U. S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-KSB
(Mark One)
[ X ] 15, ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 [FEE REQUIRED]
For the fiscal year ended JANUARY 31, 1996
[ ] 15, TRANSITION REPORT UNDER SECTION 13 OR 15(d) of
THE SECURITIES EXCHANGE ACT OF 1934 [NO FEE REQUIRED]
For the Transition period from to
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Commission file number 0-17386
FISCHER-WATT GOLD COMPANY, INC.
(Name of small business issuer in its Charter)
Nevada 88-0227654
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
1410 Cherrywood Drive
Coeur d'Alene, Idaho 83814
(Address of principal executive offices) (Zip Code)
(Issuer's telephone number, including area code) 208-664-6757
Securities registered under Section 12(b) of the Exchange Act: NONE
Securities registered under Section 12(g) of the Exchange Act:
Common Stock, $0.001 Par Value
Title of Class
Check whether the issuer (1) filed all reports required to be filed by Section
13 or 15(d) of the Exchange Act during the past 12 months (or for such shorter
period that the registrant was required to file such reports), and (2) has been
subject to such filing requirements for the past 90 days. Yes [ ] No [ X ]
Check if there is no disclosure of delinquent filers in response to Item 405 of
Regulation S-B contained in this form, and no disclosure will be contained, to
the best of the registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-KSB or any
amendment to this Form 10-KSB. [ ]
The issuer's revenues for its most recent fiscal year were $2,096,000.
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The aggregate market value of the voting stock held by non-affiliates as of
August 31, 1996 (using the average of the Bid and Asked prices) was $9,784,552.
The number of Shares of Common Stock, $.001 par value, outstanding on August 31,
1996 was 31,196,760.
Documents Incorporated by Reference into this Report: None
Transitional Small Business Disclosure Format (check one) Yes [ ] No [ X ]
PART I
Item 1. DESCRIPTION OF BUSINESS
Introduction
------------
Fischer-Watt Gold Company, Inc.(collectively with its subsidiaries,
"Fischer-Watt" or the "Company"), was formed under the laws of the State of
Nevada in 1986. Fischer-Watt's primary business is mining and mineral
exploration, and to that end to own, acquire, improve, develop, sell, lease,
convey lands or mineral claims or any right, title or interest therein; and to
search, explore, prospect or drill for and exploit ores and minerals therein or
thereupon.
During the fiscal year ended January 31, 1996, the Company completed two
significant acquisitions. The first was the acquisition of the Oronorte property
in Colombia, South America.
On August 28, 1995, the Company entered into an agreement with Greenstone
Resources Ltd., ("Greenstone") to acquire the Oronorte property in northern
Colombia, which includes the El Limon Mine, an underground gold mine, and the
rights to several exploration concessions effective August 24, 1995.
On October 20, 1995, the Company closed the acquisition from Greenstone.
All of the outstanding shares of Greenstone Resources of Colombia Ltd., a
Bermuda corporation were acquired. Greenstone Resources of Colombia Ltd., owns
61,540,000 shares of Compania Minera Oronorte S.A.("Oronorte"). The Company
completed the acquisition of 470,000 shares of Oronorte from Minas Santa Rosa, a
subsidiary of Greenstone. Also on such date, the Company completed the
acquisition of 2,800,000 shares of Oronorte from Dual Resources. This
significant acquisition resulted in the Company owning, directly or indirectly,
99.9% of Oronorte, which owns the El Limon Mine, a small underground gold mine
in the Department of Antioquia, Colombia. The Company assumed operational
control of Oronorte on August 24, 1995.
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In exchange for the various interests in Oronorte, the Company conveyed to
Greenstone, all of its interests in Minerales de Copan S.A. de C.V., ("Copan")
which included shares and options to purchase shares totaling approximately
eight percent of Copan. Copan owns the San Andres Mine in Honduras.
Fischer-Watt's non-recourse debt to Greenstone of $115,000 was canceled in
connection with this conveyance.
On January 29, 1996 the Company acquired Great Basin Management Co., Inc.,
("GBM"). GBM is a 100% owner of Great Basin Exploration and Mining Co., Inc.,
("GBEM"), a mineral exploration company based in Reno, Nevada. GBM was acquired
through the merger of a wholly-owned subsidiary of the Company with GBM in which
4,125,660 shares of Fischer-Watt common stock were issued to the shareholders of
GBM. GBEM holds leases on several mineral properties in the Battle
Mountain-Eureka Trend in Nevada as well as additional exploration properties in
Nevada and California. Three of the Nevada properties, Red Canyon, Afgan-Kobeh
and the Tempo, are in joint venture arrangements with other mining companies and
a fourth property, Coal Canyon, is scheduled for a preliminary, exploratory
drilling program later this year.
On February 28, 1995, Tombstone Explorations Co. Ltd.("Tombstone"), a
Vancouver-based mining and exploration company entered into a letter agreement
with Fischer-Watt to purchase Fischer-Watt's interest in the Minas de Oro
property in Honduras. Minas de Oro was joint ventured with Kennecott Exploration
Company ("Kennecott") who had an 80 percent working interest. Tombstone agreed
to buy the Kennecott interest and to assume Fischer-Watt's $500,000 promissory
note to Kennecott, as well as Fischer-Watt's interest in the property. Under the
terms of the agreement, Tombstone paid Fischer-Watt $150,000 in cash and
delivered for cancellation, Fischer-Watt's $500,000 promissory note to Kennecott
plus all accrued interest. The transaction closed on May 15, 1995. This sale
resulted in a gain of $641,000 and substantially reduced the Company's debt.
On November 2, 1993, the Company signed a letter of intent to be acquired
by Greenstone Resources Ltd. During the due diligence period, Greenstone
advanced funds to the Company for current operations. The proposed merger was
terminated by Greenstone in February 1994. In March 1994, Fischer-Watt accepted
an offer from Greenstone to acquire an option to purchase all of Fischer-Watt's
interests in the San Andres project in Honduras for a total purchase price of
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$955,000 consisting of cash, cancellation of debt incurred pursuant to the
proposed merger and $700,000 worth of Greenstone common stock, valued at the
time of exercise. Greenstone exercised its option on October 31, 1994. Upon
exercise of the option, Greenstone was assigned Fischer-Watt's option to acquire
51% of Compania Minerales de Copan, S.A. de C.V. from Milner Consolidated Silver
Mines (25.5%) and North American Palladium Resources (25.5%) as well as all of
Fischer-Watt's other rights and interest in the San Andres project. Minerales de
Copan owns the San Andres project. As part of the option agreement, Fischer-Watt
negotiated a loan from Greenstone to provide all of the funds to purchase up to
nine percent of the shares of Compania Minerales de Copan S.A. de C.V.("Copan").
The loan was nonrecourse as to both principal and interest to the Company and
was to be repaid out of dividends, if any, from the Copan shares. The shares
were pledged to Greenstone as collateral for the loan which was due on or before
December 31, 1999. At August 24, 1995, this loan and the related accrued
interest obligation, totaling $115,000, were satisfied in conjunction with the
sale of the Company's interest in the Copan shares.
The Company's only producing metals property is the El Limon Mine in the
Oronorte district in Colombia, South America. The Company assumed control of
operations in late August 1995 and has produced an average of 899 ounces of gold
per month since the property was acquired, compared with an historical average
of 734 ounces per month. During the three months ending July 31, 1996, the El
Limon produced 3,104 ounces and in July 1996, the mine produced a life-of-mine
record of 1,180 ounces. This increase in production reflects the implementation
of a grade control program that was instituted under the Company's management.
Further improvement in grade is anticipated when the equipment for a new slurry
pumping system is scheduled to be fully operational by the end of January 1997.
Operations
----------
Since the Company assumed operations of the El Limon Mine on August 24,
1995, the Company produced 3,746 ounces of gold and 3,500 ounces of silver. The
selling prices the Company received averaged $384.49 per ounce for gold and
$5.34 per ounce for silver. The cash cost per ounce for gold was $338.50.
The Company sells most of its precious metal production to one customer.
However due to the nature of the precious metals market the Company is not
dependent upon this significant customer to provide a market for its products.
Although the Company could be directly affected by weakness in the precious
metals processing business, the Company monitors the financial condition of its
customer and considers the risk of credit loss to be remote.
Production from the El Limon Mine comes from a single vein which on average
dips at 42 degrees and has an average width of 1.6 feet. The average grade of
this vein is 1.2 ounces of gold per ton. This is high grade ore; however, the
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geometry of the vein makes it necessary to mine to a width of 4.0 feet which
dilutes the grade of the ore by 60%. An initial step has been taken to alleviate
this dilution by setting up a program of hand sorting the combination of ore and
waste after it is blasted and before it is hoisted to the surface. The waste
removed in the hand sorting is put back into mined out areas underground.
The vein is a white, opaque quartz which normally breaks into pieces under
two inches in diameter when blasted and the waste rock which is a dark-colored
granite or gneiss breaks into much larger pieces. At the present time, the
blasted ore and waste is very dirty and the visual separation based on the color
differential is not possible. Separation must be made on fragmentation size
alone. Despite this limitation, however, a fifteen percent increase in the ore
grade being hoisted and sent to the processing plant has been recorded.
The next step in this grade control program is to wash the blasted ore and
waste so that a separation by color can be made. However, washing will send a
large volume of very fine material containing a large percentage of gold to the
bottom of the mine shaft. At the present time, the mine does not have the
ability to recover this material and bring it to the surface. An engineering
study indicated that a slurry pumping system can accomplish this at an estimated
cost of $70,000. The system design is completed and the equipment has been
ordered. The slurry pumping system is expected to be operational in the fourth
quarter of fiscal 1997.
The processing plant at El Limon is capable of treating 100 tons per day.
As the efficiency of the grade control program is increased, less waste is being
fed to the plant, thus making room for more ore to be processed on a daily
basis. This additional ore can be obtained from expansion of operations at El
Limon and/or development of other properties within reasonable ore delivery
range of the present processing plant.
At the El Limon mine, gold production has consistently increased since the
end of the fiscal year. Second quarter fiscal 1997 production was at a record
3115 ounces and a life-of-mine monthly production record was attained in July
1996 with production of 1,180 ounces. These improved results stem from the new
grade control program at the El Limon mine, the introduction of new satellite
ore sources and increased mill recoveries due to operational modifications.
The characteristics of the ore body, such as vein width and grade, have not
changed. The improved output is being accomplished by a two stage upgrading of
the mined ore where waste rock that became mixed in with the vein material
during the mining sequence is removed prior to the ore being milled. A large
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percentage of this waste is now being removed while the ore is still
underground. The separation is based on the different breakage characteristics
of the ore and waste with the waste rock breaking into larger fragments than the
vein material. A second ore and waste separation is carried out on the surface.
This sorting is based on color since the waste rock is a uniform dark rock
compared to the lighter colored ore. These measures have resulted in a 70%
increase in mill feed grade for the latest six months compared to the equivalent
period a year earlier.
Since a significant portion of this ore-waste separation is carried out
underground, that waste is no longer being hoisted thereby creating hoisting
capacity for additional ore. In this way, mill throughput of the upgraded ore
has been maintained at around 2,000 tonnes per month. Color separation or ore
and waste will be carried out underground once installation of an ore washing
and slurry pumping system is completed. This should be fully operational by the
end of 1996.
Personnel changes, production cost controls, metal revenue enhancement
programs and new purchasing procedures have been instituted at the mine and in
the Medellin office to further increase performance.
Mine Development
----------------
Expansion and operations at the El Limon is going very well. A change in
the mining method has increased productivity in the stopes and development of a
new level, Level 6, is underway. The capacity of the locomotive ore cars, and
mucking machines, assigned to Level 6 has been increased to improve the
efficiency of development and production.
Development of two other properties, under control of Oronorte, has begun
in order to augment production from the El Limon. The first of these, the La
Aurora is approximately six kilometers from the El Limon processing facility. At
this property, an interior shaft has been extended 130 feet down on a vein and
work is in progress drifting horizontally along this strong structure to develop
ore reserves. Development ore from work on Level 1 is being sent to the El Limon
Plant for processing. In July of 1966 this ore contributed approximately 100
ounces to the month's production. A portal site for the development of level two
and subsequent levels has been completed and cross cutting will begin with the
arrival of a second one yard LHD (Load Haul Dump) vehicle and five ton truck.
This equipment is now in Colombia.
The second property, the Juan Vara is approximately two kilometers from the
El Limon processing plant. Earlier in fiscal 1997, surface diamond drill holes
intersected a vein quite similar to the El Limon vein in width and grade. A 700
meter long ramp is being driven to access the vein at about 80 meters below the
surface.
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The geometry of both the La Aurora and the Juan Vara vein in relation to
the surface topography will make it very easy to develop them (if warranted)
with rubber tired mining equipment. A rehabilitated one cubic yard LHD vehicle
has been purchased in the United States and is now operating at the mine.
Exploration
-----------
Mine site exploration is focused on the north and south extensions of the
El Limon vein. To the north, Level 5 development has exposed 160 meters of the
vein with an average width of over 0.5 meters and an average grade of over 35
grams of gold per tonne. By extrapolation of the geology from upper levels there
are indications that another 90 meters of vein can be expected in this area. To
the south, a diamond drilling program is underway on the Siete concession
located immediately south of the El Limon mine.
Fischer-Watt's exploration team, based out of the Medellin office, has
commenced its Colombian regional exploration program. Numerous disseminated gold
mineralization prospects are being examined and management believes that the
renowned high grade northern Colombian gold fields can host open-pittable, bulk
minable deposits. To date, very little exploration has been carried out in this
part of Colombia for these deposits.
In Nevada, Fischer-Watt's exploration includes a preliminary drill program
on the Coal Canyon property which will be carried out this year. The property is
located on a highly prospective trend of gold mineralization north of Eureka. In
addition, new areas are constantly being evaluated for eventual staking and
acquisition. The Company's joint venture partners on the Red Canyon, Afgan-Kobeh
and Tempo properties continue with exploration programs in accordance with the
agreements.
Private Placement
-----------------
On November 15, 1995, the Company announced the completion of a private
placement which raised approximately $820,000 to finance the expansion and
operation of Fischer-Watt's recently acquired Oronorte gold mine in Colombia.
The securities sold in the private placement were units, priced at $.30 per
unit, each consisting of two shares of common stock and one warrant to purchase
one common share at an exercise price of $.30 through August 31, 1997.
On March 12, 1996 the Company announced that it had completed a $5 million
foreign offering conducted outside of the United States pursuant to Regulation
"S". These funds are to finance capital equipment and working capital needs for
further development and expansion of Fischer-Watt's gold mining operation in
Colombia and its exploration and development activities in Colombia and Nevada
properties.
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This Regulation S offering consisted of the sale of 4,980,000 units at
$1.06 per unit. Each unit was composed of two shares of Fischer-Watt common
stock and one share purchase warrant. Each of these warrants entitles the holder
to purchase one additional share of Fischer-Watt common stock at an exercise
price of $.75 through February 28, 1998. These securities were not registered
under the Securities Act of 1933 and may not be offered or sold in the United
States absent registration or an applicable exemption from registration
requirements.
Definitions
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"Adit"
A nearly horizontal passage from the surface by which a mine is entered and
unwatered.
"Feasibility"
Completion of a detailed written evaluation of the technical, economic and
environmental feasibility of constructing and operating a mine. The evaluation
contains all information customarily required by institutional lenders in
determining whether to make debt financing available for a project of its type
and size, including capital and operating costs, environmental constraints,
water supplies, facilities for disposal of wastes and reclamation.
"Footwall"
The mass of rock beneath a fault plane, vein, lode or bed of ore.
"Force Majeure"
An event which is outside the control of the parties and cannot be avoided
by exercise of due care.
"Generative Exploration"
Exploration for mineral deposits in areas not previously recognized as
containing mineralization.
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"Net Proceeds Interest"
Gross revenues from the sale of products, less operating, exploration and
development costs of the project, usually calculated on a cash basis.
"Net Smelter Return Royalty," or "NSR"
Royalty based on the net amount shown due by the smelter or other place of
sale as indicated by its return or settlement sheets, after payment of all
freight charges from the shipping point to the smelter, and after all smelter
charges have been deducted, but without deduction of any other charges.
"Participating Interest"
The percentage interest representing the operating ownership (cost and
revenues) of a participant in a joint venture agreement.
"Stope"
An excavation from which ore has been excavated in a series of steps.
Usually applied to highly inclined or vertical veins.
"Strike"
The course or bearing of the outcrop of an inclined bed or structure; the
direction of a horizontal line in the plane of an inclined stratum.
"Target"
The indicated location of a potential ore body. The location is indicated
by geologic data and concepts and includes a drilling plan (with specific drill
hole locations) that will test the accuracy of the geologic data and concepts by
penetrating the potential ore body. One property may contain several targets.
"Tonne"
A unit of weight equal to 2,240 pounds. Also called a long ton, as
distinguished from short ton, a weight measurement equal to 2000 pounds.
"Winze"
A vertical or inclined opening or excavation, sunk underhand, connecting
two levels in a mine.
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"Work Commitments"
Total amount of work to be performed on a property to satisfy the terms of
the agreement under which the property was acquired. It may be expressed in
total dollars to be spent on the property or the number of feet to be drilled on
the property.
Plan of Operation
-----------------
The Company anticipates that it will, during fiscal 1997, continue to
improve its operations at Oronorte through additional capital improvements in
rail mounted equipment for Level 6 of the El Limon Mine, an additional load haul
dump vehicle (LHD) for the development of the La Aurora, a nearby property under
the control of Oronorte and the Juan Vara, a second satellite source under
development just two kilometers south of the El Limon, and through
implementation of the recommendations of an engineering study for improving the
performance of the processing plant and assay laboratory at the El Limon Mine.
In addition, the Company plans to begin development of the El Carmen property in
the Oronorte district, begin a regional exploration program in Northern Colombia
and continue exploration efforts in the Battle Mountain-Eureka Trend in Nevada.
The Company intends that these activities will be accomplished with the
Company's own funds.
While the Company reported net income in fiscal 1996 primarily as a result
of realizing gains on the sale or exchange of non-producing mineral properties,
it continues to experience negative cash flow from operations and incur losses
from mining. Management believes that as the recently-acquired producing gold
mine property is further developed and production levels increase, sufficient
cash flows will exist to fund the Company's continuing mining operations and
exploration and development efforts in other areas. Management anticipates
achieving levels of production sufficient to fund the Company's operating needs
by the end of fiscal 1998 and in the interim will fund operations with the cash
raised in its March 1996 offering. The ability of the Company to achieve its
operating goals, and thus positive cash flows from operations, is dependent upon
the future market price of gold and the ability to achieve future operating
efficiencies anticipated with increased production levels. Management's plans
may require additional financing or disposition of some of the Company's
non-producing assets. While the Company has been successful in raising cash in
the past, there can be no assurance that its future cash raising efforts and
anticipated operating improvements will be successful.
Information About Industry Segments
-----------------------------------
Fischer-Watt operates in only one segment, mineral activities.
Narrative Description of Business
---------------------------------
Fischer-Watt has been engaged primarily in the location, acquisition,
exploration, development and production of precious metal mineral properties.
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The search for precious metal deposits that can be profitably produced is
extremely high risk and development requires large capital outlays and
operational expertise.
The value of the Company's properties and exploration results may be
affected by the prices of precious metals, especially gold, and by the cost of
extracting the precious metals. During 1995, gold prices averaged over $384 per
ounce and fluctuated from a low of $374 to a high of $397. During the last ten
years, gold prices have averaged $386 per ounce and stayed over $300 per ounce
while modern heap leach technologies have has allowed lower grades of ore bodies
to be mined. For several years, this trend created a resurgence in the United
States of exploration activity for gold in the minerals industry. During the
past several years, this increase in activity has expanded to Latin America.
The availability of mining prospects is dependent upon the Company's
ability to negotiate leases or concessions with property owners or to locate
claims pursuant to the General Mining Law of 1872. Bills recently passed and
currently being considered by the United States Congress to amend the federal
mining law could substantially impair the ability of the Company and other
companies to develop mineral resources on federal unpatented mining claims which
constitute one of the primary sources of mining properties in the United States.
Such bills contain provisions to eliminate or substantially impair the ability
of companies to obtain a patent on unpatented mining claims as well as
provisions for the payment of royalties to the Federal government.
Other than mining claims, leases, concessions and agreements, the Company
has no patents, trademarks, licenses or franchises material to its operations.
(See Item 2-Description of Property).
All of the properties in which Fischer-Watt has an interest are accessible
throughout the year.
If mineralized deposits are discovered under claims or leases in which
Fischer-Watt owns an interest, the economic viability of the deposit may depend
upon numerous factors not within the Company's control, including the selling
price of minerals, the extent of other domestic production, proximity and
capacity of water and mills, and the effect of state, federal or foreign
government regulations.
No portion of the Company's business is subject to renegotiation of profits
or termination of contracts or sub-contracts at the election of the Government.
Competition in the Company's industry occurs almost exclusively in the
acquisition of mining properties because the market price for gold is determined
by market factors and conditions that are beyond the Company's control. The
exploration for, development of and acquisition of gold and other precious metal
properties are subject to intense competition. The principal methods of
competition include: (i) bonus payments at the time of lease acquisition, (ii)
delay rentals and advance royalty payments, (iii) the use of differential
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royalty rates, (iv) the amount of annual rental payments, (v) exploration and
production commitments by the lessee and (vi) staking claims. Companies with
greater financial resources, larger staffs and labor forces, and more equipment
for exploration and development may be in a more advantageous position than the
Company to compete for such mineral properties. Management believes that
competition for acquiring mineral prospects will continue to be intense.
The mining industry, including Fischer-Watt, must follow certain local,
state and federal regulations imposed in each country where it operates to
maintain environmental quality. To the best knowledge of management, all the
Company's projects comply with present regulations and their compliance has not
resulted in any additional material capital and/or operating costs. The
Company's principal executive officer has been involved in the permitting of
mines throughout his career. He keeps abreast of applicable legislation
affecting the permitting process. Outside consultants are also available that
specialize in the permitting process. In Colombia, the Company believes that it
is in full compliance with the regulations issued by the Environmental Ministry,
a newly created agency that oversees environmental regulations. It cannot be
known at this time what additional future laws and regulations might be adopted,
nor their effect, if any, on the Company.
At September 1, 1996, Fischer-Watt and subsidiaries have employees as shown
below by company:
Company Full-time Part-Time Total
Employees Employees Employees
--------- --------- ---------
United States 7 2 9
Foreign 43 2 37
------ ------ ------
Total 50 4 54
====== ====== ======
In addition, the Company contracts with a labor cooperative at the El Limon
Mine that provides an hourly labor force of over 200 people. The labor
cooperative has been contracting with the El Limon Mine since April 1992. It is
currently operating under a one year contract that expires January 15, 1997.
Annual pay ranges from $2,160 to $4,800 per year. Benefits which include health
insurance, retirement, social security and vacation and holidays run
approximately 56% of annual pay.
Foreign Operations
------------------
All of the Company's current production and mining operations are derived
from its Colombian subsidiary. In past years, the Company has had significant
losses due to property abandonments in Central America and in Mexico. All prior
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year gains on the sales of mineral interests have been the results of sales of
mineral interests in the Republic of Honduras. The Company plans to continue
exploration efforts in South America and Mexico as well as in the western United
States, principally in Nevada.
In February 1991, the Company began concentrating its exploration efforts
in the Republic of Honduras, where it acquired nine properties by concession or
lease plus an ownership interest in a Honduran corporation. It has since
abandoned seven of those properties and sold two properties plus its interest in
the Honduran corporation in conjunction with the Oronorte acquisition. Several
of these properties were abandoned in prior years for lack of funds.
The Company also owns interests in non-producing mineral concessions in
Mexico through its 50%-owned Mexican corporation, Minera Montoro S.A. de C.V.
("Montoro"). Montoro was incorporated in Mexico City, Mexico in October 1989.
The remaining 50% is owned by Jorge Ordonez, a director of the Company, and his
family and business associates. Effective July 1996, the Company's interest
increased to 65%.
At this time, management is unaware of any extraordinary risks associated
with the Company's present, or proposed, operations in these countries. Colombia
has a strong tradition of private property rights and is one of the few Latin
American countries that did not nationalize much of its basic industry. The
guerrilla situation is an ongoing problem but the Company has recently increased
its security measures at the El Limon Mine and is constantly evaluating the
risks. Inflation remains a problem but has declined to 20% in 1995. Hedging
mechanisms are available to mitigate the effects of inflation and the Company is
investigating possible solutions. The Company does not presently employ forward
sales contracts or engage in any hedging activities. The government of Colombia
imposes a 4% royalty on the production of gold and silver.
FINANCIAL INFORMATION RELATING TO THE COST BASIS
OF FOREIGN AND DOMESTIC MINERAL INTERESTS:
Year Ended January 31,
1996 1995 1994
------- ------- -------
United States $ 1,661,000 $ 304,000 $ 340,000
Colombia 1,488,000 - -
Costa Rica - - 197,000
Honduras - 174,000 206,000
Mexico - - 62,000
--------- -------- --------
Mineral Interests $3,149,000 $ 478,000 $ 805,000
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Item 2. DESCRIPTION OF PROPERTY.
SUMMARY
-------
The following is a description of the Company's mineral properties. The
Company holds interests in mineral properties located in Colombia and in the
United States in the states of Arizona, California, Nevada, as well as in
Mexico. The Company's interest in the properties varies on a property by
property basis. The nature and amount of the Company's interest in properties is
discussed in this item.
COLOMBIAN PROPERTIES
--------------------
Oronorte, Department of Antioquia, Colombia
-------------------------------------------
Oronorte is a mining company licensed to operate in Colombia. It is 99.95%
owned by Fischer-Watt and Fischer-Watt's wholly-owned subsidiaries. All of
Oronorte's mining licenses and permits were transferred to it from Greenstone in
1995. At this time, Oronorte holds a total of four mining permits and sixteen
mining licenses in the Oronorte district comprising an area of 5,735.12
hectares. The following properties are included in the Oronorte district.
1. El Limon Mine.
2. Juan Vara prospect.
3. La Aurora Mine.
4. El Carmen property.
At the present time, the El Limon Mine is in production, the La Aurora Mine
is in development, the Juan Vara prospect is under development and at the El
Carmen property a second stage surface drilling program is scheduled for
completion by December of 1996.
All of the properties are located in north central Colombia in the
Department of Antioquia. The first three properties are within 2 to 6 kilometers
of each other and have a common geological environment. The El Carmen property
is approximately 20 kilometers northeast of the El Limon Mine and has a
different geological environment.
Access to the El Limon Mine is by road from Medellin, approximately 160
kilometers to the southwest. The mine is on the main road leading from Bogota to
the port of Barranquilla on the Atlantic Ocean. It is a one day drive from the
mine to the port of Buenaventura on the Pacific coast where the Company ships
its concentrates to Japan. The closest airport is at El Bagre, one hour north of
the mine by road. It is serviced daily by four scheduled Twin Otter flights of
30 minutes from Medellin. El Bagre is a town of about 10,000 people and is
located on the Nechi river.
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The mine is about 5 kilometers south of the town of Zaragoza which is also
on the Nechi river about 24 kilometers south of El Bagre. Travel between
Zaragoza and El Bagre can be by road or river.
The El Limon facilities are connected to the government power grid. Since
the government rations power, the mine has installed two diesel powered
generators with outputs of 260 and 240 kw. There are periods of time when there
is insufficient power to operate all of the plant and mining equipment
simultaneously. During these periods, management has elected to run the mill,
one compressor, hoists and lighting. This means there is insufficient compressed
air and ventilation in the mine and work is impeded.
The town of Zaragoza is also connected to the national telephone network.
The mine is connected to this network via radio telephone. An office is
maintained in the town to allow the use of fax communications. Recently, a new
telephone has been installed on the property. It is connected by satellite and
phone calls can be made around the globe.
The Juan Vara Vein is the strike extension of the El Limon Vein and is
located approximately 2 kilometers south of El Limon.
The Aurora Vein is located 6 kilometers south of the El Limon Mine. It has
the same strike as the El Limon vein but is structurally situated approximately
300 - 400 meters in the footwall.
The El Carmen property is located 20 kilometers northeast of the El Limon
Mine. It is the most northerly of a number of gold bearing quartz sulfide vein
systems known to occur between El Bagre and the town of Segovia, which lies 60
kilometers to the south.
History
-------
The El Limon Mine was discovered by prospecting in 1939 and was operated on
a small scale until 1946 when lack of capital forced suspension of operations.
In 1947, G. Leland and H. Vom Stauffen examined the property for the Timmins
Group of Montreal. The company deemed the mine to be too small at that time to
mount an efficient operation. Leland and Vom Stauffen considered the project to
be economic and formed a partnership to exploit the mine by improving the
milling facilities. Proven reserves at the time were about 12,000 tonnes at 35
grams gold per tonne.
Choco - Pacifico leased the property in 1958 and drilled six holes, three
of which intersected a high grade section of the vein. Reserves were calculated
at 25,000 tonnes of 35 grams gold per tonne. Choco - Pacifico returned the
property to Vom Stauffen in 1962 when the parent decided to invest further in
the Segovia Mines and the Nechi Placers.
15
<PAGE>
Vom Stauffen continued to operate the mine from 1962 to his death in 1975,
when his widow sold the mine to other investors who fought amongst themselves.
Grupo Minero Ltda. of Medellin and Oro Norte S.O.M. resolved the legal problems
and received clearance from the Mine Department to begin exploiting the deposit.
These companies lacked capital and know-how and were approached by Greenstone
with a proposal to purchase and operate the mine. The deposit was acquired by
Greenstone Resources in 1986 and placed into production in November 1990.
Following the acquisition by Greenstone, metallurgical testing, plant
re-design and additional exploration was undertaken.
Underground mine development was started in 1990. Since that time the work
has consisted of developing the main levels, deepening one shaft and installing
a production hoist, sinking a winze and installing a hoist, driving the stope
raises and mining the rooms. Some pillar recovery has been carried out.
El Limon Mine Historical Production
-----------------------------------
Calendar Tonnes Recovered Avg. Recovered Head
Year Milled Troy Recovery Ounces Grade
ounces Percent Per Tonne g/Tonne
----- ------ ------- ------- --------- -------
1990* 2,040 365 90 0.180 6.19
1991 24,567 10,241 90 0.420 14.41
1992 17,302 7,679 90 0.450 15.34
1993 26,961 9,990 90 0.380 12.80
1994 23,011 7,510 91 0.324 11.10
1995 22,563 8,603 92 0.381 12.89
* Two months' operation
As shown in the table, the head grade peaked at 15.34 grams of gold per
tonne in 1992. Since then, the grade has dropped and the tonnes processed have
increased.
This trend has caused negative cash flows from 1993 to 1995. The main
reasons for this were: Inadequate grade control procedures; low productivity due
to shortage of mine equipment; insufficient haulage facilities, only one
locomotive underground with haulage on two levels and a high rate of inflation.
Since September 1995, when Fischer-Watt took over the property, grade
control methods have improved. The average mill head from October 1995 to March
1996 was 17.6 grams of gold per ton as compared to 12.89 grams of gold per ton
for 1995.
16
<PAGE>
Proven and probable geological reserves at El Limon and La Aurora as of
June 1996 stood at 40,610 tonnes at a grade of 14.00 grams of gold per ton.
These reserves were calculated by Oronorte's resident geologist, and reviewed
and verified by Davy International, an independent industry consulting firm.
These diluted geological reserves are those tonnes that have been diluted to
include a mining height of 1.35 meters perpendicular to the dip of the vein.
Specific gravity of the vein is 2.65 and specific gravity of the waste is 2.80.
The minimum cut-off grade used is 9 grams of gold per ton and the erratic high
values, higher than 100 grams of gold per ton are cut to 100 grams of gold per
ton while calculating the grades of these reserves. Initial reserve estimates
made in 1989, prior to the commencement of production, calculated the reserves
at 41,000 tons at 14.3 grams of gold per ton, virtually the same as currently
indicated even though in excess of 136,000 tonnes have been mined over the life
of the mine. The nature of narrow, high grade hydrothermal gold veins such as
are present at El Limon is that the relatively low reserve estimates are due to
the high cost of developing these reserves.
The calendar year 1996 mining plan calls for the mining and processing of
25,980 tonnes of ore and the recovery of 12,531 ounces of gold (389,714 grams).
It is anticipated that the development and exploration work to be carried out at
El Limon during 1996 will replace the reserves to be mined during 1996.
At the present time, Oronorte has a concentrate purchase and treatment
agreement with Nissho Iwai Corporation. The agreement is dated March 12, 1996
and is for a duration of one year to December 31, 1996.
El Limon
--------
A description of the mining and processing operations at El Limon is
presented below.
Access to the mine is from an adit on Level 0 (Elev. 135 meters). Three
inclined winzes provide access to the lower levels.
The mining method being used is inclined room and pillar with no filling.
The vein strikes north-south, dips 42 west and has an average thickness of 45
cm. With such a low dip, all broken ore is mechanically (or manually) mucked to
ore chutes.
Material from underground is hauled to the surface, where, by utilizing a
crusher grizzly, a vibrating feeder, a jaw crusher, a vibrating screen, it is
then sent to a cone crusher and fed to a ball mill.
From the ball mill, the material feeds to a pulsating jig. The jig
concentrate is processed in a furnace at the mine and poured into bars. Jig
overflow is fed through Krebs cyclones, then sent to flotation tanks. It is then
17
<PAGE>
filtered and dried to produce a concentrate which is shipped by truck to the
port of Buenaventura on the Pacific coast. From there, it is transshipped by
steamship to Japan for refining. All of the concentrates are sold to one refiner
under a one year contract. The contract calls for payment of 90 percent of the
estimated value of the shipment within three business days of presentation of
the invoice. Subject to final assays and adjustments, the remaining amount is
paid within 60 days of receipt of the shipment.
Mill recoveries average 90%.
The current "hourly paid" labor force are residents of the town of Zaragoza
and surrounding area. They are all members of a cooperative called
"Precooperativa de Trabajo Asociado de Zaragoza - Precoomizar Ltda." This
particular cooperative is one of the first being used in the Colombian mining
industry.
The cooperative concept, whereby the company contracts for its labor and
pays the cooperative which, in turn, pays the workers and is responsible for
benefits, is being encouraged by the Colombian government. The system being used
at El Limon has brought peace to a formerly troubled labor situation.
The total number of persons working at the mine site is 342. An additional
10 staff employees (8 full time plus 2 part time) and five contractors are
located in the Medellin office. Thus the total payroll consists of 357 persons,
of which 230 are employed through a third party employee leasing contract and 82
are contract employees.
Juan Vara Vein
--------------
The Juan Vara Vein has been trenched and a short adit was driven in the
vein. Recently, two diamond drill hole have been completed from surface. One
hole intersected the vein at a depth of 80 meters below surface. At this point,
the vein is 0.4 meters with an assay grade of 43 grams of gold per tonne. The
second hole intersected a narrow vein but was stopped short of the main vein due
to mechanical problems with the drill rig. A 700 meter ramp from surface is
being driven to access this vein at a depth of 80 meters.
Aurora Vein
-----------
Access to the Aurora Vein is through an inclined shaft to a depth of 30
meters. A 130 meter long drift has been excavated in the vein. Development ore
from this vein is being shipped to the El Limon mill. In July 1996, this ore
contributed 100 ounces of gold to the month's production. This magnitude of
contribution is expected to continue throughout the remainder of the year.
18
<PAGE>
El Carmen
---------
The only recorded exploration work at El Carmen was completed by Dual
Resources, a Canadian company, with assistance from Greenstone. Dual Resources
acquired the property in 1987 and conducted a two phase program of trenching and
diamond drilling which established indicated reserves of 146,288 tonnes at a
recoverable grade of 11.0 grams of gold per tonne. These geological reserves
were calculated by Behre Dolbear and Company, Inc., an independent industry
consultant.
The new drill program at the El Carmen property, located 25 kilometers
northeast of El Limon, is planned to start by the end of October, 1996, and a
considerable increase in reserves is anticipated. If the drilling program
justifies development, the Company intends to employ contract mining at the El
Carmen to limit the amount of capital required.
Regional Geology
----------------
The gold prospects and mines which make up the Oronorte properties lie in a
thick sequence of Paleozoic age metasediments within the Central Colombian
Cordillera. The main group of properties, which include the El Limon Mine and
the La Aurora and Juan Vara prospects, occur along 15 kilometers of strike on
the west side of the Otu fault. This major regional structure has a total strike
extent of approximately 120 kilometers in a direction of N20 degrees W S20
degrees E. A number of gold bearing quartz veins also occur on the east side of
the Otu Fault, including the Company's El Carmen prospect. The quartz gold veins
of the Oronorte area were formed from hydrothermal solutions produced by
Cretaceous age intrusions and their location is strongly influenced by the Otu
Fault.
The El Carmen prospect is the most northerly of a number of gold bearing
quartz-sulfide vein systems that occur in a quartz diorite batholith of Jurassic
age that intrudes the Paleozoic basement. Approximately 60 kilometers south, in
an identical geological setting, lies the Segovia district which currently
products up to 60,000 ounces of gold a year from underground operations. This
district has produced 4.3 million ounces of gold from quartz sulfide vein
systems. One of the largest of these, the El Silencio Mine, has worked a vein
which extends at least 2 kilometers along strike and 1.3 kilometers down dip.
The geology of the Oronorte mines and deposits is described below.
El Limon Mine
-------------
The El Limon deposit is a typical epithermal gold bearing quartz vein of
late Cretaceous age. Its strike direction is N5 degrees W and S5 degrees E and
the amount of dip varies from 35 degrees to 45 degrees towards the west. The
vein is continuous for more than 300 meters along strike between sections 4800N
and 5150N, extending from surface to Level 6 - 250 meters vertically below the
surface. The deposit is open at depth and along its strike direction.
Well defined mining contacts occur to the north and south on Levels 0, 1
and 3. On these levels, quartz vein grades decrease to less than 5 grams of gold
19
<PAGE>
per tonne within a few meters along strike. This results in a decrease of mining
grade, over a 1.2 meter width, to less than 2-3 grams of gold per tonne from
10-20 grams of gold per tonne. However, surface quartz vein exposures and
underground drilling north and south of the mine indicate a continuation of the
gold mineralization regionally.
The vein is structurally continuous except for a series of reverse faults
with displacement ranging from 0.5 to 40 meters. There are two main fault planes
(Lionel & El Limon) which have displaced the vein by 35 - 40 meters each in a
sinistral sense. Because of this displacement, level 2 has been structurally
eliminated from El Limon mine.
Gold Mineralization
-------------------
Gold mineralization is related to sulfide content, predominantly pyrite,
with minor amounts of galena and sphalerite. Sulfide content ranges between 5
and 12% and is a reliable visual indicator of grade. The gold to silver ratio is
1:1. Generally, the sulfides occur as distinct bands 2-5 mm in thickness in the
upper half of the vein. The bands are relatively continuous over several meters.
Occasionally, the banded structure is replaced by a more irregular, patchy
sulfide distribution. There is no direct relation between internal structure and
grade. The presence of galena indicates improved gold values, even in zones with
a sulfide content well below the 5-12% range. Drilling and development to date
indicate an increase in galena content with depth.
So far it has been observed that gold grade over a 1.2 meter mining width
is increasing with depth. Above Level 1, the average grade is 11 grams of gold
per tonne over 1.2 meters, on Level 3 the grade is 17 grams per gold per tonne,
this same trend continued on Level 4 but on level 5, the grade in the south end
decreased considerably to 2-3 grams of gold per tonne gold for a strike length
of 150 meters. However, the grade in the north end has increased considerably to
21 grams of gold per tonne for a mining width of 1.35 meters over a strike
length of 30 meters.
Juan Vara Vein
--------------
The Juan Vara Vein is the strike extension of the El Limon Vein and is
located approximately 2 kilometers south. This vein has been trenched and a
short adit was driven in the vein. True width of the vein varies from 0.2 meters
to 0.4 meters and the gold grades are 33 grams of gold per tonne and 8 grams of
gold per tonne respectively. A ramp from the surface is underway for the
development of this vein to a depth of 60 meters.
Aurora Vein
-----------
The Aurora Vein is located 6 kilometers due south of the El Limon Mine. It
has the same strike as El Limon but is structurally located approximately
300-400 meters in the footwall. Its geological environment is similar to the El
Limon Vein.
20
<PAGE>
The Aurora vein is a massive milky quartz vein dipping 45 degrees to the
west and cutting metasedimentary host rocks. The main sulfides are pyrite,
pyrrhotite, chalcopyrite, sphalerite and minor amounts of galena.
The sulfides constitute 3-5% of the total vein material and most of the
sulfides were concentrated towards the north end of the drift. The grade of the
vein is 16 grams of gold per tonne over a width of 40 centimeters for a strike
length of 40 meters from the north face. The grades from the south end of the
drift range from trace to 5 grams of gold per tonne over the vein width. The
concentration of sulfides in the south end is less than 1%.
In order to develop this vein on lower levels, the driving of a ramp from
surface to a depth of 100 meters is will begin in September 1996. The portal
site for this ramp has been prepared.
DOMESTIC PROPERTIES
------------------
Annual filing fees of $100 per claim are required to continue the ownership
of an unpatented lode mining claim in the United States. An unpatented lode
mining claim gives the owner the right to mine the ore and to use its surface
for mining related activities. A patented mining claim conveys fee title to the
claimant (all surface and mineral rights). The Company is current for all
required fees and payments for all of its mining properties. If joint venture
partners are required to make these payment and fail to perform their
commitments, the Company would be in danger of losing its property position.
Bills currently being considered by the United States Congress to amend the
federal mining law could substantially affect the ability of the Company and
other companies to develop mineral resources on federal unpatented mining claims
which constitute one of the primary sources of mining properties in the United
States. Such bills contain provisions to increase the filing and holding costs
of unpatented mining claims as well as provisions for the payment of royalties
to the federal government.
Because mining claims in the United States are self-initiated and
self-maintained, they possess some unique vulnerabilities not associated with
other types of property interests. It is extremely difficult to ascertain the
validity of unpatented mining claims from public real estate records; therefore,
it can be difficult to confirm that all of the requisite steps have been
followed for location and maintenance of a claim. If the validity of an
unpatented claim is challenged by the government or by a private party, the
claimant has the burden of proving the present economic feasibility of mining
minerals located thereon. Thus, it is conceivable that unpatented claims that
were valid when located could become invalid if challenged.
21
<PAGE>
Serem Gatro Canada, Inc. ("Serem Gatro") sold GBEM to GBM in May 1995. As a
condition of that sale, a Participation Agreement between Serem Gatro and GBM
gives Serem Gatro the right to participate in any of the core properties
including the Afgan-Kobeh, Coal Canyon, Red Canyon and the Tempo properties.
Under the terms of that agreement, at feasibility, Serem Gatro may elect to
become a joint venture partner at a level of up to 40%. This back in right, if
exercised, would reduce GBM's interest in the property and would effectively
require both Serem Gatro and GBM to fund their proportionate share (based on
their respective participation interests) of all development costs, whether
incurred prior or subsequent to exercise of the bank in right. Based upon the
amount spent by each party on a specific property up to the time of exercise of
the back in right, this could result in one of the parties having to fund all of
the future development costs until the amount of spending by both parties is in
proportion to their respective participation interests. As described below, this
Participation Agreement has been modified on certain properties.
MATERIAL CONTRACTS
------------------
Afgan-Kobeh, Eureka County, Nevada
----------------------------------
The Afgan-Kobeh property is located approximately 25 miles northwest of
Eureka, Nevada in the northeast corner of Kobeh Valley along the southern flank
of the Roberts Mountains. Access to the property is via paved highway and a
graded county road.
The Company has approximately 1,570 acres of unpatented lode claims under
lease from the Lyle F. Campbell Trust and an additional 3,530 acres of
unpatented lode claims which were acquired through claim staking. The lease
requires an annual work commitment of $200,000 which is divided proportionally
between leased and staked claims over the years 1996-99, with the full amount to
be committed to the leased claims in the year 2000. The lease also requires a
$40,000 advance minimum royalty payment in January 1997 with escalating annual
minimum royalties in the succeeding years. Federal claims are subject to a 5%
Net Smelter Royalty to the owner. The Company's claims are subject to a 1% Net
Smelter Royalty payable to the owner of the leased claims and a $2.00 per ounce
finder's fee payable to Golden Regent Resources Ltd.
The Afgan-Kobeh joint venture is comprised of three groups of properties:
1. The Afgan Mineral Lease dated effective November 8, 1993 by and between
GBEM, and Lyle F. Campbell, sole trustee of the Lyle F. Campbell Trust, as
amended (the "Afgan Property").
2. The Kobeh property is covered by an exploration letter agreement dated
April 11, 1991 by and between GBEM, and Golden Regent Resources Ltd. (the "Kobeh
Property"). The Kobeh Property is burdened by a $2.00 per ounce production
royalty requirement to Golden Regent Resources Ltd., and by a 1% production
royalty to Lyle F. Campbell, sole trustee of the Lyle F. Campbell Trust.
3. The Kim Chee Property is comprised of 129 unpatented lode claims and the
are of interest extends to any mining claims located within 1.5 miles of any
point on the perimeter of the Afgan Mineral Lease, as well as any additional
claims or property rights acquired within one mile of the perimeter of the Kobeh
Property. The Kim Chee Property is owned by Cominco and is subject to a 1%
production royalty in favor of Lyle F. Campbell, sole trustee of the Lyle F.
Campbell Trust.
22
<PAGE>
The leased claims have been explored by a number of major mining companies
since their location in 1980. As a result of this exploration, drilling
indicated a geological resource of about 80,000 ounces of gold. The
mineralization remains open in several directions.
The properties are currently the subject of a joint venture with Cominco
American Inc. ("Cominco") in which the Company has retained 20% interest in the
property. Cominco contributed 2,700 acres of unpatented claims as part of this
joint venture. The property and joint venture are subject to a 40% back in right
by Serem Gatro. If the back in right is exercised, the Company reverts to a 10%
Net Profits Interest (NPI) on the leased claims and a 5% Net Smelter Royalty on
the GBEM claims.
The Afgan-Kobeh joint venture dated January 1, 1996 vests Cominco with an
80% participating interest and Great Basin with 20% participating interest in
all of the properties, subject to Cominco's completion of its initial
contribution obligations. Cominco is required to expend $1 million (in minimum
$200,000 annual increments) on the venture from January 1, 1996 through December
21, 2000. Cominco is also obligated to complete a feasibility study before
December 31, 2000, although it has an option to extend this date for three years
by making certain additional payments. Finally, Cominco is required to pay the
advance mineral royalty due under the Afgan mineral lease. Failure of Cominco to
perform any of these obligations would be deemed to be a withdrawal from Cominco
from the Afgan-Kobeh Joint Venture.
If a feasibility study is performed by Cominco for the Afgan-Kobeh Joint
Venture, Serem Gatro has a 90 day option to exercise its rights under the
participation agreement to acquire an interest in the properties covered by the
feasibility study and to form a joint venture corporation as contemplated by the
participation agreement. Serem Gatro could elect to acquire up to a 40%
participating interest.
In the event that Serem Gatro acquires a participating interest in the
Afgan-Kobeh Joint Venture, the venture would be terminated and the properties
covered by the feasibility study would be transferred to the joint venture
corporation. Cominco would be substituted as a party to the participation
agreement in the place of Great Basis Exploration and Mining Co., Inc. and
Cominco's interest in the joint venture corporation would be the difference
between 100% and the interest elected by Serem Gatro.
Upon exercise of Serem Gatro's option, Great Basin would have no further
participating interest in the properties, but it would be entitled to receive an
assignment of production royalties burdening the properties as follows:
1. A 10% net proceeds royalty for products produced from the Afgan
property; and
2. A 5% net returns royalty for products produced from the Kobeh property.
23
<PAGE>
The net proceeds royalty is defined in the Afgan-Kobeh Joint Venture and is
essentially cash receipts from the sale of products from the Afgan Property,
less all cash expenditures of any kind relating to the exploration, feasibility
study, permitting, development, mining, milling, transportation and marketing of
those products. The five percent net returns royalty on the Kobeh Property is
the actual amount received by the venture from the sale of products produced
from the Kobeh property less royalties, transportation, smelting, refining and
similar charges, and marketing costs. The net returns royalty is also defined in
the Afgan-Kobeh Joint Venture.
The Afgan-Kobeh Joint Venture does not provide for an assignment to GBEM of
any royalty interest in the Kim Chee Property should Serem Gatro exercise its
rights.
Coal Canyon, Eureka County, Nevada
-----------------------------------
The Coal Canyon Property is located in the northern Simpson Park Range,
about 12 miles south southwest of the Cortez gold mine. Access to the property
is via paved highway from either Carlin or Eureka, and then by graded county
road, to a point just north of the property.
The Company has approximately 1,680 acres of unpatented Federal lode claims
under lease from their owner, which are subject to a 4% Net Smelter Royalty
("NSR") at the start of production, but with a maximum royalty of $5 million.
The lease requires an annual drilling commitment of $200,000. Federal claim
rental payments of $9,100 for 1996-97 were paid. Federal claim rental payments
for 1997-98 totaling $9,100 are due on or before August 31, 1997.
The Coal Canyon property is subject to the February 19, 1991 Mineral Lease
Agreement with option to purchase between H. Walter Schull and GBEM The lease
has been amended on three occasions and a fourth amendment has been circulated
to Mr. Schull. The Mineral Lease Agreement itself has an area of interest of one
mile around the perimeter of C.C. 1- 68 Claim Block, where any new claim must be
staked in the lessor's name.
The Coal Canyon property has been explored by several mining companies
since the claims were staked in 1985. Gold mineralization was identified and
encountered in drilling by one of the prior leaseholders, who subsequently
withdrew from their lease.
The Coal Canyon property is not committed to any joint venture or any
agreement, aside from the Mineral Lease Agreement. A two-hole exploratory
drilling program is planned for late fiscal 1997 in hopes of enhancing the joint
venture appeal of the property. The Coal Canyon lease grants GBEM the
irrevocable option to purchase the Coal Canyon property at any time prior to
February 18, 2090 for $5 million, adjusted for inflation. The property is
subject to Serem Gatro's back-in rights. The Coal Canyon Mineral Lease Agreement
allows the company to assign its interest to a corporation in which it has a
controlling interest, or to any joint venture to which the company is a partner.
24
<PAGE>
Red Canyon, Eureka County, Nevada
---------------------------------
Red Canyon is located approximately 35 miles northwest of Eureka in the
northwest corner of the Roberts Mountains, and about four miles southeast of the
Tonkin Springs gold mine. Access to the property is by way of paved highway from
Eureka and graded county road to the northern edge of the claim group at Tonkin
Springs.
The Company leases approximately 4,750 acres of unpatented federal lode
claims from Edward L. Deveyns and David Ernst, joint lessors under a mining
exploration and lease agreement, dated July 10, 1992. Federal claim, lease and
rental payments of $23,700 for 1996-97 were paid. Federal claim, lease and
rental payments for 1997-98 totaling $23,700 are due on or before August 31,
1997. An advanced royalty payment of $50,000 was made by the Company's joint
venture partner on July 10, 1996.
Red Canyon has been explored by several mining companies since the claims
were originally staked in 1985. Gold mineralization was identified by rock and
soil sampling and verified by shallow, first pass, rotary drilling.
Since the property was acquired by GBEM in October 1991, geological,
geochemical and geophysical surveys have been used to target rotary and core
drill holes toward potential gold mineralization. Economic grades and widths of
gold mineralization were intersected by several GBEM drill holes and extensions
of that mineralization have been projected into untested areas. Hemlo, as
operator of the joint venture, is planning additional geophysical surveys and
drilling to test a number of areas showing potential for gold mineralization.
The property is the subject of a joint venture agreement between the
Company (20%) and Hemlo Gold Mines (USA) Inc. (80%) ("Hemlo"). The joint venture
is subject to the back-in right by Serem Gatro, as amended by the November 30,
1995 subordination and back-in agreement between GBEM, Serem Gatro and Hemlo
which, if exercised, would leave the Company with a 9% working interest.
During the term of the November 30, 1995 Mining Venture Agreement between
Hemlo and GBEM, the Mining Venture Agreement governs all rights and obligations
of Great Basin and Serem Gatro respecting the Red Canyon Property. In the event
of the failure to complete a feasibility study, or the incurring of $6 million
in venture expenses, then the Serem Gatro Participating Agreement would be
controlling under its original terms. In the event that Hemlo completes its
initial contribution and is vested with an 80% participating interest with GBEM
retaining the remaining 20%, then the Participating Agreement becomes forever
null and void and the subordination and venture agreements would permanently
control.
Serem Gatro has the right to acquire up to a 40% participating interest
upon either the completion of a feasibility study by Hemlo or the completion or
incurring of $6 million in venture expenses. At that point, Serem Gatro can
25
<PAGE>
acquire up to 40% participating interest in the mining venture. The first 11% of
that interest must be conveyed by GBEM subject to other terms and provisions
which would govern if GBEM owns less than 11% and Hemlo would be required to
convey the other 29% or such lesser or greater interest as would be necessary to
meet the Serem Gatro exercise of its purchase right. The subordination agreement
to the Mining Venture Agreement contains a formula which determines the purchase
price for the interest purchased by Serem Gatro.
Once GBEM's participating interest falls below 5% but is greater than 0%
then its participating interest would be automatically converted to a 5% net
proceeds interest and GBM would be deemed to have withdrawn from the mining
venture as a participant.
Tempo, Lander County, Nevada
----------------------------
The Tempo Prospect is located approximately 17 miles northwest of the town
of Austin, Nevada, and the property is accessible by dirt road.
The Company's interest in the Tempo Property is pursuant to a mineral lease
agreement between the Lyle F. Campbell Trust and GBEM dated October 14, 1994.
The Company leases unpatented mining claims and has located other unpatented
mining claims totaling 9,049 acres. The Company is required to pay an advanced
minimum royalty of $40,000 in 1996, $80,000 in 1997, and $120,000 per annum
thereafter. A work commitment of $100,000 is required in 1996 and $200,000 per
annum thereafter. Advanced minimum royalty payments and work commitments can be
taken in kind if production is achieved.
Past activity on the property began with exploitation of a near surface
auriferous quartz vein at the Malloy mine. Available information on the Malloy
mine indicates past production was more than $5,000 but less than $10,00 total
gold value. Modern exploration activities by several companies from 1968 to 1988
focused on the north area of the property where widespread surface gold values
can be obtained in soils and rocks. Several unsuccessful drilling campaigns
followed that identified significant but sub-economic quantities of gold.
From 1986 to the present, exploration activities shifted to the southern
and central portions of the property where soil geochemical sampling identified
widespread gold anomalies. Follow-up drilling of these anomalies indicated
significant ore-grade gold mineralization. Field work by company geologists in
1995-96 involving over 5,200 feet of trench sampling and mapping has confirmed
the drill-identified gold mineralization intercepts and identified a previously
unknown area of gold mineralization.
The Tempo Lease has been committed to the Joint Venture Agreement between
GBEM and Digger Resources, Inc. ("Digger"), which became effective on or about
July 25, 1996 ("Tempo Venture"). The Tempo Venture vests Digger Resources Inc.
with an 80% participating interest and GBEM with a 20% participating interest in
the Tempo Property. Digger Resources Inc. is obligated to expend $1.5 million on
the Tempo Venture before December 31, 2000 or complete a feasibility study by
that date. Failure to perform either of these obligations would be deemed to be
a withdrawal by Digger Resources Inc. from the Tempo Venture.
26
<PAGE>
Under the terms of the joint venture agreement, Digger acquired 80% of the
Company's interest in the Tempo property. Digger has also become operator of the
property. Should Serem Gatro exercise its option to acquire the maximum 40%
participation interest in the property, Digger would retain a 60% interest and
the Company would retain a 7.5% Net Proceeds Royalty. Under the terms of the
joint venture agreement, Digger has agreed to assume responsibility for advanced
minimum royalty payments and work commitments.
If a feasibility study is performed for the Tempo Venture, Serem Gatro has
a 90 day option to exercise its rights under a participation agreement between
the Company and Serem Gatro dated May 31, 1995, to acquire an interest in the
Tempo property. Serem Gatro could elect to acquire up to a 40% participating
interest and cause a joint venture corporation to be formed to hold the Tempo
Property. If Serem Gatro elects to participate and acquire an interest in the
Tempo Property, then the Tempo Venture would terminate and the property would be
held by the joint venture corporation. Upon exercise of its option by Serem
Gatro, GBEM would have no further participating interest in the Tempo Property,
but it would be entitled to receive a 7.5% net proceeds royalty burdening Digger
Resources Inc.'s interest in the Tempo Property. At that time, Digger Resources
Inc. would be substituted as a party to the participation agreement in the place
of GBEM, Digger Resources Inc.'s interest in the joint venture corporation would
be the difference between 100% and the interest elected by Serem Gatro.
A program of exploration for the balance of fiscal 1997 is still in the
planning stage with Digger.
MEXICAN PROPERTY
----------------
Minera Montoro Properties, Baja California, Mexico
--------------------------------------------------
During 1989, Fischer-Watt acquired a 49% interest in Minera Montoro S.A. de
C. V. ("Montoro"), a corporation duly incorporated in and authorized to conduct
business in Mexico. During the fiscal year ended January 31, 1996, that was
increased to 50%. Effective July 1996, the Company's interest was increased to
65%. Montoro holds a claim on two mineral interests in Mexico. In March 1994,
the Company, through Minera Montoro, formalized an agreement with Gatro South
America Holdings Limited ("Gatro")that was initiated in April 1993 to conduct a
generative exploration program in Baja California. Four properties were acquired
under the generative exploration program (El Arenoso, Alborada, Julio Cesar and
Sierra de Cobre). Under the terms of the agreement, Montoro would have received
a 2.5% net smelter return plus a $5,000,000 payment, per property, upon
commencement of commercial production. Except for El Arenoso, the other
properties have been dropped by Gatro.
27
<PAGE>
The Company, through Montoro, conducted a geophysical exploration program
on its Cerrito property in December 1993. The results were encouraging and
Montoro executed an exploration and purchase option agreement with Minera
Cuicuilco S. A. de C. V., in October 1994. Minera Cuicuilco, a subsidiary of
Cyprus Amax Minerals Company, was the operator of the property. Under the terms
of the agreement, Montoro would receive a 3.0% net smelter return subject to a
$5,000,000 buy out. The original agreement called for accelerating annual work
commitments and annual payments to Montoro but preliminary drilling results were
disappointing and the agreement was amended to eliminate the work commitments
and annual payments. Cuicuilco has recently canceled its contract on this
property.
Montoro is currently undertaking a continuous review of meritorious Mexican
mineral properties and hopes to acquire worthy properties in the near future;
however, there can be no assurance that any properties will be acquired.
OTHER PROPERTIES
----------------
America Mine, San Bernardino County, California
-----------------------------------------------
The America Mine property is located near Ambo, California. The property
was assigned to BMR Gold Corporation ("BMR") of Vancouver in September 1989. In
October 1990, Palms Mining Company, a subsidiary of Nero, Inc., acquired part of
BMR's interest and became the operator of the property. Nero subsequently sold
its mineral properties and eventually the America Mine property was returned to
BMR.
The Company has leased patented and unpatented mining claims and located
other unpatented claims totaling approximately 1230 acres. The main lease is
continuous and requires $4,000 per month advance royalty payments plus an annual
$100,000 work commitment. The Company also has unpatented mining claims that
require annual filing fees. The Company has been advised that the filing fees to
maintain the unpatented have been paid for the current year.
Although the leased claims on the America Mine were located in 1903, only
small production was realized until 1979-1984, when approximately 343,000 tons
of ore grading 0.059 ounces per ton gold were mined and heap leached. Additional
exploration by the claim owners identified additional resource potential. Field
work by the Company and others has identified additional areas of potential
mineralization similar to those that overlay the past productive ore zone.
Since the property was acquired by the Company in February 1988, various
joint venture partners have drilled 308 holes totaling over 117,000 feet. Palms
Mining Company had been permitted by an approved Plan of Operations and
28
<PAGE>
Reclamation Plan. Permitting for mining had been initiated including air quality
monitoring and other baseline studies. BMR, as operator, has indicated that it
is searching for a joint venture partner to place the property into production,
but the notice of default has created an uncertainly to the final disposition of
the property. Reclamation costs are the responsibility of BMR.
Fischer-Watt maintains a 50% net proceeds royalty interest with BMR having
the option to purchase one-half of Fischer-Watt's interest for $500,000.
Modoc, Imperial County, California
----------------------------------
The Modoc is located at the southeast end of the Santa Rosa Mountains. The
Company had a joint venture agreement with Southwest Exploration, Inc., on a
portion of the property which provides for a 2.5% net smelter returns royalty
plus 15% of net profits, payable after capital investment has been repaid. In
June 1996, The Company received notice that the joint venture has been completed
and no payments were due the Company since the venture did not repay the capital
investment. All of the leases were assigned to Kennecott Exploration Company in
July 1994, subject to the Southwest Exploration venture. The assignment
agreement reserves a 2.5% net smelter return royalty to Fischer-Watt.
Tuscarora, Elko County, Nevada
------------------------------
Tuscarora is located within the Tuscarora Mining District 38 miles north of
Elko, Nevada.
Description of Title: This property consists of a 15% interest in the
Tuscarora Gold Mines Joint Venture ("TGM Venture"). The other venturer, Horizon
Resources Corp. ("Horizon"), is the operator. The Company is not committed to,
and does not intend to, provide any further financial support for the TGM
Venture.
The TGM venture is now inactive. The Company's interest in the TGM Venture
has been reserved due to the inactivity of the venture and unlikely prospect of
recovering its investment. Most of the reclamation is complete: the plant has
been dismantled and removed and the heap has been reclaimed. The pad and ponds
are scheduled to be reclaimed. While reclamation responsibilities were incurred
by and are the responsibility of the TGM Venture, the financial burden for these
costs is with Horizon since the Company has not guaranteed any obligations of
the TGM Venture nor is it otherwise committed to provide any further financial
support for the TGM Venture.
Oatman, Mohave County, Arizona
------------------------------
The Oatman holdings are situated in the Oatman Mining District in Mohave
County, Arizona. The claims are readily accessible by paved road. A source of
power is adjacent to the property.
29
<PAGE>
The Company owns one patented mining claim and is the mineral claimant on
two unpatented lode mining claims totaling 42 acres. The property was leased to
Sun River Gold from January 1987 through March 1993 when the Company canceled
the lease due to non-payment of the annual advance royalty payments. Annual
filing fees of $200 are required to maintain the unpatented mining claims. The
property will require underground mining. The Company leased the property to La
Cuesta International ("La Cuesta"), a company formed by two ex-Fischer-Watt
geologists. The lease calls for La Cuesta to pay all holding costs associated
with the property. The Company retains a 3.0% net smelter royalty return subject
to a $500,000 maximum.
FINANCIAL COMMITMENTS
---------------------
The Company's property interests require minimum payments to be made, or
work commitments to be satisfied, to maintain ownership of the property.
However, all of these payments may be avoided by timely forfeiture of the
related property interest. If the joint venture partner, or the Company, fails
to meet these commitments, the Company could lose its rights to explore, develop
or mine the property. The table below lists the various properties and the
required financial commitments.
PROPERTY COMMITMENTS
For the year ending January 31, 1997
All of the Oronorte property group is held by licenses and mining permits.
No annual payments are required and work commitments are minimal, but they are
subject to a four percent production royalty tax to the government.
Property Lease Work J.V. Net FWG
Payments Commit. Total Share Cost
-------- ------- ----- ----- -------
America $48,000 $106,000 $154,000 $154,000 $ -
Afgan/Kobeh 65,000 200,000 265,000 265,000 -
Coal Canyon 29,000 100,000 129,000 - 129,000
Red Canyon 74,000 - 74,000 74,000 -
Tempo 123,000 100,000 223,000 223,000 -
Tuscarora - 2,000 2,000 2,000 -
Modoc 20,000 - 20,000 20,000 -
Oatman - - - - -
Other 3,000 - 3,000 - 3,000
-------- ------- ------- ------- -------
Total $362,000 $508,000 $870,000 $738,000 $132,000
30
<PAGE>
Item 3. LEGAL PROCEEDINGS
Oronorte is currently the defendant in several claims relating to
labor Contracts and employee terminations which occurred during a labor strike.
This strike and the resulting terminations took place during the former
ownership of Oronorte. The estimated amount of the claims against Oronorte
totals approximately $200,000. In the event of an unfavorable outcome from
Oronorte's perspective, there is a likelihood that the Company would have the
right to claim indemnity from Greestone Resources Canada Ltd. pursuant to the
terms of the agreements related to the acquisition of Greenstone of Colombia,
Ltd. and Oronorte.
Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
No matters were submitted to a vote of security holders, through the
solicitation of proxies or otherwise, during the quarter ended January 31, 1996.
PART II
Item 5. MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER
MATTERS.
Market Information:
-------------------
The Company's common stock trades on the OTC Bulletin Board. The high and
low bid quotations were obtained from the National Association of Securities
Dealers, Inc. Trading and Market Services report. The quotations below reflect
inter-dealer prices without retail markup, markdown or commissions and may not
necessarily represent actual trades.
HIGH BID LOW BID
Year Ended January 31, 1995
First Quarter $ .10 $ .02
Second Quarter .10 .03
Third Quarter .10 .07
Fourth Quarter .08 .03
Year Ended January 31, 1996
First Quarter $ .10 $ .03
Second Quarter .31 .03
Third Quarter .44 .13
Fourth Quarter .34 .09
31
<PAGE>
Holders:
--------
As of August 31, 1996, the Company had 640 shareholders of record.
Cash Dividends:
---------------
Since inception, the Company has not declared nor paid any cash dividends.
Item 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF
OPERATION.
Liquidity and Capital Resources
-------------------------------
Summary
-------
The Company reported net income of $1,031,000 for the year ended January
31, 1996. While the Company was profitable in fiscal 1996 principally as a
result of realizing a gain on non-producing mineral properties exchanged for
producing mineral properties, it has an accumulated deficit of $4.7 million and
continues to experience negative cash flow from operations and incur losses from
its mining operations. Management believes that as the recently-acquired
producing gold mine property is further developed and production levels
increase, sufficient cash flows will exist to fund the Company's continuing
mining operation, exploration and development efforts in other areas. Management
anticipates achieving levels of production sufficient to fund the Company's
operating needs by the end of fiscal 1998 and anticipates that it will fund
operations in the interim with the cash raised in its March 1996 offering. The
ability of the Company to achieve its operating goals, and thus positive cash
flows from operations, is dependent upon the future market price of gold and the
ability to achieve future operating efficiencies anticipated with increased
production levels. Management's plans may require additional financing or
disposition of some of the Company's non-producting assets. While the Company
has been successful in raising cash in the past, there can be no assurance that
its future cash raising efforts and anticipated operating improvements will be
successful.
In May 1995, the Company closed the sale of its 20% interest in the Minas
de Oro gold project in Honduras to Cerenex Financial A.V., a subsidiary of
Tombstone Explorations Co. Ltd. of Vancouver, B. C. Under the terms of this
sale, the Company received consideration consisting of $150,000 in cash and
cancellation of its $500,000 note plus accrued interest to Kennecott Exploration
Company. In a separate transaction, Kennecott also sold to the Company its 80%
interest in the Minas de Oro property. With the receipt of this cash and
cancellation of the debt, the Company cured the default of its note to Kennecott
which had been delinquent since August 1992.
32
<PAGE>
On January 29, the Company acquired 100% of the issued and outstanding
common shares of Great Basin Management Co., Inc., ("GBM"). GBM is a 100% owner
of Great Basin Exploration Mining Co., Inc. ("GBEM"), a mineral exploration
company based in Reno, Nevada. The shares were purchased in exchange for
4,125,660 restricted shares of Fischer-Watt common stock.
Short-Term Liquidity
--------------------
As of August 31, 1996, the Company had $2,061,000 in cash and accounts
payable of $333,000.
On January 31, 1996, the Company's current ratio was .51:1 based on current
assets of $1,392,000 and current liabilities of $2,714,000. On January 31, 1995,
Fischer-Watt's current ratio was 0.5:1 based on current assets of $372,000 and
current liabilities of $730,000. The slight improvement in the current ratio at
January 31, 1996 resulted from the cancellation of the Kennecott note, receipt
of funds from the November stock offering, and the addition of accounts
receivable and inventory balances associated with the operating mine, all of
which are partially offset by the sale of trading securities and the addition of
accounts payable associated with the operating mine.
A current ratio of less than 1:1 indicates that the Company does not have
sufficient cash and other current assets to pay its bills and other liabilities
incurred at the end of its fiscal year and due and payable within the next
fiscal year. This current ratio was improved in March 1996 by the $5 million
stock offering.
The Company has had net income and maintained its operations and
exploration activities during the past two years. During this same period the
Company suffered negative cash flow from operating activities. (Net cash used in
operating activities was $800,000 in fiscal 1996 and $295,000 in fiscal 1995
respectively.) Management anticipates achieving levels of production sufficient
to fund the Company's operating needs by the end of fiscal 1998 and, in the
interim, anticipates that it will fund operations with the cash raised in the
March offering. (See discussion below.)
The Company has been successful in generating cash flow from its financing
activities. During fiscal 1996, Fischer-Watt received $820,000 from a private
placement. During fiscal 1995 the Company received $83,000 from short term
loans. These funds have been used to support both operating and investing
activities.
The Company completed a private placement in November 1995 which raised
approximately $816,000, net of $94,000 of stock issue costs. The securities sold
in the private placement were units, priced at $.30 per unit, each consisting of
two shares of common stock and one warrant to purchase one common share at an
exercise price of $.30 through August 31, 1997. If all of these warrants are
exercised by the holders, the Company would receive net proceeds of $910,000. It
cannot be known if any or all of these warrants will be exercised.
33
<PAGE>
On March 12, 1996 the Company announced that it had completed a $5 million
foreign offering conducted outside of the United States pursuant to Regulation
"S". These funds are to finance capital equipment and working capital needs for
further development and expansion of the Company's gold mining operation in
Colombia and its Nevada exploration activities.
This Regulation S offering consisted of the sale of 4,980,000 units at
$1.06 per unit. Each unit was composed of two shares of Fischer-Watt common
stock and one share purchase warrant. Each of these warrants entitles the holder
to purchase one additional share of Fischer-Watt common stock at an exercise
price of $.75 through February 28, 1998. These securities were not registered
under the Securities Act of 1933 and may not be offered or sold in the United
States absent registration or an applicable exemption from registration
requirements.
For information about the Company's current properties see Item 2
"Description of Property" above and Note 3 to Financial Statements.
During fiscal 1997 Fischer-Watt plans to spend up to $1,000,000 in capital
improvements at Oronorte and fund regional exploration activities in Nevada and
in Colombia.
Fischer-Watt's minimum annual lease and assessment work commitments (the
expenditure necessary to maintain its mineral leases and claims) is $870,000 for
fiscal 1997. The joint venture partners' scheduled share of this annual work
commitment is $738,000. This leaves $132,000 of commitments on properties not
presently in joint ventures, most of which is attributable to the Coal Canyon
property, on which the Company plans to conduct an exploratory drilling program
to fulfill these commitments. These commitments can be avoided without penalty
by timely abandonment of the related mineral property. The Company intends to
maintain its interests in only those leases, claims and concessions that it
believes have continuing economic merit. If the joint venture partner, or the
Company, fails to meet these commitments, the Company could lose its rights to
explore, develop or mine the property. (See Note 12 to Financial Statements.)
Pursuant to agreements among Greenstone, Dual Resources Ltd., and the
Company, Greenstone made a payment of $300,000 to Dual to acquire 2,800,000
shares of Oronorte common stock for the benefit of the Company. The Company's
obligation to repay Greenstone this $300,000 is evidenced by a note payable
which bears interest at the rate of 10% per annum. This note became payable, in
full, on June 20, 1996 at which time the Company withheld payment while
negotiating the settlement of amounts owed to the Company by Greenstone.
34
<PAGE>
Prior to its acquisition by the Company, GBEM, borrowed funds from Serem
Gatro Canada Inc. This loan was evidenced by a note. The note payable is for
monies lent and advanced to GBEM by SGC during the period April 1, 1995, to May
31, 1995, as provided under the share purchase agreement among Serem Gatro, GBEM
and GBM made as of May 31, 1995.
The note was to be repaid not later than September 30, 1995. and bears
interest at 8%. Repayment of this note payable and related interest is currently
being negotiated with SGC.
Management believes that the Company has adequately reserved its
reclamation commitments.
Long-Term Liquidity:
--------------------
Cash flows from operations during fiscal 1998 are expected to be sufficient
to fund operating and administrative expenses and exploration expenses. The
Company does not anticipate needing additional funding from equity or borrowings
unless a major expansion at its Oronorte property is necessary and cost
justified or an acquisition opportunity arises.
At January 31, 1996 the Company had no long term debt compared to $87,000
at January 31, 1995. The $87,000 consisted solely of a nonrecourse note payable
to Greenstone Resources Canada issued for the loan of funds to purchase shares
in Compania Minerales de Copan S. A. de C. V. Repayment was due in 1999 and the
Copan shares were the sole security for the loan. This debt was settled in
conjunction with the sale of the Copan shares.
FISCAL 1996 COMPARED TO FISCAL 1995
-----------------------------------
The Company had net income of $1,031,000 ($.07 per share) compared to net
income of $135,000 ($.01 per share) in fiscal 1995. The most significant reason
for this change is the gain on sale of mineral interests in fiscal 1996 of
$1,528,000. Most of this gain was realized from the sale of Minas de Oro
($641,000) and from the sale of the Copan shares ($887,000). This compares with
net income in fiscal 1995 of $869,000 realized from the sale of Fischer-Watt's
interest in the San Andres property. The Company's 1996 loss attributable to
mining operations at Oronorte was $100,000. There were no mining operations in
fiscal 1995.
REVENUES
--------
Sales of Precious Metals
------------------------
Since assuming operating control of the Oronorte project in August 1995,
the Company had sales of precious metals of $1,378,000 representing 3,746 ounces
of gold and 3,500 ounces of silver. Production costs totaled $1,478,000 for the
initial period. There were no comparable sales or costs in fiscal 1995. The
Company does not presently employ forward sales contracts or engage in any
hedging activities.
35
<PAGE>
Sales of Mineral Properties
--------------------------
On February 28, 1995, Tombstone Explorations Co. Ltd.("Tombstone"), a
Vancouver-based mining and exploration company entered into a letter agreement
with the Company to purchase the Company's interest in the Minas de Oro property
in Honduras. Minas de Oro was joint ventured with Kennecott Exploration Company
("Kennecott") who had an 80 percent working interest. Tombstone agreed to buy
the Kennecott interest and to acquire the Company's $500,000 promissory note to
Kennecott, as well as the Company's interest in the property. Under the terms of
the agreement, Tombstone paid Fischer-Watt $150,000 in cash and assumed the
Company's $500,000 promissory note to Kennecott plus all accrued interest. The
transaction closed on May 15, 1995. This sale resulted in a gain of $641,000 and
substantially reduced the Company's debt which had been in default since 1992.
On October 20, 1995 the Company closed a previously-announced purchase of
the Oronorte property in Colombia through its acquisition of a 99.9% interest in
Oronorte, the owner of the El Limon mine, from Greenstone in exchange for
Fischer-Watt's interests in Compania Minerales de Copan S.A. de C.V., a Honduran
corporation. Fischer-Watt's $115,000 debt to Greenstone for the purchase of the
Copan interests was also canceled. A gain of $887,000, including cancellation of
$115,000 debt, was recognized on the sale of the Copan shares.
In fiscal 1995, Fischer-Watt sold its option to purchase interests in the
San Andres mineral property to Greenstone. Fischer-Watt's gross proceeds from
this sale were $955,000 ($161,000 in cash, $700,000 of Greenstone common stock
plus elimination of its debt to Greenstone of $94,000). Fischer-Watt's cost
basis in the property sold was $86,000 resulting in a realized gain of $869,000
from the sale.
COSTS AND EXPENSES
------------------
Abandoned Mineral Interests:
----------------------------
Unproven properties are considered fully or partially impaired, and are
fully or partially abandoned, at the earliest of the time that: geologic
mapping, surface sample assays or drilling results fail to confirm the geologic
targets involved at the time the property was acquired; a decision is made not
to perform the work commitments or to make the lease payments required to retain
the property; the Company discontinues its efforts to find a joint venture
partner to fund future exploration activities and has decided not to fund those
costs itself; or, the time the property interest terminates by contract or by
operation of law.
36
<PAGE>
The cost of abandoned mineral interests increased from $221,000 in fiscal
1995 to $267,000 in fiscal 1996. During the current fiscal year, Rio Tinto with
a cost basis of $22,000 was abandoned. A limited explorations program conducted
at the end of fiscal 1995 and the beginning of fiscal 1996 could not confirm
earlier mineral values and the Company abandoned the Rio Tinto property in the
first quarter of fiscal 1996. Abandonments in the quarter ended July 31, 1995
were $157,000. The Oatman property in Arizona was partially abandoned after an
independent evaluation indicated that it was unlikely that its cost would be
fully recovered based on the current mineral lease on the property. The $125,000
writedown reduced its basis to $10,000. Tuscarora was partially abandoned in the
amount of $32,000 based on the results of the same independent evaluation
leaving the remaining basis at $45,000 which was then reserved in the fourth
quarter of fiscal 1996. Abandonments in the quarter ended October 31, 1995 were
$6,000 due to the abandonment of a Minera Montoro property. During the quarter
ended January 31, 1996, abandonments and reserved properties totaled $83,000
including the Tuscarora property mentioned above. The America Mine property was
also reserved in the net amount of $18,000 when the lessee, under which the
Company maintains its 50% net profits interest, was declared to be in default.
If the underlying landowner is successful in proving the default and regaining
control of the property, the Company's position could be eliminated. The Company
also wrote down all of its investment in Minera Montoro based on the uncertainty
of recovering its investment of $13,000 and the La Victoria property in Honduras
was abandoned in the amount of $23,000 when another party, in competition with
the Company, acquired adjacent property positions which made the Company's land
position uneconomical.
During fiscal 1995 the Company abandoned four properties and prospects. The
largest, Sukut, Costa Rica, having a cost basis of $197,000 was abandoned when
the owner of the concession declared that the Company was in default and
considered the lease null and void. The Company had originally felt that the
lease was suspended due to force majeure, but decided not to engage in a legal
action to maintain its lease. Three Minera Montoro properties were abandoned
totaling $24,000. San Borja was abandoned when Cominco, the joint venture
partner, drilled the property with discouraging results. El Arenoso was
partially abandoned when one of three concessions was allowed to lapse. The
Guanacevi Tailings project was abandoned when Hibernia Holdings, the operator of
the property, disputed the validity of Minera Montoro's net profits interest.
Upon reviewing the probability of receiving any profit against possible legal
remedies, Montoro decided the property was impaired and abandoned it in the
fourth quarter of fiscal 1995.
Abandonments are a natural result of the Company's ongoing program of
acquisition, exploration and evaluation of mineral properties. When the Company
determines that a property lacks continuing economic value, it is abandoned. It
cannot be determined at this time when or if any of the Company's current
property interests will be abandoned.
37
<PAGE>
Selling, General and Administrative:
-----------------------------------
Selling, general and administrative costs increased from $252,000 in fiscal
1995 to $474,000 in fiscal 1996. The increase of $222,000 primarily relates to
an increase in mining operation costs of $159,000, coupled with an increase in
corporate relations cost of $59,000, current year acquisition costs of $35,000
and increased legal fees of $18,000; partially offset by a decrease in rent
expense of $16,000.
Foreign Exchange Gain
---------------------
The Company accounts for foreign currency translation in accordance with
the provisions of Statement of Financial Accounting Standards No. 52, "Foreign
Currency Translation" ("SFAS No.52"). The assets and liabilities of the
Colombian unit are translated at the rate of exchange in effect at the balance
sheet date. Income and expenses are translated using the weighted average rates
of exchange prevailing during the period. The related translation adjustments
are reflected in the accumulated translation adjustment section of shareholders'
equity. The Company recognized a currency exchange gain of $307,000 in the year
ended January 31, 1996. There was no comparable gain or loss in the year ended
January 31, 1995.
Other Income and Expenses
-------------------------
The Company has adopted Statement of Financial Accounting Standards
("SFAS") No. 115 under which certain investments in equity securities are
classified. At January 31, 1995, the Company held 327,300 shares of Greenstone
stock. The fair value was determined to be $358,000 which resulted in an
unrealized loss on the sale of trading securities of $178,000. At January 31,
1996, the Company has disposed of all of the 327,300 shares of Greenstone stock,
realizing a gain of $206,000. The gain in fiscal 1996 and the loss in fiscal
1995 are included in the statements of operations. The Company does not expect
to acquire any trading securities in the future.
In fiscal 1995, a gain on the sale of equipment of $28,000 was recognized.
Most of this gain was attributable to the sale of office equipment and vehicles
to former employees pursuant to settlement agreements. In fiscal 1996, there
were no comparable sales.
Net interest expense decreased from $79,000 in fiscal 1995 to $73,000 in
fiscal 1996. This $6,000 decrease is due primarily to the elimination of
interest accrued on the $500,000 note to Kennecott partly offset by $47,000 of
additional interest related to the financing of the Colombian mining operation.
The Company expects to receive interest and money market dividends of
approximately $100,000 in fiscal 1997.
Statements which are not historical facts contained herein are forward
looking statements that involve risks and uncertainties that could cause actual
results to differ from projected results. Such forward-looking statements
include statements regarding expected commencement dates of mining or mineral
production operations, projected quantities of future mining or mineral
38
<PAGE>
production, and anticipated production rates, costs and expenditures, as well as
projected demand or supply for the products that FWG and/or FWG Subsidiaries
produce, which will affect both sales levels and prices realized by such
parties. Factors that could cause actual results to differ materially include,
among others, risks and uncertainties relating to general domestic and
international economic and political risks associated with foreign operations,
unanticipated ground and water conditions, unanticipated grade and geological
problems, metallurgical and other processing problems, availability of materials
and equipment, the timing of receipt of necessary governmental permits, the
occurrence of unusual weather or operating conditions, force majeure events,
lower than expected ore grades and higher than expected stripping ratios, the
failure of equipment or processes to operate in accordance with specifications
and expectations, labor relations, accidents, delays in anticipated start-up
dates, environmental costs and risks, the results of financing efforts and
financial market conditions, and other factors described herein and in FWG's
quarterly reports on Form 10-QSB. Many of such factors are beyond the Company's
ability to control or predict. Actual results may differ materially from those
projected. Readers are cautioned not to put undue reliance on forward-looking
statements. The Company disclaims any intent or obligation to update publicly
these forward-looking statements, whether as a result of new information, future
events or otherwise, except as required by applicable laws.
Commitments and Contingencies
-----------------------------
Foreign companies operating in Colombia, South America, may be subject to
discretionary audit by the Colombian Government in respect of their monetary
exchange declarations. Any such audit by the Colombian Government must be
initiated within two years of filing an exchange declaration. While the Company
has not received any notice of intention from the Colombian Government to
conduct such an audit and the Company has no reason to believe that the
Colombian Government will conduct such an audit in respect of Greenstone
Resources of Colombia Limited (now called "Donna"), the Company has the right to
claim indemnity from Greenstone Resources Canada Limited pursuant to the terms
of agreements made regarding the acquisition of Greenstone of Colombia, Ltd. and
the Oronorte properties.
Oronorte is currently the defendant in several claims relating to labor
contracts and employee terminations which occurred during a labor strike. This
strike and the resulting terminations took place during the former ownership of
Oronorte. The estimated amount of the claims against Oronorte totals
approximately $200,000. In the event of an unfavorable outcome from Oronorte's
perspective, the Company would have the right to claim indemnity from Greenstone
Resources Canada Ltd. pursuant to the terms of the agreements related to the
acquisition of Greenstone of Colombia, Ltd. and Oronorte.
39
<PAGE>
In connection with the purchase of GRC, Greenstone agreed to reimburse the
Company for certain liabilities, including contingent liabilities, existing at
the date of purchase in excess of $1,000,000. At the present time, the Company
has paid or identified as current payables approximately $309,000 in excess of
the $1,000,000. Management is seeking to recover these excess liabilities from
Greenstone in accordance with the terms of the purchase agreement.
The Company's property interests require minimum payments to be made,or
work commitments to be satisfied, to maintain ownership of the property not in
production. However, all of these payments may be avoided by timely forfeiture
of the related property interest. If the joint venture partner, or the Company,
fails to meet these commitments the Company could lose its rights to explore,
develop or mine the property.
Item 7. FINANCIAL STATEMENTS.
See Index to Financial Statements attached hereto as page F-1.
Item 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL DISCLOSURE
(a) By letter dated January 5, 1996, Arthur Andersen LLP notified
Fischer-Watt Gold Company, Inc., of confirmation that the
client-auditor relationship between Fischer-Watt Gold Company, Inc.,
and Arthur Andersen LLP had ceased. Since Fischer-Watt Gold Company,
Inc., did not dismiss Arthur Andersen LLP as its auditors,
Fischer-Watt Gold Company, Inc., has treated such letter as a
resignation.
(b) During the two most recent fiscal years the interim period
subsequent to January 31, 1995, there have been no disagreements with
Arthur Andersen LLP on any matter of accounting principles or
practices, financial statement disclosure, or auditing scope or
procedure.
(c) The Arthur Andersen LLP report on the financial statements
for the past two years contained no adverse opinion or disclaimer of
opinion, nor was it qualified or modified as to audit scope or
accounting principles except as follows:
"The Report of Independent Public Accountants on the financial statements
of Fischer-Watt Gold Company, Inc. as of and for the two years ended January 31,
1995 was modified to refer to "The accompanying financial statements have been
prepared assuming that the Company will continue as a going concern. As
discussed in Note 1 to the financial statements, the Company has suffered
recurring losses from operations and has had negative cash flow from operations
that raise substantial doubt about its ability to continue as a going concern.
Management's plans in this regard to these matters are also described in Note 1.
The financial statements do not include any adjustments that might result from
the outcome of this uncertainty."
40
<PAGE>
(d) By letter dated January 10, 1996, Arthur Andersen LLP stated
that it was in agreement with the statements above.
(e) On March 29, 1996 Fischer-Watt Gold Company, Inc., engaged
BDO Seidman, LLP. as it's principal independent accountant.
PART III
Item 9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS; COMPLIANCE
WITH SECTION 16 (a) OF THE EXCHANGE ACT.
Directors and Executive Officers:
---------------------------------
The following table sets forth certain information as to all directors and
executive officers of Fischer-Watt:
Positions Held Directorship
Name Age With the Company Held Since
- ----- ---- ---------------- ----------
George Beattie 68 Director August 27, 1993
Chairman of Board
Chief Executive Officer
President
Gerald D. Helgeson 62 Director March 14, 1994
Secretary
Vice President
Anthony P. Taylor 55 Director June 2, 1994
Peter Bojtos 47 Director April 24, 1996
Vice Chairman
Vice President
James M. Seed 55 Director June 1, 1996
Jorge E. Ordonez 57 Director June 12, 1996
Michele D. Wood 31 Chief Financial Officer
41
<PAGE>
All of the above directors have been elected for a term of one year or
until a successor is elected. Directors are subject to election annually by the
shareholders. Directors are elected by a simple majority of the shareholders.
There are no family relationships by blood, marriage or adoption among any
of the officers or significant employees of the Company.
GEORGE BEATTIE
- --------------
George Beattie, born November 22, 1927, has an Engineer of Mines degree
from the Colorado School of Mines. He has been active in the mineral industry
since 1960, working up from front line supervisory positions to Director of
Mining for Callahan Mining Corporation and General Manager, Western Mines for
United Nuclear Corp. In 1980, Mr. Beattie formed Mineral Advisors, Inc., a
consulting firm offering expertise in the development and management of mineral
projects. He is also recognized as an expert in the application of explosives,
and has served as a consultant for Western States Energy in the Pacific
Northwest. Mr. Beattie became Chief Executive Officer and Chairman of the Board
of Fischer-Watt Gold Company, Inc., on August 27, 1993. Mr. Beattie devotes all
of his business time to the affairs of the Company.
GERALD D. HELGESON
- ------------------
Gerald Helgeson was born in St. Cloud, Minnesota on October 3, 1933. After
graduating from the University of Minnesota in 1955, Mr. Helgeson founded Jack
Frost, Inc., which became the largest integrated poultry complex in the Upper
Midwest. In addition, Mr. Helgeson was a member of the Young President's
Organization. Mr. Helgeson is now semi-retired and resides in Fallbrook,
California and he presently belongs to the Los Angeles YPO Graduate Group. Mr.
Helgeson has been a director of the Company since March 14, 1994. Although Mr.
Helgeson was appointed Vice President of the Company in October 1995, he does
not generally function in an executive officer capacity for the Company.
ANTHONY P. TAYLOR
- -----------------
Dr. Anthony Taylor, born June 29, 1941, was educated in England where he
obtained Bsc and Ph.D. degrees at the University of Durham and Manchester,
respectively. He subsequently worked in minerals exploration for major
international companies for 24 years prior to forming Great Basin Exploration
and Mining Company, Inc., in 1990.
He began his career with Cominco International Exploration in 1964 and
worked in England, Ireland, Mexico and Australia. In 1968 he joined the
Selection Trust organization and worked on western Australia nickel deposits
before moving to South Africa where, in 1975, he was appointed Manager-East
Shield with responsibility for exploration in the eastern half of the Republic.
There he was responsible for platinum, base metal and gold exploration which
resulted in two discoveries.
42
<PAGE>
In 1978 he was transferred to the USA and became associated with the
development of the Alligator Ridge Mine. In 1979 he was promoted to Exploration
Manager and, later, General Manager, Exploration, in the USA for Selection Trust
and, subsequently, BP Minerals International. Under his management the
exploration team in the USA made a number of discoveries of gold in new and old
mineral districts, notably the Ridgeway Mine in South Carolina as well as
several smaller deposits.
From 1990 to 1996, he served as President and Director of Great Basin
Exploration and Mining Company, a company he formed in June 1990 to conduct
grass roots exploration in North America on behalf of overseas investors. Dr.
Taylor was appointed a Director of Fischer-Watt Gold Company in June 1994.
Following the merger of GBEM with the Company, in July of 1996, he was appointed
Vice-President, Exploration, of Fischer-Watt. Effective September 16, 1996, Dr.
Taylor resigned as Vice-President, Exploration, and continues to be engaged by
the Company as a consultant. (See Item 12 - Certain Relationships and Related
Transactions.)
JORGE E. ORDONEZ
- ----------------
Jorge Ordonez was born October 22, 1939 in Tulsa, Oklahoma. He is a
certified professional engineer in Mexico and resides in Mexico City. He
received his degree in Geological Engineering from the Universidad Nacional
Autonoma de Mexico in Mexico City in 1962 and his Masters from Stanford
University in 1965.
He is currently the Director of Mines and Metallurgy for Grupo Acerero Del
Norte, Mexico's largest steel producer. He is also President of Ordonez
Profesional, S. C., a private minerals oriented company. Prior to forming his
own company, he was CEO and Director General of Empresas Frisco, S. A. de C. V.
and subsidiaries, which is one of Mexico's five largest mining companies. Mr.
Ordonez is also a major stockholder in Minera Montoro. The Company holds a 50%
interest in Minera Montoro.
Mr. Ordonez has written, edited and presented several papers and
publications on behalf of the Mexico section of AIME, SME and SEG. He received
the Geology National Award for Mexico in 1989. He became a Director of
Fischer-Watt Gold Company, Inc., on June 5, 1996. Mr. Ordonez also serves as a
director of Hecla Mining Company, Inc., and Altos Hornos de Mexico, S.A. de C.V.
PETER BOJTOS
- ------------
Peter Bojtos, P. Eng., was born on March 26, 1949 and is a mining executive
with proven entrepreneurial, commercial and public company management expertise.
He has an extensive background in the mining industry, with over 23 years in
exploration, production and corporate management. From August 1993 until 1995,
Mr. Bojtos was President and Chief Executive Officer of Greenstone Resources
Ltd., an emerging Latin American gold producer listed on The Toronto Stock
Exchange and on NASDAQ.
43
<PAGE>
From 1992 to August 1993 he was President and Chief Executive Officer of
Consolidated Nevada Goldfields Corporation. Mr. Bojtos also held several key
positions, including Vice-President of Corporate Development, during his twelve
years with Kerr Addison Mines, Limited, including that of President of RFC
Resources and New Kelore Mines Ltd. He is also on the board of directors of
several other gold companies.
Mr. Bojtos became a Vice President and Vice Chairman of the Board of
Directors of Fischer-Watt Gold Company, Inc., in April 1996. Mr. Bojtos also
serves as a director of Delgratia Mining Company.
JAMES M. SEED
- -------------
James Seed was born on April 4, 1941. He was graduated from Brown
University in 1963 and received his MBA from Stanford University in 1965. He is
Chairman, President and Owner of The Astra Ventures Incorporated and The Astra
Projects Incorporated, privately owned land development companies focusing on
creating building sites in the Minneapolis suburban communities. He was involved
in creating a community in a Northwest suburb surrounding a Robert Trent Jones,
II championship golf course. He has been with the companies since 1979.
From November 1979 to May 1989, he was the President and Owner of Buffinton
Box Company, a privately owned set-up cardboard box manufacturer.
From February 1971 to November 1979, Mr. Seed was with Fleet Financial
Group, spending his last two years there as Treasurer of the Corporation.
Mr. Seed is a Commissioner of Rhode Island Investment Commission and a
Trustee of The Galaxy Funds, an $8.4 billion family of 33 mutual funds. He was a
Trustee of the Corporation, Brown University from 1984 to 1990.
Mr. Seed became a Director of Fischer-Watt Gold Company, Inc. on June 1,
1996.
MICHELE D. WOOD
- ---------------
Michele Wood, born August 4, 1965, has a Bachelor of Science degree from
the University of Idaho and is a certified public accountant in the State of
Idaho. Mrs. Wood has held senior accounting positions with Hecla Mining Company,
Magnuson McHugh & Co.,P.A. and KPMG Peat Marwick. She has served on a contract
basis as the Company's Chief Financial Officer effective April 15, 1996 and in
that capacity was appointed the Company's principal financial and accounting
officer on September 20, 1996.
44
<PAGE>
Compliance with Exchange Act Section 16(a):
-------------------------------------------
Based solely upon a review of Forms 3, 4 and 5 and ammendments thereto
furnished to the Company, the Company believes that:
1. Tim Watt, a former shareholder and former Director, has not filed one
report detailing his sale of all of his shares on a timely basis.
2. Gerald D. Helgeson, a Director, has not filed one report detailing his
receipt of an option to purchase shares on a timely basis.
3. Anthony P. Taylor, a Director, has not filed one report detailing his
receipt of an option to purchase shares on a timely basis.
4. Jorge E. Ordonez, a Director, has not filed one report indicating his
becoming a Director of the Company on a timely basis.
5. James M. Seed, a Director, has not filed one report indicating his
becoming a Director of the Company on a timely basis.
Item 10. EXECUTIVE COMPENSATION.
The following table present the compensation awarded to, earned by, or paid
to Mr. George Beattie, the Chief Executive Officer of the Company.
SUMMARY COMPENSATION TABLE
Annual Compensation Long Term Compensation
Name
and
Principal Fiscal Securities, underlying
Position Year Salary $ options/SARs
- --------- ------ ------- ----------------------
George Beattie, 1996 93,500
President, CEO 1995 80,000
1994 33,000* 500,000 shares
* Starting September 1, 1993
The Company's chief executive officer is also a director. Directors receive
no cash compensation for their services except directors who are not employees
receive a communications allowance of $250 each six months. Over the past three
45
<PAGE>
years non-employee directors have been issued stock options as compensation for
serving as a director, the exercise price of which was based on fair market
value of the stock and vest after one year's service and expire five years after
vesting. Pursuant to this program Gerald D. Helgeson has been granted options to
purchase 400,000 shares of stock. Anthony P. Taylor has been granted options to
purchase 200,000 shares of stock and Larry J. Buchanan, who resigned as a
director on June 1996 has been granted options to purchase 100,000 shares of
stock. Continuance of this program is currently being evaluated.
Aggregated Option/SAR Exercises in Last Fiscal Year and Fiscal Year-end
Option/SAR Values:
Number of Securities Value of Unexercised
Underlying Unexercised In-the-Money Options
Options/SARs at /SARs at
January 31, 1996 January 31, 1996
Exercisable/ Exercisable/
Name Unexercisable Unexercisable
- ---- ------------- -------------
George Beattie 460,000/ $58,880
40,000 $5,120
George Beattie is currently being paid at the rate of $100,000 per year on
the basis of a two year employment contract dated September 1, 1993 and later
extended for an additional two years. Under the terms of the employment
contract, George Beattie was granted options on 500,000 shares at $.20 per share
which vest at the rate of 20,000 shares per month.
Item 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT.
Security ownership of certain beneficial owners, management and all owners
of more than 5% of the outstanding common stock as of August 31, 1996.
Name and Address of Amount and nature of % of
beneficial owner beneficial ownership Class
- ------------------- -------------------- -----
Kennecott Exploration Company 3,048,000 shares
P O Box 11248 owned directly 9.8%
Salt Lake City UT 84147
Anthony P. Taylor 1,641,694 shares
1500 Kestrel Court owned directly, 5.2%
Reno, NV 89509 Note 1
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<PAGE>
Name and Address of Amount and nature of % of
beneficial owner beneficial ownership Class
- ------------------- -------------------- -----
Peter Bojtos 1,050,000 shares
Officer and Director owned directly and
2582 Taft Court indirectly, Note 2 3.3%
Lakewood, CO 80215
James M. Seed 850,600 shares
Director owned indirectly,
Note 3 2.7%
George Beattie 501,000 shares
Officer and Director owned directly,
Note 4 1.6%
Gerald D. Helgeson 300,000 shares
Officer and Director owned indirectly,
Note 5 1.0%
Jorge E. Ordonez No shares
Director owned directly 0.0%
Michele D. Wood No shares
Chief Financial Officer owned directly 0.0%
Directors and 4,343,294 shares
Officers as a Group owned directly,
(five persons) and indirectly 13.2%
Note 1 - Anthony P. Taylor owns presently exercisable options to purchase
100,000 shares.
Note 2 - Peter Bojtos owns 360,000 shares and presently exercisable
warrants to purchase 180,000 shares. His wife owns 340,000 shares and presently
exercisable warrants to purchase 170,000 shares.
Note 3 - James M. Seed owns no shares, options or warrants directly, but
various related trusts own 517,200 shares and own warrants to purchase 333,400
shares.
Note 4 - George Beattie owns 1,000 shares and has presently exercisable
options to purchase 500,000 shares.
Note 5 - Gerald D. Helgeson's wife owns presently exercisable options to
purchase 300,000 shares.
47
<PAGE>
Item 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
Larry Buchanan was a director of the Company from July 15, 1994 until June
5, 1996 in addition to being involved with various projects and companies that
are related to the Company's business. Dr. Buchanan received compensation as a
consulting geologist of $11,000 plus interest on overdue bills of $1,631 in
fiscal 1996 and compensation of $32,000 in fiscal 1995. Dr. Buchanan is a Vice
President of the firm Begeyge Minera Ltda. ("BG&G"), that received compensation
of $13,000 for consulting geological services in fiscal 1996 and $11,000 for
property acquisitin costs and consulting geological services in fiscal 1995.
BG&G holds a royalty interest in the Minas de Oro property in Honduras that the
Company sold its interest in May, 1995. BG&G also holds a royalty interest in
the Rio Tinto, Honduras property in which the Company incurred costs of $15,000
in the year ended January 31, 1996 and $7,000 in the year ended January 31,
1995. The Company abandoned the Rio Tinto interests during the first quarter of
fiscal 1995. In addition, on June 1, 1995, for his services as a Director, Dr.
Buchanan received an option to purchase 100,000 shares of the common stock of
the Company at an exercise price of $.0625 per share.
Jorge E. Ordonez became a Director of the Company on June 5, 1996 replacing
Mr. Buchanan. Mr. Ordonez has numberous interests and is a director of Hecla
Mining Company, which is also in the business of mining precious metals. Mr.
Ordonez is a principal shareholder in Minera Montoro S.A.de C.V. ("Montoro"), a
Mexican corporation. The Company holds a 65% interest in Montoro. During the
past two fiscal years no significant or material transactions have occurred
between the Company and Montoro.
Peter Bojtos became a director of the Company on April 24, 1996. Mr. Bojtos
had been engaged on August 25, 1995 by the Company, on a non-exclusive basis as
an independent contractor to raise funds for the Company in the form of issuance
of restricted common stock and warrants to purchase additional shares. He was
compensated in cash at the rate of 10% of the amount raised. He was paid $81,000
for those services. Mr. Bojtos purchased 180,000 units of that offering under
the same terms and conditions as the other subscribers which consisted of
360,000 shares of restricted common stock and warrants to purchase an additional
180,000 shares at any date prior to August 31, 1997 for $.30 per share. Lynn
Bojtos, wife of Peter Bojtos, purchased an additional 170,000 shares, under
these same terms and conditions. In March of 1996, he was again engaged to raise
funds for the Company. The Company completed a $5 million foreign offering
outside the United States pursuant to Regulation "S". Mr. Bojtos was granted for
services to the Company an option to purchase 100,000 shares of common stock of
the Company after February 20, 1997 at an exercise price of $.37 per share.
Anthony P. Taylor, director of the Company and an officer, director and
major shareholder of GBM when the Company acquired GBM through a merger that was
completed on January 29, 1996 (see Note 2 to the financial statements). As a
result of the merger, Dr. Taylor received 1,541,694 shares of restricted
Fischer-Watt common stock in exchange for his shares of GBM. Effective September
16, 1996. Dr. Taylor resigned his position as Vice-President, Exploration and
entered into a consulting arrangement with the Company wherein the Company will
pay him $400 per day for consulting services, not to exceed 106 days per year.
