINGS ARISING OUT OF OR RELATING TO THIS AGREEMENT, AND EACH AGREES NOT TO COMMENCE ANY SUCH LAWSUIT, ACTION, OR OTHER PROCEEDING EXCEPT IN SUCH COURTS. THE PARTIES IRREVOCABLY AND UNCONDITIONALLY WAIVE ANY OBJECTION TO THE LAYING OF VENUE OF ANY LAWSUIT, ACTION, OR OTHER PROCEEDING ARISING OUT OF OR RELATING TO THIS AGREEMENT IN THE COURTS OF THE STATE OF NEW YORK OR THE UNITED STATES DISTRICT COURTS LOCATED IN THE COUNTY OF NEW YORK, AND FURTHER IRREVOCABLY AND UNCONDITIONALLY WAIVE AND AGREE NOT TO PLEAD OR CLAIM IN ANY SUCH COURT THAT ANY SUCH LAWSUIT, ACTION, OR OTHER PROCEEDING BROUGHT IN ANY SUCH COURT HAS BEEN BROUGHT IN AN INCONVENIENT FORUM.

 

ARTICLE 2

PAYMENTS

 

2.1                                                                               Advances

 

2.1.1                             Subject to the terms and conditions hereof, and so long as no Default or Event of Default has occurred and is continuing, the Lender agrees to make advances to Borrowers (each an “Advance” and, collectively, the “Advances”) as follows: (i) on January 30, 2018 in the principal amount of $25,000,000 (the “Initial Advance”), (ii) in late February, 2018 in the principal amount of $20,000,000, and (iii) in late March, 2018 in the amount of $20,677,987,07, provided that at no time shall the aggregate principal amount of all Advances exceed $ 65,677,987.07.

 

2.1.2                             Each Advance shall be paid to the Borrowers in accordance with written direction provided to the Lender at least five (5) Business Days prior to the requested Advance.

 

2.2                                                                               Interest

 

2.2.1                             Interest shall accrue on the outstanding principal amount of each Advance at a rate per annum equal to the Applicable Interest Rate.

 

2.2.2                             Interest shall accrue from day to day, shall be calculated on the basis of the number of days elapsed and on the basis of a year of 360 days.

 

2.2.3                             All interest accrued under this Agreement shall be payable on the Maturity Date.

 

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2.3                                                                               Evidence of Obligations

 

The Lender shall maintain an account evidencing the indebtedness and liabilities of the Borrowers hereunder and the amounts of principal, interest and other amounts owing and paid from time to time hereunder. In any legal action or proceeding in respect of this Agreement, the entries made in such account shall be conclusive evidence of the existence and amounts of the obligations of the Borrowers therein recorded, absent manifest error.

 

2.4                                                                               Manner of Payment

 

All payments of principal, interest or other amounts payable hereunder by the Borrowers shall be made on the date specified herein (which if not a Banking Day, shall be the next following Banking Day). All payments with respect to this Agreement are to be made in lawful money of the United States of America in immediately available funds free and clear of, and without deduction for, certain present and future taxes, levies, imposts, duties, fees, assessments or other charges, and all interest, penalties and liabilities with respect thereto.

 

2.5                                                                               Repayment

 

2.5.1                     The entire principal amount of the DOWA MPR Loan together with all accrued and unpaid interest thereon shall be fully due and payable on the Maturity Date.

 

2.5.2                     If the Borrowers fail to repay the Dowa MPR Loan together with all accrued and unpaid interest thereon on or before the Maturity Date, Lender may elect to convert all or a portion of the principal amount of the Dowa MPRLoan, together with all accrued and unpaid interest thereon, to equity in MPR in accordance with Section 10 to the Partner Agreement Amendment, at any time after the earlier of: (i) the date of MPR’s commencement of first commercial production; and (ii) date on which the Remaining Required Capital Contributions are spent or committed to be spent by MPR. Lender must provide at least ten (10) days’ prior written notice to SSMRC of its election to convert the Dowa MPR Loan under this Section 2.5.2.

