SECURITIES
AND EXCHANGE COMMISSION
Washington,
D.C. 20549
FORM
8-K
CURRENT
REPORT
Pursuant
to Section 13 or 15(d) of the Securities Exchange Act of 1934
Date of
Report (Date of earliest event reported): October 20, 2010
COMSTOCK
MINING INC.
(Exact
Name of Registrant as Specified in its Charter)
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Nevada
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000-32429
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65-0955118
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(State
or Other
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(Commission
File Number)
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(I.R.S.
Employer
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Jurisdiction
of Incorporation)
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Identification
Number)
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1200
American Flat Road, Virginia City, Nevada 89440
(Address
of Principal Executive Offices, including Zip Code)
Registrant’s
Telephone Number, including Area Code: 775-847-5272
Not
Applicable
(Former
Name or Former Address, if Changed Since Last Report)
Check the
appropriate box below if the Form 8-K filing is intended to simultaneously
satisfy the filing obligation of the registrant under any of the following
provisions:
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¨
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Written
communications pursuant to Rule 425 under the Securities Act (17 CFR
230.425)
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¨
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Soliciting
material pursuant to Rule 14a-12 under the Exchange Act (17 CFR
240.14a-12)
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¨
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Pre-commencement
communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR
240.14d-2(b))
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¨
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Pre-commencement
communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR
240.13e-4(c))
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Item
1.01 Entry into a Material Definitive Agreement.
On
October 21, 2010, Comstock Mining Inc. (the “Company”) announced the successful
completion of three principal features of its previously announced restructuring
and recapitalization plan. The completed features of the plan include (i)
raising $35.75 million of new equity, (ii) exchanging all of the Company’s
previously defaulted senior secured debt and related obligations for new equity
and (iii) securing integral land mineral rights. The Board approved the
strategic plan in April 2010 designed to restructure and recapitalize the
Company, accelerate mine development and production and continue
exploration. The principal features of the plan encompassed a
recapitalization and balance sheet restructuring (which included a reverse stock
split, a debt-for-equity exchange, a land-for-debt exchange and a new capital
raise to fund gold mine operations, exploration and development) and an
operational and management restructuring. The goal of the plan is to
deliver stockholder value by commencing commercial mining and processing
operations by 2011, respectively, with annual production rates of 20,000 gold
equivalent ounces and by validating qualified resources (at least measured and
indicated) and reserves (probable and proven) of 3,250,000 gold equivalent
ounces by 2013.
Debt
for Equity Exchange and New Equity Raise of $35.75 million
The
Company exchanged substantially all of its senior secured convertible and senior
indebtedness for shares of its newly created Series A-1 Preferred Convertible
Stock (“Series A-1”) and Series A-2 Preferred Convertible Stock (“Series A-2,”
and together with Series A-1, the “Series A”) pursuant to a Securities Purchase
Agreement dated as of August 31, 2010 (the “Series A Purchase Agreement”). Each
share of the Series A is convertible at the holder’s election into 1,536 shares
of common stock, therefore converting into common stock at a conversion price
per share of $0.6510. The common stock underlying the Series A is issuable at a
fixed conversion rate (subject to anti-dilution adjustments) currently equal to
45.1 million shares of common stock. The Company has approximately
20.5 million shares of common stock outstanding.
