As filed with the Securities and Exchange Commission ("SEC") on July 8, 1999.
This Registration Statement has not yet been declared effective by the SEC, thus
the information contained herein is subject to amendment.
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-SB
GENERAL FORM FOR REGISTRATION OF SECURITIES OF SMALL
BUSINESS ISSUERS PURSUANT TO SECTION 12(b) OR 12(g) OF
THE SECURITIES EXCHANGE ACT OF 1934
SILVER KING RESOURCES, INC.
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(Name of Small Business Issuer as specified in its charter)
DELAWARE 65-0884085
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(Jurisdiction of incorporation (I.R.S. Employer
or organization) Identification No.)
6025 South Eaton Lane
Littleton, Colorado 80123
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(Address of principal executive offices)
(303) 798-2980
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(Registrant's telephone number)
Securities to be registered pursuant to Section 12(b) of the Act:
Title of each class Name of each exchange on which
to be so registered each class is to be registered
N/A N/A
Securities to be registered pursuant to Section 12(g) of the Act:
Common Stock, $.0001 par value
-----------------------
Title of Class
<PAGE>
PART I
ITEM 1. DESCRIPTION OF BUSINESS(1)
INTRODUCTION
Silver King Resources, Inc. ("Silver King"), formerly known as Arngre,
Inc., is a development-stage mineral resource holding company incorporated under
the laws of the State of Delaware. Following a change in management in July
1998, Silver King commenced the business of identifying, acquiring and exploring
properties containing silver mineralization. Prior to this time, Silver King was
an inactive company with no historic operations. Silver King chose to commence
this business based on management's perception that (i) the price of silver was
undervalued under existing supply and demand market forces; and (ii) during the
past decade, silver production has been insufficient to meet market demand,
which has increased primarily in the electronic, electrical products, jewelry,
silverware and photographic industries. Silver King's first development project
is a joint venture exploring properties in Mexico, where ongoing drilling and an
induced polarization survey indicate probable silver mineralization. The
exploration program remains in the preliminary stage, and Silver King has not
yet completed a definitive feasibility study for the project.
Silver King is the surviving entity of a merger (the "Merger") between
Silver King Resources (Delaware), Inc., a Delaware corporation, and Silver King
Resources, Inc., a Florida corporation formerly know as Arngre, Inc., which was
incorporated in Florida in August 1988. The Merger occurred on June 24, 1999.
Prior to the Merger and the change in management in 1998, Silver King was an
inactive company whose shares were listed for quotation on the OTC Bulletin
Board. Silver King Resources (Delaware), Inc., which was incorporated in
Delaware in April 1999, was formed in order to effectuate the Merger and had no
prior operating history. After the Merger, Silver King Resources (Delaware),
Inc., the surviving corporation, changed its name to Silver King Resources, Inc.
Pursuant to the Merger, all of the issued and outstanding shares of common stock
of the Florida corporation were exchanged on a one-for-one basis for an
aggregate of 18,075,000 shares of common stock of the Delaware corporation.
JOINT VENTURE TO DEVELOP MEXICAN PROJECT
On March 19, 1999, Silver King entered into a Joint Venture and
Subscription Agreement (the "Joint Venture Agreement") with International Capri
Resources, S.A. de C.V., a Mexican company ("ICRM"), International Capri
Resources Ltd., a British Columbian company ("ICR"), Zacualpan Minerals, LLC, a
Colorado limited liability company ("Zacualpan LLC") and Alan Stier. Under the
terms of the Joint Venture Agreement, in May 1999, Silver King acquired a 60%
interest in newly-formed ICRM, which has rights to purchase five exclusive
exploration and exploitation silver-mining concessions in properties located in
the municipality of Zacualpan in Mexico and the municipality of Tetipac in the
State of Guerrero, Mexico under installment sale agreements assigned to it in
December 1998. Under these agreements, ICRM expects to purchase the five
concessions by September 1999, the date on which all of the final payments for
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(1) For definitions of certain mining terms used in this description, see
"Glossary of Certain Mining Terms" at the end of Item 1 of this Form 10-SB.
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the concessions are due. ICRM also expects to purchase in the summer of 1999 an
approximately 4,500 hectare claim staked at a potential silver-producing
property adjacent to Zacualpan, Mexico known as Quinto Real. The five mining
concessions, together with the Quinto Real claim, are referred to as the
"Zacualpan Project". The potential mineralization at the Zacualpan Project is
uncertain. Through ICRM, and other subsidiaries that may be formed in the
future, Silver King plans to identify, explore, develop and place into
production mineral properties, focusing on potential silver-producing properties
in Mexico.
The current shareholders of ICRM are Silver King, with a 60% equity
interest, and ICR and Zacualpan LLC, each with a 20% interest. Each shareholder
is entitled to appoint one member of ICRM's Board of Directors, so long as its
equity interest in ICRM is at least 10%. The operating budget of each
exploration phase for the Zacualpan Project is prepared by the operator, which
is currently ICR, and submitted to ICRM's Board of Directors for approval. Once
ICRM's Board of Directors approves the budget, the ICRM shareholders must
finance the costs of the mining exploration programs and budgets in amounts
based on their ownership interest in ICRM. If one or more shareholders fails to
contribute capital in amounts equal to their respective pro rata ownership
interests, their interest in ICRM is adjusted accordingly. Under the Joint
Venture Agreement, if a shareholder contributes to the budget an amount less
than its ownership interest proportion, its interest in ICRM decreases, while
the complying shareholders' interests increase proportionately. If a
shareholder's interest in ICRM is reduced to less than 1%, it is deemed to have
assigned its remaining interest to the other shareholders and, as its sole
remuneration, is entitled to receive 0.5% of ICRM's net smelter returns.
All outstanding shares of ICRM are subject to a right of first refusal
as set forth in the Joint Venture Agreement and Bylaws of ICRM. Any ICRM
shareholder must first offer his ICRM shares to the other ICRM shareholders
before it may sell them to a third party. Any third party purchasing ICRM shares
must agree to be bound by the terms of the Joint Venture Agreement.
Both ICR and Zacualpan LLC, the other shareholders of ICRM, have prior
direct or indirect experience in the exploration and/or mining business. ICR is
a company engaged in the silver exploration business whose shares are listed on
the Vancouver Stock Exchange. From 1994 to 1998, ICR explored properties on
Baffin Island of the North West Territory in Canada for zinc, copper, nickel and
gold. ICR is currently involved in silver, zinc and gold exploration projects in
northwestern Ontario. Zacualpan LLC is a recently formed LLC, of which Mark
Isaacs is a principal member. Mr. Isaacs has been involved, as a principal, in
several hard rock mining projects in the United States and Mexico since 1991.
Contemporaneously with entering into the Joint Venture Agreement,
Silver King entered into a Right of First Refusal Agreement (the "ROFR
Agreement") with Mark Isaacs. Under the ROFR Agreement, Silver King has a right
of first refusal to participate in each and every mining and natural resource
opportunities located in Mexico or the United States (exclusive of garnet
projects) in which Mr. Isaacs or any entity controlled by him acquires an
interest. In the event that Silver King exercises its right of first refusal
with respect to a project, it must initially contribute to a trust account up to
$750,000 to fund the project's budgeted preliminary expenditures for the first
90 days. If the funds deposited in the trust account are expended or
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irrevocably committed for expenditure within approximately 45 weeks, Silver King
and Isaacs may form a joint venture with respect to the project, with Silver
King and Mr. Isaacs respectively owning an 80% and 20% interest in the venture.
In the event, however, that the project is owned or controlled by Polo Y Ron
Minerales S.A. de C.V., a Mexican company ("Polo Y Ron"), then Silver King shall
own a 60% interest in the venture, with Polo Y Ron owning a 25% interest and Mr.
Isaacs owning a 15% interest. Silver King's rights of first refusal as set forth
in the ROFR Agreement terminate on March 19, 2002. In addition, Silver King's
rights under the ROFR Agreement may be terminated by Mr. Isaacs if the current
stockholders of Silver King do not hold in the aggregate at least 25% of the
outstanding shares of Silver King's common voting stock.
SILVER INDUSTRY AND MARKET OVERVIEW
Silver is principally used in (i) the electrical and electronic
components industries, (ii) photography and (iii) jewelry and silverware. Due to
its strength, malleability, thermal and electrical conductivity and ability to
endure extreme temperature changes, silver has many industrial uses. For
example, it is used in batteries, computer chips, electrical contacts and
printing.
According to industry sources, demand for silver has increased during
the past five years by approximately 21% to 865 million ounces per year.
Production of silver by mining operations and secondary recovery from scrap has
been insufficient to meet this increased demand, resulting in a shortfall
exceeding 120 million ounces each year. The gap in the supply of silver has been
met to date by drawing on silver stockpiles. The increased demand for silver is
primarily due to the development of new technologies and products using silver
in electrical devices and electronic components, in addition to significant
increases in jewelry consumption, a trend driven by the cable television
shopping channels, such as QVC and the Home Shopping Network.
OVERVIEW OF BUSINESS
Silver King operates its business as an exploration stage mineral
resources holding company that intends to receive income from participating in
joint ventures or other business combinations, rather than developing and
placing mining properties into production on its own. Prior to the fourth
quarter of 1998, Silver King was an inactive company with no operating history.
Silver King presently operates through its subsidiary ICRM, a joint venture in
which Silver King has a 60% equity interest. Through ICRM, Silver King currently
has rights to acquire five mining concessions in properties located in Southern
Mexico, and expects to purchase Quinto Real, an additional mining concession
adjacent to Zacualpan, Mexico, during the summer of 1999. These six mining
concessions are referred to as the "Zacualpan Project." No production of silver
is currently occurring at the Zacualpan Project, although commercial silver
mining by unaffiliated parties continues in the Zacualpan mining district. At
ICRM's request, an independent mining engineer, Juan Jose Cabuto Vidrio of
Mexico, and Burton Consulting Inc., independent geologists, completed a due
diligence report for the Zacualpan Project in December 1998. By April 1999,
Joseph P. Anzman, an independent geophysicist, and Israel Hernandez Perez and
Luis Nolasco Vargas, independent engineers, had completed the induced
polarization survey at the Zacualpan Project (other than the Quinto Real
concession to
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be acquired) recommended by the due diligence report. Based on the results of
the induced polarization survey, Silver King is conducting a drill program at
the Zacualpan Project. See ITEM 3. DESCRIPTION OF PROPERTY.
Silver King currently has no revenues. As of April 30, 1999, Silver
King's accumulated deficit was $121,378. Due to the capital-intense nature of
starting up a mining business, Silver King will require additional operating
capital to implement its business strategy of continued exploration of the
Zacualpan Project. As of April 30, 1999, Silver King had a cash balance of
$80,956 and working capital deficit of $34,044 as compared to no cash balance
and a working capital deficit of $25,000 as of December 31, 1998, when it was
inactive.
Silver King plans to secure additional working capital primarily
through the sale of its securities. Its ability to raise capital accordingly
depends on the liquidity of Silver King's securities which, in turn, is
facilitated by having a class of securities eligible for public trading. The use
of Silver King's securities to raise capital relies to a great extent on the
development and maintenance of an active trading market for the securities. The
public trading market for Silver King's common stock is very limited. There can
be no assurances that a regular trading market will develop or, if developed,
that it will be sustained on a long-term basis.
THE ZACUALPAN PROJECT
The Zacualpan Project is located in the Zacualpan mining district,
which is located in the Municipality of Zacualpan in Mexico, approximately 94
kilometers southwest of Mexico City, near the northern Guerrero state line. The
Zacualpan mining district has produced silver for over 450 years, with one
mining operation continuing production. There has been little modern exploration
in the district for mineralization through indirect techniques, such as
geophysical induced polarization surveying. Furthermore, much of the region has
never been drill tested and exploration below the water table has been minimal.
Based on recommendations from an independent mining engineer and
geological consulting firm retained by ICRM, ICRM surveyed the Zacualpan Project
through induced polarization (the "IP Survey"). An induced polarization survey
can indirectly determine the presence of silver mineralization by detecting
anomalous conditions demonstrative of the presence of pyrite.
The 47 line/kilometer IP Survey outlined numerous anomalies in the
vicinity of former prospects and mine workings on the Zacualpan Project. From
these anomalies, sixteen targets were chosen for the first phase of a drill
program. ICRM is currently in the process of conducting the drill program to
test, in a preliminary manner, the potential of several vein structures outlined
by the IP Survey. The drilling is being supervised by an independent geologist,
Stewart Jackson of Denver, Colorado.
To date, ICRM has completed ten drill holes of the first phase of the
sixteen-hole drill program for the Zacualpan Project. Two of the vein
structures, Quinto II and Nogale, which were identified as induced polarization
anomalies in the IP Survey, were tested by the ten drill
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holes. Drilling and testing of the Cometa structure are in progress. Assays are
almost completed for six drill holes, with assays for the four remaining holes
in progress.
Zones of sulfides, carrying lead, zinc and silver were encountered in
all but one hole. Data for two of the holes are set forth below:
<TABLE>
<CAPTION>
Hole # Interval/Distance in meters % Lead % Zinc gm/tonne Silver gm/tonne Gold
<S> <C> <C> <C> <C> <C>
#Z4 298.30-298.60 (0.33m) 7.10 9.09 368.9 0.41
#Z2 31.1-34.4 (2.7m) 0.49 1.35 147.8 0.07
48.49-50.60 (2.11m) 0.11 0.48 56.9 0.003
54.95-56.08 (1.13m) 1.06 3.63 199.65 0.105
</TABLE>
G.M. Lacme Laboratories of Guadalajara, Mexico is preparing the
materials for the assays, with analyses conducted by its parent company, Acme
Laboratories of Vancouver, British Columbia. Analytical results are obtained by
induction coupled plasma 30 element scans, followed by standard fire assay
techniques.
The first phase of the drill program is intended to validate the
mineralization in the most anomalous areas identified by the IP Survey. ICRM
expects to complete the first phase of the drilling program by the end of the
third quarter of 1999, at which time a second phase of the program is
anticipated.
To date, Silver King's IP Survey and drill program indicate that there
is sulfide mineralization present at the Zacualpan Project, which may be
widespread. Past mining of old veins extended only to the water tables and
rarely to 100 meter depths beyond. Advanced methods of exploration apparently
have not been utilized in the area, which suggests that most mineralization
below the water table, if any, remains present for exploration and extraction.
Due to the primitive methods previously used to locate the mineralized areas in
locations parallel to identified veins, en echelon or blind structures may exist
but have yet to be located.
Since ICRM has not determined the location of reserves, both
underground and open pit mining operations are possible. Most mining operations
in the Zacualpan mining district are underground.
BUSINESS STRATEGY
Silver King's objective is to become, through strategic affiliations
with joint venture partners and operators with prior mining experience, a
producer and provider of silver, other precious metals and natural resources by
acquiring and developing a significant reserve of mineral deposits. The
principal elements of Silver King's business strategy are as follows: (i) to
complete a drilling program, and, if warranted, a feasibility study of a mining
operation at the Zacualpan Project; (ii) to acquire the Zacualpan Project in
September 1999 under the installment purchase contracts ICRM entered into in the
fourth quarter of 1998 and under the proposed assignment agreement for the
Quinto Real claim; (iii) if warranted, to proceed to develop the Zacualpan
Project into a mining operation; (iv) to identify and acquire other mining,
mineral and
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natural resource properties, particularly in Mexico and the United States, that
Silver King believes contain significant amounts of silver or have exploration
potential; and (v) to secure the financing required to explore and develop the
Zacualpan Project as well as other mining, mineral and natural resource
properties that Silver King may acquire in the future.
Silver King believes that it will position itself to capitalize on the
increasing demand for silver and certain co-occurring minerals, such as zinc,
lead, copper and gold, through the acquisition of development and exploration
properties with significant mineralization potential.
COMPETITION
The mining industry is highly competitive. Silver King faces much
competition in acquiring the limited number of favorable properties and
prospects for drilling, exploration, development and mining operations. Many of
Silver King's competitors have more financial resources and longer operating
histories with established mining operations than Silver King does.
REGULATION
Silver King's mining concessions in Mexico are subject to various
Mexican regulations which require permits and licenses from local authorities.
Silver King's failure to comply with applicable regulations could result in
fines or possible revocation of one or more of Silver King's operating licenses
and title to the mining concessions, any of which events could have a material
adverse effect on Silver King. In addition, any future mining concessions or
properties acquired by Silver King will also be subject to various national,
international, state or local mining and environmental regulations.
EMPLOYEES
As of the date of this registration statement, Silver King has two
employees. Silver King is not a party to any collective bargaining agreements,
has not experienced any work stoppages and believes that its relationship with
its employees is good.
BUSINESS RISKS
When used in this filing, the words "may," "will," "expect,"
"anticipate," "believe," "continue," "estimate," "project," "intend," and
similar expressions are intended to identify forward-looking statements
regarding events, conditions and financial trends which may affect Silver King's
future plans of operations, business strategy, operating results and financial
position. Readers are cautioned not to place undue reliance on these
forward-looking statements, which speak only as of the date made and are not
guarantees of future performance. Statements made which are not historical
facts, such as anticipated production or costs, are forward-looking statements
and involve a number of risks and uncertainties that could cause actual results
to differ materially from those projected or implied. These risks and
uncertainties include, but are not limited to, metals price volatility,
volatility of metals production, industrial minerals market conditions, and
project development risks. Silver King undertakes no obligation to publicly
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release the result of any revision of these forward-looking statements to
reflect events or circumstances after the date they are made or to reflect the
occurrence of unanticipated events. The following risk factors with respect to
Silver King and its operations may affect its strategy and business plan:
1. Business Plan Subject to Completion of Concession Acquisitions.
Silver King's rights to mineral concessions at the Zacualpan Project derive from
purchase option agreements which require the payment of installment fees. In the
event Silver King fails to make such payments with respect to any of the
concessions on the relevant due date, Silver King's rights to any such property
may lapse. In that case, Silver King will have no business. There can be no
assurance that Silver King will, or will be able to, effect all such payments by
the requisite payment dates.
2. Going Concern. Silver King's auditors have raised the issue that
Silver King may not be able to continue as a going concern as a result of a lack
of revenues. Silver King remains in the development stage. At April 30, 1999,
Silver King had working capital deficit of $34,044 and an accumulated deficit of
$121,378, with deficits and losses expected to continue for the foreseeable
future.
3. Absence of Operating History. Silver King has no current operating
history and is subject to all risks inherent in a developing business
enterprise. The likelihood of success of Silver King must be considered in light
of the problems, expenses, difficulties, complications, and delays frequently
encountered in connection with a new business in general and those specific to
the natural resource industry, such as high start-up costs, and the competitive
and regulatory environment in which Silver King will operate.
4. Exploration Stage Company. Mineral exploration, particularly for
silver, is highly speculative in nature, frequently is nonproductive, and
involves many risks, often greater than those involved in the actual mining of
mineralization. Such risks can be considerable and may add unexpected
expenditures or delays to Silver King's plans. There can be no assurance that
Silver King's mineral exploration activities will be successful or profitable.
Once mineralization is discovered, it may take a number of years from the
initial phase of drilling until production is possible, during which time the
economic feasibility of production may change. A related factor is that
exploration stage companies use the evaluation work of professional geologists,
geophysicists, and engineers for estimates in determining whether to acquire an
interest in property or to commence exploration or development work. These
estimates generally rely on scientific estimates and economic assumptions, and
in some instances may not be correct, and could result in the expenditure of
substantial amounts of money on a property before it can be determined whether
or not the property contains economically recoverable mineralization. The
economic viability of a property cannot be determined until extensive
exploration and development has been conducted and a comprehensive feasibility
study performed. Silver King currently does not have any such feasibility
studies, and has not yet prepared feasibility studies on any of its properties.
Moreover, the market prices of any minerals produced are subject to fluctuation,
which may negatively affect the economic viability of properties on which
expenditures have been made. Silver King is not able to determine at present
whether or not, or the extent to which, such risks may adversely affect Silver
King's strategy and business plans.
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5. Lack of Revenue; Need for Additional Financing. Silver King needs
additional capital but currently has no revenues. Substantial expenditures are
required to establish ore reserves through drilling, to determine metallurgical
processes to extract the mineralization from the ore and, in the case of new
properties, to construct mining and processing facilities. Silver King recently
raised $555,500 in private placements of its securities. It intends to
contribute a substantial portion of the net proceeds of the private placement to
ICRM so that it may complete the acquisition of certain mineral rights. The net
proceeds will not be sufficient to fully finance the exploration and drill
program currently in process at the Zacualpan Project. Accordingly, Silver King
will require further financing in order to pursue its longer-term strategy to
explore the Zacualpan Project and acquire and explore additional mineralization
properties. Silver King intends to seek this financing through a combination of
traditional debt financing and the placement of debt and equity securities.
Provided a liquid trading market for Silver King's common stock develops, Silver
King hopes to finance some portion of its future property acquisitions by using
shares of its common stock for all or a substantial portion of the consideration
to be paid. However, in the event that the common stock does not attain or
maintain a sufficient market, or potential property sellers are otherwise
unwilling to accept common stock as part of the consideration for the sale of
their properties, Silver King may be required to utilize more of its cash
resources, if available, in order to initiate and maintain its acquisition
strategy. If Silver King does not have sufficient cash resources, its growth
could be limited unless it is able to obtain additional capital through debt or
equity financings. Silver King will attempt to identify sources of financing on
an on-going basis, but there can be no assurances that such sources can be found
or that, if available, the terms of such financing will be commercially
acceptable to Silver King. Because of Silver King's need for additional capital
to fund the exploration and drill program at the Zacualpan Project, to complete
the acquisition of certain mineral rights, and to provide for further
development and exploration, the lack of consistent revenue or financing sources
could be a detrimental factor in Silver King's business progress.
6. Limited Market for Common Stock; Possible Volatility of Stock
Prices. The public trading market for shares of Silver King's common stock on
the OTC Bulletin Board is extremely limited. There is a minimal supply of Silver
King's shares eligible for public resale. There can be no assurances that a
regular trading market for the Silver King's common stock will develop, and if
it develops, whether it can be sustained. By its very nature, trading on the OTC
Bulletin Board provides only limited market liquidity. As a result of the
limited market, stockholders may have difficulty in effecting sales of their
shares and/or obtaining a satisfactory price for such shares. As of July 5,
1999, Silver King has outstanding 18,075,000 shares of common stock of which
approximately 100,000 are eligible for public trading. Until its trading market
develops, if at all, the market price for Silver King's common stock is likely
to be volatile, and factors such as success or lack thereof in acquiring
suitable strategic targets, competition, governmental regulation and
fluctuations in operating results may all have a significant effect. In
addition, the stock markets generally have experienced, and continue to
experience, extreme price and volume fluctuations which have affected the market
price of many small capitalization companies and which have often been unrelated
to the operating performance of these companies. These broad market
fluctuations, as well as general economic and political conditions, may
adversely affect the market price of Silver King's common stock.
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7. Possible Adverse Impact of Rule Change. The SEC and the National
Association of Securities Dealers, Inc. ("NASD") have recently announced a rule
change pursuant to which "non-reporting" public companies like Silver King would
no longer be eligible to trade securities on the OTC Bulletin Board unless they
become reporting companies under the Securities Exchange Act of 1934, as amended
(the "Exchange Act") within a specified period of time. According to the rule
change, the NASD would limit trading activities to only those companies that
have securities that are registered under the Exchange Act. Although Silver
King's shares are not presently registered under the Exchange Act, management
has prepared this registration statement to register Silver King's common stock
under the Exchange Act. This registration must be effective by the end of
September 1999 in order for Silver King's securities to remain eligible for
quotation on the OTC Bulletin Board. Management cannot guarantee such
registration will be effective prior to October 1, 1999. In the event that
registration under the Exchange Act is not effective before October 1, 1999,
Silver King's common stock probably would be delisted from quotation on the OTC
Bulletin Board, which would have a material adverse effect on its liquidity.
8. Possible Limitations upon Trading Activities; Restrictions Imposed
upon Broker-Dealers Effecting Transactions in Certain Securities. The SEC has
adopted regulations imposing limitations upon the manner in which certain low
priced securities (referred to as a "penny stock") are publicly traded. Under
these regulations, a penny stock is defined as any equity security that has a
market price of less than $5.00 per share, subject to certain exceptions. Such
exceptions include any equity security listed on the Nasdaq National Market
System or SmallCap Market and any equity security issued by an issuer that has
(i) net tangible assets of at least $2,000,000, if such issuer has been in
continuous operation for three years, (ii) net tangible assets of at least
$5,000,000, if such issuer has been in continuous operation for less than three
years, or (iii) average annual revenue of at least $6,000,000 if such issuer has
been in continuous operation for less than three years. Unless an exception is
available, the regulations require the delivery, prior to any transaction
involving a penny stock, of a disclosure schedule explaining the penny stock
market and the risks associated therewith. Also, under these regulations,
certain broker/dealers who recommend such securities to persons other than
established customers and certain accredited investors must make a special
written suitability determination for the purchaser and receive the purchaser's
written agreement to a transaction prior to sale.
Silver King's common stock presently constitutes a "penny stock."
Accordingly, trading activities for Silver King's common stock will be made more
difficult for broker-dealers than in the case of securities not defined as
"penny stocks." This may have the result of depressing the market for Silver
King's securities and an investor may find it difficult to dispose of such
securities.
9. Possible Dilution. One of the principal elements of Silver King's
business strategy is to accomplish strategic property acquisitions with business
partners, which may be effectuated through the issuance of additional shares of
Silver King's common stock as part of the purchase price consideration. This
would have the effect of increasing the number of shares of common stock
outstanding. In addition, in order to accomplish its acquisition strategy on a
longer-term basis, Silver King is likely to require additional financing to fund
its acquisition strategy, which may entail the issuance of additional shares of
common stock or common stock
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equivalents, which would have the further effect of increasing the number of
shares outstanding. In connection with other business matters, Silver King will
likely undertake the issuance of more shares of common stock. This may be done
in order to, among others, facilitate a business combination, acquire assets or
stock of another business, compensate employees or consultants or for other
valid business reasons in the discretion of Silver King's Board of Directors.
Under Delaware law, Silver King can issue additional shares without notice to,
or approval of, existing stockholders. In addition, during January, 1999, in
conjunction with private placements of its securities, Silver King granted
warrants to purchase an aggregate of 2,000,000 shares of common stock.
10. Realization of Investments in Mineral Properties and Additional
Capital Needs. The ultimate realization of Silver King's investments in mineral
properties is dependent upon the discovery of economically recoverable reserves,
the ability of Silver King to obtain financing or make other arrangements for
development and upon future profitable production. Silver King expects to
finance its future operations through the sale of equity securities, joint
venture arrangements (including project financing), and the sale of interests in
mineral properties. Silver King does not have sufficient capital of its own to
explore and develop its mineral properties and there can be no assurances that
Silver King will be successful in obtaining the required funds to finance its
long-term capital needs.
11. Title to Mineral Concessions. There is no guarantee that title to
the concessions to be acquired by its subsidiary will not be challenged or
impugned. Title insurance generally is not available, and Silver King's ability
to ensure that its subsidiary will obtain secure claims to individual mining
concessions may be severely constrained. Silver King has not conducted surveys
of all of the claims which its subsidiary has rights to acquire and, therefore,
the precise area and location of such claims may be in doubt. Accordingly, any
mineral concessions may be subject to prior unregistered agreements, transfers
or claims, and title may be affected by, among other things, undetected defects.
12. Holding Company Structure Risks. Silver King currently conducts,
and will continue to conduct, all of its operations through subsidiaries. Silver
King's ability to obtain dividends or other distributions from its subsidiaries
may be subject to, among other things, restrictions on dividends under
applicable local law and foreign currency exchange regulations in the
jurisdictions in which the subsidiaries operate. The subsidiaries' ability to
pay dividends or make other distributions to Silver King may also be subject to
their having sufficient funds from their operations legally available for the
payment thereof which are not needed to fund their operations, obligations or
other business plans. If Silver King's subsidiaries are unable to pay dividends
or make other distributions to Silver King, Silver King's growth may be
inhibited after the proceeds of the private placements completed in January and
April of 1999 are exhausted, unless Silver King is able to obtain additional
debt or equity financing on terms which are acceptable to Silver King. In the
event of a subsidiary's liquidation, there may not be assets sufficient for
Silver King to recoup its investment therein.
13. Competition. Silver King faces intense competition in the mining
industry. Many of Silver King's competitors have well established operations and
significantly greater financial,
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<PAGE>
marketing, personnel and other resources than Silver King. There can be no
assurance that Silver King will be able to compete effectively against these or
any other competitors.
14. Control by Certain Stockholders. On the date of this registration
statement, Silver King's officers, directors and principal stockholders own
approximately 66% of the common stock of Silver King. Consequently, by virtue of
Delaware law, these stockholders will be in a position to elect all of Silver
King's directors and control the outcome of other corporate matters without the
approval of Silver King's other stockholders. In addition, applicable statutory
provisions and the ability of the Board of Directors to issue one or more series
of preferred stock without stockholder approval could deter or delay unsolicited
changes in control of Silver King by discouraging open market purchases of
Silver King's stock or a non-negotiated tender or exchange offer for such stock,
which may be disadvantageous to a majority of Silver King's stockholders who may
otherwise desire to participate in such a transaction and receive a premium for
their shares.
15. Retention and Attraction of Key Personnel. Silver King's success
will depend, in large part, on its ability to retain and attract highly
qualified personnel. Silver King's success in attracting qualified personnel
will depend on may factors, including its ability to provide them with
competitive compensation arrangements, equity participation and other benefits.
There is no assurance that the Company will be successful in retaining or
attracting highly qualified individuals in key management positions.
16. Regulatory Concerns. Environmental and other government regulations
at the federal, state and local level pertaining to Silver King's business and
properties may include: (a) surface impact; (b) water acquisition; (c) site
access; (d) reclamation; (e) wildlife preservation; (f) licenses and permits;
and, (g) maintaining the fees for unpatented mining claims. See Item 2.
MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION - COMPLIANCE WITH
ENVIRONMENTAL AND LABOR LAWS.
17. Indemnification of Officers and Directors for Securities
Liabilities. The Bylaws of Silver King provide that Silver King may indemnify
any director, officer, agent and/or employee as to those liabilities and on
those terms and conditions as are specified in the Delaware General Corporation
Law. Further, Silver King may purchase and maintain insurance on behalf of any
such persons whether or not the corporation would have the power to indemnify
such person against the liability insured against. The foregoing could result in
substantial expenditures by Silver King and prevent any recovery from such
directors, officers, agents and employees for losses incurred by Silver King as
a result of their actions. Further, Silver King has been advised that in the
opinion of the Securities and Exchange Commission, indemnification is against
public policy as expressed in the Securities Act of 1933, as amended, and is,
therefore, unenforceable.
18. Cumulative Voting, Preemptive Rights and Control. There are no
preemptive rights in connection with Silver King's common stock. Cumulative
voting in the election of directors is not provided for. Accordingly, the
holders of a majority of the shares of common stock, present in person or by
proxy, will be able to elect all of Silver King's Board of Directors. See
ITEM 8. DESCRIPTION OF SECURITIES - Common Stock.
11
<PAGE>
19. No Dividends. The holders of the common stock are entitled to
receive dividends when, as and if declared by the Board of Directors out of
funds legally available therefor. To date, Silver King has not paid any cash
dividends. The Board does not intend to declare any dividends in the foreseeable
future, but instead intends to retain all earnings, if any, for use in Silver
King's business operations. As Silver King will be required to obtain additional
financing, it is likely that there will be restrictions on Silver King's ability
to declare any dividends.
20. Year 2000 Issues. Silver King is presently attempting to respond to
Year 2000 issues. Year 2000 issues are the result of computer programs being
written using two digits rather than four to define the applicable year
associated with the program or an associated computation. Any such two-digit
computer programs that have time-sensitive software may recognize a date using
"00" as the year 1900 rather than the year 2000. This could result in a system
failure or miscalculation causing disruptions of operations, including among
other things, a temporary inability to process transactions, send invoices or
engage in normal business activities. Management expects to have substantially
all of the systems application changes completed within the next 5 months and
believes that its level of preparedness is appropriate.
The total cost to Silver King of these Year 2000 compliance issues is
not anticipated to be material to its financial position or results of
operations in any given year. These costs and the date on which Silver King
plans to complete the Year 2000 modification and testing processes are based on
management's best estimates, which were derived utilizing numerous assumptions
of future events including the continued availability of certain resources,
third party modification plans and other factors. However, there can be no
assurances that these estimates will be achieved and actual results could differ
from those plans.
21. Risks Inherent In International Operations. Silver King's business
is currently conducted not in the United States, but in Mexico. As a result,
Silver King's operations are subject to various risks such as loss of revenue,
property or equipment due to expropriation, nationalization, war, insurrection,
terrorism or civil disturbance, the instability of the Mexican economy, currency
fluctuations and devaluations, adverse tax policies and governmental activities
that may limit or disrupt markets, restrict payments or the movement of funds or
result in the deprivation of contract rights. Additionally, the ability of
Silver King to compete may be adversely affected by foreign governmental
regulations that encourage or mandate the hiring of local contractors, or by
regulations that require foreign contractors to employ citizens of, or purchase
supplies from vendors in, a particular jurisdiction. Silver King is subject to
taxation in a number of jurisdictions, and the final determination of its tax
liabilities involves the interpretation of the statutes and requirements of
various domestic and foreign taxing authorities. Moreover, the countries where
Silver King operates and plans to operate have legal systems that differ from
the United States legal system and may provide substantially less protection for
foreign investors.
GLOSSARY OF CERTAIN MINING TERMS
Adit: An almost horizontal entrance to a mine.
Andesite: A fine grained, gray volcanic rock, mainly plagioclase and
feldspar.
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Assay: A chemical test performed on a sample of ores or minerals to
determine the amount of valuable metals contained therein.
Development: Work carried out for the purpose of opening up a mineral
deposit and making the actual ore extraction possible.
En Echelon/Blind Structures: Subparallel/not visible on surface.
Exploration: The searching for ore, usually by geological surveys,
geophysical prospecting, drilling, surface or underground headings, drifts, or
tunnels.
Feasibility Study: A technical study of a project at sufficient level
of accuracy and detail to allow a decision as to whether a given project should
proceed.
Grade: The average assay of a ton of ore, reflecting metal content.
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 effect recovery of the pure
metal.
Mineralization: The process by which a mineral or minerals are
introduced into a rock, resulting in a valuable deposit.
Net Smelter Return or NSR: A return based on the actual proceeds from
sale of metal or mineral products received less the cost of refining or smelting
at an off-site refinery.
Ore: A mixture of valuable minerals and gangue (valueless minerals)
from which at least one of the minerals or metals can be extracted at a profit.
Probable Reserves: That part of a mineral deposit which may be
economically and legally extracted or produced at the time of the reserve
determination for which quantity and grade and/or quality are computed from
information similar to that used for proven reserves (see below), 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 Reserves: That part of a mineral deposit which may be
economically and legally extracted or produced at the time of the reserve
determination for which (a) quantity is computed from dimensions revealed in
outcrops, trenches, workings and drill holes and grade and/or quality are
computed from the results of detailed sampling; and (b) the sites for
inspection, sampling and grade measurement are spaced so closely and the
geological character is so well defined that size, shape, depth and mineral
content of reserves are well established.
Refining: The final stage of metal production in which residual
impurities are removed from the metal.
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<PAGE>
Reserves: That part 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.
Smelting: Heating ore or concentrate material with suitable flux
materials at high temperatures creating a fusion of these materials to produce a
melt consisting of two layers: (1) one on top, a slag of the flux and gangue
(waste) minerals, and (2) one below, molten impure metals. This generally
produces an unfinished product requiring refining.
Tonne: A metric ton (1,000 kilograms, or 2,205 pounds).
Troy Ounce: Unit of weight measurement used for all precious metals.
The familiar 16-ounce avoirdupois pound equals 14.583 Troy Ounces.
Vein: A mineralized zone having a more or less regular development in
length, width and depth which clearly separates it from neighboring rock.
Waste: Barren rock in a mine, or mineralization that is too low in
grade to be mined and milled at a profit.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
Silver King Resources, Inc. ("Silver King") is a development stage
mining exploration and development holding company with certain rights to
acquire mining concessions at properties located in southern Mexico. None of
these properties are in production and, consequently, Silver King has no current
operating income or cash flow.
BACKGROUND
On June 24, 1999, Silver King Resources, Inc., formerly known as
Arngre, Inc., a Florida corporation ("Silver King Florida"), merged with and
into Silver King Resources (Delaware), Inc., a newly-formed Delaware corporation
("Silver King Delaware"). Silver King Delaware, the surviving corporation of the
merger, was formed for the purpose of the merger and had no prior operating
history. Immediately after the completion of the merger, Silver King Delaware
changed its name to "Silver King Resources, Inc."
Prior to the merger, Silver King Florida was an inactive company whose
shares were listed for quotation on the OTC Bulletin Board. Since the former
stockholders of Silver King Florida acquired a controlling interest in Silver
King Delaware in the merger, the merger has been accounted for as a "reverse
acquisition." Accordingly, for financial statement presentation purposes, Silver
King Florida is viewed as the continuing entity and the related business
combination is viewed as a recapitalization of Silver King Florida, rather than
an acquisition by Silver King Delaware.
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PLAN OF OPERATION/THE ZACUALPAN PROJECT
In May 1999, Silver King formed a joint venture with International
Capri Resources Ltd. ("ICR") and Zacualpan Minerals LLC ("Zacualpan LLC") to
acquire, explore and develop six mining concessions on properties located in
southern Mexico with potential silver mineralization (the "Zacualpan Project").
The joint venture was structured by placing the rights to acquire the mining
concessions with International Capri Resources S.A. de C.V., a Mexican company
("ICRM"), and having each of Silver King, ICR and Zacualpan LLC subscribe for
shares of ICRM. This structure was chosen since mining concessions in Mexico
must be held in the name of a Mexican entity. Also, this structure allowed each
shareholder to appoint one member to ICRM's board of directors, which must
approve operational decisions. The shareholders are required to fund future
exploration, development and operating expenses of the Zacualpan Project by
contributing capital to ICRM in proportion to their respective ownership
interests. Silver King owns a 60% equity interest in ICRM, which may be adjusted
upward or downward depending on each shareholder's compliance with required
capital contributions to ICRM in the future. See ITEM 1. DESCRIPTION OF BUSINESS
- - Joint Venture In Mexico.
In December 1998, Polo Y Ron Minerals, S.A. de C.V. assigned to ICRM
its rights in three agreements to purchase a total of five mining concessions in
the municipalities of Zacualpan and Tetipac in southern Mexico, which comprise
parts of the Zacualpan Project. In March and April 1999, an induced polarization
survey (the "IP Survey") was completed for the five concessions. The
geophysicist that performed the IP Survey recommended that ICRM undertake a
drill program to verify the IP Survey's promising indications of silver
mineralization at the Zacualpan Project. In the second quarter of 1999, ICRM
began a 2,000 meter drill program, the first phase of which should be completed
by the end of the third quarter of 1999. Management expects that ICRM will
expend $1,000,000 for the drill program through December 31, 1999. Although the
drill program is currently in its initial stage, preliminary results indicate
silver and base metal anomalies. If the results of a second phase of the drill
program are favorable, ICRM will commission a preliminary feasibility study to
be completed by approximately mid-2000, which study is likely to entail a more
extensive drill program to (i) further define the mineralized zones; (ii)
establish the Zacualpan Project's proven and probable reserves and (iii)
evaluate areas of potential mineralization. Following a final feasibility study,
contracts for power supply, transportation, smelting and refining may be
negotiated.
If the results of the preliminary feasibility study confirm the
economic feasibility of the Zacualpan Project, and if no new opportunities arise
in the interim that Silver King considers more attractive development sites,
Silver King expects to devote the majority of any working capital to finance a
final feasibility study and to contribute to the construction and development of
the Zacualpan Project. Silver King plans to raise working capital for the
Zacualpan Project and any future mining or natural resource opportunities
through a combination of traditional debt financing and the placement of debt
and equity securities.
RESULTS OF OPERATIONS
REVENUES; LOSSES. Silver King does not yet produce silver or any other
mineral products and has no revenues from product sales. The net loss for the
year ended December 31, 1998 was
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<PAGE>
$26,834. For the four months ended April 30, 1999, Silver King incurred a net
loss of $89,544, as pre-operating costs increased. From August 23, 1988, its
date of incorporation, through April 30, 1999, Silver King has incurred a total
net loss of $121,378.
ADMINISTRATIVE. Administrative expenses were $1,834 for the year ended
December 31, 1998, compared to no administrative expenses for the year ended
December 31, 1997. Silver King incurred administrative expenses of $1,726 for
the four months ended April 30, 1999. The increase in administrative expenses
from 1997 is the result of reincorporation fees.
CONSULTING. Consulting fees were $5,000 for the year ended December 31,
1998, compared to no consulting fees for the year ended December 31, 1997.
Silver King incurred $19,500 in consulting fees for the four months ended April
30, 1999. The increased consulting fees were due to retaining an administrative
consultant.
LEGAL. Legal fees were $20,000 for the year ended December 31, 1998,
compared to no legal fees for the year ended December 31, 1997. For the four
months ended April 30, 1999, Silver King incurred legal expenses of $16,600.
This increase from 1997 was due to costs associated with the negotiation and
preparation of the Joint Venture Agreement, the ROFR Agreement, as well as the
private placement offerings of Silver King's securities.
INTEREST EXPENSES. Interest expenses for the four months ended April
30, 1999 were $1,718, the first time Silver King has incurred an interest
expense. The interest expense was due to a $100,000 loan taken by Silver King in
April 1999 at an annual interest rate of 12%, and other loans repaid in April
1999.
LIQUIDITY AND CAPITAL RESOURCES
As of April 30, 1999, Silver King had cash and cash equivalents of
$80,956. Silver King had no cash or cash equivalents as of either December 31,
1997 or 1998. The increase in the four months ended April 30, 1999 relative to
prior times was due to the receipt of net proceeds from private placements of
securities.
Silver King received an aggregate of $555,500 in net proceeds from
private placements completed in January and April of 1999. In January 1999,
Silver King issued (i) 14,500,000 shares of its common stock at a price of $.001
per share and received $14,500 in net proceeds, and (ii) 2,000,000 units, each
unit consisting of one share of common stock and one common stock purchase
warrant, at a price of $.008 per unit and received $16,000 in net proceeds. In
April 1999, Silver King issued 525,000 shares of its common stock at a price of
$1.00 per share and received $525,000 in net proceeds.
The net cash used in operating activities for the year ended December
31, 1998 was $25,000, compared to $0 for the year ended December 31, 1997. The
net cash used in operating activities for the four months ended April 30, 1999
was $24,544. The increase in the net cash used in operating activities from 1997
was due to the fact that Silver King had no operations prior to 1998, and the
costs incurred in 1998 and the first four months of 1999 for funding the
pre-operating costs.
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<PAGE>
The net cash provided by financing activities was $630,500 for the four
months ended April 30, 1999, compared with no net cash from financing activities
for any prior period. This net cash was due to the private placements of
$555,500 completed in January and April of 1999, as well as $100,000 received as
loan proceeds and a cash overdraft of $25,000.
The net cash used in investing activities during the four months ended
April 30, 1999 was $525,000. Of the $525,000, $131,250 was paid by Silver King
as a subscription payment on behalf of Zacualpan LLC for its 20% interest in
ICRM, in consideration for which Mark Isaacs, a principal member of Zacualpan
LLC, granted Silver King certain rights of first refusal to participate in
future mining and natural resource opportunities identified by Mr. Isaacs. The
remaining $393,750 was the subscription payment for Silver King's 60% interest
in ICRM common stock. This capital contribution will be used by ICRM to (i) pay
the purchase price for the five mining concessions for which ICRM entered into
installment purchase contracts, (ii) fund the IP Survey, drill program and
further exploration at the Zacualpan Project and (iii) fund other start up costs
associated with the ICRM joint venture, such as legal, accounting and consulting
fees.
Silver King is subject to a series of obligations with respect to
ICRM's acquisition of mining concessions at the Zacualpan Project. If these
commitments are not satisfied, ICRM could forfeit its right to acquire the
concessions or, once they are acquired, the title to them. These obligations
consist of installment payments owed but not yet payable to acquire the
concessions, government mineral patent fees and commissions and proof of works.
In addition, Silver King has agreed to fund $100,000 of consulting fees that may
be payable to geological consultants if retaining them for the Zacualpan Project
is warranted.
Silver King does not currently have a line of credit with any financial
institutions. Silver King currently owes $50,000 in principal plus interest
accrued thereon at the annual rate of 12%, on a $100,000 principal loan from an
unrelated party.
COMPLIANCE WITH ENVIRONMENTAL AND LABOR LAWS
Silver King's current and future mining and processing operations and
exploration activities will be subject to various federal, state and local laws
in the countries in which it conducts its activities, which govern the
protection of the environment, prospecting, development, production, labor
standards, employee benefits, occupational health, mine safety, toxic substances
and other matters. Compliance with these laws may cause Silver King to incur
substantial costs.
SEASONALITY
The silver mining business is not seasonal, although the rainy season
in Mexico can temporarily affect production rates.
YEAR 2000 ISSUES
Silver King is presently attempting to respond to Year 2000 issues.
Year 2000 issues are the result of computer programs being written using two
digits rather than four to define the
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<PAGE>
applicable year associated with the program or an associated computation. Any of
Silver King's computer programs that have time-sensitive software may recognize
a date using "00" as the year 1900 rather than the year 2000. This could result
in a system failure or miscalculation causing disruptions of operations,
including among other things, a temporary inability to process transactions,
send invoices or engage in normal business activities. Management expects to
have substantially all of the systems application changes completed within the
next five months and believes that its level of preparedness is appropriate.
The total cost to Silver King of these Year 2000 compliance issues is
not anticipated to be material to its financial position or results of
operations in any given year. Silver King has no mainframe or central database.
Although minor adjustments may be required on the software applications, these
costs are expected to be minimal. These costs and the date on which Silver King
plans to complete the Year 2000 modification and testing processes are based on
management's best estimates, which were derived utilizing numerous assumptions
of future events including the continued availability of certain resources,
third party modification plans and other factors. However, there can be no
assurances that these estimates will be achieved and actual results could differ
from those plans.
RECENTLY ISSUED ACCOUNTING STANDARDS
Statement of Financial Accounting Standards No. 128, "Earnings Per
Share" ("SFAS 128"), is effective for financial statements issued for periods
ending after December 15, 1997, including interim periods. The statement
requires restatement of all prior period earnings per share (EPS) data
presented. The new standard requires a reconciliation of the numerator and
denominator of the basic EPS computation to the numerator and denominator of the
diluted EPS computation. Silver King adopted SPAS 128 for the period ending
December 31, 1997 as presented in the financial statements. Adoption of this
standard did not result in a restatement of prior periods EPS data.
Statement of Financial Accounting Standards No. 130, "Reporting
Comprehensive Income" ("SFAS 130"), is effective for financial statements with
fiscal years beginning after December 15, 1997. Since Silver King has no items
of other comprehensive income, no separate statement of comprehensive income has
been presented. SFAS 130 establishes standards for reporting and display of
comprehensive income and its components in a full set of general purpose
financial statements.
Statement of Position 98-5, "Reporting on the Costs of Start-Up
Activities" ("SOP 98-5"), is effective for financial statements with fiscal
years beginning after December 15, 1998 with initial adoption reported as a
cumulative effect of a change of accounting principle. SOP 98-5 requires costs
of start-up activities and organization costs to be expensed as incurred. Silver
King adopted SOP 98-5 effective January 1, 1999. Silver King does not expect
adoption of SOP 98-5 to result in any cumulative effect of a change in
accounting principle.
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ITEM 3. DESCRIPTION OF PROPERTY
Through ICRM, Silver King has the rights to acquire the first five
mining concessions listed below. In addition, ICRM expects to purchase and have
assigned to it a sixth mining concession known as Quinto Real during the summer
of 1999. All of the mining concessions listed below are located in southern
Mexico and collectively cover more than 11,430 acres:
<TABLE>
<CAPTION>
Property Type of Concession Location Acres
-------- ------------------ -------- -----
<S> <C> <C> <C> <C>
1. El Quinto II Mining exploitation Municipality of Zacualpan, 22
(El Quinto Dos) concession State of Mexico
2. Los Compadres Mining exploitation Municipality of Tetipac, State 74
concession of Guerrero
3. El Cometa Navideno Mining exploration concession Municipality of Tetipac, State 57
of Guerrero
4. La Cadena Mining exploration concession Municipality of Zacualpan, 276
State of Mexico
5. El Volado Mining exploration concession Municipality of Zacualpan, 9
State of Mexico
6. Quinto Real Mining exploration concession Municipality of Zacualpan, 10,992
State of Mexico
</TABLE>
In December 1998, Polo Y Ron Minerales, S.A. de C.V. ("Polo Y Ron")
assigned to ICRM all of its rights to acquire five of the six concessions (other
than Quinto Real) under three separate installment purchase contracts. The
Quinto Real claim is currently held by Polo Y Ron but is in the process of being
assigned to ICRM for a price of $15,000. The final payment under the installment
purchase agreement for the Los Compadres lot is August 31, 1999. The final
payment under the other two installment purchase agreements is September 30,
1999. The following table sets forth the payment status for each of the
concessions:
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<TABLE>
<CAPTION>
CONSIDERATION
CONCESSION SELLER TOTAL CONSIDERATION PAID TO DATE
---------- ------ ------------------- -------------
<S> <C> <C> <C>
El Quinto II Felix Gomez Garcia U.S. $ 85,000.00 U.S. $57,000.00
El Cometa Navideno
Los Compadres Felix Gomez Garcia U.S. $ 25,000.00 U.S. $15,500.00
La Cadena, El Volado Hector Esquivel Esparza U.S. $100,000.00 U.S. $72,000.00
</TABLE>
Under the purchase contracts, ICRM will own 100% of the interest in
each concession when it has paid the total purchase price for the concessions,
which management expects to occur by September 1999.
LOCATION AND ACCESS
The Zacualpan Project is located in the states of Mexico and Guerrero
in Mexico near the town of Zacualpan. Geographical coordinates are 18(Degree)
44' North latitude and 90(Degree) 50' West longitude. Portions of the Quinto
Real concession lie north of Zacualpan, while other concessions lie south of
Zacualpan in the vicinity of Coloxtitlan.
Access between the concession areas is provided by good secondary
gravel roads and within property blocks by well-traveled local access roads to
residences, maintained for two wheel drive vehicles. Minor difficulties are
encountered due to the rainy season in summer and fall but in general roads are
in good shape year-round.
Electrical power (110 V) is available throughout the region and is
provided to even small remote landholders. Water is abundant in the rainy season
but is somewhat scarce in the dry season with local municipal supplies coming
from reservoirs. Rural residents use a combination of streams, seeps, wells,
reservoirs and water haulage for water supply. Railway access is at Toluca,
located approximately 135 kilometers to the north, or at Cuernavaca,
approximately 153 kilometers to the northeast.
The elevation is between 1500-2000 meters with a mild pleasant climate
throughout the year. The terrain is occupied entirely by towns and small land
holdings generally used for subsistence farming.
HISTORY OF THE MINING DISTRICT AND THE PROPERTY
The majority of the history of the Zacualpan mining district is derived
from Monografia Geologica-Minera Del Estado De Mexico (1996, released in
November 1998), authored by Ing. Amador Nunez Miranda and others from the Office
of Economic Development of Mexico.
There have been reports of bonanzas in the various mines in the
Zacualpan mining district throughout history. Some indication of the economic
importance of the district can be derived from the production records from one
of the ten or eleven mineralized zones. The mines of Guadalupe, Pachuqeno and
Regenerador, which are approximately three kilometers from the Zacualpan
Project, collectively produced one million tons of ore between 1967 and 1982,
from
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which 9 million ounces of silver were recovered. It is estimated that a similar
amount of silver from a lesser tonnage of ore was produced in the district prior
to this time. Cia. Minera Campana de Plata, S.A. de C.V., a subsidiary of Grupo
Industrio Penoles ("Penoles"), published reserves in 1987 of over one million
tons with grades of 289 grams/tonne of silver, 0.57% lead, and 1.23% zinc.
Minera Porvenir de Zacualpan, S.A. de C.V. ("MINPOZA") is actively mining the
Unificacion Guadalupe mines under lease from Penoles. Other modest resources
totaling approximately 423,000 tons compiled in Monografia Geologica-Minera del
Estado de Mexico are discussed below.
The majority of the land in the region is covered by mineral holdings
with current low levels of exploration activity being conducted by MINPOZA,
Minas SanLuis, S.A. de C.V., a subsidiary of Industria Luismin ("Luismin"), and
others. Competition is intense for the lotteries of abandoned or relinquished
claims when they are posted for restaking by the Mexican Department of Mines
with as many as thirty simultaneous entrants being placed in the lottery for
awarding of these claims.
MINERALIZATION
Regional mineralization is reported from both veins of interpreted
hydrothermal origin and "mantos" of volcanogenic massive sulfides.
Mineralization in Zacualpan is predominantly of vein type but sulfide showings
of probable volcanogenic origin occur south of the southern portion of the
Quinto Real claim.
Mineralization in the Mamatla region to the south has variously been
described as of skarn nature and as that of a massive sulfide. The most recent
summary in Monografia Geologica-Minera del Estado de Mexico describes it as of
volcanogenic massive sulfide affinity.
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TABLE I.
STATE OF MEXICO: RESOURCES OF SOME MINING LOCALITIES IN THE
ZACUALPAN PROJECT.
TYPE OF RESOURCES
<TABLE>
<CAPTION>
GRADE (G/T) GRADE (G/T)
- ----------------- ------------ --------- ------ ------ ----------- -------- ------ ------ ----------- ----------- --------------
CLAIM PROBABLE WIDTH AU AG POSSIBLE WIDTH AU AG POTENTIAL PARTIAL TYPE OF ORE
TONNAGE
- ----------------- ------------ --------- ------ ------ ----------- -------- ------ ------ ----------- ----------- --------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
LA LUZ 34,995 0.8 0.37 161 39,390 0.8 0.11 156 - 74,385 SULFIDES
- ----------------- ------------ --------- ------ ------ ----------- -------- ------ ------ ----------- ----------- --------------
- ----------------- ------------ --------- ------ ------ ----------- -------- ------ ------ ----------- ----------- --------------
SOCAVON MEXICO 9,763 0.9 0.17 121 14,965 0.9 0.15 127 22,809 47,537 MIXED
- ----------------- ------------ --------- ------ ------ ----------- -------- ------ ------ ----------- ----------- --------------
- ----------------- ------------ --------- ------ ------ ----------- -------- ------ ------ ----------- ----------- --------------
LA CADENA 6,000 1.8 - 704 - - - - 100,000 106,000 MIXED
- ----------------- ------------ --------- ------ ------ ----------- -------- ------ ------ ----------- ----------- --------------
- ----------------- ------------ --------- ------ ------ ----------- -------- ------ ------ ----------- ----------- --------------
MA. DE JESUS 3,690 0.7 0.09 317 8,640 0.7 0.09 317 - 12,330 MIXED
- ----------------- ------------ --------- ------ ------ ----------- -------- ------ ------ ----------- ----------- --------------
- ----------------- ------------ --------- ------ ------ ----------- -------- ------ ------ ----------- ----------- --------------
EL REFUGIO 4,670 0.8 0.10 195 46,478 0.8 0.10 161 40,000 91,148 OXIDES
- ----------------- ------------ --------- ------ ------ ----------- -------- ------ ------ ----------- ----------- --------------
- ----------------- ------------ --------- ------ ------ ----------- -------- ------ ------ ----------- ----------- --------------
LOS COMPADRES 5,375 1.9 0.37 267 - - - - 7,471 12,846 SULFIDES
- ----------------- ------------ --------- ------ ------ ----------- -------- ------ ------ ----------- ----------- --------------
- ----------------- ------------ --------- ------ ------ ----------- -------- ------ ------ ----------- ----------- --------------
CUETZILLOS 13,925 1.1 1.24 152 10,980 1.2 1.16 155 - 24,905 MIXED
- ----------------- ------------ --------- ------ ------ ----------- -------- ------ ------ ----------- ----------- --------------
- ----------------- ------------ --------- ------ ------ ----------- -------- ------ ------ ----------- ----------- --------------
EL ESCORPION 4,384 0.8 - 390 10,456 0.7 0.10 236 6,160 21,000 MIXED
- ----------------- ------------ --------- ------ ------ ----------- -------- ------ ------ ----------- ----------- --------------
- ----------------- ------------ --------- ------ ------ ----------- -------- ------ ------ ----------- ----------- --------------
EL COMETA 12,160 1.1 0.38 249 9,923 1.1 0.38 249 9,677 31,760 SULFIDES
NAVIDENO
- ----------------- ------------ --------- ------ ------ ----------- -------- ------ ------ ----------- ----------- --------------
TOTAL 94,962 1.1 0.41 225 140,832 0.9 0.21 177 186,117 423,311
- ----------------- ------------ --------- ------ ------ ----------- -------- ------ ------ ----------- ----------- --------------
Source: Monografia Geologica-Minera del Estado de Mexico.
</TABLE>
ICRM has rights to acquire three of the claims referenced in the above
table: La Cadena, Los Compadres and El Cometa Navideno.
MINERAL RESERVES OF THE DISTRICT
Some data is available from literature on reserves of the Zacualpan
mining district. While dated in part, they provide an indication of reserve
levels. Penoles published reserves for its Zacualpan unit in December of 1987 at
1,106,540 tons at 289 grams/tonne of silver, 0.57% lead and 1.23% zinc in some
33 structures. MINPOZA has actively been mining these zones since 1992 and
apparently has several years of reserves in its main operation at the Guadalupe
(formerly known as Campana de Plata) operation lying west of Zacualpan town
site.
MINING CONCESSIONS AT THE ZACUALPAN PROJECT
The concessions consist of three groupings of claims as follows, each
of which are discussed in sequence below:
1. EL QUINTO II, EL VOLADO, LA CADENA in the central area of the
Zacualpan mining district;
2. EL COMETA NAVIDENO, LOS COMPADRES to the south; and
22
<PAGE>
3. QUINTO REAL, a new claim staked in the north.
1. EL QUINTO II, EL VOLADO, LA CADENA
This grouping of claims comprising 124.6 hectares contains several vein
structures many of which have had significant production in the past. Only the
El Quinto II area of workings is accessible today. The entire group of claims is
underlain by andesitic volcanics of varied textures from lava flows to pillowed
basalts. The units are all metamorphosed to green schists. Units in general have
schistosity parallel and subparallel to bedding units which in general have low
dip angles.
Numerous quartz veinlet swarms trending both northwest and east-west
appear to be scattered throughout the claim block. Mineralized vein structures
that have been the subject of mining trend in general N 20-40 W and are
subvertical in attitude.
EL QUINTO II - EL VOLADO. This vein system is accessible today on two
levels, one at creek level in Arroyo San Juan; the other at approximately 50
meters higher elevation and extending into El Volado claim. Lower workings of
minor extent are flooded. Several hundred meters of development are
interconnected from level to level with ventilation and access raises to the
surface in several places through old stopes. The vein system is comprised of
two parallel structures varying in width from 1-2 meters, expanding to several
meters in some stoped areas. Cross veins and intersecting features are present.
The mine was once equipped with electricity and rail, some of which remains. In
the second quarter of 1999, 164 tons of ore-bearing material was shipped for
processing and testing at the MINPOZA mill in Zacualpan. This shipment averaged
2.41% lead, 2.77% zinc, 100 gm/tonne silver and 0.10 gm/tonne gold.
Production from this vein system was reported to be substantial during
the Second World War for the production of zinc. A mill was established near the
lower portal in the site of an old abandoned hacienda foundation. A second mill
in a lower Calvario hacienda area apparently recovered silver from tailings from
the upper mill. A volume estimate from examination of old mine workings would
indicate at least a few hundred thousand tons of production. Mineralization
occurs within a shear structure trending from N 60 degrees W but having some
cross structural and en echelon zones and flexes within the vein system. The
structure is subvertical with dips in general 50-85 degrees east.
Minor oxidation occurs within the sulfide zones but generally sulfides
appear fresh where visible in underground workings. Sphalerite, galena and
pyrite are the dominant minerals but proustite-pyrargyrite are reported. Gangue
minerals are predominantly quartz and calcite. The vein does not have many clean
exposures underground as mining activities extracted to the limit of
mineralization in stopes. Pillars provide sample points and current mining by
hand consists of robbing pillars for a milling sample.
Testing by Acme Labs of Vancouver, Canada of select samples of high
grade obtained underground from a pillar ran as high as 9.46% lead, 20.77% zinc,
265.9 grams/tonne of silver, and 0.30 grams/tonne of gold. Test results by
Chemex Labs of Chihuahua, Mexico of
23
<PAGE>
another sulfide sample from the vein underground assayed 4.0% lead, 8.92% zinc
and 834 grams/tonne of silver. Other samples assayed ran considerably lower but
no meaningful average can be reached from samples taken to date. Numerous other
prospects pit and small adits occur on the hillside above El Quinto II.
LA CADENA
Several inaccessible workings or vein systems occur in the eastern
portion of La Cadena. Most trend parallel to El Quinto II and El Volado. La
Cadena consists of two major portal sites, one of which dates from 1929.
Production units at the sites may date back to Spanish times (approximately
1300-1500) but production results for the claims are unknown.
A small production mill was at one time located near the Las
Golondrinas workings at the La Cadena claim.
STATUS OF EXPLORATION OF EL QUINTO II, EL VOLADO AND LA CADENA
Silver King's subsidiary, ICRM, has undertaken an induced polarization
survey for each of the five properties other than Quinto Real. An induced
polarization survey can indirectly indicate the presence of silver
mineralization by locating anomalous conditions demonstrative of the presence of
pyrite. The induced polarization survey found many anomalous areas along with
various discrete anomalous zones that traverse these properties. Based on the
survey results, these properties may have widespread sulfide mineralization. To
test the results of the induced polarization survey, ICRM is undertaking a
drilling program. Initial drilling has intersected sulfides in nine of ten holes
completed to date with moderate silver values. Additional assays are in
progress. Further drilling is needed to define possible oreshoots within the
vein structures.
2. LOS COMPADRES AND EL COMETA NAVIDENO
This grouping of claims comprising 53 hectares covers two parallel N30
W trending vertical vein systems El Cometa Navideno and the adjoining Santiago
vein system together with occurrences along the approximate extensions of these
veins onto the Los Compadres claim.
The majority of the workings extending over a few hundred meters
southerly from the portal are inaccessible with remnants of ventilation raises
and open stopes located on the hillside 50-100 meters and 100-200 meters, south
of the adit in the creek bottom. The adit is accessible for a little over 100
meters, then is obstructed by a cave in.
Stopes in the parallel Santiago vein 20 meters to the east were
apparently connected by galleries to those of the El Cometa Navideno vein and
extended to some depth below creek level in addition to going to surface. Where
exposed in the adit the nearly vertical El Cometa vein is 0.5 meters but is
reported to be wider than 1 meter. The veins are hosted by andesite schists at
the creek level and by phyllites at higher elevations.
Production from this mine is not recorded but probably exceeded 100,000
tons from the distribution of workings and the postulated 31,760 ton potential
reserve from Table III at a grade of 249 grams/tonne of silver and 0.41
grams/tonne of gold.
24
<PAGE>
Several other prospect adits and pits lie to the north of the claim
group but are not recorded and possible production is unknown.
The Los Compadres portion of this unit has number of quartz vein
prospects in andesite and phyllites. Little work has been done in these areas.
STATUS OF EXPLORATION OF LOS COMPADRES AND EL COMETA NAVIDENO
As with the first group of claims, expected targets in this area could
be sulfide masses within vein systems that would be 50,000 to 150,000 tons,
possibly larger. Dimensions would be 1-2 meters in width, 100-300 meters in
length and 100-300 meters in vertical dimension. To evaluate the potential for
targets of this nature, an induced polarization survey was conducted. Drilling
is in progress to test induced polarization anomalies for potential mineralized
zones.
3. QUINTO REAL
This large claim block is underlain predominantly by andesitic schists
and phyllites mapped as Triassic-Jurassic in age. In general, they are
moderately dipping, with schistosity parallel to initial bedding as defined by
lithologic variations, particularly within lahar-type andesitic fragmentals.
Limy bands occur within phyllites in the central portion of this claim block.
Swarms of quartz veinlets 1-10 centimeters in width occur throughout the region
frequently parallel or subparallel to foliation in many areas.
In the valley bottoms in the central portion of the claim block recent
tertiary sediments with limestone and volcanic fragments and calcareous matrix
fill the lower valleys and cover much of the underlying volcanic schist and
phyllites. A granodiorite of Cretaceous age occurs near the north boundary of
the claim. Its relationship with the Triassic-Jurassic volcanics can not be seen
and no visible alteration zone is observed in nearby volcanics.
Capping ridges in the northwestern portion of the claim is a thick
massive to flow banded pink rhyolite of Tertiary age underlain by a thick
rhyolite fragmental with unsorted matrix (mudflows or lahars). These younger
rocks lie as a caprock over the underlying schists and phyllites with the actual
contact obscured by landslides and fill cover.
Just off the south boundary of the claim in the bedrock of a creek, a
small showing of sulfide mineralization, including pyrite and quartz, occurs in
andesite schists. These sulfides and quartz are interpreted to have a possible
volcanogenic aspect as they follow vague outlines of pillows in pillow lavas and
are not constrained by vein structures.
STATUS OF EXPLORATION OF QUINTO REAL
A preliminary geochemical survey of stream sediments conducted in this
area returned anomalous value for gold in several areas of the claim group.
Initial follow up rock sampling did not determine the source for the gold
anomalies. Additional work is needed to define possible gold mineralization in
these areas.
25
<PAGE>
ITEM 4. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
The following table sets forth certain information regarding the
beneficial ownership of Silver King's common stock as of July 5, 1999, by (i)
each person who, to the knowledge of Silver King, beneficially owned more than
5% of the common stock; (ii) each director and executive officer of Silver King;
and (iii) all executive officers and directors of Silver King as a group:
<TABLE>
<CAPTION>
AMOUNT OF
NAME AND ADDRESS OF BENEFICIAL PERCENT OF
BENEFICIAL OWNERS OWNERSHIP(1) CLASS
- ------------------- ------------ ----------
<S> <C> <C>
Alan Stier(2) 0 0.0%
4372 44B Avenue
Delta, British Columbia
Canada V4K 1H1
Dr. Stewart Jackson(3) 0 0.0%
6025 S. Eaton Lane
Littleton, CO 80123
Boyett Investments Limited 1,500,000 8.2%
Tropic Isle Building
Road Town
Tortolla, British Virgin Islands
Capital Growth Trust 1,500,000 8.2%
2028 Ryans Run Road,
Lansdale, PA 19446
Clifton Capital Ltd. 2,000,000(4) 10.5%
Tropic Isle Building
Road Town
Tortolla, British Virgin Islands
Cranbourne Investments Ltd. 1,000,000 5.5%
Whitehill House
Newby Road Industrial
Hazel Grove, Stockport
Cheshire M5H IK5
FAC Enterprises, Inc. 3,300,000(5) 17.5%
4960 South Virginia Street
Suite 300
Reno, NV 89502
26
<PAGE>
<CAPTION>
<S> <C> <C>
Gatkin Limited 1,500,000 8.2%
Whitehill House
Newby Road Industrial
Hazel Grove, Stockport
Cheshire M5H IK5
GWR Trust 1,500,000 8.2%
1912 Caldwell
Conway, AR 72032
Stephen P. Harrington 1,000,000(6) 5.5%
648 Post Road
Wakefield, RI 02879
KAB Investments, Inc. 1,500,000 8.2%
24224 Kanis Road
Little Rock, AR 72223
Mark A. Kuperman(7) 75,000 *
7695 SW 104 Street, Suite 210
Miami, FL 33156
Matrix Capital Management Ltd. 1,000,000 5.5%
15302 25th Dr. S.E.
Mill Creek, WA 98012
SPH Investments Inc. 1,000,000(8) 5.5%
648 Post Road
Wakefield, RI 02879
West Tropical Investments Corp. 930,000 5.1%
3100 North 29th Court
Hollywood, FL 33020
All Directors, and Executive 1,075,000 5.9%
Officers as a Group (4 persons)
</TABLE>
- ----------------------
*Represents less than 1% of the outstanding shares of common stock.
(1) The securities "beneficially owned" by a person are determined in
accordance with the definition of "beneficial ownership" set forth in
the rules and regulations promulgated under the Exchange Act, and
accordingly, may include securities owned by and for among others the
spouse and/or minor children of an individual and any other relative
27
<PAGE>
who has the same home as such individual, as well as other securities as
to which the individual has or shares voting or investment power or
which such person has the right to acquire within 60 days after the date
of this filing pursuant to the exercise of options, or otherwise.
Beneficial ownership may be disclaimed as to certain of the securities.
This table has been prepared based on 18,075,000 shares of common stock
outstanding as of July 5, 1999.
(2) The President of Silver King.
(3) Vice President - Mining Operations of Silver King.
(4) Includes warrants to purchase 1,000,000 shares of common stock issued in
a private placement transaction.
(5) Includes warrants to purchase 800,000 shares of common stock issued in a
private placement transaction.
(6) Includes 1,000,000 shares owned by SPH Investments Inc. Mr. Harrington
is the President of SPH Investments Inc. and the former President of
Silver King.
(7) The former president and director of Silver King.
(8) Ownership of these shares is attributed to Stephen P. Harrington, the
President of SPH Investments Inc. and the former President of Silver
King.
ITEM 5. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS
The following sets forth certain information regarding each of the
directors and executive officers of the Company.
NAME AGE OFFICE
---- --- ------
Alan Stier 43 President, Treasurer and
Director
Stewart Jackson 58 Vice President - Mining
Operations and Secretary
The following is a brief summary of the business experience of each of
the above-named individuals:
ALAN STIER became the President and Treasurer and a Director of Silver
King in June 1999. From 1995 through the present, Mr. Stier has been the
President and Chief Executive Officer of International Capri Resources Ltd.
("ICR"), a British Columbian company engaged primarily in the mining and
exploration business whose shares are traded on the Vancouver Stock Exchange.
Mr. Stier has been a member of the board of directors of ICR since 1993. ICR has
focused its mining and exploration activities in Baffin Island in Canada's
Northwest Territory and in northwestern Ontario. ICR is a 20% owner of ICRM,
Silver King's Mexican operating subsidiary. From March 1996 to August 1998, Mr.
Stier was the President, Chief Executive Officer and a Director of Landore
Resources, Inc., a public company engaged in the gold mining
28
<PAGE>
business in northwestern Ontario. Mr. Stier is a certified Power Engineer in
British Columbia and Alberta, Canada.
DR. STEWART JACKSON became Vice President - Mining Operations and
Secretary of Silver King in June 1999. Dr. Jackson has over 39 years of
experience in the mining industry. From 1987 through the present, Dr. Jackson
has been an independent consultant, officer, director and principal of several
U.S. and Canadian public mining companies involved in the exploration and
development of diamonds, base metals, precious minerals, industrial minerals and
oil and gas, including Continental Precious Minerals Ltd., Monument Resources,
Inc., Little Squaw Gold Mining Corporation and Nu-Dawn Resources Ltd. From 1981
through 1987, Dr. Jackson was the founder and President of Crown Resource Corp.
(now known as Crown Resources Corporation), a public company developing gold and
silver targets in northeastern Washington. Dr. Jackson has also published
several articles on geological topics. He received his doctorate degree in
Stratigraphy and Economic Geology in 1969 from the University of Alberta.
BOARD OF DIRECTORS
All directors hold office until the next annual meeting of the
stockholders and the election and qualification of their successors. Officers
are elected annually by the Board of Directors and serve at the discretion of
the Board.
The Board of Director presently consists of one (1) member.
ITEM 6. EXECUTIVE COMPENSATION
The following table provides certain summary information concerning
compensation paid to or accrued by the Company's Chief Executive Officer,
Chairman of the Board and all other executive officers who earned more than
$100,000 (salary and bonus) (the "Named Executive Officers") for all services
rendered in all capacities to the Company during the fiscal years ended December
31, 1998, 1997 and 1996:
<TABLE>
<CAPTION>
SUMMARY COMPENSATION TABLE
LONG-TERM COMPENSATION
ANNUAL COMPENSATION AWARDS
----------------------------------- -----------------------
RESTRICTED
NAME AND PRINCIPAL FISCAL OTHER ANNUAL STOCK OPTIONS/
POSITION YEAR SALARY BONUS COMPENSATION AWARDS SARS (#)
- -------- ---- ------ ----- ------------ ------ --------
<S> <C> <C> <C> <C> <C> <C>
Alan Stier 1998 N/A N/A N/A N/A N/A
President and Chairman of 1997 N/A N/A N/A N/A N/A
the Board 1996 N/A N/A N/A N/A N/A
Stephen P. Harrington 1998 -- -- -- -- --
Former President 1997 N/A N/A N/A N/A N/A
1996 N/A N/A N/A N/A N/A
29
<PAGE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C>
Mark A. Kuperman 1998 -- -- -- -- --
Former President 1997 -- -- -- -- --
1996 -- -- -- -- --
</TABLE>
DIRECTORS COMPENSATION
Directors who are officers of Silver King receive no additional
compensation for serving on the board of directors, other than reimbursement of
reasonable expenses incurred in attending meetings.
ITEM 7. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
SALE OF SHARES TO AN ENTITY AFFILIATED WITH A FORMER OFFICER AND DIRECTOR
On January 27, 1999, Silver King sold 1,000,000 shares of its common
stock to SPH Investments, Inc., for a total purchase price of $1,000. Stephen
Harrington, the former President of Silver King, is also the President of SPH
Investments, Inc. These shares were sold in a private placement transaction
exemption registration under Section 4(2) and Regulation D of the Securities
Act.
ITEM 8. DESCRIPTION OF SECURITIES.
COMMON STOCK
Silver King is authorized to issue 50,000,000 shares of common stock,
$.0001 par value per share (post-Merger), of which 18,075,000 are issued and
outstanding as of July 5, 1999.
Holders of common stock have equal rights to receive dividends when, as
and if declared by the board of directors, out of funds legally available
therefor. Holders of common stock have one vote for each share held of record
and do not have cumulative voting rights.
Holders of common stock are entitled upon the liquidation of Silver
King to share ratably in the net assets available for distribution, subject to
the rights, if any, of holders of any preferred stock then outstanding. Shares
of common stock are not redeemable and have no preemptive or similar rights. All
outstanding shares of common stock are fully paid and nonassessable.
PREFERRED STOCK
Within the limits and restrictions provided in Silver King's
certificate of incorporation, the board of directors has the authority, without
further action by the stockholders, to issue up to 15,000,000 shares of
preferred stock, $.0001 par value per share (post-Merger), in one or more
series, and to fix, as to any such series, the dividend rate, redemption prices,
preferences on liquidation or dissolution, sinking fund terms, conversion
rights, voting rights, and any other preference or special rights and
qualifications. There are presently no shares of preferred stock outstanding.
30
<PAGE>
Shares of preferred stock issued by the board of directors could be
utilized, under certain circumstances, to make an attempt to gain control of
Silver King more difficult or time consuming. For example, shares of preferred
stock could be issued with certain rights that might have the effect of diluting
the percentage of common stock owned by a significant stockholder or issued to
purchasers who might side with management in opposing a takeover bid that the
board of directors determines is not in the best interest of the company and its
stockholders. The existence of preferred stock may, therefore be viewed as
having possible anti-takeover effects. A takeover transaction frequently affords
stockholders the opportunity to sell their shares at a premium over current
market prices. The board of directors has not authorized the issuance of any
series of preferred stock.
DIVIDEND POLICY
Silver King has not paid any cash dividends to date, and has no
intention to pay any cash dividends on its common stock in the foreseeable
future. The declaration and payment of dividends is subject to the discretion of
the board of directors and to certain limitations imposed by the General
Corporation Law of the State of Delaware. The timing, amount and form of
dividends, if any, will depend, among other things, on the company's results of
operations, financial condition, cash requirements and other factors deemed
relevant by board of directors.
DELAWARE ANTI-TAKEOVER LAW
Silver King is governed by the provisions of Section 203 of the General
Corporation Law of the State of Delaware (the "GCL"), an anti-takeover law. In
general, the law prohibits a public Delaware corporation from engaging in a
"business combination" with an "interested stockholder" for a period of three
years after the date of the transaction in which the person became an interested
stockholder, unless the business combination is approved in a prescribed manner.
"Business combination" includes mergers, asset sales and other transactions
resulting in a financial benefit to the stockholder. An "interested stockholder"
is a person who, together with its affiliates and associates, owns (or within
three years, did own) 15% or more of the corporation's voting stock.
The provisions regarding certain business combinations under the GCL
could have the effect of delaying, deferring or preventing a change in control
of Silver King or the removal of existing management. A takeover transaction
frequently affords stockholders the opportunity to sell their shares at a
premium over current market prices.
TRANSFER AGENT
The transfer agent for the Company's securities is Interwest Transfer
Company, 1981 East 4800 South, Suite 100, Salt Lake City, Utah 84117, (801)
272-9294.