 

2.6                                                                               Prepayment

 

The Borrowers may repay all or part of any amounts payable under this Agreement, including interest, without premium or penalty at any time from time to time.

 

2.7                                                                               Application of Payments

 

All amounts prepaid or repaid shall be applied firstly in reduction of the accrued and unpaid interest then outstanding in respect of the principal amount being prepaid or repaid and thereafter in reduction of the principal amount of the Dowa MPR Loan then outstanding.

 

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ARTICLE 3

REPRESENTATIONS AND COVENANTS; SECURITY

 

3.1                                                                               Representations of Borrowers and Guarantor

 

Each Borrower and Guarantor represents and warrants to the Lender as follows:

 

(i)                                     Such Person has full power, authority and legal right to enter into this Agreement and the other Loan Documents to which it is a party and to perform all its Obligations hereunder and thereunder.

 

(ii)                                  This Agreement and the other Loan Documents to which it is a party have been duly executed and delivered by such Person, and this Agreement and the other Loan Documents to which it is a party constitute the legal, valid and binding obligation of such Person enforceable in accordance with their terms, except as such enforceability may be limited by any applicable bankruptcy, insolvency, moratorium or similar laws affecting creditors’ rights generally.

 

(iii)                               The execution, delivery and performance of this Agreement and of the other Documents to which it is a party (A) are within such Person’s corporate or company powers, as applicable, have been duly authorized by all necessary corporate or company action, as applicable, are not in contravention of law or the terms of such Person’s Constating Documents, (B) will not conflict with or violate any law or regulation, or any judgment, order or decree of any Governmental Authority, (C) will not require the Consent of any Governmental Authority or any other Person, and (D) will not conflict with, nor result in any breach in any of the provisions of or constitute a default under the provisions of any agreement, instrument, or other document to which such Person is a party or by which it or its property is a party or by which it may be bound.

 

3.2                                                                               Guaranty

 

Guarantor shall unconditionally guaranty, as a primary obligor and not merely as a surety, the due and punctual payment and performance of seventy percent (70%) of the Obligations pursuant to the terms of the Guaranty.

 

3.3                                                                               Security

 

Each of the parties hereto acknowledges and agrees that this Agreement is a “Loan Document” under the TL Agreement, and that the Obligations under this Agreement are secured by the Security Documents (as defined therein). Any proceeds realized from the collateral pledged pursuant to the Security Documents shall be applied first to the “Obligations” under the TL Agreement, and second to the Obligations under this Agreement.

 

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ARTICLE 4

EVENTS OF DEFAULT AND REMEDIES

 

4.1                                                                               Events of Default

 

The occurrence of any of the following events shall constitute an Event of Default:

 

4.1.1                     default by the Borrowers in payment when due of (i) the principal or interest on the Dowa MPR Loan or (ii) any other amounts owing under this Agreement and the expiration of five days after written notice of such default from Lender to Borrowers;

 

4.1.2                     default by the Borrowers in the performance or observance of any other covenant, condition or obligation contained in this Agreement or any other Loan Document and the expiration of 10 days after written notice of such default by Lender to Borrowers; provided that if such failure is not reasonably susceptible of cure within such 10 day period and Borrowers commence to cure such failure within such 10 day period and thereafter diligently pursue such cure Borrowers shall have an additional period, not to exceed 30 days, to complete such cure;

 

4.1.3

 

4.1.4                             a Borrower admits its inability to pay its debts generally as they become due or otherwise acknowledges its insolvency;

 

4.1.5                             either Borrower institutes any proceeding, or any proceeding is commenced against or involving such Borrower:

 

(a)                                 seeking to adjudicate such Borrower bankrupt or insolvent,

 

(b)                                 seeking liquidation, dissolution, winding up, reorganization, arrangement, protection or relief of it or any of its property or debt or making a proposal with respect to it under any law relating to bankruptcy, insolvency, compromise of debts or other similar laws; or

 

(c)                                  seeking appointment of a receiver, trustee, agent, custodian or other similar official for such Borrower or for any part of such Borrower’s property and assets;

 

and such proceeding is not being contested in good faith by appropriate proceedings or, if so contested, remains outstanding, undismissed and unstayed more than 45 days from the institution of such first mentioned proceeding;

 

4.1.6                     any execution, distress or other enforcement process, whether by court order or otherwise, becomes enforceable against any material property and assets of a Borrower, which execution, distress or other enforcement is not paid, stayed, discharged, released or dismissed within 30 days from the date of entry ; or

 

4.1.7                     the occurrence of any Event of Default under the TL Agreement.