The notes
and related interest exchanged for equity are as follows:
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Debt Exchanged for Series A Preferred Convertible Stock
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At August 31, 2010
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Note Descriptions
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Principal
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Unpaid
Interest
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Total
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15%
Convertible Notes Payable - Investors
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$ |
1,078,157 |
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$ |
264,131 |
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$ |
1,342,288 |
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18%
Convertible Debentures Payable - Mandatory Redemption
Payment
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4,412,058 |
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1,505,343 |
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5,917,401 |
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18%
Convertible Notes Payable - 2006 – 2007
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2,170,000 |
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1,498,063 |
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3.668,063 |
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11%
Convertible Notes Payable - June - November 2008
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2,500,000 |
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643,457 |
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3,143,457 |
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11%
Convertible Note Payable - July 2008 Amended and Restated
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2,782,563 |
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204,776 |
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2,987,339 |
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11%
Convertible Notes Payable - December 2008
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500,000 |
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108,803 |
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608,803 |
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9%
Convertible Notes Payable - May - August 2009
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1,000,000 |
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112,300 |
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1,112,300 |
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8%
Convertible Notes Payable - December 2009
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4,500,000 |
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165,135 |
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4,665,135 |
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8%
Convertible Notes Payable - June 2010
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1,100,000 |
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16,558 |
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1,116,558 |
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17%
Promissory Notes Payable - July 2005
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1,200,000 |
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1,631,552 |
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2,831,552 |
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18%
Promissory Notes Payable - December 2007 Financing
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600,000 |
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251,154 |
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851,154 |
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18%
Promissory Notes Payable - January 2008 Financing
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600,000 |
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236,071 |
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836,071 |
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5%
Debt Seller Note (Plum Mine)
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250,000 |
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64,584 |
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314,584 |
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Total
at August 31, 2010
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$ |
22,692,778 |
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$ |
6,701927 |
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$ |
29,394,705 |
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The
Company also raised $35.75 million in gross proceeds ($32 million, net of
commissions and transaction related expenses) by issuing newly created Series B
Preferred Convertible Stock (“Series B,” and together with the Series A, the
“Preferred”) pursuant to a Securities Purchase Agreement dated as of October 20,
2010 (the “Series B Purchase Agreement”). Each share of the Series B is
convertible at the holder’s election into 606.0606 shares of common stock,
therefore converting into common stock at a conversion price per share of
$1.6500. The common stock underlying the Series B is issuable at a fixed
conversion rate (subject to anti-dilution adjustments) currently equal to 21.7
million shares of common stock.
The net
proceeds the Company received from the sale of the Series B Preferred Stock was
approximately $32.75 million after deducting commissions and the estimated
expenses of the offering payable by the Company. The Company intends
to use the net proceeds to meet its initial capital and operating needs for the
first three years of its strategic plan to accelerate mine development and
production and continue exploration. This includes approximately $8
million of capital expenditures associated with its leach pad expansion, new
crushing unit and lab refurbishment and rolling stock, approximately $19 million
for mine development, exploration and production start up costs and
approximately $4 million for land acquisitions. The remaining $1.75
million is reserved for general corporate purposes, including remaining
feasibility studies.
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US$
(in millions)
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Capital
Required for Production:
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Mobile
Mine Equipment
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$ |
2.50 |
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Leach
Pad Expansion
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2.50 |
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Crushing
Plant & Lab Refurbishment
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3.00 |
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Exploration
and Start Up:
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Exploration
& Mine Development
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15.00 |
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Production
Start up
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4.00 |
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General
Corporate Purposes/Feasibility
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1.75 |
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Land
Acquisition
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4.00 |
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Transaction
Fees and Related Expenses
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3.00 |
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Total:
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$ |
35.75 |
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Pending
the use of the proceeds described above, the Company may invest all or a portion
of the proceeds of the offering in short-term deposits, including banker
acceptances and short- term, high quality, interest bearing corporate,
government-issued or government-guaranteed securities.
Each
share of the Preferred has a stated value of $1,000 per share (the “Stated
Value”) and a liquidation and change of control preference equal to the Stated
Value plus accrued and unpaid dividends. Each share of Series A-2 and
Series B will automatically convert into shares of common stock at the
conversion rates and prices then in effect any time after which the common stock
is listed on an exchange and the volume weighted average price for each of any
20 trading days during any 30 consecutive trading day period exceeds $4.50 per
share (as adjusted for stock splits and similar transactions). In the event that
the Series A-2 and Series B is automatically converted, the holders of the
Preferred will be entitled to a payment equal to the then net present value of
future dividend payments such holders would have received up until the third
anniversary of the issuance of such securities.
The
Preferred is senior to all other classes of equity of the Company in the event
of the liquidation or change of control of the Company and, commencing January
1, 2011, is entitled to semi-annual dividends at a rate of 7.5% per annum,
payable in cash, common stock, preferred stock or any combination of the
foregoing. The Preferred also contain provisions providing weighted average
anti-dilution protection.