31
<PAGE>
PART II
ITEM 1. MARKET PRICE OF AND DIVIDENDS ON THE REGISTRANT'S
COMMON EQUITY AND OTHER SHAREHOLDER MATTERS
MARKET INFORMATION
Silver King's common stock is listed for quotation on the OTC
Electronic Bulletin Board under the symbol "SVKG"(1); however, the market for
such shares is extremely limited. No assurance can be given that a significant
trading market for Silver King's common stock will develop or, if developed,
will be sustained. Silver King's common stock has been eligible for such trading
since May 20, 1998.
The following table sets forth the range of the high and low closing
bid prices of Silver King's common stock during each of the calendar quarters
identified below. These bid prices were obtained from the National Quotation
Bureau, Inc. and do not necessarily reflect actual transactions, retail markups,
mark downs or commissions. The transactions include inter-dealer transactions.
Based on the very limited public float and trading in Silver King's common
stock, management of the company believes that such data is anecdotal and may
bear no relation to the true value of Silver King's common stock or the range of
prices that would prevail in a fluid market.
1997 High Low
---- ---- ---
1st Quarter * *
2nd Quarter * *
3rd Quarter * *
4th Quarter * *
1998 High Low
---- ---- ---
1st Quarter * *
2nd Quarter * *
3rd Quarter * *
4th Quarter * *
1999 High Low
---- ---- ---
1st Quarter $2.75 $.1875
2nd Quarter $6.00 $.3125
* No bids reported
(1) From April 8, 1999 to the present, Silver King has traded under symbol
"SVKG". From April 2, 1999 through April 7, 1999, Silver King traded under the
symbol "SKRI" on the OTC Bulletin Board. From May 20, 1998 through April 1,
1999, Silver King traded under the symbol "ANNE" on the OTC Bulletin Board.
- -----------------------
32
<PAGE>
The closing bid price of Silver King's common stock as of June 30, 1999
was $5.125 per share.
SHARES ISSUABLE UPON EXERCISE OF WARRANTS
Silver King has issued five year warrants to purchase an aggregate of
2,00,000 shares of its common stock at an exercise price of $4.00 per share. All
of these warrants have vested.
SHARES ELIGIBLE FOR PUBLIC RESALE
As of July 5, 1999, 100,000 shares of common stock of Silver King are
eligible for public resale pursuant to Rule 144 promulgated under the Securities
Act.
HOLDERS
As of July 5, 1999, the number of stockholders of record of Silver
King's common stock was approximately 77, although management believes that
there are additional beneficial owners of the common stock who own their shares
in "street name."
DIVIDENDS
Silver King has not paid any cash dividends to date, and has no
intention to pay any cash dividends on its common stock in the foreseeable
future. The declaration and payment of dividends is subject to the discretion of
the board of directors and to certain limitations imposed by the General
Corporation Law of the State of Delaware. The timing, amount and form of
dividends, if any, will depend, among other things, on Silver King's results of
operations, financial condition, cash requirements and other factors deemed
relevant by the board of directors.
ITEM 2. LEGAL PROCEEDINGS
Neither Silver King nor any of its property is a party to any pending
or threatened legal proceedings.
ITEM 3. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
Not applicable.
ITEM 4. RECENT SALES OF UNREGISTERED SECURITIES
1. On January 27, 1999, Silver King issued and sold an aggregate of
14,500,000 shares of common stock to raise gross proceeds of $14,500. This
offering was undertaken by Silver King prior to the execution and closing of the
definitive joint venture agreement with ICRM. At that time Silver King was an
inactive company with no assets or liabilities. Investors in such offering were,
therefore, subject to a number of risks and uncertainties, including the
33
<PAGE>
material contingencies associated with the execution of the joint venture
agreement. These shares were issued directly by Silver King without payment of
any commissions to the following accredited investors in a private placement
transaction exempt from the registration requirements of the Securities Act
pursuant to Section 4(2) thereof and Rule 506 of Regulation D promulgated
thereunder:
Name Number of Shares
---- ----------------
Appel, Gerald R. 25,000
Bartlett, Bruce Edwin 20,000
Bartlett, David and Louann 20,000
Bartlett, Ruth 50,000
Big Brothers, Big Sisters of
Northwest Arkansas 10,000
Borenstein, Howard and Shari 100,000
Boyett Investments Limited 1,500,000
Brennon, Bobby 50,000
Campbell, Bruce or Paige 25,000
Capital Growth Trust 1,500,000
Cranbourne Investments Ltd. 1,000,000
Diversified Investment Fund, L.P. 155,000
FAC Enterprises, Inc. 1,500,000
Flick, Inc. 10,000
Founders Equity Group, Inc. 100,000
Gatkin Limited 1,500,000
Good, Henry H. III 75,000
Good, Henry H., M.D. 25,000
GWR Trust 1,500,000
Ibsen, Michael D. 100,000
Ivester, Carolyn 10,000
KAB Investments, Inc. 1,500,000
Keith, Kevin and Tracie 25,000
Knight, George 100,000
Matrix Capital Management Ltd. 500,000
McCracken Brothers 50,000
Moorehead Charitable Trust,
George and Nancy 75,000
Moorehead Charitable Trust,
Donald and Shelley 75,000
Petillo, Delores 5,000
Quattrochi, Joseph 25,000
Romano, Mario 100,000
Rosner Money Purchase Plan,
Steven B. 150,000
Sands, Sidney and Edythe 50,000
34
<PAGE>
Schuyhart, Bill W. 100,000
SPH Investments Inc. 1,000,000
Stoltz, J. Michael 100,000
The D.A.R. Group 125,000
Vogel Enterprises Inc. Pension
Trust 30,000
Vogel, Robert A. 30,000
Vogel, Samuel M. 30,000
West Tropical Investments Corp. 930,000
Weston Investors, Inc. 25,000
Wilson, Fred IRA Rollover 200,000
----------
Total: 14,500,000
2. On January 27, 1999, Silver King issued and sold an aggregate of
2,000,000 units, each unit consisting of one share of common stock and five year
warrants to purchase four shares of common stock and an exercise price of $4.00
per share to raise gross proceeds of $16,000. This offering was undertaken by
Silver King prior to the execution and closing of the definitive joint venture
agreement with ICRM. At that time Silver King was an inactive company with no
assets or liabilities. Investors in such offering were, therefore, subject to a
number of risks and uncertainties, including the material contingencies
associated with the execution of the joint venture agreement. These units were
issued directly by Silver King without payment of any commissions to the
following accredited investors in a private placement transaction exempt from
the registration requirements of the Securities Act pursuant to Section 4(2)
thereof and Rule 506 of Regulation D promulgated thereunder:
Number of Number of Number of
Name Units Shares Warrants
Clifton Capital Ltd. 1,000,000 1,000,000 1,000,000
FAC Enterprises, Inc. 1,000,000 1,000,000 1,000,000
Total: 2,000,000 2,000,000 2,000,000
3. On April 14, 1999, Silver King issued and sold an aggregate of
525,000 shares of common stock to raise gross proceeds of $525,000. This
offering was undertaken by Silver King prior to vesting in a 60% equity interest
in ICRM. At that time there were no assurances that Silver King would become a
shareholder of ICRM. Investors in such offering were, therefore, subject to a
number of risks and uncertainties, including the material contingencies
associated with vesting in majority ownership of ICRM. These shares were issued
directly by Silver King without payment of any commissions to the following
accredited investors in a private placement transaction exempt from the
registration requirements of the Securities Act pursuant to Section 4(2) thereof
and Rule 506 of Regulation D promulgated thereunder:
35
<PAGE>
Name Number of Shares
---- ----------------
Clanstar International Ltd. 200,000
Garvey, Martin 5,000
Hauser, Eric 5,000
Hill Samuel Pacific Trust
Company (BVI) Ltd. as
Trustees of the Renascence Trust 100,000
IFIGA Company 25,000
Lauer, Michael 40,000
The Orbiter Fund, Ltd. 150,000
-------
Total: 525,000
4. On April 15, 1999, Silver King issued 50,000 shares of common stock
to Founders Equity Group, Inc., as consideration for a $100,000 loan made to
Silver King. These shares were issued directly by Silver King without payment of
any commissions to Founders Equity in a private placement transaction exempt
from the registration requirements of the Securities Act pursuant to Section
4(2) thereof and Rule 506 of Regulation D promulgated thereunder.
ITEM 5. INDEMNIFICATION OF DIRECTORS AND OFFICERS
Silver King's certificate of incorporation and bylaws reflect the
adoption of the provisions of Section 102(b)(7) of the GCL, which eliminate or
limit the personal liability of a director to Silver King or its stockholders
for monetary damages for breach of fiduciary duty under certain circumstances.
Silver King's certificate of incorporation and bylaws also provide that the
company shall indemnify any person, who was or is a party to a proceeding by
reason of the fact that he is or was a director or officer of the company, or is
or was serving at the request of the company as a director, officer, employee or
agent of another corporation, partnership, joint venture, trust or other
enterprise, against expenses (including attorneys' fees) actually and reasonably
incurred by him in connection with such proceeding if he acted in good faith and
in a manner he reasonably believed to be or not opposed to the best interests of
the company, in accordance with, and to the full extent permitted by, the GCL.
In addition, the certificate of incorporation and bylaws authorize Silver King
to maintain insurance to cover such liabilities.
Insofar as indemnification for liabilities under the Securities Act may
be permitted to directors, officers and controlling persons of Silver King
pursuant to the foregoing provisions or otherwise, the Company has been advised
that in the opinion of the Commission such indemnification is against public
policy as expressed in the Securities Act and is, therefore, unenforceable. In
the event that a claim for indemnification against such liabilities (other than
the payment by Silver King of expenses incurred or paid by a director, officer
or controlling person of the company in a successful defense of any action, suit
or proceeding) is asserted by a director, officer or controlling person in
connection with the securities being registered, the company will, unless in the
opinion of its counsel the matter has been settled by controlling
36
<PAGE>
precedent, submit to a court of appropriate jurisdiction the question whether
such indemnification by it is against public policy as expressed in the
Securities Act and will be governed by the final adjudication of such issuer.
PART F/S
The following financial statements are filed with this Form 10-SB:
Independent Auditors' Report of Barry Friedman P.C.
Independent Auditors' Report of Cogen Sklar LLP
Financial Statements
Balance Sheets as of December 31, 1998 and 1997 (Audited) and as of
April 30, 1999 (Unaudited)
Statements of Operations for the years ended December 31, 1998 and 1997
and for the period from August 23, 1988 (inception) through
December 31, 1998 (Audited), and for the four months ended April
30, 1999 and for the period from August 23, 1988 (inception)
through April 30, 1999 (Unaudited)
Statements of Stockholders' Equity (Deficit) for the years ended
December 31, 1998 and 1997 and for the period from August 23, 1988
(inception) through December 31, 1998 (Audited), and for the four
months ended April 30, 1999 and for the period from August 23,
1998 (inception) through April 30, 1999 (Unaudited)
Statements of Cash Flows for the years ended December 31, 1998 and 1997
and for the period from August 23, 1988 (inception) through
December 31, 1998 (Audited), and for the four months ended April
30, 1999 and for the period from August 23, 1998 (inception)
through April 30, 1999 (Unaudited)
Notes to Financial Statements
37
<PAGE>
PART III
ITEM 1. INDEX TO EXHIBITS
See the index at "Item 2. DESCRIPTION OF EXHIBITS."
ITEM 2. DESCRIPTION OF EXHIBITS
The following exhibits are filed with this Registration Statement:
<TABLE>
<CAPTION>
Sequentially
Exhibit No. Description Numbered Page
----------- ----------- -------------
<S> <C> <C>
2.1 Certificate of Incorporation, as amended
2.2 Certificate of Merger
2.3 By-Laws
6.1 Joint Venture Agreement dated March 19, 1999, among Silver King
Resources, Inc. (f/k/a Arngre, Inc.), International Capri
Resources Ltd., International Capri Resources S.A. de C.V.,
Zacualpan Minerals, LLC and Alan Stier
6.2 Right of First Refusal Agreement dated March 19, 1999, between
Silver King Resources, Inc. (f/k/a Arngre, Inc.) and Mark S.
Isaacs
6.3 Contract of Assignment of Rights dated as of December 11, 1998
between Polo Y Ron Minerales, S.A. de C.V. and International
Capri Resources, S.A. de C.V.
6.4 Contracts of Mining Exploration and of Promise of Assignment of
Rights dated as of November 19, 1998 between Felix Gomez Garcia
and Polo Y Ron Minerales, S.A. de C.V. (Los Compadres lot)
6.5 Contracts of Mining Exploration and of Promise of Assignment of
Rights dated as of November 19, 1998 between Felix Gomez Garcia
and Polo Y Ron Minerales, S.A. de C.V (El Quinto and El Cometa
Navideno lots)
6.6 Contracts of Mining Exploration and of Promise of Assignment of
Rights dated as of November 30, 1998 between Hector Esquivel
Esparza and Polo Y Ron Minerales, S.A. de C.V. (La Cadena and El
Volado lots)
38
<PAGE>
<CAPTION>
<S> <C> <C>
6.7 Form of Securities Purchase Agreement dated January 27, 1999 to
purchase shares of common stock at $.001 per share
6.8 Form of Securities Purchase Agreement dated January 27, 1999 to
purchase units at $.008 per unit
6.9 Form of Warrant to Purchase Shares of Common Stock of Silver King
Resources, Inc. Granted to unit subscribers
6.10 Form of Securities Purchase Agreement dated April 14, 1999 to
purchase shares of common stock at $1.00 per share
8.1 Agreement and Plan of Merger ("Merger Agreement"), dated as of
June 23, 1999, between Silver King Resources (Delaware), Inc. and
Silver King Resources, Inc.
15.1 Report on Zacualpan Area Holdings, Mexico and Guerro States,
Mexico, dated December, 1998, prepared by Juan Cabuto Vidrio,
Mining Engineer, and Alex Burton, P. Eng., P. Geo.
15.2 Induced Polarization Survey, dated March, 1999, prepared by
Joseph R. Anzman, Exploration Geophysicist
15.3 Induced Polarization and Apparent Resistivity Survey in the
Zaculpan Project, dated April, 1999, prepared by Compania Minera
San Eugenio, Santa Rosa Y Santa Ines, S.A. de C.V.
</TABLE>
SIGNATURE
In accordance with Section 12 of the Securities Exchange Act of 1934,
as amended, the Registrant has duly caused this registration statement to be
signed on its behalf by the undersigned, thereto duly authorized.
SILVER KING RESOURCES, INC.
Date: July 7, 1999 By: /s/ Alan Stier
----------------------
Alan Stier
President
39
<PAGE>
INDEX TO FINANCIAL STATEMENTS
Independent Auditors' Report of Barry Friedman P.C. F-2
Independent Auditors' Report of Cogen Sklar LLP F-3
Balance Sheets F-4
Statements of Operations F-5
Statements of Stockholders' Equity (Deficit) F-6
Statements of Cash Flows F-7
Notes to Financial Statements F-8
F-1
<PAGE>
INDEPENDENT AUDITORS' REPORT
Board of Directors
Arngre, Inc.
Miami, Florida May 13, 1998
I have audited the Balance Sheet of Arngre, Inc. (A Development Stage
Company), as of December 31, 1997, and the related statement of operations,
stockholders' equity and cash flows for the year then ended and for the period
from August 23, 1998 (inception), through December 31, 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 we 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 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 Arngre, Inc. (A
Development Stage Company), as of December 31, 1997, and the results of its
operations and cash flows for the year then ended and for the period from August
23, 1998 (inception), through December 31, 1997, in conformity with generally
accepted accounting principles.
The accompanying financial statements have been prepared assuming the
Company will continue as a going concern. As discussed in Note #2 to the
financial statements, the Company has no established source of revenue. This
raises substantial doubt about its ability to continue as a going concern.
Management's plan in regard to these matters are also described in Note #2. The
financial statements do not include any adjustments that might result from the
outcome of this uncertainty.
/s/ Barry L. Friedman
- ---------------------------
Barry L. Friedman
Certified Public Accountant
F-2
<PAGE>
INDEPENDENT AUDITORS' REPORT
To the Shareholders and Board of Directors
Silver King Resources, Inc.
Wakefield, Rhode Island
We have audited the accompanying balance sheet of Silver King Resources, Inc. (a
development stage company) as of December 31, 1998, and the related statements
of operations, stockholders' equity and cash flows for the year then ended, and
for the period from August 23, 1988 (inception) through December 31, 1998. These
financial statements are the responsibility of the company's management. Our
responsibility is to express an opinion on these financial statements based on
our audit. The financial statements of Silver King Resources, Inc. as of and for
the year ended December 31, 1997 and for the period from August 23, 1988
(inception) through December 31, 1997 were audited by other auditors whose
report dated May 13, 1998 contained an explanatory paragraph that raised
substantial doubt about the company's ability to continue as a going concern
since the company has no established source of revenue. The financial statements
for the period from August 23, 1988 (inception) through December 31, 1997
reflect total expenses and net loss of $5,000 of the related totals. The other
auditors' report has been furnished to us, and our opinion, insofar as it
relates to the amounts included for such periods, is based on the report of such
other auditors.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we 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 significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that out audit provides a reasonable basis for our opinion.
In our opinion, based on our audit and the report of other auditors the
financial statements referred to above present fairly, in all material respects,
the financial position of Silver King Resources, Inc. as of December 31, 1998,
and the results of its operations and cash flows for the year then ended, and
for the period from August 23, 1988 (inception) through December 31, 1998, in
conformity with generally accepted accounting principles.
The accompanying financial statements have been prepared assuming the Company
will continue as a going concern. As discussed in Note 2 to the financial
statements, the Company has no established source of revenue. This raises
substantial doubt about its ability to continue as a going concern. Management's
plan in regard to these matters are also described in Note 2. The financial
statements do not include any adjustments that might result from the outcome of
this uncertainty.
/s/ COGEN SKLAR LLP
-------------------
COGEN SKLAR LLP
Bala Cynwyd, Pennsylvania
May 21, 1999, except for Note 8,
as to which the date is June 24, 1999
F-3
<PAGE>
SILVER KING RESOURCES, INC.
(A Development Stage Company)
BALANCE SHEETS
<TABLE>
<CAPTION>
December 31,
----------------------
1997 1998 April 30, 1999
--------- ---------- --------------
(Unaudited)
<S> <C> <C> <C>
ASSETS
CURRENT ASSETS
Cash $ -- $ -- $ 80,956
--------- ---------- ---------
INVESTMENTS -- -- 393,750
OTHER ASSETS -- -- 131,250
--------- ---------- ---------
TOTAL ASSETS $ -- $ -- $ 605,956
========= ========== =========
LIABILITIES
CURRENT LIABILITIES
Cash overdraft $ -- $ 25,000 $ --
Note payable to shareholder -- -- 100,000
Accounts payable -- -- 15,000
--------- ---------- ---------
TOTAL LIABILITIES -- 25,000 115,000
--------- ---------- ---------
STOCKHOLDERS' EQUITY (DEFICIT)
COMMON STOCK - $0.001 par value, authorized 50,000,000
shares; issued and outstanding 18,075,000 shares at April 30,
1999 and 1,000,000 at December 31, 1998 and 1997 1,000 1,000 18,075
ADDITIONAL PAID IN CAPITAL 4,000 5,834 580,259
WARRANTS OUTSTANDING -- -- 14,000
DEFICIT ACCUMULATED DURING THE DEVELOPMENT
STAGE (5,000) (31,834) (121,378)
--------- ---------- ---------
TOTAL STOCKHOLDERS' EQUITY (DEFICIT) -- (25,000) 490,956
--------- ---------- ---------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ -- $ -- $ 605,956
========= ========== =========
</TABLE>
The accompanying notes are an integral part of these financial statements
F-4
<PAGE>
SILVER KING RESOURCES, INC.
(A Development Stage Company)
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
August 23, 1988 August 23, 1988
Year Ended (Inception) Four Months (Inception)
December, 31, Through Ended Through
--------------------------- December, 31, April 30, April 30,
1997 1998 1998 1999 1999
---------- ------------ ------------ ------------ ------------
(Unaudited) (Unaudited)
<S> <C> <C> <C> <C> <C>
COSTS AND EXPENSES
Administrative expenses $ -- $ 1,834 $ 6,834 $ 1,726 $ 8,560
Consulting expenses -- 5,000 5,000 19,500 24,500
Financing fees -- -- -- 50,000 50,000
Legal -- 20,000 20,000 16,600 36,600
Interest expense -- -- -- 1,718 1,718
---------- ------------ ------------ ------------ ------------
(26,834) 31,834 89,544 121,378
---------- ------------ ------------ ------------ ------------
NET LOSS $ -- $ (26,834) $ (31,834) $ (89,544) $ (121,378)
========== ============ ============ ============ ============
BASIC AND DILUTED LOSS
PER COMMON SHARE $ -- $ (0.03) $ (0.01)
========== ============ ------------
WEIGHTED AVERAGE
NUMBER OF SHARES 1,000,000 1,000,000 13,446,875
========== ============ ============
</TABLE>
The accompanying notes are an integral part to these financial statements.
F-5
<PAGE>
SILVER KING RESOURCES, INC.
(A Development Stage Company)
STATEMENT OF STOCKHOLDERS' EQUITY (DEFICIT)
AUGUST 23, 1988 (INCEPTION) THROUGH APRIL 30, 1999
<TABLE>
<CAPTION>
Deficit
Accumulated Total
Additional During the Shareholders'
Common Paid In Warrants Development Equity
Stock Capital Outstanding Stage (Deficit)
--------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
BALANCE, AUGUST 23, 1988 (INCEPTION) THROUGH DECEMBER 31, 1996 $ 5,000 $ -- $ -- $ (5,000) $ --
Net loss for the year ended December 31, 1997 -- -- -- -- --
--------- --------- --------- --------- ---------
BALANCE AT DECEMBER 31, 1997 5,000 -- -- (5,000) --
Reincorporation fee paid by stockholders -- 1,834 -- -- 1,834
Recapitalization upon reincorporation (4,995) 4,995 -- -- --
Two hundred-for-one stock split 995 (995) -- -- --
Net loss for the year ended December 31, 1998 -- -- -- (26,834) (26,834)
--------- --------- --------- --------- ---------
BALANCE AT DECEMBER 31, 1998 1,000 5,834 -- (31,834) (25,000)
Issuance of common stock 17,025 524,475 14,000 -- 555,500
Issuance of 50,000 shares of common stock as financing fee 50 49,950 -- -- 50,000
Net loss for the four months ended April 30, 1999 -- -- -- (89,544) (89,544)
--------- --------- --------- --------- ---------
BALANCE AT APRIL 30, 1999 (UNAUDITED) $ 18,075 $ 580,259 $ 14,000 $(121,378) $ 490,956
========= ========= ========= ========= =========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-6
<PAGE>
SILVER KING RESOURCES, INC.
(A Development Stage Company)
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
August 23, 1988 August 23, 1988
Year Ended (Inception) Four Months (Inception)
December 31, Through Ended Through
------------------ December 31, April 30, April 30,
1997 1998 1998 1999 1999
------ --------- --------- --------- ---------
(Unaudited) (Unaudited)
<S> <C> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net loss $ -- $ (26,834) $ (31,834) $ (89,544) $(121,378)
Adjustments to reconcile net loss to net cash
used in operating activities
Issuance of common stock as financing fee -- -- -- 50,000 50,000
Reincorporation fee paid by stockholder -- 1,834 1,834 -- 1,834
Changes in net assets and liabilities
Increase in
Accounts payable -- -- -- 15,000 15,000
------ --------- --------- --------- ---------
Net cash used in operating activities -- (25,000) (30,000) (24,544) (54,544)
------ --------- --------- --------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES
Investment in subsidiary -- -- -- (393,750) (393,750)
Purchase of other asset -- -- -- (131,250) (131,250)
------ --------- --------- --------- ---------
Net cash used in investing activities -- -- -- (525,000) (525,000)
------ --------- --------- --------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from note payable -- -- -- 100,000 100,000
Proceeds from issuance of common stock -- -- 5,000 555,500 560,500
Cash overdraft -- 25,000 25,000 (25,000) --
------ --------- --------- --------- ---------
Net cash provided by financing activities -- 25,000 30,000 630,500 660,500
------ --------- --------- --------- ---------
NET INCREASE IN CASH -- -- -- 80,956 80,956
CASH - BEGINNING OF PERIOD -- -- -- -- --
------ --------- --------- --------- ---------
CASH - END OF PERIOD $ -- $ -- $ -- $ 80,956 $ 80,956
====== ========= ========= ========= =========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW
INFORMATION
CASH PAID DURING THE YEAR FOR:
Interest $ -- $ -- $ -- $ 1,718 $ 1,718
====== ========= ========= ========= =========
SUPPLEMENTAL DISCLOSURE OF NON-CASH
INVESTING AND FINANCING ACTIVITIES
Issuance of common stock as financing fee $ -- $ -- $ -- $ 50,000 $ 50,000
====== ========= ========= ========= =========
</TABLE>
F-7
<PAGE>
SILVER KING RESOURCES, INC.
(A Development Stage Company)
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1997 AND 1998 (AUDITED)
AND APRIL 30, 1999 (UNAUDITED)
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Organization
- ------------
The Company was incorporated August 23, 1998 in the state of Florida as Arnge,
Inc. On March 25, 1999, the Company amended its articles of incorporation in
order to change its name to Silver King Resources, Inc. Since planned principal
operations have not commenced, the Company is considered a development stage
company, as defined in the Statement of Financial Accounting Standards No. 7
(SFAS 7).
Cash Equivalents
- ----------------
The Company considers all highly liquid instruments with a maturity of three
months or less to be cash equivalents.
Fair Value of Financial Instruments
- -----------------------------------
Financial instruments consist of cash and accounts payable. The carrying amount
approximates fair value because of the short maturity of these instruments.
The carrying value of note payable approximates fair value since the interest
rate associated with the debt approximates the current market interest rate.
Estimates
- ---------
The preparation of financial statements in conformity with generally accepted
accounting principles requires the use of estimates based on management's
knowledge and experience. Accordingly, actual results could differ from those
estimates.
Income Taxes
- ------------
The Company accounts for its income taxes under SFAS 109, "Accounting for Income
Taxes", which requires an asset and liability approach to financial accounting
and reporting for income taxes. Deferred income tax assets and liabilities are
computed annually for temporary differences between the financial statement and
tax bases of assets and liabilities that will result in taxable or deductible
amounts in the future based on enacted tax laws and rates applicable to the
periods in which the differences are expected to affect taxable income.
Valuation allowances are established when necessary to reduce deferred tax
assets to the amount expected to be realized. Income tax expense is the tax
payable or refundable for the period plus or minus the change during the period
in deferred tax assets and liabilities.
Loss Per Share
- --------------
Effective year ended December 31, 1997, the Company adopted SFAS No. 128,
"Earnings Per Share" (EPS). This statement establishes standards for computing
and presenting EPS, replacing the presentation of currently required primary EPS
with a presentation of Basic EPS. For entities with complex capital structures,
the statement requires the dual presentation of both Basic EPS and Diluted EPS
on the face of the statement of operations. Under this new standard, Basic EPS
is computed based on weighted average shares outstanding and excludes any
potential dilution; Diluted EPS reflects potential dilution form the exercise or
conversion of securities into common stock or from other contracts to issue a
common stock and is similar to the currently required fully diluted EPS.
Basic earnings (loss) per share include the weighted average number of shares
outstanding during the year. Diluted earnings (loss) per share include the
weighted average number of shares outstanding and dilutive potential common
shares, such as warrants. Assumed conversion of the warrants would be
antidilutive, therefore, basic and diluted earnings (loss) per share are the
same.
Comprehensive Income
- --------------------
The Company adopted Statement of Financial Accounting Standards (SFAS) No. 130,
"Reporting Comprehensive Income", beginning January 1, 1998. Comprehensive
income is a more inclusive financial reporting methodology that includes
disclosure of certain financial information that historically has not been
recognized in the calculation of net income. Since the Company has no items of
other comprehensive income, no separate statement of comprehensive income has
been presented.
F-8
<PAGE>
SILVER KING RESOURCES, INC.
(A Development Stage Company)
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1997 AND 1998 (AUDITED)
AND APRIL 30, 1999 (UNAUDITED)
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
Recently Issued Accounting Pronouncements
- -----------------------------------------
In April 1998, the American Institute of Certified Public Accountants issued
Statement of Position 98-5, Reporting on the Costs of Start-Up Activities ("SOP
98-5") which provides guidance on the financial reporting of start-up costs and
organization costs. It requires costs of start-up activities and organization
costs to be expensed as incurred. SOP 98-5 is effective for all fiscal years
beginning after December 15, 1998 with initial adoption reported as a cumulative
effect of a change in accounting principle. The Company has adopted SOP 98-5
effective January 1, 1999. The adoption of SOP 98-5 will not result in any
cumulative effect of a change in accounting principle.
NOTE 2 - GOING CONCERN
The accompanying financial statements have been prepared on a going concern
basis which contemplates the realization of assets and the satisfaction of
liabilities and commitments in the normal course of business. As discussed in
Note 1, the Company is in the development stage and its activities have been
limited to preliminary organizational activities. The Company has not commenced
its proposed business activities, nor has it received any revenues from
operations. These factors raise substantial doubt about the ability of the
Company to continue as a going concern.
The company intends to raise additional capital through private offerings in
order to fund the drill program related to its investment in its Mexican company
and to invest in others mining properties.
The balance sheet does not include any adjustments relating to the
recoverability and classification of recorded assets, or the amounts and
classifications of liabilities that might be necessary in the event the Company
cannot continue in existence.
NOTE 3 - INVESTMENT
The Company entered into an agreement on March 19, 1999 to purchase a 60%
interest for $393,750 in a Mexican company which has received the rights to
purchase exclusive royalty-free exploration and/or exploitation concessions
covering properties in Mexico that may be silver producing.
The consideration of $397,750 was payable as follows:
o $25,000 on date of agreement
o $150,000 within seven business days of the date of agreement
o $218,750 within 20 business days of the date of agreement
Closing shall occur within ten calendar days of the later to occur of (i) 20
business days after the date of the agreement and (ii) issuance of the
regulatory approvals from the Vancouver Stock Exchange (VSE). Approval was
obtained from the VSE on May 10, 1999 and closing occurred on May 20, 1999.
After the capital contribution by the Company, the total capital of the Mexican
company aggregated $775,000.
As part of this agreement, the Company is obligated for future geological
consulting fees not to exceed $100,000 commencing August 31, 1999.
F-9
<PAGE>
SILVER KING RESOURCES, INC.
(A Development Stage Company)
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1997 AND 1998 (AUDITED)
AND APRIL 30, 1999 (UNAUDITED)
NOTE 4 - OTHER ASSETS
On March 19, 1999, the Company entered into an agreement with a principal of a
company, in which the company is also a stockholder of the Mexican company
described in Note 3, to obtain a right of first refusal with respect to certain
future mineral projects. The consideration for this right of first refusal with
a term of three years was $131,250.
NOTE 5 - NOTE PAYABLE TO SHAREHOLDER
The Company borrowed $100,000 from a shareholder, bearing interest at 12%. The
entire principal and applicable interest was originally due on May 15, 1999. The
Company repaid $50,000 on May 20, 1999, with the remaining balance due on
demand. The Company issued 50,000 shares of common stock to this corporation as
payment of a financing fee. The common stock was valued at $1.00 per share.
NOTE 6 - CAPITAL STOCK
Common Stock
- ------------
In May 1998, the State of Florida approved the Company's restated Articles of
Incorporation, which increased its capitalization from 7,500 common shares
authorized to 50,000,000 common shares. The par value changed from $1.00 per
share to $0.001 per share.
Upon recapitalization, the Company forward split its common stock on a two
hundred for one basis. This stock split increased the number of outstanding
common stock shares from 5,000 shares to 1,000,000 shares.
In January 1999, the Company sold 14,500,000 shares of its common stock under a
subscription agreement at a price of $0.001 per share.
In January 1999, the Company also sold 2,000,000 shares of its common stock
under a subscription agreement at a price of $0.008.
In April 1999, the Company sold 525,000 shares of its common stock under a
subscription agreement at a price of $1.00 per share.
All references to number of shares and per share amounts on the balance sheet
have been adjusted to give retroactive effect to the recapitalization and stock
splits.
Warrants
- --------
From time to time, the Board of Directors of the Company may issue warrants to
purchase its common stock to parties other than employees and directors.
Warrants may be issued as an incentive to help the Company achieve its goals, or
in consideration for cash or services rendered to the Company, or a combination
of the above.
In January 1999, as part of the subscription for 2,000,000 shares of common
stock, the Company issued warrants to purchase 2,000,000 shares of its common
stock at a price of $4.00 per share. The warrants were valued at $0.007 per
warrant.
F-10
<PAGE>
SILVER KING RESOURCES, INC.
(A Development Stage Company)
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1997 AND 1998 (AUDITED)
AND APRIL 30, 1999 (UNAUDITED)
NOTE 7 - INCOME TAXES
There is no income tax benefit for operating losses for the years ended
December 31, 1997 and 1998 due to the following:
o Current tax benefit - the operating losses cannot be carried back to earlier
years.
o Deferred tax benefit - the deferred tax assets were offset by a valuation
allowance. Management believes that a valuation allowance is considered
necessary since it is more likely than not that the deferred tax asset will
not be realized through future taxable income.
The components of the net deferred tax assets (liabilities) are as follows:
1997 1998
-------- --------
Net operating loss carryforwards $ -- $ 2,300
Organization cost 1,700 1,700
Acquisition costs -- 6,800
Valuation allowance (1,700) (10,800)
--------- ---------
$ -- $ --
========= =========
The use of net operating loss carryforwards is limited when there has been a
substantial change in ownership (as defined) during a three year period. Because
of the recent and contemplated changes in common stock and warrants, such a
change may occur in the future. In this event, the use of net operating losses
each year would be restricted to the value of the Company on the date of such
change multiplied by the federal long-term tax exempt rate ("annual
limitation"); unused annual limitations may then be carried forward without this
limitation.
At December 31,1998 the Company had net operating loss carryforwards of
approximately $7,000 which if not used, will expire through 2013.
NOTE 8 - REINCORPORATION IN THE STATE OF DELAWARE
On June 24, 1999, the Company merged with its wholly-owned subsidiary, Silver
King Resources (Delaware), Inc. After the merger, Silver King Resources
(Delaware), Inc., the surviving corporation, changed its name to Silver King
Resources, Inc. In conjunction with the merger, the par value of the common
stock was changed to $.0001 and the Company is authorized to issue up to
15,000,000 shares of preferred stock, $.0001 par value per share, in one or more
series, and to fix, as to any such series, the dividend rate, redemption prices,
preferences on liquidation or dissolution, sinking fund terms, conversion
rights, voting rights, and any other preference or special rights and
qualifications. There are presently no shares of preferred stock issued.
F-11
CERTIFICATE OF INCORPORATION
OF
SILVER KING RESOURCES (DELAWARE), INC.
1. The name of the Corporation is:
SILVER KING RESOURCES (DELAWARE), INC.
2. The address of its registered office in the State of Delaware is 1209 Orange
Street, Wilmington, Delaware 19801, County of New Castle. The name of its
registered agent at such address is The Corporation Trust Company.
3. The purpose of the Corporation is to engage in any lawful act or activity
for which corporations may be organized under the General Corporation Law of
the State of Delaware.
4. The Corporation is authorized to issue capital stock to the extent of:
(a) Fifty Million (50,000,000) Shares Common Stock Par Value $.0001 Per
Share; and
(b) Fifteen Million (15,000,000) Shares Preferred Stock Par Value $.0001
Per Share (the "Preferred Stock")
The board of directors of the Corporation shall have the authority to issue
shares of Preferred Stock in series or subseries and to fix by resolution
the designations, powers, preferences, rights and the qualifications,
limitations, or restrictions in respect of any such series or subseries.
5. The name and mailing address of the Sole Incorporator is as follows:
Paula S. Belcher
Buchanan Ingersoll Professional Corporation
11 Penn Center, 14th Floor
1835 Market Street
Philadelphia, PA 19103
6. The Corporation is to have perpetual existence.
7. Indemnification and Insurance:
(a) Right to Indemnification. Each person who was or is made a party
or is threatened to be made a party or is involved in any action, suit or
proceeding, whether civil, criminal, administrative or investigative
(hereinafter a "proceeding"), by reason of the fact that he or she, or a
<PAGE>
person of whom he or she is the legal representative, is or was a director
or officer, of the Corporation or is or was serving at the request of the
Corporation as a director, officer, employee or agent of another
corporation or of a partnership, joint venture, trust or other enterprise,
including service with respect to employee benefit plans, whether the basis
of such proceeding is alleged action in an official capacity as a director,
officer, employee or agent, shall be indemnified and held harmless by the
Corporation to the fullest extent authorized by the Delaware General
Corporation Law, as the same exists or may hereafter be amended (but, in
the case of any such amendment, only to the extent that such amendment
permits the Corporation to provide broader indemnification rights than said
law permitted the Corporation to provide prior to such amendment), against
all expense, liability and loss (including attorney's fees, judgments,
fines, ERISA excise taxes or penalties and amounts paid or to be paid in
settlement) reasonably incurred or suffered by such person in connection
therewith and such indemnification shall continue as to a person who has
ceased to be director, officer, employee or agent and shall inure to the
benefit of his or her heirs, executors and administrators; provided,
however, that, except as provided in paragraph (b) hereof, the Corporation
shall indemnify any such person seeking indemnification in connection with
a proceeding (or part thereof) initiated by such person only if such
proceeding (or part thereof) was authorized by the Board of Directors of
the Corporation. The right to indemnification conferred in this Section
shall be a contract right and shall include the right to be paid by the
Corporation the expenses incurred in defending any such proceeding in
advance of its final disposition; provided, however, that, if the Delaware
General Corporation Law requires, the payment of such expenses incurred by
a director or officer in his or her capacity as a director or officer (and
not in any other capacity in which service was or is rendered by such
person while a director or officer, including, without limitation, service
to an employee benefit plan) in advance of the final disposition of a
proceeding, shall be made only upon delivery to the Corporation of an
undertaking, by or on behalf of such director or officer, to repay all
amounts so advanced if it shall ultimately be determined that such director
or officer is not entitled to be indemnified under this Section or
otherwise. The Corporation may, by action of its Board of Directors,
provide indemnification to employees and agents of the Corporation with the
same scope and effect as the foregoing indemnification of directors and
officers.
(b) Right of Claimant to Bring Suit: If a claim under paragraph (a) of
this Section is not paid in full by the Corporation within thirty (30) days
after a written claim has been received by the Corporation, the claimant
may at any time thereafter bring suit against the Corporation to recover
the unpaid amount of the claim and, if successful in whole or in part, the
claimant shall be entitled to be paid also the expense of prosecuting such
claim. It shall be a defense to any such action (other than an action
brought to enforce a claim for expenses incurred in defending any
proceeding in advance of its final disposition where the required
undertaking, if any is required, has been tendered to the Corporation) that
the claimant has not met the standards of conduct which make it permissible
under the Delaware General Corporation Law for the Corporation to indemnify
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<PAGE>
the claimant for the amount claimed, but the burden of proving such defense
shall be on the Corporation. Neither the failure of the Corporation
(including its Board of Directors, independent legal counsel, or its
stockholders) to have made a determination prior to the commencement of
such action that indemnification of the claimant is proper in the
circumstances because he or she has met the applicable standard of conduct
set forth in the Delaware General Corporation Law, nor an actual
determination by the Corporation (including its Board of Directors,
independent legal counsel, or its stockholders) that the claimant has not
met such applicable standard or conduct, shall be a defense to the action
or create a presumption that the claimant has not met the applicable
standard of conduct.
(c) Notwithstanding any limitation to the contrary contained in
subparagraphs 7(a) and 7(b), the Corporation shall to the fullest extent
permitted by Section 145 of the General Corporation Law of the State of
Delaware, as the same may be amended and supplemented, indemnify any and
all persons whom it shall have power to indemnify under said section from
and against any and all of the expenses, liabilities or other matters
referred to in or covered by said section, and the indemnification provided
for herein shall not be deemed exclusive of any other rights to which those
indemnified may be entitled under any By-Law or agreement, vote of
stockholders or disinterested Directors or otherwise, both as to action in
his official capacity and as to action in another capacity while holding
such office, and shall continue as to a person who has ceased to be
director, officer, employee or agent and shall inure to the benefit of the
heirs, executors and administrators of such a person.
(d) Insurance. The Corporation may maintain insurance, at its expense,
to protect itself and any director, officer, employee or agent of the
Corporation or another corporation, partnership, joint venture, trust or
other enterprise against any such expense, liability or loss, whether or
not the Corporation would have the power to indemnify such person against
such expense, liability or loss under Delaware General Corporation Law.
8. A director of the Corporation shall not be personally liable to the
Corporation or its stockholders for monetary damages for breach of fiduciary
duty as a director for any act or omission; provided, however, that the
foregoing shall not eliminate or limit the liability of a director (a) for
any breach of the director's duty or loyalty to the Corporation or its
stockholders, (b) for any act or omission not in good faith or which
involves intentional misconduct or a knowing violation of law, (c) under
Section 174 of the General Corporation Law of the State of Delaware, or (d)
for any transaction from which the director derived an improper personal
benefit. Any repeal or modification of this article by the stockholders of
the Corporation shall be prospective only, and shall not adversely affect
any limitation on the personal liability of a director of the Corporation
existing at the time of such repeal or modification.
9. In furtherance and not in limitation of the powers conferred by the General
Corporation Law of the State of Delaware, the Board of Directors of the
Corporation is expressly authorized to make, alter, or repeal the By-Laws of
the Corporation.
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<PAGE>
10. Elections of directors need not be by written ballot except and to the
extent provided in the By-Laws of the corporation.
I, Paula S. Belcher, being the Sole Incorporator hereinbefore named, for
the purpose of forming a corporation pursuant to the General Corporation Law of
the State of Delaware, do make this certificate, hereby declaring and certifying
and this is my act and deed and the facts herein stated are true, and
accordingly have hereunto set my hand this 13th day of April, 1999.
/s/ Paula S. Belcher
--------------------
Paula S. Belcher, Sole Incorporator
CERTIFICATE OF MERGER OF
SILVER KING RESOURCES, INC.
INTO
SILVER KING RESOURCES (DELAWARE), INC.
The undersigned corporation organized and existing under and by virtue of
the General Corporation Law of the State of Delaware,
DOES HEREBY CERTIFY:
FIRST: That the name and state of incorporation of each of the constituent
corporations of the merger is as follows:
Name State of Incorporation
Silver King Resources (Delaware), Inc. Delaware
Silver King Resources, Inc. Florida
SECOND: That an Agreement and Plan of Merger between the parties to the
merger has been approved, adopted, certified, executed and acknowledged by each
of the constituent corporations in accordance with the requirements of Section
252 of the General Corporation Law of the State of Delaware.
THIRD: That the surviving corporation of the merger is Silver King
Resources (Delaware), Inc.
FOURTH: Article 1 of the Certificate of Incorporation of the surviving
corporation shall be amended to read as follows:
"1. The name of the corporation is Silver King Resources, Inc."
FIFTH: That the executed Agreement and Plan of Merger is on file at the
principal place of business of the surviving corporation. The address of the
principal place of business of the surviving corporation is 648 Post Road,
Wakefield, Rhode Island 02879.
SIXTH: That a copy of the Agreement and Plan of Merger will be furnished by
the surviving corporation, on request and without cost to any stockholder of any
constituent corporation.
SEVENTH: The authorized aggregate capital stock for Silver King Resources,
Inc. is (i) 50,000,000 shares of Common Stock, par value $0.001 per share, of
which 18,075,000 shares are issued and outstanding.
EIGHTH: The merger shall become effective upon the filing of this
Certificate of Merger with the State of Delaware.
<PAGE>
IN WITNESS WHEREOF, Silver King Resources (Delaware), Inc. has caused the
Certificate to be signed by Stephen P. Harrington, its authorized officer, this
23rd day of June 1999.
SILVER KING RESOURCES
(DELAWARE), INC.
By: /s/ Stephen P. Harrington
-----------------------------------
Stephen P. Harrington, President
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BY-LAWS
of
SILVER KING RESOURCES (DELAWARE), INC.
1. Offices
Silver King Resources (Delaware), Inc. (hereinafter the "Corporation") may
have offices and places of business at such places, within or without the State
of Delaware, as the Board of Directors may from time to time determine or the
business of the Corporation may require.
2. Meeting of Stockholders
2.1 Place of Meetings.
All meetings of the stockholders for the election of directors shall be
held at such place as may be fixed from time to time by the Board of Directors,
or at such other place either within or without the State of Delaware as shall
be designated from time to time by the Board of Directors and stated in the
notice of the meeting. Meetings of stockholders for any other purpose may be
held at such time and place, within or without the State of Delaware, as shall
be stated in the notice of the meeting or in a duly executed waiver thereof.
2.2 Annual Meeting.
Annual meetings of stockholders commencing with the year 2000 shall be held
on the date and time as shall be designated from time to time by the Board of
Directors and stated in the notice of the meeting or in a duly executed waiver
thereof.
2.3 Special Meetings.
Special meetings of the stockholders, for any purpose or purposes, unless
otherwise prescribed by statute or by the Certificate of Incorporation, may be
called by the President or Board of Directors and shall be called by the
President or Secretary at the request in writing of stockholders owning not less
than one-fifth of the entire capital stock of the Corporation issued and
outstanding and entitled to vote. Such request shall state the purpose or
purposes of the proposed meeting.
2.4 Notice.
Written notice of each meeting of stockholders shall be given in the manner
prescribed in Article IV of these By-laws which shall state the place, date and
hour of the meeting and, in the case of a special meeting, shall state the
purpose or purposes for which the meeting is called. In the case of a meeting to
<PAGE>
vote on a proposed merger or consolidation, such notice shall state the purpose
of the meeting and shall contain a copy of the agreement or brief summary
thereof and, in the case of a meeting to vote on a proposed sale, lease or
exchange of all of the Corporation's assets, such notice shall specify that such
a resolution shall be considered. Such notice shall be given to each stockholder
of record entitled to vote at the meeting not less than ten (10) nor more than
sixty (60) days prior to the meeting, except that where the matter to be acted
on is a merger or consolidation of the Corporation or a sale, lease or exchange
of all or substantially all of its assets, such notice shall be given not less
than twenty (20) nor more than sixty (60) days prior to such meeting. If mailed,
notice is given when deposited in the United States mail, postage prepaid,
directed to the stockholder at his address as it appears on the records of the
corporation.
2.5 Business.
Business transacted at any special meeting of stockholders shall be limited
to the purpose or purposes stated in the notice.
2.6 Quorum and Adjournment.
Except as otherwise provided by statute or the Certificate of
Incorporation, the holders of a majority of the shares of the Corporation issued
and outstanding and entitled to vote thereat, present in person or represented
by proxy, shall be necessary to and shall constitute a quorum for the
transaction of business at each meeting of stockholders but in no event shall a
quorum consist of less than one-third of the shares entitled to vote at the
meeting. If a quorum shall not be present at the time fixed for any meeting, the
stockholders present, in person or by proxy, and entitled to vote thereat shall
have power to adjourn the meeting from time to time, without notice other than
announcement at the meeting, until a quorum shall be present. At such adjourned
meeting at which a quorum shall be present, any business may be transacted which
might have been transacted at the meeting as originally notified. If the
adjournment is for more than thirty days, or if after the adjournment a new
record date is fixed for the adjourned meeting, a notice of the adjourned
meeting shall be given to each stockholder of record entitled to vote at the
meeting.
2.7 Voting.
Unless otherwise provided in the Certificate of Incorporation and subject
to the provisions of Article VI, Section 4 of these By-laws, each stockholder
shall be entitled to one vote, in person or by proxy, for each share of capital
stock held by such stockholder. If the Certificate of Incorporation provides for
more or less than one vote for any share, on any matter, every reference in
these By-laws to a majority or other proportion of stock shall refer to such
majority or other proportion of the votes of such stock.
-2-
<PAGE>
2.8 Vote Required.
When a quorum is present at any meeting, in all matters other than the
election of directors, the vote of the holders of a majority of the shares
present in person or represented by proxy and entitled to vote on the subject
matter shall decide any question brought before such meeting, unless the
question is one upon which by express provision of the statutes or of the
Certificate of Incorporation, a different vote is required in which case such
express provision shall govern and control the decision of such question.
Directors shall be elected by a plurality of the votes of the shares present in
person or represented by proxy at the meeting and entitled to vote on the
election of directors.
2.9 Voting Lists.
The officer who has charge of the stock ledger of the Corporation shall
prepare and make, at least ten (10) days before every meeting of stockholders, a
complete list of the stockholders entitled to vote at the meeting, arranged in
alphabetical order, and showing the address of each stockholder and the number
of shares registered in the name of each stockholder. Such list shall be open to
the examination of any stockholder, for any purpose germane to the meeting,
during ordinary business hours, for a period of at least ten (10) days prior to
the meeting, either at a place within the city where the meeting is to be held,
which place shall be specified in the notice of the meeting, or, if not so
specified, at the place where the meeting is to be held. The list shall also be
produced and kept at the time and place of the meeting during the whole time
thereof, and may be inspected by any stockholder who is present.
2.10 Proxy.
Each stockholder entitled to vote at a meeting of stockholders or to
express consent or dissent to corporate action in writing without a meeting may
authorize another person or persons to act for him by proxy, but no such proxy
shall be voted or acted upon after three (3) years from its date, unless the
proxy provides for a longer period.
A duly executed proxy shall be irrevocable if it states that it is
irrevocable and if, and only as long as, it is coupled with an interest
sufficient in law to support an irrevocable power. A proxy may be made
irrevocable regardless of whether the interest with which it is coupled is an
interest in the stock itself or an interest in the Corporation generally.
2.11 Consents.
Any action required or permitted to be taken at any annual or special
meeting of the stockholders may be taken without a meeting, without prior notice
and a vote, if a consent or consents in writing, setting forth the action so
taken, shall be signed by the holders of outstanding stock having not less than
the minimum number of votes that would be necessary to authorize or take such
action at a meeting at which all shares entitled to vote thereon were present
and voted and shall be delivered to the Corporation by delivery to its
registered office in Delaware, its principal place of business, or an officer or
agent of the Corporation having custody of the book in which proceedings of
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<PAGE>
meetings of stockholders are recorded. Delivery made to the Corporation's
registered office shall be by hand or by certified or registered mail, return
receipt requested. Where corporate action is taken in such manner by less than
unanimous written consent, prompt written notice of the taking of such action
shall be given to all stockholders who have not consented in writing thereto.
Every written consent shall bear the date of signature of each stockholder
who signs the consent and no written consent shall be effective to take the
corporate action referred to therein unless, within sixty days of the earliest
dated consent delivered in the manner required by statute to the Corporation,
written consents signed by a sufficient number of holders to take action are
delivered to the Corporation by delivery to its registered office in Delaware,
its principal place of business, or an officer or agent of the Corporation
having custody of the book in which proceedings of meetings of stockholders are
recorded. Delivery made to the Corporation's registered office shall be by hand
or by certified or registered mail, return receipt requested.
3. Directors
3.1 Board of Directors.
The business and affairs of the Corporation shall be managed by or under
the direction of its Board of Directors, which may exercise all such powers of
the Corporation and do all such lawful acts and things, except as provided in
the Certificate of Incorporation.
3.2 Number; Election and Tenure.
The number of directors which shall constitute the whole Board shall be not
less than one (1) nor more than nine (9). The first Board shall consist of one
(1) director. Thereafter, within the limits above specified, the number of
directors shall be determined by resolution of the Board of Directors or by the
stockholders at the annual meeting. The directors shall be elected at the annual
meeting of the stockholders, except as provided in Section 3 of this Article,
and each director elected shall hold office until his successor is elected and
qualified or until his earlier resignation or removal. Any director may resign
at any time upon written notice to the Corporation. Directors need not be
stockholders.
3.3 Vacancies.
Vacancies in the Board of Directors and newly created directorships
resulting from any increase in the authorized number of directors may be filled
by a majority of the directors then in office, although less than quorum, or by
a sole remaining director, and the directors so chosen shall hold office until
the next annual election and until their successors are duly elected and shall
qualify, or until his earlier resignation or removal. If at any time, by reason
of death or resignation or other cause, the Corporation should have no directors
in office, then any officer or any stockholder or an executor, administrator,
trustee or guardian of a stockholder, or other fiduciary entrusted with like
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<PAGE>
responsibility for the person or estate of a stockholder, may call a special
meeting of stockholders in accordance with the provisions of the Certificate of
Incorporation or the By-laws or may apply to the Court of Chancery for a decree
summarily ordering an election as provided by statute.
If, at the time of filling any vacancy or any newly created directorship,
the directors then in office shall constitute less than a majority of the whole
Board (as constituted immediately prior to any such increase), the Court of
Chancery may, upon application of any stockholder or stockholders holding at
least ten percent of the total number of the shares at the time outstanding
having the right to vote for such directors, summarily order an election to be
held to fill any such vacancies or newly created directorships, or to replace
the directors chosen by the directors then in office.
3.4 Meetings.
The Board of Directors of the Corporation may hold its meetings, and have
an office or offices, within or without the State of Delaware.
3.5 First Meeting.
The first meeting of each newly elected Board of Directors shall be held at
such time and place as shall be fixed by the vote of the stockholders at the
annual meeting and no notice of such meeting shall be necessary to the newly
elected directors in order legally to constitute the meeting, provided a quorum
shall be present. In the event of the failure of the stockholders to fix the
time or place of such first meeting of the newly elected Board of Directors, or
in the event such meeting is not held at the time and place so fixed by the
stockholders, the meeting may be held at such time and place as shall be
specified in a notice given as hereinafter provided for special meetings of the
Board of Directors, or as shall be specified in a written waiver signed by all
of the directors.
3.6 Notice.
Regular meetings of the Board of Directors may be held without notice at
such time and at such place as shall from time to time be determined by the
Board. A special meeting of the Board may be called by the President or any Vice
President and a special meeting shall be called by the President on the written
request of two directors. Notice of each special meeting of the Board of
Directors, specifying the place, day and hour of the meeting, shall be given in
the manner prescribed in Article IV of these By-Laws and in this Section 6,
either personally or by mail, by courier, telex or telegram to each director, at
the address or the telex number supplied by the director to the Corporation for
the purpose of notice, at least 48 hours before the time set for the meeting.
Neither the business to be transacted at, nor the purpose of any meeting of the
Board, need be specified in the notice of the meeting.
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<PAGE>
3.7 Quorum and Voting.
Except as may be otherwise specifically provided by statute or by the
Certificate of Incorporation, a majority of the total number of directors shall
constitute a quorum for the transaction of business. The vote of the majority of
the directors present at any meeting at which a quorum is present shall be the
act of the Board of Directors.
Members of the Board or members of any committee designated by the Board
may participate in meetings of the Board or of such committee by means of
conference telephone or similar communications equipment by means of which all
persons participating in the meeting can hear each other, and participation in
such meeting shall constitute presence in person at such meeting.
3.8 Consents.
Unless otherwise restricted by the Certificate of Incorporation, any action
required or permitted to be taken at any meeting of the Board of Directors, or
of any committee thereof, may be taken without a meeting if all members of the
Board or committee, as the case may be, consent thereto in writing, and the
writing or writings are filed with the minutes of proceedings of the Board or
committee.
3.9 Committees.
The Board of Directors may, by resolution passed by a majority of the whole
Board, designate one or more committees, each committee to consist of one or
more directors of the Corporation. The Board may designate one or more directors
as alternate members of any committee, who may replace any absent or
disqualified member at any meeting of the committee. Any such committee, to the
extent provided in the resolution, shall have and may exercise all the powers
and authority of the Board of Directors in the management of the business and
affairs of the Corporation, and may authorize the seal of the Corporation to be
affixed to all papers which may require it; but no such committee shall have the
power or authority in reference to amending the Certificate of Incorporation,
adopting an agreement of merger or consolidation, recommending to the
stockholders the sale, lease or exchange of all or substantially all of the
Corporation's property and assets, recommending to the stockholders a
dissolution of the Corporation or a revocation of a dissolution, or amending the
By-laws of the Corporation; and, unless the resolution, By-laws or Certificate
of Incorporation provides, no such committee shall have the power or authority
to declare a dividend or to authorize the issuance of stock. In the absence or
disqualification of any member of such committee or committees, the member or
members thereof present at any meeting and not disqualified from voting, whether
or not he or they constitute a quorum, may unanimously appoint another member of
the Board of Directors to act at the meeting in the place of any such absent or
disqualified member. Such committee or committees shall have such name or names
as may be determined from time to time by resolution adopted by the Board of
Directors.
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<PAGE>
3.10 Committee Minutes.
Each committee shall keep regular minutes of its meetings and report the
same to the Board of Directors when required.
3.11 Compensation of Directors.
The directors as such, and as members of any standing or special committee,
may receive such compensation for their services as may be fixed from time to
time by resolution of the Board. Nothing herein contained shall be construed to
preclude any director from serving the Corporation in any other capacity and
receiving compensation therefor.
The directors may be paid their expenses, if any, for attendance at each
meeting of the Board of Directors and may be paid a fixed sum for attendance at
each meeting of the Board of Directors or a stated salary as director. Members
of special or standing committees may be allowed like compensation for attending
committee meetings.
3.12 Removal of Directors.
Any director or the entire Board of Directors may be removed, with or
without cause, by the holders of a majority of the shares then entitled to vote
at an election of directors.
4. Notices
4.1 Form of Notice.
Whenever, under the provisions of the Delaware General Corporation Law or
of the Certificate of Incorporation or of these By-laws, notice is required to
be given to any director or stockholder, it shall not be construed to mean
personal notice, but such notice may be given in writing, by first class or
express mail, addressed to such director or stockholder, at his address as it
appears on the records of the Corporation, with postage thereon prepaid, and
such notice shall be deemed to be given at the time when the same shall be
deposited in the United States mail, except that, in the case of directors,
notice sent by first class mail shall be deemed to have been given forty-eight
hours after being deposited in the United States mail. Whenever, under these
By-laws, notice may be given by telegraph, courier or telex, notice shall be
deemed to have been given when deposited with a telegraph office or courier
service for delivery or, in the case of telex, when dispatched.
4.2 Waiver of Notice.
Whenever notice is required to be given under any provisions of the
Delaware General Corporation Law or the Certificate of Incorporation or these
By-laws, a written waiver, signed by the person or persons entitled to notice,
whether before or after the time stated therein, shall be deemed equivalent to
notice. Attendance of a person at a meeting shall constitute a waiver of notice
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<PAGE>
of such meeting, except when the person attends a meeting for the express
purpose of objecting, at the beginning of the meeting, to the transaction of any
business because the meeting is not lawfully called or convened. Neither the
business to be transacted at, nor the purpose of, any regular or special meeting
of the stockholders, directors, or members of a committee of directors need be
specified in any written waiver of notice unless so required by the Certificate
of Incorporation or the By-laws.
5. Officers
5.1 Selection of Officers.
The officers of the Corporation shall be chosen by the directors and shall
consist of a president and secretary. The Board of Directors may also choose a
treasurer, one or more vice presidents, and one or more assistant secretaries.
Any number of offices may be held by the same person, unless the Certificate of
Incorporation or these By-laws otherwise provide. A failure to elect officers
shall not dissolve or otherwise affect the Corporation.
5.2 Term of Office, Removal and Vacancies.
Each officer of the Corporation shall hold his office until his successor
is elected and qualifies or until his earlier resignation or removal. Any
officer may resign at any time upon written notice to the Corporation. Any
officer elected or appointed by the Board of Directors may be removed at any
time by the affirmative vote of a majority of the Board of Directors. Any
vacancy occurring by death, resignation, removal or otherwise, in any office of
the Corporation, shall be filled by the Board of Directors.
5.3 Compensation.
The salaries of the officers of the Corporation may be fixed by the Board
of Directors.
5.4 Bond.
The Corporation may secure the fidelity of any or all of its officers or
agents by bond or otherwise.
5.5 The President.
The President shall be the chief executive officer of the Corporation,
shall preside at all meetings of the stockholders and the Board of Directors,
shall have general and active management of the business of the Corporation and
shall see that all orders and resolutions of the Board of Directors are carried
into effect. He shall have the power to appoint and remove such subordinate
officers and agents other than those actually appointed or elected by the Board
of Directors as the business of the Corporation may require.
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5.6 Vice President.
Each Vice President, if any, shall perform such duties as shall be assigned
to him by the Board of Directors or President, and, in the absence or disability
of the President, the most senior in rank of the Vice Presidents shall perform
the duties of the President.
5.7 Secretary.
The Secretary shall attend all meetings of the Board of Directors and all
meetings of the stockholders and record all the proceedings of the meetings of
the Board of Directors and the stockholders in a book to be kept for that
purpose and shall perform like duties for the standing committees when required.
He shall give, or cause to be given, notice of all meetings of the stockholders
and special meetings of the Board of Directors, and shall perform such other
duties as may be prescribed by the Board of Directors or President. He shall be
the custodian of the seal of the Corporation and he, or an assistant secretary,
shall have authority to affix the same to any instrument requiring it, and when
so affixed, it may be attested by his signature or by the signature of such
assistant secretary. The Board of Directors may give general authority to any
other officer to affix the seal of the Corporation and to attest the affixing by
his signature.
5.8 Assistant Secretary.
The Assistant Secretary, if any, or assistant secretaries, if more than
one, shall perform the duties of the secretary in his or her absence and shall
perform such other duties as the Board of Directors, the President or the
Secretary may from time to time designate.
5.9 Treasurer.
The Treasurer shall have custody of the corporate funds and securities and
shall keep, or cause to be kept, full and accurate amounts of receipts and
disbursements in books kept for that purpose. He shall deposit all monies, and
other valuable effects, in the name and to the credit of the Corporation, in
such depository as the Board of Directors shall designate. As directed by the
Board of Directors or the President, he shall disburse monies of the
Corporation, taking proper vouchers for such disbursements and shall render to
the President and directors an account of all his transactions as Treasurer and
of the financial condition of the Corporation. In addition, he shall perform all
the usual duties incident to the office of Treasurer.
6. Certificates of Stock and Transfers
6.1 Certificates of Stock; Uncertificated Shares.
The shares of the Corporation shall be represented by certificates,
provided that the Board of Directors may provide by resolution or resolutions
that some or all of any or all classes or series of its stock shall be
uncertificated shares. Any such resolution shall not apply to shares represented
by a certificate until such certificate is surrendered to the corporation.
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Notwithstanding the adoption of such a resolution by the Board of Directors,
every holder of stock represented by certificates and upon request every holder
of uncertificated shares shall be entitled to have a certificate signed by, or
in the name of the Corporation by, the President or any Vice President, and
countersigned by the Secretary or any Assistant Secretary or the Treasurer,
representing the number of shares registered in certificate form. Any or all the
signatures on the certificate may be a facsimile. In case any officer, transfer
agent or registrar who has signed or whose facsimile signature has been placed
upon a certificate shall have ceased to be such officer, transfer agent or
registrar before such certificate is issued, it may be issued by the Corporation
with the same effect as if he were such officer, transfer agent or registrar at
the date of issue.
6.2 Lost, Stolen or Destroyed Stock Certificates; Issuance of New
Certificate or Uncertificated Shares.
The Board of Directors may issue a new certificate of stock or
uncertificated shares in place of any certificate therefore issued by it,
alleged to have been lost, stolen or destroyed, and the Corporation may require
the owner of the lost, stolen or destroyed certificate, or his legal
representative to give the Corporation a bond sufficient to indemnify it against
any claim that may be made against it on account of the alleged loss, theft or
destruction of any such certificate or the issuance of such new certificate or
uncertificated shares.
6.3 Record Date.
In order that the Corporation may determine the stockholders entitled to
notice of, or to vote at, any meeting of stockholders or at any adjournment
thereof in respect of which a new record date is not fixed, or to consent to
corporate action without a meeting, or entitled to receive payment of any
dividend or other distribution or allotment of any rights, or entitled to
exercise any rights in respect of any change, conversion or exchange of stock,
or for the purpose of any other lawful action, the Board of Directors may fix a
record date, which record date shall not precede the date upon which the
resolution fixing the record date is adopted by the Board of Directors and which
date shall not be more than sixty (60) nor less than ten (10) days before the
date of any such meeting, nor more than ten (10) days after the date on which
the date fixing the record date for the consent of stockholders without a
meeting is adopted by the Board of Directors, nor more than sixty (60) days
prior to any other such action. A determination of stockholders of record
entitled to notice of or to vote at a meeting of stockholders shall apply to any
adjournment of the meeting; provided, however, that the Board of Directors may
fix a new record date for the adjourned meeting.
6.4 Registered Stockholders.
The Corporation shall be entitled to recognize the exclusive right of a
person registered on its books as of any record date fixed or determined
pursuant to Section 3 of this Article as the owner of shares to receive
dividends, and to vote as such owner, and to hold liable for calls and
assessments a person registered on its books as the owner of shares, and shall
not be bound to recognize any equitable or other claim to or interest in such
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share or shares on the part of any other person, regardless of whether it shall
have express or other notice thereof, except as otherwise provided by the laws
of the State of Delaware.
7. General Provisions
7.1 Dividends.
Dividends upon the capital stock of the Corporation, subject to the
provisions of the Certificate of Incorporation, if any, may be declared by the
Board of Directors at any regular or special meeting, pursuant to law. Dividends
may be paid in cash, in property, or in shares of the Corporation's capital
stock, subject to the provisions of the Certificate of Incorporation.
7.2 Liability of Directors as to Dividends or Stock Redemption.
A member of the board of directors, or a member of any committee designated
by the board of directors, shall be fully protected in relying in good faith
upon the records of the Corporation and upon such information, opinions, reports
or statements presented to the Corporation by any of its officers or employees,
or committees of the Board of Directors, or by any other person as to matters
the director reasonably believes are within such other person's professional or
expert competence and who has been selected with reasonable care by or on behalf
of the Corporation, as to the value and amount of the assets, liabilities and/or
net profits of the Corporation, or any other facts pertinent to the existence
and amount of surplus or other funds from which dividends might properly be
declared and paid, or with which the Corporation's stock might properly be
purchased or redeemed.
7.3 Reserve for Dividends.
Before declaring any dividend, there may be set aside out of any funds of
the Corporation available for dividends such sum or sums as the directors from
time to time, in their absolute discretion, think proper as a reserve or
reserves to meet contingencies, or for equalizing dividends, or for repairing or
maintaining any property of the Corporation, or for such other purpose as the
directors shall think conducive to the interest of the Corporation, and the
directors may modify or abolish any such reserve in the manner in which it was
created.
7.4 Annual Statement.
The Board of Directors shall present at each annual meeting, and at any
special meeting of the stockholders when called for by vote of the stockholders,
a full and clear statement of the business and condition of the Corporation.
7.5 Signing Checks, Notes, etc.
All checks or other orders for the payment of money and all notes or other
instruments evidencing indebtedness of the Corporation shall be signed on its
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behalf by such officer or officers or such other person or persons as the Board
of Directors may from time to time designate, or, if not so designated, by the
President or any Vice President of the Company.
7.6 Fiscal Year.
The fiscal year of the Corporation shall end on December 31 of each year or
as otherwise determined by resolution of the Board of Directors.
7.7 Seal.
The corporate seal shall have inscribed thereon the name of the
Corporation, the year of its organization and the words "Corporate Seal,
Delaware". The seal may be used by causing it or a facsimile thereof to be
impressed or affixed or otherwise reproduced.
7.8 Voting of Securities of Other Corporations.
In the event that the Corporation shall, at any time or from time to time,
own and have power to vote any securities (including but not limited to shares
of stock or partnership interests) of any other issuer, they shall be voted by
such person or persons, to such extent and in such manner, as may be determined
by the Board of Directors or, if not so determined, by any duly elected officer
of the Corporation.
8. Indemnification
8.1 Indemnification.
Except as otherwise provided below, each person who was or is made a party
or is threatened to be made a party to or is involved in any threatened, pending
or completed action, suit, or proceeding, whether civil, criminal,
administrative or investigative (hereinafter a "proceeding") and whether or not
by or in the right of the Corporation or otherwise, by reason of the fact that
he or she, or a person of whom he or she is the heir, executor or administrator,
is or was a director or officer of the Corporation or is or was serving at the
request of the Corporation as director or officer or trustee of another
corporation or of a partnership, joint venture, trust or other enterprise,
including service with respect to employee benefit plans, whether the basis of
such proceeding is alleged action in an official capacity as a director or
officer or trustee, or in any other capacity while serving as a director or
officer or trustee, shall be indemnified and held harmless by the Corporation to
the fullest extent permitted by law, as the same exist or may hereinafter be
amended (but, in the case of any such amendment, only to the extent that such
amendment permits the Corporation to provide broader indemnification rights than
are permitted the corporation to provide prior to such amendment), against all
reasonable expenses, including attorneys' fees, and any liability and loss,
including judgments, fines, ERISA excise taxes or penalties and amounts paid or
to be paid in settlement, incurred or paid by such person in connection
therewith, and such indemnification shall continue as to a person who has ceased
to be a director or officer or trustee; provided, however, that except as
provided in paragraph (b) hereof, the Corporation shall indemnify any such
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person seeking indemnification in connection with a proceeding (or part thereof)
initiated by such person only if such proceeding (or part thereof) was
authorized by the Board of Directors of the Corporation. The right to
indemnification conferred in this section shall be a contract right and shall
include the right to be paid by the Corporation the expenses incurred in
defending any such proceeding in advance of the final disposition thereof;
provided, however, that to the extent required by the law, the payment of such
expenses incurred by an officer or director in advance of the final disposition
of a proceeding shall be made only upon receipt of an undertaking, by or on
behalf of such person, to repay all amounts so advanced if it shall ultimately
be determined that he or she is not entitled to be indemnified under this
section or otherwise. The right to indemnification and advancement of expenses
provided herein shall continue as to a person who has ceased to be a director or
officer and shall inure to the benefit of the heirs, executors and
administrators of such person.
8.2 Right to Claimant to Bring Suit.
If a claim under Section 1 of this Article is not paid in full by the
Corporation within thirty (30) days after a written claim has been received by
the Corporation, the claimant may, at any time thereafter, bring suit against
the Corporation to recover the unpaid amount of the claim and, if successful in
whole or in part, the claimant shall be entitled to be paid also the expense of
prosecuting such claim.
8.3 Non-Exclusivity of Rights.
The right to indemnification and the payment of expenses incurred in
defending a proceeding in advance of a final disposition conferred in this
Article VIII shall not be exclusive of any other rights to which those seeking
indemnification or advancement of expenses hereunder may be entitled under any
bylaw, agreement, vote of stockholders or directors or otherwise, both as to
action in his official capacity and as to action in any other capacity while
holding that office.
8.4 Funding.
The Corporation may create a fund of any nature, which may, but need not
be, under the control of a trustee, or otherwise secure or insure in any manner
its indemnification obligations, whether arising under or pursuant to this bylaw
or otherwise.
9. Amendments
These By-laws may be altered, amended or repealed, and new By-laws may be
adopted, by the stockholders, or by the Board of Directors when such power is
conferred upon the Board of Directors by the Certificate of Incorporation.
Dated: April 14, 1999
EX-6.1
JOINT VENTURE AND SUBSCRIPTION AGREEMENT
THIS JOINT VENTURE AND SUBSCRIPTION AGREEMENT ("Agreement") is entered into
this 19th day of March, 1999, by and among International Capri Resources, S.A.
de C.V., a Mexican company ("ICRM"), International Capri Resources Ltd., a
British Columbian company ("ICR"), Arngre, Inc., a Florida corporation
("Arngre") and Zacualpan Minerals, LLC, a Colorado limited liability company
("Zacualpan"), and Alan Stier, an individual ("Stier").
RECITALS
WHEREAS, ICRM is owned 99.8% by ICR and 0.2% by Alan Stier ("Stier");
WHEREAS, the one share of common stock of ICRM owned by Stier is held
merely as an accommodation in order that ICRM may have at least two shareholders
as required by Mexican law;
WHEREAS, ICRM has secured the rights to purchase exclusive royalty-free
exploration and/or exploitation concessions (the "Concessions") covering the
five properties in Mexico that may be silver producing and which are more
specifically described in Schedule A attached hereto and made a part hereof (the
"Properties"), for an aggregate purchase price of $210,000;
WHEREAS, ICRM wishes to accept Arngre and Zacualpan as new Shareholders,
subject to the condition that they make the contributions set forth in this
document and, once such contributions are complete, wishes to increase its
capital stock through the issuance of additional shares of its common stock and,
once that mentioned above has taken place, Alan Stier wishes to transfer the
accommodation share nominally held by the latter such that following such
payment of contributions, capitalization, issuance, subscription and payment of
shares, Arngre will own a 60% interest in ICRM, Zacualpan will own a 20%
interest in ICRM, and ICR will own a 20% interest in ICRM;
WHEREAS, Arngre, Zacualpan, and ICR wish to combine their resources to
provide the funding necessary for ICRM to continue exploring the Properties in
order to possibly acquire and develop the Properties in accordance with the
terms set forth herein; and
WHEREAS, the parties intend ICRM to undertake such exploration activity and
possible development as are consistent with its obligations under this
Agreement;
NOW THEREFORE, the parties hereby agree as follows:
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I. DEFINITIONS
For purposes of this Agreement, the following terms have the meanings
specified or referred to in this Article I:
"Acquiring Party" - as defined in Section 8.2.
"Affiliate"- any entity that the applicable party directly or indirectly
controls, is directly or indirectly controlled by, or is directly or indirectly
under common control with, such applicable party.
"Agreement" - this Joint Venture and Subscription Agreement.
"Approved Program and Budget" - as defined in Section 2.12.3
"Area of Common Interest" - as defined in Section 8.1.
"Arngre" - as defined in the first paragraph of this Agreement.
"Arngre Financial Statements" - as defined in Section 5.6.
"Assets" - all tangible and intangible goods, chattels, improvements or
other items including, without limiting generality, land, buildings and
equipment but excluding the Properties, acquired for or made to the Properties
under this Agreement.
"Board of Directors" - the Board of Directors of ICRM.
"Budget Period" - as defined in Section 2.12.2
"Closing" - as defined in Section 2.7.
"Concessions" - as defined in the Recitals.
"Consent"- any approval, consent, ratification, waiver, or other
authorization (including any Governmental Authorization).
"Contemplated Transactions" - all of the transactions contemplated by this
Agreement, including:
- the deposits/contributions to be made by Arngre, Zacualpan and ICR for
future capital increases in ICRM;
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- the partial capitalization of the contributions for future capital
increases to be made by Arngre, Zacualpan and ICR to ICRM as provided
in this Agreement;
- the issuance, subscription and payment of the Shares, as a consequence
of the aforesaid capitalization;
- the performance by the parties hereto of their respective covenants
and obligations under this Agreement; and,
- the transfer of the one share of ICRM currently owned by Alan Stier in
favor of ICR.
"Contract" - any agreement, contract, obligation, promise or understanding
(whether written or oral and whether expressed or implied) that is legally
binding.
"Deemed Initial Contributions" - as defined in Section 2.13.
"Deemed Total Contributions" - the sum of the value of the Deemed Initial
Contribution, plus the amount that a Shareholder has actually contributed
pursuant to Approved Programs and Budgets, plus any deemed increase in the
amount of such actual contributions pursuant to Section 2.13(b)(3) or so much of
Section 2.12.12 as relates to Section 2.13(b)(3).
"Defaulted Contribution" - as defined in Section 2.12.12.
"Defaulting Shareholder" - as defined in Section 2.12.12.
"Diluting Shareholder" - as defined in Section 2.13.
"Election Amount Difference" as defined in Section 2.13.
"Encumbrance" - any charge, claim, community property interest, condition,
equitable interest, lien, option, pledge, security interest, right of first
refusal, or restriction of any kind, including any restriction of use, voting,
transfer, receipt of income or exercise of any other attribute of ownership.
"Environment" - soil, land surface or subsurface strata, surface waters
(including navigable waters, ocean waters, streams, ponds, drainage basins, and
wetlands), groundwaters, drinking water supply, stream sediments, ambient air
(including indoor air), plant and animal life, and any other environmental
medium or natural resource.
"Environmental Law" - any Legal Requirement applicable in Mexico that
requires or relates to:
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advising appropriate authorities, employees, and the public of
intended or actual releases of pollutants or hazardous substances or
materials, violations of discharge limits, or other prohibitions and of the
commencements of activities, such as resource extraction or construction,
that could have significant impact on the Environment;
preventing or reducing to acceptable levels the release of pollutants
or hazardous substances or materials into the Environment;
reducing the quantities, preventing the release, or minimizing the
hazardous characteristics of wastes that are generated;
assuring that products are designed, formulated, packaged, and used so
that they do not present unreasonable risks to human health or the
Environment when used or disposed of;
protecting resources, species, or ecological amenities;
reducing to acceptable levels the risks inherent in the transportation
of hazardous substances, pollutants, oil, or other potentially harmful
substances;
cleaning up pollutants that have been released, preventing the threat
of release, or paying the costs of such cleanup or prevention; or
making responsible parties pay private parties, or groups of them, for
damages done to their health or the Environment, or permitting
self-appointed representatives of the public interest to recover for
injuries done to public assets.
"Governmental Authorization" - any approval, consent, license, permit,
waiver, or other authorization issued, granted, given, or otherwise made
available by or under the authority of any Governmental Body or pursuant to any
Legal Requirement.
