FORM 10Q
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934 FOR THE QUARTER ENDED February 28, 1998
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934.
Commission file number 0-12132
SILVERADO GOLD MINES LTD.
-------------------------
(Exact name of registrant as specified in its charter)
British Columbia, Canada 98 -0045034
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(State or other jurisdiction (I.R.S. Employer I.D. No.)
of incorporation or organization)
Suite 505, 1111 West Georgia Street
Vancouver, British Columbia, Canada V6E 4M3 (604) 689-1535
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(Address of Principal Executive Offices) Registrant's telephone number)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 13(d) of the Securities and Exchange Act of 1934
during the preceding 12 months (or for a 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 [ ]
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.
Class Outstanding at March 31, 1998
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(Common stock (npv)) 83,562,218
<PAGE>
<TABLE>
SILVERADO GOLD MINES LTD.
CONSOLIDATED BALANCE SHEETS
EXPRESSED IN U.S. DOLLARS
<CAPTION>
As at
February 28, November 30,
1998 1997
---------------------------
<S> <C> <C>
Assets
Current Assets
Cash and cash equivalents $ 34,300 $ 20,914
Gold inventory (Note 2) 32,642 48,875
Accounts receivable 11,854 8,297
Prepaid expenses paid to related parties 381,219 366,303
---------------------------
460,015 444,389
Mineral Properties and Development
Claims and options 2,365,647 2,436,972
Deferred exploration and development expenditures 13,999,953 13,576,470
---------------------------
16,365,600 16,013,442
Less accumulated amortization (1,384,338) (1,384,338)
---------------------------
14,981,262 14,629,104
Buildings, Plant and Equipment 3,981,196 4,481,399
Less accumulated depreciation (1,317,983) (1,385,423)
---------------------------
2,663,213 3,095,976
Deferred Financing Fees (net of amortization of $133,538: 1997-$124,238) 52,462 61,762
---------------------------
$ 18,156,952 $ 18,231,231
===========================
Liabilities and Shareholders' Equity
Current Liabilities
Accounts payable and accrued liabilities (Note 5) $ 683,099 $ 597,478
Loans payable 60,000 --
Capital lease obligations - current 63,541 81,749
---------------------------
806,640 679,227
Long Term Liabilities
Capital lease obligations 9,741 9,741
Convertible debenture (Note 7) 2,000,000 2,000,000
---------------------------
2,009,741 2,009,741
Shareholders' Equity
Share capital (Note 6)
Issued and outstanding: February 28, 1998 - 81,062,218 shares 43,342,920 43,084,420
November 30, 1997 - 80,012,218 shares
Unamortized stock compensation expense (87,618) (151,612)
Advances to related parties secured by common shares in the company (480,236) (480,236)
Deficit (27,434,495) (26,910,309)
---------------------------
15,340,571 15,542,263
---------------------------
$ 18,156,952 $ 18,231,231
===========================
<FN>
See accompanying notes to consolidated financial statements.
</FN>
</TABLE>
<PAGE>
<TABLE>
SILVERADO GOLD MINES LTD.
CONSOLIDATED STATEMENTS OF OPERATIONS
AND ACCUMULATED DEFICIT
EXPRESSED IN U.S. DOLLARS
<CAPTION>
Three Months Ended
February 28, February 28,
1998 1997
--------------------------------
<S> <C> <C>
Revenue from gold sales $ 13,723 $ 57,902
Less mining and processing costs 16,232 22,914
--------------------------------
Gain (loss) from Operations (2,509) 34,988
Employment contract expense 63,994 1,070,690
Administrative Expenditures 457,682 572,980
Loss for the period (524,185) (1,608,682)
Accumulated deficit at beginning of the period (26,910,309) (22,495,537)
================================
Accumulated deficit at end of the period $ (27,434,494) $ (24,104,219)
================================
Loss per share $ (0.01) $ (0.02)
================================
<FN>
See accompanying notes to consolidated financial statements.
</FN>
</TABLE>
<PAGE>
<TABLE>
SILVERADO GOLD MINES LTD.
CONSOLIDATED STATEMENTS OF CASH FLOWS
EXPRESSED IN U.S. DOLLARS
<CAPTION>
Three Months Ended
February 28, February 28,
1998 1997
-----------------------------
CASH PROVIDED BY (USED FOR):
<S> <C> <C>
Operations:
Loss for the year $ (524,185) $ (1,608,682)
Items not involving cash:
Employment contract expense 63,994 1,070,690
Depreciation 121,567 116,042
Amortization of deferred financing fees 9,300 9,300
Loss on disposal of buildings, plant and equipment 22,115 --
Changes in non-cash operating working capital:
Increase in accounts receivable (3,557) (6,433)
Decrease in gold inventory 16,233 22,209
Increase in prepaid expenses paid to related parties (14,916) (131,012)
Increase (decrease) in accounts payable and accrued liabilities 85,621 (76,554)
-----------------------------
(223,828) (604,440)
Financing:
Shares issued for cash 258,500 335,250
Decrease in payable to related parties -- (451,869)
Increase in loans payable 60,000 --
Decrease in loans payable secured by gold inventory -- (66,511)
Decrease in mineral claims payable -- (60,000)
Decrease in capital lease obligation (18,208) (8,525)
-----------------------------
300,292 (251,655)
Investments:
Mineral claims and options 71,325 (25,635)
Deferred exploration and development expenditures (423,483) (513,673)
Proceeds from sale of equipment 290,300 --
Purchases of equipment (1,220) (51,238)
-----------------------------
(63,078) (590,546)
Increase (decrease) in cash and cash equivalents 13,386 (1,446,641)
Cash and cash equivalents at beginning of the period 20,914 1,925,469
-----------------------------
Cash and cash equivalents at end of the period $ 34,300 $ 478,828
=============================
Supplemental cash flow information
Interest paid $ 20,000 $ 80,000
=============================
Issue of shares for purchase of mineral property, a non-cash
financing nd investing activity $ 250,000 $ --
=============================
<FN>
See accompanying notes to consolidated financial statements.
</FN>
</TABLE>
<PAGE>
SILVERADO GOLD MINES LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(EXPRESSED IN U.S. DOLLARS) (UNAUDITED) FEBRUARY 28, 1998
1. Basis of Presentation
The financial information at February 28, 1998 and for the three month
period ended February 28, 1998 and February 28, 1997 included herein is
unaudited; however, such information reflects all adjustments (consisting
solely of normal recurring adjustments) which are, in the opinion of
management, necessary for a fair statement of results for the interim
periods. These consolidated financial statements are presented in
accordance with generally accepted accounting principles in the United
States. The results of operations for the three month period ended February
28, 1998 are not necessarily indicative of the results to be expected for
the full year.
2. Gold Inventory
Gold inventory is valued at the lower of weighted average cost or estimated
net realizable value. At February 28, 1998 and February 28, 1997, gold is
valued at net realizable value.
3. Mineral Properties
(a) On January 30, 1998, the Company completed an Exploration and
Development Option Agreement with Placer Dome U.S. Inc. ("Placer Dome")
with respect to a 20.5 square mile portion of its Barelka / May and Range
Minerals properties on Ester Dome. This agreement provides for Placer Dome
to perform up to $10 million of work on the subject claims over a five-year
period, and to purchase up to 4 million shares of the Company's stock at an
aggregate price of $5,450,000 over a four year period.
(b) On December 19, 1997, the Company entered into an option agreement to
purchase the Ryan Lode property from La Teko Resources Ltd. for a total
purchase price of $12,000,000. The Company issued 1,000,000 shares of its
common stock as partial consideration under this agreement. Subsequent to
the end of the quarter the Company elected to terminate the agreement.
(c) During the quarter the Company received a waiver and extension of its
December 1997 royalty payment to the Alaska Mining Company Inc., with
respect to the Company's Hammond River claims.
4. Buildings Plant and Equipment
Buildings, plant and equipment are stated at cost. Depreciation is provided
on buildings, plant and equipment using the straight-line method based on
estimated lives of 3 to 20 years.
5. Accounts Payable
Accounts payable and accrued liabilities are delineated in the following
table:
FEBRUARY 28, NOVEMBER 30,
1998 1997
------------ ------------
Accounts payable 399,052 334,812
Accrued interest 88,047 66,666
Accrued reclamation expenses 196,000 196,000
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$ 683,099 $ 597,478
============ ============
6. Share Capital
(a) Common Shares. Authorized: 100,000,000 common shares, without par
value.
(b) Directors Options. The Company has reserved 3,475,000 common shares for
issuance, exercisable until August 14, 2004, in accordance with the terms
and conditions of its December 12, 1994, Stock Option Plan; and 450,000
common shares for issuance for issuance exercisable until June 1, 2002, in
accordance with the terms and conditions of its June 1, 1992, Stock Option
Plan. The Company accounts for stock compensation arising from options to
directors in accordance with APB 25, "Accounting for Stock Issued to
Employees".
(c) Employee Options. From time to time the Company issues options for the
purchase of common shares to selected part time independent contract
employees as sole compensation for contracted services in accordance with
the terms and conditions of its April 20, 1994, Stock Option and Stock
Bonus Plan. The Company accounts for compensation arising from these
options in accordance with Statement of Financial Standards No. 123,
"Accounting for Stock Based Compensation". Under this statement, stock
compensation cost to contract employees is measured at the grant date of
the stock option based on the value of the award and is recognized over the
service period.
(d) Warrants. In connection with the private placement of common shares the
Company has outstanding at February 28, 1998, warrants for 892,000 common
shares exercisable until September, 1998; warrants for 360,000 common
shares exercisable until October, 1998; warrants for 2,000,000 common
shares exercisable until March, 1999; warrants for 1,000,000 common shares
exercisable until August, 1999; and warrants for 550,000 common shares
exercisable until September, 1999.
(e) Other Share Transactions. The Company issued 1,000,000 of its common
shares to La Teko Resources Ltd. in consideration for an extension of its
payment obligations with respect to the Ryan Lode property. The Company has
reserved 1,076,923 common shares for issuance upon the potential conversion
of a convertible debenture; 1,100,000 common shares for issuance with
respect to a potential purchase of property; 700,000 common shares with
respect to its renegotiation of the Range Minerals II and Burggraf
agreements, precedent to executing an agreement with Placer Dome; and has
agreed to grant options to purchase 500,000 of its common shares,
exercisable until September 5, 1999, to Millennium Holdings Group Inc. as
partial consideration for a consulting agreement.
7. Convertible Debenture
In July, 1994, the Company issued a convertible callable debenture with
interest payable at the rate of 8.0% per annum on December 31 and June 30
each year. The debenture is unsecured and is due July 2, 1999, subject to
prior redemption or conversion. The debenture may be converted in whole or
in part by the holder into common shares of the Company at a conversion
price of $1.857 U.S. per share (the "Conversion Price"). In addition,
conversion of the debenture may be called by the Company provided that the
average trading price of the Company's common stock has exceeded 125% of
the Conversion Price for the period of 20 consecutive trading days.
