March 30, 1999
Securities and Exchange Commission
Branch of Edgar Operations-Filers Support
6432 General Green Way
Alexandria, VA 22312
Re: U.S. Gold Corporation Form 10-KSB
File No. 0-9137
Gentlemen and Ladies:
U.S. Gold Corporation (the Company) hereby files its Form 10-KSB
for the year ended December 31, 1998, by Edgar submission.
Very truly yours,
/s/ William F. Pass
William F. Pass
Vice President and Chief Financial Officer
enclosures
U.S. Securities and Exchange Commission
Washington, D.C. 20549
FORM 10-KSB
(Mark One)
[X] Annual report under Section 13 or 15(d) of the Securities
Exchange Act of 1934
For the fiscal year ended December 31, 1998
[ ] Transition report under Section 13 or 15(d) of the Securities
Exchange Act of 1934
[No Fee Required]
For the transition period from ________ to __________
Commission file number 0-9137
U.S. GOLD CORPORATION
(Name of small business issuer in its charter)
Colorado 84-0796160
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization Identification No.)
2201 Kipling Street, Suite 100
Lakewood, Colorado 80215
(Address of principal executive office) (Zip Code)
Issuers telephone number (303) 238-1438
Securities registered pursuant to Section 12(b) of the Exchange
Act:
Title of each class Name of each exchange on which
registered
None N/A
Securities registered pursuant to Section 12(g) of the Exchange
Act:
Common Stock, $0.10 par value
(Title of class)
Check whether the issuer (1) has filed all reports required to be
filed by Sections 13 or 15(d) of the Exchange Act during the past
12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes X No
Check if there is no disclosure of delinquent filers pursuant to
Item 405 of Regulation S-B contained in this form, and no
disclosure will be contained, to the best of registrants
knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-KSB or any
amendment to this Form 10-KSB [X].
State issuers revenues for its most recent fiscal year. $130,944
in revenues for year ended December 31, 1998.
The aggregate market value (at the last trade price of $0.16 per
share) of the Common Stock of U.S. Gold Corporation held by
nonaffiliates as of March 15, 1999 was approximately $2,210,000.
As of March 15, 1999, there were 13,927,469 shares of Common Stock,
par value $0.10, outstanding.
Documents incorporated by reference: None.
Transitional Small Business Disclosure Format (check one): yes
no x
EXCEPT FOR THE HISTORICAL INFORMATION CONTAINED HEREIN, THE
STATEMENTS IN THIS REPORT WHICH RELATE TO THE COMPANYS PLANS,
OBJECTIVES OR FUTURE PERFORMANCE MAY BE DEEMED TO BE FORWARD-
LOOKING STATEMENTS. SUCH STATEMENTS ARE BASED ON CURRENT
EXPECTATIONS OF MANAGEMENT. ACTUAL STRATEGIES AND RESULTS MAY
DIFFER MATERIALLY FROM THOSE CURRENTLY EXPECTED BECAUSE OF FACTORS
INCLUDING GOLD PRICE, MINERALIZED MATERIAL GRADES, METALLURGICAL
RECOVERY, OPERATING COSTS, MARKET VALUATION, AND PROJECT OPERATORS
DECISIONS AND PERFORMANCE UNDER THE TONKIN SPRINGS LIMITED
LIABILITY COMPANY, AS WELL AS OTHER RISKS AND UNCERTAINTIES.
PART I
ITEM 1. DESCRIPTION OF BUSINESS.
Business Development
U.S. Gold Corporation (the Company) was organized under the laws of
the State of Colorado on July 24, 1979 under the name Silver State
Mining Corporation. On June 21, 1988, the Company, pursuant to a
vote of its shareholders, changed its name from Silver State Mining
Corporation to U.S. Gold Corporation. Since its inception, the
Company has been engaged in the exploration for, development of,
and the production and sale of gold and silver.
The Companys principal property is Tonkin Springs (Tonkin Springs)
located in Eureka County Nevada, which interest is held by Tonkin
Springs Venture Limited Partnership (TSVLP), a Nevada limited
partnership owned 100 percent by wholly-owned subsidiaries of the
Company. On December 31, 1993, TSVLP sold a 60 percent undivided
interest in Tonkin Springs to Gold Capital Corporation (Gold
Capital), a Colorado corporation. TSVLP retained a 40 percent
undivided interest in Tonkin Springs. Effective February 26, 1999,
TSVLP and Gold Capital terminated the Tonkin Springs Project Mining
Venture Agreement dated December 31, 1993 as amended (the 1993
Agreement). Gold Capital then immediately sold its 60 percent
undivided interest in the Tonkin Springs Properties and Assets (the
Properties) to Tonkin Springs Holdings Inc., a Colorado corporation
(TSHI) which is owned by subsidiaries of Sudbury Contact Mines
Limited, an Ontario, Canada corporation (Sudbury)(SUD:TSE), which
is itself a subsidiary of Agnico-Eagle Mines Limited, an Ontario,
Canada corporation (Agnico-Eagle) (AME:NYSE). TSHI then
immediately contributed its 60 percent undivided interest in the
Properties into a new limited liability company, Tonkin Springs LLC
(TSLLC) in exchange for 60 percent of the equity membership
interest of TSLLC, and TSVLP contributed its 40 percent undivided
interest in the Properties into TSLLC in exchange for 40 percent of
the equity membership interest of TSLLC.
During 1990, the Company completed construction of its milling
facility at Tonkin Springs and operated the integrated mill
facility in a start-up mode commencing March, 1990. However,
because of severe liquidity problems the Company put the operation
on stand-by status beginning in June, 1990, while the Company
concluded a transaction on February 13, 1991 with wholly-owned
subsidiaries of Homestake Mining Company of California (hereinafter
Denay). In that transaction, the Company sold 51 percent undivided
interest in the Tonkin Springs project to Denay and the parties
contributed their respective interests in the Tonkin Springs
project into the TSVLP. Denay conducted and funded exploration and
other activities at Tonkin Springs until its withdrawal from TSVLP
effective October 9, 1992. Upon Denay's withdrawal, the Company,
through its wholly-owned subsidiaries, became the 10 percent owner
of TSVLP and assumed responsibility for Tonkin Springs until the
transaction with Gold Capital described above that was effective
December 31, 1993.
Business
General
The Company is primarily engaged in the precious metal mining
business in the continental United States, however, it may also
evaluate and develop properties outside the United States. The
Company, through its wholly-owned subsidiaries, owns an interest in
the Tonkin Springs gold mine located in Eureka County, Nevada.
As a gold mining company, the Companys activities include, at
various times and to various degrees, exploration, land
acquisition, geological evaluation and feasibility studies of
properties and, where warranted, development and construction of
mining and processing facilities, mining and processing and the
sale of gold and other metal by-products. The Company also may
enter into joint ventures or partnerships to accomplish these
activities. All refined bullion is either sold to outside
companies, delivered in satisfaction of forward sale delivery
contracts, or held in inventory for later disposition. The Company
also may enter into joint undertakings with other companies to
accomplish the same purposes.
Contribution of 40 Percent Interest in Tonkin Springs into Tonkin
Springs Limited Liability Company
Effective February 26, 1999 (collectively the Effective Date),
TSVLP and Gold Capital terminated the 1993 Agreement and each
retained their respective 40 percent and 60 percent undivided
interests in the Properties. Gold Capital then immediately sold
its 60 percent interest in the Properties to TSHI, and then TSHI
and TSVLP each immediately contributed their respective undivided
interests in the Properties into a new Delaware limited liability
company, the Tonkin Springs LLC (TSLLC). In this transaction and
in exchange for contributing their respective undivided interests
in the Properties, TSVLP received 40 percent of the equity
membership interest of TSLLC, and TSHI received 60 percent of the
equity membership interest of TSLLC. The deemed amount of the
Initial Contribution of TSVLP to the TSLLC is $2 million and the
deemed amount of TSHI Initial Contribution to TSLLC is $3 million.
The objective of TSLLC is the exploration, evaluation and, if
justified, the development and mining of mineral resources at the
Properties.
Under the Members Agreement and the Operating Agreement of the
TSLLC, TSHI is required to fund all costs related to the
Properties, including all holding, administrative, operational and
exploration costs, until TSHI has first expended $4 million on
exploration of the Properties (the Cut-Off Date). All expenditures
funded by TSHI prior to the Cut-Off Date shall be added to TSHIs
Recoupable Amount which has as its opening balance the sum of
$5,625,000, which represents approximately one-half of the
recoupment account balance of Gold Capital under the 1993 Agreement
as of the Effective Date. If TSHI should withdraw from the TSLLC
prior to Cut-Off, TSHI shall have no further right, title or
interest in the Properties of TSLLC and its ownership interest
shall be deemed transferred to TSVLP. In addition, TSHI shall
remain obligated to TSVLP: (i) to fund the remaining balance of the
adopted Program and Budget in effect upon termination, (ii) to
complete its Minimum Work Commitment for exploration of the
Properties in the amount of $2 million, or pay to TSVLP the
deficiency, (iii) to pay any unpaid Monthly Minimum Payments to
TSVLP (as described further below) that are due and payable, and
(iv) to fund and satisfy all unfunded liabilities to third parties
arising out of operations conducted subsequent to the Effective
Date but prior to the date of TSHIs withdrawal or deemed
withdrawal. TSVLP and TSHI (the Members) have designated Tonkin
Springs Management Co., a Colorado corporation (TSMC, and an
affiliate of TSHI) as the initial Manager of the Properties with
overall management responsibilities for operations.
At the Effective Date, TSHI paid to TSVLP $190,000, and agreed to
make additional payments to TSVLP in the amount of $45,000 per
month commencing March 1, 1999 and continuing for an additional 34
months (collectively Minimum Payments to TSVLP). The aggregate of
Minimum Payments to TSVLP, $1,720,000, represent consideration for
the terms and conditions of the TSLLC, and one half of such
payments will be added to TSHIs Recoupable Amount as discussed
further below. As of December 31, 1998, the Company recorded a
$1,720,000 receivable due from the TSLLC reflecting the Minimum
Payments to TSVLP of which $640,000 was classified as a current
asset offset by a $1,720,000 deferred credit, with the effect that
the entire receivable is offset by a deferred credit.
The Operating Agreement of the TSLLC defines Commencement of
Commercial Production (CCP) as the last day of a consecutive two-
month period during which payable or accountable gold production
from the Properties totals at least 3,000 ounces of gold per month,
provided that such production is part of an approved Program of at
least one year in duration which contemplates an estimated budgeted
production rate of at least 36,000 ounces of gold per annum. After
CCP 60 percent of positive cash flow from the operations of the
Properties (Cash Flow), if any, shall be distributed to TSHI until
TSHI has recovered its Recoupment Amount, and the remaining 40
percent of Cash Flow shall be distributed to the Members based upon
their respective ownership interest on a calendar quarter basis.
If TSVLPs ownership interest has been reduced, then the
preferential percentage applied to TSHIs Recoupment Amount shall be
TSHIs adjusted interest with the remaining amount distributed to
the Members based upon their respective ownership interest. After
TSHI has recovered the Recoupment Amount, 100 percent of Cash Flow
shall be distributed to the Members in proportion to the Members
ownership interest. Therefore, initially during the period in
which TSHI is thus receiving preferential payments, TSVLP shall
receive 16 percent of Cash Flow from operations. Cash Flow
otherwise due TSVLP shall first be applied to reduce any Elected
Loans outstanding from TSHI, as discussed further below.
On the last day in the calendar month in which CCP is achieved,
TSHI shall pay TSVLP an additional amount to be calculated by
multiplying $15,000 times the number of months from the Effective
Date through the month in which CCP is achieved (the Lump-Sum
Payment).
After the Cut-Off Date, TSHI is required to exercise reasonable
efforts to attempt to obtain third party project financing for any
development of the Properties requiring funding of more than $20
million.
After the Cut-Off Date, TSVLP is required to fund its 40 percent
share of all costs of the Properties or be subject to dilution
under a formula. Either party may elect to contribute a lesser
amount or none towards its share of an adopted program and budget.
However, as long as TSHI owns at least 50 percent interest in
TSLLC, TSHI is obligated to loan TSVLP its share of funding of an
adopted program and budget after the Cut-Off Date under one-year
term loans (the Elected Loan) with an interest rate of LIBOR plus
2 percent. If, however, TSVLP does not repay an Elected Loan when
due, TSHI shall have no further obligation to make additional
Elected Loans to TSVLP and the amounts of defaulted Elected Loans
and accrued interest thereon (the Default Amount) shall be
incorporated into the computation of dilution of TSVLPs working
interest under a formula. Under the formula for dilution of either
Members interest in the TSLLC, the diluting partys Initial
Contribution plus any contributions to approved programs and
budgets after Cut-Off is the numerator; divided by a denominator
which is the Initial Contribution of both parties, the contribution
of either party to approved program and budgets after Cut-Off, plus
any Default Amount; and then multiplying the result by one hundred.
If, however, the ownership interest of any Member falls to 10
percent or less as a result of the forgoing calculation, then such
Member shall be deemed to have withdrawn from the TSLLC and to have
automatically relinquished and transferred its interest to the
other Member and upon such relinquishment the withdrawing Member
shall be granted an overriding 2 percent net smelter royalty (the
NSR) on products subsequently extracted, removed and sold from the
Properties.
The Company has guaranteed TSVLPs obligations under the TSLLC and
TSVLP has given a security interest (consisting of its ownership
interest arising under the TSLLC) in favor of TSHI to secure its
performance under the TSLLC. Sudbury has guaranteed certain
obligations of TSHI.
The Company recognized neither a gain nor a loss on the termination
of the 1993 Agreement or with the contribution of its 40 percent
undivided interest in the Properties to the TSLLC.
Sale of 60 Percent Interest in Tonkin Springs Properties to Gold
Capital
On December 31, 1993 (the 1993 Closing), TSVLP sold a 60 percent
undivided interest in the Tonkin Springs properties and obligations
(the Properties) to Gold Capital. TSVLP retained a 40 percent
undivided interest in the Properties. TSVLP and Gold Capital then
made their respective interest in Tonkin Springs subject to the
Tonkin Springs Project Joint Venture (Project Joint Venture) with
Gold Capital designated manager. Gold Capital was responsible for
funding of all costs related to Tonkin Springs through the
transaction with TSHI effective February 26, 1999, described above.
Gold Capital purchased its 60 percent undivided interest in the
Properties from TSVLP for a purchase price and other consideration
of approximately $7,830,000 representing the estimated fair market
value of the assets purchased. The purchase price included
$200,000 in cash at Closing; delivery of a 7.5 percent mortgage
note in the amount of $3.8 million (the Promissory Note); 300,000
shares of Gold Capitals Series A Convertible Preferred Stock
(Preferred Stock) having an assigned value of $3 million and
subsequently converted into 1,750,000 shares of commons stock of
Gold Capital, and the assumption of 60 percent of a reclamation
obligation recorded at $960,000. Effective August 29, 1997, the
remaining balance of the Promissory Note was paid.
Effective August 29, 1997, Gold Capital became a wholly-owned
subsidiary of Globex Mining Enterprises, Inc. (Globex), a Canadian
corporation with shares traded on the Toronto stock exchange
(symbol: GMX) pursuant to the merger of Gold Capital with a
subsidiary of Globex (the Gold Capital Merger). With the Gold
Capital Merger the Company and TSVLP received an aggregate of
631,905 shares of Globex common stock in exchange for shares of
Gold Capital received upon conversion of its Preferred Stock and
other shares of Gold Capital received for interest on the Preferred
Stock and other liabilities of Gold Capital to the Company. Globex
raised approximately $12 million in equity related to the Gold
Capital Merger, a significant portion of which was invested in the
Project Joint Venture.
The Company agreed to amend the Project Joint Venture Agreement
effective upon the Gold Capital Merger. Included in the terms of
the amendment, Gold Capital i) paid off the balance of the
Promissory Note to TSVLP in the amount of $1,206,449 including
$66,804 of accrued interest, ii) agreed to finance any capital
requirements of TSVLP after Commencement of Commercial Production,
and iii) agreed to pay TSVLP $60,000 per month in minimum cash
distributions during a 36 month period commencing September 1,
1998. Gold Capital paid $120,000 of the required minimum cash
distributions to TSVLP in 1998 but had not paid an additional
required $120,000. The amendment also increased the maximum
recoupment amount from $6 million to $11.25 million which amount
was to be reimbursed to Gold Capital from a preferential portion
(84 percent) of cash flows from the operations of the Properties,
if any.
The Company recognized the gain from the sale of the 60 percent
interest in the Tonkin Springs Properties to Gold Capital using the
installment method of accounting. At August 29, 1997, there was
$1,789,100 in deferred gain remaining which was associated with the
Gold Capital common stock received in exchange for Gold Capital
Preferred Stock. With the Gold Capital Merger this deferred gain
was eliminated as non-realizable as provided under the installment
method of accounting.
Loan Settlement Agreement with FABC
Effective February 21, 1992, the Company entered into a Loan
Settlement Agreement with its former senior secured lender, French
American Banking Corporation (FABC). As partial consideration to
FABC under that agreement the Company entered into an agreement
between Tonkin Springs Gold Mining Company (TSGMC), a wholly owned
subsidiary of the Company, and FABC entitled Agreement To Pay
Distributions, which requires TSGMC to pay a limited portion of
certain distributions, if any, from TSVLP to FABC. TSVLP has
complete control of such distributions, if any, to TSGMC. Under
the terms of the Agreement To Pay Distributions, TSGMC is required
to pay to FABC (i) the first $30,000 of retained distributions, as
defined in such agreement, received from the TSVLP, plus (ii) an
amount equal to 50 percent of such retained distributions after
TSGMC has first received and retained $500,000 of such retained
distributions. This obligation to FABC shall terminate after FABC
has been paid a total of $2,030,000 thereunder.
Competitive Business Conditions
The exploration for, and the acquisition and development of gold
properties are subject to intense competition. Companies with
greater financial resources, larger staffs, more experience, and
more equipment for exploration and development may be in a better
position than the Company to compete for such mineral properties.
The Companys present limited cash flow means that its ability to
compete for properties to be explored and developed is more limited
than in the past. The Company believes that competition for
acquiring mineral prospects will continue to be intense in the
future. The Company may have to undertake greater risks than more
established companies in order to compete. The market price for
gold depends on numerous factors beyond the Companys control,
including production or sales by other gold producing nations.
Major Customers
Sales of refined gold and silver bullion derived from operating
properties in the past have been made to unaffiliated companies.
The Company believes that the loss of these customers would not
affect its business.
Patents, Trademarks, Licenses, Franchises, Concessions
The Company co-owns with Denay three United States patents
(expiring in 2008) and two Republic of South Africa patents
covering various aspects of its bio-oxidation technology. If
feasible, the Company intends to exploit its bio-oxidation
expertise, technology and patents derived from activities at Tonkin
Springs to help create business opportunities in the gold mining
business. The Company owns by itself two Chilean patents related
to its bio-oxidation technology. No research and development
expenditures have been incurred by the Company during the last two
years.
The Company does not own any trademarks, licenses, franchises or
concessions, except mining interests granted by governmental
authorities and private landowners. No portion of its business is
subject to renegotiation of profits or termination of contracts or
subcontracts at the election of the government.
Government Regulations
In connection with mining, milling and exploration activities, the
Company is subject to extensive Federal, state and local laws and
regulations governing the protection of the environment, including
laws and regulations relating to air and water quality, mining
reclamation, waste disposal, and the protection of endangered or
threatened species.
Numerous and in some regards conflicting bills have been introduced
during the last several sessions in the U.S. Congress, some of
which are currently pending, which would supplant or radically
alter the provisions of the Mining Law of 1872. If enacted, such
legislation could substantially increase the cost of holding
unpatented mining claims and could impair the ability of companies
to develop mineral resources on unpatented mining claims. Under
the terms of these bills, the ability of companies to a obtain
patent on unpatented mining claims would be nullified or
substantially impaired, and most contain provisions for the payment
of royalties to the federal government in respect of production
from unpatented mining claims, which could adversely affect the
potential for development of such claims and the economics of
operating new or even existing mines on federal unpatented mining
claims. The Companys financial performance could therefore be
affected adversely by passage of such legislation. Pending
possible reform of the Mining Law of 1872, Congress has put in
place a moratorium which prohibits acceptance or processing of most
mineral patent applications. It is not possible to predict whether
any change in the Mining Law of 1872 will, in fact, be enacted or,
if enacted, the form the changes may take.
Costs and Effects of Compliance with Environmental Laws
In connection with its mining, milling and exploration activities,
the Company is required to comply with various federal, state and
local laws and regulations pertaining to the discharge of materials
into the environment or otherwise relating to the protection of the
environment. The Company or joint venture participants have
obtained, or are in the process of obtaining, environmental
permits, licenses or approvals required for its operations.
Management of the Company is not aware of any material violations
of environmental permits, licenses or approvals issued with respect
to the Company's operations.
The Company through TSVLP, owns a 40 percent interest in the Tonkin
Springs Properties, and is jointly responsible for the reclamation
obligations related to disturbances at the Properties. A
reclamation plan and projected cost estimate for the Properties was
prepared by TSVLP in 1993 and estimated the reclamation costs
associated with current disturbances at the Properties at
approximately $1.4 million. The plan was filed with appropriate
governmental agencies (the Nevada Department of Environmental
Protection and the Federal Bureau of Land Management). During
November, 1997, Gold Capital posted a reclamation bond in the
preliminary amount of $1.3 million with the appropriate
governmental agencies for the Tonkin Springs Properties.
The Company has transferred its interest in several mining
properties over the past years. The Company could remain
potentially liable for environmental enforcement actions related to
its prior ownership interest of such properties. However, the
Company has no reasonable belief that any violation of relevant
environmental laws or regulations has occurred regarding these
transferred properties. The Company is not currently subject to
any material pending administrative or judicial enforcement
proceedings arising under environmental laws or regulations.
Environmental laws and regulations may be adopted and enacted in
the future which may have an impact on the Company's operations.
The Secretary of the Interior has announced his intent to undertake
rule making procedures to impose more comprehensive surface
management regulations on mineral operations of Federal lands. The
Company cannot now accurately predict or estimate the impact of any
such future laws or regulations on its operations.
Employees
At December 31, 1998, the Company had 3 employees, each of whom
were employed on a full-time basis.
ITEM 2. DESCRIPTION OF PROPERTIES.
Tonkin Springs Properties
General
Through February 26, 1999, the Company through TSVLP held a 40
percent undivided ownership interest in the Tonkin Springs
Properties, Eureka County, Nevada (Properties or Project), subject
to the Project Joint Venture. Until that date Gold Capital owned
the remaining 60 percent undivided interest in the Properties, and
was Project manager. Effective February 26, 1999, TSVLP and Gold
Capital terminated the 1993 Agreement and each retained their
respective 40 percent and 60 percent undivided interests in the
Properties. Gold Capital then immediately sold its 60 percent
interest in the Properties to TSHI, and then TSHI and TSVLP each
immediately contributed their respective undivided interests in the
Properties into the TSLLC in exchange for 40 percent and 60
percent, respectively, of the equity stock of TSLLC. The
Properties are located on the Battle Mountain-Cortez Trend,
approximately 45 miles northwest of Eureka, Nevada.
General
Tonkin Springs is an open-pit gold mining and processing project
consisting of unpatented mining claims, an integrated milling
facility, and support facilities on approximately 14,980 acres of
Federal land located along the Battle Mountain - Cortez Trend
approximately 45 miles northwest of the town of Eureka in Eureka
County, Nevada. Part of the mineralized material at the Project is
contained in sulfides and will require pre-treatment prior to the
conventional mill or heap recovery processing. An important part
of the mineralized material at the Project is in the oxide form
(the Tonkin North deposit) and is amenable to conventional heap
leach extraction methods.
Recent Activities at Tonkin Springs
During 1998, and reflecting the limited funding available to Gold
Capital, activities at the Project primarily consisted of holding
and maintenance of the Properties, test work and continued work on
permitting.
Access to the Project is provided by a county maintained road.
Electrical power is provided through a substation located near the
mill and operated by Sierra Pacific Power Company. Water is
available through production wells which have been established on
the site. The Project also contains an assay laboratory and
metallurgical pilot plant testing lab. In addition to the heavy
equipment shop for repair and maintenance of mining equipment, a
repair shop and warehouse building is situated adjacent to the mill
building. The site also contains facilities to store and
distribute propane, diesel fuel and gasoline. An administrative
building is available to office management and administrative
personnel. Potable water will be brought in from outside the
Project.
Geology
Host rocks for gold mineralization at Tonkin Springs consist of a
sequence of Paleozoic rocks that were subsequently faulted,
intruded and mineralized. Gold-bearing solutions originated at
depth and migrated up along fracture systems until reaching
fractured rock or chemically favorable rock suitable for deposition
of mineralized material. Later volcanism, faulting, erosion and
sedimentation affected the mineralized material.
Claims
The Tonkin Springs Project consists of a total of 1,059 claims. Of
that amount, an aggregate of 207 of the unpatented mining claims
covered by the Project are leased from unaffiliated third parties
pursuant to two mining leases. One lease at Tonkin North, which
covers 197 claims, has an initial term which expires December 31,
2006 and may be extended from year to year, up to a maximum term of
99 years, by production from the leased claims. The Buffington
Lease, which covers 10 claims, had an initial term which expired
August 9, 1996, and has been extended on a year to year basis by
continued payment of advance royalties. Each lease contains
certain conditions and other requirements for annual payments, as
well as expenditures or work to be performed in order to retain the
leased claims.
The Tonkin North lease requires an annual advance royalty in the
amount of $150,000, or the value of 450 ounces of gold, whichever
is greater, which royalty is payable in January of each year. The
lease also requires production royalties of 5 percent of the gross
sales price of gold or silver but provides for recapture of annual
advance royalties previously paid. The Project Joint Venture is
required to perform an annual work commitment and the lease
includes a defined area of interest extending from the boundaries
of certain claims. Certain of the claims which are included in the
Tonkin North lease are also subject to a 1 percent net smelter
return royalty (defined as gross revenues from sales of minerals,
less refining costs, transportation costs, severance, production
and sales taxes, and sales commissions) payable to Precambrian
Exploration, Inc. after $15,000,000 in gross revenues are realized
from the claims.
The Buffington lease requires nominal payment of an initial advance
royalty and 5 percent of all net returns following commencement of
production.
An aggregate of 848 of the unpatented mining claims covered by the
Project, as well as 4 millsites, are owned by the TSLLC. A total
of 317 of these claims are subject to a royalty of 2 percent of net
smelter returns, which becomes payable to Precambrian Exploration,
Inc. after $50 million in gross revenues is realized from the
claims. Precambrian Exploration, Inc. is an unaffiliated third
party and predecessor in interest to the claims. Precambrian may
elect to receive such royalty in kind, upon proper notice to the
Project Joint Venture. The remaining 531 claims and the millsites
are not subject to any royalties. The Project Joint Venture is
required to perform all assessment work required under state and
Federal law to hold the claims.
In March, 1994, the Project Joint Venture acquired 215 claims
covering approximately 4,400 acres in the vicinity of the Tonkin
Springs Project from an unaffiliated third party. The claims are
subject to a royalty of 1 percent of net smelter returns for gold
when the indexed price of gold is $350 per ounce or more, and a
royalty of 1 percent of net smelter returns for silver when the
indexed price of silver is $3.50 per ounce or more. No royalties
are payable at lower indexed prices. The indexed prices shall
reflect adjustments based on the Producers Price Index, sub-index
Finished Goods Excluding Foods, as published by the United States
Department of Commerce. During 1995, TSVLP assigned its interest
in approximately 247 mineral claims to the Project Joint Venture.
The Company and TSVLP believe that the carrying value of the
foregoing mineral claims is inconsequential.
History of Property
In late 1989, the Company substantially completed construction of
a 1,500 ton-per-day milling facility at Tonkin Springs designed to
utilize stirred-tank bioleaching technology in the pre-oxidation
step for sulfide mineralized material to allow subsequent
extraction of the gold through the conventional carbon-in-leach
mill process. The construction cost of the mill was approximately
$31 million. The Company operated the integrated mill facility in
a start-up mode commencing in March, 1990. However, the mill
facility did not reach commercial operation by June, 1990, and
because of severe liquidity problems the Company put the operation
on stand-by status beginning in June, 1990, while the Company
concluded a transaction with Denay. In the February 13, 1991 Denay
transaction, TSGMC sold a 51 percent undivided interest in the
Properties to Denay and the parties contributed their respective
interests in the Properties into the TSVLP. Ownership in the TSVLP
was initially: TSGMC- 49 percent, Denay- 51 percent, with Denay and
TSGMC general partners and Homestake Nevada a limited Partner.
Denay was initially designated manager of the Properties.
Denay purchased its 51 percent undivided interest in the Properties
in exchange for forgiveness by Denay of an aggregate of $4.5
million in short term debt of the Company purchased by Denay from
certain creditors for an aggregate cash price of $3.5 million.