48
<PAGE>
Kennecott Exploration Company, who owns 3,048,000 shares of the Company's
common stock, loaned the Company $500,000 in March 1992. Kennecott had a joint
venture with the Company on the Minas de Oro property in Honduras. In May 1995,
both Kennecott and the Company sold their interests in the Minas de Oro property
to a third party. In connection with that sale, Fischer-Watt received $150,000
and the $500,000 debt and accrued interest owed to Kennecott was cancelled. A
$641,000 gain on the sale of this property was recorded on the fiscal 1996
statement of operations. In a separate transaction, the Company assigned to
Kennecott previously unassigned leases on the Modoc property in California,
subject to a net smelter return royalty interest retained by the Company.
On June 6, 1996, James M. Seed was appointed a director of the Company.
Prior to becoming a director, Mr. Seed and several entities affiliated with Mr.
Seed purchased 333,400 shares of an offering of restricted common stock and
warrants under the same terms and conditions as the other subscribers (see Note
7 to Financial Statements).
Item 13. EXHIBITS AND REPORTS ON FORM 8-K.
(a) Exhibits
Exhibit Item 601
No. Category Exhibit
- --- -------- -------
1 2 Letter of Intent dated August 28, 1995 whereby
Fischer-Watt Gold Company, Inc., and Great Basin
Management Company, Inc., agree to form a business
combination and filed as Exhibit 1.2 to Form
10-QSB filed December 20, 1995 and incorporated
herein by reference.
2 2 August 28, 1995 agreement between Fischer-Watt
Gold Company, Inc., and Greenstone Resources Ltd.,
whereby Fischer-Watt agrees to purchase 100% of
Greenstone Resources Ltd.'s wholly-owned Colombian
branch, Greenstone of Colombia ("GOC") and filed
as Exhibit 2.2 to Form 10-QSB filed December 20,
1995 and incorporated herein by reference.
49
<PAGE>
Exhibit Item 601
No. Category Exhibit
- --- -------- -------
3 2 Closing Agreement dated October 20, 1995 among
Fischer-Watt Gold Company, Inc., and Greenstone
Resources Canada Ltd., and Greenstone Resources
Ltd., and filed as Exhibit 1.2 to Form 8-K filed
November 3, 1995 and incorporated herein by
reference.
4 2 Articles of Merger Merging GBM Acquisition Corp.,
into Great Basin Management Co., Inc., dated
January 25, 1996 and filed as as Exhibit 1.2 to
Form 8-K filed as Exhibit 1.2 to Form 8-K filed
February 5, 1996 and incorporated herein by
reference.
5 2 Plan of Reorganization and Agreement among
Fischer- Watt Gold Company, Inc., GBM Acquisition
Corp., and Great Basin Management Co., Inc., dated
January 3, 1996 and filed as as Exhibit 2.2 to
Form 8-K filed as Exhibit 1.2 to Form 8-K filed
February 5, 1996 and incorporated herein by
reference.
6 3 By-Laws of the Corporation as amended.
7 10 Letter Agreement between BMR Gold Corporation and
Fischer-Watt Gold Company, Inc., regarding the
America Mine Property effective September 20,
1989, and filed as Exhibit 19.1 to Form 10-Q filed
November 20, 1989 and incorporated herein by
reference.
8 10 Fischer-Watt Gold Company, Inc., non-qualified
stock option plan of May 1987 and filed as Exhibit
36.10 to Form 10-K filed April 23, 1991 and
incorporated herein by reference.
9 10 First Amendment to Exploration Agreement and
Mining Venture Agreement dated March 25, 1992
between Kennecott Exploration Company and
Fischer-Watt Gold Company, Inc., and filed as
Exhibit 45.10 to Form 10-K filed April 22, 1993
and incorporated herein by reference.
10 10 Option Agreement between Greenstone Resources
Ltd., and Fischer-Watt Gold Company, Inc., dated
March 24, 1994, whereby Greenstone has the right
to purchase all of Fischer-Watt's interest in the
San Andres property in Honduras and filed as
Exhibit 23.10 to Form 10-K filed May 11, 1994 and
incorporated herein by reference.
50
<PAGE>
Exhibit Item 601
No. Category Exhibit
- --- -------- -------
11 10 Agreement to Assign Leases dated July 7, 1994
between Fischer-Watt Gold Company, Inc., and
Kennecott Exploration Company whereby Fischer-Watt
agrees to assign its interests in the Modoc
property located in Imperial County, California to
Kennecott, reserving a Net Smelter Return royalty.
This agreement was filed as Exhibit 22.10 to Form
10-Q filed September 13, 1994 and incorporated
herein by reference.
12 10 Letter agreement between Fischer-Watt Gold
Company, Inc., and La Cuesta International (LCI)
dated August 11, 1994 whereby LCI agrees to lease
the Oatman property located in Mohave County,
Arizona. This agreement was filed as Exhibit 23.10
to Form 10-Q filed September 13, 1994 and
incorporated herein by reference.
13 10 Option Agreement - Lock-up Agreement between
Fischer-Watt Gold Company, Inc., and Greenstone
Resources Ltd., dated October 17, 1994 whereby the
San Andres option agreement was amended to provide
for an early advance of $50,000 as partial payment
of the option in exchange for restrictions on the
disposition of Greenstone shares. This agreement
was filed as Exhibit 22.10 to Form 10-Q filed
December 14, 1994 and incorporated herein by
reference.
14 10 English translation of an Exploration Agreement
between Fischer-Watt's Mexican subsidiary, Minera
Montoro, S.A. de C.V. and Minera Cuicuilco, S.A.
de C.V. dated October 18, 1994 whereby Minera
Cuicuilco is granted the rights to explore the
Cerrito property in Baja California, Mexico and
was filed as Exhibit 23.10 to Form 10-Q filed
December 14, 1994 and incorporated herein by
reference.
51
<PAGE>
Exhibit Item 601
No. Category Exhibit
- --- -------- -------
15 10 Acquisition agreement dated November 10, 1994
among Greenstone Resources Canada Ltd., Greenstone
Resources Ltd., and Fischer-Watt Gold
Company,Inc., whereby the parties finalize the
Option Agreement of March 24, 1994 to purchase the
San Andres property in Honduras and modify the
Lock-Up Agreement dated October 17, 1994. This
agreement was filed as Exhibit 29.10 to Form 10-K
filed May 15, 1995 and incorporated herein by
reference.
16 10 Letter agreement dated February 28, 1995 between
Tombstone Explorations Co. Ltd., and Fischer-Watt
Gold Company, Inc., whereby Tombstone agrees to
purchase all of Fischer-Watt's rights to the Minas
de Oro property in Honduras. This agreement was
filed as Exhibit 30.10 to Form 10-K filed May 15,
1995 and incorporated herein by reference.
17 10 Letter agreement dated April 13, 1995 between
Begeyge Minera Limitada and Fischer-Watt Gold
Company, Inc., whereby Fischer-Watt will acquire
rights to the La Victoria, Honduras property. This
agreement was filed as Exhibit 31.10 to Form 10-K
filed May 15, 1995 and incorporated herein by
reference.
18 10 Option whereby Fischer-Watt Gold Company, Inc.,
grants Gerald D. Helgeson an option to purchase
100,000 shares of Fischer-Watt restricted common
stock. This option was filed as Exhibit 32.10 to
Form 10-K filed May 15, 1995 and incorporated
herein by reference.
19 10 Option whereby Fischer-Watt Gold Company, Inc.,
grants Larry J. Buchanan an option to purchase
100,000 shares of Fischer-Watt restricted common
stock. This option was filed as Exhibit 33.10 to
Form 10-K filed May 15, 1995 and incorporated
herein by reference.
20 10 Amendment dated April 20, 1995 to Agreement to
Assign Leases dated July 7, 1994 between
Fischer-Watt Gold Company, Inc., and Kennecott
Exploration Company whereby Fischer-Watt agrees to
assign its interests in the Modoc property located
in Imperial County, California to Kennecott. This
Amendment was filed as Exhibit 28.10 to Form
10-QSB filed June 14, 1995 and incorporated herein
by reference.
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<PAGE>
Exhibit Item 601
No. Category Exhibit
- --- -------- -------
21 10 Asset Purchase Agreement dated May 16, 1995
between Fischer-Watt Gold Company, Inc., and
Cerenex Financial A.V.V., whereby the February 28,
1995 sale of Minas de Oro is closed. This Asset
Purchase Agreement was filed as Exhibit 29.10 to
Form 10-QSB filed June 13, 1995 and incorporated
herein by reference.
22 10 Option effective June 1, 1995, whereby
Fischer-Watt Gold Company, Inc., grants Gerald D.
Helgeson an option to purchase 200,000 shares of
Fischer-Watt restricted common stock. This Option
was filed as Exhibit 31.10 to Form 10-QSB filed
September 15, 1995 and incorporated herein by
reference.
23 10 Option effective June 1 1995, whereby Fischer-Watt
Gold Company, Inc., grants Larry J. Buchanan an
option to purchase 100,000 shares of Fischer-Watt
restricted common stock. This Option was filed as
Exhibit 32.10 to Form 10-QSB filed September 15,
1995 and incorporated herein by reference.
24 10 Option effective June 1, 1995 whereby Fischer-Watt
Gold Company, Inc., grants Anthony P. Taylor an
option to purchase 100,000 shares of Fischer-Watt
restricted common stock. This Option was filed as
Exhibit 33.10 to Form 10-QSB filed September 15,
1995 and incorporated herein by reference.
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<PAGE>
Exhibit Item 601
No. Category Exhibit
- --- -------- -------
25 10 Loan Agreement dated August 28, 1995, between
Fischer-Watt Gold Company, Inc., and Great Basin
Management Company, Inc., whereby Fischer-Watt
agrees to loan Great Basin Management Company,
Inc. up to $108,000. This Loan Agreement was filed
as Exhibit 36.10 to Form 10-QSB filed September
15, 1995 and incorporated herein by reference.
26 10 Amendment dated October 31, 1995 to Loan agreement
dated August 28, 1995, between Fischer-Watt Gold
Company, Inc. and Great Basin Management Company,
Inc., whereby Fischer-Watt changes the dates of
the loan to Great Basin Management Company, Inc.
This Amendment was filed as Exhibit 33.10 to Form
10-QSB filed December 20, 1995 and incorporated
herein by reference.
27 10 Extension of time for payment of Secured
Promissory Note dated October 31, 1995 to the Loan
agreement dated August 28, 1995, between
Fischer-Watt Gold Company, Inc. and Great Basin
Management Company, Inc. whereby Fischer-Watt
agrees to extend the time for payment of the
Secured Promissory Note. This Extension of Time
for Payment was filed as Exhibit 34.10 to Form
10-QSB filed December 20, 1995 and incorporated
herein by reference.
28 10 Second Amendment dated November 30, 1995 to Loan
agreement dated August 28, 1995 between
Fischer-Watt Gold Company, Inc. and Great Basin
Management Company, Inc. whereby Fischer-Watt
changes the dates of the loan to Great Basin
Management Company, Inc. This Second Amendment was
filed as Exhibit 35.10 to Form 10-QSB filed
December 20, 1995 and incorporated herein by
reference.
29 10 Second Extension of Time for Payment of Secured
Promissory Note dated October 31, 1995, to the
loan agreement dated August 28, 1995, between
Fischer-Watt Gold Company, Inc., and Great Basin
Management Company, Inc. whereby Fischer-Watt
agrees to extend the time for payment of the
Secured Promissory Note. This Second Extension was
filed as Exhibit 36.10 to Form 10-QSB filed
December 20, 1995 and incorporated herein by
reference.
54
<PAGE>
Exhibit Item 601
No. Category Exhibit
- --- -------- -------
30 10 Promissory Note dated October 20, 1995 whereby
Greenstone Resources of Colombia Ltd., a wholly
owned Bermuda subsidiary of Fischer-Watt Gold
Company, Inc., promises to pay $300,000 to
Greenstone Resources, Ltd. This Promissory Note
was filed as Exhibit 37.10 to Form 10-QSB filed
December 20, 1995 and incorporated herein by
reference.
31 10 Option effective June 1, 1996, whereby
Fischer-Watt Gold Company, Inc., grants Gerald D.
Helgeson an option to purchase 100,000 shares of
Fischer-Watt restricted common stock.
32 10 Option effective June 1, 1996 whereby Fischer-Watt
Gold Company, Inc., grants Anthony P. Taylor an
option to purchase 100,000 shares of Fischer-Watt
restricted common stock.
33 10 Option effective June 1, 1996 whereby Fischer-Watt
Gold Company, Inc., grants Peter Bojtos an option
to purchase 100,000 shares of Fischer-Watt
restricted common stock.
34 10 Purchase - Sale Agreement between the Company's
subsidiary, CIA. Minera Oronorte S.A. & Nissho
Iwai Corporation dated as of December 19, 1995
detailing the terms under which the Company will
sell gold and silver concentrates produced at the
El Limon Mine in Columbia to Nissho Iwai
Corporation of Japan.
35 10 Letter of Agreement dated November 13, 1995,
between Digger Resources, Inc. of Calgary,
Alberta, Canada and Great Basin Exploration and
Mining, Inc. regarding exploration and mining
joint venture of Tempo property, Lander County,
Nevada.
36 10 Joint Venture agreement dated July 25, 1996, and
Exhibit A to agreement, between Great Basin
Exploration and Mining, Inc. and Digger Resources,
Inc. regarding Tempo mineral property, Lander
County, Nevada.
55
<PAGE>
Exhibit Item 601
No. Category Exhibit
- --- -------- -------
37 10 Mining Venture agreement between Great Basin
Exploration and Mining Company, Inc. and Hemlo
Gold Mines (USA), Inc. for exploration,
development and mining of property held by Great
Basin in Eureka County Nevada. Said property
described in Exhibit A to agreement. common stock.
38 10 Mineral Lease Agreement and amendment thereto
between Great Basin Exploration and Mining
Company, Inc., and H. Walter Schull dated February
19, 1991 regarding the Coal Canyon property in
Eureka County, Nevada.
39 10 Mineral Lease Agreement between Great Basin
Exploration and Mining Company, Inc., and The Lyle
F. Campbell Trust dated October 14, 1994 regarding
the Tempo Mineral Prospect in Lander County,
Nevada.
40 10 Mineral Lease Agreement with amendment thereto
between Great Basin Exploration and Mining
Company, Inc., and The Lyle F. Campbell Trust
dated November 8,1993 regarding the Afgan Mineral
Prospect in Eureka County, Nevada.
41 10 Participation Agreement between Great Basin
Exploration and Mining Company, Inc., and Serem
Gatro Canada Inc., dated May 31, 1995 regarding
the right of Serem Gatro Canada Inc., to elect to
acquire a Participation Interest in properties in
which Great Basin Exploration and Mining Company,
Inc., has an interest.
42 10 Mineral Lease Agreement between Great Basin
Exploration and Mining Company, Inc., and Edward
L. Devenyns and David R. Ernst dated November 8,
1992 regarding the Red Canyon Mineral Prospect in
Eureka County, Nevada.
43 10 Joint Venture operating agreement dated January 1,
1996, between Cominco American, Inc. and Great
Basin Exploration and Mining Company, Inc. known
as the "Afgan-Kobeh Joint Venture". Property
described in Exhibit A.
56
<PAGE>
Exhibit Item 601
No. Category Exhibit
- --- -------- -------
44 11 Statement regarding per share earnings for the
quarterly period ended July 31, 1995. This
Statement was filed as Exhibit 37.11 to Form
10-QSB filed September 15, 1995 and incorporated
herein by reference.
45 11 Statement regarding per share earnings for the
quarterly period ended October 31, 1995. This
Statement was filed as Exhibit 39.11 to Form
10-QSB filed December 20, 1995 and incorporated
herein by reference.
46 11 Statement regarding per share earnings for the
year ended January 31, 1996.
47 18 The Registrant filed a Current Report on Form 8-K
on January 9, 1996 reporting that on January 5,
1996 Arthur Andersen LLP notified the Company by
letter that the client-auditor relationship
between Fischer-Watt Gold Company, Inc. And Arthur
Andersen LLP had ceased. Since the Company did not
dismiss Arthur Andersen LLP as its auditors the
Company treated such letter as a resignation. This
Form 8-K is hereby incorporated by reference.
48 27 Financial Data Schedule for the period ended April
30, 1995. This Schedule was filed as Exhibit 30.10
to Form 10-QSB filed June 14, 1995 and
incorporated herein by reference.
49 27 Financial Data Schedule for the six month period
ended July 31,1995 and filed as Exhibit 39.27 to
Form 10-QSB filed September 15, 1995 and
incorporated herein by reference.
50 27 Financial Data Schedule for the nine month period
ended October 31, 1995 and filed as Exhibit 42.27
to Form 10-QSB filed December 20, 1995 and
incorporated herein by reference.
51 27 Financial Data Schedule for the year ended January
31, 1996.
57
<PAGE>
Exhibit Item 601
No. Category Exhibit
- --- -------- -------
52 99 Employment Agreement effective September 1, 1993
between Fischer-Watt Gold Company, Inc., and
George Beattie whereby Fischer-Watt agrees to
employ Mr. Beattie for a two-year period as Chief
Executive Officer and filed as Exhibit 20.10 to
Form 10-K filed May 11, 1994 and incorporated
herein by reference.
53 99 Minutes of Special Meeting of Board of Directors
of Fischer-Watt Gold Company, Inc., dated October
19, 1994, whereby George Beattie's employment
contract dated September 1, 1993 is extended to
September 1, 1997. These minutes were filed as
Exhibit 28.99 to Form 10-K filed May 15, 1995 and
incorporated herein by reference.
54 99 List of subsidiaries of Fischer-Watt Gold Company,
Inc.
(b) Reports on Form 8-K
During the quarter ended January 31, 1996,
1. The Registrant filed a Current Report on Form 8-K on November 3, 1995
reporting that on October 20, 1995, the Company had acquired from subsidiaries
of Greenstone Resources Ltd. all of the outstanding shares of Greenstone
Resources of Colombia Ltd., a Bermuda Corporation and 470,000 shares of Compania
Minera Oronorte S. A. Greenstone Resources of Colombia Ltd., owns 61,450,000
shares of Compania Minera Oronorte S. A. Also on such date, the Company acquired
2,800,000 shares of Compania Minera Oronorte S. A., from Dual Resources. This
resulted in Fischer-Watt Gold Company, Inc., owning 99.9% of Compania Minera
Oronorte S. A., which owns the El Limon Mine in Colombia, South America. The
financial statements required to be filed pursuant to Item 7 were required to be
filed on or before January 5, 1996, and have not yet been filed.
2. The Registrant filed a Current Report on Form 8-K on November 17, 1995
reporting that on November 15, 1995, the Company gave notice that it has made an
offering of securities not registered under the Securities Act of 1933 in the
form of a news release dated November 15, 1995.
58
<PAGE>
3. The Registrant filed a Current Report on Form 8-K on January 9, 1996
reporting that on January 5, 1996 Arthur Andersen LLP notified the Company by
letter that the client-auditor relationship between Fischer-Watt Gold Company,
Inc. And Arthur Andersen LLP had ceased. Since the Company did not dismiss
Arthur Andersen LLP as its auditors the Company treated such letter as a
resignation.
4. The Registrant filed a Current Report on Form 8-K/A on January 12, 1996
reporting letter dated January 10, 1996 received by the Company from Arthur
Andersen LLP stated that it is in agreement with the statements in Item 4
included in the Form 8-K of the Company filed January 9, 1996.
<PAGE>
SIGNATURES
In accordance with Section 13 or 15(d) of the Exchange Act the Registrant
caused this Report to be signed on its behalf by the undersigned, thereunto duly
authorized.
FISCHER-WATT GOLD COMPANY, INC.
September 24, 1996 By /s/ George Beattie
----------------------
President, Chief Executive Officer,
(Principal Executive Officer),
Chairman of the Board and Director
In accordance with the Exchange Act, this Report has been signed below by
the following persons on behalf of the Registrant and in the capacities and on
the dates indicated.
Signature and Title Date
------------------- ----
/s/ Michele D. Wood September 24, 1996
------------------
Chief Financial Officer
(Principal Financial and
Accounting Officer)
/s/ Gerald D. Helgeson September 24, 1996
------------------
Director, Secretary
and Vice President
/s/ James M. Seed September 24, 1996
------------------
Director
/s/ George Beattie September 24, 1996
------------------
President, Chief Executive Officer
(Principal Executive Officer)
Chairman of the Board and Director
/s/ A. P. Taylor September 24, 1996
------------------
Director
/s/ Peter Bojtos September 24, 1996
------------------
Director and Vice President
Vice Chairman of the Board
/s/ Jorge Ordonez September 24, 1996
-----------------
Director
59
Fischer-Watt Gold
Company, Inc.
and Subsidiaries
Consolidated Financial Statements
Years Ended January 31, 1996 and 1995
<PAGE>
Independent Auditors' Report:
BDO Seidman, LLP - year ended January 31, 1996 ..................... F-3
Arthur Andersen, LLP - year ended January 31, 1995 ................. F-4
Consolidated Balance Sheet .............................................. F-6
Consolidated Statements of Operations ................................... F-7
Consolidated Statements of Shareholders' Equity (Deficit) ............... F-8
Consolidated Statements of Cash Flows ................................... F-9
Summary of Accounting Policies .......................................... F-11
Notes to Consolidated Financial Statements .............................. F-16
<PAGE>
Independent Auditors' Report
Board of Directors and Shareholders
Fischer-Watt Gold Company, Inc.
We have audited the accompanying consolidated balance sheet of Fischer-Watt Gold
Company, Inc. and subsidiaries as of January 31, 1996 and the related
consolidated statements of operations, shareholders' equity (deficit), and cash
flows for the year then ended. These consolidated financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these consolidated financial statements based on our audit.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the 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 audit provides a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the consolidated financial position of
Fischer-Watt Gold Company, Inc. and subsidiaries as of January 31, 1996, and the
consolidated results of their operations and their cash flows for the year then
ended in conformity with generally accepted accounting principles.
/s/ BDO Seidman, LLP
BDO Seidman, LLP
Spokane, Washington
September 20, 1996
F-3
<PAGE>
Report of Independent Public Accountants
To the Board of Directors and Shareholders of
Fischer-Watt Gold Company, Inc.
We have audited the accompanying consolidated statement of operations of
Fischer-Watt Gold Company, Inc. (a Nevada Corporation) for the year ended
January 31, 1995, and the related consolidated statements of shareholders'
equity and cash flows for the year ended January 31, 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 audit.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the 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 audit provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the results of operations and cash flows of Fischer-Watt
Gold Company, Inc. for the year ended January 31, 1995, in conformity with
generally accepted accounting principles.
/s/ Arthur Andersen LLP
Arthur Andersen LLP
Sacramento, California
April 21, 1995
F-4
<PAGE>
January 31, 1996
- ------------------------------------------------------------------------
CURRENT ASSETS:
Cash and cash equivalents $ 266,000
Accounts receivable (Note 3) 405,000
Due from related parties (Note 10) 97,000
Inventories (Note 4) 605,000
Prepaid expenses 19,000
- ------------------------------------------------------------------------
Total current assets 1,392,000
- ------------------------------------------------------------------------
MINERAL INTERESTS, net (Note 5) 3,149,000
- ------------------------------------------------------------------------
PROPERTY, PLANT AND EQUIPMENT:
Land and buildings 393,000
Machinery and equipment 1,087,000
Furniture and fixtures 109,000
- ------------------------------------------------------------------------
1,589,000
Less accumulated depreciation 36,000
- ------------------------------------------------------------------------
Property, plant and equipment, net 1,553,000
FOREIGN TAX REFUNDS 372,000
OTHER ASSETS 51,000
- ------------------------------------------------------------------------
Total assets $6,517,000
========================================================================
F-5
<PAGE>
January 31, 1996
- ------------------------------------------------------------------------
CURRENT LIABILITIES:
Accounts payable and accrued expenses (Note 12) $2,073,000
Notes payable to others (Note 6) 400,000
Notes payable to banks 60,000
Income taxes payable (Note 9) 181,000
- ------------------------------------------------------------------------
Total liabilities 2,714,000
- ------------------------------------------------------------------------
COMMITMENTS AND CONTINGENCIES (Notes 1, 3, 7, 11)
SHAREHOLDERS' EQUITY (Note 7 & 8):
Preferred stock, non-voting, convertible,
$2.00 par value, 250,000 shares
authorized; 0 shares outstanding --
Common stock, $0.001 par value, 50,000,000
shares authorized; 22,537,160 shares
outstanding 23,000
Additional paid-in capital 7,791,000
Foreign currency translation adjustments 669,000
Accumulated deficit (4,680,000)
- ------------------------------------------------------------------------
Total shareholders' equity 3,803,000
- ------------------------------------------------------------------------
Total liabilities and shareholders' equity $6,517,000
========================================================================
See the accompanying summary of accounting policies
and notes to consolidated financial statements.
F-6
<PAGE>
FISCHER-WATT GOLD COMPANY, INC.
AND SUBSIDIARIES
Consolidated Statements of Operations
Year ended January 31, 1996 1995
- ------------------------------------------------------------------------
SALES OF PRECIOUS METALS, net $ 1,378,000 $ --
COSTS APPLICABLE TO SALES 1,478,000 --
- ------------------------------------------------------------------------
LOSS FROM MINING (100,000) --
GAIN ON SALES OF MINERAL INTERESTS 1,528,000 869,000
COSTS AND EXPENSES:
Abandoned and impaired mineral interests 267,000 221,000
Selling, general and administrative 474,000 252,000
Exploration 3,000 --
- ------------------------------------------------------------------------
INCOME FROM OPERATIONS 684,000 396,000
OTHER INCOME (EXPENSE):
Gain (loss) on sale of trading securities 206,000 (28,000)
Unrealized loss on trading securities -- (178,000)
Gain on sale of equipment -- 28,000
Interest expense, net (73,000) (79,000)
Currency exchange gains, net 307,000 --
- ------------------------------------------------------------------------
NET INCOME BEFORE TAXES 1,124,000 139,000
TAX PROVISION (93,000) (4,000)
- ------------------------------------------------------------------------
NET INCOME $ 1,031,000 $ 135,000
========================================================================
EARNINGS PER SHARE $ .07 $ .01
WEIGHTED AVERAGE SHARES OUTSTANDING 14,883,000 12,344,000
- ------------------------------------------------------------------------
See the accompanying summary of accounting policies and
notes to consolidated financial statements.
F-7
<PAGE>
<TABLE>
<CAPTION>
FISCHER-WATT GOLD COMPANY, INC.
AND SUBSIDIARIES
Consolidated Statements of Shareholders' Equity (Deficit)
For the Years Ended Jnuary 31, 1996 and 1995
Foreign
Currency Share-
Paid-in Accumulated Translation holders'
Shares Amount Capital Deficit Adjustments Equity
- -------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
BALANCE,
February 1, 1994 12,344,000 $12,000 $5,773,000 $(5,846,000) $ -- $ (61,000)
Net income for
the year -- -- -- 135,000 -- 135,000
- -------------------------------------------------------------------------------------------------
BALANCE,
January 31, 1995 12,344,000 12,000 5,773,000 (5,711,000) -- 74,000
Issuance of common
stock in private
placement, net 6,067,500 6,000 810,000 -- -- 816,000
Issuance of common
stock to acquire
subsidiary, net 4,125,660 5,000 1,208,000 -- -- 1,213,000
Foreign currency
translation
adjustments -- -- -- -- 669,000 669,000
Net income for
the year -- -- -- 1,031,000 -- 1,031,000
- -------------------------------------------------------------------------------------------------
BALANCE,
January 31, 1996 22,537,160 $23,000 $7,791,000 $(4,680,000) $669,000 $3,803,000
=================================================================================================
</TABLE>
See the accompanying summary of accounting policies and
notes to consolidated financial statements.
F-8
<PAGE>
FISCHER-WATT GOLD COMPANY, INC.
AND SUBSIDIARIES
Consolidated Statements of Cash Flows
Year ended January 31, 1996 1995
- -------------------------------------------------------------------------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 1,031,000 $ 135,000
Adjustments to reconcile net income to net
cash used in operating activities
Depreciation, depletion and amortization 259,000 2,000
Abandoned properties and prospects 339,000 221,000
(Gain) loss on disposal of securities (1,110,000) 174,000
Unrealized loss on trading securities -- 178,000
Gain on sales of mineral interests (641,000) (869,000)
Other losses (gains), net 1,000 (28,000)
Changes in assets and liabilities, net
of business acquisitions:
Accounts receivable (223,000) 57,000
Due from related party (97,000) --
Inventory (85,000) --
Prepaids and other assets (8,000) --
Accounts payable and other adjustments 403,000 (165,000)
- ------------------------------------------------------------------------
Net cash used in operating activities (131,000) (295,000)
- ------------------------------------------------------------------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from sales of securities 582,000 --
Proceeds from sales of mineral interests 150,000 155,000
Investments in securities (21,000) (86,000)
Investments in mineral interests (301,000) 16,000
Investments in plant and equipment (139,000) (3,000)
Bonuses applied to reduce cost basis -- 18,000
Proceeds from equipment sales -- 12,000
Purchase of shares of consolidated
subsidiary, net of cash acquired (Note 14) (489,000) --
- ------------------------------------------------------------------------
Net cash provided by (used in) investing
activities (218,000) 112,000
- ------------------------------------------------------------------------
See the accompanying summary of accounting policies and
notes to consolidated financial statements.
F-9
<PAGE>
FISCHER-WATT GOLD COMPANY, INC.
AND SUBSIDIARIES
Consolidated Statements of Cash Flows
Year ended January 31, 1996 1995
- -------------------------------------------------------------------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from issuance of common stock in
private placement, net of stock
issuance costs $ 816,000 $ --
Payments of stock issuance costs on
acquisition of subsidiary (21,000) --
Borrowings on notes payable 28,000 83,000
Repayment of notes payable (214,000) --
- ------------------------------------------------------------------------
Net cash provided by financing activities 609,000 83,000
- ------------------------------------------------------------------------
NET INCREASE IN CASH AND CASH
EQUIVALENTS (Note 14) 260,000 (100,000)
CASH AND CASH EQUIVALENTS, beginning of year 6,000 106,000
- ------------------------------------------------------------------------
CASH AND CASH EQUIVALENTS, end of year $ 266,000 $ 6,000
========================================================================
See the accompanying summary of accounting policies and
notes to consolidated financial statements.
F-10
<PAGE>
FISCHER-WATT GOLD COMPANY, INC.
AND SUBSIDIARIES
Summary of Accounting Policies
- -----------------------------------------------------------------------------
Business Activities Fischer-Watt Gold Company, Inc. ("Fischer-Watt" or
the "Company") and its subsidiaries and joint
ventures are engaged in the business of mining and
mineral exploration. Operating activities of the
Company include locating, acquiring, exploring,
developing, improving, selling, leasing and operating
mineral interests, principally those involving precious
metals. The Company presently has mineral interests in
two broad, geographical areas namely North Central
Colombia and the Western United States. The Company's
current operational focus is its Oronorte properties, a
producing gold mine near Medellin, Colombia.
Principles of The consolidated financial statements include the
Consolidation accounts of Fischer-Watt, and its majority owned
subsidiaries. Ownership interests in corporations where
the Company maintains significant influence over but
not control of the entity are accounted for under the
equity method. Joint ventures involving non-producing
properties are accounted for at cost.
Cash amd Cash For purposes of balance sheet classification and the
Equivalents statements of cash flows, the Company considers all
highly liquid investments purchased with an original
maturity of three months or less to be cash
equivalents.
Inventories Inventories consist of gold and silver produced by the
Company's Colombian mining operations, work in process,
raw materials used in the production process and
operating supplies. Gold and silver inventories are
stated at their selling prices reduced by the estimated
cost of disposal. Raw materials and operating supplies
used in the production process are stated at the lower
of cost or replacement value. Production expenses are
included in work in process inventories using an
average cost of production method and work in process
inventories are stated at their lower of cost or net
realizable value.
Mineral Interests The Company records its interest in mineral properties
and areas of geological interest at cost less expenses
recovered and receipts from exploration agreements.
Exploration development costs are deferred until the
related project is placed in production or abandoned.
Deferred costs are amortized over the economic life of
the related project following commencement of
production, by reference to the ratio of units produced
to total estimated production (proven and probable
reserves), or written off if the mineral properties or
projects are sold or abandoned.
F-11
<PAGE>
Costs associated with pre-exploration, exploration, and
acquisition generally are deferred until a
determination is made as to the existence of
economically recoverable mineral reserves. If these
costs are incurred by the Company during a period
covered under a generative exploration program
agreement with a third party, they are expensed until
such time as the third party decides to either reject a
property identified during the exploration period or
proceed with further exploration of the property. If an
election to proceed occurs, future costs are
capitalized as incurred. Costs associated with
abandoned projects are expensed at the time of
abandonment.
Non-producing mineral interests are initially recorded
at acquisition cost. The cost basis of mineral
interests includes this acquisition cost and the cost,
bonus payments made to attract a joint venture partner,
of exploration and development, less bonus payments
received on unproven properties and advance royalty
payments received.
Mineral interests in unproven properties are evaluated
on a quarterly basis for possible impairment.
Management evaluation considers all the facts and
circumstances known about each property including: the
results of drilling and other exploration activities to
date; the desirability and likelihood that additional
future exploration activities will be undertaken by the
Company or by others; the land holding costs including
work commitments, rental and royalty payments and other
lease and claim maintenance commitments; the expiration
date of the lease including any earlier dates by which
notice of intent to terminate the lease must be given
in order to avoid work commitments; the accessibility
of the property; the ability and likelihood of joint
venturing the property with others; and, if producing,
the cost and revenue of continued operations.
Unproven properties are considered fully or partially
impaired, and are fully or partially abandoned, at the
earliest of the time that: geologic mapping, surface
sample assays or drilling results fail to confirm the
geologic concepts involved at the time the property was
acquired; a decision is made not to perform the work
commitments or to make the lease payments required to
retain the property; the Company discontinues its
efforts to find a joint venture partner to fund
exploration activities and has decided not to fund
those costs itself; or the time the property interest
terminates by contract or by operation of law.
F-12
<PAGE>
Property, Plant & Property, plant, and equipment are stated at cost.
Equipment Depreciation is provided by the straight-line method
over the estimated service lives of the respective
assets, which range from 2 to 20 years.
Revenue Sales revenue is recognized upon the production of
Recognition precious metals having a fixed monetary value. Precious
metal inventories are recorded at estimated net
realizable value, except in cases where there is no
immediate marketability at a quoted market price, in
which case they are recorded at the lower of cost or
net realizable value.
Gain on the sales of mineral interests includes the
excess of the net proceeds from sales over the
Company's net book value in that property. In
situations where a non-producing mineral interest is
exchanged for a producing mineral interest, the gain or
loss is the difference between the net book value of
the exchanged property and the fair market value of the
exchanged property or the property received, whichever
fair market value is more clearly determinable.
Generative exploration program fees, received as part
of an agreement whereby a third party agrees to fund a
generative exploration program in connection with
mineral deposits in areas not previously recognized as
containing mineralization in exchange for the right to
enter into a joint venture in the future to further
explore or develop specifically identified prospects,
are recognized as revenue in the period earned.
Bonus payments on proven properties, received as an
incentive to enter into a joint exploration and
development agreement, are recognized as revenue when
received. For unproven properties, bonus payments
received are first applied as a reduction of the cost
basis of the property with any excess being recognized
as revenue.
F-13
<PAGE>
Foreign Currency The Company accounts for foreign currency translation
Translation in accordance with the provisions of Statement of
Financial Accounting Standards No. 52, "Foreign
Currency Translation" ("SFAS No. 52"). The assets and
liabilities of Donna Ltd., formerly Greenstone
Resources Ltd. of Colombia, and subsidiary are
translated at the rate of exchange in effect at the
balance sheet date. Income and expenses are translated
using the weighted average rates of exchange prevailing
during the period which the foreign subsidiary was
owned. The related translation adjustments are
reflected in the accumulated translation adjustment
section of shareholders' equity.
Earnings Per Share The primary earnings per common share was computed by
dividing the net income or loss by the weighted average
number of common stock shares outstanding for each
period presented. Shares issuable upon exercise of
outstanding stock options and warrants have been
excluded from the computation as their effect on
earnings per share would be less than 3%.
Environmental and The Company currently has no active reclamation
Reclamation Costs projects, but expenditures relating to ongoing
environmental and reclamation programs would either be
expensed as incurred or capitalized and depreciated
depending on the status of the related mineral property
and their future economic benefits. The recording of
provisions generally commences when a reasonably
definitive estimate of cost and remaining project life
can be determined.
Income Taxes The Company accounts for income taxes in accordance
with the provisions of Statement of Financial
Accounting Standards No. 109, "Accounting for Income
Taxes" ("SFAS 109"). SFAS 109 requires the recognition
of deferred income taxes to provide for temporary
differences between the financial reporting and tax
basis of assets and liabilities. Deferred taxes are
measured using enacted tax rates in effect in the years
in which the temporary differences are expected to
reverse.
Concentration of The Company sells most of its precious metal production
Credit Risk to one customer. However, due to the nature of the
precious metals market, the Company is not dependent
upon this significant customer to provide a market for
its products. Although the Company could be directly
affected by weakness in the precious metals processing
business, the Company monitors the financial condition
of its customers and considers the risk of loss to be
remote.
F-14
<PAGE>
Estimates The preparation of financial statements in conformity
with generally accepted accounting principles requires
management to make estimates and assumptions that
effect the reported amounts 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.
New Accounting Statement of Financial Accounting Standards No. 121,
Pronouncements "Accounting for the Impairment of Long-Lived Assets and
Assets to be Disposed of " ("SFAS No. 121") issued by
the Financial Accounting Standards Board ("FASB") is
effective for financial statements with fiscal years
beginning after December 15, 1995. The new standard
establishes guidelines regarding when impairment losses
on long-lived assets, which include mineral interests,
plant, equipment, certain intangible assets, and
goodwill, should be recognized and how impairment
losses should be measured. The Company does not expect
adoption to have a material effect on its financial
position or results of operations.
Statement of Financial Accounting Standards No. 123,
"Accounting for Stock-Based Compensation" ("SFAS No.
123") issued by the FASB is effective for specific
transactions entered into after December 15, 1995,
while the disclosure requirements of SFAS No. 123 are
effective for financial statements beginning after
December 15, 1995. The new standard established a fair
value method of accounting for stock-based compensation
plans and for transaction in which an entity acquires
goods or services from nonemployees in exchange for
equity instruments. The Company does not expect
adoption to have a material effect on its financial
position or results of operations.
Reclassifications Certain amounts in 1995 financial statements have been
reclassified to conform to the 1996 presentation.
F-15
<PAGE>
1. Financial While Fischer-Watt reported net income in fiscal 1996
Condition and principally as a result of realizing gains on the sale
Liquidity or exchange of non-producing mineral properties, it has
an accumulated deficit of $4,900,000 and continues to
experience negative cash flow from operations and incur
losses from mining. Management believes that as the
recently acquired producing gold mine property is
further developed and production levels increase,
sufficient cash flows will exist to fund the Company's
continuing mining operations and exploration and
development efforts in other areas. Management
anticipates achieving levels of production sufficient
to fund the Company's operating needs by the end of
fiscal 1998 and until then will fund operations with
the cash raised in its March 1996 offering (see Note
13). The ability of the Company to achieve its
operating goals and thus positive cash flows from
operations is dependent upon the future market price of
gold, and the ability to achieve future operating
efficiencies anticipated with increased production
levels. Management's plans may require additional
financing or disposition of some of the Company's
non-producing assets. While the Company has been
successful in raising cash from these sources in the
past, there can be no assurance that its future cash
raising efforts and anticipated operating improvements
will be successful.
2. Business (a.) Acquisition of Greenstone Resources of Colombia
Combinations Ltd.("GRC")
Effective August 24, 1995, the Company acquired all of
the outstanding shares of GRC, a company incorporated
under the laws of Bermuda, by exchanging the Company's
net interest in Minerales de Copan, S.A. de C.V.,
valued at $885,000, assuming a note payable to the
seller for $300,000 (see Note 6), and incurring
acquisition and organization costs of $72,000. This
acquisition was accounted for as a purchase and the
assets and liabilities of GRC were adjusted based on
their estimated fair market values as of August 24,
1995. Operating results were recorded beginning on
August 24, 1995. Subsequent to the acquisition, GRC
changed its name to Donna Ltd. ("Donna"). Donna owns
94.9% of the issued and outstanding common shares of
Compania Minera Oronorte S.A. ("Oronorte"), a company
incorporated under the laws of Colombia, with the
Fischer-Watt owning the remaining Oronorte shares.
F-16
<PAGE>
(b). Acquisition of Great Basin Management Co., Inc.
("GBM")
On January 29, 1996, the Company acquired 100% of the
issued and outstanding common shares of GBM and its
wholly owned subsidiary, Great Basin Exploration and
Mining Company, Inc. ("GBEM"), a mineral exploration
Company. The GBM shares were purchased in exchange for
4,125,660 shares of the Company's common stock having
an estimated fair market value at the date of exchange
of $1,234,000. These shares issued by the Company are
restricted as to trading until March 1998.
(c). Unaudited Pro Forma Information
The following unaudited pro forma information has been
prepared on the basis that the acquisitions of GRC and
GBM had both occurred at the beginning of fiscal 1996
and 1995. The unaudited pro forma information includes
adjustments to depreciation and depletion expense based
on the allocation of the purchase price to the
property, plant, equipment and mineral interests
acquired.
Year ended January 31, 1996 1995
-------------------------------------------------------
Sales of precious metals $ 3,342,000 $ 3,378,000
Net income (loss) $ (321,000) $(2,857,000)
Net earnings (loss)
per common share (.01) $ (.23)
3. Accounts Accounts receivable at January 31, 1996 consist of:
Receivable
Trade $313,000
Other 92,000
-------------------------------------------------------
Total accounts receivable $405,000
=======================================================
F-17
<PAGE>
4. Inventories Inventories at January 31, 1996 consist of:
Finished products and
products in process $181,000
Supplies, materials
and spare parts 424,000
------------------------------------------------------
Total inventories $605,000
======================================================
5. Mineral Capitalized costs for mineral interests at January 31,
Interests 1996 consist of:
Operating mining property:
El Limon Mine, Oronorte District $ 611,000
Less accumulated depletion 82,000
------------------------------------------------------
529,000
======================================================
Non-operating properties,
net of reserves:
El Carmen, Colombia 772,000
La Aurora, Colombia 186,000
Juan Vara, Colombia 1,000
Afghan-Kobeh, Nevada 647,000
Coal Canyon, Nevada 548,000
Red Canyon, Nevada 334,000
Tempo, Nevada 50,000
Oatman, Arizona 10,000
Modoc, California 72,000
-----------------------------------------------------
Total mineral interests $3,149,000
=====================================================
6. Notes Payable Pursuant to agreements among Greenstone Resources Ltd.
("Greenstone"), Dual Resources Ltd. ("Dual"), and the
Company, Greenstone made a payment of $300,000 to Dual
to acquire 2,800,000 shares of Oronorte common stock
for the benefit of the Company. The Company's
obligation to repay Greenstone this $300,000 is
evidenced by a note payable which bears interest at the
rate of 10% per annum. This note became payable, in
full, on June 20, 1996 at which time the Company
withheld payment while negotiating the settlement of
amounts owed to the Company by Greenstone.
F-18
<PAGE>
The Company has a note payable of $100,000 to Serem
Gatro, the previous owner of GBEM. The note bears
interest at 8% and is currently past due. Repayment of
this note payable is currently being negotiated with
Serem Gatro.
7. Equity and In November 1995, the Company completed a private
Common Stock placement of 6,067,500 common shares and 3,033,750
warrants to purchase common shares. The net proceeds
from this private placement of $816,000 are to be used
to finance the expansion and operation of the Company's
El Limon gold mine in Colombia. Each warrant can be
exercised to purchase a common share for $0.30 through
August 1997. Costs of issuing these common shares and
stock warrants totaled $94,000 and were subtracted from
the gross proceeds in determining the amount of
additional paid in capital.
As noted in Note 2, the Company issued 4,125,660 common
shares on January 29, 1996 in exchange for all of the
issued and outstanding common shares of GBM. The shares
had an estimated fair market value of $1,234,000 and
the costs of the issuance of $21,000 were subtracted
from the proceeds in determining the amount of
additional paid in capital.
8. Common Stock In May 1987, the board of directors approved a
Options and nonqualified stock option plan. Two officers, four
Warrants employees and one independent contractor were granted
options to purchase a total of 710,000 shares of common
stock at $1.50 per share (fair market value at date of
grant). These options vest at rates ranging from 2,000
to 5,000 shares per month per individual and become
exercisable six months after vesting. These options
expire 10 years after they become exercisable. At
January 31, 1996, options on 706,000 shares had vested
and were exercisable.
In October 1991, three officers and three employees
were granted options to purchase a total of 504,000
shares of common stock at $1.15 per share (fair market
value at the date of grant). Options on 74,000 shares
vested immediately and the remainder vest at rates
ranging from 2,000 to 4,000 shares per month, and
become exercisable six months after vesting. These
options expire 10 years after they become exercisable.
At January 31, 1996, options on 382,000 shares had
vested and were exercisable.
F-19
<PAGE>
In July 1993, two officers and four employees were
granted options to purchase a total of 600,000 shares
of common stock at $.50 per share (fair market value at
the date of grant). These options vest at the rate of
2,000 shares per month per employee and become
exercisable six months after vesting. These options
expire 10 years after they become exercisable. Options
granted on 450,000 of the 600,000 shares were later
canceled pursuant to employee settlement agreements. At
January 31, 1996, options on 112,000 shares had vested
and options on 100,000 shares were exercisable.
In conjunction with an employment contract effective
September 1, 1993, with an officer and director,
options were granted on 500,000 shares of common stock
at $.20 per share (fair market value at date of grant).
These options vest at the rate of 20,000 shares per
month and become exercisable six months after vesting.
These options expire 10 years after they become
exercisable. At January 31, 1996, options on 500,000
shares had vested and options on 460,000 shares were
exercisable.
In October 1993, two officers and four employees were
granted options to purchase a total of 450,000 shares
of common stock at $.17 per share (fair market value at
date of grant). These options vested immediately and
became exercisable six months after vesting. The
options expire in April 2004. At January 31, 1996,
options on 450,000 shares had vested and were
exercisable.
In April and July 1994, two directors were each granted
options to purchase 100,000 shares of common stock at
$.08 and $.05 per share (fair market value at time of
grant), respectively. These options vest after
approximately one year of service as a director and
become exercisable upon vesting. These options expire
five years after they become exercisable. At January
31, 1996, options on all 200,000 shares had vested or
were exercisable.
F-20
<PAGE>
On June 1, 1995, two directors and two consultants were
each granted options to purchase a total of 525,000
shares of common stock at $.0625 per share (fair market
value at time of grant). These options became
exercisable on June 1, 1996 and expire five years after
they become exercisable. At January 31, 1996, none of
the options were exercisable.
The Company has reserved 200,000 common shares for
issuance upon exercise of five Warrants issued in
January 1996 in consideration for investment banking
and promotional services as follows: 100,000 common
shares are reserved for issuance upon exercise of
warrant's issued on January 10, 1996 exercisable at
$.28 per share (fair market value at time of grant)
prior to January 10, 2000. The remaining 100,000 shares
are reserved for issuance upon exercise of warrants
issued on January 10, 1996, exercisable at $.31 per
share at any time prior to January 10, 2001.
9. Income Taxes The components of net income before taxes for the
Company's domestic and foreign operations for the years
ended January 31 were as follows:
1996 1995
------------------------------------------------------
Domestic $ 1,123,000 $ 139,000
Foreign (227,000) --
------------------------------------------------------
Net income before taxes $ 896,000 $ 139,000
======================================================
The consolidated tax provision for the years ended
January 31 is comprised of the following:
1996 1995
------------------------------------------------------
Current:
Federal $ 16,000 $ --
State 77,000 4,000
Foreign -- --
------------------------------------------------------
Tax Provision $ 93,000 $ 4,000
=====================================================
F-21
<PAGE>
The difference between the federal statutory tax rate
and the effective tax rate on net income before taxes
for the years ended January 31 follows:
1996 1995
------------------------------------------------------
Federal statutory rate 34.0% 34.0%
Utilization of tax loss
carryforwards (34.0) (34.0)
Alternative minimum tax 1.4 --
State income taxes 6.9 2.9
Other 2.1 --
------------------------------------------------------
10.4% 2.9%
======================================================
The Company has regular federal tax loss carryforwards
of approximately $4.5 million and federal alternative
minimum tax loss carryforwards of approximately $4.4
million at January 31, 1996 which expire from 2005 to
2008.
Temporary differences between taxable income reported
on the Company's federal tax return and net income
reflected in the accompanying statements of operations
result primarily from the capitalization of mine
exploration and development costs for financial
reporting purposes and deducting those costs for tax
reporting purposes, partially offset by a lack of tax
basis in properties sold, traded or abandoned.
Additional temporary differences related to
depreciation, mineral interest writedowns and non-
deductible accruals exist. The tax effect of each of
these temporary differences and net operating loss
carryforwards are entirely offset by a $1.8 million
valuation allowance as management does not believe the
Company has met the "more likely than not" standard
imposed by FAS 109 to allow recognition of a net
deferred tax asset.
10. Transactions Larry Buchanan was a director of the Company from July
with Related 15, 1994 until June 5, 1996 in addition to being
Parties involved with various projects and companies that are
related to Fischer-Watt's business. Dr. Buchanan
received compensation as a consulting geologist of
$11,000 plus interest on overdue bills of $1,631 in
fiscal 1996 and compensation of $32,000 in fiscal 1995.
Dr. Buchanan is a Vice President of the firm Begeyge
Minera Ltda. ("BG&G"), that received compensation of
$13,000 for consulting geological services in fiscal
1996 and $11,000 for property acquisition costs and
consulting geological services in fiscal 1995. BG&G
holds a royalty interest in the Minas de Oro property
in Honduras that the Company sold its interest in May
1995. BG&G also holds a royalty interest in the Rio
Tinto, Honduras property in which the Company incurred
costs of $15,000 in the year ended January 31, 1996 and
$7,000 in the year ended January 31, 1995. The Company
abandoned the Rio Tinto interests during the first
quarter of fiscal 1996. In addition, on June 1, 1995,
for his services as a Director, Dr. Buchanan received
an option to purchase 100,000 shares of the common
stock of the Corporation at an exercise price of $.0625
per share.
F-22
<PAGE>
Peter Bojtos became a director of the Company on April
24, 1996. Mr. Bojtos had been engaged on August 25,
1995 by the Company, on a non-exclusive basis, as an
independent contractor to raise funds for the Company
in the form of issuance of restricted common stock and
warrants to purchase additional shares. He was
compensated in cash at the rate of 10% of the amount
raised. He was paid $81,000 for those services. Mr.
Bojtos purchased 180,000 units of that offering under
the same terms and conditions as the other subscribers
which consisted of 360,000 shares of restricted common
stock and warrants to purchase an additional 180,000
shares at any date prior to August 31, 1997 for $.30
per share. Lynn Bojtos, wife of Peter Bojtos, purchased
an additional 170,000 shares, under these same terms
and conditions. In March of 1996, he was again engaged
to raise funds for the Company. The Company completed a
$5 million foreign offering outside the United States
pursuant to Regulation "S". Mr. Bojtos was paid
$132,000 for his services in connection with this
offering. On May 21, 1996, Mr. Bojtos was granted for
services to the Company an option to purchase 100,000
shares of common stock of the Corporation after
February 20, 1997 at an exercise price of $.37 per
share.
Anthony P. Taylor, an officer and director of the
Company, and an officer, director and major shareholder
of GBM when the Company acquired GBM through a merger
that was completed on January 29, 1996 (see Note 2). As
a result of the merger, Dr. Taylor received 1,541,694
shares of restricted Fischer-Watt common stock in
exchange for his shares of GBM.
F-23
<PAGE>
Kennecott Exploration Company, who owns 3,048,000
shares of the Company's common stock, loaned the
Company $500,000 in March 1992. Kennecott had a joint
venture with the Company on the Minas de Oro property
in Honduras. In May 1995, both Kennecott and the
Company sold their interests in the Minas do Oro
property to a third party. In connection with that
sale, Fischer-Watt received $150,000 and the $500,000
debt and accrued interest owed to Kennecott was
canceled. A $641,000 gain on the sale of this property
was recorded on the fiscal 1996 statement of
operations. In a separate transaction, the Company
assigned to Kennecott previously unassigned leases on
the Modoc property in California, subject to a net
smelter return royalty interest retained by the
Company.
On June 5, 1996, James M. Seed was appointed a director
of the Company. Prior to becoming a director, Mr. Seed
and several entities affiliated with Mr. Seed purchased
333,400 shares of an offering of restricted common
stock and warrants under the same terms and conditions
as the other subscribers (see Note 7).
11. Greenstone In March 1994, the Company accepted an offer from
Resources Ltd. Greenstone to acquire an option to purchase all of
Transactions Fischer-Watt's interests in the San Andres project in
Honduras. As consideration for the option, Greenstone
paid Fischer-Watt $105,000 and forgave $90,000 of a
$94,000 loan provided to Fischer-Watt pursuant to a
terminated merger transaction. Greenstone exercised its
option on October 31, 1994 by forgiving the remaining
loan balance of $4,000, paying Fischer-Watt $56,000 and
issuing $700,000 of Greenstone common stock. Upon
exercise of the option, Greenstone was assigned
Fischer-Watt's option to acquire 51% of Compania
Minerales de Copan, S.A. de C.V. ("Copan") from Milner
Consolidated Silver Mines (25.5%) and North American
Palladium Resources (25.5%) as well as all of
Fischer-Watt's other rights and interest in the San
Andres project subject to the shares described below.
Copan owns the San Andres project which produces gold
from a small open pit, heap leach operation within the
project boundaries.
F-24
<PAGE>
On August 4, 1994, the Company received the first
installment of a loan from Greenstone Resources Canada
Ltd. The loan was negotiated as part of the San Andres
option agreement. The loan was to provide all of the
funds to purchase up to nine percent of the shares of
Copan.
The loan was nonrecourse as to both principal and
interest to the Company and was to be repaid out of
dividends, if any, from the Copan shares. The shares
were pledged to Greenstone as collateral for the loan
which was due on or before December 31, 1999. At August
24, 1995 this loan plus associated accrued interest,
totaling $115,000, were eliminated in conjunction with
the sale of the Company's interest in the Copan shares
(see Note 2).
12. Commitments Upon the purchase of GRC (see Note 2) the Company
and assumed GRC's liabilities related to transactions
Contingencies governed by Colombian law concerning the movement of
foreign currency into and out of Colombia. The
Colombian government has the right to request an audit
of foreign currency movement within a two year time
frame. No request or notice of an audit has been
received from the Colombian government to date.
Therefore, the likelihood of a loss resulting from the
actions of GRC prior to the Company's purchase cannot
presently be determined.
Oronorte is currently the defendant in several claims
relating to labor contracts and employee terminations
which occurred during a labor strike. This strike and
the resulting terminations took place during the former
ownership of Oronorte. The estimated amount of the
claims against Oronorte totals approximately $200,000.
In the event of an unfavorable outcome from Oronorte's
perspective, there is a likelihood that the Company
would have the right to claim indemnity from Greenstone
Resources Canada Ltd. pursuant to the terms of the
agreements related to the acquisition of Oronorte.
In connection with the purchase of GRC, Greenstone
agreed to reimburse the Company for certain liabilities
existing at the date of purchase in excess of
$1,000,000. Subject to final assessment of liabilities
and GRC's right to offset certain assets against
liabilities, the Company estimates this excess of
liabilities to be $309,000. Management is unable to
determine Greenstone's ability or willingness to fund
its share of these excess liabilities in accordance
with the terms of the purchase agreement and
accordingly has not recorded a receivable from
Greenstone as of January 31, 1996.
F-25
<PAGE>
The Company's property interests require minimum
payments to be made, or work commitments to be
satisfied, to maintain ownership of the property not in
production. However, all of these payments may be
avoided by timely forfeiture of the related property
interest. If the joint venture partner, or the Company,
fails to meet these commitments, the Company could lose
its rights to explore, develop or mine the property.
The table below lists the various properties and the
required financial commitments for the year ending
January 31, 1997.
Work Joint
Company Lease Commit- Venture Net
Property Payments ment Total Share Cost
-------------------------------------------------------
America $48,000 $106,000 $154,000 $154,000 $ --
Afgan/Kobeh 65,000 200,000 265,000 265,000 --
Coal Canyon 29,000 100,000 129,000 -- 129,000
Red Canyon 74,000 -- 74,000 74,000 --
Tempo 123,000 100,000 223,000 223,000 --
Tuscarora -- 2,000 2,000 2,000 --
Modoc 20,000 -- 20,000 20,000 --
Oatman -- -- -- -- --
Other 3,000 -- 3,000 -- 3,000
-------------------------------------------------------
Totals $362,000 $508,000 $870,000 $738,000 $132,000
=======================================================
F-26
<PAGE>
13. Subsequent On March 12, 1996, the Company sold 9,960,000 common
Events shares and 4,980,000 warrants to purchase common shares
to investors located outside of the United States
pursuant to a Regulation S offering. The net proceeds
from this offering of $4,930,000 are to finance the
Company's capital equipment and working capital needs
related to the further development and expansion of the
Colombian gold mining operation and the Company's
exploration and development activities in Colombia and
Nevada.
Each of these warrants issued entitles the holder to
purchase one additional share of Fischer-Watt common
stock at an exercise price of $.75 through February 28,
1998. These securities were not registered under the
Securities Act of 1933 and may not be offered or sold
in the United States absent registration or an
applicable exemption from registration requirements.
Costs of issuing these common shares and warrants
totaled $348,000 and will be subtracted from the gross
proceeds in determining the amount of additional paid
in capital.
F-27
<PAGE>
14. Supplemental Cash paid for interest during the fiscal years ended
Disclosure of January 31, 1996 and 1995 was $54,028 and $12,000. Cash
Cash Flow paid for income taxes during the years ended January
Information 31, 1996 and 1995 was $4,000 and $0.
Non-cash investing and financing activities for the
years ended January 31, 1996 and 1995 included:
1996 1995
------------------------------------------------------
Debt assumed by buyer
in connection with
disposal of mineral interest $ 541,817 $ 94,000
Application of bonus on unproven
property to offset accrued
interest expense $ -- $ 50,000
Securities received in connection
with sale of mineral interest $ -- $ 700,000
Cost basis in mineral interest
sold in connection with debt
eliminated $ -- $ 86,000
Fair market value of vehicles
and office equipment offset
against wages and expenses
due to former employees $ -- $ 33,000
F-28
<PAGE>
The net change in assets and liabilities due to the
acquisition of subsidiaries during the fiscal year
ended January 31, 1996 was comprised of the following:
Great Basin
Management
Company
Donna Ltd. Inc. Total
--------------------------------------------------------
Value of consideration $1,000,000$ -- $1,000,000
Value of stock issued -- 1,234,000 1,234,000
Net debt assumed 185,000 -- 185,000
Capitalized acquisition
costs 72,000 -- 72,000
Assets acquired
Working capital,
other than cash (1,065,000) (39,000)(1,104,000)
Property, plant and
equipment (2,931,000)(1,579,000)(4,510,000)
Liabilities assumed
Current liabilities 2,443,000 239,000 2,682,000
Long-term debt 300,000 148,000 448,000
--------------------------------------------------------
Cash acquired 4,000 3,000 7,000
Less elimination of
intercompany debt (300,000) (124,000) (424,000)
Less cash paid for
acquisition (72,000) -- (72,000)
--------------------------------------------------------
Net change in assets
and liabilities due
to acquisition
of subsidiaries $(368,000)$(121,000)$(489,000)
=======================================================
F-29
BLUE SHOES MINING, INC.
BY-LAWS
ARTICLE I -- OFFICES
Section 1.1 Office
- -------------------
The principal office of the corporation within the State of Nevada shall be
located at 428 South Fourth Street, Las Vegas, Nevada 89101.
Section 1.2 Other Offices
- --------------------------
The corporation may also have such other offices, either within the State
of Nevada, as the Board of Directors may from time to time determine or the
business of the corporation may require.
ARTICLE II -- STOCKHOLDERS
Section 2.1 Annual Meeting
- ---------------------------
An annual meeting of the stockholders, for the selection of directors to
succeed those whose terms expire and for the transaction of such other business
as may properly come before the meeting, shall be held at a location designated
by the Board of Directors on the first Wednesday in February, or if such date
shall fall on a holiday, the next business day thereafter.
Section 2.2 Special Meetings
- -----------------------------
Special meetings of the stockholders, for any purpose or purposes
prescribed in the notice of the meeting, may be called by the Board of
Directors, the President, the chief executive officer, or their holders of not
less than one-tenth of all the shares entitled to vote at the meeting, and shall
be held at such place, on such date, and at such time as they or he shall fix.
<PAGE>
Section 2.3 Notice of Meetings
- -------------------------------
Written notice of the place, date and time of all meetings of the
stockholders shall be given, not less than ten (10) nor more than sixty (60)
days before the date on which the meeting is to be held, to each stockholder
entitled to vote at such meeting, except as otherwise provided herein or
required b law (meaning, here and hereinafter, as required from time to time by
the laws of the State of Nevada or the Articles of Incorporation).
When a meeting is adjourned to another place, date or time, written notice
need not be given of the adjourned meeting at which the adjournment is taken;
provided, however, that if the date of any adjourned meeting is more than thirty
days after the date for which the meeting was originally noticed, or if a new
recorded date is fixed for the adjourned meeting, written notice of the place,
date, and time of the adjourned meeting shall be given in conformity herewith.
At any adjourned meeting, any business may be transacted which might have been
transacted at the original meeting.
Section 2.4 Quorum
- -------------------
At any meeting of the stockholders, the holders of a majority of all of the
shares of stock entitled to vote at the meeting, present in person or by proxy,
shall constitute a quorum for all purposes, unless or except to the extent that
the presence of a larger number may be required by law.
If a quorum shall fail to attend any meting, the chairman of the meeting or
the holders of a majority of the shares of the stock entitle to vote who are
present, in person or by proxy, may adjourn the meeting to another place, date
or time.
If a notice of any adjourned special meeting of stockholders is sent to all
stockholders entitled to vote thereat, stating that it will be held with those
present constituting a quorum, then except as otherwise required by law, those
present at such adjourned meeting shall constitute a quorum, and all matters
shall be determined by a majority of the votes cast at such meeting.
Section 2.5 Organization
- -------------------------
Such person as the Board of Directors may have designated or, in the
absence of such a person, the highest ranking officer of the corporation who is
present shall call to order any meeting of the stockholders and act as chairman
of the meeting. In the absence of the Secretary or the corporation, the
secretary of the meeting shall be such person as the chairman appoints.
<PAGE>
Section 2.6 Conduct of Business
- --------------------------------
The chairman of any meeting of stockholders shall determine the order of
business and the procedure at the meeting, including such regulation of the
manner of voting and the conduct of discussion as seem to him in order.
Section 2.7 Proxies and Voting
- -------------------------------
At any meeting of the stockholders, every stockholder entitled to vote in
person or by proxy authorized by an instrument in writing filed in accordance
with the procedure established for the meeting.
Each stockholder shall have one vote for every share of stock entitled to
vote which is registered in his name on the record date for the meeting, except
as otherwise provided herein or required by law.
All voting, except on the election of directors and where otherwise
required by law, may be by a voice vote; provided, however, that upon demand
therefor by a stockholder entitled to vote or his proxy, a stock bote shall be
taken. Every stock vote shall be taken by ballots, each of which shall state the
name of the stockholder or proxy voting and such other information as may be
required under the procedure established for the meeting. Every vote taken by
ballots shall be counted by an inspector or inspectors appointed by the chairman
of the meeting.
If a quorum is present, the affirmative vote of the majority of the shares
represented at the meetings and entitled to vote on the subject matter shall be
the act of the stockholders, unless the vote of a greater number or voting by
class is required bu law, the Articles of Incorporation, or these By-laws.
Section 2.8 Stock List
- -----------------------
A complete list of stockholders entitled to vote at any meeting of
stockholders, arranged in alphabetical order for each class of stock and showing
the address of each such stockholder and the number of shares registered in his
name, shall be open to the examination of any such stockholder, for any purpose
germane to the meeting, during ordinary business hours for a period of at least
ten (10) days prior to the meeting, either at a place withing the city where the
meeting is to be held, which place shall be specified in the notice of the
meeting, or if not so specified, at the place where the meeting is to be held.
<PAGE>
The stock list shall also be kept at the place of the meeting during the
whole time thereof and shall be open to the examination of any such stockholder
who is present. This list shall presumptively determine the identity of the
stockholders entitled to vote at the meeting and the number of shares held by
each of them.
Section 2.9 Participation in Meetings by Conference Telephone
- --------------------------------------------------------------
Any action, except the election of directors, which may be taken by the vote
of the stockholders at a meeting, may be taken without a meeting if authorized
by the written consent of the stockholders holding at least a majority of the
voting power; provided:
(a) That if any greater proportion of voting power is required for such
action at a meeting, then such greater proportion of written consents
shall be required; and
(b) That this general provision shall not supersede any specific provision
for action by written consent required by law.
ARTICLE III -- BOARD OF DIRECTORS
Section 3.1 Number and Term of Office
- ---------------------------------------
The number of directors who shall constitute the whole board shall be such
number not less than three (3) nor more than seven (7) as the Board of directors
shall at the time have designated. Each director shall be selected for a term of
one year and until his successor is elected and qualified, except as otherwise
provided herein or required by law.
Whenever the authorized number of directors is increased between annual
meetings of the stockholders, a majority of the directors for the balance of a
term and until their successors are elected and qualified. Any decrease in the
authorized number of directors shall not become effective until the expiration
of the term of the directors then in office unless, at the time of such
decrease, there shall be vacancies on the board which are being eliminated by
the decrease.
Section 3.2 Vacancies
- ----------------------
If the office of any director becomes vacant by reason of death,
resignation, disqualification, removal or by other cause, a majority of the
directors remaining in office, although less than a quorum, may elect a
successor for the unexpired term and until his successor is elected and
qualified.
<PAGE>
Section 3.3 Regular Meetings
- -----------------------------
Regular meetings of the Board of Director shall be held at such place or
places, on such date or dates, and at such time or times as shall have been
established by the Board of Directors and publicized among all directors. A
notice of each regular meeting shall not be required.
Section 3.4 Special Meetings
- -----------------------------
Special Meetings of the Board of Directors may be called by one-third of
the directors then n office or by the chief executive officer and shall be held
at such place, on such date and at such time as they or he shall fix. Notice of
the place, date and time of each such special meeting shall be given by each
director by whom it is not waived by mailing written notice not less than three
days before the meeting or by telegraphing the same not less than eighteen hours
before the meeting. Unless otherwise indicated in the notice thereof, any and
all business may be transacted at a special meeting.
Section 3.5 Quorum
- -------------------
At any meeting of the Board of Directors, a majority of the total number of
the whole board shall constitute a quorum for all purposes. If a quorum shall
fail to attend any meeting, a majority of those present may adjourn the meeting
to another place, date or time, without further notice or waiver thereof.
Section 3.6 Participation in Meetings by Conference Telephone
- --------------------------------------------------------------
Members of the Board of Directors or of any committee thereof, may
participate in a meeting of such board or committee by means of conference
telephone or similar communications equipment that enables all persons
participating in the meting to hear each other. Such participation shall
constitute presence in person at such meeting.
<PAGE>
Section 3.7 Conduct of Business
- --------------------------------
At any meeting of the Board of Directors, business shall be transacted in
such order and manner as the board may from time to time determine, and all
matters shall be determined by the vote of a majority of the directors present,
except as otherwise provided herein or required by law. Action may be taken by
the Board of Directors without a meeting if all members thereof consent thereto
in writing, and the writing or writings are filed with the minutes of
proceedings of the Board of Directors.
Section 3.8 Powers
- -------------------
The Board of Directors may, except as otherwise required by law, exercise
all such powers and do all such acts and things as may be exercised or done by
the corporation, including, without limiting the generality of the foregoing,
the unqualified power:
(a) To declare dividends from time to time in accordance with law;
(b) To purchase or otherwise acquire any property, rights or privileges on
such terms as it shall determine;
(c) To authorize the creation, making and issuance, in such form as it may
determine, of written obligations of every kind, negotiable or
non-negotiable, secured or unsecured, and to do all things necessary
in connection therewith;
(d) To remove any officer of the corporation with or without cause, and
from time to time to devolve the powers and duties of any officer upon
any other person for the time being;
(e) To confer upon any officer of the corporation the power to appoint,
remove and suspend subordinate officers and agents;
(f) To adopt from time to time such stock option, stock purchase, bonus or
other compensation plans for directors, officers and agents of the
corporation and its subsidiaries as it may determine;
(g) To adopt from time to time such insurance, retirement and other
benefit plans for directors, officers and agents of the corporation
and its subsidiaries as it may determine; and
(h) To adopt from time to time regulations, not inconsistent with these
By-laws, for the management of the corporation's business and affairs.
<PAGE>
Section 3.9 Compensation of Directors
- --------------------------------------
Directors, as such, may receive, pursuant to resolution of the Board of
Directors, fixed fees and other compensation for their services as directors,
including, without limitation, their services as members of committees of the
directors.
Section 3.10 Interested Directors
- ----------------------------------
No contract or other transaction between the corporation and one or more of
its directors, or between the corporation and any other corporation, firm,
association or other entity in which one or more of its directors or officers
are directors, or have a substantial financial interest, shall be either void or
voidable for this reason alone or by reason alone that such director or
directors are present at the meeting of the board, or of a committee thereof,
which approves such contract or transaction, or that his or their votes are
counted for such purpose if any one of that following circumstances exists:
(a) If the material facts as to such director's interest in such contract
or transaction and as to any such common directorship, officership or
financial interest are disclosed in good faith or known to by the
board or committee and noted in the minutes, and the board or
committee approves such contract or transaction by a vote sufficient
for such purpose without counting the vote of such interested
director, or if the votes of the disinterested directors are
insufficient to constitute an act of the board as defined in Section
3.7 of this Article, by unanimous vote of the disinterested parties;
or
(b) If the material facts as to such director's interest in such contract
or transaction and as to any such common directorship, officership or
financial interest are disclosed in good faith or known to the
shareholders entitled to vote thereon, and such contract or
transaction is approved or ratified by a majority vote of such
shareholders, including shares voted by such director; or
(c) If the contract or transaction is affirmatively established by the
party or parties thereto be fair and reasonable as to the corporation
at the time it was approved by the board, a committee thereof, or the
shareholders.
<PAGE>
Common or interested directors may be counted in determining the presence of a
quorum at a meeting of the board or a committee thereof which approved such
contract or transaction.
Section 3.11 Loans
- --------------------
The corporation shall not lend money to or use its credit to assist its
officers, directors or other control persons without authorization in the
particular case by the stockholders, but may lend money to and use its credit to
assist any employee, excluding such officers, directors or other control persons
of the corporation or of a subsidiary, if such loan or assistance benefits the
corporation.
ARTICLE IV -- COMMITTEES
Section 4.1 Committees of the Board of Directors
- -------------------------------------------------
The Board of Directors, by a vote of a majority of the whole board, may
from time to time designate committees of the board, with such lawfully
delegable powers and duties as it thereby confers, to serve at the pleasure of
the board and shall, for those committees and any other provided for herein,
elect a director or directors to serve as the member or members, designating, if
it desires, other directors as alternative members who may replace any absent or
disqualified member at any meeting of the committee. Any committee so designated
may exercise the power and authority of the Board of Directors to declare a
dividend or to authorize the issuance of stock if the resolution which
designates the committee or supplemental resolution of the Board of Directors
shall so provide. In the absence or disqualification of any member of any
committee and any alternate member in his place, the member or members of the
committee present at the meeting and not disqualified from voting, whether or
not he or they constitute a quorum, may by unanimous vote appoint another member
of the Board of Directors to act at the meeting in the place of the absent or
disqualified member.
Section 4.2 Conduct of Business
- --------------------------------
Each committee may determine the procedural rules for meeting and
conducting its business and shall act in accordance therewith, except as
<PAGE>
otherwise provided herein or required by law. Adequate provision shall be made
for notice to members of all meetings; a majority of the members shall
constitute a quorum unless the committee shall consist of one or two members, in
which event one member shall constitute a quorum; and all matters shall be
determined by a majority vote of the members present. Action may be taken by any
committee without a meeting if all members thereof consent thereto in writing,
and the writing or writings are filed with the minutes of the proceedings of
such committee.
ARTICLE V -- OFFICERS
Section 5.1 Generally
- ----------------------
The officers of the corporation shall consist of a president, one or more
vice-presidents, a secretary, a treasurer and such other subordinate officers as
may from time to time be appointed by the Board of Directors. Officers shall be
elected by the Board of Directors, which shall consider that subject at its
first meeting after every annual meeting of stockholders. Each officer shall
hold his office until his successor is elected and qualified or until his
earlier resignation or removal. Any offices of president and secretary shall not
be held by the same person.
Section 5.2 President
- ----------------------
The president shall be the chief executive officer of the corporation.
Subject to the provisions of these By-Laws and to the direction of the Board of
Directors, he shall have the responsibility for the general management and
control of the affairs and business of the corporation and shall perform all
duties and have all powers which are commonly incident to the office of chief
executive or which are delegated to him by the Board of Directors. He shall have
the power to sign all stock certificates, contracts and other instruments of the
corporation which are authorized. He shall have general supervision and
direction of all of the other officers and agents of the corporation.
Section 5.3 Vice-President
- ---------------------------
Each vice-president shall perform such duties as the Board of Directors,
shall prescribe. In the absence or disability of the President, the
vice-president who has served in such capacity for the longest time shall
perform the duties and exercise the powers of the president.
<PAGE>
Section 5.4 Treasurer
- ----------------------
The treasurer shall have the custody of the monies and securities of the
corporation and shall keep regular books of account. He shall make such
disbursements of the funds of the corporation as are proper and shall render
from time to time an account of all such transactions and of the financial
condition of the corporation.
Section 5.5 Secretary
- ----------------------
The secretary shall issue all authorized notices from, and shall keep
minutes of, all meetings of the shareholders and the Board of Directors. He
shall have charge of the corporate books.
Section 5.6 Delegation of Authority
- ------------------------------------
The Board of Directors may, from time to time, delegate the powers or
duties of any officer to any other officer or agents, notwithstanding any
provision hereof.
Section 5.7 Removal
- --------------------
Any officer of the corporation may be removed at any time, with or without
cause, by the Board of Directors.
Section 5.8 Action with Respect to Securities of Other
- --------------------------------------------------------
Corporation
-----------
Unless otherwise directed by the Board of Directors, the president shall
have the power to vote and otherwise act on behalf of the corporation, in person
or by proxy, at any meeting of stockholders of or with respect to any action of
stockholders of any other corporation in which this corporation may hold
securities and otherwise to exercise any and all rights and powers which this
corporation may possess by reason of its ownership of securities in such other
corporation.
<PAGE>
ARTICLE VI -- INDEMNIFICATION OF DIRECTORS,
OFFICERS AND OTHERS
Section 6.1 Generally
- ----------------------
This corporation shall have the power to indemnify any person who was or is
a party or is threatened to be made a party to any threatened, pending or
completed action suit or proceeding, whether civil, criminal, administrative or
investigative (other than an action by or in the right of the corporation) by
reason of the fact that he is or was a director, officer, employee or agent of
the corporation, or is or was serving at the request of the corporation as a
director, officer, employee or agent of another corporation, partnership, joint
venture, trust or other enterprise, against expenses (including attorney's
fees), judgements, fines and amount paid in settlement actually and reasonably
incurred by him in connection with such action, suit or proceeding if he acted
in good faith and in a manner he reasonably believed to be in or not opposed to
the best interests of the corporation, and, with respect to any criminal action
or proceeding, had no reasonable cause to believe his conduct was unlawful. The
termination of any action, suit or proceeding by judgment, order, settlement,
conviction, or upon a plea of nolo contendere or items equivalent, shall not, of
itself, create a presumption that the person did not act in good faith and in a
manner which he reasonably believed to be in or not opposed to the best
interests of the corporation, and with respect to any criminal action or
proceeding, had reasonable cause to believe that his conduct was lawful.
The corporation shall have the power to indemnify any person who was or is
a party or is threatened to be made a party to any threatened, pending or
completed action or suit by or in the right of the corporation to procure a
judgment in its favor by reason of the fact that he is or was a director,
officer, employee or agent of the corporation, or is or was serving at the
request of the corporation as a director, officer, employee or agent of another
corporation, partnership, joint venture, trust or other enterprise against
expenses (including attorney's fees) actually and reasonably incurred to him in
connection with the defense of settlement of such action or suit if he acted in
good faith and in a manner he reasonably believed to be in or not opposed to the
best interests of the corporation and except that no indemnification shall be
made in respect of any claim, issue or matter as to which such person shall have
been adjudged to be liable for negligence or misconduct in the performance of
his duty to the corporation unless and only to the extent that the court in
which such action or suit was brought shall determine in view of all
circumstances of the case, such person is fairly and reasonably entitled to
indemnify for such expenses which such court shall deem proper.
<PAGE>
Section 6.2 Expenses
- ---------------------
To the extent that a director, officer, employee or agent of the
corporation has been successful on the merits or otherwise in defense of this
action, suit or proceeding referred to in Section 6.1 of this Article, or in
defense of any claim, issue or matter therein, he shall be indemnified against
expenses (including attorney's fees) actually and reasonably incurred by him in
connection therewith. Expenses incurred in defending a civil or criminal action,
suit or proceeding may be paid by the corporation in advance of the final
disposition of such action, suit or proceeding as authorized in the manner
provided in Section 6.3 of this Article upon receipt of an undertaking by or on
behalf of the director, officer, employee or agent to repay such amount unless
it shall ultimately be determined that he is entitled to be indemnified by the
corporation as authorized in this Article.
Section 6.3 Determination by Board of Directors
- -------------------------------------------------
Any indemnification under Section 6.1 of this Article (unless ordered by a
court) shall be made by the corporation only as authorized in the specific case
upon a determination that indemnification of the director, officer, employee or
agent is proper in the circumstances because he has met the applicable standard
of conduct set forth in Section 6.1 of this Article. Such determination shall be
made by the Board of Directors by majority vote of a quorum of the disinterested
directors, by the shareholders, or by independent legal counsel in a written
opinion.
Section 6.4 Not Exclusive of Other Rights
- ------------------------------------------
The indemnification provided by this article shall not be deemed exclusive
of any other rights to which those indemnified may b entitled under any by-law,
agreement, vote of shareholders or interested directors or otherwise, both as to
action in his official capacity and as to action in another capacity while
holding such office and shall continue as to a person who has ceased to be a
director, officer, employee or agent and shall inure to the benefit of the
heirs, executors and administrators of such a person.
<PAGE>
Section 6.5 Insurance
- ----------------------
The corporation shall have power to purchase and maintain insurance on
behalf of any person who is or was a director, officer, employee or agent of the
corporation, or is or was serving at the request of the corporation as a
director, officer, employee or agent of another corporation, partnership, joint
venture, trust or other enterprise against any liability asserted against him
and incurred by him any such capacity or arising out of his status as such,
whether or not the corporation would have the power to indemnify him against
such liability under the provisions of this Article.
The corporation's indemnity of any person who is or was a director,
officer, employee or agent of the corporation, or is or was serving at the
request of the corporation as a director, officer, employee or agent of another
corporation, partnership, joint venture, trust or other enterprise, shall be
reduced by any amount such person may collect as indemnification (i) under any
policy of insurance purchased and maintained on his behalf by the corporation or
(ii) from such other corporation, partnership, joint venture, trust or other
enterprise.
Section 6.6 Violation of the Law
- ---------------------------------
Nothing contained in this Article, or elsewhere in these By-laws, shall
operate to indemnify any director or officer if such indemnification is for any
reason contrary to law, either as a matter of public policy, or under the
provisions of the Federal Securities Act of 1933, the Securities Exchange Act of
1934, or any other applicable state or federal law.
Section 6.7 Coverage
- ---------------------
For purposes of this Article, references to "the corporation" include all
constituent corporations absorbed in a consolidation or merger as well as the
resulting or surviving corporation so that any person who is or was a director,
officer, employee or agent of such a constituent corporation or is or was
serving at the request of such a constituent corporation as a director, officer,
employee or agent of another corporation, partnership, joint venture, trust or
other enterprise shall stand in the same position under the provisions of this
Article with respect to the resulting or surviving corporation as he would if he
had served the resulting or surviving corporation in the same capacity.
ARTICLE VII -- STOCK
Section 7.1 Certificates of Stock
- ----------------------------------
Each stockholder shall be entitled to a certificate signed by, or in the
name of the corporation by, the President or a Vice-President, and by the
Secretary or an Assistant Secretary, or the Treasurer or Assistant Treasurer,
certifying the number of shares owned by him. Any of or all of the signatures on
the certificate may be facsimile.
<PAGE>
Section 7.2 Transfers of Stock
- -------------------------------
Transfers of stock shall be made only upon the transfer books of the
corporation kept at an office of the corporation or by transfer agents
designated to transfer shares of the stock of the corporation. Except where a
certificate is issued in accordance with Section 7.4 of Article VII of these
By-laws, an outstanding certificate for the number of shares involved shall be
surrendered for cancellation before a new certificate is issued therefor.
Section 7.3 Record Date
- ------------------------
The Board of Directors may fix a record date, which shall not be more than
sixty (60) nor less than ten (10) days before the date of any meeting of
stockholders, nor more than sixty (60) days prior to the time for the other
action hereinafter described, as of which there shall be determined the
stockholders who are entitled to notice of or to vote at any meeting of
stockholders or any adjournment thereof; to express consent to corporate action
in writing without a meeting; to receive payment of any dividend or other
distribution or allotment of any rights; or to exercise any rights with respect
of any change, conversion, or exchange of stock with respect to any other lawful
action.
Section 7.4 Lost, Stolen or Destroyed Certificates
- ---------------------------------------------------
In the event of the loss, theft or destruction of any certificate of stock,
another may be issued in its place pursuant to such regulations as the Board of
Directors may establish concerning proof of such loss, theft or destruction and
concerning the giving of a satisfactory bond or bonds of indemnity.
Section 7.5 Regulations
- ------------------------
The issue, transfer, conversion and registration of certificates of stock
shall be governed by such other regulations as the Board of Directors may
establish.
<PAGE>
ARTICLE VIII -- NOTICES
Section 8.1 Notices
- --------------------
Whenever a notice is required to be given to any stockholder, director,
officer, or agent, such requirement shall not be construed to mean personal
notice. Such notice may in every instance be effectively given by depositing a
writing in a post office or letter box, in a postpaid, sealed wrapper. or by
dispatching a prepaid telegram, addressed to such stockholder. director,
officer, or agent at his or her address as the same appears on the books of the
corporation. The time when such notice is dispatched shall be the time of the
giving of the notice.
Section 8.2 Waivers
- --------------------
A written waiver of any notice, signed by the stockholder, director,
officer or agent, whether before or after the time of the event for which notice
is given, shall be deemed equivalent to the notice required to be given to such
stockholder, director, officer or agent. Neither the business nor the purpose of
any meeting need be specified in such a waiver.
ARTICLE IX -- MISCELLANEOUS
Section 9.1 Facsimile Signatures
- ---------------------------------
In addition to the provisions for the use of facsimile signatures elsewhere
specifically authorized in these By-laws, facsimile signatures of any officer or
officers of the corporation may be used whenever and as authorized by the Board
of Directors of a committee thereof.
Section 9.2 Corporate Seal
- ---------------------------
The Board of Directors may provide a suitable seal, containing the name of
the corporation, which seal shall be in the charge of the secretary. If and when
so directed by the Board of Directors or a committee thereof, duplicated of the
seal may be kept and used by the treasurer or by the assistant secretary or
assistant treasurer.
<PAGE>
Section 9.3 Reliance Upon Books, Reports and Records
- -----------------------------------------------------
Each director, each member of any committee designated by the Board of
Directors, and each officer of the corporation shall, in the performance of his
duties, be fully protected in relying in good faith upon the books of account or
other records of the corporation, including reports made to the corporation by
any of its officers, by an independent certified public accountant, or by an
appraiser selected with reasonable care.
Section 9.4 Fiscal Year
- -------------------------
The fiscal year of the corporation shall be as fixed by the Board of
Directors.
Section 9.5 Time Periods
- -------------------------
In applying any of these By-laws which require that an act be done or not
done a specified number of days prior to an event or that an act be done during
a period of a specified number of days prior to an event, calendar days shall be
used, the day of the doing of the act shall be excluded and the day of the event
shall be included.
ARTICLE X -- AMENDMENTS
Section 10.1 Amendments
- ------------------------
These By-laws may be amended or repealed by the Board of Directors at any
meeting or by the stockholders at any meeting.
<PAGE>
CERTIFICATE OF AMENDMENT OF
BY-LAWS OF
FISCHER-WATT GOLD COMPANY, INC.
FISCHER-WATT GOLD COMPANY, INC., a corporation organized and existing under
and by virtue of the laws of the State of Nevada, does hereby certify:
1. That the undersigned are the President and Assistant Secretary of
FISCHER-WATT GOLD COMPANY, INC., a Nevada Corporation;
2. That the following resolution was adopted by the Board of Directors of
FISCHER-WATT GOLD COMPANY, INC., on March 30, 1987 in accordance with the power
and authority granted by Section 78.320, Nevada Revised Statutes:
WHEREAS, at a meeting of the majority of the shareholders of FISCHER-WATT
GOLD COMPANY, INC., to amend its By-laws to amend Section 2.1 Annual Meeting.
RESOLVED: The Shareholders hereby approve the proposal of the Board of
Directors to amend the By-laws of Fischer-Watt Gold Company, Inc., as follows:
ARTICLE II -- STOCKHOLDERS
Section 2.1 Annual Meeting
---------------------------
An annual meeting of the stockholders, for the selection of directors to
succeed to those whose terms expire and for the transaction of such other
business as may properly come before the meeting, shall be held on a date
designated by the Board of Directors not less than one hundred (100) days but no
more than one hundred fifty (150) days after the end of the fiscal year of the
Corporation. The date and location of the annual meeting shall be designated by
the Board of Directors and notice thereof shall be given to the shareholders by
first-class mail, postage prepaid, not less than ten (10) nor more than sixty
(60) days before the date of such annual meeting.
CERTIFIED that this is true and correct copy of the Resolution identified above,
this 18 day of July 1996.
FISCHER-WATT GOLD COMPANY, INC.
----------------------------
/s/ George Beattie, President
Attest:
/s/ Robert A. Sampson, Assistant Secretary
- ------------------------------------------
<PAGE>
CERTIFICATE OF AMENDMENT OF
BY-LAWS OF
FISCHER-WATT GOLD COMPANY, INC.
FISCHER-WATT GOLD COMPANY, INC., a corporation organized and existing under
and by virtue of the laws of the State of Nevada, does hereby certify:
1. That the undersigned are the President and Assistant Secretary of
FISCHER-WATT GOLD COMPANY, INC., a Nevada Corporation;
2. That the following resolutions were unanimously adopted by the Board of
Directors of FISCHER-WATT GOLD COMPANY, INC. on July 3, 1990, in accordance with
the power and authority conferred by Section 78.315, Nevada Revised Statutes:
WHEREAS, at a meeting of the Board of Directors held on July 3, 1990, it
was deemed advisable, and in the best interest of FISCHER-WATT GOLD COMPANY,
INC., to amend its By-laws to specifically provide for corporate offices outside
the United States of America;
IT IS:
RESOLVED: The Board of Directors does hereby declare it advisable; and,
pursuant to ARTICLE X, do hereby amend ARTICLE IX OF the BY-LAWS of FISCHER-WATT
GOLD COMPANY, INC. to add the following:
9.6 Foreign Offices
-------------------
In addition to the offices in the United States of America,
FISCHER-WATT GOLD COMPANY, INC. may maintain such other offices in
such other countries as may be necessary or appropriate for the
conduct of business therein. This includes, but is not limited to
Costa Rica, Mexico, and the Republic of Honduras for which it is
deemed necessary and appropriate for FISCHER-WATT GOLD COMPANY, INC.
to maintain an office.
FURTHER RESOLVED: For the branch office in the Republic of Honduras, Mr.
Gabriel Amado Segura Valverde, residing in Moravia, Costa Rica, is hereby
appointed to be the authorized business representative of FISCHER-WATT GOLD
COMPANY, INC. and Lic. Ramon Discua Rodriguez, of Tegucigalpa, Honduras, is
hereby appointed to be the authorizes legal representative of FISCHER-WATT GOLD
COMPANY, INC. The President and Secretary of FISCHER-WATT GOLD COMPANY, INC. are
authorized to execute such documents, including Powers of Attorney, as may be
necessary to implement the above.
IN WITNESS WHEREOF, FISCHER-WATT GOLD COMPANY, INC. a Nevada corporation,
has caused this Certificate to be executed in its name by its President and
attested to by its Secretary this 3rd day of July 1990.
FISCHER-WATT GOLD COMPANY, INC.
By /s/ W. Perry Durning
----------------------------
President
ATTEST:
/s/ Joel Heath
- --------------------
Secretary
<PAGE>
STATE OF NEVADA)
)SS.
COUNTY OF WASHOE)
On this 3 of July in the year 1990, before me, Robert A. Sampson, a Notary
Public in and for state of Nevada, personally appeared before me, W. Perry
Durning who is President and Joel Heath is who is Secretary of Fischer-Watt Gold
Company, Inc., a Nevada Corporation, who are personally known to me to be the
persons who executed the above instrument on behalf of said corporation, and
acknowledged to me that they executed the same for the purposes therein stated.
/s/ Robert A. Sampson
Notary Public
<PAGE>
CERTIFICATE OF AMENDMENT OF
BY-LAWS OF
FISCHER-WATT GOLD COMPANY, INC.
FISCHER-WATT GOLD COMPANY, INC., a corporation organized and existing under
and by virtue of the laws of the State of Nevada, does hereby certify:
1. That the undersigned are the President and Assistant Secretary of
FISCHER-WATT GOLD COMPANY, INC., a Nevada Corporation;
2. Pursuant to the provisions of Section 78.315 of the Nevada General
Corporation Law, the directors of Fischer-Watt Gold Company, Inc. (the
"Corporation") adopted the following resolution as if such action had been taken
at a meeting of the directors of the Corporation duly called and held on March
11, 1996.
RESOLVED, that the by-laws of the Corporation are hereby amended to include
the following new Section 7.6 thereof to read in its entirety as follows:
Section 7.6 Transfer of Regulation S Securities
------------------------------------------------
With respect to any and all equity securities offered and sold outside the
United States pursuant to Rule 903(c)(3) of Regulation S under the Securities
Act of 1933, as amended, the corporation shall refuse to register any transfer
of such securities not made in accordance with the provisions of Regulation S;
provided however, that if such securities are in bearer form or foreign law
prevents the corporation from refusing to register securities transfers, other
reasonable procedures (such as legend inscribed in paragraph (c)(3)(iii)(B)(3)
of Rule 903 of Regulation S) shall be implemented to prevent any transfer of
such securities not made in accordance with the provisions of Regulation S.
CERTIFIED that this is true and correct copy of the Resolution identified
above, this 18 day of July 1996.
FISCHER-WATT GOLD COMPANY, INC.
/s/ George Beattie, President
-----------------------------
George Beattie, President
Attest:
/s/ Robert A. Sampson
- --------------------------------------
Robert A. Sampson, Assistant Secretary
OPTION
THIS OPTION AND THE SHARES OF COMMON STOCK ISSUABLE UPON THE EXERCISE
HEREOF HAVE NOT BEEN REGISTERED UNDER EITHER THE SECURITIES ACT OF 1933 (THE
"ACT") OR APPLICABLE STATE SECURITIES LAWS (THE "STATE ACTS") AND SHALL NOT BE
SOLD, PLEDGED, HYPOTHECATED, DONATED, OR OTHERWISE TRANSFERRED (WHETHER OR NOT
FOR CONSIDERATION) BY THE HOLDER EXCEPT UPON THE ISSUANCE TO THE COMPANY OF
FAVORABLE OPINION OF COUNSEL OR SUBMISSION TO THE COMPANY OF SUCH EVIDENCE AS
MAY BE SATISFACTORY TO COUNSEL TO THE COMPANY, IN EACH SUCH CASE, TO THE EFFECT
THAT ANY SUCH TRANSFER SHALL NOT BE IN VIOLATION OF THE ACT AND THE STATE ACTS.
OPTION TO PURCHASE 100,000 SHARES OF COMMON STOCK
FISCHER-WATT GOLD COMPANY, INC.
(A Nevada Corporation)
Not Transferable or Exercisable Except
upon Conditions Herein Specified
Void after 5:00 O'Clock P.M.,
Mountain Time, on June 1, 2002
Fischer-Watt Gold Company, Inc., a Nevada corporation (the "Company")
hereby certifies that Gerald D. Helgeson or his registered successors and
permitted assigns thereof, registered on the books of the Company maintained for
such purposes as the registered holder hereof (the "Holder"), for value
received, is entitled to purchase from the Company the number of fully paid and
non-assessable shares of Common Stock of the Company, of the par value of $.001
per share (the "Shares"), stated above at the purchase price of $.72 per Share
(the "Exercise Price") (the number of Shares and Exercise Price being subject to
adjustment as hereinafter provided) upon the terms and conditions herein
provided.
1. Exercise of Option.
(a) Subject to subsection (b) of this Section 1, upon
presentation and surrender of this Option Certificate, with the attached
Purchase Form duly executed, at the principal office of the Company at 1410
Cherrywood Drive, Coeur d'Alene, Idaho 83814, or at such other place as the
Company may designate by notice to the Holder hereof, together with a certified
or bank cashier's check payable to the order of the Company in the amount of the
Exercise Price times the number of Shares being purchased, the Company shall
deliver to the Holder hereof, as promptly as practicable, certificates
representing the Shares being purchased. This Option may be exercised in whole
or in part; and, in case of exercise hereof in part only, the Company, upon
surrender hereof, will deliver to the Holder a new Option Certificate or Option
Certificates of like tenor entitling the Holder to purchase the number of Shares
as to which this Option has not been exercised.
(b) This Option may be exercised in whole or in part at any
time after June 1, 1997 and prior to 5:00 o'clock P.M. Mountain Time, on June 1,
2002. In the event that, prior to June 1, 1997, the Holder shall cease for any
reason whatsoever to be a director of the Company, except due to removal by the
shareholders of the Company, failure to be nominated for election at a meeting
of the Company's shareholders at which directors are to be elected, or failure
to be elected by the shareholders of the Company if nominated for election at
such a meeting, this Option shall immediately and automatically be and become
null and void and of no further force or effect.
<PAGE>
2. Exchange and Transfer of Option. This Option at any time prior to
the exercise hereof, upon presentation and surrender to the Company, may be
exchanged, alone or with other Options of like tenor registered in the name of
the Holder, for another Option or other Options of like tenor in the name of
such Holder exercisable for the same aggregate number of Shares as the Option or
Options surrendered.
3. Rights and Obligations of Option Holder.
(a) The Holder of this Option Certificate shall not, by
virtue hereof, be entitled to any rights of a stockholder in the Company, either
at law or in equity; provided, however, in the event that any certificate
representing the Shares is issued to the Holder hereof upon exercise of this
Option, such Holder shall, for all purposes, be deemed to have become the holder
of record of such Shares on the date on which this Option Certificate, together
with a duly executed Purchase Form, was surrendered and payment of the Exercise
Price was made, irrespective of the date of delivery of such Share certificate.
The rights of the Holder of this Option are limited to those expressed herein
and the Holder of this Option, by its acceptance hereof, consents to and agrees
to be bound by and to comply with all the provisions of this Option Certificate,
including, without limitation, all the obligations imposed upon the Holder
hereof by Section 5 hereof. In addition, the Holder of this Option Certificate,
by accepting the same, agrees that the Company may deem and treat the person in
whose name this Option Certificate is registered on the books of the Company
maintained for such purpose as the absolute, true and lawful owner for all
purposes whatsoever, notwithstanding any notation of ownership or other writing
thereon, and the Company shall not be affected by any notice to the contrary.
(b) No Holder of this Option Certificate, as such, shall be
entitled to vote or receive dividends or to be deemed the holder of Shares for
any purpose, nor shall anything contained in this Option Certificate be
construed to confer upon any Holder of this Option Certificate, as such, any of
the rights of a stockholder of the Company or any right to vote, give or
withhold consent to any action by the Company, whether upon any
recapitalization, issue of stock, reclassification of stock, consolidation,
merger, conveyance or otherwise, receive notice of meetings or other action
affecting stockholders (except for notices provided for herein), receive
dividends, subscription rights, or otherwise, until this Option shall have been
exercised and the Shares purchasable upon the exercise thereof shall have become
deliverable as provided herein; provided, however, that any such exercise on any
date when the stock transfer books of the Company shall be closed shall
constitute the person or persons in whose name or names the certificate or
certificates for those Shares are to be issued as the record holder or holders
thereof for all purposes at the opening of business on the next succeeding day
on which such stock transfer books are open, and the Option surrendered shall
not be deemed to have been exercised, in whole or in part as the case may be,
until the next succeeding day on which stock transfer books are open for the
purpose of determining entitlement to dividends on the Company's common stock.
4. Shares Underlying Option. The Company covenants and agrees that all
Shares delivered upon exercise of this Option shall, upon delivery and payment
therefor, be duly and validly authorized and issued, fully paid and
non-assessable, and free from all stamp-taxes, liens, and charges with respect
to the purchase thereof. In addition, the Company agrees at all time to reserve
and keep available an authorized number of Shares sufficient to permit the
exercise in full of this Option.
<PAGE>
5. Disposition of Option or Shares.
(a) The holder of this Option Certificate and any transferee
hereof or of the Shares issuable upon the exercise of the Option Certificate, by
their acceptance hereof, hereby understand and agree that the Option, and the
Shares issuable upon the exercise hereof, have not been registered under either
the Securities Act of 1933 (the "Act") or applicable state securities laws (the
"State Acts") and shall not be sold, pledged, hypothecated, donated, or
otherwise transferred (whether or not for consideration) except upon the
issuance to the Company of a favorable opinion of counsel or submission to the
Company of such evidence as may be satisfactory to counsel to the Company, in
each such case, to the effect that any such transfer shall not be in violation
of the Act and the State Acts. It shall be a condition to the transfer of this
Option that any transferee hereof deliver to the Company its written agreement
to accept and be bound by all of the terms and conditions of this Option
Certificate.
(b) The stock certificates of the Company that will evidence
the shares of Common Stock with respect to which this Option may be exercisable
will be imprinted with a conspicuous legend in substantially the following form:
The shares represented by this Certificate have not been registered under
the Securities Act of 1933 (the "Act") or applicable state securities laws (the
"State Acts") and shall not be sold, pledged, hypothecated, donated or otherwise
transferred (whether or not for consideration) by the holder except upon the
issuance to the Company of a favorable opinion of its counsel or submission to
the Company of such other evidence as may be satisfactory to counsel to the
Company, in each such case, to the effect that any such transfer shall not be in
violation of the Act and the State Acts.
The Company has not agreed to register any of the holder's shares of Common
Stock of the Company with respect to which this Option may be exercisable for
distribution in accordance with the provisions of the Act or the State Acts and,
the Company has not agreed to comply with any exemption from registration under
the Act or the State Acts for the resale of the holder's shares of Common Stock
of the Company with respect to which this Option may be exercised. Hence, it is
the understanding of the holders of this Option that by virtue of the provisions
of certain rules respecting "restricted securities" promulgated by the SEC, the
shares of Common Stock of the Company with respect to which this Option may be
exercisable may be required to be held indefinitely, unless and until registered
under the Act and the State Acts, unless an exemption from such registration is
available, in which case the holder may still be limited as to the number of
shares of Common Stock of the Company with respect to which this Option may be
exercised that may be sold.
6. Adjustments. The number of Shares purchasable upon the exercise of
this Option is subject to adjustment from time to time upon the occurrence of
any of the events enumerated below.
(a) In case the Company shall: (i) pay a dividend in Shares,
(ii) subdivide its outstanding Shares into a greater number of Shares, (iii)
combine its outstanding Shares into a smaller number of Shares, or (iv) issue,
by reclassification of its Shares, any shares of its capital stock, the amount
of Shares purchasable upon the exercise of this Option immediately prior thereto
shall be adjusted so that the Holder shall be entitled to receive upon exercise
of the Option that number of Shares which such Holder would have owned or would
have been entitled to receive after the happening of such event had such Holder
exercised the Option immediately prior to the record date, in the case of such
dividend, or the effective date, in the case of any such subdivision,
combination or reclassification. An adjustment made pursuant to this subsection
(a) shall be made whenever any of such events shall occur, but shall become
effective retroactively after such record date or such effective date, as the
case may be, as to any exercise between such record date or effective date and
the date of happening of any such event.
<PAGE>
(b) Notice to Option Holders of Adjustment. Whenever the
number of Shares purchasable hereunder is adjusted as herein provided, the
Company shall cause to be mailed to the Holder in accordance with the provisions
of this Section 6 a notice (I) stating that the number of Shares purchasable
upon exercise of this Option have been adjusted, (ii) setting forth the adjusted
number of Shares purchasable upon the exercise of this Option, and (iii) showing
in reasonable detail the computations and the facts, including the amount of
consideration received or deemed to have been received by the Company, upon
which such adjustments are based.
7. Fractional Shares. The Company shall not be required to issue any
fraction of a Share upon the exercise of this Option. If more than one Option
shall be surrendered for exercise at one time by the same Holder, the number of
full Shares which shall be issuable upon exercise thereof shall be computed on
the basis of the aggregate number of Shares with respect to which this Option is
exercised. If any fractional interest in a Share shall be deliverable upon the
exercise of this Option, the Company shall make an adjustment therefor in cash
equal to such fraction multiplied by the Exercise Price.
8. Loss or Destruction. Upon receipt of evidence satisfactory to the
Company of the loss, theft, destruction or mutilation of this Option Certificate
and, in the case of any such loss, theft or destruction, upon delivery of an
indemnity agreement or bond satisfactory in form, substance and amount to the
Company or, in the case of any such mutilation, upon surrender and cancellation
of this Option Certificate, the Company at its expense will execute and deliver,
in lieu thereof, a new Option Certificate of like tenor.