Financing fees paid related to the debenture have been deferred and are
being amortized on a straight line basis over the debenture term of 60
months. The Company completed payment of the December 31, 1997 interest
installment on March 25, 1998.
8. Commitments and Contingencies
The Company has a lease agreement for office premises for a term of 10
years commencing April 1, 1994, with an approximate annual rate of $120,000
(Cdn.) including operating costs.
9. Subsequent Events
(a) On March 23, 1998, the Company entered into an agreement with IBK
Capital Corporation to redeem one-half of an outstanding warrant for
1,000,000 shares exercisable at $0.42 per share until April 2, 1999 in
consideration for the issuance of new warrants for 5,000,000 shares
exercisable at $0.22 per share until March 22, 1999; a warrant for
2,500,000 shares exercisable at $0.10 per share until June 22, 1998; and a
warrant for 2,500,000 shares exercisable at $0.10 immediately.
(b) On March 26, 1998, the Company notified La Teko Resources Ltd. that it
was electing to terminate its option relating to the Ryan Lode Property.
<PAGE>
MANAGEMENT DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following is management's discussion and analysis of certain factors which
have significantly affected the Company's financial position and operating
results during the period included in the accompanying condensed consolidated
financial statements.
Three Months 1998 v. 1997
The Company continued to engage in limited exploration activities during the
first quarter of 1998. It received some revenue from sales of existing gold
inventory, but received most of its cash from sale of equipment and from the
partial execution of a warrant for its common shares. Current assets remained
relatively constant during the quarter, while Buildings, Plant and Equipment
were reduced reflecting the equipment sale. Current liabilities increased as a
function of an increase in accounts payable and the receipt of an unsecured loan
which was repaid subsequent to quarter end. Long term liabilities remained
relatively unchanged and are comprised mainly of the Company's $2 million
convertible debenture. Employment contract expense was reduced substantially
reflecting the fact that the Company has now absorbed most of the cost of
previously issued contracts (see Note 6(c)). Administrative expenses were also
reduced, reflecting the reduced level of activity within the Company.
Liquidity and Capital Resources at February 28, 1998
During the first three months of 1998 the Company received cash from sale of
equipment, from the partial execution of a warrant, and immediately subsequent
to quarter end from the proceeds of a 2,500,000 share private placement. Also
immediately subsequent to quarter end it eliminated the remainder of its
long-term lease obligations, thereby reducing its debt portfolio to its
convertible debenture and its on-going trade payables. At February 28, 1998, the
Company's cash position remained relatively unchanged at $34,300 as it continued
to incur limited expenses with respect to its analysis of the Ryan Lode
property. The Company completed payment of the December 31, 1997, semi-annual
interest installment on March 25, 1998.
Results of Operations
(a) Ester Dome Gold Project
The Company completed an agreement with Placer Dome U.S. Inc. ("Placer Dome")
granting Placer Dome an option to explore 20.5 miles of the Ester Dome project.
The optioned claims include the Rhyolite and Ready Bullion targets, but exclude
the St. Paul gold deposit, and the Grant Mine and Mill. The Company intends to
continue investigation of the St. Paul gold deposit, subject to the availability
of financing.
(b) Ryan Lode Gold Project
The Company issued 1,000,000 to La Teko Resources Ltd. ("La Teko") as
consideration for deferring its payment obligations with respect to this
project. Subsequent to quarter end, the Company found it necessary to drop its
purchase option due to the excessive drop in gold prices and the significant
reclamation expenses associated with the property.
(c) Nolan Gold Project
At the Nolan Gold Project in northern Alaska, the Company completed a number of
reclamation activities. The Company intends to resume development of both placer
and lode gold deposits at Nolan, subject to the availability of financing.
(d) Other Properties
The Company continued to maintain its other properties in good standing, pending
further exploration and development, subject to the availability of financing.
OTHER INFORMATION
Item 4 None.
Item 5 None.
Item 6 Exhibits and Reports on Form 8-K.
(a) EXHIBITS
(3) Articles of Incorporation and Bylaws
(i)(a) Ordinary Resolution of Silverado increasing the authorized capital
to 100,000,000 shares without par value and changing the Company's name
from "Silverado Mines Ltd." to "Silverado Gold Mines Ltd." is incorporated
by reference to Exhibit 3 to Silverado's 10-Q for the quarter ended May 31,
1997.
(4) Instruments Defining Rights of Security Holders, Including Indentures
(a) Specimen certificate representing shares of the capital stock of
Silverado is incorporated by reference to Exhibit 4(a) to Silverado's
Report on Form 10, No. 0-12132, filed May 11, 1984, as amended on Form 8,
filed July 10, 1984.
(10) Material Contracts
(a) Management Compensatory Plan - Silverado Mines Ltd. 1994 Stock Option
and Bonus Plan. Incorporated by reference to Exhibit 10.4 to Silverado's
Registration Statement on Form S-3, File No. 33-76880.
(b) Operating Agreement between Silverado and Tri-Con Mining Ltd.
incorporated by reference to Form 10-K filed March 16, 1998.
(c) Property Option Agreements:
(i) Grant Mine Property
(a) Agreement for Conditional Purchase and Sale of Mining Property -
Silverado/Burggraf (10/6/78) is incorporated by reference to Exhibit
10(e)(i)(a) to Silverado's Registration Statement on Form 10, No. 0-12132,
filed May 11, 1984, as amended on Form 8, filed July 10, 1984.
(d) Exploration and Mining Lease - Silverado Mines (U.S.), Inc./ Gilbert
Dobbs (11/6/84) is incorporated by reference to Exhibit 10(e)(f) to the
Registrant's Report on Form 10-K for the fiscal year ended November 30,
1984.
(ii) Range Minerals Property
(a) Agreement #1 Silverado/Taylor (8/30/80) is incorporated by reference to
Exhibit 10(e)(ii)(a) to Silverado's Registration Statement on Form 10,
0-12132, filed May 11, 1984, as amended on Form 8, filed July 10, 1984.
(b) Agreement #2 Silverado/Taylor (8/30/80) is incorporated by reference to
Exhibit 10(e)(ii)(b) to Silverado's Registration Statement on Form 10, No.
0-12132, filed May 11, 1984, as amended on Form 8, filed July 10, 1984.
(c) Exploration and Development Option Agreement between Silverado Gold
Mines Ltd., Silverado Gold Mines Inc., and Placer Dome U.S. Inc. filed
herewith.
(iii) St. Paul Barelka Property
(a) Equity Agreement - Silverado/Barelka/May/Thoennes (5/12/79) is
incorporated by reference to Exhibit 10(e)(iii)(a) to Silverado's
Registration Statement on Form 10, No. 0-12132, filed May 11, 1984, as
amended on Form 8, filed July 10, 1984.
(iv) Eagle Creek Property
(a) Option Agreement - Taylor/O'Hara/Tan (7/9/76) is incorporated by
reference to Exhibit 10(e)(v)(a) to Silverado's Registration Statement on
Form 10, No. 0-12132, filed May 11, 1984, as amended on Form 8, filed July
10, 1984.
(b) Assignment of Option - Aalenian (now Silverado)/Tan (8/26/76) is
incorporated by reference to Exhibit 10(e)(v)(b) to Silverado's
Registration on Form 10, No. 0-12132, filed May 11, 1984, as amended on
Form 8, filed July 10, 1984.
(c) Assignment of Option - Can-Ex. (8/4/89) is incorporated by reference to
Exhibit 10(e)(v)(c) to Silverado's Report on Form 10-K, for the fiscal year
ended November 30, 1989.
(v) Thompson Pup Property
(a) Option Agreement Figlenski/Carlson/Silverado (6/9/81) is incorporated
by reference to Exhibit 0(e)(vi)(a) to Silverado's Registration Statement
on Form 10, No. 0-12132, filed May 11, 1984, as amended on Form 8, filed
July 10, 1984.
(vi) French Peak Property
(a) Amendment of Agreement - Silverado / Can-Ex (now Anselmo
Holdings)(9/19/80) is incorporated by reference to Exhibit 10(e)(ix)(d) to
Silverado's Registration Statement on Form 10, No. 0-12132 filed May 11,
1984, as amended on Form 8, filed July 10, 1984.
(b) Amendment of Agreement (7/21/83) is incorporated by reference to
Exhibit 10(e)(ix)(e) to Silverado's Registration Statement on Form 10, No.
0-12132, filed May 11, 1984, as amended on Form 8, filed July 10, 1984.
(vii) Smith Creek Property
(a) Purchase and Sales Agreement - Mickelson / Anderson / Silverado
(08/20/93) is incorporated by reference to Exhibit 10(vii)(a) to the
Registrants Report on Form 10-K for the fiscal year ended November 30,
1993.
(viii) Mary's Bench Property
(a) Purchase and Sales Agreement - Dionne / Dionne / Deveny / Silverado
(09/21/93) is incorporated by reference to Exhibit 10(viii)(a) to the
Registrants Report on Form 10-K for the fiscal year ended November 30,
1993.
(ix) Marshall Dome Property
Agreement for Purchase and Sale - Raymond Moore / "BJ" Hall / Silverado,
dated October 9, 1995 is incorporated herein by reference to Exhibit
(10)(ix) to the Registrants Report on Form 10-K for the fiscal year ended
November 30, 1995.
(x) Hammond Property
Lease of Mining Claims with Option to Purchase - Alaska Mining Company Inc.
("ALMINCO") / Silverado, dated February 3, 1995, is incorporated by
reference to Exhibit (10)(x) to the Registrants Report on Form 10-K for the
fiscal year ended November 30, 1995.
(27) Financial Data Schedule, filed herewith.
(b) REPORTS ON FORM 8-K
A Form 8-K Current Report dated December 19, 1997 was filed by the Company
on January 2 1998, reporting information pursuant to Item 6. No financial
statements were filed with this report.
A Form 8-K Current Report dated January 28, 1998 was filed by the company
on February 5, 1998, reporting information pursuant to Item 6. No financial
statements were filed with this report.
- -------------------------------------------------------------------------------
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
SILVERADO GOLD MINES LTD.
/s/ G.L. Anselmo
-------------------------
G.L. Anselmo
President / CEO / CFO
EXPLORATION AND DEVELOPMENT AGREEMENT
THIS EXPLORATION AND DEVELOPMENT AGREEMENT is made and entered into
effective as of November 30, 1997, by and among Silverado Gold Mines Inc., an
Alaska corporation, whose address for purposes hereof is 505-1111 W. Georgia
Street, Vancouver, British Columbia, Canada V6E 4M3 (hereinafter referred to as
"Silverado"), Silverado Gold Mines Ltd., a company incorporated under the laws
of the Province of British Columbia, Canada, of which Silverado is a
wholly-owned subsidiary, whose address for purposes hereof is the same as that
of Silverado (hereinafter referred to as "SGM Ltd."), and Placer Dome U.S. Inc.,
a California corporation, whose address for purposes hereof is 240 South Rock
Boulevard, Suite 117, Reno, Nevada, U.S.A. 89502 (hereinafter referred to as
"PDUS"). Silverado, SGM Ltd. and PDUS will be collectively referred to
hereinafter as the Parties."
