FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the Quarterly Period Ended September 30, 1997
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the transition period from ----- to -----.
GOLDEN PHOENIX MINERALS, INC.
(Exact Name of Registrant as specified in its charter)
Minnesota 41-1878178
(State or other jurisdiction (I.R.S. Employer
of incorporation or organization) Identification Number)
3595 Airway Dr. Suite 405 Reno, Nevada 89511
(Address of Principal Executive Offices) (Zip Code)
(702) 853-4919
Registrant's telephone number, including area code:
Indicate by check mark whether the Registrant
(1) has filed all reports required to be filed by Section 13 or 15(d)
of the Securities Exchange Act of 1934 during the preceding 12months
(or for such shorter period that the Registrant was required to file
such reports), and
(2) has been subject to such filing requirements for the past 90 days.
Yes __X__ No _____
The number of shares outstanding of the Registrant's
Common Stock as of September 30, 1997 was 12,988,000
Transitional Small Business Disclosure Format (check one):
Yes _____ No _____
<PAGE>
GOLDEN PHOENIX MINERALS, INC.INDEX
Page
Number
------
PART I Financial Information
Item 1 Financial Statements
Condensed Balance Sheet as of September 30, 1997. 3
Condensed Statement of Loss and Operating Deficit
for the Three Months Ended September 30, 1997. 4
Condensed Statement of Cash Flows for the Three Months Ended
September 30, 1997. 5
Notes to Condensed Financial Statements. 7
Item 2 Management's Discussion and Analysis of Financial Condition and
Results of Operations 8
PART II Other Information
Item 6 Exhibits and Reports on Form 8-K 9
SIGNATURE 10
<PAGE>
GOLDEN PHOENIX MINERALS, INC.
(A Development Stage Company)
CONDENSED BALANCE SHEET
(Unaudited)
Three Months Ended September 30, 1997
ASSETS
Current Assets
Cash and Cash Equivalents $ 81,289
Investments 1,600,000
Prepaid Expenses 8,940
-----------
Total Current Assets 1,690,229
-----------
Deferred Exploration Cost 22,777
-----------
Other Assets
Refundable Deposits 2,500
-----------
Property and Equipment
Mining Properties and
Claims 250,000
Equipment and Furniture 13,202
-----------
263,202
Less Accumulated Depreciation 996
-----------
Total Property and Equipment 262,206
-----------
1,977,712
===========
Liabilities and Stockholders' Equity
Current Liabilities
Accounts Payable 87,286
Accrued Liabilities 1,221
Current Portion of Long Term Debt 250,000
-----------
Total Current Liabilities 338,507
-----------
Long Term Debt, Net of Current Portion 1,000,000
-----------
-----------
Due Shareholders 337,000
-----------
Stockholders' Equity
Common Stock 790,000
Deficit Accumulated During
Development Stage (487,795)
-----------
Total Stockholders' Equity 302,205
-----------
$ 1,977,712
===========
The Accompanying Notes to Condensed Financial
Statements are an integral part of these statements
<PAGE>
GOLDEN PHOENIX MINERALS, INC.
(A Development Stage Company)
CONDENSED STATEMENT OF LOSS AND OPERATING DEFICIT
(Unaudited)
Three Months Ended September 30, 1997
Revenues $ --
Operating Costs and
Expenses
General and Administrative 206,347
Exploration 281,531
------------
(Loss) From Operations (487,878)
Other Income
Interest 83
------------
Net Loss Before Provision
For Income Taxes (487,795)
Provision For Income Taxes $ --
------------
Net Loss / Operating Deficit (487,795)
============
Net Loss Per Share
(Primary and Fully Diluted): $ (0.03)
------------
Weighted Average
Common Shares Outstanding
(primary and fully diluted): 16,802,348
============
The Accompanying Notes to Condensed Financial
Statements are an integral part of these statements
<PAGE>
GOLDEN PHOENIX MINERALS, INC.
