Amendment #1
U.S. Securities and Exchange Commission
Washington, D.C. 20549
Form 10SB
GENERAL FORM FOR REGISTRATION OF SECURITIES OF SMALL
BUSINESS ISSUERS
Under Section 12(b) or (g) of the Securities Exchange Act of 1934
Golden Phoenix Minerals, Inc.
(Name of Small Business Issuer in its charter)
Minnesota 41-1878178
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
4935 San Diego Court
Sparks, Nevada 89436
(Address of principal executive office) (Zip Code)
Issuer's telephone number (702) 626-4935
Securities to be registered under Section 12(g) of the Act:
Common Shares
Preferred Shares
Shares Underlying the Options
Charles Clayton
527 Marquette
Minneapolis, Minnesota 55402
(612) 338-3738
(Agent for Service)
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ITEM 1. DESCRIPTION OF BUSINESS
(Please refer to the Glossary at the end of Item 3 for the definition of certain
mining terms used in this Report.)
Golden Phoenix Minerals, Inc. was formed in Minnesota on June 2, 1997,
and has had limited operations.
The Company plans to produce economically valuable minerals from the
mineral properties it currently controls, and from mineral properties that it
will acquire in the future. The Company intends to concentrate its exploration
efforts in the Western US and Alaska.
Golden Phoenix intends to minimize financial risk by utilizing the
directors' extensive experience in precious metals exploration and development
to continually assess the merits of current projects and expenditures. Golden
Phoenix Minerals corporate directors, officers and technical support team is
comprised of 8 former senior management, geological exploration and development
staff members from Santa Fe Pacific Gold Corp. (SFPG) and one senior exploration
manager from Rio Tinto (RTZ/Kennecott). This experienced and diverse team has in
excess of 100 years of major corporate mineral exploration, development and gold
production experience.
Santa Fe Pacific Gold Corporation was the 6th largest gold producer in
North America with an excess of 28 million ounces of gold reserves and annual
production in excess of 800,000 ounces per year. Newmont Gold, North America's
largest gold producer, recently purchased Santa Fe Pacific Gold for $2.2
Billion.
Golden Phoenix Minerals, Inc. will provide joint venture opportunities
to other selected mining companies, to conduct exploration or development on
additional properties the Company owns. The Company will explore and develop
selected properties to a stage of positive economic feasibility prior to any
sale of assets or mine construction decisions. This will allow the Company to
acquire and maintain an interest in a portfolio of properties for mineral
exploration and development. This corporate strategy will minimize financial
risk while maximizing the potential of success and growth.
The Company believes that it can create the basis for a competitive
minerals exploration company through assembling a unique group of individuals
with experience in target generation and discovery, resource evaluation and mine
development. The technical team that the Company has assembled consist of two
geological engineers with 42 years of combined experience in the economic
evaluation mining properties, three geologists with 54 years of combined
experience in the mineral exploration, one professional land surveyor who is
also an explorationist with 19 years experience, and one landman/lawyer with 15
years experience in the minerals industry. This experienced and diverse team has
in excess of 100 years of major corporate mineral exploration, development and
gold production experience.
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There are at least five sources of land for exploration by the Company:
public lands, private fee lands, aboriginal tribal lands, unpatented mining
claims, and patented mining claims. The primary sources for these lands are the
United States government, through the Bureau of Land Management and the U. S.
Forest Service, state governments, tribal governments, and individuals that
currently hold title to or lease government and private lands.
There are numerous levels of government regulation associated with the
activities of exploration and mining companies. The only two types of permitting
which the Company should have to be concerned with in the near future are
"Notice of Intent" and "Plan of Operation." Both of these types of procedures
will be necessary in the next twelve months. The Company has not yet filed for
any of these permits.
The cost and effects of the permitting process can not be summarized at
this time. The cost will vary for each project when they are initiated.
The Company has four full time employees and four full time
contractors. It does anticipate adding three of the four contractors to its
staff in the next twelve months. This change in staffing will facilitate the
timely and cost effective evaluation of the exploration and development projects
described in the property section (Item 3). The Company will use independent
contractors to fill any short term employment needs that may arise.
ITEM 2. PLAN OF OPERATION
Golden Phoenix Minerals, Inc. is a mineral exploration company
dedicated to the discovery and development of precious metal deposits in the
Western US and Alaska. The Company intends to minimize financial risk by
providing joint venture opportunities for larger mining companies to conduct
exploration on properties the Company controls. Selected properties will be
explored and developed to a stage of positive economic feasibility by the
Company. This will allow the Company to acquire and maintain an interest in a
portfolio of quality properties for mineral exploration and development. The
Company's corporate strategy will minimize financial risk, while maximizing the
potential of success and growth.
The Company's initial holding is the Garamendi property in Nevada and
has acquired 15 other properties in Nevada and Alaska, in which it will have
100% ownership in 14, and is actively acquiring additional properties. Prior to
the formation of the company, Donald McDowell, one of the company's founders,
was actively exploring in Nevada and Alaska. Mr. McDowell brought the Garamendi
property into the company as part of our initial incorporation and filing with
the U. S. Securities and Exchange Commission at no value with a retained 2% Net
Smelter Return if the property is proven to have an economic mineral deposit.
JOINT VENTURES
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The company has signed an acquisition agreement with J.D. Welsh &
Associates to acquire 100% of Welsh's 30% interest in the Borealis Mine project
in Mineral County Nevada. The Company has initially paid Welsh $250,000 USD and
50,000 shares of stock for an initial 25% ownership in Welsh's 30% participating
interest in the Borealis Mine project. The Company can purchase Welsh's entire
interest by completing scheduled payments totaling an additional $1.25 Million
USD over the next 3 years. The Company is carried through positive feasibility
after the completion of the Welsh payments. Cambior Exploration USA, Inc.
(Cambior) currently has a 70% interest in the project subject to spending
$7Million US dollars over the next 7 years. Cambior is the operator of the
Borealis Mine project. The agreement is included in the exhibits of this report.
The High-Grade gold acquisition has been approved by Kennecott
Exploration Company, a subsidiary of Rio Tinto Plc. and will allow the Company
to earn-in a 100% interest in the property. Kennecott Exploration has retained a
buy-back option at the time a positive feasibility study is completed. Should
Kennecott exercise that option, they would become mine operator and reimburse
the Company 150% of 51% of its exploration expenditures to enter into a 51%-49%
joint mining venture, if not Rio Tinto would reduce to a 2% NSR. The Company has
agreed to a $1Million USD work commitment over 3 years and a cash or stock
payment of $200,000 USD. No other payments are required. The agreement is
included in the exhibits of this report.
FUNDING
The Company plans to finance its operations through the exercising of
common stock options controlled by key directors of the Company. As part of the
formation of the Company the Board of Directors resolved to create two million
options at $2.00 and $3.00 respectively. These were created in the names of
Michael Fitzsimonds and Donald McDowell for the purpose of additional financing
as the company needed operating capital for its exploration and development
activities. The Company will also offset some of its cost by joint venturing
properties to other mining groups to explore and develop while paying fees to
Golden Phoenix Minerals, Inc. for the right to explore the ground they control.
COMPETITION
Changes in claim rental policies and the general exodus of major gold
corporations from the US have resulted in a lot of very prospective ground that
is open for location and acquisition. However, there has been a recent increase
in staking activities by the majors, which may be signaling a more competitive
field in the future.
SEASONAL EFFECTS
The Company has positioned itself to handle any seasonal aspect of the
exploration business by location of its properties. Problems of access and
inclement weather will be minimized through strategic planning of fieldwork.
CAPITAL EQUIPMENT
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The only capital equipment the Company plans to purchase in the next
twelve months is field vehicles and computer equipment. The field vehicles will
be for staff professionals only, all contractors will provide their own
vehicles. The computer equipment will aid in the analysis of data and in the
preparation of reports for shareholders. The Company will be able to evaluate
and make decisions on the economic viability of a property more efficiently with
the appropriate computer equipment and software.
STAFFING
The Company plans to expand its staffing level by three professionals
to cover land issues, resource evaluation and project evaluation. The Company
will employ independent contractors to fulfill short-term needs and obligations.
ENVIRONMENTAL CONTROLS
The Company is required to comply with numerous environmental laws and
regulations imposed by federal and state authorities. At the federal level,
legislation such as the Clean Water Act, the Clean Air Act, the RCRA, CERCLA and
the National Environmental Policy Act impose effluent and waste standards,
performance standards, air quality and emissions standards and other design or
operational requirements for various components of mining and mineral
processing, including gold ore mining and processing. Although the majority of
the waste produced by the Company's operations are "extraction" and
"beneficiation" wastes, which the EPA does not regulate under its current
"hazardous waste" program, the EPA is currently developing a separate program
under the RCRA to regulate such waste. Until the EPA formally proposes the new
regulatory program, there is not a sufficient basis on which to predict the
potential impacts of such regulations on the Company.
Many states, including the State of Nevada (where a majority of the
Company's properties are located), have also adopted regulations that establish
design, operation, monitoring, and closing requirements for mining operations.
Under these regulations, mining companies are required to provide a reclamation
plan and financial assurance to insure that the reclamation plan is implemented
upon completion of mining operations. Additionally, Nevada and other states
require mining operations to obtain and comply with environmental permits,
including permits regarding air emissions and the protection of surface water
and groundwater.
The Company's compliance with federal and state environmental laws may
necessitate significant capital outlays or delays, may materially and adversely
affect the economics of a given property, or may cause material changes or
delays in the Company's intended exploration, development and production
activities. Further, new or different environmental standards imposed by
governmental authorities in the future could adversely affect the Company's
business activities.
PROPOSED LEGISLATION AFFECTING THE MINING INDUSTRY
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During the past several years, the United States Congress considered a
number of proposed amendments to the General Mining Law of 1872, as amended (the
"General Mining Law") which governs mining claims and related activities on
federal lands. In 1992, a holding fee of $100 per claim was imposed upon
unpatented mining claims located on federal lands. Beginning in October 1994, a
moratorium on processing of new patent applications was approved. In addition, a
variety of legislation is now pending before the United States Congress to amend
further the General Mining Law. The proposed legislation would, among other
things, change the current patenting procedures, limit the rights obtained in a
patent, impose royalties on unpatented claims, and enact new reclamation,
environmental controls and restoration requirements. The royalty proposal ranges
from a 2% royalty on "net profits" from mining claims to an 8% royalty on
modified gross income/net smelter returns. The extent of any such changes that
may be enacted is not presently known, and the potential impact on the Company
as a result of future congressional action is difficult to predict. If enacted,
the proposed legislation could adversely affect the economics of development of
operating mines on the federal unpatented mining claims held by the Company.
Many of the Company's properties consist of unpatented mining claims on federal
lands. The Company's financial performance could therefore be materially and
adversely affected by passage of all or pertinent parts of the proposed
legislation.
UNCERTAINTY OF DEVELOPMENT PROPERTY ECONOMICS
Exploration for and production of minerals is highly speculative and
involves greater risks than are inherent in many other industries. Many
exploration programs do not result in the discovery of mineralization, and any
mineralization discovered may not be of sufficient quantity or quality to be
profitably mined. Also, because of the uncertainties in determining
metallurgical amenability of any minerals discovered, the mere discovery of
mineralization may not warrant the mining of the minerals on the basis of
available technology.
The Company's decision as to whether any of the mineral development
properties it now holds or which it may acquire in the future contain
commercially mineable deposits, and whether such properties should be brought
into production, depends upon the results of its exploration programs and/or
feasibility analyses and the recommendations of engineers and geologists. The
decision will involve the consideration and evaluation of a number of
significant factors, including, but not limited to, the: (i) receipt of
government permits; (ii) costs of bringing the property into production,
including exploration and development work, preparation of feasibility studies
and construction of production facilities; (iii) availability and costs of
financing; (iv) ongoing costs of production; (v) market prices for the metals to
be produced; and (vi) estimates of reserves or mineralization. No assurance can
be given that any of the development properties the Company owns, leases or
acquires contain (or will contain) commercially mineable mineral deposits, and
no assurance can be given that the Company will ever generate a positive cash
flow from production operations on such properties.
UNCERTAINTY OF TITLE
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A majority of the Company's properties consist of unpatented mining
claims or mill site claims which the Company owns or leases. These claims are
located on federal land or involve mineral rights which are subject to the
claims procedures established by the General Mining Law. Under this law, if a
claimant complies with the statute and the regulations for the location of a
mining claim or mill site claim, the claimant obtains a valid possessory right
to the land or the minerals contained therein. To preserve an otherwise valid
claim, the claimant must also make certain additional filings with the county in
which the land or mineral is situated and the Bureau of Land Management and pay
an annual holding fee of $100 per claim. If a claimant fails to make the annual
holding payment or make the required filings, the mining claim or mill site
claim is void or voidable.
Because mining claims and mill site claims are self-initiated and
self-maintained rights, they are subject to unique vulnerabilities not
associated with other types of property interests. It is difficult to ascertain
the validity of unpatented mining claims or mill site claims from public
property records and, therefore, it is difficult to confirm that a claimant has
followed all of the requisite steps for the initiation and maintenance of a
claim. The General Mining Law requires the discovery of a valuable mineral on
each mining claim in order for such claim to be valid, and mining claims may be
challenged by rival mining claimants and the United States. Under judicial
interpretations of the rule of discovery, the mining claimant has the burden of
proving that the mineral found is of such quality and quantity as to justify
further development, and that the deposit is of such value that it can be mined,
removed and disposed of at a profit. The burden of showing that there is a
present profitable market applies not only to the time when the claim was
located, but also to the time when such claim's validity is challenged. It is
therefore conceivable that, during times of falling metal prices, claims which
were valid when they were located could become invalid if challenged.
Title to unpatented claims and other mining properties in the western
United States typically involves certain other inherent risks due to the
frequently ambiguous conveyance history of those properties, as well as the
frequently ambiguous or imprecise language of mining leases, agreements and
royalty obligations. No generally applicable title insurance is available for
mining or mill site claims. As a result, some of the titles to the Company's
properties may be subject to challenge.
MINING RISKS AND INSURANCE
The Company's operations are subject to all of the operating hazards
and risks normally incident to exploring for and developing mineral properties,
such as unusual or unexpected geological formations, environmental pollution,
personal injuries, flooding, cave-ins, changes in technology or mining
techniques, periodic interruptions because of inclement weather and industrial
accidents. Although the Company currently maintains insurance within ranges of
coverage consistent with industry practice to ameliorate some of these risks, no
assurance can be given that such insurance will continue to be available at
economically feasible rates, or that the Company's insurance is adequate to
cover the risks and potential liabilities
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associated with exploring, owning and operating its properties. Insurance
against environmental risks is not generally available to the Company or to
other companies in the mining industry.
UNKNOWN ENVIRONMENTAL LIABILITIES FOR PAST ACTIVITIES
Mining operations involve a potential risk of releases to soil, surface
water and groundwater of metals, chemicals, fuels, liquids having acidic
properties and other contaminants. In recent years, regulatory requirements and
improved technology have significantly reduced those risks. However, those risks
have not been eliminated, and the risk of environmental contamination from
present and past mining activities exists for mining companies. Companies may be
liable for environmental contamination and natural resource damages relating to
properties which they currently own or operate or at which environmental
contamination occurred while or before they owned or operated the properties.
However, no assurance can be given that potential liabilities for such
contamination or damages caused by past activities at these properties do not
exist.
DEPENDENCE ON KEY PERSONNEL
The Company is dependent on the services of certain key executives,
including Michael Fitzsimonds, President and Chairman of the Board of Directors;
Donald J. McDowell, Executive Vice President; and Daniel T Taylor Vice President
of Exploration. The loss of any of these individuals could have a material
adverse effect on the Company's business and operations. The Company currently
does not have key person insurance on these individuals.
RISKS ASSOCIATED WITH POSSIBLE ACQUISITIONS
The Company periodically considers the acquisition of mining claims,
properties and businesses. In connection with any such future acquisitions, the
Company may incur indebtedness or issue equity securities, resulting in dilution
of the percentage ownership of existing stockholders. The Company intends to
seek stockholder approval for any such acquisitions only to the extent required
by applicable law, regulations or stock market listing rules.
ITEM 3. DESCRIPTION OF PROPERTY
The Company owns, or controls through leases and mining claims, 57,838
acres of mining and mineral exploration properties within the states of Nevada,
California and Alaska. The properties are categorized into project areas. Table
2.1 provides an overview of the Company's projects in terms of acreage and the
nature of the property holding.
TABLE 2.1 - COMPANY PROPERTIES AND PROJECTS
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Alaska Federal
State Unpatented
Mineral Mining
Leases Claims
Company Project Geographical Region (Acres) (Acres)
- ----------------------------------------------------------------------------
Borealis** Mineral County NV 10,330
Highgrade*** Modoc County CA 1,446
Garamendi Elko County NV 1,332
Long Canyon Elko County NV 980
Medicine Man Elko County NV 1,694
Exxon Elko County NV 2,479
Blue Basin Elko County NV 1,240
NcNew Elko County NV 1,157
Monarch Elko County NV 1,160
Chisna Alaska 2,080
Chisna West Alaska 2,240
Chistochina Alaska 2,270
PG&E Alaska 2,560
Bonnifield District Alaska 10,240
Richardson Alaska 15,360
District
North Delta Alaska 1,280
** Joint Venture operated by Cambior USA
***Joint Venture with Kennecott Exploration (Rio Tinto)
The Company's projects hold excellent potential for significant mineral
discoveries. The Company is prioritizing its projects for the remainder of
fiscal 1997 in terms of its goal of increasing shareholder value through mineral
discovery. The Company is actively pursuing joint venture partners for many of
its existing exploration properties.
The following sections discuss all of the existing exploration projects
the company has. The Garamendi project is discussed in greater detail than the
other projects, simply because it was the first project in the company which was
used in our initial SEC filings.
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GARAMENDI PROJECT ELKO COUNTY, NV
LOCATION, ACCESS AND TERRAIN
The Garamendi project area is located in Elko County, Nevada at the
northern end of the Adobe Range in northeastern Nevada. The area can be reached
in less than a hour from Elko via I-80 and on a gravel and dirt road that
extends northward from the Ryndon exit 10 miles east of Elko. In dry weather the
area can be reached by two wheel drive pickup truck or van, but a four wheel
drive vehicle is recommended.
The Garamendi project area is located in typical Basin and Range
Province of the western U. S. The claims are located on an east-west ridge
projecting off the main Adobe Range. Relief is moderate with the minimum
elevation approximately 6500 feet and the maximum elevation approximately 6900
feet.
Rainfall in the area is low with the main vegetation on the property
consisting of sagebrush and various grasses. There are small springs in the
vicinity of the claims with small discharge rates and account for the only
surface water except during spring run off. Larger shrubs and small trees are
clustered around these springs.
LAND POSITION
The Garamendi project area is located within a checkerboard of fee land
and U. S. Government (BLM) lands in Elko County, Nevada. It currently consists
of 12 unpatented mining claims situated in the southern half of Section 18, T 38
N. R 56 E Mount Diablo Base and Meridian. There are also fifty nine located but
unrecorded unpatented mining claims located in alternate sections within one
mile of the core area.
HISTORY AND PRODUCTION
Published information on the history of mining in the Garamendi project
area is sparse. There appears to be at least two generations of workings at the
mine sites older (1930s?) underground workings and newer (post 1970?) trenches
and pits. Unpublished U. S. Bureau of Mines production data reports production
of 48,850 pounds of lead, 59 ounces of silver, and 135 pounds of copper. About
500 tons of oxidized lead ore was removed from pits in the Garamendi mine area.
Total production from the district is unknown.
Texasgulf Western, Inc. explored the area around the Garamendi project
area for stratiform sediment-hosted massive sulfide deposits during the late
seventies and early eighties. Texasgulf drilled and outlined a small lead-zinc
resource in 1981 in and around the Garamendi mine. Prospecting done by D. J.
McDowell in the area in late 1996 and early 1997 focused on similarities in rock
types and gold
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mineralization like those observed at the Twin Creeks Mine and other mineralized
areas in northern Nevada. Because of his observations in the area, the present
land position was located.
REGIONAL GEOLOGIC SETTING
The rocks in the Adobe Range consist of a sequence of Ordovician
through Triassic classic sedimentary shales, siltstones, cherts, and limestones.
Bedding strikes northeast and is cut by numerous northeast and northwest
striking high angle faults. Northeast striking thrust faults cross the area
bringing older Paleozoic sediments into contact with younger Paleozoic and
Mesozoic clastic rocks.
The low angle thrusts are complicated by younger high angle faults. A
thrust plate composed of Silurian and Permian clastic rocks and one composed of
Triassic clastic rocks has been thrust over Mississippian autochthonous or
semiautochtonous rocks. All three were then folded to form the Adobe Mountain
syncline and Garamendi anticline. These structures were over thrust by plates
composed predominately of lower Paleozoic rocks such as Silurian siltstones and
the Ordovician Vinni Formation, which are usually assigned to the Roberts
allochthon. Younger, high angle faults cut these thrust faults and their
corresponding sedimentary packages.
PROPERTY GEOLOGY
The geologic picture in the Garamendi project area is a bit more
complicated than the regional geologic picture. The Ordovician Silurian
sediments strike northeast-southwest and are exposed in an oblique belt cutting
across the Adobe Range. Tertiary volcanic rocks to the north and east cover
these rocks. Exposures decrease and eventually disappear to the west under
alluvial cover. These sediments were subsequently folded and thrust to the
southeast over younger Mississippian shales and sandstones.
Mapping by Texasgulf of the Garamendi mineralized zone outcrops show
them as resistant, topographically obvious, northerly dipping siliceous gossan.
This gossan varies from well bedded to brecciated to massive sugary silica. The
silica varies in color from white to light gray to black and yellow with various
shades of orange and red. Interbedded within this gossan is remnant limestone,
possibly the original protolith.
Lithology beneath the gossan is black shale, with the overlying rocks
being a gray-green siltstone. The siltstone is in turn overlain by another black
shale that is very similar in appearance to the shale beneath the gossan zone.
The contact between this shale and the underlying siltstone varies from
transitional to very fine interbeds.
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The sequence of shales and siltstones overlying the gossan zone were
still an unanswered question when Texasgulf discontinued work in the area. The
area to the north is a series of thrust faults with intensely folded sediments
between them.
Texasgulf mapped many occurrences as "chert/jasperoid" for lack of a
better name. These rocks vary from black to red and many show evidence of
secondary silicification and brecciation with subsequent resilicification. These
units have small remnants of disturbed recrystallized limestone adjacent to them
and may represent what is left of the original protolith.
Ignous rocks occur sporadically across the property and are mapped as
dykes, but Texasgulf never reported their composition.
MINERALIZATION
The host rocks in the Garamendi area consist of fine-grained quartzite
interbedded with calcareous siltstones, limey shales, and limestones. The beds
are relatively flat lying but are fractured by several east-west structures.
Mineralization occurs in a highly silicfied, partially brecciated calcareous
unit and in replacement zones parallel to the east-west structures. Primary
sulfide minerals occurring as pyrite, galena and sphalerite characterize the
lead-zinc mineralization. Gold mineralization, when assayed by Texasgulf,
generally occurred in the calcareous siltstones and silicified sediments above
the lead-zinc mineralization. Because of extensive recrystallization, few
original sedimentary structures are recognizable.
Shale and calcareous siltstone are common as breccia fragments and
matrix adjacent to mineralization and as concordant units where the rock has not
been so intensely altered. Limestone units are light gray when alteration is
slight with color changing to oranges and reds when it is silicified.
The sulfide minerals present include marcasite, pyrite, galena, and
sphalerite. The non-sulfide minerals are calcite, dolomite, quartz and minor
barite. Very little gold or silver has been reported within the mineralized
area. By Texasgulf's own admission, this may be the result of the samples not
regularly being assayed for gold or silver. However, Texasgulf does report
assays of up to 0.11 opt Au and 1.25 opt Ag from drill hole samples that were
assayed. Surface rock geochemistry also indicated anomalous local Au and Ag
values when assays were performed for precious metals.
The trace amounts of gold in the drill hole and rock chip samples
reported by Texasgulf occur in silicified breccias, jasperoids, jasperoid
breccias, and calcareous siltstones. These occurrences suggest that the
mineralization in the Garamendi area was a multi-episodic hydrothermal event.
The potential host rocks of silty or "dirty" limestones, calcareous siltstones
and limey shales were structurally prepared by the low and high angle normal and
reverse faulting in the area. The prominent outcrops of silicified and
brecciated jasperoid on the ridges and pediment areas to
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the west mark the traces of these reverse faults and high angle structures. The
hydrothermal fluids traveled up these structures and mineralized the receptive
host rocks as they were encountered. Remnant pieces ("horses") of recrystallized
limestone and calcareous siltstone within the jasperoid zones show that these
rocks were favorable for alteration by the hydrothermal fluids.The occurrence of
the resilicified jasperoid breccias and silica stockworks within jasperoids and
jasperoid breccias suggest that there was more than one pulse of mineralization.
The trace amounts of precious metals associated with the base metal deposit is
also indicative of a multi-episodic hydrothermal event with the precious
metal-bearing fluids overprinting the base metal occurrence. The presence of
these characteristics, favorable host rocks, structural preparation,
multi-episodic hyperthermal event(s), and the presence of precious metal values,
suggest that the Garamendi area has the potential of a large tonnage "Northern
Nevada" or "Carlin" type gold deposit.
DATA REVIEW
The data, which was available for this report was extracted from two
Texasgulf in-house progress reports. The reports were from 1980 and 1985. The
reports consisted of summary data for the work which had been completed that
year.
Texasgulf completed a total of 23 core holes between 1979 and 1984.
Based on the information in the reports only those intervals which had visible
sulfides, which was less than 50% of the intervals, were analyzed for lead and
zinc. Precious metals assays were reported for select intervals, primarily
silver. There was some assaying for gold, but it represents less than 10% of the
reported intervals. The known gold assays are represented in Table 3. There were
significant gold surface assays reported for the project, but were not in the
area of the lead zinc mineralization.
Table 1
NAME FROM TO AU(OPT)FA AG(OPT)AA
GAR-79-1-1 146.5 147.0 <0.002 0.59
GAR-79-1-2 155.6 156.0 0.002 2.06
GAR-79-1-18 281.0 285.0 0.005 1.03
GAR-79-1-19 287.5 290.0 0.004 5.83
GAR-79-1-20 290.0 293.0 <0.002 0.69
GAR-79-1-21 293.0 295.0 0.110 1.03
GAR-79-1-22 307.0 310.0 0.010 1.37
DH-80-3 263.0 267.0 0.007 -0.10
DH-80-3 267.0 275.6 trace 2.40
DH-80-3 281.0 289.5 0.005 7.40
DH-80-3 298.5 304.0 0.004 1.80
DH-81-2 20.0 28.0 0.020 0.20
DH-82-1 163.5 175.0 0.015 0.40
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DH-82-2 5.0 50.0 trace 0.10
DH-82-2 145.0 190.0 trace -0.10
DH-82-3 55.0 85.0 0.00 -0.10
DH-82-5 5.0 20.0 0.02 -0.10
DH-82-4 5.0 20.0 trace 4.20
DH-82-4 70.0 80.0 trace 0.40
DH-82-4 135.0 155.0 trace -0.10
DH-82-4 245.0 250.0 trace -0.10
EXPLORATION PROGRAM
The exploration program proposed during the first year would involve
obtaining and evaluating the currently open ground adjacent to the core area of
interest. This would involve staking additional BLM ground and leasing adjacent
fee ground. All data that is available will need to be researched to determine
its applicability to the current project.
The geologic mapping completed by Texasgulf overall is very good.
Several points that are in need of revisiting are the areas to the west and
northwest currently mapped as alluvium. In the course of preparing the claim
block Company personnel came across several outcrops of jasperoid that did not
appear on the Texasgulf mapping and would also extend the fault traces in those
areas. The distinction between jaseroid and chert needs further definition.
Depositional or primary chert is present in the area and is not distinguished
from the hydrothermal jasperoids. The interpretation of the mineralization by
Texasgulf within the Garamendi area being an exhalative occurrence explains
their reluctance of deeming it not of real importance. Looking at it from a
hydrothermal angle, distinguishing between jasperoids and cherts has important
implications from a genetic point of view. A similar problem in distinguishing
cherts from jasperoids occurred at the Twin Creeks mine with many initial chert
calls being changed to jasperoid upon closer examination. Revisiting the
structural aspects of the Texasgulf interpretation may shed new light in the
role that structure played with respect to the movement of hydrothermal fluids
in the system.
The geochemical surveys performed by Texasgulf were designed for a base
metal exploration program involving lead-zinc mineralization. The soil samples
were only analyzed for lead, zinc and locally for mercury. Rock chip samples
show the same general suite but were also occasionally assayed for copper,
silver and gold. Since the rock chip and soil sample pulps are no longer
available a lot of this work will need to be redone. The rock chip sampling can
be done in conjunction with the field checking and remapping of the project
area. The soil sampling should involve a grid with soil samples being taken at
least every 100 feet along lines no more than 200 feet apart over the areas of
interest. Continuity between samples and grid(s) suggest that the claim block be
solidified and the adjacent fee ground be acquired. The samples (rock and soil)
should be assayed for gold and silver, with trace element
<PAGE>
geochemistry involving a suite of elements that would at least include copper,
lead, zinc, molybdenum, arsenic, antimony, mercury, bismuth and cadmium.
Texasgulf conducted several geophysical surveys over the Garamendi
area. The EM techniques worked very well in locating the structures in the area.
The IP and CSAMT surveys were successful in locating both massive and
disseminated sulfide mineralization. Hopefully the geophysical data will become
available in the near future so that it can be reinterpreted from a hydrothermal
aspect to determine if additional geophysical work needs to be done.
The core and rejects from the Texasgulf core and reverse-circulation
drilling is not available for reassay of "favorable" calcareous and siliceous
horizons. The future drill program will be designed to test new targets related
to gold mineralization developed from the geological, geochemical and
geophysical data.
BOREALIS JOINT VENTURE MINERAL COUNTY, NV
SUMMARY
Tenneco Resources put the Borealis mine property into production in the
early 1980's as a low cost oxide heap leach mining operation. Cambior USA (70%)
and J.D. Welsh (30%) currently control the property. The 30% interest is carried
through feasibility (See detailed documents). The property has a drill-indicated
resource of 600,000 ounces Au and 3,000,000 ounces Ag. Cambior USA is currently
exploring the property and endeavoring to develop the oxide and sulfide resource
to a minable reserve. It is our intent to purchase the 30% owned by J.D. Welsh,
which would revert to 100% ownership should Cambior USA return the property to
Welsh.
PROPERTY
The current land position consists of over 500 unpatented mining
claims.
GEOLOGY
The property is a volcanic hosted epithermal system marked by extensive
silicification, hydrothermal brecciation and advanced argillic alteration. The
stratigraphy consists of primarily Tertiary age andesites and tuffs. Note:
Review additional data for detailed geology.
PREVIOUS EXPLORATION
The property was previously mined for many years by Tenneco and Echo
Bay minerals as a low cost, heap leach operation. The mine cutoff grade was .03
opt Au for oxide ore. The sulfides were never mined, even though significant
resources were encountered. After mine closure, Santa Fe Pacific Gold Corp. and
Cambior USA conducted additional sulfide exploration and development.
EXPLORATION TARGET
<PAGE>
Cambior USA intends to complete a data compilation, additional
geological, geochemical and geophysical work programs on the entire property
this summer. In addition, their engineering and metallurgical teams are
reviewing and upgrading the resource modeling and metallurgical data and
testing. They are planning a multiple phase drilling
exploration/development-drilling program for the next 2-3 years, depending on
results. Phase one is continued exploration and development of the Freedom
Flats/Graben sulfide resource area (See detailed report). The second Phase is an
exploration drilling program to explore for new resources and expand existing
resources elsewhere on the property. The third phase is to evaluate the
low-grade oxide resources and possible heap leach recoveries should production
at the mine resume.
HIGH GRADE PROPERTY MODOC COUNTY, CA
SUMMARY
The High-Grade acquisition has been approved by Kennecott and will
allow Golden Phoenix to earn-in a 100% interest in the property. Kennecott has
retained a buy-back right at the time a positive feasibility study is completed.
Should they exercise that option, they would become mine operator's, if not they
would reduce to a 2% Net Smelter Return.
The High Grade district is located in the Warner Mountains
approximately 30 miles northeast of Alturas in Modoc County, California. The
target objective is to increase the existing gold resource by delineating known
high-grade mineralization to develop a bulk minable multi million ounce gold
reserve. Investigations of geology, structure, alteration and mineralization
indicate that many favorable targets remain untested; and therefore, the
property has an excellent potential to develop a large minable reserve.
PROPERTY
The current land position consists of 76 unpatented mining claims and
an additional 16 that have recently been located. Three small but strategically
important underlying land positions need to be acquired. They consist of 8
claims, 4 claims and 1 patented claim respectively. Kennecott initiated and
advanced negotiations with all three owners late in 1996. All three owners were
amenable to relatively easy and inexpensive deals. They will need to be
contacted as soon as possible. A survey of the entire land package to ensure the
integrity of the land status over the resource/exploration areas should be
undertaken.
GEOLOGY
The High-Grade district is a gold bearing volcanic hosted epithermal
system that outcrops along a three-mile long, one-mile wide northeast trending
belt. Post mineral basalt and colluvium to the northeast and southeast conceal
mineralized lithologies. Disseminated gold is hosted in Tertiary rhyolitic
domes, flows and tuffaceous sediments while high-grade mineralization is
associated with veins, breccias and fault zones. The ninety-eight holes drilled
on the property prior to acquisition by Kennecott are confined to two small
areas; and the average hole depth
<PAGE>
is less than 200 feet with the deepest being 445 feet. More than one half of the
existing drill holes intersected ore-grade gold mineralization; many were
terminated in >1ppm Au material. Some of the higher-grade intercepts include 50'
@ 0.051 opt Au, 40' @ 0.102 opt Au, and 20' @ 0.165 Au all of which occur at
depths less than 100 feet. Surface rock geochem has identified many areas with
values greater than 3ppm (0.087 opt) Au that have never been drill tested.
PREVIOUS EXPLORATION
The property was originally staked in the late 1970's by a group in
Spokane Washington. FMC was the first major company to lease the property in
1981 to 1983. They drilled approximately 36 of the 98-hole total. The remainder
of the drilling was completed by the Spokane group in 1983-1985. No drilling was
completed after 1985. Over the next 9 years the property sat idle, yet still
staked up through 1994 when claim rental fees resulted in significant claim
reductions. In 1995 Don McDowell recognized the major potential of the property
through analogies with the Mule Canyon deposit being developed by Santa Fe
Pacific Gold (3 million ounces) and staked 76 unpatented claims over the
majority of the resource and mineralized areas of the property.
EXPLORATION TARGET
The target objective is to increase the existing gold resource by
delineating known high-grade mineralization to develop a bulk minable multi
million-ounce gold reserve. Investigation of geology, structure, alteration and
mineralization indicate that many favorable targets remain untested; and
therefore, the property has an excellent potential to develop a large minable
reserve.
LONG CANYON ELKO COUNTY, NV
SUMMARY
Long Canyon is located 30 miles NE of Elko. It lies within a
west-northwest trending zone of hydrothermal alteration, distinguished by poorly
exposed, thin-bedded jasperoid and gossan occupying zones between 50 and 100
feet wide. Previous work by Texasgulf indicates significant geochemical
anomalies of Cu, Pb and Zn in the area. There were only a few of the rock chip
samples assayed for Au, the highest assays reported from one rock chip sample
was 35 ppm (1 ounce/ton).
PROPERTY
Long Canyon is located 30 miles NE of Elko in the Coal Mine Canyon
mining district. It covers approximately 4 square miles, including 100 federal
mining claims. The property is located in Sec. 32 T39N R57E; Sec. 4 & 6 T38N
R57E; and Sec. 12 T38N R56E Mount Diablo Base and Meridian.
GEOLOGY
The Ordovician-Silurian sediments strike west-northwest and are exposed
in an oblique belt cutting across the northeast end of the Adobe Range. Tertiary
volcanic rocks to the northwest are in both fault contact and lie unconformable
on top of the sedimentary rocks. The unit is poorly exposed and eventually
disappears
<PAGE>
to the east and the west under alluvial cover. These sediments were subsequently
folded and thrust to the southeast over younger Mississippian shales and
sandstones.
Texasgulf mapped many occurrences as Ordovician or Silurian chert,
however field examination reveals that the thin-bedded, high angle jasperoid
unit is distinctly different than the "chert/jasperoid" mapped at Garamendi.
These rocks include opaline and chalcedonic silicification and vary in color
from orange to red. Many occurrences show evidence of secondary silicification
and brecciation with subsequent resilicification.
PREVIOUS EXPLORATION
Texasgulf appraised the area for it potential to host a lead zinc
deposit in the late seventies and early eighties. The only documented work is
geologic mapping, trenching and rock chip sampling. The majority of the sampling
was for Cu, Pb and Zn, with a few assays for gold.
