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FORM 10-K
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended June 30, 1998
Commission file number: 0-20430
AZCO MINING INC.
(Exact name of registrant as specified in its charter)
Delaware 84-1094315
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
2068 Main Street, Suite C, P.O.Box 1895 Ferndale, WA 98248
(Address of corporate office) (Zip Code)
Registrant's telephone number, including area code: (360) 380-4467
Securities registered pursuant to Section 12(b) of the Act
Title of each class Name of each exchange on which
registered
Common Stock, $.002 par value The Toronto Stock Exchange
- ----------------------------- --------------------------
Common Stock, $.002 par value The American Stock Exchange
- ----------------------------- ---------------------------
Securities registered pursuant to Section 12(g) of the Act: NONE
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes [X] No [ ]
Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K is not contained herein, and will not be contained,
to the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. { }
The number of shares of the Company's Common Stock outstanding as of September
25, 1998 is 25,802,321.
Aggregate Market Value of Stock held by Non-Affiliates as of September 25, 1998:
$ 14,921,235 (U.S.)
Documents incorporated by reference: None.
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PART I
Statements contained in the annual report that are not historical facts
are forward-looking statements as that term is defined in the Private Securities
Litigation Reform Act of 1995. Such forward-looking statements are subject to
risks and uncertainties, which could cause actual results to differ materially
from estimated results. Such risks and uncertainties are detailed in filings
with the Securities and Exchange Commission, including without limitation in
Item 1. "BUSINESS", Item 2. "PROPERTIES", and Item 7. "MANAGEMENT'S DISCUSSION
AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS" below.
ITEM 1. BUSINESS
AZCO Mining Inc. ("AZCO" or the "Company") is a U.S. mining company with
a general business strategy to acquire mineral properties. The Company plans to
supplement its core asset, a 30% interest in the Piedras Verdes project, through
the acquisition of other mining projects. The Company believes that numerous
opportunities exist to acquire such properties or companies, and that the
Company will be an effective competitor due to its strong cash position and
experienced management team. The Company plans to implement this strategy by
entering into joint ventures or corporate mergers, or by making property or
corporate acquisitions.
Prior to the sale of the majority of its copper assets the Company was
dedicated to the development and production of low-cost copper utilizing solvent
extraction-electrowinning or the SX-EW process. AZCO's principal mineral
property was the Sanchez porphyry copper project ("Sanchez" or "Sanchez
Project") located about 10 miles northeast of the City of Safford in
southeastern Arizona, U.S.A. The Company also had interests in two other
porphyry copper properties, the Piedras Verdes and Suaqui Verde properties
located in Sonora State, Mexico.
On July 27, 1995, the Board of Directors of AZCO (the "Board") signed
definitive agreements with Phelps Dodge Corporation ("Phelps Dodge" or "PDC") to
sell a substantial portion of the Company's assets. AZCO's shareholders approved
the sale of 100% of the Sanchez and 70% of the Piedras Verdes project for gross
consideration of $40 million.
A predecessor of AZCO was incorporated on July 13, 1988 under the laws
of Colorado to acquire the mining rights to the Sanchez, as well as certain
other mineral properties. On August 27, 1991, the predecessor was merged into
AZCO, a newly incorporated Delaware corporation. In October 1991, AZCO acquired
all of the shares of Filton Enterprises Limited, a Gibraltar corporation
("Filton"), in return for the issuance of 3,650,000 common shares. At that time
Filton owned rights in two mining properties in Mexico, the Suaqui Verde project
in southeastern Sonora and the Piedras Verdes project in southern Sonora. Filton
was dissolved effective February 14, 1994 with its Mexican interests being
distributed to the Company.
On July 31, 1992, AZCO merged with AZCO Mining Inc., a Wyoming
corporation ("AZCO (Wyoming)"), with AZCO being the survivor of the merger (the
"Merger"). At the time of the completion of the Merger AZCO (Wyoming) had
3,946,550 shares issued and outstanding and the Company had 12,633,822 common
shares issued and outstanding. One common share of the Company was issued in
exchange for each
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share of AZCO (Wyoming) in connection with the Merger. AZCO (Wyoming) was
formerly a British Columbia corporation which was incorporated under the laws of
the Province of British Columbia on August 20, 1981 under the name 241145 B.C.
Ltd. 241145 B.C. Ltd. changed its name to Canarex Resources Inc. on June 22,
1983, to International Baron Resources Ltd. on January 25, 1988 and finally to
AZCO Mining Inc. on February 20, 1992. AZCO (Wyoming) was continued under the
laws of Wyoming effective May 13, 1992 prior to merging with AZCO.
SIGNIFICANT DEVELOPMENTS IN FISCAL 1998 AND SUBSEQUENT EVENTS
On May 9, 1996 the Company signed an agreement with West Africa Gold &
Exploration Ltd., Eagle River International Limited ("Eagle") and Lion Mining
Finance Limited that provides for the establishment of a joint venture holding
company, Sanou Mining Corporation("Sanou"). Sanou is the sole beneficial owner
of a Malian subsidiary headquartered in Bamako and called Western African Gold
and Exploration Company S.A. ("Wag"), which has a 100% working interest in the
Medinandi and Dandoko concessions located in the Kenieba Gold Mining District of
western Mali. Eagle, the original principal concession owner through a Malian
subsidiary, has caused that subsidiary to convey the concessions to Wag.
Effective August 9, 1996 Wag entered into a debenture agreement with
AZCO thereby acknowledging itself indebted to and promising to pay AZCO, in
consideration of financial advances and services then made, or thereafter made,
the aggregate principal sum of U.S.$4,000,000. All advances AZCO has made to
date under this agreement are also evidenced by promissory notes from Eagle.
On September 3, 1997 AZCO served notice to Eagle stating that, due to
the fact that the work commitment for the license on the Mali project was
unacceptable, AZCO was declaring default of its May 9, 1996 agreement with the
same. In regard to the May 9, 1996 agreement among West African Gold &
Exploration Ltd., Eagle River International Limited, Lion Mining Finance Limited
and AZCO Mining Inc., AZCO gave notice of default to its joint-venture partners.
This dispute is still outstanding and the company is currently trying to resolve
it.
Effective November 18, 1997, the Company and Lion Mining Corporation
Limited("Lion") entered into an agreement whereby Lion assigned to the Company
all of its interest in the Mali project and Lion agreed to grant the Company
first right on all mining opportunities which are brought to it for a minimum
three year period. For this consideration the Company indemnifies and holds
harmless Lion from all manner of action in connection with the Mali Project.
On December 5, 1997, the Company announced that it had acquired the
option to explore, evaluate and purchase the Benitoite Gem Mine in San Benito
County, California. AZCO paid $20,000 for the option, and has until February 1,
1999 to evaluate the property. On or before this date the Company will have the
option to purchase the mine outright for $1.5 million, unencumbered by royalty.
On March 4, 1998 Minera Phelps Dodge Mexico, S. de R.L. de C.V. informed
AZCO that it was dropping its option with Cobre de Suaqui Verde, S.A. de C.V.
to explore the Suaqui Verde property.
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The Company announced on May 20, 1998, that it had signed a letter of
agreement with Chivor Emerald Corporation whereby, subject to satisfactory due
diligence, AZCO would acquire all of Chivor's emerald mining interests in
Colombia. On July 23, 1998, the Company announced that, after careful
consideration of the Colombian emerald project presented by Chivor Emerald
Corporation, it was determined that the project was not appropriate for the
Company's development plans and correspondingly, the Company determined not to
proceed.
On June 18, 1998, The Company entered into an agreement with Minera
Cortez Resources Ltd. (Cortez) whereby the Company was granted a right of first
refusal for a period of five years to acquire all or any of the property
interest that Cortez desires to either joint venture, option, or dispose of. In
consideration, the Company has subscribed for 200,000 common shares of Cortez at
Cdn. $.025 per share. The Company was also granted a right of first refusal for
the same period to provide up to 100% of any private or public equity or debt
financing that Cortez proposes to obtain, on similar terms as any third party is
willing to provide.
On July 21, 1998, the Company entered into an option agreement with
Cortez whereby the Company was granted an option to earn up to 70% interest in
the La Adelita property in Sonora, Mexico under the following terms:
i. by subscribing to 100,000 common shares of Cortez at Cdn. $0.25 per
share
ii. by making option payments and paying finder's fees on behalf of Cortez
totalling $165,000 over the next five years
iii. by incurring exploration expenditures on the property totalling $500,000
over the next three years.
On May 22, 1998, the Company entered into an agreement to purchase a
$1,500,000 convertible debenture of Oro Argentina Limited (OAL) for the purpose
of financing the first phase of the Chiqua White Bentonite Project and the
option payments of OAL. OAL has an option to acquire a 50% interest in the
Bentonite Project in San Juan, Argentina pursuant to an agreement dated February
2, 1998 between OAL and Pierre Martre. The debenture bears interest at 12% per
annum and is due on September 1, 2000. During the term of the debenture, the
Company has the option to convert the unpaid balance of the principal and
interest into common units of OAL at $0.50 per unit, where each unit consists of
one common share and one warrant, and each warrant entitles the Company to
purchase an additional common share at $0.60 per share for a period of two years
after conversion. the debenture is secured by a first floating and fixed charge
on the assets of OAL.
As at June 30, 1998, $100,000 has been drawn against the debenture by
OAL.
The Company was also granted a two-year option to purchase all of the
shares of OAL, subject to OAL shareholders' approval. Pursuant to the terms o
the agreement, if the financing of the second phase of the project is not in
place after 18 months from the issue of the debenture, the Company can extend
the option for an additional year. The exercise of the option will be paid with
common shares of the Company at a ratio of one common share for two shares of
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OAL. The shares of the Company issued for the currently issued and outstanding
10,136,935 shares of OAL and any other shares issued pursuant to the purchase
option will be placed into a pool for a period of two years, 25% of which will
be release immediately, 25% one year thereafter, and the remaining 50% two years
thereafter.
The Company has also advanced $24,371 to OAL for option payments and
other expenses related to the Bentonite Project. The loan bears interest at 12%
per annum and is due on March 9,1999. In the event that the loan and accrued
interest are not repaid by the due date, they are automatically converted into
Class S shares of OAL at $0.50 per share as full repayment of the loan. The loan
has been recorded on the Company's balance sheet in prepaid and other at June
30, 1998.
On April 6, 1998, the Company entered into an agreement with Lines
Overseas Management Ltd. (Lines), subject to regulatory approval. Under the
terms of the Mali agreement, Lines had originally advanced $500,000 and 125,000
shares of the Company owned by it to Eagle River for payments to Guefest and
other parties. The Company has agreed to issue 375,000 of its shares to Lines in
consideration for assigning and quitclaiming to the Company all advances and any
other benefit or claim of Lines related to the Mali agreement.
REPURCHASE PROGRAM
On August 6, 1998, the Company approved the repurchase of up to
1,284,024 shares of its issued and outstanding shares of its issued and
outstanding common Stock on the American Stock Exchange commencing August 13,
1998 and continuing up until August 13, 1999. The maximum authorized repurchase
price is $1.50 per common share. Through September 25, 1998 the Company has
repurchased 254,676 shares for $162,543 under the plan. The Company's Board of
Directors authorized the share repurchase program because it believes that the
current price levels for the Company's stock do not reflect the value of the
Company's assets and growth prospects.
EXPLORATION AND DEVELOPMENT
During fiscal 1998 the Company received no material revenues other than
interest income, as the Company has no mineral properties in production.
Exploration expenses of $1,101,188 were incurred as the Company funded
its 30% share of the Piedras Verdes project. The Company has fulfilled its
$3,000,000 commitment, through pre feasibility, under the Cobre del Mayo
shareholders' agreement.
Exploration expense in Indonesia totaled $70,172 during fiscal 1998 in
addition $370,505 of refundable deposits held by the Indonesian Ministry of
Mines were written-off. These deposits were written off because of the
uncertainty of their recoverability due to the current economic conditions in
Indonesia.
During fiscal 1998 AZCO incurred $783,672 of exploration expense on the
Mali project. The Company is currently in negotiations with potential
joint-venture partners and anticipates entering into an agreement soon.
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The Company incurred exploration expense of $973,830 for its gemstone
initiative. Expenses of $396,178 and $577,651 were accumulated on the Chivor
Emerald and California Benitoite projects, respectively.
EMPLOYEES
As of August 15, 1998, there were 9 full-time employees of AZCO. None of
these employees are represented by a labor union contract or a collective
bargaining agreement.
LAWS AND REGULATIONS
AZCO's interests in its projects will be subject to various laws and
regulations concerning development, production, taxes, labor standards,
environmental protection, mine safety and other matters. In addition, new laws
or regulations governing operations and activities could have a material adverse
impact on AZCO.
FOREIGN COUNTRIES AND REGULATORY REQUIREMENTS
AZCO has mineral interests located in Mexico, Indonesia and Mali.
Mineral exploration, development and mining activities on its interests may be
effected in varying degrees by political stability, and the policies of other
nations in respect of these countries. Any changes in regulations or shifts in
political conditions are beyond the control of the Company and may adversely
affect its business. Operations may be affected in varying degrees by government
regulations, including those with respect to export controls, expropriation of
property, employment, land use, water use, environmental legislation and mine
safety. Operations may be also affected in varying degrees by political and
economic instability, economic or other sanctions imposed by other nations,
terrorism, military repression, crime, extreme fluctuations in currency exchange
rates and high inflation.
SEASONABILITY
It is not anticipated that AZCO's Mexican interests in the state of
Sonora will be of a seasonable nature. The Company is aware of the fact that
circumstances in other parts of the world, such as Mali and Indonesia, do make
exploration, mining and mineral processing a seasonal endeavor.
COMPETITIVE CONDITIONS
Many companies are engaged in the exploration and development of mineral
properties. Since many of these companies have substantially greater technical
and financial resources than the Company, the Company may be at a disadvantage
with respect to some of its competitors.
The marketing of minerals is affected by numerous factors, many of which
are beyond the control of the Company. Such factors include the price of the
mineral in the marketplace, imports of minerals from other nations, the
availability of adequate refining and processing facilities, the price of fuel,
electricity, labor, supplies and reagents and the market price of competitive
minerals. In addition, sale prices for many commodities are determined by world
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market forces or are subject to rapid and significant fluctuations that may not
necessarily be related to supply or demand or competitive conditions that in the
past have affected such prices.
ENVIRONMENTAL
In connection with its future mining and processing operations, the
Company will be required to comply with various federal, state and local laws
and regulations pertaining to the discharge of materials into the environment.
The Company will also be required to maintain various permits and licenses
necessary for its operations from appropriate regulatory agencies. Apart from
capital expenditures associated with the construction and maintenance of
facilities required for usual mining and processing activities, the Company does
not anticipate that compliance with environmental laws will have a material
adverse effect upon the capital expenditures, earnings and competitive position
of the Company for the remainder of the current fiscal year, the next fiscal
year or in subsequent periods deemed material by the Company. AZCO is not
currently subject to any material proceedings arising under environmental laws
and regulations.
In light of the nature of its business the Company could face
significant exposure from potential claims involving environmental matters.
These matters could involve alleged soil, air and water contamination, and
personal injuries or property damage allegedly caused by toxic materials handled
or used by the Company in connection with its mining activities. The Company's
policy is to accrue environmental and cleanup costs when it is probable that a
liability has been incurred and the amount of such liability is determinable.
However, future environment-related expenditures cannot be reasonably quantified
in many circumstances due to the speculative nature of remediation and cleanup
costs, estimates and methods, the imprecise and conflicting data regarding the
characteristics of various types of materials and waste, the unknown number of
other potentially responsible parties involved, the extent to which such costs
may be recoverable from insurance and changing environmental laws and
interpretations. As a result the Company believes its future environment-related
expenditures potentially could become material at some point, but the amount of
such expenditures are uncertain at this time.
ITEM 2. PROPERTIES
PIEDRAS VERDES PROJECT
The Piedras Verdes property is leased by Cobre del Mayo, S.A. de
C.V.("Cobra del Mayo"), a Mexican corporation that is owned 30% by AZCO and 70%
by Minera Phelps Dodge Mexico S. de R.L. de C.V.("MPDM"), a subsidiary of Phelps
Dodge. The property consists of approximately 640 hectares and is located in
southern Sonora State, Mexico.
Prior to the sale of a 70% interest in Cobre del Mayo to MPDM, 242
reverse circulation holes totalling 26,815 meters had been drilled. Since the
sale of the 70% interest in Cobre del Mayo to MPDM 217 holes totaling 47,869
meters have been cored. In addition, the geologic mapping has been expanded,
metallurgical testing has advanced and a geological and ore deposit model has
been prepared.
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A pre-feasibility report has been prepared but, due to depressed copper prices,
the project is currently on hold.
The Company estimates that the Piedras Verdes property contains a 316
million ton deposit grading .037% copper or 2.34 billion pounds of contained
copper(at a .02% cut-off).
SUAQUI VERDE PROJECT
The Suaqui Verde copper property is leased by Cobre de Suaqui Verde,
S.A. de C.V., a Mexican corporation that is owned 99.97% by AZCO. The project is
located in southeastern Sonora State, Mexico, near the town of Suaqui Grande,
which is about 350 km south of the U.S.- Mexico border and 160 km southeast of
Hermosillo (population 600,000), the state capital.
On June 20, 1996, Cobre de Suaqui Verde, S.A. de C.V. entered into an
agreement (the "Agreement") with MPDM for the exploration of its Suaqui Verde
property.
Effective March 4, 1998, MPDM terminated the Agreement with AZCO and
Cobre De Suaqui Verde, S.A. de C.V. It is the intent of AZCO to analyze the
results of the recent work on the Suaqui Verde project and make a decision as to
its continued involvement with the project.
MALI GOLD CONCESSIONS
On May 9, 1996 the Company signed an agreement with West Africa Gold &
Exploration Ltd., Eagle and Lion that provides for the establishment of a joint
venture holding company, Sanou. Sanou is the sole beneficial owner of a Malian
subsidiary headquartered in Bamako and called Wag, which has a 100% working
interest in the Medinandi and Dandoko concessions located in the Kenieba Gold
Mining District of western Mali. Eagle, the original principal concession owner
through a Malian subsidiary, has caused that subsidiary to convey the
concessions to Wag.
Effective August 9, 1996 Wag entered into a debenture agreement with
AZCO thereby acknowledging itself indebted to and promising to pay AZCO, in
consideration of financial advances and services then made, or thereafter made,
the aggregate principal sum of U.S.$4,000,000. All advances AZCO has made to
date under this agreement are also evidenced by promissory notes from Eagle.
On September 3, 1997 AZCO served notice to Eagle stating that, due to
the fact that the work commitment for the license on the Mali project was
unacceptable, AZCO was declaring default of its May 9, 1996 agreement with the
same. In regard to the May 9, 1996 agreement among West African Gold &
Exploration Ltd., Eagle River International Limited, Lion Mining Finance Limited
and AZCO Mining Inc., AZCO gave notice of default to its joint-venture partners.
This dispute is still outstanding and the company is currently trying to resolve
it.
Effective November 18, 1997, the Company and Lion Mining Corporation
Limited("Lion") entered into an agreement whereby Lion assigned to the Company
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all of its interest in the Mali project and Lion agreed to grant the Company
first right on all mining opportunities which are brought to it for a minimum
three year period. For this consideration the Company indemnifies and holds
harmless Lion from all manner of action in connection with the Mali Project.
On December 18, 1997, Western African Gold and Exploration Company - SA
was granted a renewable exploration agreement on the holdings of the Mali
project. The new agreement runs through December 1998 and has a $3,360,000 work
commitment assigned to it which has been fulfilled to date. The Company is
currently in negotiations with potential joint venture partners on the Mali
project and plans to submit a proposed exploration program and application for
renewal of the exploration concession with the Ministry of Mines in Mali.
PONGKOR PROPERTIES
The South and West Pongkor properties adjoin the claim block containing
the 3 million ounce Pongkor Gold Mine in the Bayah Dome area of Western Java in
Indonesia. AZCO does not own any interest in the Pongkor Gold Mine.
Mineralization is known on both claim blocks, neither of which has been explored
by modern methods. In recent years accessibility has been greatly improved with
road access running to the heart of each property. Both properties are highly
prospective for low sulphidation epithermal mineralization, containing
opportunities not only for small tonnage, high-grade mineralization but also for
bulk-tonnage, open pit targets. There are no proven or probable reserves at the
Pongkor properties at this time.
AZCO has completed a geologic evaluation of the Pongkor properties and
has compiled an extensive report which is currently being disseminated to a
number of companies, which have expressed an interest in joint-venturing the
properties.
ITEM 3. LEGAL PROCEEDINGS
On November 24, 1997 a Deed of Release and Compromise was entered into
by AZCO, Sanchez and AIOC Corporation("AIOC") settling all outstanding
differences between the parties including, without limitation, certain matters
being arbitrated under the rules of the London Metal Exchange. The Company
received the $4,000,000 held in escrow to satisfy any award in the AIOC
arbitration and remitted a payment of $400,000 to AIOC in full and final
settlement of all matters and claims as between the parties.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None
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PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
The Company's common shares are listed for trading on The Toronto Stock
Exchange in Canada and The American Exchange in the U.S. under the stock symbol
"AZC". The approximate number of registered shareholders of record for the
Company, as of September 25, 1998, was 1,081.
Shown below are high and low sale prices of the Common Stock of the
Company on The Toronto Stock Exchange and The American Stock Exchange for the
fiscal periods indicated.
<TABLE>
<CAPTION>
QUARTER ENDED TORONTO EXCHANGE AMERICAN EXCHANGE
(Canadian Dollars) (U.S. Dollars)
------------------ --------------
High Low High Low
---- --- ---- ---
<S> <C> <C> <C> <C>
1996
09/30/96 $2.35 $1.75 $1.75 $1.25
12/31/96 $2.45 $1.90 $1.88 $1.31
1997
03/31/97 $2.95 $1.90 $2.25 $1.38
06/30/97 $2.35 $1.66 $1.75 $1.19
09/30/97 $2.00 $1.52 $1.50 $1.12
12/31/97 $2.25 $1.26 $1.69 $0.94
1998
03/31/98 $2.20 $1.50 $1.62 $1.06
06/30/98 $1.60 $1.00 $1.12 $0.69
</TABLE>
ISSUANCE OF UNREGISTERED SHARES
On September 17, 1998, AZCO issued 375,000 common shares to a single
sophisticated investor in connection with the settlement of arrangements with
Lines in relation to the Mali project as described above in Item 1. BUSINESS.
The shares are represented by certificates containing restrictive legends and
were issued in reliance upon the exemption from registration provided under
Section 4(2) of the Securities Act of 1933.
DIVIDEND POLICY
AZCO has not paid any dividends on its common shares to date. AZCO does
not anticipate paying any dividends in the foreseeable future.
ITEM 6. SELECTED FINANCIAL DATA
The following table sets forth selected consolidated financial
information regarding the financial position and operating results for the
Company. For each
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of the years ended June 30 the selected financial information has been derived
from the Company's consolidated financial statements. This information should be
read in conjunction with the section captioned "Management's Discussion and
Analysis of Financial Condition and Results of Operations" included elsewhere
herein.
For the Year Ended June 30
<TABLE>
<CAPTION>
1998 1997 1996 1995 1994
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
INCOME STATEMENT:
Revenues $ 1,061,398 $ 1,368,753 $ 26,893,607 $ 100,800 $ 96,268
Net income (loss) (3,044,112) (8,155,700) 17,127,455 (4,698,537) (3,508,702)
Per share $ (.12) $ (.32) $ .67 $ (.19) $ (.17)
Weighted Avg. #
of common shares 25,646,449 25,787,247 25,554,322 25,006,637 20,495,454
& common equiv.
BALANCE SHEET:
Mineral nil nil nil
Properties 12,573,096 10,971,142
Total Assets 19,486,669 22,345,247 30,033,118 15,791,656 15,792,370
Notes Payable nil nil nil 2,540,715 540,715
Total Liabilities 299,061 337,050 58,217 3,594,210 2,032,941
Total Stock- 19,187,608 22,008,197 29,974,901 12,197,446 13,759,429
holders' equity
</TABLE>
ITEM 7. MANAGEMENT DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
GENERAL
All material revenues received during fiscal 1998 and 1997 were a result
of interest earned on the proceeds of the sale of assets to Phelps Dodge. All
funds raised prior to fiscal 1996 were used in the exploration and development
of the Company's properties.
RESULTS OF OPERATIONS
TWELVE MONTHS ENDED JUNE 30, 1998 COMPARED TO TWELVE MONTHS ENDED JUNE 30, 1997.
AZCO had a net loss of $3,044,112 for fiscal 1998 compared to net loss
of $8,155,700 in 1997. The reduction in net loss for the year ended June 30,
1998 is the result of a decrease in exploration expenditures of $4,313,601.
Exploration expense in 1998 was $3,261,405 as compared to $7,575,006 in
1997. The Company, in fiscal 1998, funded $1,101,188 for its 30% share of the
costs related to the Piedras Verdes project compared to $1,846,330 in fiscal
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1997. During the fiscal year ended June 30, 1998 AZCO expended $783,672 on the
Mali project as compared to $4,052,316 in the previous fiscal year. In fiscal
1998 a total of $290,678 was expensed against the Indonesian properties in
contrast to $1,211,549 during fiscal 1997. In addition, the Company incurred
expenses of $973,830 relating to its gemstone initiative in fiscal 1998.
Accounting and legal expenses increased from $254,288 in 1997 to
$386,870 in 1998. Increased legal expense in 1998 is the result of the AIOC
settlement.
Miscellaneous expense in fiscal 1998 resulted from the $400,000 payment
to AIOC as full and final payment of all matters and claims between AIOC, AZCO
and Sanchez Mining Inc.
TWELVE MONTHS ENDED JUNE 30, 1997 COMPARED TO TWELVE MONTHS ENDED JUNE 30, 1996.
AZCO had a net loss of $8,155,700 for fiscal 1997 compared to net income
of $17,127,455 in 1996. This was the result of the gain on the sale of assets to
Phelps Dodge of $26,076,026 recognized in the year ended June 30, 1996.
Salaries expense was $1,107,910 during 1997 compared to $774,461 in
1996. The increase was due primarily to a severance payment of $193,846 and
$149,996 of compensation expense to account for the fair value of stock options
granted to non-employees during the year ended June 30, 1997.
General and administrative expense was $1,037,253 during 1997 compared
to $772,997 during 1996. This increase in 1997 was due to increases in general
office and investor relations expenditures of $127,963 and $104,713,
respectively.
Exploration expense in 1997 was $7,575,006 as compared to $738,597 in
1996. The Company funded $1,846,330 for its 30% share of the costs related to
the Piedras Verdes project. In addition, expenditures of $14,344 were incurred
to sustain the Suaqui Verde project. AZCO expended $4,052,316 on the Mali
project and an additional $352,659 on other various African projects in
connection with its then strategic alliance with Eagle. A total of $1,211,549
was expended on the four Indonesian properties AZCO was involved with in 1997.
In addition, the Company had general exploration expense of $97,807 in 1997. The
large increase in exploration activity in 1997 represents the Company's change
in direction from a development stage mining company with the Sanchez project in
1996 to a pure exploration company in 1997.
Accounting and legal expenses decreased from $578,928 in 1996 to
$254,288 in 1997. The decrease in legal expense in 1997 is the result of the
consent solicitation initiated by Muzinich & Co. in fiscal 1996.
The Company did not incur interest expense in 1997 as all debt was
retired with the proceeds of the Phelps Dodge sale in 1996.
12
<PAGE> 13
LIQUIDITY AND CAPITAL RESOURCES
For the fiscal year ended June 30, 1998, the Company met its capital
requirements through the proceeds of the sale of assets to Phelps Dodge in 1996.
At June 30, 1998 and June 30, 1997 the Company had cash and cash
equivalents of $18,320,882 and $17,080,260, respectively, and working capital of
$19,021,047 and $17,337,937, respectively. Total liabilities as of June 30, 1997
were $337,050 as compared to $299,061 on June 30, 1998.
The Company feels that its current cash position is strong enough to
fund all capital requirements in fiscal 1999. In the event that a production
decision is made in regards to the Piedras Verdes project it is the Company's
intention to raise additional capital to fund its share of the construction
costs. Funding of the ongoing exploration projects in California, Mali,
Indonesia and Mexico (including approximately $4.1 million in potential
pre-production royalties on the Piedras Verdes project over the next 10 years)
is expected to come from either the Company's treasury or from potential joint
venture partners. In the event that is not possible additional funding will be
sought to fund the advance royalties on the Piedras Verdes project if the
Company chooses to retain its interest in the project.
ADDRESSING THE YEAR 2000
The Year 2000 issue arises because many computerized systems use two
digits rather than four to identify a year. Date-sensitive systems may recognize
the year 2000 as 1900 or some other date, resulting in errors when information
using year 2000 dates is processed. In addition, similar problems may arise in
some systems which use certain dates in 1999 to represent something other than a
date. The effects of the Year 2000 Issue may be experienced before, on or after
January 1, 2000, and, if not addressed, the impact on operations and financial
reporting may range from minor errors to significant systems failure which could
affect an entity's ability to conduct normal business operations. However, the
Company has installed updated accounting software which addresses the potential
year 2000 problem. It is anticipated that there will be no material impact on
the Company. It is not possible to be certain that all aspects of the Year 2000
Issue affecting the Company including those related to the efforts of customers,
suppliers, or other third parties, will be fully resolved.
ITEM 7. QUANTITATIVE AND QUALITATIVE DISCUSSION ABOUT MARKET RISK
Not applicable.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The response to this item is submitted as a separate section at the end
of this report beginning on page F-1 of the Form 10-K.
13
<PAGE> 14
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS
The Company's accounting firm Coopers & Lybrand has merged with
PriceWaterhouse and is now called PRICEWATERHOUSECOOPERS.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS
The following table lists the names and positions of the executive officers
and directors of the Company as of September 25, 1998. All executive officers
and directors have been elected and appointed to serve until their successors
are elected and qualified. Additional information regarding the age, business
experience, length of time served in each capacity and other matters relevant to
each individual is set forth below the table.
<TABLE>
<CAPTION>
NAME POSITION HELD
---- -------------
<S> <C>
Alan Peter Lindsay........ President, Chairman, Chief Executive
Officer and Director
Anthony Richard Harvey.... Vice-Chairman of the Board,
Executive Vice-President,
Secretary and Director
Paul Arthur Hodges........ Director of the Company
Dr. Ian McFarlane Gray.... Director of the Company
Ryan Andrew Modesto....... Corporate Controller and
Principal Accounting Officer
Doug W. Ramshaw........... Vice-President of Corporate Development
Dr. Nick Badham........... Chief Geologist
</TABLE>
All the directors and officers of the Company have held their principal
occupations as set out above, except as follows, during at least the last five
years:
Mr. Lindsay, aged 48, one of the Company's founders, has been
responsible for arranging the financing, the corporate development and the
building of the organization important to the success of the Company. Mr.
Lindsay has an extensive background in business management and marketing. Mr.
Lindsay has been involved in the mining business for the past ten years and
since 1989 has been devoted to AZCO's business. From 1982 to 1989 Mr. Lindsay
was the Manager of the Financial Services Division of the North American Life
Assurance Company in Vancouver.
14
<PAGE> 15
Mr. Harvey, aged 64, one the Company's founders, has been associated
with the Company since July 13, 1988. He has been a full-time employee since May
18, 1989, prior to which he spent 30 years with Wright Engineers Limited, where
he gained extensive experience in the mining industry in various management
positions, including mine construction and ore extraction, bulk handling and
processing, project management and corporate marketing and development, in many
countries including the U.S. As a senior project manager he was responsible for
the overall management and direction of many mining projects worldwide,
including the Copper Flat Project 15,000 ton per day copper/moly open pit mining
and processing plant located in New Mexico, for Quintana Minerals Corporation,
and a 3,000 tpd underground copper mine rehabilitation expansion located in
Ireland, for Avoca Mines Limited.
Mr. Hodges, aged 71, director, has a degree of Engineer of Mines from
the Colorado School of Mines and is a Registered Professional Engineer in
Arizona. Mr. Hodges has over 40 years experience in the mining industry covering
exploration, operations, project startup, management and financing and has
worked for Anaconda, Asarco, RTZ and St. Joe. Mr. Hodges was the Chief Engineer
worldwide for open pit mining for RTZ and was President of Anamax Mining Company
at Twin Buttes. Most recently Mr. Hodges was President of Compania Minera El
Indio. He was a director of Lac Minerals Limited, a publicly traded company
acquired by American Barrick in late 1994. Mr. Hodges joined the Board in August
1993.
Dr. Gray, aged 62, director, became a director on September 4, 1996. Dr.
Gray, from June 1993 through June 1995, was the President of Bolivar Goldfields
Ltd. Since June 1995 Dr. Gray has been an Independent Consultant Geologist and
Engineer. Most recently Dr. Gray has been involved in the assessment,
acquisition and development of gold and copper properties in Indonesia, Peru and
Brazil. For much of his career Dr. Gray has held senior operations and
management positions with INCO Ltd. and BP Minerals International Ltd. and has
been involved in mineral exploration, project development, mine production,
formation and general management of public companies in North America,
Australia, Central Southern Africa, S.E. Asia and South America.
Mr. Modesto, aged 43, Corporate Controller and Principal Accounting
Officer since January 1, 1996, joined the Company in June 1994 as Controller of
the Sanchez project. Mr. Modesto earned a B.S. in Accounting from the University
of Utah in 1977 and has 21 years of accounting and administrative experience in
the mining industry. For the six years prior to joining the Company Mr. Modesto
was the Controller for Corona Gold's Santa Fe project in Nevada.
Mr. Ramshaw, aged 27, Vice-President of Corporate Development effective
April 29, 1997, joined AZCO on February 1, 1997 as Manager-Corporate
Development. Mr. Ramshaw, a Mining Geologist, earned a B.S. from the Royal
School of Mines, London, in 1993 and has a variety of experience in gold
exploration and mining. Prior to joining AZCO, Mr. Ramshaw was a Mining Analyst
at C.M. Oliver and Co. Ltd. from January 1996 through February 1997, Assistant
Editor for the Mining Journal from February 1994 through 1995 and a Consulting
Geologist from June 1993 through January 1994.
Dr. Badham, aged 51, Chief Geologist joined AZCO on August 1, 1997.
Prior to being associated with AZCO, Dr. Badham was Chief Geologist for RTZ
Mining and
15
<PAGE> 16
Exploration from 1989 through 1996 and Area Selection Geologist for B.P.
Minerals from 1983 through 1989.
COMPLIANCE WITH SECTION 16(a)BENEFICIAL OWNERSHIP REPORTING COMPLIANCE, OF THE
EXCHANGE ACT OF 1934
Section 16(a) of the Securities Exchange Act of 1934 requires the
Company's officers and directors, and persons who own more than ten percent of a
registered class of the Company's equity securities, to file reports of
ownership and changes in ownership with the Securities and Exchange Commission
(the "SEC"). Officers, directors and greater than ten percent shareholders are
required by SEC regulation to furnish the Company with copies of all Section
16(a) forms they file.
Based solely on its review of the copies of such forms received by it,
or written representations from certain reporting persons, the Company believes
that, during the fiscal year ended June 30, 1998, all filing requirements
applicable to its officers, directors and greater than ten percent beneficial
owners were complied with except that Mr. Badham was late in filing his Initial
Statement of Beneficial Ownership of Securities on Form 3.
ITEM 11. EXECUTIVE COMPENSATION
The following table summarizes the total compensation of the Chief
Executive Officer and the other most highly compensated executive officers
(collectively, the "Named Executive Officers") of the Company earning in excess
of $100,000 for the year ended June 30, 1998, as well as the total compensation
paid to each such individual for the Company's three previous fiscal years:
Summary Compensation Table
(As at year ended June 30, 1998)
<TABLE>
<CAPTION>
Annual Compensation Long Term
------------------- Compensation
------------
Securities
Underlying
Options/
Other Annual SARs
Name and Principal Salary Bonus Compensation Granted
Position Year ($) ($) ($) (#)
- ----------------------- ---- --------- ----- ------- -------
<S> <C> <C> <C> <C> <C>
Alan P. Lindsay 1998 139,169(1) 5,500 7,250(3) 0
President, Chairman 1997 110,000(1) 5,500 6,000(3) 0
of the Board and CEO 1996 99,482(1) 0 6,000(3) 300,000
</TABLE>
16
<PAGE> 17
<TABLE>
<S> <C> <C> <C> <C> <C>
Anthony R. Harvey 1998 139,169(2) 5,500 7,250(3) 0
Vice-Chairman, Vice 1997 110,000(2) 5,500 6,000(3) 0
President, Secretary 1996 99,482(2) 0 6,000(3) 300,000
Dr. Nick P. Badham 1998 148,000 7,500 0 0
Chief Geologist 1997 48,000 0 0 100,000
1996 0 0 0 0
Ryan A. Modesto 1998 97,200 4,800 30,000(4) 13,000
Corporate Controller 1997 84,479 4,100 0 50,000
Prin. Acct. Officer 1996 75,325 1,600 0 25,000
</TABLE>
(1) These amounts were actually paid to Alan Lindsay and Associates Ltd., a
management company under the control of Mr. Lindsay pursuant to
management agreements, dated May 1989 and February 1998, with the
Company.
(2) These amounts were actually paid to ARH Management Ltd., a management
company under the control of Mr. Harvey pursuant to management
agreements, dated May 1989 and February, 1998, with the Company.
(3) These amounts were paid as reimbursement of medical insurance premiums.
(4) Mr. Modesto was granted a $30,000 relocation allowance in conjunction
with the move of the Company's corporate office from Solomon, Arizona to
Ferndale, Washington.
OPTION GRANTS IN LAST FISCAL YEAR
<TABLE>
<CAPTION>
Potential Realized
Value (Cdn $) at
Assumed Annual
Number of % of Total Rates
Securities Options of Stock Price
Underlying Granted to Exercise or Appreciation For
Options Employees in Base Price Option Term
Name Granted (#) Fiscal Year (Cdn $/Sh) Expiration Date 5% 10%
- ---- ----------- ----------- ---------- --------------- -- ---
<S> <C> <C> <C> <C> <C> <C>
Ryan A. Modesto 13,000(1) 100% 1.70 December 10, 2002 6,106 13,492
</TABLE>
(1) These options are exercisable from the date of grant (December 10, 1997).
17
<PAGE> 18
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR
AND FY-END OPTIONS VALUES
<TABLE>
<CAPTION>
Number of Securities
Underlying Value of Unexercised
Unexercised Options at FY- In-The-Money Options at FY-
End End ($)(1)
--------------------------- ----------------------------
Name Exercisable Unexercisable Exercisable Unexercisable
- ------------------ ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C>
Alan P. Lindsay 300,000 0 0 0
Anthony R. Harvey 300,000 0 0 0
Dr. Nick Badham 100,000 0 0 0
Ryan A. Modesto 100,000 0 0 0
</TABLE>
(1) Based on the closing price of $0.69 of the Company's common stock as
quoted on The American Stock Exchange on June 30, 1998.
COMPENSATION OF DIRECTORS
The Company pays a fee to its outside, non-officer directors of $1,500
per month. The Company also reimburses its directors for reasonable expenses
incurred by them in attending meetings of the Board of Directors. During fiscal
1998 non-officer directors received a total of $8,205 in consulting fees.
EMPLOYMENT CONTRACTS AND CHANGE-IN-CONTROL ARRANGEMENTS
Effective February 1, 1998 the Company entered into a management
agreement with Alan Lindsay and Associates Ltd.("Associates"), a British
Columbia corporation owned and controlled by Mr. Lindsay, the Company's Chief
Executive Officer. This new agreement replaces an original May 1, 1989 agreement
in its entirety. This agreement requires all salary amounts otherwise payable by
the Company to Mr. Lindsay to be paid to Associates. Associates shall be
compensated a base fee of $180,000 annually and an a allowance for equivalent
benefits enjoyed by Company personnel. The base fee may be renegotiated annually
at the request of either party. In the event that the parties cannot agree then
the base fee shall be increased by the greater of 5% or the amount of the cost
of living index as published by the Canadian Federal government. The term of
this agreement is for a period of 36 months and shall renew automatically for
subsequent one year periods unless either party gives the other party notice of
non-renewal at least 90 days prior to the end of any term. In the event that
this agreement is terminated, or fails to renew due to failure of agreement
after the issuance of a non-renewal notice, Associates shall receive a
termination fee equal to either the sum of the buy-out of any outstanding stock
options for a price equal to the average market price of the Company's shares on
The Toronto Stock Exchange multiplied by the number of shares under option and
less the exercise price thereof or, at the election of Associates and subject to
regulatory approval, extension of the option for a year after termination; plus
the greater of:(i) the aggregate remaining base fee for the unexpired remainder
of the term; or (ii) the then annual base fee plus one month of base fee for
each year, or portion thereof, served after the effective date. In the event
that Associates is unable to provide the services due to protracted disability
or sickness or the death of its principal (Mr. Lindsay) it may, at any time,
declare such to the Company and may terminate the agreement as a without fault
18
<PAGE> 19
termination and the termination fee shall be payable. The Company may elect to
effect such termination, and shall pay the termination fee, in the case of death
of Associates' principal or in the event that sickness or disability has
continued for a period in excess of 120 days.
Effective February 1, 1998 the Company entered into a management
agreement with ARH Management Ltd. ("Management"), a British Columbia
corporation owned and controlled by Mr. Harvey, the Company's Vice-Chairman.
This new agreement replaces an original May 1, 1989 agreement in its entirety.
This agreement requires all salary amounts otherwise payable by the Company to
Mr. Harvey to be paid to Management. Management shall be compensated a base fee
of $180,000 annually and an a allowance for equivalent benefits enjoyed by
Company personnel. The base fee may be renegotiated annually at the request of
either party. In the event that the parties cannot agree then the base fee shall
be increased by the greater of 5% or the amount of the cost of living index as
published by the Canadian Federal government. The term of this agreement is for
a period of 36 months and shall renew automatically for subsequent one year
periods unless either party gives the other party notice of non-renewal at least
90 days prior to the end of any term. In the event that this agreement is
terminated, or fails to renew due to failure of agreement after the issuance of
a non-renewal notice, Management shall receive a termination fee equal to the
sum of the buy-out of any outstanding stock options for a price equal to the
average market price of either the Company's shares on The Toronto Stock
Exchange multiplied by the number of shares under option and less the exercise
price thereof or, at the election of Management and subject to regulatory
approval, extension of the option for a year after termination; plus the greater
of:(i) the aggregate remaining base fee for the unexpired remainder of the term:
or (ii) the then annual base fee plus one month of base fee for each year of
portion thereof, served after the effective date. In the event that Management
is unable to provide the services due to protracted disability or sickness or
the death of its principal (Mr. Harvey) it may, at any time, declare such to the
Company and may terminate the agreement as a without fault termination and the
termination fee shall be payable. The Company may elect to effect such
termination, and shall pay the termination fee, in the case of death of
Management's principal or in the event that sickness or disability has continued
for a period in excess of 120 days.
Effective August 15, 1994 management agreements were provided to both
Messrs. Harvey and Lindsay that are effective in the event of a change in
control of the Company. Similar management agreements (collectively, the
"Management Agreements") were provided to Mr. Modesto on November 19, 1996 and
to Dr. Badham on October 7, 1997. The Management Agreements provide for a lump
sum distribution in an amount (taking into account all other applicable change
in control payments by the Company) not to exceed 299% of the base amount as
defined in IRC Section 280G (b) upon a change in control of the Company. Such
"base amount" is generally equivalent to the applicable person's average annual
compensation from the Company includable in his gross income over the preceding
five years. Change of control is therein defined to include only the following:
(i) the acquisition (whether direct or indirect)of shares in excess
of 20 percent of the outstanding shares of Common Stock of the
Company by a person or group of persons, other than through a
public equity offering by the Company;
19
<PAGE> 20
(ii) the occurrence of any transaction relating to the Company
required to be described pursuant to the requirements of item
6(e) of Schedule 14A of Regulation 14A of the SEC under the
Securities and Exchange Act of 1934; or
(iii) any change in the composition of the Board of Directors of the
Company resulting in a majority of the present directors not
constituting a majority, provided, that in making such
determination directors who were elected by, or on the
recommendation of, such present majority, shall be excluded.
Effective August 15, 1994 for Mr. Hodges, and effective November 19,
1996 for Dr. Gray, director's agreements (collectively, the "Director's
Agreements") were provided to each of the above that are effective in the event
of a change in control of the Company. These Director's Agreements provide for a
lump sum distribution not to exceed $100,000 upon a change in control of the
Company. Change in control has the same definition as set forth above in
connection with the Management Agreements.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
During the fiscal year ending 1998 the Company had a compensation committee
consisting of Mr. Harvey, Mr. Hodges and Dr. Gray. Mr. Harvey is an employee
and an officer of the company.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The table below sets forth information, as of September 25, 1998, with
respect to beneficial ownership of the Company's Common Stock by each person
known by the Company to be the beneficial owner of more than 5% of its
outstanding Common Stock, by each director of the Company, by each Named
Executive Officer and by all officers and directors of the Company as a group.
Unless otherwise noted, each shareholder has sole investment and voting power
over the shares owned.