RECITALS
A. Silverado and SGM Ltd. hold an undivided 100% leasehold interest in or
exclusive option to purchase (i) certain state unpatented mining claims situated
in the North Star Borough, Fairbanks Mining District, Alaska, as more
particularly described in part 1 of Exhibit A attached hereto (the "Range
Claims"), pursuant to that certain Working Agreement with Option to Purchase
dated August 30, 1980, between Range Minerals Corporation and SGM Ltd., as
amended and assigned to Silverado by those Amendments dated May 9, 1990,
February 1994 and December 5, 1997; and (ii) certain state unpatented mining
claims situated in the North Star Borough, Fairbanks Mining District, Alaska, as
more particularly described in part 2 of Exhibit A attached hereto (the
"Barelka/May Claims"), pursuant to that certain Agreement for Conditional
Purchase and Sale of Mining Property dated May 12, 1979, among Paul L. Barelka,
Donald J. May and Mark Thoennes, as vendors, and SGM Ltd., as purchaser. The
Barelka/May Claims and the Range Claims will be collectively referred to
hereinafter as the "Leased Claims." The Leased Claims, together with all
improvements and all easements, rights-of-way, water rights, and all other
appurtenances thereto, and together with any interest in real property within
the Area of Mutual Interest (as defined in Section 1.3 and depicted on Exhibit
D) will be collectively referred to hereinafter as the "Property.
B. Silverado is also the owner of an undivided 100% interest in certain
machinery, equipment and other items of personal property used on or in
connection with the Property, as more particularly described in Exhibit B
attached hereto and incorporated herein by reference (collectively, the
"Personalty").
C. Silverado and SGM Ltd. desire to grant to PDUS and PDUS desires to
acquire an exclusive right to explore, evaluate and develop the Property and, if
warranted, to enter into a mining venture agreement pursuant to which Silverado
and PDUS would jointly conduct exploration, development, mining, processing and
related activities on the Property, for the consideration and upon the terms and
conditions described herein.
<PAGE>
AGREEMENT
NOW, THEREFORE, for and in consideration of the sum of $400,000 paid to
Silverado by PDUS simultaneous with the execution of this Agreement (the
"Initial Payment), and other good and valuable consideration, the receipt and
sufficiency of which the Parties hereby confirm and acknowledge, and the mutual
promises, covenants, and conditions herein contained and recited, the Parties
hereto agree as follows:
ARTICLE 1
DEFINITIONS
As used in this Agreement, the following terms shall have the meanings
assigned to them in this Article 1.
1. 1 "Acquisition Costs" shall mean costs incurred by PDUS in acquiring
property interests within the Area of Mutual Interest, including direct costs
and expenses incurred by PDUS in conducting negotiations and due diligence,
attorneys' fees, and all moneys paid by PDUS in acquiring and holding such
property interests.
1.2 "Affiliate" shall mean any person, partnership, joint venture,
corporation or other form of enterprise which directly or indirectly controls,
is controlled by, or is under common control with, a party to this Agreement.
For purposes of the preceding sentence, "control" means possession, directly or
indirectly, of the power to direct or cause direction of management and policies
through ownership of voting securities, contract, voting trust or otherwise.
1.3 "Area of Mutual Interest" means any interest in real property located
within the exterior boundaries of the Property or within two aerial miles from
the exterior boundaries of the Property or the Silverado Adjacent Properties (as
defined in Section 1.13), but specifically excluding any real property located
within the exterior boundaries of the Silverado Adjacent Properties.
1.4 "Agreement" shall mean this Exploration and Development Agreement, the
recitals and all exhibits attached hereto and by this reference incorporated
herein.
1.5 "Anniversary Date" shall mean the date falling one or more years after
the Effective Date.
1.6 "Effective Date" shall mean November 30, 1997.
1.7 "Evaluation Period" shall mean the period of time commencing on the
Effective Date and continuing until PDUS has relinquished its rights hereunder
or earned an undivided 51% interest in the Property.
<PAGE>
1.8 Exploration, Development and Related Work" shall mean and include all
operations and activities of PDUS on or relating to the Property for purposes of
determining ore reserves and mineralization, and for purposes of development of
Valuable Minerals from the Property including, without limitation, the right to
enter upon the Property for purposes of surveying, exploring, testing, sampling,
trenching, bulk sampling, prospecting and drilling for Valuable Minerals, and to
construct and use buildings, roads, power and communication lines, and to use so
much of the surface of the Property in such manner as PDUS deems necessary to
the enjoyment of any rights and privileges to PDUS hereunder or otherwise
necessary to effect the purposes of this Agreement.
1.9 "Exploration and Development Expenses" shall mean and include all costs
or fees, expenses, liabilities and charges paid or incurred by PDUS which are
related to Exploration, Development and Related Work conducted between October
1, 1997 and the Effective Date or during the Evaluation Period for the purpose
of discovery, location, delineation, evaluation or development of Valuable
Minerals from the Property, including without limitation:
(a) All costs and expenses incurred in conducting exploration and
prospecting activities, including, without limitation, the preparation of
feasibility studies, the active pursuit of required federal, state or local
authorizations or permits and the performance of required environmental
protection or restoration obligations, the building, maintenance and repair of
roads, drill site preparation, drilling, tracking, digging test pits, shaft
sinking, acquiring, diverting and/or transporting water necessary for
exploration, logging of drill holes and drill core, completion and evaluation of
geological, geophysical, geochemical or other exploration data and preparation
of interpretive reports, and surveying and laboratory costs and charges
(including assays or metallurgical analyses and tests);
(b) All expenses incurred in conducting development activities on or
in connection with the Property, the active pursuit of required federal, state
or local authorization or permits and the performance of required environmental
protection or restoration obligations, pre-stripping and stripping, the
construction and installation of a mill, leach pads or other beneficiation
facilities for Valuable Minerals, and other activities, operations or work
performed in preparation for the removal of Valuable Minerals from the Property;
(c) All Acquisition Costs;
(d) All costs incurred in performing any reclamation, restoration or
other work required by any federal, state or local agency or authority;
(e) Salaries, wages, expenses and benefits of PDUS's employees or
consultants engaged in operations relating to the Property, including salaries
and fringe benefits of those who are temporarily assigned to and directly
employed on work relating to the Property for the periods of time such employees
are engaged in such activities and reasonable
<PAGE>
transportation expenses for all such employees to and from their regular place
of work to the Property;
(f) All costs incurred in connection with the preparation of
feasibility studies and economic and technical analyses pertaining to the
Property, whether carried out by PDUS or by third parties under contract with
PDUS;
(g) Taxes and assessments, other than income taxes, assessed or levied
upon or against the Property or any improvements thereon situated thereon for
which PDUS is responsible or for which PDUS reimburses Silverado;
(h) Costs of material, equipment and supplies acquired, leased or
hired, for use in conducting exploration or development operations relating to
the Property; provided, however, that equipment owned and supplied by PDUS shall
be chargeable at rates no greater than the most favorable rental rates available
in the area of the Property;
(i) Costs and expenses of establishing and maintaining field offices,
camps and housing facilities;
(j) Costs incurred by PDUS in examining and curing title to any part
of the Property or any interest in real property within the Area of Mutual
Interest, in maintaining the Property or any interest in real property within
the Area of Mutual Interest whether through the performance of assessment work
or otherwise, in making required payments under the Leases, in making the
payments referred to in Section 2.7, in satisfying surface use or damage
obligations to landowners, or in conducting any analyses of the environmental
conditions at the Property;
(k) An additional 10% as overhead on all costs and expenses described
in (a) through (j) above; and
(l) Any other reasonable cost or expense which may be specifically
identified as qualifying as an Exploration and Development Expenditure.
1.10 "Leases" shall mean the mining leases or option agreements covering
the Leased Claims, as more particularly described in Recital A and parts 1 and 2
of Exhibit A.
1.11 "Minimum Work Requirement" shall mean expenditure of required minimum
amounts of Exploration and Development Expenses during any applicable Annual
Period or the entirety of the Evaluation Period, as set forth in Section 2.3(a),
or payment of any applicable sums in lieu thereof by PDUS pursuant to Section
2.3(b) or (c) hereof.
1.12 "Mining Venture Agreement" shall mean the mining venture agreement,
together with all attachments thereto, a copy of which is attached to this
Agreement as Exhibit C, under which Silverado and PDUS may conduct exploration,
development, mining, and production operations on the Property.
<PAGE>
1.13 "Silverado Adjacent Properties" shall mean all of the existing state
unpatented mining claims or other interests in real property owned by or in the
control of Silverado or SGM Ltd. within the area described on the attached
Exhibit D as the "Silverado Adjacent Properties," but not including any of the
claims listed on Exhibit A.
1.14 "Valuable Minerals" shall mean all ores, minerals, mineral deposits or
mineral substances of every kind or character located in, on or under the
Property.
1.15 "$" shall mean United States currency.
ARTICLE 2
GRANT OF RIGHTS
2.1 Rights Granted. Silverado and SGM Ltd. hereby grant to PDUS the
exclusive right to enter upon the Property during the Evaluation Period for the
purpose of conducting Exploration, Development and Related Work, and the right
to earn an undivided 51% interest in the Property by (a) making the cash payment
referred to in Section 2.2; (b) incurring a total of $10,000,000 in Exploration
and Development Expenses as set forth in Section 2.3(a) or making the cash
payments referred to in or pursuant to Section 2.3(b) during the Evaluation
Period; and (c) by purchasing a certain minimum number of shares of common stock
of SGM Ltd, as set forth in Section 2.4.
2.2 Cash Payment. Upon execution of this Agreement, PDUS has paid Silverado
the sum of $400,000.
2.3 Minimum Work Requirement.
(a) Exploration and Development Expenses. Upon the terms and
conditions set forth herein, PDUS shall have the obligation during each Annual
Period to incur Exploration and Development Expenses in the minimum amount set
forth in Table A below or to make the payment described in Section 2.3(b).
"Annual Period" shall mean each period of one year during the term of this
Agreement which commences on the date of this Agreement or on an anniversary of
such date. Each anniversary of the Effective Date shall be referred to
hereinafter as an "Anniversary Date." Any Exploration and Development Expenses
incurred by PDUS in excess of the minimum amounts set forth in the table during
any Annual Period may be carried forward by PDUS and shall apply as a credit
toward Exploration and Development Expenses in subsequent Annual Periods.
