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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, 1999
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
<TABLE>
<CAPTION>
Title of each class Name of each exchange on which registered
<S> <C>
Common Stock, $.002 par value The Toronto Stock Exchange
Common Stock, $.002 par value The American Stock Exchange
</TABLE>
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
23, 1999 is 29,832,121.
Aggregate Market Value of Stock held by Non-Affiliates as of September 23, 1999:
$27,323,776 (U.S.)
Documents incorporated by reference: None.
<PAGE> 2
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 and develop mineral properties amenable
to low cost production. The Company is currently focused on producing high
quality Muscovite Mica from its 100% owned Black Canyon Mica project located in
Arizona. The Company, with its 30% interest, has established a strategic
partnership with Phelps Dodge Corporation on the Piedras Verdes copper project
located in Sonora, Mexico. The business strategy on large exploration projects
has been focused on establishing partnerships with major companies. This
strategy generally reduces financial risk and offers the opportunity to
participate in major mineral projects.
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. 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 copper 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 located 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 1999 AND SUBSEQUENT EVENTS
On March 9, 1999 the Company completed the acquisition of Arizona Mica
Properties, Inc., an Arizona corporation ("Arizona Mica"), which owned the
rights to develop 43 unpatented lode-mining claims located in Yavapai County,
Arizona. This acquisition was accomplished through the merger of Arizona Mica
with and into the Company's wholly owned subsidiary, Sanchez Mining Inc., a
Delaware corporation ("Sanchez"), with Sanchez being the surviving corporation
in the merger. Sanchez has subsequently changed its name to AZCO Mica, Inc. In
connection with the merger, the Company issued an aggregate of 4,500,000 shares
(the "Shares") of its common stock to the three shareholders of Arizona Mica,
Messrs. Lawrence G. Olson, John O. Rud and Floyd R. Bleak, with each such
shareholder receiving 1,500,000 shares of the Company's common stock. The Shares
were issued as "restricted securities", as that term is defined in Rule 144
promulgated under the United States Securities Act of 1933, as amended (the
"Act"), and the certificates representing the Shares bear a restrictive legend
permitting transfer only pursuant to registration or applicable exemption under
the Act.
The Company undertook a 3-month due diligence period, which included
confirmation drilling, a marketing study and environmental and legal audits. The
price of the transaction was determined at arms length with the principals of
Arizona Mica.
In addition to the 43 mining claims the Company also acquired a pilot
mica processing facility that Arizona Mica was developing in Glendale, Arizona.
The Company is currently developing further this processing facility.
***
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 property
interests that Cortez desired to either joint venture, option or dispose of. In
consideration, therefore, the Company has subscribed for 200,000 common shares
of Cortez at Cdn. $.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.
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 located in Sonora, Mexico, under the following terms:
1. by subscribing to 100,000 common shares of Cortez at Cdn. $0.25 per share;
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2. by making option payments and paying finders' fees on behalf of Cortez
totaling $165,000 over the next five years; and
3. by incurring exploration expenditures on the property totaling $500,000 over
the next three years.
On June 10, 1999 the Company acquired a 100% interest in the Silverado
property, which surrounds the Adelita property, from Cortez for $20,000 and
30,000 of the Company's shares.
***
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 ("Lion") that provided 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 $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, Lion and AZCO, AZCO gave notice of default to its
joint-venture partners. This dispute is still outstanding and the Company is
currently trying to resolve it. Eagle is currently bankrupt as indicated in Item
3. "LEGAL PROCEEDINGS"
On April 6, 1998 the Company entered into an agreement with Lines
Overseas Management Ltd. ("Lines"). Under the terms of the Mali agreement, Lines
had originally advanced $500,000 and 125,000 shares of the Company's common
stock owned by it to Eagle for payments to Guefest and other parties. The
Company issued 375,000 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.
On January 21, 1999 the Company announced that it had entered into a
joint venture arrangement with Randgold Resources Ltd. ("Randgold") whereby
Randgold was to acquire the right to earn up to 75% of the Company's interest in
WAG. To earn this consideration Randgold has agreed, over the next 36 months,
to conduct exploration on the WAG concessions at a minimum cost of $2 million,
with the aim of establishing whether there is a viable economic gold resource,
as defined in
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the agreement, of at least one million ounces. Thereafter Randgold is required
to prepare a Bankable Feasibility Study on any such resource for WAG within a
further 12 months in order to earn its interest therein.
***
On December 5, 1997 the Company announced that it had acquired the
option to explore, evaluate and purchase the Benitoite Gem Mine located in San
Benito County, California. AZCO paid $20,000 for the original option and an
additional $20,000 in March of 1999 for an option extension through January 1,
2000. On or before this date the Company has the option to purchase the mine
outright for $1.5 million, unencumbered by royalty.