"Governmental Body" - any:
nation, state, county, city, town, village, district, or other
jurisdiction of any nature;
federal, state, local, municipal, foreign, or other government;
governmental or quasi-governmental authority of any nature (including
any governmental agency, branch, department, official, or entity and any
court or other tribunal);
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multinational organization or body; or
body exercising, or entitled to exercise, any administrative,
executive, judicial, legislative, police, regulatory, or taxing authority
or power of any nature.
"ICR" - as defined in the first paragraph of this Agreement.
"ICRM" - as defined in the first paragraph of this Agreement.
"ICRM Financial Records" - as defined in Section 3.4
"Knowledge" - an individual will be deemed to have "Knowledge" of a
particular fact or other matter if:
such individual is actually aware of such fact or other matter; or
a prudent individual could be expected to discover or otherwise become
aware of such fact or other matter in the course of conducting a reasonably
comprehensive investigation concerning the existence of such fact or other
matter.
A Person (other than an individual) will be deemed to have "Knowledge" of a
particular fact or other matter if any individual who is serving, or who has at
any time served, as a director, officer, partner, executor, or trustee of such
Person (or in any similar capacity) has, or at any time had, Knowledge of such
fact or other matter.
"Legal Requirement" - any federal, state, local, municipal, foreign,
international, multinational, or other administrative order, constitution, law,
ordinance, principle of common law, regulation, statute, or treaty, as
applicable .
"Material Contracts" - as defined in Section 3.14.
"Mining Law" - the Mining Law of the Mexican United States currently in
full force and effect, including any other law or statute which in the future
regulates the mining matters in the Mexican United States.
"Net Smelter Returns" - as defined in Schedule 2.14.
"Offer Notice" - as defined in Section 7.4 .
"Offered Shares" - as defined in Section 7.4 .
"Offering Shareholder" - as defined in Section 7.4
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"Operator" - ICR until otherwise determined by the Board of Directors
through a reasoned decision adopted.
"Order" - any award, decision, injunction, judgment, order, ruling,
subpoena, or verdict entered, issued, made, or rendered by any court,
administrative agency, or other Governmental Body or by any arbitrator.
"Ordinary Course of Business" - an action taken by a Person will be deemed
to have been taken in the "Ordinary Course of Business" only if:
such action is consistent with the past practices of such Person and
is taken in the ordinary course of the normal day-to-day operations of such
Person;
such action is not required to be authorized by the Board of Directors
of such Person (or by any Person or group of Persons exercising similar
authority) and is not required to be specifically authorized by the parent
company (if any) of such Person; and
such action is similar in nature and magnitude to actions customarily
taken, without any authorization by the Board of Directors (or by any
Person or group of Persons exercising similar authority), in the ordinary
course of the normal day-to-day operations of other Persons that are in the
same line of business as such Person.
"Organizational Documents" - (a) the articles or certificate of
incorporation and the bylaws of a corporation; (b) any charter or similar
document adopted or filed in connection with the creation, formation, or
organization of a Person; and (c) any amendment to any of the foregoing.
"Owner" - as defined in Schedule 2.14.
"Pending Period" - as defined in Section 7.8.
"Person" - any individual, corporation (including any non-profit
corporation), general or limited partnership, limited liability company, joint
venture, estate, trust, association, organization, labor union, or other entity
or Governmental Body.
"Proceeding" - any action, arbitration, audit, hearing, investigation,
litigation, or suit (whether civil, criminal, administrative, investigative, or
informal) commenced, brought, conducted, or heard by or before, or otherwise
involving, any Governmental Body or arbitrator.
"Polo y Ron"- Polo y Ron Minerales S.A. de C.V.
"Properties" - as defined in the Recitals.
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"Property Option Documents" - the Contracts pursuant to which ICRM acquired
from Polo y Ron the rights and obligations the latter had towards the
Titleholders of the Concessions, and whereby ICRM has an option to acquire said
Concessions.
"Property Closing" - the closing of the transaction between ICRM and Polo y
Ron under the Property Option Documents.
"proposed Program and Budget" - as defined in Section 2.12.2.
"Regulations to the Mining Law" - the regulations to the Mining Law of the
Mexican United States as then in effect.
"Related Person" - with respect to a specified Person other than an
individual:
any Person that directly or indirectly controls, is directly or indirectly
controlled by, or is directly or indirectly under common control with, such
specified Person;
any Person that holds a Material Interest in such specified Person;
each Person that serves as a director, officer, partner, executor, or
trustee of such specified Person (or in a similar capacity);
any Person in which such specified Person holds a Material Interest;
any Person with respect to which such specified Person serves as a
general partner or a trustee (or in a similar capacity); and
any spouse or former spouses of any individual described in clause (b)
or (c); any natural person related to any individual described in clause
(b) or (c) or such individual's spouse within the second degree; or any
other natural person who resides with any individual described in clause
(b) or (c).
For purposes of this definition, "Material Interest" means direct or
indirect beneficial ownership (as defined in Rule 13d-3 under the Securities
Exchange Act of 1934) of voting securities or other voting interests
representing at least 40% of the outstanding voting power of a Person or equity
securities or other equity interests representing at least 40% of the
outstanding equity securities or equity interests in a Person.
"Representative" - with respect to ICR, Arngre and Zacualpan , any
director, officer, employee, agent, consultant, advisor, or other representative
of such Person, including legal counsel, accountants, and financial advisors;
with respect to ICRM, any director, manager, attorney-in-fact or other expressly
authorized representative of ICRM, in accordance with the Mexican laws.
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"Section," "Article" - any section or article of this Agreement, unless the
context otherwise requires.
"Securities Act" - the Securities Act of 1933 or any successor law, as
amended, and regulations and rules issued pursuant to that Act or any successor
law.
"Shareholder(s)" - the Shareholders of ICRM (excluding Alan Stier following
the transfer of his share pursuant to Section 2.5), including ICR and, once the
contributions to be made by Arngre and Zacualpan are capitalized pursuant to
Section 2.4., this definition shall include Arngre and Zacualpan.
"Shares" - the new non-par value shares of common stock of ICRM, to be
issued by ICRM and to be subscribed and paid by Arngre, Zacualpan and ICR
pursuant to this Agreement.
"Subsidiary" - with respect to any Person (the "Owner"), any corporation or
other Person of which securities or other interests having the power to elect a
majority of that corporation's or other Person's Board of Directors or similar
governing body, or otherwise having the power to direct the business and
policies of that corporation or other Person (other than securities or other
interests having such power only upon the happening of a contingency that has
not occurred) are held by the Owner or one or more of its Subsidiaries.
"Tax" - any tax (including but not limited to any income tax, capital gains
tax, value-added tax, sales tax, property tax, gift tax, or estate tax), levy,
assessment, tariff, duty (including any customs duty), deficiency, or other fee,
and any related charge or amount (including any fine, penalty, interest, or
addition to tax), imposed, assessed, or collected by or under the authority of
any Governmental Body or payable pursuant to any tax-sharing agreement or any
other Contract relating to the sharing or payment of any such tax, levy,
assessment, tariff, duty, deficiency, or fee.
"Tax Return" - any return (including any information return), report,
statement, schedule, notice, form, or other document or information filed with
or submitted to, or required to be filed with or submitted to, any Governmental
Body in connection with the determination, assessment, collection, or payment of
any Tax or in connection with the administration, implementation, or enforcement
of or compliance with any Legal Requirement relating to any Tax.
"Threatened" - a claim Proceeding, dispute, action, or other matter will be
deemed to have been "Threatened" if any demand or statement has been made
(orally or in writing) or any notice has been given (orally or in writing), or
if any other event has occurred or any other circumstances exist, that would
lead a prudent Person to conclude that such a claim Proceeding, dispute, action,
or other matter is likely to be asserted, commenced, taken, or otherwise pursued
in the future.
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"Titleholders of the Concessions" - as of the date of this Agreement, means
Hector Esquivel with respect to "El Volado" and "La Cadena" concessions; Felix
Gomez with respect to "El Quinto II" and "El Cometa Navideno" concessions; and,
Felix Gomez and Zenon Flores, with respect to "Los Compadres" concession.
"Transfer" - to sell, assign, transfer, pledge, mortgage, assign for
security purposes, hypothecate or dispose of.
"Transfer Shares" - as defined in Section 2.14.
"Zacualpan" - as defined in the first paragraph of this Agreement.
"Zacualpan Tax Returns" - as defined in Section 4.5.
II DEPOSITS; CONTRIBUTIONS FOR FUTURE CAPITAL INCREASES;
CAPITALIZATION OF CONTRIBUTIONS; AND,
ISSUANCE OF SHARES OF ICRM.
2.1. Deposits by Arngre. Arngre agrees that on the date of this Agreement,
it shall make a deposit to ICRM in the amount of $25,000 U.S. in order to
guarantee its obligation to contribute the total amount mentioned in Section
2.3. Subject to Section 2.3. below, Arngre agrees that it shall make a deposit
in the additional amount of $150,000 U.S. (cumulative $175,000 U.S.) within
seven (7) business days of the date of this Agreement, and a further additional
amount of $218,750 U.S. (cumulative $393,750 U.S.) within twenty (20) business
days of the date of this Agreement.
2.2. Deposit by Zacualpan. The parties acknowledge that Zacualpan has
deposited $131,250 U.S. to ICRM as of the date of this Agreement, and such
deposit shall be credited against, and as full payment of, Zacualpan's
obligation described in Section 2.3(c) below.
2.3. Full Payment of Contributions upon Closing. At the Closing (as such
term is defined in Section 2.7), ICR, Arngre and Zacualpan shall have paid their
respective contributions to ICRM, to be used by ICRM to cover subsequent
exploration expenses, option payments to be made to the Titleholders of the
Concessions and the possible purchase and initial phase of development of the
Properties, which ICR, Arngre and Zacualpan acknowledge will require expenditure
of approximately $775,000 U.S. Given the above, ICR, Arngre and Zacualpan agree
to provide such funds to ICRM at or before the Closing in the following manner:
(a) The first $250,000 U.S. required by ICRM for such activities shall be
provided by ICR on or before the Closing as a contribution for future
capital increases of
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ICRM. The parties acknowledge that ICR has contributed $250,000 U.S.
directly or indirectly to ICRM as of the date of this Agreement, and
such contribution shall be credited against ICR's obligation described
in the preceding sentence.
(b) The next $393,750 U.S. required by ICRM will be provided by Arngre on
or before the Closing in the form of a deposit to be converted into a
contribution for future capital increases as set forth in Section 2.1
hereof.
(c) The remaining $131,250 U.S. required by ICRM will be provided by
Zacualpan also in the form of a deposit to be converted into a
contribution for future capital increases. The parties acknowledge
that Zacualpan has contributed $131,250 U.S. to ICRM as of the date of
this Agreement, and such contribution shall be credited against
Zacualpan's obligation described in the preceding sentence.
2.4. Shareholders' Meeting; Partial Capitalization of Contributions made by
Arngre, Zacualpan and ICR. On the date of the Closing, ICRM shall hold a General
Extraordinary Shareholders' Meeting in order to approve (i) the admission of
Arngre and Zacualpan as new Shareholders of ICRM, in the proportion of 60% and
20%, respectively; (ii) an increase of the capital stock of ICRM in order for
such capital stock to equal the total amount of $6,369,000 MexCy ($656,239.37
U.S. at an exchange rate of $9.7053 pesos MexCy per one U.S. dollar),
represented by 63,690 non-par value shares of common stock of ICRM non
assessable; and (iii) the amendment and restatement of the right of first
refusal provisions in ICRM's bylaws applicable to the shares of common stock of
ICRM as set forth in Section 7.4. At the Closing, the Shares shall be considered
as fully subscribed and paid by the Shareholders and shall be issued to the
Shareholders, all in the following manner:
(i) From the total amount contributed by ICR under Section 2.3, only
$126,096.06 U.S. (equal to $1,223,800 MexCy at the same exchange rate
of $9.7053 pesos MexCy per one U.S. dollar) shall be capitalized and
12,238 shares of ICRM shall be issued; which shares together with the
shares already owned by ICR as of the date of this Agreement (499) and
the share to be acquired from Alan Stier (1) pursuant to Section 2.5.,
will result in ICR owning 12,738 Shares of ICRM, representing 20% of
ICRM's capital stock.
(ii) From the total amount contributed by Arngre under Section 2.3, only
$393,743.63 U.S. (equal to $3,821,400 MexCy at the same exchange rate
of $9.7053 pesos MexCy per one U.S. dollar) shall be capitalized and
38,214 Shares of ICRM shall be issued to Arngre, in order for the
latter to be considered as the owner of Shares representing 60% of
ICRM's capital stock.
(iii) From the total amount contributed by Zacualpan under Section 2.3,
only $131,247.88 U.S. (equal to $1,273,800 MexCy at the same exchange
rate of $9.7053 pesos MexCy per one U.S. dollar) shall be capitalized
and 12,738
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Shares of ICRM shall be issued to Zacualpan, in order for the latter
to be considered as the owner of Shares representing 20% of ICRM's
capital stock
2.5. Transfer of One Share by Alan Stier. Immediately after the capital
increase contemplated in Section 2.4. takes place, Alan Stier shall transfer the
share he owns in ICRM in favor of ICR, for a total price of $10 U.S.
2.6. Failure by Arngre to make Contributions. It is expressly agreed that
Arngre will not be formally considered as a Shareholder of ICRM until Arngre has
contributed the amount set forth in Section 2.3(b); therefore, in the event that
Arngre fails to timely make the contributions required by Section 2.1, Arngre
shall forfeit the right to receive any Shares of ICRM and have no further
obligations under this Agreement, and the deposits made by Arngre shall be
applied as a contractual penalty (liquidated damages of ICRM); provided,
however, that any deposit made by Arngre to ICRM that has not been expended or
irrevocably committed to be expended as of such date for exploration expenses,
option payments to be made to the Titleholders of the Concessions and possible
purchase and initial development of the Properties shall be returned by ICRM to
Arngre within 10 days. Upon the application of the deposits made by Arngre as a
contractual penalty in accordance with the terms hereof, the parties hereto
shall have no other remedy against Arngre for breach of its obligations under
Sections 2.1. and 2.3.(b). Arngre acknowledges that its failure to make the
contributions described in Sections 2.1. and 2.3.(b) would cause irreparable
harm to ICRM, ICR and Zacualpan, that it would be difficult or impossible to
measure the amount or nature of such harm, and that monetary damages for any
such failure would not provide an adequate remedy. Arngre therefore agrees that
the provisions of this Section 2.6. are fair and reasonable and shall be
specifically enforceable.
Arngre expressly states that the application of the deposits as a contractual
penalty has been duly authorized by Arngre and that the application of the
deposits as a contractual penalty will not violate, result in a breach of,
conflict with or (with or without that giving of notice or the passage of time
or both) entitle any party to call a default under any contract, agreement or
understanding to which Arngre is a party .
In the event that Arngre fails to pay the amount set forth in Section 2.3(b) at
or before the Closing, the amounts to be used for the partial capitalization of
contributions made by ICR and Zacualpan as contemplated in Section 2.4. above
will be adjusted so that Zacualpan shall be entitled to receive Shares
representing 34.4% of ICRM's capital stock, and ICR shall be entitled to receive
Shares representing 65.6% of ICRM's capital stock, and the Deemed Initial
Contributions of Zacualpan and ICR, respectively, set forth in Section 2.13
shall be adjusted accordingly.
2.7. Closing. Within ten calendar (10) days of the later to occur of (x)
twenty business days after the date of this Agreement and (y) the issuance of
the regulatory approvals from the Vancouver Stock Exchange required by Section
7.3., the closing of this transaction (the "Closing") shall occur at the offices
of Buchanan Ingersoll Professional Corporation, Eleven
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Penn Center, 14th Floor, 1835 Market Street, Philadelphia, Pennsylvania
19103, at 12:00 P.M. (local time), or at such other time and place as the
parties hereto may agree. Parties may participate in the Closing by telephone
and documents may be exchanged by facsimile transmission. Facsimile signatures
shall, for all purposes, be as fully effective as signed originals, but the
parties nonetheless agree to provide signed originals as requested. At the
Closing the following shall occur:
(a) ICR and ICRM shall deliver to Arngre and Zacualpan the following:
(1) A legal opinion of Miranda Estavillo Staines y Pizarro-Suarez,
Mexican legal counsel to ICRM, to the effect that:
(A) the Shares have been duly authorized by all necessary corporate
action of ICRM and upon issuance of the Shares, subscription and
capitalization of the contribution for future capital increases as
contemplated in Section 2.4 (or, in the event that Arngre fails to pay the
amount set forth in Section 2.3(b), as adjusted pursuant to the last
paragraph of Section 2.6), the Shares will be validly issued, fully paid and
non-assessable; and that holders of shares of ICRM outstanding immediately
prior to the Closing have waived their preemptive rights with respect to the
issuance of the aforesaid Shares;
(B) with respect to the Shares, by virtue of Arngre's and Zacualpan's
ownership of the Shares after full payment therefor in accordance with the
terms of Section 2.4 of this Agreement, neither Arngre nor Zacualpan, nor any
of their officers, directors, shareholders, managers or members will have any
liability to contribute any funds to ICRM;
(C) upon the issuance of the Shares and receipt of the Shares,
Arngre's and Zacualpan's ownership in the Shares will be valid and free
and clear of any and all Encumbrances, with the exception of the amended and
restated right of first refusal provisions in the By-laws of ICRM adopted at
the General Extraordinary Shareholders' Meeting in accordance with Section
7.4. of this Agreement;
(D) there are no restrictions under Mexican law on Arngre and
Zacualpan having (x) direct ownership interest in ICRM or (y) indirect
ownership of mining interests in Mexico;
(E) no steps have been, or are being taken, for the appointment of a
receiver of, or a liquidator to, or for the dissolution, reconstruction or
reorganization of ICRM;
(F) except for that provided in Section 7.3. of this Agreement, no
consent, approval, authorization or order of, or filing, registration or
qualification with, any Mexican governmental agency, body or court is
required in connection with the receiving of contributions for future capital
increases, further capitalization of said contributions
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contemplated in this document and the issuance of the Shares to Arngre and
Zacualpan;
(G) ICRM has the corporate power to execute, deliver and perform this
Agreement;
(H) all necessary corporate action of ICRM has been taken to
authorize the execution, delivery and performance of this Agreement by
ICRM and the consummation by ICRM of the transactions contemplated by this
Agreement;
(I) this Agreement is enforceable in accordance with its terms
against ICRM under Mexican Legal Requirements;
(J) the execution and delivery by ICRM of, and the performance of its
agreements and covenants in, this Agreement do not: (x) violate the
Organizational Documents of ICRM, (y) in any material respect constitute a
default under, and are not restricted by, the terms of any agreement material
to ICRM or any Order binding on ICRM, or (z) violate any applicable Legal
Requirement under Mexican law;
(K) that, upon: (i) payment in full of the purchase price for the
Concessions; (ii) full compliance of the other obligations of ICRM under the
Property Option Documents and, with respect to the El Volado lot, upon
conversion of ICRM's exploration Concession with respect to such lot into an
exploitation Concession; (iii) execution and ratification of the definitive
contracts of assignment of rights to be entered into with the Titleholders of
the Concessions, should the right to acquire said Concessions be exercised;
and, (iv) filing and recording of the aforesaid contracts with the Public
Registry of Mining, ICRM shall, assuming that the Titleholders of the
Concessions are not in breach of the Property Option Documents, have: (x)
good and marketable title to, and exclusive rights in, the Concessions, and
(y) the right to exploit such Properties in accordance with the laws of the
Mexican United States, and in accordance with the Concessions, including the
production of silver ore therefrom, in accordance with standard commercial
practice acceptable under Mexican Legal Requirements, free and clear of any
restriction on its title or any legal or other regulatory limitation which
may exist under the laws of Mexico or any subdivision thereof acceptable
under Mexican Legal Requirements (excluding any change of the applicable
Legal Requirements of the Mexican United States effectuated between the date
hereof and the date on which ICRM acquires the Concessions);
(L) that should the right to acquire the Concessions be exercised by
ICRM pursuant to the Property Option Documents, ICRM shall acquire the
Concessions free and clear of any material liens, levies or Encumbrances not
otherwise disclosed in this Agreement, subject to the fact of whether any
Encumbrance has been imposed by a creditor of the Titleholders of the
Concessions or as a result of a breach of the Titleholders of the Concessions
under the Property Option Documents between the date of this Agreement and
the date on which ICRM acquires the Concessions.
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(M) that upon: (i) payment in full of the purchase price for the
Concessions; (ii) full compliance of the other obligations of ICRM under the
Property Option Documents; (iii) execution and ratification of the definitive
contracts of assignment of rights to be entered into with the Titleholders of
the Concessions should the right to acquire the Concessions be exercised by
ICRM under the Property Option Documents; and, (iv) filing and recording of
the aforesaid contracts with the Public Registry of Mining, ICRM shall have
(x) good, marketable and valid title to, and exclusive rights in, all
exploration and exploitation Concessions, mineral extraction and mining
rights relating to the Properties in accordance with the Mining Law, its
Regulations and any other applicable legal provisions in Mexico, free and
clear of any and all Encumbrance, subject to the fact of whether any
Encumbrance has been imposed by a creditor of the Titleholders of the
Concessions or as a result of a breach of the Titleholders of the Concessions
under the Property Option Documents between the date of this Agreement and
the date on which ICRM acquires the Concessions, and (y) the right to exploit
the Properties and extract silver ore therefrom, in accordance with the laws
of the Mexican United States, in accordance with the Concessions and in
accordance with standard commercial practice acceptable under Mexican laws.
(N) ICRM is a Mexican mining company incorporated under the laws of
the Mexican United States, and is recorded at the Public Registry of
Mining and with any other competent Mexican Governmental Body and is
accordingly capable to hold mining concessions and to enter into contracts
which subject matter are mining concessions located in Mexico, as required
under Mexican law; given the above, should the right to acquire the
Concessions be exercised, ICRM will be authorized to own the mining rights in
the Properties, to explore the Properties for silver ore, to extract silver
ore from the Properties and otherwise exploit the Properties for silver and
silver ore, all in accordance with the laws of the Mexican United States and
in accordance with the Concessions.
(O) with exception of the applicable provisions of the Mexican Tax
Laws and any other legal provisions applicable in Mexico, there are no
foreign exchange or other laws affecting ICRM's ability to pay profits,
distributions or other payments to Arngre and Zacualpan; and
(P) there are no Mexican laws requiring tax treatment of non-Mexican
Shareholders different from that of Mexican individuals being shareholders of
a Mexican corporation receiving profits, distributions or other payments from
the Mexican corporation; and
(Q) to the Knowledge of ICRM's Mexican counsel, there are no
outstanding Taxes which are due and payable (x) by ICRM or (y) on the
Concessions.
(2) A certificate executed by the Chief Executive Officer of ICRM and
ICR, respectively, representing and warranting to Arngre and Zacualpan that
each of the
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representations and warranties made in this Agreement by ICRM and ICR,
respectively, are true and correct in all respects as of the time of Closing.
(3) Share certificates in the name of Arngre evidencing ownership of
60% of all of the outstanding capital stock of ICRM.
(4) Certificates for Shares in the name of Zacualpan evidencing
ownership of 20% of all of the outstanding capital stock of ICRM.
(b) Arngre will deliver to ICRM the following:
(1) Any required contributions to bring its total contributions to
$393,750 U.S. as contemplated by Section 2.3.(b) in immediately available
funds for the corresponding capitalization and full payment of the Shares
representing 60% of all of the outstanding capital stock of ICRM.
(2) A certificate executed by the Chief Executive Officer of Arngre to
the effect that, each of Arngre's representations and warranties in this
Agreement is accurate in all respects as of the date of the Closing;
provided, however, that in the event that Arngre has changed its jurisdiction
of incorporation to Delaware as of the date of Closing, in lieu of the
representation set forth in Section 5.1 regarding its status under the laws
of Florida, Arngre shall represent and warrant that it is is duly
incorporated, validly existing, and in good standing under the laws of the
state of Delaware.
(c) Zacualpan will deliver to ICRM a certificate executed by the
Executive Manager of Zacualpan to the effect that each of Zacualpan's
representations and warranties in this Agreement is accurate in all respects
as of the date of the Closing.
(d) Alan Stier shall transfer for $10 U.S. the share of ICRM he owns in
favor of ICR.
(e) ICR shall make the capital contribution required by Section 2.3(a)
(if any).
2.8. Business of ICRM. Immediately after the Closing, ICRM shall
diligently continue the exploration of the Properties and, should the results
of the exploration stage be positive and the General Shareholders' Meeting of
ICRM or the Board of Directors of ICRM decides to exercise the option to
acquire the Concessions, ICRM shall diligently engage in the development of
the Properties for the production of silver and other valuable minerals.
2.9. Corporate Governance. ICRM shall have a Board of Directors of
three members, one of whom shall be designated by each of the Shareholders,
provided, however, that
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no Shareholder shall have the right to designate a board member if such
Shareholder's percentage stock interest in ICRM falls below 10%. All actions
by the Board of Directors shall be taken by simple majority vote at a
properly convened meeting, except as otherwise required by the laws of
Mexico.
Notwithstanding that mentioned in the preceding paragraph, the following
matters shall be considered as special matters and, therefore, must be
adopted by unanimous vote at the Board of Directors or by the favorable vote
of 82% of the Shares representing the outstanding capital stock of ICRM if
adopted in a General Shareholders' Meeting:
(a) the abandonment, assignment, sale or any other form or manner of
disposition of rights over mining concessions or properties owned
by ICRM, as well as the abandonment, assignment, sale or any other
form or manner of disposition of any Assets or group of Assets
which individual or joint value surpasses $50,000 U.S. or its
equivalent in Mexican currency, unless otherwise contemplated in an
Approved Program and Budget;
(b) the performance or carrying out of any other activity different
than the evaluation, exploration, development and exploitation of
mining concessions or mining properties;
(c) the suspension of operations;
(d) the terms and conditions to entrust each new operator different
than ICR, the performance of its duties; and,
(e) the adoption of an Approved Program and Budget that assumes or is
likely to result in operational losses with respect to an operating
mine.
2.10. Additional Interests. No Shareholder nor any other party shall
acquire any additional equity interest in ICRM, or any interest that may be
converted into an equity interest, except as provided in this Agreement or
with the express written consent of the other Shareholders.
2.11. Development of Properties. The Shareholders shall use reasonable
good faith efforts to cause ICRM to explore and, should the right to acquire
the Concessions covering the Properties be exercised, to develop the
Properties in a diligent and commercially reasonable manner.
2.12. Additional Financing (Exploration Programs, Budgets and
Contributions)
2.12.1 Operations to be Conducted Pursuant to Approved Programs and
Budgets. Except as otherwise provided in sections 2.12.5 and 2.12.6,
operations will be conducted, costs
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will be incurred, and Assets will be acquired only in accordance with
Approved Programs and Budgets.
2.12.2 Preparation of Programs and Budgets. On or before November 30
in each year, the Operator shall prepare and submit to the Board of Directors a
proposed Program and Budget (the "proposed Program and Budget") with respect to
its proposed activities for the ensuing Budget Period provided therein (the
"Budget Period"). Each such proposed Program and Budget will be in a form and
degree of detail approved by the Board of Directors, which once established will
thereafter be utilized, unless the Board of Directors otherwise determines, but
in any event will be sufficient for each Shareholder to form a reasoned decision
with respect to the merits thereof and the results sought to be achieved. Upon
request by any Shareholder, the Operator will provide such additional
information as such Shareholder may reasonably request in respect of any
proposed Program and Budget. The Operator shall be entitled to an allowance for
a cost overrun of 10% in addition to any budgeted exploration costs and any
costs so incurred shall be deemed to be incurred in the Program, as adopted.
2.12.3 Adoption of Programs and Budgets. Within not less than fifteen
(15) days and not more than thirty (30) days after submission of the proposed
Program and Budget by the Operator to the Board of Directors, the Board of
Directors will hold a meeting at which the directors will, for each proposed
Program and Budget:
(a) approve the proposed Program and Budget;
(b) propose modifications to the proposed Program and Budget; or
(c) reject the proposed Program and Budget.
If the Board of Directors approve the proposed Program and Budget or some
modification thereof, the proposed Program and Budget thus approved will be the
Approved Program and Budget (the "Approved Program and Budget") for the ensuing
Budget Period for the activities concerned. If the Board of Directors proposes
modifications to or rejects a particular proposed Program and Budget, the
Operator will immediately endeavor in good faith to develop, within ten (10)
days of such meeting of the Board of Directors or as otherwise directed by the
Board of Directors, a revised proposed Program and Budget for the ensuing Budget
Period which will then be presented to the Board of Directors for approval in
accordance with the terms of this Section 2.12.3.
2.12.4 Failure of the Board of Directors to Adopt Programs and Budgets.
If the Board of Directors fails, for any reason, to approve a proposed
Program and Budget by January 31 in any year, the Operator will be authorized
to stop operations, just taking care of maintaining the concessions and other
properties in good standing, for which purpose the Operator will be
authorized to make the strictly necessary expenditures.
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2.12.5 Budget Overruns. An Operator will not exceed an Approved Program
and Budget by more than ten (10%) percent unless expressly authorized by a
unanimous resolution of the Board of Directors. Approved Program and Budget
overruns in excess of ten (10%) percent which are approved by the Board of
Directors will be paid out of funds from operations or project financing, if
available, and if not available will be borne by the Shareholders in
proportion to their respective ownership interests as of the time the overrun
occurs. Approved Program and Budget overruns in excess of ten (10%) percent
which are not approved by the Board of Directors will be the sole
responsibility and obligation of the Operator incurring the same and will not
count as contributions for any purposes.
2.12.6 Emergency and Unexpected Expenditures. Notwithstanding any other
provision of this Agreement, in case of emergency, an Operator may take any
reasonable action it deems necessary to protect life or property, to protect
the Properties and the Assets or to comply with law or government regulation.
The Operator doing so will promptly notify the Board of Directors of any
emergency expenditure. The costs of actions resulting from emergencies will
be borne by the Shareholders in proportion to their respective ownership
interests as of the time the emergency occurs.
2.12.7 Amendment of Approved Programs and Budgets. At any time, if it in
good faith believes that an Approved Program and Budget should be revised or
amended, the Operator may propose a revision or amendment to an Approved
Program and Budget, in which event the procedures of Section 2.12.3 will
apply. If as a result of such proposed amendment, an Approved Program and
Budget is revised, each Shareholder will make one of the elections specified
in Section 2.12.8 with respect to such revised Approved Program and Budget,
within the time therein specified.
2.12.8 Election to Participate in Approved Programs and Budgets.
Forthwith upon approval of an Approved Program and Budget, copies will be
sent to each Shareholder.
Within thirty (30) days after receipt of an Approved Program and Budget, each
Shareholder will notify ICRM and each of the other Shareholders in writing of
its election to contribute to such Approved Program and Budget:
(a) in proportion to its respective ownership interest as of the
beginning of the Budget Period covered by the Approved Program and
Budget;
(b) in some lesser amount than its respective ownership interest
proportion as of the beginning of the Budget Period covered by the
Approved Program and Budget; or
(c) not at all.
If a Shareholder elects to participate in an amount less that its ownership
interest proportion, its
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ownership interest will be recalculated as provided in Section 2.13. If
a Shareholder fails to so notify the Board of Directors of its election with
respect to such an Approved Program and Budget within such thirty (30) day
period, the Shareholder will be deemed to have elected not to contribute to
such Approved Program and Budget at all, and the other Shareholders which
have subscribed will have a period of thirty (30) days to elect to contribute
pro rata based on their respective ownership interest in ICRM (not including
the non-contributing Shareholder's interest) the amount of such Approved
Program and Budget not then subscribed, and if they elect to do so, the
ownership interest of the Shareholders will be recalculated as provided in
Section 2.13. If such Approved Program and Budget is still not fully
subscribed, then the Board of Directors may curtail or modify the Approved
Program and Budget to be consistent with the level of funding subscribed by
the Shareholders. The Operator will not proceed with an Approved Program and
Budget which is not fully subscribed.
2.12.9 Approved Programs to be Fully Subscribed. If, following all
elections having been made pursuant to Section 2.12.8 an Approved Program and
Budget is not fully funded and subscribed within one hundred and twenty (120)
days following the notice of approval of an Approved Program and Budget sent
by the Board of Directors to each Shareholder, then the other Shareholders
which have subscribed will have a period of fifteen (15) days to elect to
contribute pro rata based on their respective ownership interest in ICRM (not
including the non-contributing Shareholder's interest) the amount of such
Approved Program and Budget not then funded, and if they elect to do so, they
shall have a further ninety (90) days to fund the Approved Program and Budget
and the ownership interests of the Shareholders, with respect to the
additional amount funded, will be recalculated as provided in Section
2.12.12. If such Approved Program and Budget is still not fully subscribed,
then the Board of Directors may curtail or modify the Approved Program and
Budget to be consistent with the level of funding subscribed by the
Shareholders. The Operator will not proceed with an Approved Program and
Budget which is not fully subscribed.
2.12.10 Contributions to Fund Programs and Budgets. Each Shareholder
which has elected to participate in an Approved Program and Budget will
contribute pro rata its elected share of contributions.
2.12.11 Contributions by Way of Capital. Contributions by Shareholders
will be made by means of straight capital contributions to ICRM. Within
fifteen (15) days following the last contribution made pursuant to Section
2.12.9, ICRM shall hold a General Extraordinary Shareholders' Meeting to
approve the corresponding increase of the capital stock in its variable
portion, to the same extent of all the contributions made by the Shareholders
to the respective Approved Program and Budget.
2.12.12 Default in Making Contributions. In the event that a Shareholder
agrees to make contributions to an Approved Program and Budget but fails to
make timely any such contribution (such Shareholder being referred to herein
as a "Defaulting Shareholder" and such failed contribution being referred to
herein as a "Defaulted Contribution"), the ownership
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interests of the Shareholders shall be reduced as of the date of the
Defaulted Contribution in the manner described in Section 2.13 as if the
Defaulting Shareholder had originally elected not to contribute the Defaulted
Contribution to the Approved Program and Budget in question, provided,
however, that for this purpose the reference in Section 2.13(b)(3) to 150%
shall be changed to 200%.
In addition, the Non-Defaulting Shareholders shall have the right but
not the obligation to contribute the amount of such Defaulted Contribution,
which shall be considered for purposes of the foregoing calculation an amount
that they agree to contribute to the Approved Program and Budget. If two
Non-Defaulting Shareholders wish to make such contribution, they shall have
the right to share in such contribution pro rata to their ownership
interests.
For example, assume the first capital call is for $100,000 and Arngre
elects to contribute the full amount of the capital call ($60,000) but only
contributes $30,000, and Zacualpan and ICR each agree to contribute their
full share of $20,000 plus make up Arngre's $30,000 deficiency equally
($15,000 each). The ownership interest of Arngre would be computed as
follows: ($465,000 + $30,000)/($775,000 + $30,000 + [2 X $70,000]) X 100 =
52.4%.
The non-Defaulting Shareholders' respective ownership interests in ICRM
shall, at such time, be recalculated by subtracting the total ownership
interests of the Defaulting Shareholders, as computed above, from 100 and
dividing the result among the Non-Defaulting Shareholders in proportion to
their ownership interests immediately prior to the default. Notwithstanding
the foregoing but subject to Section 2.14 hereof, a Defaulting Shareholder
shall be entitled to receive details of and contribute to future Programs and
Budgets to the extent of its then ownership interest.
Within fifteen (15) days of a default by a Shareholder under this
Section, ICRM shall hold a General Extraordinary Shareholders' Meeting as
contemplated in Section 2.12.11 to increase ICRM's capital stock in its
variable portion and to effectuate the dilution of the Defaulting
Shareholder's interest in ICRM by issuing the requisite number of Shares of
ICRM Common Stock to the non-Defaulting Shareholders.
2.13. Voluntary Dilution Provision. If one or more, but not all,
Shareholders elect to contribute to an Approved Program and Budget some
lesser amount than that corresponding to their respective ownership interest
in ICRM (the difference between the amount in proportion to each such
Shareholder's respective ownership interests and the amount such Shareholder
elects to contribute being referred to as the "Election Amount Difference"),
or elect to contribute not at all (such Shareholders being referred to herein
as "Diluting Shareholders"), the ownership interest of each Diluting
Shareholder shall be computed by the following formula:
a. The sum of
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(1) The Diluting Shareholder's Deemed Total Contributions prior to the
adoption of the Approved Program and Budget, plus
(2) The amount the Diluting Shareholder has agreed to contribute to the
Approved Program and Budget
shall be divided by
b. The sum of
(1) The Deemed Total Contributions prior to the adoption of the Approved
Program and Budget of all Shareholders, plus
(2) The amount all the Diluting Shareholders have agreed to contribute
to the Approved Program and Budget, plus
(3) 150% of the amount that the other Non-Diluting Shareholders have
agreed to contribute to the Approved Program and Budget, and
c. Multiplying the result by 100.
For example, assume the first capital call is for $100,000 and Arngre
elects to contribute only $30,000, and Zacualpan and ICR each agree to
contribute their full share of $20,000 plus one-half the amount that Arngre
could have contributed but did not contribute, or $15,000. The ownership
interest of Arngre would be computed as follows: ($465,000 +
$30,000)/($775,000 + $30,000 + [1.5 X $70,000]) X 100 = 54.4%.
The ownership interest of the Non-Diluting Shareholders shall be
calculated by subtracting the total ownership interests of the Diluting
Shareholders, as computed above, from 100 and dividing the result among the
Non-Diluting Shareholders in proportion to their ownership interests
immediately prior to the Approved Program and Budget in question.
In addition, the Non-Diluting Shareholders shall have the right but not
the obligation to contribute the amount of the Election Difference, which
shall be considered for purposes of the foregoing calculation an amount that
they agree to contribute to the Approved Program and Budget. If two
Non-Diluting Shareholders wish to make such contribution, they shall have the
right to share in such contribution pro rata to their ownership interests.
Within fifteen (15) days of notice by any Shareholder of its election to
contribute a lesser amount of its ownership interest in ICRM, and upon
payment of the contributions of the other Shareholders, ICRM shall hold a
General Extraordinary Shareholders' Meeting as contemplated in Section
2.12.11 to increase ICRM's capital stock in its variable portion and to
effectuate the dilution of the Diluting Shareholder's interest in ICRM by
issuing the requisite number of Shares of ICRM Common Stock to the
Non-Diluting Shareholders. Notwithstanding the foregoing but subject to
Section 2.14. hereof, the Diluting Shareholder whose ownership interest has
been
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reduced pursuant to this Section, shall be entitled to receive details
of and to contribute to future Programs and Budgets to the extent of its then
ownership interest in ICRM.
On the date of the Closing, the Shareholders' respective ownership
interests and deemed initial contributions (each, a "Deemed Initial
Contribution") shall be as follows:
Shareholder Deemed Initial Contribution Ownership Interest
ICR $155,000 U.S. 20%
Arngre $465,000 U.S. 60%
Zacualpan $155,000 U.S. 20%
$775,000 U.S. 100%
2.14. Participation to be Converted into a Royalty. If the effect of the
application of Section 2.12.12 or 2.13 is to reduce the ownership interest of
any Shareholder of ICRM less than 1% , such Shareholder shall then be deemed
to have assigned and conveyed its Shares to the other Shareholders, if more
than one then in proportion to their respective ownership interests, and
shall be entitled to receive as its sole remuneration and benefit in
consideration of that assignment and conveyance of its Shares, by way of a
royalty, 0.5% of Net Smelter Returns (as set forth on Schedule 2.14 hereto).
The maximum aggregate percentage of Net Smelter Returns that shall be payable
to one or more former Shareholders pursuant to this Section 2.14. shall not
exceed 1%.
The Shares to be assigned and conveyed according to this Section 2.14 are
referred to herein as the "Transfer Shares". The Transfer Shares shall be
apportioned between the remaining Shareholders based on their respective stock
ownership in ICRM. Within ten (10) days of this Section 2.14. coming into
effect, the transferring Shareholder shall deliver to the remaining
Shareholder(s) the respective stock certificates to which each is entitled duly
endorsed and/or any other documentation sufficient to transfer ownership of the
Transfer Shares to the remaining Shareholders in the proportions described
above. In addition, the transferring Shareholder conveying its Shares shall
deliver a certificate stating as follows:
(1) The transferring Shareholder, as applicable, holds the Transfer
Shares free and clear of all liens, mortgages, security interests, pledges,
charges and encumbrances;
(2) The transferring Shareholder has all requisite power and authority
to sell the Transfer Shares;
(3) The sale of the Transfer Shares has been duly authorized by all
necessary corporate action of the transferring Shareholder;
(4) The sale of the Transfer Shares will not violate, result in a breach
of, conflict with or (with or without the giving of notice or the passage of
time or both) entitle any
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party to call a default under any contract, agreement or understanding
to which the transferring Shareholder is a party.
III REPRESENTATIONS, WARRANTIES, AND
COVENANTS OF ICRM, ICR AND ALAN STIER
ICRM and ICR (the latter with respect to Sections 3.2.(a), 3.2.(b), 3.3.(c), 3.9
and 3.21 only) and Alan Stier (the latter with respect to Sections 3.3(a) and
3.18 only) represent, warrant, and covenant to Arngre and Zacualpan as follows,
which representations, warranties, and covenants shall expressly survive through
the date of the Closing:
3.1. Organization of ICRM and Good Standing.
(a) ICRM is duly incorporated and organized, validly existing and in
good standing under the laws of Mexico, with full corporate authority to
conduct its business as it is now being conducted, to own, or use the
properties and assets that it purports to own, lease or use, and to perform
all its obligations under the Property Option Documents.
(b) True and correct copies of all of the Organizational Documents of
ICRM as currently in effect have been delivered to Arngre and Zacualpan and
no amendment or modification of such Organizational Documents has been made
or will be made through the date of the Closing other than as contemplated by
this Agreement.
3.2. Authority; No Conflict.
(a) This Agreement constitutes the legal, valid and binding obligation
of ICRM and ICR in accordance with its terms except to the extent that: (i)
the enforcement of certain rights and remedies created by this Agreement is
subject to bankruptcy, insolvency, reorganization and similar laws of general
application affecting the rights and remedies of the parties; and, (ii) the
enforceability of any particular provision of this Agreement under principles
of equity or the availability of equitable remedies, such as specific
performance, injunctive relief, waiver or other equitable remedies, is
subject to the discretion of courts . Each of ICRM and ICR has the absolute
and unrestricted right, power, authority and capacity to execute and deliver
this Agreement and to perform their respective obligations hereunder.
(b) To ICRM's and ICR's Knowledge , neither the execution and delivery
of this Agreement nor the consummation or performance of any of the
Contemplated Transactions hereunder will, directly or indirectly (with or
without notice or lapse of time)contravene, conflict with, or result in a
violation of (A) any provision of the Organizational Documents of ICRM or
ICR, or (B) any resolution adopted by the Board of Directors or the
stockholders of ICRM or ICR;
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(c) To the ICRM's Knowledge, neither the execution and delivery of this
Agreement nor the consummation or performance of any of the Contemplated
Transactions hereunder will, directly or indirectly (with or without notice
or lapse of time):
(1) contravene, conflict with, or result in a violation of, or give
any Governmental Body or other Person the right to challenge any of the
Contemplated Transactions or to exercise any remedy or obtain any relief
under, any Legal Requirement or any Order to which ICRM or ICR, or any of the
assets owned or used by ICRM, may be subject;
(2) contravene, conflict with, or result in a violation of any of the
terms or requirements of, or give any Governmental Body the right to revoke,
withdraw, suspend, cancel, terminate, or modify, any Governmental
Authorization that is held by ICRM or that otherwise relates to the business
of, or any of the assets owned or used by, ICRM;
(3) cause Arngre, Zacualpan, or ICRM to become subject to, or to
become liable for the payment of, any Tax except as set forth on
Schedule 3.8. hereto;
(4) cause any of the assets owned by ICRM to be reassessed or
revalued by any taxing authority or other Governmental Body;
(5) result in the imposition or creation of any Encumbrance upon or
with respect to any of the assets owned or used by ICRM.
(d) Except as set forth in Schedule 3.2 hereto, ICRM is not required to
give any notice to or obtain any Consent from any Person in connection with
the execution and delivery of this Agreement or the consummation or
performance of any of the Contemplated Transactions.
3.3. Capitalization of ICRM.
(a) The authorized equity securities of ICRM consist of 500 shares of
Common Stock non-par value, of which 500 shares are issued and outstanding.
ICR is the record and beneficial owner and holder of 499 shares representing
99.8% of the issued and outstanding shares of ICRM, free and clear of all
Encumbrances. Alan Stier is the record and beneficial owner and holder of one
share representing 0.2% of the issued and outstanding shares of ICRM.
(b) The Shares to be issued to Arngre and Zacualpan at the Closing will
be, upon the consummation of the Closing and payment in full of the
respective contributions set forth in this Agreement, duly authorized,
validly issued and are fully paid and nonassessable.
(c) There are no Contracts relating to the issuance, sale, or transfer
of any equity securities or other securities of ICRM, including, without
limitation, securities which are
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convertible into or exchangeable for, equity securities or other
securities of ICRM. ICRM has not granted any rights to acquire any of its
shares of stock or any securities convertible into shares of its stock,
except for the shares contemplated by this Agreement. Upon the consummation
of the Closing and payment in full of the respective contributions set forth
in this Agreement, ICR will own 20%, Arngre will own 60%, and Zacualpan will
own 20% of the issued and outstanding stock of ICRM.
3.4. Financial Records. ICRM has delivered to Arngre and Zacualpan its
most recent internal accounting records (the "ICRM Financial Records"). The
ICRM Financial Records fairly, completely and accurately represent the assets
and liabilities and the results of operations of ICRM as of the dates and for
the period covered thereby, in all material respects. ICRM has no material
liability or contingency except as reflected on the ICRM Financial Records.
There has been no material adverse change in the financial condition of ICRM
since the date of the ICRM Financial Records.
3.5. Books and Records. The books of account, minute books, stock record
books, and other records of ICRM, all of which have been made available to
Arngre and Zacualpan, are complete and correct and have been maintained in
accordance with sound business practices in Mexico, including the maintenance
of an adequate system of internal controls. The minute books of ICRM contain
accurate and complete records of all meetings held of, and corporate action
taken by, the stockholders, the Board of Directors, and committees of the
Board of Directors of ICRM, and no meeting of any such stockholders, Board of
Directors, or committee has been held for which minutes have not been
prepared and are not contained in such minute books. At the Closing, all of
those books and records will be in the possession of ICRM.
3.6. Title to Properties; Encumbrances.
(a) Upon full payment of the purchase price for the Concessions, full
compliance of the other obligations of ICRM under the Property Option
Documents, ICRM's exercise of its rights to acquire the Concessions and full
execution of the definitive contracts of assignment of rights to acquire the
Concessions, ICRM will own good and marketable title to the Concessions
covering the Properties, subject to the fact of whether any Encumbrance has
been imposed by a creditor of the Titleholders of the Concessions or as a
result of a breach of the Titleholders of the Concessions under the Property
Option Documents between the date of this Agreement and the date on which
ICRM acquires the Concessions.
(b) ICRM has and will have at the time of the Closing: (i) a valid
option to acquire the Concessions under the Property Option Documents, free
and clear of all Encumbrances; (ii) the exclusive rights to explore and
acquire the Concessions covering the Properties; and, (iii) should the right
to acquire the Concessions be exercised, the right to exploit such Properties
and extract minerals therefrom, including but not limited to the extraction
and production of silver ore, in accordance with the laws of the Mexican
United States, in accordance
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with the Concessions and in accordance with standard commercial practice
acceptable under Mexican laws. All proofs of works required to be submitted
to the General Direction of Mines have been filed for each of the Concessions
and ICRM has been verbally informed by officers of said General Direction of
Mines that they have been approved by such Ministry.
3.7. No Extraordinary Action. Since its date of incorporation, ICRM has
been operated in the ordinary course of business and has not and will not
through the date of the Closing engage in any extraordinary action.
3.8. Taxes.
(a) To the Knowledge of ICRM, there are no existing Tax defaults with
respect to any of the Concessions.
(b) To the Knowledge of ICRM, other than as indicated in the ICRM
Financial Records, ICRM has no Tax liabilities.
3.9. Previous Contributions. ICR has previously advanced to ICRM
directly or indirectly the amount of $250,000 U.S. All of such funds have
been used in accordance with the Financial Records described above for the
purpose of make option payments aimed at maintain the option in effect and
acquiring the Concessions or for other legitimate business purposes of ICRM,
except to the extent that such funds are still held by ICRM.
3.10. Shareholder Liability. Arngre and Zacualpan will not, as a result
of its investment in ICRM become liable for any of the current debts or
obligations of ICRM.
3.11. No Undisclosed Liabilities. ICRM has no liabilities or obligations
of any nature (whether known or unknown and whether absolute, accrued,
contingent, or otherwise) except for liabilities or obligations reflected or
reserved against in the ICRM Financial Records and current liabilities
incurred in the Ordinary Course of Business since the date thereof.
3.12. Compliance with Legal Requirements; Governmental Authorizations.
(a) Except as set forth in Schedule 3.12 hereto:
(1) To the Knowledge of ICRM, it is, and at all times since its date
of incorporation, has been, in full compliance with each Legal Requirement
that is or was applicable to it or to the conduct or operation of its business
or the ownership or use of any of its assets;
(2) To the Knowledge of ICRM, no event has occurred or circumstance
exists that (with or without notice or lapse of time) (A) may constitute or
result in a violation by ICRM of, or a failure on the part of ICRM to comply
with, any Legal Requirement
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under Mexican law, or (B) may give rise to any obligation on the part of
ICRM to undertake, or to bear all or any portion of the cost of, any remedial
action of any nature; and
(3) ICRM has not received, at any time since its date of
incorporation, any notice or other communication (whether oral or
written) from any Governmental Body or any other Person regarding (A) any
actual, alleged, possible, or potential violation of, or failure to comply
with, any Legal Requirement applicable in Mexico, or (B) any actual, alleged,
possible, or potential obligation on the part of ICRM to undertake, or to
bear all or any portion of the cost of, any remedial action of any nature.
(b) Schedule 3.12 contains a complete and accurate list of each
recording made by ICRM to be considered as a Mexican mining company or that
otherwise relates to the business of, or to any of the assets owned or used
by, ICRM. Each recording listed or required to be listed in Schedule 3.12 is
valid and in full force and effect, except as set forth in Schedule 3.12.
3.13. Legal Proceedings; Orders.
(a) To the Knowledge of ICRM:
(1) there is no pending Proceeding that has been commenced by or
against ICRM or that otherwise relates to or may affect the business of,
or any of the assets owned or used by, ICRM;
(2) there is no pending Proceeding that challenges, or that may have
the effect of preventing, delaying, making illegal, or otherwise
interfering with, any of the Contemplated Transactions.
To the Knowledge of ICRM, (1) no such Proceeding has been Threatened, and (2) no
event has occurred or circumstance exists that may give rise to or serve as a
basis for the commencement of any such Proceeding.
(3) there is no Order to which any of ICRM, or any of the assets
owned or used by ICRM, is subject;
(4) no officer, director, agent, or employee of ICRM is subject to
any Order that prohibits such officer, director, agent, or employee from
engaging in or continuing any conduct, activity, or practice relating to the
business of ICRM.
(5) ICRM is, and at all times since its date of incorporation, has
been, in full compliance with all of the terms and requirements of each
Order to which it, or any of the assets owned or used by it, is or has been
subject;
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(6) no event has occurred or circumstance exists that may constitute
or result in (with or without notice or lapse of time) a violation of or
failure to comply with any term or requirement of any Order to which ICRM, or
any of the assets owned or used by ICRM, is subject; and
(7) ICRM has not received, at any time since its date of
incorporation, any notice or other communication (whether oral or
written) from any Governmental Body or any other Person regarding any actual,
alleged, possible, or potential violation of, or failure to comply with, any
term or requirement of any Order to which ICRM, or any of the assets owned or
used by ICRM, is or has been subject.
3.14. Contracts; No Defaults.
(a) ICRM is not a party to or bound by any Contract, powers of attorney,
guaranties or surety arrangements other than those entered into in the
Ordinary Course of Business except for the Contracts identified in this
Agreement (such Contracts entered into in the Ordinary Course of Business as
well as those Contracts identified in this Agreement, including, without
limitation, the Property Option Documents, being hereinafter referred to the
"Material Contracts").
(b) Each Material Contract is in full force and effect and is valid and
enforceable in accordance with its terms. All parties to all of the Material
Contracts have performed all obligations required to be performed to date
under such Material Contracts, and no party is in default or in arrears under
the terms thereof, and to the best knowledge and belief of ICR and ICRM, no
condition exists or event has occurred which, with the giving of notice or
lapse of time or both, would constitute a default thereunder. The
consummation of this Agreement will not result in impairment or termination
of any of the rights of ICRM under any Material Contracts. None of the terms
or provisions of any Material Contract materially adversely affects the
business, prospects, financial condition or results of operations of ICRM.
(c) True and correct copies of all of the Property Option Documents and
the application of rights to the Quinto Real Concession, each as currently in
effect, have been delivered to Arngre and Zacualpan and no amendment or
modification of such application or Property Option Documents has been made
or will be made through the date of the Closing.
3.15. Environmental Matters. To the Knowledge of ICRM, it has not been
notified by any Governmental Authority, and ICRM has no Knowledge, of any
violation by ICRM, of any Environmental Law. ICRM has applied for all
registrations, licenses or permits issuable by Governmental Agencies
necessary or desirable to explore the Properties pursuant to Environmental
Laws.
3.16. Employees. As of the date of this Agreement, ICRM has no employees
and has never had any employees.
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3.17. All Business Conducted by ICRM. The business and operations of
ICRM have been conducted exclusively by ICRM and ICR, and not by any other
Person. All assets, whether tangible or intangible, used by ICRM in its
business or operations are owned or leased by ICRM.
3.18. Voting at General Extraordinary Shareholders' Meetings. At the
General Extraordinary Shareholders' Meeting of ICRM to be held pursuant to
Section 2.4, respectively, ICR and Alan Stier shall vote in favor of the
following:
(1) the admission of Arngre and Zacualpan as new shareholders of ICRM
and the issuance of Shares of ICRM common stock to each of them in accordance
with the terms of Sections 2.1, 2.4 and 2.6 hereof;
(2) the increase in the authorized share capital of ICRM in
accordance with Section 2.4 hereof; and
(3) the amendment and restatement of the bylaw provisions regarding
rights of first refusal on shares of ICRM common stock in accordance with
Section 7.4.
3.19. Contracts of Assignment. ICRM shall enter into definitive
contracts of assignment of rights with the Titleholders of the Concessions
promptly after exercising its right to acquire the Concessions under the
Property Option Documents.
3.20. Consultants. Other than the fees payable to (a) El Paso Partners,
Ltd. in the amount of $50,000 U.S. (of which $20,000 U.S. has been paid as of
the date of this Agreement, with the remaining $30,000 U.S. payable in 6
equal monthly installments of $5,000 U.S. each, commencing on March 31, 1999)
if and when the options to acquire the Concessions be in effect in each one
of the due dates; and (b) Antonio Ponce in the amount of $50,000 U.S. (of
which $22,000 U.S. has been paid as of the date of this Agreement, with the
remaining $28,000 U.S. payable in 7 equal monthly installments of $4,000
each, commencing on March 31, 1999) if and when the options to acquire the
Concessions be in effect in each one of the due dates, there is no obligation
or liability, contingent or otherwise, for consultant's fees or agents'
commissions or other similar payment in connection with this Agreement.
3.21. Disclosure. The representations and warranties of ICRM and ICR in
this Agreement, and any agreements and instruments related hereto, do not
contain or will not contain any untrue statement of material fact with
respect to ICRM or ICR or omit or will not omit to state any material fact
necessary in order to make the representation and warranties herein or
therein with respect to ICRM or ICR, in light of the circumstances under
which they were made, not misleading.
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IV REPRESENTATIONS, WARRANTIES, AND
COVENANTS OF ZACUALPAN.
Zacualpan represents, warrants, and covenants to ICRM, ICR and Arngre as
follows, which representations, warranties, and covenants shall expressly
survive the Closing:
4.1. Status. Zacualpan is a Colorado, manager managed, limited liability
company duly formed and validly existing under the laws of the State of
Colorado and in good standing. Zacualpan is not required to be qualified in
any other state or country where failure to be so qualified would have a
material adverse effect upon the financial condition or operations of
Zacualpan.
4.2. Authorization. Zacualpan has full power and authority to enter into
this Agreement and to carry out the transactions contemplated thereby. The
Managers of Zacualpan have taken all action required by law, its articles of
organization, its operating agreement or otherwise to authorize the execution
and delivery of this Agreement and the transactions contemplated hereby. This
Agreement has been duly and validly executed and delivered and no other
company action is necessary with respect thereto. This Agreement is a valid
and binding obligation of Zacualpan enforceable in accordance with its terms
except to the extent that: (i) the enforcement of certain rights and remedies
created by this Agreement is subject to bankruptcy, insolvency,
reorganization and similar laws of general application affecting the rights
and remedies of the parties; and, (ii) the enforceability of any particular
provision of this Agreement under principles of equity or the availability of
equitable remedies, such as specific performance, injunctive relief, waiver
or other equitable remedies, is subject to the discretion of courts.
4.3. No Violation. Neither the execution and delivery of this Agreement
nor the consummation of the transactions contemplated hereby will violate any
provision of the articles of organization or operating agreement of
Zacualpan, or violate any statute or law or any judgment, decree, order,
regulation or rule of any court or governmental authority.
4.4. Consents and Approvals of Government Authorities. No consent,
approval or authorization of, or declaration, filing or registration with,
any governmental or regulatory authority is required in connection with the
execution, delivery and performance of this Agreement by Zacualpan and the
consummation of the transactions contemplated thereby.
4.5. Tax Returns. The tax returns of Zacualpan as of December 31, 1998,
(the "Zacualpan Tax Returns") have been furnished to Arngre and ICR and have
been prepared in accordance with applicable Legal Requirements and are true
and correct in all material respects as of the date thereof. There has been
no material adverse change in the financial condition of Zacualpan since the
date of the Zacualpan Tax Returns.
4.6. Assets. Zacualpan has no material assets except as contemplated by
this Agreement.
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4.7. No Liabilities or Obligations. Zacualpan has no liabilities or
obligations of any nature (absolute, accrued, contingent or otherwise, and
whether due or to become due) except for liabilities arising out of this
Agreement, and legal fees related to the negotiation of this Agreement.
4.8. Agreements. Zacualpan has no contracts, leases, or other agreements
by which it is bound, except for this Agreement.
4.9. Litigation. There is no legal or administrative claim, action,
investigation, arbitration, or other proceeding, of any kind or nature,
currently pending, threatened against, or involving Zacualpan, nor has
Zacualpan ever been subject to or involved in any such claim, action,
investigation, arbitration, or other proceeding, and there is no valid basis
for any such legal or administrative claim, action, investigation,
arbitration, or other proceeding. Zacualpan is not subject to any judgment,
order or decree entered in any lawsuit or proceeding which has had, or may
have, an adverse effect on its business practices or on its ability to
acquire any property or conduct its business in any area.
4.10. Employees. Zacualpan has no employees.
4.11. Compliance with Law. Zacualpan is, and at all times since its
formation has been, in material compliance with all laws, regulations and
orders applicable to it or its activities, including, without limitation,
applicable securities, environmental, and labor laws, regulations, and
orders. Zacualpan has not received any notification that it is in violation
of any such laws, regulations, or orders and no such violation exists.
4.12. SEC Reports. All reports, proxy statements, and registration
statements required to be filed by Zacualpan with the Securities and Exchange
Commission and any state securities commission (if any) (i) have been filed,
(ii) were prepared in all material respects in accordance with the
requirements of applicable law, and (iii) did not contain any untrue
statement of a material fact or omitted to state any material fact required
to be stated therein or necessary in order to make the statements therein, in
light of the circumstances under which they were made, not misleading.
4.13. Disclosure. The representations and warranties of Zacualpan in
this Agreement, and any agreements and instruments related hereto, do not
contain or will not contain any untrue statement of material fact or omit or
will not omit to state any material fact necessary in order to make the
representations and warranties herein or therein, in light of the circumstances
under which they were made, not misleading.
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V REPRESENTATIONS, WARRANTIES, AND
COVENANTS OF ARNGRE.
Arngre represents, warrants, and covenants to ICRM, ICR and Zacualpan as
follows, which representations, warranties, and covenants shall expressly
survive the Closing:
5.1. Corporate Status. Arngre is duly incorporated, validly existing,
and in good standing under the laws of the state of Florida. Arngre is not
required to be qualified in any other state or country where failure to be so
qualified would have a material adverse effect upon the financial condition
or operations of Arngre.
5.2. Authorization. Arngre has full corporate power and authority to
enter into this Agreement and to carry out the transactions contemplated
thereby. The Board of Directors of Arngre has taken all action required by
law, its articles of incorporation, its bylaws or otherwise to authorize the
execution and delivery of this Agreement and the transactions contemplated
hereby. This Agreement has been duly and validly executed and delivered and
no other corporate action is necessary with respect thereto. This Agreement
is a valid and binding obligation of Arngre enforceable in accordance with
its terms except to the extent that: (i) the enforcement of certain rights
and remedies created by this Agreement is subject to bankruptcy, insolvency,
reorganization and similar laws of general application affecting the rights
and remedies of the parties; and, (ii) the enforceability of any particular
provision of this Agreement under principles of equity or the availability of
equitable remedies, such as specific performance, injunctive relief, waiver
or other equitable remedies, is subject to the discretion of courts.
5.3. Capitalization. The authorized capital stock of Arngre consists of
50,000,000 shares of common stock, $.001 par value per share, of which
1,000,000 shares of common stock are issued and outstanding. All issued and
outstanding shares of stock are duly authorized, validly issued, fully paid,
nonassessable and free of preemptive rights. There are no other securities of
Arngre outstanding, there are no outstanding options, warrants, conversion
privileges or other rights to purchase or acquire any capital stock of
Arngre, and there are no contracts, commitments, understandings, arrangements
or restrictions by which Arngre is bound to issue any additional shares of
its capital stock.
5.4. No Violation. Neither the execution and delivery of this Agreement
nor the consummation of the transaction contemplated hereby will violate any
provision of the articles of incorporation or bylaws of Arngre, or violate
any statute or law or any judgment, decree, order, regulation or rule of any
court or governmental authority.
5.5. Consents and Approvals of Government Authorities. No consent,
approval or authorization of, or declaration, filing or registration with,
any governmental or regulatory authority is required in connection with the
execution, delivery and performance of this Agreement by Arngre and the
consummation of the transactions contemplated thereby.
5.6. Financial Statements. The financial statements of Arngre as of May
12, 1998, December 31, 1997, and December 31, 1996, (collectively "Arngre
Financial Statements") have
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been furnished to Zacualpan and ICR, have been prepared in accordance
with generally accepted accounting principles consistently applied and are
true and correct in all material respects as of the date thereof. There has
been no material adverse change in the financial condition of Arngre since
May 12, 1998.
5.7. Assets. Arngre has no material assets except as contemplated by
this Agreement.
5.8. No Liabilities or Obligations. Except as disclosed in the Arngre
Financial Statements, Arngre has no material liabilities or obligations of
any nature (absolute, accrued, contingent or otherwise, and whether due or to
become due) except for liabilities arising out of this Agreement, a Right of
First Refusal Agreement with Mark Isaacs, $100,000 in fees payable to El Paso
Partners Ltd. and attorneys' fees in connection with the negotiation of this
Agreement.
5.9. Agreements. Arngre has no contracts, leases, or other agreements by
which it is bound, except for this Agreement and a Right of First Refusal
Agreement with Mark Isaacs, a member of Zacualpan.
5.10. Litigation. There is no legal or administrative claim, action,
investigation, arbitration, or other proceeding, of any kind or nature,
currently pending, threatened against, or involving Arngre, nor has Arngre
ever been subject to or involved in any such claim, action, investigation,
arbitration, or other proceeding, and there is no valid basis for any such
legal or administrative claim, action, investigation, arbitration, or other
proceeding. Arngre is not subject to any judgment, order or decree entered in
any lawsuit or proceeding which has had, or may have, an adverse effect on
its business practices or on its ability to acquire any property or conduct
its business in any area.
5.11. Employees. Arngre has no employees.
5.12. Compliance with Law. Arngre is, and, to its Knowledge, at all
times since its formation has been, in material compliance with all laws,
regulations and orders applicable to it or its activities, including, without
limitation, applicable securities, environmental, and labor laws,
regulations, and orders. Arngre has not received any notification that it is
in violation of any such laws, regulations, or orders and no such violation
exists.
5.13. SEC Reports. Arngre is and at all times has been a non-reporting
company and has not been required as of the date hereof to file any reports,
proxy statements or registration statements with the Securities and Exchange
Commission.
5.14. Disclosure. The representations and warranties of Arngre in this
Agreement, and any agreements and instruments related hereto, do not contain
or will not contain any untrue statement of material fact with respect to
Arngre or omit or will not omit to state any material fact necessary in order
to make the representations and warranties herein or therein, in light of the
circumstances under which they were made, not misleading.
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VI CONDITIONS PRECEDENT TO ARNGRE'S OBLIGATION
TO MAKE ADDITIONAL REQUIRED CAPITAL CONTRIBUTIONS.
Notwithstanding any other provision of this Agreement, Arngre shall have no
obligation to make the contribution at Closing contemplated by Section 2.3.(b)
hereof unless all of the following conditions have been satisfied, provided,
however, that if Arngre fails to make the contribution described in Section
2.3(b) because of a failure of any of the following conditions, other than the
condition set forth in Section 6.7, the provisions of Section 2.6 shall continue
to apply:
6.1. Accuracy of Representations. Each of ICR and ICRM shall have
delivered to Arngre a certificate confirming that all of ICR's and ICRM's
representations and warranties in this Agreement (considered collectively)
and each of these representations and warranties (considered individually)
are accurate in all material respects as of the Closing.
6.2. Provision of Satisfactory Information. ICRM and ICR shall have
provided Arngre with all information it has reasonably requested in writing,
including but not limited to information with respect to the Concessions and
the title thereto and the corporate structure ICRM.
6.3. No Proceedings. Since the date of this Agreement, there must not
have been commenced or Threatened against Arngre, or against any Person
affiliated with Arngre, any Proceeding (a) involving any challenge to, or
seeking damages or other relief in connection with, any of the Contemplated
Transactions, or (b) that may have the effect of preventing, delaying, making
illegal, or otherwise interfering with any of the Contemplated Transactions.
6.4. No Claim Regarding Stock Ownership or Sale Proceeds. There must not
have been made or Threatened by any Person any claim asserting that such
Person (a) is the holder or the beneficial owner of, or has the right to
acquire or to obtain beneficial ownership of, any stock of, or any other
voting, equity, or ownership interest in, ICRM, or (b) is entitled to all or
any portion of the capital contributions payable for the Shares.
6.5. No Prohibition. Neither the consummation nor the performance of any
of the Contemplated Transactions will, directly or indirectly (with or
without notice or lapse of time), materially contravene, or conflict with, or
result in a material violation of, or cause Arngre or any Person affiliated
with Arngre to suffer any material adverse consequence under, (a) any
applicable Legal Requirement or Order, or (b) any Legal Requirement or Order
that has been published, introduced, or otherwise proposed by or before any
Governmental Body.
6.6. Satisfactory Due Diligence. Arngre shall have completed its due
diligence review of ICRM, the Concessions and the Properties to its
satisfaction, which review shall include, but is not limited to, an
investigation of title and tax issues as well as the silver
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production potential of the Properties.
6.7. Contributions of ICR. ICR shall have contributed $250,000 U.S. to
ICRM in accordance with Section 2.3(a) hereof.
VII OTHER AGREEMENTS OF THE PARTIES.
7.1. Quinto Real Concession. The parties hereto acknowledge that upon
the issuance by the Mexican General Direction of Mines of exploration title
to the concession of Quinto Real (the "Quinto Real Concession") in the name
of Polo y Ron, Isaacs and Zacualpan shall make reasonable efforts to cause
Polo y Ron to assign and convey the Quinto Real Concession to ICRM for a
total consideration of $15,000 U.S., which total amount has been already
advanced by ICRM to Polo y Ron; once the aforesaid assignment of rights on
the Quinto Real Concession to ICRM has taken place, said Concession shall
automatically be included as one of the Concessions referenced herein, and
any reference to the Concessions in this Agreement shall be deemed to include
the Quinto Real Concession.
7.2. Access and Investigation. Between the date of this Agreement and
the Closing ICRM shall (a) afford Arngre, Zacualpan, and their
Representatives full and free access to ICRM's personnel, Properties,
Contracts, books and records and other documents and data, (b) furnish
Arngre, Zacualpan, and their Representatives with copies of all such
Contracts in English, books and records and other existing documents and data
as they may reasonably request in writing and (c) furnish Arngre, Zacualpan,
and their Representatives with such additional financial, operating and other
data and information as they may reasonably request in writing.
7.3. Required Approvals. The Closing of this Agreement is subject to ICR
having obtained prior Vancouver Stock Exchange approval before Closing. In
the event that the Vancouver Stock Exchange approval is not obtained, the
parties agree to make reasonable efforts to restructure the transaction
contemplated herein without changing the fundamental business arrangements,
in order to obtain such approval.
As promptly as practicable after the Closing, ICRM will make all filings
required by Legal Requirements to be made by it in Mexico in order to consummate
the Contemplated Transactions and perfect its right to explore and acquire the
Concessions, which filings are set forth on Schedule 3.2 hereto.
7.4. Right of First Offer on Shares. At the General Extraordinary
Shareholders' Meeting to be held at or prior to Closing in accordance with
Section 2.4 above, each of the Shareholders agrees that, among other
provisions of the bylaws, it shall vote in favor of amending and restating in
its entirety the right of first refusal provision already contained in ICRM's
bylaws to state as follows:
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All shares of common stock of ICRM issued and outstanding immediately after the
Closing shall be subject to a right of first offer. Such right of first offer
shall be evidenced by a restrictive legend placed on each stock certificate
evidencing ownership of any such shares. The terms of the right of first offer
shall be that any Shareholder (an "Offering Shareholder") wishing to Transfer
title to any of its ICRM shares (other than the Transfers described in Sections
2.5., 2.14., 10.2., 12.7. and 12.10.) shall first deliver notice of such intent
(the "Offer Notice") to the other Shareholders stating the number of shares
proposed to be Transferred (the "Offered Shares"), all relevant terms, and the
purchase price of the proposed Transfer. The terms and consideration for the
shares set forth in the Offer Notice shall be of conventional type and shall not
include consideration in the form of services or other unique consideration
which would be difficult for another Shareholder to duplicate. The other
Shareholders, shall then have the right for thirty (30) days from the date of
the Offer Notice to give notice to the Offering Shareholder that they wish to
purchase all or any part of the Offered Shares, which notice shall constitute a
binding offer to purchase such shares on the terms and at the price set forth in
the Offer Notice, provided that closing of the purchase shall occur sixty (60)
days from the date that the last notice to purchase is given to the Offering
Shareholder, unless otherwise agreed by the parties. If more than one
Shareholder gives such notice, they shall have the right to purchase the Offered
Shares pro rata to their stock ownership in ICRM. If the other Shareholders do
not agree to purchase all of the Offered Shares, any excess Offered Shares may
be sold by the Offering Shareholder for a period of ninety (90) days on terms
and at a price no more favorable than those set forth in the Offer Notice,
provided that the terms of this Section 7.4 shall again apply if the sale by the
Offering Shareholder is not completed within the said ninety (90) days. Any sale
hereunder shall be conditional upon a proposed purchaser delivering a written
undertaking to the other Shareholders, in form and content satisfactory to their
respective counsel, to be bound by the terms and conditions of this Agreement.
7.5. Notification. Each of ICR, ICRM, Arngre and Zacualpan will promptly
notify the other parties hereto in writing if any of them becomes aware of
any fact or condition that would cause or constitute a breach of their
respective representations and warranties as of the Closing, or if any of
them becomes aware of the occurrence after the Closing of any fact or
condition that would (except as expressly contemplated by this Agreement)
cause or constitute a breach of any such representation or warranty had such
representation or warranty been made as of the time of occurrence or
discovery of such fact or condition.
7.6. Restrictive Legend. All certificates representing shares of ICRM
that are, at any time, subject to this Agreement shall have endorsed upon
them the following legend:
The shares represented by this Certificate are subject to certain
restrictions against transfer and other restrictions under the terms of
the Joint Venture and Subscription Agreement entered into by and among
the Corporation and its shareholders dated March 19, 1999.
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7.7. Payment of Expenses. Each party is responsible for its respective
costs and expenses, including reasonable attorney's fees, incurred by the
parties hereto in connection with the preparation and review of this
Agreement and the performance thereof with the exception that Arngre shall
pay reasonable attorney's fees not to exceed $15,000 incurred by Zacualpan in
connection with the preparation and review of this Agreement (excluding any
such fees in connection with organizing Zacualpan itself).
7.8. Special Power of Attorney. At the Closing, each of ICR, Arngre and
Zacualpan (the "granting parties") shall grant to one or more individuals to
be appointed by the other parties a special and irrevocable power of attorney
and proxy to vote or execute and deliver written consents or otherwise act
with respect to the Shares now or to be owned by each granting party as fully
to the same extent with the same effect as the granting party might or could
do under the applicable Legal Requirements of the Mexican United States
governing rights and powers of shareholders of Mexican corporations only in
connection with any vote or written consent of Shareholders regarding the
capitalization of contributions made to an Approved Program and Budget
pursuant to this Agreement, through the General Extraordinary Shareholders'
Meetings to be held by ICRM pursuant to Section 2.12.11 of this Agreement,
having as a consequence the issuance of new shares of common stock of ICRM to
the non-Defaulting or non-Diluting Shareholders and to effectuate the
dilution provisions of Sections 2.12.12 and 2.13; provided that the
non-granting parties may only vote in favor of or consent to the
capitalization of the contributions actually made to such an Approved Program
and Budget and the issuance of additional shares deriving thereof. The
special powers of attorney and proxies granted hereunder are granted in
connection with, and are coupled with, an interest.
7.9. Conduct of Business Pending Admission of Arngre as a Shareholder.
During the period (the "Pending Period") from the date of this Agreement to
the earlier to occur of (x) date on which Arngre is admitted as a Shareholder
pursuant to Section 2.4 hereof or (y) the date on which Arngre forfeits its
Shares pursuant to Section 2.6, the business of ICRM shall be conducted in
the ordinary and usual course and maintain its books and records in a manner
consistent with prior practice. Except as otherwise required or contemplated
hereby, ICRM further agrees that, during the Pending Period, it shall not,
without the written consent of Arngre:
(a) enter into any negotiations, discussions or agreements adversely
affecting the Assets;
(b) enter into any negotiations, discussions or agreements contemplating
or respecting the acquisition of ICRM or any material asset thereof (other
than in the ordinary course of business), whether through a sale of stock, a
merger or consolidation, the sale of all or substantially all of the assets
of ICRM, any type of recapitalization or otherwise;
(c) take any action which would interfere with or prevent performance of
this Agreement; or
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(d) engage in any activity or enter into any transaction which would be
inconsistent in any respect with any of the representations, warranties or
covenants set forth in this Agreement, as if such representations, warranties
and covenants were made at a time subsequent to such activity or transaction
and all references to the date of this Agreement were deemed to be such later
date.
VIII AREA OF COMMON INTEREST.
8.1. In this Agreement, "Area of Common Interest" shall be deemed to
comprise that area which is included within a radius of three (3) kilometers of
each point on the boundary of the mineral properties which constitute the
Properties of this Agreement, including the Quinto Real concession.
8.2. If prior to the date of this Agreement or at any time during the
subsistence of this Agreement any party (in this article only called the
"Acquiring Party") in good faith stakes, denounces, files an application or
otherwise acquires, directly or indirectly, any right to or interest in, or
any right to receive proceeds of production from, any mining claim, license,
lease, grant, concession, permit, patent, or other form of mineral tenure
located wholly or partly within the Area of Common Interest, the Acquiring
Party shall forthwith give notice to the other parties being Shareholders of
ICRM of that staking, denouncement, application or acquisition, the total
cost thereof and all details in the possession of that party with respect to
the details of the acquisition, the nature of the property acquired and the
known mineralization.
8.3. Any of the other parties being Shareholders of ICRM may, within 30
days of receipt of the Acquiring Party's notice, elect, by notice to the
Acquiring Party, to require that the mineral properties and the right or
interest acquired, be transferred to ICRM at cost, and thereafter form part
of the Properties for all purposes of this Agreement other than for the
purpose of defining the Area of Common Interest.
8.4. If none of the other parties being Shareholders of ICRM makes the
election aforesaid within that period of thirty (30) days, the right or
interest acquired shall not form part of the Properties and the Acquiring
Party shall be solely entitled thereto.
IX INDEPENDENT ACTIVITIES.
9.1. Except as expressly provided in this Agreement, each party shall
have the free and unrestricted right to independently engage in and receive
the full benefit of any and all business endeavours of any sort whatsoever,
whether or not competitive with the endeavours contemplated herein, without
consulting the other parties or inviting or allowing the other parties to
participate therein. No party hereto shall be under any fiduciary or other
duty to the other parties with respect to any matter within the general scope
of the endeavours contemplated herein. The legal doctrines of "corporate
opportunity" sometimes applied to persons engaged in a
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joint venture or having fiduciary status shall not apply in the case of
any party. In particular, without limiting the foregoing, no party shall have
an obligation to any other party as to any opportunity to acquire, explore
and develop any mining property, concession, interest or right presently
owned by it or offered to it outside of the Properties or the Area of Common
Interest of this Agreement at any time. Notwithstanding the foregoing, the
Shareholders agree that they shall not individually acquire a mill to process
ore from the Properties without obtaining the prior written consent of the
other Shareholders.