Effective October 9, 1992, Denay withdrew from TSVLP as was
provided for and governed by the Limited Partnership Agreement and
the partnership interest of the withdrawing parties reverted to
TSGMC and U.S. Environmental Corporation (USEC), both wholly-owned
subsidiaries of the Company. The Companys interest in TSVLP is
held 99.5 percent by TSGMC and 0.5 percent by USEC. During the
period of Denay involvement, Denay expended approximately $2.49
million on exploration and approximately $1.84 million on other
property costs.
Upon the withdrawal by Denay from the TSVLP, the Company
effectively acquired Denays 51 percent ownership of the
partnership. As noted above, effective December 31, 1993, the
Company sold a 60 percent undivided interest in the Properties to
Gold Capital.
Effective February 26, 1999, TSVLP and Gold Capital terminated the
Tonkin Springs Project Mining Venture Agreement dated December 31,
1993 as amended. Gold Capital then immediately sold its 60 percent
undivided interest in the Properties to TSHI. TSVLP and TSHI then
immediately contributed their respective 40 percent and 60 percent
undivided interest in the Properties into a new limited liability
company, TSLLC in exchange for 40 percent and 60 percent,
respectively, of the equity membership interest of TSLLC.
ITEM 3. LEGAL PROCEEDINGS.
NONE
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
NONE
PART II
ITEM 5. MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS.
The Companys common stock currently trades on the OTC Bulletin
Board under the symbol USGL. Until September 25, 1998, the common
stock of the Company was traded on The Nasdaq SmallCap Market. The
tables below set forth the high and low sales prices for the
Companys common stock as quoted by The Nasdaq SmallCap Market
through September 25, 1998 and, thereafter, as reflected on the OTC
Bulletin Board, for the fiscal years ended December 31, 1998 and
1997. Quotations represent prices between dealers, do not include
retail markups, markdowns or commissions, and do not necessarily
represent prices at which actual transactions were effected.
Fiscal Year Ended
December 31, 1998 High Low
First Quarter $0.938 $0.375
Second Quarter $0.750 $0.438
Third Quarter $0.688 $0.313
Fourth Quarter $0.500 $0.140
Fiscal Year Ended
December 31, 1997 High Low
First Quarter $1.531 $1.063
Second Quarter $1.219 $0.844
Third Quarter $1.063 $0.781
Fourth Quarter $1.031 $0.563
As of March 15, 1999, there were approximately 7,800 record holders
for the Companys common stock.
No dividends have ever been paid with respect to the Companys
common stock and the Company does not anticipate the payment of
dividends in the foreseeable future.
ITEM 6. MANAGEMENTS DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
The principal property of U.S. Gold Corporation (the Company) is
its 40 percent interest in Tonkin Springs (the Properties) which
until February 26, 1999 was subject to the Tonkin Springs Project
Joint Venture as amended (the 1993 Agreement) with Gold Capital
Corporation (Gold Capital). Gold Capital was owner of 60 percent,
was project manager and was responsible for all funding. The
Company holds its interest in the Properties through Tonkin Springs
Venture Limited Partnership (TSVLP), a partnership owned by
subsidiaries of the Company.
Effective February 26, 1999 (the Effective Date) TSVLP and Gold
Capital terminated the 1993 Agreement and each retained their
respective 40 percent and 60 percent undivided interests in the
Properties. Gold Capital then immediately sold its 60 percent
undivided interest in the Properties to Tonkin Springs Holdings
Inc., a Colorado corporation (TSHI) which is owned by subsidiaries
of Sudbury Contact Mines Limited, an Ontario, Canada corporation
(Sudbury)(SUD:TSE), which is itself a subsidiary of Agnico-Eagle
Mines Limited, an Ontario, Canada corporation (Agnico-Eagle)
(AME:NYSE). TSHI then immediately contributed its 60 percent
undivided interest in the Properties into a new limited liability
company, Tonkin Springs LLC (TSLLC) in exchange for 60 percent of
the equity membership interest of TSLLC, and TSVLP contributed its
40 percent undivided interest in the Properties into TSLLC in
exchange for 40 percent of the equity membership interest of TSLLC.
TSVLP and TSHI are the members under TSLLC (the Members).
Changes in Financial Condition
As noted above, effective February 26, 1999 and in exchange for
contributing their respective undivided interests in the
Properties, TSVLP received 40 percent of the equity membership
interest of TSLLC. The deemed amount of the Initial Contribution
of TSVLP to TSLLC is $2 million and the deemed amount of TSHIs
Initial Contribution to TSLLC is $3 million. The objective of
TSLLC is the exploration, evaluation and, if justified, the
development and mining of mineral resources in the Properties.
At the Effective Date, TSHI paid to TSVLP $190,000, and agreed to
make additional payments to TSVLP in the amount of $45,000 per
month commencing March 1, 1999 and continuing for an additional 34
months (collectively Minimum Payments to TSVLP). The aggregate of
Minimum Payments to TSVLP, $1,720,000, represent consideration for
the terms and conditions of the TSLLC, and one half of such
payments will be added to TSHIs Recoupable Amount as discussed
further below. As of December 31, 1998 and to reflect the February
26, 1999 transaction with TSHI, the Company recorded a $1,720,000
receivable due from the TSLLC reflecting the Minimum Payments to
TSVLP of which $640,000 was classified as a current asset offset by
a $1,720,000 deferred credit, with the effect that the entire
receivable is offset by a deferred credit. The financial
statements as of December 31, 1998 also reflect the termination of
the 1993 Agreement.
Under the Members Agreement and the Operating Agreement of TSLLC,
TSHI is required to fund all costs related to the Properties,
including all holding, administrative, operational and exploration
costs, until TSHI has first expended $4 million on exploration of
the Properties (the Cut-Off Date). All expenditures funded by TSHI
prior to the Cut-Off Date shall be added to TSHIs Recoupable Amount
which has as its opening balance the sum of $5,625,000, which
represents approximately one-half of the recoupment account balance
of Gold Capital under the 1993 Agreement as of the Effective Date.
The Operating Agreement of the TSLLC defines Commencement of
Commercial Production (CCP). After CCP, 60 percent of positive
cash flow from operations of the Properties (Cash Flow), if any,
shall be distributed to TSHI until TSHI has recovered its
Recoupment Amount, and the remaining 40 percent of Cash Flow shall
be distributed to the Members based upon their respective ownership
interest on a calendar quarter basis. Therefore, initially during
the period in which TSHI is thus receiving preferential payments,
TSVLP shall receive 16 percent of Cash Flow from operations. Cash
Flow otherwise due TSVLP shall first be applied to reduce any
Elected Loans outstanding from TSHI, as discussed further below.
On the last day in the calendar month in which CCP is achieved,
TSHI shall pay TSVLP an additional amount to be calculated by
multiplying $15,000 times the number of months from the Effective
Date through the month in which CCP is achieved (the Lump-Sum
Payment).
After the Cut-Off Date, TSHI is required to exercise reasonable
efforts to attempt to obtain third party project financing for any
development of the Properties requiring funding in excess of $20
million. After the Cut-Off Date, TSVLP is required to fund its 40
percent share of all costs of the Properties or be subject to
dilution under a formula. However, as long as TSHI owns at least
50 percent interest in TSLLC, TSHI is obligated to loan TSVLP its
share of funding of an adopted program and budget after the Cut-Off
Date under one-year term loans (the Elected Loan) with an interest
rate of LIBOR plus 2 percent. If, however, TSVLP does not repay an
Elected Loan when due, TSHI shall have no further obligation to
make additional Elected Loans to TSVLP and the amounts of defaulted
Elected Loans and accrued interest thereon (the Default Amount)
shall be incorporated into the computation of dilution of TSVLPs
working interest under a formula. If the ownership interest of any
Member falls to 10 percent or less as a result of dilution, then
such Member shall be deemed to have withdrawn from the TSLLC and to
have automatically relinquished and transferred its interest to the
other Member and upon such relinquishment the withdrawing Member
shall be granted an overriding 2 percent net smelter royalty (the
NSR) on products subsequently extracted, removed and sold from the
Properties.
The Company recognized neither a gain nor a loss on the termination
of the 1993 Agreement or with the contribution of its 40 percent
undivided interest in the Properties to the TSLLC.
Under the 1993 Agreement Gold Capital was required to pay TSVLP
$60,000 per month in minimum cash distributions during a 36 month
period commencing September 1, 1998. Gold Capital made the
required payments for September and October of 1998 but did not
make the payments for November and December, 1998, in the aggregate
of $120,000. With the termination of the 1993 Agreement, the
obligations by Gold Capital have also been terminated and are not
reflected in the balance sheet of the Corporation as of December
31, 1998. Gold Capital was responsible for funding of all costs
related to Tonkin Springs through the transaction with TSHI
effective February 26, 1999, described above.
Liquidity and Capital Resources
As of December 31, 1998, the Company had working capital of
$442,220 made up of current assets of $641,954 and current
liabilities of $199,734. During 1999, the Company anticipates
receipt of $640,000 in Minimum Payments to TSVLP from the TSLLC.
The Company may also sell a portion of its common stock of Globex
as well as possibly issue equity in public or private transactions
to raise additional working capital. These items are the primary
source of working capital presently anticipated during 1999. Net
cash used in operations decreased from $1,011,446 for 1997 to
$728,626 for 1998, reflecting decreases during 1998 in cash paid to
suppliers and employees. Cash flow from investing activities
decreased to $116,581 in 1998 from $1,621,986 for 1997, primarily
reflecting a payoff of the principal balance and accrued interest
under the Gold Capital note during the 1997 period. Cash flows from
financing activities decreased from none for 1997 to $2,000 for 1998.
Results of Operations - 1998 Compared to 1997
During 1998, Gold Capital commenced making payments to the Company
as required under the 1993 Agreement and made payments aggregating
$120,000 for September and October 1998 and were recognized as
income but did not make the payments required for November and
December 1998 in the amount of $120,000. With the termination of
the 1993 Agreement, the obligations by Gold Capital have also been
terminated and are not reflected on the balance sheet of the
Corporation as of December 31, 1998.
General and administrative expense decreased approximately $343,000
in 1998 compared to 1997 reflecting primarily lower employee
compensation. Consulting fees and related out of pocket expenses
through a related party increased to $61,480 reflecting efforts to
secure funding for the Company in light of the financial weakness
of the Companys then partner at Tonkin Springs. During 1998, the
Company recognized the loss on Globex securities held for sale in
the amount of $1,927,871, reducing the carrying value to the market
value at December 31, 1998 of $62,558.
As of December 31, 1998, the Company has approximately $11,200 in
alternative minimum tax credits which can be carried forward and
utilized against future tax income of the Company as well as
capital loss carryforward of approximatley $1,200,000 which is
available for capital gains through year 2003. At December 31,
1998, the Company believes that it is more likely than not that the
net deferred tax asset will not be realized in the future and
therefore, a valuation allowance of approximatley $41,200 was
provided in 1998 to bring to zero the net deferred tax asset.
Other
The Company has addressed year 2000 issues as relates to the
computing systems, software and programs for which the Company
relies to determine which are year 2000 compliant. The Company has
concluded that such systems, software and programs which are not
year 200 compliant will be replaced prior to January 1, 2000 at an
estimated cost of approximately $30,000.
EXCEPT FOR THE HISTORICAL INFORMATION CONTAINED HEREIN, THE
STATEMENTS IN THIS REPORT WHICH RELATE TO THE COMPANYS PLANS,
OBJECTIVES OR FUTURE PERFORMANCE MAY BE DEEMED TO BE FORWARD-
LOOKING STATEMENTS. SUCH STATEMENTS ARE BASED ON CURRENT
EXPECTATIONS OF MANAGEMENT. ACTUAL STRATEGIES AND RESULTS MAY
DIFFER MATERIALLY FROM THOSE CURRENTLY EXPECTED BECAUSE OF FACTORS
INCLUDING GOLD PRICE, MINERALIZED MATERIAL GRADES, METALLURGICAL
RECOVERY, OPERATING COSTS, MARKET VALUATION, AND PROJECT OPERATORS
DECISIONS AND PERFORMANCE UNDER THE TONKIN SPRINGS LIMITED
LIABILITY COMPANY, AS WELL AS OTHER RISKS AND UNCERTAINTIES.
ITEM 7. FINANCIAL STATEMENTS
Index to Financial Statements Page
Reports of Independent Certified Public Accountants F-1, F-2
Consolidated Statements of Operations for the years
ended December 31, 1998 and 1997 F-3
Consolidated Balance Sheet at December 31, 1998 F-4
Consolidated Statements of Changes in Shareholders
Equity for the years ended December 31, 1998 and 1997 F-5
Consolidated Statements of Cash Flows for the
years ended December 31, 1998 and 1997 F-6
Notes to Consolidated Financial Statements F-7
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
Board of Directors and Shareholders
U.S. Gold Corporation
Denver, Colorado
We have audited the accompanying consolidated balance sheet of U.S.
Gold Corporation (the Company) as of December 31, 1998 and the
related consolidated statements of operations, changes in
shareholders equity and cash flows for the year then ended. These
consolidated financial statements are the responsibility of the
Companys management. Our responsibility is to express an opinion
on these consolidated financial statements based upon our audit.
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
consolidated financial statements are free of material
misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the consolidated
financial statements. An audit also includes assessing the
accounting principles used and significant estimates made by
management, as well as evaluating the overall consolidated
financial statement presentation. We believe that our audit
provides a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to
above present fairly, in all material respects, the financial
position of the Company as of December 31, 1998, and the results of
their operations and their cash flows for the year then ended, in
conformity with generally accepted accounting principles.
Stark Tinter & Associates, LLC
Certified Public Accountants
March 19, 1999
Lakewood, Colorado
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
Board of Directors and Shareholders
U.S. Gold Corporation
Denver, Colorado
We have audited the accompanying consolidated statements of
operations, comprehensive loss, changes in shareholders equity and cash
flows of U.S. Gold Corporation (the Company) for the year ended December 31,
1997. These consolidated financial statements are the
responsibility of the Companys management. Our responsibility is
to express an opinion on these consolidated financial statements
based upon our audit.
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
consolidated financial statements are free of material
misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the consolidated
financial statements. An audit also includes assessing the
accounting principles used and significant estimates made by
management, as well as evaluating the overall consolidated
financial statement presentation. We believe that our audit
provides a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to
above present fairly, in all material respects, the results of
operations and cash flows of U.S. Gold Corporation for the year ended
December 31, 1997, in conformity with generally accepted accounting
principles.
BDO Seidman, LLP
February 16, 1998
Denver, Colorado
U.S. GOLD CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
For the years ended December 31,
1998 1997
Project distributions $120,000 $-
Interest income 8,934 77,973
Gain on sale of assets 2,010 -
130,944 77,973
Costs and expenses:
General and administrative 862,420 1,205,060
Consulting fees, related
parties (Note 12) 61,480 13,625
Loss on securities held for sale 1,927,871 -
Interest 2,630 3,424
Depreciation, depletion and
amortization 25,499 16,946
2,879,900 1,239,055
Loss before income taxes (2,748,956) (1,161,082)
Provision for income taxes (Note 6) - -
Write off of deferred tax asset,
net (Note 6) 41,203 -
Net loss $(2,790,159) $(1,161,082)
Basic and diluted per share data:
Basic $(0.20) $(0.08)
Diluted $(0.20) $(0.08)
U.S. GOLD CORPORATION
CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS
Net loss $(2,790,159) $(1,161,082)
Comprehensive item-
unrealized loss on securities
available for sale - (884,595)
Comprehensive loss $(2,790,159) $(2,045,677)
The accompanying notes are an integral part of these consolidated
financial statements.
U.S. GOLD CORPORATION
CONSOLIDATED BALANCE SHEET
ASSETS December 31, 1998
Current assets:
Cash and cash equivalents $1,954
Project payments receivable (Note 2) 640,000
Total current assets 641,954
Project payments receivable (Note 2) 1,080,000
Investment in Tonkin Springs LLC (Note 2 and 3) 2,262,578
Marketable securities, Globex common stock at
market (Note 2) 62,558
Other assets (Note 5) 62,465
$4,109,555
LIABILITIES, DEFERRED CREDIT &
SHAREHOLDERS EQUITY
Current liabilities:
Accounts payable and accrued liabilities $52,819
Installment purchase contracts (Note 10) 5,189
Related party payables (Note 11) 141,726
199,734
Installment purchase contracts, long-term (Note 10) 23,050
Deferred credit, project payments (Note 2) 1,720,000
Reserve for reclamation (Note 3) 640,000
Total liabilities and deferred credit 2,582,784
Commitments and contingencies (Note 4, 9 and 10)
Shareholders equity (Note 7):
Common stock, $.10 par value, 18,000,000
shares authorized; 13,927,469 shares issued
and outstanding 1,392,747
Additional paid-in capital 31,969,459
Accumulated deficit (31,835,435)
Total shareholders equity 1,526,771
$4,109,555
The accompanying notes are an integral part of these consolidated
financial statements.
U.S.GOLD CORPORATION
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS EQUITY
FOR THE YEARS ENDED DECEMBER 31, 1998 AND 1997
Common Stock Additional
Par Paid-in
Shares Value Capital
Balance, January 1, 1997 13,854,119 $1,385,447 $31,977,224
Exercise of stock options (Note 7) 73,530 7,353 (7,353)
Treasury shares canceled (180) (53) (412)
Changes in unrealized loss
on securities available
for sale - - -
Net loss - - -
Balance, December 31, 1997 13,927,469 1,392,747 31,969,459
Changes in unrealized loss
on securities available
for sale - - -
Net loss - - -
Balance, December 31, 1998 13,927,469 $1,392,747 $31,969,459
U.S.GOLD CORPORATION
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS EQUITY
FOR THE YEARS ENDED DECEMBER 31, 1998 AND 1997, Continued
Unrealized
Loss on
Securities
Accumulated Available
Deficit for Sale
Balance, January 1, 1997 $(27,884,194) $-
Exercise of stock options (Note 7) - -
Treasury shares canceled - -
Changes in unrealized loss
on securities available
for sale - (884,595)
Net loss (1,161,082) -
Balance, December 31, 1997 (29,045,276) (884,595)
Changes in unrealized loss
on securities available
for sale - 884,595
Net loss (2,790,159) -
-
Balance, December 31, 1998 $(31,835,453) $-
The accompanying notes are an integral part of these consolidated
financial statements.
U.S. GOLD CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
For the years ended December 31,
1998 1997
Cash flows from operating activities:
Cash paid to suppliers and employees $(734,930) $(1,217,856)
Interest received 8,934 11,517
Interest paid (2,630) (3,424)
Receipt of refund from IRS - 198,317
Cash used in operating activities (728,626) (1,011,446)
Cash flows from investing activities:
Cash received from project distributions 120,000 -
Cash received on sale of Tonkin
Springs interest - 1,501,076
Cash received for accrued interest
on note - 129,569
Capital expenditures (5,431) (9,569)
Sale of assets 2,012 910
Cash provided by investing activities 116,581 1,621,986
Cash flows from financing activities:
Payments on installment purchase
contracts (2,000) -
Cash used in financing activities (2,000) -
Increase (decrease) in cash and
cash equivalents (614,045) 610,540
Cash and cash equivalents,
beginning of year 615,999 5,459
Cash and cash equivalents, end of year $1,954 $615,999
Reconciliation of net income to cash used in operating activities:
Net (loss) $(2,790,1529) $(1,161,082)
Items not requiring (providing) cash:
Loss on securities held for sale 1,927,871 -
Depreciation, depletion
and amortization 25,499 16,946
Write-off of deferred tax asset, net 41,203 -
Gain on sale of assets - (348)
Decrease in income tax receivable - 198,317
Decrease in other current assets
related to operations - 52,568
Increase (decrease) in liabilities
related to operations 66,960 (117,847)
Cash used in operating activities $(728,626) $(1,011,446)
The accompanying notes are an integral part of these consolidated
financial statements.
U.S. GOLD CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. Summary of Significant Accounting Policies
Basis of presentation: U.S. Gold Corporation (the Company) was
organized under the laws of the State of Colorado on July 24, 1979.
Since its inception, the Company has been engaged in the
exploration for, development of, and the production and sale of
gold and silver.
Basis of consolidation: The consolidated financial statements
include the accounts of the Company and its wholly-owned
subsidiaries, as well as the accounts of the wholly-owned Tonkin
Springs Venture Limited Partnership (TSVLP). Significant
intercompany accounts and transactions have been eliminated.
Statements of cash flows: The Company considers cash in banks,
deposits in transit, and highly liquid debt instruments purchased
with original maturities of three months or less to be cash and
cash equivalents.
Investments: Investment in Globex Mining Enterprises Inc. (Globex)
common stock is classified as available-for-sale and carried at
fair value, based on quoted market prices, and reflects a permanent
impairment of the market value of the securities as of December 31,
1998.
Investment in Tonkin Springs is accounted for under the equity
method of accounting. Under the equity method of accounting, the
original investment is recorded at cost and adjusted by the
Companys share of undistributed earnings, losses and distributions.
This investment is evaluated periodically and carried at the lesser
of cost or its estimated realizable value.
Property and equipment: Property and equipment are carried at cost
not in excess of their estimated net realizable value. Normal
maintenance and repairs are charged to earnings while expenditures
for major betterments are capitalized. Gains or losses on
disposition are recognized in operations.
Exploration and development costs: General exploration costs are
expensed as incurred while exploration and acquisition costs
related to projects are deferred until the properties are put into
commercial production, sold, or abandoned. Mine development costs
incurred either to develop new ore deposits, expand the capacity of
operating mines, or to develop mine areas substantially in advance
of current production are also deferred. Costs incurred to
maintain current production or to maintain properties on a standby
basis are charged to operations. Costs of abandoned projects are
charged to operations upon abandonment. The Company evaluates, at
least quarterly, the carrying value of capitalized mining costs and
related property, plant and equipment costs to determine if these
costs are in excess of their net realizable value and if an
impairment needs to be recorded. Permanent impairments are
evaluated periodically based upon expected future cash flows in
accordance with Statement of Financial Accounting Standards No.
121, Accounting for Impairment of Long-Lived Assets. This
statement did not have an effect on the financial statements for
the year ended December 31, 1998.
Depreciation, depletion and amortization: Depreciation of property
and equipment is computed using the units-of-production and
straight-line methods, depending upon which method more accurately
reflects the related assets use. Mine development costs are
charged to operations using the units-of-production method based on
estimated ounces of gold to be recovered.
Property reclamation costs: The estimated reclamation cost
obligation related to present disturbances at the Tonkin Springs
Properties is carried as a liability. Changes to these estimates,
or the estimated reclamation costs associated with other mineral
properties, are accrued and charged over the expected life of each
property using the units of production method. Ongoing environmen-
tal and reclamation expenditures are expensed as incurred.
Stock Option Plans: The Company applies APB Opinion 25, Accounting
for Stock Issued to Employees, and related Interpretations in
accounting for all stock option plans. Under APB Opinion 25, no
compensation cost has been recognized for stock options issued to
employees as the exercise price of the Companys stock options
granted equals or exceeds the market price of the underlying common
stock on the date of grant.
SFAS No. 123, Accounting for Stock-Based Compensation, requires the
Company to provide pro forma information regarding net income as if
compensation costs for the Companys stock option plans had been
determined in accordance with the fair value based method
prescribed in SFAS No. 123. To provide the required pro forma
information, the Company estimates the fair value of each stock
option at the grant date by using the Black-Scholes option-pricing
model.
Per share amounts: Statement of Financial Accounting Standards No.
128 provides for the calculation of Basic and Diluted earnings per
share. Basic earnings per share includes no dilution and is
computed by dividing income available to common shareholders by the
weighted-average number of shares outstanding during the period
(13,927,469 for 1998 and 13,911,443 for 1997). Diluted earnings
per share reflect the potential dilution of securities that could
share in the earnings of the Company, similar to fully diluted
earnings per share. As of December 31, 1998 and 1997, options are
not considered in the computation of diluted earnings per share as
their inclusion would be antidilutive. The implementation of this
standard did not have a material effect on the consolidated
financial statements.
Income Taxes: The Company accounts for income taxes under
Statement of Financial Accounting Standards No. 109 (SFAS No. 109.)
Temporary differences are differences between the tax basis of
assets and liabilities and their reported amounts in the financial
statements that will result in taxable or deductible amounts in
future years.
Concentration of risks: The Companys investment in the Tonkin
Springs Project is exposed to concentration of risk primarily
because this investment is managed by and funded by the other
participant in the Tonkin Springs Limited Liability Company
(TSLLC), Tonkin Springs Holding, Inc. and this investment is
dependent upon the successful operations of TSLLC.
Use of estimates: The preparation of the Companys consolidated
financial statements in conformity with generally accepted
accounting principles requires the Companys management to make
estimates and assumptions that affect the amounts of assets and
liabilities, the disclosure of contingent assets and liabilities at
the date of the financial statements, and the reported amounts of
revenues and expenses during the reporting period. Actual results
could differ from those estimates.
Fair Value of Financial Instruments: Statement of Financial
Accounting Standards No. 107, Disclosures About Fair Value of
Financial Instruments, requires disclosure of fair value
information about financial instruments. Fair value estimates
discussed herein are based upon certain market assumptions and
pertinent information available to management as of December 31, 1998.
The respective carrying value of certain on-balance-sheet financial
instruments approximate their fair values. These financial
instruments include cash and cash equivalents, receivables and
accounts payable. Fair values were assumed to approximate carrying
values for these financial instruments since they are short term in
nature and their carrying amounts approximate fair value or they
are receivable or payable on demand.
2. Tonkin Springs Project
From December 31, 1993 until February 26, 1999, TSVLP, a
partnership owned by subsidiaries of the Company, held a 40 percent
undivided interest in the Tonkin Springs Properties (the
Properties) subject to a mining joint venture, the Tonkin Springs
Project Joint Venture as amended ( the 1993 Agreement) with Gold
Capital Corporation (Gold Capital) being the holder of 60 percent
undivided interest and project manager. As noted below, effective
February 26, 1999, TSVLP and Gold Capital terminated the 1993
Agreement and Gold Capital sold its 60% undivided interest in the
Properties to a third party.
Gold Capital purchased its 60 percent undivided interest in the
Properties from TSVLP effective December 31, 1993 for a purchase
price and other consideration of approximately $7,830,000
representing the estimated fair market value of the assets
purchased. The purchase price included $200,000 in cash at
Closing; delivery of a 7.5 percent mortgage note in the amount of
$3.8 million (the Promissory Note); 300,000 shares of Gold Capitals
Series A Convertible Preferred Stock (Preferred Stock) having an
assigned value of $3 million and subsequently converted into
1,750,000 shares of commons stock of Gold Capital; and the
assumption of 60 percent of a reclamation obligation recorded at
$960,000.
In August 1997, Gold Capital became a wholly-owned subsidiary of
Globex Mining Enterprises, Inc. (Globex), a Canadian corporation
with shares traded on the Toronto stock exchange (symbol: GMX)
pursuant to the merger of Gold Capital with a subsidiary of Globex
(the Gold Capital Merger). Globex raised approximately $12 million
in equity related to the Gold Capital Merger, a significant portion
of which was invested in the Tonkin Springs Project Joint Venture.
Effective August 29, 1997, the remaining balance of the Promissory
Note was paid. With the Gold Capital Merger the Company and TSVLP
received an aggregate of 631,905 shares of Globex common stock,
representing approximately 5.4 percent of the shares of Globex, in
exchange for shares of Gold Capital received upon conversion of its
Preferred Stock and other shares received for interest on the
Preferred Stock and services provided by the Company which shares
had a market value of approximately $62,558 as of December 31,
1998. The Company recognized a loss on the Globex securities held
for sale $1,927,871 during 1998 reflecting a permanent impairment of
the market value of the securities. On September 30, 1997, the
Company granted to its officers and an outside director options to
purchase an aggregate of 124,380 shares of common stock of Globex
at an exercise price of $3.15 per share. These option were
terminated without consideration to the holders effective December
15, 1998.
The Company recognized the gain from the sale of the 60% interest
in the Tonkin Springs Properties to Gold Capital using the
installment method of accounting. As of January 1, 1997, there was
$1,789,100 in deferred gain remaining which was associated with the
Gold Capital common stock received in exchange for Gold Capital
Preferred Stock. With the Gold Capital Merger that deferred gain
was eliminated as non-realizable as provided under the installment
method of accounting as the value in Globex common stock was less
than the Companys carrying value in Gold Capital common stock.
Under the 1993 Agreement Gold Capital was required to pay TSVLP
$60,000 per month in minimum cash distributions during a 36 month
period commencing September 1, 1998. Gold Capital made the
required payments for September and October of 1998 but did not
make the payments for November and December, 1998, in the aggregate
of $120,000. With the termination of the 1993 Agreement, payment
obligations thereunder were terminated and thus are not reflected
in the balance sheet of the Company as of December 31, 1998. Gold
Capital was responsible for funding of all costs related to the
1993 Agreement through February 26, 1999.
Effective February 26, 1999 (the Effective Date) TSVLP and Gold
Capital terminated the 1993 Agreement and each retained their
respective 40% and 60% undivided interests in the Properties. Gold
Capital then immediately sold it's 60% undivided interest in the
Properties to Tonkin Springs Holdings Inc., a Colorado corporation
(TSHI) which is owned by subsidiaries of Sudbury Contact Mines
Limited, an Ontario, Canada corporation (Sudbury)(SUD:TSE), which
is itself a subsidiary of Agnico-Eagle Mines Limited, an Ontario,
Canada corporation (Agnico-Eagle) (AME:NYSE). TSHI then
immediately contributed its 60 percent undivided interest in the
Properties into a new limited liability company, Tonkin Springs LLC
(TSLLC) in exchange for 60 percent of the equity membership
interest of TSLLC, and TSVLP contributed its 40 interest undivided
interest in the Properties into TSLLC in exchange for 40 interest
of the equity membership interest of TSLLC. The deemed amount of
the Initial Contribution of TSVLP to the TSLLC is $2 million and
for TSHI the Initial Contribution to TSLLC is $3 million. The
objective of TSLLC is the exploration, evaluation and, if
justified, the development and mining of mineral resources in the
Properties.