 

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4.2                                                                               Remedies Upon Default

 

Upon the occurrence of any Event of Default, all Obligations shall be immediately due and payable, all without, except as may be required by Applicable Law, any additional notice, presentment, demand, protest, notice of protest, dishonor or any other action. The rights and remedies of the Lender hereunder are cumulative and are in addition to and not in substitution for any other rights or remedies provided by Applicable Law or by any of the Loan Documents.

 

4.3                                                                               Overdue Amounts

 

All overdue amounts owing or deemed to be owing hereunder (“overdue amounts”), whether in respect of principal, interest, expenses or otherwise, both before and after judgment shall bear interest thereon at a rate per annum that is equal to the Applicable Interest Rate plus 2% per annum. Such interest on overdue amounts shall accrue from day to day, be payable in arrears on demand and shall be compounded monthly on the last Banking Day of each calendar month.

 

ARTICLE 5

GENERAL

 

5.1                                                                               Indemnity and Expenses

 

5.1.1                     The Borrowers shall, jointly and severally, indemnify, pay and save harmless the Lender and each of its officers, directors, Affiliates, attorneys, employees and agents (each, an “Indemnified Party”) for all losses, costs, expenses, damages and liabilities which the Lender may sustain or incur under or in connection with this Agreement, in each case except to the extent that any of the foregoing arises out of the gross negligence or willful misconduct of the Indemnified Party.

 

5.1.2                     The Borrowers agree, jointly and severally, to pay all reasonable out-of-pocket expenses incurred by the Lender, including all reasonable attorneys’ fees in connection with the Dowa MPR Loan provided for herein, the preparation, negotiation, execution, delivery and administration of this Agreement and the Loan Documents or any amendments, modifications or waivers thereof.

 

5.2                                                                               Amendment and Waiver

 

No amendment or waiver of any provision of this Agreement or consent to any departure by the Borrowers or Guarantor from any provision thereof is effective unless it is in writing and signed by the Lender. Such amendment, waiver or consent shall be effective only in the specific instance and for the specific purpose for which it is given.

 

5.3                                                                               Notices

 

Any notice or other communication required or permitted to be given hereunder shall be in writing and shall be given by e-mail or by hand-delivery as hereinafter provided. Any such notice shall be deemed to have been received at the time it is delivered to the applicable

 

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address noted below. Notice of change of address shall also be governed by this Section 5.3. Notices and other communications shall be addressed as follows:

 

5.3.1                             if to any Borrower or Guarantor:

 

Sunshine Silver Mining & Refining Corporation

1660 Lincoln Street, Suite 2750

Denver, Colorado 80264

USA

Attention: Roger Johnson

Telephone: 303 784 5334

Email: rjohnson@ssmines.com

 

with a copy to:

 

Snell & Wilmer LLP

1200 Latimer Street

Suite 1900

 

Denver, Colorado 80203

USA

Attention: Jeffrey Reeser

Email: jreeser@ssmines.com

 

5.3.2                             if to the Lender:

 

Dowa Metals & Mining Co., Ltd.