<PAGE>
TABLE A
Minimum Work Schedule
Time Period Minimum Work Requirement
- ----------- ------------------------
In U.S. $
A. From the Effective Date through November30, 1998 1.0 million
B. December 1, 1998 -November 30, 1999 1.5 million
C. December 1, 1999-November 30, 2000 2.0 million
D. December 1, 2000 -November 30, 2001 2.5 million
E. December 1, 2001 -November 30, 2002 3 million
-----------
10 million
(b) In Lieu Payments. If PDUS fails or elects not to attain the
Minimum Work Requirement during any Annual Period, and if such failure is not
excused by force majeure, then, in order to keep this Agreement in full force
and effect, within 30 days after the end of such Annual Period, PDUS may elect
to make a payment to Silverado which shall equal the sum of the required minimum
amount of Exploration and Development Expenses for the Annual Period in question
less the Exploration and Development Expenses incurred by PDUS during such
Annual Period. Any such payment shall satisfy the Minimum Work Requirement for
the Annual Period to which the payment relates. For the purpose of determining
whether PDUS has earned a 51% interest in the Property pursuant to Section 2.1,
PDUS shall be deemed to have incurred Exploration and Development Expenses in an
amount equal to the Exploration and Development Expenses incurred by it plus any
cash payments made by it pursuant to this Section 2.3(b) or pursuant to Section
2.3(c) below.
(c) Proof of Expenditures. PDUS shall provide Silverado with a written
statement of Exploration and Development Expenditures, certified as being
complete and accurate by PDUS, within sixty days after the end of each Annual
Period, and shall make available for review by Silverado during normal business
hours, for a period of six months after the end of each Annual Period, backup
invoices, statements and the like verifying such expenditures promptly upon
Silverado's written request. In connection with such a review, PDUS may satisfy
any annual Minimum Work Requirement obligation by the payment to Silverado of
any agreed-upon deficiency within thirty days after any reported expenditure has
later been determined not to be a valid Exploration and Development Expenditure,
or the amount
<PAGE>
of required Exploration and Development Expenditures has later been determined
to be deficient.
2.4 Stock Purchase Requirement. In order to retain its right to earn a 51%
interest in the Property, PDUS shall have the obligation, not later than twenty
days before each Anniversary Date of this Agreement, to notify Silverado of its
intent to purchase a certain minimum number of shares of common stock of SGM
Ltd. (collectively, the Stock), as set forth in Table B below. All such
purchases of Stock shall be completed as soon as practicable after the receipt
by Silverado of PDUS's notice of its election to purchase the Stock, and the
transfer of the required payment and certificates representing the number of
shares of Stock purchased shall occur on a date mutually agreeable to the
parties, but in any event not later than November 30th of the year in question.
TABLE B
Stock Purchase Schedule
Stock
-----
No. of shares&
Purchasing Price
Time Period In U.S. $
-----------
A. On or before November 30, 1998 1.0 million - 0.70
B. On or before November 30, 1999 l.0 million - 1.25
C. On or before November 30, 2000 1.0 million - 1.50
D. On or before November 30, 2001 1.0 million - 2.00
------------------
4 million shares at a total
price of $5,450,000
2.5 Right to Enter into Mining Venture Agreement. Upon completion of the
Minimum Work Requirement set forth in Section 2.3 above and completion of the
purchase of the Stock as set forth in Section 2.4 above, PDUS shall earn,
acquire and receive from Silverado an undivided 51% of Silverado's and SGM
Ltd.'s interest in the Property, as follows: Upon such completion, PDUS shall
promptly give Silverado notice of same (in accordance with Article 7) and,
within 15 days after the date of Silverado's receipt of such notice, Silverado
and SGM Ltd. shall execute and deliver to PDUS recordable conveyances of an
undivided 51% of Silverado's and SGM Ltd.'s interest in the Leased Claims, the
Leases and the Personalty, in the forms of (a) the Assignment set forth as
Exhibit E attached hereto and incorporated herein by reference (as to
Silverado's interest in the Leased Claims and the Leases); and (b) the Bill of
Sale set forth as Exhibit F attached hereto and incorporated herein by reference
(as to the Personalty). In addition, within 5 days after the date PDUS receives
such conveyance documents, the Parties shall execute and deliver the Mining
Venture Agreement. Execution of the Mining Venture Agreement shall constitute
the termination of this Agreement, and thereafter the rights and
<PAGE>
obligations of the Parties with respect to the Property shall be governed only
by the Mining Venture Agreement. The Parties hereby agree that PDUS may, in its
sole discretion, accelerate the schedule for completion of its Minimum Work
Requirement, and in that event, PDUS may accelerate its earning of 51% of
Silverado's and SGM Ltd.'s interest in the Property by purchasing the remaining
required amounts of Stock, at the price(s) set forth in Table B. Once PDUS has
completed its Minimum Work Requirement and completed its purchase of the Stock,
PDUS shall be deemed irrevocably and immediately, subject to the provisions of
this Section 2.5, vested in an undivided 51% of Silverado's and SGM Ltd.'s
interest in the Property.
2.6 Failure to Complete Minimum Work Requirement or Stock Purchase.
(a) In the event PDUS elects (which it may choose to do in its sole
discretion) not to complete the Minimum Work Requirement as defined in Section
2.3 above, PDUS shall give Silverado written notice of such election, and this
Agreement, upon written notice from Silverado to PDUS, shall be conclusively
deemed terminated in accordance with Article 9; provided, however, that if PDUS
does not complete its Minimum Work Requirement for the first Annual Period (and
such lack of completion does not result from the determination of a deficiency
as described in Section 2.3(c), which deficiency is rectified by PDUS as
contemplated therein) and this Agreement terminates, PDUS shall pay to Silverado
the difference between the Exploration and Development Expenses actually
incurred by PDUS during the first Annual Period and $1,000,000; and provided
further that if PDUS has not terminated this Agreement prior to the commencement
of any subsequent Annual Period, then it will be obligated to incur at least
$200,000 in Exploration and Development Expenses during that Annual Period, and
if this Agreement terminates during that Annual Period, PDUS shall pay to
Silverado the difference between the Exploration and Development Expenses
actually incurred by PDUS during the Annual Period in question and $200,000.
(b) In the event PDUS fails to purchase the required amount of Stock
by the required date as set forth in Section 2.4, this Agreement shall be
conclusively deemed terminated upon notice from Silverado to PDUS in accordance
with Article 9.
(c) Other than as set forth in this Section 2.6, Silverado expressly
agrees that PDUS shall not be liable for any actual, incidental or consequential
damages incurred by Silverado or SGM Ltd. as a direct or indirect result of
PDUS's failure to (i) satisfy all or part of its Minimum Work Requirement or
(ii) purchase the required amounts of Stock.
2.7 Additional Property. Pursuant to the terms of that Agreement between
Alaska Gold Company and Silverado dated October 30, 1997, Silverado has
purchased certain mining equipment, patented mining claims, and state unpatented
mining claims (the "Sheep Creek Property"), as depicted on Exhibit D and more
particularly described in Exhibit G attached hereto and incorporated herein by
reference. At any time after the first Anniversary Date of this Agreement, PDUS
shall have the option to notify Silverado of PDUS's desire to include the Sheep
Creek Property in this Agreement. Upon Silverado's receipt of such notice from
PDUS, the Sheep Creek Property shall be deemed included within the Property
subject to this
<PAGE>
Agreement. Regardless of whether PDUS has made such an election, if the
Agreement remains in effect, PDUS shall reimburse Silverado, not later than
thirty business days after the first Anniversary Date, for 70% of the $80,000 in
payments made by Silverado to Alaska Gold Company pursuant to that Agreement on
October 30, 1997 and October 30, 1998, and, if the Agreement remains in effect,
PDUS shall reimburse Silverado, not later than thirty business days after the
second Anniversary Date, for 70% of the third $40,000 payment made by Silverado
to Alaska Gold Company pursuant to that Agreement. Unless and until PDUS
provides notice to Silverado of its election to include the Sheep Creek Property
in the Property, all payments made by PDUS to Silverado pursuant to this Section
2.7 shall be deemed additional consideration for Silverado's entering into this
Agreement, and PDUS shall have no ownership or any other interest in and no
obligations or liabilities pertaining to the Sheep Creek Property. During the
first year of the Evaluation Period, Silverado shall (a) make available to PDUS
for its review all data and information pertaining to the Sheep Creek Property
in Silverado's possession or generated by or on behalf of Silverado, and (b)
allow PDUS access to the Sheep Creek Property for purposes of conducting work in
the nature of Exploration, Development and Related Work. PDUS shall conduct all
such work on the Sheep Creek Property in compliance with applicable laws, rules
and regulations and shall share the results of any such work with Silverado.
2.8 Geological and Other Data. Upon execution of this Agreement, Silverado
shall make available to PDUS all records, information and data in its possession
or reasonably available to it relating to title to the Property or environmental
conditions at or pertaining to the Property, and all maps, assays, surveys,
technical reports, drill logs, samples, mine, mill, processing and smelter
records, and metallurgical, geological, geophysical, geochemical, and
engineering data, and interpretive reports derived therefrom, concerning the
Property, and PDUS, at its sole risk and expense, may from time to time use
Silverado's facilities at its offices and data center at the Silverado Adjacent
Properties to copy any such records, information and data that PDUS desires. No
original records, information or data shall be removed from Silverado's offices
or the data center at the Silverado Adjacent Properties. Silverado makes no
representation or warranty as to the accuracy, reliability or completeness of
any such records, information or data, and PDUS shall rely on the same at its
sole risk. In addition to the foregoing, Silverado shall make available for
review (but not copying) by PDUS, at reasonable times mutually agreeable to the
parties and from time to time during the Evaluation Period, all data and
information of the nature described in this Section 2.8 in Silverado's
possession or available to it concerning the Silverado Adjacent Properties.
ARTICLE 3
RIGHTS OF PDUS DURING THE EVALUATION PERIOD
3.1 PDUS's Rights. During the Evaluation Period, PDUS's rights shall
include, without limitation, the following:
(a) PDUS may carry out such operations at the Property during the
Evaluation Period as it may, in its sole discretion, determine to be warranted,
and PDUS shall have
<PAGE>
exclusive control of all exploration and development operations on or for the
benefit of the Property, and of any and all equipment, supplies, machinery or
other assets purchased or otherwise acquired in connection with such exploration
or development operations; and
(b) PDUS's rights shall include all other rights necessary or incident
to or for its performance of its operations hereunder, including, but not
limited to the authority to apply for all necessary permits, licenses and other
approvals from the United States of America, the State of Alaska or any other
governmental or other entity having regulatory authority over any part of the
Property.
