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UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act
of 1934
for the transition period from July 1, 1995 to December 31, 1995
For the Fiscal Period Ended December 31, 1995.
COMMISSION FILE NO. 1-2714
ATLAS CORPORATION
--------------------------------
(Exact name of Registrant as specified in its charter)
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<S> <C>
DELAWARE 13-5503312
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(State or other jurisdiction of incorporation or organization) (I.R.S. Employer identification No.)
370 Seventeenth Street, Suite 3050, Denver, CO 80202 303-629-2440
- ---------------------------------------------------- ---------------------------------------
(Address of principal executive offices) (Zip Code) (Registrant's telephone number)
(including area code)
</TABLE>
Securities registered pursuant to Section 12(b) of the Act:
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NAME OF EACH EXCHANGE
TITLE OF EACH CLASS ON WHICH REGISTERED
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Common Stock, par value $1 per share New York Stock Exchange
Option Warrants to Purchase Common Stock American Stock Exchange
Preferred Stock Purchase Rights New York Stock Exchange
- -------------------------------------------------------------------------------
Securities registered pursuant to Section 12(g) of the Act: None
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes [X] No [_]
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of the Form 10-K or any amendment to this
Form 10-K. [_]
Aggregate market value of the 13,695,371 shares of Common Stock held by non-
affiliates of the Registrant as of March 22, 1996 was $20,543,057.
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As of March 22, 1996, Registrant had outstanding 20,092,271 shares of Common
Stock, $1.00 Par Value, its only class of voting stock.
DOCUMENT INCORPORATED BY REFERENCE
None.
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PART I
Item 1. BUSINESS
--------
GENERAL
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Atlas Corporation ("Atlas" or the "Company") is a New York Stock Exchange listed
mining company (AZ) which is principally engaged in the exploration, development
and exploitation of precious metal and industrial mineral resource properties.
Atlas Corporation was incorporated under the laws of the State of Delaware on
October 31, 1936. The principal office of Atlas Corporation is located at
Republic Plaza, 370 17th Street, Suite 3050, Denver, Colorado, U.S.A. 80202.
Atlas has three-wholly-owned subsidiaries: Atlas Precious Metals Inc.,
incorporated under the laws of the State of Nevada on May 4, 1983, which holds
the Gold Bar claim block property; Atlas Gold Mining Inc., incorporated under
the laws of the State of Nevada on April 9, 1986, which holds the assets of the
Gold Bar Mine; and Atlas Perlite, Inc., incorporated under the laws of the State
of Oregon on May 23, 1994, which holds the Tucker Hill Property. In addition,
Atlas has a 51% interest in Phoenix Financial Holdings Inc. and owns interests
in Granges Inc. and (until March 9, 1996) Dakota Mining Corporation. See "Item
1. Business - Investments".
PROPOSAL TO COMBINE WITH MSV RESOURCES INC.
- -------------------------------------------
Atlas and MSV Resources Inc. ("MSV") reached an agreement in principle in March,
1996 to combine the two companies through a share exchange tender offer in which
(i) the existing shareholders of MSV will exchange their common shares of MSV
for a new class of non-voting MSV shares which will be exchangeable at any time
for Atlas Common Shares on a one-for-one basis, and (ii) Atlas would acquire all
the voting shares of MSV (TSE,ME:MSV) for the equivalent of 2 Common Shares of
Atlas for each 3 common shares of MSV. MSV, based in Montreal, produces gold
and copper at its Copper Rand and Portage mines in Chibougamau and also owns the
Eastmain gold mine in Northern Quebec. In connection with the transaction,
Atlas intends to raise $[20] million in additional equity capital to be used
primarily to develop the MSV properties in Quebec. Following the completion of
the transaction and assuming (i) the issuance of approximately __ additional
Common Shares to raise new equity, and (ii) the exchange for Atlas Common Shares
of all exchangeable shares issued in the MSV transaction, the former holders of
MSV common shares would hold approximately __% of the outstanding Common Shares
of Atlas.
Each new exchangeable share will carry voting and equity rights equivalent to
the Common Shares of Atlas Corporation. After giving effect to this proposed
reorganization, Atlas Corporation would own all the voting shares of MSV. In
addition, it is proposed that MSV would be renamed Atlas Canada. The
exchangeable Atlas Canada shares will be considered Canadian securities for
Canadian taxation purposes. MSV has reported 33.1 million Common Shares
outstanding as of March 20, 1996.
The completion of the transaction will be subject to customary conditions
including, without limitation, (i) the acceptance of the holders of at least 75%
of the issued and outstanding common shares of MSV, (ii) approval by the
shareholders of Atlas of (A) the terms of the transactions and (B) an amendment
to its certificate of incorporation increasing the number of Common Shares of
Atlas available for issuance, and (iii) approval of all regulatory authorities
having jurisdiction.
GOLD BAR MINE
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All of the Company's gold production to date has been from its Gold Bar Resource
Area. The Gold Bar Resource Area is located in and adjacent to the Roberts
Mountains in Eureka County, Nevada, at elevations ranging from 6,400 to 8,800
feet above sea level. The area is reached by traveling 22 miles west of Eureka,
Nevada, on U.S. Highway No. 50 and 17 miles northeast along the Eureka County
Three Bars Road.
The property consists of 3,297 unpatented lode claims and 182 unpatented mill
site claims covering approximately 105 square miles of public lands administered
by the Bureau of Land Management ("BLM"). In addition, the property contains
160 acres of fee land from patented mining claims in the Gold Bar Mine area.
Approximately 70% of the property was staked by Atlas and does not presently
carry a royalty burden. The remainder of the property has been purchased or
leased from various parties and is burdened with production net smelter
royalties ranging from three to seven percent, dependent upon the price of gold
Since 1983, five gold deposits have been discovered and developed on the Gold
Bar claim block. These are Gold Bar, Goldstone, Gold Ridge, Gold Pick, and Gold
Canyon. In addition the Company has identified and partially defined several
mineralized targets located within that portion of the Gold Bar claim block in
which the Company retains a 100% interest. Resumption
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of mining is currently planned for the Gold Pick and Gold Ridge deposits (See
"Gold Bar Mine -- Proposed Mining Operations"). The Gold Pick and Gold Ridge
deposits are unencumbered by royalties and are controlled by unpatented mining
claims for which first-half final certificates have been issued by the BLM which
will prevent federal royalties from being applied to production.
All of the mineralization found to date occurs as sediment-hosted, "Carlin-type"
deposits. These deposits are hosted by carbonate-rich sedimentary rocks and are
characterized by micron size gold and a distinct hydrothermal alteration suite.
Gold mineralization and alteration are characteristically enriched in the trace
elements silver, antimony, arsenic, mercury, and thallium.
HISTORY
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Regional exploration brought Atlas to the area in 1983. Detailed geological
work led to the development of specific targets which resulted in the claim
staking of most of the Gold Bar Resource Area. A drill program in late 1983 and
1984 outlined the original Gold Bar deposit. The ore body was a limestone-hosted
predominantly oxidized ore body containing approximately 315,000 mineable ounces
of finely disseminated gold.
After completion of a positive feasibility study, a 1,500 ton per day carbon-in-
leach mill was constructed at a cost of $12 million, and open pit gold
production from the Gold Bar deposit began in January 1987. Due to a low
stripping ratio, uniform mineralization, and low processing costs, Gold Bar was
profitable for the first four years of operations, with project cash costs in
the range of $150 per ounce.
While producing at the Gold Bar pit, the Company conducted regional exploration
which resulted in the discovery in 1987 and 1988 of three new gold bearing
deposits, Goldstone, Gold Ridge and Gold Pick, clustered together in the Roberts
Mountains approximately six miles northeast of the Gold Bar mine and mill.
These satellite deposits, located in bedded limestone sediments, contain ore
which is largely oxidized, although portions are unoxidized and contain fine-
grained pyrite and carbon.
With the success of mining the Gold Bar deposit and the discovery of additional
reserves in 1987 and 1988, the Company expanded mill capacity from 1,500 to
3,000 tons of ore per day at a cost of $5 million in 1989.
As mining progressed at the Gold Bar pit, a large stockpile of higher grade
refractory ore was created. A refractory circuit designed to process the
stockpiled ore was added to the mill in the first quarter of fiscal 1991 at a
cost of $3.7 million. Although the refractory circ uit did not meet all design
performance criteria uit did not perform as expected, stockpiled refractory
material was processed over the next six month period while a haul road was
completed and the new satellite deposits prestripped.
As a result of an increase in the stripping ratio, the lower grade of the new
satellite deposits and additional costs for the longer haul to the mill, direct
mine site costs increased approximately $50 per ounce to $207 per ounce during
fiscal 1991. Although the stripping ratios of the satellite
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deposits were much improved in fiscal 1992, the continued lower grade of the
satellite ores resulted in mine site costs rising to $223 per ounce. The
operations, while still generating positive cash flow, experienced operating
losses for fiscal 1991 and 1992 due to high non-cash charges.
Two properties were purchased in 1991 and 1992 to consolidate and expand the
Company's Gold Bar claim block. In 1991, the Company acquired 751 unpatented
lode mining claims for 118,644 Common Shares of Atlas. Preliminary exploration
of these claims identified a small mineralized deposit, called Cabin Creek,
located one mile east of the haul road. In 1992, an additional 99 unpatented
lode mining claims were acquired for $500,000 in cash and 178,949 Common Shares.
These claims hosted the Gold Canyon deposit which provided ore for the mill from
September 1993 to January 1994.
Mining of ore with grades substantially less than that projected from earlier
drilling reserves, operational problems and permitting delays experienced in
fiscal 1993 resulted in further cost increases which precipitated a liquidity
crisis for the Company. A decrease in gold production was experienced during
mining of the first phase at Gold Pick East with 30% less oxide and 18% more
refractory ore being produced than was forecast by the reserve model. In
addition, mining encountered a zone of structurally controlled mineralization
which limited the dissemination of gold and reduced the available ore tonnage.
A delay in the permitting of the Gold Canyon satellite deposit also required the
acceleration in prestripping of the smaller and higher stripping ratio Goldstone
North deposit which was mined from March to August 1993 in order to sustain
production. In May 1993, mining of this deposit was suspended for one month due
to a partial collapse of the highwall.
As a result of these problems, Atlas was unable to maintain payments to its
mining contractor and provided the contractor with a secured $3.5 million note.
This note was repaid in fiscal 1994 from cash flow from the mining of Gold
Canyon, from proceeds of a private placement in September 1993 referred to below
and from the sale of selected mining equipment.
In September 1993, Phoenix Financial Holdings Inc. ("Phoenix") entered into an
agreement with Atlas to provide $8,375,000 in exchange for 1.5 million Common
Shares of Atlas, a $3.5 million, 9 percent, convertible debenture due September
1998, convertible at US $4 per share of Atlas, and warrants to purchase for
three years (to September, 1996) 2 million Common Shares of Atlas at a price of
US $3.625 per share. Simultaneously with closing of the transaction, Phoenix
privately placed, to non-U.S. investors, through First Marathon Securities
Limited, all 1.5 million Common Shares of Atlas and 750,000 of the 2 million
warrants; Phoenix retained the convertible debenture and the remaining
warrants. (Phoenix subsquently sold (i) the subsidiary which held the
convertible debenture, and (ii) the remaining Atlas warrants prior to Atlas
purchasing its 51% interest in Phoenix in November 1995.) See Item 13. "Certain
Relationships and Related Transactions".
In connection with the September 1993 foregoing transactions, Phoenix nominees
initially assumed four of the six Atlas board seats. This was later increased
to five as one of the original Atlas directors
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subsequently resigned. In addition to the board changes, Phoenix also assumed
management control of the Company, appointing David Birkenshaw, then the
Chairman and Chief Executive Officer of Phoenix, Chairman and Chief Executive
Officer of Atlas.
Subsequent to the change in control of the Company, an extensive program was
initiated to confirm and evaluate the economics of the remaining reserves at the
Gold Pick, Gold Ridge and Gold Canyon deposits. One of the main concerns was
the past overestimation of reserves in deposits having strong structural ore
controls. A 23 hole confirmatory drill program at the Gold Canyon deposit led
to the determination that mining to the originally designed pit bottom would
have been uneconomical due to the occurrence of more refractory material than
had been previously forecast. As a result, mining at the Gold Canyon deposit
was halted in January 1994 instead of April 1994 as had been originally
estimated.
Although mining had ceased in January 1994, the milling of stockpiled material
allowed for continued gold production through September 1994. After the
depletion of stockpiled material, milling operations were suspended on September
19, 1994, and the operations were placed on standby.
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The following table provides the operating statistics for the Gold Bar Project
from fiscal years 1991 to 1995. There was no production in the Gold Bar
Resource Area in the six months ended December 31, 1995.
GOLD BAR RESOURCE AREA
ANNUAL PRODUCTION DATA
(Tons in Thousands)
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<CAPTION>
Year Ended June 30,
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1991 1992 1993 1994 1995
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<S> <C> <C> <C> <C> <C>
Gold Bar
Ore tons mined 33
Grade (oz/ton) .061
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Goldstone
Ore tons mined 704 5 195 126 10
Grade (oz/ton) .077 .080 .069 .088 .045
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Gold Ridge
Ore tons mined 44 1,316 331
Grade (oz/ton) .043 .060 .051
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Gold Pick
Ore tons mined 249 544
Grade (oz/ton) .071 .075
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Gold Canyon
Ore tons mined 602
Grade (oz/ton) .065
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Mining Statistics:
Total tons mined (includng
preproduction stripping) 13,298 10,240 13,322 4,462 13
Total ore tons mined 748 1,570 1,103 728 10
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Strip ratio (waste: ore) 16.8:1 5.5:1 11.1:1 5.1:1 .3:1
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Milling Statistics:
Total tons milled 1,091 1,226 1,120 1,101 199
Grade (oz/ton) .09 .07 .06 06 .04
Recovery 82% 92% 82% 79% 72%
Ounces produced 80,727 81,832 55,080 51,696 6,019
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Average sales price
($ per oz) $379 $362 $350 $377 $387
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</TABLE>
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<S> <C> <C> <C> <C> <C>
Operating Costs ($ per oz)
Cash production cost $207 $223 $323 $319 $446
Non-Cash costs 98 143 162 87 58
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Total $305 $366 $485 $406 $504
==== ==== ==== ==== ====
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</TABLE>
RESERVES
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Following the suspension of mining at Gold Canyon, management elected to delay
the further planned mining of the Gold Pick and Gold Ridge deposits until
they the deposits could be were more adequately drilled and until various cost
cutting measures were examined. This confirmatory program included the
drilling of 303 surface and 55 underground holes at the Gold Pick and Gold Ridge
deposits.
As a result of a geological mapping program and the additional drilling, which
has reduced drill spacing to a nominal 50 to 75 foot range within these two
deposits, management believes it has adequately resolved the previous problems
relating to structural ore controls.
The current mine plan for the Gold Pick and Gold Ridge deposits has established
proven and probable mineable reserves which were independently audited by Mine
Reserve Associates of Denver, Colorado in December 1994. Pincock, Allen & Holt
("PAH") of Denver, Colorado as part of its independent audit of the Gold Bar
resource area, dated December 13, 1995, confirmed the following:
MINEABLE RESERVES
<TABLE>
<CAPTION>
grade (ounces
ore tons of gold per ton) contained ounces(1)
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<S> <C> <C> <C>
Gold Pick East 1,278,000 0.073 93,939
Gold Pick West 1,009,000 0.069 69,909
Gold Ridge 391,000 0.059 23,077
--------- ----- -------
Total 2,678,000 0.070 186,925
========= ===== =======
</TABLE>
(1) Estimated recoverable ounces of 157,000 based upon an overall 84% recovery
rate.
PROPOSED MINING OPERATIONS
- --------------------------
The revised mine plan calls for average production of 52,000 ounces of gold per
year over a three year period. Prior to the addition of project financing costs
(see below under "Proposed Mine Financing") and adjustments for preproduction
costs, cash cost of production has been estimated at $249 per ounce of gold
produced, with capital expenditures, on a per-ounce basis, totaling $111 per
ounce.
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Mining of the deposits will be conducted by a contract miner by conventional
open pit methods. The contract miner will be responsible for drilling, blasting,
loading and hauling both process feed and waste. The ore will be processed at
Atlas' existing 3,000 ton per day carbon in leach milling facility, to be
operated by Atlas.
Atlas currently holds a variety of environmental permits, licenses and waivers
required by state and federal authorities to construct, operate, and close the
Gold Bar mine and process mill. There are no requirements associated with the
current permits that would prohibit the restarting of mining operations.
PROPOSED MINE FINANCING
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The Company currently anticipates maximum capital outlays of approximately $10.0
million in order to resume mining operations at Gold Bar. The financing plan
calls for Atlas to contribute the first $5.0 million of this capital, utilizing
cash from the net proceeds of the February 1996 Exchangeable Debenture described
in Note 9 to the Financial Statements, with the remaining $5.0 million to come
from project financing. On October 24, 1995, the Company signed a non-binding
letter of intent with Brown & Root, Inc. ("Brown & Root"), a contract mining
company, establishing terms for a contract mining service agreement. In
addition, the letter provides for a $5.0 million loan guarantee of project
financing in return for a 20% non-operating net profits interest in the project,
subject to a minimum payment of $500,000 and a maximum payment of $1.5 million.
This agreement, which is still subject to the completion of due diligence by
Brown & Root, the arrangement of the project financing, and the establishment of
a satisfactory hedging program, is expected to be finalized in early spring
1996. If the Company is unable to reach a formal agreement with Brown & Root,
Atlas will pursue the execution of an alternative mining contracting proposal
which has been presented to the Company on terms similar to Brown & Root, and
will attempt to secure alternative project financing for the remaining $5.0
million. Although Atlas has had preliminary discussions with financial
institutions regarding such a financing, there can be no assurance that such a
financing would be on attractive terms to the Company.
EXPLORATION
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GOLD BAR CLAIM BLOCK
Atlas continues to actively explore for gold on the Gold Bar claim block. On
the approximately 16 square miles of the Gold Bar claim block which is not
currently subject to joint venture, Atlas has identified seven exploration
targets. Mineralization has been encountered at each of these targets; however,
additional mapping, sampling and drilling is required to delineate reserves
determine their true potential.
During the quarter ended June 30, 1995, an 18 hole drill program was conducted
on an area adjacent to the original Gold Bar deposit. Holes were drilled to the
northwest and southeast of the original pit. All of the thirteen holes to the
northwest encountered gold mineralization, with
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3 holes having intercepts in excess of 0.1 ounces of gold per ton over a
distance of at least 20 feet and 0.055 ounces per ton over 80 feet. Further
investigation of this area will be conducted by Granges as part of its newly
formed joint venture with the Company (see "Joint Ventures - Granges Inc.").
JOINT VENTURES
During the first half of fiscal 1995, and as part of a strategic decision to
accelerate the development of the entire Gold Bar claim block, Atlas entered
into joint venture arrangements with three separate gold producing companies,
Rayrock Yellowknife Resources Inc., Homestake Mining Company and Hemlo Gold
Mines (U.S.A.), Inc. Active exploration programs were conducted by all three
companies on their respective areas of interest during the 1995 field season.
The companies conducted mapping, sampling and geophysical work as well as
exploration drilling. In December 1995, Atlas also announced that it had
completed a formal joint venture agreement with Granges. In aggregate, through
the efforts of the Company and its joint venture partners, it is anticipated
that over $2 million will be spent on the Gold Bar claim block during calendar
1996.
Rayrock Yellowknife Resources Inc.
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On August 8, 1994, the Company entered into an agreement with Rayrock
Yellowknife Resources Inc. ("Rayrock") defining the terms of an exploration
joint venture on approximately 1,000 claims (31 square miles) on the northern
portion of the claim block. The agreement commits Rayrock to spend $1.5 million
on exploration and development within three years and to complete an independent
engineering report stating that a mineral deposit of economic potential has been
located in order to earn a 60% undivided interest. In the event that Rayrock
fails to complete an engineering report within the first three years, Rayrock
has the option to spend an additional $1.5 million over the next two years. If
an engineering report has not been completed after these additional
expenditures, Rayrock can either carry Atlas through to the completion of such a
report to earn 60% on the entire area, or earn a 60% interest in a reduced 10
square mile area. After Rayrock completes its earn-in requirements, Atlas and
Rayrock will contribute on a 40%/60% basis.
Homestake Mining Company
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On September 23, 1994, the Company entered into an agreement with Homestake
Mining Company ("Homestake") which defines the terms of an exploration joint
venture on approximately 436 claims (15 square miles) on the southern portion of
Atlas' Gold Bar claim block. The agreement commits Homestake to spend a minimum
of $200,000 in exploration in the first year of the agreement. In subsequent
years, Homestake is required to make the following minimum exploration
expenditures to maintain the agreement in effect:
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<S> <C>
Year 2 $ 500,000
Year 3 $ 600,000
Year 4 $ 700,000
</TABLE>
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<TABLE>
<S> <C>
Year 5 $1,000,000
</TABLE>
In order to earn a 60% interest in the property, Homestake must satisfy the
minimum exploration expenditures, deliver to Atlas prior to the fifth
anniversary of the agreement a bankable engineering report stating that an
economic mineral deposit has been located, and provide notice that Homestake is
committed to proceed with commercial development of the property. Homestake has
provided notice to Atlas that it intends to proceed with the second year of the
program.
Hemlo Gold Mines (U.S.A.), Inc.
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On October 26, 1994, the Company executed a letter agreement with Hemlo Gold
Mines (U.S.A.), Inc. ("Hemlo"), which set forth the principal terms of an
exploration agreement, which covers 138 of the Company's claims (approximately
4.5 square miles) and 42 contiguous Hemlo claims, located four miles northeast
of the Company's Gold Bar claim block. In order to maintain this agreement,
Hemlo must spend a minimum of $400,000 in exploration expenditures within four
years. After such expenditures have been made by Hemlo, the Company will have
the option to participate in exploration and development under a mining venture
agreement with a 30% interest. In the event the Company declines to
participate, Hemlo may, at its option, continue to explore these properties
under a mining lease which provides for a production royalty on the Company's
claims equal to 7% of the net operating proceeds. An advance minimum royalty of
$5,000 on the first anniversary and $25,000 per year thereafter will be payable
by Hemlo for the duration of the lease. Since the signing of the agreement,
Hemlo has drilled and surrendered a portion of the property, reducing the
property position covered under this agreement to approximately 3 square miles.
Granges Inc.
- ------------
Effective September 29, 1995 the Company entered into an exploration joint
venture agreement with Granges with respect to approximately 34 square miles of
the Company's Gold Bar claim block. In order to earn a 50% undivided interest
in not more than 15 square miles within the area of interest, the terms of the
agreement requires Granges to spend U.S. $2.25 million on exploration and
development within three years on approximately 1,190 claims included in the
area of interest, at the rate of U.S. $625,000 in each of the first two years
and U.S. $1.0 million in the third year, and to complete an independent reserve
report recommending development of a deposit containing a mineable reserve in
excess of 300,000 ounces of gold. Granges has the right to terminate the
agreement at any time prior to completing the U.S.$2.25 million of exploration
and development expenditures and the independent reserve report. If a reserve
study is not complete within the first three years, Granges has an option to
earn a 50% interest in a reduced three square mile area by spending an
additional U.S.$1.0 million in each of the next succeeding two years and
completing a reserve study. Atlas has retained a two percent net smelter
royalty on all claims not currently carrying third party royalties. Atlas has
agreed to make available to the venture, at the time of Granges' earn in,
milling throughput rights of not less than 50% of the capacity of the existing
Gold Bar mill.
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DOBY GEORGE PROPERTY
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On October 25, 1995, Atlas purchased the Doby George property from Independence
Mining Company Inc. ("Independence") for the sum of $400,000 in cash plus 1.4
million Common Shares. Doby George is situated in northern Elko County, Nevada,
approximately 60 air miles north of the community of Elko. Current access to
the property is through Mountain City, Nevada off State Highway 225 then by dirt
road to the project site. The property is comprised of 464 unpatented lode
mining claims (approximately 14 square miles) of which 104 claims are held under
three separate leasehold interests. There are currently no facilities or
services available at the property. Water is available through existing permits
which have been sold to Atlas. Additionally, Atlas believes it may be able to
secure water from private landowners in the area. Atlas has established a field
office in Mountain City.
Obligations to maintain the properties are those prescribed by federal and state
laws as well as nominal minimum advance royalty payments to the three lessors.
Royalty burdens on the property range from a 1.5% net smelter royalty (ONSRO) to
a 5% NSR. The current identified mineralization is burdened by NSRs ranging
from 2.5% to 4.5%. Minimum annual royalty payments for calendar year 1996 total
$36,600.
Rock types at Doby George are dominated by Mississipian Schoonover Formation
siltstones, limestones and quartzites, which host all significant mineralization
on the property, Tertiary Doby tuffs and Mesozoic quartz diorite.
Mineralization is generally controlled by structure and stratigraphy. High
angle structures are most obvious with mineralization increasing in both grade
and thickness toward major structures. Gold is fine grained and commonly occurs
within quartz veins and silicified zones.
The property was first identified by Felmont Oil Company, an affiliate of
Homestake, in 1983. Homestake conducted exploration drilling on the property
through 1991 when the property was sold to Independence. A total of 691 holes
have been drilled at Doby on five separate deposits, and metallurgical testwork
has confirmed that the mineralization is not refractory and is amenable to heap
leach processing. The drilling and mapping to date have confirmed that a
significant portion of the mineralization is shallow, varying in thickness from
15 feet to 225 feet, and may be mined by open pit. The identified mineralized
zones have been estimated by Behre Dolbear & Company of Denver, Colorado, in an
independent evaluation in July 1994, to contain 3.6 million tons of mineralized
material at a grade of 0.06 ounces of gold per ton.
In an effort to bring this material into the reserve category, Atlas is
currently concluding a $600,000 work program of additional drilling,
metallurgical and engineering studies on the previously identified West Ridge
and Red Tail deposits in order to confirm reserves, and, if possible, expand
upon the previously identified mineralization. It is anticipated that the work
program will be completed by early summer 1996. Environmental baseline studies
are also under way in support of a Plan of Operations scheduled to be filed with
the U.S. Forest Service and Bureau of Land Management by mid 1996.
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COMMONWEALTH PROPERTY
- ---------------------
On August 15, 1995, Atlas entered into an option agreement with Harvest Gold
Corporation ("Harvest") pursuant to which Atlas has acquired an option to
purchase substantially all of its assets. The primary asset of Harvest is the
Commonwealth property situated in southeast Arizona. Additionally, Harvest
holds certain royalty and development rights pertaining to 36 exploration
concessions located in Argentina, a number of which are currently being
evaluated by Crown Resources Corporation.
The Commonwealth property is located in central Cochise County, Arizona,
approximately 28 miles south of Wilcox. Current access is from U.S. 191, two
miles south of the town of Sunsites, and then one mile by county road. There
are numerous roads which access the property either from U.S. 191 or the county
road. Water and power are available at the property.
The deposit identified on the property lies within twelve patented lode claims
held under an option to purchase agreement. Additionally there are two mill
site claims, 17 unpatented lode claims, 14 unpatented placer claims, and 472
acres of surface held by Atlas under the option. The aggregate royalty burden
on the property does not exceed a 3.6% net smelter royalty.
The terms of the option provided for an initial payment of $125,000.
Additionally, prior to September 3, 1996, Atlas must spend a minimum of $425,000
and make an election as to whether it wishes to exercise its option. If Atlas
exercises its option, Atlas will pay Harvest $25 per equivalent ounce of
recoverable gold reserve, as determined by an independent third party reserve
study. The purchase price is for all of the assets of Harvest. The amount
would be payable 75% in Common Shares, the value to be calculated by averaging
the twenty-day trading average of Atlas stock on August 15, 1995 and the twenty-
day trading average of Atlas stock on the date of exercise of the option, and
the remaining 25% in cash, the cash portion not to exceed $1,300,000.
The Commonwealth Mine was originally discovered in 1895 and has produced a total
of 122,000 ounces of gold and 13 million ounces of silver from underground
mining conducted from 1895 to 1927.
The Commonwealth Mine property contains epithermal mineralization within and
adjacent to shear zones that trend East/West across the primary patented claims.
The oldest exposed geological unit is the Cretaceous age Bisbee Group,
consisting of reddish sandstone and silt stone. Overlying the Bisbee is a
Tertiary age sequence, consisting of a lower andesite, a rhyolite breccia, and
an upper andesite. Two major structural zones known as the Main and North Veins
transect this sequence of beds. The Main Vein has been the focus of
approximately 90% of historic production. High grade mineralization occurred in
shoots within the Main Vein and other structural zones and these have largely
been extracted by underground methods.
Lower grade gold and silver mineralization (greater than 0.01 oz Au/ton and 1.0
oz Ag/ton) occurs in the unmined portion of the structural zones and locally in
the intervening sheared and
13
<PAGE>
broken rock between the structural zones. These large areas of low-grade
mineralization are the focus of the current development program interest, as
they have open pit, heap leach potential.
In the first quarter of 1996, Atlas met the expenditure requirement of $425,000
set forth in the option agreement and is currently conducting metallurgical and
engineering studies in preparation of an internal feasibility study. If the
results of such studies are positive, Atlas will employ an outside consultant
to generate expand its work program with the intention of generating an
independent reserve study upon which the acquisition cost of the property would
be based.
MUSGROVE CREEK PROPERTY
- -----------------------
In October 1992, the Company leased to another mining company gold properties in
Oregon (Grassy Mountain) and Idaho (Musgrove Creek) for a period of 35 years
with options for three additional 10 year extensions. Atlas was recently
informed that the other mining company intended to terminate its lease on the
Musgrove Creek property and has reassigned it without cost to Atlas. Located in
Lemhi County, Idaho, the Musgrove Creek property encompasses approximately 22
square miles within the Salmon National Forest. The land position consists of
667 unpatented claims consolidated under seven lease agreements.
Since 1992, the other mining company engaged in substantial drilling, mapping,
sampling and environmental work on the property. An independent consultant
retained by the Company has identified a low grade gold mineralized zone
containing 13.2 million tons of mineralized material at a grade of .026 ounces
of gold per ton. Numerous targets exist on the property which could enlarge the
mineralized zone with additional expenditures. Currently, the Company is
reviewing data on the property in order to decide whether to continue work on
the project or seek a partner for an exploration joint venture on the property.
TUCKER HILL PROPERTY
- --------------------
During the past two years, the Company has been proceeding with the necessary
activities to bring its Tucker Hill perlite deposit into commercial production.
This property, located in south central Oregon, approximately 35 miles northwest
of Lakeview, was acquired by the Company in 1988. The 900 acre property
consists primarily of unpatented mining claims.
Perlite is a lightweight volcanic mineral which, when heated, expands up to 20
times its original volume. A form of environmentally friendly natural glass,
perlite is used in the manufacturing of acoustic ceiling tiles, insulation
products and filter material and is used as an additive for horticultural
products. To date, a total of thirteen bulk samples, ranging up to 45 tons in
size, have been mined from the property and sent to a variety of end users for
testing. Through these tests, perlite from Tucker Hill has been demonstrated to
be of high quality and capable of satisfying manufacturing requirements in a
wide array of uses. Based on the results of this program, Atlas has entered
into negotiations with several end users to deliver crushed and sized perlite
under long term contracts.
14
<PAGE>
The Company has now completed its definitive economic evaluations and final
engineering designs for the development of a quarry and processing facility
capable of generating a nominal 100,000 tons of perlite per year. Total capital
costs to achieve commercial production are estimated at $1.5 million. A series
of drill programs over a small portion of the perlite deposit has confirmed a
proven reserve of 3.3 million tons and a probable reserve of 5.6 million tons of
high grade perlite. Such a proven and probable reserve would be capable of
satisfying 100% of the current U.S. demand for perlite of approximately 650,000
tons per year for a period of over 15 years. Atlas initiated its permitting
process early in 1994, and a draft Environmental Impact Statement ("EIS") has
recently been issued by the Bureau of Land Management. Atlas currently
anticipates the receipt of all required permits by the end of Spring 1996.
As outlined under "Item 1. Business-Investments-Phoenix Financial Holdings
Inc.", Atlas acquired a 51% controlling position in Phoenix on November 30,
1995. See below under Item 13. "Certain Relationships and Related
Transactions". On January 16, 1996 Atlas announced that it had entered into a
letter of intent providing for the purchase by Phoenix of the Tucker Hill
Project for $1 million in cash, $1 million in Phoenix shares and the retention
by Atlas of a 2% gross proceeds royalty on the Tucker Hill Project. The
proposed transaction has been approved by a committee of independent Phoenix
board members but is subject to regulatory approval and is subject to regulatory
approval, approval by a committee of independent Phoenix board members and
approval by the a majority of the minority shareholders of Phoenix at its annual
general meeting scheduled for May 1996. If acquired, Tucker Hill would be the
cornerstone for the development of Phoenix into a Denver based, industrial
minerals company
INVESTMENTS
- -----------
GRANGES INC.
- ------------
Following a $50 million equity private placement by the Company in 1994, the
Company in August 1994 completed the purchase of 12,694,200 shares of Granges,
or 37.2% of the outstanding shares. The shares of Granges trade on both the
Toronto and American Stock Exchanges under the symbol GXL. The purchase price
was approximately $2.80 per share for an aggregate price of $35.8 million. On
May 25, 1995, the Company purchased 20,700 common shares of Granges on the open
market to hold a total of 12,714,900 common shares of Granges. Granges, a
Canadian mining company, was considered an attractive acquisition to Atlas
because of its existing U.S. mining operations, strong financial condition and
extensive exploration portfolio. As a result of the May 1, 1995 amalgamation of
Granges and its subsidiary, Hycroft Resources and Development Corporation,
Atlas' interest in the amalgamated entity was reduced to 27.5%.
With the acquisition of the common shares of Granges in August 1994, Atlas
assumed proportional board representation and immediately initiated discussions
regarding possible business combinations between the companies. During the last
several months, the board has been expanded and reconstituted and a special
committee has been established to further evaluate possible joint activities.
Effective June 1, 1995, Michael B. Richings, formerly Atlas' President
15
<PAGE>
and Chief Operating Officer, was appointed to the position of President and
Chief Executive Officer of Granges. Mr. Richings also continues to serve on
Atlas' board of directors.
Operations at Granges' Crofoot/Lewis Mine, located near Winnemucca, Nevada, have
consistently produced between 80,000 to 100,000 ounces of gold per year since
1989. For the year ended December 31, 1995, the Crofoot/Lewis Mine produced
101,128 ounces of gold at a cash cost of $272 per ounce versus 94,868 ounces of
gold at a cash cost of $294 per ounce in the same period of the previous year.
Given its identified reserves and the current level of production, Granges has
stated that production is scheduled to continue through the year 2001.
In addition to its mining operations, Granges is conducting active exploring for
precious metals in the United States, Peru and Ecuador. Granges is currently
exploring for gold on Atlas' Gold Bar claim block as part of a joint venture
with Atlas. see "Item 1. Business - Exploration, Gold Bar Claim Block, Joint
Ventures, Granges Inc."
The Company has reported the results of Granges' operations using the equity
method since the share position was acquired on August 15, 1994. For the fiscal
periods ended December 31, 1995 and June 30, 1995, Atlas recorded equity losses
of $1.70 million and $1.36 million, respectively, attributable to the operations
of Granges. The Company intends to continue to account for the profits and
losses of Granges using the equity method as long as its equity position remains
above 20%, and accordingly, the operations of Granges will have an impact upon
the financial affairs of the Company. In addition to recording its proportional
share of Granges operating results, Atlas also records an additional amount of
approximately $34 per ounce of Granges production as an amortization of AtlasO
excess carrying cost above Granges book value. Since the amortization is being
done on a unit of production method, future additions to Granges mineable
reserve base will allow this amortization amount to be reduced.
DAKOTA MINING CORPORATION
- -------------------------
In March 1995, Atlas acquired 2,419,355 common shares of Dakota Mining
Corporation ("Dakota") for a purchase price of $1.24 per share, or an aggregate
purchase price of $3 million, such shares constituting over 9% of the
outstanding shares of Dakota . Dakota is a Denver-based Canadian gold mining
company with mining operations in South Dakota and Idaho, and trades on both the
Toronto and American Stock Exchanges under the symbol DKT. This purchase was
part of a special equity financing of $6 million by Dakota. In connection with
the purchase, Atlas and Dakota executed a mutual limited release, whereby each
party released the other from any liability arising out of a May 31, 1994 share
purchase agreement which did not close. On March 9, 1996 Atlas sold its
interest in Dakota for approximately C$6.2 million, or US$4.5 million.
PHOENIX FINANCIAL HOLDINGS INC.
- -------------------------------
On November 30, 1995, Atlas purchased, at arm's length, from a group of
individual investors 12.2 million shares of Phoenix representing approximately
51% of the total shares outstanding, for an aggregate purchase price of Cdn.
$1,781,200. See below Item 13. "Certain Relationships
16
<PAGE>
and Related Transactions". Phoenix, a Canadian holding company whose shares are
quoted on the Canadian Dealing Network, currently has cash and marketable
securities of approximately Cdn. $2.3 million in addition to a collection of
minor assets. With the purchase, David J. Birkenshaw, Chairman and Chief
Executive Officer of Atlas, was appointed as Chairman of Phoenix and Gary Davis,
Atlas' President, was appointed as Vice Chairman and Chief Executive Officer of
Phoenix.
On January 16, 1996, Atlas and Phoenix jointly announced the execution of a
letter agreement providing for the purchase by Phoenix of all of the issued and
outstanding shares of Atlas Perlite, Inc., a wholly-owned subsidiary of Atlas,
whose only asset is the Tucker Hill Project. The letter agreement calls for
payment to Atlas of $1 million in cash, the equivalent of $1 million in Phoenix
common shares and the retention by Atlas of a royalty equivalent to 2% of the
gross proceeds generated from the sale of minerals from Tucker Hill. The stock
portion of the sale price, which was based on the average of the Phoenix shares
and the Canadian-U.S. dollar exchange rate for the twenty trading days prior to
the execution of the letter agreement will result in the issuance of an
additional 11.8 million Phoenix shares to Atlas. These additional shares will
result in Atlas increasing its equity position in Phoenix from approximately 51%
to 67%. In addition, Phoenix will reimburse Atlas for any pre-approved
expenditures made by Atlas on the Tucker Hill Project from December 1, 1995
through to the closing date.
As the sale is between related parties, the transaction will require the
approval by a committee of independent Phoenix directors, as well as approval by
the minority shareholders of Phoenix at a meeting to be held in the second
quarter of 1996. To allow a determination as to the fairness of the transaction
a committee of independent Phoenix directors commissioned an outside, an
independent technical report on the Tucker Hill assets as well as an independent
valuation of the Tucker Hill Project and the Phoenix shares.
MSV RESOURCES INC.
- ------------------
During the first quarter of 1996, Atlas held discussions with MSV Resources Inc.
("MSV") which culminated in a business combination agreement dated March 5, 1996
(the "Agreement"). During April 1996, the Company was advised MSV had made
significant changes to its directors and management and that the business
combination would not be pursued. Atlas believes that certain actions taken by
MSV may constitute a breach of the Agreement. Atlas intends to explore all
available avenues of legal redress.
DISCONTINUED OPERATIONS
- -----------------------
URANIUM MILL SITE, MOAB, UTAH
- -----------------------------
The Company continues to pursue vigorously the approval of its proposed
reclamation plan at its Moab, Utah, uranium mill site which calls for
reclamation in place of the 11 million tons of mill tailings. Atlas operated
its milling operations from the early 1960's to mid 1980's and has been actively
conducting decommissioning and reclamation activities since its decision to
dismantle the mill in 1987. While the U.S. Nuclear Regulatory Commission
("NRC") is reviewing the
17
<PAGE>
merits of the proposed reclamation plan, the Company has continued with its
decommissioning plans and has now completed the placement of the interim cap on
the tailings facility and has dismantled the milling and administrative
facilities on the site. On January 30, 1996, the NRC released the draft
Environmental Impact Statement ("EIS") and draft Technical Evaluation Report
("TER") regarding the Company's reclamation proposal. Atlas' proposed
reclamation plan consists of contouring the tailings pile to allow for the
natural drainage of precipitation and the addition of an earth and rock cover.
The EIS process is used by the NRC to evaluate the impact to the environment of
the proposed plan and of alternative proposals. The TER is used to evaluate
compliance with NRC's technical and safety criteria. In the draft EIS, the NRC
staff's preliminary conclusion is concluded that Atlas' proposal to reclaim the
pile in place is acceptable and less costly than the alternative. The TER has
identified 20 items which will need to be addressed prior to final plan
approval. The requisite studies necessary to address the majority of these
items, especially those of a technical nature, have recently been completed and
are supportive of the proposed plan. The public comment period on both
documents is scheduled to end on April 30, 1996. For further information on the
Moab reclamation, see "Management's Discussion and Analysis of Financial
Position and Operating Results - Environmental Matters".
ASBESTOS MINE SITE, COALINGA, CALIFORNIA
- ----------------------------------------
Remedial activities at the Company's former asbestos mine and mill site, located
near Coalinga, California, which began in October of 1994, are substantially
complete. Atlas, which operated the mine for a five year period in the 1960's
was notified by the Environmental Protection Agency in fiscal 1988 that it, the
Bureau of Land Management and several other subsequent owners were potentially
responsible parties under the Comprehensive Environmental Response, Compensation
and Liability Act for cleanup costs at the mine site. Final reclamation
activities have been taking place in accordance with the EPA remedial action
plan which was approved by the EPA in October 1994. For further information on
the Coalinga reclamation, see "Management's Discussion and Analysis of Financial
Position and Operating Results - Environmental Matters".
OTHER
- -----
The Company's profitability has been significantly affected by the price of
gold. Gold prices fluctuate widely and are affected by numerous factors beyond
the Company's control, including expectations for inflation, the strength of the
United States dollar, global and regional demand, political and economic
conditions and production costs in major gold producing regions, including
Australia, Canada, South Africa and the former Soviet Union. The aggregate
effects of these factors are impossible to predict.
Gold is a product which can be easily sold on numerous markets throughout the
world. It is not difficult to ascertain the market price for gold at any
particular time, and gold can be sold to a large number of refiners or precious
metals dealers on a competitive basis. When in operation, the Company
normally sells its gold through major precious metals dealers, in some cases
using hedging programs, and it is free to sell uncommitted gold to others.
Any gold
18
<PAGE>
produced at the Company's operations is mine site in the form of gold/silver
alloy, which is further refined by a third party into commercially acceptable
gold.
The company is required to comply with various federal, state and local
regulations and requirements relating to environmental matters at its mining
properties operations. The Company is required to obtain permits from various
governmental agencies in order to mine and mill. The Company has obtained all
of the necessary permits relating to its on-going development work and planned
restart of its Gold Bar operation present operations. The Company cannot
anticipate whether increasing costs of environmental compliance for its gold
operations will have a material adverse impact on planned its operations or
competitive position.
The Company competes with substantially larger companies in the production and
sale of gold. The Company does not believe that it or any other competitor is a
material factor in these markets, and the price it receives for its production
depends almost entirely upon market conditions over which it has no control.
The Company believes that it can promptly sell at current market prices all of
the gold that it can produce for either present or future delivery.
With respect to the acquisition of mineral interests and exploration activities,
the Company competes with numerous persons and companies, many of which are
substantially larger and have considerably greater resources than the Company.
Item 2. PROPERTIES
----------
The Company's materially important properties consist of the gold ore-bearing
properties and mill site and its Tucker Hill perlite properties described under
"Item 1. Business," and approximately 14,000 square feet of leased headquarters
office space in Denver, Colorado.
Item 3. LEGAL PROCEEDINGS
-----------------
The information called for by this Item is set forth in Note 13 to the Financial
Statements and is incorporated herein by reference.
Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
---------------------------------------------------
No matters were submitted to a vote of the security holders during the six
months ended December 31, 1995.
19
<PAGE>
EXECUTIVE OFFICERS OF THE COMPANY
---------------------------------
Set forth below is the age and certain other information regarding each person
currently serving as an executive officer of the Corporation.
David J. Birkenshaw, age 40, has served as Chairman of the Board and Chief
Executive Officer of the Corporation since September 21, 1993. Mr. Birkenshaw's
employment history for the past five years is set forth below under "Directors".
Gerald E. Davis, age 47, has served as President of the Corporation since
August 18, 1995. Prior to that he had served for the Corporation in the
following capacities as: Executive Vice President since May 15, 1995, Vice
President-Corporate Development since September 21, 1993, Chief Operating
Officer from May 1, 1993, and Vice President - Business Planning and Marketing
since November 13, 1989. Mr. Davis also serves as Vice-Chairman and Chief
Executive Officer of Phoenix Financial Holdings, Inc., a 51% subsidiary of the
Company.
20
<PAGE>
PART II
Item 5. MARKET FOR THE COMPANY'S COMMON STOCK
AND RELATED STOCKHOLDER MATTERS
-------------------------------
Common Stock (Listed on the New York Stock Exchange, Symbol AZ)
<TABLE>
<CAPTION>
Six Months Ended For the Fiscal Year Ended June 30,
----------------------------------
December 31, 1995 1995 1994
----------------- ---- ----
Quarter Ended High Low High Low High Low
- ------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
September 30 $2 $1 5/8 $6 1/4 $4 1/2 $5 1/4 $3 1/8
December 31 1 3/4 1 1/8 5 2 4 7/8 3 1/4
March 31 N/A N/A 2 1/2 1 1/4 10 4 1/4
June 30 N/A N/A 2 1/8 1 3/8 9 3/4 6 1/8
</TABLE>
No dividends were declared in the six months ended December 31, 1995 or in
fiscal years 1995 or 1994. At March 29, 1996, there were approximately 16,700
holders of record of the Common Stock.
Item 6. SELECTED FINANCIAL DATA
-----------------------
(Amounts in Thousands except per Share Data)
<TABLE>
<CAPTION>
For the Six Months
Ended December 31, For the Year Ended June 30,
-------------------------------------------------------
1995 1994 1995 1994 1993 1992 1991
-------- --------- --------- --------- --------- --------- ---------
(Unaudited)
<S> <C> <C> <C> <C> <C> <C> <C>
INCOME STATEMENT DATA:
Mining revenue $ -- $ 2,328 $ 2,328 $ 19,478 $ 19,280 $ 29,624 $ 30,625
Loss from continuing operations (4,266) (5,804) (20,397) (12,040) (28,066) (7,177) (2,483)
Income (loss from discontined
operations -- 846 621 2,175 (875) (76) (3,880)
Net loss (4,266) (4,958) (19,776) (9,865) (29,909) (7,253) (6,363)
PER SHARE OF COMMON STOCK:
Loss from continuing operations (0.22) (0.40) (1.23) (1.45) (4.43) (1.17) (0.41)
Income (loss) from discontinued
operations -- 0.06 0.04 0.26 (0.14) (0.01) (0.65)
Net loss (0.22) (0.34) (1.19) (1.19) (4.72) (1.18) (1.06)
Cash dividends per share -- -- -- -- -- -- --
BALANCE SHEET DATA:
Cash and cash equivalents 1,607 11.789 4,453 3,767 1,734 552 465
Total Assets 53,040 60,249 43,497 19,847 19,549 59,212 60,060
Long-term obligations 23,684 15,874 15,160 15,767 14,807 13,726 28,442
Working capital (deficit) 9,655 8,177 5,611 (239) (2,816) (14,344) 2,293
Total stockholders' equity (deficit) $ 22,143 $ 39,453 $ 24,833 $ (2,475) $ (4,407) $ 25,502 $ 31,309
Book value per share $ 1.16 $ 2.72 $ 1.34 $ (0.26) $ (0.70) $ 4.02 $ 5.14
</TABLE>
21
<PAGE>
Item 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
-----------------------------------
The following comments should be read in conjunction with the Financial
Statements and accompanying notes.
WORKING CAPITAL, LIQUIDITY AND CAPITAL RESOURCES
- ------------------------------------------------
Since September 1993, the company has financed acquisitions and raised working
capital through the issuance of both debt and equity instruments. On September
20, 1993, the Company, under a Securities Purchase Agreement with Phoenix
Financial Holding Inc. ("Phoenix"), closed on the sale for an aggregate of
$8,375,000 of (i) 1,500,000 shares of Atlas Common Stock, (ii) a Redeemable
Convertible Debenture due in 1998 in the amount of $3,500,000 which is
convertible as to principal into Atlas Common Stock at the rate of $4.00 per
share and bears interest at the rate of 9% per annum payable in cash or Atlas
Common Stock at the rate of $4.00 per share, and (iii) Warrants to purchase for
three years 2,000,000 shares of Atlas Common Stock at $3.625 per share.
On January 18, 1994, the Company, in a private placement, sold 1.5 million
shares of Atlas Common Stock for $5.00 per share for gross proceeds of $7.5
million. The shares were placed outside the United States with a number of gold
funds and institutional investors in Canada and Europe.
During the summer of 1994, the Company conducted a private placement of
9,090,909 Units, for a purchase price of $5.50 per Unit, each Unit consisting of
one share of Atlas Common Stock and one-half of one warrant (exercisable for
five years) to purchase one share of Atlas Common Stock at an exercise price of
$7.00 per share. The $50 million equity financing closed in escrow in August
1994. Of these funds, $35.5 million was released on August 15, 1994, allowing
Atlas to complete the acquisition of the common shares of Granges. The
remaining $14.5 million was released on December 15, 1994, following shareholder
approval of a proposal to increase the number of Common Shares of Atlas
authorized for issuance.
On November 10, 1995, the Company closed to escrow $10.0 million 7% Exchangeable
Debentures ("Debentures") due October 25, 2000 pending certain registration and
qualification requirements which were subsequently met on February 8, 1996. The
holders of the Debentures have the right to exchange their Debentures, at any
time prior to the repayment of the Debentures by the Company, for common shares
of Granges Inc. ("Granges Shares") currently held by the Company at a rate of
42.5 Granges Shares for each $100 of principal amount of Debentures surrendered
for exchange ("Exchange Rate").
On March 6, 1996, the Company announced that it had agreed in principle to
combine with MSV Resources Inc., a Canadian gold and copper mining company,
through a share exchange tender offer. (See "Item 1 - Business, Proposal to
Combine with MSV Resources Inc."). In connection with the merger, Atlas will
seek to raise additional equity which would be be utilized to develop several
mining properties of the combined company, focusing primarily on MSV's
properties located near Chibougamau, Quebec. Atlas believes that the
combination of the equity financing, current combined working capital and
operating cash flows would provide the combined company with sufficient capital
resources to meet its anticipated short-term and longer term capital
requirements.
Working capital was $9,655,000 at December 31, 1995 and $8,218,000 at December
31, 1994. The Company's current ratio was 2.5 to 1 at December 31, 1995 and 2.7
to 1 at December 31, 1994. The $1,437,000 increase reflects the $10,000,000
escrowed proceeds from the issuance of exchangeable debentures less $2,438,000
net asbestos and uranium reclamation costs, $1,719,000 in project developments
expenditures, and $4,406,000 in general and administrative costs and other
working capital changes.
22
<PAGE>
Subsequent to December 31, 1995, the Company significantly enhanced its
unrestricted cash position. On February 8, 1996, the Company met certain
registration and qualification requirements related to the $10.0 million
exchangeable debentures which allowed for the release of the escrowed proceeds.
Approximately one-half of the proceeds were used to repay the $2.0 short term
credit facility, fund development of the Commonwealth and Doby George property,
cover issuance costs and used for other general working capital purposes. On
March 9, 1996, the Company sold its 9.1% interest in Dakota Mining Corporation
for approximately $4.5 million.
Working capital was $5,611,000 at June 30, 1995, which compares to a working
capital deficit of $239,000 at June 30, 1994 and a deficit of $2,816,000 at June
30, 1993. The Company's current ratio was 2.60 to 1 at June 30, 1995, .96 to 1
at June 30, 1994, .69 to 1 at June 30, 1993. The positive change in working
capital reflects the funds received from issuance of equity securities as
described above. The proceeds from the Phoenix transaction provided relief from
liquidity difficulties the Company was experiencing at June 30, 1993, by
allowing for repayment of short term debt and increasing working capital. The
January 18, 1994, financing provided working capital to fund development and
exploration drilling programs, expand the Gold Bar claim block, and fund the
$1,843,000 deposit on the Granges transaction. The June 30, 1995, working
capital position was the result of funds generated from the December 15, 1994,
release of escrowed private placement funds. The proceeds were used to repay a
short term loan, to pay fees related to the private placement, to acquire 2.4
million shares of Dakota Mining Corp. for $3,000,000 and for continuing
exploration and administration expenses.
The Company intends to resume mining operations at Gold Bar during the spring of
1996. Gold Bar has a current gold reserve of 2.7 million tons at a average
grade of 0.070 ounces of gold per ton, containing approximately 18757,000
recoverable ounces. The capital required to resume operations at Gold Bar is
estimated at approximately $10.0 million which includes prestripping of the
deposits and the expansion of the current tailings disposal area. The Company's
financing plan calls for Atlas to fund approximately $5.0 million from its
current cash reserves and project finance the remaining $5.0 million. On
October 24, 1995, the Company signed a non-binding letter of intent with Brown &
Root Inc., a contract mining company. The letter of intent provides for a $5.0
million project financing guarantee in return of a 20% non-operating net profits
interest in the project subject to a minimum payment amount of $500,000 and a
maximum payment of $1.5 million. The Brown & Root agreement is subject to the
completion of due diligence, financing and the establishment of a satisfactory
hedging program. The Company is currently negotiating terms for project
financing and a related gold hedging program. A six month period of
prestripping overburden removal and stockpiling will be required prior to the
resumption of milling activities.
During the upcoming year, the Company will focus its exploration and development
efforts on four properties: Doby George, Commonwealth (under one year option
from Harvest Gold Corporation), Gold Bar, and Musgrove Creek. The Company is
working towards anticipates completing preliminary reserve studies on both the
Commonwealth and Doby George property during Spring 1996. The Company
anticipates filing a Plan of Operations for development and mining of Doby
George property with the U.S. Forest Service by the end of Spring 1996. The
Company will fund the continued development of the Doby George and
Commonwealth properties from its current working capital and, if available,
project financing. Exploration expenditures on the remaining 20% of Gold Bar
currently not under joint venture agreements and Musgrove Creek, which was
recently reassigned from Newmont Mining Company, will be
23
<PAGE>
dependent on the Company's financial position. In addition to direct
exploration, the Company is also reviewing other alternatives to accelerate the
development of both Musgrove Creek and the 20% of Gold Bar not covered under
existing joint venture agreements.
As a result of the issuance of the exchangeable debentures and the sale of the
common shares of Dakota Mining Corporation, the Company has adequate working
capital to meet its short term cash requirements. In addition, Atlas is
anticipating receipt of $1.0 million in the second quarter of 1996 as partial
consideration for the sale of its Tucker Hill perlite deposit to Phoenix
Financial Holdings Inc. The sale of Tucker Hill is subject to the approval by
minority shareholders and independent directors of Phoenix. See "Item 1.
Business, Investments". As the Gold Bar operation is not anticipated to
generate significant operating cash flow until the repayment of the project
financing in 1998, the Company may be required to obtain additional capital
during 1997 to cover the ongoing commitments. The Company believes that it will
be able to meet such capital requirements, if any, through the sale of non-core
assets and/or borrowings secured by the assets of the Company. In the longer
term, the Company anticipates being able to meet its obligations through
operating cash flows from the Gold Bar, Doby George, Commonwealth and Musgrove
properties. In order to meet its estimated long term reclamation obligations
the Company will utilize its restricted cash and securities, which supports the
bonding of such obligations, and reimbursements due under the Title X
reimbursement program. See "Item 7. ENVIRONMENTAL MATTERS."
The company continues to examine property acquisitions and business combination
strategies with other mining companies.
The Company's capital expenditures in the six months ended December 31, 1995
were $1,422,000, compared to $328,000 for the comparable period in 1994. During
the six months ended December 31, 1995, development costs of $365,000, $353,000
and $643,000 were incurred on the Tucker Hill, Commonwealth, and Doby George
properties, respectively. Substantially all of the capital expenditures incurred
during the six month period ended December 31, 1994 related to Tucker Hill
development costs.
The Company's capital expenditures incurred during the fiscal year ended June
30, 1995 were $625,000, compared to $5,263,000 during the fiscal year ended June
30, 1994 and $3,795,000 incurred during the fiscal year ended June 30,1993. In
fiscal 1995, approximately $360,000 was spent on the development of Tucker Hill
with the remainder being spent on the Gold Bar property. In fiscal 1994 and
1993, substantially all of the capital expenditures were for the development of
the Gold Bar property.
CHANGE IN FISCAL YEAR END
- -------------------------
In order to allow the timely inclusion of Granges' results from operations in
the Company's financial reports, the Board of Directors authorized a change in
Atlas' fiscal year-end to December 31. This change was implemented at December
31, 1995, and has resulted in financial reporting being issued for a six month
period. In the future, the Company's results will be reported on a time
schedule consistent with its industry peers.
24
<PAGE>
Unless otherwise indicated, the terms "fiscal 1995", "fiscal 1994", and "fiscal
1993" refer to the years ended June 30, 1995, 1994, and 1993, respectively.
RESULTS OF OPERATIONS
- ---------------------
SIX MONTHS ENDED DECEMBER 31, 1995 COMPARED TO SIX MONTHS ENDED DECEMBER 31,
- ----------------------------------------------------------------------------
1994
- ----
REVENUES
Due to the suspension of milling operations at the Gold Bar Project in September
1994, the Company had no mining revenues or gold production for the six months
ended December 31, 1995. This compares to mining revenue of $2,328,000 and gold
production of 6,021 ounces generated from Gold Bar during the six months ended
December 31, 1994.
OPERATING/PRODUCTION COSTS
Operating costs for the six month period ended December 31, 1994, which was
marked by the suspension of milling activities on September 19, 1994, included
production costs of $2,638,000, depreciation, depletion and amortization of
$348,000 and the accrual of shutdown and standby costs of $1,275,000.
Production costs increased to $446 per ounce, or 115% of revenue, due to the
processing of low grade ore from depleting stockpiles. The $1,275,000 accrual
for shutdown and standby costs recorded in September 1994 reflected the
anticipated projected shutdown and standby costs to be incurred through
the remainder of fiscal 1995.
EXPLORATION
The Company incurred exploration costs of $307,000 during the six months ended
December 31, 1995 for continued exploration efforts on the Gold Bar property, as
compared to $1,105,000 for the six months ended December 31, 1994. This
decrease reflects the cost savings associated with entering into the joint
venture agreements covering approximately 80% of the Gold Bar claim block and
the underground exploration conducted at Gold Bar during the six months ended
December 31, 1994.
GENERAL AND ADMINISTRATIVE
General and administrative expenses for the six months ended December 31, 1995
were $1,798,000 compared to $1,372,000 for the six months ended December 31,
1994. This increase was primarily a result of an intensified property
acquisition program and relocation expenses.
YEAR ENDED JUNE 30, 1995 COMPARED TO YEAR ENDED JUNE 30, 1994
- -------------------------------------------------------------
In January 1994, production from the Gold Bar Property was halted after a
confirmatory drill program indicated that mining to the originally designed Gold
Canyon pit bottom would have been uneconomical due to the occurrence of more
refractory material than had been previously forecast. Management initiated the
processing of low grade stockpiled ores in an effort to avoid the suspension of
milling operations. Engineering and metallurgical studies focusing on the
25
<PAGE>
development of short term reserves were accelerated. On September 16, 1994,
stockpiled ores were depleted and the Company was forced to suspend milling
operations and to temporarily place the Gold Bar project on standby. As a
result, the fiscal year ended June 30, 1995 reflects only three months of
operations.
REVENUES
Revenues for the years ended June 30, 1995 and 1994 were $2,328,000 and
$19,478,000, respectively. Gold production decreased to 6,021 ounces in fiscal
1995 from 51,700 ounces in fiscal 1994. The decreases in revenue and gold
production in fiscal 1995 reflect the suspension of operations at the Gold Bar
property after only three months of production. The average price per ounce of
gold realized in fiscal 1995 was $387 versus $377 in fiscal 1994.
OPERATING/PRODUCTION COSTS
Production costs for fiscal 1995 and 1994 were $2,683,000 and $16,526,000,
respectively. Production costs per ounce in fiscal 1995 and 1994 were $446 and
$319, respectively. The decrease in production costs are a result of the
suspension of operations at the Gold Bar property after only three months of
production in fiscal 1995. The higher production costs per ounce reflect the
lower grades run prior to the suspension of operations in 1995.
The Company incurred $1,485,000 in shutdown and standby costs during the last
three quarters of fiscal 1995. Such costs included severance payments,
continuing onsite security and maintenance as well as general and administrative
expenditures.
During the fourth quarter of fiscal 1994, the Company and an independent
consultant began evaluating the Gold Bar mine plan and remaining known ore
reserves. As a result, the Company determined that its remaining unamortized
costs could not be recovered from undiscounted cash flows over the remaining
mine life and the Company recognized an impairment to adjust the carrying value
of its assets with the property being written down to estimated salvage
value. This adjustment resulted in a charge to operations of $5,355,000 in the
fourth quarter of fiscal 1994.
The Gold Bar property was written down to estimated salvage value during fiscal
1994. Depreciation, depletion and amortization charges of $348,000 in fiscal
1995 represent the flow through of non-cash costs contained in stockpiled ore
inventory at the end of fiscal 1994 and the write-off of capital expenditures
incurred during the three months of operations in fiscal 1995.
GENERAL AND ADMINISTRATIVE
General and administrative expenses decreased by $326,000 from $3,068,000 in
fiscal 1994 to $2,742,000 in fiscal 1995, or 11%. The primary reason for the
fiscal 1995 decrease was a $400,000 reduction in salaries and severance costs.
OTHER
Exploration costs of $1,911,000 were incurred in fiscal 1995, a decrease of
approximately $400,000 from fiscal 1994. The decrease is attributable to the
reduction of land holding costs, as current joint venture partners (see below)
are responsible for land royalties and lease payments, and
26
<PAGE>
a reduction of personnel. Exploration costs in fiscal 1994 increased $430,000
from fiscal 1993 as a result of an underground drilling program commenced in the
fourth quarter of fiscal 1994 and ended during the first quarter of fiscal 1995.