Under the Members Agreement and the Operating Agreement of the
TSLLC, TSHI is required to fund all costs related to the
Properties, including all holding, administrative, operational and
exploration costs, until TSHI has first expended $4 million on
exploration of the Properties (the Cut-Off Date). All expenditures
funded by TSHI prior to the Cut-Off Date shall be added to TSHI's
Recoupable Amount which has as its opening balance the sum of
$5,625,000, which represents approximately one-half of the
recoupment account balance of Gold Capital under the 1993 Agreement
as of the Effective Date. If TSHI should withdraw from the TSLLC
prior to Cut-Off, TSHI shall have no further right, title or
interest in the Properties of TSLLC and its ownership interest
shall be deemed transferred to TSVLP. In addition, TSHI shall
remain obligated to TSVLP: (i) to fund the remaining balance of the
adopted Program and Budget in effect upon termination, (ii) to
complete its Minimum Work Commitment for exploration of the
Properties in the amount of $2 million, or pay to TSVLP the
deficiency, (iii) to pay any unpaid Monthly Minimum Payments to
TSVLP (as described further below) that are due and payable, and
(iv) to fund and satisfy all unfunded liabilities to third parties
arising out of operations conducted subsequent to the Effective
Date but prior to the date of TSHIs withdrawal or deemed
withdrawal. TSVLP and TSHI (the Members) have designated Tonkin
Springs Management Co., a Colorado corporation (TSMC, and an
affiliate of TSHI) as the initial Manager of the Properties with
overall management responsibilities for operations.
At the Effective Date, TSHI paid to TSVLP $190,000, and agreed to
make additional payments to TSVLP in the amount of $45,000 per
month commencing March 1, 1999 and continuing for an additional 34
months (collectively Minimum Payments to TSVLP). The aggregate of
Minimum Payments to TSVLP, $1,720,000, represent consideration for
the terms and conditions of the TSLLC, and one half of such
payments will be added to TSHIs Recoupable Amount as discussed
further below. As of December 31, 1998, the Company recorded a
$1,720,000 receivable due from the TSLLC reflecting the Minimum
Payments to TSVLP of which $640,000 was classified as a current
asset offset by a $1,720,000 deferred credit, with the effect that
the entire receivable is offset by a deferred credit.
The Operating Agreement of the TSLLC defines Commencement of
Commercial Production (CCP) as the last day of a consecutive two-
month period during which payable or accountable gold production
from the Properties totals at least 3,000 ounces of gold per month,
provided that such production is part of an approved Program of at
least one year in duration which contemplates an estimated budgeted
production rate of at least 36,000 ounces of gold per annum. After
CCP 60 percent of positive cash flow from the operations of the Properties
(Cash Flow), if any, shall be distributed to TSHI until TSHI has
recovered its Recoupment Amount, and the remaining 40 percent of Cash Flow
shall be distributed to the Members based upon their respective
ownership interest on a calendar quarter basis. If TSVLPs
ownership interest has been reduced, then the preferential
percentage applied to TSHIs Recoupment Amount shall be TSHIs
adjusted interest with the remaining amount distributed to the
Members based upon their respective ownership interest. After TSHI
has recovered the Recoupment Amount, 100 percent of Cash Flow shall
be distributed to the Members in proportion to the Member's
ownership interest. Therefore, initially during the period in
which TSHI is thus receiving preferential payments, TSVLP shall
receive 16 percent of Cash Flow from operations. Cash Flow
otherwise due TSVLP shall first be applied to reduce any Elected
Loans outstanding from TSHI, as discussed further below.
On the last day in the calendar month in which CCP is achieved,
TSHI shall pay TSVLP an additional amount to be calculated by
multiplying $15,000 times the number of months from the Effective
Date through the month in which CCP is achieved (the Lump-Sum
Payment). as discussed further below.
After the Cut-Off Date, TSHI is required to exercise reasonable
efforts to attempt to obtain third party project financing for any
development of the Properties requiring funding of more than $20
million. After the Cut-Off Date, TSVLP is required to fund its 40%
share of all costs of the Properties or be subject to dilution
under a formula. Either party may elect to contribute a lesser
amount or none towards its share of an adopted program and budget.
However, as long as TSHI owns at least 50% interest in TSLLC, TSHI
is obligated to loan TSVLP its share of funding of an adopted
program and budget after the Cut-Off Date under one-year term loans
(the Elected Loan) with an interest rate of LIBOR plus 2 percent.
If, however, TSVLP does not repay an Elected Loan when due, TSHI
shall have no further obligation to make additional Elected Loans
to TSVLP and the amounts of defaulted Elected Loans and accrued
interest thereon (the Default Amount) shall be incorporated into
the computation of dilution of TSVLPs working interest under a
formula. Under the formula for dilution of either Member's
interest in the TSLLC, the diluting partys Initial Contribution
plus any contributions to approved programs and budgets after Cut-
Off is the numerator; divided by a denominator which is the Initial
Contribution of both parties, the contribution of either party to
approved program and budgets after Cut-Off, plus any Default
Amount; and then multiplying the result by one hundred. If,
however, the ownership interest of any Member falls to 10 percent
or less as a result of the forgoing calculation, then such Member
shall be deemed to have withdrawn from the TSLLC and to have
automatically relinquished and transferred its interest to the
other Member and upon such relinquishment the withdrawing Member
shall be granted an overriding 2 percent net smelter royalty (the
NSR) on products subsequently extracted, removed and sold from the
Properties.
The Company has guaranteed TSVLPs obligations under the TSLLC and
TSVLP has given a security interest (consisting of its ownership
interest arising under the TSLLC) in favor of TSHI to secure its
performance under the TSLLC. Sudbury has guaranteed certain
obligations of TSHI.
The Company recognized neither a gain nor a loss on the termination
of the 1993 Agreement or with the contribution of its 40 percent undivided
interest in the Properties to the TSLLC.
3. Condensed Financial Information of Tonkin Springs Project Joint
Venture, unaudited
As noted in Footnote 2 above, until February 26, 1999, the Companys
interest in the Tonkin Springs Properties were subject to the
Project Joint Venture with Gold Capital as manager. The following
is the condensed balance sheet of the Project Joint Venture as of
December 31, 1998, and a condensed statement of operations for the
year then ended. All costs associated with the Properties have
been funded by Gold Capital.
STATEMENT OF OPERATIONS Year Ended
December 31, 1998
Miscellaneous income $82,115
Property maintenance costs 1,472,905
Net loss $(1,390,790)
BALANCE SHEET December 31, 1998
Assets:
Property, plant, equipment &
development costs $14,677,951
Prepaid royalties 844,604
Restricted time deposit for
reclamation bond 1,301,975
Deposits and other assets 48,442
Total assets $16,872,972
Liabilities, Reserves and Project Joint Venturers Interest:
Current liabilities $296,497
Reserve for reclamation 1,469,900
Intercompany, Gold Capital 10,672,164
12,438,561
Project Joint Venturers Interest:
Gold Capitals interest 1,999,233
TSVLPs interest 2,435,178
Total venturers interest 4,434,411
Total liabilities, reserves
and venturers interest $16,872,972
Note A. TSVLP and Gold Capital were jointly responsible for
reclamation of disturbance of the Properties, proportionate to
their respective interest in the Project Joint Venture. The
current estimate of reclamation cost, on a 100 percent basis,
totals approximately $1.47 million of which TSVLP and the Company
reflects $640,000 on its balance sheet related to its 40 percent
share. Actual reclamation, generally, will be commenced upon the
completion of operations at the Properties. Bonding of reclamation
under various Nevada and Federal Bureau of Land Management
agencies, tentatively set at $1.3 million, is the responsibility of
Gold Capital under the terms of the Project Joint Venture.
Effective November 25, 1997, Gold Capital posted a cash bond in the
initial amount of $1.3 million with the required governmental
agencies secured by a restricted cash time deposit for a total
balance of reclamation deposits of $1,301,975.
4. Loan Settlement Agreement with FABC
On February 21, 1992, the Company, among other related things,
entered into a Loan Settlement Agreement with its senior secured
lender, The French American Banking Corporation (FABC). The
Company discharged its debt to FABC and terminated all prior
security interests related thereto. As part of the consideration
to FABC under the Loan Settlement Agreement, the Company entered
into an agreement between Tonkin Springs Gold Mining Company, a
wholly-owned subsidiary of the Company (TSGMC) and FABC entitled
Agreement To Pay Distributions, which requires TSGMC to pay a
limited portion of certain distributions from TSVLP to FABC. TSVLP
has complete control of such distributions, if any, to TSGMC.
Under the terms of the Agreement To Pay Distributions, TSGMC is
required to pay to FABC (i) the first $30,000 in cash or value of
asset distributions, as defined in such agreement, received from
TSVLP, plus (ii) an amount equal to 50 percent of such retained
distributions in cash or value of asset distributions after TSGMC
has first received and retained $500,000 of such retained
distributions. This obligation to FABC shall terminate after FABC
has been paid a total of $2,030,000 thereunder.
5. Other Assets
At December 31, 1998, property and equipment consisted of the
following:
Office furniture and equipment $97,783
Trucks and autos 53,292
Equipment 29,709
Leasehold improvements 14,320
195,104
Less: accumulated depreciation (145,173)
$49,931
The remainder of Other Assets consists of deposits and employee
advances.
6. Income Taxes
In the various transactions entered into February 21, 1992, the
Company had an ownership change, as that term is defined under
Section 382 (g), IRC. As a result, the tax net operating loss
carry forwards and the investment tax credit carry forwards will be
subject to annual limitations under Section 382 IRC, following the
date of such ownership change. Except as noted below, the Company
will receive no future benefits from net operating loss
carryforwards or investment tax credit carryforwards existing as of
the date of the ownership change. At December 31 1998, the Company
estimates that tax loss carry forwards totals approximately
$4,190,000 expiring in year 2013. The Company has an additional
capital loss carryforward of approximately $1,200,000 which is only
available against capital gains from investment securities and
which expires in year 2002.
The tax effects of temporary differences that give rise to
significant portions of the deferred tax assets and deferred tax
liabilities at December 31, 1998 are presented below:
Deferred tax assets:
Alternative minimum tax credit carryfoward $11,200
Reclamation obligation 140,800
Net operating loss carryforward 921,500
Capital loss carryforward 268,400
Total gross deferred tax assets 1,341,900
Less valuation allowance (1,074,900)
Net deferred tax assets 267,000
Deferred tax liabilities:
Basis in TSVLP 267,000
Total gross deferred tax liabilities 267,000
Total net deferred tax asset $-
The Company believes that it is more likely than not that the net
deferred tax asset will not be realized. Therefore, the full
valuation allowance has been provided for net deferred tax assets.
A reconciliation of the tax provision for 1998 and 1997 at
statutory rates is comprised of the following components:
1998 1997
Statutory rate tax provision on book loss $(949,000) $(395,000)
Book to tax adjustments:
Installment gain on sale of Tonkin Springs - 148,100
Loss from joint venture (3,200) (40,072)
Valuation allowance 952,200 290,128
Other - (3,156)
Tax provision $0 $0
7. Shareholders Equity
On July 21, 1998, the shareholders of the Company approved an
amendment to the Articles of Incorporation to increase the
authorized shares of the Company from 15 million shares to 18
million shares. Stock options have been granted to key employees,
directors and others under the Non-Qualified Amended and Restated
Stock Option and Stock Plan (the Plan). An options to purchase
shares and stock grants under the Plan was granted at market value
as of the date of the grant. Effective October 16, 1997, the Board
of Directors amended the Plan and increased the number of shares
thereunder from 2,300,000 to 2,500,000. Option to purchase a total
of 100,000 shares at an exercise price of $.97 per share were
granted to a new member of the Board of Directors on October 16,
1997, which option was terminated without consideration May 22,
1998. Option to purchase a total of 100,000 shares at an exercise
price of $.53 per share were granted to a member of the Board of
Directors on May 22, 1998. Options to purchase a total of
1,000,000 shares at an price of $.50 per share were issued to
officers and directors on December 8, 1993 which remain outstanding
and unexercised as of December 31, 1998. Options to purchase a
total of 1,250,000 shares at an exercise price of $.28 per share
were issued to officers and directors on February 3, 1992 of which
1,048,295 remain outstanding and unexercised as of December 31,
1998. There were no exercise of stock options during 1998. During
1997, the estate of a former director of the Company exercised
stock options to purchase 100,000 shares of the Companys common
stock at an exercise price of $.28 with 26,470 shares retained by
the Company as payment of the exercise price of the option and with
cancellation and return to the status of authorized but unissued
for those shares retained.
SFAS No. 123, Accounting for Stock-Based Compensation, requires the
Company to provide pro forma information regarding net income as if
compensation cost for the Companys stock option plans had been
determined in accordance with the fair value based method
prescribed in SFAS No. 123. The Company estimates the fair value
of each stock option at the grant date by using the Black-Scholes
option-pricing model with the following weighted-average
assumptions used for the 1998 grant: dividend yield of 0 percent;
expected volatility of 19.97 percent risk free interest rate of
5.03 percent; and expected life of 10 years.
Under the accounting provisions of SFAS No. 123, the Companys net
income (loss) and net income (loss) per share would have been
adjusted to the following pro forma amounts:
1998 1997
Net loss
As reported $(2,790,159) $(1,161,082)
Pro forma $(2,811,557) $(1,164,116)
Basic net loss per share
As reported $(0.20) $(0.08)
Pro forma $(0.20) $(0.08)
1998 1997
Weighted Weighted
Average Average
Range of Exercise Range of Exercise
Shares Prices Shares Prices
Outstanding,
beginning of year 2,198,295 $.39 2,198,295 $.39
Granted 100,000 $.53 100,000 $.97
Exercised - - 73,530 $.28
Canceled 100,000 $.97 26,470 $.28
Expired 50,000 $.47 0 -
Outstanding,
end of year 2,148,295 $.39 2,198,295 $.42
Options exercisable,
end of year 2,148,295 $.39 1,072,531 $.29
Weighted average fair
value of option
granted during year $.21 $.46
The following table summarizes information about stock options
outstanding at December 31, 1998:
Options Outstanding Weighted Average Weighted
Range of Number Remaining Average Number Average
Exercise Outstanding Contractual Exercise Exercisable Exercise
Prices at 12/31/98 life Price at 12/31/98 Price
$.28 1,048,295 3.1 yrs. $.28 1,048,295 $.28
$.50 1,000,000 4.9 yrs. $.50 1,000,000 $.50
$.53 100,000 9.5 yrs. $.97 100,000 $.53
$.28-$.53 2,148,295 3.1 to 9.5 yrs $.39 2,148,295 $.39
8. Employee Benefit Plans
On December 10, 1985, the Companys Board of Directors adopted a
Simplified Employee Pension Plan (SEP). The Company intends to
make a determination of contributions under the SEP on an annual
basis, based upon review by the Board of Directors of the Companys
financial statements as of its fiscal year end. The Company has
not yet determined any contributions to the SEP for the year ended
December 31, 1998 and no contribution was made for the year ended
December 31, 1997. For 1996, the Company made a contribution of 15
percent which was paid during 1997 in the aggregate amount of
$74,400. Under the SEP, the Company has the option of contributing
a certain amount directly to its employees Individual Retirement
Accounts. The Plan covers all employees of the Company with
certain participation requirements, however the Company is not
required to make any contributions in a given year. If
contributions are made, they must be made to all eligible
employees. Contributions made under the SEP in any one calendar
year for any one employee may not be more than the smaller of
$24,000 or 15 percent of that employees total compensation.
9. Lease Commitments and Contingencies
The Company has leased office space, equipment and vehicles under
noncancelable operating leases which expire through March, 2001.
Future minimum lease payments as of December 31, 1998 are as
follows:
1999 $25,849
2000 11,769
2001 4,936
Rent expense during the years ended December 31, 1998 and 1997 on
all operating leases was approximately $75,600 and $75,700,
respectively.
The Company has transferred its interest in several mining
properties over the past years. The Company could remain
potentially liable for environmental enforcement actions related to
its prior ownership interest of such properties. However, the
Company has no reasonable belief that any violation of relevant
environmental laws or regulations has occurred regarding these
transferred properties.
10. Installment Purchase Contracts
The Company has installment purchase contracts collateralized by
two vehicles each bearing interest at 8 percent per annum. Future
maturities under these contracts as of December 31, 1998 are as
follows:
1999 $5,189
2000 $5,674
2001 $6,206
2002 $6,788
2003 $4,382
11. Statements of Cash Flows
The Companys statement of cash flows for the two year periods ended
December 31, 1998 excludes the following non-cash investing and
financing activities:
1998 1997
Acquisition of vehicles through
installment purchase contracts $30,239 $-
Exchange of shares of Gold Capital
for shares of Globex common stock $- $1,990,429
12. Related Party Transactions
Effective September 13, 1996, the Company retained the firm of
Moyes Newby & Co., Inc. (Moyes Newby) as its financial advisor to
develop potential financial options available to the Company and
identify possible mining investment opportunities. Douglas J.
Newby is managing partner of Moyes Newby and effective October 16,
1997, Mr. Newby became a director of the Company. Effective
January 16, 1997, the relationship with Moyes Newby was suspended
and payments in the aggregate of $20,402 for previously unpaid
services and expenses under that arrangement were made. Effective
November 15, 1997 through February, 1999, the Company and Moyes &
Newby entered into a month-to-month arrangement whereby Moyes Newby
provided the Company general corporate and financial advisory
services for a retainer of $5,000/month plus reimbursement of
reasonable out of pocket expenses. A total of $13,625 through
December 31, 1997 and $61,480 for the year ended December 31, 1998,
was paid or accrued under this arrangement.
Commencing July 1, 1998, the three executive officers of the
Company voluntarily deferred 20 percent of their individual
salaries in order to conserve working capital of the Company. As
of December 31, 1998, the total amount of such voluntary deferral
was $44,719. During the months of November and December, 1998, no
salaries (at the voluntarily reduced rates) were paid to the three
executive officers of the Company in the aggregate of $59,625, as
a result of the situation created by non-payment by Gold Capital of
the minimum cash distributions of $60,000 per month due the Company
for November and December, 1998 under the Joint Venture Agreement.
In addition, the three executive officers of the Company made
personal cash loans to the Company to allow the Company to make
critical payments to third parties, in the aggregate amount of
$14,383 through December 31, 1998. The directors fees accrued for
the last half of 1998 in the amount of $18,000 remain unpaid as of
December 31, 1998. All of these amounts are reflected as
liabilities of the Company as of December 31, 1998.
13. Year 2000
The Year 2000 Issue arises because many computerized systems use
two digits rather than four to identify a year. Data-sensitive
systems may recognize the year 2000 as 1900 or some other date,
resulting in errors when information using year 2000 dates is
processed. In addition, similar problems may arise in some systems
that use certain dates in 1999 to represent something other than a
date. The effects of the Year 2000 Issue may be experienced
before, on or after January 1, 2000, and, if not addressed, the
impact on operations and financial reporting may range from minor
errors to significant system failure that could affect an entitys
ability to conduct normal business operations. It is not possible
to be certain that all aspects of the Year 2000 Issue affecting the
Company, including those related to the efforts of customers,
suppliers or other third parties will be fully resolved.
The Company has addressed Year 2000 Issue as relates to the
computing systems, software and programs for which the Company
relies to determine which are year 2000 compliant. The Company has
concluded that such systems, software and programs which are not
year 2000 compliant will be replaced prior to January 1, 2000 at an
estimated cost of approximately $30,000.
ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS on
ACCOUNTING AND FINANCIAL DISCLOSURE.
On February 8, 1999, Stark Tinter & Associates, LLC replaced BDO
Seidman, LLP, as the Corporations principal accountants. The
Corporation has not consulted with Stark Tinter & Associates, LLC
on any accounting or auditing matters during the past two years.
BDO Seidman, LLPs report on the financial statements for the two
years ended December 31, 1997 and 1996, contained an unqualified
opinion. Also, there were no disagreements on any matter of
accounting principle or practice, financial statement disclosure,
or auditing scope or procedure with BDO Seidman, LLP.
PART III
Item 9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL
PERSONS; COMPLIANCE WITH SECTION 16(a) OF THE EXCHANGE ACT
The following table sets forth certain information as to each
officer and director of the Company:
Board
Positions With Position Term
Name Age the Company Held Since Expires
William W. Reid 50 President, Chief 1979 Upon Successors
Executive Officer Election
and Director
John W. Goth 71 Director 1987 Upon Successors
Election
David C. Reid 48 Vice President 1993 Upon Successors
and Director Election
Douglas J. Newby 41 Director 1997 Upon Successors
Election
William F. Pass 52 Vice President, n/a n/a
Chief Financial Officer,
Secretary
WILLIAM W. REID-PRESIDENT, CHIEF EXECUTIVE OFFICER AND DIRECTOR
Mr. Reid, a founder of the Company, has served as a Director and
the President of the Company since its inception in 1979. Mr. Reid
devotes substantially all of his time to the business and affairs
of the Company. Effective January 1, 1994, Mr. Reid and the
Company entered into an employment contract as discussed below.
Mr. Reid also served on the board of directors of Gold Capital
Corporation, a publicly traded company, until August 29, 1997 as
provided by the Gold Capital Series A Preferred Stock Agreement
between Tonkin Springs Venture Limited Partnership (a partnership
owned by wholly-owned subsidiaries of the Company, hereinafter
TSVLP) and Gold Capital.
JOHN W. GOTH-DIRECTOR
Mr. Goth has been a director of the Company since 1987. Mr. Goth
also serves on the board of directors of Royal Gold, Inc., a
publicly traded company. For the past nine years, Mr. Goth has
been a self-employed mining consultant.
DAVID C. REID-VICE PRESIDENT EXPLORATION AND DIRECTOR
Effective October 19, 1993, Mr. David Reid was appointed a member
of the Board of Directors of the Company. On January 1, 1994, Mr.
Reid became an employee and officer of the Company with the title
Vice President Exploration and entered into an employment contract
with the Company as discussed below. Mr. Reid devotes
substantially all of his time to the business and affairs of the
Company. From January 1, 1993 through December 31, 1993, Mr. Reid
was an employee of TSVLP and sole director and president of U.S.
Environmental Corporation, a wholly-owned subsidiary of the Company
and 0.5 percent owner and limited partner in TSVLP. From September
1, 1991 through December 31, 1992, Mr. Reid was a consultant to the
Company. Prior to September, 1991, Mr. Reid was an employee and
officer (secretary) of the Company and served as a director.
DOUGLAS J. NEWBY-DIRECTOR
Mr. Newby has been a director of the Company since October 16,
1997. Mr. Newby also serves on the board of directors of Trans
Atlantic Enterprises Inc., a British Columbia, Canada company with
shares listed on the Vancouver Stock Exchange. Since 1991, Mr.
Newby has been Managing Partner of Moyes Newby & Co., Inc., a firm
that provides strategic corporate finance advice to the
international natural resource industries.
WILLIAM F. PASS-VICE PRESIDENT, CHIEF FINANCIAL OFFICER, SECRETARY
Mr. Pass joined the Company in June, 1988 and was appointed
Corporate Secretary on September 1, 1991 and effective January 1,
1994, was made Vice President Administration. Effective February
1, 1996, Mr. Pass was appointed Vice President, Chief Financial
Officer and Corporate Secretary. Mr. Pass devotes substantially
all of his time to the business and affairs of the Company.
Effective January 1, 1994, Mr. Pass and the Company entered into an
employment contract as discussed below.
There are no family relationships between officers and directors of
the Company except that David C. Reid, an officer and director of
the Company, is brother to William W. Reid, president of the
Company and director.
Section 16(a) Beneficial Ownership Compliance
Based solely upon review of Forms 3 and 4 and amendments thereto
furnished to the Company during 1998 and Forms 5 and amendments
thereto furnished to the Company with respect to 1998, the Company
is not aware of any person who, at any time during the fiscal year,
was a director, officer, beneficial owner of more than ten percent
of the stock of the Company that failed to file on a timely basis,
as disclosed in the above Forms, reports required by section 16(a)
during the most recent fiscal year or prior years.
ITEM 10. EXECUTIVE COMPENSATION
Compensation of Officers
The following table summarizes the total compensation of the
Executive Officers of the Company for the Companys last three
fiscal years. Except as set forth below under Stock Option Plan
and Pension Plan, there were no compensation plans for which cash
or non-cash distributions, other than salaries, were made during
the last fiscal year:
Summary Compensation Table
Annual Compensation All
Name and Principal Other
Position Year Salary Bonus Compensation (5)
William W. Reid, 1998 $235,204(1) $- $-
President and CEO 1997 $243,719 $150,000 $22,500(4)
1996 $205,048 $ 80,000 $-
William F. Pass, 1998 $107,275(2) $- $-
Vice President, 1997 $111,054 $ 67,500 $19,495(4)
Chief Financial 1996 $ 93,966 $ 36,000 $-
Officer and Secretary
David C. Reid, 1998 $117,869(3) $- $-
Vice President 1997 $122,531 $ 75,000 $21,530(4)
1996 $103,534 $ 40,000 $-
(1) Of this amount, only $181,695 was paid and $53,509 is owned to
the employee as of December 31, 1998.
(2) Of this amount, only $83,196 was paid and $24,079 is owned to
the employee as of December 31, 1998.
(3) Of this amount, only $91,114 was paid and $26,755 is owned to
the employee as of December 31, 1998.
(4) On December 10, 1985, the Companys Board of Directors adopted
a Simplified Employee Pension Plan (SEP). The Company intends to
make a determination of contributions under the SEP on an annual
basis, based upon review by the Board of Directors of the
performance of the Company. The Company has not yet determined any
contributions to the SEP for the year ended December 31, 1998. The
Company made a contribution of 15 percent during year 1997 for
calendar year 1996. No contribution was made for the calendar year
1997. Under the SEP, the Company has the option of contributing a
certain amount directly to its employees Individual Retirement
Accounts. The Plan covers all employees of the Company with
certain participation requirements, however the Company is not
required to make any contributions in a given year. If
contributions are made, they must be made to all eligible
employees. Contributions made under the SEP in any one calendar
year for any one employee may not be more than the smaller of
$24,000 for calendar year 1998 or 15 percent of that employees
total compensation.
(5) Effective June 1, 1995, the Company granted to its executive
officers and outside director options to purchase an aggregate
450,000 shares of common stock of Gold Capital Corporation from
TSVLP or the Company at an exercise price of $1.25 per share (the
market price of the shares as of the date of the grant). After the
merger of Gold Capital with Globex and effective September 30,
1997, those option agreements were terminated and replaced with
option agreements for common stock of Globex. Effective December
15, 1998, these options were terminated without consideration to
the holders.
Option Grants in Last Fiscal Year
There were no grants of stock options made pursuant to the Non-
Qualified Stock Option and Stock Grant Plan during 1998 to
Executive Officers.
Aggregated Option Exercises in Last Fiscal Year and Fiscal Year-End
Option Table Value
Shown below is information at December 31, 1998 with respect to the
exercised and unexercised options to purchase the Companys common
stock to Executive Officers under the Non-Qualified Stock Option
and Stock Grant Plan.
Number of Securities Value of Unexercised
Underlying Unexercised In-the-Money Options
Options Held at at
Name December 31, 1998 (1) December 31, 1998 (2)
William W. Reid 888,295 $0
William F. Pass 295,000 $0
David C. Reid 665,000 $0
(1) These options were exercisable at December 31, 1998.
(2) Based upon the close price as reported by OTC Bulletin Board as of
December 31, 1998 ($0.15 per share).
Compensation of Directors
The Company reimburses its outside directors for reasonable
expenses incurred by them in attending meetings of the Board of
Directors or of Committees of the Board. During 1998 $4,922 in
such expenses were incurred or paid. Additionally, outside
directors are normally paid $4,500 per quarter for services.
During 1998, Mr. Goth received total compensation of $9,000 for his
service as outside director for 1998 with the remaining $9,000
unpaid and owed to him as of December 31, 1998; and Mr. Newby
received total compensation of $9,000 for his service as outside
director for 1998 with the remaining $9,000 unpaid and owed to him
as of December 31, 1998. Moyes Newby & Co., a company in which Mr.
Newby is a principal, received an aggregate of $61,480 for
financial consulting services and out of pocket expenses from the
Company during 1998 (see Certain Relationships and Related
Transactions, Relationship with Moyes Newby & Co., Inc., below).