9. Survival. The various rights and obligations of the Holder hereof
as set forth herein shall survive the exercise of the Option represented hereby
and the surrender of this Option Certificate.
10. Notices. Whenever any notice, payment of any purchase price, or
other communication is required to be given or delivered under the terms of this
Option, it shall be in writing and delivered by hand delivery or United States
registered or certified mail, return receipt requested, postage prepaid, and
will be deemed to have been given or delivered on the date such notice, purchase
price or other communication is so delivered or posted, as the case may be; and,
if to the Company, it will be addressed to the address specified in Section 1
hereof, and if to the Holder, it will be addressed to the registered Holder at
its, his or her address as it appears on the books of the Company.
FISCHER-WATT GOLD COMPANY, INC.
By /s/ George Beattie
-----------------------------
George Beattie, Chief Executive Officer
Date July 18, 1996
-----------------------------
OPTION
THIS OPTION AND THE SHARES OF COMMON STOCK ISSUABLE UPON THE EXERCISE
HEREOF HAVE NOT BEEN REGISTERED UNDER EITHER THE SECURITIES ACT OF 1933 (THE
"ACT") OR APPLICABLE STATE SECURITIES LAWS (THE "STATE ACTS") AND SHALL NOT BE
SOLD, PLEDGED, HYPOTHECATED, DONATED, OR OTHERWISE TRANSFERRED (WHETHER OR NOT
FOR CONSIDERATION) BY THE HOLDER EXCEPT UPON THE ISSUANCE TO THE COMPANY OF
FAVORABLE OPINION OF COUNSEL OR SUBMISSION TO THE COMPANY OF SUCH EVIDENCE AS
MAY BE SATISFACTORY TO COUNSEL TO THE COMPANY, IN EACH SUCH CASE, TO THE EFFECT
THAT ANY SUCH TRANSFER SHALL NOT BE IN VIOLATION OF THE ACT AND THE STATE ACTS.
OPTION TO PURCHASE 100,000 SHARES OF COMMON STOCK
FISCHER-WATT GOLD COMPANY, INC.
(A Nevada Corporation)
Not Transferable or Exercisable Except
upon Conditions Herein Specified
Void after 5:00 o'clock P.M.,
Mountain Time, on June 1, 2002
Fischer-Watt Gold Company, Inc., a Nevada corporation (the "Company")
hereby certifies that Anthony P. Taylor or his registered successors and
permitted assigns thereof, registered on the books of the Company maintained for
such purposes as the registered holder hereof (the "Holder"), for value
received, is entitled to purchase from the Company the number of fully paid and
non-assessable shares of Common Stock of the Company, of the par value of $.001
per share (the "Shares"), stated above at the purchase price of $.72 per Share
(the "Exercise Price") (the number of Shares and Exercise Price being subject to
adjustment as hereinafter provided) upon the terms and conditions herein
provided.
1. Exercise of Option.
(a) Subject to subsection (b) of this Section 1, upon presentation and
surrender of this Option Certificate, with the attached Purchase Form duly
executed, at the principal office of the Company at 1410 Cherrywood Drive, Coeur
d'Alene, Idaho 83814, or at such other place as the Company may designate by
notice to the Holder hereof, together with a certified or bank cashier's check
payable to the order of the Company in the amount of the Exercise Price times
the number of Shares being purchased, the Company shall deliver to the Holder
hereof, as promptly as practicable, certificates representing the Shares being
purchased. This Option may be exercised in whole or in part; and, in case of
exercise hereof in part only, the Company, upon surrender hereof, will deliver
to the Holder a new Option Certificate or Option Certificates of like tenor
entitling the Holder to purchase the number of Shares as to which this Option
has not been exercised.
(b) This Option may be exercised in whole or in part at any time after
June 1, 1997 and prior to 5:00 o'clock P.M. Mountain Time, on June 1, 2002. In
the event that, prior to June 1, 1997, the Holder shall cease for any reason
whatsoever to be a director of the Company, except due to removal by the
shareholders of the Company, failure to be nominated for election at a meeting
of the Company's shareholders at which directors are to be elected, or failure
to be elected by the shareholders of the Company if nominated for election at
such a meeting, this Option shall immediately and automatically be and become
null and void and of no further force or effect.
2. Exchange and Transfer of Option. This Option at any time prior to the
exercise hereof, upon presentation and surrender to the Company, may be
exchanged, alone or with other Options of like tenor registered in the name of
the Holder, for another Option or other Options of like tenor in the name of
such Holder exercisable for the same aggregate number of Shares as the Option or
Options surrendered.
<PAGE>
3. Rights and Obligations of Option Holder.
(a) The Holder of this Option Certificate shall not, by virtue hereof,
be entitled to any rights of a stockholder in the Company, either at law or in
equity; provided, however, in the event that any certificate representing the
Shares is issued to the Holder hereof upon exercise of this Option, such Holder
shall, for all purposes, be deemed to have become the holder of record of such
Shares on the date on which this Option Certificate, together with a duly
executed Purchase Form, was surrendered and payment of the Exercise Price was
made, irrespective of the date of delivery of such Share certificate. The rights
of the Holder of this Option are limited to those expressed herein and the
Holder of this Option, by its acceptance hereof, consents to and agrees to be
bound by and to comply with all the provisions of this Option Certificate,
including, without limitation, all the obligations imposed upon the Holder
hereof by Section 5 hereof. In addition, the Holder of this Option Certificate,
by accepting the same, agrees that the Company may deem and treat the person in
whose name this Option Certificate is registered on the books of the Company
maintained for such purpose as the absolute, true and lawful owner for all
purposes whatsoever, notwithstanding any notation of ownership or other writing
thereon, and the Company shall not be affected by any notice to the contrary.
(b) No Holder of this Option Certificate, as such, shall be entitled
to vote or receive dividends or to be deemed the holder of Shares for any
purpose, nor shall anything contained in this Option Certificate be construed to
confer upon any Holder of this Option Certificate, as such, any of the rights of
a stockholder of the Company or any right to vote, give or withhold consent to
any action by the Company, whether upon any recapitalization, issue of stock,
reclassification of stock, consolidation, merger, conveyance or otherwise,
receive notice of meetings or other action affecting stockholders (except for
notices provided for herein), receive dividends, subscription rights, or
otherwise, until this Option shall have been exercised and the Shares
purchasable upon the exercise thereof shall have become deliverable as provided
herein; provided, however, that any such exercise on any date when the stock
transfer books of the Company shall be closed shall constitute the person or
persons in whose name or names the certificate or certificates for those Shares
are to be issued as the record holder or holders thereof for all purposes at the
opening of business on the next succeeding day on which such stock transfer
books are open, and the Option surrendered shall not be deemed to have been
exercised, in whole or in part as the case may be, until the next succeeding day
on which stock transfer books are open for the purpose of determining
entitlement to dividends on the Company's common stock.
4. Shares Underlying Option. The Company covenants and agrees that all
Shares delivered upon exercise of this Option shall, upon delivery and payment
therefor, be duly and validly authorized and issued, fully paid and
non-assessable, and free from all stamp-taxes, liens, and charges with respect
to the purchase thereof. In addition, the Company agrees at all time to reserve
and keep available an authorized number of Shares sufficient to permit the
exercise in full of this Option.
5. Disposition of Option or Shares.
(a) The holder of this Option Certificate and any transferee hereof or
of the Shares issuable upon the exercise of the Option Certificate, by their
acceptance hereof, hereby understand and agree that the Option, and the Shares
issuable upon the exercise hereof, have not been registered under either the
Securities Act of 1933 (the "Act") or applicable state securities laws (the
"State Acts") and shall not be sold, pledged, hypothecated, donated, or
otherwise transferred (whether or not for consideration) except upon the
issuance to the Company of a favorable opinion of counsel or submission to the
Company of such evidence as may be satisfactory to counsel to the Company, in
each such case, to the effect that any such transfer shall not be in violation
of the Act and the State Acts. It shall be a condition to the transfer of this
Option that any transferee hereof deliver to the Company its written agreement
to accept and be bound by all of the terms and conditions of this Option
Certificate.
<PAGE>
(b) The stock certificates of the Company that will evidence the
shares of Common Stock with respect to which this Option may be exercisable will
be imprinted with a conspicuous legend in substantially the following form:
The shares represented by this Certificate have not been registered under
the Securities Act of 1933 (the "Act") or applicable state securities laws (the
"State Acts") and shall not be sold, pledged, hypothecated, donated or otherwise
transferred (whether or not for consideration) by the holder except upon the
issuance to the Company of a favorable opinion of its counsel or submission to
the Company of such other evidence as may be satisfactory to counsel to the
Company, in each such case, to the effect that any such transfer shall not be in
violation of the Act and the State Acts.
The Company has not agreed to register any of the holder's shares of Common
Stock of the Company with respect to which this Option may be exercisable for
distribution in accordance with the provisions of the Act or the State Acts and,
the Company has not agreed to comply with any exemption from registration under
the Act or the State Acts for the resale of the holder's shares of Common Stock
of the Company with respect to which this Option may be exercised. Hence, it is
the understanding of the holders of this Option that by virtue of the provisions
of certain rules respecting "restricted securities" promulgated by the SEC, the
shares of Common Stock of the Company with respect to which this Option may be
exercisable may be required to be held indefinitely, unless and until registered
under the Act and the State Acts, unless an exemption from such registration is
available, in which case the holder may still be limited as to the number of
shares of Common Stock of the Company with respect to which this Option may be
exercised that may be sold.
6. Adjustments. The number of Shares purchasable upon the exercise of this
Option is subject to adjustment from time to time upon the occurrence of any of
the events enumerated below.
(a) In case the Company shall: (I) pay a dividend in Shares, (ii)
subdivide its outstanding Shares into a greater number of Shares, (iii) combine
its outstanding Shares into a smaller number of Shares, or (iv) issue, by
reclassification of its Shares, any shares of its capital stock, the amount of
Shares purchasable upon the exercise of this Option immediately prior thereto
shall be adjusted so that the Holder shall be entitled to receive upon exercise
of the Option that number of Shares which such Holder would have owned or would
have been entitled to receive after the happening of such event had such Holder
exercised the Option immediately prior to the record date, in the case of such
dividend, or the effective date, in the case of any such subdivision,
combination or reclassification. An adjustment made pursuant to this subsection
(a) shall be made whenever any of such events shall occur, but shall become
effective retroactively after such record date or such effective date, as the
case may be, as to any exercise between such record date or effective date and
the date of happening of any such event.
<PAGE>
(b) Notice to Option Holders of Adjustment. Whenever the number of
Shares purchasable hereunder is adjusted as herein provided, the Company shall
cause to be mailed to the Holder in accordance with the provisions of this
Section 6 a notice (I) stating that the number of Shares purchasable upon
exercise of this Option have been adjusted, (ii) setting forth the adjusted
number of Shares purchasable upon the exercise of this Option, and (iii) showing
in reasonable detail the computations and the facts, including the amount of
consideration received or deemed to have been received by the Company, upon
which such adjustments are based.
7. Fractional Shares. The Company shall not be required to issue any
fraction of a Share upon the exercise of this Option. If more than one Option
shall be surrendered for exercise at one time by the same Holder, the number of
full Shares which shall be issuable upon exercise thereof shall be computed on
the basis of the aggregate number of Shares with respect to which this Option is
exercised. If any fractional interest in a Share shall be deliverable upon the
exercise of this Option, the Company shall make an adjustment therefor in cash
equal to such fraction multiplied by the Exercise Price.
8. Loss or Destruction. Upon receipt of evidence satisfactory to the
Company of the loss, theft, destruction or mutilation of this Option Certificate
and, in the case of any such loss, theft or destruction, upon delivery of an
indemnity agreement or bond satisfactory in form, substance and amount to the
Company or, in the case of any such mutilation, upon surrender and cancellation
of this Option Certificate, the Company at its expense will execute and deliver,
in lieu thereof, a new Option Certificate of like tenor.
9. Survival. The various rights and obligations of the Holder hereof as set
forth herein shall survive the exercise of the Option represented hereby and the
surrender of this Option Certificate.
10. Notices. Whenever any notice, payment of any purchase price, or other
communication is required to be given or delivered under the terms of this
Option, it shall be in writing and delivered by hand delivery or United States
registered or certified mail, return receipt requested, postage prepaid, and
will be deemed to have been given or delivered on the date such notice, purchase
price or other communication is so delivered or posted, as the case may be; and,
if to the Company, it will be addressed to the address specified in Section 1
hereof, and if to the Holder, it will be addressed to the registered Holder at
its, his or her address as it appears on the books of the Company.
FISCHER-WATT GOLD COMPANY, INC.
By /s/ George Beattie
---------------------------------
George Beattie, Chief Executive Officer
Date July 18, 1996
OPTION
THIS OPTION AND THE SHARES OF COMMON STOCK ISSUABLE UPON THE EXERCISE
HEREOF HAVE NOT BEEN REGISTERED UNDER EITHER THE SECURITIES ACT OF 1933 (THE
"ACT") OR APPLICABLE STATE SECURITIES LAWS (THE "STATE ACTS") AND SHALL NOT BE
SOLD, PLEDGED, HYPOTHECATED, DONATED, OR OTHERWISE TRANSFERRED (WHETHER OR NOT
FOR CONSIDERATION) BY THE HOLDER EXCEPT UPON THE ISSUANCE TO THE COMPANY OF
FAVORABLE OPINION OF COUNSEL OR SUBMISSION TO THE COMPANY OF SUCH EVIDENCE AS
MAY BE SATISFACTORY TO COUNSEL TO THE COMPANY, IN EACH SUCH CASE, TO THE EFFECT
THAT ANY SUCH TRANSFER SHALL NOT BE IN VIOLATION OF THE ACT AND THE STATE ACTS.
OPTION TO PURCHASE 100,000 SHARES OF COMMON STOCK
FISCHER-WATT GOLD COMPANY, INC.
(A Nevada Corporation)
Not Transferable or Exercisable Except
upon Conditions Herein Specified
Void after 5:00 o'clock P.M.,
Mountain Time, on February 20, 2002
Fischer-Watt Gold Company, Inc., a Nevada corporation (the "Company")
hereby certifies that Peter Bojtos or his registered successors and permitted
assigns thereof, registered on the books of the Company maintained for such
purposes as the registered holder hereof (the "Holder"), for value received, is
entitled to purchase from the Company the number of fully paid and
non-assessable shares of Common Stock of the Company, of the par value of $.001
per share (the "Shares"), stated above at the purchase price of $.37 per Share
(the "Exercise Price") (the number of Shares and Exercise Price being subject to
adjustment as hereinafter provided) upon the terms and conditions herein
provided.
1. Exercise of Option.
(a) Subject to subsection (b) of this Section 1, upon presentation and
surrender of this Option Certificate, with the attached Purchase Form duly
executed, at the principal office of the Company at 1410 Cherrywood Drive, Coeur
d'Alene, Idaho 83814, or at such other place as the Company may designate by
notice to the Holder hereof, together with a certified or bank cashier's check
payable to the order of the Company in the amount of the Exercise Price times
the number of Shares being purchased,
<PAGE>
the Company shall deliver to the Holder hereof, as promptly as practicable,
certificates representing the Shares being purchased. This Option may be
exercised in whole or in part; and, in case of exercise hereof in part only, the
Company, upon surrender hereof, will deliver to the Holder a new Option
Certificate or Option Certificates of like tenor entitling the Holder to
purchase the number of Shares as to which this Option has not been exercised.
(b) This Option may be exercised in whole or in part at any time after
February 20, 1997 and prior to 5:00 o'clock P.M. Mountain Time, on February 20,
2002.
2. Exchange and Transfer of Option. This Option at any time prior to the
exercise hereof, upon presentation and surrender to the Company, may be
exchanged, alone or with other Options of like tenor registered in the name of
the Holder, for another Option or other Options of like tenor in the name of
such Holder exercisable for the same aggregate number of Shares as the Option or
Options surrendered.
3. Rights and Obligations of Option Holder.
(a) The Holder of this Option Certificate shall not, by virtue hereof,
be entitled to any rights of a stockholder in the Company, either at law or in
equity; provided, however, in the event that any certificate representing the
Shares is issued to the Holder hereof upon exercise of this Option, such Holder
shall, for all purposes, be deemed to have become the holder of record of such
Shares on the date on which this Option Certificate, together with a duly
executed Purchase Form, was surrendered and payment of the Exercise Price was
made, irrespective of the date of delivery of such Share certificate. The rights
of the Holder of this Option are limited to those expressed herein and the
Holder of this Option, by its acceptance hereof, consents to and agrees to be
bound by and to comply with all the provisions of this Option Certificate,
including, without limitation, all the obligations imposed upon the Holder
hereof by Section 5 hereof. In addition, the Holder of this Option Certificate,
by accepting the same, agrees that the Company may deem and treat the person in
whose name this Option Certificate is registered on the books of the Company
maintained for such purpose as the absolute, true and lawful owner for all
purposes whatsoever, notwithstanding any notation of ownership or other writing
thereon, and the Company shall not be affected by any
<PAGE>
notice to the contrary.
(b) No Holder of this Option Certificate, as such, shall be entitled
to vote or receive dividends or to be deemed the holder of Shares for any
purpose, nor shall anything contained in this Option Certificate be construed to
confer upon any Holder of this Option Certificate, as such, any of the rights of
a stockholder of the Company or any right to vote, give or withhold consent to
any action by the Company, whether upon any recapitalization, issue of stock,
reclassification of stock, consolidation, merger, conveyance or otherwise,
receive notice of meetings or other action affecting stockholders (except for
notices provided for herein), receive dividends, subscription rights, or
otherwise, until this Option shall have been exercised and the Shares
purchasable upon the exercise thereof shall have become deliverable as provided
herein; provided, however, that any such exercise on any date when the stock
transfer books of the Company shall be closed shall constitute the person or
persons in whose name or names the certificate or certificates for those Shares
are to be issued as the record holder or holders thereof for all purposes at the
opening of business on the next succeeding day on which such stock transfer
books are open, and the Option surrendered shall not be deemed to have been
exercised, in whole or in part as the case may be, until the next succeeding day
on which stock transfer books are open for the purpose of determining
entitlement to dividends on the Company's common stock.
4. Shares Underlying Option. The Company covenants and agrees that all
Shares delivered upon exercise of this Option shall, upon delivery and payment
therefor, be duly and validly authorized and issued, fully paid and
non-assessable, and free from all stamp-taxes, liens, and charges with respect
to the purchase thereof. In addition, the Company agrees at all time to reserve
and keep available an authorized number of Shares sufficient to permit the
exercise in full of this Option.
5. Disposition of Option or Shares.
(a) The holder of this Option Certificate and any transferee hereof or
of the Shares issuable upon the exercise of the Option Certificate, by their
acceptance hereof, hereby understand and agree that the Option, and the Shares
issuable upon the exercise hereof, have not been registered under either the
Securities Act of 1933 (the "Act") or applicable state
<PAGE>
securities laws (the "State Acts") and shall not be sold, pledged, hypothecated,
donated, or otherwise transferred (whether or not for consideration) except upon
the issuance to the Company of a favorable opinion of counsel or submission to
the Company of such evidence as may be satisfactory to counsel to the Company,
in each such case, to the effect that any such transfer shall not be in
violation of the Act and the State Acts. It shall be a condition to the transfer
of this Option that any transferee hereof deliver to the Company its written
agreement to accept and be bound by all of the terms and conditions of this
Option Certificate.
(b) The stock certificates of the Company that will evidence the
shares of Common Stock with respect to which this Option may be exercisable will
be imprinted with a conspicuous legend in substantially the following form:
The shares represented by this Certificate have not been registered under the
Securities Act of 1933 (the "Act") or applicable state securities laws (the
"State Acts") and shall not be sold, pledged, hypothecated, donated or otherwise
transferred (whether or not for consideration) by the holder except upon the
issuance to the Company of a favorable opinion of its counsel or submission to
the Company of such other evidence as may be satisfactory to counsel to the
Company, in each such case, to the effect that any such transfer shall not be in
violation of the Act and the State Acts.
The Company has not agreed to register any of the holder's shares of Common
Stock of the Company with respect to which this Option may be exercisable for
distribution in accordance with the provisions of the Act or the State Acts and,
the Company has not agreed to comply with any exemption from registration under
the Act or the State Acts for the resale of the holder's shares of Common Stock
of the Company with respect to which this Option may be exercised. Hence, it is
the understanding of the holders of this Option that by virtue of the provisions
of certain rules respecting "restricted securities" promulgated by the SEC, the
shares of Common Stock of the Company with respect to which this Option may be
exercisable may be required to be held indefinitely, unless and until registered
under the Act and the State Acts, unless an exemption from such registration is
available, in which case the holder may still be limited as to the number of
shares of Common Stock of the Company with respect to which this Option may be
exercised that may be sold.
<PAGE>
6. Adjustments. The number of Shares purchasable upon the exercise of this
Option is subject to adjustment from time to time upon the occurrence of any of
the events enumerated below.
(a) In case the Company shall: (I) pay a dividend in Shares, (ii)
subdivide its outstanding Shares into a greater number of Shares, (iii) combine
its outstanding Shares into a smaller number of Shares, or (iv) issue, by
reclassification of its Shares, any shares of its capital stock, the amount of
Shares purchasable upon the exercise of this Option immediately prior thereto
shall be adjusted so that the Holder shall be entitled to receive upon exercise
of the Option that number of Shares which such Holder would have owned or would
have been entitled to receive after the happening of such event had such Holder
exercised the Option immediately prior to the record date, in the case of such
dividend, or the effective date, in the case of any such subdivision,
combination or reclassification. An adjustment made pursuant to this subsection
(a) shall be made whenever any of such events shall occur, but shall become
effective retroactively after such record date or such effective date, as the
case may be, as to any exercise between such record date or effective date and
the date of happening of any such event.
(b) Notice to Option Holders of Adjustment. Whenever the number of
Shares purchasable hereunder is adjusted as herein provided, the Company shall
cause to be mailed to the Holder in accordance with the provisions of this
Section 6 a notice (I) stating that the number of Shares purchasable upon
exercise of this Option have been adjusted, (ii) setting forth the adjusted
number of Shares purchasable upon the exercise of this Option, and (iii) showing
in reasonable detail the computations and the facts, including the amount of
consideration received or deemed to have been received by the Company, upon
which such adjustments are based.
7. Fractional Shares. The Company shall not be required to issue any
fraction of a Share upon the exercise of this Option. If more than one Option
shall be surrendered for exercise at one time by the same Holder, the number of
full Shares which shall be issuable upon exercise thereof shall be computed on
the basis of the aggregate number of Shares with respect to which this Option is
exercised. If any fractional interest in a Share shall be deliverable upon the
exercise of this Option, the Company shall make an adjustment therefor in cash
equal to such fraction multiplied by the Exercise Price.
<PAGE>
8. Loss or Destruction. Upon receipt of evidence satisfactory to the
Company of the loss, theft, destruction or mutilation of this Option Certificate
and, in the case of any such loss, theft or destruction, upon delivery of an
indemnity agreement or bond satisfactory in form, substance and amount to the
Company or, in the case of any such mutilation, upon surrender and cancellation
of this Option Certificate, the Company at its expense will execute and deliver,
in lieu thereof, a new Option Certificate of like tenor.
9. Survival. The various rights and obligations of the Holder hereof as set
forth herein shall survive the exercise of the Option represented hereby and the
surrender of this Option Certificate.
10. Notices. Whenever any notice, payment of any purchase price, or other
communication is required to be given or delivered under the terms of this
Option, it shall be in writing and delivered by hand delivery or United States
registered or certified mail, return receipt requested, postage prepaid, and
will be deemed to have been given or delivered on the date such notice, purchase
price or other communication is so delivered or posted, as the case may be; and,
if to the Company, it will be addressed to the address specified in Section 1
hereof, and if to the Holder, it will be addressed to the registered Holder at
its, his or her address as it appears on the books of the Company.
FISCHER-WATT GOLD COMPANY, INC.
By George Beattie
---------------------------
George Beattie, Chief Executive
Officer
Date July 18, 1996
---------------------------
PURCHASE - SALE AGREEMENT
CIA. MINERA ORONORTE S.A. & NISSHO IWAl CORPORATION
This agreement dated as of December 19, 1995 witnesseth COMPANlA MINERA ORONORTE
S.A. (hereinafter referred to as "Seller") agrees to sell and NlSSHO IWAI
CORPORATION (hereinafter referred to as "Buyer") agrees to buy gold and silver
concentrate produced at El Limon mine in Columbia (hereinafter referred to as
the `Concentrate") on the terms and conditions hereinafter set forth;
1. SELLER
COMPANIA MINERA ORONORTE S.A.
Carrera 78 NO 32A-53
Medellin, Colombia
2. BUYER
NISSHO IWAl CORPORATION
4-5, Akasaka 2-chome, Minato-ku, Tokyo 107, Japan
3. RECEIVING SMELTER
Kosaka Smelting & Refining Co., Ltd.
4. MATERIAL
Gold and silver Concentrate produced by Seller at its El Limon mine
Antioquia, Colombia S.A.
5. QUALITY
Gold and silver concentrate of two different types with
typical assays as follows;
High Grade Concentrate Low Grade Concentrate
(HGC) (LGC)
Au 1,500 g/dmt 300 g/dmt
Ag 1,400 g/dmt 350 g/dmt
Cu less than 0.5% same
As less than 1.0% same
Fe 25-30% same
S 30% same
HG less than 125 ppm same
Al203 less than 1% same
Bi less than 10 ppm same
TiO2 less than 1% same
Peter Bojtos 6-7% same
Zn 5-9% same
Sb less than 0.5% same
H20 4-6% same
F less than 100 ppm same
<PAGE>
If during the course of the Agreement, the quality or physical
characteristics materially does not conform to above typical assays or
within the provisions established for impurity contents and ranges
provided for metal payments, Buyer and Seller agree in good faith to
apply their best efforts to obtain a mutually satisfactory resolution of
the abnormality.
6. QUANTITY
The quantity of concentrate covered by this agreement shall be the
annual production of El Limon mine during 1996. Currently estimated to
be of approximately 400 to 500 dmt of Low Grade Concentrate (LGC) and 80
dmt of High Grade Concentrate (HGC),in shipments of two lots of
approximately 30 to 40 dmt of LGC and 6 to 10 dmt of HGC every four
weeks.
7. DURATION
January 1, 1996 through December 31, 1996,
8. PACKAGING
Sealed 45-gallon steel drums in 20' or 40' containers, or on pallets, or
bags, at Seller's option (or any other method acceptable to both
parties).
9. DELIVERY
CIF Tokyo Container Yard.
Terminal handling charges for delivery at container yard of the port of
discharge, if any, shall be for the account of Seller.
10. METAL PAYMENT
GOLD If the gold content is:
over 1,000 g/dmt 98.25% over 500 g/dmt but 1,000 g/dmt or less 98,00%
over 100 g/dmt but 500 g/dmt or less 97.50% over 50 g/dmt but 100 g/dmt
or less 97.00% 50 g/dmt or less to be discussed
The percentage of the full gold content is to be paid for at the
arithmetic mean of Metals Week published monthly prices for gold
designated as London Initial and London Final in US dollars per troy
ounce, less a refining charge of US$7.00 per troy ounce of payable gold.
SILVER
over 1,000 g/dmt 95% over 200 g/dmt but 1,000 g/dmt or less 94% over 30
g/dmt but 200 g/dmt or less 90% 30 g/dmt or less no payment
The percentage of the full silver content is to be paid for at Metals
Week published monthly price for silver d designated as London Spot in
U.S. dollar per troy ounce less a refining charge or US$0.50 per troy
ounce payable silver.
<PAGE>
11. TREATMENT CHARGE
US$217/dmt CIF Tokyo, Container Yard, Japan.
12. QUOTATIONAL PERIOD
Metals prices used to determine the settlement of a shipment will be the
average for the calendar month of shipment.
13. PAYMENT
Provisional
90% of the Seller's provisional invoice value based on mine weights and
assays shall be paid by telegraphic transfer on the 3rd business day
following the receipt in Tokyo, of the provisional invoice, 3/3 set of
original clean on board ocean bills of lading marked freight prepaid,
copy of Insurance Certificate subject to presentation the original
later, Certificate of Weight and Assay Certificate for each separate
shipment.
Gold and silver prices in provisional invoice shall be the average of
the calendar week prior to the week of shipment.
Second Provisional
The balance of provisional payment shall be paid by telegraphic transfer
on the 60th day after vessel's arrival at the discharging port based on
the lowest assays.
Final
Final payment shall be made on the 3rd business day following
presentation of the Seller's final invoice in Tokyo. If the sum of the
provisional payment and second provisional payment exceeds the amount of
the final invoice, the Seller shall refund promptly the balance to the
Buyer.
Method of Payment
Provisional, second provisional and final payments will be made by wire
transfer to Seller's bank account in immediately available US dollars at
the Bank designated by the Seller in the invoice payment instruction and
in such a case, all bank remittance charges and costs shall be for the
Buyer's account. In case that final payment shall be made by Seller to
Buyer. All bank remittance charges and costs shall be for the Seller's
account.
14. PENALTIES
Arsenic plus Antimony (As plus Sb)
If the sum of As and Sb content is greater than 0.1% penalty shall be
US$3.00 dmt for each 0.1% in excess of
0.1% up to 0.5%.
If the sum of As and Sb content is greater than 0.5%, then penalty shall
be US$4.00/dmt for each 0.1% in excess of 0.5% up to 1.0%.
<PAGE>
If the sum of As and Sb content is greater than 1.0%, then penalty shall
be US$5.00 dmt for each 0.1% in excess of 1.0%. All fractions pro rata.
Lead plus Zinc (Pb plus Zn)
If the sum of Pb and Zn content is greater than 4.0%, penalty shall be
US$3.00/dmt for each 1.0% in excess of 4.0%. All fractions pro rata.
Mercury (Hg)
If Hg content is greater than 10 ppm, penalty shall be US$2.00/dmt for
each 10 ppm in excess of 10 ppm. All fractions pro rata.
Other Impurities: to be discussed when other harmful elements are
found.
15. WEIGHING, SAMPLING AND MOISTURE DETERMINATION
Weighing, sampling and moisture determination in accordance with the
mutually agreed method (as per flow chart attached) shall be carried out
promptly upon arrival of The Concentrate at Receiving Smelter at Buyer's
expense and the figures thus determined shall be final for settlement.
Buyer shall provide Seller with the Receiving Smelter's Certificate of
Weight and Moisture if Seller does not nominate their representative.
The Seller shall have the right to be present or to be represented at
these operations as its own expense. Lot sizes for the purposes of
sampling, assaying and moisture determination shall be approximately 17
WMT for LGC and approximately 3 W.T.
for HGC.
16. ASSAY
The representative sample of each smelter lot shall be divided into 4
parts, each weighing at least 150 grams, 1 (one) for the Seller, 1 (one)
for the Buyer, 1 (one) to be set aside for umpire purposes, and 1 (one)
set aside as a reserve.
For cost saving purposes, Seller may elect not to exchange assays for
impurity elements, provided that if any of the assays for such elements
exceed the penalty levels based on Receiving Smelter's assaying, Buyer
will advise Seller of the respective elements for the purpose of assay
exchange, not withstanding its initial election.
The results shall be exchanged between the parties by cross mail or by
an otherwise agreed method within 45 days of the completion of the
weighing and sampling for each lot.
Assays for gold and silver shall be by commercial fire assay with slag
and cupel loss correction.
The exact mean of Receiving Smelter's and Seller's assays shall be final
for settlement unless any of the assay results differ by more than the
following applicable splitting limits:
Gold 10 g/dmt
Silver 15 g/dmt
Arsenic 0.05%
Antimony 0.05%
Lead 0.5%
Zinc 0.5%
Mercury 5 pm
<PAGE>
In the cases where these limits are exceeded, upon the request of either
party, the umpire samples shall be referred to umpire. The umpire assay
will be conducted using the following umpires in rotation a shipment-by-
shipment basis:
1. Walker and Whyte Inc.
22-14 40th Avenue
Long Island City, New York 11101
TEL. (718) 786-9897
2. Inspectorate Griffith Ltd, -
2 Perry Road, Witham, Essex, CM8 3TU
England
3. Alfred H. Knight International Ltd.
Eccleston Grange, Prescot Road
St. Helen's Merseyside
England WA 10 3BQ
The following shall be taken as the agreed final assay for settlement
purposes:
i)In the event that the umpire assay falls between the assays of both
parties, the mean of the umpire assay and the assay of the party which
is nearer to the umpire assay will govern.
or
ii)In the event that the umpire assay is the exact mean of the assays of
both parties the umpire assay will govern.
iii)In the event that the umpire assay does not fall between the assays
of both parties, the assay of the party which is nearer to the umpire
assay shall be accepted as the settlement assay.
iv)In the event that the umpire assay coincides with either Seller's or
Buyer's assay then the umpire assay will govern.
The cost of the umpire assay, including mailing charges, shall be for
the account of the party whose results is farthest from that of the
umpire, but if the umpire assay is he mean of the two parties assays,
the cost of the umpire analysis shall be borne equally by both parties.
It is further agreed that neither Seller or Buyer will employ any of the
umpire assayers to conduct their respective assays.
17. TITLE AND RISK OF LOSS
The title and risk for each shipment of Concentrate shall pass to the
Buyer when the Concentrate has effectively passed the ship's rail at the
Port of Loading.
<PAGE>
18. INSURANCE
Insurance policy or certificate issued by a first class international
insurance company in U.S.A. shall be arranged for each shipment by the
Seller in favour of Buyer. The insurance shall cover the Concentrate
against all risks for proven physical weight loss and/or damage to 110
percent of the provisional invoice value established by reference to the
appropriate Bill of Lading and adjusted to reflect final pricing in
accordance with the Quotational Period. Such insurance shall include
coverage for all risks under the Institute of London Underwriters'
Institute Cargo Clauses (all risks) Institute War Clauses, and Institute
Strikes, Riots and Civil Commotion Clauses. Heating and Spontaneous
Combustion irrespective of percentage whatsoever.
Such insurance shall cover the Concentrate once it crosses the ship's
rail at the port of loading and up until arrival of the Concentrate at
the Receiving Smelter in Japan. The Seller shall cooperate with and
assist the Buyer to the best its ability in proceeding settlement of any
loss or damage with an insurance company or companies. the cost of such
to be for the Buyer's account.
19. SETTLEMENT IN CASE OF LOSS
In the event of total loss of all or part of the Concentrate shipped,
immediate payment shall be made by the Buyer to the Seller for 100% (one
hundred percent) of the actual value as specified in the provisional
invoice, on the basis of weights and assays. Any subsequent claims
settlement received from the insurance company or companies will be for
the account of the Buyer. In the event of a partial loss due to breakage
of drums, bags or damage to the Concentrate, the amount of the insured
value less any provisional payment that has made on the lost damaged
Concentrated shall be payable to the Seller upon the earlier of the
following:
i) when recovered by Buyer from the insurance company or companies.
ii) upon final settlement of shipment.
20. FAIR PRICING
In the event that any of the quotations for payable metals cease to
exist or cease to be published or should not longer correctly reflect
the full market value for one or several of these metals, the Buyer and
Seller will promptly consult together with a view to agreeing on a new
pricing basis. The basic objective will be to secure continuity of fair
pricing.
21. FORCE MAJEURE
If either party hereto is prevented, restricted or delayed from
performing any of the obligations on its part to be performed hereunder
relating to the making or taking deliveries of Concentrate by reasons of
any act of nature, strike, lock-outs, work stoppage, fire, riot, war,
shortage of labor. facilities, equipment, or material, requirement of
regulation of governmental authority, interruption or delay in
transportation or any other cause beyond the reasonable control of
either party, which prevents, restricts or interferes with the
production, smelting of any of the Concentrate, transportation to the
port or loading, loading, delivery, unloading, receipt at the port of
unloading, transportation to the smelting of the Concentrate, the party
so affected shall give prompt written notice to the other party to that
effect and all of the obligations herein contained relating to making or
taking deliveries shall be suspended during such period or prevention,
restriction or delay.
<PAGE>
In the case of the Buyer giving such notice, it shall be given in
advance of the commencement of loading and in the case of the Seller
giving such notice, it shall be given prior to the commencement of the
Quotational Period or loading, whichever occurs first.
If the Buyer is affected as herein provided, but has failed to give
notice prior to commencement of loading as herein required, the Seller
will use its best efforts to assist the Buyer, provided however, the
Seller's position as provided in this Agreement will not be altered or
adversely affected.
In case such force majeure continues for a period of more than 90 days,
the party not having invoked force majeure shall have the right to
decline to make or take delivery of Concentrate produced during such
period of force majeure. If it continues for a period of more than 180
days, then either party shall have the right to decline to make or take
the delivery of Concentrate produced during such period of force
majeure.
22. ARBITRATION
Any question, dispute, or difference arising between the parties hereto
with regard to interpretation or application of this agreement shall be
referred in arbitration in accordance with the rules of conciliation and
Arbitration of the International Chamber of Commerce, The award of such
arbitration shall be final and binding upon the parties hereto.
23. GOVERNING LAW
This entire transaction, including the sale of the Concentrate will be
governed in accordance with the provisions of the laws of New York and
the courts of New York will have exclusive jurisdiction in respect
hereof.
24. NOTICES
All notices required to be given to the Seller shall be addressed and
sent simultaneously to:
Compania Minera Oronorte S.A.
Attention; Ms, Maria B. Antequera Castro
Carrera 78 No. 32A-53
Medellin Colombia, S.A.
Telephone; (574) 342 1166
Facsimile: (574) 238 5123
Fischer-Watt Gold Company, Inc.
Attention; Mr. George Beattie/Mr. Bob Sampson
1410 Cherrywood Drive
Coeur d'Alene, ID 83814
Telephone; (208) 664 6757
Facsimile: (208) 667 6516
and all notices required to be given to the Buyer shall
be addressed and sent to;
Nissho Iwai Corporation
Attention: Mr. Hiroshi Shimomaehara
4-5, Akasaka 2-chome, Minato-ku, Tokyo 107, Japan
Telephone; (03) 3588-2411
Facsimile: (03) 3588-4313
<PAGE>
All notices (excluding payments required pursuant to Article 13) shall
be given by registered or certified mail or any courier, postage prepaid
and, in such case, shall be deemed given or served when mailed, or by
courier, provided, however, than any notice given hereunder may be given
by telegraph, telex or facsimile and confirmed by mail or courier in
which case such notice shall be deemed given or served when sent in
telegraphic form.
25. SUCCESSORS AND ASSIGNS
This Agreement shall not be assignable by either party without prior
written approval of the other party and shall inure to the benefit of
and be binding upon the successors and permitted assigns of the parties
hereto.
26. AGENT
Throughout term of this Agreement, the Seller reserves the right to
appoint an Agent with respect to the Seller's obligations under this
Agreement and performance by the Agent of any of the Seller's
obligations under this Agreement shall be deemed to be performance by
the Seller.
27. DEFINITIONS
(a)The term "dmt", "ton', or `tonne" shall mean 1,000 kilograms
equivalent to 2204.62 pound avoirdupois, dry basis.
(b)The term "W.T." shall mean 1,000 kilograms equivalent to 2204.62
pound avoirdupois, wet basis.
(c)The term "ounce" shall mean a troy ounce, equivalent to 31.1034768 g.
(d)The term "g" shall mean grams.
(e)"Dollars ($)" and "Cents (c)" shall be the lawful money of the United
States of America.
(f)"Business day" shall mean a day in which banks in New York, Japan and
Colombia are open for business.
IN WITNESS WHEREOF the parties hereto have caused this Agreement to be executed
the day and year indicated below by their respective officers duly authorized in
that behalf.
<PAGE>
Seller: COMPANIA MINERA ORONORTE S.A.
By: George Beattie Date: 12 March 1996
Buyer: NISSHO IWAl CORPORATION
By: Masatoshi Kamiya Date: Mar 06 96
General Manager
Copper Materials & Products Dept.
Witness: FISCHER-WATT GOLD COMPANY, INC.
By: Robert A. Sampson Date: March 12, 1996
Digger Resources November 13, 1995
4605, 400-3rd Ave. S.W.
Calgary, Alberta T2P 4H2
Gentlemen:
Great Basin Exploration and Mining Co.,Inc. and Digger Resources Inc:
Exploration and Mining Joint Venture-Tempo Property, Lander County, Nevada
This letter lays out the principal terms of the business relationship between
Digger Resources Inc (DRI) and Great Basin Exploration and Mining Co, Inc.
(GBEM) whereby DRI will explore the Tempo property and, if successful, develop a
mine.
1) DRI will make an up front cash payment of $25,000 on signature of
this letter agreement. A joint venture agreement, based on the Rocky Mountain
Form 5 Model Agreement, will be executed as soon as possible thereafter.
2) DRI will fund a program, or series of programs, of exploration and
development on the Temp property. DRI, as Operator, will generate and oversee
the exploration program which will be managed in the field by GBEM personnel.
These programs must be approved by DRI but will be managed and operated by GBEM
staff. GBEM will charge for professional services at normal consulting rates to
be agreed between the parties and will be based on actual time recorded on
employee time sheets. GBEM will charge an apportionment of their intangible
costs that can be demonstrated to be attributable to the Tempo project. The
arrangement for the use of GBEM personnel will be valid up to the point that
either $1.5 million is expended or a feasibility study is completed.
3) The objective of the exploration and development program is to
develop a mining reserve, conduct necessary metallurgical test work and complete
a feasibility study. If the feasibility study shows that an operation would
yield an acceptable economic return, the parties will proceed to develop a
mining operation.
4) DRI will commit to funding a work program to include trenching,
sampling, mapping and geophysics, details of which will be approved by DRI at
the time of a forthcoming site visit. The intention this program will be to
fulfill the 1995 work commitment, if practically possible and if weather allows.
If not, the difference between what has been spent in total by GBEM and DRI by
the end of 1995 and the $50,000 1995 work commitment will be carried over into
1996. If the Lessor of the Tempo property will not allow the carry-over of 1995
under-expenditures into the 1996 work year and, as a consequence, terminates the
Tempo lease this letter agreement will be voided and the initial cash payment of
$25,000 refunded by GBEM to DRI.
5) At the time of signing a joint venture agreement, DRI will acquire
a vested 80% interest of GBEM'S 100% interest in the Tempo property. In order to
maintain its 80% interest DRI will:
a) spend a minimum of $1.5 million over a five year period or
complete a feasibility study.
b) be responsible for the advanced minimum royalty (AMR)
payments, annual claim fees and work commitment under the terms of the Campbell
mineral Lease dated October 14, 1994.
<PAGE>
6) DRI's interest is subject to the back-in right held by Serem Gatro
Canada (SGC) to acquire up to a 40% interest in any proposed operation by
payment of 40% of expenditures to date (less SGC's past expenditure of $58,000)
at the time of completion of a feasibility study as well as finance their share
of future expenditure to develop a mine. In the event that SGC exercises its
right for a full 40%, DRI will hold a 60% interest and GBEM will retain a 7.5%
Net Proceeds Royalty as defined in the RMLF Mining Venture Form 5. The mechanism
by which the SGC back-in is achieved, and the manner in which if affects the
respective interests of DRI and GBEM will be described in the joint venture
agreement.
7) Other normal conditions for conducting exploration and mining on a
joint venture basis, not specified here, will apply.
8) This offer will remain open until 5 p.m. Pacific Standard Time,
Monday November 13, 1995.
Kind regards,
A. B. Taylor
President DIGGER RESOURCES INC.
Accepted: Bill Scott
Date: November 13, 1995
MINING VENTURE AGREEMENT
THIS AGREEMENT made as of ---------, between Great Basin Exploration &
Mining Co., Inc., a Nevada corporation, ("GBEM") and, Digger Resources Inc. A
British Columbia corporation ("DRI").
RECITALS
A. GBEM owns certain Properties in Lander County, State of Nevada which
Properties are described in Exhibit A and defined in Section 1.21.
B. DRI wishes to participate with GBEM in the exploration, evaluation,
development, and mining of mineral resources within the Properties or any other
properties acquired pursuant to the terms of this Agreement, and GBEM s willing
t grant such right to DRI.
C. The Properties subject to this Agreement are subject to that certain
Tempo Mineral Lease dated effective October 14, 1994 by and between GBEM (as
lessee) and Lyle F. Campbell, Sole Trustee of the Lyle F. Campbell Trust (as
lessor) attached hereto as Attachment I, (the "Campbell Lease").
D. The Properties subject to this Agreement are subject to that certain
Participation Agreement dated effective May 31, 1995 by and between Serem Gatro
Canada Inc., ("SGC"). GBEM and Great Basin Management Co., Inc. (The "SGC
Agreement") attached hereto as Attachment II.
NOW, THEREFORE, in consideration of the covenants and Agreements contained
herein, GBEM and DRI agree as follows:
ARTICLE 1
DEFINITIONS
1.1 "Accounting Procedure" means the procedures set forth in Exhibit B.
1.2 "Affiliate" means any person, partnership, joint venture, corporation
or other form of enterprise which directly or indirectly controls, is controlled
by, or is under common control with, a Participant. For purposes of the
preceding sentence "control" means possession, directly or indirectly, of the
power to direct or cause direction of management and policies through ownership
of voting securities, contract, voting trust or otherwise.
1.3 "Agreement" means this Mining Venture Agreement, including all
amendments and modifications thereof, and all schedules and exhibits, which are
incorporated herein by this reference.
1.4 "Area of Interest" means the area described in Part 2 of Exhibit A.
1.5 "Assets" means the Properties, Products and all other real and personal
property, tangible and intangible, held for the benefit of the Participants
hereunder.
1.6 "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.
1.7 "Development" means all preparation for the removal and recovery of
Products, including the construction or installation of a mill or any other
improvements to be used for the mining, handling, milling, processing or other
beneficiation of Products.
<PAGE>
1.8 "Exploration" means all activities directed toward ascertaining the
existence, location, quantity, quality or commercial value of deposits of
Products.
1.9 "Initial Contribution" means that contribution each Participant has
made or agrees to make pursuant to Section 5.1 and Section 5.2.
1.10 "Joint Account" means the account maintained in accordance with the
Accounting Procedure showing the charges and credits accruing to the
Participants.
1.11 "Management Committee" means the committee established under Article
VII.
1.12 "Manager" ,means the person or entity appointed under Article VIII to
manage Operations, or any successor Manager.
1.13 "Mining" means the mining, extracting, producing, handling, milling or
other processing of Products.
1.14 "Net Proceeds" means certain amounts calculated as provided in Exhibit
D, which may be payable to a Participant under Section 6.4 (b)(2).
1.15 "Operations" means the activities carried out under this Agreement.
1.16 "Participant" and "Participants" mean the persons or entities that
from time to time have Participating Interests.
1.17 "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., 1.515% 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 Interest of the Participants
are set forth in Section 6.1.
1.18 "Prime Rate" means the interest rate quoted as "Prime" by the Chemical
Bank at its head office, as said rate may change from day to day (which quoted
rate may not be the lowest rate at which the Bank loans funds.
1.19 "Products" means all ores, minerals and mineral resources produced
from the Properties under this Agreement.
1.20 "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.
1.21 "Properties" means those interests in real property described in Part
1 of Exhibit A and all other interest in real property within the Area of
Interest which are acquired and held subject to this Agreement.
1.22 "Transfer" means sell, grant, assign, encumber, pledge or otherwise
commit or dispose of.
1.23 "Venture" mans the business arrangement of the Participants under this
Agreement.
<PAGE>
1.24 "Feasibility Study" means a comprehensive study and report, prepared
in accordance with Section 6.7 of this Agreement and with engineering standards
of the highest quality, containing all material information required to support
a recommendation that one or more mineral deposits or suspected mineral deposits
on or in the Properties should be brought into Commercial Production and
therefore operated on a commercial basis. Without limiting the generality of the
foregoing, any such study shall contain all requisite details respecting ore
reserves, mine or pit design, mining plan, estimated mining reates and cut-off
grades; results of all metallurgical analysis, the method of extracting and
treating the ore, marketing analysis and proposed marketing arrangements, full
environmental and social impact studies, all data, including cost estimates of
mine development and contruction, erection of plant service facilities, roads,
dumps, tailings disposal, power, water and transport, all operating costs
contemplated and working capital requirements; the whole to be based upon work
of sufficient scope to verify the existence of a commercial deposit on the
Properties without resort to any additional work. Such study shall include a
timetable for placing the Properties into Commercial Production, disclosing, on
critical path, work required to be done during the construction period and the
number of weeks estimated to elapse from the date of production commitment to
the date when construction will be completed and Commercial Production will
commence.
ARTICLE II
REPRESENTATIONS AND WARRANTIES: TITLE TO ASSETS
2.1 Capacity of Participants. Each of the Participants represents and
warrants as follows:
(a) that it is a corporation duly incorporated and in good standing in
its jurisdiction of incorporation and that it is qualified to do business and is
in good standing in those jurisdictions where necessary in order to carry out
the purpose 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 is valid and binding upon it in
accordance with its terms.
2.2 Representations and Warranties. GBEM makes the following
representations and warranties effective the date hereof:
(a) With respect to those Properties GBEM owns in fee simple, if any,
GBEM is in exclusive possession of and owns such Properties free and clear of
all defects, liens and encumbrances except those specifically identified on Part
1 of Exhibit A.
(b) With respect to those Properties in which GBEM holds an interest
under leases or other contracts: (I) GBEM is in exclusive possession of such
Properties; (ii) GBEM has not received any notice of default of any of the terms
or provisions of such contracts; (iii) GBEM has the authority under such
contracts to perform fully its obligations under this Agreement; (iv) to the
best of GBEM's knowledge and belief, such contracts are valid and are in good
standing; and (v) to the best of GBEM's knowledge and belief, the properties
covered thereby are free and clear of all defects, liens and encumbrances except
for those specifically identified on Part 1 of Exhibit A or in such contracts.
GBEM has delivered to DRI all information concerning title to the Properties in
GBEM's possession or control, including, but not limited to, true and correct
copies of all leases or other contracts relating to the Properties of which GBEM
has knowledge.
<PAGE>
(c) With respect to unpatented mining claims located by GBEM that are
included within the Properties, except as provided in part 1 of Exhibit A and
subject to the paramount title of the United States: (I) the unpatented mining
claims were properly laid out and monumented; (ii) all required location and
validation work was properly performed; (iii) location notices and certificates
were properly recorded and filed with appropriate governmental agencies; (iv)
all assessment work and any annual fee required to hold the unpatented mining
claims has been performed or paid 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, 1995; (v) all affidavits of assessment work and other
filings required to maintain the claims in good standing have been properly and
timely recorded or filed with appropriate governmental agencies; (vi) the claims
are free and clear of defects, liens and encumbrances arising by, through or
under GBEM; and (vii) GBEM has no knowledge of conflicting claims. Nothing in
this Section 2.2(c), however, shall be deemed to be a representation or a
warranty that any of the unpatented mining claims contains a discovery of
minerals. With respect to those unpatented mining claims that were not located
by GBEM or an Affiliate of GBEM, but are included within the Properties, GBEM
makes the foregoing representations and warranties (with the foregoing
exceptions) to the best of its knowledge and belief.
(d) With respect to the Properties, there are no pending or threatened
actions, suits, claims or proceedings.
(e) With respect to all Properties, not withstanding the foregoing
Representatives and Warranties, the Properties are subject to (I) the Campbell
Lease and (ii) the SGC Agreement and the participation rights of SGC under the
SGC Agreement.
The representations and warrantees 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 as follows:
(a) Except as otherwise provided the Participants shall own all Assets
as tenants in common of undivided interests and shall be severally, not jointly
or collectively liable for all obligations of the Venture.
(b) Each Participant shall be severally liable to third parties for
any act or omission occurring in the exercise of its rights or obligation as a
Participant in the Area of Interest.
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 GBEM shall be charged to GBEM.
<PAGE>
2.6 Guarantee and Assumption of Obligations and Duties. GBEM guarantees
performance of all of the duties of the Lessee under the Campbell Lease whether
said duties accrue before or after any transfer of the Lease. To the extent any
right, obligation, duty or interest of GBEM under the Campbell Lease and the SGC
Agreement I assigned or transferred to DRI pursuant to this Agreement. DRI
agrees to be bound by the terms and conditions or the Campbell Lease and SGC
Agreement to same extent a GBEM. DRI and GBEM agree to bound by Article 22 of
the Campbell Lease as set forth immediately below in conjunction with this
Agreement and in any and all subsequent sales, assignments, subleases, joint
operating agreements, or other documents effecting such a transfer of rights or
duties under the Campbell Lease:
Assignment: Sublease; Joint Operations; Transfers. The subject matter of
the Campbell Lease includies unpatented mining claims. The parties recognizee
the uncertain and tenuous nature of title to the unpatented mining claims.
Further, the parties recognize the critical importance of complying with state
and federal regulations and statutes in preserving said title. The parties
expressly agree that part of the material consideration for this agreement is
Lessor's confidence in Lessee's ability and commitment to perform its duties
hereunder, such duties include but are not limited to performance of annual
assessment work and perfection of proof thereof as provided in Article 9 of the
Campbell Lease; development of all necessary exploration, operation, reclamation
and bonding plans as provided in Article 5 of the Campbell Lease; compliance
with all local, state and federal laws, statutes, ordinances, rules and
regulations as provided in Article 12 of the Campbell lease; and application of
the highest level of its professional, technical and financial ability and
willingness to explore and operate the Tempo Mineral Prospect in compliance with
all the terms of the Lease, all of which are necessary to protect Lessor's
rights and title int he Tempo Mineral Prospect.
GBEM and DRI expressly agree in view of the material considerations listed
immediately above that they shall not assign, sublease enter a joint operating
agreement, or otherwise transfer (hereinafter "transfer") all or any part of
their rights or duties under the Campbell lease without performance of the
following express conditions:
(a) Prior to execution of any documents effecting such a transfer,
GBEM shall provide Lessor with a copy of the proposed transfer documents
together with all exhibits or attachments thereto not less than fifteen (15)
days prior to execution thereof.
(b) GBEM and DRI shall not execute any such transfer documents or
obligate themselves to make any such transfer without obtaining the prior
written consent of Lessor.
(c) GBEM and DRI shall expressly guarantee performance of all of the
duties of Lessee under this Lease whether said duties accrue before or after
transfer of the Lease by lessee. Said guarantee shall be express in the
documents which effect such sale, loan, sublease, assignment, joint venture
agreement or other transfer, and no refusal by Lessor to consent to any
transfere shall be unreasonable in Lesseee fails or refuses to guarantee the
obligations of its transferee in the same instrument , or if the same instrument
does not obligate the transferee to be bound by the terms and condtions of this
Lease to the same extent as the transeror (Lessee). If hte transfer is the grant
of security interest in or other incumbrance of all or any part of Lessee's
interest hereunder in order to secure a loan to lessee, the instrument
documenting the transfer shall recite that it is subject to the terms and
condition of this Lease and that upon any foreclosure of or other enforcement of
<PAGE>
rights in the encumbrance the foreclsoing party shall assume the position of
Lessee hereunder and shall comply with and be bound by all terms and conditions
of this Lease. No transfer by Lessee hereunder shall relieve Lessee from any
obligation which accrues or attaches prior to the effectice date of the
transfer.
(d) GBEM and DRI agree that Article 22 of the Campbell Lease shall be
expressly incorporated, and not incoroportated by reference, in any sale,
assignment, sublease, joint operation agreement, or other doucument effecting
such a transfer,and in any and all subsequent sales, assignments,subleases,
joint operating agreements, or anyy other documetns effecting a transfer of its
rights or duties under this Lease.
It is expressly agred that should GBEM or DRI enter into any sale,loan,
insturment, assignment, sublease, joint operating agreement ot other transfer or
Lessee's rights ot duties hereunder without prior perfoemance of conditions a,
b, c and d listed immediately above, such transfer shall be void and such
transfer shall constitute a material breach of this lease by Lessee.
Lessor agres that its prior written consent to any suhc transfer shall not
be unreasonable withbelf. Lessor may without any consent and without any prior
notice to lessee sell, encumber or otherwise transfer its rights under this
Lease. Lessor shall deliver a true and correct copyof any documents evidienicing
such a sale,encumbrance or transfer to Lessee within fifteen (15) days after
execution thereof.
GBEM and DRI agree to provide lessor, after its written consent thereto,
with a counterpart original of any sale, loan instrument, assignment, sublease,
joint venture agreement, or other transfer documents complete with all
supporting documents, attachments, and exhibits within fifteen (15) days after
execution thereof.
ARTICLE III
NAME, PURPOSES AND TERM
3.1 General. GBEM and DRI hereby enter into this Agreement for the purposes
hereinafter stated, and they agree that all of their rights and all of the
Operations onor 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 Tempo 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;
(c) to evaluate the possible Development of the Properties;
(d) to engage in Development and Mining Operations on the Properties;
<PAGE>
(e) to engage in marketing Products, to the extent permitted by
Article XI; and
(f) to perform anyother activity necessary, appropriate, or
incidental to any of the foregoing.
3.4 Limitaitons. Unless the Participants otherwise agreein 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
the date first recited above. The term of this Agreement shall be for 30 years
from the effective date and for so long thereafter ass 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 as the partner of the other, nor, except as
otherwise herein expressly provided, to constitute either Participant as the
agent or legal representative of the other, not 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 severa 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 Asets 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 attorneyss from and
against any and all losses, claims, damages and liabilities arising out of any
act or any assumption of liablility by the indemnifying 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 otherwisie agreed in
writing between the Participants.
4.2 Federal Tax Elections and Allocations. Without changing the effect of
Section 4.1, the Participant agree tht their relationship shall constitute a tax
partnership within the meaning of Section 761(a) of the United Statess Internal
Revenue Code of 1954, 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 mannera s 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.
<PAGE>
4.5 Other Business Oppoprtunites. 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 doctines of "corporate
opportunity" or "business opportunity" shall not be aplied to any other ctivity,
venture, or operation or 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 Interst after the termination of this
Agreement. Unless otherwise agreed in writing, no Participant shall have any
obligation to mill, beneficiate or otherwise treat any Products or any other
Participant's share of Products in an y 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 ale in lieu thereof, or other division of Assets,
including any such rights provided by statute.
4.7 Transfer or Terminaton 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 otherwie permit or caue such
interests to terminate.
4.8 Implied Covenants. There are no implied covenants contained in this
Agreement other than those of good faith and fair dealing.
ARTICLE V
CONTRIBUTION BY PARTICIPANTS
5.1 GBEM's Initial Contributions. GBEM, as its Initial Contribution, hereby
contributes the Property and al data and other information relating to the
mineral potential of the Tempo Properties to the purposes of this Agreement.
5.2 DRI's Initial Contribution.
(a) DRI has made an initial Cash Payment to GBEM (the "cash payment"
in letter agreement dated November 13, 1995 by and between DRI and GBEM, the
receipt of which is hereby acknowledged.
(b) DRI shall either, whichever first occurs, contribute the first One
Million Five Hundred Thousand Dollars ($1,500,000.00) to the Venture on or
before December 31, 2000 for the payment of costs necessary to fund Venture
Operations and Programs and Budgets (the "Cost Expenditures") or complete a
Feasibility Study covering and relating to all or a portion of the Properties.
(c) DRI shall make payments for Advance Minimum Royalty dir and
payable pursuant to the Tempo Mineral Lease during the term of this Agreement.
DRI shall assume GBEM's obligations under the Temnpo Mineral Lease, except those
oblligations which accrued prior to November 13, 1995 but including the
obligaqtion fto fulfill the minimum work requiremetns of Fifty Thousand Dollars
($50,000.00) for 1995.
5.3 Failure to Make Initial Contribution. DRI's failure to make its Initial
Contribution in accordance with provisions of Article 5.2 shall be deemed to be
a withdrawal of DRI from this Agreement and the termination of its Participating
Interst hereunder. Upon such event, DRI shall have no further right, title or
interest in the Assets. Such withdrawal or termination will not relieve DRI of
its obligation to fund Operations up to the amount of DRI's agreed contribution
to an adopted Program and Budget, nor shall such withdrawal relieve DRI of its
Responsiblility to fund and satisfy its share of liabilities to third persons
(whether such accres before or after such withdrawal) arising out of Operations
conducted prior to DRI's withdrawal. DRI shall fund and satisfy 100% of such
liabilites until it has contributed the full amount of its Inital Contribution,
and thereafter ot shall fund and satisfy such liabilities in proportion to its
inital Participating Interest set forth in section 6.1. Except as provided in
the preceding two sentences, DRI's withdrawal shall relieve DRI from any ohter
obligation to make contributions hereunder.
<PAGE>
5.4 Additional Cash Contributions. At such time as DRI has contributed the
full amount of its Intitial Contribution or completed a Feasibility Study, 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.
5.5 Personnel. DRI, as Manager, will generate and oversee the explorations
programs. DRI may use any combination of DRI personnel, GBEM personnel,
contractors, subcontractors, or consultants to perform field work. Any
consultancy agreement or simialr agreement executed between DRI and those
performing field work shall be subject and subordinate to this Agreement.
ARTICLE VI
INTERESTS OF PARTICIPANTS
6.1 Initial Participating Interestss. The Participants shall have the
following initial Participating Interests:
GBEM - 20%
DRI - 80%
The Participants will retain their respective interests or as above unless
such interests are modified, transferred, diluted, or not perfectd as provided
herein.
6.2 Changes in Participating Interests. A Participants Participating
Interest shallb e changed as follows:
(a) As provided in Section 5.3, 6.5 or 6.8; 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 inmaking its agreed-upon
contribution to an adopted Program and Budget, followed by an election by the
other Participant toinvoke Section 6.4(b); or
(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 permittedd, a Participant may elect, as provided in Section 9.5, to
limit its contribution to an adopted Program and Budget as follows:
(a) To some lesser amount than its respective Participating Interest;
or
(b) Not at all.
<PAGE>
If a Participant elects to contribute to an adopted Program and Budget some
lesser amount that 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 balue of the Participant's
Initial Contribution under Section 5.1, which will be deemed to be 20% of the
amount contributed by DRI under Section 5.2, (b) the total of all of the
Participant's contributions under Section 5.2, and (c) the amount, if any, the
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
thereupong become the difference betwen 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 approved Program and Budget, the non-defaulting Participant may
advance the defaulted contribution on behalf of the defaulting Participant and
treat the same, together with any accrued interst, as a demand loan bering
interest from the date of the advance at the rate provided in Section 1.03. 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 inits righrts under this Agreement and it its participating
Interest in other Assets, and the proceeds therefrom, to secure any loan made
hereunder, including interest thereon, reasonable attorney's fees and all other
reasonable costs and expensed incurred in recovering the loan with interest and
in edforcing such lien or escurity interest, or both. A non-defaulting
Participant may elect the applicable remedy under this Secton 6.4(a) or under
6.4(b), or, to the extent a Participant has a lien or security interest under
applicable lalw, 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 or effectuate 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 tothe defaulting Participant:
(1) For a default relating exclusively to an Exploration Program and
Budget, the non-defaulting Participant may elect to have the defaulting
Participant's Participating Interests permanently reduced as provided in Section
6.3. Amounts treated as a loan pursuant to Section 6.4(a) and interest theron
shall be included in the calculation of the defaulting Participant's reduced
Participating Interest. The non-defaulting Participant's Participating Interest
shall, at such time, become the difference between 100% and 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 non-defaulting Participant's lelection,
the defaultingi Participant shall be deemed to have withdraawn from the Venture
and to have automatically relinquished its Participating Interest to the
non-defaulting Participant; provided, however, the deraulting Participant shall
have the right to receive only from 10% of Net Proceeds Royalty, if any, and not
from any other source, an amount equal to the defaulting Participant's aggregate
contributions, pursuant to Sectiosn 5.1, 5.2 and 5.3. Upon receipt of such
amount the defaulting Participant shall therafter have no further right, title
or interest in Assets or under this Agreement.
<PAGE>
6.5 Elimination of Minority Interest. Uon the reduction of its
Participating Interest to less than 6%, a Participant shall be deemed to have
withdrawn from this Agreement pursuant to Section 12.3 and shall relinquish its
entire Participating Interest, subject to (i) those exceptions to title
referenced in Section 12.3, (ii) the Campbell Lease and (iii) the SGC Agreement.
Such relinquished Participating Interst shall be deemed to have accrued
automatically to the other Participant.
6.6 Continuing Liabilities Upon Adjustment 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 shallbe 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 tht Properties were acquired or thoe to which both Participants have
given their written consent. An adjustment toa 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
known 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 evedence such adjustment in form sufficient for recording in the
jurisdiction where the Properties are located.
6.7 Feasibility Study
a. The Participants agree to perform a Feasibility Study before
performing any Development. If at any time DRI concludes, acting reasonably,
that there is sufficient evidence that a potential orebody exists upon or in the
Properties and that a Feasibility Study should be prepared, DRI shall by written
notice so inform GBEM and SGC. Such written notice shall (I) include a
pre-feasibility study setting out in reasonable detail acceptabel to GBEM and
SGC, acting reasonably, all of the material information upon the basis of which
DRI has reached its aforesaid conclusion; (ii) provide GBEM and SGC with the
right to participate in the selection of the party to prepare the Feasibility
Study; and (iii) provide GBEM & SGC, at their sole discretion, with the right to
participate int he preparation of the Feasibility Study at their own costs (it
being acknowledged and agreed that if GBEM & SGC do not elect to participate in
the preparation of a Feasibility Study at their own cost, any and all costs and
expenses related to the preparatin of a Feasibility Study shall be borne
exclusively by DRI).
b. The Feasibility Study prepared in accordance with Section 6.7(a)
and accepted by the Management Committee pursuant to Section 6.99 shall be
delivered t GBEM and SGC and shall include a detailed Budget of the estimated
Development/Production Expenditures required to bring the Properties into
Commercial Production in accordance with the Feasibility Study plus the
estimated working capital and other requirements for the operation of such
Properties once the Properties have been placed into Commercial Production. For
purposes of this Section 6.7(b), "Development/Production Expenditures" shall
mean all costs and obligations whatever kind or nature to be uncurred under a
Budget.
<PAGE>
c. If the Feasibility Study prepared in accordance with this Agreement
indicates that the Properties contain an orebody and recommends that work be
commenced with a view to bringing the Properties into Commercial Production, the
Participants shall not be obligated to bring the Propertiess into Commercial
Production.
6.8 SGC Right to Participate.
a. Within the ninety (90) day period after receipt of a completed
Feasibility Study and Budget prepared pursuant to Section 6.7, SGC shall have
the option, but not the obligation, to exercise its right under the SGC
Agreement to acquire an interest in the Properties covered by the Feasibility
Study and to form a corporate entity (the "JV Corporation") as set forth in the
SGC Agreement. SGC's election shall be in writing to GBEM (the "Exercise
Notice") and GBEM shall promptly deliver a copy of the Exercie Notice to DRI.
b. Upon SGC's affirmative election to participate in compliance with
this Section 6.8 and the applicable provisions of the SGC Agreement, the
following shall apply:
(i) Allocation of SGC's Participating Interest. GBEM shall bear
the obligation to reqlinquish to SGC up to the first 20% Participating Interest
which SGC elects to purchase. DRI shall relinquish to SGC any further
Participating Interest which SGC elects to acquire, provided that SGC shall not
have the right to acquire from GBEM and DRI a combined total of greater than a
40% Participating Interest. If, as a result of dilution or for any other reason,
GBEM holds a Participating Interest of less than 20% at the time of SGC's
election and SGC elects to acquire a Participting Interest greater than the
Participating Interest then held by GBEM, GBEM shall be obligated to relinquish
to SGC only the Participating Interest that GBEM then holds, and the remainder
of the participating Interest which SGC elects to acquire shall be relinquished
by DRI.
(ii) Conversion of GBEM's Participting Interestt. If, because of
SGC's election to acquire a Participating Interest, GBEM ceases to hold any
Participating Interest in the Properties, of if GBEM is left as a consequence of
such election with less than the minimum level of Participating Interest set
forth in Section 6.5 and is therefore deemed to hold no Participating Interest
in the Properties, then GBEM shall be entitles to receive from DRI a conveyance
of a Net proceeds Royalty (as defined in Exhibit D, Part 1) equal to seven and
one-half percent (7.5%) burdening only DRI's Participating Interest in the
Properties for all Products produced from the Properties, conveyed to GBEM by a
"Net Proceeds RoyaltyDeed" substantially in the form of Exhibit E, Part 1. The
conveyance shall be effective as of the date of SGC's Exercise Notice.
(iii) Hypothetical Examples. The foregoing provisions of this
Section 6.8(b) are illustrated by the following hypothetical examples:
(a) If DRI hold an 80% Participating Interest, GBEM hodls a 20%
Participating Interest, and SGC elects to acquire a 10% Participating Interest;
GBEM would relinquish a 10% Participating Interests to SGC. Immediately
following such an election, Dri would hold an 80 % Participating Interest, and
SGC would hold a 10% Participating Interest.
<PAGE>
(b) If DRI hold an 80% Participating Interest, GBEM holds a 20%
Participating Interst and SGC elects to acquire a 40% Participating Interest;
GBEM would relinquish a 20% Participating Interest to SGC and DRI would
relinquish a 20% Participating Interest to SGC. Immediately folloiwing such an
election by SGC, DRI would hold a 60% Participating Interest, SGC would hold a
40% Participating Interest, and GBEM would hold a Net Proceeds Royalty interest
of 7.5% burdenign DRI's 60% Participating Interest (or a net royalty payable to
GBEM from DRI's Participating Interest of 4.5% of Net proceeds).
(c) If DRI holds a 90% Participating Interest an dGBEM holds a 10%
Participating Interest and SGC elects to acquire a 6% Participating Interest,
GBEM would relinquish a 6% Participating Interst to SGC. Immediately following
such an election by SGC, GBEM's remaining 4% Participating Interest would be
relinquished in favor DRI pursuant to the provisions of Section 6.5, DRI would
hold a 94% Participating Interest (its 90% Participating Interest having been
increased by the 4% Participating Interest relinquished by GBEM pursuant to the
provisions of Section 6.5),SGC would hold a 6% Participating Interest, and GBEM
would hold a Net Proceeds Royalty interest of 7.5% burdening DRI's 94%
Participating Interst (or a net royalty payable to GBEM from DRI's Participating
Interest of 7.05% of Net proceeds), GBEM's 10% Participating Interest having
been reduced to a 4% Participating Interest and thereupon relinquished to DRI
and converted in accordance with Section 6.8(b)(ii) into a 7.5% Net Proceeds
Royalty interest burdening DRI's 994% Participating Interest.
(iv) Assignment of Exploration Expenditure Note. GBEM and DRI
acknowledge that, under the terms of the SGC Agreement, part of the indirect
rata portion of the Exploration Expenditures (as defined in the SGC Agreement)
incurred by GBEM and DIR prior to the formation of the JV Corporation. GBEM and
DRI further acknowledge that SGC's contribution will occur indirectly though the
delivery of ta promissary note (the "Exploration Expenditure Note" as defined in
the SGC Agreement) and through the capitalization of the JV Corporation. GBEM
and DRI agree that the Exploration Expenditure Note will be further assigned
pursuant to Section 6.8(b)(vii) in the following proportions: 80% of the
Exploration Expenditure Note shall be assigned to and held by DRI (or its
successors or assigns) as a promisee. GBEM and DRI further agree that if GBEM
ceases to hold a Participating Interest as a result of SGC's election to
participate (and therefore has no right to participate as a shareholder in the
JV Corporation), then DRI shall cause all obligations to GBEM under the
Exploration Expenditure Note to be paid in full within two (2) years of the
issuance of the Explortion Expenditure Note.
(v) Substitution of DRI for GBEM. If GBEM ceases to hold a
Participating Interest as a result of GC's election to participate (and
therefore has no right to participate as a shareholder in the JV Corporation),
then GBEM shalla ssign to dRI all of its right,title and interest in,t o an
dunder the SGC Agreement necessary to substitute DRI int he place of and for
GBEM as a party to the SGC Agreemtn. DRI shall not accept such assignment and
assume prospective duties and obligations of GBEM created by the SGC Agreement
as if DRI was a signatory party thereto.
<PAGE>
(vi) Transfer of Properties. The parties hereto shall transfer
the Properties to be held pursuant to the terms of the SGC Agreement.
(vii) Further Assurances. The parties hereto shall provide such
further assurances and execute such additional documents as may be necessary to
carry out the provisions of this Section 6.8(b).
c. If SGC fails to timely and properlly elect to acquire an interest
in the Properties as required by this Agreement and SGC Agreement, then SGC
shall be deemed to have waived any right with respect to the Properties covered
by the Exercise Notice and the Provisions of this Agreement shall govern.
d. GBEM shall promptly provide DRI copies of notices, claims, and
inquiries for information relating to the Properties or the the SGC Agrement. In
the event of a dispute between SGC and GBEM, their successors or assign, GBEM
shall promptly notify DRI of such dispute or claim, and provide DRI with copies
of all dispute claimss, pleadings, and notices or arbitration, together with all
other pertinent documetns relating to the dispute. DRI shall have the right, and
GBEM shall undertake or cause to be undertaken all actions necessary to
facilitate DRI's right to participate in the negotiation, adjudication,
resolution or settlement of any such dispute, including without limitation, the
right to review pleadings, attend hearings and mediation or arbitration sessions
and revview and approve all settlements.
6.9 Management Committee Review
A. After submission of a Feasibility Study by the Manager, the
Management Committee shall have forty-five (45) days from submission to either
accept, amend, or reject as incomplete the Feasibility Study. If the Management
Committee rejects the Feasibility Study as incomplete, the Management Committee
shall request the Operator to perform such additional work with respect to the
study a may be appropriate or necessary to complete the Feasibility Study
consistent with the requirements of the SGC Agreement. If additional work is
requested, the Management Committee shall meet to consider the revised
Feasibility Study as soon as reasonably practicallll, but in no event later than
thirty (30) days after the submission of the revised Feasibility Study to the
Management Committee. A Feasibility Study accepted by the Management Committee
shall include a recommendation concerning Development.
b. Upon acceptance by the Management Committee, the Feasibility Study
shall be delivered to SGC pursuant to the provisions of Section 6.8. The
Management Committee shall not undertake any affirmative action concerning
Development under the Feasibility Study until the end of SGC's 90-day election
period provided in Section 6.8(a).
c. Within three (3) months after the end of SGC's 90-day election
period, and provided that SGC fails to elect to acquire an interest in the
Properties as provided herein, the Management Committee shall vote to either
proceed to Development, defer consideration of the proposal to another date, or
reject the proposal. Upon approval of the proposal for Development, the
Participants shalalelect to participate in Development puruant to Section 6.8
d. Nothing contained in this Agreement shall createe, nor be construed
to creat, any liability on the part of the Manager or the Management Committee
for the preparation of a Feasibility Study in the event a banking or other
financial intitution rejcts the Feasibility Strudy for any reason or refuses to
loan funds based on the Feasibility Study sufficient to allow participation in
Operations pursuant to this Agreement.
<PAGE>
e. Except as otherwise provided in Section 6.8, the Participants shal
elect whether toparticipate in Development by giving notice to the Manaement
Committee within thirty (30) days following the Management Committee's approval
of a proposal toproceed to Development pursuant to Section 6.9(c) in accordance
with a Feasibility Study prepared pursuant to Section 6.7. A Participant's
election not to participate in Development shall constitute a deemed withdrawal
from the Venture and shall result in the automatic conversion fo the
Participant's Interest in the Joint Venture to a five percent (5%) Net Proceeds
Royalty interest as defined in Exhibit D, and that Participant shall promptly
transfer its entire Interest in the Assets of the Venture to the other
Participant. If no such election is made within the thirty (30) day time period,
a Participant shall be deemed to have elected to participate in Development.
f. The Operator shall diligently commence and continue Development
as provided in the Program and Budget approved by the Management Committee.
ARTICLE VII
MANAGEMENT COMMITTEE
7.1 Organization and Composition. The Participants hereby establish a
Management Committee tod etermine overall olicies, objective, procedures,
methods and actions under this Agreement. The Management Committee shall consist
of one member appointed by GBEM and one member appointed by DRI. Each
Participant may appoint one or more alternates to act in the absence of a
regular member. Any alternate so acting shall be deemed a member.
Appointments shall be made or changed by notice to the other Participant.
7.2 Decisions. Each Participant, acting through its appointed member(s)
shall have one vote on the Management Committee. Unless otherewise provided in
this Agreement, the vote of the Participating Interest over 50% shall determine
the decisions of the Management Committee.
7.3 Meetings. The Management Committee shall hold regular meetings at least
annually at agreed times and places. The Manager shall give 30 days notice to
the participants of such regular meeting s. Additionally, either Participant may
call a special meeting upono 30 day's notice to the Manager and the other
Participant. In case of erergency, reasonable notice of a special meeting shall
suffice. There shall be a quorum if a 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 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 Participant, shall be the official record of the decisions made by the
Management Committee and shall be binding on the Manager and the Participants.
If personnel employed in Operations are required to attend a Management
Committee meeting, reasonable costs incurred in connection with such attendance
shall be a Venture cost. All other costs shall be paid by the Participants
individually.
7.4 Action Without Meeting. In lieu of meeting , the Management Committee
may hold telephone conferences, so long as all decisions are immediately
confirmed in writing by the Participants.
7.5 Matters Requirinig Approval. Except as otherwise delegated to the
Manager in Section 8.2, the Management Committee shall have exclusing eauthority
to determine all management matters related to this Agreement.
<PAGE>
ARTICLE VIII
MANAGER
8.1 Appointment. Participants hereby appoint DRI as the Manager with
overall management responsibility for Operations. DRI hereby agrees to serve
until it resignes 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
shall be dischargfed 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 the 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 uch
purchases and acquisitions; and (iii) keep the Asseets free and clear of all
lienss and encumbrances, except for those existing at the time of , or created
concurrent with, the acquisition of such Assets, or mechanic's materialmen's
liens which shall be released dor 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 judgement of the Manager.
(e) 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 tlike charges on Operations and
Assets except taxes determined or measured by a Participantssss's sales revenue
or net income. If authorized by the Management Committee, the Manager shall have
the right to contest in the courts or otherwise, the validity or amount of any
taxes, assessments or charges if the Manager deems them to be unlawful, unjust,
unequal or exessive, or to undertake such other steps or proceedings as the
Manager may deem reasonably necessary to securea 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 th enonpayment of any taxes, assessments or like
chargess; 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 therof; and (iv) prepare and file all report or notices
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.
<PAGE>
(g) The Manager shall prosecute and defend, but shallnot initiate
without consent of the Management Committee, all litigation or administrative
proceeding s arising out of Operations. The non-managing Participant shall have
the right to participate, at its own expense, in such litigation or
administrative proceedings. The non-managing Participant shall approve in
advance any settlement involving payment , committments or obligations in excess
of $5000 in cash value.
(h) The Manager shall provide insurance for the benefit of the
Participants as provided in Exhobit E.
(i) The Manager may dispose of Assets, whether by abandonment,
surrender or Transfer in the ordinary course of business, except tht Properties
may be aabandoned 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 excessof
$5000; (ii) enter into any sales contracts or committments for Product, 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 responsiblilites
hereunder through agents, Affiliates or independent contractors.
(k) The Manager shall perform or cause to be performed during the term
of this Agreement alla ssemssment and other work required by law in order to
maintain the unpatented mining claims included within the Properties. The
Manager shall have ther 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 shll 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 maitaining ownership of the claims,
provided that the work done is in accordance with the adopted Program and
Budget. The Manager shall timely record with the appropriate county and file
with the appropriate United States agency, affidavits in proper form attesting
to the performance of assessment work or notices of intent to hold in proper
form, and allocating therein, to or for the benefit of each claim, at lease the
minimumn 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 millsite or tunnel
sits, (ii) locate any fractions resulting from such amendment or relocation,
(iii) apply for patents of 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 fground thereby, (v) abandon any unpatented mill sites for
the purpose of locating mining claims or otherwise acquiring from the United
States any of the Properties for the purpose of acquiring rights to the ground
covered thereby or other adjacent ground, and (vii) convert any unpatented
claims or mill sites into one or more leases or other forms of mineral tenure
pursuant to any federal law hereafter enacted.
(m) The Manager shall keep and maintain all required accounting and
financial records pursuant to the Accounting Procedure and in accordance with
customary cost accounting practices in the mining industry.
<PAGE>
(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 30 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
anyParticipant, 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 non-managing Participant, at the
latter's sole risk and expense, and subject to reasonable safety regulations, to
inspect the Assets and Operations at all reasonable times, so long as the
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 non-managing 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
applicabel industry standards and practices, and in accordance with the terms
and provisions of leases, licenses, permits, contracts and other agreements
pertainingi to Assets. The Manager shall not be liable to the nonnnmanaging
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. 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 tothe resigning
Participant within 30 days after the notice of resignation. If any of the
following shall occur, the Manager shall be deemed to have offered to resign,
which offer shall be accepted by the other Participant, if at all, withing 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; or
(d) A receiver, liquidator, assignee, custodian, trustee, sequestrator
or similar official for substantial part of the manager's assets is appointed
and such appointment is neither made ineffective nor discharged withing 60 days
after the making thereof, or such appointment is consented to, requested by, or
acquiesced in by the Manager; or
<PAGE>
(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 assetss; or makes a genreal 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
(f) Entry is made against the Manager of a judgement, decree or order
for relief affecting a substantial part of its assts 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 Managere. 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 arms-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 sahll
continue Operations at levels comparable with theh last adopted Program and
Budget. For purposes ofdetermining the required contributions of the
Participants and their respective Participating Interests, the last adopted
Program and Budget shall be deemed extended.
ARTICLE IX
PROGRAMS AND BUDGETS
9.1 Initial Program and Budget. The initial Program and budget, which has
been adopted by the Participants, is attached as Exhibit F.
9.2 Operations Pursuant to Programs and Budgets. Except as otherwise
provided in Section 9.8 and Article XIII, Operations shall be condduted,
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 Budget, regardless of length, shall be reviewed at
least once a yer at the annula 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 degree of detil substntially similar
to Exhibit F.
<PAGE>
9.4 Review and Approval of Proposed Programs and Budgets. Within 30 days
after submision 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 tiemn, 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 Managememt Committee shall seek to develop a Program and Budget acceptable
to the Participants.
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 cases its
Participating Interest shall be recalculated as provided in Article VI. If a
Participant fails to so notify the Management Committee, the Participant shall
be deemed to have elected 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.
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 8.7 and 12.2 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 thatn 10%, then the
excess over 10%, unless directly caused by an emergency or unexpected
expenditure made pursuant to Section 9.8 or unless other wise 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 Interest.
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 that 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 exenditures for unexpected events which are
beyond its reaonable control and which do not result from a breach by it of its
standard of care. The Manger shall promptly notify the Participants of the
emergency or unexpected expenditure, and the Manager shall be reimbursed for all
resulting cost by the Participants in proportion to their respective
Participating Interests at the time the emergency or unexpected expenditures are
incurred.
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.
<PAGE>
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 30 days. All funds in
excess of immediate cash requirements shall be invested in interest-bearing
accounts with an agreed to bank, 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 10.2 shall be in deffaullt,
and the amounts of the defaulted cash call shall bear interest from the date due
at an annual rate equal to 2 percentage points over the Prime Rate, but in no
event shall said rate of interest exceed the maximum permitted by law. The
non-defauling Participant shall have those rights, remedies and elections
specified in Seciotn 6.4.
10.4 Audits. Upon request made by anyParticipant within 24 months follwong
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 descrepancies disclosed by
such audit shall be made not more than 3 months after receipt of the audit
report. Failure to make any such exception or claim within the 3 month period
shall mean the audit is correct and binding upon the Participants. The audits
shall be conducted by a firm of certified public accountants selected by the
Manager, unless otherwie agreed by the Management Committee.
ARTICLE XI
DISPOSITION OF PRODUCTION
11.1 Taking in Kind. Each Participant shall takee in kind or separately
dispose of its share of all Products in accordance with its Participating
Interest. 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 procesing of Products of any parties other
than the Participant pursuant to this Agreement. The Manager shall give the
Participants notice at least 10 days in advance of the delivery date upon which
their respective shares of Products will be available.
11.2 Failure of Participant to Take in Kind. If a Participant fails to take
in kind, the Manager shall ahve 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 Partcipant's share for its own account or to sell such
share as agent for the Participant at not les 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 rasonable expenses incurred
in such a sale.
<PAGE>
ARTICLE XII
WITHDRAWAL AND TERMINATION
12.1 Termination by Expiration or Agreement. This Agreement shall terminate
as expressly provided in this Agreement, unless earlier terminated by written
Agreement.
12.2 Termination by Deadlock. If the Management Committee fails to adopt a
Program and Budget for 3 months after the expiration of the latest adopted
Program and Budget, either Participant may elect to terminate this Agreement by
giving notice of termination to the other Participant.
12.3 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 royalties, liens or other encumbrances arising by, through
or under such withdrawing Participant, except those exceptions to title
described in Part 1 of Exhibit A and those to which both Participants have given
their written consent after the date of this Agreement, all of its Participating
Interest in their Assets and in this Assignment. Upon a withdrawal by GBEM, GBEM
shall implement this Sections by assigning the Properties ti DRI subject to the
Campbell Lease and the participation rights of SGC under the SGC Agreement. Any
withdrawal under this Section 12.3 shall not relieve the withdrawing Participant
or this share of liabilities to third persons (whether such accrues before or
after such withdrawal) arising out of Operations conducted prior to such
withdrawal. For purposes of this Section 12.3, the withdrawing Participants's
share of such liabilities shall be equal to its Participating Interest at the
time such liability was incurred.
12.4 Continuing Operations. On termination of this Agreement under Section
12.1 or 12.2, 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.
12.5 Disposition of Assets on Termination. Promptly after termination under
Section 12,1 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.
In accordance with Exhibit C, any Participant that has a negative capital
Account balance when the Venture is terminated for any reason shall contribute
to the Assets of the Venture an amount sufficient to raise such balance to zero.
The Assets shall first be paid, applied, or distributed in satisfaction of all
liabilities of the Venture to third parties and then to satisfy any debts,
obligations, or liabilities owed to the Participants. Before distributing any
funds or Assets to Participants, the Manager shall have the right to segregate
amounts which, in the Manager's reasonable judgement, are necessary to discharge
continuing obligations or to purchase for the account of Participants, bonds or
other securities for the performance of such obligations. The foregoing shall
not be construed to include the repayment of any Participant's capital
contributions or Capital Account balance. Thereafter, any remaining cash and all
other Assets shall be distributed (in undivided interests unless otherwise
agreed) to the Participants, first in the ratio and to the extent of their
respective Capital Accounts and then in proportion to their respective
Participating Interests, subject OT any dilution, reduction, or termination of
such Participating Interests as may have occurred pursuant to the terms of this
Agreement. No Participant shall receive a distribution of any interest in
Products or proceeds from the sale thereof if such Participant's Participating
Interest therein has been terminated pursuant to this Agreement.
<PAGE>
12.6 Non-Compete Covenants. A Participant that withdraws pursuant to
Section 12.3, or is deemed to have withdrawn pursuant to Section 5.2 or 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 12.6, such Participant or Affiliate shall be obligated to offer to
convey to the non-withdrawing Participant, without cost, any such property or
interest so acquired. Such offer shall be made in writing and can be accepted by
the non-withdrawing Participant at any time within 45 days after it is received
by such non-withdrawing Participant.
12.7 Right to Data After Termination. After termination of this Agreement
pursuant to Section 12.1 or 12.2, 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 e entitled to any such copies after any other termination or any
withdrawal.
12.8 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 12.3,
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 (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 30 days after the
acquisition of any interest or the right to acquire any interest in real
property wholly or partially within the Area on 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.
<PAGE>
13.3 Option Exercised. If, within 30 days after receiving the acquiring
Participant's notice, the other Participant notified 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 proportionate interest therein. Such other
Participant shall promptly pay to the acquiring Participant its proportionate
share of the latter's actual out-o-pocket acquisition costs.
13.4 Option Not Exercised. If the other Participant does not give such
notice within the 30 day period set fourth 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 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 area 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 two years 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 Participant's
respective Participating Interests.
ARTICLE XV
TRANSFER OF INTEREST
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 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;
<PAGE>
(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 interests of
the other Participant hereunder. Upon any foreclosure or other enforcement of
rights in the security interest the acquiring third party shall be deemed to
have assumed the position of the encumbering Participant with respect to this
Agreement and the other Participant, and it shall comply with and be bound by
the terms and conditions of this Agreement;
(h) If a sale or other commitment or disposition of Products r
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 condition 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, expenses 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.
<PAGE>
(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,
and shall be accompanies by a copy of the offer or contract fro sale. The other
Participant shall have 30 days from the date such notice is delivered to notify
the transferring Participant whether it elects to acquire the offered interest
at the same price and on the same terms and conditions as set forth in the
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 30 days
following the expiration of such period to consummate the Transfer to a third
party at a price and on terms no less favourable 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 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 right 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 encumbrances; 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.
ARTICLE XVI
DISPUTES
16.1 Arbitration of Disputes. All disputes between the Participants, their
successors and assigns, arising under this Agreement, which the parties are
unable to resolve within 20 days, may at any time thereafter be submitted to
arbitration by written demand of any party. 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 20
days of the receipt of the notice, the responding party shall answer the demand
in writing, specifying the issues that party disputes. Each participant shall
select one qualified arbitrator within 10 days of responding party's answer.
Each of the arbitrators shall be a disinterested person qualified by experience
to hear and determine the issues to be arbitrated. The arbitrators so chosen
shall select a neutral arbitrator within 10 days of their selection. If the
named arbitrators cannot agree on a neutral arbitrator, the arbitrators shall
<PAGE>
make application to any court of competent jurisdiction in the State of Nevada,
with a copy to both Participants, requesting that court to select and appoint
the third arbitrator. The court's selection shall be final and binding on the
Participants. If either Participant does not name an arbitrator, the arbitrator
named by either party shall serve as sole arbitrator. Immediately upon
appointment of the third arbitrator, each participant shall present in writing
to the panel of three arbitrators (with a copy to the other Participant) their
statement of the issues in dispute. Any questions of whether a dispute should be
arbitrated under this Section shall be decided by the arbitrators. The
arbitrators, as soon as possible, but not more than 30 days after their
appointment, shall meet in Reno, Nevada, at a time an place reasonably
convenient for the Participants, after giving each Participant at least 10 days'
notice. The arbitration hearing shall be conducted in accordance with the
commercial arbitration rules of the American Arbitration Association as amended.
In the event of conflict between the provisions of this Agreement and the
provisions of the commercial arbitration rules of the America Arbitration
Association, the provisions of this Agreement shall prevail. The failure of a
Participant to appear at the hearing shall not operate as a default. The
attendance of all arbitrators shall not be required at all hearings. Actions of
the arbitrators shall e by majority vote. After hearing the Participants in
regard to the matter in dispute, taking such evidence and making such other
investigation as justice requires and as the arbitrators deem necessary, they
shall decide the issues submitted to them within 10 days thereafter and serve a
written and signed copy of the award upon each Participant. Such award shall be
final and binding on the Participants, and confirmation thereon may be applied
for in any court of competent jurisdiction by any Participant. If the
Participants settle the dispute in the course of the arbitration, such
settlement shall be approved by the arbitrators on request of either Participant
and become the award. Fee and expenses of the arbitration shall be shared by the
Participants in proportion to their Participating Interests. Each participant
shall bear its own attorneys' fees.
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 interests 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;
<PAGE>
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
writing to protect the confidential information from further disclosure to the
same extent as the Participant 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 XVII
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:
GBEM: Great Basin Exploration and Mining Co., Inc.
3400 Kauai Court, Suite 208
Reno, Nevada 89509
Attention: Anthony P. Taylor
Tele: (702) 689-7450
Fax: (702) 689-7489
DRI: Digger Resources Inc.
4605, 400 - 3rd Ave SW,
Calgary, Alberta T2P 4H2
Attention: Norman B. Yeo
Tele: (403) 290-1913
FAX: (403) 261-7015
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
the Agreement or limit the Participant's right thereafter to enforce any
provision or exercise any right.
18.3 Modification. No modification of this Agreement shall be valid unless
made in writing and duly executed by the Participants.
<PAGE>
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,
labour 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; judgements or orders of any court; inability to obtain
on reasonably acceptable terms any public or private license, permit or other
authorizations; 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, 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 therfor, 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 Participant to advance funds
pursuant to Section 10.2 shall be reduced to levels consistent with Operations.
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 law.
18.6 Rules 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 favour they run:
Sections 2.2, 4..5, 6.4, 6.6, 10.3, 12.3, 12.4 12.5, 12.6, 12.7, and 12.8.
18.9 Entire Agreement; Successors and Assigns. This Agreement contain the
entire understanding of the Participants and supersedes all prior Agreements and
understanding between the Participants and 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 or
short form of this Agreement, as appropriate, which shall not disclose financial
information contained herein, shall be prepared and recorded by Manager. This
Agreement shall not be recorded.
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of
the date first above written.
ATTEST: GBEM
By---------------------------- By---------------------------
Secretary President
ATTEST: DRI
Norman B. Yeo William Scott
By--------------------------- By---------------------------
Secretary President
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of
the date first above written.
ATTEST: GBEM
George Beattie
By---------------------------- By---------------------------
Secretary President
ATTEST: DRI
By---------------------------- By----------------------------
Secretary President
<PAGE>
EXHIBIT A
PART 1. PROPERTIES AND TITLE EXCEPTIONS
Unpatented mining claims located in T20N, R42E, and T21N, R42E, M.D.B. & M.,
Lander County, Nevada, all of which are subject to the terms and conditions of
that certain Tempo Mineral Lease dated October 14, 1994 between Lyle F.
Campbell, Trustee, and Great Basin Exploration & Mining Co., Inc., and all of
which are subject to the terms and conditions of that certain Participation
Agreement dated as of May 31, 1995 among Serem Gatro Canada Inc., Great Basin
Exploration & Mining Co., Inc. and Great Basin Management Co., Inc., which
claims are hereafter to referred to as the "Campbell Lease Claims" and are more
particularly described as follows:
Claim Location County BLM
Name/No Date Book/Page Serial Nos.
Tempo 38 (R) 11/1/84 248 392 330317
Tempo 39 (R) 11/1/84 248 393 330318
Tempo 40 (R) 10/31/84 248 394 330319
Tempo 41 (R) 10/31/84 248 395 330320
Tempo 42 (R) 11/3/84 248 396 330321
Tempo 43 (R) 11/3/84 248 397 330322
Tempo 78 (R) 11/1/84 248 412 330337
Tempo 80 (R) 11/1/84 248 414 330339
Tempo 82 (R) 11/1/84 248 416 330341
BAH 128 12/12/84 250 569 334577
BAH 130 12/12/84 250 571 334579
BAH 132 12/14/84 250 573 334581
BAH 134 12/14/84 250 575 334583
BAH 136 12/14/84 250 577 334585
BAH 138 12/14/84 250 579 334587
BAH 140 12/14/84 250 581 334589
BAH 142 12/14/84 250 583 334591
Great Western 1/26/94 405 368 694230
Great Western 2 1/26/94 405 369 694231
Great Western 3 1/26/94 405 370 694232
Great Western 4 1/26/96 405 371 694233
Great Western 5 1/26/94 405 372 694234
Great Western 6 1/26/94 405 373 694235
<PAGE>
Claim Location County BLM
Name/No Date Book/Page Serial Nos.
T 2 3/19/96 428 776 739026
T 3 3/19/96 428 777 739209
T 4 3/19/96 428 778 739210
T 5 3/19/96 428 779 739211
T 6 3/19/96 428 780 739025
T 89 3/18/96 428 781 739095
T 90 3/18/96 428 782 739043
T 91 3/18/96 428 783 739044
T 92 3/22/96 428 784 739200
T 93 3/22/96 428 785 739201
T 94 3/22/96 428 786 739202
T 95 3/22/96 428 787 739203
T 96 2/22/96 428 788 739204
T 97 3/22/96 428 789 739205
T 98 3/22/96 428 790 739206
T 99 3/22/96 428 791 739207
T 100 3/22/96 428 792 739208
T 105 (R) 11/3/84 248 492 330417
T 106 (R) 11/4/84 248 493 330418
T 107 (R) 11/4/84 248 494 330419
T 108 (R) 11/4/84 248 495 330420
T 109 (R) 11/4/84 248 496 330421
TA 3 (R) 11/1/84 248 481 330406
TA 4 (R) 11/1/84 248 482 330407
TA 5 (R) 11/1/84 248 483 330408
TA 6 3/20/96 428 793 739197
TA 7 3/20/96 428 794 739198
TA 8 3/20/96 428 795 739199
TA 9 3/19/96 428 796 739027
TA 89 3/18/96 428 797 739092
TA 90 3/18/96 428 798 739093
TA 91 3/18/96 428 799 739094
TA 92 3/22/96 428 800 739227
TA 93 3/22/96 428 801 739228
TA 94 3/22/96 428 802 739229
TA 95 3/22/96 428 803 739230
TA 96 3/22/96 428 804 739231
TA 97 3/22/96 428 805 739194
TA 98 3/22/96 428 806 739195
TA 99 3/22/96 428 807 739196
<PAGE>
Claim Location County BLM
Name/No Date Book/Page Serial Nos.
TB 1 (R) 11/2/84 248 467 330392
TB 2 (R) 11/2/84 248 468 330393
TB 3 (R) 11/2/84 248 469 330394
TB 4 (R) 11/1/84 248 470 330395
TB 5 (R) 11/1/84 248 471 330396
TB 6 (R) 11/1/84 248 472 330397
TB 7 (R) 11/1/84 248 473 330398
TB 8 3/20/96 428 808 739224
TB 9 3/20/96 428 809 739225
TB 10 3/20/96 428 810 739226
TB 11 3/19/96 428 811 739011
TB 11 (R) 11/2/84 248 477 330402
TB 12 (R) 11/2/84 248 478 330403
TB 89 3/17/96 428 812 739086
TB 90 3/17/96 428 813 739087
TB 91 3/17/96 428 814 739088
TB 92 3/17/96 428 815 739089
TB 93 3/17/96 428 816 739090
TB 94 3/17/96 428 817 739091
TB 95 3/22/96 428 818 739221
TB 96 3/22/96 428 819 739222
TB 97 3/22/96 428 820 739223
TC 1 (R) 11/2/84 248 453 330378
TC 2 (R) 11/2/84 248 454 330379
TC 3 (R) 11/2/84 248 455 330380
TC 4 3/19/96 428 821 739253
TC 5 3/19/96 428 822 739214
TC 6 3/19/96 428 823 739215
TC 7 3/19/96 428 824 739216
TC 8 3/19/96 428 825 739217
TC 9 3/19/96 428 826 739218
TC 10 3/19/96 428 827 739219
TC 11 3/19/96 428 828 739220
TC 89 3/17/96 428 829 739080
TC 90 3/17/96 428 830 739081
TC 91 3/17/96 428 831 739082
TC 92 3/17/96 428 832 739083
TC 93 3/17/96 428 833 739084
TC 94 3/17/96 428 834 739085
TC 95 3/22/96 428 835 739248
<PAGE>
Claim Location County BLM
Name/No Date Book/Page Serial Nos.
TC 96 3/22/96 428 836 739249
TC 97 3/22/96 428 837 739250
TC 98 3/22/96 428 838 739251
TC 99 3/22/96 428 839 739252
TD 1 (R) 11/3/84 248 442 330367
TD 2 (R) 11/2/84 248 443 330368
TD 3 (R) 11/2/84 248 444 330369
TD 4 (R) 11/2/84 248 445 330370
TD 5 3/19/96 428 840 739242
TD 6 3/19/96 428 841 739243
TD 7 3/19/96 428 842 739244
TD 8 3/19/96 428 843 739245
TD 9 3/19/96 428 844 739246
TD 10 3/19/96 428 845 739247
TD 12 (R) 11/3/84 248 452 330377
TD 89 3/17/96 428 846 739074
TD 90 3/17/96 428 847 739075
TD 91 3/17/96 428 848 739076
TD 92 3/17/96 428 849 739077
TD 93 3/17/96 428 850 739078
TD 94 3/17/96 428 851 739079
TD 95 3/21/96 428 852 739237
TD 96 3/21/96 428 853 739238
TD 97 3/21/96 428 854 739239
TD 98 3/21/96 428 855 739240
TD 99 3/21/96 428 856 739241
TE 1 3/28/91 359 291 626379
TE 2 3/28/91 359 292 626380
TE 3 3/28/91 359 293 626381
TE 4 3/28/91 359 294 626382
TE 5 5/4/91 359 295 626383
TE 6 5/4/91 359 296 626384
TE 7 5/5/91 359 297 626385
TE 8 5/5/91 359 298 626386
TE 9 5/5/91 359 299 626387
TE 10 5/5/91 359 300 626388
TE 11 5/5/91 359 301 626389
TE 11A 5/4/91 359 302 626390
<PAGE>
Claim Location County BLM
Name/No Date Book/Page Serial Nos.
TE 89 3/17/96 428 857 739117
TE 90 3/17/96 428 858 739118
TE 91 3/17/96 428 859 739070
TE 92 3/17/96 428 860 739071
TE 93 3/17/96 428 861 739072
TE 94 3/17/96 428 862 739073
TE 95 3/21/96 428 863 739232
TE 96 3/21/96 428 864 739233
TE 97 3/21/96 428 865 739234
TE 98 3/21/96 428 866 739235
TE 99 3/21/96 428 867 739236
TF 1 3/28/91 359 303 626391
TF 2 3/28/91 359 304 626392
TF 3 3/29/91 359 305 626393
TF 4 3/29/91 359 306 626394
TF 5 5/4/91 359 307 626395
TF 6 3/20/96 428 868 739272
TF 7 3/20/96 428 869 739273
TF 8 3/20/96 428 870 739274
TF 9 3/20/96 428 871 739275
TF 10 3/20/96 428 872 739276
TF 11 5/4/91 359 308 626396
TF 11A 3/20/96 428 884 739277
TF 89 3/17/96 428 873 739111
TF 90 3/17/96 428 874 739112
TF 91 3/17/96 428 875 739113
TF 92 3/17/96 428 876 739114
TF 93 3/17/96 428 877 739115
TF 94 3/17/96 428 878 739116
TF 95 3/21/96 428 879 739267
TF 96 3/21/96 428 880 739268
TF 97 3/21/96 428 881 739269
TF 98 3/21/96 428 882 739270
TF 99 3/21/96 428 883 739271
TG 1 3/28/91 359 309 626397
TG 2 3/28/91 359 310 626398
TG 3 3/29/91 359 311 626399
TG 4 3/29/91 359 312 626400
TG 5 5/4/91 359 313 626401
TG 6 3/20/96 428 885 739283
<PAGE>
Claim Location County BLM
Name/No Date Book/Page Serial Nos.