(c) PDUS shall have the exclusive right (to the extent permitted under
the Leases and with the prior written consent of Silverado, which consent shall
not be unreasonably withheld) to relocate, amend, apply for leases from the
State of Alaska, defend contests or adverse suits and negotiate settlement
thereof with respect to any or all of the Leased Claims, and Silverado shall
cooperate with PDUS and shall execute any and all documents necessary or
desirable in the opinion of PDUS to further such amendments, relocations, lease
applications, contests, adverse suits or settlements. PDUS shall not be liable
in any manner whatsoever to Silverado for the loss of any Leased Claim as a
result of such amendment, relocation, contests or adverse suits, except for
PDUS' negligence.
ARTICLE 4
OBLIGATIONS OF PDUS DURING THE EVALUATION PERIOD
4.1 Conduct of Operations by PDUS at the Property. All of the work which
may be performed by PDUS hereunder shall be performed in accordance with good
mining practices, but the timing, nature, manner and extent of any exploration,
development or any other operations or activities hereunder shall be in the sole
discretion of PDUS, and there shall be no implied covenant to begin or continue
any such operations or activities.
4.2 Indemnity. Except as to damages sustained by Silverado while on the
Property pursuant to Section 4.5, PDUS agrees to indemnify and hold Silverado
harmless from and against any loss, liability, expense or damage it may incur to
third persons or corporations for injury to or death of persons or damage to
property which is the result of PDUS conducting any operations at the Property
during the Evaluation Period.
4.3 Insurance. PDUS agrees to carry such insurance, covering all persons
working at or on the Property for PDUS, as will fully comply with the
requirements of the statutes of the State of Alaska pertaining to worker's
compensation and occupational disease and disabilities as are now in force or as
may be hereafter amended or enacted. In addition, during the Evaluation Period
PDUS agrees to carry liability insurance with respect to its operations at the
Property in reasonable amounts in accordance with accepted industry practices.
<PAGE>
4.4 Compliance with Laws. PDUS agrees to conduct and perform all of its
operations at the Property during the Evaluation Period in substantial
compliance with all valid and applicable federal, state and local laws, rules
and regulations, including, without limitation, such laws, rules and regulations
pertaining to social security, unemployment compensation, wages and hours and
conditions of labor, and PDUS shall indemnify and hold Silverado harmless from
payment of any damages occasioned by PDUS's failure to comply with said laws.
4.5 Inspection. During the Evaluation Period, Silverado and its authorized
agents, at Silverado's sole risk and expense, shall have the right, exercisable
during regular business hours, at a mutually convenient time, in compliance with
PDUS's safety rules and regulations, and in a reasonable manner so as not to
interfere with PDUS's operations, to go upon the Property for the purpose of
confirming that PDUS is conducting its operations in the manner required by this
Agreement. Silverado shall indemnify and hold PDUS harmless from all claims for
damages arising out of any death, personal injury or property damage sustained
by Silverado, its agents or employees, while in or upon the Property, whether or
not Silverado, its agents or employees are in or upon the Property pursuant to
this Section 4.5, unless such death, injury or damage is due to PDUS's gross
negligence or wilIful misconduct. If requested by PDUS, Silverado, its agents
and employees will confirm in writing their waiver of claims against PDUS.
4.6 Taxes. During the Evaluation Period, PDUS, shall, within thirty days
after receipt of evidence of payment, reimburse Silverado for payment of all
taxes levied or assessed upon or against the Property and any facilities or
improvements located thereon, excluding severance and income taxes. Silverado
shall be responsible in the first instance for the timely and proper payment of
all such taxes not later than thirty days prior to the date such payments are
due, and shall provide PDUS with evidence of such payment within five days
thereafter. If Silverado does not timely provide such evidence, PDUS may pay
such taxes on Silverado's behalf.
4.7 Liens and Encumbrances. PDUS shall keep the title to the Property free
and clear of all liens and encumbrances resulting from its operations hereunder;
provided, however, that PDUS may refuse to pay any claims asserted against it
which it disputes in good faith. At its sole cost and expense, PDUS shall
contest any suit, demand or action commenced to enforce such a claim and, if the
suit, demand or action is decided by a court or other authority of ultimate and
final jurisdiction against PDUS or the Property, PDUS shall promptly pay the
judgment and shall post any bond and take all other action necessary to prevent
any sale or loss of the Property or any part thereof.
4.8 Reclamation and Remediation. If this Agreement is terminated and the
Parties do not enter into the Mining Venture Agreement, PDUS shall reclaim the
surface of the Property, and perform remediation work as to the subsurface of
the Property, to the extent disturbed by PDUS during the Evaluation Period, in
accordance with applicable federal and state laws, rules and regulations.
Silverado hereby agrees to grant to PDUS such access to the Property following
termination as is reasonably necessary to complete such reclamation and
restoration work. In the event this Agreement is terminated and Silverado has
identified any particular portions of the
<PAGE>
Property disturbed by PDUS which Silverado desires to work on, and in connection
therewith desires that PDUS refrain from performing required restoration or
reclamation work, Silverado shall provide written notice to PDUS, identifying
those parcels, and PDUS agrees to negotiate with Silverado in good faith as to
the possibility of leaving those parcels unreclaimed (provided that, at a
minimum, Silverado will agree to replace all bonds or other surety posted by
PDUS in connection with required reclamation and remediation work on such
parcels, and Silverado will indemnify PDUS for any costs, losses, claims or
damages arising from Silverado's failure to subsequently perform required
reclamation and restoration work on those parcels in accordance with applicable
federal, state and local laws, rules and regulations).
4.9 Claim Maintenance Fees and Maintenance of Title. PDUS shall be
obligated to perform all required assessment work and pay all rental fees
required to be paid during the Evaluation Period in order to maintain the Leased
Claims (and any mining claims acquired within the Area of Mutual Interest) in
good standing, and to make all required filings and recordings associated
therewith. PDUS shall have no liability for the loss of any Leased Claims (or
any mining claims acquired within the Area of Mutual Interest), whether through
third party relocation, governmental action or operation of law, as the result
of a deficiency in the performance of assessment work, so long as the assessment
work actually performed by PDUS during the Evaluation Period is performed in
good faith and in accordance with industry standards, and is of such a character
and value as could reasonably be expected to satisfy the requirements of the
mining laws of the United States or the State of Alaska. In addition, PDUS shall
make all required payments under the Leases during the Evaluation Period, and
shall take all such other actions as it believes necessary to preserve, perfect,
or maintain title to the Leased Claims (and any mining claims acquired within
the Area of Mutual Interest) during the Evaluation Period, and shall pay such
fees, rentals, royalties and renewal payments or other charges as it reasonably
deems necessary to do so; provided, however, that PDUS shall not be liable for
the loss of any of the Leased Claims (or any mining claims acquired within the
Area of Mutual Interest), whether through third party relocation, governmental
action or operation of law, resulting from any defect in title (including
without limitation failure to adhere to the required location procedures or
claim maintenance requirements) not created by PDUS.
ARTICLE 5
REPRESENTATIONS AND WARRANTIES OF SILVERADO AND SGM LTD.
5.1 Representations and Warranties. Silverado and SGM Ltd. jointly and
severally represent and warrant to PDUS as of the date hereof as follows, and
covenant that these representations and warranties will be true and correct
through the Evaluation Period:
(a) Organization and Standing. Silverado is a corporation duly
organized, validly existing, and in good standing under the laws of the State of
Alaska. SGM Ltd. is a corporation duly organized, validly existing, and in good
standing under the laws of the Province of British Columbia, Canada.
<PAGE>
(b) Corporate Power. Each of Silverado and SGM Ltd. has the requisite
power and authority (i) to enter into this Agreement and all other agreements
contemplated hereby, and (ii) to carry out and perform its obligations under the
terms and provisions of this Agreement and all agreements contemplated hereby.
(c) Authorization. All requisite corporate action on the part of
Silverado and SGM Ltd., and their officers, directors, and shareholders,
necessary for the execution, delivery, and performance of this Agreement and all
other agreements of Silverado and SGM Ltd. contemplated hereby, have been taken.
This Agreement and all agreements and instruments contemplated hereby are, and
when executed and delivered, will be, legal, valid, and binding obligations of
Silverado and SGM Ltd. enforceable against Silverado and SGM Ltd. in accordance
with their respective terms. The execution, delivery and performance of this
Agreement will not violate any provision of law; any order of any court or other
agency of government; or any provision of any indenture, agreement or other
instrument to which Silverado or SGM Ltd. is a party or by which its properties
or assets are bound; or be in conflict with, result in a breach of or constitute
(with due notice and lapse of time) a default under any such indenture,
agreement or other instrument. There is no law, rule or regulation, nor is there
any judgment, decree or order of any court or governmental authority binding on
Silverado or SGM Ltd. which would be contravened by the execution, delivery,
performance, or enforcement of this Agreement or any instrument or agreement
required hereunder. Notwithstanding the foregoing, no representation is made as
to (i) the remedy of specific performance or other equitable remedies for the
enforcement of this Agreement or any other agreement contemplated hereby or (ii)
rights to indemnity under this Agreement for securities law liability.
Additionally, this representation is limited by applicable bankruptcy,
insolvency, moratorium, and other similar laws affecting generally the rights
and remedies of creditors and secured parties.
(d) Royalties. Except as set forth in the Leases, there are no
royalties or other burdens on production affecting the Property.
(e) Permits and Licenses. Silverado has obtained all permits,
licenses, approvals, authorizations and qualifications of all federal, state and
local authorities required for it to carry on its operations at or on the
Property. Silverado is not in violation of and has no liability (other than
liability for compliance with existing permits and laws, including but not
limited to performance of reclamation) under any statute, rule or regulation of
any governmental authority applicable to the Property, other than violations or
liability, if any, which have not resulted and will not at any time result in
any material loss or liability.
(f) Title to the Leased Claims.
(i) Silverado and SGM Ltd. represent that Silverado is in
exclusive possession of and holds either an undivided 1 00% leasehold interest
in or an exclusive option to purchase the Leased Claims. Silverado and SGM Ltd.
further represent and warrant that, to the best of their knowledge, (A) the
Leased Claims were properly located and monumented; (B) location notices and
certificates have been properly posted and recorded for each of the Leased
Claims; (C) all filings required to maintain the Leased Claims in good standing,
including evidence of annual assessment work, have been timely and properly
made; (D) assessment work, performed reasonably and in good faith in accordance
with accepted industry practice, which Silverado believes was sufficient to
satisfy all requirements for holding the Leased Claims was performed through the
assessment year ending September 1, 1997; (E) all required annual rental
payments necessary to maintain the Leased Claims through the assessment year
ending September 1, 1998, have been timely and properly made to the State of
Alaska; and (F) the lessors under the Leases own an undivided 1 00% interest in
the Leased Claims.
(ii) Silverado and SGM Ltd. represent and warrant that the Leased
Claims are free and clear of all liens and encumbrances including any lease,
right or license, except taxes not yet due and payable, arising by, through or
under Silverado or SGM Ltd., and, to the best of their knowledge, any other
third party.
(iii) Silverado makes no representation or warranty whatsoever,
express or implied, as to the existence of any discovery of Valuable Minerals on
any of the Leased Claims.