(A Development Stage Company)
CONDENSED STATEMENT OF CASH FLOWS
(Unaudited)
Three Months Ended September 30, 1997
Cash Flows From Operating Activities
Net Loss $ (487,795)
Adjustments to Reconcile Net Loss
To Cash Provided by Operating Activities
Depreciation 996
(Increase) in Investments (1,600,000)
(Increase) in Prepaid Expenses (8,940)
(Increase) in Deposits (2,500)
Increase in Accounts Payable 87,286
Increase in Accrued Liabilities 1,221
-----------
Net Cash (Used) by
Operating Activities (2,009,732)
-----------
Cash Flows From Investing Activities
Purchase of Mining Properties
And Claims 250,000
Purchases of Equipment and Furniture 13,202
Increase in Deferred Exploration Costs 22,777
-----------
Net Cash (Used) by
Investing Activities (285,979)
-----------
Cash Flows from Financing Activities
Proceeds From Issuance of Debt 1,937,000
Payment of Debt (350,000)
Proceeds from Issuance of Stock 790,000
-----------
Net Cash Provided by
Investing Activities 2,377,000
-----------
Net Increase in Cash
And Equivalents 81,289
Cash and Equivalents, Begging of Period --
Cash and Equivalents, End of Period $ 81,289
===========
The Accompanying Notes to Condensed Financial
Statements are an integral part of these statements
<PAGE>
GOLDEN PHOENIX MINERALS, INC.
(A Development Stage Company)
CONDENSED STATEMENT OF CASH FLOWS
(Unaudited)
Three Months Ended September 30, 1997
Supplemental Disclosure of Cash Flow Information
Cash Paid during the Period
For Interest, Net of Amount
Capitalized $ -
Cash Paid During the Period
For Income Taxes $ -
The Accompanying Notes to Condensed Financial
Statements are an integral part of these statements
<PAGE>
GOLDEN PHOENIX MINERALS, INC.
NOTES TO CONDENSED FINANCIAL STATEMENTS
(Unaudited)
Note 1. Interim Financial Statement Policies and Disclosures
The interim, unaudited, condensed financial statements of GOLDEN
PHOENIX MINERALS, INC. (the "Company") included herein have been prepared
pursuant to the rules and regulations of the Securities and Exchange Commission.
Certain information and footnote disclosures normally required in financial
statements prepared in accordance with generally accepted accounting principles
have been condensed or omitted pursuant to such rules and regulations, although
the Company believes that the disclosures are adequate to make the information
presented not misleading.
In the opinion of management, all adjustments (consisting of normal recurring
accruals) considered necessary for a fair presentation have been included.
Operating results for the initial three months ending September 30, 1997 are not
necessarily indicative of the results that may be expected for the year ending
December 31, 1997.
Income Taxes
No provision for income taxes was required in 1997 because of the net operating
loss.
Net Income per Share
Net income per share is computed based on the weighted-average number of shares
of common stock and common stock equivalents, if dilutive, actually outstanding
during the period.
On a primary basis, net income per share is based on common stock equivalents
adjusted to reflect additional shares that would be outstanding (1) using the
treasury stock method assuming exercise of dilutive stock warrants and stock
options having exercise prices less than the average market price, and (2) using
the as-converted method for convertible debentures.
On a fully diluted basis, net income per share is based on common stock
equivalents adjusted to reflect additional shares that would be outstanding (1)
using the treasury stock method assuming exercise of dilutive stock warrants and
stock options having exercise prices less than the period end market price (when
greater than the average market price), and (2) using the as-converted method
for convertible debentures.
In February 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 128, "Earnings Per Share" ("SFAS No. 128")
which establishes a new accounting standard for the computation and reporting on
net income per share. SFAS No. 128 is effective for financial statements issued
for periods ending after December 15, 1997, and early adoption is prohibited.
The Company expects that there will be no material effect upon implementing SFAS
No. 128 on its net income per share computations.
Note 3 - Long-Term Debt
Long-term debt is summarized as follows:
September 30, 1997
Agreement to purchase J. D. Welsh 30% interest in joint venture
with Cambior Exploration USA, Inc. The Company's percentage of
ownership increases proportionate with each installment, and
no interest is charged. Scheduled Payments are as follows:
<PAGE>
Payment Date Payment Amount % Ownership
- ------------ -------------- -----------
July 22, 1997 $250,000 to Welsh
$100,000 to Cambior 25%
Jan. 1, 1998 $50,000 to Welsh
$100,000 to Cambior 30%
June 1, 1998 $100,000 to Welsh 35%
Jan. 1, 1999 $200,000 to Welsh 50%
June 1, 1999 $200,000 to Welsh 65%
Jan. 1, 2000 $300,000 to Welsh 80%
June 1, 2000 $300,000 to Welsh 100%
-------------------------
$1,600,00
Less Previous Payments $(350,000)
Less Current Portion $(250,000)
-------------------------
Total Long Term Debt $1,000,000
However, see "OUTLOOK" below, for the Company's right to issue shares of its
common stock in lieu of the above payments to J. D. Welsh & Associates.