X DISPUTES.
In the event of any dispute hereunder, such disputes shall be resolved
as follows:
10.1. Arbitration. All disputes arising out of or in connection with
this Agreement shall be submitted to binding arbitration in Denver, Colorado
and shall be finally settled under the rules of Arbitration of the American
Arbitration Association by one arbitrator appointed in accordance with the
said rules as then in effect. The arbitrator shall have the authority, in
connection with such arbitration, to compel reasonable but limited discovery
including testimony by depositions and written discovery through
interrogatories. The arbitrator shall further have the authority to award the
cost of arbitration including reasonable attorneys' fees in favor of the
prevailing party.
10.2. Transfer or Issuance of Stock. The authority of the arbitrator to
grant a remedy will specifically include the right to order a transfer of the
ownership of some or all of the ICRM stock or to authorize ICRM to issue
additional stock to the prevailing party.
XI TERMINATION.
11.1. Termination Events. This Agreement may be terminated:
(a) by any party if a material breach of any provision of this Agreement
has been committed by the other party(ies) and such breach has not been
waived or cured to the satisfaction of the non-breaching parties; provided,
however, that if ICR or ICRM elects to terminate this Agreement by reason of
such a breach by Arngre or Zacualpan, such termination shall be effective
only with respect to the breaching party and this Agreement shall remain in
effect and the Closing shall occur with respect to ICR, ICRM and the
non-breaching party, in which case the respective ownership interests in ICRM
shall be as follows:
(i) if the breaching party is Arngre, Zacualpan shall have a 34.4%
interest in ICRM and ICR shall have an 65.6% interest; or
(ii) if the breaching party is Zacualpan, Arngre shall have
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an 80% interest in ICRM and ICR shall have a 20% interest; or
(b) by mutual consent of all parties.
11.2. Effect of Termination. A party's right of termination under
Section 11.1 is in addition to any other rights it may have under this
Agreement or otherwise; and the exercise of a right of termination will not
be an election of remedies. If this Agreement is terminated pursuant to
Section 11.1, all further obligations of the parties under this Agreement
will terminate, except that the obligations in the By-laws and articles of
incorporation of ICRM and Mexican applicable laws will survive; provided,
however, that if this Agreement is terminated by a party because of a breach
of this Agreement by the other party(ies) or because one or more of the
conditions to the terminating party's obligations under this Agreement is not
satisfied as a result of the other party's failure to comply with its
obligations under this Agreement, the terminating party's rights to pursue
all legal remedies will survive such termination unimpaired.
If this Agreement is terminated by mutual consent of all parties, the
Shareholders of ICRM shall decide at that moment on the best alternative to
discontinue its (their) involvement in ICRM by following one of the next
alternatives: (i) transfer of Shares (if one or more Shareholders are interested
to sell and one or more Shareholders are interested to buy); (ii) reduction of
the capital stock (with reimbursement if ICRM has cash flow or without
reimbursement of Shares if ICRM does not have cash flow for said reimbursement);
or, (iii) dissolution and liquidation of ICRM if no Shareholder at all is
interested in continue operating the company.
XII GENERAL PROVISIONS.
12.1. Governing Law and Choice of Law Provision. This Agreement and any
dispute arising hereunder shall be governed by the laws of the state of
Colorado without regard to principles of conflicts of laws, provided,
however, that to the extent that any such issue directly involves corporate
governance or operation of ICRM or real estate, fixtures or mining
concessions of ICRM located in Mexico, then to such extent the laws of the
Mexican United States shall govern that issue.
12.2. Information. The text of any news releases or other public
statements which a party hereto desires to make with respect to the
Concessions, Properties or Projects shall be made available to other parties
of this Agreement with at least twenty four (24) hours anticipation to the
respective publication and the other parties shall have the right to make
suggestions for changes therein.
12.3. Entire Agreement. This Agreement sets forth the entire agreement
of the parties hereto with respect to the subject matter hereof and may not
be amended or modified except in writing subscribed to by all sets of
parties.
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12.4. Severability. This Agreement is intended to be enforceable in
accordance with the terms hereof. If nonetheless any court of competent
jurisdiction or arbitration panel should determine any provision of this
Agreement to be unenforceable by reason of illegality or for any other
reason, such provision should be modified to the extent necessary to cause it
to be enforceable, or stricken, and if so modified or stricken, the remainder
of this Agreement shall remain in full force and effect.
12.5. Pronouns. Masculine, feminine, and neutered pronouns shall be
deemed to include the masculine, feminine, and neutered case as the context
may require.
12.6. Headings. The headings in this Agreement are inserted for
convenience only and are in no way intended to describe, interpret, define,
or limit the scope, extent, or intent of this Agreement or any provision in
any way.
12.7. Assignment. Any of ICR, Arngre and Zacualpan may at any time
assign, transfer or otherwise dispose of all or part of its ownership
interest in ICRM to an Affiliate upon delivery to the non-assigning
Shareholders of:
(a) a counterpart of this Agreement executed by the Affiliate, whereby
the latter is totally or partially, as the case may be, subrogating
itself in the rights and obligations derived from this Agreement to
the assigning Shareholder; and,
(b) the covenant of the assigning Shareholder with and to the
non-assigning Shareholders to be jointly and severally liable for
the obligations of the Affiliate.
Provided that any such assignment shall be void and of no effect upon the
Affiliate ceasing to be an Affiliate of the assigning Shareholder, in which
event the assigning Shareholder shall be credited with all costs incurred by the
Affiliate.
12.8. Equitable Remedies. The parties agree that any breach of this
Agreement by any party will result in immediate and irreparable harm to the
other parties, and the other parties shall be entitled to obtain an
injunction and/or specific performance as well as other legal or equitable
remedy necessary in order to compel compliance with the terms hereof.
12.9. Notices. All notices and other communications under or in
connection with this Agreement shall be in writing and shall be deemed to
have been given (a) if delivered personally (including by overnight express
or messenger), upon delivery, (b) if delivered by registered or certified
mail (return receipt requested), upon the earlier of actual delivery or three
days after being mailed, or (c) if given by facsimile, upon confirmation of
transmission by facsimile, in each case to the respective parties at their
respective mail addresses or facsimile numbers set forth below.
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(a) If to ICRM:
Alan Stier
4372-44B Avenue
Delta - B.C. Canada
V4K 1H1
facsimile: (604) 946 4560
With a copy to:
Juan Pizarro-Suarez, Esq.
Miranda, Estavillo, Staines y Pizarro-Suarez
Boulevard Virreyes 135
Lomas Virreyes
11000 Mexico, D.F.
facsimile: 001 525 202 7990
(b) If to ICR:
Alan Stier
4372-44B Avenue
Delta - B.C. Canada
V4K 1H1
facsimile: (604) 946 4560
With a copy to:
David Bissett, Esq.
1040-999 W. Hastings Street
Vancouver, B.C. Canada
V6C 2W2
facsimile: (604) 683 2643
(c) If to Arngre:
Arngre, Inc.
Stephen P. Harrington
648 Post Road
Wakefield, R.I., 02879
USA
With a Copy to:
Stephen M. Cohen, Esquire
Buchanan Ingersoll Professional Corporation
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Eleven Penn Center, 14th Floor
1835 Market Street
Philadelphia, Pennsylvania 19103
Facsimile: (215) 665-8760
USA
(d) If to Zacualpan:
Mark S. Isaacs
3400 Avenue of the Arts
Suite F410
Costa Mesa, CA 92626
USA
With a Copy to:
John C. Siegesmund III
Krendl Horowitz & Krendl
370 Seventeenth St. Suite 5350
Denver, Colorado, 80202
Facsimile: (303) 629-2406
USA
12.10. Successors and Assigns. This Agreement shall be binding upon and
inure to the benefit of the parties hereto and their respective successors
and permitted assigns; provided, however, that except with regard to a
successor by operation of law, except as expressly set forth herein, no party
hereto may transfer or assign its rights hereunder in whole or in part to any
other Person without the prior written consent of the other parties hereto,
except as expressly set forth herein.
12.11. Currency Denominations. All currency amounts referenced in this
Agreement are U.S. dollars.
12.12. Schedules. The schedules to this Agreement shall be construed
with and as an integral part of this Agreement to the same extent as if they
were set forth verbatim herein.
12.13. Counterparts; Facsimile Signatures. This Agreement may be
executed in one or more counterparts, each of which shall be deemed an
original, but all such counterparts together shall constitute but one and the
same Agreement. Facsimile signatures to this Agreement shall, for all
purposes, be as fully effective as signed originals.
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IN WITNESS WHEREOF, each of the parties hereto has caused this Agreement
to be signed by its duly authorized officers this 19th day of March , 1999.
INTERNATIONAL CAPRI RESOURCES LTD,
a British Columbian company
By: /s/ Alan Stier
-----------------------------
Name: Alan Stier
Title: President
ARNGRE, INC.,
a Florida corporation
By: Stephen M. Harrington
-----------------------------
Name: Stephen M. Harrington
Title: President
INTERNATIONAL CAPRI
RESOURCES, S.A. de C.V., a Mexican corporation
By: /s/ Alan Stier
-----------------------------
Name: Alan Stier
Title: President
ZACUALPAN MINERALS, LLC, a Colorado
limited liability company
By: Mark S. Isaacs
-----------------------------
Name: Mark S. Isaacs
Title:Executive Manager
/s/ Alan Stier
---------------------------------
Alan Stier
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SCHEDULE A
Description of Properties
The Properties described below are located in the Zacualpan region of
southern Mexico approximately 35 kilometers northwest of Taxco:
1. "El Quinto Dos", mining exploitation concession, title 175486,
issued on July 31st, 1985, located in the Municipality of
Zacualpan, State of Mexico, with a surface of 9.0957 hectares,
recorded under number 166, at page 42 of volume 238 of the
General Book of Mining Concessions kept by the Public Registry
of Mining.
2. "Los Compadres", mining exploitation concession, title 172622,
issued on March 30th, 1984, located in the Municipality of
Tetipac, Guerrero, with a surface of 30.0003 hectares,
recorded under number 262, at page 66 of volume 231 of the
General Book of Mining Concessions kept by the Public Registry
of Mining.
3. "El Cometa Navideno", mining exploitation concession, title
171847, issued on June 15th, 1983, located in the Municipality
of Tetipac, Guerrero, with a surface of 23.0584 hectares,
recorded under number 627, at page 158 of volume 228 of the
General Book of Mining Concessions kept by the Public Registry
of Mining.
4. "La Cadena", mining exploitation concession, title 156895,
issued on May 12th, 1972, located in the Municipality of
Zacualpan, State of Mexico, with a surface of 111.7074
hectares, recorded under number 49, at page 13 of volume 199
of the General Book of Mining Concessions kept by the Public
Registry of Mining.
5. "El Volado", mining exploration concession, title 197967,
issued on September 30th, 1993, located in the Municipality of
Zacualpan, State of Mexico, with a surface of 3.7899 hectares,
recorded under number 27, at page 14 of volume 276 of the
General Book of Mining Concessions kept by the Public Registry
of Mining.
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<PAGE>
SCHEDULE 2.14
NET SMELTER RETURNS
1. "Net Smelter Returns" means the net amount of money received by ICRM for its
own account from the sale of ore, or ore concentrates or other products from the
Properties to a smelter or other ore buyer after deduction of smelter and/or
refining charges, ore treatment charges, penalties and any and all other charges
made to ICRM by the purchaser of ore or concentrates, less any and all handling,
insurance and transportation costs which may be incurred in connection with the
transportation of ore or concentrates, less ad valorem taxes and taxes based
upon production, but not income taxes, and less all umpire charges which ICRM
may be required to pay.
2. "Owner" means a Shareholder whose ownership interest in ICRM has been
converted into a royalty based on Net Smelter Returns in accordance with Section
2.14 of the Agreement. Payment of Net Smelter Returns by ICRM to the Owner shall
be made semi-annually within 60 days after the end of each fiscal half year of
the ICRM and shall be accompanied by unaudited financial statements pertaining
to the operations carried out by ICRM on the Properties. Within 90 days after
the end of each fiscal year of ICRM in which Net Smelter Returns are payable to
the Owner, the records relating to the calculation of Net Smelter Returns for
such year shall be audited and any resulting adjustments in the payment of Net
Smelter Returns payable to the Owner shall be made forthwith. A copy of the said
audit shall be delivered to the Owner within 30 days of the end of such 90-day
period.
3. Each annual audit shall be final and not subject to adjustment unless the
Owner delivers to ICRM written exceptions in reasonable detail within six months
after the Owner receives the report. The Owner, or its representative duly
authorized in writing, at its expense, shall have the right to audit the books
and records of ICRM related to Net Smelter Returns to determine the accuracy of
the report, but shall not have access to any other books and records of ICRM.
The audit shall be conducted by a chartered or certified public accountant of
recognized standing. ICRM shall have the right to condition access to its books
and records on execution of a written agreement by the auditor that all
information will be held in confidence and used solely for purposes of audit and
resolution of any disputes related to the report. A copy of the Owner's report
shall be delivered to ICRM upon completion, and any discrepancy between the
amount actually paid by ICRM and the amount which should have been paid
according to the Owner's report shall be paid forthwith, one party to the other.
In the event that the said discrepancy is to the detriment of the Owner and
exceeds 5% of the amount actually paid by ICRM, then ICRM shall pay the entire
cost of the audit.
4. Any dispute arising out of or related to any report, payment, calculation or
audit shall be resolved solely by arbitration as provided in the Agreement. No
error in accounting or in interpretation of the Agreement shall be the basis for
a claim of breach of fiduciary duty, or the like, or give rise to a claim for
exemplary or punitive damages or for termination or rescission of the Agreement
or the estate and rights acquired and held by ICRM under the terms of the
Agreement.
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<PAGE>
SCHEDULE 3.2
NOTICES TO BE GIVEN WITH MEXICAN
AUTHORITIES AFTFR THE CLOSING
1. Once the amendments to the By-Laws of ICRM contemplated in the Agreement
and the appointment of new members of the Board of Directors of ICRM are
formalized in one or more public instruments granted before a Mexican
Notary Public, said public instrument(s) must be recorded at the Public
Registry of Commerce of Mexico City, Federal District.
2. Once the amendments to the By-Laws of ICRM contemplated in the Agreement
are formalized in a public instrument granted before a Mexican Notary
Public, said public instrument must also be recorded at the Public Registry
of Mining; likewise, a notice informing on the admission of Arnge and
Zacualpan as new Shareholders and the total number of shares representing
the capital stock of ICRM shall be given to said Registry.
3. Within 40 (forty) working days following the date of the Closing, a notice
to the National Registry of Foreign Investments must be given, in order to
inform on the admission of new Shareholders, the increase of the capital
stock of ICRM and the ownership interest of each of the Shareholders.
4. Within 15 (fifteen) days following the transfer of one share of ICRM from
Alan Stier to ICR a tax return must be filed with the tax authorities,
whereby the respective Income Tax shall be paid (20% on the gross price).
47
<PAGE>
SCHEDULE 3.8
TAXES TO BE EVENTUALLY ASSESSED ON ICRM
1. Pursuant to Section 2.4 of the Agreement, on the date of the Closing
ICRM shall hold a General Extraordinary Shareholders' Meeting in order
to approve, among other matters, an increase of ICRM's capital stock in
its variable portion, through the partial capitalization of the
contributions for future capital increases made by ICR, Arngre and
Zacualpan.
That part of the contributions for future capital increases not to be
capitalized shall be treated as a debt of ICRM for tax purposes;
therefore, ICRM should consider such debt for the purpose of
calculating the "inflationary component" which might give rise to a
taxable income for ICRM.
It is important to mention that the foreign shareholders making the
contributions whether capitalized or not, are not obligated to comply
with any tax obligation in Mexico.
Inflationary component: The company must determine every month the
average of the accounts payable and that of the accounts receivable.
For purposes of the foregoing, in the case of the accounts payable the
balance of those accounts at the end of'the month in course must be
added to the balance of the preceding month, and the resulting amount
must then be divided by two. Subsequently, the latter amount must be
multiplied by the inflation factor corresponding to the month in
course. Such factor is in turn calculated by dividing the National
Consumer Price Index of the month in course, by the National Consumer
Price Index of the preceding month. The resulting amount is the
inflationary component of the company's debt. The same procedure must
be followed in order to calculate the inflationary component of the
accounts receivable.
Once the foregoing calculations have been made, the income to be
accumulated (or the loss to be deducted, as the case may be), must be
determined as follows:
(i) if the inflationaly component of the debt (accounts payable)
is higher than the interest payable, the difference shall be
an inflationary gain which the company must accumulate to its
taxable income; or
(ii) if the inflationary component of the credits (accounts
receivable) is higher that the interest receivable, the
difference shall be an inflationary loss, which the company
may deduct for tax purposes.
2. In the event Section 2.6 of the Agreement comes into effect and the
deposits made by Arngre are applied as a contractual penalty
(liquidated damages of ICRM), then such penalty shall be considered as
taxable income of ICRM for the purposes of income tax and,
additionally, such income will generate Value Added Tax (VAT), in which
case ICRM should make a break down of the respective VAT corresponding
to the contractual penalty.
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<PAGE>
SCHEDULE 3.12(a)
COMPLIANCE WITH LEGAL REQUIREMENTS
ICMR has been informed by its external accountants that mainly due to delays in
obtaining invoices from the Titleholders of the Conccssions, the filing of the
tax returns corresponding to the third and fourth quarters of 1998 is still
pending and such obligation shall be fulfilled not later than March 31, 1999.
On the other hand, concerning the annual income tax return and other tax returns
and payment of taxes withheld by ICRM during the first months of 1999, those are
being prepared by ICRM and shall be filed with the tax authorities within the
term granted by the applicable legal provisions.
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<PAGE>
SCHEDULE 3.12 (b)
LIST OF RECORDINGS MADE BY ICRM TO BE
CONSIDERED AS A MEXICAN MINING COMPANY
1. On May 14, 1998, permit number 09018265 was obtained from the Ministry
of Foreign Affairs in order to incorporate ICRM.
2. On June 12, 1998, ICRM was incorporated before a Mexican Notary Public
through public instrument number 61,262, which contains ICRM's By-Laws
and Transitory Clauses (Articles of Incorporation).
3. On June 17, 1998, ICRM obtained its registration in the Mexican Federal
Taxpayers' Registry under code ICR-980612-6Y6.
4. On July 3, 1998, the recording of ICRM in the Public Registry of
Commerce of Mexico City, Federal District was accomplished under number
236084.
5. On October 23, 1998, the recording of ICRM in the Public Registry of
Mining was accomplished under number 72, pages 82 back to 83 back,
volume XXXV of the Book of Mining Companies.
6. On August 7, 1998, ICRM was recorded in the National Registry of
Foreign Investments under registry number 15615.
7. On August 24, 1998, ICRM was recorded in the Mexican Business
Information System.
8. On September 3, 1998, the recording of ICRM in the National Institute
of Statistics and Computer Data was accomplished.
Each of the aforesaid recordings is valid and in full force and effect,
provided, however, that the recordings referred to in subparagraphs 6 and 7
above, must be annually renewed.
50
RIGHT OF FIRST REFUSAL AGREEMENT
THIS RIGHT OF FIRST REFUSAL AGREEMENT ("Agreement") is entered into this
____ day of March, 1999, by and between Arngre, Inc., a Florida corporation
("Arngre"), and Mark S. Isaacs, an individual ("Isaacs").
RECITALS
A. Arngre and Zacualpan Minerals, LLC, a Colorado limited liability company
("Zacualpan"), are parties to a Joint Venture and Subscription Agreement (the
"Joint Venture Agreement") of even date herewith.
B. Isaacs is a principal member of Zacualpan.
C. In consideration of Arngre entering into the Joint Venture Agreement, and in
consideration of Arngre advancing $131,250 to or for the account of Zacualpan to
permit Zacualpan to acquire stock in International Capri Resources, S.A. de C.V,
a Mexican corporation, Isaacs wishes to grant Arngre a right of first refusal
with respect to certain mineral projects in which Isaacs may be involved.
AGREEMENT
1. General.
a. Subject to the provisions and limitations of this Agreement, Arngre
shall have a right of first refusal, on the terms set forth herein, on all
mining and natural resource related opportunities that are located in Mexico or
the United States, excluding garnet projects, and in which Isaacs, or an entity
controlled by Isaacs, acquires, or intends to acquire, a direct or indirect
ownership interest, including, but not limited to, an indirect ownership
interest by formation of a joint venture, partnership, corporation or other
entity (a "Project"). For purposes of this Section 1, Isaacs shall be deemed to
control an entity if Isaacs has the legal power, directly or indirectly, to
direct or cause the direction of the management and policies of such entity. Any
such controlled entity shall be included in the term "Isaacs" for purposes of
the remainder of this Agreement.
b. Isaacs shall not offer any mining and natural resource related
opportunities that are located in Mexico or the United States, excluding garnet
projects, to any entity in which Isaacs owns a beneficial interest, either
directly or indirectly, without first offering such opportunity to Arngre.
c. Capitalized terms used but not otherwise defined herein shall have the
meaning ascribed to them in the Joint Venture Agreement.
<PAGE>
2. Information. In the event that Isaacs acquires, or intends to acquire, a
direct or indirect ownership interest in a Project, Isaacs will promptly deliver
to Arngre, the following information (the "Notice Information") regarding the
Project to the extent that Isaacs has such information or can reasonably obtain
such information:
a. A Project description;
b. A title opinion;
c. A Report of Tax Status;
d. Proof of Works (Comprobacion de Obras);
e. A letter of intent with the owner or owners of the Project;
f. A preliminary budget; and
g. Written notice of the twenty-one (21) day period in which Allen
Zebrowski or a reasonable substitute is available to accompany Arngre or its
Representatives to the Project site for purposes of examining the site and
obtaining mineral samples.
3. Acceptance Period. Arngre shall have thirty (30) days from the date that the
Notice Information is given to Arngre (the "Acceptance Period") to deliver
written notice to Isaacs that it wishes to accept its right of first refusal
with respect to the Project in question (the "Acceptance Notice"). If Arngre
should fail to deliver such notice within such thirty (30) day period, it shall
have no further rights with respect to the Project. If Arngre delivers a timely
Acceptance Notice, and if any Arngre Representative makes a bona fide visit to
the Project for the purpose of obtaining mineral samples, the Acceptance Period
shall be extended so that it ends forty-two (42) days after the date that the
Notice Information is given to Arngre.
4. Creation of Trust Account. In order for Arngre to have any rights hereunder
with respect to a Project, it shall be obligated to deposit with a banking
institution identified by Isaacs the lesser of (a) $750,000 U.S. or (b) an
amount equal to the total amount of the expenditures budgeted with respect to
the Project for the next ninety (90) days as set forth in the preliminary budget
delivered with the Notice Information or any modification or successor thereto
prepared by Isaacs and delivered to Arngre (the "Project Budget"). The lesser
amount of (a) or (b) in the preceding sentence (the "Initial Deposit") shall be
deposited no later than ten (10) days following the last day of the Acceptance
Period, provided, however, that if Isaacs delivers a modified or successor
Project Budget to Arngre (as referenced in the previous sentence), Arngre shall
have at least thirty (30) days to deposit any additional amount of funds
required by such modified or successor Project Budget over the previous Project
Budget tendered to Arngre. The amount deposited by Arngre shall be held in a
separate trust account (the "Trust Account"). In addition, for Arngre to
continue to have any rights hereunder with respect to a Project, Arngre shall
further be obligated, at the end of each thirty (30) day period commencing on
the date on which the Initial Deposit is made, to deposit in the Trust Account
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<PAGE>
such additional sum as may be necessary, if any, to make the balance in the
Trust Account equal the amount of expenditures described in the Project Budget
for the next ninety (90) days following the expiration of such thirty (30) day
period, provided, however, that in no event shall Arngre be required to make
total deposits to the Trust Account in excess of $750,000 U.S. pursuant to this
Section 4.
For example, assume the Project Budget for the first ninety (90) days is
$150,000, or $50,000 per thirty (30) day period, and that $150,000 is deposited
by Arngre in the Trust Account. At the end of the first thirty (30) days, only
$30,000 of that amount has been spent, leaving a balance of $120,000. Assume
that the Project Budget from day thirty one (31) through day one hundred twenty
is $130,000, consisting of $50,000 for each of the first two thirty (30) day
periods and $30,000 for the final thirty (30) day period. Under these
assumptions Arngre would be required to contribute an additional $10,000 to the
Trust Account at the end of the first thirty (30) day period.
5. Expenditure of Trust Account Funds. The funds held in the Trust Account shall
be expended in such manner as Isaacs and Arngre shall reasonably agree for
expenditures that are contemplated by the Project Budget. In order for Arngre to
retain its rights in the Project, at least $200,000 U.S. must be expended, or
irrevocably committed to be expended, from the Trust Account within twenty (20)
weeks of the date that funds are first deposited in the Trust Account, and at
least $750,000 U.S. must be expended, or irrevocably committed to be expended,
from the Trust Account within forty-five (45) weeks of the date that funds are
first deposited in the Trust Account, provided, however, that the expenditure of
such amounts within such time limits shall not be required if (a) expenditure of
such amounts is not required under the Project Budget, (b) expenditure of such
amounts is required under the Project Budget but Isaacs unreasonably fails to
agree to the expenditure of such amounts, or (c) expenditure of such amounts
would be impossible or clearly commercially unreasonable under the circumstances
and such expenditures are made as promptly thereafter as possible and
commercially reasonable.
6. Termination of the Trust Account. In the event that (a) Arngre gives notice
to Isaacs that it is no longer interested in the Project, (b) Arngre fails to
make a timely deposit of funds in the Trust Account as required by Section 4, or
(c) the required amount of funds are not expended or irrevocably committed to be
expended from the Trust Account within the specified time limits as set forth in
Section 5, Arngre's rights hereunder in the Project shall immediately be
terminated and Arngre shall be paid the remaining balance in the Trust Account,
less any amount that Isaacs and Arngre reasonably determine is necessary to pay
any expenses to which Isaacs or Arngre are irrevocably committed with respect to
the Project. In the event of such termination, Arngre shall have no right to be
reimbursed any amounts expended from the Trust Account.
7. Formation of a Joint Venture. In the event that $750,000 U.S. is deposited in
the Trust Account and either (a) such amount is spent or committed to be
expended within the time limits set forth in Section 5 or (b) such amount is not
spent within forty-five (45) weeks of the date that funds are first deposited in
the Trust Account because expenditure of such funds is not required under the
provisions of Section 5, then Arngre and Isaacs (or entities controlled by them)
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<PAGE>
shall enter into a joint venture with respect to the Project based on the Rocky
Mountain Mineral Law Foundation's Form 5 (Model Mining Joint Venture Agreement)
(the "Form 5 Joint Venture" and "Form 5") or, if formation of the Form 5 Joint
Venture is impossible under applicable law, Arngre and Isaacs shall enter into
another legal arrangement structured so that it has business and economic
consequences approximating as closely as possible those that would exist under
the Form 5 Joint Venture. The Form 5 Joint Venture shall contain the provisions
and modifications set forth below. All capitalized terms not otherwise defined
herein shall have the meanings given them in Form 5.
a. If the Project is not owned or controlled by Polo Y Ron Minerales S.A.
de C.V. ("Polo Y Ron") the parties shall have the following initial
Participating Interests in the Form 5 Joint Venture:
Arngre 80%
Isaacs 20%
b. If Project is owned or controlled by Polo Y Ron the parties shall have
the following initial Participating Interests in the Form 5 Joint Venture:
Polo Y Ron 25%
Arngre 60%
Isaacs 15%
c. No party shall make any representations and warranties regarding the
Properties.
d. Section 4.5 (regarding other business opportunities) of Form 5 shall be
modified to reference this right of first refusal.
e. Arngre shall be credited with $750,000 U.S. as its Initial Contribution.
Isaacs shall be credited with an Initial Contribution that bears the same
relationship to the total Initial Contribution of Arngre as Isaac's
Participating Interest bears to the Participating Interest of Arngre.
f. Section 6.4(b)(1) of Form 5 shall provide for 200% penalty dilution and
Section 6.3 of Form 5 shall provide for 150% penalty dilution, both in the
manner described in the Joint Venture Agreement.
g. Section 6.4(b)(2) of Form 5 shall provide for payment out of 10% of Net
Proceeds.
h. A Participant's Participating Interest shall be eliminated pursuant to
Section 6.5 of Form 5 upon reduction below 1%.
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<PAGE>
i. The Management Committee shall consist of one member from each
Participant, and the vote of Participants having more than a 50% aggregate
Participating Interest shall determine decisions of the Management Committee.
j. Isaacs shall be the Manager unless (i) Isaac's Participating Interest
should fall below 5% in which case Arngre shall have the right to immediately
terminate him as Manager, or (ii) for reasons otherwise set forth in Form 5 not
having to do with Isaac's Participating Interest.
k. Termination by deadlock, as described in Section 12.2 of Form 5, shall
occur after two (2) months following expiration of the latest adopted Program
and Budget.
l. The Area on Interest shall not extend beyond a 5 km radius from the
Project boundaries.
m. Arngre shall not have the right to transfer its interest in the Project
without the consent of Isaacs, which may be given or withheld in the absolute
exercise of Isaac's discretion.
Any options in Form 5 not addressed or limited by the foregoing provisions shall
be subject to negotiation by the parties.
8. Disputes. In the event of any dispute hereunder, such dispute shall be
submitted to binding arbitration in Denver, Colorado in accordance with the
commercial arbitration rules of the American Arbitration Association as then in
effect. The arbitrator shall have the authority, in connection with such
arbitration, to compel reasonable but limited discovery including testimony by
depositions and written discovery through interrogatories. The arbitrator shall
further have the authority to award the cost of arbitration including reasonable
attorney's fees in favor of the prevailing party. In the event of a dispute
regarding the form of a Form 5 Joint Venture or other entity created pursuant to
Section 7 above, the parties shall each submit a form of joint venture or other
entity to the arbitrators and the arbitrators shall select the submission that
most closely reflects the provisions and intent of Section 7 and that is
permissible under applicable law.
9. No Assignment; Lapse. The conditional rights granted to Arngre under this
Agreement shall not be assignable by Arngre, provided, however, that Arngre may
assign its conditional right to participate in a specific Project to
International Capri Resources, Inc., a British Columbian company ("ICR") without
obtaining the prior written approval of Isaacs, and, in the event of such
assignment, ICR shall not have the right to reassign such conditional right of
participation. Arngre's rights hereunder shall lapse upon the earlier of (a) the
third anniversary of this Agreement or (b) ten business days after Isaacs gives
notice to Arngre of his intention to terminate in the event that the
"Shareholder Base" (as such term is defined below) does not hold in the
aggregate 25% or more of the outstanding shares of Arngre's common voting stock.
For the purposes hereof, the term "Shareholder Base" shall mean (x) the
shareholders of Arngre as of the date of this Agreement plus, (y) the investors
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<PAGE>
who subscribe to shares of common stock of Arngre in not more than three private
placement offerings occurring within ninety (90) days of this Agreement.
10. Accuracy of Representation; Contributions. The rights granted to Arngre
under this Agreement are conditioned upon each representation and warranty of
Arngre made in the Joint Venture Agreement being accurate in all material
respects as of the date thereof and Arngre's acquiring shares in International
Capri Resources, S.A. de. C.V., a Mexican company, as set forth in Article II of
the Joint Venture Agreement.
11. Other Provisions.
a. Governing Law. This Agreement shall be governed in all respects by the
laws of the state of Colorado.
b. Entire Agreement. This Agreement sets forth the entire agreement of the
parties hereto with respect to the subject matter hereof and may not be amended
or modified except in writing executed by both parties.
c. Severability. This Agreement is intended to be enforceable in accordance
with the terms hereof. If nonetheless any court of competent jurisdiction or
arbitration panel should determine any provision of this Agreement to be
unenforceable by reason of illegality or for any other reason, such provision
should be modified to the extent necessary to cause it to be enforceable, or
stricken, and is so modified or stricken, the remainder of this Agreement shall
remain in full force and effect.
d. Pronouns. Masculine, feminine, and neutered pronouns shall be deemed to
include the masculine, feminine, and neutered case as the context may require.
e. Headings. The headings in this Agreement are inserted for convenience
only and are in no way intended to describe, interpret, define, or limit the
scope, extent, or intent of this Agreement or any provision in any way.
f. Assignment. Except for an assignment to ICR by Arngre in accordance with
Section 9 of this Agreement, this Agreement may not assigned by either of the
parties hereto without the prior written consent of the other party.
g. Equitable Remedies. The parties agree that any breach of this Agreement
by any party will result in immediate and irreparable harm to the other parties,
and the other parties shall be entitled to obtain an injunction and/or specific
performance as well as other legal or equitable remedy necessary in order to
compel compliance with the terms hereof.
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<PAGE>
h. Notices. All notices and other communications under or in connection
with this Agreement shall be in writing and shall be deemed to have been given
(a) if delivered personally (including by overnight express or messenger), upon
delivery, or (b) if delivered by registered or certified mail (return receipt
requested), upon the earlier of actual delivery or three days after being
mailed, in each case to the respective parties at their respective mail
addresses set forth below. A party may change its address by giving notice to
the party as set forth in this Section 11.
i. If to Arngre:
Arngre, Inc.
648 Post Road
Wakefield, RI 02879
Attention: Stephen P. Harrington
With a Copy to:
Stephen M. Cohen, Esquire
Buchanan Ingersoll Professional Corporation
Eleven Penn Center, 14th Floor
1835 Market Street
Philadelphia, Pennsylvania 19103
ii. If to Isaacs:
Mark S. Isaacs
3400 Avenue of the Arts
Suite F410
Costa Mesa, CA 92626
With a Copy to:
John C. Siegesmund III
Krendl Horowitz & Krendl
370 Seventeenth St. Suite 5350
Denver, Colorado, 80202
i. Successors and Assigns. This Agreement shall be binding upon and inure
to the benefit of the parties hereto and their respective successors and
permitted assigns; provided, however, that except with regard to a successor by
operation of law (including a successor who purchases substantially all of the
assets of any of the parties hereto or a party who merges with any of the
parties hereto), except as expressly set forth herein, no party hereto may
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<PAGE>
transfer or assign its rights hereunder in whole or in part to any other Person
without the prior written consent of the other parties hereto, except as
expressly set forth herein.
j. Currency Denominations. All currency amounts referenced in this
Agreement are U.S. dollars.
k. Counterparts; Facsimile Signatures. This Agreement may be executed in
one or more counterparts, each of which shall be deemed an original, but all
such counterparts together shall constitute but one and the same Agreement.
Facsimile signatures to this Agreement shall, for all purposes, be as fully
effective as signed originals.
IN WITNESS WHEREOF, each of the parties hereto has caused this Agreement to
be signed as of the date first written above.
ARNGRE, INC.,
a Florida corporation
By: /s/ Stephen P. Harrington
--------------------------------
Stephen P. Harrington, President
/s/ Mark S. Isaacs
--------------------------------
Mark S. Isaacs
8
(ENGLISH VERSION)
CONTRACT OF ASSIGNMENT OF RIGHTS ENTERED INTO BY AND BETWEEN, AS A FIRST PARTY,
POLO Y RON MINERALES, S.A. DE C.V., (HEREINAFTER IDENTIFIED AS THE "ASSIGNOR"),
REPRESENTED HEREIN BY MR. ALLEN W. ZEBROWSKI; AND, AS A SECOND PARTY,
INTERNATIONAL CAPRI RESOURCES, S.A. DE C.V., (HEREINAFTER THE "ASSIGNEE"),
REPRESENTED HEREIN BY MR. ALAN STIER, ACCORDING TO THE FOLLOWING DECLARATIONS
AND CLAUSES:
D E C L A R A T I O N S
I. The ASSIGNOR declares through its representative:
1. That his principal is a Mexican mining company incorporated in accordance
with the laws of the Mexican United States, with corporate domicile in
Chihuahua, Chihuahua and that, pursuant to its corporate purpose, it has legal
capacity to be holder of mining concessions, as well as to enter into any kind
of contracts involving such concessions.
2. That as representative of the ASSIGNOR, he has enough authority to act in the
name and on behalf of the ASSIGNOR, obligating the latter under the terms and
conditions of this Contract, as it is evidenced in the public instrument number
3,889 dated February 6, 1998, granted before Mrs. Maria del Carmen Breach de
Caballero, Notary Public number 26 for the District of Morelos; which authority,
as of the date of execution of this document, has not been revoked, restricted
nor modified in any manner whatsoever.
3. That on November 19, 1998, his principal entered into Contracts of Mining
Exploration and of Promise of Assignment of Rights with Mr. Felix Gomez Garcia,
acting on his own behalf and in the name and on behalf of Mr. Zenon Flores
Damian, as concerns the rights derived from the mining concession which covers
the lot "LOS COMPADRES" title 172622.
That the Contracts referred to in this declaration 3, were ratified before Mrs.
Maria del Carmen Valenzuela Breach de Caballero, Notary Public number 26 for the
District of Morelos, State of Chihuaha.
That given the recent execution of the aforesaid Contracts, such are in process
of being recorded in the Public Registry of Mining.
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4. That also, on November 19, 1998, his principal entered into Contracts of
Mining Exploration and of Promise of Assignment of Rights with Mr. Felix Gomez
Garcia, as concerns the rights derived from the mining concessions which cover
the lots "EL QUINTO II", title 175486 and "EL COMETA NAVIDENO", title 171847.
That the Contracts referred to in this declaration 4, were ratified before Mrs.
Maria del Carmen Valenzuela Breach de Caballero, Notary Public number 26 for the
District of Morelos, State of Chihuaha.
That given the recent execution of the abovementioned Contracts, same are in
process of being recorded in the Public Registry of Mining.
5. That on November 30, 1998, his principal also entered into Contracts of
Mining Exploration and of Promise of Assignment of Rights with Mr. Hector
Esquivel Esparza, as concerns the rights derived from the mining concessions
which cover the lots "EL VOLADO", title 197967 and "LA CADENA", title 156895.
That the Contracts referred to in this declaration 5, were ratified before Mr.
Armando Galvez Perez Aragon, Notary Public number 103 for Mexico City, Federal
District.
That given the recent execution of these Contracts, such are also in process of
being recorded in the Public Registry of Mining.
6. That with respect to the Contracts to which declarations 3., 4. and 5. above
refer (hereinafter jointly identified as the CONTRACTS), as of this date, the
ASSIGNOR is current in the fulfillment of each and all the obligations it
acquired in relation to same.
Likewise, for purposes of this Contract the mining concessions referred to in
declarations 3., 4. and 5. above -which are the subject matter of the CONTRACTS-
shall be jointly identified as the LOTS.
7. That, according to that provided in Clause Twelfth of each one of the
CONTRACTS, the ASSIGNOR is authorized to assign the totality of the rights and
obligations derived from same in favor of the ASSIGNEE; the foregoing, with no
need to obtain prior consent of the concessionaires who are the titleholders of
the mining concessions subject matter of such CONTRACTS.
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8. That the rights derived from each one of the CONTRACTS are free of any lien,
encumbrance, burden or ownership limitation of any nature and, to the date of
execution of this document the ASSIGNOR has not entered nor will enter into any
Contract, nor it has performed nor shall perform any act with respect to the
rights derived from said CONTRACTS, that could encumber, burden or limit, in any
manner whatsoever, the rights that it has over the abovementioned CONTRACTS;
therefore, the ASSIGNOR guaranties the existence, validity and availability of
the rights deriving from said CONTRACTS.
9. That the ASSIGNOR has timely informed to the ASSIGNEE of the circumstances
related to each and all of the LOTS subject matter of the CONTRACTS as it is
aware of same, particularly of the special situation prevailing over the mining
concessions subject matter of the Contracts referred to in declaration I.5 of
this document.
10. That his principal hereby wishes to enter into this Contract of Assignment
of all of the rights and obligations deriving from each and all the CONTRACTS
referred to in declarations I.3, I.4 and I.5, under the terms and conditions set
forth in this document.
II. The ASSIGNEE declares through its representative:
1. That his principal is a Mexican mining company incorporated in accordance
with the laws of the Mexican United States, with corporate domicile in Mexico
City, Federal District and that, pursuant to its corporate purpose, it has the
legal capacity to be holder of mining concessions, as well as to enter into any
contracts involving such concessions.
2. That he has enough authority to act in the name and on behalf of the
ASSIGNEE, obligating the latter under the terms and conditions of this Contract,
as it is evidenced in public instrument number 61,262, dated June 12, 1998,
granted before Mr. Armando Galvez Perez Aragon, Notary Public number 103 for the
Federal District; which authority, as of the date of execution of this document,
has not been revoked, restricted nor modified in any manner whatsoever.
3. That to the extent his principal has been informed by the ASSIGNOR, it is
aware of the circumstances related to each and all the LOTS subject matter of
the CONTRACTS, particularly of the special situation prevailing over the mining
concessions subject matter of the Contracts to which declaration I.5 of this
document refers to.
4. That given the declarations of the ASSIGNOR, his principal wishes to enter
into this Contract with the ASSIGNOR, in order to acquire the totality of the
rights and obligations derived from the CONTRACTS referred to in declarations
I.3, I.4 and I.5 of this document; the foregoing in the terms and conditions set
forth in this document.
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5. That his principal agrees that, from the date of execution of this Contract,
the ASSIGNEE shall subrogate itself in all of the rights and will assume all of
the obligations deriving from the CONTRACTS referred to in this document.
Given the foregoing declarations, the parties agree on the following:
C L A U S E S
FIRST. The ASSIGNOR hereby transfers to the ASSIGNEE, with no reserve or
limitation of any nature whatsoever and free and clear of any liens,
encumbrances, burdens or ownership limitation of any manner whatsoever, the
totality of the rights and obligations derived from the CONTRACTS which
identification data are specified in declarations I.3, I.4 and I.5 of this
document.
This Assignment of Rights is valid and effective in the terms of this Contract
and in accordance with that provided in the Mining Law and its Regulations.
SECOND. The consideration that corresponds to the ASSIGNOR for the assignment of
rights subject matter of this Contract, is the amount of $375,970.00 Mex.Cy
(three hundred seventy five thousand nine hundred and seventy pesos 00/100
Mex.Cy.) equivalent to US$37,782.60 dollars (thirty thousand seven hundred and
eighty two dollars 60/100 USCy) according to the exchange rate applicable plus
the corresponding Value Added Tax; therefore, the total consideration including
such tax is the amount of $432,365.00 MexCy. (Four hundred thirty two thousand
three hundred and sixty five pesos 00/100 MexCy), equivalent to US$43,450.00
(fourty three thousand afour hundred and fifty dollars 00/100 USCy).
With respect to that mentioned in the preceeding paragraph, the ASSIGNOR
expressly acknowledges that, prior to this date, the latter received a loan from
the ASSIGNEE in the total amount of $425,365.00 Mex.Cy, equivalent to
US$42,750.00, reason why such account payable by the ASSIGNOR in favor of the
ASSIGNEE is hereby compensated having an outstanding balance in favor of the
ASSIGNOR in the amount of $7,000.00 MexCy. (Seven thousand pesos 00/100 Mex.Cy.)
equivalent to US$700.00 (seven hundred dollars 00/100 USCy., which amount is
herebu paid to the ASSIGNOR, therefore, the latter hereby grants to the
ASSIGNEE, the broadest discharge with respect to the total consideration agreed,
issuing for such purpose the corresponding invoice, in the accordance with the
applicable legal provisions.
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THIRD. The parties ratify before a Notary Public the contents and signatures of
this Contract and, for the purposes mentioned in the first paragraph of article
23 of the Mining Law, the ASSIGNEE expressly obligates itself to request the
registration of this Contract at the Public Registry of Mining in terms of the
Mining Law and its Regulations.
FOURTH. All the expenses and fees caused as a consequence of the execution of
this Contract, shall be borne by the ASSIGNEE.
The foregoing, except for the Income Tax applicable to the ASSIGNOR, which
obligates itself to issue the corresponding invoice for the amount that it has
received; the above, pursuant to the provisions of the Income Tax Law.
Likewise, the ASSIGNOR has obligated itself to comply with all the obligations
imposed upon it by the tax provisions, given that it is a Mexican corporation
and is recorded in the Federal Taxpayers' Registry, under code PRM-880310-9V2.
Given that mentioned in the preceding paragraphs, it is understood that,
pursuant to the applicable tax provisions, for the payment made to the ASSIGNOR,
no withholding of taxes is made, being the ASSIGNOR obligated to comply with its
corresponding tax obligations (file the corresponding tax returns and pay the
respective taxes).
Pursuant to the provisions of the Value Added Tax Law, for the payment that the
ASSIGNOR has received, it shall transfer and separate in an express manner, the
amount corresponding to the Value Added Tax, pursuant to the applicable articles
of the abovecited Law, as well as those applicable articles of the Fiscal Code
of the Federation.
FIFTH. Notwithstanding the nature of this document, the parties expressly
declare that in the covenants subject matter of same there is no harm or injury
and, even in case such exist, they expressly waive the right to request the
relative nullity referred to in articles 2228 and 2239 of the Civil Code for the
Federal District on Common Matters and for all the Republic on Federal Matters
and the corresponding articles of the Civil Code of each State of the Mexican
United States.
SIXTH. This Contract which is entered into in the terms of articles 23 last
paragraph of the Mining Law and 78 of the Commerce Code, is of a mercantile
nature; therefore, for all that it is not expressly agreed upon herein and for
the interpretation of and compliance with same, the Mining Law and the Commerce
Code will govern, as well as suppletory law, the Civil Code for the Federal
District on Common Matters and for all the Republic on Federal Matters, for that
not provided for in the first two.
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For all disputes arising from and/or in connection with this Contract, the
parties expressly agree to submit such dispute to the jurisdiction of the
competent courts in Mexico, Federal District, given that such is the corporate
domicile of the ASSIGNEE, the parties expressly waive any other venue that may
correspond by virtue of its current or future domiciles or by any other reason.
Having read this document, the parties ratify same in its entirety and sign it;
the ASSIGNOR on December 11, 1998, in the City of Chihuahua, State of Chihuahua;
and the ASSIGNEE on December 11, 1998, in the Province of British Columbia,
Canada.
THE ASSIGNOR THE ASSIGNEE
POLO Y RON MINERALES, S.A. DE C.V. INTERNATIONAL CAPRI
RESOURCES, S.A. DE C.V.
/s/ Allen W. Zebrowski /s/ Alan Stier
- ---------------------- ----------------
Allen W. Zebrowski Alan Stier
Attorney-in-fact Attorney-in-fact
6
(ENGLISH VERSION)
CONTRACTS OF MINING EXPLORATION AND OF PROMISE OF ASSIGNMENT OF RIGHTS ENTERED
INTO BY AND BETWEEN, AS A FIRST PARTY, MR. FELIX GOMEZ GARCIA, ACTING ON HIS OWN
BEHALF AND IN THE NAME AND ON BEHALF OF MR. ZENON FLORES DAMIAN AND ON BEHALF OF
MRS. ROMUALDA GOMEZ LOPEZ DE GOMEZ, IN ORDER TO GRANT THE SPOUSE CONSENT
REQUIRED- (IN THIS DOCUMENT JOINTLY IDENTIFIED AS THE "TITLEHOLDERS" AND
INDIVIDUALLY BY THEIR OWN NAMES); AND, AS A SECOND PARTY, POLO Y RON MINERALES,
S.A. DE C.V., (IN THIS CONTRACT THE "BENEFICIARY"), REPRESENTED HEREIN BY MR.
ALLAN W. ZEBROWSKI, IN ACCORDANCE WITH THE FOLLOWING DECLARATIONS AND CLAUSES:
D E C L A R A T I O N S
I. The TITLEHOLDERS declare:
1. That Mr. Felix Gomez Garcia is Mexican by birth, of legal age, married under
community property, as evidenced with copy of the corresponding marriage
certificate, recorded in the Federal Taxpayers' Registry under code
GOGF-270729-AT3, with legal capacity to enter into contracts and to hold mining
concessions, in accordance with that established in the Mining Law and its
Regulations.
2. That Mr. Zenon Flores Damian is Mexican by birth, of legal age, married only
under the catholic religion with Mrs. Tomasa Perez Garcia, reason why, being not
married under the law, for the legal purposes of these Contracts he is
considered as single, recorded in the Federal Taxpayers' Registry under code
FODZ-390623, with legal capacity to enter into contracts and to hold mining
concessions, in accordance with that established in the Mining Law and its
Regulations.
3. That they are the only holders of the rights deriving from the mining
exploitation concession covering the mining lot named "LOS COMPADRES", title
172622 (in these contracts identified as the LOT), which identification data are
the following:
a) "LOS COMPADRES", mining exploitation concession, title 172622, issued
on March 30, 1984; located in the Municipality of Tetipac, State of Guerrero,
with a surface of 30.0003 hectares, recorded under number 262, page 66,
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volume 231 of the General Book of Mining Concessions of the Public Registry
of Mining;
Attached as Exhibit I, is copy of the mining concession title covering the LOT
described in the above subparagraph.
4. That the TITLEHOLDERS are considered as current in the fulfillment of the
obligation related to the proof of mining works carried out in the LOT; the
foregoing taking into consideration that each one of them is titleholder of
mining concessions which surface, jointly, do not exceed 100 (one hundred)
hectares and, according to the applicable legal provisions of the Mining law and
its Regulations, they have no obligation to file proof of assessment works with
the General Direction of Mines.
As concerns the payment of duties over mining concessions established in the
Federal Duties Law (surface taxes) the TITLEHOLDERS state that a debt by the
TITLEHOLDERS with respect to the same LOT exists.
In line with that mentioned in the preceding paragraph, the TITLEHOLDERS also
state that they have received an official communication from the mining
authorities, requesting them to prove the payment of such surface taxes by means
of the filing of the corresponding receipts, including the up-dating of such
debt and surcharges deriving from such incompliance; reason why the TITLEHOLDERS
obligate themselves to pay the totality of such outstanding surface taxes, upon
the receiving by them of the first payment referred to in subparagraph a) of
section 4.2 of Clause Second of these Contracts, or if such would not be
possible, then the TITLEHOLDERS shall enter into an agreement with the competent
tax authorities, with the purpose of paying such total amount due in
installments, but not later than November 30, 1998.
As Exhibit II are added copies of the certifications referred to by the second
paragraph of article 23 of the Mining Law, whereby it is evidenced that the
concession covering the LOT is in effect, also showing the status of compliance
with the obligations that the Mining Law and its Regulations impose to the
TITLEHOLDERS as concessionaires of the LOT.
5. That the monument indicating the location of the starting point of the LOT,
is well preserved, built in the terms of law and maintained in the same place
previously approved by the mining authorities.
6. That the rights derived from the mining concession that cover the LOT is free
of any liens, encumbrances, burdens or limitations of domain of any nature, and
that to the date of execution of this document, the TITLEHOLDERS have not
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entered nor will enter into any Contract, nor they have performed nor will
perform any act with respect to the LOT, which could encumber, burden or limit,
in any manner whatsoever, the rights that they have over the abovementioned
mining concession; therefore, the TITLEHOLDERS guarantee the existence, validity
and availability of the rights referred to herein.
7. That with respect to the activities performed in the LOT, as of this date, no
legal provisions in the environmental area nor of any other nature have been
breached, also stating the TITLEHOLDERS that -when so required- all of the
authorizations required to perform works in the LOT were obtained, reason why as
of the date of execution of this document, no environmental contingency nor of
any other nature that may affect the validity of the mining concession covering
the LOT exists.
8. That the TITLEHOLDERS hereby wish to grant to the BENEFICIARY, the exclusive
right to evaluate and explore the LOT, for a term of 12 (twelve) months counted
from the date of execution and ratification before Notary Public of these
Contracts by both parties; which exploration shall be carried out under the
terms and conditions established in this document, considering that the
BENEFICIARY is capable to be the holder of mining concessions in accordance with
the Mining Law and its Regulations and that this Contract of Exploration is
authorized in terms of the applicable legal provisions.
9. That, furthermore, the TITLEHOLDERS hereby wish to enter with BENEFICIARY,
for the same term, into a Contract of Promise of Assignment of all of the Rights
derived from the mining concession covering the LOT, as well as in connection
with all the rights that the TITLEHOLDERS have to access the surface covered by
the LOT, such as rights for the expropriation of land, temporary occupations,
licenses, permits, authorizations, easements or any other equivalent permits
that, in general, allow the performance of the mining works; the foregoing, in
the terms and conditions set forth in this document.
10. That Mr. Felix Gomez Garcia has the authority to act in the name and on
behalf of Mr. Zenon Flores Damian, as evidenced in the General Power of Attorney
granted by him before Notary Public in the State of Arizona, United States of
America, Apostilled according to the Hague Convention of October 5, 1961;
authority that, as of the date of execution of this document, has not been
revoked nor modified in any manner.
II. Mr. Felix Gomez Garcia declares that he represents Mrs. Alberta Esthela
Gomez Gomez who acts on behalf of Mrs. Romualda Gomez Lopez de Gomez.
1. That Mrs. Alberta Esthela Gomez Gomez has the authority to act in the name
and on behalf of Mrs. Romualda Gomez Lopez de Gomez, obligating the latter in
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the terms of these Contracts, as evidenced in public instrument number 27,877,
of July 23, 1988, granted before Mr. M.A. Antonio Gutierrez Ysita, Notary Public
number 1 for the District of Tenancingo, State of Mexico; authority that, as of
the date of execution of this document, has not been revoked nor modified in any
manner, and that she appears to this act, in order to grant the spouse consent
of her principal to Mr. Felix Gomez Garcia, in order for the latter to enter
into these Contracts with the BENEFICIARY, as well as to enter into the
contracts that may derive from these Contracts.
III. The BENEFICIARY declares through its representative:
1. That his principal is a Mexican mining company, incorporated in accordance
with the Laws of the Mexican United States, as evidenced in public instrument
8,299 of March 10, 1988, granted before Mr. Jose Antonio Lascurain y Osio, at
that moment Notary Public 21 for the District of Morelos; and that, in
accordance with its corporate purpose, it is capable to be holder of mining
concessions, as well as to enter into contracts whose subject matter are rights
derived from such concessions.
2. That as representative of the BENEFICIARY, he has the authority to act in the
name and on behalf of the latter, obligating itself under the terms of these
Contracts, as evidenced in public instrument number 3,889, of February 6, 1998,
granted before Ms. Maria del Carmen Breach de Caballero, Notary Public 26 for
the District of Morelos; authority that as of the date of execution of this
document, has not been revoked nor modified in any manner.
3. That given the declarations of the TITLEHOLDERS, the BENEFICIARY wishes: (i)
to enter into a Mining Exploration Contract with the TITLEHOLDERS, with respect
to the LOT; and, (ii) that in case that the BENEFICIARY exercises the right to
acquire granted herein, the TITLEHOLDERS enter into a definitive Contract or
Contracts of Assignment of all the rights deriving from the LOT, as determined
by the BENEFICIARY; the above in the terms and conditions mentioned below.
Given the foregoing declarations, the parties agree on the following:
C L A U S E S
CONTRACT OF EXPLORATION
FIRST. The TITLEHOLDERS hereby transfer to the BENEFICIARY, the exclusive right
to evaluate and explore the LOT, which identification data are specified in
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declaration I.3. of this document, in accordance with the following provisions:
1. Term. The life of this Contract of Exploration is of 12 (twelve) months,
counted from the date of execution and ratification of this document before
Notary Public.
1.1 The aforesaid term shall be compulsory for the TITLEHOLDERS, and voluntary
for the BENEFICIARY; therefore, the latter may terminate this Contract of
Exploration, at any time, at its sole discretion and without any responsibility
for itself, by means of a written notice addressed to Mr. Felix Gomez Garcia (in
his capacity of representative of the TITLEHOLDERS), with 15 (fifteen) days
anticipation to the date on which the BENEFICIARY wishes such termination to be
effective; the BENEFICIARY obligating itself to pay any outstanding debt which
same had committed to pay according to this document and is considered due to
the BENEFICIARY, prior to the date on which the termination be effective.
That indicated in the last part of the preceding paragraph means that, in order
to determine if, upon the termination of these Contracts, any outstanding debt
to be paid by the BENEFICIARY exists or not, the parties agree on the following:
(i) As concerns the payment of duties over mining concessions (surface taxes)
to be generated for the first and second semesters of 1999: if on January
1, 1999 these Contracts remain in effect -because the BENEFICIARY had not
delivered the respective termination notice or because such termination has
not became effective- then the BENEFICIARY shall reimburse to the
TITLEHOLDERS the corresponding amount paid as surface taxes for the first
semester of 1999; otherwise, it is expressly agreed that such surface taxes
shall be of the exclusive responsibility of the TITLEHOLDERS. The foregoing
shall be also applicable on July 1, 1999, with respect to the surface taxes
corresponding to the second semester of 1999.
(ii) As concerns the payments established in sections 4. and 4.2 of Clause
Second of these Contracts: it is expressly agreed that, should any of the
dates -individually considered- referred to in each subparagraph of section
4.2 of Clause Second arrives and these Contracts are still in effect
-because the BENEFICIARY had not delivered the respective termination
notice or because such termination has not became effective- then the
BENEFICIARY shall pay the corresponding amount according to the respective
subparagraph; otherwise, the provision referring to "release of the
obligation of making payments" contained in Section 5. of Clause Second of
these Contracts shall be applicable.
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That indicated in this section 1.1 means that the TITLEHOLDERS, as of now, grant
their broadest consent, should that be the case, for the BENEFICIARY to
terminate in advance this Contract, in the manner agreed in this section,
without it is being necessary to enter into an express termination agreement or
for the BENEFICIARY to comply with any other formality; the foregoing is stated
for all legal purposes and particularly for the purpose of that mentioned in the
last paragraph of article 76 of the Regulations to the Mining Law, taking into
consideration that this document is ratified by the parties before a Notary
Public.
1.2 Given the duration of this Contract of Exploration, it is expressly agreed
that any title of mining concession that replaces or derive from the title
currently covering the LOT, shall be incorporated to the subject matter of this
Contract under the concept LOT, and therefore shall be subject to that set forth
in this document.
2. Access. Given the exclusive right to explore herein granted to the
BENEFICIARY, the TITLEHOLDERS obligate themselves to cooperate with the
BENEFICIARY in order for the latter to obtain free and full access to the
surface covered by the LOT, stating the TITLEHOLDERS that all the authorizations
required from the owners or possessors of the surface where the LOT is located
have been obtained, in order to allow the BENEFICIARY the free access to same
for the execution of the exploration works referred to in this document. The
expenses to obtain future authorizations to have access to the LOT shall be
borne by the BENEFICIARY, prior authorization by the latter for such purposes.
2.1 Likewise, the TITLEHOLDERS obligate themselves that, if during the term of
this Contract of Exploration the owners or possessors of the surface where the
LOT is located change, or the circumstances under which the corresponding
authorizations were granted to have free access to the LOT and to carry out the
exploration works change, they shall cooperate with the BENEFICIARY to obtain
new authorizations, as required, in order for the BENEFICIARY to be able to
carry out the exploration works indicated in this Contract, according to its
work program.
3. Works. The exploration to be carried out by the BENEFICIARY, be it directly
or through contractors who render their services to the BENEFICIARY, comprise,
among others, the works that allow the location, identification and
determination of mineral substances existing in the LOT, consisting of site
preparation, geological investigations and examinations, including geological
explorations, topographical works, drilling of any kind and mining works such as
drifts, trenches, fronts, crosscuts, shafts and the like considered convenient,
additionally to one or more feasibility studies for the evaluation of this
project aimed at establishing a new mining unit.
Likewise the exploration to be carried out by the BENEFICIARY includes all such
activities related thereto and permitted by the applicable legal provisions in
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the area of mining, particularly those indicated in articles 28 and 29 of the
Mining Law, and which may be used to prove the assessment works to which the
TITLEHOLDERS are obligated as concessionaires of the LOT.
4. Buildings and Constructions. From this date, the BENEFICIARY is authorized to
perform, at its own cost and risk, by itself or by means of third parties, all
of the works and build the structures, buildings, improvements, means of access
and others, as well as to install and use all the machinery and equipment
required for the exploration, which may be removed at any time, during the life
of this Contract of Exploration and during an additional term of 90 (ninety)
days after the termination of this Contract, whether the property of the
BENEFICIARY or of its contractors or third parties, if and when the removal of
same does not jeopardize the safety of the works carried out, in which case they
may not be removed.
4.1 It is understood that the permanent support works, struts and in general the
works necessary for the safety and stability of the mines may not be removed, in
accordance with that provided by the Mining Law.
4.2 The BENEFICIARY may request the support and assistance of the TITLEHOLDERS,
should that be necessary, to negotiate with the owners or possessors of the
surface comprising the LOT, for the performance of the works and constructions
referred to in this section 4, whether temporary or permanent. The expenses to
obtain such authorizations shall be borne by the BENEFICIARY.
5. Consideration for the Right to Explore and Investment Commitments. As
consideration for the right to explore granted by the TITLEHOLDERS to the
BENEFICIARY in accordance with this Contract, the latter obligates itself,
during the life thereof, to carry out investments in exploration, development of
mining works, and any other activities which purpose is to evaluate the
potential mineral existing in the LOT, for which purposes, the BENEFICIARY shall
invest the amounts that it considers convenient, taking into consideration the
minimum investments set forth in the Mining Law and in its Regulations.
5.1 It is expressly agreed that the BENEFICIARY shall have the right to explore
the LOT with no restriction whatsoever during all the time in which this
Contract of Exploration is in effect.
5.2 Acts of God or Force Majeure. It is expressly understood that the
BENEFICIARY shall not be liable for the delay or total or partial
non-fulfillment of its obligations, consisting in the performance of the
exploration works in terms of this document, as well as of making the payments
referred to in section 4 of Clause Second of these Contracts, when such delay or
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non-fulfillment results from an Act of God or force majeure, this is, from facts
or events of nature or man that are unforeseeable or that even in the case they
might be foreseen, they cannot be avoided by the BENEFICIARY.
In accordance with that indicated in the above paragraph, the parties agree that
the events mentioned below, as examples but not in a limitative manner, shall be
considered as acts of God or force majeure: accidents such as fire, explosions,
flooding, tempests, tremors, epidemics, civil disturbances, labor disturbances,
strikes, wars, invasions, oppositions or disturbances caused by rural
communities, ejido's communities or any other kind of association legally
created or not, as well as oppositions or disturbances caused by any other
person impeding the free access of the BENEFICIARY to the LOT or obstructing the
performance of the mining works set forth in this Contract, as well as actions
or omissions of any governmental authority, whether Federal, State or Municipal,
which include the delay or impossibility to timely obtain such permits required
from any governmental authority, individual or corporation, group or entity to
carry out the mining works provided for in this document.
The aforecited events shall be considered as acts of God or force majeure, as
the case may be, if in the event of occurrence they obstruct or delay, whether
totally or partially, the fulfillment of the obligations of the BENEFICIARY, if
and when such event is not provoked by an action or omission imputable to the
BENEFICIARY itself.
In the event that an occurrence take place causing an act of God or force
majeure, the BENEFICIARY shall notify it to the TITLEHOLDERS within a term of 30
(thirty) calendar days, counted from the date on which the BENEFICIARY becomes
aware of such event.
If the act of God or force majeure continues, the term to carry out the works of
exploration shall be extended for a term equal to the duration of the act of God
or force majeure, in order for the term of the exploration to be of one
effective year.
5.3 Proof of Works. It shall be the responsibility of the TITLEHOLDERS that
indicated in section 8 of this Clause First and section 3 of Clause Second of
these Contracts, with respect to the proof of the mining works carried out in
the LOT; the foregoing, under the terms of that provided by the Mining Law and
its Regulations.
For the purposes of that indicated above, the BENEFICIARY obligates itself to
inform in writing to the TITLEHOLDERS not later than April 30, 1999, with
respect to the exploration works performed under the terms of this Contract,
furnishing to the TITLEHOLDERS copies of the documents evidencing the
investments made.
5.4 Definitive Suspension of the Investment Commitments. If at any time the
BENEFICIARY would decide not to proceed, and therefore, to terminate this
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Contract of Exploration in advance, it shall not be obligated to make any
further investments other than those carried out as of the date of the
termination notice.
In this latter case, the BENEFICIARY shall inform the TITLEHOLDERS -through
their representative- of the works carried out as of the date of the termination
notice, and shall deliver to the TITLEHOLDERS a copy of the documents evidencing
the investments carried out, and which documents had not been previously
delivered to the TITLEHOLDERS representative, and shall withdraw without keeping
any interest whatsoever in the LOT.
6. Use of Mineral. So long as the BENEFICIARY does not exercise its right to
acquire mentioned below, if by virtue of the performance of the mining
exploration works mineral would be extracted, it may -during the life of this
Contract of Exploration- take gratuitously up to 500 (five hundred) tons of
mineral to carry out all kind of samples and metallurgic tests, in the
understanding that the rest of the mineral obtained will remain in benefit of
the TITLEHOLDERS.
On the other hand, so long as the BENEFICIARY does not exercise the right to
acquire the LOT, it is expressly agreed that the TITLEHOLDERS may continue
extracting mineral from the LOT, up to an amount of 50 (fifty) tons per month;
the foregoing, if and when such works do not interfere with the exploration
works being carried out by the BENEFICIARY and such works are completely stopped
at the moment the BENEFICIARY, in its case, acquires the LOT.
7. Obligations of the BENEFICIARY. In the performance of the exploration, the
BENEFICIARY obligates itself to the following:
a) To carry out the exploration works pursuant to custom and usage of the good
miner and in accordance with the Mining Law, its Regulations and other legal
provisions related to the mining activities, allowing the TITLEHOLDERS to
inspect the works carried out by the BENEFICIARY, if and when the formers do not
interfere or interrupt the activities which are being carried out by the
BENEFICIARY in the LOT.
b) To preserve the LOT in good maintenance conditions, when carrying out the
exploration of same.
c) To take care of the maintenance of the monument of the starting point and of
location of the LOT, for which purposes the TITLEHOLDERS shall deliver to the
BENEFICIARY the corresponding documents, such as expert reports and others.
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d) To deliver to the TITLEHOLDERS -through their representative- within a term
of 60 (sixty) calendar days following the termination of this Contract of
Exploration, if the definitive Contract of Assignment of Rights mentioned below
is not executed, a non-interpretative report on the exploration operations,
which shall include a report with respect to the mineral deposits located in the
LOT, as well as in connection with the geological, mining and sampling works
performed, with copies of the geological and topographical maps and of the
drilling made; such information and documents shall not be interpretative and
may be delivered in English version, should the originals have been drafted in
such language.
e) To comply with the labor, social security, tax and other obligations with
respect to the personnel of the BENEFICIARY working on the LOT, as a consequence
of the exploration carried out by the BENEFICIARY in accordance with this
Contract.
f) To hold the TITLEHOLDERS free and harmless of any claim tried against them by
employees or workers of the BENEFICIARY or by third parties contracted by the
latter to whom the BENEFICIARY may have entrusted the rendering of a service on
the LOT.
g) To comply with the obligations in the environmental area, with respect to the
activities carried out in the LOT directly by the BENEFICIARY or through its
contractors.
h) To reimburse the TITLEHOLDERS, as from the date of execution of this Contract
of Exploration and during the life of same, the surface taxes deriving from the
LOT that in the future become due and be effectively paid by the TITLEHOLDERS;
such reimbursement shall be made by the BENEFICIARY within the 30 (thirty)
calendar days following the date on which the TITLEHOLDERS delivers to the
BENEFICIARY the corresponding payment receipts; the foregoing taking into
consideration that provided in subparagraph (i) of section 1.1 of this Clause
First.
8. Obligations of the TITLEHOLDERS. Given the right to explore granted to the
BENEFICIARY by the TITLEHOLDERS, the latter obligate themselves during the life
of these Contracts to the following:
a) To maintain in force and in their favor the rights derived from the mining
concession that cover the LOT.
b) Not to transfer the rights derived from the mining concession covering or
that in the future may cover the LOT to third parties different to the
BENEFICIARY, or its designee, in case the right to acquire is exercised in the
terms and conditions of the Contract of Promise of Assignment of Rights
contained herein.
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c) To maintain the rights derived from the mining concession that covers the
LOT, free from all encumbrances, liens, burdens or ownership limitation of any
nature, except for that indicated in this document.
d) Not to interfere, impede nor to obstruct the exclusive right to evaluate and
to explore the LOT granted to the BENEFICIARY in accordance with this Contract;
to the contrary, the TITLEHOLDERS obligate themselves to make their best efforts
to facilitate and support the activities performed by the BENEFICIARY and shall
cooperate with same to the extent required by it, in order for the BENEFICIARY
to conclude such evaluation and exploration at its entire satisfaction.
e) To cooperate with the BENEFICIARY in order to obtain free access to the LOT,
in terms of that mentioned in section 2 of this Clause First.
f) To comply with the labor, social security, tax and other obligations with
respect to the personnel of the TITLEHOLDERS working on the LOT, as a
consequence of any activity that the TITLEHOLDERS carry out.
g) To hold the BENEFICIARY, its representatives, officers and outside advisors
free and harmless of any claim and/or responsibility that may be tried against
them, as a consequence of acts directly imputable or of the exclusive
responsibility of the TITLEHOLDERS, their workers, or derived from any act
deriving from the exclusive responsibility of the TITLEHOLDERS.
h) To maintain in secrecy during the duration of this Contract and for an
additional period of 1 (one) year, counted from the date of acquisition of the
LOT -if the right to acquire is exercised by the BENEFICIARY- any and all
information that the TITLEHOLDERS receive from the BENEFICIARY and that has not
been of the public knowledge before and in any manner whatsoever, which
information shall be of an industrial nature and shall be considered and treated
as privileged information and industrial secret.
i) To prove the works and mining works performed in the LOT during the life of
this Contract, under the terms of the applicable legal provisions, as well as to
continue complying with other obligations assessed upon mining concessionaires
by the Mining Law, its Regulations and other legal provisions.
j) To pay during the life of this Contract of Exploration and with respect to
the LOT, the totality of the duties on mining concessions referred to by the
Federal Duties Law (surface taxes); same taxes that will be reimbursed by the
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BENEFICIARY to the TITLEHOLDERS as from the date of execution of this Contract
of Exploration; taking always into consideration that provided in subparagraph
(i) of section 1.1 of this Clause First.
k) To pay -within 5 (five) calendar days counted from the date of execution and
ratification before Notary Public of this document or, in its case, not later
than November 30, 1998- with the amount received by each one of them as first
payment established in subparagraph a) of section 4.2 of Clause Second of these
Contracts, the totality of the outstanding surface taxes deriving from the LOT,
owed by the TITLEHOLDERS, as well as to file with the mining authorities copies
of the corresponding receipts, in order for them to be considered as current in
the compliance of said obligation.
In order to carry out the foregoing, the parties agree that, with respect to the
payment to be made in favor of the TITLEHOLDERS referred to in the preceding
paragraph, the amount required to pay the outstanding surface taxes deriving
from the LOT shall be separated; the foregoing, in order for the representatives
of the TITLEHOLDERS and of the BENEFICIARY -jointly- make the corresponding
payments and file with the mining authorities, the respective receipts.
CONTRACT OF PROMISE OF ASSIGNMENT OF RIGHTS
SECOND. The TITLEHOLDERS hereby promise and obligate themselves to assign in
property to the BENEFICIARY or to its designee, without any reserve or
limitation, free of all encumbrances, lien, burden or ownership limitation of
any nature, the totality of the rights derived from the title of mining
concession which cover or in the future may cover the LOT, upon request to the
TITLEHOLDERS the assignment of said rights, by means of a written notice
addressed to the TITLEHOLDERS -through their representative- with a 15 (fifteen)
calendar days anticipation to the date on which the right herein referred to is
desired to be exercised, if and when that mentioned below is complied with.
If the right to acquire the LOT is exercised, the TITLEHOLDERS obligate
themselves to simultaneously assign to the BENEFICIARY or its designee for such
purposes, without any reserve or limitation, all the rights that the
TITLEHOLDERS may have to access the surface comprising the LOT, such as rights
for the land expropriation, temporary occupations, licenses, permits,
authorizations, easements or any equivalent permits that, in general, allows the
carrying out of the mining works.
This Promise of Assignment of Rights shall be additionally governed by the
following:
1. Term. The term during which the BENEFICIARY may exercise, at any time, the
right to assign to the BENEFICIARY itself or to its designee, the rights derived
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from the title of mining concession which covers the LOT, as well as the above
referred rights that the TITLEHOLDERS may have to access the LOT, shall be of a
period of 12 (twelve) months counted from the date of execution and ratification
before a Notary Public of these Contracts.
1.1 The aforesaid term shall be compulsory for the TITLEHOLDERS, and voluntary
for the BENEFICIARY; therefore, the latter may terminate this Contract of
Promise, at any time, at its sole discretion and without any responsibility for
itself, by means of a written notice addressed to the TITLEHOLDERS -delivered to
their representative- with 15 (fifteen) days anticipation to the date on which
the BENEFICIARY desires the termination to be effective; obligating the
BENEFICIARY itself to pay any outstanding debt that the latter had committed to
pay in terms of these Contracts and that is considered due to the BENEFICIARY
prior to the date on which the termination becomes effective. In relation to
that stated in this section, the provisions referred to in subparagraphs (i) and
(ii) of section 1.1 of Clause First of these Contracts shall be also applicable.
That indicated in the preceding paragraph, means that the TITLEHOLDERS, as of
now, grant their broadest consent, should that be the case, for the BENEFICIARY
to terminate in advance these Contracts, in the manner agreed in this section,
without being necessary to enter into an express termination agreement or for
the BENEFICIARY to comply with any other formality; the foregoing is stated for
all legal purposes and particularly for the purpose of that mentioned in the
last paragraph of article 76 of the Regulations of the Mining Law, taking into
consideration that this document is ratified by the parties before a Notary
Public.
1.2 Given the duration of this Contract of Promise, it is expressly agreed that
any title of mining concession that replace or derive from the title currently
covering the LOT, shall be incorporated to the subject matter of this Contract
under the concept LOT, and therefore shall be subject to that set forth in this
document.
2. Obligations of the Titleholders. The TITLEHOLDERS obligate themselves that,
during the term indicated, they shall not encumber, burden nor limit in any
manner whatsoever, the rights derived from each and all the mining concessions
that cover and will cover in the future the LOT, nor to enter into any contract
with respect to the LOT, except with the BENEFICIARY or its designee for such
purposes, and therefore the TITLEHOLDERS guarantee the existence, validity and
availability of the aforecited rights.
2.1 Likewise, the TITLEHOLDERS obligate themselves not to request reduction,
subdivision nor unification of the surface which covers the LOT; likewise, the
TITLEHOLDERS obligate themselves not to waive from the rights derived from the
same LOT; the foregoing without prior written authorization of the BENEFICIARY
through a legal representative with authority therefor.
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3. Other Obligations The TITLEHOLDERS obligate themselves to comply with the
execution and to file the proof of assessment works carried out in the LOT, in
terms of that provided in the applicable legal provisions of the Mining Law and
its Regulation, according to the investments made by the BENEFICIARY, in
accordance with the Contract of Exploration contained in this document, as well
as in accordance with any other investments made, in its case, by the
TITLEHOLDERS.
4. Consideration for the Promise and for the Assignment of Rights. The
consideration that shall be paid to the TITLEHOLDERS -through Mr. Felix Gomez
Garcia- for the onerous promise and for the assignment of all the rights derived
from the mining concession which cover or in the future may cover the LOT, shall
be in the amounts mentioned in subparagraphs a) through k) of section 4.2 below,
which amounts will be paid on the dates indicated.
4.1 Currency and VAT. Payments made to the TITLEHOLDERS as consideration for the
promise and for the assignment of the rights referred to in this Contract, shall
be made in dollars, currency of the United States of America or its equivalent
in Mexican currency on the date of payment, plus the corresponding Value Added
tax (V.A.T.) to each payment.
4.2 Schedule of Payments. The amounts referred to in section 4 above shall be as
follow:
a) The date on which this Contract of Promise of Assignment of Rights be
executed and ratified before a Notary Public, the total amount of $2,000.00
(two thousand dollars).
It is expressly agreed that, with respect to the amount referred to in this
subparagraph a), the amount required to pay the outstanding surface taxes
deriving from the LOT shall be separated; the foregoing in order for -within
the 5 (five) calendar days counted from the date of execution and
ratification before Notary of this document- the representatives of the
TITLEHOLDERS and of the BENEFICIARY to make the corresponding payments, as
well as to file the respective receipts with the mining authorities.
In the event that the TITLEHOLDERS would not be able to pay the total amount
due as surface taxes within the aforesaid term of 5 (five) calendar days,
then the latter are hereby authorized -and at the same time obligated- to
agree with the competent tax authorities on a first payment to be made within
the 5 (five) calendar days following the date of execution and ratification
of this document before a Notary Public, if and when they commit themselves
to pay the respective outstanding balance not later than November 30, 1998.