14-1, Sotokanda 4-chome

Chiyoda-Ku, Tokyo

101-0021, Japan

Attention: Toshiaki Suyama, Director, General Manager,

Resource Development & Raw Materials Department

Telephone: +81 3-6847-1201

Facsimile: +81 3-6847-1211

Email: suyamat@dowa.co.jp

 

with a copy to:

 

Torys LLP

1114 Avenue of the Americas, 23rd Floor

New York, NY 10036

USA

Attention: Don Bell

Telephone: +1 (212) 880-6118

Facsimile: +1 (212) 682-0200

Email: dbell@torys.com

 

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5.4                                                                               Entire Agreement

 

This Agreement constitutes the entire agreement between the parties pertaining to the subject matter hereof and supersedes and replaces any prior understandings or arrangements pertaining to the loans made hereunder. There are no warranties, conditions, or representations (including any that may be implied by statute) and there are no agreements in connection with such subject matter except as specifically set forth or referred to herein. No reliance is placed on any warranty, representation, opinion, advice or assertion of fact made either prior to, contemporaneous with, or after entering into this Agreement.

 

5.5                                                                               Severability

 

In case any one or more of the provisions contained in this Agreement shall be invalid, illegal or unenforceable in any respect, the validity, legality, and enforceability of the remaining provisions contained herein shall not in any way be affected or impaired thereby.

 

5.6                                                                               Assignability

 

This Agreement shall not be assignable by any Borrower or Guarantor without the prior written consent of the Lender and any attempted assignment without such consent shall be null and void. This Agreement is not intended to confer any benefits upon or create any rights in favor of any person other than the parties hereto.

 

5.7                                                                               Counterparts

 

This Agreement may be executed in counterparts, each of which when executed will be an original, and all of which, when taken together, will constitute one agreement. Delivery of an executed counterpart of a signature page of this Agreement by facsimile or other electronic transmission will be as effective as delivery of a manually signed counterpart of this Agreement.

 

5.8                                                                               Further Assurances

 

Whether before or after the happening of an Event of Default, the Borrowers shall at their own expense do, make, execute or deliver all such further acts, documents and things in connection with this Agreement and the Loan Documents as the Lender may reasonably require from time to time for the purpose of giving effect thereto, all promptly upon the request of the Lender.

 

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IN WITNESS WHEREOF the parties hereto have caused this Agreement to be executed by their respective duly authorized Agreement as of the date set forth above.

 

	
 
    	
Borrowers:
    
	
 
    	
 
    
	
 
    	
MINERA   PLATA REAL, S. DE R.L. DE C.V.
    
	
 
    	
 
    
	
 
    	
By:
    	
/s/ Roger Johnson
    
	
 
    	
 
    	
Name: Roger Johnson
    
	
 
    	
 
    	
Title:   Treasurer
    
	
 
    	
 
    
	
 
    	
OPERACIONES   SAN JOSE DE PLATA, S. DE R.L. DE C.V.
    
	
 
    	
 
    
	
 
    	
By:
    	
/s/ Roger Johnson
    
	
 
    	
 
    	
Name: Roger Johnson
    
	
 
    	
 
    	
Title:   Treasurer
    
	
 
    	
 
    
	
 
    	
SERVICIOS   SAN JOSE DE PLATA, S. DE R.L. DE C.V.
    
	
 
    	
 
    
	
 
    	
By:
    	
/s/ Roger Johnson
    
	
 
    	
 
    	
Name: Roger Johnson
    
	
 
    	
 
    	
Title:   Treasurer
    

 

 

	
 
    	
Guarantor:
    
	
 
    	
 
    
	
 
    	
SUNSHINE   SILVER MINING & REFINING CORPORATION
    
	
 
    	
 
    
	
 
    	
By:
    	
/s/ Stephen Orr
    
	
 
    	
 
    	
Name: Stephen Orr
    
	
 
    	
 
    	
Title:   Chief Executive Officer
    

 

 

	
 
    	
Lender:
    
	
 
    	
 
    
	
 
    	
DOWA   METALS & MINING CO., LTD
    
	
 
    	
 
    
	
 
    	
By:
    	
/s/ Akira Sekiguchi
    
	
 
    	
 
    	
Name: Akira Sekiguchi
    
	
 
    	
 
    	
Title:   PresidentExhibit 10.3.1

 

MEMORANDUM OF UNDERSTANDING

 

This Memorandum of Understanding (the “MOU”) is effective as of the 16th day of April, 2019,

 

AMONG:

 

MINERA PLATA REAL S. DE R.L. DE C.V. (“MPR”),

OPERACIONES SAN JOSE DE PLATA, S. DE R.L. DE C.V., and

SERVICIOS SAN JOSE DE PLATA, S. DE R.L. DE C.V.