<TABLE>
<CAPTION>
Name and Address Type of Number of
of Beneficial Owner Ownership Shares Percent of Class
------------------- --------- ------ ----------------
<S> <C> <C> <C>
Alan P. Lindsay Record and 978,569(1) 3.79%
999 W. Hastings, Ste 1250 Beneficial
Vancouver, BC, Canada V6C 2W2
Anthony R. Harvey Record and 453,252(2) 1.76%
999 W. Hastings, Ste 1250 Beneficial
Vancouver, BC, Canada V6C 2W2
Paul A. Hodges Record and 66,524(3) *
4536 N. Via Bellas Catalinas Beneficial
Tucson, AZ 85718
</TABLE>
20
<PAGE> 21
<TABLE>
<S> <C> <C> <C>
Dr. Ian M. Gray Record and 100,000(4) *
Copper Hill House, Buller Hill Beneficial
Redruth,Cornwall U.K., TR16 6SR
Dr. Nick Badham Record and 100,000(5) *
Rockery House, Over Wallop Beneficial
Stockbridge, U.K., S020 8HU
Mr. Ryan Modesto Record and 130,000(6) *
PO Box 1895 Beneficial
Ferndale, WA 98248
Officers & Directors Record and 1,928,345 7.47%
as a Group (7 persons) Beneficial
</TABLE>
*- indicates less than 1%
(1) Includes 605,308 shares owned by a corporation controlled by Mr.
Lindsay. Includes an option to acquire 300,000 shares at an exercise
price of CDN $1.80 per share.
(2) Includes 122,224 shares owned by Mr. Harvey's wife. Includes an option
to acquire 300,000 shares at an exercise price of CDN $1.80 per share.
(3) Includes an option to acquire 50,000 shares at an exercise price of CDN
$1.80 per share.
(4) Represents an option to acquire 100,000 shares at an exercise price of
CDN $1.90 per share.
(5) Represents an option to acquire 100,000 shares at an exercise price of
CDN $1.95 per share.
(6) Represents options to acquire 12,000, 25,000, 50,000, 13,000 and 30,000
shares at exercise prices of CDN $3.50, $1.80, $1.87, $1.70 and $0.80,
respectively, per share.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Andrew F de P Malim, a non-officer director of the Company through April
24, 1998 (when he resigned as such), is the chairman, managing director and
majority shareholder of Lion Mining Finance Limited, a United Kingdom registered
company. On May 9, 1996, AZCO entered into a memorandum of agreement with Eagle
River, WAG, and Lion Mining Finance Limited concerning the development of mining
concessions in Mali. Pursuant to that agreement, Lion Mining Finance was paid
$15,692 for management services.
On November 18, 1997, the Company and Lion Mining Corporation Limited
entered into an agreement whereby Lion assigned to the Company all of its
interest in the Mali project and Lion agreed to grant the Company first right on
all mining opportunities which are brought to it for a minimum three year
period. For this consideration the Company indemnifies and holds harmless Lion
from all manner of action in connection with the Mali project. See ITEM I
BUSINESS, above.
21
<PAGE> 22
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8K
(a) 1. FINANCIAL STATEMENTS - Reference is made to the Financial Statements
appearing on Pages F-1, through F-22.
2. FINANCIAL STATEMENT SCHEDULES - Reference is made to the Financial
Statement Schedules on Page F-23.
3. EXHIBITS
3.1 Registrant's Certificate of Incorporation dated August 8, 1991(1)
3.2 Articles of Amendment to the Certificate of Incorporation dated December
5, 1991(1)
3.3 Registrant's Amended Bylaws(2)
3.4 Rights Agreement dated July 19, 1995 between the Registrant and Montreal
Trust Company of Canada(2)
4.1 Specimen stock certificate.(3)
10.1 Agreements for Suaqui Verde Property(1)
10.2 Agreements for Piedras Verdes Property(1)
10.3 Purchase Agreement dated July 27, 1995 between the Registrant, Sanchez
Mining Inc. and Phelps Dodge Corporation.(2)
10.4 Memorandum of Agreement between West Africa Gold & Exploration Ltd.,
Eagle River International Limited, Lion Mining Finance Limited and AZCO
Mining Inc.(4)
10.5 Suaqui Verde Mineral exploration agreement and option to form company
among AZCO Mining, Inc., Cobre de Suaqui Verde, S.A. de C.V. and Minera
Phelps Dodge Mexico, S. de R.L. de C.V.(4)
10.6 Letter agreement relating to the Pongkor property offer.(5)
10.7* Management Agreement dated February 1, 1998 between the Registrant and
ARH Management Ltd.
10.8* Management Agreement dated February 1, 1998 between the Registrant and
Alan Lindsay and Associates, Ltd.
10.9* Option to Purchase Agreement, for the Benitoite Gem Mine, dated December
1, 1997 between the Registrant and William C. Forrest, Hilda F. Forrest
and Elvis L. Gray.
10.10* Debenture Agreement dated May 22, 1998, where Registrant purchases a
$1,500,000 convertible debenture of Oro Argentina Limited.
22
<PAGE> 23
10.11* Amended Memorandum of Agreement dated July 23, 1998 between the
Registrant and Oro Argentina Limited, R.L. Handford and R.T. Laine.
10.12* Right of First Refusal Agreement dated June 18, 1998 between the
Registrant and Minera Cortez Resources Ltd.
10.13* Mineral Property Option Agreement dated July 21, 1998, for the La
Adelita property, between the Registrant and Minera Cortez Resources
Ltd.
10.14* First Right of Refusal and Venture Agreement dated November 18, 1998
establishing the Kingfisher Venture between the Registrant and Lion
Mining Corporation Limited.
10.15* Change in Control Management Agreements between the Registrant and
Messrs. Lindsay, Harvey, Modesto, Badham and Ramshaw.
10.16* Change in Control Director's Agreements between the Registrant and Mr.
Hodges and Dr. Gray.
10.17* Cobre del Mayo, S.A. de C.V. Shareholders and Operator's Agreement.
21.1* Subsidiaries of the Registrant.
24.1* Consent of PricewaterhouseCoopers.
27.1* Financial Data Schedule.
- ------------
(1) Exhibit Nos. 3.1, 3.2, 10.4 and 10.5, are incorporated by reference from
Exhibit Nos. 3.1, 3.2, 10.10 and 10.11 respectively, from the
Registrant's Registration Statement on Form S-4 (File No. 33-45162).
(2) Exhibit Nos. 3.3, 3.4 and 10.3 are incorporated by reference from
exhibits Nos. 3.3, 3.4 and 10.20 from the Registrant's Annual Report on
Form 10- K(a) for the fiscal year ended June 30, 1995.
(3) Exhibit No. 4.1 is incorporated by reference from exhibit No. 1 from the
registrant's Registration Statement on Form 8-A filed with the SEC on
July 21, 1992.
(4) Exhibit Nos. 10.4 and 10.5 are incorporated by reference from exhibits
Nos. 10.10 and 10.11 from the Registrant's Annual Report on Form 10-K
for the fiscal year ended June 30, 1996.
(5) Exhibit No. 10.6 is incorporated by reference from exhibit No. 10.12
from the Registrant's Annual Report on Form 10-K for the fiscal year
ended June 30, 1997.
* Filed herewith.
(b) Reports on Form 8K: None
23
<PAGE> 24
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
AZCO MINING INC.
Date: September 29, 1998 By: /s/ Alan P. Lindsay
------------------------ --------------------
Alan P. Lindsay
President, Chairman of the Board and
Chief Executive Officer
Date: September 29, 1998 By: /s/ Ryan A. Modesto
------------------------ --------------------
Ryan A. Modesto
Corporate Controller and Principal
Accounting Officer
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<S> <C> <C>
/s/ Alan P. Lindsay President, Chairman of the September 29, 1998
- --------------------- Board and Chief Executive
Alan P. Lindsay Officer
/s/ Anthony R. Harvey Vice Chairman, Executive September 29, 1998
- --------------------- Vice President, Secretary
Anthony R. Harvey and Director
/s/ Paul A. Hodges Director September 29, 1998
- ---------------------
Paul A. Hodges
/s/ Dr. Ian M. Gray Director September 29, 1998
- ---------------------
Dr. Ian M. Gray
</TABLE>
24
<PAGE> 25
Azco Mining Inc. (Delaware)
FORM 10-K
ITEM 8, ITEM 14(a)(1) AND (2)
INDEX TO FINANCIAL STATEMENTS AND SUPPLEMENTAL SCHEDULE
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Page
----
<S> <C>
THE FOLLOWING FINANCIAL STATEMENTS REQUIRED TO BE INCLUDED IN ITEM 8 ARE LISTED BELOW:
Report of Independent Accountants F-2
Consolidated Balance Sheets as at June 30, 1998 and 1997 F-3
Consolidated Statements of Operations for the fiscal years ended June 30, 1998, 1997 and
1996
F-4
Consolidated Statements of Stockholders' Equity for the fiscal years ended June
30, 1998, 1997 and 1996
F-5
Consolidated Statements of Cash Flows for the fiscal years ended June 30, 1998,
1997 and 1996
F-6
Notes to Consolidated Financial Statements F-8
THE FOLLOWING FINANCIAL STATEMENT SCHEDULE OF THE REGISTRANT IS INCLUDED IN ITEM
14(a)(2):
Schedule II - Valuation and Qualifying Accounts for the fiscal years ended June
30, 1998, 1997 and 1996
F-23
</TABLE>
Schedules other than the one listed above have been omitted since they are
either not required or not applicable, or since the required information is
shown in the financial statements or related notes.
- --------------------------------------------------------------------------------
F-1
<PAGE> 26
[PRICEWATERHOUSECOOPERS LETTERHEAD]
August 26, 1998,
except for note 5(d)
which is as at
September 17, 1998
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Stockholders of
Azco Mining Inc. (Delaware)
We have audited the consolidated financial statements and the financial
statement schedule of Azco Mining Inc. (Delaware) and its subsidiaries listed in
the index on page F-1 of this Form 10-K. These financial statements and the
financial statement schedule are the responsibility of the Company's management.
Our responsibility is to express an opinion on these financial statements and
the financial statement schedule based on our audits.
We conducted our audits in accordance with United States generally accepted
auditing standards. Those standards require that we plan and perform an audit to
obtain reasonable assurance whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, these consolidated financial statements present fairly, in all
material respects, the financial position of Azco Mining Inc. (Delaware) and its
subsidiaries as at June 30, 1998 and 1997, and the consolidated results of their
operations and their cash flows for each of the three years in the period ended
June 30, 1998 in conformity with United States generally accepted accounting
principles. In addition, in our opinion, the financial statement schedule
referred to above, when considered in relation to the basic consolidated
financial statement taken as a whole, presents fairly, in all material respects,
the information required to be included therein.
PricewaterhouseCoopers is a Canadian member firm of PricewaterhouseCoopers
International Limited, an English company limited by guarantee.
F-2
<PAGE> 27
AZCO MINING INC. (DELAWARE)
Consolidated Balance Sheets as at June 30, 1998 and 1997
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
1998 1997
$ $
<S> <C> <C>
ASSETS
CURRENT ASSETS
Cash and cash equivalents 18,320,882 17,080,260
Restricted cash (note 10) 16,165 34,106
Prepaids and other (note 4) 201,061 80,893
Income taxes receivable 782,000 479,728
----------- -----------
19,320,108 17,674,987
----------- -----------
PROPERTY AND EQUIPMENT
Furniture and equipment 90,440 158,539
Less: accumulated depreciation and amortization (66,382) (111,259)
----------- -----------
24,058 47,280
----------- -----------
REFUNDABLE DEPOSITS (note 5) -- 615,255
DEPOSIT (note 10) -- 4,000,000
INVESTMENT AND ADVANCES (note 4) 134,778 --
OTHER ASSETS 7,725 7,725
----------- -----------
142,503 4,622,980
----------- -----------
19,486,669 22,345,247
=========== ===========
LIABILITIES
CURRENT LIABILITIES
Accounts payable and accrued liabilities 299,061 337,050
----------- -----------
STOCKHOLDERS' EQUITY
Authorized -
100,000,000 common shares with a par value of $0.002 per share
Issued and outstanding -
25,680,497 common shares (1997 - 25,579,834) 51,361 51,160
Additional paid-in capital 25,999,733 25,776,411
Deficit (6,863,486) (3,819,374)
----------- -----------
19,187,608 22,008,197
----------- -----------
19,486,669 22,345,247
=========== ===========
</TABLE>
CONTINGENCIES AND COMMITMENTS (notes 5 and 10)
The accompanying notes are an integral part of these
consolidated financial statements.
- --------------------------------------------------------------------------------
F-3
<PAGE> 28
AZCO MINING INC. (DELAWARE)
Consolidated Statements of Operations
For the years ended June 30, 1998, 1997 and 1996
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
1998 1997 1996
$ $ $
<S> <C> <C> <C>
INCOME
Interest income 1,052,516 1,332,679 817,581
Gain (loss) on sale of assets (note 5) (970) 11,074 26,076,026
Other income 9,852 25,000 --
----------- ----------- -----------
1,061,398 1,368,753 26,893,607
----------- ----------- -----------
OPERATING EXPENSES
Salaries (note 10) 1,007,740 1,107,910 774,461
General and administrative 1,138,682 1,037,253 772,997
Write-down of mineral properties -- -- 848,487
Exploration 3,263,405 7,575,006 738,597
Accounting and legal 384,870 254,288 578,928
Amortization and depreciation 20,050 33,498 57,147
Interest expense, net of amount capitalized (note 6) -- -- 171,173
Financing and acquisition -- 113,031 109,362
Legal settlement costs (note 10) 400,000 -- --
----------- ----------- -----------
6,214,747 10,120,986 4,051,152
----------- ----------- -----------
INCOME (LOSS) BEFORE INCOME TAXES (5,153,349) (8,752,233) 22,842,455
INCOME TAX BENEFIT (PROVISION) (note 8) 2,109,237 596,533 (5,715,000)
----------- ----------- -----------
NET INCOME (LOSS) (3,044,112) (8,155,700) 17,127,455
=========== =========== ===========
BASIC INCOME (LOSS) PER COMMON SHARE (note 9)
(0.12) (0.32) 0.67
=========== =========== ===========
DILUTED INCOME (LOSS) PER COMMON SHARE (note 9)
(0.12) (0.32) 0.67
=========== =========== ===========
WEIGHTED AVERAGE NUMBER OF COMMON SHARES OUTSTANDING
25,646,449 25,787,247 25,554,322
=========== =========== ===========
</TABLE>
The accompanying notes are an integral part of these
consolidated financial statements.
- --------------------------------------------------------------------------------
F-4
<PAGE> 29
AZCO MINING INC. (DELAWARE)
Consolidated Statements of Stockholders' Equity
For the years ended June 30, 1998, 1997 and 1996
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
COMMON STOCK
----------------------------- ADDITIONAL RETAINED
NUMBER OF PAID-IN EARNINGS
SHARES AMOUNT CAPITAL (DEFICIT) TOTAL
$ $ $ $
<S> <C> <C> <C> <C> <C>
Balance - June 30, 1995 25,512,938 51,026 24,937,549 (12,791,129) 12,197,446
Tax benefit of stock options -- -- 650,000 -- 650,000
Net income -- -- -- 17,127,455 17,127,455
----------- ----------- ----------- ----------- -----------
Balance - June 30, 1996 25,512,938 51,026 25,587,549 4,336,326 29,974,901
Stock options exercised 66,896 134 38,866 -- 39,000
Stock option compensation -- -- 149,996 -- 149,996
Net loss -- -- -- (8,155,700) (8,155,700)
----------- ----------- ----------- ----------- -----------
Balance - June 30, 1997 25,579,834 51,160 25,776,411 (3,819,374) (22,008,197)
Stock options exercised 59,572 119 54,174 -- 54,293
Issued for property interest 41,091 82 49,918 -- 50,000
Stock option compensation -- -- 119,230 -- 119,230
Net loss -- -- -- (3,044,112) (3,044,112)
----------- ----------- ----------- ----------- -----------
Balance - June 30, 1998 25,680,497 51,361 25,999,733 (6,863,486) 19,187,608
=========== =========== =========== =========== ===========
</TABLE>
The accompanying notes are an integral part of these
consolidated financial statements.
- --------------------------------------------------------------------------------
F-5
<PAGE> 30
AZCO MINING INC. (DELAWARE)
Consolidated Statements of Cash Flows
For the years ended June 30, 1998, 1997 and 1996
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
1998 1997 1996
$ $ $
<S> <C> <C> <C>
CASH PROVIDED FROM (USED FOR)
OPERATING ACTIVITIES
Net income (loss) (3,044,112) (8,155,700) 17,127,455
Adjustments to reconcile net income (loss) to net
cash provided by -
Depreciation and amortization 20,050 33,498 57,147
Stock option compensation expense (note 7) 119,230 149,995 --
Issuance of common stock for property interest 50,000 -- --
Tax benefit of stock options -- -- 650,000
Amortization of premium on investment securities
-- 5,687 1,284
Write-down of mineral properties -- -- 848,487
Loss (gain) on sale of furniture and equipment 970 (11,074) 4,461
Gain on sale of assets -- -- (26,076,026)
Loss on write-down of refundable deposits (note 13)
370,505 -- --
----------- ----------- -----------
(2,483,357) (7,977,594) (7,387,192)
Net change in assets and liabilities -
Restricted cash 17,941 17,504 298,510
Prepaids and other (120,168) 135,768 (151,542)
Refundable deposits 244,750 (615,255) --
Income taxes receivable (302,272) (479,728) --
Accounts payable and accrued liabilities (37,989) 278,833 (545,278)
Deferred liability -- -- (450,000)
Deposit 4,000,000 -- (4,000,000)
Proceeds from sale of mineral properties -- -- 39,173,295
----------- ----------- -----------
1,318,905 (8,640,472) 26,937,793
----------- ----------- -----------
INVESTING ACTIVITIES
Purchase of short-term investments -- -- (1,401,971)
Proceeds from maturity of short-term investments -- 1,395,000 --
Purchase of furniture and equipment and construction in
progress
(2,900) (22,163) (6,245)
Proceeds from sale of furniture and equipment 5,102 13,090 28,882
Development of mineral properties -- -- (516,577)
Purchase of Minera Cortez Resources Ltd. shares (34,055) -- --
Purchase of convertible debenture and accrued interest
(100,723) -- --
----------- ----------- -----------
(132,576) 1,385,927 (1,895,911)
----------- ----------- -----------
</TABLE>
- --------------------------------------------------------------------------------
F-6
<PAGE> 31
AZCO MINING INC. (DELAWARE)
Consolidated Statements of Cash Flows
For the years ended June 30, 1998, 1997 and 1996
(cont'd)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
1998 1997 1996
$ $ $
<S> <C> <C> <C>
FINANCING ACTIVITIES
Proceeds from exercise of stock options 54,293 39,000 --
Proceeds from issuance of debt -- -- 500,000
Payments of debt -- -- (3,040,715)
----------- ----------- -----------
54,293 39,000 (2,540,715)
----------- ----------- -----------
INCREASE (DECREASE) IN CASH AND
CASH EQUIVALENTS
1,240,622 (7,215,545) 22,501,167
CASH AND CASH EQUIVALENTS -
BEGINNING OF YEAR 17,080,260 24,295,805 1,794,638
----------- ----------- -----------
CASH AND CASH EQUIVALENTS -
END OF YEAR 18,320,882 17,080,260 24,295,805
=========== =========== ===========
CASH PAID DURING THE YEAR
Interest paid net of amount capitalized Nil Nil 230,453
=========== =========== ===========
Taxes Nil Nil 5,715,000
=========== =========== ===========
</TABLE>
The accompanying notes are an integral part of these
consolidated financial statements.
- --------------------------------------------------------------------------------
F-7
<PAGE> 32
AZCO MINING INC. (DELAWARE)
Notes to Consolidated Financial Statements
For the years ended June 30, 1998, 1997 and 1996
- --------------------------------------------------------------------------------
1. NATURE OF OPERATIONS
Azco Mining Inc. (Delaware) (the Company) is a U.S. mining company with a
general business strategy to acquire mineral properties. The Company plans
to supplement its core asset, a 30% interest in the Piedras Verdes Project,
through its acquisition of other mineral properties. As at June 30, 1998,
none of the properties had proven reserves of commercial ore.
Although the Company has taken steps to verify title to mineral properties
in which it has an interest, according to the usual industry standards for
the stage of exploration of such properties, these procedures do not
guarantee the Company's title. Such properties may be subject to prior
agreements or transfers and title may be affected by undetected defects.
2. SIGNIFICANT ACCOUNTING POLICIES
PRINCIPLES OF CONSOLIDATION
These consolidated financial statements include the accounts of the Company
and its majority-owned subsidiaries.
CASH AND CASH EQUIVALENTS
The Company considers all liquid investments purchased with a maturity of
three months or less to be cash equivalents. Cash and cash equivalents are
stated at cost which approximates market value.
MINERAL PROPERTIES
The Company expenses prospecting and exploration costs and capitalizes
costs directly attributable to the acquisition of mining properties,
pending determination as to their commercial feasibility (to contain a
viable mineral deposit). Development costs are capitalized and, upon
commencement of production, will be amortized using the units-of-production
method. Gains or losses resulting from the sale or abandonment of mineral
properties are included in operations. Proceeds from sales of properties in
which the Company has retained an economic interest are credited against
property costs, and no gain is recognized until all costs have been fully
recovered.
PROPERTY EVALUATION
Recoverability of investments in non-operating properties is evaluated
periodically. Estimated future net cash flows from each property are
calculated using estimates of proven and probable ore reserves, estimated
future prices (considering historical and current prices, price trends, and
related factors), operating capital, and reclamation costs on an
undiscounted basis. Reductions in the carrying value of each property are
recorded to the extent the remaining investment exceeds the estimate of
future net cash flows.
- --------------------------------------------------------------------------------
F-8
<PAGE> 33
AZCO MINING INC. (DELAWARE)
Notes to Consolidated Financial Statements
For the years ended June 30, 1998, 1997 and 1996
- --------------------------------------------------------------------------------
2. SIGNIFICANT ACCOUNTING POLICIES (cont'd)
PROPERTY EVALUATION (cont'd)
Where properties are held for sale, recoverability is assessed based on
management's estimate of fair value. Reductions in the carrying value of
each property are recorded to the extent the remaining investment exceeds
fair value, less costs of disposal.
FURNITURE AND EQUIPMENT
Furniture and equipment are carried at cost. Replacements, maintenance and
repairs that do not improve or extend the life of the respective assets are
expensed. Major renewals and improvements are capitalized. Upon retirement,
sale or other disposition of furniture and equipment, the cost and
accumulated depreciation are eliminated from the accounts and the gain or
loss is included in operations.
The Company depreciates these assets over their estimated useful lives (3 -
5 years) using the straight-line method.
INCOME TAXES
The Company accounts for income taxes under Statement of Financial
Accounting Standards No. 109, "Accounting for Income Taxes." Income taxes
and liabilities are recognized for the expected future tax consequences of
events that have been included in the financial statements or income tax
returns. Deferred tax assets and liabilities are determined based on the
difference between the financial statements and tax bases of assets and
liabilities using enacted tax rates in effect for the year in which the
differences are expected to reverse.
ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent 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.
- --------------------------------------------------------------------------------
F-9
<PAGE> 34
AZCO MINING INC. (DELAWARE)
Notes to Consolidated Financial Statements
For the years ended June 30, 1998, 1997 and 1996
- --------------------------------------------------------------------------------
2. SIGNIFICANT ACCOUNTING POLICIES (cont'd)
STOCK-BASED COMPENSATION
In October 1995, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards No. 123, "Accounting for Stock-Based
Compensation," (SFAS No. 123), which defines a fair value based method of
accounting for employee (including directors) stock options for similar
equity instruments. However, it also allows an entity to continue to
account for these plans according to Accounting Principles Board Opinion
No. 25, "Accounting for Stock Issued to Employees," (APB No. 25), provided
pro forma disclosures of net income and earnings per share are made as if
the fair value based method of accounting defined by SFAS No. 123 has been
applied. The Company has elected to continue to measure compensation
expense related to employee stock purchase options using APB No. 25. The
fair value of options granted to non-employees and directors is expensed as
compensation when options are granted, and the corresponding amount is
credited to stockholders' equity.
3. CONCENTRATIONS OF CREDIT RISK
Financial instruments that potentially subject the Company to significant
concentrations of credit risk consist principally of cash and cash
equivalents. The Company invests its cash and cash equivalents in high
quality issuers with credit quality at the time of purchase of at least
A1/P1 or A. The Company, in the normal course of business, maintains cash
balances in excess of the Federal Deposit Insurance Corporation's insurance
limit. At June 30, 1998 and 1997, cash equivalents of $18,300,000 and
$16,800,000, respectively, were invested by one bank's trust and
institutional portfolio department.
4. INVESTMENT AND ADVANCES
(a) INVESTMENT
On June 18, 1998, the Company entered into an agreement with Minera Cortez
Resources Ltd. (Cortez), a private company, whereby the Company was granted
a right of first refusal for a period of five years to acquire all or any
of the property interest that Cortez decides to either joint venture,
option, or dispose of. In consideration, the Company has subscribed for
200,000 common shares of Cortez at Cdn. $0.25 per share. The Company was
also granted a right of first refusal for the same period to provide up to
100% of any private or public equity or debt financing that Cortez proposes
to obtain, on similar terms as any third party is willing to provide.
- --------------------------------------------------------------------------------
F-10
<PAGE> 35
AZCO MINING INC. (DELAWARE)
Notes to Consolidated Financial Statements
For the years ended June 30, 1998, 1997 and 1996
- --------------------------------------------------------------------------------
4. INVESTMENTS AND ADVANCES (cont'd)
(b) ADVANCES
On May 22, 1998, the Company entered into an agreement to purchase a
$1,500,000 convertible debenture of Oro Argentina Limited (OAL) for the
purpose of financing the first phase of the Chiqua White Bentonite Project
and the option payments of OAL. OAL has an option to acquire a 50% interest
in the Bentonite Project in San Juan, Argentina pursuant to an agreement
dated February 2, 1998 between OAL and Pierre Martre. The debenture bears
interest at 12% per annum and is due on September 1, 2000. During the term
of the debenture, the Company has the option to convert the unpaid balance
of the principal and interest into common units of OAL at $0.50 per unit,
where each unit consists of one common share and one warrant, and each
warrant entitles the Company to purchase an additional common share at
$0.60 per share for a period of two years after conversion. The debenture
is collateralized by a first floating and fixed charge on the assets of
OAL.
As at June 30, 1998, $100,000 has been drawn against the debenture by OAL.
The Company was also granted a two-year option to purchase all of the
shares of OAL, subject to OAL shareholders' approval. Pursuant to the terms
of the agreement, if the financing of the second phase of the project is
not in place after 18 months from the date of issue of the debenture, the
Company can extend the option for an additional year. The exercise of the
option will be paid with common shares of the Company at a ratio of one
common share for two shares of OAL. The shares of the Company issued for
10,136,935 issued and outstanding shares of OAL and any other shares issued
pursuant to the purchase option will be placed into a pool for a period of
two years, 25% of which will be released immediately, 25% one year
thereafter, and the remaining 50% two years thereafter.
The Company has also advanced $24,371 to OAL for option payments and other
expenses related to the Bentonite Project. The loan bears interest at 12%
per annum and is due on March 9, 1999. In the event that the loan and
accrued interest are not repaid by the due date, they are automatically
converted into Class S shares of OAL at $0.50 per share as full repayment
of the loan. The loan has been recorded in prepaids and other at June 30,
1998.
5. MINERAL PROPERTIES
(a) SANCHEZ PROJECT
During the year ended June 30, 1996, the Company sold 100% of its
investment in the Sanchez property located in Graham County, Arizona.
Proceeds of $37,000,000 from the sale were received and a gain of
$26,076,026 was recorded.
- --------------------------------------------------------------------------------
F-11
<PAGE> 36
AZCO MINING INC. (DELAWARE)
Notes to Consolidated Financial Statements
For the years ended June 30, 1998, 1997 and 1996
- --------------------------------------------------------------------------------
5. MINERAL PROPERTIES (cont'd)
(b) PIEDRAS VERDES PROJECT
The Piedras Verdes Project is located in southern Sonora, Mexico. During
the year ended June 30, 1996, the Company sold 70% of its interest in the
Piedras Verdes Project to Phelps Dodge Corporation (Phelps Dodge). In
accordance with the Company's policy regarding sales of mineral properties,
proceeds of $3,000,000 from the sale were credited against the remaining
development costs and no gain was recognized.
Under the terms of the sales agreement with Phelps Dodge, all assets and
commitments related to this project were transferred to a separate company
incorporated as Cobre del Mayo, S.A. de C.V. (Cobre). The Company maintains
a 30% interest and Phelps Dodge a 70% interest in Cobre. Under the terms of
the Shareholders' and Operator's Agreement among Phelps Dodge, Cobre del
Mayo, Inc., the Company, and Cobre, the Company committed to provide up to
$3,000,000 for costs required to bring the Piedras Verdes Project to the
feasibility stage. As at June 30, 1998, the Company has advanced $3,669,761
towards the project. The Company also committed to funding its 30% of
expenditures incurred in the feasibility stage. The Company is expensing
all costs related to the project.
On March 4, 1997, Cobre entered into a mining exploration and exploitation
agreement with Compania Minera Serrana, S.A. de C.V. This agreement
superseded the pre-existing lease. Under the terms of this agreement, Cobre
has the following commitments to be funded 70% by Phelps Dodge and 30% by
the Company:
- $10,000 per month from the execution of the agreement until production
begins
- three payments of $299,035 due on the date of execution and on the
first and second anniversaries of the date of execution
- royalties equal to three percent of the net value of mineral
production
- advance royalties of $1,000,000 on the third through fifth
anniversaries of the date of execution, and $1,500,000 on the sixth
through eleventh anniversaries if commercial production is not met by
those anniversary dates.
(c) SUAQUI VERDE PROJECT
On June 20, 1996, the Company entered into a Mineral Exploration and Option
to Form Company Agreement with Minera Phelps Dodge Mexico (MPDM) for the
mineral exploration and evaluation of the Suaqui Verde mineral concessions
in Sonora, Mexico. Under the terms of the agreement, MPDM could earn a 70%
interest in the concessions by incurring exploration expenditures of
$2,000,000 on the project over three years, funding the completion of a
comprehensive feasibility study, and paying the Company $25,000 annually.
- --------------------------------------------------------------------------------
F-12
<PAGE> 37
AZCO MINING INC. (DELAWARE)
Notes to Consolidated Financial Statements
For the years ended June 30, 1998, 1997 and 1996
- --------------------------------------------------------------------------------
5. MINERAL PROPERTIES (cont'd)
(c) SUAQUI VERDE PROJECT (cont'd)
During the year ended June 30, 1998, the option agreement was terminated.
The Company is committed to pay $24,000 annually to the property owners.
(d) MALI PROJECT
On May 9, 1996, the Company entered into a Memorandum of Agreement with
West African Gold and Exploration, Ltd. (WAG), a British Virgin Islands
company, Eagle River International Limited (Eagle River), a Vanuatu
corporation, and Lion Mining Finance Limited (Lion Mining), a United
Kingdom corporation. Eagle River has purchased properties in Mali, Africa
from Guefest, a Russian mining consortium. Under the terms of this
agreement, the properties were transferred to West African Gold (Mali) Inc.
(WAG (Mali)) on July 7, 1997. Shares in this corporation have been
transferred to Chaplin Holding Ltd., a Bahamian company, which has changed
its name to Sanou Mining Corporation (Sanou). The Company currently holds a
100% interest in Sanou.
On May 17, 1996, under the terms of the above agreement, the Company issued
an irrevocable standby letter of credit in the amount of $1,000,000 to
guarantee the development of certain mineral concessions in Mali. The
Company, on behalf of Eagle River, Lion Mining, and WAG, had guaranteed
$1,000,000 of development by May 15, 1997 to keep the properties in good
standing. During the year ended June 30, 1997, the Company funded
$4,052,316 for operating costs on the Mali Project, which exceeds the
required expenditures. The operating costs are included in exploration
costs in the accompanying statement of operations.
On September 3, 1997, the Company served notice to Eagle River that it was
declaring default of the Mali agreement as the work commitment for the
licence on the Mali Project was unacceptable. Under the terms of the
agreement, Eagle River and Lion Mining have to repay all advances made by
the Company towards the Mali Project. These advances were secured by
promissory notes from Eagle River and debentures from Societe Olifer de
Falome (SOF) and WAG Mali in the amount of $4,000,000. The Company is in
the process of foreclosure on these securities and, as a consequence, takes
the position that it is the 100% owner of the mining concessions through
its subsidiaries WAG and Sanou and will pursue Eagle River and SOF for any
value shortfall.
- --------------------------------------------------------------------------------
F-13
<PAGE> 38
AZCO MINING INC. (DELAWARE)
Notes to Consolidated Financial Statements
For the years ended June 30, 1998, 1997 and 1996
- --------------------------------------------------------------------------------
5. MINERAL PROPERTIES (cont'd)
(d) MALI PROJECT (cont'd)
On November 18, 1997, the Company entered into an agreement with Lion
Mining forming a joint venture called the Kingfisher Venture created to
pursue profitable exploitation of mineral opportunities located by Lion
Mining. Pursuant to the terms of the agreement, Lion Mining will seek and
make available to the venture mineral opportunities coming to them in which
they are capable of participating, and the Company has the right of first
refusal on these opportunities. The term of the venture is the longer of
three years or the payout of the Negative Balance plus six months, expiring
on December 31, 2010. The Negative Balance is equal to the total
expenditures related to the Mali agreement less all recoveries. Lion Mining
has also assigned to the Company all its rights and interests in the Mali
agreement and has agreed to cooperate fully with the Company in pursuit of
any remedies against Eagle River. The Company has released and discharged
Lion Mining of all suits, debts, and claims related to the Mali agreement.
The Company plans to foreclose on the promissory notes of Eagle River.
On December 18, 1997, WAG (Mali) was granted a renewable exploration
agreement on the Mali Project by the Mali Ministry of Mines and Energy. The
agreement runs through December 1998 and has a work commitment of
$3,360,000 assigned to it. As of June 30, 1998, this work commitment has
been fulfilled.
On April 6, 1998, the Company entered into an agreement with Lines Overseas
Management Ltd. (Lines), subject to regulatory approval. Under the terms of
the Mali agreement, Lines had originally advanced $500,000 and 125,000
shares of the Company owned by it to Eagle River for payments to Guefest
and other parties. The Company has agreed to issue 375,000 of its shares to
Lines in consideration for assigning and quitclaiming to the Company all
advances and shares and any other benefit or claim of Lines related to the
Mali agreement. These shares were issued on September 17, 1998.
(e) INDONESIA PROJECTS
During the year ended June 30, 1997, the Company entered into certain
agreements to obtain the rights to explore properties in Indonesia. As a
part of the agreements, the Company was obligated to pay all costs required
under Indonesian law. These costs include funds required to be put on
deposit with the Indonesian Ministry of Mines to obtain Contracts of Work
(CoWs).
At June 30, 1997, the Company had a total of $615,255 on deposit with the
Indonesian Ministry of Mines as security for CoWs on mineral concessions
covering 121,623 hectares. During the year ended June 30, 1998, the Company
decided not to pursue exploration on 83,940 hectares. As a result, the
Company has received a refund of $244,750 in deposits on one of the
properties and has applied for a refund of $182,090 on another property.
The Company has since written off $370,505 in deposits to exploration
expenses as at June 30, 1998.
- --------------------------------------------------------------------------------
F-14
<PAGE> 39
AZCO MINING INC. (DELAWARE)
Notes to Consolidated Financial Statements
For the years ended June 30, 1998, 1997 and 1996
- --------------------------------------------------------------------------------
5. MINERAL PROPERTIES (cont'd)
(f) BENITOITE PROJECT
On December 1, 1997, the Company entered into an agreement whereby it was
granted an option to purchase the Benitoite mineral property in San Benito
County, California for a purchase price of $1,500,000. The Company can
exercise the option on or before February 1, 1999. Pursuant to the terms of
the agreement, the Company has made a non-refundable payment of $20,000 to
the property owners.
6. NOTES PAYABLE
On May 12, 1995, the Company issued $2,000,000, 14% convertible debentures.
Interest at 14% per annum was payable semi-annually from the issue date.
The convertible debentures could have been converted to common stock at the
option of the investor at any time during the two-year term of the
convertible debentures for $2.00 per share. The convertible debentures were
subordinated to any and all security or obligations that may have been
issued or incurred by the Company in connection with the Company's debt
financing requirement for its mineral properties. The convertible
debentures were paid in full on December 19, 1995. No penalty was assessed
for early extinguishment of the debt.
Interest expense for the year ended June 30, 1996 was $171,173.
- --------------------------------------------------------------------------------
F-15
<PAGE> 40
AZCO MINING INC. (DELAWARE)
Notes to Consolidated Financial Statements
For the years ended June 30, 1998, 1997 and 1996
- --------------------------------------------------------------------------------
7. WARRANTS AND STOCK OPTIONS
WARRANTS
In connection with a private offering in October 1994, the Company issued
1,650,000 common shares with warrants at a price of Cdn. $2.85 per unit.
Each warrant entitles the holder to purchase one additional common share of
the Company for a period of two years from the closing at a purchase price
of Cdn. $2.95 per common share. In October 1996, the exercise period was
extended one year. The warrants were not exercised by October 1997 and have
expired.
<TABLE>
<CAPTION>
OTHER SPECIAL TOTAL
<S> <C> <C> <C>
Exercise price $2.00 to $4.00 Cdn. $2.95
Expiration date 07/31/93 to 10/19/97
07/31/95
Balance outstanding at June 30, 1995 100,000 1,650,000 1,750,000
Cancelled (100,000) -- (100,000)
-------------- ---------- ----------
Balance outstanding at June 30, 1997 and 1996 -- 1,650,000 1,650,000
Expired -- (1,650,000) (1,650,000)
-------------- ---------- ----------
Balance outstanding at June 30, 1998 Nil Nil Nil
============== ========== ==========
</TABLE>
STOCK OPTIONS
The Company has elected to follow APB No. 25 and related interpretations in
accounting for its stock-based employee compensation arrangements. Under
APB No. 25, as the exercise price of the Company's stock options equals the
market price of the underlying stock on the date of grant, no compensation
expense is recognized.
The Company has a Stock Option Plan (the Plan) dated July 24, 1989, as
amended, for the granting of options to purchase common stock. The board of
directors may grant options to key personnel and others as it deems
appropriate. There are no vesting requirements under the Plan. The options
are exercisable over a maximum term of five years.
Pro forma information regarding net income and earnings per share is
required by SFAS No. 123, and has been determined as if the Company had
accounted for its stock option plan under the fair value based method of
SFAS No. 123. The fair value of these options was estimated at the date of
grant using a Black-Scholes options valuation model with the following
weighted-average assumptions for fiscal 1998: risk-free interest rate from
5.12% to 5.83%, no dividend, volatility factor of the expected market price
of the Company's common stock of 0.65, and an expected life of the option
of five years.
- --------------------------------------------------------------------------------
F-16
<PAGE> 41
AZCO MINING INC. (DELAWARE)
Notes to Consolidated Financial Statements
For the years ended June 30, 1998, 1997 and 1996
- --------------------------------------------------------------------------------
7. WARRANTS AND STOCK OPTIONS (cont'd)
STOCK OPTIONS (cont'd)
The Black-Scholes options valuation model was developed for use in
estimating the fair value of traded options that have no vesting or trading
restrictions and are fully transferable. In addition, option valuation
models require the input of highly subjective assumptions including the
expected stock price volatility. The Company's employee stock options have
characteristics significantly different from those of traded options.
Changes in the subjective assumptions can materially affect the fair value
estimate.
For the purposes of pro forma disclosure, the estimated fair value of the
options of $59,141 (1997 - $376,394) is expensed when the options are
granted as the options are fully vested when granted. The Company's pro
forma information for fiscal 1998 and 1997 follows:
<TABLE>
<CAPTION>
1998 1997
$ $
<S> <C> <C>
Pro forma net loss (3,103,293) (8,532,094)
Pro forma basic loss per share (0.12) (0.33)
Pro forma diluted loss (0.12) (0.33)
</TABLE>
The estimated fair value of options granted to non-employees of $119,230
(1997 - $149,995) has been credited to paid-in capital and shown as a
charge to salaries in the statement of operations.
Plan activity for the years ended June 30, 1998, 1997 and 1996 was as
follows:
<TABLE>
<CAPTION>
NUMBER OF
SHARES PRICE RANGE OF OPTIONS
<S> <C> <C>
Balance outstanding at June 30, 1995 1,197,408 U.S. $0.40 to Cdn. $3.50
Granted 1,147,500 Cdn. $1.20 to U.S. $3.00
Cancelled (157,500) Cdn. $2.40 to Cdn. $3.40
---------
Balance outstanding at June 30, 1996 2,187,408 U.S. $0.40 to Cdn. $3.50
Granted 565,000 Cdn. $1.87 to Cdn. $2.32
Cancelled (420,940) Cdn. $1.80 to Cdn. $3.00
Exercised (66,896) U.S. $0.40 to Cdn. $1.55
---------
Balance outstanding at June 30, 1997 2,264,572 Cdn. $1.20 to U.S. $3.00
Granted 252,000 Cdn. $1.40 to Cdn. $1.95
Cancelled (297,500) Cdn. $1.80 to U.S. $2.00
Exercised (59,572) Cdn. $1.20 to Cdn. $1.55
---------
Balance outstanding at June 30, 1998 2,159,500 Cdn. $1.40 to U.S. $3.00
=========
</TABLE>
- --------------------------------------------------------------------------------
F-17
<PAGE> 42
AZCO MINING INC. (DELAWARE)
Notes to Consolidated Financial Statements
For the years ended June 30, 1998, 1997 and 1996
- --------------------------------------------------------------------------------
7. WARRANTS AND STOCK OPTIONS (cont'd)
STOCK OPTIONS (cont'd)
At June 30, 1998 and 1997, 1,485,545 and 181,543 shares of common stock
were reserved for future grants of options, respectively.
Of the 2,159,500 stock options outstanding at June 30, 1998, 1,235,000
stock options were issued to directors, employees or key advisors of the
Company.
Stock options exercisable at June 30, 1998 include the following:
<TABLE>
<CAPTION>
WEIGHTED
AVERAGE
NUMBER OF EXERCISE PRICE WEIGHTED AVERAGE
PRICE RANGE OF OPTIONS SHARES CDN. $ REMAINING LIFE
<S> <C> <C> <C>
Cdn. $1.40 to Cdn. $1.80 1,244,500 1.78 35 months
Cdn. $1.85 to Cdn. $2.65 758,000 2.05 40 months
Cdn. $2.89 to U.S. $3.00 157,000 3.91 18 months
</TABLE>
8. INCOME TAXES
The income tax (benefit) expense is as follows:
<TABLE>
<CAPTION>
1998 1997 1996
$ $ $
<S> <C> <C> <C>
Current -
Federal (2,109,237) (568,524) 4,080,000
State -- (28,009) 1,635,000
---------- ---------- ----------
Total tax (benefit) expense (2,109,237) (596,533) 5,715,000
========== ========== ==========
</TABLE>
- --------------------------------------------------------------------------------
F-18
<PAGE> 43
AZCO MINING INC. (DELAWARE)
Notes to Consolidated Financial Statements
For the years ended June 30, 1998, 1997 and 1996
- --------------------------------------------------------------------------------
8. INCOME TAXES (cont'd)
Income tax expense (benefit) differs from the amount computed by applying
the U.S. federal income tax rate to net income before income taxes, as
shown.
<TABLE>
<CAPTION>
1998 1997 1996
$ $ $
<S> <C> <C> <C>
Tax expense (benefit) at the federal
statutory rate
(1,803,678) (3,027,500) 7,995,803
State tax (257,668) (431,477) 1,142,257
Change in valuation allowance (162,463) 2,874,764 (4,207,230)
Write-down of deferred tax asset for
stock options
-- 96,692 --
Stock options -- -- 650,000
Other 114,572 (109,012) 134,170
---------- ---------- ----------
Tax expense (benefit) (2,109,237) (596,533) 5,715,000
========== ========== ==========
</TABLE>
The components of the net deferred tax asset at June 30, 1998 and 1997 are
as follows:
<TABLE>
<CAPTION>
1998 1997
$ $
<S> <C> <C>
Deferred tax asset -
State net operating loss carryforward 379,960 68,532
Foreign mineral properties 3,432,905 3,911,789
Other 27,844 22,851
Valuation allowance (3,840,709) (4,003,172)
---------- ----------
Net deferred tax asset Nil Nil
========== ==========
</TABLE>
The net change in the valuation allowance for the deferred tax asset of the
Company is as follows:
<TABLE>
<CAPTION>
1998 1997 1996
$ $ $
<S> <C> <C> <C>
Valuation allowance as of July 1 4,003,172 1,128,408 5,335,638
Increase (decrease) in valuation allowance (162,463) 2,874,764 (4,207,230)
---------- ---------- ----------
Valuation allowance as of June 30 3,840,709 4,003,172 1,128,408
========== ========== ==========
</TABLE>
At June 30, 1998, the Company had net operating loss carryforwards for
Arizona income tax purposes of approximately $7.6 million (1997 - $5.3
million). These losses expire in the amount of $5.3 million on June 30,
2002 and $2.3 million on June 30, 2003.
