FORM OF PROMISSORY NOTE
$[4,475,000] August 6, 2020
For value received, Comstock Mining Inc., a Nevada corporation (the “Borrower”), promises to pay to the order of _________ (“Lender”), the principal amount of $[4,475,000] together with accrued and unpaid interest thereon, each due and payable on the date and in the manner set forth below. The principal amount includes $[255,000], which shall not be obligated to be funded to the Borrower by the Lender and shall be reduced ratably in case of principal prepayment, as described in detail below.
1.Repayment. The principal amount of this promissory note shall be payable in lawful money of the United States on or prior to September 20, 2021 (the “Maturity Date”). All payments shall be applied first to accrued interest, and thereafter to principal. The outstanding principal amount of the Note plus all unpaid accrued interest shall be due and payable on an Event of Default (as defined below). The Borrower, in its sole discretion, can elect to defer up to 34% of the principal due upon the Maturity Date to September 20, 2023 (the “Deferred Maturity Date”); provided that in addition to the cash payment by the Borrower to the Lender of 66% of the principal due upon the Maturity Date, the Borrower shall also issue the Lender a warrant (the “Warrant”) to purchase common shares of the Borrower registered for sale under the Securities Act of 1933, as amended (the “Borrower Shares”). The number Borrower Shares that may be purchased by the Lender pursuant to the Warrant shall be equal to (a) the dollar amount of the cash principal payment deferred to the Deferred Maturity Date, divided by (b) (i) the volume-weighted average closing price of the Borrower’s common stock on its primary trading market for the twenty (20) consecutive trading days preceding the date of issuance of the Warrant (the “20-Day VWAP”) multiplied by (ii) 0.90. The Warrant shall be exercisable for a period of two years commencing on the Maturity Date, shall not contain a cashless exercise feature and shall have an exercise price equal to the 20-Day VWAP. Notwithstanding anything to the contrary in this promissory note, the number of Borrower Shares issuable upon the exercise of the Warrant cannot exceed 19.99% of the outstanding common shares of the Borrower on the date hereof.
2.Interest. Borrower promises to pay simple interest on the outstanding principal amount hereof from the date hereof until payment in full, which interest shall be payable at the rate of 12% per annum. Interest shall be calculated on the basis of a 365-day year and number of days lapsed. Payment of accrued interest shall be due on the fifth (5th) Business Day (as defined below) of each month. “Business Day” means any day other than Saturday, Sunday or other day on which commercial banks in the State of Nevada are authorized or required by law to remain closed. If an Event of Default (as defined below) has occurred and is continuing, interest on this promissory note shall accrue at a rate of 17% per annum (the “Default Rate”) until such Event of Default is cured or this promissory note is paid in full.
3.Prepayment. Borrower may prepay the principal amount, or any portion thereof, in full or in part at any time without premium or penalty. Any such prepayment shall be accompanied by accrued and unpaid interest on the principal amount, or such portion thereof, prepaid to the date of such prepayment. If and to the extent that the Borrower completes the previously announced sale of certain non-mining related assets, then the Borrower shall be obligated to use at least 80% of the net cash proceeds of such sales to prepay this promissory note. The $[225,000] original purchase price discount (that is, the difference between the principal amount of $[4,475,000] and the amount of funding provided by the Lender to the Borrower hereunder of $[4,220,000], will be adjusted pro-rata upon triggering any prepayments contemplated by this Section 3. For example, if funding of this promissory occurred on August 15, 2020 (that is 400 days prior to the Maturity Date of September 20, 2021) and a prepayment contemplated by this Section 3 occurred on December 31, 2020 (that is, after 137 days), then 66.75% (or 263/400 days) of discount would be forfeited by the Lender and no longer payable by the Borrower based on that pro-rated number of days remaining to the Maturity Date.
4.Covenants. Until this promissory note is repaid, the Borrower shall not, and shall not permit any of its subsidiaries to, create, incur, assume or suffer to exist any lien on its Silver Springs properties (that is, the 98 acres and senior water rights owned by Comstock Industrial LLC, and the 160 acres owned by Downtown Silver Springs LLC. Until this promissory note is repaid, the Borrower shall not incur any debt that (a) is senior of payment to this promissory note or (b) that matures prior to the Maturity Date.