EXPLORATION TARGET
The trace amounts of gold in rock chip samples reported by Texasgulf
occur in silicified breccias, jasperoids and jasperoid breccias. These
occurrences suggest that the mineralization in the Long Canyon area was a
multi-episodic hydrothermal event. The potential host rocks are thin-bedded
silty or "dirty" limestones, calcareous siltstones, and limey shales. Structural
preparation in the area includes low angle thrusts and high-angle normal and
reverse faulting. The prominent outcrops of silicified and brecciated jasperoid
on the ridges mark the traces of these reverse faults and high-angle structures.
The hydrothermal fluids traveled up these structures and mineralized the
receptive host rocks as they were encountered. The occurrence of the
resilicified jasperoid breccias and silica stockworks within jasperoids and
jasperoid breccias suggest that there was more than one pulse of mineralization.
The trace amounts of precious metals associated with the base metal deposit is
also indicative of a multi-episodic hydrothermal event with the precious
metal-bearing fluids overprinting the base metal occurrence. The presence of
these characteristics: favorable host rocks, structural preparation,
multi-episodic hydrothermal event(s), and the presence of precious metal values,
suggest that the Long Canyon area has the potential of a large tonnage,
"Northern Nevada" or "Carlin" type gold deposit.
MEDICINE MAN ELKO COUNTY, NV
SUMMARY
Medicine Man is located approximately 36 miles SE of Elko in the
Medicine Mountain Range. The property hosts large areas of hydrothermal
alteration, primarily extensive jasperoid silicification in
Permian/Pennsylvanian sedimentary rocks. The property was held and explored by
USMX (Now Dakota Mining) who delineated a "small Au-Ag resource" grading 1-2
opt. Ag and "low grade" gold. About 80 claims are currently staked and contact
with Dakota Mining has resulted in the approval for a review of the data.
<PAGE>
PROPERTY
The Medicine Man project currently consists of about 80 unpatented
mining claims in sections 13 & 24 of T28N, R60E and section 18 of T28N, R61E in
the Mount Diablo Base and Meridian. Additional claims staking activities and
reconnaissance in the area are ongoing.
GEOLOGY
The property hosts carbonate and detrital rocks of the Foreland basin.
The Permian and Pennsylvanian aged host stratigraphy consists of silty
limestone's, calcareous siltstones and minor calcareous conglomerates.
Alteration consists of extensive areas of silicification, hydrothermal
brecciation and quartz veining. The alteration system covers in excess of 2
square miles and extends under pediment cover to the NE. It should be noted that
an additional hill, _ mile into the pediment, exposes similar extensive
jasperoid silicification. We believe this indicates an extensive unexplored
mineralized system extending into and covered by a thin pediment.
PREVIOUS EXPLORATION
USMX originally located the property in 1980 and explored the property
for numerous years. An unknown number of drill holes were completed and USMX
delineated a "small Au, Ag resource" grading 1-2 opt Ag and "low grade" gold.
They have consented to allow us to review all of their data.
EXPLORATION TARGET
The exploration target on the Medicine Man property is a large tonnage,
"Northern Nevada" or "Carlin" type gold target. The favorable stratigraphy or
host rocks, structural preparation and hydrothermal alteration found on the
property, indicate the presence of an extensive and poorly understood
hydrothermal system with numerous potential structural and stratigraphic ore
horizons.
EXXON PROJECT ELKO COUNTY, NV
SUMMARY
The Exxon project area is located approximately 40 miles SE of Elko at
the SW end of the Delcer Buttes Range. The property hosts large areas of skarn
and hydrothermal alteration in Permian/Pennsylvanian sedimentary rocks. Exxon
Corporation held the property in the late 1970's as an extensive range front and
pediment covered copper Porphyry target. Newmont Gold corp. staked the property
in 1992 as a gold skarn target. It appears neither company drill tested the
exposed or pediment covered areas of this system. About 10 claims are currently
staked and we are expediting additional research and claim staking activities.
We believe this system has significant potential for a large porphyry related
gold deposit.
PROPERTY
The Exxon project currently consists of about 120 unpatented mining
claims in sections 27, 28, 33 & 34 of T29N, R61E in the Mount Diablo Base and
Meridian. Additional claims staking activities and reconnaissance in the area
are ongoing.
<PAGE>
GEOLOGY
The property hosts carbonate and detrital rocks of the Foreland basin.
The Permian and Pennsylvanian aged host stratigraphy consists of silty
limestones, calcareous siltstones and calcareous conglomerates. The alteration
system is spatially related to a Jurassic intrusive body of granodiorite.
Limited field examination has revealed numerous highly altered dioritic phases
of intrusions, exposed as dikes and sills within the sediment hosted alteration.
The area contains several exposures of alteration and mineralization consisting
of extensive skarn related silicification, hydrothermal alteration, disseminated
sulfides, copper oxide bearing jasperoids, gossans and quartz veining. The
alteration system covers in excess of 2 square miles and extends under pediment
cover to the West, South & East. It should be noted that an additional hill, _
mile into the pediment, exposes similar alteration. We believe this indicates an
extensive unexplored mineralized system extending into and covered by a thin
pediment.
PREVIOUS EXPLORATION
Both Exxon Corporation and Newmont have controlled the property
previously. Exxon's exploration target was reportedly a poorly exposed copper
porphyry system. We assume, Newmont was pursuing the exposed skarn related
mineralization. It appears neither company drilled the property. We believe,
based on our experience with the skarn related gold deposit at Newmont's (Santa
Fe Pacific Gold) Elkhorn property in Montana (2 MM ounces Au.) that the system
potential has not been tested and aggressively evaluated.
EXPLORATION TARGET
The exploration target on the Exxon property is a large tonnage
porphyry/skarn related Cu-Au system. The favorable host rocks, structural
preparation and alteration found on the property, indicate the presence of an
extensive and poorly understood mineralized system with numerous potential
structural and stratigraphic ore horizons.
BLUE BASIN ELKO COUNTY, NV
SUMMARY
Blue Basin is located 20 miles NW of Elko on the north end of Swales
Mountain. It is about five miles north of the Roberts Mountain window mapped at
Swales Mt. in a sequence of highly altered (silicified) Ordovician and Silurian
sediments. The land position is adjacent to and contiguous with Newmont Gold
Corp.'s land position covering the same geologic target area. Newmont holds
approximately 80% of the geologic target, while our position covers the
remainder, including the volcanic graben fault margin.
PROPERTY
Blue Basin is located 20 miles NW of Elko in the Swales Mountain mining
district. It covers approximately 3 square miles of the remaining area of
determined geologic interest, in which 62 federal mining claims have been
staked. The property
<PAGE>
is located in sections 4, 6, 8, 16, 18 in T38N and R56E Mount Diablo Base and
Meridian.
GEOLOGY
Cherts, calcareous siltstones, limestones and shales of Ordovician
Vinnini Formation are present in the upper plates of the thrust faults,
overlying limestones, shales, cherts and tuffaceous siltstones of Silurian and
Devonian age. The trust faults are thought to be Mississippian age. Numerous
siliceous, semi-massive sulfide horizons appear throughout the stratigraphy of
both units, as do several large areas of hydrothermal silicification
(jasperoid). A field investigation of these areas indicates that these may be
structurally prepared and mineralized areas of hydrothermal alteration.
PREVIOUS EXPLORATION
Texasgulf Western, Inc. explored the area around the Blue Basin project
area for stratiform sediment-hosted massive sulfide deposits during the late
seventies and early eighties. Newmont Gold is presently exploring the adjacent
sections to our property for a large tonnage, "Northern Nevada" or "Carlin" type
gold deposit. Texasgulf drilled at least one hole on this property, the results
of which are unknown. Newmont has drilled several holes on their property to
evaluate the resource potential. Results of this work are unknown.
EXPLORATION TARGET
The exploration target on the Blue Basin property is a large tonnage,
"Northern Nevada" or "Carlin" type gold target. The favorable stratigraphy or
host rocks, structural preparation, and hydrothermal alteration found on the
property, indicate the presence of an extensive and poorly understood
hydrothermal system with potential structural and stratigraphic ore horizons.
MCNEW ELKO COUNTY, NV
SUMMARY
The McNew Property area is located approximately 40 miles southeast of
Elko, Nevada in the West Buttes of the Cherry Creek Range. The property is
underlain by limestone of Permian age, which has been intruded by a Tertiary
aged granite pluton, and overlain by a series of Tertiary aged rhyolite flows.
The area contains large areas of hydrothermal alteration, localized along
faults, which cut the limestones and volcanics. The property was held and
explored by Pegasus Exploration in the mid-1980's who outlined several areas of
anomalous gold mineralization. Approximately 72 claims have been staked over the
mineralized areas and Pegasus Exploration's data is available for review.
PROPERTY
The McNew Project currently consists of about 72 unpatented mining
claims located in sections 13 and 24 of T29N R61E and sections 18 and 19 of T29N
R62E in central Elko County, Nevada. The property is approximately 40 miles
southeast of Elko, Nevada.
<PAGE>
GEOLOGY
A sequence of limestones and limey shales and siltstones of Permian age
underlie the property (?). The geology as mapped by Pegasus Exploration suggests
that the rocks are more likely much older and more akin to the host rocks at
Alligator Ridge and similar deposits in the Cherry Creek Range and around Ely.
The sedimentary package has been intruded by a Tertiary aged granite pluton. The
area has also been covered by a Tertiary aged rhyolite flow which has
subsequently been eroded off, exposing the older sediments and intrusive in the
project area. The area has been complicated by a series of northwest trending
high angle faults that have been offset by a latter series of faults trending
east west. Gold mineralization occurs adjacent to the northwest and east-west
trending structures with a disseminated aureole around the higher-grade zones.
Surface sampling by Pegasus Exploration showed values of 0.02 opt Au or better
in rock chip. Pegasus also conducted a limited drill program with drill
intercepts of 0.05 opt Au and above in zones adjacent to structures.
PREVIOUS EXPLORATION
The property was previously held by Pegasus Exploration in the mid
1980's. Pegasus explored the property and outlined several areas of anomalous
gold mineralization. The Pegasus program consisted of surface sampling and
subsequent drilling of some of the anomalous areas. The Pegasus data package is
available for review. No other significant exploration activity is known to have
been undertaken on the property since that time.
EXPLORATION TARGET
The exploration program undertaken by Pegasus Exploration outlined
several areas of anomalous gold mineralization, of which they only drill-tested
a few. Several more areas were never drill-tested and remain to be evaluated.
Future work by Golden Phoenix will include enlarging and further delineating the
anomalous areas and to test other near surface targets in the area.
MONARCH ELKO COUNTY, NV
SUMMARY
The Monarch Property area is located approximately 6 miles west of
Charleston, in north central Elko County, Nevada. The property hosts large areas
of hydrothermal alteration, which is predominantly composed of clays. The
property was held and explored by Rio Algom Exploration in the mid-1980's who
outlined several areas of anomalous gold mineralization. Approximately 60 claims
have been staked over the mineralized areas and Rio Algom Exploration's data is
available for review.
PROPERTY
The Monarch Project currently consists of about 60 unpatented mining
claims located in sections 1 and 2 of T43N R56E in north central Elko County,
Nevada. The property is approximately 6 miles west of Charleston, which is about
70 miles north of Elko, Nevada.
<PAGE>
GEOLOGY
The property is in a region dominated by a thick sequence of white to
gray, slightly calcareous siltstones considered by the U.S.G.S. to be Triassic
in age. Intrusive rocks occurring as dikes, sills, and small plugs are scattered
throughout the region. Volcanic rocks that are rhyolitic in composition overlie
the siltstones on the northern periphery of the property. A large thrust fault
occurs within the siltstones and strikes east west across the property and dips
approximately 20 degrees to the north and is characterized by dense, black,
micro-brecciated siltstone. , Smaller parasitic thrusts occur above and below
this main thrust fault. Mineralization occurs within a high angle fault zone in
the hanging wall of the thrust fault and strikes northwest. A large alteration
zone approximately 4000 feet long by 500 to 1000 feet wide encompasses this
fault zone. The hydrothermal alteration associated with this zone is
predominantly clays. Gold mineralization with values in excess of 0.035 opt Au
occur along structures and as dissemination in the host rock within this altered
zone.
PREVIOUS EXPLORATION
The property was previously held by Golden Empire Mineral Ventures and
Rio Algom Exploration in the 1980's. Rio Algom explored the property in the mid
1980's and outlined several areas of anomalous gold mineralization. The Rio
Algom program consisted of surface sampling and subsequent drilling of some of
the anomalous areas. The Rio Algom data package is available for review. No
other significant exploration activity is known to have been undertaken on the
property since that time.
EXPLORATION TARGET
The exploration program undertaken by Rio Algom outlined several areas
of anomalous gold mineralization, of which they only drill-tested a few. Several
more areas were never drill-tested and remain to be evaluated. They also
outlined a large area of gold mineralization that is open to the south and east.
Future work by Golden Phoenix will include enlarging and further delineating
this anomalous area and to test other near surface targets in the area.
CHISNA ALASKA
SUMMARY
Chisna is located approximately 20 miles northeast from Paxson. The
property is accessible from both significant "winter roads" and 3 airstrips
located on the property. The area is 4 miles NW of the Slate Creek placer
operations conducted in the 1960's through the early 1980's. A base camp exists
at this sight, however it is neither manned nor owned by Golden Phoenix. The
property hosts significant pyritic alteration zones and is spatially related to
quartz monzonite and ultramafic intrusive bodies.
PROPERTY
<PAGE>
The property consists 6 state prospecting sites covering 31/4 square
miles located in T20 S, R15 E. Fairbanks Meridian. Additional land acquisition
of about 6 square miles is pending.
GEOLOGY
The property hosts significant pyritic alteration zones occurring in
various portions of the Permian aged Mankomen formation, which consists of
argillite, schist, amphibolite, hornfels, limestone and basalt. The property
consists of several phases of Quartz Monzonite intrusions into Permian aged
Mankomen formation, which consists of argillite, schist, amphibolite, hornfels,
limestone and basalt. In addition, an ultramafic peridotite and Dunite are
present and assigned to the mineralized Wrangellia metallogenic terrane.
A large area, exceeding 1 1/2 square miles of pyritic alteration marks
what we believe to be associated with porphyry related mineralized system or the
mineralized ultramafic terrane. Gold values up to .04 opt. Are reported by the
State of Alaska. In addition, Cu is reported in massive sulfides to 0.75% and Ni
to 0.2%. There is also a large area of state documented placer Platinum
occurrences in the immediate terrain.
PREVIOUS EXPLORATION
The area was studied by the state of Alaska in 1964 and in 1992. A
large amount of general geologic, geophysical and geochemical data is available.
No surface trenching or drilling appears to have ever been done in the area. It
is assumed that the system was evaluated for copper in the 1970's.
EXPLORATION TARGET
We intend on exploring the sulfide-related mineralization. Initial
geologic and geochemical work will outline the extent of the alteration and
mineralization, to refine the target model.
CHISNA WEST ALASKA
SUMMARY
Chistochina is located approximately 18 miles east-northeast from
Paxson. The property is accessible from both significant "winter roads" and 3
airstrips located 4 miles form the property. The project area is 4 miles West
from the sight of the Slate Creek placer operations. It was in production during
the 1960's through the early 1980's. A significant base camp exists at the
sight, however it is neither manned nor owned by Golden Phoenix. The property
hosts a significant pyritic alteration zone in both quartz monzonite and
granodiorite porphyry intrusions. Mineralized outcrop is exposed at and near the
pediment edge. Quartz sulfide veinlets within the pyritic alteration have
reported assays of 2.2% Cu and .02 opt. Au. It is believed this is part of an
extensive porphyry related mineralization system.
PROPERTY
The property currently consists of 14 state prospecting sites covering
31/2 square mile located in sections 14 & 23 of T20 S, R14 E. Fairbanks
Meridian.
<PAGE>
Additional land acquisition of about 6 square miles is pending, provided the
ground is still open to location when we receive funding.
GEOLOGY
The property consists of several phases of Diorite, Quartz Monzonite
and granodiorite intrusions into the Mankomen formation, which consists of
argillite, schist, hornfels, limestone, diabase, basalt, amphibolite and
greenstone breccia. An exposed area along the pediment edge exposes pervasive
pyritic alteration with quartz/sulfide veinlets and marks what we believe to be
associated with a porphyry related mineralized system containing state reported
copper to 2% and gold up to .02 opt.
PREVIOUS EXPLORATION
The area was studied by the state of Alaska in 1964 and in 1992. A
large amount of general geologic, geophysical and geochemical data is available.
No surface trenching or drilling appears to have ever been done in the area. It
is assumed that the system was evaluated for copper in the 1970's. A large area
2 miles south was staked in 1966. The geologic target has not been visited,
however it is clear that it needs to be evaluated for acquisition.
EXPLORATION TARGET
We intend on exploring the porphyry-related mineralization to evaluate
the potential a bulk mineable gold or copper/gold deposit.
CHISTOCHINA ALASKA
SUMMARY
Chistochina is located approximately 20 miles east-northeast from
Paxson. The property is accessible from both significant "winter roads" and 3
airstrips located on the property. The area was the sight of the Slate Creek
placer operations in the 1960's through the early 1980's. A base camp exists at
the sight, however it is neither manned nor owned by Golden Phoenix. The
property hosts a significant pyritic alteration zone with associated quartz
monzonite and granodiorite porphyry intrusions into the Chisna volcanic
sequence. It is believed this is part of an extensive porphyry related
mineralization system. Selected gold values exceed 0.4 opt Au.
PROPERTY
The property consists 17 state prospecting sites covering 41/2 square
miles located in T20 S, R15 E. Fairbanks Meridian. Additional land acquisition
of about 6 square miles is pending, provided the ground is still open to
location when we receive funding.
GEOLOGY
The property consists of several phases of Diorite, Quartz Monzonite
and granodiorite intrusions into the Chisna volcanic sequence, which consists of
andesite, dacite, tuff and flows. A large area, exceeding 2 square miles of
pyritic
<PAGE>
alteration marks what we believe to be a Cu-Au porphyry mineralized system
containing 2% Cu and up to 0.4 opt Au.
PREVIOUS EXPLORATION
The area was studied by the state of Alaska in 1964 and in 1992. A
large amount of general geologic, geophysical and geochemical data is available.
No surface trenching or drilling appears to have ever been done in the area. It
is assumed that the system was evaluated for copper in the 1970's.
EXPLORATION TARGET
We intend to define the porphyry-related mineralization to evaluate the
potential of a bulk minable gold deposit.
PG & E PROSPECT ALASKA
SUMMARY
Chisna is located approximately 20 miles northeast from Paxson. The
property is accessible from both significant "winter roads" and air strips near
the property. The area is 12 miles NW of the Slate Creek placer operations
conducted during the 1960's through the early 1980's. A base camp exists at this
sight, however it is neither manned nor owned by Golden Phoenix. The property
hosts significant pyritic alteration zones and is spatially related to quartz
monzonite and ultramafic intrusive bodies. This sulfide alteration could either
be related to the Chistochina Porphyry system or the mineralized ultramafic
intrusives.
PROPERTY
The property area of interest covers about 4 square miles of state
prospecting sites on locatable state select lands located in T19/20S, R14 E.
Fairbanks Meridian. Initial land acquisition is pending, provided the ground is
still open to location when we receive funding.
GEOLOGY
The property consists of several phases of Quartz Monzonite intrusions
and Permian aged Mankomen formation, which consists of argillite, schist,
amphibolite, hornfels, limestone and basalt. In addition an ultramafic
peridotite and Dunite is present and assigned to the mineralized Wrangellia
metallogenic terrane.
Several areas of pyritic alteration marks what we believe to be either
associated with the porphyry related mineralized system or the mineralized
ultramafic terrane. There is also a large area of state documented placer
Platinum occurrences in the immediate terrain.
PREVIOUS EXPLORATION
The area was studied by the state of Alaska in 1964 and in 1992. A
large amount of general geologic, geophysical and geochemical data is available.
No surface trenching or drilling appears to have ever been done in the area.
EXPLORATION TARGET
<PAGE>
We intend on exploring the sulfide mineralization. Initial geologic and
geochemical work will outline the extent of the alteration and mineralization to
further define the target model.
NORTH DELTA PROJECT ALASKA
SUMMARY
The North Delta district is located approximately 6 miles
west-northwest of the Delta district on the Robertson River west of Tok, Alaska.
The Delta district has been the focus of aggressive exploration by American
Copper and Nickel Company, with active claims covering almost two entire
townships. The district is host to numerous polymetallic "Kuroko" type massive
sulfide deposits with gold credits. Golden Phoenix Minerals has secured a
significant land position in the district through recent claim staking
activities.
PROPERTY
The property consists of two square miles of acquired mineral rights
located in T18N, R5E, Copper River Meridian.
GEOLOGY
The general geology of the area is a series of meta-volcanic rocks of
the Jarvis Creek Glacier subterrane. These rocks are cut by a series of mafic
dikes with an extensive amount of high angle structural and fracture related
mineralization. Grab samples by the State of Alaska of the mineralized material
containing both disseminated and massive sulfides assay as high as 6.0ppm Au,
100ppm Ag, 14000ppm Pb, 3000 ppm As, and 2000ppm As.
PREVIOUS EXPLORATION
The area was studied by the state of Alaska briefly in 1981. A large
amount of general geologic, geophysical and geochemical data is available. No
drilling appears to have ever been done on the Golden Phoenix Minerals land
positions. Adjacent lands in the Delta district have been the focus of extensive
exploration for many years. American Copper and Nickel Company is conducting an
extensive drilling program for the second consecutive year.
EXPLORATION TARGET
We intend on exploring the intrusive and structure-related
mineralization and alteration within the district. Initial geologic and
geochemical work will outline the extent of the alteration and mineralization to
refine the target models and better define the initial drill targets.
RICHARDSON DISTRICT ALASKA
SUMMARY
The Richardson district is located approximately 70 miles southeast of
Fairbanks, Alaska. The property is accessible from the Richardson Highway, which
passes through the southwest portion of the district. The area has been a
historic producer of both placer and high-grade lode gold occurrences. The
property has
<PAGE>
been the focus of attempted acquisition by major mining companies. Golden
Phoenix Minerals has secured a significant land position in the district through
claim staking efforts and property lease agreements.
PROPERTY
The property consists of over 24 square miles of acquired mineral
rights located in T5, 6, and 7S, R5, 6, 7, and 8E, Fairbanks Meridian.
Additional land acquisition and land lease agreements are pending.
GEOLOGY
The bedrock geology of the Richardson district is composed of
sedimentary and igneous rocks that have been metamorphosed and subsequently
intruded by Mesozoic age plutons. The most common lithologies in the area are
biotite and muscovite schists. A coarse-grained meta-granite occurs near the
head of Buckeye Creek adjacent to several outcrops of hornfels. Meta-granite is
also reported to outcrop in the Rose Creek drainage. Altered quartz porphyry is
exposed in Democrat Creek and Hinkley Gulch and was encountered in the placer
workings in Susie Creek. This unit has been the focus of gold exploration
efforts in the past. More recent exploration in the district has determined that
gold mineralization also occurs in the granite and schistose units in the
district. The quartz porphyry exposed in Democrat Creek is oxidized with quartz
veins and disseminated sulfides. The hydrothermally altered portions of this
unit has been the focus of recent drilling immediately adjacent to the Golden
Phoenix Minerals land position.
PREVIOUS EXPLORATION
The area was studied by the state of Alaska in 1964, 1977, and in 1992.
A large amount of general geologic, geophysical and geochemical data is
available. No drilling appears to have ever been done on the Golden Phoenix
Minerals land positions. Adjacent lands have been the focus of limited
exploration for many years. Several major mining companies have undertaken
exploration activities recently, including trenching, geophysics, drilling, and
claim staking.
EXPLORATION TARGET
We intend to explore the porphyry and structure-related mineralization
and alteration within the district to outline and refine these areas to refine
the target models and to better define initial drill targets.
BONNIFIELD DISTRICT ALASKA
SUMMARY
Golden Phoenix Minerals has acquired project areas in the Bonnifield
district on the north flank of the Alaska Range, south of Fairbanks, Alaska. The
Bonnifield district hosts both base and precious metal occurrences. Getty,
Resource Associates of Alaska, Anaconda, and others have conducted exploration
in the area. Recent announcements of high-grade intercepts of both base and
precious metals have sparked renewed interest in the district. The Golden
Phoenix Minerals properties in the district include similar base and precious
metal occurrences. The Glory Creek
<PAGE>
and Kansas Gold properties represent epithermal gold targets with the Mystic
Mountain and Chute Creek properties having the potential for porphyry style
mineralization associated with altered intrusive bodies.
EXPLORATION TARGET
Golden Phoenix Minerals intends to complete a district-wide compilation
of the available geologic information. The company will conduct additional
mapping and sampling to define and delineate mineralized areas to determine
initial drill targets and areas needing further evaluation. We intend to define
the epithermal and porphyry related mineralization to evaluate the potential of
a bulk mineable gold deposit.
GLOSSARY OF CERTAIN MINING TERMS
ACID MINE DRAINAGE -- Acidic run-off water from mine waste dumps and mill
tailings ponds containing sulfide minerals. Also refers to ground water
pumped to surface from mines.
ADIT -- An opening driven horizontally into the side of a mountain or hill
for providing access to a mineral deposit.
ALTERATION -- Any physical or chemical change in a rock or mineral subsequent to
its formation. Milder and more localized than metamorphism.
ALLOCHTHON -- Rocks that have been moved a long distance from their place of
deposition by some tectonic process, generally related to overthrusting
or recumbent folding.
ANTICLINE -- An arch or fold in layers of rock shaped like the crest of a wave.
ASSAY -- A chemical test performed on a sample of ores or minerals to
determine the amount of valuable metals contained.
BACKFILL -- Waste material used to fill the void created by mining an orebody.
BASEMENT ROCKS -- The underlying or older rock mass. Often refers to rocks of
Precambrian age, which may be covered, by younger rocks.
BASE METAL -- Any non-precious metal (e.g. copper, lead, zinc, nickel, etc.)
BEDDING -- The arrangement of sedimentary rocks in layers.
BENEFICIATION -- The process of improving the grade of ore by milling, roasting,
etc.
BLOCK CAVING -- An inexpensive method of mining in which large blocks of ore
are undercut, causing the ore to break or cave under its own weight.
BRECCIA -- A rock in which angular fragments are surrounded by a mass of
fine-grained minerals.
BRECCIATION -- The mechanical process of making a breccia.
<PAGE>
BULK MINING -- Any large-scale, mechanized method of mining involving many
thousands of tones of ore being brought to surface per day.
"CARLIN" type gold deposit -- A genetic model for sediment hosted gold deposit
patterned after occurrences near Carlin, Nevada.
CATHODE -- A rectangular plate of metal, produced by electrolytic refining,
which is melted into commercial shapes such as wirebars, billets,
ingots, etc.
CERCLA -- Comprehensive Environmental Response, Compensation and Liability Act
CHALCOCITE -- A sulfide mineral of copper common in the zone of secondary
enrichment.
CHANNEL SAMPLE -- A sample composed of pieces of vein or mineral deposit that
have been cut out of a small trench or channel, usually about 10 cm
wide by 2 cm deep.
CHERT -- A compact, siliceous rock formed of chalcedonic or opaline silica
and of organic or precipitated origin.
CHUTE -- An opening, usually constructed of timber and equipped with a gate,
through which ore is drawn from a stope into mine cars.
CLASTIC ROCKS -- Consisting of fragments of rocks that have been moved from
their place of origin.
COMPLEX ORE -- An ore containing a number of minerals of economic value. The
term often implies that there are metallurgical difficulties in
liberating and separating the valuable metals.
CONCENTRATE -- A fine, powdery product of the milling process containing a high
percentage of valuable metal.
CONGLOMERATE -- A sedimentary rock consisting of rounded, water-worn pebble or
boulders cemented into a solid mass.
CONTACT -- A geological term used to describe the line or plane along which two
different rock formations meet.
CORE -- The long cylindrical piece of rock, from one to three inches in
diameter, brought to surface by diamond drilling.
CROSSCUT -- A horizontal opening driven from a shaft and (or near) right angles
to the strike of a vein or other orebody.
CSAMT -- Controlled Source Audio-frequency Magneto-Tellurics, a geophysical
technique.
CUT-AND-FILL -- A method of stoping in which ore is removed in slices, or lifts,
and then the excavation is filled with rock or other waste material
(backfill), before the subsequent slice is extracted.
DECLINE -- An underground passageway connecting one or more levels in a mine,
providing adequate traction for heavy, self-propelled equipment. Such
<PAGE>
underground openings are often driven in an upward or downward spiral,
much the same as a spiral staircase.
DEVELOPMENT -- Work carried out for the purpose of opening up a mineral deposit
and making the actual ore extraction possible.
DEVELOPMENT DRILLING -- Drilling to establish accurate estimates of mineral
reserves.
DIAMOND DRILL -- A rotary type of rock drill that cuts a core of rock that is
recovered in long cylindrical sections, two centimeters or more in
diameter.
DIKE -- A long and relatively thin body of igneous rock that, while in the
molten state, intruded a fissure in older rocks.
DILUTION (mining) -- Rock that is, by necessity, removed along with the ore in
the mining process, subsequently lowering the grade of the ore.
DIP -- The angle at which a vein, structure or rock bed is inclined from
the horizontal as measured at right angles to the strike.
DISSEMINATED ORE -- Ore carrying small particles of valuable minerals spread
more or less uniformly through the host rock.
DORE -- Unparted gold and silver poured into molds when molten to form
buttons or bars. Further refining is necessary to separate the gold and
silver.
DRIFT -- A horizontal underground opening that follows along the length of a
vein or rock formation as opposed to a crosscut which crosses the rock
formation.
DRILL-INDICATED RESOURCE -- The size and quality of a potential orebody as
suggested by widely spaced drillholes; more work is required before the
resource can be classified as probable or proven reserves.
DUE DILIGENCE -- The degree of care and caution required before making a
decision; loosely, a financial and technical investigation to determine
whether an investment is sound.
DUMP -- A site where solid waste rock from a mining operation is disposed
of.
ELECTROLYTIC REFINING -- The process of purifying metal ingots that are
suspended as anodes in an electrolytic bath, alternated with refined
sheets of the same metal which act as starters or cathodes.
EM -- Electro-Magnetics, a geophysical technique.
ENVIRONMENTAL IMPACT STUDY -- A written report, compiled prior to production
decision that examines the effects proposed mining activities will have
on the natural surroundings.
EPA -- Environmental Protection Agency.
EPITHERMAL DEPOSIT -- A mineral deposit consisting of veins and replacement
bodies, usually in volcanic or sedimentary rocks, containing precious
metals, or, more rarely, base metals.
<PAGE>
EXPLORATION -- Work involved in searching for ore, usually by drilling or
driving a drift.
FACE -- The end of a drift, crosscut or stope in which work is taking place.
FISSURE -- An extensive crack, break or fracture in rocks.
FLOAT -- Pieces of rock that have been broken off and moved from their
original location by natural forces such as frost or glacial action.
FLOTATION -- a milling process in which valuable mineral particles are induced
to become attached to bubbles and float, while others sink.
FOOTWALL -- The rock on the underside of a vein or ore structure.
FRACTURE -- A break in the rock, the opening of which allows mineral-bearing
solutions to enter. A "cross-fracture" is a minor break extending at
more-or-less right angles to the direction of the principal fractures.
FREE MILLING -- Ores of gold or silver from which the precious metals can be
recovered by concentrating methods without resort to pressure leaching
or other chemical treatment.
GALENA -- Lead sulfide, the most common ore mineral of lead.
GOSSAN -- The rust-colored capping or staining of a mineral deposit, generally
formed by the oxidation or alteration of iron sulfides.
GRAB SAMPLE -- A sample from a rock outcrop that is assayed to determine if
valuable elements are contained in the rock. A grab sample is not
intended to be representative of the deposit, and usually the
best-looking material is selected.
GRADE -- The average assay of a ton of ore, reflecting metal content.
HANGINGWALL -- The rock on the upper side of a vein or ore deposit.
HEAD GRADE -- The average grade of ore fed into a mill.
HEAP LEACHING -- A process involving the percolation of a cyanide solution
through crushed ore heaped on an impervious pad or base to dissolve
minerals or metals out of the ore.
HIGH GRADE -- Rich ore. As a verb, it refers to selective mining of the best
ore in a deposit.
HOST ROCK -- The rock surrounding an ore deposit.
HYDROMETALLURGY -- The treatment of ore by wet processes (e.g., leaching)
resulting in the solution of a metal and its subsequent recovery.
HYDROTHERMAL -- An adjective applied to heated or hot magmatic emanations rich
in water, to the processes in which they are concerned, and to the
rocks, ore deposits, alteration products, and springs produced by them.
INTERBEDDED -- Occurring between beds, or lying in a bed parallel to other beds
of different material.
<PAGE>
INTRUSIVE -- A body of igneous rock formed by the consolidation of magma
intruded into other rocks, in contrast to lavas, which are extruded
upon the surface.
IP -- Induced Polarization
"KUROKO" type massive sulfide -- A genetic model for a volcanogenic massive
sulfide deposit patterned after occurrences at Kuroko, Japan.
JASPEROID -- A rock consisting essentially of cryptocrystalline, chalcedonic, or
phenocrystalline silica, which has formed by the replacement of some
other material, ordinarily calcite or dolomite.
LAGGING -- Planks or small timbers placed between steel ribs along the roof of
a stope or drift to prevent rocks from falling, rather than to support
the main weight of the overlying rocks.
LENS -- Generally used to describe a body of ore that is thick in the middle
and tapers towards the ends.
LEVEL -- The horizontal openings on a working horizon in a mine; it is
customary to work mines from a shaft, establishing levels at regular
intervals, generally about 50 meters or more apart.
LITHOLOGY -- The physical character of a rock.
LIMESTONE -- A bedded, sedimentary deposit consisting chiefly of calcium
carbonate.
LODE -- A mineral deposit in solid rock.
MARCASITE -- White iron pyrites, a common mineral associated in ore deposits.
METAMORPHIC ROCKS -- Rocks which have undergone a change in texture or
composition as the result of heat and/or pressure.
MILL -- A processing plant that produces a concentrate of the valuable
minerals or metals contained in an ore. The concentrate must then be
treated in some other type of plant, such as a smelter, to affect
recovery of the pure metal.
MILLING ORE -- Ore that contains sufficient valuable mineral to be treated by
milling process.
MINERAL -- A naturally occurring homogeneous substance having definite physical
properties and chemical composition and, if formed under favorable
conditions, a definite crystal form.
MINERALIZATION -- The act or process of mineralizing.
MINERALIZED MATERIAL OR DEPOSIT -- A mineralized body which has been delineated
by appropriate drilling and/or underground sampling to support a
sufficient tonnage and average grade of metal(s). Under SEC standards,
such a deposit does not qualify as a reserve until a comprehensive
evaluation, based upon unit cost, grade, recoveries, and other factors,
conclude economic feasibility.
<PAGE>
MUCK -- Ore or rock that has been broken by blasting.
NATIVE METAL -- A metal occurring in nature in pure form, uncombined with
other elements.
NET PROFIT INTEREST -- A portion of the profit remaining after all charges,
including taxes and bookkeeping charges (such as depreciation) have
been deducted.
NET SMELTER RETURN -- A share of the net revenues generated from the sale
of metal produced by a mine.
OPEN PIT -- A mine that is entirely on surface. Also referred to as an
open-cut or open-case mine.
ORE -- Mineralized material that can be mined and processed at a positive
cash flow.
ORE PASS -- Vertical or inclined passage for the downward transfer of ore
connecting a level with the hoisting shaft or a lower level.
OREBODY -- A natural concentration of valuable material that can be extracted
and sold at a profit.
ORESHOOT -- The portion, or length, of a vein or other structure, that carries
sufficient valuable mineral to be extracted profitably.
OXIDATION -- A chemical reaction caused by exposure to oxygen that results in a
change in the chemical composition of a mineral.
PARTICIPATING INTEREST -- A company's interest in a mine, which entitles it to a
certain percentage of profits in return for putting up an equal
percentage of the capital cost of the project.
PATENT -- The ultimate stage of holding a mineral claim, after which no more
assessment work is necessary because all mineral rights have been
earned.
PATENTED MINING CLAIM -- A parcel of land originally located on federal lands as
an unpatented mining claim under the General Mining Law, the fee simple
title of which has been conveyed from the federal government to a
private party pursuant to the patenting requirements of the General
Mining Law.
PILLAR -- A block of solid ore or other rock left in place to structurally
support the shaft, walls or roof of a mine.
PLACER -- An alluvial or glacial deposit of sand and gravel, containing
particles of gold or other valuable minerals.
PORPHYRY -- Any igneous rock in which relatively large crystals, called
phenocrysts, are set in a fine-grained groundmass.
PRECAMBRIAN SHIELD -- The oldest, most stable regions of the Earth's crust, the
largest of which is the Canadian Shield.
PROSPECT -- A mining property, the value of which has not been determined by
exploration.
<PAGE>
PROTOLITH -- The original lithology of an altered rock.
PROBABLE (INDICATED) RESERVES -- Resources for which tonnage and grade and/or
quality are computed primarily from information similar to that used
for proven reserves, but the sites for inspection, sampling and
measurement are farther apart or are otherwise less adequately spaced.