Directors who are also officers or employees of the Company or its
affiliates do not receive compensation for their director
responsibilities over their normal compensation as employees.
Employment Contracts
The Company entered into Employment Agreements effective January 1,
1994, as amended June 1, 1995 and July 21, 1998 with William W.
Reid, William F. Pass, and David C. Reid (the Employment Contracts)
each of which is for a five year term commencing January 1, 1994.
The Employment Contracts shall be extended automatically by one
year upon each anniversary date unless either the Company or
employee provides the other party written notice prior to 120 days
before such anniversary, that the Employment Contract will not be
so extended. During 1998 the Company gave written notice under
each Employment Contract that it was not automatically extending
the term by an additional year. William W. Reids Employment
Contract provides for a base salary of $157,500 per year for the
first year, $200,000 per year for the second year, and annual
upward adjustments thereafter based upon increases in the Consumer
Price Index (All Items-Urban) (the CPI-U). William F. Pass
Employment Contract provides for a base salary of $75,000 per year
for the first year, $90,000 per year for the second year, and
annual upward adjustments thereafter based upon increases in the
CPI-U. David C. Reids Employment Contract provides for a base
salary of $75,000 per year for the first year, $100,000 per year
for the second year, and annual upward adjustments thereafter based
upon increases in the CPI-U. During 1998, the executives
voluntarily deferred a portion of their base salary and in addition
were owed a portion of their salary which the Company was unable to
pay due to lack of funding. As of December 31, 1998, the Company
owed salary to William Reid in the amount of $53,509, William F.
Pass in the amount of $24,079 and David C. Reid in the amount of
$26,755.
Each of the Employment Agreements provides that the employee would
be entitled to receive a termination payment from the Company in a
lump sum equal to 2.9 times the employees average annual
compensation for the five taxable years immediately preceding the
date of termination by the employee under certain circumstances
(provided that the employee is not provided continued employment
for a minimum of three years with compensation and other business
terms equal to or more favorable to the employee than under the
Employment Agreement) summarized as follows: i) the sale by the
Company of substantially all of its assets to a single purchaser or
to a group of affiliated purchasers; ii) the sale, exchange or
other disposition, in one transaction or a series of related
transactions, of at least 30 percent of the outstanding voting
shares of the Company; iii) a decision by the Company to terminate
its business and liquidate its assets; iv) the merger or consolidation
of the Company with another entity or an agreement to such a merger or
consolidation or any other type of reorganization; v) there is a
material change in employees authority, duties or responsibilities;
or, vi) the Company acquires any stock or other investment in any
business enterprise which acquisition or investment exceeds 40
percent of the net book value of the Company. Upon the death of an
employee, the Company shall pay the employees estate an amount
equal to one years salary; and upon termination by the Company
following permanent disability of the employee, the Company shall
pay the employee an amount equal to two years salary.
ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT
The following table sets forth the number of shares of the Companys
common stock owned beneficially as of December 31, 1998, by each
person known by the Company to have owned beneficially more than
five percent of such shares then outstanding, by each person
serving as a director of the Company, the Executive Officers, and
all of the Companys officers and directors as a group.
Percentage of
Name and Address of Type of Number Class
Beneficial Owner Ownership of Shares Beneficially Owned
William W. Reid Record and 985,295(1) 6.7 percent
338 Clayton No. 1 Beneficial
Denver, CO 80206
David C. Reid Record and 684,970(2) 4.7 percent
9070 E. Jewell Circle Beneficial
Denver, CO 80231
William F. Pass Record and 300,000(3) 2.1 percent
14820 W. 58th Pl Beneficial
Golden, CO 80403
John W. Goth Record and 200,000(4) 1.4 percent
15140 Foothill Road Beneficial
Golden, CO 80401
Douglas J. Newby Record and 100,000(5) 0.7 percent
5 White Street Beneficial
Sag Harbour, N.Y. 11963
Placer Dome U.S. Record and 975,000 7.0 percent
Inc. Beneficial
Suite 600-1055 Dunsmuir St.
Vancouver, British Columbia,
Canada V7X 1L3 (6)
Citigroup Inc. Record and 3,162,374 22.7 percent
425 Park Avenue Beneficial
New York, NY 10043 (7)
French American Record and 2,142,171 15.4 percent
Banking Corporation Beneficial
499 Park Avenue
New York, NY 10022
All officers and 2,270,265 14.3 percent
directors as a group
(5 persons)
(1) This number includes options to purchase 388,295 shares at
$.28125 per share and 500,000 shares at $.50 per share.
(2) This number includes options to purchase 365,000 shares at
$.28125 per share and 300,000 shares at $.50 per share.
(3) This number includes options to purchase 195,000 shares at
$.28125 per share and 100,000 shares at $.50 per share.
(4) This number consists of options to purchase 100,000 shares at
$.28125 per share and 100,000 shares at $.50 per share.
(5) This number consists of an option to purchase 100,000 shares
at $.531 per share.
(6) Placer Dome U.S. Inc. is a wholly owned subsidiary of Placer
Dome Inc., a Canadian public company.
(7) The securities are owned by The Travelers Indemnity Company.
ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Relationship with Moyes Newby & Co., Inc.
During 1996 the Company retained the firm of Moyes Newby & Co.,
Inc. (Moyes Newby) as its financial advisor to develop potential
financial options available to the Company and identify possible
mining investment opportunities. Effective January 16, 1997, the
relationship with Moyes Newby was suspended to allow the Company to
focus its attention on the merger of its partner at Tonkin Springs,
Gold Capital Corporation, with Globex Mining Enterprises, Inc.
which merger was consummated August 29, 1997. Effective November
15, 1997, the Company and Moyes Newby entered into a month-to-month
arrangement whereby Moyes Newby provided the Company general
corporate and financial advisory services for a retainer of
$5,000/month plus reimbursement of reasonable out of pocket
expenses, for a total paid or accrued of $61,480 for 1998 and
$13,625 for 1997. Douglas J. Newby is managing partner of Moyes
Newby & Co., Inc. and effective October 16, 1997, Mr. Newby became
a director of the Company.
Transaction with Gold Capital
From December 31, 1993 to February 26, 1999, the Companys joint
venture partner in the Tonkin Springs Project (the Project) was
Gold Capital Corporation (Gold Capital) who held a 60 percent
undivided interest in the Project following the sale to Gold
Capital of that interest by the Company. The Company owned the
remaining 40 percent undivided interest through Tonkin Springs
Venture Limited Partnership (TSVLP), a partnership owned by
subsidiaries of the Company.
Included in the purchase price of Gold Capitals interest in the
December 31, 1993 transaction was 300,000 shares of Gold Capital
Series A Convertible Preferred Stock (the Preferred Stock) having
an assigned value of $3 million which was converted effective
December 31, 1996 into 1,750,000 shares of Gold Capital common
stock. In addition, Gold Capital paid mandatory dividends on the
Preferred Stock through November 30, 1996 with an aggregate of
275,518 common shares and satisfied a liability to the Company with
262,029 additional shares, resulting in the Company owning a total
of 2,287,547 common shares of Gold Capital. For a portion of 1997
the Company provided Gold Capital staff support and administrative
services under a month to month arrangement whereby the Company
received an aggregate of $72,590.
Effective August 29, 1997, Gold Capital became a wholly-owned
subsidiary of Globex Mining Enterprises, Inc. (Globex), a Canadian
corporation with shares traded on the Toronto stock exchange
(symbol: GMX) pursuant to the merger of Gold Capital with a
subsidiary of Globex (the Gold Capital Merger). The Company
received an aggregate of 631,905 shares of Globex common stock in
exchange for its shares of Gold Capital which as of December 31,
1998 represents approximately 5.4 percent of the outstanding common
shares of Globex.
William W. Reid, president of the Company, was appointed a member
of the board of directors of Gold Capital subsequent to the
December 31, 1993 transaction pursuant to the Gold Capital
Preferred Stock covenants, and served in that capacity until August
29, 1997.
Effective February 26, 1999, TSVLP and Gold Capital terminated the
Tonkin Springs Project Mining Venture Agreement dated December 31,
1993 as amended. Gold Capital then immediately sold its 60 percent
undivided interest in the Project to Tonkin Springs Holdings Inc.,
a Colorado corporation (TSHI).
ITEM 13. EXHIBITS AND REPORTS ON FORM 8-K.
(a) Exhibits.
3.0 Companys Articles of Incorporation, as Amended June 22,
1988, July 5, 1988, and December 20, 1991 (incorporated by
reference from the Report on Form 10-KSB dated December 31, 1995,
Exhibit 3.0).
3.1 Companys Bylaws, as Amended June 22, 1988 (incorporated by
reference from the Report on Form 10-KSB dated December 31, 1995,
Exhibit 3.1).
10.1 Agreement To Pay Distributions dated February 21, 1992, by
and between Tonkin Springs Gold Mining Company and French American
Banking Corporation (incorporated by reference from the Report on
Form 8-K dated February 21, 1992, Exhibit 4).
10.2 Amended and Restated Non-Qualified Stock Option and Stock
Grant Plan, as amended effective December 8, 1993 (incorporated by
reference from the Report on Form 10-KSB for the year ended
December 31, 1993, Exhibit 10.14).
10.3 Purchase and Sales Agreement dated December 31, 1993, by
and between Tonkin Springs Venture Limited Partnership and Gold
Capital Corporation (incorporated by reference from the Report on
Form 8-K dated December 31, 1993, Exhibit 10.1).
10.4 Mining Venture Agreement dated December 31, 1993, by and
between Tonkin Springs Venture Limited Partnership and Gold Capital
Corporation (incorporated by reference from the Report on Form 8-K
dated December 31, 1993, Exhibit 10.5).
10.5 Amendment to Mining Venture Agreement dated effective
August 29, 1997, by and between Tonkin Springs Venture Limited
Partnership and Gold Capital Corporation (incorporated by reference
to the Report on Form 10-QSB dated September 30, 1997, Exhibit
6.a).
10.6 Amended Employment Agreement with William W. Reid dated
June 1, 1995 (Incorporated by reference from the Report on Form 10-
QSB for the period ended September 30, 1995, Exhibit 10.1).
10.7 Amended Employment Agreement with William F. Pass dated
June 1, 1995 (Incorporated by reference from the Report on Form 10-
QSB for the period ended September 30, 1995, Exhibit 10.2).
10.8 Amended Employment Agreement with David C. Reid dated June
1, 1995 (Incorporated by reference from the Report on Form 10-QSB
for the period ended September 30, 1995, Exhibit 10.3).
*10.9 Members Agreement of the Members of Tonkin Springs LLC by
and between Tonkin Springs Venture Limited Partnership and Tonkin
Springs Holdings Inc. dated February 26, 1999.
*10.10 Operating Agreement of the Members of Tonkin Springs LLC by
and between Tonkin Springs Venture Limited Partnership and Tonkin
Springs Holdings Inc. dated February 26, 1999.
*10.11 Amendment to Employment Agreement with William W. Reid
dated July 21, 1998.
*10.12 Amendment to Employment Agreement with William F. Pass
dated July 21, 1998.
*10.13 Amendment to Employment Agreement with David C. Reid dated
July 21, 1998.
21. Subsidiaries of the Company (incorporated by reference from
the Report on Form 10-KSB for the year ended December 31, 1993,
Exhibit 21).
*23.1 Consent of BDO Siedman, LLP, to the incorporation by
reference of their audit report dated March 26, 1999, in the
Companys Form S-8.
*23.2 Consent of Stark Tinter & Associates LLC, to the
incorporation by reference of their audit report dated March 19,
1999, in the Companys Form S-8.
*27 Financial Data Schedule
*Filed herewith.
(b) Reports on Form 8-K during the 4th quarter of 1998.
None.
SIGNATURES
In accordance with Section 13 or 15(d) of the Exchange Act of 1934,
the Company caused this Report to be signed on its behalf by the
undersigned, thereunto duly authorized.
U.S. GOLD CORPORATION
March 26, 1999 By: William W. Reid
William W. Reid, President and
Chief Executive Officer
March 26, 1999 By: William F. Pass
William F. Pass, Vice President, Chief
Financial Officer and Secretary
In accordance with the Exchange Act, this Report has been signed
below by the following persons on behalf of the Company and in the
capacities and on the dates indicated.
March 26, 1999 By: William W. Reid
William W. Reid, Chairman of the Board of Directors
March 26, 1999 By: David C. Reid
David C. Reid, Exploration Vice President and
Director
March 26, 1999 By: John W. Goth
John W. Goth, Director
March 26, 1999 By:Douglas J. Newby
Douglas J. Newby, Director
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<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY INFORMATION EXTRACTED FROM THE 1998 FORM-10KSB
AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FORM 10-KSB.
</LEGEND>
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-END> DEC-31-1998
<CASH> 1,954
<SECURITIES> 62,558
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 641,954
<PP&E> 195,104
<DEPRECIATION> (145,173)
<TOTAL-ASSETS> 4,109,555
<CURRENT-LIABILITIES> 199,734
<BONDS> 0
0
0
<COMMON> 1,392,747
<OTHER-SE> 134,024
<TOTAL-LIABILITY-AND-EQUITY> 4,109,555
<SALES> 130,944
<TOTAL-REVENUES> 130,944
<CGS> 0
<TOTAL-COSTS> 862,420
<OTHER-EXPENSES> 86,979
<LOSS-PROVISION> 1,927,871
<INTEREST-EXPENSE> 2,630
<INCOME-PRETAX> (2,748,956)
<INCOME-TAX> 41,203
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (2,790,159)
<EPS-PRIMARY> (0.20)
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</TABLE>
Exhibit 10.9
MEMBERS AGREEMENT
of the Members of
TONKIN SPRINGS LLC
A Delaware Limited Liability Company
TABLE OF CONTENTS
ARTICLE I DEFINITIONS AND CROSS-REFERENCES 1
1.1 Definitions. 1
1.2 Cross References. 2
ARTICLE II CONTRIBUTIONS AND PAYMENTS BY MEMBERS 2
2.1 Members Initial Contributions. 2
2.2 Additional Cash Contributions. 2
2.3 Withdrawal or Deemed Withdrawal Prior to the Cut-Off Date. 3
2.4 Minimum Work Commitment. 4
2.5 Grant of Lien and Security Interest. 4
2.6 Financing of Major Development Programs. 5
2.7 Pledge and Subordination of Interests. 6
2.8 TSHI Payments to TSVLP. 6
ARTICLE III REPRESENTATIONS AND WARRANTIES;TITLE TO ASSETS;
INDEMNITIES 6
3.1 Representations and Warranties.6
3.2 Disclosures. 12
3.3 Loss of Title. 12
3.4 Limitation of Liability. 12
3.5 Indemnification. 12
ARTICLE IV INTERESTS OF MEMBERS 13
4.1 Continuing Liabilities Upon Adjustments of Ownership Interests. 13
4.2 Continuing Obligations and Environmental Liabilities. 14
4.3 Grant of Lien and Security Interest. 14
4.4 Subordination of Interests. 14
ARTICLE V RELATIONSHIP OF THE MEMBERS 15
5.1 Transfer or Termination of Rights. 15
5.2 Abandonment and Surrender of Properties. 15
5.3 Implied Covenants. 15
5.4 No Third Party Beneficiary Rights. 15
ARTICLE VI ACQUISITIONS WITHIN AREA OF INTEREST 15
6.1 General. 15
6.2 Notice to Non-Acquiring Member. 15
6.3 Option Exercised. 16
6.4 Option Not Exercised. 16
6.5 Non-Compete Covenants. 16
6.6 Campbell-Simpson Lease.16
ARTICLE VII GOVERNING LAW 17
7.1 Governing Law.17
ARTICLE VIII GENERAL PROVISIONS 7
8.1 Notices. 17
8.2 Gender. 18
8.3 Currency. 18
8.4 Headings. 18
8.5 Waiver. 18
8.6 Modification.18
8.7 Force Majeure. 18
8.8 Rule Against Perpetuities. 196
8.9 Further Assurances. 19
8.10 Entire Agreement; Successors and Assigns. 19
8.11 Counterparts. 19
MEMBERS AGREEMENT of the Members of TONKIN SPRINGS LLC
A Delaware Limited Liability Company
This Members Agreement (the Agreement) is made as of February 26, 1999
(Effective Date) between TONKIN SPRINGS VENTURE LIMITED
PARTNERSHIP, a Nevada limited partnership (TSVLP), the address of
which is 55 Madison Street, Suite 700, Denver, Colorado 80206, and
TONKIN SPRINGS HOLDINGS INC., a Colorado corporation (TSHI), the
address of which is 401 Bay Street, Suite 2302, Toronto, Ontario M5H2Y4,
Canada.
RECITALS
A. Gold Capital Corporation, a Colorado corporation (GCC) and TSVLP
were parties to a Mining Venture Agreement dated December 31, 1993, as
amended on March 7, 1997 and July 7, 1997 (the 1993 Agreement).
Pursuant to the 1993 Agreement, GCC and TSVLP formed the Venture. At
all times while the 1993 Agreement remained in effect GCC was Manager
of the Venture and had overall management responsibility for, and control
of, Operations. GCC and TSVLP owned as tenants-in-common certain
assets which were subject to the 1993 Agreement and included certain
Properties situated in Eureka County, Nevada. These Properties and Assets
are described in Exhibit A and defined in Exhibit D of the LLC Agreement
(as defined in Recital C below). The 1993 Agreement has been terminated,
with GCC being assigned and retaining an undivided 60% interest and
TSVLP being assigned and retaining an undivided 40% interest in the
Properties and Assets, free and clear of the 1993 Agreement and any and
all Liens of GCC, TSVLP, or their respective Affiliates.
B. Immediately following termination of the 1993 Agreement, and
immediately prior to execution of this Agreement and the LLC Agreement,
TSHI acquired GCCs undivided 60% interest in the Properties and Assets.
C. TSVLP and TSHI wish to form and operate a limited liability company
under the Delaware Limited Liability Company Act, 6 Del. C. 18-101 et.
seq. (the Act) to own and operate the Properties and Assets. The name of
the limited liability company shall be Tonkin Springs LLC (the Company)
and its affairs shall be governed by that certain Operating Agreement of
Tonkin Springs LLC of even date herewith (the LLC Agreement). TSVLP
and TSHI desire to enter into this Agreement to provide, amongst
themselves, for their respective contributions to the Company and for
certain other matters, all as set forth herein.
NOW THEREFORE, in consideration of the covenants and conditions
contained herein, TSVLP and TSHI agree as follows:
DEFINITIONS AND CROSS-REFERENCES
Definitions. The terms defined herein shall have the defined meaning
wherever used in this Agreement. Capitalized terms used but not defined in
this Agreement shall have the meanings given thereto in the LLC
Agreement.
Cross References. References to exhibits are to Exhibits of the LLC
Agreement. References to Articles, Sections and Subsections refer to
Articles, Sections and Subsections of this Agreement unless indicated
otherwise. References to Paragraphs and Subparagraphs refer to
paragraphs and subparagraphs of the referenced Exhibits.
CONTRIBUTIONS AND PAYMENTS BY MEMBERS
Members Initial Contributions. TSVLP, as its Initial Contribution, shall and
does hereby transfer, convey, assign and contribute to the Company its
undivided 40% interest in the Assets and any other right, title and interest
held by TSVLP or its Affiliates in or to the Assets. TSHI, as its Initial
Contribution, shall and does hereby transfer, convey, assign and contribute
to the Company its undivided 60% interest in the Assets and any other
right, title and interest held by TSHI or its Affiliates in or to the Assets.
For purposes of determining TSVLPs and TSHIs initial or subsequently
adjusted Ownership Interests, including the calculation of dilution under
Section 4.1(b) of the LLC Agreement, and for no other purpose, the value
of TSVLPs Initial Contribution shall be deemed to be Two Million Dollars
($2,000,000) and the value of TSHIs Initial Contribution shall be deemed
to be Three Million Dollars ($3,000,000). As of the Effective Date of this
Agreement, after taking into account the Members Initial Contributions, the
opening balance in TSHIs Capital Account shall be zero and the opening
balance in TSVLPs Capital Account shall be zero. TSVLP and TSHI shall
take all such further action (and shall cause their Affiliates to take all such
further action), including without limitation the execution, delivery,
recordation and filing of appropriate deeds, bills of sale, assignments and
other instruments of conveyance, as may be reasonably necessary,
convenient or appropriate to accomplish or evidence their respective Initial
Contributions.
Additional Cash Contributions. Subject to TSHIs right of withdrawal as set
forth in Section 2.3, TSHI agrees to contribute, in accordance with
approved Programs and Budgets and the provisions of the LLC Agreement,
one hundred percent (100%) of all costs of Operations, including but not
limited to costs of holding and maintaining the Properties, permits and
bonds for Operations, expenditures in respect of Exploration and, if
warranted, Development and Mining, capital costs and working capital until
the date (the Cut-Off Date) on which TSHI has contributed and committed
an aggregate of Four Million Dollars ($4,000,000) toward the costs of
Exploration, including without limitation associated costs of permitting,
environmental studies and Environmental Compliance, but excluding costs
of holding the Properties. Such amounts contributed by TSHI prior to the
Cut-Off Date shall be added to the Recoupment Amount in accordance with
Exhibit D of the LLC Agreement , and credited to TSHIs Capital Account in
accordance with Exhibit C of the LLC Agreement, but shall not be
considered for purposes of adjusting TSVLPs and TSHIs Ownership
Interests (for purposes of calculating dilution) under Section 4.1 (b) of the
LLC Agreement. Subsequent to the Cut-Off Date, the Members, subject to
any election permitted by Section 4.1 of the LLC Agreement, and to the
obligation of TSHI to advance funds to TSVLP as provided in said Section
4.1, shall be obligated to contribute funds to adopted Programs and
Budgets pursuant to cash calls under Section 11.2 of the LLC Agreement in
proportion to their respective Ownership Interests.
Withdrawal or Deemed Withdrawal Prior to the Cut-Off Date.
In the event that TSHI fails to fund one hundred percent (100%) of all
costs of Operations prior to the Cut-Off Date in accordance with the
provisions of Section 2.2, and TSHI fails within thirty (30) days after its
receipt of written notice from TSVLP setting forth in detail the specifics of
such a default, either to cure the default or to contest in writing the
occurrence of a default, TSHI shall be deemed to have withdrawn from this
Agreement and from the Company. At any time prior to the Cut-Off Date,
TSHI may also withdraw from this Agreement and the Company by
providing to TSVLP not less than thirty (30) days prior written notice of
withdrawal, which notice shall set forth the effective date of TSHIs
withdrawal. Upon such withdrawal or deemed withdrawal, TSHI shall
have no further right, title or interest in the Assets or the Company and its
Ownership Interest shall be deemed transferred to TSVLP. TSHIs deemed
withdrawal shall be effective upon its failure to cure or contest an alleged
default within the aforementioned thirty (30) day period and TSHIs
withdrawal shall be effective on the date set forth in TSHIs notice.
However, notwithstanding TSHIs withdrawal or deemed withdrawal
pursuant to this Section 2.3(a), TSHI shall remain obligated to TSVLP: (i)
to fund Operations up to the amount of TSHIs agreed contribution to the
remaining balance of the adopted Program and Budget in effect on
termination; (ii) to complete its Minimum Work Commitment under
Section 2.4 or, alternatively, to pay to TSVLP the deficiency or amount
necessary to complete the Minimum Work Commitment; (iii) to pay to
TSVLP any unpaid Monthly Minimum Payments that are due and payable
under Section 2.8 within thirty-four (34) calendar months after the
Effective Date; and (iv) to fund and satisfy all unfunded liabilities to third
parties (whether such accrue before or after such withdrawal) arising out
of Operations conducted subsequent to the Effective Date but prior to
TSHIs withdrawal or deemed withdrawal until such time as TSHI shall
have expended a total of Four Million Dollars ($4,000,000) in connection
with Operations or in connection with this Agreement (whether pursuant
to this Section 2.3 or otherwise) and thereafter to fund and satisfy its share
(a share proportionate to its Ownership Interest immediately prior to its
withdrawal or deemed withdrawal) of such unfunded liabilities to third
parties arising out of Operations conducted subsequent to the Effective
Date, but prior to TSHIs withdrawal or deemed withdrawal. Except as
provided in the preceding sentence, upon TSHIs withdrawal or deemed
withdrawal pursuant to this Section 2.3(a), TSHI shall have no further
liabilities or obligations whatsoever with respect to, under or arising out of
the Assets, the Company, Operations, the LLC Agreement or this
Agreement, including without limitation any obligation to make any
payment or contribution or perform any covenant. Following TSHIs
withdrawal or deemed withdrawal pursuant to this Section 2.3(a), TSVLP
shall indemnify and hold harmless TSHI, its Affiliates and the Manager and
their respective officers, employees and agents from and against any and
all liabilities, obligations, claims, responsibilities, actions, demands,
losses, costs and expenses, including but not limited to costs of litigation
and reasonable attorneys fees, with respect to, under or arising out of the
Assets, the Company, Operations, the LLC Agreement or this Agreement,
except for those liabilities and obligations expressly set forth in this Section
2.3(a) as retained by TSHI following its withdrawal or deemed withdrawal.
In the event that, prior to the Cut-Off Date, there is a breach of any of
TSVLPs representations, warranties or covenants set forth in this
Agreement or in the LLC Agreement that causes a Material Adverse Effect
(as defined below in Section 2.3(c)), TSHI shall have the right to withdraw
from this Agreement and the Company by providing written notice thereof
to TSVLP, which notice shall set forth the effective date of TSHIs
withdrawal. Upon such withdrawal, TSHI shall have no further right, title
or interest in the Assets or the Company and its Ownership Interest shall
be deemed transferred to TSVLP. Upon TSHIs withdrawal pursuant to this
Section 2.3(b), TSHI shall have no further liabilities or obligations
whatsoever with respect to, under or arising out of the Assets, the
Company, Operations, the LLC Agreement or this Agreement, including
without limitation any obligation to make any payment or contribution or
perform any covenant, provided, however, TSHI shall remain obligated to
TSVLP to fund and satisfy all unfunded liabilities to third parties (whether
such accrue before or after such withdrawal) arising out of Operations
conducted subsequent to the Effective Date but prior to TSHIs withdrawal
until such time that TSHI shall have expended a total of Four Million
Dollars ($4,000,000) in connection with Operations or in connection with
this Agreement (whether pursuant to this Section 2.3 or otherwise) and
thereafter to fund and satisfy its share (a share proportionate to its
Ownership Interest immediately prior to its withdrawal or deemed
withdrawal) of such unfunded liabilities to third parties arising out of
Operations conducted subsequent to the Effective Date, but prior to TSHIs
withdrawal or deemed withdrawal. Except as provided for in the preceding
sentence, following TSHIs withdrawal pursuant to this Section 2.3(b),
TSVLP shall indemnify and hold harmless TSHI, its Affiliates and the
Manager and their respective officers, employees and agents from and
against any and all liabilities, obligations, claims, responsibilities, actions,
demands, losses, costs and expenses, including but not limited to costs of
litigation and reasonable attorneys fees, with respect to, under or arising
out of the Assets, the Company, Operations, the LLC Agreement or this
Agreement.
As used in Section 2.3(b), Material Adverse Effect means an effect that
reduces or diminishes the fair market value of the Assets by more than Two
Hundred and Fifty Thousand Dollars ($250,000) or that imposes a liability,
obligation, Lien or Encumbrance in excess of Two Hundred and Fifty
Thousand Dollars ($250,000).
Minimum Work Commitment. On or before the third anniversary of the
Effective Date, TSHI shall expend not less than Two Million Dollars
($2,000,000) in connection with Exploration upon or with respect to the
Properties, including without limitation associated costs of permitting,
environmental studies and Environmental Compliance, but exclusive of
costs of holding the Properties (the Minimum Work Commitment). The
Minimum Work Commitment shall be accounted for in accordance with
Exhibit B of the LLC Agreement, including the administrative change
provided for therein. Subject to force majeure under Section 8.7, the
Minimum Work Commitment shall be a fixed obligation on the part of
TSHI which shall not be excused by TSHIs withdrawal or deemed
withdrawal from this Agreement. The Minimum Work Commitment will
constitute a part of the Four Million Dollar ($4,000,000) funding for
Exploration to be provided by TSHI pursuant to Section 2.2, and not an
additional obligation.