(iv) Silverado and SGM Ltd. have conducted all of their
operations on the Leased Claims in compliance with the Leases, the Leases are in
frill force and effect, and there are no defaults or events that could give rise
to a default in existence thereunder.
(g) Environmental Compliance. To the best of the knowledge of
Silverado and SGM Ltd., there is no condition or activity at the Property which
constitutes a nuisance or which would result in a violation of or liability
under applicable federal, state or local laws, orders, regulations, directives
or restrictions concerning protection of the environment or health and safety.
Silverado has not received any notice of violation or any consent order issued
under applicable federal, state or local laws, orders, regulations, directives
or restrictions concerning protection of, the environment and health and safety
to which the Property or Silverado's operations thereon are now subject or may
become subject. There are no pending or, to the best of the knowledge of
Silverado or SGM Ltd., threatened proceedings by or before any court or other
governmental authority with respect to operations on or the ownership of the
Property alleged to be, or to have been, in violation of, or to be the basis of
liability under, any federal, state or local law, order, rule, regulation,
ordinance, directive or restriction concerning protection of the environment or
health and safety, and Silverado and SGM Ltd. are not aware of any "release" of
any "hazardous substance" (as those terms are defined in the U.S. Comprehensive
Environmental Response, Compensation and Liability Act of 1980, as amended) at,
from or affecting the Property.
(h) Material Contracts and Commitments. Silverado has performed all
material obligations required to be performed by it under any contracts and
commitments affecting the Property to which it is a Party, and is not in
default, and will not be in default as a result of the consummation of the
transactions contemplated herein, under any contract, agreement, commitment,
mortgage, indenture, loan agreement, lease, license, or other instrument
<PAGE>
to which it is a Party, including, without limitation, the Leases. True and
correct copies of all such agreements and commitments, as amended, have been
provided to PDUS.
(i) Legality. Silverado is not in material violation of any law, rule,
ordinance, or other governmental regulation, including, without limitation,
those relating to zoning, condemnation, mining, reclamation, environmental
matters, equal employment, and federal, state, or local health and safety laws,
rules, and regulations, the lack of compliance with which could materially
adversely affect the Property.
(j) Litigation and Claims. To the best of knowledge of Silverado and
SGM Ltd., there are no actions, suits or proceedings pending or threatened
against or affecting the Property, including any actions, suits, or proceedings
being prosecuted by any federal, state or local department, commission, board,
bureau, agency, or instrumentality. To the best of knowledge of Silverado and
SGM Ltd., Silverado is not subject to any order, writ, injunction, judgment or
decree of any court or any federal, state or local department, commission,
board, bureau, agency, or instrumentality which relates to the Property.
(k) Consents. Silverado and SGM Ltd. have obtained all consents,
approvals, authorizations, declarations, or filings required by any federal,
state, local, or other authority, stock exchange or any other third party,
including, without limitation, any consents required under the Leases, in
connection with the valid execution, delivery, and performance of this Agreement
and the consummation of the transactions contemplated hereby.
(l) Taxes. All federal, state and local excise, property and other
taxes and assessments pertaining to or assessed against the Property have been
timely and properly paid.
(m) Brokerage or Finder's Fee. All negotiations relative to this
Agreement and the transactions contemplated hereby have been carried on by
Silverado and SGM Ltd. in such manner as not to give rise to any valid claim
against PDUS or any other third party for a brokerage commission, finder's fee,
or other fee or commission arising by reason of the transactions contemplated by
this Agreement.
(n) The Stock. On the date of this Agreement, the authorized capital
stock of SGM Ltd. consists of 100,000,000 Cmmon Stock, 75,077,493 shares of
which are issued and outstanding and none of which are held in SGM Ltd.'s
treasury. SGM Ltd. has outstanding convertible debentures, warrants, stock
options and contracts convertible or exchangeable for an aggregate of 10,232,923
shares of its capital stock. The Stock has been duly authorized for issuance and
reserved therefor and, when issued, all of the Shares shall be validly issued,
fully paid and nonassessable shares of freely tradeable capital stock of SGM
Ltd., free and clear of all liens, charges and encumbrances. There does not
exist any preemptive right in favor of any person with respect to the Stock.
(o) U.S. Reports. Since November 30, 1994, and through the Closing
Date, SGM Ltd. has, to the best of its knowledge, filed all required forms,
reports and documents with the U.S. Securities and Exchange Commission (the
"SEC") required to be filed by it pursuant to the federal securities laws and
the SEC rules and regulations thereunder, all of which have complied as to their
respective filing dates and, if applicable, effective dates in all material
respects with all applicable requirements of the Securities Act of 1933, as
amended (the "Securities Act") and the Securities Exchange Act of 1934, as
amended (the "Exchange Act"), and the rules promulgated thereunder. None of such
forms, reports or documents, including, without limitation, any financial
statements or schedules included therein, at the time filed or at the time
effective, contained any untrue statement of a material fact or omitted to state
a material fact required to be stated therein or necessary in order to make the
statements therein, in light of the circumstances under which they were made,
not misleading.
(p) Reporting Issuer. SGM Ltd. is a reporting issuer under the
provisions of the Securities Act (British Columbia) and is not in default of any
of the requirements of said Act relating to continuous disclosure. Since January
1, 1994, SGM Ltd. has to the best of its knowledge filed with the applicable
provincial securities law authorities all forms, reports, schedules, definitive
proxy statements and other documents (the "Reports") required to be filed by SGM
Ltd. and has made copies of such documents available to PDUS. As of their
respective dates, the Reports complied in all material respects with the
applicable requirements of the Canadian and provincial laws, rules and
regulations applicable to such Reports, and, as of their respective dates, none
of the Reports contained any untrue statement of a material fact or omitted to
state a material fact required to be stated therein or necessary to make the
statements made therein, in light of the circumstances under which they were
made, not misleading. Except to the extent that information contained in any
Report has been revised or superseded by a later Report filed and publicly
available prior to the date of this Agreement (a "Filed Document"), none of the
Reports contains any untrue statement of a material fact or omits to state any
material fact required to be stated therein or necessary in order to make the
statements therein, in light of the circumstances under which they were made,
not misleading. The financial statements of SGM Ltd. included in the Reports
comply as to form in all material respects with applicable accounting
requirements, have been prepared in accordance with Canadian generally accepted
accounting principles applied on a consistent basis during the periods involved
(except as may be indicated in the notes thereto), and fairly present the
consolidated financial position of SGM Ltd. and its consolidated subsidiaries as
of the dates thereof and the consolidated results of their operations and cash
flows for the periods then ended (subject, in the case of unaudited statements,
to normal year-end audit adjustments). Except as set forth in the Filed
Documents, neither SGM Ltd. nor any of its subsidiaries has any material
liabilities, debts or obligations (whether accrued, absolute, contingent or
otherwise) required to be set forth on a consolidated balance sheet of SGM Ltd.
and its consolidated subsidiaries or in the notes thereto.
(q) Absence of Certain Changes. Since November 30, 1996 and through
the Effective Date, except as set forth in Section 5.1(r) below, there has not
been:
(i) any material adverse change, however caused, in the business,
assets, liabilities (actual or contingent), results of operations, prospects,
financial or other condition or operations of SGM Ltd.;
(ii) any change in SGM Ltd.'s authorized or actual equity
capitalization;
(iii) any damage, destruction or casualty loss, materially and
adversely affecting the business, assets, liabilities (actual or contingent),
results of operations, prospects, or financial or other condition or operations
of SGM Ltd., whether or not insured;
(iv) any incurrence of long-term debt or any other material
liability or obligation, actual or contingent, other than current liabilities
incurred in the ordinary and usual course of business consistent with past
practices;
(v) entry into, or agreement or commitment to enter into, any
agreement, commitment or transaction (including, without limitation, any
borrowing, capital expenditure or financing or any amendment, modification or
termination of any existing agreement, commitment or transaction) other than in
the ordinary and usual course of business consistent with past practices; or
(vi) any agreement with respect to any of the foregoing.
(r) Presence of Certain Changes. After November 30, 1996, Silverado
entered into agreements by which it purchased the Ester Dome LaTeko property in
the Fairbanks Mining District, Alaska and Silverado located 40 additional
unpatented mining claims at the Nolan property in the Wiseman Mining District,
Alaska.
(s) Representations. No statements, warranties, or representations
made by Silverado or SGM Ltd. herein contain any untrue statement of a material
fact or omit to state a material fact necessary in order to make the statements
made, in light of the circumstances under which such statements were or will be
made, not misleading.
ARTICLE 6
REPRESENTATIONS AND WARRANTIES OF PDUS
6.1 Representations and Warranties of PDUS. PDUS represents and warrants to
Silverado as of the date hereof as follows, and covenants that if the Option is
exercised these representations and warranties will be true and correct on the
Closing Date:
(a) Organization and Standing. PDUS is a corporation duly organized,
validly existing, and in good standing under the laws of the State of
California.
(b) Qualification. PDUS is duly qualified to do business in the State
of Alaska.
<PAGE>
(c) Corporate Power. PDUS has the requisite corporate power and
authority (i) to enter into this Agreement and all other agreements contemplated
hereby, and (ii) to carry out and perform its obligations under the terms and
provisions of this Agreement and all agreements contemplated hereby.
(d) Authorization. All requisite corporate action on the part of PDUS,
and its officers and directors, necessary for the execution, delivery and
performance of this Agreement and all other agreements of PDUS contemplated
hereby have been taken. This Agreement and all agreements and instruments
contemplated hereby, when executed and delivered by PDUS, will be the legal,
valid, and binding obligations of PDUS enforceable against PDUS in accordance
with their terms. The execution, delivery and performance of this Agreement will
not violate any provision of law; any order of any court or other agency of
government; or any provision of any indenture, agreement or other instrument to
which PDUS is a Party or by which its properties or assets are bound; or be in
conflict with, result in a breach of or constitute (with due notice and lapse of
time) a default under any such indenture, agreement or other instrument. There
is no law, rule or regulation, nor is there any judgment, decree or order of any
court or governmental authority binding on PDUS which would be contravened by
the execution, delivery, performance or enforcement of this Agreement or any
instrument or agreement required hereunder. Notwithstanding the foregoing, no
representation is made as to (i) the remedy of specific performance or other
equitable remedies for the enforcement of this Agreement or any other agreement
contemplated hereby or (ii) rights to indemnity under this Agreement for
securities law liability. Additionally, this representation is limited by
applicable bankruptcy, insolvency, moratorium, and other similar laws affecting
generally the rights and remedies of creditors and secured parties.
(e) Brokerage or Finder's Fee. All negotiations relative to this
Agreement and the transactions contemplated hereby have been carried on by PDUS
in such manner as not to give rise to any valid claim against Silverado or any
third party for a brokerage commission, finder's fee or other fee or commission
arising by reason of the transactions contemplated by this Agreement.