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Once the TITLEHOLDERS have made such payment(s) they shall furnish to the
BENEFICIARY the corresponding receipt(s).
b) On November 30, 1998, provided that the Contracts contained in this
document are still in effect, the total amount of $1,000.00 (one thousand
dollars 000/100).
c) On December 31, 1998, provided that the Contracts contained in this
document are still in effect, the total amount of $1,000.00 (one thousand
dollars 000/100).
d) On February 1, 1999, provided that the Contracts contained in this
document are still in effect, the total amount of $1,500.00 (one thousand
five hundred dollars 000/100).
e) On March 1, 1999, provided that the Contracts contained in this
document are still in effect, the total amount of $2,500.00 (two thousand
five hundred dollars 000/100).
f) On March 31, 1999, provided that the Contracts contained in this
document are still in effect, the total amount of $2,500.00 (two thousand
five hundred dollars 000/100).
g) On April 30, 1999, provided that the Contracts contained in this
document are still in effect, the total amount of $2,500.00 (two thousand
five hundred dollars 000/100).
h) On May 31, 1999, provided that the Contracts contained in this document
are still in effect, the total amount of $2,500.00 (two thousand five hundred
dollars 000/100).
i) On June 30, 1999, provided that the Contracts contained in this
document are still in effect, the total amount of $2,500.00 (two thousand
five hundred dollars 000/100).
j) On July 30, 1999, provided that the Contracts contained in this
document are still in effect, the total amount of $2,500.00 (two thousand
five hundred dollars 000/100).
k) On August 31, 1999, provided that the Contracts contained in this
document are still in effect, the total amount of $4,500.00 (four thousand
five hundred dollars 000/100). At the moment this last payment is made, it
will be understood that the right to acquire the LOT has been fully
exercised.
l) Should the option to acquire the LOT be exercised prior to August 31,
1999, the BENEFICIARY shall pay to the TITLEHOLDERS, such amounts referred to
in subparagraphs b) to k) above which had not been paid with respect to the
dates which have not been met, in order for the total consideration for the
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promise and for the assignment of all the rights deriving from the mining
concession which at that moment covers the LOT be, in any case, the total
amount of $25,000.00 (twenty five thousand dollars 00/100), plus the
corresponding V.A.T.
5. Release of the Obligation of Making Payments. It is expressly agreed, as
indicated above that the BENEFICIARY shall have the right to terminate this
Contract of Promise of Assignment of Rights at any time, at its own discretion
and without any obligation by means of a written notice addressed to the
TITLEHOLDERS and, in such event, the BENEFICIARY shall have no obligation to
make any payment of those amounts referred in all subparagraphs of section 4.2
above, with respect to the dates that have not elapsed.
5.1 Earnest money. It is expressly understood that, in the event the BENEFICIARY
terminates this Contract in advance, the amounts that the TITLEHOLDERS would
have received as of the date on which the BENEFICIARY delivers to them the
notice of termination, shall inure to their benefit as earnest money.
COMMON TO BOTH CONTRACTS
THIRD. Other Obligations of Both Parties. The TITLEHOLDERS and the BENEFICIARY
expressly obligate themselves that, during the life of these Contracts in the
performance of their respective activities they will faithfully comply with all
obligations imposed upon them by the Mining Law, its Regulations, the
environmental, water, security and hygiene in the mines, labor, tax and other
applicable legal provisions; likewise, they obligate themselves not to incur in
any of the causes for nullity, cancellation, suspension or expiration of rights
referred to by the Mining Law, with respect to the mining concessions which
cover and will cover in the future the LOT.
Given that no labor relationship whatsoever will exist between the workers or
contractors of each one of the parties, with respect to the other, the
TITLEHOLDERS and the BENEFICIARY agree that each party shall assume its entire
responsibility whether of a labor, social security, or tax nature, and others,
with respect to their own workers and contractors; therefore, each party agrees
to hold the other free and harmless of any claim, lawsuit or accusation or
complain that could be filed against the other party, by the workers or
employees of said party, by its contractors or by the authorities in the labor
or administrative area.
FOURTH. Incompliance. Notwithstanding any stipulation on the contrary agreed in
this document, should any party be or incur on incompliance (the "Non-complying
Party"), with respect to any obligation stated in these Contracts, the affected
party of such incompliance (the "Affected Party"), may give written notice
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specifying in which the incompliance consists ("Notice of Incompliance") to the
Non-complying Party, in order to:
(a) within the five working days following to the reception of the Notice
of Incompliance -referring to the lack of payment of any amounts that must
be paid in terms of these Contracts- the Non-complying Party: (i) pays to
the Affected Party the totality of such amounts due; (ii) proves that such
amounts have been paid; or, (iii) justifies the valid reasons -not imputable
to itself- why the corresponding payments have not been made.
(b) within the 30 (thirty) calendar days following to the reception of the
Notice of Incompliance -which refers to an incompliance different that the
lack of payment- the Non-complying Party cures such incompliance or fault,
if and when same may be easily corrected within such period; or
(c) in case that the incompliance be different to lack of payment, and
that, deriving from its nature it may not be easily corrected during the 30
(thirty) days period referred to in subparagraph (b) above, the
Non-complying Party shall initiate -within such 30 (thirty) days term
following the reception of the Notice of Incompliance- the necessary and
prudent actions in order to correct the incompliance and, therefore, follow
such actions in a proper manner until the incompliance be completely cured
within a term not exceeding 90 (ninety) calendar days counted from the date
on which the Non-complying Party received the Notice of Incompliance.
Notwithstanding the foregoing, the affected party shall be authorized to seek
for in good faith for any remedy applicable to such incompliance; with no
prohibition that, in case that the Non-complying Party does not carry out that
mentioned in subparagraphs (a), (b) or (c) above, within the maximum terms
therein contemplated for each case, the Affected Party may exercise its right to
judicially terminate these Contracts and to demand the payment of damages and
detriment; or, in its case, the right to request the compulsory compliance of
the obligations of the Non-complying Party and the payment of damages and
detriment.
FIFTH. Registration. The BENEFICIARY expressly obligates itself to register in
the Public Registry of Mining these Contracts of Mining Exploration and of
Promise of Assignment of Rights, as well as the definitive Contract or Contracts
of Assignment of Rights that be executed, should that be the case.
SIXTH. Expenses, Fees and Taxes. All the expenses, fees and taxes caused as a
consequence of the execution of these Contracts of Mining Exploration and of
Promise of Assignment of Rights, shall be for the account of the BENEFICIARY.
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The foregoing, except for the Income Tax applicable to the TITLEHOLDERS, who
- -individually- obligate themselves to issue the corresponding receipts
(invoices) for the amounts that each one of them receive; the foregoing in
accordance to the Income Tax Law.
Likewise, the TITLEHOLDERS obligate themselves to comply with all the
obligations imposed upon them by the applicable tax provisions in force, given
that they have stated to the BENEFICIARY that they are recorded in the Federal
Taxpayers' Registry, Mr. Felix Gomez Garcia under code GOGF-270729-AT3 and Mr.
Zenon Flores Damian under code FODZ-390622.
Given that mentioned in the preceding paragraphs, it is understood that, so long
the applicable tax provisions do not provide otherwise, for each payment to be
made to the TITLEHOLDERS, the corresponding withholding of the Income Tax will
be made, delivering to the TITLEHOLDERS -through their representative- the
withholding certificate and, once such tax be paid, shall deliver to said
representative of the TITLEHOLDERS copy of the corresponding income tax returns.
In accordance with that provided by the Value Added Tax Law, for each payment
that the TITLEHOLDERS receive, they shall separate in an express manner the
amount corresponding to the Value Added Tax, as set forth in the applicable
articles of the abovementioned Law, as well as on those applicable of the Fiscal
Code of the Federation.
SEVENTH. Guaranty of Compliance. The TITLEHOLDERS Messrs. Felix Gomez Garcia and
Zenon Flores Damian, obligate themselves in accordance with articles 2554,
fourth paragraph, 2587 and 2596, first paragraph, of the Civil Code for the
Federal District on Common Matters and for all of the Republic on Federal
Matters, to grant before a Notary Public, a special and irrevocable power of
attorney, in order to guarantee the compliance with the obligations undertaken
by the TITLEHOLDERS in accordance with this document, in the following terms:
"Messrs. Felix Gomez Garcia and Zenon Flores Damian, on their own behalf,
grant to Messrs. Fernando David Estavillo Castro, Juan Pizarro Suarez
Vergara Lope, Alejandro Staines Anzaldo, Cristina Sanchez Urtiz, Othon Frias
Calderon and Alberto Mauricio Vazquez Sanchez, a special and irrevocable
power of attorney to be exercised jointly or individually, in order that in
the name and on behalf of the grantors:
They comply, if so required by Polo y Ron Minerales, S.A. de C.V. or by its
designee expressly and in writing, with the obligations undertaken by
Messrs. Felix Gomez Garcia and Zenon Flores Damian in favor of Polo y Ron
Minerales, S.A. de C.V., in the Contracts of Mining Exploration and of
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Promise of Assignment of Rights entered into between the grantors as
promisors (in said Contracts named as the "TITLEHOLDERS") and Polo y Ron
Minerales, S.A. de C.V. as promisee (in said Contract the "BENEFICIARY"),
consisting on executing with the latter or with its designee, a Definitive
Contract of Assignment of the Rights derived from the title of mining
concession covering the LOT:
a) "LOS COMPADRES", mining exploitation concession, title 172622, issued
on March 30, 1984; located in the Municipality of Tetipac, State of
Guerrero, with a surface of 30.0003 hectares, recorded under number 262,
page 66, volume 231 of the General Book of Mining Concessions of the Public
Registry of Mining;
This power of attorney is granted with the limitation that in order to exercise
the authority to assign the rights therein referred, the attorney(s)-in-fact
exercising this mandate must evidence to the Notary Public before whom the
signatures of the Contract of Assignment of Rights derived from the LOT are
ratified, that it has been delivered to the TITLEHOLDERS the total amount of the
price agreed for the promise and for the assignment of rights of the LOT, or
that such consideration has been deposited in favor of the TITLEHOLDERS.
This power of attorney is granted, in addition, in order that if so required
expressly and in writing by the BENEFICIARY or its designee, the attorneys in
fact exercise all of the rights that the Mining Law, its Regulations and other
applicable dispositions, in the area of mining grant to the concessionaires with
respect to their concessions, as well as to comply with the obligations upon of
Messrs. Felix Gomez Garcia and Zenon Flores Damian, among which are included, in
an exemplarily manner though not limited to, file the reports and proofs of the
execution of the mining works to which the Mining Law and its Regulations refer;
initiate mining opposition procedures; exercise administrative remedies in terms
of the Mining Law, its Regulations and other applicable provisions; initiate
constitutional protection proceedings; and, other acts which are applicable in
accordance with said provisions, except to relinquish, subdivide, reduce or
unify surface of the LOT, which shall only operate by means of a written
authorization jointly signed by Mr. Felix Gomez Garcia and the representative of
the BENEFICIARY.
Within the specialty of the power of attorney, the attorneys in fact shall have
all of the authority corresponding to a general power of attorney for lawsuits
and collections, to administer property, and for acts of ownership, with the
broadest authority, as provided for in article 2554 (two thousand five hundred
and fifty four) of the Civil Code for the Federal District on Common Matters and
for all of the Republic on Federal Matters and the corresponding article of the
Civil Code of each State of the Mexican United States; with the limitation that
the attorneys in fact may only exercise this power of attorney in matters
related to rights deriving from the mining concession that cover or will cover
in the future the LOT subject matter of the Contracts referred to herein.
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Given that the power of attorney contained in this public instrument is granted
for the compliance of obligations acquired by the grantors in a bilateral
contract, it is expressly stated that the power of attorney is granted with an
irrevocable nature, under the terms of article 2596 (two thousand five hundred
and ninety six) of the Civil Code for the Federal District on Common Matters and
for all the Republic on Federal Matters and the corresponding article of the
Civil Code of each State of the Mexican United States.
This power of attorney will be in effect during the time in which the
obligations of the grantors in the Contracts of Mining Exploration and of
Promise of Assignment of Rights referred to subsist, of which copy is attached
hereto in order to form an integral part of this instrument."
EIGHTH. BENEFICIARY's guaranty. The BENEFICIARY shall become liable before the
TITLEHOLDERS, of each and all the obligations convened by the attorneys-in-fact
in the mandate referred to in the above Clause, should either it or the
attorneys-in-fact illegally exercise the authority conferred upon them by such
mandate.
NINTH. The TITLEHOLDERS obligate themselves to furnish to the BENEFICIARY all
the information that it requests, as well as to sign, evidence and comply with
any other necessary requirement and to exercise the legal actions that may be
required, in order to: (i) obtain, whenever needed, any authorizations for the
BENEFICIARY to exercise the rights herein granted; (ii) maintain the LOT subject
matter of these Contracts, free of all charge, lien, burden, or limitation of
domain of any nature, according to that agreed in this document; and, (iii) in
general, to solve any contingency that may affect the legal status of the LOT
and that may prevent, limit or hinder the exercise of the rights granted by
virtue of this document to the BENEFICIARY.
TENTH. Communications. All communications to be made among the parties pursuant
to these Contracts, shall be in writing, delivered at their domiciles in an
authentic manner; and, for such purpose, the parties designate the following
domiciles:
THE TITLEHOLDERS:
MR. FELIX GOMEZ GARCIA and
FELIX FLORES DAMIAN
Domicilio Conocido
Rancheria el Moral
Zacualpan, Estado de Mexico
Att'n: Mr. Felix Gomez Garcia
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THE BENEFICIARY:
POLO Y RON MINERALES, S.A. DE C.V.
Avenida Paseo Bolivar No. 201
Chihuahua, Chihuahua
Att'n: Mr. Allen Zebrowski
Any change of domicile or of representative shall be notified in writing,
delivered in an authentic manner.
ELEVENTH. Alternative Formalities. The TITLEHOLDERS authorize the BENEFICIARY,
as of now, to formalize this document in public instrument before a Notary
Public of its choice, at the expense of the latter and without requiring the
appearance of the TITLEHOLDERS.
TWELFTH. Assignment. The TITLEHOLDERS, expressly authorize the BENEFICIARY, as
of now, to assign totally or partially without the need to obtain the consent of
the TITLEHOLDERS the rights and obligations deriving from this document in favor
and in charge of the BENEFICIARY; the foregoing if and when in the document
containing such assignment of rights and obligations, the express acceptance of
the assignee in order to subrogate in all of the obligations that by virtue of
this document the BENEFICIARY acquires is contained; likewise, the third party
acquiring such rights and obligations, must commit itself that, in case that in
the future executes another contract whereby transfers or sells such rights and
obligations, shall contain the same clause.
The parties agree that so long as these Contracts are in effect, they shall be
valid and binding for the contracting parties, as well as for the designee of
the BENEFICIARY and the respective successors or assignees of the parties, and
for the heirs or legatees of the TITLEHOLDERS.
THIRTEENTH. Absence of Injury. The parties, notwithstanding the nature of this
document, expressly declare that in the covenants subject matter of same there
is that no injury and, even in case it exists, they expressly waive the right to
request the relative nullity referred to in articles 2228 and 2239 of the Civil
Code for the Federal District on Common Matters and for all the Republic on
Federal Matters and the corresponding article of the Civil Code of each State of
the Mexican United States.
FOURTEENTH. Applicable Laws and Jurisdiction. This Contract which is entered
into under the terms of article 78 of the Commerce Code, is of a mercantile
nature; therefore, for all that not expressly agreed upon herein and for the
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interpretation of and compliance with same, there shall be applied the Mining
Law, its Regulations and the Commerce Code, as well as suppletory law the Civil
Code for the Federal District on Common Matters and for all of the Republic on
Federal Matters, for that not provided for in the first two.
For the resolution of any controversy which might arise from this document, the
parties expressly agree to submit themselves to the jurisdiction of the
competent courts in Mexico, Federal District.
FIFTEENTH. Headings. The parties acknowledge that the headings in the Clauses,
sections, subparagraphs in which these Contracts are divided, have been stated
only with the purpose of easy reading of this document, therefore, such headings
have no interpretative or linking value.
Once this document, was read by the parties, they ratify same in its entirety
and sign it as evidence thereof, the TITLEHOLDERS on and, the BENEFICIARY on 19
of November, 1998, in the City of Chihuahua, State of Chihuahua.
THE TITLEHOLDERS
/s/ Felix Gomez Garcia
----------------------
Felix Gomez Garcia, on his own
behalf and in name and on
behalf of Mr. Zenon Flores
Damian and Romualda Gomez Lopez de Gomez
THE BENEFICIARY
POLO Y RON MINERALES@
S.A. DE C.V.
/s/ Allan W. Zebrowski
----------------------
ALLAN W. ZEBROWSKI
22
(ENGLISH VERSION)
CONTRACTS OF MINING EXPLORATION AND OF PROMISE OF ASSIGNMENT OF RIGHTS ENTERED
INTO BY AND BETWEEN, AS A FIRST PARTY, MR. FELIX GOMEZ GARCIA, ACTING ON HIS OWN
BEHALF, (IN THIS DOCUMENT THE "TITLEHOLDER") AND ON BEHALF OF MRS. ALBERTA
ESTHELA GOMEZ GOMEZ, THE LATTER IN NAME AND ON BEHALF OF MRS. ROMUALDA GOMEZ
LOPEZ DE GOMEZ, IN ORDER TO GRANT THE SPOUSE CONSENT REQUIRED; AND, AS A SECOND
PARTY, POLO Y RON MINERALES, S.A. DE C.V., (IN THIS CONTRACT THE "BENEFICIARY"),
REPRESENTED IN THIS ACT BY MR. ALLAN W. ZEBROWSKI, IN ACCORDANCE WITH THE
FOLLOWING DECLARATIONS AND CLAUSES:
D E C L A R A T I O N S
I. The TITLEHOLDER declares:
1. That he is Mexican by birth, of legal age, married under community property,
as it is evidenced with copy of the corresponding marriage certificate, recorded
in the Federal Taxpayers' Registry under code GEGF-270729-AT3, with legal
capacity to enter into contracts and to hold mining concessions, in accordance
with that established in the Mining Law and its Regulations;
2. That he is the only holder of the rights deriving from the mining
exploitation concessions covering the mining lots named "EL QUINTO II", title
175486 and "EL COMETA NAVIDENO", title 171847 (in this contract jointly
identified as the LOTS), which identification data are the following:
a) "EL QUINTO II", mining exploitation concession, title 175486, issued
on July 31, 1985, located in the Municipality of Zacualpan, State of
Mexico, with a surface of 9.0957 hectares, recorded under number 166,
page 42, volume 238 of the General Book of Mining Concessions of the
Public Registry of Mining; and,
b) "EL COMETA NAVIDENO", mining exploitation concession, title 171847,
issued on June 15, 1983, located in the Municipality of Tetipac, State
of Guerrero, with a surface of 23.0584 hectares, recorded under number
627, page 158, volume 228 of the General Book of Mining Concessions of
the Public Registry of Mining.
Attached as Exhibit I, are copies of the mining concession titles covering the
LOTS described in the above subparagraphs.
3. That he is considered as current in the fulfillment of the obligation related
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to the proof of mining works carried out in the LOTS; the foregoing taking into
consideration that he is titleholder of mining concessions which surface,
jointly, do not exceed 100 (one hundred) hectares and, according to the
applicable legal provisions of the Mining Law and its Regulations, he has no
obligation to file proof of assessment works with the General Direction of
Mines.
As concerns the payment of duties over mining concessions established in the
Federal Duties Law (surface taxes) the TITLEHOLDER states that a debt by the
TITLEHOLDER with respect to the same LOTS exists.
In line with that mentioned in the preceding paragraph, the TITLEHOLDER also
states that he has received an official communication from the mining
authorities, requesting him to prove the payment of such surface taxes by means
of the filing of the corresponding receipts, including the up-dating of such
debt and surcharges deriving from such incompliance; reason why the TITLEHOLDER
obligates himself to pay the totality of such outstanding surface taxes, upon
the receiving by him of the first payment referred to in subparagraph a) of
section 4.2 of Clause Second of these Contracts, or if such would not be
possible, then the TITLEHOLDER shall enter into an agreement with the competent
tax authorities, with the purpose of paying such total amount due in
installments, but not later than November 30, 1998.
For said purposes, attached hereto as Exhibit II are added copies of the
receipts of payment for the surface duties (surface taxes) corresponding to the
LOTS, for the semesters that have been paid by the TITLEHOLDER.
As Exhibit III are added copies of the certifications referred to by the second
paragraph of article 23 of the Mining Law, whereby it is evidenced that the
concessions covering the LOTS are in effect, also showing the status of
compliance with the obligations that the Mining Law and its Regulations impose
to the TITLEHOLDER as concessionaire of the LOTS.
4. That the monuments indicating the location of the starting point of each one
of the LOTS, are well preserved, built in the terms of law and maintained in the
same place previously approved by the mining authorities.
5. That the rights derived from the mining concessions that cover the LOTS are
free of any liens, encumbrances, burdens or limitations of domain of any nature,
and that to the date of execution of this document, the TITLEHOLDER has not
entered nor will enter into any Contract, nor he has performed nor will perform
any act with respect to the LOTS, which could encumber, burden or limit, in any
manner whatsoever, the rights that he has over the abovementioned mining
concessions; therefore, the TITLEHOLDER guaranties the existence, validity and
availability of the rights referred to herein.
6. That with respect to the activities performed in the LOTS, as of this date,
no legal provisions in the environmental area nor of any other nature have been
breached, also stating the TITLEHOLDER that -when so required- all of the
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authorizations required to perform works in the LOTS were obtained, reason why
as of the date of execution of this document, no environmental contingency nor
of any other nature that may affect the validity of the mining concessions
covering the LOTS exists.
7. That the TITLEHOLDER hereby wishes to grant to the BENEFICIARY the exclusive
right to evaluate and explore the LOTS, for a term of 12 (twelve) months counted
from the date of execution and ratification before Notary Public of these
Contracts by both parties; which exploration shall be carried out under the
terms and conditions established in this document, considering that the
BENEFICIARY is capable to be the holder of mining concessions in accordance with
the Mining Law and its Regulations and that this Contract of Exploration is
authorized in terms of the applicable legal provisions.
8. That, furthermore, the TITLEHOLDER hereby wishes to enter with BENEFICIARY,
for the same term, into a Contract of Promise of Assignment of all of the Rights
derived from the mining concessions covering the LOTS, as well as in connection
with all the rights that the TITLEHOLDER has to access the surface covered by
the LOTS, such as rights for the expropriation of land, temporary occupations,
licenses, permits, authorizations, easements or any other equivalent permits
that, in general, allow the performance of the mining works; the foregoing, in
the terms and conditions set forth in this document.
II. Mr. Felix Gomez Garcia declares that his principal, Mrs. Alberta Esthela
Gomez granted him enough authority to act on behalf of Mrs. Romualda Gomez
Lopez de Gomez.
1. That Mrs. Alberta Esthela Gomez Gomez has the authority to act in the name
and on behalf of Mrs. Romualda Gomez Lopez de Gomez, obligating the latter in
the terms of these Contracts, as evidenced in public instrument number 27,877,
of July 23, 1988, granted before Mr. M.A. Antonio Gutierrez Ysita, Notary Public
number 1 for the District of Tenancingo, State of Mexico; authority that, as of
the date of execution of this document, has not been revoked nor modified in any
manner, and that she appears to this act, in order to grant the spouse consent
of her principal to Mr. Felix Gomez Garcia, in order for the latter to enter
into these Contracts with the BENEFICIARY, as well as to enter into the
contracts that may derive from these Contracts.
III. The BENEFICIARY declares through its representative:
1. That his principal is a Mexican mining company, incorporated in accordance
with the Laws of the Mexican United States, as evidenced in public instrument
8,299 of March 10, 1988, granted before Mr. Jose Antonio Lascurain y Osio, at
that moment Notary Public 21 for the District of Morelos; and that, in
accordance with its corporate purpose, it is capable to be holder of mining
concessions, as well as to enter into contracts whose subject matter are rights
derived from such concessions.
2. That as representative of the BENEFICIARY, he has the authority to act in the
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name and on behalf of the latter, obligating itself under the terms of these
Contracts, as evidenced in public instrument number 3,889, of February 6, 1998,
granted before Ms. Maria del Carmen Breach de Caballero, Notary Public 26 for
the District of Morelos; authority that as of the date of execution of this
document, has not been revoked nor modified in any manner.
3. That given the declarations of the TITLEHOLDER, the BENEFICIARY wishes: (i)
to enter into a Mining Exploration Contract with the TITLEHOLDER, with respect
to each and all of the LOTS; and, (ii) that in case that the BENEFICIARY
exercises the right to acquire granted herein, the TITLEHOLDER enters into a
definitive Contract or Contracts of Assignment of all the rights deriving from
both or one of the LOTS, as determined by the BENEFICIARY; the above in the
terms and conditions mentioned below.
Given the foregoing declarations, the parties agree on the following:
C L A U S E S
CONTRACT OF EXPLORATION
FIRST. The TITLEHOLDER hereby transfers to the BENEFICIARY, the exclusive right
to evaluate and explore the LOTS, which identification data are specified in
declaration I.2. of this document, in accordance with the following provisions:
1. Term. The life of this Contract of Exploration is of 12 (twelve) months,
counted from the date of execution and ratification of this document before
Notary Public.
1.1 The aforesaid term shall be compulsory for the TITLEHOLDER, and voluntary
for the BENEFICIARY; therefore, the latter may terminate this Contract of
Exploration, at any time, at its sole discretion and without any responsibility
for itself, by means of a written notice addressed to the TITLEHOLDER, with 15
(fifteen) days anticipation to the date on which the BENEFICIARY wishes such
termination to be effective; the BENEFICIARY obligating itself to pay any
outstanding debt which same had committed to pay according to this document and
is considered due to the BENEFICIARY, prior to the date on which the termination
be effective.
That indicated in the last part of the preceding paragraph means that, in order
to determine if, upon the termination of these Contracts, any outstanding debt
to be paid by the BENEFICIARY exists or not, the parties agree on the following:
(i) As concerns the payment of duties over mining concessions (surface taxes)
to be generated for the first and second semesters of 1999: if on January
1, 1999 these Contracts remain in effect -because the BENEFICIARY had not
delivered the respective termination notice or because such termination has
not became effective- then the BENEFICIARY shall reimburse to the
TITLEHOLDER the corresponding amount paid as surface taxes for the first
semester of 1999; otherwise, it is expressly agreed that such surface taxes
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shall be of the exclusive responsibility of the TITLEHOLDER. The foregoing
shall be also applicable on July 1, 1999, with respect to the surface taxes
corresponding to the second semester of 1999.
(ii) As concerns the payments established in sections 4. and 4.2 of Clause
Second of these Contracts: it is expressly agreed that, should any of the
dates -individually considered- referred to in each subparagraph of section
4.2 of Clause Second arrives and these Contracts are still in effect
-because the BENEFICIARY had not delivered the respective termination
notice or because such termination has not became effective- then the
BENEFICIARY shall pay the corresponding amount according to the respective
subparagraph; otherwise, the provision referring to "release of the
obligation of making payments" contained in Section 5. of Clause Second of
these Contracts shall be applicable.
That indicated in this section 1.1 means that the TITLEHOLDER, as of now, grants
his broadest consent, should that be the case, for the BENEFICIARY to terminate
in advance this Contract, in the manner agreed in this section, without it is
being necessary to enter into an express termination agreement or for the
BENEFICIARY to comply with any other formality; the foregoing is stated for all
legal purposes and particularly for the purpose of that mentioned in the last
paragraph of article 76 of the Regulations to the Mining Law, taking into
consideration that this document is ratified by the parties before a Notary
Public.
1.2 Given the duration of this Contract of Exploration, it is expressly agreed
that any titles of mining concessions that replace or derive from the titles
currently covering the LOTS, shall be incorporated to the subject matter of this
Contract under the concept LOTS, and therefore shall be subject to that set
forth in this document.
2. Access. Given the exclusive right to explore herein granted to the
BENEFICIARY, the TITLEHOLDER obligates himself to cooperate with the BENEFICIARY
in order for the latter to obtain free and full access to the surface covered by
the LOTS, stating the TITLEHOLDER that all the authorizations required from the
owners or possessors of the surface where the LOTS are located have been
obtained, in order to allow the BENEFICIARY the free access to same for the
execution of the exploration works referred to in this document. The expenses to
obtain future authorizations to have access to the LOTS shall be borne by the
BENEFICIARY, prior authorization by the latter for such purposes.
2.1 Likewise, the TITLEHOLDER obligates himself that, if during the term of this
Contract of Exploration the owners or possessors of the surface where the LOTS
are located change, or the circumstances under which the corresponding
authorizations were granted to have free access to the LOTS and to carry out the
exploration works change, he shall cooperate with the BENEFICIARY to obtain new
authorizations, to the extent required, in order for the BENEFICIARY to be able
to carry out the exploration works indicated in this Contract, according to its
work program.
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3. Works. The exploration to be carried out by the BENEFICIARY, be it directly
or through contractors who render their services to the BENEFICIARY, comprise,
among others, the works that allow the location, identification and
determination of mineral substances existing in the LOTS, consisting of site
preparation, geological investigations and examinations, including geological
explorations, topographical works, drilling of any kind and mining works such as
drifts, trenches, fronts, crosscuts, shafts and the like considered convenient,
additionally to one or more feasibility studies for the evaluation of this
project aimed at establishing a new mining unit.
Likewise the exploration to be carried out by the BENEFICIARY includes all such
activities related thereto and permitted by the applicable legal provisions in
the area of mining, particularly those indicated in articles 28 and 29 of the
Mining Law, and which may be used to prove the assessment works to which the
TITLEHOLDER is obligated as concessionaire of the LOTS.
4. Buildings and Constructions. From this date, the BENEFICIARY is authorized to
perform, at its own cost and risk, by itself or by means of third parties, all
of the works and build the structures, buildings, improvements, means of access
and others, as well as to install and use all the machinery and equipment
required for the exploration, which may be removed at any time, during the life
of this Contract of Exploration and during an additional term of 90 (ninety)
days after the termination of this Contract, whether the property of the
BENEFICIARY or of its contractors or third parties, if and when the removal of
same does not jeopardize the safety of the works carried out, in which case they
may not be removed.
4.1 It is understood that the permanent support works, struts and in general the
works necessary for the safety and stability of the mines may not be removed, in
accordance with that provided by the Mining Law.
4.2 The BENEFICIARY may request the support and assistance of the TITLEHOLDER,
should that be necessary, to negotiate with the owners or possessors of the
surface comprising the LOTS, for the performance of the works and constructions
referred to in this section 4, whether temporary or permanent. The expenses to
obtain such authorizations shall be borne by the BENEFICIARY.
5. Consideration for the Right to Explore and Investment Commitments. As
consideration for the right to explore granted by the TITLEHOLDER to the
BENEFICIARY in accordance with this Contract, the latter obligates itself,
during the life thereof, to carry out investments in exploration, development of
mining works, and any other activities which purpose is to evaluate the
potential mineral existing in the LOTS, for which purposes, the BENEFICIARY
shall invest the amounts that it considers convenient, taking into consideration
the minimum investments set forth in the Mining Law and in its Regulations.
5.1 It is expressly agreed that the BENEFICIARY shall have the right to explore
the LOTS with no restriction whatsoever during all the time in which this
Contract of Exploration is in effect.
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5.2 Acts of God or Force Majeure. It is expressly understood that the
BENEFICIARY shall not be liable for the delay or total or partial
non-fulfillment of its obligations, consisting in the performance of the
exploration works in terms of this document, as well as of making the payments
referred to in section 4 of Clause Second of these Contracts, when such delay or
non-fulfillment results from an Act of God or force majeure, this is, from facts
or events of nature or man that are unforeseeable or that even in the case they
might be foreseen, they cannot be avoided by the BENEFICIARY.
In accordance with that indicated in the above paragraph, the parties agree that
the events mentioned below, as examples but not in a limitative manner, shall be
considered as acts of God or force majeure: accidents such as fire, explosions,
flooding, tempests, tremors, epidemics, civil disturbances, labor disturbances,
strikes, wars, invasions, oppositions or disturbances caused by rural
communities, ejido's communities or any other kind of association legally
created or not, as well as oppositions or disturbances caused by any other
person impeding the free access of the BENEFICIARY to the LOTS or obstructing
the performance of the mining works set forth in this Contract, as well as
actions or omissions of any governmental authority, whether Federal, State or
Municipal, which include the delay or impossibility to timely obtain such
permits required from any governmental authority, individual or corporation,
group or entity to carry out the mining works provided for in this document.
The aforecited events shall be considered as acts of God or force majeure, as
the case may be, if in the event of occurrence they obstruct or delay, whether
totally or partially, the fulfillment of the obligations of the BENEFICIARY, if
and when such event is not provoked by an action or omission imputable to the
BENEFICIARY itself.
In the event that an occurrence take place causing an act of God or force
majeure, the BENEFICIARY shall notify it to the TITLEHOLDER within a term of 30
(thirty) calendar days, counted from the date on which the BENEFICIARY becomes
aware of such event.
If the act of God or force majeure continues, the term to carry out the works of
exploration shall be extended for a term equal to the duration of the act of God
or force majeure, in order for the term of the exploration to be of one
effective year.
5.3 Proof of Works It shall be the responsibility of the TITLEHOLDER that
indicated in section 8 of this Clause First and section 3 of Clause Second of
these Contracts, with respect to the proof of the mining works carried out in
the LOTS; the foregoing, under the terms of that provided by the Mining Law and
its Regulations.
For the purposes of that indicated above, the BENEFICIARY obligates itself to
inform in writing to the TITLEHOLDER not later than April 30, 1999, with respect
to the exploration works performed under the terms of this Contract, furnishing
to the TITLEHOLDER copies of the documents evidencing the investments made.
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5.4 Definitive Suspension of the Investment Commitments. If at any time the
BENEFICIARY would decide not to proceed, and therefore, to terminate this
Contract of Exploration in advance, it shall not be obligated to make any
further investments other than those carried out as of the date of the
termination notice.
In this latter case, the BENEFICIARY shall inform the TITLEHOLDER of the works
carried out as of the date of the termination notice, and shall deliver to the
TITLEHOLDER a copy of the documents evidencing the investments carried out, and
which documents had not been previously delivered to the TITLEHOLDER, and shall
withdraw without keeping any interest whatsoever in the LOTS.
6. Use of Mineral. So long as the BENEFICIARY does not exercise its right to
acquire mentioned below, if by virtue of the performance of the mining
exploration works mineral would be extracted, it may -during the life of this
Contract of Exploration- take gratuitously up to 500 (five hundred) tons of
mineral from each one of the LOTS to carry out all kind of samples and
metallurgic tests, in the understanding that the rest of the mineral obtained
will remain in benefit of the TITLEHOLDER.
On the other hand, so long as the BENEFICIARY does not exercise the right to
acquire the LOTS, it is expressly agreed that the TITLEHOLDER may continue
extracting mineral from the LOTS, up to an amount of 50 (fifty) tons per month
from each one of the LOTS; the foregoing, if and when such works do not
interfere with the exploration works being carried out by the BENEFICIARY and
such works are completely stopped at the moment the BENEFICIARY, in its case,
acquires the LOTS.
7. Obligations of the Beneficiary. In the performance of the exploration, the
BENEFICIARY obligates itself to the following:
a) To carry out the exploration works pursuant to custom and usage of the
good miner and in accordance with the Mining Law, its Regulations and
other legal provisions related to the mining activities, allowing the
TITLEHOLDER to inspect the works carried out by the BENEFICIARY, if
and when the former do not interfere or interrupt the activities which
are being carried out by the BENEFICIARY in the LOTS.
b) To preserve the LOTS in good maintenance conditions, when carrying out
the exploration of same.
c) To take care of the maintenance of the monuments of the starting point
and of location of each one of the LOTS, for which purposes the
TITLEHOLDER shall deliver to the BENEFICIARY the corresponding
documents, such as expert reports and others.
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d) To deliver to the TITLEHOLDER, within a term of 60 (sixty) calendar
days following the termination of this Contract of Exploration, if the
definitive Contract of Assignment of Rights mentioned below is not
executed, a non-interpretative report on the exploration operations,
which shall include a report with respect to the mineral deposits
located in the LOTS, as well as in connection with the geological,
mining and sampling works performed, with copies of the geological and
topographical maps and of the drilling made; such information and
documents shall not be interpretative and may be delivered in English
version, should the originals have been drafted in such language.
e) To comply with the labor, social security, tax and other obligations
with respect to the personnel of the BENEFICIARY working on the LOTS,
as a consequence of the exploration carried out by the BENEFICIARY in
accordance with this Contract.
f) To hold the TITLEHOLDER free and harmless of any claim tried against
him by employees or workers of the BENEFICIARY or by third parties
contracted by the latter to whom the BENEFICIARY may have entrusted
the rendering of a service on the LOTS.
g) To comply with the obligations in the environmental area, with respect
to the activities carried out in the LOTS directly by the BENEFICIARY
or through its contractors.
h) To reimburse the TITLEHOLDER, as from the date of execution of this
Contract of Exploration and during the life of same, the surface taxes
deriving from the LOTS that in the future become due and be
effectively paid by the TITLEHOLDER; such reimbursement shall be made
by the BENEFICIARY within the 30 (thirty) calendar days following the
date on which the TITLEHOLDER delivers to the BENEFICIARY the
corresponding payment receipts; the foregoing taking into
consideration that provided in subparagraph (ii) of section 1.1 of
this Clause First.
8. Obligations of the TITLEHOLDER. Given the right to explore granted to the
BENEFICIARY by the TITLEHOLDER, the latter obligates himself during the life of
these Contracts to the following:
a) To maintain in force and in his favor the rights derived from the
mining concessions that cover the LOTS.
b) Not to transfer the rights derived from the mining concessions
covering or that in the future may cover the LOTS to third parties
different to the BENEFICIARY, or its designee, in case the right to
acquire is exercised in the terms and conditions of the Contract of
Promise of Assignment of Rights contained herein.
c) To maintain the rights derived from the mining concessions that cover
each one of the LOTS, free from all encumbrances, liens, burdens or
ownership limitation of any nature, except for that indicated in this
document.
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d) Not to interfere, impede nor to obstruct the exclusive right to
evaluate and to explore the LOTS granted to the BENEFICIARY in
accordance with this Contract; to the contrary, the TITLEHOLDER
obligates himself to make his best efforts to facilitate and support
the activities performed by the BENEFICIARY and shall cooperate with
same to the extent required by it, in order for the BENEFICIARY to
conclude such evaluation and exploration at its entire satisfaction.
e) To cooperate with the BENEFICIARY in order to obtain free access to
the LOTS, in terms of that mentioned in section 2 of this Clause
First.
f) To comply with the labor, social security, tax and other obligations
with respect to the personnel of the TITLEHOLDER working on the LOTS,
as a consequence of any activity that the TITLEHOLDER carries out.
g) To hold the BENEFICIARY, its representatives, officers and outside
advisors free and harmless of any claim and/or responsibility that may
be tried against them, as a consequence of acts directly imputable or
of the exclusive responsibility of the TITLEHOLDER, his workers, or
derived from any act deriving from the exclusive responsibility of the
TITLEHOLDER.
h) To maintain in secrecy during the duration of this Contract and for an
additional period of 1 (one) year, counted from the date of
acquisition of the LOTS -if the right to acquire is exercised by the
BENEFICIARY- any and all information that the TITLEHOLDER receives
from the BENEFICIARY and that has not been of the public knowledge
before and in any manner whatsoever, which information shall be of an
industrial nature and shall be considered and treated as privileged
information and industrial secret.
i) To prove the works and mining works performed in the LOTS during the
life of this Contract, under the terms of the applicable legal
provisions, as well as to continue complying with other obligations
assessed upon mining concessionaires by the Mining Law, its
Regulations and other legal provisions.
j) To pay during the life of this contract and with respect to the LOTS,
the totality of the duties on mining concessions referred to by the
Federal Duties Law (surface taxes); same taxes that will be reimbursed
by the BENEFICIARY to the TITLEHOLDER as from the date of execution of
this Contract of Exploration; taking always into consideration that
provided in subparagraph (i) of section 1.1 of this Clause First.
k) To pay -within 5 (five) calendar days counted from the date of
execution and ratification before Notary Public of this document or,
in its case, not later than November 30, 1998- with the amount
received by him as the first payment established in subparagraph a) of
section 4.2 of Clause Second of these Contracts, the totality of the
outstanding surface taxes deriving from the LOTS, owed by the
TITLEHOLDER, as well as to file with the mining authorities copies
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of the corresponding receipts, in order for him to be considered as current in
the compliance of said obligation.
In order to carry out the foregoing, the parties agree that, with respect to the
payment to be made in favor of the TITLEHOLDER referred to in the preceding
paragraph, the amount required to pay the outstanding surface taxes deriving
from the LOTS shall be separated; the foregoing, in order for the TITLEHOLDER
and the representative of the BENEFICIARY -jointly- make the corresponding
payments and file with the mining authorities, the respective receipts.
CONTRACT OF PROMISE OF ASSIGNMENT OF RIGHTS
SECOND. The TITLEHOLDER hereby promises and obligates himself to assign in
property to the BENEFICIARY or to its designee, without any reserve or
limitation, free of any encumbrances, liens, burdens or ownership limitations of
any nature, the totality of the rights derived from any or both of the titles of
mining concessions which cover or in the future may cover the LOTS, upon request
to the TITLEHOLDER by means of a written notice addressed to the TITLEHOLDER,
with 15 (fifteen) calendar days anticipation to the date on which the right
herein referred to is desired to be exercised, if and when that mentioned below
is complied with.
If the right to acquire the LOTS is exercised, the TITLEHOLDER obligates himself
to simultaneously assign to the BENEFICIARY or its designee for such purposes,
without any reserve or limitation, all the rights that the TITLEHOLDER may have
to access the surface comprising the LOTS, such as rights for the land
expropriation, temporary occupations, licenses, permits, authorizations,
easements or any equivalent permits that, in general, allows the carrying out of
the mining works.
This Promise of Assignment of Rights shall be additionally governed by the
following:
1. Term. The term during which the BENEFICIARY may exercise, at any time, the
right to assign to the BENEFICIARY itself or to its designee, the rights derived
from any or both of the titles of mining concession which cover the LOTS, as
well as the above referred rights that the TITLEHOLDER may have to access the
LOTS, shall be of a period of 12 (twelve) months counted from the date of
execution and ratification before a Notary Public of these Contracts.
1.1 The aforesaid term shall be compulsory for the TITLEHOLDER, and voluntary
for the BENEFICIARY; therefore, the latter may terminate this Contract of
Promise, at any time, at its sole discretion and without any responsibility for
itself, by means of a written notice addressed to the TITLEHOLDER, with 15
(fifteen) days anticipation to the date on which the BENEFICIARY desires the
termination to be effective; obligating the BENEFICIARY itself to pay any
outstanding debt that the latter had committed to pay in terms of these
Contracts and that is considered due to the BENEFICIARY prior to the date on
which the termination becomes effective. In relation to that stated in this
section, the provisions referred to in subparagraphs (i) and (ii) of section 1.1
of Clause First of these Contracts shall be also applicable.
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That indicated in the preceding paragraph, means that the TITLEHOLDER, as of
now, grants his broadest consent, should that be the case, for the BENEFICIARY
to terminate in advance these Contracts, in the manner agreed in this section,
without being necessary to enter into an express termination agreement or for
the BENEFICIARY to comply with any other formality; the foregoing is stated for
all legal purposes and particularly for the purpose of that mentioned in the
last paragraph of article 76 of the Regulations of the Mining Law, taking into
consideration that this document is ratified by the parties before a Notary
Public.
1.2 Given the duration of this Contract of Promise, it is expressly agreed that
any titles of mining concession that replace or derive from the titles currently
covering the LOTS, shall be incorporated to the subject matter of this Contract
under the concept LOTS, and therefore shall be subject to that set forth in this
document.
2. Obligations of the Titleholder. The TITLEHOLDER obligates himself that,
during the term indicated, he shall not encumber, burden nor limit in any manner
whatsoever, the rights derived from each and all the mining concessions that
cover and will cover in the future the LOTS, nor to enter into any contract with
respect to the LOTS, except with the BENEFICIARY or its designee for such
purposes, and therefore the TITLEHOLDER guarantees the existence, validity and
availability of the aforecited rights.
2.1 Likewise, the TITLEHOLDER obligates himself not to request reduction,
subdivision nor unification of the surface which cover the LOTS; likewise, the
TITLEHOLDER obligates himself not to waive from the rights derived from the same
LOTS; the foregoing without prior written authorization of the BENEFICIARY
through a legal representative with authority therefor.
3. Other Obligations The TITLEHOLDER obligates himself to comply with the
execution and to file the proof of assessment works carried out in the LOTS, in
terms of that provided in the applicable legal provisions of the Mining Law and
its Regulation, according to the investments made by the BENEFICIARY, in
accordance with the Contract of Exploration contained in this document, as well
as in accordance with any other investments made, in its case, by the
TITLEHOLDER.
4. Consideration for the Promise and for the Assignment of Rights. The
consideration that shall be paid to the TITLEHOLDER for the onerous promise and
for the assignment of all the rights derived from the mining concessions which
cover or which in the future may cover the LOTS, shall be in the amounts
mentioned in subparagraphs a) through l) of section 4.2 below, which amounts
will be paid on the dates indicated.
4.1 Currency and VAT. The payments to be made to the TITLEHOLDER as
consideration for the promise and for the assignment of the rights referred to
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in this Contract, shall be made in dollars, currency of the United States of
America or its equivalent in Mexican currency on the date of payment, plus the
corresponding Value Added tax (V.A.T.) to each payment.
4.2 Schedule of Payments. The amounts referred to in section 4 above shall be as
follow:
a) The date on which this Contract of Promise of Assignment of Rights be
executed and ratified before a Notary Public, the total amount of
$20,000.00 (twenty thousand dollars).
It is expressly agreed that, with respect to the amount referred to in
this subparagraph a), the amount required to pay the outstanding
surface taxes deriving from the LOTS shall be separated; the foregoing
in order for -within the 5 (five) calendar days counted from the date
of execution and ratification before Notary of this document- the
TITLEHOLDER and the representative of the BENEFICIARY to make the
corresponding payments as well as to file the respective receipts with
the mining authorities.
In the event that the TITLEHOLDER would not be able to pay the total
amount due as surface taxes within the aforesaid term of 5 (five)
calendar days, then the latter is hereby authorized -and at the same
time obligated- to agree with the competent tax authorities on a first
payment to be made within the 5 (five) calendar days following the
date of execution and ratification of this document before a Notary
Public, if and when he commits himself to pay the respective
outstanding balance not later than November 30, 1998. Once the
TITLEHOLDER has made such payment(s) shall furnish to the BENEFICIARY
the corresponding receipt(s).
b) On November 30, 1998, provided that the Contracts contained in this
document are still in effect, the total amount of $1,000.00 (one
thousand dollars 000/100).
c) On December 31, 1998, provided that the Contracts contained in this
document are still in effect, the total amount of $2,000.00 (two
thousand dollars 000/100).
d) On February 1, 1999, provided that the Contracts contained in this
document are still in effect, the total amount of $4,000.00 (four
thousand dollars 000/100).
e) On March 1, 1999, provided that the Contracts contained in this
document are still in effect, the total amount of $7,500.00 (seven
thousand five hundred dollars 000/100).
f) On March 31, 1999, provided that the Contracts contained in this
document are still in effect, the total amount of $7,500.00 (seven
thousand five hundred dollars 000/100).
g) On April 30, 1999, provided that the Contracts contained in this
document are still in effect, the total amount of $7,500.00 (seven
thousand five hundred dollars 000/100).
h) On May 31, 1999, provided that the Contracts contained in this
document are still in effect, the total amount of $7,500.00 (seven
thousand five hundred dollars 000/100).
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i) On June 30, 1999, provided that the Contracts contained in this
document are still in effect, the total amount of $7,500.00 (seven
thousand five hundred dollars 000/100).
j) On July 30, 1999, provided that the Contracts contained in this
document are still in effect, the total amount of $7,500.00 (seven
thousand five hundred dollars 000/100).
k) On August 31, 1999, provided that the Contracts contained in this
document are still in effect, the total amount of $7,500.00 (seven
thousand five hundred dollars 000/100).
l) On September 30, 1999, provided that the Contracts contained in this
document are still in effect, the total amount of $5,500.00 (five
thousand five hundred dollars 000/100). At the moment this last
payment is made, it will be understood that the right to acquire the
LOTS has been fully exercised.
m) Should the option to acquire the LOTS be exercised prior to September
30, 1999, the BENEFICIARY shall pay to the TITLEHOLDER, such amounts
referred to in subparagraphs b) to l) above which had not been paid
with respect to the dates which have not been met, in order for the
total consideration for the promise and for the assignment of all the
rights deriving from the mining concessions which at that moment cover
the LOTS be, in any case, the total amount of $85,000.00 (eighty five
thousand dollars 00/100), plus the corresponding V.A.T.
5. Release of the Obligation of Making Payments. It is expressly agreed, as
indicated above, that the BENEFICIARY shall have the right to terminate this
Contract of Promise of Assignment of Rights at any time, at its own discretion
and without any obligation by means of a written notice addressed to the
TITLEHOLDER and, in such event, the BENEFICIARY shall have no obligation to make
any payment of those amounts referred in all subparagraphs of section 4.2 above,
with respect to the dates that have not elapsed.
5.1 Earnest money. It is expressly understood that, in the event the BENEFICIARY
terminates this Contract in advance, the amounts that the TITLEHOLDER would have
received as of the date on which the BENEFICIARY delivers to him the notice of
termination, shall inure to his benefit as earnest money.
COMMON TO BOTH CONTRACTS
THIRD. Other Obligations of Both Parties. The TITLEHOLDER and the BENEFICIARY
expressly obligate themselves that, during the life of these Contracts in the
performance of their respective activities they will faithfully comply with all
obligations imposed upon them by the Mining Law, its Regulations, the
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environmental, water, security and hygiene in the mines, labor, tax and other
applicable legal provisions; likewise, they obligate themselves not to incur in
any of the causes for nullity, cancellation, suspension or expiration of rights
referred to by the Mining Law, with respect to the mining concessions which
cover and will cover in the future the LOTS.
Given that no labor relationship whatsoever will exist between the workers or
contractors of each one of the parties, with respect to the other, the
TITLEHOLDER and the BENEFICIARY agree that each party shall assume its entire
responsibility whether of a labor, social security, or tax nature, and others,
with respect to their own workers and contractors; therefore, each party agrees
to hold the other free and harmless of any claim, lawsuit or accusation or
complain that could be filed against the other party, by the workers or
employees of said party, by its contractors or by the authorities in the labor
or administrative area.
FOURTH. Incompliance. Notwithstanding any stipulation on the contrary agreed in
this document, should any party be or incur on incompliance (the "Non-complying
Party"), with respect to any obligation stated in these Contracts, the affected
party of such incompliance (the "Affected Party"), may give written notice
specifying in which the incompliance consists ("Notice of Incompliance") to the
Non-complying Party, in order to:
(a) within the five working days following to the reception of the Notice
of Incompliance -referring to the lack of payment of any amounts that
must be paid in terms of these Contracts- the Non-complying Party: (i)
pays to the Affected Party the totality of such amounts due; (ii)
proves that such amounts have been paid; or, (iii) justifies the valid
reasons -not imputable to itself- why the corresponding payments have
not been made.
(b) within the 30 (thirty) calendar days following to the reception of the
Notice of Incompliance -which refers to an incompliance different that
the lack of payment- the Non-complying Party cures such incompliance
or fault, if and when same may be easily corrected within such period;
or
(c) in case that the incompliance be different to lack of payment, and
that, deriving from its nature it may not be easily corrected during
the 30 (thirty) days period referred to in subparagraph (b) above, the
Non-complying Party shall initiate -within such 30 (thirty) days term
following the reception of the Notice of Incompliance- the necessary
and prudent actions in order to correct the incompliance and,
therefore, follow such actions in a proper manner until the
incompliance be completely cured within a term not exceeding 90
(ninety) calendar days counted from the date on which the
Non-complying Party received the Notice of Incompliance.
Notwithstanding the foregoing, the affected party shall be authorized to seek
for in good faith for any remedy applicable to such incompliance; with no
prohibition that, in case that the Non-complying Party does not carry out that
mentioned in subparagraphs (a), (b) or (c) above, within the maximum terms
therein contemplated for each case, the Affected Party may exercise its right to
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judicially terminate these Contracts and to demand the payment of damages and
detriment; or, in its case, the right to request the compulsory compliance of
the obligations of the Non-complying Party and the payment of damages and
detriment.
FIFTH. Registration. The BENEFICIARY expressly obligates itself to register in
the Public Registry of Mining these Contracts of Mining Exploration and of
Promise of Assignment of Rights, as well as the definitive Contract or Contracts
of Assignment of Rights that be executed, should that be the case.
SIXTH. Expenses, Fees and Taxes. All the expenses, fees and taxes caused as a
consequence of the execution of these Contracts of Mining Exploration and of
Promise of Assignment of Rights, shall be for the account of the BENEFICIARY.
The foregoing, except for the Income Tax applicable to the TITLEHOLDER, who
obligates himself to issue the corresponding receipts (invoices) for the amounts
that he receives; the foregoing in accordance to the Income Tax Law.
Likewise, the TITLEHOLDER obligates himself to comply with all the obligations
imposed upon him by the applicable tax provisions in force, given that he has
stated to the BENEFICIARY that he is recorded in the Federal Taxpayers'
Registry, under code PRM-880310-9V2.
Given that mentioned in the preceding paragraphs, it is understood that, so long
the applicable tax provisions do not provide otherwise, for each payment to be
made to the TITLEHOLDER, the corresponding withholding of the Income Tax will be
made, delivering to the TITLEHOLDER the withholding certificate and, once such
tax be paid, shall deliver to the TITLEHOLDER copy of the corresponding income
tax return.
In accordance with that provided by the Value Added Tax Law, for each payment
that the TITLEHOLDER receives, he shall separate in an express manner the amount
corresponding to the Value Added Tax, as set forth in the applicable articles of
the abovementioned Law, as well as on those applicable of the Fiscal Code of the
Federation.
SEVENTH. Guaranty of Compliance. The TITLEHOLDER Mr. Felix Gomez Garcia,
obligates himself in accordance with articles 2554, fourth paragraph, 2587 and
2596, first paragraph, of the Civil Code for the Federal District on Common
Matters and for all of the Republic on Federal Matters, to grant before a Notary
Public, a special and irrevocable power of attorney, in order to guarantee the
compliance with the obligations undertaken by the TITLEHOLDER in accordance with
this document, in the following terms:
"Mr. Felix Gomez Garcia, on his own behalf, grants to Messrs. Fernando
David Estavillo Castro, Juan Pizarro Suarez Vergara Lope, Alejandro
Staines Anzaldo, Cristina Sanchez Urtiz, Othon Frias Calderon and
Alberto Mauricio Vazquez Sanchez, a special and irrevocable power of
attorney to be exercised jointly or individually, in order that in the
name and on behalf of the grantor:
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They comply, if so required by Polo y Ron Minerales, S.A. de C.V. -or
by its designee- expressly and in writing, with the obligations
undertaken by Mr. Felix Gomez Garcia in favor of Polo y Ron Minerales,
S.A. de C.V., in the Contracts of Mining Exploration and of Promise of
Assignment of Rights entered into between the grantor as promisor (in
said Contracts named as the "TITLEHOLDER") and Polo y Ron Minerales,
S.A. de C.V. as promisee (in said Contract the "BENEFICIARY"),
consisting on executing with the latter or with its designee,
Definitive Assignment Contract(s) of the Rights derived from the
titles of mining concession covering the LOTS:
a) "EL QUINTO II", mining exploitation concession, title 175486, issued
on July 31, 1985; located in the Municipality of Zacualpan, State of
Mexico, with a surface of 9.0957 hectares, recorded under number 166,
page 42, volume 238 of the General Book of Mining Concessions of the
Public Registry of Mining; and
b) "EL COMETA NAVIDENO", mining exploitation concession, title 171847,
issued on June 15, 1983; located in the Municipality of Tetipac, State
of Guerrero, with a surface of 23.0584 hectares, recorded under number
627, page 158, volume 228 of the General Book of Mining Concessions of
the Public Registry of Mining;
This power of attorney is granted with the limitation that in order to exercise
the authority to assign the rights therein referred, the attorney(s)-in-fact
exercising this mandate must evidence to the Notary Public before whom the
signatures of the Contract or Contracts of Assignment of Rights derived from the
LOTS are ratified, that it has been delivered to the TITLEHOLDER the total
amount of the price agreed for the promise and for the assignment of rights of
the LOTS, or that such consideration has been deposited in favor of the
TITLEHOLDER.
This power of attorney is granted, in addition, in order that if so required
expressly and in writing by the BENEFICIARY or its designee, the
attorneys-in-fact exercise all of the rights that the Mining Law, its
Regulations and other applicable dispositions, in the area of mining grant to
the concessionaires with respect to their concessions, as well as to comply with
the obligations upon of Mr. Felix Gomez Garcia, among which are included, in an
exemplarily manner though not limited to, file the reports and proofs of the
execution of the mining works to which the Mining Law and its Regulations refer;
initiate mining opposition procedures; exercise administrative remedies in terms
of the Mining Law, its Regulations and other applicable provisions; initiate
constitutional protection proceedings; and, other acts which are applicable in
accordance with said provisions, except to relinquish, subdivide, reduce or
unify surface of the LOTS, which shall only operate by means of a written
authorization jointly signed by the TITLEHOLDER and the representative of the
BENEFICIARY.
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Within the specialty of the power of attorney, the attorneys in fact shall have
all of the authority corresponding to a general power of attorney for lawsuits
and collections, to administer property, and for acts of ownership, with the
broadest authority, as provided for in article 2554 (two thousand five hundred
and fifty four) of the Civil Code for the Federal District on Common Matters and
for all of the Republic on Federal Matters and the corresponding article of the
Civil Code of each State of the Mexican United States; with the limitation that
the attorneys in fact may only exercise this power of attorney in matters
related to rights deriving from the mining concessions that cover or will cover
in the future the LOTS subject matter of the Contracts referred to herein.
Given that the power of attorney contained in this public instrument is granted
for the compliance of obligations acquired by the grantors in a bilateral
contract, it is expressly stated that the power of attorney is granted with an
irrevocable nature, under the terms of article 2596 (two thousand five hundred
and ninety six) of the Civil Code for the Federal District on Common Matters and
for all the Republic on Federal Matters and the corresponding article of the
Civil Code of each State of the Mexican United States.
This power of attorney will be in effect during the time in which the
obligations of the grantor in the Contracts of Mining Exploration and of Promise
of Assignment of Rights referred to subsist, of which copy is attached hereto in
order to form an integral part of this instrument."
EIGHTH. BENEFICIARY's guaranty. The BENEFICIARY shall become liable before the
TITLEHOLDER, of each and all the obligations convened by the attorneys-in-fact
in the mandate referred to in the above Clause, should either it or the
attorneys-in-fact illegally exercise the authority conferred upon them by such
mandate.
NINTH. The TITLEHOLDER obligates himself to furnish to the BENEFICIARY all the
information that it requests, as well as to sign, evidence and comply with any
other necessary requirement and to exercise the legal actions that may be
required, in order to: (i) obtain, whenever needed, any authorizations for the
BENEFICIARY to exercise the rights herein granted; (ii) maintain the LOTS
subject matter of these Contracts, free of all charge, lien, burden, or
limitation of domain of any nature, according to that agreed in this document;
and, (iii) in general, to solve any contingency that may affect the legal status
of the LOTS and that may prevent, limit or hinder the exercise of the rights
granted by virtue of this document to the BENEFICIARY.
TENTH. Communications. All communications to be made among the parties pursuant
to these Contracts, shall be in writing, delivered at their domiciles in an
authentic manner; and, for such purpose, the parties designate the following
domiciles:
THE TITLEHOLDER:
MR. FELIX GOMEZ GARCIA
Domicilio Conocido
Rancheria el Moral
Zacualpan, Estado de Mexico
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THE BENEFICIARY:
POLO Y RON MINERALES, S.A. DE C.V.
Avenida Paseo Bolivar No. 201
Chihuahua, Chihuahua
Att'n: Mr. Allan W. Zebrowski
Any change of domicile or of representative shall be notified in writing,
delivered in an authentic manner.
ELEVENTH. Alternative Formalities. The TITLEHOLDER authorizes the BENEFICIARY,
as of now, to formalize this document in public instrument before a Notary
Public of its choice, at the expense of the latter and without requiring the
appearance of the TITLEHOLDER.
TWELFTH. Assignment. The TITLEHOLDER, expressly authorize the BENEFICIARY, as of
now, to assign totally or partially without the need to obtain the consent of
the TITLEHOLDER the rights and obligations deriving from this document in favor
and in charge of the BENEFICIARY; the foregoing if and when in the document
containing such assignment of rights and obligations, the express acceptance of
the assignee in order to subrogate in all of the obligations that by virtue of
this document the BENEFICIARY acquires is contained; likewise, the third party
acquiring such rights and obligations, must commit itself that, in case that in
the future executes another contract whereby transfers or sells such rights and
obligations, shall contain the same clause.
The parties agree that so long as these Contracts are in effect, they shall be
valid and binding for the contracting parties, as well as for the designee of
the BENEFICIARY and the respective successors or assignees of the parties, and
for the heirs or legatees of the TITLEHOLDER.
THIRTEENTH. Absence of Injury. The parties, notwithstanding the nature of this
document, expressly declare that in the covenants subject matter of same there
is that no injury and, even in case it exists, they expressly waive the right to
request the relative nullity referred to in articles 2228 and 2239 of the Civil
Code for the Federal District on Common Matters and for all the Republic on
Federal Matters and the corresponding article of the Civil Code of each State of
the Mexican United States.
FOURTEENTH. Applicable Laws and Jurisdiction. This Contract which is entered
into under the terms of article 78 of the Commerce Code, is of a mercantile
nature; therefore, for all that not expressly agreed upon herein and for the
interpretation of and compliance with same, there shall be applied the Mining
Law, its Regulations and the Commerce Code, as well as suppletory law the Civil
Code for the Federal District on Common Matters and for all of the Republic on
Federal Matters, for that not provided for in the first two.
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For the resolution of any controversy which might arise from this document, the
parties expressly agree to submit themselves to the jurisdiction of the
competent courts in Mexico City, Federal District.
FIFTEENTH. Headings. The parties acknowledge that the headings in the Clauses,
sections, subparagraphs in which these Contracts are divided, have been stated
only with the purpose of easy reading of this document, therefore, such headings
have no interpretative or linking value.
Once this document, was read by the parties, they ratify same in its entirety
and sign it as evidence thereof, the TITLEHOLDER and the BENEFICIARY on November
19, 1998, in the City of Chihuahia, State of Chihuahua.
THE TITLEHOLDER
/s/ Felix Gomez Garcia
----------------------
Felix Gomez Garcia,
on his own behalf and in name and on behalf of Mrs.
ROMUALDA GOMEZ LOPEZ DE GOMEZ.
THE BENEFICIARY
POLO Y RON MINERALES, S.A.DEC.V.
/s/ Allan W. Zebrowski
----------------------
ALLAN W. ZEBROWSKI
20
(ENGLISH VERSION)
CONTRACTS OF MINING EXPLORATION AND OF PROMISE OF ASSIGNMENT OF RIGHTS ENTERED
INTO BY AND BETWEEN, AS A FIRST PARTY, MR. HECTOR ESQUIVEL ESPARZA, ACTING ON
HIS OWN BEHALF AND IN THE NAME AND ON BEHALF OF HIS WIFE, MRS. LETICIA SOSA
ALVAREZ DE ESQUIVEL (IN THIS DOCUMENT THE "TITLEHOLDER"); AND, AS A SECOND
PARTY, POLO Y RON MINERALES, S.A. DE C.V., (IN THIS CONTRACT THE "BENEFICIARY"),
REPRESENTED HEREIN BY MR. ALLAN W. ZEBROWSKI, IN ACCORDANCE WITH THE FOLLOWING
DECLARATIONS AND CLAUSES:
D E C L A R A T I O N S
I. The TITLEHOLDER declares:
1. That he is Mexican by birth, of legal age, married as it is evidenced with
copy of the corresponding marriage certificate, recorded in the Federal
Taxpayers' Registry under code EUEH-340308-MU7, with legal capacity to enter
into contracts and to hold mining concessions, in accordance with that
established in the Mining Law and its Regulations;
2. That he is the only holder of the rights deriving from the mining exploration
concessions covering the mining lot named "EL VOLADO", title 197967, as well as
the only holder of the rights deriving from the mining exploitation concessions
covering the mining lot named "LA CADENA", title 156895 (in these contracts
jointly identified as the LOTS), which identification data are the following:
a) "EL VOLADO", mining exploration concession, title 197967, issued on
September 30, 1993; located in the Municipality of Zacualpan, State of
Mexico, with a surface of 3.7899 hectares, recorded under number 27, page
14, volume 276 of the General Book of Mining Concessions of the Public
Registry of Mining; and,
b) "LA CADENA", mining exploitation concession, title 156895, issued on May
12, 1972, located in the Municipality of Zacualpan, State of Mexico, with a
surface of 111.7074 hectares, recorded under number 49, page 13, volume 199
of the General Book of Mining Concessions of the Public Registry of Mining.
Attached as Exhibit I, are copies of the mining concession titles covering the
LOTS described in the above subparagraphs.
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3. That, as concerns the obligation related to the filing of proof of the
assessment of works carried out on the LOTS, the TITLEHOLDER untimely filed
those corresponding to 1994 and 1996, reason why it is still pending that the
General Direction of Mines approves such extemporary proof of works and
determine the fine to be paid thereof, in order for the TITLEHOLDER to be
considered as current in the fulfillment of this obligation.
With respect to the payment of mining duties over mining concessions established
in the Federal Duties Law (surface taxes) the TITLEHOLDER states that, for the
periods comprised between the first semester of 1993 and the second semester of
1998 he has not paid any amount as surface taxes for any of the concessions
covering the LOTS.
In line with that mentioned in the preceding paragraph, the TITLEHOLDER also
states that he has received an official communication from the General Direction
of Mines, whereby said authority requests him to prove the payment of such
surface taxes by means of the filing of the corresponding receipts, including
the up-dating of such debt and surcharges deriving from such incompliance;
having a 60 calendar day term to prove the foregoing, which term will expire on
December 24, 1998, approximately.
For said purposes, attached hereto as Exhibit II are added copies of the
documents by means of which the TITLEHOLDER filed with the mining authorities
the proof of the exploration works carried out in the LOTS from 1993 through
1997.
As Exhibit III are added copies of the certifications referred to by the second
paragraph of article 23 of the Mining Law, whereby it is evidenced that the
concessions covering the LOTS are in effect, also showing the legal status of
the mining concessions covering the LOTS.
4. That the monuments indicating the location of the starting point of each one
of the LOTS, are well preserved, built in the terms of law and maintained in the
same place previously approved by the mining authorities.
5. That the rights derived from the mining concessions that cover the LOTS are
free of any liens, encumbrances, burdens or limitations of domain of any nature,
and that to the date of execution of this document, the TITLEHOLDER has not
entered nor will enter into any Contract, nor he has performed nor will perform
any act with respect to the LOTS, which could encumber, burden or limit, in any
manner whatsoever, the rights that he has over the abovementioned mining
concessions; therefore, the TITLEHOLDER guaranties the existence, validity and
availability of the rights referred to herein.
6. That with respect to the activities performed in the LOTS, as of this date,
no legal provisions in the environmental area nor of any other nature have been
breached, also stating the TITLEHOLDER that -when so required- all of the
authorizations required to perform works in the LOTS were obtained, reason why
as of the date of execution of this document, no environmental contingency nor
of any other nature that may affect the validity of the mining concessions
covering the LOTS exists.
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7. That the TITLEHOLDER hereby wishes to grant to the BENEFICIARY, the exclusive
right to evaluate and explore the LOTS, for a term of 12 (twelve) months counted
from the date of execution and ratification before Notary Public of these
Contracts by both parties; which exploration shall be carried out under the
terms and conditions established in this document, considering that the
BENEFICIARY is capable to be holder of mining concessions in accordance with the
Mining Law and its Regulations and that this Contract of Exploration is
authorized in terms of the applicable legal provisions.
8. That, furthermore, the TITLEHOLDER hereby wishes to enter with BENEFICIARY,
for the same term, into a Contract of Promise of Assignment of all of the Rights
derived from the mining concessions covering the LOTS, as well as in connection
with all the rights that the TITLEHOLDER has to access the surface covered by
the LOTS, such as rights for the expropriation of land, temporary occupations,
licenses, permits, authorizations, easements or any other equivalent permits
that, in general, allow the performance of the mining works; the foregoing, in
the terms and conditions set forth in this document.
9. That the TITLEHOLDER has the authority to act in the name and on behalf of
his wife, Mrs. Leticia Sosa Alvarez de Esquivel obligating the latter in the
terms of these Contracts, as evidenced in public instrument number 5,867, of
August 5, 1998, granted before Mr. Francisco Gonzalez Veloz, Notary Public
number 15 of Guanajuato, Gto.; authority that, as of the date of execution of
this document, has not been revoked, limited of modified in any manner
whatsoever.
II. The BENEFICIARY declares through its representative:
1. That his principal is a Mexican mining company, incorporated in accordance
with the Laws of the Mexican United States, as evidenced in public instrument
8,299 of March 10, 1988, granted before Mr. Jose Antonio Lascurain y Osio, at
that moment Notary Public 21 for the District of Morelos; and that, in
accordance with its corporate purpose, it is capable to be holder of mining
concessions, as well as to enter into contracts whose subject matter are rights
derived from such concessions.
2. That as representative of the BENEFICIARY, he has the authority to act in the
name and on behalf of the latter, obligating itself under the terms of these
Contracts, as evidenced in public instrument number 3,889, of February 6, 1998,
granted before Mrs. Maria del Carmen Breach de Caballero, Notary Public 26 for
the District of Morelos; authority that, as of the date of execution of this
document, has not been revoked nor modified in any manner.
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3. That given the declarations of the TITLEHOLDER, the BENEFICIARY wishes: (i)
to enter into a Mining Exploration Contract with the TITLEHOLDER, with respect
to each and all of the LOTS; and, (ii) that, in case that the BENEFICIARY
exercises the right to acquire granted herein, the TITLEHOLDER enters into a
definitive Contract or Contracts of Assignment of all the rights deriving from
both or one of the LOTS, as determined by the BENEFICIARY; the above in the
terms and conditions mentioned below.
Given the foregoing declarations, the parties agree the following:
C L A U S E S
CONTRACT OF EXPLORATION
FIRST. The TITLEHOLDER hereby transfers to the BENEFICIARY, the exclusive right
to evaluate and explore the LOTS, which identification data are specified in
declaration I.2. of this document, in accordance with the following provisions:
1. Term. The life of this Contract of Exploration is of 12 (twelve) months,
counted from the date of execution and ratification of this document before
Notary Public.
1.1 The aforesaid term shall be compulsory for the TITLEHOLDER, and voluntary
for the BENEFICIARY; therefore, the latter may terminate this Contract of
Exploration, at any time, at its sole discretion and without any responsibility
for itself, by means of a written notice delivered to the TITLEHOLDER, with 15
(fifteen) days anticipation to the date on which the BENEFICIARY wishes such
termination to be effective; the BENEFICIARY obligating itself to pay any
outstanding debt which same had committed to pay according to this document and
is considered due to the BENEFICIARY, prior to the date on which the termination
be effective.
That indicated in the last part of the preceding paragraph means that, in order
to determine if, upon the termination of these Contracts, any outstanding debt
to be paid by the BENEFICIARY exists or not, the parties agree on the following:
(i) As concerns the payment of duties over mining concessions (surface taxes)
owed by the TITLEHOLDER on the date of execution of this Contract (back
taxes): it is agreed that, if in the date on which the term granted to
the TITLEHOLDER by the General Direction of Mines to file the receipts
evidencing the payment of the back taxes expires these Contracts remain
in effect -because the BENEFICIARY had not delivered the respective
termination notice or because such termination has not became effective-
then the BENEFICIARY shall pay to the TITLEHOLDER the amount established
in subparagraph b) of section 4.2 of Clause Second of these Contracts,
with the purpose to pay such debt; otherwise, should the BENEFICIARY had
delivered to the TITLEHOLDER the respective termination notice with at
least 15 days anticipation to the date on which the abovementioned 60
day-term elapses, then such obligation of payment shall be of the
exclusive responsibility of the TITLEHOLDER.
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(ii) As concerns the payment of duties over mining concessions (surface taxes)
to be generated for the first and second semesters of 1999: if on January
1, 1999 these Contracts remain in effect -because the BENEFICIARY had not
delivered the respective termination notice or because such termination
has not became effective- then the BENEFICIARY shall reimburse to the
TITLEHOLDER the corresponding amount paid as surface taxes for the first
semester of 1999; otherwise, it is expressly agreed that such surface
taxes shall be of the exclusive responsibility of the TITLEHOLDER. The
foregoing shall be also applicable on July 1, 1999, with respect to the
surface taxes corresponding to the second semester of 1999.
(iii) As concerns the payments established in sections 4. and 4.2 of Clause
Second of these Contracts: it is expressly agreed that, should any of the
dates -individually considered- referred to in each subparagraph of
section 4.2 of Clause Second arrives and these Contracts are still in
effect -because the BENEFICIARY had not delivered the respective
termination notice or because such termination has not became effective-
then the BENEFICIARY shall pay the corresponding amount according to the
respective subparagraph; otherwise, the provision referring to "release
of the obligation of making payments" contained in Section 5. of Clause
Second of these Contracts shall be applicable.
That indicated in this section 1.1 means that the TITLEHOLDER, as of now, grants
his broadest consent, should that be the case, for the BENEFICIARY to terminate
in advance this Contract, in the manner agreed in this section, without it being
necessary to enter into an express termination agreement or for the BENEFICIARY
to comply with any other formality; the foregoing is stated for all legal
purposes and particularly for the purpose of that mentioned in the last
paragraph of article 76 of the Regulations to the Mining Law, taking into
consideration that this document is ratified by the parties before a Notary
Public.
1.2 Given the duration of this Contract of Exploration, it is expressly agreed
that any titles of mining concessions that replace or derive from the titles
currently covering the LOTS, shall be incorporated to the subject matter of this
Contract under the concept LOTS, and therefore shall be subject to that set
forth in this document.
2. Access. Given the exclusive right to explore herein granted to the
BENEFICIARY, the TITLEHOLDER obligates himself to cooperate with the BENEFICIARY
in order for the latter to obtain free and full access to the surface covered by
the LOTS, stating the TITLEHOLDER that all the authorizations required from the
owners or possessors of the surface where the LOTS are located have been
obtained, in order to allow the BENEFICIARY the free access to same for the
execution of the exploration works referred to in this document. The expenses to
obtain future authorizations to have access to the LOTS shall be borne by the
BENEFICIARY, prior authorization by the latter for such purposes.
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2.1 Likewise, the TITLEHOLDER obligates himself that, if during the term of this
Contract of Exploration the owners or possessors of the surface where the LOTS
are located change, or the circumstances under which the corresponding
authorizations were granted to have free access to the LOTS and to carry out the
exploration works change, he shall cooperate with the BENEFICIARY to obtain new
authorizations, as required, in order for the BENEFICIARY to be able to carry
out the exploration works indicated in this Contract, according to its work
program.
3. Works. The exploration to be carried out by the BENEFICIARY, be it directly
or through contractors who render their services to the BENEFICIARY, includes,
among others, the works that allow the location, identification and
determination of mineral substances existing in the LOTS, consisting on site
preparation, geological investigations and examinations, including geological
explorations, topographical works, drilling of any kind and mining works such as
drifts, trenches, fronts, crosscuts, shafts and the like considered convenient,
additionally to one or more feasibility studies for the evaluation of this
project aimed at establishing a new mining unit.
Likewise the exploration to be carried out by the BENEFICIARY includes all such
activities related thereto and permitted by the applicable legal provisions in
the area of mining, particularly those indicated in articles 28 and 29 of the
Mining Law, and which may be used to prove the assessment works to which the
TITLEHOLDER is obligated as concessionaire of the LOTS.
4. Buildings and Constructions. From this date, the BENEFICIARY is authorized to
perform, at its own cost and risk, by itself or by means of third parties, all
of the works and build the structures, buildings, improvements, means of access
and others, as well as to install and use all the machinery and equipment
required for the exploration, which may be removed at any time, during the life
of this Contract of Exploration and during an additional term of 90 (ninety)
days after the termination this Contract, whether the property of the
BENEFICIARY or of its contractors or third parties, if and when the removal of
same does not jeopardize the safety of the works carried out, in which case they
may not be removed.
4.1 It is understood that the permanent support works, struts and in general the
works necessary for the safety and stability of the mines may not be removed, in
accordance with that provided by the Mining Law.
4.2 The BENEFICIARY may request the support and assistance of the TITLEHOLDER,
should that be necessary, to negotiate with the owners or possessors of the
surface covered by the LOTS, for the performance of the works and constructions
referred to in this section 4, whether temporary or permanent. The expenses to
obtain such authorizations shall be borne by the BENEFICIARY.