The degree of assurance, although lower than that for proven reserves,
is high enough to assume continuity between points of observation.
PROVEN (MEASURED) RESERVES -- Resources for which tonnage is computed from
dimensions revealed in outcrops, trenches, workings or drill holes and
for which the grade and/or quality is computed from the results of
detailed sampling. The sites for inspection, sampling and measurement
are spaced so closely and the geologic character is so well defined
that size, shape, depth and mineral content of reserves are well
established. The computed tonnage and grade are judged to be accurate,
within limits which are stated, and no such limit is judged to be
different from the computed tonnage or grade by more than 20 percent.
PROVEN AND PROBABLE MINERAL RESERVES -- Reserves that reflect estimates of the
quantities and grades of mineralized material at a mine which the
Company believes could be recovered and sold at prices in excess of the
cash cost of production. The estimates are based largely on current
costs and on projected prices and demand for such mineralized material.
Mineral reserves are stated separately for each such mine, based upon
factors relevant to each mine. Proven and probable mineral reserves are
based on calculations of reserves provided by the operator of a
property that have been reviewed but not independently confirmed by the
Company. Changes in reserves represent general indicators of the
results of efforts to develop additional reserves as existing reserves
are depleted through production. Grades of ore fed to process may be
different from stated reserve grades because of variation in grades in
areas mined from time to time, mining dilution and other factors.
Reserves should not be interpreted as assurances of mine life or of the
profitability of current or future operations.
RAISE -- A vertical or inclined underground working that has been excavated
from the bottom upward.
RAKE -- The trend of an orebody along the direction of its strike.
RCRA -- Resource Conservation and Recovery Act
RECLAMATION -- The restoration of a site after mining or exploration activity is
completed.
RECOVERY -- The percentage of valuable metal in the ore that is recovered by
metallurgical treatment.
REPLACEMENT ORE -- Ore formed by a process during which certain minerals have
passed into solution and have been carried away, while valuable
<PAGE>
minerals from the solution have been deposited in the place of those
removed.
RECRYSTALIZED -- The formation of new mineral grains in a rock while in a solid
state.
RESILICIFIED or RESILICIFICATION --The process of altering or recementing a rock
which has been previously altered by the introduction of silica.
RESERVES -- That parts of a mineral deposit which could be economically and
legally extracted or produced at the time of the reserve determination.
Reserves are customarily stated in terms of "Ore" when dealing with
metalliferous minerals. Reserves are further classified by SEC
guidelines as "Proven Reserves" or "Probable Reserves" according to the
degree of assurance in the reserve determination data.
RESOURCE -- The calculated amount of material in a mineral deposit, based on
limited drill information.
RIB SAMPLES -- Ore taken from rib pillars in a mine to determine metal
content.
ROCKBOLTING -- The act of supporting openings in rock with steel bolts anchored
in holes drilled especially for this purpose.
ROCK MECHANICS -- The study of the mechanical properties of rocks, which
includes stress conditions around mine openings and the ability of
rocks and underground structures to withstand these stresses.
ROOM-AND-PILLAR MINING -- A method of mining flat-lying ore deposits in which
the mined-out area, or rooms, are separated by pillars of approximately
the same size.
ROTARY DRILL -- A machine that a drill holes by rotating a rigid, tubular
string of drill rods to which is attached a bit. Commonly used for
drilling large-diameter blastholes in open pit mines.
ROYALTY -- An amount of money paid at regular intervals by the lessee or
operator of an exploration or mining property to the owner of the
ground. Generally based on a certain amount per ton or a percentage of
the total production or profits. Also, the fee paid for the right to
use a patented process.
RUN-OF-MINE -- A loose term used to describe ore of average grade.
SAMPLE -- A small portion of rock or a mineral deposit, taken so that the
metal content can be determined by assaying.
SECONDARYENRICHMENT -- Enrichment of a vein or mineral deposit by minerals that
have been taken into solution from one part of the vein or adjacent
rocks and redeposited in another.
SHALE -- A laminated sediment in which the constituent particles are
predominantly clay grade or size.
<PAGE>
SHAFT -- A vertical or steeply inclined excavation for the purpose of opening
and servicing a mine. It is usually equipped with a hoist at the top,
which lowers and raises a conveyance for handling personnel and
materials.
SHEAR OR SHEARING -- The deformation of rocks by lateral movement along
unnumberable parallel planes, generally resulting from pressure and
producing such metamorphic structures as cleavage and schistosity.
SHRINKAGE STOPING -- A stoping method which uses part of the broken ore as a
working platform and as support for the walls of the stope.
SILICIFICATION -- The introduction of or replacement by silica.
SILTSTONE -- A very fine-grained consolidated clastic rock composed
predominantly of particles of silt grade or size.
SKARN -- Name for the metamorphic rocks surrounding an igneous intrusive
where it comes in contact with a limestone or dolostone formation.
SOLVENT EXTRACTION-ELECTROWINNIG (SX/EW) -- A metallurgical technique, so far
applied only to copper ores, in which metal is dissolved from the rock
by organic solvents and recovered from solution by electrolysis.
SPHALERITE -- A zinc sulphide mineral; the most common ore mineral of zinc.
STEP-OUT DRILLING -- Holes drilled to intersect a mineralization horizon or
structure along strike or down dip.
STOCKPILE -- Broken ore heaped on surface, pending treatment or shipment.
STOCKWORKS -- a rock mass interpenetrated by small veins.
STOPE -- An underground excavation from which ore has been extracted either
above or below mine level.
STRATIGRAPHY -- Strictly, the description of bedded rock sequences; used
loosely, the sequence of bedded rocks in a particular area.
STRIKE -- The direction, or bearing from true north, of a vein or rock
formation measured on a horizontal surface.
STRINGER -- A narrow vein or irregular filament of a mineral or minerals
traversing a rock mass.
STRIPPING RATIO -- The ratio of tons removed as waste relative to the number of
tons or ore removed from an open pit mine.
SUBLEVEL -- A level or working horizon in a mine between main working levels.
SULPHIDE (SULFIDE) -- A compound of sulfur and some other element.
TAILINGS -- Material rejected from a mill after more of the recoverable valuable
minerals have been extracted.
TAILINGS POND -- A low-lying depression used to confine tailings, the prime
function of which is to allow enough time for heavy metals to settle
out or for cyanide to be destroyed before water is discharged into the
local watershed.
<PAGE>
TREND -- The direction, in the horizontal plane, or a linear geological
feature (for example, an ore zone), measured from true north.
TROY OUNCE -- Unit of weight measurement used for all precious metals. The
familiar 16-ounce avoirdupois pound equals 14.583 Troy Ounces.
UNPATENTED MINING CLAIM -- A parcel of property located on federal lands
pursuant to the General Mining Law and the requirements of the state in
which the unpatented claim is located, the paramount title of which
remains with the federal government. The holder of a valid, unpatented
lode mining claim is granted certain rights including the right to
explore and mine such claim under the General Mining Law.
USD -- United States Dollars
VEIN -- A mineralized zone having a more or less regular development in
length, width and depth, which clearly separates it from neighboring
rock.
VUG -- A small cavity in a rock, frequently lined with well-formed
crystals. Amethyst commonly forms in these cavities.
WALL ROCKS -- Rock units on either side of an orebody. The hangingwall and
footwall rocks of an orebody.
WASTE -- Barren rock in a mine, or mineralized material that is too low in
grade to be mined and milled at a profit.
WINZE -- An internal shaft.
ZONE OF OXIDATION -- The upper portion of an orebody that has been oxidized.
ITEM 4. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth the information as to the ownership of
each person who owns of record, or is known by the Company to own beneficially,
more than five per cent of the Company's common and preferred stock, and the
officers and directors of the Company.
Common Stock
Name Shares Percent Converted*
---- ------ ------- ----------
Michael R. Fitzsimonds 1,750,000 14% 23%
4935 San Diego Court
Sparks, NV
Donald J. McDowell 2,000,000 16% 25%
1555 Ridgeview
<PAGE>
Reno, NV
Dennis J. McDowell 500,000 4%
28119 180th Avenue S.E.
Kent, WA
All officers and directors as a group 4,250,000 34% 46%
* Shows the per cent of common shares owned if preferred shares are converted.
There are options outstanding to purchase 4,000,000 shares of common
stock. Donald McDowell holds 225,000 at $.10, 250,000 at $.20, 125,000 at $.50,
125,000 at $.75, 500,000 at $2.00 and 500,000 at $3.00. Michael Fitzsimonds
holds 225,000 at $.10, 250,000 at $.20, 125,000 at $.50, 125,000 at $.75,
500,000 at $2.00 and 500,000 at $3.00. Dennis McDowell holds 50,000 at $.10.
Daniel Taylor holds 300,000 at $.10. Angelette McGovern holds 100,000 at $.10.
David Caldwell holds 100,000 at $.10.
Preferred Stock
Shares Percent
------ -------
Andrea Albanesse 66,667 13%
1036 Jefferson Avenue
West Vancouver, B.C. Canada
Stephan Maurer 25,000 5%
28 W050 Garyes Mill Road
Winfield, IL
Paul Dickson 25,000 5%
202-1049 Chilco Street
Vancouver, B.C. Canada
Dave Venchus 25,000 5%
255 Eagle Ridge
West Chicago, IL
Jason Kolpec 25,000 5%
858 Spiros Drive
DeKalb, IL
Fiona Lattanzi 66,667 13%
2879 Norman Avenue
Coquitlam, B.C. Canada
Peter Shepherd 33,333 6%
<PAGE>
7426 Bridge Street
Richmond, B.C. Canada
Terry Shepherd 33,333 6%
7426 Bridge Street
Richmond, B.C. Canada
Donald J. McDowell 100,000 20%
1555 Ridgeview
Reno, NV
Michael R. Fitzsimonds 100,000 20%
4935 San Diego Court
Sparks, NV
All officers and directors as a group 200,000 40%
ITEM 5. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS
The executive officers and directors of the company, with a brief
description are as follows:
Name Age Position
- ---- --- --------
Michael R. Fitzsimonds 41 President, Director
Daniel T. Taylor 41 Vice President, Director
Donald J. McDowell 37 Executive Vice President, Director
Dennis J. McDowell 37 Secretary, Director
David A. Caldwell 36 Director
Michael R. Fitzsimonds, Mr. Fitzsimonds is the President, and a
Director of the Company. He is a Geological Engineer. He has been associated
with Santa Fe Gold Corporation for the past 10 years. He was responsible for
resource evaluation and due diligence on corporate acquisition projects
worldwide. He has experience in the minerals industry with project development
ranging from grass roots exploration to advanced project development and
expertise in resource evaluation.
Daniel T. Taylor, Mr. Taylor is Vice President and a Director. Mr.
Taylor is a Geologist. He has been associated with Santa Fe Gold Corporation for
the past 10 years
<PAGE>
in managing exploration and development projects in the Western United States.
He has experience in the minerals industry with project development ranging from
grass roots exploration to advanced project development.
Donald J. McDowell, Mr. McDowell is Executive Vice President and a
Director. Mr. McDowell is a professional land surveyor and geologic explorations
with more than 19 years of surveying, mineral exploration and development
experience. He was associated with Santa Fe Gold Corporation for more than 10
years and most recently was a geologic consultant expediting project generation
for the Kennecot/RTZ exploration team.
Dennis J. McDowell, Mr. McDowell is Secretary and a Director. Mr.
McDowell is Vice President, Regional Director of Stores for Fred Meyer, Inc. and
has worked for that company for the past 12 years.
David A. Caldwell, Mr. Caldwell is a Director. Mr. Caldwell is a
geologist and geophysicist. He has more than 10 years experience in the minerals
exploration industry, with experience in sulfur, base metal and gold exploration
and development. He had roles in project management and development for Santa Fe
Gold Corporation and Gold Fields Mining Company in Nevada, New Mexico and Texas.
He was a project geologist with Santa Fe Pacific Gold Corporation and is
currently an Officer and Director with Nevada Pacific Gold (US), Inc.
ITEM 6. EXECUTIVE COMPENSATION
There is no employee that was paid as much as $60,000 per year as
salary. There is no contract for the payment of a salary to any employee. There
are no employment agreements. The Company has agreed to pay Michael R.
Fitzsimonds, Donald J. McDowell and Daniel T. Taylor the sum of $60,000 per year
each.
ITEM 7. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
As part of the agreement between Mr. McDowell and the other principles
of the company who make up the Board of Directors, Mr. McDowell agreed to make
available to the company any of the properties he had located prior to the
formation of the company. The only property, which was located and filed with
the Federal Government and subsequently, QUIT CLAIMED to the company by MR.
McDowell is the Garamendi property. Four other properties, Long Canyon, Blue
Basin, Chisna, and Chistochina were relocated by the company. As part of the
agreement to bring these properties into the company Mr. McDowell would not be
compensated monetarily but would retain a 2% NSR on each of the properties if
they were put into production.
<PAGE>
ITEM 8. LEGAL PROCEEDINGS
None
ITEM 9. MARKET FOR COMMON EQUITY AND RELATED SHAREHOLDER MATTERS
The Company's common stock has been traded since August 6,1997, before
that time there was no activity. As of October 13, 1997 the following brokerage
firms were making a market in the Company's common stock: H. S. Meyers & Co.,
Mercer Bokest Buckman & Reid, Fahnestock & Co., Wien Securities, Mayer &
Schwitzer, Herzog Heine Geduld, Inc., J. B. Oxford & Co., Hill Thompson Magid &
Co., Wm V. Frankel & Co, Inc., Fidelity Capital Markets, GVR Co., Sharpe
Capital, Inc., Nash Weiss & Co., Paragon Capital Corp., Protective Group
Securities.
The following table sets forth for the periods indicated the range of
high and low closing bid quotations per share as reported by the
over-the-counter market. These quotations represent inter-dealer prices, without
retail markups, markdowns or commissions and may not necessarily represent
actual transactions.
Price per Share
----------------
High Low
----------------
Fiscal year 1997 $5.875 $.05
Third Quarter (June 30, 1997
through September 30, 1997)
There are 46 holders of the common and preferred stock of the Company.
There have never been any dividends, cash or otherwise, paid on the common
shares of the Company.
ITEM 10. RECENT SALES OF UNREGISTERED SECURITIES
There was a Form D for a Rule 504 offering filed in June, 1997. The
offering was for $50,000 and was sold to 38 persons. There was a 504 offering
for 40,000 shares dated July 10, 1997 for $20,000. There was a 504 offering for
330,000 shares dated July 10, 1997 for $693,000.
Common Shares
Name Date Shares Cost Per Share
Andrea Albanese 6/97 500,000 $2,500 .005
Elizabeth Ranft 6/97 500,000 $2,500 .005
<PAGE>
Karen Dawson 6/97 333,334 $1,666 .005
Michelle White 6/97 70,000 $350 .005
Stephan Maurer 6/97 500,000 $2,500 .005
Paul Dickson 6/97 500,000 $2,500 .005
Dave Venchus 6/97 500,000 $2,500 .005
Jason Kolpec 6/97 500,000 $2,500 .005
Fiona Lattanzi 6/97 500,000 $2,500 .005
Stuart Hunter 6/97 250,000 $1,250 .005
Chris Cooper 6/97 583,332 $2,916 .005
Peter Shepherd 6/97 505,000 $2,525 .005
Terry Shepherd 6/97 505,000 $2,525 .005
Bruce Goodwin 6/97 25,000 $125 .005
Steve Clark 6/97 25,000 $125 .005
Chris Walters 6/97 33,334 $166 .005
Lorelei Lauten 6/97 50,000 $250 .005
Florence Walters 6/97 20,000 $100 .005
Joe Walters 6/97 20,000 $100 .005
Jon Walters 6/97 20,000 $100 .005
Jean Walters 6/97 30,000 $150 .005
Marlene Shepherd 6/97 10,000 $50 .005
Mike Case 6/97 10,000 $50 .005
Donald J. McDowell 6/97 2,000,000 $5,000 .0025
Michael R. Fitzsimonds 6/97 1,750,000 $5,000 .0028
Leona D. Fitzsimonds 6/97 200,000 $1,000 .005
Nicole D. Fitzsimonds 6/97 200,000 $1,000 .005
Marjorie L. Fitzsimonds 6/97 50,000 $250 .005
Myrtle P. Burnett 6/97 50,000 $250 .005
Dennis J. McDowell 6/97 500,000 $1,250 .0025
Donna Birdwell 6/97 50,000 $250 .005
Danette Dunn 6/97 200,000 $1,000 .005
Capital Formation Trust 6/97 150,000 $750 .005
Capital Strategies Group 6/97 150,000 $750 .005
Duet, Ltd. 6/97 245,000 $1,225 .005
Millport Overseas, Ltd. 6/97 210,000 $1,050 .005
Wrigley Investments Holdings, Ltd. 6/97 225,000 $1,125 .005
Loewen Ondaatje McCutcheon, Ltd. 7/97 40,000 $20,000 .50
Banque De Gestion Privee 7/97 52,000 $109,200 2.10
Cook et Cie SA 7/97 75,000 $157,500 2.10
Banque d'Orsay 7/97 30,000 $63,000 2.10
Banque Scalbert Dupont 7/97 50,000 $105,000 2.10
Banque Rivaud 7/97 60,000 $126,000 2.10
Credit Industriel et Commercial 7/97 25,000 $52,500 2.10
Neuflize Schlumberger Mallet 7/97 25,000 $52,500 2.10
E.B.P.F 7/97 13,000 $27,300 2.10
Preferred Shares
<PAGE>
Andrea Albanese 6/97 66,667
Stephan Maurer 6/97 25,000
Paul Dickson 6/97 25,000
Dave Venchus 6/97 25,000
Jason Kolpec 6/97 25,000
Fiona Lattanzi 6/97 66,667
Peter Shepherd 6/97 33,333
Terry Shepherd 6/97 33,333
Donald J. McDowell 6/97 100,000
Michael R. Fitzsimonds 6/97 100,000
All sales in June, 1997 were for $.005 per share. There were shares
issued to Donald J. McDowell, 1,000,000 shares, Michael R. Fitzsimonds, 750,000
shares and Dennis J. McDowell, 250,000 shares for which there was no cash
compensation, but for services performed in the founding of the Company. Later
in July, 1997 there was a value in the Company and 330,000 shares were sold for
$2.10 per share. The Underwriter of those shares was sold, as part compensation
for its services, 40,000 shares for $.50 per share.
There was no underwriter on the sales of any of the securities, and no
commissions were paid. except there was a commission of $.10 paid on the sale of
330,000 shares to Banque De Gestion Privee, Cook et Cie SA, Banque d'Orsay,
Banque Scalbert Dupont, Banque Rivard, Credit Industriel et Commercial
Cicotitres, Newflize Schlimberger Mattet and E.B.P.F. All sales were for cash.
The registrant believes that all transactions were transactions not
involving any public offering within the meaning of Section 4(2) of the
Securities Act of 1933, since (a) each of the transactions involved the offering
of such securities to a substantially limited number of persons; (b) each person
took the securities as an investment for his own account and not with a view to
distribution; (c) each person had access to information equivalent to that which
would be included in a registration statement on the applicable form under the
Act; (d) each person had knowledge and experience in business and financial
matters to understand the merits and risk of the investment; therefore no
registration statement need be in effect prior to such issuances.
ITEM 11. DESCRIPTION OF SECURITIES
The company has authorized 200,000,000 shares of stock, no par value,
150,000,000 shares have been designated as common shares, and the remaining
50,000,000 shares are preferred shares. Each holder of common stock has one vote
per share on all matters voted upon by the shareholders. Such voting rights are
noncumulative so that shareholders holding more than 50% of the outstanding
<PAGE>
shares of common stock are able to elect all members of the Board of Directors.
There are no preemptive rights or other rights of subscription.
Each share of common stock is entitled to participate equally in
dividends as and when declared by the Board of Directors of the company out of
funds legally available, and is entitled to participate equally in the
distribution of assets in the event of liquidation. All shares, when issued and
fully paid, are nonassessable and are not subject to redemption or conversion
and have no conversion rights.
The preferred shares are convertible into 10 common shares at a price
of $.10 per share for a period of 10 years. The preferred shares have no voting
power, unless converted into common shares. There are no other preferences.
Risk Factor - Penny Stock Regulation. Broker-dealer practices in
connection with transactions in "penny stocks" are regulated by certain penny
stock rules adopted by the Securities and Exchange Commission. Penny stock
generally are equity securities with a price of less than $5.00 (other than
securities registered on certain national securities exchanges or quoted on the
Nasdaq system, provided that current price and volume information with respect
to transactions in such securities is provided by the exchange or system). The
penny stock rules require a broker-dealer, prior to a transaction in a penny
stock not otherwise exempt from the rules, to deliver a standardized risk
disclosure document that provides information about penny stocks and the risks
in the penny stock market. The broker-dealer must also provide the customer with
current bid and offer quotations for the penny stock, the compensation of the
broker-dealer and its salesperson in the transaction, and monthly account
statements showing the market value of each penny stock held in the customer's
account. In addition, the penny stock rules generally require that prior to a
transaction in a penny stock the broker-dealer make a special written
determination that the penny stock is a suitable investment for the purchaser
and receive the purchaser's written agreement to the transaction. These
disclosure requirements may have the effect of reducing the level of trading
activity in the secondary market for a stock that becomes subject to the penny
stock rules. If the Company's securities become subject to the penny stock
rules, investors in this offering may find it more difficult to sell their
securities.
ITEM 12. INDEMNIFICATION OF DIRECTORS AND OFFICERS
Minnesota Statutes, Section 302A.521, contain an extensive
indemnification provision which requires mandatory indemnification by a
corporation of any officer, director and affiliated person who was or is a
party, or who is threatened to be made a party to any threatened, pending or
completed action, suit or proceeding, whether civil, criminal, administrative or
investigative, by reason of the fact that he is or was a member, director,
officer, employee or agent of the corporation, or is or was serving at the
request of the corporation as a member, director, officer, employee or agent of
another corporation, partnership, joint venture, trust or other enterprise,
against
<PAGE>
expenses, including attorneys' fees, and against judgments, fines and amounts
paid in settlement actually and reasonably incurred by him in connection with
such action, suit or proceeding if he acted, or failed to act, in good faith and
in a manner he reasonably believed to be in or not opposed to the best interests
of the corporation and, with respect to any criminal action or proceeding, had
no reasonable cause to believe his conduct was unlawful. In some instances a
court must approve such indemnification.
ITEM 13. FINANCIAL STATEMENTS
Please see the attached Financial Statements.
ITEM 14. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
ITEM 15. FINANCIAL STATEMENTS AND EXHIBITS
(a) Please see the attached Financial Statements
(b) Exhibits:
*3.1 Articles of Incorporation and bylaws
*5.1 Opinion of counsel
*10.1 Quitclaim Deed
10.2 Welsh Agreement
10.3 Kennecott Agreement
* Filed Previously.
<PAGE>
SIGNATURES
In accordance with Section 12 of the Securities Exchange Act of 1934,
the registrant caused this registration statement to be signed on its behalf by
the undersigned thereunto duly authorized.
Date: October 13, 1997 Golden Phoenix Minerals, Inc.
____/s/_____________________________________
Michael R. Fitzsimonds, President
____/s/_____________________________________
Donald J. McDowell, Executive Vice President
____/s/_____________________________________
Daniel T. Taylor, Vice President
____/s/_____________________________________
Dennis J. McDowell, Secretary
____/s/_____________________________________
David A. Caldwell, Director
<PAGE>
GOLDEN PHOENIX MINERALS, INC.
(A Development Stage Company)
FINANCIAL STATEMENTS
From June 2, 1997 (Date of Inception) To June 30, 1997
GARY A. LaPALME, C.P.A.
CERTIFIED PUBLIC ACCOUNTANTS
Minneapolis, Minnesota
<PAGE>
GOLDEN PHOENIX MINERALS, INC.
(A Development Stage Company)
CONTENTS
FROM JUNE 2, 1997 (DATE OF INCEPTION) TO JUNE 30, 1997
Page
Independent Auditor's Report 2
Financial Statements
Balance Sheets 3
Statements of Earnings and Retained Earnings 4
Statements of Cash Flows 5
Statement of Stockholders' Equity 6
Notes to Financial Statements 7
<PAGE>
[letterhead graphic]
To the Stockholders and Board of Directors
GOLDEN PHOENIX MINERALS, INC.
(A Development Stage Company)
Minneapolis, Minnesota
I have audited the accompanying balance sheet of GOLDEN PHOENIX MINERALS, INC.,
(A Development Stage Company) as of June 30, 1997 and the related statements of
earnings and retained deficit, and cash flows for the period from June 2, 1997
(date of inception) to June 30, 1997. These financial statements are the
responsibility of the Company's management. My responsibility is to express an
opinion on these financial statements based on my audit.
I conducted my audit in accordance with generally accepted auditing standards.
Those standards require that I plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and the significant estimates made by
management, as well as evaluating the overall financial statement presentation.
I believe that my audit provides a reasonable basis for my opinion.
In my opinion, the financial statements referred to above present fairly, in all
material respects, the financial position of GOLDEN PHOENIX MINERALS, INC., (A
Development Stage Company) as of June 30, 1997 and the results of its operations
and its cash flows from June 2, 1997 (date of inception) to June 30, 1997 in
conformity with generally accepted accounting principles.
/s/ Gary A. LaPalme
GARY A. LaPALME, C.P.A.
Certified Public Accountants
July 7, 1997
except for Note E to the financial statements
the date of which is July 24, 1997
Minneapolis, Minnesota
<PAGE>
GOLDEN PHOENIX MINERALS, INC.
(A Development Stage Company)
BALANCE SHEETS
JUNE 30, 1997
ASSETS
June 30,
1997
--------
Cash $50,000
Mineral rights --
Incorporation costs 1,155
-------
Total Assets $51,155
=======
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities
Accounts payable $ 7,155
-------
Total Liabilities 7,155
-------
Commitments and Contingencies --
-------
Stockholders' Equity
Common stock, no par value,
150,000,000 authorized, 12,000,000 issued
and outstanding at June 30, 1997
(including 2,000,000 of 144 restricted
shares for organizational services) 52,000
Preferred stock, no par value,
50,000,000 shares authorized and
500,000 shares issued and
outstanding at June 30, 1997 2,000
Additional paid-in capital (10,000)
Retained deficit --
-------
Total Stockholders' Equity 44,000
-------
Total Liabilities and
Stockholders' Equity $51,155
=======
See Notes to Financial Statements
<PAGE>
GOLDEN PHOENIX MINERALS, INC.
(A Development Stage Company)
STATEMENTS OF EARNINGS AND RETAINED EARNINGS
FROM JUNE 2, 1997 (DATE OF INCEPTION) TO JUNE 30, 1997
From
June 2,
1997 (Date of
Inception) to
June 30,
1997
-------------
Sales $ -
-----------
Cost of Sales -
-----------
Gross Profit -
-----------
Operating Expenses -
-----------
Net Income Before Income Taxes -
Income Taxes -
-----------
Net Income -
-----------
Retained Earnings $ -
-----------
Net Earnings Per Share $ -
-----------
Weighted Average Shares Outstanding 12,000,000
===========
See Notes to Financial Statements
<PAGE>
GOLDEN PHOENIX MINERALS, INC.
(A Development Stage Company)
STATEMENTS OF CASH FLOWS
FROM JUNE 2, 1997 (DATE OF INCEPTION) TO JUNE 30, 1997
From
June 2,
1997 (Date of
Inception) to
June 30,
1997
-------------
Cash Flows From Operating Activities
Net income $ -
Increase in organization costs ( 1,155)
Increase in accounts payable 7,155
-----------
Net Cash From Operating Activities 6,000
-----------
Cash Flows From Financing Activities
Issuance of common stock, less
issue costs of $6,000 44,000
-----------
Net Cash From Financing Activities 50,000
-----------
Cash Flows From Investing Activities -
-----------
Net Cash From Investing Activities -
-----------
Net Increase in Cash 50,000
Cash at Beginning of Period -
-----------
Cash at End of Period $ 50,000
===========
See Notes to Financial Statements
<PAGE>
GOLDEN PHOENIX MINERALS, INC.
(A Development Stage Company)
STATEMENT OF STOCKHOLDERS' EQUITY
FROM JUNE 2, 1997 (DATE OF INCEPTION) TO JUNE 30, 1997
<TABLE>
<CAPTION>
Additional
Common Preferred Par Paid Over Paid In Retained
Shares Shares Value Par Capital Earnings Total
---------- --------- ----- ----- --------- ------- ---------- -------- -------
<S> <C> <C> <C> <C> <C> <C> <C>
Balances, June 2,
1997 (Date of
inception) -- -- $ -- $ -- $ -- $ -- $ -- $ -- $ --
Net Earnings, From
June 2, 1997
(Date of
inception) To
June 30,1997 -- -- -- -- -- -- -- -- --
Issuance of Stock
Reg D rule 504
stock offering
June 23, 1997,
for cash, less
issue costs of
$6,000 10,000,000 -- -- -- .005 50,000 ( 6,000) -- 44,000
Issuance of Stock
Section 144
restricted
shares, June 23,
1997, for
services 2,000,000 -- -- -- .001 2,000 ( 2,000) -- --
Issuance of Stock
Section 144
restricted
shares, June 23,
1997, for
services -- 500,000 -- -- .004 2,000 ( 2,000) -- --
---------- -------- ----- ------- --------- -------- -------
Balances, June 30,
1997 12,000,000 500,000 -- $ -- -- $54,000 $(10,000) $ -- $44,000
========== ======== ===== ======= ========= ======== =======
</TABLE>
See Notes to Financial Statements
<PAGE>
GOLDEN PHOENIX MINERALS, INC.
(A Development Stage Company)
NOTES TO FINANCIAL STATEMENTS
FROM JUNE 2, 1997 (DATE OF INCEPTION) TO JUNE 30, 1997
NOTE A SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation - The Company was incorporated on June 2, 1997 in
the State of Minnesota. The Company's primary concentrations are as a
mineral exploration and development company.
The Company plans to finance its operations through the exercising of
common stock options.
The Company plans to minimize financial risk by providing joint venture
opportunities with larger mining companies to conduct exploration on
properties the Company owns.
Development Stage Enterprise - The Company is in the development stage
of its existence. The Company has had no operations since inception and
has devoted its efforts primarily to raising capital, reviewing joint
venture opportunities, and administrative functions.
NOTE B COMMON STOCK
The authorized number of common shares is 150,000,000 of which
12,000,000 shares are issued and outstanding (10,000,000 for Reg D rule
504 stock subscription and 2,000,000 of section 144 restricted shares
for organizational services). The Company intends to issue options to
purchase common stock of the corporation in the future in recognition
of services rendered to the Company. The Company is to reserve
4,000,000 shares of common stock for these options.
NOTE C PREFERRED STOCK
The authorized number of preferred shares is 50,000,000 of which
500,000 of section 144 restricted shares were issued and outstanding as
of June 30, 1997. Preferred stock is convertible to ten common shares
for every one preferred share, at a conversion rate of $.10 per common
share for a period of ten years from June 12, 1997.
NOTE D MINERAL RIGHTS
The Company has obtained mineral rights to a property located in
Nevada. The mineral rights were deeded to the Company, but no value has
been assigned to these rights.
NOTE E SUBSEQUENT EVENT
On July 22, 1997 the Company completed two separate 504 issues of
common stock for a total of $680,000 net proceeds to the Company after
commissions of $33,000. The issues were as follows:
Number of Price Per Net
Shares Share Commission Proceeds
--------- --------- ---------- --------
40,000 $ .50 $ -- $ 20,000
330,000 2.10 33,000 660,000
--------- --------- ---------- --------
370,000 $33,000 $680,000
========= ========== ========
Exhibit 10.2
AGREEMENT
Agreement dated July 22, 1997, by and between J. D. WELSH & ASSOCIATES,
INC., a Nevada corporation ("Welsh") and GOLDEN PHOENIX MINERALS, INC., a
corporation ("Golden Phoenix").
RECITALS
a. Welsh is a party to a joint venture with Cambior Exploration USA,
Inc. A copy of the joint venture letter of intent, which defines the parties'
respective interests in 222 unpatented mining claims located in Mineral County,
Nevada, is attached hereto as Exhibit "A." Welsh's interest in the joint venture
is hereinafter referred to as the "Interest."
b. Welsh and Golden Phoenix entered into a letter agreement, dated June
20, 1997, according to which Golden Phoenix agreed to purchase the Interest in a
series of transactions according to a stipulated schedule.
c. This Agreement defines the specific terms according to which Golden
Phoenix will purchase the Interest and the relationship of the parties pending
the purchase of the entire Interest.
AGREEMENT
NOW, THEREFORE, the parties agree as follows:
1. Purchase and Sale of Interest. Welsh agrees to sell the Interest to
Golden Phoenix for the aggregate price of $1,600,000 USD. The sale of the
Interest shall be in stages according to the following schedule, with Golden
Phoenix owning the percentage of the interest purchased upon payment of the
purchase price for the percentage of the Interest purchased. Subject to the
terms of Section 3 of this agreement, each payment shall be cash or other good
funds. The designated schedule is as follows:
Payment Date Payment Amount Cumulative Amount % Ownership
- ------------ -------------- ----------------- -----------
July 22, 1997 $250,000 to Welsh
$100,000 to Camboir(1) $350,000 25%
Jan. 1, 1998 $ 50,000 to Welsh
$100,000 to Cambior $500,000 30%
June 1, 1998 $100,000 to Welsh $600,000 35%
Jan. 1, 1999 $200,000 to Welsh $800,000 50%
June 1, 1999 $200,000 to Welsh $1,000,000 65%
Jan. 1, 2000 $300,000 to Welsh $1,300,000 80%
June 1, 2000 $300,000 to Welsh $1,600,000 100%
2. Payment of Purchase Price and Assignment. Upon each payment date,
Golden Phoenix shall deliver to Welsh cash or good funds in the payment amount
(or if Welsh agrees to accept shares of stock, certificates for such shares
issued in the name of Welsh). On any date when a payment to Cambior is due, a
cashier's or bank check payable to Cambior shall be delivered to Welsh, which
shall, in turn, deliver it to Cambior. Upon receipt of each payment, Welsh shall
execute and deliver to Golden Phoenix an assignment of the percentage of the
Interest purchased by Golden Phoenix.
3. Stock in Lieu of Cash. Welsh agrees to accept 50,000 shares of
unrestricted shares of common stock of Golden Phoenix at an agreed upon price of
$2.00 per share as a portion ($100,000.00 of the $250,000.00 payable to Welsh)
of the July 18, 1997, payment to Welsh.
At any time following the January, 1998, payment, Golden Phoenix may
propose that a portion of any of the foregoing payments be made in unrestricted
common stock of Golden Phoenix, at the market value of the common stock at close
of the market on the day preceding the payment due date. If there is a
difference between "bid" and "ask" prices of the common stock, the "bid" price
shall be the value of the stock. Welsh agrees to consider any such proposal, but
shall not be obligated to accept stock in lieu of cash.
4. Interest Subject to Joint Venture Agreement. Golden Phoenix
acknowledges that any percentage of the Interest purchased pursuant to this
agreement is subject to the terms and conditions of the joint venture letter of
intent between Welsh and Cambior, and agrees to be bound by the terms of said
joint venture letter of intent.
5. Default. In the event that Golden Phoenix shall fail to make any
payment on the date it is due, Welsh may terminate Golden Phoenix' right to
purchase any additional percentage(s) of the Interest by giving Golden Phoenix
written notice of default. Unless the default is cured within 10 days following
the date of service of the notice of default, any right to purchase an
additional percentage of the Interest shall terminate without further notice to
Golden Phoenix, and Welsh shall hold the remaining percentage of the Interest
free of any right of Golden Phoenix to acquire the remaining percentage of the
Interest.
6. Payment Extension. If the January 1, 1998, payment is made to Welsh
and Cambior as specified, Golden Phoenix will obtain the right to extend the
payment date of one future payment by 60 calendar days. In order to exercise
this one-time extension right, Golden Phoenix must provide written notice to
Welsh a minimum of 15 days prior to the payment due date that it wishes to
extend. If the payment, and a late payment fee of 1.5% per month on the total
amount of the extended payment, is not delivered to Welsh within the 60-day
extension period, it shall constitute a default under Section 5 of this
Agreement. If any payments are due to third parties or to maintain claims during
the 60-day extension period, Golden Phoenix will make its proportionate share of
any such payment when due.
7. Termination of Cambior Interest. The joint venture letter agreement,
at Paragraph 1(c), gives Cambior the option to terminate the joint venture
agreement on sixty (60) days written notice. If the joint venture agreement is
so terminated before completion of Cambior's initial payment (as defined in the
joint venture agreement), it is deemed a withdrawal by Cambior.
If Cambior gives notice of termination to Welsh, Welsh shall provide
written notice of the termination to Golden Phoenix. Golden Phoenix shall,
within 30 days of such notice, elect to continue to purchase the Interest and
agree to pay all underlying royalty and claim payments, or cease purchasing
additional percentages of the Interest and pay only its proportionate share of
royalty and claim payments. If Cambior terminates the joint venture and
withdraws, Welsh and Golden Phoenix agree to execute a written joint venture
agreement to define their respective rights and duties with respect to the joint
venture property.