(f) Representations. No statements, warranties or representations made
by PDUS herein contain any untrue statement of material fact or omit to state a
material fact necessary in order to make the statement made in light of the
circumstances under which such statements were made or will be made, not
misleading.
ARTICLE 7
NOTICES
7.1 Notices. All notices given in connection herewith shall be in writing,
and all such notices and deliveries to be made pursuant hereto shall be given or
made in person, by certified or registered mail, by reputable overnight courier,
or by facsimile acknowledged upon receipt. Such notices and deliveries shall be
deemed to have been duly given and received when actually
<PAGE>
delivered in person or sent by facsimile (during normal business hours), on the
next business day following the date they are sent by courier, or three business
days after registered or certified mailing when deposited in a receptacle for
United States or Canadian mail, postage prepaid, and addressed as follows:
(a) If to PDUS:
Placer Dome U.S. Inc.
240 South Rock Boulevard
Suite 117
Reno, Nevada 89502
Facsimile No.: (702) 856-7509
Attention: Land and Legal Department
with a copy to:
Placer Dome U.S. Inc.
Suite 600-1055 Dunsmuir Street
Vancouver, British Columbia, Canada
V7X 1L3
Attention: Secretary and General Counsel
(b) If to Silverado:
Silverado Gold Mines Inc.
505-1111 W. Georgia Street
Vancouver, British Columbia
CANADA V6E 4M3
Facsimile No.: (604) 682-3519
Attention: Chairman
with a copy to:
Davis & Company
2800-Park Place
666 Burrard Street
Vancouver, British Columbia
CANADA V6C 2Z7
Facsimile No.: (604) 605-3539
Attention: Robert B.D. Swift
<PAGE>
ARTICLE 8
INDEMNIFICATION
8.1 By SGM Ltd. and Silverado. SGM Ltd. and Silverado agree to defend,
indemnify and hold harmless PDUS, its successors, affiliates, assigns, officers,
directors and employees from and against any and all claims, actions, suits,
losses, liabilities, damages, assessments, judgments, costs and expenses,
including reasonable attorneys' fees, arising out of or related to (i) any
breach by SGM Ltd. or Silverado of any representation, covenant or warranty set
forth herein, (ii) any activities conducted by Silverado on or in connection
with the Property prior to the date of execution of the Mining Venture
Agreement, or (iii) any activities conducted by Silverado on any properties
adjacent to the Property; provided, however, that Silverado's indemnification
obligation as to activities conducted on adjacent properties as set forth in
subsection (iii) above shall terminate to the extent such adjacent properties
are located within the Silverado Adjacent Properties and are purchased by PDUS
pursuant to Section 11.2.
8.2 By PDUS. PDUS agrees to defend, indemnify and hold harmless Silverado,
its successors, affiliates, assigns, officers, directors and employees from and
against any and all claims, actions, suits, losses, liabilities, damages,
assessments, judgments, costs and expenses, including reasonable attorneys'
fees, arising out of or related to (i) any breach by PDUS of any representation,
covenant or warranty set forth herein, or (ii) any activities conducted by PDUS
on or in connection with the Property prior to the Effective Date and during the
Evaluation Period.
8.3 Notification. Any Party who has a claim giving rise to indemnification
liability pursuant to this Agreement (an "Indemnified Party") which results from
a claim by a third Party shall give prompt notice to the other Party (the
"Indemnifying Party") of such claim, together with a reasonable description
thereof. Failure to provide such notice shall not relieve a Party of any of its
obligations hereunder except to the extent materially prejudiced thereby. With
respect to any claim by a third Party against any Party to this Agreement which
is subject to indemnification under this Agreement, the Indemnifying Party shall
be afforded the opportunity, at its expense, to defend or settle the claim if it
utilizes counsel reasonably satisfactory to the Indemnified Party, and promptly
commences the defense of such claim and pursues such defense with diligence;
provided, however, that the Indemnifying Party shall secure the consent of the
Indemnified Party to any settlement, which consent shall not be unreasonably
withheld. The Indemnified Party may participate in the defense of any claim at
its expense, and until the Indemnifying Party has agreed to defend such claim,
the Indemnified Party may file any motion, answer or other pleading or take such
other action as it deems appropriate to protect its interests or those of the
Indemnifying Party. If an Indemnifying Party does not elect to contest any
third-party claim, the Indemnifying Party shall be bound by the results obtained
with respect thereto by the Indemnified Party, including any settlement of such
claim.
<PAGE>
ARTICLE 9
TERM AND TERMINATION
9.1 Term and Termination. This Agreement will remain in effect during the
Evaluation Period, after which it will terminate automatically, whether or not
the Parties enter into the Mining Venture Agreement, unless it is sooner
terminated pursuant to the provisions of this Article 9.
9.2 Termination by PDUS. PDUS shall have the right to terminate, surrender
and relinquish this Agreement at any time during the Evaluation Period by giving
written notice to Silverado of such election. Any termination by PDUS pursuant
to this Section 9.2 will be effective when such notice is effective as provided
in Section 7.1 above. Upon termination of this Agreement pursuant to this
Section 9.2, PDUS shall have no further liability or obligations hereunder or
with respect to the Property, except with respect to the obligations set forth
in Sections 2.3(c), 2.6(a), 4.2, 4.8, 8.2, 9.4, 9.5 and 9.6, and in addition
PDUS shall leave the Property in at least four years good standing as to
recorded assessment work, and SGM Ltd. and Silverado shall have no further
liability or obligations hereunder, except with respect to the obligations set
forth in Sections 4.5 and 8.1.
9.3 Termination by Silverado In the event of a material default hereunder
on the part of PDUS, Silverado shall give to PDUS written notice specifying the
particular default or defaults asserted, and, in the case of a default other
than with respect to the payment of money, PDUS shall have thirty days after the
receipt of said notice (or in the event PDUS disputes the existence of such a
material default, thirty days after the entry by a court of competent
jurisdiction of a judgment finding such a default) within which either to cure
such specified defaults, or to undertake to cure the same and diligently
thereafter promptly to cure the same. In the event of such a cure by PDUS, this
Agreement shall continue in full force and effect as though no default had
occurred. In the event such curative action is not so completed or diligent
efforts to cure such defaults are not undertaken within the applicable 30-day
period and thereafter diligently pursued to completion, Silverado may elect to
terminate this Agreement by notice to PDUS as provided in Section 7.1. In the
case of a default by PDUS relating to the payment of any funds to Silverado, SGM
Ltd., or any third party as required hereunder, PDUS shall have ten business
days after receipt of notice of such default to rectify the same, failing which
Silverado may elect to terminate this Agreement by written notice to PDUS as
provided in Section 7.1. Upon termination of this Agreement pursuant to this
Section 9.2, PDUS shall have no further liability or obligations hereunder or
with respect to the Property, except with respect to the obligations set forth
in Sections 2.3(c), 2.6(a), 4.2, 4.8, 8.2, 9.4, 9.5 and 9.6, SGM Ltd. and
Silverado shall have no further liability or obligations hereunder, except with
respect to the obligations set forth in Sections 4.5 and 8.1.
9.4 Return of Data. As soon as practicable upon the termination of this
Agreement, if the Parties have not entered into the Mining Venture Agreement,
PDUS shall return to Silverado copies of all title, environmental,
metallurgical, geological, geophysical, milling and other data furnished to PDUS
by Silverado At such time, PDUS shall make available to Silverado for
<PAGE>
examination and copying all survey maps, drill hole logs, sample locations and
assays developed by PDUS with respect to the Property during the term of this
Agreement and not previously made available to Silverado; provided, however,
that PDUS shall have no obligation to make any interpretive data developed by it
or on its behalf available to Silverado PDUS makes no representation or warranty
as to the accuracy, reliability or completeness of any such information made
available to Silverado, and Silverado and SGM Ltd. shall rely on the same at
their sole risk. Silverado and SGM Ltd. shall indemnify and hold PDUS harmless
from and against any and all costs, liabilities, expenses (including reasonable
attorneys' fees), claims or damages PDUS may incur as a result of any such
reliance by Silverado, SGM Ltd. or any third party.
9.5 Release. Upon termination of this Agreement, if the Parties have not
entered into the Mining Venture Agreement, PDUS will, at the written request of
Silverado, provide Silverado with a written release, in the nature of a
quitclaim deed or similar document in recordable form, of its rights hereunder
with respect to the Property.
9.6 Surrender of Possession and Removal of Equipment. Upon termination of
this Agreement, if the Parties have not entered into the Mining Venture
Agreement, PDUS shall surrender possession of the Property, subject to the
condition that PDUS shall have the right at any time within one year (or such
longer period as PDUS can demonstrate is reasonably necessary) after such
surrender or termination of this Agreement to complete any reclamation
obligations required of PDUS pursuant to Section 4.8 and remove all of its
tools, equipment, machinery, supplies, fixtures, buildings, structures and other
property erected or placed on such property by PDUS, excepting only timber,
chutes and ladders in place for underground support and entry. Title to such
property not removed within the time period set forth above shall, at the
election of Silverado, pass to Silverado. Alternatively, at the end of the time
period set forth above, Silverado may remove any such property from the Property
and dispose of the same in a commercially reasonable manner, all at the expense
of PDUS
ARTICLE 10
AMENDMENT OR RELOCATION
10.1 Amendment and Relocation of Unpatented Claims. Subject to Silverado's
prior written approval (which shall not be unreasonably withheld), PDUS shall
have the full, exclusive right, but not the obligation, to relocate (including
the right to relocate Claims as unpatented mill sites) or amend any of the
Claims, and to defend contests or adverse actions or suits and to negotiate
settlement thereof with respect to any and all of the Claims, and Silverado
shall cooperate with PDUS and shall execute any and all documents necessary or
desirable in the opinion of PDUS to further such amendments, relocations,
contests, adverse actions or suits, or settlement of such contests or adverse
actions or suits. PDUS shall not be liable to Silverado or SGM Ltd. for the loss
of any of the Claims as a result of such amendments, relocations, contests or
adverse actions or suits, so long as the same are undertaken in good faith.
<PAGE>
ARTICLE 11
TITLE TO AFTER-ACQUIRED INTERESTS
AND RIGHTS TO ACQUIRE ADDITIONAL INTERESTS
11.1 After-Acquired Property and Area of Mutual Interest. This Agreement
applies and extends to any further or additional right, title, interest or
estate heretofore or hereafter acquired by Silverado in or to the Property or
any part thereof; and this Agreement will apply and extend to any further or
additional right, title, interest or estate acquired by either Silverado or PDUS
within the Area of Mutual Interest. In the event Silverado acquires such right,
title, interest or estate, Silverado will formally submit the same to PDUS in an
appropriate writing to the effect that the terms and conditions provided in this
Agreement shall apply to and govern such interest.