Grant of Lien and Security Interest. TSVLP grants to TSHI a lien on and a
security interest in (i) all of TSVLPs Ownership Interest, (ii) all of TSVLPs
right, title and interest in the Company and the Assets, (iii) all of TSVLPs
right, title and interest arising under this Agreement or the LLC
Agreement, whenever acquired or arising, and (iv) all proceeds from and
accessions to the foregoing; provided, however, that this lien and security
interest shall in no event apply to or burden any net smelter return (NSR)
royalty received by TSVLP pursuant to the LLC Agreement. The liens and
security interests granted to TSHI will secure every obligation or liability of
TSVLP created under this Agreement or the LLC Agreement. TSVLP hereby
agrees to take all action necessary to preserve, protect and perfect such
liens and security interests and hereby irrevocably nominates, constitutes
and appoints TSHI and each of its officers holding office from time to time
as the true and lawful attorney-in-fact and agent of TSVLP with power of
substitution in the name of TSVLP to do any and all such acts and things or
execute and deliver all such agreements, documents and instruments as
TSHI reasonably considers necessary for that purpose. Without in any way
limiting the generality of the foregoing, TSHI shall have the right to
execute for and in the name of TSVLP all financing statements, financing
change or continuation statements, conveyances, transfers, assignments,
consents and other instruments as may be required for such purposes. This
power of attorney shall not be revoked or terminated during the term of
this Agreement or the term of the LLC Agreement, but shall terminate upon
termination of either this Agreement or the LLC Agreement, whichever is
earlier. In the event that TSHI executes any written power of attorney in
its favor pursuant to this Section 2.5, TSHI shall promptly provide a copy
of such instrument to TSVLP. Any lien or security interest granted by
TSVLP to any third party upon or with respect to any of TSVLPs rights, title
or interest in or to the Company or the Assets, TSVLPs Ownership Interest,
TSVLPs rights under this Agreement or under the LLC Agreement or
proceeds from and accessions to the foregoing, that is otherwise permitted
under this Agreement and under the LLC Agreement (TSVLP Third Party
Liens), shall expressly be subordinated to the liens and security interests
held by TSHI; provided, however, that TSHI shall subordinate its liens and
security interests to TSVLP Third Party Liens, other than those arising in
connection with outstanding loans to TSVLP, in connection with secured
Project Financings arranged or approved by the Manager for the benefit of
both Members. Notwithstanding the foregoing, provided that TSVLP is in
compliance with all the terms and conditions of this Agreement and the
LLC Agreement and no amount of any Elected Loan or Demand Loan or
other indebtedness of TSVLP to TSHI is outstanding then, upon request by
TSVLP, TSHI shall subordinate its liens and security interests arising under
this Section 2.5 to any TSVLP Third Party Liens that TSVLP may desire to
grant to third parties in connection with secured financings, provided that:
(i) such subordination shall expressly not apply to TSHIs liens, security
interests and rights with respect to any subsequent Elected Loan, Demand
Loan or other loan that TSHI may make to TSVLP thereafter, or to the
rights and remedies that TSHI may have under this Agreement or the LLC
Agreement in the event of default thereunder, or in the event of a breach
of an obligation to contribute to an Approved Program and Budget
pursuant to an election or deemed election in accordance with Article X of
the LLC Agreement, including without limitation the right upon such
default or breach to reduce TSVLPs Ownership Interest in accordance with
the provisions of this Agreement and the LLC Agreement and to receive
the portion of the Ownership Interest so reduced free and clear of all Liens
and Encumbrances; (ii) all TSVLP Third Party Liens shall expressly be
subordinated to the liens, security interests and rights of TSHI described
above in clause (i) of this sentence; and ; (iii) all documentation reflecting
TSVLP Third party Liens shall expressly indicate the exclusions from and
conditions of such subordination stated in clauses (i) and (ii) of this
sentence.
Financing of Major Development Programs. In the event that, subsequent
to the Cut-Off Date, a Program and Budget involving Development and
requiring funding in excess of Twenty Million Dollars ($20,000,000) is
approved, the Manager shall exercise reasonable efforts to attempt to
obtain third party Project Financing for a substantial part of such Program
and Budget for the benefit of both Members.
Pledge and Subordination of Interests. Each Member shall pledge its
Ownership Interest and, to the extent consistent with the final proviso of
Section 2.5, subordinate any liens it may hold which are created under this
Agreement to any secured Project Financing approved or arranged by the
Manager for the benefit of both Members, including any modifications or
renewals thereof.
TSHI Payments to TSVLP. Upon execution of this Agreement, TSHI shall
pay TSVLP One Hundred Ninety Thousand Dollars ($190,000).
Commencing on the first day of each of the following thirty-four (34)
calendar months, TSHI shall pay TSVLP the sum of Forty-Five Thousand
Dollars ($45,000) in any month that is prior to or is the month in which
the Commencement of Commercial Production is achieved and the sum of
Sixty Thousand Dollars ($60,000) in each month subsequent to the
calender month in which Commencement of Commercial Production occurs
(the Monthly Minimum Payments). On the last day in the calendar month
in which the Commencement of Commercial Production is achieved, TSHI
shall pay TSVLP an additional amount to be calculated by multiplying: (i)
Fifteen Thousand Dollars ($15,000); by (ii) the number of months from the
Effective Date of this Agreement up to and including the month in which
the Commencement of Commercial Production is achieved (the Lump-Sum
Payment). In accordance with the definition of Recoupment Amount set
forth in Exhibit D of the LLC Agreement, fifty percent (50%) of each of: (i)
the One Hundred Ninety Thousand Dollar ($190,000) payment made by
TSHI to TSVLP upon execution of this Agreement and (ii) the monthly
Minimum Payments and (iii) the Lump Sum Payment, shall be added to the
Recoupment Amount. In no event shall TSVLP be obligated to refund any
such payments if its share of Cash Flow is insufficient to repay the
Recoupment Amount, except from liquidation proceeds upon liquidation of
the Company as provided in Section 14.3 of the LLC Agreement, provided,
however, that under no circumstances shall TSVLP be required to
contribute cash upon liquidation.
REPRESENTATIONS AND WARRANTIES; TITLE TO ASSETS; INDEMNITIES
Representations and Warranties.
Capacity of the Members. As of the Effective Date, each Member warrants
and represents to the other that:
it is a corporation or limited partnership, as the case may be, duly
organized and in good standing in its state of incorporation or partnership
organization and is qualified to do business and is in good standing in
those states where necessary in order to carry out the purposes of this
Agreement;
it has the capacity to enter into and perform this Agreement and all
transactions contemplated herein and all corporate, partnership and other
actions and consents required to authorize it to enter into and perform this
Agreement have been properly taken or obtained;
it will not breach any other agreement or arrangement by entering into or
performing this Agreement; and
this Agreement has been duly executed and delivered by it and is valid and
binding upon it in accordance with its terms.
Representations and Warranties of TSVLP. The parties to this Agreement
acknowledge and understand that: (i) since the effective date of the 1993
Agreement, GCC (and not TSVLP) has served as the manager thereunder;
(ii) TSVLP has received some but not all reports that GCC, as manager,
should have provided under the 1993 Agreement, and (iii) TSVLP makes
no representations or warranties regarding the accuracy or completeness of
the reports or information that were provided by GCC as the manager
pursuant to the 1993 Agreement. Subject to the foregoing understandings,
TSVLP makes the following representations and warranties to TSHI as of
the time of the Effective Date immediately prior to the termination of the
1993 Agreement.
To the best of TSVLPs knowledge and belief, the Venture owns no
Properties in fee simple.
With respect to those Properties in which the Venture holds an interest
under leases or other Contracts, and to the best of TSVLPs knowledge and
belief, and except as set forth in Exhibit J of the LLC Agreement: (i) the
Venture is in exclusive possession of such Properties; (ii) the Venture has
not received any notice of breach or default of any of the terms or
provisions of such leases or Contracts and no event, condition or
occurrence exists which, after notice or lapse of time or both, would
constitute a breach or default under any of the foregoing; (iii) such leases
and Contracts do not limit in any way the right or the ability of the
Venture, GCC or TSVLP to assign their rights thereunder or otherwise to
perform fully their respective obligations with respect to the transactions
contemplated under this Agreement or the LLC Agreement, (iv) such leases
and Contracts are valid, enforceable and are in good standing; and (v) the
title of the Ventures lessor in such Properties covered thereby and the
Ventures leasehold interest therein are free and clear of all defects, Liens,
Encumbrances and Contracts, except for those specifically identified in
Exhibit A of the LLC Agreement or in such leases or Contracts. With
respect to those Properties in which the Venture holds an interest under
leases or other Contracts and except as forth in Exhibit J of the LLC
Agreement: (i) TSVLP has not received any notice of breach or default of
any of the terms or provisions of such leases or Contracts; and (ii) the
Ventures leasehold interest therein is free and clear of all defects, Liens,
Encumbrances and Contracts, arising by, through or under TSVLP, except
for those specifically identified in Exhibit A of the LLC Agreement or in
such leases or Contracts. TSVLP will make available to TSHI all
information concerning title to the Properties in TSVLPs possession or
control, and has delivered to TSHI true, correct and complete copies of all
leases and other Contracts relating to the Properties, together with all
amendments, supplements and exhibits thereto, of which TSVLP has
knowledge.
a. With respect to unpatented mining and mill site claims located by
TSVLP or an agent or Affiliate of TSVLP that are included within the
Properties (whether held directly or under lease or other Contract), except
as provided in Exhibits A and J of the LLC Agreement and subject to the
paramount title of the United States: (i) the unpatented claims were
properly laid out and monumented; (ii) all required location and validation
work was properly and timely performed; (iii) location notices and
certificates were properly and timely recorded and filed with appropriate
governmental agencies; (iv) to the best of TSVLPs knowledge and belief, all
assessment work required to hold the unpatented claims has been
performed in a manner consistent with that required of the Manager
pursuant to Section 9.2(k) of the LLC Agreement through the assessment
year ending September 1, 1998; (v) to the best of TSVLPs knowledge and
belief, all affidavits of assessment work, notice of intent and other filings
and holding, maintenance and rental fees and payments required to
maintain the mining claims in good standing have been properly and timely
recorded, filed or paid with appropriate governmental agencies; (vi) the
claims are free and clear of defects, Liens, Encumbrances and Contracts
arising by, through or under TSVLP and, to the best of TSVLPs knowledge
and belief, are free and clear of all other defects, Liens, Encumbrances and
Contracts; (vii) to the best of TSVLPs knowledge and belief, the Venture
holds the entire undivided right, title and interest in and to the claims; and
(viii) TSVLP has no knowledge of conflicting claims. Nothing in this
Section 3.1 (b)(3) , however, shall be deemed to be a representation or a
warranty that any of the unpatented claims contain a discovery of minerals.
With respect to those unpatented mining and mill site claims that were not
located by TSVLP or an Affiliate of TSVLP, but are included within the
Properties (whether held directly or under lease or other Contract), TSVLP
makes the representations and warranties set forth in clauses (3)(i)(ii) and
(iii) hereinabove (with the foregoing exceptions) to the best of its
knowledge and belief.
To the best of TSVLPs knowledge and belief, with respect to the Assets,
the Venture and the Operations, there are no pending or threatened
actions, suits, claims or proceedings, except as expressly set forth in Exhibit
M of the LLC Agreement.
To the best of TSVLPs knowledge and belief: (i) all of the Assets are
identified in Exhibit A of the LLC Agreement, (ii) the Venture owns the
entire undivided title to the Assets, free and clear of all defects, Liens,
Encumbrances and Contracts except those specifically identified in Exhibit
A of the LLC Agreement; and (iii) except with respect to unpatented
claims, the Venture has good and marketable title to all of the Assets,
except as expressly set forth in Exhibits A and J of the LLC Agreement. The
Assets are free and clear of all defects, Liens, Encumbrances and Contracts
arising by, through or under TSVLP except for those specifically identified
in Exhibit A or Exhibit J of the LLC Agreement. TSVLP has obtained any
and all consents, approvals and authorizations and given all notices, as are
required in connection with the making of its Initial Contribution to the
Company and the conveyance of its undivided forty percent (40%) interest
in the Assets to the Company pursuant to Section 2.1, provided, however,
that this representations and warranty applies only to the extent said
consents, approvals, and authorizations are required uniquely in connection
with TSVLPs Initial Contribution and conveyance to the Company of its
undivided interest in the forty percent (40%) interest in the Assets and
would not be required in connection with GCCs Initial Contribution and
conveyance to the Company of its undivided sixty percent (60%) interest in
the Assets. To the best of TSVLPs knowledge and belief, and except as
provided in Exhibits A and J, all Contracts pertaining in any way to the
Assets are specifically described in Exhibit A of the LLC Agreement, all such
Contracts are valid and in full force and effect, no breach thereof or default
thereunder has occurred or been alleged, and all payments required to
have been paid and all obligations required to have been performed
thereunder as of the Effective Date have been fully paid or performed.
To the best of TSVLPs knowledge and belief, the Properties and the Assets
and all Operations and activities conducted thereon and all conditions with
respect thereto have been and are in compliance with all Environmental
Laws and with all other Laws, except as expressly set forth in Exhibit F of
the LLC Agreement.
TSVLP has made available to TSHI all information in TSVLPs possession
regarding Permits and Bonds required to hold and operate the Assets.
To the best of TSVLPs knowledge and belief, the Venture has not used or
permitted to be used, except in compliance with all Environmental Laws,
any of the Assets or other facilities which the Venture currently owns and
operates or previously owned or leased, to generate, manufacture, process,
distribute, use, treat, store, dispose of, transport or handle any Hazardous
Substance, except as expressly set forth in Exhibit F of the LLC Agreement.
To the best of TSVLPs knowledge and belief, no building, structure or
improvement located on the Properties is or ever has been insulated with
urea formaldehyde insulation, and none of such buildings or structures
contain asbestos or PCBs, except as expressly set forth in Exhibit F of the
LLC Agreement.
To the best of TSVLPs knowledge and belief, the Venture has never
received any notice of, or been prosecuted for, non-compliance with any
Environmental Laws or other laws, nor has the Venture settled any
allegation of non-compliance prior to prosecution, except as expressly set
forth in Exhibit F of the LLC Agreement. To the best of TSVLPs knowledge
and belief, there are no notices, orders or directions relating to
environmental matters requiring, or notifying the Venture that it is or may
be responsible or liable in whole or in part, for, any containment, clean-up,
remediation, responses, corrective action or damages to natural resources
or any work, repairs, construction or capital expenditures to be made under
Environmental Laws or other Laws, except as expressly set forth in Exhibit
F of the LLC Agreement.
To the best of TSVLPs knowledge and belief, the Venture has not caused or
permitted, nor has there been any Release of any Hazardous Substance on,
in, around, from or in connection with any of the Assets, or their use, or
any such Release on or from a facility which it previously owned or leased,
or any such Release on or from a facility owned or operated by any third
party but with respect to which the Venture is or may reasonably be
alleged to have liability, except as expressly set forth in Exhibit F of the
LLC Agreement. All Hazardous Substances and all other wastes and other
materials and substances used in whole or in part by the Venture have
been disposed of, treated and stored by the Venture in compliance with all
Environmental Laws, except as expressly set forth in Exhibit F of the LLC
Agreement.
To the best of TSVLPs knowledge and belief, TSVLP has made available to
TSHI true and complete copies of all environmental audits, evaluations,
assessments, studies or tests relating to the Assets and their use which are
within the possession or control of TSVLP.
To the best of TSVLPs knowledge and belief, all Contracts are set forth in
Exhibit L of the LLC Agreement. To the best of TSVLP's knowledge, the
Venture has performed all of the obligations required to be performed by it
and is entitled to all benefits under, and is not in default or alleged to be in
default in respect of, any Contract to which it is a party or by which it is
bound; all such Contracts are in good standing and in full force and effect,
and no event, condition or occurrence exists which, after notice or lapse of
time or both, would constitute a breach or default under any of the
foregoing, except as set forth in Exhibit J or Exhibit L of the LLC
Agreement. There are no Contracts in effect arising by or through TSVLP,
except as set forth in Exhibit A of the LLC Agreement.
To the best of TSVLPs knowledge and belief, there are no commitments or
Contracts for the disposition, sale, hedging, forward sales, or marketing of
Products.
Additional Representations and Warranties of TSVLP. As of the time on the
Effective Date at which it executes and enters into this Agreement, and as
of the time on the Effective Date at which it transfers its interest in the
Assets to the Company, TSVLP represents and warrants to TSHI that: (i)
the 1993 Agreement has been duly and properly terminated; (ii) pursuant
to such termination, TSVLP has been assigned and/or retained an
individual forty percent (40%) interest in the Assets free and clear of Liens
of GCC, TSVLP or their respective Affiliates; and (iii) between the time of
termination of the 1993 Agreement, TSVLP has not granted any Lien or
Encumbrance, entered into any Contract, transferred any right, title or
interest or otherwise taken any action whatsoever with respect to the
Assets.
Responsibility For Conditions Prior to the Effective Date. In the event
that, in the future, any kind of party brings an action against TSHI or the
Company arising out of any physical condition of the Properties existing
prior to the Effective Date, and such condition does not constitute a breach
of any of TSVLPs representation and warranties under this Agreement,
TSHI shall not seek contribution from TSVLP in excess of forty percent
(40%) of the resulting costs, losses and liabilities.
Survival and Construction of Representations and Warranties.
The representations and warranties set forth above in this Section 3.1 or
below in Section 3.2 shall survive the execution and delivery of any
instruments of Transfer contemplated under this Agreement and the
making of TSVLPs and TSHIs Initial Contributions.
Where a representation or warranty in this Agreement is made to the best
of TSVLPs knowledge and belief or of which TSVLP has knowledge, that
means to the actual knowledge of William W. Reid, David Reid or William
Pass, provided that such individuals shall conclusively be charged with
actual knowledge of all matters disclosed by files, documents, materials,
computer programs and other information in the possession or under the
control of such individuals, TSVLP or TSVLPs general partner or manager,
provided further, however, that no such information shall be deemed to be
in the possession or under the control of such Persons because it was in the
possession or under the control of GCC unless such information has
actually been provided to William W. Reid, David Reid, William Pass,
TSVLP or TSVLPs general partner or manager.
Where the term Venture is used in this Section 3.1, such term shall mean
the business arrangement of GCC and TSVLP under the 1993 Agreement,
any present or former members, managers or participants under the 1993
Agreement, TSVLP, GCC, their respective Affiliates or any combination of
the foregoing.
In the event that any of the Assets are subject to any defects, Liens,
Encumbrances or contacts arising by, through or under TSVLP and such
circumstance constitutes a breach of any of TSVLPs representations or
warranties under this Agreement, TSHI shall have the right, but not the
obligation, to cure or attempt to cure any such defects, or to pay off and
discharge, in whole or in part, any such Liens or Encumbrances, in which
case, without limiting any other remedies otherwise available to TSHI,
TSHI may deduct and recover amounts paid by it in connection with such
actions from any or all amounts payable to TSVLP under this Agreement or
under the LLC Agreement (provided that such amounts deducted by TSHI
shall nevertheless be deemed paid by TSHI to TSVLP for all purposes of
this Agreement and the LLC Agreement). TSVLP shall be subrogated to the
rights of the holders of any such Liens or Encumbrances that TSHI pays off
or discharges pursuant to the preceding sentence. Except as set forth
above, an allegation or claim by TSHI of a breach of any representation of
warranty of TSVLP hereunder that is disputed in writing and good faith by
TSVLP shall not be justification for withholding any payments otherwise
due TSVLP pursuant to Section 2.8 of this Agreement unless and until
TSHIs claim of a breach of representation or warranty is upheld by a court
of competent jurisdiction, provided, however, that if such claim is upheld
by a court of competent jurisdiction then TSHI shall have the right of set-
off provided for in the first sentence of this paragraph 3.1 (d) (4).
In the event that TSVLP owns a lesser interest in the Assets than as
represented by TSVLP hereunder, all payments to TSVLP hereunder,
including but not limited to distributions from the Company and payments
by TSHI, but not including payments to TSVLP pursuant to Section 2.8,
shall be payable to TSVLP only in the proportion that TSVLPs actual
interest in the Assets bears to the interest represented by TSVLP.
Disclosures made under Exhibit F (Environmental Matters) shall not be
deemed to be disclosures for purposes of any other Exhibit and shall not
qualify or limit any representations, warranties, or covenants of TSVLP in
this Agreement or the LLC Agreement other than those representations,
warranties and covenants which are expressly made subject to Exhibit F.
Disclosures. Each of the Members represents and warrants that it is
unaware of any material facts or circumstances that have not been
disclosed in this Agreement or the LLC Agreement which should be
disclosed to the other Member in order to prevent the representations and
warranties in this Article or Article VI of the LLC Agreement from being
materially misleading.
Loss of Title. Any failure or loss of title to the Assets, and all costs of
defending, curing or perfecting title, shall be charged to the Business
Account, except that in the event of costs or losses arising out of or
resulting from any breach of the representations and warranties of TSVLP,
TSVLP shall bear and pay all such costs and losses and shall indemnify,
defend and hold harmless TSHI, the Company and the Manager from all
such costs and losses.
Limitation of Liability. The Members shall not be required to make any
contribution to the capital of the Company except as otherwise provided in
this Agreement, nor shall the Members in their capacity as Members or
Manager be bound by, or liable for, any debt, liability or obligation of the
Company whether arising in contract, tort, or otherwise. The foregoing
shall not limit any obligation of a Member to (i) indemnify the other
Member as expressly provided by this Agreement, (ii) restore a deficit
Capital Account as required by Section 4.2 (b) of Exhibit C of the LLC
Agreement or (iii) satisfy liabilities arising under Article IV or Section 5.2
of this Agreement. Any obligation herein to contribute capital to the
Company may be compromised by written agreement of the Members,
including by agreements providing for payments by an obligated Member
directly to the other Member.
Indemnification.
Each Member shall indemnify the other Member, and its Affiliates and their
respective directors, officers, employees, agents and attorneys,
(collectively Indemnified Party) from and against all direct and indirect
costs, expenses, damages, obligations, claims, demands, actions or
liabilities, including reasonable attorneys fees and other costs of litigation
(either threatened or pending) arising out of or based on a breach by a
Member (Indemnifying Party) of any representation, warranty or covenant
contained in this Agreement or the LLC Agreement, including without
limitation:
(i) any action taken for or obligation or responsibility assumed on behalf
of the Company or another Member by a Member or any of its directors,
officers, employees, agents and attorneys, or Affiliates, in violation of
Section 5.1 of the LLC Agreement;
(ii) failure of a Member or its Affiliates to comply with the non-compete or
Area of Interest provisions of Article VI hereof;
(iii) any Transfer that causes termination of the tax partnership established
by Section 5.2 of the LLC Agreement, against which the transferring
Member shall indemnify the non-transferring Member as provided in
Subsection 7.2(e) of the LLC Agreement and Article V of Exhibit C; and
(iv) failure of a Member or its Affiliates to comply with the preemptive
right under Section 7.3 of the LLC Agreement and Exhibit H of the LLC
Agreement.
If any claim or demand is asserted against an Indemnified Party in respect
of which such Indemnified Party may be entitled to indemnification under
this Agreement, written notice of such claim or demand shall promptly be
given to the Indemnifying Party. The Indemnifying Party shall have the
right, but not the obligation, by notifying the Indemnified Party within
thirty (30) days after its receipt of the notice of the claim or demand, to
assume the entire control of (subject to the right of the Indemnified Party
to participate, at the Indemnified Partys expense and with counsel of the
Indemnified Partys choice) the defense, compromise or settlement of the
matter, including, at the Indemnifying Partys expense, employment of
counsel of the Indemnifying Partys choice. Any damages to the assets or
business of the Indemnified Party caused by a failure by the Indemnifying
Party to defend, compromise or settle a claim or demand in a reasonable
and expeditious manner requested by the Indemnified Party, after the
Indemnifying Party has given notice that it will assume control of the
defense, compromise or settlement of the matter, shall be included in the
damages for which the Indemnifying Party shall be obligated to indemnify
the Indemnified Party. Any settlement or compromise of a matter by the
Indemnifying Party shall include a full release of claims against the
Indemnified Party which have arisen out of the indemnified claim or
demand.
INTERESTS OF MEMBERS
Continuing Liabilities Upon Adjustments of Ownership Interests. As
between the Members, any reduction or elimination of either Members
Ownership Interest under Section 3.2 of the LLC Agreement or pursuant to
a withdrawal or resignation of a Member from the Company, this
Agreement or the LLC Agreement (other than a withdrawal or deemed
withdrawal of TSHI prior to the Cut-Off Date, which shall be governed
solely by Section 2.3 of this Agreement) shall not relieve such Member of
its share of any liability, including, without limitation, Continuing
Obligations, Environmental Liabilities and Environmental Compliance,
arising, before or after such reduction or elimination, out of acts or
omissions occurring or conditions existing prior to the Effective Date, or out
of Operations conducted during the term of this Agreement but prior to
such reduction or elimination, regardless of when any funds may be
expended to satisfy such liability. For purposes of this Section and as
between the Members, such Members share of such liability shall be equal
to its Ownership Interest at the time the act or omission giving rise to the
liability occurred (or, as to such liability arising out of acts or omissions
occurring or conditions existing prior to the Effective Date, equal to such
Members initial Ownership Interest). Should the cumulative cost of
satisfying Continuing Obligations be in excess of cumulative amounts
accrued or otherwise charged to the Environmental Compliance Fund as
described in Paragraph 3.14 of Exhibit B of the LLC Agreement, each of the
Members shall, as between the Members, be liable for its proportionate
share (Ownership Interest at the time that the act or omission giving rise to
such liability occurred) of the cost of satisfying such Continuing
Obligations, notwithstanding that either Member has previously resigned
from the Company or that its Ownership Interest has been reduced or
eliminated pursuant to Section 4.2 or Section 4.3 of the LLC Agreement.
Nothing in this Section 4.1 shall be construed as applicable to a withdrawal
or deemed withdrawal of TSHI prior to the Cut-Off Date, which shall be
governed solely by Section 2.3 of this Agreement.
Continuing Obligations and Environmental Liabilities. On dissolution of the
Company under Section 14.1 of the LLC Agreement, each Member shall, as
between the Members, remain liable for its respective share of liabilities to
third parties (whether such arises before or after such dissolution),
including Environmental Liabilities and Continuing Obligations. In the
event of the resignation of a Member pursuant to Section 14.2 of the LLC
Agreement, the resigning Members share of such liabilities shall be equal to
its Ownership Interest at the time such liability was incurred (or, as to
liabilities arising prior to the Effective Date, its initial Ownership
Interest). Nothing in this Section 4.2 shall be construed as applicable to the
withdrawal or deemed withdrawal of TSHI prior to the Cut-Off Date, which
shall be governed solely by Section 2.3 of this Agreement.
Grant of Lien and Security Interest.
Subject to Section 4.4 hereof, each Member grants to the other Member a
lien upon and a security interest in its Ownership Interest, including all of
its right, title and interest in the Company and the Assets, whenever
acquired or arising, and the proceeds from and accessions to the foregoing;
provided, however, that this lien and security interest shall in no event
apply to or burden any NSR royalty granted to TSVLP pursuant to Section
4.3 of the LLC Agreement.
The Liens and security interests granted by Subsection 4.3(a) hereof shall
secure every obligation or liability of the Member granting such lien or
security interest to the other Member created under this Agreement or the
LLC Agreement, including the obligation of the Member to repay an Elected
Loan or a Demand Loan or to have its Ownership Interest adjusted as a
result of failure to make such repayment. Each Member hereby agrees to
take all action necessary to perfect such lien and security interest and
hereby appoints the other Member its attorney-in-fact to execute, file and
record all financing statements and other documents necessary to perfect or
maintain such lien and security interest.
Subordination of Interests. Each Member shall, from time to time, take all
necessary actions, including execution of appropriate instruments and
agreements, to pledge and subordinate its Ownership Interest, any Liens it
may hold which are created under this Agreement other than those
securing repayment of an outstanding Elected Loan or Demand Loan, and
any other right or interest it holds with respect to the Company and the
Assets (other than any statutory lien of the Manager) to any secured
borrowings for Operations approved by the Management Committee,
including any secured borrowings relating to Project Financing, and any
modifications or renewals thereof.
RELATIONSHIP OF THE MEMBERS
Transfer or Termination of Rights. Neither Member shall Transfer all or any
part of its rights or obligations under this Agreement, except in conjunction
with a transfer or termination of the Members Ownership Interest
permitted by the LLC Agreement. Any such permitted assignment shall be
subject to the consent requirements of Section 7.2 of the LLC Agreement.
Abandonment and Surrender of Properties. The Member that desires to
have the Company abandon or surrender all or part of the Properties
pursuant to Section 12.2 of the LLC Agreement shall remain liable to the
other Member for its share (determined by its Ownership Interest as of the
date of such abandonment) of any liability with respect to such Properties,
including, without limitation, Continuing Obligations, Environmental
Liabilities and Environmental Compliance, whether accruing before or after
such abandonment, arising out of activities conducted subsequent to the
Effective Date and out of Operations conducted prior to the date of such
abandonment, regardless of when any funds may be expended to satisfy
such liability. Nothing in this Section 5.2 shall be construed as superseding
the provisions of Section 2.3 with respect to the withdrawal or deemed
withdrawal of TSHI prior to the Cut-Off Date.
Implied Covenants. There are no implied covenants (including without
limitation any implied covenants relating to the conduct of Exploration,
Development, Mining or other activities upon or with respect to the
Properties) contained in this Agreement other than those of good faith and
fair dealing.
No Third Party Beneficiary Rights. This Agreement shall be construed to
benefit the Members and their respective successors and assigns only, and
shall not be construed to create third party beneficiary rights in any other
party, expressly including the Company, or in any governmental
organization or agency, except to the extent required to permit
indemnification of a non-Member Indemnified Party pursuant to Subsection
3.5(a) hereof.