During the first quarter of the fiscal year ended June 30, 1995, the Company
acquired a 37.2% interest in Granges Inc., and recorded an equity loss of
$1,361,000 during the remainder of the year. Following the merger of Granges
with its 50.5% subsidiary, Hycroft Resources and Development Corporation, Atlas
re-evaluated its investment in Granges relative to the fair values implied in
the amalgamation and to the known reserves at the Crofoot/Lewis mine. As a
result, the Company recorded an $11,419,000 impairment of its investment in
Granges as of June 30, 1995.
During October 1994, Atlas recorded a $1,144,000 loss related to the forfeiture
of a non-refundable deposit on the purchase of securities in Dakota Mining
Corporation. Atlas' decision to forfeit the deposit was based on its Upon
review of the relative market and purchase prices. Atlas decided it would
forfeit the deposit. In March 1995, Atlas entered into an agreement to purchase
approximately 2.4 million common shares of Dakota for $3,000,000, and whereby
each company also released the other from any liability arising out of the
previous agreement. In March 1996, the Company sold its interest in Dakota for
approximately $4.5 million.
Notes 12 and 13 to the Financial Statements provide details and a discussion of
discontinued operations for the past three fiscal years.
YEAR ENDED JUNE 30, 1994 COMPARED TO YEAR ENDED JUNE 30, 1993
- -------------------------------------------------------------
REVENUES
Revenues for fiscal 1994 were $19,478,000, reflecting an increase of $198,000,
or 1%, compared to fiscal 1993 revenues of $19,280,000. Gold production in
fiscal 1994 was 51,700 ounces down from 55,100 ounces in fiscal 1993. The
decrease in production was the result of processing low grade stockpiled
material after the January 1994 suspension of mining operations. The decrease in
production was offset by an increase in gold prices. The average gold price
realized increased from $350 an ounce in fiscal 1993 to $377 an ounce in fiscal
1994.
OPERATING/PRODUCTION COSTS
Production costs in fiscal 1994 decreased $1,266,000, or 7%, from fiscal 1993
production costs of $17,792,000 because of lower production levels. On a unit
cost basis, direct minesite cash costs decreased to $319 per ounce in fiscal
1994 versus $323 in fiscal 1993. Production cost as a percentage of mining
revenue was 85% in fiscal 1994 a decrease from 92% in fiscal 1993.
During fiscal 1994 Gold Bar property was written down a total of $5,355,000 to
its estimated salvage value after it was determined that the remaining
unamortized costs could not be recovered from undiscounted cash flows over the
remaining mine life.
In the fourth quarter of fiscal 1993, the Company also reduced the carrying
value of its producing and nonproducing properties by $28,716,000 and $2,796,000
based upon recent operating losses and forecasted cash flows, respectively.
27
<PAGE>
Depreciation, depletion and amortization in fiscal 1994 totaled $4,479,000, or
$87 per ounce, down from $9,005,000, or $162 per ounce, in fiscal 1993. The
decrease is primarily a result of the impairment adjustment recorded in fiscal
1993 which reduced the amortizable basis of the Company's assets.
GENERAL AND ADMINISTRATIVE EXPENSES
General and administrative expenses in fiscal 1994 were reduced by $1,081,000,
or 26%, from fiscal 1993. This was primarily the result of reductions in
personnel, a reduction in the use of consultants and a concentrated emphasis on
cost control at the corporate level. Fiscal 1994 general and administrative
expenses included approximately $390,000 in various change of control and
severance costs. As a percentage of mining revenue, general and administrative
expenses decreased to 16% in fiscal 1994 from 22% in fiscal 1993.
OTHER
In October 1992, the Company leased to another mining company gold properties in
Oregon (Grassy Mountain) and Idaho (Musgrove Creek) for a period of 35 years
with options for three additional 10 year extensions. The total consideration
was $30 million, consisting of a $22.5 million initial payment and a $7.5
million advance royalty payment.
The Company retained a 5% royalty on each of the properties which will first be
applied against the advance royalty and interest thereon. A substantial portion
of the proceeds from this transaction were used to repay the entire balance of
the Company's bank borrowings and to provide cash collateral for a letter of
credit. The balance of the proceeds were used for working capital and
exploration. This transaction resulted in a gain of $17,803,000 in the second
quarter of fiscal 1993.
Notes 12 and 13 to the Financial Statements provide details and a discussion of
discontinued operations for the past three fiscal years.
The Company's revenues and operating results for the periods set forth are not
necessarily indicative of the results for any future period because revenues and
profits from sales of gold may vary significantly between periods depending on
the amount of gold produced, production costs and gold prices.
ENVIRONMENTAL MATTERS
- ---------------------
The Company is subject to extensive federal, state and local environmental laws
and regulations. These laws, which are constantly changing, regulate the
discharge of materials into the environment and may require the Company to
mitigate any environmental effects caused by its operations. The Company
believes that it is currently in substantial compliance with all federal, state
and local environmental regulations applicable to its current and discontinued
operations.
The Company is obligated to decommission and reclaim its uranium mill site
located near Moab, Utah. When the Company discontinued its uranium operations
in 1987, estimated shut-
28
<PAGE>
down and reclamation expenses of $17,406,000 were accrued. Reclamation and
decommissioning costs (net of reimbursements, see below) of $1,189,000,
$1,497,000, $1,159,000 and $623,000 have been charged against this accrual for
the six months ended December 31, 1995 and the fiscal years ended June 30, 1995,
1994 and 1993, respectively. The balance of this accrual at December 31, 1995
was $4,513,000 and the reclamation plan as proposed by the Company extends over
the next four to seven years. Title X of "The Comprehensive National Energy
Policy Act" ("Title X"), which was enacted in October 1992, provides for
reimbursement by the federal government of past and future reclamation expenses
in proportion to the extent that the site's tailings were generated by Atomic
Energy Commission (AEC) contracts. With respect to the Company's discontinued
uranium operations, 56% of the tailings were generated by AEC contracts.
Requests for reimbursement under Title X must be submitted to the Department of
Energy (DOE) and are subject to review and audit. The timing on the repayment
of costs approved for reimbursement is a function of Congressional
appropriation.
On January 30, 1996, the Nuclear Regulatory Commission ("NRC") released the
draft Envirionmental Impact Statement ("EIS") and a draft Technical Evaluation
Report ("TER") regarding the Company's reclamation proposal. Atlas' proposed
reclamation plan consists of contouring the tailings pile to allow for the
natural drainage of precipitation and the addition of an earth and rock cover.
The current EIS process is being used by the NRC to evaluate the environmental
impact of the Company's proposed plan and an alternative proposal. The TER is
being used to evaluate compliance with NRC's technical and safety criteria.
In the draft EIS, the NRC staff's preliminary conclusion is that Atlas' proposal
to reclaim the pile in place is acceptable and less costly than the proposed
alternative. The draft TER has identified 20 items which need to be addressed
prior to final plan approval. The requisite studies necessary to address the
majority of these items, especially those of a technical nature, have recently
been completed and are supportive of the proposed plan. The public comment
period is scheduled to end on April 30, 1996.
In July 1994, the Company submitted a claim under Title X for approximately $5.0
million of reclamation costs incurred from fiscal 1986 through fiscal 1994. The
Company has received notification that the DOE has given approval on
approximately $4.5 million of the claim and $2.5 million in reimbursement with
$0.5 million being disallowed subject to further substantiation of the claim. On
December 29, 1994, the Company received $846,000 as a partial payment of the
approved reimbursement which was recorded as income from discontinued
operations. In June 1995, the Company submitted a second claim to the DOE under
Title X for approximately $3.6 million which included reclamation costs incurred
from fiscal years 1980 through fiscal year 1985, from June 1994 through May
1995, and reclamation costs previously disallowed. The DOE audit of the June
1995 has been completed and final approval is expected in Spring 1996. If the
June 1995 claim is approved in full, the Company would receive reimbursement of
approximately $2.0 million. On September 30, 1995, the Company received an
additional $1,032,000 partial payment for amounts due on the 1994 and 1995
claims. This amount has been added to the Company's reclamation accrual. Timing
of the remaining payments for approved reimbursements is a function of
Congressional appropriation of Title X funding.
29
<PAGE>
The Company is confident that the ultimate result of the EIS/TER this review
process will be the approval of its reclamation plan and that its remaining
accrual, when combined with anticipated reimbursements of reclamation costs
under the Title X program, is sufficient to cover future reclamation costs.
Estimated reclamation costs relating to the Gold Bar Resource Area are recorded
based on the units of production method. Total reclamation costs expensed in
the six month period ended December 31, 1995 and the fiscal years ended June 30,
1995, 1994 and 1993 were $0, $0, $732,000 and $313,000, respectively. As part
of the impairment recorded during the fourth quarter of fiscal year 1994 (see
results of operations, above), the Company increased its accrued expense by an
additional $1,244,000. No charges were recorded in 1995 since analysis
indicated the $3,342,000 accrued for reclamation costs at the Gold Bar Resource
Area is adequate. Although the Gold Bar mine is currently on temporary standby,
the Company expects to restart mining, subject to financing and negotiations
with mining contractors.
The Company believes it can meet the estimated closing and reclamation costs of
its uranium and gold mining operations from internally generated funds, from the
$5,659,000 in restricted cash which serves as collateral for a letter of credit
and reclamation bonds relating to these costs, and from reimbursements under
Title X, without a significant impact on its working capital position. It is
presently anticipated that these obligations will be satisfied over the next
four to seven years.
During fiscal 1988, the United States Environmental Protection Agency (EPA)
notified the Company that it was one of several potentially responsible parties
("PRPs") under the Comprehensive Environmental Response, Compensation and
Liability Act ("CERCLA") for cleanup costs at the Company's former asbestos mine
and mill site near Coalinga, California and in the City of Coalinga. A
prolonged period of inquiry and administrative process concerning this matter
followed.
In fiscal 1993 and 1991, the Company established a reserve of, and recorded as
an expense, $600,000 and $3,000,000, respectively, to cover the Company's share
of costs to be incurred in connection with this matter. This accrual reflects
participation by the BLM, which was also named as a another PRP. The
Company instituted legal action against 13 insurance carriers which had issued
insurance policies over a period of more than 25 years with respect to these
sites. During fiscal 1994, the Company reached settlement with a number of
these carriers and recorded a gain from discontinued operations of $2,175,000.
All remaining claims with the carriers were settled in fiscal 1995. The
proceeds were negligible.
In October, 1994, the Environmental Protection Agency approved a remedial action
plan for the sites. Due to unusually heavy rains experienced at the site during
the spring and early summer of 1995, the Company experienced delays and cost
overruns. As a result, the Company recorded an additional loss from
discontinued operations of $225,000 in the fourth quarter of fiscal 1995. The
Company believes the remaining reserve is sufficient to cover future costs
incurred under the remedial action plan, which was substantially completed in
the fall of 1995.
30
<PAGE>
The Company is required to obtain permits from various governmental agencies in
order to mine and mill ores. The Company has obtained all of the necessary
permits relating to its present planned operations. The Company cannot
anticipate whether the increasing costs of environmental compliance for its gold
operations will have a material adverse impact on its future operations or
competitive position.
31
<PAGE>
Item 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
-------------------------------------------
<TABLE>
<CAPTION>
INDEX TO FINANCIAL STATEMENTS Page
<S> <C>
Consolidated Statements of Operations for the Six Months Ended
December 31, 1995 and for the Years Ended
June 30, 1995, 1994 and 1993 34
Consolidated Balance Sheets as of December 31, 1995,
June 30, 1995 and 1994 35
Consolidated Statement of Stockholders' Equity (Deficit) for the Six Months
Ended December 31, 1995 and for the Years Ended
June 30, 1995, 1994 and 1993 36
Consolidated Statements of Cash Flows for the Six Months Ended
December 31, 1995, and for the Years Ended
June 30, 1995, 1994 and 1993 37
Notes to Consolidated Financial Statements 38 - 58
Report of Independent Auditors 59
</TABLE>
32
<PAGE>
ATLAS CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except earnings per share)
<TABLE>
<CAPTION>
For the Six
Months Ended For the Year Ended
------------ -------------------------------------------
December 31, June 30, June 30, June 30,
1995 1995 1994 1993
====================================================================================================================================
<S> <C> <C> <C> <C>
Mining revenue $ -- $ 2,328 $ 19,478 $ 19,280
- ------------------------------------------------------------------------------------------------------------------------------------
Costs and expenses:
Production costs -- 2,683 16,526 17,792
Depreciation, depletion and amortization -- 348 4,479 9,005
Impairment of mineral properties (Note 5) -- -- 5,355 28,716
Shutdown and standby costs (Note 5) 671 1,485 -- --
General and administrative expenses 1,798 2,742 3,068 4,149
Exploration and prospecting costs 307 1,911 2,315 1,783
Impairment of nonproducing mineral properties (Note 5) -- -- -- 2,796
- ------------------------------------------------------------------------------------------------------------------------------------
Gross operating loss (2,776) (6,841) (12,265) (44,961)
- ------------------------------------------------------------------------------------------------------------------------------------
Other (income) and expense:
Equity in loss of Granges Inc. (Note 8) 1,703 1,361 -- --
Impairment of investment in Granges Inc. (Note 8) -- 11,419 -- --
Forfeiture of deposit on stock purchase agreement (Note 4) -- 1,144
Gain on mineral lease transaction (Note 5) -- -- -- (17,803)
Interest (income) expense, net 70 (327) 205 (148)
Other (income) expense (258) (41) (430) 579
- ------------------------------------------------------------------------------------------------------------------------------------
Loss from continuing operations before income taxes
and minority interest (4,291) (20,397) (12,040) (27,589)
Provision for income taxes (Note 16) -- -- -- 477
- ------------------------------------------------------------------------------------------------------------------------------------
Loss from continuing operations before minority interest (4,291) (20,397) (12,040) (28,066)
- ------------------------------------------------------------------------------------------------------------------------------------
Minority interest in net loss of subsidiary (Note 1) 25 -- -- --
- ------------------------------------------------------------------------------------------------------------------------------------
Loss from continuing operations (4,266) (20,397) (12,040) (28,066)
- ------------------------------------------------------------------------------------------------------------------------------------
Income (loss) from discontinued operations (Note 12) -- 621 2,175 (875)
- ------------------------------------------------------------------------------------------------------------------------------------
Loss before cumulative effect of postretirement
benefit obligations (4,266) (19,776) (9,865) (28,941)
Cumulative effect of post retirement benefit obligations (Note 15) -- -- -- (968)
- ------------------------------------------------------------------------------------------------------------------------------------
Net loss $(4,266) $(19,776) $ (9,865) $(29,909)
====================================================================================================================================
Loss per share of common stock:
Loss from continuing operations $(.22) $(1.23) $(1.45) $(4.43)
Income (loss) from discontinued operations -- .04 .26 (.14)
Cumulative effect on prior years of postretirement
benefit obligations
- ------------------------------------------------------------------------------------------------------------------------------------
Net loss $(.22) $(1.19) $(1.19) $(4.72)
====================================================================================================================================
Weighted average of common shares outstanding 19,148 16,549 8,264 6,336
====================================================================================================================================
</TABLE>
See accompanying notes
33
<PAGE>
ATLAS CORPORATION
CONSOLIDATED BALANCE SHEETS
(In thousands)
<TABLE>
<CAPTION>
December 31, June 30, June 30,
1995 1995 1994
============================================================================================================================
<S> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 1,607 $ 4,453 $ 3,767
Cash held in escrow (Note 9) 10,000 -- --
Accounts receivable 365 131 970
Inventories (Note 3) 250 250 1,367
Investments in marketable equity securities (Note 4) 3,629 4,083 --
Prepaid expenses and other current assets 199 198 212
- ----------------------------------------------------------------------------------------------------------------------------
Total current assets 16,050 9,115 6,316
Property, plant and equipment (Note 5) 50,765 47,686 50,476
Less: Accumulated depreciation, depletion and amortization
and impairment (44,406) (44,661) (47,637)
- ----------------------------------------------------------------------------------------------------------------------------
6,359 3,025 2,839
Investment in Granges Inc. (Notes 8 and 9) 23,756 25,452 --
Restricted cash and securities (Note 10) 5,367 5,659 7,993
Other assets (Note 10) 1,508 246 2,699
- ----------------------------------------------------------------------------------------------------------------------------
$ 53,040 $ 43,497 $ 19,847
============================================================================================================================
LIABILITIES
Current liabilities:
Trade accounts payable $ 1,597 $ 601 $ 2,109
Other accrued liabilities (Note 10) 1,998 2,103 3,146
Short-term notes payable (Note 9) 2,000 -- --
Current portion of estimated uranium reclamation costs (Note 13) 800 800 1,300
- ----------------------------------------------------------------------------------------------------------------------------
Total current liabilities 6,395 3,504 6,555
Long-term debt (Notes 9 and 18) 13,500 3,500 3,500
Other liabilities, long-term (Note 10) 10,184 11,660 12,267
Commitments and contingencies (Note 13)
MINORITY INTEREST 818 -- --
STOCKHOLDERS' EQUITY (DEFICIT) (NOTES 6, 7 AND 18)
Common stock, par value $1 per share; authorized
50,000,000, 50,000,000 and 25,000,000; issued and 20,035 18,578 9,410
outstanding, 20,034,743, 18,577,500 and 9,410,012
at December 31, 1995, June 30, 1995 and 1994, respectively
Capital in excess of par value 69,248 68,678 31,555
Deficit (67,482) (63,216) (43,440)
Unrealized gain on investment in equity securities (Note 4) 442 896 --
Currency translation adjustment (100) (103) --
- ----------------------------------------------------------------------------------------------------------------------------
Total stockholders' equity (deficit) 22,143 24,833 (2,475)
- ----------------------------------------------------------------------------------------------------------------------------
$ 53,040 $ 43,497 $ 19,847
============================================================================================================================
See accompanying notes
</TABLE>
34
<PAGE>
ATLAS CORPORATION
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT)
(In thousands)
<TABLE>
<CAPTION>
Capital in
Common Common Excess of
Shares Stock Par Value Deficit Other Total
- ---------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Balance at June 30, 1992 6,336 $ 6,336 $22,832 $ (3,666) -- $ 25,502
Current year loss -- -- -- (29,909) -- (29,909)
- ---------------------------------------------------------------------------------------------------------------
Balance at June 30, 1993 6,336 6,336 22,832 (33,575) -- (4,407)
Issuance of Common stock (Note 18) 3,000 3,000 8,362 -- -- 11,362
Exercise of warrants 13 13 33 -- -- 46
Interest on Debenture 61 61 328 -- -- 389
Current year loss -- -- -- (9,865) -- (9,865)
- ---------------------------------------------------------------------------------------------------------------
Balance at June 30, 1994 9,410 9,410 31,555 (43,440) -- (2,475)
Issuance of Common stock (Note 18) 9,091 9,091 36,965 -- -- 46,056
Exercise of Warrants 15 15 39 -- -- 54
Interest on Debenture 40 40 50 -- -- 90
Shares issued to 401(k) plan 22 22 69 -- -- 91
Unrealized gain on investment (Note 4) -- -- -- -- 896 896
Currency translation adjustment -- -- -- -- (103) (103)
Current year loss -- -- -- (19,776) -- (19,776)
- ---------------------------------------------------------------------------------------------------------------
Balance at June 30, 1995 18,578 18,578 68,678 (63,216) 793 24,833
Issuance of Common stock for purchase of
property (Note 5) 1,400 1,400 525 -- -- 1,925
Shares issued to 401(k) plan 18 18 16 -- -- 34
Interest on Debenture 39 39 29 -- -- 68
Unrealized loss on investment (Note 4) -- -- -- -- (454) (454)
Currency translation adjustment -- -- -- -- 3 3
Current year loss -- -- -- (4,266) -- (4,266)
- ---------------------------------------------------------------------------------------------------------------
Balance at December 31, 1995 20,035 $20,035 $69,248 $(67,482) $ 342 $ 22,143
===============================================================================================================
</TABLE>
See accompanying notes
35
<PAGE>
ATLAS CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOW
(In thousands)
<TABLE>
<CAPTION>
For the Six
Months Ended For the Year Ended
------------ ---------------------------------------
December 31, June 30, June 30, June 30,
1995 1995 1994 1993
====================================================================================================================================
<S> <C> <C> <C> <C>
Operating activities:
Net loss $ (4,266) $ (19,776) $ (9,865) $ (29,909)
(Income) loss from discontinued operations -- (621) (2,175) 875
Cumulative effect of postretirement -- -- -- 968
benefit obligations --
From continuing operations:
Adjustments to reconcile income loss to net
cash used in operations (Note 11) 1,795 14,198 9,902 23,329
Charges in operating assets and liabilities (Note 11) 1,099 (62) (2,217) (608)
- ------------------------------------------------------------------------------------------------------------------------------------
(1,372) (6,261) (4,355) (5,345)
- ------------------------------------------------------------------------------------------------------------------------------------
Discontinued operations:
Operating income (loss) (net of tax) -- 621 2,175 (875)
Adjustments to reconcile income to net cash provided
by (used in) operations:
Decrease (increase) in accounts receivable -- 875 (875) --
Decrease in taxes payable -- -- -- (37)
Increase in accrued liabilities -- 123 -- --
Increase (decrease) in other liabilities, long-term -- 102 (101) 877
Net decrease in estimated reclamation costs (1,190) (1,497) (1,079) (623)
- ------------------------------------------------------------------------------------------------------------------------------------
(1,190) 224 120 658
- ------------------------------------------------------------------------------------------------------------------------------------
Net cash used in operations (2,562) (6,037) (4,235) (6,003)
- ------------------------------------------------------------------------------------------------------------------------------------
Investing activities:
Net cash acquired in purchase of 220 -- -- --
subsidiary
Purchase of stock in Granges Inc. -- (36,492) -- --
Investment in equity securities (180) (3,007) -- --
Proceeds from issuance of long-term debt, held in escrow (10,000) -- -- --
Proceeds from lease transaction -- -- -- 30,000
Additions to property, plant and equipment (1,422) (625) (5,263) (3,795)
Proceeds from sale of equipment and reduction in other assets -- 491 434 1,479
Collateral for letter of credit -- -- -- (6,500)
- ------------------------------------------------------------------------------------------------------------------------------------
Net cash provided by (used in)
investing activities (11,382) (39,633) (4,829) 21,184
- ------------------------------------------------------------------------------------------------------------------------------------
Financing activities:
Proceeds from borrowings on short term debt and line of credit -- 3,550 750
Principal payments on revolving line of credit and long-term debt -- -- -- (14,749)
Repayment of short-term debt -- (3,550) (3,524) --
Proceeds from the issuance of common stock -- 50,054 12,421 --
Proceeds from the issuance of long-term debt 10,000 -- 3,500 --
Proceeds from the issuance of short-term notes 2,000 -- -- --
Cost of issuance of long-term debt and common stock (902) (3,698) (1,300) --
- ------------------------------------------------------------------------------------------------------------------------------------
Net cash provided by (used in) financing activities 11,098 46,356 11,097 (13,999)
- ------------------------------------------------------------------------------------------------------------------------------------
Increase (decrease) in cash and cash equivalents (2,846) 686 2,033 1,182
Cash and cash equivalents at beginning of period 4,453 3,767 1,734 552
- -----------------------------------------------------------------------------------------------------------------------------------
Cash and cash equivalents at end of period $ 1,607 $ 4,453 $ 3,767 $ 1,734
===================================================================================================================================
See accompanying notes
</TABLE>
36
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
------------------------------------------
1. ACCOUNTING POLICIES
PRINCIPLES OF CONSOLIDATION -- The accompanying consolidated financial
statements include the accounts of the Company and all majority-owned
subsidiaries. All significant intercompany balances and transactions have been
eliminated. Minority interest represents the 49% share of Phoenix Financial
Holdings Inc. not owned by the Company.
CHANGE IN FISCAL YEAR -- The Company changed its fiscal year from June 30 to
December 31 effective December 31, 1995. The results for the six month period
ended December 31, 1995 have been presented in the main body of the financial
statements.
INVENTORIES -- Inventories other than finished gold are recorded at the lower of
average cost or net realizable value. Finished gold inventory is carried at
realizable value.
MINING COSTS -- During production periods, costs attributable to waste are
charged to operations based on the average ratio of waste tonnage to ore
tonnage.
PROPERTY, PLANT AND EQUIPMENT -- Property, plant and equipment is stated at the
lower of cost, or estimated net realizable value. Depreciation of milling
facilities and depletion of mining properties is determined by the units of
production method. The Company regularly assesses its ability to recover the
carrying value of its assets and recognizes an impairment when it is determined
that unamortized costs cannot be recovered from undiscounted cash flows over the
remaining project life. Leasehold improvements are amortized on a straight-line
basis over the terms of related leases or, if shorter, estimated useful life.
Expenditures for maintenance and repairs are charged to operations as incurred.
Expenditures for additions and major renewals are added to the property, plant
and equipment accounts. Interest expense allocable to the acquisition or
construction of capital assets and deferred mine development is capitalized
until operations commence.
INVESTMENTS -- The Company uses the equity method to account for investments in
common stock of companies 20% to 50% owned. Investments in equity securities of
companies which are less then 20% owned are carried at the lower of cost or
market value. Marketable equity securities available for sale are recorded at
fair value with unrealized gains and losses reported as a separate component of
stockholders' equity.
Effective June 30, 1995, the Company changed its method of recognizing
the equity in earnings of companies accounted for under the equity method from
reporting the results of operations on a three month lag period to reporting the
results of operations on a current basis.
EXCESS OF COST OVER NET ASSETS ACQUIRED -- The excess cost is being amortized on
a straight-line basis over five years. Amortization expense for the six months
ended December 31, 1995 and accumulated amortization at December 31, 1995 were
$7,000 and $7,000, respectively.
37
<PAGE>
FOREIGN CURRENCIES -- All assets and liabilities of foreign subsidiaries are
translated into U.S. dollars using the exchange rate prevailing at the balance
sheet date, while income and expense items are translated at the weighted
average exchange rate prevailing during the period. Unrealized exchange gains
and losses are deferred and shown as a currency translation adjustment in
shareholders' equity.
EXPLORATION AND MINE DEVELOPMENT -- Exploration costs are expensed as incurred.
When it is determined that a property has development potential, the subsequent
costs of exploration and development are capitalized. Upon commencement of
production the capitalized costs are amortized using the units of production
method.
MINING REVENUE -- Revenues are recorded when the finished product is available
for shipment.
RECLAMATION -- Estimated reclamation, site restoration and closure costs for
each mine are charged to operations over the expected life of the mine using the
units of production method.
INCOME TAXES -- Effective July 1, 1993, the Company adopted Statement of
Financial Accounting Standards (SFAS) No. 109, Accounting for Income Taxes.
Under SFAS 109, income taxes are provided for the tax effects of transactions
reported in the financial statements and consist of taxes currently due plus
deferred taxes related to certain income and expenses recognized in different
periods for financial and income tax reporting purposes. Deferred tax assets and
liabilities represent the future tax return consequences of those differences
which will either be taxable or deductible in the future when the assets and
liabilities are recovered or settled. A valuation allowance is provided if it
is more likely than not that any portion of the deferred tax assets will not be
realized. Deferred tax assets are also recognized for operating losses and tax
credits that are available to offset future taxable income or income taxes.
CASH EQUIVALENTS -- The Company considers all highly liquid investments
purchased with a maturity of three months or less to be cash equivalents.
EARNINGS PER SHARE -- Earnings per share have been calculated based on the
weighted average number of common shares outstanding during the year. Shares
issuable under options and warrants are excluded from the computation when they
are not dilutive.
STOCK-BASED COMPENSATION -- In October 1995, the FASB issued Statement No. 123,
"Accounting and Disclosure of Stock-Based Compensation". Statement No. 123 is
applicable for fiscal years beginning after December 15, 1995 and gives the
option to either follow fair value accounting or to follow Accounting Principles
Board Opinion No. 25, "Accounting for Stock Issued to Employees" ("APB No. 25")
and related Interpretations.
The Company has not yet determined whether it will elect to use fair value or to
follow APB No. 25 and related Interpretations in accounting for its stock
options. The Company has not yet determined the impact on its financial
position or results of operations, should it decide to adopt fair value
accounting.
LONG-LIVED ASSETS -- In March 1995, the FASB issued Statement No. 121,
"Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to
be disposed Of", which requires
38
<PAGE>
impairment losses to be recorded on long-lived assets used in operations when
indicators of impairment are present. The Company is required to adopt Statement
No. 121 in the first quarter of 1996 and, based on current circumstances, does
not believe the effect of adoption will be material.
ACCOUNTING ESTIMATES IN THE PREPARATION OF FINANCIAL STATEMENTS -- The
preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amount of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.
RECLASSIFICATIONS -- Certain of the comparative figures have been reclassified
to conform with the current year's presentation.
2. RESULTS FOR THE SIX MONTHS ENDED DECEMBER 31, 1994
The following financial information for the six months ended December 31, 1994
is unaudited and is being presented for comparative purposes:
<TABLE>
<CAPTION>
Six Months Ended December 31,
-----------------------------
1994
1995 (Unaudited)
------------ -----------
<S> <C> <C>
Mining Revenue $ -- $ 2,328
Gross Operating Loss (2,776) (4,455)
Loss from continuing operations before
income taxes and minority interest (4,291) (5,804)
Provision for income taxes -- --
Minority interest in net loss of subsidiary 25 --
Loss from continuing operations (4,266) (5,804)
Income from discontinued operations -- 846
Net loss $ (4,266) $ (4,958)
========= ==========
Net loss per common share $ (.22) $ (.34)
========= ==========
</TABLE>
3. INVENTORIES
The following is a summary of inventories:
<TABLE>
<CAPTION>
December 31, June 30, June 30,
(In thousands) 1995 1995 1994
- --------------------------------------------------------------------------
<S> <C> <C> <C>
Stockpiled ore $ -- $ -- $ 360
Work in process -- -- 593
Finished product -- -- 64
</TABLE>
39
<PAGE>
<TABLE>
<CAPTION>
<S> <C> <C> <C>
Materials and supplies 250 250 350
----- ----- ------
$ 250 $ 250 $1,367
===== ===== ======
</TABLE>
4. INVESTMENTS IN MARKETABLE EQUITY SECURITIES
On May 31, 1994, the Company, Dakota Mining Corporation ("Dakota") and
VenturesTrident, L.P. and VenturesTrident II, L.P. entered into an agreement in
principle providing for (i) the purchase of 1,500,000 common shares of Dakota
from the VenturesTrident Partnerships, for $4.00 per share, and, subject to the
completion of the purchase of the VenturesTrident Shares, (ii) the subscription
by Atlas to 3,100,000 newly-to-be issued convertible preferred shares of Dakota.
On October 28, 1994, the Company determined that, based upon the prevailing
market conditions, it was in the best interests of its shareholders not to
proceed with the Dakota acquisition and forfeited $1,000,000 in nonrefundable
deposits to the VenturesTrident Partnerships. Costs of $144,000 incurred in
conjunction with the Dakota transaction were also expensed.
On March 9, 1995, Atlas and Dakota entered into a Subscription Agreement, under
which Atlas purchased 2,419,355 Special Warrants of Dakota at a price of $1.24
per Special Warrant which were subsequently converted into 2,419,355 Common
Shares of Dakota. As a result of such purchase, the Company owned over 9% of the
outstanding Common Shares of Dakota. In connection with the purchase by the
Company of Special Warrants, the Company and Dakota executed a mutual limited
release, whereby each party released the other from any liability arising out of
the May 31, 1994 agreement.
Subsequent to December 31, 1995, the Company sold its equity holdings in Dakota,
see Note 19 for the terms of the sale.
The following is a summary of investments in equity securities:
<TABLE>
<CAPTION>
December 31, June 30, June 30,
(In thousands) 1995 1995 1994
- ----------------------------------------------------------------------------------
<S> <C> <C> <C>
Dakota Mining Corporation Common Stock:
Cost $ 3,187 $ 3,187 $ --
Gross Unrealized Gains 442 896 --
---------- -------- ---------
Estimated Fair Value $ 3,629 $ 4,083 $ --
========== ======== =========
</TABLE>
40
<PAGE>
5. PROPERTY, PLANT AND EQUIPMENT
The following is a summary of property, plant and equipment:
<TABLE>
<CAPTION>
Accumulated
Depreciation,
Depletion
Acquisition Amortization Net Book
December 31, 1995 (In thousands) Costs & Impairment Value
- --------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Property and leaseholds $ 5,507 $ 2,262 $ 3,245
Land improvements 5,734 5,734 --
Deferred exploration and development costs:
Producing 3,470 3,470 --
Nonproducing 533 -- 533
Buildings and equipment 35,521 32,940 2,581
---------- ---------- -------
Total $ 50,765 $ 44,406 $ 6,359
========== ========== =======
<CAPTION>
Accumulated
Depreciation,
Depletion
Acquisition Amortization Net Book
June 30, 1995 (In thousands) Costs & Impairment Value
- --------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Property and leaseholds $ 2,256 $ 2,256 $ --
Land improvements 5,734 5,734 --
Deferred exploration and development costs:
Producing 3,470 3,470 --
Nonproducing 750 -- 750
Buildings and equipment 35,476 33,201 2,275
---------- ------- ------
Total $ 47,686 $44,661 $ 3,025
========== ======= ======
<CAPTION>
Accumulated
Depreciation,
Depletion,
Acquisition Amortization Net Book
June 30, 1994 (In thousands) Costs & Impairment Value
- --------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Property and leaseholds $ 2,256 $ 2,256 $ --
Land improvements 5,734 5,734 --
Deferred exploration and development costs:
Producing 3,470 3,470 --
Nonproducing 388 -- 388
Buildings and equipment 38,620 36,177 2,451
---------- ---------- ------
Total $ 50,476 $ 47,637 $2,839
========== ========== ======
</TABLE>
41
<PAGE>
On October 25, 1995, Atlas purchased the Doby George property from Independence
Mining Company Inc. for the sum of $400,000 in cash plus 1.4 million shares of
the Company's common stock.
On September 13, 1995, the company completed a one year option agreement on the
Commonwealth property, located in Arizona, with Harvest Gold Corporation. Under
the terms of the option, Atlas must spend a minimum of $425,000 during the one
year option period and, in order to exercise the option, would be required to
pay Harvest $25 per equivalent ounce of recoverable gold reserve. This exercise
option would be payable 75% in Atlas Common Stock and 25% in cash, with cash not
to exceed $1.3 million.
During September 1994, the Company placed the Gold Bar Mine on standby and
recorded an expense of $1,275,000 for estimated shutdown and standby costs
through the end of the fiscal year. During the fourth quarter of the fiscal
year ended June 30, 1995, the Company recorded $210,000 of additional shutdown
and standby costs. Also, during the six months ended December 31, 1995, the
Company recorded $671,000 of additional shutdown and standby costs.
During the fourth quarter of fiscal year 1994, the Company reviewed its mine
plan and feasibility studies at certain Gold Bar properties. It was determined
that the Company's unamortized investment could not be recovered from
undiscounted cash flows over the remaining mine life, accordingly, the Company
recorded an impairment of $5,355,000 in carrying value of its producing
properties. This impairment is in addition to a similar reduction of
$28,716,000 in the carrying value of its producing properties recorded in fiscal
year 1993. The Company wrote off the $2,796,000 carrying value of certain
nonproducing properties in the fourth quarter of fiscal 1993.
In October 1992, the Company leased to another mining company gold properties in
Oregon and Idaho for a period of 35 years with options for three additional 10
year periods. The total consideration was $30 million, consisting of a $22.5
million initial payment and a $7.5 million advance royalty payment. The Company
has retained a 5% royalty on each of the properties which will first be applied
against the advance royalty and interest thereon. This transaction resulted in a
gain of $17.8 million in fiscal year 1993.
6. STOCKHOLDERS' EQUITY
At a Special Meeting of Stockholders held on December 15, 1994, an amendment was
approved to the Company's Certificate of Incorporation increasing the number of
authorized shares of common stock from 25 million to 50 million. The Company is
also authorized to issue 1,000,000 shares of preferred stock, par value $1 per
share. The preferred stock is issuable in series, with designations, rights and
preferences to be fixed by the Board of Directors. The Board of Directors has
established a series of 200,000 shares of Series Preferred Stock designated
Series A Junior Participating Preferred Stock ("Series A Preferred Stock"), no
shares of which have been issued.
At December 31, 1995, there were 875,000 shares of Common Stock reserved for the
conversion of an outstanding convertible debenture and 2,032,111 shares of
Common Stock reserved for Option Warrants traded on the American Stock Exchange
which are exercisable at a price of $15.625 per share and have no expiration
date ("Perpetual Warrants"). Since June 30, 1993, no Perpetual Warrants have
been issued or exercised. Also at December 31, 1995, there were
42
<PAGE>
6,517,955 shares of Common Stock reserved for Option Warrants issued in
connection with the private placements discussed in Note 18, with the following
terms and activity:
<TABLE>
<CAPTION>
Shares Exercised
----------------------------------
Date of Exercise Expiration Shares Year Ended 6/30 Six Mo. Ended Outstanding
-------------------
Issuance Price Date Issued 1994 1995 Dec. 31, 1995 Dec. 31, 1995
- ----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Sept. 20, 1993 $3.625 Sept. 20, 1996 2,000,000 12,500 15,000 --- 1,972,500
Aug. 15, 1994 $ 7.00 Aug. 15, 1999 3,243,405 --- --- --- 3,243,405
Dec. 15, 1994 $ 7.00 Dec. 15, 1999 1,302,050 --- --- --- 1,302,050
</TABLE>
The Company has an Amended and Restated Rights Agreement under which a holder of
Preferred Stock Purchase Rights ("Rights") is entitled to purchase from the
Company 1/200th of a share of Series A Preferred Stock at a price of $45 per
1/200th of a share. Subject to action by the Board of Directors, the Rights
become exercisable upon the occurrence of certain events, including acquisition
by a person or group of 15% or more of the outstanding Common Stock of the
Company. Upon any such acquisition, the amended Plan provides that upon exercise
of Rights and payment of the purchase price, the exercising Rights holder is
entitled to receive, in lieu of Series A Preferred Stock, shares of Common Stock
having a market value equal to twice the purchase price. The Amended and
Restated Rights Agreement was amended as of September 13, 1993 and August 15,
1994 to provide that the transactions with Phoenix Financial Holdings Inc.,
M.I.M. Holdings Limited and Mackenzie Financial Corporation would not cause the
Rights to become exercisable (Note 18).
7. EMPLOYEE INCENTIVE PLANS
The Company's Long Term Incentive Plan (the "LTIP") provides that key employees
may be granted options to purchase Common Stock at the fair value of the shares
on the date of grant. At a February 17, 1995 Meeting of Stockholders, the
shareholders approved an amendment to the Long Term Plan (i) to increase by
850,000 to 1,745,000 the number of shares authorized for issuance under the
LTIP, (ii) to provide for the automatic grant to non-employee directors of the
Company of awards of stock options under the LTIP and (iii) to reduce the
minimum period prior to which an option may be exercised for all options granted
after January 6, 1995 from one year to six months. Options are exercisable for a
maximum of ten years from the date of grant and no options may be granted after
July 31, 1999.
<TABLE>
<CAPTION>
Date Granted Exercise Price Shares
- --------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Granted October 1, 1986 $ 6.750 6,000
Granted January 6, 1988 16.125 6,000
Granted August 2, 1989 16.750 10,000
Granted November 13, 1989 17.250 2,000
Granted April 14, 1990 14.625 21,500
Granted July 23, 1990 12.125 8,000
Granted September 12, 1990 13.125 47,000
Granted March 6, 1991 7.375 6,450
Granted January 6, 1993 5.125 43,500
Granted March 11, 1993 2.750 30,000
- --------------------------------------------------------------------------------------------------
Balance outstanding as of June 30, 1993 180,450
</TABLE>
43
<PAGE>
<TABLE>
<S> <C> <C> <C>
Granted November 15, 1993 $ 4.250 815,000
Granted December 1, 1993 5.250 10,000
Granted May 2, 1994 8.000 5,000
Exercised (30,000)
Cancelled (185,950)
- -------------------------------------------------------------------------------------------
Balance outstanding as of June 30, 1994 794,500
Granted August 10, 1994 $ 4.750 122,500
Granted January 6, 1995 2.125 80,000
Granted January 6, 1995 4.500 450,000
Granted January 6, 1995 3.000 83,000
Granted January 6, 1995 4.000 83,000
Granted January 6, 1995 5.000 84,000
Granted May 19, 1995 2.000 235,000
Cancelled (815,000)
- -------------------------------------------------------------------------------------------
Balance outstanding as of June 30, 1995 1,117,000
Granted July 12, 1995 $ 1.875 40,000
Granted August 10, 1995 2.000 225,500
Granted December 13, 1995 1.500 20,000
Granted December 15, 1995 2.000 7,800
Cancelled (347,000)
- -------------------------------------------------------------------------------------------
Balance outstanding as of December 31, 1995 1,063,300
=========
Summary of options outstanding as of December 31, 1995:
- -----------------------------------------------------------------------------------------
Date Exercise Price Shares
- -----------------------------------------------------------------------------------------
November 15, 1993 $ 4.250 300,000
January 6, 1995 2.125 60,000
January 6, 1995 4.500 350,000
May 19, 1995 2.000 60,000
July 12, 1995 1.875 40,000
August 10, 1995 2.000 225,500
December 13, 1995 1.500 20,000
December 15, 1995 2.000 7,800
- -----------------------------------------------------------------------------------------
1,063,300
=========
</TABLE>
8. INVESTMENTS
INVESTMENT IN GRANGES INC.
On August 15, 1994, the Company completed the purchase from M.I.M. (Canada) Inc.
("M.I.M.") of 12,694,200 common shares of Granges Inc. ("Granges") which
represented 37.2% of the issued and outstanding shares of Granges. The purchase
price was Cdn. $4.00 per share (U.S. $2.80), or an aggregate purchase price of
Cdn. $50.8 million (U.S. $35.8 million).
44
<PAGE>
Granges is a Canadian-based precious metals mining company whose shares are
traded on the Toronto Stock Exchange and the American Stock Exchange. Effective
May 1, 1995, Granges amalgamated with Hycroft Resources and Development
Corporation ("Hycroft"), which operates the Crofoot/Lewis mine located in
Nevada,. Prior to the amalgamation, Granges had a 50.5% ownership position in
Hycroft. The terms of the amalgamation called for each common share of Hycroft
to be exchanged for 0.88 of a common share of "new" Granges Inc. and for each
common share of Granges outstanding prior to the amalgamation, to be exchanged
for one common share of "new" Granges Inc. After the amalgamation, the Company
continued to hold 12,694,200 shares of "new" Granges Inc., representing 27.5% of
the outstanding common shares of Granges. On May 25, 1995, the Company
purchased 20,700 Common shares of Granges to hold a total of 12,714,900 Common
shares of Granges.
The Company has reported the results of Granges' operations on the equity method
since it was acquired on August 15, 1994. Summarized Statements of Operations
of Granges and summarized Balance Sheets are presented below:
<TABLE>
<CAPTION>
Six Months Ended Twelve Months Ended
STATEMENT OF OPERATIONS December 31, 1995 June 30, 1995
(U.S. GAAP, U.S. Dollars, in thousands) (unaudited) (unaudited)
- -------------------------------------------------------------------------------------------
<S> <C> <C>
Sales $19,459 $42,833
Cost of sales 16,544 34,179
Depreciation, depletion, & amortization 4,446 4,773
------- -------
Income (loss) from mining operations (1,531) 3,881
Net loss $(1,303) $(1,405)
======= =======
<CAPTION>
BALANCE SHEET December 31, 1995 June 30, 1995
(U.S. GAAP, U.S. Dollars, in thousands) (unaudited)
- -------------------------------------------------------------------------------------------
<S> <C> <C>
Current assets $28,099 $34,109
Non-current assets $59,405 $53,136
Current liabilities $ 6,239 $ 5,346
Non-current liabilities $ 3,409 $ 3,206
Net equity $77,856 $78,693
</TABLE>
Under the equity method, the Company recorded a loss of $1,703,000 and
$1,361,000 for the six months ended December 31, 1995 and for the period from
August 15, 1994 (date of acquisition) to June 30, 1995, respectively.
In connection with May 1, 1995 amalgamation of Granges Inc. and Hycroft
Resources and Development Corporation, the Company has re-evaluated its
investment in Granges relative to the fair values implied in the amalgamation
and to known reserves at the Crofoot/Lewis mine. As a result, the Company
recorded an $11,419,000 impairment of its investment in Granges Inc. as of June
30, 1995. The impairment reduced the excess cost of the investment over the net
assets attributable to Atlas' interest in Granges from approximately $20.5
million on August 15, 1994 (date of acquisition) to approximately $9.0 million
at June 30, 1995. The Company amortizes the
45
<PAGE>
excess cost of the investment related to producing properties on a unit of
production (gold ounces) basis which is included in the reported loss discussed
above.
Effective September 29, 1995 the Company entered into an exploration joint
venture agreement with Granges with respect to approximately 34 square miles of
the Company's Gold Bar claim block. In order to earn a 50% undivided interest
in not more than 15 square miles within the area of interest, the terms of the
agreement require Granges to spend U.S.$2.25 million on exploration and
development within three years on approximately 1,190 claims included in the
area of interest, at the rate of U.S.$625,000 in each of the first two years and
U.S.$1.0 million in the third year, and to complete an independent reserve
report recommending development of a deposit containing a mineable reserve in
excess of 300,000 ounces of gold. Upon execution of the agreement, Granges paid
to the Company $359,000 for reimbursement of past exploration expenses.
INVESTMENT IN PHOENIX FINANCIAL HOLDINGS INC.
On November 30, 1995, Atlas purchased 12.2 million (51%) of the outstanding
common shares of Phoenix Financial Holdings Inc. (CDN: PGML.A, PGML.B) for an
aggregate purchase price of Cdn. $1,781,200. With the purchase, Atlas assumed
board control, with David J. Birkenshaw, Atlas' Chairman and Chief Executive
officer, appointed Chairman of Phoenix, and Gerald E. Davis, Atlas' President,
being appointed Vice-Chairman and Chief Executive Officer of Phoenix. Mr.
Birkenshaw had previously been Chairman of Phoenix from June 1991 until his
resignation in March 1995.
The results of operations of Phoenix are consolidated into the Company's
financial statements using the principles of consolidation discussed in Note 1.
Also see details of subsequent events regarding Atlas' investment in Phoenix
discussed in Note 19.
9. CURRENT AND LONG-TERM DEBT
LONG-TERM DEBT
<TABLE>
<CAPTION>
December 31, June 30, June 30,
(in thousands) 1995 1995 1994
- ---------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Redeemable Convertible Debenture, Due
September 20, 1998, bearing interest at 9% (1) $ 3,500 $3,500 $3,500
Exchangeable Debentures, due October 25, 2000,
bearing interest at 7% (2) 10,000 -- --
------- ------ ------
Total long-term debt $13,500 $3,500 $3,500
======= ====== ======
</TABLE>
(1) The Convertible Debenture is convertible as to principal at the option of
the holder into shares of the Company's common stock at the rate of $4.00 per
share. Interest on the debenture is also payable either in cash or in common
stock at the rate of $4.00 per share.
(2) The Exchangeable Debentures are exchangeable, at the debentureholder's
option, into common shares of Granges Inc. ("Granges Shares") at the rate of
42.5 Granges Shares for each $100 of principal amount of debentures surrendered.
The Company may also redeem the debentures on or after October 25, 1998 if the
average market price of the Granges Shares is at least $2.94 per share at the
rate of 42.5 Granges Shares per $100 of debentures held. The Company may also
46
<PAGE>
pay the debentures at maturity in either cash or Granges shares (at the
Company's option) at a price per share equal to 95% of the average market price
of the Granges shares on the date of maturity.
The proceeds from the Exchangeable Debentures were placed in escrow on November
10, 1995 pending completion of certain registration and qualification
requirements. On February 8, 1996, the Company met the registration and
qualification requirements, releasing the escrowed funds.
SHORT-TERM DEBT
On November 29, 1995 the Company entered into a $2,000,000 loan facility with
First Marathon Inc. maturing on the earlier of: (a) February 15, 1996, or (b) 5
days following the date on which the qualification and registration requirements
for the Exchangeable Debentures were met. The Company pledged as security
approximately 2.4 million common shares in Dakota Mining Corporation and 4.2
million common shares of Granges Inc. On February 8, 1996, the Company met the
registration and qualification requirements related to the Exchangeable
Debentures, using the released escrow funds to repay the loan facility.
10. DETAILS OF CERTAIN BALANCE SHEET CAPTIONS
A summary of restricted cash and securities is as follows:
<TABLE>
<CAPTION>
December 31, June 30, June 30,
(In thousands) 1995 1995 1994
- -------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Collateral for a $4,592,000 letter of credit (a)(c) $ 4,602 $ 4,869 $ --
Collateral for a $6,500,000 letter of credit (a) -- -- 6,500
Collateral for a $1,500,000 reclamation bond (b) 765 790 775
Other restricted cash (c) -- -- 718
------- ------- -------
$ 5,367 $ 5,659 $ 7,993
======= ======= =======
</TABLE>
(a) Securing $6,500,000 performance bond related to the Company's uranium
reclamation obligation.
(b) Securing $1,500,000 performance bond related to the Company's Gold Bar
reclamation obligation.
(c) Securing $1,826,000 performance bond related to the Company's Gold Bar
reclamation obligation.
A summary of other assets is as follows:
<TABLE>
<CAPTION>
December 31, June 30, June 30,
(In thousands) 1995 1995 1994
- -------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Deposit paid for Granges Inc. shares $ -- $ -- $ 1,843
Deposit paid for Dakota Mining Corporation
shares (Note 4) -- -- 525
Debt issuance costs 902 -- --
Excess of cost over net assets of Phoenix
Financial Holdings (Note 8) 442 -- --
Other 164 246 331
------- ------- -------
$ 1,508 $ 246 $ 2,699
======= ======= =======
</TABLE>
A summary of other accrued liabilities is as follows:
<TABLE>
<CAPTION>
December 31, June 30, June 30,
(In thousands) 1995 1995 1994
- -------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
</TABLE>
47
<PAGE>
<TABLE>
<CAPTION>
<S> <C> <C> <C>
Accrued compensation $ 246 $ 230 $ 596
Mine reclamation accrual 300 300 300
Accrued asbestos reclamation
costs (Notes 12 and 13) 393 566 1,400
Other 1,059 1,002 850
------- ------- -------
$ 1,998 $ 2,103 $ 3,146
======= ======= =======
</TABLE>
A summary of other liabilities, long-term is as follows:
<TABLE>
<CAPTION>
December 31, June 30, June 30,
(In thousands) 1995 1995 1994
- --------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Long term uranium reclamation cost
(Notes 12 and 13) $ 3,713 $ 4,902 $ 5,899
Pension and deferred compensation obligations 1,441 1,405 1,335
Mine reclamation accrual 2,812 3,042 3,100
Accrued postretirement benefit obligation (Note 15) 1,239 1,232 1,203
Other 979 1,079 730
------- ------- -------
$10,184 $11,660 $12,267
======= ======= =======
</TABLE>
11. DETAILS OF CERTAIN STATEMENTS OF CASH FLOW CAPTIONS
The components of the adjustment to reconcile loss to net cash used in
operations as reflected in the Consolidated Statements of Cash Flows are as
follows:
<TABLE>
<CAPTION>
For the Six
Months Ended For the Year Ended
--------------------------------
December 31, June 30, June 30, June 30,
(In thousands) 1995 1995 1994 1993
- -------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Depreciation, depletion and amortization $ 15 $ 395 $ 4,547 $ 9,003
Equity loss in Granges Inc. 1,703 1,361
Minority interest (25) -- -- --
Forfeiture of deposit on stock purchase agreement -- 525 -- --
Write-down of investment in Granges Inc. -- 11,419 -- --
Write-down of mineral properties - producing -- -- 5,355 28,716
Write-down of mineral properties - nonproducing -- -- -- 2,796
Gain on mineral lease transaction -- -- -- (17,803)
Other adjustments 102 498 -- 615
- -------------------------------------------------------------------------------------------------
$1,795 $14,198 $ 9,902 $ 23,329
=================================================================================================
</TABLE>
The components of net changes in operating assets and liabilities is as follows:
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Decrease (increase) in trade accounts receivable $ (114) $ (36) $ -- $ 68
Decrease in inventories -- 843 1,024 614
Decrease (increase) in prepaid expenses
and other and other current assets 273 (69) (57) 160
Decrease (increase) in other assets and
restricted cash and securities 407 2,419 (2,565) (390)
Increase (decrease) in trade accounts payable 924 (1,500) 860 (1,110)
Decrease in other accrued liabilities (104) (1,784) (182) (1,015)
Increase (decrease) in income taxes payable -- -- (477) 477
Increase (decrease) in other liabilities, long-term (287) 65 (820) 588
</TABLE>
48
<PAGE>
<TABLE>
- ------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
$1,099 $ (62) $(2,217) $ (608)
======================================================================================================
</TABLE>
Net cash required for operating activities reflects cash payments for interest
and income taxes as follows:
<TABLE>
<CAPTION>
For the Six
Months Ended For the Year Ended
------------ -------------------------------------
December 31, June 30, June 30, June 30,
(In thousands) 1995 1995 1994 1993
- -------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Interest (net of amount
capitalized) $20 $ 99 $ 562 $ 61
Income Taxes -- -- -- --
</TABLE>
12. DISCONTINUED OPERATIONS
During fiscal year 1995, the Company recognized income of $621,000 from
discontinued operations, this included a gain of $846,000 recorded upon the
receipt of a payment from the Department of Energy under Title X of the Energy
Policy Act (Note 13) in connection with the reclamation of the Company's uranium
mine and mill site in Moab, Utah. The gain was partially offset by a loss of
$225,000 due to cost overruns at the Company's Coalinga, California asbestos
mine and mill reclamation project (Note 13).
During fiscal year 1994, the Company recognized income of $2,175,000 from
discontinued operations primarily due to the recovery from insurance carriers of
cleanup costs at the Coalinga reclamation project.
During fiscal year 1993, the Company charged $912,000 ($875,000 net of tax) to
discontinued operations including $600,000 for estimated reclamation costs at
the Coalinga project and $312,000 for litigation related to the sale of the
Atlas Building Systems Division in a prior fiscal year.
The items above are included in the consolidated statements of operations under
the heading "Income (loss) from discontinued operations". The following table
summarizes the operating income (loss) of the discontinued businesses:
<TABLE>
<CAPTION>
Asbestos Products &
Mining & Ready-Mix Service &
Period ended (In thousands) Milling Concrete Other Total
- ---------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
December 31, 1995 $ -- $ -- $ -- $ --
June 30, 1995 $ (225) $ -- $846 $ 621
June 30, 1994 $1,997 $ 136 $(42) $2,175
June 30, 1993 $ (600) $(312) $ -- $ (912)
</TABLE>
49
<PAGE>
13. COMMITMENTS AND CONTINGENCIES
The Company is obligated to decommission and reclaim its uranium mill site
located near Moab, Utah. The Company discontinued its uranium operations and
permanently shut down its uranium mill and mines in 1987, estimated shut-down
expenses and reclamation costs of $17,406,000 were accrued. The balance in this
accrual at December 31, 1995 was $4,513,000. Title X of "The Comprehensive
National Energy Policy Act" ("Title X"), enacted in October 1992, provides for
the reimbursement of past and future reclamation expenses related to uranium
sites operated under Atomic Energy Commission contracts. The Company's uranium
reclamation cost will be reduced by this Government cost sharing program since
56% of its tailings were generated under government contracts. The Company
believes the accrual, when combined with anticipated reimbursements under the
Title X program, is sufficient to cover future reclamation costs.
In July 1994, the Company submitted a claim to the Department of Energy (the
"DOE") under Title X of approximately $5 million for reclamation costs incurred
from fiscal year 1986 through fiscal year 1994. The DOE has given approval on
approximately $4.5 million of the claim and $2.5 million in reimbursement,
disallowing $.5 million pending further substantiation of the claim for
reimbursement. On December 29, 1994, the Company received $846,000 as a
partial payment of the approved reimbursement which was recorded as income from
discontinued operations. In June 1995, the Company submitted a second claim to
the DOE under Title X for approximately $3.6 million which included reclamation
costs incurred from fiscal year 1980 through fiscal year 1985, from June 1994
through May 1995, and reclamation costs previously disallowed. The Company
anticipates the DOE audit of the June 1995 claim will be completed in the spring
of 1996. If the June 1995 claim is approved in full, the Company would receive
reimbursement of approximately $2.0 million. On September 30, 1995, the Company
received an additional $1,032,000 partial payment for amounts due on the 1994
and 1995 claims. This amount has been added to the Company's reclamation
accrual. Timing of the remaining payments for approved reimbursements is a
function of Congressional appropriation of Title X funding.
During fiscal year 1988, the United States Environmental Protection Agency
notified the Company that it was one of several potentially responsible parties
for cleanup costs at the Company's former asbestos mine and mill site near
Coalinga, California and in the City of Coalinga. A prolonged period of inquiry
and administrative process concerning this matter followed.
In fiscal years 1995, 1993 and 1991, the Company established a reserve, and
recorded as an expense, $225,000, $600,000 and $3,000,000, respectively, to
cover the Company's share of cleanup costs. In fiscal year 1992, the Company
started legal action against thirteen insurance carriers which had issued
insurance policies, with respect to the site. During fiscal year 1994, the
Company reached settlement with a number of the carriers and recorded a gain
from discontinued operations of $2,175,000. All claims with remaining carriers
were settled in fiscal year 1995. The proceeds were negligible. The remedial
action plan commenced October 1994 and was substantially completed in the fall
of 1995. The Company anticipates receiving a certificate of final inspection
from the EPA in 1996.
Minimum future rental commitments under the Company's non-cancelable operating
leases having a remaining term in excess of one year at December 31, 1995 are as
follows:
50
<PAGE>
<TABLE>
<CAPTION>
Year ended December 31, (In thousands)
- --------------------------------------------------------------------
<S> <C>
1996 $ 206
1997 205
1998 205
1999 182
2000 109
Later years 64
--------
Total minimum payments required $ 971
========
</TABLE>
Amounts charged to rent expense in the six months ended December 31, 1995 and
the fiscal years ended June 30, 1995, 1994 and 1993 were $81,200, $550,000,
$670,000 and $1,263,000, respectively.
14. EMPLOYEE RETIREMENT PLANS
The Company has a trusteed and insured retirement plan covering substantially
all salaried employees. The plan provides pension benefits that are based on
final average compensation minus certain adjustments for primary social security
benefits. The Company's funding policy for the plan is to make at least the
minimum annual contributions required by applicable government regulations.
Plan assets are invested primarily in equity securities, corporate and
government bonds and money market funds.
<TABLE>
<CAPTION>
For the Six
Months Ended For the Year Ended June 30,
--------------------------------
(In thousands) Dec. 31, 1995 1995 1994 1993
- ---------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Service costs-benefits earned during the year $ 27 $ 83 $ 123 $ 195
Interest cost on projected benefit obligation 242 432 441 500
Actual return on plan assets (290) (218) (90) (252)
Net amortization and deferral 80 (223) (399) (262)
----- ----- ----- -----
Net periodic pension cost for the year $ 59 $ 74 $ 75 $ 181
===== ===== ===== =====
Assumed long-term rate of return on plan assets 8.5% 8.5% 8.5% 8.5%
</TABLE>
The following table sets forth the plans' funded status and amounts recognized
in the Company's financial statements at December 31, 1995, June 30, 1995 and
June 30, 1994:
<TABLE>
<CAPTION>
Dec. 31, June 30, June 30,
(In thousands) 1995 1995 1994
- --------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Accumulated benefit obligation based on salaries to date,
including vested benefit obligation of $6,370,000,
$5,449,000, and $5,338,000 for December 31, 1995,
June 30, 1995, and June 30, 1994, respectively $(6,381) $(5,344) $(5,494)
Additional benefit obligation based on estimated future
salary levels (146) (145) (157)
------- ------- -------
Projected benefit obligation (6,527) (5,489) (5,651)
Fair value of plan assets 4,952 4,971 5,342
------- ------- -------
Funded status (1,575) (518) (309)
Unrecognized net obligation at July 1, 1989 and
1988 being recognized over approximately 15.88 years 51 58 71
</TABLE>
51
<PAGE>
<TABLE>
<S> <C> <C> <C>
Unrecognized net loss (gain) 963 (42) (190)
------- ------- -------
Accrued pension cost $ (561) $ (502) $ (428)
======= ======= =======
Assumed discount rate 7.25% 8.25% 8.25 %
Assumed rate of increase in future compensation 5.0% 5.0% 5.0 %
</TABLE>
The Company has an Investment and Savings Plan to assist eligible employees in
providing for retirement or other future financial needs. Employee
contributions (up to 10% of their earnings) are matched in Company stock by the
Company at a rate of 100% up to a maximum of 6% of the employee earnings. In
addition, the Company provides a 4% contribution for all eligible employees
compensated on an hourly scale. The Company's contributions to this Plan in the
six months ended December 31, 1995 and in the fiscal years ended June 30, 1995,
1994 and 1993 were $27,000, $93,000, $179,000 and $284,000, respectively.
15. OTHER POSTRETIREMENT BENEFIT PLANS
In addition to the Company's defined benefit pension plan the Company has two
defined benefit postretirement plans covering most salaried employees. One plan
provides medical benefits and the other provides life insurance benefits. The
postretirement health care plans are contributory, with retiree contributions
adjusted annually, and contain other cost-sharing features such as deductibles
and coinsurance. The accounting for the health care plans anticipates future
cost-sharing changes to the written plan that are consistent with the Company's
expressed intent to increase the retiree contribution rate annually for the
expected general inflation rate for that year. The life insurance plan is non-
contributory. The Company's policy is to fund the cost of the postretirement
health care benefits in amounts determined at the discretion of management and
to make annual contributions to the life insurance plan in level amounts over
the plan participant's expected service period.
In fiscal year 1993, the Company adopted FASB Statement No. 106, Employers'
Accounting for Postretirement Benefits Other Than Pensions. The effect was a
one-time charge to operations of $968,000. This cumulative catch-up adjustment
as of July 1, 1992 represents the discounted present value of expected future
retiree health and insurance benefits attributed to employees' service rendered
prior to that date. The new standard results in additional annual expense which
totaled $26,000, $102,000, $149,000 and $138,000 in the six months ended
December 31, 1995 and in the years ended June 30, 1995, 1994 and 1993
respectively.