- --------------------------------------------------------------------------------
F-19
<PAGE> 44
AZCO MINING INC. (DELAWARE)
Notes to Consolidated Financial Statements
For the years ended June 30, 1998, 1997 and 1996
- --------------------------------------------------------------------------------
9. EARNINGS PER SHARE
In February 1997, Statement of Financial Accounting Standards No. 128,
"Earnings Per Share," (SFAS No. 128) was issued. In accordance with SFAS
No. 128, the Company has adopted the new standard in the quarter ended
December 31, 1997 and for the year ended June 30, 1998. SFAS No. 128
requires dual presentation of basic and diluted earnings per share (EPS) on
the face of the consolidated statement of operations, and a reconciliation
of the components of the basic and diluted EPS calculations in the notes to
the financial statements. Basic EPS excludes dilution and is computed by
dividing net income (loss) by the weighted average number of shares
outstanding. Diluted EPS reflects potential dilution that would occur if
securities or other contracts to issue common stock were exercised or
converted into common stock. The following is the reconciliation of EPS for
fiscal 1998, 1997 and 1996:
<TABLE>
<CAPTION>
1998 1997 1996
<S> <C> <C> <C>
Net income (loss) applicable to basic and diluted income (loss)
per share
$ (3,044,112) $ (8,155,700) $ 17,127,455
============ ============ ==============
Weighted average number of common shares assuming no dilution
25,646,449 25,787,247 25,512,938
Stock options and warrants that had a dilutive effect on net
income (based on relationship of market value to exercise
price), assumed to have been exercised on the first day of
each period (or date of grant, if later), less the number of
shares which could have been purchased from the proceeds of such
assumed exercise; number of shares using the weighted average
market price for the assumed purchase of shares described above
-- -- 41,384
------------ ------------ --------------
Weighted average common shares applicable to income per common
share
25,646,449 25,787,247 25,554,322
Additional shares using the market close price at the end of
the period for the assumed purchase of shares described above
-- -- 77,801
------------ ------------ --------------
Weighted average number of common shares assuming full dilution
25,646,449 25,787,247 25,632,123
============ ============ ==============
Basic income (loss) per common share $ (0.12) $ (0.32) $ 0.67
============ ============ ==============
Diluted income (loss) per common share $ (0.12) $ (0.32) $ 0.67
============ ============ ==============
</TABLE>
Stock options and warrants that are antidilutive have not been included in
the computation of diluted income per common share.
- --------------------------------------------------------------------------------
F-20
<PAGE> 45
AZCO MINING INC. (DELAWARE)
Notes to Consolidated Financial Statements
For the years ended June 30, 1998, 1997 and 1996
- --------------------------------------------------------------------------------
10. CONTINGENCIES AND COMMITMENTS
(a) COPPER PURCHASE AGREEMENT
The Company had formerly entered into a Copper Purchase Agreement relating
to the copper output of the Sanchez Project. After sale of the Sanchez
Project, the Company was informed that it was in alleged violation of this
agreement. A lawsuit was filed against the Company by AIOC Corporation
(AIOC). The Company agreed to binding arbitration with AIOC and received a
dismissal of the lawsuit on February 8, 1996, under terms of the
Stipulation and Order of Compromise and Dismissal.
Under the terms of the Company's Stipulation and Order of Compromise and
Dismissal with AIOC, the Company placed $4,000,000 into escrow to satisfy
any award in the arbitration. During the year ended June 30, 1998, the
Company settled the dispute and paid $400,000 to AIOC. This amount has been
recorded as a legal expense. The remaining deposit with interest held in
escrow has been refunded to the Company.
(b) EMPLOYMENT AGREEMENTS
The Company has entered into agreements with five officers and two
directors. The agreements provide that if there is a change in control of
the Company and the officer leaves the employment of the Company, for
whatever reason (other than discharge for cause, death, or disability)
within six months after such acquisition of control, the officer shall
receive a lump sum cash payment pursuant to certain limitations of the
Internal Revenue Code. In addition, the officers will continue to be
covered by all of the Company's medical, health, life, and dental plans for
24 months after such change of control. The directors shall receive a lump
sum cash payment in the amount not to exceed $100,000.
In addition, the Company has entered into separate management agreements
with its President and its Executive Vice-President. These agreements were
effective February 1, 1998 for a term of 36 months, and provide that in the
event of termination or failure to renew, the officer will receive a
termination fee equal to the sum of:
(i) buy-out of any outstanding stock options at the average market price of the
Company's shares and less the exercise price, or at the officer's election
and subject to regulatory approval, extension of the option for a year
after termination
(ii) greater of the aggregate remaining base fee for the unexpired remainder of
the term, or an annual base fee plus one month of base fee for each year of
service after the effective date of the agreement.
During the year ended June 30, 1998, the Company paid $304,000 in
management fees to companies controlled by directors. This amount has been
recorded as salaries expense.
- --------------------------------------------------------------------------------
F-21
<PAGE> 46
AZCO MINING INC. (DELAWARE)
Notes to Consolidated Financial Statements
For the years ended June 30, 1998, 1997 and 1996
- --------------------------------------------------------------------------------
10. CONTINGENCIES AND COMMITMENTS (cont'd)
(c) PUBLIC RELATIONS AGREEMENT
On April 1, 1998, the Company entered into an agreement with the Wall
Street Group to provide financial public relations services to the Company.
Pursuant to the terms of the agreement, the Company will pay a monthly cash
fee of $5,000 and has granted a five-year stock option on 84,000 common
shares of the Company at $1.20 per share. If the agreement is not cancelled
or modified after 12 months, the same terms will apply for the next 12
months, except that an additional five-year stock option on as many common
shares as can be purchased for $100,000 will be granted, with an exercise
price equal to the closing bid price on April 1, 1999. Each year
thereafter, this additional stock option grant and formula will be
maintained until the agreement is cancelled or modified.
(d) LEASE COMMITMENTS
The Company is obligated under a long-term operating lease for its office
space in Vancouver, British Columbia, through April 1999. The lease
contains a renewal option of five years. The Company was required to
provide a letter of credit in the amount of $16,165 at June 30, 1998. The
letter of credit is collateralized by a term deposit of $16,165, which is
recorded in financial statements as restricted cash. The Company has also
leased office space in the U.S. and the United Kingdom. The aggregate
annual rental commitment under the leases is as follows:
<TABLE>
<CAPTION>
$
<S> <C>
June 30, 1999 88,700
2000 18,600
2001 18,600
2002 18,600
2003 18,600
-------
163,100
=======
</TABLE>
Rental expense, net of sublease income, for the years ended June 30, 1998,
1997 and 1996 was $60,514, $68,121 and $69,140, respectively.
11. FAIR VALUE OF FINANCIAL INSTRUMENTS
The carrying amounts of cash and cash equivalents and restricted cash
approximated fair value as of June 30, 1998 and 1997 because of the
relatively short maturity of these instruments. It is not practicable to
estimate the fair value of advances to OAL because the ultimate recovery of
the advances is dependent on the ability of OAL to realize its exploration
and development assets, which are subject to the measurement uncertainty
inherent in such assets.
- --------------------------------------------------------------------------------
F-22
<PAGE> 47
- --------------------------------------------------------------------------------
AZCO MINING INC. (DELAWARE)
Notes to Consolidated Financial Statements
For the years ended June 30, 1998, 1997 and 1996
- --------------------------------------------------------------------------------
12. SUBSEQUENT EVENTS
(a) On July 21, 1998, the Company entered into an option agreement with
Cortez whereby the Company was granted an option to earn up to a 70%
interest in the La Adelita property in Sonora, Mexico under the
following terms:
(i) by subscribing to 100,000 common shares of Cortez at Cdn. $0.25
per share
(ii) by making option payments and paying finder's fees on behalf of
Cortez totalling $165,000 over the next five years
(iii) by incurring exploration expenditures on the property totalling
$500,000 over the next three years.
(b) On August 6, 1998, the Company approved the repurchase of up to
1,284,024 shares of its issued and outstanding common stock on the
American Stock Exchange commencing August 13, 1998 and continuing up
until August 13, 1999. The maximum authorized repurchase price is U.S.
$1.50 per common share.
13. FOURTH QUARTER CHARGES
During the fourth quarter of fiscal 1998, the Company recorded additional
compensation expense of $119,230 related to the accounting of stock options
granted to non-employees under SFAS No. 123. The Company recorded a tax
benefit of $216,000 for additional tax recoveries estimated. In addition,
the Company wrote off $370,505 in refundable deposits held by the
Indonesian government due to the uncertainty of recoverability.
14. NEW PRONOUNCEMENTS
The Financial Accounting Standards Board has issued Statement of Financial
Accounting Standards No. 130, "Reporting Comprehensive Income," Statement
of Financial Accounting Standards No. 131, "Disclosures About Segments of
an Enterprise and Related Information," and Statement of Financial
Accounting Standards No. 133, "Accounting for Derivative Instruments and
Hedging Activities." The Company is currently assessing the impact of these
statements. SFAS No. 130 and 131 are effective for fiscal years beginning
after December 15, 1997 and SFAS No. 133 is effective for fiscal years
beginning after June 15, 1999.
- --------------------------------------------------------------------------------
F-23
<PAGE> 48
AZCO MINING INC. (DELAWARE)
Schedule II - Valuation and Qualifying Accounts
For the years ended June 30, 1998, 1997 and 1996
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
COL. A COL. B COL. C COL. D COL. E
BALANCE AT BALANCE AT
DESCRIPTIONS BEGINNING END OF
OF YEAR ADDITIONS DEDUCTIONS YEAR
$ $ $ $
<S> <C> <C> <C> <C>
Valuation allowance for deferred tax asset(1):
June 30, 1998 4,003,172 -- 162,463 3,840,709
June 30, 1997 1,128,408 2,874,764 -- 4,003,172
June 30, 1996 5,335,638 -- 4,207,230 1,128,408
</TABLE>
(1) For further information, refer to Note 8, Income Taxes, in the Notes to the
Consolidated Financial Statements included in Form 10-K.
- --------------------------------------------------------------------------------
F-24
<PAGE> 1
EXHIBIT 10.7
MANAGEMENT AGREEMENT
THIS AGREEMENT is made and dated for reference effective as of
the 1st day of February, 1998
BETWEEN:
AZCO MINING INC., a company duly incorporated under the laws
of the State of Delaware, USA, and having an executive office
and an address for notice and delivery located at Suite 1250,
999 West Hastings Street, Vancouver, British Columbia, V6C 2W2
(the "Company");
OF THE FIRST PART
AND:
ARH MANAGEMENT LTD. a company duly
incorporated under the laws of the Province
of British Columbia and having an address
for notice and delivery located at c/o 2550,
555 West Hastings Street, Vancouver, B.C. V6B 4N5
("ARH" and also "Consultant");
OF THE SECOND PART
(the Company and the Consultant being hereinafter singularly
also referred to as a "Party" and collectively referred to as
the "Parties" as the context so requires).
WHEREAS:
A. The Company is a reporting company duly incorporated under the laws of the
State of Delaware, USA, and is a "reporting issuer" for the purposes of the
Securities Acts of the Provinces of British Columbia and Ontario;
<PAGE> 2
-2-
B. The Company is involved in the principal business of the acquisition,
exploration and development of mineral resource properties of merit;
C. ARH is a non-reporting company duly incorporated under the laws of the
Province of British Columbia and is wholly owned and controlled by Mr. Anthony
Harvey ("Harvey");
D. Mr. Harvey is a professionally qualified and highly experienced professional
engineer who has acted as an officer and director of the Company and has been
acting for ARH in accordance with contract between ARH and the Company by
agreement dated May 1, 1989 (the "May Agreement");
E. ARH has not received substantial review of the terms of the May Agreement
since its inception and, in light of the diligent service historically and
presently provided, the parties have agreed to re-negotiate to effect more
competitive terms;
NOW THEREFORE THIS AGREEMENT WITNESSETH that in consideration
of the mutual covenants and provisos herein contained, THE PARTIES HERETO AGREE
AS FOLLOWS:
ARTICLE I
INTERPRETATION
1.1 DEFINITIONS. For all purposes of this Agreement, except as otherwise
expressly provided or unless the context otherwise requires, the following words
and phrases shall have the following meanings:
(a) "Agreement" means this Agreement as from time to time
supplemented or amended;
(b) "Base Fee" means that compensation set forth in section "5.1"
below;
(c) "Board of Directors" or "Board" means the Board of Directors of
the Company as duly constituted from time to time;
(d) "Effective Date" has the meaning ascribed to it in section "4.1"
hereinbelow;
<PAGE> 3
-3-
(e) "Indemnified Party" has the meaning ascribed to it in section
"8.1" hereinbelow;
(f) "Non-Renewal Notice" has the meaning ascribed to it in section
"4.2" hereinbelow;
(g) "Regulatory Approval" means the acceptance for filing, if
required, of the transactions contemplated by this Agreement by
the Regulatory Authorities;
(h) "Regulatory Authorities" means The Toronto Stock Exchange, The
American Stock Exchange and such other regulatory agencies who
have jurisdiction over the affairs of the Company and/or the
Consultant including, without limitation, and where applicable,
the British Columbia Securities Commission, the Ontario
Securities Commission, the United States Securities and Exchange
Commission and all regulatory authorities from whom any such
authorization, approval or other action is required to be
obtained or to be made in connection with the transactions
contemplated by this Agreement;
(i) "Term" has the meaning ascribed to it in section "4.1"
hereinbelow; and
(j) "Termination Fee" has the meaning ascribed to it in section "4.4
below.
1.2 INTERPRETATION. For the purposes of this Agreement, except as otherwise
expressly provided or unless the context otherwise requires,:
(a) the words "herein", "hereof" and "hereunder" and other words of
similar import refer to this Agreement as a whole and not to any
particular Article, section or other subdivision of this
Agreement;
(b) the headings are for convenience only and do not form a part of
this Agreement nor are they intended to interpret, define or
limit the scope or extent of this or any provision of this
Agreement;
(c) any reference to an entity shall include and shall be deemed to
be a reference to any entity that is a successor to such entity;
and
(d) words in the singular include the plural and words in the
masculine gender include the feminine and neuter genders, and
vice versa.
<PAGE> 4
-4-
ARTICLE II
REPLACEMENT OF THE MAY AGREEMENT
2.1 REPLACEMENT OF THE MAY AGREEMENT. This Agreement substitutes for and
replaces, in its entirety, the May Agreement, together with all prior
discussions, negotiations, understandings, amendments and intervening agreements
subsequent to the May Agreement and preceding this Agreement.
ARTICLE III
SERVICES AND DUTIES OF THE CONSULTANT
3.1 GENERAL SERVICES. During the Term (as hereinafter defined) of this Agreement
the Consultant will provide the Company with such general corporate,
administrative, technical and engineering management services as is considered
necessary or advisable by ARH and Harvey for the due and proper management of
the Company to achieve the goals and needs of the Company as determined by the
policies and proceedings of management and the Board of Directors (collectively,
the "General Services).
3.2 SPECIFIC SERVICES. Without limiting the generality of the General Services
to be provided as set forth in section "3.1" hereinabove, it is hereby
acknowledged and agreed that the Consultant will provide the following specific
services:
(a) supervision of the hiring of competent personnel as are required
for the efficient operation of the Company's business;
(b) the management and supervision of the performance of personnel
and of the operation of various business enterprises of the
Company as approved by the Board;
(c) the identification of business opportunities for the Company,
the conduct of due diligence, and assistance in the negotiation
and conclusion of contracts for such opportunities;
(d) assistance in the coordination and administration of all
development programs of the Company together with all capital
funding projects and resources which are necessarily incidental
thereto;
<PAGE> 5
-5-
(e) assistance in the coordination of the preparation and
dissemination of business plans and engineering reports for the
Company;
(f) assistance in the liaison with and the setting up of corporate
alliances for the Company with major companies and customers,
the Company's auditors, the Company's solicitors and the
Company's affiliated companies and business partners; and
(g) such other activities as are necessary or incidental to the
officer's position and director's role occupied by Mr. Harvey,
from time to time, if any.
3.3 COMPANY SUPPORT. It is hereby acknowledged that the Consultant is
contracting to provide one person to provide the services at this time, who
presently is Mr. Harvey, but that the Consultant may provide another person in
lieu of Mr. Harvey, so long as such person is competent to perform those tasks
or can so perform them under the supervision of Mr. Harvey and such person has
been approved by the Board. In the event that the services to be provided to the
Company exceed the amount of time provided by this Agreement as basic retainer
or reasonably exceed the capacity of the Consultant's personnel then, at the
Consultant's requirement, the Company shall pay for the employment of additional
personnel, either directly or by contract through the consultant, to perform the
tasks requiring additional personnel and as specified by the Consultant and at a
rate determined by the Board.
ARTICLE IV
TERM, RENEWAL AND TERMINATION
4.1 TERM. The Term of this Agreement (the "Term") is for a period of
approximately 36 months commencing on February 1, 1998 (the "Effective Date")
and terminating February 1, 2001, subject to the terms hereafter set forth.
4.2 RENEWAL. This Agreement shall renew automatically for subsequent one year
periods if not specifically terminated in accordance with the following
provisions. Either Party hereto agrees to notify the other Party hereto in
writing at least 90 calendar days prior to the end of the Term of its intent not
to renew this Agreement (the "Non-Renewal Notice"). Should both Parties fail to
provide a Non-Renewal Notice this Agreement shall automatically renew. Such
renewal or month-to-month arrangement shall be on the same terms and conditions
contained herein unless modified and agreed to in writing by the Parties.
<PAGE> 6
-6-
4.3 TERMINATION. Notwithstanding any other provision of this Agreement, this
Agreement may be terminated by either Party upon written notice to the other
Party if:
(a) the other Party fails to cure a material breach of any provision
of this Agreement within 30 calendar days from its receipt of
written notice from said Party (unless such breach cannot be
reasonably cured within said 30 calendar days and the other
Party is actively pursuing curing of said breach); or
(b) the other Party commits fraud or serious neglect or misconduct
in the discharge of its respective duties hereunder or under the
law; or
(c) the other Party becomes adjudged bankrupt or a petition for
reorganization or arrangement under any law relating to
bankruptcy, and where any such petition is not dismissed;
but that the Consultant shall have the right to receive the Termination Fee
regardless of the reason for termination, subject to any rights of set-off in
the event of damages for fraud or misconduct.
4.4 TERMINATION FEE. In the event that this Agreement is terminated, or fails to
renew due to failure of agreement after the issuance of a Non-Renewal Notice,
the Consultant shall receive a termination fee (the "Termination Fee") equal to
the sum of:
(a) buy-out of any outstanding stock options for a price equal to the
average market price of the Company's shares on the Toronto Stock
Exchange multiplied by the number of shares under option and less the
exercise price thereof or, at the Consultant's election and subject to
Regulatory Approval, extension of the option for a year after
termination; plus
(b) the greater of:
(i) the aggregate remaining Base Fee for the unexpired
remainder of the Term; or
(ii) an annual Base Fee (Base Fee multiplied by twelve) plus
one month of Base Fee for each year, or portion thereof,
served after the Effective Date.
4.5 DISABILITY OR DEATH. In the event that the Consultant is unable to provide
the Services due to protracted disability or sickness or the death of its
principal, it may, at any time, declare such to the Company and may terminate
this Agreement as a without fault termination and the Termination Fee shall be
payable. The Company may elect to effect such termination, and shall pay the
Termination Fee, in the case of death of the
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Consultant's principal or in the event that sickness or disability has continued
for a period in excess of 120 days.
ARTICLE V
COMPENSATION OF THE CONSULTANT
5.1 BASE FEE. The Consultant shall be compensated on a monthly basis from the
Effective Date of this Agreement by a basic monthly retainer fee of U.S.
$15,000 (the "Base Fee"), being $180,000 US annualized, which shall compensate
the Consultant for the provision of the Services as required. The Consultant's
personnel shall also receive an allowance for equivalent benefits enjoyed by
Company personnel.
5.2 BASE FEE ADJUSTMENT. The Base Fee may be renegotiated annually at the
request of either Party. In the event that the Parties cannot agree then the
Base Fee shall be increased by the greater of 5% or the amount of the cost of
living index increase as published by the Canadian Federal government in its
final annual publication of such reports..
5.3 REIMBURSEMENT OF EXPENSES. The Consultant shall be funded for or reimbursed
for all reasonable expenses incurred, or to be incurred, by the Consultant for
the benefit of the Company.
5.4 VACATION. The Consultant shall be entitled to grant its appointed personnel
up to six weeks paid vacation per year.
ARTICLE VI
ADDITIONAL OBLIGATIONS OF THE CONSULTANT
6.1 NO CONFLICT. During this Agreement the Consultant will not engage in any
business which reasonably may detract from, compete with or conflict with the
Consultant's duties and obligations to the Company as set forth in this
Agreement without disclosure to the Board of Directors of the Company and will
not do so if the Board of Directors objects.
6.2 CONFIDENTIALITY. The Consultant will not, except as authorized or required
by the Consultant's duties hereunder, reveal or divulge to any person or
companies any information concerning the organization, business, finances,
transactions or other affairs of the Company, or of any of its subsidiaries,
which may come to the
<PAGE> 8
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Consultant's knowledge during the continuance of this Agreement, and the
Consultant will keep in complete secrecy all confidential information entrusted
to the Consultant and will not use or attempt to use any such information in any
manner which may injure or cause loss either directly or indirectly to the
Company's business. This restriction will continue to apply after the
termination of this Agreement without limit in point of time but will cease to
apply to information or knowledge which may come into the public domain.
6.3 COMPLIANCE WITH APPLICABLE LAWS. The Consultant will comply with all
Canadian, U.S. and foreign laws, whether federal, provincial or state,
applicable to the Consultant's duties hereunder and, in addition, hereby
represents and warrants that any information which the Consultant may provide to
any person or company hereunder will be accurate and complete in all material
respects and not misleading, and will not omit to state any fact or information
which would be material to such person or company.
ARTICLE VII
REPORTING BY THE CONSULTANT
7.1 REPORTING. So often as may be required by the Board of Director, the
Consultant will provide to the Board of Directors of the Company such
information concerning the results of the Consultant's General Services and
activities hereunder as the Board of Directors of the Company may reasonably
require.
ARTICLE VIII
INDEMNIFICATION AND LEGAL PROCEEDINGS
8.1 INDEMNIFICATION. The Company shall maintain appropriate liability insurance
for its officers, directors, personnel and consultants to which the Consultant
and its personnel shall be made party. The Consultant and its personnel (the
"Indemnified Party") shall be indemnified and funded on a current basis for all
losses, damages, legal expenses, and any other expenses or costs of any nature
which may be occasioned by their service with the Company. Inter alia, this
indemnity shall apply to all manner of actions, proceedings, or prosecutions,
whether civil, regulatory, or criminal, to which the Indemnified Party may be
subject due in whole or in part to the Services provided herein or by virtue of
any office held. This indemnity shall apply both during and after its Term for
all matters arising during the Term, and any extension, until any limitation
period has expired in respect to any action which might be contemplated. The
Company shall not refuse coverage for any purpose or reason and a strict
presumption of innocence shall be applied and the Company may only seek refund
of any coverage in the case of finding of fraud or criminal culpability, after
exhaustion of all appeals. The Company shall diligently seek and support any
such court approvals for the within indemnity as the Indemnified Party may
require. The Company shall pay all such retainers and trust
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requirements as counsel for the Indemnified Party may require and shall pay all
accounts of counsel as they come due and such accounts shall be rendered in the
name of the Company and, further, should the Company fail to pay any reasonable
account, it shall attorn to all such actions, summary judgments, and garnishing
orders as such counsel may consider fit to enforce and receive payment of its
account. The Company shall not seek to settle or compromise any action without
the approval of the Indemnified Party. The Company warrants it shall employ due
diligence and good faith and seek the best interests of the Indemnified Party as
defendants in any action or prosecution. The Indemnified Party shall permit the
Company to consult with their counsel and to be informed of any matters thereof,
subject only to any requirements for legal privilege purposes.
8.2 CLAIM OF INDEMNIFICATION. The Parties hereto agree to waive any right they
might have of first requiring the Indemnified Party to proceed against or
enforce any other right, power, remedy, security or claim payment from any other
person before claiming this indemnity.
8.3 NOTICE OF CLAIM. In case any action is brought against an Indemnified Party
in respect of which indemnity may be sought, the Indemnified Party will give the
Company prompt written notice of any such action of which the Indemnified Party
has knowledge. Failure by the Indemnified Party to so notify shall not relieve
the Company of its obligation of indemnification hereunder unless (and only to
the extent that) such failure results in a forfeiture of substantive rights or
defenses.
ARTICLE IX
FORCE MAJEURE
9.1 EVENTS. If either Party hereto is at any time either during this Agreement
or thereafter prevented or delayed in complying with any provisions of this
Agreement by reason of strikes, walk-outs, labour shortages, power shortages,
fires, wars, acts of God, earthquakes, storms, floods, explosions, accidents,
protests or demonstrations by environmental lobbyists or native rights groups,
delays in transportation, breakdown of machinery, inability to obtain necessary
materials in the open market, unavailability of equipment, governmental
regulations restricting normal operations, shipping delays or any other reason
or reasons beyond the control of that Party, then the time limited for the
performance by that Party of its respective obligations hereunder shall be
extended by a period of time equal in length to the period of each such
prevention or delay.
9.2 NOTICE. A Party shall within seven calendar days give notice to the other
Party of each event of force majeure under section "9.1" hereinabove, and upon
cessation of such event shall furnish the other Party with notice of that event
together with particulars of the number of days by which the obligations of that
Party hereunder have been extended by virtue of such event of force majeure and
all preceding events of force majeure.
<PAGE> 10
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ARTICLE X
ARBITRATION
10.1 MATTERS FOR ARBITRATION. Except for matters of indemnity or in the case of
urgency to prevent material harm to a substantive right or asset, the Parties
agree that all questions or matters in dispute with respect to this Agreement
shall be submitted to arbitration pursuant to the terms hereof. This provision
shall not prejudice a Party from seeking court order or assistance to garnish or
secure sums or to seek summary remedy for such matters as counsel may consider
amenable to summary proceedings.
10.2 NOTICE. It shall be a condition precedent to the right of any Party to
submit any matter to arbitration pursuant to the provisions hereof, that any
Party intending to refer any matter to arbitration shall have given not less
than 10 business days' prior written notice of its intention to do so to the
other Party together with particulars of the matter in dispute. On the
expiration of such 10 business days the Party who gave such notice may proceed
to refer the dispute to arbitration as provided for in section "10.3"
hereinbelow.
10.3 APPOINTMENTS. The Party desiring arbitration shall appoint one arbitrator,
and shall notify the other Party of such appointment, and the other Party shall,
within 10 business days after receiving such notice, appoint an arbitrator, and
the two arbitrators so named, before proceeding to act, shall, within 10
business days of the appointment of the last appointed arbitrator, unanimously
agree on the appointment of a third arbitrator, to act with them and be chairman
of the arbitration herein provided for. If the other Party shall fail to appoint
an arbitrator within 10 business days after receiving notice of the appointment
of the first arbitrator, and if the two arbitrators appointed by the Parties
shall be unable to agree on the appointment of the chairman, the chairman shall
be appointed in accordance with the Arbitration Act of the Province of British
Columbia (the "Arbitration Act"). Except as specifically otherwise provided in
this section, the arbitration herein provided for shall be conducted in
accordance with such Arbitration Act. The chairman, or in the case where only
one arbitrator is appointed, the single arbitrator, shall fix a time and place
for the purpose of hearing the evidence and representations of the Parties, and
he shall preside over the arbitration and determine all questions of procedure
not provided for by the Arbitration Act or this section. After hearing any
evidence and representations that the Parties may submit, the single arbitrator,
or the arbitrators, as the case may be, shall make an award and reduce the same
to writing, and deliver one copy thereof to each of the Parties. The expense of
the arbitration shall be paid as specified in the award.
10.4 AWARD. The Parties agree that the award of a majority of the arbitrators,
or in the case of a single arbitrator, of such arbitrator, shall be final and
binding upon each of them.
<PAGE> 11
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ARTICLE XI
NOTICE
11.1 NOTICE. Each notice, demand or other communication required or permitted to
be given under this Agreement shall be in writing and shall be sent by prepaid
registered mail deposited in a recognized post office and addressed to the Party
entitled to receive the same, or delivered to such Party, at the address for
such Party specified on the front page of this Agreement. The date of receipt of
such notice, demand or other communication shall be the date of delivery thereof
if delivered, or, if given by registered mail as aforesaid, shall be deemed
conclusively to be the third day after the same shall have been so mailed,
except in the case of interruption of postal services for any reason whatsoever,
in which case the date of receipt shall be the date on which the notice, demand
or other communication is actually received by the addressee.
11.2 CHANGE OF ADDRESS. Either Party may at any time and from time to time
notify the other Party in writing of a change of address and the new address to
which notice shall be given to it thereafter until further change.
ARTICLE XII
GENERAL PROVISIONS
12.1 ENTIRE AGREEMENT. This Agreement constitutes the entire agreement to date
between the Parties hereto and supersedes every previous agreement, expectation,
negotiation, representation or understanding, whether oral or written, express
or implied, statutory or otherwise, between the Parties with respect to the
subject matter of this Agreement.
12.2 NO RELATIONSHIP OF EMPLOYER-EMPLOYEE. Nothing contained in this Agreement
shall be construed as creating the relationship of employer and employee as
between the Company and the Consultant.
12.3 NO ASSIGNMENT. This Agreement may not be assigned by either Party except
with the prior written consent of the other Party.
12.4 WARRANTY OF GOOD FAITH. The Parties hereto warrant each to the other to
conduct their duties and obligations hereof in good faith and with due diligence
and to employ all reasonable endeavours to fully comply with and conduct the
terms and conditions of this Agreement.
<PAGE> 12
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12.5 REGULATORY AUTHORITIES. This Agreement is subject to prior Regulatory
Approval, if required, of each of the Regulatory Authorities.
12.6 FURTHER ASSURANCES. The Parties will from time to time after the execution
of this Agreement make, do, execute or cause or permit to be made, done or
executed, all such further and other acts, deeds, things, devices and assurances
in law whatsoever as may be required to carry out the true intention and to give
full force and effect to this Agreement.
12.7 REPRESENTATION AND COSTS. It is hereby acknowledged by each of the Parties
hereto that, as between the Company and the Consultant herein, Devlin Jensen,
Barristers and Solicitors, acts solely for the Company, and that the Consultant
has been advised by Devlin Jensen to obtain independent legal advice with
respect to the Consultant's review and execution of this Agreement
12.8 APPLICABLE LAW. The situs of this Agreement is Vancouver, British Columbia,
and for all purposes this Agreement will be governed exclusively by and
construed and enforced in accordance with the laws prevailing in the Province of
British Columbia.
12.9 SEVERABILITY AND CONSTRUCTION. Each Article, section, paragraph, term and
provision of this Agreement, and any portion thereof, shall be considered
severable, and if, for any reason, any portion of this Agreement is determined
to be invalid, contrary to or in conflict with any applicable present or future
law, rule or regulation in a final unappealable ruling issued by any court,
agency or tribunal with valid jurisdiction in a proceeding to which any Party
hereto is a party, that ruling shall not impair the operation of, or have any
other effect upon, such other portions of this Agreement as may remain otherwise
intelligible (all of which shall remain binding on the Parties and continue to
be given full force and effect as of the date upon which the ruling becomes
final).
12.10 CAPTIONS. The captions, section numbers and Article numbers appearing in
this Agreement and the index hereto are inserted for convenience of reference
only and shall in no way define, limit, construe or describe the scope or intent
of this Agreement nor in any way affect this Agreement.
12.11 NO PARTNERSHIP OR AGENCY. The Parties have not created a partnership or
agency and nothing contained in this Agreement shall in any manner whatsoever
constitute any Party the partner, agent or legal representative of the other
Party, except as specifically herein provided.
12.12 CONSENTS AND WAIVERS. No consent or waiver expressed or implied by either
Party in respect of any breach or default by the other in the performance by
such other of its obligations hereunder shall:
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(a) be valid unless it is in writing and stated to be a consent or
waiver pursuant to this section;
(b) be relied upon as a consent to or waiver of any other breach or
default of the same or any other obligation;
(c) constitute a general waiver under this Agreement; or
(d) eliminate or modify the need for a specific consent or waiver
pursuant to this section in any other or subsequent instance.
IN WITNESS WHEREOF the Parties hereto have hereunto set their
respective hands and seals in the presence of their duly authorized signatories
effective as at the date first above written.
The CORPORATE SEAL of )
AZCO MINING INC. )
was hereunto affixed in the presence of: )
)
)
)
) (C/S)
- --------------------------------------------
Authorized Signatory )
The CORPORATE SEAL of )
ARH MANAGEMENT LTD. )
was hereunto affixed in the presence of: )
)
)
)
) (C/S)
- --------------------------------------------
Authorized Signatory )
-----------------
<PAGE> 1
EXHIBIT 10.8
MANAGEMENT AGREEMENT
THIS AGREEMENT is made and dated for reference effective as of the
1st day of February, 1998
BETWEEN:
AZCO MINING INC., a company duly incorporated under the laws of the
State of Delaware, USA, and having an executive office and an address
for notice and delivery located at Suite 1250, 999 West Hastings
Street, Vancouver, British Columbia, V6C 2W2
(the "Company");
OF THE FIRST PART
AND:
ALAN LINDSAY AND ASSOCIATES LTD. a company duly incorporated under
the laws of the Province of British Columbia and having an address
for notice and delivery located at c/o 2550, 555 West Hastings
Street, Vancouver, B.C. V6B 4N5
("ALA" and also "Consultant");
OF THE SECOND PART
(the Company and the Consultant being hereinafter singularly also
referred to as a "Party" and collectively referred to as the
"Parties" as the context so requires).
WHEREAS:
A. The Company is a reporting company duly incorporated under the laws
of the State of Delaware, USA, and is a "reporting issuer" for the purposes of
the Securities Acts of the Provinces of British Columbia and Ontario;
<PAGE> 2
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B. The Company is involved in the principal business of the acquisition,
exploration and development of mineral resource properties of merit;
C. ALA is a non-reporting company duly incorporated under the laws of
the Province of British Columbia and is wholly owned and controlled by Mr. Alan
Lindsay ("Lindsay");
D. Mr. Lindsay is a highly experienced businessman and company manager
who has acted as an officer and director of the Company and has been acting for
ALA in accordance with contract between ALA and the Company by agreement dated
May 1, 1989 (the "May Agreement");
E. ALA has not received substantial review of the terms of the May
Agreement since its inception and, in light of the diligent service historically
and presently provided, the parties have agreed to re-negotiate to effect more
competitive terms;
NOW THEREFORE THIS AGREEMENT WITNESSETH that in consideration of the
mutual covenants and provisos herein contained, THE PARTIES HERETO AGREE AS
FOLLOWS:
ARTICLE I
INTERPRETATION
1.1 DEFINITIONS. For all purposes of this Agreement, except as otherwise
expressly provided or unless the context otherwise requires, the following words
and phrases shall have the following meanings:
(a) "Agreement" means this Agreement as from time to time
supplemented or amended;
(b) "Base Fee" means that compensation set forth in section
"5.1" below;
(c) "Board of Directors" or "Board" means the Board of
Directors of the Company as duly constituted from time to
time;
(d) "Effective Date" has the meaning ascribed to it in section
"4.1" hereinbelow;
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(e) "Indemnified Party" has the meaning ascribed to it in
section "8.1" hereinbelow;
(f) "Non-Renewal Notice" has the meaning ascribed to it in
section "4.2" hereinbelow;
(g) "Regulatory Approval" means the acceptance for filing, if
required, of the transactions contemplated by this
Agreement by the Regulatory Authorities;
(h) "Regulatory Authorities" means The Toronto Stock Exchange,
The American Stock Exchange and such other regulatory
agencies who have jurisdiction over the affairs of the
Company and/or the Consultant including, without
limitation, and where applicable, the British Columbia
Securities Commission, the Ontario Securities Commission,
the United States Securities and Exchange Commission and
all regulatory authorities from whom any such
authorization, approval or other action is required to be
obtained or to be made in connection with the transactions
contemplated by this Agreement;
(i) "Term" has the meaning ascribed to it in section "4.1"
hereinbelow; and
(j) "Termination Fee" has the meaning ascribed to it in
section "4.4 below.
1.2 INTERPRETATION. For the purposes of this Agreement, except as
otherwise expressly provided or unless the context otherwise requires,:
(a) the words "herein", "hereof" and "hereunder" and other
words of similar import refer to this Agreement as a whole
and not to any particular Article, section or other
subdivision of this Agreement;
(b) the headings are for convenience only and do not form a
part of this Agreement nor are they intended to interpret,
define or limit the scope or extent of this or any
provision of this Agreement;
(c) any reference to an entity shall include and shall be
deemed to be a reference to any entity that is a successor
to such entity; and
(d) words in the singular include the plural and words in the
masculine gender include the feminine and neuter genders,
and vice versa.
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ARTICLE II
REPLACEMENT OF THE MAY AGREEMENT
2.1 REPLACEMENT OF THE MAY AGREEMENT. This Agreement substitutes for and
replaces, in its entirety, the May Agreement, together with all prior
discussions, negotiations, understandings, amendments and intervening agreements
subsequent to the May Agreement and preceding this Agreement.
ARTICLE III
SERVICES AND DUTIES OF THE CONSULTANT
3.1 GENERAL SERVICES. During the Term (as hereinafter defined) of this
Agreement the Consultant will provide the Company with such general corporate,
administrative, financial and investor relations management services as is
considered necessary or advisable by ALA and Lindsay for the due and proper
management of the Company to achieve the goals and needs of the Company as
determined by the policies and proceedings of management and the Board of
Directors (collectively, the "General Services).
3.2 SPECIFIC SERVICES. Without limiting the generality of the General
Services to be provided as set forth in section "3.1" hereinabove, it is hereby
acknowledged and agreed that the Consultant will provide the following specific
services:
(a) supervision of the hiring of competent personnel as are
required for the efficient operation of the Company's
business;
(b) the management and supervision of the performance of
personnel and of the operation of various business
enterprises of the Company as approved by the Board;
(c) the identification of business opportunities for the
Company, the conduct of due diligence, and assistance in
the negotiation and conclusion of contracts for such
opportunities;
(d) assistance in the coordination and administration of all
development programs of the Company together with all
capital funding projects and resources which are
necessarily incidental thereto;
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(e) assistance in the coordination of the preparation and
dissemination of business plans and financial and investor
relations reports for the Company;
(f) assistance in the liaison with and the setting up of
corporate alliances for the Company with major companies
and customers, the Company's auditors, the Company's
solicitors and the Company's affiliated companies and
business partners; and
(g) such other activities as are necessary or incidental to
the officer's position and director's role occupied by Mr.
Lindsay, from time to time, if any.
3.3 COMPANY SUPPORT. It is hereby acknowledged that the Consultant is
contracting to provide one person to provide the services at this time, who
presently is Mr. Lindsay, but that the Consultant may provide another person in
lieu of Mr. Lindsay, so long as such person is competent to perform those tasks
or can so perform them under the supervision of Mr. Lindsay and such person has
been approved by the Board. In the event that the services to be provided to the
Company exceed the amount of time provided by this Agreement as basic retainer
or reasonably exceed the capacity of the Consultant's personnel then, at the
Consultant's requirement, the Company shall pay for the employment of additional
personnel, either directly or by contract through the consultant, to perform the
tasks requiring additional personnel and as specified by the Consultant and at a
rate determined by the Board.
ARTICLE IV
TERM, RENEWAL AND TERMINATION
4.1 TERM. The Term of this Agreement (the "Term") is for a period of
approximately 36 months commencing on February 1, 1998 (the "Effective Date")
and terminating February 1, 2001, subject to the terms hereafter set forth.
4.2 RENEWAL. This Agreement shall renew automatically for subsequent one
year periods if not specifically terminated in accordance with the following
provisions. Either Party hereto agrees to notify the other Party hereto in
writing at least 90 calendar days prior to the end of the Term of its intent not
to renew this Agreement (the "Non-Renewal Notice"). Should both Parties fail to
provide a Non-Renewal Notice this Agreement shall automatically renew. Such
renewal or month-to-month arrangement shall be on the same terms and conditions
contained herein unless modified and agreed to in writing by the Parties.
<PAGE> 6
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4.3 TERMINATION. Notwithstanding any other provision of this Agreement,
this Agreement may be terminated by either Party upon written notice to the
other Party if:
(a) the other Party fails to cure a material breach of any
provision of this Agreement within 30 calendar days from
its receipt of written notice from said Party (unless such
breach cannot be reasonably cured within said 30 calendar
days and the other Party is actively pursuing curing of
said breach); or
(b) the other Party commits fraud or serious neglect or
misconduct in the discharge of its respective duties
hereunder or under the law; or
(c) the other Party becomes adjudged bankrupt or a petition
for reorganization or arrangement under any law relating
to bankruptcy, and where any such petition is not
dismissed;
but that the Consultant shall have the right to receive the Termination Fee
regardless of the reason for termination, subject to any rights of set-off in
the event of damages for fraud or misconduct.
4.4 TERMINATION FEE. In the event that this Agreement is terminated, or
fails to renew due to failure of agreement after the issuance of a Non-Renewal
Notice, the Consultant shall receive a termination fee (the "Termination Fee")
equal to the sum of:
(a) buy-out of any outstanding stock options for a price equal to the
average market price of the Company's shares on the Toronto Stock
Exchange multiplied by the number of shares under option and less the
exercise price thereof or, at the Consultant's election and subject
to Regulatory Approval, extension of the option for a year after
termination; plus
(b) the greater of:
(i) the aggregate remaining Base Fee for the unexpired
remainder of the Term; or
(ii) an annual Base Fee (Base Fee multiplied by twelve)
plus one month of Base Fee for each year, or portion
thereof, served after the Effective Date.
4.5 DISABILITY OR DEATH. In the event that the Consultant is unable to
provide the Services due to protracted disability or sickness or the death of
its principal, it may, at any time, declare such to the Company and may
terminate this Agreement as a without fault termination and the Termination Fee
shall be payable. The Company may elect to effect such termination, and shall
pay the Termination Fee, in the case of death of the
<PAGE> 7
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Consultant's principal or in the event that sickness or disability has continued
for a period in excess of 120 days.
ARTICLE V
COMPENSATION OF THE CONSULTANT
5.1 BASE FEE. The Consultant shall be compensated on a monthly basis from
the Effective Date of this Agreement by a basic monthly retainer fee of U.S. $
15,000 (the "Base Fee"), being $180,000 US annualized, which shall compensate
the Consultant for the provision of the Services as required. The Consultant's
personnel shall also receive an allowance for equivalent benefits enjoyed by
Company personnel.
5.2 BASE FEE ADJUSTMENT. The Base Fee may be renegotiated annually at the
request of either Party. In the event that the Parties cannot agree then the
Base Fee shall be increased by the greater of 5% or the amount of the cost of
living index increase as published by the Canadian Federal government in its
final annual publication of such reports..
5.3 REIMBURSEMENT OF EXPENSES. The Consultant shall be funded for or
reimbursed for all reasonable expenses incurred, or to be incurred, by the
Consultant for the benefit of the Company.
5.4 VACATION. The Consultant shall be entitled to grant its appointed
personnel up to six weeks paid vacation per year.
ARTICLE VI
ADDITIONAL OBLIGATIONS OF THE CONSULTANT
6.1 NO CONFLICT. During this Agreement the Consultant will not engage in
any business which reasonably may detract from, compete with or conflict with
the Consultant's duties and obligations to the Company as set forth in this
Agreement without disclosure to the Board of Directors of the Company and will
not do so if the Board of Directors objects.
6.2 CONFIDENTIALITY. The Consultant will not, except as authorized or
required by the Consultant's duties hereunder, reveal or divulge to any person
or companies any information concerning the organization, business, finances,
transactions or other affairs of the Company, or of any of its subsidiaries,
which may come to the Consultant's knowledge during the continuance of this
Agreement, and the Consultant
<PAGE> 8
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will keep in complete secrecy all confidential information entrusted to the
Consultant and will not use or attempt to use any such information in any manner
which may injure or cause loss either directly or indirectly to the Company's
business. This restriction will continue to apply after the termination of this
Agreement without limit in point of time but will cease to apply to information
or knowledge which may come into the public domain.
6.3 COMPLIANCE WITH APPLICABLE LAWS. The Consultant will comply with all
Canadian, U.S. and foreign laws, whether federal, provincial or state,
applicable to the Consultant's duties hereunder and, in addition, hereby
represents and warrants that any information which the Consultant may provide to
any person or company hereunder will be accurate and complete in all material
respects and not misleading, and will not omit to state any fact or information
which would be material to such person or company.
ARTICLE VII
REPORTING BY THE CONSULTANT
7.1 REPORTING. So often as may be required by the Board of Director, the
Consultant will provide to the Board of Directors of the Company such
information concerning the results of the Consultant's General Services and
activities hereunder as the Board of Directors of the Company may reasonably
require.
ARTICLE VIII
INDEMNIFICATION AND LEGAL PROCEEDINGS
8.1 INDEMNIFICATION. The Company shall maintain appropriate liability
insurance for its officers, directors, personnel and consultants to which the
Consultant and its personnel shall be made party. The Consultant and its
personnel (the "Indemnified Party") shall be indemnified and funded on a current
basis for all losses, damages, legal expenses, and any other expenses or costs
of any nature which may be occasioned by their service with the Company. Inter
alia, this indemnity shall apply to all manner of actions, proceedings, or
prosecutions, whether civil, regulatory, or criminal, to which the Indemnified
Party may be subject due in whole or in part to the Services provided herein or
by virtue of any office held. This indemnity shall apply both during and after
its Term for all matters arising during the Term, and any extension, until any
limitation period has expired in respect to any action which might be
contemplated. The Company shall not refuse coverage for any purpose or reason
and a strict presumption of innocence shall be applied and the Company may only
seek refund of any coverage in the case of finding of fraud or criminal
culpability, after exhaustion of all appeals. The Company shall diligently seek
and support any such court approvals for the within indemnity as the Indemnified
Party may require. The Company shall pay all such retainers and trust
requirements as counsel for the Indemnified Party may require and shall pay all
accounts
<PAGE> 9
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of counsel as they come due and such accounts shall be rendered in the name of
the Company and, further, should the Company fail to pay any reasonable account,
it shall attorn to all such actions, summary judgments, and garnishing orders as
such counsel may consider fit to enforce and receive payment of its account. The
Company shall not seek to settle or compromise any action without the approval
of the Indemnified Party. The Company warrants it shall employ due diligence and
good faith and seek the best interests of the Indemnified Party as defendants in
any action or prosecution. The Indemnified Party shall permit the Company to
consult with their counsel and to be informed of any matters thereof, subject
only to any requirements for legal privilege purposes.