(collectively, the “LGJV” or the “Borrowers”)

 

AND:

 

DOWA METALS & MINING CO., LTD.

(“Dowa”)

 

AND:

 

SUNSHINE SILVER MINING & REFINING CORPORATION

(“SSMRC”)

 

(each of Dowa and SSMRC may be hereinafter referred to as a “Partner”, or together the “Partners”, and each of the Borrowers, Dowa and SSMRC may be hereinafter referred to as a “Party”, or collectively the “Parties”)

 

WHEREAS:

 

A.                                    Dowa, SSMRC and the Borrowers previously agreed to jointly explore, develop and operate a silver-zinc-lead mine located in the State of Chihuahua, Mexico (the “Los Gatos Project”) by entering into that certain Unanimous Omnibus Partner Agreement, dated January 1, 2015, by and among the Borrowers, Dowa and SSMRC, as amended (the “Partner Agreement”);

 

B.                                    The Partners directly and indirectly own all of the equity interests of the LGJV, where Dowa owns 30% of the equity interests and SSMRC owns 70%;

 

C.                                    Pursuant to the Partner Agreement, Dowa and SSMRC are required to make certain capital contributions proportional to each Partner’s equity interest in the LGJV;

 

D.                                    To meet the ongoing capital needs of the Los Gatos Project, on January 23, 2018, the Borrowers, Dowa and SSMRC entered into that certain Loan Agreement, as amended (the “Dowa-MPR Loan”), pursuant to which Dowa advanced $65,677,987.07 to MPR to be repaid on or before June 30, 2019;

 

E.                                     In addition to the Dowa-MPR Loan, Dowa has advanced US$210,000,000 to the Borrowers pursuant to the terms of a loan agreement dated as of July 11, 2017, as amended (the “Term Loan”); and

 

 

F.                                      SSMRC has given notice to Dowa that it will be unable to fund its required capital contributions to the LGJV and, as a consequence, the LGJV is expected to default under the Dowa-MPR Loan and the Term Loan;

 

NOW THEREFORE in consideration of Dowa agreeing to forbear from enforcement of its rights upon default by MPR under the Dowa-MPR Loan, the Term Loan and its rights against SSMRC under the related security and the Partner Agreement, and other good and valuable consideration, the receipt and sufficiency of which is hereby acknowledged, the Parties agree as follows.

 

1.                                      DEFINITIONS

 

1.1                               Unless the context otherwise requires, any capitalized term used herein and not defined will have the meanings ascribed to such terms in the Term Loan.

 

2.                                      GENERAL TERMS

 

2.1                               SSMRC Capital Contribution. SSMRC will make a capital contribution to LGJV of $18,200,000 on or before May 31, 2019.

 

2.2                               Repayment of the Dowa-MPR Loan/Dowa Capital Contribution. Within one Business Day after SSMRC makes its capital contribution in accordance with Section 2.1, the Parties will cause MPR to use all of the proceeds thereof to make a partial repayment of the Dowa-MPR Loan in the amount of $18,200,000 to Dowa (the “Partial Repayment”). Immediately after receipt of the Partial Repayment, $7,800,000 of the Dowa-MPR Loan balance will be converted and deemed to be a capital contribution to LGJV by Dowa (the “Dowa Contribution”).

 

2.3                               Dilutive Contribution. After application of the Partial Repayment and conversion of the Dowa Contribution, the remaining balance of the Dowa-MPR Loan, including interest, will be approximately $42,945,000 (the “Remaining Balance”). The Remaining Balance will also be converted and deemed to be a capital contribution to LGJV by Dowa that dilutes SSMRC’s ownership interest in the LGJV (the “Dilutive Contribution”). Once the Dowa Contribution and the Dilutive Contribution are made, Dowa will own a 48.521% equity interest in the LGJV, and SSMRC will own a 51.479% equity interest in the LGJV. The Parties will cause the Partner Agreement to be amended to reflect such change in ownership interests in the LGJV.