The following table shows the plan's combined funded status reconciled with the
amounts recognized in the Company's financial statements:
52
<PAGE>
<TABLE>
<CAPTION>
December, June 30, June 30,
(In thousands) 1995 1995 1994
- -------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Accumulated postretirement benefit obligation
Retirees $ (674) $ (686) $ (662)
Fully eligible active plan participants -- -- --
Other Active Participants (208) (190) (282)
----------- ---------- -------------
Accrued postretirement benefit cost $ (882) $ (876) $ (944)
Unrecognized prior service cost (118) (123) (132)
Unrecognized net gain (222) (233) (127)
Accrued postretirement benefit cost ----------- ---------- -------------
$ (1,222) $ (1,232) $ (1,203)
=========== ========== =============
</TABLE>
<TABLE>
Six Mo. Ended Year Ended
---------------------------------
December 31, June 30, June 30,
(In thousands) 1995 1995 1994
- --------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Component of net periodic postretirement benefit cost:
Service cost $ 11 $ 49 $ 67
Interest cost 31 75 82
Net amotiized and deferral (16) (22) --
--------------- ------------- -------------
Net periodic postretirement benefit $ 26 102 149
--------------- ------------- -------------
</TABLE>
The weighted-average annual assumed rate of increase in per capita cost of
covered benefits (i.e. health care cost trend rate) for the plan is 11% for
fiscal year 1996 and is assumed to decrease gradually to 5% in 2002 and remain
at that level thereafter.
The health care cost trend rate assumption has a significant effect on the
amounts reported. For example, increasing the assumed health care cost trend
rates by one percent age point in each year would increase the
accumulated postretirement benefit obligation for the medical plans as of
December 31, 1995, June 30, 1995 and June 30, 1994 by $32,000, $32,000 and
$54,000 respectively, and the aggregate of the service cost and interest cost
components of net periodic postretirement benefit cost for December 31, 1995 by
$5,000.
The weighted-average discount rate used in determining the accumulated
postretirement benefit obligation was 7.25%, 7.5% and 8.25% at December 31,
1995, June 30, 1995 and June 30, 1994, respectively.
16. INCOME TAXES
Effective July 1, 1993, the Company adopted SFAS No. 109, Accounting for Income
Taxes. The adoption of SFAS No. 109 resulted in no material change to the
Company's deferred tax liability. Financial Statements for prior periods have
not been restated.
53
<PAGE>
The Company's provision for income tax from continuing operations consists of
the following:
<TABLE>
<CAPTION>
December 31, June 30, June 30, June 30,
(in thousands) 1995 1995 1994 1993
- -----------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Deferred $ -- $ -- $ -- $ --
Current -- -- -- 477
Income tax expense (benefit) $ -- $ -- $ -- $ 477
======== ======== =========== ======
</TABLE>
Deferred income taxes result from temporary differences in the timing of income
and expenses for financial and income tax reporting purposes. The primary
components of deferred income taxes result from exploration and development
costs; depreciation, depletion, and amortization expenses; impairments; and
reclamation accruals.
The net deferred tax balances in the accompanying December 31, 1995, June 30,
1995 and June 30, 1994 balance sheets include the following components:
<TABLE>
<CAPTION>
December 31, June 30, June 30,
(In thousands) 1995 1995 1994
- ----------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Deferred tax assets:
Net operating loss ("NOL") carryovers $ 34,892 $ 33,711 $ 29,877
Tax credit carryovers 572 756 964
Impairment of mineral properties 12,359 12,359 12,359
Depreciation, depletion and amortization 747 882 2,244
Reclamation accruals 1,472 3,399 4,216
Postretirement benefit accrual 502 431 421
Impairment of investment in Granges Inc. 3,997 3,997 --
Equity in Granges Inc. 1,106 512 --
-------- -------- --------
Total deferred tax assets 55,647 56,047 50,081
Deferred tax asset valuation allowance (52,031) (51,664) (45,020)
-------- -------- --------
Net deferred tax assets 3,616 4,383 5,061
-------- -------- --------
Deferred tax liabilities:
Depreciation, depletion, and amortization 3,461 4,069 4,853
Unrealized gain on investment of
equity securities 155 314 --
Other -- -- 208
-------- -------- --------
Total deferred tax liabilities 3,616 4,383 5,061
-------- -------- --------
Net deferred tax balances $ -- $ -- $ --
======== ======== ========
</TABLE>
The change in the Company's valuation allowance is summarized as follows:
<TABLE>
<CAPTION>
(In thousands) December 31, June 30, June 30,
1995 1995 1994
- ------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Valuation allowance, beginning of period $ 51,664 $ 45,020 $ 41,567
Continuing Operations 1,502 7,139 4,214
Discontinued Operations -- (217) (761)
</TABLE>
54
<PAGE>
<TABLE>
<CAPTION>
<S> <C> <C> <C>
Other (1,135) (278) --
-------- -------- --------
$ 52,031 $ 51,664 $ 45,020
======== ======== ========
</TABLE>
A reconciliation of expected federal income taxes on income from continuing
operations at statutory rates with the expense/(benefit) for income taxes is as
follows:
<TABLE>
<CAPTION>
December 31, June 30, June 30, June 30,
(in thousands) 1995 1995 1994 1993
- -------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Income tax at statutory rates $(1,502) $(7,139) $(4,214) $(9,380)
Increase in deferred tax asset --
valuation allowance 1,502 7,139 4,214
Net operating loss utilization
limitation -- -- -- 9,380
------- ------- ------- -------
Income tax expense $ -- $ -- $ -- $ --
======= ======= ======= =======
</TABLE>
At December 31, 1995, the Company has unused NOL carryovers and investment tax
credit carryovers as follows:
<TABLE>
<CAPTION>
NOL ITC
(in thousands) Expiration Date Carryovers Carryovers
- -------------------------------------------------------------------------------
<S> <C> <C> <C>
1996 $ -- $ 122
1997 -- 131
1998 11,451 129
1999 10,930 19
2000 4,772 24
2001 29,782 20
2002 4,127 --
2003 2,050 --
2004 5,368 --
2005 5,037 --
2006 5,069 --
2007 6,778 --
2008 9,898 --
2009 4,431 --
------------- ------------
$ 99,693 $ 445
============= ============
</TABLE>
The Company has approximately $127,000 of alternative minimum tax ("AMT")
credit carryover which can be carried forward indefinitely.
The Company has concluded that upon completion of certain transactions affecting
the ownership of the Company's stock (such as either of the transactions
discussed in Notes 5 or 19), the availability
55
<PAGE>
of the NOL, ITC, and AMT credit carryovers may be substantially limited pursuant
to change of ownership provisions in the tax law. The extent of such a
limitation has not yet been determined.
17. DIFFERENCES BETWEEN U.S. AND CANADIAN GENERALLY ACCEPTED
ACCOUNTING PRINCIPLES (GAAP)
The Company prepares its consolidated financial statements in accordance with
accounting principles generally accepted in the United States. These differ in
some respects from those in Canada, as described below.
In accordance with U.S. GAAP, equity securities available for sale are recorded
at fair value with unrealized gains and losses reported as a separate component
of stockholders' equity. Accordingly, unrealized gains and losses in the
investment of Dakota Mining Corporation Common Stock have been recorded as a
component of stockholders' equity. Under Canadian GAAP, such investments would
be recorded at the lower of cost or market. Therefore, in conformity with
Canadian GAAP, the Dakota Mining investment and total stockholders' equity would
approximate $3,187,000 and $21,701,000 and $3,187,000 and $23,937,000 at
December 31, 1995 and June 30, 1995, respectively.
U.S. GAAP requires a cumulative catch-up adjustment as of July 1, 1992 related
to FASB Statement No. 106, Employers' Accounting for Postretirement Benefits
Other Than Pensions. This resulted in a charge to operations of $968,000 in
fiscal year 1993. Canadian GAAP allows companies to either retroactively adopt
or defer and amortize the amount over the remaining service life of the employee
group covered by the plan. Assuming retroactive adoption under Canadian GAAP,
the net loss would approximate $28,941,000, or $4.57 per common share, for the
fiscal year ended June 30, 1993. Total stockholders' equity would approximate
$(3,734,000) at June 30, 1993.
18. PRIVATE PLACEMENTS
The Company conducted a private placement of 9,090,909 Units of Atlas securities
during the summer of 1994 for a purchase price of $5.50 per Unit, each Unit
consisting of one share of the Company's common stock and one-half of a warrant
(exercisable for five years) to purchase a share of the Company's common stock
at an exercise price of $7.00 per share in order to finance the acquisition of
12,694,200 common shares of Granges (Note 8) and 1,500,000 common shares and
3,100,000 preferred shares of Dakota Mining Corporation ("Dakota"). The first
portion of such private placement, consisting of the sale of 6,486,809 Units for
an aggregate purchase price of $35,677,450, was completed on August 15, 1994,
and the proceeds thereof were applied primarily to the price of the Granges
shares. In connection with closing the first portion of the private placement,
the Company entered into a $3.5 million secured, short-term credit agreement to
cover certain expenses of the private placement. The Company pledged the Granges
Shares as part of the security for such loan.
On October 29, 1994, the Company determined not to proceed with acquisition of
the Dakota shares (see Note 4). The second portion of the private placement,
the sale of an additional 2,604,100 Units for an aggregate purchase price of
$14,322,550, was completed on December 15, 1994 following the shareholder
approval of an increase in the authorized share capital of the
56
<PAGE>
Company. Upon closing the second portion of the private placement, the Company
used a portion of the proceeds to repay the balance of $800,000 due on a short-
term secured loan.
Of the Units sold in the private placement, Mackenzie Financial Corporation
("Mackenzie Financial") acquired 1,820,000 Units, consisting of 1,820,000 shares
of Common Stock and 910,000 warrants to purchase shares of Common Stock, and
M.I.M. Holdings Limited ("M.I.M.") acquired 2,000,000 Units, consisting of
2,000,000 shares of Common Stock and 1,000,000 warrants to purchase shares of
Common Stock.
On January 18, 1994, the Company sold for $7,500,000 in gross proceeds,
1,500,000 shares of Common Stock for $5.00 per share in a private placement.
The shares were placed outside the United States with a number of gold funds in
Canada and European institutional investors.
On September 20, 1993, the Company sold to Phoenix Financial Holdings Inc. for
an aggregate of $8,375,000 (i) 1,500,000 shares of the Company's Common Stock,
(ii) a Redeemable Convertible Debenture due 1998 in the principal amount of
$3,500,000, which is convertible as to principal into Common Stock at the rate
of $4.00 per share and bears interest at the rate of 9% per annum payable in
cash or Common Stock at the rate of $4.00 per share, and (iii) Warrants to
purchase for three years 2,000,000 shares of Common Stock at $3.625 per share.
Of such securities, the 1,500,000 shares of the Company's Common Stock and
750,000 of the Warrants to Purchase Common Stock were sold to various investors
in a private placement.
19. SUBSEQUENT EVENTS
On January 16, 1996 Atlas and Phoenix Financial Holdings (a 51% subsidiary of
the Company) executed a letter agreement providing for the purchase by Phoenix
of all the issued and outstanding shares of Atlas Perlite, Inc., Atlas' wholly
owned subsidiary whose only asset is the Tucker Hill Project. The letter
agreement calls for payment to Atlas of $1 million in cash, the equivalent of $1
million in Phoenix common shares and the retention by Atlas of a royalty
equivalent of 2% of the gross proceeds generated from the sale of minerals from
Tucker Hill. In addition, Phoenix will reimburse Atlas for any pre-approved
expenditures made by Atlas on the Tucker Hill Project from December 1, 1995
through to the closing date. The closing of the transaction is subject to
regulatory, board and shareholder approval.
On March 9, 1996, the Company sold its 2,419,000 common shares of Dakota Mining
Corporation for Cdn $2.55 per share (U.S. $ 1.87 per share), or Cdn $6,169,000
(U.S. $4,519,000). The Company will recognize a gain in 1996 on this sale of
$1,332,000.
57
<PAGE>
REPORT OF INDEPENDENT AUDITORS
THE BOARD OF DIRECTORS AND STOCKHOLDERS OF ATLAS CORPORATION
We have audited the accompanying consolidated balance sheets of Atlas
Corporation and subsidiaries as of December 31, 1995, June 30, 1995 and 1994,
and the related consolidated statements of operations, stockholders' equity
(deficit) and cash flows for the six months ended December 31, 1995 and each of
the three years in the period ended June 30, 1995. These financial statements
are the responsibility of the Company's management. Our responsibility is to
express an opinion on these financial statements based on our audits. The
financial statements of Granges Inc., (a corporation in which the Company has a
27.5% interest), have been audited by other auditors whose report has been
furnished to us; insofar as our opinion on the December 31, 1995 and June 30,
1995 consolidated financial statements relates to data included for Granges
Inc., it is based solely on their report.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits and the report of other auditors provide a reasonable
basis for our opinion.
In our opinion, based on our audits and the report of other auditors, the
financial statements referred to above present fairly, in all material respects,
the consolidated financial position of Atlas Corporation and subsidiaries at
December 31, 1995 and June 30, 1995 and 1994, and the consolidated results of
their operations and their cash flows for the six months ended December 31, 1995
and each of the three years in the period ended June 30, 1995, in conformity
with generally accepted accounting principles.
As discussed in Note 15 to the financial statements, in 1993 the Company changed
its method of accounting for postretirement benefits other than pensions.
/s/ Ernst & Young LLP
Denver, Colorado
February 16, 1996,
except for Note 19, as to which the date is
March 9, 1996
58
<PAGE>
Item 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
-------------------------------------------------------------------
FINANCIAL DISCLOSURE
--------------------
Not applicable
PART III
Item 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE COMPANY
-----------------------------------------------
DIRECTORS
The Company's directors are divided into three classes and hold office for a
term of three years ending with the annual meeting of stockholders for the
fiscal period ended December 31, 1995 in the case of Class II, for fiscal 1996
in the case of Class III and for fiscal 1997 in the case of Class I. There are
currently seven directors.
Information Concerning Directors
The following table sets forth certain information concerning each director.
<TABLE>
<CAPTION>
Principal Occupation, Past Five Years' Business
Director Experience
Name Since and Other Directorships Held Age
---- -------- -------------------------------- ---
CLASS II
(TERM OF OFFICE EXPIRES AT THE ANNUAL MEETING OF STOCKHOLDERS
FOR THE FISCAL PERIOD ENDED DECEMBER 31, 1995)
<S> <C> <C> <C>
David J. Birkenshaw 1993 Chairman and Chief Executive Officer of the 40
Company, since September 1993; Chairman,
Birkenshaw & Company, Ltd., a merchant
bank. Also serves as Chairman, Phoenix
Financial Holdings Inc., a holding company (
June, 1991 to March, 1995 and November,
1995 to present), Vice Chairman of Granges
Inc.; and (until February 16, 1996) Director
of Dakota Mining Corporation (See Item 13.
"Certain Relationships and Related
Transactions"). Mr. Birkenshaw's business
address is that of the Company.
James H. Dunnett 1995 Principal of Endeavour Financial Inc., a 46
private Canadian business specializing in
arranging
</TABLE>
60
<PAGE>
<TABLE>
<CAPTION>
<S> <C> <C> <C>
project financing, mergers and acquisition
for the mining industry. Also serves as a
director of Phoenix Financial Holdings,
Inc., and between August 1994 and September
1995, served as a director of Granges Inc.,
in which the Company holds a 27.5% interest
(See Item 13. "Certain Relationships and
Related Transactions"). Mr. Dunnett's
business address is 1111 West Georgia St.,
Suite 404, Vancouver, BC, Canada V6E 4M3.
Principal Occupation, Past Five Years' Business
Director Experience
Name Since and Other Directorships Held Age
---- -------- -------------------------------- ---
C. Thomas Ogryzlo 1993 President and Chief Operating Officer, Kilborn 56
Engineering & Construction Limited; formerly
a principal of Wright Engineers Limited,
an engineering firm; director of Carib
Gold Resources Inc. and Rio Amarillo Mining
Limited. Mr. Ogryzlo's business address is
2200 Lake Shore Boulevard West, Toronto,
Ontario, Canada M8V 1A4.
CLASS III
(TERM OF OFFICE EXPIRES AT THE ANNUAL MEETING OF STOCKHOLDERS FOR FISCAL YEAR 1996)
Douglas R. Cook 1988 President of Cook Ventures Inc., a geological 70
consulting firm; Director, Pegasus Gold
Corporation. Mr. Cook's business address
is 2485 Greensboro Drive, Reno, Nevada
89509.
Michael B. Richings 1995 President, Chief Executive Officer and 51
Director of Granges Inc., a Canadian
mining company and 27.5% subsidiary
of the Company, since June 1, 1995.
See Item 13. "Certain Relationships
and Related Transactions". Formerly
President and Chief Operating Officer
of the Company (January 1995 to June
1995) and President of Lac Minerals Ltd.
South America (April 1993 to December
1994). Employed by the Company as Vice
President - Special Projects (June 1992
to March
</TABLE>
61
<PAGE>
<TABLE>
<CAPTION>
<S> <C> <C> <C>
1993) and Vice President - Operations
(July 1990 to May 1992). Mr.
Riching's business address is 370
Seventeenth Street, Suite 3000,
Denver, Colorado 80202.
CLASS I
(TERM OF OFFICE EXPIRES AT THE ANNUAL MEETING OF STOCKHOLDERS FOR FISCAL YEAR 1997)
Philip R. Mengel 1995 Chief Executive Officer and member of the 51
Board of Glen-Gery Corporation, a leading
US manufacturer of brick and concrete
building materials. Member of the
Board of Ibstock, PLC, the UK parent
of Glen-Gery. Previously Chairman and
Chief Executive Officer of Mengel and
Co., Inc., an investment bank.
Mr. Mengel's business address is
Corporate Office, 1166 Spring
St., P.O. Box 7001, Wyomissing,
PA 19610-6001
David P. Hall 1993 President and Chief Executive Officer of 49
Aurizon Mines Ltd., a mineral exploration
and development company and management
firms; formerly President of CanGold
Resources (to January 1995) and formerly
President of Hughes Lang Corporation
(to January 1994). Mr. Hall's business
address is 1414 - 700 West Georgia
St., Vancouver, BC V7Y 1A3.
</TABLE>
It is currently anticipated that with the combination with MSV Resources
discussed in Note 19 to the Financial Statements, Messrs. Mengel and Hall will
resign from their offices as directors of the Company, and that Mr. Gerald
Davis, President of the Company, and four representatives of MSV will be elected
to the board. It is also anticipated that Mr. Birkenshaw will retain his office
of Chairman, and that Mario Caron, President of MSV, will be named Executive
Vice-Chairman.
EXECUTIVE OFFICERS
The information concerning the Company's executive officers required by this
Item is included in Part I, Item 4, under the caption "Executive Officers of the
Company."
62
<PAGE>
COMPLIANCE WITH SECTION 16 OF THE EXCHANGE ACT
Under Section 16 of the Exchange Act, the Corporation's directors and officers
and persons holding more than 10 percent of the Corporation's Common Stock are
required to report their initial ownership of Common Stock and subsequent
changes to that ownership to the Securities and Exchange Commission and the New
York Stock Exchange by specified due dates. All of these filing requirements
were satisfied, except that Gerald Davis, President, James Jensen, Controller,
Jerome Cain, Vice-President of Finance, and Richard Blubaugh, Vice-President,
are filing late reports regarding the grant and cancellation of stock options
under the Long Term Incentive Plan, as well as the purchase of stock under the
Company's 401(k) plan; David Birkenshaw, Chairman and Chief Executive Officer,
is filing late reports regarding the purchase of warrants to purchase the
Company's Common Shares and the sale of his interest in Phoenix Financial
Holdings Inc.; Michael Richings, a director of the Company, is filing late
reports regarding the grant and cancellation of options under the Long Term
Incentive Plan; Phoenix Financial Holdings Inc. is filing late reports regarding
the sale of warrants to purchase the Company's Common Shares.
ITEM 11. EXECUTIVE COMPENSATION
The following table sets forth all compensation paid by the Corporation for the
six months ended December 31, 1995 and for each of the three fiscal years ended
June 30, 1995, to Messrs. David J. Birkenshaw, and Gerald E. Davis. No other
person who was serving as an executive officer of the Corporation at December
31, 1995 had total cash and cash-equivalent remuneration which exceeded $100,000
during such fiscal year.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
Long Term
Annual Compensation Compensation
---------------------------------- --------------------------
Name and Principal Year or Period Other Annual Stock All Other
Position Ended Salary Bonus Comp Options Comp
- ---------------------------------------------------------------------------- ------------------------
<S> <C> <C> <C> <C> <C> <C>
David J. Birkenshaw Dec. 31, 1995(5) $96,350 -- 84,462(2)(4) -- --
(Chief Executive Officer) June 30, 1995 $154,167 -- -- 350,000 --
June 30, 1994 $75,000 -- -- 300,000 --
June 30, 1993 -- -- -- -- --
Gerald E. Davis Dec. 31, 1995(5) $81,518 -- $6,312(2) 40,000 $1,875(3)
(President) June 30, 1995 $134,561 $3,500 $6,813(2) 75,000 $7,560(3)
June 30, 1994 $120,000 -- $45,437(1)(2) 25,000 $1,800(3)
June 30, 1993 $98,150 -- $885(2) 21,000 $2,769(3)
- -----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
(1) Amount includes $35,625 paid by the Company upon exercise of options to
purchase 15,000 shares of Common Stock by Mr. Davis following the change in
control of September 20, 1993 described below, representing the difference
between the option price and the market price of such shares.
(2) Includes certain perquisites, such as car allowances and life insurance
premiums paid by the Company.
(3) Includes contributions by the Corporation to the Investment Savings Plan
for Employees of Atlas Corporation.
(4) Amount includes $75,000 relocation expenses paid by the Company.
63
<PAGE>
(5) Represents the six month period ended December 31, 1995.
EMPLOYMENT AGREEMENTS. David J. Birkenshaw, the Chairman of the Board and Chief
Executive Officer of the Corporation, has an employment agreement providing for
his employment as an officer of the Corporation, at a minimum annual salary of
$225,000, until the termination of his employment by either Mr. Birkenshaw or
the Corporation or his normal retirement in accordance with the Corporation's
retirement programs in place at the time. Gerald E. Davis, President of the
Corporation, has an employment agreement providing for his employment as an
officer of the Corporation, at a minimum annual salary of $150,000, until the
termination of his employment by Mr. Davis or the Corporation or his normal
retirement in accordance with the Corporation's retirement programs in place at
the time. Messrs. Birkenshaw and Davis each are entitled, upon termination of
such person's employment by the Corporation without "Cause" or by him with "Good
Reason" (as such terms are defined in their employment contracts), to a
severance payment equal to one year's salary, amounts accrued but unpaid under
his employment contract and amounts payable under existing employee benefit
plans; except that upon the termination of his employment by the Corporation
without "Cause" or by him with "Good Reason", either within three months prior
to a change of control or within two years after a change of control, each of
Messrs. Birkenshaw and Davis would be entitled to an amount equal to two times
his annual salary then in effect, all amounts accrued but not paid under his
employment agreement and all amounts payable under existing employee benefit
plans.
See also, with respect to Messrs. Birkenshaw and Davis, the section entitled
"Options" below.
INVESTMENT AND SAVINGS PLAN. The Atlas Corporation Investment and Savings Plan
benefits employees of the Corporation and its subsidiaries who have completed
six months of service. Each participant under this plan must be at least 21
years of age. Under this plan, an employee may elect to contribute, pursuant to
a salary reduction election, not less than 1 percent and not more than 10
percent of the employee's annual compensation. The Corporation makes a matching
contribution of 100 percent of the amount contributed by the employee, but not
more than 6 percent of the employee's annual compensation. In addition, the
Corporation may make special contributions to this plan, but these special
contributions may not exceed the maximum amount deductible under Section
404(a)(3)(A) of the Code. Employee contributions may be invested in a number of
investment options, but not Common Stock of the Corporation. All matching and
special contributions to this plan are invested in shares of Common Stock of the
Corporation.
1978 RETIREMENT PLAN. Eligible employees, including officers, participate in
the Atlas Corporation 1978 Retirement Plan (the "1978 Retirement Plan"), a
noncontributory defined benefit pension plan. Benefits under the 1978
Retirement Plan are based on years of service and the participant's compensation
during the participant's three consecutive highest compensated years out of the
participant's final five years as a participant. Benefits under the 1978
Retirement Plan are payable upon disability, death or retirement at age 55 or
later and may be distributed in the form of a lump sum, a single-life annuity, a
joint and survivor annuity covering the participant and a beneficiary or
installments over a term of years. Participants retiring before the age of 55
are entitled to a lump sum distribution.
64
<PAGE>
The following table shows the estimated annual benefits payable upon retirement
in the form of a single-life annuity under the 1978 Retirement Plan to persons
in the specified compensation and years-of-service classifications.
PENSION PLAN TABLE
<TABLE>
<CAPTION>
Average Annual
Compensation on
which Retirement
Benefits are Estimated Annual Retirement Benefits at Age
Based 65 for Indicated Years of Credited Service
- -------------------------------------------------------------------------------
(10) (15) (20) (25) (30)
<S> <C> <C> <C> <C> <C>
$ 50,000........... $8,704 $13,056 $17,408 $21,760 $23,112
$100,000........... $18,704 $28,056 $37,408 $46,760 $56,112
$150,000........... $28,704 $43,056 $57,408 $71,760 $86,112
$200,000........... $28,704 $43,056 $57,408 $71,760 $86,112
$250,000........... $28,704 $43,056 $57,408 $71,760 $86,112
$300,000........... $28,704 $43,056 $57,408 $71,760 $86,112
</TABLE>
Retirement benefits under the 1978 Retirement Plan are based on salaries and
additional compensation, such as awards under the Annual Incentive Plan. These
benefits are not affected by directors' fees.
Benefits listed in the table are net of an offset for part of the participant's
Social Security benefits. There is no other offset. Years of service credited
through December 31, 1995 under the 1978 Retirement Plan for the officers listed
in the Summary Compensation Table are 2 years for Mr. Birkenshaw and 5 years for
Mr. Davis.
The Internal Revenue Code of 1986, as amended (the "Code"), sets limits on a
participant's annual benefits on retirement under the 1978 Retirement Plan. To
assure that participants' retirement benefits are not reduced in the future
because of the Code limits, the Board of Directors adopted a Supplemental
Executive Retirement Plan, which provides retirement benefits on an unfunded
basis to selected participants whose benefits under the 1978 Retirement Plan
would be limited by the Code in an amount equal to the difference between the
annual retirement benefit permitted under the 1978 Retirement Plan by the Code
and the amount that would have been paid but for the limitation imposed by the
Code.
THE LONG TERM INCENTIVE PLAN. Under the Company's Long Term Incentive Plan (the
"Plan"), incentive awards in the form of restricted stock, restricted stock
units, stock options or stock appreciation rights, with respect to the common
stock of the Company, may be made by the Company's Compensation Committee (the
"Compensation Committee") to selected key employees. An award of restricted
stock entitles an employee to all the rights of a stockholder with regard to
such stock, except that, during the restricted period, the stock is
nontransferable and forfeitable. An award of a restricted stock unit entitles
an employee to elect, at the end of the restricted period, a payment in the form
of a share of stock or a cash amount of equivalent fair market value. An award
of a stock option entitles an employee to purchase stock at the exercise date at
a price equal
65
<PAGE>
to or greater than the fair market value of the stock at the grant date. A stock
appreciation right, which may be granted only in tandem with a stock option and
the exercise of which extinguishes the related stock option, entitles an
employee to receive, in stock or in cash, an amount equal to the increase in
value of the related stock between the date of grant and the date of exercise.
Awards may be made to selected key employees at any time during the term of the
Plan, subject to the Plan provisions expressly limiting the amount of stock with
respect to which awards may be made. All restrictions with regard to such awards
terminate and all rights vest fully and immediately upon a change of control, as
defined in the Plan. Upon a change of control, employees who have been granted
stock options under the Plan have the right to surrender their options within 30
days following the change of control and to receive, in lieu of exercising their
options, a cash payment in the amount by which the highest fair market value of
the shares subject to the options during the 60-day period proceeding the change
of control exceeds the exercise price of such options. As of December 31, 1995,
no awards other than stock options were outstanding under the Plan.
The Plan provides for the automatic granting of a non-qualified option to
purchase 20,000 shares of Common Stock to non-employee directors as of January
6, 1995, or, for a person becoming a director after such date, as of the date
such person becomes a director. The options become exercisable in three
cumulative annual installments and have a term of ten years. The Compensation
Committee has no power to determine eligibility for grants or the terms of grant
to any non-employee director. Upon the occurrence of a change of control, as
defined in the Plan, all options granted to non-employee directors become fully
vested.
ANNUAL INCENTIVE PLAN. Under the Corporation's Annual Incentive Plan, incentive
compensation may be paid to key employees selected by the Compensation Committee
based on the achievement by the Corporation and the selected employees of
performance goals established for each fiscal year by the Compensation
Committee. In addition to target awards, which recognize achievement of the
predetermined goals, the Compensation Committee may establish threshold and
maximum awards to recognize performance which has only been minimally acceptable
and performance which has been significantly above target. Target, threshold
and maximum awards are expressed as a percentage of the selected employees' base
salary for the pertinent fiscal year. The Compensation Committee may consider
the adverse impact of external circumstances on the Corporation's performance in
evaluating the achievement of individual employee goals and in determining
whether to exercise its authority in such circumstances to make alternative or
supplemental awards. Since July 1, 1993, no awards were made under the Annual
Incentive Plan.
66
<PAGE>
OPTIONS
OPTION GRANTS IN THE LAST FISCAL YEAR. The following table sets forth
information relating to stock options granted during the six months ended
December 31, 1995 and the fiscal year ending June 30, 1995 to Messrs. Birkenshaw
and Davis.
<TABLE>
<CAPTION>
% of Total
Options Grant
Number of Granted to Exercise Date
Options Employees in Price(1) Expiration Present
Name Granted the Fiscal Year (per share) Date Value(2)
<S> <C> <C> <C> <C> <C>
For the Six Months Ended December 31, 1995
- ------------------------------------------------------------------------------------------------------------
David J. Birkenshaw -- -- -- --
Gerald E. Davis 40,000(6) 13.64% $2.00 8/09/05 $46,000
- ------------------------------------------------------------------------------------------------------------
For the Year Ended June 30, 1995
- ------------------------------------------------------------------------------------------------------------
David J. Birkenshaw 350,000(3) 30.77% $4.50 11/15/03 $457,000
Gerald E. Davis 15,000(4) 1.32% $4.75 8/09/04 $53,000
60,000(5) 5.27% $2.00 5/18/05 $69,000
- ------------------------------------------------------------------------------------------------------------
</TABLE>
(1) Exercise price is equal to or greater than the market value at date of
grant.
(2) Calculated as of the end of the applicable fiscal year using the Black-
Scholes option pricing model, with reference to the most recent 60-month
period for determining price volatility. The actual value, if any, that an
executive may realize from the options will be the excess of the market
price of the Common Stock on the day of exercising the options over the
exercise price of the options.
(3) Options granted on January 6, 1995, which vest in three equal installments
on each of the first, second and third anniversaries from the date of
grant.
(4) Options subsequently cancelled on August 10, 1995.
(5) Options granted on May 19, 1995, which vest in three equal installments on
each of the first, second, and third anniversaries from the date of grant.
(6) Options granted on August 10, 1995, which vest in two equal installments on
the first and second anniversaries from the date of grant.
67
<PAGE>
AGGREGATED OPTION EXERCISES IN THE LAST FISCAL YEAR AND FISCAL YEAR-END OPTION.
The following table provides information relating to the number and value of
stock options exercised in the last fiscal year and the six month ended December
31, 1995 and the number of exercisable and unexercisable stock options held by
executive officers at December 31, 1995.
<TABLE>
<CAPTION>
Number of Unexercised Options
Shares Acquired Value at December 31, 1995
-------------------------------
Name on Exercise Realized Exercisable Unexercisable
- ---------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
David J. Birkenshaw -- -- 300,000 350,000
Gerald E. Davis -- -- -- 100,000
There were no unexercised, in-the-money options/SARs at December 31, 1995.
- ---------------------------------------------------------------------------------------------------
</TABLE>
On August 10, 1995, all outstanding options of the Company with an exercise
value in excess of $2.00 per share were canceled and replaced (subject, in the
case of options held by Mr. Birkenshaw, to shareholder approval at the next
Annual Meeting of Shareholders) with options bearing an exercise price of $2.00
per share.
COMPENSATION OF DIRECTORS
Fees paid to directors are paid only to directors who are not employees of the
Corporation and currently consist of a $7,500 annual fee, a $1,000 fee for each
Board of Directors meeting attended in person, a $500 fee for each Board of
Directors meeting attended by telephone and a $500 fee for each committee
meeting attended.
The Long-Term Incentive Plan provides for the automatic granting of an option to
purchase 20,000 shares of Common Shares of the Company to non-employee directors
as of January 6, 1995 or, with respect to directors elected or appointed after
such date, as of the date of their election or appointment to the Board of
Directors. Such option shall become exercisable in three cumulative
installments and shall have a term of ten years.
COMPENSATION COMMITTEE INTERLOCKS
AND INSIDER PARTICIPATION
During the six months ended December 31, 1995, Mr. C. Thomas Ogryzlo, Mr. Philip
R. Mengel, and Mr. Douglas R Cook served on the Compensation Committee. None of
such persons is or has been at any time an officer of the Company or any of its
subsidiaries.
68
<PAGE>
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
SECURITY OWNERSHIP OF CERTAIN
BENEFICIAL OWNERS AND MANAGEMENT
Security Ownership
The following table sets forth certain information at March 15, 1996, regarding
the beneficial ownership, including shares of Common Stock which may be acquired
upon the exercise of stock options or warrants, or the conversion of any
securities, within 60 days of March 15, 1996, of the Company's Common Stock by
(i) persons known to the Company to own more than 5 percent of the Company's
Common Stock, (ii) each director of the Company, and (iii) all directors and
executive officers as a group
<TABLE>
<CAPTION>
Number of Shares
and Nature of Percent
Name Beneficial Ownership (7) of Class
- -----------------------------------------------------------------------------------------
<S> <C> <C>
Mackenzie Financial Corporation 3,396,900(1) 16.1%(1)
150 Bloor Street West, Suite 805
Toronto, Ontario M5S 3B5
M.I.M. Holdings Limited 3,000,000(2) 14.3%(2)
M.I.M. Plaza, 410 Anne St.
Brisbane, Queensland, 4000
Australia
David J. Birkenshaw 1,666,667(3) 7.7%(3)
Douglas R. Cook 8,667(4) *
James H. Dunnett 115,000(5) *
Philip R. Mengel -- --
David P. Hall 6,667(4) *
C. Thomas Ogryzlo 6,667(4) *
Michael B. Richings -- --
All current executive officers
and directors as a group (9 persons) 1,829,292(6) 8.4%(6)
</TABLE>
* Ownership does not exceed 1 percent of class.
- --------------------------------------------------------------------------------
(1) On February 13, 1996, Atlas received a copy of Schedule 13G filed with the
Securities and Exchanged Commission by Mackenzie Financial reflecting
beneficial ownership of 2,366,900 shares of Common Stock. To the best of
the Company's knowledge, Mackenzie Financial also beneficially owns
warrants issued by the Company which are exercisable into 910,000 shares of
Common Stock at an exercise price of $7.00 per share and into 120,000
shares of Common Stock at an exercise price of $3.625 per share.
(2) M.I.M. Holdings is the direct beneficial owner of (i) 2,000,000 shares of
Common Stock and (ii) warrants issued by the Company which are exercisable
into 1,000,000 shares of Common Stock at an exercise price of $7.00 per
share.
69
<PAGE>
(3) Includes (i) 416,667 shares obtainable upon exercise by Mr. Birkenshaw of
options granted to him under the Long Term Incentive Plan, (ii) 1,150,000
shares obtainable upon the exercise of warrants to purchase shares of
Common Stock, with an exercise price of $3.625 per share, and (iii) 100,000
shares obtainable upon the exercise of warrants to purchase shares of
Common Stock, which warrants are exercisable at an exercise price of $7.00
per share.
(4) Includes 6,667 shares obtainable upon exercise of options granted under the
Long Term Incentive Plan.
(5) James H. Dunnett may be deemed, by virtue of his 25 percent interest in
Acorn Capital Financial Corporation, which is the direct beneficial owner
of (i) 70,000 shares of Common Stock and (ii) warrants issued by the
Company which are exercisable into 45,000 shares of Common Stock at an
exercise price of $7.00 per share, to be the indirect beneficial owner of
securities directly owned by Acorn Capital Financial Corporation.
(6) Includes (i) 456,668 shares obtainable upon exercise of options granted
under the Long Term Incentive Plan, (ii) 100,000 shares obtainable upon the
exercise of warrants with an exercise price of $7.00 per share, (iii)
1,150,000 shares obtainable upon the exercise of warrants with an exercise
price of $3.625 per share, (iv) 115,000 shares of Common Stock beneficially
owned by Acorn Capital Financial Corporation, including 45,000 shares of
Common Stock issuable upon the exercise of warrants at $7.00 per share, and
(v) 7,624 shares of Common Stock directly owned.
(7) Does not include shares issuable on the exercise of options which have not
vested and will not vest within sixty days of this report.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
CERTAIN RELATIONSHIPS AND OTHER TRANSACTIONS
Mr. Richings, who served as the President and Chief Operating Officer of the
Company from January 6, 1995, until June 1, 1995, was nominated by the Company
to serve, as of June 1, 1995, as a director of Granges Inc., a 27.5 percent
subsidiary of the Company, and, as of June 1, 1995, was granted a leave of
absence by the Company in order to permit him to serve, at the Company's
request, as President and Chief Executive Officer of Granges Inc. On December
13, 1995, Mr. Richings terminated his leave of absence and resigned all
employment positions with Atlas, retaining his capacity as a director of the
Company.
Mr. Dunnett is a principle of the investment banking firm of Endeavour Financial
Corporation, ("Endeavour") which acts as a financial advisory to the Company.
Mr. Dunnett served, from April 1, 1995 until September 30, 1995 as an Atlas
nominee on the Board of Directors of Granges Inc. and also serves on the Board
of Directors of Phoenix Financial Holdings Inc., a 51% subsidiary of the
Company. During the six months ended December 31, 1995, the Company paid
Endeavour $84,000 in advisory fees. In addition, the Company has agreed to pay
Endeavour a success fee of $750,000 payable upon the successful conclusion of
the business combination of the Company and MSV Resources Inc.
Mr. Birkenshaw, Chairman and Chief Executive Officer of the Company, serves as
Vice Chaiman of Granges Inc., a 27.5% subsidiary of the Company, and served
until February 16, 1996 as a director of Dakota Mining Corporation. The
Company, which acquired an approximate 9% interest in Dakota in March 1995, sold
its holdings in Dakota on March 9, 1996.
70
<PAGE>
Mr. Birkenshaw served as Chairman of Phoenix Financial Holdings Inc. ("Phoenix")
from June 1991 through March 1995, during which period Phoenix arranged for
Atlas to receive $8,375,000 in financing and took control of Atlas' Management
and Board. Upon Atlas' acquisition of 51% of Phoenix on November 29, 1995, Mr.
Birkenshaw was appointed Chairman of Phoenix (See Item 1. Business, Investments,
Phoenix Financial Holdings Inc.). Prior to Atlas' acquisition of the 51%
interest in Phoenix, Mr. Birkenshaw purchased 1,150,000 warrants to purchase
Common Shares of the Company from Phoenix, which are exercisable at $3.625 per
share and mature on September 20, 1996. Mr. Birkenshaw received a non-interest
bearing unsecured loan from Phoenix in the amount of Cdn.$25,000 payable upon
demand, the proceeds of which were used to purchase the Atlas warrants. Mr.
Birkenshaw repaid the Phoenix loan subsequent to year end.
Mr. Birkenshaw serves as Chairman of Birkenshaw & Company, Ltd., a merchant
bank. During the six months ended June 30, 1996, the Company paid Birkenshaw &
Company $43,000 for reimbursement of expenses incurred on behalf of the Company.
Mr. Birkenshaw has received from Atlas a $60,000 unsecured housing loan,
bearing an 8% interest rate, in connection with his relocation to Denver,
Colorado. This loan plus accrued interest is due and payable on September 30,
1996
Mr. Davis, President of the Company, serves as a director and Chief Executive
Officer of Phoenix.
PART IV
Item 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
---------------------------------------------------------------
(a) (1) Financial Statements:
See Index to Financial Statements and Schedules on page 80.
(2) Financial Statement Schedules:
See Index to Financial Statements and Schedules on page 80.
(3) Exhibits:
Exhibit
Number Exhibits
-----------------------------------------------------------------------
3.1 Restated Certificate of Incorporation of the Company, dated
January 3, 1990 (filed as Exhibit 3.2 to the Company's
quarterly report on Form 10-Q for the quarter ended December
31, 1989, and incorporated herein by reference).
3.2 By-Laws of the Company, as amended on January 3, 1990 (filed
as Exhibit 3.3 to the Company's quarterly report on Form 10-
Q for the quarter ended December 31, 1989 and incorporated
herein by reference).
71
<PAGE>
3.3 By-Laws of the Company, as amended on July 12, 1995. (filed
as an Exhibit 3.3 to the Company's annual report on form 10-
K for the year ended June 30, 1995 and incorporated herein
by reference).
4.1 Term Loan Agreement dated August 15, 1994 between the
Company and Gerald Metals, Inc.(filed as an Exhibit 10.22 to
the Company's annual report on Form 10-K for the year ended
June 30, 1994 and incorporated herein by reference).
4.2 Security Agreement dated August 15, 1994 between the Company
and Gerald Metals, Inc.(filed as an Exhibit 10.23 to the
Company's annual report on Form 10-K for the year ended June
30, 1994 and incorporated herein by reference).
4.3 Pledge Agreement dated August 15, 1995 between the Company
and Gerald Metals, Inc. (filed as an Exhibit 10.24 to the
Company's annual report on Form 10-K for the year ended June
30, 1994 and incorporated herein by reference).
4.4 Indenture dated as of November 10, 1995 between the Company
and Chemical Bank as Trustee (filed as Exhibit 4.1 to the
Company's Registration Statement on Form S-3 (33-65165) as
filed with the Commission on December 19, 1995 under the
Securities Act of 1933 and incorporated herein by
reference).
4.5 Escrow and Pledge Agreement dated as of November 10, 1995
between the Company and Chemical Bank as Trustee and
Chemical Bank as Escrow Agent (filed as Exhibit 4.2 to the
Company's Registration Statement on Form S-3 (33-65165) as
filed with the Commission on December 19, 1995 and
incorporated herein by reference).
4.6 Special Warrant Indenture dated November 9, 1995 between the
Company and The Montreal Trust Company of Canada containing
terms and conditions governing the issue and exercise of
special debenture warrants exercisable for 7% Exchangeable
Debentures due October 25, 2000 of the Company (filed as
Exhibit 99.2 to the Company's Registration Statement on Form
S-3 (33-65165) as filed with the Commission on December 19,
1995 and incorporated herein by reference).
4.7 Loan Agreement dated as of November 27, 1995 between the
Company and First Marathon Inc. (filed as Exhibit 99.5 to
the Company's Registration Statement on Form S-3 (33-65165)
as filed with the Commission on December 19, 1995 and
incorporated herein by reference).
4.8 Pledge Agreement dated as of November 27, 1995 between the
72
<PAGE>
Company and First Marathon Inc. (filed as Exhibit 99.6 to
the Company's Registration Statement on Form S-3 (33-65165)
as filed with the Commission on December 19, 1995 and
incorporated herein by reference).
10.1 Atlas Corporation Management Incentive Compensation Plan
(filed as Exhibit 10.2 to the Company's annual report on
Form 10-K (file no. 1-2714) for the fiscal year ended June
30, 1981 and incorporated herein by reference).
10.2 Form of Indemnity Agreement entered into between the Company
and certain of its directors (filed as Exhibit 10.14 to the
Company's annual report on Form 10-K for the fiscal year
ended June 30, 1987 and incorporated herein by reference).
10.3 Amended and Restated Rights Agreement dated as of August 2,
1989 between the Company and Manufacturers Hanover Trust
Company (filed as Exhibit 1 to the Company's current report
on Form 8-K dated August 2, 1989 and incorporated herein by
reference).
10.4 Long Term Incentive Plan of the Company dated November 1,
1989 (filed as Exhibit 10.28 to the Company's annual report
on Form 10-K for the fiscal year ended June 30, 1989 and
incorporated herein by reference).
10.5 Atlas Corporation Supplemental Executive Retirement Plan
dated as of January 3, 1990 (filed as Exhibit 10.2 to the
Company's quarterly report on Form 10-Q for the quarter
ended March 31, 1990 and incorporated herein by reference).
10.6 Atlas Corporation Retirement Plan for Outside Directors
dated April 4, 1990 (filed as Exhibit 10.3 to the Company's
quarterly report on Form 10-Q for the quarter ended March
31, 1990 and incorporated herein by reference).
10.7 Restated Employment Agreement dated as of September 12, 1990
between the Company and Richard R. Weaver (filed as Exhibit
10.22 to the annual report on Form 10-K for the fiscal year
ended June 30, 1990 and incorporated herein by reference).
10.8 Amendment No. 1, dated as of March 6, 1991, to the Amended
and Restated Employment Agreement, dated as of September 12,
1990, between the Company and Richard R. Weaver (filed as
Exhibit 10.1 to the Company's quarterly report on Form 10-Q
for the quarter ended March 31, 1991 and incorporated herein
by reference).
73
<PAGE>
10.9 Atlas Corporation Annual Incentive Plan adopted by the Board
of Directors of the Company on March 6, 1991(filed as
Exhibit 10.20 to the Company's annual report on Form 10-K
for the year ended June 30, 1991 and incorporated herein by
reference).
10.10 Agreement dated September 10, 1992 among Atlas Precious
Metals, Inc., the Company and Newmont Mining Corporation
(filed as Exhibit 10.22 to the Company's annual report on
Form 10-K for the year ended June 30, 1992 and incorporated
herein by reference).
10.11 Amendment dated September 10, 1992 to the Agreement dated
September 10, 1992 among Atlas Precious Metals, Inc., the
Company and Newmont Mining Corporation (filed as Exhibit
10.23 to the Company's annual report on Form 10-K for the
year ended June 30, 1992 and incorporated herein by
reference).
10.12 Securities Purchase Agreement dated September 3, 1993
between the Company and Phoenix Financial Holdings Inc.
(filed as Exhibit 2 to the Company's Report on Form 8-K
filed on September 9, 1993 and incorporated herein by
reference).
10.13 Amendment dated as of September 15, 1993 to the Amended and
Restated Rights Agreement dated as of August 2, 1989 between
the Company and Chemical Bank, as successor by merger with
Manufacturers Trust Company (filed as Exhibit 10.25 to the
Company's annual report on Form 10-K for the year ended June
30, 1993 and incorporated herein by reference).
10.14 Employment agreement made as of September 22, 1993, between
the Company and David J. Birkenshaw (filed as Exhibit 10.1
to the Company's quarterly report on Form 10-Q for the
quarter ended March 31, 1994 and incorporated herein by
reference).
10.15 Amendment dated as of August 28, 1995 to the employment
agreement made as of September 22, 1993, between the Company
and David J. Birkenshaw (filed as exhibit 10.15 to the
Company's annual report on Form 10-K for the year ended June
30, 1995 and incorprated herein by reference).
10.16 Share Purchase Agreement dated April 28, 1994 between the
Company and M.I.M. (Canada) Inc. (filed as an Exhibit 10.18
to the Company's annual report on Form 10-K for the year
ended June 30, 1994 and incorporated herein by reference).
10.17 Agreement dated May 10, 1994 between the Company and Granges
Inc. (filed as an Exhibit 10.19 to the Company's annual
report on Form 10-K for the year ended June 30, 1994 and
incorporated herein
74
<PAGE>
by reference)
10.18 Registration Rights Agreement dated August 15, 1994, between
the Company and First Marathon Securities Limited (filed as
Exhibit 10.20 to the Company's annual report on Form 10-K
for the year ended June 30, 1994 and incorporated herein by
reference).
10.19 Indemnity Agreement dated August 15, 1995 between the
Company and M.I.M. Holdings Limited (filed as an Exhibit
10.21 to the Company's annual report on Form 10-K for the
year ended June 30, 1994 and incorporated herein by
reference).
10.20 Purchase Agreement dated May 31, 1994 among the Company,
Dakota Mining Corporation, VenturesTrident L.P. and
VenturesTrident II L.P. (filed as an Exhibit 10.25 to the
Company's annual report on Form 10-K for the year ended June
30, 1994 and incorporated herein by reference).
10.21 Second Amendment dated as of August 15, 1994 to the Amended
and Restated Rights Agreement dated August 2, 1989 between
the Company and Chemical Bank, as successor by merger with
Manufacturers Hanover Trust Company (filed as Exhibit 10.1
to the Company's quarterly report on Form 10-Q for the
quarter ended March 31, 1995 and incorporated herein by
reference).
10.22 The Company's Long Term Incentive Plan, as amended dated
February 17, 1995 (filed as Exhibit 10.2 to the Company's
quarterly report on Form 10-Q for the quarter ended March
31, 1995 and incorporated herein by reference).
10.23 Employment Agreement made as of January 16, 1995 between the
Company and Michael B. Richings (filed as Exhibit 10.3 to
the Company's quarterly report on Form 10-Q for the quarter
ended March 31, 1995 and incorporated herein by reference).
10.24 Employment Agreement made as of February 17, 1995 between
the Company and Richard E. Blubaugh (filed as Exhibit 10.4
to the Company's quarterly report on Form 10-Q for the
quarter ended March 31, 1995 and incorporated herein by
reference).
10.25 Agreement dated February 24, 1995 between the Company and
Granges Inc. to vote the common shares of Granges Inc., held
by the Company, in favor of the proposed amalgamation of
Granges Inc. and Hycroft Resources & Development
Corporation. (filed as exhibit 10.25 to the Company's annual
report on Form 10-K for the year ended June 30, 1995 and
incorprated herein by reference).
75
<PAGE>
10.26 Atlas Subscription Agreement dated March 9, 1995 between the
Company and Dakota Mining Corporation. (filed as exhibit
10.26 to the Company's annual report on Form 10-K for the
year ended June 30, 1995 and incorprated herein by
reference).
10.27 Amendment dated September 15, 1995 to the employment
agreement made as of February 17, 1995 between the Company
and Richard E. Blubaugh. (filed as exhibit 10.27 to the
Company's annual report on Form 10-K for the year ended June
30, 1995 and incorprated herein by reference).
10.28 Employment Agreement dated June 1, 1995 between the Company
and Gerald E. Davis (filed as exhibit 10.28 to the Company's
annual report on Form 10-K for the year ended June 30, 1995
and incorprated herein by reference).
10.29 Amendment dated September 20, 1995 to the employment
agreement dated June 1, 1995 between the Company and Gerald
E. Davis (filed as exhibit 10.29 to the Company's annual
report on Form 10-K for the year ended June 30, 1995 and
incorprated herein by reference).
10.30 Underwriting Agreement dated as of October 25, 1995 by and
among the Company, Yorkton Securities Inc. and First
Marathon Securities Ltd. regarding the distribution of
special debenture warrants exercisable for 7% Exchangeable
Debentures due October 25, 2000 of the Company (filed as
Exhibit 99.1 to the Company's Registration Statement on Form
S-3 (33-65165) as filed with the Commission on December 19,
1995 and incorporated herein by reference).
10.31 Granges Registration Agreement dated as of November 10, 1995
between the Company and Granges Inc. (filed as Exhibit 99.3
to the Company's Registration Statement on Form S-3 (33-
65165) as filed with the Commission on December 19, 1995 and
incorporated herein by reference).
10.32 Indemnification Agreement dated as of November 15, 1995
between the Company and Granges Inc. (filed as Exhibit 99.4
to the Company's Registration Statement on Form S-3 (33-
65165) as filed with the Commission on December 19, 1995 and
incorporated herein by reference).
10.33 Option Agreement between the Company and Harvest Gold
Corporation signed September 13, 1995 (filed as Exhibit 99.7
to the Company's Registration Statement on Form S-3 (33-
65165) as filed with the Commission on December 19, 1995 and
incorporated herein by reference).
76
<PAGE>
10.34 Purchase and Sale Agreement dated October 25, 1995 between
the Company and Independence Mining Company Inc. (filed as
Exhibit 99.8 to the Company's Registration Statement on Form
S-3 (33-65165) as filed with the Commission on December 19,
1995 and incorporated herein by reference).
10.35 Registration Rights Agreement dated October 25, 1995 between
the Company and Independence Mining Company Inc. (filed as
Exhibit 99.9 to the Company's Registration Statement on Form
S-3 (33-65165) as filed with the Commission on December 19,
1995 and incorporated herein by reference).
10.36 Agreement between the Company and Brown & Root, Inc. dated
October 23, 1995 (filed as Exhibit 99.10 to the Company's
Registration Statement on Form S-3 (33-65165) as filed with
the Commission on December 19, 1995 and incorporated herein
by reference).
10.37 Mining Venture Agreement with Granges (U.S.), Inc. dated
September 29, 1995
10.38 Business combination agreement with MSV Resources Inc. dated
March 5, 1996
21 Subsidiaries of the Company
23 Consent of Independent Auditors Page 81
(b) Reports on Form 8-K:
Report on Form 8-K dated November 14, 1995 containing the
Company's news release with respect to closing to escrow of $10
million exchangeable debentures and its financial results for the
quarter ended September 30, 1995.
Report on Form 8-K dated December 1, 1995 containing the
Company's press release with respect to the acquisition of 51
percent of voting stock of Phoenix Financial Holdings Inc.
For purposes of complying with the amendments to the rules governing Form S-8
(effective July 13, 1990) under the Securities Act of 1933, the undersigned
hereby undertakes as follows, which undertaking shall be incorporated by
reference into the Company's Registration Statement on Form S-8 No. 33-18316
(filed on November 3, 1987, as amended by Post Effective Amendment No. 1 filed
on December 15, 1987):
77
<PAGE>
Insofar as indemnification for liabilities arising under the Securities Act
of 1933 may be permitted to directors, officers and controlling persons of
the registrant pursuant to the foregoing provisions, or otherwise, the
registrant has been advised that in the opinion of the Securities and
Exchange Commission such indemnification is against public policy as
expressed in the Securities Act of 1933 and is, therefore, unenforceable.
In the event that a claim for indemnification against such liabilities
(other than the payment by the registrant of expenses incurred or paid by
the director, officer or controlling person of the registrant in the
successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities
being registered, the registrant will, unless in the opinion of its counsel
the matter has been settled by controlling precedent, submit to a court of
appropriate jurisdiction the question whether such indemnification by it is
against public policy as expressed in the Act and will be governed by the
final adjudication of such issue.
_____________________________
Note concerning Exhibits: The Company will furnish copies of Exhibits to
security holders of the Company upon request. The Company may charge a fee in
connection with such a request, which will be limited to the Company's
reasonable expenses in furnishing any such Exhibit.
78
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the Company has duly caused this report to be signed on its behalf
by the undersigned, thereunto duly authorized.
ATLAS CORPORATION
By: /s/ Gerald E. Davis
-------------------
Gerald E. Davis
President
Date: 4/11/96
Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below by the following persons on behalf of the Company and in
the capacities and on the dates indicated.
<TABLE>
<S> <C> <C>
/s/ David J. Birkenshaw Chief Executive Office
- -----------------------
David J. Birkenshaw and Director 4/11/96
/s/ Jerome C. Cain Vice-President - Finance
- ------------------
Jerome C. Cain (Principal Financial Officer) 4/11/96
/s/ James R. Jensen Controller (Principal
- -------------------
James R. Jensen Accounting Officer) 4/11/96
/s/ Douglas R. Cook Director 4/11/96
- -------------------
Douglas R. Cook
/s/ James H. Dunnett Director 4/11/96
- --------------------
James H. Dunnett
/s/ David P. Hall Director 4/11/96
- -----------------
David P. Hall
/s/ Philip R. Mengel Director 4/11/96
- ---------------------
Philip R. Mengel
/s/ C. Thomas Ogryzlo Director 4/11/96
- ----------------------
C. Thomas Ogryzlo
/s/ Michael B. Richings Director 4/11/96
- -----------------------
Michael B. Richings
</TABLE>
79
<PAGE>
ATLAS CORPORATION AND ITS SUBSIDIARIES
INDEX TO FINANCIAL STATEMENTS AND SCHEDULES
DECEMBER 31, 1995, JUNE 30, 1995, 1994 AND 1993
<TABLE>
<CAPTION>
Page
----
<S> <C>
FINANCIAL STATEMENTS OF ATLAS CORPORATION
Consolidated Statements of Operations for the
Six Months Ended December 31, 1995 and for the
Fiscal Years Ended June 30, 1995, 1994 and 1993 33
Consolidated Balance Sheets as of December 31, 1995, June 30, 1995 and 1994 34
Consolidated Statements of Stockholder's Equity
(Deficit) for the Six Months Ended December 31, 1995
and for the Fiscal Years Ended June 30, 1995, 1994 and 1993 35
Consolidated Statements of Cash Flows for the
Six Months Ended December 31, 1995 and for the
Fiscal Years Ended June 30, 1995, 1994 and 1993 36
Notes to Consolidated Financial Statements 37 - 57
Report of the Independent Auditors 58
Consent of Independent Auditors 80
SCHEDULES FOR THE SIX MONTHS ENDED DECEMBER 31, 1995 AND FOR THE
FISCAL YEARS ENDED JUNE 30, 1995, 1994 AND 1993:
VIII Valuation and Qualifying Accounts and Reserves 82
Consolidated Financial Statements of Granges Inc. 83-103
</TABLE>
80
<PAGE>
CONSENT OF INDEPENDENT AUDITORS
We consent to the addition of the financial statement schedule, listed in the
accompanying index to the financial statements covered by our report dated
February 16, 1996, except for Note 19, as to which the date is March 9, 1996,
included herein.
We also consent to the incorporation by reference in Post Effective Amendment
Number 19 to Registration Statement Number 2-8439 on Form S-3 dated November 10,
1983, Post Effective Amendment Number 1 to Registration Statement Number 33-
18316 on Form S-8 dated December 14, 1987, Registration Statement Number 33-
87992 on Form S-3 dated January 13, 1995 and Post Effective Amendment Number 1
to Registration Statement Number 33-65165 on Form S-3 dated February 2, 1996 and
the Related Prospectuses of our report on the financial statements and schedule
included in this Annual Report on Form 10-K of Atlas Corporation for the six
months ended December 31, 1995.
/s/ Ernst & Young LLP
Denver, Colorado
April 5, 1996
81
<PAGE>
ATLAS CORPORATION AND SUBSIDIARIES
SCHEDULE VIII - VALUATION AND QUALIFYING ACCOUNTS AND RESERVES
For the Six Months Ended December 31, 1995 and
for the Years Ended June 30, 1995, 1994 and 1993
(In thousands)
<TABLE>
<CAPTION>
Column A Column B Column C Column E Column F
- -------- -------- -------- -------- --------
Additions
--------------------------
Balance at Charged to Charge to Balance at
Beginning of Costs and Other (2) End of
Classification Period Expenses Accounts Deductions Period
- -----------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
SIX MONTHS ENDED DECEMBER 31, 1995
Provisions for loss from
disposal of discontinued
operations $ 7,050 $ -- $1,032(4) $ 2,474 $ 5,608(3)
YEAR ENDED JUNE 30, 1995
Provisions for loss from
disposal of discontinued
operations $ 9,327 $225 $ -- $(2,502) $ 7,050
YEAR ENDED JUNE 30, 1994
Provision for loss from
disposal of discontinued
operations $11,689 $ -- $102(1) $(2,464) $ 9,327
YEAR ENDED JUNE 30, 1993
Provision for loss from
disposal of discontinued
operations $11,958 $912 $170(1) $(1,351) $11,689
- -----------------------------------------------------------------------------------------------------
</TABLE>
(1) Represents net proceeds from the disposition of assets.
(2) Represents costs incurred.
(3) The balance at December 31, 1995 includes $800,000 in Accrued
liabilities and $3,713,000 in Other liabilities, long-term, which
represent the liability for reclamation and uranium shutdown costs.
(4) Represents reimbursement of costs from the U.S. Department of Energy
under Title X.
82
<PAGE>
CONSOLIDATED FINANCIAL STATEMENTS
OF
GRANGES INC.
83
<PAGE>
AUDITORS' REPORT
To the Shareholders of Granges Inc.
We have audited the consolidated balance sheets of Granges Inc. as at December
31, 1995 and 1994 and the consolidated statements of earnings, retained earnings
(deficit) and changes in cash resources for each of the years in the three year
period ended December 31, 1995. These consolidated financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform an audit to obtain
reasonable assurance whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
In our opinion, these consolidated financial statements present fairly, in all
material respects, the financial position of the Company as at December 31, 1995
and 1994 and the results of its operation and changes in its cash resources for
each of the three years ended December 31, 1995 in accordance with generally
accepted accounting principles. As required by the British Columbia Company
Act, we report that, in our opinion, these principles have been applied on a
consistent basis.
Vancouver, B.C. (signed) COOPERS & LYBRAND
March 1, 1996 except as to Chartered Accountants
Note 22 which is as of March 4, 1996
84
<PAGE>
CONSOLIDATED STATEMENTS OF EARNINGS
(Canadian Dollars In Thousands, Except Per Share Data)
<TABLE>
<CAPTION>
Year ended December 31 1995 1994 1993
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
REVENUES $56,374 $54,432 $55,297
------- ------- -------
EXPENSES
Operating costs 46,023 44,099 48,360
Depreciation, depletion and provision for
future reclamation and mine closure 5,535 3,539 5,904
Amortization of deferred stripping 304 4,246 --
------- ------- -------
51,862 51,884 54,264
------- ------- -------
RESULTS OF MINING OPERATIONS 4,512 2,548 1,033
----- ----- -----
Mineral exploration 5,650 5,423 4,878
Corporate administrative 3,365 3,645 5,061
Interest income - net (Note 5) (1,898) (2,132) (1,333)
Other expense (income) 1,772 789 (704)
Gain on sale of mineral properties
and marketable securities (Note 6) (8,293) (12,570) (2,265)
Dilution gain on issue of subsidiary
shares (Note 7) -- -- (7,398)
Equity in loss of Zamora Gold Corp. 704 -- --
------- ------- -------
1,300 (4,845) (1,761)
------- ------- -------
EARNINGS BEFORE INCOME TAXES 3,212 7,393 2,794
CURRENT INCOME TAXES (Note 8) 264 408 33
------- ------- -------
NET EARNINGS $2,948 $6,985 $2,761
====== ====== ======
EARNINGS PER SHARE $ 0.07 $ 0.20 $ 0.08
====== ====== ======
WEIGHTED AVERAGE SHARES OUTSTANDING 42,074,356 34,164,260 34,095,575
========== ========== ==========
</TABLE>
The Accompanying Notes Are An Integral Part Of These Consolidated Financial
Statements.