Item 2: MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
Section 21E of the Securities Exchange Act of 1934 provides a "safe
harbor" for forward-looking statements. Certain information included herein
contains statements that are forward-looking, such as statements regarding
management's expectations about future production and development activities as
well as other capital spending, financing sources and the effects of regulation.
Such forward-looking information involves important risks and uncertainties that
could significantly affect anticipated results in the future and, accordingly,
such results may differ from those expressed in any forward-looking statements
made herein. These risks and uncertainties include, but are not limited to,
those relating to the market price of metals, production rates, production
costs, the availability of financing, the ability to obtain and maintain all of
the permits necessary to put and keep properties in production, development and
construction activities and dependence on existing management. The Company
cautions readers not to place undue reliance on any such forward-looking
statements, and such statements speak only as of the date made.
RESULTS OF OPERATIONS
No operational revenue has been generated in the first quarter of development.
All Company activities have been directed toward exploration activities and
acquisition of properties. The Company has exploration properties in Alaska,
Nevada and California.
The Company has entered into a joint venture agreement with Kennecott
Exploration, ("Kennecott") Inc. on its High Grade property located in Modoc
County, California. The agreement was signed on September 19, 1997 and gives the
Company the option to acquire a 100% interest in the property over a three year
period. The agreement calls for Golden Phoenix to spend $200,000 the first year,
$300,000 the second year, and $500,000 the last year for a total of $1,000,000
in exploration work commitments on the property. The Company will also pay
Kennecott $200,000 in cash or the equivalent hereof in the Company's stock to
complete the exercise of the option. Kennecott has reserved the right to buy
back a 51% interest in the property at the time of a positive feasibility study
for 150% of 51% of all exploration expenses at the time of such feasibility
study. If Kennecott chooses not to exercise the right to buy back into the
property, Kennecott will retain a 2% net smelter return royalty on the property.
The Company entered into an agreement on August 21, 1997 with J. D. Welsh &
Associates to purchase an interest in a mineral property, situated in Mineral
County, Nevada, known as the Borealis property ("Borealis Property"). The Welsh
interest in the Borealis property is presently a joint venture with Cambior
Exploration USA, Inc. ("Cambior"). The Company can purchase Welsh's interest in
Borealis over three years for a total of $1,600,000 in payments. The initial
payments to Welsh and Cambior secure 25% of Welsh's interest in Borealis or
approximately 8% of the joint venture. The Company will be carried through
positive mining feasibility by Cambior, the operator
<PAGE>
of the project. Cambior Exploration USA must spend $7,000,000 over seven years
to earn a 70% interest in the property.
The Company acquired on September 18, 1997 an option to purchase 100% of the
issued and outstanding stock of F. W. Lewis, Inc. and Mina Gold Mine, Inc.
(collectively "Lewis Companies") for an option payment of $250,000. The Lewis
Companies control in excess of 25,000 acres of mining properties consisting of
patented and unpatented mining claims, patented and unpatented mill sites, and
fee lands in Nevada, Colorado, and certain oil and gas interests in California.
These companies also own various pieces of mining equipment, and structures
located on the mineral properties in Nevada. The purchase price for the Lewis
Companies and all their real and personal property assets is $20,000,000. The
option to purchase expires on December 31, 1997. The company is actively seeking
funding for this acquisition and is also involved in negotiations with other
companies to share the cost of, and thereby acquire an interest in, the Lewis
Companies and their mining properties and other assets. The Company believes it
will be successful in raising the $20,000,000 purchase price. However, should
the Company and any joint venture partner be unable to raise the $20,000,000 in
funding to acquire those companies, the option to purchase will expire without
any value retained by the Company.
Exploration costs have been incurred in connection with the properties in
California, Alaska and Nevada. These costs have been incurred for the location
of prospect sites and mining claims, and field examinations to determine the
potential occurrence of economic mineralization on the different properties.
Other exploration costs include the compilation of historic data on the
properties to assist in the evaluation of the properties and the planning of
further exploration.
No provision for income taxes was recognized for the first quarter development
due to net operating losses accrued.
Interest income was of minimal amounts for the first quarter of development.
LIQUIDITY AND CAPITAL RESOURCES
As of September 30, 1997, the company had $1,351,722 in working capital. A
significant portion of the working capital is allocated to the joint venture
with Cambior Exploration USA, Inc., involving the Borealis Property. The total
Borealis Property interest acquisition cost is $1,600,000. An initial payment of
$350,000 was paid, the current portion of the debt owed on this investment is
$250,000 and the long term portion is $1,000,000, all of which would be due if
the investment were liquidated. The ability of the Company to satisfy the cash
requirements of its development and operations will be dependent upon future
financing. The Company anticipates that additional financing will be obtained,
although no assurance can be made that funds will be available on terms
acceptable to the Company. See "OUTLOOK" below.