TG 7 3/20/96 428 886 739284
TG 8 3/20/96 428 887 739285
TG 9 3/20/96 428 888 739286
TG 10 3/20/96 428 889 739287
TG 11 3/20/96 428 890 739288
TG 89 3/17/96 428 891 739105
TG 90 3/17/96 428 892 739106
TG 91 3/17/96 428 893 739107
TG 92 3/17/96 428 894 739108
TG 93 3/17/96 428 895 739109
TG 94 3/17/96 428 896 739110
TG 95 3/21/96 428 897 739278
TG 96 3/21/96 428 898 739279
TG 97 3/21/96 428 899 739280
TG 98 3/21/96 428 900 739281
TG 99 3/21/96 428 901 739282
TH 1 3/21/96 428 902 739260
TH 2 3/21/96 428 903 739261
TH 3 6/2/91 361 222 629257
TH 4 6/2/91 361 223 629258
TH 5 6/2/91 361 224 629259
TH 6 3/21/96 428 904 739262
TH 7 3/21/96 428 905 739263
TH 8 3/21/96 428 906 739264
TH 9 3/21/96 428 907 739265
TH 10 3/21/96 428 908 739266
TH 89 3/16/96 428 909 739096
TH 90 3/16/96 428 910 739097
TH 91 3/16/96 428 911 739098
TH 92 3/16/96 428 912 739099
TH 93 3/16/96 428 913 739100
TH 94 3/16/96 428 914 739101
TH 95 3/16/96 428 915 739102
TH 96 3/16/96 428 916 739103
TH 97 3/16/96 428 917 739104
TH 98 3/21/96 428 918 739258
TH 99 3/21/96 428 919 739259
TI 1 3/21/96 428 920 739291
TI 2 3/21/96 428 921 739292
TI 3 3/21/96 428 922 739293
<PAGE>
Claim Location County BLM
Name/No Date Book/Page Serial Nos.
TI 4 3/21/96 428 923 739294
TI 5 3/21/96 428 924 739295
TI 6 3/21/96 428 925 739296
TI 7 3/21/96 428 926 739254
TI 8 3/21/96 428 927 739255
TI 9 3/21/96 428 928 739256
TI 10 3/21/96 428 929 739257
TI 89 3/16/96 428 930 739128
TI 90 3/16/96 428 931 739129
TI 91 3/16/96 428 932 739130
TI 92 3/16/96 428 933 739131
TI 93 3/16/96 428 934 739132
TI 94 3/16/96 428 935 739133
TI 95 3/16/96 428 936 739134
TI 96 3/16/96 428 937 739135
TI 97 3/16/96 428 938 739136
TI 98 3/21/96 428 939 739289
TI 99 3/21/96 428 940 739290
TQ 1 3/10/94 408 57 699493
TQ 2 3/10/94 408 58 699494
TQ 3 3/10/94 408 59 699495
TQ 4 3/22/96 428 944 739181
TQ Fraction 3/10/94 408 60 699496
TQ 6 3/19/96 428 945 739024
TQ 7 3/19/96 428 946 739212
TQ 8 3/19/96 428 947 739213
TQ 9 3/19/96 428 948 739177
TQ 10 3/19/96 428 949 739023
TQ 11 (A) 3/22/96 428 941 739178
TQ 12 (A) 3/22/96 428 942 739179
TQ 13 (A) 3/22/96 428 943 739180
TQ 100 3/18/96 428 950 739045
Nova 40 11/16/95 425 221 732973
Nova 41 9/1/94 412 540 708267
Nova 42 9/1/94 412 541 708268
Nova 43 9/1/94 412 542 708269
Nova 44 9/1/94 412 543 708270
Nova 45 9/1/94 412 544 708271
Nova 46 9/1/94 412 545 708272
<PAGE>
Claim Location County BLM
Name/No Date Book/Page Serial Nos.
Nova 47 9/1/94 412 545 708273
Nova 48 9/1/94 412 547 708274
Nova 49 9/1/94 412 548 708275
Nova 50 9/1/94 412 549 708276
Nova 51 9/1/94 412 550 708277
Nova 52 9/1/94 412 551 708278
Nova 53 9/1/94 412 552 708279
Nova 54 9/1/94 412 553 708280
Nova 55 9/1/94 412 554 708281
Nova 56 9/1/94 412 555 708282
Nova 57 9/1/94 412 556 708283
Nova 58 9/1/94 412 557 708284
Nova 59 9/1/94 412 558 708285
Nova 60 9/1/94 412 559 708286
Nova 61 9/1/94 412 560 708287
Nova 62 9/1/94 412 561 708288
Nova 63 9/1/94 412 562 708289
Nova 64 9/1/94 412 563 708290
Nova 65 9/1/94 412 564 708291
Nova 66 9/1/94 412 565 708292
Nova 67 9/1/94 412 566 708293
Nova 68 9/1/94 412 567 708294
Nova 69 9/1/94 412 568 708295
Nova 70 9/1/94 412 569 708296
Nova 71 9/1/94 412 570 708297
Nova 72 9/1/94 412 571 708298
Nova 73 11/16/95 425 222 732974
Nova 74 11/16/95 425 223 732975
Nova 75 11/16/95 425 224 732976
Nova 76 11/16/95 425 225 732977
Nova 77 11/16/95 425 226 732978
Nova 78 11/16/95 425 227 732979
Nova 79 12/20/95 425 228 732980
Nova 80 12/20/95 425 229 732981
Nova 81 12/20/95 425 230 732982
Nova 82 12/20/95 425 231 732983
Nova 83 3/19/96 428 665 739127
Nova 84 3/19/96 428 666 739126
Nova 85 3/19/96 428 667 739125
Nova 86 3/19/96 428 668 739124
Nova 86A 3/19/96 428 775 739123
Nova 87 3/19/96 428 669 739122
Nova 88 3/19/96 428 670 739121
<PAGE>
Claim Location County BLM
Name/No Date Book/Page Serial Nos.
Nova 89 3/19/96 428 671 739120
Nova 90 3/18/96 428 672 739119
Nova 91 3/18/96 428 673 739151
Nova 92 3/18/96 428 674 739150
Nova 93 3/18/96 428 675 739149
Nova 94 3/18/96 428 676 739148
Nova 95 3/18/96 428 677 739147
Nova 96 3/18/96 428 678 739146
Nova 97 3/18/96 428 679 739145
Nova 98 3/18/96 428 680 739144
Nova 100 11/16/95 425 232 732984
Nova 101 11/16/95 425 233 732985
Nova 102 11/16/95 425 234 732986
Nova 103 11/16/95 425 235 732987
Nova 104 11/16/95 425 236 732988
Nova 105 11/16/95 425 237 732989
Nova 106 11/16/95 425 238 732990
Nova 107 11/16/95 425 239 732991
Nova 108 11/16/95 425 232 732992
Nova 109 11/16/95 425 233 732993
Nova 110 11/16/95 425 234 732994
Nova 111 11/16/95 425 235 732995
Nova 112 11/16/95 425 236 732996
Nova 113 12/28/95 425 237 732997
Nova 114 12/28/95 425 238 732998
Nova 115 12/28/95 425 239 732999
Nova 116 12-28-95 425 240 733000
Nova 117 12/28/95 425 241 733001
Nova 118 12/28/95 425 242 733002
Nova 119 12/28/95 425 243 733003
Nova 120 12/28/95 425 244 733004
Nova 121 12/28/95 425 245 733005
Nova 122 12/28/95 425 246 733006
Nova 123 12/28/95 425 247 733007
Nova 124 12/28/95 425 248 733008
Nova 125 12/28/95 425 249 733009
Nova 126 12/28/95 425 250 733010
Nova 127 12/28/95 425 251 733011
Nova 128 12/28/95 425 252 733012
Nova 129 12/28/95 425 253 733013
Nova 130 12/28/95 425 254 733014
Nova 131 3/18/96 428 681 739143
Nova 132 3/18/96 428 682 739142
<PAGE>
Claim Location County BLM
Name/No Date Book/Page Serial Nos.
Nova 133 3/18/96 428 683 739141
Nova 134 3/18/96 428 684 739140
Nova 135 3/18/96 428 685 739139
Nova 136 3/18/96 428 686 739136
Nova 137 3/18/96 428 687 739137
Nova 138 3/18/96 428 688 739176
Nova 139 3/18/96 428 689 739175
Nova 140 3/18/96 428 690 739174
Nova 141 3/18/96 428 691 739173
Nova 142 3/18/96 428 692 739172
Nova 143 3/18/96 428 693 739171
Nova 144 3/18/96 428 694 739170
Nova 145 3/18/96 428 695 739169
Nova 146 3/18/96 428 696 739168
Nova 147 3/18/96 428 697 739167
Nova 148 3/18/96 428 698 739166
Nova 149 3/18/96 428 699 739165
Nova 150 3/18/96 428 700 739164
Nova 151 3/18/96 428 701 739163
Nova 152 3/18/96 428 702 739162
Nova 153 3/18/96 428 703 739161
Nova 154 3/18/96 428 704 739160
Nova 155 3/18/96 428 705 739159
Nova 156 3/18/96 428 706 739158
Nova 198 3/19/96 428 707 739157
Nova 199 3/19/96 428 708 739156
Nova 200 3/17/96 428 709 739155
Nova 201 3/17/96 428 710 739154
Nova 202 3/17/96 428 711 739153
Nova 203 3/17/96 428 712 739152
Nova 204 3/17/96 428 713 739193
Nova 205 3/17/96 428 714 739192
Nova 206 3/17/96 428 715 739191
Nova 207 3/17/96 428 716 739190
Nova 208 3/17/96 428 717 739189
Nova 209 3/17/96 428 718 739188
Nova 210 3/17/96 428 719 739187
Nova 211 3/17/96 428 720 739186
Nova 212 3/17/96 428 721 739185
Nova 213 3/17/96 428 722 739184
Nova 214 3/17/96 428 723 739183
Nova 215 3/17/96 428 724 739182
<PAGE>
Claim Location County BLM
Name/No Date Book/Page Serial Nos.
Nova 216 3/18/96 428 725 739046
Nova 217 3/18/96 428 726 739047
Nova 218 3/18/96 428 727 739048
Nova 219 3/18/96 428 728 739049
Nova 220 3/18/96 428 729 739050
Nova 221 3/18/96 428 730 739051
Nova 222 3/18/96 428 731 739052
Nova 223 3/18/96 428 732 739053
Nova 224 3/18/96 428 733 739054
Nova 225 3/18/96 428 734 739055
Nova 226 3/18/96 428 735 739056
Nova 227 3/18/96 428 736 739057
Nova 228 3/18/96 428 737 739058
Nova 229 3/18/96 428 738 739059
Nova 230 3/18/96 428 739 739060
Nova 231 3/18/96 428 740 739061
Nova 232 3/18/96 428 741 739062
Nova 233 3/18/96 428 742 739063
Nova 234 3/18/96 428 743 739064
Nova 235 3/18/96 428 744 739065
Nova 236 3/18/96 428 745 739066
Nova 237 3/18/96 428 746 739067
Nova 238 3/18/96 428 747 739068
Nova 239 3/18/96 428 748 739069
Nova 240 3/19/96 428 749 739028
Nova 241 3/19/96 428 750 739029
Nova 242 3/19/96 428 751 739030
Nova 243 3/19/96 428 752 739031
Nova 244 3/19/96 428 753 739032
Nova 245 3/19/96 428 754 739033
Nova 246 3/19/96 428 755 739034
Nova 247 3/19/96 428 756 739035
Nova 248 3/19/96 428 757 739036
Nova 249 3/19/96 428 758 739037
Nova 250 3/19/96 428 759 739038
Nova 251 3/19/96 428 760 739039
Nova 252 3/19/96 428 761 739040
Nova 253 3/19/96 428 762 739041
Nova 254 3/19/96 428 763 739042
Nova 255 3/19/96 428 764 739012
Nova 256 3/19/96 428 765 739013
Nova 257 3/19/96 428 766 739014
Nova 258 3/19/96 428 767 739015
<PAGE>
Claim Location County BLM
Name/No Date Book/Page Serial Nos.
Nova 259 3/19/96 428 768 739016
Nova 260 3/19/96 428 769 739017
Nova 261 3/19/96 428 770 739018
Nova 262 3/19/96 428 771 739019
Nova 263 3/19/96 428 772 739020
Nova 264 3/19/96 428 773 739021
Nova 265 3/19/96 428 774 739022
(R) denotes Relocation
(A) denotes Amended
MINING VENTURE AGREEMENT
THIS AGREEMENT made as of November 30, 1995 (the "Effective Date") between
GREAT BASIN EXPLORATION & MINING CO., INC., a Nevada corporation ("Great
Basin"), and HEMLO GOLD MINES (U.S.A.) INC., a Delaware corporation ("Hemlo
Gold").
RECITALS
A. Great Basin owns certain Properties in Eureka County, State of Nevada,
which Properties are described in Exhibit A and defined in Section 1.28.
B. Hemlo Gold wishes to participate with Great Basin in the Exploration
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 Great Basin is willing to grant such right to Hemlo Gold.
NOW, THEREFORE, in consideration of the covenants and agreements contained
herein, Great Basin and Hemlo Gold agree as follows:
ARTICLE I
DEFINITIONS
1.1 "Accounting Procedure" means the procedures set forth in Exhibit B.
1.2 "Affiliate" means any person, partnership, joint venture, corporation
or other form of enterprise which directly or indirectly controls, in 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.
1.3 "Agreement means this Venture Agreement, including all amendments and
modifications thereof, and all schedules and exhibits, which are incorporated
herein by this reference.
1.4 "Applicable Laws" means all applicable governmental or judicial laws,
statutes, regulations, rules, orders or decrees.
1.5 "Area of Interest" means the area described in Part 2 of 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 "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.
1.8 "Development" means all preparation for the removal and recovery of
Products, including the construction or installation of a mill or any other
improvements to be used for the mining, handling, milling, processing or other
benefication of Products.
1.9 "Effective Date" means the effective date of this Agreement as first
set forth above.
<PAGE>
1.10 "Encumbrance" or "Encumbrances" means mortgages, deed of trust,
security interests, pledges, liens, royalties, overriding royalty interests,
liens, claims, demands and other encumbrances, of all types and descriptions
whatsoever.
1.11 "Exploration" means all activities directed toward ascertaining the
existence, location, quantity, quality or commercial value of deposits of
Products.
1.12 "Great Basin Management" means Great Basin Management Co., Inc., a
Nevada corporation.
1.13 "Initial Contribution" means that contribution each Participant has
made or agrees to made pursuant to Section 5.1.
1.14 "Joint Account" means the account maintained in accordance with the
Accounting Procedure showing the charges and credits accruing to the
Participants.
1.15 "Management Committee" means the committee established under Article
VII.
1.16 "Manager" means the person or entity appointed under Article VIII to
manage Operations, or any successor Manager.
1.17 "Mining" means the mining, extracting, producing, handling, milling or
other processing of Products.
1.18 "Net Proceeds" 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.
1.19 "Operating Costs" means any and all costs, expenses and liabilities,
calculated in accordance with the Accounting Procedure and subject to the
administrative charge set forth therein, incurred or undertaken in connection
with Operations or in conducting the business of the Venture generally,
including without limitation all costs and expenses associated with Exploration
Development, Mining environmental investigation and compliance, land holding and
maintenance costs, permitting, geologic, geophysical and geochemical surveys,
drilling, road and drillsite preparation, travel expenses, reclamation,
discharge or performance of the Manager's obligations and duties set forth in
Section 8.2, and all other activities or expenditures authorized or contemplated
pursuant to this Agreement.
1.20 "Operations" means the activities carried out under this Agreement.
1.21 "Participant" and "Participants" mean the persons or entities that
from time to time have Participating Interests.
1.22 "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.
<PAGE>
1.23 "Participation Agreement" means that certain Participation Agreement
dated as of May 31, 1995 by and between Great Basin, Great Basin Management and
Serem Gatro.
1.24 "Prime Rate" means the interest rate quoted as "Prime" by Citibank,
N.A., at its head office in New York, New York, as said rate may change from day
to day (which quoted rated may not be the lowest rate at which the Bank loans
funds).
1.25 "Prior Agreements" means the Participation Agreement and the Share
Purchase Agreement, collectively.
1.26 "Products" means all ores, minerals and mineral resources produced
from the Properties under this Agreement.
1.27 "Program" means a description in reasonable detail of Operations to be
conducted and objectives to be accomplished by the Manager during a specified
period of time.
1.28 "Properties" means those interests in real property described in Part
1 of Exhibit A and all other interests in real property within the Area of
Interest which are acquired and held subject to this Agreement.
1.29 "Serem Gatro" means Serem Gatro Canada Inc., a corporation
incorporated under the laws of the Province of Quebec.
1.30 "Share Purchase Agreement" means that certain Share Purchase Agreement
dated as of May 31, 1995 by and between Serem Gatro, Great Basin and Great Basin
Management.
1.31 "Subject Claims" means those certain unpatented lode mining claims
leased by Great Basin pursuant to the Subject Lease.
1.32 "Subject Lease" means that certain Mining Exploration and Lease
Agreement, dated effective as of July 10, 1992, by and between Edward L.
Devenyns and David R. Ernst, as lessors, and Great Basin, as lessee, as amended.
1.33 "Subject Lessors" means the lessors under the Subject Lease.
1.34 "Subordination and Back-In Agreement" means that certain Subordination
and Back-In Agreement of even date herewith by and between Hemlo Gold, Great
Basin, Great Basin Management and Serem Gatro, as further described in Section
2.6.
1.35 "Transfer" means sell, grant, assign, encumber, pledge or otherwise
commit or dispose of.
1.36 "Venture" means the business arrangement of the Participants under
this Agreement.
ARTICLE II
REPRESENTATIONS AND WARRANTIES: TITLE TO ASSETS
2.1 Capacity of Participants. Each of the Participants represents and
warrants to the other as follows:
<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. Great Basin makes the following
representations and warranties to Hemlo Gold effective as of the Effective Date:
(a) Exhibit A accurately and completely describes all real property in
the Area of Interest in which Great Basin holds any right, title or interest, as
well as the nature, type and extent of the interest held by Great Basin (e.g.,
ownership or leasehold title, etc.).
(b) With respect to those Properties in which Great Basin holds an
ownership interest, if any, Great Basin is in exclusive possession of and owns
such Properties free and clear of all title defects and Encumbrances, except
those specifically identified on Part 1 of Exhibit A.
(c) With respect to those Properties in which Great Basin holds an
interest under leases (including without limitation under the Subject Lease) or
other contracts: (i) Great Basin is in exclusive possession of such Properties;
(ii) Great Basin has not received any notice of default of any of the terms or
provisions of such agreements, nor has any such default been asserted by any of
the Subject Lessors; (iii) Great Basin has the authority under such agreements
to perform fully its obligations under this Agreement, without obtaining the
consents of the Subject Lessors or of any other parties; (iv) such agreements
are valid and are in good standing; (v) all payments or obligations required to
have been paid or performed under such agreements on or before the Effective
Date have been fully paid or performed; (vi) Great Basin owns the entire
undivided leasehold estate and all other contractual interests created by the
Subject Lease; and (vii) the properties covered thereby are free and clear of
all title defects and Encumbrances except for those specifically identified on
Part 1 of Exhibit A or in such agreements. Great Basin has delivered to Hemlo
Gold all information concerning title to the Properties in Great Basin's
possession or control, including, but not limited to, true, correct and complete
copies of all leases, options or other agreements relating to any of the
Properties, together with all amendments or supplements thereto, and copies of
all title opinions or reports relating to any of the Properties.
(d) With respect to unpatented mining claims located by Great Basin
that are included within the Properties, except as provided in Part 1 of Exhibit
A and subject to the paramount title of the United States: (i) the unpatented
mining claims were properly laid out and monumented; (ii) all required location
and validation work was properly performed; (iii) location notices and
certificates were properly recorded and filed with appropriate governmental
agencies; (iv) all assessment work required under Applicable Laws to hold the
unpatented mining claims through the assessment year ended September 1, 1995 has
been performed; (v) all affidavits of assessment work and other filings required
to maintain the claims in good standing have been properly and timely recorded
<PAGE>
or filed with appropriate governmental agencies; (vi) all rental, holding or
maintenance fees required to have been paid to governmental entities to maintain
the claims in good standing through the assessment year ending on September 1,
1996 have been paid and all associated filings required under Applicable Laws
have properly been made; (vii) the claims are free and clear of all title
defects and Encumbrances arising by, through or under Great Basin; and (viii)
Great Basin has no knowledge of conflicting claims. Nothing in this Section
2.2(d), however, shall be deemed to be a representation or a warranty that any
of the unpatented mining claims contains a discovery of minerals. With respect
to those unpatented mining claims that were not located by Great Basin or an
Affiliate of Great Basin, but are included within the Properties, Great Basin
makes the foregoing representations and warranties (with the foregoing
exceptions) to the best of its knowledge and belief.
(e) There are no pending or threatened actions, orders, suits, claims
or proceedings concerning or affecting the Properties, including without
limitation with respect to the title, right to possession, condition or
operation thereof.
(f) During the term of this Agreement, Hemlo Gold and the Venture
shall have the quiet and peaceful possession and enjoyment of the Properties,
and, upon the request and subject to the direction of Hemlo Gold, Great Basin
shall do everything within its power to defend title to the Properties and Hemlo
Gold's and the Venture's quiet and peaceful possession and enjoyment thereof
against any and all persons or entities who may claim any right, title or
interest therein.
(g) The condition and operation of all of the Properties are and have
been in full compliance with all Applicable Laws, including but not limited to
those relating to zoning, land use or the environment, and none of the
Properties are subject to any reclamation, remediation or cleanup requirements
of any governmental agencies or any other parties.
(h) There have been no spills, discharges, emissions, leachings or
other releases of any pollutants, effluent or other materials on, in or from any
of the Properties that could give rise to liability under any cause of action,
including without limitation under common law.
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.
<PAGE>
2.4 Record Title. Title to this Assets shall be held in the name of the
Venture. Upon execution of this Agreement, Great Basin shall execute and deliver
to Hemlo Gold: (i) an assignment, in a form reasonably acceptable to both
Participants, assigning the Subject Lease to the Venture; and (ii) a deed, in a
form reasonably acceptable to both Participants, conveying the Properties and
Assets owned by Great Basin to the Venture. Hemlo Gold may file the assignment
and the deed in appropriate county, state and federal offices. The Participants
acknowledge and agree that the absence of any representations or warranties in
such assignment or deed in no way limits or diminishes any of the
representations and warranties set forth in this Agreement.
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 Great Basin shall be charged to Great Basin.
2.6 Subordination and Back-In Agreement. Simultaneously with the execution
of this Agreement, Great Basin, Hemlo Gold, Great Basin Management and Serem
Gatro shall execute and enter into the Subordination and Back-In Agreement,
which shall provide, among other things: (i) during the term of this Agreement,
the Prior Agreements shall be of no force nor effective whatsoever in relation
to the Properties or the Venture; (ii) at no time shall the Prior Agreements be
binding upon or otherwise affect Hemlo Gold or any of its successors or assigns
or any of their respective rights, titles or interests in, to or under the
Properties, the Assets, Participating Interests, the Venture or this Agreement;
and (iii) in accordance with the terms and conditions of this Subordination and
Back-In Agreement, Serem Gatro shall have the right to acquire up to a forty
percent (40%) Participating Interest in the Assets subject to this Agreement.
ARTICLE III
NAME, PURPOSES, AND TERM
3.1 General. Great Basin and Hemlo Gold 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 Red Canyon 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, (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.
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
the date first recited above. The term of this Agreement shall be for twenty
(20) years from the Effective Date and for so long thereafter as Products are
produced from the Properties, or until any reclamation or environmental
compliance activities required by Applicable Laws or applicable agreements are
completed, unless the Agreement is earlier terminated as herein provided.
<PAGE>
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
Participant, or any of its directors, officers, employees, agents and attorneys
done or undertaken, or apparently 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 Code of 1954, 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 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. Unless otherwise agreed in writing, 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. The Manager may contract with an Affiliate, at such parties'
discretion, for the performance of services, including without limitation
milling, beneficiation, treatment, processing or laboratory services, in which
case such services shall be charged to the Joint Account in accordance with the
Accounting Procedures.
<PAGE>
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.
4.8 Implied Covenants. There are no implied covenants contained in this
Agreement other than those of good faith and fair dealing.
4.9 Indemnities.
(a) Each Participant (the "Indemnifying Participant") shall indemnify,
defend and hold harmless the other Participant, its Affiliates, and their
respective officers, directors, employees, shareholders and agents (collectively
"Indemnified Participant") from and against any and all costs, expenses,
damages, losses, liabilities and obligations whatsoever, including without
limitation reasonable attorneys' fees and other costs of litigation, resulting
from or arising out of any breach by the Indemnifying Participant of any of its
representations or warranties contained in this Agreement.
(b) Great Basin shall indemnify, defend and hold harmless Hemlo Gold,
its Affiliates and their respective officers, directors, employees, shareholders
and agents from and against any and all costs, expenses, damages, losses,
liabilities and obligations whatsoever, including reasonable attorneys' fees and
other costs of litigation, which they or any of them may incur or to which they
or any of them may become subject resulting from or arising out of any action or
inaction of Great Basin, its Affiliates and their respective officers,
directors, employees, shareholders and agents taken prior to the Effective Date
and relating to the Properties, except to the extent that such liability or
obligation is expressly assumed hereunder.
ARTICLE V
CONTRIBUTIONS BY PARTICIPANTS
5.1 Participants' Initial Contributions.
(a) Great Basin's Initial Contribution. Great Basin, as its Initial
Contribution, hereby contributes to the purposes of this Agreement the
Properties and the Assets, together with all appurtenances thereto, improvements
thereon and all tangible or intangible personal property, water and water rights
associated therewith and all records, documents and information whatsoever in
the possession or under the control of Great Basin concerning or relating in any
way to the Properties or to the Assets, including without limitation all maps,
data, reports, drill logs, assay results, interpretative geologic work,
feasibility studies, financial records and legal documents. The agreed value of
Great Basin's Initial Contribution is THREE HUNDRED SEVENTY-FIVE THOUSAND
DOLLARS ($375,000).
<PAGE>
(b) Hemlo Gold's Initial Contribution.
1. Amount and Schedule. Hemlo Gold, as its Initial Contribution,
shall contribute the first ONE MILLION FIVE HUNDRED THOUSAND DOLLARS
($1,500,000) hereunder, in accordance with the following schedule:
Expenditure Period Annual Cumulative
Expenditure Expenditure
Oct. 1, 1995 - Oct. 1, 1996 $150,000 $ 150,000
Oct. 1, 1996 - Oct. 1, 1997 $250,000 $ 400,000
Oct. 1, 1997 - Oct. 1, 1998 $450,000 $ 850,000
Oct. 1, 1998 - Oct. 1, 1999 $650,000 $1,500,000
Each of the annual expenditure periods described above is referred to
hereinafter as an "Expenditure Period." Completion of the annual expenditure for
the first Expenditure Period (ending October 1, 1996) shall constitute a firm
obligation on the part of Hemlo Gold. Completion of the annual expenditures for
subsequent Expenditure Periods shall not constitute a firm obligation on the
part of Hemlo Gold, but, pursuant to Section 5.2, shall constitute a condition
necessary to Hemlo Gold's retention of its Participating Interest hereunder. Any
expenditures in excess of the minimum amounts required for a particular
Expenditure Period shall be carried forward and credited against the
satisfaction of the expenditure requirements for subsequent Expenditure Periods.
The agreed value of Hemlo Gold's Initial Contribution is ONE MILLION FIVE
HUNDRED THOUSAND DOLLARS ($1,500,000).
2. Type of Expenditures and Calculations. Hemlo Gold's
expenditures for the first Expenditure Period (ending on October 1, 1996) shall
include, without limitation, the following: (i) payment to Great Basin, upon
execution of this Agreement, of FORTY THOUSAND DOLLARS ($40,000), as
reimbursement for scheduled payments under the Subject Leases paid by Great
Basin to the Subject Lessors in July, 1995; and (ii) payment to Great Basin,
upon execution of this Agreement, of TWENTY FIVE THOUSAND DOLLARS ($25,000), as
reimbursement for holding or rental fees paid by Great Basin to the Bureau of
Land Management of the United States Department of the Interior to hold the
Subject Claims through the assessment year ending at noon on September 1, 1996.
Hemlo Gold may apply against the remaining expenditure requirements for the
first Expenditure Period (in the amount of $85,000) and the expenditure
requirements for subsequent Expenditure Periods, any and all Operating Costs
incurred by Hemlo Gold, calculated in accordance withthe Accounting Procedure
and subject to the administrative charge of ten percent (10%) of Allowable Costs
set forth therein. In the event that Hemlo Gold fails to satisfy fully the
expenditure requirement for any Expenditure Period, Hemlo Gold shall have the
right, but not the obligation, for a period of thirty (30) days following the
expiration of the Expenditure Period, to pay Great Basin the amount of the
deficiency and thereby keep this Agreement in full force and effect, in which
case, the deficiency payment to Great Basin shall be treated for all purposes of
this Agreement as an Operating Cost paid by Hemlo Gold.
3. Conduct of Operation Prior to Completion of Hemlo Gold's
Initial Contribution. Prior to the completion of Hemlo Gold's Initial
Contribution, Hemlo Gold, as the Manager, shall conduct Operations and incur
Operating Costs, as Hemlo Gold, in its sole and absolute discretion, deems
appropriate, without the necessity of the proposal or approval of any Programs
or Budgets pursuant to Article IX. During this period, Hemlo Gold shall have the
sole right to determine the nature, timing, location, duration and extend of all
Operations, provided that Hemlo Gold shall: (i) keep Great Basin generally
<PAGE>
informed concerning all Operations and activities affecting the Properties; (ii)
within thirty (30) days after the end of each calendar quarter, furnish to Great
Basin a brief report summarizing the Operations conducted on or for the benefit
of the Properties during the preceding quarter; (iii) make available for
inspection and copying by Great Basin all factual data generated from Operations
conducted upon the Properties, and make all core and other samples available for
inspection by Great Basin, (iv) on or before a date three (3) months after the
expiration of each Expenditure Period, submit to Great Basin a written statement
(a "Statement of Qualifying Expenditures") of the Operating Costs and other
expenditures incurred by Hemlo Gold and to be credited toward satisfaction of
Hemlo Gold's Initial Contribution; and (v) otherwise exercise and discharge the
rights, powers and duties of the Manager, provided that no authorizations of the
Management Committee shall be required in connection therewith prior to the
completion of Hemlo Gold's Initial Contribution. Great Basin shall provide Hemlo
Gold with written notice of any exceptions it may have to a Statement of
Qualifying Expenditures submitted to it by Hemlo Gold within three (3) month
period shall conclusively and irrevocably constitute unconditional acceptance by
Great Basin of the Statement of Qualifying Expenditures.
4. Rights of Withdrawal. At any time after completion of the
expenditure amount required during the first Expenditure Period by prior to
completion of its Initial Contribution, Hemlo Gold shall have the right to
withdraw from this Agreement by providing written notice thereof to Great Basin,
in which case the provisions of Section 5.2 shall apply.
5.2 Failure to Make Initial Contribution. Hemlo Gold's failure to make its
Initial Contribution in accordance with the provisions of Section 5-1 shall be
deemed to be a withdrawal of Hemlo Gold from this Agreement and the termination
of its Participating Interest hereunder. Upon such event, Hemlo Gold shall have
no further right, title, interest, liability or obligation in, to or under the
Assets or this Agreement, except as expressly set forth in this section 5.2.
Hemlo Gold's withdrawal shall be effective upon such failure, or upon Hemlo
Gold's provisions to Great Basin of a written notice of withdrawal pursuant to
Section 5.1(b)(4). Upon its withdrawal, Hemlo Gold shall be relieved of and
released from all liabilities and obligations whatsoever with respect to the
Assets or arising under this Agreement, except for: (i) the obligation to
reclaim disturbances upon the Properties caused by Hemlo Gold or its agents (but
not by others), to the extend required by Applicable Laws; and (ii)
responsibility to fund and satisfy its share of liabilities to third persons
arising out of Operations conducted subsequent to the Effective Date and prior
to Hemlo Gold's withdrawal. Hemlo Gold shall fund and satisfy 100% of such
liabilities until it has contributed the full amount of its Initial
Contribution, and thereafter it shall fund and satisfy such liabilities in
proportion to its initial Participating Interest set forth in Section 6.1.
Except as provided in the preceding two sentences, Hemlo Gold's withdrawal shall
relieve Hemlo Gold from any other obligation to make contributions hereunder and
from any other liabilities or obligations arising under this Agreement.
5.3 Additional Cash Contributions. At such time as Hemlo Gold has
contributed the full amount of 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.
<PAGE>
ARTICLE VI
INTEREST OF PARTICIPANTS
6.1 Initial Participating Interests. The Participants shall have the
following initial Participating Interests:
Great Basin - 20%
Hemlo Gold - 80%
6.2 Changes in Participating Interests. A Participant's Participating
Interest shall be changed as follows:
(a) As provided in Section 5.2 or 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
(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; or
(f) Upon exercise by Serem Gatro of its rights under the Subordination
and Back-In Agreement to acquire up to a forty percent (40%) Participating
Interest.
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 (subject to Hemlo Gold's rights of withdrawal set forth in
Sections 5.1 and 5.2), a Participant may elect, as provided in Section 9.5, 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 value of the Participant's Initial
Contribution under Section 5.1, (b) the total of all of the Participant's prior
contributions under Section 5.3, and (c) the amount, if any, the 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 one hundred percent (100%) and the recalculated
Participating Interest.
<PAGE>
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 non-defaulting Participant may
advance the defaulted contribution on behalf of the defaulting Participant and
treat the same, together with any accrued interest, as 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 non-defaulting
Participant may elect the applicable remedy 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 or effectuate 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 non-defaulting 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 the following percentage:
75%. 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 non-defaulting Participant's Participating Interest
shall, at such time, become the difference between one hundred percent (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 non-defaulting 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
non-defaulting Participant; provided, however, the defaulting Participant shall
have the right to receive only from five percent (5%) of Net Proceeds, if any,
and not from any other source, an amount equal to the defaulting Participant's
aggregate contributions pursuant to Section 5.1 and 5.3. Upon receipt of such
amount the defaulting Participant shall thereafter have no further right, title
or interest in Assets or under this Agreement.
6.5 Elimination of Minority Interest. Upon the reduction of a participant's
Participating Interest to less than nine percent (9%), the following shall
apply: (i) that Participating Interest shall automatically be converted to a
five percent (5%) Net Proceeds interest to be calculated in accordance with
Exhibit D; (ii) the converted Participant shall be deemed to have withdrawn from
the Venture as of the date of conversion and it shall have no further right,
title or interest under this Agreement or in or to the Assets, except the right
to receive five percent (5) of Net Proceeds; (iii) the Participating Interest of
the converted Participant shall be deemed automatically transferred to the other
Participant (the "non-converted Participant"); (iv) the non-converted
Participant shall thereupon hold the entire ownership and operating interest in
the Assets, free and clear of the terms and conditions of this Agreement,
subject only to the obligation to pay five percent (5%) of Net Proceeds to the
converted Participant; and (v) the converted Participant shall execute all
documents reasonably requested by the non-converted Participant to evidence the
<PAGE>
changes in ownership and operating rights described above. In the event that,
immediately prior to the conversion of a Participating Interest into a Net
Proceeds interest, there are more than two Participants (including the converted
participant), than the Participating Interest of the converted Participant shall
be deemed transferred to the non-converted Participants in pro-rata amounts
proportionate to the respective Participating Interests held by such
non-converted Participants immediately prior to conversion; provided, that
nothing in this sentence shall be construed so as to conflict with, modify or
limit in any way the provisions of Section 4.3 of the Subordination and Back-In
Agreement.
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. Ad 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.
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 two (2) members appointed by Great Basin and two (2) members appointed by
Hemlo Gold. Each Participant may appoint one or more alternates to act in the
absence of a regular member. Any alternate so acting shall be deemed a member.
Appointments shall be made or changed by notice to the other Participant.
7.2 Decisions. Each Participant, acting through its appointed members shall
have one vote on the Management Committee. Unless otherwise provided in this
Agreement, the vote of the Participant (or Participants) with a Participating
Interest over fifty percent (50%) shall determine the decisions of the
Management Committee. In the event of any tie vote, the Manager shall cast the
tie-breaking vote and make the decision as it deems appropriate in its
discretion.
7.3 Meetings. The Management Committee shall hold regular meetings at least
annually in Hemlo Gold's offices in Reno, Nevada, or at other mutually agreed
places. The Manager shall give twenty (20) days' notice to the Participants of
such regular meetings. Additionally, either Participant may call a special
meeting upon ten (10) 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
<PAGE>
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
meeting sand shall distribute copies of such minutes to the Participants within
thirty (30) days after the meeting. Within twenty (20) days after having been
provided with a copy of such minutes, each Participant shall either approve the
correctness of such minutes, by signing and returning same to the Manager, or
disapprove the correctness of such minutes by providing the Manger with written
comments specifying in detail the Participant's disagreement therewith. If any
Participant fails to provide the Manager with such a notice of disapproval
within the twenty (20) day period allowed pursuant to the preceding sentence,
such Participant shall be deemed conclusively and irrevocably to have approved
the minutes at issue. The minutes, when approved or deemed approved by all
Participants, shall be the official record of the decisions made by the
Management Committee and shall be binding on the Manager and Participants. If,
in the discretion of the Manager, 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 (i.e., an Operating Cost
chargeable to the Joint Account). All other costs shall be paid for 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 (or Hemlo Gold) in Section 5.1 or 8.2(q), the Management Committee shall
have exclusive authority to determine all management matters related to this
Agreement.
ARTICLE VIII
MANAGER
8.1 Appointment. The Participants hereby appoint Hemlo Gold as the Manager
with overall management responsibility for Operations. Hemlo Gold 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
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
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 matter, or Encumbrances
specifically approved by the Management Committee.
<PAGE>
(d) The Manager shall conduct such title examinations and cure such
title defects as may be advisable in the reasonable judgment of the Manager.
(e) The Manager shall exercise due diligence to: (i) make or arrange
for all payments required by leases, licenses, permits, contracts and other
agreements related to the Assets; and (ii) pay all taxes, assessments and like
charges on Operations 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
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 exercise due diligence to: (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 non-managing Participant shall have
the right to participate, at its own expense, in such litigation or
administrative proceedings. The non-managing Participant shall approve in
advance any settlement involving payments, commitments or obligations in excess
of ONE HUNDRED THOUSAND DOLLARS ($100,000) 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 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 ONE HUNDRED
THOUSAND DOLLARS ($100,000); (ii) enter into any sales contracts or commitments
for Product, 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.
<PAGE>
(k) The Manager shall perform or cause to be performed during the term
of this Agreement all assessment and other work required by Applicable Laws in
order to maintain the unpatented mining claims included within the Properties.
The Manager shall have the right to perform the assessment work required
hereunder (if any) pursuant to a common plan of exploration and continued actual
occupancy of such claim 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 the work done is in accordance with the
adopted Program and Budget. The Manager shall timely record with the appropriate
county and file with the appropriate United States agency, affidavits in proper
form attesting to the performance of assessment work or notices of intent to
hold in proper form, and allocation therein, to or for the benefit of each
claim, at least the minimum amount required by law to maintain such claim or
site. During the term of this Agreement, the Manager shall timely pay to the
Bureau of Land Management of the United States Department of the Interior
("BLM") all annual holding or rental fees required by Applicable Law to maintain
the unpatented mining claims included within the Property and shall make all
associated filings with the BLM required by Applicable Laws.
(1) 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 for the purpose of locating mining claims
or otherwise acquiring from the United States rights to the ground covered
thereby, (vi) exchange with or convey to the United States any of the Properties
for the purpose of acquiring rights to the ground covered thereby or other
adjacent ground, and (vii) convert any unpatented claims or mill sites into one
or more leases or other forms of mineral tenure pursuant to any federal law
hereafter enacted.
(m) The Manager shall keep and maintain all required accounting and
financial records pursuant to the Accounting Procedure and in accordance with
customary cost accounting practices in the mining industry.
(n) subsequent to the completion of Hemlo Gold's Initial Contribution,
the Manager shall keep the Management Committee advised of all Operations by
submitting in writing to the Management Committee: (i) annual 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; and (iv) such other reports as the Management
Committee may reasonably request. At all reasonable times the Manager shall
provide the Management Committee or the representatives 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,
analysis, production reports, operations, technical, accounting and financial
records, and other information acquired in Operations. In addition, the Manager
shall allow the non-managing Participant, at the latter's sole risk and expense,
and subject to reasonable safety regulations, in 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 have the right, but not the obligation, to
negotiate directly with the Subject Lessors relative to changes to the Subject
Lease and shall have the right to enter into amendments of the Subject Lease on
behalf of the Venture.
<PAGE>
(p) The Manager shall undertake all other activities reasonably
necessary to fulfill the foregoing.
(q) Prior to completion of its Initial Contribution, Hemlo Gold, in
its capacity as Manager, shall exercise all of the rights and shall perform all
of the duties of the Manager under this Agreement as Hemlo Gold deems
appropriate in its sole and absolute discretion and, notwithstanding any
provision of this Article VIII to the contrary, no authorization of the
Management Committee shall be required in connection therewith.
The Manager shall not be in default of any duty under this Section 8.2 if its
failure to perform results from the failure of the non-managing Participant to
perform acts or to contribute amounts required of it by this Agreement.
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 and other agreements
pertaining to Assets. The Manager shall not be liable to the non-managing
Participant for any act or omission resulting in damage or loss except to the
extent caused by or attributable to the Manager's willful misconduct or gross
negligence.
8.4 Resignation; Deemed Offer to Resign. The Manager may resign upon two
(2) 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 thirty (30) days after the notice of resignation. If any of
the following shall occur, the Manager shall be deemed to have offered to
resign, which offer shall be accepted by the other Participant, if at all,
within ninety (90) days following such deemed offer:
(a) The Participating Interest of the Manager becomes less than fifty
percent (50%); or
(b) The Manager fails to perform a material obligation imposed upon it
under this Agreement and such failure continues for a period of sixty (60) days
notice from the other Participant demanding performance; or
(c) The Manager fails to pay or contest in good faith its bills
within ninety (90) days after they are due; or
(d) A receiver, liquidator, assignee, custodian, trustee, sequestrator
or similar official for a substantial part of its assets is appointed and such
appointment is neither made ineffective nor discharged within sixty (60) days
after the making thereof, or such appointment is consented to, requested by, or
acquiesce 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
<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. 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 in Absence of Approved Program and Budget. If the Management
Committee for any reason fails to adopt a Program and Budget, subject tot he
contrary direction of the Management Committee and to the receipt of necessary
funds, the Manager shall continue Operations at levels comparable with the last
adopted Program and Budget. For purposes of determining the required
contributions of the Participants and their respective Participating Interests,
the last adopted Program and Budget shall be deemed extended.
ARTICLE IX
PROGRAMS AND BUDGETS
9.1 Initial Program and Budget. Prior to the commencement of any calendar
quarter during which Hemlo Gold reasonably anticipates completing its Initial
Contribution, Hemlo Gold, in its capacity as Manager, shall prepare and submit
to the Participants, in accordance with Section 9.3, a proposed initial Program
and Budget. Such Program and Budget shall be for any period of time determined
at the Manager's discretion and shall be duly reviewed and approved or rejected
pursuant to the procedures set forth in this Article IX. Prior to the adoption
of a Program and Budget, Hemlo Gold, as Manager, shall conduct Operations, incur
Operating Costs and exercise the functions and duties of the Manager as Hemlo
Gold, in its sole discretion, deems appropriate.
9.2 Operations Pursuant to Programs and Budgets. Except as otherwise
provided in Sections 5.1, 8.2, 8.7, 9.1, 9.6, 9.7, 9.8 and Article XIII,
Operations shall be conducted, expenses shall be incurred, and Assets shall be
acquired only pursuant to approved Programs and Budgets. In the event that any
program is not completed within the time period allotted thereto and the Budget
with respect thereto has not been exhausted, the Manager, in its discretion, may
extend the period for completion of the Program until it is in fact completed or
until the Budget at issue is exhausted, whichever occurs first. Subject to
direction to the contrary from the Management Committee, the Manager may delete
from any adopted Program and not perform any work or item that the Manager, in
its discretion, believes has become unadvisable, unnecessary, imprudent or not
cost effective.
9.3 Presentation of Programs and Budgets. Proposed Programs and Budgets
shall be prepared by the Manager and may be for any period of time determined at
the Manager's discretion. Each adopted Program and Budget, regardless of length,
shall be reviewed at least once a year by the Management Committee. During the
period encompassed by any Program and Budget, and prior to its completion, a
proposed Program and Budget for the succeeding period shall be prepared by the
Manager and submitted to the Participants. In the event that the Manager does
<PAGE>
not timely submit to the Participants a Program and Budget under this Section
9.3, any Participant may do so. In the event that any Participant desires to
propose a Program and Budget as an alternative to a Program and Budget proposed
by the Manager, the Participant may do so either by submitting its alternative
Program and Budget to the other Participant prior to the meeting of the
Management Committee under Section 9.4 or by submitting its alternative Program
and Budget directly to the Management Committee at such meeting.
9.4 Review and Approval of Proposed Programs and Budgets. Within twenty
(20) days after submission tothe Participants of a proposed Program and Budget,
and with at least ten (10) days' prior notice given to the Participants by the
Manager (or by the submitting Participant in cases in which the Program and
Budget is submitted by a Participant pursuant to the second to last sentence of
Section 9.3), the Management Committee shall meet for purposes of voting on the
adoption or rejection of any proposed Program and Budget. In accordance with
Section 7.2, the vote of the Participant (or Participants) with a Participating
Interest over fifty percent (50%) shall determine the vote of the Management
Committee with respect to the adoption or rejection of a proposed Program and
Budget. If no proposed Program and Budget receives the vote of a Participant (or
Participants) with a Participating Interest over fifty percent (50%), the
Manager shall cast a tie-breaking vote. Notwithstanding anything in this
Agreement to the contrary, the failure of any member of the Management Committee
(or an alternate for such member) to attend such meeting shall not prevent the
existence of a quorum for purposes of approving or rejecting any proposed
Program and Budget.
9.5 Election to Participate. By notice to the Management Committee within
twenty (20) days after the final vote adopting a Program and Budget, a
Participant may elect to contribute to such Program and Budget in some lesser
amount than its respective Participating Interest, or not at all, in which cases
its Participating Interest shall be recalculated as provided in Article VI. If a
Participant fails to so notify the Management Committee, the Participant shall
be deemed to have elected 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.
9.6 Failure to Approve Proposed Programs and Budgets. If the Management
Committee fails to approve a Program and Budget prior to the completion or
expiration of the preceding Program and Budget, the provisions of Section 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 ten percent (10%),
then the excess over ten percent (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, such excess shall not be included in the amounts contributed to the
Venture for purposes of calculating dilution under Section 6.4, but shall be
treated as amounts contributed tothe Venture by the Participant who is the
Manager for all other purposes of this Agreement. Budget overruns of ten percent
(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 Applicable Laws. The Manager
may make reasonable expenditures for unexpected events which are beyond its
reasonable control and which do not result from a breach by it of its standard
of care. The Manager shall promptly notify the Participants of the emergency or
unexpected expenditue, and the Manager shall be reimbursed for all resulting
costs by the Participants in proportion to their respective Participating
Interests at the time the emergency or unexpected expenditures are incurred.
<PAGE>
ARTICLE X
ACCOUNTS AND SETTLEMENTS
10.1 Quarterly Statements. The Manager shall promptly submit to the
Management Committee quarterly statements of account reflecting 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 calendar
quarter, a billing for estimated cash requirements for the next calendar
quarter. Within ten (10) days after receipt fo 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 ninety (90) days. All funds in excess of immediate cash requirements
shall be invested in interest-bearing accounts with a bank of the Manager's
selection, for the benefit of the Joint Account. In the event that any Program
hereunder is completed without exhaustion of the Budget associated therewith,
then any unused portion of the Budget actually collected and held by the Manager
shall,upon completion of the Program, be retained by the Manager and applied
towards the funding requirements of the next following Program and Budget.
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 five (5) percentage points over the Prime
Rate, but in no event shall said rate of interest exceed the maximum permitted
by law. The non-defaulting Participant shall have those rights, remedies and
electuions specified in Section 6.4.
10.4 Audits. Upon request made by any Participant within twelve (12) months
following the end of any calendar year (or, if the Management Committee has
adopted an accounting period other than the calendar year, within twelve (12)
months after the end of such period), the Manager shall order, at the requesting
Participant's sole cost and expense, 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 (3) months after receipt of the audit
report. Failure to make any such exception or claim within the three (3) month
period shall mean the audit is correct and binding upon the Participants. The
audits shall be conducted by a firm of certified public accountants selected by
the Manager, unless otherwise agreed by the Management Committee.
<PAGE>
ARTICLE XI
DISPOSITION OF PRODUCTION
11.1 Taking in Kind. Each Participant shall take in kind or separately
dispose of its share of all Products in accordance with its Participating
Interest. 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 10 days in advance of the delivery date upon which their
respective share(s) of Products will be available.
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 by Expiration or Agreement. This Agreement shall terminate
as expressly provided in this Agreement, unless earlier terminated by written
agreement. The Participants may terminate this Agreement at any time by written
agreement.
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 thirty (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 royalties, liens or other Encumbrances arising by, through
or under such withdrawing Participant, except those exceptions to title
described in Part 1 of Exhibit A and those to which both Participants have given
their written consent after the date of this Agreement, all of its Participating
Interest in the Assets and in this Agreement. Any withdrawal under this Section
12.2 shall not relieve the withdrawing Participant of its share of liabilities
and obligations to third persons (whether such accrues before or after such
withdrawal) arising out of Operations conducted prior to such withdrawal. For
purposes of this Section 12.2, the withdrawing Participant's share of such
liabilities and obligations shall be equal to its Participating Interest at the
time such liability or obligation was incurred. Nothing in this Section 12.2
shall be construed as limiting, modifying or diminishing in any way the
provisions of Section 5.1 and 5.2 relative to a withdrawal or deemed withdrawal
of Hemlo Gold prior to completion of its Initial Contribution.
12.3 Continuing Obligation. 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 under
Section 12.1, 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:
<PAGE>
(a) First, the Assets shall be paid, applied, or distributed in
satisfaction of 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 Participants, bonds or other securities for
the performance of such obligations. The foregoing shall not be construed to
include the repayment of any Participant's capital contributions or Capital
Account balance.
(b) Second, the Assets shall be paid, applied or distributed to
satisfy debts, obligations, or liabilities owed to the Participants.
(c) Third, the Assets shall be distributed to the Participants, and
any Participant with a negative capital account balance shall restore such
balance to zero, all as set forth in Paragraph 3.2 of Exhibit C.
Notwithstanding anything in this Section 12.4 or Exhibit C to the contrary, no
Participant shall receive a distribution or any interest in Products or proceeds
from the sale 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 5.2 or 6.5,
shall not directly or indirectly acquire any interest in property within the
Area of Interest for twelve (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 non-withdrawing Participant, without cost, any such
property or interest so acquired. Such offer shall be made in writing and can be
accepted by the non-withdrawing Participant at any time within forty-five (45)
days after it si received by such non-withdrawing Participant.
12.6 Right to Data After Termination. After termination of this Agreement
pursuant to Sections 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 the deemed withdrawal of a Participant pursuant to Section 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 (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.
<PAGE>
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. Notwithstanding any provision of this
Agreement to the contrary, the Area of Interest shall not include any interests
in real property held by third parties (i.e., by parties other than the
Participants or the Subject Lessors), and nothing in this Agreement shall be
construed as limiting the right of any Participant or party hereto from
acquiring any such interest in real property from any such third party for its
own purposes, interests and account and without any obligation whatsoever to any
of the other Participant(s) hereunder with respect thereto.
13.2 Notice to Nonacquiring Participant. Within fifteen (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 thirty (30) days after receiving the
acquiring Participant's notice, the non-acquiring Participant notifies the
acquiring Participant of its election to subject the acquired interest to the
Venture, the acquiring Participant shall, by special warranty deed, convey or
assign such interest to the Venture (whereupon the Participants shall own such
acquired interests as tenants-in-common through their respective Participating
Interests in the Venture). The acquired interest shall become a part of the
Properties for ll purposes of this Agreement immediately upon the notice of such
other Participant's election to have the Venture accept the acquired interest.
The non-acquiring 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 thirty (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 of 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. Nothing in this
Section 14.1 shall be deemed to limit or modify provisions of the Subject Lease,
which require the consent of the Subject Lessors prior to the abandonment of
properties subject thereto.
<PAGE>
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 two (2) years 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
forty-five (45) days after it has actual notice of such reacquisition, to have
such properties made subject to the terms of this Agreement. In the event such
an election is made, the reacquired properties shall thereafter be treated as
Properties, and the costs of reacquisition shall be borne solely by the
reacquiring Participant and shall not be included for purposes of calculating
the Participant's respective Participating Interests.
ARTICLE XV
TRANSFER OF ASSETS
15.1 General. A Participant shall have the right to Transfer to any third
party all 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 the interest of a Participant in this Agreement,
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) The transferring Participant and the transferee shall bear all
tax consequences of the Transfer;
(e) No Participant shall Transfer less than all of its Participating
Interest, except a Transfer of a participating Interest to Serem Gatro in
accordance with the Subordination and Back-In Agreement;
(f) Notwithstanding any provision of this Agreement to the contrary,
no Participant shall Transfer any interest in this Agreement or the Assets
except by Transfer of all of its Participating Interest, except with respect to
a Transfer of a participating Interest to Serem Gatro in accordance with the
Subordination and Back-In Agreement;
<PAGE>
(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
solely int he granting Participant's Participating Interest hereunder and 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 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 its
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 (which in
any event may be accomplished only pursuant to a Transfer of its Participating
Interest) shall promptly notify the other Participant of its intentions. The
notice shall state the price (which shall solely be in United States currency)
and all other pertinent terms and conditions of the intended Transfer, and shall
be accompanied by a copy of the offer or contract for sale. The other
Participant shall have thirty (30) days from the date such notice is delivered
to notify the transferring participant whether it elects to acquire the offered
interest at the same price and on the same terms and conditions as set forth in
the 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 sixty
(60) 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 transferee than
those offered by the transferring Participant to the other Participant in the
notice required in Section 15.3(a).
<PAGE>
(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.
(d) A sale of all or any part of the stock or equity securities of a
Participant shall constitute a Transfer subject to the preemptive rights of the
other Participant hereunder if the rights, titles and interest of the
transferring Participant in and to Participating Interest, Assets or this
Agreement constitute its most significant assets.
15.4 Exception 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) Subject to Section 15.2(g), 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;
(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; or
(e) A sale of a Participating Interest to Serem Gatro in accordance
with the Subordination and Back-In Agreement.
ARTICLE XVI
DISPUTES
16.1 Resolution of Disputes. Any claim, action or demand arising under or
relating to this Agreement or the transactions contemplated hereunder shall be
brought solely in the courts of the State of Nevada sitting in Reno, Nevada or
in the courts of the United States sitting in Reno, Nevada. The Participants,
and any other person or entity claiming an interest hereunder, consent to such
jurisdiction and venue and acknowledge the reasonableness, appropriateness and
convenience thereof.
ARTICLE XVIII
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.
<PAGE>
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 Applicable Laws 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
writing to protect the confidential information from further disclosure to the
same extent as the Participants are obligated under this Article XVII.
17.3 Press Releases. Neither Participant shall issue any press release
pertaining to this Agreement, the Assets or Operations without the express prior
written approval of the other Participant as to the specific form and content of
such release, which approval shall not unreasonably be withheld, except as may
be required by Applicable Laws or the rules of any stock exchange.
17.4 Use of Names. No Participant shall issue any press release or make any
other disclosures of any kind or nature whatsoever that used the name of any
officer, director, shareholder, employee or agent of the other Participant
without the express prior written consent of the other Participant, except as
may be required by Applicable Laws or the rules of any stock exchange.
17.5 Duration of Confidentiality. The provisions of this Article XVII shall
apply during the term of this Agreement and for two (2) years following
termination of this Agreement pursuant to Section 12.1, and shall continue to
apply to any Participant who withdraws, who is deemed to have withdrawn, or who
Transfers its Participating Interest, for two (2) 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:
If to Hemlo Gold:
Hemlo Gold Mines (U.S.A.) Inc.
Exploration Office
65 North Edison Way, Suite 4
Reno, Nevada 89502
P.O. Box 7176
Reno, Nevada 89510
Attention: Manager of Exploration
Fax: (702) 856-2458
<PAGE>
If to Great Basin:
Great Basin Exploration & Mining Co., Inc.
3400 Kauai Court, Suite 208
Reno, Nevada 89509
Attention: Mr. Anthony P. Taylor and
Mr. Douglas R. Bowden
Fax: (702) 689-7489
All Notices shall be given (i) by personal delivery to the Participant, or (ii)
by FAX, 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 FAX on the next business day following receipt,
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,
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 reasonable 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.
<PAGE>
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.
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 twenty-one (21) years after
the effective date of this Agreement.
18.7 Further Assurances. Each of the Participants covenant 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 extend necessary for their
enforcement and the protection of the Participant in whose favor they run:
Sections 2.2, 4.5, 6.4, 6.6, 10.3, 12.2, 12.3, 12.4, 12.5, 12.6, 12.7 and 12.8.
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 Severability. If an provision of this Agreement is held by a court of
competent jurisdiction to be invalid, illegal or unenforceable, the invalidity,
illegality or unenforceability will not effect any other provision of this
Agreement, and this Agreement will be construed as if the invalid, illegal or
enforceable provision had never been contained herein, unless the deletion of
the provision would result in such material change so as to cause the completion
of the transactions contemplated herein to be unreasonable.
18.11 Memorandum. At the request of either Participant, a Memorandum or
short form of this Agreement, as appropriate, shall be prepared by the Manager,
executed by the Participants and recorded by the Manager. Notwithstanding the
foregoing, either of the Participants shall have the right, at their discretion,
to record this Agreement in its entirety.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement to be
effective as of the Effective Date.
GREAT BASIN EXPLORATION & MINING
CO., INC.
A P TAYLOR
By:-----------------------------
Name: A P TAYLOR
Position: PRESIDENT
<PAGE>
HEMLO GOLD MINES (U.S.A.) INC.
IAN ATKINSON
By:-----------------------------
Name: IAN ATKINSON
Position: VICE PRESIDENT
JOSEPH J BAYLES
By:-----------------------------
Name: JOSEPH J BAYLES
Position: VICE PRESIDENT
STATE OF NEVADA )
)ss.
COUNTY OF WASHOE )
This Mining Venture Agreement was acknowledged before me on November 30,
1995 by A. P. TAYLOR as PRESIDENT of Great Basin Exploration & Mining Co., Inc.
(Seal) Diane K. Bryan
-------------------
Notary Public
My commission expires: June 10, 1996
PROVINCE OF ONTARIO )
)ss.
CITY OF TORONTO )
This Mining Venture Agreemnt was acknowledged before me on December 19,
1995 by IAN ATKINSON and JOSEPH BAYLES as VICE PRESIDENT and VICE PRESIDENT of
Hemlo Gold Mines (U.S.A.) Inc.
(Signature) --- BLF
------------------- (Seal)
Notary Public
MINERAL LEASE AGREEMENT WITH OPTION TO PURCHASE
COAL CANYON PROPERTY
THIS MINERAL LEASE WITH OPTION TO PURCHASE ("Agreement") is made effective
this 19 day of February, 1991 by and between H. WALTER SCHULL (hereinafter
referred to as LESSOR) and GREAT BASIN EXPLORATION AND MINING COMPANY, INC., a
Nevada corporation (hereinafter referred to as LESSEE).
WHEREAS, LESSOR is the owner of the real property described
as follows
Property: 68 Unpatented Lode Mining
Claims
Claim Names: Coal Canyon (C.C.) Nos.
1-68
BLM Numbers: NMC 353694 - 353753;
513108 - 513113; and
570135 - 570136.
Recorded in Eureka County Records: BK 140 PG
327-386 and BK 184 PG 556-561; and BK 203
PG 216-217.
Located in: Sections 17, 20, 29 T25N
R49E, unknown Mining
District, Eureka County,
Nevada
(hereinafter referred to as the ("Premises")
Area in Interest: One mile around the
perimeter of the C.C. 1-
68 claim block. Additional
claims with the area of
interest will be located
and recorded in the name
of H. Walter Schull and
will become part of the
Premises of the Agreement.
WHEREAS, LESSOR and LESSEE desire to enter into an agreement pursuant to
which LESSOR shall grant to LESSEE a lease of the Premises all on the terms and
conditions as hereinafter set forth.
NOW THEREFORE in consideration of the mutual agreement and obligations
hereinafter set forth the parties agree as follows.
1. Legal Representations
LESSOR represents and warrants that LESSOR is the sole owner and has
the exclusive possession of the Premises, including the surface and mineral
estates, free and clear of all claims, liens or encumbrances. LESSOR further
represents and warrants with respect to any unpatented mining claims, that the
acts of location performed by LESSOR have been in compliance with all applicable
federal and state laws; that LESSOR knows of no claim to or possession of the
Premises adverse to LESSOR. Furthermore, LESSOR represents and warrants that
LESSOR has the full right, power and capacity to enter into this Agreement upon
the terms and conditions herein contained, and LESSOR covenants that such status
will not be affected adversely because of any act or omission on the part of
LESSOR during the continuance of this Agreement.
<PAGE>
2. Lease
LESSOR hereby grants, demises, leases and lets the Premises, including,
but without being limited to, all ores, minerals, and mineral rights, except as
otherwise stated herein, exclusively unto LESSEE, with the right and privilege
to explore for, develop, mine (by open pit, strip, underground, solution mining
or an other method, including any method hereafter developed), extract, mill,
store, process, remove and market therefrom all ores, minerals and materials of
whatever nature or sort, (which ores, minerals and materials are herein
designated as "Mineral Substances") and to place thereon, construct, maintain,
use and, at its election, to remove such structures, facilities, equipment,
roadways, haulageways and such other improvements as LESSEE may deem necessary,
useful or convenient in conducting its operations hereon and to use and consume
so much of the surface thereof as may be necessary, useful or convenient for the
full enjoyment of all of the rights herein granted.
LESSEE shall not have the right to commingle Mineral Substances with
ores and concentrates from other properties without the prior written consent of
LESSOR, which consent shall not be unreasonably withheld.
LESSEE shall not assign or sublease its interest in this Lease without
the written consent of LESSOR first had and received, which consent shall not be
unreasonably withheld, as set forth in Section 13.
LESSEE shall have the right to exercise such water rights and to use
such water on about or under Premises as may be available.
3. Option to Purchase: Purchase Price and Closing
LESSOR hereby grants to LESSEE for a period of ninety-nine (99) years
from the effective date hereof, the sole, exclusive and irrevocable option to
purchase the Premises. If LESSEE desires to exercise the option, which option
may be exercised at any time, it shall do so by giving notice to LESSOR in the
manner set forth in Section 12. The purchase price of the Premises shall be
$5,000,000.00 (five million) subject to any reduction thereof which may become
applicable under Section 5, Section 7c and Section 10b. Any and all payments
made by LESSEE to LESSOR pursuant to Section 5 hereto and all costs, if any,
incurred by LESSEE for which LESSOR is liable pursuant to paragraph b or Section
7 hereof shall be credited against such purchase price.
If LESSEE exercises its option to purchase the Premises, closing shall
take place within thirty (30) days from the date of exercise by LESSEE of its
option. Before the date of closing, LESSEE shall deliver to LESSOR the balance
of the purchase price calculated pursuant to this Section 3 in exchange for a
fully executed and acknowledged deed, in a form acceptable to LESSEE, conveying
the premises to LESSEE. LESSOR shall execute such other documents and perform
such other acts as LESSEE may reasonably require to effect transfer of complete
title of the Premises to LESSEE. All recording fees shall be paid by LESSEE, and
LESSOR shall bear the costs of any transfer taxes assessed on the conveyance.
4. Term
Unless sooner terminated as hereinafter provided, the term of this
Agreement shall be for so long as LESSEE continues to make rental or production
royalty payments to LESSOR, whichever payment is appropriate under the terms of
the Agreement, and shall survive extinguishment of the option to purchase should
the option not be exercised within the time period set forth in Section 3.
<PAGE>
5. Payments to Lessor
a. Rental - Subject to LESSEE's right to terminate this Agreement,
LESSEE shall pay to LESSOR $15,000.00 or before March 18, 1991.
$15,000.00 on or before October 1, 1991, $30,000.00 between January 1st
and January 15th, 1992, $60,000.00 between January 1st and January
15th, 1993, $100,000.00 between January 1st and January 15th, 1994,
$100,000.00 between January 1st and January 15th of each
subsequent year this Agreement is in effect.
LESSEE's obligation to make rental payments shall terminate upon the earlier of
the commencement of payment of production royalties or upon its exercise of the
option to purchase the Premises, and all rental payments to LESSOR shall be
credited against the purchase price as calculated in Section 3.
b. Production Royalty - If LESSEE mines and markets Mineral Substances
prior to its exercise of the option to purchase the Premises, LESSEE shall pay
to LESSOR four percent (4%) of the Gross Returns from the sale of Mineral
Substances produced from the Premises, until the total payments received by
LESSOR as required by paragraphs a and b of this Section 5 equal the purchase
price set forth in Section 3; or until LESSEE exercises its option to purchase
the Premises; or until LESSEE terminates this Agreement pursuant to paragraph b
of Section 10. All production royalty payments shall be credited against the
purchase price calculated in Section 3. LESSEE shall, however, have the right to
mine amounts of Mineral Substances reasonably necessary for sampling, assaying,
metallurgical testing and evaluation of the minerals potential of the Premises
without initiating the obligation to make production royalty payments. The term
"Gross Returns" shall mean the amount paid to LESSEE by a smelter or other
purchaser for Mineral Substances mined from the Premises.
c. Administration of Production Royalty - LESSEE shall make production
royalty payments within thirty (30) days after the end of the calendar quarter
in which proceeds from the sale of Mineral Substances are realized. At such
time, LESSEE shall provide LESSOR with a statement showing in reasonable detail
the computation of the production royalty payments. Each quarterly statement
furnished to LESSOR shall be deemed to be correct and binding on LESSOR unless
LESSOR, within ninety (90) days of its receipt, notifies LESSEE in writing that
it disputes the correctness of such statement and specifies its objections in
detail. LESSEE shall maintain true and correct records of all Mineral Substances
mined and sold from the Premises, and LESSEE shall permit LESSOR to inspect, at
LESSOR'S expense, the books and records of LESSEE which are pertinent to the
determination of the production royalty payable under this Section 5, at any
reasonable time during normal business hours, provided such inspection is
conducted by LESSOR or by an accounting firm of recognized standing, at least
one of whose members is a member of the American Institute of Certified Public
Accountants, and provided such inspection does not interfere unreasonably with
LESSEE's operations or procedures. LESSOR, at its sole risk and expense, shall
have access to the Premises for inspection purposes at such times, in such
manner and upon such notice to LESSEE as shall not unreasonably hinder or
interrupt the operations of LESSEE.
d. Adjustment for Inflation - The purchase price as set forth in
Section 3 and the rental payments set forth in this Section 5 shall be subject
to escalation based upon the Consumer Price Index published by the Bureau of
Labor Statistics of the United States Department of Labor. The applicable amount
due LESSOR shall be multiplied by a percentage equal to 100, plus the percentage
increase in the Consumer Price Index from the effective date of the Agreement,
to the date of the close of the calendar quarter during which the applicable
payment is due.
<PAGE>
6. Method of Making Payments
Any payments required to be made by LESSEE to LESSOR hereunder may be
made in cash or by check, in the sole discretion of LESSEE, and may be
personally delivered or deposited in the Unites States mail, postage prepaid and
registered or certified with return receipt requested and addressed to LESSOR at
the address shown in Section 12. The personal delivery to LESSOR or the deposit
in the mail to LESSOR by LESSEE of any such payment on or before its due date
shall be deemed timely payment thereof. Upon making payment to LESSOR, LESSEE
shall be relieved of any responsibility for the distribution of such payment
among LESSOR and any of LESSOR's successors or permitted assigns.
Upon termination of this Agreement in any manner other than by payment
by LESSEE to LESSOR of the purchase price calculated pursuant to Section 3,
LESSEE shall deliver to LESSOR a fully executed and acknowledged release of this
Agreement, in recordable form, with respect to the Premises or the applicable
portion thereof.
7. Title Matters
a. Title Documents; Data - Upon execution of this Agreement, LESSOR
shall promptly deliver to LESSEE all abstracts of title to and copies of all
title documents affecting the Premises, which LESSOR has in its possession,
together with copies of all plats or field notes or surveys thereon, which
LESSOR has in its possession. In addition, LESSOR shall furnish promptly to
LESSEE copies of any exploration data, assays, logs, maps, geological,
geochemical and geophysical surveys and reports that LESSOR has in its
possession. LESSOR shall allow LESSEE at any reasonable time to examine and
analyze any drill core available to LESSOR from the Premises. LESSOR's
obligation to furnish said abstracts of title, copies of title documents, and
exploration data, shall be a continuing obligation during the term of this
Agreement.
b. Title Defects. Defense and Protection - If, in the opinion of
counsel for LESSEE, LESSOR's title to the Premises or any part thereof is
defective or less than as represented in Section 1 or LESSOR's title is
contested or questioned by any person, entity or governmental agency, and LESSOR
is unable or unwilling to correct promptly the defects or alleged defects in
title, LESSEE may, without obligation, attempt to perfect, defend or initiate
litigation to protect LESSOR's title. in that event, LESSOR shall execute all
documents and shall take such other actions as are reasonably necessary to
assist LESSEE in its efforts to perfect, defend or protect LESSOR's title. If
title is less than as represented in Section 1, then (and only then) the costs
and expense of perfecting, defending or protecting title (including, but not
limited to, attorney's fees, costs of litigation and costs of releasing or
satisfying any mortgages, liens, encumbrances or other claims) shall be a credit
against payments thereafter to be made to LESSOR, unless the costs arise from
LESSEE's failure to perform obligations hereunder (in which case such costs
shall be borne by LESSEE).
c. Lesser Interest Provisions - If LESSOR's title to the Premises (or
any portion thereof) is less than the entire interest or is subject to a
superior adverse interest other than the paramount title of the United States,
LESSEE shall have the right to elect to accept such title as LESSOR has, by
giving notice of such election to LESSOR in accordance with Section 12. Since
the total purchase price for the Premises set forth in Section 3 and the
payments set forth in Section 5 are predicated upon LESSOR's owning the entire
interest in the Premises free and clear of any superior adverse interests other
than the paramount title of the United States, if LESSOR owns less than the
entire interest or such interest is subject to a superior adverse interest other
than the paramount title of the United States, then such purchase price and
payments shall be reduced proportionately.
<PAGE>
d. General - Nothing herein contained and no notice or action which may
be taken under this Section 7 shall affect the right of LESSEE to terminate this
Agreement in the manner set forth in paragraph b of Section 10.
8. Amendment: Relocation and Patent of Claims
LESSEE shall have the right to amend or relocate in the name of LESSOR
any unpatented mining claims which are subject to this Agreement, which LESSEE
in its sole discretion deems advisable to amend or relocate. If LESSEE
undertakes any such amendment or relocation, LESSEE shall use its best efforts
to complete the same in compliance with the applicable statutes and regulations,
but shall not be liable to LESSOR for any act (or failure to act) by its or any
of its agents in connection with the amendment or relocation of claims so long
as such act (or omission) does not arise from gross negligence or is not made in
bad faith.
Upon request of LESSEE at any time or times during the term of this
Agreement, LESSOR agrees to undertake to obtain a patent to any or all of the
mining claims, which are subject to this Agreement, as designated by LESSEE.
LESSOR shall prepare all documents and compile all data and comply in all
respects with the applicable law, all at the expense of LESSEE. LESSOR shall
execute any and all documents required for this purpose and shall cooperate
fully with LESSEE, in the patent application and proceedings subsequent thereto.
If LESSOR begins patent proceedings and LESSEE thereafter requests LESSOR to
discontinue such proceedings or if this Agreement is terminated while patent
proceedings are pending, LESSEE shall have no further obligation with respect
thereto except to pay any unpaid expenses accrued in such proceedings prior to
its request to discontinue, or prior to termination, whichever comes first.
9. Obligations of LESSEE
a. Protection from Liens - LESSEE shall allow no lien to remain on the
Premises on account of any debt for materials or services furnished to LESSEE
for the benefit of the Premises; provided, however, that LESSEE shall not be
required to remove any such lien so long as LESSEE is contesting, in good faith,
the validity or the amount thereof.
b. Liability - LESSEE shall ever hold harmless and defend LESSOR from
any suit, claim, judgment or demand whatsoever arising out of the exercise by
LESSEE of any of its rights pursuant to this Agreement, provided that LESSOR or
any person or instrumentality acting in its behalf shall not have been a
contributing cause to the event giving rise to such suit, claim, judgment or
demand. LESSEE shall carry liability insurance to cover injuries, deaths and
damages caused by its operations on the Premises.
c. Taxes and Assessments - LESSEE shall pay all taxes levied against
its improvements on the Premises. In the event of commercial mining of the
Premises by LESSEE, LESSEE shall pay all ad valorem taxes assessed against that
amount of the Premises used in such commercial mining. LESSOR shall pay, before
delinquency, all other taxes and assessments on the Premises and on the
improvements and personal property of LESSOR thereon. In no event, however,
shall LESSEE be liable for any taxes levied or measured by income of LESSOR, or
for taxes applicable to or levied against or based upon payments made to LESSOR
under Sections 3 or 5 of this Agreement. LESSEE shall have the right to contest
in the courts or otherwise, the validity or amount of any taxes or assessments,
before it shall be required to pay the same. LESSEE shall have the right at its
sole discretion to pay any delinquent property taxes, together with interest,
penalties and charges, that are the responsibility of LESSOR, the payment of
which shall be a credit against payments thereafter to be made by LESSEE under
the provisions of Section 5.
<PAGE>
d. Assessment Work - Commencing with the annual assessment work year
beginning the first day of September immediately preceding the effective date of
this Agreement, and thereafter during the term hereof, provided that LESSEE has
not exercised its option to purchase the Premises, and this Agreement has not
expired or been terminated prior to one hundred-and twenty (120) days) before
the end of an annual assessment work year, LESSEE shall perform annual
assessment work required to maintain the unpatented mining claims subject to
this Agreement and timely record affidavits of such performance. LESSOR agrees
that in the event LESSEE owns or acquires by location, purchase, lease or option
the right to explore claims or groups of claims adjacent to or which touch the
Premises at any point, LESSEE shall have the right to perform assessment work
required hereunder pursuant to a common plan of exploration or development,
which may include all or a portion of such claims or groups of claims and the
Premises, whether such work is performed on or off the Premises. LESSEE shall
not be liable on account of holdings by any court or governmental agency that
the effects of work so elected and performed by LESSEE do not constitute the
required annual assessment work for the purposes of preserving title to such
claims, provided that LESSEE has expended a total amount sufficient to meet the
minimum requirements with respect to all of the unpatented claims.
e. Compliance with Laws and Regulations - LESSEE's operations on the
Premises shall be in compliance with all applicable federal, state and local
laws and regulations pertaining to environmental protection and reclamation, and
LESSEE shall obtain all necessary permits prior to commencing the operations
requiring such permits, provided that LESSEE shall have the right to contest, in
the courts or otherwise, the validity of any such laws, ordinances, resolutions
and regulations and the necessity of obtaining any such permits. In addition,
LESSEE shall comply with all governmental bonding requirements.
f. Data - LESSEE shall provide LESSOR with copies of all interpretive
and noninterpretive data, including maps, drilling results, and progress
reports, pertaining to the Premises on an annual basis, commencing with the
first anniversary of the effective date of this Agreement, and continuing
annually thereafter for data obtained during the preceding year during the term
of this Agreement.
10. Termination: Removal of Property
a. Termination by LESSOR - Except for the payments to be made by LESSEE
to LESSOR as provided in Section 3 and Section 5 hereof, if LESSOR considers
that LESSEE has not complied with any other covenants, conditions or obligations
hereunder, either express or implied, LESSOR shall notify LESSEE in writing,
setting out specifically in what respects it is claimed that LESSEE has breached
this Agreement. The receipt of such notice by LESSEE and the lapse of sixty (60)
days thereafter without LESSEE's meeting or commencing to meet the alleged
breaches, shall be a condition precedent to any action by LESSOR for any cause
hereunder. Neither the service of said notice, nor the doing of any acts by
LESSEE aimed to meet all or any of the alleged breaches shall be deemed an
admission or presumption that LESSEE has failed to perform all of its
obligations hereunder. This Agreement shall never be forfeited or canceled in
whole or in part for failure of LESSEE to perform any express or implied
covenants, conditions or obligations until it shall have been first finally
judicially determined that such failure exists, and any decree of termination,
cancellation or forfeiture shall be in the alternative and shall provide for
termination, cancellation or forfeiture, unless LESSEE complies with covenants,
conditions or obligations breached within a reasonable time to be determined by
the Court.
<PAGE>
If LESSEE fails to make a payment pursuant to Section 5, LESSOR shall
give notice to LESSEE in accordance with Section 12 of such failure to pay. If
LESSEE does not thereafter make the payment within thirty (30) days of the
effective date of such notice, LESSOR may within thirty (30) days thereafter
terminate this Agreement by delivering to LESSEE written notice cf such
termination in accordance with Section 12.
b. Termination by LESSEE - LESSEE shall have the right to terminate
this Agreement, with regard to all or a portion of the Premises, at any time by
giving notice to LESSOR in accordance with Section 12. Upon such termination,
all right, title and interest of LESSEE under this Agreement with regard to all
or a portion of the Premises, shall terminate, and LESSEE shall not be required
to make any further payment, the due date of which would otherwise occur on any
date after the effective date of such notice of termination. Subject to the
obligations of LESSEE as set forth in paragraph c of this Section 10, LESSEE
shall be relieved of any and all further obligations set forth in this
Agreement, except those obligations, if any, which have accrued prior to such
termination. Any taxes, assessments and governmental charges shall be prorated
as of the termination date.
c. Delivery of Data - In the event of expiration or termination of this
Agreement, other than by LESSEE's exercise of the option to purchase the
Premises, LESSEE shall furnish LESSOR within thirty (30) days one (1) set of
copies of all interpretative and noninterpretative data and all reports
pertaining to the Premises and developed or prepared by or for LESSEE, and shall
deliver to LESSOR any available drill samples, drill core, or drill chip logs
derived from the Premises. Delivery shall be made either to the Premises or to
the LESSOR's address as the LESSOR directs. LESSEE shall in no event be liable
to LESSOR for loss of or damage to any such core or for the accuracy of any data
furnished to LESSEE.
d. Removal of Property - upon any termination or expiration of this
Agreement, other than by LESSEE's exercise of the option to purchase the
Premises, LESSEE shall have a period of one hundred eighty (180) days from and
after the effective date of termination in which to remove from the Premises all
of its machinery, buildings, structures, facilities, equipment and other
property of every nature and description erected, placed or situated thereon,
except supports, track and pipe placed in shafts, drifts or openings in the
Premises. Any property of LESSEE not so removed at the end of said one hundred
eighty (180) day period shall become the property of LESSOR. LESSEE makes no
warranties concerning the condition of said property. LESSEE shall have the
right to keep a watchman on the Premises during said one hundred eighty (180)
day period.
11. Access; Confidentiality
LESSOR, at its sole risk and expense, shall have access to the portions
of the Premises being used by LESSEE to inspect the same at such times and upon
such notice to LESSEE as shall not unreasonably hinder or interrupt the
operations of LESSEE. LESSOR shall not, without the express written consent of
LESSEE, disclose any information, including the terms of this Agreement, LESSOR
may obtain with respect to the results of the operations hereunder, nor issue
any press releases concerning the operations; provided, however, that if LESSOR
contemplates selling or assigning its interest, LESSOR shall have the right to
disclose such information to a potential purchaser if LESSOR first obtains an
agreement in writing from such third party that the third party shall hold
confidential the information furnished to it.
<PAGE>
12. Notices
Any notice or communication required or permitted hereunder shall be in
writing and shall be effective when personally delivered or when addressed:
If to Schull: H. Walter Schull
316 California Avenue, Suite 4C
Reno, Nevada 89509
If to Lessee: Great Basin Exploration and
Mining Company, Inc.
3400 Kauai Court, Suite 208
Reno, Nevada 89509
Attention: A. P. Taylor
With copy to: Kimball, Parr, Waddoups, Brown & Gee
185 South State Street, Suite 1300
Salt Lake City, Utah 84111
Attention: Clayton J. Parr, Esq.
and deposited, postage prepaid, and registered or certified with return receipt
requested, in the United States mail. Either LESSOR or LESSEE may, by notice to
the other given as aforesaid, change its mailing address for future notices
hereunder.
13. Transfer of Interest
LESSEE shall not assign or sublease its interest in this Lease or enter
into a joint operating agreement with any other person or entity without the
written consent of LESSOR first had and received, which shall not be
unreasonably withheld. Notwithstanding the foregoing, LESSEE shall have the
right to assign its interest in this Agreement to any parent or subsidiary
corporation or to any corporation that controls or is under common control with
LESSEE or that acquires all of the assets of LESSEE, or to any partnership or
joint venture of which LESSEE is a partner or coventurer. Further, any
assignment, sublease or joint operating agreement shall be null and void unless
LESSEE provides LESSOR with an agreement by the assignee, sublessee or joint
venturer or partner to be bound by the terms of this Lease, together with a bona
fide copy of the executed assignment, sublease, or joint operating agreement and
any exhibits, attachments, amendments or modifications thereto within thirty
(30) days after its or their execution. Further, such assignment, sublease, or
joint operating agreement shall not relieve LESSEE of any of its obligations
hereunder. LESSEE shall incorporate this Section 13, not by reference, into the
instrument of assignment, sublease or joint operating agreement, and any and all
subsequent assignments, subleases or joint operating agreements shall also be
subject to this Section 13.
The assignment shall be effective the first day of the next month
following the delivery to the non-assigning party of satisfactory evidence of
such assignment.
<PAGE>
14. Force Majeure
LESSEE shall not be liable for failure to perform any of its
obligations, other than making payments due under Section 5, during any period
in which performance is prevented, in whole or in part, by causes herein termed
"force majeure". For purposes of this Agreement, the term "force majeure" shall
include, but not be limited to, labor disputes, acts of God, actions of the
elements, inclement weather, floods, slides, cave-ins, laws, rules, regulations
and requests of governmental bodies or agencies thereof unavoidable delay in
obtaining necessary materials, facilities and equipment in the open market, or
any cause, except for inability to meet financial commitments, whether similar
or dissimilar to those specifically enumerated, beyond the reasonable control of
LESSEE. If LESSEE desires to invoke the provisions of this Section 14, LESSEE
shall give notice of the commencement of and the circumstances giving rise to
such force majeure and shall take all reasonable actions to cure the same, but
LESSEE shall not be obligated to settle labor disputes or to question the
validity of any act of a governmental body or agency. The time for discharging
LESSEE's obligations with respect to the prevented performance shall be extended
for the period of force majeure.
15. No Express or Implied Covenants
It is expressly agreed that no express or implied covenant or condition
whatsoever shall be read into this Agreement relating to the exploration,
development or mining of the Premises or the time therefore, or to any
operations of LESSEE hereunder or to the measure of diligence thereof.
16. Applicable Law
This Agreement shall be governed by the local law of the State of
Nevada.
17. Memorandum
LESSEE and LESSOR shall execute a memorandum of this Agreement in a
recordable form sufficient under the law of the State of Nevada to give notice
to third parties of rights granted hereunder. Either party may record such
memorandum.
18. Title Headings
The title headings of the various sections of this Agreement are
inserted for convenience only and shall not be deemed to be a part of this
Agreement.
19. Sole Agreement
This Agreement shall constitute the sole understanding of the parties
with respect to the subject matter hereof, and no modification or alteration of
the terms hereof shall be binding unless such modification or alteration shall
be in writing executed subsequent to the date hereof by all the parties hereto.
<PAGE>
IN WITNESS WHEREOF, LESSOR and LESSEE have executed this MINERAL LEASE
AGREEMENT WITH OPTION TO PURCHASE effective as of the date set forth above.
LESSOR: H. Walter Schull
----------------
H. Walter Schull
LESSEE: GREAT BASIN EXPLORATION AND MINING
COMPANY, INC.. a Nevada Corporation
By: A. P. Taylor
--------------
A. P. Taylor, President
STATE OF NEVADA
:ss
COUNTY OF WASHOE
On this 2nd day of April, 1991, personally appeared before me, a Notary
Public, H. Walter Schull, personally known (or proven) to be the person whose
name is subscribed to the above instrument, who acknowledged to me that he
executed the instrument.
MYRA E. BAILEY
Notary Public State of Nevada
Appointment Recorded In Washoe County
MY APPOINTMENT EXPIRES MAY 16, 1992
STATE OF NEVADA
:ss
COUNTY OF WASHOE
On this 8th day of April, 1991, personally appeared before me, a Notary
Public, A. P. Taylor, personally known (or proven) to be the person whose name
is subscribed to the above instrument, who acknowledged to me that he executed
the instrument.
MYRA E. BAILEY
Notary Public State of Nevada
Appointment Recorded In Washoe County
MY APPOINTMENT EXPIRES MAY 16, 1992
<PAGE>
AMENDMENT OF LEASE
THIS AGREEMENT AND AMENDMENT, made and entered into this 13th day
of January, 1993, by and between H. WALTER SCHULL, hereinafter referred to as
"Lessor", and ,GREAT BASIN EXPLORATION & MINING CO., INC., hereinafter referred
to as "Lessee",
WITNESSETH:
WHEREAS, Lessor and Lessee have entered into a Mineral Lease
Agreement With Option To Purchase dated effective the 19th day of February,
1991, covering the following described lands in Eureka County, State of Nevada,
to wit:
68 Unpatented Lode Mining Claims - C.C. Nos. 1-68
Located in Sections 17, 20, & 29 of T25N, R49E, unknown
Mining District, Eureka County, Nevada
a Memorandum to such lease having been recorded in Book 222, Page 169 of the
records of said county and Lessor and Lessee now desire to amend certain
provisions of said lease as follows:
1. Section 5.a. Rental
Rental between January 1st and January 15th,1993 - $20,000.
(to be paid immediately upon signing of this Amendment)
Rental between January 1st and January 15th, 1994 - $20,000.
(to be paid on or before January 15, 1994)
Payment of $100,000 per year and each subsequent year resumes in
January, 1995 if agreement is still in effect. (to be paid on or before January
15 of each year)
At any time during the course of this Agreement, should Lessor make a discovery
on the Premises of a magnitude which would warrant initiation of a
pre-feasibility study, Lessor will pay Lessee the difference between annual
payments ($40,000-1993 and $80,000-1994) at the time of the next scheduled
payment following the discovery. Should the Agreement be terminated at anytime
by either party in compliance with Section 10 of the original Agreement, no
further payment will be required by Lessor.
2. Section 9.d. Assessment Work
Lessor will guarantee payment of all holding and recording fees (both
BLM and County) for the Premises due on August 31, 1993.
If Agreement is hereafter terminated by either party, pursuant to Section 10 of
the original document, no further assessment work or filing will be required of
Lessor.
<PAGE>
3. Method of Making Payments
Lessor may have the following option for receiving payments if he so
chooses:
The
------------------------------------------------------------------
- ----------------------------------------------------------
(name and address of bank, etc.) or its successor, is hereby designated as
Lessor's agent to receive from GBEM or its agent all payments due or payable to
Lessor under the terms of this Agreement and all such payments may be made by
mailing or /delivering the same to said bank for deposit for Lessor's credit in
Account No. _____________________. GBEM shall have no obligation to allocate or
apportion any payment made hereunder, it being Lessor's obligation to direct the
bank as to how such payments are disbursed. Such depository bank shall continue
as depository under this Agreement regardless of any change or division in the
ownership in the Premises or of the right to receive any payments that accrue
hereunder. In the event such bank, or its successor, should fail, liquidate, or
refuse to accept any payment or should Lessor desire to designate a different
depository bank, then GBEM shall not be held in default for failure to make any
payment or tender of payment until sixty (60) days after Lessor shall deliver to
GBEM a proper recordable instrument naming another single bank as depository and
agent for Lessor to receive such payments or tenders. Any bank charges shall be
for Lessor's account.
This Amendment shall be binding upon and inure to the benefit of the parties
hereto, their successors, personal representatives and assigns.
EXECUTED the day and year first above set forth.
WITNESS: ___________________________
"LESSOR" "LESSOR"
GREAT BASIN EXPLORATION & MINING CO., INC.
- ------------------------------ ---------------------------
H. WALTER SCHULL A.P. TAYLOR, President
<PAGE>
SECOND AMENDMENT TO MINERAL LEASE AGREEMENT
with OPTION TO PURCHASE
Coal Canyon Property
THIS SECOND AMENDMENT to the Mineral Lease with Option to Purchase executed
this ---- day of ------, 1994, between H. Walter Schull, hereinafter referred to
as "Lessor" and Great Basin Exploration & Mining Co., Inc., a Nevada
corporation, hereinafter referred to as "Lessee".
RECITALS
A. Lessor and Lessee are parties to a certain Mineral Lease with Option to
Purchase Agreement dated effective October 19, 1991 and First Amended on January
13, 1993.
B. Lessor and Lessee, for purposes of including the CC 73 and CC 91-100
lode mining claims located on September 24/27, 1993 by Lessee and the CC 101-112
lode mining claims located on January 10, 1994 by Lessee, desire to amend the
Mineral Lease Agreement with Option to Purchase to include said CC claims.
AGREEMENT
NOW, THEREFORE, in consideration of the foregoing and of the mutual
benefits to be derived, Lessor and Lessee agree as follows:
1. The Mineral Lease with Option to Purchase is hereby amended to include
those certain CC claims, as listed on Exhibit "A" attached.
2. Exhibit "A" attached is hereby made part and parcel of Mineral Lease
Agreement with Option to Purchase dated effective October 19, 1991.
3. Except as stated in the preceding two paragraphs, all of the terms and
conditions of the Mineral Lease with Option to Purchase remain in full force and
effect.
GREAT BASIN EXPLORATION H. WALTER SCHULL
& MINING CO., INC.
By A.P. TAYLOR By H. WALTER SCHULL
------------------------- ------------------
A.P. Taylor , President H. Walter Schull
STATE OF NEVADA )
) ss.
COUNTY OF WASHOE)
On this --- day of -----, 19---, personally appeared before me, a
Notary Public, in and for the state and county aforesaid, H. Walter Schull, who
acknowledged that he executed the within instrument for purposes
expressed therein.
------------------------
NOTARY PUBLIC
<PAGE>
STATE OF NEVADA)
) ss.
COUNTY OF WASHOE )
On this --- day of -------, 19---, personally appeared before me, a Notary
Public, in and for the state and county aforesaid, A.P. Taylor, the President of
GREAT BASIN EXPLORATION & MINING CO., INC., a Nevada corporation, who
acknowledged that he executed the within instrument on behalf of said
corporation for purposes expressed therein.
------------------------
NOTARY PUBLIC
<PAGE>
EXHIBIT "A"
to the
SECOND AMENDMENT TO MINERAL LEASE AGREEMENT
WITH OPTION TO PURCHASE
entered into and dated this ---- day of--------, 1994.
Certain unpatented lode mining claims located in Sections 16, 17, 20, 21,
28 & 29,T25N, R49E, Eureka County, Nevada MDB&M.
CLAIM DATE OF COUNTY RECORDING DATA BLM NMC
NAME/No. LOCATION Date Book Page No.
CC 73 9/24/93 12/15/93 262 534 689727
CC 91 9/27/93 12/15/93 262 552 689745
CC 92 9/27/93 12/15/93 262 553 689746
CC 93 9/27/93 12/15/93 262 554 689747
CC 94 9/27/93 12/15/93 262 555 689748
CC 95 9/27/93 12/15/93 262 556 689749
CC 96 9/27/93 12/15/93 262 557 689750
CC 97 9/27/93 12/15/93 262 558 689751
CC 98 9/27/93 12/15/93 262 559 689752
CC 99 9/27/93 12/15/93 262 560 689753
CC 100 9/27/93 12/15/93 262 561 689754
CC 101 1/10/94 2/11/94 264 579 695034
CC 102 1/10/94 2/11/94 264 580 695035
CC 103 1/10/94 2/11/94 264 581 695036
CC 104 1/10/94 2/11/94 264 582 695037
CC 105 1/10/94 2/11/94 264 583 695038
CC 106 1/10/94 2/11/94 264 584 695039
CC 107 1/10/94 2/11/94 264 585 695040
CC 108 1/10/94 2/11/94 264 586 695041
CC 109 1/10/94 2/11/94 264 587 695042
CC 110 1/10/94 2/11/94 264 588 695043
CC 111 1/10/94 2/11/94 264 589 695044
CC 112 1/10/94 2/11/94 264 590 695045
<PAGE>
THIRD AMENDMENT TO MINERAL LEASE
WITH OPTION TO PURCHASE
Coal Canyon Property
Eureka County, Nevada
THIS THIRD AMENDMENT to the Mineral Lease with Option to Purchase ia executed
this _____ day of February, 1996, between H. Walter Schull, hereinafter referred
to as "Lessor" and Great Basin Exploration & Mining Co., Inc., a Nevada
corporation, hereinafter referred to as "GBEM".
RECITALS
A. Lessor and GBEM are parties to a certain Mineral Lease with Option to
Purchase dated effective February 19, 1991, Amended on January 13, 1993, and
Second Amended on May 17, 1994.
B. GBEM, in February of 1995, in lieu of terminating said Mineral Lease, agreed
with Lessor to exchange the $100,000 annual rental payments required by the
Mineral Lease for 1) a $20,000 annual rental payment for the years 1995, 1996
and 1997, and 2) a $200,000 work commitment, to be spent on drilling for the
calendar years 1995, 1996 and 1997
C. GBEM and Lessor now wish to amend the Mineral Lease with Option to purchase
to reflect the terms of agreement as stated in Section B., above.
AGREEMENT
NOW, THEREFORE, in consideration of the foregoing and of the mutual benefits to
be derived, Lessor and GBEM agree as follows:
1. The Mineral Lease is hereby amended to effect annual rental payments of
$20,000 by GBEM to the Lessor for the years 1995, 1996 and 1997 due and payable
on the anniversary date as specified in the Mineral Lease with Option dated
February 9, 1991.
2. The Mineral Lease is hereby amended to effect an annual work commitment, by
the GBEM, of $200,000 to be expended on drilling, trenching, or excavation
during each of the calendar years 1996 and 1997.
3. Except as stated in the preceding two paragraphs, all of the terms and
conditions of the Mineral Lease with Option to Purchase, as previously amended,
remain in full force and effect.
GREAT BASIN EXPLORATION H. WALTER SCHULL
& MINING CO., INC. (GBEM) (Lessor)
By A.P. Taylor By H. Walter Schull
------------------- ----------------
A.P. Taylor, President H. Walter Schull
<PAGE>
FOURTH AMENDMENT TO MINERAL LEASE WITH OPTION TO PURCHASE
THIS FOURTH AMENDMENT to that Mineral Lease Agreement with Option to
Purchase dated February 19, 1991 is executed this ______ day of July, 1996
between H. Walter Schull, Manager, and Mireille Schull, Owner, (hereinafter
referred to as "Lessor"), and Great Basin Exploration & Mining Co., Inc., a
Nevada corporation (hereinafter referred to as "Lessee").
RECITALS
A. Lessor and Lessee are parties to the following:
"MINERAL LEASE AGREEMENT WITH OPTION TO PURCHASE Coal Canyon Property"
dated February 19, 1991 (hereinafter referred to as the "Mineral Lease
Agreement").
"AMENDMENT OF LEASE" dated January 13, 1991 (hereinafter referred to as
the "First Amendment").
"SECOND AMENDMENT TO MINERAL LEASE AGREEMENT WITH OPTION TO PURCHASE
Coal Canyon Property" dated May 17, 1994 (hereinafter referred to as the "Second
Amendment").
"THIRD AMENDMENT TO MINERAL LEASE WITH OPTION TO PURCHASE Coal Canyon
Property, Eureka County, Nevada" entered the 15th day of February, 1996
(hereinafter referred to as the "Third Amendment").
(the foregoing Mineral Lease Agreement, First Amendment, Second
Amendment and Third Amendment hereinafter collectively referred to as the
"Mineral Lease Agreement as Amended").
B. Lessor and Lessee desire to further amend the Mineral Lease Agreement as
Amended.
AGREEMENT
NOW, THEREFORE, in consideration of the foregoing and of the mutual benefits to
be derived, Lessor and Lessee agree as follows:
1. The last sentence of the first paragraph of Section 3 of the Mineral
Lease Agreement is hereby revised to read as follows:
"Any and all payments made by LESSEE to LESSOR pursuant to Section 5
hereof, and all costs, if any, incurred by LESSEE for which LESSOR is liable
pursuant to paragraph b of Section 7 hereof shall be credited against the
purchase price."
2. The last sentence of paragraph b of Section 5 of the Mineral Lease
Agreement is hereby amended to read:
"The term 'Gross Returns" in any calendar quarter shall mean the amount of
earned revenues payable to LESSEE by any smelter, refinery, or other arm's
length purchaser of any and all Mineral Substances from the Premises, less any
smelting and sampling charges charged to LESSEE by said purchaser."
3. Paragraph d of Section 5 of the Mineral Lease Agreement is hereby
amended to read:
<PAGE>
"d. Adjustment for Inflation - The purchase price as set forth in Section 3
shall be subject to escalation based upon the Consumer Price Index published by
the Bureau of Labor Statistics of the United States Department of Labor. The
applicable amount due LESSOR shall be multiplied by a percentage equal to 100,
plus the percentage increase in the Consumer Index from the effective date of
the Agreement, to the date of the close of the calendar quarter during which the
applicable payment is due."
4. Section 1 of the First Amendment and Section 1 of the Third Amendment
are hereby deleted and paragraph a of Section 5 of the Mineral Lease Agreement
is hereby amended to read as follows:
"A. Rental - Subject to LESSEE's right to terminate this Agreement, LESSEE
shall pay to LESSOR rental in the following amounts:
$15,000.00 on or before March 18, 1991, $15,000.00 on or before October 1,
1991, $30,000.00 between January 1 and January 15, 1992, $20,000.00 between
January 1 and January 15, 1993, $20,000.00 between January 1 and January
15, 1994, $20,000.00 between January 1 and January 15, 1995, and of each
year thereafter while the Mineral Lease Agreement as Amended is in effect.
LESSEE's obligation to make the rental payments shall terminate upon
the earlier of the commencement of payment of production royalties or upon its
exercise of the option to purchase the Premises, and all rental payments to
LESSOR shall be credited against the purchase price as calculated in Section 3."
5. Section 2 of the first Amendment is hereby deleted and LESSOR and LESSEE
agree that Paragraph d of Section 9 of the Mineral Lease Agreement shall apply
only while federal or state law requires annual assessment work to be performed
on the Premises. When annual assessment is not required and the payment of
holding, rental or filing fees and filing of documents to federal state or
county offices or agencies is required, LESSEE will pay such fees and make such
filings on or prior to the date such payments and filings are required.
If the Mineral Lease Agreement is hereafter terminated by either
party, pursuant to Section 10 thereof, no further assessment work or filings or
payment of fees will be required by LESSEE.
6. Section 2 of the Third Amendment is hereby revised to read as follows:
"The Mineral Lease Agreement As Amended is hereby amended to effect a
work commitment by LESSEE of $100,000.00 to be spent between January 1, 1996 and
December 31, 1996 and $200,000.00 to be spent between January 1, 1997 and
December 31, 1997 and each year thereafter. The yearly work expenditures
qualified as fulfilling the work commitment shall be limited to all costs
incurred in actual work on the Coal Canyon Mineral prospect in drilling,
trenching, excavation, mining, road building, surveying, mapping, and
geological, geochemical and geophysical programs conducted on the Coal Canyon
Mineral Prospect as well as assaying and metallurgical testing of ores extracted
from the Coal Canyon Mineral Prospect which may be conducted at appropriate
facilities off the Coal Canyon Mineral Prospect. Expenditures shall include
wages and salaries paid to engineers, geologists, laborers and technicians for
actual time spent in exploration, development and mining of the Coal Canyon
Mineral Prospect. Direct overhead, such as lodging, meals and travel expenses
(but expressly excluding any charge for office or administrative expenses) shall
be limited to ten percent (10%) of the yearly work requirement. Any work
expenditures in excess of the work commitment in any calendar year shall be
applied to the work commitment for the following calendar year. The said work
commitments shall terminate in the event the Mineral Lease Agreement As Amended
is terminated."
<PAGE>
7. Except as specifically amended in this Fourth Amendment, the Mineral
Lease Agreement As Amended remains in full force and effect. LESSOR and LESSEE
certify that the Mineral Lease Agreement As Amended is in good standing and in
full force and effect, LESSEE is not in default in any of the terms of the
Mineral Lease Agreement As Amended and LESSOR and LESSEE know of no
circumstances presently existing that would cause LESSEE to be in default.
8. All denominations of money in the Mineral Lease Agreement As Amended are
in United States currency.