8.2 CLAIM OF INDEMNIFICATION. The Parties hereto agree to waive any right
they might have of first requiring the Indemnified Party to proceed against or
enforce any other right, power, remedy, security or claim payment from any other
person before claiming this indemnity.
8.3 NOTICE OF CLAIM. In case any action is brought against an Indemnified
Party in respect of which indemnity may be sought, the Indemnified Party will
give the Company prompt written notice of any such action of which the
Indemnified Party has knowledge. Failure by the Indemnified Party to so notify
shall not relieve the Company of its obligation of indemnification hereunder
unless (and only to the extent that) such failure results in a forfeiture of
substantive rights or defenses.
ARTICLE IX
FORCE MAJEURE
9.1 EVENTS. If either Party hereto is at any time either during this
Agreement or thereafter prevented or delayed in complying with any provisions of
this Agreement by reason of strikes, walk-outs, labour shortages, power
shortages, fires, wars, acts of God, earthquakes, storms, floods, explosions,
accidents, protests or demonstrations by environmental lobbyists or native
rights groups, delays in transportation, breakdown of machinery, inability to
obtain necessary materials in the open market, unavailability of equipment,
governmental regulations restricting normal operations, shipping delays or any
other reason or reasons beyond the control of that Party, then the time limited
for the performance by that Party of its respective obligations hereunder shall
be extended by a period of time equal in length to the period of each such
prevention or delay.
9.2 NOTICE. A Party shall within seven calendar days give notice to the
other Party of each event of force majeure under section "9.1" hereinabove, and
upon cessation of such event shall furnish the other Party with notice of that
event together with particulars of the number of days by which the obligations
of that Party hereunder have been extended by virtue of such event of force
majeure and all preceding events of force majeure.
<PAGE> 10
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ARTICLE X
ARBITRATION
10.1 MATTERS FOR ARBITRATION. Except for matters of indemnity or in the
case of urgency to prevent material harm to a substantive right or asset, the
Parties agree that all questions or matters in dispute with respect to this
Agreement shall be submitted to arbitration pursuant to the terms hereof. This
provision shall not prejudice a Party from seeking court order or assistance to
garnish or secure sums or to seek summary remedy for such matters as counsel may
consider amenable to summary proceedings.
10.2 NOTICE. It shall be a condition precedent to the right of any Party
to submit any matter to arbitration pursuant to the provisions hereof, that any
Party intending to refer any matter to arbitration shall have given not less
than 10 business days' prior written notice of its intention to do so to the
other Party together with particulars of the matter in dispute. On the
expiration of such 10 business days the Party who gave such notice may proceed
to refer the dispute to arbitration as provided for in section "10.3"
hereinbelow.
10.3 APPOINTMENTS. The Party desiring arbitration shall appoint one
arbitrator, and shall notify the other Party of such appointment, and the other
Party shall, within 10 business days after receiving such notice, appoint an
arbitrator, and the two arbitrators so named, before proceeding to act, shall,
within 10 business days of the appointment of the last appointed arbitrator,
unanimously agree on the appointment of a third arbitrator, to act with them and
be chairman of the arbitration herein provided for. If the other Party shall
fail to appoint an arbitrator within 10 business days after receiving notice of
the appointment of the first arbitrator, and if the two arbitrators appointed by
the Parties shall be unable to agree on the appointment of the chairman, the
chairman shall be appointed in accordance with the Arbitration Act of the
Province of British Columbia (the "Arbitration Act"). Except as specifically
otherwise provided in this section, the arbitration herein provided for shall be
conducted in accordance with such Arbitration Act. The chairman, or in the case
where only one arbitrator is appointed, the single arbitrator, shall fix a time
and place for the purpose of hearing the evidence and representations of the
Parties, and he shall preside over the arbitration and determine all questions
of procedure not provided for by the Arbitration Act or this section. After
hearing any evidence and representations that the Parties may submit, the single
arbitrator, or the arbitrators, as the case may be, shall make an award and
reduce the same to writing, and deliver one copy thereof to each of the Parties.
The expense of the arbitration shall be paid as specified in the award.
10.4 AWARD. The Parties agree that the award of a majority of the
arbitrators, or in the case of a single arbitrator, of such arbitrator, shall be
final and binding upon each of them.
<PAGE> 11
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ARTICLE XI
NOTICE
11.1 NOTICE. Each notice, demand or other communication required or
permitted to be given under this Agreement shall be in writing and shall be sent
by prepaid registered mail deposited in a recognized post office and addressed
to the Party entitled to receive the same, or delivered to such Party, at the
address for such Party specified on the front page of this Agreement. The date
of receipt of such notice, demand or other communication shall be the date of
delivery thereof if delivered, or, if given by registered mail as aforesaid,
shall be deemed conclusively to be the third day after the same shall have been
so mailed, except in the case of interruption of postal services for any reason
whatsoever, in which case the date of receipt shall be the date on which the
notice, demand or other communication is actually received by the addressee.
11.2 CHANGE OF ADDRESS. Either Party may at any time and from time to time
notify the other Party in writing of a change of address and the new address to
which notice shall be given to it thereafter until further change.
ARTICLE XII
GENERAL PROVISIONS
12.1 ENTIRE AGREEMENT. This Agreement constitutes the entire agreement to
date between the Parties hereto and supersedes every previous agreement,
expectation, negotiation, representation or understanding, whether oral or
written, express or implied, statutory or otherwise, between the Parties with
respect to the subject matter of this Agreement.
12.2 NO RELATIONSHIP OF EMPLOYER-EMPLOYEE. Nothing contained in this
Agreement shall be construed as creating the relationship of employer and
employee as between the Company and the Consultant.
12.3 NO ASSIGNMENT. This Agreement may not be assigned by either Party
except with the prior written consent of the other Party.
12.4 WARRANTY OF GOOD FAITH. The Parties hereto warrant each to the other
to conduct their duties and obligations hereof in good faith and with due
diligence and to employ all reasonable endeavours to fully comply with and
conduct the terms and conditions of this Agreement.
<PAGE> 12
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12.5 REGULATORY AUTHORITIES. This Agreement is subject to prior Regulatory
Approval, if required, of each of the Regulatory Authorities.
12.6 FURTHER ASSURANCES. The Parties will from time to time after the
execution of this Agreement make, do, execute or cause or permit to be made,
done or executed, all such further and other acts, deeds, things, devices and
assurances in law whatsoever as may be required to carry out the true intention
and to give full force and effect to this Agreement.
12.7 REPRESENTATION AND COSTS. It is hereby acknowledged by each of the
Parties hereto that, as between the Company and the Consultant herein, Devlin
Jensen, Barristers and Solicitors, acts solely for the Company, and that the
Consultant has been advised by Devlin Jensen to obtain independent legal advice
with respect to the Consultant's review and execution of this Agreement.
12.8 APPLICABLE LAW. The situs of this Agreement is Vancouver, British
Columbia, and for all purposes this Agreement will be governed exclusively by
and construed and enforced in accordance with the laws prevailing in the
Province of British Columbia.
12.9 SEVERABILITY AND CONSTRUCTION. Each Article, section, paragraph, term
and provision of this Agreement, and any portion thereof, shall be considered
severable, and if, for any reason, any portion of this Agreement is determined
to be invalid, contrary to or in conflict with any applicable present or future
law, rule or regulation in a final unappealable ruling issued by any court,
agency or tribunal with valid jurisdiction in a proceeding to which any Party
hereto is a party, that ruling shall not impair the operation of, or have any
other effect upon, such other portions of this Agreement as may remain otherwise
intelligible (all of which shall remain binding on the Parties and continue to
be given full force and effect as of the date upon which the ruling becomes
final).
12.10 CAPTIONS. The captions, section numbers and Article numbers appearing
in this Agreement and the index hereto are inserted for convenience of reference
only and shall in no way define, limit, construe or describe the scope or intent
of this Agreement nor in any way affect this Agreement.
12.11 NO PARTNERSHIP OR AGENCY. The Parties have not created a partnership
or agency and nothing contained in this Agreement shall in any manner whatsoever
constitute any Party the partner, agent or legal representative of the other
Party, except as specifically herein provided.
12.12 CONSENTS AND WAIVERS. No consent or waiver expressed or implied by
either Party in respect of any breach or default by the other in the performance
by such other of its obligations hereunder shall:
<PAGE> 13
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(a) be valid unless it is in writing and stated to be a
consent or waiver pursuant to this section;
(b) be relied upon as a consent to or waiver of any other
breach or default of the same or any other obligation;
(c) constitute a general waiver under this Agreement; or
(d) eliminate or modify the need for a specific consent or
waiver pursuant to this section in any other or subsequent
instance.
IN WITNESS WHEREOF the Parties hereto have hereunto set
their respective hands and seals in the presence of their duly authorized
signatories effective as at the date first above written.
The CORPORATE SEAL of )
AZCO MINING INC. )
was hereunto affixed in the presence of: )
)
)
- ------------------------------------------- ) (C/S)
Authorized Signatory )
The CORPORATE SEAL of )
ALAN LINDSAY AND )
ASSOCIATES LTD. )
was hereunto affixed in the presence of: )
)
)
- ------------------------------------------- ) (C/S)
Authorized Signatory )
----------------
<PAGE> 1
EXHIBIT 10.9
----------
OPTION TO PURCHASE WITH
-----------------------
EXPLORATION RIGHTS AGREEMENT
----------------------------
BETWEEN:
AZCO MINING INC.
----------------
AND EACH OF:
------------
WILLIAM C. FORREST, HILDA F. FORREST and ELVIS L. GRAY
------------------------------------------------------
DEVLIN JENSEN
-------------
Barristers and Solicitors
Suite 2550, 555 West Hastings Street
Vancouver, British Columbia
V6B 4N5
----------
<PAGE> 2
OPTION TO PURCHASE WITH
EXPLORATION RIGHTS AGREEMENT
THIS OPTION TO PURCHASE WITH EXPLORATION RIGHTS AGREEMENT (the
"Agreement") is made and dated for reference effective as fully executed on this
_____ day of December, 1997.
BETWEEN:
AZCO MINING INC., a corporation duly incorporated under the
laws of the State of Delaware, U.S.A., and having an address
for notice and delivery located at Suite 1250, 999 West
Hastings Street, Vancouver, British Columbia, V6C 2W2
("Azco");
OF THE FIRST PART
AND:
WILLIAM C. FORREST ("William Forrest"), HILDA F. FORREST ("Hilda
Forrest") and ELVIS L. GRAY ("Gray"), and each having an address for
notice and delivery located at c/o William C. Forrest, 867 East
Minarets, Fresno, California, U.S.A., 93720
(William Forrest, Hilda Forrest and Gray being hereinafter
collectively referred to as the "Seller" as the context so
requires);
OF THE SECOND PART
(Azco and the Seller being hereinafter singularly also
referred to as a "Party" and collectively referred to as the
"Parties" as the context so requires).
<PAGE> 3
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WHEREAS IN CONSIDERATION of the payments to be made pursuant to, the
mutual covenants contained in, and the mutual benefits to be derived from, this
Agreement, the Sellers and Azco hereby agree as follows:
ARTICLE I
OPTION TO PURCHASE AND EXPLORATION RIGHTS
1.1 GRANT OF OPTION. The Seller grants to Azco the exclusive and irrevocable
option to purchase (the "Option") all or any portion of the Property (as defined
hereinbelow). As used in this Agreement, the term "Property" shall mean the
totality of all rights related to or included in the properties described in
Schedule "A" which is attached to and by this reference incorporated into this
Agreement including, without limitation, all minerals in, on and under the
Property and the land covered by the Property. The period of the Option shall be
from the date of this Agreement to February 1, 1999 (the "Option Period"),
unless extended pursuant to section "1.5" or Article "V" hereinbelow or sooner
terminated pursuant to sections "2.4", "8.1", "8.2" or "8.3" hereinbelow.
1.2 GRANT OF EXPLORATION RIGHTS. The Seller grants to Azco the full right and
authority, during the Option Period, to enter upon the Property and to conduct
such exploration and prospecting operations, as Azco may deem appropriate, to
determine the presence, location, quantity and value of minerals contained in
the Property with the intention that Azco's initial exploration efforts will be
a systematic and scientific evaluation of the Property. Such operations may
include, but shall not be limited to, mapping, sampling, including bulk
sampling, trenching, drilling, testing, assaying and conducting environmental
studies and other geochemical and geophysical exploration methods whether now
known or in the future developed, and Azco will use its reasonably best efforts
to explore the Property in conjunction with each of those certain November 13,
1997 and November 18, 1997 letters from the County of San Benito addressed to
William Rohtert while acting as an agent on behalf of Azco, August 13, 1997
Notice of Determination filed in San Benito County, October 1, 1997 San Benito
County Reclamation Agreement and May 21, 1997 approved Benitoite Gem Mine
Reclamation Plan respecting the Property (collectively, the "Reclamation Plan"),
a copy of which entire Reclamation Plan is attached as Schedule "B" to this
Agreement, failing which Azco will use its reasonably best efforts to secure
such permits and post such additional reclamation bonds as may be necessary, in
its sole and absolute discretion, for the exploration work intended to evaluate
the economic potential of the Property. Azco may establish drill sites and
construct such roads as may be necessary to the conduct of the foregoing
activities. Subject to section "8.6" hereinbelow, Azco may also mine and remove
such amount of minerals as Azco may deem appropriate for sampling, assaying,
testing and evaluation of the Property without exercising the Option; provided
that the total amount of material processed during the Option Period does not
exceed 500 cubic yards. In addition, Azco shall have the right:
(a) to use all easements and all rights-of-way for ingress and
egress to and from the Property to which the Seller may be
entitled;
<PAGE> 4
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(b) to make use of all available facilities located on the Property;
(c) to obtain all permits, approvals and other federal, state and
local governmental authorizations as Azco deems necessary to
conduct its mineral exploration activities;
(d) to exercise all other rights that are or may be incidental to
any or all of the rights granted, expressly or implicitly, to
Azco in this Agreement; and
(e) to the extent Seller possesses the title and authority to grant
it, to possess and use all or any part of the Property together
with all easements to, across and through the Property, for the
purpose of exploring any adjoining or nearby property owned,
controlled or operated by Azco.
1.3 OPERATIONS. Azco agrees to conduct its operations in a manner as to not
unreasonably interfere with the operations of the Seller as contemplated in
section "1.7" hereinbelow and so long as Azco is able to fulfill the essential
purposes desired to be obtained by it in this Agreement. The Parties will
mutually discuss the location of operations of both Parties and each Party will
make reasonable attempts to notify the other Party prior to any excavation work
being conducted on the Property.
1.4 OWNERSHIP AND PROCESSING OF GEMS. The Benitoite minerals and their matrix
material mined by Azco during the Option Period (collectively, the "Minerals")
will be placed in inventory by Azco, and should Azco elect to exercise its
Option to acquire the Property all such Minerals will be absolutely conveyed to
Azco by the Seller at that time. If the Property is not purchased by Azco during
the Option Period the Minerals will be returned by Azco to the Seller forthwith.
Azco will, during the Option Period and subject to the following restrictions,
maintain the sole and absolute right to process any such Minerals in any manner
it may determine reasonable in the circumstances, provided that, at all times,
any such process reasonably complies with standard industry practices in
connection with the preparation of polished goods and, provided further, that
Azco uses its reasonably best efforts to seek the maximum yield in connection
with any such Minerals. In this regard it is hereby also expressly acknowledged
and agreed by the Parties hereto that, during the Option Period, any facetable
stone greater than six carats in weight or any specimen exceeding U.S. $5,000 in
wholesale value, will only be processed in such a manner as may be mutually
agreed by both Parties, from time to time, acting reasonably. All such stones or
specimens will be kept in a mutually acceptable storage facility with a dual key
access, of which each Party will hold one key.
1.5 COOPERATION BY THE SELLER AND ASSESS TO THE PROPERTY. During the Option
Period the Seller agrees to cooperate with Azco in Azco's investigation of the
Property by consulting with Azco with respect to the Property and Azco's
possible
<PAGE> 5
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operations on the Property. The Seller further agrees to use its reasonably best
efforts to assist Azco in the exercise of all rights that are or may be
incidental to any or all of the rights granted, expressly or implicitly, to Azco
in this Agreement including, without limitation, the necessary securement of all
easements and all rights-of-way for ingress and egress to and from the Property
presently available to the Seller; provided, however, that, notwithstanding the
Seller's reasonably best efforts as aforesaid, the Seller does not hereby
warrant or guarantee the availability of any said easements and rights-of-way to
Azco from third parties who previously may have permitted said use or assess to
the Seller. The Seller also agrees to use its reasonably best efforts to assist
Azco with the provision of basic technical, gemological and legal and historical
information and support which may assist Azco in its evaluation of the Property.
1.6 NON-REFUNDABLE PAYMENT. Immediately upon the receipt by Azco of its
requisite Insurance and Certificate of Qualification in accordance with sections
"4.2" and "4.4" hereinbelow and, in any event, on or before 20 days from the due
and complete execution of this Agreement, Azco shall pay to the Seller the sum
of U.S. twenty thousand dollars (U.S. $20,000) as a non-refundable payment which
may not be applied as against the purchase price of the Option in conjunction
with section "2.2" hereinbelow.
1.7 SELLER'S CONTINUED OPERATIONS. Notwithstanding the powers, rights and
authorities granted to Azco in section "1.2" hereinabove, the Seller shall have
the right to conduct operations on the Property under the following conditions:
(a) the Seller may conduct mining operations on the Property over a
combined 30-day period between January 1, 1998 and May 1, 1998,
it being acknowledged and agreed that said combined 30-day
period shall not include those number of days that it may
require the Seller to first set up its respective mining
equipment and machinery on the Property, to repair any such
mining equipment and machinery on the Property and to complete
certain site preparation work in respect of its proposed mining
operations on the Property; provided, however, that any said set
up, repair and site preparation work does not require more than
a combined 30 days to complete; and
(b) the Seller's operations shall be limited to the mining of a
maximum of 1,000 cubic yards of material processed.
ARTICLE II
EXERCISE OF THE OPTION
2.1 EXERCISE OF OPTION. Azco may exercise the Option with respect to the
Property on or before the end of the Option Period, that being on or before
February 1, 1999 unless extended pursuant to section "1.5" hereinabove or
Article "V" hereinbelow,
<PAGE> 6
-5-
by notice to the Seller in accordance with section "9.2" hereinbelow utilizing
any method of communication that will provide an accurate record of its
dispatch.
2.2 PURCHASE PRICE. The total purchase price of the Property shall be U.S. one
million and five hundred thousand dollars (U.S. $1,500,000), unencumbered by
royalty, payable by Azco to the Seller in accordance with section "9.1"
hereinbelow.
2.3 CLOSING. If Azco exercises the Option the closing (the "Closing") and the
transfer of title to the Property from the Seller to Azco shall occur on the day
which is 10 days following the exercise of the Option by Azco, or on such
earlier or later day as may be agreed to in advance and in writing by each of
the Parties hereto, and will be closed at the offices of solicitors for Azco,
Devlin Jensen, Barristers and Solicitors, located at Suite 2550, 555 West
Hastings Street, Vancouver, British Columbia, V6B 4N5, at 2:00 p.m. (Vancouver
time), or at such other location and at such other time as may be agreed to in
advance and in writing by the Parties hereto, on the day of Closing. As soon as
conveniently possible after the due and complete execution of this Agreement the
Seller shall execute and deliver to Devlin Jensen, or to such other mutually
acceptable escrow agent (the "Escrow Agent") as may be agreed to in advance and
in writing by the Parties hereto, all such documents, resolutions and
instruments as may be necessary, in the opinion of solicitors for Azco, acting
reasonably, to transfer title to the Property to Azco free and clear of all
title defects, liens and encumbrances (collectively, the "Transfer Documents"),
there to be held in escrow by the Escrow Agent until the day of Closing as
provided for herein. At the Closing the following shall occur:
(a) the Escrow Agent shall deliver to Azco the Transfer Documents;
(b) Ad valorem, property and other taxes and assessments imposed
upon the Property shall be prorated between the Seller and Azco
as of the date of Closing and the Seller shall be charged for
all such taxes and assessments prior to the day of Closing; and
(c) the Parties shall execute and deliver such other documents and
shall take such other action as may be necessary to carry out
their obligations under this Agreement.
Without in any manner limiting the extent of the foregoing, it is hereby
acknowledged and agreed by the Parties hereto that if Azco exercises the Option
in accordance with the terms of this Agreement then Azco shall, without any
further act, have acquired all of the Seller's right, entitlement and interest
in and to the Property.
2.4 NON-EXERCISE OF OPTION. Notice of waiver to the Seller or the failure of
Azco to dispatch a notice prior to the expiration of the Option Period will
constitute an irrevocable waiver of the Option and the Parties thereafter will
be released from the terms of this Agreement, except that Azco shall have the
rights contained in section "8.4"
<PAGE> 7
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hereinbelow and shall comply with the provisions of sections "8.5" and "8.6"
hereinbelow.
ARTICLE III
TITLES AND INFORMATION
3.1 SELLER'S WARRANTIES. The Seller represents and warrants to Azco that the
Seller is lawfully seized of the entire undivided interest in and to the
Property as described in Schedule "A" which is attached hereto, and that:
(a) the Seller has the right and power to convey the same for the
purposes of this Agreement;
(b) the same are free from all title defects and all prior liens or
encumbrances, other than as may be described in Schedule "A"
which is attached hereto;
(c) Azco shall have quiet and peaceful possession of the Property;
(d) the Seller will defend title to the Property against all persons
who may claim the same; and
(e) the Seller has not committed, nor will the Seller during the
continuance of this Agreement commit, without the prior written
consent of Azco, any act or acts which will encumber or cause a
lien to be placed against the Property.
3.2 TITLE DEFECTS. If title to any of the Property is less than as warranted in
section "3.1" hereinabove, Azco may undertake to cure any such defects or to
defend or to initiate litigation to perfect, defend or cure title to the
Property. Azco, at any time, may withdraw from or discontinue any title
litigation or any steps it may have taken to perfect, defend or cure title. Azco
shall not be liable to the Seller if Azco is unsuccessful in, withdraws from or
discontinues title litigation or other curative work. The Seller agrees to
cooperate fully with Azco in any and all steps undertaken by Azco to remedy
title defects.
ARTICLE IV
CONDUCT OF OPERATIONS
<PAGE> 8
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4.1 STANDARD OF PERFORMANCE. Azco shall cause all exploration work to be done in
a careful, safe and good miner-like manner, and to conform in all respects to
applicable governmental rules, regulations and statutes; provided, however, that
Azco may use any method it deems reasonable, including experimental or
innovative methods, in sampling, evaluating and recovering minerals from the
Property in exercising the rights granted in section "1.2" hereinabove, and
shall not be liable to the Seller in any way if such methods do not result in
full recovery of the minerals being evaluated, or full maximization of the value
thereof. Further, Azco shall conduct its operations under this Agreement in a
manner that will not unreasonably damage the surface of the Property and, in the
event the Option is not exercised, shall reclaim, in accordance with applicable
rules, regulations and statutes, all portions of the surface of the Property
that it has disturbed by its operations.
4.2 INDEMNIFICATION AND INSURANCE. Azco shall assume all liability to third
parties in connection with its exploration on the Property and, except as
provided in section "6.1" hereinbelow, shall indemnify the Seller against any
and all liability that may arise out of Azco's operations on the Property. Azco
shall, at all times during the continuance of this Agreement, at its sole cost
and expense, procure and maintain in full force and effect a policy or policies
of comprehensive public liability insurance issued by an insurer which is
acceptable to the Seller, such approval not to be unreasonably withheld,
insuring against loss, damage or liability for injury to or death of persons or
loss or damage to property occurring upon the Property in an amount of not less
than U.S. one million dollars (U.S. $1,000,000) for each person injured or
killed, and not less than U.S. one million dollars (U.S. $1,000,000) for
property damage. Said policy or policies of insurance shall name Azco and the
Seller as insured as their respective interests may appear. Azco shall also,
again at all times during the continuance of this Agreement, at its sole cost
and expense, procure and maintain in full force and effect worker's compensation
insurance and such other insurance to cover personnel and all of their
operations upon the Property in an amount and form as may be required by law;
and Azco shall comply with all laws and regulations pertaining to the
performance of work on the Property. Copies of all insurance policies provided
for herein shall be furnished to the Seller when purchased, and Azco shall
obtain a written obligation on the part of its insurance carriers to notify the
Seller in writing prior to the cancellation of any policy provided for in this
Agreement. In the event that Azco shall fail to either procure or maintain any
insurance policy required by this Agreement and such shall continue for period
of 10 days from the receipt of written notice by Azco of such failure, the
Seller may terminate this Agreement, immediately, without further obligation or
liability to Azco. Azco shall not commence any mining or exploration operations
upon the Property without procuring the insurance policies (collectively, the
"Insurance") as herein required, and shall cease all operations upon the
Property should a policy of Insurance required by this Agreement be canceled or
terminated.
4.3 PERMITS. The Seller understands that Azco may make efforts to obtain permits
and other authorization of every kind and nature whatsoever from governmental or
private entities as may be necessary to conduct mineral exploration activities.
While Azco shall be solely responsible in these efforts, the Seller agrees to
assist and cooperate fully with Azco in any and all such endeavors upon Azco's
request.
<PAGE> 9
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4.4 CERTIFICATE OF QUALIFICATION. Prior to the commencement of any operations or
activities upon the Property Azco shall obtain a "Certificate of Qualification"
authorizing it to transact intra-state business in California, as provided for
in sections 2105 et seq. of the California Corporations Code, and Azco shall
provide the Seller with a copy thereof. Azco shall additionally notify the
Seller in writing forthwith should such Certificate of Qualification be
surrendered or should Azco be disqualified in any manner from doing business in
the State of California. All operations and activities of Azco shall cease
during any period of disqualification.
4.5 LIENS, TAXES. During the Option Period Azco shall keep the title to the
Property free and clear of all valid liens and encumbrances resulting from its
exploration operations under this Agreement and shall pay when due all taxes and
assessments attributable to its operations under this Agreement or imposed upon
any property or improvements placed by Azco on the Property for its own use.
Azco may refuse to pay and may contest any claim, taxes or assessments asserted
against or imposed upon it that it disputes in good faith, but shall not permit
all or any portion of the Property to sold at any time for such taxes or
assessments. If the claim is finally resolved against Azco or the taxes or
assessments are finally determined to be valid, Azco shall pay the same upon
such final determination.
4.6 SUBROGATION. Azco, at its option, shall have the right to redeem for the
Seller, by payment of any mortgage, taxes or other liens on the Property in the
event of default or non-payment by the Seller. If Azco pays any such mortgage,
taxes or other liens Azco shall be subrogated to rights of the holder of the
mortgage or lien and may deduct any amount so paid from any payment due to the
Seller under this Agreement. Further, if Azco exercises the Option Azco shall
have the right to retain and repay itself from the referenced purchase price.
4.7 NO IMPLIED COVENANT. Azco does not make any express or implied covenant,
agreement or condition relating to the exploration of the Property. Whether or
not any such exploration shall at any time be conducted, and the nature, manner
and extent of such operations, shall be determined by Azco in its sole and
absolute discretion.
ARTICLE V
FORCE MAJEURE
5.1 DEFINITION OF FORCE MAJEURE. The Option Period and the time for removal of
equipment pursuant to section "8.4" hereinbelow shall be extended for a period
of time equivalent to the period or periods of force majeure. The term "force
majeure" as used in this Agreement includes any cause of any kind or nature
whatsoever beyond Azco's reasonable control including, but not being limited
to,: laws, ordinances, governmental regulations, restraint or court order;
inability to obtain equipment, material, power or fuel or unusual delays in
obtaining permits; labor shortages, labor disturbances, strikes, lock-outs and
other industrial disturbances to the extent that it or they are beyond the
control of Azco; failure of carriers to transport or furnish facilities for
transportation;
<PAGE> 10
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acts of God, acts of the public enemy, war, blockage, riot, insurrection,
lightning, fire, storm, flood, inclement weather, washout, explosion and
breakage; or accident of machinery or facilities.
5.2 REMOVAL OF EVENT OF FORCE MAJEURE. Azco shall exercise reasonable diligence
to remove an event of force majeure as quickly as possible, but shall not be
required to settle strikes, lock-outs or other labor difficulties contrary to
its wishes, accept unusual or onerous permit conditions, or to challenge the
validity of any governmental order, request, law or regulation.
ARTICLE VI
INSPECTION AND CONFIDENTIALITY
6.1 INSPECTION. During the continuance of this Agreement the Seller and its
respective representatives shall have the right to enter onto the Property,
without the written permission of or notice to Azco, to inspect the Property and
to protect, exercise or investigate any rights of the Seller under this
Agreement; provided, however, that the Seller shall not unreasonably hinder or
interrupt the operations and activities of Azco during any such time of
inspection. The Seller shall inspect such operations at its own risk and expense
and shall indemnify Azco, and its affiliated and direct and indirect parent
corporations and their respective directors, partners, officers, employees,
agents and corporate affiliates, from and against any loss, damage, claims or
demand by reason of injury to or the presence of the Seller, its agents,
representatives, licensees or guests arising from such inspection.
6.2 REPORTS. Each Party shall provide the other with quarterly reports
summarizing activities on the Property and stating quantities of gems and other
materials removed from the Property.
6.3 CONFIDENTIALITY. The Seller agrees that during the Option Period and, if the
Option is exercised at all times thereafter, to treat all information acquired
under this Agreement as confidential and not to use the name of Azco in any
document or press release or disclose any information that may be obtained under
this Agreement to third parties or to the public without first having obtained
the written approval of Azco as to the form and content of any such disclosure
or release. The Seller further agrees not to use, sell, give, disclose or
otherwise make available to third parties or to the public at any time any
knowledge or information that the Seller may obtain relating to internal
proprietary techniques and methods used by Azco.
ARTICLE VII
ASSIGNMENT AND RIGHT OF FIRST REFUSAL
<PAGE> 11
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7.1 ASSIGNMENT BY THE SELLER. The Seller shall not assign any right or interest
in the Property or this Agreement during the Option Period.
7.2 ASSIGNMENT OR TRANSFER BY AZCO. Azco shall have the right at any time to
assign or transfer all or any portion of its rights under this Agreement;
provided, however, that prior to any such assignment or transfer Azco shall
first provide the Seller with an accurate and detailed statement of the proposed
assignee's or transferee's financial background and expertise in the mining
industry; with the Seller thereby maintaining the right to approve any such
assignee or transferee, such consent not to be unreasonably withheld.
ARTICLE VIII
TERMINATION
8.1 BY SELLER. At the election of the Seller the failure of Azco to make or
cause to be made any of the payments required by this Agreement or to keep or
perform any covenant on its part to be kept or performed according to the terms
or provisions of this Agreement shall constitute an event of default. Upon an
event of default the Seller shall give to Azco written notice of default,
clearly denominated as a notice of default, specifying the particular default or
defaults relied on by it. Azco shall have a reasonable time (which in any case
shall not be less than 10 calendar days) after receipt of such notice in which
to contest, cure or commence to cure the alleged default or defaults. If Azco
contests that default occurred, it shall so advise the Seller in writing. If
Azco contests the default the matter shall be submitted to a court of competent
jurisdiction, and Azco shall not be deemed in default until the matter shall
have been determined finally by the court and all appeals have been taken or
waived. Upon Azco's failure to cure the default the Seller may declare, by
written notice to Azco, termination of this Agreement.
8.2 BY AZCO. Notwithstanding any provisions herein to the contrary, Azco may at
any time terminate and surrender this Agreement as to all or any portion of the
Property by giving written notice thereof to the Seller. Promptly thereafter
Azco shall deliver to the Seller a properly executed release of the portion of
the Property being released. Upon full or partial surrender of this Agreement
Azco shall be relieved of all obligations as to the Property or portion of the
Property being released, except obligations that have accrued prior to surrender
and the obligation to restore the surface disturbed by Azco's operations.
8.3 BANKRUPTCY OR RECEIVERSHIP BY AZCO. Azco agrees that in the event that all
or substantially all of its assets, either individually or severally, are placed
in the hands of a receiver or trustee, and such receivership or trusteeship
continues for a period of 30 days, or should Azco, either individually or
severally, make an assignment for the benefit of creditors or be adjudicated a
bankrupt, or should it, individually or severally, institute any proceedings
under any bankruptcy legislation, whether of Canada or the United States of
America, as the same now exists or under any amendments thereof which may
hereafter be enacted, then this Agreement or any rights granted to Azco
hereunder shall
<PAGE> 12
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not become an asset in any such proceedings, and the Seller, at the Seller's
option, may terminate this Agreement and Azco shall have no further rights
hereunder.
8.4 REMOVAL OF EQUIPMENT. Upon termination of this Agreement, except upon Azco's
exercise of the Option, Azco shall have three months after termination to remove
from the Property all buildings, improvements, equipment and all personal
property of every kind and nature erected or placed in or upon the Property by
it. If Azco is hampered by force majeure, as defined in Article "V" hereinabove,
the time for removal shall be extended by the period of force majeure. Any such
property not removed within the time provided in this section shall become the
sole property of the Seller, and Azco shall have no further right, title or
interest with respect to it; provided, however, that Azco shall remain liable
for all unpaid taxes, liens and encumbrances on such removal property and shall
indemnify the Seller for the cost of removal of any such buildings,
improvements, equipment and personal property.
8.5 OBLIGATION UPON TERMINATION. Upon termination of this Agreement pursuant to
either sections "2.4", "8.1" or "8.3" hereinabove Azco shall be under no further
obligation or liability under this Agreement to the Seller from and after the
date of termination, except for the following:
(a) Azco shall perform obligations and satisfy liabilities to the
Seller or third parties respecting the Property that have
accrued prior to the date of termination and resulted, directly
or indirectly, from Azco's operations hereunder;
(b) Azco shall restore the surface of the Property pursuant to
section "4.1" hereinabove and Article "X" hereinbelow resulting
from Azco's activities thereon; and
(c) Azco shall furnish to the Seller one set of all information and
data in Azco's possession relating to the quantity and quality
of minerals which Azco has not already provided under Article
"VI" hereinabove.
Azco shall not be obligated, however, to furnish to the Seller
interpretative data or reports or internal proprietary information. Any use or
reliance by the Seller upon the data provided by Azco shall be at the Seller's
sole risk and Azco makes no express or implied representations or warranties
with respect thereto.
8.6 RETURN OF PRODUCTS. If Azco does not exercise the Option, or if the Option
is otherwise terminated in accordance with the terms of this Agreement, Azco
will forthwith return to the Seller all gemstones remaining in its possession
taken from the Property, whether cut or uncut, together with any processed or
unprocessed rock, drill core or cuttings in its possession taken from the
Property.
<PAGE> 13
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8.7 ATTORNEY'S FEES AND COSTS. If any legal action, including arbitration or
mediation, is brought to enforce or interpret this Agreement, the prevailing
Party hereto shall be entitled to recover reasonable attorney's fees and costs
of the action in addition to any other relief granted in any such proceedings.
ARTICLE IX
NOTICES AND PAYMENTS
9.1 METHOD OF MAKING PAYMENTS. Any payments required to be made by Azco to the
Seller hereunder may be made by cheque payable jointly to the individuals that
comprise the Seller, and may be personally delivered to any of such individuals
or deposited in the United States mail, postage prepaid, and registered or
certified with return receipt requested, and addressed to the Seller at the
address shown below. The personal delivery or the deposit in the mail by Azco of
any such payment on or before its due date shall be deemed timely thereof. Upon
making payment Azco shall be relieved of any responsibility for the distribution
of such payment between the individuals that comprise the Seller and any of the
Seller's successors or assigns.
9.2 NOTICE. Any required notice or communication shall be in writing and shall
be effective when personally delivered or when addressed and sent by registered
mail:
If to Seller: William C. Forrest, Hilda F. Forrest, and Elvis L. Gray
c/o William C. Forrest
867 East Minarets
Fresno, California
U.S.A., 93720; and
If to Azco: Azco Mining Inc.
Suite 1250, 999 West Hastings Street
Vancouver, British Columbia
V6C 2W2;
and deposited, postage prepaid, and registered or certified with return receipt
requested, in the United States mail. Either the Seller or Azco may, by notice
to the other Party given as aforesaid, change its mailing address for future
notices.
ARTICLE X
RESTORATION OF SURFACE
<PAGE> 14
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10.1 RECLAMATION. Azco agrees that, upon termination, it shall reclaim the
Property which it has disturbed, as required by applicable federal, state and
local law.
ARTICLE XI
INDEMNIFICATION
11.1 INDEMNIFICATION. The Parties hereto agree to indemnify and save each other
Party hereto, including their respective affiliates and their respective
directors, officers, employees and agents (each such party being an "Indemnified
Party") harmless from and against any and all losses, claims, actions, suits,
proceedings, damages, liabilities or expenses of whatever nature or kind,
including any investigation expenses incurred by any Indemnified Party, to which
an Indemnified Party may become subject by reason of the terms and conditions of
this Agreement.
11.2 NO INDEMNIFICATION. This indemnity will not apply in respect of an
Indemnified Party in the event and to the extent that a court of competent
jurisdiction in a final judgment shall determine that the Indemnified Party was
grossly negligent or guilty of willful misconduct.
11.3 CLAIM OF INDEMNIFICATION. The Parties hereto agree to waive any right they
might have of first requiring the Indemnified Party to proceed against or
enforce any other right, power, remedy, security or claim payment from any other
person before claiming this indemnity.
11.4 NOTICE OF CLAIM. In case any action is brought against an Indemnified Party
in respect of which indemnity may be sought against any of the Parties hereto,
the Indemnified Party will give relevant Party hereto prompt written notice of
any such action of which the Indemnified Party has knowledge and such Party will
undertake the investigation and defense thereof on behalf of the Indemnified
Party, including the prompt employment of counsel acceptable to the Indemnified
Parties affected and the payment of all expenses. Failure by the Indemnified
Party to so notify shall not relieve any Party hereto of such Party's obligation
of indemnification hereunder unless (and only to the extent that) such failure
results in a forfeiture by any Party hereto of substantive rights or defenses.
11.5 SETTLEMENT. No admission of liability and no settlement of any action shall
be made without the consent of each of the Parties hereto and the consent of the
Indemnified Parties affected, such consent not to be unreasonable withheld.
11.6 LEGAL PROCEEDINGS. Notwithstanding that the relevant Party hereto will
undertake the investigation and defense of any action, an Indemnified Party will
have the right to employ separate counsel in any such action and participate in
the defense thereof,
<PAGE> 15
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but the fees and expenses of such counsel will be at the expense of the
Indemnified Party unless:
(a) employment of such counsel has been authorized by the relevant
Party hereto; or
(b) the relevant Party hereto has not assumed the defense of the
action within a reasonable period of time after receiving notice
of the action; or
(c) the named parties to any such action include that any Party
hereto and the Indemnified Party shall have been advised by
counsel that there may be a conflict of interest between any
Party hereto and the Indemnified Party; or
(d) there are one or more legal defenses available to the
Indemnified Party which are different from or in addition to
those available to any Party hereto.
11.7 CONTRIBUTION. If for any reason other than the gross negligence or bad
faith of the Indemnified Parties (or any of them) being the primary cause of the
loss claim, damage, liability, cost or expense, the foregoing indemnification is
unavailable to the Indemnified Parties (or any of them) or insufficient to hold
them harmless, the relevant Parties hereto shall contribute to the amount paid
or payable by the Indemnified Parties as a result of any and all such losses,
claim, damages or liabilities in such proportion as is appropriate to reflect
not only the relative benefits received by any Party hereto on the one hand and
the Indemnified Parties on the other, but also the relative fault of the parties
and other equitable considerations which may be relevant. Notwithstanding the
foregoing, the relevant Party or Parties hereto shall in any event contribute to
the amount paid or payable by the Indemnified Parties, as a result of the loss,
claim, damage, liability, cost or expense (other than a loss, claim, damage,
liability, cost or expenses, the primary cause of which is the gross negligence
or bad faith of the Indemnified Parties or any of them), any excess of such
amount over the amount of the fees actually received by the Indemnified Parties
hereunder.
ARTICLE XII
GENERAL
12.1 ENTIRE AGREEMENT. This Agreement constitutes the entire agreement to date
between the Parties hereto and supersedes every previous agreement,
communication, expectation, negotiation, representation or understanding,
whether oral or written, express or implied, statutory or otherwise, between the
Parties hereto with respect to the subject matter of this Agreement. No
modification of this Agreement shall be effective unless in writing and executed
by each of the Parties to this Agreement.
<PAGE> 16
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12.2 ENUREMENT. This Agreement will enure to the benefit of and will be binding
upon the Parties hereto, their respective heirs, executors, administrators and
assigns, but nothing contained in this Agreement shall be construed as a consent
by the Seller to any assignment or transfer of this Agreement or of any interest
hereunder by Azco except as provided for in section "7.2" hereinabove.
12.3 SCHEDULES. The Schedules to this Agreement are hereby incorporated by
reference into this Agreement in their entirety.
12.4 TIME OF THE ESSENCE. Time will be of the essence of this Agreement.
12.5 REPRESENTATION. It is hereby acknowledged by each of the Parties hereto
that, as between the Parties herein, Devlin Jensen acts solely for Azco, and
that the individuals comprising the Seller have each been advised by Devlin
Jensen and Azco to obtain independent legal advice with respect to their
respective reviews and execution of this Agreement.
12.6 APPLICABLE LAW. This Agreement shall be deemed to have been made and
entered into in the County of Fresno, State of California, and the Seller and
Azco agree that the County of Fresno or the County of San Benito (situs of the
Property), State of California, shall be the situs for any proceedings, whether
in law or equity, brought pursuant to this Agreement. Furthermore, the governing
law of this Agreement shall be that of the State of California.
12.7 FURTHER ASSURANCES. The Parties hereto hereby, jointly and severally,
covenant and agree to forthwith, upon request, execute and deliver, or cause to
be executed and delivered, such further and other deeds, documents, assurances
and instructions as may be required by the Parties hereto or their respective
counsel in order to carry out the true nature and intent of this Agreement. In
addition, the Seller hereby agrees to execute any and all documentation as may
be necessary in order to record Azco's rights under this Agreement.
12.8 CURRENCY. All payments required to be made pursuant to the provisions of
this Agreement shall be made in lawful currency of the United States.
12.9 SEVERABILITY AND CONSTRUCTION. Each Article, section, paragraph, term and
provision of this Agreement, and any portion thereof, shall be considered
severable, and if, for any reason, any portion of this Agreement is determined
to be invalid, contrary to or in conflict with any applicable present or future
law, rule or regulation in a final unappealable ruling issued by any court,
agency or tribunal with valid jurisdiction in a proceeding to which any Party
hereto is a party, that ruling shall not impair the operation of, or have any
other effect upon, such other portions of this Agreement as may remain
<PAGE> 17
-16-
otherwise intelligible (all of which shall remain binding on the Parties and
continue to be given full force and agreement as of the date upon which the
ruling becomes final).
12.10 CAPTIONS. The captions, section numbers and Article numbers appearing in
this Agreement and in any index hereto, if any, are inserted for convenience of
reference only and shall in no way define, limit, construe or describe the scope
or intent of this Agreement nor in any way affect this Agreement.
12.11 SURVIVAL. To the extent necessary to effectuate the intention of the
parties, this Agreement shall survive (i) the exercise of the Option and the
delivery of all deeds and other instruments at the Closing and (ii) the
termination of this Agreement.
12.12 COUNTERPARTS. This Agreement may be signed by the Parties hereto in as
many counterparts as may be necessary, each of which so signed shall be deemed
to be an original, and such counterparts together shall constitute one and the
same instrument and notwithstanding the date of execution will be deemed to bear
the execution date as set forth on the front page of this Agreement.
12.13 NO PARTNERSHIP OR AGENCY. The Parties have not created a partnership and
nothing contained in this Agreement shall in any manner whatsoever constitute
any Party the partner, agent or legal representative of any other Party, nor
create any fiduciary relationship between them for any purpose whatsoever. No
Party shall have any authority to act for, or to assume any obligations or
responsibility on behalf of, any other party except as may be, from time to
time, agreed upon in writing between the Parties or as otherwise expressly
provided.
12.14 MULTIPLE OWNERSHIP; GENDER. The term "Seller" as used in this Agreement
applies individually and collectively to all owners of the Property executing
this Agreement or counterparts of it. The obligations of the individuals that
comprise the Seller as of the time of execution of this Agreement and hereafter
shall be joint and several. The reference to the Seller in the neuter gender
herein shall mean and refer to all Parties constituting the Seller, whether
male, female, corporation, partnership, trust, estate or other entity.
12.15 CONSENTS AND WAIVERS. No consent or waiver expressed or implied by any
Party in respect of any breach or default by any other Party in the performance
by such Party of its obligations hereunder shall:
(a) be valid unless it is in writing and stated to be a consent or
waiver pursuant to this section;
(b) be relied upon as a consent to or waiver of any other breach or
default of the same or any other obligation;
<PAGE> 18
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(c) constitute a general waiver under this Agreement; or
(d) eliminate or modify the need for a specific consent or waiver
pursuant to this section in any other or subsequent instance.
IN WITNESS WHEREOF the Parties hereto have hereunto set their respective
hands and seals in the presence of their duly authorized signatories effective
on the day and year first above written.