INVESTING AND FINANCING ACTIVITIES
The Company is investigating potential financing sources and is in discussions
with potential joint venture partners to acquire the Lewis Companies, but the
Company has not yet finalized commitments for such financing or joint venturing.
No assurance can be given that the Company will obtain all of the financing to
purchase the Lewis Companies.
OUTLOOK
The Company will issue two hundred twenty five thousand (225,000) common shares
of Golden Phoenix Minerals, Inc. to J. D. Welsh & Associates in full
consideration of all future payments for the remaining 75% interest in the joint
venture with Cambior Exploration USA. The Company will remain obligated to pay
Cambior Exploration USA $100,000 on or before January 5, 1998. This transaction
will eliminate respectively, $150,000 and $1,000,000 of short and Long Term
Debt.
PART II OTHER INFORMATION
Item 6. EXHIBITS AND REPORTS ON FORM 8-K
<PAGE>
(a) Exhibits:
10.1 F. W. Lewis option agreement
27 Financial Data Schedule
(b) No reports were filed on Form 8-K during the three-month period ended
September 30, 1997.
SIGNATURE
---------
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
GOLDEN PHOENIX MINERALS, INC.
(Registrant)
October 21, 1997 BY: /s/ Michael R. Fitzsimonds
(Date) Michael R. Fitzsimonds
President
OPTION AGREEMENT
BETWEEN
SF LEWIS TRUST, A NEVADA TRUST
AND
GOLDEN PHOENIX MINERALS, INC.,
A MINNESOTA CORPORATION
<PAGE>
TABLE OF CONTENTS
Page
----
RECITALS...................................................................... 1
SECTION ONE - Option to Purchase Stock................................. 2
1.1 - Grant of Option.......................................... 2
1.2 - Option Payment........................................... 2
1.3 - Purchase Price........................................... 2
1.4 - Exercise of Option....................................... 2
SECTION TWO - Agreements Affecting Real Property....................... 3
2.1 - Existing Agreements...................................... 3
2.2 - Lease Revenues........................................... 4
2.3 - New Agreements........................................... 4
SECTION THREE - Warranties and Representations........................... 5
3.1 - Warranties and Representations as to Real Property....... 5
3.2 - Warranties and Representations as to Personal Property... 7
3.3 - No Warranties or Representations as to Value............. 9
3.4 - Environmental Liabilities................................10
3.5 - Liability and Insurance..................................11
SECTION FOUR - Miscellaneous Provisions.................................11
4.1 - Binding Effect...........................................11
4.2 - Applicable Law...........................................12
4.3 - Entire Agreement.........................................12
4.4 - Void or Invalid Provisions...............................12
4.5 - Time of the Essence......................................12
4.6 - No Partnership...........................................12
4.7 - Resolutions and Further Assurances.......................12
<PAGE>
EXHIBITS
A - Description of Real Property
B - Description of Personal Property
C - Hycroft Lease
D - Driscol Mine Agreement
E - Wonder Mine Agreement
<PAGE>
OPTION AGREEMENT
THIS OPTION AGREEMENT is made this ____ day of September, 1997 by and
between the SF LEWIS TRUST, a Nevada trust ("Lewis"); and GOLDEN PHOENIX
MINERALS, INC., a Minnesota corporation ("Golden Phoenix").
RECITALS
A. Lewis owns and possesses one hundred percent (100%) of the issued
shares of stock in F. W. Lewis, Inc., a Nevada corporation and Mina Gold Mine,
Inc., a Nevada corporation (referred to as the "Stock"). Lewis and its
subsidiary corporations are private companies, and none are listed or traded.
B. F. W. Lewis, Inc. and Mina Gold Mine, Inc. together own various
patented and unpatented mining claims situated in Nevada and Colorado and oil
and gas interests in California (the "Real Property"). The Real Property is more
particularly described on Exhibit A attached hereto.
C. F. W. Lewis, Inc. and Mina Gold Mine, Inc. also own various items of
mining equipment and structures situated on the Real Property, including ball
and rod mills, motors, crushers, dust collectors, tanks, drills, trailers,
trucks, and buildings (referred to collectively as the "Personal Property"). The
Personal Property will be inventoried by Golden Phoenix pursuant to Section 3.2
below, and the list prepared by Golden Phoenix (subject to Lewis' review and
approval) will become Exhibit B to this Agreement.