11.2 Preemptive Right. If Silverado intends to sell, lease, grant, assign,
encumber, pledge or otherwise commit or dispose of ("Transfer") all or any part
of its interest in any real property within the Silverado Adjacent Properties,
it shall promptly notify PDUS of its intentions. The notice shall state the
price and all other pertinent terms and conditions by which Silverado would
agree to consummate the intended Transfer, and if such intended Transfer is the
result of an offer from a third party, shall be accompanied by a copy of the
offer or contract for sale. If the intended Transfer is based upon a third-party
offer and if the consideration for the Transfer is, in whole or in part, other
than monetary, the notice shall describe such consideration and its monetary
equivalent (based upon the fair market value of the nonmonetary consideration
and stated in terms of cash or currency). PDUS shall have 30 days from the date
such notice is delivered to notify Silverado whether it elects to acquire the
offered interest at the same price and on the same terms and conditions as set
forth in the notice. If PDUS does so elect, the Transfer shall be consummated
promptly after notice of such election is delivered to Silverado. If PDUS fails
to so elect within the thirty-day period provided for above, Silverado shall
have 90 days following the expiration of such period to consummate the Transfer
to a third party at a price and on terms no less favorable than those offered by
Silverado to PDUS in the required notice. If Silverado fails to consummate the
Transfer to a third party within the ninety-day period set forth above, the
preemptive right of PDUS in such offered interest shall be deemed to be revived.
Any subsequent proposal to Transfer such interest shall be conducted in
accordance with all of the procedures set forth in this Section 11.2.
11.3 Exceptions to Preemptive Right. Section 11.2 shall not apply to any
Transfer by Silverado of all or any part of any interest in real property within
the Silverado Adjacent Properties to any Affiliate, except that this exception
will no longer apply and the preemptive right set forth in Section 11.2 will be
triggered in the event that the party to whom Silverado transfers such interest
ceases being an Affiliate of Silverado.
11.4 Acquisitions by PDUS Within the Silverado Adjacent Properties. If
during the Evaluation Period PDUS acquires any interest in real property within
the Silverado Adjacent Properties, such interest shall be deemed to be acquired
on behalf of Silverado at no cost to
<PAGE>
Silverado, and upon any such acquisition, PDUS shall immediately convey any such
interest to Silverado by appropriate documentation in the nature of a quitclaim
deed.
ARTICLE 12
ENTIRE AGREEMENT/AMENDMENT
12.1 Entire Agreement. This Agreement is the complete expression of all
agreements, contracts, covenants, and promises between the Parties, and all
negotiations, understandings, and agreements between the Parties are set forth
in this Agreement, which solely and completely expresses their understanding,
and shall be construed without reference to any such negotiations,
understandings and agreements.
12.2 No Implied Covenants. No implied term, covenant, condition or
provision of any kind whatsoever shall affect any of the Parties' respective
rights and obligations hereunder, including, without limitation, rights and
obligations with respect to exploration, development, mining, processing and
marketing of minerals, and the only terms, covenants, conditions or provisions
which shall in any way affect any of their respective rights and obligations
shall be those expressly set forth in this Agreement.
12.3 Amendments. This Agreement may not be amended or modified, nor may any
obligation hereunder be waived, except by writing duly executed on behalf of all
Parties, and unless otherwise specifically provided in such writing, any
amendment, modification, or waiver shall be effective only in the specific
instance and for the purpose it is given.
ARTICLE 13
FORCE MAJEURE
13.1 Effect of Occurrence. In the event PDUS is rendered unable, wholly or
in part, by fore majeure applying to it, to timely achieve the Minimum Work
Requirement during any Annual Period, or to carry out any of its obligations
under this Agreement (other than the purchase of required amounts of Stock or
the fulfillment of required obligations under the Leases), it is agreed that
such obligations of PDUS, so far as they are affected by such force majeure,
shall be suspended during the continuance of any inability so caused, but for no
longer period; that the various periods and terms provided for herein shall be
extended for a period equivalent to such period of force majeure; and that such
cause shall, so far as possible, be remedied with all reasonable dispatch. PDUS
will promptly notify Silverado of the commencement and termination of any event
of force majeure.
13.2 Definition. The term "force majeure," as employed herein, shall mean
acts of God, strikes, lockouts or other industrial disturbances, unavoidable
accidents, uncontrollable delays in transportation, inability to obtain
necessary materials in the open market, any state or federal laws, regulations
or requirements (expressly including inability to obtain necessary
<PAGE>
governmental approvals, licenses and permits on terms reasonably acceptable to
PDUS), or other matters beyond the reasonable control of PDUS, whether similar
to matters herein specifically enumerated or not; provided, however, that
performance shall be resumed within a reasonable period of time after such cause
has been removed; and provided further that PDUS shall not be required against
its will to adjust any labor dispute or to question the validity of or to
refrain from judicially testing the validity of any state or federal order,
regulation or law.
ARTICLE 14
GENERAL PROVISIONS
14.1 Governing Law. This Agreement, and the rights and liabilities of the
Parties hereunder, shall be governed by and construed in accordance with the
laws of the State of Alaska, other than its rules as to conflicts of law.
14.2 Parties in Interest; Assignment. All of the terms and provisions of
this Agreement shall be binding upon and inure to the benefit of and be
enforceable by the respective Parties hereto and their successors and permitted
assigns, whether hereinabove so expressed or not. The rights, powers,
privileges, and interests hereunder shall not be assignable by either Party,
except to affiliates or subsidiaries, or as otherwise specifically provided for
herein, without the prior written consent of the non-assigning Party, which
consent shall not be unreasonably withheld; provided that any affiliate or
subsidiary or third party to whom any rights, powers, privileges or interests
hereunder are assigned shall agree in writing to be bound by all the terms and
conditions of this Agreement.
14.3 Other Business Opportunities. This Agreement is, and the rights and
obligations of the Parties are, strictly limited to the matters set forth
herein. Subject to the provisions of Article 11 relating to after-acquired
title, the Parties shall have the free and unrestricted right to independently
engage in and receive the full benefits of any and all business ventures of any
sort whatever, whether or not competitive with the matters contemplated hereby
without consulting the other or inviting or allowing the other to participate
therein.
14.4 Confidentiality. Except as set forth in Section 14.6, the Parties
hereto agree to treat all data, reports, records and other information developed
under this Agreement and applicable to the property as confidential, and unless
any Party is required by any law, rule, regulation, or order, to disclose any of
such information, information shall not be disclosed to any person other than
consultants, contractors, or potential investors or assignees, without prior
written agreement of both Parties, which will not be unreasonably withheld.
14.5 Memorandum for Recording. Simultaneous with the execution of this
Agreement, the Parties agree to execute for recording purposes a written Short
Form of Exploration and Development Agreement, in the form attached hereto as
Exhibit H, setting forth the basic terms and conditions of this Agreement as
necessitated by Alaska law.
<PAGE>
14.6 Public Announcements. Disclosure of information relating to this
Agreement or the Property may be made by either Party if such information is
required to be disclosed to any federal, state or local government or
appropriate agencies and departments thereof or if such information is required
by law, stock exchange rule or regulation to be publicly announced. Otherwise,
public announcements or reports by Silverado or SGM Ltd., of information
relating to this Agreement or the Property shall be made only on the basis of
agreed texts upon the prior written consent of PDUS, which consent shall not be
unreasonably withheld. Each of Silverado and SGM Ltd., accordingly agrees that
it will, not less than forty-eight hours in advance of making public any
information referred to in the preceding sentence, give PDUS written notice of
the text of the proposed report and provide PDUS with the opportunity to object
to the form and content thereof before the same is issued. The non-disclosing
Party shall respond within forty-eight hours of receipt of such notice, or its
silence will constitute a waiver of objection to the terms of the proposed text.
14.7 Waiver Amendment. Any of the terms or conditions of this Agreement may
be waived at any time by the Party which is entitled to the benefit thereof, but
no such waiver shall affect or impair the right of the waiving Party to require
observance, performance, or satisfaction of any other term or condition hereof.
Any of the terms of provisions of this Agreement may be amended or modified at
any time by agreement in writing.
14.8 Severability. In the event that any one or more of the provisions
contained in this Agreement or in any other instrument or agreement contemplated
hereby shall, for any reason, be held to be invalid, illegal, or unenforceable
in any respect, such invalidity, illegality, or unenforceability shall not
affect any other provision of this Agreement or any such other instrument or
agreement.
14.9 Time of the Essence. Time is of the essence of this Agreement.
14.10 Attorneys' Fees. In the event of any controversy, claim, or dispute
between the Parties hereto, arising out of or relating to this Agreement or the
breach thereof, the prevailing Party shall be entitled to recover from the
losing Party reasonable expenses, attorneys' fees, and costs.
14.11 Further Documents. At the request of either Party, the Parties shall
execute and deliver any further instruments, agreements, documents or other
papers reasonably requested by either Party to effect the purposes of this
Agreement and the transactions contemplated hereby.
14.12 Dispute Resolution. The Parties hereby agree that any dispute arising
under this Agreement shall be subject to the informal dispute resolution
procedure set forth in this Section 14.12. The Party asserting the existence of
a dispute as to the interpretation of any provision of this Agreement or the
performance by the other Party of any of its obligations hereunder shall notify
the other Party of the nature of the asserted dispute. Within seven business
days of receipt of such notice, the Land/Legal Manager of PDUS and the CEO of
Silverado shall arrange for a personal or telephone conference in which they use
good faith
<PAGE>
efforts to resolve such dispute. If those individuals are unable to resolve the
dispute, they shall jointly prepare and, within seven business days after their
conference, circulate to the Vice President of Exploration and the Chairman of
Silverado a memorandum outlining in reasonable detail the nature of the dispute.
Within five business days after receipt of that memorandum, the individuals to
whom that memorandum was addressed shall arrange for a personal or telephone
conference in which they attempt to resolve such dispute. If those individuals
are unable to resolve the dispute, either Party may proceed with any legal
remedy available to it; provided, however, that the Parties agree that any
statement made as to the subject matter of the dispute in any of the conferences
referred to in this Section 14.12 shall not be used in any legal proceeding
against the Party that made such statement.
14.13 Counterparts. This Agreement may be executed in multiple
counterparts, and all such counterparts taken together shall be deemed to
constitute one and the same document.
IN WITNESS WHEREOF, the Parties hereto have caused this Exploration and
Development Agreement to be duly executed, delivered, and effective from the
date first above written.
Placer Dome U.S. Inc.,
a California corporation
By
---------------------------------------------
---------------------------------------------
(name)
---------------------------------------------
(title)
Silverado Gold Mines Inc.,
an Alaska corporation
By
---------------------------------------------
---------------------------------------------
(name)
---------------------------------------------
(title)
Silverado Gold Mines Ltd., a company
incorporated under the laws of the Province
of British Columbia, Canada
By
---------------------------------------------
---------------------------------------------
(name)
---------------------------------------------
(title)
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0
0
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