5.Default. If there shall be any Event of Default hereunder, at the option and upon the declaration of the Lender and upon written notice to the Borrower (which election and notice shall not be required in the case of an Event of Default under Section 5(b) or 5(c)), this promissory note shall accelerate and all principal and unpaid accrued interest shall become due and payable. The occurrence of any one or more of the following shall constitute an “Event of Default”:
(a)Borrower fails to pay timely any principal amount or unpaid accrued interest on the date the same becomes due and payable;
(b)The Borrower files any petition or action for relief under any bankruptcy, reorganization, insolvency or moratorium law or any other law for the relief of, or relating to, debtors, now or hereafter in effect, or makes any assignment for the benefit of creditors or takes any corporate action in furtherance of any of the foregoing; or
(c)An involuntary petition is filed against the Borrower (unless such petition is dismissed or discharged within 60 days under any bankruptcy statute now or hereafter in effect, or a custodian, receiver, trustee, assignee for the benefit of creditors (or other similar official) is appointed to take possession, custody or control of any property of the Borrower.
6.Non-Negotiable Instrument. This obligation is not transferrable or negotiable except in accordance with the provisions of this section and is registered as to both principal and interest. Transfer of the obligation may be accomplished only by surrender of this promissory note and either the reissuance by the issuer of the promissory note or the issuance by the issuer of
a new instrument to the new holder. This promissory note is intended to be treated as an obligation in registered form as defined in the Treasury Regulations Section 1.871-14(c)(1)(i)(A). Accordingly, this promissory note is not negotiable by endorsement of the holder or any assignee of the holder. Prior to due presentment of this promissory note for transfer, the Borrower shall treat the Lender as the owner of such promissory note for the purpose of receiving payment of principal of and interest on the promissory note and for all other purposes whatsoever, whether or not the principal or interest of this promissory note is due (unless the Lender assigns or transfers this promissory note). Upon due presentment for transfer of this promissory note, the Borrower and the Lender shall execute and deliver in the name of the transferee or transferees a new promissory note for an aggregate principal amount equal to the total amount of principal and accrued but unpaid interest due to the Lender at the time of transfer. Any United States person who holds this obligation will be subject to limitations under the United States income tax laws, including the limitations provided in Sections 165(j) and 1287(a) of the United States Internal Revenue Code.
7.Waiver. The Borrower hereby waives demand, notice, presentment, protest and notice of dishonor.
8.Notice. Any notices or communications to be given hereunder shall be in writing and may be delivered by hand, by facsimile, by nationally recognized private courier, or by United States mail. Notices delivered by mail shall be deemed given three business days after being deposited in the United States mail, postage prepaid, registered or certified mail, return receipt requested. Notices delivered by hand, by facsimile or by nationally recognized private carrier shall be deemed given on the first business day following receipt; provided, however, that a notice delivered by facsimile shall only be effective if such notice is also delivered by hand, or deposited in the United States mail, postage prepaid, registered or certified mail, return receipt requested, on or before two business days after its delivery by facsimile. All notices to the Borrower shall be addressed as set forth under such party’s signature below.
9.Governing Law. This promissory note shall be governed by and construed under the laws of the State of Nevada (without giving effect to principles of conflicts of law).
10.Modification; Waiver. Any provision of this promissory note may be amended, waived or modified only upon the written consent of the Borrower and the Lender.
IN WITNESS WHEREOF, the undersigned has executed this promissory note on and as of the date first set forth above.
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Comstock Mining Inc.
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By:_/s/Corrado DeGasperis____
Name: Corrado DeGasperis
Title: Executive Chairman and CEO
Address: 117 American Flat Road
P.O. Box 1118
Virginia City, Nevada 89440
degasperis@comstockmining.com
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Comstock Mining Extinguishes Senior Secured Debenture Via Favorable Refinancing
Virginia City, NV (August 12, 2020) Comstock Mining Inc. (the “Company”) (NYSE American: LODE) announced today it completely paid off, yesterday, its remaining $4 million Senior Secured Debenture from a combination of recent cash proceeds from Tonogold and new, unsecured promissory notes, with favorable terms.