D. Golden Phoenix wishes to acquire the Stock (and thereby ownership of
the Real Property and Personal Property). Lewis is willing to grant Golden
Phoenix an exclusive and irrevocable option to purchase the Stock on the terms
and conditions set forth below.
THEREFORE, the parties have agreed as follows:
SECTION ONE
Option to Purchase Stock
<PAGE>
1.1 Grant of Option. Lewis grants to Golden Phoenix the exclusive and
irrevocable right and option to purchase the Stock (the "Option"). The Option
shall commence upon execution of this Agreement by both parties, and the Option
shall terminate at 11:59 p.m. PST on December 31, 1997.
1.2 Option Payment. Golden Phoenix shall pay Lewis the sum of TWO
HUNDRED FIFTY THOUSAND DOLLARS ($250,000.00) in cash upon execution of this
Agreement.
1.3 Purchase Price. The purchase price for the Stock shall be TWENTY
MILLION DOLLARS ($20,000,000.00). The option payment described in Section 1.2
above shall not be applied to the purchase price.
1.4 Exercise of Option. At any time during the term of this Agreement,
Golden Phoenix may give written notice to Lewis of its intent to exercise the
Option and purchase the Stock. Following delivery of the notice to Lewis, the
parties shall open an escrow with Richard W. Harris, Esq. of Reno, Nevada or
another mutually-agreeable party. The escrow shall close (the "Closing") within
thirty (30) days following delivery of the notice to Lewis. Upon Closing, Golden
Phoenix shall deliver a cashier's check drawn on a mutually-acceptable bank in
Nevada in the amount of TWENTY MILLION DOLLARS ($20,000,000.00) to Lewis. Lewis
shall deliver to Golden Phoenix all share certificates of F. W. Lewis, Inc. and
Mina Gold Mine, Inc., together with all corporate books and records of the two
subsidiary corporations. Lewis shall also deliver to Golden Phoenix such bills
of sale and deeds as may be necessary to effect a complete transfer of the Real
Property and Personal Property to Golden Phoenix. All taxes with respect to the
Real Property and Personal Property shall be pro rated between the parties as of
the date of closing.
SECTION TWO
Agreements Affecting Real Property
2.1 Existing Agreements. There exist the following agreements affecting
portions of the Real Property:
a. A "Mining Lease" dated January 1, 1983 between Frank W.
Lewis as Lessor and the
<PAGE>
Standard Slag Company as Lessee, which has been assigned to Hycroft
Lewis Mine, Inc., a Nevada corporation (the "Hycroft Lease"). A copy of
the Hycroft Lease is attached hereto as Exhibit C.
b. An "Exploration Permit with Option to Purchase" dated May
1, 1996 between F. W. Lewis, Inc. as Optionor and Nighthawk North
Explorations Inc. as Optionee, which has been assigned to United
Tex-Sol (U.S.) Inc. (the "Driscol Mine Agreement"). A copy of the
Driscol Mine Agreement is attached hereto as Exhibit D.
c. An "Exploration Permit with Option to Purchase" dated July
1, 1996 between F. W. Lewis, Inc. as Optionor and 1160232 Ontario
Limited and Paul Roberts as Optionee, which has been assigned to
Arizuma Silver, Inc. (the "Wonder Mine Agreement"). A copy of the
Wonder Mine Agreement is attached hereto as Exhibit E.
The foregoing agreements shall be referred to collectively as the
"Leases".
2.2 Lease Revenues. All cash and other consideration derived from the
Leases during the term of this Agreement, except property purchase payments,
shall become the property of Lewis and will not be included in the Personal
Property transferred to Golden Phoenix upon Closing. In addition, all office
equipment and supplies at 120 Greenridge Drive, Reno, Nevada shall likewise
remain with Lewis.
A block of 500,000 shares of United Tex-Sol Mines, Inc. is being held
by the Montreal Trust Company of Canada in escrow for benefit of F. W. Lewis,
Inc. This stock, if and when released from escrow, will be the property of Lewis
and will not pass to Golden Phoenix.