ACQUISITIONS WITHIN AREA OF INTEREST
General. Any interest or right to acquire any interest in real property or
mineral or water rights within the Area of Interest acquired during the
term of this Agreement by or on behalf of either Member (Acquiring
Member) or any Affiliate of such Member shall, in accordance with and
subject to the provisions in this Article VI, be subject to the terms and
provisions of this Agreement and the LLC Agreement. TSVLP and TSHI
and their respective Affiliates for their separate account shall be free to
acquire lands and interests in lands outside the Area of Interest and to
locate mining claims outside the Area of Interest. Failure of any Affiliate of
either Member to comply with this Article shall be a breach by such
Member of this Agreement.
Notice to Non-Acquiring Member. Within thirty (30) days after the
acquisition of any interest or the right to acquire any interest in real
property or mineral or water rights wholly or partially within the Area of
Interest (except real property acquired by the Manager pursuant to a
Program), the Acquiring Member shall notify the other Member of such
acquisition by it or its Affiliate; provided that if the acquisition of any
interest or right to acquire any interest pertains to real property or water or
mineral rights partially within the Area of Interest, then all such real
property or water or mineral rights (the part within the Area of Interest
and the part outside the Area of Interest) shall be subject to this Article.
The Acquiring Members notice shall describe in detail the acquisition, the
acquiring party if that party is an Affiliate, the lands and minerals and
water rights covered thereby, the cost thereof, and the reasons why the
Acquiring Member believes that the acquisition of the interest is in the best
interests of the Members under this Agreement. In addition to such notice,
the Acquiring Member shall make any and all information concerning the
relevant interest available for inspection by the other Member.
Option Exercised. Within thirty (30) days after receiving the Acquiring
Members notice, the other Member may notify the Acquiring Member of
its election to have the Company acquire the acquired interest. Promptly
upon such notice, the Acquiring Member shall convey or cause its Affiliate
to convey to the Company, by special warranty deed, all of the Acquiring
Members (or its Affiliates) interest in such acquired interest, free and clear
of all Encumbrances arising by, through or under the Acquiring Member
(or its Affiliate) other than those to which both Members have agreed.
Immediately upon such notice, the acquired interest shall become a part of
the Properties for all purposes of this Agreement and the LLC Agreement.
The Company shall promptly pay to the Acquiring Member the latters
actual out-of-pocket acquisition costs.
Option Not Exercised. If the other Member does not give such notice within
the thirty (30) day period set forth in Section 6.3 hereof, it shall have no
interest in the acquired interests, and the acquired interests shall not be a
part of the Assets or continue to be subject to this Agreement or the LLC
Agreement.
Non-Compete Covenants. Neither a Member that resigns pursuant to
Section 14.2 of the LLC Agreement, or is deemed to have resigned
pursuant to Sections 4.2 or 4.3 of the LLC Agreement, or that withdraws or
is deemed to have withdrawn pursuant to Section 3.2 of this Agreement,
nor any Affiliate of such a Member, shall directly or indirectly acquire any
interest or right to explore or mine, or both, on any property any part of
which is within the Area of Interest for twelve (12) months after the
effective date of resignation. If a resigning Member, or the Affiliate of a
resigning Member, breaches this Section, such Member shall be obligated
to offer to convey to the non-resigning Member, without cost, any such
property or interest so acquired (or ensure its Affiliate offers to convey the
property or interest to the non-resigning Member, if the acquiring party is
the resigning Members Affiliate). Such offer shall be made in writing and
can be accepted by the non-resigning Member at any time within forty
five(45) days after the offer is received by such non-resigning Member.
Failure of a Members Affiliate to comply with this Section shall be a breach
by such Member of this Agreement.
Campbell-Simpson Lease. Notwithstanding any provision of this Agreement
or the LLC Agreement to the contrary, the Manager shall have the full right
and authority, but not the obligation, to enter into such amendments of the
Campbell-Simpson Lease as the Manager deems appropriate, in its sole
discretion, including without limitation for the purposes of adding claims to
those leased thereunder, and to convey or quitclaim claims owned by the
Company to the lessors under the Campbell-Simpson Lease in connection
therewith, as the Manager deems appropriate in its sole discretion.
GOVERNING LAW
Governing Law. Except for matters of title to the Assets Properties or their
Transfer, which shall be governed by the law of their situs, this Agreement
shall be governed by and interpreted in accordance with the laws of the
State of Delaware, without regard for any conflict of laws or choice of laws
principles that would permit or require the application of the laws of any
other jurisdiction.
GENERAL PROVISIONS
Notices. All notices, payments and other required or permitted
communications (Notices) to either Member shall be in writing, and shall
be addressed respectively as follows:
If to TSVLP: Tonkin Springs Venture Limited Partnership
55 Madison Street, Suite 700
Denver, Colorado 80206
Attention: President, U.S. Gold Corporation
Telephone: (303) 322-8002
Facsimile: (303) 322-7866
With a Copy to: Randy L. Parcel, Esq.
Perkins Coie LLP
1675 Broadway, Suite 2800
Denver, Colorado 80202
If to TSHI: Tonkin Springs Holdings Inc.
401 Bay Street, Suite 2302
Toronto, Ontario M5H2Y4
Canada
Attention: President, Tonkin Springs Holdings Inc.
Telephone: (416) 947-1212
Facsimile: (416) 367-4681
With a Copy to: Roger C. Adams, Esq.
Ducker, Montgomery & Lewis, P.C.
1650 Broadway, Suite 1500
Denver, Colorado 80202
All Notices shall be given (a) by personal delivery to the Member; (b) by
electronic communication, capable of producing a printed transmission and
confirmation, (c) by registered or certified mail return receipt requested; or
(d) by overnight or other express courier service. All Notices shall be
effective and shall be deemed given on the date of receipt at the principal
address if received during normal business hours, and, if not received
during normal business hours, on the next business day following receipt,
or if by electronic communication, on the date of such communication.
Either Member may change its address by Notice to the other Member.
Gender. The singular shall include the plural, and the plural the singular
wherever the context so requires, and the masculine, the feminine, and the
neuter genders shall be mutually inclusive.
Currency. All references to dollars or $ herein shall mean lawful currency
of the United States of America.
Headings. The subject headings of the Sections and Subsections of this
Agreement and the Paragraphs and Subparagraphs of the Exhibits to this
Agreement are included for purposes of convenience only, and shall not
affect the construction or interpretation of any of its provisions. References
to hereunder are, unless otherwise stated, references to this entire
Agreement.
Waiver. The failure of either Member to insist on the strict performance of
any provision of this Agreement or to exercise any right, power or remedy
upon a breach hereof shall not constitute a waiver of any provision of this
Agreement or limit such Members right thereafter to enforce any provision
or exercise any right.
Modification. No modification or amendment of this Agreement shall be
valid unless made in writing and duly executed by both Members.
Force Majeure. Except for the obligation to make payments when due
hereunder, the obligations of a Member arising under this Agreement or
under the LLC Agreement shall be suspended to the extent and for the
period that performance is prevented by any cause, whether foreseeable or
unforeseeable, beyond its reasonable control, including, without limitation,
labor disputes (however arising and whether or not employee demands are
reasonable or within the power of the Member to grant); acts of God;
Laws, instructions or requests of any government or governmental entity;
judgments or orders of any court; inability to obtain on reasonably
acceptable terms any public or private license, permit or other
authorization; curtailment or suspension of activities to remedy or avoid an
actual or alleged, present or prospective violation of Environmental Laws;
action or inaction by any federal, state or local agency that delays or
prevents the issuance or granting of any approval or authorization required
to conduct Operations (including, without limitation, a failure to complete
any review and analysis required by the National Environmental Policy Act
or any similar state law); acts of war or conditions arising out of or
attributable to war, whether declared or undeclared; riot, civil strife,
insurrection or rebellion; fire, explosion, earthquake, storm, flood, sink
holes, drought or other adverse weather condition; delay or failure by
suppliers or transporters of materials, parts, supplies, services or equipment
or by contractors or TSHIs contractors shortage of, or inability to obtain,
labor, transportation, materials, machinery, equipment, supplies, utilities or
services; accidents; breakdown of equipment, machinery or facilities;
actions by native rights groups, environmental groups, or other similar
special interest groups; or any other cause whether similar or dissimilar to
the foregoing. The affected Member shall promptly give notice to the other
Member of the suspension of performance, stating therein the nature of the
suspension, the reasons therefor, and the expected duration thereof. The
affected Member shall resume performance as soon as reasonably possible.
During the period of suspension the obligations of both Members to
advance funds pursuant to this Agreement or the LLC Agreement shall be
reduced to levels consistent with then current Operations.
Rule Against Perpetuities. The Members do not intend that there shall be
any violation of the rule against perpetuities, the rule against
unreasonable restraints on the alienation of property, or any similar rule.
Accordingly, if any right or option to acquire any interest in the Properties
or Assets, in an Ownership Interest, or the Company, or in any real
property exists under this Agreement, such right or option must be
exercised, if at all, so as to vest such interest within time periods permitted
by applicable rules. If, however, any such violation should inadvertently
occur, the Members hereby agree that a court shall reform that provision in
such a way as to approximate most closely the intent of the Members
within the limits permissible under such rules.
Further Assurances. Each of the Members shall take, from time to time and
without additional consideration, such further actions and execute such
additional instruments as may be reasonably necessary or convenient to
implement and carry out the intent and purposes of this Agreement or as
may be reasonably required by lenders in connection with Project
Financing.
Entire Agreement; Successors and Assigns. This Agreement contains the
entire understanding of the Members and supersedes all prior agreements
and understandings between the Members relating to the subject matter
hereof; provided that nothing in this Section 8.10 modifies or affects the
LLC Agreement and the Members obligations thereunder. This Agreement
shall be binding upon and inure to the benefit of the respective successors
and permitted assigns of the Members.
Counterparts. This Agreement may be executed in any number of
counterparts, and it shall not be necessary that the signatures of both
Members be contained on any counterpart. Each counterpart shall be
deemed an original, but all counterparts together shall constitute one and
the same instrument.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement
as of the Effective Date.
TONKIN SPRINGS VENTURE LIMITED PARTNERSHIP
By:Tonkin Springs Gold Mining Company, as its General Partner
By: William W. Reid, President
TONKIN SPRINGS HOLDINGS INC.
By: Ebe Scherkus
Its Executive Vice President
Exhibit 10.10
OPERATING AGREEMENT OF TONKIN SPRINGS LLC
A Delaware Limited Liability Company
OPERATING AGREEMENT OF TONKIN SPRINGS LLC
A Delaware Limited Liability Company
TABLE OF CONTENTS
ARTICLE I DEFINITIONS AND CROSS-REFERENCES 2
1.1 Definitions 2
1.2 Cross References 2
ARTICLE II NAME, PURPOSES AND TERM 2
2.1 Formation 2
2.2 Name 2
2.3 Purposes 2
2.4 Limitation 2
2.5 Term 3
2.6 Registered Agent; Offices 3
2.7 Record Title 3
ARTICLE III INTERESTS OF MEMBERS 3
3.1 Initial Ownership Interests 3
3.2 Changes in Ownership Interests 3
3.3 Documentation of Adjustments to Ownership Interests 4
ARTICLE IVADJUSTMENTS OF MEMBERS INTERESTS AND RELATED
LIABILITIES; TREATMENT OF CASHFLOW AND CERTAIN PAYMENTS 4
4.1 Voluntary Reduction in Ownership Interests 4
4.2 Default in Making Agreed Contributions 6
4.3 Elimination of Minority Interest 7
4.4 Evidence of Changes in Ownership Interests 7
4.5 Distributions 7
4.6 Excluded Assets 8
ARTICLE V RELATIONSHIP OF THE MEMBERS 8
5.1 Limitation on Authority of Members 8
5.2 Federal Tax Elections and Allocations 9
5.3 State Income Tax 9
5.4 Tax Returns 9
5.5 Other Business Opportunities 9
5.6 Waiver of Rights to Partition or Other Division of Assets 9
5.7 Bankruptcy of a Member 9
5.8 Implied Covenants 9
5.9 No Certificate 9
5.10 Limitation of Liability 10
5.11 Indemnities 10
5.12 No Third Party Beneficiary Rights 10
ARTICLE VI REPRESENTATIONS AND WARRANTIES 11
6.1 Capacity of the Members 11
ARTICLE VII TRANSFER OF INTEREST; PREEMPTIVE RIGHT 11
7.1 General 11
7.2 Limitations on Free Transferability 11
7.3 Preemptive Right 13
ARTICLE VIII MANAGEMENT COMMITTEE 13
8.1 Organization and Composition 13
8.2 Decisions 13
8.3 Meetings 14
8.4 Action Without Meeting 14
8.5 Matters Requiring Approval 14
ARTICLE IX MANAGER 14
9.1 Appointment 14
9.2 Powers and Duties of Manager 15
9.3 Standard of Care; Indemnification 18
9.4 Resignation; Deemed Offer to Resign 19
9.5 Payments To Manager 19
9.6 Transactions With Affiliates 20
9.7 Activities During Deadlock 20
ARTICLE X PROGRAMS AND BUDGETS 20
10.1 Initial Program and Budget 20
10.2 Operations Pursuant to Programs and Budgets 20
10.3 Presentation of Programs and Budgets 20
10.4 Review and Adoption of Proposed Programs and Budgets 20
10.5 Election to Participate 21
10.6 Deadlock on Proposed Programs and Budgets; Decision of a Member
not to Fund other Members Share. 21
10.7 Budget Overruns; Program Changes 21
10.8 Emergency or Unexpected Expenditures 22
10.9 Amendments to Programs and Budgets 22
ARTICLE XI ACCOUNTS AND SETTLEMENTS 22
11.1 Monthly Statements 22
11.2 Cash Calls 22
11.3 Failure to Meet Cash Calls 22
11.4 Audits 23
ARTICLE XII PROPERTIES 23
12.1 Royalties, Production Taxes and Other Payments Based on Production
23
12.2 Abandonment and Surrender 23
ARTICLE XIII CONFIDENTIALITY, OWNERSHIP, USEAND DISCLOSURE OF
INFORMATION 24
13.1 Business Information 24
13.2 Member Information 24
13.3 Permitted Disclosure of Confidential Business Information 24
13.4 Disclosure Required By Law 25
13.5 Public Announcements 25
13.6 Duration of Confidentiality. 25
ARTICLE XIV RESIGNATION AND DISSOLUTION 26
14.1 Events of Dissolution 26
14.2 Resignation 26
14.3 Disposition of Assets on Dissolution 26
14.4 Filing of Certificate of Cancellation 26
14.5 Right to Data After Dissolution 26
14.6 Continuing Authority 27
ARTICLE XV GOVERNING LAW 27
15.1 Governing Law 27
ARTICLE XVI GENERAL PROVISIONS 27
16.1 Notices 27
16.2 Gender 28
16.3 Currency 28
16.4 Headings 28
16.5 Waiver 28
16.6 Modification 28
16.7 Force Majeure 28
16.8 Rule Against Perpetuities 29
16.9 Further Assurances 29
16.10 Entire Agreement; Successors and Assigns 29
16.11 Counterparts 29
Exhibits:
B. Assets
B. Accounting Procedures
C. Tax Matters
D. Definitions
E. Net Smelter Royalty
F. Environmental Matters
G. Permits and Bonds
H. Preemptive Rights
I. [Intentionally Left Blank]
J. Breaches and Defects Relating to Leases and Contracts
K. [Intentionally Left Blank]
L. Contracts
M. Litigation
N. [Intentionally Left Blank]
O. [Intentionally Left Blank]
P. Initial Program and Budget
OPERATING AGREEMENT OF TONKIN SPRINGS LLC
A Delaware Limited Liability Company
This Operating Agreement of Tonkin Springs LLC (this Agreement) is made
as of February 26, 1999, (Effective Date) between TONKIN SPRINGS
VENTURE LIMITED PARTNERSHIP, a Nevada limited partnership (TSVLP),
the address of which is 55 Madison Street, Suite 700, Denver, Colorado
80206, and TONKIN SPRINGS HOLDING INC., a Colorado corporation
(TSHI), the address of which is 401 Bay Street, Suite 2302, Toronto,
Ontario, M5H2Y4, Canada.
RECITALS
Gold Capital Corporation, a Colorado corporation (GCC) and TSVLP were
parties to a Mining Venture Agreement dated December 31, 1993, as
amended on March 7, 1997 and July 7, 1997 (the 1993 Agreement).
Pursuant to the 1993 Agreement, GCC and TSVLP formed the Venture.
GCC at all times while the 1993 Agreement remained in effect, was
Manager of the Venture and had overall management responsibility for,
and control of Operations. GCC and TSVLP owned as tenants in common
certain assets which were subject to the 1993 Agreement and included
certain Assets, including certain properties situated in Eureka County,
Nevada, these Properties and Assets are described in Exhibit A and defined
in Exhibit D. The 1993 Agreement has been terminated, with GCC being
assigned and retaining an undivided sixty percent (60%) interest and
TSVLP being assigned and retaining an undivided forty percent (40%)
interest in the Properties and Assets, free and clear of the 1993 Agreement
and any and all Liens of GCC, TSVLP or their respective Affiliates.
Immediately following termination of the 1993 Agreement and immediately
prior to execution of this Agreement, TSHI acquired GCCs undivided sixty
percent (60%) interest in the Properties and Assets.
TSVLP and TSHI desire to participate in the exploration, evaluation and, if
justified, the development and mining of mineral resources within the
Properties or any other properties acquired pursuant to the terms of this
Agreement.
TSVLP and TSHI wish to form and operate a limited liability company
under the Delaware Limited Liability Company Act, 6 Del.C. 18-101 et seq.
(the Act) to own and operate the Properties and Assets in accordance with
the terms set forth in this Agreement. Such company (the Company) shall
be named Tonkin Springs LLC.
Simultaneously with the execution of this Agreement, TSVLP and TSHI
have also entered into a Members Agreement and contributed, conveyed
and transferred their respective interests in the Properties and Assets to the
Company.
NOW THEREFORE, in consideration of the covenants and conditions
contained herein, TSVLP and TSHI agree as follows:
ARTICLE I
DEFINITIONS AND CROSS-REFERENCES
1.1 Definitions. The terms defined in Exhibit D and elsewhere herein shall
have the defined meaning wherever used in this Agreement, including in
Exhibits.
1.2 Cross References. References to Exhibits, Articles, Sections and
Subsections refer to Exhibits, Articles, Sections and Subsections of this
Agreement. References to Paragraphs and Subparagraphs refer to
paragraphs and subparagraphs of the referenced Exhibits.
ARTICLE II
NAME, PURPOSES AND TERM
2.1 Formation. The Company has been duly organized pursuant to the Act
and the provisions of this Agreement as a Delaware limited liability
company by the filing of its Certificate of Formation (as defined in the Act)
in the Office of the Secretary of the State of Delaware
2.2 Name. The name of the Company is Tonkin Springs LLC and such
other name or names complying with the Act as the Manager shall
determine. The Manager shall accomplish any filings or registrations
required by jurisdictions in which the Company conducts its Business.
2.3 Purposes. The Company is formed for the following purposes and for
no others, and shall serve as the exclusive means by which each of the
Members accomplishes such purposes:
(a) to conduct Exploration within the Area of Interest,
(b) to acquire additional real property and other interests within the Area
of Interest,
(c) to evaluate the possible Development and Mining of the Properties,
and, if justified, to engage in Development and Mining
(d) to engage in marketing Products, and
(e) to perform any other activity necessary, appropriate, or incidental to
any of the foregoing, including but not limited to permitting, reclamation,
closure and other environmental compliance activities.
2.4 Limitation. Unless the Members otherwise agree in writing, the
Business of the Company shall be limited to the purposes described in
Section 2.3, and nothing in this Agreement shall be construed to enlarge
such purposes.
2.5 Term. The term of the Company shall begin on the Effective Date and
shall continue for twenty (20) years from the Effective Date and for so long
thereafter as the Manger is continuing to maintain the Properties or
Products are produced from the Properties on a continuous basis, and
thereafter until all materials, supplies, equipment and infrastructure have
been salvaged and disposed of, and any required Environmental
Compliance is completed and accepted, unless the Company is earlier
terminated as herein provided. For purposes hereof, Products shall be
deemed to be produced from the Properties on a continuous basis so long
as production in commercial quantities is not halted for more than 24
months.
2.6 Registered Agent; Offices. The name of the Companys registered
agent in the State of Delaware is The Corporation Trust Company or such
other person as the Manager may select in compliance with the Act from
time to time. The registered office of the Company in the State of Delaware
shall be located at c/o The Corporation Trust Company, 1209 Orange
Street, Wilmington, DE 19801 or at any other place within the State of
Delaware which the Manager shall select. The principal office of the
Company shall be at any other location which the Manager shall select.
2.7 Record Title. Title to the Assets shall be held by the Company.
ARTICLE III
INTERESTS OF MEMBERS
3.1 Initial Ownership Interests. The Members shall have the following
initial Ownership Interests:
TSVLP: forty percent (40%)
TSHI: sixty percent (60%)
The Ownership Interests of the Members shall have no relationship to their
Capital Accounts, which shall be determined solely as stated in the
Members Agreement and Exhibit C.
3.2 Changes in Ownership Interests. The Ownership Interests shall be
eliminated or adjusted as follows:
(a) Upon a default in the timely repayment of any part of an Elected Loan
(following an election by either Member pursuant to Section 4.1 to
contribute less to an adopted Program and Budget than the percentage
equal to its Ownership Interest, or to contribute nothing to an adopted
Program and Budget, and the making of an Elected Loan by the other
Member);
(b) In the event of default by either Member in making its agreed-upon
contribution to an adopted Program and Budget, followed by an election by
the other Member to invoke Section 4.2(b);
(c) As provided in the Members Agreement or in Section 4.3 of this
Agreement;
(d) Upon Transfer by either Member of part or all of its Ownership
Interest in accordance with Article VII; or
(e) Upon acquisition by either Member of part or all of the Ownership
Interest of the other Member, however arising.
3.3 Documentation of Adjustments to Ownership Interests. Each Members
Ownership Interest and related Capital Account balance shall be shown in
the accounting records of the Company, as maintained by the Manager,
and any adjustments thereto, including adjustments made under Article IV,
shall be made monthly and shall be preceded by a notice to both Members
with a written explanation of the basis such adjustments.
ARTICLE IV
ADJUSTMENTS OF MEMBERS INTERESTS AND RELATED LIABILITIES;
TREATMENT OF CASHFLOW AND CERTAIN PAYMENTS.
4.1 Voluntary Reduction in Ownership Interests.
(a) After the Cut-Off Date, a Member may elect, as provided in Section
10.5, to limit its contributions to an adopted Program and Budget as
follows:
(i) To some lesser dollar amount than is proportionate to its respective
Ownership Interest; or
(ii) Not at all.
If a Member elects to contribute to an adopted Program and Budget some
lesser amount than its respective Ownership Interest, or not at all, the non-
electing Member may advance to the electing Member funds sufficient to
fulfill the electing Member's required contribution to an agreed Program
and Budget and treat the same, together with any accrued interest, as a
loan repayable within one year of the anniversary of the advance of such
loan bearing interest from the date of the advance at the rate provided in
Section 11.3 (an Elected Loan); provided, however, that TSHI must
advance to TSVLP the amount of any Elected Loan unless TSHIs Ownership
Interest drops to fifty percent (50%) or lower by operation of dilution
pursuant to Section 4.1(b) or Section 4.2. In connection with any such
Elected Loan, the electing Member hereby grants to the non-electing
Member a lien upon its Ownership Interest and a security interest in its
rights under this Agreement, under the Members Agreement and with
respect to the Company, and the proceeds therefrom, provided, however,
that in the event of any default under an Elected Loan, the non-electing
Member agrees that its sole remedy shall be adjustment of the electing
Members Ownership Interest through dilution as provided in Section
4.1(b) below.
Each of the Members hereby agree to take all action necessary to preserve,
protect and perfect such liens and security interests and hereby irrevocably
nominates, constitutes and appoints the non-electing Member and each of
its officers holding office from time to time as the true and lawful attorney-
in-fact and agent of the electing Member with power of substitution in the
name of the electing Member to do any and all such acts and things or
execute and deliver all such agreements, documents and instruments as the
non-electing Member reasonably considers necessary for that purpose.
Without in any way limiting the generality of the foregoing, the non-
electing Member shall have the right to execute for and in the name of the
electing Member all financing statements, financing or continuation change
statements, conveyances, transfers, assignments, consents and other
instruments as may be required for such purposes. This power of attorney
shall not be revoked or terminated by any act or thing other than the
termination of this Agreement pursuant to Section 14.1 or the withdrawal
or deemed withdrawal of a Member pursuant to Section 2.3 of the
Members Agreement, or Section 4.3 of this Agreement, or the resignation
of a Member pursuant to Section 14.2.
(b) In the event any advance under any Elected Loan, together with all
interest accrued thereon, has not been recouped and repaid in full out of
the electing Members share of Cash Flow or otherwise repaid in full within
one year after the date such advance was made, then said advance,
together with all interest accrued thereon, and all other advances then
outstanding under the same Elected Loan or any other Elected Loan,
together with all interest accrued thereon (collectively and in the aggregate
the Default Amount) shall be in default if that Elected Loan, plus all
interest accrued thereon, has not been repaid in full within five (5)
business days of TSVLPs receipt of written notice of default from TSHI,
and the electing Members Ownership Interest shall immediately be
recalculated by dividing:
(i) the sum of (a) the deemed value of the electing Members Initial
Contribution under Section 2.1 of the Members Agreement, and (b) the
total of all of the electing Members contributions under Section 2.2 of the
Members Agreement made subsequent to the Cut-Off Date, which
contributions shall include, without limitation, the amount of all
repayments of principal (but not interest) made on any Elected Loan or
Demand Loan prior to the relevant date of default
by:
(ii) the sum of (a) Five Million Dollars ($5,000,000) (representing the
aggregate deemed value of both Members Initial Contributions under
Section 2.1 of the Members Agreement); (b) the amount of the electing
Members contributions calculated under clause 4.1(b)(i)(b) above; and (c)
the total of the non-electing Members contributions under Section 2.2 of
the Members Agreement made subsequent to the Cut-Off Date, which
contributions shall include, without limitation, any Default Amount
(including both the principal amount of all defaulted advances and all
interest accruing thereon through the default date) plus the amount of any
Demand Loan in default, together with interest accrued on such Demand
Loan through the related default date;
and then multiplying the result by one hundred,
provided, however, that if the Ownership Interest of any Member falls to
ten percent (10%) or less as a result of the foregoing calculation, then the
provisions of Section 4.3. shall apply. The Ownership Interest of the other
Member shall thereupon become the difference between one hundred
percent (100%) and the recalculated Ownership Interest.
For greater certainty, TSVLP will not be in breach or default of any
obligation of this Agreement solely by reason of the fact that TSHI fails to
advance to TSVLP the amount of an Elected Loan required by Section
4.1(a).
4.2 Default in Making Agreed Contributions.
(a) If a Member elects or is deemed to have elected to contribute to an
approved Program and Budget in accordance with Article X and then
defaults in making a contribution or cash call required in connection
therewith, the non-defaulting Member may advance the defaulted
contribution on behalf of the defaulting Member and treat the same,
together with any accrued interest, as a demand loan bearing interest from
the date of the advance at the rate provided in Section 11.3 (a Demand
Loan). The failure to repay a Demand Loan with five (5) business days
after borrowers receipt of written notice of default from lender shall be a
default. Each Member hereby grants to the other a lien upon its
Ownership Interest and a security interest in its rights under this
Agreement, under the Members Agreement and with respect to the
Company, and the proceeds therefrom, to secure any Demand Loan made
hereunder, including interest thereon, reasonable attorneys fees and all
other reasonable costs and expenses incurred in recovering the loan with
interest and in enforcing such lien or security interest, or both. A non-
defaulting Member may elect the applicable remedy under this Section
4.2(a) or under Section 4.2(b), or, to the extent a Member has a lien or
security interest under applicable law, it shall be entitled to its rights and
remedies at law and in equity. All such remedies shall be cumulative. The
election of one or more remedies shall not waive the election of any other
remedies. Each Member hereby irrevocably appoints the other its attorney-
in-fact to execute, file and record all instruments necessary to perfect or
effectuate the provisions hereof.
(b) The Members acknowledge that if a Member elects or is deemed to
have elected to contribute to an approved Program and Budget in
accordance with Article X and then defaults in making a contribution or
Cash Call required in connection therewith, or if a Member defaults in
repaying a Demand Loan, as required hereunder, it will be difficult to
measure the damages resulting from such default. In the event of such
default, as reasonable liquidated damages, the non-defaulting Member may,
with respect to any such default not cured within 30 days after notice to
the defaulting Member of such default, elect the following remedy by
giving notice to the defaulting Member:
(i) The non-defaulting Member may elect to have the defaulting Members
Ownership Interest permanently reduced in accordance with the
mechanism and formula set forth in Section 4.1 (with respect to defaults
under Elected Loans), and further reduced by multiplying the result by fifty
percent (50%). The amount of Demand Loans which are in default,
together with all interest accrued thereon, shall be added to the non-
defaulting Members contributions under Section 2.2 of the Members
Agreement when calculating the defaulting Members reduced Ownership
Interest. The non-defaulting Members Ownership Interest shall, at such
time, become the difference between one hundred percent (100%) and the
further reduced Ownership Interest. Such reductions shall be effective as
of the date of the default.