8. Exercise of Option. The joint venture letter agreement provides that
upon completion of Cambior's initial contribution, including the production of a
bankable feasibility study, Welsh will have a one time option to elect to
participate with a thirty percent (30%) participating interest in the Joint
Venture and to contribute thirty percent (30%) of all future financing, or elect
one of two royalty interests in lieu of a continuing participating interest.
(See Section 2 of the joint venture letter agreement).
If given notice to make such election, Welsh and Golden Phoenix shall
use their best efforts to obtain Cambior's approval to have Welsh and Golden
make independent elections as to how their respective interests are treated. If
such approval is not obtained, the parties shall use their best efforts to agree
as to the option to be elected. If the parties are unable to agree, the party
with the highest percentage interest, at the time the election is made, shall be
entitled to designate the option to be elected. If the parties proceed with a
participating interest, the interest of each party shall be subject to standard
industry dilution for an election by a party not to contribute to an approved
program.
9. Right of First Refusal. Golden Phoenix hereby grants Welsh a right
of first refusal to purchase any Interest purchased pursuant to this agreement.
Golden Phoenix shall not transfer, or in any way dispose of the Interest, or any
part thereof, without first offering the Interest which Golden Phoenix proposes
to transfer to Welsh at a price and on terms identical to those of the proposed
transfer.
If Golden Phoenix proposes to transfer any part of the Interest
purchased pursuant to this agreement to any other person or entity, a notice of
intent to transfer shall be delivered to Welsh. The notice of intent to transfer
(which shall include any executed counterparts of transfer documents) must name
the proposed transferee and specify the Interest to be transferred, the price,
and the terms of payment. For a period beginning with the date on which the
notice of intent to transfer is delivered to Welsh, and ending 30 days
thereafter, Welsh shall have the option to purchase the Interest at the price
and on the terms stated in the notice.
If Welsh does not elect to purchase the full Interest described in the
notice of intent to transfer, Golden Phoenix shall not be required to sell the
specified Interest to Welsh, but may sell or transfer the specified Interest to
the proposed transferee under the terms and for the price stated in the notice
of intent to transfer. Provided, however, that nothing in this section shall
authorize any transfer prohibited by the terms of the Joint Venture Agreement.
10. Representations and Warranties.
(a) Capacities of Parties: Welsh and Golden Phoenix each represent and
warrant as follows:
<PAGE>
(i) That it is a corporation duly organized, validly existing,
and in good standing under the laws of the jurisdiction of its
incorporation, and that it is qualified to do business and is in good
standing in those jurisdictions where necessary in order to carry out
the purposes of this agreement;
(ii) That it has all requisite capacity to enter into and
perform this Agreement and all transactions contemplated herein, and
that all corporate actions required to authorize it to enter into and
perform this Agreement have been properly taken; and
(iii) That this Agreement has been duly executed and delivered
by it and is valid and binding upon it in accordance with its terms,
and that the person(s) executing this Agreement are duly authorized to
execute this agreement.
(b) Title to Assets: Welsh makes the following representations and
warranties to Golden Phoenix:
(i) Welsh has good and marketable title to the Interest, free
and clear of any and all liens, mortgages, pledges, and encumbrances or
rights of third parties;
(ii) Welsh has full authority to assign the Interest to Golden
Phoenix; and
(iii) There are no known pending or threatened actions, suits,
proceedings, or notices of default which apply to the Interest.
(c) Golden Phoenix Stock: Golden Phoenix makes the following
representations and warranties to Golden Phoenix:
(i) The 50,000 shares of common stock of Golden Phoenix to be
issued to Welsh as a portion of the July 18, 1997 purchase price will,
at time of delivery, be duly authorized and issued by Golden Phoenix;
and
(ii) Said shares will not be subject to any restrictions on
sale, are duly registered under the Securities Act of 1933, and can be
sold or transferred by Welsh without violating any state or federal
securities laws or regulations.
11. Arbitration. Any controversy or claim arising out of or relating to
this Agreement, the breach hereof, or the rights or liabilities of any party
hereunder, shall, unless resolved by agreement of the parties, be referred to
and finally settled by arbitration. The arbitration shall be held at Reno,
Nevada, and shall be conducted in accordance with the then current Commercial
Arbitration Rules of the American Arbitration Association. Judgment upon the
award rendered may be entered in any court having jurisdiction or application
may be made to such court for a judicial acceptance of the award and an order of
enforcement, as the case may be.
12. Attorney's Fees. Should any arbitration (or litigation) be
commenced between the parties hereto concerning the Interest, this Agreement, or
the rights and duties of either in relation thereto, the party, Welsh or Golden
Phoenix, prevailing in such litigation shall be entitled, in addition to such
other relief as may be granted, to a reasonable sum as and for its attorney's
fees which shall be determined by the trier of fact or in a separate proceeding
brought for that purpose.
13. Entire Agreement. This instrument contains the entire agreement
between Welsh and Golden Phoenix respecting the Interest, and any other
agreement or representation respecting the Interest or the duties of either
party in relation thereto not expressly set forth in this instrument is null and
void.
14. Notices. Unless otherwise provided herein, any notice, tender, or
delivery to be given hereunder by either party to the other may be effected by
personal delivery, U.S. mail, or facsimile transmission. Mailed notices shall be
addressed as set forth below and facsimile transmissions shall be direct to the
numbers set forth below, but each party may change its address or fax number by
written notice in accordance with this paragraph.
Notices shall be addressed or transmitted as follows:
If to Welsh:
Mr. John D. Welsh
J. D. Welsh & Associates, Inc.
331 Freeport Blvd.
Sparks, NV 89431
Fax No. (702) 358-5759
<PAGE>
If to Golden Phoenix:
Golden Phoenix Minerals, Inc.
3595 Airway Dr. Suite 405
Reno, Nevada 89511
Attn: Michael Fitzsimonds
Fax No. (702) 853-5010
15. Binding Effect. This Agreement shall bind and inure to the benefit
of the respective successors and assigns of the parties.
16. Choice of Law. This Contract of Sale shall be governed by the laws
of the State of Nevada.
17. Time of Essence. Time is of the Essence for purposes of this
Agreement.
18. Additional Documents. Welsh and Golden Phoenix agree to execute and
deliver such additional documents as may be reasonably required to carry out the
terms of this Agreement.
IN WITNESS WHEREOF, the parties hereto have executed this Option
Agreement the day and year first above written.
Golden Phoenix: Welsh:
GOLDEN PHOENIX MINERALS, INC. J. D. WELSH & ASSOCIATES, INC.
By /s/ MICHAEL FITZSIMONDS By /s/ JOHN D. WELSH
-------------------------------- --------------------------------
MICHAEL FITZSIMONDS, President JOHN D. WELSH, President
Exhibit 10.3
KENNECOTT AGREEMENT
<PAGE>
OPTION TO PURCHASE WITH EXPLORATION RIGHTS
THIS OPTION TO PURCHASE WITH EXPLORATION RIGHTS AGREEMENT (the "Agreement") is
entered into effective as of the 19th day of September, l997, by and between
KENNECOTT EXPLORATION COMPANY, a Delaware corporation ("Kennecott"), whose
address is 224 North 2200 West, Salt Lake City, Utah 84116, and GOLDEN PHOENIX
MINERALS, INC., a Minnesota corporation ("GP"), whose address is 3595 Airway
Drive, Suite 405, Reno, Nevada 89511.
In consideration of the payments to be made pursuant hereto, the mutual
covenants contained herein, and the parties agree as follows:
SECTION 1. OPTION TO PURCHASE AND EXPLORATION RIGHTS
1.1 GRANT OF OPTION. Under the terms and conditions of this Agreement,
Kennecott grants to GP the exclusive and irrevocable option to purchase (the
"Option") one hundred percent (100%) of Kennecott's right, title and interest to
those certain unpatented mining claims (the "Property") located in Modoc County,
State of California. and more particularly described in Exhibit A hereto. As
used in this Agreement, the term "Property" shall mean the mining claims,
together with the rights to explore for and extract all minerals in, on, and
under that Property, subject to the paramount title of the United States of
America, and also subject to such terms of that certain Mineral Lease Agreement
dated 15 January, 1996 between Kennecott and D. J. McDowell as may apply. The
term of the Option shall be three (3) years commencing from the date of this
Agreement (the "Option Period"), unless sooner terminated pursuant to Section
8.2 below.
1.2 GRANT OF EXPLORATION RIGHTS. Kennecott grants GP the exclusive right
and authority, during the Option Period, to enter upon the Property to conduct
such exploration and prospecting operations as GP may deem appropriate to
determine the presence, location, quantity and value of minerals contained in
the Property. Such operations may include, but shall not be limited to, mapping,
sampling including bulk sampling, trenching, drilling, testing, assaying,
conducting environmental studies and other geochemical and geophysical
exploration methods whether now known or in the future developed. GP may
establish drill sites and construct such minor roads as may be necessary to the
conduct of the foregoing activities. GP may also mine and remove such amount of
minerals as GP may deem appropriate for sampling, assaying, metallurgical
testing and evaluation of the Property without exercising the Option, however,
minerals may not be removed for sale. In addition, GP shall have the right:
<PAGE>
(a) to use all easements and all rights-of-way for ingress and egress to and
from the Property to which Kennecott may be entitled;
(b) to obtain all permits, approvals and other federal, state and local
governmental authorizations as GP deems necessary to conduct its mineral
exploration activities;
(c) to exercise all other rights that are or may be incidental to any or all of
the rights granted, expressly or implicitly, to GP in this Agreement; and,
(D) to the extent Kennecott possesses the title and authority to grant it, to
possess and use all or any part of the Property together with all easements to,
across and through the Property, for the purpose of exploring any adjoining or
nearby property owned, controlled or operated by Kennecott.
1.3 EXPLORATION EXPENDITURES. Subject to GP's right under Section 8.2
to terminate this Agreement, GP shall make the following Exploration
Expenditures for the benefit of the Property:
$200,000 First Anniversary of Effective Date
$300,000 Second Anniversary of Effective Date
$500,000 Third Anniversary of Effective Date
- ---------- -------------------------------------
$1,000,000 Total
Such Exploration Expenditures shall be made at GP's sole discretion, provided
that all field activities are undertaken pursuant to applicable law, statute or
regulations. For the purposes of satisfying the Option, Exploration Expenditures
shall mean all cash, expenses and obligations spent or incurred by GP on
exploration or development activities on or for the Property, including but not
limited to all fees and rentals required to keep the Property in good standing,
all geophysical, geological or geochemical work, all surveys, drilling, assays,
metallurgical testing and engineering, and any other work of direct benefit to
the Properties. Such Work Expenditures shall be a requirement to continuing this
Agreement from year to year, but are not an obligation to make expenditures. All
Exploration Expenditures made for the benefit of the Property pursuant to this
Section shall be credited against the Purchase Price set forth in Section 2.2
below.
1.4 OPTION PAYMENT. Upon GP completing the Work Commitment set forth
above, GP shall transfer $200,000 worth of its common stock to Kennecott. If GP
has not become a publicly traded company prior to exercising the Option, GP
shall pay Kennecott $200,000 in cash. Such transfer or payment shall be credited
to the
<PAGE>
Purchase Price set forth in Section 2.2 below. For the purposes of this Section,
GP's stock price shall be determined by averaging GP's daily closing price for
the thirty (30) day period immediately preceding the Option closing date.
1.5 ADDITIONAL PROPERTIES. Any new claims located by GP that are
contiguous to the Property shall become subject to the terms of this Agreement.
1.6 DELIVERY OF DATA. GP shall provide Kennecott with a quarterly
project summary of the exploration field activities undertaken by GP for the
benefit of the Property until such time as GP exercises its Option.
SECTION 2. EXERCISE OF OPTION
2.1 EXERCISE OF OPTION. GP may exercise the Option with respect to the
Property at any time prior to expiration of the Option Period, by notice to
Kennecott, utilizing any method of communication that will provide an accurate
record of its dispatch. The time of dispatch will control.
2.2 PURCHASE PRICE. The total purchase price of the Property shall be a
cash payment of ONE MILLION TWO HUNDRED THOUSAND DOLLARS ($1,200,000.00), less
any credits allowed GP in accordance with Sections 1.3 and 1.4 above.
2.3 CLOSING. If GP timely exercises the Option, the closing of title
shall be within thirty (30) days following the receipt by Kennecott of GP's
notice of exercise of the Option. The closing shall be held at a time and place
as may be mutually agreed upon by the parties. At the closing, the following
shall occur:
(a) Kennecott shall deliver to GP a properly executed and acknowledged
assignment or other form of conveyance document conveying the Property free and
clear of liens and encumbrances, subject only to Kennecott's rights as set forth
in Section 2.3 below.
(b) If necessary, ad Valorem, property and other taxes and assessments
imposed upon the Property or the portion of the Property as to which the Option
was exercised shall be prorated between Kennecott and GP as of the date of
closing and Kennecott shall be charged for all such taxes and assessments prior
to the closing date.
(c) The parties shall execute and deliver such other documents and
shall take
<PAGE>
such other action as may be necessary to carry out their obligations under this
Agreement.
2.5 NON-EXERCISE OF OPTION. Notice of waiver to Kennecott or the
failure of GP to dispatch a notice prior to the expiration of the Option Period
will constitute an irrevocable waiver of the Option and the parties thereafter
will be released from the terms of this Agreement, except that Kennecott shall
have the rights contained in Section 8.3 below and shall comply with the
provisions of Section 8.4 below.
2.6 REACQUISITION RIGHTS. If at any time after exercising the Option,
GP intends to initiate development of the Property, GP shall first notify
Kennecott in writing and concurrently provide Kennecott with a copy of a
feasibility study, prepared by an independent engineering firm, recommending the
construction and operation of a mine on the Property. GP shall also deliver to
Kennecott a detailed statement audited and verified by a nationally recognized
accounting firm showing the aggregate amount of pre- Option and post-Option
expenditures on the Property. Kennecott will have the right to advise GP, within
sixty (60) days after the receipt of such notice, feasibility study and
expenditure statement whether it wishes to reacquire a fifty-one percent (51%)
interest in the Property. If Kennecott wishes to exercise its reacquisition
right, it will provide GP with written notice of its intention. Within thirty
(30) days after giving notice, Kennecott shall pay GP an amount equal to one
hundred fifty percent (150%) of fifty-one percent (51%) of the total
expenditures made by GP on the Property. After Kennecott has exercised its
reacquisition right, Kennecott and GP shall operate the Property as a joint
venture under the terms of the agreement attached as Exhibit B hereto. Should
Kennecott decide not to exercise its reacquisition right, Kennecott may convert
such right, at no cost, to a two percent (2%) net smelter return royalty,
payable as set forth in Exhibit C hereto. Such royalty shall be capped at
fifteen million dollars ($15,000,000). Any subsequent transfers of the property
shall be subject to Kennecott's right under this Section 2.6.
SECTION 3. TITLES AND INFORMATION
3.1 KENNECOTT'S WARRANTIES. Kennecott represents and warrants to GP the
following:
(a) That Kennecott has the right and power to convey the Property for
the purposes of this Agreement;
(b) That, to the best of Kennecott's knowledge, the same are free from
all prior liens or encumbrances, other than as may be described in Exhibit A;
and
(c That Kennecott shall have quiet and peaceable possession of the
Property; and
<PAGE>
(d) That Kennecott has not committed, nor will Kennecott in the future
commit, any act or acts which will encumber or cause a lien to be placed against
the Property, except subject and subordinate to the terms of this Agreement.
3.2 TITLE DEFECTS. KENNECOTT MAKES NO EXPRESS OR IMPLIED
REPRESENTATIONS OR WARRANTIES ABOUT THE SUFFICIENCY OF LOCATION OF THE CLAIMS
COMPRISING THE PROPERTY UNDER THE GENERAL MINING LAW OR UNDER CALIFORNIA
STATUTE. GP HEREBY WAIVES ANY CLAIM IT MAY NOW OR IN THE FUTURE HOLD AGAINST
KENNECOTT FOR FAILURE OF TITLE. GP HEREBY ACKNOWLEDGES THAT IT HAS CONDUCTED ITS
OWN TITLE REVIEW AND ACCEPTS TITLE "AS IS". If title to any of the Property is
defective, GP may undertake to cure any such defects or to defend or to initiate
litigation to perfect, defend or cure title to the Property. GP at any time, may
withdraw from or discontinue any title litigation or any steps it may have taken
to perfect, defend or cure title. GP shall not be liable to Kennecott if GP is
unsuccessful in, withdraws from or discontinues title litigation or other
curative work. Kennecott agrees to cooperate fully with GP in any and all steps
undertaken by GP to remedy title defects.
SECTION 4. CONDUCT OF OPERATIONS
4.1 STANDARD OF PERFORMANCE. GP shall cause all exploration work to be
done in a careful and good miner-like manner, and to conform in all respects to
applicable governmental rules, regulations and statutes. Further, GP shall
conduct its operations under this Agreement in a manner that will not
unreasonably damage the surface of the Property and, in the event the Option is
not exercised, shall reclaim, in accordance with applicable rules, regulations
and statutes, all portions of the surface of the Property that are disturbed by
its operations.
4.2 INDEMNIFICATION AND INSURANCE. GP shall assume all liability to
third parties in connection with its exploration operations on the Property and,
except as provided in Section 6.1 of this Agreement, shall indemnify and hold
Kennecott harmless against any and all liability that may arise out of GP's
operations on the Property. GP shall maintain, at its own cost and expense,
liability insurance protecting Kennecott against damages arising out of GP's
operations on the Property. GP shall provide Kennecott with a certificate,
binder, or other written evidence describing such insurance. GP shall provide
Kennecott with written evidence of renewal within a reasonable time after such
policy or policies are renewed.
4.3 PERMITS. Kennecott hereby acknowledges that GP may make efforts to
obtain permits and other authorizations of every kind and nature whatsoever from
governmental or private entities as may be necessary to conduct mineral
exploration activities. While GP shall be solely responsible in these efforts,
Kennecott agrees to assist and cooperate fully with GP in any and all such
endeavors upon GP's request.
<PAGE>
4.4 LIENS, TAXES. During the Option period, GP shall keep the title to
the Property free and clear of all valid liens and encumbrances resulting from
its exploration operations under this Agreement and shall pay when due all taxes
and assessments attributable to its operations under this Agreement or imposed
upon any property or improvements placed by GP on the Property for its own use.
GP however, may refuse to pay and may contest any claim, taxes or assessments
asserted against or imposed upon it that it disputes in good faith, but shall
not permit all or any portion of the Property to be sold at any time for such
taxes or assessments. If the claim is finally resolved against GP or the taxes
or assessments are finally determined to be valid, GP shall pay the same upon
such final determination.
4.5 FEE IN LIEU OF ANNUAL LABOR. Kennecott hereby represents that it
has paid all current fees for the mining claims described in Exhibit A. Subject
to termination of this Agreement, GP agrees to pay all further claim fees due
and payable prior to termination of this Agreement.
4.6 SUBROGATION. GP at its sole option, shall have the right to redeem
for GP, by payment, any mortgage, taxes or other liens on the Property in the
event of default or non-payment by Kennecott. If GP pays any such mortgage,
taxes or other liens, GP shall be subrogated to the rights of the holder of the
mortgage or lien. Further, if GP exercises the Option, GP shall have the right
to retain and repay itself from the purchase price.
4.7 NO IMPLIED COVENANTS. GP does not make any express or implied
covenant, agreement or condition relating to the exploration of the Property.
Whether or not any such exploration shall at any time be conducted, and the
nature, manner and extent of such operations shall be determined within GP's
sole discretion.
SECTION 5. FORCE MAJEURE
5.1 The Option Period and the time for removal of equipment pursuant to
Section 8.3 of this Agreement shall be extended for a period of time equivalent
to the period or periods of force majeure. The term "FORCE MAJEURE" as used in
this Agreement includes any cause of any kind or nature whatsoever beyond GP's
control, including, but not limited to, law, ordinance, governmental
regulations, restraint, or court order; inability to obtain permits, licenses,
or any necessary governmental or private authorization; scarcity or inability to
obtain equipment, material, power or fuel; labor shortages, labor disturbances,
strikes, lock-outs, failure of carriers to transport or furnish facilities for
transportation; acts of God, acts of the public enemy, war, blockage, riot,
insurrection, lightning, fire, storm, flood, inclement weather, washout,
explosion, and breakage or accident of machinery or facilities.
5.2 GP shall exercise reasonable diligence to remove a force majeure as
quickly as possible, but shall not be required to settle strikes, lockouts or
other labor
<PAGE>
difficulties contrary to its wishes or to challenge the validity of any
governmental order, request, law or regulation.
SECTION 6. INSPECTION AND CONFIDENTIALITY
6.1 INSPECTION. Kennecott and its agents, may inspect the operations
conducted by GP pursuant to this Agreement during normal business hours and at
such times and upon such notice to GP as shall not unreasonably hinder or
interrupt the operations and activities of GP. Kennecott shall inspect such
operations at his own risk and expense and shall indemnify GP, and its
affiliated corporations and their respective directors, partners, officers,
employees, and agents from and against any loss, damage, claims or demand by
reason of injury to or the presence of Kennecott, his agents, representatives,
licensees, or guests arising from such inspection.
6.2 REPORTS. During the term of this Agreement, GP shall provide
Kennecott with quarterly reports summarizing GP's activities on the Property.
6.3 CONFIDENTIALITY. GP agrees that during the Option Period to treat
all information acquired under this Agreement as confidential and not to use the
name of Kennecott in any document or press release or disclose any information
that may be obtained under this Agreement to third parties or to the public
without first having obtained the written approval of Kennecott as to the form
and content of any such disclosure or release. GP further agrees not to use,
sell, give, disclose or otherwise make available to third parties or to the
public at any time any knowledge or information that GP may obtain relating to
internal proprietary techniques and methods used by Kennecott.
SECTION 7. ASSIGNMENTS AND TRANSFERS
7.1 RESTRICTION ON ASSIGNMENT. Neither party may sell, assign,
transfer, convey or otherwise dispose of or deal with its interest in the
Agreement or the Property unless it ( a "Selling Party") shall first give the to
the other party to this Agreement fifteen (15) days notice of the price and
terms on which the Selling Party would be willing to transfer such rights and
interests and such other party shall be entitled by notice in writing to the
Selling Party within the said fifteen (15) day period to acquire the whole of
such rights and interests at the same price and on the same terms as stated in
the notice. If the party receiving notice does not so elect in writing within
the fifteen (15) day period to acquire such rights and interests, the Selling
party may transfer the whole of such rights and interests to any person within
the following one hundred eighty days at the price and terms stated in the
notice. For the purpose of this Section, the consideration for the rights and
interest sold shall only be in United States dollars. If the Selling Party fails
to consummate the transfer within
<PAGE>
the said one hundred eighty (180) days, the preemptive right of the non-Selling
Party shall be deemed to be revived and any subsequent transfers shall be
subject to this Section 7.1.
7.2 TRANSFERS TO AN AFFILIATE. A party shall have the right without
restriction under Section 7.1 to assign, transfer, or otherwise convey its right
and interests hereunder to an Affiliate For the purposes of this Section,
"Affiliate" shall mean any entity which directly or indirectly controls, is
controlled by, or is under common control with a party to this Agreement. The
term "control" shall mean the rights to the exercise of more than fifty percent
(50%) of the voting shares of the controlled company. In the case of Kennecott,
an Affiliate shall mean any entity, wherever situate, in which Rio Tinto Plc
owns or controls directly or indirectly such voting rights.
7.3 NO DISCHARGE ON TRANSFER. In the event of an assignment,
conveyance, transfer or other disposition as contemplated in Section 7.2, the
party making same shall not be relieved or discharged of any of its obligations
or liabilities hereunder, and the other party may continue to look to it for the
performance thereof.
7.4 TRANSFEREE BOUND. No transfer shall be valid unless and until the
transferee agrees in writing to be bound by the terms of this Agreement. No
change in ownership of the Property, however accomplished shall operated to
diminish Kennecott's rights hereunder.
SECTION 8. TERMINATION
8.1 TERMINATION BY KENNECOTT. At the election of Kennecott, the failure
of GP to make or cause to be made any of the payments required by this Agreement
or to keep or perform any agreement on its part to be kept or performed
according to the terms or provisions of this Agreement shall constitute an event
of default. Upon an event of default, Kennecott shall give to GP written notice
of default, specifying the particular default or defaults relied on by
Kennecott. GP shall have a reasonable time (which in any case shall not be less
than 30 days) after receipt of such notice in which to contest, cure or commence
to cure the alleged default or defaults. If GP contests that default occurred,
it shall so advise Kennecott in writing. Upon GP's failure to cure the default,
Kennecott may declare, by written notice to GP, termination of this Agreement.
8.2 TERMINATION BY GP. Notwithstanding any provisions herein to the
contrary, GP may at any time terminate and surrender this Agreement as to all of
the Property by giving written notice to Kennecott. Upon surrender of this
Agreement, GP shall be relieved of all obligations as to the Property, except
obligations that have accrued prior to surrender and the obligation to restore
the surface disturbed by GP's operations. Upon termination of this Agreement,
except upon GP's exercise of the Option and pursuant to Section 2.4 or 8.1 of
this Agreement, GP shall be under no
<PAGE>
further obligation or liability under this Agreement to Kennecott from and after
the date of termination, except for the following:
(a) GP shall deliver to Kennecott a properly executed release of the Property
and shall transfer to Kennecott any surface rights acquired during the term of
this Agreement subject to any approval that may be required;
(b) GP shall perform obligations and satisfy liabilities to Kennecott or third
parties respecting the Property that have accrued prior to the date of
termination;
(c) GP shall restore the surface of the Property pursuant to Section 4.1 above;
and,
(d) GP shall furnish to Kennecott one set of all information and data relating
to the quality and quantity of minerals within the Property derived from GP's
exploration operations under this Agreement. Any use or reliance by Kennecott
upon the data provided by GP shall make no express or implied representations or
warranties with respect thereto.
8.3 REMOVAL OF EQUIPMENT. Upon termination of this Agreement, except
upon GP's exercise of the Option, GP shall have three (3) months after
termination to remove from the Property all buildings, improvements, equipment
and all personal property of every kind and nature erected or placed in or upon
the Property by it. If GP is hampered by force majeure, as defined in Section 5
above, the time for removal shall be extended by the period of force majeure.
Any such property not removed within the time provided in this Section 8.3 shall
become the sole property of Kennecott, and GP shall have no further right,
title, interest, obligation or liability with respect to it.
8.4 RELINQUISHMENT OF PROPERTIES. Prior to the exercise of the Option,
GP may, by written notice to Kennecott, relinquish any part of the Property.
Following the exercise of the Option, GP hereby grants to Kennecott the sole
right and option to reacquire, by transfer or assignment, at no cost to
Kennecott, within thirty (30) days of Kennecott receiving written notice from GP
of its intention to relinquish such properties.
SECTION 9. GENERAL PROVISIONS
9.1 NOTICES. Notices, payments or other required communications
required to be made hereunder may be personally delivered, deposited in the
United States mail, postage prepaid and registered or certified, with return
receipt requested, or made by means of facsimile and addressed to the
appropriate party at the addresses shown below:
<PAGE>
If to GP:
Golden Phoenix Minerals Inc.
3595 Airway Drive, Suite 405
Reno, Nevada 89511
Fax: 702-853-5010
If to Kennecott:
Kennecott Exploration Company
224 North 2200 West
Salt Lake City, Utah 84l16
Attn: Commercial Director
Fax: 801-238-2420
9.2 ENTIRE AGREEMENT. This is the entire agreement between the parties
and supersedes any previous communications between the parties concerning the
subject matter of this Agreement. No modification of this Agreement shall be
effective unless in writing and executed by the parties to this Agreement.
9.3 GOVERNING LAW. This Agreement and all activities contemplated shall
be governed in all respects by the laws of the State of California without
regard to conflicts of laws.
9.4 FURTHER DOCUMENTS. The parties shall execute all such further
documents and do all such further things as may be necessary to give full effect
to the terms of this Agreement including, without limitation, the execution and
recording of a memorandum counterpart of this Agreement.
9.5 BINDING EFFECT. All of the covenants, conditions and provisions of
this Agreement shall run with the land and shall inure to the benefit of and be
binding upon the parties, their respective heirs, executors, administrators,
successors and assigns.
<PAGE>
9.6 SURVIVAL. To the extent necessary to effectuate the intention of
the parties, this Agreement shall survive:
(a) exercise of the Option and the delivery of an assignment or other
instruments at the closing; and,
(b) termination of this Agreement.
<PAGE>
EXECUTED as of the day and year first above written.
KENNECOTT EXPLORATION COMPANY
By /s/ John Main
----------------------------------
Its President
GOLDEN PHOENIX MINERALS INC.
By /s/ Michael Fitzsimonds
----------------------------------
Its President
<PAGE>
EXHIBIT A
Attached and made a part of that certain Option To Purchase With Exploration
Rights Agreement between Kennecott Exploration Company and Golden Phoenix
Minerals Inc., dated September __, 1997. Such Option to Purchase is subject to
the terms and conditions of that certain Mineral Lease Agreement by and between
Kennecott Exploration Company and Donald James McDowell dated 15 January, 1996.
DESCRIPTION OF PROPERTY
<PAGE>
EXHIBIT A - MCDOWELL CLAIMS
Attached to and made a part of that certain option to Purchase with
Exploration Rights, the following group of 76 unpatented lode mining claims
owned by Donald James McDowell, situated in Section 36, Township 48 North, Range
15 East, Section 31, Township 48 North, Range 16 East, Sections 1, 11 and 12,
Township 47 North, Range 15 East and Sections 6, and 7, Township 47 North, Range
16 East, Mt. Diablo B&M, Modoc county, State of California and further described
as:
CERTIFICATE OF LOCATION RECORDED IN
MODOC COUNTY, STATE OF CALIFORNIA AT:
NAME OF CLAIM BOOK PAGE BLM SERIAL NO.
------------- ---- ---- --------------
DM#1 416 702 267592
DM#2 416 703 267593
DM#3 416 704 267594
DM#4 416 705 267595
267596
AU#1 416 706 267597
AU#2 416 707 267598
AU#3 416 708 267599
AU#4 416 709 267600
AU#5 416 710 267601
AU#6 416 711 267602
AU#7 416 712 267603
AU#8 416 713 267604
AU#9 416 714 267605
AU#10 416 715 267606
AU#11 416 716 267607
AU#12 416 717 267608
AU#13 416 718 267609
AU#14 416 719 267610
AU#15 416 720 267611
AU#16 416 721 267612
<PAGE>
NAME OF CLAIM BOOK PAGE BLM SERIAL NO.
------------- ---- ---- --------------
AU#17 416 722 267613
AU#18 416 723 267614
AU#19 416 724 267615
AU#20 416 725 267616
AU#21 416 726 267617
AU#22 416 727 267618
AU#23 416 728 267619
AU#24 416 729 267620
AU#25 416 730 267621
AU#26 416 731 267622
AU#27 416 732 267623
AU#28 416 733 267624
AU#29 416 734 267625
AU#30 416 735 267626
AU#31 416 736 267626
AU#32 416 737 267627
AU#33 416 738 267628
AU#34 416 739 267629
AU#35 416 740 267630
AU#36 416 741 267631
AU#37 416 742 267632
AU#38 416 743 267633
AU#39 416 744 267634
AU#40 416 745 267635
AU#41 416 746 267636
AU#42 416 747 267637
AU#43 416 748 267638
AU#44 416 749 267639
AU#45 416 750 267640
AU#46 416 751 267641
AU#47 416 752 267642
AU#48 416 753 267643
<PAGE>
NAME OF CLAIM BOOK PAGE BLM SERIAL NO.
------------- ---- ---- --------------
AU#49 416 754 267644
AU#50 416 755 267645
AU#51 416 756 267646
AU#52 416 757 267647
AU#53 416 758 267648
AU#54 416 759 267649
AU#55 416 760 267650
AU#56 416 761 267651
AU#57 416 762 267652
AU#58 416 763 267653
AU#59 416 764 267654
AU#60 416 765 267655
AU#61 416 766 267656
AU#62 416 767 267657
AU#63 416 768 267658
AU#64 416 769 267659
AU#65 416 770 267660
AU#66 416 771 267661
AU#67 416 772 267662
AU#68 416 773 267663
AU#116 416 774 267664
AU#117 416 775 267665
AU#118 416 776 267666
AU#119 416 777 267667
<PAGE>
EXHIBIT A - KEC CLAIMS
Attached to and made a part of that certain Option to Purchase with Exploration
Rights for the following two (2) unpatented lode mining claims owned by
Kennecott Exploration company, situated in Sections 1 and 12, Township 47 North,
Range 15 East, MDB7M, Modoc County, State of California and further described
as:
CERTIFICATE OF LOCATION RECORDED IN
MODOC COUNTY, STATE OF CALIFORNIA AT:
- --------------------------------------------------------------------------------
NAME OF CLAIM BOOK PAGE BLM SERIAL NO.
- --------------------------------------------------------------------------------
AU-71 0418 0790 268722
** Amended 0422 0831
- --------------------------------------------------------------------------------
AU-72 0418 0788 268723
** Amended 0422 0830
- --------------------------------------------------------------------------------
<PAGE>
EXHIBIT B
Attached and made a part of that certain Option To Purchase With Exploration
Rights Agreement between Kennecott Exploration Company and Golden Phoenix
Minerals Inc., dated September __, 1997.
JOINT VENTURE AGREEMENT
TWO-PARTY
MINING VENTURE AGREEMENT
BETWEEN
GOLDEN PHOENIX MINERALS INC.
AND
KENNECOTT EXPLORATION COMPANY
<PAGE>
REFERENCES (Partial List)
CH2M Hill
Contact: Beverly Taillon Barba
(702) 329-7300
CR Jeffries
Contact: Karla Mudd
(702) 786-5011
Hale, Lane, Peek, Dennison & Howard
Contact: Lou Kemper
(702) 786-7900
JOIN (Job Opportunities In Nevada)
Contact: Tina Knappe
(702) 785-6106
Laminco Resources
Contact: Ed Morrow
(702) 322-3000
Ledcor Industries
Contact: Dexter Baker
(702) 829-8887
McDonald, Carano, Wilson, McCune,
Bergin, Frankovich & Hicks
Contact: Margie Vollmann
(702) 322-0635
Placer Dome US Inc.
Contact: Robin
(702) 856-2552
Porsche Cars of North America
Contact: Chris Syverson
(702) 348-3046
SEA Incorporated
Contact: Bonnie Buffa
(702) 358-6931
Vargas & Bartlett
Contact: Bonnie Balstad
(702) 786-5000
Washoc County Personnel
Contact: Teri Bacon
(702) 328-2083
OTHER REFERENCES AVAILABLE UPON REQUEST.
<PAGE>
MINING VENTURE AGREEMENT
THIS AGREEMENT is made effective this __ day of ____,____, by and
between GOLDEN PHOENIX MINERALS INC., a Minnesota corporation ("GP") and
KENNECOTT EXPLORATION COMPANY, a Delaware corporation ("Kennecott").
RECITALS
A. GP owns or controls certain Properties in Modoc County, State of
California, which Properties are described in Exhibit A and defined in Section
1.36.
B. Kennecott wishes to participate with GP in the exploration and
evaluation, and if feasible, the development and mining of mineral resources
within the Properties or any other properties acquired pursuant to the terms of
this Agreement, and GP is willing to grant such right to Kennecott.
NOW, THEREFORE, in consideration of the covenants and agreements
contained herein, GP and Kennecott agree as follows:
SECTION
DEFINITIONS
1. "Accounting Procedure" means the procedures set forth in Exhibit B.
2. "Affiliate" means any person, partnership, joint venture,
corporation or other form of enterprise which directly or indirectly controls,
is controlled by, or is under common control with, a Participant. For purposes
of the preceding sentence, "control" means possession, directly or indirectly,
of the power to direct or cause direction of management and policies through
ownership of voting securities, contract, voting trust or otherwise.
Notwithstanding the foregoing, Rio Tinto Ltd., and United States Borax and
Chemical Corporation, and their respective subsidiaries, shall not be deemed to
be Affiliates of Kennecott.
3. "Agreement" means this Venture Agreement, including all written
amendments and written modifications thereof, and all schedules and exhibits,
which are incorporated herein by this reference.
4. "Area of Interest" means the area described in Part 2 of Exhibit A.
5. "Assets" means the Properties, Products and all other real and
personal property, tangible and intangible, held for the benefit of the
Participants hereunder.
6. "Budget" means a detailed estimate of all costs to be incurred by
the Participants with respect to a Program and an estimated schedule of cash
advances to be made by the Participants.
7. "Budgetary Period" means the budgetary period established in a
Program and Budget.
<PAGE>
8. "Cover Payment" means the payment described in Section 6.4(a).
9. "Development" means all preparation for the removal and recovery of
Products, including the construction or installation of a mill or any other
improvements to be used for the mining, handling, milling, processing or other
beneficiation of Products.