Each
share of Preferred will entitle the holder to vote with the holders of common
stock as a single class on all matters submitted to the vote of the common stock
(on an as-converted basis); provided, that, for purposes of voting only, each
share of Series A-1 held by Mr. John V. Winfield or his affiliates (the
“Winfield Group”) shall be entitled to 5 times the number of votes per share of
common stock to which it would otherwise be entitled. As long as 25% or more of
the Preferred issued on or prior to October 20, 2010 is outstanding, the Company
will not be permitted (subject to limited exceptions) without the consent of the
Preferred, to incur indebtedness, grant liens, repurchase more than 5% of the
common stock outstanding, enter into any transaction with an affiliate of the
Company which is not on an arm’s length basis, enter into transactions with affiliates of officers or
directors that provide for the payment of services in securities of the
Company, amend its certificate of incorporation, by-laws, or a
certificate of designations of the Preferred in a manner that adversely affects
the interests of the Preferred, issue new series of preferred stock, pay
dividends on equity junior to the Preferred, adopt an executive equity incentive
plan which provides for the issuance of not greater than 6.0% of the fully
diluted equity of the Company, enter into any transaction for the sale or pledge
of a material asset of the Company, approve or consent to the initiation of a
bankruptcy proceeding or issue any securities of the Company in exchange for
services to a consultant. A majority of the Preferred is generally
required to provide consent; provided, that the Winfield Group must be part of
that majority so long as the Winfield Group holds 25% or more of the
Preferred.
In
addition, as long as at least 25% of the Preferred issued on or prior to October
20, 2010, is still outstanding, and as long as the Winfield Group still holds at
least 25% of the Preferred, the Company shall not, without the affirmative vote
of the Winfield Group, enter into any transaction for the acquisition of any
business, property or asset pursuant to which the Company will incur
indebtedness to finance such acquisition in principal amount in excess of
$500,000, pay any dividends to holders of Preferred in cash in an amount to
exceed $500,000, engage in a private placement or public offering of any common
stock or common stock equivalents of the Company, enter into a Change of Control
Transaction (as defined in each certificate of designation) or enter into any
transaction that would constitute a Fundamental Transaction (as defined in each
certificate of designation).
In
addition, as long as the Winfield Group holds 25% or more of the Preferred, (i)
Mr. Winfield will be a member of the Company’s board of directors and (ii) the
Winfield Group shall have the right, upon written request to the Company, to
nominate a member of the Company’s board of directors (“Board Nominee”) and the
Company shall take or cause to be taken all actions so that Mr. Winfield and the
Board Nominee are each nominated and recommended for re-election to the board.
The Board Nominee shall meet the requirements for an “independent director”
under the listing rules of the principal exchange or market on which the common
stock of the Company is then listed, satisfy the requirements set forth in the
Company’s Corporate Governance Guidelines and Nominating and Governance
Committee Charter as reasonably determined by the Nominating and Governance
Committee of the board, and not be prohibited from serving as a director of the
Company under Section 8 of the Clayton Antitrust Act or any other applicable
law. Alternatively, the Winfield Group can designate as the Board
Nominee a member of the board of directors existing on the date
hereof.
Holders
of the Preferred will have registration rights with respect to the shares of
common stock underlying the Preferred and also preemptive rights. The
Company will be obligated to file a registration statement or registration
statements with respect to common stock underlying the Preferred within 45 days
of filing its annual report on Form 10-K for the year ended December 31, 2010,
and cause such registration statement(s) to be declared effective within one
year from the date of issuance of the Preferred. The foregoing description of
the Preferred and the specific terms of the Preferred, the Series A Purchase
Agreement, the Series B Purchase Agreement and the registration rights is
qualified in its entirety by reference to the provisions of the Series A
Purchase Agreement, the Series B Purchase Agreement, the Series A-1 Certificate
of Designations, the Series A-2 Certificate of Designations, the Series B
Certificate of Designations, the Registration Rights Agreement pertaining to the
Series A and the Registration Rights Agreement pertaining to the Series B
attached to this report as Exhibits 10.1, 10.2, 4.1, 4.2, 4.3, 10.3 and 10.4,
respectively.
Joint
Operating Venture for Production and Exploration Rights of Integral Comstock
Properties
On
October 20, 2010, the Company also announced its entry into an operating
agreement to form an operating joint venture. Consistent with the
Company’s strategic plan, the Company will obtain the exclusive rights of
production and exploration over certain property owned by DWC Resources, Inc. in
Storey County, Nevada (the “DWC Property”) and two parcels leased by Mr.