(c) At the election of the Member providing an Elected Loan or a Demand
Loan, a default under a Demand Loan shall constitute a default under an
Elected Loan and vice versa.
4.3 Elimination of Minority Interest. Upon a reduction of a Members
Ownership Interest to ten percent (10%) or less pursuant to Section 4.1 or
4.2 (b)(i), such Member shall be deemed to have withdrawn from this
Agreement and from the Company and to have automatically relinquished
and transferred its entire Ownership Interest to the other Member. Upon
such relinquishment, the withdrawing Member shall be granted an
overriding two percent (2%) net smelter royalty (the NSR, as defined in
Exhibit E on Products subsequently extracted, removed and sold from the
Properties, to be calculated and paid to the withdrawing Member in
accordance with Exhibit E. The NSR shall be transferable by the
withdrawing Member, subject to Article VII, and such Transfer shall be
binding upon and inure to the benefit of such Member and their respective
successors, heirs and assigns and shall be deemed to run with the
Properties.
4.4 Evidence of Changes in Ownership Interests. An adjustment to an
Ownership Interest shall not be evidenced by the execution, issuance or
recording of certificates or other instruments, but each Members
Ownership Interest shall be shown in the books of the Company, as
maintained by the Manager. Each Member shall be provided with
appropriately detailed information regarding the basis and method of each
such adjustments.
4.5 Distributions.
(a) Prior to the Cut-off Date, proceeds from the sale of Products (if any)
shall be distributed to TSHI until the Recoupment Amount balance of TSHI
is zero, after which proceeds from the sale of Products shall be accounted
for and distributed as provided in Section 4.5(b) of this Agreement and in
Article II of Exhibit B.
(b) After the Cut-Off Date, provided that no Members initial Ownership
Interest has been recalculated pursuant to Section 4.1 or Section 4.2, sixty
percent (60%) of one hundred percent (100%) of positive Cash Flow shall
be distributed to TSHI until TSHI has recovered the Recoupment Amount
in full, without interest, from those distributions. While TSHI is so
recovering the Recoupment Amount, the remaining forty percent (40%) of
one hundred percent (100%) of positive Cash Flow shall be distributed to
TSHI and TSVLP on a calendar quarter basis in proportion to their
respective Ownership Interests. After TSHI has so recovered the
Recoupment Amount, one hundred percent (100%) of positive Cash Flow
shall be distributed to TSHI and TSVLP in proportion to their respective
Ownership Interests. If a Members Ownership Interest has been
recalculated pursuant to Sections 4.1 or 4.2, all references in this
Subsection 4.5(b) to sixty percent (60%) shall be converted into the
percentage representing the recalculated Ownership Interest of TSHI and
all references to forty percent (40%) shall be converted into the percentage
representing the recalculated Ownership Interest of TSVLP.
For greater certainty, and provided that no Members Ownership Interest
has been recalculated pursuant to Section 4.1 or 4.2, it is the intent of the
Members that the effect of the foregoing provisions of this Section 4.5 shall
be that (i) after the Cut-off Date and until TSHI has so recovered the
Recoupment Amount (out of sixty percent (60%) of one hundred percent
(100%) of positive Cash Flow), TSVLP shall receive sixteen percent (16%)
of one hundred percent (100%) of Cash Flow, and TSHI shall receive
eighty-four percent (84%) of one hundred percent (100%) of Cash Flow;
and (ii) after TSHI has so recovered the Recoupment Amount (out of sixty
percent (60%) of one hundred percent (100%) of positive Cash Flow ),
TSVLP shall receive forty percent (40%) of one hundred percent (100%) of
Cash Flow , and TSHI shall receive sixty percent (60%) of one hundred
percent (100%) of Cash Flow .
(c) Notwithstanding any provision of this Agreement to the contrary, Cash
Flow (and any other distributions) otherwise due a Member receiving an
Elected Loan or Demand Loan under this Agreement will first be used to
pay-off and discharge all outstanding Elected Loan or Demand Loan
obligations, including any accrued interest thereon, before any Cash Flow
(or other distributions) is paid to the Member obligated under such loan.
Amounts so distributed to pay-off or discharge Elected Loans or Demand
Loans shall be deemed amounts distributed to the borrower thereunder for
all purposes, including allocation of income for tax purposes.
4.6 Excluded Assets. Neither TSHI nor the Company shall have any
ownership interest in the Excluded Assets, which are owned exclusively by
TSVLP. The Company shall provide, free of charge to TSVLP, adequate
outdoor space to continue to store and use the Excluded Assets until TSVLP
removes them from the Properties. If, however, the Manager in good faith
determines that the use or storage of the Excluded Assets will interfere
with Operations, TSVLP shall promptly, and in no event later than 60 days
after the Managers notice in writing to TSVLP of such determination,
relocate such Excluded Assets to a location reasonably designated by the
Manager. With respect to the Champion/Partridge house trailer, model
year 1989, serial no. 1694706906 IDA 098337, the Company shall provide,
at the Companys cost, electrical, gas, water and phone utilities and services
at the recreational vehicle park currently being utilized, until TSVLP
removes the trailer therefrom. TSVLP shall be responsible for all property
tax, insurance, and any other costs related to its use or ownership of the
Excluded Assets. TSVLP also shall indemnify and hold harmless the
Company, TSHI, the Manager, and their respective officers, employees and
agents any liabilities, obligations, claims, responsibilities, actions, demands,
losses, costs or expenses, including but not limited to costs of litigation and
reasonable attorneys fees, arising out of or relating to the Excluded Assets,
the use thereof or any damage thereto or loss thereof.
ARTICLE V
RELATIONSHIP OF THE MEMBERS
5.1 Limitation on Authority of Members. No Member is an agent of the
Company solely by virtue of being a Member, and no Member has
authority to act for the Company solely by virtue of being a Member. This
Section 5.1 supersedes any authority granted to the Members pursuant to
the Act. Any Member that takes any action or binds the Company in
violation of this Section 5.1 shall be solely responsible for any loss or
expense incurred by the Company, the other Member or the Manager as a
result of the unauthorized action and shall indemnify and hold harmless
the Company, the other Member and the Manager with respect to all such
losses and expenses.
5.2 Federal Tax Elections and Allocations. The Company shall be treated
as a partnership for federal income tax purposes, and no Member shall take
any action to alter such treatment. Tax elections and allocations shall be
made as set forth in Exhibit C.
5.3 State Income Tax. To the extent permissible under applicable law, the
relationship of the Members shall be treated for state income tax purposes
in the same manner as it is for federal income tax purposes.
5.4 Tax Returns. After approval of the Management Committee, any tax
returns or other required tax forms shall be filed in accordance with Exhibit
C.
5.5 Other Business Opportunities. Each Member shall have the right to
engage in and receive full benefits from any independent business activities
or operations outside of the Area of Interest, whether or not competitive
with the Company, without consulting with, or obligation to, the other
Member or the Company. The doctrines of corporate opportunity or
business opportunity shall not be applied to the Business nor to any other
activity or operation of any Member outside the Area of Interest. Except as
otherwise provided in Section 6.5 of the Members Agreement, no Member
shall have any obligation to the Company or any other Member with
respect to any opportunity to acquire any property outside the Area of
Interest at any time, or within the Area of Interest after the termination of
the Company. Unless otherwise agreed in writing, neither the Manager nor
any Member shall have any obligation to mill, beneficiate or otherwise
treat any Products in any facility owned or controlled by the Manager or
such Member.
5.6 Waiver of Rights to Partition or Other Division of Assets. The Members
hereby waive and release all rights of partition, or of sale in lieu thereof, or
other division of Assets, including any such rights provided by Law.
5.7 Bankruptcy of a Member. A Member shall cease to have any power as
a Member or Manager or any voting rights or rights of approval hereunder
upon bankruptcy, insolvency, dissolution or assignment for the benefit of
creditors of such Member, and its successor upon the occurrence of any
such event shall have only the rights, powers and privileges of a transferee
enumerated in Section 7.2, and shall be liable for all obligations of the
Member under this Agreement. In no event, however, shall a personal
representative or successor become a substitute Member unless the
requirements of Section 7.2 are satisfied.
5.8 Implied Covenants. There are no implied covenants (including without
limitation any implied covenants relating to the conduct of Exploration,
Development, Mining or other activities upon or with respect to the
Properties) contained in this Agreement other than those of good faith and
fair dealing.
5.9 No Certificate. The Company shall not issue certificates representing
Ownership Interests in the Company.
5.10 Limitation of Liability. The Members shall not be required to make
any contribution to the capital of the Company except as otherwise
provided in this Agreement, nor shall the Members in their capacity as
Members or Manager be bound by, or liable for, any debt, liability or
obligation of the Company whether arising in contract, tort, or otherwise,
except as expressly provided by this Agreement.
5.11 Indemnities. The Company may, and shall have the power to,
indemnify and hold harmless any Member , the Manager or any other
person from and against any and all claims and demands whatsoever
arising from or related to the Business, the Company, the Assets,
Operations or a Members membership in the Company.
5.12 No Third Party Beneficiary Rights. This Agreement shall be construed
to benefit the Members and their respective successors and assigns only,
and shall not be construed to create third party beneficiary rights in any
other party or in any governmental organization or agency.
ARTICLE VI
REPRESENTATIONS AND WARRANTIES
6.1 Capacity of the Members. As of the Effective Date, each Member
warrants and represents to the other that:
(a) it is a corporation or limited partnership, as the case may be, duly
organized and in good standing in its state of incorporation or partnership
organization and is qualified to do business and is in good standing in
those states where necessary in order to carry out the purposes of this
Agreement;
(b) it has the capacity to enter into and perform this Agreement and all
transactions contemplated herein and all corporate, partnership and other
actions and consents required to authorize it to enter into and perform this
Agreement have been properly taken or obtained;
(c) it will not breach any other agreement or arrangement by entering into
or performing this Agreement; and
(d) this Agreement has been duly executed and delivered by it and is valid
and binding upon it in accordance with its terms.
ARTICLE VII
TRANSFER OF INTEREST; PREEMPTIVE RIGHT
7.1 General. A Member shall have the right to Transfer to a third party, its
Ownership Interest, or any beneficial interest therein (including without
limitation any right or interest created pursuant to this Agreement or the
Members Agreement), solely as provided in this Article VII.
7.2 Limitations on Free Transferability. In addition to being subject to
preemptive rights as described in Section 7.4 and Exhibit H, any Transfer
by either Member under Section 7.1 shall be subject to the following
limitations:
(a) No Member shall Transfer any legal or beneficial right, title or interest
(i) in or to the Company, the Properties or the Assets, or (ii) arising under
this Agreement or the Members Agreement (including, but not limited to,
any royalty, profits, or other interest in the Products) except in conjunction
with the Transfer of part or all of its Ownership Interest (provided that
such restriction shall not apply to any NSR interest held by a former
Member subsequent to its resignation or withdrawal from the Company and
the relinquishment of its entire Ownership Interest);
(b) So long as TSHI has not recovered all of the Recoupment Amount
pursuant to Section 4.5 and so long as any Elected Loan or Demand Loan
to TSVLP is outstanding, TSVLP shall not Transfer any interest in its
Ownership Interest unless and until the transferee has executed and
delivered a written subrogation agreement in favor of TSHI and the
Company by which the Transferee assumes and becomes subject to all of
the obligations, loans, defects, Liens and Encumbrances affecting TSVLP, its
Ownership Interest or its rights under this Agreement or the Members
Agreement in a form approved by TSHI. No transferee of all or any part of
a Members Ownership Interest shall have the rights of a Member unless
and until the transferring Member has provided to the other Member notice
of the Transfer, and, except as provided in Subsections 7.2(f) and 7.2(g),
the transferee, as of the effective date of the Transfer, has committed in
writing to assume and be bound by this Agreement and the Members
Agreement to the same extent as the transferring Member;
(c) Neither Member, without the consent of the other Member, shall make
a Transfer that violates any Law, or results in the cancellation of any
permits, licenses, or other similar authorization;
(d) No Transfer permitted by this Article shall relieve the transferring
Member of any liability of such transferring Member under this Agreement
or under the Members Agreement , whether accruing before or after such
Transfer;
(e) Any Member that makes a Transfer that shall cause termination of the
tax partnership established by Section 5.2 shall indemnify the other
Member for, from and against any and all loss, cost, expense, damage,
liability or claim therefore arising from the Transfer, including without
limitation any increase in taxes, interest and penalties or decrease in credits
caused by such termination and any tax on indemnification proceeds
received by the indemnified Member;
(f) In the event of a Transfer of less than all of an Ownership Interest, the
transferring Member and its transferee shall act and be treated as one
Member under this Agreement; provided however, that in order for such
Transfer to be effective, the transferring Member and its transferee must
first:
(i) agree, as between themselves, that one of them is authorized to act as
the sole agent (Agent) on their behalf with respect to all matters pertaining
to this Agreement, the Members Agreement and the Company; and
(ii) provide written notice to the other Member, the Manager and the
Company of the designation of the Agent, and in such notice warrant and
represent to the other Member, the Manager and the Company that:
(A) the Agent has the sole authority to act on behalf of, and to bind, the
transferring Member and its transferee with respect to all matters
pertaining to this Agreement, the Members Agreement and the Company;
(B) the other Member, the Manager and the Company may rely on all
decisions of, notices and other communications from, and failures to
respond by, the Agent, as if given (or not given) by the transferring
Member and its transferee; and
(C) all decisions of, notices and other communications from, and failures
to respond by, the other Member , the Manager or the Company to the
Agent shall be deemed to have been given (or not given) to the
transferring Member and its transferee.
The transferring Member and its transferee may change the Agent (but
such replacement must be one of them) by giving written notice to the
other Member, the Manager and the Company, which notice must conform
to Subsection 7.2(f)(ii).
(g) TSVLP shall not grant any Encumbrance or allow any Lien to arise on
or with respect to its Ownership Interest (or any other right, title or
interest of TSVLP arising under this Agreement or the Members
Agreement), except for Encumbrances authorized by this Agreement or the
Members Agreement.
7.3 Preemptive Right. Any Transfer by either Member under Section 7.1
and any Transfer by an Affiliate in Control of either Member shall be
subject to a preemptive right of the other Member to the extent provided in
Exhibit H. Failure of a Members Affiliate to comply with this Section and
Exhibit H shall be a breach by such Member of this Agreement.
ARTICLE VIII
MANAGEMENT COMMITTEE
8.1 Organization and Composition. The Members hereby establish a
Management Committee to determine overall policies, objectives,
procedures, methods and actions under this Agreement. Except in the case
of an emergency as provided for in Section 10.8, all Programs, Budgets,
Project Financings and other significant matters concerning the Operations
will be subject to the supervision of the Management Committee. The
Management Committee shall consist of one (1) member appointed by
TSHI and one (1) member appointed by TSVLP. Each Member may
appoint one or more alternates to act in the absence of a regular member.
Any alternate so acting shall be deemed a member. Appointments shall be
made or changed by notice to the other Member and to the Manager.
8.2 Decisions. Each Member, acting through its appointed members shall
have one vote on the Management Committee. Unless otherwise provided
in this Agreement, the vote of the Member with an Ownership Interest over
fifty percent (50%) shall determine all decisions of the Management
Committee, except with respect to the matters listed expressly below,
which shall require unanimous approval.
(a) the abandonment, release, sale, exchange or other Transfer for value
of any of the Assets, as described in Exhibit A, in any one transaction or
series of related transactions if the value of such Assets or the proceeds in
respect of such transaction or series or related transactions exceeds Two
Hundred Fifty Thousand Dollars ($250,000), except for sales in the
ordinary course of business and the abandonment, release, sale, transfer,
disposition or retirement of obsolete Assets or Assets no longer useful,
efficient or productive in connection with Operations; provided that any
sale or disposition of the mill currently situated on the Properties or any
essential component thereof shall require unanimous approval of the
Management Committee, unless the reclamation and/or removal of the mill
or any portion thereof is required by Law, Permits or regulatory authorities,
in which case the Manager shall be authorized to conduct such reclamation
and/or removal without further action of the Management Committee, and
provided further that the requirements for unanimous approval of the
Management Committee shall not apply with respect to the sale or
disposition of any component added to the mill subsequent to the Effective
Date. This Section 8.2(a) shall not apply to the sale of Products, including
without limitation forward sales, future delivery contracts, hedging
transactions, metals loans and other similar transactions;
(b) the termination of or the winding-up of the Company, other than as
provided in this Agreement; and
(c) any processing of non-Company mineral products or materials through
Company facilities.
8.3 Meetings. The Management Committee shall hold regular meetings at
least quarterly in Denver, Colorado, or at other mutually agreed places.
The Manager shall give 30 days written notice to the Members of such
regular meetings. Additionally, either Member may call a special meeting
upon 30 days notice to the Manager and the other Member. In case of
emergency, reasonable notice of a special meeting shall suffice. There shall
be a quorum if one or more members is present who represent Ownership
Interests greater than fifty percent (50%) of all Ownership Interests. Each
notice of a meeting shall include an itemized agenda prepared by the
Manager in the case of a regular meeting, or by the Member calling the
meeting in the case of a special meeting, but any matters may be
considered with the consent of all Members. The Manager shall prepare
minutes of all meetings and shall distribute copies of such minutes to the
Members within 30 days after the meeting. The minutes, when signed by
all Members, shall be the official record of the decisions made by the
Management Committee and shall be binding on the Manager and the
Members. If personnel employed in Operations are required to attend a
Management Committee meeting, reasonable costs incurred in connection
with such attendance shall be a Company cost. All other costs shall be paid
for by the Members individually.
8.4 Action Without Meeting. In lieu of meetings, the Management
Committee may hold telephone conferences, so long as all decisions are
immediately confirmed in writing by the Members.
8.5 Matters Requiring Approval. Except as otherwise delegated to the
Manager in Section 9.2, the Management Committee shall have exclusive
authority to determine all management matters related to this Agreement.
ARTICLE IX
MANAGER
9.1 Appointment. TSHI shall have the right to appoint the initial Manager
and hereby appoints Tonkin Springs Management Co., a Colorado
corporation (TSMC, an Affiliate of TSHI) as the initial Manager with
overall management responsibility for Operations. TSMC shall serve until it
resigns as provided in Section 9.4.
9.2 Powers and Duties of Manager. Subject to the terms and provisions of
this Agreement, the Manager shall have the following powers and duties,
which shall be discharged in accordance with adopted Programs and
Budgets:
(a) The Manager shall manage, direct and control Operations.
(b) The Manager shall implement the decisions of the Management
Committee, shall make all expenditures necessary to carry out adopted
Programs, and shall promptly advise the Management Committee if it lacks
sufficient funds to carry out its responsibilities under this Agreement.
(c) The Manager shall:
(i) purchase or otherwise acquire all material, supplies, equipment, water,
utility and transportation services required for Operations, such purchases
and acquisitions to be made on the best terms available, taking into
account all of the circumstances;
(ii) contract for services such as contract services for the Exploration,
Development or Mining of the Properties,
(iii) obtain such customary warranties and guarantees as are available in
connection with such purchases and acquisitions; and
(iv) keep the Assets free and clear of all Liens and Encumbrances, except
for those existing at the time of, or created concurrent with, the acquisition
of such Assets, or mechanics or materialmens Liens which shall be released
or discharged in a diligent matter, or Liens and Encumbrances specifically
approved by the Management Committee or created pursuant to the
operation of this Agreement or the Members Agreement.
(d) The Manager shall conduct such title examinations and cure such title
defects as may be advisable in the reasonable judgment of the Manager.
(e) The Manager shall:
(i) make or arrange for all payments required by leases, licenses, permits,
authorities, contracts and other agreements related to the Assets;
(ii) pay all taxes, assessments and like charges on Operations and Assets
except taxes determined or measured by a Members sales revenue or net
income. If authorized by the Management Committee, the Manager shall
have the right to contest in the courts or otherwise, the validity or amount
of any taxes, assessments or charges if the Manager deems them to be
unlawful, unjust, unequal or excessive, or to undertake such other steps or
proceedings as the Manager may deem reasonably necessary to secure a
cancellation, reduction, readjustment or equalization thereof before the
Manager shall be required to pay them, but in no event shall the Manager
permit or allow title to the Assets to be lost as the result of the
nonpayment of any taxes, assessments or like charges; and
(iii) shall do all other acts reasonably necessary to maintain the Assets.
(f) The Manager shall:
(i) apply for all necessary permits, licenses and approvals;
(ii) comply with applicable federal, state and local laws and regulations;
(iii) notify promptly the Management Committee of any allegations of
substantial violation thereof;
(iv) prepare and file all reports or notices required for Operations; and
(v) arrange for bonds and reclamation for both pre-existing and new
conditions and disturbances of the Properties, at the Companys cost;
The Manager shall not be in breach of this provision if a violation has
occurred in spite of the Managers good faith efforts to comply, and the
Manager has timely cured or disposed of such violation through
performance, or payment of fines and penalties.
(g) The Manager shall prosecute and defend, but shall not initiate without
consent of the Management Committee, all litigation or administrative
proceedings arising out of Operations. The non-managing Member shall
have the right to participate, at its own expense, in such litigation or
administrative proceedings.
(h) The Manager shall provide insurance for the benefit of the Company
and the Members as reasonably determined by the Manager.
(i) The Manager may dispose of Assets, whether through abandonment,
surrender or Transfer, subject to the limitation set forth in Section 8.2(a)
and Section 12.2.
(j) The Manager shall have the right to carry out its responsibilities
hereunder through agents, Affiliates or independent contractors.
(k) The Manager shall perform or cause to be performed during the term
of this Agreement all assessment and other work required by law in order
to maintain the unpatented mining claims included within the Properties.
The Manager shall have the right to perform the assessment work required
hereunder pursuant to a common plan of exploration and continued actual
occupancy of such claims and sites shall not be required. The Manager
shall not be liable on account of any determination by any court or
governmental agency that the work performed by the Manager does not
constitute the required annual assessment work or occupancy for the
purposes of preserving or maintaining ownership of the claims, provided
that the work done is in accordance with the adopted Program and Budget.
The Manager shall timely pay all fees and record with the appropriate
county and file with the appropriate United States agency, affidavits or
other documents required by law to maintain all such claims or sites.
(l) If authorized by the Management Committee, the Manager may:
(i) locate, amend or relocate any unpatented mining claim or mill site or
tunnel site,
(ii) locate any fractions resulting from such amendment or relocation,
(iii) apply for patents or mining leases or other forms of mineral tenure
for any such unpatented claims or sites,
(iv) abandon any unpatented mining claims for the purpose of locating
mill sites or otherwise acquiring from the United States rights to the
ground covered thereby,
(v) abandon any unpatented mill sites for the purpose of locating mining
claims or otherwise acquiring from the United States rights to the ground
covered thereby,
(vi) exchange with or convey to the United States any of the Properties for
the purpose of acquiring rights to the ground covered thereby or other
adjacent ground, and
(vii) convert any unpatented claims or mill sites into one or more leases or
other forms of mineral tenure pursuant to any federal law hereafter
enacted.
(m) The Manager shall keep and maintain all required accounting and
financial records pursuant to the Accounting Procedure and in accordance
with customary cost accounting practices in the mining industry. The
Manager shall respond in a timely manner to all requests from Members for
information necessary to meet filing deadlines imposed by Law.
(n) The Manager shall keep the Management Committee advised of all
Operations by submitting in writing to the Management Committee:
(i) quarterly progress reports which include statements of expenditures
and comparisons of such expenditures to the adopted Budget;
(ii) periodic summaries of data acquired, reasonably in advance of
Management Committee meetings;
(iii) copies of reports concerning Operations, reasonably in advance of
Management Committee meetings;
(iv) a detailed final report within 30 days after completion of each
Program and Budget, but in no event less often than annually, which shall
include comparisons between actual and budgeted expenditures and
comparisons between the objectives and results of Programs; and
(v) such other reports as the Management Committee may reasonably
request.
At all reasonable times the Manager shall provide the Management
Committee or the duly authorized representative of any Member (including
representatives of any actual or potential lenders, equity investors or
purchasers of a Members Ownership Interest or NSR royalty that are duly
authorized in writing by a Member) access to, and the right to inspect and
copy all maps, drill logs, core tests, reports, surveys, assays, analyses,
production reports, operations, technical, accounting and financial records,
and other information acquired in Operations, including all computer files
an databases related thereto. In addition, the Manager shall allow the non-
managing Member or that Members authorized representative or invitee,
at that Members sole risk and expense, and subject to reasonable safety
regulations, to inspect the Assets and Operations at all reasonable times, so
long as the inspecting Member does not unreasonably interfere with
Operations.
(o) The Manager shall undertake all other activities reasonably necessary
to fulfill the foregoing.
(p) The Manager shall have the right to require the Members to fully fund
the Environmental Compliance Fund, in proportion to their respective
Ownership Interests, and in accordance with Section 3.14 of Exhibit B, with
all reasonably anticipated costs of future reclamation, closure and
Environmental Compliance. No Member who has resigned or withdrawn
from the Company will be required to contribute additional funds to the
Environmental Compliance Fund unless and until all contribution made to
said Environmental Compliance Fund prior to such withdrawal or
resignation have been spent or committed to be spent.
(q) The Manager shall otherwise conduct Operations as it deems
appropriate in its discretion.
The Manager shall not be in default of any duty under this Section 9.2 if
its failure to perform results from the failure of the Members to perform
acts or to contribute amounts required of them by this Agreement.
9.3 Standard of Care; Indemnification. The Manager shall conduct all
Operations in a good, workmanlike and efficient manner, in accordance
with sound mining and other applicable industry standards and practices,
and in accordance with the terms and provisions of leases, licenses,
permits, contracts and other agreements pertaining to the Assets. The
Manager shall not be liable to the non-managing Member for any act or
omission resulting in damage or loss except to the extent caused by or
attributable to the Managers willful misconduct or gross negligence. The
Members shall indemnify and hold harmless the Manager and its officers,
employees and agents from and against any liabilities, obligations, claims,
responsibilities, actions, demands, losses, costs or expenses, including but
not limited to costs of litigation and reasonable attorneys fees, arising out
of or relating to its activities as Manager, except that any liabilities or
obligations arising directly from the Managers gross negligence or willful
misconduct shall be excluded form this indemnity.
9.4 Resignation; Deemed Offer to Resign. Except during the period
following the Effective Date of this Agreement up to and including the Cut-
off Date , the Manager may resign upon three months prior notice to the
other Member, in which case the other Member may elect to become the
new Manager by notice to the resigning Member within 30 days after the
notice of resignation. In the case of any resignation as Manager by TSMC,
TSVLP shall be deemed to be the other Member and TSHI shall be deemed
to be the resigning Member for purposes of this Section 9.4 . If any of the
following shall occur, the Manager shall be deemed to have offered to
resign, which offer shall be accepted by the other Member, if at all, within
90 days following such deemed offer:
(a) The Ownership Interest of the Member who serves as or who appoints
the Manager (which, in the case of TSMC, shall be deemed to by TSHI)
becomes less than fifty percent (50%); or
(b) The Manager fails to perform a material obligation imposed upon it
under this Agreement and such failure continues for a period of 30 days
after notice from the other Member demanding performance; or
(c) The Manager fails to pay or contest in good faith its bills within 60
days after they are due; or
(d) A receiver, liquidator, assignee, custodian, trustee, sequestrator or
similar official for a substantial part of its assets is appointed and such
appointment is neither made ineffective nor discharged within 60 days
after the making thereof, or such appointment is consented to, requested
by, or acquiesced in by the Manager; or
(e) The Manager commences a voluntary case under any applicable
bankruptcy, insolvency or similar law now or hereafter in effect; or
consents to the entry of an order for relief in an involuntary case under
any such law or to the appointment of or taking possession by a receiver,
liquidator, assignee, custodian, trustee, sequestrator or other similar official
of any substantial part of its assets; or makes a general assignment for the
benefit of creditors; or fails generally to pay its or Company debts as such
debts become due; or takes corporate or other action in furtherance of any
of the foregoing; or
(f) Entry is made against the Manager of a judgment, decree or order for
relief affecting a substantial part of its assets by a court of competent
jurisdiction in an involuntary case commenced under any applicable
bankruptcy, insolvency or other similar law of any jurisdiction now or
hereafter in effect.
9.5 Payments To Manager. The Manager shall be compensated for its
services and reimbursed for its costs hereunder in accordance with the
Accounting Procedure. TSHI and TSVLP agree that all reviews and
amendments of the Manager's charges pursuant to Section 3.13(e) of the
Accounting Procedure shall be accomplished reasonably and in good faith.
9.6 Transactions With Affiliates. If the Manager engages Affiliates to
provide services hereunder including, without limitation, services relating
to milling or beneficiating Products, it shall do so on terms no less
favorable to the Company than would be the case with unrelated persons
in arm's-length transactions.