10. "Diluting Date" means the date described in Section 6.3(a).
11. "Diluting Participant" means a Participant who elects not to
participate in an adopted Program and Budget to the full extent of its
Participating Interest as described in Section 6.3.
12. "Effective Date" means the date first written above.
13. "Equity Account" means the account established for each Participant
as reflected on the books and records of the Manager. The Equity Account for
each Participant shall be credited with the agreed value of each Participant's
Initial Contribution (net of liabilities assumed by the Participants and
liabilities to which such contributed property is subject), subsequent
contributions and each Participant's distributive share of income and gain (or
item thereof). Each Participant's Equity Account shall likewise be charged with
the cash and the fair market value of property distributed to such Participant
(net of liabilities assumed by such Participant and liabilities to which such
distributed property is subject), and such Participant's distributive share of
loss and deduction (or item thereof). Prior to any distribution of Assets
(in-kind or otherwise), the Equity Account shall be adjusted for the gain or
loss which would be allocable to each Participant upon a disposition of such
assets for fair market value. Contributions and distributions shall include all
cash contributions or distributions plus the deemed value (expressed in dollars)
of all in-kind contributions or distributions. All calculations of income,
expense, gain, loss, depletion, depreciation and amortization shall be based
upon generally accepted accounting principles in the United States, consistently
applied by the Manager.
14. "Exploration" means all activities directed toward ascertaining the
existence, location, quantity, quality or commercial value of deposits of
Products. Exploration may include all activities undertaken through the
completion of a feasibility study, if any, but shall not include construction of
milling or processing facilities or commencement of commercial mining operations
on the Properties.
15. "Initial Contribution" means that contribution each Participant has
made or agrees to make pursuant to Section 5.1.
16. "Initial Contribution Period" means the period beginning on the
Effective Date and, unless this Agreement sooner terminates, ending on the date
Kennecott has completed its obligations under Section 5.2.
17. "Joint Account" means the account maintained in accordance with the
Accounting Procedure showing the charges and credits accruing to the
Participants.
<PAGE>
18. "Liabilities" means any and all claims, demands, investigations,
judgments, losses, liabilities, costs and expenses, including reasonable
attorneys' fees.
19. "Management Committee" means the committee established under
Article VII.
20. "Manager" means the person or entity appointed under Article VIII
to manage Operations, or any successor Manager.
21. "Mandatory Work Expenditures" means the total amount of Work
Expenditures which must be made by Kennecott pursuant to Section 5.2.
22. "Mining" means the mining, extracting, producing, handling,
milling, beneficiation or other processing of Products.
23. "Net Proceeds" means certain amounts calculated as provided in
Exhibit D-1, which may be payable to a Participant under Section 6.5 or Section
12.1.
24. "Operations" means the activities carried out under this Agreement.
25. "Non-Diluting Participant" means the Participant other than the
Diluting Participant as described in Section 6.3.
26. "Participant" and "Participants" means the persons or entities that
from time to time have Participating Interests.
27. "Participating Interest" means the percentage interest representing
the operating ownership interest of a Participant in Assets, and all other
rights and obligations arising under this Agreement, as such interest may from
time to time be adjusted hereunder. Participating Interests shall be calculated
to three decimal places and rounded to two (e.g., 1.519% rounded to 1.52%).
Decimals of .005 or more shall be rounded up to .01, decimals of less than .005
shall be rounded down. The initial Participating Interests of the Participants
are described in Section 6.1.
28. "Period of Joint Operations" means the period beginning on the
completion of the Initial Contribution Period and ending on the termination of
this Agreement.
29. "Plan of Operations" means a general description of the Operations
to be conducted by the Manager for a specified period during the Initial
Contribution Period.
30. "Prime Rate" means the interest rate published as the Prime Rate in
the "Money Rates" column of The Wall Street Journal, as said rate may change
from day to day, or if said column sets forth a range of rates on a single day,
the arithmetic mean thereof. In the event The Wall Street Journal ceases to be
published or ceases to publish the Prime Rate, the Participants shall select an
alternative and mutually acceptable source which quotes an interest rate as the
Prime Rate.
<PAGE>
31. "Products" means all ores, minerals and mineral resources produced
from the Properties under this Agreement.
32. "Program" means a description in reasonable detail of the scope,
duration and nature of Operations to be undertaken by the Manager for a
specified period during the Period of Joint Operations.
33. "Properties" means those interests in real property described in
Part 1 of Exhibit A and all other interests in real property within the Area of
Interest which are acquired and held subject to this Agreement.
34. "Transfer" means sell, grant, assign, encumber, pledge or otherwise
commit or dispose of.
35. "Venture" means the business arrangement of the Participants under
this Agreement.
36. "Work Expenditures" means the minimum work obligations described
herein and shall include, for purposes of this Agreement, the value of all time,
money and equipment contributed to or used on or in connection with the
Properties or the Area of Interest by or on behalf of GP in good faith, whether
before or after the execution of this Agreement, relating to Exploration,
Development or Mining activities, including but not limited to (a) all
contractors' and consultants' time and expenses; (b) all time and expenses of
geologists and other personnel of GP or its Affiliates; (c) all costs of
physical work on the Properties or the Area of Interest, including construction
or installation of a mill or any other improvements; (d) all costs of
engineering, design, mining, extracting, producing, milling, beneficating,
processing, assaying, permitting and reclamation, including any reclamation
funding pursuant to Section 8.9; (e) all costs of project maintenance (including
insurance maintained pursuant to Section 8.2(h) and title examination and
curative work) and costs of acquisition of property within the Area of Interest
(including Kennecott's proportionate share of acquisition costs as described in
Section 13.3); (f) all costs of equipment, materials, fuel, utilities and
supplies; (g) costs incurred in the preparation of a feasibility study, if any;
and (h) a 10% administrative charge, calculated on all of the above costs except
costs that are excluded from the operation of Section 2.14 of Exhibit B.
<PAGE>
SECTION
REPRESENTATIONS AND WARRANTIES; COVENANTS; TITLE TO ASSETS
37. Capacity of Participants. Each of the Participants represents and
warrants as follows:
That it is a corporation duly incorporated and in good standing in its
state of incorporation and that it is qualified to do business and is in good
standing in those states where necessary in order to carry out the purposes of
this Agreement;
That it has the capacity to enter into and perform this Agreement and
all transactions contemplated herein and that all corporate and other actions
required to authorize it to enter into and perform this Agreement have been
properly taken;
That it will not breach any other agreement or arrangement by entering
into or performing this Agreement;
That this Agreement has been duly executed and delivered by it and is
valid and binding upon it in accordance with its terms; and
That no consent or approval of any third party or governmental agency
is required (i) for the execution and delivery of or the performance of its
financial obligations under this Agreement, or (ii) for the performance of all
its other obligations under this Agreement, except for such consents or
approvals as have been obtained and evidence thereof delivered to the other
Participant, and except for such consents or approvals which, while necessary
for Operations, are not presently necessary and which it reasonably expects will
be acquired in a timely fashion.
38. Representations and Warranties. GP makes the following additional
representations and warranties effective on the Effective Date:
With respect to those Properties GP owns in fee simple, if any, GP is
in exclusive possession of and owns such Properties free and clear of all
defects, royalties, liens and encumbrances except those specifically identified
in Part 1 of Exhibit A;
With respect to those Properties in which GP holds an interest under
leases or other contracts: (i) GP is in exclusive possession of such Properties;
(ii) GP owns 100% of the lessee's, assignee's, optionee's or similar interest
under such contracts; (iii) GP has not received any notice of default of any of
the terms or provisions of such contracts; (iv) GP has the authority under such
contracts to perform fully its obligations under this Agreement; (v) such
contracts are valid and are in good standing; and (vi) the properties covered
thereby are free and clear of all defects, royalties, liens and encumbrances
except for those specifically identified in Part 1 of Exhibit A or in such
contracts;
<PAGE>
With respect to unpatented mining claims that are included within the
Properties and which were located by GP or any of its Affiliates, except as
provided in Part 1 of Exhibit A and subject to the paramount title of the United
States: (i) the unpatented mining claims were properly laid out and monumented;
(ii) all required location and validation work was properly performed; (iii)
location notices and certificates were properly recorded and filed with
appropriate governmental agencies; (iv) all assessment work required to hold the
unpatented mining claims has been performed in a manner consistent with that
required of the Manager pursuant to Section 8.2(k) of this Agreement through the
assessment year ending September 1, _____; (v) all affidavits of assessment work
and other filings required to maintain the claims in good standing have been
properly and timely recorded or filed with appropriate governmental agencies;
(vi) the claims are free and clear of defects, royalties, liens and
encumbrances; and (vii) the claims are not subject to any conflicting claims.
With respect to those unpatented mining claims that were not located by GP_ or
any of its Affiliates, but are included within the Properties, GP makes the
foregoing representations and warranties (with the foregoing exceptions as
provided in Part 1 of Exhibit A and subject to the paramount title of the United
States) to the best of its knowledge and belief;
GP has delivered to Kennecott all information concerning title to the
Properties in GP's possession or control, including, but not limited to, true
and correct copies of all leases or other contracts relating to the Properties;
With respect to the Properties, there are no pending or threatened
actions, suits, claims or proceedings, and GP has not received any notice of
violation or agency claim alleging any violation of any law, rule, regulation or
permit, including without limitation any environmental law, rule, regulation or
permit, by GP in connection with the Properties;
Except as disclosed in Exhibit A, there are no adverse environmental
conditions on or affecting the Properties and no past or present activities on
the Properties have caused or contributed to any adverse environmental condition
on other lands; and
Except as disclosed in Exhibit A, GP has no material contractual
commitments or obligations which relate to or affect the Properties.
The representations and warranties set forth above shall survive the execution
and delivery of any documents of Transfer provided under this Agreement.
39. Disclosures. Each of the Participants represents and warrants that
it is unaware of any material facts or circumstances which have not been
disclosed in this Agreement, which should be disclosed to the other Participant
in order to prevent the representations in this Article II from being materially
misleading.
40. Covenants.
GP covenants and agrees as follows:
<PAGE>
At any time, it will give prompt notice to the Manager of any
notice of default, lawsuit, proceeding, action or damage of
which GP becomes aware and which might affect GP, the Assets
or a Participant's title to the Properties;
Notwithstanding any other provision of this Agreement, during
the Initial Contribution Period it will not conduct, without
the Manager's prior written consent, any property acquisition,
exploration, claim staking or mining operations within the
Area of Interest;
At any time, it will use its best efforts to assist the
Manager in obtaining necessary permits or approvals, access to
the Properties and water rights to the extent required by or
for Operations hereunder, and to assist the Manager by
informing the Manager of legal, title and mining problems
which may affect the Properties; and
It will make known and available to the Manager, its employees
and agents, any and all data, maps, or other documents or
information which it may have or may acquire pertaining to the
Properties.
Except as otherwise provided in this Agreement, a Participant shall not
permit or cause all or any part of its interest in the Assets or this Agreement
to terminate.
41. Record Title. Title to the Properties shall be held by the
Participants as co-tenants for the benefit of the Venture. Title to all other
Assets shall be held in the name of the Manager for the benefit of the Venture.
Upon execution of this Agreement, GP shall provide to Kennecott such instruments
in recordable form as are necessary to convey to the Manager its interest in the
Properties and to transfer to the Manager all other Assets, if any.
42. Joint Loss of Title. Except as otherwise provided in Section 2.7,
during the Initial Contribution Period, any failure or loss of title to the
Assets shall be borne by the Participants in accordance with their initial
Participating Interests. If Kennecott elects to defend title during the Initial
Contribution Period, then all costs of defending title incurred during such
period shall be borne by Kennecott and included in the Work Expenditures under
Section 5.2. During the Period of Joint Operations, any failure or loss of title
to the Assets, and all costs of defending title, shall be charged to the Joint
Account.
43. Loss from Breach of Warranties. Notwithstanding anything to the
contrary in the foregoing provisions, all costs and losses arising out of or
resulting from breach of the representations and warranties of GP shall be
charged to GP. GP shall indemnify, defend and hold harmless Kennecott and its
Affiliates (including without limitation direct and indirect parent companies),
and its or their respective directors, officers, shareholders, employees, agents
and
<PAGE>
attorneys, from and against any Liabilities which may be imposed upon, asserted
against or incurred by any of them and which arise out of or result from such
breach.
SECTION
NAME, PURPOSES AND TERM
44. General. GP and Kennecott hereby enter into this Agreement for the
purposes hereinafter stated and agree that all of their rights and all of the
Operations on or in connection with the Properties or the Area of Interest shall
be subject to and governed solely by this Agreement.
45. Name. The name of this Venture shall be the High Grade Joint
Venture. The Manager shall accomplish any registration required by applicable
assumed or fictitious name statutes and similar statutes.
46. Purposes. This Agreement is entered into for the following purposes
and for no others, and shall serve as the exclusive means by which the
Participants, or either of them, accomplish such purposes:
to conduct Exploration within the Area of Interest,
to acquire additional Properties within the Area of Interest,
to evaluate the possible Development of the Properties,
to engage in Development and Mining Operations on the Properties,
to engage in marketing Products, to the extent permitted by
Article XI, and
to perform any other activity necessary, appropriate, or
incidental to any of the foregoing.
To fulfill such purposes, the Participants hereby grant to the Manager the sole
and exclusive right of the Manager and its agents, employees, contractors and
subcontractors, to enter upon and occupy the Properties and to conduct thereon
such Operations for gold, silver and other or associated metals and all other
ores and minerals of whatever kind or character.
47. Limitation. Unless the Participants otherwise agree in writing, the
Operations shall be limited to the purposes described in Section 3.3, and
nothing in this Agreement shall be construed to enlarge such purposes.
48. Term. The term of this Agreement shall be for 20 years from the
Effective Date and for so long thereafter as Products are produced from the
Properties or the Participants are
<PAGE>
actively engaged in Exploration or Development work on the Properties or
continue to jointly own or operate any of the Assets, unless the Agreement is
earlier terminated as herein provided.
SECTION
RELATIONSHIP OF THE PARTICIPANTS
49. No Partnership. Nothing contained in this Agreement shall be deemed
to constitute a Participant the partner of the other Participant, nor, except as
otherwise herein expressly provided, to constitute a Participant the agent or
legal representative of the other Participant, nor to create any fiduciary
relationship between them. It is not the intention of the Participants to
create, nor shall this Agreement be construed to create, any mining, commercial
or other partnership. A Participant shall not have any authority to act for or
to assume any obligation or responsibility on behalf of the other Participant,
except as otherwise expressly provided herein. The rights, duties, obligations
and liabilities of the Participants shall be several and not joint or
collective. Each Participant shall be responsible only for its obligations as
herein set out and shall be liable only for its share of the costs and expenses
as provided herein, it being the express purpose and intention of the
Participants that their ownership of Assets and the rights acquired hereunder
shall be as tenants in common. Each Participant shall indemnify, defend and hold
harmless the other Participant and its Affiliates (including without limitation
direct and indirect parent companies), and its or their respective directors,
officers, shareholders, employees, agents and attorneys, from and against any
Liabilities which may be imposed upon, asserted against or incurred by any of
them and which arise out of or result from any act or any assumption of
liability by the indemnifying Participant, or any of its directors, officers,
shareholders, employees, agents, attorneys and Affiliates, done or undertaken,
or apparently done or undertaken, on behalf of the other Participant, except
pursuant to the authority expressly granted herein or as otherwise agreed in
writing between the Participants.
50. Federal Tax Elections and Allocations. The Participants hereby
agree to elect that this Agreement and all operations hereunder be EXCLUDED from
the applications of the provisions of Subchapter K of Chapter 1 of Subtitle A of
the United States Internal Revenue Code of 1986, as amended, and the similar
provisions of applicable state law. Each Participant agrees to effect this
election pursuant to Section 761(a) of the Code. Subject to the written approval
of the Participants, the Manager shall prepare and file the proper documents to
insure the Participants' exclusion from Subchapter K and from similar provisions
of applicable state law.
51. State Income Tax. The Participants also agree that, to the extent
permissible under applicable law, their relationship shall be treated for state
income tax purposes in the same manner as it is for Federal income tax purposes.
52.4 Other Business Opportunities. Except as expressly provided in this
Agreement, each Participant shall have the right independently to engage in and
receive full benefits from
<PAGE>
business activities, whether or not competitive with the Operations, without
consulting the other Participant. The doctrines of "corporate opportunity" or
"business opportunity" shall not be applied to any other activity, venture or
operation of a Participant and, except as otherwise provided in Section 12.4, a
Participant shall not have any obligation to the other Participant with respect
to any opportunity to acquire any property outside the Area of Interest at any
time, or within the Area of Interest after the termination of this Agreement.
Unless otherwise agreed in writing, no Participant shall have any obligation to
mill, beneficiate or otherwise treat any Products or the other Participant's
share of Products in any facility owned or controlled by such Participant.
53.5 Employees. Employees of the Manager are not and shall not be
employees of the other Participant or of the Venture.
SECTION
CONTRIBUTIONS BY PARTICIPANTS
54. Participants' Initial Contributions. GP, as its Initial
Contribution, hereby contributes the Properties to the purposes of this
Agreement. The agreed value of GP's Initial Contribution shall be $ _________.
Kennecott, as its Initial Contribution, shall make certain payments and
contribute certain amounts for Operations on the Properties pursuant to the
terms of Section 5.2 hereof. The value of Kennecott's Initial Contribution shall
be $________.
55. Contributions During Initial Contribution Period. The Participants,
subject to any election permitted by Section 6.3, shall be obligated to
contribute funds to adopted Programs in proportion to their respective
Participating Interests.
5.3 Kennecott's Right to Terminate. Notwithstanding anything to the
contrary contained herein, Kennecott may, at any time, for any reason or no
reason, withdraw from, and thereby terminate, this Agreement. Upon termination
of this Agreement pursuant to this Section: (i) Kennecott's Participating
Interest hereunder shall be forfeited; and (ii) Kennecott shall provide to GP a
quitclaim deed in recordable form conveying to GP all of Kennecott's interest in
the Properties, and such other instruments as are necessary to transfer to GP
Kennecott's interest in other Assets, if any, and Kennecott shall have no
further right, title or interest in the Assets; provided, however, that
Kennecott shall have a reasonable time, not to exceed 180 days following
delivery of the quitclaim deed described above, to remove its equipment, tools
and other property from the Properties. Such termination will not relieve
Kennecott of liabilities to third parties arising out of Operations conducted by
Kennecott prior to the termination of this Agreement, whether such liability is
known or unknown at the time of termination and whether such liability is
asserted before or after such termination. If the date of termination under this
Section occurs between June 30 and September 1 of any year, Kennecott shall
complete the annual assessment work on the unpatented mining claims included in
the Properties for the then current assessment year.
<PAGE>
SECTION
INTERESTS OF PARTICIPANTS
56. Initial Participating Interests; Adjustments.
The Participants shall, upon execution of this Agreement, have the
following initial Participating Interests:
GP 49%
Kennecott 51%
Except as otherwise provided in this Agreement, all costs and
liabilities incurred in the Operations shall be borne and paid by, and all
Assets acquired and Products mined by the Operations shall be owned by, the
Participants in proportion to their Participating Interests.
57. Other Changes in Participating Interests. Following the completion
of the Initial Contribution Period, a Participant's Participating Interest shall
be changed as follows:
Upon reduction of a Participating Interest to less than ten
percent (10%), as provided in Section 6.5;
Upon an election by a Participant pursuant to Section 6.3 to
contribute less to an adopted Program and Budget than the
percentage reflected by its Participating Interest;
In the event of default by a Participant in making its
agreed-upon contribution to an adopted Program and Budget,
followed by an election by the other Participant to invoke
Section 6.4(c), (d) or (e);
In the event of a final, non-appealable judicial determination
that a Participant has failed to comply with a material
obligation under this Agreement and has failed to adequately
cure such default, followed by an election by the other
Participant to invoke the remedies described in paragraph (i)
of Section 12.1(d);
Transfer by a Participant of less than all its Participating
Interest in accordance with Article XV; or
Acquisition of less than all of the Participating Interest of
the other Participant, however arising.
58. Voluntary Reduction in Participation.
During the Period of Joint Operations, a Participant may elect, as
provided in Section 9.5, to contribute to an adopted Program and Budget in some
lesser amount than its
<PAGE>
Participating Interest, or not to contribute at all. Each Participant shall have
the right to elect to participate or not to participate without regard to its
vote on adoption of the Program and Budget. The Participating Interest of such
Diluting Participant will be reduced effective as of the date the adopted
Program and Budget is commenced (the "Diluting Date").
A Diluting Participant's Participating Interest will be provisionally
recalculated effective as of the Diluting Date according to the following
formula:
R = REA (P) x 100%
-------
REA (AP)
Where:
R = The recalculated Participating Interest of the
Diluting Participant.
REA (P) = The Diluting Participant's Equity Account
immediately prior to the Diluting Date, as adjusted
for anticipated debits and credits based on the
adopted Program and Budget and the Diluting
Participant's election as to contributions.
REA (AP) = The Equity Account balance for all Participants
immediately prior to the Diluting Date, as adjusted
for anticipated debits and credits based on the
adopted Program and Budget and all Participants'
elections as to contributions.
The Participating Interest of the Non-Diluting Participant shall be increased by
the amount of the reduction in the Participating Interest of the Diluting
Participant. The recalculations made under this Section 6.3(b) will be
provisional and subject to the final adjustments provided for under Section
6.3(c).
At the end of each Budgetary Period, a final recalculation of each
Participant's Participating Interest shall be made, with the provisional
recalculations made under 6.3(b) adjusted to reflect actual debits, credits and
contributions made during that period. A Diluting Participant shall retain all
of its rights and all of its obligations (except as provided in Section 6.3(b)
above and subject to the provisions of Section 6.5), including the right to
participate in future Programs and Budgets at its recalculated Participating
Interest.
59. Default in Making Contributions.
If during the Period of Joint Operations a Participant elects to
contribute to an approved Program and Budget and then defaults in its obligation
to pay a contribution or cash call hereunder, the other Participant, by notice
to the defaulting Participant, may at any time, but shall not be obligated to,
elect to make such contribution or meet such cash call on behalf of the
defaulting Participant (a "Cover Payment"). If more than one Cover Payment is
made by the other Participant, such Cover Payments shall be aggregated and the
rights and remedies described herein pertaining to an individual Cover Payment
shall be read to apply to the aggregated Cover Payments.
<PAGE>
Each Cover Payment shall constitute indebtedness due from the
defaulting Participant to the non-defaulting Participant, which indebtedness
shall be payable upon demand and shall bear interest from the date incurred,
payable upon demand or, in the absence of any demand, on the last day of each
calendar month, at the rate specified in Section 10.3.
Each Participant hereby grants to the other Participant, as security
for the performance of all obligations arising under this Agreement, including
the repayment of the indebtedness referred to in Section 6.4(b) above (together
with interest thereon, reasonable attorneys' fees and all other reasonable costs
and expenses incurred in collecting payment of such indebtedness and enforcing
such security interest), a security interest, mortgage and lien (hereinafter a
"security interest") in and on such Participant's right, title and interest in,
whenever acquired or arising, (i) the Assets, (ii) its rights under this
Agreement, and (iii) its Participating Interest, together with all products,
proceeds and accessions of the foregoing. Each Participant hereby represents and
warrants to the other Participant that such security interest ranks prior to any
and all other security interests. Each Participant hereby agrees to take all
action necessary to perfect such security interest and irrevocably appoints the
other Participant as its attorney-in-fact to execute, file and record all
financing statements and any other documents necessary to perfect or maintain
such security interest or otherwise give effect to the provisions hereof. Each
Participant hereby agrees that it shall not execute, foreclose or otherwise take
action to enforce such security interest except upon 30 days' prior notice to
the defaulting Participant, provided that the foregoing shall not prohibit the
taking of any action to make, prove or protect a claim in any bankruptcy or
insolvency proceeding of the defaulting Participant. Upon completion of
execution, foreclosure or other action to enforce the security interest
described herein, the defaulting Participant shall be deemed to have withdrawn
from this Agreement and shall relinquish its entire Participating Interest. In
the event the defaulting Participant is subjected to execution or foreclosure
proceedings pursuant to the terms of this Section, to the extent allowed by
applicable law the defaulting Participant waives any available right of
redemption from and after the date of judgment, any required valuation or
appraisal of the mortgaged or secured property prior to sale, any available
right to stay execution or to require a marshalling of assets and any required
bond in the event a receiver is appointed. In addition, to the extent permitted
by applicable law, each Participant grants to the other Participant a power of
sale as to any property that is subject to the security interest granted
hereunder, such power to be exercised in the manner provided by applicable law
or otherwise in a commercially reasonable manner and upon reasonable notice.
If a Cover Payment shall have been made, upon the giving of not less
than 5 days' prior notice to the defaulting Participant, the non-defaulting
Participant may, but shall not be obligated to, elect to effect an adjustment of
the defaulting Participant's Participating Interest pursuant to this Section
6.4(d); provided, however, that if within such 5 day period the defaulting
Participant shall evidence to the reasonable satisfaction of the non-defaulting
Participant that it will have the funds to, and will, within 10 days of the
expiry of such 5 day period, pay all indebtedness owing by the defaulting
Participant to the non-defaulting Participant, then such adjustment of interest
may not be effected until the end of such additional 10 day period. Upon such
election, or, if applicable, at the end of such additional 10 day period, an
amount equal to 125% times the Cover Payment shall be deducted from the
defaulting Participant's Equity
<PAGE>
Account and added to the Equity Account of the non-defaulting Participant and
the Participating Interests of the Participants shall be recalculated based on
the adjusted Equity Accounts.
If a Cover Payment and the indebtedness arising therefrom shall not
have been discharged, upon not less than 30 days' notice to the defaulting
Participant, the non-defaulting Participant may, but shall not be obligated to,
elect to purchase the whole of the Participating Interest of the defaulting
Participant, at a purchase price equal to the fair market value of such
Participating Interest as determined by an independent appraiser appointed by
such non-defaulting Participant (or, if the defaulting Participant objects to
the person so appointed, within 10 days of receiving notice thereof, then by an
independent appraiser appointed by joint action of independent appraisers
appointed by each of the non-defaulting and defaulting Participants; provided,
however, that if the defaulting Participant fails to designate an independent
appraiser for such purpose within 10 days of such objection, then the person
originally designated by such non-defaulting Participant shall serve as the
independent appraiser). There shall be withheld from the purchase price payable
upon transfer of such Participating Interest the amount of indebtedness of the
defaulting Participant owing to the non-defaulting Participant, together with
unpaid interest accrued thereon to the date of such transfer. Upon payment of
such purchase price, the defaulting Participant shall be deemed to have
withdrawn from this Agreement and shall relinquish its entire Participating
Interest. Such relinquished Participating Interest shall be deemed to have been
assigned automatically to the non-defaulting Participant.
Upon a default of the type referred to in Section 6.4(a) above, the
right of the defaulting Participant to take delivery in kind under Article XI
shall cease. The non-defaulting Participant may sell the defaulting
Participant's share of Products in any commercially reasonable manner. If such
non-defaulting Participant elect to sell the defaulting Participant's share of
Products, it shall apply the proceeds thereof first, to make any contribution or
meet any cash call not made or met by the defaulting Participant or made or met
on its behalf, and second, to pay the indebtedness and unpaid and accrued
interest thereon then owing by the defaulting Participant to such non-defaulting
Participant. The right of a defaulting Participant to take in kind its share of
Products shall be reinstated at the first time when such Participant is not in
default in its obligation to make a contribution or meet a cash call and all
indebtedness and interest thereon arising out of the making by the
non-defaulting Participant of Cover Payments has been paid in full.
A defaulting Participant, by paying all indebtedness and interest
thereon then owing to the non-defaulting Participant may cure such default at
any time prior to (i) consummation of an action to execute or foreclose on a
security interest granted pursuant to Section 6.4(c), (ii) an adjustment of
Participating Interests being effected pursuant to Section 6.4(d), or (iii)
consummation of a purchase of its Participating Interest pursuant to Section
6.4(e).
60. Elimination of Minority Interest.
Upon the reduction of its Participating Interest to less than ten
percent (10%) under the provisions of Section 6.3 or Section 6.4(d), a
Participant shall be deemed to
<PAGE>
have withdrawn from this Agreement and shall relinquish its entire Participating
Interest. Such relinquished Participating Interest shall be deemed to have been
assigned automatically to the other Participant subject to a right of the
withdrawing Participant to receive five percent (5%) of Net Proceeds, calculated
as provided in Exhibit D, until the withdrawing participant has received one
hundred percent (100%) of its aggregate expenditures on the Property.
For purposes of this Section 6.5, the determination of whether a
Participant's Participating Interest has been reduced to less than ten percent
(10%) under the provisions of Section 6.3 shall be made on the basis of the
provisionally recalculated Participating Interest provided for under Section
6.3(b), and the relinquishment, withdrawal and entitlements provided for in this
Section 6.5 shall be effective as of the Diluting Date. However, if the final
adjustment, provided for under Section 6.3(c), results in a recalculated
Participating Interest of ten percent (10%) or more: (i) the Diluting
Participant's recalculated Participating Interest shall, effective as of the
last day of the Budgetary Period, be deemed to have automatically revested; (ii)
such Participant shall be reinstated as a Participant, with all of the rights
and obligations pertaining thereto; (iii) the royalty interest (if any) revested
or vested under the terms of Section 6.5(a) shall terminate; and (iv) the
Participants shall make such reimbursements, reallocations of production,
contributions and other adjustments as are necessary so that, to the extent
possible, each Participant will be placed in a position it would have been in
had the adjusted recalculated Participating Interests been in effect throughout
the Budgetary Period.
61. Continuing Liabilities Upon Adjustments of Participating Interests.
Any reduction of a Participant's Participating Interest under this Article VI
shall not relieve such Participant of its share of any liability (including
without limitation its share of any reclamation liability) arising out of
Operations conducted prior to such reduction, whether such liability is known or
unknown at the time of the reduction and whether such liability is asserted
before or after such reduction. For purposes of this Article VI, such
Participant's share of such liability shall be equal to its Participating
Interest at the time the activity giving rise to the liability occurred. The
increased Participating Interest accruing to a Participant as a result of the
reduction of the other Participant's Participating Interest shall be free of
royalties, liens or other encumbrances arising by, through or under such other
Participant, other than those existing at the time the Properties were acquired
or those to which the Participants have given their written consent. An
adjustment to a Participating Interest need not be evidenced during the term of
this Agreement by the execution and recording of appropriate instruments, but
each Participant's Participating Interest shall be shown in the books of the
Manager. However, a Participant, at any time upon the request of the other
Participant, shall execute and acknowledge instruments necessary to evidence
such adjustment in form sufficient for recording in the jurisdiction where the
Properties are located. Each Participant also irrevocably appoints the Manager
as its attorney-in-fact to execute, file and record all documents necessary to
evidence any adjustment to the Participants' Participating Interests.
SECTION
MANAGEMENT COMMITTEE
<PAGE>
62. Organization and Composition. The Participants shall establish a
Management Committee consisting of two (2) members appointed by GP and two (2)
members appointed by Kennecott. Each Participant may appoint one or more
alternates to act in the absence of a regular member. Any alternate so acting
shall be deemed a member. Appointments shall be made or changed by notice to the
other Participant. During the Initial Contribution Period, the Management
Committee shall meet regularly so that the Manager can report on the status of
Operations, but all decisions regarding the management of the Venture and the
policies, objectives, procedures, methods and actions under this Agreement shall
be made by the Manager. During the Period of Joint Operations, the Management
Committee shall determine overall policies and objectives under this Agreement
and provide, through regularly scheduled meetings, general oversight and
direction to the Manager.
63. Decisions. During the Period of Joint Operations, each Participant,
acting through its appointed members, shall vote its Participating Interest.
Unless otherwise provided in this Agreement, the decisions of the Management
Committee will be decided by a simple majority; provided, however, that in the
event a simple majority cannot be obtained, the position of the Participant
which is the Manager shall prevail.
64. Meetings. The Management Committee shall hold regular meetings at
least annually in Salt Lake City, Utah, or at other mutually agreed places. The
Manager shall give thirty (30) days notice to the Participants of such regular
meetings. Additionally, a Participant may, during the Period of Joint
Operations, call a special meeting upon fifteen (15) days notice to the Manager
and the other Participant. In case of emergency, reasonable notice of a special
meeting shall suffice. There shall be a quorum if at least one member
representing each Participant is present. If a Participant fails to attend a
regular or special meeting for which notice has been given as described above,
the Manager or the Participant calling the meeting, as applicable, may give a
second notice of the meeting in compliance with the above rules for special
meetings. If the non-attending Participant does not attend the meeting scheduled
by the second notice, there shall be a quorum if at least one member of one
Participant is present. Each notice of a meeting shall include an itemized
agenda prepared by the Manager in the case of a regular meeting, or by the
Participant calling the meeting in the case of a special meeting, but any
matters may be considered with the consent of all Participants. The Manager
shall prepare minutes of all meetings and shall distribute copies of such
minutes to the Participants within 10 days after the meeting. The minutes shall
be the official record of the decisions made by the Management Committee and
shall be binding on the Manager and the Participants. If personnel employed in
Operations are required to attend a Management Committee meeting, reasonable
costs incurred in connection with such attendance (a) shall be borne by the
Participants individually for meetings held during the Initial Contribution
Period, and (b) shall be a Venture cost for meetings held during the Period of
Joint Operations. All other costs shall be paid for by the Participants
individually.
65. Action Without Meeting. In lieu of meetings, the Management
Committee may hold telephone conferences so long as all decisions are
immediately confirmed in writing by the Participants.
<PAGE>
SECTION
MANAGER
66. Appointment of Manager. The Participants hereby appoint Kennecott
as the Manager with overall management responsibility for Operations. Kennecott
hereby agrees to serve until it resigns as provided in Section 8.4.
67. Powers and Duties of Manager. During the Initial Contribution
Period, the Manager shall have full discretion in the Operations of the
Properties and shall not be obligated to explore, develop or mine on any
particular schedule nor on any particular portion of the Properties. Subject to
the general oversight and direction of the Management Committee as described in
Section 7.1, the Manager is vested with full authority to carry out the
day-to-day management of the Venture and to conduct all Operations during the
Period of Joint Operations. The Manager agrees, by itself, or through its
employees, agents or contractors, to carry out its duties in accordance with the
terms and intent of this Agreement, on behalf of and for the account of the
Participants according to their Participating Interests. Without limiting the
generality of the foregoing, the Manager shall have the following powers and
duties:
The Manager shall manage, direct and control Operations.
During the Period of Joint Operations, the Manager shall
implement the decisions of the Management Committee, shall
make all expenditures necessary to carry out adopted Programs,
and shall promptly advise the Management Committee if it lacks
sufficient funds to carry out its responsibilities under this
Agreement.
The Manager shall: (i) purchase or otherwise acquire all
material, supplies, equipment, water, utility and
transportation services required for Operations, such
purchases and acquisitions to be made on the best terms
available in light of all relevant circumstances and taking
into account the terms which are typically obtained by the
Manager or its Affiliates for like services or supplies; (ii)
obtain such customary warranties and guarantees as are
available in connection with such purchases and acquisitions;
and (iii) keep the Assets free and clear of all liens and
encumbrances, except for those existing at the time of, or
created concurrently with, the acquisition of such Assets, or
mechanic's or materialmen's liens which shall be released or
discharged in a diligent manner, or liens and encumbrances
specifically approved by the Management Committee.
The Manager shall conduct such title examinations and cure
such title defects as may be advisable in the reasonable
judgment of the Manager.
The Manager shall: (i) make or arrange for all payments
required by leases, licenses, permits, contracts and other
agreements related to the Assets; and (ii) pay all taxes,
assessments and like charges on Operations
<PAGE>
and Assets except taxes determined or measured by a
Participant's sales revenue or net income. The Manager shall
have the right to contest in the courts or otherwise, the
validity or amount of any taxes, assessments or charges if the
Manager deems them to be unlawful, unjust, unequal or
excessive, or to undertake such other steps or proceedings as
the Manager may deem reasonably necessary to secure a
cancellation, reduction, readjustment or equalization thereof
before the Manager shall be required to pay them, but in no
event shall the Manager permit or allow title to the Assets to
be lost as the result of the nonpayment of any taxes,
assessments or like charges; and (iii) do all other acts
reasonably necessary to maintain the Assets.
The Manager shall: (i) apply for all necessary permits,
licenses and approvals; (ii) comply with applicable federal,
state and local laws, regulations and permits; (iii) notify
promptly the Management Committee of any allegations of
substantial violation of applicable federal, state or local
laws, regulations or permits, the violation of which would
have a material adverse effect on Operations; and (iv) prepare
and file all reports or notices required for Operations. The
Manager shall not be in breach of this provision if a
violation has occurred in spite of the Manager's good faith
efforts to comply, and the Manager has timely cured or
disposed of such violation through performance or payment of
fines and penalties.