The CORPORATE SEAL of )
AZCO MINING INC. )
was hereunto affixed in the presence of: )
) (C/S)
_____________________________________________________)
Authorized Signatory )
SIGNED, SEALED and DELIVERED by )
WILLIAM C. FORREST )
in the presence of: )
)
_____________________________________________________) ______________________
Witness Signature ) WILLIAM C. FORREST
------------------
)
)
_____________________________________________________) ----------------------
Witness Name and Address ) Social Security Number
SIGNED, SEALED and DELIVERED by )
HILDA C. FORREST )
in the presence of: )
)
)
_____________________________________________________) ______________________
Witness Signature ) HILDA F. FORREST
----------------
)
)
_____________________________________________________) ----------------------
Witness Name and Address ) Social Security Number
SIGNED, SEALED and DELIVERED by )
ELVIS L. GRAY )
in the presence of: )
)
_____________________________________________________) ______________________
Witness Signature ) ELVIS L. GRAY
-------------
<PAGE> 19
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_____________________________________________________) ----------------------
WITNESS NAME AND ADDRESS ) SOCIAL SECURITY NUMBER
<PAGE> 20
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EXECUTION ACKNOWLEDGMENTS
STATE OF _________________________________)
) ss.
COUNTY OF _________________________________)
On this _____ day of December, 1997, personally appeared before me, a
Notary Public, in and for the State and County aforesaid, personally known to me
(or proved to me on the basis of satisfactory evidence) to be _______________, a
Director of AZCO MINING INC., a Delaware corporation, who acknowledged that he
executed the above instrument on behalf of Azco Mining Inc.
____________________________________
NOTARY PUBLIC
Residing at:________________________
My Commission Expires:______________
STATE OF _________________________________)
) ss.
COUNTY OF _________________________________)
On this _____ day of December, 1997, personally appeared before me, a
Notary Public, in and for the State and County aforesaid, personally known to me
(or proved to me on the basis of satisfactory evidence) to be WILLIAM C. FORREST
who acknowledged that he executed the above instrument.
____________________________________
NOTARY PUBLIC
Residing at:________________________
My Commission Expires:______________
<PAGE> 21
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STATE OF _________________________________)
) ss.
COUNTY OF _________________________________)
On this _____ day of December, 1997, personally appeared before me, a
Notary Public, in and for the State and County aforesaid, personally known to me
(or proved to me on the basis of satisfactory evidence) to be HILDA F. FORREST
who acknowledged that she executed the above instrument.
____________________________________
NOTARY PUBLIC
Residing at:________________________
My Commission Expires:______________
STATE OF _________________________________)
) ss.
COUNTY OF _________________________________)
On this _____ day of December, 1997, personally appeared before me, a
Notary Public, in and for the State and County aforesaid, personally known to me
(or proved to me on the basis of satisfactory evidence) to be ELVIS L. GRAY who
acknowledged that he executed the above instrument.
____________________________________
NOTARY PUBLIC
Residing at:________________________
My Commission Expires:______________
<PAGE> 1
EX10.10
ORO ARGENTINA LIMITED
Suite 1260
999 West Hastings Street
Vancouver, British Columbia
--------------------------------------
CONVERTIBLE DEBENTURE
---------------------
(the "Debenture")
PRINCIPAL: $1,500,000 (U.S.)
INTEREST: 12% PER ANNUM
DUE DATE: SEPTEMBER 1, 2000
WITH THE TERMS AS FOLLOWS:
FOR VALUE RECEIVED, ORO ARGENTINA LIMITED (the "Company"), a company having its
address for service of all notices and process hereto located as stated above,
HEREBY ACKNOWLEDGES ITSELF INDEBTED TO AZCO MINING INC. (the "Lender"), a
company duly incorporated under the laws of Delaware and having an address for
notices and service at Suite 1250, 999 West Hastings Street, Vancouver, British
Columbia, AND THE COMPANY PROMISES TO PAY TO THE LENDER, in the manner and at
the times set forth herein in accordance with the stated terms, the AGGREGATE
PRINCIPAL (the "Principal", also called the "Loan") sum of ONE MILLION FIVE
HUNDRED THOUSAND DOLLARS ($1,500,000 U.S.) AND INTEREST , AND OTHER COSTS AS SET
FORTH HEREIN, in lawful money of the United States of America.
The effective date (the "Effective Date") of this Debenture shall be May 22,
1998 and the due date (the "Due Date") for the payment of all unpaid Principal
and Interest shall be September 1, 2000, unless accelerated due to default not
cured or waived by the terms hereof, and such accelerated date shall thereupon
be the Due Date.
-- Senior Debenture --
<PAGE> 2
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This Debenture is specifically acknowledged to be a continuing security for all
indebtedness of the Company outstanding from time-to-time, including for all
re-advances after any payments of Principal, partial or otherwise, until
discharged by the Lender in writing.
1. INTEREST
This Debenture will bear interest (the "Interest") at TWELVE (12%)
PERCENT PER ANNUM, calculated and payable annually. After the Due Date Interest
shall continue at 12% per annum but shall be calculated monthly and payable
monthly until payment in full of Principal and Interest. In the event the Lender
elects to extend the Due Date at request of the Company, the Interest accrued
shall be compounded to Principal and such compounded amount shall thereafter be
deemed Principal and shall accrue Interest until the deferred Due Date.
2. PAYMENT OF PRINCIPAL AND INTEREST
The Principal, and Interest accrued thereon, will be due and payable by
the Company to the Lender in the following manner:
(a) Interest will be payable annually and on the Due Date, or any
acceleration thereof, and any payments on this Loan shall be
applied firstly to Interest;
(b) the Principal shall be paid on the Due Date, and any
acceleration thereof; and
(c) in the event that the Principal and Interest has been reduced
by an exercise of the Conversion Option (as defined below)
then the Interest calculation and the Principal payment
calculations shall be adjusted appropriately.
3. CONVERSION TERMS OF THIS DEBENTURE
The Lender shall have the option during the term of this Debenture, and
any extension thereto, to convert (the "Conversion Option") the Principal and
Interest unpaid into common units (the "Units") of the Company at a conversion
rate of FIFTY CENTS ($0.50) (US) per Unit, adjusted as to number and price of
Units for any consolidation or sub-division of the Company's capital. Each Unit
shall be composed of one share and one warrant, of which each warrant shall
permit the purchase of an additional common share at a price of sixty cents
($0.60) (US) at any time from the exercise of the Conversion Option to two years
thereafter.
The Lender shall have the right, at any time during the period of the Conversion
Option, to require conversion of this Debenture into Units, which right shall
supersede any tender by the Company for payment of this Debenture in cash.
-- Debenture --
<PAGE> 3
-3-
Fractional shares will not be issued on any conversion but, in lieu
thereof, the Company will make a cash payment.
The right to convert the Debenture may be exercised by the Lender by
the delivery of a notice setting forth the amount of the Conversion Option being
exercised. If the Lender exercises less than the full amount of Principal and
Interest outstanding, then this Debenture shall continue to secure any amounts
remaining unpaid. Subject to regulatory delays reasonably acceptable to the
Lender, the Units shall be delivered within ten (10) days of notice of exercise
and subject to the least restriction available under appropriate regulatory
laws. In the event that the Units are subject to a hold period, the Company
shall qualify the same with any prospectus being issued by the Company but if
any hold period is greater than one year, the Company shall qualify the same by
prospectus at the demand of the Lender and at the Company's cost.
4. FIRST CHARGE AND FURTHER SECURITY
This Debenture shall be a first floating and fixed charge security on
the assets of the Company. The Company agrees to promptly (absent regulatory
delay, within ten (10) days of demand) provide further and other security as the
Lender may require including, without restricting the generality, specific
charge security on specific assets of the Company, such as a pledge of
subsidiary shares of the Company.
It is acknowledged by the Lender that the Company is issuing an
additional debenture in the amount of $100,000 US having the same terms (other
than loan amount and conversion rate) as this Debenture and ranking pari passu
and pro rata with this Debenture. The Lender consents to the issue of such
additional debenture. The Company shall not issue any further loans or other
security whatsoever, whether superior, pari passu, or inferior to this
Debenture, without the written permission of the Lender, which permission may be
with held without reason.
5. REDEMPTION RIGHTS
The Company, with the Lender's prior permission (which may be refused
without cause) and subject to the lender's right to exercise the Conversion
Option, may, in the manner hereinafter set forth, pay any amount of outstanding
Principal, and any Interest accrued, without bonus or penalty.
Should the Company elect to pre-pay the Loan it shall request
permission of the Lender thirty (30) days' prior to its intention to redeem and
repay all or any portion of the Principal and any Interest accrued thereon which
would be unpaid by the Company to the Lender at the end of such 30-day period
(such day at the end of such 30-day period being the "Redemption Date" and, for
clarity, such Redemption Date would be the date to which such Principal and
Interest would be calculated at the close of business, in Vancouver, British
Columbia, on such Redemption Date) and, thereupon, if the Lender has granted
permission, the Lender will be entitled to exercise that part of the Loan
intended to be redeemed until only noon on the business day preceding the
Redemption Date, failing which exercise by the Lender will then terminate
-- Debenture --
<PAGE> 4
-4-
that part of the Conversion Option. If, however, the Company fails to make the
payment of any portion of the Principal and any Interest accrued thereon to the
Lender which it previously advised it intended to make on the Redemption Date,
then the Lender will be entitled to continue to exercise the Conversion Option
as to the then balance of the Principal and Interest of the Debenture until the
Due Date or in accordance with a subsequent Redemption Date notice.
6. FIXED CHARGE SECURITY
Fixed Charge. As security for payment of the Principal and Interest and
all other moneys owing by the Company to and for the performance of the
obligations and other covenants of the Company, the Company hereby grants,
mortgages, pledges, charges, assigns and conveys to and in favour of the Lender
(subject to exception as to the last day of the term of any lease), as and by
way of a fixed charge, all of the interest of the Company in the assets (the
"Assets") listed in Schedule "A" hereto and hereby covenants and agrees to
cause, at the Company's cost, the within Debenture to be registered against the
Assets to the extend available in the relevant jurisdictions or, at the Lender's
sole discretion and at the cost of the Company in the event of the Company's
failure or omission to so register, hereby permits the Lender to register this
Debenture as security on and to the Assets. The Company agrees that the Lender
may register this Debenture at any time and may register the same in all
governmental or public registries as it may consider advisable and, further, to
make all such publications as the Lender may consider advisable to effect public
notice of the charge herein created (the "Fixed Charge Mortgaged Property"), all
at the cost of the Company.
For the purposes of this Debenture, the assets to which the Fixed
Charge Mortgaged Property refer are hereinafter collectively referred to as the
"Mortgaged Property".
The last day of any term reserved by any lease agreement is excepted
out of the Mortgaged Property and charges hereby created and does not form any
part of the Mortgaged Property; but if any sale is made under or pursuant to the
powers herein contained of any lease forming part of the Mortgaged Property the
Company will hold the same in trust for the purposes hereof to assign to any
person who may acquire such term or any part thereof.
7. REPLACEMENT OF PRIOR ENCUMBRANCES AND RELEASE OF SECURITY
It is hereby agreed and acknowledged by the Company and the Lender that
this security shall replace and supersede any preceding agreements and contracts
of security respecting the Principal and Interest.
Upon payment of the Principal (whether by payment in cash or by
conversion to Shares) and payment of Interest, the Lender shall provide the
Company, at its request, with all such discharges, releases and acknowledgments
of payment as the Company may reasonably require and request to evidence such
payment and to discharge the within security and any registration in respect
thereto.
-- Debenture --
<PAGE> 5
-5-
TO HAVE AND TO HOLD the same unto and to the use of the Lender, and the
Lender's successors and assigns, upon and subject to the terms and conditions
herein set forth.
THIS DEBENTURE IS ISSUED SUBJECT TO AND WITH THE BENEFIT OF THE
CONDITIONS ANNEXED HERETO, WHICH ARE TO BE DEEMED PART OF IT.
IN WITNESS WHEREOF the Company has caused its duly authorized officer
to execute these terms effective on the Effective Date.
ORO ARGENTINA LIMITED
Per: ________________________________
Authorized Signatory
AGREED AND ACCEPTED BY:
AZCO MINING INC.
Per: ________________________________
Authorized Signatory
----------
-- Debenture --
<PAGE> 6
-6-
CONDITIONS REFERRED TO IN THE DEBENTURE
BETWEEN: ORO ARGENTINA LIMITED ("COMPANY")
AND AZCO MINING INC. ("LENDER")
The Company hereby covenants and agrees with the Lender as follows, namely:
1. This Debenture is issued in accordance with resolutions of the
Directors (and of the members, if applicable) of the Company and all
other matters and things, including approval of relevant regulatory
authorities, have been done and performed so as to authorize and make
the creation and issue of this Debenture and the execution thereof
legal and valid and binding and in accordance with the requirements of
the laws relating to the Company.
2. The Company lawfully owns and is lawfully possessed and seized of the
Mortgaged Property and has good title thereto, free from all liens,
charges and encumbrances, save only those referred to herein, has good
right and lawful authority to grant, mortgage, pledge, charge,
encumber, bargain, sell, assign and convey the Mortgaged Property
according to the true meaning and intent of this Debenture and will
defend the title to the Mortgaged Property for the benefit of the
Lender and against the claims and demands of all persons.
3. The Principal and Interest hereby secured will be paid without regard
to any equities between the Company and the Lender or any intermediate
holder hereof or any right of setoff or counterclaim; and the receipt
of the Lender or the holders hereof for payment of such Principal and
Interest will be a sufficient discharge to the Company of this
Debenture.
4. The Principal hereby secured will become immediately due and payable on
demand by the Lender, unless waived by the Lender, in any of the
following events:
(a) If an order is made or a resolution is passed or a petition is
filed for the winding-up, dissolution or liquidation of the
Company;
(b) If the Company makes an assignment or proposal or a bankruptcy
petition is filed or presented against the Company or the
Company otherwise becomes subject to the provisions of any Act
for the benefit of its creditors or otherwise acknowledges its
insolvency;
-- Debenture --
<PAGE> 7
-7-
(c) If any execution, sequestration, or any other process of any
kind becomes enforceable against the Company and is not
satisfied within 10 business days;
(d) If a distress or analogous process is levied upon the
Mortgaged Property of the Company or any part thereof unless
the process is in good faith disputed by the Company;
(e) If the Company ceases or demonstrates an intention to cease to
carry on its business;
(f) If a Receiver of the Company or all or any part of the
Mortgaged Property is appointed;
(g) If an encumbrancer commences foreclosure or takes possession
of the Mortgaged Property of the Company or any part thereof;
(h) If the Company without the prior written consent of the Lender
authorizes the purchase by the Company of its shares;
(i) If the Company carries on any business that it is restricted
from carrying on by its Memorandum or Articles;
(j) If the Company commences disposing of, permits the loss of, or
is unable to maintain all or a substantial portion of its
assets or of any part of the Mortgaged Property without the
permission of the Lender;
(k) If the Company changes control or if the majority of the Board
of Directors is replaced or resigns without the permission of
the Lender;
(l) If the Company is a reporting publicly traded company and is
cease traded for more than ten days in its principal trading
jurisdiction or if the Company, voluntarily or otherwise and
without the permission of the Lender, ceases to be listed on
the stock exchange(s) on which it is listed on the Effective
Date of this Debenture; or
(m) If the Company defaults in observing or performing any
covenant, agreement or condition of this Debenture on its part
to be observed or performed and such default is not cured
within a period of ten (10) calendar days following the giving
of written notice of default to the Company by the Lender.
5. The Lender may waive any default by the Company in the observance or
performance of any covenant, agreement or condition contained in this
Debenture, or any other event which without such waiver would cause the
moneys hereby secured to be immediately
-- Debenture --
<PAGE> 8
-8-
due and payable, but no such waiver of the Lender will extend to or
affect any subsequent default or event or the rights resulting
therefrom.
6. The security hereby constituted will become enforceable if the
Principal moneys and Interest hereby secured are not paid, or any
conversion option not honoured, when the same become due and payable in
accordance with the provisions herein contained.
7. At any time after the Principal moneys hereby secured have become
payable and remain unpaid (where the Company has failed to rectify
default within 30 days of notice), the Lender may by instrument in
writing appoint any person, whether an officer or employee of the
Lender or not, to be a receiver or receiver-manager (herein called the
"Receiver") of the Company and/or (at the Lender's sole discretion) of
the Mortgaged Property and assets hereby charged and may remove any
Receiver so appointed and appoint another in his stead.
Any Receiver so appointed shall have the power:
(a) To take possession of, collect and get in the Mortgaged
Property and for that purpose to take any proceedings in the
name of the Company or otherwise;
(b) To carry on or concur in carrying on the business of the
Company and for that purpose to raise money on the Mortgaged
Property in priority to this Debenture or otherwise;
(c) To sell or lease or concur in the selling or leasing of the
whole or any part of the Mortgaged Property and to convert the
same or any part thereof into money, with full power to sell
any Mortgaged Property either together or in parcels and
either by public auction or private contract and either for a
lump sum or for a sum payable by installments or for a sum on
account and a mortgage or charge for the balance (and the
Receiver will not be accountable for any moneys until actually
received), and with full power upon every such sale to make
any special or other stipulation as to title or otherwise
which the Receiver may deem proper, and with full power to buy
in or rescind any contract for sale of the Mortgaged Property
or any part thereof and to resell the same without being
responsible for any loss which may be occasioned thereby; and
(d) To make any arrangement or compromise which he may think
expedient to the interests of the Lender.
To enable any Receiver so appointed to exercise the powers granted to
him by this Section 7, upon the appointment of the Receiver under this
Section 7, the Company appoints such Receiver to be its attorney to
effect a sale or lease of any of the Mortgaged Property by conveying or
leasing in the name of or on behalf of the Company or
<PAGE> 9
-9-
otherwise, and under his own seal; and any deed, lease, agreement or
other instrument signed by any such Receiver under his seal pursuant
hereto will have the same effect as if it were under the corporate seal
of the Company.
It is hereby agreed and acknowledged that the Receiver may at any time
bring an application before a court of competent jurisdiction to
receive all orders and directions as the Receiver or the Lender may
deem advisable for the purpose of exercising the receivership herein
provided and for exercising all rights, powers and privileges conferred
by this Debenture and the Company hereby attorns to all such process
and waives any defenses thereto or any dispute regarding the power of
the Receiver to exercise any of the powers herein granted, excepting
only that the Company shall not be prohibited from pleading a right to
a redemption period under the laws affecting real Mortgaged Property,
but that such redemption period shall not exceed a period of ninety
(90) days.
No purchaser of any sale purporting to be made by such Receiver
pursuant hereto will be bound to inquire whether any notice required
hereunder has been given or otherwise as to the propriety of the sale
or regularity of its proceedings, or be affected by notice that no
default has been made, or continues, or notice that the sale is
otherwise unnecessary, improper or irregular; and despite any
impropriety or irregularity or notice thereof to any Lender, the sale
as regards such Lender will be deemed to be within the aforesaid powers
and be valid accordingly and the remedy (if any) of the Company in
respect of any impropriety or irregularity whatsoever in any such sale
will be in damages only.
Any Receiver appointed hereby will be deemed to be the agent of the
Company, and the Company will be solely responsible for his acts or
defaults and for his remuneration and expenses, and the Lender will not
be in any way responsible for any misconduct or negligence on the part
of any such Receiver.
All moneys received by such Receiver after providing for payment of all
claims and charges (if any) ranking prior to this Debenture and for all
costs, charges and expenses of or incidental to the appointment of the
Receiver including the reasonable remuneration of the Receiver and all
outgoings properly payable by him will be applied:
Firstly: In or towards payment of any costs provided by Section 8
hereinbelow set forth;
Secondly: In or towards payment to the Lender of the Principal and
all other moneys (other than Interest) hereby secured;
Thirdly: In or towards payment to the Lender of all arrears of
Interest remaining unpaid on this Debenture; and
Fourthly: The surplus (if any) will be paid to the Company.
-- Debenture --
<PAGE> 10
-10-
The rights and powers conferred by this Section 7 are supplemental to
and not in substitution for any rights and powers the Lender may from
time to time have or a court of competent jurisdiction may confer on
the Receiver upon his application in accordance with the laws and
custom of the relevant jurisdiction.
8. The Company will pay to the Lender on demand the amount of all expenses
including, without limiting the generality of the foregoing, all legal
fees (on a solicitor and client basis) and other costs, charges and
expenses incurred by the Lender relating to the creation and
registration of this Debenture or in recovering or enforcing payment of
the moneys hereby secured, or in realizing upon this Debenture or any
other securities for such moneys, or in taking possession of or
protecting or realizing upon any property comprised in any such
security, all of which together with Interest thereon at the rate
provided for in this Debenture will be secured hereby, and in default
of payment thereof all remedies hereunder and at law and in equity will
be exercisable.
9. This Debenture is to be treated as an assignable instrument.
10. This Debenture is in addition to and not in substitution for collateral
security and agreements now or hereafter held by the Lender, except as
specifically elsewhere excluded by this Debenture.
11. The security created by this Debenture is a continuing security for the
payment of all indebtedness, both present and future, and all and every
liability, present or future, direct or indirect, absolute or
contingent, of the Company to the Lender.
12. The Company will at all times during the currency of this Debenture:
(a) Give to the Lender any information which they may reasonably
require relating to the business of the Company and upon
request furnish access to its books and accounts and records
at all reasonable times, and provide copies of its annual
financial statements within one hundred and forty (140) days
after the end of each fiscal year of the Company;
(b) Maintain and preserve its, and any relevant affiliates or
subsidiaries, charter and corporate organization in good
standing and, subject to all the provisions herein contained,
diligently preserve all the rights, powers, privileges and
goodwill owned by it;
(c) Conduct its business in a proper and businesslike manner;
-- Debenture --
<PAGE> 11
-11-
(d) Insure and keep insured against all risks or hazards to their
full insurable value all of the Mortgaged Property and assets
and all other property which are of an insurable nature, and
pay the premiums for all such insurance, and on request
deliver to the Lender the policy or policies of such
insurance;
(e) Duly and punctually pay, perform and observe all rent, taxes,
local improvement rates, assessments, covenants and
obligations whatsoever which ought to be paid, performed or
observed by the Company in respect of all or any part of the
Mortgaged Property or assets hereby charged;
(f) Fully and effectually register this Debenture in all
jurisdictions and places where the Company carries on business
or registration is required, and otherwise maintain and keep
maintained the security hereby created as valid and effective
security;
(g) Pay duly and punctually all taxes, levies and assessments, and
all debts and obligations to labourers, workmen, employees,
contractors, sub-contractors, suppliers of material and others
which, if unpaid, might, under the laws of any jurisdiction in
which the Company conducts business, have priority over the
security hereby created or any part thereof;
(h) Make all payments and perform each and every covenant,
agreement and obligation under any lease now held or hereafter
acquired by the Company and any mortgage, debenture, trust
deed or agreement charging any property or assets of the
Company as and when the same are required to be paid or
performed; and
(i) Duly and punctually make all necessary filings and payments
required with regulatory authorities to maintain the Company
in good standing.
13. If the Company fails to perform any of the covenants, agreements or
conditions herein contained, the Lender may, in its discretion, perform
the same, and if any such covenant, agreement or condition requires the
payment or expenditure of money, the Lender may make such payment or
expenditure; and all costs, charges and expenses thereby incurred and
all sums so paid or expended will bear Interest at the rate provided
for in this Debenture, will be at once payable by the Company to the
Lender and will be secured hereby and have the benefit of the charges
hereby created.
14. The Company will not at any time during the currency of this Debenture,
without the prior written consent of the Lender:
(a) Alter its Memorandum by altering any of its capital or any
restriction or power upon or in respect to the business
carried on or to be carried on by the Company;
-- Debenture --
<PAGE> 12
-12-
(b) Become guarantor of any obligation, or become endorser in
respect of any obligation, or otherwise become liable upon any
notice or other obligation, other than in the normal course of
the Company's business; or
(c) Acquire or permit any loan, charge, claim, action, or
encumbrance which may jeopardize the priority of this
Debenture or may restrict or diminish the security of the
Lender in the Mortgaged Property or any asset, without the
permission of the Lender in writing.
15. It is hereby specifically acknowledged by the Lender that this
Debenture shall not restrict the Company's ability to operate its
business in the normal course including, without limiting the
generality, this Debenture shall not prohibit the Company from
disposing of (except of the Mortgaged Property) or acquiring assets in
the normal course of business, whether real property or moveable
property, or from disposing of its products of commerce in the normal
course of business. The Company shall not sell, or otherwise dispose
of, all or substantially all of its business without permission of the
Lender and subject to such conditions as the Lender may consider
appropriate, including the application of all proceeds therefrom to
payment of the Debenture.
16. Until this Debenture has been discharged, this Debenture and the
charges hereby created constitute valid and continuing security for the
payment of any and all indebtedness owing by the Company to the Lender
notwithstanding the temporary payment of all or any portion of the
moneys hereby secured.
17. Neither the taking of any judgment nor the exercise of any power of
seizure or sale or any other rights or powers of the Lender hereunder
will operate to extinguish the liability of the Company to make payment
of the Principal moneys and Interest hereby secured, nor will the same
operate as a merger of any covenant or affect the right of the Lender
to Interest at the rate hereinbefore provided.
18. The Lender, in addition to any other powers given to it, has the power:
(a) To release any property of the Company from the charge created
by or pursuant to this Debenture;
(b) To agree to any modification, compromise, release or waiver of
the rights of the Lender against the Company or against its
property, whether such rights arise under this Debenture or
otherwise; and
(c) To accept any other properties or securities in substitution
the Mortgaged Property of this Debenture.
-- Debenture --
<PAGE> 13
-13-
19. Any notice given to the Company or the Lender in connection with this
Debenture will be in writing and may be given by delivering the same
physically or by electronic transmission or by sending the same by
prepaid registered post addressed to the Company or the Lender at the
addresses first herein set forth. Any notice so delivered will be
deemed to have been received by a party upon delivery, and any notice
so mailed will be deemed to have been received on the third (3rd)
business day following the day on which it was mailed; but any notice
given during a strike, lockout or other labour disturbance at the Post
Office will be delivered and not mailed.
20. Time is of the essence of this Debenture.
21. When the context hereof makes it possible, the word "person" appearing
in this Debenture includes in its meaning any body corporate or a
partnership; and the word "Lender" includes any subsequent holder
hereof.
22. This Debenture and all its terms and conditions will enure to the
benefit of the Lender and the Lender's successors and assigns, and will
be binding upon the Company and its successors and assigns.
----------
-- Debenture --
<PAGE> 14
-14-
SCHEDULE "A"
MORTGAGED PROPERTY
TO A DEBENTURE BETWEEN ORO ARGENTINA LIMITED AND AZCO MINING INC.
The Company hereby specifically charges and pledges, as a first charge,
all of its interest in a Mineral Option Agreement (the "Option Agreement") dated
February 2, 1998, and any amendments or successors thereto, made between the
Company and Pierre Emmanuel Martre (or any assign or successor), and further
charges, as a first charge, the shares, or other interests, of the Company of
any companies created pursuant to the Option Agreement and shall place the said
shares in escrow or trust, with all necessary transfer documents and director's
resolutions and corporate consents and notices, under the terms of such pledge
agreement, consistent with the terms of this Debenture, as the Lender may
require. The Company shall cause or consent to all such registrations of this
Debenture, and any pledge or other security required by the Company, in such
registries or with such persons or offices as shall be required to make the
security fully enforceable, with necessary public notice, as a first charge
security under the laws of the Company, the Lender, or any Company asset to
which the Lender has or requires specific security.
-- Debenture --
<PAGE> 1
Exhibit 10.11
A M E N D E D
M E M O R A N D U M O F A G R E E M E N T
TO: ORO ARGENTINA LIMITED, RONALD HANDFORD, AND ROGER TRODLER-LAINE
FROM: AZCO MINING INC.
DATE: JULY 23, 1998
RE: AGREEMENT IN PRINCIPLE ("AIP") OF AGREEMENT DATED MAY 22, 1998
- --------------------------------------------------------------------------------
This amended Memorandum of Agreement, if accepted by you, will constitute an
amendment and continuance of the AIP between Azco Mining Inc. ("Azco"), Oro
Argentina Limited ("OAL"), Ronald Handford ("RH"), and Roger Trodler-Laine
"(RL"), each in accordance with the terms as set forth below.
The terms which we propose are as follows:
A. FINANCING COMPONENT
1. Subject to satisfactory execution by all parties of the hereafter
described agreements and approval of the boards of each of Azco and OAL, Azco
shall purchase a $750,000 US convertible debenture (the "Debenture") from OAL
and Azco shall be granted 1,500,000 warrants. Unless otherwise agreed in writing
by Azco, the proceeds of the Debenture shall be used only for the first phase of
the Chigua White Bentonite Project (the "Project"), option payments to Pierre
Martre in accordance with an option agreement (the "Option Agreement") with
Pierre Martre, and a maintenance and administrative allowance as approved by
Azco.
2. The terms of the Debenture shall be as follows:
(i) the Debenture shall be a first fixed and floating charge
convertible debenture in the principal amount of $750,000 US
(the "Principal") bearing interest on outstanding Principal at
12% per annum, calculated and payable annually in arrears, and
shall mature two years from its date of issue. It shall be in
Azco's standard form and shall not have pre-payment privileges
without Azco's consent;
(ii) the Principal shall be drawn by OAL against approved budgets
and draw schedules, as mutually agreed, in accordance with the
approved mining and production plan (the "Production Plan");
<PAGE> 2
-2-
(iii) at the option of Azco, the Debenture shall be convertible, as
to Principal (and Azco may elect to advance the total
Principal at any time for such purpose), and outstanding
interest, to common shares of OAL during the term of the
Debenture. Azco may elect to exercise the conversion right in
priority to repayment of Principal and interest. Each share
shall be priced at $0.50 US.
3. The 1,500,000 warrants (the "Warrants") granted to Azco concurrently
with the Debenture, shall be two year Warrants exercisable at any time to
purchase up to 1,500,000 common shares of OAL at a price of $0.60 US per share.
4. Azco shall have the right to appoint a representative to the board of
directors of OAL during the term of the Debenture and so long as such has not
been repaid or converted.
5. RH and RL shall enter into management agreements with OAL for a term of
not less than the Debenture term, on terms no better as to salary than that set
forth below, and shall be responsible for supervising the implementation and
completion of the Production Plan.
6. OAL warrants that it has an option on 50% of the Project and the
property thereof pursuant to the Option Agreement and extension agreement
between OAL and Pierre Martre and, to the best of OAL's informed knowledge,
Pierre Martre has contracted 100% of the mining rights of the property and
Project and neither the property nor the Project are subject to any
encumbrances, liabilities, claims, threats to the title or integrity of the
property or the Project, nor does any party have any claim or challenge to title
or ownership of the Project or property. OAL further warrants that OAL is free
and clear of all liens, encumbrances, or any claims by any parties (other than
normal course payables), there are no rights or contracts for the issue of
securities except as set forth herein, OAL is not threatened with insolvency
proceedings, the Option Agreement is in good standing and no other party has any
rights or interests therein, and the Debenture funds hereof shall be adequate
for the expenditure and maintenance needs of the Option Agreement and for the
general operations and payables of AOL during at least phase one of the
development program of the Project.
7. During the term of the Debenture and the below Option, Azco shall have
the right to provide, or provide for, all future financings of OAL and its
interest in the Project on competitive terms. Azco shall have a first right of
refusal in respect to any bona fide financing offers, earn-in options, purchase
offers, joint venture offers, bank financings, equity offers, or any other such
matter of OAL. No alteration in the capital or debt structure of OAL nor any
alteration of the Project or its status or its financing may be made except by
consultation with and approval of Azco, not to be unreasonably with held.
B. AZCO BUY-OUT OPTION
<PAGE> 3
-3-
1. OAL, RH, and RL shall employ best efforts to cause all the shareholders
of OAL to grant, by June 30, 1998, Azco a two year option (the "Option") to
purchase all of the OAL shares (the "Shares") issued and outstanding of OAL on
the following terms:
(i) the Option shall be for a term of two years from the date of
issue of the Debenture. In the event that financing of the
second phase of the Project is not in place after 18 months
from the issue of the Debenture, Azco will have the right to
extend the Option for an additional year;
(ii) the Option shall be exercised by Azco giving notice of
exercise and advising that it shall pay with Azco common stock
(the "Azco Share") at a ratio of one Azco Share for each two
OAL Shares issued or contracted to be issued;
(iii) the Azco Shares issued for the 8,240,000 `F' class OAL Shares
(and any other Shares permitted to be issued during the term
of the Option) shall be issued into pool which pool shall have
a term of two years from Option exercise and the Azco Shares
shall be released 25% immediately, 25% on the first
anniversary date and 50% on the second anniversary date,
subject to regulatory approval and statutorily imposed hold
periods, but that pool release shall be accelerated at such
time as Azco stock exceeds $5.00 US on average over a 10 day
period at an average daily volume of no less than 50,000
shares;
(iv) OAL shall not issue any further equity or debt or options or
any other agreement for the issue of Shares or make any
capital alterations in OAL without Azco's consent in writing
during the term of the Option; it being acknowledged hereby
that OAL has 10,136,935 Shares issued and outstanding and
880,000 options issued exercisable at $0.40 and 45,000 options
issued exercisable at $0.50;
(v) the OAL shareholders shall not encumber, assign, or otherwise
dispose of any interest in the Shares except with the written
consent of Azco and thereupon only subject to the assignee
entering into the Option;
(vi) the Option shall contain other terms requiring the deposit of
the Share certificates (duly executed in blank for transfer)
and directors minutes approving the Option transfer deposited
in escrow, voting trusts to place an Azco representative on
OAL" board during the Option, force majeure provisions,
arbitration provisions, conflict waivers for Azco's board
representative, and such other terms as Azco's counsel may
reasonably require; and
2. RH and RL hereby commit to enter into the Option and the board of OAL
will do so as a term of the board's acceptance of this AIP.
C. RH AND RL MANAGEMENT CONTRACT TERMS
<PAGE> 4
-4-
Upon Azco's election to exercise the Option, RH and RL shall be engaged, or
their engagement shall be continued, with OAL on the Following terms:
<PAGE> 5
-5-
1. RH terms shall be:
(i) a one year term, automatically renewable for three subsequent
one year terms unless notice of renegotiation by mutual
agreement is given no less than 60 days prior to the end of
each term;
(ii) the fee shall be $7,000 US per month, plus reasonable
expenses, and no less than 175 days per year shall be employed
on the business of OAL and the Project;
(iii) RH shall accept the position of Managing Director and CEO of
Oromin S.A., the subsidiary of OAL in which the Project
resides;
(iv) RH shall receive 250,000 Azco stock options, vesting at 62,500
per year, over 4 years with the price being set at the best
available price permitted by regulators at the time of Azco's
exercise of the Option; and
(v) The form of the management agreement shall be that presently
prevailing for Azco's internal executives.
2. RL terms shall be:
(i) a one year term, automatically renewable for three subsequent
one year terms unless notice of renegotiation by mutual
agreement is given no less than 60 days prior to the end of
each term;
(ii) the fee shall be $10,000 US per month, and reasonable
expenses, plus an annual 1% net profits royalty, for a term of
10 years after commencement of production, on OAL's share of
the Project's revenue and RL shall commit and be employed full
time on the business of OAL and the Project;
(iii) RL shall accept the position of Director, President, and COO
of Oromin S.A., the subsidiary of OAL;
(iv) RL shall receive 200,000 Azco stock options, vesting at 50,000
per year, over 4 years with the price being set at the best
available price permitted by regulators at the time of Azco's
exercise of the Option; and
(v) The form of the management agreement shall be that presently
prevailing for Azco's internal executives.
<PAGE> 6
-6-
Other terms shall be the standard contract terms regarding such matters as
warranties and representations, rights of first refusal, assignability, notices,
arbitration, and regulatory approval, if required.
This offer shall be kept confidential and no disclosure of the same shall be
made without mutual consent, which shall not be unreasonably with held, unless
required in writing by court order or regulator of competent jurisdiction.
The parties shall employ best efforts to render this agreement into formal
documents within 30 days of request of a party or removal of conditions.
If the foregoing terms are acceptable to you we ask that you execute and return
a copy of this AIP and the same will be binding upon us upon removal of subjects
as aforesaid.
Yours truly,
AZCO MINING INC.
Per:
ANTHONY HARVEY
Vice-Chairman
THE FOREGOING IS HEREBY AGREED THIS____________________ DAY OF MAY, 1998.
ORO ARGENTINA LIMITED
Per:
RONALD HANDFORD
President
___________________________________
RONALD HANDFORD - Signature
___________________________________
ROGER TRODLER-LAINE - Signature
<PAGE> 1
EXHIBIT 10.12
RIGHT OF FIRST REFUSAL AGREEMENT
BETWEEN:
AZCO MINING INC.
AND:
SEVILLE MINERAL DEVELOPMENTS S.A. DE C.V.
AND:
MINERA CORTEZ RESOURCES LTD.
DEVLIN JENSEN
Barristers and Solicitors
Suite 2550, 555 West Hastings Street
Vancouver, British Columbia
V6B 4N5
----------
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-- Azco Mining Inc. --
<PAGE> 2
RIGHT OF FIRST REFUSAL AGREEMENT
THIS RIGHT OF FIRST REFUSAL AGREEMENT (the "Agreement") is made and
dated for reference effective as fully executed on this 18th day of June, 1998
(the "Effective Date").
BETWEEN:
AZCO MINING INC., a corporation duly incorporated under the laws of
the State of Delaware, U.S.A., and having an address for notice and
delivery located at Suite 1250, 999 West Hastings Street, Vancouver,
British Columbia V6C 2W2
("Azco");
OF THE FIRST PART
AND:
SEVILLE MINERAL DEVELOPMENTS S.A. DE C.V., a corporation having an
address for notice and delivery located at Plaza Agua Caliente Blvd.
Agua Caliente 4558-1201 Tijuana, B.C. 22420, Mexico
("Seville");
OF THE SECOND PART
AND:
MINERA CORTEZ RESOURCES LTD., a corporation having an address for
notice and delivery at 5640 Marine Drive, West Vancouver, British
Columbia, V7W 2R6
("Minera Cortez");
OF THE THIRD PART
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-- Azco Mining Inc. --
<PAGE> 3
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(Seville and Minera Cortez being hereinafter collectively referred to
as "Minera" as the context so requires); and
(Azco and Minera being hereinafter singularly also referred to as a
"Party" and collectively referred to as the "Parties" as the context
so requires).
WHEREAS IN CONSIDERATION of the mutual covenants contained in, and
the mutual benefits to be derived from, this Agreement, and including, without
limiting the generality of the foregoing, the subscription by Azco for 200,000
common shares of Mineral Cortez at a subscription price of $0.25 per common
share, the Parties hereto agree as follows:
ARTICLE I
RIGHT OF FIRST REFUSAL - PROPERTY INTERESTS
1.1 RESTRICTION AND ASSIGNMENT RESPECTING PROPERTY INTERESTS. During the
subsistence of this Agreement, which shall be for a period of five years from
the above-referenced Effective Date of this Agreement (the "Option Period"),
Minera may not joint venture, option, sell, transfer or otherwise dispose of all
or any part of its present or hereinafter acquired interest in and to any
resource property interest (each being a "Property Interest") except in
accordance with the terms of this Agreement; provided, however, that Minera may
at any time at its sole discretion and without the prior approval of Azco assign
and transfer a Property Interest to any of its wholly owned subsidiaries, if
any, subject at all times to the requirement that any such subsidiary remain
wholly owned by Minera failing which any such interest must be immediately
transferred back to Minera; and provided further that any transfer of all or any
part of Minera's Property Interests or interests under this Agreement to its
wholly owned subsidiary shall be accompanied by the written agreement of any
such subsidiary to assume the obligations of Minera hereunder and to be bound by
the terms and conditions hereof.
1.2 RIGHT OF FIRST REFUSAL ON ANY OFFERED PROPERTY INTERESTS. Minera
hereby grants to Azco a 60 calendar day right of first refusal during the Option
Period to acquire all, but not less than all, of any Property Interest which
Minera desires to either joint venture, option or dispose of in any manner
during the Option Period (each being an "Offered Property Interest").
1.3 BONA FIDE OFFER. If Minera receives a bona fide offer (an "Offer") to
either joint venture, option or sell any Offered Property Interest, then Minera
shall forthwith offer the Offered Property Interest to Azco. The offer to Azco
shall be on terms and conditions substantially identical to, and of pro rata
equivalent dollar value as, those contained in the Offer either to or from the
third party.
-- Right of First Refusal Agreement --
-- Azco Mining Inc. --
<PAGE> 4
-3-
1.4 ELECTION. Azco shall be entitled to elect, by notice in writing (the
"Notice") to Minera within 60 calendar days from the date of receipt by Azco of
the Offer, to accept the Offered Property Interest on terms and conditions
substantially identical to those contained in the Offer either to or from the
third party (collectively, the "Terms and Conditions"). If Azco fails to provide
the Notice within the time required, Azco shall be deemed to have declined to
exercise its right of first refusal in connection with that particular Offer.
1.5 CONSIDERATION. Subject to Article "III" hereinbelow, in the event
that Azco elects, pursuant to section "1.4" hereinabove, to accept an Offered
Property Interest then, notwithstanding the remaining Terms and Conditions, and
in order that Azco may accept the Offered Property Interest on terms
substantially identical with the proposed consideration terms under the original
Offer, Azco will be entitled to match the proposed consideration terms under any
such Offer by way of the equivalent combination of both issuing shares of Azco
(collectively, the "Shares") and paying cash consideration (the "Cash
Consideration") to Minera such that the value of any such Shares and/or Cash
Consideration, as the case may be, will be equivalent in value to the proposed
consideration terms under the Offer and in the substantially identical relative
share/cash proportions. In this regard, and in order to more particularly
determine the value of any Shares to be provided by Azco for its acceptance of
an Offered Property Interest, Azco shall be entitled to utilize the previous
ten-day average closing price of Azco's common shares on The Toronto Stock
Exchange as at the date of any Notice as the appropriate per Share price forming
part of any such Share consideration. For greater certainty it is hereby
acknowledged and agreed that any proposed consideration under the terms of an
Offer which contemplates either cash consideration and/or work commitment
expenditures or the like must be matched by Azco in the Terms and Conditions of
its Notice.
1.6 NOT EXERCISED. If Azco does not exercise its right to accept an
Offered Property Interest as aforesaid, Minera may, for a period of 180 calendar
days following the last date upon which Azco could have made the election
pursuant to section "1.4" hereinabove, dispose of the Offered Property Interest
but only on terms and conditions substantially identical to those as contained
in the Offer for that Offered Property Interest.
1.7 TERMINATION OF RIGHT OF FIRST REFUSAL. Except with respect to the
specified Offered Property Interest, the right of first refusal to acquire up to
100% of any Offered Property Interest will not terminate if, on receipt of any
Offer from Minera under this section, Azco fails to exercise the right.
1.8 EXCLUSIONS TO RIGHT OF FIRST REFUSAL. The right of first refusal
shall not apply to any sales or transfers of Property Interests from Seville to
Minera Cortez. In addition, it shall be subordinated to any such right granted
by Minera Cortez in any joint venture, option or property purchase to an
optionor or vendor of any Property Interests acquired by Mineral Cortez
subsequent to the Effective Date hereof.
-- Right of First Refusal Agreement --
-- Azco Mining Inc. --
<PAGE> 5
-4-
ARTICLE II
RIGHT OF FIRST REFUSAL - FINANCINGS FOR MINERA CORTEZ
2.1 NOTIFICATION. Minera Cortez will notify Azco of the terms of any
further private and/or public equity or debt financing that it requires or
proposes to obtain during the Option Period (each a "Financing") and Azco will
have the right of first refusal to provide up to 100% of any such Financing on
terms and timing substantially identical as any third party is prepared to
provide.
2.2 EXERCISE OF RIGHT. This right of first refusal must be exercised by
Azco within 7 calendar days following its receipt of the notice from Mineral
Cortez offering terms of Financing, or advising that it is prepared to accept a
third party offer of Financing, by notifying Minera Cortez that they will
provide up to 100% of such Financing on terms substantially identical to those
contained in the notice.
2.3 FAILURE TO GIVE NOTICE. If Azco fails to give notice within the 7
calendar days that it will provide up to 100% of such Financing upon the terms
set out in the notice, Minera Cortez will then be free for 180 calendar days to
make other arrangements to obtain financing from another source on substantially
identical terms.
2.4 TERMINATION OF RIGHT OF FIRST REFUSAL. The right of first refusal to
provide Financing will not terminate if, generally, on receipt of any notice
from Minera Cortez under this section, Azco fails to exercise the right for that
Financing.
2.5 EXCLUSIONS TO RIGHT OF FIRST REFUSAL. For greater certainty the right
of first refusal to provide Financing hereunder shall not apply to any
securities issued by Minera Cortez for incentive stock options, to vendors or
optionors for properties, pursuant to any amalgamation or reorganization or
pursuant to its initial public offering of securities (unless Minera Cortez will
thereupon have adequate share distribution for listing). In addition, the right
of first refusal to provide Financing shall not apply to Seville.
ARTICLE III
ARBITRATION
3.1 MATTERS FOR ARBITRATION. Notwithstanding section "1.5" hereinabove,
the Parties hereto agree that all questions or matters in dispute with respect
to this Agreement shall be submitted to binding arbitration pursuant to the
terms hereof.
3.2 NOTICE AND NEGOTIATION. It shall be a condition precedent to the
right of any Party to submit any matter to arbitration pursuant to the
provisions hereof that such
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-- Azco Mining Inc. --
<PAGE> 6
-5-
Party intending to refer any matter to arbitration shall have given to the other
Party, not less than 10 calendar days' prior written notice of its intention to
do so, together with reasonable particulars of the matter in dispute, and that
such complaining Party shall have invited the noticed Party at least once to
negotiate the dispute. On the expiration of such 10 calendar days the Party who
gave such notice may proceed to refer the dispute to arbitration as provided for
in section "3.3" hereinbelow.