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5. Consideration for the Right to Explore and Investment Commitments. As
consideration for the right to explore granted by the TITLEHOLDER to the
BENEFICIARY in accordance with this Contract, the latter obligates itself,
during the life thereof, to carry out investments in exploration, development of
mining works, and any other activities which purpose is to evaluate the
potential mineral existing in the LOTS, for which purposes, the BENEFICIARY
shall invest the amounts that it considers convenient, taking into consideration
the minimum investments set forth in the Mining Law and in its Regulations.
5.1 It is expressly agreed that the BENEFICIARY shall have the right to explore
the LOTS with no restriction whatsoever during all the time in which this
Contract of Exploration is in effect.
5.2 Acts of God or Force Majeure. It is expressly understood that the
BENEFICIARY shall not be liable for the delay or total or partial
non-fulfillment of its obligations, consisting in the performance of the
exploration works in terms of this document, as well as of making the payments
referred to in section 4 of Clause Second of these Contracts, when such delay or
non-fulfillment results from an Act of God or force majeure, this is, from facts
or events of nature or man that are unforeseeable or that even in the case they
might be foreseen, they cannot be avoided by the BENEFICIARY.
In accordance with that indicated in the above paragraph, the parties agree that
the events mentioned below, as examples but not in a limitative manner, shall be
considered as acts of God or force majeure: accidents such as fire, explosions,
flooding, tempests, tremors, epidemics, civil disturbances, labor disturbances,
strikes, wars, invasions, oppositions or disturbances caused by rural
communities, ejido's communities or any other kind of association legally
created or not, as well as oppositions or disturbances caused by any other
person impeding the free access of the BENEFICIARY to the LOTS or obstructing
the performance of the mining works set forth in this Contract, as well as
actions or omissions of any governmental authority, whether Federal, State or
Municipal, which include the delay or impossibility to timely obtain such
permits required from any governmental authority, individual or corporation,
group or entity to carry out the mining works provided for in this document.
It is expressly agreed that, should the BENEFICIARY need to obtain permits for
the use of explosives from the Ministry of Defense, in order to perform the
exploration works on the LOTS, the normal course of the procedure to obtain
such permits shall not be considered as force majeure.
The aforecited events -without the exception made- shall be considered as acts
of God or force majeure, as the case may be, if in the event of occurrence they
obstruct or delay, whether totally or partially, the fulfillment of the
obligations of the BENEFICIARY, if and when such event is not provoked by an
action or omission imputable to the BENEFICIARY itself.
In the event that an occurrence takes place causing an act of God or force
majeure, the BENEFICIARY shall notify it to the TITLEHOLDER within a term of 30
(thirty) calendar days, counted from the date on which the BENEFICIARY becomes
aware of such event.
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If the act of God or force majeure continues, the term to carry out the works of
exploration shall be extended for a term equal to the duration of the act of God
or force majeure, in order for the term of the exploration to be of one
effective year.
5.3 Proof of Works It shall be the responsibility of the TITLEHOLDER that
indicated in section 8 of this Clause First and section 3 of Clause Second of
these Contracts, with respect to the proof of the mining works carried out in
the LOTS; the foregoing, under the terms of that provided by the Mining Law and
its Regulations.
For the purposes of that indicated above, the BENEFICIARY obligates itself to
inform in writing to the TITLEHOLDER not later than April 30, 1999, with respect
to the exploration works performed under the terms of this Contract, furnishing
to the TITLEHOLDER copies of the documents evidencing the investments made.
5.4 Definitive Suspension of the Investment Commitments. If at any time the
BENEFICIARY would decide not to proceed, and therefore, to terminate this
Contract of Exploration in advance, it shall not be obligated to make any
further investments other than those carried out as of the date of the
termination notice.
In this latter case, the BENEFICIARY shall inform the TITLEHOLDER of the works
carried out as of the date of the termination notice, and shall deliver to the
TITLEHOLDER a copy of the documents evidencing the investments carried out, and
which documents had not been previously delivered to the TITLEHOLDER, and the
BENEFICIARY shall withdraw without keeping any interest whatsoever in the LOTS.
6. Use of Mineral. So long as the BENEFICIARY does not exercise its right to
acquire mentioned below, the BENEFICIARY is authorized to take gratuitously up
to 500 (five hundred) tons of mineral from both LOTS during the life of this
Contract of Exploration, in order to carry out all kind of samples and
metallurgic tests.
6.1 Trade of Mineral Extracted during the Life of these Contracts, in Excess of
the First 500 Tons. In the event that -only and exclusively during the life of
these Contracts- the BENEFICIARY would have extracted mineral from the LOTS in
excess of the first 500 tons and in a commercial amount, the BENEFICIARY may
freely trade or dispose of such mineral; if and when the latter commits itself
to pay a 3.5% Net Smelter Return royalty to the TITLEHOLDER on such mineral
traded; which royalty shall be calculated, paid and received, according to the
formula enclosed hereto as Exhibit IV.
That mentioned in the above paragraph shall also be applicable, even if the
trade of such mineral extracted prior to the exercise of the option is made
after the option has been exercised; in this latter case, the BENEFICIARY
commits itself to separate and storage such mineral extracted prior to the
exercise of the option and to provide the TITLEHOLDER with a report, in order
for the TITLEHOLDER to be informed on the tonage subject matter of this
provision.
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For the purposes of that mentioned in the preceding paragraphs, the TITLEHOLDER
is authorized -at his own cost, risk and responsibility- to appoint in writing
the representatives he deems prudent, in order for the latter to represent the
TITLEHOLDER at the place where the sampling, weighing and measuring of the
mineral extracted from the LOTS prior to the exercise of the option is located
(either at the mine, other facilities or the plant); the above, with the purpose
of checking the information previously provided by the BENEFICIARY.
It is expressly agreed that the TITLEHOLDER and his representatives should not
interfere the performance of the BENEFICIARY's activities and, any expense in
which the latter may incur in order to avoid such interference, shall be
reimbursed by the TITLEHOLDER to the BENEFICIARY.
It is also expressly agreed that, with respect to the mineral that is extracted
from the LOTS after the date on which the BENEFICIARY exercise the right to
acquire the LOTS, no royalty payments shall be made to the TITLEHOLDER nor the
BENEFICIARY shall have any obligation whatsoever towards the former in such
respect.
7. Obligations of the Beneficiary. In the performance of the exploration, the
BENEFICIARY obligates itself to the following:
a) To carry out the exploration works pursuant to custom and usage of the good
miner and in accordance with the Mining Law, its Regulations and other legal
provisions related to the mining activities, allowing the TITLEHOLDER to inspect
the works carried out by the BENEFICIARY, if and when the former does not
interfere or interrupt the activities which are being carried out by the
BENEFICIARY in the LOTS.
b) To preserve the LOTS in good maintenance conditions, when carrying out the
exploration of same.
c) To take care of the maintenance of the monuments of the starting point and of
location of each one of the LOTS, for which purposes the TITLEHOLDER shall
deliver to the BENEFICIARY the corresponding documents, such as expert reports
and others.
d) To deliver to the TITLEHOLDER, within a term of 60 (sixty) calendar days
following the termination of this Contract of Exploration, if the definitive
Contract of Assignment of Rights mentioned below is not executed, a
non-interpretative report on the exploration operations, which shall include a
report with respect to the mineral deposits located in the LOTS, as well as in
connection with the geological, mining and sampling works performed, with copies
of the geological and topographical maps and of the drilling made; such
information and documents shall not be interpretative and may be delivered in
English version, should the originals have been drafted in such language.
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e) To comply with the labor, social security, tax and other obligations with
respect to the personnel of the BENEFICIARY working on the LOTS, as a
consequence of the exploration carried out by the BENEFICIARY in accordance with
this Contract.
f) To hold the TITLEHOLDER free and harmless of any claim tried against him by
employees or workers of the BENEFICIARY or by third parties contracted by the
latter to whom the BENEFICIARY may have entrusted the rendering of a service on
the LOTS.
g) To comply with the obligations in the environmental area, with respect to the
activities carried out on the LOTS directly by the BENEFICIARY or through its
contractors.
h) To reimburse the TITLEHOLDER, as from the date of execution of this Contract
of Exploration and during the life of same, the surface taxes deriving from the
LOTS that in the future become due and be effectively paid by the TITLEHOLDER;
such reimbursement shall be made by the BENEFICIARY within the 30 (thirty)
calendar days following the date on which the TITLEHOLDER delivers to the
BENEFICIARY the corresponding payment receipts; the foregoing taking into
consideration that provided in subparagraph (ii) of section 1.1 of this Clause
First.
i) Deliver to the TITLEHOLDER a written report on the mineral extracted from the
LOTS prior to the exercise of the option mentioned herein below, with the
purpose to determine the royalty that, in its case, shall be paid to the
TITLEHOLDER once such mineral be traded by the BENEFICIARY.
8. Obligations of the TITLEHOLDER. Given the right to explore granted to the
BENEFICIARY by the TITLEHOLDER, the latter obligates himself during the life of
these Contracts to the following:
a) To maintain in force and in his favor the rights derived from the mining
concessions that cover the LOTS.
b) Not to transfer the rights derived from the mining concessions covering or
that in the future may cover the LOTS to third parties different to the
BENEFICIARY, or its designee, in case the right to acquire is exercised in the
terms and conditions of the Contract of Promise of Assignment of Rights
contained herein.
c) To maintain the rights derived from the mining concessions that cover each
one of the LOTS, free from all encumbrances, liens, burdens or ownership
limitations of any nature, except for that indicated in this document.
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d) Not to interfere, impede nor to obstruct the exclusive right to evaluate and
to explore the LOTS granted to the BENEFICIARY in accordance with this Contract;
on the contrary, the TITLEHOLDER obligates himself to make his best efforts to
facilitate and support the activities performed by the BENEFICIARY and shall
cooperate with same to the extent required by it, in order for the BENEFICIARY
to conclude such evaluation and exploration at its entire satisfaction.
e) To cooperate with the BENEFICIARY in order to obtain free access to the LOTS,
in terms of that mentioned in section 2 of this Clause First.
f) To comply with the labor, social security, tax and other obligations with
respect to the personnel of the TITLEHOLDER working on the LOTS, as a
consequence of any activity that the TITLEHOLDER carries out.
g) To hold the BENEFICIARY, its representatives, officers and outside advisors
free and harmless from any claim and/or responsibility that may be tried against
them, as a consequence of acts directly imputable or of the exclusive
responsibility of the TITLEHOLDER, his workers, or derived from any act deriving
from the exclusive responsibility of the TITLEHOLDER.
h) To maintain in secrecy during the duration of this Contract and for an
additional period of 1 (one) year, counted from the date of acquisition of the
LOTS -if the right to acquire is exercised by the BENEFICIARY- any and all
information that the TITLEHOLDER receives from the BENEFICIARY and that has not
been of the public knowledge before and in any manner whatsoever, which
information shall be of an industrial nature and shall be considered and treated
as privileged information and industrial secret.
i) To prove the works and mining works performed in the LOTS during the life of
this Contract, under the terms of the applicable legal provisions, as well as to
continue complying with other obligations assessed upon mining concessionaires
by the Mining Law, its Regulations and other legal provisions.
For the purposes of the proof of assessment works mentioned above, the
BENEFICIARY obligates itself to inform in writing to the TITLEHOLDER not later
than April 30, 1999, with respect to the exploration works performed under the
terms of this Contract, furnishing to the TITLEHOLDER copies of the documents
evidencing the investments made.
j) To continue paying during the life of this contract and with respect to the
LOTS, the totality of the duties on mining concessions referred to by the
Federal Duties Law (surface taxes); same taxes that will be reimbursed by the
BENEFICIARY to the TITLEHOLDER as from the date of execution of this Contract of
Exploration, taking always into consideration that provided in subparagraphs (i)
and (ii) of section 1.1 of this Clause First.
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k) To pay -prior to the expiration of the term granted by the General Direction
of Mines by means of the official communications numbers 610/13867 and
610/14646- the totality of the back surface taxes corresponding to the LOTS,
filing to the mining authorities -also before the abovementioned term expires-
copies of the receipts evidencing such payments, which receipts must include the
up-dating and surcharges deriving from the TITLEHOLDER's incompliance.
CONTRACT OF PROMISE OF ASSIGNMENT OF RIGHTS
SECOND. The TITLEHOLDER hereby promises and obligates himself to assign in
property to the BENEFICIARY or to its designee, without any reserve or
limitation, free of all encumbrances, liens, burdens or ownership limitations of
any nature, the totality of the rights derived from any or both of the titles of
mining concessions which cover or in the future may cover the LOTS, upon request
to the TITLEHOLDER the assignment of said rights, by means of a written notice
addressed to the TITLEHOLDER, with a 15 (fifteen) calendar days anticipation to
the date on which the right herein referred to is desired to be exercised, if
and when that mentioned below is complied with.
If the right to acquire the LOTS is exercised, the TITLEHOLDER obligates himself
to simultaneously assign to the BENEFICIARY or its designee for such purposes,
without any reserve or limitation, all the rights that the TITLEHOLDER may have
to access the surface comprising the LOTS, such as rights for the land
expropriation, temporary occupations, licenses, permits, authorizations,
easements or any equivalent permits that, in general, allows the carrying out of
the mining works.
This Promise of Assignment of Rights shall be additionally governed by the
following:
1. Term. The term during which the BENEFICIARY may exercise, at any time, the
right to assign to the BENEFICIARY itself or to its designee, the rights derived
from any or both of the titles of mining concession which cover the LOTS, as
well as the above referred rights that the TITLEHOLDER may have to access the
LOTS, shall be of a period of 12 (twelve) months counted from the date of
execution and ratification before a Notary Public of these Contracts.
1.1 The aforesaid term shall be compulsory for the TITLEHOLDER, and voluntary
for the BENEFICIARY; therefore, the latter may terminate this Contract of
Promise, at any time, at its sole discretion and without any responsibility for
itself, by means of a written notice addressed to the TITLEHOLDER, with 15
(fifteen) days anticipation to the date on which the BENEFICIARY desires the
termination to be effective; obligating the BENEFICIARY itself to pay any
outstanding debt that the latter had committed to pay in terms of these
Contracts and that is considered due to the BENEFICIARY prior to the date on
which the termination becomes effective. In relation to that stated in this
section, the provisions referred to in subparagraphs (i), (ii) and (iii) of
section 1.1 of Clause First of these Contracts shall be also applicable.
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That indicated in the preceding paragraph, means that the TITLEHOLDER, from this
date, grants his broadest consent, should that be the case, for the BENEFICIARY
to terminate in advance these Contracts, in the manner agreed in this section,
without being necessary to enter into an express termination agreement or for
the BENEFICIARY to comply with any other formality; the foregoing is stated for
all legal purposes and particularly for the purpose of that mentioned in the
last paragraph of article 76 of the Regulations to the Mining Law, taking into
consideration that this document is ratified by the parties before a Notary
Public.
1.2 Given the duration of this Contract of Promise, it is expressly agreed that
any titles of mining concession that replace or derive from the titles currently
covering the LOTS, shall be incorporated to the subject matter of this Contract
under the concept LOTS, and therefore shall be subject to that set forth in this
document.
2. Obligations of the Titleholder. The TITLEHOLDER obligates himself that,
during the term indicated, he shall not encumber, burden nor limit in any manner
whatsoever, the rights derived from each and all the mining concessions that
cover and will cover in the future the LOTS, nor to enter into any contract with
respect to the LOTS, except with the BENEFICIARY or with its designee; therefore
the TITLEHOLDER guarantees the existence, validity and availability of the
aforecited rights.
2.1 Likewise, the TITLEHOLDER obligates himself not to request reduction,
subdivision nor unification of the surface which cover the LOTS; likewise, the
TITLEHOLDER obligates himself not to waive from the rights derived from the same
LOTS; the foregoing without prior written authorization provided by the
BENEFICIARY through a legal representative with authority therefor.
3. Other Obligations The TITLEHOLDER obligates himself to comply with the
execution and to file the proof of assessment works carried out in the LOTS, in
terms of that provided in the applicable legal provisions of the Mining Law and
its Regulation, according to the investments made by the BENEFICIARY, in
accordance with the Contract of Exploration contained in this document, as well
as in accordance with any other investments made, in its case, by the
TITLEHOLDER.
4. Consideration for the Promise and for the Assignment of Rights. The
consideration that shall be paid to the TITLEHOLDER for the onerous promise and
for the assignment of all the rights derived from the mining concessions which
cover or which in the future may cover the LOTS, shall be in the amounts
mentioned in subparagraphs a) through h) of section 4.2 below, which amounts
will be paid on the dates indicated.
4.1 Currency and VAT. The payments to be made to the TITLEHOLDER as
consideration for the promise and for the assignment of the rights referred to
in this Contract, shall be made in dollars, currency of the United States of
America or its equivalent in Mexican currency on the date of payment, plus the
corresponding Value Added tax (VAT) to each payment.
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4.2 Schedule of Payments. The amounts referred to in section 4 above shall be as
follow:
a) The date on which this Contract of Promise of Assignment of Rights be
executed and ratified before a Notary Public, the total amount of $6,000.00
(six thousand dollars 00/100).
b) If the TITLEHOLDER receives from the mining authorities an official
communication granting a 60 day-term to make the payment of the back
surface taxes, and if at the time the abovementioned 60 day-term expires
these Contracts be still in effect -because the BENEFICIARY had not
delivered the respective termination notice or because such termination has
not became effective- then the BENEFICIARY shall pay to the TITLEHOLDER the
total amount of $14,000.00 (fourteen thousand dollars 00/100) with the
purpose to pay such debt; and, if the amount to be paid as back surface
taxes be higher, the BENEFICIARY shall also pay the amount in excess,
deducting such from the following payment to be made to the TITLEHOLDER
and, if it is not enough, from the following payments listed herein below.
c) On December 31, 1998, provided that the Contracts contained in this
document are still in effect, the total amount of $10,000.00 (ten thousand
dollars 00/100).
d) On February 1, 1999, provided that the Contracts contained in this document
are still in effect, the total amount of $14,000.00 (fourteen thousand
dollars 00/100).
e) On March 31, 1999, provided that the Contracts contained in this document
are still in effect, the total amount of $14,000.00 (fourteen thousand
dollars 00/100).
f) On May 31, 1999, provided that the Contracts contained in this document are
still in effect, the total amount of $14,000.00 (fourteen thousand dollars
00/100).
g) On July 30, 1999, provided that the Contracts contained in this document
are still in effect, the total amount of $14,000.00 (fourteen thousand
dollars 00/100).
h) On September 30, 1999, provided that the Contracts contained in this
document are still in effect, the total amount of $14,000.00 (fourteen
thousand dollars 00/100). At the moment this last payment is made, it will
be understood that the right to acquire the LOTS has been fully exercised.
i) Should the option to acquire the LOTS be exercised prior to September 30,
1999, the BENEFICIARY shall pay to the TITLEHOLDER, such amounts referred
to in subparagraphs b) to h) above which had not been paid with respect to
the dates which have not been arrived, in order for the total consideration
for the promise and for the assignment of all the rights deriving from the
mining concessions which at that moment cover the LOTS be, in any case, the
total amount of $100,000.00 (one hundred thousand dollars 00/100).
14
<PAGE>
5. Release of the Obligation of Making Payments. It is expressly agreed, as
indicated above, that the BENEFICIARY shall have the right to terminate this
Contract of Promise of Assignment of Rights at any time, at its own discretion
and without any obligation, by means of a written notice delivered to the
TITLEHOLDER and, in such event, the BENEFICIARY shall have no obligation to make
any further payment of those amounts referred in all subparagraphs of section
4.2 above, with respect to the dates that have not elapsed, the BENEFICIARY
obligating itself to cover any amounts due or those that become due prior to the
termination notice to be effective.
5.1 Earnest money. It is expressly understood that, in the event the BENEFICIARY
terminates this Contract in advance, the amounts that the TITLEHOLDER would have
received as of the date on which the BENEFICIARY delivers to him the notice of
termination, shall inure to his benefit as earnest money.
COMMON TO BOTH CONTRACTS
THIRD. Other Obligations of Both Parties. The TITLEHOLDER and the BENEFICIARY
expressly obligate themselves that, during the life of these Contracts in the
performance of their respective activities they will faithfully comply with all
obligations imposed upon them by the Mining Law, its Regulations, the
environmental, water, security and hygiene in the mines, labor, tax and other
applicable legal provisions; likewise, they obligate themselves not to incur in
any of the causes for nullity, cancellation, suspension or expiration of rights
referred to by the Mining Law, with respect to the mining concessions which
cover and will cover in the future the LOTS.
Given that no labor relationship whatsoever will exist between the workers or
contractors of each one of the parties, with respect to the other, the
TITLEHOLDER and the BENEFICIARY agree that each party shall assume its entire
responsibility whether of a labor, social security, or tax nature, and others,
with respect to their own workers and contractors; therefore, each party agrees
to hold the other free and harmless of any claim, lawsuit or accusation or
complain that could be filed against the other party, by the workers or
employees of said party, by its contractors or by the authorities in the labor
or administrative area.
FOURTH. Incompliance. Notwithstanding any stipulation on the contrary agreed in
this document, should any party be or incur on incompliance (the "Non-complying
Party"), with respect to any obligation stated in these Contracts, the affected
party of such incompliance (the "Affected Party"), may give written notice
specifying in which the incompliance consists ("Notice of Incompliance") to the
Non-complying Party, in order to:
15
<PAGE>
(a) within the five working days following to the reception of the Notice of
Incompliance -referring to the lack of payment of any amounts that must be
paid in terms of these Contracts- the Non-complying Party: (i) pays to the
Affected Party the totality of such amounts due; (ii) proves that such
amounts have been paid; or, (iii) justifies the valid reasons -not
imputable to itself- why the corresponding payments have not been made.
(b) within the 30 (thirty) calendar days following to the reception of the
Notice of Incompliance -which refers to an incompliance different that the
lack of payment- the Non-complying Party cures such incompliance or fault,
if and when same may be easily corrected within such period; or
(c) in case that the incompliance be different to lack of payment, and that,
deriving from its nature it may not be easily corrected during the 30
(thirty) days period referred to in subparagraph (b) above, the
Non-complying Party shall initiate -within such 30 (thirty) days term
following the reception of the Notice of Incompliance- the necessary and
prudent actions in order to correct the incompliance and, therefore, follow
such actions in a proper manner until the incompliance be completely cured
within a term not exceeding 90 (ninety) calendar days counted from the date
on which the Non-complying Party received the Notice of Incompliance.
Notwithstanding the foregoing, the affected party shall be authorized to seek in
good faith for any remedy applicable to such incompliance; with no prohibition
that, in case that the Non-complying Party does not carry out that mentioned in
subparagraphs (a), (b) or (c) above, within the maximum terms therein
contemplated for each case, the Affected Party may exercise its right to rescind
these Contracts and to request the payment of damages and detriment; or, in its
case, the right to request the compulsory compliance of the obligations of the
Non-complying Party and the payment of damages and detriment.
FIFTH. Registration. The BENEFICIARY expressly obligates itself to register in
the Public Registry of Mining these Contracts of Mining Exploration and of
Promise of Assignment of Rights, as well as the definitive Contract or Contracts
of Assignment of Rights that be executed, should that be the case.
SIXTH. Expenses, Fees and Taxes. All the expenses, fees and taxes caused as a
consequence of the execution of these Contracts of Mining Exploration and of
Promise of Assignment of Rights, shall be for the account of the BENEFICIARY.
The foregoing, except for the Income Tax applicable to the TITLEHOLDER, who
obligates himself to issue the corresponding receipts (invoices) for the amounts
that he receives; the foregoing in accordance to the Income Tax Law.
Likewise, the TITLEHOLDER obligates himself to comply with all the obligations
imposed upon him by the applicable tax provisions in force, given that he has
stated to the BENEFICIARY that he is recorded in the Federal Taxpayers'
Registry, under code EUEH-340308-MU7.
16
<PAGE>
Given that mentioned in the preceding paragraphs, it is understood that, so long
the applicable tax provisions do not provide otherwise, for each payment to be
made to the TITLEHOLDER, the corresponding withholding of the Income Tax will be
made, delivering to the TITLEHOLDER the withholding certificate and, once such
tax be paid, shall deliver to the TITLEHOLDER copy of the corresponding income
tax return.
In accordance with that provided by the Value Added Tax Law, for each payment
that the TITLEHOLDER receives, he shall separate in an express manner the amount
corresponding to the Value Added Tax, as set forth in the applicable articles of
the abovementioned Law, as well as on those applicable of the Fiscal Code of the
Federation.
SEVENTH. Guaranty of Compliance. The TITLEHOLDER Mr. Hector Esquivel Esparza,
obligates himself in accordance with articles 2554 fourth paragraph, 2587 and
2596 first paragraph, of the Civil Code for the Federal District on Common
Matters and for all of the Republic on Federal Matters, to grant before a Notary
Public, a special and irrevocable power of attorney, in order to guarantee the
compliance with the obligations undertaken by the TITLEHOLDER in accordance with
this document, in the following terms:
"Mr. Hector Esquivel Esparza, on his own behalf, hereby grants to Messrs.
Fernando David Estavillo Castro, Juan Pizarro Suarez Vergara Lope, Alejandro
Staines Anzaldo, Cristina Sanchez Urtiz, Othon Frias Calderon and Alberto
Mauricio Vazquez Sanchez, a special and irrevocable power of attorney to be
exercised jointly or individually, in order that in the name and on behalf of
the grantor:
They comply, if so required by Polo y Ron Minerales, S.A. de C.V. -or by its
designee- expressly and in writing, with the obligations undertaken by Mr.
Hector Esquivel Esparza in favor of Polo y Ron Minerales, S.A. de C.V., in the
Contracts of Mining Exploration and of Promise of Assignment of Rights entered
into between the grantor as promisor (in said Contracts the "TITLEHOLDER") and
Polo y Ron Minerales, S.A. de C.V. as promisee (in said Contract the
"BENEFICIARY"), consisting on executing with the latter or with its designee,
Definitive Assignment Contract(s) of the Rights derived from the titles of
mining concession covering the LOTS:
a) "EL VOLADO", mining exploration concession, title 197967, issued on
September 30, 1993; located in the Municipality of Zacualpan, State of
Mexico, with a surface of 3.7899 hectares, recorded under number 27, page
14, volume 276 of the General Book of Mining Concessions of the Public
Registry of Mining; and,
b) "LA CADENA", mining exploitation concession, title 156895, issued on May
12, 1972, located in the Municipality of Zacualpan, State of Mexico, with a
surface of 111.7074 hectares, recorded under number 49, page 13, volume 199
of the General Book of Mining Concessions of the Public Registry of Mining.
17
<PAGE>
This power of attorney is granted with the limitation that in order to exercise
the authority to assign the rights therein referred, the attorney(s)-in-fact
exercising this mandate must evidence to the Notary Public before whom the
signatures of the Contract or Contracts of Assignment of Rights derived from the
LOTS are ratified, that it has been delivered to the TITLEHOLDER the total
amount of the price agreed for the promise and for the assignment of rights of
the LOTS, or that such consideration has been deposited in favor of the
TITLEHOLDER.
This power of attorney is granted, in addition, in order that if so required
expressly and in writing by the BENEFICIARY or its designee, the
attorneys-in-fact exercise all of the rights that the Mining Law, its
Regulations and other applicable provisions in the area of mining grant to the
concessionaires with respect to their concessions, as well as to comply with the
obligations assessed upon Mr. Hector Esquivel Esparza, among which are included,
in an exemplarily manner though not limited to, file the reports and proofs of
the execution of the mining works to which the Mining Law and its Regulations
refer; initiate mining opposition procedures; exercise administrative remedies
in terms of the Mining Law, its Regulations and other applicable provisions;
initiate constitutional protection proceedings; and, other acts which are
applicable in accordance with said provisions, except to relinquish, subdivide,
reduce or unify surface of the LOTS, which shall only operate by means of a
written authorization jointly signed by the TITLEHOLDER and the representative
of the BENEFICIARY.
Within the specialty of the power of attorney, the attorneys-in-fact shall have
all of the authority corresponding to a general power of attorney for lawsuits
and collections, to administer property, and for acts of ownership, with the
broadest authority, as provided for in article 2554 (two thousand five hundred
and fifty four) of the Civil Code for the Federal District on Common Matters and
for all of the Republic on Federal Matters and the corresponding article of the
Civil Code of each State of the Mexican United States; with the limitation that
the attorneys-in-fact may only exercise this power of attorney in matters
related to rights deriving from the mining concessions that cover or will cover
in the future the LOTS subject matter of the Contracts referred to herein.
Given that the power of attorney contained in this public instrument is granted
for the compliance of obligations acquired by the grantor in a bilateral
contract, it is expressly stated that the power of attorney is granted with an
irrevocable nature, under the terms of article 2596 (two thousand five hundred
and ninety six) of the Civil Code for the Federal District on Common Matters and
for all the Republic on Federal Matters and the corresponding article of the
Civil Code of each State of the Mexican United States.
This power of attorney will be in effect during the time in which the
obligations of the grantor in the Contracts of Mining Exploration and of Promise
of Assignment of Rights referred to subsist, of which copy is attached hereto in
order to form an integral part of this instrument."
18
<PAGE>
EIGHTH. BENEFICIARY's guaranty. The BENEFICIARY shall become liable before the
TITLEHOLDER, of each and all the obligations acquired by the attorneys-in-fact
in the mandate referred to in the above Clause, should either it or the
attorneys-in-fact illegally exercise the authority conferred upon them by such
mandate.
NINTH. The TITLEHOLDER obligates himself to furnish to the BENEFICIARY all the
information that it requests, as well as to sign, evidence and comply with any
other necessary requirement and to exercise the legal actions that may be
required, in order to: (i) obtain, whenever needed, any authorizations for the
BENEFICIARY to exercise the rights herein granted; (ii) maintain the LOTS
subject matter of these Contracts, free of any charge, lien, burden, or
limitation of domain of any nature, according to that agreed in this document;
and, (iii) in general, to solve any contingency that may affect the legal status
of the LOTS and that may prevent, limit or hinder the exercise of the rights
granted by virtue of this document to the BENEFICIARY.
TENTH. Communications. All communications to be made among the parties pursuant
to these Contracts, shall be in writing, delivered at their domiciles in an
authentic manner; and, for such purpose, the parties designate the following
domiciles:
THE TITLEHOLDER:
MR. HECTOR ESQUIVEL ESPARZA
Cerro de la Coronita No. 98
Cerro del Gallo
36000, Guanajuato, Gto.
THE BENEFICIARY:
POLO Y RON MINERALES, S.A. DE C.V.
Avenida Paseo Bolivar No. 201
Chihuahua, Chihuahua
Att'n: Mr. Allen Zebrowski
Any change of domicile or of representative shall be notified in writing,
delivered in an authentic manner.
ELEVENTH. Alternative Formalities. The TITLEHOLDER authorizes the BENEFICIARY,
from this date, to formalize this document in public instrument before a Notary
Public of its choice, at the expense of the latter and without requiring the
appearance of the TITLEHOLDER.
TWELFTH. Assignment. The TITLEHOLDER, expressly authorizes the BENEFICIARY, from
this date, to assign totally or partially without the need to obtain the consent
of the TITLEHOLDER the rights and obligations deriving from this document in
favor and in charge of the BENEFICIARY; the foregoing if and when: (i) the
document whereby such assignment of rights and obligations is made has the legal
formality of being a Contract of Assignment of Rights, executed in Mexico and in
accordance with the Mexican laws; (ii) in the same document, the express
acceptance of the assignee in order to subrogate in all the obligations that by
virtue of this document the BENEFICIARY acquires is contained; and, (iii) after
such Contract of Assignment of Rights be executed, the TITLEHOLDER receives a
written notice informing the latter on the general data of the third party that
have acquired the rights and obligations deriving from these Contracts.
Likewise, the third party acquiring such rights and obligations, must commit
itself that, in case that in the future executes another contract whereby
transfers or sells such rights and obligations, shall contain the same clause.
19
<PAGE>
The parties agree that so long as these Contracts are in effect, they shall be
valid and binding for the contracting parties, as well as for the designee of
the BENEFICIARY and the respective successors or assignees of the parties, and
for the heirs or legatees of the TITLEHOLDER.
THIRTEENTH. Absence of Injury. The parties, notwithstanding the nature of this
document, expressly declare that in the covenants subject matter of same there
is that no injury and, even in case it exists, they expressly waive the right to
request the relative nullity referred to in articles 2228 and 2239 of the Civil
Code for the Federal District on Common Matters and for all the Republic on
Federal Matters and the corresponding article of the Civil Code of each State of
the Mexican United States.
FOURTEENTH. Applicable Laws and Jurisdiction. This Contract which is entered
into under the terms of article 78 of the Commerce Code, is of a mercantile
nature; therefore, for all that not expressly agreed upon herein and for the
interpretation of and compliance with same, there shall be applied the Mining
Law, its Regulations and the Commerce Code, as well as suppletory law the Civil
Code for the Federal District on Common Matters and for all of the Republic on
Federal Matters, for that not provided for in the first two.
For the resolution of any controversy which might arise from this document, the
parties expressly agree to submit themselves to the jurisdiction of the
competent courts in Mexico City, Federal District.
FIFTEENTH. Headings. The parties acknowledge that the headings in the Clauses,
sections, subparagraphs in which these Contracts are divided, have been stated
only with the purpose of easy reading of this document, therefore, such headings
have no interpretative or linking value.
Once this document, was read by the parties, they ratify same in its entirety
and sign it as evidence thereof, the TITLEHOLDER on November 30, 1998, in Mexico
City, Federal District; and, the BENEFICIARY on November 30, 1999, in Mexico
City, Federal District.
THE TITLEHOLDER THE BENEFICIARY
POLO Y RON MINERALES,
S.A. DE C.V.
/s/ Hector Esquivel Esparza /s/ Allen Zebrowski
- --------------------------- -------------------
Hector Esquivel Esparza Allen Zebrowski
20
The following form of Securities Purchase Agreement was entered into with
the following on January 27, 1999:
Appel, Gerald R.
Bartlett, Bruce Edwin
Bartlett, David and Louann
Bartlett, Ruth
Big Brothers, Big Sisters of
Northwest Arkansas
Borenstein, Howard and Shari
Boyett Investments Limited
Brennon, Bobby
Campbell, Bruce or Paige
Capital Growth Trust
Cranbourne Investments Ltd.
Diversified Investment Fund, L.P.
FAC Enterprises, Inc.
Flick, Inc.
Founders Equity Group, Inc.
Gatkin Limited
Good, Henry H. III
Good, Henry H., M.D.
GWR Trust
Ibsen, Michael D.
Ivester, Carolyn
KAB Investments, Inc.
Keith, Kevin and Tracie
Knight, George
Matrix Capital Management Ltd.
McCracken Brothers
Moorehead Charitable Trust,
George and Nancy
Moorehead Charitable Trust, Donald and
Shelley
Petillo, Delores
Quattrochi, Joseph
Romano, Mario
Rosner Money Purchase Plan,
Steven B.
Sands, Sidney and Edythe
Schuyhart, Bill W.
SPH Investments Inc.
Stoltz, J. Michael
The D.A.R. Group
Vogel Enterprises Inc. Pension
Trust
Vogel, Robert A.
Vogel, Samuel M.
West Tropical Investments Corp.
Weston Investors, Inc.
Wilson, Fred IRA Rollover
<PAGE>
ARNGRE, INC.
-------------------------------------------------------------
Securities Purchase Agreement
-------------------------------------------------------------
Shares of Common Stock
offered at $.001 per share
-------------------------------------------------------------
January 27, 1999
<PAGE>
FORM OF
SECURITIES PURCHASE AGREEMENT
THIS SECURITIES PURCHASE AGREEMENT (the "Agreement") is entered into as of
the day and year appearing on the signature page hereof by and between Arngre,
Inc., a Florida corporation ("Arngre" or the "Company"), and the investor whose
name appears at the end of this Agreement (the "Purchaser").
R E C I T A L S:
In order to obtain capital to fund a joint venture to be engaged in the
silver mining business in Mexico, the Company wishes to issue, and the Purchaser
wishes to purchase shares of the Company's common stock, $.001 par value per
share (the "Common Stock").
NOW, THEREFORE, in consideration of the premises hereof and the agreements
set forth herein below, the parties hereto hereby agree as follows:
1. Sale and Purchase of Shares.
(a) Subject to the terms and conditions hereof, on the date of the
Closing, as defined in Section 3 hereof, the Company agrees to issue and sell,
and the Purchaser agrees to purchase, that number of shares of Common Stock as
are indicated on the last page of this Agreement at a purchase price of $.001
per share (the "Shares"). Generally, the Company will not accept subscriptions
for less than $1,000 (reflecting a total purchase of 1,000,000 shares of Common
Stock), although the Company reserves the right to consider subscriptions for
lesser amounts in its sole discretion.
(b) Restricted Securities. The shares of Common Stock of the Company
that are being offered hereby are "restricted securities" as that term is
defined under Rule 144 of the Securities Act of 1933, as amended (the "Act"),
and, accordingly, may not be offered for sale or sold or otherwise transferred
in a transaction which would constitute a sale thereof within the meaning of the
Act unless: (i) such security has been registered for sale under the Act and
registered or qualified under applicable state securities laws relating to the
offer and sale of securities; or (ii) exemptions from the registration
requirements of the Act and the registration or qualification requirements of
all such state securities laws are available and the Company shall have received
an opinion of counsel that the proposed sale or other disposition of such
securities may be effected without registration under the Act and would not
result in any violation of any applicable state securities laws relating to the
registration or qualification of securities for sale, such counsel and such
opinion to be satisfactory to the Company. As restricted securities, the resale
of the shares of Common Stock is subject to significant restrictions upon
resale. See Section 7 hereafter, "Understanding of Investment Risks."
(c) Voting Rights; Dividends. Holders of Common Stock of the Company
have equal rights to receive dividends when, as, and if declared by the Board of
Directors out of
<PAGE>
funds legally available therefor. Holders of Common Stock of the Company have
one vote for each share held of record and do not have cumulative voting rights.
(d) Liquidation; Redemption. Holders of Common Stock of the Company are
entitled upon liquidation of the Company to share ratably in the net assets
available for distribution, subject to the rights, if any of holders of any
preferred stock of the Company then outstanding. Shares of Common Stock of the
Company are not redeemable and have no preemptive or similar rights. All
outstanding shares of common stock of the Company are fully paid and
nonassessable.
2. Shares Offered in a Private Placement Transaction.
(a) The Shares offered by this Securities Purchase Agreement are to be
offered as part of a private placement transaction pursuant to Section 4(2) and
Rule 506 of Regulation D of the Act (the "Offering") by the Company on a "best
efforts" basis of up to 14,500,000 shares of Common Stock to be offered to a
number of sophisticated and accredited investors. Accordingly, as of the date
hereof, there can be no assurances as to the number of shares of Common Stock
that will be sold in the Offering. The Company reserves the right to increase
the number of shares of Common Stock sold without notice to or consent of the
subscribers or existing Company stockholders.
(b) The shares of Common Stock are being offered to a limited number of
accredited and other sophisticated investors by the Company directly, without
sales commission.
(c) The purchase price ("Purchase Price") per share of Common Stock is
$.001 payable in cash upon subscription and the minimum number of shares which a
Subscriber may purchase will generally be no less than 1,000,000 Shares
(reflecting a total purchase price of $1,000.00), although the Company may, in
its sole discretion, accept subscriptions for a smaller number of shares.
(d) The Offering will generally be maintained by the Company
until the earlier of: (i) the sale of all of the shares of Common Stock offered
pursuant to such Securities Purchase Agreements (or such greater number of
shares as the Company elects to offer); or (ii) such date that the Company
chooses to terminate the Offering (hereinafter the "Offering Period").
(e) The Company is concurrently offering up to 2,000,000 Units in a
private placement at a purchase price of $.008 per Unit (the "Concurrent
Offering"), each Unit consisting of one (1) share of Common Stock and a
five-year warrant to purchase one (1) share of Common Stock at an exercise price
of $4.00. The proceeds of this Offering and the Concurrent Offering are intended
to satisfy the Company's obligation to pay the $25,000 Subscription Payment (as
such term is hereinafter defined).
3. Binding Effect of Securities Purchase Agreement; The Closing.
2
<PAGE>
(a) This Securities Purchase Agreement shall not be binding on the
Company unless and until the Company has accepted the offer represented by an
executed signature page at the end hereof. The Company may accept or reject this
Securities Purchase Agreement in the Company's sole discretion, if the Purchaser
does not meet the suitability standards established herein or for any other
reason. In the event the Company rejects this Agreement, the Purchaser's funds
will be promptly returned without deduction of any costs and without interest.
(b) The closing of the purchase and sale of the Shares hereunder (the
"Closing") shall occur concurrently upon acceptance by the Company of this
Securities Purchase Agreement and deposit with the Company of funds representing
the Purchase Price. Notwithstanding the above, the Company reserves the right to
reject a subscription within ten (10) days of receipt of the Purchase Price
should the Company determine during that period that the Purchaser does not
satisfy the subscriber qualifications or suitability standards established
hereafter.
4. Deliveries by the Company. Within ten (10) days after the Closing, the
Company shall deliver to the Purchaser a stock certificate bearing applicable
restrictive legends, duly executed by the appropriate officer (s) and registered
in Purchaser's name or its nominee.
5. Description of the Company - Possible Joint Venture Agreement.
The Company is currently inactive with no material assets or liabilities,
but has identified a joint venture business opportunity in the silver business
in Mexico. Under the proposed joint venture arrangement, the Company would
subscribe for shares of International Capri Resources, S.A. de C.V., a Mexican
company ("ICRM") representing a 60% ownership interest of ICRM. ICRM has secured
the rights to purchase exclusive royalty-free exploration and/or exploitation
concessions in five properties (the "Properties") located in Mexico that may be
silver producing. The Company, along with other shareholders of ICRM, have
agreed to combine resources to provide the short-term funding necessary for ICRM
to acquire and develop the Properties.
It is anticipated that ICRM will require expenditures of approximately
$750,000 in the short-term in order to purchase and initially develop the
Properties. Under a draft joint venture and subscription agreement, the first
$250,000 of development costs will be funded by another ICRM shareholder.
Following a $25,000 subscription payment for ICRM shares of common stock (the
"Subscription Payment"), the Company has agreed to advance the next $500,000 in
development costs in four monthly consecutive installment payments of $125,000
each. In the event that these installment payments are not made in a timely
fashion and upon the occurrence of certain other conditions, the Company's
equity interest in ICRM will be reduced.
Although management is confident that the joint venture will be
effectuated, there can be no assurances to this effect, particularly since the
following conditions remain to be satisfied: (i) the execution of a definitive
joint venture and subscription agreement acceptable to all parties; and (ii) the
Company's completion of a due diligence review of the joint venture and ICRM.
3
<PAGE>
The Company plans to reincorporate into the State of Delaware and change
its name to "Silver King Resources, Inc." as quickly as practicable.
The Company's share capitalization as of the date hereof consists of
50,000,000 authorized shares of common stock, of which 1,000,000 are issued and
outstanding as of the date of this Agreement. Assuming that all 14,500,000
shares of Common Stock offered in the Offering and all 2,000,000 Units offering
in the Concurrent Offering are sold, the Company will have 17,500,000 shares
outstanding and the 14,500,000 shares of Common Stock will represent
approximately 82.8% of the total issued and outstanding shares at such time.
Stephen P. Harrington is currently serving as the Company's sole officer
and director; however, upon the Company's subscription of shares of ICRM, it is
anticipated that Mr. Harrington will be replaced and/or additional officers
and/or directors will be nominated to manage the Company's interest in the ICRM
joint venture project. Such other individuals have not yet been identified.
6. Representations and Warranties of the Purchaser. The Purchaser
represents and warrants to the Company as follows:
(a) Accredited Investor. The Purchaser has such knowledge and experience
in business and financial matters such that the Purchaser is capable of
evaluating the merits and risks of purchasing the Shares. The Purchaser is an
"accredited investor" as that term is defined in Rule 501 of Regulation D of the
Act and represents that he satisfies the suitability standards identified in
Section 9 hereof;
(b) Loss of Investment. The Purchaser's (i) overall commitment to
investments which are not readily marketable is not disproportionate to his net
worth; (ii) investment in the Company will not cause such overall commitment to
become excessive; (iii) can afford to bear the loss of his entire investment in
the Company; and (iv) has adequate means of providing for his current needs and
personal contingencies and has no need for liquidity in his investment in the
Company;
(c) Special Suitability. The Purchaser satisfies any special suitability
or other applicable requirements of his state of residence and/or the state in
which the transaction by which the Shares are purchased occurs;
(d) Investment Intent.
(i) the Purchaser hereby acknowledges that the Purchaser has been
advised that this offering has not been registered with, or reviewed by, the
Securities and Exchange Commission ("SEC") because this offering is intended to
be a non-public offering pursuant to Section 4(2) and Rule 506 of Regulation D
of the Act. The Purchaser represents that the Shares are being purchased for the
Purchaser's own account and not on behalf of any other person, for investment
purposes only and not with a view towards distribution or resale to others. The
Purchaser agrees that the Purchaser will not attempt to sell, transfer, assign,
pledge or otherwise dispose of all or any portion of the Shares unless they are
registered under the Act or
4
<PAGE>
unless in the opinion of counsel an exemption from such registration is
available, such counsel and such opinion to be satisfactory to the Company. The
Purchaser understands that the Shares have not been registered under the Act by
reason of a claimed exemption under the provisions of the Act which depends, in
part, upon the Purchaser's investment intention; and
(ii) the Shares and any certificates issued in replacement therefor
shall bear the following legend, in addition to any other legend required by law
or otherwise:
"THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED. THE
SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE BEEN TAKEN BY
THE REGISTERED OWNER FOR INVESTMENT, AND WITHOUT A VIEW TO
RESALE OR DISTRIBUTION THEREOF, AND MAY NOT BE TRANSFERRED OR
DISPOSED OF WITHOUT AN OPINION OF COUNSEL SATISFACTORY TO THE
ISSUER THAT SUCH TRANSFER OR DISPOSITION DOES NOT VIOLATE THE
SECURITIES ACT OF 1933, AS AMENDED, OR THE RULES AND
REGULATIONS THEREUNDER."
(e) State Securities Laws. The Purchaser understands that no securities
administrator of any state has made any finding or determination relating to the
fairness of this investment and that no securities administrator of any state
has recommended or endorsed, or will recommend or endorse, the offering of the
Shares;
(f) Authority; Power; No Conflict. The execution, delivery and
performance by the Purchaser of the Agreement are within the powers of the
Purchaser, have been duly authorized and will not constitute or result in a
breach or default under, or conflict with, any order, ruling or regulation of
any court or other tribunal or of any governmental commission or agency, or any
agreement or other undertaking, to which the Purchaser is a party or by which
the Purchaser is bound, and, if the Purchaser is not an individual, will not
violate any provision of the charter documents, By-Laws, indenture of trust or
partnership agreement, as applicable, of the Purchaser. The signatures on the
Agreement are genuine, and the signatory, if the Purchaser is an individual, has
legal competence and capacity to execute the same, or, if the Purchaser is not
an individual, the signatory has been duly authorized to execute the same; and
the Agreement constitutes the legal, valid and binding obligations of the
Purchaser, enforceable in accordance with its terms;
(g) No General Solicitation. The Purchaser acknowledges that no general
solicitation or general advertising (including communications published in any
newspaper, magazine or other broadcast) has been received by him and that no
public solicitation or advertisement with respect to the offering of the Shares
has been made to him;
5
<PAGE>
(h) Advice of Tax and Legal Advisors. The Purchaser has relied solely
upon the advice of its own tax and legal advisors with respect to the tax and
other legal aspects of this investment; and
(i) Access to Information. The Purchaser has had access to all material
and relevant information concerning the Company, its management, financial
condition, capitalization, market information, properties and prospects
necessary to enable Purchaser to make an informed investment decision with
respect to its investment in the Shares. Purchaser has carefully read and
reviewed, and is familiar with and understands the contents thereof and hereof,
including, without limitation, the risk factors described in this Agreement. See
"Understanding of Investment Risks." Purchaser acknowledges that it has had the
opportunity to ask questions of and receive answers from, and to obtain
additional information from, representatives of the Company concerning the terms
and conditions of the acquisition of the Shares and the present and proposed
business and financial condition of the Company, and has had all such questions
answered to its satisfaction and has been supplied all information requested.
7. Understanding of Investment Risks. An investment in the Shares should
not be made by a Purchaser who cannot afford the loss of its entire Purchase
Price. The Purchaser acknowledges that the Shares offered hereby have not been
approved or disapproved by the Securities and Exchange Commission, or any state
securities commissions, nor has the Securities and Exchange Commission or any
state securities commission passed upon the adequacy or accuracy of this
Securities Purchase Agreement or any exhibit hereto. An investment in the Shares
should not be made until the Purchaser has considered the following risk
factors:
(a) Risks related to Joint Venture - Company may remain inactive. The
Company is presently an inactive shell that has undertaken no operations since
inception and has no material assets. Although management intends to utilize the
net proceeds from the Offering of the Shares to fund the proposed ICRM joint
venture, there can be no assurance that the joint venture will be completed or
that if it is completed, that it will be successful. If the joint venture is not
completed, management will use its best efforts to identify another suitable
business opportunity. There can be no assurances, however, if and when a
suitable business opportunity will be identified. The purchase price for the
Shares will not be returned to the subscribers in the event the joint venture is
not completed; rather, management will use these proceeds to apply towards the
expenses of a business opportunity in the future.
(b) Arbitrary Offering Price. The price of the Shares offered hereby has
been arbitrarily determined by the Company without the benefit of an
arm's-length negotiation and is not based upon generally-recognized criteria,
such as earnings, price per share, net book value, etc. There can be no
assurances that the offering price is representative of the actual value of the
Shares.
6
<PAGE>
(c) Dividends. The payment of dividends by the Company is not
contemplated in the foreseeable future. Earnings, if any, are expected to be
retained to finance and develop the business of the ICRM joint venture.
(d) Registration Rights; Restrictions Upon Resale. The Shares have not
been registered under the Act or any state securities or blue-sky law and
subscribers may not sell or otherwise transfer such securities except pursuant
to registration under the Act and any applicable state securities laws or
exemptions therefrom. Because of such restrictions, a subscriber for the Shares
must bear the economic risks of such investment for an indefinite period of
time.
(e) No Public Market. Although the Company's Common Stock is eligible
for trading on the OTC Electronic Bulletin Board, there is currently no public
trading market for the Common Stock. There can be no assurances that a regular
trading market will ever develop for the Common Stock of the Company.
(f) Undesignated Management. Upon the Company's subscription to shares
of common stock of ICRM, the Company may retain new management. At this time, no
such persons have been identified for such positions.
(g) Additional Dilution. In order to raise capital to satisfy the
Company's obligation to fund $500,000 of the development costs of the ICRM joint
venture, the Company anticipates offering additional shares of its Common Stock
or other securities convertible into Common Stock. There can be no assurances
that such future offerings will raise capital sufficient for that purpose. In
addition, any future offerings may have a significantly dilutive effect on the
Purchaser's interest in the Company.
8. Representations and Warranties of the Company. The Company hereby
represents and warrants to Purchaser as follows:
(a) Organization and Standing of the Company. The Company is a duly
organized and validly existing corporation in good standing under the laws of
the State of Florida with adequate power and authority to conduct the business
in which it is now engaged and has the corporate power and authority to enter
into this Agreement, and is duly qualified and licensed to do business as a
foreign corporation in such other states or jurisdictions as is necessary to
enable it to carry on its business, except where failure to do so would not have
a material adverse effect on its business;
(b) Corporate Power and Authority. The execution and delivery of this
Agreement and the transactions contemplated hereby have been duly authorized by
the Board of Directors of the Company. No other corporate act or proceeding on
the part of the Company is necessary to authorize this Agreement or the
consummation of the transactions contemplated hereby. When duly executed and
delivered by the parties hereto, this Agreement will constitute a valid and
legally binding obligation of the Company enforceable against it in accordance
with its
7
<PAGE>
terms, except as such enforceability may be limited by (i) bankruptcy,
insolvency, moratorium, reorganization or other similar laws and legal and
equitable principles limiting or affecting the rights of creditors generally;
and/or (ii) general principles of equity, regardless of whether considered in a
proceeding in equity or at law;
(c) Noncontravention. The execution and delivery of this Agreement and
the consummation of the transactions contemplated hereby will not, to the best
of the Company's knowledge and belief, (i) permit the termination or
acceleration of the maturity of any material indebtedness or material obligation
of the Company; (ii) permit the termination of any material note, mortgage,
indenture, license, agreement, contract, or other instrument to which the
Company is a party or by which it is bound or the Certificate of Incorporation
or By-Laws of the Company; (iii) except as expressly provided in this Agreement
and except for state "blue sky" approvals that may be required and those
consents and waivers which already have been obtained by the Company, require
the consent, approval, waiver or authorization from or registration or filing
with any party, including but not limited to any party to a material agreement
to which the Company is a party or by which it is bound, or any regulatory or
governmental agency, body or entity except where failure to obtain such consent,
approval, waiver or authorization would not have a material adverse effect on
the Company's business; (iv) result in the creation or imposition of any lien,
claim or encumbrance of any kind or nature on any material properties or assets
of the Company; or (v) violate in any material aspect any statute, law, rule,
regulation or ordinance, or any judgment, decree, order, regulation or rule of
any court, tribunal, administrative or governmental agency, body or entity to
which the Company or its properties is subject except where such violation would
not have a material adverse effect on the Company's business; and
(d) Reservation of Securities. The requisite number of shares of Common
Stock of the Company have been duly authorized and reserved for issuance upon
the Company's receipt and acceptance of payment therefore, and no further
corporate action is required for the valid issuance of such Shares.
9. IMPORTANT CONSIDERATIONS: SUITABILITY STANDARDS - WHO SHOULD INVEST.
INVESTMENT IN THE SHARES INVOLVES A HIGH DEGREE OF RISK AND IS SUITABLE
ONLY FOR PERSONS OF SUBSTANTIAL FINANCIAL RESOURCES WHO HAVE NO NEED FOR
LIQUIDITY IN THEIR INVESTMENT.
A substantial number of state securities commissions have established
investor suitability standards for the marketing within their respective
jurisdictions of restricted securities. Some have also established minimum
dollar levels for purchases in their states. The reasons for these standards
appear to be, among others, the relative lack of liquidity of securities of such
programs as compared with other securities investments. Investment in the Shares
involves a high degree of risk and is suitable only for persons of substantial
financial means who have no need for liquidity in their investments.
The Company has adopted as a general investor suitability standard the
requirement that each Purchase of Shares represents in writing that he: (a) is
acquiring the Shares
8
<PAGE>
for investment and not with a view to resale or distribution; (b) can bear the
economic risk of losing his entire investment; (c) his overall commitment to
investments which are not readily marketable is not disproportionate to its net
worth, and an investment in the Shares will not cause such overall commitment to
become excessive; (d) has adequate means of providing for its current needs and
personal contingencies and has no need for liquidity in this investment in the
Shares; (e) has evaluated all the risks of investment in the Company; and (f)
has such knowledge and experience in financial and business matters as to be
capable of evaluating the merits and risks of investing in the Company or is
relying on its own purchaser representative, in making an investment decision.
In addition, all of the Subscribers for Shares must be: (1) a sophisticated
investor with substantial net worth and experience in making investments of this
nature; and (2) an "accredited investor," as defined in Rule 501 of Regulation D
under the Act, by meeting any of the following conditions:
(i) he has an individual income in excess of $200,000 in each of the
two most recent years or joint income with his spouse in excess of $300,000 in
each of those years, and he reasonably expects an income in excess of the
aforesaid levels in the current year, or
(ii) he has an individual net worth, or a joint net worth with his
spouse, at the time of his purchase, in excess of $1,000,000 (net worth for
these purposes includes homes, home furnishings and automobiles), or
(iii) he otherwise satisfies the Company that he is an accredited
investor, as defined in Rule 501 under the Act.
Other categories of investors included within the definition of accredited
investor include the following: certain institutional investors, including
certain banks, whether acting in their individual or fiduciary capacities;
certain insurance companies; federally registered investment companies; business
development companies (as defined under the Investment Company Act of 1940);
Small Business Investment Companies licensed by the Small Business
Administration; certain employee benefit plans; private business development
companies (as defined in the Investment Advisers Act of 1940); tax exempt
organizations (as defined in Section 501(c)(3) of the Internal Revenue Code)
with total assets in excess of $5,000,000; entities in which all the equity
owners are accredited investors; and certain affiliates of the Company.
A partnership subscriber, which satisfies the requirements set forth in
clauses (a) through (f) above shall satisfy the suitability standards if it is
an accredited investor by reason of clause (iii) above, or if all of its
partners are accredited investors. A corporate subscriber, which satisfies the
requirements set forth in clauses (a) through (f) above shall satisfy the
investor suitability standards if it is an accredited investor by reason of
clause (iii) above, or if all of its shareholders are accredited investors.
Corporate subscribers must have net worth of at least three (3) times the amount
of their investment in the Shares.
The suitability standards referred to above represent minimum suitability
requirements for prospective purchasers and the satisfaction of such standards
by a prospective
9
<PAGE>
purchaser does not necessarily mean that the Shares are a suitable investment
for such purchaser. The Company may, in circumstances it deems appropriate,
modify such requirements. The Company may also reject subscriptions for whatever
reasons, in its sole discretion, it deems appropriate.
A Purchaser who is a resident of certain state may be required to meet
certain additional suitability standards.
THE ACCEPTANCE OF A SUBSCRIPTION FOR SHARES BY THE COMPANY DOES NOT
CONSTITUTE A DETERMINATION BY THE COMPANY THAT AN INVESTMENT IN THE SHARES IS
SUITABLE FOR A PROSPECTIVE PURCHASER. THE FINAL DETERMINATION OF THE SUITABILITY
OF INVESTMENT IN THE SHARES MUST BE MADE BY THE PROSPECTIVE PURCHASER AND HIS
ADVISERS.
10. State Law Considerations.
IN MAKING AN INVESTMENT DECISION, THE PURCHASER MUST RELY ON HIS OWN
EXAMINATION OF THE ISSUER AND THE TERMS OF THE OFFERING, INCLUDING THE MERITS
AND RISKS INVOLVED. THESE SHARES HAVE NOT BEEN RECOMMENDED BY ANY FEDERAL OR
STATE SECURITIES COMMISSION OR REGULATORY AUTHORITY. FURTHERMORE, THE FOREGOING
AUTHORITIES HAVE NOT CONFIRMED THE ACCURACY OR DETERMINED THE ADEQUACY OF THE
DESCRIPTION OF BUSINESS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL
OFFENSE.
THESE SECURITIES ARE SUBJECT TO RESTRICTIONS ON TRANSFERABILITY AND RESALE
AND MAY NOT BE TRANSFERRED OR RESOLD EXCEPT AS PERMITTED UNDER THE SECURITIES
ACT AND THE APPLICABLE STATE SECURITIES LAWS, PURSUANT TO REGISTRATION OR
EXEMPTION THEREFROM. INVESTORS SHOULD BE AWARE THAT THEY WILL BE REQUIRED TO
BEAR THE FINANCIAL RISKS OF THIS INVESTMENT FOR AN INDEFINITE PERIOD OF TIME.
11. Notices. All notices, requests, consents or other communications
required or permitted hereunder shall be in writing and shall be hand delivered
or mailed first class postage prepaid, registered or certified mail, to the
following addresses:
If to the Company:
Arngre Holdings, Inc.
648 Post Road
Wakefield, RI 02879
Attention: Stephen P. Harrington
10
<PAGE>
With a copy to:
Stephen M. Cohen, Esquire
Buchanan Ingersoll Professional Corporation
Eleven Penn Center
1835 Market Street, 14th Floor
Philadelphia, PA 19103
In the case of Purchaser:
To the address set forth at the end of this Agreement or to such other
addresses as may be specified in accordance herewith from time to time.
Unless specified otherwise, such notices and other communications shall for
all purposes of this Agreement be treated as being effective upon being
delivered personally or, if sent by mail, five days after the same has been
deposited in a regularly maintained receptacle for the deposit of United States
mail, addressed as set forth above, and postage prepaid.
12. Survival of Representations and Warranties. Representations and
warranties contained herein shall survive the execution and delivery of this
Agreement.
13. Parties in Interest. All the terms and provisions of this Agreement
shall be binding upon and inure to the benefit of and be enforceable by the
respective successors and permitted assigns of the parties hereto, provided that
this Agreement and the interests herein may not be assigned by either party
without the express written consent of the other party.
14. Governing Law. This Agreement shall be governed by and construed in
accordance with the laws of the State of Delaware.
15. Sections and Other Headings. The section and other headings contained
in this Agreement are for the convenience of reference only, do not constitute
part of this Agreement or otherwise affect any of the provisions hereof.
16. Counterpart and Facsimile Signatures. This Agreement may be signed in
counterparts and all counterparts together shall become effective only when the
counterpart(s) have been executed and delivered by and on behalf of the Company
and the Purchaser. Facsimile signatures to this Agreement shall be deemed to be
original signatures.
11
<PAGE>
IN WITNESS WHEREOF, intending to be legally bound, the parties hereto have
caused this Agreement to be signed by their duly authorized officers.
Purchaser:
By:_________________________________
Shares/$
- ----------------------------- ------------------------------------
Number and dollar amount Name
of Shares purchased -
Purchase Price Address of Purchaser:
------------------------------------
------------------------------------
Social Security Number: ____________
Accredited Investor Certification
(Place initials on the appropriate line(s))
<TABLE>
<S> <C> <C>
___ (i) I am a natural person who had individual income of
more than $200,000 in each of the most recent two
years or joint income with my spouse in excess of
$300,000 in each of the most recent two years and
reasonably expect to reach that same income level
for the current year ("income", for purposes
hereof, should be computed as follows: individual
adjusted gross income, as reported (or to be
reported) on a federal income tax return,
increased by (1) any deduction of long-term
capital gains under section 1202 of the Internal
Revenue Code of 1986 (the "Code"), (2) any
deduction for depletion under Section 611 et seq.
of the Code, (3) any exclusion for interest under
Section 103 of the Code and (4) any losses of a
partnership as reported on Schedule E of Form
1040);
___ (ii) I am a natural person whose individual net worth
(i.e., total assets in excess of total
liabilities), or joint net worth with my spouse,
will at the time of purchase of the Shares be in
excess of $1,000,000;
___ (iii) The Purchaser is a "Qualified Institutional Buyer"
as the term is defined under Rule 144A of the Act.
___ (iv) The Purchaser is an investor satisfying the
requirements of Section 501(a)(1), (2) or (3) of
Regulation D promulgated under the Securities Act,
which includes but is not limited to, a
self-directed employee
</TABLE>
12
<PAGE>
<TABLE>
<S> <C> <C>
benefit plan where investment decisions are made
solely by persons who are "accredited investors"
as otherwise defined in Regulation D;
___ (v) The Purchaser is a trust, which trust has total
assets in excess of $5,000,000, which is not
formed for the specific purpose of acquiring the
Shares offered hereby and whose purchase is
directed by a sophisticated person as described in
Rule 506(b)(ii) of Regulation D and who has such
knowledge and experience in financial and business
matters that it is capable of evaluating the risks
and merits of an investment in the Shares;
___ (vi) I am a director or executive officer of the
Company; or
___ (vii) The Purchaser is an entity (other than a trust) in
which all of the equity owners meet the
requirements of at least one of the above
subparagraphs.
</TABLE>
Agreed and Accepted by
ARNGRE, INC.
By:_________________________________
Name:
Title:
DATED:_______________________
13
EXHIBIT 6.8
The following form of Securities Purchase Agreement was entered into with
Clifton Capital Ltd. and FAC Enterprises, Inc. on January 27, 1999.
ARNGRE, INC.
-------------------------------------------------------------
Securities Purchase Agreement
-------------------------------------------------------------
Units consisting of one (1) share of Common Stock
and one (1) Common Stock Purchase
Warrant offered at $.008 per Unit
-------------------------------------------------------------
January 27, 1999
<PAGE>
FORM OF
SECURITIES PURCHASE AGREEMENT
THIS SECURITIES PURCHASE AGREEMENT (the "Agreement") is entered into as of
the day and year appearing on the signature page hereof by and between Arngre,
Inc., a Florida corporation ("Arngre" or the "Company"), and the investor whose
name appears at the end of this Agreement (the "Purchaser").
R E C I T A L S:
In order to obtain capital to fund a joint venture to be engaged in the
silver mining business in Mexico, the Company wishes to issue, and the Purchaser
wishes to purchase units (the "Units"), each consisting of one share of the
Company's common stock, $.001 par value per share (the "Common Stock") and a
five-year warrant to purchase one share of the Common Stock at an exercise price
of $4.00 per share (the "Warrants").
NOW, THEREFORE, in consideration of the premises hereof and the agreements
set forth herein below, the parties hereto hereby agree as follows:
1. Sale and Purchase of Units.
(a) Subject to the terms and conditions hereof, on the Closing Date,
as defined in Section 3 hereof, the Company agrees to issue and sell, and the
Purchaser agrees to purchase, that number of Units as are indicated on the last
page of this Agreement at a purchase price (the "Purchase Price") of $.008 per
Unit. Generally, the Company will not accept subscriptions for less than $2,000
(reflecting a total purchase of 250,000 Units), although the Company reserves
the right to consider subscriptions for lesser amounts in its sole discretion.
(b) Restricted Securities. The shares of Common Stock of the Company,
the Warrants and the shares of Common Stock issuable upon exercise of the
Warrants that are being offered hereby (collectively, the "Securities") are
"restricted securities" as that term is defined under Rule 144 of the Securities
Act of 1933, as amended (the "Act"), and, accordingly, may not be offered for
sale or sold or otherwise transferred in a transaction which would constitute a
sale thereof within the meaning of the Act unless: (i) such security has been
registered for sale under the Act and registered or qualified under applicable
state securities laws relating to the offer and sale of securities; or (ii)
exemptions from the registration requirements of the Act and the registration or
qualification requirements of all such state securities laws are available and
the Company shall have received an opinion of counsel that the proposed sale or
other disposition of such securities may be effected without registration under
the Act and would not result in any violation of any applicable state securities
laws relating to the registration or qualification of securities for sale, such
counsel and such opinion to be satisfactory to the Company. As restricted
securities, the resale of the Securities is subject to significant restrictions
upon resale. See Section 7 hereafter, "Understanding of Investment Risks."
<PAGE>
(i) Each Unit will consist of one (1) share of the Company's
Common Stock and one Warrant. Each Warrant entitles the holder to purchase one
share of Common Stock at an exercise price of $4.00 per share for a five-year
period from the date of this Agreement.
(ii) The Company has agreed to cause the authorization of a
sufficient number of shares of Common Stock for issuance upon exercise of the
Warrants and that these shares, when issued, will be fully paid and
non-assessable.
(iii) Prior to the exercise of the Warrants, holders of the
Warrants will be entitled to no voting rights or other rights provided by law to
security holders of the Company.
(iv) Holders of Common Stock of the Company have equal rights to
receive dividends when, as, and if declared by the Board of Directors out of
funds legally available therefor. Holders of Common Stock of the Company have
one vote for each share held of record and do not have cumulative voting rights.
(v) Holders of Common Stock of the Company are entitled upon
liquidation of the Company to share ratably in the net assets available for
distribution, subject to the rights, if any of holders of any preferred stock of
the Company then outstanding. Shares of Common Stock of the Company are not
redeemable and have no preemptive or similar rights. All outstanding shares of
common stock of the Company are fully paid and nonassessable.
(vi) The Warrants are subject to redemption by the Company at any
time from the date of issue at a redemption price of $.001 per Warrant on thirty
(30) days written notice upon the following conditions: (i) if a Registration
Statement covering the resale of the Shares issuable upon exercise of Warrants
is effective as of that date; and (ii) if the average of the closing bid prices
of the Company's Common Stock as reported on the OTC Bulletin Board, American
Stock Exchange or The NASDAQ SmallCap MarketSM (or the last sales prices of the
Common Stock listed on a national securities exchange or included in The NASDAQ
National Market), exceeds $8.00 for ten (10) consecutive trading days ending
within fifteen (15) days of the notice of redemption. All Warrants must be
redeemed if any are redeemed.
2. Units Offered In A Private Placement Transaction.
(a) The Units subject to this Securities Purchase Agreement are to be
offered as part of a private placement transaction pursuant to Section 4(2) and
Regulation D of the Act (the "Offering") by the Company on a "best efforts"
basis of up to 2,000,000 Units to be offered to a number of sophisticated and
accredited investors. Accordingly, as of the date hereof, there can be no
assurances as to the number of Units that will be sold in the Offering. The
Company reserves the right to increase the number of Units sold without notice
to or consent of the subscribers or existing Unit holders.
(b) The Units are being offered to a limited number of accredited and
other sophisticated investors by the Company directly, without sales commission.
2
<PAGE>
(c) The purchase price per unit is $.008 payable in cash upon
subscription and the minimum number of Units which a Subscriber may purchase
will generally be no less than 250,000 Units (reflecting a total purchase price
of $2,000.00), although the Company may, in its sole discretion, accept
subscriptions for smaller number of Units.
(d) The Offering will generally be maintained by the Company until the
earlier of: (i) the sale of all of the Units offered pursuant to such Securities
Purchase Agreements (or such greater number of Units as the Company elects to
offer); or (ii) such date that the Company chooses to terminate the Offering
(hereinafter the "Offering Period").
(e) The Company is concurrently offering up to 14,500,000 shares of
Common Stock in a private placement at a purchase price of $.001 per share (the
"Concurrent Offering"). The proceeds of this Offering and the Concurrent
Offering are intended to satisfy the Company's obligation to pay the $25,000
Subscription Payment (as such term is hereinafter defined).
3. Binding Effect of Securities Purchase Agreement; The Closing.
(a) This Securities Purchase Agreement shall not be binding on the
Company unless and until the Company has accepted the offer represented by an
executed signature page at the end hereof. The Company may accept or reject this
Securities Purchase Agreement in the Company's sole discretion, if the Purchaser
does not meet the suitability standards established herein or for any other
reason. In the event the Company rejects this Agreement, the Purchaser's funds
will be promptly returned without deduction of any costs and with at interest.
(b) The closing of the purchase and sale of the Units hereunder (the
"Closing") shall occur concurrently upon acceptance by the Company of this
Securities Purchase Agreement and deposit with the Company of funds representing
the Purchase Price. Notwithstanding the above, the Company reserves the right to
reject a subscription within ten (10) days of receipt of the Purchase Price
should the Company determine during that period that the Subscriber does not
satisfy the subscriber qualifications or suitability standards established
hereafter.
4. Deliveries by the Company.
The Company shall deliver to the Purchaser within ten (10) days after the
Closing:
(a) A stock certificate bearing applicable restrictive legends, duly
executed by the appropriate officer (s) and registered in Purchaser's name or
its nominee; and
(b) The Warrants in the form set forth at Exhibit "A" duly executed by
the appropriate officer(s) and registered in the Purchaser's name or any nominee
thereof.
5. Description of the Company - Possible Joint Venture Agreement
3
<PAGE>
The Company is currently inactive with no material assets or liabilities,
but has identified a joint venture business opportunity in the silver business
in Mexico. Under the proposed joint venture arrangement, the Company would
subscribe for shares of International Capri Resources, S.A. de C.V., a Mexican
company ("ICRM") representing a 60% ownership interest of ICRM. ICRM has secured
the rights to purchase exclusive royalty-free exploration and/or exploitation
concessions in five properties (the "Properties") located in Mexico that may be
silver producing. The Company, along with other shareholders of ICRM, have
agreed to combine resources to provide the short-term funding necessary for ICRM
to acquire and develop the Properties.
It is anticipated that ICRM will require expenditures of approximately
$750,000 in the short-term in order to purchase and initially develop the
Properties. Under a draft joint venture and subscription agreement, the first
$250,000 of development costs will be funded by another ICRM shareholder.
Following a $25,000 subscription payment for ICRM shares of common stock (the
"Subscription Payment"), the Company has agreed to advance the next $500,000 in
development costs in four monthly consecutive installment payments of $125,000
each. In the event that these installment payments are not made in a timely
fashion and upon the occurrence of certain other conditions, the Company's
equity interest in ICRM will be reduced.
Although management is confident that the joint venture will be
effectuated, there can be no assurances to this effect, particularly since the
following conditions remain to be satisfied: (i) the execution of a definitive
joint venture and subscription agreement acceptable to all parties; and (ii) the
Company's completion of a due diligence review of the joint venture and ICRM.
The Company plans to reincorporate into the State of Delaware and change
its name to "Silver King Resources, Inc." as quickly as practicable.
The share capitalization as of the date hereof consists of 50,000,000
authorized shares of common stock, of which 1,000,000 are issued and outstanding
as of the date of this Agreement. Assuming that all 2,000,000 Units offering in
the Offering and all 14,500,000 shares of Common Stock offered in the Concurrent
Offering are sold, the Company will have 17,500,000 shares outstanding and the
2,000,000 shares of Common Stock of the Units will represent approximately 11.4%
of the total issued and outstanding shares at such time.
Stephen P. Harrington is currently serving as the Company's sole officer
and director; however, upon the Company's subscription of shares of ICRM, it is
anticipated that Mr. Harrington will be replaced and/or additional officers
and/or directors will be nominated to manage the Company's interest in the ICRM
joint venture project. Such other individuals have not yet been identified.
6. Representations and Warranties of the Purchaser. The Purchaser
represents and warrants to the Company as follows:
(a) Accredited Investor. The Purchaser has such knowledge and
experience in business and financial matters such that the Purchaser is capable
of evaluating the merits and risks of purchasing the Units. The Purchaser is an
"accredited investor" as that term is defined in
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Rule 501 of Regulation D of the Act and represents that he satisfies the
suitability standards identified in Section 11 hereof;
(b) Loss of Investment. The Purchaser(s) (i) overall commitment to
investments which are not readily marketable is not disproportionate to his net
worth; (ii) investment in the Company will not cause such overall commitment to
become excessive; (iii) can afford to bear the loss of his entire investment in
the Company; and (iv) has adequate means of providing for his current needs and
personal contingencies and has no need for liquidity in his investment in the
Company;
(c) Special Suitability. The Purchaser satisfies any special
suitability or other applicable requirements of his state of residence and/or
the state in which the transaction by which the Securities are purchased occurs;
(d) Investment Intent.
(i) the Purchaser hereby acknowledges that the Purchaser has been
advised that this Offering has not been registered with, or reviewed by, the
Securities and Exchange Commission ("SEC") because this Offering is intended to
be a non-public offering pursuant to Section 4(2) and Rule 506 of Regulation D
of the Act. The Purchaser represents that the Units are being purchased for the
Purchaser's own account and not on behalf of any other person, for investment
purposes only and not with a view towards distribution or resale to others. The
Purchaser agrees that the Purchaser will not attempt to sell, transfer, assign,
pledge or otherwise dispose of all or any portion of the Securities unless they
are registered under the Act or unless in the opinion of counsel an exemption
from such registration is available, such counsel and such opinion to be
satisfactory to the Company. The Purchaser understands that the Securities have
not been registered under the Act by reason of a claimed exemption under the
provisions of the Act which depends, in part, upon the Purchaser's investment
intention; and
(ii) the Securities and any certificates issued in replacement
therefor shall bear the following legend, in addition to any other legend
required by law or otherwise:
"THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED. THE
SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE BEEN TAKEN BY THE
REGISTERED OWNER FOR INVESTMENT, AND WITHOUT A VIEW TO RESALE OR
DISTRIBUTION THEREOF, AND MAY NOT BE TRANSFERRED OR DISPOSED OF
WITHOUT AN OPINION OF COUNSEL SATISFACTORY TO THE ISSUER THAT
SUCH TRANSFER OR DISPOSITION DOES NOT VIOLATE THE SECURITIES ACT
OF 1933, AS AMENDED, OR THE RULES AND REGULATIONS THEREUNDER."
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(e) State Securities Laws. The Purchaser understands that no
securities administrator of any state has made any finding or determination
relating to the fairness of this investment and that no securities administrator
of any state has recommended or endorsed, or will recommend or endorse, the
offering of the Units;
(f) Authority; Power; No Conflict. The execution, delivery and
performance by the Purchaser of the Agreement are within the powers of the
Purchaser, have been duly authorized and will not constitute or result in a
breach or default under, or conflict with, any order, ruling or regulation of
any court or other tribunal or of any governmental commission or agency, or any
agreement or other undertaking, to which the Purchaser is a party or by which
the Purchaser is bound, and, if the Purchaser is not an individual, will not
violate any provision of the charter documents, By-Laws, indenture of trust or
partnership agreement, as applicable, of the Purchaser. The signatures on the
Agreement are genuine, and the signatory, if the Purchaser is an individual, has
legal competence and capacity to execute the same, or, if the Purchaser is not
an individual, the signatory has been duly authorized to execute the same; and
the Agreement constitutes the legal, valid and binding obligations of the
Purchaser, enforceable in accordance with its terms;
(g) No General Solicitation. The Purchaser acknowledges that no
general solicitation or general advertising (including communications published
in any newspaper, magazine or other broadcast) has been received by him and that
no public solicitation or advertisement with respect to the offering of the
Units has been made to him;
(h) Advice of Tax and Legal Advisors. The Purchaser has relied solely
upon the advice of its own tax and legal advisors with respect to the tax and
other legal aspects of this investment; and
(i) Access to Information. The Purchaser has had access to all
material and relevant information concerning the Company, its management,
financial condition, capitalization, market information, properties and
prospects necessary to enable Purchaser to make an informed investment decision
with respect to its investment in the Units. Purchaser has carefully read and
reviewed, and is familiar with and understands the contents thereof and hereof,
including, without limitation, the risk factors described in this Agreement. See
"Understanding of Investment Risks." Purchaser acknowledges that it has had the
opportunity to ask questions of and receive answers from, and to obtain
additional information from, representatives of the Company concerning the terms
and conditions of the acquisition of the Units and the present and proposed
business and financial condition of the Company, and has had all such questions
answered to its satisfaction and has been supplied all information requested.