85
<PAGE>
CONSOLIDATED STATEMENTS OF RETAINED EARNINGS (DEFICIT)
(Canadian Dollars In Thousands)
<TABLE>
<CAPTION>
Year ended December 31 1995 1994 1993
- -----------------------------------------------------------------------------------------
<S> <C> <C> <C>
Deficit, Beginning of Year as previously reported $(75,462) $(82,447) $(85,208)
Prior period adjustment (Note 4) (256) (256) (256)
--------- --------- ---------
Deficit, Beginning of Year restated (75,718) (82,703) (85,464)
Amalgamation costs (Note 3) (1,669) -- --
Capital reduction (Note 15) 76,362 -- --
--------- --------- ---------
(1,025) (82,703) (85,464)
Net earnings 2,948 6,985 2,761
--------- --------- ---------
Retained earnings (deficit), End of Year $ 1,923 $(75,718) $(82,703)
========= ========= =========
</TABLE>
The Accompanying Notes Are An Integral Part Of These Consolidated Financial
Statements.
86
<PAGE>
CONSOLIDATED BALANCE SHEETS
(Canadian Dollars In Thousands)
<TABLE>
<CAPTION>
December 31 1995 1994
- -------------------------------------------------------------------------------------------------
(Restated, See
Note 4)
<S> <C> <C>
ASSETS
Current Assets Cash and cash equivalents
$ 20,765 $45,113
Marketable securities (Market value - $478,000) 244 327
Accounts Receivable 1,955 2,772
Inventories (Note 9) 15,140 14,027
-------- --------
38,104 62,239
Investment in Zamora Gold Corp. (Note 10) 5,808 --
Property, Plant and Equipment (Note 6, 11) 43,756 36,661
-------- --------
$ 87,668 $ 98,900
======== ========
LIABILITIES
Current Liabilities
Accounts payable and accrued liabilities (Note 13) $ 8,518 $ 20,290
Equipment notes payable (Note 14) -- 366
------- --------
8,518 20,656
Provisions for Future Reclamation and Closure Costs 4,654 4,179
------- --------
13,172 24,835
------- --------
SHAREHOLDERS' EQUITY
Common Shares, without par value
(Issued 1995 - 46,042,911; 1994 - 34,177,000 shares) (Note 15) 73,980 146,227
Contributed Surplus (Note 15) -- 3,803
Retained Earnings (Deficit) 1,923 (75,718)
Currency Translation Adjustment (Note 16) (1,407) (247)
------- --------
74,496 74,065
------ ------
$87,668 $98,900
======= =======
</TABLE>
Contingencies and Commitments (Note 21)
APPROVED BY THE BOARD
(signed) ALAN G. THOMPSON (signed) PETER WALTON
Director Director
The Accompanying Notes Are An Integral Part Of These Consolidated Financial
Statements.
87
<PAGE>
CONSOLIDATED STATEMENTS OF CHANGES IN CASH RESOURCES
(Canadian Dollars In Thousands)
<TABLE>
<CAPTION>
Year ended December 31 1995 1994 1993
=================================================================================
<S> <C> <C> <C>
Operating Activities
Net earnings $2,948 $6,985 $2,761
Items not involving cash
Depreciation and depletion 4,853 2,699 4,710
Amortization of deferred stripping 304 4,246 --
Provision for future reclamation
and closure costs 736 894 1,275
Deferred revenue recognized -- (572) (797)
Gain on sale of equipment -- (88) (320)
Gain on sale of mineral properties
and marketable securities (Note 6) (8,293) (12,570) (2,121)
Equity in loss of Zamora Gold Corp. 704 -- --
Dilution gain on issue of
subsidiary shares (Note 7) -- -- (7,398)
Foreign exchange loss -- -- (35)
-------- -------- --------
1,252 1,594 (1,925)
Deferred revenue -- -- 1,136
Currency translation adjustment (602) (2) 168
Change in working capital, excluding
cash and cash equivalents (Note 17) (11,985) 11,198 2,002
-------- -------- --------
(11,335) 12,790 1,381
-------- -------- --------
Investing Activities
Property, plant and equipment (13,209) (21,131) (11,155)
Proceeds from sale of mineral properties
and marketable securities (Note 6) 15,117 32,296 2,394
Investments (Note 6, 10) (13,230) -- --
Investment in subsidiary (Note 7) -- -- (2,756)
(11,322) 11,305 (10,862)
-------- -------- --------
Financing Activities
Equipment note proceeds (payments) net (375) (515) (311)
Issue of shares for options 313 29 289
Amalgamation costs (1,669) -- --
Option payments received 40 -- --
Bank loan advances (repayments) -- (5,195) (9,782)
Issue of shares for settlement of
litigation (Note 15) -- -- 276
Issue of subsidiary shares (Note 7) -- -- 10,154
-------- -------- --------
(1,691) (5,681) 626
-------- -------- --------
Increase (decrease) in Cash and Cash
Equivalents (24,348) 18,414 (8,855)
Cash and Cash Equivalents, Beginning of Year 45,113 26,699 35,554
-------- -------- --------
Cash and Cash Equivalents, End of Year $ 20,765 $ 45,113 $ 26,699
======== ======== ========
</TABLE>
The Accompanying Notes Are An Integral Part Of These Consolidated Financial
Statements.
88
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Tabular Information In Thousands Of Canadian Dollars, Except Per Share Data)
1. NATURE OF OPERATIONS
Granges Inc. is engaged in gold mining and related activities in the United
States, Canada, and Latin America, including exploration, extraction,
processing, refining and reclamation. Gold bullion is the company's principal
product, which is a commodity produced primarily in South Africa, the United
States, Canada, Australia, and Latin America.
The company's results are impacted by the price of gold. Gold prices fluctuate
and are affected by numerous factors, including, but not limited to,
expectations with respect to the rate of inflation, exchange rates
(specifically, the U.S. dollar relative to other currencies), interest rates,
global and regional political and economic crises and governmental policies
with respect to gold holdings by central banks. The demand for and supply of
gold affect gold prices, but not necessarily in the same manner as demand and
supply affect the prices of other commodities. The supply of gold consists of a
combination of new mine production and existing stocks of bullion and fabricated
gold held by governments, public and private financial institutions, industrial
organizations and private individuals. The demand for gold consists of
jewellery and investment demand, as well as producer hedging activities. Gold
can be readily sold on numerous markets throughout the world and its market
value can be readily ascertained at any particular time. As a result, the
company is not dependent upon any one customer for the sale of its product.
2. SIGNIFICANT ACCOUNTING POLICIES
A) Generally Accepted Accounting Principles
The consolidated financial statements of Granges Inc. and its subsidiaries have
been prepared in accordance with accounting principles generally accepted in
Canada. These principles differ in certain material respects from those
accounting principles generally accepted in the United States. The differences
are described in note 23.
B) Principles of Consolidation
The consolidated financial statements include the accounts of Granges Inc., its
subsidiaries and its proportionate share of the assets, liabilities, revenues
and expenses of its unincorporated joint venture. The Company's subsidiaries and
its percentage ownership in these entities as at December 31, 1995 are: (see
Notes 3 and 6A)
<TABLE>
<CAPTION>
Ownership
- --------------------------------------------------------------------------------
<S> <C>
Hycroft Resources & Development, Inc. and its
wholly owned subsidiary Hycroft Lewis Mine, Inc. 100%
Granges (U.S.) Inc. and its wholly owned subsidiary Granges
(Arizona) Inc. 100%
Granges (Canada) Inc. (previously called 493744 Ontario Limited) 100%
</TABLE>
C) Use of Estimates
The preparation of consolidated financial statements in accordance with
generally accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent liabilities at the date of the consolidated financial
statements and the reported amount of revenues and expenses during the reporting
period. Actual results could differ from those reported.
89
<PAGE>
D) Foreign Currency Translation
Self-sustaining foreign operations are translated using the current rate method.
Under this method, assets and liabilities are translated at the rate of exchange
on the balance sheet date, and revenue and expenses at the average rate of
exchange during the period. Exchange gains and losses are deferred and shown as
a currency translation adjustment in shareholders' equity until transferred to
earnings when the net investment in the foreign operation is reduced.
Integrated foreign operations are translated using the temporal method. Under
this method, monetary assets and liabilities are translated at the rate of
exchange in effect at the balance sheet date and non-monetary assets and
liabilities are translated at historical exchange rates, unless such items are
carried at market, in which case they are translated at the exchange rate in
effect at the balance sheet date. Revenues and expenses are translated at the
rate of exchange in effect on the dates that they occur and depreciation and
amortization of assets translated at historical rate are translated at the same
exchange rates as the assets to which they relate. Exchange gains and losses
are included in the determination of net income for the current period, except
for any exchange gains or losses related to foreign currency denominated
monetary items that have a fixed or ascertainable life extending beyond the end
of the current fiscal period. Such gains or losses are deferred and amortized
over the life of the item.
Foreign currency denominated monetary items of the company, excluding its
foreign operations, are translated at the year-end exchange rate. Exchange gains
and losses on these items are recognized in earnings in the year they arise.
E) Revenue Recognition
Sales are recorded as soon as the product is considered available for sale.
Gains and losses on forward sales and option contracts are deferred until the
related production is sold.
F) Mineral Exploration
Acquisition and exploration expenditures on mineral properties are expensed when
incurred until such time as the property indicates the potential of being
developed into a mine, and thereafter the expenditures are capitalized.
Previously capitalized expenditures are expensed if the project is determined to
be uneconomic.
G) Cash Equivalents
Cash equivalents consist of highly liquid debt instruments such as certificates
of deposit, commercial paper, and money market accounts purchased with an
original maturity date of less than three months. The company's policy is to
invest cash in conservative, highly rated instruments and limit the amount of
credit exposure to any one institution. Cash equivalents are stated at cost plus
accrued interest, which approximates market value.
H) Marketable Securities
Marketable securities are carried at the lower of cost or market value.
I) Inventories
Product inventory is valued at the lower of average cost and net realizable
value. The direct cash costs associated with ore on the leach pads are
inventoried and charged to operations as the contained gold is recovered. Based
upon actual metal recoveries, ore grades and operating plans, management
continuously evaluates and refines estimates in determining the carrying values
of costs associated with ore under leach. It is possible that in the near term,
estimates of recoverable ore, grade, and gold price could change causing the
company to revise the value of its heap leach inventory.
90
<PAGE>
Supplies are valued at the lower of average cost and net realizable value.
J) Property, Plant and Equipment
(i) Developed Mineral Properties
Property acquisition and development costs are carried at cost less
accumulated amortization and write downs. Amortization is provided on the
unit-of-production method based on proven and probable reserves. Management
reviews quarterly the carrying value of the company's interest in each
property and, where necessary, these properties are written down to their
estimated recoverable amount determined on a non-discounted basis.
Management's estimate of gold price, recoverable proven and probable
reserves, operating, capital and reclamation costs are subject to risks and
uncertainties affecting the recoverability of the company's investment in
property, plant and equipment. Although management has made its best
estimate of these factors based on current conditions, it is possible that
changes could occur in the near term that could adversely affect
management's estimate of net cash flows expected to be generated from its
operating properties and the need for possible asset impairment write downs.
(ii) Plant and Equipment
Plant and equipment are recorded at cost and depreciated using the units-of-
production method or the straight-line method over their estimated useful
lives.
(iii) Deferred Stripping
During production, mining costs associated with waste rock removal are
deferred and charged to operations on the basis of the average strip ratio
for the life of the mine. The average strip ratio is calculated as a ratio
of the tons of waste expected to be mined to the tons of ore estimated to be
mined. Although management has made its best estimate of these factors based
on current conditions, it is possible that changes could occur in the near
term that could adversely affect management's estimate of ore and waste in
proven and probable reserves and the need for a change in the amortization
rate of deferred stripping cost.
K) Provision for Future Reclamation and Closure Costs
All of the company's operations are subject to reclamation, site restoration and
closure requirements. Costs related to ongoing site restoration programs are
expensed when incurred. A provision for mine closure and site restoration costs
is charged to earnings over the lives of the mines on a unit-of-production
basis. The company calculates its estimates of the ultimate reclamation
liability based on current laws and regulations and the expected future costs to
be incurred in reclaiming, restoring and closing its operating mine sites. It
is possible that the company's estimate of its ultimate reclamation liability
could change in the near term due to possible changes in laws and regulation and
changes in cost estimates.
L) Estimates of Proven and Probable Reserves
Management's calculation of proven and probable reserves is based upon
engineering and geological estimates and financial estimates including gold
prices and operating costs. The company depreciates some of its assets and
accrues for reclamation on a unit-of-production basis over proven and probable
reserves. Changes in geological interpretations of the company's ore bodies and
changes in gold prices and operating costs may change the company's estimate of
proven and probable reserves. It is possible that the company's estimate of
proven and probable reserves could change in the near term and could result in
revised charges for depreciation and reclamation in future reporting periods.
3. AMALGAMATION OF GRANGES INC. AND HYCROFT RESOURCES & DEVELOPMENT CORPORATION.
91
<PAGE>
On March 30, 1995, the shareholders of Granges Inc. (Granges) and its 50.5
percent owned subsidiary, Hycroft Resources & Development Corporation (Hycroft),
approved the amalgamation of the two companies, effective May 1, 1995 under the
name Granges Inc. (Amalco).
Under the terms of the amalgamation, the outstanding common shares of each of
Granges and Hycroft were exchanged or cancelled on the following basis:
A) each issued and outstanding common share of Granges was exchanged for one
common share of Amalco;
B) each issued and outstanding common share of Hycroft, except for those common
shares registered in the name of Granges or its affiliates, was exchanged
for 0.88 of a common share of Amalco;
C) each issued and outstanding common share of Hycroft that was registered in
the name of Granges or its affiliates was cancelled; and
d) each authorized but unissued common share of Granges and each authorized but
unissued common share of Hycroft was cancelled.
No fractional shares of Amalco were issued and the number of shares received by
a Hycroft shareholder was rounded down to the nearest whole number of shares of
Amalco, if such a shareholder were otherwise entitled to receive a fraction of a
share of Amalco. Immediately after the amalgamation, shareholders of Granges
beneficially owned 34,214,500 common shares of Amalco and shareholders of
Hycroft beneficially owned 11,718,416 common shares of Amalco, representing 74.5
percent and 25.5 percent of the issued and outstanding common shares of Amalco,
respectively.
As Granges already controlled Hycroft, the amalgamation was treated in a manner
similar to a pooling of interest. Accordingly, the year-to-date results of
Amalco represent the consolidated results of Granges for the four months ended
April 30, 1995 and the consolidated results of Amalco for the eight months ended
December 31, 1995, with all comparative figures being the consolidated results
of Granges.
$1.7 million of costs to carry out the amalgamation have been treated as a
capital transaction and charged directly to the deficit on the date of
amalgamation.
4. PRIOR PERIOD ADJUSTMENT
During 1995, the company received notification from the Manitoba Department of
Finance of proposed assessments for the years 1983 to 1993 under the Mining Tax
Act and for the period March 1, 1989 to December 31, 1994 under the Retail Sales
Tax Act. The company, subsequent to the end of the year, arrived at a
settlement with the Department under which the total taxes and interest payable
under both Acts amounted to $330,000, with $120,000 previously paid. This
settlement has been treated as a prior period adjustment and the effect has been
to increase mineral properties by $74,000, increase accounts payable by $210,000
at December 31, 1995, and by $330,000 at December 31, 1994 and to reduce
beginning retained earnings by $256,000.
5. INTEREST INCOME - NET
<TABLE>
<CAPTION>
1995 1994 1993
========================================================================
<S> <C> <C> <C>
Interest income $(2,101) $(2,286) $(1,849)
Bank loan interest -- 89 463
Equipment notes interest 13 65 53
Financing fee 190 -- --
-------- -------- --------
$(1,898) $(2,132) $(1,333)
======== ======== ========
</TABLE>
92
<PAGE>
6. GAIN ON SALE OF MINERAL PROPERTIES AND MARKETABLE SECURITIES
A) Mineral Properties
On September 27, 1995, the company sold its base metal exploration properties in
Manitoba and Saskatchewan to Aur Resources Inc. (Aur) for 1,250,000 shares of
Aur and a royalty equal to two percent of future net smelter returns from the
properties, subject to Aur's right to purchase half of the royalty for $1.0
million. The company realized a gain on the sale of these properties of $6.7
million.
Effective March 31, 1994, the company sold its 29 percent interest in the Trout
Lake joint venture, as well as a number of exploration properties, to its co-
venturer Hudson Bay Mining and Smelting Co., Limited (HBMS) for total cash
consideration of $33 million, realizing a gain of $12.6 million. As part of the
terms of sale, HBMS assumed all environmental liabilities arising due to past or
future activities of the Trout Lake Mine. Accordingly, the $810,000 reclamation
and closure accrual related to the mine has been removed from the company's
books and included in the calculation of the gain.
In May 1993, the company sold its 40 percent interest in the Jualin joint
venture in Alaska, and its related 22.3 percent equity investment in
International Curator Resources Ltd. for proceeds of $1.7 million. The costs
associated with this project had been included in mineral exploration in prior
years.
B) Marketable Securities
In December 1995, the company sold its 1,250,000 shares of Aur, acquired in the
sale of the base metal properties, for net proceeds of $7.25 million and
realized a gain of $0.5 million.
In June 1995, the company sold its 200,000 shares of International Curator
Resources Ltd. for net proceeds of $1.2 million and realized a gain of $1.1
million.
On October 7, 1993, the company sold its 200,000 shares of Pan Orvana Resources
for net proceeds of $694,000 and realized a gain of $494,000.
7. SUBSIDIARY SHARE ISSUE
In July 1993, the company's subsidiary, Hycroft, completed a sale of 10.5
million common shares. The company acquired 2.65 million of the 10.5 million
shares, which resulted in a reduction of its interest in Hycroft from 67 percent
to 50.5 percent. The net effect on the consolidated financial statements of the
Company was to increase cash and cash equivalents by $7.4 million and to report
a gain on the reduction of its interest in the subsidiary of the same amount.
8. INCOME TAXES
A reconciliation of the combined Canadian federal and provincial income taxes at
statutory rates and the company's effective income tax expenses is as follows:
93
<PAGE>
<TABLE>
<CAPTION>
1995 1994 1993
=========================================================================================
<S> <C> <C> <C>
Income taxes at statutory rates $1,426 $3,371 $1,075
Increase (decrease) in taxes from:
Resource and depletion allowance -- -- (304)
Non-taxable portion of capital gain (182) (203)
Non-taxable portion of dilution gain -- -- (845)
Financing costs on share issue (45) (69) (348)
Application of prior years' loss carry forward -- (1,379) (1,113)
Utilization of resource and asset pools (2,633) (5,772) -
Recovery of prior years' taxes (90) (124) (82)
Deferred tax debit not recognized 1,035 4,643 1,855
U.S. Alternative Minimum Tax 257 -- --
Differences in foreign tax rates 429 (178) (254)
------- ------- -------
197 289 (16)
Large Corporations tax 67 119 49
------- ------- -------
Income taxes per statements of earnings $264 $408 $33
======= ======= =======
</TABLE>
The Company has incurred income tax losses in prior periods of $24.4 million,
which may be carried forward and applied against future taxable income when
earned. No benefit in respect of these losses has been recorded in these
accounts. The losses expire as follows:
<TABLE>
<CAPTION>
Canada United States Total
=========================================================================================
<S> <C> <C> <C>
2000 $1,911 $ -- $1,911
2001 2,312 1,767 4,079
2002 800 1,854 2,654
2003 -- 7,396 7,396
2004 -- 1,875 1,875
2008 -- 530 530
2009 -- 14 14
2010 -- 5,904 5,904
------ ------- -------
$5,023 $19,340 $24,363
====== ======= =======
</TABLE>
9. INVENTORIES
<TABLE>
<CAPTION>
1995 1994
=========================================================================================
<S> <C> <C>
Product inventory $11,830 $11,273
Supplies 3,310 2,754
------- -------
$15,140 $14,027
======= =======
</TABLE>
10. INVESTMENT IN ZAMORA GOLD CORP.
On October 6, 1995, Granges Inc. completed a private placement with Zamora Gold
Corp. (Zamora) for the issuance of 8,000,000 units at US$0.60 per unit. Each
unit consists of one common share of Zamora and one common share purchase
warrant entitling Granges to purchase one common share for US$0.75 until October
4, 1997. Granges' 8,000,000 shares represent 41 percent of the issued and
outstanding shares of Zamora and the investment is accounted for using the
equity method.
94
<PAGE>
<TABLE>
<S> <C>
Total initial investment $6,511
Share of net book value 6,375
------
Excess of cost over net book value $ 136
======
</TABLE>
The excess of cost over net book value has been allocated to the mineral
exploration properties for purposes of calculating Granges' equity in Zamora's
earnings. The excess will be amortized on a units-of-production basis if such
properties are developed into operating mines or written off if the properties
are abandoned.
95
<PAGE>
11. PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment comprises of the following:
<TABLE>
<CAPTION>
Property Metals Produced Acquired/Commenced Production
=====================================================================================
<S> <C> <C>
Hycroft mine gold, silver Lewis 1987, Crofoot 1988
Tartan mine gold 1987 (suspended 1989)
Trout Lake mine copper, zinc, gold, silver 1982 (interest disposed of
March 31, 1994 - see note 6A)
</TABLE>
<TABLE>
<CAPTION>
1995 1994
(Restated,
See Note 4)
-------------------------------------------------- --------------------------------------------
Accumulated Accumulated
Depreciation, Depreciation,
Depletion, Depletion,
amortization and amortization
Write downs and
Cost Net Cost Write downs Net
- ----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Producing Mines Hycroft
mine $ 85,137 $53,089 $32,048 $81,193 $49,342 $31,851
Non-Producing Mine 5,283 2,699 2,584 5,283 2,699 2,584
Tartan Lake mine
Corporate Assets 1,016 357 659 1,123 565 558
------ ------ ------ ------ ------ ------
91,436 56,145 35,291 87,599 52,606 34,993
Deferred stripping
costs - Hycroft 12,987 4,522 8,465 6,002 4,334 1,668
-------- ------- ------- ------- ------- -------
$104,423 $60,667 $43,756 $93,601 $56,940 $36,661
======== ======= ======= ======= ======= =======
</TABLE>
A) Deferred stripping
During 1993, the amounts of waste moved per ton of ore at the Hycroft mine
exceeded the average ratio expected over the life of the mine. The mining
plan indicates that this will continue to be the case from time to time,
whereas previously there was little variation in the ratio of waste to ore.
To accommodate these variations, mining costs associated with removal of
waste in excess of the life-of-mine average will be deferred and charged to
operations in future periods when ratios are below the average. Stripping
costs deferred this year amounted to $7,182,000 (1994 - $1,958,000; 1993 -
$3,725,000). Amortization of previously deferred costs was $304,000 in 1995
(1994 -$4,246,000; 1993 - Nil).
B) Royalties
The Crofoot property is subject to 4 percent net profits royalties. No
royalty payments were made in 1995, 1994 and 1993 because minimum royalty
payments made prior to 1993 aggregating US$2.8 million were available for
credit the royalty obligations. Effective 1996, the company has agreed to
apply this credit to reduce the maximum cumulative royalties payable of
US$10 million and to pay minimum royalty payments of US$240,000 per year.
96
<PAGE>
The Lewis property is subject to a 5 percent net smelter royalty on gold
produced from the Lewis property. During 1993, 1994 and 1995, only nominal
minimum royalties were required in relation to this property.
12. JOINT VENTURE
The Company proportionately consolidates its share of the assets, liabilities,
revenues and expenses of its joint venture. Prior to March 31, 1994 the
Company's principal joint venture was the Trout Lake mine, in which it owned 29
percent (see Note 6a). The 1994 results include the Company's share of
production, revenues and expenses from the Trout Lake mine to the date of
disposal. The proportionate amounts of the above joint venture included in the
consolidated accounts are as follows:
<TABLE>
<CAPTION>
1995 1994 1993
- -------------------------------------------------------------------------------
<S> <C> <C> <C>
Revenue $ -- $ 3,257 $14,267
======== ====== =======
Expenses $ -- $ 3,905 $14,568
======== ====== =======
</TABLE>
13. ACCOUNTS PAYABLE AND ACCRUED LIABILITIES
<TABLE>
<CAPTION>
1995 1994
- -------------------------------------------------------------------------------
(Restated, See
Note 4)
<S> <C> <C> <C>
Accounts payable $4,798 $ 17,893
Accrued liabilities 3,720 2,397
------ -------
$ 8,518 $20,290
====== =======
</TABLE>
Accounts payable at December 31, 1994 included $13.1 million (US$9.3 million) to
purchase mining equipment for the development of the Brimstone deposit, all of
which was paid during 1995.
14. EQUIPMENT NOTES PAYABLE
<TABLE>
<CAPTION>
1995 1994
- -------------------------------------------------------------------------------
<S> <C> <C>
Notes payable due 1994 and 1995, 7.75% to 9.85%
(1995 - US$ NIL; 1994 - US$261,000) $ -- $ 366
Less: amounts due within one year -- 366
---- -----
$ -- $ --
==== =====
</TABLE>
15. SHARE CAPITAL
A) Authorized share capital comprises 750,000,000 common shares without par
value and 750,000,000 preferred shares without par value.
B) Common shares issued and outstanding:
<TABLE>
<CAPTION>
Shares Amount
- -------------------------------------------------------------------------------
<S> <C> <C>
</TABLE>
97
<PAGE>
<TABLE>
<S> <C> <C> <C>
At December 31, 1993 34,157,000 $146,198
Issued in 1994 20,000 29
-------- -----
At December 31, 1994 34,177,000 146,227
Issued upon exercise of stock options 147,500 312
Issued pursuant to amalgamation (Note 3) 11,718,411 --
Capital reduction -- (72,559)
---------- --------
At December 31, 1995 46,042,911 $ 73,980
========== ========
</TABLE>
C) Capital Reduction
At the March 30, 1995 extraordinary meeting, the shareholders of Granges
approved a special resolution to reduce the capital of the company. Under this
resolution the share capital and contributed surplus were reduced by $72.6
million and $3.8 million, respectively, with a corresponding decrease to
Granges' accumulated deficit of approximately $76.4 million. The effect of this
capital reduction was to eliminate the consolidated accumulated deficit of
Granges as of December 31, 1994 after giving effect to the estimated costs of
the amalgamation. This deficit was caused primarily by prior write downs of
mining assets.
D) Litigation settlement
Settlement of the action commenced in 1989 by Oxford Acquisitions Inc. against
Granges and Outokumpu Mines Ltd. occurred in February 1993 with mutual releases.
The company's only other obligation in the settlement was the issuance of
150,000 Granges shares to the plaintiff.
E) Common share options
At December 31, 1995, 1,320,000 common shares were reserved for issuance under
options granted to directors, officers and management employees. These options
expire as follows: 1996 - 65,000; 1997 - 100,000; 2001 - 30,000; 2003 - 20,000;
2004 - 25,000; 2005 - 1,080,000.
<TABLE>
<CAPTION>
Share Options Option Price
- --------------------------------------------------------------------------------
<S> <C> <C>
At December 31, 1993 230,000 $ 1.45 to $ 2.85
Granted in 1994 530,000 $ 2.28 to $ 3.30
Exercised in 1994 (20,000) $1.45
---------
At December 31, 1994 740,000 $ 1.45 to $ 3.30
Granted in 1995 905,000 $ 2.25 to $ 2.78
Exercised in 1995 (147,500) $ 1.45 to $ 2.28
Expired in 1995 (177,500) $ 2.28 to $ 2.70
---------
At December 31, 1995 1,320,000 $ 1.45 to $ 2.78
=========
</TABLE>
During the year, options to purchase 35,000 shares at $ 3.30 per share were
repriced to $2.78 per share.
16. CURRENCY TRANSLATION ADJUSTMENT
The currency translation adjustment represents the foreign currency translation
loss on the Company's investment in its self-sustaining foreign operations.
98
<PAGE>
<TABLE>
<CAPTION>
1995 1994
- -------------------------------------------------------------------------------------------------
<S> <C> <C>
Currency translation adjustment, beginning of year $ (247) $(1,234)
Unrealized gain (loss) for the year (1,160) 987
------- -------
Currency translation adjustment, end of year $(1,407) $ (247)
======= =======
</TABLE>
17. CHANGES IN WORKING CAPITAL, EXCLUDING CASH AND CASH EQUIVALENTS
<TABLE>
<CAPTION>
1995 1994 1993
- ------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Accounts receivable $ 560 $ 2,828 $ 520
Marketable Securities 83 30 --
Inventories (1,113) (5,024) 290
Accounts payable and accrued liabilities (11,772) 13,364 1,192
-------- ------- ------
$(12,242) $11,198 $2,002
======== ======= ======
</TABLE>
18. RELATED PARTY TRANSACTIONS
In 1994, consulting fees of $72,000 (1993 - $72,000) were paid to a director of
the Company, who resigned during 1994. In 1995 no such fees were paid.
19. SEGMENTED INFORMATION
The Company operates in the mining industry in Canada and the United States.
Its major product is gold, and prior to 1995, it also produced copper and zinc.
Geographic segments are presented below.
<TABLE>
<CAPTION>
1995 1994 1993
- -----------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Sales
Canada $ -- $ 3,257 $14,267
U.S. 56,374 51,175 41,030
------- ------- -------
56,374 $54,432 $55,297
======= ======= =======
Results of Mining Operations
Canada $ -- $ (476) $ 554
U.S. 4,512 3,024 479
------- ------- -------
4,512 $ 2,548 $ 1,033
======= ======= =======
<CAPTION>
1995 1994
- -----------------------------------------------------------------------------------------------
<S> <C> <C>
Identifiable assets
Canada $39,450 $45,156
U.S. 48,475 53,670
------- -------
$87,925 $98,826
======= =======
</TABLE>
99
<PAGE>
20. RETIREMENT PLANS
The company provides a voluntary money purchase retirement plan to permanent
Canadian employees to which the company makes contributions, depending on length
of employment, from 2 percent to 4 percent of salary. The company's contribution
in 1995 was $35,500 (1994 - $33,300).
The company provides a voluntary retirement plan to permanent U.S. employees to
which the company makes contributions, depending on length of employment, from 2
percent to 4 percent of salary. The company's contribution in 1995 was
US$113,200 (1994 - US$12,400).
21. CONTINGENCIES AND COMMITMENTS
A) The Company is committed to U.S. dollar payments under certain operating
leases for mining equipment. Future payments under these leases in each of the
next five years and in the aggregate are:
<TABLE>
<CAPTION>
Cdn. $000's
U.S. $000's Equivalent
- --------------------------------------------------------------------------------
<S> <C> <C>
1996 1,998 2,727
1997 1,998 2,727
1998 1,055 1,440
1999 -- --
------ ------
$5,051 $6,894
====== ======
</TABLE>
Letters of credit totalling US$2.8 million (1994-US$3.5 million) have been
provided as security under these mine equipment operating leases.
The company is also committed to payments under a lease for office space ending
May 31, 1997. Annual payments under the lease, net of subtenancy receipts, are
$487,000.
B) As part of its gold hedging program, the company has entered into
agreements with major financial institutions to deliver gold. Realization under
these agreements is dependent upon the ability of those financial institutions
to perform in accordance with the terms of the agreements. As at December 31,
1995, the company's consolidated hedging program consists of:
(i) forward sales contracts totalling 12,000 ounces for deliveries up to
December 27, 1996, at an average price of US$383.33 per ounce;
(ii) matching option contracts for 19,000 ounces of gold under which the
company can require the financial institution to buy gold at US$392 per
ounce, while the financial institution can require the company to sell the
same number of ounces at US$465 per ounce. These options have various
expiry dates during 1996 and result in no net cost to the company.
22. SUBSEQUENT EVENT
Subsequent to the end of the year, the company, through its subsidiary, has
arranged a secured stand-by credit facility. The facility is available for
drawdown until December 31, 1996, in dollars or as a gold loan, to a maximum of
US$13.0 million or the gold ounce equivalent thereof (not to exceed 35,000
ounces). Drawdowns under the facility bear interest at LIBOR plus 1.60 percent
for dollar loans and gold lease rates plus 1.60 percent
100
<PAGE>
for gold loans. The loan is repayable in seven semi-annual instalments
commencing the earlier of 12 months after the first drawdown or June 30, 1997.
In the event, the company generates cash surpluses after debt service, it is
required to make annual prepayments equal to 25 percent of its Excess Cash flow,
up to a maximum of US$2.5 million annually and US$5.0 million in aggregate.
In addition to the loan facility, the company has also arranged a hedging
facility for up to 275,000 ounces of gold for deliveries up to the year 2001.
Both the hedging and credit facilities are secured by the assets at the Hycroft
mine and parent company guarantee.
On February 29, 1996, the company entered into a Letter of Intent to enter into
an Option Agreement with L. B. Mining Company to acquire the Guariche gold
project in Southeastern Venezuela. Subject to due diligence and the company
satisfying itself that, during the four-month option period, the project
contains 500,000 ounces of proven and probable reserves, the company will
acquire the property for US$15 million of which US$5 million is payable in
Granges shares and the balance in cash. Additional proven and probable reserves
above the 500,000 ounces will cost US$30 per ounce up to one million ounces.
Any excess above one million proven and probable ounces attract a 7.5 percent
Net Smelter Royalty. The expenditure commitment is US$600,000 during the option
period, an additional US$1.0 million within the first 12-month period after the
property is acquired, and a further US$1.0 million within the following 12-month
period.
23. DIFFERENCES BETWEEN CANADIAN AND UNITED STATES GENERALLY ACCEPTED
ACCOUNTING PRINCIPLES
The significant differences between generally accepted accounting principles
(GAAP) in Canada and in the United States are as follows:
A) Under Canadian GAAP, interest costs relating specifically to assets under
construction may be capitalized during the construction period. When
construction is completed, further interest costs are expensed. Under U.S.
GAAP, interest to be capitalized for qualifying assets is intended to be
that portion of the interest cost incurred during the assets' acquisition
periods that theoretically could have been avoided if expenditures for the
assets had not been made.
B) Under Canadian GAAP, the amalgamation of Granges and Hycroft was treated in
a manner similar to a pooling of interest. Under U.S. GAAP, the
amalgamation does not meet the conditions for pooling of interest.
Accordingly, the transaction would be treated as a purchase under U.S. GAAP
with the excess of proceeds over the net book value of Hycroft's net assets
allocated to mineral properties.
C) Under Canadian corporate law, the company underwent a capital reduction in
connection with the amalgamation of Granges and Hycroft whereby share
capital and contributed surplus were reduced to eliminate the consolidated
accumulated deficit of Granges as of December 31, 1994, after giving effect
to the estimated costs of the amalgamation. Under U.S. corporate law, no
such transaction is available and accordingly is not allowed under U.S.
GAAP.
D) Under Canadian GAAP, corporate income taxes are accounted for using the
deferral method of income tax allocation. Under this method, deferred
income taxes represent a deferral to future periods of a benefit obtained
or expenditures incurred currently, and are accordingly computed at current
tax rates without subsequent adjustment to the accumulated balance to
reflect changes in tax rates. Deferred taxes are provided on differences
between accounting and taxable income due to the difference in timing of
recognition of items for accounting and tax purposes ("timing
differences"). Under U.S. GAAP, corporate income taxes are accounted for
using the liability method of income tax allocation. Under this method,
101
<PAGE>
deferred income taxes are considered to reflect the recognition in the
current period of taxes expected to be payable or recoverable in a future
period, and accordingly, the accumulated tax allocation balance is adjusted
in future periods to reflect changes in tax rates. Deferred taxes are
provided on "temporary differences", which is a broader concept than
"timing differences." Under U.S. GAAP, deferred tax assets are reduced by a
valuation allowance if, based on the weight of available evidence, it is
more likely than not that some portion or all of the deferred tax assets
will not be realized. As at December 31, 1994 any deferred tax assets to be
recognized would have been offset by a valuation allowance. Under US GAAP,
the excess of purchase price over net book value acquired would be tax
affected giving rise to a credit to deferred income taxes and a debit to
mineral properties. This would result in a corresponding reduction in the
valuation allowance with the resulting credit being allocated against
mineral properties. At December 31, 1995, the Company's deferred tax would
be as follows:
<TABLE>
<CAPTION>
1995
-------
<S> <C>
Deferred taxes arising on:
Operating losses $4,462
Excess purchase price (13,469)
Temporary tax and book basis difference 13,669
------
Subtotal 4,662
Valuation allowance (4,662)
------
$ nil
==========
</TABLE>
E) Under U.S. GAAP, the settlement of Mining taxes described in Note 4 is a
current year's expense.
The significant differences in the consolidated statements of earnings and
deficit relative to U.S. GAAP were as follows:
<TABLE>
<CAPTION>
Year ended December 31
---------------------------------------------------
1995 1994 1993
---- ---- ----
<S> <C> <C> <C>
Net earnings following Canadian GAAP $2,948 $6,985 $2,761
Net interest capitalized (amortized) (Note A) (29) (36) 55
Depreciation of excess of proceeds over net book
value of assets on amalgamation (Note B) (3,629) -- --
Other Item
Settlement of Mining Taxes (Note E) (256) -- --
-------- -------- --------
Net earnings (loss), following U.S. GAAP (966) 6,949 2,816
Deficit, beginning of year following U.S. GAAP (73,699) (80,648) (83,464)
--------- --------- ---------
Deficit, end of year following U.S. GAAP $(74,665) $(73,699) $(80,648)
========= ========= =========
Primary earnings (loss) per share $ (0.02) $ 0.20 $ 0.08
========= ======== ========
</TABLE>
102
<PAGE>
The significant differences in the balance sheet as at December 31, 1995
relative to U.S. GAAP were:
<TABLE>
<CAPTION>
Per Cdn. Cdn./U.S. Per U.S.
GAAP Adj. GAAP
---- ---- ----
<S> <C> <C> <C>
Current assets $38,104 38,361
Investments 5,808 5,808
Property, plant and equipment 43,756 31,535/(A),(B)/ 75,291
------- --------
$87,668 $119,460
======= ========
Current liabilities 8,518 8,518
Provision for reclamation and future closure costs 4,654 4,654
------- --------
13,172 13,172
Common shares 73,980 104,785/(B),(C)/ 178,765
Contributed surplus -- 3,803/(C)/ 3,803
Retained earnings (deficit) 1,923 (77,053)/(A),(B),(C)/ (74,873)
Currency translation adjustment (1,407) (1,407)
------- --------
87,668 119,460
======= ========
</TABLE>
Cash flows for the company under Canadian GAAP are presented in the consolidated
statement of changes in cash resources. Under Canadian GAAP all financing and
investment activities are presented on the face of the statement. Under U.S.
GAAP only cash transactions are presented, with non-cash transactions disclosed
separately. The gain on the sale of the company's base metal properties was a
non-cash transaction. Accordingly, under U.S. GAAP the proceeds from the sale of
mineral properties and marketable securities and the purchase of investments
would both be reduced by $6,718,750, the value of the non-cash transaction. The
company is not aware of any differences between Canadian and U.S. GAAP in
classifications among categories within the cash flow statement.
Supplemental Disclosures of Cash Flow Information
<TABLE>
<CAPTION>
1995 1994 1993
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
Cash paid during the year for:
Interest $ 203 $ 157 $ 516
Income taxes 264 416 33
</TABLE>
103
<PAGE>
<TABLE>
<CAPTION>
SCHEDULE OF EXHIBITS
Exhibit
Number Exhibits Page
-------------------------------------------------------------------------------------
<S> <C> <C> <C>
3.1 Restated Certificate of Incorporation of the Company, dated January 3,
1990 (filed as Exhibit 3.2 to the Company's quarterly report on
Form 10-Q for the quarter ended December 31, 1989, and incorporated
herein by reference).
3.2 By-Laws of the Company, as amended on January 3, 1990 (filed as Exhibit
3.3 to the Company's quarterly report on Form 10-Q for the quarter
ended December 31, 1989 and incorporated herein by reference).
3.3 By-Laws of the Company, as amended on July 12, 1995.
4.1 Term Loan Agreement dated August 15, 1994 between the Company and
Gerald Metals, Inc.(filed as an Exhibit 10.22 to the Company's annual
report on Form 10-K for the year ended June 30, 1994 and incorporated
herein by reference).
4.2 Security Agreement dated August 15, 1994 between the Company and Gerald
Metals, Inc.(filed as an Exhibit 10.23 to the Company's annual report
on Form 10-K for the year ended June 30, 1994 and incorporated herein
by reference).
4.3 Pledge Agreement dated August 15, 1995 between the Company and Gerald
Metals, Inc. (filed as an Exhibit 10.24 to the Company's annual report
on Form 10-K for the year ended June 30, 1994 and incorporated herein
by reference).
4.4 Indenture dated as of November 10, 1995 between the Company and
Chemical Bank as Trustee (filed as Exhibit 4.1 to the Company's
Registration Statement on Form S-3 (33-65165) as filed with the
Commission on December 19, 1995 under the Securities Act of 1933 and
incorporated herein by reference).
4.5 Escrow and Pledge Agreement dated as of November 10, 1995 between the
Company and Chemical Bank as Trustee and Chemical Bank as Escrow Agent
(filed as Exhibit 4.2 to the Company's Registration Statement on Form
S-3 (33-65165) as filed with the Commission on December 19, 1995 and
incorporated herein by reference).
</TABLE>
104
<PAGE>
4.6 Special Warrant Indenture dated November 9, 1995 between the Company
and The Montreal Trust Company of Canada containing terms and
conditions governing the issue and exercise of special debenture
warrants exercisable for 7% Exchangeable Debentures due October 25,
2000 of the Company (filed as Exhibit 99.2 to the Company's
Registration Statement on Form S-3 (33-65165) as filed with the
Commission on December 19, 1995 and incorporated herein by reference).
4.7 Loan Agreement dated as of November 27, 1995 between the Company and
First Marathon Inc. (filed as Exhibit 99.5 to the Company's
Registration Statement on Form S-3 (33-65165) as filed with the
Commission on December 19, 1995 and incorporated herein by reference).
4.8 Pledge Agreement dated as of November 27, 1995 between the Company and
First Marathon Inc. (filed as Exhibit 99.6 to the Company's
Registration Statement on Form S-3 (33-65165) as filed with the
Commission on December 19, 1995 and incorporated herein by reference).
10.1 Atlas Corporation Management Incentive Compensation Plan (filed as
Exhibit 10.2 to the Company's annual report on Form 10-K (file no. 1-
2714) for the fiscal year ended June 30, 1981 and incorporated herein
by reference).
10.2 Form of Indemnity Agreement entered into between the Company and
certain of its directors (filed as Exhibit 10.14 to the Company's
annual report on Form 10-K for the fiscal year ended June 30, 1987 and
incorporated herein by reference).
10.3 Amended and Restated Rights Agreement dated as of August 2, 1989
between the Company and Manufacturers Hanover Trust Company (filed as
Exhibit 1 to the Company's current report on Form 8-K dated August 2,
1989 and incorporated herein by reference).
10.4 Long Term Incentive Plan of the Company dated November 1, 1989 (filed
as Exhibit 10.28 to the Company's annual report on Form 10-K for the
fiscal year ended June 30, 1989 and incorporated herein by reference).
10.5 Atlas Corporation Supplemental Executive Retirement Plan dated as of
January 3, 1990 (filed as Exhibit 10.2 to the Company's quarterly
report on Form 10-Q for the quarter ended March 31, 1990 and
incorporated herein by reference).
105
<PAGE>
10.6 Atlas Corporation Retirement Plan for Outside Directors dated April 4,
1990 (filed as Exhibit 10.3 to the Company's quarterly report on Form
10-Q for the quarter ended March 31, 1990 and incorporated herein by
reference).
10.7 Restated Employment Agreement dated as of September 12, 1990 between
the Company and Richard R. Weaver (filed as Exhibit 10.22 to the
annual report on Form 10-K for the fiscal year ended June 30, 1990 and
incorporated herein by reference).
10.8 Amendment No. 1, dated as of March 6, 1991, to the Amended and
Restated Employment Agreement, dated as of September 12, 1990, between
the Company and Richard R. Weaver (filed as Exhibit 10.1 to the
Company's quarterly report on Form 10-Q for the quarter ended March
31, 1991 and incorporated herein by reference).
10.9 Atlas Corporation Annual Incentive Plan adopted by the Board of
Directors of the Company on March 6, 1991(filed as Exhibit 10.20 to
the Company's annual report on Form 10-K for the year ended June 30,
1991 and incorporated herein by reference).
10.10 Agreement dated September 10, 1992 among Atlas Precious Metals, Inc.,
the Company and Newmont Mining Corporation (filed as Exhibit 10.22 to
the Company's annual report on Form 10-K for the year ended June 30,
1992 and incorporated herein by reference).
10.11 Amendment dated September 10, 1992 to the Agreement dated September
10, 1992 among Atlas Precious Metals, Inc., the Company and Newmont
Mining Corporation (filed as Exhibit 10.23 to the Company's annual
report on Form 10-K for the year ended June 30, 1992 and incorporated
herein by reference).
10.12 Securities Purchase Agreement dated September 3, 1993 between the
Company and Phoenix Financial Holdings Inc. (filed as Exhibit 2 to
the Company's Report on Form 8-K filed on September 9, 1993 and
incorporated herein by reference).
10.13 Amendment dated as of September 15, 1993 to the Amended and Restated
Rights Agreement dated as of August 2, 1989 between the Company and
Chemical Bank, as successor by merger with Manufacturers Trust Company
(filed as Exhibit 10.25 to the Company's annual report on Form 10-K
for the year ended June 30, 1993 and incorporated herein by
reference).
106
<PAGE>
10.14 Employment agreement made as of September 22, 1993, between the
Company and David J. Birkenshaw (filed as Exhibit 10.1 to the
Company's quarterly report on Form 10-Q for the quarter ended March
31, 1994 and incorporated herein by reference).
10.15 Amendment dated as of August 28, 1995 to the employment agreement made
as of September 22, 1993, between the Company and David J. Birkenshaw
(filed as exhibit 10.15 to the Company's annual report on Form 10-K
for the year ended June 30, 1995 and incorporated herein by
reference).
10.16 Share Purchase Agreement dated April 28, 1994 between the Company and
M.I.M. (Canada) Inc. (filed as an Exhibit 10.18 to the Company's
annual report on Form 10-K for the year ended June 30, 1994 and
incorporated herein by reference).
10.17 Agreement dated May 10, 1994 between the Company and Granges Inc.
(filed as an Exhibit 10.19 to the Company's annual report on Form 10-K
for the year ended June 30, 1994 and incorporated herein by reference)
10.18 Registration Rights Agreement dated August 15, 1994, between the
Company and First Marathon Securities Limited (filed as Exhibit 10.20
to the Company's annual report on Form 10-K for the year ended June
30, 1994 and incorporated herein by reference).
10.19 Indemnity Agreement dated August 15, 1995 between the Company and
M.I.M. Holdings Limited (filed as an Exhibit 10.21 to the Company's
annual report on Form 10-K for the year ended June 30, 1994 and
incorporated herein by reference).
10.20 Purchase Agreement dated May 31, 1994 among the Company, Dakota Mining
Corporation, VenturesTrident L.P. and VenturesTrident II L.P. (filed
as an Exhibit 10.25 to the Company's annual report on Form 10-K for
the year ended June 30, 1994 and incorporated herein by reference).
10.21 Second Amendment dated as of August 15, 1994 to the Amended and
Restated Rights Agreement dated August 2, 1989 between the Company and
Chemical Bank, as successor by merger with Manufacturers Hanover Trust
Company (filed as Exhibit 10.1 to the Company's quarterly report on
Form 10-Q for the quarter ended March 31, 1995 and incorporated herein
by reference).
107
<PAGE>
10.22 The Company's Long Term Incentive Plan, as amended dated February 17,
1995 (filed as Exhibit 10.2 to the Company's quarterly report on Form
10-Q for the quarter ended March 31, 1995 and incorporated herein by
reference).
10.23 Employment Agreement made as of January 16, 1995 between the Company
and Michael B. Richings (filed as Exhibit 10.3 to the Company's
quarterly report on Form 10-Q for the quarter ended March 31, 1995 and
incorporated herein by reference).
10.24 Employment Agreement made as of February 17, 1995 between the Company
and Richard E. Blubaugh (filed as Exhibit 10.4 to the Company's
quarterly report on Form 10-Q for the quarter ended March 31, 1995 and
incorporated herein by reference).
10.25 Agreement dated February 24, 1995 between the Company and Granges Inc.
to vote the common shares of Granges Inc., held by the Company, in
favor of the proposed amalgamation of Granges Inc. and Hycroft
Resources & Development Corporation. (filed as exhibit 10.25 to the
Company's annual report on Form 10-K for the year ended June 30, 1995
and incorporated herein by reference).
10.26 Atlas Subscription Agreement dated March 9, 1995 between the Company
and Dakota Mining Corporation. (filed as exhibit 10.26 to the
Company's annual report on Form 10-K for the year ended June 30, 1995
and incorporated herein by reference).
10.27 Amendment dated September 15, 1995 to the employment agreement made as
of February 17, 1995 between the Company and Richard E. Blubaugh.
(filed as exhibit 10.27 to the Company's annual report on Form 10-K
for the year ended June 30, 1995 and incorporated herein by
reference).
10.28 Employment Agreement dated June 1, 1995 between the Company and Gerald
E. Davis (filed as exhibit 10.28 to the Company's annual report on
Form 10-K for the year ended June 30, 1995 and incorporated herein by
reference).
10.29 Amendment dated September 20, 1995 to the employment agreement dated
June 1, 1995 between the Company and Gerald E. Davis (filed as exhibit
10.29 to the Company's annual report on Form 10-K for the year ended
June 30, 1995 and incorporated herein by reference).
10.30 Underwriting Agreement dated as of October 25, 1995 by and among the
Company, Yorkton Securities Inc. and First Marathon Securities
108
<PAGE>
Ltd. regarding the distribution of special debenture warrants
exercisable for 7% Exchangeable Debentures due October 25, 2000 of the
Company (filed as Exhibit 99.1 to the Company's Registration Statement
on Form S-3 (33-65165) as filed with the Commission on December 19,
1995 and incorporated herein by reference).
10.31 Granges Registration Agreement dated as of November 10, 1995 between
the Company and Granges Inc. (filed as Exhibit 99.3 to the Company's
Registration Statement on Form S-3 (33-65165) as filed with the
Commission on December 19, 1995 and incorporated herein by reference).
10.32 Indemnification Agreement dated as of November 15, 1995 between the
Company and Granges Inc. (filed as Exhibit 99.4 to the Company's
Registration Statement on Form S-3 (33-65165) as filed with the
Commission on December 19, 1995 and incorporated herein by reference).
10.33 Option Agreement between the Company and Harvest Gold Corporation
signed September 13, 1995 (filed as Exhibit 99.7 to the Company's
Registration Statement on Form S-3 (33-65165) as filed with the
Commission on December 19, 1995 and incorporated herein by reference).
10.34 Purchase and Sale Agreement dated October 25, 1995 between the Company
and Independence Mining Company Inc. (filed as Exhibit 99.8 to the
Company's Registration Statement on Form S-3 (33-65165) as filed with
the Commission on December 19, 1995 and incorporated herein by
reference).
10.35 Registration Rights Agreement dated October 25, 1995 between the
Company and Independence Mining Company Inc. (filed as Exhibit 99.9 to
the Company's Registration Statement on Form S-3 (33-65165) as filed
with the Commission on December 19, 1995 and incorporated herein by
reference).
10.36 Agreement between the Company and Brown & Root, Inc. dated October 23,
1995 (filed as Exhibit 99.10 to the Company's Registration Statement
on Form S-3 (33-65165) as filed with the Commission on December 19,
1995 and incorporated herein by reference).
10.37 Mining Venture Agreement with Granges (U.S.), Inc. dated September 29,
1995
109
<PAGE>
10.38 Business combination agreement with MSV Resources Inc. dated March 5,
1996
21 Subsidiaries of the Company
23 Consent of Independent Auditors
110
<PAGE>
MINING VENTURE AGREEMENT
BETWEEN
GRANGES (U.S.), INC. ("GRANGES")
AND
ATLAS CORPORATION, ATLAS PRECIOUS METALS INC.
AND ATLAS GOLD MINING INC. (COLLECTIVELY "ATLAS")
DATED AS OF SEPTEMBER 29, 1995
<PAGE>
TABLE OF CONTENTS
<TABLE>
MINING VENTURE AGREEMENT PAGE
<CAPTION>
<S> <C>
RECITALS 1
Article I
Definitions 1
1.1 "Access" 1
1.2 "Accounting Procedure"........................................................ 1
1.3 "Affiliate"................................................................... 2
1.4 "Agreement"................................................................... 2
1.5 "Area of Interest"............................................................ 2
1.6 "Assets" 2
1.7 "Atlas Gold Bar Property"..................................................... 2
1.8 "Atlas Mill Complex".......................................................... 2
1.9 "Budget" 2
1.10 "Development"................................................................. 2
1.11 "Environmental Laws".......................................................... 2
1.12 "Exploration"................................................................. 3
1.13 "Exploration and Development Expenditures".................................... 3
1.14 "Hazardous Materials"......................................................... 5
1.15 "Initial Contribution"........................................................ 5
1.16 "Joint Account"............................................................... 5
1.17 "Indemnification Procedure"................................................... 5
1.18 "Management Committee"........................................................ 7
1.19 "Manager"..................................................................... 7
1.20 "Mining" 7
1.21 "Net Profits"................................................................. 7
1.22 "Net Smelter Returns"......................................................... 7
1.23 "Operations".................................................................. 7
1.24 "Participant" and "Participants".............................................. 7
1.25 "Participating Interest"...................................................... 7
1.26 "Prime Rate".................................................................. 7
1.27 "Products".................................................................... 7
1.28 "Program"..................................................................... 7
1.29 "Properties".................................................................. 7
1.30 "Transfer".................................................................... 8
1.31 "Venture"..................................................................... 8
1.32 "$" .......................................................................... 8
</TABLE>
i
<PAGE>
<TABLE>
<S> <C>
Article II
Representations and Warranties; Title to Assets................................... 8
2.1 Capacity of Participants..................................................... 8
2.2 Representations and Warranties............................................... 9
2.3 Disclosures.................................................................. 11
2.4 Record Title................................................................. 11
2.5 Joint Loss of Title.......................................................... 12
Article III
Name, Purposes and Term........................................................... 12
3.1 General...................................................................... 12
3.2 Name......................................................................... 12
3.3 Purposes..................................................................... 12
3.4 Limitation................................................................... 13
3.5 Effective Date and Term...................................................... 13
Article IV
Relationship of The Participants.................................................. 13
4.1 No Partnership............................................................... 13
4.2 Federal Tax Elections and Allocations........................................ 13
4.3 State Income Tax............................................................. 14
4.4 Tax Returns.................................................................. 14
4.5 Other Business Opportunities................................................. 14
4.6 Waiver of Right to Partition................................................. 14
4.7 Transfer or Termination of Rights to Properties.............................. 14
4.8 Implied Covenants............................................................ 14
4.9 Relationship of Entities Comprising ATLAS.................................... 15
Article V
Contributions by Participants and Additional Agreements........................... 15
5.1 Participants' Initial Contributions and Activities During Evaluation Period.. 15
5.2 Failure of GRANGES to Make Initial Contribution.............................. 23
5.3 Additional Cash Contributions................................................ 23
5.4 Personnel.................................................................... 24
5.5 Toll Milling of Products at the Atlas Mill Complex........................... 24
5.6 Preemptive Right to Include Additional Property.............................. 29
5.7 Reserved Royalty............................................................. 30
5.8 Maintenance of Claims by GRANGES............................................. 30
5.9 Revision of Mining Law....................................................... 31
Article VI
Interests of Participants........................................................ 31
6.1 Initial Participating Interests.............................................. 31
6.2 Changes in Participating Interests........................................... 32
6.3 Voluntary Reduction in Participation......................................... 32
</TABLE>
ii
<PAGE>
<TABLE>
<S> <C>
6.4 Default in Making Contributions................................................. 32
6.5 Elimination of Minority Interest................................................ 34
6.6 Continuing Liabilities Upon Adjustments of Participating Interests.............. 34
6.7 Recovery of Participating Interest.............................................. 35
Article VII
Management Committee................................................................. 35
7.1 Organization and Composition.................................................... 36
7.2 Decisions....................................................................... 36
7.3 Meetings........................................................................ 37
7.4 Action Without Meeting.......................................................... 38
7.5 Matters Requiring Approval...................................................... 38
Article VIII
Manager 38
8.1 Appointment..................................................................... 38
8.2 Powers and Duties of Manager.................................................... 38
8.3 Standard of Care................................................................ 42
8.4 Resignation Deemed Offer to Resign.............................................. 42
8.5 Payments to Manager............................................................. 43
8.6 Transactions With Affiliates.................................................... 43
8.7 Activities During Deadlock...................................................... 43
Article IX
Programs and Budgets................................................................. 44
9.1 [This section intentionally left blank.]........................................ 44
9.2 Operations Pursuant to Programs and Budgets..................................... 44
9.3 Presentation of Programs and Budgets............................................ 44
9.4 Review and Approval of Proposed Programs and Budgets............................ 44
9.5 Election to Participate......................................................... 45
9.6 Deadlock on Proposed Programs and Budgets....................................... 45
9.7 Budget Overruns; Program Changes................................................ 45
9.8 Emergency or Unexpected Expenditures............................................ 46
9.9 Reclamation Fund................................................................ 46
Article X
Accounts and Settlements.............................................................. 47
10.1 Monthly Statements.............................................................. 47
10.2 Cash Calls...................................................................... 47
10.3 Failure to Meet Cash Calls...................................................... 47
10.4 Audits.......................................................................... 48
Article XI
Disposition of Production............................................................. 48
11.1 Taking In Kind.................................................................. 48
11.2 Failure of Participant to Take in Kind.......................................... 49
</TABLE>
iii
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<TABLE>
<S> <C>
Article XII
Withdrawal and Termination............................................................ 49
12.1 Termination..................................................................... 49
12.2 Withdrawal...................................................................... 50
12.3 Continuing Obligations.......................................................... 50
12.4 Disposition of Assets on Termination............................................ 50
12.5 Non-Compete Covenants........................................................... 51
12.6 Right to Data After Termination................................................. 51
12.7 Continuing Authority............................................................ 51
Article XIII
Acquisitions Within Area of Interest.................................................. 52
13.1 General......................................................................... 52
13.2 Notice to Nonacquiring Participant.............................................. 52
13.3 Option Exercised................................................................ 52
13.4 Option Not Exercised............................................................ 53
Article XIV
Abandonment and Surrender of Properties............................................... 53
14.1 Surrender or Abandonment of Property............................................ 53
14.2 Reacquisition................................................................... 53
Article XV
Transfer of Interest.................................................................. 54
15.1 General......................................................................... 54
15.2 Limitations on Free Transferability............................................. 54
15.3 Preemptive Right................................................................ 55
15.4 Exceptions to Preemptive Right.................................................. 56
15.5 Atlas Mill Complex.............................................................. 56
Article XVI
Disputes 57
16.1 Arbitration..................................................................... 57
Article XVII
Confidentiality....................................................................... 58
17.1 General......................................................................... 58
17.2 Exceptions...................................................................... 58
17.3 Duration of Confidentiality..................................................... 58
Article XVIII
General Provisions.................................................................... 59
18.1 Notices......................................................................... 59
18.2 Waiver.......................................................................... 59
18.3 Modification.................................................................... 59
18.4 Force Majeure................................................................... 59
18.5 Governing Law................................................................... 60
18.6 Rule Against Perpetuities....................................................... 60
</TABLE>
iv
<PAGE>
<TABLE>
<S> <C>
18.7 Further Assurances.......................................................... 61
18.8 Survival of Terms and Conditions............................................ 61
18.9 Entire Agreement; Successors and Assigns.................................... 61
18.10 Memorandum................................................................. 61
18.11 Public Announcements....................................................... 61
18.12 Counterparts............................................................... 62
18.13 Guaranty by Granges, Inc................................................... 62
EXHIBIT A PROPERTIES AND TITLE EXCEPTIONS................................................... A-1
PART 1 MINERAL ESTATE IN AND UNDERLYING THE ATLAS MILL COMPLEX................. A-1
PART 2. LEASED PROPERTIES....................................................... A-7
PART 3. LOCATED CLAIMS.......................................................... A-8
PART 4. ACQUIRED CLAIMS:........................................................ A-34
EXHIBIT B ACCOUNTING PROCEDURE.............................................................. B-1
Article I
General Provisions................................................................ B-1
1.1 General Accounting Records................................................... B-1
1.2 Bank Accounts................................................................ B-1
1.3 Statements and Billings...................................................... B-1
Article II
Charges to Joint Account.......................................................... B-2
2.1 Rentals, Royalties and Other Payments........................................ B-2
2.2 Labor and Employee Benefits.................................................. B-2
2.3 Materials, Equipment and Supplies............................................ B-3
2.4 Equipment and Facilities Furnished by Manager................................ B-3
2.5 Transportation............................................................... B-3
2.6 Contract Services and Utilities.............................................. B-3
2.7 Insurance Premiums........................................................... B-3
2.8 Damages and Losses........................................................... B-4
2.9 Legal and Regulatory Expense................................................. B-4
2.10 Audit........................................................................ B-4
2.11 Taxes........................................................................ B-4
2.12 District and Camp Expense (Field Supervision and Camp Expenses).............. B-4
2.13 Administrative Charge........................................................ B-5
2.14 Other Expenditures........................................................... B-6
Article III
A Basis of Charges to Joint Account............................................... B-7
3.1 Purchases.................................................................... B-7
3.2 Material Furnished by or Transferred to the Manager or a Participant......... B-7
</TABLE>
v
<PAGE>
<TABLE>
<S> <C>
3.3 Premium Prices................................................................ B-8
3.4 Warranty of Material Furnished by the Manager or Participants................. B-8
Article IV
Disposal of Material............................................................... B-8
4.1 Disposition Generally......................................................... B-8
4.2 Distribution to Participants.................................................. B-8
4.3 Sales......................................................................... B-9
Article V
Inventories........................................................................ B-9
5.1 Periodic Inventories, Notice and Representations.............................. B-9
5.2 Reconciliation and Adjustment of Inventories.................................. B-9
EXHIBIT C TAX MATTERS........................................................................ C-1
ARTICLE 1
TAX MATTERS PARTNER................................................................ C-1
(a) Designation of Tax Matters Partner............................................ C-1
(b) Notice........................................................................ C-1
(c) Inconsistent Treatment of Partnership Item.................................... C-1
(d) Extensions of Limitation Periods.............................................. C-1
(e) Requests for Administrative Adjustments....................................... C-1
(f) Judicial Proceedings.......................................................... C-2
(g) Settlements................................................................... C-2
(h) Fees and Expenses............................................................. C-2
(i) Survival...................................................................... C-3
ARTICLE 2
TAX ELECTIONS AND ALLOCATIONS...................................................... C-3
(a) Tax Partnership Election...................................................... C-3
(b) Tax Elections................................................................. C-3
(c) Allocations to Participants................................................... C-4
ARTICLE 3
CAPITAL ACCOUNTS; LIQUIDATION...................................................... C-7
(a) Capital Accounts.............................................................. C-7
(b) Liquidation................................................................... C-8
ARTICLE 4
SALE OR ASSIGNMENT C-9
(a) Agreement Not to Terminate.................................................... C-9
EXHIBIT D NET PROFITS INTEREST CALCULATION................................................... D-1
1. Calculation and Payment....................................................... D-1
2. Successors in Interest........................................................ D-2
3. Nature of Interest............................................................ D-2
</TABLE>
vi
<PAGE>
<TABLE>
<S> <C>
EXHIBIT E INSURANCE E-1
EXHIBIT F INITIAL WORK PROGRAM AND BUDGET F-1
EXHIBIT G DEFINITION OF NET SMELTER RETURNS G-1
</TABLE>
vii
<PAGE>
MINING VENTURE AGREEMENT
This Agreement is made and entered into as of September 29, 1995, by and among
Granges (U.S.), Inc., a Nevada corporation ("GRANGES"), and Atlas Corporation, a
Delaware corporation, and its two wholly owned subsidiaries, Atlas Precious
Metals Inc. and Atlas Gold Mining Inc., both of which are Nevada corporations
(collectively "ATLAS").