3.3 APPOINTMENTS AND PROCEDURE. After the 10 calendar day period set
forth in section "3.2" hereinabove a Party desiring arbitration shall appoint
one arbitrator with a statement of credentials and shall notify the noticed
Party of such appointment, and the noticed Party shall, within 10 calendar days
after receiving such notice, agree that such first arbitrator shall be the only
arbitrator or shall appoint a second arbitrator and give notice of the same. The
two arbitrators so named, before proceeding to act, shall, within 10 calendar
days of the appointment of the last appointed arbitrator, agree on the
appointment of a third arbitrator to act with them, and such three arbitrators
shall select a chairman from themselves. If the noticed Party shall fail to
appoint and give notice of an arbitrator within 10 calendar days after receiving
notice of the appointment of the first arbitrator, then the first arbitrator
shall act as a single arbitrator, and if the two arbitrators appointed by the
Parties shall be unable to agree on the appointment of a third, then the third
arbitrator shall be appointed under the provisions (the "Rules") of the
Commercial Arbitration Act (British Columbia) or, failing that, by a judge of
the Supreme Court of the Province of British Columbia on the motion of any Party
to the dispute. Except as specifically otherwise provided in this section, the
arbitration herein provided for shall be conducted in accordance with such
Rules. Where there is an insufficiency in this Article or the Rules then the
arbitrators shall make reference to the provisions of the procedures and
practices of the British Columbia International Commercial Arbitration Centre
(Domestic Arbitration) and, if there is further insufficiency, and otherwise in
interpretation and rulings regarding this Article or the Rules and regarding the
matters of dispute, the arbitrators shall be the masters of procedure, evidence,
rules of order and the process of law and judgment. Where this Agreement, the
constating documents of either Party, other documents relevant to the Parties or
the law does not provide for or address any material matter in dispute, then the
arbitrator(s) shall have reference to the customary practice of the industry
and, if the Parties do not call expert testimony, the arbitrator(s) may, but is
not obliged to, call its own determined expert testimony at the cost of the
Parties. The arbitrators, or in the case where only one arbitrator is appointed,
the single arbitrator, shall fix a time and place in accordance with agreement
of the Parties or the Rules and shall establish the calendar and procedure for
the purpose of hearing the evidence and representations of the Parties. When
Azco is not a party to the arbitration the Parties and the arbitrator(s) shall
copy Azco with all correspondence and submissions to or from the arbitrator(s)
(omission to do so shall not invalidate the proceedings) unless the
arbitrator(s) rules that any communication is privileged, or any rulings or
awards. Azco shall have the right to intervene in the arbitration and have
standing to make representations on such terms as to costs as the arbitrator(s)
may determine. Any arbitration shall be transcribed, unless the Parties waive
such, and the proceedings and hearings and decisions shall be confidential and
in closed hearings unless the Parties waive such, partly or wholly or as may be
necessary for any execution of an arbitration award. After hearing any evidence
and representations that the Parties may submit, the single arbitrator, or the
arbitrators, as the case may be, shall make an award and reduce the same to
writing, and deliver one copy thereof to each of the Parties. The expense of the
arbitration shall be paid as specified in the award but, failing specification,
each Party
-- Right of First Refusal Agreement --
-- Azco Mining Inc. --
<PAGE> 7
-6-
shall bear its own costs and the losing party shall bear the cost of the
arbitrator(s) and the arbitration facilities.
3.4 AWARD. The Parties agree that the award of a majority of the
arbitrators, or in the case of a single arbitrator, of such arbitrator, shall be
final, binding and enforceable upon each of them and shall not be appealable
except for manifest error of law.
ARTICLE IV
GENERAL
4.1 ENTIRE AGREEMENT. This Agreement constitutes the entire agreement to
date between the Parties hereto and supersedes every previous agreement,
communication, expectation, negotiation, representation or understanding,
whether oral or written, express or implied, statutory or otherwise, between the
Parties hereto with respect to the subject matter of this Agreement. No
modification of this Agreement shall be effective unless in writing and executed
by each of the Parties to this Agreement.
4.2 ENUREMENT AND ASSIGNMENT. This Agreement will enure to the benefit of
and will be binding upon the Parties hereto and their respective successors. In
addition, and subject to section "1.1" hereinabove, this Agreement may not be
assigned without the prior written consent of all of the Parties hereto, which
consent shall be in their sole discretion.
4.3 TIME OF THE ESSENCE. Time will be of the essence of this Agreement.
4.4 REPRESENTATION. It is hereby acknowledged by each of the Parties
hereto that, as between the Parties herein, Devlin Jensen acts solely for Azco
and Lang Michener Lawrence & Shaw acts solely for Minera Cortez and,
correspondingly, that Seville has been advised by each of Devlin Jensen and Lang
Michener Lawrence & Shaw to obtain independent legal advice with respect to
their respective review and execution of this Agreement.
4.5 APPLICABLE LAW. The situs of this Agreement is Vancouver, British
Columbia, and for all purposes this Agreement will be governed exclusively by
and construed and enforced in accordance with the laws prevailing in the
Province of British Columbia.
4.6 FURTHER ASSURANCES. The Parties hereto hereby, jointly and severally,
covenant and agree to forthwith, upon request, execute and deliver, or cause to
be executed and delivered, such further and other deeds, documents, assurances
and
-- Right of First Refusal Agreement --
-- Azco Mining Inc. --
<PAGE> 8
-7-
instructions as may be required by the Parties hereto or their respective
counsel in order to carry out the true nature and intent of this Agreement.
4.7 SEVERABILITY AND CONSTRUCTION. Each Article, section, paragraph, term
and provision of this Agreement, and any portion thereof, shall be considered
severable, and if, for any reason, any portion of this Agreement is determined
to be invalid, contrary to or in conflict with any applicable present or future
law, rule or regulation in a final unappealable ruling issued by any court,
agency or tribunal with valid jurisdiction in a proceeding to which any Party
hereto is a party, that ruling shall not impair the operation of, or have any
other effect upon, such other portions of this Agreement as may remain otherwise
intelligible (all of which shall remain binding on the Parties and continue to
be given full force and agreement as of the date upon which the ruling becomes
final).
4.8 CAPTIONS. The captions, section numbers and Article numbers appearing
in this Agreement, if any, are inserted for convenience of reference only and
shall in no way define, limit, construe or describe the scope or intent of this
Agreement nor in any way affect this Agreement.
4.9 COUNTERPARTS. This Agreement may be signed by the Parties hereto in
as many counterparts as may be necessary, each of which so signed shall be
deemed to be an original, and such counterparts together shall constitute one
and the same instrument and notwithstanding the date of execution will be deemed
to bear the execution date as set forth on the front page of this Agreement.
4.10 NO PARTNERSHIP OR AGENCY. The Parties have not created a partnership
and nothing contained in this Agreement shall in any manner whatsoever
constitute any Party the partner, agent or legal representative of any other
Party, nor create any fiduciary relationship between them for any purpose
whatsoever. No Party shall have any authority to act for, or to assume any
obligations or responsibility on behalf of, any other party except as may be,
from time to time, agreed upon in writing between the Parties or as otherwise
expressly provided.
4.11 CONSENTS AND WAIVERS. No consent or waiver expressed or implied by
any Party in respect of any breach or default by any other Party in the
performance by such Party of its obligations hereunder shall:
(a) be valid unless it is in writing and stated to be a
consent or waiver pursuant to this section;
(b) be relied upon as a consent to or waiver of any other
breach or default of the same or any other obligation;
(c) constitute a general waiver under this Agreement; or
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-- Azco Mining Inc. --
<PAGE> 9
-8-
(d) eliminate or modify the need for a specific consent or
waiver pursuant to this section in any other or subsequent
instance.
IN WITNESS WHEREOF the Parties hereto have hereunto set
their respective hands and seals in the presence of their duly authorized
signatories effective on the day and year first above written.
The CORPORATE SEAL of )
AZCO MINING INC. )
)
was hereunto affixed in the presence of: )
) (C/S)
)
______________________________________________)
Authorized Signatory )
The CORPORATE SEAL of )
SEVILLE MINERAL )
DEVELOPMENTS S.A. DE C.V. )
was hereunto affixed in the presence of: ) (C/S)
)
)
______________________________________________)
Authorized Signatory )
The CORPORATE SEAL of )
MINERA CORTEZ RESOURCES LTD. )
was hereunto affixed in the presence of: )
) (C/S)
)
______________________________________________)
Authorized Signatory )
----------
-- Right of First Refusal Agreement --
-- Azco Mining Inc. --
<PAGE> 1
EXHIBIT 10.13
MINERAL PROPERTY OPTION AGREEMENT
THIS MINERAL PROPERTY OPTION AGREEMENT is made and dated for reference effective
(the "Effective Date") as of the day of July, 1998.
BETWEEN:
AZCO MINING INC., and on behalf of nominee or assignee, a corporation
registered in British Columbia and having its main business office at
Suite 1250 - 999 West Hastings Street, Vancouver, B.C. V6C 2W2
("AZCO")
OF THE FIRST PART
AND:
MINERA CORTEZ RESOURCES LTD., AND ON BEHALF OF ITS MEXICAN SUBSIDIARY,
incorporated under the laws of British Columbia and having its address
for notice hereunder at 5640 Marine Drive, West Vancouver, B.C., V7W
2R6
("CORTEZ")
OF THE SECOND PART
(AZCO and CORTEZ being hereinafter singularly also referred to as a
"Party" and collectively referred to as the "Parties" as the context so
requires.)
WHEREAS:
A. CORTEZ, through its Mexican subsidiary, is the owner of property (the
"Property") called the La Adelita property in the State of Sonora, Mexico and
currently optioned by CORTEZ, which Property is described in Schedule "A"
attached hereto; and
B. CORTEZ has agreed to provide AZCO with the herein option to earn
interests in the Property in accordance with this Agreement;
NOW THEREFORE THIS AGREEMENT WITNESSES that in consideration of the mutual
promises, covenants, conditions, representations and warranties herein
contained, THE PARTIES HERETO AGREE AS FOLLOWS:
<PAGE> 2
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ARTICLE 1
DEFINITIONS AND INTERPRETATION
1.1 DEFINITIONS. For the purposes of this Agreement, except as otherwise
expressly provided or unless the context otherwise requires, the
following words and phrases shall have the following meanings:
(a) "Agreement" means this Agreement as entered into between
AZCO and CORTEZ together with any Schedules attached
hereto, as amended from time to time;
(b) "arbitration" means arbitration under the laws of the
Province of British Columbia;
(c) "CORTEZ Interest" means that Property interest set forth
in section 2.2(a);
(d) "Environmental Hazard" means any and all naturally
occurring or man-made toxic materials, substances,
pollutants, contaminants or wastes;
(e) "Expenditures" or "Expenditure" means all cash, expenses,
obligations and liabilities, other than for personal
injury or property damage, of whatever kind or nature
spent or incurred directly or indirectly, including a ten
(10%) administrative allowance, in connection with
Property maintenance, mobilization and accommodation,
consulting and services, acquisition or rental of goods
and facilities, exploration and all matters pertaining
thereto, development and all matters pertaining thereto,
or equipping of the Property or any portion thereof for
Commercial Production including, without limiting the
generality of the foregoing, monies expended in
constructing, leasing or acquiring all facilities,
buildings, machinery and equipment in connection with
Mining Work, in paying any taxes, fees, charges, payments
or rentals (including payments in lieu of assessment work)
or otherwise to keep the Property or any portion thereof
in good standing (including any payment to or in respect
of acquiring any agreement or confirmation from any holder
of surface rights respecting the Property or any portion
thereof), in carrying out any survey of the Property or
any portion thereof, in doing geophysical, geochemical and
geological surveys, in drilling, assaying, metallurgical
testing, bulk sampling and pilot plan operations, in
paying the fees, wages, salaries, traveling expenses,
fringe benefits (whether or not required by law) of all
persons engaged in work with respect to and for the
benefit of the Property or any portion thereof, in paying
for the food, lodging and other reasonable needs of such
persons, in preparing any reports and in supervising and
managing any work done with respect to and for the benefit
of the Property or any portion thereof or in any other
respects necessary for the due carrying out of Exploration
and Development or Mining Work;
(f) "Exploration and Development" means, inter alia, all
direct and indirect preparation, analysis, sampling,
drilling, administration and filing work and Expenditures
conducted and incurred by AZCO or CORTEZ on the Property,
at their instruction, or on their behalf, or by assignment
to another party, for the purpose of determining the
existence of Product on the Property and the economic
viability of extracting the same;
(g) "Mining Work" means every kind of work done on or in
respect of the Property or the Products therefrom by or
under the direction of or on behalf of or for the benefit
of a
<PAGE> 3
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Party and, without limiting the generality of the
foregoing, includes assessment work, geophysical,
geochemical and geological surveying, studies and mapping,
investigating, drilling, designing, examining, equipping,
improving, surveying, shaft sinking, raising, crosscutting
and drifting, digging, trucking, sampling, working and
procuring minerals, mineral products, ores, metals and
concentrates, surveying, reporting and all other work
usually considered to be prospecting, exploration,
development and mining work;
(h) "Management Committee" means the management committee
established pursuant to Article 12;
(i) "Operator" means AZCO or such other party as determined by
Article 9;
(j) "Option" means the Option hereunder granted to AZCO to
earn, directly or indirectly, up to 70% of CORTEZ's
Interest in and to the Property;
(k) "Party (party)" or "Parties (parties)" means AZCO and/or
CORTEZ and their respective successors and permitted
assigns as the context so requires;
(l) "Product" means all ores, gravel, sand, metals and
minerals including, without limitation, gold, silver,
copper, and any other mineral product, mined or extracted
from the Property or any portion thereof and any
concentrates produced therefrom;
(m) "Property" means the La Adelita property situate in the
State of Sonora, Mexico, and described in Schedule "A"
hereto; and
1.2 U.S. CURRENCY. In this Agreement, all dollar amounts are expressed in
lawful currency of the United States, unless specifically provided to
the contrary.
ARTICLE 2
REPRESENTATIONS, WARRANTIES, COVENANTS AND INDEMNITY
2.1 PARTIES' REPRESENTATIONS AND WARRANTIES. Each Party represents and
warrants and covenants to the other Party hereto that:
(a) it is a company duly incorporated, validly subsisting and
in good standing under the laws of the jurisdiction of its
incorporation and is or shall be, or its nominee or
affiliate or assignee shall be, qualified at the relevant
time to do business and to hold an interest in the
Property in the jurisdiction in which the Property is
located;
(b) it has full power and authority to carry on its business
and to enter into this Agreement and any agreement or
instrument referred to or contemplated by this Agreement
and to carry out and perform all of its obligations and
duties hereunder;
(c) it has duly obtained all authorizations for the execution,
delivery and performance of this Agreement, and such
execution, delivery and performance and the
<PAGE> 4
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consummation of the transactions herein contemplated shall
not conflict with, or accelerate the performance required
by or result in any breach of any covenants or agreements,
or result in the creation of any encumbrance, lien or
charge in respect to the Property, or violate the
provisions of its constating documents or any indenture,
agreement or other instrument whatsoever to which it is a
party or by which it is bound or to which it may be
subject and shall not contravene any applicable laws; and
(d) it shall diligently and in good faith perform its
respective duties and obligations of this Agreement and in
the event of a Party conducting or supervising Exploration
and Development and Mining Work then it shall conduct or
supervise the same in a careful, diligent, efficient and
professional manner, file all eligible expenditures for
required assessment work with the appropriate authorities
and keep the Property in good standing.
2.2 CORTEZ'S REPRESENTATIONS AND WARRANTIES. CORTEZ represents and
warrants to AZCO that:
(a) through its Mexican subsidiary, it is the sole and
exclusive 100% owner (the "CORTEZ Interest") of an option
(the "Option Agreement"), which is attached as Schedule
"B" hereto, to acquire a 100% legal and beneficial
interest in and to the Property (subject only to the
reservations, conditions, and terms of the Option
Agreement set forth in Schedule "B"), the Property and the
CORTEZ Interest are in good standing under the laws of
Mexico and the relevant regulations and the Option
Agreement, there are no liens, encumbrances, royalties or
other impositions on the Property except as disclosed
herein, there are no other parties or party having any
claim thereto whatsoever (neither contingent or
un-contingent), and there are no claims, debts,
encumbrances, or any other liabilities of any nature which
will or may create an imposition on the Property, with the
sole exception of the Option Agreement and governmental
requirements pursuant to generally prevailing mining laws;
(b) the only obligation to the grantors of the Option
Agreement to earn the CORTEZ Interest (and upon earning of
the CORTEZ Interest no further obligations shall be
required except for governmental obligations of a general
nature) is the payment to the grantors of $10,000 on July
31, 1998 and cash payments each year thereafter for a
further four years increasing by $10,000 per year (i.e. -
$20,000 in 1999, $30,000 in 2000, $40,000 in 2001, and a
final $50,000 in 2002) (collectively the "Option
Payments") and the only other obligation thereto is a
finder's fee ("Finder's Fee") to Minera Cascabel S.A. de
C.V. in the amount of equal to ten (10%) percent of the
Option Payments and payable at the time of the Option
Payments;
(c) to the best of its knowledge and belief, all laws in
effect in Mexico with respect to the Property and the
Option Agreement have been complied with and such Property
has been duly and properly acquired and recorded in
accordance with such laws;
(d) to the best of its information and belief, after due
inquiry, there are no man-made mining or exploration
workings or excavations or any naturally occurring
conditions on the Property that are presently or in the
future shall or may become Environmental Hazards causing
CORTEZ or AZCO to become liable for the cost
<PAGE> 5
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of restoration or reclamation work as set out under
existing legislation applicable in Mexico or as may be
ordered by any competent regulatory body or governmental
agency within Mexico;
(e) no proceedings are pending for, and CORTEZ is unaware of
any basis for the institution of any proceedings leading
to the dissolution or winding up of CORTEZ or the placing
of CORTEZ in bankruptcy or causing it to be subject to any
other laws governing the affairs of insolvent persons;
(f) it shall employ due diligence, best efforts, and good
faith in its performance of this Agreement;
(g) it shall provide to AZCO, in as expeditious a manner as
possible, all information which it has in its possession,
from time to time, or which comes into its possession
directly or indirectly related to the Option Agreement and
the Property and any of the activities of the Parties
thereto; and
(h) it shall remain sole owner of the CORTEZ Interest during
the course of this Agreement, except as otherwise
permitted by this Agreement and, while owner, it shall
take all necessary action during the life of this
Agreement to ensure that the CORTEZ interest and the
Property are maintained in good standing and it shall
advise AZCO immediately if at any time the CORTEZ Interest
or the Property, or any part, is in jeopardy and, further,
it shall grant to AZCO all such authorities as may be
necessary or advisable to perform all of its activities
contemplated by this Agreement or which it may require to
safe-guard the CORTEZ Interest and the Property.
The foregoing representations and warranties are for the benefit of
AZCO, are conditions on which AZCO has relied in entering into this
Agreement, are to be construed as both conditions and warranties and
shall, regardless of any investigation which may have been made by or
on behalf of AZCO as to the accuracy of such representations and
warranties, remain true, correct, and complete at all times for the
entire duration of this Agreement.
2.3 AZCO'S REPRESENTATIONS AND WARRANTIES. AZCO represents and warrants
to CORTEZ that:
(a) to the best of its knowledge, there are no actions, suits
or proceedings pending or threatened against or adversely
affecting, or which could adversely affect AZCO before or
by any federal, provincial, municipal or other government
court, department, commission, board, bureau or agency or
instrumentality, domestic or foreign, whether or not
insured, which would reasonably involve the possibility of
any judgment or liability against AZCO which would prevent
it from carrying out its obligations under this Agreement;
(b) no proceedings are pending for and AZCO is unaware of any
basis for the institution of any proceedings leading to
the dissolution or winding up of AZCO or the placing of
AZCO in bankruptcy or subject to any other laws governing
the affairs of insolvent persons;
(c) it shall employ due diligence, best efforts, and good
faith in its performance of this Agreement;
<PAGE> 6
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(d) it shall provide to CORTEZ, in as expeditious a manner as
possible, all information which it has in its possession,
from time to time, or which comes into its possession
directly or indirectly related to the Property and any of
the activities of the Parties thereto;
(e) while operator it shall take all necessary action during
the life of this Agreement to ensure that the Property is
maintained in good standing;
(f) it shall save CORTEZ harmless in respect of all claims,
liabilities and expenses arising out of AZCO's activities
on the Property; and
(g) it shall do all work on the Property in good and
miner-like fashion and in accordance with all applicable
laws, regulations, orders and ordinances of any
governmental authority.
The foregoing representations and warranties are for the benefit of
CORTEZ, are conditions on which CORTEZ has relied in entering into
this Agreement, are to be construed as both conditions and warranties
and shall, regardless of any investigation which may have been made
by or on behalf of CORTEZ as to the accuracy of such representations
and warranties, remain true, correct, and complete at all times for
the entire duration of this Agreement.
2.4 INDEMNITY. The Parties hereto agree that any defaulting Party shall
be liable and shall indemnify and save harmless the non-defaulting
Party from any and all loss, costs, damages, actions and suits
arising out of or in connection with any breach of any
representation, warranty, covenant, agreement or condition made by it
and contained in this Agreement or ancillary thereto.
ARTICLE 3
GRANT AND MAINTENANCE OF OPTION
3.1 GRANT OF OPTION. CORTEZ hereby grants to AZCO the sole and exclusive
right and option (the "Option") to earn up to seventy (70%) percent
of the CORTEZ's Interest in and to the Property (and thereby a
seventy (70%) interest in the Property) in accordance with the terms
of this Agreement and subject to the Expenditures on the Property
referred to below.
3.2 EARNING OF INTEREST. AZCO may earn its interest (the "AZCO Interest")
in the Property by effecting the following:
(a) Payments during the Option as follows:
(i) immediately after execution hereof AZCO will subscribe
to $25,000 CDN of CORTEZ common stock at $0.25 CDN per
common share for a total of 100,000 CORTEZ common shares;
<PAGE> 7
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(ii) AZCO will assume payment responsibility during the
Option for the Option Payments and Finder's Fee; and
(b) incurring, or arranging for the incurring of, Expenditures
during the Option in respect to the Property as follows:
(i) during the first year following the Effective Date of
this Agreement the sum of $75,000 (which shall include a
2500 foot drill program);
(ii) during the second year the sum of $150,000 (which
shall include a 5000 foot drilling program); and
(iii) during the third year the sum of $275,000;
whereupon, upon effecting such foregoing Expenditures and
making such foregoing payments of (a)(i) and (b) above and
by assuming the obligations of (a)(ii), AZCO shall
automatically be vested in a seventy (70%) percent
undivided interest in the CORTEZ Interest, unless within
60 days of the third anniversary of this Agreement AZCO
gives notice that it revokes the option to receive such
interest. AZCO may elect at any time to accelerate its
earning of the AZCO Interest by advancing Expenditures on
an accelerated basis.
ARTICLE 4
TERMINATION OF OPTION
4.1 TERMINATION OF OPTION. The Option shall, at the election of the party
not in default and subject to the provisions of Article 11, terminate upon the
following events:
(a) if AZCO fails to incur the required payments or
Expenditures in accordance with Article 3 above or
otherwise fails to remedy a material bona fide default; or
(b) if CORTEZ has failed to remedy a material bona fide
default.
4.2 OPTION ONLY. It is hereby agreed and acknowledged that this Agreement
is an option only and that during the term of the Option AZCO may
determine to cease and to withdraw from this Agreement upon thirty
(30) days' notice in writing to CORTEZ and upon termination of such
thirty (30) day notice period the Option shall be terminated and AZCO
shall have no further obligation to or in respect to CORTEZ, the
Option Agreement, or the Property. In the event AZCO shall have
earned the AZCO Interest and it determines to abandon its interest
and not enter into a joint venture (or other structure herein
contemplated) it shall quit-claim all interest to CORTEZ and it shall
leave the Property in good standing for a period of not less than
thirty (30) days, which shall also pertain where AZCO ceases this
Option without having earned an interest. AZCO shall also deliver to
CORTEZ all pertinent data, samples, cores, reports, and other matters
relating to its activities in respect to the Property. AZCO shall be
responsible for all remediation and reclamation work required in
respect to its activities on the Property to the effective date of
its withdrawal.
<PAGE> 8
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ARTICLE 5
ACQUISITION UPON EXERCISE OF OPTION AND VESTING OF INTEREST
5.1 ACQUISITION OF INTEREST. At each such time as AZCO has incurred the
required Expenditures on the Property and made the required payments
in accordance with article 3 above, it shall be deemed to have
exercised its option with respect to acquiring the AZCO Interest
(unless revoked in the time set forth in section 3.2) and AZCO shall
have thereby, without any further act, acquired such interest, and
shall be therein vested, and CORTEZ shall transfer such interest on
the relevant public title records and with the relevant agencies or
the grantors of the Option Agreement upon AZCO's request.
5.2 JOINT VENTURE. Upon the acquisition by AZCO of the AZCO Interest, the
proportionate interests of CORTEZ and AZCO shall be governed by a
joint venture agreement or common joint venture company, whichever
counsel advises is most appropriate under Mexican law and practice
(both corporate and tax) and whose interests shall be proportionately
reflected in the agreement or entity. The parties shall form such
agreement or entity in accordance with British Columbia practice and
law, as necessarily modified for Mexican law, and such shall be
negotiated in good faith and, further, shall be negotiated at the
requirement of either party. If a joint venture agreement is
recommended by counsel, the basic form employed shall be that of the
Rocky Mountain Mineral Law Foundation Joint Venture Form 5. If a
joint venture company is recommended then the shareholder agreement
shall be that basic form commonly referenced in material of the CLE
of the law society of British Columbia. Whether corporate entity or
joint venture agreement, the following shall be encompassed in the
shareholder or joint venture agreement:
(a) required representation of each party (except where
diluted to a royalty interest only) on the board and
management committee with votes proportional to interest
ownership;
(b) all assets of and interests in the Property and activities
therein to be held by the entity, if possible, otherwise
by a mutually controlled entity or trust;
(c) financing obligations proportional to each parties
interest;
(d) dilution in the event of non-participation based upon a
deemed valuation of $100,000 per 1% interest, and a Party
converting to a 2% net smelter return interest if reduced
to an interest less than 10%;
(e) provisions for notice of, remedy for, and consequences of
failure to perform party obligations;
(f) a right of first refusal on any intended dispositions;
(g) standard terms and definitions shall be carried over from
this Agreement where the Parties cannot otherwise agree;
and
(h) unless otherwise agreed, the party with the largest
interest being operator but in the event of an equality
the operator shall be AZCO.
<PAGE> 9
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ARTICLE 6
RIGHT OF FIRST REFUSAL, ASSIGNMENT, AND ABANDONMENT
6.1 PARTIES' RIGHT OF FIRST REFUSAL. Each party hereby grants unto the
other a right of first refusal to acquire the other's interest, or a
portion thereof, in the Property (direct or indirect) in the event of
any intended disposition of any interest from the date of execution
of this Agreement. In the event a party chooses to assign or
otherwise dispose of its interest, or a portion thereof, it shall
forthwith notify the other, in writing, of the terms and conditions
under which it is willing to sell its interest, which terms and
conditions shall be the same terms and conditions as those contained
in the intended offer to the third party. The receiving party shall
be entitled to elect, by written notice to the other within 60 days
from the date of receipt of the Notice, to acquire the interest on
the terms and conditions provided for in the notice. If the receiving
party does not exercise its right to acquire the offered interest,
the disposing party may, for a period of 120 days following the last
date upon which the other party could have made election, dispose of
its interest, but only on the same terms and conditions as set forth
in the notice. No disposition shall be effective until the transferee
has executed the prevailing agreements to which the Property is
subject, including this Agreement and any subsequent joint venture or
shareholder's agreement. Notwithstanding the forgoing, AZCO may
assign to a nominee or affiliate, without triggering a right of first
refusal, its rights herein or in the AZCO Interest for the purpose of
finance, for its organizational purposes, or for purpose of
compliance with Mexican law to hold a Property interest or for the
purpose of effecting a public floatation of its interests herein,
subject to AZCO maintaining a controlling interest (at least
initially for a going public process).
6.2 ABANDONMENT. In the event that any party hereto shall voluntarily
elect to abandon any part or all of the Property (this shall not
apply to abandonment required by law), or its interest therein, or
its interest in this Agreement, then it shall give not less than
thirty (30) days notice to the other party of such intent and of the
nature and encumbrances and obligations of such interest and, upon
the other party's election to receive such interest conveyed within
such period, shall assign and quit-claim such interest to such other
party for consideration of one ($1.00) dollar and the assumption of
all disclosed liabilities and obligations thereof. A party's rights
and obligations shall be calculated and accrued to the day the
abandonment becomes effective in accordance with the notice issued in
accordance with this clause.
6.3 PARTICIPATION OF MAJOR. Notwithstanding section 6.1 hereof, AZCO may
assign any portion of its interest to a major mining company at any
time.
<PAGE> 10
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ARTICLE 7
REGISTRATION AND TRANSFER OF PROPERTY INTERESTS
7.1 REGISTRATION OF PROPERTY INTERESTS. The parties shall execute and
deliver such additional documentation as legal counsel for the
parties determines is necessary in order to duly register and record
in the appropriate registration and recording offices notice that
CORTEZ's Interest is subject to and bound by the terms of this
Agreement.
7.2 TRANSFER OF PROPERTY INTERESTS. Upon earning of the AZCO Interest
CORTEZ shall execute and deliver to AZCO such additional
documentation as legal counsel for AZCO determines is necessary in
order to duly register and record in the appropriate registration and
recording offices a transfer of title in and to the Property. AZCO
may, at its election and at any time, require that CORTEZ deposit in
escrow the appropriate title transfer documents as AZCO's counsel may
suggest.
ARTICLE 8
RIGHT OF ENTRY
8.1 RIGHT OF ENTRY. While this Option is in effect and when any part of
the Option is exercised or until the Option is terminated in
accordance with the terms of this Agreement without AZCO earning an
interest, AZCO, its servants and agents shall have the right to:
(a) enter in, under or upon the Property and conduct
Exploration and Development and Mining Work;
(b) exclusive and quiet possession of the Property;
(c) bring upon the Property and to erect thereon such
facilities as it may consider advisable; and
(d) remove from the Property ore or Product for the purpose of
bulk sampling, pilot plant or test operations.
ARTICLE 9
OPERATOR
9.1 OPERATOR. AZCO, or its duly authorized nominee, assignee, or
contractor, will act as the Operator of the Property, under the
authority of the Management Committee, during the currency of this
Agreement.
<PAGE> 11
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9.2 POWER AND AUTHORITY. After execution of this Agreement the Operator
shall have full right, power and authority to do everything necessary
or desirable in connection with the Exploration and Development of
the Property and, without limiting the generality of the foregoing,
the right, power and authority to:
(a) regulate access to the Property subject only to the right
of the Parties to have access to the Property at all
reasonable times for the purpose of inspecting work being
done thereon but at their own risk and expense;
(b) employ and engage such employees, agents and independent
contractors as it may consider necessary or advisable to
carry out its duties and obligations hereunder and in this
connection to delegate any of its powers and rights to
perform its duties and obligations hereunder; and
(c) to engage Expenditures as the Operator may determine in
its sole discretion to conduct, provided it shall act
under the supervision and guidance of the Management
Committee, in accordance with development programs
approved from time-to-time, and in accordance with the
provisions of Clause 9.3 hereof.
9.3 DUTIES AND OBLIGATIONS. After execution of this Agreement, the
Operator shall have such duties and obligations as it may from time
to time determine, including, without limiting the generality of the
foregoing, the following duties and obligations:
(a) to manage, direct and control all exploration, development
and mining operations in and under the Property, in a
prudent and workmanlike manner, and in compliance with all
applicable laws, rules, orders and regulations;
(b) to prepare and deliver to the Parties annual work plans
and budgets and during periods of active field work to
provide monthly and quarterly progress reports of the work
in progress within 14 days of the end of the relevant
period;
(c) subject to the terms and conditions of this Agreement, to
keep the Property in good standing free of liens, charges
and encumbrances of every character arising from
operations, (except liens for taxes not yet due, other
inchoate liens and liens contested in good faith by the
Operator), and to proceed with all diligence to pay or
contest or discharge any lien that is filed;
(d) to maintain true and correct books, accounts and records
of operations;
(e) to permit the Parties, at their own expense, to inspect,
take abstracts from or audit any or all of the records and
accounts during normal business hours;
(f) to obtain and maintain, or cause any contractor engaged
hereunder to obtain and maintain, during any period in
which active work is carried out hereunder adequate
insurance;
(g) to regulate access to the Property, subject only to the
right of CORTEZ and its representatives to have access to
the Property, at all reasonable times for the purpose of
inspecting work being done thereon and to permit CORTEZ to
conduct such independent audits of the work as it may
reasonably require, at its own cost;
<PAGE> 12
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(h) to arrange for and maintain worker's compensation or
equivalent coverage for all eligible employees engaged by
the Operator in accordance with local statutory
requirements;
(i) to perform its duties and obligations in a manner
consistent with good exploration and mining practices;
(j) to transact, undertake and perform all transactions,
contracts, employments, purchases, operations,
negotiations with third parties and any other matter or
thing undertaken by the Operator; and
(k) to diligently advise the parties of any material change in
the status or exploration results of the Property, to take
all necessary acts in respect to such changes, and to
assist the parties to produce timely coordinated public
announcements.
ARTICLE 10
MANAGEMENT COMMITTEE
10.1 THE MANAGEMENT COMMITTEE. The Management Committee shall consist of
four individuals, two each of whom shall be designated by each of
AZCO and CORTEZ. Either party may appoint new representatives at any
time and representatives may delegate proxies and alternates at any
time. The Management Committee shall be responsible for approving
plans and budgets for Exploration and Development and Mining Work and
Expenditures and for determining the general policies and direction
to be used in the conduct of operations hereunder. The Management
Committee shall meet at least once annually and otherwise on thirty
(30) days' notice given by a Party. All notices of Management
Committee meetings must specify, or include an agenda which
specifies, the matters to be discussed at such meetings. A Party's
representatives may in any manner and at any time waive a notice of a
meeting of the Management Committee and attendance of a Party's
representative at a meeting of the Management Committee is a waiver
of notice of the meeting, except where a Party's representative
attends a meeting for the express purpose of objecting to the
transaction of any business on the grounds that the meeting is not
properly called. Decisions of the Management Committee shall be made
by majority vote at a duly called and constituted meeting of the
Management Committee. Each Party shall be entitled to two votes on
the committee during the Option period. In the event of any
deadlocked vote at a meeting of the Management Committee, AZCO,
during the Option (as the provider of finance) and otherwise while
Operator, shall have the casting vote. It is the intention of the
Parties that decisions of the Management Committee shall be made in
accordance with sound business and commercial judgment.
10.2 QUORUM. A quorum for a Management Committee meeting shall be present
and such meeting shall be duly constituted when proper notice has
been given or waived and 51% of the available votes are represented
and a voting representative of each Party is present in person or by
proxy at such meeting. In the event a quorum is not present at such
meeting, the Operator may immediately give notice of a second meeting
to be held within 10 days thereafter, at which meeting a quorum shall
be deemed to be present and such meeting shall be duly constituted if
50% of the available votes are represented regardless of whether
voting representatives of each Party are present. All decisions taken
by the Management Committee shall be binding upon the Parties (except
for matters requiring
<PAGE> 13
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unanimity) and any decision which may be made at a meeting of the
Management Committee may also be made by an agreement or resolution
in writing signed by all of the Parties' representatives who would be
entitled to vote on that decision at a meeting of the Management
Committee. The Operator shall keep minutes of the Management
Committee meetings which, when delivered to the representatives of
all Parties, shall constitute evidence of proceedings taken and
decisions made at such meeting. All meetings of the Management
Committee, unless otherwise agreed to by the Parties, shall be held
at the location selected by the Operator. If all of the
representatives of the Parties entitled to vote at an Management
Committee meeting consent, a meeting of the Management Committee may
be held by means of such telephone, electronic or other
communications facilities as permit all persons participating in the
meeting to communicate with each other simultaneously and
instantaneously, and a Party's representative participating in such
meeting by such means is deemed for the purpose of this Agreement to
be present at that meeting. Any consent by a Party's representative
to such meetings shall be effective whether given before or after the
meeting to which it relates and may be given with respect to all
meetings of the Management Committee.
10.3 CONTINUANCE OF MANAGEMENT COMMITTEE AND AGREEMENT. Upon AZCO having
earned an interest and this Agreement requiring that the successor
agreement be engaged, this Agreement and the Management Committee and
the Operator shall continue until replaced or continued pursuant to
the successor structure agreement (whether joint venture or corporate
entity). This Agreement shall continue to govern and the Management
Committee and the Operator shall govern the Property in the same
manner as in the preceding sections until replaced by subsequent
agreement. If a party fails to contribute to costs during such an
interregnum, the other party may elect to pay the cost and the
non-paying party shall, at the election of the paying party, be
diluted at the rate of section 5.2(d). Notwithstanding the forgoing,
a Party may instead determine to carry another Party's costs as a
demand loan at an interest rate of 12% per annum calculated and
compounded monthly, not in arrears, and such Party carrying the costs
may elect to seek recovery or to dilute at any time.
ARTICLE 11
DEFAULT AND TERMINATION
11.1 DEFAULT. The Parties hereto agree that if a party is in default with
respect to any of the provisions of this Agreement, the
non-defaulting party shall give written notice to the defaulting
party, and specifying the nature of the default, and within thirty
(30) days (or such shorter period if required by imperatives of law)
after its receipt of such notice, the defaulting party shall either:
(a) cure such default, or commence proceedings to cure such
default and prosecute the same to completion without undue
delay; or
(b) give the non-defaulting party notice that it denies that
such default has occurred and that it is submitting the
question to arbitration under the provisions of this
Agreement, whereupon a party shall not be considered in
default until an arbitration so rules.
<PAGE> 14
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11.2 FAILURE TO CURE DEFAULT. If:
(a) a default is not cured or the defaulting party does not
commence and diligently proceed to cure the default within
the required period; or
(b) arbitration is not sought; or
(c) the defaulting party is found in arbitration proceedings
to be in default, and fails to cure it or commence curing
it, and proceed without delay within thirty (30) days
after the rendering of the arbitration award,
then the non-defaulting party may, by written notice given while the
default continues, terminate this Agreement and seek such specific
performance and damages as it may determine. The defaulting party
shall comply with the provisions of section 4.2, mutatis mutandis, in
respect to any declaration by the non-defaulting party resulting in
withdrawal of a party from the Property.
ARTICLE 12
POWER TO CHARGE PROPERTY
12.1 POWER TO CHARGE. Except as otherwise provided in this Agreement,
neither Party may charge, encumber, mortgage, lien or otherwise
burden the Property or a Party's interest in the same, during the
currency of this Agreement, except with the consent of the Management
Committee for Property finance purposes, which consent shall not be
unreasonably with-held. The Management Committee may determine to
charge or burden the Property for finance purposes and the Parties
shall effect all such consents and documents as may be required for
such purposes.
ARTICLE 13
PARTITION AND TENANCY
13.1 PARTITION. No Party owning a partitionable interest in a Property,
shall, during the term of this Agreement, exercise any right to apply
for any partition of the Property or for sale thereof in lieu of
partition.
13.2 TENANCY. Subject to Mexican law, any interests of AZCO and CORTEZ in
and to the Property shall be held as tenants in common and not as
joint tenants.
<PAGE> 15
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ARTICLE 14
FORCE MAJEURE
14.1 EVENTS. If either Party hereto is at any time during this Agreement
prevented or delayed in complying with any provisions of this
Agreement by reason of strikes, walk-outs, labour shortages, power
shortages, fires, wars, acts of God, earthquakes, storms, floods,
explosions, accidents, protests or demonstrations by environmental
lobbyists or local rights groups, delays in transportation, breakdown
of machinery, unusual disruptions in financial markets, inability to
obtain necessary materials in the open market, unavailability of
equipment, governmental regulations restricting normal operations,
shipping delays or any other reason or reasons beyond the control of
that Party, then the time limited for the performance by that Party
of its respective obligations hereunder shall be extended by a period
of time equal in length to the period of each such prevention or
delay.
14.2 NOTICE. A Party shall within seven (7) calendar days give notice to
the other Party of each event of force majeure hereinabove, and upon
cessation of such event shall furnish the other Party with notice of
that event together with particulars of the estimated number of days
by which the obligations of that Party hereunder have been extended
by virtue of such event of force majeure and all preceding events of
force majeure.
ARTICLE 15
CONFIDENTIAL INFORMATION
15.1 CONFIDENTIAL INFORMATION. The Parties shall keep all information
regarding the Property and Mining Work confidential, except for such
disclosure as may be required by law, securities regulatory bodies,
or stock exchanges governing one or more of the Parties.
ARTICLE 16
ARBITRATION
16.1 MATTERS FOR ARBITRATION. The Parties agree that all questions or
matters in dispute with respect to this Agreement shall be submitted
to arbitration pursuant to the terms hereof.
16.2 NOTICE. It shall be a condition precedent to the right of any Party
to submit any matter to arbitration pursuant to the provisions
hereof, that any Party intending to refer any matter to arbitration
shall have given not less than thirty (30) calendar days' prior
written notice of its intention to do so to the other Party together
with particulars of the matter in dispute. On the expiration of such
thirty (30) days, the Party who gave such notice may proceed to refer
the dispute to arbitration as provided in section 16.3 below.
<PAGE> 16
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16.3 APPOINTMENTS. The Party desiring arbitration shall appoint one (1)
arbitrator, and shall notify the other Party of such appointment, and
the other Party shall, within thirty (30) calendar days after
receiving such notice, appoint an arbitrator, and the two arbitrators
so named, before proceeding to act, shall, within thirty (30)
calendar days of the appointment of the last appointed arbitrator,
unanimously agree on the appointment of a third arbitrator, to act
with them and be chairman of the arbitration herein provided for. If
the other Party shall fail to appoint an arbitrator within thirty
(30) calendar days after receiving notice of the appointment of the
first arbitrator then the single arbitrator shall act, and if the two
(2) arbitrators appointed by the Parties shall be unable to agree on
the appointment of the chairman, the chairman shall be appointed
under the provisions and Rules of the Arbitration Act of British
Columbia. Except as specifically otherwise provided in this section,
the arbitration herein provided for shall be conducted in accordance
with such provisions and Rules. The arbitrators, or in the case where
only one arbitrator is appointed, the single arbitrator, shall fix a
time and place in accordance with the Rules, for the purpose of
hearing the evidence and representations of the Parties, and they
shall preside over the arbitration and determine all questions of
procedure not provided for under such Rules or this section. After
hearing any evidence and representations that the Parties may submit,
the single arbitrator, or the arbitrators, as the case may be, shall
make an award and reduce the same to writing, and deliver one copy
thereof to each of the Parties. The expense of the arbitration shall
be paid as specified in the award.
16.4 AWARD. The Parties agree that the award of a majority of the
arbitrators, or in the case of a single arbitrator, of such
arbitrator, shall be final, binding, and enforceable upon each of
them.
ARTICLE 17
NOTICE
17.1 NOTICE. Each notice, demand or other communication required or
permitted to be given under this Agreement shall be in writing and
shall be delivered or sent by facsimile to a Party at the address for
such Party or Parties specified above. The date of receipt of such
notice, demand or other communication shall be the date of delivery.
Copies of any notice to AZCO are to be delivered to Devlin Jensen,
Barristers & Solicitors, 2550 - 555 West Hastings Street, Vancouver,
British Columbia V6B 4N5.
17.2 CHANGE OF ADDRESS. Any Party may at any time, and from time to time,
notify the other Party in writing of a change of address and the new
address to which notice shall be given to it thereafter until further
change.
<PAGE> 17
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ARTICLE 18
GENERAL PROVISIONS
18.1 ENTIRE AGREEMENT. This Agreement constitutes the entire agreement
between the Parties hereto and supersedes every previous agreement,
communication, expectation, negotiation, representation or
understanding, whether oral or written, express or implied, statutory
or otherwise, between the Parties with respect to the subject matter
of this Agreement.
18.2 ENUREMENT. This Agreement shall enure to the benefit of and shall be
binding upon the Parties, their respective heirs, executors,
administrators and assigns.
18.3 SCHEDULES. The Schedules to this Agreement are hereby incorporated by
reference into this Agreement in their entirety.
18.4 TIME OF THE ESSENCE. Time shall be of the essence of this Agreement.
18.5 FURTHER ASSURANCES. Each of the Parties covenants and agrees, from
time to time and at all times, to do all such further acts and
execute and deliver all such further deeds, documents and assurances
as may be reasonably required in order to fully perform and carry out
the terms and intent of this Agreement.
18.6 APPLICABLE LAW. For all purposes this Agreement shall be governed
exclusively by and construed and enforced in accordance with the laws
prevailing in British Columbia, however, the Parties hereto expressly
acknowledge and agree to forthwith execute any and all documentation
which may be necessary in order to ensure the valid registration
thereof as against the Property and its effectiveness under the laws
prevailing in Mexico. Interpretation hereof shall be subordinate to
Mexico mining and property law only to the extent necessary to make
this Agreement, or the rights flowing from this Agreement,
enforceable as against the Property. This Agreement is made and shall
be enforced in British Columbia but the parties shall effect such
subsidiary agreements and Mexican agreements or joint corporations as
may be required to effect this Agreement's purposes, as may be
recommended by Mexican counsel and as may be required for business
and legal necessities, including registration and tax efficiencies.