The Manager shall prosecute and defend litigation or
administrative proceedings arising out of Operations. The
Manager may initiate without the consent of the Management
Committee litigation or administrative proceedings arising out
of Operations having at stake less than $100,000 in cash or
value; initiation of such actions having $100,000 or more in
cash or value at stake shall require the consent of the
Management Committee. The non-managing Participant shall have
the right to participate, at its own expense, in such
litigation or administrative proceedings. The non-managing
Participant shall approve in advance any settlement involving
payments, commitments or obligations in excess of $250,000 in
cash or value.
The Manager shall provide insurance for the benefit of the
Participants as provided in Exhibit E.
The Manager may dispose of Assets, whether by abandonment,
surrender or Transfer in the ordinary course of business,
except that Properties may be abandoned or surrendered only as
provided in Article XIV. However, without prior authorization
from the Management Committee, the Manager shall not: (i)
dispose of Assets in any one transaction having a value in
excess of $250,000; (ii) enter into any sales contracts or
commitments for Product, except as permitted in Sections
6.4(f) and 11.2;
<PAGE>
(iii) begin a liquidation of the Venture; or (iv) dispose of
all or a substantial part of the Assets necessary to achieve
the purposes of the Venture.
The Manager shall have the right to carry out its
responsibilities hereunder through agents, Affiliates or
independent contractors.
The Manager shall perform or cause to be performed during the
term of this Agreement all assessment and other work required
by law in order to maintain the unpatented mining claims
included within the Properties. The Manager shall have the
right to perform the assessment work required hereunder
pursuant to a common plan of exploration and continued actual
occupancy of such claims and sites shall not be required. The
Manager shall not be liable on account of any determination by
any court or governmental agency that the work performed by
the Manager does not constitute the required annual assessment
work or occupancy for the purposes of preserving or
maintaining ownership of the claims, provided that the work
done is in accordance with the adopted Program and Budget. The
Manager shall timely record with the appropriate county and
file with the appropriate United States agency, affidavits in
proper form attesting to the performance of assessment work or
notices of intent to hold in proper form, and allocating
therein, to or for the benefit of each claim, at least the
minimum amount required by law to maintain such claim or site.
The Manager may: (i) locate, amend or relocate any unpatented
mining claim or mill site or tunnel site, (ii) locate any
fractions resulting from such amendment or relocation, (iii)
apply for patents or mining leases or other forms of mineral
tenure for any such unpatented claims or sites, (iv) abandon
any unpatented mining claims for the purpose of locating mill
sites or otherwise acquiring from the United States rights to
the ground covered thereby, (v) abandon any unpatented mill
sites for the purpose of locating mining claims or otherwise
acquiring from the United States rights to the ground covered
thereby, (vi) exchange with or convey to the United States any
of the Properties for the purpose of acquiring rights to the
ground covered thereby or other adjacent ground, and (vii)
convert any unpatented claims or mill sites into one or more
leases or other forms of mineral tenure pursuant to any
federal law hereafter enacted.
The Manager shall keep and maintain all required accounting
and financial records pursuant to the Accounting Procedure and
in accordance with customary cost accounting practices in the
mining industry.
The Manager shall keep the Management Committee advised of all
Operations by submitting in writing to the Management
Committee: (i) during the Initial Contribution Period, a
detailed final report within ninety
<PAGE>
days of the end of the period covered by a Plan of Operations;
and (ii) during the Period of Joint Operations, (x) monthly
progress reports which include statements of expenditures and
comparisons of such expenditures to the adopted Budget, (y) a
detailed final report within ninety days after completion of
each Program and Budget, which shall include comparisons
between actual and budgeted expenditures and comparisons
between the objectives and results of Programs, and (z) such
other reports as the Management Committee may reasonably
request. At all reasonable times the Manager shall, upon
request, provide the Management Committee or the
representative of the non-managing Participant access to, and
the right to inspect and copy all maps, drill logs, core
tests, reports, surveys, assays, analyses, production reports,
operations, technical, accounting and financial records, and
other information acquired in Operations. Such material and
information shall be solely for the benefit of the
Participants to whom such material and information are made
available and the Participants agree not to discuss or
disclose the same to any third parties except as provided in
this Agreement. The non-managing Participant further agrees
that its use of or reliance on such material and information
shall be at its sole risk and further agrees to indemnify,
defend and hold harmless the Manager and its Affiliates
(including without limitation direct and indirect parent
companies), and its or their respective directors, officers,
shareholders, employees, agents and attorneys, from and
against any Liabilities which may be imposed upon, asserted
against or incurred by any of them and which arise out of or
result from use of or reliance on such material and
information by the non-managing Participant, or any third
party to whom the non-managing Participant discloses such
material and information. The Manager makes no representation
or warranty as to the completeness or accuracy of any material
or information disclosed hereunder.
The Manager shall allow the non-managing Participant, at the
latter's sole risk and expense, and subject to reasonable
safety regulations, to inspect the Assets and Operations at
all reasonable times, so long as the non-managing Participant
does not unreasonably interfere with Operations. Such
Participant agrees to indemnify, defend and hold harmless the
Manager and its Affiliates (including without limitation
direct and indirect parent companies), and its or their
respective directors, officers, shareholders, employees,
agents and attorneys, from and against any Liabilities which
may be imposed upon, asserted against or incurred by any of
them and which arise out of or result from the entry, presence
or activities of such Participant and/or its agents and
representatives on the Properties, including without
limitation bodily injury or death at any time resulting
therefrom and damage to property sustained by any person or
persons, unless such loss or damage is caused by the gross
negligence or willful misconduct of the Manager.
<PAGE>
The Manager shall undertake all other activities reasonably
necessary to fulfill the foregoing.
The Manager shall not be in default of any duty under this Section 8.2 if its
failure to perform results from the failure of the non-managing Participant to
perform acts or to contribute amounts required of it by this Agreement.
68. Manager's Standard of Care. The Manager shall conduct all
Operations in a good, workmanlike and efficient manner, in accordance with sound
mining and other applicable industry standards and practices, and in accordance
with the terms and provisions of leases, licenses, permits, contracts and other
agreements pertaining to Assets. The Manager shall not be liable to the
non-managing Participant for any act or omission resulting in damage or loss
except to the extent caused by or attributable to the Manager's willful
misconduct or gross negligence.
69. Manager's Resignation; Deemed Offer to Resign.
The Manager may resign upon two months' prior notice to the other
Participant, in which case the other Participant may elect to become the new
Manager by notice to the resigning Participant within 30 days after the notice
of resignation.
If any of the following shall occur, the Manager shall be deemed to
have offered to resign, which offer shall be accepted by the other Participant,
if at all, within 90 days following such deemed offer:
The Participating Interest of the Manager becomes less than
the Participating Interest of the other Participant;
The Manager fails to perform a material obligation imposed
upon it under this Agreement and such failure continues
uncontested by the Manager for a period of 60 days after
notice from the other Participant demanding performance; or
The Manager fails to pay or contest in good faith its bills
within 60 days after they are due.
If
A receiver, liquidator, assignee, custodian, trustee,
sequestrator or similar official for a substantial part of the
Manager's assets is appointed and such appointment is neither
made ineffective nor discharged within 60 days after the
making thereof, or such appointment is consented to, requested
by, or acquiesced in by the Manager; or
The Manager commences a voluntary case under any applicable
bankruptcy, insolvency or similar law now or hereafter in
effect; or consents to the entry of an order for relief in an
involuntary case
<PAGE>
under any such law or to the appointment of or taking
possession by a receiver, liquidator, assignee, custodian,
trustee, sequestrator or other similar official of any
substantial part of its assets; or makes a general assignment
for the benefit of creditors; or fails generally to pay its
debts or the debts of the Participants arising under this
Agreement as such debts become due; or takes corporate or
other action in furtherance of any of the foregoing; or
Entry is made against the Manager of a judgment, decree or
order for relief affecting a substantial part of its assets by
a court of competent jurisdiction in an involuntary case
commenced under any applicable bankruptcy, insolvency or other
similar law of any jurisdiction now or hereafter in effect;
the Manager shall be deemed to have resigned without any action by the other
Participant. If a petition for relief under the federal bankruptcy laws is filed
by or against the Manager, and the removal of the Manager is prevented by the
federal bankruptcy court, the Participants shall comprise an interim operating
committee to serve until the Manager has elected to reject or assume this
Agreement pursuant to the Bankruptcy Code, and an election to reject this
Agreement by the Manager as a debtor in possession, or by a trustee in
bankruptcy, shall be deemed a resignation as the Manager without any action by
the other Participant. During the period of time the operating committee
controls Operations, a third party acceptable to the non-managing Participant,
the Manager and the federal bankruptcy court shall be selected as a member of
the operating committee, and all actions shall require the approval of 2 members
of the operating committee without regard to their interest in the Properties.
70. Payments to Manager. During the Initial Contribution Period, the
Manager shall be compensated for its services in accordance with the provisions
of Section 1.36. During the Period of Joint Operations, the Manager shall be
compensated for its services and reimbursed for its costs hereunder in
accordance with the Accounting Procedure.
71. Transactions with Affiliates. The Manager may use the professional
or other services offered by its Affiliates which the Manager in good faith
believes to be appropriate in the circumstances; provided, however, that in the
case of services in excess of $100,000 in value, prior to engaging an Affiliate
to perform such services, the Manager shall determine that the Affiliate's
services are comparable to or better than similar services which could be
obtained from third parties in light of relevant circumstances, including but
not limited to quality of service, time for performance, ability to perform or
cost, or any combination of the foregoing.
72. Activities Pending Adoption of New Program and Budget. If during
the Period of Joint Operations the Management Committee for any reason fails to
adopt a Program and Budget, subject to the contrary direction of the Management
Committee and to the receipt of necessary funds, the Manager shall continue
Operations at levels comparable with the last adopted Program and Budget. The
Participants shall be obligated to fund such Operations until a new Program and
Budget has been adopted. For purposes of determining the required contributions
of the Participants and their respective Participating Interests, the last
adopted Program and Budget shall be deemed extended.
<PAGE>
73. Funding of Reclamation. The Participants agree that funds regularly
shall be set aside by the Venture during the term of this Agreement in an amount
sufficient to meet reclamation costs which are reasonably estimated to be
required for reclamation for all Operations conducted pursuant to this
Agreement. The Management Committee will periodically, but not less frequently
than once a year after commencement of Operations, estimate the amount of funds
which will be required for such purposes and will establish the amount of annual
funding required which, together with interest thereon, will accumulate to such
estimate. The estimated annual required funding will be made part of the Program
and Budget and shall be satisfied by cash contributions from the Participants,
or the posting of a letter of credit or other form of surety acceptable to the
Manager; provided, however, that if a Participant posts a letter of credit or
other form of surety, that Participant shall be obligated to make additional
contributions on an annual basis so that the value of the letter of credit or
other surety equals the value of a cash contribution plus interest at the rate
of return realized by investment of a cash contribution as provided in this
Section 8.8. Funds will be deposited in an interest-bearing escrow account or
such other revenue generating investment account as the Management Committee
shall direct. Withdrawals from such accounts will be restricted to the specified
purpose of paying end of mine life reclamation costs; provided, however, that
the Management Committee may, from time-to-time, use such funds to perform
reclamation that would otherwise have to be undertaken at the end of Operations
so long as the ability to fund all such reclamation is not impaired. If any
escrow funds remain after reclamation obligations have been fulfilled, they
shall be distributed to the Participants in proportion to the Participants'
Participating Interests as of the time the distribution is made.
SECTION
PROGRAMS AND BUDGETS
74. Plans of Operations. During the Initial Contribution Period,
Kennecott shall conduct Operations pursuant to Plans of Operations. Plans of
Operations shall be prepared for informational purposes only, shall be delivered
to the Management Committee and shall describe the Operations the Manager
intends to conduct during the period covered by the applicable Plan of
Operations. If the Manager desires to conduct Operations substantially different
from those described in the current Plan of Operations, the Manager shall, at
least 5 days before undertaking such other Operations, notify the Management
Committee. The Manager shall not be obligated to fulfill every aspect of a Plan
of Operations or to conduct the Operations described therein on any particular
schedule.
75. Operations Pursuant to Programs and Budgets. Prior to the
termination of the Initial Contribution Period, the Manager shall prepare the
initial Program and Budget and shall submit it to the Participants for approval
pursuant to the provisions of this Article IX. During the Period of Joint
Operations and except as otherwise provided in Section 9.8 and Article XIII,
Operations shall be conducted, expenses shall be incurred, and Assets shall be
acquired only pursuant to approved Programs and Budgets. Programs and Budgets
shall be designed to set forth, in reasonable detail, the scope, direction and
nature of Operations to be undertaken by the Manager and to establish a fiscal
basis for Operations. Programs and Budgets are not intended to
<PAGE>
be an exhaustive listing of authorized expenditures or to limit the duties and
obligations of the Manager in conducting Operations.
76. Presentation of Programs and Budgets.
Proposed Programs and Budgets shall be prepared by the Manager for such
Budgetary Periods as the Manager, in its reasonable discretion, shall determine.
Each adopted Program and Budget, regardless of length, shall be reviewed at
least once a year at the annual meeting of the Management Committee. During the
Budgetary Period encompassed by any Program and Budget, and at least two months
prior to its expiration, a proposed Program and Budget for the succeeding
Budgetary Period shall be prepared by the Manager and submitted to the
Participants.
The Manager may propose amendments to an approved Program and Budget
that do not materially alter the Program and Budget. If during the Budgetary
Period the assumptions underlying a Program and Budget or the basis thereof
change, the Manager may also propose an interim Program and Budget for approval
by the Participants, provided that it is submitted to the Participants at least
two months prior to the date the interim Program and Budget is proposed to take
effect.
77. Review and Approval of Proposed Programs and Budgets. Within 30
days after submission of a proposed Program and Budget, a proposed amendment or
a proposed interim Program and Budget, each Participant shall submit to the
Management Committee:
Notice that the Participant approves the proposal; or
Proposed modifications to the proposal; or
Notice that the Participant rejects the proposal.
Except with respect to a proposed interim Program and Budget, for which
unanimity is required, if a Participant fails to give any of the foregoing
responses within the allotted time, the failure shall be deemed to be an
approval by the Participant of the Manager's proposed Program and Budget. If a
Participant makes a timely submission to the Management Committee pursuant to
Section 9.4(b) or (c), then the Management Committee shall seek to develop a
Program and Budget acceptable to the Participants; provided, however, that
except for an interim Program and Budget, the Management Committee shall make
the final determination of the Program and Budget notwithstanding the inability
to accommodate an individual Participant's objections.
78. Election to Participate. By notice to the Management Committee
within 20 days after the final vote adopting a Program and Budget, a Participant
may elect to contribute to such Program and Budget in some lesser amount than
its respective Participating Interest, or not at all, in which cases its
Participating Interest shall be recalculated as provided in Article VI. If a
Participant fails to so notify the Management Committee, the Participant shall
be deemed to have elected not to contribute to such Program and Budget as of the
beginning of the Budgetary Period covered by the Program and Budget. If a
Participant elects to contribute to a Program and Budget in some lesser amount
or not at all, the Participant that is the Manager may (a) elect to proceed with
the Program and Budget or to propose a replacement Program and Budget that will
<PAGE>
be submitted to the Participants pursuant to Section 9.4, and (b) elect to fund
all or any portion of the amount the other Participant has elected not to
contribute.
79. Activities Pending Adoption of New Program and Budget. If the
Participants, acting through the Management Committee, fail to approve a Program
and Budget by the beginning of the applicable Budgetary Period, the provisions
of Sections 8.7 and 12.2 shall apply.
80. Budget Overruns; Program Changes. The Manager shall immediately
notify the Management Committee of any material departure from an adopted
Program and Budget. If the Manager exceeds the operating or capital expenditures
of an adopted Budget by more than 25%, then the excess over 25%, unless
necessary to fulfill its duties under an adopted Program and Budget or unless
directly caused by an emergency or unexpected expenditure made pursuant to
Section 9.8 or unless incurred pursuant to revisions to the Budget approved by
the Management Committee, shall be for the sole account of the Manager and such
excess shall not be included in the calculations of the Participating Interests.
Budget overruns of twenty-five percent (25%) or less, and Budget overruns in
excess of 25% if necessary to fulfill the Manager's duties under an adopted
Program or if directly caused by an emergency or unexpected expenditure made
pursuant to Section 9.8 or if incurred pursuant to revisions to the Budget
approved by the Management Committee, shall be borne by the Participants in
proportion to their respective Participating Interests as of the time the
overrun occurs.
81. Emergency or Unexpected Expenditures. In case of emergency, the
Manager may take any reasonable action it deems necessary to protect life, limb
or property, to protect the Assets or to comply with law or government
regulation. The Manager may also make reasonable expenditures for unexpected
events which are beyond its reasonable control and which do not result from a
breach by it of its standard of care. The Manager shall promptly notify the
Participants of the emergency or unexpected expenditure, and the Manager shall
be reimbursed for all resulting costs by the Participants in proportion to their
respective Participating Interests at the time the emergency or unexpected
expenditures are incurred.
SECTION
ACCOUNTS AND SETTLEMENTS
82. Monthly Statements. During the Period of Joint Operations, the
Manager shall promptly submit to the Management Committee monthly statements of
account reflecting in reasonable detail the charges and credits to the Joint
Account during the preceding month.
83. Cash Calls. On the basis of the adopted Program and Budget, the
Manager shall submit to each Participant prior to the last day of each month, a
billing for estimated cash requirements for the next month. Within 10 days after
receipt of each billing, each Participant shall advance to the Manager its
proportionate share of the estimated amount. Time is of the essence of payment
of such billings. The Manager shall at all times maintain a cash balance
approximately equal to the rate of disbursement for up to 60 days. All funds in
excess of
<PAGE>
immediate cash requirements shall be invested in interest-bearing accounts with
the Manager's bank, for the benefit of the Joint Account.
84. Failure to Meet Cash Calls. A Participant that fails to meet cash
calls in the amount and at the times specified in Section 10.2 shall be in
default, and the amounts of the defaulted cash call shall bear interest from the
date due at an annual rate equal to five percentage points over the Prime Rate,
but in no event shall said rate of interest exceed the maximum permitted by law.
The non-defaulting Participant shall have those rights, remedies and elections
specified in Section 6.4.
85. Audits. Within 3 months following the end of any calendar year
during the Period of Joint Operations (or, if the Management Committee has
adopted an accounting period other than the calendar year, within 3 months after
the end of such period), the Manager shall order an audit of the accounting and
financial records for such calendar year (or other accounting period). The costs
associated with such audit shall be charged to the Joint Account. All written
exceptions to and claims upon the Manager for discrepancies disclosed by such
audit shall be made not more than 3 months after receipt of the audit report.
Failure to make any such exception or claim within the 3 month period shall mean
the audit is correct and binding upon the Participants. The audits shall be
conducted by a firm of certified public accountants selected by the Manager,
unless otherwise agreed by the Management Committee. Additional audits may be
requested by any Participant at any time, the costs of which shall be borne by
the Participant requesting the same. Such additional audits shall not interfere
with the performance of the audits chargeable to the Joint Account or alter the
binding effect of such audits.
SECTION
DISPOSITION OF PRODUCTION
86. Taking in Kind. Each Participant shall have the right to take in
kind or separately dispose of its share of all Products in accordance with its
Participating Interest. Any extra expenditure incurred by a Participant in the
taking in kind or separate disposition by a Participant of its proportionate
share of Products shall be borne by such Participant. Nothing in this Agreement
shall be construed as providing, directly or indirectly, for any joint or
cooperative marketing or selling of Products or permitting the processing of
Products of any parties other than the Participants at any processing facilities
constructed by the Participants pursuant to this Agreement. The Manager shall
give the Participants notice at least 10 days in advance of the delivery date
upon which their respective shares of Products will be available.
87. Failure of Participant to Take in Kind. If a Participant fails to
take in kind, the Manager or any Affiliate of the Manager shall have the right,
but not the obligation, for a period of time consistent with the minimum needs
of the industry, but not to exceed one year, to purchase the Participant's share
for its own account, or to sell such share as agent for the Participant, in
either case at not less than the prevailing market price in the area. If the
Manager or any Affiliate of the Manager undertakes to sell a Participant's share
of Products as such Participant's agent, such undertaking shall not give rise to
any implied covenant or duty with
<PAGE>
respect to such marketing, and the Manager's or its Affiliate's sole obligation
arising from such undertaking shall be to sell the Participant's Products on
terms that are substantially similar to the terms under which the Manager's
share of Products is marketed. Subject to the terms of any such contracts of
sale as may be then outstanding, during any period that the Manager or its
Affiliate is purchasing or selling a Participant's share of production, the
Participant may elect by notice to the Manager to take in kind. The Manager or
its Affiliate shall be entitled to deduct from proceeds of any sale by it for
the account of a Participant reasonable expenses incurred in such a sale.
SECTION
BREACH OF AGREEMENT, TERMINATION AND WITHDRAWAL
88. Breach of Agreement; Opportunity to Cure.
The failure of a Participant to keep or perform any material obligation
arising under this Agreement shall constitute a default under this Agreement.
Such a default, other than a default which is addressed by Section 8.4 regarding
the Manager's removal, or by Section 6.4 regarding failure to meet a cash call,
shall be subject to the provisions of this Section 12.1.
In the event of an alleged default subject to the provisions of this
Section 12.1, the non-defaulting Participant shall first give the defaulting
Participant notice of its intention to declare such alleged default to be a
breach of this Agreement, specifying the particular default or defaults relied
upon by it. The defaulting Participant shall have a reasonable time, but not
less than thirty (30) days after receipt of such notice, in which to cure or
commence in good faith to cure or contest such alleged default or defaults. If
such alleged default or defaults are cured, there shall be no breach hereunder
with respect to such alleged default or defaults. If the defaulting Participant
fails to cure or contest such default, the non-defaulting Participant may elect
one of the remedies described in this Section or may seek other remedies, but no
Participant shall be put to an election of remedies and, subject to the other
provisions hereof, a Participant may exercise any one or more of the remedies
provided by law or in equity.
If the defaulting Participant contests the existence of an event of
default or if the Participants cannot agree that an alleged default has been or
is being successfully cured, within sixty (60) days of the end of the initial
thirty (30) day period described above, the defaulting Participant may institute
declaratory or other appropriate action to determine the existence of, or
adequacy of the cure of, the alleged default or inadequate cure. The remedies of
the non-defaulting Participant described below may not be invoked until a final,
nonappealable judicial resolution has been obtained that determines that a
material default existed and that the default was not adequately cured in a
timely fashion; provided, however, that if the court determines that such
default can be adequately cured after the judicial determination is made, the
defaulting Participant shall be given a reasonable period of time as specified
by the court within which to cure the default. If such cure is timely made, the
non-defaulting Participant may not invoke the remedies described below. The
prevailing party shall be awarded all costs and
<PAGE>
expenses, including reasonable attorneys' fees, incurred in any such action.
Disputes over the existence of an event of default or the adequacy of efforts to
cure an alleged default shall not interfere with ongoing activities being
conducted under this Agreement.
Upon a final, nonappealable judicial determination that a material
default has occurred and was not adequately cured, or if applicable, the time to
cure in compliance with such judicial determination has expired without such
cure having been made, the non-defaulting Participant may, but shall not be
obligated to, elect one of the following remedies:
the non-defaulting Participant may treat the default as a deemed
withdrawal, in which event the defaulting Participant's Participating Interest
shall be relinquished and shall be deemed to have been assigned automatically to
the other Participant; provided, however, that the defaulting Participant shall
have the right to receive five percent (5%) of Net Proceeds, calculated as
provided in Exhibit D; or
the non-defaulting Participant may sell the defaulting Participant's
share of Products in any commercially reasonable manner, in which case the right
of the defaulting Participant to take delivery in kind under Article XI shall
cease until all amounts owed to the non-defaulting Participant by the defaulting
Participant have been satisfied.
If the non-defaulting Participant shall elect one of the remedies described
above, it may withhold such portion of any royalty payments or sales proceeds,
as applicable, as necessary to recover all costs and expenses, including
reasonable attorneys' fees, awarded to it as described in Section 12.1(c) and to
satisfy any other amounts (including unpaid interest, if any) owed to the
non-defaulting Participant by the defaulting Participant. Any withdrawal under
this Section 12.1 shall not relieve the withdrawing Participant of its share of
liabilities (including without limitation its share of reclamation liabilities),
arising out of Operations conducted prior to such withdrawal, whether such
liability is known or unknown at the time of withdrawal and whether such
liability is asserted before or after the withdrawal. The withdrawing
Participant's share of such liabilities shall be equal to its Participating
Interest at the time the activity giving rise to the liability occurred.
89. Termination During Period of Joint Operations.
During the Period of Joint Operations, this Agreement shall terminate
upon the expiration of its term as described in Section 3.5 above, unless
earlier terminated by written agreement of the Participants. In addition, if
during the Period of Joint Operations the Management Committee fails to adopt a
Program and Budget for twelve (12) months after the expiration of the latest
adopted Program and Budget, a Participant may elect to terminate this Agreement
by giving notice of termination to the other Participant.
On termination of this Agreement under this Section 12.2, the
Participants shall remain liable for continuing obligations hereunder until
final settlement of all accounts and for any liability arising out of Operations
during the term of the Agreement, whether such liability is known or unknown at
the time of termination and whether such liability is asserted before or after
termination.
Promptly after termination under this Section 12.2, the Manager shall
take all action necessary to wind up the activities of the Venture, and all
costs and expenses incurred
<PAGE>
in connection with the termination of the Venture shall be expenses chargeable
to the Venture. In accordance with Exhibit C, any Participant that has a
negative Capital Account balance when the Venture is terminated for any reason
shall contribute to the Assets of the Venture an amount sufficient to raise such
balance to zero. The Assets shall first be paid, applied or distributed in
satisfaction of all liabilities of the Venture to third parties and then to
satisfy any debts, obligations or liabilities owed to the Participants. Before
distributing any funds or Assets to Participants, the Manager shall have the
right to segregate amounts which, in the Manager's reasonable judgment, are
necessary to discharge continuing obligations or to purchase for the account of
Participants, bonds or other securities for the performance of such obligations.
The foregoing shall not be construed to include the repayment of any
Participant's capital contributions or Capital Account balance. Thereafter, any
remaining cash and all other Assets shall be distributed (in undivided interests
unless otherwise agreed) as provided under Section 13 of Exhibit C.
90. Withdrawal. During the Period of Joint Operations, a Participant
may, with the consent of the other Participant, voluntarily withdraw as a
Participant from this Agreement. The Participant wishing to withdraw shall give
notice to the other Participant of the effective date of its proposed
withdrawal, which shall be the later of the end of the then current Program and
Budget or at least 30 days after the date of the notice. If the other
Participant gives its consent to such withdrawal, this Agreement shall
terminate, and the withdrawing Participant shall be deemed to have transferred
to the remaining Participant without cost and free and clear of royalties, liens
or other encumbrances arising by, through or under such withdrawing Participant
(except those exceptions to title described in Part 1 of Exhibit A and those to
which the Participants have given their written consent after the date of this
Agreement) all of its Participating Interest in the Assets and in this
Agreement. Any withdrawal under this Section 12.3 shall not relieve the
withdrawing Participant of its share of liabilities (including without
limitation its share of reclamation liabilities) arising out of Operations
conducted prior to such withdrawal, whether such liability is known or unknown
at the time of withdrawal and whether such liability is asserted before or after
the withdrawal. The withdrawing Participant's share of such liabilities shall be
equal to its Participating Interest at the time the activity giving rise to the
liability occurred. If the other Participant does not consent to such
withdrawal, this Agreement shall be deemed to have terminated by written
agreement and the Participants' rights shall be governed by and such termination
shall be deemed a termination under Section 12.2.
91. Non-Compete Covenants. If this Agreement terminates under any of
its provisions except Section 12.2, or if a Participant withdraws or is deemed
to have withdrawn under any provision, neither the defaulting or withdrawing
Participant, as the case may be, nor its Affiliates shall directly or indirectly
acquire any interest in property within the Area of Interest for 12 months after
the effective date of termination or withdrawal, as applicable. If such
Participant, or the Affiliate of such Participant, breaches this Section 12.4,
such Participant or Affiliate shall be obligated to offer to convey to the other
Participant, without cost, any such property or interest acquired. Such offer
shall be made in writing and can be accepted by the other Participant at any
time within 45 days after it is received by such other Participant.
<PAGE>
92. Right to Data after Termination. After termination of this
Agreement pursuant to Section 12.2, or after a withdrawal pursuant to Section
5.2, each Participant shall be entitled to copies of all information acquired or
generated hereunder before the effective date of termination or withdrawal not
previously furnished to it, but the terminating or withdrawing Participant shall
not be entitled to any such copies after any other termination or any
withdrawal.
93. Continuing Authority. On termination of this Agreement or the
deemed or voluntary withdrawal of a Participant, the Manager shall have the
power and authority to do all things on behalf of the Participants which are
reasonably necessary or convenient to: (a) wind up Operations and (b) complete
any transaction and satisfy any obligation, unfinished or unsatisfied, at the
time of such termination or withdrawal, if the transaction or obligation arises
out of Operations prior to such termination or withdrawal. The Manager shall
have the power and authority to grant or receive extensions of time or change
the method of payment of an already existing liability or obligation, prosecute
and defend actions on behalf of the Participants and the Venture, mortgage
Assets, and take any other reasonable action in any matter with respect to which
the former Participants continue to have, or appear or are alleged to have, a
common interest or a common liability.
SECTION
ACQUISITIONS WITHIN AREA OF INTEREST
94. General. Any interest or right to acquire any interest in real
property within the Area of Interest acquired during the term of this Agreement
by or on behalf of a Participant or any Affiliate shall be subject to the terms
and provisions of this Agreement. Each Participant shall use its best efforts to
cause any interest acquired under this Article XIII to be free and clear of all
liens, encumbrances and agreements of any kind or, if such interest is subject
to agreements, to make such agreements assignable to the other Participant.
95. Notice to Nonacquiring Participant. Within 30 days after the
acquisition of any interest or the right to acquire any interest in real
property wholly or partially within the Area of Interest (except real property
acquired by the Manager pursuant to a Program), the acquiring Participant shall
notify the other Participant of such acquisition. The acquiring Participant's
notice shall describe in detail the acquisition, the lands and minerals covered
thereby, the cost thereof, and the reasons why the acquiring Participant
believes that the acquisition of the interest is in the best interests of the
Participants under this Agreement. In addition to such notice, the acquiring
Participant shall make any and all information concerning the acquired interest
available for inspection by the other Participant.
96. Option Exercised. The other Participant shall have 30 days after
receiving the acquiring Participant's notice to notify the acquiring Participant
of its election to accept a proportionate interest in the acquired interest. If
the other Participant accepts a proportionate interest in the acquired interest,
the acquired interest shall become a part of the Properties for all purposes of
this Agreement effective as of the time the acquiring Participant's notice was
given, and the acquiring Participant shall convey to the other Participant an
undivided interest equal to
<PAGE>
its Participating Interest. The acquiring Participant shall convey such interest
by special warranty deed. The Participant electing to acquire an interest shall
promptly pay to the acquiring Participant its proportionate share of the
latter's actual out-of-pocket acquisition costs. For property acquired during
the Initial Contribution Period, the initial Participating Interests set forth
in Section 6.1(a) shall be used to determine the Participant's proportionate
share of the interest it acquires and acquisition costs.
97. Option Not Exercised. If the other Participant does not give such
notice within the 30 day period set forth in Section 13.3, it shall have no
interest in the acquired interest, and the acquired interest shall not be a part
of the Properties or subject to this Agreement.
SECTION
ABANDONMENT AND SURRENDER OF PROPERTIES
98. Surrender or Abandonment of Property. Part or all of the Properties
may be surrendered or abandoned, consistent with the terms and conditions of any
agreement under which such portion or portions of the Properties were acquired,
by the Manager upon authorization from the Management Committee.
In each case, if a Participant objects to the surrender or abandonment, the
Participant that desires to abandon or surrender shall assign to the objecting
Participant, by special warranty deed and without cost to the surrendering
Participant, all of the surrendering Participant's interest in the property to
be abandoned or surrendered, and the abandoned or surrendered property shall
cease to be part of the Properties. The objecting Participant shall indemnify,
defend and hold harmless each abandoning Participant and its Affiliates
(including without limitation direct and indirect parent companies), and its or
their respective officers, directors, shareholders, employees, agents and
attorneys, from and against any Liabilities incurred by any of them relating in
any respect to activities occurring thereafter on or with respect to the
property abandoned under this Section. Such indemnification shall include but is
not limited to Liabilities arising out of: (i) violation of any federal or state
statute, regulation, rule or order or local ordinance or order pertaining to
environmental matters or any environmental permit related to the abandoned
property; (ii) any release or disposal of petroleum, hazardous substances,
pollutants or contaminants at or from the abandoned property; (iii) any
environmental liabilities and alleged or asserted environmental liabilities to
local, state or federal governmental authorities or other third parties
(including without limitation reclamation liabilities and citizens' suits and
other actions under the Comprehensive Environmental Response, Compensation and
Liability Act) relating to such property or any off-site disposal or release of
hazardous substances, pollutants or contaminants generated at the property; and
(iv) the abandoning Participant's own negligence.
99. Reacquisition. If any Properties are abandoned or surrendered under
the provisions of this Article then, unless this Agreement is earlier
terminated, a Participant or any of its Affiliates shall not acquire any
interest in such Properties for a period of two years following the date of such
abandonment or surrender. If a Participant reacquires any Properties in
violation of this provision, the other Participant may elect by notice to the
reacquiring Participant within
<PAGE>
forty-five (45) days after it has actual notice of such reacquisition, to have
such properties made subject to the terms of this Agreement. In the event such
an election is made, the reacquired properties shall thereafter be treated as
Properties, and the costs of reacquisition shall be borne solely by the
reacquiring Participant and shall not be included for purposes of calculating
the Participants' respective Participating Interests.
SECTION
TRANSFER OF INTEREST
100. General. A Participant shall have the right to Transfer to any
third party all or any part of its interest in or to this Agreement or the
Assets or its Participating Interest solely as provided in this Article XV.
101. Limitations on Free Transferability. The Transfer right of a
Participant in Section 15.1 shall be subject to the following terms and
conditions:
Subject to the preemptive right set forth in Section 15.3, the
other Participant shall have given its consent to the
Transfer, which consent shall not be unreasonably withheld.
Such consent shall be deemed to have been reasonably withheld
if withheld because the financial strength of the transferee
is materially diminished from that of the transferring
Participant, or the transferee may be unable to satisfy
long-term reclamation costs or environmental costs of
Operations;
Except as provided in Sections 15.2(f) and 15.2(g), no
transferee of all or any part of the interest of a Participant
in this Agreement or the Assets or its Participating Interest
shall have the rights of a Participant unless and until the
transferee, as of the effective date of the Transfer, has
committed in writing to be bound by this Agreement to the same
extent as the transferring Participant;
No Transfer permitted by this Article XV shall relieve the
transferring Participant of its share of any liability
(including without limitation reclamation liabilities) which
arises out of Operations conducted prior to such Transfer,
whether such liability is known or unknown at the time of the
Transfer and whether such liability is asserted before or
after the Transfer;
The transferring Participant and the transferee shall bear all
tax consequences of the Transfer;
No Participant shall Transfer any interest in this Agreement
or the Assets except by Transfer of part or all of its
Participating Interest or except by Transfer of a royalty
interest to which the other Participant shall have given its
consent. In the event of a Transfer of less than all of a
<PAGE>
Participating Interest, the transferring Participant and its
transferee shall act and be treated as one Participant;
If the Transfer is the grant of a security interest by
mortgage, deed of trust, pledge, lien or other encumbrance of
any interest in this Agreement or the Assets or its
Participating Interest to secure a loan or other indebtedness
of a Participant in a bona fide transaction, such security
interest shall be subordinate to the terms of this Agreement
and the rights and interests of the other Participant
hereunder. The Transfer of any such security interest may only
be made upon obtaining a covenant in writing from the lender
that notice of any default under the loan agreement shall be
promptly given to the other Participant and that a notice
reflecting the time and place of any foreclosure sale or other
sale to enforce the rights in the security interest shall be
given to the other Participant at least 30 days prior to any
such sale. Subject to the preemptive right set forth in
Section 15.3(d), upon any foreclosure or other enforcement of
rights in the security interest, the acquiring third party
shall be deemed to have assumed the position of the
encumbering Participant with respect to this Agreement and the
other Participant, and it shall comply with and be bound by
the terms and conditions of this Agreement;
If a sale or other commitment or disposition of Products or
proceeds from the sale of Products by a Participant upon
distribution to it pursuant to Article XI creates in a third
party a security interest in Products or proceeds therefrom
prior to such distribution, such sales, commitment or
disposition shall be subject to the terms and conditions of
this Agreement;
Only United States currency shall be used for Transfers for
cash consideration;
The following shall not be deemed a Transfer, nor shall the
transferee be deemed an assignee for purposes of this
Agreement:
a transfer by a Participant to an Affiliate, provided
that the Participant shall continue to be liable for
all obligations hereunder, and provided further that
any transfer of less than all of a Participant's
Participating Interest shall be subject to the
provisions of Section 15.2(e);
a transfer by a Participant of all or substantially
all of its assets, or a sale of all shares of a
corporate Participant by its parent corporation or
other entity holding such shares, or such other
corporate merger, consolidation or reorganization of
a Participant, by which the surviving entity shall
possess substantially all of the shares, or all of
the property rights and interests, and shall be
<PAGE>
subject to substantially all of the liabilities and
obligations of that Participant; provided, however,
that the interest of the Participant in this
Agreement and the Assets and its Participating
Interest are not the sole assets of the Participant;
provided further, however, that the transferee is or
following the Transfer will be substantially similar
in financial strength to the transferring
Participant;
an incorporation of a Participant; or
a transfer by a Participant to a joint venture or
partnership in which such Participant is a
participating venturer or partner with a majority or
controlling interest, provided that any transfer of
less than all of a Participant's Participating
Interest shall be subject to the provisions of
Section 15.2(e); and
If the interest of a Participant in this Agreement and the
Assets and its Participating Interest are all or substantially
all of the assets of the Participant, or are not all or
substantially all of its assets but the financial strength of
the transferee will be substantially less than the financial
strength of the transferring Participant, a sale of all shares
of a corporate Participant or the sale of all shares of any
Affiliate of a Participant (by which the Participant is
effectively subject to new ownership or management) or such
other corporate merger, consolidation or reorganization, shall
be deemed a Transfer. A transfer by a Participant to a joint
venture or partnership in which such Participant is a
participating venturer or partner with a minority or
non-controlling interest shall also be deemed a Transfer,
provided that any transfer of less than all of a Participant's
Participating Interest shall be subject to the provisions of
Section 15.2(e).