RECITALS
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A. ATLAS controls certain Properties in Eureka County, Nevada, which
Properties are described in Parts 1-4 of Exhibit A attached hereto and
incorporated herein by reference, and defined in Section 1.29.
B. GRANGES wishes to participate with ATLAS in the exploration and
evaluation, and, if warranted, development and mining of mineral resources
within the Properties or any other properties acquired pursuant to the terms of
this Agreement, and ATLAS is willing to grant such right to GRANGES.
NOW, THEREFORE, in consideration of the covenants and agreements contained
herein, ATLAS and GRANGES agree as follows:
ARTICLE I
---------
DEFINITIONS
------------
1.1 "Access" shall mean the right to cross over, on or beneath the surface
of property as a means of ingress and egress to and from other property for
vehicles, conveyors or other materials transport systems, pipelines, utility
lines, canals, ditches, and other forms of transportation or movement of people,
matter, or things, and the right to construct, maintain and close roads,
underground passageways, and other routes and ways, and to construct, maintain
and remove equipment and facilities for such uses.
1.2 "Accounting Procedure" means the procedures set forth in Exhibit B.
1
<PAGE>
1.3 "Affiliate" means any person, partnership, joint venture, corporation or
other form of enterprise which directly or indirectly controls, is controlled
by, or is under common control with, a Participant. For purposes of the
preceding sentence, "control" means possession, directly or indirectly, of the
power to direct or cause direction of management and policies through ownership
of voting securities, contract, voting trust or otherwise.
1.4 "Agreement" means this Venture Agreement, including all amendments and
modifications thereof, and all schedules and exhibits, which are incorporated
herein by this reference.
1.5 "Area of Interest" means the entire area encompassed within the exterior
boundaries of the Properties and the Atlas Mill Complex, as depicted on the map
appended to Exhibit A.
1.6 "Assets" means the Properties, Products and all other real and personal
property, tangible and intangible, held for the benefit of the Participants
hereunder.
1.7 "Atlas Gold Bar Property" means the properties identified as such on the
map attached to Exhibit A.
1.8 "Atlas Mill Complex" means the surface estate only of both the patented
lode and millsite claims and unpatented millsite claims described in Part 1 of
Exhibit A (which claims are also identified as the Atlas Mill Complex on the map
appended to Exhibit A), together with all facilities, infrastructure, plants,
tailings, slag, materials, stockpiles, dumps and other improvements and
appurtenances on such surface estate.
1.9 "Budget" means a detailed estimate of all costs to be incurred by the
Participants with respect to a Program and a schedule of cash advances to be
made by the Participants.
1.10 "Development" means all preparation for the removal and recovery of
Products, including the construction or installation of a mill, leaching
facilities or any other improvements to be used for the mining, handling,
milling, processing or other beneficiation of Products.
1.11 "Environmental Laws" means any federal, state, local or foreign statute,
law, ordinance, regulation, rule, code, order, requirement or rule of common
law, now or previously in effect, and any judicial or administrative
interpretation thereof, including any judicial or administrative order, consent
decree or judgment, relating to the environment, health, safety or Hazardous
Materials,
2
<PAGE>
including, without limitation, the Comprehensive Environmental
Response, Compensation and Liability Act of 1980, as amended ("CERCLA"); the
Resource Conservation and Recovery Act, 42 U.S.C. (S)(S) 6901 et seq.; the
Hazardous Materials Transportation Act, 49 U.S.C. (S)(S) 6901 et seq.; the Clean
Water Act, 33 U.S.C. (S)(S) 1251 et seq.; the Toxic Substances Control Act, 15
U.S.C. (S)(S) 2601 et seq.; the Clean Air Act, 42 U.S.C. (S)(S) 7401 et seq.;
the Safe Drinking Water Act, 42 U.S.C. (S)(S) 300f et seq.; the Atomic Energy
Act, 42 U.S.C. (S)(S) 2011 et seq.; the Federal Insecticide, Fungicide and
Rodenticide Act, 7 U.S.C. (S)(S) 136 et seq.; and the Federal Food, Drug and
Cosmetic Act, 21 U.S.C. (S)(S) 301 et seq.
1.12 "Exploration" means all activities directed toward ascertaining the
existence, location, quantity, quality or commercial value of deposits of
Products.
1.13 "Exploration and Development Expenditures" means all costs, fees,
expenses, payments, liabilities and charges incurred or accrued by GRANGES in
connection with Exploration and Development or other associated, related or
incidental Operations upon or for the benefit of the Properties, or in
discharging or performing the duties or functions of the Manager prior to the
completion of GRANGES' Initial Contribution, all to be calculated in accordance
with the Accounting Procedure, including without limitation:
(a) All costs and expenses incurred in conducting Exploration, including
aerial and surface reconnaissance; geophysical and geochemical work; geological
sampling and mapping; surveying; building, maintenance or repair of necessary
access roads; drill-site preparation; exploration drilling; trenching; 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 laboratory work, including assays or
metallurgical analyses and tests;
(b) All costs and expenses incurred in conducting Development activities;
(c) All costs, expenses and liabilities incurred or accrued in obtaining
and satisfying governmental permits and approvals and in performing any
environmental studies, reclamation, cleanup, compliance or restoration work;
<PAGE>
(d) Salaries, wages, and benefits of GRANGES' employees engaged in
operations directly relating to the Properties, including salaries of those who
are temporarily assigned to and directly employed on work relating to the
Properties for the periods of time such employees are engaged in such
activities;
(e) Salaries, wages, expenses, benefits and other payments paid to third-
party consultants hired by GRANGES and engaged in Operations relating to the
Properties (including amounts reimbursed to ATLAS for the services of its staff
geologists);
(f) All costs and expenses incurred in the preparation of feasibility
studies, economic analyses, and the Report (and any Non-Gold Report, as defined
in Section 5.1(B)(5)) concerning the Properties, whether carried out by GRANGES
or by third parties under contract to GRANGES;
(g) Payments made by GRANGES for taxes and assessments, other than income
taxes, assessed or levied upon or against the Properties or any improvements
situate thereon;
(h) Costs of material, equipment, and supplies acquired, leased or hired,
for use in conducting Exploration or Development activities relating to the
Properties; provided, however, that equipment owned and supplied by GRANGES
shall be chargeable at rates no greater than the most favorable rates available
in the area of the Properties;
(i) Costs and expenses of establishing and maintaining necessary field
offices, camps, and housing facilities;
(j) Costs incurred by GRANGES in performing title studies and curing and
defending title to the Properties; amending, relocating, remonumenting, and
patenting of unpatented claims or otherwise in maintaining the Properties;
satisfying surface use or damage obligations to landowners including
reclamation; or making any payments or satisfying other obligations or other
property payment obligations pertaining to the Properties, including without
limitation, filing, recording, rental, and maintenance fees;
(k) Costs and expenses of acquiring additional property within the Area
of Interest or additional interests in the Properties; and
4
<PAGE>
(l) All costs and expenses to hold or maintain the Properties, including
without limitation, payments to the Bureau of Land Management of the United
States Department of the Interior and to private lessors, to the extent paid or
incurred by GRANGES;
(m) All costs, expenses and liabilities incurred or accrued by GRANGES in
discharging or performing the duties, obligations or functions of the Manager;
(n) All travel expenses incurred by GRANGES in connection with the
foregoing activities and Operations; and
(o) An administrative charge of three percent (3%) of the amount of all
other Exploration and Development Expenditures, including without limitation
those set forth above.
1.14 "Hazardous Materials" means (a) petroleum and petroleum products,
radioactive materials, asbestos in any form that is or could become friable,
urea formaldehyde foam insulation, and transformers or other equipment that
contain polychlorinated biphenyls, or (b) any other chemical, material or
substance which is (i) designated as a "hazardous substance," pursuant to
Section 311 of the Clean Water Act ("CWA"), 33 U.S.C. (S) 1251, et seq. (33
U.S.C. (S) 1321) or listed pursuant to Section 307 of the CWA (33 U.S.C. (S)
1317, or (ii) defined as or included in the definition of a "hazardous waste"
pursuant to Section 1004 of the Resource Conservation and Recovery Act ("RCRA"),
42 U.S.C. (S) 6901, et seq. (42 U.S.C. (S) 6903), or (iii) defined as or
included in the definition of a "hazardous substance" pursuant to Section 101 of
the Comprehensive Environmental Response, Compensation and Liability Act
("CERCLA"), 42 U.S.C. (S) 9601, et seq., or (iv) defined as or included in the
definition of a "pollutant" or "contaminant" pursuant to the CWA, RCRA, CERCLA,
the Clean Air Act, 33 U.S.C. (S) 1251 et seq., or comparable state statutes or
regulations.
1.15 "Initial Contribution" means that contribution each Participant has made
or agrees to make pursuant to Section 5.1.
1.16 "Joint Account" means the account maintained in accordance with the
Accounting Procedure showing the charges and credits accruing to the
Participants.
1.17 "Indemnification Procedure" means the following procedure by which
indemnification shall take place. An indemnified Participant shall give written
notice to the indemnifying
<PAGE>
Participant promptly of any claim, suit, action, the commencement of any
proceeding or demand of which such indemnified Participant has received written
notice from a third party and as to which such indemnified Participant believes
it may be entitled to indemnification or contribution under this Agreement
(provided, however, that failure to give such notice which does not materially
disadvantage the indemnifying Participant shall not relieve the indemnifying
Participant from liability hereunder). The indemnifying Participant will not
settle or compromise any such pending claim, action or suit, without (i) the
prior written consent of the indemnified Participant, which consent shall not be
unreasonably withheld, and (ii) obtaining a release of the indemnified
Participant from all liability in respect thereof. The indemnifying Participant
shall have the right to participate in or assume and direct the defense at its
own expense against any such claim, suit or demand, in its name or in the name
of the indemnified Participant, as the case may be, and with counsel selected by
the indemnifying Participant; provided, however, that if (i) such claim, suit or
demand seeks an order, injunction or other equitable relief against the
indemnified Participant or (ii) the indemnified Participant shall have
reasonably concluded that there is a substantial conflict of interest between
the indemnifying Participant and the indemnified Participant in the conduct of
the defense of such claim, suit or demand, then the indemnified Participant may
employ separate counsel and participate in and direct the defense of such claim,
suit or demand to the extent necessary to protect its interest, and the
indemnifying Participant will pay the reasonable fees and disbursements of such
separate counsel; provided, however, that the indemnifying Participant shall not
be responsible for the fees and disbursements of more than one separate counsel
for all indemnified Participants in any jurisdiction or in any single
proceeding. Except as provided in the preceding sentence, after notice to the
indemnified Participant of its election to assume the defense thereof, the
indemnifying Participant shall not be liable to the indemnified Participant for
any legal or other expense incurred by the indemnified Participant in connection
with such claim. Such assumed defense shall be conducted expeditiously (but with
regard to obtaining the most favorable outcome reasonably likely under the
circumstances, taking into account costs) and the indemnified Participant shall
be advised promptly of all significant developments. The indemnified Participant
shall have the right to participate fully in the defense of any claim, suit or
demand so assumed, with
6
<PAGE>
separate counsel selected by it and at its own expense. The indemnified
Participant shall cooperate with the indemnifying Participant, and keep the
indemnifying Participant reasonably informed, in its participation or defense of
any such claim, suit or demand.
1.18 "Management Committee" means the committee established under Article
VII.
1.19 "Manager" means the person or entity appointed under Article VIII to
manage Operations, or any successor Manager.
1.20 "Mining" means the mining, extracting, producing, handling, milling or
other processing of Products.
1.21 "Net Profits" means certain amounts calculated as provided in Exhibit D,
which may be payable to a Participant under Section 6.4(b)(2) or 6.5.
1.22 "Net Smelter Returns" has the meaning set forth in Exhibit G.
1.23 "Operations" means the activities carried out under this Agreement.
1.24 "Participant" and "Participants" mean the persons or entities that from
time to time have Participating Interests.
1.25 "Participating Interest" means the percentage interest representing the
operating ownership interest of a Participant in Assets, and all other rights
and obligations arising under this Agreement, as such interest may from time to
time be adjusted hereunder. Participating Interests shall be calculated to
three decimal places and rounded to two (e.g., 1.519% rounded to 1.52%).
----
Decimals of .005 or more shall be rounded up to .01, decimals of less than .005
shall be rounded down. The initial Participating Interests of the Participants
are set forth in Section 6.1.
1.26 "Prime Rate" means the interest rate quoted as "Prime" by The Wall
--------
Street Journal, as said rate may change from day to day (which quoted rate may
- --------------
not be the lowest rate at which banks loan funds).
1.27 "Products" means all ores, minerals and mineral resources produced from
the Properties under this Agreement.
1.28 "Program" means a description in reasonable detail of Operations to be
conducted and objectives to be accomplished by the Manager for a year or any
longer period.
7
<PAGE>
1.29 "Properties" means those interests in real property described in Parts
1-4 of Exhibit A and all other interests in real property within the Area of
Interest which are acquired and held subject to this Agreement. The Properties
include, without limitation, the entire mineral estate in and underlying the
Atlas Mill Complex, as described in Part 1 of Exhibit A, together with: (i) the
right of Access across the surface of the Atlas Mill Complex and the right to
use and consume so much of the surface of the Atlas Mill Complex as may be
reasonably necessary or convenient to the Exploration, Development and Mining of
such mineral estate, by whatever method is now known or subsequently developed,
including without limitation by open pit or surface mining methods and; (ii)
the right to use the surface of the Atlas Mill Complex for the conduct of
Operations, including without limitation the treatment, processing, milling,
leaching or beneficiation of Products and the disposal of tailings, overburden,
waste, rock and other by-products and materials. Subject to the preceding
sentence, the Atlas Mill Complex (as defined in Section 1.8) is expressly
excluded from the Properties. Notwithstanding the foregoing, the Venture's
right to use the surface of the Atlas Mill Complex shall not unreasonably
interfere with ATLAS' operations at the Atlas Mill Complex, its use of the
existing access road to the Atlas Mill Complex or ATLAS' existing haul road and
ATLAS shall have the right to conduct such operations as it deems necessary at
the Atlas Mill Complex.
1.30 "Transfer" means sell, grant, assign, encumber, pledge or otherwise
commit or dispose of.
1.31 "Venture" means the business arrangement of the Participants under this
Agreement.
1.32 "$" means US currency.
ARTICLE II
----------
REPRESENTATIONS AND WARRANTIES; TITLE TO ASSETS
------------------------------------------------
2.1 Capacity of Participants. Each of the Participants represents and
-------------------------
warrants as follows:
8
<PAGE>
(a) that it is a corporation duly incorporated and in good standing in
its state of incorporation and that it is qualified to do business and is in
good standing in those states where necessary in order to carry out the purposes
of this Agreement;
(b) that it has the capacity to enter into and perform this Agreement and
all transactions contemplated herein and that all corporate and other actions
required to authorize it to enter into and perform this Agreement have been
properly taken;
(c) that it will not breach any other agreement or arrangement by
entering into or performing this Agreement; and
(d) that this Agreement has been duly executed and delivered by it and is
valid and binding upon it in accordance with its terms.
2.2 Representations and Warranties . ATLAS makes the following
-------------------------------
representations and warranties effective the date hereof:
(a) With respect to that portion of the Properties that ATLAS owns in fee
simple, as set forth in Part 1.A. of Exhibit A, exclusive of the surface rights
in and to the Atlas Mill Complex (which are not part of the Properties), ATLAS
is in exclusive possession of and owns such portion of the Properties free and
clear of all rights, titles and interests of third parties and of all liens,
encumbrances or other burdens on production except those specifically identified
in Part 1 of Exhibit A.
(b) With respect to those portions of the Properties in which ATLAS holds
an interest under leases or other contracts (the "Leased Properties"), as set
forth in Part 2 of Exhibit A: (i) ATLAS is in exclusive possession of such
Leased Properties; (ii) ATLAS has not received any notice of default of any of
the terms or provisions of such contracts; (iii) ATLAS has the authority under
such contracts to perform fully its obligations under this Agreement; (iv) to
the best of ATLAS' knowledge and belief, such contracts are valid and are in
good standing; and (v) to ATLAS' knowledge, the Leased Properties are free and
clear of all rights, titles and interests of third parties (other than of the
lessor) and of all liens, encumbrances or other burdens on production except for
those specifically identified in Part 2 of Exhibit A or in such contracts.
ATLAS has delivered or made available to GRANGES all information concerning
title to the Leased Properties
9
<PAGE>
in ATLAS' possession or control, including, but
not limited to, true, correct and complete copies of all leases or other
contracts relating to the Leased Properties of which ATLAS has knowledge,
together with all amendments, modifications or supplements thereto, each of
which is more particularly described in Part 2 of Exhibit A.
(c) With respect to unpatented mining claims located by ATLAS or by an
Affiliate of ATLAS that are included within the Properties (the "Located
Claims"), as set forth in Part 1.B. and Part 3 of Exhibit A, except as provided
in Part 1.B. and Part 3 of Exhibit A and subject to the paramount title of the
United States: (i) the Located Claims were properly laid out and monumented;
(ii) all required location and validation work was properly performed thereon;
(iii) location notices and certificates covering the Located Claims were
properly recorded and filed with appropriate governmental agencies; (iv) all
assessment work required to hold the Located Claims has been performed in a
manner consistent with that required of the Manager pursuant to Section 8.2(k)
of this Agreement through the assessment year ending September 1, 1992; (v) all
required state and federal filing fees, rental and maintenance fees have been
timely paid for the assessment years ending September 1, 1993, 1994, 1995, and
1996; (vi) all affidavits of assessment work and other filings required to
maintain the Located Claims in good standing have been properly and timely
recorded or filed with appropriate governmental agencies; (vii) the claims are
free and clear of all rights, titles and interests of third parties arising by,
through or under ATLAS and of all liens, encumbrances or other burdens on
production arising by, through or under ATLAS; and (viii) to ATLAS' knowledge,
and except with respect to mining claims bordering upon the western and northern
exterior boundaries of the Properties, the Located Claims are not in conflict
with and do not overlap any claims held by third parties. With respect to those
unpatented mining claims that were not located by ATLAS or by an Affiliate of
ATLAS, but which constitute part of the Properties (whether held under lease,
owned or otherwise controlled by ATLAS), ATLAS makes all of the foregoing
representations and warranties (with the foregoing exceptions) to its knowledge.
(d) Nothing in this Section 2.2 shall be deemed to be a representation or
warranty by ATLAS that any of the Claims contains a discovery of valuable
minerals. ATLAS makes no
10
<PAGE>
representations or warranties whatsoever with respect to the existence (or non-
existence) of any overlaps or conflicts between claims constituting part of the
Properties that are owned by ATLAS and claims constituting part of the
Properties that are leased by ATLAS, nor with respect to the existence (or non-
existence) of any overlaps or conflicts between claims constituting part of the
Properties and claims otherwise owned or controlled by ATLAS as of the date of
the Agreement which overlap the exterior boundary line of the Area of Interest.
(e) With respect to each of the unpatented mining claims comprising a
portion of the Properties, ATLAS represents that they have been remonumented as
necessary, and that evidence of such remonumentation has been timely and
properly recorded, all in compliance with the provisions of N.R.S. (S) 517.030.
(f) To ATLAS' knowledge, with respect to the Properties, there are no
pending or threatened actions, suits, claims or proceedings.
The representations and warranties set forth above shall survive the
execution and delivery of any documents of Transfer provided under this
Agreement.
2.3 Disclosures. Each of the Participants represents and warrants that it
-----------
is unaware of any material facts or circumstances which have not been disclosed
in this Agreement, which should be disclosed to the other Participant in order
to prevent the representations in this Article II from being materially
misleading.
2.4 Record Title. Title to the Assets shall be held by GRANGES for the
------------
benefit of the Participants in accordance with the terms and conditions of this
Agreement. Upon execution of this Agreement, ATLAS shall simultaneously execute
and deliver to GRANGES for recordation and filing appropriate instruments of
conveyance (i.e., a deed and assignment of leases) conveying the Assets to
GRANGES, subject to the rights, titles and interests of the Participants under
this Agreement. Such instruments of conveyance shall incorporate and preserve,
by reference or otherwise, ATLAS' representations and warranties of title set
forth in this Agreement. Such instruments of conveyance shall reserve ATLAS'
rights of Access across the Properties set forth in Section 5.1.A. All fees for
filing and recording of such instruments of conveyance, either to or from ATLAS,
including without limitation fees payable to the Bureau of Land Management of
the
-11-
<PAGE>
United States Department of the Interior in connection with the filing of a
notice of transfer of interest, shall be paid solely by GRANGES and shall be
credited in full against GRANGES' minimum Exploration and Development
Expenditure requirements under Section 5.1.B. Upon any withdrawal or deemed
withdrawal of GRANGES from this Agreement, GRANGES shall promptly execute and
deliver to ATLAS appropriate instruments of conveyance, suitable for filing and
recordation, reconveying the Properties to ATLAS free and clear of all liens and
encumbrances arising by or through GRANGES, other than liens and encumbrances to
which ATLAS has given its written consent. Upon GRANGES' selection of the
Selected Properties pursuant to Section 5.1.B.(5) or (6), GRANGES shall execute
and deliver to ATLAS similar instruments of conveyance covering all of the
Properties other than the Selected Properties.
2.5 Joint Loss of Title. Any failure or loss of title to the Assets, and
-------------------
all costs of defending title, shall be charged to the Joint Account, except that
all costs and losses arising out of or resulting from breach of the
representations and warranties of ATLAS shall be charged to ATLAS.
ARTICLE III
-----------
NAME, PURPOSES AND TERM
------------------------
3.1 General. ATLAS and GRANGES hereby enter into this Agreement for the
-------
purposes hereinafter stated, and they agree that all of their rights and all of
the Operations on or in connection with the Properties or the Area of Interest
shall be subject to and governed by this Agreement.
3.2 Name. The name of this Venture shall be the Gold Bar Gold Venture. The
----
Manager shall accomplish any registration required by applicable assumed or
fictitious name statutes and similar statutes.
3.3 Purposes. This Agreement is entered into for the following purposes and
--------
for no others, and shall serve as the exclusive means by which the Participants,
or either of them, accomplish such purposes:
(a) to conduct Exploration within the Area of Interest,
(b) to acquire additional Properties within the Area of Interest,
12
<PAGE>
(c) to evaluate the possible Development of the Properties,
(d) to engage in Development and Mining Operations on the Properties,
(e) to engage in marketing Products, to the extent permitted by Article
XI, and
(f) to perform any other activity necessary, appropriate or incidental to
any of the foregoing, including the performance of reclamation, cleanup, and
restoration.
3.4 Limitation. Unless the Participants otherwise agree in writing, the
-----------
Operations shall be limited to the purposes described in Section 3.3, and
nothing in this Agreement shall be construed to enlarge such purposes.
3.5 Effective Date and Term. The effective date of this Agreement shall be
------------------------
September 29, 1995 and shall continue for a term of twenty (20) years and so
long thereafter as Products are produced from the Properties, unless the
Agreement is earlier terminated as herein provided.
ARTICLE IV
----------
RELATIONSHIP OF THE PARTICIPANTS
---------------------------------
4.1 No Partnership. Nothing contained in this Agreement shall be deemed to
---------------
constitute either Participant the partner of the other, nor, except as otherwise
herein expressly provided, to constitute either Participant the agent or legal
representative of the other, nor to create any fiduciary relationship between
them. It is not the intention of the Participants to create, nor shall this
Agreement be construed to create, any mining, commercial or other partnership.
Neither Participant shall have any authority to act for or to assume any
obligation or responsibility on behalf of the other Participant, except as
otherwise expressly provided herein. The rights, duties, obligations and
liabilities of the Participants shall be several and not joint or collective.
Each Participant shall be responsible only for its obligations as herein set out
and shall be liable only for its share of the costs and expenses as provided
herein, it being the express purpose and intention of the Participants that
their ownership of Assets and the rights acquired hereunder shall be as tenants
in common. Each Participant shall indemnify, defend and hold harmless the other
Participant, its directors, officers, employees, agents and attorneys from and
against any and all losses, claims, damages and liabilities arising out of any
act or any assumption of liability by the indemnifying
13
<PAGE>
Participant, or any of its directors, officers, employees, agents and attorneys
done or undertaken, or apparently done or undertaken, on behalf of the other
Participant, except pursuant to the authority expressly granted herein or as
otherwise agreed in writing between the Participants.
4.2 Federal Tax Elections and Allocations. Without changing the effect of
--------------------------------------
Section 4.1, the Participants agree that their relationship shall constitute a
tax partnership within the meaning of Section 761(a) of the United States
Internal Revenue Code of 1986, as amended. Tax elections and allocations shall
be made as set forth in Exhibit C.
4.3 State Income Tax. The Participants also agree that, to the extent
-----------------
permissible under applicable law, their relationship shall be treated for state
income tax purposes in the same manner as it is for federal income tax purposes.
4.4 Tax Returns. The Tax Matters Partner, as defined in Exhibit C, shall
------------
prepare and shall file, after approval of the Management Committee, any tax
returns or other tax forms required.
4.5 Other Business Opportunities. Except as expressly provided in this
-----------------------------
Agreement, each Participant shall have the right independently to engage in and
receive full benefits from business activities, whether or not competitive with
the Operations, without consulting the other. The doctrines of "corporate
opportunity" or "business opportunity" shall not be applied to any other
activity, venture or operation of either Participant, and, except as otherwise
provided in Section 12.6, neither Participant shall have any obligation to the
other with respect to any opportunity to acquire any property outside the Area
of Interest at any time, or within the Area of Interest after the termination of
this Agreement. Except as otherwise specifically set forth in this Agreement,
no Participant shall have any obligation to mill, beneficiate or otherwise treat
any Products or any other Participant's share of Products in any facility owned
or controlled by such Participant.
4.6 Waiver of Right to Partition. The Participants hereby waive and release
-----------------------------
all rights of partition, or of sale in lieu thereof, or other division of
Assets, including any such rights provided by statute.
4.7 Transfer or Termination of Rights to Properties. Except as otherwise
------------------------------------------------
provided in this Agreement, neither Participant shall Transfer all or any part
of its interest in the Assets or this Agreement or otherwise permit or cause
such interests to terminate.
14
<PAGE>
4.8 Implied Covenants. There are no implied covenants contained in this
------------------
Agreement other than those of good faith and fair dealing. Except to the extent
expressly set forth in this Agreement, GRANGES does not make or undertake any
covenant or duty to conduct any Exploration, Development, Mining or other
activities upon or with respect to the Properties. Whether or not any such
activities shall at any time be conducted and the location, manner, extent, rate
and timing of such activities shall be determined solely pursuant to the
provisions and procedures set forth in this Agreement.
4.9 Relationship of Entities Comprising ATLAS. The liabilities and
------------------------------------------
obligations of ATLAS arising under this Agreement shall be the joint and several
liabilities and obligations of each of Atlas Corporation, Atlas Precious Metals
Inc. and Atlas Gold Mining Inc. Atlas Corporation shall act as the agent of all
of the corporate entities comprising ATLAS for all purposes of this Agreement
and shall have the exclusive right to exercise and enforce the rights and
privileges of ATLAS arising under this Agreement, including without limitation
the rights of ATLAS to provide and receive payments and notices, to vote
Participating Interests, to be represented and cast votes on the Management
Committee and otherwise to participate in the Venture. Any notice, writing,
action or undertaking by Atlas Corporation shall be deemed to constitute the
writing, action or undertaking of each of the corporate entities constituting
ATLAS. Upon the provision of any payment or notice to Atlas Corporation (in
accordance with Section 18.1), such payment or notice shall be deemed given to
each of the corporate entities constituting ATLAS, and the provider thereof
shall have no further responsibility, duty, obligation or liability for any
further distribution thereof.
ARTICLE V
---------
CONTRIBUTIONS BY PARTICIPANTS AND ADDITIONAL AGREEMENTS
-------------------------------------------------------
5.1 Participants' Initial Contributions and Activities During Evaluation
--------------------------------------------------------------------
Period.
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A. By ATLAS. ATLAS, as its Initial Contribution, shall contribute and
--------
does hereby contribute to the purposes of this Agreement the Properties, its
knowledge concerning the Properties and all data, programs, maps, reports,
analyses, samples, splits and other information, of all types and
15
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descriptions and in all media whatsoever, that are in ATLAS' possession or under
ATLAS' control and that relate or pertain in any way to the Properties,
including both factual and interpretive materials. ATLAS, as part of its Initial
Contribution and to the extent that it is reasonably and legally able to do so,
further contributes to the purposes of this Agreement all permits, consents,
approvals and authorizations from governmental or private entities that are held
or controlled by ATLAS and that relate to the Properties (collectively,
"Permits") and hereby grants unto GRANGES and the Venture the right to conduct
Operations under such Permits for a period of time not to exceed 180 days from
and after September 29, 1995, to allow GRANGES time to obtain any required
permits in its own name for its Operations hereunder and to place separate
surety as may be required by state or federal agencies. Additionally, ATLAS,
unless it is contractually prohibited from doing so, shall contribute and does
hereby contribute to the Venture reasonable rights of Access across lands owned
or controlled by ATLAS outside of the Properties to the extent that GRANGES
(prior to completion of its Initial Contribution) or the Manager (thereafter)
deems such Access reasonably necessary or convenient for Operations or the
exercise of any right granted under this Agreement. ATLAS further contributes to
the Venture such rights of Access with respect to lands in which ATLAS has
contractually reserved or otherwise acquired such rights of Access. If ATLAS
decides to relinquish or Transfer all or part of its ownership or control of
such lands, it shall first use reasonable good-faith efforts to ensure that
GRANGES' and the Venture's rights of Access are preserved. ATLAS agrees to
execute appropriate documents in recordable form that will evidence the right of
Access provided herein. ATLAS hereby reserves the reasonable right of Access
across the Properties in order that it may continue to conduct exploration,
development, mining, processing and reclamation operations on lands adjacent to
or nearby the Area of Interest or at the Atlas Mill Complex, provided that the
exercise of such right of Access shall not (except with respect to ATLAS' use of
the existing access road to the Atlas Mill Complex and ATLAS' existing haul
road, and except as set forth in the last sentence of Section 1.29) unreasonably
interfere with or cause delays to Operations hereunder. With respect to leases
held by ATLAS covering both Properties subject to this Agreement and other
properties, ATLAS shall exercise its reasonable efforts to work with GRANGES to
have such leases partitioned into separate leases with
16
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substantially the same terms and conditions. The value of ATLAS' initial
contribution shall be deemed to be equal to the value of GRANGES' Initial
Contribution, as described in Section 5.1 B. below.
B. By GRANGES. GRANGES, as its Initial Contribution, hereby agrees to
----------
the following:
(1) GRANGES, upon execution of this Agreement, shall pay to ATLAS
$250,000 plus an additional sum of $109,450 as partial reimbursement for mining
claim maintenance fees paid by ATLAS for the assessment year ending September 1,
1996. The $250,000 shall not be credited toward Exploration and Development
Expenditures. The $109,450 payment shall be credited to Exploration and
Development Expenditures incurred by GRANGES for Year 1. On or before September
29, 1996 (referred to as Year 1), GRANGES shall incur at least $625,000 in
Exploration and Development Expenditures on or for the benefit of the Properties
in order to keep this Agreement in full force and effect beyond Year 1. Subject
to the last sentence of Section 5.1 C.(1), GRANGES' failure to incur such
Exploration and Development Expenditures shall result in GRANGES' withdrawal
from the Venture pursuant to Section 5.2. Exploration and Development
Expenditures incurred by GRANGES prior to the date of execution of this
Agreement, but subsequent to September 29, 1995, shall be credited in full
against the minimum expenditure requirements for Year 1.
(2) GRANGES shall incur at least an additional $625,000 in Exploration
and Development Expenditures between September 30, 1996 and September 29, 1997,
inclusive (referred to as Year 2) in order to keep this Agreement in full force
and effect beyond Year 2. Subject to the last sentence of Section 5.1 C.(1),
GRANGES' failure to incur such Exploration and Development Expenditures shall
result in GRANGES' withdrawal from the Venture pursuant to Section 5.2.
(3) GRANGES shall incur at least an additional $1,000,000 in
Exploration and Development Expenditures between September 30, 1997 and
September 29, 1998 inclusive (referred to as Year 3) in order to keep this
Agreement in full force and effect beyond Year 3. Subject to the last sentence
of Section 5.1 C.(1), GRANGES' failure to incur such Exploration and
17
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Development Expenditures shall result in GRANGES' withdrawal from the Venture
pursuant to Section 5.2.
(4) Exploration and Development Expenditures that are in excess of the
amounts required for Year 1, Year 2, Year 3 or any year during the Extended Term
may be carried forward and applied as a credit against the requirements for any
subsequent year.
(5) If prior to September 29, 1998, GRANGES has not defaulted in the
performance of the expenditure requirements for Year 1, 2 and 3, and has
---
delivered to ATLAS a completed report (the "Report") identifying an economic
gold deposit which satisfies the United States Securities and Exchange
Commission criteria for reporting reserves (the "Reserves"), using reasonable
economic criteria and the Accounting Procedure contemplated under this
Agreement, and recommending development of a mineral deposit containing proven
or probable Reserves in excess of 300,000 ounces of gold, then GRANGES shall
have satisfied its Initial Contribution and shall be entitled to retain on a
vested basis its 50% Participating Interest in not more than 15 square miles of
the Properties, which shall be selected by GRANGES in its sole discretion by
written notice to ATLAS delivered not later than October 28, 1998; provided,
however, that such selection shall consist of not more than three non-contiguous
tracts (hereinafter the "Selected Properties"). If, prior to September 29,
1998, GRANGES has not defaulted in the performance of applicable expenditure
requirements and has delivered to ATLAS a completed report (the "Non-Gold
Report") identifying an economic deposit of any mineral or minerals other than
gold, which satisfies the United States Securities and Exchange Commission
criteria for reporting Reserves for such minerals, using reasonable economic
criteria and the Accounting Procedure contemplated under this Agreement, and
recommending development of the mineral deposit, GRANGES shall vest in a 50%
Participating Interest in the portion of the Properties in which such deposit is
situated, together with sufficient surrounding portions of the Properties as may
be required or useful for the efficient Mining of the deposit (including
applicable laybacks) and for treatment plants and other surface facilities and
for on-going Exploration and Development of the deposit and associated geologic
structures (collectively, the "Non-Gold Properties"), provided, however, that
the total area of the Non-Gold Properties shall not exceed 640 acres, and
GRANGES shall be deemed to have
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earned a vested 50% Participating Interest in those Non-Gold Properties.
Expenditures incurred by GRANGES in preparing a Non-Gold Report, and GRANGES
earning a 50% Participating Interest in any Non-Gold Properties, shall not have
any impact on the obligations required of GRANGES to earn a 50% Participating
Interest in the Selected Properties. Upon GRANGES earning a Participating
Interest in any Non-Gold Property, the Participants shall enter into a joint
venture agreement governing their Operations on the Non-Gold Properties on
substantially the same terms and conditions set forth in this Agreement
(exclusive of those set forth in Article V, except for Sections 5.1 A. and 5.7).
(6) In the event that GRANGES expends those amounts required for
Exploration and Development Expenditures during Year 1, 2 and 3, but fails to
complete the Report, subject to its right of termination, it may continue to
conduct Exploration and to evaluate the Properties under this Agreement for an
additional two years (the "Extended Term"), provided that GRANGES shall incur
Exploration and Development Expenditures of not less than $1,000,000 during each
year of the Extended Term in order to keep the Agreement in full force and
effect. Subject to the last sentence of Section 5.1 C.(1), GRANGES' failure to
incur such Exploration and Development Expenditures shall result in GRANGES'
withdrawal from the Venture pursuant to Section 5.2. If during such Extended
Term GRANGES completes the Report, it shall earn an undivided 50% interest in
not more than three square miles of the Properties (which shall be selected as
set forth above by written notice to ATLAS not less than 30 days following
completion of such Report and which shall also be referred to hereinafter as the
"Selected Properties"). Failure by GRANGES to complete the Report prior to the
end of the Extended Term shall result in termination of this Agreement.
Exploration and Development Expenditures that are in excess of those amounts
required for any year may be applied as a credit toward requirements for any
future years. In the event that GRANGES discovers a non-gold deposit and
completes a Non-Gold Report during the Extended Term, then GRANGES shall vest in
a 50% Participating Interest in the Non-Gold Properties in accordance with
Section 5.1 C(5), notwithstanding any failure by GRANGES to complete its Initial
Contribution including delivery of a Report concerning a gold
19
<PAGE>
deposit. The value of GRANGES' Initial Contribution shall be equal to the total
of the Exploration and Development Expenditures incurred by GRANGES pursuant to
this Section 5.1(B).
(7) In the event that GRANGES completes a Report during Year 3 or
during any Extended Term, GRANGES' Initial Contribution shall be deemed
completed and GRANGES shall vest immediately in its 50% Participating Interest
in the Selected Properties. Thereafter, GRANGES shall not be subject to any
minimum Exploration and Development Expenditure requirements and the
Participants shall fund Operations in accordance with their respective
Participating Interests and in accordance with duly adopted Programs and
Budgets.
C. Operations During Evaluation Period.
-----------------------------------
(1) Prior to the completion of its Initial Contribution
(hereinafter the "Evaluation Period") and subject to GRANGES' rights of
termination set forth in Section 12.1.B., GRANGES shall perform the duties and
obligations of the Manager described in Article VIII, including without
limitation those pertaining to maintaining title to the Properties and the
performance and filing assessment work, and all costs thereof shall be credited
toward required Exploration and Development Expenditures. Expenditures by
GRANGES during the Evaluation Period shall not require the proposal or approval
of any Program or Budget pursuant to Article IX. The Management Committee shall
have no powers and shall not meet prior to the completion of GRANGES' Initial
Contribution. Prior to the completion of its Initial Contribution, GRANGES shall
conduct Operations as GRANGES deems appropriate, in its sole and absolute
discretion, without the need for any consent, authorization or approval of ATLAS
or the Management Committee; provided, however, that GRANGES shall consult with
ATLAS prior to undertaking any title studies and any action to defend or cure
title to the Properties. On or before December 15 of each calendar year prior to
the completion of its Initial Contribution, GRANGES shall provide to Atlas a
written report describing the results of its Operations conducted upon the
Properties during the twelve months preceding September 29 of each calendar year
and setting forth in reasonable detail the nature and amount of GRANGES'
Exploration and Development Expenditures expended in connection therewith. The
amount of such expenditures so claimed by GRANGES shall conclusively be deemed
accepted by ATLAS unless ATLAS provides to GRANGES written notice of objection
within sixty (60) days after the receipt by
20
<PAGE>
ATLAS of GRANGES' annual written report. Prior to and in connection with the
completion of its Initial Contribution, GRANGES shall have all of the rights,
powers, authority and protections afforded to the Manager under this Agreement
(provided that no approvals, directions, consents or authorizations from or
notices or reports to the Management Committee shall be required). In the event
that GRANGES fails to complete a monetary expenditure required for its Initial
Contribution prior to a given deadline, GRANGES shall have the right, but not
the obligation, for a period of thirty (30) days thereafter (or after receipt of
notice from ATLAS if the deficiency is first raised as an objection by ATLAS and
is acknowledged by GRANGES), to pay to ATLAS the difference between the amount
so required and the amount actually expended by GRANGES on Exploration and
Development Expenditures during the period in question, and upon making such
payment GRANGES shall be deemed to have satisfied such requirement.
(2) GRANGES during the Evaluation Period will comply fully with the
provisions of the worker's compensation laws of the State of Nevada and will
carry and maintain adequate and reasonable liability insurance for Operations in
accordance with Exhibit E. GRANGES, in compliance with the Indemnification
Procedure, shall defend, indemnify and hold ATLAS harmless from and against any
loss, liability, claim, expense or damage, including reasonable attorney's fees,
ATLAS may incur to third persons for injury or death of persons or other damages
which arise out of or are the result of GRANGES conducting Operations under this
Agreement on or with respect to the Properties during the Evaluation Period,
unless such loss, liability, claim, expense or damage is caused by the actions
or inactions of ATLAS, or by the breach of any of ATLAS' representations and
warranties. In the event that this Agreement terminates prior to GRANGES'
completion of its Initial Contribution, GRANGES shall be responsible to reclaim,
in accordance with the requirements of applicable law and regulations, all
portions of the Properties disturbed by GRANGES' activities hereunder (but only
to the extent of damage caused by GRANGES' activities). In compliance with the
Indemnification Procedure, GRANGES shall indemnify and hold ATLAS harmless from
and against any loss, liability, claim, expense or damage, including reasonable
attorneys' fees, that ATLAS may incur to third parties as a result of any
violation by GRANGES of Environmental Law in connection with GRANGES'
performance of Operations on the Properties. Notwithstanding the foregoing
21
<PAGE>
provisions of this Section 5.1 C(2), in the event that GRANGES completes its
Initial Contribution, the Participants shall bear all responsibility and
liability with respect to disturbances caused by GRANGES during the Evaluation
Period, and the reclamation thereof, in accordance with and proportion to their
respective Participating Interests, so long as such disturbances were not, when
made, in violation of any Environmental Law. ATLAS, in compliance with the
Indemnification Procedure, shall indemnify and hold GRANGES harmless from and
against any loss, liability, claim, expense or damage, including reasonable
attorneys' fees, incurred by GRANGES that arise out of or result from: (i) any
breach of ATLAS' representations and warranties hereunder; (ii) any condition on
or at the Properties existing on or before the date of this Agreement; or (iii)
any operation or activity conducted by ATLAS on or with respect to the
Properties on or before the date of this Agreement. The indemnifying
Participant, in accordance with the Indemnification Procedure, agrees to defend
any claims brought or actions filed against the other party with respect to the
subject of the indemnifying Participant's indemnity, whether such claims or
actions are rightfully or wrongfully filed. The provisions of this Section
5.1(C)(2) shall survive the termination of the Agreement.
(3) During the Evaluation Period, GRANGES shall, during normal
business hours and upon reasonable notice from ATLAS, make available for review
by ATLAS at such place or places as they are normally maintained by GRANGES, all
maps, samples, assays, drill logs, core tests, analytical reports, and other
information and data accumulated hereunder, and all records, accounts, and
documents in the possession of GRANGES or its authorized agents which pertain to
the Properties and this Agreement. ATLAS shall have the right, at its sole
cost, to copy any such materials.
(4) During the Evaluation Period, ATLAS and its authorized agents, at
ATLAS' sole risk and expense, shall have the right, exercisable during regular
business hours, and in a reasonable manner conforming to GRANGES' safety rules
and regulations and so as not to unreasonably interfere with GRANGES'
Operations, to go upon the Properties for the purpose of confirming that GRANGES
is conducting its Operations in the manner required by this Agreement. ATLAS
shall defend, indemnify and hold GRANGES, its employees, agents, and contractors
harmless from all loss, liability, claim, expense or damage (including
reasonable attorneys' fees) which they or
22
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any of them may incur or become subject to as a result of or arising out of any
entry upon the Properties by ATLAS, its agents or employees, except with respect
to any death, injury or damage that results from the negligence of GRANGES, its
employees, agents or contractors. If requested by GRANGES, ATLAS, its agents and
employees will confirm in writing their waiver of claims against GRANGES.
(5) Notwithstanding the provisions of Article XV, during the
Evaluation Period, either party shall have the right to assign its interest in
this Agreement upon receipt of the prior written consent of the other party,
which consent shall not be unreasonably withheld. Consent may be withheld only
upon a reasonable determination by the withholding party that the proposed
transferee is either not technically able or financially capable of assuming the
assigning party's obligations and duties hereunder. Such consent shall not be
required for assignments of interests in this Agreement by either party to an
Affiliate during the Evaluation Period. Any assignment made hereunder shall be
made expressly subject to all of the terms, conditions and covenants of this
Agreement.
(6) In the event GRANGES fails to complete its Initial Contribution or
elects to terminate this Agreement prior to completion of its Initial
Contribution, in addition to its other obligations hereunder, GRANGES shall
promptly reclaim and restore the Properties to the extent disturbed by its
Operations, in compliance with all applicable federal, state and local laws,
rules and regulations, and shall have a right of reasonable access therefor if
such activities are performed after termination of this Agreement. The
provisions of this Section 5.1(c)(6) shall survive the termination of this
Agreement.
5.2 Failure of GRANGES to Make Initial Contribution. GRANGES' failure to
------------------------------------------------
make its Initial Contribution in accordance with the provisions of Article V
shall be deemed to be a withdrawal of GRANGES from this Agreement and the
termination of its Participating Interest hereunder. Upon such withdrawal,
GRANGES shall have no further right, title or interest in the Assets. GRANGES'
withdrawal shall be effective upon such failure, but such withdrawal shall not
relieve GRANGES of its obligation to fund and satisfy its share of liabilities
to third persons (whether such accrues before or after such withdrawal) arising
out of Operations conducted prior to GRANGES' withdrawal, or any other
obligations of GRANGES which have occurred prior to
23
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such withdrawal. Promptly after such withdrawal, GRANGES agrees to execute and
deliver to ATLAS a quitclaim deed or other form of instrument reasonably
requested by ATLAS releasing to ATLAS all of GRANGES' interest in the Assets.
Any such conveyance shall be free of all liens, claims or other encumbrances on
the Assets arising by, through or under GRANGES. Except as set forth in this
Section 5.2, GRANGES shall have no liability or obligation whatsoever to ATLAS
with respect to any failure by GRANGES to complete its Initial Contribution.
5.3 Additional Cash Contributions. At such time as GRANGES has satisfied
------------------------------
and completed the requirements for its Initial Contribution, the Participants,
subject to any election permitted by Section 6.3, shall be obligated to
contribute funds to adopted Programs in proportion to their respective
Participating Interests.
5.4 Personnel. During Year 1, GRANGES may utilize up to fifty percent of
----------
the working time of Greg French and Terry Jennings, ATLAS' current staff
geologists in Reno, Nevada (the exact percentage, up to fifty percent of such
individuals full-time schedules, to be determined by GRANGES, in its
discretion), in connection with the conduct of Operations on or for the benefit
of the Properties, as contemplated by Exhibit F and as directed by GRANGES,
provided that Messrs. French and Jennings remain in ATLAS' employ. ATLAS shall
invoice GRANGES on a monthly basis for the actual costs to ATLAS of such
geologists' time (proportionate share of salaries and benefits); GRANGES shall
promptly pay such invoices and shall credit such payments against required
Exploration and Development Expenditures. After Year 1, those geologists will
perform additional services in connection with Operations as are mutually agreed
to by the Participants.
5.5 Toll Milling of Products at the Atlas Mill Complex.
---------------------------------------------------
(a) Toll Milling Arrangement. In accordance with the provisions of this
------------------------
Section 5.5, the Venture shall have the right to have Products that are
extracted from the Selected Properties processed by ATLAS at the Atlas Mill
Complex on a toll milling basis. The Venture shall have no liabilities,
obligations or responsibilities whatsoever with respect to the Atlas Mill
Complex, or the operation or reclamation thereof, other than the payment of the
toll milling charges set forth herein. ATLAS, and not the Venture, shall be the
sole owner and operator of the Atlas Mill Complex.
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(b) Selection of Percentage of Milling Capacity. For a period of 180
-------------------------------------------
days following completion of GRANGES' Initial Contribution, the Management
Committee, on behalf of the Venture, shall have the right, by providing written
notice to ATLAS, to select a percentage of the milling capacity at the Atlas
Mill Complex for the processing of the Venture's Products (extracted from the
Selected Properties) on a toll milling basis. Failure by the Venture within
such 180 day period to select a percentage of the milling capacity shall cause
such right to expire. The maximum percentage of such milling capacity that may
be selected by the Venture for the toll milling of Products shall be determined
based on a ratio, the numerator of which is the proven and probable Reserves of
gold contained in the Selected Properties and the denominator of which is the
total proven and probable Reserves of gold contained in both the Selected
Properties and in the portions of the Atlas Gold Bar Property in which ATLAS
then owns either a 100% working interests or the contractual right to process
gold granted under another mining venture agreement. For example, and for
purposes of illustration only, if the proven and probable Reserves in the
Selected Properties total 400,000 ounces of gold and the proven and probable
Reserves in the qualifying portions of the Atlas Gold Bar Property total 300,000
ounces of gold, then the Venture would be entitled to elect to have ATLAS
dedicate up to 4/7 of the then existing capacity of the Atlas Mill Complex to
the toll milling of the Venture's Products. However, in no event shall the
percentage of milling capacity at the Atlas Mill Complex made available for
selection by the Venture be less than 50%. The Management Committee shall have
the right to select the percentage of milling capacity available to it, any
lesser percentage or no percentage at all for a period of time not to exceed
five years (the "Initial Period"). Within ten days after the Management
Committee notifies ATLAS of the percentage of milling capacity that it elects to
have dedicated to the toll milling of the Venture's Products, ATLAS will provide
to the Management Committee a written notice setting forth the amount (if any)
of the remaining mill capacity (the "Atlas Reserve Capacity") that ATLAS intends
in good faith to utilize for its own purposes during the Initial Period. Within
twenty days after receipt of ATLAS' notice, the Management Committee may elect,
by written notice to ATLAS, to add all or any portion of the Atlas Reserve
Capacity that ATLAS does not intend to utilize to the percentage of milling
capacity dedicated to the toll milling of the Venture's Products. The total
25
<PAGE>
percentage of the milling capacity of the Atlas Mill Complex that is selected by
the Management Committee for dedication to the toll processing of the Venture's
Products is referred to hereinafter as the "Venture's Toll Percentage." Three
months prior to expiration of the Initial Period (and of each subsequent period,
if any), the Venture's Toll Percentage shall be redetermined for a period not to
exceed three years in accordance with the procedures set forth in this Section
5.5(b). Notwithstanding any provision of this Agreement to the contrary,
GRANGES shall control and decide all decisions and elections of the Management
Committee relative to the selection of the percentage of milling capacity of the
Atlas Mill Complex for the toll milling of the Venture's Products, including
without limitation all decisions of the Management Committee set forth in this
Section 5.5(b).
(c) Definitive Toll Milling Agreement. Within 30 days after the
---------------------------------
completion of the process described in Section 5.5(b) above to determine the
Venture's Toll Percentage, ATLAS and the Venture shall negotiate, prepare and
enter into a definitive toll milling agreement governing ATLAS' toll milling of
the Venture's Products at the Atlas Mill Complex (unless the Venture's Toll
Percentage, as selected by the Management Committee, is 0%). Such agreement
shall incorporate the terms and conditions set forth herein and shall provide
for the operation of the Atlas Mill Complex by ATLAS in a manner that will
maximize the efficiency of throughput of all ores to be milled at the Atlas Mill
Complex. Such agreement shall also provide for periodic consultation between
ATLAS and the Venture relative to the operation, maintenance and improvement (if
any) of the Atlas Mill Complex.
(d) Prohibition Against Commingling. ATLAS shall not commingle the
-------------------------------
Venture's Products with ore from other properties ("Other Ore"). The Venture's
Products and Other Ore will be separately stockpiled and batched for processing
and, for each two-month period, or longer as may be mutually agreed (a "Batch
Period") the Atlas Mill Complex will be exclusively dedicated to either the
processing of the Venture's Products or the processing of Other Ore. ATLAS will
determine and keep accurate records, in accordance with prudent methods and
standards employed by experienced and reputable operators in the mining
industry, of all inventories of the Venture's Products and of Other Ore.
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(e) Toll Milling Charges. The Venture shall pay the following charges to
--------------------
ATLAS for the toll milling of the Venture's Products at the Atlas Mill Complex:
(i) Depreciation Charge. A charge of $1.50 per ton of ore extracted
-------------------
from the Selected Properties and processed at the Atlas Mill
Complex, to compensate ATLAS for depreciation of the existing plant
and facilities at the Atlas Mill Complex;
(ii) Operating Costs. All operating costs incurred by ATLAS
---------------
that are attributable to the milling of the Venture's Products at
the Atlas Mill Complex, exclusive of overhead and general
administrative expenses associated with ATLAS' head office in
Denver, Colorado;
(iii) Throughput Fee. A fee in the amount of three percent (3%) of
--------------
the total of all charges to the Venture for operating costs with
respect to the Atlas Mill Complex under clause (ii) above; however
in no event shall such fee exceed $200,000 annually nor $2,000,000
in aggregate during the term of the definitive toll milling
agreement;
(iv) Reclamation Charge. A charge per ton of the Venture's
------------------
Products actually milled at the Atlas Mill Complex to reimburse
ATLAS for the reasonably estimated and anticipated costs of
reclamation attributable thereto. Such charge shall be estimated
based upon the extent to which the tonnage of the Venture's Products
processed at the Atlas Mill Complex bears to the tonnage of all ores
processed at the Atlas Mill Complex; and
(v) Capital Expenditures. The Venture shall bear a
--------------------
portion of capital expenditures relating to the Atlas Mill Complex,
but only to the extent that such capital expenditures are approved
and authorized in advance and in writing by the Management Committee
on behalf of the Venture and only to the extent that such
expenditures benefit the Venture. The Management Committee shall
not be obligated to approve or authorize any such capital
expenditures and ATLAS shall not be required to make any capital
expenditures solely for its account on
27
<PAGE>
behalf of the Venture. ATLAS may proceed with capital expenditures
to the Atlas Mill Complex for the benefit of Other Ore, but may not
charge the Venture for any portion of such expenditures. Prior to
the making of any capital expenditure at the Atlas Mill Complex,
with respect to which the Venture will bear a portion of the costs,
the Management Committee (on behalf of the Venture) and ATLAS shall
agree in writing to the amount and timing of any payments by the
Venture to ATLAS in connection with such capital expenditures.
(f) Indemnification. Except for toll milling charges to the Venture set
---------------
forth in Section 5.5(e), ATLAS shall indemnify and hold harmless GRANGES, its
Affiliates and their respective officers, directors, employees and shareholders
from all costs, expenses, losses, liabilities, obligations, claims, demands, and
actions, including reasonable attorneys' fees, that they or any of them may
incur or become subject to as a result or arising out of either the operation of
the Atlas Mill Complex or any condition at or on the Atlas Mill Complex, whether
existing on, before or after the date of this Agreement. Except for the toll
milling charges set forth in Section 5.5(e), and except to the extent that
GRANGES conducts activities hereunder with respect to the Atlas Mill Complex
(including pursuant to the rights granted to the Venture under Section 1.29
above), GRANGES shall have no liability or responsibility whatsoever with
respect to the Atlas Mill Complex or the reclamation, remediation or cleanup
thereof or any violation of Environmental Law associated therewith.
(g) Inspections and Audits. In the event that ATLAS processes any of the
----------------------
Venture's Products at the Atlas Mill Complex, any Participant shall have the
right to inspect, copy and/or audit any books, records, reports, data or other
information in ATLAS' possession or under ATLAS' control relating to the Atlas
Mill Complex including without limitation both operating records and reports and
financial books and records.
(h) Maintenance Obligations. At all times during the term of this
-----------------------
Agreement, ATLAS shall maintain the Atlas Mill Complex in good condition.
28
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(i) GRANGES' Appointment Rights. In the event that, during the period in
---------------------------
which the Venture's Products are to be processed, ATLAS is unable, for whatever
reason, to operate the Atlas Mill Complex in a prompt, diligent, dedicated,
professional and competent manner, GRANGES shall have the right, but not the
obligation, either to operate and manage the Atlas Mill Complex on behalf of the
Venture or to appoint a third party of its selection to operate and manage the
Atlas Mill Complex on behalf of the Venture, in either case in compliance with
applicable permits and in accordance with the duties and obligations of the
Manager set forth in Section 8.2. In that event, GRANGES shall have the right
to charge the Venture all of the amounts set forth in Section 5.5(e) (ii) and
(v) of this Agreement and the Venture shall pay such amounts to GRANGES and the
amounts set forth in Section 5.5(e)(i), (iii) and (iv) shall be paid by the
Venture to ATLAS. At all times, ATLAS shall remain solely responsible and
liable for the reclamation, remediation and cleanup of the Atlas Mill Complex,
except to the extent that the Venture conducts activities with respect to the
Atlas Mill Complex pursuant to rights granted to the Venture under Section 1.29
(with respect to which the Venture shall be responsible and with respect to
which no reclamation charge is payable to ATLAS under Section 5.5(e)(iv)).
Nothing in this Section 5.5(i) shall be construed so as to limit or abrogate in
any way any of ATLAS' obligations, liabilities or indemnities set forth in this
Agreement relative to the Atlas Mill Complex or the operation, condition or
reclamation thereof.
(j) ATLAS' Bonding Obligation. At all times during the term of the
-------------------------
definitive toll milling agreement, and at all times prior thereto, ATLAS shall
maintain adequate surety, through a qualified and financially stable entity, to
ensure complete reclamation of the Atlas Mill Complex, as required by applicable
laws, regulations, leases (or other agreements) and permits. During the term
set forth above, GRANGES shall have the right to audit, review and conduct such
other activities as it desires to determine and confirm the adequacy of such
surety. In the event that GRANGES reasonably determines at any time that such
surety is not fully sufficient, it may: (i) require ATLAS to take all action
necessary to render the surety fully sufficient; and (ii) pay all reclamation
charges under Section 5.5(e)(iv) into escrow.
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(k) Venture's Right to Operate Its Own Facilities. Nothing in this
---------------------------------------------
Section 5.5 shall be construed as limiting or abrogating in any way the rights
of the Venture under Section 1.29 to construct, establish and operate its own
facilities, plants and improvements on the surface of the Atlas Mill Complex,
provided that such activities do not interfere unreasonably with ATLAS'
operation of the Atlas Mill Complex.
5.6 Preemptive Right to Include Additional Property. ATLAS shall promptly
------------------------------------------------
provided to GRANGES written notice of any termination, in whole or in part, of
that certain Exploration Agreement with Option to Joint Venture Agreement
between ATLAS and Homestake Mining Company, a short form of which is recorded in
Eureka County, Nevada in Book 276 at Page 046 (the "Homestake Agreement").
Within sixty (60) days after the provision of such a notice to GRANGES, GRANGES
shall have the right, at its sole discretion, to elect to include in this
Agreement the properties (the "Homestake Properties") included in the Homestake
Agreement. GRANGES shall make such an election by written notice to ATLAS.
Failure timely to provide such written notice shall be deemed an election by
GRANGES not to include the Homestake Properties in this Agreement. In the event
GRANGES elects to include the Homestake Properties in this Agreement, the
following shall apply: (i) the Homestake Properties shall be treated as part of
the Properties for all purposes of this Agreement; (ii) GRANGES shall be
required to expend an additional $955,000 in Exploration and Development
Expenditures on or for the benefit of the Properties by the later of September
29, 1998, the expiration of any Extended Term or a date two years after the date
on which GRANGES elects to include the Homestake Properties in this Agreement;
(iii) the number of acres that GRANGES may select for inclusion in the Selected
Properties pursuant to Section 5.1 B.(5) shall increase by an additional 4,028
acres and the number of acres that GRANGES may select for inclusion in the
Selected Properties upon completion of the Report pursuant to Section 5.1 B.(6)
shall increase by 806 acres; (iv) GRANGES' failure to complete the additional
$955,000 in Exploration and Development Expenditures shall result in GRANGES'
withdrawal from the Venture under Section 5.2, but GRANGES shall not otherwise
be liable for such failure; and (v) the value of GRANGES' Initial Contribution
to the Venture shall
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be increased by the amount of the additional Exploration and Development
Expenditures incurred by it.
5.7 Reserved Royalty. In accordance with Exhibit G, ATLAS will be entitled
-----------------
to receive a two percent (2%) Net Smelter Returns royalty on production of
Products from those portions of the Selected Properties that are not presently
burdened by any royalty on production, as more particularly described in Parts 1
and 3 of Exhibit A. The production royalty payable to ATLAS pursuant to this
Section 5.7 shall survive the relinquishment by ATLAS of its Participating
Interest in this Agreement pursuant to Section 6.5.