IN WITNESS WHEREOF, the parties hereto have executed this Fourth Amendment to
the Mineral Lease Agreement as of the date first above written.
LESSEE LESSOR
GREAT BASIN EXPLORATION &
MINING CO., INC.
By
------------------------ ------------------
Title Manager
------------------------
STATE OF NEVADA }
} ss
COUNTY OF WASHOE }
The foregoing instrument was acknowledged before me on this ____ day of
________, 1996 by ________________________________, ___________________ of Great
Basin Exploration & Mining Co., Inc., a Nevada
corporation, on behalf of the Corporation.
-----------------------------------
My Commission Expires: Notary Public
STATE OF NEVADA }
} ss
COUNTY OF WASHOE }
The foregoing instrument was acknowledged before me on this ____ day of
________, 1996 by H. Walter Schull who acknowledged that he executed the within
instrument for the purposes contained herein.
-----------------------------------
My Commission Expires: Notary Public
TEMPO MINERAL LEASE
THIS TEMPO MINERAL LEASE (hereinafter "Lease") is made and entered into on
the 14th day of October, 1994, by and between LYLE F. CAMPBELL, Sole Trustee of
THE LYLE F. CAMPBELL TRUST under an Agreement of Trust dated August 5, 1986 and
amended on May 21, 1987, August 19, 1987 and April 29, 1991, hereinafter called
"LESSOR', and GREAT BASIN EXPLORATION & MINING CO., INC., a Nevada Corporation,
hereinafter called "LESSEE'.
RECITALS
NOW, THEREFORE, in consideration of the mutual benefits to be enjoyed by
Lessor and Lessee pursuant to this Lease, Lessor and Lessee hereby agree as
follows:
WITNESSETH:
1. GRANT; RESERVATION. Lessor, for and in consideration of the royalties
hereinafter reserved and of the agreements of Lessee herein contained, to the
extent vested with legal right to do so, hereby grants, demises, leases and lets
exclusively unto Lessee, except for the Lessor's right of inspection, the
properties owned by Lessor or in which Lessor has an interest, all as more
particularly described in Exhibit "A" attached hereto and made a part hereof,
and any additions thereto under Article 8 (hereinafter call "Tempo Mineral
Prospect"), for the purpose of surveying, sampling, investigating, exploring
for, prospecting for, drilling for, developing, mining by any method (whether or
not now known and including, but not limited to, open pit, strip, underground
and solution methods), producing, saving, taking, milling, treating,
transporting, storing, stockpiling, handling and marketing all minerals or any
valuable products of any nature whatsoever in, on or under the Tempo Mineral
Prospect including, but not limited to, ore, minerals, concentrates, dore,
refined materials and any other product of any process whether or not now known
and regardless of the stage of milling, refining, upgrading or other processing
title passes to buyer, but excluding oil, gas, hydrocarbons and geothermal
resources (hereinafter called "Leased Substances"), together with all of
Lessor's rights, privileges, water rights (if any) and easements (if any) useful
for Lessee's operations hereunder on the Tempo Mineral Prospect including, but
not limited to, the rights to look for, test, work, mine, excavate, raise,
clean, stockpile on the Tempo Mineral Prospect only, store, carry away and sell
Leased Substances, to excavate pits, to sink shafts, make, use and occupy
openings, adits, tunnels, raises, rooms, stopes, slopes, winzes and underground
passages (now existing or hereafter opened), strip seams, lodes, veins and beds,
and erect, use and maintain on the Tempo Mineral Prospect such buildings,
tipples, headframes, refineries, gasification plants, power plants, engines,
machinery, appliances, devices, walls, wells, presently appurtenant (if any) or
newly established water rights, roadways, housing, railroad tracks, shops,
ditches, dams, ponds, reservoirs, pipes, power and communication lines and,
without limitation except as required by duly authorized regulatory agencies or
government, all other necessary structures and facilities (hereinafter
"Improvements"). From time to time Lessee may relocate all or any part of said
improvements as Lessee may deem desirable or necessary in its operations on the
Tempo Mineral Prospect. Provided, however, that Lessor shall be notified in
writing by certified or registered mail of Lessee's intention to make such
relocation at least twenty (20) days prior to commencing such relocation unless
an emergency condition exists.
<PAGE>
There is reserved to the Lessor the possessory right to a reasonable
portion of the surface of the Tempo Mineral Prospect for the purpose of locating
a residence and inspection station to exercise Lessor's rights hereunder. Said
portion of the Tempo Mineral Prospect shall be located by agreement of the
parties subsequent to completion of Lessee's initial exploration program so as
to provide (1) the least likely interference with Lessee's anticipated mining
operations and (2) the greatest convenience to Lessor for access to Lessee's
mining operation, processing facilities and public roads near or servicing the
Tempo Mineral Prospect at a place and of a size of his own choosing compatible
with the purposes of this reservation.
2. TERM; RULE AGAINST PERPETUITIES AND SEVERABILITY OF PARAGRAPHS. Subject
to the other provisions herein contained, this Lease shall remain in force for a
term of twenty (20) years from the date hereof and so long thereafter as there
is production of one or more Leased Substances from the Tempo Mineral Prospect,
or any operation permitted hereunder are being conducted on the Tempo Mineral
Prospect or this Lease is continued in force by reason of any of the provisions
hereof; provided, however, the term of this Lease shall not exceed ninety-nine
(99) years in any event. During any period of extension beyond the primary term
hereof all of the terms and conditions of this Lease shall remain in full force
and effect.
The term of this Lease is not intended to violate the Rule Against
Perpetuities. In the event the term of this Lease is determined to violate the
Rule Against Perpetuities by a Court of competent jurisdiction, the term shall,
by this Article 2, be automatically reduced to the maximum number of years
determined to comply with the Rule Against Perpetuities. Each of the Articles in
this Lease is severable from each of the other Articles in this Lease. In the
event an Article in this Lease is determined to be invalid, void, or
unenforceable, then all remaining Articles shall remain in full force and
effect. In the further event that this Article 2 is construed in such a manner
as to eliminate a definitive term of this Lease, then the parties agree that the
term shall be reasonable period of time sufficient to accomplish the purposes of
this Lease.
3. FUNDS FOR PAYMENT; ADVANCE MINIMUM ROYALTY; ROYALTY CREDIT; AMOUNT OF
ROYALTIES PAID; DOLLAR EQUIVALENT.
A. Payment Funds. Any and all payments required to be paid to Lessor
pursuant to the terms of this Lease shall be made in U.S. Currency, or as
in-kind payments in accord with Article 4 Production Royalty.
B. Advance Minimum Royalty. Lessee shall pay to Lessor Advance Minimum
Royalties in the amounts and at the times listed below; provided, however, that
if this Lease is terminated prior to the due date for the payment of any such
Advance Minimum Royalty, Lessee shall have no obligation to make any further
Advance Minimum Royalty payments, the due dates of which occur after such
termination.
Due Date of Advance Amount of Advance Minimum
Minimum Royalty Payment Royalty Payment
Between date of execution and In lieu of Advance Minimum
December 31, 1994 Royalty Payment, Lessee shall
Drill a minimum of 1500 feet of reverse
circulation drilling as set forth below.
On or Before January 5, 1995 $20,000.00
but not prior to January 1,
1995
<PAGE>
On or Before January 5, 1996 $40,000.00
but not prior to January 1,
1996
On or before January 5, 1997 $80,000.00
but not prior to January 1,
1997
On or before January 5, 1998 The greater of $120,000 or
and each year thereafter but the U.S. Dollar Equivalent
not prior to January 1 of the of 311.69 ounces of gold.
year payment is due
For calculating equivalents -
For gold base price use $385.00 per ounce
For silver based price use $5.00 per ounce
It is mutually understood and agreed that Lessee shall drill three holes at
three locations to be chosen by the Lessor. The minimum diameter, dip and
direction of the holes is shown on Exhibit"B" attached hereto. It is also
mutually understood and agreed that each hole will be a minimum of 500 feet
deep. However, if in the opinion of Lessee and/or Lessor and by mutual consent,
the drill cuttings are considered to indicate that any of the holes are in
altered rock which is favorable to the occurrence of ore, such hole will be
continued to the bottom of the favorably appearing rock. The Lessor shall have
the right to at least ten (10) days prior written notice of the time these three
(3) exploration holes are to be drilled. The Lessor shall, at Lessor's sole
option, have the right to have a representative present to witness the drilling
operations for these holes. However, if after receiving ten (10) days' written
notice of the commencement of drilling of these holes, Lessor has not sent an
agent to observe, Lessee may commence drilling without the presence of Lessor or
its witnessing agent.
If this Lease is terminated for any reason, including but not limited to
partial payment or nonpayment after thirty (30) days written notice as provided
in Article 6, at any time during the calendar year, Lessee shall be obligated to
pay the full amount of advance Minimum Royalty as required to be paid in this
Article 3(B) during the calendar year of the termination, and for all prior
calendar years during the term of this Lease.
C. ROYALTY CREDIT. All Advance Minimum Royalties paid by Lessee to the
Lessor shall constitute prepayment of and advance against gold Production
Royalties thereafter accruing to Lessor during the term of this Lease. Advance
Minimum Royalty shall be recovered as a credit against gold Production Royalty
only. Lessee may recover such Advance Minimum Royalties only as a credit against
gold Production Royalties due and payable to Lessor; however, Lessee may only
take such credit for previously paid Advance Minimum Royalties against one-half
of that portion of the gold Production Royalties which exceed the Advance
Minimum Royalty due for the same period for which such gold Production Royalty
was earned. Advance Minimum Royalty recovery shall be calculated as follows:
(1) The dollar value of the ounces of gold due under the Production
Royalty (before credits for Advance Minimum Royalties) shall be calculated. This
dollar value shall be equal to the weighted average of the Handy & Harmon cash
base price for gold as published in The Wall Street Journal (or its recognized
successor in publication of metals quotations) in the five business days
<PAGE>
immediately prior to the day on which Lessee pours the dore from which the
Production Royalty's ounces were calculated. Lessee shall report to Lessor
within thirty (30) days of dore pour, the date, identification of the facilities
used to pour, weight of the pour and disposition of the dore pour. If two or
more dore bars produced from the Tempo Mineral Prospect are shipped together to
the refinery and those bars are refined together, the dollar value of the
Production Royalty (before Advance Minimum Royalty credits) shall be based upon
the weighted average of the gold prices calculated by multiplying weight times
grade for each of those bars and dividing that product by the total weight of
those bars.
It is mutually and expressly agreed that Lessee shall use the
following form to report each dore pour and as indicated above Lessee shall
deliver the Dore Pour Report to the Lessor within five (5) days of the dour pour
by Express Mail.
"DORE POUR REPORT
Pour No. ----------------
Date: -------------------
Time: -------------------
Weight (ounces) -------------------
1. Source (property) -------------------------------------------
2. Operator (Lessee) -------------------------------------------
3. Owner -------------------------------------------------------
4. Royalty (for example, 5% of gross sales price) --------------
-------------------------------------------------------------
5. Intended destination of dore (refinery or other facility as
indicated) --------------------------------------------------
NOTE: Within five (5) days of this pour date, an exact
copy (Xerox or carbon paper) will be sent by
Express Mail to the Lyle F. Campbell Trust,
P.O. Box 7377, Reno, Nevada 89510.
-----------------------------------------
Signature of refiner (person in charge of
making pour)
Lettered name ---------------------------
Lettered title --------------------------
-----------------------------------------
Signature of person witnessing pour
Lettered name----------------------------
Lettered title --------------------------
<PAGE>
FILL OUT THIS REPORT IN ITS ENTIRETY. IF A BLANK IS NOT APPLICABLE,
INDICATE AND EXPLAIN WHY ON AN ATTACHED SHEET OF PAPER."
(2) After calculating the dollar value of the gold Production Royalty
pursuant to Paragraph (1) above, the dollar value of the Advance Minimum Royalty
credits shall be calculated by applying the first 100% of the current calendar
year's Advance Minimum Royalty payments made to reduce the Production Royalty
and thereafter applying the 50% limitation recited in Article 3.C above to all
prior year's uncredited Advance Minimum Royalty balance, if any.
D. Amount of Royalties Paid. The royalties payable by Lessee to Lessor
under this Lease shall be the greater of either:
(1) the Advance Minimum Royalty, as provided in Article 3.B
hereof; or
(2) the Production Royalty determined in accordance with Article 4
hereof less any credit under Article 3.C hereof.
E. Dollar Equivalent. For the purpose of this Lease, the "U.S. Dollar
Equivalent", referred to in Articles 3.B and 5, shall be for gold that is at
least ninety-nine and ninety-five one-hundredths percent (99.95%) pure, and
shall be determined by the base price of Handy and Harmon as published in the
Wall Street Journal (or its recognized successor in the publication of gold and
silver quotations) for the tenth (10th) business day preceding the date on which
the payment is due or on which an obligation accrues. If, however, gold payment
clauses are declared to be unenforceable or violations of public policy, then
the "U.S. Dollar Equivalent" shall be for silver that is ninety-nine and
nine-tenths percent (99.9%) pure, and the amounts thereof shall be equal to (1)
24,000 ounces of silver for the Advance Minimum Royalty Payment due in 1998 and
thereafter, pursuant to this Article 3, and (2) 40,000 ounces of silver due for
the work requirement which must be expended in 1997 and in each year thereafter
as provided in Article 5 below.
The method of calculating the "Dollar Equivalent" for Advance Minimum
Royalty and for work requirement using silver shall be the same as that for
calculating the "Dollar Equivalent" using gold above in Article 3, using the
appropriate base price for silver.
4. PRODUCTION ROYALTY; STOCKPILING OF LEASED SUBSTANCES. To the extent the
same exceeds Advance Minimum Royalties payable by Lessee to Lessor under Article
3 hereof, Lessee shall pay Lessor a royalty (hereinafter "Production Royalty")
for all Leased Substances removed, sold or otherwise disposed of from the Tempo
Mineral Prospect. Lessee may stockpile Leased Substances only after giving
Lessor notice of Lessee's intention to do so, which notice shall specify the
date such stockpiling is to commence and the proposed location of the stockpile.
Lessee shall keep a full and complete record of the grade and quantity of all
Leased Substances so stockpiled, and shall provide such information to Lessor
within thirty (30) days of determining such information. In the event any Leased
Substances are stockpiled for five (5) continuous years, such stockpiling shall
be deemed a sale or disposition thereof requiring the payment of the Production
Royalty thereon; in such event, the Production Royalty shall be determined upon
the gross value of the Leased Substances so stockpiled as of the fifth (5th)
anniversary of the date stockpiling commenced. In determining such value, the
reference price shall be the base price of the Leased Substances as published in
The Wall Street Journal, New York Commodity Exchange, on such fifth (5th)
anniversary or the first trading day thereafter.
<PAGE>
A. Lessee shall pay Lessor a Production Royalty of five percent (5%) of
the gross sales price of any gold, silver, platinum or palladium contained in
the Leased Substances, such Production Royalty to be computed before any
deductions whatsoever from the gross sales price of the Leased Substances sold
as shown on the buyer's settlement sheet or other document for each separate
sale thereof. If milling, processing, refining or treatment costs or penalties
are paid in kind, the Production Royalty, shall be computed on the amount of
gold, silver, platinum and palladium contained in the Leased Substances before
deducting any such costs or payments in kind.
B. Lessee shall pay Lessor a Production Royalty of two percent (2%) of
the gross sales price of all Leased Substances other than gold, silver, platinum
or palladium, such Production Royalty to be computed in the manner described
above in Subsection (A) of this Article 4.
C. In addition to the Production Royalties payable under Articles 4.A
and 4.B, Lessee shall pay to Lessor as Production Royalty hereunder a like
percentage of the gross amount paid before any deductions whatsoever of any
bonus, subsidy or similar payment or allowance made for whatever reason to
Lessee by any governmental agency, ore buyer or others with respect to any
production, transport or sale of Leased Substances hereunder.
Payment of Production Royalty, other than Production Royalty taken in
kind by Lessor, shall be made by Lessee to Lessor on or before thirty (30) days
after receipt of payment by Lessee for the Leased Substances sold or otherwise
disposed of and for which the Production Royalty is payable, or within sixty
(60) days after delivery of the Leased Substances by Lessee to a third party,
whichever is earlier.
It is mutually understood and agreed that, after Lessee has recouped
all Advance Minimum Royalties, Lessor shall have the right and option to take
his Production Royalty in kind in the form in which Lessee sells such Leased
Substances. On or before October 1st of each calendar year, Lessor shall give
Lessee written notice of whether Lessor elects to take his Production Royalty in
kind throughout the following calendar year. If Lessor fails to give such notice
for the first calendar year in which he is eligible to take his Production
Royalty in kind, Lessor shall be deemed to have elected not to take his
Production Royalty in kind for that calendar year. If Lessor fails to give such
notice by October 1st of any subsequent year, the election then in effect will
continue throughout the following calendar year. Lessor hereby agrees that each
election to take or not to take his Production Royalty in kind shall remain in
effect for calendar year increments and that all persons or entities
constituting the Lessor shall be required to make the same election whether or
not to take in kind.
If Lessee enters into an agreement for the sale of Leased Substances
from the Tempo Mineral Prospect, it shall not include in such agreement sale of
that portion of the Leased Substances which Lessor has the right to take in
kind, without the prior written agreement of Lessor.
If Lessor elects to take his Production Royalty in kind, Leased
Substances shipped to third parties shall be shipped in the joint names of
Lessor and Lessee. Lessee shall make necessary arrangements so that Lessor shall
be a party to any agreements that Lessee makes with refiners for refining Leased
Substances from the Tempo Mineral Prospect. If Lessor elects to take his
Production Royalty in kind, Lessor shall bear all risks associated with taking
his Production Royalty in kind, and shall bear all additional costs incurred by
<PAGE>
Lessee as a result of Lessor's taking in kind, such as increased costs due to
separate pourings, storage, insurance, security, transportation and monitoring.
Lessor shall have the right to inspect procedures used by Lessee to make payment
in kind, and at his option, Lessor, or his agent, shall have the right to be
present to observe sampling and splitting procedures and to review all records
and procedures related to division of Leased Substances for the purpose of
taking in kind.
In the event the purchaser of any of the Leased Substances produced and
sold by Lessee hereunder shall be owned or controlled by Lessee, the purchase
agreement(s) covering such Leased Substances shall be commercially fair and
shall provide that the price to be received by Lessee therefor shall be
commercially fair and shall not be less than the price currently received by
other sellers of Leased Substances of like quality and quantity who sell to the
nearest independent refinery or smelter in the market area where such Leased
Substances are ordinarily sold. For the purpose of this Article 4, "owned and
controlled" shall mean that Lessee holds sufficient interest in the purchaser to
substantially direct its operations on a continuing basis.
Production Royalty payments (dollar or in-kind) to Lessor shall be
accompanied by a statement, together with smelter or refinery settlement sheets,
agreements, invoices, or their equivalent, showing in reasonable detail the
computation and derivation of such payments. If Lessee provides the accounting
to support royalty payments in a columnar form, Lessee shall provide Lessor with
a legend which explains the meaning of the heading of each column and a sample
of one of the royalty calculations so Lessor can confirm Lessee's royalty
calculations.
It is mutually understood and agreed that the Lessor has the legal
right, customary privilege and personal commitment to monitor and confirm in an
ongoing and timely fashion that Lessee has kept correct and legible records in a
minerlike fashion of all matters related to timely Production Royalty payments
under this Lease. Lessee acknowledges and agrees it will provide Lessor with
copies of all documentation reasonably necessary for the Lessor to verify
accurate and timely payment of Production Royalty by the Lessee. Further, Lessee
agrees it shall provide Lessor the right at all reasonable times to make
unannounced inspections of all of the Lessee's facilities used in mineral
production or accounting for production under this Lease. These inspections
shall be allowed as long as they are reasonably related to the Lessor's purpose
of verification of accurate and timely payment under this Lease.
5. WORK REQUIREMENT. In order to keep this Lease in effect, Lessee shall be
required to perform yearly work expenditures in each year after 1994 for
exploration, development and mining of the Tempo Mineral Prospect as described
below. The yearly work expenditure items qualified as fulfilling the work
requirements shall be limited to all costs incurred in actual work on the Tempo
Mineral Prospect in drilling, trenching, excavation, mining, road building,
surveying, mapping, and geological, geochemical and geophysical programs
conducted on the Tempo Mineral Prospect as well as assaying and metallurgical
testing of ores extracted from the Tempo Mineral Prospect which may be conducted
at appropriate facilities off the Tempo Mineral Prospect. Expenditures shall
include wages and salaries paid to engineers, geologists, laborers and
technicians for actual time spent in exploration, development and mining of the
Tempo Mineral Prospect. Direct overhead, such as lodging, meals, and travel
expenses (but expressly excluding any charge for office or administrative
expenses) shall be limited to ten percent (10%) of the yearly work requirement.
<PAGE>
Lessee shall only be obligated to expend the yearly work requirement if
the Lease has not been terminated by Lessee or Lessor before June 1 of any
calendar year that the Lease is in force.
Lessee shall fully comply with 43 C.F.R. Sec. 3809 regulations (Surface
Management of Public Lands under the U.S. Mining Laws) or with 36 C.F.R. Sec.
228 (regulations concerning use of the surface of Forest Service lands) by April
1 of each year, in order to give the Bureau of Land Management or Forest Service
adequate time to examine and approve Lessee's exploration plan in sufficient
time for Lessee to execute such plan and satisfy the yearly work requirement
during each year's normal exploration season.
If the Bureau of Land Management or Forest Service disapproves of all
or part of the exploration plan, Lessee shall diligently and in good faith
attempt to cure any defects and comply with Bureau of Land Management or Forest
Service requirements. If Lessee fails to gain Bureau of Land Management or
Forest Service approval, it shall be excused from expenditures for that portion
of that year's work requirement which is disapproved, it being understood and
agreed that any portion of the yearly work requirement which is not expended
because of Bureau of Land Management or Forest Service disapproval shall be
added to the succeeding year's annual work requirement. It is further mutually
understood and agreed that annual assessment work requirements shall not be so
excused unless permission to defer annual assessment work requirements has been
granted to Lessee by the Bureau of Land Management or other government agency,
in which case Lessee shall file all documents required to maintain the Tempo
Mineral Prospect in good standing with the county and the Bureau of Land
Management prior to August 31st of each year and provide Lessor with proof of
such filing prior to November 1st of each year.
MINIMUM YEARLY WORK EXPENDITURES
1995 $ 50,000.00
1996 $100,000.00
1997 and each year The greater of $200,000.00 or
thereafter the U.S. Dollar Equivalent of
519.48 ounces of gold
On or before February 1st of each year after 1994, Lessee shall provide
Lessor with an organized, legible written narrative report, including table of
contents and list of any exhibits to the report, which describes the operations
conducted on the Tempo Mineral Prospect during the prior calendar year. With the
report shall be furnished legible true copies of all reports and records made
for the Tempo Mineral Prospect, including, but not limited to, lithologic
drilling logs and assays, maps, cross-sections, assays, metallurgical tests, ore
reserve calculations and geological reports pertaining to the Tempo Mineral
Prospect. The report shall include a legend for all symbols used on maps,
cross-sections, drill logs and any other form of document which requires a
legend to make it comprehensible and useful. Upon Lessor's request, Lessee shall
provide copies of the above data in reproducible form such as mylars or sepias.
It is agreed between Lessor and Lessee that, during the term of this Lease,
Lessor shall keep all such information strictly confidential, and Lessor shall
indemnify and save harmless Lessee from any action resulting from reliance upon
such information by Lessor or by any person to whom Lessor furnishes such
information.
<PAGE>
Prior to February 1st of each year after 1994, Lessee shall provide
Lessor documentation from Lessee's accounting records of the expenditures
claimed as minimum yearly work requirements upon the Tempo Mineral Prospect. At
reasonable times and places, Lessor shall have access to the original invoices
and any other records pertinent and necessary for substantiating the compliance
of Lessee with the provisions of this Lease.
6. MANNER OF PAYMENT. All payments to be made by Lessee to Lessor
hereunder, except Production Royalty payments where in kind payment is made
pursuant to Article 4, shall be made by mailing or delivering cash or a
cashier's or certified check to Lessor's address as set forth in Article 20
hereof, on or before the date such payment shall be required to be made
hereunder; provided, however, that the Advance Minimum Royalty shall be paid
between January 1 and January 5 of each year. If Lessee fails to pay or shall
incorrectly pay all of any payment or some portion of any payment due hereunder,
this Lease shall terminate absolutely if Lessee, within thirty (30) days after
receipt of written notice of its error or failure with respect to such payment
shall fail to rectify the same. All payments not timely received by Lessor
shall, if thereafter accepted by Lessor pursuant to the terms of this Lease, be
accompanied with interest from the date due until the date paid at the Bank of
America (or its recognized successor) prime rate plus two percent (2%) in effect
on the date the payment was due.
7. LESSOR'S TITLE.
A. It is mutually understood and agreed that this Lease is granted only
under such title as Lessor may now hold or hereafter acquire and that in the
event that Lessor shall hereafter be divested of such title, Lessor shall not be
liable for any damages sustained by Lessee; additionally, Lessor shall not be
liable in damages or otherwise, on account of Lessee's possession thereof being
destroyed or interrupted. Lessee's only remedy in the event of failure of
Lessor's title is specified in the last sentence of Article 7.D below.
B. It is understood and agreed that in the event of adverse claim or
claims affecting said mining claims or the land covered thereby, Lessee shall be
under no obligation to defend title, nor to contribute to the defense of title
thereto, and it is specifically understood in such event that Lessor shall be
under no obligation to defend title.
C. Concerning possible conflicts with unpatented mining claims of third
parties, neither party is under a specific obligation of title defense; Lessor
leases merely whatever title he might have in such area of conflict. To the
extent that Lessee desires to enter an area of conflict and endeavor to prove
upon the title to Lessor's claims, Lessee does so at its own risk and expense.
Lessor represents that he has no knowledge of claims of third parties.
D. It is expressly agreed that Lessor does not warrant title to the
Tempo Mineral Prospect. Lessor does, however, represent and warrant that the
Tempo Mineral Prospect is free and clear of all liens, encumbrances and leases
of third parties claiming by and through Lessor; provided, however, that the
unpatented mining claims constituting the Tempo Mineral Prospect are
acknowledged to be subject to the paramount title of the United States. Lessee's
sole and exclusive remedy for any breach or default by Lessor under this Article
7.D is to terminate this Lease and release its possession of the Tempo Mineral
Prospect.
<PAGE>
8. NEW MINING CLAIMS. Either party hereto shall have the right at any time
to locate mining claims in the vicinity of the Tempo Mineral Prospect; provided,
however, if all or part of any mining claim so located is included within the
Tempo Mineral Prospect Boundary (which Boundary shall include all of the land
which lies within 1.5 miles of any point on the perimeter of the Tempo Mineral
Prospect described in Exhibit "A"), the rights of the parties with respect to
such mining claim shall be as follows:
A. If such mining claim is located by Lessee, Exhibit "A" hereto shall
be modified and amended to include the same, and Lessee shall assign said claim,
without warranty, to Lessor prior to recording such claim with the Bureau of
Land Management.
B. If such mining claim is located by Lessor, then Lessor shall, within
thirty (30) days of recording the same with the County, give Lessee written
notice thereof setting forth the description of such mining claim and the facts
upon which Lessor bases his conclusions that Leased Substances might exist
therein. Within forty-five (45) days after receipt of such notice, Lessee shall
have the right to reject any interest in such mining claim by giving Lessor
written notice of such rejection; if not so rejected, Exhibit "A" hereto shall
be modified and amended by Lessee to include such mining claim.
C. If any portion of a claim located by either Lessor or Lessee lies
within the Tempo Mineral Prospect Boundary, the entire claim shall become part
of the Tempo Mineral Prospect, and Exhibit "A" shall be modified and amended by
Lessee to include such mining claim.
D. If Lessor locates mining claims within the boundary area and
subsequently offers such mining claims to Lessee, if Lessee accepts those
claims, it will pay nominal expenses incurred by Lessor in connection with the
acquisition.
This Article 8 shall not apply to mining claims or other properties
that are acquired in good faith by Lessor or Lessee by means other than location
of new mining claims under the mining laws of the United States and/or the State
of Nevada. Any modification or amendment to Exhibit "A" hereto as herein
provided shall not serve in any manner to extend the Tempo Mineral Prospect
Boundary. In the event Exhibit "A" is amended pursuant to this Article 8, Lessee
may record an amended Exhibit "A" in accordance with the provisions of Article
29.
9. CLAIM RENTAL FEE/ASSESSMENT WORK - UNPATENTED MINING CLAIMS. During the
term of this lease, the Lessee agrees to timely pay all fees and to file and
record documents and to perform all work necessary to hold and maintain the
claims subject to this Lease in good standing.
If during the term of this Lease, federal rules and regulations are
changed to require the performance of assessment work in addition to payment of
claim rental fees on unpatented mining claims, Lessee agrees to timely perform
labor or make improvements on or for the benefit of each of the unpatented
mining claims comprising the Tempo Mineral Prospect (hereinafter "assessment
work"). Lessee further agrees that said labor or improvements made to satisfy
the annual assessment work shall be performed only upon the claims lying within
the Tempo Mineral Prospect and work performed on contiguous claims lying outside
the boundary of the Tempo Mineral Prospect covered by this Lease shall not be
used to satisfy such requirement. Lessee shall perform assessment work in
accordance with good mining practices and all applicable state and federal
mining laws, statutes, rules and regulations and shall provide Lessor with basic
<PAGE>
documentation to substantiate labor affidavits. The parties hereto agree to
cooperate to the fullest extent to enable Lessee to comply with the requirements
of this Article 9 to prepare, record and file in a timely manner all required
proofs of assessment work or Notices of Intention to Hold in the manner required
by applicable law. Lessee shall record Notices of Intention to Hold and any
affidavits of assessment work based upon geological, geophysical and geochemical
surveys with the county and the Bureau of Land Management office having
jurisdiction in a timely fashion. Lessee shall provide Lessor with
record-stamped copies of county recorded documents and file-stamped copies of
Bureau of Land Management filed documents within ten (10) days of receipt from
the respective agencies.
Lessee shall have the right to give notice to Lessor in writing that
the claim or claims specified in said notice shall no longer be subject to this
Lease; and upon giving of such notice, such claim or claims shall be deemed
stricken from this Lease, and Lessee's responsibilities and obligations for
claim rental fee/assessment work and other fees, filing and recording duties as
to said claim or claims shall end at the end of the then current claim
rental/assessment year. Notwithstanding the release of any claim or claims from
the operation thereof, this Lease shall continue in full force and effect with
respect to all parts of the Tempo Mineral Prospect not specified in such notice.
Further such release shall not cause or result in any diminution of Lessee's
Advance Minimum Royalty, Production Royalty or Work Commitments described above.
Lessee shall, at the time of giving such notice, provide Lessor with all data
regarding work which has been done by or for Lessee upon any of such claims so
released.
In the event Lessee shall terminate this Lease in its entirety prior to
the end of the then current claim rental/assessment year, Lessee shall be
obligated to pay claim rental fee and/or perform assessment work, pay all fees
and perform all necessary filing and recording for the following claim/rental
assessment year as to each of the claims then subject to this Lease, unless such
termination is at least ninety (90) days prior to the end of the then current
claim rental/assessment year.
10. RELOCATION AND AMENDMENT OF UNPATENTED MINING CLAIMS. Subject to the
prior written consent of Lessor, which consent shall not be unreasonably
withheld, Lessee, in the name of the Lessor, shall have the right, but not the
obligation, to amend the locations of any one or more of the mining claims
included within the Tempo Mineral Prospect for the purpose of eliminating
interior gaps or fractions, and Lessor agrees to execute promptly any documents
necessary for that purpose. If the location of any such mining claims was for
any reason defective, Lessee shall have the right but shall not be required to
relocate such defective mining claim or claims in the name of Lessor for the
purpose of curing such defect. In order to insure that Lessor agrees with
Lessee's plan to cure perceived defects in title, Lessor shall be notified in
writing by certified or registered mail at least twenty (20) days prior to
Lessee's commencing such relocation or amendment unless an emergency exists and
time is of the essence.
11. LIENS. Lessee shall pay in full for all labor performed upon or
material furnished to the Tempo Mineral Prospect at the instance or request of
Lessee and shall keep the whole thereof free and clear from any and all liens of
whatsoever nature or kind created by Lessee; provided, however, that if Lessee,
in good faith, disputes the validity or amount of any claim, lien or liability
assessed against it with respect to the Tempo Mineral Prospect, it shall not be
required to pay or discharge the same until the amount and validity thereof have
<PAGE>
been finally determined upon the condition that Lessee obtains a bond as is
provided by N.R.S. Section 108.2413, et seq., to effect the release of said lien
within fifteen (15) days after receiving notice of said lien. However, in no
event shall Lessee allow or permit title to the Tempo Mineral Prospect to be
lost, jeopardized or otherwise unreasonably encumbered as a result of its
non-payment of any claim, lien or liability for which Lessee is responsible.
Lessee shall notify Lessor immediately, either by Western Union telegram or
facsimile transmission followed by hard copy, on the occasion of being served
notice of any lien regardless of whether Lessee disputes the validity of the
lien for any reason. It is mutually agreed that concurrent with execution of the
Lease, Lessor and Lessee will execute and acknowledge a "Notice of
Non-Responsibility for Labor or Materials Furnished Mineral Prospect" which
Lessor shall file with the Eureka County Recorder in compliance with N.R.S.
108.234. When the recorded copy of the "Notice of Non-Responsibility" has been
received by Lessor, he shall furnish a copy of same to the Lessee which Lessee
shall post and keep posted upon the Tempo Mineral Prospect during the term of
this Lease.
12. LAWS AND REGULATIONS - INDEMNIFICATION OF LESSOR. It is the policy of
Lessor to comply fully and in all respects with all environmental, reclamation
and land use permitting regulations and laws. In furtherance of that policy,
Lessee shall perform all of the duties listed in this Article 12. Lessee shall
at all times and at its own expense comply in all respects with all county,
state and federal laws, statutes, ordinances, rules and regulations relating to
Lessee's actions under this Lease on or about the Tempo Mineral Prospect. Lessee
shall also at all times and at its own expense pay any and all fees or costs
required to be paid to any governmental agency to keep the title to the mining
claims in good standing.
Lessee shall provide workmen's compensation insurance and such other
insurance to cover its personnel and all of its operations upon the Tempo
Mineral Prospect in the amount and form as may be required by law. Lessee
assumes full and sole responsibility for the operation and direction of the work
done under this Lease on the Tempo Mineral Prospect and no employee or agent
furnished by Lessee shall under any circumstances be deemed to be an employee or
agent of Lessor.
Lessee shall indemnify and hold Lessor harmless of and from any and all
claims, demands or liabilities arising out of or in connection with the
operations or activities of Lessee hereunder and Lessee shall qualify for and
acquire a comprehensive general liability insurance policy covering such
operations and activities with limits of not less than $1,000,000.00 for each
accident or occurrence. Lessee shall provide Lessor with copies of such
insurance policy, certificate or rider naming Lessor as an additional insured on
such policy within thirty (30) days of the date of execution of this Lease.
Lessee shall notify Lessor verbally within forty-eight (48) hours after
the occurrence of any event on the property which poses a substantial risk of
environmental liability and shall give Lessor detailed notification in writing
within ten (10) days. Such occurrences include but are not limited to cyanide or
other toxic chemical or mineral leaks, spills or contaminations or any episode
or occurrence resulting in killing of wildlife which was caused by said spills,
leaks or contaminations.
<PAGE>
Lessee shall provide Lessor with copies of all plans, maps and all
other documents submitted in compliance with government regulations and all
agreements with any government agency pertaining to the Tempo Mineral Prospect,
including but not limited to Notices of Intent to Operate, Plans of Operations,
Environmental Impact Statements, reclamation statements, and all government
agency communications sent to any such agency or received by Lessee from any
such agency which are related to such submissions or agreements, within fifteen
(15) days of sending to or receiving from the government agency such material.
In the event any government agency requires the filing of a bond to insure
Lessee's performance, Lessee agrees to provide such bond at its own cost and
expense.
13. TAXES. During the term of this Lease, Lessee shall timely pay all taxes
levied or assessed against the Tempo Mineral Prospect, all taxes levied or
assessed against Lessee's personal property or improvements, all taxes levied or
assessed against any improvements presently on the Tempo Mineral Prospect, and
all taxes levied or assessed upon the operations of or disposition of Leased
Substances by Lessee on or in relation to the Tempo Mineral Prospect, exclusive
of any taxes levied, assessed or measured by the royalty paid to Lessor. Lessor
shall, within thirty (30) days of receipt by Lessor, transmit to Lessee any
notices or documents pertaining to any such taxes which are the responsibility
of Lessee to pay. If Lessor fails to pay any taxes payable by Lessor which
pertain to the Tempo Mineral Prospect, unless Lessor is contesting the same,
Lessee may at its option pay Lessor's proportionate share of taxes when due and
may deduct all such sums from payment to be made to lessor hereunder. Lessee or
Lessor shall have the right to contest in the courts or otherwise the validity
or amount of any taxes or assessments which the respective party may be required
to pay hereunder if it deems the same unlawful, unjust, unequal or excessive or
to take such other steps or proceedings as it may deem necessary to secure a
cancellation, reduction, readjustment or equalization thereof before it shall be
required to pay the same. In the event of termination of this Lease, taxes,
which are the responsibility of Lessee but will be the responsibility of Lessor
after termination, shall be prorated on the relevant tax year basis for the tax
year in which this Lease is terminated.
14. DEFAULT. If Lessor considers that Lessee has not complied with any of
the covenants, conditions or obligations hereunder, either express or implied,
Lessor shall notify Lessee in writing, setting out specifically in what respects
it is claimed that Lessee has breached this Lease. The receipt of such notice by
Lessee and the lapse of thirty (30) days thereafter without Lessee's curing or
commencing and diligently pursuing such action which is necessary to cure the
alleged breaches shall be a default hereunder. Upon such default, Lessor may, at
its option, terminate this Lease. Whether or not Lessor so terminates this
Lease, Lessor has all of its rights and remedies under the law and this Lease
with respect to such default.
Notwithstanding any contrary provision in the foregoing paragraph, if
Lessee fails to make any of the payments due under Articles 3, 4, 5, 9, 12 or 13
herein within thirty (30) days after receipt of notice of such failure from
Lessor, this Lease shall terminate absolutely; provided, however, that any
termination for whatever reason shall not excuse Lessee from performing all
obligations incurred under the terms of this Lease prior to such termination.
In the event of termination under this Article 14, Lessee shall have
the right to remove, pursuant to Article 16, its property and equipment from the
Tempo Mineral Prospect, as hereinafter provided, but only after Lessee has
performed all of its accrued obligations under this Lease. Until such
performance by Lessee, Lessor shall have a lien upon all of Lessee's property
and improvements located on the Tempo Mineral Prospect.
15. TERMINATION.
<PAGE>
A. Partial Termination by Lessee. Lessee shall have the right, from
time to time and at any time, to terminate this Lease as to any portion of the
Tempo Mineral Prospect by giving written notice to Lessor specifying the portion
of the Tempo Mineral Prospect to which such termination applies. Upon the
effective date of such notice, as set forth in Article 20 hereof, all right,
title and interest of Lessee hereunder shall terminate as to the portion of the
Tempo Mineral Prospect specified in such notice and thereafter the term "Tempo
Mineral Prospect" shall be deemed to refer to only the portions of the Tempo
Mineral Prospect remaining subject to this Lease. Upon such termination, Lessee
shall have no further obligations concerning the portion of the Tempo Mineral
Prospect to which such termination applies, except as to obligations (1) the due
dates or incurrence of which occur prior to such termination, (2) are created
pursuant to obligations in Articles 12 and 16 hereof relating to the condition
of the Tempo Mineral Prospect, or (3) are otherwise required to be performed by
Lessee subsequent to termination. Promptly following such termination, Lessee
shall deliver to Lessor a quitclaim deed, in recordable form, quitclaiming to
Lessor all right, title and interest of Lessee to that portion of the Tempo
Mineral Prospect to which such partial termination applies. No partial
termination under this Article 15 shall, however, cause a reduction in the
amounts of any of the Advance Minimum Royalty and Production Royalty payments
set forth in ARTICLES 3 and 4 or the Work Requirements set forth in Article 5.
B. Complete Termination by Lessee. Lessee shall have the right to
terminate this Lease in its entirety at any time by giving written notice
thereof to Lessor. Upon the giving of such notice, all right and interest of
Lessee under this Lease and in the Tempo Mineral Prospect shall terminate on the
date of the notice and Lessee shall not be required to make any further payments
or expenditures, or to perform any further obligations hereunder, except as to
payments, expenditures or obligations the due dates or incurrence of which occur
prior to the date of such termination; such excepted obligations include but are
not limited to, Lessee's obligations under Articles 12 and 16 hereof. Within ten
(10) days following such termination, Lessee shall deliver to Lessor a quitclaim
deed in recordable form quitclaiming to Lessor all right, title and interest of
Lessee to the Tempo Mineral Prospect.
C. Data After Termination. Upon termination of this Lease as to all or
any portion of the Tempo Mineral Prospect, Lessee agrees that it will not
furnish any exploration or development data generated by Lessee in its
exploration and/or development of the Tempo Mineral Prospect, including, but not
limited to, drilling logs, assay results, survey information, maps and
cross-sections to third parties without first obtaining written consent therefor
from Lessor.
16. REMOVAL OF IMPROVEMENTS; CONDITION OF TEMPO MINERAL PROSPECT. Whenever
this Lease shall be terminated in whole or in part, for any reason whatsoever,
Lessee shall deliver up the terminated portion of the Tempo Mineral Prospect to
Lessor in reasonably good and safe condition and in compliance with all laws,
statutes, ordinances, rules, regulations, permits and plans of operation. Lessee
shall, however, subject to any laws, rules or regulations which may be
applicable at the time of the requirements of Articles 12 and 16, have the right
to remove any or all of the Improvements place by it on or within the terminated
portion of the Tempo Mineral Prospect; provided, however, Lessee shall leave in
place all track, pipe, timber, chutes and ladders without any warranty as to
condition or fitness for use except for the Lessee's duties to secure openings
as set forth in the last sentence of this Article 16. Within thirty (30) days
<PAGE>
after complete termination, Lessee shall assign to Lessor any water rights
acquired or perfected by Lessee during the term of this Lease which are situated
on the Tempo Mineral Prospect and any water rights which are situated off the
Tempo Mineral Prospect but which were acquired for the purpose of conducting
work on the Tempo Mineral Prospect. Lessee shall have the right to effect the
removal of such Improvements, other than those specified above to be left in
place, prior to such termination of this Lease or within one hundred twenty
(120) days thereafter. Any improvements not removed prior to termination or
within one hundred twenty (120) days following such termination shall be deemed
affixed to the terminated portion of the Tempo Mineral Prospect and shall become
and remain the property of the Lessor. Upon partial or complete termination,
Lessor shall retain title to all stockpiles, dumps and tailings, including heap
leach remnants, generated from mining and treating ores from or on the Tempo
Mineral Prospect.
Within one hundred eighty (180) days after the partial or complete
termination, Lessee shall comply, or shall be in the process of diligently and
in good faith complying, with all applicable environmental, restoration and
reclamation laws, statutes, ordinances, rules, regulations, permits and plans of
operation pertaining to the Tempo Mineral Prospect. Lessee is solely responsible
for any governmental requirements and liability related to Lessee's operations
and actions under this Lease and even if the Lessee has complied with
governmental requirements and liability related to Lessee's operations and
actions under this Lease and even if the Lessee has complied with governmental
requirements and has completed the restoration work to the satisfaction of
government agencies upon termination of the Lease, if a governmental agency
shall require some additional work at a future date the Lessee shall be liable
to perform same. Lessee shall indemnify and hold Lessor harmless from any such
responsibility. Further, within one hundred eighty (180) days of partial or
complete termination, Lessee shall secure all openings with stout bulkheads and
timbers to eliminate access by the public to any and all shafts, mines, tunnels,
adits, winzes, man ways, excavations, air lines, and/or vent tubes after
consulting with Lessor regarding Lessor's requirements for emergency access.
17. BOOKS AND ACCOUNTS. Lessee shall maintain on a current basis complete
and accurate records and books of account, in accordance with generally accepted
accounting principles consistently applied, covering all matters necessary to
the proper computation of the Production Royalty described in Article 4 hereof
and the determination of yearly work expenditures under Article 5 hereof. Said
records and books of account may be kept either in the vicinity of the Tempo
Mineral Prospect or elsewhere within the State of Nevada at Lessee's option, and
shall be open to inspection by Lessor or his authorized agents at any reasonable
time during normal business hours, provided such inspections do not unduly
interfere with or hamper the managerial or accounting staffs of Lessee. Within
sixty (60) days after the end of each calendar year during the term hereof,
Lessee shall furnish to Lessor an unaudited "Year-End Statement" showing the
amount of Production Royalty paid to Lessor by Lessee during said year and the
basis thereof. All statements so furnished shall be conclusively presumed true
and correct after the expiration of twelve (12) months from the date of receipt
by Lessor, unless within said twelve (12) month period Lessor gives written
notice of exception thereto, specifying with particularly the terms excepted to
and the grounds for such exception. Lessor shall be entitled to an annual
independent audit of the matters covered by said statement, at Lessor's sole
expense, provided Lessor selects for such audit an accounting firm of recognized
standing, at lease one of whose members is a member of the American Institute of
Certified Public Accountants.
<PAGE>
18. DATA INSPECTION. Lessee shall furnish Lessor with copies of any
agreements (including, but not limited to, haulage, milling, refining,
extracting, and ore and concentrate purchase agreements), and any amendments
thereto, which in any way relate to the processing, preparation for sale and the
sale or other disposition of Leased Substances produced from the Tempo Mineral
Prospect. Said documents shall be furnished by Lessee to Lessor within thirty
(30) days after executing such agreements or amendments. Lessee shall furnish
Lessor with copies of all settlement sheets or statements which in any way
relate to the sale or other disposition of Leased Substances produced from the
Tempo Mineral Prospect within thirty (30) days after receiving such sheets or
statements. Lessee shall furnish Lessor with full, true and accurate information
in response to any reasonable request with respect to the condition of mine
workings on the Tempo Mineral Prospect, or with respect to the grade, quantity
or quality of Leased Substances found in drilling, exposed in mining the Tempo
Mineral Prospect or mined, processed or shipped by Lessee. Lessee shall keep
full and accurate records of all operations conducted on the Tempo Mineral
Prospect, including assays, drilling records, drill hole location maps and mine
maps which shall be open to inspection by Lessor or Lessor's agent during
regular business hours and upon reasonable notice, with the provision that
copies of any of these materials shall on request be furnished to Lessor by
Lessee. Lessor, at Lessor's sole risk and expense, shall have the right to enter
upon and into all parts of the Tempo Mineral Prospect from time to time, and at
all reasonable times and hours, for the purpose of inspecting and surveying the
same, or taking reasonable samples of Leased Substances therefrom. In the case
of samples taken from rotary drill cuttings, Lessee shall reserve for Lessor's
benefit a split of suitable size for assaying and very preliminary metallurgical
testing and mineralogic and geologic studies. Lessee agrees to prepare
chipboards sequentially soon after acquisition of chip samples and as drilling
progresses. It is the policy and intent of Lessor to provide adequate storage
facilities for chipboards and splits of all rotary drill cuttings and Lessor and
Lessee agree to cooperate in taking whatever steps are necessary to insure that
chipboards and drill cuttings will never be exposed to the weather or be
vulnerable to intrusion or vandalism by the public. Lessee agrees to give Lessor
adequate advance warning of the need for storage space for large quantities of
splits, drill cuttings, and chipboards. Lessee agrees to cooperate in filing
splits in an orderly, logical manner in the drill cuttings or core shelters
provided.
If this Lease is terminated for any reason, Lessee shall, within thirty
(30) days thereafter, furnish Lessor with all exploration and development data
generated by Lessee in its exploration and/or development of the Tempo Mineral
Prospect including, but not limited to, legible copies of drilling logs, assay
results, survey information, maps and cross-sections including geologic
interpretive data and including reproducible mylars or sepias which may have
been prepared by Lessee. Lessor shall not disclose to the public during the term
of this Lease, without the prior written consent of Lessee, any information
furnished to or made available to Lessor regarding any portion of the Tempo
Mineral Prospect while such portion is subject to the terms of this Lease except
as may be required by law or securities rules or regulations.
19. COMMINGLING. Lessee shall not have the right to commingle Leased
Substances with ores and concentrates from other properties.
<PAGE>
20. NOTICES. Unless otherwise herein provided, notice or payment hereunder
shall be deemed sufficiently given or made when personally delivered or on the
third day after deposit in the United States mail, first-class, postage prepaid,
registered or certified, return receipt requested, and addressed as follows:
TO LESSOR: The Lyle F. Campbell Trust
P.O. Box 7377
Reno, Nevada 89510
(702)331-4011
TO LESSEE: Great Basin Exploration & Mining Co., Inc.
3400 Kauai Court, Suite 208
Reno, Nevada 89509
(702)689-7450
or to such other person or address as either party may designate by proper
written notice.
21. FORCE MAJEURE. Except for the payments and the time requirements with
respect thereto set forth in Articles 3, 4, 5, 6, 8, 9, 12, 13 and 18 hereof,
whenever the time for performance of any act hereunder is limited and the
performance thereof is hindered, prevented or delayed by any factor or
circumstance beyond the reasonable control or Lessee and which Lessee is obliged
to perform and which Lessee could not have avoided by the timely use of due
diligence and adequate planning, such as acts of God, fire, floods, strike or
labor troubles, breakage of machinery, inability to obtain necessary materials,
supplies or labor, interruptions in delivery or transportation, shortage of
railroad cars, insurrections or mob violence, regulations, orders or
requirements of the government, embargoes, war or other disabling causes,
whether similar or different, then the time for the performance of any such act
or obligation shall be extended for a period equal to the time between Lessee's
notification of existence and notice of termination of force majeure. Lessee
shall immediately notify Lessor in writing of the existence of force majeure,
and Lessee shall use due diligence to remove the force majeure and shall
promptly notify Lessor when the declaration of force majeure is terminated. It
is expressly understood that litigation or arbitration in which Lessee is a
party shall not constitute a condition of force majeure hereunder.
22. ASSIGNMENT; SUBLEASE; JOINT OPERATIONS; TRANSFERS. The subject matter
of this Lease includes unpatented mining claims. The parties recognize the
uncertain and tenuous nature of title to the unpatented mining claims. Further,
the parties recognize the critical importance of complying with state and
federal regulations and statutes in preserving said title. The parties expressly
agree that part of the material consideration for this agreement is Lessor's
confidence in Lessee's ability and commitment to perform its duties hereunder,
which duties include but are not limited to performance of annual assessment
work and perfection of proof thereof as provided in Article 9; development of
all necessary exploration, operation, reclamation and bonding plans as provided
in Article 5; compliance with all local, state and federal laws, statutes,
ordinances, rules and regulations as provided in Article 12; payment of all
taxes as provided in Article 13; and application of the highest level of its
professional, technical and financial ability and willingness to explore and
operate the Tempo Mineral Prospect in compliance with all of the terms of the
Lease, all of which are necessary to protect Lessor's rights and title in the
Tempo Mineral Prospect.
<PAGE>
Lessee expressly agrees in view of the material considerations listed
immediately above that it shall not assign, sublease, enter a joint operating
agreement, or otherwise transfer (hereinafter "transfer") all or any part of its
rights or duties under this Lease without performance of the following express
conditions:
A. Prior to execution of any documents effecting such a transfer,
Lessee shall provide Lessor with a copy of the proposed transfer documents
together with all exhibits or attachments thereto not less than fifteen (15)
days prior to Lessee's execution thereof.
B. Lessee shall not execute any such transfer documents or obligate
itself to make any such transfer without obtaining the prior written consent of
Lessor.
C. Lessee shall expressly guarantee performance of all of the duties of
Lessee under this Lease whether said duties accrue before or after transfer of
the Lease by Lessee. Said guarantee sublease, assignment, joint venture
agreement or other transfer, and no refusal by Lessor to consent to any transfer
shall be unreasonable if Lessee fails or refuses to guarantee the obligations of
its transferee in the same instrument, or if the same instrument does not
obligate the transferee to be bound by the terms and conditions of this Lease to
the same extent as the transferor (Lessee). If the transfer is the grant of a
security interest in or other encumbrance of all or any part of Lessee's
interest hereunder in order to secure a loan to Lessee, the instrument
documenting the transfer shall recite that it is subject to the terms and
conditions of this Lease and that upon any foreclosure of or other enforcement
of rights in the encumbrance the foreclosing party shall assume the position of
Lessee hereunder and shall comply with and be bound by all terms and conditions
of this Lease. No transfer by Lessee hereunder shall relieve Lessee from any
obligation which accrues or attaches prior to the effective date of the
transfer.
D. Lessee agrees that this Article 22 shall be expressly incorporated,
and not incorporated by reference, in any sale, assignments, sublease, joint
operation agreement, or other document effecting such a transfer, and in any and
all subsequent sales, assignments, subleases, joint operating agreements, or any
other documents effecting a transfer of its rights and duties under this Lease.
It is expressly agreed that should Lessee enter into any sale, loan
instrument, assignment, sublease, joint operating agreement or other transfer of
Lessee's rights or duties hereunder without prior performance of conditions A,
B, C, and D listed immediately above, such transfer shall be void and such
transfer shall constitute a material breach of this Lease by Lessee.
Lessor agrees that its prior written consent to any such transfer shall
not be unreasonably withheld. Lessor may without any consent and without any
prior notice to Lessee sell, encumber or otherwise transfer its rights under
this Lease. Lessor shall deliver a true and correct copy of any documents
evidencing such a sale, encumbrance or transfer to Lessee within fifteen (15)
days after execution thereof.
Lessee agrees to provide Lessor, after its written consent thereto,
with a counterpart original of any sale, loan, instrument, assignment, sublease,
joint venture agreement, or other transfer documents complete with all
supporting documents, attachments, and exhibits within fifteen (15) days after
execution thereof.
<PAGE>
23. GOVERNING LAW. This Lease shall be governed by the laws of the State of
Nevada.
24. PRESS RELEASES BY LESSEE. If Lessee issues a press release or any other
form of publicity, neither the name of Lyle F. Campbell nor the Lyle F. Campbell
Trust shall be used, unless the Trust or Mr. Campbell give their prior written
consent to Lessee. On the same date of the publicity release, a full, true and
accurate copy of the publicity release shall be sent to Lessor by certified or
registered mail.
25. TITLE OF ARTICLES. The titles to the Articles hereof have been inserted
for convenience only. Such titles are not to be considered as limiting or
expanding or modifying in any other fashion the language of the Article
following the same.
26. ATTORNEY'S FEES. The prevailing party in any litigation between the
parties hereto concerning this Lease shall be entitled to its reasonable
attorneys' fees and court costs.
27. NO WAIVER. No waiver by either party of any right herein shall be
construed as a waiver of any such right in the future or any other right in this
Lease.
28. BINDING EFFECT. Subject to the provisions of Article 22, this Lease
shall extend to and be binding upon and every benefit hereof shall inure to the
parties hereto, their respective heirs, executors, administrators, successors,
and assigns.
29. MEMORANDUM. Lessee and Lessor shall execute a Memorandum of this Lease
in a recordable form under the laws of the State of Nevada to give notice to
third parties of the rights granted hereunder. Either party may record such
memorandum. Neither of the parties hereto shall or may record this lease.
30. OBLIGATION OF GOOD FAITH. All obligations and covenants set forth in
this Lease shall be subject to an obligation of good faith by both Lessor and
Lessee in the performance or enforcement thereof. It is mutually understood and
agreed that "Good Faith" means honesty in fact in the conduct or transaction
concerned.
31. SOLE AGREEMENT; TIME OF ESSENCE. This Lease constitutes the sole
understanding of the parties with respect to the subject matter hereof. All
prior written or oral agreements or understandings between the parties hereto
are incorporated in and superseded by this Lease, except the parties'
Confidentiality and Boundary Agreement dated March 24, 1994. No modification or
alteration of the terms of this Lease shall be binding unless such modification
or alteration shall be in writing and executed subsequent to the date hereof by
Lessee and Lessor. In the event such modification or alteration alters the
rights granted hereunder, the parties may execute an amended Memorandum of this
Lease in a recordable form sufficient under the laws of the State of Nevada to
provide notice to third parties. Time is of the essence of this Lease.
IN WITNESS WHEREOF, the parties hereto have duly executed this Lease of the
day and year first above written.
LESSOR: LESSEE:
GREAT BASIN EXPLORATION &
MINING CO., INC., a Nevada
Corporation
Lyle F. Campbell By: Anthony P. Taylor
- -------------------- ------------------------
Lyle F. Campbell, Sole Trustee Anthony P. Taylor
of the Lyle F. Campbell Trust President
<PAGE>
STATE OF NEVADA )
) ss.
County of Washoe )
On this 14th day of October, 1994, before me, the undersigned, a Notary
Public in and for the state aforesaid, personally appeared LYLE F. CAMPBELL,
known or identified to me to be the Sole Trustee of the LYLE F. CAMPBELL TRUST,
and the person authorized to and the person who did execute the foregoing
instrument on behalf of said Trust, and acknowledged to me that such Trust
executed the same.
IN WITNESS WHEREOF, I have hereunto set my hand and affixed my Notarial
seal the day and year in this certificate first above written.
Sharon Mitchell
-----------------------
Notary Public in and for the State of
Nevada, Residing at: 1795 Glendale
Sparks, Nevada
My Commission expires: April 28, 1996
STATE OF NEVADA )
) ss.
County of Washoe )
On this 10th day of October, 1994, before me, the undersigned, a Notary
Public in and for the state aforesaid, personally appeared ANTHONY P. TAYLOR
known or identified to me to be the President of GREAT BASIN EXPLORATION &
MINING CO., INC., and the officer that executed the foregoing instrument on
behalf of said corporation, and acknowledged to me that such Corporation
executed the same.
IN WITNESS WHEREOF, I have hereunto set my hand and affixed my Notarial
seal the day and year in this certificate first above written.
Leslie A. Maldonado
--------------------------
Notary Public in and for the State of
Nevada, residing at 2972 Lida Ln
Sparks, Nevada
My Commission expires: Sept 26, 1997
AFGAN MINERAL LEASE
THIS AFGAN MINERAL LEASE (hereinafter "Lease") is made and entered into on
the 8th day of November, 1993, by and between LYLE F. CAMPBELL, Sole Trustee of
THE LYLE F. CAMPBELL TRUST under an Agreement of Trust dated August 5, 1986 and
amended on May 21, 1987, August 19, 1987 and April 29, 1991, hereinafter called
"LESSOR', and GREAT BASIN EXPLORATION & MINING CO., INC., a Nevada Corporation,
hereinafter called "LESSEE'.
RECITALS
NOW, THEREFORE, in consideration of the mutual benefits to be enjoyed by
Lessor and Lessee pursuant to this Lease, Lessor and Lessee hereby agree as
follows:
WITNESSETH:
1. GRANT; RESERVATION. Lessor, for and in consideration of the royalties
hereinafter reserved and of the agreements of Lessee herein contained, to the
extent vested with legal right to do so, hereby grants, demises, leases and lets
exclusively unto Lessee, except for the Lessor's right of inspection, the
properties owned by Lessor or in which Lessor has an interest, all as more
particularly described in Exhibit "A" attached hereto and made a part hereof,
and any additions thereto under Article 8 (hereinafter call "Afgan Mineral
Prospect"), for the purpose of surveying, sampling, investigating, exploring
for, prospecting for, drilling for, developing, mining by any method (whether or
not now known and including, but not limited to, open pit, strip, underground
and solution methods), producing, saving, taking, milling, treating,
transporting, storing, stockpiling, handling and marketing all minerals or any
valuable products of any nature whatsoever in, on or under the Afgan Mineral
Prospect including, but not limited to, ore, minerals, concentrates, dore,
refined materials and any other product of any process whether or not now known
and regardless of the stage of milling, refining, upgrading or other processing
title passes to buyer, but excluding oil, gas, hydrocarbons and geothermal
resources (hereinafter called "Leased Substances"), together with all of
Lessor's rights, privileges, water rights (if any) and easements (if any) useful
for Lessee's operations hereunder on the Afgan Mineral Prospect including, but
not limited to, the rights to look for, test,
<PAGE>
work, mine, excavate, raise, clean, stockpile on the Afgan Mineral Prospect
only, store, carry away and sell Leased Substances, to excavate pits, to sink
shafts, make, use and occupy openings, adits, tunnels, raises, rooms, stopes,
slopes, winzes and underground passages (now existing or hereafter opened),
strip seams, lodes, veins and beds, and erect, use and maintain on the Afgan
Mineral Prospect such buildings, tipples, headframes, refineries, gasification
plants, power plants, engines, machinery, appliances, devices, walls, wells,
presently appurtenant (if any) or newly established water rights, roadways,
housing, railroad tracks, shops, ditches, dams, ponds, reservoirs, pipes, power
and communication lines and, without limitation except as required by duly
authorized regulatory agencies or government, all other necessary structures and
facilities (hereinafter "Improvements"). From time to time Lessee may relocate
all or any part of said improvements as Lessee may deem desirable or necessary
in its operations on the Afgan Mineral Prospect. Provided, however, that Lessor
shall be notified in writing by certified or registered mail of Lessee's
intention to make such relocation at least twenty (20) days prior to commencing
such relocation unless an emergency condition exists.
There is reserved to the Lessor the possessory right to a reasonable
portion of the surface of the Afgan Mineral Prospect for the purpose of locating
a residence and inspection station to exercise Lessor's rights hereunder. Said
portion of the Afgan Mineral Prospect shall be located by agreement of the
parties subsequent to completion of Lessee's initial exploration program so as
to provide (1) the least likely interference with Lessee's anticipated mining
operations and (2) the greatest convenience to Lessor for access to Lessee's
mining operation, processing facilities and public roads near or servicing the
Afgan Mineral Prospect at a place and of a size of his own choosing compatible
with the purposes of this reservation.
2. TERM; RULE AGAINST PERPETUITIES AND SEVERABILITY OF PARAGRAPHS. Subject
to the other provisions herein contained, this Lease shall remain in force for a
term of twenty (20) years from the date hereof and so long thereafter as there
is production of one or more Leased Substances from the Afgan Mineral Prospect,
or any operation permitted hereunder are being conducted on the Afgan Mineral
Prospect or this Lease is continued in force by reason of any of the provisions
hereof; provided, however, the term of this Lease shall not exceed ninety-nine
(99) years in any event. During any period of extension beyond the primary term
hereof all of the terms and conditions of this Lease shall remain in full force
and effect.
The term of this Lease is not intended to violate the Rule Against
Perpetuities. In the event the term of this Lease is determined to violate the
Rule Against Perpetuities by a Court of competent jurisdiction, the term shall,
by this Article 2, be automatically reduced to the maximum number of years
determined to comply with the Rule Against Perpetuities. Each of the Articles in
this Lease is severable from each of the other Articles in this Lease. In the
event an Article in this Lease is determined to be invalid, void, or
unenforceable, then all remaining Articles shall remain in full force and
effect. In the further event that this Article 2 is construed in such a manner
as to eliminate a definitive term of this Lease, then the parties agree that the
term shall be reasonable period of time sufficient to accomplish the purposes of
this Lease.
3. FUNDS FOR PAYMENT; ADVANCE MINIMUM ROYALTY; ROYALTY CREDIT; AMOUNT OF
ROYALTIES PAID; DOLLAR EQUIVALENT.
A. Payment Funds. Any and all payments required to be paid to Lessor
pursuant to the terms of this Lease shall be made in U.S. Currency, or as
in-kind payments in accord with Article 4 Production Royalty.
B. Advance Minimum Royalty. Lessee shall pay to Lessor Advance Minimum
Royalties in the amounts and at the times listed below; provided, however, that
if this Lease is terminated prior to the due date for the payment of any such
Advance Minimum Royalty, Lessee shall have no obligation to make any further
Advance Minimum Royalty payments, the due dates of which occur after such
termination.
Due Date of Advance Amount of Advance Minimum
Minimum Royalty Payment Royalty Payment
<PAGE>
On or Before January 5, 1994 $40,000.00
but not prior to January 1,
1994
On or Before January 5, 1995 $80,000.00
but not prior to January 1,
1995
On or before January 5, 1996 The greater of $120,000.00
and each year thereafter but or the U.S. Dollar
not prior to January 1 of the Equivalent of 354.00
year payment is due ounces of gold
Forcalculating equivalents -
For gold base price use $338.60 per ounce
For silver based price use $3.767 per ounce
If this Lease is terminated for any reason, including but not limited to
partial payment or nonpayment after thirty (30) days written notice as provided
in Article 6, at any time during the calendar year, Lessee shall be obligated to
pay the full amount of advance Minimum Royalty as required to be paid in this
Article 3(B) during the calendar year of the termination, and for all prior
calendar years during the term of this Lease.
C. ROYALTY CREDIT. All Advance Minimum Royalties paid by Lessee to the
Lessor shall constitute prepayment of and advance against gold Production
Royalties thereafter accruing to Lessor during the term of this Lease. Advance
Minimum Royalty shall be recovered as a credit against gold Production Royalty
only. Lessee may recover such Advance Minimum Royalties only as a credit against
gold Production Royalties due and payable to Lessor; however, Lessee may only
take such credit for previously paid Advance Minimum Royalties against one-half
of that portion of the gold Production Royalties which exceed the Advance
Minimum Royalty due for the same period for which such gold Production Royalty
was earned. Advance Minimum Royalty recovery shall be calculated as follows:
(1) The dollar value of the ounces of gold due under the Production
Royalty (before credits for Advance Minimum Royalties) shall be calculated. This
dollar value shall be equal to the weighted average of the Handy & Harmon cash
base price for gold as published in The Wall Street Journal (or its recognized
successor in publication of metals quotations) in the five business days
immediately prior to the day on which Lessee pours the dore from which the
Production Royalty's ounces were calculated. Lessee shall report to Lessor
within thirty (30) days of dore pour, the date, identification of the facilities
used to pour, weight of the pour and disposition of the dore pour. If two or
more dore bars produced from the Afgan Mineral Prospect are shipped together to
the refinery and those bars are refined together, the dollar value of the
Production Royalty (before Advance Minimum Royalty credits) shall be based upon
the weighted average of the gold prices calculated by multiplying weight times
grade for each of those bars and dividing that product by the total weight of
those bars.
(2) After calculating the dollar value of the gold Production
Royalty pursuant to Paragraph (1) above, the dollar value of the Advance Minimum
Royalty credits shall be calculated by applying the first 100% of the current
calendar year's Advance Minimum Royalty payments made to reduce the Production
Royalty and thereafter applying the 50% limitation recited in Article 3.C above
to all prior year's uncredited Advance Minimum Royalty balance, if any.
<PAGE>
D. Amount of Royalties Paid. The royalties payable by Lessee to Lessor
under this Lease shall be the greater of either:
(1) the Advance Minimum Royalty, as provided in
Article 3.B hereof; or
(2) the Production Royalty determined in accordance with Article 4
hereof less any credit under Article 3.C hereof.
E. Dollar Equivalent. For the purpose of this Lease, the "U.S. Dollar
Equivalent", referred to in Articles 3.B and 5, shall be for gold that is at
least ninety-nine and ninety-five one-hundredths percent (99.95%) pure, and
shall be determined by the base price of Handy and Harmon as published in the
Wall Street Journal (or its recognized successor in the publication of gold and
silver quotations) for the tenth (10th) business day preceding the date on which
the payment is due or on which an obligation accrues. If, however, gold payment
clauses are declared to be unenforceable or violations of public policy, then
the "U.S. Dollar Equivalent" shall be for silver that is ninety-nine and
nine-tenths percent (99.9%) pure, and the amounts thereof shall be equal to (1)
31,855.58 ounces of silver for the Advance Minimum Royalty Payment due in 1996
and thereafter, pursuant to this Article 3, and (2) 53,092.64 ounces of silver
due for the work requirement which must be expended in 1996 and in each year
thereafter as provided in Article 5 below.
The method of calculating the "Dollar Equivalent" for Advance Minimum
Royalty and for work requirement using silver shall be the same as that for
calculating the "Dollar Equivalent" using gold above in Article 3, using the
appropriate base price for silver.
4. PRODUCTION ROYALTY. To the extent the same exceeds Advance Minimum
Royalties payable by Lessee to Lessor under Article 3 hereof, Lessee shall pay
Lessor a royalty (hereinafter "Production Royalty") for all Leased Substances
removed, sold or otherwise disposed of from the Afgan Mineral Prospect. Lessee
may stockpile Leased Substances only after giving Lessor notice of Lessee's
intention to do so, which notice shall specify the date such stockpiling is to
commence and the proposed location of the stockpile. Lessee shall keep a full
and complete record of the grade and quantity of all Leased Substances so
stockpiled, and shall provide such information to Lessor within thirty (30) days
of determining such information. In the event any Leased Substances are
stockpiled for five (5) continuous years, such stockpiling shall be deemed a
sale or disposition thereof requiring the payment of the Production Royalty
thereon; in such event, the Production Royalty shall be determined upon the
gross value of the Leased Substances so stockpiled as of the fifth (5th)
anniversary of the date stockpiling commenced. In determining such value, the
reference price shall be the base price of the Leased Substances as published in
The Wall Street Journal, New York Commodity Exchange, on such fifth (5th)
anniversary or the first trading day thereafter.
A. Lessee shall pay Lessor a Production Royalty of five percent (5%) of
the gross sales price of any gold, silver, platinum or palladium contained in
the Leased Substances, such Production Royalty to be computed before any
deductions whatsoever from the gross sales price of the Leased Substances sold
as shown on the buyer's settlement sheet or other document for each separate
sale thereof. If milling, processing, refining or treatment costs or penalties
are paid in kind, the Production Royalty, shall be computed on the amount of
gold, silver, platinum and palladium contained in the Leased Substances before
deducting any such costs or payments in kind.
<PAGE>
B. Lessee shall pay Lessor a Production Royalty of two percent (2%) of
the gross sales price of all Leased Substances other than gold, silver, platinum
or palladium, such Production Royalty to be computed in the manner described
above in Subsection (A) of this Article 4.
C. In addition to the Production Royalties payable under Articles 4.A
and 4.B, Lessee shall pay to Lessor as Production Royalty hereunder a like
percentage of the gross amount paid before any deductions whatsoever of any
bonus, subsidy or similar payment or allowance made for whatever reason to
Lessee by any governmental agency, ore buyer or others with respect to any
production, transport or sale of Leased Substances hereunder.
Payment of Production Royalty, other than Production Royalty taken in
kind by Lessor, shall be made by Lessee to Lessor on or before thirty (30) days
after receipt of payment by Lessee for the Leased Substances sold or otherwise
disposed of and for which the Production Royalty is payable, or within sixty
(60)days after delivery of the Leased Substances by Lessee to a third party,
whichever is earlier.
It is mutually understood and agreed that, after Lessee has recouped
all Advance Minimum Royalties, Lessor shall have the right and option to take
his Production Royalty in kind in the form in which Lessee sells such Leased
Substances. On or before October 1st of each calendar year, Lessor shall give
Lessee written notice of whether Lessor elects to take his Production Royalty in
kind throughout the following calendar year. If Lessor fails to give such notice
for the first calendar year in which he is eligible to take his Production
Royalty in kind, Lessor shall be deemed to have elected not to take his
Production Royalty in kind for that calendar year. If Lessor fails to give such
notice by October 1st of any subsequent year, the election then in effect will
continue throughout the following calendar year. Lessor hereby agrees that each
election to take or not to take his Production Royalty in kind shall remain in
effect for calendar year increments and that all persons or entities
constituting the Lessor shall be required to make the same election whether or
not to take in kind.
If Lessee enters into an agreement for the sale of Leased Substances
from the Afgan Mineral Prospect, it shall not include in such agreement sale of
that portion of the Leased Substances which Lessor has the right to take in
kind, without the prior written agreement of Lessor.
If Lessor elects to take his Production Royalty in kind, Leased
Substances shipped to third parties shall be shipped in the joint names of
Lessor and Lessee. Lessee shall make necessary arrangements so that Lessor shall
be a party to any agreements that Lessee makes with refiners for refining Leased
Substances from the Afgan Mineral Prospect. If Lessor elects to take his
Production Royalty in kind, Lessor shall bear all risks associated with taking
his Production Royalty in kind, and shall bear all additional costs incurred by
Lessee as a result of Lessor's taking in kind, such as increased costs due to
separate pourings, storage, insurance, security, transportation and monitoring.
Lessor shall have the right to inspect procedures used by Lessee to make payment
in kind, and at his option, Lessor, or his agent, shall have the right to be
present to observe sampling and splitting procedures and to review all records
and procedures related to division of Leased Substances for the purpose of
taking in kind.
<PAGE>
In the event the purchaser of any of the Leased Substances produced and
sold by Lessee hereunder shall be owned or controlled by Lessee, the purchase
agreement(s) covering such Leased Substances shall be commercially fair and
shall provide that the price to be received by Lessee therefor shall be
commercially fair and shall not be less than the price currently received by
other sellers of Leased Substances of like quality and quantity who sell to the
nearest independent refinery or smelter in the market area where such Leased
Substances are ordinarily sold. For the purpose of this Article 4, "owned and
controlled" shall mean that Lessee holds sufficient interest in the purchaser to
substantially direct its operations on a continuing basis.
Production Royalty payments to Lessor shall be accompanied by a
statement, together with smelter or refinery settlement sheets, agreements,
invoices, or their equivalent, showing in reasonable detail the computation and
derivation of such payments.
5. WORK REQUIREMENT. In order to keep this Lease in effect, Lessee shall be
required to perform yearly work expenditures in each year after 1992 for
exploration, development and mining of the Afgan Mineral Prospect as described
below. The yearly work expenditure items qualified as fulfilling the work
requirements shall be limited to all costs incurred in actual work on the Afgan
Mineral Prospect in drilling, trenching, excavation, mining, road building,
surveying, mapping, and geological, geochemical and geophysical programs
conducted on the Afgan Mineral Prospect as well as assaying and metallurgical
testing of ores extracted from the Afgan Mineral Prospect which may be conducted
at appropriate facilities off the Afgan Mineral Prospect. Expenditures shall
include wages and salaries paid to engineers, geologists, laborers and
technicians for actual time spent in exploration, development and mining of the
Afgan Mineral Prospect. Direct overhead, such as lodging, meals, and travel
expenses (but expressly excluding any charge for office or administrative
expenses) shall be limited to ten percent (10%) of the yearly work requirement.
Lessee shall only be obligated to expend the yearly work requirement if
the Lease has not been terminated by Lessee or Lessor before June 1 of any
calendar year that the Lease is in force.
Lessee shall fully comply with 43 C.F.R. Sec. 3809 regulations (Surface
Management of Public Lands under the U.S. Mining Laws) or with 36 C.F.R. Sec.
228 (regulations concerning use of the surface of Forest Service lands) by April
1 of each year, in order to give the Bureau of Land Management or Forest Service
adequate time to examine and approve Lessee's exploration plan in sufficient
time for Lessee to execute such plan and satisfy the yearly work requirement
during each year's normal exploration season.
If the Bureau of Land Management or Forest Service disapproves of all
or part of the exploration plan, Lessee shall diligently and in good faith
attempt to cure any defects and comply with Bureau of Land Management or Forest
Service requirements. If Lessee fails to gain Bureau of Land Management or
Forest Service approval, it shall be excused from expenditures for that portion
of that year's work requirement which is disapproved, it being understood and
agreed that any portion of the yearly work requirement which is not expended
because of Bureau of Land Management or Forest Service disapproval shall be
added to the succeeding year's annual work requirement. It is further mutually
understood and agreed that annual assessment work requirements shall not be so
excused unless permission to defer annual assessment work requirements has been
granted to Lessee by the Bureau of Land Management or other government agency,
in which case Lessee shall file all documents required to maintain the Afgan
Mineral Prospect in good standing with the county and the Bureau of Land
Management prior to September 1st of each year and provide Lessor with proof of
such filing prior to November 1st of each year.
<PAGE>
MINIMUM YEARLY WORK EXPENDITURES
1994 $ 50,000.00
1995 $100,000.00
1996 and each year The greater of $200,000.00 or
thereafter the U.S. Dollar Equivalent of
590.67 ounces of gold
On or before February 1st of each year after 1993, Lessee shall provide
Lessor with an organized, legible written narrative report, including table of
contents and list of any exhibits to the report, which describes the operations
conducted on the Afgan Mineral Prospect during the prior calendar year. With the
report shall be furnished legible true copies of all reports and records made
for the Afgan Mineral Prospect, including, but not limited to, lithologic
drilling logs and assays, maps, cross-sections, assays, metallurgical tests, ore
reserve calculations and geological reports pertaining to the Afgan Mineral
Prospect. The report shall include a legend for all symbols used on maps,
cross-sections, drill logs and any other form of document which requires a
legend to make it comprehensible and useful. Upon Lessor's request, Lessee shall
provide copies of the above data in reproducible form such as mylars or sepias.
It is agreed between Lessor and Lessee that, during the term of this Lease,
Lessor shall keep all such information strictly confidential, and Lessor shall
indemnify and save harmless Lessee from any action resulting from reliance upon
such information by Lessor or by any person to whom Lessor furnishes such
information.
Prior to February 1st of each year after 1993, Lessee shall provide
Lessor documentation from Lessee's accounting records of the expenditures
claimed as minimum yearly work requirements upon the Afgan Mineral Prospect. At
reasonable times and places, Lessor shall have access to the original invoices
and any other records pertinent and necessary for substantiating the compliance
of Lessee with the provisions of this Lease.
6. MANNER OF PAYMENT. All payments to be made by Lessee to Lessor
hereunder, except Production Royalty payments where in kind payment is made
pursuant to Article 4, shall be made by mailing or delivering cash or a
cashier's or certified check to Lessor's address as set forth in Article 20
hereof, on or before the date such payment shall be required to be made
hereunder; provided, however, that the Advance Minimum Royalty shall be paid
between January 1 and January 5 of each year. If Lessee fails to pay or shall
incorrectly pay all of any payment or some portion of any payment due hereunder,
this Lease shall terminate absolutely if Lessee, within thirty (30) days after
receipt of written notice of its error or failure with respect to such payment
shall fail to rectify the same. All payments not timely received by Lessor
shall, if thereafter accepted by Lessor pursuant to the terms of this Lease, be
accompanied with interest from the date due until the date paid at the Bank of
America (or its recognized successor) prime rate plus two percent (2%) in effect
on the date the payment was due.
7. LESSOR'S TITLE.
A. It is mutually understood and agreed that this Lease is granted only
under such title as Lessor may now hold or hereafter acquire and that in the
event that Lessor shall hereafter be divested of such title, Lessor shall not be
liable for any damages sustained by Lessee; additionally, Lessor shall not be
liable in damages or otherwise, on account of Lessee's possession thereof being
destroyed or interrupted. Lessee's only remedy in the event of failure of
Lessor's title is specified in the last sentence of Article 7.D below.
<PAGE>
B. It is understood and agreed that in the event of adverse claim or
claims affecting said mining claims or the land covered thereby, Lessee shall be
under no obligation to defend title, nor to contribute to the defense of title
thereto, and it is specifically understood in such event that Lessor shall be
under no obligation to defend title.
C. Concerning possible conflicts with unpatented mining claims of third
parties, neither party is under a specific obligation of title defense; Lessor
leases merely whatever title he might have in such area of conflict. To the
extent that Lessee desires to enter an area of conflict and endeavor to prove
upon the title to Lessor's claims, Lessee does so at its own risk and expense.
Lessor represents that he has no knowledge of claims of third parties.
D. It is expressly agreed that Lessor does not warrant title to the
Afgan Mineral Prospect. Lessor does, however, represent and warrant that the
Afgan Mineral Prospect is free and clear of all liens, encumbrances and leases
of third parties claiming by and through Lessor; provided, however, that the
unpatented mining claims constituting the Afgan Mineral Prospect are
acknowledged to be subject to the paramount title of the United States. Further,
Lessee acknowledges that the Afgan Mineral Prospect including non-mineralized
zones is crossed by the National Historical Pony Express Trail and agrees to
enter into this Lease subject to any legal restrictions on mining which may
result from the presence of such trail. Lessee's sole and exclusive remedy for
any breach or default by Lessor under this Article 7.D is to terminate this
Lease and release its possession of the Afgan Mineral Prospect.
8. NEW MINING CLAIMS. Either party hereto shall have the right at any time
to locate mining claims in the vicinity of the Afgan Mineral Prospect; provided,
however, if all or part of any mining claim so located is included within the
Afgan Mineral Prospect Boundary (which Boundary shall include all of the land
which lies within 1.5 miles of any point on the perimeter of the Afgan Mineral
Prospect described in Exhibit "A"), the rights of the parties with respect to
such mining claim shall be as follows:
A. If such mining claim is located by Lessee, Exhibit "A" hereto shall
be modified and amended to include the same, and Lessee shall assign said claim,
without warranty, to Lessor prior to recording such claim with the Bureau of
Land Management.
B. If such mining claim is located by Lessor, then Lessor shall, within
thirty (30) days of recording the same with the County, give Lessee written
notice thereof setting forth the description of such mining claim and the facts
upon which Lessor bases his conclusions that Leased Substances might exist
therein. Within forty-five (45) days after receipt of such notice, Lessee shall
have the right to reject any interest in such mining claim by giving Lessor
written notice of such rejection; if not so rejected, Exhibit "A" hereto shall
be modified and amended by Lessee to include such mining claim.
C. If any portion of a claim located by either Lessor or Lessee lies
within the Afgan Mineral Prospect Boundary, the entire claim shall become part
of the Afgan Mineral Prospect, and Exhibit "A" shall be modified and amended by
Lessee to include such mining claim.
<PAGE>
D. If Lessor locates mining claims within the boundary area and
subsequently offers such mining claims to Lessee, if Lessee accepts those
claims, it will pay nominal expenses incurred by Lessor in connection with the
acquisition.
This Article 8 shall not apply to mining claims or other properties
that are acquired in good faith by Lessor or Lessee by means other than location
of new mining claims under the mining laws of the United States and/or the State
of Nevada. Any modification or amendment to Exhibit "A" hereto is amended
pursuant to this Article 8, Lessee may record an amended Exhibit "A" in
accordance with the provisions of Article 29.
9. ASSESSMENT WORK - UNPATENTED MINING CLAIMS. Lessee agrees during the
term of this Lease to timely perform labor or make improvements on or for the
benefit of each of the unpatented mining claims comprising the Afgan Mineral
Prospect (hereinafter "assessment work"). Lessee further agrees that said labor
or improvements made to satisfy the annual assessment work shall be performed
only upon the claims lying within the Afgan Mineral Prospect and work performed
on contiguous claims lying outside the boundary of the Afgan Mineral Prospect
covered by this Lease shall not be used to satisfy such requirement. Lessee
shall perform assessment work in accordance with good mining practices and all
applicable state and federal mining laws, statutes, rules and regulations and
shall provide Lessor with basic documentation to substantiate labor affidavits.
The parties hereto agree to cooperate to the fullest extent to enable Lessee to
comply with the requirements of this Article 9 to prepare, record and file in a
timely manner all required proofs of assessment work or Notices of Intention to
Hold in the manner required by applicable law. Lessee shall record Notices of
Intention to Hold and any affidavits of assessment work based upon geological,
geophysical and geochemical surveys with the county prior to September 1st each
year. Lessee shall record all other affidavits of assessment work with the
county prior to September 21st of each year and file county record-stamped
copies of the same with the Bureau of Land Management office having jurisdiction
prior to November 15th each year. Lessee shall provide Lessor with
record-stamped copies of county recorded documents prior to October 15th of each
year and with file-stamped copies of Bureau of Land Management filed documents
prior to December 1st of each year.
In contemplation of a possible change in the mining law, the Lessee
agrees to pay all fees and prepare and file and record all documents necessary
to hold and maintain in good standing the claims subject to the Lease.
Lessee shall have the right to give notice to Lessor in writing that
the claim or claims specified in said notice shall no longer be subject to this
Lease; and upon giving of such notice, such claim or claims shall be deemed
stricken from this Lease, and Lessee's responsibilities and obligations for
assessment work and other fees, filing and recording duties as to said claim or
claims shall end at the end of the then current assessment year. Notwithstanding
the release of any claim or claims from the operation thereof, this Lease shall
continue in full force and effect with respect to all parts of the Afgan Mineral
Prospect not specified in such notice. Further such release shall not cause or
result in any diminution of Lessee's Advance Minimum Royalty, Production Royalty
or Work Commitments described above. Lessee shall, at the time of giving such
notice, provide Lessor with all data regarding work which has been done by or
for Lessee upon any of such claims so released.
<PAGE>
In the event Lessee shall terminate this Lease in its entirety prior to
the end of the then current assessment year, Lessee shall be obligated to
perform assessment work, pay all fees and perform all necessary filing and
recording for the then current assessment year as to each of the claims then
subject to this Lease, or may, at its option and if such termination is at least
ninety (90) days prior to the end of the then current assessment year, pay
Lessor one hundred dollars ($100.00) per claim or such amount required to be
expended on each claim annually by any laws, statutes, rules or regulations in
effect on such termination date.
10. RELOCATION AND AMENDMENT OF UNPATENTED MINING CLAIMS. Subject to the
prior written consent of Lessor, which consent shall not be unreasonably
withheld, Lessee, in the name of the Lessor, shall have the right, but not the
obligation, to amend the locations of any one or more of the mining claims
included within the Afgan Mineral Prospect for the purpose of eliminating
interior gaps or fractions, and Lessor agrees to execute promptly any documents
necessary for that purpose. If the location of any such mining claims was for
any reason defective, Lessee shall have the right but shall not be required to
relocate such defective mining claim or claims in the name of Lessor for the
purpose of curing such defect. In order to insure that Lessor agrees with
Lessee's plan to cure perceived defects in title, Lessor shall be notified in
writing by certified or registered mail at least twenty (20) days prior to
Lessee's commencing such relocation or amendment unless an emergency exists and
time is of the essence.
11. LIENS. Lessee shall pay in full for all labor performed upon or
material furnished to the Afgan Mineral Prospect at the instance or request of
Lessee and shall keep the whole thereof free and clear from any and all liens of
whatsoever nature or kind created by Lessee; provided, however, that if Lessee,
in good faith, disputes the validity or amount of any claim, lien or liability
assessed against it with respect to the Afgan Mineral Prospect, it shall not be
required to pay or discharge the same until the amount and validity thereof have
been finally determined upon the condition that Lessee obtains a bond as is
provided by N.R.S. Section 108.2413, et seq., to effect the release of said lien
within fifteen (15) days after receiving notice of said lien. However, in no
event shall Lessee allow or permit title to the Afgan Mineral Prospect to be
lost, jeopardized or otherwise unreasonably encumbered as a result of its
non-payment of any claim, lien or liability for which Lessee is responsible.
Lessee shall notify Lessor immediately, either by Western Union telegram or
facsimile transmission followed by hard copy, on the occasion of being served
notice of any lien regardless of whether Lessee disputes the validity of the
lien for any reason. It is mutually agreed that concurrent with execution of the
Lease, Lessor and Lessee will execute and acknowledge a "Notice of
Non-Responsibility for Labor or Materials Furnished Mineral Prospect" which
Lessor shall file with the Eureka County Recorder in compliance with N.R.S.
108.234. When the recorded copy of the "Notice of Non-Responsibility" has been
received by Lessor, he shall furnish a copy of same to the Lessee which Lessee
shall post and keep posted upon the Afgan Mineral Prospect during the term of
this Lease.
12. LAWS AND REGULATIONS - INDEMNIFICATION OF LESSOR. It is the policy of
Lessor to comply fully and in all respects with all environmental, reclamation
and land use permitting regulations and laws. In furtherance of that policy,
Lessee shall perform all of the duties listed in this Article 12. Lessee shall
at all times and at its own expense comply in all respects with all county,
state and federal laws, statutes, ordinances, rules and regulations relating to
Lessee's actions under this Lease on or about the Afgan Mineral Prospect. Lessee
shall also at all times and at its own expense pay any and all fees or costs
required to be paid to any governmental agency to keep the title to the mining
claims in good standing.
<PAGE>
Lessee shall provide workmen's compensation insurance and such other
insurance to cover its personnel and all of its operations upon the Afgan
Mineral Prospect in the amount and form as may be required by law. Lessee
assumes full and sole responsibility for the operation and direction of the work
done under this Lease on the Afgan Mineral Prospect and no employee or agent
furnished by Lessee shall under any circumstances be deemed to be an employee or
agent of Lessor.
Lessee shall indemnify and hold Lessor harmless of and from any and all
claims, demands or liabilities arising out of or in connection with the
operations or activities of Lessee hereunder and Lessee shall qualify for and
acquire a comprehensive general liability insurance policy covering such
operations and activities with limits of not less than $1,000,000.00 for each
accident or occurrence. Lessee shall provide Lessor with copies of such
insurance policy, certificate or rider naming Lessor as an additional insured on
such policy within thirty (30) days of the date of execution of this Lease.
Lessee shall notify Lessor verbally within forty-eight (48) hours after
the occurrence of any event on the property which poses a substantial risk of
environmental liability and shall give Lessor detailed notification in writing
within ten (10) days. Such occurrences include but are not limited to cyanide or
other toxic chemical or mineral leaks, spills or contaminations or any episode
or occurrence resulting in killing of wildlife which was caused by said spills,
leaks or contaminations.
Lessee shall provide Lessor with copies of all plans, maps and all
other documents submitted in compliance with government regulations and all
agreements with any government agency pertaining to the Afgan Mineral Prospect,
including but not limited to Notices of Intent to Operate, Plans of Operations,
Environmental Impact Statements, reclamation statements, and all government
agency communications sent to any such agency or received by Lessee from any
such agency which are related to such submissions or agreements, within thirty
(30) days of sending to or receiving from the government agency such material.
In the event any government agency requires the filing of a bond to insure
Lessee's performance, Lessee agrees to provide such bond at its own cost and
expense.
13. TAXES. During the term of this Lease, Lessee shall timely pay all taxes
levied or assessed against the Afgan Mineral Prospect, all taxes levied or
assessed against Lessee's personal property or improvements, all taxes levied or
assessed against any improvements presently on the Afgan Mineral Prospect, and
all taxes levied or assessed upon the operations of or disposition of Leased
Substances by Lessee on or in relation to the Afgan Mineral Prospect, exclusive
of any taxes levied, assessed or measured by the royalty paid to Lessor. Lessor
shall, within thirty (30) days of receipt by Lessor, transmit to Lessee any
notices or documents pertaining to any such taxes which are the responsibility
of Lessee to pay. If Lessor fails to pay any taxes payable by Lessor which
pertain to the Afgan Mineral Prospect, unless Lessor is contesting the same,
Lessee may at its option pay Lessor's proportionate share of taxes when due and
may deduct all such sums from payment to be made to lessor hereunder. Lessee or
Lessor shall have the right to contest in the courts or otherwise the validity
or amount of any taxes or assessments which the respective party may be required
to pay hereunder if it deems the same unlawful, unjust, unequal or excessive or
to take such other steps or proceedings as it may deem necessary to secure a
cancellation, reduction, readjustment or equalization thereof before it shall be
required to pay the same. In the event of termination of this Lease, taxes,
which are the responsibility of Lessee but will be the responsibility of Lessor
after termination, shall be prorated on the relevant tax year basis for the tax
year in which this Lease is terminated.
<PAGE>
14. DEFAULT. If Lessor considers that Lessee has not complied with any of
the covenants, conditions or obligations hereunder, either express or implied,
Lessor shall notify Lessee in writing, setting out specifically in what respects
it is claimed that Lessee has breached this Lease. The receipt of such action
which is necessary to cure the alleged breaches shall be a default hereunder.
Upon such default, Lessor may, at its option, terminate this Lease. Whether or
not Lessor so terminates this Lease, Lessor has all of his rights and remedies
under the law and this Lease with respect to such default.
Notwithstanding any contrary provision in the foregoing paragraph, if
Lessee fails to make any of the payments due under Articles 3, 4, 5, 9 or 13
herein within thirty (30) days after receipt of notice of such failure from
Lessor, this Lease shall terminate absolutely; provided, however, that any
termination for whatever reason shall not excuse Lessee from performing all
obligations incurred under the terms of this Lease prior to such termination.
In the event of termination under this Article 14, Lessee shall have
the right to remove, pursuant to Article 16, its property and equipment from the
Afgan Mineral Prospect, as hereinafter provided, but only after Lessee has
performed all of its accrued obligations under this Lease. Until such
performance by Lessee, Lessor shall have a lien upon all of Lessee's property
and improvements located on the Afgan Mineral Prospect.
15. TERMINATION.
A. Partial Termination by Lessee. Lessee shall have the right, from
time to time and at any time, to terminate this Lease as to any portion of the
Afgan Mineral Prospect by giving written notice to Lessor specifying the portion
of the Afgan Mineral Prospect to which such termination applies. Upon the
effective date of such notice, as set forth in Article 20 hereof, all right,
title and interest of Lessee hereunder shall terminate as to the portion of the
Afgan Mineral Prospect specified in such notice and thereafter the term "Afgan
Mineral Prospect" shall be deemed to refer to only the portions of the Afgan
Mineral Prospect remaining subject to this Lease. Upon such termination, Lessee
shall have no further obligations concerning the portion of the Afgan Mineral
Prospect to which such termination applies, except as to obligations (1) the due
dates or incurrence of which occur prior to such termination, (2) are created
pursuant to obligations in Articles 12 and 16 hereof relating to the condition
of the Afgan Mineral Prospect, or (3) are otherwise required to be performed by
Lessee subsequent to termination. Promptly following such termination, Lessee
shall deliver to Lessor a quitclaim deed, in recordable form, quitclaiming to
Lessor all right, title and interest of Lessee to that portion of the Afgan
Mineral Prospect to which such partial termination applies. No partial
termination under this Article 15 shall, however, cause a reduction in the
amounts of any of the Advance Minimum Royalty and Production Royalty payments
set forth in ARTICLES 3 and 4 or the Work Requirements set forth in Article 5.
B. Complete Termination by Lessee. Lessee shall have the right to
terminate this Lease in its entirety at any time by giving written notice
thereof to Lessor. Upon the giving of such notice, all right and interest of
Lessee under this Lease and in the Afgan Mineral Prospect shall terminate on the
date of the notice and Lessee shall not be required to make any further payments
or expenditures, or to perform any further obligations hereunder, except as to
payments, expenditures or obligations the due dates or incurrence of which occur
prior to the date of such termination; such excepted obligations include but are
not limited to, Lessee's obligations under Articles 12 and 16 hereof. Within ten
(10) days following such termination, Lessee shall deliver to Lessor a quitclaim
deed in recordable form quitclaiming to Lessor all right, title and interest of
Lessee to the Afgan Mineral Prospect.
<PAGE>
C. Data After Termination. Upon termination of this Lease as to all or
any portion of the Afgan Mineral Prospect, Lessee agrees that it will not
furnish any exploration or development data generated by Lessee in its
exploration and/or development of the Afgan Mineral Prospect, including, but not
limited to, drilling logs, assay results, survey information, maps and
cross-sections to third parties without first obtaining written consent therefor
from Lessor.
16. REMOVAL OF IMPROVEMENTS; CONDITION OF AFGAN MINERAL PROSPECT. Whenever
this Lease shall be terminated in whole or in part, for any reason whatsoever,
Lessee shall deliver up the terminated portion of the Afgan Mineral Prospect to
Lessor in reasonably good and safe condition and in compliance with all laws,
statutes, ordinances, rules, regulations, permits and plans of operation. Lessee
shall, however, subject to any laws, rules or regulations which may be
applicable at the time of the requirements of Articles 12 and 16, have the right
to remove any or all of the Improvements place by it on or within the terminated
portion of the Afgan Mineral Prospect; provided, however, Lessee shall leave in
place all track, pipe, timber, chutes and ladders without any warranty as to
condition or fitness for use except for the Lessee's duties to secure openings
as set forth in the last sentence of this Article 16. Within thirty (30) days
after complete termination, Lessee shall assign to Lessor any water rights
acquired or perfected by Lessee during the term of this Lease which are situated
on the Afgan Mineral Prospect and any water rights which are situated off the
Afgan Mineral Prospect but which were acquired for the purpose of conducting
work on the Afgan Mineral Prospect. Lessee shall have the right to effect the
removal of such Improvements, other than those specified above to be left in
place, prior to such termination of this Lease or within one hundred twenty
(120) days thereafter. Any improvements not removed prior to termination or
within one hundred twenty (120) days following such termination shall be deemed
affixed to the terminated portion of the Afgan Mineral Prospect and shall become
and remain the property of the Lessor. Upon partial or complete termination,
Lessor shall retain title to all stockpiles, dumps and tailings, including heap
leach remnants, generated from mining and treating ores from or on the Afgan
Mineral Prospect.
Within one hundred eighty (180) days after the partial or complete
termination, Lessee shall comply, or shall be in the process of diligently and
in good faith complying, with all applicable environmental, restoration and
reclamation laws, statutes, ordinances, rules, regulations, permits and plans of
operation pertaining to the Afgan Mineral Prospect. Lessee is solely responsible
for any governmental requirements and liability related to Lessee's operations
and actions under this Lease and even if the Lessee has complied with
governmental requirements and liability related to Lessee's operations and
actions under this Lease and even if the Lessee has complied with governmental
requirements and has completed the restoration work to the satisfaction of
government agencies upon termination of the Lease, if a governmental agency
shall require some additional work at a future date the Lessee shall be liable
to perform same. Lessee shall indemnify and hold Lessor harmless from any such
responsibility. Further, within one hundred eighty (180) days of partial or
complete termination, Lessee shall secure all openings with stout bulkheads and
timbers to eliminate access by the public to any and all shafts, mines, tunnels,
adits, winzes, man ways, excavations, air lines, and/or vent tubes.
<PAGE>
17. BOOKS AND ACCOUNTS. Lessee shall maintain on a current basis complete
and accurate records and books of account, in accordance with generally accepted
accounting principles consistently applied, covering all matters necessary to
the proper computation of the Production Royalty described in Article 4 hereof
and the determination of yearly work expenditures under Article 5 hereof. Said
records and books of account may be kept either in the vicinity of the Afgan
Mineral Prospect or elsewhere within the State of Nevada at Lessee's option, and
shall be open to inspection by Lessor or his authorized agents at any reasonable
time during normal business hours, provided such inspections do not unduly
interfere with or hamper the managerial or accounting staffs of Lessee. Within
sixty (60) days after the end of each calendar year during the term hereof,
Lessee shall furnish to Lessor an unaudited "Year-End Statement" showing the
amount of Production Royalty paid to Lessor by Lessee during said year and the
basis thereof. All statements so furnished shall be conclusively presumed true
and correct after the expiration of twelve (12) months from the date of receipt
by Lessor, unless within said twelve (12) month period Lessor gives written
notice of exception thereto, specifying with particularly the terms excepted to
and the grounds for such exception. Lessor shall be entitled to an annual
independent audit of the matters covered by said statement, at Lessor's sole
expense, provided Lessor selects for such audit an accounting firm of recognized
standing, at lease one of whose members is a member of the American Institute of
Certified Public Accountants.
18. DATA - INSPECTION. Lessee shall furnish Lessor with copies of any
agreements (including, but not limited to, haulage, milling, refining,
extracting, and ore and concentrate purchase agreements), and any amendments
thereto, which in any way relate to the processing, preparation for sale and the
sale or other disposition of Leased Substances produced from the Afgan Mineral
Prospect. Said documents shall be furnished by Lessee to Lessor within thirty
(30) days after executing such agreements or amendments. Lessee shall furnish
Lessor with copies of all settlement sheets or statements which in any way
relate to the sale or other disposition of Leased Substances produced from the
Afgan Mineral Prospect within thirty (30) days after receiving such sheets or
statements. Lessee shall furnish Lessor with full, true and accurate information
in response to any reasonable request with respect to the condition of mine
workings on the Afgan Mineral Prospect, or with respect to the grade, quantity
or quality of Leased Substances found in drilling, exposed in mining the Afgan
Mineral Prospect or mined, processed or shipped by Lessee. Lessee shall keep
full and accurate records of all operations conducted on the Afgan Mineral
Prospect, including assays, drilling records, drill hole location maps and mine
maps which shall be open to inspection by Lessor or Lessor's agent during
regular business hours and upon reasonable notice, with the provision that
copies of any of these materials shall on request be furnished to Lessor by
Lessee. Lessor, at Lessor's sole risk and expense, shall have the right to enter
upon and into all parts of the Afgan Mineral Prospect from time to time, and at
all reasonable times and hours, for the purpose of inspecting and surveying the
same, or taking reasonable samples of Leased Substances therefrom. In the case
of samples taken from rotary drill cuttings, Lessee shall reserve for Lessor's
benefit a split of suitable size for assaying and very preliminary metallurgical
testing and mineralogic and geologic studies. Lessee agrees to prepare
chipboards sequentially soon after acquisition and as drilling progresses. It is
the policy and intent of Lessor to provide adequate storage facilities for
chipboards and splits of all rotary drill cuttings and Lessor and Lessee agree
to cooperate in taking whatever steps are necessary to insure that chipboards
and drill cuttings will never be exposed to the weather or be vulnerable to
intrusion or vandalism by the public. Lessee agrees to give Lessor adequate
advance warning of the need for storage space for large quantities of splits,
drill cuttings, and chipboards. Lessee agrees to cooperate in filing splits in
an orderly, logical manner in the drill cuttings or core shelters provided.
<PAGE>
If this Lease is terminated for any reason, Lessee shall, within thirty
(30) days thereafter, furnish Lessor with all exploration and development data
generated by Lessee in its exploration and/or development of the Afgan Mineral
Prospect including, but not limited to, legible copies of drilling logs, assay
results, survey information, maps and cross-sections including geologic
interpretive data and including reproducible mylars or sepias which may have
been prepared by Lessee. Lessor shall not disclose to the public during the term
of this Lease, without the prior written consent of Lessee, any information
furnished to or made available to Lessor regarding any portion of the Afgan
Mineral Prospect while such portion is subject to the terms of this Lease except
as may be required by law or securities rules or regulations.