2.3 New Agreements. Lewis, acting through its subsidiary corporations,
F. W. Lewis, Inc. and Mina Gold Mines, Inc., shall have the right to negotiate
and enter into additional agreements ("New Agreements") affecting the Real
Property and Personal Property during the term of this Agreement, provided that
the following conditions are satisfied:
<PAGE>
a. Lewis shall submit any New Agreements to Golden Phoenix for
review and approval prior to execution of the New Agreements.
b. Any cash or other revenues derived from the new agreement(s)
shall remain in the subsidiary corporations and shall be transferred to Golden
Phoenix upon closing.
SECTION THREE
Warranties and Representations
3.1 Warranties and Representations as to Real Property. In conveying
the Stock to Golden Phoenix, Lewis makes the following limited warranties and
representations with respect to the Real Property:
a. Lewis owns 100% of the legal and equitable interests in the
Stock and possesses the Stock; Lewis has the right to convey the Stock to Golden
Phoenix pursuant to this Agreement; and Lewis has not granted any first rights
of refusal or other limitations with respect to the Stock.
b. At the time of closing, the Real Property shall be free of all
leases, liens, and encumbrances other than the Leases described in Section 2.1
above and any New Agreements created in accordance with Section 2.3 above.
c. The Real Property is subject to the following legal actions:
(1) An action for partition affecting certain properties in
Eureka County, Nevada (F. W. Lewis, Inc. v. Ostrander, et al., Case No. 3313,
affecting the Blue Bird, Clipper, Golden Rule, Dug Out, Dump, Trail, Volk and
Piantoni, Killington, and Water Jacket patented lode claims). Golden Phoenix
will pay the costs of concluding this litigation and the purchase price of the
property.
(2) An action for partition affecting certain properties in
White Pine County, Nevada (F. W. Lewis v. Ostrander et al., Case No. CV-1440692,
affecting the Onetha, Roanoke, and Wipperwill patented lode claims). Golden
Phoenix will pay the costs of concluding this litigation and the purchase price
of the property.
<PAGE>
(3) An action to quiet title affecting certain properties in
the Wonder Mining District, Churchill County, Nevada [action to be commenced in
September 1997]. Lewis will pay all costs of this litigation.
Other than the foregoing actions, Lewis is not aware of any claims,
demands, legal actions, or liabilities affecting the Real Property.
d. Lewis has advised Golden Phoenix that certain properties have
poor or non-existent title, such as the Empire Mine (MS 49) at Hamilton.
Some of the mining properties at Hamilton, Nevada do not have oil
rights, which were reserved by a previous owner.
e. To the best of Lewis' knowledge, information, and belief, Lewis
is not aware of any environmental violations, claims, or liabilities affecting
the Real Property, and Lewis has not received notice of any environmental
violations or problems from any local, state, or federal agency, except for the
following:
(1) F. W. Lewis, Inc. may be obligated to reclaim
approximately one-third of a mile of road in the Lewis Mining District, Lander
County, Nevada.
(2) F. W. Lewis, Inc. may be obligated to reclaim drill sites
in the Contact Mining District, Elko County, Nevada.
(3) F. W. Lewis, Inc. may be obligated to perform certain
reclama- tion activities in the Driscol Mine area in Lander County, Nevada,
should the current Optionee fail to perform such work.
Should the Bureau of Land Management require that these reclamation
activities be completed, Golden Phoenix shall assume responsibility for the
reclamation work.
f. Other than the foregoing representations and warranties, Lewis
will convey the Stock (and Real Property) to Golden Phoenix in an "as is and
where is" condition with no warranty of ownership or possession. During the
Option, Golden Phoenix shall have the right and obligation to conduct such
examinations of title as it
<PAGE>
deems appropriate, at its sole cost, in order to verify Lewis' ownership and
possession. In addition, Lewis shall allow Golden Phoenix to have full access to
all books and records of the subsidiary corporations during its due diligence
examination. If Golden Phoenix discovers any defect in title, Golden Phoenix
shall have the choice of (1) accepting such defects or (2) terminating this
Agreement without further obligation to Lewis. Under no circumstance will the
purchase price be reduced or pro rated to account for any defects in title.
3.2 Warranties and Representations as to Personal Property. During the
term of this Option, Golden Phoenix shall conduct an inventory of all Personal
Property situated on the Real Property. The list of equipment and structures
compiled by Golden Phoenix shall be attached to this Agreement as Exhibit B.
Lewis shall have the right to review and approve the list of Personal Property.