5.8 Maintenance of Claims by GRANGES. GRANGES, prior to completion of its
---------------------------------
Initial Contribution, and the Manager thereafter, unless GRANGES (or the
Manager, as the case may be) withdraws from this Agreement on or before July 31
of any assessment year (i.e. noon on September 1 to noon of the following
September 1), shall (i) timely pay to the United States of America (and promptly
provide evidence thereof to the other Participant) such rentals and other fees
and (ii) use good faith efforts to perform such additional acts and obligations
as (with respect to all of the foregoing rentals, fees and other acts and
obligations) are or shall be required to maintain each unpatented mining claim
and mill site then constituting part of the Properties in good standing for such
assessment year under applicable federal and state law, including but not
limited to the United States Interior and Related Agencies Appropriations Act of
1993, as amended. For each assessment year that GRANGES or the Manager performs
assessment work or such other acts or obligations or makes such payments,
GRANGES (or the Manager, as the case may be) shall prepare and file such
affidavits, other documents or evidence thereof as are required by state and
federal law to maintain the Properties in good standing. All amounts expended
by GRANGES in complying with this Section (prior to the completion of its
Initial Contribution) shall be credited in full against GRANGES' minimum
Exploration and Development Expenditures requirement. All amounts expended by
the Manager in complying with this Section (subsequent to the completion of
GRANGES' Initial Contribution) shall be a Venture expense chargeable to the
Joint Venture.
5.9 Revision of Mining Law. If the Mining Law of 1872 should be amended or
-----------------------
repealed during the term of this Agreement, GRANGES (prior to completion of its
Initial Contribution) and
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the Manager (thereafter), unless it promptly withdraws from this Agreement,
shall use its best efforts to protect the rights or interests of the parties in
any unpatented mining claim or mill site then constituting part of the
Properties and to acquire from the United States of America and maintain in
effect rights to explore, develop and mine and otherwise use the ground covered
by each such claim and site under such other forms of mineral tenure as may
exist under any federal law hereafter enacted. Any such rights, interests, and
other forms or mineral tenure obtained with respect to the ground covered by any
such claim or site shall be part of the Properties for all purposes of this
Agreement. All amounts expended by GRANGES in complying with this Section (prior
to completion of its Initial Contribution) shall be credited in full against
GRANGES' minimum Exploration and Development Expenditures requirement. All
amounts expended by the Manager in complying with this Section (subsequent to
the completion of GRANGES' Initial Contribution) shall be a Venture expense
chargeable to the Joint Venture.
ARTICLE VI
----------
INTERESTS OF PARTICIPANTS
--------------------------
6.1 Initial Participating Interests. The Participants shall have the
--------------------------------
following initial Participating Interests:
ATLAS - 50%
GRANGES - 50%
6.2 Changes in Participating Interests. A Participant's Participating
-----------------------------------
Interest shall be changed as follows:
(a) As provided in Section 6.5; or
(b) Upon an election by a Participant pursuant to Section 6.3 to
contribute less to an adopted Program and Budget than the percentage reflected
by its Participating Interest; or
(c) In the event of default by a Participant in making its agreed-upon
contribution to an adopted Program and Budget, followed by an election by the
other Participant to invoke Section 6.4(b); or
32
<PAGE>
(d) Transfer by a Participant of less than all its Participating Interest
in accordance with Article XV; or
(e) Acquisition of less than all of the Participating Interest of the
other Participant, however arising.
6.3 Voluntary Reduction in Participation. Except with respect to a
-------------------------------------
Participant's obligation to make its Initial Contribution, as to which no
election is permitted, a Participant may elect to limit its contributions to an
adopted Program and Budget as follows:
(a) To some lesser amount than its respective Participating Interest; or
(b) Not at all.
If a Participant elects to contribute to an adopted Program and Budget some
lesser amount than its respective Participating Interest, or not at all, the
Participating Interest of that Participant shall be recalculated at the time of
election by dividing: (i) the sum of (a) the agreed value of that Participant's
Initial Contribution under Section 5.1, (b) the total of all of that
Participant's contributions under Section 5.3, and (c) the amount, if any, that
Participant elects to contribute to the adopted Program and Budget; by (ii) the
sum of (a), (b) and (c) above for all Participants; and then multiplying the
result by one hundred. The Participating Interest of the other Participant
shall thereupon become the difference between 100% and the recalculated
Participating Interest.
6.4 Default in Making Contributions.
--------------------------------
(a) If a Participant defaults in making a contribution or cash call
required by an approved Program and Budget, the nondefaulting Participant may
advance the defaulted contribution on behalf of the defaulting Participant and
treat the same, together with any accrued interest, as a demand loan bearing
interest from the date of the advance at the rate provided in Section 10.3. The
failure to repay said loan upon demand shall be a default. Each Participant
hereby grants to the other a lien upon its interest in the Properties and a
security interest in its rights under this Agreement and in its Participating
Interest in other Assets, and the proceeds therefrom, to secure any loan made
hereunder, including interest thereon, reasonable attorneys' fees and all other
reasonable costs and expenses incurred in recovering the loan with interest and
in enforcing such lien or security interest, or both. A nondefaulting
Participant may elect the applicable remedy
33
<PAGE>
under this Section 6.4(a) or under 6.4(b), or, to the extent a Participant has a
lien or security interest under applicable law, it shall be entitled to its
rights and remedies at law and in equity. All such remedies shall be cumulative.
The election of one or more remedies shall not waive the election of any other
remedies. Each Participant hereby irrevocably appoints the other its
attorney-in-fact to execute, file and record all instruments necessary to
perfect oreffectuate the provisions hereof.
(b) The Participants acknowledge that if a Participant defaults in making
a contribution, or a cash call, or in repaying a loan, as required hereunder, it
will be difficult to measure the damages resulting from such default. In the
event of such default, as reasonable liquidated damages, the non-defaulting
Participant may, with respect to any such default not cured within 30 days after
notice to the defaulting Participant of such default, elect one of the following
remedies by giving notice to the defaulting Participant:
(1) For a default relating exclusively to an Exploration Program and
Budget, the nondefaulting Participant may elect to have the defaulting
Participant's Participating Interest permanently reduced as provided in Section
6.3, and further reduced by multiplying the result by 50%. Amounts treated as a
loan pursuant to Section 6.4(a) and interest thereon shall be included in the
calculation of the defaulting Participant's reduced Participating Interest. The
nondefaulting Participant's Participating Interest shall, at such time, become
the difference between 100% and the further reduced Participating Interest.
Such reductions shall be effective as of the date of the default.
(2) For a default relating to a Program and Budget covering in whole
or in part Development or Mining, at the nondefaulting Participant's election,
the defaulting Participant shall be deemed to have withdrawn from the Venture
and to have automatically relinquished its Participating Interest to the
nondefaulting Participant; provided, however, the defaulting Participant shall
have the right to receive only from 5% of Net Profits (which shall be calculated
as set forth in Exhibit D), if any, and not from any other source, an amount
equal to the defaulting Participant's aggregate contributions pursuant to
Sections 5.1 and 5.3. Except with respect to Atlas as set forth in Section 5.7,
upon receipt of such amount, the defaulting Participant shall thereafter have no
further right, title or interest in Assets or under this Agreement.
34
<PAGE>
6.5 Elimination of Minority Interest. Upon the reduction of its
---------------------------------
Participating Interest to less than 10%, a Participant shall be deemed to have
withdrawn from this Agreement and shall relinquish its entire Participating
Interest. Such relinquished Participating Interest shall be deemed to have
accrued automatically to the other Participant. Upon such a deemed withdrawal,
the withdrawing Participant shall be entitled to a five percent (5%) Net Profits
Interest until it has recovered an amount equal to its aggregate contributions
to the Venture, as set forth in Section 6.4(b)(2).
6.6 Continuing Liabilities Upon Adjustments of Participating Interests. Any
-------------------------------------------------------------------
reduction of a Participant's Participating Interest under this Article VI shall
not relieve such Participant of its share of any liability, whether it accrues
before or after such reduction, arising out of Operations conducted prior to
such reduction. For purposes of this Article VI, such Participant's share of
such liability shall be equal to its Participating Interest at the time such
liability was incurred. The increased Participating Interest accruing to a
Participant as a result of the reduction of the other Participant's
Participating Interest shall be free of royalties, liens or other encumbrances
arising by, through or under such other Participant, other than those existing
at the time the Properties were acquired or those to which both Participants
have given their written consent. An adjustment to a Participating Interest
need not be evidenced during the term of this Agreement by the execution and
recording of appropriate instruments, but each Participant's Participating
Interest shall be shown in the books of the Manager. However, either
Participant, at any time upon the request of the other Participant, shall
execute and acknowledge instruments necessary to evidence such adjustment in
form sufficient for recording in the jurisdiction where the Properties are
located.
6.7 Recovery of Participating Interest. Following the dilution of a
-----------------------------------
Participant's Participating Interest pursuant to Section 6.3 and subject to the
terms and conditions of this Section 6.7, that Participant (the "Diluted
Participant") shall have the right to reacquire that portion (the "Diluted
Portion") of its Participating Interest that was transferred to the other
Participant pursuant to Section 6.3. The Diluted Participant shall have a
period of 180 days following completion of the Program and Budget (the "Diluting
Program and Budget") in which it elected (the "Dilution Election") to
participate in some lesser amount than its respective Participating Interest or
not at all,
35
<PAGE>
in which to contribute to the Joint Venture, for Operations to be conducted
under approved Programs and Budgets subsequent to the completion of the Diluting
Program and Budget, an amount (the "Make-Up Amount") equal to the following: (a)
an amount equal to the Diluted Participant's share of the actual expenditures
incurred under the Diluting Program and Budget, which share shall be based upon
the Diluted Participant's Participating Interest immediately prior to its making
the Dilution Election, less (b) an amount equal to the funds, if any,
contributed by the Diluted Participant to the Diluting Program and Budget, plus
(c) an amount (the "Liquidated Damages Amount") equal to twenty five percent
(25%) of the difference between (a) and (b) above. Upon funding the Make-Up
amount, the Participating Interests of the Participants shall be readjusted
pursuant to subsection 6.3(b). In readjusting the Diluted Participant's
Participating Interest pursuant to subsection 6.3(b), the Liquidated Damages
Amount shall not be included as a contribution by the Diluted Participant in
either the numerator or the denominator of the calculation. Notwithstanding the
provisions of Article XV, the rights of the Diluted Participant under this
Section 6.7 are personal unto GRANGES and ATLAS and may not be Transferred to
any other person or entity, except to an Affiliate in connection with a Transfer
of Participating Interests otherwise permitted hereunder.
ARTICLE VII
-----------
MANAGEMENT COMMITTEE
---------------------
7.1 Organization and Composition. The Participants hereby establish a
-----------------------------
Management Committee to determine overall policies, objectives, procedures,
methods and actions under this Agreement. The Management Committee shall
consist of one member appointed by ATLAS and one member appointed by GRANGES.
Each Participant may appoint one or more alternates to act in the absence of a
regular member. Any alternate so acting shall be deemed a member. Appointments
shall be made or changed by written notice to the other Participant.
7.2 Decisions.
---------
(a) Each Participant, acting through its appointed member shall have one
vote on the Management Committee. Unless otherwise provided in this Agreement,
the vote of the Participant with a Participating Interest over 50% shall
determine the decisions of the Management Committee.
36
<PAGE>
In the event of an inability to break a deadlock on any vote (other than votes
regarding the Venture's Toll Percentage, which shall be determined by GRANGES),
an independent third party shall cast the deciding vote (the "Referee"). The
Participants hereby agree that the Referee shall be Mineral Resources
Development, Inc., located in San Mateo, California (or its successor in
interest, collectively referred to hereinafter as "MRDI"). Costs for MRDI's
services (or the service of the alternate Referee described below) in reviewing
materials and casting deciding votes shall be Venture costs chargeable to the
Joint Account. If as to any particular issue MRDI is unable or unwilling to cast
the deciding vote, each Participant shall select an independent third party and
those third parties will jointly select an additional independent third party.
That three-person panel shall then cast the deciding vote as Referee. The
Manager agrees promptly to provide to MRDI or the panel acting as Referee all
materials requested by them for their view in casting any deciding vote. By
unanimous agreement, in writing, the Participants may at any time replace MRDI
as Referee. The Referee shall make its decisions and cast its votes as it deems
best for the probable net financial return to the Venture as a whole, without
regard to the particular circumstances, financial or otherwise, of the
individual Participants.
(b) The following actions by the Venture shall require the unanimous
approval of the Participants: (i) acquisition or disposition of any Asset of
the Venture, the acquisition or disposition of which would materially impair or
change the conduct of the ordinary business of the Venture as contemplated by
this Agreement; (ii) acquisition of any interest in real property outside the
Area of Interest for the benefit of the Venture; (iii) except as set forth in
Section 9.6, a call for a cash contribution from the Participants not previously
approved as part of a Program and Budget; and (iv) assumption, guarantee or
approval of the incurrence of any obligation for borrowed money on behalf of or
in the name of the Venture including (A) any obligation owed for all or any part
of the purchase price of the Properties or other assets or for the cost of
Properties or other assets constructed or of improvements thereto, other than
accounts payable included in current liabilities and incurred in respect of
property purchased in the ordinary course of business, and (B) any obligation
for borrowed money secured by any encumbrance in respect of the Venture (but not
37
<PAGE>
including Transfers of the kind described in Section 15.2 (g)), even though the
Venture has not assumed or become liable for the payment of such obligation.
7.3 Meetings. The Management Committee shall hold regular meetings at least
---------
annually in Reno, Nevada or at other mutually agreed places. The Manager shall
give 30 days' notice to the Participants of such regular meetings.
Additionally, either Participant may call a special meeting upon ten days'
notice to the Manager and the other Participant. In case of emergency,
reasonable notice of a special meeting shall suffice. There shall be a quorum
if at least one member representing each Participant is present. Each notice of
a meeting shall include an itemized agenda prepared by the Manager in the case
of a regular meeting, or by the Participant calling the meeting in the case of a
special meeting, but any matters may be considered with the consent of all
Participants. The Manager shall prepare minutes of all meetings and shall
distribute copies of such minutes to the Participants within 15 days after the
meeting. The minutes, when signed by all Participants, shall be the official
record of the decisions made by the Management Committee and shall be binding on
the Manager and the Participants. The Manager's minutes of a Management
Committee meeting shall be deemed accepted by all Participants if not objected
to in writing within 20 days after circulation by the Manager. If personnel
employed in Operations are required to attend a Management Committee meeting,
reasonable costs incurred in connection with such attendance shall be a Venture
cost. All other costs shall be paid by the Participants individually.
7.4 Action Without Meeting. In lieu of meetings, the Management Committee
-----------------------
may hold telephone conferences, so long as all decisions are immediately
confirmed in writing by the Participants.
7.5 Matters Requiring Approval. Except as otherwise delegated to the
---------------------------
Manager in Section 8.2, and except with respect to periods prior to the
completion of GRANGES' Initial Contribution, the Management Committee shall have
exclusive authority to determine all management matters related to this
Agreement.
ARTICLE VIII
------------
MANAGER
--------
38
<PAGE>
8.1 Appointment. The Participants hereby appoint GRANGES as the Manager
------------
with overall management responsibility for Operations, which appointment shall
last through completion by GRANGES of its Initial Contribution. Upon such
completion, ATLAS shall serve as Manager, and hereby agrees to serve until it
resigns as provided in Section 8.4.
8.2 Powers and Duties of Manager. Subject to the terms and provisions of
-----------------------------
this Agreement, the Manager shall have the following powers and duties which,
other than prior to the completion of GRANGES' Initial Contribution, shall be
discharged in accordance with adopted Programs and Budgets:
(a) The Manager shall manage, direct and control Operations.
(b) The Manager shall implement the decisions of the Management
Committee, shall make all expenditures necessary to carry out adopted Programs,
and shall promptly advise the Management Committee if it lacks sufficient funds
to carry out its responsibilities under this Agreement.
(c) The Manager shall: (i) purchase or otherwise acquire all material,
supplies, equipment, water, utility and transportation services required for
Operations, such purchases and acquisitions to be made on the best terms
available, taking into account all of the circumstances; (ii) obtain such
customary warranties and guarantees as are available in connection with such
purchases and acquisitions; and (iii) keep the Assets free and clear of all
liens and encumbrances, except for those existing at the time of, or created
concurrent with, the acquisition of such Assets, or mechanic's or materialmen's
liens, which shall be released or discharged in a diligent manner, or liens and
encumbrances specifically approved by the Management Committee.
(d) The Manager shall conduct such title examinations and cure such title
defects as may be advisable in the reasonable judgment of the Manager.
(e) Subject to the provisions of Section 5.1 C.(1), the Manager shall:
(i) make or arrange for all payments required by leases, licenses, permits,
contracts and other agreements related to the Assets; (ii) pay all taxes,
assessments and like charges on Operations and Assets except taxes determined or
measured by a Participant's sales revenue or net income. If authorized by the
Management Committee, the Manager shall have the right to contest in the courts
or
39
<PAGE>
otherwise the validity or amount of any taxes, assessments or charges if the
Manager deems them to be unlawful, unjust, unequal or excessive, or to undertake
such other steps or proceedings as the Manager may deem reasonably necessary to
secure a cancellation, reduction, readjustment or equalization thereof before
the Manager shall be required to pay them, but in no event shall the Manager
permit or allow title to the Assets to be lost as the result of the nonpayment
of any taxes, assessments or like charges; and (iii) shall do all other acts
reasonably necessary to maintain the Assets.
(f) The Manager shall: (i) apply for all necessary permits, licenses and
approvals; (ii) comply with applicable federal, state and local laws and
regulations; (iii) notify promptly the Management Committee of any allegations
of substantial violation thereof; and (iv) prepare and file all reports or
notices required for Operations. The Manager shall not be in breach of this
provision if a violation has occurred in spite of the Manager's good faith
efforts to comply, and the Manager has timely cured or disposed of such
violation through performance, or payment of fines and penalties.
(g) The Manager shall prosecute and defend, but shall not initiate
without consent of the Management Committee, all litigation or administrative
proceedings arising out of Operations. The nonmanaging Participant shall have
the right to participate, at its own expense, in such litigation or
administrative proceedings. The nonmanaging Participant shall approve in
advance any settlement involving payments, commitments or obligations in excess
of $20,000 in cash or value.
(h) The Manager shall provide insurance for the benefit of the
Participants as provided in Exhibit E.
(i) The Manager may dispose of Assets, whether by abandonment, surrender
or Transfer in the ordinary course of business, except that Properties may be
abandoned or surrendered only as provided in Article XIV. However, without
prior authorization from the Management Committee, the Manager shall not: (i)
dispose of Assets in any one transaction having a value in excess of $20,000;
(ii) enter into any sales contracts or commitments for
40
<PAGE>
Products, except as permitted in Section 11.2; (iii) begin a liquidation of the
Venture; or (iv) dispose of all or a substantial part of the Assets necessary to
achieve the purposes of the Venture.
(j) The Manager shall have the right to carry out its responsibilities
hereunder through agents, Affiliates or independent contractors.
(k) Subject to the provisions of Section 5.1 C.(1), the Manager shall
perform or cause to be performed during the term of this Agreement all
assessment and other work (or payment of fees) required by law in order to
maintain the unpatented mining claims included within the Properties, and take
all other necessary steps required to maintain title to the Properties,
including any such steps required as the result of amendments to or required by
the General Mining Law of 1872 Mining Law. The Manager shall have the right to
perform the assessment work required hereunder pursuant to a common plan of
exploration and continued actual occupancy of such claims and sites shall not be
required. The Manager shall not be liable on account of any determination by
any court or governmental agency that the work performed by Manager does not
constitute the required annual assessment work or occupancy for the purposes of
preserving or maintaining ownership of the claims, provided that the work done
is in accordance with standards acceptable in the mining industry and the
adopted Program and Budget. The Manager shall timely record with the
appropriate county and file with the appropriate United States agency affidavits
in proper form attesting to the performance of assessment work (or payment of
fees in lieu thereof) or notices of intent to hold in proper form, and
allocating therein, to or for the benefit of each claim, at least the minimum
amount required by law to maintain such claim or site.
(l) If authorized by the Management Committee, the Manager may: (i)
locate, amend or relocate any unpatented mining claim or mill site or tunnel
site, (ii) locate any fractions resulting from such amendment or relocation,
(iii) apply for patents or mining leases or other forms of mineral tenure for
any such unpatented claims or sites, (iv) abandon any unpatented mining claims
for the purpose of locating mill sites or otherwise acquiring from the United
States rights to the ground covered thereby, (v) abandon any unpatented mill
sites for the purpose of locating mining claims or otherwise acquiring from the
United States rights to the ground covered thereby, (vi) exchange with or convey
to the United States any of the Properties for the purpose of acquiring
41
<PAGE>
rights to the ground covered thereby or other adjacent ground, and (vii) convert
any unpatented claims or mill sites into one or more leases or other forms of
mineral tenure pursuant to any federal law hereafter enacted.
(m) The Manager shall keep and maintain all required accounting and
financial records pursuant to the Accounting Procedure and in accordance with
customary cost accounting practices in the mining industry.
(n) The Manager shall keep the Management Committee advised of all
Operations by submitting in writing to the Management Committee: (i) monthly
progress reports which include statements of expenditures and comparisons of
such expenditures to the adopted Budget; (ii) periodic summaries of data
acquired; (iii) copies of reports concerning Operations; (iv) a detailed final
report within 60 days after completion of each Program and Budget, which shall
include comparisons between actual and budgeted expenditures and comparisons
between the objectives and results of Programs; and (v) such other reports as
the Management Committee may reasonably request. At all reasonable times the
Manager shall provide the Management Committee or the representative of any
Participant, upon the request of any member of the Management Committee, access
to, and the right to inspect and copy, all maps, drill logs, core tests,
reports, surveys, assays, analyses, production reports, operations, technical,
accounting and financial records, and other information acquired in Operations.
In addition, the Manager shall allow the nonmanaging Participant, at the
latter's sole risk and expense, and subject to reasonable safety regulations, to
inspect the Assets and Operations at all reasonable times, so long as the
inspecting Participant does not unreasonably interfere with Operations.
(o) The Manager shall undertake all other activities reasonably necessary
to fulfill the foregoing. The Manager shall not be in default of any duty under
this Section 8.2 if its failure to perform results from the failure of the
nonmanaging Participant to perform acts or to contribute amounts required of it
by this Agreement.
8.3 Standard of Care. The Manager shall conduct all Operations in a good,
----------------
workmanlike and efficient manner, in accordance with sound mining and other
applicable industry standards and practices, and in accordance with the terms
and provisions of leases, licenses, permits, contracts
42
<PAGE>
and other agreements pertaining to Assets. The Manager shall not be liable to
the nonmanaging Participant for any act or omission resulting in damage or loss
except to the extent caused by or attributable to the Manager's willful
misconduct or gross negligence.
8.4 Resignation Deemed Offer to Resign. Except for GRANGES, which may not
-----------------------------------
resign as Manager as long as this Agreement remains in effect and it has not
completed its Initial Contribution, the Manager may resign upon three months'
prior notice to the other Participant, in which case the other Participant may
elect to become the new Manager by notice to the resigning Participant within 30
days after receipt of the notice of resignation. If any of the following shall
occur, the Manager shall be deemed to have offered to resign, which offer shall
be accepted by the other Participant, if at all, within 90 days following such
deemed offer:
(a) The Participating Interest of the Manager becomes less than 50%; or
(b) The Manager fails to perform a material obligation imposed upon it
under this Agreement and such failure continues for a period of 60 days after
notice from the other Participant demanding performance; or
(c) The Manager fails to pay or contest in good faith its bills within 60
days after they are due (unless the vendor has agreed to an extension); or
(d) A receiver, liquidator, assignee, custodian, trustee, sequestrator or
similar official for a substantial part of its assets is appointed and such
appointment is neither made ineffective nor discharged within 60 days after the
making thereof, or such appointment is consented to, requested by or acquiesced
in by the Manager; or
(e) The Manager commences a voluntary case under any applicable
bankruptcy, insolvency or similar law now or hereafter in effect; or consents to
the entry of an order for relief in an involuntary case under any such law or to
the appointment of or taking possession by a receiver, liquidator, assignee,
custodian, trustee, sequestrator or other similar official of any substantial
part of its assets; or makes a general assignment for the benefit of creditors;
or fails generally to pay its or Venture debts as such debts become due; or
takes corporate or other action in furtherance of any of the foregoing; or
43
<PAGE>
(f) Entry is made against the Manager of a judgment, decree or order for
relief affecting a substantial part of its assets by a court of competent
jurisdiction in an involuntary case commenced under any applicable bankruptcy,
insolvency or other similar law of any jurisdiction now or hereafter in effect.
8.5 Payments to Manager. Upon completion of the Participants' Initial
--------------------
Contributions, the Manager shall be compensated for its services and reimbursed
for its costs hereunder in accordance with the Accounting Procedure.
8.6 Transactions With Affiliates. If the Manager engages Affiliates to
-----------------------------
provide services hereunder it shall do so on terms no less favorable than would
be the case with unrelated persons in arm's-length transactions.
8.7 Activities During Deadlock. If the Management Committee for any reason
---------------------------
fails to adopt a Program and Budget, subject to the contrary direction of the
Management Committee and to the receipt of necessary funds, the Manager shall
continue Operations sufficient to maintain the Assets, including without
limitation performance of the obligations of the Manager set forth in Sections
8.2(c)-(o). For purposes of determining the required contributions of the
Participants and their respective Participating Interests after the preceding
Program and Budget is completed and while Operations are being conducted
pursuant to this Section 8.7, such Operations shall be funded by the
Participants in accordance with their Respective Participating Interests as of
the date of completion of the preceding Program and Budget.
ARTICLE IX
----------
PROGRAMS AND BUDGETS
---------------------
9.1 [This section intentionally left blank.]
9.2 Operations Pursuant to Programs and Budgets. Except as otherwise
--------------------------------------------
provided in Sections 5.1(C)(1), 8.7, 9.6, 9.7 and Article XIII, Operations shall
be conducted, expenses shall be incurred and Assets shall be acquired only
pursuant to approved Programs and Budgets.
9.3 Presentation of Programs and Budgets. Proposed Programs and Budgets
-------------------------------------
shall be prepared by the Manager for a period of one year or any longer period.
Each adopted Program and
44
<PAGE>
Budget, regardless of length, shall be reviewed at least once a year at the
annual meeting of the Management Committee. During the period encompassed by any
Program and Budget, and at least two months prior to its expiration, a proposed
Program and Budget for the succeeding period shall be prepared by the Manager
and submitted to the Participants. Each such proposed Program and Budget shall
be in a form and reasonable degree of detail as determined by the Management
Committee.
9.4 Review and Approval of Proposed Programs and Budgets. Within 15 days
-----------------------------------------------------
after submission of a proposed Program and Budget, each Participant shall submit
to the Management Committee:
(a) Notice that the Participant approves the proposed Program and Budget;
or
(b) Proposed modifications of the proposed Program and Budget; or
(c) Notice that the Participant rejects the proposed Program and Budget.
If a Participant fails to give any of the foregoing responses within the
allotted time, the failure shall be deemed to be an approval by the Participant
of the Manager's proposed Program and Budget. If a Participant makes a timely
submission to the Management Committee pursuant to Section 9.4(b) or (c), then
the Management Committee shall seek to develop a Program and Budget acceptable
to the Participants, provided that neither Participant shall be obligated to
vote in favor of modifications proposed by another Participant. Following such
efforts, the Management Committee shall vote on all proposed Programs and
Budgets and proposed modifications thereto, and any deadlocked decision shall be
referred to the Referee for decision pursuant to Section 7.2(a).
9.5 Election to Participate. By notice to the Management Committee
------------------------
within 20 days after the final vote adopting a Program and Budget, a Participant
may elect to contribute to such Program and Budget in some lesser amount than
its respective Participating Interest, or not at all, in which case its
Participating Interest shall be recalculated as provided in Article VI. If a
Participant fails to so notify the Management Committee, the Participant shall
be deemed to have elected to contribute to such Program and Budget in proportion
to its respective Participating Interest as of the beginning of the period
covered by the Program and Budget. Notwithstanding the foregoing, the initial
Programs and Budgets for activities after completion and presentation of the
45
<PAGE>
Report, or any other Programs and Budgets for which the total expenditure for
all Participants would exceed $2,500,000, will allow 180 days for the parties to
obtain financing, after approval and before any contribution election is
required to be made by either Participant. Either Participant may proceed with
implementation of such an approved Program and Budget prior to the end of the
180 day period and fund the other Participant's share, which will be promptly
repaid at the Prime Rate plus 2% when the other Participant elects to
participate. If the other Participant does not elect to participate, it shall
have its interest diluted in accordance with Section 6.4 taking into account the
amount funded beforehand by the other Participant (including interest charges).
The Participant that elects to proceed with implementation of such a Program
shall be the Manager during the term of that Program.
9.6 Deadlock on Proposed Programs and Budgets. If the Participants, acting
------------------------------------------
through the Management Committee, fail to approve a Program and Budget by the
beginning of the period to which the proposed Program and Budget applies, the
provisions of Sections 7.2(a) and 8.7 shall apply.
9.7 Budget Overruns; Program Changes. The Manager shall immediately notify
---------------------------------
the Management Committee of any material departure from an adopted Program and
Budget. If the Manager exceeds an adopted Budget by more than 10%, then the
excess over 10%, unless directly caused by an emergency or unexpected
expenditure made pursuant to Section 9.8 or unless otherwise authorized by the
Management Committee, shall be for the sole account of the Manager and such
excess shall not be included in the calculations of the Participating Interests.
Budget overruns of 10% or less shall be borne by the Participants in proportion
to their respective Participating Interests as of the time the overrun occurs.
9.8 Emergency or Unexpected Expenditures. In case of emergency, the Manager
------------------------------------
may take any reasonable action it deems necessary to protect life, limb or
property, to protect the Assets or to comply with law or government regulation.
The Manager may also make reasonable expenditures for unexpected events which
are beyond its reasonable control and which do not result from a breach by it of
its standard of care. The Manager shall promptly notify the Participants of the
emergency or unexpected expenditure, and the Manager shall be reimbursed for all
resulting
46
<PAGE>
costs by the Participants in proportion to their respective
Participating Interests at the time the emergency or unexpected expenditures are
incurred.
9.9 Reclamation Fund. Prior to the commencement of Mining on the
-----------------
Selected Properties and from time to time thereafter, upon such direction from
the Management Committee, the Manager shall reasonably estimate (i) the total
cost for reclamation, abandonment and long-term care and monitoring of the
project area (collectively "Environmental Costs") and (ii) the life of
-------------------
commercially producible reserves in the orebody. In accordance with an approved
Program and Budget, the Manager shall charge the Participants not less
frequently than monthly after commencement of Mining for Environmental Costs on
a basis, which taking into account the estimates in (i) and (ii) above (and
interest earned on the amounts held in the Reclamation Fund) will result in the
funding of such Environmental Costs over the life of commercially producible
reserves through a uniform charge per unit of Products produced. The amounts so
charged shall be deposited in an interest bearing escrow account with a bank
mutually agreeable to all Participants (the "Reclamation Fund"), for use in
----------------
payment of the Environmental Costs. Each Participant's share of such
Environmental Costs shall be in proportion to its Participating Interest at the
time the liability is incurred. The Reclamation Fund shall be held by the bank
serving as escrow agent pursuant to an escrow agreement between the escrow agent
and the Participants, which agreement shall ensure that the Reclamation Fund is
preserved and actually utilized for reclamation of the Properties. Amounts
collected for such fund will be credited to accounts maintained by the Venture
for each Participant. Interest actually earned on such fund will be credited
quarterly in arrears to such account on the last day of each quarter. Such
Reclamation Fund, including interest, shall be applied in payment of
Environmental Costs as the Manager from time to time shall determine to be
necessary or appropriate, and may be used as collateral for reclamation bonds
upon approval of the Management Committee. After all reclamation, abandonment
and long-term care and monitoring and all remediation, restoring, cleaning up
and curing have been completed and/or all amounts paid in respect thereof, if
there shall remain any portion (including interest) of the Reclamation Fund, it
shall be distributed to the Participants in proportion to their respective
contributions. If the Manager shall change, the resigning or terminating
Manager shall deliver to the new Manager the Reclamation Fund, less any amounts
previously expended in payment of
47
<PAGE>
Environmental Costs. Nothing in this subsection shall limit a Participant's
obligation to pay its share of such Environmental Costs in proportion to its
Participating Interest. If the Reclamation Fund is not sufficient to meet all
Environmental Costs, the Participants shall pay their proportionate shares of
any shortfall pursuant to approved Programs and Budgets.
ARTICLE X
---------
ACCOUNTS AND SETTLEMENTS
-------------------------
10.1 Monthly Statements. The Manager shall promptly submit to the Management
-------------------
Committee monthly statements of account reflecting in reasonable detail the
charges and credits to the Joint Account during the preceding month.
10.2 Cash Calls. On the basis of the adopted Program and Budget, the Manager
-----------
shall submit to each Participant prior to the last day of each month a billing
for estimated cash requirements for the next month. Within 10 days after
receipt of each billing, each Participant shall advance to the Manager its
proportionate share of the estimated amount. Time is of the essence of payment
of such billings. The Manager shall at all times maintain a cash balance
approximately equal to the rate of disbursement for up to 45 days. All funds in
excess of immediate cash requirements shall be invested in interest-bearing
accounts with a bank to be selected by the Manager for the benefit of the Joint
Account.
10.3 Failure to Meet Cash Calls. A Participant that fails to meet cash calls
---------------------------
in the amount and at the times specified in Section 10.2 shall be in default,
and the amounts of the defaulted cash call shall bear interest from the date due
at an annual rate equal to two percentage points over the Prime Rate, but in no
event shall said rate of interest exceed the maximum permitted by law. The
nondefaulting Participant shall have those rights, remedies and elections
specified in Section 6.4.
10.4 Audits. Upon request made by any Participant within 24 months following
------
the end of any calendar year (or, if the Management Committee has adopted an
accounting period other than the calendar year, within 24 months after the end
of such period), the Manager shall order an audit of the accounting and
financial records for such calendar year (or other accounting period). All
written exceptions to and claims upon the Manager for discrepancies disclosed by
such audit shall be made not more than three months after receipt of the audit
report. Failure to make any such
48
<PAGE>
exception or claim within the three month period shall mean the audit is correct
and binding upon the Participants. The audits shall be conducted by a firm of
certified public accountants selected by the Manager, unless otherwise agreed by
the Management Committee.
ARTICLE XI
----------
DISPOSITION OF PRODUCTION
--------------------------
11.1 Taking In Kind. Each Participant shall take in kind at the refinery,
---------------
if the Product is refined, or separately take its share of all Products that are
not refined, in accordance with its Participating Interest. Delivery of refined
Products to the Participants shall be deemed to have been made and possession
shall be deemed to have begun at such time as such refined Product is segregated
for the individual accounts of the Participants at the refinery. Title to such
refined Product shall pass to the Participants upon delivery and, upon delivery,
the Participants shall assume the risk of loss. Any extra expenditure incurred
in the taking in kind or separate disposition by any Participant of its
proportionate share of Products shall be borne by such Participant. Nothing in
this Agreement shall be construed as providing, directly or indirectly, for any
joint or cooperative marketing or selling of Products or permitting the
processing of Products of any parties other than the Participants at any
processing facilities constructed by the Participants pursuant to this
Agreement. The Manager shall give the Participants notice at least ten (10)
days in advance of the delivery date upon which their respective shares of
Products will be available. If either Participant is delinquent in any cash
contribution required of it pursuant to Section 10.2, the delinquent Participant
shall not be permitted to take its share of production until the delinquent cash
contribution has been made. If a Participant either elects not to contribute as
provided in Section 6.4 or fails to contribute to a Program and Budget that
provides for operating cost payments, then the production that would otherwise
be that Participant's share of production shall instead be added to the
Manager's share of production, and the proceeds therefrom shall be used to pay
that Participant's share of costs. Any balance remaining from that
Participant's share of proceeds shall be remitted to the noncontributing
Participant. In the event of such sale by the Manager on behalf of that
Participant, the Participant's Participating Interest shall not be reduced
pursuant to Section 6.4 or 6.5, unless and only to the extent that the proceeds
from such sale
49
<PAGE>
are insufficient to pay that Participant's share of operating costs. For
purposes of this Section 11.1, "operating costs" shall not include any capital
expenditures, other than replacement capital costs.
11.2 Failure of Participant to Take in Kind. If a Participant fails to take
---------------------------------------
in kind, the Manager shall have the right, but not the obligation, for a period
of time consistent with the minimum needs of the industry, but not to exceed one
year, to purchase the Participant's share for its own account or to sell such
share as agent for the Participant at not less than the prevailing market price
in the area. Subject to the terms of any such contracts of sale then
outstanding, during any period that the Manager is purchasing or selling a
Participant's share of production, the Participant may elect by notice to the
Manager to take in kind. The Manager shall be entitled to deduct from proceeds
of any sale by it for the account of a Participant reasonable expenses incurred
in such a sale.
ARTICLE XII
-----------
WITHDRAWAL AND TERMINATION
---------------------------
12.1 Termination.
A. Termination by Expiration or Agreement. This Agreement shall
--------------------------------------
terminate as expressly provided in this Agreement, unless earlier terminated by
written agreement.
B. Termination by GRANGES Prior to Completion of Its
-------------------------------------------------
Initial Contribution. At any time prior to completion of its Initial
- ------- ------------
Contribution, GRANGES may, at its election and sole discretion, surrender and
terminate this Agreement. Termination pursuant to this Section 12.1.B shall
constitute a withdrawal by GRANGES from this Agreement pursuant to Section 5.2,
with such withdrawal effective as of the date of GRANGE's notice of termination.
The sole consequences of termination pursuant to this Section 12.1.B and the
sole liabilities and responsibilities of GRANGES resulting from or surviving
such termination, shall be those set forth in Sections 5.1(C)(2) and(C)(6),
Section 5.2 and Section 5.8.
12.2 Withdrawal. A Participant may elect to withdraw as a Participant from
-----------
this Agreement by giving notice to the other Participant of the effective date
of withdrawal, which shall be the later of the end of the then current Program
and Budget or at least 30 days after the date of the notice. Upon such
withdrawal, this Agreement shall terminate, and the withdrawing Participant
shall be deemed to have transferred to the remaining Participant, without cost
and free and clear of
50
<PAGE>
royalties, liens or other encumbrances arising by, through or under such
withdrawing Participant, except those exceptions to title described in Exhibit A
and those to which both Participants have given their written consent after the
date of this Agreement, all of its Participating Interest in the Assets, the
Reclamation Fund and in this Agreement. Any withdrawal under this Section 12.2
shall not relieve the withdrawing Participant of its share of liabilities to
third persons, including without limitation liabilities for Environmental Costs
(whether such accrues before or after such withdrawal), arising out of
Operations conducted prior to such withdrawal, except to the extent that the
withdrawing Participant's share of the Reclamation Fund covers its share of such
Environmental Costs. For purposes of this Section 12.2, the withdrawing
Participant's share of such liabilities shall be equal to its Participating
Interest at the time such liability was incurred.
12.3 Continuing Obligations. On termination of this Agreement under Section
-----------------------
12.1, the Participants shall remain liable for continuing obligations hereunder
until final settlement of all accounts and for any liability, whether it accrues
before or after termination, if it arises out of Operations during the term of
the Agreement.
12.4 Disposition of Assets on Termination. Promptly after termination of
-------------------------------------
this Agreement under Sections 12.1.A or 12.2, the Manager shall take all action
necessary to wind up the activities of the Venture, and all costs and expenses
incurred in connection with the termination of the Venture shall be expenses
chargeable to the Venture. The following actions shall be taken in the sequence
in which they are listed:
(a) First, the Assets shall be paid, applied or distributed in
satisfaction of all liabilities of the Venture to third parties. The Manager
shall have the right to segregate amounts which, in the Manager's reasonable
judgment, are necessary to discharge continuing obligations with respect to the
Properties or to purchase, for the account of the Participants, bonds or other
securities for the performance of such obligations. The foregoing shall not be
construed to include repayment of any Participant's capital contributions or
capital account balance;
(b) Second, the Assets shall be paid, applied or distributed to satisfy
debts, obligations or liabilities owed to the Participants; and
51
<PAGE>
(c) Third, the Assets shall be distributed to the Participants (in
undivided interests unless otherwise agreed and in proportion to their
respective Participating Interests, subject to any dilution, reduction or
termination of such Participating Interests as may have occurred pursuant to the
terms of this Agreement, and any Participant with a negative capital account
shall restore such balance to zero, all as set forth in Exhibit C.
Notwithstanding anything in this Section 12.4 or Exhibit C to the
contrary, no Participant shall receive a distribution of any interest in
Products or proceeds from the sales thereof if such Participant's Participating
Interest has been terminated pursuant to this Agreement.
12.5 Non-Compete Covenants. A Participant that withdraws pursuant to Section
----------------------
12.2, or is deemed to have withdrawn pursuant to Section 6.5, shall not directly
or indirectly acquire any interest in property within the Area of Interest for
12 months after the effective date of withdrawal. If a withdrawing Participant,
or the Affiliate of a withdrawing Participant, breaches this Section 12.5, such
Participant or Affiliate shall be obligated to offer to convey to the
nonwithdrawing Participant, without cost, any such property or interest so
acquired. Such offer shall be made in writing and can be accepted by the
nonwithdrawing Participant at any time within 45 days after it is received by
such nonwithdrawing Participant.
12.6 Right to Data After Termination. After termination of this Agreement
--------------------------------
pursuant to Section 12.1, each Participant shall be entitled to copies of all
information acquired hereunder before the effective date of termination not
previously furnished to it, but a terminating or withdrawing Participant shall
not be entitled to any such copies after any other termination or any
withdrawal.
12.7 Continuing Authority. On termination of this Agreement under Section
---------------------
12.1 or 12.2 or the deemed withdrawal of a Participant pursuant to Section 5.2,
6.4(b)(2) or 6.5 or the withdrawal of a Participant pursuant to Section 12.2,
the Manager shall have the power and authority, subject to control of the
Management Committee, if any, to do all things on behalf of the Participants
which are reasonably necessary or convenient to:
(a) Wind up Operations; and
52
<PAGE>
(b) Complete any transaction and satisfy any obligation, unfinished or
unsatisfied, at the time of such termination or withdrawal, if the transaction
or obligation arises out of Operations prior to such termination or withdrawal.
The Manager shall have the power and authority to grant or receive extensions of
time or change the method of payment of an already existing liability or
obligation, prosecute and defend actions on behalf of the Participants and the
Venture, mortgage Assets and take any other reasonable action in any matter with
respect to which the former Participants continue to have, or appear or are
alleged to have, a common interest or a common liability.
ARTICLE XIII
------------
ACQUISITIONS WITHIN AREA OF INTEREST
-------------------------------------
13.1 General. Any interest or right to acquire any interest in real property
--------
within the Area of Interest acquired during the term of this Agreement by or on
behalf of a Participant or any Affiliate shall be subject to the terms and
provisions of this Agreement.
13.2 Notice to Nonacquiring Participant. Within 15 days after the
-----------------------------------
acquisition of any interest or the right to acquire any interest in real
property wholly or partially within the Area of Interest (except real property
acquired by the Manager pursuant to a Program), the acquiring Participant shall
notify the other Participant of such acquisition. The acquiring Participant's
notice shall describe in detail the acquisition, the lands and minerals covered
thereby, the cost thereof and the reasons why the acquiring Participant believes
that the acquisition of the interest is in the best interests of the
Participants under this Agreement. In addition to such notice, the acquiring
Participant shall make any and all information concerning the acquired interest
available for inspection by the other Participant.
13.3 Option Exercised. If, within 30 days after receiving the acquiring
-----------------
Participant's notice, the other Participant notifies the acquiring Participant
of its election to accept a proportionate interest in the acquired interest
equal to its Participating Interest, the acquiring Participant shall convey to
the other Participant, by special warranty deed, such a proportionate undivided
interest therein. The acquired interest shall become a part of the Properties
for all purposes of this Agreement immediately upon the notice of such other
Participant's election to accept the
53
<PAGE>
proportionate interest therein. Such other Participant shall promptly pay to the
acquiring Participant its proportionate share of the latter's actual out-of-
pocket acquisition costs.
13.4 Option Not Exercised. If the other Participant does not give such
---------------------
notice within the 30-day period set forth in Section 13.3, it shall have no
interest in the acquired interest, and the acquired interest shall not be a part
of the Properties or be subject to this Agreement.
ARTICLE XIV
-----------
ABANDONMENT AND SURRENDER OF PROPERTIES
----------------------------------------
14.1 Surrender or Abandonment of Property. The Management Committee may
-------------------------------------
authorize the Manager to surrender or abandon part or all of the Properties. If
the Management Committee authorizes any such surrender or abandonment over the
objection of a Participant, the Participant that desires to abandon or surrender
shall assign to the objecting Participant, by special warranty deed and without
cost to the surrendering Participant, all of the surrendering Participant's
interest in the property to be abandoned or surrendered, and the abandoned or
surrendered property shall cease to be part of the Properties.
14.2 Reacquisition. If any Properties are abandoned or surrendered under the
--------------
provisions of this Article XIV, then, unless this Agreement is earlier
terminated, neither Participant nor any Affiliate thereof shall acquire any
interest in such Properties or a right to acquire such Properties for a period
of one year following the date of such abandonment or surrender. If a
Participant reacquires any Properties in violation of this Section 14.2, the
other Participant may elect by notice to the reacquiring Participant within 45
days after it has actual notice of such reacquisition to have such properties
made subject to the terms of this Agreement. In the event such an election is
made, the reacquired properties shall thereafter be treated as Properties, and
the costs of reacquisition shall be borne solely by the reacquiring Participant
and shall not be included for purposes of calculating the Participants'
respective Participating Interests.
ARTICLE XV
----------
TRANSFER OF INTEREST
---------------------
54
<PAGE>
15.1 General. A Participant shall have the right to Transfer to any third
--------
party all or any part of its interest in or to this Agreement, its Participating
Interest or the Assets solely as provided in this Article XV.
15.2 Limitations on Free Transferability. The Transfer right of a
------------------------------------
Participant in Section 15.1 shall be subject to the following terms and
conditions:
(a) No transferee of all or any part of the interest of a Participant in
this Agreement, any Participating Interest or the Assets shall have the rights
of a Participant unless and until the transferring Participant has provided to
the other Participant notice of the Transfer, and except as provided in Sections
15.2(g) and 15.2(h), the transferee, as of the effective date of the Transfer,
has committed in writing to be bound by this Agreement to the same extent as the
transferring Participant;
(b) No Participant, without the consent of the other Participant, shall
make a Transfer which shall cause termination of the tax partnership established
by the provisions of Section 4.2;
(c) No Transfer permitted by this Article XV shall relieve the
transferring Participant of its share of any liability, whether accruing before
or after such Transfer, which arises out of Operations conducted prior to such
Transfer;
(d) As provided in Exhibit C, Article IV, the transferring Participant
and the transferee shall bear all tax consequences of the Transfer;
(e) In the event of a Transfer of less than all of a Participating
Interest, the transferring Participant and its transferee shall act and be
treated as one Participant;
(f) No Participant shall Transfer any interest in this Agreement or the
Assets except by Transfer of part or all of its Participating Interest;
(g) If the Transfer is the grant of a security interest by mortgage, deed
of trust, pledge, lien or other encumbrance of any interest in this Agreement,
any Participating Interest or the Assets to secure a loan or other indebtedness
of a Participant in a bona fide transaction, such security interest shall be
subordinate to the terms of this Agreement and the rights and interests of the
other Participant hereunder. Upon any foreclosure or other enforcement of
rights in the security
55
<PAGE>
interest, the acquiring third party shall be deemed to
have assumed the position of the encumbering Participant with respect to this
Agreement and the other Participant, and it shall comply with and be bound by
the terms and conditions of this Agreement;
(h) If a sale or other commitment or disposition of Products or proceeds
from the sale of Products by a Participant upon distribution to it pursuant to
Article XI creates in a third party a security interest in Products or proceeds
therefrom prior to such distribution, such sales, commitment or disposition
shall be subject to the terms and conditions of this Agreement; and
(i) If, contrary to Section 15.2(b), a Transfer is made which causes
termination of the tax partnership established by Section 4.2, the transferring
Participant shall indemnify, defend and hold harmless the other Participant from
and against any and all loss, cost, expense or damage arising from such
termination.
(j) Only United States currency shall be used for Transfers for
consideration.
15.3 Preemptive Right. Except as otherwise provided in Section 15.4, if a
-----------------
Participant desires to Transfer all or any part of its interest in this
Agreement, any Participating Interest or the Assets, the other Participant shall
have a preemptive right to acquire such interests as provided in this Section
15.3.
(a) A Participant intending to Transfer all or any part of its interest
in this Agreement, any Participating Interest or the Assets shall promptly
notify the other Participant of its intentions. The notice shall state the
price and all other pertinent terms and conditions of the intended Transfer.
The other Participant shall have 45 days from the date such notice is delivered
to notify the transferring Participant whether it elects to acquire the offered
interest at the same price and on the same terms and conditions as set forth in
the notice. If it does so elect, the Transfer shall be consummated promptly
after notice of such election is delivered to the transferring Participant.
(b) If the other Participant fails to so elect within the period provided
for in Section 15.3(a), the transferring Participant 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 to the
56
<PAGE>
transferring Participant than those offered by the transferring Participant to
the other Participant in the notice required in Section 15.3(a).
(c) If the transferring Participant fails to consummate the Transfer to a
third party within the period set forth in Section 15.3(b), the preemptive right
of the other Participant in such offered interest shall be deemed to be revived.
Any subsequent proposal to Transfer such interest shall be conducted in
accordance with all of the procedures set forth in this Section 15.3.
15.4 Exceptions to Preemptive Right. Section 15.3 shall not apply to the
-------------------------------
following:
(a) Transfer by a Participant of all or any part of its interest in this
Agreement, any Participating Interest or the Assets to an Affiliate;
(b) Incorporation of a Participant, or corporate merger, consolidation,
amalgamation or reorganization of a Participant by which the surviving entity
shall possess substantially all of the stock, or all of the property rights and
interests, and be subject to substantially all of the liabilities and
obligations of that Participant;
(c) The grant by a Participant of a security interest in any interest in
this Agreement, any Participating Interest, or the Assets by mortgage, deed of
trust, pledge, lien or other encumbrance; or
(d) A sale or other commitment or disposition of Products or proceeds
from sale of Products by a Participant upon distribution to it pursuant to
Article XI.
15.5 Atlas Mill Complex. The Venture's rights with respect to the Atlas Mill
-------------------
Complex, as set forth in Section 5.5 and elsewhere in this Agreement, shall be
deemed to run with the land and shall be binding upon ATLAS, its successors and
assigns. No Transfer by ATLAS to any third party, of any right, title or
interest in or to the Atlas Mill Complex shall be valid or effective unless and
until such third party transferee has executed a written undertaking, in form
and substance reasonably satisfactory to GRANGES, agreeing to be bound in all
respects by this Agreement and the Venture's and GRANGES' rights hereunder with
respect to the Atlas Mill Complex and the milling of the Venture's Products at
the Atlas Mill Complex. Additionally, in the event that ATLAS sells, conveys,
transfers or assigns its ownership or operating rights in the Atlas Mill Complex
to a third party who is not (or does not at the same time become) the Manager of
the
57
<PAGE>
Venture, GRANGES shall have all of the rights set forth in Section 5.5(i) to
operate the Atlas Mill Complex on behalf of the Venture or to appoint a third
party to operate the Atlas Mill Complex on behalf of the Venture. The
preceding sentence shall not apply to the grant of a security interest in the
Atlas Mill Complex. The provisions of this Section 15.5 shall apply only
during the term of the definitive toll milling agreement and at all times prior
thereto.
ARTICLE XVI
-----------
DISPUTES
---------
16.1 Arbitration.
------------
(a) Any disagreement or dispute arising out of or relating to this
Agreement, its existence, interpretation, performance or enforcement not the
subject of Section 7.2 and not resolved by the Participant within fifty days
after the date on which one party notifies the other of any such disagreement or
dispute shall be settled by arbitration in accordance with this Section 16.
(b) Matters subject to arbitration shall be settled by arbitration
before a panel of three arbitrators in Reno, Nevada, in accordance with the
commercial arbitration rules of the American Arbitration Association in effect
at the time of arbitration. In the event of a conflict between those commercial
arbitration rules and this Section 16, this Section 16 shall control. The
judgment of the arbitrators as to such matters shall be binding upon the parties
to this Agreement, and judgment upon any award rendered by the arbitrators may
be entered in any court having jurisdiction under the provisions of the Nevada
Revised Statutes pertaining to arbitration and award as they may be amended from
time to time.
(c) To demand arbitration any Participant (the "demanding party")
shall give written notice to the other Participant (the "responding party").
Such notice shall specify the nature of the issues in dispute, the amount
involved, and the remedy requested. Within twenty days of the receipt of the
notice, the responding party shall answer the demand in writing, specifying the
issues that party disputes. The parties shall thereupon each select one
arbitrator, who shall be qualified by skill and experience in the subject matter
under dispute. Within fifteen days thereafter, the two appointed arbitrators
shall jointly select a third arbitrator similarly qualified.
58
<PAGE>
(d) Within twenty days after the third arbitrator has been selected or
appointed, each party to the dispute shall submit to the arbitrators a written
statement of its position as to the matter being arbitrated, including its
position on the necessity for discovery or a formal hearing. The arbitrators
shall, within fifteen days after submission of statements, establish a schedule
for the arbitration proceedings and issues orders relating to the conduct of
such proceedings, governing, among other matters, the extent and nature of any
discovery to be allowed and the necessity of a formal hearing. If a hearing is
held, the arbitrators shall issue a decision as to the resolution of the dispute
within fifteen days after the hearing. A majority ruling by the arbitrators
shall be binding on the parties. All costs, expenses and fees, plus reasonable
attorneys' fees, shall be recoverable by or paid to the substantially prevailing
party in any dispute resolved by arbitration.
ARTICLE XVII
------------
CONFIDENTIALITY
----------------
17.1 General. The financial terms of this Agreement and all information
--------
obtained in connection with the performance of this Agreement shall be the
exclusive property of the Participants and, except as provided in Section 17.2,
shall not be disclosed to any third party or the public without the prior
written consent of the other Participant, which consent shall not be
unreasonably withheld.
17.2 Exceptions. The consent required by Section 17.1 shall not apply to a
-----------
disclosure:
(a) To an Affiliate, consultant, contractor or subcontractor that has a
bona fide need to be informed;
(b) To any third party to whom the disclosing Participant contemplates a
Transfer of all or any part of its interest in or to this Agreement, its
Participating Interest, or the Assets; or
(c) To a governmental agency or to the public which the disclosing
Participant believes in good faith is required by pertinent law or regulation or
the rules of any stock exchange.
In any case to which this Section 17.2 is applicable, the disclosing Participant
shall give notice to the other Participant concurrently with the making of such
disclosure. As to any disclosure pursuant to Section 17.2(a) or (b), only such
confidential information as such third party shall have a legitimate business
need to know shall be disclosed and such third party shall first agree in
59
<PAGE>
writing to protect the confidential information from further disclosure to the
same extent as the Participants are obligated under this Article XVII.
17.3 Duration of Confidentiality. The provisions of this Article XVII shall
---------------------------
apply during the term of this Agreement and for two years following termination
of this Agreement pursuant to Section 12.1 or 12.2, and shall continue to apply
to any Participant who withdraws, who is deemed to have withdrawn or who
Transfers its Participating Interest, for two years following the date of such
occurrence.
ARTICLE XVIII
---------------------------
GENERAL PROVISIONS
---------------------------
18.1 Notices. All notices, payments and other required communications
-------
("Notices") to the Participants shall be in writing, and shall be addressed
respectively as follows:
ATLAS GRANGES
----- -------
Atlas Corporation Granges (U.S.) Inc.
370 17th Street, #3150 350 S. Rock Blvd., #E
Denver, CO 80202 Reno, NV 89502
Ph: 303-825-1200 Ph: 702-856-2722
Fax: 303-892-8808 Fax: 702-856-1186
Attn: Land Department Attn: Exploration Manager
All Notices shall be given (i) by personal delivery to the Participant, or (ii)
by electronic communication, with a confirmation sent by registered or certified
mail, return receipt requested, or (iii) by registered or certified mail, return
receipt requested. All Notices shall be effective and shall be deemed delivered
(i) if by personal delivery on the date of delivery if delivered during normal
business hours, and, if not delivered during normal business hours, on the next
business day following delivery, (ii) if by electronic communication, on the
next business day following receipt of the electronic communication, and (iii)
if solely by mail, on the next business day after actual receipt. A Participant
may change its address by Notice to the other Participant.
18.2 Waiver. The failure of a Participant to insist on the strict
-------
performance of any provision of this Agreement, or to exercise any right, power
or remedy upon a breach hereof, shall not constitute a waiver of any provision
of this Agreement or limit the Participant's right thereafter to enforce any
provision or exercise any right.
60
<PAGE>
18.3 Modification. No modification of this Agreement shall be valid unless
-------------
made in writing and duly executed by the Participants.
18.4 Force Majeure. Except for the obligation to make payments when due
--------------
hereunder, the obligations of a Participant shall be suspended to the extent and
for the period that performance is prevented by any cause, whether foreseeable
or unforeseeable, beyond its reasonable control, including, without limitation,
labor disputes (however arising and whether or not employee demands are
reasonable or within the power of the Participant to grant); acts of God; laws,
regulations, orders, proclamations, instructions or requests of any government
or governmental entity; judgments or orders of any court; inability to obtain,
on reasonably acceptable terms, any public or private license, permit or other
authorization; curtailment or suspension of activities to remedy or avoid an
actual or alleged, present or prospective violation of federal, state or local
environmental standards; acts of war or conditions arising out of or
attributable to war, whether declared or undeclared; riot, civil strife,
insurrection or rebellion; fire, explosion, earthquake, storm, flood, sink
holes, drought or other adverse weather condition; delay or failure by suppliers
or transporters of materials, parts, supplies, services or equipment or by
contractors' or subcontractors' shortage of, or inability to obtain, labor,
transportation, materials, machinery, equipment, supplies, utilities or
services; accidents; breakdown of equipment, machinery or facilities; or any
other cause, whether similar or dissimilar to the foregoing. The affected
Participant shall promptly give notice to the other Participant of the
suspension of performance, stating therein the nature of the suspension, the
reasons therefor, and the expected duration thereof. The affected Participant
shall resume performance as soon as reasonably possible. During the period of
suspension, the obligations of the Participants to advance funds pursuant to
Section 10.2 shall be reduced to levels consistent with Operations. The periods
allowed for the performance of obligations other than the payment of money
arising under this Agreement ("Performance Periods") shall be extended for a
period equal to the duration of any force majeure occurring during such
Performance Period.
18.5 Governing Law. This Agreement shall be governed by and interpreted in
--------------
accordance with the laws of the State of Nevada, except for its rules pertaining
to conflicts of laws.
61
<PAGE>
18.6 Rule Against Perpetuities. Any right or option to acquire any interest
--------------------------
in real or personal property under this Agreement must be exercised, if at all,
so as to vest such interest in the acquirer within 21 years after the effective
date of this Agreement.
18.7 Further Assurances. Each of the Participants agrees to take, from time
-------------------
to time, such actions and execute such additional instruments as may be
reasonably necessary or convenient to implement and carry out the intent and
purpose of this Agreement.
18.8 Survival of Terms and Conditions. The following Sections shall survive
---------------------------------
the termination of this Agreement to the full extent necessary for their
enforcement and the protection of the Participant in whose favor they run:
Sections 2.2, 4.5, 5.1(C)(2), 6.4, 6.6, 10.3, 12.2, 12.3, 12.4, 12.5, 12.6 and
12.7.
18.9 Entire Agreement; Successors and Assigns. This Agreement contains the
-----------------------------------------
entire understanding of the Participants and supersedes all prior agreements and
understandings between the Participants relating to the subject matter hereof.
This Agreement shall be binding upon and inure to the benefit of the respective
successors and permitted assigns of the Participants. In the event of any
conflict between this Agreement and any Exhibit attached hereto, the terms of
this Agreement shall be controlling.
18.10 Memorandum. At the request of either Participant, a Memorandum of
-----------
this Agreement, in form and substance satisfactory to both Participants, shall
be executed and recorded. This Agreement shall not be recorded.
18.11 Public Announcements. The Participants shall, in advance of making or
---------------------
its parent making, a public announcement to a stock exchange or otherwise,
advise the other Participant of the text of the proposed report and provide the
other Participant with the opportunity to make comment upon the form and content
thereof before the same is issued, provided, however, that a Participant may
make a public disclosure it believes in good faith is required by applicable law
or any listing or trading agreement concerning the publicly traded securities of
its direct or indirect parent (in which case the disclosing Participant will use
its reasonable best efforts to advise the other Participant prior to the
disclosure). If the other Participant does not respond within forty-eight hours
(excluding weekends and holidays) or such lesser time specified as the maximum
by the
62
<PAGE>
issuing Participant the announcement or report may be issued. The final
text of same, and timing, manner, and mode of release shall be the sole
responsibility of the issuing Participant who shall indemnify, defend, and hold
the other Participant harmless in respect of any third party claims arising
therefrom.
18.12 Counterparts. This Agreement may be executed in counterparts, all of
-------------
which taken together shall constitute a single valid and fully effective
agreement. Delivery of execution pages may be accomplished by FAX and shall be
followed promptly by delivery of hard copy.
18.13 Guaranty by Granges, Inc. For good and valuable consideration, the
--------------------------
receipt and sufficiency of which are hereby acknowledged, Granges Inc., a
British Columbia corporation and the sole shareholder of GRANGES ("Granges
Inc.") guarantees unto ATLAS its permitted successors and assigns the full
performance by GRANGES of GRANGES' obligations, covenants, undertakings,
indemnities, representations and warranties (collectively, the "Obligations")
set forth in this Agreement, in accordance with and subject to the terms,
conditions, limitations and qualifications set forth in this Agreement, as it
may be amended from time to time by GRANGES and ATLAS. In the event that
GRANGES does not fully perform any such Obligations, Granges Inc. agrees to
perform such Obligations as if it were the primary obligor therefor.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the
date first above written.
ATLAS CORPORATION
By: __________________________________
Gary E. Davis
President
Attest: __________________________________
Jerome C. Cain
Secretary
63
<PAGE>
ATLAS PRECIOUS METALS INC.
