GRYPHON GOLD CORP

Pursuant to the terms of the First Amendment Agreement, amounts drawn down from the Credit Facility were repayable in monthly payments beginning in December 2012 and ending in November 2014, with initial payments being approximately $50,000 per month and increasing to approximately $900,000 per month in March 2013 through to the end of the term in November 2014. The specific repayment mechanics applicable to any principal amount outstanding under the Credit Facility remained unchanged. The Company paid Waterton a non-refundable structuring fee of $105,000 upon receipt of the Facility Increase, and the Company and Waterton agreed to amend the terms of the existing Gold and Silver Supply Agreement to permit Waterton to purchase all of the Company’s production at a 3% discount to prevailing spot prices. The amended debt offering costs in connection with the Credit Facility totaled $705,649, of which $37,921 was charged to expense and the remaining $667,728 are being amortized over the life of the Credit Facility.

In connection with the Joint Venture with Waterton (see below), the Company, Borealis Mining Company LLC and Waterton entered into a third amendment to the Credit Facility (“Third Amendment” and together with the Credit Facility, as amended, “Amended Facility”), dated January 30, 2013. Under the Amended Facility, the principal balance of the loan thereunder was reduced to $6,650,000, and is being repaid in monthly installments, commencing on January 31, 2013, and ending on November 30, 2014. The Company may meet the monthly payment obligations under the Amended Facility by tendering payments in cash, gold or units of Borealis (see below). The reduction of the amount outstanding under the Amended Facility will reduce the Company’s monthly debt payments to Waterton from $1.4 million, by approximately $1.0 million, to $0.4 million.

In connection with the Sale, Borealis, the Company and Holdings entered into an Amended and Restated Limited Liability Company Agreement dated January 30, 2013 (“LLC Agreement”) that governs the operations of Borealis and the financial obligations of Holdings and the Company. The Company is responsible for the payment of (i) an initial $4 million capital contribution (the “Initial Capital Contribution”), and (ii) 40% of all future capital contributions, including 40% of a contemplated $4 million capital contribution (or $1.6 million) expected to be called by the board of managers for Borealis in February or March of 2013 (“Proposed Capital Contribution”). The Waterton Entities have indicated that they will advance up to $5.6 million to Borealis (consisting of the Initial Capital Contribution and the Proposed Capital Contribution) on behalf of the Company, with $3 million already having been advanced by the Waterton Entities to the Company, which will be repaid, with interest at escalating rates, within six months. Ongoing capital contributions will be determined by the board of managers of Borealis, and will be paid by both parties equal to their respective ownership interest in Borealis. If one party fails to meet a financial obligation, it will be subject to dilution in its ownership interest in Borealis. In addition, if the interest of the Company in Borealis is reduced to 10% or less, it will be converted into a net profit interest of 3.5% . The board of managers of Borealis will consist initially of three board members appointed by the Waterton Entities and two board members appointed by the Company.

Joint Venture with Waterton Global Value L.P.
On January 30, 2013, the Company converted Borealis Mining Company, a wholly owned subsidiary of the Company (“BMC”) from a Nevada corporation into a Nevada limited liability company (as converted, “Borealis”). Shortly thereafter, the Company entered into a Contribution Agreement (“Contribution Agreement”) with Waterton and Borealis Holdings LLC (“Holdings” and together with Waterton (“Waterton Entities”), a Nevada limited liability company and an affiliate of Waterton, dated January 30, 2013, whereby the Company assigned 6,000,000 units of Class A membership interest, or 60% of the equity ownership, of Borealis (the “Sale”) to Holdings in consideration for Waterton forgiving $17 million, or approximately two-thirds, of the total amount owed by the Company under the Credit Facility (prior to the Third Amendment). Accordingly, the Company classified the current portion of its long term debt to Waterton as non-current at December 31, 2012, as it will not be satisfied in a cash transaction. In connection with the Contribution Agreement, the Company provided standard representations and warranties to Waterton, as well as a right to indemnification for a breach of such representations and warranties.

Our ownership of Borealis Mining Company LLC may be reduced
Under the operating agreement (the “Operating Agreement”) governing the operation of Borealis Mining Company LLC (“Borealis”), our ownership in Borealis may be reduced if we fail to make any necessary capital contributions required by the Operating Agreement. In addition, under the Operating Agreement, if we fail to make any necessary capital contributions required by the terms of the Operating Agreement and, after such event, (i) any person or group of persons acting together become the record or beneficial owner(s) of more than 50% of our then outstanding voting equity interests (measured by voting power rather than the number of shares); or (ii) our current directors do not constitute a majority of our Board of Directors, or our current directors and those appointed by our current directors do not constitute a majority of our Board of Directors, our ownership in Borealis may be reduced. Any reduction in our ownership of Borealis will result in a reduction of our assets, will likely result in a reduction in shareholders’ equity and in decreased revenue and income and, as a result, a decrease in our profits and share price.