Winfield from the Sutro Tunnel Company in Storey County, Nevada (the “Sutro
Property”) and Virginia City Ventures, Inc. (the “VCV
Property”). Pursuant to the terms of the Limited Liability Company
Operating Agreement (“Operating Agreement”) for Northern Comstock LLC (“Northern
Comstock”), a newly formed Nevada limited liability company, DWC Resources, Inc.
will contribute the DWC Property to Northern Comstock, Mr. Winfield will
contribute his rights to the Sutro Property and the VCV Property to Northern
Comstock and the Company will contribute 862.5 shares of Series A-1 and its
services in the area of mine exploration, development and production to Northern
Comstock. The terms of the Operating Agreement will provide that on each
anniversary of the Operating Agreement, up to and including the thirty-ninth
(39th) anniversary, the Company will make additional capital contributions in
the amount of $862,500.00, in the form of shares of Series A-1 or cash upon
request of Northern Comstock (which request can be denied by the Company in
certain circumstances). Under certain circumstances, the additional capital
contributions can be accelerated. The Company had previously entered
into letters of intent with respect to the DWC Property and Sutro Property on
August 13, 2008, the terms of which are expressly superseded by the Operating
Agreement. The Operating Agreement further provides the Company with the
exclusive rights of development, production, mining and exploration on the
respective properties and requires the Company to make certain capital
expenditures toward that end. Under the terms of the Operating Agreement (i) all
cash flows from the bullion or other minerals recovered from the ore mined out
of the ground but untreated and minerals produced from the milling or reduction
of ore to a higher grade produced from the DWC Property, Sutro Property or VCV
Property, as applicable, or finished products produced from any such property,
will be distributed to the Company after certain distributions to the other
members of Northern Comstock; (ii) an annual distribution of 500 and 362.5
shares of Series A-1 will be set aside for distribution to DWC Resources, Inc.
and Mr. Winfield, respectively, but such distribution will be retained by
Northern Comstock unless DWC Resources, Inc. and Mr. Winfield otherwise instruct
the Company to distribute the shares to them; and (iii) all other distributions
of cash or other property of Northern Comstock shall be permitted only with the
prior written consent of all members. The foregoing description of the Operating
Agreement, and the specific terms of the Operating Agreement, is qualified in
its entirety by reference to the provisions of Operating Agreement attached to
this report as Exhibit 10.5.
The
following table sets forth outstanding common shares of the Company as at
October 20, 2010, (i) on an actual basis, and (ii) on an as adjusted
basis giving effect to the issuance of the Series A Preferred and the Series B
Preferred:
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As of October 20, 2010
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Actual
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As Adjusted
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Common and Preferred Stock
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Common
Stock Outstanding on October 20, 2010
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20,484,456 |
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20,484,456 |
(1) |
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Series
A-1 Preferred Stock (on an as converted basis)
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32,122,883 |
(2) |
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Series
A-2 Preferred Stock (on an as converted basis)
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13,030,274 |
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Series
B Preferred Stock (on an as converted basis)
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21,666,666 |
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Total Shares
Outstanding (on an as converted basis)
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20,484,456 |
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87,304,279 |
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(1) Does
not include performance based management incentive program designed not to
exceed 6% of the fully diluted equity of the Corporation after taking into
account the recapitalization and balance sheet
restructuring. Includes 1,078,074 shares of common stock issued in
October upon the cashless exercise of warrants issued in 2006 and 2007 to
certain debt holders, 804,829 of which were issued to the Winfield
Group.
(2) Does
not include the issuance of shares of Series A-1 Preferred Stock potentially
issuable as capital contributions to Northern Comstock LLC in the amount of
862.5 shares of Series A-1 Preferred Stock (convertible into approximately 1.3
million shares of Common Stock) on an annual basis. Under the terms of the
Operating Agreement, if all required capital contributions were made in the form
of Series A-1 Preferred Stock, up to 34,500 shares of Series A-1 Preferred Stock
in the aggregate could be issued over the potential 40-year term of the
Operating Agreement. However, under the terms of the Operating
Agreement, such capital contributions could also take the form of cash on an
annual basis in the amount of $862,500.