By: __________________________________
President
Attest: __________________________________
Secretary
ATLAS GOLD MINING INC.
By: __________________________________
President
GRANGES (U.S.) INC.
By: __________________________________
President
By: __________________________________
Treasurer
GRANGES, INC. (as to Section 18.13 only)
By: __________________________________
President
By: __________________________________
Vice President, Finance
65
<PAGE>
EXHIBIT A
---------
PROPERTIES AND TITLE EXCEPTIONS
-------------------------------
PART 1. MINERAL ESTATE IN AND UNDERLYING THE ATLAS MILL COMPLEX :
- ------- ---------------------------------------------------------
The entire mineral estate in any underlying the patented lode and millsite
claims described below in Part A of this Part 1 and the entire mineral estate in
and underlying the unpatented millsite claims described below in Part B of this
Part 1, together with: (i) the right of Access across the surface of such
claims and the right to use and consume so much of the surface of such claims as
may be reasonably necessary or convenient to the Exploration, Development and
Mining of such mineral estate, by whatever method is now known or subsequently
developed, including without limitation by open pit or surface mining methods;
and (ii) the right to use the surface of such claims for the conduct of
Operations, including without limitation the treatment, processing, milling,
leaching or beneficiation of Products and the disposal of tailings, overburden,
waste, rock and other by-products and materials. Subject to the preceding
sentence, the Atlas Mill Complex (as defined in Section 1.8 of the Agreement) is
expressly excluded from the Properties. Notwithstanding the foregoing, the
Venture's right to use the surface of such claims shall not interfere
unreasonably with ATLAS' operations at the Atlas Mill Complex, its use of the
existing access road to the Atlas Mill Complex or ATLAS' existing haul road and
ATLAS shall have the right to conduct such operations as it deems necessary at
the Atlas Mill Complex.
A. Patent Claims (Fee Lands). The mineral estate and other rights described
-------------------------
above in and to the following patented lode claims located in Sections 22, 23,
26, and 27, Township 22 North, Range 49 East, M.D.M., Eureka County, Nevada:
<TABLE>
<CAPTION>
Claim Name Mineral Survey Number Patent Number
- ---------- --------------------- -------------
<S> <C> <C>
WAH 29 5004 27-89-0038
WAH 31 5004 27-89-0038
WAH 33 5004 27-89-0038
WAH 35 5004 27-89-0038
WAH 37 5004 27-89-0038
WAH 39 5004 27-89-0038
</TABLE>
The mineral estate and other rights described above in and to the following
patented millsite claims located in Sections 26, 27, and 28, Township 22 North,
Range 49 East, M.D.M., Eureka County, Nevada:
<TABLE>
<CAPTION>
Claim Name Mineral Survey Number Patent Number
- ---------- --------------------- -------------
<S> <C> <C>
AM 107 5005 27-89-0038
AM 108 5005 27-89-0038
AM 109 5005 27-89-0038
</TABLE>
A-1
<PAGE>
<TABLE>
<CAPTION>
Claim Name Mineral Survey Number Patent Number
- ---------- --------------------- -------------
<S> <C> <C>
AM 115 5005 27-89-0038
AM 116 5005 27-89-0038
AM 117 5005 27-89-0038
AM 162 5006 27-89-0038
AM 209 5007 27-89-0038
</TABLE>
B. Unpatented Millsite Claims. The mineral estate and other rights described
--------------------------
above in and to the following unpatented millsite claims located in Sections 26-
28, 33, and 34, Township 22 North, Range 49 East, M.D.M., Eureka County, Nevada:
<TABLE>
<CAPTION>
RECORDING AMENDMENT
CLAIM NAME BOOK PAGE BOOK PAGE BLM NMC NO.
- ---------- ---- ---- ---- ---- -----------
<S> <C> <C> <C> <C> <C>
AM 65 134 480 NMC 338635
AM 66 134 481 NMC 338636
AM 67 134 482 NMC 338637
AM 68 134 483 NMC 338638
AM 69 134 484 NMC 338639
AM 71 134 486 NMC 338641
AM 72 134 487 NMC 338642
AM 73 134 488 NMC 338643
AM 74 134 489 NMC 338644
AM 75 134 490 NMC 338645
AM 76 134 491 NMC 338646
AM 77 134 492 NMC 338647
AM 78 134 493 NMC 338648
AM 79 134 494 NMC 338649
AM 80 134 495 NMC 338650
AM 81 134 496 NMC 338651
AM 82 134 497 NMC 338652
AM 83 134 498 NMC 338653
AM 84 134 499 NMC 338654
AM 85 134 500 NMC 338655
AM 86 134 501 NMC 338656
AM 87 134 502 NMC 338657
AM 88 134 503 NMC 338658
AM 89 134 504 NMC 338659
AM 90 134 505 NMC 338660
AM 91 134 506 NMC 338661
AM 92 134 507 NMC 338662
AM 93 134 508 NMC 338663
AM 94 134 509 NMC 338664
</TABLE>
A-2
<PAGE>
<TABLE>
<CAPTION>
RECORDING AMENDMENT
CLAIM NAME BOOK RATE BOOK RATE BLM NMC NO.
- ---------- ---- ---- ---- ---- -----------
<S> <C> <C> <C> <C> <C>
AM 95 134 510 143 118 NMC 338665
AM 96 134 511 NMC 338666
AM 97 134 512 NMC 338667
AM 98 134 513 NMC 338668
AM 99 134 514 143 119 NMC 338669
AM 100 134 515 NMC 338670
AM 101 134 516 NMC 338671
AM 102 134 517 NMC 338672
AM 103 134 518 NMC 338673
AM 104 134 519 NMC 338674
AM 105 134 520 NMC 338675
AM 106 134 521 NMC 338676
AM 110 134 525 NMC 338680
AM 111 134 526 NMC 338681
AM 112 134 527 NMC 338682
AM 113 134 528 NMC 338683
AM 114 134 529 NMC 338684
AM 118 134 533 NMC 338688
AM 119 134 534 NMC 338689
AM 120 134 535 NMC 338690
AM 121 134 536 NMC 338691
AM 122 134 537 NMC 338692
AM 123 134 538 NMC 338693
AM 124 134 539 NMC 338694
AM 125 134 540 NMC 338695
AM 126 134 541 NMC 338696
AM 127 134 542 NMC 338697
AM 128 134 543 NMC 338698
AM 129 134 544 NMC 338699
AM 130 134 545 NMC 338700
AM 131 134 546 NMC 338701
AM 132 134 547 NMC 338702
AM 133 134 548 NMC 338703
AM 134 134 549 NMC 388704
AM 135 134 550 NMC 338705
AM 136 134 551 NMC 338706
AM 137 134 552 NMC 338707
AM 138 134 553 NMC 338708
AM 139 134 554 NMC 338709
AM 140 134 555 NMC 338710
</TABLE>
A-3
<PAGE>
<TABLE>
<CAPTION>
RECORDING AMENDMENT
CLAIM NAME BOOK RATE BOOK RATE BLM NMC NO.
- ---------- ---- ---- ---- ---- -----------
<S> <C> <C> <C> <C> <C>
AM 141 134 556 NMC 338711
AM 142 134 557 NMC 338712
AM 143 134 558 NMC 338713
AM 144 134 559 NMC 338714
AM 145 134 560 NMC 338715
AM 146 134 561 NMC 338716
AM 147 134 562 NMC 338717
AM 148 134 563 NMC 338718
AM 149 134 564 NMC 338719
AM 150 134 565 NMC 338720
AM 151 134 566 NMC 338721
AM 152 134 567 NMC 338722
AM 153 134 568 NMC 338723
AM 154 134 569 NMC 338724
AM 155 136 037 NMC 340362
AM 156 136 038 NMC 340363
AM 157 136 039 NMC 340364
AM 158 136 040 NMC 340365
AM 159 136 041 NMC 340366
AM 160 136 042 NMC 340367
AM 161 136 043 NMC 340368
AM 163 136 045 NMC 340370
AM 164 136 046 NMC 340371
AM 165 136 047 NMC 340372
AM 166 136 048 NMC 340373
AM 167 136 049 NMC 340374
AM 168 136 050 NMC 340375
AM 169 136 051 NMC 340376
AM 170 136 052 NMC 340377
AM 171 136 053 NMC 340378
AM 172 136 054 NMC 340379
AM 173 136 055 NMC 340380
AM 174 136 056 NMC 340381
AM 175 136 057 NMC 340382
AM 176 136 058 NMC 340383
AM 177 136 059 NMC 340384
AM 178 136 060 NMC 340385
AM 179 136 061 NMC 340386
AM 180 136 062 NMC 340387
AM 181 136 063 NMC 340388
</TABLE>
A-4
<PAGE>
<TABLE>
<CAPTION>
RECORDING AMENDMENT
CLAIM NAME BOOK RATE BOOK RATE BLM NMC NO.
- ---------- ---- ---- ---- ---- -----------
<S> <C> <C> <C> <C> <C>
AM 182 136 064 NMC 340389
AM 183 136 065 NMC 340390
AM 184 136 066 NMC 340391
AM 185 136 067 NMC 340392
AM 186 136 068 NMC 340393
AM 187 136 069 NMC 340394
AM 188 136 070 NMC 340395
AM 189 136 071 NMC 340396
AM 190 136 072 NMC 340397
AM 191 136 073 NMC 340398
AM 192 136 074 NMC 340399
AM 193 136 075 NMC 340400
AM 194 136 076 NMC 340401
AM 195 136 077 NMC 340402
AM 196 136 078 NMC 340403
AM 197 136 079 NMC 340404
AM 198 136 080 NMC 340405
AM 199 136 081 NMC 340406
AM 200 136 082 NMC 340407
AM 201 136 083 NMC 340408
AM 202 136 084 NMC 340409
AM 203 136 085 NMC 340410
AM 204 136 086 NMC 340411
AM 205 136 087 NMC 340412
AM 206 136 088 NMC 340413
AM 207 136 089 NMC 340414
AM 208 136 090 NMC 340415
AM 210 139 006 143 153 NMC 348562
AM 211 139 007 143 154 NMC 348563
AM 212 139 008 143 155 NMC 348564
AM 213 139 009 143 156 NMC 348565
AM 214 139 010 143 157 NMC 348566
AM 215 143 199 NMC 363945
AM 216 143 200 NMC 363946
AM 217 143 201 NMC 363947
AM 218 143 202 NMC 363948
AM 219 143 203 NMC 363949
AM 220 143 204 NMC 363950
AM 221 143 205 NMC 363951
AM 210 178 204 NMC 485110
</TABLE>
A-5
<PAGE>
<TABLE>
<CAPTION>
RECORDING AMENDMENT
CLAIM NAME BOOK PAGE BOOK PAGE BLM NMC NO.
- ---------- ---- ---- ---- ---- -----------
<S> <C> <C> <C> <C> <C>
Amended to be AM 222 181 353
AM 211 178 205 NMC 485111
Amended to be AM 223 181 354
AM 212 178 206 NMC 485112
Amended to be AM 224 181 355
AM 213 178 207 NMC 485113
Amended to be AM 225 181 356
AM 214 178 208 NMC 485114
Amended to be AM 226 181 357
AM 215 178 209 NMC 485115
Amended to be AM 227 181 358
AM 216 178 210 NMC 485116
Amended to be AM 228 181 359
AM 217 178 211 NMC 485117
Amended to be AM 229 181 360
AM 218 178 212 NMC 485118
Amended to be AM 230 181 361
AM 231 211 337 NMC 600579
AM 232 211 338 NMC 600580
AM 233 211 339 NMC 600581
AM 234 211 340 NMC 600582
AM 235 211 341 NMC 600583
AM 236 211 342 NMC 600584
AM 237 211 343 NMC 600585
AM 238 211 344 NMC 600586
AM 239 211 345 NMC 600587
AM 240 211 346 NMC 600588
AM 241 211 347 NMC 600589
AM 242 211 348 NMC 600590
AM 243 211 349 NMC 600591
AM 244 211 350 NMC 600592
AM 245 211 351 NMC 600593
AM 246 211 352 NMC 600594
AM 247 211 353 NMC 600595
AM 248 211 354 NMC 600596
AM 249 211 355 NMC 600597
AM 250 211 356 NMC 600598
AM 251 211 357 NMC 600599
AM 252 211 358 NMC 600600
AM 253 211 359 NMC 600601
</TABLE>
A-6
<PAGE>
<TABLE>
<CAPTION>
RECORDING AMENDMENT
CLAIM NAME BOOK RATE BOOK RATE BLM NMC NO.
- ---------- ---- ---- ---- ---- -----------
<S> <C> <C> <C> <C> <C>
AM 254 211 360 NMC 600602
</TABLE>
PART 2. LEASED PROPERTIES:
---------------------------
A. Mining Lease dated July 5, 1994, by and between Eureka Livestock Company, a
California partnership, et al, Lessor, and Atlas Precious Metals Inc., a Nevada
corporation, Lessee, a short form of which is recorded in Book 284, Page 187, of
the Official Records of Eureka County, Nevada, covering, in part, the following
fee lands:
THREE BARS RANCH
A 100% interest in the Surface estate and a 66.67% interest in the Mineral
estate:
Township 22 North, Range 49 East, M.D.M.
- ----------------------------------------
Section 4: N/2 NW/4, SE/4 NW/4, W/2 NE/4, SE/4 NE/4, W/2 SE/4, NE/4 SW/4
Section 9: W/2 NE/4, W/2 SE/4
Section 16: NW/4 NE/4
Township 23 North, Range 49 East, M.D.M.
- ----------------------------------------
Section 33: S/2 NW/4 SE/4, E/2 SW/4, SW/4 SW/4
Comprising approximately 700 acres.
MARE'S FIELD
A 100% interest in the Surface estate and a 66.67% interest in the Mineral
estate:
Township 22 North, Range 49 East, M.D.M.
- ----------------------------------------
Section 8: S/2 SE/4
Section 17: N/2 NE/4, SE/4 NE/4
Comprising approximately 200 acres.
B. Mining Lease and Option to Purchase, dated August 8, 1990, as amended,
between Lana Resources (U.S.) Inc., Lessor, and Atlas Precious Metals Inc.,
Lessee, recorded in Book 213, Page 253 of the Official Records of Eureka County,
Nevada, covering, in part, the following unpatented lode mining claims located
in Sections 11-13, Township 22 North, Range 49 East, M.D.M., Eureka County,
Nevada:
A-7
<PAGE>
<TABLE>
<CAPTION>
RECORDING AMENDMENT
CLAIM NAME BOOK RATE BOOK RATE BLM NMC NO.
- ---------- ---- ---- ---- ---- -----------
<S> <C> <C> <C> <C> <C>
Golden Clam 1 111 543 NMC 273622
Golden Clam 2 111 544 NMC 273623
Golden Clam 3 111 545 NMC 273624
Golden Clam 4 111 546 NMC 273625
Golden Clam 5 111 547 NMC 273626
Golden Clam 6 111 548 NMC 273627
Golden Clam 7 111 549 NMC 273628
Golden Clam 8 111 550 NMC 273629
Golden Clam 9 111 551 NMC 273630
Golden Clam 10 111 552 NMC 273631
Golden Clam 11 111 553 NMC 273632
Golden Clam 12 111 554 NMC 273633
Golden Clam 13 111 555 NMC 273634
Golden Clam 14 111 556 NMC 273635
Golden Clam 15 111 557 NMC 273636
Golden Clam 16 111 558 NMC 273637
Golden Clam 17 111 559 NMC 273638
Golden Clam 18 111 560 NMC 273639
Golden Clam 19 111 561 NMC 273640
Golden Clam 20 111 562 NMC 273641
</TABLE>
PART 3. LOCATED CLAIMS:
------- -----------------
A. The following unpatented lode mining claims located in Sections 2-4, 9-16,
18, 19, 22-27, 29, 30, 33, and 34, Township 22 North, Range 9 East, M.D.M., and
Sections 7, 8, 16-22, 26-30, 33, and 34, Township 22 North, Range 50 East,
M.D.M., Eureka County, Nevada:
<TABLE>
<CAPTION>
RECORDING AMENDMENT
CLAIM NAME BOOK RATE BOOK RATE BLM NMC NO.
- ---------- ---- ---- ---- ---- -----------
<S> <C> <C> <C> <C> <C>
Jasper 0 119 126 NMC 294904
Jasper 1 115 539 NMC 288224
Jasper lA 132 209 NMC 329948
Jasper 2 115 540 NMC 288225
Jasper 3 115 541 NMC 288226
Jasper 3A 132 210 NMC 329949
Jasper 4 115 542 NMC 288227
</TABLE>
A-8
<PAGE>
<TABLE>
<CAPTION>
RECORDING AMENDMENT
CLAIM NAME BOOK PAGE BOOK PAGE BLM NMC NO.
- ---------- ---- ---- ---- ---- -----------
<S> <C> <C> <C> <C> <C>
Jasper 5 115 543 NMC 288228
Jasper 5A 132 211 NMC 329950
Jasper 6 115 544 NMC 288229
Jasper 7 115 545 NMC 288230
Jasper 8 115 546 NMC 288231
Jasper 9 115 547 NMC 288232
Jasper 10 115 548 NMC 288233
Jasper 11 115 549 NMC 288234
Jasper 12 115 550 NMC 288235
Jasper 13 115 551 NMC 288236
Jasper 14 115 552 NMC 288237
Jasper 15 115 553 NMC 288238
Jasper 16 115 554 NMC 288239
Jasper 17 115 555 NMC 288240
Jasper 18 115 556 NMC 288241
Jasper 19 115 557 NMC 288242
Jasper 20 115 558 NMC 288243
Jasper 21 115 559 NMC 288244
Jasper 22 115 560 NMC 288245
Jasper 23 115 561 NMC 288246
Jasper 24 115 562 NMC 288247
Jasper 25 115 563 NMC 288248
Jasper 26 115 564 NMC 288249
Jasper 27 115 565 NMC 288250
Jasper 28 115 566 NMC 288251
Jasper 29 115 567 NMC 288252
Jasper 30 115 568 NMC 288253
Jasper 31 115 569 NMC 288254
Jasper 32 115 570 NMC 288255
Jasper 33 115 571 NMC 288256
Jasper 34 115 572 NMC 288257
Jasper 35 115 573 NMC 288258
Jasper 36 115 574 NMC 288259
Jasper 37 115 575 NMC 288260
Jasper 38 115 576 NMC 288261
Jasper 39 115 577 NMC 288262
Jasper 40 115 578 NMC 288263
Jasper 41 115 579 NMC 288264
Jasper 42 115 580 NMC 288265
</TABLE>
A-9
<PAGE>
<TABLE>
<CAPTION>
RECORDING AMENDMENT
CLAIM NAME BOOK PAGE BOOK PAGE BLM NMC NO.
- ---------- ---- ---- ---- ---- -----------
<S> <C> <C> <C> <C> <C>
Jasper 43 115 581 NMC 288266
Jasper 44 115 582 NMC 288267
Jasper 45 115 583 NMC 288268
Jasper 46 115 584 NMC 288269
Jasper 47 115 585 NMC 288270
Jasper 48 115 586 NMC 288271
Jasper 49 115 587 NMC 288272
Jasper 50 115 588 NMC 288273
Jasper 51 115 589 NMC 288274
Jasper 52 115 590 NMC 288275
Jasper 53 115 591 NMC 288276
Jasper 54 115 592 NMC 288277
Jasper 55 115 593 NMC 288278
Jasper 56 115 594 NMC 288279
Jasper 57 115 595 NMC 288280
Jasper 58 115 596 NMC 288281
Jasper 59 115 597 NMC 288282
Jasper 60 115 598 NMC 288283
Jasper 61 115 599 NMC 288284
Jasper 62 115 600 NMC 288285
Jasper 62A 132 212 NMC 329951
Jasper 63 116 001 NMC 288286
Jasper 63A 132 213 NMC 329952
Jasper 64 116 002 NMC 288287
Jasper 64A 132 214 NMC 329953
Jasper 65 116 003 NMC 288288
Jasper 66 116 004 NMC 288289
Jasper 67 116 005 NMC 288290
Jasper 68 116 006 NMC 288291
Jasper 69 116 007 NMC 288292
Jasper 70 116 008 NMC 288293
Jasper 71 116 009 NMC 288294
Jasper 72 116 010 NMC 288295
Jasper 73 116 011 NMC 288296
Jasper 102 116 040 NMC 288325
Jasper 103 116 041 NMC 288326
Jasper 104 116 042 NMC 288327
Jasper 105 116 043 NMC 288328
Jasper 106 116 044 NMC 288329
</TABLE>
A-10
<PAGE>
<TABLE>
<CAPTION>
RECORDING AMENDMENT
CLAIM NAME BOOK PAGE BOOK PAGE BLM NMC NO.
- ---------- ---- ---- ---- ---- -----------
<S> <C> <C> <C> <C> <C>
Jasper 107 116 045 NMC 288330
Jasper 108 116 046 NMC 288331
Jasper 111 119 127 NMC 294905
Jasper 112 119 128 NMC 294906
Jasper 113 119 129 NMC 294907
Jasper 114 119 130 NMC 294908
Jasper 115 119 131 NMC 294909
Jasper 116 119 132 NMC 294910
Jasper 117 119 133 NMC 294911
Jasper 118 119 134 NMC 294912
Jasper 119 119 135 NMC 294913
Jasper 120 119 136 NMC 294914
Jasper 121 119 137 NMC 294915
Jasper 122 119 138 NMC 294916
Jasper 123 119 139 NMC 294917
Jasper 124 119 140 NMC 294918
Jasper 125 119 141 NMC 294919
Jasper 126 119 142 NMC 294920
Jasper 127F 119 144 NMC 294922
Jasper 128 119 145 NMC 294923
Jasper 129 119 146 NMC 294924
Jasper 130 119 147 NMC 294925
Jasper 131 119 148 NMC 294926
Jasper 132 119 149 NMC 294927
Jasper 133 119 150 NMC 294928
Jasper 134 119 151 NMC 294929
Jasper 135 119 152 NMC 294930
Jasper 136 119 153 NMC 294931
Jasper 137 119 154 NMC 294932
Jasper 138 119 155 NMC 294933
Jasper 139 119 156 NMC 294934
Jasper 140 119 157 NMC 294935
Jasper 141 119 158 NMC 294936
Jasper 142 119 159 NMC 294937
Jasper 143 119 160 NMC 294938
Jasper 144 119 161 NMC 294939
Jasper 145 119 162 NMC 294940
Jasper 146 119 163 NMC 294941
Jasper 147 119 164 NMC 294942
</TABLE>
A-11
<PAGE>
RECORDING AMENDMENT
CLAIM NAME BOOK PAGE BOOK PAGE BLM NMC NO.
- ---------- ---- ---- ---- ---- -----------
Jasper 148 119 165 NMC 294943
Jasper 149 119 166 NMC 294944
Jasper 150 119 167 NMC 294945
Jasper 151 119 168 NMC 294946
Jasper 152 119 169 NMC 294947
Jasper 153 119 170 NMC 294948
Jasper 154 119 171 NMC 294949
Jasper 155 119 172 NMC 294950
Jasper 156 119 173 NMC 294951
Jasper 158 119 175 NMC 294953
Jasper 160 119 177 NMC 294955
Jasper 162 119 179 NMC 294957
Jasper 163 119 180 NMC 294958
Jasper 164 119 181 NMC 294959
Jasper 166 119 183 NMC 294961
Jasper 170 119 187 NMC 294965
Jasper 172 119 189 NMC 294967
Jasper 200 119 206 NMC 294984
Jasper 201 119 207 NMC 294985
Jasper 202 119 208 NMC 294986
Jasper 203 119 209 NMC 294987
Jasper 204 119 210 NMC 294988
Jasper 205 119 211 NMC 294989
Jasper 206 119 212 NMC 294990
Jasper 211 119 217 NMC 294995
Jasper 212 119 218 NMC 294996
Jasper 213 119 219 NMC 294997
Jasper 214 119 220 NMC 294998
Jasper 215 119 221 NMC 294999
Jasper 216 119 222 NMC 295000
Jasper 217 119 223 NMC 295001
Jasper 218 119 224 NMC 295002
Jasper 219 119 225 NMC 295003
Jasper 220 119 226 NMC 295004
A-12
<PAGE>
RECORDING AMENDMENT
CLAIM NAME BOOK PAGE BOOK PAGE BLM NMC NO.
- ---------- ---- ---- ---- ---- -----------
Jasper 221 119 227 NMC 295005
Jasper 222 119 228 NMC 295006
Jasper 223 119 229 NMC 295007
Jasper 224 119 230 NMC 295008
Jasper 225 119 231 NMC 295009
Jasper 226 119 232 NMC 295010
Jasper 227 119 233 NMC 295011
Jasper 228 119 234 NMC 295012
Jasper 229 119 235 NMC 295013
Jasper 230 119 236 NMC 295014
Jasper 231 119 237 NMC 295015
Jasper 232 119 238 NMC 295016
Jasper 233 119 239 NMC 295017
Jasper 234 120 005 NMC 296352
Jasper 235 120 006 NMC 296353
Jasper 236 120 007 NMC 296354
Jasper 237 120 008 NMC 296355
Jasper 238 120 009 NMC 296356
Jasper 239 120 010 NMC 296357
Jasper 240 120 011 NMC 296358
Jasper 241 120 012 NMC 296359
Jasper 242 120 013 NMC 296360
Jasper 243 120 014 NMC 296361
Jasper 244 120 015 NMC 296362
Jasper 245 120 016 NMC 296363
Jasper 246 120 017 NMC 296364
Jasper 247 120 018 NMC 296365
Jasper 248 120 019 NMC 296366
Jasper 249 120 020 NMC 296367
Jasper 250 120 021 NMC 296368
Jasper 251 120 022 NMC 296369
Jasper 252 120 023 NMC 296370
Jasper 253 120 024 NMC 296371
Jasper 254 120 025 NMC 296372
Jasper 255 120 026 NMC 296373
Jasper 256 120 027 NMC 296374
Jasper 257 120 028 NMC 296375
Jasper 258 120 029 NMC 296376
Jasper 259 120 030 NMC 296377
A-13
<PAGE>
RECORDING AMENDMENT
CLAIM NAME BOOK PAGE BOOK PAGE BLM NMC NO.
- ---------- ---- ---- ---- ---- -----------
Jasper 260 120 031 NMC 296378
Jasper 261 120 032 NMC 296379
Jasper 262 120 033 NMC 296380
Jasper 263 120 034 NMC 296381
Jasper 264 120 035 NMC 296382
Jasper 265 120 036 NMC 296383
Jasper 266 120 037 NMC 296384
Jasper 267 120 038 NMC 296385
Jasper 268 120 039 NMC 296386
Jasper 269 120 040 NMC 296387
Jasper 270 120 041 141 587 NMC 296388
Jasper 271 120 042 135 052 NMC 296389
Jasper 271 (2nd amendment) 143 162
Jasper 272 120 043 135 054 NMC 296390
Jasper 272 (2nd amendment) 143 164
Jasper 273 120 044 135 056 NMC 296391
Jasper 274 120 045 135 058 MC 296392
Jasper 274 (2nd amendment) 143 166
Jasper 275 120 046 135 060 NMC 296393
Jasper 276 120 047 135 062 NMC 296394
Jasper 276 (2nd amendment) 143 168
Jasper 277 120 048 135 064 NMC 296395
Jasper 278 120 049 135 066 NMC 296396
Jasper 278 (2nd amendment) 143 170
Jasper 279 120 050 135 068 NMC 296397
Jasper 280 120 051 135 070 NMC 296398
Jasper 280 (2nd amendment) 143 172
Jasper 281 120 052 NMC 296399
Jasper 281A 125 126 135 072 NMC 314798
Jasper 282 120 053 NMC 296400
Jasper 282A 125 127 135 074 NMC 314799
Jasper 283 120 054 135 076 NMC 296401
Jasper 283A 135 078 NMC 339282
Jasper 284 120 055 141 588 NMC 296402
Jasper 285 120 056 135 080 NMC 296403
Jasper 286 120 057 141 589 NMC 296404
Jasper 287 120 058 135 082 NMC 296405
Jasper 288 120 059 NMC 296406
Jasper 289 120 060 135 084 NMC 296407
<PAGE>
RECORDING AMENDMENT
CLAIM NAME BOOK PAGE BOOK PAGE BLM NMC NO.
- ---------- ---- ---- ---- ---- -----------
Jasper 289A 135 086 NMC 339283
Jasper 290 120 061 NMC 296408
Jasper 291 120 062 NMC 296409
Jasper 292 120 063 NMC 296410
Jasper 293 120 064 NMC 296411
Jasper 294 120 065 NMC 296412
Jasper 295 120 066 NMC 296413
Jasper 296 120 067 NMC 296414
Jasper 297 120 068 NMC 296415
Jasper 298 120 069 NMC 296416
Jasper 299 120 070 NMC 296417
Jasper 300 120 071 NMC 296418
Jasper 301 120 072 NMC 296419
Jasper 302 120 073 NMC 296420
Jasper 303 120 074 NMC 296421
Jasper 304 120 075 NMC 296422
Jasper 305 120 076 NMC 296423
Jasper 306 120 077 NMC 296424
Jasper 307 120 078 NMC 296425
Jasper 308 120 079 NMC 296426
Jasper 309 120 080 NMC 296427
Jasper 310 120 081 143 174 NMC 296428
Jasper 311 120 082 NMC 296429
Jasper 312 120 083 135 088 NMC 296430
Jasper 312 (2nd amendment) 143 176
Jasper 313 120 084 135 090 NMC 296431
Jasper 314 120 085 135 092 NMC 296432
Jasper 314A 135 094 143 178 NMC 339284
Jasper 315 120 086 135 096 NMC 296433
Jasper 316 120 087 135 098 NMC 296434
Jasper 316A 125 128 135 100 NMC 314800
Jasper 317 120 088 135 102 NMC 296435
Jasper 318 120 089 135 104 NMC 296436
Jasper 319 120 090 135 106 NMC 296437
Jasper 320 120 091 135 108 NMC 296438
Jasper 322 120 092 135 110 NMC 296439
Jasper 323 120 093 135 112 NMC 296440
Jasper 323A 135 114 NMC 339285
Jasper 324 120 094 NMC 296441
A-15
<PAGE>
RECORDING AMENDMENT
CLAIM NAME BOOK PAGE BOOK PAGE BLM NMC NO.
- ---------- ---- ---- ---- ---- -----------
Jasper 325 120 095 NMC 296442
Jasper 326 120 096 NMC 296443
Jasper 327 120 097 NMC 296444
Jasper 328 120 098 NMC 296445
Jasper 329 120 099 NMC 296446
Jasper 330 120 100 NMC 296447
Jasper 331 120 101 NMC 296448
Jasper 332 120 102 NMC 296449
Jasper 333 120 103 NMC 296450
Jasper 334 120 104 NMC 296451
Jasper 335 120 105 NMC 296452
Jasper 336 120 106 NMC 296453
Jasper 337 120 107 NMC 296454
Jasper 338 120 108 NMC 296455
Jasper 339 120 109 NMC 296456
Jasper 340 120 110 NMC 296457
Jasper 341 120 111 NMC 296458
Jasper 342 120 112 NMC 296459
Jasper 343 120 113 NMC 296460
Jasper 344 120 114 NMC 296461
Jasper 345 120 115 NMC 296462
Jasper 346 120 116 NMC 296463
Jasper 347 120 117 NMC 296464
Jasper 348 120 118 NMC 296465
Jasper 349 120 119 NMC 296466
Jasper 350 120 120 NMC 296467
Jasper 351 120 121 141 590 NMC 296468
Jasper 352 120 122 143 179 NMC 296469
Jasper 353 120 123 143 181 NMC 296470
Jasper 354 120 124 NMC 296471
Jasper 355 120 125 NMC 296472
Jasper 356 120 126 NMC 296473
Jasper 357 120 127 NMC 296474
Jasper 358 120 128 135 116 NMC 296475
Jasper 358 (2nd amendment) 141 591
Jasper 359 120 129 141 593 NMC 296476
Jasper 360 120 130 135 118 NMC 296477
Jasper 362 120 132 135 120 NMC 296479
Jasper 364 120 134 135 122 NMC 296481
A-16
<PAGE>
RECORDING AMENDMENT
CLAIM NAME BOOK PAGE BOOK PAGE BLM NMC NO.
- ---------- ---- ---- ---- ---- -----------
Jasper 364A 125 129 135 124 NMC 314801
Jasper 370 120 140 NMC 296487
Jasper 372 120 142 NMC 296489
Jasper 374 120 144 NMC 296491
Jasper 376 120 146 NMC 296493
Jasper 378 120 148 NMC 296495
Jasper 380 120 150 NMC 296497
Jasper 382 120 152 NMC 296499
Jasper 384 120 154 NMC 296501
Jasper 386 120 156 NMC 296503
Jasper 388 120 158 NMC 296505
Jasper 390 120 160 NMC 296507
Jasper 392 120 162 NMC 296509
Jasper 393 120 163 NMC 296510
Jasper 394 120 164 NMC 296511
Jasper 395 120 165 NMC 296512
Jasper 396 120 166 NMC 296513
Jasper 397 120 167 NMC 296514
Jasper 398 120 168 NMC 296515
Jasper 440 125 130 NMC 314802
Jasper 440A 120 210 NMC 296557
Jasper 442 120 212 NMC 296559
Jasper 444 120 214 NMC 296561
Jasper 446 120 216 NMC 296563
Jasper 448 120 218 NMC 296565
Jasper 450 120 220 NMC 296567
Jasper 452 120 222 NMC 296569
Jasper 454 120 224 NMC 296571
Jasper 456 120 226 NMC 296573
Jasper 458 120 228 NMC 296575
Jasper 460 120 230 NMC 296577
Jasper 462 120 232 NMC 296579
Jasper 464 120 234 NMC 296581
Jasper 466 120 236 NMC 296583
Jasper 468 120 238 NMC 296585
Jasper 470 120 240 NMC 296587
Jasper 472 120 242 NMC 295589
Jasper 670 120 311 NMC 296658
Jasper 671 120 312 NMC 296659
A-17
<PAGE>
RECORDING AMENDMENT
CLAIM NAME BOOK PAGE BOOK PAGE BLM NMC NO.
- ---------- ---- ---- ---- ---- -----------
Jasper 672 120 313 NMC 296660
Jasper 673 120 314 NMC 296661
Jasper 674 120 315 NMC 296662
Jasper 675 120 316 NMC 296663
Jasper 676 120 317 NMC 296664
Jasper 677 120 318 NMC 296665
Jasper 678 120 319 NMC 296666
Jasper 679 120 320 NMC 296667
Jasper 680 120 321 NMC 296668
Jasper 681 120 322 NMC 296669
Jasper 682 120 323 NMC 296670
Jasper 683 120 324 NMC 296671
Jasper 684 120 325 NMC 296672
Jasper 685 120 326 NMC 296673
Jasper 686 120 327 NMC 296674
Jasper 687 120 328 NMC 296675
Jasper 688 120 329 NMC 296676
Jasper 689 120 330 NMC 296677
Jasper 690 120 331 NMC 296678
Jasper 691 120 332 NMC 296679
Jasper 692 120 333 NMC 296680
Jasper 693 120 334 NMC 296681
Jasper 694 120 335 NMC 296682
Jasper 695 120 336 NMC 296683
Jasper 696 120 337 NMC 296684
Jasper 697 120 338 NMC 296685
Jasper 698 120 339 NMC 296686
Jasper 699 120 340 NMC 296687
Jasper 700 120 341 NMC 296688
Jasper 701 120 342 NMC 296689
Jasper 702 120 343 NMC 296690
Jasper 703 120 344 NMC 296691
Jasper 704 120 345 NMC 296692
Jasper 705 120 346 NMC 296693
Jasper 706 120 347 NMC 296694
Jasper 707 120 348 NMC 296695
Jasper 708 125 262 NMC 314934
Jasper 709 120 349 NMC 296696
Jasper 710 125 263 NMC 314935
A-18
<PAGE>
<TABLE>
<CAPTION>
RECORDING AMENDMENT
CLAIM NAME BOOK PAGE BOOK PAGE BLM NMC NO.
- ---------- ---- ---- ---- ---- -----------
<S> <C> <C> <C> <C> <C>
Jasper 711 120 350 NMC 296697
Jasper 712 125 264 NMC 314936
Jasper 713 120 351 NMC 296698
Jasper 714 125 265 NMC 314937
Jasper 715 125 266 NMC 314938
Jasper 716 125 267 NMC 314939
Jasper 717 125 268 NMC 314940
Jasper 718 125 269 NMC 314941
Jasper 719 125 270 NMC 314942
Jasper 720 125 271 NMC 314943
Jasper 721 125 272 NMC 314944
Jasper 722 125 273 NMC 314945
Jasper 723 125 274 NMC 314946
Jasper 724 125 275 NMC 314947
Jasper 725 125 276 NMC 314948
Jasper 726 125 277 NMC 314949
Jasper 727 125 278 NMC 314950
Jasper 728 125 279 NMC 319951
Jasper 729 125 280 NMC 319952
Jasper 730 125 281 NMC 314953
Jasper 731 125 282 NMC 314954
Jasper 732 125 283 NMC 314955
Jasper 732A 209 484 NMC 593926
Jasper 733A 125 284 NMC 314956
Jasper 734 125 285 NMC 314957
Jasper 735A 125 286 NMC 314958
Jasper 736 125 287 NMC 314959
Jasper 737A 125 288 NMC 314960
Jasper 738 125 289 NMC 314961
Jasper 739A 125 290 NMC 314962
Jasper 748 125 299 NMC 314971
Jasper 749 125 300 NMC 314972
Jasper 750 125 301 NMC 314973
Jasper 751 125 302 NMC 314974
Jasper 752 125 303 NMC 314975
Jasper 753 125 304 NMC 314976
Jasper 754 125 305 NMC 314977
Jasper 755 125 306 NMC 314978
Jasper 756 125 307 NMC 314979
</TABLE>
A-19
<PAGE>
<TABLE>
<CAPTION>
RECORDING AMENDMENT
CLAIM NAME BOOK PAGE BOOK PAGE BLM NMC NO.
- ---------- ---- ---- ---- ---- -----------
<S> <C> <C> <C> <C> <C>
Jasper 757 125 308 NMC 314980
Jasper 758 125 309 NMC 314981
Jasper 759 125 310 NMC 314982
Jasper 760 125 311 NMC 314983
Jasper 761 125 312 NMC 314984
Jasper 762 125 313 NMC 314985
Jasper 763 125 314 NMC 314986
Jasper 764 125 315 NMC 314987
Jasper 765 125 316 NMC 314988
Jasper 766 125 317 NMC 314989
Jasper 767 125 318 NMC 314990
Jasper 768 125 319 NMC 314991
Jasper 769 125 320 NMC 314992
Jasper 770 125 321 NMC 314993
Jasper 771 125 322 NMC 314994
Jasper 773 125 323 NMC 314995
Jasper 774 125 324 NMC 314996
Jasper 775 125 325 NMC 314997
Jasper 782 125 326 NMC 314998
Jasper 783 125 327 NMC 314999
Jasper 784 125 328 NMC 315000
Jasper 785 125 329 NMC 315001
Jasper 786 125 330 NMC 315002
Jasper 787 125 331 NMC 315003
Jasper 788 125 332 NMC 315004
Jasper 789 125 333 NMC 315005
Jasper 790 125 334 NMC 315006
Jasper 791 125 335 NMC 315007
Jasper 792 125 336 NMC 315008
Jasper 793 125 337 NMC 315009
Jasper 795 125 338 NMC 315010
Jasper 796 125 339 NMC 315011
Jasper 797 125 340 NMC 315012
Jasper 799 125 352 NMC 296699
Jasper 800 120 353 NMC 296700
Jasper 801 120 354 NMC 296701
Jasper 802 120 355 NMC 296702
Jasper 803 125 341 NMC 315013
Jasper 804 125 342 NMC 315014
</TABLE>
A-20
<PAGE>
<TABLE>
<CAPTION>
RECORDING AMENDMENT
CLAIM NAME BOOK PAGE BOOK PAGE BLM NMC NO.
- ---------- ---- ---- ---- ---- -----------
<S> <C> <C> <C> <C> <C>
Jasper 805 125 343 143 183 NMC 315015
JASPER 806 125 344 NMC 315016
Jasper 807 125 345 NMC 315017
Jasper 808 125 346 143 185 NMC 315018
Jasper 809 125 347 NMC 315019
Jasper 810 125 348 143 187 NMC 315020
Jasper 811 125 349 143 189 NMC 315021
Jasper 812 125 350 143 191 NMC 315022
Jasper 813 125 351 NMC 315023
Jasper 814 125 352 NMC 315024
Jasper 815 125 353 NMC 315025
Jasper 816 125 354 NMC 315026
Jasper 817 125 355 NMC 315027
Jasper 819 125 357 NMC 315029
Jasper 821 125 359 NMC 315031
Jasper 823 125 361 NMC 315033
Jasper 861 125 399 NMC 315071
Jasper 863 125 401 NMC 315073
Jasper 978 126 098 NMC 315795
Jasper 979 126 099 NMC 315796
Jasper 980 126 100 NMC 315797
Jasper 981 126 101 NMC 315798
Jasper 982 126 102 NMC 315799
Jasper 983 126 103 NMC 315800
Jasper 984 126 104 NMC 315801
Jasper 985 126 105 NMC 315802
Jasper 986 126 106 NMC 315803
Jasper 987 126 107 NMC 315804
Jasper 988 126 108 NMC 315805
Jasper 989 126 109 NMC 315806
Jasper 990 126 110 NMC 315807
Jasper 991 126 111 NMC 315808
Jasper 992 126 112 NMC 315809
Jasper 993 126 113 NMC 315810
Jasper 994 126 114 NMC 315811
Jasper 995 126 115 NMC 315812
Jasper 996 126 116 NMC 315813
Jasper 997 126 117 NMC 315814
Jasper 998 126 118 NMC 315815
</TABLE>
A-21
<PAGE>
<TABLE>
<CAPTION>
RECORDING AMENDMENT
CLAIM NAME BOOK PAGE BOOK PAGE BLM NMC NO.
- ---------- ---- ---- ---- ---- -----------
<S> <C> <C> <C> <C> <C>
Jasper 999 126 119 NMC 315816
Jasper 1000 126 120 NMC 315817
Jasper 1001 126 121 NMC 315818
Jasper 1002 126 122 NMC 315819
Jasper 1003 126 123 NMC 315820
Jasper 1004 126 124 NMC 315821
Jasper 1005 126 125 NMC 315822
Jasper 1006 126 126 NMC 315823
Jasper 1007 126 127 NMC 315824
Jasper 1008 126 128 NMC 315825
Jasper 1009 126 129 NMC 315826
Jasper 1010 126 130 NMC 315827
Jasper 1011 126 131 NMC 315828
Jasper 1012 126 132 NMC 315829
Jasper 1013 126 133 NMC 315830
Jasper 1014 126 134 NMC 315831
Jasper 1015 126 135 NMC 315832
Jasper 1016 126 136 NMC 315833
Jasper 1017 126 137 NMC 315834
Jasper 1018 126 138 NMC 315835
Jasper 1019 126 139 NMC 315836
Jasper 1020 126 140 NMC 315837
Jasper 1021 126 141 NMC 315838
Jasper 1022 126 142 NMC 315839
Jasper 1023 126 143 NMC 315840
Jasper 1024 126 144 NMC 315841
Jasper 1025 126 145 NMC 315842
Jasper 1026 126 146 NMC 315843
Jasper 1027 126 147 NMC 315844
Jasper 1028 126 148 NMC 315845
Jasper 1029 126 149 NMC 315846
Jasper 1030 126 150 NMC 315847
Jasper 1031 126 151 NMC 315848
Jasper 1032 126 152 NMC 315849
Jasper 1033 126 153 NMC 315850
Jasper 1034 126 154 NMC 315851
Jasper 1035 126 155 NMC 315852
Jasper 1036 126 156 NMC 315853
Jasper 1037 126 157 NMC 315854
</TABLE>
A-22
<PAGE>
<TABLE>
<CAPTION>
RECORDING AMENDMENT
CLAIM NAME BOOK PAGE BOOK PAGE BLM NMC NO.
- ---------- ---- ---- ---- ---- -----------
<S> <C> <C> <C> <C> <C>
Jasper 1038 126 158 NMC 315855
Jasper 1039 126 159 NMC 315856
Jasper 1040 126 160 NMC 315857
Jasper 1041 126 161 NMC 315858
Jasper 1042 126 162 NMC 315859
Jasper 1043 126 163 NMC 315860
Jasper 1044 126 164 NMC 315861
Jasper 1045 126 165 NMC 315862
Jasper 1046 126 166 NMC 315863
Jasper 1047 126 167 NMC 315864
Jasper 1048 126 168 NMC 315865
Jasper 1049 126 169 NMC 315866
Jasper 1050 126 170 NMC 315867
Jasper 1051 126 171 NMC 315868
Jasper 1052 126 172 NMC 315869
Jasper 1053 126 173 NMC 315870
Jasper 1054 126 174 NMC 315871
Jasper 1055 126 175 NMC 315872
Jasper 1056 126 176 NMC 315873
Jasper 1067 126 187 NMC 315884
Jasper 1068 126 188 NMC 315885
Jasper 1069 126 189 NMC 315886
Jasper 1070 126 190 NMC 315887
Jasper 1071 126 191 NMC 315888
Jasper 1072 126 192 NMC 315889
Jasper 1073 126 193 NMC 315890
Jasper 1074 126 194 NMC 315891
Jasper 1075 126 195 NMC 315892
Jasper 1076 126 196 NMC 315893
Jasper 1077 126 197 NMC 315894
Jasper 1078 126 198 NMC 315895
Jasper 1079 126 199 NMC 315896
Jasper 1080 126 200 NMC 315897
Jasper 1081 126 201 NMC 315898
Jasper 1082 126 202 NMC 315899
Jasper 1083 126 203 NMC 315900
Jasper 1084 126 204 NMC 315901
Jasper 1085 126 205 NMC 315902
Jasper 1086 126 206 NMC 315903
</TABLE>
A-23
<PAGE>
<TABLE>
<CAPTION>
RECORDING AMENDMENT
CLAIM NAME BOOK PAGE BOOK PAGE BLM NMC NO.
- ---------- ---- ---- ---- ---- -----------
<S> <C> <C> <C> <C> <C>
Jasper 1087 126 207 NMC 315904
Jasper 1088 126 208 NMC 315905
Jasper 1089 126 209 NMC 315906
Jasper 1090 126 210 NMC 315907
Jasper 1091 126 211 NMC 315908
Jasper 1092 126 212 NMC 315909
Jasper 1095 126 213 NMC 315910
Jasper 1096 126 214 NMC 315911
Jasper 1097 126 215 NMC 315912
Jasper 1098 126 216 NMC 315913
Jasper 1099 126 217 NMC 315914
Jasper 1100 126 218 NMC 315915
Jasper 1463 127 354 NMC 317837
Jasper 1464 127 355 NMC 317838
Jasper 1465 127 356 NMC 317839
Jasper 1466 127 357 NMC 317840
Jasper 1467 127 358 NMC 317841
Jasper 1468 127 359 NMC 317842
Jasper 1487 127 360 NMC 317843
Jasper 1488 127 361 NMC 317844
Jasper 1489 127 362 NMC 317845
Jasper 1490 127 363 NMC 317846
Jasper 1491 127 364 NMC 317847
Jasper 1492 127 365 NMC 317848
Jasper 1493 127 366 NMC 317849
Jasper 1494 127 367 NMC 317850
Jasper 1495 127 368 NMC 317851
Jasper 1496 127 369 NMC 317852
Jasper 1497 127 370 NMC 317853
Jasper 1498 127 371 NMC 317854
Jasper 1499 127 372 NMC 317855
Jasper 1500 127 373 NMC 317856
Jasper 1501 127 374 NMC 317857
Jasper 1502 127 375 NMC 317858
Jasper 1503 127 376 NMC 317859
Jasper 1504 127 377 NMC 317860
Jasper 1505 127 378 NMC 317861
Jasper 1506 127 379 NMC 317862
Jasper 1507 127 380 NMC 317863
</TABLE>
A-24
<PAGE>
<TABLE>
<CAPTION>
RECORDING AMENDMENT
CLAIM NAME BOOK PAGE BOOK PAGE BLM NMC NO.
- ---------- ---- ---- ---- ---- -----------
<S> <C> <C> <C> <C> <C>
Jasper 1508 127 381 NMC 317864
Jasper 1509 127 382 NMC 317865
Jasper 1510 127 383 NMC 317866
Jasper 1511 127 384 NMC 317867
Jasper 1512 127 385 NMC 317868
Jasper 1513 127 386 NMC 317869
Jasper 1514 127 387 NMC 317870
Jasper 1515 127 388 NMC 317871
Jasper 1516 127 389 NMC 317872
Jasper 1517 127 390 NMC 317873
Jasper 1518 127 391 NMC 317874
Jasper 1519 127 392 NMC 317875
Jasper 1520 127 393 NMC 317876
Jasper 1521 127 394 NMC 317877
Jasper 1522 127 395 NMC 317878
Jasper 1523 127 396 NMC 317879
Jasper 1524 127 397 NMC 317880
Jasper 1525 127 398 NMC 317881
Jasper 1544 127 399 NMC 317882
Jasper 1545 127 400 NMC 317883
Jasper 1546 127 401 NMC 317884
Jasper 1547 127 402 NMC 317885
Jasper 1548 127 403 NMC 317886
Jasper 1549 127 404 NMC 317887
Jasper 1550 127 405 NMC 317888
Jasper 1551 127 406 NMC 317889
Jasper 1552 127 407 NMC 317890
Jasper 1553 127 408 NMC 317891
Jasper 1639 135 037 143 193 NMC 339286
Jasper 1640 135 038 143 195 NMC 339287
Jasper 1641 135 039 NMC 339288
Jasper 1642 135 040 143 197 NMC 339289
Jasper 1643 135 041 NMC 339290
Jasper 1644 135 042 NMC 339291
Jasper 1645 135 043 NMC 339292
Jasper 1646 135 044 NMC 339293
Jasper 1647 135 045 NMC 339294
Jasper 1648 135 046 NMC 339295
Jasper 1649 135 047 NMC 339296
</TABLE>
A-25
<PAGE>
RECORDING AMENDMENT
CLAIM NAME BOOK PAGE BOOK PAGE BLM NMC NO.
- ---------- ---- ---- ---- ---- -----------
Jasper 1650 135 048 NMC 339297
Jasper 1651 135 049 NMC 339298
Jasper 1652 135 050 NMC 339299
Jasper 1653 135 051 NMC 339300
Jasper 1658 156 536 NMC 410407
Jasper 1659 156 537 NMC 410408
Jasper 1660 156 538 NMC 410409
Jasper 1661 156 539 NMC 410410
Jasper 1662 156 540 NMC 410411
Jasper 1663 156 541 NMC 410412
Jasper 1664 156 542 NMC 410413
Jasper 1665 156 543 NMC 410414
Jasper 1666 156 544 NMC 410415
Jasper 1667 156 545 NMC 410416
Jasper 1668 156 546 NMC 410417
Jasper 1669 156 547 NMC 410418
Jasper 1670 156 548 NMC 410419
Jasper 1671 156 549 NMC 410420
B. The following unpatented lode mining claims located Sections 27, 28, and
33, Township 22 North, Range 49 East, M.D.M., Eureka County, Nevada:
RECORDING AMENDMENT
CLAIM NAME BOOK PAGE BOOK PAGE BLM NMC NO.
- ---------- ---- ---- ---- ---- -----------
Tail 1 255 215 NMC 684348
Tail 2 255 216 NMC 684349
Tail 3 255 217 NMC 684350
Tail 4 255 218 NMC 684351
Tail 5 255 219 NMC 684352
Tail 6 255 220 NMC 684353
Tail 7 255 221 NMC 684354
Tail 8 255 222 NMC 684355
Tail 9 255 223 NMC 684356
Tail 10 255 224 NMC 684357
Tail 11 255 225 NMC 684358
A-26
<PAGE>
C. The following unpatented mining claims located in Sections 12, 22, 23, 26,
27, and 35 in Township 22 North, Range 49 East, M.D.M., Eureka County, Nevada:
RECORDING AMENDMENT
CLAIM NAME BOOK PAGE BOOK PAGE BLM NMC NO.
- ---------- ---- ---- ---- ---- -----------
WAH 1 118 457 NMC 293546
WAH 2 118 458 NMC 293547
WAH 3 118 459 NMC 293548
WAH 4 118 460 NMC 293549
WAH 10 118 468 NMC 293557
WAH 11 118 470 NMC 293559
WAH 12 118 471 NMC 293560
WAH 13 118 472 NMC 293561
WAH 18 118 477 NMC 293566
WAH 19 118 478 NMC 293567
WAH 20 118 479 128 295 NMC 293568
WAH 21 118 480 128 296 NMC 293569
WAH 22 118 481 128 297 NMC 293570
WAH 23 118 482 128 298 NMC 293571
WAH 24 118 483 128 299 NMC 293572
WAH 25 118 484 128 300 NMC 293573
WAH 26 118 485 128 301 NMC 293574
WAH 27 118 486 128 302 NMC 293575
WAH 28 118 487 128 303 NMC 293576
WAH 30 118 489 128 305 NMC 293578
WAH 32 118 491 128 307 NMC 293580
WAH 34 118 493 128 309 NMC 293582
WAH 36 118 495 128 311 NMC 293584
WAH 38 118 497 128 313 NMC 293586
WAH 40 118 499 128 315 NMC 293588
WAH 41 118 500 128 316 NMC 293589
D. The following unpatented lode mining claims located Sections 4-9, 16, 17,
20-22, and 28, Township 22 North, Range 49 East, Sections 25 and 36, Township 23
North, Range 48 East, M.D.M., and Sections 28-33, Township 23 North, Range 49
East, M.D.M., Eureka County, Nevada:
RECORDING AMENDMENT
CLAIM NAME BOOK PAGE BOOK PAGE BLM NMC NO.
- ---------- ---- ---- ---- ---- -----------
WS 1 265 130 NMC 695324
A-27
<PAGE>
RECORDING AMENDMENT
CLAIM NAME BOOK PAGE BOOK PAGE BLM NMC NO.
- ---------- ---- ---- ---- ---- -----------
WS 2 265 131 NMC 695325
WS 3 265 132 NMC 695326
WS 4 265 133 NMC 695327
WS 5 265 134 NMC 695328
WS 6 265 135 NMC 695329
WS 7 265 136 NMC 695330
WS 8 265 137 NMC 695331
WS 9 265 138 NMC 695332
WS 10 265 139 NMC 695333
WS 11 265 140 NMC 695334
WS 12 265 141 NMC 695335
WS 13 265 142 NMC 695336
WS 14 265 143 NMC 695337
WS 15 265 144 NMC 695338
WS 16 265 145 NMC 695339
WS 17 265 146 NMC 695340
WS 18 265 147 NMC 695341
WS 19 265 148 NMC 695342
WS 20 265 149 NMC 695343
WS 21 265 150 NMC 695344
WS 22 265 151 NMC 695345
WS 23 265 152 NMC 695346
WS 24 265 153 NMC 695347
WS 25 265 154 NMC 695348
WS 26 265 155 NMC 695349
WS 27 265 156 NMC 695350
WS 28 265 157 NMC 695351
WS 29 265 158 NMC 695352
WS 30 265 159 NMC 695353
WS 31 265 160 NMC 695354
WS 32 265 161 NMC 695355
WS 33 265 162 NMC 695356
WS 34 265 163 NMC 695357
WS 35 265 164 NMC 695358
WS 36 265 165 NMC 695359
WS 37 265 166 NMC 695360
WS 38 265 167 NMC 695361
WS 39 265 168 NMC 695362
WS 40 265 169 NMC 695363
A-28
<PAGE>
RECORDING AMENDMENT
CLAIM NAME BOOK PAGE BOOK PAGE BLM NMC NO.
- ---------- ---- ---- ---- ---- -----------
WS 41 265 170 NMC 695364
WS 42 265 171 NMC 695365
WS 43 265 172 NMC 695366
WS 44 265 173 NMC 695367
WS 45 265 174 NMC 695368
WS 46 267 001 NMC 697296
WS 47 265 175 NMC 695369
WS 48 267 002 NMC 697297
WS 49 265 176 NMC 695370
WS 50 267 003 NMC 697298
WS 51 265 177 NMC 695371
WS 52 267 004 NMC 697299
WS 53 265 178 NMC 695372
WS 54 267 005 NMC 697300
WS 55 265 179 NMC 695373
WS 57 265 180 NMC 695374
WS 59 265 181 NMC 695375
WS 61 265 182 NMC 695376
WS 63 265 183 NMC 695377
WS 65 265 184 NMC 695378
WS 67 265 185 NMC 695379
WS 69 265 186 NMC 695380
WS 71 265 187 NMC 695381
WS 72 265 188 NMC 695382
WS 73 265 189 NMC 695383
WS 74 265 190 NMC 695384
WS 75 265 191 NMC 695385
WS 76 265 192 NMC 695386
WS 77 265 193 NMC 695387
WS 78 265 194 NMC 695388
WS 79 265 195 NMC 695389
WS 80 265 296 NMC 695390
WS 81 265 197 NMC 695391
WS 82 265 198 NMC 695392
WS 83 265 199 NMC 695393
WS 84 265 200 NMC 695394
WS 85 265 201 NMC 695395
WS 86 265 202 NMC 695396
WS 87 265 203 NMC 695397
A-29
<PAGE>
RECORDING AMENDMENT
CLAIM NAME BOOK PAGE BOOK PAGE BLM NMC NO.
- ---------- ---- ---- ---- ---- -----------
WS 88 265 204 NMC 695398
WS 89 265 205 NMC 695399
WS 90 265 206 NMC 695400
WS 91 265 207 NMC 695401
WS 92 265 208 NMC 695402
WS 93 265 209 NMC 695403
WS 94 265 210 NMC 695404
WS 95 265 211 NMC 695405
WS 96 265 212 NMC 695406
WS 97 265 213 NMC 695407
WS 98 265 214 NMC 695408
WS 99 265 215 NMC 695409
WS 100 265 216 NMC 695410
WS 101 265 217 NMC 695411
WS 102 267 457 NMC 697946
WS 103 267 458 NMC 697947
WS 104 267 459 NMC 697948
WS 105 267 460 NMC 697949
WS 106 267 461 NMC 697950
WS 107 267 462 NMC 697951
WS 108 267 463 NMC 697952
WS 109 267 464 NMC 697953
WS 110 267 465 NMC 697954
WS 111 267 466 NMC 697955
WS 112 267 467 NMC 697956
WS 113 468 468 NMC 697957
WS 114 267 469 NMC 697958
WS 115 267 470 NMC 697959
WS 116 267 471 NMC 697960
WS 117 267 472 NMC 697961
WS 118 267 473 NMC 697962
WS 119 267 474 NMC 697963
WS 120 267 475 NMC 697964
WS 121 267 476 NMC 697965
WS 122 267 477 NMC 697966
WS 123 267 478 NMC 697967
WS 124 267 479 NMC 697968
WS 125 267 480 NMC 697969
WS 126 267 481 NMC 697970
A-30
<PAGE>
RECORDING AMENDMENT
CLAIM NAME BOOK PAGE BOOK PAGE BLM NMC NO.
- ---------- ---- ---- ---- ---- -----------
WS 127 267 482 NMC 697971
WS 128 267 483 NMC 697972
WS 129 267 484 NMC 697973
WS 130 267 485 NMC 697974
WS 131 267 486 NMC 697975
WS 132 267 487 NMC 697976
WS 133 267 488 NMC 697977
WS 134 267 489 NMC 697978
WS 135 267 490 NMC 697979
WS 136 267 491 NMC 697980
WS 137 267 492 NMC 697981
WS 138 267 493 NMC 697982
WS 139 267 494 NMC 697983
WS 140 267 495 NMC 697984
WS 141 267 496 NMC 697985
WS 142 267 497 NMC 697986
WS 143 267 498 NMC 697987
WS 144 267 499 NMC 697988
WS 145 267 500 NMC 697989
WS 146 267 501 NMC 697990
WS 147 267 502 NMC 697991
WS 148 267 503 NMC 697992
WS 149 267 504 NMC 697993
WS 150 267 505 NMC 697994
WS 151 267 506 NMC 697995
WS 152 267 507 NMC 697996
WS 153 267 508 NMC 697997
WS 154 267 509 NMC 697998
WS 155 267 510 NMC 697999
WS 156 267 511 NMC 698000
WS 157 267 512 NMC 698001
WS 158 267 513 NMC 698002
WS 159 267 514 NMC 698003
WS 160 267 515 NMC 698004
WS 161 267 516 NMC 698005
WS 162 267 517 NMC 698006
WS 163 267 518 NMC 698007
WS 164 267 519 NMC 698008
WS 165 267 520 NMC 698009
A-31
<PAGE>
RECORDING AMENDMENT
CLAIM NAME BOOK PAGE BOOK PAGE BLM NMC NO.
- ---------- ---- ---- ---- ---- -----------
WS 166 267 521 NMC 698010
WS 167 267 522 NMC 698011
WS 168 267 523 NMC 698012
WS 169 267 524 NMC 698013
WS 170 267 525 NMC 698014
WS 172 267 526 NMC 698015
WS 174 267 527 NMC 698016
WS 176 267 528 NMC 698017
WS 178 267 529 NMC 698018
WS 179 267 530 NMC 698019
WS 180 267 531 NMC 698020
WS 181 267 532 NMC 698021
WS 182 267 533 NMC 698022
WS 183 267 534 NMC 698023
WS 184 267 535 NMC 698024
WS 185 267 536 NMC 698025
WS 186 267 537 NMC 698026
WS 187 267 538 NMC 698027
WS 188 267 539 NMC 698028
WS 189 267 540 NMC 698029
WS 190 267 541 NMC 698030
WS 191 267 542 NMC 698031
WS 192 267 543 NMC 698032
WS 193 267 544 NMC 698033
WS 194 267 545 NMC 698034
WS 195 267 546 NMC 698035
WS 196 267 547 NMC 698036
WS 197 267 548 NMC 698037
WS 198 267 549 NMC 698038
WS 199 267 550 NMC 698039
WS 200 267 551 NMC 698040
WS 201 267 552 NMC 698041
WS 202 267 553 NMC 698042
WS 203 267 554 NMC 698043
WS 204 268 215 NMC 698526
WS 205 268 216 NMC 698527
WS 206 268 217 NMC 698528
WS 207 268 218 NMC 698529
WS 208 268 219 NMC 698530
A-32
<PAGE>
RECORDING AMENDMENT
CLAIM NAME BOOK PAGE BOOK PAGE BLM NMC NO.