 

2.4                               Working Capital Facility. Dowa agrees to advance a new working capital loan facility for the benefit of the LGJV for a maximum aggregate principal amount of $60,000,000 (the “Working Capital Facility”) on terms and conditions satisfactory to each of Dowa and the Borrowers, each in its sole discretion. Additional terms of the Working Capital Facility will include the following:

 

2.4.1                     Use of Proceeds of the Working Capital Facility. All amounts advanced to the LGJV under the Working Capital Facility will be used for the sole purpose of funding the working capital requirements of the LGJV, including for the purpose of funding to cover any delayed value added tax refunds. The timing of advances,

 

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repayments and whether any such advances can be readvanced, will be specified in the definitive Working Capital Facility agreement;

 

2.4.2                     Security Under the Working Capital Facility. The Working Capital Facility will be secured by all of the collateral pledged as security for the Term Loan including, without limitation, SSMRC’s interest in the LGJV, and cross-defaulted to the Term Loan;

 

2.4.3                     Guarantee Under the Working Capital Facility. SSMRC will guarantee 70% of the amounts owed under the Working Capital Facility;

 

2.4.4                     Payments Under the Working Capital Facility. Interest will accrue on the Working Capital Facility balance at a rate of six month LIBOR plus 3.0% and will be payable every six months; prepayments will be permitted and all principal amounts outstanding will be due on or before June 28, 2021;

 

2.4.5                     Arrangement Fee. SSMRC will pay an arrangement fee to Dowa within five Business Days after the last day of each fiscal quarter, calculated as: 15.0% per annum of 70.0% of the average daily principal amount outstanding under the Working Capital Facility during such fiscal quarter;

 

2.4.6                     Default. If a payment default under the Working Capital Facility or SSMRC’s arrangement fee is not remediated within seven Business Days, Dowa may, at its sole discretion, exercise all enforcement rights and remedies available to it; and

 

2.4.7                     Excess Cash. LGJV will be required to use any excess cash to pay down the outstanding balance of the Working Capital Facility. Excess cash will be calculated on a quarterly basis and defined as cash in excess of the LGJV’s reasonable working and sustaining capital requirements for the ensuing quarterly period based on budget and forecast projections.

 

2.5                               Priority Dividends to Dowa from LGJV. SSMRC will establish an escrow account in its name with reputable financial institution in the U.S. acceptable to Dowa, acting reasonably and:

 

2.5.1                     Dowa will be a party to the escrow agreement;

 

2.5.2                     SSMRC will provide irrevocable instruction and direction to the LGJV to deposit all dividends or other distributions other than management fees payable in the ordinary course to such escrow account until an aggregate amount equal to $20,000,000 has been deposited into such account; and

 

2.5.3                     SSMRC will provide irrevocable instruction and direction to the escrow agent to immediately release to Dowa any funds deposited into the escrow account.

 

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Following payment of the $20,000,000 described above to Dowa (“Priority Distribution”), dividends will be paid in accordance with the Partner Agreement, as amended.

 

2.6                               Dowa Grants Option to SSMRC to Repurchase Diluted Interest. Dowa will grant to SSMRC an option to buy the 18.521% of the equity interest in the LGJV acquired by Dowa pursuant to the dilution described in Section 2.3. The option may be exercised by notice in writing to Dowa at any time on or before June 30, 2021 after the Working Capital Facility is repaid in full and by making a payment to Dowa equal to the aggregate of: (1) 1.7 times the capital contribution of $30,062,000 that SSMRC was expected to make, but did not make, on or before June 30, 2019, being $51,105,400; plus (2) all costs incurred by Dowa in connection with its ownership of such 18.521% equity interest including, without limitation, any legal and accounting fees, capital contributions or taxes. If the option described above is not exercised and paid for in full on or before June 30, 2021, it will expire and cease to have any further effect. For certainty, Dowa has the absolute right to any dividends declared or paid on its interest in the LGJV and in the event that SSMRC exercises its option to buy the 18.521% interest described above, any dividends received by Dowa on such interest will not be deducted from price payable by SSMRC to acquire such interest. If SSMRC does not exercise its option and pay the option price on or before June 30, 2021, then Dowa will have the right to sell all or any portion of such 18.521% equity interest to any third party other than a Restricted Person (as defined in the Partner Agreement) (which, for greater certainty, will be deemed not to include any Japanese mining, smelting or trading company, regardless of whether such company is considered to be a competitor of LGJV or any of the Parties or their affiliates) without further consent from any Party, subject only to compliance with Section 18.5 of the Partner Agreement.