102. Preemptive Right. Except as otherwise provided in Section 15.4, if
a Participant desires to Transfer all or any part of its interest in this
Agreement or the Assets or its Participating Interest, the other Participant
shall have a preemptive right to acquire such interests as provided in this
Section 15.3.
A Participant desiring to Transfer all or any part of its
interest in this Agreement or the Assets or its Participating
Interest shall promptly notify the other Participant of its
desires. The notice shall state the price and all other
pertinent terms and conditions under which the transferring
Participant is willing to make such Transfer, and shall be
accompanied by a copy of a proposed contract for sale. The
transferring Participant shall give such notice before
soliciting any offers to purchase from third parties;
provided, however, that this requirement shall not preclude
the Participant from entertaining an unsolicited offer from
third parties before the notice, so long as the notice is
given promptly after such an offer is received. The
<PAGE>
other Participant shall have 30 days from the date such notice
is delivered to notify the transferring Participant whether it
elects to acquire the offered interest at the same price and
on the same terms and conditions as set forth in the
transferring Participant's notice, or the unsolicited bid
received from the third party. If a Participant does so elect,
the Transfer shall be consummated promptly after notice of
such election is delivered to the transferring Participant.
If the other Participant does not elect to acquire the
interest of the transferring Participant within the period
provided for in Section 15.3(a), the transferring Participant
shall have 120 days following the expiration of such period to
consummate the Transfer to a third party at a price and on
terms no less favorable than those offered by the transferring
Participant to the other Participant in the notice required in
Section 15.3(a).
If the transferring Participant fails to consummate the
Transfer to a third party within the period set forth in
Section 15.3(b), the preemptive right of the other Participant
in such offered interest shall be deemed to be revived. Any
subsequent proposal to Transfer such interest shall be
conducted in accordance with all of the procedures set forth
in this Section 15.3.
Upon a foreclosure or other enforcement of rights in a
security interest created by mortgage, deed of trust, lien or
other encumbrance of any interest in this Agreement or the
Assets or its Participating Interest made to secure a loan or
other indebtedness of a Participant (herein a "Foreclosure or
Other Sale"), the other Participant shall have a preemptive
right to acquire the interests purchased at the Foreclosure or
Other Sale from the acquiring third party, which right shall
be exercised within 30 days after such sale occurs, by notice
given to the acquiring third party, reflecting such other
Participant's election to acquire such interest at the price
paid by such acquiring third party in the Foreclosure or Other
Sale. If the other Participant does so elect, the Transfer to
such Participant shall be consummated promptly after such
notice. The preemptive right created under this Section shall
be subject to all of the redemption rights or other rights to
recover property created by law.
If the Participant's interest in this Agreement and the Assets
and its Participating Interest are all or substantially all of
the assets of such Participant, or are not all or
substantially all of the assets but the financial strength of
the transferee, if any, will be substantially less than the
financial strength of the transferring Participant, the
preemptive right created under this Section shall apply to a
transfer of all shares of a corporate Participant or the sale
of all shares of any Affiliate of a Participant (by which the
Participant is effectively subject to new ownership or
management) or such other corporate merger, consolidation
<PAGE>
or reorganization. A transfer by a Participant to a joint
venture or partnership in which such Participant is a
participating venturer or partner with a minority or
non-controlling interest shall also be subject to the
preemptive right created under this Section.
The sale of a Participant's interest in this Agreement and the
Assets and its Participating Interest pursuant to a bankruptcy
or similar proceeding shall be subject to the preemptive right
of the other Participant created under this Section.
103. Exceptions to Preemptive Right. Section 15.3 shall not apply to
the following:
() The transfers referred to in Section 15.2(i);
The grant by a Participant of a security interest in any
interest in this Agreement or the Assets or its Participating
Interest by mortgage, deed of trust, pledge, lien or other
encumbrance; or
A sale or other commitment or disposition of Products or
proceeds from sale of Products by a Participant upon
distribution to it pursuant to Article XI.
SECTION.
CONFIDENTIALITY
104. General. The financial terms of this Agreement and all information
obtained in connection with the performance of this Agreement shall be the
exclusive property of the Participants and, except as provided in Section 16.2,
shall not be disclosed to any third party or the public without the prior
written consent of the other Participant, which consent shall not be
unreasonably withheld.
105. Exceptions. The consent required by Section 16.1 shall not apply
to a disclosure:
() By a Participant to a potential successor by sale of all or
substantially all of its assets, or to a potential successor
by consolidation or merger, or to a proposed joint venture or
partnership in which such Participant may become a
participating partner or venturer;
To an Affiliate, consultant, contractor or subcontractor that
has a bona fide need to be informed;
To any third party to whom the disclosing Participant
contemplates a Transfer of all or any part of its interest in
or to this Agreement or the Assets or its Participating
Interest; or
<PAGE>
To a governmental agency or to the public which the disclosing
Participant believes in good faith is required by pertinent
law or regulation or the rules of any stock exchange.
In any case to which (a), (b), (c) or (d) of this Section 16.2 is applicable,
the disclosing Participant shall give notice to the other Participant
concurrently with the making of such disclosure. As to a disclosure pursuant to
Section 16.2(a), (b) or (c), only such confidential information as such third
party shall have a legitimate business need to know shall be disclosed and such
third party shall first agree in writing to protect the confidential information
from further disclosure to the same extent as the Participants are obligated
under this Article XVI.
106. Disclaimers. Notwithstanding anything contained in this Agreement
to the contrary, a Participant shall not disclose any geological, engineering or
other data to any third party without disclosing the existence and nature of any
disclaimers which accompany such data or which are made in Section 8.2(n).
107. Duration of Confidentiality. The provisions of this Article XVI
shall apply during the term of this Agreement and for two years following
termination of this Agreement and shall continue to apply to a Participant who
withdraws, who is deemed to have withdrawn, or who Transfers its Participating
Interest, for two years following the date of such occurrence.
SECTION.
GENERAL PROVISIONS
108. Notices. All notices, payments and other required communications
(herein "Notices") to the Participants shall be in writing, and shall be
addressed respectively as follows:
if to Kennecott:
Kennecott Exploration Company
224 North 2200 West
Salt Lake City, Utah 84116
Attention: Commercial Director
Telecopier: (801) 238-2420
if to GP:
Golden Phoenix Minerals, Inc.
3595 Airway Drive, Suite 405
Reno, Nevada 89511
Telecopier: (702) 853-5010
All Notices shall be given (i) by personal delivery to the Participant, or (ii)
by electronic communication, with a confirmation sent by registered or certified
mail return receipt requested, or (iii) by registered or certified mail return
receipt requested or by commercial courier. All Notices shall be effective and
shall be deemed delivered (i) if by personal delivery, on the date of delivery
if delivered during normal business hours, and, if not delivered during normal
business hours, on the next business day following delivery, (ii) if by
electronic communication, on the next
<PAGE>
business day following actual receipt of the mailed confirmation, and (iii) if
solely by mail or by commercial carrier, on the next business day after actual
receipt. A Participant may change its address by Notice to the other
Participant.
<PAGE>
109. Indemnification; Defense of Action.
() The indemnification provisions of Sections 2.7, 4.1, 8.2(n), 8.2(o)
and 14.1 shall apply to matters arising out of claims of strict liability,
breach of contract, negligence, violation of law or other theory of liability.
As to any Liability subject to the indemnification provisions of
Section 2.7, 4.1, 8.2(n), 8.2(o) or 14.1 which does not involve a legal or
administrative action or proceeding, the Participant entitled to indemnification
under such provisions (herein the "indemnified party") shall notify the other
Participant (herein the "indemnifying party") of the existence of such
Liabilities within 60 days after it becomes known to the indemnified party. As
to any such Liability involving a legal or administrative action or proceeding,
the indemnified party shall notify the indemnifying party of the institution of
such action or proceeding at least 10 days prior to the date by which an answer
or other response is required. Within 48 hours of receipt of such notice, the
indemnifying party shall confirm in writing that it accepts the defense in such
matter, whereupon the indemnifying party shall not be liable to the indemnified
party for any cost or expense, including reasonable attorneys' fees, incurred by
the indemnified party if the indemnified party elects, notwithstanding the
indemnifying party's acceptance of the defense, at its own expense to engage its
own legal counsel to participate in such defense.
110. Waiver. The failure of a Participant to insist on the strict
performance of any provision of this Agreement or to exercise any right, power
or remedy upon a breach hereof shall not constitute a waiver of any provision of
this Agreement or limit the Participant's right thereafter to enforce any
provision or exercise any right.
111. Modification. No modification of this Agreement shall be valid
unless made in writing and duly executed by the Participants.
112. Force Majeure. Except for the obligation to perform assessment
work or to make payments for the maintenance of the Assets when due hereunder,
the obligations of a Participant shall be suspended to the extent and for the
period that performance is prevented by any cause, whether foreseeable or
unforeseeable, beyond its reasonable control, including, without limitation,
lack of access; labor disputes (however arising and whether or not employee
demands are reasonable or within the power of the participant to grant); acts of
God; laws, regulations, orders, proclamations, instructions or requests of any
government or governmental entity; judgments or orders of any court; inability
to obtain on reasonably acceptable terms any public or private license, permit
or other authorization; curtailment or suspension of activities to remedy or
avoid an actual or alleged, present or prospective violation of federal, state
or local environmental standards; acts of war or conditions arising out of or
attributable to war, whether declared or undeclared; riot, civil strife,
insurrection or rebellion; fire, explosion, earthquake, storm, flood, sink
holes, drought or other adverse weather condition; delay or failure by suppliers
or transporters of materials, parts, supplies, services or equipment or by
contractors' or subcontractors' shortage of, or inability to obtain, labor,
transportation, materials, machinery,
<PAGE>
equipment, supplies, utilities or services; accidents; breakdown of equipment,
machinery or facilities; or any other cause whether similar or dissimilar to the
foregoing. The affected Participant shall promptly give notice to the other
Participant of the suspension of performance, stating therein the nature of the
suspension, the reasons therefor, and the expected duration thereof. The
affected Participant shall resume performance as soon as reasonably possible.
During the period of suspension, (a) if the event of force majeure occurs during
the Initial Contribution Period, the obligation of Kennecott to satisfy the Work
Expenditure requirement pursuant to Section 5.2 shall be suspended irrespective
of any election by Kennecott to deposit certain funds as described in Section
5.2(b), and (b) if the event of force majeure occurs during the Period of Joint
Operations, the obligations of the Participants to advance funds pursuant to
Section 10.2 shall be reduced to levels consistent with Operations.
113. Governing Law; Severability. This Agreement shall be governed by
and interpreted in accordance with the laws of the State of California, except
for its rules pertaining to conflicts of laws. In the event that any condition
or other provision of this Agreement is held to be invalid or void by any court
of competent jurisdiction, the same shall be deemed severable from the remainder
of this Agreement and shall in no way affect any other covenant or condition. If
such condition, covenant or other provision shall be deemed invalid due to its
scope or breadth, such provision shall be deemed valid to the extent of the
scope or breadth permitted by law.
114. Rule Against Perpetuities. Notwithstanding any other provision
contained herein, if any property interest created hereunder does not vest on
the execution of this Agreement, it shall either vest within 20 years and 364
days after the death of the last surviving descendant of K. E. Hecker, who is
alive on the execution of this Agreement, or such interest shall terminate.
115. Waiver of Right to Partition. The Participants hereby waive and
release all rights of partition, or of sale in lieu thereof, or other division
of Assets, including any such rights provided by statute.
116. Implied Covenants. There are no implied covenants given by either
party or otherwise contained in this Agreement other than those of good faith
and fair dealing.
117. Further Assurances. Each of the Participants agrees that it shall
take from time to time such actions and execute such additional instruments as
may be reasonably necessary or convenient to implement and carry out the intent
and purpose of this Agreement.
118. Survival of Terms and Conditions. The following Sections shall
survive the termination of this Agreement to the full extent necessary for their
enforcement and the protection of the Participant in whose favor they run:
Sections 2.2, 2.7, 4.1, 4.5, 5.2, 6.4, 6.6, 8.2(n), 8.2(o), 8.8 and 10.3,
Article XII, and Sections 14.1, 14.2, 15.2(c) and 16.4.
119. Entire Agreement; Successors and Assigns. This Agreement contains
the entire understanding of the Participants and supersedes all prior agreements
and understandings between the Participants relating to the subject matter
hereof. This Agreement shall be binding
<PAGE>
upon and inure to the benefit of the respective successors and permitted assigns
of the Participants. In the event of any conflict between this Agreement and any
Exhibit attached hereto, the terms of this Agreement shall be controlling.
120. Memorandum. A Memorandum in the form of Exhibit E attached to this
Agreement shall be prepared and recorded by the Manager. This Agreement shall
not be recorded.
121. Counterparts. This Agreement may be executed in counterparts, each
of which when so executed shall be deemed an original, and such counterparts
shall together constitute but one and the same instrument.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as
of the date first above written.
ATTEST: GOLDEN PHOENIX MINERALS INC.
________________________________ By______________________________________
Secretary Its__________________________________
ATTEST: KENNECOTT EXPLORATION COMPANY
________________________________ By______________________________________
Secretary Its__________________________________
<PAGE>
<TABLE>
<CAPTION>
<S> <C> <C> <C>
RECITALS.................................................................................... 1
I. DEFINITIONS.......................................................................... 1
II. REPRESENTATIONS AND WARRANTIES; COVENANTS; TITLE TO ASSETS.......................... 4
2.1 Capacity of Participants................................................... 4
2.2 Representations and Warranties............................................. 5
2.3 Disclosures................................................................ 6
2.4 Covenants.................................................................. 6
2.5 Record Title............................................................... 7
2.6 Joint Loss of Title........................................................ 7
2.7 Loss from Breach of Warranties............................................. 7
III. NAME, PURPOSES AND TERM............................................................. 7
3.1 General.................................................................... 7
3.2 Name....................................................................... 8
3.3 Purposes................................................................... 8
3.4 Limitation................................................................. 8
3.5 Term....................................................................... 8
IV. RELATIONSHIP OF THE PARTICIPANTS.................................................... 8
4.1 No Partnership............................................................. 8
4.2 Federal Tax Elections and Allocations...................................... 9
4.3 State Income Tax........................................................... 9
4.4 Tax Returns................................................................ 9
4.5 Other Business Opportunities............................................... 9
4.6 Employees.................................................................. 10
V. CONTRIBUTIONS BY PARTICIPANTS....................................................... 10
5.1 Participants' Initial Contributions........................................ 10
5.2 Contributions During Initial Contribution Period........................... 10
5.3 Contributions During Period of Joint Operations............................ 11
VI. INTERESTS OF PARTICIPANTS........................................................... 11
6.1 Initial Participating Interests; Adjustments............................... 11
6.2 Other Changes in Participating Interests................................... 12
6.3 Voluntary Reduction in Participation....................................... 12
6.4 Default in Making Contributions............................................ 13
6.5 Elimination of Minority Interest........................................... 15
6.6 Continuing Liabilities Upon Adjustments of Participating Interests......... 16
VII. MANAGEMENT COMMITTEE................................................................ 16
7.1 Organization and Composition............................................... 16
7.2 Decisions.................................................................. 17
7.3 Meetings................................................................... 17
7.4 Action Without Meeting..................................................... 17
VIII. MANAGER............................................................................. 17
8.1 Appointment of Manager..................................................... 17
8.2 Powers and Duties of Manager............................................... 17
8.3 Manager's Standard of Care................................................. 21
8.4 Manager's Resignation; Deemed Offer to Resign.............................. 22
<PAGE>
8.5 Payments to Manager........................................................ 23
8.6 Transactions with Affiliates............................................... 23
8.7 Activities Pending Adoption of New Program and Budget...................... 23
8.8 Funding of Reclamation..................................................... 23
IX. PROGRAMS AND BUDGETS................................................................ 24
9.1 Plans of Operations........................................................ 24
9.2 Operations Pursuant to Programs and Budgets................................ 24
9.3 Presentation of Programs and Budgets....................................... 24
9.4 Review and Approval of Proposed Programs and Budgets....................... 25
9.5 Election to Participate.................................................... 25
9.6 Activities Pending Adoption of New Program and Budget...................... 25
9.7 Budget Overruns; Program Changes........................................... 26
9.8 Emergency or Unexpected Expenditures....................................... 26
X. ACCOUNTS AND SETTLEMENTS............................................................ 26
10.1 Monthly Statements......................................................... 26
10.2 Cash Calls................................................................. 26
10.3 Failure to Meet Cash Calls................................................. 26
10.4 Audits..................................................................... 27
XI. DISPOSITION OF PRODUCTION........................................................... 27
11.1 Taking in Kind............................................................. 27
11.2 Failure of Participant to Take in Kind..................................... 27
XII. BREACH OF AGREEMENT, TERMINATION AND WITHDRAWAL..................................... 28
12.1 Breach of Agreement; Opportunity to Cure................................... 28
12.2 Termination During Period of Joint Operations.............................. 29
12.3 Withdrawal................................................................. 30
12.4 Non-Compete Covenants...................................................... 30
12.5 Right to Data after Termination............................................ 30
12.6 Continuing Authority....................................................... 30
XIII. ACQUISITIONS WITHIN AREA OF INTEREST................................................ 31
13.1 General.................................................................... 31
13.2 Notice to Nonacquiring Participant......................................... 31
13.3 Option Exercised........................................................... 31
13.4 Option Not Exercised....................................................... 32
XIV. ABANDONMENT AND SURRENDER OF PROPERTIES............................................. 32
14.1 Surrender or Abandonment of Property....................................... 32
14.2 Reacquisition.............................................................. 32
XV. TRANSFER OF INTEREST................................................................ 33
15.1 General.................................................................... 33
15.2 Limitations on Free Transferability........................................ 33
15.3 Preemptive Right........................................................... 35
15.4 Exceptions to Preemptive Right............................................. 37
XVI. CONFIDENTIALITY..................................................................... 37
16.1 General.................................................................... 37
16.2 Exceptions................................................................. 37
16.3 Disclaimers................................................................ 38
<PAGE>
16.4 Duration of Confidentiality................................................ 38
XVII. GENERAL PROVISIONS.................................................................. 38
17.1 Notices.................................................................... 38
17.2 Indemnification; Defense of Action......................................... 39
17.3 Waiver..................................................................... 39
17.4 Modification............................................................... 39
17.5 Force Majeure.............................................................. 39
17.6 Governing Law; Severability................................................ 40
17.7 Rule Against Perpetuities.................................................. 40
17.8 Waiver of Right to Partition............................................... 40
17.9 Implied Covenants.......................................................... 40
17.10 Further Assurances......................................................... 40
17.11 Survival of Terms and Conditions........................................... 41
17.12 Entire Agreement; Successors and Assigns................................... 41
17.13 Memorandum................................................................. 41
17.14 Counterparts............................................................... 41
</TABLE>
EXHIBITS
EXHIBIT A PROPERTY DESCRIPTION
EXHIBIT B ACCOUNTING PROCEDURE
EXHIBIT C NET PROCEEDS CALCULATION
EXHIBIT D INSURANCE
EXHIBIT E MEMORANDUM OF MINING VENTURE AGREEMENT
<PAGE>
EXHIBIT A
PROPERTIES AND TITLE EXCEPTIONS
<PAGE>
EXHIBIT B
ACCOUNTING PROCEDURE
GENERAL PROVISIONS
122. General Accounting Records. The Manager shall maintain accounting
records, prepared in accordance with this Accounting Procedure and generally
accepted accounting principles consistently applied, sufficient to provide a
record of revenues and expenditures and periodic statements of financial
position and the results of operations for managerial, tax, regulatory or other
financial reporting purposes. Such records shall be retained for the duration of
the period allowed the Participants for audit or the period necessary to comply
with tax or other regulatory requirements. The records shall reflect all
obligations, advances and credits of the Participants.
123. Bank Accounts. The Manager shall maintain one or more separate
bank accounts for the payment of all expenses and the deposit of all cash
receipts.
124. Statement and Billings. The Manager shall prepare statements and
bill the Participants as provided in Article 9 of the Agreement. Payment of any
such billings by any Participant, including the Manager, shall not prejudice its
right to protest or question the correctness thereof for a period not to exceed
24 months following the calendar year during which such billings were received
by the Participant. All written exceptions to and claims upon the Manager for
incorrect charges, billings or statements shall be made upon the Manager within
such 24 month period. The time period permitted for adjustments hereunder shall
not apply to adjustments resulting from periodic inventories as provided in
Article 5.
CHARGES TO JOINT ACCOUNT
The Manager shall charge the Joint Account with and Participants will
pay all costs and expenses incurred or paid by the Manager pursuant to the
Agreement to carry out adopted Programs or otherwise, including without
limitation:
125. Rentals, Royalties and Other Payments. All property acquisition
and holding costs, including filing fees, license fees, costs of permits and
assessment work, production royalties, including any required advances, and all
other payments made by the Manager which are necessary to acquire or maintain
title to the Assets.
126. Labor and Employee Benefits.
127.1. Salaries and wages of the Manager's or the Manager's Affiliates'
employees directly engaged in Operations, including salaries or wages of
employees who are temporarily assigned to the Manager.
128.2. The Manager's costs of holiday, vacation, sickness and
disability benefits, and other customary allowances applicable to the salaries
and wages chargeable under Sections 2.2.1 and 2.12. Such costs may be charged on
a "when and as paid basis" or by "percentage assessment" on the amount of
salaries and wages.
129.3. The Manager's actual cost of established, establishing or
participating in plans for employees' group life insurance, hospitalization,
pension, retirement, stock purchase, thrift, bonus and other benefit plans of a
like nature applicable to salaries and wages chargeable under Sections 2.2.1 and
2.12.
<PAGE>
130.4. Cost of assessments imposed by governmental authority which are
applicable to salaries and wages chargeable under Sections 2.2.1 and 2.12,
including all penalties.
131. Fixed Assets, Materials, Equipment and Supplies.
132.5. All capital costs of developing and operating the Properties as
a mine including all costs of land, construction, equipment and mine development
including maintenance, repairs and replacements, and any capital expenditures
relating to an improvement, expansion, modernization or replacement of the
facilities.
133.6. The cost of materials, equipment and supplies (herein called
"Material") purchased from unaffiliated third parties or furnished by Manager.
134. Equipment and Facilities Furnished by Manager. The cost of
machinery, equipment and facilities owned by the Manager and used in Operations
or used to provide support or utility services to Operations charged at rates no
less favorable than those reasonably available from arm's length third parties.
135. Transportation. Reasonable transportation costs incurred in
connection with the transportation of employees and material necessary for the
Operations.
136. Contract Services and Utilities. The cost of contract services and
utilities procured form outside sources. If contract services are performed by
the Manager or an Affiliate thereof, the cost charged to the Joint Account shall
not be greater than that for which comparable services and utilities are
available in the open market within the vicinity of the Operations.
137. Insurance Premiums. Net premiums paid for insurance required to be
carried for Operations for the protection of the Manager and the Participants.
Where the Manager may self-insure for property, liability, Workmen's
Compensation and/or Employer's Liability or other risk under the venture
agreement, the Manager may elect to include such risks in its self-insurance
program and shall charge its costs of self-insuring such risks to the Joint
Account provided that such charges shall not exceed published manual rates. If
self-insurance is selected, the Manager shall provide to the Participants
statements as to the extent and limits of such self-insurance and the basis for
the charges to the Joint Account.
138. Damages and Losses. All costs in excess of insurance proceeds
necessary to repair or replace damage or losses to any Assets resulting from any
cause. The Manager shall furnish the Management Committee with written notice of
damages or losses as soon as practicable after a report thereof has been
received by the Manager.
139. Legal and Regulatory Expense. All legal and regulatory costs and
expenses incurred in or resulting from the Operations or necessary to protect or
recover the Assets, including the salary and benefits of Manager's legal staff.
140. Audit. Cost of annual audits.
141. Taxes. All taxes (except income taxes) of every kind and nature
assessed or levied upon or in connection with the Assets, the production of
Products or Operations, which have been paid by the Manager for the benefit of
the Participants. Each Participant is separately responsible for income taxes
attributable to its Participating interest.
142. Tax Partnership Expenses. All costs and expenses for services of
tax counsel and tax administration employees for all tax matters, if any,
including preparation of the Tax Partnership Tax Return and any protests.
143. District and Camp Expense (Field Supervision and Camp Expenses). A
pro rata portion of (i) the salaries and expenses of the Manager's
superintendent and other employees serving Operations whose time is not
allocated directly to such Operations, and (ii) the costs of maintaining and
operating an office
<PAGE>
(herein called "the Manager's Project Office") and any necessary suboffice and
(iii) all camps, including housing facilities for employees, used for
Operations. The expense of those facilities less any revenue therefrom, shall
include depreciation or a fair monthly rental in lieu of depreciation of the
investment. The total of such charges for all properties served by the Manager's
employees and facilities shall be apportioned to the Joint Account on the basis
of the Manager's best estimate of the proportionate amount of such expenses
incurred for the benefit of the Venture.
144. Administrative Charge.
(a) Each month, the Manager shall charge the Joint Account a sum for
each phase of operations as provided below, which shall be a liquidated amount
to reimburse the Manager and its Affiliates for its office overhead and general
and administrative expenses, and which shall be in lieu of any other management
fees:
(1) Exploration Phase - ___% of Allowable Costs;
(2) Development Phase - ___% of Allowable Costs; and
(3) Mining Phase - ___% of Allowable Costs.
(b) The term "Allowable Costs" as used in this Section 2.14 for a
particular phase of Operations shall mean all charges to the Joint Account
excluding (i) the administrative charge referred to herein; and (ii) amounts
charged in accordance with Sections 2.1 and 2.9. The Manager shall attribute
such Allowable Costs to a particular phase of Operations by applying the
following guidelines:
(1) The "Exploration Phase" shall cover those activities
directed toward ascertaining the existence, location, quality
or commercial value of deposits of Products. Such phase shall
include all activities undertake through the completion of the
feasibility study, if any, but shall not include construction
of milling or processing facilities or commencement by
commercial mining operations on the Properties.
(2) The "Development Phase" shall cover those activities
conducted to prepare for removal and recovery of Products
(including from an existing ore body), and to construct or
install a mill or any other improvements to be used for the
mining, extracting, producing, handling, milling, processing
or other beneficiation of Products.
(3) The "Mining Phase" shall include mining, extracting,
producing, handling, milling or other processing of Products
and all other activities not otherwise covered above,
including activities conducted after mining operations have
ceased.
145. Other Expenditures. Any reasonable direct expenditure, other than
expenditures which are covered by the foregoing provisions, incurred by the
Manager for the necessary and proper conduct of Operations.
BASIS OF CHARGES
146. Purchases. Material purchased and services procured from third
parties shall be charged to the Joint Account by the Manager at invoiced cost,
including applicable transfer taxes, less all discounts taken. In the case of
Material purchased or services acquired from a Participant or an affiliate of
the Manager, the same shall be transferred or acquired on a fair market value
basis as reasonably determined by the Manager, including any premiums for short
supply or remote location or other special factors.
<PAGE>
147. Warranty of Material Furnished by the Manager. The Manager does
not warrant the Material furnished beyond any dealer's or manufacturer's
warranty and no credits shall be made to the Joint Account for defective
Material until adjustments are received by the Manager from the dealer,
manufacturer or their respective agents.
DISPOSAL OF MATERIAL
148. Distribution to Participants. Any Material to be distributed to
the Participants shall be made in proportion to their respective Participating
Interests, and corresponding credits shall be made to the Joint Account as
determined by the Manager.
149. Sales. Sales of Material to third parties shall be credited to the
Joint Account at the net amount received. Any damages or claims by the purchaser
shall be charged back to the Joint Account if and when paid.
INVENTORIES
150. Periodic Inventories, Notice and Representations. At reasonable
intervals, inventories shall be taken by the Manager, which shall include all
such Material as is ordinarily considered controllable by operators of mining
properties and the expense of conducting such periodic inventories shall be
charged to the Joint Account.
151. Reconciliation and Adjustment of Inventories. Inventory
adjustments shall be made by the Manager for averages and shortages, but the
Manager shall be held accountable to the Venture only for shortages due to gross
negligence.
CREDITS
152. The Manager will credit the Joint Account with revenues received
by the Manager as such including, for example:
153.7. collection of insurance proceeds related to the Joint Operations
when the insurance premiums have been charged to the Joint Account;
154.8. sales of property, plant, equipment and materials of the Joint
Operations in the normal course of the day-to-day business;
155.9. rentals received, refunds of custom duties or transportation
claims, rebates, and other credits pertaining to Joint Operations;
156.10. credits received from third parties for the use of facilities
or services of the Joint Operations;
157.11. refunds for defective equipment when the Operator receives the
corresponding payments from the manufacturers or agents; and
158.12. any other credits for materials recovery or from other sources
which correspond to the Joint Account.
<PAGE>
EXHIBIT C
NET PROCEEDS CALCULATION
A. Definition of Net Proceeds.
"Net Proceeds" shall be any excess of Receipts over Disbursements for any
calendar quarter. To compute Net Proceeds, the Receipts for the calendar quarter
are compared to all prior unrecovered Disbursements (including Disbursements for
the present quarter), Net Proceeds will be paid. If Receipts are less than all
prior unrecovered Disbursements (including Disbursements for the present
quarter), the amount by which Disbursements exceed Receipts will be carried
forward and added to the Disbursements made in the ensuing calendar quarter and
the process will be repeated.
B. Other Definitions.
1. "Payor" shall mean the person or entity obligated to pay a Net
Proceeds interest to the Royalty Holder pursuant to the terms of the Mining
Venture Agreement.
2. "Royalty Holder" shall mean the person or entity entitled to receive
a Net Proceeds interest pursuant to the terms of the Mining Venture Agreement.
3. "Receipts" shall be all revenues actually received during the
calendar quarter from production of Products from the Properties. Receipts from
the production, sale, use or other disposition Products shall be determined as
follows:
(a) If Products other than "Refined Precious Metals", as
defined below, derived from the Properties are sold to a smelter,
refiner or other purchaser (other than the Payor or Affiliates of the
Payor), Receipts shall equal the amount of revenues actually received
by the Payor from the smelter, refiner or other purchaser of Products,
plus any bonuses and subsidies, less all penalties, representation
charges, metals losses, assaying and sampling charges whether deducted
by the purchaser or paid or incurred by the Payor;
(b) Except as provided in (c) below, if Products, as defined
below, derived from the Properties are sold to the Payor or an
Affiliate of the Payor, then for the purposes of determining Receipts,
such Products shall be deemed conclusively to have been sold at a price
equal to the fair market value of a sale to arm's length purchasers;
(c) In the case of gold or silver refined to a purity of at
least .995 in the case of gold, and to at least .999 in the case of
silver ("Refined Precious Metals") from ores or dore produced from the
Properties and refined at a third party refinery, and whether or not
transferred by Payor to any Affiliate prior to any such refining,
"Receipts" means (I) the net number of troy ounces of Refined Precious
Metals delivered or credited to the account of Payor, its Affiliates or
its designee, as the case may be as evidenced by the metals return
statements received from the refinery, subject in each case to final
adjustments with the refinery, multiplied by (ii)the Deemed Sales
Price. The Deemed Sales Price, in the case of gold, means the average
of the quoted London PM fixing price in U.S. Dollars for refined gold
for good delivery in the London Bullion Market during the calendar
month in which falls the settlement date, as evidenced by the refinery
metal return statements and, for any adjustment, for the calendar month
in which such adjustment is made. If such quotation is not available
within such month, the average of the daily calculated
<PAGE>
spot COMEX closing price during such month shall be used. In the case
of silver, the Deemed Sales Price means the monthly average Handy &
Harman price for silver, as published in Metals Week in the table
encaptioned: "Metals Week, Monthly Prices" in the section "Silver --
Handy & Harman, cents/TR. Oz." for the calendar month in which falls
such settlement data as evidenced by the refinery metal return
statements and, for any adjustment, for the calendar month in which
such adjustment is made. If such quotation becomes unavailable for such
month, the daily calculated spot COMEX closing price during such month
shall be sued. If any such quotation is for any reason unavailable, the
applicable quotation shall be such other similar quotation as Kennecott
and its Affiliates may reasonable designate.
(d) It is understood that Kennecott may sell to an Affiliate,
Refined Precious Metals or any intermediate product, such as dore, ore
and concentrates. It is further understood that Net Proceeds shall be
calculated on the actual Refined Precious Metals produced from such
product in accordance with Section B3(c) above, regardless whether the
material is refined for Kennecott or such Affiliate.
(e) Royalty Holder acknowledges that the purpose of Section
B3(c)above is to provide for Net Proceeds to be determined on the basis
of value of the Refined Precious Metals produced from dore or ores
produced from the Properties as established by the London P.M. Gold
fixing for gold, and the Handy & Harman price for silver, regardless of
the price or proceeds actually received by Kennecott and its Affiliates
for or in connection with such metal, or of the manner in which a sale
of Refined Precious Metals is made. Royalty Holder further acknowledges
that Kennecott and its Affiliates shall have the right to market and to
sell to third parties the gold, silver and other metals produced from
the Properties in any manner. Royalty Holder acknowledges that, for the
physical sales of any mineral products produced from the Properties
other than Refined Precious Metals, the price shall be established by
sales price of the actual physical commodity produced from the
Properties as evidenced by the sales agreement under which such
commodity shall be delivered. Royalty Holder further acknowledges that
Kennecott and its Affiliates may from time to time undertake forward
sale and/or purchase contracts, sport-deferred contracts, and option
and/or other price hedging and price protection arrangements and
mechanism and speculative purchases and sales of forward, futures and
option contracts, both on and off commodity exchanges ("Trading
Activities") in connection with precious metals derived partially or
completely from Refined Precious Metals and for other mineral products
produced from the Properties. Such Trading Activities, and the profits
and losses generated thereby, shall not in any manner, be taken into
account in the calculation of royalties due Royalty Holder, whether in
connection with the determination of price, the date of sale, or the
date any royalty payment is due. Royalty Holder acknowledges that
Kennecott and its Affiliates engaging in Trading Activities may result
in Kennecott and its Affiliates realising from time to time fewer or
more dollars for precious metals and other mineral products than does
Royalty Holder, since Royalty Holder's royalty is established by
published prices, in the case of Refined Precious Metals, and the sales
price of the physical commodity to be delivered, in the case of other
mineral products, and Royalty Holder hereby waives any claim for
additional royalty should Kennecott or its Affiliates at any time
realise more dollars per ounce or other unit of sale than does Royalty
Holder. Similarly, Royalty Holder shall not be obligated to share in
any losses generated by any such Trading Activities with respect to
Refined Precious Metals or other Mineral products.
<PAGE>
4. "Disbursements" shall mean Capital Expenditures, Operating Expenses
and Carrying Costs incurred in connection with Exploration, Development and
Mining or other Operations on or for the benefit of the Properties by or on
behalf of the Payor.
5. "Capital Expenditures" shall mean the aggregate of costs incurred
relating to the Development of a mine, mill smelter or other refining operation,
all Capitalised Exploration costs and capitalised mining costs as follows:
(a) all costs of or related to the construction of a mine or
any mine or mill building, including crushing, grinding, washing,
concentrating, smelting, refining and/or other treatment or processing
facility, and all costs of any related equipment;
(b) all costs of or related to the construction of storage and
warehouse facilities for ore or Products derived from such mine;
(c) all costs of or related to transportation facilities for
moving ore or concentrates derived from such mine or mill and/or any
Products derived from such ore or concentrates;
(d) all costs of or related to the provision of utilities,
housing for employees, training of employees, medical and recreational
facilities, and similar infrastructure costs and expenses;
(e) all costs of or related to property acquisition and
maintenance, including payments to third parties;
(f) all capitalised Exploration and Mining costs;
(g) all capitalised expansion, replacement and modifications
to any of the foregoing, and
(g) all other costs, whether similar or dissimilar to the
foregoing, which are treated as capital items under the Payor's
accounting practices.