19. COMMINGLING. Lessee shall not have the right to commingle Leased
Substances with ores and concentrates from other properties.
20. NOTICES. Unless otherwise herein provided, notice or payment hereunder
shall be deemed sufficiently given or made when personally delivered or on the
third day after deposit in the United States mail, first-class, postage prepaid,
registered or certified, return receipt requested, and addressed as follows:
TO LESSOR: The Lyle F. Campbell Trust
P.O. Box 7377
Reno, Nevada 89510
(702)331-4011
TO LESSEE: Great Basin Exploration & Mining Co., Inc.
3400 Kauai Court, Suite 208
Reno, Nevada 89509
(702)689-7450
or to such other person or address as either party may designate by proper
written notice.
21. FORCE MAJEURE. Except for the payments and the time requirements with
respect thereto set forth in Articles 3, 4, 5, 6, 8, 9, 13 and 18 hereof,
whenever the time for performance of any act hereunder is limited and the
performance thereof is hindered, prevented or delayed by any factor or
circumstance beyond the reasonable control or Lessee and which Lessee is obliged
to perform and which Lessee could not have avoided by the timely use of due
diligence and adequate planning, such as acts of God, fire, floods, strike or
labor troubles, breakage of machinery, inability to obtain necessary materials,
supplies or labor, interruptions in delivery or transportation, shortage of
railroad cars, insurrections or mob violence, regulations, orders or
requirements of the government, embargoes, war or other disabling causes,
whether similar or different, then the time for the performance of any such act
or obligation shall be extended for a period equal to the time between Lessee's
notification of existence and notice of termination of force majeure. Lessee
shall immediately notify Lessor in writing of the existence of force majeure,
and Lessee shall use due diligence to remove the force majeure and shall
promptly notify Lessor when the declaration of force majeure is terminated. It
is expressly understood that litigation or arbitration in which Lessee is a
party shall not constitute a condition of force majeure hereunder.
<PAGE>
22. ASSIGNMENT; SUBLEASE, JOINT OPERATIONS; TRANSFERS. The subject matter
of this Lease includes unpatented mining claims. The parties recognize the
uncertain and tenuous nature of title to the unpatented mining claims. Further,
the parties recognize the critical importance of complying with state and
federal regulations and statutes in preserving said title. The parties expressly
agree that part of the material consideration for this agreement is Lessor's
confidence in Lessee's ability and commitment to perform its duties hereunder,
which duties include but are not limited to performance of annual assessment
work and perfection of proof thereof as provided in Article 9; development of
all necessary exploration, operation, reclamation and bonding plans as provided
in Article 5; compliance with all local, state and federal laws, statutes,
ordinances, rules and regulations as provided in Article 12; payment of all
taxes as provided in Article 13; and application of the highest level of its
professional, technical and financial ability and willingness to explore and
operate the Afgan Mineral Prospect in compliance with all of the terms of the
Lease, all of which are necessary to protect Lessor's rights and title in the
Afgan Mineral Prospect.
Lessee expressly agrees in view of the material considerations listed
immediately above that it shall not assign, sublease, enter a joint operating
agreement, or otherwise transfer (hereinafter "transfer") all or any part of its
rights or duties under this Lease without performance of the following express
conditions:
A. Prior to execution of any documents effecting such a transfer,
Lessee shall provide Lessor with a copy of the proposed transfer documents
together with all exhibits or attachments thereto not less than fifteen (15)
days prior to Lessee's execution thereof.
B. Lessee shall not execute any such transfer documents or obligate
itself to make any such transfer without obtaining the prior written consent of
Lessor.
C. Lessee shall expressly guarantee performance of all of the duties of
Lessee under this Lease whether said duties accrue before or after transfer of
the Lease by Lessee. Said guarantee sublease, assignment, joint venture
agreement or other transfer, and no refusal by Lessor to consent to any transfer
shall be unreasonable if Lessee fails or refuses to guarantee the obligations of
its transferee in the same instrument, or if the same instrument does not
obligate the transferee to be bound by the terms and conditions of this Lease to
the same extent as the transferor (Lessee). If the transfer is the grant of a
security interest in or other encumbrance of all or any part of Lessee's
interest hereunder in order to secure a loan to Lessee, the instrument
documenting the transfer shall recite that it is subject to the terms and
conditions of this Lease and that upon any foreclosure of or other enforcement
of rights in the encumbrance the foreclosing party shall assume the position of
Lessee hereunder and shall comply with and be bound by all terms and conditions
of this Lease. No transfer by Lessee hereunder shall relieve Lessee from any
obligation which accrues or attaches prior to the effective date of the
transfer.
<PAGE>
D. Lessee agrees that this Article 22 shall be expressly incorporated,
and not incorporated by reference, in any sale, assignments, sublease, joint
operation agreement, or other document effecting such a transfer, and in any and
all subsequent sales, assignments, subleases, joint operating agreements, or any
other documents effecting a transfer of its rights and duties under this Lease.
It is expressly agreed that should Lessee enter into any sale, loan
instrument, assignment, sublease, joint operating agreement or other transfer of
Lessee's rights or duties hereunder without prior performance of conditions A,
B, C, and D listed immediately above, such transfer shall be void and such
transfer shall constitute a material breach of this Lease by Lessee.
Lessor agrees that its prior written consent to any such transfer shall
not be unreasonably withheld. Lessor may without any consent and without any
prior notice to Lessee sell, encumber or otherwise transfer its rights under
this Lease. Lessor shall deliver a true and correct copy of any documents
evidencing such a sale, encumbrance or transfer to Lessee within fifteen (15)
days after execution thereof.
Lessee agrees to provide Lessor, after its written consent thereto,
with a counterpart original of any sale, loan, instrument, assignment, sublease,
joint venture agreement, or other transfer documents complete with all
supporting documents, attachments, and exhibits within fifteen (15) days after
execution thereof.
23. GOVERNING LAW. This Lease shall be governed by the laws of the State of
Nevada.
24. PRESS RELEASES BY LESSEE. If Lessee issues a press release or any other
form of publicity, neither the name of Lyle F. Campbell nor the Lyle F. Campbell
Trust shall be used, unless the Trust or Mr. Campbell give their prior written
consent to Lessee. On the same date of the publicity release, a full, true and
accurate copy of the publicity release shall be sent to Lessor by certified or
registered mail.
25. TITLE OF ARTICLES. The titles to the Articles hereof have been inserted
for convenience only. Such titles are not to be considered as limiting or
expanding or modifying in any other fashion the language of the Article
following the same.
26. ATTORNEY'S FEES. The prevailing party in any litigation between the
parties hereto concerning this Lease shall be entitled to its reasonable
attorneys' fees and court costs.
27. NO WAIVER. No waiver by either party of any right herein shall be
construed as a waiver of any such right in the future or any other right in this
Lease.
28. BINDING EFFECT. Subject to the provisions of Article 22, this Lease
shall extend to and be binding upon and every benefit hereof shall inure to the
parties hereto, their respective heirs, executors, administrators, successors,
and assigns.
29. MEMORANDUM. Lessee and Lessor shall execute a Memorandum of this Lease
in a recordable form under the laws of the State of Nevada to give notice to
third parties of the rights granted hereunder. Either party may record such
memorandum. Neither of the parties hereto shall or may record this lease.
30. OBLIGATION OF GOOD FAITH. All obligations and covenants set forth in
this Lease shall be subject to an obligation of good faith by both Lessor and
Lessee in the performance or enforcement thereof. It is mutually understood and
agreed that "Good Faith" means honesty in fact in the conduct or transaction
concerned.
<PAGE>
31. SOLE AGREEMENT; TIME OF ESSENCE. This Lease constitutes the sole
understanding of the parties with respect to the subject matter hereof. All
prior written or oral agreements or understandings between the parties hereto
are incorporated in and superseded by this Lease, except the parties'
Confidentiality and Boundary Agreement dated February 11, 1992. No modification
or alteration of the terms of this Lease shall be binding unless such
modification or alteration shall be in writing and executed subsequent to the
date hereof by Lessee and Lessor. In the event such modification or alteration
alters the rights granted hereunder, the parties may execute an amended
Memorandum of this Lease in a recordable form sufficient under the laws of the
State of Nevada to provide notice to third parties. Time is of the essence of
this Lease.
IN WITNESS WHEREOF, the parties hereto have duly executed this Lease of the
day and year first above written.
LESSOR: LESSEE:
GREAT BASIN EXPLORATION &
MINING CO., INC., a Nevada
Corporation
Lyle F. Campbell By: Anthony P. Taylor
- -------------------- ------------------------
Lyle F. Campbell, Sole Trustee Anthony P. Taylor
of the Lyle F. Campbell Trust President
STATE OF NEVADA )
) ss.
County of Washoe )
On this 10th day of November, 1993, before me, the undersigned, a Notary
Public in and for the state aforesaid, personally appeared LYLE F. CAMPBELL,
known or identified to me to be the Sole Trustee of the LYLE F. CAMPBELL TRUST,
and the person authorized to and the person who did execute the foregoing
instrument on behalf of said Trust, and acknowledged to me that such Trust
executed the same.
IN WITNESS WHEREOF, I have hereunto set my hand and affixed my Notarial
seal the day and year in this certificate first above written.
Sharon Mitchell
-----------------------
Notary Public in and for the State of
Nevada, Residing at: 1795 Glendale
Sparks
My Commission expires: April 28, 1996
<PAGE>
STATE OF NEVADA )
) ss.
County of Washoe )
On this 10th day of November, 1993, before me, the undersigned, a Notary
Public in and for the state aforesaid, personally appeared ANTHONY P. TAYLOR
known or identified to me to be the President of GREAT BASIN EXPLORATION &
MINING CO., INC., and the officer that executed the foregoing instrument on
behalf of said corporation, and acknowledged to me that such Corporation
executed the same.
IN WITNESS WHEREOF, I have hereunto set my hand and affixed my Notarial
seal the day and year in this certificate first above written.
C. J. Stoen
--------------------------
Notary Public in and for the State of
Nevada, residing at 860 Colorado River
Blvd
My Commission expires: 11-10-95
PARTICIPATION AGREEMENT
SEREM GATRO CANADA INC.
- and -
GREAT BASIN EXPLORATION & MINING CO., INC.
- and -
GREAT BASIN MANAGEMENT CO., INC.
MADE AS OF MAY 31, 1995
<PAGE>
PARTICIPATION AGREEMENT
MEMORANDUM OF AGREEMENT made as of May 31, 1995 among Serem Gatro Canada
Inc., a corporation incorporated under the laws of the Province of Quebec
("SGC"), Great Basin Exploration and Mining Co., Inc., a corporation
incorporated under the laws of the State of Nevada ("GBEM") and Great Basin
Management Co., Inc. a corporation incorporated under the laws of the State of
Nevada ("GBM"), witness that:
WHEREAS the Parties wish to provide for the terms of agreement to govern
the relationship among them in connection with the issuance to, and any exercise
by, SGC, or any assignee thereof, of the Participation Rights as hereinafter
provided;
NOW THEREFORE, in consideration of the premises and the mutual agreements
contained in this Agreement and other valuable consideration (the receipt and
adequacy of such consideration being acknowledged by each of the Parties), the
Parties hereto agree as follows:
ARTICLE 1
INTERPRETATION
1.01 Defined Terms. For the purposes of this Agreement including the recitals
hereto, the following terms shall have the following meanings:
"Affiliate", where used to indicate a relationship with any Person means:
(a) A body corporate of which that Person beneficially owns, directly or
indirectly, other than by way of security, voting securities carrying fifty
percent or more of the votes that may be cast to elect directors of that body
corporate; and
(b) where that Person is a body corporate, another body corporate that
beneficially owns, directly or indirectly, other than by way of security, voting
securities carrying fifty percent or more of the votes that may be cast to elect
directors of that Person, and one body corporate shall be deemed to be an
Affiliate of another body corporate where both of them are Affiliates of the
same body corporate;
"Agreement" means this participation agreement; "herein", "hereby",
"hereof", "hereto", "hereunder" and similar expressions mean or refer to this
agreement and any agreement or instrument supplemental or ancillary hereto and
not to any particular Article, Section, Subsection or other subdivision;
"Article", "Section", "Subsection" or other subdivision of this Agreement
followed by a number means and refers to the specified Article, Section,
Subsection or other subdivision of this agreement;
"Area of Interest" means the area within the lines connection the points
which are situated at 41 degrees 15 minutes North and 118 degrees 00 minutes
West, 41 degrees 15 minutes North and 115 degrees 45 minutes West, 39 degrees 15
minutes North and 115 degrees 45 minutes West, 39 degrees 15 minutes North and
118 degrees 00 minutes West, respectively, as indicated on the map of the State
of Nevada annexed as Schedule "A" hereto;
"Budget" means a detailed budget of the Estimated Development/Production
Expenditures required to bring a Property into Commercial Production in
accordance with a Feasibility Study plus the estimated working capital and other
requirements for the operation of such Property once it has been placed into
Commercial Production;
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"Business" means the business currently and heretofore carried on by GBEM
and consisting of the exploration and development of potential mining
properties;
"Business Day" means any day of the year, other than a Saturday, Sunday or
any day on which Canadian charter banks are required or authorized to close in
Montreal, Quebec;
"Claim" means any claim of any nature whatsoever, including any demand,
liability, obligation, debt, action, cause of action, suit, duty, proceeding,
judgment, aware, account, bond, covenant, contract, assessment or reassessment;
"Closing" has the meaning ascribed thereto in the Share Purchase Agreement;
"Closing Date" has the meaning ascribed thereto in the Share Purchase
Agreement;
"Commercial Production" means mining, extracting, processing and handling
of the ores or minerals or concentrates derived therefrom which are discovered
and developed on or in a Property or Properties and all other work related
thereto as may be incidental or reasonably required'
"Core Properties" means the claims or other property or property rights
described in Schedule "B" hereto and any additional or other claims or other
property or property rights that may subsequently be acquired by GBEM, or any
assignee thereof hereunder, within one mile of the perimeter of the claims or
other property or property rights described in Schedule "B" or such greater
distance as may be provided for under the headings "Area of Interest" in
Schedule "B";
"Core Property Expenditures" means an amount equivalent to the historical
expenditures in respect of the Core Properties namely $3,082,319 (U.S.
$2,222,292), and in respect of each of the Core Properties shall be the amount
sent out opposite the name of the respective Core Property on Schedule "C"
hereto;
"Development/Production Expenditures" means all costs and obligations of
whatever kind of nature to be incurred by a JV Corporation under a Budget;
"Effective Date" means May 31, 1995 being the effective date of this
Agreement;
"Elected Percentage" has the meaning ascribed thereto in Section 5.01;
"Encumber" or "Encumbrance" means any liens, charges, mortgages, pledges,
security interests, claims, defects of title, restrictions and any other right
of third parties, including right of set-off and voting trusts, and other
encumbrances of any kind;
"Exercise Notice" has the meaning ascribed thereto in SECTION 5.01;
"Exercise Period" has the meaning ascribed thereto in Section 5.01;
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"Exploration Expenditures" means all cash, expenses, obligations and
liabilities of whatever kind or nature incurred directly or indirectly by GBEM
in connection with the exploration and development of any Property during the
Exploration / Feasibility Period, including, as applicable, the cost of any
Feasibility Study in respect of such Property, monies expended in maintaining
such Property in good standing, in doing geophysical, geochemical and geological
surveys, drilling, assaying, and metallurgical testing, in paying the wages,
salaries, traveling expenses, and fringe benefits of all Persons engaged in such
work with respect to the Property but shall, for greater certainty, exclude the
Core Property Expenditures;
"Exploration/Feasibility Period" means with respect to any particular
Property, the period commencing on the Effective Date and ending upon the
earlier of the expiry of the Exercise Period of the JV Effective Date;
"Feasibility Notice" has the meaning ascribed thereto in Section 4.01;
"Feasibility Study" means a comprehensive study and report containing all
material information, prepared in accordance with engineering standards of the
highest quality (but which may be prepared by SGC) required to support a
recommendation that one or more mineral deposits or suspected mineral deposits
on or in a Property should be brought into Commercial Production and thereafter
operated on a commercial basis. Without limiting the generality of the
foregoing, any such study shall contain all requisite details respecting ore
reserves, mine or pit design, mining plan, estimated mining rates and cut-off
grades; results of all metallurgical analysis, the method of extracting and
treating the ore, market analysis and proposed marketing arrangements, full
environmental and social impact studies, all data, including cost estimates of
mine development and construction, erection of plant, service facilities, roads,
dumps, tailings disposal, power, water and transport, all operating costs
contemplated and working capital requirements; the whole to be based upon work
of sufficient scope to verify the existence of a commercial deposit on a
Property without resort to any additional work. Such study shall include a
timetable for placing the Property into Commercial Production, disclosing, on
critical path, work required to be done during the construction period and the
number of weeks estimated to elapse from the date of production commitment to
the date when construction will be completed and Commercial Production will
commence;
"GAAP" means at any time accounting principles generally accepted in Canada
at such time;
"GBEM" has the meaning ascribed thereto above;
"GBM" has the meaning ascribed thereto above;
"Heads of Agreement" means the heads of agreement dated as of the 9th day
of March, 1995 between SGC, GBEM and the Management Members (as defined in the
Share Purchase Agreement);
"JV Charter Documents' means the articles and by-laws or similar charter
documents governing a JV Corporation;
"JV Corporation" means a corporation to be incorporated as provided in
Section 5.02;
"JV Effective Date" shall mean the 10th Business Day after the date of the
giving of an Exercise Notice under Section 5.01, or such later date mutually
agreeable to the Participants having a Participation Interest in respect to the
relevant Property upon which all conditions precedent to the consummation of the
transactions enumerated in Sections 5.02, 5.03, 5.05 and 5.06 have been
satisfied;
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"Laws" means all statues, codes, ordinances, decrees, rules, regulations,
municipal by-laws, judicial or arbitral or administration or ministerial or
departmental or regulatory judgements, orders, decisions, rulings or awards,
policies, voluntary restraints, guidelines, or any provisions of the foregoing,
including general principles of common and civil law and equity, binding on or
affecting the person referred to in the context in which such word is used; and
"Law" means any one of them;
"Participant" means a Party hereto or the assignee of a Party hereto that
has a Participation Interest in respect of any particular Property or
Properties, as the case may be, or, prior to the exercise of Participation
Rights in respect thereof, a Party hereto or the assignee of a Party hereto that
has Participation Rights;
"Participation Interest" means a contributory participation interest of a
Participant, in respect of a Property, which shall consist of Shares and
Shareholder Advances in or made to the JV Corporation which holds such Property,
which in the case of SGC or any assignee thereof shall, in respect of any Core
Property, be in a percentage of up to 40% and, in respect of any other Property,
be in a percentage of up to 10%, and shall be acquired by it upon the exercise
by it of its Participation Rights in respect of such Property hereunder;
"Participation Rights" means the rights of SGC (or any assignee thereof) to
elect to acquire a Participation Interest of up to 40% in respect of any Core
Property and, up to 10% in respect of any other Property, in each case in
accordance with the terms and conditions hereof;
"Parties" means SGC, GBEM, GBM and any other Person who may become a party
to this Agreement; and "Party means any one of them;
"Person" means an individual, partnership, corporation, trust,
unincorporated association, joint venture or other entity or governmental
entity, and pronouns have a similarly extended meaning;
"Programme" means a programme of work to be carried out on or relating to
all or any indicated part of a Property during the period of time at an
estimated cost (which may include a reasonable allowance for contingencies)
therein set forth as accepted pursuant to the provisions hereof as the same may
from time to time be amended as herein permitted, it being agreed that the word
"Programme" may refer to either the actual work performed or to documentation
relating thereto, as the context hereof may require;
"Property" or "Properties" means (i) the Core Properties together with any
other claims or other property or property rights (whether mining or surface
rights) relating to the lands covered thereby, and (ii) any other claims or
other property or property rights that may subsequently be acquired by GBEM or
its assignees hereunder with the Area of Interest within the period of time
commencing on the Effective Date and ending on the fifth anniversary of the
Effective Date;
"Share Purchase Agreement" means the share purchase agreement of even date
herewith among SGC, GBEM and GBM in respect of, among other things, the purchase
and sale of all of the common shares of GBEM.
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"Shareholder" means GBEM and any other Participant, including SGC, as
shareholders of a JV Corporation to be incorporated at a future date as
contemplated under this Agreement;
"Shares of the JV Corporation" means the common shares and any other class
or classes or series of shares in the capital of a JV Corporation to be
incorporated at a future date as contemplated under this Agreement;
"Time of Closing" has the meaning ascribed thereto in the Share Purchase
Agreement; and
"work" means development and/or other mining work in, on, under or relating
to the Properties or a Property.
1.02 GENERAL. Any reference in this Agreement to gender shall include all
genders, words importing the singular number only shall include the plural and
vice versa, and any reference to any statute shall be deemed to extend to and
include any amendment or re-enactment of such statute.
1.03 HEADINGS, ETC. The division of this Agreement into Articles, Sections,
Subsections and other subdivisions and the insertion of headings are for the
convenience of reference only and shall not affect or be utilized in the
construction or interpretation of this Agreement.
1.04 CURRENCY. All references in this Agreement to dollars, unless otherwise
specifically indicated, are expressed in U.S. Currency.
1.05 SEVERABILITY. Any Article, Section, Subsection or other subdivision of this
Agreement and any other provision of this Agreement which is, or becomes,
illegal, invalid or unenforceable shall be severed from this Agreement and be
ineffective to the extent of such illegality, invalidity or unenforceability and
shall not affect or impair the remaining provisions hereof.
1.06 ENTIRE AGREEMENT. This Agreement constitutes the entire agreement between
the Parties pertaining to the subject matter hereof with the exception of the
Share Purchase Agreement and the Acknowledgment of Debt (as defined in the Share
Purchase Agreement) and supersedes all other prior agreements, understandings,
negotiations and discussions, whether oral or written, of the Parties, including
the Heads of Agreement. There are no representations, warranties, conditions or
other agreements, express or implies, statutory or otherwise, between the
Parties in connection with the subject matter of this Agreement, except as
specifically set forth herein and therein.
1.07 AMENDMENTS. This AGREEMENT may only be amended, modified or supplemented by
a written agreement signed by all of the Parties.
1.08 WAIVER. No waiver of any of the provisions of this Agreement shall be
deemed to constitute a waiver of any other provision (whether or not similar),
nor shall such waiver constitute a waiver or continuing waiver unless otherwise
expressly provided in writing duly executed by the Party to be bound thereby.
1.09 GOVERNING LAW. (1) This Agreement shall be governed by and interpreted and
enforced in accordance with the laws of the Province of Quebec and the laws of
Canada applicable therein which apply to contracts made and to be performed
entirely in Quebec.
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(2) With respect to all such matters that the Parties have not in this
Agreement agreed to be settled to the exclusion of the courts, SGC hereby
irrevocably attorns and submits to the exclusive jurisdiction of courts of
competent jurisdiction in the Province of Quebec and hereby appoints Ogilvy
Renault as agent for the service of any process in the Province of Quebec with
respect to any matter arising under or related to this Agreement.
(3) With respect to all such matters that the Parties have not in this
Agreement agreed to be settled with the exclusion of the courts, GBM and GBEM
hereby irrevocably attorn and submit to the exclusive jurisdiction of courts of
competent jurisdiction in the Province of Quebec and hereby appoints McCarthy
Tetrault agent for the service of any process in the Province of Quebec with
respect to any matter arising under or related to this Agreement.
1.10 INCLUSION. Where the word "including" or "includes" is used in this
Agreement it means "including (or includes) without limitation".
1.11 ACCOUNTING. All accounting terms not specifically defined in this AGREEMENT
shall be construed in accordance with GAAP. Where the Canadian Institute of
Chartered Accountants include a recommendation in its Handbook concerning the
treatment of any accounting matter, such recommendation shall be regarded as the
only generally accepted accounting principle applicable to the circumstances
that it covers and references herein to GAAP shall be interpreted accordingly.
All financial data or determinations prepared or required in respect of this
Agreement or relevant hereto shall be prepared in accordance with GAAP.
1.12 DAY NOT A BUSINESS DAY. If any day on or before which any action is
required to be taken hereunder is not a Business Day, then such action shall be
required to be taken on or before the requisite time on the next succeeding day
that is a Business Day.
ARTICLE 2
PARTICIPATION RIGHTS
2.01 PARTICIPATION RIGHTS. In consideration of the sum of One ($1.00) Dollar
(the receipt and adequacy of which consideration are acknowledged by GBEM), GBEM
hereby agrees to grant, and shall be deemed conclusively to have granted
concurrently with such payment, to SGC the Participation Rights, such
Participation Rights being applicable separately to each of the Properties, and
exercisable by SGC (or its permitted assigns) for a Participation Interest in
respect of each Property which is a Core Property, up to a maximum of 40% and,
in respect of any other Property, up to a maximum of 10%, in accordance with the
terms and conditions of this Agreement.
2.02 CONDITIONALITY. The effectiveness of the terms and conditions of this
Agreement, including the granting of the Participation Rights provided for in
Section 2.01, shall be subject to the completion of the Closing.
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ARTICLE 3
EXPLORATION/FEASIBILITY PERIOD OPERATIONS
3.01 exploration/FEASIBILITY PERIOD OPERATIONS. During the
Exploration/Feasibility Period, GBEM will have the sole responsibility for
financing and designing and conducting exploration, development and operating
Programmes for the Property and will have exclusive possession of the Property
for the purposes thereof. It is acknowledged and agreed by the Parties that SGC
shall not be involved in the management or operation of any Property at any time
prior to a JV Effective Date, if any, in respect thereof and upon a Joint
Venture Effective Date and thereafter only through its Participation Interest in
the relevant JV Corporation.
3.02 FUNDING DOCUMENTATION. The use (which shall include any provision of a copy
in draft or final form to any Person whatsoever) by or on behalf of GBEM or any
of its directors, officers, employees, representatives, advisors or agents of
any materials, data or other documents (whether in written or computer
retrievable form) in connection with or in any manner related to the raising of
capital or funding for GBEM. GBEM or any JV Corporation or otherwise, insofar as
such materials, data or other documents deal with, describe or contain any
reference to matters prior to the Effective Date relating to SGC or the
ownership of its shares or the affairs (as defined in the Canada Business
Corporations Act at the Date hereof) of GREAT BASIN EXPLORATION AND MINING CO.,
INC. shall be subject to SGC's prior written approval, which approval shall not
be unreasonably withheld. SGC shall respond within 10 Business Days of receiving
a written request from GBEM or GBM to be able to make use of such materials,
data or other documents.
ARTICLE 4
FEASIBILITY STUDY
4.01 FEASIBILITY STUDY. If at any time GBEM concludes, acting reasonably, that
there is sufficient evidence that a potential orebody exists upon or in a
Property in respect of which a Participant holds Participation Rights and that a
Feasibility Study should be prepared, it shall by written notice so inform any
Participant who holds Participation Rights in respect of such Property. Such
written notice (the "Feasibility Notice") shall (i) include a pre-feasibility
study setting out in reasonable detail acceptable to such Participant, acting
reasonably, all of the material information upon the basis of which GBEM has
reached its aforesaid conclusion; (ii) provide such Participant with a right to
participate in the selection of the Person to prepare the Feasibility Study; and
(iii) provide such Participant, at such Participant's sole discretion, with the
right to participate in the preparation of the Feasibility Study at its own cost
(it being acknowledged and agreed that whenever any Participant does not elect
to participate in the preparation of a Feasibility Study at its own cost, any
and all costs and expenses related to the preparation of a Feasibility Study
shall be borne exclusively by GBEM).
4.02 DELIVERY OF FEASIBILITY STUDY. If the Feasibility Study is prepared by GBEM
or a Participant, a copy thereof shall be delivered to each of the Parties then
having Participation Rights in respect of the Property which is the subject of
the Feasibility Study along with the Budged referred to in Section 5.01.
4.03 DUTY TO COMMERCIALLY DEVELOP PROPERTY. If a Feasibility Study indicates
that a Property contains an orebody and recommends that work be commenced with a
view to bringing such Property into Commercial Production, the Participants
shall not be obligated to bring same into Commercial Production.
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ARTICLE 5
DEVELOPMENT DECISION
5.01 EXERCISE OF PARTICIPATION RIGHTS. Within 90 days (the "Exercise Period") of
the receipt by such Participant of a completed Feasibility Study and a Budget in
respect of the initial fiscal year of a JV Corporation, each Participant which
holds Participation Rights in respect of the Property which is the subject of
the Feasibility Study shall give a written notice (the "Exercise Notice") to
GBEM whether or not such Participant elects to exercise its respective
Participation rights to acquire a Participation Interest in the said Property.
Such election, and the percentage amount of any participation Interest elected
(the "Elected Percentage'), shall be at the sole discretion of the Participants
subject to an aggregate maximum in the case of SGC and its assignees hereunder
of 40% in the case of any Core Property and 10% in the case of any other
Property, and the Elected Percentage shall be set out in the Exercise Notice. If
a Participant who holds Participation Rights in respect of such Property fails
to give an Exercise Notice within the Exercise Period, such Participant shall be
deemed to have waived the right to elect to acquire a Participation Interest in
respect of such Property, but shall not be deemed to have waived any rights with
respect to any other Property in respect of which said Participant holds
Participation Rights.
5.02 INCORPORATION OF JV CORPORATION. In the event that a Participant shall have
exercised its Participation Rights in accordance with Section 5.01, such
Participant and GBEM shall incorporate a JV Corporation under the statute of any
mutually agreeable jurisdiction or, on the failure or inability of the
Participant and GBEM on or before the JV Effective Date to agree upon such
jurisdiction, under the Canada Business Corporations Act, having its head office
in a location mutually agreeable to the Participant and GBEM or, on the failure
or the inability of the Participant and GBEM to agree on or before the JV
Effective Date upon such location, in Montreal, Canada, as soon as possible
after the giving of the relevant Exercise Notice, and in any case on or before
the relevant JV Effective Date. Such JV Corporation shall upon incorporation
execute and deliver, in a form satisfactory to the Participant(s), acting
reasonably, a counterpart to this Agreement agreeing to be bound by the terms
and conditions hereof as if it were a Party hereto.
5.03 TRANSFER OF PROPERTY. On or before the JV Effective Date relevant to the
particular JV Corporation, GBEM shall execute and deliver all documents and
instruments necessary or advisable in the opinion of the Participant's counsel,
acting reasonably, for the purpose of selling, assigning, transferring and
conveying to the JV Corporation all of GBEM's right, title and interest, free of
any Encumbrances, in the Property in respect of which the Participant shall have
exercised its Participation Rights and the transaction of Purchase and sale
contemplated herein shall be completed upon such date.
5.04 AUDIT OF EXPLORATION EXPENDITURES. At any time and from time to time a
Participant shall have the right to request an audit or to cause to be carried
out an audit, at its own expense, of the amounts and allocations of Exploration
Expenditures in respect of any Property and GBEM and its assignees shall make
available to the Participant for this purpose all relevant documents, records
and other information as may be reasonably requested by the Participant.
5.05 PAYMENT OF SALES TAX AND REGISTRATION CHARGES ON TRANSFER. The relevant JV
Corporation shall be liable for and shall pay all land transfer taxes, federal,
provincial and state sales taxes and all other taxes, duties, registration
charges or other like charges properly payable upon and in connection with the
sale, assignment, transfer and conveyance to it of any Property by GBEM
hereunder. The Parties agree that they will use their reasonable best efforts in
good faith to minimize (or eliminate) any taxes payable under applicable
legislation in respect of such sale, assignment, transfer and conveyance, by
among other things, making such elections or taking such steps in such manner as
may be provided for under applicable legislation as may reasonable be requested
by SGC in connection herewith.
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5.06 ISSUE BY JV CORPORATION AND ASSIGNMENT BY GBEM OF PROMISSORY NOTES. On the
JV Effective Date, the JV Corporation shall in respect of and upon the transfer
by GBEM of the relevant Property to the JV Corporation, issue in favour of GBEM
the following promissory notes: (i) a promissory note (the "Core Property Note")
in the aggregate amount of the Core Property Expenditures in respect of such
Property, if any; and (ii) a promissory note (the "Exploration Expenditure
Note:) in the aggregate amount of the Exploration Expenditures allocated in
respect of such Property. GBEM shall immediately thereupon assign and transfer
to SGC (or its assignees as their respective interests may appear) the Core
Property Note, where applicable, in consideration of the payment by the
Participant to GBEM of the amount of $1.00 and this shall constitute GBEM's
irrevocable direction to the JV Corporation to deliver same to and in favour of
SGC (or its assignees as their respective interests may appear).
5.07 CONDITIONS WITH RESPECT TO THE JV CORPORATION IN FAVOUR OF GBEM. The
obligation of GBEM to consummate the transactions contemplated in Sections 5.02,
5.03, 5.05, and 5.06 is subject to compliance with the following conditions
precedent on or before each JV Effective Date, namely:
(a) That each Participant other than GBEM shall have subscribed for the
Shares of the JV Corporation referred to in Section 5.09 hereof; and
(b) that the representations and warranties of SGC, if SGC is a
Participant, and of any other Participant, as if such Participant had made the
representations and warranties of SGC, mutatis mutandis, contained in section
8.02 shall be true and correct as if made on and as such JV Effective Date.
5.08 CONDITIONS WITH RESPECT TO THE JV CORPORATION IN FAVOUR OF SGC. The
obligation of SGC, or any other Participant, to consummate the transactions
contemplated in Section 5.02, 5.03, 5.05, and 5.06 is subject to compliance with
the following conditions precedent on or before JV Effective Date, namely:
(a) that GBEM shall have effected the conveyance of the relevant
Property to the JV Corporation in accordance with Section 5.03 hereof;
(b) that GBEM shall have subscribed for the Shares of JV Corporation
referred to in Section 5.09 thereof;
(c) that the representation and warranties of GBEM contained in Section
8.01 shall be true and correct as if made on and as of such JV Effective Date;
(d) that there shall have been delivered to SGC or the Participant the
favorable opinion of counsel as to matters set forth in Section 8.01 hereof and
with respect to such other matters as SGC or the Participant in its discretion
shall request, such opinion to be in form and substance satisfactory to SGC or
the Participant; and
(e) that there shall have been delivered to SGC such acknowledgments,
consents or subordinations, executed by any Person having an interest in or
Claim or Encumbrances in respect of the Property, and such acknowledgments,
consents or subordinations shall be in such form, as SGC or the Participant may
reasonably request.
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5.09 INITIAL CAPITALIZATION. Upon the incorporation of each JV Corporation, such
JV Corporation shall issue upon a subscription, at a price of $1.00 per share by
GBEM and any Participant, respectively, (or such other amount as may be mutually
agreed upon by GBEM and such Participant(s) having regard to the financing needs
of the JV Corporation), the following initial numbers of common shares (or such
other initial numbers of common shares or other shares of the JV Corporation as
may be mutually agreed upon by GBEM and such Participant(s) having regard to the
financing needs of the JV Corporation): (i) to any Participant other than GBEM,
a number of common shares equal to its Elected Percentage times 100; and (ii) to
GBEM, a number equal to the difference between 100 and the aggregate number of
common shares issued to Participants.
5.10 ADDITIONAL CAPITALIZATION. (1) The Parties agree that the financing of each
JV Corporation, to the extent that financing from Persons other than the
Shareholders is unavailable, shall be effected by means of loans or advances by
the Shareholders to the JV Corporation (each a "Shareholder Advance") or by
means of a Share Financing (as defined below).
(2) If the board of directors of a JV Corporation from time to time
determines that Shareholder Advances are required by the JV Corporation, the JV
Corporation shall make a written demand to all of the Shareholders for such
Shareholder Advances. The Shareholders shall make Shareholder Advances to the JV
Corporation by way of loans, the terms and conditions of which shall be
established by the board of directors of the JV Corporation and shall be the
same for all Shareholders in respect of any written demand, except with respect
to principal amount which shall be proportionate as hereinafter provided. The
Shareholder Advances in respect of a fiscal year shall not without the consent
of the Shareholders exceed the Development/Production Expenditures set out in
the Budget for the relevant fiscal year. The amounts required to be paid by
Shareholders in response to a written demand for Shareholder Advances shall be
in proportion of their respective holdings of Shares in the JV Corporation (the
"Share Proportion"), provided that whenever any Participant shall, taking
account of the indebtedness represented by the Core Property Note and the
Exploration Expenditure Note as if these had been findings of the JV Corporation
incurred by the respective Participant, have funded the JV Corporation in a
proportion less than its Share Proportion, such Participant shall be obligated
to make a Shareholder Advance or Shareholder Advances in an amount necessary to
bring its funding up to the level of its Share Proportion, and thereafter all
Shareholder Advances by Shareholders shall be in their respective Share
Proportions. Each Shareholder Advance made by a Shareholder shall be evidenced
by a demand promissory note of the JV Corporation (an "SA Promissory Note"). The
repayment of the Shareholder Advances shall be in such amounts and at such times
as may be determined by the board of directors of the JV Corporation.
(3) Where a Shareholder fails to make full payment of a Shareholder
Advance as required to be made pursuant to Section 5.10(2), the Participation
Interest of such Shareholder shall be adjusted to the extent that the
Shareholder's proportionate holding of Shares of the JV Corporation shall be
equal to the proportion that the total of the then outstanding SA Promissory
Notes (and any promissory notes issued pursuant to Section 5.06) issued to the
Shareholder is of the totaling then outstanding of the SA Promissory Notes (and
any promissory notes issued pursuant to Section 5.06) of the JV Corporation. The
manner of effecting such adjustment in shares of a Shareholder shall be at the
discretion of the board of directors of the JV Corporation and may include such
means as a repurchase by the JV Corporation of shares held by a Shareholder, the
transfer of shares to other Shareholders or the issue of shares to any
non-defaulting Shareholders, at a fair market value.
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(4) The board of directors of the JV Corporation may, in lieu of any
determination to make a written demand to Shareholders for Shareholder Advances,
make a call upon the Shareholders to subscribe for additional Shares of the JV
Corporation, on a pro rata basis to their then outstanding Shares of the JV
Corporation, having such conditions and in such amounts as the directors may
determine (a "Share Financing") for an aggregate consideration in respect of any
fiscal year not to exceed the Development/Production Expenditures set out in the
Budget for the relevant fiscal year. Each such Share Financing made by a
Shareholder shall be evidenced of a share certificate duly executed and
delivered by the JV Corporation.
ARTICLE 6
JV CORPORATION
6.01 ACTIONS BY JV CORPORATION. The Parties agree to vote their Shares of the JV
Corporation so as to cause the JV Corporation to act in the manner provided for
herein.
6.02 AGREEMENT OF SHAREHOLDERS. From and after the relevant JV Effective Date,
the Shareholders shall cause their respective nominees to be elected or
appointed to the board of directors of the JV Corporation in accordance with the
provisions of this Agreement and will themselves do, and cause the JV
Corporation at all times thereafter to do, or cause to be done, all such acts
and things and from time to time execute and deliver or cause to be executed and
delivered such documents and agreements as may be necessary or advisable in the
reasonable opinion of any Shareholder, to give effect to the terms and
provisions of this Agreement so that, in consideration of being vested with all
the rights, privileges and benefits expressed to be vested in the JV Corporation
and them pursuant to this Agreement, the JV Corporation and the Shareholders
will become subject to all of the obligations and liabilities expressed to be
imposed upon the JV Corporation and them respectively hereunder.
6.03 CONDUCT OF AFFAIRS OF THE JV CORPORATION. The Shareholders shall, from time
to time and at all times, subject as hereinafter provided, vote or cause to be
voted all Shares of the JV Corporation owned by them and will cause, to the
extent consistent with applicable law, their respective nominees on the board of
directors of the JV Corporation from time to time to vote:
(a) to elect as directors of the JV Corporation nominees of GBEM and
SGC elected shall be in proportion to their respective Shares in the JV
Corporation then held, provided that one such director shall be a nominee of SGC
where its Participation Interest is not less than 5% and provided that in the
event that any director is replaced, resigns or is otherwise removed, such
director shall be replaced by a nominee of GBEM where GBEM has proposed the
nomination of the said director and by a nominee of SGC where SGC has proposed
the nomination of the said director;
(b) to provide that a quorum of the board of directors of the JV
Corporation shall require the presence of at least one director who is a nominee
of SGC (or any assignee thereof) so long as it holds not less than 5% of the
Shares in the JV Corporation;
<PAGE>
(c) to provide that a quorum for a meeting of shareholders shall
require the presence of SGC (or any assignee thereof) so long as it holds Shares
in the JV Corporation, provided that if such quorum is not present at any
meeting of Shareholders, such meeting shall be adjourned for a time not less
than ten Business Days after the time for which such meeting was called and
those Shareholders present at such adjourned meeting shall constitute a quorum
for all purposes of such adjourned meeting;
(d) to cause all certificates representing Shares of the JV Corporation
to bear the following legend or words substantially similar in effect, in
legible type on either the face or reverse side thereof:
"The shares represented by this certificate are subject to
the terms and conditions of an agreement made as of the 31st
day of May, 1995, a copy of which agreement is on file at the
registered office of the Corporation."
(e) to sanction, approve, consent to and otherwise facilitate any
transfer of Shares of the JV Corporation made in compliance with, or which is
required to be made by, the provisions of this Agreement;
(f) to provide that meetings of the Shareholders of the JV Corporation
shall be:
(i) held at the call of any director of the JV Corporation;
(ii) held at the head office of the JV Corporation or such other
place within Canada as may be agreed upon by a director representative of SGC
and a director GBEM and held on such minimum notice as may be permitted by
applicable law, unless waived at any time by all Shareholders entitled to
attend;
(g) to provide that meetings of the directors of the JV Corporation
shall be:
(i) Held at the head office of the JV Corporation or such other
place within Canada as may be agreed upon by a director representative of SGC
and a director representative of GBEM;
(ii) held at the call of any director of the JV Corporation; and
(iii) may be held by conference telephone call provided that the
participants can speak to and hear each other;
(h) to cause to be presented to the board of directors of the JV
Corporation for review, examination and approval:
(i) prior to the end of the third quarter in each fiscal year
(with the exception of the first fiscal year of the JV Corporation in respect of
which a Budget shall have been delivered at the time of the Feasibility Study
pursuant to Section 5.01) a Budget showing the projected Development /
Production expenditures by month for the succeeding fiscal year, including the
projected balance sheet, revenues and expenditures, source and application of
funds and capital expenditures for such forthcoming fiscal year; and
(ii) as soon as practicable, and in any case no later than 60
days, after the end of each fiscal quarter of the JV Corporation, financial
statements including a balance sheet and statements showing revenues and
expenditures, source and application of funds and capital expenditures for such
fiscal quarter of the JV Corporation, which financial statements shall be on a
comparative basis with the same quarter in the preceding fiscal year and with
the Budget referred to in (h)(i) above and prepared in accordance with GAAP;
<PAGE>
(i) to cause the directors of the JV Corporation to permit one director
representative of each Shareholder to have present with him at any meeting of
directors of the JV Corporation an advisor of such director's choice;
(j) to ensure that the Charter Documents of the JV Corporation shall
provide for and be in accordance with the foregoing;
6.04 UNANIMOUS CONSENT FOR CERTAIN MATTERS. Without the unanimous consent of the
Shareholders expressed by a resolution of their respective nominee directors
present at a meeting of directors of the JV Corporation and entitled to vote
thereat:
(a) no amendment shall be made to the Charter Document provisions;
(b) no change shall be made in the authorized or issued capital of the
JV Corporation;
(c) the JV Corporation shall not enter into any agreement or make any
offer or grant any right capable of becoming an agreement to allot or issue any
shares in its capital;
(d) the JV Corporation shall not take any steps to wind-up or terminate
its corporate existence;
(e) the JV Corporation shall not take hold, subscribe for or agree to
purchase or acquire shares or other securities in the capital of any other
Person;
(f) the JV Corporation shall not directly or indirectly make loans or
advances to, or give security for or guarantee the debts of any other Person;
provided that this provision shall not be deemed to prohibit the investment of
surplus funds by the JV Corporation from time to time in normal short term
investments;
(g) the JV Corporation shall not sell, lease, exchange or otherwise
dispose of its entire undertaking or property or assets or any substantial part
thereof;
(h) the JV Corporation shall not enter into any management or
employment contracts in respect of any officer or director of the JV
Corporation;
(i) the JV Corporation shall not create, assume or become liable for
any borrowing or mortgage, pledge, charge, grant a security interest or
otherwise Encumber any of its assets in an amount in excess of $250,000;
(j) the JV Corporation shall not approve annual financial statements
which are not prepared in accordance with GAAP;
(k) the JV Corporation shall not declare or pay any dividends or make
any distribution, whether in cash, in stock or in specie, or any of its
outstanding shares of any class;
<PAGE>
(l) the JV Corporation shall not authorize the dealing, directly or
indirectly, in or by any subsidiary of the JV Corporation with any matters of
the kind referred to in (a) to (k) inclusive above.
6.05 PREEMPTIVE RIGHTS. No issuance of Shares of the JV Corporation or
securities exchangeable or exercisable for or convertible into Shares of the JV
Corporation may be made except where in respect of each class or series of
shares proposed to be issued each Shareholder shall be accorded preemptive
rights in respect of each such class or series on a pro rata basis to their then
outstanding shares of the JV Corporation.
6.06 ATTORNMENT TO JURISDICTION. The JV Corporation shall, with respect to all
matters that the Parties to this Agreement have not herein agreed to be settled
to the exclusion of the courts, irrevocably attorn and submit to the exclusive
jurisdiction of courts of competent jurisdiction in the Province of Quebec and
shall appoint an agent for the service of any process with respect to any matter
arising under or related to this Agreement.
ARTICLE 7
SALES, ASSIGNMENTS, ETC.
7.01 RIGHT TO ASSIGN PARTICIPATION RIGHTS. SGC shall be entitled,
notwithstanding Section 7.02, as its sole discretion to sell, assign, transfer
or otherwise dispose of its Participation Rights hereunder in respect of any one
or more Properties to any Person(s) at any time and from time to time and in
whole or in part. Any assignee of any part or the whole of SGC's Participation
Rights hereunder shall execute a counterpart of this Agreement and thereupon
become a Participant hereunder. For greater certainty, where SGC shall have
exercised its Participation Rights in respect of any Property and acquired a
Participation Interest in respect thereof as provided in Section 5.01, any sale,
assignment, transfer, conveyance or other disposition of such Participation
Interest shall be subject to Section 7.02.
7.02 NOTICE AND EXERCISE OF RIGHT OF FIRST REFUSAL. (1) Unless otherwise
permitted or required by this Agreement, no Participant (including for greater
certainty GBEM) may sell, assign, transfer or otherwise dispose of, or purport
to agree to sell, assign, transfer or otherwise dispose of, in whole or in part,
directly or indirectly, any Participation Interest which it may hold including
any Shares in the JV Corporation or any Shareholder Advances, or any interest
therein or, without the written consent of the other Shareholders in such JV
Corporation, Encumber or agree to Encumber any Participation Interest which it
may hold including any Shares in the JV Corporation or any Shareholder Advances
by it.
(2) Subject to Section 7.04, if a Participant (hereinafter in this
Article 7 called the "Seller") shall wish to sell, assign, transfer or otherwise
dispose of all or part of its Participation Interest in respect of a JV
Corporation, the other Participants who hold a Participation Interest in respect
of such JV Corporation (hereafter in this Article 7 called the "Buyer(s)") shall
be entitled to a right of first refusal in respect thereof as follows:
<PAGE>
(i) The seller shall give written notice (hereafter called the
"Offering Notice") to the Buyer(s) of the Seller's desire to sell. The Offering
Notice shall describe the Participation Interest or part thereof that is being
offered for sale, shall state the bona fide consideration and other terms on
which the sale is desired to be made by the Seller including all conditions to
the agreement imposed or to be imposed by the Seller. If the Offering Notice
refers to any non-cash consideration then it shall also contain the Seller's
estimate of the cash equivalent of such non-cash consideration. If the Seller
and Buyer(s) have not within 30 days after delivery of the Offering Notice
agreed upon the cash equivalent of the non-cash consideration then this question
shall be determined by arbitration pursuant to Article 10 hereof. The time for
acceptance under paragraph 7.02(2)(ii) shall be extended for the time required
to complete the arbitration;
(ii) the offer in the Offering Note shall:
(a) be open for acceptance for a period (hereinafter call the
"Acceptance Period") of 90 days after receipt by the Buyer(s) of the Offering
Notice or 90 days after receipt by the Buyer(s) of notice from the Seller of
fulfilment or waiver of all conditions specified in the Offering Notice
previously furnished to them, whichever is the later;
(b) be irrevocable by the seller during the Acceptance
Period; and
(c) upon fulfilment or waiver of such conditions by the
unconditional obligation of the Seller;
(iii) the Buyer(s) shall be entitled to acquire the Participation
Interest or part thereof offered for sale and the Buyer(s) may purchase the
amount offered in the ratios they agree upon or, failing such agreement, in the
ratio of the Participation Interests of those Buyers who wish to buy what is
offered for sale;
(iv) the Buyer(s) wishing to buy shall give written notice thereof
to the Seller and all other Buyer(s) before the expiration of the Acceptance
Period. Such notice of acceptance shall state the limit, if any, on the amount
of the Participation Interest each Buyer wishes to buy from the Seller. The
other Buyer(s) may acquire the amount not desired by an Buyer and shall acquire
it by purchase in such ratios as they agree upon or in the ratio of their
Participation Interests prior to the offer being made;
(v) if the Buyer(s) do not within the Acceptance Period give
notice of acceptance for the price and on the terms offered in the Offering
Notice to purchase collectively all of the Participation Interest offered in the
Offering Notice to purchase collectively all of the Participation Interest
offered for sale then the Seller shall be free for a period of 180 days after
the expiry of the Acceptance Period (or, if any third-party approvals are
required in connection with a proposed sale, and application for such approvals
has been made during such 180-day period, and such applications continue
thereafter to be prosecuted with reasonable diligence, within such longer period
thereafter as may reasonably be necessary for the prosecution to conclusion of
such applications but not longer in any event than 360 days after the expiry of
the Acceptance Period) to sell to their parties the Participation Interest first
offered for sale on terms no less favourable to the Seller than those described
in the Offering Notice; and
(vi) if the Seller does not sell, assign, transfer, convey or
otherwise dispose of a Participation Interest or part thereof by one of the
methods provided for in this Section 7.02, then any subsequent sale of the same
or any other Participation Interest which the Seller wishes to make, shall again
be subject to all of the provisions of this Section 7.02.
<PAGE>
(3) The purchase and sale of the Participation Interest resulting from
the acceptance of an Offering Notice pursuant to clause 7.02(2)(iv) shall be
completed at the office of the counsel of the Seller in the City of Toronto,
Province of Ontario, Canada at 10:00 o'clock in the forenoon (Toronto time) on
the fifth Business Day after such offer has been accepted. Such place and time
are sometimes hereafter referred to as the "Place of Closing" and "Closing Time"
respectively. At the Closing Time, the payment of the purchase price for the
Participation Interest shall be made by the Buyer(s) against delivery by the
Seller of a certificate or certificates representing the Shares of the JV
Corporation to be purchased, duly endorsed in blank for transfer, together with
duly executed assignments of the promissory notes representing the indebtedness
of the JV Corporation to the Seller.
(4) If the Seller is not present at the Place of Closing at the Closing
Time, or is present but fails for any reason whatsoever to produce and deliver
to the Buyer the said certificate or certificates duly endorsed in blank for
transfer and duly executed assignments of the indebtedness of the JV Corporation
to the Seller, then the purchase price for the Participation Interest shall be
deposited by the Buyer into a special account at a branch of the JV
Corporation's bankers in the name of the Seller. Such deposit shall constitute
valid and effective payment of the purchase price for the Participation Interest
to the Seller even though the Seller has voluntarily Encumbered or disposed of
any of the Shares of the JV Corporation and/or indebtedness (if any)
constituting all or part of the Participation Interest and notwithstanding the
fact that a certificate or certificates or assignments or assignments for any of
the said Shares of the JV Corporation and/or indebtedness may have been
delivered to any pledgee, transferee or other Person.
(5) If the purchase price for the Participation Interest is deposited
pursuant to clause (4) into a general account at a branch of the JV
Corporation's bankers in the name of the Seller, then from and after the date of
such deposit, and even though the certificate or certificates and assignments
endorsing the Participation Interest have not been delivered to the Buyer, the
purchase of the Participation Interest shall be deemed to have been fully
completed and all right, title, benefit and interest, both at law and in equity,
in and to the Participation Interest shall be conclusively deemed to have been
transferred and assigned to and become vested in the Buyer and all right, title,
benefit and interest, both at law and in equity, of the Seller, or of any
transferee, assignee or other Person having any interest, legal or equitable,
thereon or thereto, whether as a shareholder or creditor of the JV Corporation
or otherwise, shall cease and determine provided, however, that the Seller shall
be entitled to receive the purchase price, as deposited, without interest.
(6) The Seller hereby irrevocably constitutes and appoints the Buyer as
its true and lawful attorney-in-fact and agrees for, in the name of and on
behalf of the Seller to execute and deliver in the name of the Seller all such
assignments, transfers, deeds and instruments as may be necessary effectively to
transfer and assign the Participation Interest, or any part thereof to the
Buyer, or its nominee or nominees, on the books of the JV Corporation. Such
appointment and power of attorney, being coupled with an interest, shall not be
revoked by the insolvency or bankruptcy of the Seller and the Seller hereby
ratifies and confirms and agrees to ratify and confirm all that the Buyer may
lawfully do or cause to be done by virtue of the provisions hereof. The Seller
hereby irrevocably consents to any transfer of the Participation Interest or any
part thereof made pursuant to the provisions of clauses 7.02(5) and (6). The
Seller shall be entitled to receive the purchase price deposited with the
bankers of the JV Corporation upon delivery to the JV Corporation of
certificates evidencing the Shares of the JV Corporation so purchased duly
endorsed in blank for transfer together with duly executed assignments of the
indebtedness of the JV Corporation to the Seller constituting part of the
Participating Interest.
<PAGE>
7.03 RECONSTITUTION OF THE SHARES OF THE JV CORPORATION. The Participants agree
that the provisions of this Agreement relating to Shares of the JV Corporation
shall apply mutatis mutandis to any shares or securities into which such shares
may be converted, changed, reclassified, redivided, redesignated, subdivided or
consolidated, to any shares or securities which are received by the Parties
hereto as a stock dividend or distribution payable in shares of securities of
the JV Corporation and to any shares or securities of the JV Corporation or of
any successor or continuing company or corporation to the JV Corporation which
may be received by the Shareholders on a reorganization, amalgamation,
consolidation or merger, statutory or otherwise.
7.04 EXEMPT TRANSFERS. Notwithstanding section 7.02 hereof, a Participant at any
time may sell, assign, transfer or otherwise dispose of its Participation
Interest to an Affiliate of such Participant provided that such Affiliate shall
assume the obligations of the Participant and become a Party to this Agreement
and the Participant shall, if required by the other Participants who hold a
Participation Interest in respect of such JV Corporation, guarantee the
performance of the obligations assumed by the Affiliate.
7.05 LIMITATION ON EXEMPTION. No Participant may, after the sale, assignment,
transfer, or other disposition of its Participation Interest or any portion
thereof to an Affiliate pursuant to Section 7.04, take or permit any action
whereby such Affiliate will cease to be an Affiliate without first either
causing the Affiliate to retransfer its entire Participation Interest to the
Participant from which the Participation Interest was acquired or causing it to
offer the Participation Interest then held by it to the other Participants, in
the manner provided in Section 7.02, at such price as it determines to be the
fair market value thereof. If notwithstanding the foregoing, a Participant that
acquired its Participation Interest pursuant to Section 7.04 ceases to be an
Affiliate of the Person from which it acquired the Participation Interest, it
shall forthwith offer that Participation Interest to the other Participants who
hold a Participation Interest in respect of such JV Corporation,, in the manner
provided in Section 7.02, at such price as it determines to be the fair market
value thereof. For the purposes of this Section 7.05 only, if an offeree
Participant wishes to purchase the Participation Interest offered, or its pro
rata share thereof, but disputes the offeror's determination of fair value, it
may require the value to be determined by arbitration pursuant to Article 10, in
which event it will be required to purchase, and the offeror required to sell,
the offered Participation Interest (or the offeree's pro rata share if more than
one offeree intends to purchase) at the value determined by arbitration, without
unreasonable delay following the award of the arbitrator or arbitrators.
7.06 SALE OF PROPERTY. (1) Subject to Section 5.03 GBEM shall have the right to
sell, transfer or otherwise dispose of (other than by abandonment pursuant to
Article 13) any Property in respect of which no Feasibility Notice has been
given, provided that each Participant having Participation Rights in respect of
such Property shall have the option at its sole discretion of either (i)
maintaining its rights under this Agreement in respect of such Property or (ii)
being paid by GBEM an amount in cash representing that proportion of the amount
of the proceeds from the sale of such Property equivalent to the percentage
represented by the Participation Rights of such Participant. Where a Participant
elects to maintain its rights under this Agreement in respect of such Property,
GBEM shall not sell or otherwise dispose or transfer the Property unless
contemporaneously therewith the prospective buyer or other transferee of such
Property agrees to be bound by the terms of this Agreement with respect to such
Participant's Participating Rights in a manner satisfactory to such Participant.
<PAGE>
(2) For the purpose of permitting a Participant to make a decision in
accordance with subsection 7.06(1), GBEM shall provide all Participants holding
Participation Rights in respect of a Property which is the subject of a proposed
sale with notice of such proposed sale (the "Sale Notice") 30 days before the
date of the proposed closing of such sale. The Sale Notice shall describe the
Property to be sold, the bona fide consideration or other terms on which the
sale is desired to be made including all conditions to the agreement imposed or
to be imposed by the seller or transferor and the name of the prospective buyer
or transferee. If the Sale Notice refers to any non-cash consideration, then it
shall also contain the seller's estimate of the cash equivalent of such non-cash
consideration. If the seller and the Participants entitled to such Sale Notice
have not within 30 days after delivery of the Sale Notice agreed upon the cash
equivalent of the non-cash consideration then the question shall be determined
by arbitration pursuant to Article 10 hereof. The date of this completion of the
proposed sale shall be postponed until the completion of the arbitration. A
Participant shall have 30 days from the date of receipt of the Sale Notice to
make a decision in accordance with subsection 7.06(1). Where a Participant fails
to notify GBEM of its decision within such 30 day period, such Participant will
be deemed to have elected to receive its share of the proceeds from the sale or
other transfer or disposition from such Property in cash.
7.07 DISCHARGE OF TRANSFEROR. No assignment by a Participant of any interest
less than its entire interest in this Agreement, in any JV Corporation and in
the Properties shall discharge if from any of its obligations hereunder, but
upon the transfer by a Participant of the entire interest at the time held by it
in this Agreement, in any JV Corporation and in the Properties otherwise than
upon the enforcement of any security interest granted by it (and whether to one
or more transferees and whether in one or in a number of successive transfers)
and fulfilment of the requirements of this Article 7, it shall be deemed to be
discharged from all Obligations hereunder save and except for contractual
commitments accrued due prior to the date on which such transfer is made.
7.08 SURVIVORSHIP OF INTERESTS. Any and all sales, assignments, transfers,
conveyances or other dispositions made by any Participant (or its successors in
interest) of any and all of its Participation Interest shall be subject to the
terms, covenants and conditions of this Agreement and all applicable Laws. The
provisions of this Agreement shall be deemed to be covenants running with any
such Participation Interest acquired hereunder and all such sales, assignments,
transfers, conveyances and dispositions thereof. No transferee of a
Participation Interest or any part thereof shall have any interest therein until
it executes and delivers to such other Participants who hold a Participation
Interest in respect of the Property being transferred, a counterpart of this
Agreement thereby agreeing to be bound by the terms and provisions of this
Agreement in the same manner and to the same extent as though the transferee had
been a party in the first instance and irrespective of the date on which any
liability or obligation arouse hereunder.
<PAGE>
ARTICLE 8
REPRESENTATIONS AND WARRANTIES
8.01 REPRESENTATIONS AND WARRANTIES OF GBEM. GBEM represents and warrants as
follows to all other Participants (such representations and warranties being of
a continuous nature and deemed to be effective at all times during the term of
this Agreement) and acknowledges and confirms that such Participants are relying
on such representations and warranties in the entering into by them of this
Agreement:
(i) GBEM is a corporation duly incorporated and existing under the
laws of its jurisdiction of incorporation;
(ii) GBEM has all necessary corporate power to enter into and to
perform its obligations under this Agreement and any agreement and instrument
referred to or contemplated by this Agreement;
(iii) the execution, delivery and performance by GBEM of this Agreement
and any other agreement or instrument to be executed and delivered by it
hereunder and the consummation by it of all the transactions contemplated hereby
and thereby have been duly authorized by all necessary corporate action on the
part of GBEM;
(iv) each of this Agreement and any other agreement or instrument to be
executed and delivered by GBEM hereunder constitutes a legal, valid and binding
obligation of GBEM enforceable against it in accordance with its terms;
(v) GBEM is not subject to, or a party to, any charter or by-law
restriction, any Law, any Claim, any Encumbrance or any other restriction of any
kind or character which would prevent consummation of the transactions
contemplated by this Agreement or any other agreement or instrument to be
executed and delivered by GBEM hereunder;
(vi) GBEM owns the legal and beneficial right, title and interest in
and to the Core Properties as described in Schedule B' hereto free and clear of
any encumbrance and has the exclusive right to deal with the Core Properties as
herein contemplated provided that the maintenance of the aforesaid right, title
and interest is subject to the making by GBEM of the payments in the amounts and
as otherwise provided for in Schedule
"B'.
(vii) there is no Claim of any nature pending or, to GBEM's knowledge,
threatened against it relating to the
Properties; and
(viii) no Person except as set out in Schedule B' hereto has any
proprietary or possessory interest in the Properties other than as sent out in
this Agreement and except as set out in Schedule B' hereto no Person is entitled
to any royalty or similar interest on any minerals, ores, metals or concentrates
or any other such products removed from the Properties.
8.02 REPRESENTATIONS AND WARRANTIES OF SGC. SGC represents and warrants as
follows to GBEM (such representation and warranties being of a continuous nature
and deemed to be effective at all times during the term of this Agreement) and
acknowledges and confirms that GBEM is relying on such representations and
warranties in the entering into by it of this Agreement:
<PAGE>
(i) SGC is a corporation duly incorporated and existing under the laws
of its jurisdiction of incorporation;
(ii) SGC has all necessary corporate power to enter into and to perform
its obligations under this AGREEMENT and any Agreement and instrument referred
to or contemplated by this Agreement;
(iii) the execution, delivery and performance of SGC of this Agreement
and any other agreement or instrument to be executed and delivered by it
hereunder and the consummation by it of all the transactions contemplated hereby
and thereby have been duly authorized or will by the Closing Date have been duly
authorized by all necessary corporate action on the part of SGC;
(iv) each of this Agreement and any other agreement or instrument to be
executed and delivered by SGC hereunder constitutes a legal, valid and binding
obligation of SGC enforceable against it in accordance with its terms;
(v) SGC is not subject to, or a party to, any charter or by-law
restriction, any Law, any Claim, any Encumbrance or any other restriction of any
kind or character which would prevent consummation of the transactions
contemplated by this Agreement or any other agreement or instrument to be
executed and delivered by SGC hereunder.
ARTICLE 9
COVENANTS OF GBEM AND GBM
9.01 GENERAL. Each of GBEM and GBM hereby covenant and agree with all other
Participants that from the date of hereof until the termination of this
Agreement, it shall:
(i) keep, or cause to be kept, the Properties in good standing by doing
the filing of assessment work and by the doing of all other acts and things and
making all other payments which may be necessary in that regard and further
shall keep this Agreement in good standing, subject, during the
Exploration/Feasibility Period, to the obtaining by it of adequate funding in
respect of which it shall have exercised all reasonable efforts;
(ii) record all work done on the Properties and permit a Participant
who holds an interest in Property access to the records relating to such
Property upon reasonable notice;
(iii) not do or omit to do anything or permit any Affiliate to do or
omit to do anything in respect of the Properties which would permit the same to
become subject to any Encumbrance of any kind; and
(iv) sell, transfer, assign, alienate, license or otherwise dispose of
the Properties except in accordance herewith. 9.02 ACCESS TO DATA AND REPORTING.
GBEM hereby covenants and agrees that from the date hereof, GBEM shall provide
each Participant with access to all information, data and other materials which
such Participant may reasonably request respecting each Property, and any
related operations, in respect of which such Participant holds Participation
Rights or a Participation Interest, during normal business hours. After a JV
Effective Date, the relevant JV Corporation shall provide similar access to each
Participant in respect of such JV Corporation's Property. GBEM (and after a JV
Effective Date the relevant JV Corporation) will provide each participant in
respect to any Property in which such Participant holds Participation Rights or
a Participation Interest with summary technical progress reports of the results
of Programmes (i) within 15 days at the end of each fiscal quarter, or (ii)
promptly after the occurrence of a material event with respect to a Property or
operations thereon.
<PAGE>
ARTICLE 10
ARBITRATION
10.01 SCOPE OF ARBITRATION. Any dispute, controversy or claim arising out of, or
relating to this Agreement, or the breach, interpretation, termination or
invalidity thereof (hereinafter "Dispute"), shall be finally settled under the
Rules of Conciliation and Arbitration of the International Chamber of Commerce
(hereinafter "Rules") by one arbitrator appointed in accordance with the Rules,
as modified by this Article 10.
10.02 INITIATION OF ARBITRATION AND APPOINTMENT OF ARBITRATOR. The Party wishing
to have recourse to arbitration (hereinafter "Claimant") Shall send a Request
for Arbitration (hereinafter "Request") to the other Party (hereinafter
"Respondent"). If the Claimant and Respondent are unable to agree on the
selection of the arbitrator to hear the Dispute (hereinafter "Sole Arbitrator")
within thirty days of the receipt by the Respondent of the Request, the Sole
Arbitrator shall be designated by the President of the Canadian Institute of
Mining and Metallurgy.
10.03 PLACE OF ARBITRATION. The seat of arbitration shall be Montreal, Canada.
The arbitral tribunal may hold hearings and meetings and examine witnesses and
experts for reasons of convenience or speed at any other place which it deems
appropriate, provided that it so informs the Parties to the arbitration.
10.04 LANGUAGE OF ARBITRATION. The language of arbitration shall be English.
10.05 QUALIFICATIONS OF ARBITRATOR. The Sole Arbitrator must have ten years of
experience in corporate and/or commercial law, and preferably in mining law. The
Sole Arbitrator shall be free from any reasonable apprehension of bias. 10.06
ARBITRATION PROCEDURE. The procedure shall be as agreed by the Claimant and the
Respondent or, in default of Agreement, as determined by the arbitral tribunal,
subject to the provisions found in this Article.
10.07 INTERIM AWARD. The arbitral tribunal may in its discretion hold a hearing
and shall do so at the joint request of both parties.
10.08 TIME LIMIT OF FINAL AWARD. The arbitral tribunal shall issue its final
aware within thirty (30) days of the completion of evidence on the Dispute.
10.09 BINDING FORCE OF AWARD. All awards of the arbitral tribunal shall be
binding on the Claimant and Respondent, who hereby expressly waive any rights of
appeal or recourse to any court, except such rights as cannot be waived under
the law of Quebec.
10.10 COST OF ARBITRATION. The arbitral tribunal has the power to apportion the
costs of the arbitration, including reasonable legal fees and expenses, between
the Claimant and the Respondent, as it deems appropriate.
10.11 INJUNCTIVE RELIEF AND SPECIFIC PERFORMANCE. GBEM, GBM and any JV
Corporation agree that SGC shall be entitled hereunder to injunctive relief to
prevent breaches of this Agreement and to specifically enforce the terms and
conditions hereof in addition of any other remedy to which SGC may be entitled
hereunder, and GBEM, GBM and any JV Corporation consent irrevocably to the
seeking of such remedies by SGC. To the extent that any such remedy cannot be
provided pursuant to the arbitration provisions hereunder, SGC shall be entitled
to seek any such remedy from the court of competent jurisdiction for such
matters in the Province of Quebec, notwithstanding the arbitration provisions
contained herein.
<PAGE>
ARTICLE 11
LIABILITY OF PARTICIPANTS
11.01 SEPARATE AND NOT JOINT. The rights, duties, obligations and liabilities of
the Participants shall be separate as to each Participant's respective
Participation Interest and not joint or joint and several. It is not the
intention of the Participants to create a mining, commercial or other
partnership or agency relationship between the Participants and this Agreement
shall not be construed so as to render the Participants liable as partners or as
creating a mining, commercial or other partnrship. Each Participant shall be
responsible only for its obligations as herein set forth and shall not in any
way be obligated for the debts or othr obligations of any other Participant.
ARTICLE 12
TERMINATION
12.01 TERMINATION ON CONSENT. This Agreement may be terminated upon the mutual
agreement of the Parties having any interest hereunder at the time of such
termination and upon the terms and conditions as such Parties may mutually
agree.
ARTICLE 13
ABANDONMENT
13.01 ABANDONMENT OF PROPERTY PRIOR TO JV EFFECTIVE DATE. If GBEM (or its
assignee) wishes, as a result of being unable to find adequate funding in
respect of Exploration Expenditures in respect of any Property or having taken a
decision in respect of abandoning for technical reasons any Property, to abandon
or to permit such Property to lapse at any time prior to the transfer of a
Property to a JV Corporation, GBEM (or "its assignee") shall give notice
accordingly to the Participants having Participation Righs in respect of said
Property, which notice shall identify the Property or Properties to which such
rights relate. GBEM agrees that it shall not abandon or allow its rights in any
Property to lapse with the intent or with the results that any interest in such
Property be or is subsequently acquired by GBEM or GBM or any Person not acting
at arm's length to GBEM or GBM as construed under in the Income Tax Act
(Canada).
ARTICLE 14
SUCCESSOR COMPANIES
14.01 SUCCESSOR COMPANIES. GBEM shall provide 25 Business Days notice of any
intention on its part to enter into any transaction (whether by way of
reconstruction, reorganization, consolidation, arrangement, amalgamation,
merger, transfer, sale, lease or otherwise) whereby all or substantially all of
its undertaking, property and assets would become the property of any other
Person or, in the case of such amalgamation or merger, of the continuing company
resulting therefrom. GBEM agrees that it shall be a condition of any such
transaction that, in addition to being otherwise subject to the terms and
conditions hereof:
<PAGE>
(a) the other Person or continuing company (the "successor company")
shall execute and deliver to SGC prior to and contemporaneously with the
consummation of such transaction, such instruments (if any) as are necessary or
advisable to evidence the assumption and covenant by the successor company to
observe and perform all the covenants and obligations of GBEM under this
Agreement;
(b) it shall be made upon such terms as substantially preserve and do
not impair in any material respect the rights or powers of Participants
hereunder and upon terms as are in no way prejudicial to the interests of
Participants; and
(c) no condition or state of facts shall exist as to GBEM or the
successor company either at the time of or immediately before or after the
consummation of any such transaction and after giving full effect thereto or
immediately after the successor company complying with the provisions of (a)
above which constitutes or would constitute after notice or lapse of time or
both a breach or event of default hereunder.
ARTICLE 15
GENERAL
15.01 NOTICE. Any notice, direction or other instrument required or permitted to
be given hereunder shall be in writing and given by personal delivery or by
delivering or sending it by telecopy or other similar form of communication
addressed:
(1) to GBEM at:
Great Basis Management Co., Inc.
Suite 520
245 East Liberty Sreet
P.O. Box 3452
Reno, Nevada
U.S.A. 89505
Attention: Jack I. McAuliffe
Telephone: (702)329-3550
Telecopier: (702)329-3303
with a copy to:
McCarthy Tetrault
Le Windsor
1170 Peel Street
Montreal, Quebec
H3B 4S8
Attention: Louise Houle
Telephone: (514)397-4226
Telecopier: (514)397-4235
<PAGE>
and with a copy to:
Jack I. McAuliffe
Suite 520
245 East Liberty Street
P.O. Box 3452
Reno, Nevada
U.S.A. 89505
Telephone: (702)329-3550
Telecopier: (702)329-3303
(2) to SGC:
Serem Gatro Canada Inc.
LaSource Companigie Miniere
16 Avenue Georges V
75008 Paris, France
Attention: Alain Liger
Telephone: (33) 1 49 52 29 00
Telecopier: (33) 1 49 52 29 29
with a copy to:
Ogilvy Renault
1981 McGill College Avenue
Suite 1000
Montreal, Quebec
H3A 3C1
Attention: Ginette Leclrec
Telephone: (514)847-4747
Telecopier: (514)286-5474
and with a copy to:
Stikeman, Elliott
Barristers and Solicitors
Commerce Court West
Suite 5300, P.O. Box 85
Toronto, Ontario
M5L 1B9
Attention: Mihkel Voore
Telephone: (416)869-5646
Telecopier: (416)947-8966
(3) to GBEM at:
Great Basin Exploration & Mining Co., Inc.
3400 Kauai Court
Suite 208
Reno, Nevada
U.S.A. 89509
Attention: Anthony P. Taylor
Telephone: (702)689-7450
Telecopier: (702)689-7489
<PAGE>
with a copy to:
McCarthy Tetrault
Le Windsor
1170 Peel Sreet
Montreal, Quebec
H3B 4S8
Attention: Louise Houle
Telephone: (514)397-4226
Telecopier: (514)397-4235
and with a copy to:
Jack I. McAuliffe
Suite 520
245 East Liberty Street
P.O. Box 3452
Reno, Nevada
U.S.A. 89595
Telephone: (702)329-3550
Telecopier: (702)329-3303
Any such notice, direction or other instrument given as aforesaid shall be
deemed to have been effectively given, if sent by telecopier or other similar
form of telecommunication, on the next Business Day following such transmission
or, if delivered, to have been received on the date of such delivery. Any of the
foregoing Persons may change its address for service from time to time by notice
given in accordance with the foregoing and any subsequent notice shall be sent
to such Person at its changed address.
15.02 PUBLICITY. Unless otherwise required by law, none of the Parties shall
issue any press release or make any other public statement or announcement
relating to or connected with or arising out of this Agreement or the Share
Purchase Agreement, the matters contained herein, the negotiations leading up
hereto or the existence of this Agreement or the Share Purchase Agreement
without obtaining the prior written approval of the other Parties to the
contents and the manner of presentation and publication thereof, provided that
for greater certainty, no such approval will be required with respect to
dissemination of financial information relating to GBEM or of the status of its
mining operations made for a proper business purpose so long as such press
release, public statement or announcement does not deal, disclose or contain any
reference to matters prior to the Effective Date relating to SGC or the
ownership of its shares or affairs (as defined in the Canada Business
Corporations Act at the date hereof) of GBEM.
<PAGE>
15.03 EXPENSES. Except as otherwise expressly provided herein, all costs and
expenses (including the fees and disbursements of legal counsel, investment
advisors and auditors) incurred in connection with this Agreement and the
transactions contemplated hereby shall be paid by the Party incurring such
expenses.
15.04 ASSIGNMENT. Except as expressly provided herein, this agreement may not be
assigned without the written consent of the Parties hereto.
15.05 CONFIDENTIALITY. Except as otherwise provided hereunder, the Parties
hereto agree to treat all information, data, reports and other records
("information") relating to the business of GBEM and any other JV Corporation as
confidential and will not disclose such information to any Person other than
their legal advisors or auditors without the prior written consent of the other
Parties; provided, however, no Party shall be liable for any such disclosure if
such information:
(a) becomes generally available to the public other than as a result
of a disclosure by a Party or its representatives in violation of this
Agreement;
(b) was available to a Party on a non-confidential basis without
violation of this Agreement prior to its disclosure by GBEM or such JV
Corporation or its representatives;
(c) becomes available to a Party on a non-confidential basis without
violation of this Agreement from a source other than GBEM or such JV Corporation
or its representatives provided that such source is not bound by a
confidentiality agreement with GBEM or a duty of confidentiality to or in
respect of GBEM or such JV Corporation to the knowledge of the Party; or
(d) a Party is required by law to disclose, provided that a Party first
notifies GBEM or such JV Corporation that it believes it is required to disclose
such information and it allows GBEM or such JV Corporation a reasonable period
of time to contest the disclosure of such information.
15.06 FURTHER ASSURANCES. The Parties hereto agree to do or cause to be done all
acts or things necessary to implement and carry into effect the provisions and
intent of this Agreement. Without limitation, each of the Parties shall from
time to time execute and deliver all such further documents and instruments and
do all such further acts and things as another Party may reasonably require
effectively to carry out or better evidence or perfect the full intent and
meaning of this Agreement.
15.07 TIME OF ESSENCE. Time shall be of the essence of this Agreement.
15.08 ENUREMENT. This Agreement shall enure to the benefit of and be binding
upon the Parties and their respective successors (including any successor by
reason of amalgamation or merger of any Party) and permitted assigns.
15.09 LANGUAGE OF AGREEMENT. The Parties have required that this Agreement and
all deeds, documents or notices relating thereto be in the English language; les
parties ont exige que la presente convention et tout autre contrat, document ou
avis afferent on ancilliare aux presentes soient en langue anglaise.
<PAGE>
IN WITNESS WHEREOF THIS AGREEMENT HAS BEEN EXECUTED BY THE PARTIES AS OF THE
DATE FIRST WRITTEN ABOVE.
SEREM GATRO CANADA INC.
Per: Alain Liger
--------------------------c/s
Name: Alain Liger
Title: President
GREAT BASIN EXPLORATION & MINING CO., INC.
Per: A. P. Taylor
--------------------------c/s
Name: A. P. Taylor
Title: President
GREAT BASIN MANAGEMENT CO., INC.
Per: A. P. Taylor
--------------------------c/s
Name: A. P. Taylor
Title: President
MINING EXPLORATION AND LEASE AGREEMENT
THIS MINING EXPLORATION AND LEASE AGREEMENT, dated effective July 10,
1992, hereinafter referred to as "Agreement," made and entered into by and
between EDWARD L. DEVENYNS and DAVID R. ERNST, hereinafter collectively referred
to as "Lessor," and GREAT BASIN EXPLORATION AND MINING COMPANY, a Nevada
corporation, hereinafter referred to as "Lessee."
RECITALS
A. Lessor owns the Ice 1-233 unpatented mining claims, hereinafter
collectively referred to as the "Premises," situated in Eureka County, State of
Nevada, the county recording information for which and the BLM filing
information for which are more particularly described in Exhibit A attached
hereto.
B. Lessor desires to grant to Lessee certain rights in and to the Premises
in the manner herein provided.
C. Lessee desires to examine the mineral potential of the Premises and
possibly to develop commercial mines thereon.
NOW, THEREFORE, in consideration of their mutual covenants and
agreements herein, the parties hereby agree as follows:
1. Grant.
1.1 Grant of Exploration Privilege. Lessor hereby grants to Lessee the
exclusive right and privilege to enter upon the Premises for the purposes of
exploration, prospecting and development, production, removal and sale of all
minerals, mineral substances, metals, ore-bearing materials and rocks of every
kind, including the right of ingress and egress for personnel, machinery,
equipment, supplies and products and the right to use so much of the surface and
water located thereon as may be reasonably needed for such purposes.
1.2 Grant of Mineral Rights. Lessor hereby grants, leases and demises
the Premises, and warrants peaceable enjoyment of the Premises pursuant to the
warranties contained herein, unto Lessee its successors and assigns, for the
term and for the purposes hereinafter provided. The term "Premises" as used
herein includes all of the right, title and interest of Lessor in the lands
described herein, including, but not limited to, the surface and subsurface
thereof, all ores, minerals and mineral rights, and all water and water rights,
in, upon and under the Premises, all of the interests of Lessor and all options,
contracts, easements and rights-of-way heretofore reserved or granted in, upon
or pertaining to the Premises, and all right, title and interest which may be
acquired by or for Lessor in or pertaining to the Premises or any part hereof,
during or after the term of this Agreement, together with any and all veins,
lodes and mineral deposits now owned or hereafter acquired by Lessor extending
from or into or contained in the Premises, all ditch rights, easements and
rights-of-way now or hereafter owned or held by Lessor in, upon or under the
Premises, or in any way pertaining thereto, and all tenements, hereditaments and
appurtenances thereof.
1.3 Grant Purposes. The purposes of this Agreement are to grant to
Lessee, its successors and assigns, the exclusive right to enter into and upon
the Premises and each and every part thereof, so long as this Agreement remains
in effect, and to explore for, develop, mine, remove, leach in place, treat,
produce, ship and sell, for its own account, all ores and minerals which are or
may be found therein or thereon, subject to Section 20.3.2.
<PAGE>
1.4 Authorized Uses of Premises. Lessee is hereby granted the right to
make any use or uses of the Premises including, but without being limited to,
the full rights, authority and privilege of placing and using therein
excavations, openings, shafts, ditches and drains, and of constructing,
erecting, maintaining, using and, at its election, removing any and all
buildings, structures, plants, machinery, equipment, railroads, roadways,
pipelines, electrical power lines and facilities, stockpiles, waste piles,
tailings ponds and facilities, settling ponds, and all other improvements,
property and fixtures for mining, removing, beneficiating, concentrating,
smelting, extracting, leaching, refining and shipping of ores, minerals or
products thereof, or for any activities incidental thereto, or to any of the
rights or privileges of Lessee hereunder. Lessee is further granted the right,
insofar as Lessor lawfully may grant the right, to divert streams, to remove
lateral and subjacent supports, to cave, subside, consume, or destroy the
surface or any part thereof, to deposit earth, rocks, waste, lean ore and
materials on any parts of the Premises where it will not interfere with mining,
to leach the same, and to commit waste to the extent necessary, usual or
customary in carrying out any or all of the above rights, privileges and
purposes; provided, however, that if any of Lessee's operations hereunder shall
result in damage to Lessor's buildings, personal property or growing crops
existing on the Premises on the date that this Agreement is executed, Lessee
shall reimburse Lessor for the reasonable value of the same.
1.5 Water Rights. Lessee shall have the right, subject to the
regulations of the State of Nevada, concerning the appropriation and taking of
water, to drill wells for the water on the Premises and may lay and maintain all
necessary water lines as may be required by Lessee in its operations on the
Premises; provided, however, that all such wells shall be constructed in
compliance with the regulations of the State of Nevada, and all well gate valves
installed by Lessee shall, on the cancellation or termination of this Agreement
or any renewal thereof, become the property of Lessor.
1.6 Limitation. The performance by Lessee of its duties and obligations
under this Agreement shall not bind and obligate Lessee to perform any
additional services to Lessor nor to invest any funds of any nature whatsoever
in the exploration of, development or delineation of the Premises,
notwithstanding the provisions of Sections 14.1 and 14.2. Lessee may explore,
conduct geological and geophysical investigations, map, drill or otherwise seek,
in the manner and to the extent that Lessee, in its sole discretion, deems
advisable, to locate and develop ores, minerals and metals in commercial
quantities in and upon the Premises. Only the express duties and obligations
provided under this Agreement shall be binding upon Lessee and Lessee shall have
no duties or obligations, implied or otherwise, to explore for, develop and/or
mine mineral ores within the Premises, it being understood that the payments
described herein are in lieu of any such implied or other duties or obligations.
1.7 Relationship of the Parties. Nothing contained herein shall be
deemed to constitute any party, in its capacity as such, the partner, agent or
legal representative of any other party, or to create any partnership, mining
partnership or other partnership relationship, or fiduciary relationship between
them, for any purpose whatsoever. Except as expressly provided in this
Agreement, each party shall have the free and unrestricted right independently
to engage in and receive the full benefits of any and all business endeavors of
any sort whatsoever outside the Premises or outside the scope of this Agreement
whether or not competitive with the endeavors contemplated herein without
consulting the other or inviting or allowing the other therein. In particular,
without limiting the foregoing, neither party to this Agreement shall have any
obligation to the other as to any opportunity to acquire any money, property,
interest or right offered to it outside the Premises.
<PAGE>
2. Effective Date. For purposes of this Agreement, the effective date shall
be the date first set forth above.
3. Duration.
3.1 Term of Lease. The term of this Agreement shall commence as of the
effective date hereof and shall continue for a period of ten years thereafter
unless sooner terminated, forfeited or surrendered in the manner herein
provided. If at the end of the primary term Lessee is engaged in Mining
Operations, the term of this Agreement shall automatically continue so long
thereafter as Lessee continues to be engaged in Mining Operations. While this
Agreement is in effect, each successive one year period commencing with the
effective date and each annual anniversary date thereof shall be deemed a lease
year.
3.2 Mining Operations. For purposes of this Agreement, "Mining
Operations" shall include, but shall not be limited to, development, extraction,
processing, leaching or sale of Ores and Products produced from the Premises,
and other activities performed by Lessee that are intended to further the
development of the Premises as a producing mine. Development includes activities
carried on diligently and in good faith preparatory to commencing or resuming
operations at a mine. Lessee shall be deemed to be actively engaged in Mining
Operations so long as all such operations, once begun, do not cease for a period
of more than one hundred eighty (180) consecutive days. Mining Operations shall
not be deemed to have ceased if they are interrupted or suspended as described
in and subject to the terms of Section 29.
4. Payments.
4.1 Minimum Payments. Lessee shall pay to Lessor minimum payments in
the amounts and on the dates described below:
Date of Payment Amount
On the execution date $15,000 On the first anniversary date $20,000 On the
second anniversary date $30,000 On the third anniversary date $40,000 On the
fourth and subsequent anniversary dates $50,000 until the commencement of
commercial production.
Timely payment of the minimum payments in the manner provided herein and
compliance with all other requirements shall maintain this Agreement in full
force and effect and Lessee shall not be required to provide any form of notice
of its intention to maintain this Agreement, subject to the provisions of
Section 25.
4.2 Production Royalty. If the Premises are placed into commercial
production, as defined herein, Lessee agrees to pay to Lessor a production
royalty of five percent (5%) of the Net Smelter Returns, as defined herein, from
commercial production from the Premises. An advance production royalty minimum
payment of Seventy-Five Thousand Dollars ($75,000) shall be made at the
beginning of each production year. Payments of such production royalty from the
proceeds received from commercial production shall be determined at the end of
each calendar quarter after the effective date. Such production royalty payments
shall be made only if such share of the production royalty, as accumulated, is
greater than the sum of the minimum payments theretofore paid by Lessee to
<PAGE>
Lessor. Payments of the production royalty shall be made within thirty (30) days
after the end of each calendar quarter for which production royalty is
determined to be payable or the date on which Lessee receives a smelter or
refinery statement for production during such calendar quarter, whichever date
is later. If Lessee stores dore or metal on or off the Premises for a period
greater than sixty (60) days after the commencement of commercial production,
Lessee shall pay to Lessor the production royalty on the contained recoverable
metal in the dore or metal so stored based on the average daily closing COMEX
price for the calendar quarter during which the production royalty is determined
to be payable.
4.3 In Kind Royalty. Lessor may elect, from time to time upon six
month's prior written notice, to receive its net smelter return production
royalty in kind, in the form of refined metal at the smelter or refinery. The
quantity of such metal shall be adjusted to reflect deductions from Net Smelter
Returns described in Section 5.2. Any and all risks, costs and liabilities
associated with the handling, transportation of storage of product taken in kind
shall be borne by Lessor from the time of delivery of product to Lessor.
4.4 Method of Payment. Except for the payment due on the execution date,
all payments made by Lessee hereunder shall be paid in equal shares to the
accounts of the individuals collectively referred to as Lessor as follows:
Edward L. Devenyns, Account No. 60003465259
David R. Ernst, Account No. 03497450
c/o Nevada Savings and Loan Association
5011 Meadowood Way
Reno, Nevada 89511
At the time of making such payment, Lessee shall deliver to Lessor a statement
showing the amount of production royalty due and the manner in which it was
determined and shall submit to Lessor data reasonably necessary to enable Lessor
to verify the determination.
4.5 Payment Credit. All minimum payments pursuant to Section 4.1 and all
annual advance production royalty minimum payments pursuant to Section 4.2 paid
by Lessee to Lessor shall be cumulatively credited against the production
royalty payments due hereunder.
4.6 Audit. After the Premises are placed into commercial production, as
defined hereinbelow, Lessor or its authorized agents shall have a right to audit
and inspect Lessee's accounts and records used in calculating payments to Lessor
hereunder, which right may be exercised as to each payment at any reasonable
time during a period of one (1) year from the date on which the payment was made
by Lessee. If no such audit is performed during such period, such accounts,
records and payments shall be conclusively deemed to be true, accurate and
correct.
5. Definitions. The following defined terms, wherever used in this
Agreement, shall have the meanings as set forth below:
5.1 "Commercial production". For the purposes of this Agreement, the
Premises shall come into commercial production on the date upon which mining
operations result in the sale of minerals, concentrates, ores or metal produced
from the Premises on a sustained (as opposed to testing) basis. Lessee shall
deliver to Lessor notice indicating said date as soon as practicable after the
occurrence thereof.
<PAGE>
5.2 "Net smelter returns" shall mean the amount of revenues received by
Lessee and paid to Lessee by any smelter, refinery or other purchaser
(hereinafter "Smelter") of metals, ores, minerals or mineral substances, or
concentrates produced therefrom for products mined from the Premises, or deemed
to have been paid to Lessee in the case of stored dore or metal under Section
4.2, less all of the following:
5.2.1 Custom smelting costs, treatment charges and penalties,
including, but without being limited to, metal losses, penalties for impurities
and charges for refining, retorting, selling, and transportation from smelter to
refinery and from refinery to market; and
5.2.2 Costs of insuring and transporting product in the form of dore
metal or more refined metal from the Premises to a smelter or other place of
treatment.
Net Smelter Returns for product treated at a smelter owned, operated or
controlled by Lessee or treated on a toll basis for Lessee shall be computed in
the above manner, with deductions for all charges and items of cost equivalent
to the deductions described above.
If purchase payments are made to Lessee prior to the time that the purchased
product is delivered to the purchaser, Lessee will be deemed to have received
revenues from such payment at the time delivery is made.
5.3 "Ore" shall mean material from the Premises, the nature and
composition of which, in the sole judgment of Lessee justifies either: (1)
mining or removing from place during the term of this Agreement, and shipping
and selling the same, or delivering the same to a processing plant for physical
or chemical treatment; or (2) leaching in place during the term of this
Agreement.
5.4 "Lessor" shall mean Edward L. Devenyns and David R. Ernst and all
persons, individually and collectively, having an interest in the Premises and
executing this Agreement, or a counterpart thereof, other than Lessee.
5.5 "Product" shall mean the following:
5.5.1 All Ore mined or removed from place in the Premises during the
term hereof and shipped and sold by Lessee prior to treatment; and,
5.5.2 All concentrates, precipitates and mill products produced by
or for Lessee from Ore mined or removed from place in the Premises, or from Ore
leached in place in the Premises, during the term of this Agreement.
5.6 "Lessee" shall mean Great Basin Exploration and Mining Company, its
assigns and successors.
5.7 "Waste" shall mean earth, rock or material mined or removed from
place in the Premises during the term of this Agreement, but which is not "Ore"
as defined above.
6. Compliance With The Law; Bonding.
6.1 All exploration and development work performed by Lessee during the
term of this Agreement shall conform with the applicable laws and regulations of
the State of Nevada and the United States of America. Lessee shall be fully
responsible for compliance with all applicable federal, state and local
reclamation statutes, regulations and ordinances relating to such work, all at
Lessee's cost, and Lessee shall indemnify and hold harmless Lessor from any and
all claims, assessments, fines and actions arising from Lessee's failure to
perform its obligations hereunder. Lessee's obligations under this Section 6
shall survive termination of this Agreement.
<PAGE>
6.2 Lessee shall not, without the consent of Lessor, conduct any
operations involving use of bulldozers or other earth moving equipment without
(i) providing evidence to the Lessee of reclamation bonding covering such
activities provided to the administering agency under local, state, or federal
law, or (ii) providing a bond in favor of Lessor in an amount sufficient to
cover reclamation costs.
7. Mining Practices; Inspection of Data; Reports.
7.1 Mining Practices. Lessee shall work the Premises in a miner-like
fashion and manner consistent with safe and economical mining and with due
regard to the development and preservation thereof as workable mining
properties.
7.2 Inspection of Data. Lessor shall have the right to examine and copy
noninterpretive factual data in the possession of Lessee during reasonable
business hours and upon prior notice, except that the rights of lessor to
examine such data shall be exercised in a manner such that such inspection does
not interfere with the operations of Lessee.
7.3 Reports. Lessee shall deliver to Lessor, on or before January 1 of
each lease year and, upon termination of this Agreement, within sixty (60) days
after the termination date, a summary report of all exploration or development
work conducted by Lessee on the Premises and a statement of all expenditures
pursuant to Section 14.2 for the previous lease year. The report shall show the
location of all exploration work. Notwithstanding the foregoing, Lessee shall
not be required in its reports to disclose proprietary information or
information concerning, or which might tend to reveal, processes, techniques or
equipment which Lessee is under an obligation to any other person or entity not
to reveal.
8. Weights; Analysis. Lessee shall measure Ore and its grade, and take and
analyze samples thereof in accordance with industry practice, and shall keep
accurate records thereof as a basis for computing payments hereunder. These
records shall be available for inspection by Lessor at all reasonable times
subject to the provisions herein regarding accounts, records and payments.
9. Cross-Mining. Lessee is hereby granted the right, if it so desires, to
mine and remove ore, product and materials from the Premises through or by means
of shafts, openings or pits which may be made in or upon adjoining or nearby
property owned or controlled by Lessee. Lessee may, if it so desires, use the
Premises and any shafts, openings and pits therein for the mining, removal,
treatment and transportation of ores and materials from adjoining or nearby
property, or for any purpose connected therewith. The operations of Lessee on
the Premises and Lessee's operations on other lands may be conducted upon the
Premises and upon any and all such other lands as a single mining operation, to
the same extent as if all such properties constituted a single tract of land.
Nothing herein shall relieve Lessee from its obligations for payments or reports
as described in this Agreement.
<PAGE>
10. Stockpiling; Waste.
10.1 Stockpiling on Other Lands. Lessee shall have the right, at any
time during the term hereof, to stockpile any Ore or Product mined or produced
from the Premises at such place or places as Lessee may elect, without the
obligation to remove or return the same, either upon the Premises or upon any
other lands owned or controlled by Lessee or its successors and assigns,
provided that the owner of any other lands on which Lessee stockpiles Ore or
Product must recognize in writing Lessor's ownership of the stockpiled Ore and
agree to allow sufficient time after the termination of this Agreement for the
removal of such stockpiled Ore; Lessee shall bear the cost for removal of such
stockpiled Ore and its placement on the Premises. The rights and liens of Lessor
in and to any such Ore or Product stockpiled on other lands shall not be
divested by the removal thereof from the Premises, but shall be the same in all
respects as though such materials had been stockpiled on the Premises. The
stockpiling of Ore or Product from the Premises on other lands shall not be
deemed a removal or shipment thereof requiring payment in respect of Lessor's
interest. Lessee may elect to pay to Lessor a calculated royalty equal to the
production royalty which would otherwise have been due and payable if such
stockpiled Ore were processed by Lessee, and, in such case, Lessee shall have no
obligation to lessor to remove and place such stockpiled Ore on the Premises
upon the termination of this Agreement. The tax covenants described in this
Agreement shall apply to Ore and Product from the Premises stockpiled on other
lands.
10.2 Stockpiling on the Premises. Lessee shall have the right, at any
time during the term hereof, to stockpile on the Premises, without the
obligation to remove or return the same, any ore or materials mined or produced
by Lessee or its affiliated companies from other lands. Lessor agrees to
recognize the rights and interests of others in such ores and materials
stockpiled on the Premises and to permit the removal thereof by Lessee at any
time during the term of this Agreement, or by the owners thereof, for a
reasonable time after termination of this Agreement, all without liability or
expense to Lessor.
10.3 Waste. Waste, overburden, surface stripping and other materials,
except Product, from the Premises may be deposited on or off the Premises. Such
materials from other lands may be deposited on the Premises only if the same
will not interfere with mining operations on the Premises. Nothing in this
paragraph shall limit the provisions in the subparagraphs above concerning
stockpiling product on or off the Premises.
11. Mixing. After Ore and Product from the Premises have been sampled and
measured in accordance with industry practices, in such manner as will permit
the computation of payments to be made hereunder, Lessee may mix the same with
ores, materials or products from other lands.
12. Treatment. Lessee shall have the right, but shall not be required, to
beneficiate, concentrate, smelt, refine, leach and otherwise treat, in any
manner, any Ore, Product and materials mined or produced from the Premises and
from other lands. Such treatment may be conducted wholly or in part at a plant
or plants established or maintained on the Premises or on other lands. Such
treatment shall be conducted in a careful and workmanlike manner. The tailings
and residue from such treatment shall be deemed Waste and may be deposited on
the Premises or on other lands, without Lessee's obligation to remove the same,
provided that Lessee shall be and shall remain liable for all costs incurred for
any subsequent clean-up required under any applicable laws or regulations.
<PAGE>
Lessor shall have no right, title or interest in said tailings or residue;
provided, however, that any said tailings or residue remaining on the Premises
for a period of one (1) year after the date on which this Agreement has expired,
or has been terminated by Lessee as to all of the Premises, shall be deemed
abandoned by Lessee and thereupon shall become the property of Lessor. Except
for Lessee's obligation to clean-up in-place tailings or residue deposited by
Lessee described above, for which Lessee will bear full responsibility and
liability, Lessor, and not Lessee, shall be fully liable and responsible for any
operations of the Lessor, or its successors and assigns, following Lessee's
termination of this Agreement, including clean-up of waste and residues
deposited or redeposited by Lessor. Lessee shall pay the production royalty
described in Section 4 on all Product or minerals recovered from the
reprocessing of waste, tailings or residue produced by Lessee from the Premises.
13. Scope of Agreement. This Agreement shall extend to and include the
Premises and shall apply and extend to any other unpatented mining claims,
millsites and tunnel sites located by either of the parties hereto within one
(1) mile of the exterior boundaries of the Premises on the effective date. This
Agreement shall not extend to any unpatented mining claims, real property,
mineral rights or interests acquired by either party from third parties.
14. Annual Assessment Work; Work Commitment; Patent Application.
14.1 Assessment Work. Beginning with the annual assessment work period
of September 1, 1991 to September 1, 1992, and for each annual assessment work
period thereafter commencing during the term of this Agreement, Lessee shall
perform for the benefit of the Premises work of a type customarily deemed
applicable as assessment work and of sufficient value to satisfy the annual
assessment work requirements of all applicable federal, state and local laws,
regulations and ordinances, and shall prepare evidence of the same in form
proper for recordation and filing, and shall timely record and/or file such
evidence in the appropriate federal, state and local office as required by
applicable federal, state and local laws, regulations and ordinances, provided
that if Lessee elects to terminate this Agreement before April 1 of any lease
year, except the first lease year, it shall have no further obligation hereunder
to perform annual assessment work nor to prepare, record and/or file evidence of
the same. On or before December 1 following the end of each assessment year
Lessee shall deliver to Lessor copies of the recorded and filed documents
showing the file-stamps of the county recorder and the Bureau of Land
Management.
14.2 Work Commitment. Lessee as its sole work commitment shall perform
assessment work for the assessment work periods of September 1, 1991 to
September 1, 1992, and September 1, 1992 to September 1, 1993, in accordance
with the terms of Section 14.1.
14.3 Patent Application. Lessee may, at its expense, seek to patent, in
Lessor's name, any or all of the unpatented mining claims included in the
Premises. Lessor pledges full cooperation to Lessee in executing any documents
necessary to accomplish patenting if so desired by Lessee. If Lessee begins
patent proceedings and Lessee thereafter desires to discontinue them, or if this
Agreement is terminated while patent proceedings are pending, Lessee shall have
no further obligation with respect thereto, except to pay any unpaid expenses
accrued in such proceedings prior to its request to discontinue, or prior to
termination, whichever occurs first. If the patent application results in
cancellation of any unpatented claims, Lessee shall not be liable for any
claims, losses or damages resulting from such cancellation.
<PAGE>
15. Liens and Notices of Non-Responsibility. Except as otherwise agreed in
writing, Lessee agrees to keep the Premises at all times free and clear of liens
for materials furnished and labor done or work performed upon the Premises at
the request of or for the benefit of Lessee and to pay all indebtedness and
liabilities incurred by or for them which may or might become a lien, charge or
encumbrance against the Premises before such indebtedness and liabilities shall
become a lien, charge or encumbrance; provided, however, that Lessee need not
discharge or release any such lien, charge or encumbrance so long as Lessee is
contesting the same in good faith. Nothing stated herein shall prohibit Lessee
from pledging its interest in this Agreement as security for any indebtedness of
Lessee incurred for the purpose of the exploration, development or mining of the
Premises. Lessee will upon request of Lessor post upon the Premises and keep
posted thereon in a conspicuous place a notice of non-responsibility which will
be prepared by Lessor. The parties agree that Lessor shall be informed
immediately of the execution of this Agreement by Lessee in order that Lessor
can properly and timely record a notice of non-responsibility in the office of
the county recorder of the county in which the Premises are located. The
provisions of this Section 15 shall survive any termination of this Agreement.
16. Taxes.
16.1 Real Property Taxes. Lessor shall pay any and all taxes assessed
against the Premises prior to execution of this Agreement. Lessee shall pay
promptly before delinquency all taxes and assessments, general, special,
ordinary and extraordinary, that may be levied or assessed during the term of
this Agreement and upon the Premises then remaining subject to this Agreement,
and upon all Ore and Product therefrom. All such taxes for the year in which
this Agreement is executed and for the year in which this Agreement terminates
shall be prorated between Lessor and Lessee except that neither Lessor nor
Lessee shall be responsible for the payment of any taxes which are based upon
production from the Premises accruing solely to the other party. Lessee always
shall have the right to contest, in the courts or otherwise, in its own name or
in the name of Lessor, the validity or amount of any such taxes or assessments,
if it deems the same unlawful, unjust, unequal or excessive, or to take such
other steps or proceedings as it may deem necessary to secure a cancellation,
reduction, re-adjustment or equalization thereof, before it shall be required to
pay the same. Lessee shall not permit or suffer the Premises or any part thereof
to be conveyed, or title lost to Lessor, as the result of nonpayment of such
taxes or assessments. Lessee shall upon request furnish to Lessor duplicate
receipts for all such taxes and assessments when paid.