 

2.7                               Reserve Accounts. Dowa will agree to amend the provisions of Section 5.12 of the Term Loan to allow funding of the Debt Service Reserve Account and the Operating Capital Reserve Cost Account over time from LGJV’s excess cash, provided that: (1) after repayment of the Working Capital Facility, all excess cash will be allocated to fund such reserve accounts until they are fully funded; and (2) no dividends or other distributions will be permitted until such reserve accounts are fully funded.

 

2.8                               Costs. SSMRC will bear, and reimburse Dowa for, all of the costs of implementing the transactions contemplated by this MOU, including any fees payable in connection with registration of security.

 

2.9                               Financial Monitoring. In addition to its right under the Partner Agreement to appoint three engineers to assist with the LGJV’s Operations (as defined in the Partner Agreement), until the Working Capital Facility is repaid in full and Dowa has received the Priority Distribution, Dowa will have the right to designate one individual to be seconded to the LGJV for the purpose of monitoring the LGJV’s financial situation including, without limitation, accounting, tax and cashflow. Such individual will have full access to all information relating to LGJV’s Operations at both the mine site and the Chihuahua office. All costs associated with such individual’s secondment to the LGJV will be borne by the LGJV.

 

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3.                                      CONDITIONS

 

3.1                               The transactions contemplated in this MOU and the rights and obligations of the Parties hereunder remain subject to: (1) approval of the transactions contemplated in this MOU by the boards of each of Dowa and SSMRC, in their sole discretion; (2) the completion of definitive agreements in form and substance acceptable to each of the Parties in their sole discretion which will include, without limitation, a Working Capital Facility loan agreement and related security documents, an option agreement, an amendment to the Term Loan and an escrow agreement; and (3) Dowa’s receipt of confirmation of registration of the security described in Section 2.4.2, above (together, the “Conditions”). If the Conditions are not satisfied or waived in writing on or before expiry of the Term, this MOU will terminate and cease to have any further effect, and Dowa will be free to exercise all rights and remedies available to it relating to the Partner Agreement, the Dowa MPR Loan and the Term Loan.

 

4.                                      ACKNOWLEDGEMENTS

 

4.1                               SSMRC and LGJV hereby acknowledge that after issuance of the Working Capital Facility, any future defaults on behalf of SSMRC or LGJV may invoke immediate enforcement by Dowa of its rights through all available remedies. In addition to any other rights and remedies available to Dowa, upon the occurrence of a default by LGJV or SSMRC that is not cured within the applicable cure period, Dowa may, by notice in writing to SSMRC: (1) permanently terminate SSMRC’s role as service provider under the Partner Agreement (including, without limitation, its right to receive management fees), and either take over the role of Operator or service provider to the Operator itself, or appoint a third party of its choosing to act as Operator or service provider; and (2) appoint a majority of the three Managers (as defined in the Partner Agreement) for each LGJV entity. If LGJV defaults under the Term Loan or the Working Capital Facility or if SSMRC defaults in its obligation to pay the arrangement fee, SSMRC will be deemed to be a “Defaulting Partner” under the Partner Agreement while such default remains uncured. SSMRC will remain liable for any acts or omissions in its capacity as Operator up to the time of such termination. SSMRC expressly acknowledges that the transactions contemplated by this MOU constitute the last instance of Dowa agreeing to provide financial support to the LGJV that is disproportionate to its proportionate ownership interest in the LGJV.