With respect to the Personal Property listed on Exhibit B, Lewis makes only the
following representations and warranties:
a. To the best of Lewis' knowledge, information, and belief, Lewis
owns and possesses the Personal Property free of any liens, encumbrances, or
outstanding claims; Lewis has the right to convey the Personal Property to
Golden Phoenix pursuant to this Agreement; and Lewis has not granted any first
rights of refusal or other limitations with respect to the Personal Property.
b. Lewis is not aware of any claim, demand, liability, or
litigation affecting the Personal Property.
c. Lewis will execute a Bill of Sale or other documents necessary
to convey the Personal Property to the subsidiary companies or to Golden
Phoenix.
d. Except for the warranties set forth above, Lewis sells and
conveys the Personal Property to Golden Phoenix in an "as is and where is"
condition. During the term of the Option, Golden Phoenix will undertake such
examination of title to the Personal Property as it deems appropriate. Lewis
will not be responsible for theft or damage to the Personal Property during the
Option period. Lewis will make available to Golden Phoenix
<PAGE>
all titles, bills of sale, or agreements relating to the Personal Property.
e. Other than the foregoing representations and warranties, Lewis
will convey the Personal Property to Golden Phoenix in an "as is and where is"
condition with no warranty of ownership or possession. During the Option, Golden
Phoenix shall have the right and obligation to conduct such examinations of
title as it deems appropriate, at its sole cost, in order to verify Lewis'
ownership and possession. If Golden Phoenix discovers any defect in title,
Golden Phoenix shall have the choice of (1) accepting such defects or (2)
terminating this Agreement without further obligation to Lewis. Under no
circumstance will the purchase price be reduced or pro rated to account for any
defects in title to the Personal Property.
3.3 No Warranties or Representations as to Value. From time to time,
Lewis and other parties have prepared estimates of cash flow and mineral value
with respect to portions of the Real Property and Personal Property. This
information shall be made available to Golden Phoenix during the Option period,
and all files, maps, and other information pertaining to the Real Property and
Personal Property shall be delivered to Golden Phoenix upon closing.
WITH RESPECT TO SUCH INFORMATION AND DATA, GOLDEN PHOENIX ACKNOWLEDGES
AND AGREES, AS A CONDITION OF THIS AGREEMENT, THAT:
A. LEWIS MAKES NO WARRANTY OR REPRESENTATION WHATSOEVER AS TO THE
COMPLETENESS OR ACCURACY OF THE INFORMATION AND DATA PERTAINING TO THE REAL
PROPERTY AND PERSONAL PROPERTY.
B. GOLDEN PHOENIX AND ANY THIRD PARTIES SHALL MAKE THEIR OWN
INDEPENDENT ASSESSMENT AND EVALUATION REGARDING
<PAGE>
ASSAYS, ORE VALUES, ECONOMIC PROJECTIONS REGARDING THE REAL PROPERTY AND
PERSONAL PROPERTY.
C. GOLDEN PHOENIX AND ANY THIRD PARTIES SHALL NOT RELY UPON INFORMATION
SUPPLIED BY LEWIS OR AVAILABLE IN THE LEWIS FILES.
D. ANY INFORMATION FURNISHED BY GOLDEN PHOENIX TO THIRD PARTIES,
INCLUDING PROSPECTIVE INVESTORS AND STOCK EXCHANGES, SHALL INCLUDE THE FOLLOWING
EXPRESS LIMITATION WITH REGARD TO LEWIS, WHICH SHALL BE IN THE FORM OF A SHEET
ATTACHED TO EACH DOCUMENT, MAP, ASSAY REPORT, AND OTHER INFORMATION:
CAUTION: THE INFORMATION CONTAINED HEREIN DOES NOT CONSTITUTE ANY
REPRESENTATION OF ECONOMIC VALUE OR DEVELOPMENT POTENTIAL BY F. W.
LEWIS, INC., MINA GOLD MINES, INC., FRANK W. LEWIS, SHARON LEWIS, OR
THE SF LEWIS TRUST.
E. GOLDEN PHOENIX WILL DEFEND, INDEMNIFY, AND HOLD LEWIS HARMLESS FROM
ANY CLAIMS, DEMAND, OR LIABILITIES ARISING FROM USE OF THE INFORMATION.
3.4 Environmental Liabilities. Golden Phoenix accepts the Stock and
Real Property with the knowledge and understanding that there may exist waste
dumps, mine tailings, and other conditions which may be categorized as
"hazardous waste" by local, state, or federal agencies. To the best of Lewis'
knowledge, information, and belief, Lewis is not presently aware of any
environmental violation, claim, or liability affecting the Real Property.