- ---------- ---- ---- ---- ---- -----------
WS 209 268 220 NMC 698531
WS 210 268 221 NMC 698532
WS 211 268 222 NMC 698533
WS 212 268 223 NMC 698534
WS 213 268 224 NMC 698535
WS 214 268 225 NMC 698536
WS 215 268 226 NMC 698537
WS 216 268 227 NMC 698538
WS 217 268 228 NMC 698539
WS 218 268 229 NMC 698540
WS 219 268 230 NMC 698541
WS 220 268 231 NMC 698542
WS 221 268 232 NMC 698543
WS 222 268 233 NMC 698544
WS 223 268 234 NMC 698545
WS 224 268 235 NMC 698546
WS 225 268 236 NMC 698547
WS 226 268 237 NMC 698548
WS 227 268 238 NMC 698549
WS 228 268 239 NMC 698550
WS 229 268 240 NMC 698551
WS 230 268 241 NMC 698552
WS 231 268 242 NMC 698553
WS 232 268 243 NMC 698554
WS 233 268 244 NMC 698555
WS 234 268 245 NMC 698556
WS 235 268 246 NMC 698557
WS 236 268 247 NMC 698558
WS 237 268 248 NMC 698559
WS 238 268 249 NMC 698560
WS 239 268 250 NMC 698561
WS 240 268 251 NMC 698562
WS 241 268 252 NMC 698563
WS 242 268 253 NMC 698564
WS 243 268 254 NMC 698565
WS 244 268 255 NMC 698566
WS 245 268 256 NMC 698567
WS 246 268 257 NMC 698568
WS 247 268 258 NMC 698569
A-33
<PAGE>
RECORDING AMENDMENT
CLAIM NAME BOOK PAGE BOOK PAGE BLM NMC NO.
- ---------- ---- ---- ---- ---- -----------
WS 248 268 259 NMC 698570
WS 249 268 260 NMC 698571
WS 250 268 261 NMC 698572
WS 251 268 262 NMC 698573
WS 252 268 263 NMC 698574
WS 253 268 264 NMC 698575
WS 254 268 265 NMC 698576
WS 255 268 266 NMC 698577
WS 256 268 267 NMC 698578
WS 257 268 268 NMC 698579
WS 258 268 269 NMC 698580
WS 259 268 270 NMC 698581
WS 260 268 271 NMC 698582
WS 261 268 272 NMC 698583
WS 262 268 273 NMC 698584
WS 263 268 274 NMC 698585
WS 264 268 275 NMC 698586
WS 265 268 276 NMC 698587
WS 266 268 277 NMC 698588
WS 267 268 278 NMC 698589
WS 268 268 279 NMC 698590
WS 269 268 280 NMC 698591
WS 270 269 054 NMC 699527
WS 271 269 055 NMC 699528
WS 272 269 056 NMC 699529
WS 273 269 057 NMC 699530
WS 274 269 058 NMC 699531
WS 275 269 059 NMC 699532
WS 276 269 060 NMC 699533
WS 277 269 061 NMC 699534
WS 278 269 062 NMC 699535
WS 279 269 063 NMC 699536
WS 280 269 064 NMC 699537
WS 281 269 065 NMC 699538
WS 282 269 066 NMC 699539
WS 283 269 067 NMC 699540
WS 284 269 068 NMC 699541
WS 285 269 069 NMC 699542
WS 286 269 070 NMC 699543
A-34
<PAGE>
RECORDING AMENDMENT
CLAIM NAME BOOK PAGE BOOK PAGE BLM NMC NO.
- ---------- ---- ---- ---- ---- -----------
WS 287 269 071 NMC 699544
PART 4. ACQUIRED CLAIMS:
--------- ---------------
The following unpatented lode mining claims, subject to the Special Warranty
Deed and Assignment dated May 17, 1991, by and between NERCO Exploration
Company, an Alaska corporation, Grantor, and Atlas Corporation, a Delaware
corporation, Grantee, which is recorded in Book 222, Page 584 of the Official
Records of Eureka County, Nevada:
A. Unpatented lode mining claims, located in Sections 7 and 18, Township 22
North, Range 50 East, M.D.M., and in Sections 12 and 13, Township 22 North,
Range 49 East, M.D.M., Eureka County, Nevada:
RECORDING AMENDMENT
CLAIM NAME BOOK PAGE BOOK PAGE BLM NMC NO.
- ---------- ---- ---- ---- ---- -----------
COTTON 1 118 327 NMC 291906
COTTON 2 118 328 NMC 291907
COTTON 3 118 329 NMC 291908
COTTON 4 118 330 NMC 291909
COTTON 5 118 331 NMC 291910
COTTON 6 118 332 NMC 291911
COTTON 7 118 333 NMC 291912
COTTON 8 118 334 NMC 291913
COTTON 9 118 335 NMC 291914
COTTON 10 118 336 NMC 291915
COTTON 11 118 337 NMC 291916
COTTON 12 118 338 NMC 291917
COTTON 13 118 339 NMC 291918
COTTON 14 118 340 NMC 291919
COTTON 15 118 341 NMC 291920
COTTON 16 118 342 NMC 291921
COTTON 17 118 343 NMC 291922
COTTON 18 118 344 NMC 291923
COTTON 19 118 345 NMC 291924
COTTON 20 118 346 NMC 291925
COTTON 21 118 347 NMC 291926
COTTON 22 118 348 NMC 291927
A-35
<PAGE>
B. Unpatented lode mining claims located in Sections 5-9, 14-17, 21-23, and
27, Township 22 North, Range 50 East, M.D.M., Eureka County, Nevada:
RECORDING AMENDMENT
CLAIM NAME BOOK PAGE BOOK PAGE BLM NMC NO.
- ---------- ---- ---- ---- ---- -----------
JAM #1 117 090 NMC 288528
JAM #2 117 091 NMC 288529
JAM #3 117 092 NMC 288530
JAM #4 117 093 NMC 288531
JAM #5 117 094 NMC 288532
JAM #6 117 095 NMC 288533
JAM #7 117 096 NMC 288534
JAM #8 117 097 NMC 288535
JAM #9 117 098 NMC 288536
JAM #10 117 099 NMC 288537
JAM #11 117 100 NMC 288538
JAM #12 117 101 NMC 288539
JAM #13 117 102 NMC 288540
JAM #14 117 103 NMC 288541
JAM #15 117 104 NMC 288542
JAM #16 117 105 NMC 288543
JAM #17 117 106 NMC 288544
JAM #18 117 107 NMC 288545
JAM #19 117 108 NMC 288546
JAM #20 117 109 NMC 288547
JAM #21 117 110 NMC 288548
JAM #22 117 111 NMC 288549
JAM #23 117 112 NMC 288550
JAM #24 117 113 NMC 288551
JAM #25 117 114 NMC 288552
JAM #26 117 115 NMC 288553
JAM #27 117 116 NMC 288554
JAM #28 117 117 NMC 288555
JAM #29 117 118 NMC 288556
JAM #30 117 119 NMC 288557
JAM #31 117 120 NMC 288558
JAM #32 117 121 NMC 288559
JAM #33 117 122 NMC 288560
JAM #34 117 123 NMC 288561
JAM #35 117 124 NMC 288562
JAM #36 117 125 NMC 288563
A-36
<PAGE>
RECORDING AMENDMENT
CLAIM NAME BOOK PAGE BOOK PAGE BLM NMC NO.
- ---------- ---- ---- ---- ---- -----------
JAM #37 117 126 NMC 288564
JAM #38 117 127 NMC 288565
JAM #39 117 128 NMC 288566
JAM #40 117 129 NMC 288567
JAM #41 117 130 NMC 288568
JAM #42 117 131 NMC 288569
JAM #43 117 132 NMC 288570
JAM #44 117 133 NMC 288571
JAM #45 117 134 NMC 288572
JAM #46 117 135 NMC 288573
JAM #47 117 136 NMC 288574
JAM #48 117 137 NMC 288575
JAM #49 117 138 NMC 288576
JAM #50 117 139 NMC 288577
JAM #51 117 140 NMC 288578
JAM #52 117 141 NMC 288579
JAM #53 117 142 NMC 288580
JAM #54 117 143 NMC 288581
JAM #55 117 144 NMC 288582
JAM #56 117 145 NMC 288583
JAM #57 117 146 NMC 288584
JAM #58 117 147 NMC 288585
JAM #59 117 148 NMC 288586
JAM #60 117 149 NMC 288587
JAM #61 117 150 NMC 288588
JAM #62 117 151 NMC 288589
JAM #63 117 152 NMC 288590
JAM #64 117 153 NMC 288591
JAM #65 117 154 NMC 288592
JAM #66 117 155 NMC 288593
JAM #67 117 156 NMC 288594
JAM #68 117 157 NMC 288595
JAM #69 117 158 NMC 288596
JAM #70 117 159 NMC 288597
JAM #71 117 160 NMC 288598
JAM #72 117 161 NMC 288599
JAM #73 117 162 NMC 288600
JAM #74 117 163 NMC 288601
JAM #75 117 164 NMC 288602
A-37
<PAGE>
RECORDING AMENDMENT
CLAIM NAME BOOK PAGE BOOK PAGE BLM NMC NO.
- ---------- ---- ---- ---- ---- -----------
JAM #76 117 165 NMC 288603
JAM #77 117 166 NMC 288604
JAM #78 117 167 NMC 288605
JAM #79 117 168 NMC 288606
JAM #80 117 169 NMC 288607
JAM #81 117 170 NMC 288608
JAM #82 117 171 NMC 288609
JAM #83 117 172 NMC 288610
JAM #84 117 173 NMC 288611
JAM #85 117 174 NMC 288612
JAM #86 117 175 NMC 288613
JAM #87 117 176 NMC 288614
JAM #88 117 177 NMC 288615
JAM #89 117 178 NMC 288616
CRAM #1 124 304 NMC 311504
CRAM #2 124 305 NMC 311505
CRAM #3 124 306 NMC 311506
CRAM #4 124 307 NMC 311507
CRAM #5 124 308 NMC 311508
CRAM #6 124 309 NMC 311509
CRAM #7 124 310 NMC 311510
CRAM #8 124 311 NMC 311511
CRAM #9 124 312 NMC 311512
CRAM #10 124 313 NMC 311513
CRAM #11 124 314 NMC 311514
CRAM #12 124 315 NMC 311515
CRAM #13 124 316 NMC 311516
CRAM #14 124 317 NMC 311517
CRAM #15 124 318 NMC 311518
CRAM #16 124 319 NMC 311519
CRAM #17 124 320 NMC 311520
CRAM #18 124 321 NMC 311521
CRAM #19 124 322 NMC 311522
CRAM #20 124 323 NMC 311523
CRAM #21 124 324 NMC 311524
CRAM #22 124 325 NMC 311525
CRAM #23 124 326 NMC 311526
CRAM #24 124 327 NMC 311527
CRAM #25 124 328 NMC 311528
A-38
<PAGE>
RECORDING AMENDMENT
CLAIM NAME BOOK PAGE BOOK PAGE BLM NMC NO.
- ---------- ---- ---- ---- ---- -----------
CRAM #26 124 329 NMC 311529
CRAM #27 124 330 NMC 311530
CRAM #28 124 331 NMC 311531
CRAM #29 124 332 NMC 311532
CRAM #30 124 333 NMC 311533
CRAM #31 124 334 NMC 311534
CRAM #32 124 335 NMC 311535
CRAM #33 124 336 NMC 311536
CRAM #34 124 337 NMC 311537
CRAM #35 124 338 NMC 311538
CRAM #36 124 339 NMC 311539
CRAM #37 124 340 NMC 311540
CRAM #38 124 341 NMC 311541
CRAM #39 124 342 NMC 311542
CRAM #40 124 343 NMC 311543
CRAM #43 124 346 NMC 311546
CRAM #44 124 347 NMC 311547
JELLY #1 124 290 NMC 311548
JELLY #2 124 291 NMC 311549
JELLY #3 124 292 NMC 311550
JELLY #4 124 293 NMC 311551
JELLY #5 124 294 NMC 311552
JELLY #6 124 295 NMC 311553
JELLY #7 124 296 NMC 311554
JELLY #8 124 297 NMC 311555
JELLY #9 124 298 NMC 311556
JELLY #10 124 299 NMC 311557
JELLY #11 124 300 NMC 311558
JELLY #12 124 301 NMC 311559
JELLY #13 124 302 NMC 311560
JELLY #14 124 303 NMC 311561
CRAM A 214 458 NMC 606265
CRAM B 214 459 NMC 606266
A-39
<PAGE>
EXHIBIT B
---------
ACCOUNTING PROCEDURE
--------------------
The financial and accounting procedures to be followed by the Manager
and the Participants under the Agreement are set forth below. References in
this Accounting Procedure to Sections and Articles are to those located in this
Accounting Procedure unless it is expressly stated that they are references to
the Venture Agreement.
ARTICLE I
---------
GENERAL PROVISIONS
-------------------
1.1 General Accounting Records. The Manager shall maintain detailed
--------------------------
and comprehensive cost accounting records in accordance with this Accounting
Procedure, including general ledgers, supporting and subsidiary journals,
invoices, checks and other customary documentation, sufficient to provide a
record of revenues and expenditures and periodic statements of financial
position and the results of operations for managerial, tax, regulatory or other
financial reporting purposes. Such records shall be retained for the duration
of the period allowed the Participants for audit or the period necessary to
comply with tax or other regulatory requirements. The records shall reflect all
obligations, advances and credits of the Participants.
1.2 Bank Accounts. The Manager shall maintain one or more separate
-------------
bank accounts for the payment of all expenses and the deposit of all cash
receipts for the Venture.
1.3 Statements and Billings. The Manager shall prepare statements
-----------------------
and bill the Participants as provided in Article X of the Agreement. Payment of
any such billings by any Participant, including the Manager, shall not prejudice
such Participant's right to protest or question the correctness thereof for a
period not to exceed twenty-four (24) months following the calendar year during
which such billings were received by the Participant. All written exceptions to
and claims upon the Manager for incorrect charges, billings or statements shall
be made upon the Manager within such twenty-four (24) month period. The time
period permitted for adjustments hereunder shall not apply to adjustments
resulting from periodic inventories as provided in Article V.
B-1
<PAGE>
ARTICLE II
----------
CHARGES TO JOINT ACCOUNT
-------------------------
Subject to the limitations hereinafter set forth, the Manager shall charge
the Joint Account with the following:
2.1 Rentals, Royalties and Other Payments. All property acquisition
-------------------------------------
and holding costs, including filing fees, license fees, costs of permits and
assessment work, delay rentals, production royalties, including any required
advances, and all other payments made by the Manager which are necessary to
acquire or maintain title to the Assets.
2.2 Labor and Employee Benefits.
---------------------------
(a) Salaries and wages of the Manager's employees directly engaged in
Operations, including salaries or wages of employees who are temporarily
assigned to and directly employed by same.
(b) The Manager's cost of holiday, vacation, sickness and disability
benefits, and other customary allowances applicable to the salaries and wages
chargeable under Sections 2.2(a) and 2.12. Such costs may be charged on a "when
and as paid basis" or by "percentage assessment" on the amount of salaries and
wages. If percentage assessment is used, the rate shall be applied to wages or
salaries excluding overtime and bonuses. Such rate shall be based on the
Manager's cost experience and it shall be periodically adjusted if necessary at
least annually to ensure that the total of such charges does not exceed the
actual cost thereof to the Manager.
(c) The Manager's actual cost of established plans for employees'
group life insurance, hospitalization, pension, retirement, stock purchase,
thrift, bonus (except production or incentive bonus plans under a union contract
based on actual rates of production, cost savings and other production factors,
and similar non-union bonus plans customary in the industry or necessary to
attract competent employees, which bonus payments shall be considered salaries
and wages under Sections 2.2(a) or 2.12; rather than employees' benefit plans)
and other benefit plans of a like nature applicable to salaries and wages
chargeable under Sections 2.2(a) or 2.12, provided that the plans are limited to
the extent feasible to those customary in the industry.
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<PAGE>
(d) Cost of assessments imposed by governmental authority which are
applicable to salaries and wages chargeable under Sections 2.2(a) and 2.12,
including all penalties except those resulting from the willful misconduct or
gross negligence of the Manager.
2.3 Materials, Equipment and Supplies. The cost of materials, equipment
---------------------------------
and supplies (herein called "Material") purchased from unaffiliated third
parties or furnished by the Manager or any Participant as provided in Article
III. The Manager shall purchase or furnish only so much Material as may be
required for immediate use in efficient and economical Operations. The Manager
shall also maintain inventory levels of Material at reasonable levels to avoid
unnecessary accumulation of surplus stock.
2.4 Equipment and Facilities Furnished by Manager. The cost of
---------------------------------------------
machinery, equipment and facilities owned by the Manager and used in Operations
or used to provide support or utility services to Operations charged at rates
commensurate with the actual costs of ownership and operation of such machinery,
equipment and facilities. Such rates shall include costs of maintenance,
repairs, other operating expenses, insurance, taxes, depreciation and interest
at a rate not to exceed Prime Rate plus 2% per annum. Such rates shall not
exceed the average commercial rates currently prevailing in the vicinity of the
Operations.
2.5 Transportation. Reasonable transportation costs incurred in
--------------
connection with the transportation of employees and material necessary for the
Operations.
2.6 Contract Services and Utilities. The cost of contract services
-------------------------------
and utilities procured from outside sources, other than services described in
Sections 2.9 and 2.13. If contract services are performed by the Manager or an
Affiliate thereof, the cost charged to the Joint Account shall not be greater
than that for which comparable services and utilities are available in the open
market within the vicinity of the Operations. The cost of professional
consultant services procured from outside sources in excess of $25,000 shall not
be charged to the Joint Account unless approved by the Management Committee.
2.7 Insurance Premiums. Net premiums paid for insurance required to
------------------
be carried for Operations for the protection of the Participants. When the
Operations are conducted in an area where the Manager may self-insure for
Workmen's Compensation and/or Employer's Liability under
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<PAGE>
state law, the Manager may elect to include such risks in its self-insurance
program and shall charge its costs of self-insuring such risks to the Joint
Account provided that such charges shall not exceed published manual rates.
2.8 Damages and Losses. All costs in excess of insurance proceeds
------------------
necessary to repair or replace damage or losses to any Assets resulting from any
cause other than the willful misconduct or gross negligence of the Manager. The
Manager shall furnish the Management Committee with written notice of damages or
losses as soon as practicable after a report thereof has been received by the
Manager.
2.9 Legal and Regulatory Expense. Except as otherwise provided in
----------------------------
Section 2.13, all legal and regulatory costs and expenses incurred in or
resulting from the Operations or necessary to protect or recover the Assets of
the Venture. All attorneys' fees and other legal costs to handle, investigate
and settle litigation or claims, including the cost of legal services provided
by the Manager's legal staff, and amounts paid in settlement of such litigation
or claims in excess of $25,000 shall not be charged to the Joint Account unless
approved by the Management Committee (unless paid prior to the completion of
GRANGES' Initial Contribution, in which case approval of the Management
Committee shall not be required).
2.10 Audit. All costs and expenses of services procured from
-----
outside accountants with respect to the establishment, maintenance and
prosecution of the Venture. This provision shall not cover the costs and
expense of accountant services provided by the Manager's Direct Employees, which
costs and expenses shall be charged to the Joint Venture pursuant to Section
2.13.
2.11 Taxes. All taxes (except income taxes) of every kind and nature
-----
assessed or levied upon or in connection with the Assets, the production
of Products or Operations, which have been paid by the Manager for the benefit
of the Participants. Each Participant is separately responsible for income
taxes which are attributable to its respective Participating Interest.
2.12 District and Camp Expense (Field Supervision and Camp Expenses).
--------------------------------------------------------------
A pro rata portion of (i) the salaries and expenses of the Manager's
superintendent and other employees serving Operations whose time is not
allocated directly to such Operations, and (ii) the costs of maintaining and
operating an office (herein called "the Manager's Project Office") and any
necessary suboffice
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<PAGE>
and (iii) all necessary camps, including housing facilities for employees, used
for Operations. The expense of those facilities, less any revenue therefrom,
shall include depreciation or a fair monthly rental in lieu of depreciation of
the investment. The total of such charges for all properties served by the
Manager's employees and facilities shall be apportioned to the Joint Account on
the basis of a ratio, the numerator of which is the direct labor costs of the
Operations and the denominator of which is the total direct labor costs incurred
for all activities served by the Manager.
2.13 Administrative Charge.
---------------------
(a) Each month, the Manager shall charge the Joint Account a sum equal
to three percent of Allowable Costs, up to $250,000 annually, which shall be a
liquidated amount to reimburse the Manager for its home office overhead and
general and administrative expenses to conduct the Operations with respect to
the Properties (but not with respect to the Atlas Mill Complex), and which shall
be in lieu of any management fee. The percentage of Allowable Costs specified
above as chargeable by the Manager is intended to fairly compensate and
reimburse the Manager for overhead and general administrative expenses incurred
by it in conducting Operations and has been set at a level commensurate with the
principal that the Manager shall neither make a profit nor suffer a loss as a
result of its incurring of such expenses. In the event that any Participant
demonstrates to the reasonable satisfaction of the Manager that the percentage
of Allowable Costs chargeable by the Manager results in either a profit or a
loss for the Manager, then such percentage shall be adjusted by the Manager by
written notice to the Participants; provided, that no such adjustments shall be
made prior to November 1, 1996 and not more than one adjustment shall be made
within any twelve (12) month period.
(b) The term "Allowable Costs" as used in this Section 2.13 shall mean
all charges to the Joint Account excluding (i) the administrative charge
referred to herein; (ii) depreciation, depletion or amortization of tangible or
intangible assets; (iii) amounts charged in accordance with Sections 2.1, 2.9
and 2.10.
(c) The monthly administration charge shall be equitably apportioned
among all of the properties served during such monthly period on the basis of a
ratio, the numerator of which is
B-5
<PAGE>
the direct labor costs charged to a particular property and the denominator of
which is the total direct labor costs incurred for all properties served by the
Manager.
(d) The following is a representative list of items comprising the
Manager's principal business office expenses that are expressly covered by the
administrative charge provided in this Section 2.13:
(1) Administrative supervision, which includes services rendered by
managers, department supervisors, officers and directors of the Manager for
Operations, except to the extent that such services represent a direct charge to
the Joint Account, as provided for in Section 2.2;
(2) Accounting, data processing, personnel administration, billing and
record keeping in accordance with governmental regulations and the provisions of
the Venture Agreement, and preparation of reports;
(3) The services of tax counsel and tax administration employees for
all tax matters, including any protests, except any outside professional fees
which the Management Committee may approve as a direct charge to the Joint
Account;
(4) Routine legal services rendered by outside sources and the
Manager's legal staff not otherwise charged to the Joint Account under Section
2.9; and
(5) Rentals and other charges for office and records storage space,
telephone service, office equipment and supplies.
(e) Except for the management fee set forth above, it is the intent of
the Manager and the Participants that none of them shall lose or profit by
reason of their duties and responsibilities as Manager or Participant. The
Participants shall meet and in good faith endeavor to agree upon changes to the
level or nature of charges to the Joint Account deemed necessary to correct any
unfairness or inequity.
(f) The administrative charge set forth in this Section 2.13 shall not
apply prior to completion of GRANGES' Initial Contribution. Prior to completion
of GRANGES' Initial Contribution the administrative charge set forth in Section
1.13(c) shall apply.
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<PAGE>
2.14 Other Expenditures. Any reasonable direct expenditure, other
------------------
than expenditures which are covered by the foregoing provisions, incurred by the
Manager for the necessary and proper conduct of Operations.
ARTICLE III
-----------
A BASIS OF CHARGES TO JOINT ACCOUNT
-----------------------------------
3.1 Purchases. Material purchased and services procured from third
---------
parties shall be charged to the Joint Account by the Manager at invoiced cost,
including applicable transfer taxes, less all discounts taken. If any Material
is determined to be defective or is returned to a vendor for any other reason,
the Manager shall credit the Joint Account when an adjustment is received from
the vendor.
3.2 Material Furnished by or Transferred to the Manager or a
--------------------------------------------------------
Participant. Any Material furnished by the Manager or Participant from its
- -----------
stocks or transferred to the Manager or Participant shall be priced on the
following basis:
(a) New Material. New Material transferred from the Manager or
------------
Participant shall be priced F.0.B. the nearest reputable supply store or railway
receiving point, where like Material is available, at the current replacement
cost of the same kind of Material, exclusive of any available cash discounts, at
the time of the transfer (herein called, "New Price").
(b) Used Material.
-------------
(1) Used Material in sound and serviceable condition and
suitable for reuse without reconditioning shall be priced as follows:
(A) Used Material transferred by the Manager or
Participant shall be priced at seventy-five percent (75%) of the New Price;
(B) Used Material transferred to the Manager or
Participant shall be priced (i) at seventy-five percent (75%) of the New Price
if such Material was originally charged to the Joint Account as new Material, or
(ii) at sixty-five percent (65%) of the New Price if such Material was
originally charged to the Joint Account as good used Material at seventy-five
percent (75%) of the New Price.
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<PAGE>
(2) Other used Material which, after reconditioning will be further
serviceable for original function as good secondhand Material, or which is
serviceable for original function but not substantially suitable for
reconditioning shall be priced at fifty percent (50%) of New Price. The cost of
any reconditioning shall be borne by the transferee.
(3) All other Material, including junk, shall be priced at a value
commensurate with its use or at prevailing prices. Material no longer suitable
for its original purpose but usable for some other purpose shall be priced on a
basis comparable with items normally used for such other purposes.
(c) Obsolete Material. Any Material which is serviceable and usable
-----------------
for its original function, but its condition is not equivalent to that which
would justify a price as provided above shall be priced by the Management
Committee. Such price shall be set at a level which will result in a charge to
the Joint Account equal to the value of the service to be rendered by such
Material.
3.3 Premium Prices. Whenever Material is not readily obtainable at
--------------
published or listed prices because of national emergencies, strikes or other
unusual circumstances over which the Manager has no control, the Manager may
charge the Joint Account for the required Material on the basis of the Manager's
direct cost and expenses incurred in procuring such Material and making it
suitable for use. The Manager shall give written notice of the proposed charge
to the Participants prior to the time when such charge is to be billed,
whereupon any Participant shall have the right, by notifying the Manager within
ten (10) days of the delivery of the notice from the Manager, to furnish at the
usual receiving point all or part of its share of Material suitable for use and
acceptable to the Manager.
3.4 Warranty of Material Furnished by the Manager or Participants.
-------------------------------------------------------------
Neither the Manager nor any Participant warrants the Material furnished beyond
any dealer's or manufacturer's warranty and no credits shall be made to the
Joint Account for defective Material until adjustments are received by the
Manager from the dealer, manufacturer or their respective agents.
ARTICLE IV
----------
DISPOSAL OF MATERIAL
---------------------
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<PAGE>
4.1 Disposition Generally. The Manager shall have no obligation to
---------------------
purchase a Participant's interest in Material. The Management Committee shall
determine the disposition of major items of surplus Material, provided the
Manager shall have the right to dispose of normal accumulations of junk and
scrap Material either by sale or by transfer to the Participants as provided in
Section 4.2.
4.2 Distribution to Participants. Any Material to be distributed to
----------------------------
the Participants shall be made in proportion to their respective Participating
Interests, and corresponding credits shall be made to the Joint Account on the
basis provided in Section 3.2.
4.3 Sales. Sales of Material to third parties shall be credited to
-----
the Joint Account at the net amount received. Any damages or claims by the
Purchaser shall be charged back to the Joint Account if and when paid.
ARTICLE V
---------
INVENTORIES
------------
5.1 Periodic Inventories, Notice and Representations. At reasonable
------------------------------------------------
intervals, inventories shall be taken by the Manager, which shall include all
such Material as is ordinarily considered controllable by operators of mining
properties, and the expense of conducting such periodic inventories shall be
charged to the Joint Account. The Manager shall give written notice to the
Participants of its intent to take any inventory at least thirty (30) days
before such inventory is scheduled to take place. A Participant shall be deemed
to have accepted the results of any inventory taken by the Manager if the
participant fails to be represented at such inventory.
5.2 Reconciliation and Adjustment of Inventories. Reconciliation of
--------------------------------------------
inventory with charges to the Joint Account shall be made, and a list of
overages and shortages shall be furnished to the Management Committee within six
(6) months after the inventory is taken. Inventory adjustments shall be made by
the Manager to the Joint Account for overages and shortages, but the Manager
shall be held accountable to the Venture only for shortages due to lack of
reasonable diligence.
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<PAGE>
EXHIBIT C
---------
TAX MATTERS
-----------
ARTICLE 1
---------
TAX MATTERS PARTNER
--------------------
(a) Designation of Tax Matters Partner. Prior to the completion of its
-----------------------------------
Initial Contribution, GRANGES shall serve as the tax matters partner
(hereinafter "TMP") as defined in Section 6231(a)(7) of the Internal Revenue
Code of 1986 ("the Code"). Thereafter, the Manager shall serve as TMP. In the
event of any change in Manager, the Participant serving as manager at the end of
a taxable year shall continue as TMP with respect to all matters concerning such
year. The TMP and other Participants shall use their best efforts to comply with
the responsibilities outlined in this Article I and in Sections 6221 through
6233 of the Code (including any Treasury regulations promulgated thereunder) and
in doing so shall incur no liability to any other party.
(b) Notice. The Participants shall furnish the TMP with such information
------
(including information specified in Section 6230(e) of the Code) as it may
reasonably request to permit it to provide the Internal Revenue Service with
sufficient information to allow proper notice to the Participants in accordance
with Section 6223 of the Code. The TMP shall keep each Participant informed of
all administrative and judicial proceedings for the adjustment at the
partnership level of partnership items in accordance with Section 6223(g) of the
Code.
(c) Inconsistent Treatment of Partnership Item. If an administrative
------------------------------------------
proceeding contemplated under Section 6223 of the Code has begun, and the TMP so
requests, the Participants shall notify the TMP of their treatment of any
partnership item on their federal income tax return in a manner which is
inconsistent with the treatment of that item on the partnership return.
(d) Extensions of Limitation Periods. The TMP shall not enter into
--------------------------------
any extension of the period of limitations as provided under Section 6229 of the
Code without first giving reasonable advance notice to all other Participants of
such intended action.
(e) Requests for Administrative Adjustments. No Participant shall
---------------------------------------
file, pursuant to Section 6227 of the Code, a request for an administrative
adjustment of partnership items for any
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partnership taxable year without first notifying all other Participants. If all
other Participants agree with the requested adjustment, the TMP shall file the
request for administrative adjustment on behalf of the partnership. If unanimous
consent is not obtained within 30 days, or within the period required to timely
file the request for administrative adjustment, if shorter, any Participant,
including the TMP, may file a request for administrative adjustment on its own
behalf.
(f) Judicial Proceedings. Any Participant intending to file a petition
--------------------
under Section 6226, 6228 or other sections of the Code with respect to any
partnership item, or other tax matters involving the partnership, shall notify
the other Participants of such intention and the nature of the contemplated
proceeding. If the TMP is the Participant intending to file such petition, such
notice shall be given within a reasonable time to allow the other Participants
to participate in the choosing of the forum in which such petition will be
filed. If the Participants do not agree on the appropriate forum, then the
appropriate forum shall be decided by majority vote. Each Participant shall have
a vote in accordance with its Participating Interest in the partnership. If a
majority cannot agree, the TMP shall choose the forum. If any Participant
intends to seek review of any court decision rendered as a result of a
proceeding instituted under the preceding part of this Paragraph 1.6, such
Participant shall notify the other Participants of such intended action.
(g) Settlements. The TMP shall not bind any other Participant to a
-----------
settlement agreement without first obtaining the written concurrence of any such
Participant. Any other Participant who enters into a settlement agreement with
respect to any partnership items, as defined by Section 6231(a)(3) of the Code,
shall notify the other Participants of such settlement agreement and its terms
within 90 days from the date of settlement.
(h) Fees and Expenses. The TMP shall not engage legal counsel, certified
-----------------
public accountants, or others without the prior written consent of a majority of
the Participants. Any Participant may engage legal counsel, certified public
accountants, or others in its own behalf and at its sole cost and expense. Any
reasonable item of expense, including but not limited to fees and expenses for
legal counsel, certified public accountants, and others which the TMP incurs in
connection with any audit, assessment, litigation, or other proceeding regarding
any partnership
C-2
<PAGE>
item, shall constitute proper charges to the Joint Account and shall be borne by
the Participants as any other item which constitutes a direct charge to the
Joint Account pursuant to the Agreement.
(i) Survival. The provisions of this Article I, including but not
--------
limited to the obligation to pay fees and expenses contained in Paragraph 1.8,
shall survive the termination of the partnership or the termination of any
Participant's interest in the partnership and shall remain binding on the
Participants for a period of time necessary to resolve with the Internal Revenue
Service or the Department of the Treasury any and all matters regarding the
federal income taxation of the partnership for the applicable tax year(s).
ARTICLE 2
---------
TAX ELECTIONS AND ALLOCATIONS
------------------------------
(a) Tax Partnership Election. It is understood and agreed that the
------------------------
Participants intend to create a partnership for United States federal and state
income tax purposes, and, unless otherwise agreed to hereafter by all
Participants, no Participant shall make an election to be, or have the
arrangement evidenced hereby, excluded from the application of any provisions of
Subchapter K of the Code, or any equivalent state income tax provision. It is
understood and agreed that the Participants intend to create a partnership for
federal and state and income tax purposes only. The Manager shall file with the
appropriate office of the Internal Revenue Service a partnership income tax
return covering the Operations. The Participants recognize that this Agreement
may be subject to state income tax statutes. The Manager shall file with the
appropriate offices of the state agencies any required partnership state income
tax returns. Each Participant agrees to furnish to the Manager any information
it may have relating to Operations as shall be required for proper preparation
of such returns. The Manager shall furnish to the other Participants for their
review a copy of each proposed income tax return at least two weeks prior to the
date the return is filed.
(b) Tax Elections. The partnership shall make the following elections for
--------------
purposes of all partnership income tax returns:
(a) To use the accrual method of accounting.
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<PAGE>
(b) Pursuant to the provisions at Section 706(b)(1) of the Code, to use as
its taxable year the calendar year.
(c) To deduct currently all development expenses to the extent possible
under Sections 616 and 291 of the Code.
(d) Unless the Participants unanimously agree otherwise, to compute the
allowance for depreciation in respect of all depreciable Assets using the
maximum accelerated tax depreciation method and the shortest life permissible.
(e) To treat advance royalties as deductions from gross income for the year
paid or accrued to the extent permitted by law.
(f) To deduct currently qualified reclamation and closing costs in
accordance with, and to the extent permitted by, Section 468 of the Code.
Any other election required or permitted under the Code or any state
tax law shall be made as determined by the Management Committee.
Each Participant will elect under Section 617(a) of the Code to deduct
currently all exploration expenses to the extent possible.
(c) Allocations to Participants. Allocations for tax purposes shall be
---------------------------
in accordance with the following:
(a) Exploration expenses and development cost deductions shall be
allocated among the Participants in accordance with their respective
contributions to such expenses and costs.
(b) Subject to Subparagraph (l) below, depreciation and loss deductions
with respect to a depreciable Asset shall be allocated among the Participants in
accordance with their respective contributions to the adjusted basis of the
Asset which gives rise to the depreciation or loss deduction.
(c) Production and operating cost deductions shall be allocated among
the Participants in accordance with their respective contributions to such
costs.
(d) Subject to Subparagraph (l) below, cost depletion and any loss
deduction with respect to a depletable property (as defined in Section 614 of
the Code) shall be allocated to
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<PAGE>
the Participants in accordance with their respective contributions to the
adjusted basis of the depletable property. Percentage depletion under Section
613 of the Code shall be allocated (i) first in the same manner as cost
depletion to the extent it does not exceed cost depletion and (ii) second, to
the extent percentage depletion exceeds cost depletion, to the Participants in
the same proportion as their distributive share of gross income from the
depletable property (as determined under Section 613(c) of the Code) for the
year in which such depletion is allowable.
(e) All deductions and losses which are not described in Subparagraph
(a) through (d) above, shall be allocated among the Participants in accordance
with their respective contributions to the costs producing each such deduction
or the adjusted basis of the Asset producing each such loss.
(f) In the event that Section 11.1 of this Agreement (directing that
each Participant shall take in kind and separately dispose of its share of all
Products) is interpreted to mean only that a Participant is authorized to direct
the disposition of its share of Products by the partnership all income, gains or
losses realized by the partnership from such disposition shall be allocated to
such Participant, and any deductions arising from expenditures incurred by such
Participant in connection with such disposition (to the extent they are
attributed to the partnership) shall also be allocated to such Participant. If,
pursuant to Section 11.2 of this Agreement, the Manager purchases a
Participant's share of Product for its own account, or sells such share of
Product, the net profits or losses from such sale (computed after taking into
account the reasonable expenses incurred) shall be allocated to the Participant.
(g) Subject to Subparagraph (l) below, any gain recognized on the
sale or other disposition of a depreciable Asset shall be allocated (i) first,
to the extent such gain does not exceed the amount of depreciation claimed with
respect to such Asset, to the Participants in proportion to the amount of such
depreciation previously allocated to, or claimed by, them; and (ii) second, to
the Participants in accordance with their Participating Interests.
(h) Subject to Subparagraph (l) below, any gain recognized on the
sale or other disposition of a depletable property (as defined in Section 614 of
the Code) shall be allocated (i) first, to the extent such gain does not exceed
the total Recapturable Deductions (as defined
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<PAGE>
below) with respect to such Property, to the Participants in proportion to the
total Recapturable Deductions previously allocated to, or claimed by, them with
respect to such property (adjusted for any recapture of such deductions
previously allocated to, or recognized by, the Participants) and (ii) second, to
the Participants in accordance with their Participating Interests. As used in
the previous sentence, "Recapturable Deductions" shall mean depletion deductions
(to the extent reflected in the capital accounts of the Participants),
exploration expense deductions, and development expense deductions attributable
to a depletable property, reduced (but not below zero) by any prior recapture of
such deductions.
(i) Subject to Subparagraph (l) below, any recapture of exploration
expenses under Section 617(b)(1)(A) of the Code, and any increase in taxable
income realized by reason of the disallowance of depletion under Section
617(b)(1)(B) of the Code, shall be allocated to the Participants in the same
manner as the related exploration expenses were allocated to, or claimed by,
them.
(j) Subject to Subparagraph (l) below, all other items of income and
gain shall be allocated to the Participants in accordance with their
Participating Interests.
(k) All tax credits shall be allocated to the Participants in
proportion to the allocation of the item of income, gain, loss or deduction
generated by the receipt or expenditure giving rise to the credit. Any credit
recaptures shall be allocated to the Participants in the same proportion as the
related credit was allocated.
(l) Notwithstanding the foregoing, in the event all or substantially
all the Assets (by value) are sold or otherwise disposed of, any gain or loss
recognized by the partnership shall be allocated among the Participants so that,
to the extent possible, the Participants' resulting capital account balances are
in proportion to the Participants' Participating Interests. Any recapture for
tax purposes of mining exploration and development expenditures, depreciation
deductions and depletion deductions arising by reason of such a sale or other
disposition shall be allocated, to the extent consistent with the allocation of
gain giving rise to such recapture, to the Participant which was originally
allocated, or which originally claimed, the recaptured deduction.
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<PAGE>
(m) Notwithstanding the foregoing, in accordance with Section
704(c) of the Code, income, gain, loss and deduction with respect to property
contributed to the partnership by a Participant shall be shared among the
Participants so as to take account of the variation between the basis of the
property to the partnership and its fair market value at the time of
contribution.
ARTICLE 3
---------
CAPITAL ACCOUNTS; LIQUIDATION
------------------------------
(a) Capital Accounts.
----------------
(a) A separate capital account shall be established and maintained
for each Participant. Such capital account shall be increased by (i) the amount
of money contributed by the Participant to the partnership, (ii) the fair market
value of property contributed by the Participant to the partnership (net of
liabilities secured by such contributed property that the partnership is
considered to assume or take subject to) and (iii) allocations to the
Participant of partnership income and gain (or items thereof), including income
and gain exempt from tax; and shall be decreased by (iv) the amount of money
distributed to the Participant by the partnership, (v) the fair market value of
property distributed to the Participant by the partnership (net of liabilities
secured by such distributed property and that the Participant is considered to
assume or take subject to), (vi) allocations to the Participant of expenditures
of the partnership not deductible in computing its taxable income and not
properly chargeable to a capital account, and (vii) allocations of partnership
loss and deduction (or items thereof), excluding items described in (vi) above
and percentage depletion to the extent it exceeds the adjusted tax basis of the
depletable property to which it is attributable.
(b) In the event that the capital accounts of the Participants are
computed with reference to the book value of any Asset which differs from the
adjusted tax basis of such Asset, then the capital accounts shall be adjusted
for depreciation, depletion, amortization and gain or loss as computed for book
purposes with respect to such Asset in accordance with Treasury Regulation
Section 1.704-1(b)(2)(iv)(g).
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<PAGE>
(c) In the event any interest in the partnership is transferred in
accordance with the terms of this Agreement, the transferee shall succeed to the
capital account of the transferor to the extent it relates to the transferred
interest, except as provided in Treasury Regulation Section 1.704-
1(b)(2)(iv)(1).
(d) In the event property, other than money, is distributed to a
Participant, the capital accounts of the Participants shall be adjusted to
reflect the manner in which the unrealized income, gain, loss and deduction
inherent in such property (that has not been reflected in the capital accounts
previously) would be allocated among the Participants if there was a taxable
disposition of such property for the fair market value of such property (taking
Section 7701(g) of the Code into account) on the date of distribution. For this
purpose the fair market value of the property shall be determined as set forth
in Paragraph 3.2(a) below.
(e) The foregoing provisions, and the other provisions of this
Agreement relating to the maintenance of capital accounts and the allocations of
income, gain, loss, deduction and credit, are intended to comply with Treasury
Regulations Section 1.704-1(b), and shall be interpreted and applied in a manner
consistent with such Regulations. In the event the Management Committee shall
determine that it is prudent to modify the manner in which the capital accounts,
or any debits or credits thereto, are computed in order to comply with such
Regulations, the Management Committee may make such modification, provided that
it is not likely to have a material effect on the amount distributable to any
Participant upon liquidation of the partnership pursuant to Paragraph 3.2 of
this Exhibit C.
(b) Liquidation. In the event the partnership is "liquidated" within
-----------
the meaning of Treasury Regulation Section 1.704-1(b)(2)(ii)(g) then,
notwithstanding any other provision of this Agreement to the contrary, the
following steps shall be taken:
(a) The capital accounts of the Participants shall be adjusted to
reflect any gain or loss which would be realized by the partnership and
allocated to the Participants pursuant to the provisions of Article II of this
Exhibit C if the Assets had been sold at their fair market value at the time of
liquidation. The fair market value of the Assets shall be determined by the
Participants provided, however, that in the event that the Participants fail to
agree on the fair market value of
C-8
<PAGE>
any Asset, its fair market value shall be determined by a nationally recognized
independent engineering firm or other qualified independent party approved by
all Participants.
(b) Following the adjustments described in Subparagraph (a) above,
any Participant with a negative balance in its capital account shall contribute
an amount of cash to the partnership sufficient to achieve a zero balance in its
capital account.
(c) Following the adjustments described in Subparagraphs (a) and (b)
above, if the capital account balance of any Participant (stated as a percentage
of the capital account balances of all Participants) is not equal to the
Participant's Participating Interest, then any Participant whose capital account
balance is less than its Participating Interest shall have the option, but not
the obligation, upon ten (10) days notice by the Manager, to contribute a
sufficient amount of cash to the partnership to cause its capital account
balance and Participating Interest to be in parity.
(d) After making the foregoing adjustments and/or contributions, all
remaining Assets shall be distributed to the Participants in accordance with the
balances in their capital accounts. Unless otherwise expressly agreed by all
Participants, each Participant shall receive an undivided interest in each and
every Asset determined by the ratio of the amount in each Participant's capital
account to the total of all the Participants' capital accounts. Assets
distributed to the Participants shall be deemed to have a fair market value
equal to the value assigned to them pursuant to Paragraph 3.2(a) above.
(e) Any contribution by a Participant to the partnership to restore
the capital account of such Participant to zero, and all distributions to the
Participants in respect of their capital accounts shall be made in accordance
with the time requirements of Treasury Regulation Sections 1.704-
1(b)(2)(ii)(b)(2) and (3).
ARTICLE 4
---------
SALE OR ASSIGNMENT
-------------------
(a) Agreement Not to Terminate . The Participants agree that if any one of
---------------------------
them makes a sale or assignment of its Participating Interest under this
Agreement, such sale or assignment will
C-9
<PAGE>
be structured so as not to cause a termination under Section 708(b)(1)(B) of the
Code. If a Section 708(b)(1)(B) termination is caused, the terminating
Participant will indemnify all nonterminating Participants and save them
harmless on an after tax basis for any increase in taxes, interest, and
penalties or decrease in credits to the nonterminating Participants caused by
the termination of the partnership.
C-10
<PAGE>
EXHIBIT D
---------
NET PROFITS INTEREST CALCULATION
--------------------------------
1. Calculation and Payment. In the event either Participant (the
-----------------------
"Payee") is entitled to a payment based upon the Net Profits derived from the
Properties , the amounts due Payee shall be determined as of the end of each
calendar quarter and shall be accounted for and distributed as follows:
(a) The Payor shall establish and maintain on its books a separate net
profits account (the "Account") in accordance with good accounting practices.
The account shall be a noninterest-bearing account. The books and records of
the Account shall be open for examination, inspection, copying and audit by
Payee and its accredited representatives at all reasonable times and the Payee's
sole expense.
(b) The Account shall be credited with: (i) An amount equal to the
sale proceeds with effect from the Effective Date of the Mining Venture
Agreement (the "NPI Date") actually received by Payor for all minerals produced
from the Properties. If the Product is refined gold or silver, gross revenues
shall be determined as to gold by multiplying the average London Bullion Market
Association daily p.m. gold fixing for the calendar quarter and as to silver by
multiplying the average New York Silver Price as published by Handy & Harman for
the calendar quarter by the number of ounces of gold or silver outturned to the
nonwithdrawing Participant's pool account (or to a third party account for the
benefit of such Participant) by an independent third-party refinery on either a
provisional or final settlement basis during the calendar quarter; (ii) the net
sale proceeds after sales and use taxes received by Payor from the sale of any
equipment, materials or supplies, the cost of which was charged to the Account;
and (iii) the amount of all judgments, awards, or revenues collected by Payor
pertaining to the minerals produced from the Properties . If the Account is
credited under subparagraph (1) in respect of minerals taken by the Payor in
kind, the Account shall not be thereafter credited or debited for actual sale
proceeds in respect of such minerals.
(c) The Account shall with effect from the NPI Date be charged with
all items included in Article II of Exhibit B to the Mining Venture Agreement
pertaining to Payor's activities insofar and to the extent the same are properly
allocable to the Properties and the following: (i) all expenses incurred
relative to the sale of Products, including (to the extent actually paid) an
-----------------------------
allowance for commissions at rates which are normal and customary in the
industry; (ii) Interest on monies borrowed or advanced for costs and expenses
of Operations, at an annual rate equal to two percentage points above the Prime
- ------------- ---
Rate, but in no event in excess of the maximum permitted by law; and (iii)
Reasonably anticipated reclamation costs.
(d) Amounts due Payee with respect to its Net Profits Interest shall
be determined for each calendar quarter by deducting the aggregate of any charge
balance existing in the Account at the first of such quarter, plus the total
charges properly made thereto during such quarter, from the sum of any credit
balance existing in the Account at the first of such quarter and total credits
properly made thereto during such quarter. Payee shall receive payments
attributable to its Net Profits Interest only
D-1
<PAGE>
for such calendar quarters when such credits exceed such charges and shall not
receive payment of any Net Profits accrued when Payee's Net Profits Interest is
created. On or before the last day of the month following the close of each
calendar quarter, Payor shall furnish to Payee a detailed statement clearly
reflecting the condition of the Account as of the close of business on the last
day of the preceding calendar quarter. Any deficit or loss (i.e., an excess of
charges over credits) reflected to any such statement shall be carried forward
in the Account for the next and succeeding calendar quarters until such deficit
or loss has been liquidated. In case of net profits in the Account (i.e., an
excess of credits over charges) as reflected in any such statement, payment to
Payee of the portion of such net profits attributable to its Net Profits
Interest shall be enclosed with the statement rendered to Payee and the Account
shall then be charged with an amount equal to the final amount on which the
payment to Payee shall have been calculated.
2. Successors in Interest. It is the intention of the parties that
---------------------
the net profits interest payable to Payee is transferable by Payee and
constitutes a burden on the Properties which is an obligation of Payor or of
Payor's successors in interest to the Properties.
3. Nature of Interest. The Net Profits Interest is strictly a
------------------
passive interest and the holder thereof shall have no right to participate in
any management or operational decisions. The payor of Net Profits makes no
representations or covenants, express or implied, as to whether any Exploration,
Development, Mining or other operations will ever be conducted upon the
properties subject to the Net Profits Interest. Whether or not any such
operations shall ever be conducted, and the timing, extent, location, duration
and manner and method of conducting same, shall be determined in the sole
discretion of the Payor.
D-2
<PAGE>
EXHIBIT E
---------
INSURANCE
---------
The Manager shall, at all times while conducting Operations, comply fully
with the applicable worker's compensation laws and purchase, or provide through
self-insurance, protection for the Participants comparable to that provided
under standard form insurance policies for (i) commercial general liability
insurance, with policy limits for Bodily Injury and Property Damage not less
than $1,000,000 per occurrence; and (ii) adequate and reasonable insurance
against risk of fire and other risks ordinarily insured against in similar
operations. If the Manager elects to self-insure, it shall charge to the Joint
Account an amount equal to the premium it would have paid had it secured and
maintained a policy or policies of insurance on a competitive bid basis in the
amount of such coverage. Each Participant shall self-insure or purchase for its
own account such additional insurance as it deems necessary.
E-1
<PAGE>
EXHIBIT F
---------
INITIAL WORK PROGRAM
--------------------
AND BUDGET
----------
Initial Program and Budget through September 29, 1996
* Data transfer and compilation
* Review geophysical program
* Geological mapping
* Geochemical sampling program
* Follow-up drill program for the mineralization identified at the northwest
extension of the original Gold Bar deposit
* Pediment and Range Front exploration drilling
GRANGES may make such changes in the initial Program and Budget as GRANGES deems
appropriate, in its sole and absolute discretion. However, the cost of the
program herein contemplated shall comprise, at a minimum, $625,000.00 of
Exploration and Development Expenditures.
F-1
<PAGE>
EXHIBIT G
---------
DEFINITION OF
-------------
NET SMELTER RETURNS
-------------------
In addition to its Participating Interest, ATLAS shall be entitled to receive a
production royalty equal to two percent (2%) of the Net Smelter Returns (as
defined below) from the sale of any Product produced and sold from Parts 1 and 3
of Exhibit A to the Agreement that are included in the Selected Properties. The
Net Smelter Returns production royalty shall not apply to production from any of
the Properties that, as of the date of the Agreement, are burdened by royalties
payable to any third party. "Net Smelter Returns" are defined as the gross
proceeds received by the Participants from the sale of Products derived from the
applicable portion of the Selected Properties (the "Royalty Properties), less
(a) all costs to the Manager or Participants of weighing, sampling, determining
moisture content and packaging such material and of loading and transporting it
to the point of sale, including insurance and in transit security costs; (b) all
charges and penalties imposed by the smelter, refinery or purchaser; and (c) ad
valorem taxes, severance taxes, state royalties, and such other taxes that, as
of the date of the Agreement, are imposed upon production. For purposes of
calculating Net Smelter Returns in the event the Manager or Participants elect
not to sell any portion of any gold derived from the Royalty Properties, but
instead elect to have the final product of any such gold credited to or held for
its account with any smelter, refiner or broker, such gold shall be deemed to
have been sold at the Quoted Price (as defined below) on the day such gold is
actually credited to or placed in such account. For purposes of determining the
percentage of the royalty payable to ATLAS on gold produced from the Royalty
Properties, the "Quoted Price" shall mean the price per ounce of gold as quoted
on the London P.M. fix on the day prior to the date of final settlement from the
smelter, refinery or other buyer of the gold on which the royalty is to be paid.
In the event that, subsequent to the date of the Agreement, new severance taxes,
federal or state royalties, ad valorem taxes or other taxes upon production are
imposed or increased ("New or Increased Burdens"), the amounts of such New or
Increased Burdens paid with respect to production from the Royalty Properties
shall be credited in full against the production royalty payable to ATLAS
hereunder; provided that in no event shall the production royalty payable to
ATLAS hereunder be reduced by operation of such credit to less than one percent
(1%) of the Net Smelter Returns realized by the Participants from the sale of
any Products produced and sold from the Royalty Properties.
All production royalties shall be computed and paid on a monthly basis. At the
time of making each such payment, ATLAS shall receive a statement showing the
amount of such production royalty and the manner in which it was determined.
All records relating to the calculation of such royalties shall be available for
inspection by ATLAS for the purpose of confirming the accuracy of such
statements. Any such inspection shall be for a reasonable length of time during
regular business hours, at a mutually convenient time, upon reasonable notice.
Any complaint or objection which
G-1
<PAGE>
ATLAS may wish to raise with respect to production royalties payable hereunder
shall be made by ATLAS in writing within six months after the end of the
calendar year in which such payment was made to ATLAS or shall be deemed to have
been waived by ATLAS.
All determinations with respect to: (a) whether ore will be beneficiated,
processed, milled or sold in a raw state, (b) the methods of beneficiating,
processing or milling any such ore, (c) the constituents to be recovered
therefrom, and (d) the purchasers to whom any ore, minerals or mineral
substances may be sold, shall be made by the Manager or Participants in their
sole and absolute discretion.
The mineral content of Products mined and removed from the Royalty Properties
(excluding ore leached in place) and the quantities of constituents recovered
therefrom shall be determined by the Manager or Participants, or with respect to
Products which are sold, by the mill or smelter to which the Products are sold,
in accordance with standard sampling and analysis procedures, and shall be a
weighted average based on the total amount of Products from the Royalty
Properties crushed and sampled or the constituents recovered. Upon reasonable
advance notice, ATLAS shall have the right to have representatives present at
the time samples are taken for the purpose of confirming that the sampling and
analysis procedure is proper.
The Manager or Participants shall have the right of commingling any Products
which are mined under this Agreement with any other similar ores, minerals or
mineral substances, provided that the commingling is accomplished only after the
volume or weight of such ore, minerals or mineral substances, as the case may
be, has been fairly and accurately measured and such ore, minerals and mineral
substances sampled. An accurate record of the weight or volume, along with the
results of the sampling of such ore, minerals or mineral substances which are so
commingled shall be kept and made available to ATLAS at all reasonable times.
In the event that ATLAS owns an interest in any Products extracted from any part
of the Royalty Properties which is less than the entire undivided mineral or
working interest in such Products (subject to GRANGES' Participating Interest
therein), then the production royalties herein reserved and attributable to
ATLAS shall be paid to ATLAS only in the proportion that ATLAS' interest in such
production bears to the entire undivided mineral or working interest therein.
The production royalty provided for herein is strictly a passive interest and
shall not entitle the holder thereof to participate in any management or
operation decisions. The payor of the production royalty makes no
representations or covenants, express or implied, as to whether any exploration,
Development, Mining or other Operations will ever be conducted upon the Royalty
Properties. Whether or not any such operations shall ever be conducted, and the
timing, extent, location, duration, manner and method of conducting same, shall
be determined in the sole discretion of the payor.
G-2
<PAGE>
ATLAS CORPORATION
370 17TH STREET
SUITE 3150
DENVER, COLORADO
80202 - 5631
March 5, 1996
MSV Resources Inc.
630 Rene - Levesque Blvd. West
Suite 3240
Montreal, Quebec
H3B 1S6
Attention: Mario Caron, President
- ----------------------------------
Dear Sirs:
RE: COMBINATION OF ATLAS CORPORATION AND MSV RESOURCES INC.
Further to our recent discussions, we wish to confirm the agreement in principle
between Atlas Corporation ("Atlas") and MSV Resources Inc. ("MSV") to effect a
business combination of Atlas and MSV. The principal terms of such combination
are as follows:
I. Atlas will form a wholly-owned subsidiary ("Atlas Canada") under the laws
of the Canada or a province thereof for the purpose of making a share
exchange take-over bid (the "Offer") for all of the outstanding common
shares of MSV. Under the Offer, two Exchangeable Shares of Atlas Canada
("Exchangeable Shares") will be offered for every three common shares of
MSV ("MSV Common Shares").
II. Each Exchangeable Share will be exchangeable at any time for one share of
common stock of Atlas (an "Atlas Common Share") and the Exchangeable Shares
will also carry rights:
(i) to one vote per share at all meeting of shareholders of Atlas;
(ii) to receive dividends equal to and concurrently with any dividends on
the Atlas Common Shares declared by the board of directors of Atlas;
and
(iii) to participate equally with the Atlas Common Shares in any
distribution of the assets of Atlas upon its liquidation,
dissolution or winding-up. The Exchangeable Shares shall not carry
any voting rights with respect to Atlas Canada.
III. Completion of the Offer will be conditional upon MSV having raised a
minimum of US$20,000,000 pursuant to a private placement of special
warrants ("Special
112
<PAGE>
Warrants"). Each Special Warrant will entitle the holder thereof to receive
upon exercise or deemed exercise thereof, without payment of any additional
consideration, one MSV Common Share. The terms of the private placement and
the Special Warrants will provide that:
(i) if not previously exercised, the Special Warrants will be deemed to
be exercised immediately prior to the completion of the Offer; and
(ii) the MSV Common Shares issuable upon exercise or deemed exercise of
the Special Warrants will be tendered to the Offer.
The proceeds from the private placement of the Special Warrants will be
held in escrow pending the successful completion of the Offer and will be
released to MSV immediately following the successful completion of the
Offer.
IV. The private placement of Special Warrants will be subject to approval by
shareholders of MSV and all necessary regulatory approvals, including,
without limitation, the approval of The Toronto Stock Exchange and the
Montreal Exchange.
V. Completion of the Offer will also be conditional upon:
(a) not less than 66 2/3% of the outstanding MSV Common Shares (including
the shares issuable on exercise of the Special Warrants) being tendered to
the Offer and not withdrawn;
(b) the Exchangeable Shares being approved for listing on a Canadian stock
exchange;
(c) the shareholders of Atlas having approved an amendment to Atlas'
Certificate of Incorporation to make such changes as may be necessary to
support the rights to be attached to the Exchangeable Shares;
(d) receipt of all other necessary regulatory approvals including, without
limitation, approval of the New York Stock Exchange; and
(e) there being no material adverse changes in the business, operations or
affairs of Atlas or MSV from the date hereof until expiry of the Offer.
VI. Upon completion of the Offer, the board of directors of Atlas will be
expanded to ten members, who will include four nominees of MSV, and Mario
Caron will be appointed Executive Vice Chairman of Atlas. The board of
directors of Atlas Canada will be the same as the board of directors of
Atlas.
VII. From and after the date hereof until the earlier of the completion of the
Offer and August 1, 1996, MSV will not, either directly or through any
representative, approach any other party to suggest that the other party
make an offer to purchase MSV Common Shares or substantially all of the
assets of MSV provided that if MSV receives an unsolicited offer
113
<PAGE>
for or approach with respect to the purchase of MSV Common Shares or MSV's
assets, it will immediately advise Atlas of the terms thereof.
VIII. The board of directors of MSV will unanimously support the Offer and will
unanimously recommend its acceptance to shareholders of MSV and, in the
event that the Offer contemplates a second stage transaction so as to
acquire the MSV Common Shares not purchased under the Offer, the Board of
Directors of MSV will also support such second stage transaction. The
directors' circular of MSV with respect to the Offer shall be mailed to
shareholders of MSV contemporaneously with the mailing of the Offer.
IX. Nothing herein shall affect the fiduciary obligations of the directors of
MSV.
X. From and after the date hereof until the earlier of the completion of the
Offer and August 1, 1996, each of Atlas and MSV will carry on business in
the ordinary and normal course and, in particular, will not, without the
prior consent of the other party, effect any distribution to shareholders,
issue any securities except pursuant to agreements existing at the date
hereof or contemplated herein, grant any new rights of options to purchase
any securities, nor without the prior consent of the other party, enter
into, amend or terminate any material contracts. In addition, the
management of Atlas and MSV will immediately establish a committee
consisting of David Birkenshaw, Gary Davis and Mario Caron which will have
responsibility for all decisions with respect to the development of the
projects of Atlas and MSV pending completion of the Offer. All decisions
of such committee must be unanimous.
XI. Atlas and MSV acknowledge that each of them will be obligated to make
public disclosure of the principal terms hereof. Atlas and MSV agree to
cooperate with each other in the preparation of the required news releases
and to coordinate the issuance thereof.
XII. Each of Atlas and MSV will be responsible for its own expenses associated
with the implementation of the terms hereof, including, without
limitation, legal, accounting and financial advisory fees.
It is acknowledged that this letter represents an expression of the mutual
intent of the parties and the parties agree to negotiate expeditiously and in
good faith a formal combination agreement which will include the terms set forth
herein and other usual and customary terms and conditions.
If you are in agreement with the foregoing, would you please so indicate by
signing the counterpart hereof in the appropriate space below and return it to
the undersigned.
Yours very truly,
ATLAS CORPORATION
114
<PAGE>
By: David J. Birkenshaw
Chairman and Chief Executive Officer
The foregoing is hereby agreed to this ______ day of March, 1996.
MSV RESOURCES INC.
By: Mario Caron
President
115
<PAGE>
ATLAS CORPORATION
LIST OF SUBSIDIARIES OF THE REGISTRANT
Atlas Precious Metals, Inc. (Incorporated in Nevada)
Atlas Gold Mining, Inc. (Incorporated in Nevada), a subsidiary of Atlas Precious
Metals, Inc.
Atlas Perlite, Inc. (Incorporated in Oregon), a subsidiary of Atlas Precious
Metals, Inc.
Phoenix Financial Holdings Inc. (organized under the laws of Ontario, Canada)