18.7 MEXICAN CONTRACT AND REGISTRATION. The Parties, at the requirement of
a Party, shall effect a contract for Mexican registration and legal
requirements in order to register and make enforceable in Mexico the
terms of this Agreement. The form of Agreement shall be that
recommended by AZCO's Mexican counsel but failing agreement by the
Parties, at AZCO's sole election, AZCO may translate and file this
Agreement and CORTEZ shall give all assistance (including original
signatures of such translation) or the Parties shall incorporate a
Mexican company to hold the Option Agreement, CORTEZ shall assign the
Option Agreement to such Mexican company, and the AZCO Option shall
be to earn up to 70% of such Mexican company wherein this Option
shall be treated as a shareholder's agreement to govern the relations
and affairs of the Parties.
<PAGE> 18
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18.8 INVALID PROVISIONS. If any provision of this Agreement is at any time
unenforceable or invalid for any reason it shall be severable from
the remainder of this Agreement and, in its application at that time,
this Agreement shall be construed as though such provision was not
contained herein and the remainder shall continue in full force and
effect and be construed as if this Agreement had been executed
without the invalid or unenforceable provision.
18.9 COUNTERPARTS. This Agreement may be signed by the Parties hereto in
as many counterparts as may be necessary, each of which so signed
shall be deemed to be an original, and such counterparts together
shall constitute one and the same instrument and notwithstanding the
date of execution shall be deemed to bear the execution date as set
forth on the front page of this Agreement.
18.10 NO PARTNERSHIP OR AGENCY. The Parties have not created a partnership
and nothing contained in this Agreement shall in any manner
whatsoever constitute any Party the partner, agent or legal
representative of any other Party, nor create any fiduciary
relationship between them for any purpose whatsoever. No Party shall
have any authority to act for, or to assume any obligations or
responsibility on behalf of, any other party except as may be, from
time to time, agreed upon in writing between the Parties or as
otherwise expressly provided.
18.11 CONSENTS AND WAIVERS. No consent or waiver expressed or implied by
either Party in respect of any breach or default by the other in the
performance by such other of its obligations hereunder shall:
(a) be valid unless it is in writing and stated to be a
consent or waiver pursuant to this section;
(b) be relied upon as a consent to or waiver of any other
breach or default of the same or any other obligation;
(c) constitute a general waiver under this Agreement; or
(d) eliminate or modify the need for a specific consent or
waiver pursuant to this section in any other or subsequent
instance.
<PAGE> 19
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IN WITNESS WHEREOF the Parties hereto have hereunto set their respective hands
and seals in the presence of their duly authorized signatories effective the
date first herein set forth.
The CORPORATE SEAL of )
AZCO MINING INC. )
was hereunto affixed in the presence of: )
)
____________________________________________) (C/S)
Authorized Signatory )
The CORPORATE SEAL of )
MINERA CORTEZ RESOURCES LTD. )
was hereunto affixed in the )
presence of: )
)
____________________________________________) (C/S)
Authorized Signatory )
<PAGE> 1
EXHIBIT 10.14
FIRST RIGHT OF REFUSAL
AND VENTURE AGREEMENT
THIS AGREEMENT is dated and made for reference effective (the
"Effective Date") as of the 18th day of November, 1997.
BETWEEN:
AZCO MINING INC, and its appointed affiliates, subsidiaries, and
assigns, with its address for delivery and service at Suite 1250 -
999 West Hastings Street, Vancouver, B.C. V6C 2W2
(hereinafter referred to as "Azco");
OF THE FIRST PART
AND:
LION MINING CORPORATION LIMITED and its appointed affiliates,
subsidiaries, and assigns, of 7 - 8 Kendrick Mews, London, England
SW7 3HG
(hereinafter referred to as "Lion");
OF THE SECOND PART
(Azco and Lion being hereinafter singularly also referred to as a
"Party" and collectively referred to as the "Parties" as the context
so requires).
WHEREAS:
A. Azco and Lion have a mutuality of interest in the field of mining
exploration and finance;
B. In 1996 the Parties commenced business relations in regard to mining
business in Africa and elsewhere with the intention that such would be
memorialized in a future contract of co-venture when the experiences of the
first endeavors had been absorbed and could direct the structure of a formal
agreement;
C. Through the introduction of Lion, Azco and Lion Mining Finance
Limited (an affiliate of Lion and which has assigned its interests therein to
Lion) entered into a Memorandum of Agreement (hereinafter called the "Mali
Agreement") dated effective May 9, 1996 and to which Mali Agreement, West
African Gold and Exploration Ltd. and Eagle River International Limited
(hereinafter called "Eagle") are also parties as the vendors of certain mineral
interests;
D. By the nature of the Mali Agreement and the Parties' relative
relations with Eagle, Azco contractually agreed to advance the initial
contributions prior to a roll-over of the proposed project into a publicly
listed self-funding entity and, in compliance therewith, Azco has advanced loans
to Eagle and its subsidiaries in excess of US $4,000,000 towards the Mali
Agreement;
<PAGE> 2
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E. By the terms of the Mali Agreement, Azco was to be repaid all of its
loan advances (which have been advanced to Eagle and its subsidiaries and which
parties have issued security notes for the same) if certain preconditions and
warranties were not met. It has transpired that Azco and Lion suffered
misrepresentation by Eagle with the result that those pre-conditions have not
been achieved and cannot be achieved (including a warranty that the subject
properties thereof would have a value of no less than US $3,125,000), default
has been declared to Eagle, and Azco has been required to write-down its
advances to a nominal position;
F. Azco and Lion have determined to cooperate to pursue any available
remedies in regard to Eagle and to profit from the experience by employing the
same in the formalizing of the issues of a Venture agreement encapsulated
herein;
NOW THEREFORE THIS AGREEMENT WITNESSETH THAT in consideration of the
within covenants and other consideration, the receipt and sufficiency of which
is hereby acknowledged, THE PARTIES HERETO MUTUALLY COVENANT AND AGREE AS
FOLLOWS:
1. VENTURE STRUCTURE. The Parties hereby create and formally recognize a
grant to Azco of a right of first refusal and of a venture between Azco and
Lion, in the event of exercise of such right of first refusal at any time,
having the following principle characteristics:
(a) the purpose of this Venture (the "Venture") is, employing
Opportunities (as below defined) located by Lion and accepted for the
Venture by the Technical Committee (defined below), to pursue the
mutual profitable exploitation of the Opportunities on the terms of
this Agreement;
(b) the name of the Venture shall be the "Kingfisher Venture";
(c) the Venture shall be operated by a management and technical
committee (the "Technical Committee") composed of no less than one
representative of each of Azco and Lion. Azco's representative(s)
shall collectively represent six votes and Lion's representative(s)
shall collectively represent four votes and the cost of such
representatives shall be borne by each Party solely. No meeting of
the Technical Committee shall be conducted unless a majority of
voting interests are present, no less than 10 days notice has been
given (or waived) and at least one member of each of Lion and Azco
are present unless, as to this latter requirement, at least one
adjournment has occurred and 5 days notice of recall has been given.
Meetings of the Technical Committee may be conducted in person or by
telephone conference or by consent resolution. Notwithstanding the
forgoing, the Technical Committee shall not impose any material
financial burdens on the Venture and the Parties unless specific
notice has been given prior to any meeting and if any Party shall be
unable to attend through its representative at any such meeting, it
shall have the right to require a further meeting to re-consider any
part which it finds objectionable. The Technical Committee shall
maintain minutes of its meetings and deliberations and each Party
shall be entitled to a copy of such minutes;
(d) this Agreement shall constitute the fundamental constitution of
the Venture governing the relations of the Parties, in a manner
similar to corporate articles under British Columbia corporate
practice and law. Matters not addressed by this Agreement or which
constitute specific and day-to-day operating and management policies
shall be determined by resolution of the Technical Committee with
power and effect equal to corporate board of directors resolutions;
<PAGE> 3
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(e) the participating and contributory interests of Azco and Lion
(subject to adjustment as to a specific project as elsewhere set
forth in this Agreement) shall be sixty (60%) percent to Azco and
forty (40%) percent to Lion (such interests are referred to as
"Participating Interests").
(f) profits of the Venture may be distributed at such times as the
Technical Committee may determine. Profits shall be calculated as net
of payment of all debts and costs of the Venture, payment to the
Parties of costs carried on behalf of the Venture, reservation of
working capital considered prudent by the Technical Committee, and
after payment of any outstanding Negative Balance (as below defined).
The Technical Committee shall determine the accounting treatment and
policy of the Venture finances. The Technical Committee shall not be
required to distribute or record mineral interests or any
undistributed asset, in the Parties' individual names but may hold
the same in the name of the Venture or a controlled company. Any
Party may require distribution of cash or shares constituting
distributable profit on a quarterly basis;
(g) Azco and Lion shall contribute the following rights, goods,
services, and capital as their contribution to the Venture:
(i) Lion shall diligently seek and make available, from
opportunities which come to its attention, are discovered
by it or are brought to it, mineral opportunities (the
"Opportunity") within the criteria established by the
Technical Committee and shall bear the cost of such search
and initial analysis. Upon Azco exercising its right of
first refusal by its representatives on the Technical
Committee determining to proceed to do due diligence and
to complete a contract of acquisition of an Opportunity
Lion shall be refunded by the Venture or Azco (in the
initial stage as to the latter) that proportion of the
carried cost of such Opportunity equal to its full cost
less its Participating Interest share. At the discretion
of the Technical Committee, where Lion has incurred costs
outside of its normal business endeavors in seeking
Opportunities and the Technical Committee has not
determined to proceed with certain of the same and Lion
has not been able to recover its costs by disposition of
such to third parties, then the Technical Committee may
determine that Lion shall recover some or all of such
costs from the Venture;
(ii) Lion grants unto Azco the exclusive first right to
acquire, pursue, and develop an Opportunity on the terms
of this Venture, except for those projects, Ventures, or
other agreements that are disclosed in Schedule "B" hereto
to which Lion has prior commitment;
(iii) Azco and Lion shall make available to the Venture
their expertise, staff, and other available and pertinent
resources at cost plus a 15% management fee or at their
`best customer' price, or at their opportunity cost of
resources, as accepted by the Technical Committee, to be
carried or paid by the Venture out of proceeds of
Opportunities and out of retained earnings, as the same
may be reserved by the Technical Committee from the
Parties' share of proceeds of the Venture;
(iv) upon the Technical Committee determining to pursue an
Opportunity for the Venture, Azco shall fund, or provide
funding for, the initial acquisition or contract securing
costs (the "Acquisition Cost") of an Opportunity, which
shall be repaid first (including all accumulated
unrefunded Acquisition Costs of any preceding
Opportunities) out of proceeds of disposition or
production only. However it is understood by the Parties
that where Acquisition Costs or other Opportunity costs
are to be rolled-over into a private or public finance
vehicle that the Parties will mutually and independently
use best reasonable endeavors to seek and acquire the
required finance to
<PAGE> 4
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service such costs of an Opportunity and to avoid Azco
being required to advance the Acquisition Cost, where
possible; and
(v) thereafter, Azco and Lion shall provide capital and
other required resources as to any Opportunity in
proportion to their Participating Interests;
(h) as part of the determination of the Technical Committee regarding
an Opportunity it shall apply financial analysis and management
planning to any Opportunity to determine the most advantageous and
beneficial means of adding value to any Opportunity including,
without restricting the determination of the Technical Committee, to
develop the Opportunity privately (with or without third party
participants) and to sell such at any time or to take such to
production, or (shortly after acquisition or after private
development) to assign the Opportunity to a public company (or take a
private company public) and receive any combination of cash, shares,
or debt for the same. As a general principle, a roll-over to a
separate finance vehicle and the employment of independent financial
resources (whether private or public) shall be the preferred option;
(i) Lion shall provide a best reasonable efforts initial assessment
of Opportunities sufficient to allow a reasoned judgment on the
merits of an Opportunity and shall provide the Technical Committee
with all material reasonably available to it and reasonably
accessible for analysis. The Parties and the Technical Committee
shall sign all such confidentiality agreements as are reasonably
required by the Opportunity owners. The Technical Committee shall
employ reasonable best efforts to make an initial go/no-go decision
on further efforts and due diligence regarding the Opportunity. In
the event that the Technical Committee determines not to proceed then
Lion shall be at full liberty to seek its sole profit from such
Opportunity thereafter without further reference to the Venture. In
the event that the Technical Committee determines to proceed with an
Opportunity then Lion shall employ reasonable best efforts to permit
the Technical Committee to negotiate the terms of the agreement with
the Opportunity owner and the Technical Committee shall employ
reasonable best efforts to finalize such agreement and due diligence
as soon as possible;
(j) in the event that in regard to any Opportunity a Party cannot
fund its required contributions in accordance with its Participating
Interest and the development plan of the Technical Committee then it
shall be subject to dilution in regard to its Participating Interest
in such Opportunity in accordance with a formula agreed by the
Parties. In the event that the Parties cannot agree on a dilution
formula then the formula shall be a reduction of one full Opportunity
percentage point (one point out of the 100% aggregate all-Party
points of the Opportunity) for each incidence of non-contribution
calculated by the required contribution per point on a quarterly
basis which the non-contributing Party has not funded (and such
diluted interest transferring at the end of each quarter with
concomitant alteration to the Participating Interest percentage of
each Party). However, on the first anniversary date of the unfunded
contribution the non-contributing Party shall have a one-time right
to buy-back all the diluted interest of such quarter in reference by
paying the funding Party double the expenditures incurred in respect
to the diluted interests. In the event that the Party being diluted
seeks to assign some or all of its interest or to seek a funding
partner for its costs then the other Party shall have first right to
provide such funding upon the terms intended or contracted to be
offered (open for 30 days for determination after receipt of all
pertinent details of the offer) and, in the event that it elects to
provide the funding, then there shall be no buy-back right in respect
to the consideration provided for such funding. In the circumstance
in which an Opportunity remains private strictly within the Venture
as a development of the Venture, a Party shall not be diluted to less
than a ten (10%) percent working interest prior to commercial
production but shall be carried in the form of a loan which shall be
repaid out of sale of the Opportunity or from two-thirds (2/3rds) of
the diluted Party's share of revenue of such Opportunity. All such
carried loans shall bear interest at the carrying Party's cost of
money with its principal bank,
<PAGE> 5
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fixed annually, plus three (3%) percent calculated and compounded
annually at the time of interest fixing;
(k) the Parties shall not assign their Participating Interests in
this Venture for a period of two years from the date hereof (except
to controlled subsidiaries or affiliates) and thereafter shall offer
the other Party a right of first refusal exercisable for a period of
60 days following delivery of all pertinent details of the offer. If
the receiving Party does not exercise the right of first refusal then
the selling Party shall be free to dispose of the offered interest on
the same terms for a period of 180 days thereafter. Any sale of a
part or all of a Participating Interest shall not be effective until
the purchaser has executed a copy of this Agreement or any successor
agreement;
(l) in the event of any dispute between the Parties the Parties shall
employ best efforts to settle the same by good faith negotiations for
a period of not less than 30 days after written notice of a dispute
and thereafter shall arbitrate the same before an agreed arbitrator
in accordance with the Commercial Arbitration Act of British Columbia
and any arbitration decision shall be final; and
(m) the term of this Venture shall be the longer of three (3) years
or the payout of the Negative Balance plus six months, regardless,
expiring on December 31, 2010, renewable by mutual agreement of Azco
and Lion. Notwithstanding the termination of this Venture, in
circumstances in which one or more Opportunities are in progress then
the terms of this Agreement shall continue only in respect to such
Opportunity(ies) only to the extent required to govern the Parties'
rights and obligations in respect to such Opportunity(ies).
2. COMMENCEMENT ISSUES. This Venture shall be deemed to commence
effective the Effective Date with the following commencement issues and
conditions:
(a) Lion shall declare all projects, opportunities, and corporate
agreements which it has in effect on the Effective Date and which are
thereby to be excluded from, or restrict the ambit of, the
Opportunities of this Venture and are set forth in Schedule "B"
hereto;
(b) Azco shall be deemed to have a negative draw balance (the
"Negative Balance") in the Venture relating to the first endeavor,
being the Malian Agreement, equal to its total expenditures in regard
to the Malian Agreement less all recoveries, including tax recoveries
and fair value of equipment, all with a final valuation cut-off
effective the Effective Date and accounted on or before March 1,
1998, except if Azco realizes any recoveries (or debits) from Eagle
or taxation after such date then there shall be a subsequent
add-back; the Parties acknowledging that it is considered highly
unlikely that any recoveries will be effected from Eagle (as it is in
bankruptcy) and Azco shall be under no requirement to pursue any
remedies. Lion agrees that it hereby assigns to Azco all its rights
and interests in the Malian Agreement and agrees to cooperate fully
with Azco in the pursuit of any remedies against Eagle and Azco
agrees that any judicial remedies, and any costs borne by Lion in any
requested assistance to Azco, shall be at Azco's sole expense. The
Parties further agree that any results of Azco's endeavors, positive
or negative, after the Effective Date to mitigate its damages
(including any efforts to pursue and effect expenditures regarding
any part of the properties of the Malian Agreement to create value)
or to pursue its remedies shall solely accrue to Azco and shall be at
its sole cost and risk and Lion shall not participate therein, nor be
accountable for any part thereof, and shall be held harmless for any
consequences flowing therefrom and arising from Azco's activities
thereto and the Parties shall execute mutual releases. Lion shall be
considered to have an equivalent $60,000 Negative Balance relating to
the Malian Agreement;
(c) Azco's and Lion's Negative Balance shall be reduced, pro rata,
only from profits of the Venture, after all costs of the Venture, and
shall be reduced by a preferential allocation of 60%
<PAGE> 6
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of first profits available for distribution prior to any distribution
being accounted for Participating Interests. The Parties further
agree that, whenever reasonably possible without materially harming
an Opportunity's prospects for financing, best efforts will be made
to include in financing an allocation to retire the Negative
Balances;
(d) attached hereto as Schedule "A" are the initial selection
criteria for Opportunities, which may be altered by the Technical
Committee, as it so determines from time-to-time; and
(e) attached hereto as Schedule "C" are the initial organizational
principles for the Technical Committee, which may be changed by the
Parties, as to appointees, and the Technical Committee, as to their
organizational principles, at any time.
3. GENERAL TERMS. The following general terms apply to the Venture and
the Parties' relations in respect thereto:
(a) the Parties will support each other's good name and reputation
and will employ good faith and reasonable best endeavors in the
performance of this Agreement and their mutual endeavors;
(b) the Parties will maintain all activities in respect hereto and in
respect to each other and any Opportunities in confidence, except as
required by any legal requirements to which a Party is subject;
(c) when any benefits, such as shares, are distributed to Parties
from the Venture the Parties shall be free to employ the same to
their individual benefit thereafter;
(d) this Agreement does not constitute a partnership nor in any
manner shall the Parties hold themselves out as such;
(e) this Agreement constitutes an enforceable agreement in principle
but the Parties agree to negotiate a more detailed agreement in good
faith at the requirement of any Party. Should a more detailed
agreement not be effected then this Agreement shall continue to
govern;
(f) this Agreement shall be construed and enforced in accordance with
British Columbia law;
(g) all notices required hereunder shall be delivered to the Parties
at the foregoing addresses, or such other addresses as subsequently
advised in writing, and to the Technical Committee members at such
addresses as they may advise from time to time.
IN WITNESS WHEREOF the Parties hereto have duly executed this
Agreement by their authorized signatories effective on the date first above
written.
AZCO MINING INC.
- ----------------
________________________________
Per: Authorized Signatory
LION MINING CORPORATION LIMITED
- -------------------------------
Per: Authorized Signatory
<PAGE> 7
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SCHEDULE "A"
COMMENCEMENT OPPORTUNITY CRITERIA
IN DECLINING ORDER OF IMPORTANCE
1. BY GEOGRAPHICAL REGION:
(a) North and South America
(b) Southern and Eastern Africa including (in no particular
order of importance):
(i) Republic of South Africa
(ii) Botswana
(iii) Zambia
(iv) Malagasy Republic
(v) Uganda
(vi) Ethiopia
(vii) Namibia
(viii) Zimbabwe
(ix) Mozambique
(x) Tanzania
(xi) Kenya
(xii) Eritrea
(c) Europe including (in no particular order of importance):
(i) Scandinavian countries
(ii) Spain
(iii) Turkey
(iv) Bulgaria
(v) Former Yugoslavia
(vi) Eire
(vii) Portugal
(viii) Greece
(ix) Former Czechoslovakia
(d) Australia and South-East Asia excluding China and India,
except in exceptional cases as to the latter
2. BY COMMODITY
(a) Base metals, preferably with a precious metals credit and
(i) bulk tonnage preferably with potential in
excess of 250 million tonnes
(ii) massive sulfide preferably with potential in
excess of 10 million tonnes
<PAGE> 8
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(b) Precious metals preferably with gold or gold-equivalent
potential to 500,000 oz. or better
(c) Gemstones, including diamonds as available
(d) Sand, gravel, limestone, and other such materials in the
bulk and construction industry area
(e) hydrocarbons
3. LEVEL OF DEVELOPMENT - PREFERRED TARGETS
(a) projects with immediate or near term cash flow
opportunities, preferably at discounts because of distress conditions
or by investment/technology/management leverage brought by the
Venture
(b) projects with immediate or near term equity value-added
opportunities due to discounts because of distress conditions or by
investment/technology/management leverage brought by the Venture
(c) projects with proven or probable reserves and positive
economic indicators and where the vendor will either Venture or take
equity in a minority position
(d) projects with advanced targets where vendor will take
equity or Venture in a minority position and little or no cash
payments for interests
(e) projects in a an active exploration play area with
favourable geological signatures
4. EXCLUSIONS - TARGETS NOT TO BE CONSIDERED EXCEPT IN THE MOST
EXCEPTIONAL CIRCUMSTANCES
(a) ferrochrome minerals, bauxite, chromite, tungsten
(b) industrial minerals except as noted above
(c) specialty metals
<PAGE> 9
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SCHEDULE "B"
LION EXISTING CLIENT BUSINESS
EXCLUDED FROM AGREEMENT
1. AFRICAN CONTINENT
(a) Masana Holdings Ltd - South Africa
Lion retained to conduct technical due diligence and
provide financial advice on a range of privatised and
other mining opportunities. Where there is an opportunity
either to sell or J/V such opportunities, AZCO will have
first option on any qualifying property. Owners of Masana
are prominent political and business leaders in the new
black Africa.
(b) Botswana
Lion at an advanced stage in negotiating the flotation of
a new Botswana mining finance company with its own
capital. Lion to be a capital partner. Code: KYS.
(c) Diamonds
Due to Lion's previous exclusive agreements with
development and near-production companies, it is not
possible to include diamonds in this Lion/AZCO agreement.
Should the situation change in the future, Lion will
advise AZCO.
(d) Leading Southern African Merchant Bank
Corporate and Technical Advisory agreements under
negotiation together with potential fund management
business, together with the possibility of a large M&A
venture capital fund. These activities may produce AZCO
investment potential and wherever possible, AZCO will be
offered the chance to participate (subject to appropriate
consents).
2. MIDDLE EAST
Lion has numerous technical advisory agreements with Saudi Groups as
well as a financial Venture under discussion. Although at this stage
these agreements cover the technical evaluation of mining projects,
which are part of the restructuring of the Saudi Arabian mining
industry, it is possible that Venture opportunities could arise which
may be offered to AZCO (subject to appropriate consents).
<PAGE> 10
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3. NORTH AMERICA
Lion's current activity for exclusion is M & A related. In M & A
situations, Lion will offer the opportunity to AZCO wherever
possible.
4. LATIN AMERICA
No conflicting business.
5. UNITED KINGDOM & EUROPE
Discussions under way relating primarily to fund management business.
6. M&A
With junior mining equity markets at their lowest levels since 1979,
the greatest acquisition opportunity is likely to arise among those
projects under development by an underfunded junior. Lion will use
its best endeavours to select qualifying juniors for merger,
acquisition or Venture by AZCO. Lion's `superfund' negotiations are
aimed at facilitating this endeavour.
<PAGE> 11
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SCHEDULE "C"
COMMENCEMENT TECHNICAL COMMITTEE
ORGANIZATION PRINCIPLES
1. INITIAL TECHNICAL COMMITTEE MEMBERS
(a) Azco - Nick Badham-Chairman
Ian Gray
(b) Lion - Colin Bird
Andy Sarosi
2. MEETINGS
(a) Frequency - no less than once per month in person or by
conference, in person preferably
(b) Place - Lion's offices
(c) Agenda - produced by Lion with comment by Azco's
representatives
(d) Minutes - produced by Lion and signed off by Chairman
3. OPPORTUNITY ANALYSIS
(a) Opportunities which fit the criteria will be presented by
Lion and examined on a preliminary basis at the meetings;
(b) the Technical Committee will determine whether each
Opportunity should be investigated further, although it may defer a
decision if data is missing. The Committee may adjourn as to any
Opportunity if staff or consultants are required to effect some
evaluation and present a separate report to the Committee;
(c) the Committee will make a go/no-go decision as soon as
possible;
(d) if the Committee determines to proceed to investigate an
Opportunity further it shall set criteria, assign personnel, and set
a budget and shall use its best endeavors to complete the analysis
within 30 days;
(e) the Committee shall attempt to conduct contract
negotiations as soon as possible and shall assign personnel (which
shall preferably have at least a representative of each Party) to
conduct such negotiations. The Committee should attempt to establish
a reasonable agreement in principal as soon as possible to minimize
costs in the event a reasonable deal cannot be concluded.
<PAGE> 1
Exhibit 10.15
MANAGEMENT AGREEMENT
This agreement dated August 15, 1994 by and between AZCO Mining Inc., a Delaware
corporation (the "Company") and Alan P. Lindsay, the corporate officer, (the
"officer").
Whereas the officer has rendered valuable services to the Company and the
Company desires to be assured that the executive will continue rendering such
services to the Company;
Whereas the officer is willing to continue to serve the Company but desires
assurance that he will be protected in the event of any change in control;
Now therefore, in consideration of the mutual covenants and promises herein, the
parties agree as follows.
The Company agrees that if
1. there is a change of control of the Company, and
2. the officer leaves the employment of the Company, for whatever reason
(other than discharge for cause, death or disability) within six
months after such acquisition of control
a. the officer shall receive as a lump sum, a cash payment in the amount
not to exceed 299% of the base amount as defined in IRC Section 280G
(b) (3); provided, that in any event, the amount payable under this
clause (a) shall not exceed the maximum amount payable to the officer
without the imposition of any excise taxes under the provisions of
Section 4999 of the Internal Revenue Code as that section may be
amended from time to time.
b. the officer will continue to be covered by all of the Company's
medical, health, life and dental plans for 24 months after such
change of control.
The amounts paid to the officer hereunder shall be considered severance pay in
consideration of the past services he has rendered to the Company and in
consideration of his continued service from the date hereof to his entitlement
to those payments. The officer shall have no duty to mitigate his damages by
seeking other employment. Should the officer actually receive other payments
from any such other employment, the payments called for hereunder shall not be
reduced or offset by any future earnings.
as used herein, the term "change in control" shall mean either
1. the acquisition of (whether direct or indirect) shares in excess of
20 percent of the outstanding shares of common stock of the Company
by a person or group of persons,
<PAGE> 2
other than through a public equity offering by the Company, or
2. the occurrence of any transaction relating to the Company required to
be described pursuant to the requirements of item 6 (e) of schedule
14A of the Securities and Exchange Commission under the Securities
and Exchange Act of 1934, or
3. any change in the composition of the board of directors of the
Company resulting in a majority of the present directors not
constituting a majority provided, that in making such determination
directors who were elected by, or on the recommendation of, such
present majority, shall be excluded.
The arrangements called for by this agreement are not intended to have any
effect on the officer's participation in any other benefits available to
executive personnel or to preclude other compensation or additional benefits as
may be authorized by the board of directors from time to time.
This agreement shall be binding and shall inure to the benefit of the respective
successors, assigns, legal representatives and heirs to the parties hereto.
This agreement shall terminate, even though prior to the acquisition of any
control of the Company as defined here, if the officer shall voluntarily resign,
retire, become permanently and totally disabled, voluntarily take another
position requiring a substantial portion of his time, or die. This agreement
shall also terminate if the executive's employment as an officer of the Company
shall have been terminated for any reason by the board of directors of the
Company as constituted prior to any acquisition of control of the Company as
defined herein.
In witness whereof, the parties have signed this agreement this 15th day of
August, 1994.
- ------------------- ------- ----------------- -------
Officer's Signature Date AZCO Mining Inc. Date
<PAGE> 3
MANAGEMENT AGREEMENT
This agreement dated August 15, 1994 by and between AZCO Mining Inc., a Delaware
corporation (the "Company") and Anthony R. Harvey, the corporate officer, (the
"officer").
Whereas the officer has rendered valuable services to the Company and the
Company desires to be assured that the executive will continue rendering such
services to the Company;
Whereas the officer is willing to continue to serve the Company but desires
assurance that he will be protected in the event of any change in control;
Now therefore, in consideration of the mutual covenants and promises herein, the
parties agree as follows.
The Company agrees that if
1. there is a change of control of the Company, and
2. the officer leaves the employment of the Company, for whatever reason
(other than discharge for cause, death or disability) within six
months after such acquisition of control
a. the officer shall receive as a lump sum, a cash payment in the amount
not to exceed 299% of the base amount as defined in IRC Section 280G
(b) (3); provided, that in any event, the amount payable under this
clause (a) shall not exceed the maximum amount payable to the officer
without the imposition of any excise taxes under the provisions of
Section 4999 of the Internal Revenue Code as that section may be
amended from time to time.
b. the officer will continue to be covered by all of the Company's
medical, health, life and dental plans for 24 months after such
change of control.
The amounts paid to the officer hereunder shall be considered severance pay in
consideration of the past services he has rendered to the Company and in
consideration of his continued service from the date hereof to his entitlement
to those payments. The officer shall have no duty to mitigate his damages by
seeking other employment. Should the officer actually receive other payments
from any such other employment, the payments called for hereunder shall not be
reduced or offset by any future earnings.
as used herein, the term "change in control" shall mean either
1. the acquisition of (whether direct or indirect) shares in excess of
20 percent of the outstanding shares of common stock of the Company
by a person or group of persons,
<PAGE> 4
other than through a public equity offering by the Company, or
2. the occurrence of any transaction relating to the Company required to
be described pursuant to the requirements of item 6 (e) of schedule
14A of the Securities and Exchange Commission under the Securities
and Exchange Act of 1934, or
3. any change in the composition of the board of directors of the
Company resulting in a majority of the present directors not
constituting a majority provided, that in making such determination
directors who were elected by, or on the recommendation of, such
present majority, shall be excluded.
The arrangements called for by this agreement are not intended to have any
effect on the officer's participation in any other benefits available to
executive personnel or to preclude other compensation or additional benefits as
may be authorized by the board of directors from time to time.
This agreement shall be binding and shall inure to the benefit of the respective
successors, assigns, legal representatives and heirs to the parties hereto.
This agreement shall terminate, even though prior to the acquisition of any
control of the Company as defined here, if the officer shall voluntarily resign,
retire, become permanently and totally disabled, voluntarily take another
position requiring a substantial portion of his time, or die. This agreement
shall also terminate if the executive's employment as an officer of the Company
shall have been terminated for any reason by the board of directors of the
Company as constituted prior to any acquisition of control of the Company as
defined herein.
In witness whereof, the parties have signed this agreement this 15th day of
August, 1994.
- ------------------- ------- ----------------- -------
Officer's Signature Date AZCO Mining Inc. Date
<PAGE> 5
MANAGEMENT AGREEMENT
This agreement dated November 19, 1996, by and between AZCO Mining Inc., a
Delaware corporation (the "Company") and Ryan A. Modesto, the corporate officer,
(the "officer").
Whereas the officer has rendered valuable services to the Company and the
Company desires to be assured that the executive will continue rendering such
services to the Company;
Whereas the officer is willing to continue to serve the Company but desires
assurance that he will be protected in the event of any change in control;
Now therefore, in consideration of the mutual covenants and promises herein, the
parties agree as follows.
The Company agrees that if
1. there is a change of control of the Company, and
2. the officer leaves the employment of the Company, for whatever reason
(other than discharge for cause, death or disability) within six
months after such acquisition of control
a. the officer shall receive as a lump sum, a cash payment in the amount
not to exceed 299% of the base amount as defined in IRC Section 280G
(b) (3); provided, that in any event, the amount payable under this
clause (a) shall not exceed the maximum amount payable to the officer
without the imposition of any excise taxes under the provisions of
Section 4999 of the Internal Revenue Code as that section may be
amended from time to time.
b. the officer will continue to be covered by all of the Company's
medical, health, life and dental plans for 24 months after such
change of control.
The amounts paid to the officer hereunder shall be considered severance pay in
consideration of the past services he has rendered to the Company and in
consideration of his continued service from the date hereof to his entitlement
to those payments. The officer shall have no duty to mitigate his damages by
seeking other employment. Should the officer actually receive other payments
from any such other employment, the payments called for hereunder shall not be
reduced or offset by any future earnings.
as used herein, the term "change in control" shall mean either
1. the acquisition of (whether direct or indirect) shares in excess of
20 percent of the outstanding shares of common stock of the Company
by a person or group of persons, other than through a public equity
offering by the Company, or
<PAGE> 6
2. the occurrence of any transaction relating to the Company required to
be described pursuant to the requirements of item 6 (e) of schedule
14A of the Securities and Exchange Commission under the Securities
and Exchange Act of 1934, or
3. any change in the composition of the board of directors of the
Company resulting in a majority of the present directors not
constituting a majority provided, that in making such determination
directors who were elected by, or on the recommendation of, such
present majority, shall be excluded.
The arrangements called for by this agreement are not intended to have any
effect on the officer's participation in any other benefits available to
executive personnel or to preclude other compensation or additional benefits as
may be authorized by the board of directors from time to time.
This agreement shall be binding and shall inure to the benefit of the respective
successors, assigns, legal representatives and heirs to the parties hereto.
This agreement shall terminate, even though prior to the acquisition of any
control of the Company as defined here, if the officer shall voluntarily resign,
retire, become permanently and totally disabled, voluntarily take another
position requiring a substantial portion of his time, or die. This agreement
shall also terminate if the executive's employment as an officer of the Company
shall have been terminated for any reason by the board of directors of the
Company as constituted prior to any acquisition of control of the Company as
defined herein.
In witness whereof, the parties have signed this agreement this 19th day of
November, 1996.
- ------------------- ------- ----------------- -------
Officer's Signature Date AZCO Mining Inc. Date
<PAGE> 7
MANAGEMENT AGREEMENT
This agreement dated October 7, 1997 by and between AZCO Mining Inc., a Delaware
corporation (the "Company") and Nick Badham, the corporate officer, (the
"officer").
Whereas the officer has rendered valuable services to the Company and the
Company desires to be assured that the executive will continue rendering such
services to the Company;
Whereas the officer is willing to continue to serve the Company but desires
assurance that he will be protected in the event of any change in control;
Now therefore, in consideration of the mutual covenants and promises herein, the
parties agree as follows.
The Company agrees that if
1. there is a change of control of the Company, and
2. the officer leaves the employment of the Company, for whatever reason
(other than discharge for cause, death or disability) within six
months after such acquisition of control
a. the officer shall receive as a lump sum, a cash payment in the amount
not to exceed 299% of the base amount as defined in IRC Section 280G
(b) (3); provided, that in any event, the amount payable under this
clause (a) shall not exceed the maximum amount payable to the officer
without the imposition of any excise taxes under the provisions of
Section 4999 of the Internal Revenue Code as that section may be
amended from time to time.
b. the officer will continue to be covered by all of the Company's
medical, health, life and dental plans for 24 months after such
change of control.
The amounts paid to the officer hereunder shall be considered severance pay in
consideration of the past services he has rendered to the Company and in
consideration of his continued service from the date hereof to his entitlement
to those payments. The officer shall have no duty to mitigate his damages by
seeking other employment. Should the officer actually receive other payments
from any such other employment, the payments called for hereunder shall not be
reduced or offset by any future earnings.
as used herein, the term "change in control" shall mean either
1. the acquisition of (whether direct or indirect) shares in excess of
20 percent of the outstanding shares of common stock of the Company
by a person or group of persons,
<PAGE> 8
other than through a public equity offering by the Company, or
2. the occurrence of any transaction relating to the Company required to
be described pursuant to the requirements of item 6 (e) of schedule
14A of the Securities and Exchange Commission under the Securities
and Exchange Act of 1934, or
3. any change in the composition of the board of directors of the
Company resulting in a majority of the present directors not
constituting a majority provided, that in making such determination
directors who were elected by, or on the recommendation of, such
present majority, shall be excluded.
The arrangements called for by this agreement are not intended to have any
effect on the officer's participation in any other benefits available to
executive personnel or to preclude other compensation or additional benefits as
may be authorized by the board of directors from time to time.
This agreement shall be binding and shall inure to the benefit of the respective
successors, assigns, legal representatives and heirs to the parties hereto.
This agreement shall terminate, even though prior to the acquisition of any
control of the Company as defined here, if the officer shall voluntarily resign,
retire, become permanently and totally disabled, voluntarily take another
position requiring a substantial portion of his time, or die. This agreement
shall also terminate if the executive's employment as an officer of the Company
shall have been terminated for any reason by the board of directors of the
Company as constituted prior to any acquisition of control of the Company as
defined herein.
In witness whereof, the parties have signed this agreement this 7th day of
October, 1997.
- ------------------- ------- ----------------- -------
Officer's Signature Date AZCO Mining Inc. Date
<PAGE> 9
MANAGEMENT AGREEMENT
This agreement dated October 7, 1997 by and between AZCO Mining Inc., a Delaware
corporation (the "Company") and Doug Ramshaw, the corporate officer, (the
"officer").
Whereas the officer has rendered valuable services to the Company and the
Company desires to be assured that the executive will continue rendering such
services to the Company;
Whereas the officer is willing to continue to serve the Company but desires
assurance that he will be protected in the event of any change in control;
Now therefore, in consideration of the mutual covenants and promises herein, the
parties agree as follows.
The Company agrees that if
1. there is a change of control of the Company, and
2. the officer leaves the employment of the Company, for whatever reason
(other than discharge for cause, death or disability) within six
months after such acquisition of control
a. the officer shall receive as a lump sum, a cash payment in the amount
not to exceed 299% of the base amount as defined in IRC Section 280G
(b) (3); provided, that in any event, the amount payable under this
clause (a) shall not exceed the maximum amount payable to the officer
without the imposition of any excise taxes under the provisions of
Section 4999 of the Internal Revenue Code as that section may be
amended from time to time.
b. the officer will continue to be covered by all of the Company's
medical, health, life and dental plans for 24 months after such
change of control.
The amounts paid to the officer hereunder shall be considered severance pay in
consideration of the past services he has rendered to the Company and in
consideration of his continued service from the date hereof to his entitlement
to those payments. The officer shall have no duty to mitigate his damages by
seeking other employment. Should the officer actually receive other payments
from any such other employment, the payments called for hereunder shall not be
reduced or offset by any future earnings.
as used herein, the term "change in control" shall mean either
1. the acquisition of (whether direct or indirect) shares in excess of
20 percent of the outstanding shares of common stock of the Company
by a person or group of persons,
<PAGE> 10
other than through a public equity offering by the Company, or
2. the occurrence of any transaction relating to the Company required to
be described pursuant to the requirements of item 6 (e) of schedule
14A of the Securities and Exchange Commission under the Securities
and Exchange Act of 1934, or
3. any change in the composition of the board of directors of the
Company resulting in a majority of the present directors not
constituting a majority provided, that in making such determination
directors who were elected by, or on the recommendation of, such
present majority, shall be excluded.
The arrangements called for by this agreement are not intended to have any
effect on the officer's participation in any other benefits available to
executive personnel or to preclude other compensation or additional benefits as
may be authorized by the board of directors from time to time.
This agreement shall be binding and shall inure to the benefit of the respective
successors, assigns, legal representatives and heirs to the parties hereto.
This agreement shall terminate, even though prior to the acquisition of any
control of the Company as defined here, if the officer shall voluntarily resign,
retire, become permanently and totally disabled, voluntarily take another
position requiring a substantial portion of his time, or die. This agreement
shall also terminate if the executive's employment as an officer of the Company
shall have been terminated for any reason by the board of directors of the
Company as constituted prior to any acquisition of control of the Company as
defined herein.
In witness whereof, the parties have signed this agreement this 7th day of
October, 1997.
- ------------------- ------- ----------------- -------
Officer's Signature Date AZCO Mining Inc. Date
<PAGE> 1
Exhibit 10.16
DIRECTORS AGREEMENT
This agreement dated August 15, 1994 by and between AZCO Mining Inc., a Delaware
corporation (the "Company") and Paul A. Hodges, an outside director (the
"director").
Whereas the director has rendered valuable services to the Company and the
Company desires to be assured that the director will continue rendering such
services to the Company;
Whereas the director is willing to continue to serve the Company but desires
assurance that he will be protected in the event of any change in control;
Now therefore, in consideration of the mutual covenants and promises herein, the
parties agree as follows.
The Company agrees that if
1. there is a change of control of the Company, and
2. the director resigns the service of the Company, for whatever reason
(other than discharge for cause, death or disability) within six
months after such acquisition of control
a. the director shall receive as a lump sum, a cash payment in the
amount not to exceed $100,000.
b. The amounts paid to the director hereunder shall be considered
severance pay in consideration of the past services he has rendered
to the Company and in consideration of his continued service from the
date hereof to his entitlement to those payments.
as used herein, the term "change in control" shall mean either
1. the acquisition of (whether direct or indirect) shares in excess of
20 percent of the outstanding shares of common stock of the Company
by a person or group of persons, other than through a public equity
offering by the Company, or
2. the occurrence of any transaction relating to the Company required to
be described pursuant to the requirements of item 6 (e) of schedule
14A of regulation 14A of the Securities and Exchange Commission under
the Securities and Exchange Act of 1934, or
3. any change in the composition of the board of directors of the
Company resulting in a majority of the present directors not
constituting a majority provided, that in making such determination
directors who were elected by, or on the recommendation of, such
present majority, shall be excluded.
<PAGE> 2
The arrangements called for by this agreement are not intended to have any
effect on the director's participation in any other benefits available to
directors or to preclude other compensation or additional benefits as may be
authorized by the board of directors from time to time.
This agreement shall be binding and shall inure to the benefit of the respective
successors, assigns, legal representatives and heirs to the parties hereto.
This agreement shall terminate, even though prior to the acquisition of any
control of the Company as defined here, if the director shall be voted out, not
stand for reelection, voluntarily resign, retire, become permanently and totally
disabled, or die.
In witness whereof, the parties have signed this agreement this 15th day of
August, 1994.
- ------------------- ------- ----------------- -------
Officer's Signature Date AZCO Mining Inc. Date
<PAGE> 3
DIRECTORS AGREEMENT
This agreement dated November 19, 1996 by and between AZCO Mining Inc., a
Delaware corporation (the "Company") and Ian M. Gray, an outside director (the
"director").
Whereas the director has rendered valuable services to the Company and the
Company desires to be assured that the director will continue rendering such
services to the Company;
Whereas the director is willing to continue to serve the Company but desires
assurance that he will be protected in the event of any change in control;
Now therefore, in consideration of the mutual covenants and promises herein, the
parties agree as follows.
The Company agrees that if
1. there is a change of control of the Company, and
2. the director resigns the service of the Company, for whatever reason
(other than discharge for cause, death or disability) within six
months after such acquisition of control
a. the director shall receive as a lump sum, a cash payment in the
amount not to exceed $100,000.
b. The amounts paid to the director hereunder shall be considered
severance pay in consideration of the past services he has rendered
to the Company and in consideration of his continued service from the
date hereof to his entitlement to those payments.
as used herein, the term "change in control" shall mean either
1. the acquisition of (whether direct or indirect) shares in excess of
20 percent of the outstanding shares of common stock of the Company
by a person or group of persons, other than through a public equity
offering by the Company, or
2. the occurrence of any transaction relating to the Company required to
be described pursuant to the requirements of item 6 (e) of schedule
14A of regulation 14A of the Securities and Exchange Commission under
the Securities and Exchange Act of 1934, or
3. any change in the composition of the board of directors of the
Company resulting in a majority of the present directors not
constituting a majority provided, that in making such determination
directors who were elected by, or on the recommendation of, such
present majority, shall be excluded.
<PAGE> 4
The arrangements called for by this agreement are not intended to have any
effect on the director's participation in any other benefits available to
directors or to preclude other compensation or additional benefits as may be
authorized by the board of directors from time to time.
This agreement shall be binding and shall inure to the benefit of the respective
successors, assigns, legal representatives and heirs to the parties hereto.
This agreement shall terminate, even though prior to the acquisition of any
control of the Company as defined here, if the director shall be voted out, not
stand for reelection, voluntarily resign, retire, become permanently and totally
disabled, or die.
In witness whereof, the parties have signed this agreement this 19th day of
November, 1996.
- ------------------- ------- ----------------- -------
Officer's Signature Date AZCO Mining Inc. Date
<PAGE> 1
Exhibit 10.17
SHAREHOLDERS AND OPERATOR'S AGREEMENT
among
PD COBRE DEL MAYO, INC.,
AZCO MINING, INC.,
and
COBRE DEL MAYO, S.A. DE C.V.