However, Golden Phoenix acknowledges that there exists the possibility that such
environmental claims may be
<PAGE>
asserted in the future. As an express condition of this Agreement, Golden
Phoenix, upon exercising the Option, shall accept responsibility for all such
environmental conditions, and further agrees to defend, indemnify, and hold
Lewis harmless from all claims, demands, or liabilities arising in connection
with environmental conditions on the Real Property. However, such liability and
indemnification on the part of Golden Phoenix shall be secondary to the
responsibilities and liabilities of any Lessees or Optionees under the Leases.
3.5 Liability and Insurance. During the option period, Golden Phoenix
shall indemnify and hold Lewis harmless from any claims, demand, liabilities or
liens arising out of Golden Phoenix's activities on the Property. To that end,
Golden Phoenix shall, no later than October 15, 1997, obtain and carry a policy
of public liability insurance in the amount of $1,000,000.00 or more for
personal injury and $100,000.00 for property damage, protecting Lewis against
any claims for injury to persons or damage to property resulting from Golden
Phoenix's operations. The insurance policy shall name Lewis as a co-insured, and
Golden Phoenix shall require of the insurance company that it deliver a copy of
the policy to Lewis.
SECTION FOUR
Miscellaneous Provisions
4.1 Binding Effect. This Agreement shall inure to the benefit of and be
binding upon the parties hereto, their respective heirs, executors,
administrators, successors, and assigns.
4.2 Applicable Law. The terms and provisions of this Agreement shall be
interpreted in accordance with the laws of the State of Nevada.
4.3 Entire Agreement. This Agreement terminates and replaces all prior
agreements, either written, oral or implied, between the parties hereto, and
constitutes the entire agreement between the parties.
4.4 Void or Invalid Provisions. If any term, provision, covenant or
condition of this
<PAGE>
Agreement, or any application thereof, should be held by a court of competent
jurisdiction to be invalid, void or unenforceable, all provisions, covenants and
conditions of this Agreement, and all applications thereof not held invalid,
void or unenforceable, shall continue in full force and effect and shall in no
way be affected, impaired, or invalidated thereby.
4.5 Time of the Essence. Time is of the essence of this Agreement and
each and every part thereof.
4.6 No Partnership. Nothing in this Agreement shall create a
partnership between Lewis and Golden Phoenix.
4.7 Resolutions and Further Assurances. The actions and conveyances of
Lewis, F. W. Lewis, Inc. and Mina Gold Mines, Inc. shall be duly approved by
resolutions of the Trustees or Boards of Directors, as applicable. Lewis and its
subsidiary companies will cooperate in executing any additional documents needed
to effect the terms of this Agreement.
IN WITNESS WHEREOF, the parties have executed this Option Agreement the
day and year first above written.
SF LEWIS TRUST, a Nevada trust
By
------------------------------------
FRANK W. LEWIS, Trustee
By
------------------------------------
SHARON F. LEWIS, Trustee
GOLDEN PHOENIX MINERALS, INC.
a Minnesota corporation
<PAGE>
By
------------------------------------
MICHAEL R. FITZSIMONDS,
President
<PAGE>
STATE OF NEVADA )
) ss
COUNTY OF WASHOE )
On the _____ day of ___________, 1997, personally appeared before me, a
Notary Public within and for said county, personally appeared FRANK W. LEWIS,
Trustee of the SF Lewis Trust, who acknowledged that he executed the foregoing
Option Agreement, and to me known or proved to be the person described in and
who executed the same.
------------------------------------
NOTARY PUBLIC
STATE OF NEVADA )
) ss
COUNTY OF WASHOE )
On the _____ day of ___________, 1997, personally appeared before me, a
Notary Public within and for said county, personally appeared SHARON F. LEWIS,
Trustee of the SF Lewis Trust, who acknowledged that he executed the foregoing
Option Agreement, and to me known or proved to be the person described in and
who executed the same.
------------------------------------
NOTARY PUBLIC
STATE OF NEVADA )
) ss
COUNTY OF WASHOE )
On the _____ day of ___________, 1997, personally appeared before me, a
Notary Public within and for said county, personally appeared MICHAEL
FITZSIMONDS, President of GOLDEN PHOENIX MINERALS INC., who acknowledged that he
executed the foregoing Option Agreement, and to me known or proved to be the
person described in and who executed the same.
------------------------------------
NOTARY PUBLIC
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<S> <C>
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<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> SEP-30-1997
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<CURRENT-ASSETS> 1,690,229
<PP&E> 262,206
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0
0
<COMMON> 790,000
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<SALES> 0
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<TOTAL-COSTS> 487,878
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