6. "Operating Expenses" shall mean the following costs, obligations,
liabilities and expenses relating to a mine or the Properties to the extent not
capitalised by Payor:
(a) all costs of or related to Exploration Development and
Mining;
(b) all costs of or related to pre-development drilling and
stripping of overburden to expose and gain access to the ore;
(c) all mining, milling, processing, smelting or refining
costs, including custom or toll mining and custom or toll smelter or
refining costs (with respect to the milling and smelting or refining of
the Products of such mine) and transportation costs of such Products to
the mill and/or the smelter and/or to the purchaser thereof;
(d) all maintenance, repair and replacement costs;
<PAGE>
(e) all costs of or related to the sale and marketing of any
of the Products, including an allowance for commissions at rates which
are normal and customary in the industry, and including transportation
costs;
(f) all costs resulting from or in connection with the
preparation, equipping, modifying or expansion of any mine;
(g) all taxes, assessments, fees, rentals, advance royalties,
royalties and duties payable to the Royalty Holder, to relevant third
parties or to any governmental body, charged, levied or imposed on such
mine, or payable on or in respect of or measured by the Products
produced from such mine, including all governmental royalties relating
thereto and mining duties or mining taxes but excluding state, local
and federal income and franchise taxes;
(h) interest related to debt financing arrangements for such
mine, mill or other facilities;
(i) reasonable allowances for working capital and inventory;
(j) all other costs of or related to the conduct of operations
in connection with a mine on the Properties, including actual general
and administrative expenses;
(k) an allowance for overhead as follows:
(i) during the Exploration Phase, __% of all Capital
Expenditures and Operating Expenses;
(ii) during the Development Phase, __% of all Capital
Expenditures and Operating Expenses; and
(iii) during the Mining Phase, __% of all Capital
Expenditures and Operating Expenses.
(1) a reserve account for reclamation costs,
which shall be a fair and reasonable estimate of
costs to be incurred to reclaim the Properties (any
balanced not used after reclamation is completed
shall be deemed to constitute Revenue).
Operating Expenses shall not include (a) any charges for depreciation,
amortisation or depletion or (b) any costs and expenses incurred before the date
of the Agreement.
7. "Carrying Costs" shall mean interest, compounded quarterly, at 1% in
excess of the Prime Rate as of the last day of each calendar quarter, applied to
the average balance for such calendar quarter of all unrecovered Capital
Expenditures and Operating Expenses that were not incurred with borrowed funds
on which interest is being paid and accounted for pursuant to Section 6(h)
above.
8. The Payor shall allocate Capital Expenditures and Operating Expenses
to the "Exploration Phase", "Development Phase" or "Mining Phase", as those
terms are defined in the Accounting Procedures attached to the Venture
Agreement.
<PAGE>
C. Accounting Matters.
All Receipts and Disbursements shall be determined in accordance with
generally accepted accounting principles and practices consistently applied by
the Payor and, to the extent not inconsistent with the provisions of this
Exhibit D-1, the Accounting Procedure set forth in Exhibit B of the Mining
Venture Agreement shall also be referred to in determining Receipts and
Disbursements. Receipts and Disbursements shall be determined by the accrual
method.
D. Costs of Common Facilities.
Where any Capital Expenditures, Operating Expenses or Carrying Costs
are incurred with respect to the mining, milling, processing, selling or
delivering of products produced from the Properties in conjunction with the
mining, milling, processing, selling or delivering of minerals produced from
other properties controlled by the Payor, such Capital Expenditures, Operating
Expenses and Carrying Costs shall be fairly allocated and apportioned in
accordance with generally accepted practices in the mining industry.
E. Payments of Net Proceeds.
The Payor shall deliver to the Royalty Holder a payment equal to the
percentage, as set forth in the Mining Venture Agreement, of all Net Proceeds
realised by the Payor during any calendar quarter within 45 days after the end
of said calendar quarter, together with a copy of the accounting made in
connection with such payment. All quarterly payments of Net Proceeds to the
Royalty Holder shall be subject to adjustment, if required, at the end of each
calendar year.
F. Audit and Disputes.
1. The Royalty Holder, upon written notice, shall have the right to
have an independent firm of certified public accountants audit the records that
relate to the calculation of the Net Proceeds interest within 12 months after
receipt of a payment described in section E of this Exhibit for a calendar
quarter.
2. The Royalty Holder shall be deemed to have waived any right it may
have had to object to a payment made for any calendar quarter, unless it
provides notice in writing of such objection within 12 months after receipt of
final payment for the calendar quarter. If the parties are unable to resolve the
dispute within 60 days after the receipt of such notice, the dispute shall be
resolved by arbitration in Salt Lake City, Utah, pursuant to the commercial
arbitration rules of the American Arbitration Association. The resolution
pursuant to such arbitration shall be binding on the parties. Alternatively, the
parties may elect to submit the dispute to a mutually acceptable certified
public accountant, or firm of certified public accountants, for a binding
resolution thereof. Unless the parties agree to share the costs of arbitration,
the arbitrator shall determine what part of the costs and expenses incurred in
any such proceeding shall be borne by each party participating in the
arbitration.
G. General.
1. Unless otherwise specified, capitalised terms used herein shall have
the same meaning as given to them in the Mining Venture Agreements to which this
Exhibit D-1 is attached.
<PAGE>
2. Accurate records of tonnage, volume of products, analyses of
products, weight, moisture, assays of pay metal content and other records
related to the computation of Net Proceeds hereunder shall be kept by the Payor.
3. The Royalty Holder or its authorised representative on not less than
2 days' notice to the Payor, may enter upon all surface and subsurface portions
of the Properties for the purpose of inspecting the Properties, all improvements
thereto and operations thereon, and may inspect and copy all records and data
pertaining to the computation of its interest, including without limitation such
records and data which are maintained electronically. The Royalty Holder or its
authorised representative shall enter the Properties at the Royalty Holder's own
risk and may not unreasonably hinder operations on or pertaining to the
Properties. The Royalty Holder shall indemnify and hold harmless the Payor and
its Affiliates (including without limitation direct and indirect parent
companies), and its or their respective directors, officers, shareholders,
employees, agents and attorneys, from and against any Liabilities which may be
imposed upon, asserted against or incurred by any of them by reason of injury to
the Royalty Holder or any of its agents or representatives caused by the Royalty
Holder's exercise of its rights herein.
4. All notices or communications hereunder shall be made and effective
in accordance with the provisions of the Mining Venture Agreements.
5. The Net Proceeds interest shall attach to any amendments,
relocations or conversions of any mining claims or leases comprising the
Properties, or to any renewals or extensions of leases, and to any mineral
rights acquired by the Payor and any Affiliates in lands embraced within any
mining claims or leases comprising the Properties within one year after the loss
or relinquishment of any mining claim or lease comprising the Properties. The
Net Proceeds interest shall be a real property interest that runs with the
Properties and shall be applicable to any person who produces and sells Products
from the Properties.
6. All information and data provided to the Royalty Holder shall be
subject to the confidentiality provisions of Article XVI of the Mining Venture
Agreement.
7. The Payor shall have the right to commingle ore and minerals from
the Properties with ore from other lands and properties; provided, however, that
the Payor shall calculate from representative samples the average grade of the
ore and shall weigh (or calculate by volume) the ore before commingling. If
concentrates are produced from the commingled ores by the Payor, the Payor shall
also calculate from representative samples the average recovery percentage for
all concentrates produced during the calendar quarter. In obtaining
representative samples, calculating the average grade of the ore and average
recovery percentages, the Payor may use any procedures accepted in the mining
and metallurgical industry which it believes suitable for the type of mining and
processing activity being conducted and, in the absence of fraud, its choice of
such procedures shall be final and binding on the Royalty Holder. In addition,
comparable procedures may be used by the Payor to apportion among the commingled
ores penalty charges, if any, imposed by the purchaser of such ore or
concentrates.
8. Change in Ownership of Right to Payments. No change or division in
the ownership of the Net Proceeds, however accomplished, shall enlarge the
obligations or diminish the rights of Kennecott or its Affiliates. Royalty
Holder covenants that any change in ownership of the Net Proceeds shall be
accomplished in such a manner that Kennecott and its Affiliates shall be
required to make payments and give notice to no more than one person, firm,
corporation, or entity, and upon breach of this covenant, Kennecott and its
Affiliates may retain all payments otherwise due until the breach has
<PAGE>
been cured. No change or division in the ownership of the Net Proceeds shall be
binding on Kennecott or its Affiliates a certified copy of the recorded
instrument evidencing the change or division in ownership.
<PAGE>
EXHIBIT D
INSURANCE
The Manager shall, at all times while conducting Operations, comply fully with
the applicable worker's compensation laws and purchase, or provide through
self-insurance, protection for the Participants comparable to that provided
under standard form insurance policies for (i) comprehensive public liability
and property damage with combined limits of Two Million Dollars for bodily
injury and property damage; (ii) automobile insurance with combined limits of
One Million Dollars; and (iii) adequate and reasonable insurance against risk of
fire and other risks ordinarily insured against in similar operations. If the
Manager elects to self-insure, it shall charge to the Joint Account an amount
equal to the premium it would have paid had it secured and maintained a policy
or policies of insurance on a competitive bid basis in the amount of such
coverage. Each Participant shall self-insure or purchase for its own account
such additional insurance as it deems necessary.
<PAGE>
EXHIBIT E
MEMORANDUM OF
MINING VENTURE AGREEMENT
NOTICE IS HEREBY GIVEN that under that certain Mining Venture Agreement
("Agreement") made and entered into effective as of the ___ day of _____, 199_
(the "Effective Date") by and between KENNECOTT EXPLORATION COMPANY, a Delaware
corporation ("Kennecott"), and GOLDEN PHOENIX MINERALS INC., a Minnesota
corporation ("GPMI"), (Kennecott and GPMI are sometimes referred to as a
"Participant" or the "Participants"), the Participants have agreed and do hereby
agree to undertake Exploration, and, if warranted, Development and Mining of
Products from the real property described in Part 1 of Exhibit A (the
"Properties") and within the exterior boundaries of the area described in Part 2
of Exhibit A (the "Area of Interest").
The Agreement shall be the exclusive means by which the Participants, or either
of them or any Affiliate, engage in any activity within the Area of Interest
(except as otherwise provided by paragraph 10 below); acquire interests in real
property within the Area of Interest; engage in marketing Products to the extent
permitted by the Agreement; or engage in any other lawful purposes related or
incidental to the foregoing. The Agreement shall continue for ___ years from the
Effective Date, unless the Agreement is earlier terminated or is extended.
This memorandum is executed for the purpose of affording notice of the existence
of the Agreement and the terms and provisions thereof, which terms and
provisions are incorporated herein by reference for all purposes. This
memorandum is not intended to alter or vary the terms of the Agreement. All
capitalized words in this memorandum have the same meaning as assigned to them
in the Agreement. Some of the terms and provisions of the Agreement are hereby
summarized as follows:
1. _______________, as its Initial Contribution, hereby contributes the
Properties described in Part 1 of Exhibit A to the Venture for the
purposes of the Agreement. Kennecott, as its Initial Contribution, has
pledged to fund certain Operations pursuant to the Agreement.
2. The Participants shall have the following initial Participating
Interests:
Kennecott - 51%
GPMI - 49%
The Participants shall hold their interests in the Properties as tenants in
common in proportion to their Participating Interests as such interests might be
adjusted from time-to-time, and the Participants shall, from time-to-time,
execute such conveyances as are necessary to effectuate such ownership. Each
Participant also irrevocably appoints the Manager as its attorney-in-fact to
execute, file and record all documents necessary to evidence any adjustment to
the Participants' Participating Interests.
3. A Participant's Participating Interest shall be changed in any of the
following instances (among others):
(a) Upon an election by a Participant to contribute less to an
approved Program and Budget than the percentage reflected by its
Participating Interest;
<PAGE>
(b) In the event of default by a Participant in making its agreed upon
contribution to an approved Program and Budget, followed by an
election by the other Participant to invoke remedies permitted by
Section 6.4 of the Agreement;
(c) Transfer by a Participant of less than all of its Participating
Interest in accordance with Article XV of the Agreement; or
(d) Acquisition by a Participant of less than all of the Participating
Interest of the other Participant, however arising.
4. Upon reduction of a Participant's Participating Interest to 10% or
less, such Participant shall be deemed to have withdrawn from the
Venture pursuant to Section 6.5 of the Agreement.
5. (a) If during the Period of Joint Operations a Participant elects to
contribute to an approved Program and Budget and then defaults in its
obligation to pay a contribution or cash call, the other Participant,
by notice to the defaulting Participant, may at any time, but shall not
be obligated to, elect to make such contribution or meet such cash call
on behalf of the defaulting Participant (a "Cover Payment"). Each Cover
Payment shall constitute indebtedness due from the defaulting
Participant to the non-defaulting Participant, which indebtedness shall
be payable upon demand and shall bear interest from the date incurred,
payable upon demand or, in the absence of any demand, on the last day
of each calendar month, at the rate specified in Section 10.3 of the
Agreement. The Agreement contains various remedies by which the
non-defaulting Participant can recover such indebtedness, including the
remedy described in (b) below.
(b) Each Participant hereby grants to the other Participant,
as security for the performance of all obligations arising under the
Agreement, including the repayment of the indebtedness referred to in
(a) above (together with interest thereon, reasonable attorneys' fees
and all other reasonable costs and expenses incurred in collecting
payment of such indebtedness and enforcing such security interest), a
security interest, mortgage and lien (hereinafter a "security
interest") in and on such Participant's right, title and interest in,
whenever acquired or arising, (i) the Assets, (ii) its rights under the
Agreement, and (iii) its Participating Interest, together with all
products, proceeds and accessions of the foregoing. Each Participant
hereby represents and warrants to the other Participant that such
security interest ranks prior to any and all other security interests.
Each Participant hereby agrees to take all action necessary to perfect
such security interest and irrevocably appoints the other Participant
as its attorney-in-fact to execute, file and record all financing
statements and any other documents necessary to perfect or maintain
such security interest or otherwise give effect to the provisions
hereof. Each Participant hereby agrees that it shall not execute,
foreclose or otherwise take action to enforce such security interest
except upon 30 days' prior notice to the defaulting Participant,
provided that the foregoing shall not prohibit the taking of any action
to make, prove or protect a claim in any bankruptcy or insolvency
proceeding of the defaulting Participant. In the event the defaulting
Participant is subjected to execution or foreclosure proceedings
pursuant to the terms hereof, to the extent allowed by applicable law
the defaulting Participant waives any available right of redemption
from and after the date of judgment, any required valuation or
appraisement of the mortgaged or secured property prior to sale, any
available right to stay execution or to require a marshalling of assets
and any required bond in the event a receiver is appointed. In
addition, to the extent permitted by applicable law, each Participant
grants to the other Participant a power of sale as to any prop-
<PAGE>
erty that is subject to the security interest granted hereunder, such
power to be exercised in the manner provided by applicable law or
otherwise in a commercially reasonable manner and upon reasonable
notice.
6. Nothing contained in the Agreement shall be deemed to constitute a
Participant the partner of the other Participant nor, except as
otherwise therein expressly provided, to constitute a Participant the
agent or legal representative of the other Participant, nor to create
any fiduciary relationship between them. It is not the intention of the
Participants to create, nor shall the Agreement be construed to create,
any mining, commercial or other partnership. A Participant shall not
have any authority to act for or to assume any obligation or
responsibility on behalf of the other Participant, except as otherwise
expressly provided in the Agreement. The rights, duties, obligations
and liabilities of the Participants shall be several and not joint or
collective. Each Participant shall be responsible only for its
obligations as set out in the Agreement and shall be liable only for
its share of the costs and expenses as provided therein, it being the
express purpose and intention of the Participants that their ownership
of the Assets and the rights acquired under the Agreement shall be as
tenants in common.
7. The Participants hereby waive and release all rights of partition or
sale in lieu thereof or other division of Assets, including any such
rights provided by statute.
8. Except as otherwise provided in the Agreement, a Participant shall not
permit or cause all or any part of its interest in the Assets to be
sold, exchanged, encumbered, surrendered, abandoned, or otherwise
terminated.
9. If the Agreement terminates under any of its provisions except
Section 12.2, or if a Participant withdraws or is deemed to have
withdrawn under any provision, neither the defaulting or the
withdrawing Participant, as the case may be, nor its Affiliates shall
directly or indirectly acquire any interest in property within the Area
of Interest for 12 months after the effective date of termination or
withdrawal, as applicable. If such Participant, or an Affiliate of such
Participant, breaches this restriction, such Participant or Affiliate
shall be obligated to offer to convey to the other Participant, without
cost, any such property or interest acquired in such breach. Such offer
shall be made in writing and can be accepted by the other Participant
at any time within 45 days after it receives such offer.
10. Part or all of the Properties may be surrendered or abandoned
consistent with the terms and conditions of any agreement under which
such portion or portions of the Properties were acquired as follows:
(a) During the Initial Contribution Period, by a Participant with
prior notice to the other Participant, and subject to the other
Participant's right to object and acquire the property as
described below; or
(b) During the Period of Joint Operations, by the Manager upon
authorization from the Management Committee.
In each case, if a Participant objects to the surrender or abandonment, the
Participant that desires to abandon or surrender shall assign to the objecting
Participant, by special warranty deed and without cost to the surrendering
Participant, all of the surrendering Participant's interest in the property to
be
<PAGE>
abandoned or surrendered, and the abandoned or surrendered property shall
cease to be part of the Properties.
11. If any of the Properties are abandoned or surrendered pursuant to
Section 14.1 of the Agreement, neither an abandoning Participant nor
its Affiliates (except for a Participant who has objected to the
abandonment or surrender) shall acquire any interest (or rights to
acquire interests) in such Properties for a period of two years
following the date of such abandonment or surrender. If an abandoning
Participant reacquires any Properties (or rights to acquire Properties)
in violation of Section 14.2, the other Participant shall have the
right, within 45 days after it has actual notice of such reacquisition,
to have such Properties made subject to the Agreement.
12. Any interest or right to acquire any interest in real property within
the Area of Interest acquired during the term of the Agreement by or on
behalf of a Participant or any Affiliate shall be offered to the
nonacquiring Participant for inclusion in the Agreement as part of the
Properties.
13. A Participant may Transfer to any third party all or any part of its
interest in or to the Agreement or the Assets or its Participating
Interest solely as provided in Article XV of the Agreement. All
Transfers shall be subject to the following terms and conditions (among
others):
(a) Subject to the preemptive right described in paragraph 14 below,
the other Participant shall have given its consent to the
Transfer, which consent shall not be unreasonably withheld. Such
consent shall be deemed to have been reasonably withheld if
withheld because the financial strength of the transferee is
materially diminished from that of the transferring Participant,
or the transferee may be unable to satisfy long-term reclamation
costs or environmental costs of Operations;
(b) Except for certain specified purposes, no transferee of all or any
part of the interest of a Participant in the Agreement or the
Assets or its Participating Interest shall have the rights of a
Participant unless and until the transferee, as of the effective
date of the Transfer, has committed in writing to be bound by the
Agreement to the same extent and nature as the transferring
Participant;
(c) No Participant shall Transfer any interest in the Agreement or the
Assets except by Transfer of part or all of its Participating
Interest or except by Transfer of a royalty interest to which the
other Participant shall have given its consent. In the event of a
Transfer of less than all of a Participating Interest, the
transferring Participant and its transferee shall act and be
treated as one Participant;
(d) If the Transfer is the grant of a security interest by
mortgage, deed of trust, pledge, lien or other encumbrance of any
interest in the Agreement or the Assets or its Participating
Interest to secure a loan or other indebtedness of a Participant,
such security interest shall be subordinate to the terms of the
Agreement and the rights and interests of the other Participant
thereunder. The Transfer of any such security interest may only be
made upon obtaining a covenant in writing from the lender that
notice of any default under the loan agreement shall be promptly
given to the other Participant and that a notice reflecting the
time and place of any foreclosure sale or other sale to enforce
the rights in the security interest shall be given to the other
Participant at least 30 days prior to any such sale. Subject to
the preemptive right set forth in Section 15.3(d) of the
Agreement,
<PAGE>
upon any foreclosure or other enforcement of rights in the
security interest, the acquiring third party shall be deemed to
have assumed the position of the encumbering Participant with
respect to the Agreement and the other Participant, and it shall
comply with the terms and conditions applicable to a Transfer
under Article XV of the Agreement;
(e) If a sale or other commitment or disposition of Products or
proceeds from the sale of Products by a Participant upon
distribution to it pursuant to Article XI creates in a third
party a security interest in Products or proceeds therefrom prior
to such distribution, such sales, commitment or disposition shall
be subject to the terms and conditions of Article XV of the
Agreement;
(f) The following shall not be deemed a Transfer, nor shall the
transferee be deemed an assignee for purposes of the Agreement:
(i) a transfer by a Participant to an Affiliate, provided
that the Participant shall continue to be liable for all
obligations hereunder, and provided further that any
transfer of less than all of a Participant's Participating
Interest shall be subject to the provisions of (c) above;
(ii) a transfer by a Participant of all or substantially all
of its assets, or a sale of all shares of a corporate
Participant by its parent corporation or other entity
holding such shares, or such other corporate merger,
consolidation or reorganization of a Participant, by which
the surviving entity shall possess substantially all of the
shares, or all of the property rights and interests, and
shall be subject to substantially all of the liabilities and
obligations of that Participant; provided, however, that the
interest of the Participant in the Agreement and the Assets
and its Participating Interest are not the sole assets of
the Participant; provided further, however, that the
transferee is or following the Transfer will be
substantially similar in financial strength to the
transferring Participant;
(iii) an incorporation of a Participant; or
(iv) a transfer by a Participant to a joint venture or
partnership in which such Participant is a participating
venturer or partner with a majority or controlling interest,
provided that any transfer of less than all of a
Participant's Participating Interest shall be subject to the
provisions of (c) above; and
(g) If the interest of a Participant in the Agreement and the
Assets and its Participating Interest are all or substantially all
of the assets of the Participant, or are not all or substantially
all of its assets but the financial strength of the transferee
will be substantially less than the financial strength of the
transferring Participant, a sale of all shares of a corporate
Participant or the sale of all shares of any Affiliate of a
Participant (by which the Participant is effectively subject to
new ownership or management) or such other corporate merger,
consolidation or reorganization, shall be deemed a Transfer. A
transfer by a Participant to a joint venture or partnership in
which such Participant is a participating venturer or partner with
a minority or non-controlling interest shall also be deemed a
Transfer, provided that any transfer of less than all of a
Participant's Participating Interest shall be subject to the
provisions of (c above.
<PAGE>
14. (a) Except as otherwise provided in paragraph 15 below, if a
Participant desires to Transfer all or any part of its interest in the
Agreement or the Assets or its Participating Interest, the other
Participant shall have a preemptive right to acquire such interests by
notifying the transferring Participant within 30 days after receiving
notice of the intended Transfer that it elects to acquire the offered
interest.
(b) Upon a foreclosure or other enforcement of rights in a
security interest created by mortgage, deed of trust, lien or other
encumbrance of any interest in the Agreement or the Assets or its
Participating Interest made to secure a loan or other indebtedness of a
Participant (herein a "Foreclosure or Other Sale"), the other
Participant shall have a preemptive right to acquire the interests
purchased at the Foreclosure or Other Sale from the acquiring third
party, which right shall be exercised within 30 days after such sale
occurs, by notice given to the acquiring third party, reflecting such
other Participant's election to acquire such interest at the price paid
by such acquiring third party in the Foreclosure or Other Sale. If the
other Participant does so elect, the Transfer to such Participant shall
be consummated promptly after such notice. The preemptive right created
hereunder shall be subject to all of the redemption rights or other
rights to recover property created by law.
(c) The sale of a Participant's interest in the Agreement and
the Assets and its Participating Interest pursuant to a bankruptcy or
similar proceeding shall be subject to the preemptive right of the
other Participant created hereunder.
15. Paragraph 14 above shall not apply to the following:
(a) The transfers referred to in paragraph 13(f) above;
(b) The grant by a Participant of a security interest in any interest
in the Agreement or the Assets or its Participating Interest by
mortgage, deed of trust, pledge, lien or other encumbrance or
security agreement; or
(c) A sale or other commitment or disposition of Products or proceeds
from sale of Products by a Participant upon distribution to it
pursuant to Article XI.
16. The Agreement shall terminate upon the happening of any of the
following events:
(a) The declaration of a default by a Participant and failure of such
Participant to cure the default;
(b) An election by Kennecott to terminate the Agreement during the
Initial Contribution Period;
(c) The mutual consent of the Participants;
(d) An election by a Participant to terminate the Agreement upon the
failure of the Management Committee to adopt a Program and Budget
for 12 months after the expiration of the latest adopted Program
and Budget;
<PAGE>
(e) The deemed withdrawal of a Participant pursuant to Section 6.4 or
6.5 of the Agreement; or
(f) Expiration of the Agreement at the end of its term.
17. A copy of the Agreement is on file with the Manager whose address
is:
Kennecott Exploration Company
224 North 2200 West
Salt Lake City, Utah 841116
EXECUTED effective as of the date first above written.
KENNECOTT EXPLORATION COMPANY GOLDEN PHOENIX MINERALS, INC.
By__________________________________ By
Its_________________________________ Its
<PAGE>
STATE OF UTAH ): ss.
COUNTY OF SALT LAKE )
The foregoing instrument was acknowledged before me by ______________________,
President of Kennecott Exploration Company, this ____ day of ____________, 199_.
My Commission Expires: __________________________________________
NOTARY PUBLIC
______________________ Residing at:______________________________
STATE OF _______________ _ ): ss.
COUNTY OF ______________ )
The foregoing instrument was acknowledged before me by ________________________,
President of ________________________, this ____ day of ______________, 199_.
My Commission Expires: __________________________________________
NOTARY PUBLIC
______________________ Residing at:______________________________
<PAGE>
EXHIBIT C
Attached and made a part of that certain Option To Purchase With Exploration
Rights Agreement between Kennecott Exploration Company and Golden Phoenix
Minerals Inc., dated September __, 1997.
NET SMELTER RETURNS ROYALTY
<PAGE>
EXHIBIT C
Attached to and forming part of an Option Agreement between Golden Phoenix
Minerals Inc. and Kennecott Exploration Company.
NET SMELTER RETURNS
Pursuant to the attached agreement Kennecott Exploration Company or its
permitted assignee ("Kennecott") shall be entitled to a royalty equal to 2% of
net smelter returns (the "Net Smelter Returns Royalty") payable by Golden
Phoenix Minerals Inc. or its permitted assignees, partners, joint venture
partners, lessees and when applicable mortgagees and affiliated companies having
or claiming an interest in the Property. ("GPMI").
1. Net Smelter Return Royalty
1.1 It is the intention of GPMI and Kennecott that the Net Smelter Return
Royalty hereinafter provided be based upon the value at the boundary of
the Property of the mineral products produced and sold or deemed sold,
determined by reference to published prices for refined silver, gold
and copper or the actual proceeds of sales for other mineral products,
all as hereinafter provided. Kennecott acknowledges it may be necessary
or appropriate to process, treat or upgrade mineral products off the
Property before they are sold or deemed sold; and that to determine the
value of such mineral products at the boundary of the Property, all
costs incurred or deemed incurred by GPMI after the mineral products
leave the Property shall be deducted from the proceeds received or
deemed to be received by GPMI. The obligation to pay the Net Smelter
Return Royalty shall accrue upon the outturn of refined metals meeting
the requirements of the specified published price to GPMI's account or
the sooner of sale of unrefined metals, dore, concentrates, ores or
other mineral products, as hereinafter provided.
1.2 GPMI shall pay to Kennecott a Net Smelter Return Royalty equal to two
percent (2%) of the Net Value of all ores, minerals, metals and
materials mined and removed from the Property and sold or deemed to
have been sold by or for GPMI, to be paid until cumulative payments to
Kennecott equal fifteen million dollars ($15,000,000). Until such
payments are made, it is the intent of the parties that the Net Smelter
Return Royalty shall be a covenant running with the land.
1.3 As used herein, "Net Value" means the Gross Value or such ores,
minerals, metals or materials, less all costs, charges and expenses
paid or incurred by GPMI after such products leave the Property,
including without limitation:
1.3.1 charges for treatment in the smelting and refining process
(including handling, processing, interest and provisional
settlement fees, sampling, assaying and representation costs,
penalties and other process deductions);
1.3.2. actual costs of transportation (including freight, insurance,
security, transaction taxes, handling, port, demurrage, delay
and forwarding expenses incurred by reason of or in the course
of such transportation) of ores, minerals, concentrates or
other products from the Property to the place of treatment and
then to the place of sale.
1.3.3 actual sales and brokerage costs on ores and minerals for
which the Net Smelter Return Royalty is based on proceeds
received by GPMI as hereinafter provided in subsections 1.4.4
and 1.4.5 below, and
1.3.4. sales, use, severance, net proceeds of mine and ad valorem
taxes and any other tax on or measured by mineral production.
1.4. "Gross Value" shall have the following meanings for the following
categories of metals, minerals products and minerals produced and sold
by GPMI:
<PAGE>
1.4.1 If GPMI causes refined gold (meeting the specifications of the
London Bullion Market Association) to be produced from ores
mined from the Property, for purposes of determining the Net
Smelter Return Royalty the refined gold shall be deemed to
have been sold at the Monthly Average Gold Price for the month
in which it was produced, and the Gross Value shall be
determined by multiplying Gold Production during the calendar
month by Monthly Average Gold Price. As used herein, "Gold
Production" shall mean the quantity of refined gold outturned
to GMPI's pool account by an independent third-party refinery
for gold produced from the Property during the calendar month
on either a provisional or final settlement basis. As used
herein, "Monthly Average Gold Price" shall mean the average
London Bullion Market Association P.M. Gold Fix, calculated by
dividing the sum of all such prices reported for the month by
the number days for which such prices were reported.
1.4.2 If GPMI causes refined silver (meeting the specifications for
refined silver subject to the New York Silver Price published
by Handy & Harman) to be produced from ore mined from the
Property, for purposes of determining the Net Smelter Return
Royalty the refined silver shall be deemed to have been sold
at the Monthly Average silver Price for the month in which it
was produced, and the Gross Value shall be determined by
multiplying Silver Production during the calendar month by the
Monthly Average Silver Price. As used herein, Silver
Production shall mean the quantity of refined silver outturned
to GPMI's pool account by an independent third-party refinery
for silver produced from the Property during the calendar
month on either a provisional or final settlement basis. As
used herein, "Monthly Average Silver Price" shall mean the
average New York Silver Price as published daily by Handy &
Harman, calculated by dividing the sum of all such prices
reported for the calendar month by the number of days for
which such prices were reported.
1.4.3 If GPMI causes refined copper (meeting the specifications for
refined copper subject to the New York Comex Price) to be
produced from ore mined from the Property, for the purposes of
determining the Net Smelter Return Royalty the refined copper
shall be deemed to have been sold at the Monthly Average
Copper Price. As used herein Copper Production shall mean the
quantity of refined copper outturned to GPMI's pool account by
an independent third-party smelter for copper produced from
the Property during the calendar month on either a provisional
or final settlement basis. As used herein, Monthly Average
Copper Price shall mean the average New York Commodities
Exchange Price for high grade copper as published daily in the
Wall Street Journal, calculated by dividing the sum of all
such prices reported for the calendar month by the number of
days for which such prices were reported.
1.4.4. If GPMI causes refined or processed metals other than refined
gold and refined silver to be produced from ores mined from
the Property, the Gross Value shall be equal to the amount of
the proceeds actually received by GPMI during the calendar
month from the sale of such refined or processed metals.
1.4.5. In the event that GPMI sells raw ores, or dore or concentrates
produced from ores mined from the Property, then the Gross
Value shall be equal to the amount of the proceeds actually
received by GPMI during the calendar month from the sale of
such raw ore, dore, concentrates or refined metal.
1.4.6. Where outturn of refined metals is made by an independent
third party refinery on a provisional basis, the Gross Value
shall be based upon the amount of such provisional settlement,
but shall be adjusted in subsequent statements for account for
the amount of refined metal established by final settlement by
such refinery.
1.4.7. Kennecott acknowledges that the purpose of subsections 1.4.1,
1.4.2. and 1.4.4. above is to Kennecott a Net Smelter Return
Royalty on the basis of value of the refined gold, silver and
<PAGE>
copper produced from ores mined from the Property as
established by the London Bullion Market Association P.M. Gold
Fix for gold, the New York Silver Price as published by Handy
& Harman for silver sand the New York High Grade Copper Price
as published by Comex, regardless of the price or proceeds
actually received by GPMI for or in connection with such metal
or the manner in which a sale of refined metal to a third
party is made by GMPI. Kennecott further acknowledges that
GPMI shall have the right to market and sell or refrain from
selling refined gold, silver, copper and other metals produced
from the Property in any manner it may elect, and that GPMI
have shall the right to engage in forward sales, future
trading or commodity options trading, and other price hedging,
price protection, and speculative arrangements "(Trading
Activities") which may involve the possible delivery of gold,
silver, copper other metals produced from the Property.
Kennecott specifically acknowledges and agrees that Kennecott
shall not be entitled to participate in the proceeds or be
obligated to share in any losses generated by GPMI's actual
marketing or sales practices or by its Trading Activities.
1.4.8. GPMI may, but is not obligated to, beneficiate, mill, sort,
concentrate, refine, smelt, or otherwise process and upgrade
the ores, concentrates, and other mineral products produced
from ores mined from the Property prior to sale, transfer, or
conveyance to a purchaser, user or consumer other than GPMI.
GPMI shall not be liable for mineral values lost in such
processing under sound practices.
1.4.9. GPMI shall be permitted to sell minerals from the Property in
the form of raw ore, dore, or concentrates to an affiliated
party, provided that such sales shall be considered, solely
for the purpose of computing Net Value, to have been sold at
prices and on terms no less favourable than those which would
be extended to an unaffiliated third party under similar
circumstances.
1.4.10. All minerals for which a Net Smelter Return Royalty is payable
shall be weighed or measured, sampled and analyzed in
accordance with sound mining and metallurgical practices.
After such measurement, GPMI may mix or commingle such ores,
materials or products with ores, materials or products from
other property.
1.4.11. Net Smelter Return Royalties shall become due and payable
quarterly an the last day of each month following the last day
of the calendar quarter in which the same accrued Net Smelter
Royalty payments shall be accompanied by a statement showing
in reasonable detail the quantities and grades of the refined
metals, dore, concentrates, or other mineral products produced
and sold or deemed sold by GPMI in the preceding calendar
quarter; the average monthly price determined as herein
provided for refined metals on which the Net Smelter Return
Royalty is due; the proceeds of sale for other mineral
products on which the royalty is due; costs, and other
deductions, and other pertinent information in sufficient
detail to explain the calculation of the Royalty payment.
Such quarterly statement shall also list the quantity and quality of
any gold and silver dore, or copper cathode which has been retained as
inventory for more than sixty (60) days. Kennecott shall have fifteen
(15) days after receipt of the statement and to either (1) request that
the dore be deemed sold as provided in subsections 1.1 and 1.3 above
which shall be based upon the most recent charges to GPMI for such
services by an unaffiliated third party, or (2) elect to wait until the
time that refined gold or silver from such dore or copper cathode is
actually outturned to GPMI or such dore is sooner sold by GPMI. The
failure of Kennecott to respond within such time shall be deemed to be
an election under (2) above. No royalty shall be due with respect to
stockpiles of ores or concentrates unless and until such ores or
concentrates are actually sold.
All Net Smelter Return Royalty payments shall be considered final and in full
satisfaction of all obligations of GPMI with respect thereto, unless Kennecott
gives GPMI written notice describing and setting forth a specific objection to
the calculation thereof within one hundred twenty (120) days after receipt by
Kennecott of the quarterly statement herein provided for. If Kennecott objects
to a particular quarterly statement, Kennecott shall,
<PAGE>
for a period of thirty (30) days after GPMI's receipt of notice of such
objection, have the right, upon reasonable notice and at reasonable time, to
have GPMI's accounts and records relating to the calculation of the Situation
Royalty in question audited by a certified public accountant acceptable to
Kennecott and GPMI. If such audit determines that there has been a deficiency or
an excess in the payment made to Kennecott such deficiency or excess shall be
resolved by adjusting the next quarterly Net Smelter Return Royalty payment due
hereunder. Kennecott shall pay all costs of such audit unless a deficiency of
five percent or more of the amount due is determined to exist. GPMI shall pay
the costs of such audit if a deficiency of five percent or more of the amount
due is determined to exist. All books and records used by GPMI to calculate
royalties due hereunder shall Royalty payment due hereunder shall be dept in
accordance with generally accepted accounting principles. Failure on the part of
Kennecott to make claim on GPMI for adjustment in such 120-day period shall
establish the correctness and preclude the filing of exceptions thereto or
making of claims for adjustment thereon.