A copy of
a press release announcing the debt-for-equity exchange, capital raise and land
acquisition is attached as Exhibit 99.1 to this Form 8-K.
Item
1.02 Termination of a Material Definitive Agreement.
The
information disclosed in Item 1.01 of this Form 8-K relating to the former
senior secured debt obligations of the Company is incorporated into this Item
1.02.
Item
2.01 Completion of Acquisition or Disposition of Assets.
The
information disclosed in Item 1.01 of this Form 8-K relating to the joint
operating venture is incorporated into this Item 2.01.
Item
2.03 Creation of a Direct Financial Obligation or an Obligation under an
Off-Balance Sheet Arrangement of a Registrant.
The
information disclosed in Item 1.01 of this Form 8-K relating to the joint
operating venture is incorporated into this Item 2.03.
Item
3.02 Unregistered Sales of Equity Securities.
The
information disclosed in Item 1.01 of this Form 8-K relating to the Preferred is
incorporated into this Item 3.02. The issuances were made in a
private placement in reliance upon exemptions from registration pursuant to
Sections 3(a)(9) and 4(2) of the Securities Act of 1933, as amended, and Rule
506 of Regulation D promulgated thereunder. Each recipient of the
Preferred is an accredited investor as defined in Rule 501 of Regulation
D.
Item 3.03 Material Modification to
Rights of Security Holders.
The
information disclosed in Item 1.01 of this Form 8-K relating to the Preferred is
incorporated into this Item 3.03.
Item
5.01 Changes in Control of Registrant.
The
information disclosed in Item 1.01 of this Form 8-K relating to the Series A-1
is incorporated into this Item 5.01. The total amount of consideration exchanged
by the Winfield Group for the Series A-1 was the approximately $20.9 million of
outstanding convertible indebtedness and the obligations related thereto,
previously held by the Winfield Group.
After
giving effect to the transactions described, Mr. Winfield and/or members of the
Winfield Group beneficially own approximately 75% of the voting securities of
the Company, directly or indirectly. Prior to the transactions
described above there was no controlling shareholder or group of the
Company.
Item
5.03 Amendments to Articles of Incorporation or Bylaws; Change in Fiscal
Year.
The
information disclosed in Item 1.01 of this Form 8-K relating to the Preferred is
incorporated into this Item 5.03.
Item
7.01 Regulation FD Disclosure.
The
information disclosed in Item 1.01 of this Form 8-K is incorporated into this
Item 7.01.
Item
9.01. Financial Statements and
Exhibits.
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4.1
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Series
A-1 Certificate of Designations
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4.2
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Series
A-2 Certificate of Designations
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4.3
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Series
B Certificate of Designations
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10.1
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Securities
Purchase Agreement dated as of August 31, 2010 (Series
A)
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10.2
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Securities
Purchase Agreement dated as of October 20, 2010 (Series
B)
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10.3
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Registration
Rights Agreement dated as of August 31, 2010 (Series
A)
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10.4
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Registration
Rights Agreement dated as of October 20, 2010 (Series
B)
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10.5
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Operating
Agreement dated as of October 20,
2010
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99.1
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Press
release dated October 21, 2010
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SIGNATURE
Pursuant
to the requirements of the Securities Exchange Act of 1934, as amended, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
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COMSTOCK
MINING INC.
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Date: October
20, 2010
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By:
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/s/ Corrado De Gasperis
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Corrado
De Gasperis
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EXHIBIT
INDEX
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Exhibit
Number
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Description
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4.1
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Series
A-1 Certificate of Designations
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4.2
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Series
A-2 Certificate of Designations
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4.3
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Series
B Certificate of Designations
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10.1
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Securities
Purchase Agreement dated as of August 31, 2010 (Series
A)
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10.2
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Securities
Purchase Agreement dated as of October 20, 2010 (Series
B)
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10.3
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Registration
Rights Agreement dated as of August 31, 2010 (Series A)
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10.4
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Registration
Rights Agreement dated as of October 20, 2010 (Series
B)
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10.5
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Operating
Agreement dated as of October 20, 2010
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99.1
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Press
release dated October 21,
2010
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