16.2 Personal Property Taxes. Nothing in the foregoing shall be
construed to obligate Lessee to pay such portion of any tax as is based upon the
value of improvements, structures or personal property made, placed or used on
any part or parts of the Premises by or for Lessor or by an owner or purchaser
of surface rights other than Lessee. If Lessor receives tax bills or claims
which are the responsibility of Lessee hereunder, the same shall be promptly
forwarded to Lessee for appropriate action, and if any of the same are not
received by Lessee at least ten (10) business days before payment called for
thereunder is due, Lessee shall not be responsible for any interest, penalty,
charge, expense, or other liability arising by reason of late payment of such
payment, the Lessor hereby indemnifying and saving harmless Lessee from all of
the same that may be incurred by Lessee from time to time.
16.3 Income or Similar Taxes. Lessee shall not be liable for any taxes
levied on or measured by income, or other taxes applicable to Lessor, based upon
payments under this Agreement.
<PAGE>
17. Insurance. Lessee shall procure, and, at all times during the
performance of this Agreement, maintain in full force and effect such all-risk
insurance as may be appropriate, but in amounts not less than $1,000,000 per
person and $1,000,000 per accident for all bodily injury claims, and not less
than $250,000 for property damage claims, as well as coverage to comply with all
workmen's compensation and other insurance required by law. Lessee shall forever
indemnify and save harmless Lessor, its heirs, executors, administrators,
successors and assigns, of and from any and all liability whatsoever for any
claims, actions or damages in any way arising out of Lessee's occupation and use
of the Premises, or its operations thereon or therein. Each policy of insurance
carried by Lessee hereunder shall, if possible under the terms of Lessee's
policy, name Lessor as an additional insured and shall provide that Lessor shall
be given thirty (30) days advance written notice of termination of the policy.
All such insurance shall be maintained by Lessee at its own expense throughout
the duration of this Agreement, and whenever Lessor reasonably requests, Lessee
shall furnish to Lessor evidence that such insurance is being maintained. The
indemnity provisions of this Section 17 shall survive any termination of this
Agreement.
18. Inspection. Lessor or Lessor's duly authorized representatives shall be
permitted to enter on the Premises and the workings of Lessee thereon at all
reasonable times for the purpose of inspection, but they shall enter on the
Premises at their own risk and in such a manner as not to unreasonably hinder,
delay or interfere with the operations of Lessee. Lessor shall indemnify and
hold Lessee harmless from any and all damages, claims or demands arising out of
injury to Lessor, Lessor's agents or representatives, or any of them, on the
Premises or on the approaches thereto, except damage or injury caused by
Lessee's negligence or willful misconduct.
19. Title Information and Data. At any time during the term hereof, upon
written request by Lessee, Lessor forthwith shall obtain and deliver to Lessee
copies of all title documents affecting the Premises which Lessor has in its
possession or available to it, including copies of any plats and field notes of
surveys of the Premises. Lessor agrees to make available to Lessee copies of any
exploration data, assays, logs, maps, geological, geochemical and geophysical
surveys and reports that Lessor may have in its possession, without charge.
20. Title.
20.1 Representations. Lessor represents that:
20.1.1 Lessor has located and maintained the unpatented mining
claims comprising the Premises in accordance with applicable federal and state
laws and regulations, provided that Lessor makes no representations that the
discovery of or the presence of valuable minerals within the boundaries of each
claim has been adjudicated or determined by any court of competent jurisdiction
or by any administrative agency of the United States or the State of Nevada.
20.1.2 Lessor owns the entire title to the Premises and no other
party has any right, title or interest therein subject to the paramount interest
of the United States of America which shall be deemed to include the interest of
any lessee, permittee or licensee acquiring any interest in the Premises under
the laws of the United States and subject to the Surface Use Agreement between
Lessor and Tonkin Springs Gold Mining Company attached as Exhibit B.
<PAGE>
20.1.3 Lessor has good right and full power to convey the effective
interest described herein.
20.2 Warranties. Lessor warrants that:
20.2.1 The Premises are free and clear of any liens, claims or
encumbrances created by or through Lessor.
20.2.2 Lessor shall not commit any act or acts which will encumber
or cause a lien, claim or encumbrance superior to the interest of Lessee to be
placed on the Premises, or which might hinder or impair the rights or ability of
Lessee to exercise its rights hereunder, except subject and subordinate to the
terms of this Agreement.
20.3 General.
20.3.1 The representations and warranties described herein shall
survive termination of this Agreement.
20.3.2 It is recognized that Lessor has entered into a certain
Surface Use Agreement with Tonkin Springs Gold Mining Company involving four
unpatented lode claims, which is attached as Exhibit B.
20.3.3 It is recognized that mining claims comprising the Premises
in the field appear in boundary areas to overlap certain unpatented mining
claims owned or controlled by third parties which purport to exist as of the
date of this Agreement. The existence of the overlap, if any, shall not
constitute a breach of the provisions of Section 20, nor shall the existence of
such overlap be cause or grounds for application of Section 21.2. Lessee shall
have no liability as to any title disputes with respect to the conduct of
operations hereunder on such overlap areas. Whether to initiate any legal action
to challenge the validity of any overlapping claims or respond to any legal
action brought against Lessor or Lessee by the owners of such overlapping claims
shall be at Lessee's option.
21. Remedies for Defects in Title.
21.1 Lessee's Remedies. If Lessor owns a less interest in the Premises
than the entire interest therein or in the event of Lessor's failure to promptly
remedy any defects in title or to pay, when due, mortgages or other liens
against the Premises, Lessee shall have the right, but shall not be obligated,
to remedy such defects or to pay such amounts, and if it does so, Lessee shall
be subrogated to all the rights of the holder thereof. Lessee shall have the
right to offset and credit against future payments due to Lessor all of Lessee's
costs incurred and payments made to remedy such defects or to pay such amounts.
If Lessee acts to remedy such defects in the manner provided herein, such action
shall not constitute an election of remedies on the part of Lessee.
21.2 Lesser Interest. If Lessor owns an interest in the Premises or any
portion thereof which is less than the entire and undivided interest referred to
above, then the minimum payments herein provided for shall be reduced
proportionately in accordance with the nature and extent of Lessor's interest so
that such minimum payments herein shall be paid to Lessor only in the proportion
thereof that Lessor's interest bears to the entire and undivided interest in the
Premises on a net acreage basis. The production royalty payments shall be
reduced for production from any portion of the Premises in which Lessor does not
own the entire undivided interest in such portion of the Premises.
<PAGE>
21.3 Escrow of Payments Pending Dispute. Anything to the contrary in
this Agreement notwithstanding, if at any time while this Agreement is in force
and effect a third party asserts a claim of ownership in the Premises, the
minerals lying in, on or under the Premises which is adverse to the interest of
Lessor described above, Lessee may deposit any payments which would otherwise be
due to Lessor hereunder into escrow, in an interest-bearing account, and give
notice of such deposit to Lessor. In the event of a dispute as to ownership of
said land, minerals or production royalties, payment of minimum payments or
production royalties may be deferred until twenty (20) days after Lessee is
furnished satisfactory evidence that such dispute has been finally settled and
all provisions as to keeping this Agreement in force shall relate to such
extended time for payment, whereupon the escrowed payments and interest accrued
thereon shall be paid to Lessor.
21.4 Survival of Lessee's Rights. The provisions of this Section 21 shall
survive any termination of this Agreement.
22. Amendment and Relocation of Claims. Lessee shall have the right to amend
or relocate in the name of Lessor any of the unpatented mining claims subject to
this Agreement which Lessee deems reasonably advisable to so amend or relocate.
Lessee shall give notice to Lessor of its amendment or relocation of any of the
unpatented mining claims subject to this Agreement. If it shall appear that in
the location of any of the unpatented mining claims subject hereto, such
locations were made so that the unpatented claims do not constitute a contiguous
body of claims without interior gaps and that one or more such claims can be
amended or new claims located so as to eliminate such interior gaps, then
Lessee, in the name of and as agent for Lessor, may amend any of the locations
of such claims for that purpose, and the parties hereto agree to execute any
further documents necessary to enable Lessee to do so. If it shall appear that
the location of any of the unpatented mining claims subject hereto as originally
located, or as such locations may be amended, are such that there are present a
fractional area or areas unlocated, then in the name of, and as agent for
Lessor, Lessee may locate such fractional areas as mining claims, and the
parties hereto agree to execute any further documents to enable Lessee to do so
and all such amended or new locations shall be deemed to be part of the mining
claims subject hereto.
23. Warranties and Representations.
23.1 Mutual Warranties and Representations. Each of the parties
warrants and represents to the other as follows:
23.1.1 Compliance with Laws. That each party has complied with all
applicable laws and regulations of any governmental body, federal, state or
local, regarding the terms of this Agreement and the performance thereof.
23.1.2 No Pending Proceedings. That there are no lawsuits or
proceedings pending or threatened which affect the ability of the parties to
perform the terms of this Agreement.
23.1.3 Authority. That each party has the full right, title and
authority to enter into this Agreement and to perform the same in accordance
with the terms hereof, and neither this Agreement nor the performance thereof
violates, or constitutes a default under the provisions of, any other agreement
to which such party is a party or to which it is bound.
<PAGE>
23.1.4 Commissions; Finder's Fees. Each of the parties agrees that
it has not utilized the services of a broker or a finder in the negotiation
and/or execution of this Agreement, and that it has not incurred any obligation
to pay a broker's commission or finder's fee upon the execution and consummation
hereof.
23.1.5 Costs. Each of the parties shall pay its costs and expenses
incurred or to be incurred by it in negotiating and preparing this Agreement and
in closing and carrying out the transactions contemplated by this Agreement.
23.1.6 Noninterference. Each of the parties covenants that it will
not do or permit to be done any act which would or might hinder or impair the
rights of the other party to exercise any right granted under this Agreement.
23.1.7 No Default. The consummation of this Agreement will not
result in or constitute a default or an event that, with notice or lapse of time
or both, would be a default, breach or violation of any lease, license,
promissory note, conditional sales contract, commitment, or any other agreement,
instrument or arrangement to which either Lessor or Lessee is a party.
23.1.8 Survival. The warranties and representations of this Section
23 shall survive termination of this Agreement.
24. Cancellation by Lessor. In the event of any default or failure by Lessee
to comply with any of the covenants, terms or conditions of this Agreement,
Lessor shall be entitled to give Lessee written notice of the default,
specifying details of the same. If such default is not remedied within thirty
(30) days after receipt of said notice, provided the same can reasonably be done
within that time, or, if not, if Lessee has not within that time commenced
action to cure the same or does not after such commencement diligently prosecute
such action to completion, then Lessor may cancel and terminate this Agreement
by giving written notice to Lessee effective on Lessee's receipt of said notice.
In the case of Lessee's failure to pay the minimum payments due hereunder,
Lessor shall be entitled to give Lessee written notice of the default, and if
such default is not remedied within twenty (20) days after the receipt of said
notice, then Lessor may cancel and terminate this Agreement by giving written
notice to Lessee effective on Lessee's receipt of said notice. No such
cancellation, however, shall be based on a default hereunder or on a failure to
remedy the same, when resulting from any cause beyond the reasonable control of
Lessee, including, without limitation, the force majeure provisions herein.
25. Cancellation by Lessee. Lessee may at any time cancel this Agreement by
giving thirty (30) days written notice to Lessor in accordance with Section 32
and tendering to Lessor a written release thereof in proper form for recording.
Lessee shall release the Premises free and clear of any liens, claims or
encumbrances created by or through it or as a result of its activities on the
Premises. Any additional unpatented mining claims or portions thereof located by
Lessee in the area of interest described in Section 13 shall be conveyed to
Lessor, at Lessor's election, which shall be exercised not later than fifteen
(15) days after receipt of the notice of termination (the "termination date").
If Lessee terminates this Agreement, Lessee shall not be required to perform the
obligations or to pay the minimum payments or production royalty payments
accruing or coming due after the "termination date" as defined herein; all such
payments or obligations which accrue before the termination date shall be timely
met and discharged by Lessee. Tender of the release may be made by mailing same
to Lessor at the address provided herein. Lessee may record a duplicate of said
release in the same office where the hereinafter mentioned memorandum of
agreement is recorded.
<PAGE>
26. Removal of Equipment. Lessee shall have, and it is hereby given and
granted, one hundred and twenty (120) days after termination of this Agreement,
to remove from the Premises all buildings, structures, warehouse stock,
merchandise, materials, tools, hoists, compressors, engines, motors, pumps,
transformers, electrical accessories, metal or wooden tanks, pipes and
connections, mine cages, and any and all other machinery, trade fixtures and
equipment, erected or placed in or upon the Premises by it, together with all
ore broken in stopes or workings, except mine supports and timber in place and
permanent improvements.
27. Data. Upon termination of this Agreement, Lessee will provide a copy of
all drilling logs, assays, maps and other noninterpretive factual data which
Lessee has prepared in connection with its exploration and development of the
Premises under this Agreement. Lessee agrees that it will within thirty (30)
days after the termination date deliver to Lessor a copy of all drilling logs,
maps and other noninterpretive factual data which Lessee has prepared. Lessee
shall have no liability on account of any such information received or acted on
by Lessor or any other party to whom Lessor delivers such information.
28. Confidentiality. The data and information, including the terms of this
Agreement, coming into the possession of Lessor by virtue of this Agreement,
shall be deemed confidential and shall not be disclosed to outside third parties
except as may be required to publicly record or protect title to the Premises or
to publicly announce and disclose information under the laws and regulations of
the United States or any state or local government or any country, or under the
rules and regulations of any stock exchange on which stock of any party, or the
parent or affiliates of any party, is listed. Lessor agrees with respect to any
public announcements or disclosures so required, including the announcement of
the execution of this Agreement, if any, to inform Lessee of the content of the
announcement or disclosure in advance of its intention to make such announcement
or disclosure in sufficient time to permit Lessee to jointly or simultaneously
make a similar public announcement or disclosure if Lessee so desires, provided,
however, that in the event any party anticipates selling or assigning all or a
portion of its interest or negotiations to procure loans from third parties are
undertaken, such party shall have the right to furnish information to the party
to which such conveyance or assignment is anticipated or with whom such
negotiations for loans are undertaken, upon obtaining from such party an
agreement to hold confidential any information so furnished. Nothing herein
shall limit or restrict the right of Lessee to provide, deliver or release to
parent companies, subsidiary companies, related companies, affiliated companies
with a common parent, and/or co-venturers the data and information, including
the terms of this Agreement, coming into the possession of Lessee by virtue of
this Agreement.
29. Suspension of Operations.
29.1 Force Majeure. The respective obligations of either party, except
the obligations of Lessee to pay the payments due hereunder, maintain the
insurance required hereunder and perform the annual assessment work
requirements, shall be suspended during the time and to the extent that such
party is prevented from complying therewith, in whole or in part, by war or war
conditions, actual or potential, earthquake, fire, flood, strike, labor
stoppage, accident, riot, unavoidable casualty, act or restraint, present or
future, of any lawful authority, act of God, act of public enemy, delays in
transportation, governmental regulation, environmental restrictions, failure to
issue permit or license applications and approvals, or other cause of the same
or other character beyond the reasonable control of such party. Lessee shall
give notice to owner of the commencement and termination of any condition or
occurrence of force majeure.
<PAGE>
29.2 Suspensions Due to Economic Causes. If at any time after the
effective date (or for such additional period as may be extended under Section
29.1 hereof), mining, processing or marketing operations are reasonably
determined by Lessee to be uneconomic due to unavailability of a suitable market
for product, prevailing costs of mining, processing or marketing with respect to
prices available for product, or imposition of governmental statutes,
requirements, or regulations making it economically impractical to carry out
such operations, Lessee shall have the right, from time to time, to temporarily
discontinue operations hereunder.
The foregoing provision shall be subject to the following:
29.2.1 No single period of suspension shall exceed five (5)
consecutive years;
29.2.2 Lessee shall promptly notify Lessor, in writing, of the
commencement and termination of each such temporary suspension, and the notice
of commencement shall specify in detail each and every reason why such
suspension is occurring; in addition, it is agreed that failure to give such
notice within the time prescribed herein shall result in a failure to extend the
term of this Agreement; and
29.2.3 The cumulative periods of suspension shall not exceed a total
of five (5) years.
Notwithstanding the foregoing, no economic conditions referred to
herein shall interrupt, or defer, in any way, the obligations of Lessee to
Lessor to make minimum payments, to reimburse or pay taxes, if any, or to
perform the assessment work hereunder.
29.3 Obligations During Suspensions of Operations. During any suspension
of operations under either Section 29.1 or 29.2 hereunder, Lessee shall continue
to perform the acts and to make the payments necessary to hold and maintain the
Premises and shall take all steps necessary to maintain the status and title of
the Premises in good standing, including assessment work and tax payment
requirements, if any.
30. Disputes Not to Interrupt Operations. Disputes or differences between
the parties hereto shall not interrupt performance of this Agreement or the
continuation of operations hereunder. In the event of any dispute or difference,
operations may be continued, and settlements and payments may be made hereunder
in the same manner as prior to such dispute or difference.
31. Memorandum of Agreement. Upon execution of this Agreement, the parties
shall execute and cause to be delivered a short form of this Agreement which
shall be recorded in the office of the recorder of each county wherein all or
part of the Premises are located. The execution and recording of the memorandum
of agreement shall not limit, increase or in any manner affect any of the terms
of this Agreement, or any rights, interests or obligations of the parties
hereto. Within a reasonable time after Lessee's location of any unpatented
mining claims made subject to this Agreement in accordance with Section 13,
Lessee shall execute and deliver a Memorandum of Agreement with respect to such
unpatented mining claims located by Lessee.
<PAGE>
32. Notices. Any notices required or authorized to be given by this
Agreement shall be in written form. Any notices required or authorized to be
given by this Agreement shall be deemed to have been sufficiently given or
served in written form if sent by registered or certified delivery, postage
prepaid and return receipt requested, addressed to the proper party at the
following address or such address as the party shall have designated to the
other party in accordance with this section. Notices so given shall be deemed to
have been received by the addressee five (5) days from the date of mailing. Any
notice required or authorized to be given by this Agreement shall be deemed to
have been sufficiently given or served in written form if personally delivered
to the proper party or if sent by telex, telegraph or other wire service and
actually received by such party, and such notice shall be effective upon the
date of receipt by such party. Wherever in this Agreement reference is made to
the giving and receipt of notice, the giving and receipt of such notice shall be
governed by the provisions of this Section.
If to Lessor: Edward L. Devenyns
15900 Caswell
Reno, Nevada 89511
David R. Ernst
13930 Kewanna Trail
Reno, Nevada 89511
If to Lessee:
Great Basin Exploration and Mining Company
3400 Kauai Court, Suite 208
Reno, Nevada 89509
33. Binding Effect of Obligations. This Agreement shall be binding upon and
inure to the benefit of the respective parties hereto, and their heirs, personal
representatives, successors and assigns.
34. Whole Agreement. The parties hereto agree that the whole agreement
between them is written herein and in a memorandum of agreement of even date
herewith which is intended to be recorded, and that this Agreement shall
constitute the entire contract between the parties. There are no terms or
conditions, express or implied, other than herein stated. This Agreement may be
amended or modified only by an instrument in writing, signed by the parties with
the same formality as this Agreement.
35. Governing Law. This Agreement shall be construed and enforced in
accordance with the laws of the State of Nevada.
36. Multiple Counterparts. This Agreement may be executed in any number of
counterparts, each of which shall be deemed to be an original, but all of which
shall constitute the same Agreement.
37. Other Interests. Lessor hereby represents that Lessee has not induced or
caused Lessor to terminate any previous license, lease agreement, or otherwise,
for the Premises subject to this Agreement, and/or to discontinue or interfere
with a business relationship with any such licensee(s) or lessee(s), or
otherwise. Lessor agrees to indemnify and defend Lessee against any and all
claims, demands or suits for damages or injunctive relief which may be brought
against Lessee incident to, arising out of, in connection with or resulting from
any such termination and/or discontinuance of a business relationship, subject
to Section 20.3.2.
<PAGE>
38. Severability. If any part, term or provision of this Agreement is held
by the courts to be illegal or in conflict with any law of the United States or
the State of Nevada the validity of the remaining portions or provisions shall
not be affected, and the rights and obligations of the parties shall be
construed and enforced as if the Agreement did not contain the particular part,
term or provision held to be invalid.
39. Assignment. Lessee may assign its interest under this Agreement upon
first obtaining the written consent of Lessor, which consent shall not be
withheld unreasonably. Notwithstanding the foregoing, Lessee shall have the
right to assign its interest in this Agreement to any parent or subsidiary
corporation, or corporation having a common parent or subsidiary, or to any
partnership or joint venture of which Lessee is a partner or co-venturer. Such
assignment shall not relieve Lessee of its obligations hereunder unless Lessee
is relieved of its obligations hereunder by written instrument executed by
Lessor.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed effective as of the date described herein.
"LESSEE"
GREAT BASIN EXPLORATION AND MINING COMPANY
By: A.P. TAYLOR
-------------------
A.P. TAYLOR, President
"LESSOR"
By: EDWARD L. DEVENYNS
--------------------
EDWARD L. DEVENYNS
DAVID R. ERNST
--------------------
DAVID R. ERNST
STATE OF NEVADA )
:ss.
COUNTY OF WASHOE )
On ___________________, 1992, personally appeared before me,
a notary public, A.P. Taylor, the President of GREAT BASIN EXPLORATION & MINING
CO., INC., who acknowledged that he executed the above instrument.
SEAL
----------------------------------
Notary Public
My Commission Expires: Residing in:
--------------------
--------------------
<PAGE>
STATE OF NEVADA )
:ss
COUNTY OF WASHOE )
On this ________ day of __________________, 1992, before me,
the undersigned, a Notary Public in and for the County of Washoe, State of
Nevada, duly commissioned and sworn, personally appeared EDWARD L. DEVENYNS,
known to me to be the person whose name is subscribed to the above document, and
who acknowledged to me that he executed the same freely and voluntarily and for
the uses and purposes therein mentioned.
SEAL
----------------------------------
Notary Public
My Commission Expires: Residing in:
--------------------
--------------------
STATE OF NEVADA )
:ss
COUNTY OF WASHOE )
On this ________ day of __________________, 1992, before me,
the undersigned, a Notary Public in and for the County of Washoe, State of
Nevada, duly commissioned and sworn, personally appeared DAVID R. ERNST, known
to me to be the person whose name is subscribed to the above document, and who
acknowledged to me that he executed the same freely and voluntarily and for the
uses and purposes therein mentioned.
SEAL
--------------------------------
Notary Public
My Commission Expires: Residing in:
------------------------
------------------------
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed effective as of the date described herein.
"LESSEE"
GREAT BASIN EXPLORATION AND MINING COMPANY
By: A.P. TAYLOR
------------
A.P. Taylor, President
"LESSOR"
By: EDWARD L. DEVENYNS
------------------
EDWARD L. DEVENYNS
DAVID R. ERNST
------------------
DAVID R. ERNST
<PAGE>
STATE OF NEVADA )
:ss.
COUNTY OF WASHOE )
On ----------------, 1992, personally appeared before me, a notary
public, A.P. Taylor, the President GREAT BASIN EXPLORATION & MINING CO., INC.,
who acknowledged that he executed the above instrument.
SEAL
MYRA E.BAILEY
------------------------------
Notary Public
Residing in: Washoe Co.
----------
My Commission Expires:
STATE OF NEVADA )
:ss
COUNTY OF WASHOE )
On this ------ day of -----------, 1992, before me, the undersigned, a
Notary Public in and for the County of Washoe, State of Nevada, duly
commissioned and sworn, personally appeared EDWARD L. DEVENYNS, known to me to
be the person whose name is subscribed to the above document, and who
acknowledged to me that he executed the same freely and voluntarily and for the
uses and purposes therein mentioned.
SEAL
----------------------
Notary Public
My Commission Expires: Residing in:
STATE OF NEVADA )
:ss
COUNTY OF WASHOE )
On this ----- day of ---------, 1992, before me, the undersigned, a
Notary Public in and for the County of Washoe, State of Nevada, duly
commissioned and sworn, personally appeared DAVID R. ERNST, known to me to be
the person whose name is subscribed to the above document, and who acknowledged
to me that he executed the same freely and voluntarily and for the uses and
purposes therein mentioned.
SEAL
MYRA E.BAILEY
--------------------------
Notary Public
My Commission Expires: Residing in: ----------------
AFGAN-KOBEH JOINT VENTURE
JOINT VENTURE OPERATING AGREEMENT
BETWEEN
COMINCO AMERICAN INCORPORATED
AND
GREAT BASIN EXPLORATION & MINING CO., INC.
<PAGE>
JOINT VENTURE OPERATING AGREEMENT
BETWEEN
COMINCO AMERICAN INCORPORATED
AND
GREAT BASIN EXPLORATION & MINING CO., INC.
Page
RECITALS 1
ARTICLE 1 DEFINITIONS 1
ARTICLE 2 REPRESENTATIONS AND WARRANTIES;
TITLE TO ASSETS 5
2.1 Capacity of Participants 5
2.2 Area of Interest 6
2.3 Representations, Warranties and
Covenants Regarding the Properties 6
2.4 Disclosures 7
2.5 Survival of Representations and Warranties 7
2.6 Defects in Title; Cure 8
ARTICLE 3 FORMATION OF VENTURE 8
3.1 Formation of Venture; Characterization 8
3.2 Effective Date; Name and Term 9
3.3 Scope and Purposes of Venture 9
3.4 Limitation 9
3.5 Other Business Opportunities 9
3.6 SGC Agreement 10
ARTICLE 4 INITIAL CONTRIBUTION TO THE JOINT VENTURE 10
4.1 GBEM's Initial Contribution 10
4.2 CAI's Initial Contribution 10
4.3 Withdrawal 13
4.4 Additional Contributions 14
ARTICLE 5 INTERESTS OF PARTICIPANTS 14
5.1 Initial Interests 14
5.2 Obligations of Participants 14
5.3 Dilution of Interest 15
5.4 Continuing Liability 16
<PAGE>
ARTICLE 6 FEASIBILITY AND DEVELOPMENT 17
6.1 Feasibility Study 17
6.2 SGC Right to Participate 18
6.3 Management Committee Review 19
6.4 Election to Participate 20
6.5 Commencement of Development 20
ARTICLE 7 MINING 21
7.1 Conduct of Operations 21
7.2 Taking in Kind 21
7.3 Sales by the Operator 21
7.4 Weighing, Sampling and Assaying 22
7.5 Commingling 22
7.6 Milling Arrangements 23
7.7 Transportation of Products 24
ARTICLE 8 RELATIONSHIP OF PARTICIPANTS 24
8.1 Tenants in Common 24
8.2 Creation of Tax Partnership 24
8.3 Confidentiality; Publicity 30
8.4 Patents 31
8.5 Implied Covenants 31
ARTICLE 9 MANAGEMENT COMMITTEE 31
9.1 Organization; Composition 31
9.2 Powers of the Management Committee 31
9.3 Meeting; Action Without Meeting 32
9.4 Decisions 32
9.5 Minutes 33
<PAGE>
ARTICLE 10 OPERATOR 33
10.1 CAI as the Operator 33
10.2 Relationship to Participants 33
10.3 Rights and Duties of the Operator 33
10.4 Standard of Care 36
10.5 Indemnification 36
10.6 Reports 36
10.7 Insurance 36
10.8 Resignation 37
10.9 Removal 37
10.10 Compensation 38
ARTICLE 11 PROGRAMS AND BUDGETS 38
11.1 Presentation of Programs and Budgets 38
11.2 Approval of Programs and Budgets 38
11.3 Election to Contribute 38
11.4 Budget Overruns 38
11.5 Emergency Expenditures 39
11.6 Modification of Budgets 39
ARTICLE 12 ACCOUNTS AND SETTLEMENTS 39
12.1 Joint Account; Monthly Statements 39
12.2 Working Capital 39
12.3 Cash Calls 39
12.4 Failure to Meet Calls 40
12.5 Inspection by Participants 41
12.6 Audits 41
<PAGE>
ARTICLE 13 WITHDRAWAL AND TERMINATION 41
13.1 Termination by Expiration or Agreement 41
13.2 Withdrawal 41
13.3 Termination for Default 42
13.4 Continuing Operations 44
13.5 Reclamation 44
13.6 Termination of Properties 44
ARTICLE 14 TRANSFERS OF INTEREST 45
14.1 General Assignability 45
14.2 Transfer for Security 46
14.3 Assignments Upon Withdrawal or Elimination 46
14.4 Discharge of Transferor 46
ARTICLE 15 ACQUISITIONS WITHIN AREA OF INTEREST 47
15.1 Acquisitions in Area of Interest 47
15.2 Surrender or Abandonment of Properties 48
ARTICLE 16 GENERAL PROVISIONS 49
16.1 Notices 49
16.2 Entire Agreement; Successors and Assigns 50
16.3 Waiver 51
16.4 Modification 51
16.5 Severability 51
16.6 Force Majeure 51
16.7 Third Party Beneficiaries 51
16.8 Governing Law 51
16.9 Access 52
16.10 Rule Against Perpetuities 52
16.11 Further Assurances 52
16.12 Memorandum Agreement 52
EXHIBITS
<PAGE>
JOINT VENTURE OPERATING AGREEMENT
THIS AGREEMENT is made effective as of January 1, 1996, between COMINCO
AMERICAN INCORPORATED, a Washington corporation ("CAI"), and GREAT BASIN
EXPLORATION & MINING CO., INC., a Nevada corporation ("GBEM").
RECITALS
A. GBEM and CAI own or control certain properties located in Eureka County,
Nevada, more particularly described in Exhibit A within an area of mutual
interest.
B. A portion of the Properties covered by this Agreement is subject to that
certain Participation Agreement dated effective May 31, 1995, by and between
Serem Gatro Canada Inc. ("SGC"), GBEM, and Great Basin Management Co., Inc. (the
"SGC Agreement"). A copy of the SGC Agreement is attached as Attachment I.
C. CAI and GBEM desire to participate in the exploration, evaluation,
development, and mining of mineral resources that may be located on, in, or
under the area of mutual interest, or any other mining properties hereafter
acquired pursuant to the terms of this Agreement.
NOW, THEREFORE, in consideration of the mutual covenants and promises
contained herein, the parties signatory hereto agree as follows:
ARTICLE 1
DEFINITIONS
1.0 Definitions. In addition to the terms defined elsewhere in this Agreement,
as used herein the following terms shall have the following meanings:
1.1 The term "Accounting Procedures" means the methods and procedures of
accounting set forth in Exhibit B. If there arises any conflict between the
terms of the Accounting Procedures and those of this Agreement, this Agreement
shall control.
1.2 The term "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 greater than or equal to 50%
ownership.
1.3 The term "Afgan Mineral Lease" means the Mineral Lease dated November
8, 1993, by and between GBEM and the Lyle F. Campbell Trust, as amended and
supplemented, and as more particularly described in Exhibit A.
1.4 The term "Agreement" means this Joint Venture Operating Agreement,
including all amendments and modifications hereof, and all Schedules and
Exhibits, each of which by this reference is made a part hereof.
1.5 The term "Ancillary Property Rights" means all rights within and in the
proximity of the Area of Interest which are used, or may be used, in conjunction
with the Properties for the purposes of conducting operations of the Venture,
including, without limitation, water rights, easements, rights-of-way, and
licenses, which are acquired and held subject to this Agreement.
<PAGE>
1.6 The term "Area of Interest" means the geographic area described in
Exhibit A.
1.7 The term "Assets" means the Properties, the Ancillary Property Rights,
real property and improvements, materials, equipment, patents, data developed by
the Venture, accounts, rights, privileges, and other assets, whether real or
personal property, tangible or intangible, held by the Venture under this
Agreement for the benefit of the Participants.
1.8 The term "Cash Call" means the billings to a Participant by the
Operator as set forth in Section 12.3.
1.9 The term "Commercial Production" means mining, extracting, processing
and handling of the ores or minerals or concentrates derived therefrom which are
discovered and developed on or in a Property or Properties and all other work
related thereto as may be incidental or reasonably required.
1.10 The term "Costs" means chargeable costs as defined in Article 2 of the
Accounting Procedures.
1.11 The term "Development" means all preparation for the extraction and
recovery of Products from the Area of Interest subsequent to the approval of the
Feasibility Study therefor, including, without limiting the generality of the
foregoing, the construction or installation of a mill or any other improvements
to be used for the mining, handling, milling, processing, or other beneficiation
of Products.
1.12 The term "Effective Date" means January 1, 1996.
1.13 The term "Exploration" means all activities directed toward
ascertaining the existence, location, quantity, quality, or commercial value of
deposits of Products in the Area of Interest prior to Development thereof.
1.14 The term "Feasibility Study" as defined in the SGC Agreement means a
comprehensive study and report containing all material information, prepared in
accordance with engineering standards of the highest quality (but which may be
prepared by CAI) required to support a recommendation that one or more mineral
deposits or suspected mineral deposits on or in a Property should be brought
into Commercial Production and thereafter operated on a commercial basis.
Without limiting the generality of the foregoing, any such study shall contain
all requisite details respecting ore reserves, mine or pit design, mining plan,
estimated mining rates and cut-off grades; results of all metallurgical
analysis, the method of extracting and treating the ore, market analysis and
proposed marketing arrangements, full environmental and social impact studies,
all data, including costs estimates of mine development and construction,
erection of plant, service facilities, roads, dumps, tailings disposal, power,
water and transport, all operating costs contemplated and working capital
requirements; the whole to be based upon work of sufficient scope to verify the
existence of a commercial deposit on a Property without resort to any additional
work. Such study shall include a timetable for placing the Property into
Commercial Production, disclosing, on critical path, work required to be done
during the construction period and the number of weeks estimated to elapse from
the date of production commitment to the date when construction will be
completed and Commercial Production will commence.
<PAGE>
1.15 The term "Interest" means the undivided ownership interest of a
Participant in the Joint Venture, including the Assets of the Joint Venture, and
all other rights and obligations arising under this Agreement, as calculated and
expressed as a percentage and as may be adjusted from time to time hereunder.
The initial Interests of the Participants are set forth in Section 5.1 of this
Agreement.
1.16 The term "Initial Contribution" means the initial contribution each
Participant agrees to make, or is deemed to have made, pursuant to Article 4 of
this Agreement.
1.17 The term "Joint Account" means the account established and maintained
by the Operator in accordance with the Accounting Procedures, as evidenced by
the Venture's books and accounts showing the charges and credits accruing under
this Agreement to the Participants.
1.18 The term "Management Committee" means the committee established
pursuant to Article 9 of this Agreement.
1.19 The term "Mining" means the mining, extraction, production, handling,
transportation, storage, treating, processing, concentrating, milling, refining,
and sale of Products, including without limiting the generality of the
foregoing, all work incident thereto.
1.20 The term "Net Proceeds Royalty" means the interest described in
Exhibit C, Part I.
1.21 The term "Net Returns Royalty" means the interest described in Exhibit
C, Part II.
1.22 The term "Nominee Agreement" means the agreement referenced in Section
10.2 and attached hereto as Exhibit F.
1.23 The term "Operations" means all activities constituting Exploration,
Development and Mining or otherwise carried out under this Agreement.
1.24 The term "Operator" means the person or entity designated as such
pursuant to Article 10 of this Agreement.
1.25 The terms "Participant" and "Participants" mean the persons or
entities that have Interests under this Agreement. A third party having a
security or equitable interest in the Interest of a Participant shall not be
deemed a Participant for the purposes of this Agreement.
1.26 The term "Products" means all ores, minerals, mineral resources,
metals, bullion, and concentrates which the Participants have the right to
produce, and which are actually produced, as the result of Mining.
1.27 The term "Program and Budget" means a description in reasonable detail
of the operations of the Venture within the Area of Interest for a year or other
specified period, with a detailed estimate of all Costs (including Property
Maintenance Costs) to be incurred, a schedule reflecting the Operator's best
estimate of the amount and date of cash advances to be made by the Participants,
and, when appropriate, the Operator's recommendations for acquisition or
disposition of Properties. When active operations in the Area of Interest have
ceased by decision of the Management Committee, the term "Program and Budget"
shall mean the Property Maintenance Costs for the Area of Interest.
1.28 The term "Properties" means those interests in real property described
in Exhibit A, specifically including, without limitation, the Afgan Property,
the Kobeh Property and the Kim Chee Property, as those properties are
specifically described in Exhibit A, and all other interests in real property
within the Area of Interest, including, without limitation, all mining claims,
mineral leases, fee lands, grants or reservations of minerals and surface
rights, which are acquired and held subject to this Agreement.
<PAGE>
1.29 The term "Property Maintenance Costs" means those non-discretionary
costs required to maintain the Properties and the Ancillary Property Rights in
good standing, including all costs and expenses incurred to meet assessment work
requirements, option payments, rentals, royalties, and reclamation obligations.
1.30 The term "Third Party Agreement" means a joint venture, lease, sale,
farmout, partnership or other agreement by the Participants to secure
Exploration, Development or Mining for Products from the Area of Interest,
entered into by the Operator with a third party.
1.31 The term "third party" means a person or entity which has no Interest
under this Agreement or in the Assets.
1.32 The terms "Venture" and "Joint Venture" mean the association of the
Participants formed pursuant to this Agreement.
1.33 The term "year" means the calendar year, or such other period of
twelve (12) consecutive months as the Management Committee may select. The term
"month" means a calendar month. The term "quarter" means a quarter of a calendar
year or a quarter of any fiscal year selected by the Management Committee.
ARTICLE 2
REPRESENTATIONS AND WARRANTIES; TITLE TO ASSETS
2.0 Representations and Warranties; Title to Assets.
2.1 Capacity of Participants.
a. Each Participant represents that it is willingly and freely
entering into this Agreement; that it is a corporation duly incorporated and
that it is qualified to do business and is in good standing in the State of
Nevada and in each other state necessary to carry out the purposes of this
Agreement; that it has the capacity and is authorized to enter into and perform
this Agreement and all transactions contemplated herein; that it will not breach
any other indenture, mortgage, agreement, or arrangement by entering into or
performing this Agreement; that all corporate and other actions required to
authorize it to enter into and perform this Agreement have been properly taken;
and that this Agreement has been duly executed and delivered by it and is valid
and binding upon it in accordance with the terms of this Agreement.
2.2 Area of Interest.
a. Subject to the provisions of Article 15, this Agreement shall apply
to all Properties within the Area of Interest and Ancillary Property Rights
within and in the proximity of the Area of Interest acquired by any Participant
during the term of this Agreement.
b. The Participants hereby waive and release all rights of partition
or sale of the Properties in lieu thereof or other division, including any such
rights provided by statute.
2.3 Representations, Warranties and Covenants Regarding the Properties. CAI
and GBEM represent, warrant and covenant the following as of the Effective Date:
<PAGE>
a. With respect to those Properties in which GBEM holds an interest
under contracts or agreements: (i) GBEM is in exclusive possession of such
Properties; (ii) GBEM has not received any notice of default of any of the terms
or provisions of such contracts; (iii) GBEM has the authority under such
contracts to perform fully its obligations under this Agreement; (iv) such
contracts are valid and are in good standing; and (v) the Properties covered
thereby are free and clear of all defects, liens and encumbrances created by,
through or under GBEM and except for those specifically identified in Exhibit A
or in such contracts or agreements.
b. With respect to unpatented mining claims that are included within
the Properties, except as provided in Exhibit A and subject to the paramount
title of the United States: (i) the unpatented mining claims are properly laid
out or monumented; (ii) all required location and validation work was properly
performed; (iii) location notices and certificates were properly recorded and
filed with appropriate governmental agencies; (iv) all assessment work has been
performed and all Federal claim maintenance fees have been properly and timely
paid to hold the unpatented mining claims in a manner consistent with Federal
requirements through the assessment year ending September 1, 1996, and with
Nevada State requirements through the assessment year ending September 1, 1995;
(v) all affidavits of assessment work, notices of intent to hold and other
filings (including evidence of payment of maintenance fees) required to maintain
the claims in good standing have been properly and timely recorded or filed with
appropriate governmental agencies; (vi) the claims are free and clear of
defects, liens and encumbrances arising by, through or under GBEM or CAI, as
their interests may appear; and (vii) GBEM and CAI have no knowledge of
conflicting claims. Nothing in this Section 2.3, however, shall be deemed to be
a representation or a warranty that any of the unpatented mining claims contains
a discovery of minerals.
c. There are no pending or threatened actions, suits, claims or
proceedings with respect to the Properties.
d. CAI and GBEM have delivered to each other all information
concerning title to the Properties in their possession or control. GBEM and CAI
shall also deliver to each other such acknowledgments, consents or
subordinations, executed by anyone having an interest in or claim or encumbrance
with respect to the Properties which acknowledgments, consents or subordinations
shall be in such form as may be reasonably requested by the Participant to
receive such acknowledgments, consents, or subordinations.
e. Unless expressly assumed hereunder, nothing herein shall, nor be
interpreted to, impose upon the Venture or either Participant any liabilities or
obligations for the Properties that arose out of or relate to activities or
occurrences prior to the Effective Date, and each Participant shall indemnify
and hold the Venture and each other harmless from any and all such liabilities
and obligations.
2.4 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 2 from being materially
misleading.
2.5 Survival of Representations and Warranties. The representations and
warranties contained in Sections 2.1, 2.3 and 2.4 shall survive the execution
and delivery of any documents of assignment or conveyance, including, without
limitation, the special warranty deeds provided under this Agreement.
<PAGE>
2.6 Defects in Title; Cure.
a. In the event an examination of title reveals any defects rendering
title to any of the Properties acquired pursuant to this Agreement unmarketable,
the Operator shall have the option to: (i) elect to cure, or attempt to cure,
such defects and charge the costs thereunder to the Venture, (ii) waive such
defects, or (iii) exclude the defective Properties from the coverage of the
Venture. If exclusion of a defective Property would result in a material adverse
effect on the intended operation of the Venture, the Venture may be terminated
by a vote of the Management Committee.
b. Any failure or loss of title to the Assets shall be a joint loss
and shall be charged to the Participants in proportion to their Interests
therein at the time such failure occurs. During the period for which CAI has
agreed to pay one hundred percent (100%) of the Costs of the Venture pursuant to
Article 4, CAI shall pay all costs of curing or defending title to the Assets,
and such costs shall be credited against its obligations to pay Costs for the
Venture pursuant to Article 4. Following such period, all costs of curing or
defending title to the Assets shall be charged to the Participants in proportion
to their Interests therein at the time such costs are incurred. If title to any
of the Properties fails as a result of a defect and the loss of such Property
would result in a material adverse effect on the intended operation of the
Venture, the Venture may be terminated by a vote of the Management Committee.
ARTICLE 3
FORMATION OF VENTURE
3.0 Formation of Venture.
3.1 Formation of Venture; Characterization.
a. The Participants hereby establish a joint venture for the purposes
and on the terms set forth in this Agreement. All rights and activities of the
Participants on or in connection with the Assets or within the Area of Interest
shall be subject to and governed by this Agreement.
b. The goals and expectations of the Participants to this Venture are
premised on the continued beneficial and unencumbered rights to unpatented
mining claims pursuant to the General Mining Law of 1872. In the event the
General Mining Law of 1872 is amended or repealed in such a fashion to
materially impact the potential or actual Venture Operations or to result in an
unequitable burden to either Participant, the Participants shall use their best
efforts to renegotiate this Agreement to preserve the parties' relative
financial benefits.
3.2 Effective Date; Name and Term. The Venture shall be known as the
"Afgan-Kobeh Joint Venture." The term of this Agreement shall be for twenty (20)
years from the Effective Date and for so long thereafter as Operations are
conducted within the Area of Interest pursuant to this Agreement, unless the
Agreement is earlier terminated as herein provided. The Operator shall cause the
Venture to be appropriately registered or qualified as may be required by
applicable assumed or fictitious names statutes or other similar statutes.
3.3 Scope and Purposes of Venture. The purposes of the Venture are to
acquire Properties, to undertake Exploration and, if feasible, Development and
Mining, to produce and dispose of Products obtained from the Area of Interest,
to do all other things related or incident thereto, including, without
limitation, entering into Third Party Agreements, and for the further purposes
and on the terms set forth in this Agreement.
<PAGE>
3.4 Limitation. Unless the Participants otherwise agree in writing, their
activities under this Agreement 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 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" shall not be applied to any other activity, venture, or operation
of either Participant. Neither Participant shall have any obligation to the
other with respect to acquisition or development of any property outside the
Area of Interest, including, without limitation, any Properties excluded from
the provisions of this Agreement pursuant to Article 15, or except as otherwise
provided, any property within the Area of Interest after termination of this
Agreement. Unless otherwise agreed in writing, 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.
3.6 SGC Agreement. The Joint Venture is formed subject to the terms and
conditions of the SGC Agreement and specifically the right of SGC under the SGC
Agreement to participate in a proposed project to bring one or more mineral
deposits on or in the Properties into Commercial Production. The provisions of
this Agreement shall be construed to carry out the intent of the SGC Agreement.
ARTICLE 4
INITIAL CONTRIBUTION TO THE JOINT VENTURE
4.0 Initial Contribution to the Joint Venture.
4.1 GBEM's Initial Contribution. As its Initial Contribution, GBEM hereby
contributes the Afgan Property and the Kobeh Property as described in Exhibit A,
and all data and other information relating to the mineral potential of the Area
of Interest which is within GBEM's possession or control, for the purposes of
this Agreement.
4.2 CAI's Initial Contribution.
a. Subject to CAI's right of withdrawal pursuant to Section 4.3, CAI's
Initial Contribution shall consist of the following on behalf of the Venture:
(i) CAI hereby contributes the Kim Chee Property as described in
Exhibit A and all data and other information relating to the mineral potential
of the Area of Interest which is within CAI's possession or control;
(ii) CAI shall make an initial Cash Payment to GBEM (the "Cash
Payment") in the total amount of Forty Thousand Dollars ($40,000.00) as follows:
a Twenty Thousand Dollar ($20,000.00) advance payment made by CAI to GBEM in
accordance with the letter agreement dated September 8, 1995 by and between CAI
and GBEM, the receipt of which is hereby acknowledged, and a Twenty Thousand
Dollar ($20,000.00) payment upon the execution of this Agreement. The Cash
Payment shall not constitute Cost Expenditures to be completed during the 1996
calendar year for purposes of Subsection 4.2(a)(v).
<PAGE>
(iii) CAI shall conduct a Controlled Source Audio-frequency
Magnetotelluric (CS-AMT) geophysical survey of the Afgan Property and the Kobeh
Property on or before December 31, 1995;
(iv) On or before January 31, 1996, CAI shall pay GBEM the sum of
Twenty-Five Thousand Five Hundred Sixty-Five Dollars ($25,565.00) representing
reimbursement to GBEM for Federal claim maintenance fees for the year ending
September 1, 1996 and county recording fees paid for the affidavit and notice of
intent to hold for the year ending September 1, 1995 for the Afgan Property and
the Kobeh Property. CAI's reimbursement shall not constitute Cost Expenditures
to be completed during the 1996 calendar year for purposes of Subsection
4.2(a)(v).
(v) CAI shall contribute the first One Million Dollars
($1,000,000.00) to the Venture for the payment of Costs necessary to fund
Venture Operations and Programs and Budgets (where applicable) (the "Cost
Expenditures"). The Cost Expenditures shall be made at CAI's discretion,
provided, however, that to satisfy its obligations under this Section 4.2, CAI
shall make minimum Cost Expenditures in the following amounts:
Cost Expenditures
$200,000.00 During the Calendar Year 1996
$200,000.00 During the Calendar Year 1997
$200,000.00 During the Calendar Year 1998
$200,000.00 During the Calendar Year 1999
$200,000.00 During the Calendar Year 2000
Except as excluded by Subsections 4(a)(ii), 4(a)(iv) and
4(a) (vii), for the purposes of this Section 4, Cost Expenditures shall mean all
costs incurred in actual work on the Afgan Property and the Kobeh Property for
drilling, trenching, excavation, mining, road building, surveying, mapping, and
geological, geochemical and geophysical programs conducted on the Afgan Property
and the Kobeh Property as well as assaying and metallurgical testing of ore
extracted from the Afgan Property and the Kobeh Property which may be conducted
at appropriate facilities off the Afgan Property and the Kobeh Property. Cost
Expenditures shall include wages and salaries paid to engineers, geologists,
laborers and technicians for actual time spent in Exploration, Development and
Mining of the Afgan Property and the Kobeh Property. Direct overhead, such as
lodging, meals, and travel expenses (but expressly excluding any charge for
office or administrative expenses) shall be limited to ten percent (10%) per
year. Expenditures made in excess of the required amount may not be carried over
and applied to the successive minimum Cost Expenditures requirements.
(vi) CAI shall on or before December 31, 2000, complete a
Feasibility Study covering and relating to all or a portion of the Properties,
provided, however, that CAI may complete the Feasibility Study up to three (3)
years beyond this date if, during such additional years CAI makes payments to
GBEM as follows:
$50,000.00 on or before December 31, 2001
$50,000.00 on or before December 31, 2002
$75,000.00 on or before December 31, 2003
<PAGE>
(vii) CAI shall make payments for Advance Minimum Royalty due and
payable pursuant to the Afgan Mineral Lease during the term of this Agreement.
CAI shall assume GBEM's obligations under the Afgan Mineral Lease, except those
obligations which accrued to GBEM prior to the Effective Date of this Agreement.
Payments and expenditures made by CAI pursuant to this Subsection 4(a)(vii)
shall not constitute Cost Expenditures for the purposes of Subsection 4.2(a)(v).
Upon completion of CAI's Initial Contribution, CAI shall provide
GBEM with a copy of the Feasibility Study and a written report summarizing the
Cost Expenditures and all other expenditures for Costs by CAI for its Initial
Contribution (the "Initial Cost Report"). GBEM shall have thirty (30) days from
receipt of the Feasibility Study and the Initial Cost Report to confirm that CAI
completed the expenditures required under this Section 4.2(a).
b. CAI's failure to timely complete its Initial Contribution required
by Section 4.2(a) shall constitute a default hereunder and GBEM may elect to
terminate this Agreement. In the event that GBEM elects to terminate this
Agreement for CAI's breach under this Section 4.2(b), CAI shall be deemed to
have withdrawn from this Agreement, CAI shall have no further right, title and
interest in the Afgan Property and the Kobeh Property and CAI shall assign its
entire interest in and to the Afgan Property and the Kobeh Property to GBEM.
CAI's withdrawal shall be effective upon GBEM's election to terminate this
Agreement. However, CAI's deemed withdrawal shall not relieve CAI of its
obligation to satisfy its share of liability to third parties arising out of
operations conducted by the Venture prior to CAI's withdrawal. In the event CAI
withdraws from the Venture before completing its Initial Contribution, unless
otherwise requested by GBEM, CAI shall be solely responsible for and shall
perform all reclamation in the Area of Interest or portions thereof required by
any applicable law, rule or regulation by reason of CAI's activities as Operator
of the Venture on such property. Except as otherwise expressed or provided,
CAI's withdrawal shall relieve CAI from any other obligation to make
contributions hereunder. Upon such event, CAI shall also be subject to the
withdrawal provisions of Section 4.3.
c. Nothing in this Section 4.2 shall create a legal obligation
requiring CAI to make the Costs Expenditures, undertake or complete the
Feasibility Study or to continue to assume GBEM's obligations under the Afgan
Mineral Lease. Completion of the Initial Contribution shall be at CAI's sole
discretion and neither GBEM nor SGC shall have any right to enforce payments or
expenditures described in Section 4.2(a) nor shall GBEM or SGC incur any damages
hereunder in the event CAI elects not to make its Initial Contribution.
4.3 Withdrawal. CAI may at any time withdraw from the Venture by giving a
thirty (30)-day advance written notice to GBEM. If CAI withdraws prior to making
its Initial Contribution in accordance with the provisions of Section 4.2, CAI
shall (i) be excluded from acquiring properties within the Area of Interest for
a period of one (1) year from the date or deemed date of withdrawal and (ii)
convey the Afgan Property and the Kobeh Property and any other Properties
acquired pursuant to this Agreement (excluding the Kim Chee Property) to GBEM by
special warranty deed substantially in the form of Exhibit D, and in conformance
with such other applicable state conveyancing laws. All data and other
information acquired by CAI or GBEM or generated for the Venture during the term
of this Agreement pertaining to the Area of Interest (the "Venture Data") shall
be owned jointly by CAI and GBEM as tenants in common. The use of the Venture
Data shall not be restricted or limited unless otherwise agreed to by the
parties. Upon CAI's withdrawal, this Agreement shall terminate and neither CAI
nor GBEM shall have further rights or obligations under this Agreement,
including, without limitation, the obligation to make further contributions to
the Venture. If CAI withdraws after making its Initial Contribution, CAI shall
be subject to the provisions of Section 13.2. If CAI withdraws prior to making
its Initial Contribution, CAI shall satisfy the obligations of Section 9 of the
Afgan Mineral Lease for the then current assessment year, including without
limitation, any obligations imposed on GBEM if the Afgan Mineral Lease is
terminated.
<PAGE>
4.4 Additional Contributions. All Properties and other material
contributions made by the Participants shall become Assets of the Venture;
provided, however, that the Participants shall have the right to surrender or
abandon Properties pursuant to Section 15.2.
ARTICLE 5
INTERESTS OF PARTICIPANTS
5.0 Interests of Participants.
5.1 Initial Interests. Subject to CAI's completion of its Initial
Contribution and upon the failure by SGC to elect to participate as provided in
Article 6, the Interests of the Participants in the Assets of the Venture as of
the Effective Date shall be eighty percent (80%) for CAI and twenty percent
(20%) for GBEM. The Participants shall retain their respective Interests, as
stated, unless such Interests are modified, transferred, or diluted as provided
in this Agreement.
(i) Gross Asset Value of GBEM's Initial Contribution. For purposes of
dilution pursuant to this Article 5, the agreed value of GBEM's Initial
Contribution (the Afgan Property, the Kobeh Property and the data and other
information related thereto) shall be proportionately equal to CAI's Initial
Contribution described in Section 4.2(a) on the basis of the Interests of the
Participants defined in this Section 5.1 ("GBEM Gross Asset Value").
(ii) Gross Asset Value of CAI's Initial Contribution. For purposes of
dilution pursuant to this Article 5, the agreed value of CAI's Initial
Contribution (the Kim Chee Property and the data and other information related
thereto plus the Cash Payment, Cost Expenditures and all other Costs of the
Venture contributed by CAI as its Initial Contribution including the Costs of
the Feasibility Study) shall be proportionately equal to CAI's total
expenditures for its Initial Contribution described in Section 4.2(a) on the
basis of the Interests of the Participants defined in this Section 5.1 ("CAI
Gross Asset Value").
5.2 Obligations of Participants. Upon completion of CAI's obligation to
contribute one hundred percent (100%) of the Costs of the Venture as its Initial
Contribution under Section 4.2, except as provided in Section 11.3, the
Participants shall be obligated to contribute to each Program and Budget in
proportion to their respective Interests. The Participants shall bear all other
costs, expenses, liabilities, obligations and risks incurred under this
Agreement in proportion to their respective Interests.
5.3 Dilution of Interest.
a. Subject to CAI's obligation under Section 4.3 to convey all of its
Interest in the event it fails to make its Initial Contribution, if either
Participant elects to not contribute all or some portion of its share to each
Program and Budget pursuant to Section 11.3, the non-contributing Participant's
Interest shall be decreased according to the ratio of (i) the amount it has
actually expended and is deemed to have expended to (ii) the total amount
expended and deemed expended by all Participants. The Interest of the
Contributing Participant shall be increased by an equivalent amount. The
increased Interest accruing to a Participant as a result of the reduction of the
other Participant's 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 Assets were acquired or those to which both
Participants have given their written consent.
<PAGE>
For example, assume GBEM's Interest is 20% with an agreed GBEM
Gross Asset Value of its Initial Contribution of $2,000,000 and CAI's Interest
is 80% with an agreed CAI Gross Asset Value of $8,000,000 (A1). Assume further
that for the year following CAI's completion of its Initial Contribution, CAI
contributes $800,000 (B1) and GBEM contributes $200,000 to the Program and
Budget under Section 5.4, but then GBEM elects not to contribute anything to the
following year's $5,000,000 (C1 and C) Program and Budget. Assuming CAI elects
to contribute all of the following year's Program and Budget, CAI's Interest
will be increased as follows:
A1+B1+C1 for CAI divided by A+B+C for GBEM and CAI
or
$8,000,000 + $800,000 + $5,000,000
$10,000,000 + $1,000,000 + $5,000,000
or
$13,000,000 divided by $16,000,000 = .8125 x 100 = 81.25%
CAI's Interest = 81.25%
GBEM's Interest = 18.75%
When necessary or convenient to do so, the Interests of the
Participants shall be recalculated on a trial basis for purposes of determining
the Participants' respective shares of Programs and Budgets adopted pursuant to
Section 11.2 or for purposes of considering the election permitted by Section
11.3.
b. If at any time the Interest of a Participant is reduced to five
percent (5%) or less by an affirmative election not to contribute all or some
portion of its share pursuant to a Program and Budget as provided in Section
11.3 and the resulting application of the dilution formula in Section 5.3(a),
the diluted Participant shall be deemed to have withdrawn from the Joint
Venture, this Agreement shall terminate and the diluted Participant's Interest
shall convert to a five percent (5%) Net Proceeds Royalty interest as defined in
Exhibit C. This conversion shall be evidenced of record by the non-contributing
Participant conveying all of its interest in the Assets to the contributing
Participant by confirmation deed substantially in the form of Exhibit D, and in
conformance with such other applicable state conveyancing laws. The contributing
Participant shall convey to the non-contributing Participant a five percent (5%)
Net Proceeds Royalty burdening the Properties. The conveyance shall be completed
through a net proceeds royalty deed substantially in the form of Exhibit E.
Both conveyances shall be effective as of the date of the conversion.
5.4 Continuing Liability. Except as provided in Section 4.2(b), any
reduction of a Participant's Interest under Section 5.3 shall not relieve such
Participant of its share of any liability arising out of Operations conducted
prior to such reduction, whether such liability accrues before or after such
reduction. For purposes of this Section 5.4, such Participant's share of such
liability shall be equal to its Interest at the time such liability was
incurred.
<PAGE>
ARTICLE 6
FEASIBILITY AND DEVELOPMENT
6.0 Feasibility and Development.
6.1 Feasibility Study.
a. Within the time limitations set forth in Section 4.2(a)(vi), if CAI
concludes, acting reasonably, that there is sufficient evidence that a potential
orebody exists upon or in the Properties and that a Feasibility Study should be
prepared, CAI shall by written notice so inform GBEM and SGC. Such written
notice shall (i) include a pre-feasibility study setting out in reasonable
detail acceptable to GBEM and SGC, acting reasonably, all of the material
information upon the basis of which CAI has reached its aforesaid conclusion;
(ii) provide GBEM and SGC with the right to participate in the selection of the
party to prepare the Feasibility Study; and (iii) provide GBEM and SGC, at their
sole discretion, with the right to participate in the preparation of the
Feasibility Study at their own costs (it being acknowledged and agreed that if
GBEM or SGC do not elect to participate in the preparation of a Feasibility
Study at their own costs, any and all costs and expenses related to the
preparation of a Feasibility Study shall be borne exclusively by CAI).
b. Subject to the provisions of Section 6.3, the Feasibility Study
prepared in accordance with Section 6.1(a) shall be delivered to GBEM and SGC
and shall include a detailed Budget of the estimated Development/Production
Expenditures required to bring the Properties into Commercial Production in
accordance with the Feasibility Study plus the estimated working capital and
other requirements for the operation of such properties once the properties have
been placed into Commercial Production. For purposes of this Section 6.1(b),
"Development/Production Expenditures" shall mean all costs and obligations of
whatever kind or nature to be incurred under a Budget.
c. With the exception of the Feasibility Study to be prepared in
accordance with Section 4.2(a)(vi), the Operator shall prepare or cause to be
prepared any additional Feasibility Study upon the request of the Management
Committee.
d. If the Feasibility Study prepared in accordance with this Agreement
indicates that the Properties contain an orebody and recommends that work be
commenced with a view to bringing the Properties into Commercial Production, the
Participants shall not be obligated to bring the Properties into Commercial
Production.
6.2 SGC Right to Participate.
a. Within the ninety (90)-day period after receipt of a completed
Feasibility Study and Budget prepared pursuant to Section 6.1, SGC shall have
the option, but not the obligation, to exercise its right under the SGC
Agreement to acquire an interest in the Properties covered by the Feasibility
Study and to form a corporate entity as set forth in the SGC Agreement. SGC's
election shall be in writing to GBEM (the "Exercise Notice") and GBEM shall
promptly deliver a copy of the Exercise Notice to CAI.
b. Upon SGC's affirmative election in compliance with this Section 6.2
and the applicable provisions of the SGC Agreement, the following shall occur:
(i) This Agreement shall automatically terminate as to all
Properties, and, except as provided in Section 6.2(b)(ii), GBEM shall have no
further rights or interests in and to the Properties.
<PAGE>
(ii) GBEM shall be entitled to receive the following assignments
of production royalties burdening the Properties (A) a ten percent (10%) Net
Proceeds Royalty (as defined in Exhibit C, Part I) for Products produced from
the Afgan Property by a "Net Proceeds Royalty Deed" substantially in the form of
Exhibit E, Part I, and (B) a five percent (5%) Net Returns Royalty (as defined
in Exhibit C, Part II) for Products produced from the Kobeh Property by a "Net
Returns Royalty Deed" substantially in the form of Exhibit E, Part II. Both
conveyances shall be effective as of the date of SGC's Exercise Notice.
(iii) GBEM shall provide such further assurances and execute such
additional assignments necessary to carry out the provisions of this Section
6.2.
(iv) GBEM shall assign to CAI all of its right, title and
interest in, to and under the SGC Agreement necessary to substitute CAI in the
place of and for GBEM as a party to the SGC Agreement. CAI shall accept such
assignment and assume all prospective duties and obligations of GBEM created by
the SGC Agreement as if CAI was a signatory party thereto.
(v) CAI shall transfer the Properties to be held pursuant to
the terms of the SGC Agreement.
c. If SGC fails to timely and properly elect to acquire an interest in
the Properties as required by this Agreement and the SGC Agreement, then SGC
shall be deemed to have waived any rights with respect to the Properties covered
by the Exercise Notice and the provisions of this Agreement shall govern.
d. In addition to the requirements of Section 2.3(d), GBEM shall
promptly provide CAI copies of notices, claims, and inquiries for information
relating to the Properties or to the SGC Agreement. In the event of a dispute
between SGC and GBEM, their successors or assigns, GBEM shall promptly notify
CAI of such dispute or claim, and provide CAI with copies of all dispute claims,
pleadings, and notices of arbitration, together with all other pertinent
documents relating to the dispute. CAI shall have the right, and GBEM shall
undertake or cause to be undertaken all actions necessary to facilitate CAI's
right to, participate in the negotiation, adjudication, resolution or settlement
of any such dispute, including, without limitation, the right to review
pleadings, attend hearings and mediation or arbitration sessions and review and
approve all settlements.
6.3 Management Committee Review.
a. After submission of a Feasibility Study by the Operator, the
Management Committee shall have forty-five (45) days from submission to either
accept, amend, or reject as incomplete the Feasibility Study. If the Management
Committee rejects the Feasibility Study as incomplete, the Management Committee
shall request the Operator to perform such additional work with respect to the
study as may be appropriate or necessary to complete the Feasibility Study
consistent with the requirements of Section 1.14. If additional work is
requested, the Management Committee shall meet to consider the revised
Feasibility Study as soon as reasonably practical, but in no event later than
thirty (30) days after the submission of the revised Feasibility Study to the
Management Committee. A Feasibility Study accepted by the Management Committee
shall include a recommendation concerning Development.
<PAGE>
b. Upon acceptance by the Management Committee, the Feasibility Study
shall be delivered to SGC pursuant to the provisions of Section 6.2. The
Management Committee shall not undertake any affirmative action concerning
Development under the Feasibility Study until the end of SGC's ninety (90)-day
election period provided in Section 6.2(a).
c. Within three (3) months after the end of SGC's ninety (90)-day
election period, and provided that SGC fails to elect to acquire an interest in
the Properties as provided herein, the Management Committee shall vote to either
proceed to Development, defer consideration of the proposal to another date, or
reject the proposal. Upon approval of the proposal for Development, the
Participants shall elect to participate in Development pursuant to Section 6.2.
d. Nothing contained in this Agreement shall create, nor be construed
to create, any liability on the part of the Operator or the Management Committee
for the preparation of a Feasibility Study in the event a banking or other
financial institution rejects the Feasibility Study for any reason or refuses to
loan funds based on the Feasibility Study sufficient to allow participation in
Operations pursuant to this Agreement.
6.4 Election to Participate. Except as otherwise provided in Section 6.2,
the Participants shall elect whether to participate in Development by giving
notice to the Management Committee within thirty (30) days following the
Management Committee's approval of a proposal to proceed to Development pursuant
to Section 6.3(c) in accordance with a Feasibility Study prepared pursuant to
Section 6.1. A Participant's election not to participate in Development shall
constitute a deemed withdrawal from the Venture and shall result in the
automatic conversion of the Participant's Interest in the Joint Venture to a
five percent (5%) Net Proceeds Royalty interest as defined in Exhibit C, and
that Participant shall promptly transfer its entire Interest in the Assets of
the Venture to the other Participant in accordance with the provisions of
Sections 5.3(b) and 14.3. If no such election is made within the thirty (30)-day
time period, a Participant shall be deemed to have elected to participate in
Development.
6.5 Commencement of Development. The Operator shall diligently commence and
continue Development as provided in the Program and Budget approved by the
Management Committee.
ARTICLE 7
MINING
7.0 Mining.
7.1 Conduct of Operations. The Operator shall conduct all Mining of the
Venture in a proper and workmanlike manner.
7.2 Taking in Kind.
a. Each Participant shall take in kind and separately dispose of its
respective share of all Products produced from the Area of Interest. Unless
otherwise agreed, the terms of delivery to the Participants shall be f.o.b. the
mine. The right of each Participant to market its share of Products produced
hereunder in competition with the other Participant and to mine and market
minerals, ores, and other products from other sources in competition with the
other is hereby confirmed, and it is expressly agreed that nothing contained in
this Agreement shall be construed to preclude or restrict such right. Neither
the Operator nor any Participant shall have any authority or right to sell or
otherwise dispose of Products belonging to another, except as specifically
provided in Section 7.3.
<PAGE>
b. After a Participant has exercised its right to take in kind,
Products shall be segregated in accordance with its election and for the account
of such Participant. The Participant electing to take in kind shall alone bear
any additional costs incurred after the Products are segregated, which are
attributable to such segregation.
7.3 Sales by the Operator.
a. If a Participant fails to take in kind or to separately dispose of
its share of Products from the Area of Interest, and fails to request the
Operator to sell its share of Products, the Operator shall have the right, but
not the obligation, subject to revocation at will by the Participant owning the
share, to purchase for the Operator's own account or to sell such share to third
parties as agent for such Participant at not less than the market price
prevailing in the area and not less than the price which the Operator receives
for its own share; provided that all contracts of sale executed by the Operator
for any Participant's share shall be only for such reasonable periods of time as
are consistent with the minimum needs of the industry under the circumstances,
but in no event shall any such contract be for a period in excess of one year.
The Operator shall notify a Participant of any contract for sale of such
Participant's share within thirty (30) days of execution of such contract.
b. Whenever the Operator sells Products for the account of another
Participant, the Operator shall calculate and disburse to the Participant, on a
monthly basis, the proceeds, less the Costs to be deducted hereunder, from such
sale of Products.
c. In the event the Operator is authorized but fails to sell a
Participant's share of Products after diligent efforts to do so over a period of
thirty (30) days, the Participant having authorized the Operator to sell its
share of Products shall either (i) take in kind and dispose of its share of
Products, or (ii) notify Operator of its request to have the Products stored,
which costs of such storage and associated handling and facilities shall be for
the sole account of such Participant.
7.4 Weighing, Sampling and Assaying. The Operator shall weigh (or calculate
by volume), sample, and assay all Products in accordance with sound mining and
metallurgical practices prior to the sale or taking in kind of such Products by
any Participant. The Operator shall keep accurate records of weight (or
calculations thereof) and sample and assay results and shall maintain such
records and results for a sufficient period of time to facilitate the audit
provisions of Section 12.6 and the Accounting Procedures.
7.5 Commingling. Except as otherwise prohibited in the agreements creating
or granting rights in and to the Properties, the Operator shall be permitted to
commingle or process a Participant's share of Products produced from the Area of
Interest with ores, minerals and other material mined or produced from any other
area or property, subject, however, to procedures, in accordance with sound
mining and metallurgical techniques, for determining the proportional amount of
the total metal content in the commingled ores, minerals or other materials
attributable to a Participant's Interest.
<PAGE>
a. The Operator shall have the right of commingling and processing, at
any location and either underground or at the surface, Products from the
Properties with ores, metals, minerals and concentrates mined from other lands
not subject to this Agreement, provided that the Operator shall, before
commencing such commingling, establish procedures to assure that the amount of
Products realized from processing in which commingling has occurred and the
costs associated with mining and producing such Products are fairly allocated
between Products from the Properties and ores, metals, minerals or mineral
products from other lands. Subject to paragraph c of this Section 7.5, such
procedures shall be approved in writing by both Participants prior to
instituting any commingling activity.
b. For the purpose of the allocations to be made pursuant to this
Section, the procedures to be approved shall include, without limitation,
weighing, measuring, sampling, assaying and record keeping in accordance with
sound mining and metallurgical practices for all Products from the Properties
and ores, metals, minerals and mineral products from other properties not
subject to this Agreement before the same are so commingled. Determinations
derived from the procedures shall be used as the basis of allocation of saleable
Products, as to which the Participants have the right to take in kind pursuant
to Section 7.2, from the materials so commingled. Allocation between the
Properties and other lands not subject to this Agreement shall in any event be
based upon and derived from the total Products actually removed from the
commingled material.
c. If the Participants are unable to agree upon a mutually acceptable
commingling agreement, or in the event that any controversy arises as a result
of the commingling activities which cannot be settled between the Participants
themselves, the disputed matter shall be submitted for resolution to binding
arbitration upon the request of either Participant. The arbitrator shall be
mutually selected by CAI and GBEM. If the Participants are unable to agree upon
an arbitrator, CAI and GBEM shall promptly join in a request to the American
Arbitration Association (hereinafter referred to as the "Association") that it
submit to them a list of persons whom it would regard as available arbitrators
and especially qualified for the particular arbitration. If, within fifteen (15)
days of the receipt of the list from the Association, CAI and GBEM have not
agreed upon an arbitrator, CAI and GBEM shall join in a written request to the
Association for the appointment of the arbitrator. The arbitration shall be
governed by the Association's general rules. The decision of the appointed
arbitrator shall be conclusive and binding upon the Participants. Fees and
expenses of the arbitration shall be shared by the Participants equally and
shall not be charged to the Joint Account. Each Participant shall bear its own
attorneys' fees.
7.6 Milling Arrangements. Subject to the approval of the Management
Committee, the Operator shall make milling or any other arrangements necessary
for processing Products. In the event Products are processed in facilities owned
exclusively by the Operator, the charge to the Participants for the processing
of such Products shall be no greater than the cost of similar services available
in the vicinity of the Area of Interest.
7.7 Transportation of Products. Subject to the approval of the Management
Committee, the Operator shall make all arrangements necessary for transportation
of Products which are not taken in kind or separately disposed of by a
Participant.
<PAGE>
ARTICLE 8
RELATIONSHIP OF PARTICIPANTS
8.0 Relationship of Participants.
8.1 Tenants in Common.
a. Except as otherwise provided, the Participants shall own all Assets
as tenants in common of undivided interests and shall be severally, not jointly
or collectively, liable for all obligations of the Venture.
b. 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 hereto shall be responsible only for its
obligations as herein set out and shall be liable only for its share of the
costs and expenses 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 be severally
liable to third parties for any act or omission occurring in the exercise of its
rights or obligations as a Participant in the Area of Interest.
c. Each of the Participants waives, during the term of this Agreement,
any right to partition of the Properties or the Assets and no Participant shall
seek or be entitled to partition of the Properties or the Assets whether by way
of physical partition, judicial sale or otherwise during the term of this
Agreement.
8.2 Creation of Tax Partnership. It is not the purpose or intention of this
Agreement to create any commercial partnership, mining partnership or other
partnership, association or trust, and neither this Agreement nor the operations
hereunder shall be construed or considered as creating any such relationship.
However, the Participants acknowledge and agree that this Agreement embodies a
tax partnership for United States income tax purposes (and state income tax
purposes where required or appropriate), and the Participants agree not to elect
to be excluded from the application of the provisions of Subchapter K of Chapter
1 of Subtitle A of the United States Internal Revenue Code of 1986, as amended
(the "Code"), or any similar provision contained in applicable state statutes.
a. The Operator is designated as the Tax Matters Partner for the
purposes of Code Sections 6221 through 6233 and any similar state statute. As
Tax Matters Partner, the Operator shall be empowered to deal with the Internal
Revenue Service; provided, however, that the Tax Matters Partner shall not enter
any agreement settling or compromising the tax liability of the other
Participant. The Operator shall cooperate with the Internal Revenue Service to
assure that the other Participant to this Agreement is given proper and timely
notice of the initiation of an administrative proceeding with respect to returns
filed on behalf of the tax partnership. In addition, the Operator shall keep the
other Participant apprised of the progress of any United States or state income
tax administrative proceedings regarding the operations hereunder.
b. The Operator shall prepare and file partnership tax returns
covering joint operations under this Agreement and shall furnish such
partnership tax returns to the other Participant on or before the date such
filings are due, including any and all extensions thereto. The Participants
shall furnish the Operator on a timely basis all information necessary for the
proper preparation of such returns. The Operator shall make the following
elections for the partnership returns to be filed covering joint operations
under this Agreement:
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(1) To adopt the calendar year as the annual accounting period;
(2) To adopt the accrual method of accounting;
(3) Not to defer all expenditures paid or incurred during the
taxable year for development of a mine or other natural deposit pursuant to
Section 616(b) of the Code;
(4) To elect to compute the allowance for depreciation or
amortization using the shortest life permissible under the Code, Treasury
Regulations or other authority;
(5) To elect to deduct advance royalties, if any, in the year
accrued;
(6) To adjust the basis of tax partnership assets, under Section
754 of the Code, but only if the transferee of an interest in tax partnership
agrees to pay all costs associated with filing such election and in subsequently
computing the adjustments to basis required by such election;
(7) To make such other elections as may be approved by the
Management Committee.
c. The Participants agree that for federal and state income tax
reporting purposes, each item of income, gain, loss deduction or credit,
including, but not limited to, the classes of items specifically mentioned
below, shall be determined as follows:
(1) Production costs shall be allocated as deductions to each
Participant in accordance with each Participant's respective contributions to
such costs.
(2) The deduction for exploration and development costs shall be
allocated to each Participant in accordance with its respective contributions to
such costs. The burden of exploration and development cost recapture shall be
borne separately by each Participant in proportion to the deductions that give
rise to the recapture. Each Participant shall report to the Operator any
election made by it to expense or recapture exploration or development expense
so that such items may be properly treated for purposes of joint operations.
(3) Depreciation, amortization, and available tax credits shall
be allocated to each Participant in accordance with its respective contributions
to the basis of the particular property, as determined for capital account
purposes. Any subsequent recapture of depreciation under Section 1245 or 1250 of
the Code or the appropriate state tax provision or of tax credits shall also be
allocated to the Participant or Participants that initially were credited with
the costs.
(4) The depletion deduction shall be computed by the Tax Matters
Partner at the tax partnership level on the basis of the greater of cost or
percentage depletion. Cost depletion shall be allocated among the Participants
in proportion to their contributions to the basis (as maintained for capital
account purposes) of the depletable property to which the cost depletion is
attributable. Percentage depletion shall be allocated to each participant in
accordance with its share of revenues in each property.
<PAGE>
(5) In the case of the sale, abandonment, or other disposition of
joint property, other than Products, gain or loss as computed for capital
account purposes shall be allocated among the Participants so that, to the
extent possible, the balance in each Participant's respective capital account is
proportionate to such Participant's Interest.
(6) All income shall be allocated to the Participants in the same
ratio as the Participant's Interest for the year the income was earned.
(7) Other items of costs, expenses, and credits shall be
allocated to each Participant in accordance with its respective contribution to
such costs, expenses, and credits.
d. Items of income, gain, loss, deduction, and credit shall be
allocated for federal income tax purposes in the manner such items are allocated
under Section 8.2(c) of this Agreement (but on the basis of contributions to
adjusted tax basis), except to the extent Sections 704(b) or 704(c) of the Code
require a different allocation. If Sections 704(b) or 704(c) of the Code (or the
regulations thereunder) require an allocation or allocations different from the
allocations provided in Section 8.2(c) of this Agreement, the parties agree to
make such allocations to preserve, to the fullest extent possible, the
allocations contemplated by such Section and to minimize, to the fullest extent
possible, any unanticipated, adverse tax consequences to the parties.
e. Capital Accounts.
(1) A separate capital account shall be maintained for each
Participant. The capital accounts shall be maintained in accordance with the
principles of the Treasury Regulations under Section 704(b) of the Code (the
"Section 704(b) Regulations"), including general principles: (1) each
Participant's capital account shall be increased by: (A) the amount of money
contributed by the Participant to the Venture, (B) the fair market value of
property contributed by the Participant to the Venture (net of liabilities
securing such contributed property that such Participant is considered to assume
or take subject to under Section 752 of the Code), and (C) allocations to the
Participant of income and gain (or items thereof), including income and gain
exempt from tax, all as determined in accordance with Section 8.2(c) of this
Agreement and the Section 704(b) Regulations; (2) each Participant's capital
account shall be decreased by (A) the amount of money distributed to the
Participant, (B) the fair market value of property distributed to the
Participant (net of liabilities securing such distributed property that such
Participant is considered to assume or take subject to under Section 752 of the
Code), (C) allocations to the Participant of expenditures of the Venture
described in Section 705(a)(2)(B) of the Code, and (D) allocations of the
Participant's loss and deduction (or items thereof), as determined in accordance
with Section 8.2(c) of this Agreement and the Section 704(b) Regulations. The
adjusted tax basis of each contributed property and its fair market value shall
be promptly provided to the Tax Matters Partner by the Participant making such
contribution, provided that the other Participant shall have the right to
contest any such declaration of the fair market value and to submit to the Tax
Matters Partner an independent appraisal, prepared at such Participant's sole
cost and expense, covering any such property.
(2) In making the credits and debits to the Participants' capital
accounts in accordance with the Section 704(b) Regulations, the Tax Matters
Partner shall make such elections, tax allocations, and adjustments as are
provided in the Section 704(b) Regulations as it deems necessary or appropriate
to maintain the validity of the tax allocations set forth in this Agreement.
<PAGE>
f. If joint operations are terminated, the following procedure shall
apply:
(1) All liabilities incurred as a result of joint operations
shall be paid unless otherwise provided under this Agreement.
(2) The Assets shall then be distributed in accordance with the
provisions of Section 8.2(g) of this Agreement.
g. Upon termination of joint operations, the Participants hereby
agree and obligate themselves as follows:
(1) The capital accounts shall be adjusted for gain or loss which
would be allocable to each Participant upon a disposition of such Assets for the
fair market value thereof as agreed upon by the Participants. If the
Participants cannot reach unanimous agreement as to the fair market value of any
such Assets, the Operator shall cause a nationally recognized, independent
accounting firm to determine the fair market value of such property. The
Operator shall notify each Participant of the accounting firm's determination of
value prior to the distribution of any Asset. If any Participant gives the
Operator written notice of its disagreement with the accounting firm's
determination of value within thirty (30) days after receiving the Operator's
notification of value, the matter shall be submitted to binding arbitration
according to the rules and practices of the American Arbitration Association.
The Operator shall value equipment in accordance with the accounting procedure
attached to the Agreement.
(2) Following the application of Section 8.2(g)(1), any
Participant who has a capital account whose balance is less than zero shall
contribute an amount of cash to the joint operations sufficient to achieve a
zero balance capital account.
(3) Following the application of Sections 8.2(g)(1) and
8.2(g)(2), if the Participants' capital accounts are not in balance (that is, if
the capital account balance of each Participant stated as a percentage of the
capital account balances of all Participants is not equal to each Participant's
Interest), the Participants shall take one or more of the following actions to
cause the capital accounts to be placed in balance:
(a) The Participant with the relatively lower capital
account balance shall make a cash contribution to the tax partnership which,
when distributed to the Participant with the relatively higher capital account
balance, is sufficient to place the capital accounts in balance.
(b) The Participant with the relatively lower capital
account shall distribute that portion of its assets to the Participant with the
relatively higher capital account which, based on the fair market value of the
distributed assets, is sufficient to place the capital accounts in balance.
(c) Such other actions to which the Participants unanimously
agree at the time which place the capital accounts in balance.
Option (b) above shall be used if and only if the
Participant with the relatively lower capital account agrees to make the
contribution.
<PAGE>
(4) Following the adjustments or contributions under Section
8.2(g)(1), 8.2(g)(2), and 8.2(g)(3) of this Agreement, all remaining tax
partnership properties shall be distributed among the Participants in accordance
with each Participant's Interest.
(5) All distributions, deemed distributions, or contributions
made in connection with the termination of joint operations shall be made within
the time periods required by the Section 704(b) Regulations.
8.3 Confidentiality; Publicity. Unless otherwise agreed, the provisions of
this Agreement, the Venture Data and all data, studies, records, and other
information developed or acquired in connection herewith shall be considered
confidential information and an Asset of the Venture, and shall not be disclosed
to any third party or to the public without the prior written consent of the
other Participant, which consent shall not be unreasonably withheld; provided,
however, that consent shall not apply to a disclosure to (a) an Affiliate,
consultant, contractor, or subcontractor that has a bona fide need to be
informed, (b) any third party to whom the disclosing Participant contemplates a
transfer of all or any part of its Interest in the Venture, (c) any third party
with whom a Third Party Agreement is being sought or negotiated on behalf of the
Venture, (d) any disclosure in the form of the Nominee Agreement executed
pursuant to Section 10.2(b) or a Memorandum executed and recorded pursuant to
Section 16.12, or (e) a governmental agency or entity 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. Notwithstanding the foregoing
exceptions to the consent requirement for disclosures to third persons or the
public, the disclosing Participant shall in all cases use reasonable efforts to
give notice to the other Participant in advance of making such disclosure. As to
any disclosure pursuant to (a), (b) or (c) above, such disclosure shall be only
of such information as the third party shall have a legitimate business need to
know and such third party shall first agree in writing to protect the
confidential information from further disclosure to the same extent as the
Participants are obligated under this Section 8.3. The provisions of this
Section shall apply during the term of this Agreement and for two (2) years
following termination of this Agreement, and shall continue to apply to any
Participant who transfers its Interest from two (2) years following the date of
such occurrence.
8.4 Patents. Unless otherwise agreed, any patentable improvement or
invention relating to methods or processes first reduced to practice with
respect to the Venture shall be the property of the Participants, as tenants in
common, and the interests of the Participants in the patentable improvement or
invention shall be equal to their respective Interests.
8.6 Implied Covenants. There are no implied covenants contained in this
Agreement other than those of good faith and fair dealing.
ARTICLE 9
MANAGEMENT COMMITTEE
9.0 Management Committee.
9.1 Organization; Composition.
a. After completion of CAI's Initial Contribution pursuant to Section
4.2, the Participants shall establish a Management Committee which shall consist
of one (1) regular member and one (1) or more alternate members appointed by
each Participant. Appointments shall be made or changed by notice to the other
Participant. Expenses incurred by a Participant in sending representatives to
Management Committee meetings shall be borne by such Participant and shall not
be a Cost of the Venture.
<PAGE>
b. A written statement containing the names of the regular and
alternate members shall be provided to each Participant by the other
Participant. The Management Committee shall appoint a chairman and such other
personnel as it may deem necessary to properly conduct the meetings and business
of the Management Committee.
9.2 Powers of the Management Committee. The Management Committee shall have
the exclusive authority to determine all management matters, including, but not
limited to, the following:
a. Approval or modification of annual Programs and Budgets submitted
by the Operator;
b. Approval of operations, expenditures, disbursements or other
affairs of the Venture which are not delegated to or are beyond the authority of
the Operator;
c. Initiation of a Feasibility Study;
d. Proposal and election to proceed with Development and Mining; and
e. Review and approval of annual statement of accounts.
9.3 Meeting; Action Without Meeting.
a. The Management Committee shall hold meetings at least annually at
mutually agreed times and places. Either Participant may call Management
Committee meetings by providing the other Participant with a minimum of thirty
(30) days advance written notice and by setting an agenda. There shall be a
quorum if at least one (1) member representing each Participant is present.
Emergency meetings may be called by any Participant upon such prior notice as is
reasonable under the circumstances.
b. In lieu of meeting, the Management Committee may hold telephone
conferences so long as the agenda and all decisions are immediately confirmed in
a writing executed by each Participant.
9.4 Decisions.
a. Each Participant, through its appointed member on the Management
Committee, shall be entitled to a vote weighted by its Interest, provided,
however, that GBEM shall not be entitled to vote on any Program or Budget under
Section 11.2 until such time as CAI is no longer paying all of the Costs of the
Venture pursuant to Section 4.2. Except as otherwise expressly provided herein,
the decisions of the Management Committee shall be by majority vote. In the
event the Participants' Interests become equal through application of the
provisions of this Agreement, the Operator's vote shall be controlling for those
decisions where a majority vote is required.
b. A unanimous vote of the Management Committee shall be required
for the following matters:
(i) Disposition of Assets as described in Section 10.3(t);
(ii) Budget overruns described in Section 11.4;
9.5 Minutes. The Operator shall prepare minutes of all meetings of the
Management Committee and shall distribute copies of such minutes to each
Participant within thirty (30) days after the meeting. The minutes, when signed
by all Participants, shall be the official record of the decisions made for the
Management Committee and shall be binding on the Operator and the Participants.
<PAGE>
ARTICLE 10
OPERATOR
10.0 Operator.
10.1 CAI as the Operator. CAI shall be the Operator and shall remain the
Operator during the period it is contributing one hundred percent (100%) of the
Costs of the Venture pursuant to Section 4.2 and for so long thereafter as its
Interest in the Venture is equal to or greater than fifty percent (50%). Any
successor Operator to CAI appointed pursuant to the terms of this Agreement
shall be a Participant hereunder.
10.2 Relationship to Participants.
a. The Operator shall act in its own name and shall have the sole
right to represent the Venture with third parties. The Operator shall allow the
Participants, at their sole risk and expense, and subject to reasonable safety
regulations, to inspect the Assets at all reasonable times, so long as they do
not unreasonably interfere with the operations of the Venture.
b. The Operator shall acquire and hold record title to the Assets in
its own name as nominee on behalf of the Participants in proportion to their
Interests and for the purposes of the Venture. Concurrently with the execution
of this Agreement, the Participants and the Operator have entered into the
"Nominee Agreement" substantially in the form of Exhibit F evidencing this
relationship. The Operator shall record the Nominee Agreement in the real
property records maintained by the county recorders of the counties in which the
Venture acquires Properties.
10.3 Rights and Duties of the Operator. Subject to the other terms of this
Agreement and in compliance with the Programs and Budgets adopted hereunder, and
subject to its receipt of necessary funds, the Operator shall have the following
rights and duties:
a. The Operator shall consult with the Management Committee when the
Operator deems it appropriate.
b. The Operator shall perform all acts necessary or convenient to
conduct Exploration, Development, and Mining, as well as prepare the Programs
and Budgets with respect thereto, under this Agreement.
c. As directed by the Management Committee, the Operator shall prepare
and conduct Feasibility Studies and other studies under this Agreement.
d. The Operator shall make all expenditures from the Joint Account
necessary to carry out the approved Programs and Budgets.
e. Subject to the provisions of Section 11.5, in the event of budget
overruns for emergency actions, the Operator shall be entitled to reimbursement
in proportion to the Interests of the Participants.
f. The Operator shall acquire and maintain all materials, supplies,
equipment, water, utilities, services, and transportation necessary or
appropriate for Venture operations. If any such material, supplies, or equipment
is transferred from the stock or inventory of the Operator, the costs thereof
shall be charged at fair market value.
<PAGE>
g. The Operator shall maintain all Assets free and clear of liens and
encumbrances created by, through or under the Operator, except for mechanic's or
materialmen's liens, which liens it shall have released or discharged in a
diligent manner.
h. The Operator shall employ, direct, and discharge all labor and
employees engaged in Venture operations, who shall be and remain the separate
employees of the Operator, subject to its sole control. The Operator shall
comply with applicable legislation for worker's compensation and employer's
liability insurance and shall maintain not less than the minimum coverage
required by applicable laws.
i. The Operator shall enter into all contracts pursuant to this
Agreement and acquire all Assets in the name of the Operator, on behalf of the
Participants in proportion to their Interests and for the purposes of the
Venture.
j. The Operator shall keep and maintain accounting and financial
records pursuant to the Accounting Procedures and in accordance with generally
accepted accounting principles, and shall keep and maintain all other records
required for Venture operations.
k. The Operator shall pay all Property Maintenance Costs and shall
promptly advise the Management Committee if it lacks sufficient funds therefor.
l. The Operator shall use its reasonable good faith efforts to secure
all necessary licenses, permits, and approvals for the operations of the Venture
under this Agreement and the Operator shall prepare and file, record, or publish
all reports or notices required for Venture operations.
m. The Operator shall pay all taxes, assessments, and like charges on
the Assets and the production of Products by the Venture, except taxes
determined or measured by an individual Participant's sales revenue or net
income. If authorized by the Management Committee, the Operator shall have the
right to contest in the courts or otherwise, the validity or amount of any
taxes, assessments, and like charges on behalf of and at the expense of the
Venture.
n. The Operator shall be the Tax Matters Partner and shall prepare and
file any tax returns or other tax forms required for the Venture.
o. The Operator shall defend, but shall not initiate without consent
of the Management Committee, all litigation or administrative proceedings
arising out of operations contemplated by this Agreement.
p. The Operator shall perform the other functions of the Operator
specified in this Agreement and shall carry out all assignments by the
Management Committee.
q. The Operator shall timely satisfy all requirements of all leases
and agreements affecting the Properties.
r. Subject to restrictions for Third Party Agreements, the Operator
shall have the right to carry out its responsibilities hereunder using agents,
Affiliates or independent contractors.
<PAGE>
s. Subject to Management Committee approval, the Operator shall
negotiate all Third Party Agreements.
t. The Operator may dispose of Assets, whether by abandonment,
surrender, or transfer in the ordinary course of business, provided, however,
that the Properties may be abandoned or surrendered only as provided in Section
15.2.
u. The Operator may acquire Ancillary Property Rights required for
Development or Mining Operations.
10.4 Standard of Care. The Operator shall manage the Assets in a good and
workmanlike manner and shall comply with all applicable laws and governmental
regulations. The Operator shall not be liable to any Participant for any act or
omission resulting in loss or damage, except to the extent caused by or
attributed to the Operator's willful misconduct or gross negligence.
10.5 Indemnification. The Operator shall be indemnified and held harmless by
the Participants for its acts and omissions as the Operator in proportion to
their respective Interests as of the time the act or omission occurred, unless
the act or omission resulted from the Operator's gross negligence or willful
misconduct.
10.6 Reports. The Operator shall keep the Management Committee advised of
all operations. Upon request, the Operator shall provide the Management
Committee at all reasonable times copies of all maps, drill logs, core tests,
reports, surveys, assays, analyses, production reports, operations, technical
and financial records, and other data and information acquired in Venture
operations. Notwithstanding the foregoing and prior to the completion of a
Feasibility Study and Budget pursuant to Section 6.2, the Operator shall provide
GBEM with summary technical reports with the results of operations (i) within
fifteen (15) days of the end of each fiscal quarter or (ii) promptly after the
occurrence of a material event with respect to the Properties or operations
thereon, and access to sufficient information, data and other materials
regarding the Properties and the Costs expended by CAI for Exploration to allow
GBEM to respond to a request by SGC for information pursuant to the SGC
Agreement.
10.7 Insurance. At all times during the term of this Agreement, the Operator
shall maintain policies of insurance in full force and effect naming all
Participants as additional named insureds in proportion to their respective
Interests, including, without limitation:
a. Worker's Compensation insurance providing statutory coverage in
compliance with the law of the state in which work is being performed, and,
where applicable, insurance in compliance with any other statutory requirements,
whether federal or state, pertaining to the compensation of injured employees;
b. Automobile Liability insurance providing a combined single limit of
not less than one million dollars ($1,000,000);
c. Commercial General Liability insurance written under a standard
form contract with a combined single limit of not less than five million dollars
($5,000,000).
<PAGE>
10.8 Resignation. The Operator may resign from its duties and obligations
upon the earlier of one hundred eighty (180) days advance notice to the
Management Committee or the appointment of a successor to the Operator approved
by the Management Committee.
10.9 Removal.
a. At the request of a Participant, the Operator shall be removed
upon the occurrence of any of the following:
(1) A court of competent jurisdiction determines and a court of
final appeals upholds the Operator to be in material default of its duties under
this Agreement; or
(2) The Operator makes a general assignment for the benefit of
its creditors; or
(3) A petition to have the Operator adjudged a bankrupt, or a
petition for reorganization or arrangement under any law relating to bankruptcy,
is filed by or against the Operator, unless the same is dismissed within sixty
(60) days; or
(4) Dilution of the Operator's Interest to less than fifty
percent (50%).
b. At the request of a Participant, the Management Committee shall
meet to determine if the Operator should be removed for cause, which shall
include, but shall not be limited to, circumstances in which the Operator fails
to perform, or to undertake actions that would result in performance of, a
material obligation imposed upon it under this Agreement and such failure
continues for a period of sixty (60) days after notice from the other
Participant demanding performance.
c. The Operator, upon ceasing to act in such capacity whether by
resignation or removal, shall deliver and convey to the successor operator for
the benefit of the Participants the custody of and title to the Assets,
including, but not limited to, records, books, fixtures, and other property,
both real and personal, held by virtue of its being the Operator pursuant to
this Agreement.
10.10 Compensation. The Operator shall be compensated under this Agreement
in accordance with the Accounting Procedures.
ARTICLE 11
PROGRAMS AND BUDGETS
11.0 Programs and Budgets.
11.1 Presentation of Programs and Budgets. Prior to completion of CAI's
Initial Contribution, CAI shall advise GBEM of its proposed and actual
expenditures on behalf of the Venture at the meetings of the Management
Committee described in Section 9.3(a) of this Agreement. Upon completion of
CAI's Initial Contribution, the Operator shall, on or before January 15 of every
year during the term of this Agreement, submit to the Management Committee and
the Participants a Program and Budget for the current year with respect to the
Area of Interest.
<PAGE>
11.2 Approval of Programs and Budgets. Within sixty (60) days of its receipt
of a Program and Budget for the Area of Interest, the Management Committee shall
review, amend or modify if necessary, and approve a Program and Budget for the
Area of Interest.
11.3 Election to Contribute. Within ten (10) days after the Management
Committee approves a Program and Budget, a Participant may elect to contribute
less than its proportionate share of that Program and Budget and that
Participant's Interest shall be diluted as provided for in Section 5.3. If no
such election is made within the ten (10)-day time period, each Participant will
be deemed to have elected to contribute its full proportionate share to the
approved Program and Budget.
11.4 Budget Overruns. Except for the period during which CAI is paying all
Costs of the Venture pursuant to Section 4.2 and as may be otherwise provided in
Section 11.5, the Operator shall notify the Management Committee prior to any
departure from a Program and Budget in excess of ten percent (10%).
11.5 Emergency Expenditures. In the case of emergency, the Operator may take
any action and make such immediate expenditures as it deems necessary to protect
life, limb, or property, to protect the Venture and the Assets, or to comply
with federal, state or local laws, rules, orders, or regulations.
11.6 Modification of Budgets. Any Participant may request the modification
of a Program and Budget by notifying the Management Committee in writing stating
the manner in which the Program and Budget is to be modified and its reasons for
the proposed modification; provided, however, that during the period in which
CAI is paying all Costs of the Venture pursuant to Section 4.2, only CAI may
propose such a modification. The Management Committee may instruct the Operator
on the manner in which operations are to be conducted during the pendency of a
modification proposal. The Management Committee may amend a modification
proposal. The Management Committee shall vote on the proposed modification
within fifteen (15) days of receipt of the request for such modification.
ARTICLE 12
ACCOUNTS AND SETTLEMENTS
12.0 Accounts and Settlements.
12.1 Joint Account; Monthly Statements. The Operator shall establish and
maintain a Joint Account. Except for those months during which CAI is
contributing one hundred percent (100%) of the Costs of the Venture pursuant to
Section 4.2, the Operator shall promptly submit to the Participants monthly
statements of account reflecting in reasonable detail the charges and credits to
each Joint Account.
12.2 Working Capital. The Operator shall at all times during active
operations within the Area of Interest maintain sufficient capital to support
the operations of the Venture in accordance with prudent financial management.
12.3 Cash Calls. On the basis of an approved Program and Budget, the
Operator shall submit to each Participant on or about the tenth (10th) day of
each month a billing for the estimated cash requirements for the next successive
month which designates each Participant's proportionate share of the estimated
amount ("Cash Call"). Within twenty (20) days of receipt of a Cash Call from the
Operator, each Participant shall advance to the Operator its proportionate share
of the estimated amount set forth in the Cash Call. Time is of the essence in
payment of a Cash Call.
<PAGE>
12.4 Failure to Meet Calls.
a. A Participant that fails to meet a Cash Call in the amount and at
the times specified by the Operator under Section 12.3 hereof shall be assessed
an interest charge on the delinquent amount until the date such advance is
received by the Operator. The interest charge shall be assessed at an annual
rate which equals the "Prime Rate," designated or published for such from time
to time by The Chase Manhattan Bank, New York, New York, plus two (2) percentage
points per year, adjusted in such case on the date on which a change in the
Prime Rate occurs, but in no event to exceed the maximum rate permitted by
applicable law, on the amount of the delinquent advance due and unpaid until
such amount is paid. The Operator shall provide a written notice to each such
Participant that fails to timely satisfy a Cash Call under Section 12.3
notifying the Participant of the delinquent payment and of the assessment of the
interest charge (the "Delinquency Notice"). A Participant that fails to meet a
Cash Call within ten (10) days after receipt of the Delinquency Notice shall be
in default.
b. The Participants acknowledge that if a Participant defaults in
making a Cash Call as required hereunder, it will be difficult to measure the
damages resulting from such default. In the event such default is not cured by
payment of a Cash Call delinquency within thirty (30) days after written notice
to the Defaulting Participant of such default, as reasonable liquidated damages,
the Non-Defaulting Participant may elect to terminate this Agreement pursuant to
Section 13.3, in which event the Defaulting Participant shall be deemed to have
withdrawn from the Venture and to have automatically relinquished its Interest
to the Non-Defaulting Participant; provided, however, that the Defaulting
Participant shall have the right to receive only from a five percent (5%) Net
Proceeds Royalty (as defined in Exhibit C), and not from any other sources, an
amount equal to the Defaulting Participant's actual cash contribution to the
Venture pursuant to Article 4 and Article 11, and an amount equal to its deemed
contribution described in Article 4. Upon receipt of the Net Proceeds Royalty,
the Defaulting Participant shall thereafter have no further right, title or
interest in Assets or under this Agreement except for its interest in the Net
Proceeds Royalty. Upon payment to the Defaulting Participant, its successors and
assigns of the amounts calculated pursuant to this Section 12.4(b), the Net
Proceeds Royalty shall automatically terminate. The Non-Defaulting Participant
may file of record notice evidencing the termination of the Net Proceeds
Royalty.
12.5 Inspection by Participants. Each Participant shall have the right, at
all reasonable times and at its sole expense, to inspect the books and records
of the Joint Account.
12.6 Audits. At the Operator's discretion or upon request of the Management
Committee, the Operator shall order an annual audit of the Joint Account by a
firm of independent public accountants selected by the Management Committee. The
cost of such audit shall be a charge to the Joint Account. A Participant, at its
own expense, may arrange a separate annual audit of the Joint Account, provided
such audit shall not unreasonably interfere with the operations of the Venture.
A Participant taking exception to or making a claim upon the Operator for
discrepancies disclosed by any audit of the Joint Account may do so only in a
written notice delivered to the Operator within three (3) months following the
completion of such audit. Notwithstanding the foregoing, prior to the
preparation of a Feasibility Study and Budget pursuant to Section 6.2, SGC, or
GBEM on behalf of SGC, may, at its own expense, arrange for and conduct an audit
of Costs expended by CAI towards Exploration and in preparation of a Feasibility
Study, provided such audit shall not unreasonably interfere with the operations
of the Venture.
<PAGE>
ARTICLE 13
WITHDRAWAL AND TERMINATION
13.0 Withdrawal and Termination.
13.1 Termination by Expiration or Agreement. This Agreement shall terminate
as expressly provided herein, unless earlier terminated by written agreement.
13.2 Withdrawal.
a. Subject to the limitations of Section 4.3, 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 (i)
the end of the then current Program and Budget or (ii) at least thirty (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 royalties,
liens or other encumbrances arising by, through or under such withdrawing
Participant, all of its interest in the Assets and in this Agreement. In such
event, the withdrawing Participant shall convey all Venture Assets, including
the Properties, to the other Participant by special warranty deed substantially
in the form of Exhibit D. Any withdrawal under this Section 13.2 shall not
relieve the withdrawing Participant of its share of liabilities to third persons
(whether such accrues before or after such withdrawal) arising out of Operations
conducted prior to such withdrawal. For purposes of this Section 13.2, the
withdrawing Participant's share of such liabilities shall be equal to its
Interest at the time such liability was incurred. Notwithstanding the foregoing,
if CAI withdraws from the Venture before completing its Initial Contribution,
CAI shall be solely responsible for reclamation as provided in Section 4.2(b).
b. The Participants may elect to jointly withdraw from this Agreement
and to terminate the Venture, in which event the Operator shall prepare a
Program and Budget for finalizing the Venture's affairs pursuant to Section 13.4
and for undertaking and completing reclamation pursuant to Section 13.5. This
Agreement shall thereafter terminate on a mutually acceptable date consistent
with the Participants' duties to discharge the Venture's obligations.