The Company entered into three promissory notes (the “Promissory Notes”) that refinanced its existing, secured indebtedness, on more favorable terms, through a known group of existing LODE investors. The Promissory Notes are unsecured and have an aggregate principal amount of $4,475,000 (net of an original discount of $255,000), and a maturity date of September 20, 2021, with no prepayment penalties, and a portion of which that can be extended for an additional two years. The Promissory Notes were designed to mirror the amount still receivable from Tonogold, including the maturity date of September 20, 2021, and the 12% interest rate payable monthly.
The Promissory Notes also permit other indebtedness but contain covenants that prohibit the Company from incurring debt that matures prior to September 20, 2021, or that is senior in right of their payment. The Company must also prepay the Promissory Notes, without penalty, with at least 80% of the net cash proceeds received by the Company with respect to the sale of the Company’s non-mining assets in Silver Springs, NV.
The Company recently received $0.9 million in two payments from Tonogold, one in late June and one in early August, that was otherwise maturing on October 15, 2020. These payments reduced the remaining amounts due to Comstock from Tonogold to $4,475,000, and when coupled with the $4,220,000 of net proceeds from the Promissory Notes, enabled the full, early extinguishment of the Senior Secured Debenture due later this year.
Mr. Corrado DeGasperis, Executive Chairman and CEO stated, “This represents a major milestone by eliminating the overhang created by the Senior Secured Debenture, releasing all of our assets from restrictive security encumbrances and covenants and positions us to fully consummate the 100% sale of Lucerne, by allowing the perfecting of the security interest on that now unsecured asset. We are also focused on closing the sale of our $10 million plus non-mining assets in Silver Springs, NV, and funding our growth with more flexibility and speed.”
Mr. George Melas, Concorde and Bean Trustee said, “We are pleased to provide flexible financing to Comstock Mining Inc. that enables and facilitates the company’s meaningful, precious-metal based growth initiatives and accelerates the creation and delivery of sustained value for all of its stakeholders.”
The Company is also permitted to defer payment of up to 34% of the principal payment due on the maturity date for an additional two years (i.e., until September 20, 2023), solely at its option, in exchange for two year warrants to purchase the Company’s stock based on a 10% discount to a then VWAP of the Company’s common stock.
Mr. DeGasperis concluded, “The debt reductions, maturity extensions and releases of restrictive security and covenants, coupled with the ability to accelerate and consummate the Lucerne sale, positions us to focus on exploration, development, mercury remediation and the sale of the remaining non-mining assets, all of which unlock and/or create sustained value for our shareholders. We are pleased to conclude these transactions and advancing growth.”
About Comstock Mining Inc.
Comstock Mining Inc. is a Nevada-based, gold and silver mining company with extensive, contiguous property in the Comstock District and is an emerging leader in sustainable, responsible mining that is currently commercializing environment-enhancing, precious-metal-based technologies, products and processes for precious metal recovery. The Company began acquiring properties in the Comstock District in 2003. Since then, the Company has consolidated a significant portion of the Comstock District, amassed the single largest known repository of historical and current geological data on the Comstock region, secured permits, built an infrastructure and completed its first phase of production. The Company continues evaluating and acquiring properties inside and outside the district expanding its footprint and exploring all of our existing and prospective opportunities for further exploration, development and mining. The Company’s goal is to grow per-share value by commercializing environment-enhancing, precious-metal-based products and processes that generate predictable cash flow (throughput) and increase the long-term enterprise value of our northern Nevada based platform.