7. Understanding of Investment Risks. An investment in the Units should not
be made by a Purchaser who cannot afford the loss of its entire Purchase Price.
The Purchaser acknowledges that the Units offered hereby have not been approved
or disapproved by the Securities and Exchange Commission, or any state
securities commissions, nor has the Securities and Exchange Commission or any
state securities commission passed upon the adequacy or accuracy of this
Securities Purchase Agreement or any exhibit hereto. An
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investment in the Units should not be made until the Purchaser has considered
the following risk factors:
(a) Risks related to Joint Venture - Company may remain inactive.
The Company is presently an inactive shell that has undertaken no
operations since inception and has no material assets. Although management
intends to utilize the net proceeds from the Offering of the Units to fund the
proposed ICRM joint venture, there can be no assurance that the joint venture
will be completed, or that it will be successful if completed. If the joint
venture is not completed, management will use its best efforts to identify
another suitable business opportunity. There can be no assurances, however, if
and when a suitable business opportunity will be identified. The purchase price
for the Units will not be returned to the subscribers in the event the joint
venture is not completed; rather, management will use these proceeds to apply
towards the expenses of a business opportunity in the future.
(b) Arbitrary Offering Price. The price of the Units offered hereby
has been arbitrarily determined by the Company without the benefit of an
arm's-length negotiation and is not based upon generally-recognized criteria,
such as earnings, price per share, net book value, etc. There can be no
assurances that the offering price is representative of the actual value of the
Units.
(c) Dividends. The payment of dividends by the Company is not
contemplated in the foreseeable future. Earnings, if any, are expected to be
retained to finance and develop the business of the ICRM joint venture.
(d) Registration Rights; Restrictions Upon Resale. The Securities have
not been registered under the Act or any state securities or blue-sky law and
subscribers may not sell or otherwise transfer such securities except pursuant
to registration under the Act and any applicable state securities laws or
exemptions therefrom. Because of such restrictions, a subscriber for the Units
must bear the economic risks of such investment for an indefinite period of
time.
(e) No Public Market. Although the Company's Common Stock is eligible
for trading on the OTC Electronic Bulletin Board, there is currently no public
trading market for the Common Stock. There can be no assurances that a regular
trading market will ever develop for the Common Stock of the Company.
(f) Undesignated Management. Upon the Company's subscription to shares
of common stock of ICRM, the Company may retain new management. At this time, no
such persons have been identified for such positions.
(g) Additional Dilution. In order to raise capital to satisfy the
Company's obligation to fund $500,000 of the development costs of the ICRM joint
venture, the Company anticipates offering additional shares of its Common Stock
or other securities convertible into
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Common Stock. There can be no assurances that such future offerings will raise
capital sufficient for that purpose. In addition, any future offerings may have
a significantly dilutive effect on the Investors' interest in the Company.
8. Representations and Warranties of the Company. The Company hereby
represents and warrants to Purchaser as follows:
(a) Organization and Standing of the Company. The Company is a duly
organized and validly existing corporation in good standing under the laws of
the State of Florida with adequate power and authority to conduct the business
in which it is now engaged and has the corporate power and authority to enter
into this Agreement, and is duly qualified and licensed to do business as a
foreign corporation in such other states or jurisdictions as is necessary to
enable it to carry on its business, except where failure to do so would not have
a material adverse effect on its business;
(b) Corporate Power and Authority. The execution and delivery of this
Agreement and the transactions contemplated hereby have been duly authorized by
the Board of Directors of the Company. No other corporate act or proceeding on
the part of the Company is necessary to authorize this Agreement or the
consummation of the transactions contemplated hereby. When duly executed and
delivered by the parties hereto, this Agreement will constitute a valid and
legally binding obligation of the Company enforceable against it in accordance
with its terms, except as such enforceability may be limited by (i) bankruptcy,
insolvency, moratorium, reorganization or other similar laws and legal and
equitable principles limiting or affecting the rights of creditors generally;
and/or (ii) general principles of equity, regardless of whether considered in a
proceeding in equity or at law;
(c) Noncontravention. The execution and delivery of this Agreement and
the consummation of the transactions contemplated hereby will not, to the best
of the Company's knowledge and belief, (i) permit the termination or
acceleration of the maturity of any material indebtedness or material obligation
of the Company; (ii) permit the termination of any material note, mortgage,
indenture, license, agreement, contract, or other instrument to which the
Company is a party or by which it is bound or the Certificate of Incorporation
or By-Laws of the Company; (iii) except as expressly provided in this Agreement
and except for state "blue sky" approvals that may be required and those
consents and waivers which already have been obtained by the Company, require
the consent, approval, waiver or authorization from or registration or filing
with any party, including but not limited to any party to a material agreement
to which the Company is a party or by which it is bound, or any regulatory or
governmental agency, body or entity except where failure to obtain such consent,
approval, waiver or authorization would not have a material adverse effect on
the Company's business; (iv) result in the creation or imposition of any lien,
claim or encumbrance of any kind or nature on any material properties or assets
of the Company; or (v) violate in any material aspect any statute, law, rule,
regulation or ordinance, or any judgment, decree, order, regulation or rule of
any court, tribunal, administrative or governmental agency, body or entity to
which the Company or its properties is subject except where such violation would
not have a material adverse effect on the Company's business; and
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(d) Reservation of Securities. The requisite number of shares of
Common Stock of the Company have been duly authorized and reserved for issuance
upon the Company's receipt and acceptance of payment therefore, and no further
corporate action is required for the valid issuance of such shares.
9. IMPORTANT CONSIDERATIONS: SUITABILITY STANDARDS - WHO SHOULD INVEST.
INVESTMENT IN THE UNITS INVOLVES A HIGH DEGREE OF RISK AND IS SUITABLE ONLY
FOR PERSONS OF SUBSTANTIAL FINANCIAL RESOURCES WHO HAVE NO NEED FOR LIQUIDITY IN
THEIR INVESTMENT.
A substantial number of state securities commissions have established
investor suitability standards for the marketing within their respective
jurisdictions of restricted securities. Some have also established minimum
dollar levels for purchases in their states. The reasons for these standards
appear to be, among others, the relative lack of liquidity of securities of such
programs as compared with other securities investments. Investment in the Units
involves a high degree of risk and is suitable only for persons of substantial
financial means who have no need for liquidity in their investments.
The Company has adopted as a general investor suitability standard the
requirement that each Purchaser of Units represents in writing that he: (a) is
acquiring the Units for investment and not with a view to resale or
distribution; (b) can bear the economic risk of losing his entire investment;
(c) his overall commitment to investments which are not readily marketable is
not disproportionate to its net worth, and an investment in the Units will not
cause such overall commitment to become excessive; (d) has adequate means of
providing for its current needs and personal contingencies and has no need for
liquidity in this investment in the Units; (e) has evaluated all the risks of
investment in the Company; and (f) has such knowledge and experience in
financial and business matters as to be capable of evaluating the merits and
risks of investing in the Company or is relying on its own purchaser
representative, in making an investment decision.
In addition, all of the Subscribers for Units must be: (1) a sophisticated
investor with substantial net worth and experience in making investments of this
nature; and (2) an "accredited investor," as defined in Rule 501 of Regulation D
under the Act, by meeting any of the following conditions:
(i) he has an individual income in excess of $200,000 in each of
the two most recent years or joint income with his spouse in excess of $300,000
in each of those years, and he reasonably expects an income in excess of the
aforesaid levels in the current year, or
(ii) he has an individual net worth, or a joint net worth with
his spouse, at the time of his purchase, in excess of $1,000,000 (net worth for
these purposes includes homes, home furnishings and automobiles), or
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(iii) he otherwise satisfies the Company that he is an accredited
investor, as defined in Rule 501 under the Act.
Other categories of investors included within the definition of accredited
investor include the following: certain institutional investors, including
certain banks, whether acting in their individual or fiduciary capacities;
certain insurance companies; federally registered investment companies; business
development companies (as defined under the Investment Company Act of 1940);
Small Business Investment Companies licensed by the Small Business
Administration; certain employee benefit plans; private business development
companies (as defined in the Investment Advisers Act of 1940); tax exempt
organizations (as defined in Section 501(c)(3) of the Internal Revenue Code)
with total assets in excess of $5,000,000; entities in which all the equity
owners are accredited investors; and certain affiliates of the Company.
A partnership subscriber, which satisfies the requirements set forth in
clauses (a) through (f) above shall satisfy the suitability standards if it is
an accredited investor by reason of clause (iii) above, or if all of its
partners are accredited investors. A corporate subscriber, which satisfies the
requirements set forth in clauses (a) through (f) above shall satisfy the
investor suitability standards if it is an accredited investor by reason of
clause (iii) above, or if all of its shareholders are accredited investors.
Corporate subscribers must have net worth of at least three (3) times the amount
of their investment in the Units.
The suitability standards referred to above represent minimum suitability
requirements for prospective purchasers and the satisfaction of such standards
by a prospective purchaser does not necessarily mean that the Units are a
suitable investment for such purchaser. The Company may, in circumstances it
deems appropriate, modify such requirements. The Company may also reject
subscriptions for whatever reasons, in its sole discretion, it deems
appropriate.
A Purchaser who is a resident of certain state may be required to meet
certain additional suitability standards.
THE ACCEPTANCE OF A SUBSCRIPTION FOR UNITS BY THE COMPANY DOES NOT
CONSTITUTE A DETERMINATION BY THE COMPANY THAT AN INVESTMENT IN THE UNITS IS
SUITABLE FOR A PROSPECTIVE PURCHASER. THE FINAL DETERMINATION OF THE SUITABILITY
OF INVESTMENT IN THE UNITS MUST BE MADE BY THE PROSPECTIVE PURCHASER AND HIS
ADVISERS.
10. State Law Considerations.
IN MAKING AN INVESTMENT DECISION, THE PURCHASER MUST RELY ON HIS OWN
EXAMINATION OF THE ISSUER AND THE TERMS OF THE OFFERING, INCLUDING THE MERITS
AND RISKS INVOLVED. THESE UNITS HAVE NOT BEEN RECOMMENDED BY ANY FEDERAL OR
STATE SECURITIES COMMISSION OR REGULATORY AUTHORITY. FURTHERMORE, THE FOREGOING
AUTHORITIES HAVE NOT CONFIRMED THE ACCURACY OR DETERMINED THE ADEQUACY OF
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THE DESCRIPTION OF BUSINESS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL
OFFENSE.
THESE SECURITIES ARE SUBJECT TO RESTRICTIONS ON TRANSFERABILITY AND RESALE
AND MAY NOT BE TRANSFERRED OR RESOLD EXCEPT AS PERMITTED UNDER THE SECURITIES
ACT AND THE APPLICABLE STATE SECURITIES LAWS, PURSUANT TO REGISTRATION OR
EXEMPTION THEREFROM. INVESTORS SHOULD BE AWARE THAT THEY WILL BE REQUIRED TO
BEAR THE FINANCIAL RISKS OF THIS INVESTMENT FOR AN INDEFINITE PERIOD OF TIME.
11. Notices. All notices, requests, consents or other communications
required or permitted hereunder shall be in writing and shall be hand delivered
or mailed first class postage prepaid, registered or certified mail, to the
following addresses:
If to the Company:
Arngre, Inc.
648 Post Road
Wakefield, RI 02879
Attention: Stephen P. Harrington
With a copy to:
Stephen M. Cohen, Esquire
Buchanan Ingersoll Professional Corporation
Eleven Penn Center
1835 Market Street, 14th Floor
Philadelphia, PA 19103
In the case of Purchaser:
To the address set forth at the end of this Agreement or to such other
addresses as may be specified in accordance herewith from time to time.
Unless specified otherwise, such notices and other communications shall for
all purposes of this Agreement be treated as being effective upon being
delivered personally or, if sent by mail, five days after the same has been
deposited in a regularly maintained receptacle for the deposit of United States
mail, addressed as set forth above, and postage prepaid.
12. Survival of Representations and Warranties. Representations and
warranties contained herein shall survive the execution and delivery of this
Agreement.
13. Parties in Interest. All the terms and provisions of this Agreement
shall be binding upon and inure to the benefit of and be enforceable by the
respective successors and permitted assigns of the parties hereto, provided that
this Agreement and the interests herein may not be assigned by either party
without the express written consent of the other party.
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14. Governing Law. This Agreement shall be governed by and construed in
accordance with the laws of the State of Delaware.
15. Sections and Other Headings. The section and other headings contained
in this Agreement are for the convenience of reference only, do not constitute
part of this Agreement or otherwise affect any of the provisions hereof.
16. Counterpart and Facsimile Signatures. This Agreement may be signed in
counterparts and all counterparts together shall become effective only when the
counterpart(s) have been executed and delivered by and on behalf of the Company
and the Purchaser. Facsimile signatures to this Agreement shall be deemed to be
original signatures.
IN WITNESS WHEREOF, intending to be legally bound, the parties hereto have
caused this Agreement to be signed by their duly authorized officers.
Purchaser:
By:
--------------------------------
Units/$
- --------------------- ------------------------------------
Number and dollar amount Name
of Units purchased -
Purchase Price Address of Purchaser:
Social Security Number:
Accredited Investor Certification
(Place initials on the appropriate line(s))
___ (i) I am a natural person who had individual income of more than
$200,000 in each of the most recent two years or joint income
with my spouse in excess of $300,000 in each of the most recent
two years and reasonably expect to reach that same income level
for the current year ("income", for purposes hereof, should be
computed as follows: individual adjusted gross income, as
reported (or to be reported) on a federal income tax return,
increased by (1) any deduction of long-term capital gains under
section 1202 of the Internal Revenue Code of 1986 (the "Code"),
(2) any deduction for depletion under Section 611 et seq. of the
Code, (3) any exclusion for interest under Section 103 of the
Code and (4) any losses of a partnership as reported on Schedule
E of Form 1040);
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___ (ii) I am a natural person whose individual net worth (i.e., total
assets in excess of total liabilities), or joint net worth with
my spouse, will at the time of purchase of the Units be in excess
of $1,000,000;
___ (iii) The Purchaser is a "Qualified Institutional Buyer" as the term is
defined under Rule 144A of the Act.
___ (iv) The Purchaser is an investor satisfying the requirements of
Section 501(a)(1), (2) or (3) of Regulation D promulgated under
the Securities Act, which includes but is not limited to, a
self-directed employee benefit plan where investment decisions
are made solely by persons who are "accredited investors" as
otherwise defined in Regulation D;
___ (v) The Purchaser is a trust, which trust has total assets in excess
of $5,000,000, which is not formed for the specific purpose of
acquiring the Units offered hereby and whose purchase is directed
by a sophisticated person as described in Rule 506(b)(ii) of
Regulation D and who has such knowledge and experience in
financial and business matters that it is capable of evaluating
the risks and merits of an investment in the Units;
___ (vi) I am a director or executive officer of the Company; or
___ (vii) The Purchaser is an entity (other than a trust) in which all of
the equity owners meet the requirements of at least one of the
above subparagraphs.
Agreed and Accepted by
ARNGRE, INC.
By:
--------------------------------
Name:
Title:
DATED:
------------------------------
13
EXHIBIT 6.9
The following form of Warrant was entered into with Clifton Capital Ltd.
and FAC Enterprises, Inc. on January 27, 1999.
Certificate No. ____________
FORM OF
WARRANT TO PURCHASE
COMMON STOCK OF
ARNGRE, INC.
Void after 5:00 p.m. Eastern Standard Time on January 27, 2004
This is to verify that, FOR VALUE RECEIVED, __________________, or its
registered assigns (hereinafter referred to as the "Holder"), is entitled to
purchase, subject to the terms and conditions hereof, from ARNGRE, INC., a
Florida corporation (the "Company"), ____________________shares of Common Stock,
par value $.001 per share of the Company (the "Common Stock") at any time during
the period commencing at 9:00 a.m., Eastern Standard Time on January 27, 1999
(the "Commencement Date") and ending at 5:00 p.m. Eastern Standard Time on
January 27, 2004 (the "Termination Date") at an exercise price of $4.00 per
share of Common Stock. The number of shares of Common Stock purchasable upon
exercise of this Warrant (the "Warrant(s)") and the exercise price per share
shall be subject to adjustment from time to time upon the occurrence of certain
events as set forth below.
The shares of Common Stock or any other shares or other units of stock or
other securities or property, or any combination thereof then receivable upon
exercise of this Warrant, as adjusted from time to time, are sometimes referred
to hereinafter as "Exercise Shares". The exercise price per share as from time
to time in effect is referred to hereinafter as the "Exercise Price".
1. Exercise of Warrant: Issuance of Exercise Shares.
(a) Exercise of Warrant. This Warrant may be exercised in whole or in part
at any time or from time to time on or after the Commencement Date and until and
including the Termination Date, upon surrender on any business day to the
Company at its principal office, presently located at the address of the Company
set forth in Paragraph 9 hereof (or such other office of the Company, if any, as
shall theretofore have been designated by the Company by written notice to the
Holder), together with: (i) a completed and executed Notice of Warrant Exercise
in the form set forth in Appendix A hereto and made a part hereof and (ii)
payment of the full Exercise Price for the amount of Exercise Shares set forth
in the Notice of Warrant Exercise, in lawful money of the United States of
America by certified check or cashier's check, made payable to the order of the
Company.
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In the event that this Warrant shall be duly exercised in part prior to
the Termination Date, the Company shall issue a new Warrant or Warrants of like
tenor evidencing the rights of the Holder thereof to purchase the balance of the
Exercise Shares purchasable under the Warrant so surrendered that shall not have
been purchased.
No adjustments shall be made for any cash dividends on Exercise Shares
issuable upon exercise of the Warrant. The Company shall cancel Warrant
Certificates surrendered upon exercise of Warrants.
(b) Issuance of Exercise Shares: Delivery of Warrant Certificate. The
Company shall, within ten (10) business days or as soon thereafter as is
practicable of the exercise of this Warrant, issue in the name of and cause to
be delivered to the Holder (or such other person or persons, if any, as the
Holder shall have designated in the Notice of Warrant Exercise) one or more
certificates representing the Exercise Shares to which the Holder (or such other
person or persons) shall be entitled upon such exercise under the terms hereof.
Such certificate or certificates shall be deemed to have been issued and the
Holder (or such other person or persons so designated) shall be deemed to have
become the record holder of the Exercise Shares as of the date of the due
exercise of this Warrant.
(c) Exercise Shares Fully Paid and Non-assessable. The Company agrees and
covenants that all Exercise Shares issuable upon the due exercise of the Warrant
represented by this Warrant Certificate will, upon issuance in accordance with
the terms hereof, be duly authorized, validly issued, fully paid and
non-assessable and free and clear of all taxes (other than taxes which, pursuant
to Paragraph 2 hereof, the Company shall not be obligated to pay) or liens,
charges, and security interests created by the Company with respect to the
issuance thereof.
(d) Reservation of Exercise Shares. At the time of or before taking any
action which would cause an adjustment pursuant to Paragraph 6 hereof increasing
the number of shares of capital stock constituting the Exercise Shares, the
Company will take any corporate action which may, in the opinion of its counsel,
be necessary in order that the Company have remaining, after such adjustment, a
number of shares of such capital stock unissued and unreserved for other
purposes sufficient to permit the exercise of all the then outstanding Warrants
of like tenor immediately after such adjustment; the Company will also from time
to time take action to increase the authorized amount of its capital stock
constituting the Exercise Shares if at any time the number of shares of capital
stock authorized but remaining unissued and unreserved for other purposes shall
be insufficient to permit the exercise of the Warrants then outstanding. The
Company may but shall not be limited to reserve and keep available, out of the
aggregate of its authorized but unissued shares of capital stock, for the
purpose of enabling it to satisfy any obligation to issue Exercise Shares upon
exercise of Warrants, through the Termination Date, the number of Exercise
Shares deliverable upon the full exercise of this Warrant and all other Warrants
of like tenor then outstanding.
At the time of or before taking any action which would cause an adjustment
pursuant to Paragraph 6 hereof, reducing the Exercise Price below the then par
value (if any) of the Exercise Shares issuable upon exercise of the Warrants,
the Company will take any corporate action which may, in the opinion of its
counsel, be necessary in order to assure that the par value per share of
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the Exercise Shares is at all times equal to or less than the Exercise Price per
share and so that the Company may validly and legally issue fully paid and
non-assessable Exercise Shares at the Exercise Price, as so adjusted; the
Company will also from time to time take such action if at any time the Exercise
Price is below the then par value of the Exercise Shares.
(e) Fractional Shares. The Company shall not be required to issue
fractional shares of capital stock upon the exercise of this Warrant or to
deliver Warrant Certificates which evidence fractional shares of capital stock.
In the event that any fraction of an Exercise Share would, except for the
provisions of this subparagraph (e), be issuable upon the exercise of this
Warrant, the Company shall pay to the Holder exercising the Warrant an amount in
cash equal to such fraction multiplied by the current market value of the
Exercise Share. For purposes of this subparagraph (e), the current market value
shall be determined as follows:
(i) if the Exercise Shares are traded in the over-the-counter market
and not on any national securities exchange and not in the NASDAQ Reporting
System, the average of the mean between the last bid and asked prices per share,
as reported by the National Quotation Bureau, Inc., or an equivalent generally
accepted reporting service, for the last business day prior to the date on which
this Warrant is exercised, or if not so reported, the average of the closing bid
and asked prices for an Exercise Share as furnished to the Company by any member
of the National Association of Securities Dealers, Inc., selected by the Company
for that purpose; or
(ii) if the Exercise Shares are listed or traded on a national
securities exchange or in the NASDAQ National Market System, the closing price
on the principal national securities exchange on which they are so listed or
traded or in the NASDAQ National Market System, as the case may be, on the last
business day prior to the date of the exercise of this Warrant. The closing
price referred to in this clause (ii) shall be the last reported sales price or,
in case no such reported sale takes place on such day, the average of the
reported closing bid and asked prices, in either case on the national securities
exchange on which the Exercise Shares are then listed or in the NASDAQ Reporting
System; or
(iii) if no such closing price or closing bid and asked prices are
available, as determined in any reasonable manner as may be prescribed by the
Board of Directors of the Company.
2. Payment of Taxes.
(a) The Company will pay all documentary stamp taxes, if any, attributable
to the initial issuance of Exercise Shares upon the exercise of this Warrant;
provided, however, that the Company shall not be required to pay any tax or
taxes which may be payable in respect of any transfer involved in the issue of
any Warrant Certificates or any certificates for Exercise Shares in a name other
than that of the Holder of a Warrant Certificate surrendered upon the exercise
of a Warrant, and the Company shall not be required to issue or deliver such
certificates unless or until the person or persons requesting the issuance
thereof shall have paid to the Company the amount of such tax or shall have
established to the satisfaction of the Company that such tax has been paid.
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<PAGE>
(b) Upon exercise of a Warrant, the Company shall have the right to require
the Holder to remit to the Company an amount sufficient to satisfy federal,
state and local tax withholding requirements prior to the delivery of any
certificate for Exercise Shares issuable pursuant to the exercise of such
Warrant.
(c) A Holder who is obligated to pay the Company an amount required to be
withheld under applicable tax withholding requirements may pay such amount (i)
in cash; (ii) in the discretion of the Company's Chief Executive Officer,
through the delivery to the Company of previously-owned shares of common stock
of the Company having an aggregate current market value equal to the tax
obligation, provided that the previously owned shares delivered in satisfaction
of the withholding obligations must have been held by the Holder for at least
six (6) months; (iii) in the discretion of the Company's Chief Executive
Officer, through the withholding of shares of common stock of the Company
otherwise issuable to the Holder in connection with the exercise of a Warrant;
or (iv) in the discretion of the Company's Chief Executive Officer, through a
combination of the procedures set forth in clauses (i), (ii) and (iii) of this
Paragraph 2(c).
3. Mutilated or Missing Warrant Certificates. In case any Warrant Certificate
shall be mutilated, lost, stolen or destroyed, the Company may in its discretion
issue, in exchange and substitution for and upon cancellation of the mutilated
Warrant Certificate, or in lieu of and in substitution for the Warrant
Certificate lost, stolen or destroyed, a new Warrant Certificate or Warrant
Certificates of like tenor and in the same aggregate denomination, but only (i)
in the case of loss, theft or destruction, upon receipt of evidence satisfactory
to the Company of such loss, theft or destruction of such Warrant Certificate
and indemnity or bond, if requested, also satisfactory to them and (ii) in the
case of mutilation, upon surrender of the mutilated Warrant. Applicants for such
substitute Warrant Certificates shall also comply with such other reasonable
regulations and pay such other reasonable charges as the Company or its counsel
may prescribe.
4. Rights of Holder. The Holder shall not, by virtue of anything contained in
this Warrant Certificate or otherwise, be entitled to any right whatsoever,
either in law or equity, of a stockholder of the Company, including without
limitation, the right to receive dividends or to vote or to consent or to
receive notice as a shareholder in respect of the meetings of shareholders or
the election of directors of the Company or any other matter.
5. Registration of Transfers and Exchanges. The Warrant shall be transferable,
subject to the provisions of Paragraph 7 hereof, only upon the books of the
Company, if any, to be maintained by it for that purpose, upon surrender of the
Warrant Certificate to the Company at its principal office accompanied (if so
required by it) by a written instrument or instruments of transfer in form
satisfactory to the Company and duly executed by the Holder thereof or by the
duly appointed legal representative thereof or by a duly authorized attorney and
upon payment of any necessary transfer tax or other governmental charge imposed
upon such transfer. In all cases of transfer by an attorney, the original letter
of attorney, duly approved, or an official copy thereof, duly certified, shall
be deposited and remain with the Company. In case of transfer by executors,
administrators, guardians or other legal representatives, duly authenticated
evidence of their authority shall be produced, and may be required to be
deposited and remain with the
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<PAGE>
Company in its discretion. Upon any such registration of transfer, a new Warrant
Certificate shall be issued to the transferee named in such instrument of
transfer, and the surrendered Warrant Certificate shall be canceled by the
Company.
Any Warrant Certificate may be exchanged, at the option of the Holder
thereof and without change, when surrendered to the Company at its principal
office, or at the office of its transfer agent, if any, for another Warrant
Certificate or other Warrant Certificates of like tenor and representing in the
aggregate the right to purchase from the Company a like number and kind of
Exercise Shares as the Warrant Certificate surrendered for exchange or transfer,
and the Warrant Certificate so surrendered shall be canceled by the Company or
transfer agent, as the case may be.
6. Adjustment of Exercise Shares and Exercise Price. The Exercise Price and the
number and kind of Exercise Shares purchasable upon the exercise of this Warrant
shall be subject to adjustment from time to time upon the happening of certain
events as hereinafter provided. The Exercise Price in effect at any time and the
number and kind of securities purchasable upon exercise of each Warrant shall be
subject to adjustment as follows:
(a) In case the Company shall (i) pay a dividend or make a distribution on
its shares of Common Stock in shares of Common Stock, (ii) subdivide or classify
its outstanding Common Stock into a greater number of shares, or (iii) combine
or reclassify its outstanding Common Stock into a smaller number of shares, the
Exercise Price in effect at the time of the record date for such dividend or
distribution or of the effective date of such subdivision, combination or
reclassification shall be proportionally adjusted so that the Holder of this
Warrant exercised after such date shall be entitled to receive the aggregate
number and kind of shares which, if this Warrant had been exercised by such
Holder immediately prior to such date, he would have owned upon such exercise
and been entitled to receive upon such dividend, subdivision, combination or
reclassification. For example, if the Company declares a 2 for 1 stock dividend
or stock split and the Exercise Price immediately prior to such event was $5.00
per share, the adjusted Exercise Price immediately after such event would be
$2.50 per share. Such adjustment shall be made successively whenever any event
listed above shall occur.
(b) In case the Company shall hereafter issue rights or warrants to all
holders of its Common Stock entitling them to subscribe for or purchase shares
of Common Stock (or securities convertible into Common Stock) at a price (or
having a conversion price per share) less than the current market price of the
Common Stock (as defined in subsection (d) below) on the record date mentioned
below, the Exercise Price shall be adjusted so that the same shall equal the
price determined by multiplying the Exercise Price in effect immediately prior
to the date of such issuance by a fraction, the numerator of which shall be the
sum of the number of shares of Common Stock outstanding on the record date
mentioned below and the number of additional shares of Common Stock which the
aggregate offering price of the total number of shares of Common Stock so
offered (or the aggregate conversion price of the convertible securities so
offered) would purchase at such current market price per share of the Common
Stock, and the denominator of which shall be the sum of the number of shares of
Common Stock outstanding on such record date and the number of additional shares
of Common Stock offered for subscription or purchase (or into which the
convertible securities so offered are convertible). Such adjustment
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<PAGE>
shall be made successively whenever such rights or warrants are issued and shall
become effective immediately after the record date for the determination of
shareholders entitled to receive such rights or warrants; and to the extent that
shares of Common Stock are not delivered (or securities convertible into Common
Stock are not delivered) after the expiration of such rights or warrants the
Exercise Price shall be readjusted to the Exercise Price which would then be in
effect had the adjustments made upon the issuance of such rights or warrants
been made upon the basis of delivery of only the number of shares of Common
Stock (or securities convertible into Common Stock) actually delivered.
(c) Whenever the Exercise Price payable upon exercise of each Warrant is
adjusted pursuant to subsections (a) and (b) above, the number of Exercise
Shares purchasable upon exercise of this Warrant shall simultaneously be
adjusted by multiplying the number of Exercise Shares initially issuable upon
exercise of this Warrant by the Exercise Price in effect on the date hereof and
dividing the product so obtained by the Exercise Price, as adjusted.
(d) For the purpose of any computation under subsection (b) above, the
current market price per share of Common Stock at any date shall be deemed to be
the average of the daily closing prices for thirty (30) consecutive business
days before such date. The closing price for each day shall be the last sale
price regular way or, in case no such reported sale takes place on such day, the
average of the last reported bid and lowest reported asked prices as reported by
NASDAQ, or other similar organization if NASDAQ is no longer reporting such
information, or if not so available, the fair market price as determined by the
Board of Directors.
(e) No adjustment in the Exercise Price shall be required unless such
adjustment would require an increase or decrease of at least ten cents ($0.10)
in such price; provided, however, that any adjustments which by reason of this
subsection (e) are not required to be made shall be carried forward and taken
into account in any subsequent adjustment required to be made hereunder. All
calculations under this Paragraph 6 shall be made to the nearest cent or to the
nearest one-hundredth of a share, as the case may be. Anything in this Paragraph
6 to the contrary notwithstanding, the Company shall be entitled, but shall not
be required, to make such changes in the Exercise Price, in addition to those
required by this Paragraph 6, as it, in its sole discretion, shall determine to
be advisable in order that any dividend or distribution in shares of Common
Stock, subdivision, reclassification or combination of Common Stock, issuance of
Warrants to Purchase Common Stock or distribution of evidences of indebtedness
or other assets (excluding cash dividends) referred to hereinabove in this
Paragraph 6 hereafter made by the Company to the holders of its Common Stock
shall not result in any tax to the holders of its Common Stock or securities
convertible into Common Stock.
(f) Whenever the Exercise Price is adjusted, as herein provided, the
Company shall promptly cause a notice setting forth the adjusted Exercise Price
and adjusted number of Exercise Shares issuable upon exercise of each Warrant to
be mailed to the Holders, at their last addresses appearing in the Warrant
Register, and shall cause a certified copy thereof to be mailed to its transfer
agent, if any. The Company may retain a firm of independent certified public
accountants selected by the Board of Directors (who may be the regular
accountants employed by the Company) to make any computation required by this
Paragraph 6, and a certificate signed by such firm shall be conclusive evidence
of the correctness of such adjustment.
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<PAGE>
(g) In the event that at any time, as a result of an adjustment made
pursuant to subsection (a) above, the Holder of this Warrant thereafter shall
become entitled to receive any Exercise Shares of the Company, other than Common
Stock, thereafter the number of such other shares so receivable upon exercise of
this Warrant shall be subject to adjustment from time to time in a manner and on
terms as nearly equivalent as practicable to the provisions with respect to the
Common Stock contained in subsections (a) to (e), inclusive, above.
(h) Irrespective of any adjustments in the Exercise Price or the number or
kind of Exercise Shares purchasable upon exercise of this Warrant, Warrants
theretofore or thereafter issued may continue to express the same price and
number and kind of shares as are stated in the similar Warrants initially
issuable pursuant to this Warrant.
(i) Whenever the Exercise Price shall be adjusted as required by the
provisions of the foregoing Paragraph 6, the Company shall forthwith file in the
custody of its Secretary or an Assistant Secretary at its principal office and
with its stock transfer agent, if any, an officer's certificate showing the
adjusted Exercise Price determined as herein provided, setting forth in
reasonable detail the facts requiring such adjustment, including a statement of
the number of additional shares of Common Stock, if any, and such other facts as
shall be necessary to show the reason for and the manner of computing such
adjustment. Each such officer's certificate shall be made available at all
reasonable times for inspection by the holder and the Company shall, forthwith
after each such adjustment, mail a copy by certified mail of such certificate to
the Holder.
7. Restrictions on Transferability: Restrictive Legend. Neither this Warrant nor
the Exercise Shares shall be transferable except in accordance with the
provisions of this Paragraph.
(a) Restrictions on Transfer; Indemnification. Neither this Warrant nor any
Exercise Share may be offered for sale or sold, or otherwise transferred or sold
in any transaction which would constitute a sale thereof within the meaning of
the Securities Act of 1933, as amended (the "1933 Act"), unless (i) such
security has been registered for sale under the 1933 Act and registered or
qualified under applicable state securities laws relating to the offer and sale
of securities, or (ii) exemptions from the registration requirements of the 1933
Act and the registration or qualification requirements of all such state
securities laws are available and the Company shall have received an opinion of
counsel satisfactory to the Company that the proposed sale or other disposition
of such securities may be effected without registration under the 1933 Act and
would not result in any violation of any applicable state securities laws
relating to the registration or qualification of securities for sale, such
counsel and such opinion to be satisfactory to the Company.
The Holder agrees to indemnify and hold harmless the Company against any
loss, damage, claim or liability arising from the disposition of this Warrant or
any Exercise Share held by such holder or any interest therein in violation of
the provisions of this Paragraph 7.
(b) Restrictive Legends. Unless and until otherwise permitted by this
Paragraph 7, this Warrant Certificate, each Warrant Certificate issued to the
Holder or to any transferee or assignee of this Warrant Certificate, and each
Certificate representing Exercise Shares issued
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<PAGE>
upon exercise of this Warrant or to any transferee of the person to whom the
Exercise Shares were issued, shall bear a legend setting forth the requirements
of subparagraph (a) of this Paragraph 7, together with such other legend or
legends as may otherwise be deemed necessary or appropriate by counsel to the
Company.
(c) Notice of Proposed Transfers. Prior to any transfer, offer to transfer
or attempted transfer of this Warrant or any Exercise Share, the holder of such
security shall give written notice to the Company of such holder's intention to
effect such transfer. Each such notice shall (x) describe the manner and
circumstances of the proposed transfer in sufficient detail, and shall contain
an undertaking by the person giving such notice to furnish such other
information as may be required, to enable counsel to render the opinions
referred to below, and shall (y) designate the counsel for the person giving
such notice, such counsel to be satisfactory to the Company. The person giving
such notice shall submit a copy thereof to the counsel designated in such notice
and the Company shall submit a copy thereof to its counsel, and the following
provisions shall apply:
(i) If, in the opinion of each such counsel, the proposed transfer of
this Warrant or Exercise Share, as appropriate, may be effected without
registration of such security under the 1933 Act, the Company shall, as promptly
as practicable, so notify the holder of such security and such holder shall
thereupon be entitled to transfer such security in accordance with the terms of
the notice delivered by such holder to the Company. Each certificate evidencing
the securities thus to be transferred (and each certificate evidencing any
untransferred balance of the securities evidenced by such certificate) shall
bear the restrictive legends referred to in subsection (b) above, unless in the
opinion of each such counsel such legend is not required in order to insure
compliance with the 1933 Act.
(ii) If, in the opinion of either of such counsel, the proposed
transfer of securities may not be effected without registration under the 1933
Act, the Company shall, as promptly as practicable, so notify the holder
thereof. However, the Company shall have no obligation to register such
securities under the 1933 Act, except as otherwise provided herein.
The holder of the securities giving the notice under this subsection (c)
shall not be entitled to transfer any of the securities until receipt of notice
from the Company under paragraph (i) of this subparagraph (c) or registration of
such securities under the 1933 Act has become effective.
(d) Removal of Legend. The Company shall, at the request of any registered
holder of a Warrant or Exercise Share, exchange the certificate representing
such security for a certificate representing the same security not bearing the
restrictive legend required by subsection (b) if, in the opinion of counsel to
the Company, such restrictive legend is no longer necessary.
8. Redemption of Warrants.
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<PAGE>
(a) Upon not less than thirty (30) days' notice, all but not less than all
of the Warrants, may be redeemed, at the option of the Company, at a redemption
price of $.001 per Warrant (the "Redemption Price") upon the following
conditions: (i) if a Registration Statement covering the resale of the Exercise
Shares under the 1933 Act is effective as of that date; (ii) the Holder is then
under no contractual or other legal obligation to refrain from selling the
Shares of Common Stock issuable upon exercise of the Warrants; and (iii) if the
average of the closing bid prices of the Company's Common Stock as reported on
the OTC Bulletin Board, American Stock Exchange or The NASDAQ SmallCap Market
(or the last sales prices of the Common Stock listed on a national securities
exchange or included in The NASDAQ National Market) exceeds $5.00 for any ten
(10) consecutive trading days ending within fifteen (15) days of the notice of
redemption.
(b) In the event the Company shall desire to exercise its right to so
redeem the Warrants, it may mail a notice or redemption to the Holder of the
Warrants to be redeemed, first class, postage prepaid, not later than the
thirtieth (30th) day before the date fixed for redemption, at the last address
as shall appear on the records of the Warrants. Any notice mailed in the manner
provided herein shall be conclusively presumed to have been duly given whether
or not the Holder receives such notice.
(c) The notice of redemption shall specify (i) the redemption price; (ii)
the date fixed for redemption; (iii) the place where the Warrant Certificates
shall be delivered and the redemption price paid; and (iv) that the right to
exercise the Warrant shall terminate at 5:00 P.M. (Eastern Standard Time) on the
business day immediately preceding the date fixed for redemption. The date fixed
for the redemption of the Warrants shall be the Redemption Date. No failure to
mail such notice nor any defect therein or in the mailing thereof shall affect
the validity of the proceedings for such redemption except as to a holder (a) to
whom notice was not mailed or (b) whose notice was defective. An affidavit of
the Company that notice of redemption has been mailed shall, in the absence of
fraud, be prima facie evidence of the facts stated therein.
(d) Any right to exercise a Warrant shall terminate at 5:00 P.M. (Eastern
Standard Time) on the business day immediately preceding the Redemption Date. On
or after the Redemption Date, Holder shall have no further rights except to
receive, upon surrender of the Warrant, the Redemption Price.
(e) From and after the date specified for redemption, the Company shall, at
the place specified in the notice of redemption, upon presentation and surrender
to the Company by or on behalf of the Holder thereof of one or more Warrants to
be redeemed, deliver or cause to be delivered to or upon the written order of
such Holder a sum in cash equal to the redemption price of each such Warrant.
From and after the date fixed for redemption and upon the deposit or setting
aside by the Company of a sum sufficient to redeem all the Warrants called for
redemption, such Warrants shall expire and become void and all rights hereunder
and under the Warrant certificates, except the right to receive payment of the
Redemption Price, shall cease.
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9. Notices. All notices or other communications under this Warrant Certificate
shall be in writing and shall be deemed to have been given if delivered by hand
or mailed by certified mail, postage prepaid, return receipt requested,
addressed as follows:
If to the Company:
Arngre, Inc.
648 Post Road
Wakefield, RI 02879
Attention: Stephen P. Harrington
and to the Holder at the address of the Holder appearing on
the books of the Company or the Company's transfer agent, if
any.
Either of the Company or the Holder may from time to time change the
address to which notices to it are to be mailed hereunder by notice in
accordance with the provisions of this Paragraph 9.
10. Supplements and Amendments. The Company may from time to time supplement or
amend this Warrant Certificate without the approval of any holders of Warrants
in order to cure any ambiguity or to correct or supplement any provision
contained herein which may be defective or inconsistent with any other
provision, or to make any other provisions in regard to matters or questions
herein arising hereunder which the Company may deem necessary or desirable and
which shall not materially adversely affect the interests of the Holder.
11. Successors and Assigns. This Warrant shall inure to the benefit of and be
binding on the respective successors, assigns and legal representatives of the
Holder and the Company.
12. Severability. If for any reason any provision, paragraph or terms of this
Warrant Certificate is held to be invalid or unenforceable, all other valid
provisions herein shall remain in full force and effect and all terms,
provisions and paragraphs of this Warrant shall be deemed to be severable.
13. Governing Law. This Warrant shall be deemed to be a contract made under the
laws of the State of Delaware and for all purposes shall be governed by and
construed in accordance with the laws of said jurisdiction.
14. Headings. Paragraph and subparagraph headings used herein are included
herein for convenience of reference only and shall not affect the construction
of this Warrant Certificate nor constitute a part of this Warrant Certificate
for any other purpose.
IN WITNESS WHEREOF, the Company has caused these presents to be duly
executed as of the 27th day of January, 1999 defined herein as the "Commencement
Date."
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Arngre, Inc.
By:_____________________
Name:
Title:
Acknowledged and Agreed
to by the undersigned
this ____ day of _________ 1999.
- -------------------------------
By: ___________________________
Address:
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APPENDIX A
NOTICE OF WARRANT EXERCISE
Pursuant to a Warrant by and between the undersigned and Arngre, Inc., a
Florida corporation (the "Company"), dated as of January 27, 1999, the
undersigned hereby irrevocably elects to exercise its warrant to the extent of
purchasing _______________ shares of Common Stock, $.001 par value (the "Warrant
Shares"), of the Company as provided for therein.
The undersigned hereby represents and agrees that the Warrant Shares
purchased pursuant hereto are being purchased for investment and not with a view
to the distribution or resale thereof, and that the undersigned understands that
said Warrant Shares have not been registered under the Securities Act of 1933,
as amended.
Payment of the full Purchase Price of the Warrant Shares is enclosed
herewith, in the form of a check made payable to the Company.
The undersigned requests that a certificate for the Warrant Shares be
issued in the name of:
______________________________________________________
______________________________________________________
______________________________________________________
(Please print name, address and social security number)
Dated:__________________________________, _____
Address:____________________________________________________
____________________________________________________
____________________________________________________
Signature:__________________________________________________
The following form of Securities Purchase Agreement was entered into with
the following on April 14, 1999:
Clanstar International Ltd.
Garvey, Martin
Hauser, Eric
Hill Samuel Pacific Trust
Company (BVI) Ltd. as
Trustees of the Renascence Trust
IFIGA Company
Lauer, Michael
The Orbiter Fund, Ltd.
ARNGRE, INC.
-------------------------------------------------------------
Securities Purchase Agreement
-------------------------------------------------------------
Shares of Common Stock
offered at $1.00 per share
-------------------------------------------------------------
April 14, 1999
<PAGE>
FORM OF
SECURITIES PURCHASE AGREEMENT
THIS SECURITIES PURCHASE AGREEMENT (the "Agreement") is entered into as of
the day and year appearing on the signature page hereof by and between Arngre,
Inc., a Florida corporation ("Arngre" or the "Company"), and the investor whose
name appears at the end of this Agreement (the "Purchaser").
R E C I T A L S:
In order to obtain capital to fund a joint venture to be engaged in the
silver mining business in Mexico, the Company wishes to issue, and the Purchaser
wishes to purchase shares of the Company's common stock, $.001 par value per
share (the "Common Stock").
NOW, THEREFORE, in consideration of the premises hereof and the agreements
set forth herein below, the parties hereto hereby agree as follows:
1. Sale and Purchase of Shares.
(a) Subject to the terms and conditions hereof, on the date of the
Closing, as defined in Section 3 hereof, the Company agrees to issue and sell,
and the Purchaser agrees to purchase, that number of shares of Common Stock as
are indicated on the last page of this Agreement at a purchase price of $1.00
per share (the "Shares"). Generally, the Company will not accept subscriptions
for less than $25,000, although the Company reserves the right to consider
subscriptions for lesser amounts in its sole discretion.
(b) Restricted Securities. The shares of Common Stock of the Company
that are being offered hereby are "restricted securities" as that term is
defined under Rule 144 of the Securities Act of 1933, as amended (the "Act"),
and, accordingly, may not be offered for sale or sold or otherwise transferred
in a transaction which would constitute a sale thereof within the meaning of the
Act unless: (i) such security has been registered for sale under the Act and
registered or qualified under applicable state securities laws relating to the
offer and sale of securities; or (ii) exemptions from the registration
requirements of the Act and the registration or qualification requirements of
all such state securities laws are available and the Company shall have received
an opinion of counsel that the proposed sale or other disposition of such
securities may be effected without registration under the Act and would not
result in any violation of any applicable state securities laws relating to the
registration or qualification of securities for sale, such counsel and such
opinion to be satisfactory to the Company. As restricted securities, the resale
of the shares of Common Stock is subject to significant restrictions upon
resale. See Section 7 hereafter, "Understanding of Investment Risks."
(c) Voting Rights; Dividends. Holders of Common Stock of the Company
have equal rights to receive dividends when, as, and if declared by the Board of
Directors out of funds legally available therefor. Holders of Common Stock of
the Company have one vote for each share held of record and do not have
cumulative voting rights.
<PAGE>
(d) Liquidation; Redemption. Holders of Common Stock of the Company are
entitled upon liquidation of the Company to share ratably in the net assets
available for distribution, subject to the rights, if any of holders of any
preferred stock of the Company then outstanding. Shares of Common Stock of the
Company are not redeemable and have no preemptive or similar rights. All
outstanding shares of common stock of the Company are fully paid and
nonassessable.
2. Shares Offered in a Private Placement Transaction.
(a) The Shares offered by this Securities Purchase Agreement are to be
offered as part of a private placement transaction pursuant to Section 4(2) and
Rule 506 of Regulation D of the Act (the "Offering") by the Company on a "best
efforts" basis of up to 14,500,000 shares of Common Stock to be offered to a
number of sophisticated and accredited investors. Accordingly, as of the date
hereof, there can be no assurances as to the number of shares of Common Stock
that will be sold in the Offering. The Company reserves the right to increase
the number of shares of Common Stock sold without notice to or consent of the
subscribers or existing Company stockholders.
(b) The shares of Common Stock are being offered to a limited number of
accredited and other sophisticated investors by the Company directly, without
sales commission.
(c) The purchase price ("Purchase Price") per share of Common Stock is
$1.00 payable in cash upon subscription and the minimum number of shares which a
Subscriber may purchase will generally be no less than 25,000 Shares (reflecting
a total purchase price of $25,000.00), although the Company may, in its sole
discretion, accept subscriptions for a smaller number of shares.
(d) The Offering will generally be maintained by the Company until the
earlier of: (i) the sale of all of the shares of Common Stock offered pursuant
to such Securities Purchase Agreements (or such greater number of shares as the
Company elects to offer); or (ii) such date that the Company chooses to
terminate the Offering (hereinafter the "Offering Period").
(e) The Company is concurrently offering up to 2,000,000 Units in a
private placement at a purchase price of $.008 per Unit (the "Concurrent
Offering"), each Unit consisting of one (1) share of Common Stock and a
five-year warrant to purchase one (1) share of Common Stock at an exercise price
of $4.00. The proceeds of this Offering and the Concurrent Offering are intended
to satisfy the Company's obligation to pay the $25,000 Subscription Payment (as
such term is hereinafter defined).
3. Binding Effect of Securities Purchase Agreement; The Closing.
(a) This Securities Purchase Agreement shall not be binding on the
Company unless and until the Company has accepted the offer represented by an
executed signature page at the end hereof. The Company may accept or reject this
Securities Purchase Agreement in the
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<PAGE>
Company's sole discretion, if the Purchaser does not meet the suitability
standards established herein or for any other reason. In the event the Company
rejects this Agreement, the Purchaser's funds will be promptly returned without
deduction of any costs and without interest.
(b) The closing of the purchase and sale of the Shares hereunder (the
"Closing") shall occur concurrently upon acceptance by the Company of this
Securities Purchase Agreement and deposit with the Company of funds representing
the Purchase Price. Notwithstanding the above, the Company reserves the right to
reject a subscription within ten (10) days of receipt of the Purchase Price
should the Company determine during that period that the Purchaser does not
satisfy the subscriber qualifications or suitability standards established
hereafter.
4. Deliveries by the Company. Within ten (10) days after the Closing,
the Company shall deliver to the Purchaser a stock certificate bearing
applicable restrictive legends, duly executed by the appropriate officer (s) and
registered in Purchaser's name or its nominee.
5. Description of the Company - Possible Joint Venture Agreement.
The Company is currently inactive with no material assets or
liabilities, but has identified a joint venture business opportunity in the
silver business in Mexico. Under the proposed joint venture arrangement, the
Company would subscribe for shares of International Capri Resources, S.A. de
C.V., a Mexican company ("ICRM") representing a 60% ownership interest of ICRM.
ICRM has secured the rights to purchase exclusive royalty-free exploration
and/or exploitation concessions in five properties (the "Properties") located in
Mexico that may be silver producing. The Company, along with other shareholders
of ICRM, have agreed to combine resources to provide the short-term funding
necessary for ICRM to acquire and develop the Properties.
It is anticipated that ICRM will require expenditures of approximately
$750,000 in the short-term in order to purchase and initially develop the
Properties. Under a draft joint venture and subscription agreement, the first
$250,000 of development costs will be funded by another ICRM shareholder.
Following a $25,000 subscription payment for ICRM shares of common stock (the
"Subscription Payment"), the Company has agreed to advance the next $500,000 in
development costs in four monthly consecutive installment payments of $125,000
each. In the event that these installment payments are not made in a timely
fashion and upon the occurrence of certain other conditions, the Company's
equity interest in ICRM will be reduced.
Although management is confident that the joint venture will be
effectuated, there can be no assurances to this effect, particularly since the
following conditions remain to be satisfied: (i) the execution of a definitive
joint venture and subscription agreement acceptable to all parties; and (ii) the
Company's completion of a due diligence review of the joint venture and ICRM.
The Company plans to reincorporate into the State of Delaware and change
its name to "Silver King Resources, Inc." as quickly as practicable.
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<PAGE>
The Company's share capitalization as of the date hereof consists of
50,000,000 authorized shares of common stock, of which 1,000,000 are issued and
outstanding as of the date of this Agreement. Assuming that all 14,500,000
shares of Common Stock offered in the Offering and all 2,000,000 Units offering
in the Concurrent Offering are sold, the Company will have 17,500,000 shares
outstanding and the 14,500,000 shares of Common Stock will represent
approximately 82.8% of the total issued and outstanding shares at such time.
Stephen P. Harrington is currently serving as the Company's sole officer
and director; however, upon the Company's subscription of shares of ICRM, it is
anticipated that Mr. Harrington will be replaced and/or additional officers
and/or directors will be nominated to manage the Company's interest in the ICRM
joint venture project. Such other individuals have not yet been identified.
6. Representations and Warranties of the Purchaser. The Purchaser
represents and warrants to the Company as follows:
(a) Accredited Investor. The Purchaser has such knowledge and experience
in business and financial matters such that the Purchaser is capable of
evaluating the merits and risks of purchasing the Shares. The Purchaser is an
"accredited investor" as that term is defined in Rule 501 of Regulation D of the
Act and represents that he satisfies the suitability standards identified in
Section 9 hereof;
(b) Loss of Investment. The Purchaser's (i) overall commitment to
investments which are not readily marketable is not disproportionate to his net
worth; (ii) investment in the Company will not cause such overall commitment to
become excessive; (iii) can afford to bear the loss of his entire investment in
the Company; and (iv) has adequate means of providing for his current needs and
personal contingencies and has no need for liquidity in his investment in the
Company;
(c) Special Suitability. The Purchaser satisfies any special suitability
or other applicable requirements of his state of residence and/or the state in
which the transaction by which the Shares are purchased occurs;
(d) Investment Intent.
(i) the Purchaser hereby acknowledges that the Purchaser has been
advised that this offering has not been registered with, or reviewed by, the
Securities and Exchange Commission ("SEC") because this offering is intended to
be a non-public offering pursuant to Section 4(2) and Rule 506 of Regulation D
of the Act. The Purchaser represents that the Shares are being purchased for the
Purchaser's own account and not on behalf of any other person, for investment
purposes only and not with a view towards distribution or resale to others. The
Purchaser agrees that the Purchaser will not attempt to sell, transfer, assign,
pledge or otherwise dispose of all or any portion of the Shares unless they are
registered under the Act or unless in the opinion of counsel an exemption from
such registration is available, such counsel and such opinion to be satisfactory
to the Company. The Purchaser understands that the Shares
4
<PAGE>
have not been registered under the Act by reason of a claimed exemption under
the provisions of the Act which depends, in part, upon the Purchaser's
investment intention; and
(ii) the Shares and any certificates issued in replacement therefor
shall bear the following legend, in addition to any other legend required by law
or otherwise:
"THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED. THE
SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE BEEN TAKEN BY
THE REGISTERED OWNER FOR INVESTMENT, AND WITHOUT A VIEW TO
RESALE OR DISTRIBUTION THEREOF, AND MAY NOT BE TRANSFERRED OR
DISPOSED OF WITHOUT AN OPINION OF COUNSEL SATISFACTORY TO THE
ISSUER THAT SUCH TRANSFER OR DISPOSITION DOES NOT VIOLATE THE
SECURITIES ACT OF 1933, AS AMENDED, OR THE RULES AND
REGULATIONS THEREUNDER."
(e) State Securities Laws. The Purchaser understands that no securities
administrator of any state has made any finding or determination relating to the
fairness of this investment and that no securities administrator of any state
has recommended or endorsed, or will recommend or endorse, the offering of the
Shares;
(f) Authority; Power; No Conflict. The execution, delivery and
performance by the Purchaser of the Agreement are within the powers of the
Purchaser, have been duly authorized and will not constitute or result in a
breach or default under, or conflict with, any order, ruling or regulation of
any court or other tribunal or of any governmental commission or agency, or any
agreement or other undertaking, to which the Purchaser is a party or by which
the Purchaser is bound, and, if the Purchaser is not an individual, will not
violate any provision of the charter documents, By-Laws, indenture of trust or
partnership agreement, as applicable, of the Purchaser. The signatures on the
Agreement are genuine, and the signatory, if the Purchaser is an individual, has
legal competence and capacity to execute the same, or, if the Purchaser is not
an individual, the signatory has been duly authorized to execute the same; and
the Agreement constitutes the legal, valid and binding obligations of the
Purchaser, enforceable in accordance with its terms;
(g) No General Solicitation. The Purchaser acknowledges that no general
solicitation or general advertising (including communications published in any
newspaper, magazine or other broadcast) has been received by him and that no
public solicitation or advertisement with respect to the offering of the Shares
has been made to him;
(h) Advice of Tax and Legal Advisors. The Purchaser has relied solely
upon the advice of its own tax and legal advisors with respect to the tax and
other legal aspects of this investment; and
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<PAGE>
(i) Access to Information. The Purchaser has had access to all material
and relevant information concerning the Company, its management, financial
condition, capitalization, market information, properties and prospects
necessary to enable Purchaser to make an informed investment decision with
respect to its investment in the Shares. Purchaser has carefully read and
reviewed, and is familiar with and understands the contents thereof and hereof,
including, without limitation, the risk factors described in this Agreement. See
"Understanding of Investment Risks." Purchaser acknowledges that it has had the
opportunity to ask questions of and receive answers from, and to obtain
additional information from, representatives of the Company concerning the terms
and conditions of the acquisition of the Shares and the present and proposed
business and financial condition of the Company, and has had all such questions
answered to its satisfaction and has been supplied all information requested.
7. Understanding of Investment Risks. An investment in the Shares should
not be made by a Purchaser who cannot afford the loss of its entire Purchase
Price. The Purchaser acknowledges that the Shares offered hereby have not been
approved or disapproved by the Securities and Exchange Commission, or any state
securities commissions, nor has the Securities and Exchange Commission or any
state securities commission passed upon the adequacy or accuracy of this
Securities Purchase Agreement or any exhibit hereto. An investment in the Shares
should not be made until the Purchaser has considered the following risk
factors:
(a) Risks related to Joint Venture - Company may remain inactive. The
Company is presently an inactive shell that has undertaken no operations since
inception and has no material assets. Although management intends to utilize the
net proceeds from the Offering of the Shares to fund the proposed ICRM joint
venture, there can be no assurance that the joint venture will be completed or
that if it is completed, that it will be successful. If the joint venture is not
completed, management will use its best efforts to identify another suitable
business opportunity. There can be no assurances, however, if and when a
suitable business opportunity will be identified. The purchase price for the
Shares will not be returned to the subscribers in the event the joint venture is
not completed; rather, management will use these proceeds to apply towards the
expenses of a business opportunity in the future.
(b) Arbitrary Offering Price. The price of the Shares offered hereby has
been arbitrarily determined by the Company without the benefit of an
arm's-length negotiation and is not based upon generally-recognized criteria,
such as earnings, price per share, net book value, etc. There can be no
assurances that the offering price is representative of the actual value of the
Shares.
(c) Dividends. The payment of dividends by the Company is not
contemplated in the foreseeable future. Earnings, if any, are expected to be
retained to finance and develop the business of the ICRM joint venture.
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<PAGE>
(d) Registration Rights; Restrictions Upon Resale. The Shares have not
been registered under the Act or any state securities or blue-sky law and
subscribers may not sell or otherwise transfer such securities except pursuant
to registration under the Act and any applicable state securities laws or
exemptions therefrom. Because of such restrictions, a subscriber for the Shares
must bear the economic risks of such investment for an indefinite period of
time.
(e) No Public Market. Although the Company's Common Stock is eligible
for trading on the OTC Electronic Bulletin Board, there is currently no public
trading market for the Common Stock. There can be no assurances that a regular
trading market will ever develop for the Common Stock of the Company.
(f) Undesignated Management. Upon the Company's subscription to shares
of common stock of ICRM, the Company may retain new management. At this time, no
such persons have been identified for such positions.
(g) Additional Dilution. In order to raise capital to satisfy the
Company's obligation to fund $500,000 of the development costs of the ICRM joint
venture, the Company anticipates offering additional shares of its Common Stock
or other securities convertible into Common Stock. There can be no assurances
that such future offerings will raise capital sufficient for that purpose. In
addition, any future offerings may have a significantly dilutive effect on the
Purchaser's interest in the Company.
8. Representations and Warranties of the Company. The Company hereby
represents and warrants to Purchaser as follows:
(a) Organization and Standing of the Company. The Company is a duly
organized and validly existing corporation in good standing under the laws of
the State of Florida with adequate power and authority to conduct the business
in which it is now engaged and has the corporate power and authority to enter
into this Agreement, and is duly qualified and licensed to do business as a
foreign corporation in such other states or jurisdictions as is necessary to
enable it to carry on its business, except where failure to do so would not have
a material adverse effect on its business;
(b) Corporate Power and Authority. The execution and delivery of this
Agreement and the transactions contemplated hereby have been duly authorized by
the Board of Directors of the Company. No other corporate act or proceeding on
the part of the Company is necessary to authorize this Agreement or the
consummation of the transactions contemplated hereby. When duly executed and
delivered by the parties hereto, this Agreement will constitute a valid and
legally binding obligation of the Company enforceable against it in accordance
with its terms, except as such enforceability may be limited by (i) bankruptcy,
insolvency, moratorium, reorganization or other similar laws and legal and
equitable principles limiting or affecting the rights of creditors generally;
and/or (ii) general principles of equity, regardless of whether considered in a
proceeding in equity or at law;
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<PAGE>
(c) Noncontravention. The execution and delivery of this Agreement and
the consummation of the transactions contemplated hereby will not, to the best
of the Company's knowledge and belief, (i) permit the termination or
acceleration of the maturity of any material indebtedness or material obligation
of the Company; (ii) permit the termination of any material note, mortgage,
indenture, license, agreement, contract, or other instrument to which the
Company is a party or by which it is bound or the Certificate of Incorporation
or By-Laws of the Company; (iii) except as expressly provided in this Agreement
and except for state "blue sky" approvals that may be required and those
consents and waivers which already have been obtained by the Company, require
the consent, approval, waiver or authorization from or registration or filing
with any party, including but not limited to any party to a material agreement
to which the Company is a party or by which it is bound, or any regulatory or
governmental agency, body or entity except where failure to obtain such consent,
approval, waiver or authorization would not have a material adverse effect on
the Company's business; (iv) result in the creation or imposition of any lien,
claim or encumbrance of any kind or nature on any material properties or assets
of the Company; or (v) violate in any material aspect any statute, law, rule,
regulation or ordinance, or any judgment, decree, order, regulation or rule of
any court, tribunal, administrative or governmental agency, body or entity to
which the Company or its properties is subject except where such violation would
not have a material adverse effect on the Company's business; and
(d) Reservation of Securities. The requisite number of shares of Common
Stock of the Company have been duly authorized and reserved for issuance upon
the Company's receipt and acceptance of payment therefore, and no further
corporate action is required for the valid issuance of such Shares.
9. IMPORTANT CONSIDERATIONS: SUITABILITY STANDARDS - WHO SHOULD INVEST.
INVESTMENT IN THE SHARES INVOLVES A HIGH DEGREE OF RISK AND IS SUITABLE
ONLY FOR PERSONS OF SUBSTANTIAL FINANCIAL RESOURCES WHO HAVE NO NEED FOR
LIQUIDITY IN THEIR INVESTMENT.
A substantial number of state securities commissions have established
investor suitability standards for the marketing within their respective
jurisdictions of restricted securities. Some have also established minimum
dollar levels for purchases in their states. The reasons for these standards
appear to be, among others, the relative lack of liquidity of securities of such
programs as compared with other securities investments. Investment in the Shares
involves a high degree of risk and is suitable only for persons of substantial
financial means who have no need for liquidity in their investments.
The Company has adopted as a general investor suitability standard the
requirement that each Purchase of Shares represents in writing that he: (a) is
acquiring the Shares for investment and not with a view to resale or
distribution; (b) can bear the economic risk of losing his entire investment;
(c) his overall commitment to investments which are not readily marketable is
not disproportionate to its net worth, and an investment in the Shares will not
cause such overall commitment to become excessive; (d) has adequate means of
providing for its current needs and personal contingencies and has no need for
liquidity in this investment in the
8
<PAGE>
Shares; (e) has evaluated all the risks of investment in the Company; and (f)
has such knowledge and experience in financial and business matters as to be
capable of evaluating the merits and risks of investing in the Company or is
relying on its own purchaser representative, in making an investment decision.
In addition, all of the Subscribers for Shares must be: (1) a sophisticated
investor with substantial net worth and experience in making investments of this
nature; and (2) an "accredited investor," as defined in Rule 501 of Regulation D
under the Act, by meeting any of the following conditions:
(i) he has an individual income in excess of $200,000 in each of the
two most recent years or joint income with his spouse in excess of $300,000 in
each of those years, and he reasonably expects an income in excess of the
aforesaid levels in the current year, or
(ii) he has an individual net worth, or a joint net worth with his
spouse, at the time of his purchase, in excess of $1,000,000 (net worth for
these purposes includes homes, home furnishings and automobiles), or
(iii) he otherwise satisfies the Company that he is an accredited
investor, as defined in Rule 501 under the Act.
Other categories of investors included within the definition of accredited
investor include the following: certain institutional investors, including
certain banks, whether acting in their individual or fiduciary capacities;
certain insurance companies; federally registered investment companies; business
development companies (as defined under the Investment Company Act of 1940);
Small Business Investment Companies licensed by the Small Business
Administration; certain employee benefit plans; private business development
companies (as defined in the Investment Advisers Act of 1940); tax exempt
organizations (as defined in Section 501(c)(3) of the Internal Revenue Code)
with total assets in excess of $5,000,000; entities in which all the equity
owners are accredited investors; and certain affiliates of the Company.
A partnership subscriber, which satisfies the requirements set forth in
clauses (a) through (f) above shall satisfy the suitability standards if it is
an accredited investor by reason of clause (iii) above, or if all of its
partners are accredited investors. A corporate subscriber, which satisfies the
requirements set forth in clauses (a) through (f) above shall satisfy the
investor suitability standards if it is an accredited investor by reason of
clause (iii) above, or if all of its shareholders are accredited investors.
Corporate subscribers must have net worth of at least three (3) times the amount
of their investment in the Shares.
The suitability standards referred to above represent minimum suitability
requirements for prospective purchasers and the satisfaction of such standards
by a prospective purchaser does not necessarily mean that the Shares are a
suitable investment for such purchaser. The Company may, in circumstances it
deems appropriate, modify such requirements. The Company may also reject
subscriptions for whatever reasons, in its sole discretion, it deems
appropriate.
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<PAGE>
A Purchaser who is a resident of certain state may be required to meet
certain additional suitability standards.
THE ACCEPTANCE OF A SUBSCRIPTION FOR SHARES BY THE COMPANY DOES NOT
CONSTITUTE A DETERMINATION BY THE COMPANY THAT AN INVESTMENT IN THE SHARES IS
SUITABLE FOR A PROSPECTIVE PURCHASER. THE FINAL DETERMINATION OF THE SUITABILITY
OF INVESTMENT IN THE SHARES MUST BE MADE BY THE PROSPECTIVE PURCHASER AND HIS
ADVISERS.
10. State Law Considerations.
IN MAKING AN INVESTMENT DECISION, THE PURCHASER MUST RELY ON HIS OWN
EXAMINATION OF THE ISSUER AND THE TERMS OF THE OFFERING, INCLUDING THE MERITS
AND RISKS INVOLVED. THESE SHARES HAVE NOT BEEN RECOMMENDED BY ANY FEDERAL OR
STATE SECURITIES COMMISSION OR REGULATORY AUTHORITY. FURTHERMORE, THE FOREGOING
AUTHORITIES HAVE NOT CONFIRMED THE ACCURACY OR DETERMINED THE ADEQUACY OF THE
DESCRIPTION OF BUSINESS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL
OFFENSE.
THESE SECURITIES ARE SUBJECT TO RESTRICTIONS ON TRANSFERABILITY AND RESALE
AND MAY NOT BE TRANSFERRED OR RESOLD EXCEPT AS PERMITTED UNDER THE SECURITIES
ACT AND THE APPLICABLE STATE SECURITIES LAWS, PURSUANT TO REGISTRATION OR
EXEMPTION THEREFROM. INVESTORS SHOULD BE AWARE THAT THEY WILL BE REQUIRED TO
BEAR THE FINANCIAL RISKS OF THIS INVESTMENT FOR AN INDEFINITE PERIOD OF TIME.
11. Notices. All notices, requests, consents or other communications
required or permitted hereunder shall be in writing and shall be hand delivered
or mailed first class postage prepaid, registered or certified mail, to the
following addresses:
If to the Company:
Arngre Holdings, Inc.
648 Post Road
Wakefield, RI 02879
Attention: Stephen P. Harrington
10
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With a copy to:
Stephen M. Cohen, Esquire
Buchanan Ingersoll Professional Corporation
Eleven Penn Center
1835 Market Street, 14th Floor
Philadelphia, PA 19103
In the case of Purchaser:
To the address set forth at the end of this Agreement or to such other
addresses as may be specified in accordance herewith from time to time.
Unless specified otherwise, such notices and other communications shall for
all purposes of this Agreement be treated as being effective upon being
delivered personally or, if sent by mail, five days after the same has been
deposited in a regularly maintained receptacle for the deposit of United States
mail, addressed as set forth above, and postage prepaid.
12. Survival of Representations and Warranties. Representations and
warranties contained herein shall survive the execution and delivery of this
Agreement.
13. Parties in Interest. All the terms and provisions of this Agreement
shall be binding upon and inure to the benefit of and be enforceable by the
respective successors and permitted assigns of the parties hereto, provided that
this Agreement and the interests herein may not be assigned by either party
without the express written consent of the other party.
14. Governing Law. This Agreement shall be governed by and construed in
accordance with the laws of the State of Delaware.
15. Sections and Other Headings. The section and other headings contained
in this Agreement are for the convenience of reference only, do not constitute
part of this Agreement or otherwise affect any of the provisions hereof.
16. Counterpart and Facsimile Signatures. This Agreement may be signed in
counterparts and all counterparts together shall become effective only when the
counterpart(s) have been executed and delivered by and on behalf of the Company
and the Purchaser. Facsimile signatures to this Agreement shall be deemed to be
original signatures.
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IN WITNESS WHEREOF, intending to be legally bound, the parties hereto have
caused this Agreement to be signed by their duly authorized officers.
Purchaser:
By:_____________________________________
Shares/$
- ------------------------------ ----------------------------------------
Number and dollar amount Name
of Shares purchased -
Purchase Price Address of Purchaser:
----------------------------------------
----------------------------------------
Social Security Number: ________________
<TABLE>
Accredited Investor Certification
(Place initials on the appropriate line(s))
<S> <C> <C>
___ (i) I am a natural person who had individual income of
more than $200,000 in each of the most recent two
years or joint income with my spouse in excess of
$300,000 in each of the most recent two years and
reasonably expect to reach that same income level
for the current year ("income", for purposes
hereof, should be computed as follows: individual
adjusted gross income, as reported (or to be
reported) on a federal income tax return,
increased by (1) any deduction of long-term
capital gains under section 1202 of the Internal
Revenue Code of 1986 (the "Code"), (2) any
deduction for depletion under Section 611 et seq.
of the Code, (3) any exclusion for interest under
Section 103 of the Code and (4) any losses of a
partnership as reported on Schedule E of Form
1040);
___ (ii) I am a natural person whose individual net worth
(i.e., total assets in excess of total
liabilities), or joint net worth with my spouse,
will at the time of purchase of the Shares be in
excess of $1,000,000;
___ (iii) The Purchaser is a "Qualified Institutional Buyer"
as the term is defined under Rule 144A of the Act.
___ (iv) The Purchaser is an investor satisfying the
requirements of Section 501(a)(1), (2) or (3) of
Regulation D promulgated under the Securities Act,
which includes but is not limited to, a
self-directed employee benefit plan where
investment decisions are made solely by persons
who are "accredited investors" as otherwise
defined in Regulation D;
</TABLE>
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<PAGE>
<TABLE>
<S> <C> <C>
___ (v) The Purchaser is a trust, which trust has total
assets in excess of $5,000,000, which is not
formed for the specific purpose of acquiring the
Shares offered hereby and whose purchase is
directed by a sophisticated person as described in
Rule 506(b)(ii) of Regulation D and who has such
knowledge and experience in financial and business
matters that it is capable of evaluating the risks
and merits of an investment in the Shares;
___ (vi) I am a director or executive officer of the
Company; or
___ (vii) The Purchaser is an entity (other than a trust) in
which all of the equity owners meet the
requirements of at least one of the above
subparagraphs.
</TABLE>
Agreed and Accepted by
ARNGRE, INC.
By:___________________________________
Name:
Title:
DATED:_______________________
AGREEMENT AND PLAN OF MERGER
THIS AGREEMENT AND PLAN OF MERGER (the "Merger Agreement") is made as of
the 23rd day of June, 1999, by and between Silver King Resources, Inc., a
Florida corporation ("Silver King Florida"), and Silver King Resources
(Delaware), Inc., a Delaware corporation ("Silver King Delaware"). Silver King
Florida and Silver King Delaware are sometimes referred to herein as the
"Constituent Corporations."
RECITALS
A. Silver King Delaware is a corporation duly organized and existing under
the laws of the State of Delaware.
B. Silver King Florida is a company duly organized and existing under the
laws of the State of Florida.
C. On the date of this Merger Agreement, Silver King Delaware has authority
to issue: (i) 50,000,000 shares of Common Stock, par value $0.0001 per share
("Silver King Delaware Common Stock"), of which one share, held by Silver King
Florida, is issued and outstanding; and (2) 15,000,000 shares of Preferred
Stock, par value $0.0001 per share, of which no shares are issued and
outstanding.
D. On the date of this Merger Agreement, Silver King Florida has authority
to issue: (i) 50,000,000 shares of Common Stock, par value $0.001 per share, of
which, 18,075,000 shares are issued and outstanding ("Silver King Florida Common
Stock").
E. The respective Boards of Directors of Silver King Delaware and Silver
King Florida have determined that, for the purpose of effecting the
reincorporation of Silver King Florida in the State of Delaware, it is advisable
and to the advantage of such corporations and their respective shareholders that
Silver King Florida merge with and into Silver King Delaware upon the terms and
conditions herein provided.
F. The respective Boards of Directors of Silver King Delaware and Silver
King Florida have approved this Merger Agreement and have directed that this
Merger Agreement be submitted to the vote of their respective shareholders.
NOW, THEREFORE, in consideration of the mutual promises and on the terms
and conditions set forth below, the mutuality, adequacy and sufficiency of which
are hereby acknowledged, the parties do hereby adopt the plan of reorganization
encompassed by this Merger Agreement and do hereby agree that Silver King
Florida shall merge with and into Silver King Delaware:
<PAGE>
I. TERMS AND CONDITIONS
1.1 Merger. Upon the date this Merger Agreement is made effective in
accordance with applicable Delaware and Florida law by filing a Certificate of
Merger with the Delaware Secretary of State and filing Articles of Merger with
the Florida Secretary of State (the "Effective Date"), Silver King Florida shall
be merged with and into Silver King Delaware (the "Merger"), and Silver King
Delaware shall be the surviving corporation of the Merger.
1.2 Succession. Upon the Effective Date, the separate existence of Silver
King Florida shall cease and Silver King Delaware shall succeed to all of the
rights, privileges, powers and property of Silver King Florida in the manner of
and as more fully set forth in Section 259 of the General Corporation Law of the
State of Delaware.
1.3 Silver King Florida Common Stock. Upon the Effective Date, by virtue of
the Merger and without any action on the part of the holder thereof or the
Constituent Corporations, each share of Silver King Florida Common Stock issued
and outstanding immediately prior thereto (other than dissenters' shares for
which appraisal rights are perfected in accordance with section 607.1320 of the
Florida Statutes of 1998 (the "Florida Statutes")) shall be changed and
converted into one fully paid and nonassessable share of Silver King Delaware
Common Stock. All of the shares of Silver King Florida Common Stock held in
treasury shall be canceled on the Effective Date.
1.4 Silver King Delaware Common Stock. Upon the Effective Date, by virtue
of the Merger and without any action on the part of the holder thereof or the
Constituent Corporations, each share of Silver King Delaware Common Stock issued
and outstanding immediately prior thereto shall be canceled.
1.5 Stock Certificates. Upon and after the Effective Date, all of the
outstanding certificates which prior to that time represented shares of Silver
King Florida Common Stock shall be deemed for all purposes to evidence ownership
of and to represent the shares of Silver King Delaware Common Stock into which
the shares of Silver King Florida Common Stock represented by such certificates
have been converted in the Merger. The registered owner on the books and records
of Silver King Florida or its transfer agent of any such outstanding stock
certificate shall, until such certificate shall have been surrendered for
transfer or conversion or otherwise accounted for to Silver King Delaware or its
transfer agent, have and be entitled to exercise any voting and other rights
with respect to and to receive any dividends and other distributions upon the
shares of Silver King Delaware Common Stock evidenced by such outstanding
certificate as provided above.
1.6 Employee Benefit Plans. Upon the Effective Date, Silver King Delaware
will assume all obligations of Silver King Florida under any and all employee
benefit plans in effect as of the Effective Date or with respect to which
employee rights or accrued benefits are outstanding as of the Effective Date.
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<PAGE>
II. CHARTER DOCUMENTS, DIRECTORS AND OFFICERS
2.1 Certificate of Incorporation and Bylaws. The Certificate of
Incorporation of Silver King Delaware as in effect immediately prior to the
Effective Date shall continue in full force and effect thereafter as the
Certificate of Incorporation of Silver King Delaware, as amended by the name
change set forth in Article Fourth of the Certificate of Merger filed with the
Delaware Secretary of State, and such Certificate of Incorporation upon the
filing of the Certificate of Merger in Delaware will be duly amended in
accordance with the provisions thereof and applicable law. The Bylaws of Silver
King Delaware in effect immediately prior to the Effective Date shall continue
in full force and effect thereafter as the Bylaws of Silver King Delaware
without change or amendment, until such Bylaws are duly amended in accordance
with the provisions thereof and applicable law.
2.2 Directors. The directors of Silver King Delaware immediately prior to
the Effective Date shall upon the Effective Date remain the directors of Silver
King Delaware and shall serve until the next annual meeting of shareholders of
Silver King Delaware and until their successors are duly elected and qualified
or until their earlier resignation, removal or death.