9.7 Activities During Deadlock. Subject to the contrary direction of the
Management Committee and to the receipt of necessary funds, if
(i) the Management Committee for any reason fails to adopt a Program and
Budget, or if,
(ii) a Member elects to contribute to an adopted Program and Budget in
some lesser amount than its respective Ownership Interest, or not at all,
and the other Member is not required to, and decides not to, advance an
Elected Loan in accordance with Section 4.1,
then, with respect to clause 9.7(ii), the adopted Program and Budget shall
be deemed rescinded, and, with respect to both clauses 9.7(i) and (ii), the
Manager shall continue Operations at levels comparable with the last
adopted Program and Budget but in no event at levels which do not fully
provide for the minimum holding costs of the Properties. For purposes of
determining the required contributions of the Members and their respective
Ownership Interests, the last adopted Program and Budget shall be deemed
extended.
ARTICLE X
PROGRAMS AND BUDGETS
10.1 Initial Program and Budget. The Initial Program and Budget to which
both Members have agreed is hereby adopted and is attached as Exhibit P.
10.2 Operations Pursuant to Programs and Budgets. Except as otherwise
provided in Sections 9.7, 10.6, 10.7, 10.8 or 10.9 of this Agreement or in
and Article VI of the Members Agreement, Operations shall be conducted,
expenses shall be incurred, and Assets shall be acquired only pursuant to
adopted Programs and Budgets.
10.3 Presentation of Programs and Budgets. Proposed Programs and
Budgets shall be prepared by the Manager for a period of one (1) year or
any longer period. Each adopted Program and Budget, regardless of
length, shall be reviewed at least once a year at the annual meeting of the
Management Committee. During the period encompassed by any Program
and Budget, and at least two months prior to its expiration, a proposed
Program and Budget for the succeeding period shall be prepared by the
Manager and submitted to the Members.
10.4 Review and Adoption of Proposed Programs and Budgets. Within
thirty (30) days after submission of a proposed Program and Budget, or a
proposed Amendment thereto under Section 10.9, each Member shall
submit in writing to the Management Committee:
(a) Notice that the Member approves any or all of the components of the
proposed Program and Budget; or
(b) Modifications proposed by the Member to the components of the
proposed Program and Budget; or
(c) Notice that the Member rejects any or all of the components of the
proposed Program and Budget.
If a Member fails to give any of the foregoing responses within the allotted
time, the failure shall be deemed to be a vote by the Member for adoption
of the Managers proposed Program and Budget. If a Member makes a
timely submission to the Management Committee pursuant to Subsections
10.4(a), (b) or (c), then the Management Committee shall consult
regarding the possible development of a Program and Budget acceptable to
all Members (provided that no Member shall be obligated to agree to any
actual change to a proposed Program and Budget in connection with such
consultations) failing which the Management Committee shall determine a
Program and Budget by majority vote of Ownership Interests.
10.5 Election to Participate. By notice to the Manager within 20 days
after the final vote of the Management Committee adopting a Program and
Budget for periods subsequent to the , a Member may elect to contribute to
such Program and Budget in some lesser amount than its respective
Ownership Interest, or not at all, subject to the terms and conditions of
Article IV. If a Member fails to so notify the Manager, the Member shall be
deemed to have elected to contribute to such Program and Budget in
proportion to its respective Ownership Interest as of the beginning of the
period covered by the Program and Budget.
10.6 Deadlock on Proposed Programs and Budgets; Decision of a Member
not to Fund other Members Share. If:
(i) the Members, acting through the Management Committee, fail to
approve a Program and Budget by the beginning of the period to which the
proposed Program and Budget applies, or, if
(ii) a Member elects to contribute to an adopted Program and Budget in
some lesser amount than its respective Ownership Interest, or not at all,
and the other Member is not required to, and decides not to, advance an
Elected Loan in accordance with Section 4.1,
then the provisions of Section 9.7 shall apply.
10.7 Budget Overruns; Program Changes. The Manager shall immediately
notify the Management Committee of any material departure from an
adopted Program and Budget. If the Manager exceeds an adopted Budget
by more than twenty percent (20%) then the excess over twenty percent
(20%), unless directly caused by an emergency or unexpected expenditure
made pursuant to Section 10.8 or unless otherwise authorized by the
Management Committee or pursuant to an Amendment under Section 10.9,
shall be for the sole account of the Manager and such excess shall not be
included in calculations relating to the adjustment or dilution of
Ownership Interests. Budget overruns of twenty percent (20%) or less
shall be funded by the Members in the same manner and with the same
consequences and effects as the Member provided funding for the then
current Program and Budget.
10.8 Emergency or Unexpected Expenditures. In case of emergency, the
Manager may take any reasonable action it deems necessary to protect life,
limb or property, to protect the Assets or to comply with Environmental
Laws or other Laws. The Manager may make reasonable expenditures for
unexpected events which are beyond its reasonable control and which do
not result from a breach by it of its standard of care. The Manager shall
promptly notify the Members of the emergency or unexpected expenditure,
and the Manager shall be reimbursed for all resulting costs by the Members
in the same manner and with the same consequences and effects as the
Members provided the funding for the then current Program and Budget.
10.9 Amendments to Programs and Budgets. An adopted Program and
Budget may be amended only prospectively by the Manager (the
Amendment) upon 30 days notice. The procedures for review and
approval of proposed Amendments under this Section 10.9 shall be the
same as the procedures for the review and approval of proposed Budgets
and Programs under Section 10.4.
ARTICLE XI
ACCOUNTS AND SETTLEMENTS
11.1 Monthly Statements. The Manager shall promptly submit to the
Management Committee monthly statements of account reflecting in
reasonable detail the charges and credits to the Business Account during
the preceding month.
11.2 Cash Calls. On the basis of each adopted or amended Program and
Budget and subject to Sections 4.1 and 10.5 of this Agreement and Section
2.2 of the Members Agreement and the elections of the respective Members
under such provisions, the Manager shall submit to each Member, a billing
(or cash call) for estimated cash requirements for each three month period
during the term of such Program. Within ten (10) days after receipt of
each such billing, each Member shall pay to the Manager its share of such
estimated requirements. For greater certainty, costs and expenditures for
Operations and working capital in support of approved Programs and
Budgets shall include funding of reasonably anticipated costs of future
reclamation, closure costs and Environmental Compliance. Time is of the
essence of payment of such billings. The Manager shall at all times
maintain a reasonable working capital reserve. All funds in excess of
immediate cash requirements shall be invested in interest-bearing accounts
with the Companys bank, for the benefit of the Business Account.
11.3 Failure to Meet Cash Calls. A Member that fails to meet cash calls in
the amount and at the times specified in Section 11.2 shall be in default,
and the amounts of the defaulted cash call shall bear interest from the date
due at an annual rate equal to the Interest Rate, but in no event shall said
rate of interest exceed the maximum permitted by Law. The
non-defaulting Member shall have those other rights and remedies specified
in Section 4.2. TSVLP shall not be in default hereunder with respect to
any cash call for which TSHI is obligated to provide an Elected Loan under
Section 4.1.
11.4 Audits. Unless waived by all Members in writing, the Manager shall
order an audit of the accounting and financial records for each calendar
year (or other mutually agreed accounting period). All written exceptions
to and claims upon the Manager for discrepancies disclosed by such audit
shall be made not more than 3 months after receipt of the audit report.
Failure to make any such exception or claim within the 3 month period
shall mean the audit is correct and binding upon the Members. The audits
shall be conducted by a firm of certified public accountants selected by the
Manager, unless otherwise agreed by the Management Committee.
ARTICLE XII
PROPERTIES; DISTRIBUTION OF PRODUCTION
12.1 Royalties, Production Taxes and Other Payments Based on
Production. All required payments of production royalties, taxes based on
production of Products, and other payments out of production to private
parties and governmental entities, shall be determined and made by the
Company in a timely manner and otherwise in accordance with applicable
laws and agreements. The Manager shall furnish to the Members evidence
of timely payment for all such required payments. In the event the
Company fails to make any such required payment, any Member shall have
the right to make such payment and shall thereby become subrogated to
the rights of such third party; provided, however, that the making of any
such payment on behalf of the Company shall not constitute acceptance by
the paying Member of any liability to such third party for the underlying
obligation.
12.2 Abandonment and Surrender. Either Member may request the
Management Committee to authorize the Manager to surrender or abandon
part or all of the Properties. If the other Member objects to such surrender
or abandonment, then at the option of the objecting Member, the Company
shall assign to the objecting Member or such other Person as the objecting
Member specifies, by special warranty deed and without cost to the
surrendering Member, all of the Companys interest in the Properties
sought to be abandoned or surrendered, free and clear of all Encumbrances
created by, through or under the Company or the surrendering Member,
other than those to which both Members have agreed. Upon the
assignment, such properties shall cease to be part of the Properties.
12.3 Reacquisition. If any Properties are abandoned or surrendered under
the provisions of this Article XII, then, unless this Agreement is earlier
terminated, neither Member nor any Affiliate thereof shall acquire any
interest in such Properties or a right to acquire such Properties for a period
of two years following the date of such abandonment or surrender. If a
Member reacquires any Properties in violation of this Section 12.3, the
other Member may elect by notice to the reacquiring Member within 45
days after it has actual notice of such reacquisition, to have such properties
made subject to the terms of this Agreement and transferred, without
charge, to the Company. In the event such an election is made, the
reacquired properties shall thereafter be treated as Properties, and the costs
of reacquisition shall be borne solely by the reacquiring Member and shall
not be included for purposes of calculating the Members' respective
Ownership Interests.
12.4 Disposition of Products by Manager. The Manager shall market and
dispose of Products. Such dispositions by Manager shall be in good faith
and in accordance with good industry practice, with the objective of
obtaining the best possible price for the Products. The Manager shall have
the right to enter into forward sales and hedging arrangements as approved
by the Management Committee.
ARTICLE XIII
CONFIDENTIALITY, OWNERSHIP, USE
AND DISCLOSURE OF INFORMATION
13.1 Business Information. All Business Information shall be owned jointly
by the Members as their Ownership Interests are determined pursuant to
this Agreement. Both before and after the termination of the Company, all
Business Information may be used by either Member for any purpose,
whether or not competitive with the Business, without consulting with, or
obligation to, the other Member. Except as provided in Sections 13.3 and
13.4, or with the prior written consent of the other Member, each Member
shall keep confidential and not disclose to any third party or the public any
portion of the Business Information that constitutes Confidential
Information.
13.2 Member Information. In performing its obligations under this
Agreement, neither Member shall be obligated to disclose any Member
Information. If a Member elects to disclose Member Information in
performing its obligations under this Agreement, such Member Information,
together with all improvements, enhancements, refinements and
incremental additions to such Member Information that are developed,
conceived, originated or obtained by either Member in performing its
obligation under this Agreement (Enhancements), shall be owned
exclusively by the Member that originally developed, conceived, originated
or obtained such Member Information. Each Member may use and enjoy
the benefits of such Member Information and Enhancements in the conduct
of the Business hereunder, but the Member that did not originally develop,
conceive, originate or obtain such Member Information may not use such
Member Information and Enhancements for any other purpose. Except as
provided in Section 13.4, or with the prior written consent of the other
Member, which consent may be withheld in such Members sole discretion,
each Member shall keep confidential and not disclose to any third party or
the public any portion of Member Information and Enhancements owned
by the other Member that constitutes Confidential Information.
13.3 Permitted Disclosure of Confidential Business Information. Either
Member may disclose Business Information that is Confidential Information:
(a) to a Members officers, directors, partners, members, employees,
Affiliates, shareholders, agents, attorneys, accountants, consultants,
contractors, subcontractors or advisors, for the sole purpose of such
Members performance of its obligations under this Agreement; (b) to any
party to whom the disclosing Member contemplates a Transfer of all or any
part of its Ownership Interest, for the sole purpose of evaluating the
proposed Transfer; (c) to any actual or potential lender, underwriter or
investor for the sole purpose of not later than thirty (30) days evaluating
whether to make a loan to or investment in the disclosing Member; or
(d) to a third party with whom the disclosing Member contemplates any
independent business activity or operation.
The Member disclosing Confidential Information pursuant to this Section
13.3, shall disclose such Confidential Information to only those parties that
have a bona fide need to have access to such Confidential Information for
the purpose for which disclosure to such parties is permitted under this
Section 13.3 and that have agreed in writing supplied to, and enforceable
by, the other Member to protect the Confidential Information from further
disclosure, to use such Confidential Information solely for such purpose and
to otherwise be bound by the provisions of this Article XIII. Such writing
shall not preclude parties described in Subsection 13.3(b) from discussing
and completing a Transfer with the other Member. The Member disclosing
Confidential Information shall be responsible and liable for any use or
disclosure of the Confidential Information by such parties in violation of
this Agreement and such other writing.
13.4 Disclosure Required By Law. Notwithstanding anything contained in
this Article, a Member may disclose any Confidential Information if, in the
opinion of the disclosing Members legal counsel: (a) such disclosure is
legally required to be made in a judicial, administrative or governmental
proceeding pursuant to a valid subpoena or other applicable order; or (b)
such disclosure is legally required to be made pursuant to State or Federal
Securities Laws or the rules or regulations of a stock exchange or similar
trading market applicable to the disclosing Member.
Prior to any disclosure of Confidential Information under this Section 13.4,
the disclosing Member shall give the other Member at least three (3)
business days prior written notice (unless less time is permitted by such
rules, regulations or proceeding) and, in making such disclosure, the
disclosing Member shall disclose only that portion of Confidential
Information required to be disclosed and shall take all reasonable efforts to
preserve the confidentiality thereof, including, without limitation, obtaining
protective orders and supporting the other Member in intervention in any
such proceeding.
13.5 Public Announcements. Prior to making or issuing any press release
or other public announcement or disclosure of Business Information that is
not Confidential Information, a Member shall first consult with the other
Member as to the content and timing of such announcement or disclosure,
unless in the good faith judgment of such Member, there is not sufficient
time to consult with the other Member before such announcement or
disclosure must be made under applicable Laws; but in such event, the
disclosing Member shall notify the other Member, as soon as possible, of
the pendency of such announcement or disclosure, and it shall notify the
other Member before such announcement or disclosure is made if at all
reasonably possible. Any press release or other public announcement or
disclosure to be issued by either Member relating to this Business shall also
identify the other Member.
13.6 Duration of Confidentiality. The provisions of this Article XIII shall
apply during the term of this Agreement and for two years following
termination of this Agreement pursuant to Section 14.1, and shall continue
to apply to any Member who withdraws, who is deemed to have
withdrawn, or who Transfers its Ownership Interest, for two years
following the date of such occurrence.
ARTICLE XIV
RESIGNATION AND DISSOLUTION
14.1 Events of Dissolution. The Company shall be dissolved upon the
occurrence of any of the following:
(a) Upon expiration of term of the Company in accordance with Section
2.5;
(b) Upon the unanimous written agreement of the Members; or
(c) as otherwise provided by the Act.
14.2 Resignation. A Member may elect to resign from the Company
(a) as set forth in the Members Agreement or
(b) by giving notice to the other Member of the effective date of
resignation, which shall be the later of the end of the then current Program
Period or thirty (30) days after the date of the notice. Upon resignation by
a Member, the resigning Member shall be deemed to have transferred to
the remaining Member all of its Ownership Interest, including all of its
interest in the Assets and its Capital Account, without cost and free and
clear of all Encumbrances arising by, through or under such resigning
Member, except those described in Paragraph 1.1 of Exhibit A and those to
which both Members have agreed. The resigning Member shall execute and
deliver all instruments as may be necessary in the reasonable judgment of
the other Member to effect the transfer of its interests in the Company and
the Assets to the other Member. A resigning Member shall have no right to
receive the fair value of his Ownership Interest pursuant to 18-604 of the
Act. If within a sixty (60) day period both Members elect to withdraw, then
the Company shall instead be deemed to have been terminated by the
written agreement of the Members pursuant to Section 14.1(b).
14.3 Disposition of Assets on Dissolution. Promptly after dissolution under
Section 14.1, the Manager shall take all action necessary to wind up the
activities of the Company, in accordance with Exhibit C. All costs and
expenses incurred in connection with the dissolution of the Company shall
be expenses chargeable to the Business Account.
14.4 Filing of Certificate of Cancellation. Upon completion of the winding
up of the affairs of the Company, the Manager shall promptly file a
Certificate of Cancellation with the Office of the Secretary of State of the
State of Delaware. If the Manager has caused the dissolution of the
Company, whether voluntarily or involuntarily, then a person selected by a
majority vote of the Members to wind up the affairs of the Company shall
file the Certificate of Cancellation.
14.5 Right to Data After Dissolution. After dissolution of the Company
pursuant to Subsections 14.1(a), (b), or (c) , each Member shall be entitled
to make copies of all applicable information acquired hereunder before the
effective date of termination not previously furnished to it.
14.6 Continuing Authority. On dissolution of the Company under Section
14.1 the Member that was the Manager or that appointed the Manager
prior to such dissolution (or the other Member in the event of a resignation
by the Manager) shall have the power and authority to do all things on
behalf of both Members that are reasonably necessary or convenient to: (a)
wind up Operations (b) complete reclamation, closure and other
Environmental Compliance activities with respect to the Properties, and
(c) complete any transaction and satisfy any obligation, unfinished or
unsatisfied, at the time of such dissolution, if the transaction or obligation
arises out of Operations prior to such dissolution. The Manager shall have
the power and authority to grant or receive extensions of time or change
the method of payment of an already existing liability or obligation,
prosecute and defend actions on behalf of the Company and either or both
Members, encumber Assets, and take any other reasonable action in any
matter with respect to which the former Members continue to have, or
appear or are alleged to have, a common interest or a common liability.
ARTICLE XV
GOVERNING LAW
15.1 Governing Law. Except for matters of title to the Assets or their
Transfer, which shall be governed by the law of their situs, this Agreement
shall be governed by and interpreted in accordance with the laws of the
State of Delaware, without regard for any conflict of laws or choice of laws
principles that would permit or require the application of the laws of any
other jurisdiction.
ARTICLE XVI
GENERAL PROVISIONS
16.1 Notices. All notices, payments and other required or permitted
communications (Notices) to either Member shall be in writing, and shall
be addressed respectively as follows:
If to TSVLP: Tonkin Springs Venture Limited Partnership
55 Madison Street, Suite 700
Denver, Colorado 80206
Attention: President, U.S. Gold Corporation
Telephone: (303) 322-8002
Facsimile: (303) 322-7866
With a Copy to: Randy L. Parcel, Esq.
Perkins Coie LLP
1675 Broadway, Suite 2800
Denver, Colorado 80202
If to TSHI: Tonkin Springs Holdings Inc.
401 Bay Street, Suite 2302
Toronto, Ontario M5H2Y4, Canada
Attention: President, Tonkin Springs Holdings Inc.
Telephone: (416) 947-1212
Facsimile: (416) 367-4681
With a Copy to: Roger C. Adams, Esq.
Ducker, Montgomery & Lewis, P.C.
1650 Broadway, Suite 1500
Denver, Colorado 80202
All Notices shall be given (a) by personal delivery to the Member, (b) by
electronic communication, capable of producing a printed transmission and
confirmation, (c) by registered or certified mail return receipt requested, or
(d) by overnight or other express courier service. All Notices shall be
effective and shall be deemed given on the date of receipt at the principal
address if received during normal business hours, and, if not received
during normal business hours, on the next business day following receipt,
or if by electronic communication, on the date of such communication.
Either Member may change its address by Notice to the other Member.
16.2 Gender. The singular shall include the plural, and the plural the
singular wherever the context so requires, and the masculine, the feminine,
and the neuter genders shall be mutually inclusive.
16.3 Currency. All references to dollars or $ herein shall mean lawful
currency of the United States of America.
16.4 Headings. The subject headings of the Sections and Subsections of
this Agreement and the Paragraphs and Subparagraphs of the Exhibits to
this Agreement are included for purposes of convenience only, and shall
not affect the construction or interpretation of any of its provisions.
References to hereunder are, unless otherwise stated, references to this
entire Agreement.
16.5 Waiver. The failure of either Member to insist on the strict
performance of any provision of this Agreement or to exercise any right,
power or remedy upon a breach hereof shall not constitute a waiver of any
provision of this Agreement or limit such Members right thereafter to
enforce any provision or exercise any right.
16.6 Modification. No modification of this Agreement shall be valid unless
made in writing and duly executed by both Members.
16.7 Force Majeure. Except for the obligation to make payments when due
hereunder, the obligations of a Member shall be suspended to the extent
and for the period that performance is prevented by any cause, whether
foreseeable or unforeseeable, beyond its reasonable control, including,
without limitation, labor disputes (however arising and whether or not
employee demands are reasonable or within the power of the Member to
grant); acts of God; Laws, instructions or requests of any government or
governmental entity; judgments or orders of any court; inability to obtain
on reasonably acceptable terms any public or private license, permit or
other authorization; curtailment or suspension of activities to remedy or
avoid an actual or alleged, present or prospective violation of
Environmental Laws; action or inaction by any federal, state or local
agency that delays or prevents the issuance or granting of any approval or
authorization required to conduct Operations (including, without limitation,
a failure to complete any review and analysis required by the National
Environmental Policy Act or any similar state law); acts of war or
conditions arising out of or attributable to war, whether declared or
undeclared; riot, civil strife, insurrection or rebellion; fire, explosion,
earthquake, storm, flood, sink holes, drought or other adverse weather
condition; delay or failure by suppliers or transporters of materials, parts,
supplies, services or equipment or by contractors or subcontractors
shortage of, or inability to obtain, labor, transportation, materials,
machinery, equipment, supplies, utilities or services; accidents; breakdown
of equipment, machinery or facilities; actions by native rights groups,
environmental groups, or other similar special interest groups; or any other
cause whether similar or dissimilar to the foregoing. The affected Member
shall promptly give notice to the other Member of the suspension of
performance, stating therein the nature of the suspension, the reasons
therefor, and the expected duration thereof. The affected Member shall
resume performance as soon as reasonably possible. During the period of
suspension the obligations of both Members to advance funds pursuant to
this Agreement shall be reduced to levels consistent with then current
Operations.
16.8 Rule Against Perpetuities. The Members do not intend that there shall
be any violation of the rule against perpetuities, the rule against
unreasonable restraints on the alienation of property, or any similar rule.
Accordingly, if any right or option to acquire any interest in the Properties
or Assets, in an Ownership Interest, or the Company,, or in any real
property exists under this Agreement, such right or option must be
exercised, if at all, so as to vest such interest within time periods permitted
by applicable rules. If, however, any such violation should inadvertently
occur, the Members hereby agree that a court shall reform that provision in
such a way as to approximate most closely the intent of the Members
within the limits permissible under such rules.
16.9 Further Assurances. Each of the Members shall take, from time to
time and without additional consideration, such further actions and execute
such additional instruments as may be reasonably necessary or convenient
to implement and carry out the intent and purposes of this Agreement or as
may be reasonably required by lenders in connection with Project
Financing.
16.10 Entire Agreement; Successors and Assigns. This Agreement contains
the entire understanding of the Members and supersedes all prior
agreements and understandings between the Members relating to the
subject matter hereof. This Agreement shall be binding upon and inure to
the benefit of the respective successors and permitted assigns of the
Members.
16.11 Counterparts. This Agreement may be executed in any number of
counterparts, and it shall not be necessary that the signatures of both
Members be contained on any counterpart. Each counterpart shall be
deemed an original, but all counterparts together shall constitute one and
the same instrument.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement
as of the Effective Date.
TONKIN SPRINGS VENTURE LIMITED PARTNERSHIP
By:Tonkin Springs Gold Mining Company, as its General Partner
By:William W. Reid, President
TONKIN SPRINGS HOLDINGS INC.
By: Ebe Scherkus
Its Executive Vice President
Exhibit 10.11
Amendment to Employment Agreement
Between U.S. Gold Corporation and William W. Reid
The Employment Agreement dated January 1, 1994 as Amended effective
June 1, 1995 (the Employment Agreement) between U.S. Gold Corporation, a
Colorado corporation (the Employer) and William W. Reid (the Employee) is
hereby amended effective as of July 21, 1998.
Whereas, for good and valuable consideration, the receipt and adequacy of
which are acknowledged, Employer and Employee hereby agree to Amend the
Employment Agreement as follows:
A. Section 4.1.4 Termination by the Employee is amended as follows:
The existing first sentence of this Section which reads Upon the occurrence
of any of the following events this Agreement may be terminated by the
Employee: is deleted and replaced with:
Upon the occurrence of any of the following events this Agreement may be
terminated by the Employee, provided that the Employee is not provided
continued employment for a guaranteed minimum of an additional three (3) years
after the subject event with responsibilities, compensation and other business
terms equal to or more favorable to the Employee than as provided in this
Agreement:
B. Subsection 4.1.4(v) shall be stricken and removed from the Employment
Agreement.
Except as specifically set forth in this Amendment, all provisions of the
Employment Agreement remain in full force and effect.
IN WITNESS WHEREFOF, Employer and Employee have executed this
Amendment effective as of the date first set forth above.
EMPLOYER
U.S. Gold Corporation, a Colorado corporation
By William F. Pass, Vice President, Secretary and Chief Financial Officer
EMPLOYEE
William W. Reid
Exhibit 10.12
Amendment to Employment Agreement
Between U.S. Gold Corporation and William F. Pass
The Employment Agreement dated January 1, 1994 as Amended effective
June 1, 1995 (the Employment Agreement) between U.S. Gold Corporation, a
Colorado corporation (the Employer) and William F, Pass (the Employee) is
hereby amended effective as of July 21, 1998.
Whereas, for good and valuable consideration, the receipt and adequacy of
which are acknowledged, Employer and Employee hereby agree to Amend the
Employment Agreement as follows:
A. Section 4.1.4 Termination by the Employee is amended as follows:
The existing first sentence of this Section which reads Upon the occurrence
of any of the following events this Agreement may be terminated by the
Employee: is deleted and replaced with:
Upon the occurrence of any of the following events this Agreement may be
terminated by the Employee, provided that the Employee is not provided
continued employment for a guaranteed minimum of an additional three (3) years
after the subject event with responsibilities, compensation and other business
terms equal to or more favorable to the Employee than as provided in this
Agreement:
B. Subsection 4.1.4(v) shall be stricken and removed from the Employment
Agreement.
Except as specifically set forth in this Amendment, all provisions of the
Employment Agreement remain in full force and effect.
IN WITNESS WHEREFOF, Employer and Employee have executed this
Amendment effective as of the date first set forth above.
EMPLOYER
U.S. Gold Corporation, a Colorado corporation
By William W. Reid, President and Chief Executive Officer
EMPLOYEE
William F. Pass
Exhibit 10.13
Amendment to Employment Agreement
Between U.S. Gold Corporation and David C. Reid
The Employment Agreement dated January 1, 1994 as Amended effective
June 1, 1995 (the Employment Agreement) between U.S. Gold Corporation, a
Colorado corporation (the Employer) and David C. Reid (the Employee) is
hereby amended effective as of July 21, 1998.
Whereas, for good and valuable consideration, the receipt and adequacy of
which are acknowledged, Employer and Employee hereby agree to Amend the
Employment Agreement as follows:
A. Section 4.1.4 Termination by the Employee is amended as follows:
The existing first sentence of this Section which reads Upon the occurrence
of any of the following events this Agreement may be terminated by the
Employee: is deleted and replaced with:
Upon the occurrence of any of the following events this Agreement may be
terminated by the Employee, provided that the Employee is not provided
continued employment for a guaranteed minimum of an additional three (3) years
after the subject event with responsibilities, compensation and other business
terms equal to or more favorable to the Employee than as provided in this
Agreement:
B. Subsection 4.1.4(v) shall be stricken and removed from the Employment
Agreement.
Except as specifically set forth in this Amendment, all provisions of the
Employment Agreement remain in full force and effect.
IN WITNESS WHEREFOF, Employer and Employee have executed this
Amendment effective as of the date first set forth above.
EMPLOYER
U.S. Gold Corporation, a Colorado corporation
By William F. Pass, Vice President, Secretary and Chief Financial Officer
EMPLOYEE
David C. Reid
Exhibit 23.1 Consent of BDO Siedman, LLP, to the incorporation by
reference of their report dated March 26, 1999 in the Companys Form S-8.
CONSENT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
We hereby consent to the incorporation by reference in the Registration
Statement of U.S. Gold Corporation on Form S-8, File No. 33-47460 of our
report dated February 16, 1998, on our audit of the consolidated statements
of operations, comprehensive loss, changes in shareholders equity and
cash flows of U.S. Gold Corporation for the year ended December 31, 1997,
which report is included in the Annual Report on Form 10-KSB for the year
ended December 31, 1998.
BDO Siedman, LLP
March 26, 1999
Denver, Colorado
Exhibit 23.2 Consent of Stark Tinter & Associates, LLC, to the
incorporation by reference of their report dated March 19, 1999 in the
Companys Form S-8.
CONSENT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
We consent to the incorporation by reference in the Registration Statement
of U.S. Gold Corporation on Form S-8, File No. 33-47460 of our report
dated March 19, 1999, on our audit of the consolidated financial
statements of U.S. Gold Corporation as of December 31, 1998 and for the
year then ended, which report is included in the Annual Report on Form
10-KSB.
Stark Tinter & Associates, LLC
Certified Public Accountants
March 19, 1999
Englewood, Colorado