Forward-Looking Statements
This press release and any related calls or discussions may include forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. All statements, other than statements of historical facts, are forward-looking statements. The words “believe,” “expect,” “anticipate,” “estimate,” “project,” “plan,” “should,” “intend,” “may,” “will,” “would,” “potential” and similar expressions identify forward-looking statements, but are not the exclusive means of doing so. Forward-looking statements include statements about matters such as: consummation of all pending transactions; project, asset or Company valuations; future industry market conditions; future explorations, acquisitions, investments and asset sales; future performance of and closings under various agreements; future changes in our exploration activities; future estimated mineral resources; future prices and sales of, and demand for, our products; future impacts of land entitlements and uses; future permitting activities and needs therefor; future production capacity and operations; future operating and overhead costs; future capital expenditures and their impact on us; future impacts of operational and management changes (including changes in the board of directors); future changes in business strategies, planning and tactics and impacts of recent or future changes; future employment and contributions of personnel, including consultants; future land sales, investments, acquisitions, joint ventures, strategic alliances, business combinations, operational, tax, financial and restructuring initiatives; the nature and timing of and accounting for restructuring charges and derivative liabilities and the impact thereof; contingencies; future environmental compliance and changes in the regulatory environment; future offerings of equity or debt securities; the possible redemption of debentures and associated costs; future working capital, costs, revenues, business opportunities, debt levels, cash flows, margins, earnings and growth.
These statements are based on assumptions and assessments made by our management in light of their experience and their perception of historical and current trends, current conditions, possible future developments and other factors they believe to be appropriate. Forward-looking statements are not guarantees, representations or warranties and are subject to risks and uncertainties, many of which are unforeseeable and beyond our control and could cause actual results, developments and business decisions to differ materially from those contemplated by such forward-looking statements. Some of those risks and uncertainties include the risk factors set forth in our filings with the SEC and the following: counterparty risks; capital markets’ valuation and pricing risks; adverse effects of climate changes or natural disasters; global economic and capital market uncertainties; the speculative nature of gold or mineral exploration, including risks of diminishing quantities or grades of qualified resources; operational or technical difficulties in connection with exploration or mining activities; contests over title to properties; potential dilution to our stockholders from our stock issuances and recapitalization and balance sheet restructuring activities; potential inability to comply with applicable government regulations or law; adoption of or changes in legislation or regulations adversely affecting businesses; permitting constraints or delays; decisions regarding business opportunities that may be presented to, or pursued by, us or others; the impact of, or the non-performance by parties under agreements relating to, acquisitions, joint ventures, strategic alliances, business combinations, asset sales, leases, options and investments to which we may be party; changes in the United States or other monetary or fiscal
policies or regulations; interruptions in production capabilities due to capital constraints; equipment failures; fluctuation of prices for gold or certain other commodities (such as silver, zinc, cyanide, water, diesel fuel and electricity); changes in generally accepted accounting principles; adverse effects of terrorism and geopolitical events; potential inability to implement business strategies; potential inability to grow revenues; potential inability to attract and retain key personnel; interruptions in delivery of critical supplies, equipment and raw materials due to credit or other limitations imposed by vendors or others; assertion of claims, lawsuits and proceedings; potential inability to satisfy debt and lease obligations; potential inability to maintain an effective system of internal controls over financial reporting; potential inability or failure to timely file periodic reports with the SEC; potential inability to list our securities on any securities exchange or market; inability to maintain the listing of our securities; and work stoppages or other labor difficulties. Occurrence of such events or circumstances could have a material adverse effect on our business, financial condition, results of operations or cash flows or the market price of our securities. All subsequent written and oral forward-looking statements by or attributable to us or persons acting on our behalf are expressly qualified in their entirety by these factors. Except as may be required by securities or other law, we undertake no obligation to publicly update or revise any forward-looking statements, whether as a result of new information, future events, or otherwise.
Neither this press release nor any related calls or discussions constitutes an offer to sell, the solicitation of an offer to buy or a recommendation with respect to any securities of the Company, the fund or any other issuer.
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Contact information:
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Comstock Mining Inc.
P.O. Box 1118
Virginia City, NV 89440
ComstockMining.com
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Corrado DeGasperis
Executive Chairman & CEO
Tel (775) 847-4755
degasperis@comstockmining.com
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Zach Spencer
Director of External Relations
Tel (775) 847-5272 Ext.151
questions@comstockmining.com
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