Dated as of December 19 1995
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
<S> <C>
1. Definitions and Certain Interpretative Matters 1
1.1 Terms Generally 1
1.2 Certain Terms 2
2. Board of Directors 4
2.1 Management; Duties 4
2.2 Members 4
2.3 Meetings 5
2.4 Quorum 5
2.5 Required Vote 5
2.6 Dividends and Distributions 6
2.7 Implementation; Further Assurances 6
3. Operator 6
3.1 Operator 6
3.2 General Activities 7
3.3 Standard of Performance 9
3.4 Reimbursable Costs 9
3.5 Operator's Compensation 9
3.6 Assumptions Underlying Expense Reimbursement
and Fee Structure 10
3.7 Comex High Grade or LME Grade A Copper Cathode 11
3.8 Completion of Pre-Feasibility Study Activities 11
3.9 Development 11
3.10 Discussions of Possible Sale 12
4. Financing 12
4.1 Shareholder Financing through Development 12
4.2 Project Financing of Development 13
4.3 Financing of Operations 15
5. Programs and Budgets 15
6. Accounting 16
6.1 Books and Records 16
6.2 Audit 16
6.3 Fiscal Year 16
7. Transfers of Interests; Rights of First Refusal 16
7.1 General Prohibition 16
7.2 Sales or Pledges by Shareholders Other Than
the PD Shareholder 16
</TABLE>
<PAGE> 3
<TABLE>
<CAPTION>
Page
<S> <C>
7.3 Substitution of Shareholder 17
7.4 Sales by the PD Shareholder 18
8. Competition; Business Opportunities 19
9. Confidentiality 19
10. Miscellaneous 20
10.1 Implied Covenants 20
10.2 Notices 20
10.3 Entire Agreement 21
10.4 Amendments, Waivers, etc 21
10.5 Assignability 21
10.6 Arbitration 22
10.7 Headings 22
10.8 Counterparts 22
10.9 Governing Law 22
Exhibit A Certain Reimbursable Expenses
</TABLE>
<PAGE> 4
SHAREHOLDERS AND OPERATOR'S AGREEMENT, dated as of December 19, 1995, among PD
COBRE DEL MAYO, INC., a Delaware Corporation (the "PD Shareholder"), AZCO
MINING, INC., a Delaware corporation ("Azco"), and COBRE DEL MAYO, S.A.
DE C.V., a Mexican corporation (the "Company").
W I T N E S S E T H
WHEREAS, Azco and Phelps Dodge Corporation ("PDC") are parties to a
Purchase Agreement, dated as of July 27, 1995 (the "Purchase Agreement"),
providing, among other things, for PDC to purchase from Azco 100% of the issued
and outstanding capital stock of the PD Shareholder, which owns 70% of the
issued and outstanding capital stock of the Company;
WHEREAS, PDC is today purchasing 100% of the issued and outstanding
capital stock of the PD Shareholder pursuant to the Purchase Agreement;
WHEREAS, the parties hereto wish to provide for certain matters
relating to the governance and ownership of shares of the Company; and
WHEREAS, the parties hereto wish to have the PD Shareholder serve as
the operator of the Project (as hereinafter defined);
NOW, THEREFORE, in consideration of the premises and mutual covenants
and agreements herein set forth, the parties hereto agree as follows:
1. Definitions and Certain Interpretative Matters.
1.1 Terms Generally. The words "hereby", "herein", "hereof", "hereunder"
and words of similar import refer to this Agreement as a whole and not merely to
the specific section, paragraph or clause in which such word appears. All
references herein to Sections shall be deemed references to Sections of this
Agreement unless the context shall otherwise require. The words "include",
"includes" and "including" shall be deemed to be followed by the phrase "without
limitation." The definitions given for terms in this Section 1.1 and elsewhere
in this Agreement shall apply equally to both the singular and plural forms of
the terms defined. All references to "dollars" or "$" shall be deemed references
to the lawful money of the United States of America.
1.2 Certain Terms. Whenever used in this Agreement, the following terms
shall have the respective meanings given to them below or in the Sections
indicated below:
<PAGE> 5
Affiliate: of a Person, means a Person that directly or indirectly through one
or more intermediaries controls, is controlled by, or is under common control
with, the first Person. "Control" (including the terms "controlled by" and
"under common control with") means the possession, directly or indirectly, of
the power to direct or cause the direction of the management policies of a
Person, whether through the ownership of voting securities, by contract or
credit arrangement, as trustee or executor, or otherwise.
Agreement: this Shareholders and Operator's Agreement and the Exhibit thereto,
as amended, modified or supplemented from time to time.
Available Cash: the maximum amount of cash legally available under Mexican law
and applicable contracts (including, without limitation, the agreements
providing for the Senior Project Debt) to be distributed to the Shareholders as
a dividend from profits or as a return of capital, minus an amount necessary to
pay principal on Subordinated Debt and amounts that the Board of Directors in
good faith determines should be retained in the Company to meet or fund debt
service commitments, working capital requirements, capital expenditures or other
business needs of the Company.
Azco: the meaning given in the first paragraph of this Agreement.
Board of Directors: the Board of Directors of the Company.
Claimant: the meaning given in Section 10.6(b).
Company: the meaning given in the first paragraph of this Agreement.
Confidential Information: the meaning given in Section 9.
Defendant: the meaning given in Section 10.6(b).
Escalated: as applied to any dollar amount, such amount as increased as of the
first day of January of the year in question by a percentage equal to the
percentage change of the final Producer Price Index (as published by the Bureau
of Labour Statistics of the United States Department of Labour) for the month of
July in the calendar year immediately prior to such first day, from such Index
as so published for July, 1995. If such Bureau shall cease to publish such Index
or shall substantially change the basis on which the same is calculated, the
Board of Directors shall designate such other index as shall in its judgement
appear most closely to approximate the Producer Price Index in effect on the
date hereof.
Operator: PD Shareholder acting in its capacity as operator of the Project as
provided herein.
PDC: Phelps Dodge Corporation, a New York corporation.
PD Shareholder: the meaning given in the first paragraph of this Agreement.
Person: any individual, corporation, partnership, association, public body,
governmental authority or other entity.
<PAGE> 6
Prime Rate: the rate of interest per annum publicly announced from time to time
by Chemical Bank as its prime rate in effect at its principal office in New York
city.
Products: any and all copper cathode, and any and all other marketable mineral
products, including other copper products, gold and silver, produced at the
Project and any and all copper or other products produced for the Company by
others under toll agreements providing for the treatment of production from the
Project.
Project: the Piedras verdes deposit and associated properties and facilities of
the Company relating to the exploitation of the mining rights listed on Schedule
2.7(b)(ii) to the Purchase Agreement, all related rights acquired by the Company
after the date hereof and all related rights acquired by PDC prior to the date
hereof.
Project Debt Agreement: the definitive agreement regarding the provision of
Senior Project Debt.
Purchase Agreement: the meaning given in the first Whereas clause of this
Agreement.
Respective Share: for any Shareholder, the percentage interest such Shareholder
and its Affiliates hold in the Company.
Selling Shareholder: the meaning given in Section 7.2.
Senior Project Debt: financing provided by import credit agencies, export credit
agencies, other government funding agencies, commercial banking institutions or
other lenders (including the PD Shareholder or any of its Affiliates and Azco
and any of its Affiliates) for the development, completion and operation of the
Project (but not for any expansion of the Project), that ranks in respect of
payment and upon liquidation senior to the Subordinated Debt, if any.
Shareholders: Azco, the PD Shareholder and their transferees pursuant to Section
7.
Shares: shares of capital stock in the Company.
Subordinated Debt: indebtedness of the Company that ranks upon liquidation
junior to the Senior Project Debt and ranks in respect of payment junior and is
subordinated to the Senior Project Debt in a manner satisfactory to the holders
of the Senior Project Debt. Subordinated Debt shall bear interest at an annual
rate, and shall have such other terms, as may be approved by the Board of
Directors.
2. Board of Directors.
2.1 Management; Duties. The business of the Company shall be managed
under the direction of the Board of Directors.
2.2 Members. (a) The Board of Directors shall be composed of four
directors nominated by the PD Shareholder and, so long as Azco's Respective
Share is at least 20%, two directors nominated by Azco. Such nominees shall be
designated by the
<PAGE> 7
Shareholders on the date hereof. Any Shareholder, upon written notice to each
other Shareholder, may nominate another director to replace a director
previously nominated by it. (b) As promptly as possible following receipt of the
notice of designation referred to in the second sentence of the foregoing
paragraph (a), (i) the Shareholders shall cause the directors of the Company to
resign (except for any directors who are nominated by Azco to continue as
directors) and (ii) the Shareholders shall take such action as may be
necessary to elect the nominees of the Shareholders. Thereafter, following
receipt of any notice of any nominations pursuant to the foregoing paragraph
(a), the Shareholders shall take such action as may be necessary to elect such
nominees as directors.
2.3 Meetings. The Board of Directors shall establish its own schedule of
regular meetings, which shall be held at least quarterly at such times and
places as the Board of Directors shall determine. Special meetings may be
convened at any time by the Chairman or Vice Chairman in Phoenix, Arizona (or
such other place as the members of the Board of Directors shall agree upon). The
Chairman shall endeavour to give 15 days' notice to the Board members of such
regular meetings. Each such notice shall include an itemized agenda prepared by
the Chairman. The Chairman shall prepare minutes of all meetings and distribute
copies of such minutes to the Board members. The minutes, when signed by all
Board members or otherwise approved by the Board, shall be the official record
of the decisions made by the Board.
2.4 Quorum. Four directors shall constitute a quorum for the transaction
of business at meetings of the Board of Directors.
2.5 Required Vote. All actions of the Board of Directors shall be
authorized and taken by a favourable vote of at least three directors, except
that the actions described in paragraphs (a) through (g) below shall require a
favourable vote of at least five directors:
(a) any material amendment to the Certificate of Incorporation
or By-Laws of the Company;
(b) any change in the legal form of the Company;
(c) any change in the policy on dividends and distributions
referred to in Section 2.6;
(d) any material amendment of the Shareholders and Operator's
Agreement, other than amendments required by government
funding agencies or institutional lenders who are
providing the Senior Project Debt;
(e) any sale, lease (as lessor) or other disposition by the
Company, in a single transaction or series of related
transactions, of any assets capitalized on the books of
the Company having a value (as reasonably determined by
the Operator) at such time in excess of $5 million
Escalated;
(f) engagement in any business not contemplated by this
Agreement; and
<PAGE> 8
(g) any dissolution, merger or consolidation involving the
Company or any earn-in, share exchange, business
combination or other transaction having a similar effect.
The Company shall endeavour to give notice of any action described in the
foregoing paragraphs (a) through (g) at least 15 days in advance of a meeting at
which the Board of Directors will be asked to consider such action.
2.6 Dividends and Distributions. The Shareholders shall cause the Board
of Directors, at its first meeting after the date hereof, to adopt a policy of
declaring and causing to be distributed on an annual or more frequent basis, in
proportion to their Respective Shares, as a dividend or return of capital, cash
equal to the amount of the Company's Available Cash at such time as determined
in good faith by the Board of Directors.
2.7 Implementation; Further Assurances. Each Shareholder shall take such
actions as may be required under applicable law, including with respect to the
execution of documents and performance of other ministerial acts, to give full
effect to and to implement all decisions of the Board of Directors.
3. Operator.
3.1 Operator. Subject to the management authority of the Board of
Directors as provided in this Agreement, the Operator shall have overall
management and supervisory responsibility for and control of all aspects of the
Project. The Operator shall be entitled, if it so chooses, to nominate a General
Director of the Company who, if appointed by the Board of Directors, shall be
the highest Company administrator. The operator shall, at its discretion, either
perform activities for the Company through the Operator's own personnel or
perform its activities hereunder by managing and supervising the Company's own
personnel or the personnel of third-party contractors, consultants or other
specialists. If the Operator chooses to manage and supervise the Company's own
personnel or personnel of third parties, the Operator shall have the authority
to hire, terminate, promote, demote or transfer such personnel, and to hire and
terminate such third parties, at the Operator's discretion in accordance with
lawful practices.
3.2 General Activities. Without limiting the generality of Section 3.1,
the Operator's activities shall include:
(a) general analysis of and planning for exploration
activities and other work related to the pre-feasibility
study stage of the Project;
(b) general analysis of and planning for the design,
engineering, development, construction and operation of
the Project, including without limitation work related to
the preparation of a feasibility study;
<PAGE> 9
(c) preparing tender materials, reviewing bids, and
interviewing and selecting the engineering, architectural,
and construction firms that will work on any exploration
activities, any other pre-feasibility stage work, any
feasibility study, or any development, operation or
expansion of the Project;
(d) negotiating contracts on behalf of the Company with any
engineering, architectural, and construction firms so
selected;
(e) arranging for and supervising any mine planning,
engineering, pre-stripping and other work to be performed
for the Company by An Affiliate of PDC, provided that all
such activities shall be on an arm's length commercial
basis;
(f) co-ordinating and scheduling the work of any firms
selected to perform work, and supervising the performance
of such firms through a designated management team, or
otherwise;
(g) arranging for the purchase, lease or other acquisition of
land required for any exploration activities, any other
pre-feasibility work, any feasibility study or the
development, operation or expansion of the Project;
(h) procuring such materials, supplies, equipment and services
as may be needed or required in connection with any
exploration activities, any other pre-feasibility work,
any feasibility study or the development, operation or
expansion of the Project;
(i) marketing Products produced by or for the Project;
(j) securing insurance covering such risks and in such amounts
as, in the judgement of the Operator, are appropriate
(taking into account changes in the availability of such
insurance on commercially reasonable terms) with respect
to any exploration activities, any other pre-feasibility
work, any feasibility study or the development, operation
or expansion of the Project;
(k) applying for, obtaining and maintaining, on behalf of the
Company, all necessary governmental approvals or permits
necessary in connection with any exploration activities,
any other pre-feasibility work, any feasibility study or
the development, operation or expansion of the Project;
(l) conducting relations with all national and local
governmental entities and in all public relations matters;
(m) selling or otherwise disposing of items of machinery,
equipment or facilities that are worn out, obsolete or no
longer useful;
(n) conducting labour relations and co-ordinating
environmental compliance and materials management;
(o) arranging for and supervising data processing, accounting,
administrative and legal services;
<PAGE> 10
(p) providing the Board of Directors with monthly reports
concerning operations and such other reports as the Board
of Directors may reasonably request;
(q) permitting any representative designated by any
Shareholder and not reasonably objected to by the
operator, at the expense and risk of such Shareholder and
person, to visit and inspect the Project and all related
technical and operating data reasonably requested, in each
case at reasonable times after reasonable advance notice;
and
(r) doing all such other acts and things as the Operator shall
determine to be necessary or advisable in connection with
any exploration activities, any other pre-feasibility
work, any feasibility study or any development, operation
or expansion of the Project.
Notwithstanding the foregoing, the operator shall not engage in any activities
that the Operator, in its sole discretion, reasonably believes are not
appropriate under all the circumstances.
3.3 Standard of Performance. The Operator intends to perform its duties
under this Agreement in accordance with the laws and regulations of Mexico and
in a prudent manner in accordance with standards of reputable third-party
manager of comparable facilities. Neither the Operator nor any of its Affiliates
nor any employees or agents of any of them shall be liable for any act or
omission resulting in loss or damage to the Company or any Shareholder, or any
of their respective Affiliates, except to the extent such loss or damage is
caused by the gross negligence or wilful misconduct of employees of the Operator
or any of its Affiliates in the course of their employment. Notwithstanding the
foregoing, neither the Operator, nor any of its Affiliates, nor any employees or
agents of any of them shall be liable for any indirect, consequential or
punitive damages, including without limitation damages for lost profits or lost
business opportunities.
3.4 Reimbursable Costs. The Company shall reimburse the Operator for all
reasonable costs, expenses, liabilities and obligations paid or incurred by the
Operator in connection with the performance of its duties hereunder (or by PDC
or its Affiliates in connection therewith) or as otherwise approved by the
Company, including without limitation, the costs, expenses, liabilities and
obligations listed on Exhibit A hereto, pursuant to invoices that the operator
shall deliver monthly to the Company.
3.5 Operator's Compensation. (a) For its management and supervisory
services (other than with respect to the Company's marketing activities), the
Company shall pay the Operator a fee, monthly in arrears, equal to 3% of all
amounts spent by the Company or the Operator (without duplication) in connection
with all activities relating to the Project to the extent such costs (i)
represent direct operating costs that could not be capitalized in accordance
with accounting principles generally accepted in the United States, whether or
not they are capitalized in accordance with those principles, or (ii) are
allocable to exploration, development drilling or pre-production mining and
stripping,
<PAGE> 11
whether or not they are or could be capitalized in accordance with those
principles, provided that in the event that a contractor performs mining and
stripping, the Company shall pay the Operator, with respect to such work, a fee,
monthly in arrears, equal to 2% of the cost of such work. Building, plant and
equipment lease costs shall not be subject to the 3% fee if the cost of the
building, plant and equipment could be capitalized in accordance with such
principles if they were purchased outright. Costs associated with the
acquisition of, or the payment of lease, royalty or similar payments for, land,
mining claims, concessions or related rights shall not be subject to the 3% fee.
Except as set forth in this Section 3.5(a), it is the intent of this Agreement
that the Operator not be paid a 3% fee on any capital expenditures.
(b) For its management and supervisory services with respect to the
Company's marketing activities for copper products, the Company shall pay the
Operator a fee, monthly in arrears, equal to the product of (i) $0.01
(Escalated) and (ii) the number of pounds of copper contained in all Products
sold.
(c) For its management and supervisory services with respect to the
Company's marketing activities for all Products other than copper products,
including gold and silver, the Company shall pay the Operator a reasonable and
appropriate fee, monthly in arrears, to be determined by the Board of Directors
based on quotations received from up to three independent marketing agents.
(d) All fees pursuant to this Section 3.5 shall be paid by the
Company in U.S. Dollars unless the Board of Directors determines otherwise. For
this purpose, the U.S. Dollar equivalent of New Mexican Pesos or any other
currency shall be determined on the basis of the New York foreign exchange
selling rate for the day three business days prior to such payment as reported
in The Wall Street Journal, Eastern Edition.
3.6 Assumptions. Underlying Expense Reimbursement and Fee Structure. The
expense reimbursement and fee structure contemplated by this Agreement has been
negotiated taking into account the applicable Mexican tax rules and rates and
Mexican laws and regulations in effect on the date hereof and current
administrative and judicial interpretations thereof. In the event of any change
in such rules, rates, laws, regulations or interpretations, the parties hereto
shall negotiate in good faith amendments to this Agreement which shall restore
the operator to its contemplated position.
3.7 Comex High Grade or LME Grade A Copper Cathode. The Operator shall
use reasonable efforts to cause the Company to produce either Comex High Grade
copper cathode or LME Grade A copper cathode as soon as practicable.
3.8 Completion of Pre-Feasibility Study Activities. Within four months of
the date hereof, the operator shall provide to each member of the Board of
Directors a description and schedule of the activities deemed by the Operator to
be necessary to enable the Operator to decide whether or not to proceed to the
feasibility study stage with respect to the Project. The Operator shall use
reasonable efforts to complete by the date 36 months after the date hereof all
such activities that the Operator deems necessary for such purpose. If such
activities are not completed by such date, then, unless the failure to complete
such activities by such date is attributable to reasons beyond the Operator's
<PAGE> 12
reasonable control, the operator shall make payments to Azco, quarterly in
arrears, at a rate of $100,000 per year commencing on the date 39 months after
the date hereof and continuing until such activities are completed. Such
payments, if commenced, shall be suspended during any period when the Operator
is unable, for reasons beyond its reasonable control, to use all reasonable
efforts to complete such activities.
3.9 Development. If after the preparation of a bankable feasibility study
the Operator recommends to the Board of Directors that the Project be developed,
the Board of Directors authorizes such development and Project Debt Agreements
are executed pursuant to Section 4.2, then the operator shall promptly initiate
such development on behalf of the Company and shall diligently proceed to
complete such development so long as financing continues to be available under
such Project Debt Agreements and the current political and economic conditions
continue to be acceptable to the operator and the Board of Directors.
3.10 Discussions of Possible Sale. If the Operator recommends not to
proceed to the feasibility stage or not to develop the Project, then either
Shareholder will, at the request of the other Shareholder, meet to discuss a
possible sale of the Shares held by the Shareholder not requesting such meeting
to the Shareholder requesting such meeting.
4. Financing.
4.1 Shareholder Financing through Development. (a) Each Shareholder shall
provide its Respective Share of cash required for activities deemed by the
Operator to be necessary to enable the Company to decide whether or not to
proceed to the feasibility study stage with respect to the Project; provided
that Azco shall not be obligated to provide more than $3,000,000 for such
activities other than (i) the acquisition of land and mining claims, concessions
and any other related rights, and (ii) the payment of lease, royalty, and other
similar payments for land and mining claims, concessions and any other related
rights. Each Shareholder shall provide such cash in U.S. Dollars unless the
Board of Directors requests such cash in the form of new Mexican pesos, in which
case each Shareholder shall provide such pesos and the U.S. Dollar equivalent
thereof shall be determined for the purpose of this Section 4.1(a) on the basis
of the New York foreign exchange selling rate for the day the Company receives
such pesos as reported in The Wall Street Journal, Eastern Edition. The
activities referred to in the first sentence of this Section 4.1(a) (and in
clause (i) of the proviso thereto) shall include the purchase of mineral
properties and related rights owned by the Bienvenidos Syndicate situated
adjacent to property owned by the Company for a purchase price of 400,000
Canadian Dollars or such other amount as may be approved by the Board of
Directors.
(b) If the Operator recommends, and the Board of Directors
authorizes, proceeding to the feasibility study stage with respect to the
Project, each Shareholder shall provide its Respective Share of the cash
required in connection with such feasibility study or studies as may be approved
by the Board of Directors.
(c) If after the preparation of a bankable feasibility study the
Operator recommends, and the Board of Directors authorizes, proceeding to
development of the
<PAGE> 13
Project and Project Debt Agreements are executed pursuant to Section 4.2, then
each Shareholder shall provide its
Respective Share of the cash required for development of the Project,
including an appropriate amount of working capital for the operation of the
Project, as may be approved by the Board of Directors so long as financing
continues to be available under such Project Debt Agreements and the current
political and economic conditions continue to be acceptable to the Operator and
the Board of Directors.
(d) Each Shareholder shall provide such cash as may be required
pursuant to this Section 4.1 on the basis of schedules therefor prepared by the
Operator and approved by the Board of Directors and shall receive Shares or
Subordinated Debt therefor as determined by the Board of Directors. Any such
Shares shall be sold at a price equal to book value as reasonably determined by
the Board of Directors, and any such Subordinated Debt shall be sold at a price
equal to par. Notwithstanding the foregoing, in the event cash is required for
activities referred to in Section 4.1(a) but Azco is no longer obligated to
provide its Respective Share of such cash in accordance with the proviso to
Section 4.1(a), the PD Shareholder shall provide the required cash, the cash
attributable to Azco's Respective Share shall be provided by the PD Shareholder
on behalf of Azco and the PD Shareholder and Azco shall receive therefor Shares
or Subordinated Debt as may be approved by the Board of Directors. No payments
by the PD Shareholder of cash for the activities referred to in Section 4.1(a)
when Azco is no longer obligated to provide its Respective Share of such cash in
accordance with the proviso thereto shall result in a reduction of Azco's
Respective Share.
(e) Notwithstanding the foregoing provisions of this Section 4.1,
either Shareholder may, by notice to the other Shareholder and the Operator,
within 15 days of the receipt of a schedule calling for the provision of cash
for activities referred to in Section 4.1(b) or (c), elect not to provide such
cash and to accept possible dilution under the next sentence. If a Shareholder
makes such an election, the other Shareholder may elect to provide such cash and
to receive Shares therefor (and for the corresponding cash provided with respect
to its Respective Share) at a price equal to book value as reasonably determined
by the Board of Directors.
4.2 Project Financing of Development. (a) If after the preparation of a
bankable feasibility study the operator recommends and the Board of Directors
authorizes, proceeding to development of the Project, then, the PD Shareholder
shall use all reasonable efforts to procure, as may be approved by the Board of
Directors, financing for such development consisting of Senior Project Debt in
an amount (not exceeding 60% of the estimated cost of such development,
including an appropriate amount of working capital for the operation of the
Project) for which financing is available at an interest cost and on other terms
and conditions that the PD Shareholder believes are reasonable and appropriate
under the circumstances. If the Senior Project Debt lenders are willing to
extend such financing to cover all or part of the cost of the feasibility study
on terms and conditions that the PD Shareholder believes are reasonable and
appropriate under the circumstances, the financing shall cover all or such part
of the cost of the feasibility study in order to reduce the amount of financing
required by the Shareholders under Section
<PAGE> 14
4.1(c). Neither the PD Shareholder nor any of its Affiliates shall be obligated
to provide any guaranties or other credit support for such financing, except
that, if required by such lenders, the PD Shareholder shall provide a completion
guaranty from PDC, acceptable in substance and form to PDC, for which the
Company shall pay PDC an annual fee, payable quarterly in arrears, until the
earlier of (i) the termination of such guaranty and (ii) the date 12 months from
the date the Company issues its first invoice for the sale of copper cathode and
which may be payable in Subordinated Debt, equal to 5% of the principal amount
of such Senior Project Debt from time to time outstanding.
(b) In its discretion, the PD Shareholder or any Affiliate of the PD
Shareholder may provide such Senior Project Debt, or additional credit support
for such Senior Project Debt, as may be approved by the Board of Directors. The
PD Shareholder or any Affiliate of the PD Shareholder will be paid for providing
such Senior Project Debt or such additional credit support as may be approved by
the Board of Directors, but no Senior Project Debt under this Section 4.2(b) is
to be more costly to the Company or otherwise on less favourable terms than
available Senior Project Debt of the kind contemplated by Section 4.2(a). In the
event the PD Shareholder or any Affiliate of the PD Shareholder decides to
provide such Senior Project Debt, the PD Shareholder shall specify the principal
amount and the terms and conditions thereof by written notice to Azco; within 30
days of receipt of such notice, Azco may but shall not be obligated to notify
the PD Shareholder that it or one of its Affiliates will provide its Respective
Share of such principal amount on terms and conditions identical to those so
specified.
c) The Shareholders, on a pro rata basis, will pledge their Shares
and the Company will mortgage the Project and assign any sales contracts for
Products to be produced by or from the Project as security for Senior Project
Debt as may be requested or approved by the Board of Directors.
4.3 Financing of Operations. (a) It is intended that operations of the
Project will be financed from the cash flow of the Project. Notwithstanding this
intention, should additional cash be required for operations and not be
available from institutional lenders on terms deemed reasonable by the Board of
Directors, each Shareholder shall provide its Respective Share of such cash on
the basis of schedules therefor prepared by the Operator and approved by the
Board of Directors and shall receive Shares or Subordinated Debt therefor as
shall be determined by the Board of Directors. Any such Shares shall be sold at
a price equal to book value as reasonably determined by the Board of Directors,
and any such Subordinated Debt shall be sold at a price equal to par.
(b) Notwithstanding the foregoing provisions of this Section 4.3,
either Shareholder may, by notice to the other Shareholder and the Operator,
within 15 days of the receipt of a schedule calling for the provision of cash
under this Section 4.3, elect not to provide such cash and to accept possible
dilution under the next sentence. If a Shareholder makes such an election, the
other Shareholder may elect to provide such cash and to receive Shares therefor
(and for the corresponding cash provided with respect to its Respective Share)
at a price equal to book value as determined by the Board of Directors.
5. Programs and Budgets.
<PAGE> 15
The Operator shall prepare a program and budget for each calendar
year beginning with 1996, and shall submit such program and budget to the Board
of Directors (and a copy to each director) by December 31 of the preceding year.
Such programs and budgets may cover such longer periods as the Operator deems
appropriate. The Board of Directors shall review and consider approval of each
such program and budget at the Board's next meeting following its submission.
Any program and budget approved by the Board of Directors may be revised or
supplemented from time to time by the Board of Directors. The Operator shall
notify the Board as soon as practicable of any material departure from an
approved program and budget.
6. Accounting.
6.1 Books and Records Except as otherwise determined by the Board of
Directors, the Company shall keep, or cause to be kept, books and records in
accordance with accounting practices generally accepted in the United States, so
as accurately to record all receipts of funds from or for the account of the
Company and disbursements thereof. All books and records maintained pursuant to
this Section shall be open to the inspection and examination of, or made
available to, the directors, officers, accountants or consultants of any
Shareholder at the locations where such books, records and information are kept
in the ordinary course of business at such reasonable times as may be specified
in reasonable prior written notice to the Company.
6.2 Audit. The auditors of the Company shall be Price Waterhouse LLP or
such other accounting firm of international standing selected from time to time
by the Board of Directors.
6.3 Fiscal Year. The fiscal year of the Company shall be the calendar
year or such other year as shall be determined by the Board of Directors or as
otherwise required by Mexican law.
7. Transfers of Interests; Rights of First Refusal.
7.1 General Prohibition. Except as permitted by or provided for in this
Agreement, no Shareholder other than the PD Shareholder shall sell, assign,
convey or otherwise dispose of, or directly or indirectly mortgage, pledge or
otherwise create or suffer to exist a lien, charge or other encumbrance or
security interest in any of the Shares, Subordinated Debt or corresponding
rights under this Agreement that it holds. Any sale, assignment, conveyance or
other disposition, mortgage, lien, charge, encumbrance, or security interest
permitted by or provided for in this Agreement shall be made in accordance with
applicable law and with any applicable provisions of the Project Debt
Agreements.
7.2 Sales or Pledges by Shareholders Other Than the PD Shareholder. (a)
Should any Shareholder other than the PD Shareholder solicit or encourage,
directly or indirectly,
<PAGE> 16
any inquiry or proposal for the purchase of the Shares and Subordinated Debt
that it holds and the corresponding rights under this Agreement, it shall
promptly inform the Board of Directors of any such inquiries or proposals and
provide the Board with copies of all related documentation.
(b) Should any Shareholder (the "Selling Shareholder") other than the PD
Shareholder wish to sell the Shares and Subordinated Debt that it holds and the
corresponding rights under this Agreement, it must first obtain a bona fide
written offer for all such Shares, Subordinated Debt and rights and give the PD
Shareholder written notice identifying the offeror and describing the price and
each of the terms and conditions of such bona fide offer. Within 45 days of its
receipt of such notice the PD Shareholder shall notify such Selling Shareholder
as to (i) whether it wishes to purchase such Shares and Subordinated Debt and
rights itself on the terms and conditions contained in such bona fide offer and
described in such notice, and (ii) if it does not wish to so purchase such
Shares and Subordinated Debt and rights, whether it approves of the offeror
becoming a Shareholder, which approval shall not be unreasonably withheld. If
the PD Shareholder shall notify such Selling Shareholder that it wishes to
purchase such Shares and Subordinated Debt and rights at such price and on such
terms and conditions, the PD Shareholder and the Selling Shareholder shall
consummate such transaction as promptly as is reasonably practicable but in any
event not more than 30 days after the end of such 45-day period. If in such
notice the PD Shareholder shall decline to purchase such Shares and Subordinated
Debt and rights at such price and on such terms and conditions and the PD
Shareholder shall approve the identified offeree, then such Selling Shareholder
shall be free to sell such Shares and Subordinated Debt and rights to such
offeree on such terms and conditions at any time within 30 days after the end of
such 45-day period.
(c) Following payment in full of all amounts due with respect to the Senior
Project Debt, Azco may, with the approval of the Board of Directors' pledge all
(but not less than all) its Shares, Subordinated Debt and the corresponding
rights under this Agreement to any institutional lender. Any sale of such Shares
in connection with such pledge shall comply in all respects with the provisions
of Section 7.2(b) and 7.3 as though the seller were the Selling Shareholder.
7.3 Substitution of Shareholder. No transfer of Shares, Subordinated Debt
and corresponding rights under this Agreement pursuant to Section 7.2 (except
for such transfer to the PD Shareholder) shall be effective until (i) the
transferee has delivered to all Shareholders a written instrument, reasonably
satisfactory to the PD Shareholder, assuming the obligations of the Selling
Shareholder hereunder, together with such evidence and counsel opinions as the
PD Shareholder may reasonably request confirming the due authorization,
execution and enforceability of such instrument, and (ii) the transferee has
received all consents of third Persons necessary for compliance with the terms
of this Agreement. Upon the effectiveness of a transfer of Shares, Subordinated
Debt and corresponding rights under this Agreement pursuant to this Section 7.3,
the Shareholder making the transfer shall be relieved of all obligations
hereunder arising after the effective date of such transfer.
7.4 Sales by the PD Shareholder. The PD Shareholder and any Affiliate of
the PD Shareholder who is a Shareholder shall be free to sell, assign, convey or
otherwise
<PAGE> 17
dispose of, mortgage, pledge or otherwise create or suffer to exist a lien,
charge or other encumbrance or security interest in any or all of the Shares,
Subordinated Debt or corresponding rights under this Agreement that it holds. In
the event the PD Shareholder (or any such Affiliate of the PD Shareholder)
assigns its rights under this Agreement to a transferee of a majority in
interest of the Shares, then, upon (i) delivery by such transferee to all other
Shareholders of a written instrument, reasonably satisfactory to such other
Shareholders, assuming the obligations of the PD Shareholder under Section 4.2,
and the other obligations of the PD Shareholder (or such Affiliate) hereunder
with respect to the Shares so transferred (including, if transferred, the
obligations as operator of the Project), together with such evidence and counsel
opinions as such other Shareholders may reasonably request confirming the due
authorization, execution and enforceability of such instrument, and (ii) receipt
by the transferee of all consents of third persons necessary for compliance with
the terms of this Agreement, the PD Shareholder (or such Affiliate) shall be
relieved of all obligations under Section 4.2, and such other obligations
hereunder with respect to the Shares so transferred (including, if transferred,
the obligations as Operator), arising thereafter, except that the PD Shareholder
(or such Affiliate) shall not be relieved of any obligations arising thereafter
under Section 4.2 unless (x) the other Shareholders shall approve in writing the
transferee, which approval shall not be unreasonably withheld, or (v) the
operator shall have certified to the other Shareholders that (A) it has
recommended not proceeding to the feasibility stage with respect to the Project
or (B) if the Project has proceeded to the feasibility study stage, either (1)
the feasibility study prepared with respect to the Project was either not
bankable or not satisfactory to the Operator or (2) the Operator has recommended
not to proceed to development.
8. Competition; Business Opportunities.
Nothing in this Agreement shall prevent any Shareholder or Affiliate of
any Shareholder, at any time and without notice to or agreement by any other
Shareholder, from entering into or continuing any business, whether or not
competitive with the Company, or acquiring or exploiting any mining rights,
whether or not in the vicinity of the Project, and none of the Affiliates of any
Shareholders shall have any obligation to offer business or other opportunities
to the Company or any other Shareholder.
9. Confidentiality.
Each Shareholder shall hold all information concerning the Company and
the operations of any Shareholder not otherwise generally available to the
public ("Confidential Information") in strict confidence and shall not, without
the prior written consent of each Shareholder affected, use or disclose such
information to anyone other than a Shareholder and its Affiliates and directors,
key employees, accountants, consultants and other advisors of the disclosing
Shareholder and its Affiliates who such Shareholder shall ensure will hold such
information in strict confidence as contemplated by this Section 9.
Notwithstanding the foregoing, (i) any Shareholder other than the PD Shareholder
may disclose Confidential Information to any prospective purchaser of all of the
Shares, Subordinated Debt and corresponding rights under this Agreement that it
holds and the PD Shareholder and any Affiliate of the PD Shareholder who is a
Shareholder may disclose Confidential Information to a prospective purchaser of
any or
<PAGE> 18
all of the Shares or Subordinated Debt and corresponding rights under this
Agreement that it holds, provided that any such prospective purchaser shall
first execute a confidentiality agreement containing provisions substantially
equivalent to this Section 9, and (ii) any Shareholder or any Affiliate thereof
may disclose Confidential Information if it believes in good faith that such
disclosure is required by applicable law, provided that prior to making any such
disclosure pursuant to this clause (ii) such Shareholder shall give written
notice (identifying such law and describing the general nature of such
disclosure) to, and consult with, each other Shareholder, unless such disclosure
is required immediately by law, in which case such Shareholder may disclose
Confidential Information to the extent required and shall immediately report in
writing the content of such disclosure and the reason therefor to each other
Shareholder.
10. Miscellaneous.
10.1 Implied Covenants. There are no implied covenants in this Agreement
other than those of good faith and fair dealing.
10.2 Notices. Any notice, advice, election, request, order, demand or
other direction required or permitted to be given under this Agreement shall be
in writing and in the English language, and (unless some other mode of giving
the same is specified or accepted in writing by the recipient) shall be
effective (a) when personally delivered during normal business hours to the
addressee at the address designated for such delivery, (b) on the date of
receipt specified in any courier service receipt if it shall have been sent by
an overnight courier service, postage thereon fully prepaid, addressed to such
address or (c) on the day it shall have been given by telex (with appropriate
answerback received), or facsimile transmission (with written confirmation of
receipt, which may be given by facsimile transmission) to such address,
whichever of the foregoing shall first occur. Until otherwise specified by
notice, the addresses for any such notice, advice, election, request, order,
demand or other direction shall be:
if to Azco, to it at:
P.O. Box 747
Safford, Arizona 85546
Telephone: 520-428-6881
Fax: 520-428-5865
Attention: Mr. David C. Beling
if to the PD Shareholder, to it at:
c/o Phelps Dodge Mining Company Phelps Dodge Tower 2600 N. Central Avenue
Phoenix, Arizona 85004
Fax: 602-234-8095
Telephone: 602-234-8178
Attention: Vice President and General Manager
<PAGE> 19
if to the Company, to it at:
c/o Phelps Dodge Mining Company Phelps Dodge Tower 2600 N. Central Avenue
Phoenix, Arizona 85004
Attention: Vice President and General Manager
Whenever pursuant to any provision of this Agreement notice is to be given to
any Shareholder, a copy thereof shall also be given to each Shareholder.
10.3 Entire Agreement. This Agreement constitutes the entire agreement
among the parties hereto with respect to the subject matter hereof and
supersedes all prior oral and written discussions and understandings.
10.4 Amendments, Waivers, etc. This Agreement may not be amended or
modified except by a written instrument signed by all of the parties hereto. No
party hereto shall be bound by any waiver of any provision hereof unless such
waiver is set forth in a written instrument signed by each of the parties
hereto. Except as otherwise provided in this Agreement, failure on the part of
any party hereto to exercise any right hereunder or to insist upon strict
compliance by any other party hereto with any of the terms, covenants or
conditions hereof shall not be deemed a waiver of such right, term, covenant or
condition. No provision of this Agreement shall be construed to be a waiver by
any of the parties hereto of any rights or remedies such party may have against
any other party for failure to comply with the provisions of this Agreement and,
except as provided in Section 10.6 or otherwise provided in this Agreement, no
remedy or right herein conferred is intended to be exclusive of any other remedy
or right, but every such remedy or right shall be cumulative and shall be in
addition to every other remedy or right herein conferred or now or hereafter
existing at law or in equity.
10.5 Assignability. Except as provided in Sections 7.2, 7.3 and 7.4,
neither this Agreement nor any right, remedy, obligation or liability arising
hereunder or by reason hereof shall be assignable by any party hereto without
the written consent of the other party or parties, which consent shall not be
unreasonably withheld.
10.6 Arbitration. (a) Any dispute, controversy or claim arising out of or
relating to this Agreement or the subject matter of this Agreement, or the
breach, termination, or invalidity hereof, shall be settled by arbitration. The
arbitration shall be conducted in accordance with the commercial rules of the
American Arbitration Association in effect at the time of the arbitration,
except as they may be modified herein or by the mutual agreement of the parties.
The arbitration shall be the sole and exclusive forum for resolution of the
dispute, controversy or claim and the award shall be in writing and shall be
final and binding on the parties. Judgement thereon may be entered by any court
having jurisdiction thereof or having jurisdiction over the parties or their
assets.
<PAGE> 20
(b) There shall be one arbitrator selected jointly by the party
initiating arbitration ("Claimant") and the party to this Agreement named as
defendant ("Defendant"). In the event that the Claimant and the Defendant cannot
agree on an arbitrator within 20 days of receipt of notice of said arbitration
by the Defendant, there shall be three arbitrators, each of whom shall be
impartial and independent from the parties. The Claimant and the Defendant shall
each name an arbitrator within 20 days of the expiration of the initial 20-day
period. The two arbitrators chosen pursuant to this Section shall select a third
arbitrator to serve as chair of the arbitration tribunal.
(c) If any party to this Agreement entitled to name an arbitrator
should fail to do so, or if the two arbitrators appointed by the parties fail or
are unable to appoint a chair of the arbitration tribunal, the President of the
American Arbitration Association shall appoint such arbitrator.
(d) The seat of arbitration will be Phoenix, Arizona, U.S.A.
10.7 Headings. The section headings contained in this Agreement are for
convenience only and are not a part of this Agreement.
10.8 Counterparts. This Agreement may be executed in any number of
counterparts, each of which when so executed shall be deemed to be an original;
such counterparts together shall constitute but one Agreement.
10.9 Governing Law. This Agreement shall be governed by and construed in
accordance with the laws of the State of Arizona without giving effect to choice
of law principles thereof.
<PAGE> 21
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to
be executed by their respective officers thereunto duly authorized as of the day
and year first above written.
AZCO MINING INC.
__________________________________
President
PD COBRE DEL MAYO, INC.
__________________________________
Name:
Title:
COBRE DEL MAYO, S.A. DE C.V.
__________________________________
Name:
Title:
Phelps Dodge Corporation hereby guaranties the prompt performance by PD Cobre
del Mayo, Inc. of all its obligations under the foregoing Agreement.
PHELPS DODGE CORPORATION
__________________________________
Name:
Title:
__________________________________
Name:
Title:
<PAGE> 22
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be executed
by their respective officers thereunto duly authorized as of the day and year
first above written.
AZCO MINING INC.
__________________________________
President
PD COBRE DEL MAYO, INC.
__________________________________
Name:
Title:
COBRE DEL MAYO, S.A. DE C.V.
__________________________________
Name:
Title:
Phelps Dodge Corporation hereby
guarantees the prompt performance
by PD Cobre del Mayo. Inc. of all
its obligations under the foregoing
Agreement.
PHELPS DODGE CORPORATION
__________________________________
Name:
Title:
__________________________________
Name:
Title:
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be executed
by their respective officers thereunto duly authorized as of the day and year
first above written.
<PAGE> 23
Certain Reimbursable Expenses
1. All salaries and wages, differentials and allowances (including those
under any expatriate programs) paid to the Operator's personnel, and all other
payments and costs incurred in connection with such personnel with respect to
pension plans, retirement plans, deferred compensation plans, savings plans,
stock ownership plans, stock option plans, vacations, holidays, sick leaves,
Social Security and payroll taxes, medical and hospitalization insurance,
employer's liability insurance, workmen's compensation insurance and all other
insurance the premiums for which are measured by payroll and any other similar
benefits or taxes (for the purpose of this Exhibit, the Operator's personnel
shall include employees of Affiliates of the Operator assigned or made available
to the Operator or third party contractors, consultants and other specialists).
2. Costs in connection with training and recruitment of the Operator's
personnel.
3. Costs for travel and subsistence of the Operator's personnel.
4. Costs of insurance.
5. Costs of taxes including withholding taxes imposed on the receipt or
payment of fees and reimbursable expenses except income taxes imposed by Mexico
or any taxing authority therein on the net income of the Operator.
6. Costs of contractors, consultants and other specialists.
7. Costs of establishing and maintaining project office and storage
space and facilities (including field offices) in Mexico.
8. Costs, expenses, settlement payments (if such settlements are
approved by the Board of Directors) and judgements, arising out of claims of
third parties, except where the loss from such claim resulted from the gross
negligence or wilful misconduct of employees of the Operator.
9. Costs of the support of the personnel and other support services of
the Phoenix, U.S.A. offices of PDC.
<PAGE> 1
EXHIBIT 21.1
SUBSIDIARIES OF THE COMPANY
<TABLE>
<CAPTION>
Name Jurisdiction of Incorporation
---- -----------------------------
<S> <C>
Sanchez Mining, Inc. Delaware
Cobre de Suaqui Verde, S.A. de C.V. Mexico
Sanou Mining Corporation Bahamas
</TABLE>
<PAGE> 1
[PRICEWATERHOUSECOOPERS LETTERHEAD]
Exhibit 24.1
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the incorporation by reference in the registration statement of
AZCO Mining Inc. on Form S-8 (File Nos. 33-56468, 33-61434 and 333-31807) of our
report dated August 26, 1998, on our audits of the financial statements and
financial statement schedule of AZCO Mining Inc. as of June 30, 1998 and 1997,
and for the years ended June 30, 1998, 1997 and 1996, which report is included
in this Annual Report on Form 10-K.
PricewaterhouseCoopers
Vancouver, British Columbia
September 28, 1998
PricewaterhouseCoopers is a Canadian member firm of PricewaterhouseCoopers
International Limited, an English company limited by guarantee.
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> JUN-30-1998
<PERIOD-START> JUL-01-1997
<PERIOD-END> JUN-30-1998
<CASH> 18,320,882
<SECURITIES> 0
<RECEIVABLES> 999,226
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 19,320,108
<PP&E> 232,943
<DEPRECIATION> (66,382)
<TOTAL-ASSETS> 19,486,669
<CURRENT-LIABILITIES> 299,061
<BONDS> 0
0
0
<COMMON> 51,361
<OTHER-SE> 19,136,247
<TOTAL-LIABILITY-AND-EQUITY> 19,486,669
<SALES> 0
<TOTAL-REVENUES> 1,061,398
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 6,214,747
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> (5,153,349)
<INCOME-TAX> (2,109,237)
<INCOME-CONTINUING> (3,044,112)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (3,044,112)
<EPS-PRIMARY> (0.12)
<EPS-DILUTED> 0
</TABLE>