 

5.                                      ASSIGNMENT

 

5.1                               No Party may assign this MOU without the prior written consent of each of the other Parties. This MOU will enure to the benefit of and is binding upon the Parties and their respective successors and permitted assigns.

 

6.                                      AMENDMENTS

 

6.1                               This MOU may not be amended, except pursuant to an instrument in writing signed by each of the Parties.

 

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7.                                      GOVERNING LAW

 

7.1                               This MOU is entered into under the laws of the State of New York and the rights of all Parties and the construction and effect of each and every provision hereof will be subject to the exclusive jurisdiction and be construed and regulated only according to the laws of the State of New York (which will be the forum for the administration hereof) notwithstanding that any one or more of the Parties is incorporated or headquartered elsewhere than in the State of New York.

 

8.                                      TERM

 

8.1                               This MOU will terminate on the earlier of: (1) satisfaction or waiver of the Conditions; and (2) May 31, 2019 (the “Term”).

 

9.                                      MISCELLANEOUS

 

9.1                               This MOU may be executed in one or more counterparts, and by the Parties in separate counterparts, each of which when executed will be deemed to be an original, but all of which taken together will constitute one and the same instrument. Delivery of an executed counterpart of a signature page to this MOU by telecopy or electronic scan will be effective as delivery of a manually executed counterpart of this MOU.

 

9.2                               This MOU constitutes the entire agreement among the Parties pertaining to the subject matter hereof and supersedes and replaces any prior understandings or arrangements. There are no warranties, conditions or representations (including any that may be implied by statute) and there are no agreements in connection with such subject matter except as expressly set forth or referred to herein. This MOU may not be amended except pursuant to an instrument in writing signed by all Parties.

 

9.3                               If any provision of this MOU is invalid or unenforceable, the invalidity or unenforceability of the provision will not affect the operation, construction or interpretation of any other provision of this MOU, with the intent that the invalid or unenforceable provision will be treated for all purposes as severed from this MOU.

 

9.4                               Each Party will do, execute and deliver all such further acts, documents and things in this MOU required to give effect to the transactions contemplated herein.

 

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IN WITNESS WHEREOF, the Parties have agreed to this MOU on the date first noted above.

 

	
 
    	
MINERA   PLATA REAL S. DE R.L. DE C.V.
    
	
 
    	
 
    
	
 
    	
By:
    	
/s/ Roger Johnson
    
	
 
    	
 
    	
Name: 
    	
Roger Johnson
    
	
 
    	
 
    	
Title: 
    	
Treasurer
    
	
 
    	
 
    
	
 
    	
OPERACIONES   SAN JOSE DE PLATA, S. DE R.L. DE C.V.
    
	
 
    	
 
    
	
 
    	
By:
    	
/s/ Roger Johnson
    
	
 
    	
 
    	
Name: 
    	
Roger Johnson
    
	
 
    	
 
    	
Title: 
    	
Treasurer
    
	
 
    	
 
    
	
 
    	
SERVICIOS   SAN JOSE DE PLATA, S. DE R.L. DE C.V.
    
	
 
    	
 
    
	
 
    	
By:
    	
/s/ Roger Johnson
    
	
 
    	
 
    	
Name: 
    	
Roger Johnson
    
	
 
    	
 
    	
Title: 
    	
Treasurer
    

 

 

	
 
    	
DOWA   METALS & MINING CO., LTD.
    
	
 
    	
 
    
	
 
    	
By:
    	
/s/ Toshiaki Suyama
    
	
 
    	
 
    	
Name: 
    	
Toshiaki Suyama
    
	
 
    	
 
    	
Title: 
    	
President
    

 

 

	
 
    	
SUNSHINE   SILVER MINING & REFINING CORPORATION
    
	
 
    	
 
    
	
 
    	
By:
    	
/s/ Stephen A. Orr
    
	
 
    	
 
    	
Name: 
    	
Stephen A. Orr
    
	
 
    	
 
    	
Title: 
    	
Executive   Chairman & CEO

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