13.3 Termination for Default.
a. The occurrence of any of the following events shall constitute a
default and shall entitle the Non-Defaulting Participant to exercise its rights
hereunder:
(1) Institution by or against a Participant of a proceeding under
any section or chapter of the federal Bankruptcy Act or any other federal or
state bankruptcy, insolvency, or debtor-relief law as now existing or hereafter
amended or becoming effective, which proceeding is not dismissed, stayed, or
discharged within a period of sixty (60) days after the filing thereof, or, if
stayed, which stay is thereafter lifted without a contemporaneous discharge or
dismissal of such proceeding;
<PAGE>
(2) General assignment for the benefit of creditors by a
Participant;
(3) Appointment of a receiver, trustee or like officer to take
possession of the Interest of a Participant if the pendency of said receivership
pursuant to this clause would have a materially adverse effect upon the
performance by said Participant of its obligations under this Agreement and
remains undischarged for a period of sixty (60) days from the date of its
imposition;
(4) Attachment, execution, or other judicial seizure of all the
Interest of a Participant if the occurrence of such attachment, execution, or
other judicial seizure would have a material adverse effect upon the performance
by said Participant of its obligations under this Agreement; or
(5) Default in making a Cash Call required by an approved Program
and Budget or in any other material respect in performance of or failure to
comply with any other agreements, obligations or undertakings of the Participant
contained in this Agreement; provided, however, that in the event a Participant
is acting as the Operator under this Agreement, the failure of the Operator to
perform its duties, obligations or undertakings shall not constitute a default
in performance by the Participant for purposes of this Section 13.3, and instead
shall be governed by the provisions of Section 10.9.
b. In the event of a default by a Participant (the "Defaulting
Participant"), the other Participant (the "Non-Defaulting Participant") may
elect to terminate this Agreement and the Defaulting Participant's Interest in
this Agreement if, following a thirty (30)-day notice from the Non-Defaulting
Participant to the Defaulting Participant specifying the default and demanding
performance, the Defaulting Participant (i) fails to meet a Cash Call after
receipt of a Delinquency Notice and failure to cure pursuant to Section 12.4, or
(ii) fails to cure or to commence substantial efforts to cure any other default
and thereafter fails within a reasonable time to diligently prosecute to
completion the curing of such default. If the Venture is terminated for a
default, in addition to any and all other damages, the Defaulting Participant
shall be deemed to have transferred to the Non-Defaulting Participant all of its
interest in the Assets and this Agreement. If within the thirty (30)-day period
the Defaulting Participant in good faith disputes the default and submits the
issue of default to a court of competent jurisdiction for determination, the
Non-Defaulting Participant may not exercise the right to terminate this
Agreement unless and until thirty (30) days after the Defaulting Participant is
adjudged to be in default by a final judgment of a court of competent
jurisdiction (including appeals if any) and fails, within thirty (30) days after
such judgment, to satisfy the judgment.
13.4 Continuing Operations.
a. After a Participant withdraws from or surrenders its Interest in
the Venture and Area of Interest, the other Participant shall be entitled to
conduct operations within such area as it sees fit and without any obligation to
the former Participant.
b. Following a joint withdrawal under Section 13.2, the continuing
operations of the Venture shall be confined to those activities reasonably
necessary to finalize the Venture's affairs, conduct appropriate reclamation
operations, discharge all of its obligations, and preserve, and sell, or
distribute the Assets in accordance with Section 8.2.
<PAGE>
c. After termination of this Agreement pursuant to its owns terms or
upon a mutual withdrawal by all Participants, each Participant shall be entitled
to copies of all information acquired hereunder as of the date of termination
and not previously furnished to it.
13.5 Reclamation. After a joint withdrawal under Section 13.2, the Operator
shall undertake and complete or otherwise provide for any reclamation in the
Area of Interest then required by applicable law, regulation, or contract by
reason of Venture Operations. Provided that the costs and expenses of such
reclamation have not otherwise been funded through accounting procedures,
contemporaneous reclamation or other financial tools such as sinking funds, then
such costs and expenses shall be borne by the Participants in proportion to
their respective Interests at the effective time of the withdrawal and shall
constitute a charge to the Joint Account. From time to time during the term of
this Agreement, the Operator may account for, set aside or allocate from the
proceeds of the Venture or from the distribution to the Participants pursuant to
Section 8.2 such funds as the Operator deems necessary and prudent to satisfy
such reclamation requirements and obligations. Any excess in the amount so set
aside shall be distributed to the Participants in proportion to their respective
Interests at the time of withdrawal or termination.
13.6 Termination of Properties. Except as provided in Section 15.2, neither
a Participant nor the Operator shall permit or cause abandonment,
relinquishment, or termination of all or any part of its Interest in the
Properties of the Venture without the consent of the other Participant.
ARTICLE 14
TRANSFERS OF INTEREST
14.0 Transfers of Interest.
14.1 General Assignability. A Participant may transfer its Interest subject
to the limitations of this Article 14.
a. A Participant may freely transfer, sell, assign or otherwise
dispose of all or any part of its Interest, either directly or indirectly,
pursuant to a merger, reorganization, consolidation, or sale of substantially
all of its assets, or by any transfer of a portion of its Interest in the
Venture to an Affiliate. In the event of a transfer of less than all of a
Participant's Interest, the transferring Participant and its transferee shall
act and be treated as a single Participant.
b. Except as provided in Section 14.1(a), a Participant shall not
transfer less than its entire Interest. If a Participant desires to sell or
transfer its entire Interest in the Venture to a third party, it shall first
make a bona fide offer in writing to the other Participant to sell or transfer
said Interest and in such offer state the terms and conditions of transfer. The
Participant receiving such notice shall have the right and option for a period
of sixty (60) days from receipt of such notice 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 so
elects, the transfer shall be consummated promptly after notice of such election
is given. If the other Participant fails to elect to purchase within the sixty
(60) day period, the Participant desiring to sell or transfer shall be free for
a period of one hundred eighty (180) days following the said sixty (60) day
<PAGE>
period to sell or transfer to a third party at a price and on terms and
conditions no less stringent than those offered by the transferring Participant
to the other Participant in the notice of transfer. If any third-party approvals
are required in connection with a proposed sale, and application for such
approvals has been made during such one hundred eighty (180)-day period, and
such applications continue thereafter to be prosecuted with reasonable
diligence, the Participant desiring to sell or transfer shall be free for such
longer period thereafter as may reasonably be necessary for the prosecution to
conclusion of such application but not longer in any event than three hundred
sixty (360) days after said ninety (90)-day period. Upon expiration of the one
hundred eighty (180)-day period (or 360-day period, if applicable) the
provisions of this Section 14.1(b) shall again apply to any proposed transfer
whether to the same or to a different third party.
c. No sale or transfer to a third party or an Affiliate shall be valid
unless the transferee agrees in writing to be a Participant to and be bound by
this Agreement. In the absence of such agreement, any purported transfer shall
be void. This requirement shall not apply to (i) a grant of a security interest
in or a lien encumbering a Participant's Interest as provided in Section 14.2 or
(ii) a sale of a Participant's share of Products. No sale or transfer shall
relieve the transferor Participant of any liability which accrued prior to the
sale or transfer.
14.2 Transfer for Security. Notwithstanding the provisions of Section 14.1,
a Participant may transfer or encumber all or part of its Interest for the sole
purpose of obtaining financing of its contributions under an approved Program
and Budget, provided that the security interest or lien granted in connection
with such financing shall be and remain subordinate to this Agreement,
including, without limitation, the dilution provisions of Section 5.3, the
election provisions of Section 6.4 and the default provisions of Section 12.4.
Upon any foreclosure or other enforcement of rights under a security interest or
lien, 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. The costs of obtaining any such financing and servicing the
debt shall be borne entirely by the Participant obtaining the financing.
14.3 Assignments Upon Withdrawal or Elimination. In the event that a
Participant makes, or is required to make, an assignment of an Interest pursuant
to Section 13.3 or other provision of this Agreement, that Participant shall
promptly execute and deliver a special warranty deed substantially in the form
of Exhibit D, and in conformance with such other applicable state conveyancing
laws, of the assigning Participant's right, title and interest in and to its
Interest to the other Participant. Assignments delivered pursuant to this
Section 14.3 shall be dated effective as of the effective date of the particular
occurrence causing that Participant to make such assignment.
14.4 Discharge of Transferor. No assignment by a Participant of any Interest
less than its entire Interest in this Agreement shall discharge it from any of
its obligations hereunder, but upon the transfer by a Participant of the entire
Interest at the time held by it in this Agreement, otherwise than upon the
enforcement of any security interest granted by it (and whether to one or more
transferees and whether in one or in a number of successive transfers) and
fulfillment of the requirements of this Article 14, it shall be deemed to be
discharged from all obligations hereunder save and except for contractual
commitments accrued due prior to the date on which such transfer is made.
<PAGE>
ARTICLE 15
ACQUISITIONS WITHIN AREA OF INTEREST
15.0 Acquisitions Within Area of Interest.
15.1 Acquisitions in Area of Interest. If a Participant or its Affiliate
(the "Acquiring Participant") is offered or acquires any Properties (the
"Acquired Rights") located within the boundaries of the Area of Interest, it
shall promptly notify the other Participant.
a. The notice shall specify the terms of the offer or acquisition of
the Acquired Rights and shall include copies of all documents pertinent to the
offer or acquisition, along with all information the Acquiring Participant has
concerning the Acquired Rights.
b. The other Participant shall have sixty (60) days after receipt of
the notice from the Acquiring Participant (or in the case of an offer, if the
period of the offer is shorter, half the period of the offer, but not less than
five (5) business days), within which to elect to acquire an interest in or
reject the Acquired Rights. Failure to make an election within the relevant time
period shall be deemed to constitute an affirmative election to acquire an
interest in the Acquired Rights. If the other Participant elects to acquire an
interest in the Acquired Rights, it shall assume its proportionate share of the
acquisition costs (including costs for exploration, examination of title, and
the like) in accordance with its respective Interest, and the Acquired Rights
shall be subject to this Agreement. In the event the other Participant elects
not to acquire an interest in the Acquired Rights, the Acquiring Participant
shall have no further obligation to the other Participant with respect to such
Acquired Rights and such Acquired Rights shall not be subject to the provisions
of this Agreement.
c. In the event the Acquiring Participant acquires or is offered
Acquired Rights while CAI is contributing one hundred percent (100%) of the
Costs of the Venture pursuant to Section 4.2, if both Participants desire that
the Acquired Rights be added to the Venture, then CAI shall pay the entire cost
of the acquisition and such entire cost shall be credited as part of its
contribution under Section 4.2.
15.2 Surrender or Abandonment of Properties.
a. During the period CAI is contributing one hundred percent (100%) of
the Costs to the Venture pursuant to Section 4.2, CAI as the Operator shall not
surrender or abandon any of the Properties in the Area of Interest without
providing prior written notice to GBEM and SGC of the Properties intended to be
abandoned and allowing GBEM and SGC to preserve their respective existing
rights, if any, in and to the Properties. After CAI has completed its Initial
Contribution, the Management Committee shall have the sole authority to
surrender or abandon Properties; provided, however, that any Properties
surrendered or abandoned pursuant to this Section 15.2(a) shall be subject to
the provisions of Section 15.2(b).
<PAGE>
b. The Operator shall provide the Management Committee with notice of
its intention or recommendation to surrender or abandon any Properties at least
fifteen (15) days prior to (i) the date for notification of surrender required
to be given to the underlying owner of said Properties, if any, or (ii) the date
of actual abandonment or surrender if no advance notice is otherwise required.
If the Operator or the Management Committee authorizes any such surrender or
abandonment over the objection of a Participant, the objecting Participant shall
within ten (10) days of receipt of the notification of such pending surrender or
abandonment have the option to elect to take assignment of said Properties. Upon
receipt of the affirmative election by the objecting Participant to take
assignment of said Properties, the Participant that desires to abandon or
surrender shall assign to the objecting Participant, by special warranty deed
substantially in the form of Exhibit D, and in conformance with such other
applicable state conveyancing laws, and without cost to the surrendering
Participant, all of the surrendering Participant's interest in the Properties to
be abandoned or surrendered, and the abandoned or surrendered Properties shall
cease to be part of the Assets subject to this Agreement. A Participant or its
Affiliate may subsequently acquire any interest in such abandoned or surrendered
Properties and such interest shall not be subject to this Agreement.
ARTICLE 16
GENERAL PROVISIONS
16.0 General Provisions.
16.1 Notices. All notices required or permitted under this Agreement shall
be in writing and 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 or electronic communication on the
date of delivery or transmission if delivered or transmitted during normal
business hours, and, if not delivered or transmitted during normal business
hours, on the next business day following delivery, (ii) if by mail, on the date
of mailing. Such notices and writings shall be addressed as follows:
If to CAI:
Cominco American Incorporated
601 West Riverside Avenue
P.O. Box 3087
Spokane, Washington 99220-3087
Attention: Legal Department
Telephone: (509) 747-6111
Facsimile: (509) 459-4400
If to GBEM:
Great Basin Exploration & Mining Co., Inc.
3400 Kauai Court
Suite 208
Reno, Nevada 89509
Attention: Anthony P. Taylor
Telephone: (702) 689-7450
Facsimile: (702) 689-7489
<PAGE>
Any notice required to be given to SGC pursuant to its right to
participate as required by Section 6.2 shall be addressed as follows:
If to SGC:
Serem Gatro Canada Inc.
LaSource Compangie Miniere
16 Avenue Georges V
75008 Paris, France
Attention: Alain Liger
Telephone: (33) 1 49 52 29 00
Facsimile: (33) 1 49 52 29 29
with a copy to:
Ogilvy Renault
1981 McGill College Avenue
Suite 1000
Montreal, Quebec
H3A 3C1
Attention: Ginette Leclerc
Telephone: (514) 847-4747
Facsimile: (514) 286-5474
and with a copy to:
Stikeman, Elliott
Barristers and Solicitors
Commerce Court West
Suite 5300, P.O. Box 85
Toronto, Ontario
M5L 1B9
Attention: Mihkel Voore
Telephone: (416) 869-5646
Facsimile: (416) 947-0866
The address of any Participant for purposes of this Section 16.1 may be
changed at any time by notice to the other Participant.
16.2 Entire Agreement; Successors and Assigns. This Agreement contains the
entire understanding of the Participants with respect to the operations
hereunder and supersedes and replaces all prior agreements and understandings of
the Participants with respect to the matters covered by this Agreement. This
Agreement shall be binding upon and inure to the benefit of the respective
successors and assigns of the Participants.
16.3 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 thereof shall not constitute a waiver of any other
provision of this Agreement or limit the Participant's right thereafter to
enforce any other provision or exercise any other right.
16.4 Modification. No modification of this Agreement shall be valid unless
made in writing with the unanimous consent of the Management Committee and
signed by the Participants with the same formality as this Agreement.
16.5 Severability. If any provision of this Agreement is held by a court of
competent jurisdiction to be invalid, void or unenforceable, the remaining
provisions of this Agreement shall remain in full force and effect.
<PAGE>
16.6 Force Majeure. The obligations of a Participant or of the Operator
(except the obligation to pay money) shall be suspended to the extent and for
the period that performance is prevented by any cause, whether foreseeable or
unforeseeable, which is 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 employer to grant); acts of God;
regulations, orders, proclamations, instruction or requests of any government or
governmental entity; judgments or orders of any court; curtailment or suspension
of activities to remedy or avoid an actual or alleged, present or prospective
violation of federal, state, or local environment 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
conditions; 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 or the Operator shall promptly give
notice to the other Participant of the suspension of performance, stating
therein the nature of the suspension and the reasons therefor, and shall resume
performance as soon as reasonably possible.
16.7 Third Party Beneficiaries. There are no third party beneficiaries to
this Agreement.
16.8 Governing Law. This Agreement shall be governed by and interpreted in
accordance with the laws of the State of Nevada.
16.9 Access. The Participants shall have access to the Area of Interest at
any reasonable time to inspect any operation. Additionally, the Participants
shall have access to drilling data, samples, cores, logs assays, reports, maps
and other data obtained by the Operator and connected with the Venture.
16.10 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 twenty (20) years after the
Effective Date.
16.11 Further Assurances. Each of the Participants agrees to take such
actions and to execute such additional instruments as may be reasonably
necessary or convenient to implement and carry out the intent and purpose of
this Agreement.
16.12 Memorandum Agreement. As may be required by applicable local, state or
federal law, or as may be deemed necessary or prudent by the Operator for
purposes of conducting the operations of the Venture, the Operator shall prepare
and the Participants shall execute a short form of this Agreement. At the
Operator's option and from time to time, the Operator shall cause a short form
of this Agreement to be filed or recorded. Neither Participant will file or
record the full text of this Agreement, or any portion thereof (except the
Nominee Agreement), without the other Participant's prior written consent.
<PAGE>
IN WITNESS WHEREOF, the signatory parties hereto have executed this
Agreement effective as of the Effective Date.
COMINCO AMERICAN INCORPORATED
George Cole
By -------------------
George Cole
Its Vice President, Exploration
GREAT BASIN EXPLORATION & MINING CO., INC.
A. P. Taylor
By ---------------------------
A. P. Taylor
Its President
ACKNOWLEDGEMENTS
STATE OF WASHINGTON )
: ss.
COUNTY OF SPOKANE )
This instrument was acknowledged before me on December 19, 1995 by
George Cole as Vice President, Exploration of Cominco American Incorporated.
(stamp)
Dawn R. Phillips
Notary Public in and for the State of
Washington,
Residing at Spokane
My Commission Expires: May 19, 1997
STATE OF Nevada )
: ss.
COUNTY OF Washoe )
This instrument was acknowledged before me on December 20, 1995 by
A. P. Taylor as President of Great Basin Exploration & Mining Co., Inc.
(stamp) Nancy M. Godbey
Notary Public
My Commission Expires: 11/2/97
<PAGE>
TABLE OF EXHIBITS
Exhibit A Properties and Area of Interest
Exhibit B Accounting Procedures
Exhibit C Royalty Calculations
Part I Net Proceeds Royalty
Part II Net Returns Royalty
Exhibit D Special Warranty Deed, Bill of Sale, and
Assignment
Exhibit E Royalty Deeds
Part I Net Proceeds Royalty Deed
Part II Net Returns Royalty Deed
Exhibit F Nominee Agreement
<PAGE>
EXHIBIT A
(TO JOINT VENTURE OPERATING AGREEMENT
DATED EFFECTIVE AS OF JANUARY 1, 1996
BY AND BETWEEN CAI AND GBEM)
Properties
And
Area of Interest
PROPERTY
The Properties referred to in the Joint Venture Operating Agreement shall
consist of the real property located in Eureka County, Nevada, and more
particularly described hereinbelow. All of the Property is or shall be deemed to
be subject to that certain Participation Agreement dated effective May 31, 1995,
by and between Serem Gatro Canada Inc., Great Basin Exploration & Mining Co.,
Inc. and Great Basin Management Co., Inc., which Participation Agreement is
attached hereto as Attachment I and by this reference made a part hereof.
Afgan Property
The Afgan Property shall consist of that certain Afgan Mineral Lease dated
effective November 8, 1993, as amended by that certain First Amendment to
Mineral Lease dated effective May 19, 1994, as further amended by that certain
Second Amendment to Mineral Lease dated effective November 20, 1995, by and
between Great Basin Exploration & Mining Co., Inc., and Lyle F. Campbell, Sole
Trustee of the Lyle F. Campbell Trust (the "Afgan Mineral Lease"), for which the
Memorandum of Mineral Lease was recorded as document 147480 of the official
records of Eureka County, Nevada, including the Afgan Mineral Prospect referred
to in the Afgan Mineral Lease which consists of the geographic area within the
external boundaries of the 76 unpatented lode mining claims located
approximately within Sections 17, 18, 19, 20, 29, and 30, Township 22 North,
Range 51 East, Mount Diablo Meridian, Eureka County, Nevada, and more
particularly described as follows, to wit:
County Location
Claim Name/Number BLM Number Book Page Date
AFGAN No. 3 NMC-169151 88 59 07/22/80
AFGAN No. 4 NMC-169152 88 60 07/22/80
AFGAN No. 5 NMC-169153 88 61 07/22/80
AFGAN No. 6 NMC-169154 88 62 07/22/80
AFGAN No. 7 NMC-169155 88 63 07/22/80
AFGAN No. 8 NMC-169156 88 64 07/22/80
AFGAN No. 9 NMC-169157 88 65 07/22/80
AFGAN No. 10 NMC-169158 88 66 07/22/80
AFGAN No. 11 NMC-169159 88 67 07/22/80
AFGAN No. 12 NMC-169160 88 68 07/22/80
<PAGE>
County Location
Claim Name/Number BLM Number Book Page Date
AFGAN No. 13 NMC-289576 117 564 09/01/83
AFGAN No. 14 NMC-289577 117 565 09/01/83
AFGAN No. 15 NMC-289578 117 566 09/01/83
AFGAN No. 16 NMC-289579 117 567 09/01/83
AFGAN No. 17 NMC-289580 117 568 09/01/83
AFGAN No. 18 NMC-289581 117 569 09/01/83
AFGAN No. 19 NMC-289582 117 570 09/01/83
AFGAN No. 20 NMC-289583 117 571 09/01/83
AFGAN No. 21 NMC-289584 117 572 09/01/83
AFGAN No. 22 NMC-289585 117 573 09/01/83
AFGAN No. 23 NMC-289586 117 574 09/01/83
AFGAN No. 24 NMC-289587 117 575 09/01/83
AFGAN No. 25 NMC-289588 117 576 09/01/83
AFGAN No. 26 NMC-289589 117 577 09/01/83
AFGAN No. 69 NMC-289590 117 578 09/01/83
AFGAN No. 70 NMC-289591 117 579 09/01/83
AFGAN No. 71 NMC-289592 117 580 09/01/83
AFGAN-EXT. No. 1 NMC-592424 209 356 01/31/90
AFGAN-EXT. No. 2 NMC-592425 209 357 01/31/90
AFGAN-EXT. No. 2a NMC-674809 243 197 11/20/92
AFGAN-EXT. No. 30 NMC-674810 243 107 11/20/92
AFGAN-EXT. No. 31 NMC-674811 243 108 11/20/92
AFGAN-EXT. No. 32 NMC-674812 243 109 11/20/92
AFGAN-EXT. No. 33 NMC-674813 243 110 11/20/92
AFGAN-EXT. No. 34 NMC-674814 243 111 11/20/92
AFGAN-EXT. No. 35 NMC-674815 243 112 11/20/92
AFGAN-EXT. No. 36 NMC-674816 243 113 11/20/92
AFGAN-EXT. No. 37 NMC-674817 243 114 11/20/92
AFGAN-EXT. No. 38 NMC-674818 243 115 11/20/92
AFGAN-EXT. No. 39 NMC-674819 243 116 11/20/92
AFGAN-EXT. No. 68 NMC-602418 212 256 05/16/90
AFGAN-EXT. No. 69 NMC-602419 212 257 05/16/90
AFGAN-EXT. No. 72 NMC-592428 209 360 02/01/90
AFGAN-EXT. No. 73 NMC-592429 209 361 02/01/90
AFGAN-EXT. No. 101 NMC-592430 209 362 02/01/90
AFGAN-EXT. No. 102 NMC-592431 209 363 02/01/90
AFGAN-EXT. No. 103 NMC-592432 209 364 02/01/90
AFGAN-EXT. No. 104 NMC-592433 209 365 02/01/90
AFGAN-EXT. No. 105 NMC-592434 209 366 02/02/90
<PAGE>
County Location
Claim Name/Number BLM Number Book Page Date
AFGAN-EXT. No. 120 NMC-592435 209 367 02/02/90
AFGAN-EXT. No. 121 NMC-592436 209 368 02/02/90
AFGAN-EXT. No. 122 NMC-622127 221 460 02/22/91
AFGAN-EXT. No. 123 NMC-622128 221 461 02/22/91
AFGAN-EXT. No. 124 NMC-622129 221 462 02/22/91
AFGAN-EXT. No. 125 NMC-622130 221 463 02/22/91
AFGAN-EXT. No. 126 NMC-622131 221 464 02/22/91
AFGAN-EXT. No. 127 NMC-638155 229 142 11/30/91
AFGAN-EXT. No. 128 NMC-638156 229 143 11/30/91
AFGAN-EXT. No. 129 NMC-638157 229 144 11/30/91
AFGAN-EXT. No. 130 NMC-638158 229 145 11/30/91
AFGAN-EXT. No. 131 NMC-638159 229 146 11/30/91
AFGAN-EXT. No. 132 NMC-638160 229 147 11/30/91
AFGAN-EXT. No. 133 NMC-638161 229 148 11/30/91
AFGAN-EXT. No. 134 NMC-638162 229 149 12/01/91
NICKEL No. 8 NMC-674820 243 198 11/20/92
NICKEL No. 9 NMC-674821 243 199 11/20/92
NICKEL No. 10 NMC-674822 243 200 11/20/92
NICKEL No. 11 NMC-674823 243 201 11/20/92
NICKEL No. 12 NMC-674824 243 202 11/20/92
NICKEL No. 13 NMC-674825 243 203 11/20/92
PREDATOR 1 NMC-698064 267 253 03/06/94
PREDATOR 2 NMC-698065 267 254 03/06/94
PREDATOR 3 NMC-698066 267 255 03/06/94
PREDATOR 4 NMC-698067 267 256 03/06/94
PREDATOR 5 NMC-698068 267 257 03/06/94
PREDATOR 6 NMC-698069 267 258 03/06/94
The Afgan Mineral Lease and all amendments and supplemental agreements to or
affecting said Afgan Mineral Lease are attached hereto as Attachment II and by
this reference made a part hereof, including: (i) the First Amendment of Mineral
Lease, (ii) the Second Amendment of Mineral Lease, (iii) that certain letter of
consent and approval for the Assignment of Mineral Lease dated December .......,
1995, between Great Basin Exploration & Mining Co., Inc. and Lyle F. Campbell,
sole Trustee of The Lyle F. Campbell Trust, (iv) that certain Boundary Agreement
dated effective November 13, 1992 by and between Great Basin Exploration &
Mining Co., Inc. and Lyle F. Campbell, sole Trustee of The Lyle F. Campbell
Trust, and (v) that certain letter dated December 12, 1995, as revised by letter
dated December 14, 1995, from Lyle F. Campbell confirming that certain relocated
Kobeh Property claims shall not be subject to the Afgan Mineral Lease.
Kobeh Property
The Kobeh Property shall consist of the geographic area within the external
boundaries of the 171 unpatented lode mining claims located approximately within
Sections 4, 5, and 9, Township 21 North, Range 51 East, and Sections 28, 29, 32
and 33, Township 22 North, Range 51 East, Mount Diablo Meridian, Eureka County,
Nevada, and more particularly described as follows, to wit:
<PAGE>
County Location
Claim Name/Number BLM Number Book Page Date
KOBEH 936 NMC-708237 278 440 09/02/94
KOBEH 937 NMC-708238 278 441 09/02/94
KOBEH 938 NMC-708239 278 442 09/02/94
KOBEH 939 NMC-708240 278 443 09/02/94
KOBEH 940 NMC-708241 278 444 09/02/94
KOBEH 941 NMC-708242 278 445 09/02/94
KOBEH 942 NMC-708243 278 446 09/02/94
KOBEH 943 NMC-708244 278 447 09/02/94
KOBEH 1036 NMC-708245 278 448 09/02/94
KOBEH 1037 NMC-708246 278 449 09/02/94
KOBEH 1038 NMC-708247 278 450 09/02/94
KOBEH 1039 NMC-708248 278 451 09/02/94
KOBEH 1040 NMC-708249 278 452 09/02/94
KOBEH 1041 NMC-708250 278 453 09/02/94
KOBEH 1042 NMC-708251 278 454 09/02/94
KOBEH 1043 NMC-708252 278 455 09/02/94
KOBEH 1136 NMC-708253 278 456 09/01/94
KOBEH 1137 NMC-708254 278 457 09/01/94
KOBEH 1138 NMC-708255 278 458 09/01/94
KOBEH 1139 NMC-708256 278 459 09/01/94
KOBEH 1140 NMC-708257 278 460 09/01/94
KOBEH 1141 NMC-708258 278 461 09/01/94
KOBEH 1142 NMC-708259 278 462 09/01/94
KOBEH 1236 NMC-708260 278 463 09/01/94
KOBEH 1237 NMC-708261 278 464 09/01/94
KOBEH 1238 NMC-708262 278 465 09/01/94
KOBEH 1239 NMC-708263 278 466 09/01/94
KOBEH 1240 NMC-708264 278 467 09/01/94
KOBEH 1241 NMC-708265 278 468 09/01/94
KOBEH 1242 NMC-708266 278 469 09/01/94
KOBEH 1326 NMC-715418 282 373 01/26/95
KOBEH 1327 NMC-715419 282 374 01/26/95
KOBEH 1328 NMC-715420 282 375 01/26/95
KOBEH 1329 NMC-715421 282 376 01/26/95
KOBEH 1330 NMC-715422 282 377 01/26/95
KOBEH 1331 NMC-715423 282 378 01/26/95
<PAGE>
County Location
Claim Name/Number BLM Number Book Page Date
KOBEH 1332 NMC-715424 282 379 01/26/95
KOBEH 1333 NMC-715425 282 380 01/26/95
KOBEH 1334 NMC-715426 282 381 01/26/95
KOBEH # 1335 NMC-637402 230 212 10/16/91
KOBEH # 1336 NMC-637403 230 213 10/16/91
KOBEH # 1337 NMC-637404 230 214 10/16/91
KOBEH # 1338 NMC-637405 230 215 10/16/91
KOBEH # 1339 NMC-637406 230 216 10/16/91
KOBEH # 1340 NMC-637407 230 217 10/16/91
KOBEH 1426 NMC-715427 282 382 01/26/95
KOBEH 1427 NMC-715428 282 383 01/26/95
KOBEH 1428 NMC-715429 282 384 01/26/95
KOBEH 1429 NMC-715430 282 385 01/26/95
KOBEH 1430 NMC-715431 282 386 01/26/95
KOBEH 1431 NMC-715432 282 387 01/26/95
KOBEH 1432 NMC-715433 282 388 01/26/95
KOBEH 1433 NMC-715434 282 389 01/26/95
KOBEH # 1434 NMC-637416 230 226 10/16/91
KOBEH # 1435 NMC-637417 230 227 10/16/91
KOBEH # 1436 NMC-637418 230 228 10/16/91
KOBEH # 1437 NMC-637419 230 229 10/16/91
KOBEH # 1438 NMC-637420 230 230 10/16/91
KOBEH # 1439 NMC-637421 230 231 10/16/91
KOBEH # 1440 NMC-637422 230 232 10/16/91
KOBEH 1526 NMC-715435 282 390 01/26/95
KOBEH 1527 NMC-715436 282 391 01/26/95
KOBEH 1528 NMC-715437 282 392 01/26/95
KOBEH 1529 NMC-715438 282 393 01/26/95
KOBEH 1530 NMC-715439 282 394 01/26/95
KOBEH 1531 NMC-715440 282 395 01/26/95
KOBEH 1532 NMC-715441 282 396 01/26/95
KOBEH # 1533 NMC-637430 230 240 10/16/91
KOBEH # 1534 NMC-637431 230 241 10/16/91
KOBEH # 1535 NMC-637432 230 242 10/16/91
KOBEH # 1536 NMC-637433 230 243 10/16/91
KOBEH # 1537 NMC-637434 230 244 10/16/91
KOBEH # 1538 NMC-637435 230 245 10/16/91
KOBEH # 1539 NMC-637436 230 246 10/16/91
KOBEH # 1540 NMC-637437 230 247 10/16/91
KOBEH 1623 NMC-715442 282 397 01/26/95
KOBEH 1624 NMC-715443 282 398 01/26/95
KOBEH 1625 NMC-715444 282 399 01/26/95
<PAGE>
County Location
Claim Name/Number BLM Number Book Page Date
KOBEH 1626 NMC-715445 282 400 01/26/95
KOBEH 1627 NMC-715446 282 401 01/26/95
KOBEH 1628 NMC-715447 282 402 01/26/95
KOBEH 1629 NMC-715448 282 403 01/26/95
KOBEH 1630 NMC-715449 282 404 01/26/95
KOBEH 1631 NMC-715450 282 405 01/26/95
KOBEH # 1632 NMC-637450 230 260 10/16/91
KOBEH # 1633 NMC-637451 230 261 10/16/91
KOBEH # 1634 NMC-637452 230 262 10/16/91
KOBEH # 1635 NMC-637453 230 263 10/16/91
KOBEH # 1636 NMC-637454 230 264 10/16/91
KOBEH # 1637 NMC-637455 230 265 10/16/91
KOBEH # 1638 NMC-637456 230 266 10/16/91
KOBEH # 1639 NMC-637457 230 267 10/16/91
KOBEH # 1640 NMC-637458 230 268 10/16/91
KOBEH 1723 NMC-715451 282 406 01/26/95
KOBEH 1724 NMC-715452 282 407 01/26/95
KOBEH 1725 NMC-715453 282 408 01/26/95
KOBEH 1726 NMC-715454 282 409 01/26/95
KOBEH 1727 NMC-715455 282 410 01/26/95
KOBEH 1728 NMC-715456 282 411 01/26/95
KOBEH 1729 NMC-715457 282 412 01/26/95
KOBEH 1730 NMC-715458 282 413 01/26/95
KOBEH # 1731 NMC-637470 230 280 10/16/91
KOBEH # 1732 NMC-637471 230 281 10/16/91
KOBEH # 1733 NMC-637472 230 282 10/16/91
KOBEH # 1734 NMC-637473 230 283 10/16/91
KOBEH # 1735 NMC-637474 230 284 10/16/91
KOBEH # 1736 NMC-637475 230 285 10/16/91
KOBEH # 1737 NMC-637476 230 286 10/16/91
KOBEH # 1738 NMC-637477 230 287 10/16/91
KOBEH 1823 NMC-715459 282 414 01/26/95
KOBEH 1824 NMC-715460 282 415 01/26/95
KOBEH 1825 NMC-715461 282 416 01/26/95
KOBEH 1826 NMC-715462 282 417 01/26/95
KOBEH 1827 NMC-715463 282 418 01/26/95
KOBEH 1828 NMC-715464 282 419 01/26/95
KOBEH 1829 NMC-715465 282 420 01/26/95
KOBEH # 1830 NMC-637488 230 298 10/16/91
KOBEH # 1831 NMC-637489 230 299 10/16/91
KOBEH # 1832 NMC-637490 230 300 10/16/91
KOBEH # 1833 NMC-637491 230 301 10/16/91
KOBEH # 1834 NMC-637492 230 302 10/16/91
<PAGE>
County Location
Claim Name/Number BLM Number Book Page Date
KOBEH # 1835 NMC-637493 230 303 10/16/91
KOBEH # 1836 NMC-637494 230 304 10/16/91
KOBEH 1923 NMC-698070 267 262 03/05/94
KOBEH 1924 NMC-698071 267 263 03/05/94
KOBEH 1925 NMC-698072 267 264 03/05/94
KOBEH 1926 NMC-698073 267 265 03/05/94
KOBEH 1927 NMC-698074 267 266 03/05/94
KOBEH 1928 NMC-698075 267 267 03/05/94
KOBEH # 1929 NMC-637504 230 314 10/15/91
KOBEH # 1930 NMC-637505 230 315 10/15/91
KOBEH # 1931 NMC-637506 230 316 10/15/91
KOBEH # 1932 NMC-637507 230 317 10/15/91
KOBEH # 1933 NMC-637508 230 318 10/15/91
KOBEH # 1934 NMC-637509 230 319 10/15/91
KOBEH # 1935 NMC-637510 230 320 10/15/91
KOBEH # 1936 NMC-637511 230 321 10/15/91
KOBEH 2020 NMC-698076 267 268 03/05/94
KOBEH 2021 NMC-698077 267 269 03/05/94
KOBEH 2022 NMC-698078 267 270 03/05/94
KOBEH 2023 NMC-698079 267 271 03/05/94
KOBEH 2024 NMC-698080 267 272 03/05/94
KOBEH 2025 NMC-698081 267 273 03/05/94
KOBEH 2026 NMC-698082 267 274 03/05/94
KOBEH 2027 NMC-698083 267 275 03/05/94
KOBEH # 2028 NMC-637520 230 330 10/15/91
KOBEH # 2029 NMC-637521 230 331 10/15/91
KOBEH # 2030 NMC-637522 230 332 10/15/91
KOBEH # 2031 NMC-637523 230 333 10/15/91
KOBEH # 2032 NMC-637524 230 334 10/15/91
KOBEH # 2033 NMC-637525 230 335 10/15/91
KOBEH # 2034 NMC-637526 230 336 10/15/91
KOBEH # 2035 NMC-637527 230 337 10/15/91
KOBEH 2120 NMC-698084 267 276 03/05/94
KOBEH 2121 NMC-698085 267 277 03/05/94
KOBEH 2122 NMC-698086 267 278 03/05/94
KOBEH # 2130 NMC-637538 230 348 10/15/91
KOBEH # 2131 NMC-637539 230 349 10/15/91
KOBEH # 2132 NMC-637540 230 350 10/15/91
KOBEH # 2133 NMC-637541 230 351 10/15/91
KOBEH # 2134 NMC-637542 230 352 10/15/91
KOBEH # 2135 NMC-637543 230 353 10/15/91
<PAGE>
County Location
Claim Name/Number BLM Number Book Page Date
KOBEH 2220 NMC-698087 267 279 03/05/94
KOBEH 2221 NMC-698088 267 280 03/05/94
KOBEH 2222 NMC-698089 267 281 03/05/94
KOBEH # 2230 NMC-637554 230 364 10/15/91
KOBEH # 2231 NMC-637555 230 365 10/15/91
KOBEH # 2232 NMC-637556 230 366 10/15/91
KOBEH # 2233 NMC-637557 230 367 10/15/91
KOBEH # 2234 NMC-637558 230 368 10/15/91
KOBEH # 2235 NMC-637559 230 369 10/15/91
The Kobeh Property is subject to:
(a) A one percent (1%) production royalty burdening and encumbering the Kobeh
Property held by Lyle F. Campbell, sole Trustee of The Lyle F. Campbell Trust
pursuant to that certain Royalty Deed and Agreement dated effective January 1,
1996 by and between Great Basin Exploration & Mining Co., Inc. and Lyle F.
Campbell, sole Trustee of The Lyle F. Campbell Trust; and
(b) A royalty of Two Dollars ($2.00) per ounce on all produced gold from the
property to be paid by Great Basin Exploration & Mining Co., Inc. to Golden
Regent Resources Ltd. pursuant to that certain exploration letter agreement
dated April 11, 1991, as amended by letter dated December 1, 1995, by and
between Great Basin Exploration & Mining Co., Inc. and Golden Regent Resources
Ltd. (formerly Golden Regent Minerals, Inc. and Mr. William Salt). Said royalty
is the sole responsibility of Great Basin Exploration & Mining Co., Inc. and not
subject to payment by the Participants of the Venture pursuant to this Agreement
as more particularly described in that certain letter agreement dated September
8, 1995 by and between Cominco American Incorporated and Great Basin Exploration
& Mining Co., Inc.
The above-referenced agreements affecting the Kobeh Property are attached hereto
as Attachment III and by this reference made a part hereof.
Kim Chee Property
The Kim Chee Property shall consist of the geographic area within the external
boundaries of the 129 unpatented lode mining claims located approximately within
Sections 1, 2, 3, 4, 10, 11, Township 21 North, Range 50 East, and Sections 25,
26, 33, 34, 35, 36, Township 22 North, Range 50 East, Mount Diablo Meridian,
Eureka County, State of Nevada, and more particularly described as follows, to
wit:
<PAGE>
County Location
Claim Name/Number BLM Number Book Page Date
KIM CHEE # 4500 NMC-687693 256 403 09/11/93
KIM CHEE # 4501 NMC-687694 256 404 09/11/93
KIM CHEE # 4502 NMC-687695 256 405 09/11/93
KIM CHEE # 4503 NMC-687696 256 406 09/11/93
KIM CHEE # 4504 NMC-687697 256 407 09/11/93
KIM CHEE # 4505 NMC-687698 256 408 09/11/93
KIM CHEE # 4506 NMC-687699 256 409 09/11/93
KIM CHEE # 4507 NMC-687700 256 410 09/11/93
KIM CHEE # 4595 NMC-687701 256 411 09/12/93
KIM CHEE # 4596 NMC-687702 256 412 09/12/93
KIM CHEE # 4597 NMC-687703 256 413 09/12/93
KIM CHEE # 4598 NMC-687704 256 414 09/12/93
KIM CHEE # 4599 NMC-687705 256 415 09/12/93
KIM CHEE # 4603 NMC-687706 256 416 09/11/93
KIM CHEE # 4604 NMC-687707 256 417 09/11/93
KIM CHEE # 4605 NMC-687708 256 418 09/11/93
KIM CHEE # 4606 NMC-687709 256 419 09/11/93
KIM CHEE # 4607 NMC-687710 256 420 09/11/93
KIM CHEE # 4608 NMC-687711 256 421 10/24/93
KIM CHEE # 4609 NMC-687712 256 422 10/24/93
KIM CHEE # 4695 NMC-687713 256 423 09/12/93
KIM CHEE # 4696 NMC-687714 256 424 09/12/93
KIM CHEE # 4697 NMC-687715 256 425 09/12/93
KIM CHEE # 4708 NMC-687716 256 426 10/24/93
KIM CHEE # 4709 NMC-687717 256 427 10/24/93
KIM CHEE # 4794 NMC-687718 256 428 09/14/93
KIM CHEE # 4795 NMC-687719 256 429 09/12/93
KIM CHEE # 4796 NMC-687720 256 430 09/12/93
KIM CHEE # 4797 NMC-687721 256 431 09/12/93
KIM CHEE # 4887 NMC-687722 256 432 09/14/93
<PAGE>
County Location
Claim Name/Number BLM Number Book Page Date
KIM CHEE # 4894 NMC-687723 256 433 09/14/93
KIM CHEE # 4895 NMC-687724 256 434 09/14/93
KIM CHEE # 4896 NMC-687725 256 435 09/14/93
KIM CHEE # 4986 NMC-687726 256 436 09/15/93
KIM CHEE # 4987 NMC-687727 256 437 09/15/93
KIM CHEE # 4988 NMC-687728 256 438 09/14/93
KIM CHEE # 4989 NMC-687729 256 439 09/14/93
KIM CHEE # 4990 NMC-687730 256 440 09/14/93
KIM CHEE # 4991 NMC-687731 256 441 09/14/93
KIM CHEE # 4992 NMC-687732 256 442 09/14/93
KIM CHEE # 4993 NMC-687733 256 443 09/14/93
KIM CHEE # 4994 NMC-687734 256 444 09/14/93
KIM CHEE # 4995 NMC-687735 256 445 09/14/93
KIM CHEE # 4996 NMC-687736 256 446 09/14/93
KIM CHEE # 5007 NMC-687737 256 447 10/24/93
KIM CHEE # 5008 NMC-687738 256 448 10/24/93
KIM CHEE # 5009 NMC-687739 256 449 10/24/93
KIM CHEE # 5010 NMC-687740 256 450 10/24/93
KIM CHEE # 5011 NMC-687741 256 451 10/24/93
KIM CHEE # 5085 NMC-687742 256 452 09/15/93
KIM CHEE # 5086 NMC-687743 256 453 09/15/93
KIM CHEE # 5087 NMC-687744 256 454 09/15/93
KIM CHEE # 5088 NMC-687745 256 455 09/14/93
KIM CHEE # 5089 NMC-687746 256 456 09/14/93
KIM CHEE # 5090 NMC-687747 256 457 09/14/93
KIM CHEE # 5091 NMC-687748 256 458 09/14/93
KIM CHEE # 5092 NMC-687749 256 459 09/14/93
KIM CHEE # 5093 NMC-687750 256 460 09/14/93
KIM CHEE # 5094 NMC-687751 256 461 09/14/93
KIM CHEE # 5095 NMC-687752 256 462 09/14/93
KIM CHEE # 5096 NMC-687753 256 463 09/14/93
KIM CHEE # 5106 NMC-687754 256 464 10/26/93
KIM CHEE # 5107 NMC-687755 256 465 10/26/93
KIM CHEE # 5108 NMC-687756 256 466 10/26/93
KIM CHEE # 5109 NMC-687757 256 467 10/26/93
KIM CHEE # 5110 NMC-687758 256 468 10/26/93
KIM CHEE # 5111 NMC-687759 256 469 10/26/93
KIM CHEE # 5182 NMC-687760 256 470 09/15/93
KIM CHEE # 5183 NMC-687761 256 471 09/15/93
KIM CHEE # 5184 NMC-687762 256 472 09/15/93
KIM CHEE # 5185 NMC-687763 256 473 09/15/93
KIM CHEE # 5186 NMC-687764 256 474 09/15/93
KIM CHEE # 5187 NMC-687765 256 475 09/15/93
<PAGE>
County Location
Claim Name/Number BLM Number Book Page Date
KIM CHEE # 5188 NMC-687766 256 476 09/14/93
KIM CHEE # 5189 NMC-687767 256 477 09/14/93
KIM CHEE # 5190 NMC-687768 256 478 09/14/93
KIM CHEE # 5191 NMC-687769 256 479 09/14/93
KIM CHEE # 5192 NMC-687770 256 480 09/14/93
KIM CHEE # 5193 NMC-687771 256 481 09/14/93
KIM CHEE # 5194 NMC-687772 256 482 09/14/93
KIM CHEE # 5195 NMC-687773 256 483 09/14/93
KIM CHEE # 5206 NMC-687774 256 484 10/26/93
KIM CHEE # 5207 NMC-687775 256 485 10/26/93
KIM CHEE # 5208 NMC-687776 256 486 10/26/93
KIM CHEE # 5209 NMC-687777 256 487 10/26/93
KIM CHEE # 5210 NMC-687778 256 488 10/26/93
KIM CHEE # 5211 NMC-687779 256 489 10/26/93
KIM CHEE # 5212 NMC-687780 256 490 10/26/93
KIM CHEE # 5213 NMC-687781 256 491 10/26/93
KIM CHEE # 5282 NMC-687782 256 492 09/15/93
KIM CHEE # 5283 NMC-687783 256 493 09/15/93
KIM CHEE # 5284 NMC-687784 256 494 09/15/93
KIM CHEE # 5285 NMC-687785 256 495 09/15/93
KIM CHEE # 5286 NMC-687786 256 496 09/15/93
KIM CHEE # 5287 NMC-687787 256 497 09/15/93
KIM CHEE # 5288 NMC-687788 256 498 09/14/93
KIM CHEE # 5289 NMC-687789 256 499 09/14/93
KIM CHEE # 5290 NMC-687790 256 500 09/14/93
KIM CHEE # 5291 NMC-687791 256 501 09/14/93
KIM CHEE # 5292 NMC-687792 256 502 09/14/93
KIM CHEE # 5293 NMC-687793 256 503 09/14/93
KIM CHEE # 5294 NMC-687794 256 504 09/14/93
KIM CHEE # 5295 NMC-687795 256 505 09/14/93
KIM CHEE # 5382 NMC-687796 256 506 09/16/93
KIM CHEE # 5383 NMC-687797 256 507 09/16/93
KIM CHEE # 5384 NMC-687798 256 508 09/16/93
KIM CHEE # 5385 NMC-687799 256 509 09/16/93
KIM CHEE # 5386 NMC-687800 256 510 09/16/93
KIM CHEE # 5387 NMC-687801 256 511 09/16/93
KIM CHEE # 5388 NMC-687802 256 512 09/14/93
KIM CHEE # 5389 NMC-687803 256 513 09/14/93
KIM CHEE # 5390 NMC-687804 256 514 09/14/93
KIM CHEE # 5391 NMC-687805 256 515 09/14/93
KIM CHEE # 5392 NMC-687806 256 516 09/14/93
KIM CHEE # 5393 NMC-687807 256 517 09/14/93
KIM CHEE # 5394 NMC-687808 256 518 09/14/93
<PAGE>
County Location
Claim Name/Number BLM Number Book Page Date
KIM CHEE # 5482 NMC-687809 256 519 09/16/93
KIM CHEE # 5483 NMC-687810 256 520 09/16/93
KIM CHEE # 5484 NMC-687811 256 521 09/16/93
KIM CHEE # 5485 NMC-687812 256 522 09/16/93
KIM CHEE # 5486 NMC-687813 256 523 09/16/93
KIM CHEE # 5487 NMC-687814 256 524 09/16/93
KIM CHEE # 5488 NMC-687815 256 525 09/14/93
KIM CHEE # 5489 NMC-687816 256 526 09/14/93
KIM CHEE # 5490 NMC-687817 256 527 09/14/93
KIM CHEE # 5491 NMC-687818 256 528 09/14/93
KIM CHEE # 5492 NMC-687819 256 529 09/14/93
KIM CHEE # 5493 NMC-687820 256 530 09/14/93
KIM CHEE # 5494 NMC-687821 256 531 09/14/93
The Kim Chee Property is subject to a one percent (1%) production royalty
burdening and encumbering the Kim Chee Property held by Lyle F. Campbell, sole
Trustee of The Lyle F. Campbell Trust pursuant to that certain Royalty Deed and
Agreement dated effective January 1, 1996 by and between Cominco American
Incorporated and Lyle F. Campbell, sole Trustee of The Lyle F. Campbell Trust
attached hereto as Attachment IV and by this reference made a part hereof.
AREA OF INTEREST
The Area of Interest referred to in the Joint Venture Operating Agreement shall
consist of the geographic area within the external boundaries of the Afgan
Property, the Kobeh Property and the Kim Chee Property as described hereinabove.
The Area of Interest shall also include:
(a) all or part of any mining claim located by the parties to the Afgan Mineral
Lease within the Afgan Mineral Prospect Boundary, which Boundary shall include
all of the land which lies within 1.5 miles of any point on the perimeter of the
Afgan Mineral Prospect as defined hereinabove; and
(b) any additional claims, property or property rights that may subsequently be
acquired within one mile of the perimeter of the Kobeh Property as defined
hereinabove.
<PAGE>
ATTACHMENT I
SGC DOCUMENTS
(a) Participation Agreement dated May 31, 1995 by and between Serem Gatro
Canada Inc., Great Basin Exploration & Mining Co., Inc. and Great Basin
Management Co., Inc.
(b) Letter of agreement and consent to the Afgan JV dated November 21,
1995, between Great Basin Exploration & Mining Co., Inc. and Serem Gatro Canada
Inc.
See Volume II
<PAGE>
ATTACHMENT II
AFGAN PROPERTY DOCUMENTS
(a) Afgan Mineral Lease dated effective November 8, 1993, by and between
Great Basin Exploration & Mining Co., Inc., and Lyle F. Campbell, Sole Trustee
of the Lyle F. Campbell Trust
(b) First Amendment to Mineral Lease dated effective May 19, 1994, by and
between Great Basin Exploration & Mining Co., Inc., and Lyle F. Campbell, Sole
Trustee of the Lyle F. Campbell Trust
(c) Second Amendment to Mineral Lease dated effective November 20, 1995, by
and between Great Basin Exploration & Mining Co., Inc., and Lyle F. Campbell,
Sole Trustee of the Lyle F. Campbell Trust
(d) Boundary Agreement dated effective November 13, 1992 by and between
Great Basin Exploration & Mining Co., Inc. and Lyle F. Campbell, sole Trustee of
The Lyle F. Campbell Trust
(e) Letter dated December 12, 1995, as revised by letter dated December 14,
1995, from Lyle F. Campbell confirming that certain relocated Kobeh Property
claims shall not be subject to the Afgan Mineral Lease
(f) Letter of consent and approval for the Assignment of Mineral Lease
dated December ----, 1995 between Great Basin Exploration & Mining Co., Inc. and
Lyle F. Campbell, sole Trustee of The Lyle F. Campbell Trust
<PAGE>
ATTACHMENT III
KOBEH PROPERTY DOCUMENTS
(a) Exploration letter agreement dated April 11, 1991, as amended by letter
dated December 1, 1995, by and between Great Basin Exploration & Mining Co.,
Inc. and Golden Regent Resources Ltd. (formerly Golden Regent Minerals, Inc. and
Mr. William Salt)
(b) Royalty Deed and Agreement dated effective January 1, 1996 by and
between Great Basin Exploration & Mining Co., Inc. and Lyle F. Campbell, sole
Trustee of The Lyle F. Campbell Trust
See Volume II
<PAGE>
ATTACHMENT IV
KIM CHEE PROPERTY DOCUMENTS
(a) Royalty Deed and Agreement dated effective January 1, 1996 by and
between Cominco American Incorporated and Lyle F. Campbell, sole Trustee of The
Lyle F. Campbell Trust
See Volume II
<PAGE>
EXHIBIT B
(TO JOINT VENTURE OPERATING AGREEMENT
DATED EFFECTIVE AS OF JANUARY 1, 1996
BY AND BETWEEN CAI AND GBEM)
Accounting Procedures
The purpose of these Accounting Procedures is to establish equitable
methods for determining charges and credits applicable to Venture operations
under the captioned Agreement (the "Agreement"). It is the intent of the
Operator and any Participant that is not acting as the Operator ("the
Non-Operator") that neither of them shall gain nor lose by reason of their
duties and responsibilities as the Operator or the Non-Operator but that the
Operator should be reimbursed for the value of services provided hereunder. If
any method proves unfair or inequitable to the Operator or the Non-Operator, the
Participants shall meet and in good faith endeavor to agree upon changes deemed
necessary to correct the unfairness or inequity. In the event of a conflict
between the provisions of these Accounting Procedures and those of the
Agreement, the provisions of the Agreement shall control.
ARTICLE 1
GENERAL PROVISIONS
1.0 General Provisions.
1.1 Definitions. The definitions set forth in the Agreement shall apply to
these Accounting Procedures and shall have the same meanings as used herein.
Additional terms used in these Accounting Procedures as set forth below shall
have the following meanings:
1.1.1 "Material" shall mean personal property, including, but not
limited to, supplies and non-depreciable equipment, acquired and held for use in
Joint Operations.
1.1.2 "Outsider" shall mean participants other than "Participants" to
the Agreement and their affiliates.
1.1.3 "Personal Expenses" shall mean travel and other reasonable
reimbursable expenses of employees of the Operator or its Affiliates.
1.1.4 "Technical Employees" shall mean those employees having special
and specific engineering, geological, legal, or other professional skills, and
whose primary function in Operations is the handling of specific matters for the
benefit of Operations.
1.2 Accounting Records.
1.2.1 The Operator shall maintain accounting records for the Joint
Account in accordance with generally accepted accounting principles consistently
applied and used in the mining industry.
<PAGE>
1.2.2 The Operator shall take advantage of and credit the Joint
Venture with all cash and trade discounts, freight allowances and equalizations,
annual volume or other allowances, credits, salvages, commissions, insurance
discount dividends and retroactive premium adjustments, and any other benefits
which accrue to the Operator wholly or in part because of Operations.
1.3 Statements, Billings and Adjustments.
1.3.1 The Operator shall bill the Non-Operator for its proportionate
share of the costs charged to the Joint Account in accordance with Section 12 of
the Agreement.
1.3.2 Payment of bills shall not prejudice the right of the
Non-Operator to protest or question the correctness thereof; however, all bills
and statements rendered during any calendar year shall be presumed conclusively
to be true and correct after twelve (12) months following the end of any such
calendar year unless, within the said twelve (12)-month period, the Non-Operator
takes written exception thereto and makes claim on the Operator for adjustment.
No adjustment favorable to the Operator shall be made unless it is made within
the same prescribed period or in connection with an adjustment in favor of the
Non-Operator. The provisions of this paragraph shall not prevent adjustments
resulting from a physical inventory of the Assets.
1.4 Advances and Payments.
1.4.1 As provided for in Section 12 of the Agreement, the Non-Operator
shall advance its share of the estimated cash outlay for the succeeding month's
operation. If the Non-Operator's advances exceed its share of actual
expenditures, subsequent Cash Calls will be adjusted downward or the Operator
will refund to the Non-Operator excess funds that are not necessary for
subsequent operations.
1.4.2 The Operator shall base its estimates of cash advance
requirements on the latest information available and shall take into account
cash on hand which may be applied to satisfy such requirements in order to
reduce the amounts to be advanced. It is the intent of the Participants to
provide adequate funds for the operations and to maintain bank balances at
minimum levels.
1.4.3 If the Operator does not request the Non-Operator to advance its
share of estimated cash requirements, the Non-Operator shall pay its share of
expenditures within thirty (30) days following receipt of the Operator's
billing.
1.4.4 Unless provided otherwise in the Agreement, all payments shall
be made on or before the due date by wire transfer in immediately- available
funds to bank accounts designated by the Operator. If not so paid, the unpaid
balance shall bear interest after the due date at an annual rate which equals
the "Prime Rate," designated or published for such from time to time by The
Chase Manhattan Bank, New York, New York, plus two (2) percentage points per
year, adjusted in such case on the date on which a change in the Prime Rate
occurs, but in no event to exceed the maximum rate permitted by applicable law,
for each thirty (30)-day period or portion thereof until such amount is paid,
plus attorneys' fees, court costs, and other costs related to the collection of
the unpaid amounts.
1.4.5 Funds received by the Operator from the Non-Operator need not be
segregated or maintained by the Operator as a separate fund, but may be
commingled with the Operator's own funds. Accrued interest, if any, on such
funds shall be credited to its Participants in proportion to their respective
Interests.
<PAGE>
1.5 Audits. Upon notice in writing to the Operator, the Non-Operator shall
have the right to audit the accounts and records relating to the accounting made
under this Agreement for any calendar year within the twelve (12)-month period
following the end of such calendar year; provided, however, the making of an
audit shall not extend the time for the taking of written exception to and the
adjustments of accounts pursuant to Section 1.3.2. The Non-Operator may arrange
for audits by independent auditors of national recognition which are acceptable
to the Operator. Audits shall be conducted in a manner so as to cause the
minimum inconvenience to the Operator. The Operator shall bear no portion of the
Non-Operator's audit costs unless agreed to by the Operator in advance of such
audit.
ARTICLE 2
CHARGEABLE COSTS
2.0 Chargeable Costs. Subject to the provisions of the Agreement, the Operator
shall charge the Joint Account with all costs incurred by it as necessary and
proper for the conduct of Operations or maintenance of the Assets. Except as
otherwise provided in the Agreement, the Operator shall charge the Joint Account
with: (1) exploration expenditures made for the exploration activities within
the Area of Interest, (2) expenditures made for engineering, environmental,
planning, development and construction related to the Properties and for the
equipment and facilities necessary for Operations, including all working capital
and sustaining capital for ongoing Operations and for the expansion and updating
of Operations, and (3) costs and expenses of mining, processing, reclamation,
restoration, worker's compensation and other claims upon closing of the mines,
and any other costs following the mine closing. Such costs include, but are not
limited to, the following:
2.1 Property Payments. Property payments, rentals, royalties and other
payments out of production (unless such royalties or other payments shall burden
the ownership interests of only one Participant) and fees, paid by the Operator
for Operations, including permits, fees, and other charges which are assessed by
various governmental agencies. Such costs also include acquisition of easements,
rights of way, and surface rights.
2.2 Labor.
2.2.1 Salaries and wages of the Operator's employees directly engaged
in the conduct of and for the benefit of Operations, whether temporarily or
permanently assigned. The proportion of salaries and wages charged will be
prorated proportionately to the time spent by employees for the benefit of
Operations. Salaries and wages shall include everything constituting gross pay
to employees as reflected on the Operator's payroll, including travel time and
overtime.
2.2.2 The Operator's cost of holidays, rest days, vacations,
disability benefits, sickness, and other customary allowances and reasonable
expenses which are paid or reimbursed under the Operator's usual practice. Such
amounts may be charged either on a "percentage assessment" of salaries and
wages, or on a cash basis.
<PAGE>
2.2.3 Costs of expenditures or contributions made pursuant to
assessments imposed by governmental authority which are applicable to the
Operator's cost of salaries and wages.
2.2.4 Personal Expenses of employees whose salaries and wages are
chargeable to the Joint Account under Section 2.2.1, but only to the extent that
such Personal Expenses are incurred in connection with their efforts while
directly engaged in the conduct of and for the benefit of Operations.
2.2.5 The Operator's actual costs of established plans for employees'
group life insurance, hospitalization, medical, dental, pension, retirement,
stock purchase, profit sharing, thrift, bonus, and other benefit plans of a
similar nature applicable to the Operator's labor cost chargeable to the Joint
Account.
2.2.6 If a percentage assignment is used for Sections 2.2.2 and 2.2.5,
the rate shall be based on actual cost experience for the previous year. Such
rate shall be determined during the first quarter of each year and shall be
applied in current-year operations.
2.2.7 Relocation costs of employees permanently or temporarily
assigned and directly engaged in the conduct of Operations. Such costs shall
include transportation of employees' families and their personal and household
effects and all other relocation costs in accordance with the Operator's usual
practice.
2.3 Material. Material purchased or furnished by the Operator for use in
Operations as provided under Article 3. So far as is reasonably practical, and
consistent with efficient and economical operations, only such Material shall be
purchased or transferred for use in Operations as may be required for immediate
use.
2.4 Transportation.
2.4.1 Transportation of material and other related costs such as
expediting, crating, freight, and unloading at destination.
2.4.2 Transportation of employees as required in the conduct of
Operations.
2.5 Services.
2.5.1 The cost of consultants, contract labor, services, equipment,
and utilities procured from Outsiders.
2.5.2 Technical or research services, such as, but not limited to,
laboratory analysis, drafting, geophysical and geological interpretation,
engineering, reserve studies and related computer services, and data processing,
which may be delegated to and performed by the specialized staffs of one of the
Participants or their Affiliates. Such professional services shall be on a
cost-of-service basis and charges shall not exceed the cost of comparable
quality services by qualified Outsiders. Charges to the Joint Account for
services directly benefiting Operations shall be in addition to any charges
allowed under Sections 2.11 and 2.12.
<PAGE>
2.5.3 In the event the Operator from time to time utilizes skilled
personnel of the Participants or their Affiliates for performance of services
either within the Area of Interest or elsewhere for the benefit of Operations,
whose time in full or in part is not otherwise charged hereunder, a proper
proportion of the direct and indirect salary, employee benefits, and travel
expenses of such personnel shall be charged to the Joint Account, provided such
work is pursuant to written authorization by the Operator. Such professional
services shall be on a cost-of-service basis and charges shall not exceed the
cost of comparable quality services by qualified Outsiders.
2.5.4 Use of the Operator's and the Non-Operator's separately owned
equipment and facilities for the benefit of Operations. Such use shall be
charged to the Joint Account at rates commensurate with the Operator's actual
and full costs of ownership and operation, and such rates shall include cost of
maintenance, repairs, other operating expense, insurance, taxes (other than
income taxes), depreciation, and other overhead. These charges shall not exceed
the prevailing commercial rates in the area.
2.5.5 Data processing and computer services acquired for the benefit
of Operations may be contracted through Outsiders, or by arrangement for
computer services from one of the Participants or their Affiliates, even though
such facilities are not physically located within the Area of Interest. Charges
to the Joint Account under this provision for services directly benefitting
Operations shall be in addition to any charges allowed under Sections 2.11 and
2.12. Such professional services shall be on a cost-of-service basis and charges
shall not exceed the cost of comparable quality services by qualified Outsiders.
2.5.6 Any technical services, skilled personnel, equipment, facilities
or data processing services provided to Operations by the Non-Operator, at the
request of the Operator, shall be charged on the same basis as provided in
Sections 2.5.2, 2.5.3, 2.5.4 and 2.5.5 above. The Non- Operator shall bill the
Operator in accordance with Section 1.4.3 of the Accounting Procedures. The
Operator may audit the records of the Non-Operator with regard to such services
in accordance with the procedure set forth in Section 1.5.
2.6 Repair and Replacement of Property. All costs or expenses (net of the
recoveries from insurance for which the premiums have been charged to the Joint
Account, if any) necessary for the repair or replacement of property resulting
from damages or losses incurred by fire, flood, storm, theft, accident, or any
other cause, excepting the Operator's gross negligence or willful misconduct.
The Operator shall furnish to the Non-Operator written notice of damages or
losses in excess of fifteen thousand dollars ($15,000.00) as soon as
practicable. Such costs and expenses include the costs to combat and control the
actions of the hazard.
2.7 Insurance.
2.7.1 Premiums paid for Workers' Compensation or Employer's Liability
Insurance required to be carried for Operations. In the event Operations are
conducted in a state in which the Operator may act as self-insurer for Workers'
Compensation or Employer's Liability under the applicable state's law, the
Operator may, at its election, include the risk under its self-insurance program
and in that event, the Operator shall include a charge at the Operator's cost of
up to a maximum of one and one-quarter (1.25) times the Standard Workers'
Compensation rate during any one (1) contract year. Premiums paid for an
insurance program covering such property, business interruption, casualty, and
fidelity risks as are deemed prudent by the Operator based on sound business
judgment, which judgment shall be subject to review and revision by the
Management Committee. Premiums paid for other insurance as requested by the
Management Committee. Each Participant may procure and maintain, at its own cost
and expense, such other insurance as it may determine to be necessary to protect
its interests, and any such insurance so procured and maintained shall inure
solely to the benefit of the Participant procuring the same.
<PAGE>
2.7.2 Actual expenditures incurred in the investigation, defense, and
settlement of all losses, claims, damages, judgments, and other expenses for the
benefit of Operations, excepting those resulting from the Operator's gross
negligence or willful misconduct.
2.8 Litigation and Claims. All costs or expenses of handling, investigating
and settling litigation or claims arising by reason of Operations or necessary
to protect or recover property, including, but not limited to, attorneys' fees,
court costs, cost of investigation or procuring evidence, and amounts paid in
settlement or satisfaction of any such litigation or claims. In the event
actions or claims affecting Operations shall be handled by the legal staff of
one of the Participants, a charge commensurate with the cost of providing such
service is chargeable to the Joint Account.
2.9 Taxes. All taxes (except taxes based on or determined with reference to
income), fees, and governmental assessments of every kind and nature. If the
Operator is required hereunder to pay ad valorem taxes based in whole or in part
upon separate valuations of each Participant's Interest, then notwithstanding
anything to the contrary herein, charges to the Joint Account shall be made and
paid by the Participants hereto in accordance with the percentage of tax value
generated by each Participant's Interest.
2.10 Fines. All fines resulting from non-compliance with applicable laws,
rules, and regulations, except to the extent that such fines were due to the
gross negligence or willful misconduct of the Operator.
2.11 Direct Administrative Costs. The net cost of maintaining and operating
any offices (excepting the corporate headquarters office), suboffices, camps,
warehouses, housing, and other facilities directly serving Operations shall be
charged to the Joint Account. If such facilities serve operations in addition to
Operations, the net costs shall be allocated to all operations served on an
equitable basis mutually agreed to by the Participants.
2.12 Operator's Management Fee. A charge to reimburse the Operator for
overhead and other general and administrative services of the Operator's
corporate headquarters office equal to the following percentages applied to
costs and expenses determined on a monthly basis under the provisions of
Paragraph 1 through 15 of this Article 2 (except this Paragraph 2.12):
2.12.1 Eight percent (8%) of all cash expenditures incurred prior to
approval of a Feasibility Study.
2.12.2 Four percent (4%) of all cash expenditures incurred following
approval of a Feasibility Study.
2.13 Storage of Production Inventories. Each Participant will bear the cost
incurred for handling and storage of merchantable ore or concentrates as
follows:
2.13.1 Personal property taxes on ore or concentrates in storage for a
Participant within the Area of Interest shall be charged to such Participant.
<PAGE>
2.13.2 The cost of loading out such ore in storage for a Participant
from the Area of Interest shall be charged to such Participant.
2.13.3 Cost associated with providing storage of ore or concentrates
in the Area of Interest will be charged on a pro rata basis determined by the
Participants.
2.13.4 Other costs arising out of storage or handling of ore or
concentrates shall be charged to the Participant owning such Materials.
2.14 Project Assets. The cost of all capital expenses of the Assets which
are normally depreciable, depletable, or amortizable, including, but not limited
to, land acquisition, exploration, development, pre-mine development and
stripping, machinery, equipment, plant, buildings, rail facilities and
equipment, improvements, camp and port facilities, townsites and other
infrastructure, whether incurred or acquired prior to or after commencement of
production.
2.15 Other Necessary Expenses. Any other chargeable expenditures not
covered or dealt with in the foregoing provisions which are necessary and proper
for the conduct of Operations.
ARTICLE 3
PRICING OF JOINT ACCOUNT MATERIAL PURCHASES,
TRANSFERS, AND DISPOSITION
3.0 Pricing of Joint Account Material Purchases, Transfers, and Disposition. The
Operator is responsible for Joint Account Material and shall make proper and
timely charges and credits for all Material movements affecting the Area of
Interest. The Operator shall provide all Material for use in the Area of
Interest; however, at the Operator's option, such Material may be supplied by
the Non-Operator.
3.1 Purchases. Material purchased shall be charged at the price paid by the
Operator after deduction of all discount received. In case of Material found to
be defective or returned to vendor for any other reason, credit shall be passed
to the Joint Account when adjustment has been received by the Operator.
3.2 Transfer and Dispositions. Material furnished to the Area of Interest
and Material transferred from the Area of Interest or disposed of by the
Operator, unless otherwise agreed to by the Participants, shall be priced at its
current fair market value.
3.3 Premium Prices. Whenever Material is not readily obtainable at
published or listed prices because of national emergencies, strikes, or other
unusual causes over which the Operator has no control, the Operator may charge
the Joint Account for the required Material at the Operator's actual cost
incurred in providing such Material, in making it suitable for use, and in
moving it to the Area of Interest.
3.4 Warranty of Material. The Operator shall not be held responsible for
defects in Material furnished for Operations. In the event Material is
defective, credit shall not be passed to the Joint Account until the adjustment
has been received by the Operator from the manufacturer or its agents.
<PAGE>
ARTICLE 4
DISPOSAL OF SURPLUS MATERIAL
4.0 Disposal of Surplus Material.
4.1 Distribution Generally. The disposition of major items of surplus
Material shall be decided upon by the Operator. The Operator may purchase, but
shall be under no obligation to purchase, the interests of the Non-Operator in
surplus Material.
4.2 Purchase by Participants. Surplus Material purchased by either the
Operator or the Non-Operator shall be credited by the Operator to the Joint
Account at its fair market value.
4.3 Distribution to Participants. Division of Material in kind, if made
between the Operator and the Non-Operator, shall be in proportion to their
respective interests in such Material. Each Participant will thereupon be
charged individually with the value of the Material received or receivable by
each Participant, and corresponding credits will be made by the Operator to the
Joint Account. Such credits shall appear in the monthly statement of operations.
4.4 Sales. Sales to outsiders of Material from the Area of Interest shall
be credited by the Operator to the Joint Account at the net amount collected by
the Operator from vendee, which shall be priced on the basis of the best
available market price. Any claim by vendee for defective Materials or otherwise
shall be charged back to the Joint Account if and when paid by the Operator.
ARTICLE 5
INVENTORIES
5.0 Inventories.
5.1 Periodic Inventories. The Operator shall take physical inventory of
Joint Account Material at reasonable intervals in accordance with generally
accepted accounting principles. The Non-Operator may be represented when any
inventory shall bind the Non-Operator to accept the inventory taken by the
Operator.
5.2 Reconciliation. Reconciliation of inventories with the Joint Account
shall be made by the Operator, and a list of overages and shortages shall be
furnished to the Non-Operator within six (6) months following the taking of
inventory. Inventory adjustments shall be made by the Operator to the Joint
Account for overages and shortages, but the Operator shall be held accountable
to the Non-Operator only for shortages due to the lack of reasonable diligence.
5.3 Special Inventories. Whenever there is a sale or change of Interest in
the Properties, the Area of Interest or the Assets, a special inventory may be
taken by the Operator, provided the seller or purchaser of such Interest
requests such inventory and agrees to bear all of the expense thereof. In such
cases, both the seller and the purchaser shall be entitled to be represented. A
special inventory shall be required when there is a change in the Operator. The
cost of the latter inventory will be charged to the Joint Account when the
change in the Operator does not come about as the result of a sale of the former
Operator's Interest.
5.4 Expenses. The expense incurred by the Operator in conducting periodic
inventories shall be charged to the Joint Account.
<PAGE>
EXHIBIT C
(TO JOINT VENTURE OPERATING AGREEMENT
DATED EFFECTIVE AS OF JANUARY 1, 1996
BY AND BETWEEN CAI AND GBEM)
Royalty Calculations
Part I
Net Proceeds Royalty
1.0 The Net Proceeds Royalty shall equal --- percent (---%) of one hundred
percent (100%) of the previous quarter's Net Proceeds (as defined herein) upon
the terms and conditions hereafter provided. If negative Net Proceeds are
incurred in any quarter, such losses will be carried forward and deducted from
proceeds in subsequent quarters until fully deducted.
2.0 The Net Proceeds Royalty shall be paid on or before thirty (30) days after
the end of each calendar quarter.
3.0 For purposes hereof, the following terms shall have the following meanings:
3.1 The term "Net Proceeds" shall mean Cash Receipts and other Credits less
the Cash Expenditures and other Charges.
3.2 The term "Cash Receipts and Other Credits" shall mean the actual
amounts received from the sale of ores, minerals, mineral resources, bullion,
concentrates, and metals produced from the Properties.
3.3 The term "Cash Expenditures and Other Charges" shall mean:
a. All cash expenditures attributable to exploration, feasibility
studies, environmental studies, permitting, lobbying, development, construction
(including all capital costs of construction), mining, milling, concentrating,
storage, transportation, and marketing of the mining products.
b. All cash expenditures for property rental payments, property
acquisition costs, property maintenance costs, acquiring water rights, advance
royalty payments and payment obligations based upon the amount, quantity, value
or income from the Products removed from the Properties, including sales,
severance, net proceeds, reclamation or other similar taxes or fees, other than
this Net Proceeds Royalty.
c. All cash expenditures attributable to smelting, refining, or other
applicable ore beneficiation costs (which shall not exceed standard,
arm's-length market rates applicable to the area where the products are mined
and produced) necessary to process ores from a raw state into a marketable
product.
d. All costs for replacing, expanding, modifying, altering, suspending
and terminating any of the facilities.
e. Ongoing environmental and reclamation costs.
<PAGE>
f. All costs and expenses, including attorney's fees, incurred in the
settling of or defending against any litigation, administrative hearings, or
ruling or governmental actions relating to the project or its operator while
engaged in its responsibilities on project matters, including all settlement
amounts or judgments rendered by any court or administrative body.
g. All costs associated with procuring financing for the project,
including, but not limited to, standby fees and legal fees.
h. A charge for interest on the average daily outstanding balance of
all unrecovered Cash Expenditures and Other Charges, compounded monthly at the
rate of two percent (2%) per annum above the opening prime lending rate on the
first business day of each month as established by The Chase Manhattan Bank at
its main branch in New York, New York.
i. All cash expenditures for taxes (other than federal and state
corporate income taxes) and insurance applicable to the property.
j. All cash expenditures for administrative expenses incurred at the
project site.
k. An allowance of five percent (5%) of Item 3.3(a) and Item 3.3(c)
above to cover administrative expense incurred off the project site.
l. Accruals for post-production activity, including, but not limited
to, reclamation and restoration of the mining site as may be required by
federal, state and local laws, rules and regulations.
<PAGE>
Part II
Net Returns Royalty
1.0 The Net Returns Royalty shall equal ----- percent (---%) of the amount
actually received by CAI, its successors and assigns from the purchaser for
Products in first marketable form, mined from the Properties which are processed
or sold by or for the account of CAI, its successors and assigns after first
deducting all Allowable Deductions.
2.0 For purposes hereof, the term "Allowable Deductions" shall mean, to the
extent borne or to be borne by CAI, the following:
2.1 Royalty, tax or other payment obligation based upon the amount,
quantity, value or income from the Products removed from the Properties,
including sales, severance, net proceeds, reclamation and other similar taxes or
fees (except federal and state corporate income tax);
2.2 Charges for and taxes on loading and transportation from the mine or,
if the Products are processed, from the plant producing the Products to the
place of sale;
2.3 Insurance and security costs and charges;
2.4 Purchasers' milling, smelting, refining, and other treatment charges or
costs, including such treatment charges, penalties and other deductions applied
in determining the net sum realized on sale to the smelter or other purchaser;
provided, however, in the case of leaching operations, all processing and
recovery costs incurred by CAI, its successors and assigns, beyond the point at
which the metal being treated is in dore, shall be considered as treatment
costs;
2.5 Representation, assaying and umpire costs and fees; and
2.6 Marketing costs and commissions.
3.0 The Net Returns Royalty shall be paid on or before thirty (30) days after
the end of each calendar quarter.
<PAGE>
EXHIBIT D
(TO JOINT VENTURE OPERATING AGREEMENT
DATED EFFECTIVE AS OF JANUARY 1, 1996
BY AND BETWEEN CAI AND GBEM)
Special Warranty Deed, Bill Of Sale, And Assignment
THIS SPECIAL WARRANTY DEED, BILL OF SALE, AND ASSIGNMENT (this
"Instrument"), dated effective as of --------------- 19---, is from
- -------------------------, a ---------- ---------------, whose address is
- ------------- -----------------------, --------------------, -------("Grantor"),
to ----------------------, a ---------------- ---------------, whose address is
- -----------------------------------------------,
- ---------------, --------------, ---------- ("Grantee").
Recitals
A. COMINCO AMERICAN INCORPORATED and GREAT BASIN EXPLORATION & MINING CO., INC.
have entered into a Joint Venture Operating Agreement dated effective as of
January 1, 1996 (the "Agreement"), by which the parties have established a joint
venture (the "Venture").
B. This Instrument is executed and delivered pursuant to the provisions of the
Agreement.
Grant
FOR AND IN CONSIDERATION of Ten Dollars ($10.00), the mutual promises
contained in the Agreement, and other good and valuable consideration, the
receipt and sufficiency of which are hereby acknowledged, Grantor hereby grants,
sells, assigns, conveys and specially warrants to Grantee [all or specified
undivided percent] of Grantor's right, title and interest, whether now owned or
hereafter acquired, in and to all real and personal property, fixtures,
attachments, water rights, agreements, options, contracts, licenses, permits and
other tangible or intangible property of whatsoever kind or nature comprising,
located on, associated with or relating to the Area of Interest described in the
Agreement, including, without limitation, those assets more particularly
described in Schedule I attached hereto, together with [all or specified
undivided percent] of Grantor's Interest in the Venture (collectively, the
"Assets").
TO HAVE AND TO HOLD the Assets unto Grantee, its successors and assigns
forever with the special warranty of title from and against all claims, liens,
encumbrances, changes and causes of action with respect to the Assets arising
by, through or under Grantor in its individual capacity, but not otherwise. No
other representation or warranty is made or given. ALL WARRANTIES OF
MERCHANTABILITY OR FITNESS FOR A PARTICULAR USE ARE EXPRESSLY EXCLUDED. The
Assets are transferred "AS IS" without any warranty or representation as to
environmental liabilities or conditions or compliance with federal, state and
local permitting and environmental requirements.
THIS INSTRUMENT is executed pursuant to and in conformance with the
Agreement. The representations and warranties set forth in the Agreement are by
this reference incorporated herein and shall survive execution and delivery of
this Instrument.
<PAGE>
All recording references in the Schedule attached to this Instrument are to
the official real property records of ------------------------------.
This Instrument shall bind and inure to the benefit of the parties and
their respective successors and assigns.
EXECUTED this ----- day of -----------, 199---, to be effective as of the
date first above written.
GRANTOR:
By: --------------------------------
Its: -------------------------------
<PAGE>
STATE OF --------- )
: ss
COUNTY OF -------- )
This ----- day of ----------, A.D.-----, personally came before me
- --------------------, who, being by me duly sworn, says that he/she is
- ----------- of ----------------------------------, and that the seal affixed to
the foregoing instrument in writing is the corporate seal of said Company and
that said writing was signed and sealed by him/her in behalf of said corporation
by its authority duly given. And the said ---------------acknowledged the said
writing to be the act and deed of said corporation.
- ----------------------
ATTEST: (Secretary or
Assistant Secretary)
SEAL:
- ----------------------
<PAGE>
SCHEDULE I
(to Special Warranty Deed, Bill of Sale, and Assignment
Assets
<PAGE>
EXHIBIT E
(TO JOINT VENTURE OPERATING AGREEMENT
DATED EFFECTIVE AS OF JANUARY 1, 1996
BY AND BETWEEN CAI AND GBEM)
Royalty Deeds
Part I
Net Proceeds Royalty Deed
THIS NET PROCEEDS ROYALTY DEED (this "Deed"), dated effective as of
- --------------- 19---, is from -------------, a ---------------, whose address
is ------------------------ -----------------------------, -----------,
- -------("Grantor"), to --------------------------, a -------------
- ---------------, whose address is ------------------------------,
- ---------------, -------------------, ---------- ("Grantee").
Recitals
A. Cominco American Incorporated and ---------- have entered into a Joint
Venture Operating Agreement dated effective as of ------------------- (the
"Agreement"), by which the parties have established a joint venture (the
"Venture").
B. This Deed is executed and delivered pursuant to the provisions of the
Agreement.
Grant
FOR AND IN CONSIDERATION of Ten Dollars ($10.00), the mutual promises
contained in the Agreement, and other good and valuable consideration, the
receipt and sufficiency of which are hereby acknowledged, Grantor hereby
conveys, grants and assigns to Grantee an undivided five percent (5%) of one
hundred percent (100%) net proceeds royalty burdening and encumbering the real
property more particularly described in Schedule I attached hereto (the
"Properties") to be calculated and paid pursuant to and in accordance with the
provisions of the "Net Proceeds Royalty Calculation" described in Schedule II
attached hereto (hereinafter, the "Net Proceeds Royalty").
[ALTERNATIVE PARAGRAPH TO BE ADDED IN THE EVENT OF A DEFAULT UNDER SECTION
12.4 OF THE VENTURE AGREEMENT: Provided, however, that the cumulative amount
payable to Grantee, its successors or assigns pursuant to this grant of Net
Proceeds Royalty shall in no event exceed $-------, and no additional amount
shall thereafter be payable to Grantee. Upon payment of the cumulative amount of
$------- hereunder, the Net Proceeds Royalty shall terminate and Grantee shall
have no further interest in or to the Properties, and Grantor shall own the
Properties free and clear of the Net Proceeds Royalty. Thereafter, Grantor may
file of record a notice of termination of the Net Proceeds Royalty.]
TO HAVE AND TO HOLD the Net Proceeds Royalty unto Grantee, its successors
and assigns forever.
This Deed is given without warranty of title whatsoever. ALL WARRANTIES OF
MERCHANTABILITY OR FITNESS FOR A PARTICULAR USE ARE EXPRESSLY EXCLUDED.
<PAGE>
This Deed is executed pursuant to and in conformance with the Agreement and
is made expressly subject to all terms, conditions, covenants, representations
and warranties set forth in the Agreement, all of which by this reference are
incorporated herein and shall survive execution and delivery of this Deed.
The Net Proceeds Royalty created by this Deed shall burden and run with the
Properties. Nothing contained herein shall constitute an affirmative covenant or
obligation of Grantor to operate, produce from or sell the Properties in a
manner to generate proceeds from the Properties that would be subject to the Net
Proceeds Royalty hereunder. Grantee shall look solely to the Properties for
satisfaction and discharge of the Net Proceeds Royalty, and Grantor shall not be
personally liable for the payment and discharge thereof.
The Grantee may freely transfer, sell, assign or otherwise dispose of its
entire interest in the Net Proceeds Royalty; provided, however, that Grantor
shall have no obligation to pay proceeds of the Net Proceeds Royalty to any
party other than the Grantee until Grantee, its successors and assigns shall
have provided Grantor with written notice of a transfer, sale or assignment of
all or a portion of the Net Proceeds Royalty, together with a copy of the
applicable instruments of sale or conveyance.
All recording references in Schedule I are to the official real property
records of ---------------------.
This Deed shall bind and inure to the benefit of the parties and their
respective successors and assigns.
EXECUTED this ----- day of -----------, 199---, to be effective as of the
date first above written.
GRANTOR
By:-----------------
Its: ----------------
GRANTEE
By: ----------------
Its: ---------------
<PAGE>
STATE OF --------- )
: ss
COUNTY OF -------- )
This ----- day of ----------, A.D.-----, personally came before me
- --------------------, who, being by me duly sworn, says that he/she is
- ----------- of ----------------------------------, and that the seal affixed to
the foregoing instrument in writing is the corporate seal of said Company and
that said writing was signed and sealed by him/her in behalf of said corporation
by its authority duly given. And the said ---------------acknowledged the said
writing to be the act and deed of said corporation.
- ----------------------
ATTEST: (Secretary or
Assistant Secretary)
SEAL:
- ----------------------
<PAGE>
STATE OF --------- )
: ss
COUNTY OF -------- )
This ----- day of ----------, A.D.-----, personally came before me
- --------------------, who, being by me duly sworn, says that he/she is
- ----------- of ----------------------------------, and that the seal affixed to
the foregoing instrument in writing is the corporate seal of said Company and
that said writing was signed and sealed by him/her in behalf of said corporation
by its authority duly given. And the said ---------------acknowledged the said
writing to be the act and deed of said corporation. ----------------------
- ----------------------
ATTEST: (Secretary or
Assistant Secretary)
SEAL:
- ----------------------
<PAGE>
SCHEDULE I
(to Net Proceeds Royalty Deed)
Properties
<PAGE>
SCHEDULE II
(to Net Proceeds Royalty Deed)
Net Proceeds Royalty Calculation
<PAGE>
EXHIBIT E
(TO JOINT VENTURE OPERATING AGREEMENT
DATED EFFECTIVE AS OF JANUARY 1, 1996
BY AND BETWEEN CAI AND GBEM)
Royalty Deeds
Part II
Net Returns Royalty Deed
THIS NET RETURNS ROYALTY DEED (this "Deed"), dated effective as of
- --------------- 19---, is from -------------, a --------------------------,
whose address is -------------------------------------------------------,
- -----------, -------("Grantor"), to -------------------------, a -------------
- ---------------, whose address is ------------------------------,
- ---------------, -------------------, ---------- ("Grantee").
Recitals
A. Cominco American Incorporated and GBEM have entered into a Joint Venture
Operating Agreement dated effective as of -------------------------- (the
"Agreement"), by which the parties have established a joint venture (the
"Venture").
B. This Deed is executed and delivered pursuant to the provisions of the
Agreement.
Grant
FOR AND IN CONSIDERATION of Ten Dollars ($10.00), the mutual promises
contained in the Agreement, and other good and valuable consideration, the
receipt and sufficiency of which are hereby acknowledged, Grantor hereby
conveys, grants and assigns to Grantee ------------- percent ( ------%) net
returns royalty burdening and encumbering the real property more particularly
described in Schedule I attached hereto (the "Properties") to be calculated and
paid pursuant to and in accordance with the provisions of the "Net Returns
Royalty Calculation" described in Schedule II attached hereto (hereinafter, the
"Net Returns Royalty").
TO HAVE AND TO HOLD the Net Returns Royalty unto Grantee, its successors
and assigns forever.
This Deed is given without warranty of title whatsoever. ALL WARRANTIES OF
MERCHANTABILITY OR FITNESS FOR A PARTICULAR USE ARE EXPRESSLY EXCLUDED.
This Deed is executed pursuant to and in conformance with the Agreement and
is made expressly subject to all terms, conditions, covenants, representations
and warranties set forth in the Agreement, all of which by this reference are
incorporated herein and shall survive execution and delivery of this Deed.
The Net Returns Royalty created by this Deed shall burden and run with the
Properties. Nothing contained herein shall constitute an affirmative covenant or
obligation of Grantor to operate, produce from or sell the Properties in a
manner to generate proceeds from the Properties that would be subject to the Net
Returns Royalty hereunder. Grantee shall look solely to the Properties for
satisfaction and discharge of the Net Returns Royalty, and Grantor shall not be
personally liable for the payment and discharge thereof.
<PAGE>
The Grantee may freely transfer, sell, assign or otherwise dispose of its
entire interest in the Net Returns Royalty; provided, however, that Grantor
shall have no obligation to pay proceeds of the Net Returns Royalty to any party
other than the Grantee until Grantee, its successors and assigns shall have
provided Grantor with written notice of a transfer, sale or assignment of all or
a portion of the Net Returns Royalty, together with a copy of the applicable
instruments of sale or conveyance.
All recording references in Schedule I are to the official real property
records of ---------------------.
This Deed shall bind and inure to the benefit of the parties and their
respective successors and assigns.
EXECUTED this ----- day of -----------, 199---, to be effective as of the
date first above written.
GRANTOR
By: ------------
Its: ------------
GRANTEE
By: --------------
Its: --------------
<PAGE>
STATE OF --------- )
: ss
COUNTY OF -------- )
This ----- day of ----------, A.D.-----, personally came before me
- --------------------, who, being by me duly sworn, says that he/she is
- ----------- of --------------------------------, and that the seal affixed to
the foregoing instrument in writing is the corporate seal of said Company and
that said writing was signed and sealed by him/her in behalf of said corporation
by its authority duly given. And the said ---------------- acknowledged the said
writing to be the act and deed of said corporation.
- ----------------------
- ----------------------
ATTEST: (Secretary or
Assistant Secretary)
SEAL:
- ----------------------
<PAGE>
STATE OF --------- )
: ss
COUNTY OF -------- )
This ----- day of ----------, A.D.-----, personally came before me
- --------------------, who, being by me duly sworn, says that he/she is
- ----------- of --------------------------------, and that the seal affixed to
the foregoing instrument in writing is the corporate seal of said Company and
that said writing was signed and sealed by him/her in behalf of said corporation
by its authority duly given. And the said ---------------- acknowledged the said
writing to be the act and deed of said corporation.
- ----------------------
ATTEST: (Secretary or
Assistant Secretary)
SEAL:
- ----------------------
<PAGE>
SCHEDULE I
(to Net Returns Royalty Deed)
Properties
<PAGE>
SCHEDULE II
(to Net Returns Royalty Deed)
Net Returns Royalty Calculation
<PAGE>
EXHIBIT F
(TO JOINT VENTURE OPERATING AGREEMENT
DATED EFFECTIVE AS OF JANUARY 1, 1996
BY AND BETWEEN CAI AND GBEM)
Nominee Agreement
THIS NOMINEE AGREEMENT (this "Agreement") is among COMINCO AMERICAN
INCORPORATED, a Washington corporation ("CAI"), in its capacity as the Operator
and as a Participant under the Operating Agreement described below (the
"Operator" and "Participant"), and GREAT BASIN EXPLORATION & MINING CO., INC., a
Nevada corporation ("GBEM"), in its capacity as a Participant under the
Operating Agreement ("Participant"). CAI and GBEM are collectively referred to
as the "Participants."
Recitals
A. CAI and GBEM have entered into that certain Joint Venture Operating Agreement
dated effective as of January 1, 1996 (the "Operating Agreement") establishing a
joint venture (the "Venture") between the parties for the purposes of acquiring,
exploring, evaluating, developing, processing, refining and selling mineral
resources that may be located on, in, or under and related to the properties
more particularly described in Exhibit A attached hereto and by reference
incorporated herein (the "Properties"). Unless specifically defined otherwise,
capitalized terms used in this Agreement shall have the meanings assigned to
them in the Operating Agreement.
B. CAI is designated as the Operator of the Venture under the Operating
Agreement.
C. CAI and GBEM desire the Operator to hold the legal, record title to the
Properties, together with all of the rights, benefits and interests of whatever
kind or character, real or personal, tangible or intangible, whether now owned
or hereafter acquired, which are in any way derived from, incidental, relating,
appertaining to or affixed to the Properties, including, without limiting the
generality of the foregoing, interests in equipment, fixtures, and improvements,
interests under contracts, licenses, farmouts, assignments and other agreements,
and interests in ore and other minerals, products and proceeds (the "Assets"),
as nominee on behalf of CAI and GBEM in proportion to their Interests described
below for the purposes of the Venture.
<PAGE>
Agreement
FOR AND IN CONSIDERATION of the mutual agreements contained in the
Operating Agreement and other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, CAI and GBEM hereby agree as
follows:
1. Nominee. The Operator does now hold legal, record title to the Assets as
nominee for the benefit of CAI and GBEM in the proportions established under the
Operating Agreement (the "Interests"). The Interests are subject to adjustment
in accordance with the Operating Agreement.
<PAGE>
2. Operator. CAI shall be the Operator of the Assets pursuant to the Operating
Agreement for the benefit of the Venture.
3. Operating Agreement. The Assets are subject to the terms and provisions of
the Operating Agreement, which provides among other matters, the following:
a. Subject to the provisions of the Operating Agreement requiring special
allocations, the Participants shall take in kind and separately dispose of their
respective shares of all Products produced from the Properties. A Participant
may authorize the Operator to sell its share of Products. If a Participant fails
to take in kind or to separately dispose of its share of Products from the
Properties and fails to request the Operator to sell its share of Products, the
Operator shall have the right, but not the obligation, subject to revocation at
will by the Participant owning the share, to purchase for the Operator's own
account or to sell such share to third parties as agent for such Participant.
b. The Participants shall be obligated to pay for the Costs of the Venture
in proportion to their respective Interests and shall bear all other costs,
expenses, liabilities, obligations and risks incurred under the Operating
Agreement in proportion to their respective Interests. A Participant's Interest
may be increased or decreased based upon contributions to the Costs of the
Venture, and may, in some situations, be converted to a Net Proceeds [or Net
Returns] Royalty.
c. The Participants shall own the Assets as tenants in common of undivided
interests and shall be severally, not jointly or collectively, liable for all
obligations of the Venture.
d. The Operator shall act in its own name and shall have the sole right and
full authority to represent the Venture with third parties.
e. All third parties dealing with the Operator are authorized and directed
to treat and regard the Operator as the party entitled to deal with the Assets.
Such third parties shall be fully protected in so treating and regarding the
Operator and such third parties shall have no obligation to determine the
authority of the Operator to deal with the Assets or the proper allocation of
any proceeds received by the Operator.
f. The Operator shall be indemnified and held harmless by the Participants
for its acts and omissions as the Operator in proportion to the Participants'
respective Interests as of the time the act or omission occurred, unless the act
or omission resulted from the Operator's gross negligence or willful misconduct.
g. A Participant's sale or transfer of its Interest in the Venture to a
third party is subject to restrictions on transferability set forth in the
Operating Agreement.
4. Notices. All notices required or permitted under this Agreement shall be in
writing and 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 or electronic communication on the date of delivery
or transmission if delivered or transmitted during normal business hours, and,
if not delivered or transmitted during normal business hours, on the next
business day following delivery, (ii) if by mail, on the date of mailing. Such
notices and writings shall be addressed as follows:
<PAGE>
If to CAI:
Cominco American Incorporated
601 West Riverside Avenue
P.O. Box 3087
Spokane, Washington 99220
Attention: Legal Department
If to GBEM:
5. Successors. This Agreement shall be binding upon and inure to the benefit of
the Operator, CAI and GBEM and their respective permitted successors and
assigns.
6. Amendments. This Agreement may be supplemented, altered, amended, modified or
revoked only by a writing signed by all of the parties hereto; provided,
however, that if the supplement, alteration, amendment, modification or
revocation affects the interests of less than all the Participants, then such
instrument must be executed by only those Participants whose interests are
affected and by the Operator in order to be effective hereunder.
7. Cross Conveyance. For purposes of establishing and confirming the beneficial
ownership of the Assets in the manner and proportions set forth above, the
Participants hereby grant, bargain, sell, convey, transfer, assign and
quitclaim, each to the others, without warranty of title except as set forth in
the Operating Agreement, so much of their respective equitable and beneficial
right, title and interest in and to the Assets, including, without limitation,
the Properties, as may be necessary to confirm and establish the equitable and
beneficial ownership of the Assets in conformance with their respective
Interests.
8. Acceptance. The Operator hereby accepts the appointment herein as nominee
upon the terms and conditions of this Agreement.
9. No Amendment. Nothing herein is intended, nor shall it be interpreted, to
amend, modify or waive any provision of the Operating Agreement.
<PAGE>
EXECUTED this 19th day of December, 1995, to be effective as of January 1,
1996.
OPERATOR: PARTICIPANTS:
Cominco American Cominco American
Incorporated Incorporated
George Cole George Cole
By:------------------- By:-----------------------
George Cole George Cole
Its:Vice President, Its:Vice President,
Exploration Exploration
<PAGE>
Great Basin Exploration &
Mining Co., Inc.
A. P. Taylor
By:--------------------------
A.P. Taylor
Its: President
<PAGE>
STATE OF WASHINGTON )
: ss
COUNTY OF SPOKANE )
On this 19th day of December, 1995, before me personally appeared George
Cole, to me known to be the Vice President, Exploration of COMINCO AMERICAN
INCORPORATED, the corporation that executed the foregoing instrument and
acknowledged the said instrument to be the free and voluntary act of said
corporation, for the uses and purposes therein mentioned,and on oath stated that
he was authorized to execute the said instrument on behalf of said corporation.
Given under my hand and official seal the day and year in this certificate
first above written.
Dawn R. Phillip
----------------------
Dawn R. Phillips
Notary Public in and for
the State of Washington,
Residing at Spokane
My commission expires:
May 19, 1997
SEAL: (seal affixed)
<PAGE>
STATE OF NEVADA )
: ss
COUNTY OF WASHOE )
On this 20 day of December, 1995, personally appeared before me, a notary
public, A. P. Taylor, the President of GREAT BASIN EXPLORATION 7 MINING CO.,
INC., a corporation, personally known (or proved) to me to be the person whose
name is subscribed to the foregoing instrument, who acknowledged that he
executed the foregoing instrument on behalf of the corporation.
Nancy M. Godbey
---------------
Notary Public
My Commission Expires:
(seal affixed) 11-2-97
Fischer-Watt Gold Company, Inc.
Computation of Earnings Per Share
For the Year Ended January 31, 1996
Twelve Months
Ended
January 31, 1996
----------------
Primary earnings per share
Net income for the period .............................. $ 1,031,791
Common shares outstanding .............................. 22,537,160
Total options and warrants
granted and unexercised (Note 3) ..................... 6,146,750
Weighted average shares
outstanding (Note 1) ................................. 14,883,269
Average market price per share ......................... $ 0.27
Primary earnings per share ............................... $ 0.07
Filly diluted earnings per share
Net income for the period .............................. $ 1,031,791
Common shares outstanding .............................. 22,537,160
Total options and warrants
granted and unexercised (Note 3) ..................... 6,146,750
Weighted average shares
outstanding (Note 2) ................................. 15,149,925
Year-end market price per share ........................ $ 0.34
Fully diluted earnings per share ......................... $ 0.07
Note 1
Shares outstanding at beginning
of period ............................................ 12,344,000.00
Weighted average shares issued
during the period .................................... 1,833,608.00
Dilutive effect of options and
warrants based on average
market price per share ............................... 705,661.00
-------------
Weighted average shares outstanding .................... 14,883,269.00
=============
Note 2
Shares outstanding at beginning of period .............. 12,344,000.00
Weighted average shares issued
during the period .................................... 1,833,608.00
Dilutive effect of options and
warrants based on average
market price per share ............................... 705,661.00
Additional dilute effect of
options and warrants based
on year-end market price ............................. 266,655.00
-------------
Weighted average shares outstanding .................... 15,149,924.00
=============
Note 3
Options and warrants outstanding
at beginning of year ................................. 2,388,000
Options and warrants issued ............................ 3,758,750
-------------
Options and warrants outstanding
at end of year ....................................... 6,146,750
=============
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
FINANCIAL STATEMENTS FOR THE TWELVE MONTHS ENDED JANUARY 31, 1996 CONTAINED IN
FORM 10-KSB FOR THE FISCAL PERIOD ENDED JANUARY 31, 1996 AND IS QUALIFIED IN ITS
ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<CIK> 0000844788
<NAME> FISCHER-WATT GOLD COMPANY, INC.
<MULTIPLIER> 1,000
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> JAN-31-1996
<PERIOD-END> JAN-31-1996
<EXCHANGE-RATE> 1
<CASH> 266
<SECURITIES> 0
<RECEIVABLES> 777
<ALLOWANCES> 0
<INVENTORY> 605
<CURRENT-ASSETS> 1,392
<PP&E> 1,589
<DEPRECIATION> 36
<TOTAL-ASSETS> 6,517
<CURRENT-LIABILITIES> 2,714
<BONDS> 0
0
0
<COMMON> 23
<OTHER-SE> 3,780
<TOTAL-LIABILITY-AND-EQUITY> 6,517
<SALES> 1,378
<TOTAL-REVENUES> 1,378
<CGS> 1,478
<TOTAL-COSTS> 2,162
<OTHER-EXPENSES> (513)
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 73
<INCOME-PRETAX> 1,124
<INCOME-TAX> 93
<INCOME-CONTINUING> 1,031
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,031
<EPS-PRIMARY> .07
<EPS-DILUTED> .07
</TABLE>
EXHIBIT 55
LIST OF SUBSIDIARIES OF FISCHER-WATT GOLD COMPANY, INC.
Name of Subsidiary Incorporated In
- ------------------ ----------------
Compania Minera Oronorte S. A. Colombia
Donna Ltd. (Formerly Greenstone Bermuda
Resources of Colombia Ltd.)
Great Basin Exploration and
Mining Company, Inc. Nevada
Great Basin Management Company, Inc. Nevada
Minera Montoro S. A. de C. V. Mexico