2.3 Officers. The officers of Silver King Delaware shall remain the
officers of Silver King Delaware upon the Effective Date and shall serve until
their successors are duly elected and qualified or their earliest resignation,
removal or death.
III. CONDITIONS TO CONSUMMATION OF THE MERGER
3.1 Conditions to Obligation of Silver King Florida. The obligation of
Silver King Florida to consummate the Merger is subject to the satisfaction
prior to the Effective Date of each of the following conditions:
(a) The Merger shall have been approved by the shareholders of Silver
King Florida in accordance with the Florida Statutes;
(b) All director, shareholder and other parties' consents and
approvals, as well as filings with, and all necessary consents or approvals of,
all federal, state and local governmental authorities and agencies, as are
required under this Merger Agreement or applicable law to complete the Merger
and the transactions related thereto shall have been secured; and
(c) No statute, rule, regulation, executive order, decree, injunction
or restraining order shall have been enacted, promulgated, entered or enforced
by any court of competent jurisdiction or governmental authority that prohibits
or restricts the consummation of the Merger or transactions related thereto.
3.2 Conditions to Obligation of Silver King Delaware. The obligation of
Silver King Delaware to consummate the Merger is subject to the satisfaction
prior to the Effective Date of each of the following conditions:
3
<PAGE>
(a) Payment or estimated payment of the fair value of the Silver King
Florida Common Stock held by shareholders of Silver King Florida who properly
exercise or intend to exercise their dissenters' rights under Section 607.1320
of the Florida Statutes, shall not exceed an amount which, in the opinion of
Silver King Delaware's Board of Directors, constitutes an unacceptable cash cost
in light of the current cash requirements of Silver King Florida and the
anticipated cash requirements of Silver King Delaware as the surviving entity of
the Merger;
(b) The Merger shall have been approved by the shareholders of Silver
King Delaware in accordance with the Delaware General Corporation Law, as
amended ("DGCL");
(c) All director, shareholder and other parties' consents and
approvals, as well as filings with, and all necessary consents or approvals of,
all federal, state and local governmental authorities and agencies, as are
required under this Merger Agreement or applicable law to complete the Merger
and the transactions related thereto shall have been secured; and
(d) No statute, rule, regulation, executive order, decree, injunction
or restraining order shall have been enacted, promulgated, entered or enforced
by any court of competent jurisdiction or governmental authority that prohibits
or restricts the consummation of the Merger or transactions related thereto.
IV. MISCELLANEOUS
4.1 Further Assurances. From time to time, as and when required by Silver
King Delaware or by its successors and assigns, there shall be executed and
delivered on behalf of Silver King Florida such deeds and other instruments, and
there shall be taken or caused to be taken by it such further and other actions,
as shall be appropriate or necessary in order to vest, perfect or confirm, of
record or otherwise, in Silver King Delaware the title to and possession of all
of the property, interests, assets, rights, privileges, immunities, powers,
franchises and authority of Silver King Florida and otherwise to carry out the
purposes of this Merger Agreement, and the proper officers and directors of
Silver King Delaware are fully authorized in the name and on behalf of Silver
King Florida or otherwise to take any and all such action and to execute and
deliver any and all such deeds and other instruments.
4.2 Amendment. At any time before or after approval by the shareholders of
the Constituent Corporations and subject to applicable law, this Merger
Agreement may be amended in any manner as may be determined in the judgment of
the respective Boards of Directors of Silver King Florida and Silver King
Delaware to be necessary, desirable or expedient in order to clarify the
intention of the parties hereto or to effect or facilitate the purposes and
intent of this Merger Agreement; provided, however, that an amendment made
subsequent to the adoption of this Merger Agreement by the shareholders of
either Constituent Corporation shall not: (1) alter or change the amount or kind
of shares, securities, cash, property and/or rights to be received in exchange
for or on conversion of all or any of the shares of any class or series thereof
such Constituent Corporation; (2) alter or change any term of the Certificate of
Incorporation of Silver
4
<PAGE>
King Delaware to be effected by the Merger; or (3) alter or change any of the
terms and conditions of this Merger Agreement if such alteration or change would
adversely affect the holders of any class or series of capital stock of either
Constituent Corporation.
4.3 Abandonment. At any time before the Effective Date, this Merger
Agreement may be terminated and the Merger may be abandoned by the Board of
Directors of either Silver King Florida or Silver King Delaware or both,
notwithstanding the approval of this Merger Agreement by the shareholders of
Silver King Florida and Silver King Delaware.
4.4 Governing Law. This Agreement shall in all respects be construed,
interpreted and enforced in accordance with and governed by the laws of the
State of Delaware and, so far as applicable, the merger provisions of the
Florida Statutes.
4.5 Counterparts. In order to facilitate the filing and recording of this
Merger Agreement, the same may be executed in any number of counterparts, each
of which shall be deemed to be an original.
IN WITNESS WHEREOF, this Merger Agreement, having first been duly approved
by the respective Boards of Directors of Silver King Florida and Silver King
Delaware, is hereby executed on behalf of each said corporation and attested by
their respective officers thereunto duly authorized.
SILVER KING RESOURCES, INC.
a Florida corporation
By: /s/ Stephen P. Harrington
------------------------------
Name: Stephen P. Harrington
Title: President
SILVER KING RESOURCES
(DELAWARE), INC.
a Delaware corporation
By: /s/ Stephen P. Harrington
------------------------------
Name: Stephen P. Harrington
Title: President
5
REPORT ON ZACUALPAN AREA HOLDINGS, MEXICO AND GUERRERO STATES, MEXICO.
PREPARED FOR:
ICR MEXICO, S. A. DE C. V.
A SUBSIDIARY OF
INTERNATIONAL CAPRI
RESOURCES LIMITED
4372 - 44 B AVE.
DELTA, B. C.
CANADA V4K 1H1
Prepared by:
Juan Jose Cabuto Vidrio, Mining Engineer
Alex Burton, P. Eng.
DATE DECEMBER, 1998.
<PAGE>
TABLE OF CONTENTS
INTRODUCTION
LIST OF FIGURES AND TABLES
LOCATION & ACCESS
VEGETATION
SUMMARY OF HISTORY OF DISTRICT AND THE PROPERTY
THE PROPERTY
GEOLOGY OF THE DISTRICT AND THE PROPERTIES
MINERALIZATION
MINERAL DEPOSITS
MINERAL RESERVES OF THE DISTRICT
THE PROPERTIES
GENERAL
1. EL QUINTO II, EL VOLADO, LA CADENA
Recommendations
2. EL COMETA NAVIDENO, LOS COMPADRES
Recommendations
3. QUINTO REAL
Recommendations
COST OF PROGRAM
Stage 1
A. - I.P. Surveying and Geochemistry
B. - Drilling Stage I
Stage 2
A. - I.P. Program and Geochemistry
B. - Drill Selected Targets
Grand Total
REFERENCES
AUTHORS CERTIFICATE
<PAGE>
LIST OF FIGURES AND TABLES
FIGURES
Fig. 1 Location Map State of Mexico.
Fig. 2 Location Map - Zacualpan District
Fig. 3 Access Roads - State of Mexico
Fig. 4 State of Mexico, Zacualpan Mineral District:
Geology and Vein Structures and
Location of Claims
Fig. 5 El Quinto II, El Volado, La Cadena: Map of Claims
Fig. 6 Los Compadres, El Cometa Navideno: Map of Claims
Fig. 7 Quinto Real Claim: Location and Geology.
TABLES
Table I Property holdings, Zacualpan Area, International
Capri Resources Limited 1998.
Table II State of Mexico: Mineralized Structures, Zacualpan
District
Table III State of Mexico: Reserves of Several Mineral
Localities, Zacualpan District.
<PAGE>
INTRODUCTION
There have been reports of bonanzas in the various district mines throughout
history. One can derive some indication of the economic importance of the
district by using the production records from two of the ten or eleven known
non-bonanza mineralized zones.
The mines of Guadalupe, Pachuqueno and Regenerador, actually worked as one
operation, produced between 1967 and 1982 in the order of one million tons of
ore, from which 9 million ounces of silver were recovered.
From 1975 to 1990, the company "Campana de Plata", a subsidiary of Grupo Minero
Penoles, operated in the are of the Guadalupe mine, exploiting veins that ran an
average of 270 g/t of silver, 0.9% Pb, and 1.0% Zn at about 10,000 tons per
month.
The company proposes to explore the veins in its land package to find bonanza
and regular grade oreshoots as well as possible massive sulfide mineralization.
LOCATION AND ACCESS
The property is located in the states of Mexico and Guerrero near the town of
Zacualpan (Figs. 1 & 2 ). Geographical coordinates are 18 44' North latitude and
99 50' West longitude. Portions of the Quinto Real property lie north of
Zacualpan, while other ICR and Zacualpan claim groups lie south of Zacualpan in
the vicinity of Coloxtitlan.
Access can be gained from Mexico City by three different routes (Fig. 3):
(a) Mexico, Distrito Federal - Metepec - Tenango de Arista Ixtapan de la
Sal - Zacualpan ........................................................ 164 Km.
(b) Mexico, D. F. - Toluca - Nevado de Toluca - Paredones - Texcaltitlan -
Almoloya de Alquisiras - Zacualpan ..................................... 189 Km.
(c) Mexico, D. F. - Cuernavaca - Puente de Ixtla - Cacahuamilpa - Ixtapan
de la Sal - Zacualpan .................................................. 209 Km.
On all three routes, travel time is about three hours on all paved roads as far
as Zacualpan.
Access between the property areas is provided by good secondary gravel roads and
within property blocks by well-travelled local access roads to residences,
maintained for two wheel drive vehicles. Minor difficulties are encountered due
to the rainy season in summer and fall but in general roads are in good shape
year-round.
Electrical power is available throughout the region and is provided to even the
smallest remote landholders (110 V). Water is abundant in the rainy season but
is somewhat scarce in the dry season with local municipal supplies coming from
reservoirs. Rural residents use a combination of streams, seeps, wells,
reservoirs and water haulage for water supply. Railway access is at Toluca
located some 135 Km to the north or at Cuernavaca some 153 Km. to the northeast.
The elevation is between 1500-2000 m with a mild pleasant climate throughout the
year. Temperatures do not dip below freezing in winter allowing cultivation on a
limited basis of citrus and bananas, in addition to maize, milo and vegetable
crops tied to the rainy season in late spring.
1
<PAGE>
The terrain is occupied entirely by towns and small land holdings in part treed
and grass covered but in general utilized for subsistence farming with livestock
grazing ( cattle, goats, sheep, donkeys and horses ) and maize and vegetable
growing the predominant agricultural pursuits.
FIGURE 1. LOCATION MAP STATE OF MEXICO
[MAP]
FIGURE 2. LOCATION MAP STATE OF ZACUALPAN DISTRICT
[MAP]
FIGURE 3. ACCESS ROADS STATE OF MEXICO
[MAP]
VEGETATION
While the region is extensively cleared for the cultivation of subsistence
agricultural crops, the rocky ravines, steep hillsides, stream bottoms and
hilltops are treed and brushy. The higher hilltops are occupied by oak and
arbutus trees with long-leaf pine in some areas, reaching heights of 20 meters
or more and a substantial diameter. Intermediate hillsides have several
varieties of acacias, mimosas, junipers and some oaks even in cultivated areas,
together with a multitude of shrubby varieties of vegetation 2-3 meters high.
Stream bottoms are occupied by alders, willows and cypress trees, the latter
reaching 2-4 meters in diameter at the base.
Many of the trees on the hillsides and in creekbottoms are subject to periodic
decapitation and debranching for the production of firewood and posts of acacia,
juniper and cypress for fence posts in livestock fencing. Timbering for lumber
production is very limited throughout the region. The entire setting is one of
pastoral beauty with utilization of trees in approximate balance with
production.
HISTORY OF THE DISTRICT & THE PROPERTY
The majority of the history of the district is derived from MONOGRAFIA
GEOLOGICA-MINERA DEL ESTADO DE MEXICO(1996, released in November 1998)(1),
authored by Ing. Amador Nunez Miranda and others of the Secretaria de Desarrollo
Economico del Estado de Mexico.
The name ZACUALPAN is derived from two nahuatl words: zacualli: pyramid, and
pan: above; in other words, the place above the pyramids. Initiation of
exploitation of veins of the district dates into the fourteenth century. This
district was established in 1528 and by 1531 the town obtained the name "Real de
Minas" (Royal Mines) and thus became the first royal mine in Mexico and the
Americas.
There have been reports of bonanzas in the various mines throughout history. One
can derive some indication of the economic importance of the district by using
the production records from one of the ten or eleven mineralized zones. The
mines of Guadalupe, Pachuqueno and Regenerador, actually seen as one operation,
produced one million tons of ore between 1967 and 1982, from which 9 million
ounces of silver were recovered. It is estimated that a similar amount of silver
from a lesser tonnage of ore was produced in the district prior to this time.
Penoles published reserves in 1987 of over 1 million tons @ 289 g/t Ag, 0.57%
Pb, 1.23% Zn. MINPOZA is actively mining the Unificacion Guadalupe mines under
lease from Penoles. Other modest reserves totaling 500,000 tons
- --------
(1) Nunez Miranda, Amador et al, Secretaria de Desarrollo Economico del Estado
de Mexico
2
<PAGE>
compiled in Monografia Geologica-Minera del Estado de Mexico are discussed
later. Reserves in the Mamatla region are at least 5.2 million tons, averaging
0.4 g/t Au, 445 g/t Ag, 5.92% Pb and 17.3% Zn (Canadian Mines Handbook, 1998).
Published literature indicates that the initial mining in 1531 was from the
Capula mine. Additional early recorded production was from the Carboncillo mine
near the Corona Ranch, in the municipality of Zacualpan with production
continuing until 1845.
In the middle of the 18th century the mines of Xitinga and Chontalpan were
exploited by Jose de la Borda. The war of independence (1810-1821), paralyzed
activity in the district up until 1826 when work began on a major bonanza the El
Alacran mine, continuing until 1860. Bonanzas in the Guadalupe mine were mined
for fifty years subsequent to this.
Early in the nineteenth century, introduction of cyanidation reactivated the
mining industry in the district, with activity occurring in the first thirty
years. The most important mines in this era were: Corona, Guadalupe, El Alacran,
Xitinga, Golondrinas and La Cuchara.
From 1975 to 1990, the company Campana de Plata, subsidiary of Grupo Minero
Penoles, operated in the area of the Guadalupe mine, exploiting veins that ran
an average of 270 g/t silver, 0.9% Pb, and 1.0% Zn. Production rates are
calculated to be in the order of 10,000 t/month and concentrates were
transported by truck to rail transportation at Toluca. The mine was closed from
1990 to 1992 due to low metal prices. Beginning in 1992 the mine reactivated
operations under a lease from Penoles to the Compania Minera El Porvenir de
Zacualpan (MINPOZA) with production rate of 3,500 t/month increasing to 6,000
t/month today. Production continues with a combination of trackless methods
underground and hoisting by shaft.
Other mineral activity in the region recently included exploration by Valerie
Gold de Mexico, S. A. de C. V., a subsidiary of Valerie Gold Resources Ltd. of
Vancouver, Canada. Valerie Gold de Mexico obtained an exploration concession
consisting of 20,800 hectares comprising the Reserva Minera Mamatla, including
some 38 mineral localities. Activities continued up until late 1998 on this and
other lands held by Valerie in the region. Substantial reserves were reported by
Valerie in 1998 as discussed later. However, Valerie ceased activities on the
concession in 1998 relinquishing the concession.
The majority of the land in the region is covered by mineral holdings with
current low levels of exploration activity being conducted by MINPOZA, Luismin
and others. Competition is intense for refiling of abandoned or relinquished
claims when they are posted for restaking by the Direccion de Minas, with as
many as thirty simultaneous entrants being placed in the lottery for awarding of
these claims.
3
<PAGE>
THE PROPERTY
The property consists of six claim groups totaling some 4,626 hectares as listed
in Table I.
TABLE I. PROPERTY HOLDINGS ZACUALPAN AREA, INTERNATIONAL
CAPRI RESOURCES LIMITED, 1998.
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------
Property Title Number Property Owner Hectares
- -----------------------------------------------------------------------------------------
<S> <C> <C> <C>
QUINTO REAL E-104/0008 Polo y Ron Minerales, SA de CV 4,448.4819
- -----------------------------------------------------------------------------------------
EL QUINTO II T-175486 Gomez Garcia, Felix 9.0957
- -----------------------------------------------------------------------------------------
LOS COMPADRES T-172622 Gomez Garcia, Felix 30.0003
- -----------------------------------------------------------------------------------------
El Cometa Navideno T-171847 Gomez Garcia, Felix 23.0584
- -----------------------------------------------------------------------------------------
LA CADENA T-156895 Esquivel Esparza, Hector 111.7074
- -----------------------------------------------------------------------------------------
EL VOLADO T-197967 Esquivel Esparza, Hector 3.7899
- -----------------------------------------------------------------------------------------
</TABLE>
- ----------
TOTAL 4,626.1336 Hectares
The Quinto Real claim, held by Polo y Ron Minerales, S. A. de C.V. was located
recently and is in the process of being assigned to the company. The company
holds 100% interest in this claim.
The other properties are held under three purchase contracts for 100% interest
with total purchase consideration to be paid in twelve months time as follows:
- --------------------------------------------------------------------------------
Property Leasor Consideration
- --------------------------------------------------------------------------------
A. El Quinto II Gomez Garcia, Felix U.S. $ 85,000.00
El Cometa Navideno
- --------------------------------------------------------------------------------
B. Los Compadres Gomez Garcia, Felix U.S. $ 25,000.00
- --------------------------------------------------------------------------------
C. La Cadena, El Volado Esquivel Esparza, Hector U.S. $100,000.00
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Payment Schedule A. B. C.
- --------------------------------------------------------------------------------
Signing $20,000.00 $2,000.00 $6,000.00
- --------------------------------------------------------------------------------
Nov.30/98 1,000.00 1,000.00 --
- --------------------------------------------------------------------------------
Dec.31/98 2,000.00 1,000.00 10,000.00
- --------------------------------------------------------------------------------
Feb. 1/99 4,000.00 1,500.00 14,000.00
- --------------------------------------------------------------------------------
Mar. 1/99 7,500.00 2,500.00 --
- --------------------------------------------------------------------------------
Mar.31/99 7,500.00 2,500.00 14,000.00
- --------------------------------------------------------------------------------
Apr.30/99 7,500.00 2,500.00 14,000.00
- --------------------------------------------------------------------------------
May 31/99 7,500.00 2,500.00 14,000.00
- --------------------------------------------------------------------------------
Jun. 30/99 7,500.00 2,500.00 --
- --------------------------------------------------------------------------------
Jul. 30/99 7,500.00 2,500.00 14,000.00
- --------------------------------------------------------------------------------
Aug. 31/99 7,500.00 4,500.00 --
- --------------------------------------------------------------------------------
Sep. 30/99 5,500.00 -- 14,000.00
- --------------------------------------------------------------------------------
U.S.$85,000.00 U.S.$25,000.00 U.S.$100,000.00
- --------------------------------------------------------------------------------
FIGURE 4. STATE OF MEXICO, ZACUALPAN MINERAL DISTRICT:
GEOLOGY AND VEIN STRUCTURES AND LOCATIONS OF CLAIMS
[MAP]
FIGURE 5. EL QUINTO II, EL VOLADO, LA CADENA: MAP OF CLAIMS
[MAP]
FIGURE 6. LOS COMPADRES, EL COMETA NAVIDENO: MAP OF CLAIMS
[MAP]
FIGURE 7. QUINTO REAL CLAIM: LOCATION AND GEOLOGY
[MAP]
4
<PAGE>
GEOLOGY OF THE DISTRICT AND THE PROPERTIES
The Zacualpan District is underlain predominantly by Triassic-Jurassic
volcanosedimentary rocks metamorphosed to green schist facies metamorphics
overlain in places by lower Cretaceous limestones (see map Fig. 4). These units
are overlain in places by Tertiary conglomerates and clastics with limy
fragments and limy limonitic matrix. Overlying the older rocks are Tertiary
rhyolite flows capping hilltops and carrying at the base of the flows a variable
volcanic rubbly agglomerate or conglomerate zone. A granodiorite of Cretaceous
age intrudes (?) the older rocks in the vicinity of Arroyo Negro and along
Highway 7 to the north of Zacualpan.
The property holdings are underlain by interstratified metavolcanic and
metasedimentary rocks of predominantly andesitic composition and dark green
colour andesitic rocks that vary from massive flows, pillowed lavas, complex
lahar-type fragmentals and flows through finely laminated resedimented andesite
fragmentals. Interlayered with and generally overlaying the andesites are
phyllites of grey, light green and tan colour interspersed with occasional
graphitic phyllite units. Fresh bedrock is exposed in nearly all major arroyos.
However, deep weathering and soil cover between arroyos make detailed lateral
lithology correlations difficult.
The central portion of the Quinto Real property has a valley-fill of limy and
limonitic matrix conglomerates with pebbles and cobbles of various metavolcanics
accompanied by numerous limestone fragments all well rounded and poorly sorted.
This unit lies unconformably on the phyllites masking the underlying
metavolcanic stratigraphy. The northern portion of Quinto Real has ridges capped
by massive rhyolitic flows of Tertiary age. The northern flank of Quinto Real
(along Highway 7), a zone of medium to coarse grained granodioritic rock of
Cretaceous age presumed intrusive? contact with the metavolcanics. Contacts
between these units are not exposed.
MINERALIZATION
Regional mineralization is reported from both veins of interpreted hydrothermal
origin and "mantos" of volcanogenic massive sulfides. Mineralization in
Zacualpan is predominantly of vein type but sulfide showings of probable
volcanogenic origin occur south of the southern portion of the Quinto Real
claim.
Mineralization in the Mamatla region to the south has variously been described
as of skarn nature and as that of a massive sulfide. The most recent summary in
Monografia Geologica-Minera del Estado de Mexico describes it as of volcanogenic
massive sulfide affinity.
MINERAL DEPOSITS
A recent map compilation and tabulation of some 15 vein systems mined and known
in the district are shown in Fig. 4 & Tables II & III, excerpted from Monografia
Geologica-Minera del Estado de Mexico. The main set of vein structures trends
N20-60 W with a secondary group N0-20 E. From field observations and reports a
third subsidiary set trending approximately E-W also occurs. While it is
difficult to establish the size and shape of previously mined mineral zones, the
general width and length of the vein systems is tabulated in Table II .
This vein contains the sulfides pyrite, sphalerite, galena, chalcopyrite,
tetrahedrite, argentite and sometimes proustite and pyrargyrite. Gangue minerals
are quartz, amethistine quartz, calcite and various other iron, magnesium and
calcium carbonates and rhodochrosite. Fluorite is present in some areas. Some
gold is present but the predominant metal values are silver, zinc, lead and
copper.
5
<PAGE>
TABLE II.
STATE OF MEXICO: MINERALIZED STRUCTURES IN ZACUALPAN DISTRICT.
<TABLE>
<CAPTION>
MINA CAMPANA DE PLATA:
- -------------------------------------------------------------------------------------------------------------------------
NAME ATTITUDE WIDTH LENGTH HOST ROCK MINERALOGY VALUES KNOWN WORKS
- -------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
V. La Lipton -- 1-10 2,000 Shale Sphaleri, Ag: 350 g/t Pb.
galena, 1.2% Zn. 2.8%
polybasite,
argentite
V. La Fali N58W,45SW 0.6-2 116 Black Sphalerite, Au 5 g/t Ag 104 Adit Crosscut
shale pyrite, g/t Cu. 0.6%
chalcopyrite,
malachite
azurite
V. La Condesa N35-50W 1 1,000 Foliated Pyrite, quartz, Ag 216-1,243 g/t
82-85NE Andesite lead and zinc
sulphides
V. Santo Nino N12W 2.5 850 Schist Argentite, Ag. 301 g/t Au. Nochebuena
45-60SW and shale galena, 0.3 g/t shaft
sphalerite Crosscuts
V. Ma. De Jesus N38W, N54E 0.7 100 Meta-volcanic Quartz, pyrite Au. 0.5 g/t Ag. Crosscut
1 foliated 225 g/t
andesite
V. Carlos N5E 1 125 Black Quartz, pyrite, Au. 0.9 g/t
25 m shale and
Pacheco 50SE galena, Ag. 300 g/t 125 m Crosscut
sphalerite
V. Sara Mamatla N32-50W 65 SW 0.4-1.8 1,100 Meta-andesit Pyrite, galena, Au. 0.8 g/t Ag. La Culebra
and shale sphalerite 170 g/t adit,
El Sabino
crosscut,
Santa Rita
crosscut
adit
V. El Escorpion N40W 0.8-1.20 300 Foliated Galena, Au. 1 g/t Ag. 485 2 adits
60 NE andesite sphalerite g/t
Manto America 2.5 60 schist Sphalerite, Au. 4.8 g/t South adit,
galena
chalcopyrite Ag. 95 g/t Work #2, Work
#1, adit #1
La Cadena N20 W 1.50 500 Shale Quartz, Au.0.0-6.0 g/t N15W adit and
50 SW fluorite, Ag.10-449 g/t Cu. 2 m developing
hematite, 0.4-9.6%
chalcopyrite
San Juan N25 W 0.25 -- Carbonaceous Chalcopyrite, Au. 449 g/t Cu. Adit to the
45 SW shale quartz 1.8% south and 3 m
Coecillo N5 W 3-5.50 -- Shale Quartz, Ag. 80 g/t Adit to the
65 SW chalcopyrite Cu. 4 & 6% south and 40
m North adit
and 40 m, 3
shafts
Carboncillo N10-15 W 0.40-5.0 200 Black Chalcopyrite, Ag. 150 g/t 3 adits
70-80 SW shale galena, Cu. 5%
hematite,
pyrite and
quartz
El Orito N12 W, N25W -- 1,500 -- -- -- --
N45 W
- -------------------------------------------------------------------------------------------------------------------------
</TABLE>
SOURCE: C.R.M., Technical Files and Michoacan Regional Office.
Excerpted from Monografia Geologica-Minera del Estado de Mexico, 1996.
6
<PAGE>
TABLE III.
STATE OF MEXICO: RESERVES OF SOME MINING LOCALITIES IN THE ZACUALPAN DISTRICT.
TYPE OF RESERVES
<TABLE>
<CAPTION>
Grade (g/t) Grade (g/t)
- ----------------------------------------------------------------------------------------------------------------
CLAIM Probable Width Au Ag Possible Width Au Ag Potential Partial Type of
Tonnage Ore
- ----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
La Luz 34,995 0.8 0.37 161 39,390 0.8 0.11 156 -- 74,385 SULPHIDES
- ----------------------------------------------------------------------------------------------------------------
Socavon Mexico 9,763 0.9 0.17 121 14,965 0.9 0.15 127 22,809 47,537 MIXED
- ----------------------------------------------------------------------------------------------------------------
La Cadena 6,000 1.8 -- 704 -- -- -- -- 100,000 106,000 MIXED
- ----------------------------------------------------------------------------------------------------------------
Ma.de Jesus 3,690 0.7 0.09 317 8,640 0.7 0.09 317 -- 12,330 MIXED
- ----------------------------------------------------------------------------------------------------------------
El Refugio 4,670 0.8 0.10 195 46,478 0.8 0.10 161 40,000 91,148 OXIDES
- ----------------------------------------------------------------------------------------------------------------
Los Compadres 5,375 1.9 0.37 267 -- -- -- -- 7,471 12,846 SULPHIDES
- ----------------------------------------------------------------------------------------------------------------
Cuetzillos 13,925 1.1 1.24 152 10,980 1.2 1.16 155 -- 24,905 MIXED
- ----------------------------------------------------------------------------------------------------------------
El Escorpion 4,384 0.8 -- 390 10,456 0.7 0.10 236 6,160 21,000 MIXED
- ----------------------------------------------------------------------------------------------------------------
El Cometa 12,160 1.1 0.38 249 9,923 1.1 0.38 249 9,677 31,760 SULPHIDES
Navideno
- ----------------------------------------------------------------------------------------------------------------
Total 94,962 1.1 0.41 225 140,832 0.9 0.21 177 186,117 423,311
- ----------------------------------------------------------------------------------------------------------------
</TABLE>
SOURCE: Report of the Joint Venture between C.R.M. and the State of Mexico,
Zacualpan District, 1984.
Excerpted from Monografia Geologica-Minera del Estado de Mexico, 1996.
The massive sulfides of the Mamatla belt are of dimension unknown to the writer.
They consist of a typical volcanogenic suite of sulfides, sphalerite, galena,
chalcopyrite, argentite with a gangue of pyrite, barite, dolomite, sericite, and
calcite.
Other small deposits of industrial minerals and building materials are present
within the region but are not reviewed here.
MINERAL RESERVES OF THE DISTRICT
Some data is available from literature on reserves of the District. While dated
in part they provide the indication of reserve levels. The company "Grupo
Industrial Penoles" published reserves for their Zacualpan unit in December of
1987 at 1,106,540 tons at 289 g/t Ag, 0.57% Pb, 1.23% Zn in some 33 structures.
MINPOZA has actively been mining these zones since 1992 and apparently has
several years of reserves in its main operation at the Guadalupe (formerly known
as Campana de Plata) operation lying west of Zacualpan townsite.
It is reported that mineable zones of 250-300 meters in length, vertical extent
of over 200-250 meters, and widths of 1-4 meters occur within vein systems of
the district. This general size is confirmed from field observations.
Modest reserves are tabulated in Table III for several of the known veins of the
district, totalling 500,000 tons in all categories (from Monografia
Geologica-Minera del Estado de Mexico).
Reserves in the Mamatla region (10 Km SW of Zacualpan town), were estimated by
the Consejo de Recursos Minerales in 1996 at 5.2 Mt, 445 g/t Ag, 0.4 g/t Au,
5.9% Pb and 17.5% Zn ( N. Miner, June 26, 1996). Subsequent work under Valerie
Gold did not added substantially to this reserve and they relinquished the
Mamatla concession in 1998.
7
<PAGE>
THE PROPERTIES
GENERAL
The properties consist of three groupings of claims as shown in Fig. 4. They
are:
1. - EL QUINTO II, EL VOLADO, LA CADENA in the central area;
2. - EL COMETA NAVIDENO, LOS COMPADRES to the south; and
3. - QUINTO REAL, a recent claim in the north.
Each of these claim groups will be discussed in sequence.
1. - EL QUINTO II, EL VOLADO, LA CADENA.
This grouping of claims comprising 124.6 (Fig. 5) hectares contains several
vein structures many of which have had significant production in the past. Only
the El Quinto II area of workings is accessible today. The entire group of
claims is underlain by andesitic volcanics of varied textures from lahar flows
to pillowed basalts. The units are all metamorphosed to green schists. A
structural map has not been prepared in detail but units in general have
schistosity parallel and subparallel to bedding units which in general have low
dip angles.
Numerous quartz veinlet swarms trending both northwest and east-west appear to
be scattered throughout the claim block. Mineralized vein structures that have
been the subject of mining trend in general N 20-40 W and are subvertical in
attitude.
EL QUINTO II - EL VOLADO. This vein system is accessible today on two levels,
one at creek level in Arroyo San Juan; the other at some 50 m higher elevation
and extending into El Volado claim. Lower workings of minor extent are flooded.
Several hundred meters of development are interconnected from level to level
with ventilation and access raises to the surface in several places through old
stopes. The vein system is comprised of two parallel structures varying in width
from 1-2 meters, expanding to several meters in some stoped areas. Cross veins
and intersecting en echelon features are present. The mine was once equipped
with electricity and rail, some of which remains. Several tons of material is
currently being removed manually for a milling sample to be tested at the
MINPOZA mill in Zacualpan.
Production from this vein system was reported to be substantial during the
Second World War for the production of zinc. A mill was established near the
lower portal in the site of an old abandoned hacienda foundation. A second mill
in a lower hacienda area apparently recovered silver from tailings from the
upper mill. A volume estimate from examination of old mine workings would
indicate at least a few hundred thousand tons of production. Mineralization
occurs within a shear structure trending from N20-40 W but having some cross
structural and en echelon zones and flexes within the vein system. The structure
is subvertical with dips in general 80-85 degrees east.
Minor oxidation occurs within the sulfide zones but generally sulfides appear
fresh where visible in underground workings. Sphalerite, galena and pyrite are
the dominant minerals but proustite-pyrargyrite are reported. Gangue minerals
are predominantly quartz and calcite. The vein does not have many clean
exposures underground as mining activities extracted to the limit of
mineralization in stopes. Pillars provide sample points and current mining by
hand consists of robbing pillars for a milling sample.
8
<PAGE>
Select samples of high grade from underground from a pillar ran as high as 9.46%
Pb, 20.77% Zn, 265.9 g/t Ag, and 0.30 g/t Au (Acme Labs, Vancouver, Canada).
Another sulphide sample from the vein underground assayed 4.0% Pb, 8.92% Zn and
834 g/t Ag (Chemex Labs, Chihuahua, Mexico). Other samples assayed ran
considerably lower but no meaningful average can be reached from samples taken
to date. Numerous other prospects pit and small adits occur on the hillside
above El Quinto II.
LA CADENA.
Several inaccessible workings or vein systems occur in La Cadena from west to
east across the property are listed below. Most trend parallel to El Quinto II
and El Volado.
1) La Cadena - two sites - major portals, one dated 1929, production
units may date back to Spanish time.
2) El Zagal - adit in andesites, production unknown.
3) El Borrego - adit in andesites, production unknown.
4) La Blanca - production unknown but dumps and gob shipped to mill in
1970's-1980's reportedly averaged 1/2 kg/t of Ag and 1-2 g/t Au.
(Felipe Gama pers. comm., 1998).
5) La Bella Manana - site not seen.
6) Las Animas - prospect in andesites.
7) Las Golondrinas - old portal appears to date back to early Spanish
times.
A small production mill was at one time located near the Las Golondrinas
workings.
RECOMMENDED WORK:
1. - EL QUINTO II, EL VOLADO, LA CADENA.
From data on current reserves in the district and examination of old workings,
expected targets with this district would be sulfide masses within vein systems
that would be 50,000-150,000 tons in size, possibly larger. Dimensions can be
expected to be 1-2 meters in width, 100-300 meters length, 100-300 meters in
vertical dimension.
RECOMMENDED WORK:
It is recommended that an induced polarization (I.P.) survey be conducted over
these vein systems with lines oriented approximately N50 E. Four lines of 2 Km
each at 200 meter intervals for the El Quinto II area and the same amount for
Las Golondrinas area are recommended for an initial coverage for a total of
8 Km.
Fill in lines at 100 meters for follow up in stage II would require an equal
amount of line length. Electrode spacing should be adequate to reach at least 50
meters.
Drilling of anomalous areas would be conducted based on geophysical results.
Costs for this program are discussed under Costs.
2. - LOS COMPADRES and EL COMETA NAVIDENO.
This grouping of claims comprising 53 hectares (Fig. 6) covers two parallel N30
W trending vertical vein systems El Cometa Navideno and the adjoining Santiago
9
<PAGE>
vein system together with occurrences along the approximate extensions of these
veins onto the Los Compadres claim.
The majority of the workings extending over a few hundred meters southerly from
the portal are inaccessible with remnants of ventilation raises and open stopes
located on the hillside 50-100 meters and 100-200 meters, south of the adit in
the creek bottom. The adit is accessible for a little over 100 meters then is
obstructed by cave.
Stopes in the parallel Santiago vein 20 meters to the east were apparently
connected by galleries to those of the El Cometa Navideno vein and extended to
some depth below creek level in addition to going to surface. Where exposed in
the adit the nearly vertical El Cometa vein is 0.5 meters but is reported to be
wider than 1 meter. The veins are hosted by andesite schists at the creek level
and by phyllites at higher elevations.
Production from this mine is not recorded but probably exceeded 100,000 tons
from the distribution of workings and the postulated 31,760 ton potential
reserve from Table III at a grade of 249 g/t Ag and 0.41 g/t Au.
Several other prospect adits and pits lie to the north of the claim group but
are not recorded and possible production is unknown.
The Los Compadres portion of this unit has number of quartz vein prospects in
andesite and phyllites. Little work has been done in these.
RECOMMENDED WORK:
As with the previous group of claims, expected targets in this area could be
sulfide masses within vein systems that would be 50,000 to 150,000 tons,
possibly larger. Dimensions would be 1-2 meters in width, 100-300 meters in
length and 100-300 m in vertical dimension. To evaluate the potential for
targets of this nature four lines 2 Km in length of I.P. survey are recommended
for an initial survey; with a similar coverage for fill-in lines. The lines
should be oriented N60E to trend perpendicular to the generalized vein
structures. Spacing of these lines should be at 200 meter intervals with fill in
at 100 meter with electrode arrays adequate to penetrate at least 50 meters.
Costs for this program are discussed below.
3. - QUINTO REAL.
This large claim block (Fig. 7) is underlain predominantly by andesitic schists
and phyllites mapped as Triassic-Jurassic in age. In general, they are
moderately dipping, with schistosity parallel to initial bedding as defined by
lithologic variations, particularly within lahar-type andesitic fragmentals.
Limy bands occur within phyllites in the central portion of this claim block.
Swarms of quartz veinlets 1-10 cm in width occur throughout the region
frequently parallel or subparallel to foliation in many areas.
In the valley bottoms in the central portion of the claim block recent
(Tertiary?) sediments with limestone and volcanic fragments and calcareous
matrix fill the lower valleys and cover much of the underlying volcanic schist
and phyllites. A granodiorite of Cretaceous age occurs along Hwy 7 near the
north boundary of the claim. Its relationship with the Triassic-Jurassic
volcanics can not be seen and no visible alteration zone is observed in nearby
volcanics.
Capping ridges in the northwestern portion of the claim is a thick massive to
flow banded pink rhyolite of Tertiary age underlain by a thick rhyolite
fragmental with unsorted matrix (mudflows or lahars). These younger rocks lie as
a caprock over the underlying schists and phyllites with the actual contact
obscured by landslides and fill cover.
10
<PAGE>
Just off the south boundary of the claim in the bedrock of Santiago creek a
small showing of sulfide mineralization including pyrite and quartz occurs in
andesite schists. These sulfides and quartz are interpreted to have a possible
volcanogenic aspect as they follow vague outlines of pillows in pillow lavas and
are not constrained by vein structures.
RECOMMENDED WORK:
It is recommended that a stream sediment geochemical survey be conducted
throughout this claim block to evaluate the property for possible volcanogenic
massive sulfide occurrences within the claim. Samples should be analyzed for a
suite of elements using ICP (induction-coupled-plasma) techniques. Copper,
lead, zinc, silver, tin and barium anomalies should be followed up by secondary
stream and soil geochemical sampling.
It is estimated that up to 400 samples may be needed to profile the geochemical
nature of the area. Additional work would be contingent on the results of the
geochemical survey.
COST OF PROGRAM
Cost of the geochemical survey on Quinto Real an initial I.P. program on each of
the other two blocks with follow-up fill in lines are projected below. Initial
follow-up drilling is budgeted on a contingency basis. A second stage drill
program and additional I.P. surveying would be contingent upon results from the
stage one program. All costs are projected with a 20% contingency because of
difficulty in obtaining reference figures for current operations in this area.
11
<PAGE>
PROGRAM BUDGETS (quoted in $U.S.)
STAGE I.
A. - I.P. Surveying and Geochemistry.
---------------------------------------------------------------------------
Cost initial 24 Km I.P. (per contractors quote) 42,626.
Linecutting etc. 10,000.
Additional 30 Km I.P. (per contractors quote) 43,426.
Linecutting etc. 10,000.
Geochemical Survey. 12,000.
Supervision, overhead 10 wks. 48,000.
Truck rental 10 wks @ 600. 6,000.
Subtotal 172,052.
Contingency @ 20%. 34,210.
Total 206,462.
---------------------------------------------------------------------------
B. - Drilling Stage 1
Presuming five targets per area
3 areas = 15 targets
Per target cost
---------------------------------------------------------------------------
3 holes @ 200 meters x $110/metre 66,000.
including surveying & assaying
Supervision and overhead @ 4 wks x 5,500/wk 22,000.
88,000.
Contingency @ 20% 17,600.
Per Target Total 105,600.
5 Targets per area 528,000.
Three areas @ $528,000. 1,584,000.
Stage 1 Drilling Total ==========
---------------------------------------------------------------------------
Total Stage 1
A 206,462.
B 1,584,000.
TOTAL 1,790,462.
12
<PAGE>
STAGE II.
Follow up I.P. and follow-up Geophysics;
Detailed drilling of five selected targets.
- --------------------------------------------------------------------------------
A. - I. P. Program and Geochemical program of
similar magnitude to phase I 206,200.
- --------------------------------------------------------------------------------
B. - Drilling of five selected targets @ 10 Hole
each @ 200 metres @ $100/metre
10,000 metres @ $110/metre. 1,100,000.
- -------------------------------------------------------------------
Supervision & oh 28 wks @ 5,500/wk 154,000.
----------
SUBTOTAL 1,254,000.
- -------------------------------------------------------------------
- -------------------------------------------------------------------
Contingency @ 20% 250,800.
----------
TOTAL 1,504,800.
- --------------------------------------------------------------------------------
Total Stage 2
A 206,200.
B 1,504,800.
TOTAL 1,711,000.
GRAND TOTAL
Stage 1 1,790,462.
Stage 2 1,711,000.
TOTAL $3,501,462.
13
<PAGE>
REFERENCES
1. - Consejo de Recursos Minerales, Informe de la visita de reconocimiento al
lote minero "La Cadena", mpio. de Zacualpan, Edo. de Mexico. Ing. Enrique
Guzman Soto y Ing. Jose Borgonio Gaspar; Superviso Ing. F. Julio Andrade R.
Consejo de Recursos Minerales, Gerencia de Evaluacion y Contratos, Mexico,
D. F., Mayo de 1985.
2. - Consejo de Recursos Minerales, Monografia Geologica-Minera del Estado
de Mexico.
ISBN 968-6710-69-8 (Mexico State)
ISBN 968-6710-02-7 (Complete Series)
3. - Canadian Mines Handbook (1998), Northern Miner Press, Toronto, Canada.
4. - N. Miner (1996), Northern Miner Press, Toronto, Canada.
14
<PAGE>
CERTIFICATE
I, Juan Jose Cabuto Vidrio, of Cayetano Perez 555, Col. Ruiz Cortines, Tijuana,
Baja Cfa., C.P. 22350 Mexico do hereby state that:
1) I am a Graduate of the University of Sonora, Mexico (B. Sc. in Mining
Engineering - 1983). In addition, I studied towards an M.Sc. degree in
Geophysical Exploration at CICESE (Centro de Investigacion Cientifica Y
Educacion Superior de Ensenada).
2) I am registered as Mining Engineer in Mexico (Registration #1127796).
3) I am a member in good standing of SME-AIME (A Member Society of the
American Institute of Mining, Metallurgical and Petroleum Engineers, Inc.
Membership #0461612).
4) I am registered as a Mining Surveyor with the Mexican Department of Mines -
SECOFI (Membership #755-2-II).
5) I have practised my profession as an independent Mining Engineer and
Surveyor continously since graduation in 1983. I have worked in Mexico, the
United States and South America.
6) I have based this report on visits to the property during May, July and
September of 1998, on a knowledge of the area gained by working in Mexico
and upon a study of available public and private reports on the property
and surrounding area.
7) I do not have any interest, direct or indirect, in the property or
securities of International Capri Resources Ltd., nor do I expect to recive
any such interest, direct or indirect.
8) I give my permission to International Capri Resources, Ltd.to use this
report as part of an underwriting, statement of material facts or news
release.
Dated the 12th day of December, 1998 at Zacualpan, Estado de Mexico, Mexico.
/s/ Juan Jose Cabuto Vidrio
-----------------------
Juan Jose Cabuto Vidrio
Mining Engineer
15
<PAGE>
CERTIFICATE
I, Alex Burton, do hereby certify that I am an independent Consulting Geologist
with an office at 1408 Seventh Avenue, New Westminster, B.C. V3M 2K3, Tel/Fax.
(604) 525 8403
I FURTHER CERTIFY THAT:
1. I am a geology graduate of the University of British Columbia and am a
registered Professional Engineer and Professional Geologist in B.C. with
Certificate No. 6262. I am also a Fellow of the Geological Association of
Canada, a founding member of the Association of Exploration Geochemists and
a Life Member of AGID and the CIM.
2. I have practised my profession for over 40 years, both as an independent
consultant and in senior managerial capacity of major mining companies in
Canada and other countries.
3. I have not visited the property but have reviewed and discussed the recent
data and maps with Snr. Juan Cabuto Vidrio, Mining Engineer. I have often
worked in the field with Snr. Cabuto during the last ten years and have a
high regard for the quality of his work. Two years ago when he was in
Vancouver I introduced him to the reviewers in the VSE and the BC
Securities Commission.
4. I have no interest, directly or indirectly in the property or securities of
International Capri Resources Limited, nor do I expect to receive directly
or indirectly any interest in such property or securities.
Dated this 6th day of January, 1999 in New Westminster, B.C.
/s/ Alex Burton
------------------------------
Alex Burton, P. Eng., Pr. Geo.
Consulting Geogolist
16
INDUCED POLARIZATION SURVEY
ZACUALPAN PROJECT
MEXICO STATE, MEXICO
INTERNATIONAL CAPRI RESOURCES LTD.
Delta, British Columbia
/s/ Joseph R. Anzman
--------------------
Joseph R. Anzman
Exploration Geophysicist
March, 1999
<PAGE>
CONTENTS
INTRODUCTION................................................................. 1
INTERPRETATION............................................................... 2
AREA 1.............................................................. 3
AREA 2.............................................................. 3
CONCLUSIONS/RECOMMENDATIONS.................................................. 4
ILLUSTRATIONS
INTERPRETATION MAP...................................................Map Pocket
<PAGE>
INDUCED POLARIZATION SURVEY
ZACUALPAN PROJECT
MEXICO STATE, MEXICO
- ------------------------------------------------------------------------------
INTRODUCTION
This report presents the interpretation of the induced polarization survey
carried out at the Zacualpan Project, Mexico State, Mexico for International
Capri Resources Ltd. The interpretation and report were prepared at the request
of Stewart A. Jackson, Vice-President, Exploration.
The project area is located just outside the town of Zacualpan, Mexico State,
within a known mining district where silver mineralization--directly associated
with pyrite--had been mined from veins. The purpose of the induced polarization
work was to locate anomalous conditions that could indicate the pyrite and
thereby represent favorable targets for the presence of silver mineralization.
1
<PAGE>
INTERPRETATION
The interpretation presented herein is based upon the induced polarization data
that was obtained by the contractor hired by the company and provided to the
author.
The survey was carried out using Scintrex induced polarization equipment.
Measurements were made in the time domain with the polarization values recorded
as chargeability. A dipole-dipole electrode array was used with a dipole spacing
of 50 meters. The spacing of the survey lines was normally 100 meters and the
bearing was 060(degree). On most survey lines, data were obtained at
transmitter-receiver separations of n=1, 2, 3 and 5 with no data taken at n=4.
Since silver mineralization was known to accompany pyrite in the vein systems,
the important exploration consideration for the induced polarization survey was
to locate anomalous chargeability conditions that could indicate the pyrite. The
chargeability data were scrutinized closely and an aggressive approach was taken
to determine valid anomalous responses. Only those anomalies that showed
continuity of location and pattern on adjacent survey lines were considered.
Scattered one-station and one-line "anomalies" were discarded. This approach
diminishes the effects of variations that occur in the chargeability data.
Further, the sought-after vein structures would be expected to produce an
anomalous and mappable chargeability pattern on more than just a single survey
line.
The interpretation is shown on the INTERPRETATION MAP. Chargeability anomalies
are shown as "discrete anomalous zone," in red, or "anomalous area," in blue.
The discrete anomalous zones are located within a single dipole length, 50
meters. These responses and their respective source bodies are described with
respect to their estimated depths and shapes. The designation, "N", signifies an
anomaly present on the first transmitter-receiver separation, n=1, and indicates
an estimated depth in the order of 20-25 meters or less. This estimate as well
as others are deliberately "conservative; " that is, the estimates shown are
deeper than the actual source body. This approach was taken to try to insure
that any angle drill holes will not pass over the top of the causative geologic
body(ies). In any case, using a 50-meter dipole spacing with readings to the
fifth receiver-transmitter separation, n=5, the expected maximum depth of
investigation would be in the order of 100 meters; again, this is a
"conservative" figure. Some of the discrete anomalous zones show patterns that
indicate that the causative geologic bodies are tabular in shape. These zones
are shown by the designation "T." Those that show a very good tabular-body
pattern are shown by "T*".
Anomalous areas indicate more-widespread responses that, at some locations,
could be due to a number of discrete anomalous zones that are close enough
together so that their chargeability patterns merge and thereby prevent
delineation of the individual zones. At other locations, however, it has been
possible to define discrete anomalous zones within the larger anomalous areas. A
more straightforward and direct geologic possibility is that the anomalous areas
simply reflect widespread sulfide mineralization.
2
<PAGE>
AREA 1
- ------
There is some question as to the ground location of Line 5500. On the
INTERPRETATION MAP, the line has been located with respect to the survey grid.
The determination of the actual location of the line should be made by project
personnel more familiar with the situation.
Various discrete anomalous zones can be connected, because of their locations
and patterns, to form northerly - trending anomalous bands. These bands comprise
two sub-areas, one on the east and the second on the west.
Other than the two-line responses at Line 5300-Line 5400 and at Line 5750-Line
5900, the eastern sub-area is comprised of a single anomalous band. Offsets in
the location of this band suggest faulting.
At the western sub-area, anomalous areas are present on the west ends of Line
5300 and Line 5400. Similar responses are not present to the north on Line 5200
nor to the south on Line 5500. This indicates that the source of the anomalous
area is an easterly-trending geologic body located between Line 5300 and Line
5400. This would seem to be at variance with the known geology in the project
area.
In addition to the survey lines shown on the INTERPRETATION MAP, data were also
obtained along three northerly-trending survey lines along grid locations 5200,
5400 and 5600. These lines are essentially parallel to the northerly-trending
anomalous bands. Since any anomalous response would likely be from one of the
bands, the data are not uniquely diagnostic and the northerly-trending survey
lines are not shown on the INTERPRETATION MAP.
AREA 2
- ------
Anomalous conditions result in two sub-areas, one on the east and the second on
the west. On the east, northerly-trending anomalous band extends from Line 7300
to Line 7600. The remainder of this sub-area is made up of the anomalous areas
from Line 7100 to Line 7700. Within these anomalous areas are a number of
discrete anomalous zones including the anomalous band from Line 7100 to Line
7400. In addition, anomalous chargeability values are present on the eastern
ends of the data sets on Line 7300 and Line 7400, and are shown as discrete
anomalous zones with the anomalies still open to the east.
In the sub-area on the west, anomalous areas are present from Line 7500 to Line
7900 and all are still open to the west.
3
<PAGE>
CONCLUSIONS/RECOMMENDATIONS
An aggressive approach was taken in working with the induced polarization data.
Only those anomalies that showed continuity and pattern on adjacent survey lines
were considered valid. Discrete anomalous zones, located within one dipole
length of 50 meters, comprise northerly-trending anomalous bands. Also, larger
anomalous areas are present. They could reflect either the effect from a number
of discrete anomalous zones that are enough together so that their chargeability
patterns merge or, more geologically simple, widespread sulfide mineralization.
Any drilling done to test the geophysical anomalies should certainly consider
the known geology. The holes should be on the survey lines where the anomalies
are best located. A number of responses suggest that the causative geologic
bodies are tabular in shape. Therefore, the drilling should consist of angle
holes and, if necessary, a fence of holes may be needed to properly test any
given response.
INTERPRETATION MAP
[MAP]
4
(TRANSLATION)
INTERNATIONAL CAPRI RESOURCES
S.A. DE C.V.
INDUCED POLARIZATION AND APPARENT RESISTIVITY
SURVEY IN THE ZACUALPAN PROJECT
MUNICIPALITY OF ZACUALPAN, STATE OF MEXICO
CARRIED OUT BY:
COMPANIA MINERA SAN EUGENIO, SANTA ROSA Y SANTA INES,
S.A. DE C.V.
ISRAEL HERNANDEZ PEREZ, ENG.
LUIS NOLASCO VARGAS, ENG.
PACHUCA, STATE OF HIDALGO, MEXICO
APRIL 1999
<PAGE>
CONTENTS
SUMMARY........................................................................1
1. GENERAL.....................................................................2
1.a. Introduction and Purpose...............................................2
1.b. Location...............................................................2
l.c. Geological Outline.....................................................2
2. WORKS CARRIED OUT...........................................................6
2.a. Methodology............................................................6
2.b. Coverage...............................................................7
3. FINDINGS...................................................................10
3.a. Analysis of Findings..................................................10
3.b. Relationship of anomalies with mineralization.........................10
3.c. Anomalies Quantification..............................................11
4. CONCLUSIONS AND RECOMMENDATIONS............................................16
5. BIBLIOGRAPHIC REFERENCES...................................................17
Attachment 1. PSEUDOSECTIONS OF INDUCED POLARIZATION AND
APPARENT RESISTIVITY
Attachment 2. BLUEPRINTS
Drawing 1. Blueprint of Induced Polarization Contours a=50 m; n=1; area 1
Drawing 2. Blueprint of Induced Polarization Contours a=50 m; n=3; area 1
Drawing 3. Blueprint of Induced Polarization Contours a=50 m; n=5; area 1
Drawing 4. Blueprint of Resistivity Contours a=50 m; n=1; area 1
Drawing 5. Blueprint of Induced Polarization Contours a=50 m; n=1; area 2
<PAGE>
Drawing 6. Blueprint of Induced Polarization Contours a=50 m; n=3; area 2
Drawing 7. Blueprint of Induced Polarization Contours a=50 m; n=5; area 2
Drawing 8. Blueprint of Resistivity Contours a=50 m; n=1; area 2
2
<PAGE>
COMERI, S.A. Cia Minera San Eugenio, Sta. Rosa y Sta. Ines, S.A. de C.V.
MINING, GEOLOGY, DIAMOND DRILLING, GEOPHYSICS
SUMMARY
At the request of International Capri Resources, S.A. de C.V., COMERI, S.A.
carried out a semi-detailed survey with Resistivity in time domain and Induced
Polarization Methods in the Mining District of Zacualpan, Mexico. The purpose of
this survey was to detect the presence of mineral veins with lead, zinc and
silver sulphides in order to come to know by means of indirect methods the
mineral potential in the lots owned by the hiring company.
The surveyed area is located in the municipality of Zacualpan, located in the
southernmost area of the State of Mexico. Access to this area is through a paved
highway in very good condition. This area has passable ways all the year round.
For the survey the following methods were used: electric methods of Induced
Polarization and Resistivity with dipole-dipole electrode devices, reading
stations every 50 meters, and four depths of research. This device was selected
as a result of the tests carried out.
Very high definition IP anomalies were obtained as a response of mineral veins,
whose sulphide zone was generally found around 75 meters deep, although some of
them were detected very close to the surface. There are vast anomalous zones as
the result of the integration of several veins very close to each other.
As a conclusion of the survey we can say that an exact correlation of IP
anomalies with mineralized structures known by mining works or by superficial
evidence was found, extrapolating the anomalies to veins or to some of them
unknown before this date. The information obtained highlights the importance of
the survey in the mineral geological evaluation of the surveyed area.
For the evaluation of the size and content of minerals of the veins detected, an
exploratory drilling campaign is recommended on the high and low density IP
anomalies obtained in this geophysical survey.
<PAGE>
GENERAL
1.a. Introduction and Purpose
International Capri Resources, S.A. de C.V. (ICR) requested a geophysical survey
to COMERI, S.A. de C.V., to be carried out with Induced Polarization (IP) and
Resistivity Methods in the mining district of Zacualpan, State of Mexico. The
purpose of the survey was to carry out a research with geophysical methods to
detect mineralized structures mainly of vein type in the mining lots owned by
ICR, in order to guide the exploratory drilling campaign and come to know the
mining potential of such lots.
In the surveyed zone, traces of important underground mining works can be found.
No exploitation maps exist. Notwithstanding, the area has an enormous potential
interest seen in the geophysical responses obtained, that can be attributed to
mineralized structures.
1.b. Location
The survey area is located at 1 km to the southeast of the town and municipality
of Zacualpan. This municipality is in turn located in the southernmost region of
the State of Mexico, adjacent to the State of Guerrero, since one portion of the
area is located in the State of Guerrero (Figures 1 and 2).
With respect to access, a very good ground communication exists. A one hour trip
from Mexico City to Ixtapan de la Sal through a highway passing by the City of
Toluca; going south through a paved way for an hour you reach the town of
Zacualpan; you continue on a dirt path with spur routes covering most of the
surveyed area, which routes are passable all the year round. Ranches in the
surveyed area have electricity and potable water.
l.c. Geological Outline
The surveyed area is located in the tectonic statigraphic unit of the Guerrero
ground. Rocks are of volcanic-sedimentary origin metamorphized through
compressive strain (Campa y Ramirez, 1979), corresponding to the White Jurassic
- - Low Cretaceous age,
2
<PAGE>
locally called Taxco Schist, Taxco Viejo Green Rock and Almoloya Phyllite (Lang
et al., 1996; Cabral 1998). No intrusive rock was observed in the are of the
geophysical survey.
Structurally, these rocks are affected by normal low angle faultage combined
with little lateral displacement. Schists also show an intense loosening due to
overthrust fault, probably to the northeast, which makes more complex the
geology of the area.
Mineralization occurs in the filling of cracks mainly trending to the NNW-SSE
and N-S, observing in some places pyrite scattering in the metaandesite of the
Taxco Viejo formation.
Mineralized veins do not contain much tailings (silicon, calcite, barite, etc.)
so they are not evident in the surface, observing certain correlation with
topographic elevations.
3
<PAGE>
FIGURA 1.-MAPA DE LOCALIZACION
[FIGURE 1]
4
<PAGE>
FIGURA 2.-UBICACION DE LA ZONA DE ESTUDIO EN LA CARTA
TOPOGRAFICA DE INEGI, PILCAYA E14-A47
[FIGURE 2]
5
<PAGE>
WORKS CARRIED OUT
2.a. Methodology
Geophysical methods of Induced Polarization (IP) and Apparent Resistivity in
time domain were used. To obtain direct IP readings and resistivity parameters
the following equipment was used: Seintrez equipment, IPC7 transmitter, with a
power of 2.5 km, and an IPR8 receiver.
In order to select the device and the optimum geometric parameters, tests were
carried out in a 5000 linear stretch, where a vein is known to exist through
mining works. Electrode pole-dipole and dipole-dipole devices were applied in
these tests. Dipole spacing was 50 m, to obtain information at 5 different
depths.
The best definition of the mineralized structure in semi-vertical position was
obtained with a dipole-dipole array, seeing the difference with other parallel
structures. Therefore, this array was selected for a systematic survey, choosing
levels n=1, 2, 3 and 5 since many similarities were found in the readings of
level 4 and 5.
The theoretical depth of the survey corresponds to the four levels mentioned
above, from 50 to 150 m (see figure 3), considering that over the first 50 m,
the oxidation zone prevails and the geophysical response is practically null. A
sampling with stations every 50 m and piling every 25 m, with a 50 m spacing
between current electrodes and potential electrodes was considered the optimum
to detect vein type table structures in this zone.
To reach depths greater than 150 m, greater spacing was required between
electrodes and dipolar spacing, thus losing resolution of table structures. Also
some accuracy may be lost in the position of mineralized bodies, due to the
large volume of rock to be measured.
In order find depth in meters for IP and Resistivity pseudosections, the
vertical scale is indicated in bench marked since no land marks were available
(figure 3).
IP values were taken in 3 windows - M1, M2 and M3 - choosing for interpretation
the M2 value. If the operator considered it was necessary, 2 or 3 readings were
taken in order to find repeatability.
6
<PAGE>
2.b. Coverage
The geophysical survey of areas 1 and 2 covered a total of 24 lines trending
NE-70(Degree) SW and variable longitude, 3 lines to the NW-30(Degree) SE and a
cutoff line, for a total mileage of 28.7 (46.2 km) plus the cutoff line. At the
request of ICR, lines 7800 and 7900 were surveyed with 5 levels of research.
Details are shown in Table 1.
The surveyed surface in area 1 was 315 hectares and 200 hectares in area 2,
approximately.
Brecciation and the topographic line for the geophysical survey was carried out
by the hiring company, ICR.
COMERI carried out the field geophysical survey including tests, from December
21, 1998 to March 3, 1999.
7
<PAGE>
FIGURE 3.-USED ELECTRODE ARRAY
[FIGURE 3]
8
<PAGE>
INDUCED POLARIZATION AND RESISTIVITY SURVEY
Zacualpan, Mexico Project
<TABLE>
<CAPTION>
Date of Survey Remarks
No. Line Bearing From To Distance Levels (day/month/year)
-------------------
Station Station (M) 1 2 3 4 5
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
- ------------------------------------------------------------------------------------------------------------------------------------
1 4400 NE 70(Degree) 5675 7525 1850 X X X X 01-02/03/99
- ------------------------------------------------------------------------------------------------------------------------------------
2 4600 NE 70(Degree) 5675 7525 1850 X X X X 26/02/99
- ------------------------------------------------------------------------------------------------------------------------------------
3 4800 NE 70(Degree) 5675 7525 1850 X X X X 24-25/02/99
- ------------------------------------------------------------------------------------------------------------------------------------
4 4950 NE 70(Degree) 4825 6475 1650 X X X X 19-20/01/99
- ------------------------------------------------------------------------------------------------------------------------------------
5 5000 NE 70(Degree) 4775 6525 1750 X X X X 22/01/99
- ------------------------------------------------------------------------------------------------------------------------------------
6 5100 NE 70(Degree) 4775 6525 1750 X X X X 18-19/01/99
- ------------------------------------------------------------------------------------------------------------------------------------
7 5200 NE 70(Degree) 4575 6525 1950 X X X X 04-05/01/99
- ------------------------------------------------------------------------------------------------------------------------------------
8 5300 NE 70(Degree) 4575 6725 2150 x x x x 16-17/01/99
- ------------------------------------------------------------------------------------------------------------------------------------
9 5400 NE 70(Degree) 3625 6575 2950 X X X X 26-27/12/98 19/02/99
- ------------------------------------------------------------------------------------------------------------------------------------
10 5500 NE 70(Degree) 4475 6825 2350 X X X X 11-12/01/99
- ------------------------------------------------------------------------------------------------------------------------------------
11 5600 NE 70(Degree) 4225 6725 2500 X X X X 28/12/98 20/02/99
- ------------------------------------------------------------------------------------------------------------------------------------
12 5675 NE 70(Degree) 4575 6675 2100 X X X X 13-14/01/99
- ------------------------------------------------------------------------------------------------------------------------------------
13 5750 NE 70(Degree) 5075 6625 1550 X X X X 29-30/12/98
- ------------------------------------------------------------------------------------------------------------------------------------
14 5900 NE 70(Degree) 4725 6775 2050 X X X X 15/01/99
- ------------------------------------------------------------------------------------------------------------------------------------
15 7100 NE 70(Degree) 4875 6325 1450 X X X X 04-05/02/99
- ------------------------------------------------------------------------------------------------------------------------------------
16 7200 NE 70(Degree) 4875 6325 1450 X X X X 05-06/02/99
- ------------------------------------------------------------------------------------------------------------------------------------
17 7300 NE 70(Degree) 4775 6325 1550 X X X X 06-07/02/99
- ------------------------------------------------------------------------------------------------------------------------------------
18 7400 NE 70(Degree) 4575 6225 1650 X X X X 08-09/02/99
- ------------------------------------------------------------------------------------------------------------------------------------
19 7500 NE 70(Degree) 4275 6225 1950 X X X X 07/02/99
- ------------------------------------------------------------------------------------------------------------------------------------
20 7600 NE 70(Degree) 4425 6125 1700 X X X X 10-11/02/99
- ------------------------------------------------------------------------------------------------------------------------------------
21 7700 NE 70(Degree) 4475 6025 1550 X X X X 11-12/02/99
- ------------------------------------------------------------------------------------------------------------------------------------
22 7800 NE 70(Degree) 4375 5825 1450 X X X X X 13-16/02/99 +25%=350 m
- ------------------------------------------------------------------------------------------------------------------------------------
23 7900 NE 70(Degree) 4375 5875 1500 X X X X X 15-16/02/99 +25%=375 m
- ------------------------------------------------------------------------------------------------------------------------------------
24 8100 NE 70(Degree) 4475 5525 1050 X X X X 17/02/99
- ------------------------------------------------------------------------------------------------------------------------------------
25 Line A NW 30(Degree) 025 925 900 X X X X 03/02/99
- ------------------------------------------------------------------------------------------------------------------------------------
26 Line B NW 30(Degree) 025 875 850 X X X X 21/01/99
- ------------------------------------------------------------------------------------------------------------------------------------
27 Line C NW 30(Degree) 025 875 850 X X X X 02/02/99
- ------------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------------
Test NE 60(Degree) 4775 5825 X X X X 21-22/12/98 1050 m (dipole - dipole)
- ------------------------------------------------------------------------------------------------------------------------------------
Test NE 60(Degree) 4950 5850 X X X X 23/12/98 900 m (pole - pole)
- ------------------------------------------------------------------------------------------------------------------------------------
Total 46200
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
9
<PAGE>
FINDINGS
3.a. Analysis of Findings
IP anomaly response represented quite a high contrast between the mineralized
structures and the enclosing rock, which allowed to define the position of veins
under the geophysical research lines, as well as the depth at the sulphide zone
which could be seen in the pseudosections that are generally found at 75 m,
although anomalies exist that reflect mineralization close to the surface or at
greater depth, obtaining in some cases anomalies at the deepest research level.
For the selection of anomalies, the background of the zone was estimated with IP
values below 15 thousand seconds. Some of the well defined anomalous responses
remain at this level and suggest veins with poor mineralization or in oxide
zones.
In the analysis of IP findings, an important number of anomalies were defined
correlated to strike with different intensity maybe created by topographical
falls or by the structural complexity of the zone.
3.b. Relationship of anomalies with mineralization
Well defined IP anomalies higher than 40 milliseconds were obtained, thus
reflecting high mineral concentration. Anomalous zones of up to 200 m of
amplitude with elevations within these zones, whose characteristics are better
seen pseudosections, indicate the existence of several mineralized structures
very close to each other, presenting an integrated anomalous effect. There is
the possibility of mineralization presence in the enclosing rock between
parallel veins, but the possibility of influence of horizons of organic material
that may have contributed to mineralization as an integrated effect is not
discarded, mainly in lower topographical zones.
Low intensity 10 and 20 millisecond anomalies must not be overlooked, since they
may correspond to galena massive mineralization without pyrite.
Most of the IP anomalies show a well defined shape whose symmetry indicates a
vertical position of mineralized structures. In like manner, asymmetric
anomalies or irregular anomalous shapes suggest inclined veins. Anomalies of
deep veins are shown as a single elevation. The aforementioned characteristics
make us think that anomalous responses correspond to mineralized veins.
10
<PAGE>
The Resistivity method does not define a clear response of the veins as was seen
in pseudosections, since these veins do not contain sufficient tailing minerals
producing high resistivity. Rather, this method reflects the lithological
response of depth changes from schist rocks to metavolcanic rocks. Therefore,
this method was not very useful to interpret mineralized bodies (Drawing 4 and
8).
3.c. Anomalies Quantification
In Table 2 the anomalies obtained line by line are detailed, and in drawings 1
to 8, plant data at different depths can be seen. For resistivity only the
blueprints of the first level (50 m depth) are shown, since they are not
representative for the interpretation.
11
<PAGE>
INDUCED POLARIZATION ANOMALY CHART
<TABLE>
<CAPTION>
INTENSITY
(milliseconds)
-------------------------------------
LINE STATIONS HIGH MEDIUM LOW CHARACTERISTICS INTERPRETATIONS
> 40 40-30 30-15
- ------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
4400 5950-5975 X Probable oxides zone Vein response
6775 X Probable oxides zone Vein response
- ------------------------------------------------------------------------------------------------------------------------
4600 5825 X Deep, Probable oxides zone Probable, vein
6125 X Deep, oxides zone Probable, vein
6800-6825 X Shallow, symmetric Vein
- ------------------------------------------------------------------------------------------------------------------------
4800 5900 X Asymmetric Vein
6100-6125 X Irregular Probable, Vein
7125 X Irregular Probable, Vein
- ------------------------------------------------------------------------------------------------------------------------
4950 5100 X Shallow, symmetric Vein
5600 X Shallow, asymmetric, oxides zone Vein
5925 X Deep, single anomalous value Undefined
6075 X Deep Vein
6175 X Deep Probable, vein
6275 X Shallow, Probable oxides zone Probable, vein
- ------------------------------------------------------------------------------------------------------------------------
5000 5075 X Shallow, irregular Vein
5175 X Shallow, irregular Vein
5325 X Irregular Vein
5450 X Irregular, shallow Vein
5775 X Deep Probable, vein
5875 X Deep Probable, vein
6225 X Deep, broad at depth Vein
- ------------------------------------------------------------------------------------------------------------------------
5100 4875 X Deep Vein
5050 X Shallow Vein
5225-5275 X Deep Vein
5575-5625 X Deep Vein
5775 X Irregular Probable, vein
5900 X Deep Vein
6150 X Irregular Probable, vein
6350 X Irregular Probable vein
- -----------------------------------------------------------------------------------------------------------------------
</TABLE>
12
<PAGE>
<TABLE>
<CAPTION>
INDUCED POLARIZATION ANOMALY CHART
INTENSITY
(milliseconds)
-------------------------------------
LINE STATIONS HIGH MEDIUM LOW CHARACTERISTICS INTERPRETATIONS
> 40 40-30 30-15
- ------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
5200 5100 X Shallow, symmetric Vein
5350 X Broad Undefined
6100 X Shallow, symmetric Vein
- ------------------------------------------------------------------------------------------------------------------------
5300 4625-4775 X Broad, irregular anomaly Probable 2 veins
4900 X Shallow, irregular Probable vein
5125 X Shallow, irregular Probable vein
5400-5550 X Shallow, irregular Probable 2 veins
6000 X Shallow Vein
6175 X Deep Vein
6575 X Irregular Vein
- ------------------------------------------------------------------------------------------------------------------------
5400 3825 X Deep Probable vein
3975 X X Deep Probable vein
4075 X Shallow Vein
4625 X Shallow, irregular Vein
4950-4975 X Shallow asymmetric Vein
5425-5450 X Shallow, asymmetric Vein
6125-6150 X Shallow, irregular Probable vein
6275 X Irregular Undefined
- ------------------------------------------------------------------------------------------------------------------------
5500 5150-5200 X Irregular Massive vein
5550 X Deep vein projection Vein
5975 X Broad anomalous zone Undefined
6250 X Irregular Undefined
6375 X Deep Vein
6700 X Deep vein projection Vein
- ------------------------------------------------------------------------------------------------------------------------
</TABLE>
13
<PAGE>
<TABLE>
<CAPTION>
INDUCED POLARIZATION ANOMALY CHART
INTENSITY
(milliseconds)
-------------------------------------
LINE STATIONS HIGH MEDIUM LOW CHARACTERISTICS INTERPRETATIONS
> 40 40-30 30-15
- ------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
5600 5075-5150 X Deep, symmetric One to two veins
5375-5500 X Irregular shape Undefined
5625 X Irregular, shallow Probable vein
6325 X Deep Probable vein
6400-6425 X Irregular Vein
- ------------------------------------------------------------------------------------------------------------------------
5675 4850 X Deep Probable vein
4975 X Shallow, irregular Probable vein in oxides
5350 X Shallow, irregular Vein
5500 X Irregular Probable vein
5600-5625 X Shallow, symmetric Vein
6300 X Shallow, symmetric Vein
6600 X Shallow, irregular Vein
- ------------------------------------------------------------------------------------------------------------------------
5750 5525 X Deep Probable vein
5750 X Deep Probable vein
5950-6050 X Broad anomalous zone Probable vein
6175-6275 X Combines with the previous one Probable vein
- ------------------------------------------------------------------------------------------------------------------------
5900 5100 X Shallow, symmetric Vein with oxides
5500 X Deep Probable vein
5725 X Shallow, irregular Probable vein in oxides
5925 X Deep Vein
6075 X Shallow Vein
6350 X Shallow Massive vein
- ------------------------------------------------------------------------------------------------------------------------
7100 5600 X Deep Probable vein
5800-5900 X Superficial Massive vein
- ------------------------------------------------------------------------------------------------------------------------
7200 5075 X Deep Vein
5725 X Deep Vein
5900 X Deep Undefined
6050 X Deep Probable vein
- ------------------------------------------------------------------------------------------------------------------------
</TABLE>
14
<PAGE>
<TABLE>
<CAPTION>
INDUCED POLARIZATION ANOMALY CHART
INTENSITY
(milliseconds)
-------------------------------------
LINE STATIONS HIGH MEDIUM LOW CHARACTERISTICS INTERPRETATIONS
> 40 40-30 30-15
- ------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
7300 5050 X Deep Probable vein
5500 X Superficial Massive vein
5675 X Superficial Massive vein
5800 X Superficial Vein
- ------------------------------------------------------------------------------------------------------------------------
7400 5425 X Shallow Vein
5550 X Deep Probable vein
5825-5875 X Superficial Massive vein
- ------------------------------------------------------------------------------------------------------------------------
7500 4500 X Superficial Massive vein
5400 X Shallow Massive vein
5750 X Shallow, irregular Vein
5850 X Shallow Vein
5975-6150 X Broad anomalous zone Several veins
- ------------------------------------------------------------------------------------------------------------------------
7600 4500 X Shallow, irregular Probable vein
5200 X Irregular Probable vein
5325 X Irregular Vein
5775 X Shallow Massive vein
5975 X Deep Probable vein
- ------------------------------------------------------------------------------------------------------------------------
7700 4550 X Shallow Vein
4675 X Shallow Vein
5300 X Deep irregular Probable vein
5750 X Shallow Massive vein
5925-5975 X Broad irregular zone Undefined
- ------------------------------------------------------------------------------------------------------------------------
7800 4475 X Shallow Probable vein
4800 X Deep Probable vein
5200 X Shallow, not very defined Vein with oxides
- ------------------------------------------------------------------------------------------------------------------------
7900 4500 X Deep Undefined
5225 X Not very defined Probable vein
5800 X Not very defined Probable vein
- ------------------------------------------------------------------------------------------------------------------------
8100 5475 X Not enough data Undefined
- ------------------------------------------------------------------------------------------------------------------------
</TABLE>
15
<PAGE>
CONCLUSIONS AND RECOMMENDATIONS
After the analysis of geophysical data in pseudosections to visualize depth
anomalies and their strike correlation in the plant maps, as well as field
traverses, we concluded that IP results represented in this survey an important
tool reflecting high definition in the investigation of sulphide mineralized
veins, since an exact correlation of IP anomalies with veins known through
mining works or superficial evidence was obtained, extrapolating these anomalies
to structures or portions thereof previously unknown. The information obtained
reflects the importance of this survey for the geological-mineral evaluation of
the surveyed zone.
As to Resistivity, this method defined contrasts between metavolcanic rock (high
resistivity) and schists (medium to low resistivity depending in the degree of
metamorphism).
Veins did not show a good resistive contrast with enclosing rock. Low
resistivity may be a reflection of clay-bearing horizons containing organic
material, which horizons, as seen in the field, seem to be the most favorable
for the accumulation of mineral inside the structures.
IP anomalies generally showed very good definition and high intensity
attributing this response to abundant mineralization. Some anomalous zones have
amplitudes of up to 200 meters, and the elevations in these anomalous zones
indicate the presence of several mineralized structures, with the possibility of
existence of scattered mineralization in the rock between veins close to each
other. Therefore, we suggest to investigate the possibility of finding economic
mineralization in the space between veins, mainly in favorable horizons.
Both areas, 1 and 2, show interest from the geophysical perspective, thus we
recommend in both areas an intense exploratory drilling campaign to evaluate the
financial importance of the surveyed zone.
16
<PAGE>
BIBLIOGRAPHIC REFERENCES
Campa Maria Fernanda, Ramirez Joel, 1979. La evolucion geologica y la
metalogenesis del noroccidente de Guerrero. Plan piloto de la Universidad de
Guerrero (The geological evolution and metallogenesis of the northwestern part
of the State of Guerrero. Pilot Plan of the Guerrero University). Original
Cabral Cano Enrique, 1998. Tectonostratigraphic assessment of the Tierra
Caliente metamorphic complex, southern Mexico. A dissertation for the degree of
Doctor of Philosophy. University of Miami.
Lang Harold R., Barros Jose Antonio, Cabral Cano Enrique, Draper Grenville,
Harrison Christopher G.A. Jansma Pamela E. and Johnson Christopher A. 1996.
Terrain deletion in northern Guerrero State. Geofisica Internacional, Volume 35,
No. 4, pp 349-359.
17
<PAGE>
The following documents, although attached to this translation following the
order in the Spanish document, have not been translated:
1. Figure 1, Location map.
2. Figure 2, Location of the surveyed zone in INEGI's topographical chart.
3. Figure 3, Electrode device used.
4. Table 1, Induced Polarization and Resistivity Survey
5. Tables 2.1, 2.2, 2.3 and 2.4 showing induced polarization anomalies.
18