***
On May 22, 1998 the Company entered into an agreement to purchase a
$1,500,000 convertible debenture in and to Oro Argentina Limited ("OAL") for the
purpose of financing the first phase of the Chigue White Bentonite project and
the option payments of OAL as required thereby. OAL has an option to acquire a
50% interest in this Bentonite project that is located 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.
Accrued interest on the debenture for the first year was due on September 1,
1999.
As at June 30, 1999 $1,159,390 has been drawn against the debenture by
OAL. During the first three quarters $81,969 of accrued interest had been
capitalized.
On September 1, 1999 OAL defaulted on the interest payment of $136,722
due under the terms of the debenture agreement. The Company expensed all costs
related to this project in fiscal 1999 and is currently considering its
alternatives under the debenture agreement with OAL.
***
Effective on August 9, 1999 the Company entered into an "Agreement in
Principal" (the "AIP") with each of Thomas Ford and Calgem, Inc., Mr. Ford's
wholly owned subsidiary, of Redondo Beach, California (collectively, "Calgem"),
pursuant to which, and subject to such legal, accounting and tax advice as may
be provided to the Company by its various professional advisors and counsel
prior to closing, Calgem therein granted the Company an option to purchase all
of the issued and outstanding shares of Calgem and/or business assets of Calgem
in consideration of, among other matters, the issuance of an aggregate of
250,000 common shares of the Company to Calgem together with the payment to
Calgem of an aggregate of $150,000 over a period of one year from regulatory
approval to the transaction.
In accordance with the terms and conditions of the AIP the Company has
now advanced, by way of interim loan (the "Loan"), an aggregate of $250,000 to
the order and direction of Calgem. The Loan, together with interest accruing
thereon at the rate of ten percent per annum, is to be secured by way of a
senior fixed and floating charge on all of the assets of Calgem and,
furthermore, and in accordance with the terms of the AIP, the Loan is to be
utilized for the sole
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purpose of purchasing gemstones on behalf of, in the name of and as agent only
for the Company and in conjunction with the present business of Calgem which is
contemplated for acquisition by the Company under the AIP.
The Company and Calgem, in accordance with the terms and conditions of
the AIP, are presently negotiating the terms and conditions of a proposed formal
agreement which is expected to expand upon, and replace in its entirety, the
AIP, together with the formal terms, conditions and security for the Loan which
is contemplated under the AIP.
REPURCHASE PROGRAM
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 on August 13, 1998 and continuing up to and including August 13,
1999. The Company purchased 803,376 shares through the life of the repurchase
program for a total of $490,776.
EXPLORATION AND DEVELOPMENT
During fiscal 1999 the Company received no material revenues, other than
interest income, as the Company has no mineral properties in production.
Exploration expense of $229,479 was incurred as the Company funded its
30% share of the Piedras Verdes project.
Exploration expense in Indonesia totaled $37,628 during fiscal 1999. The
Company continues to investigate the whereabouts of refundable deposits made to
the Indonesian government and written off in fiscal 1998.
During fiscal 1999 AZCO incurred $409,428 of exploration expense on the
Mali project. Randgold Resources Ltd. successfully completed its first year
commitment under the joint venture agreement on the Mali project and has
indicated to the Company that it intends to continue with the second year of
commitments under the agreement.
The Company incurred exploration expense of $411,413 for its gemstone
initiative. Expenses of $88,910 and $322,503 were accumulated on the Chivor
Emerald and California Benitoite projects, respectively.
A total of $1,241,359 was expensed to the Chigue Bentonite project
located in Argentina. This represents the $1,159,390 advanced to OAL under the
debenture agreement and any accrued interest booked to date. The decision to
expense all costs related to this project was made after OAL was expected to
default on its interest payment due on September 1, 1999.
Costs associated with the due diligence performed on the Black Canyon
Mica project, a total of $293,386, were expensed as exploration expense.
Exploration expense of $228,258 was allocated to the La Adelita property
in fiscal 1999.
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EMPLOYEES
As of August 15, 1999 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 foreign countries including
Mexico, Indonesia and Mali. Mineral exploration, development and mining
activities on its property interests may be affected 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
The mine and concentrator located at the Black Canyon Mica project are
accessed by crossing a ford in the Agua Fria River. This ford is unusable at
times due to high runoff from streams and snowmelt. From past records the
maximum duration that the ford is unusable is approximately 30 days. To overcome
possible interruptions to production due to weather, a one to two month
stockpile of mica concentrate is expected to be inventoried at the Glendale
process plant.
It is not anticipated that AZCO's Mexican property 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
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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
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 could potentially become material at some point, but the amount of
such expenditures are uncertain at this time.
ITEM 2. PROPERTIES
BLACK CANYON MICA PROJECT
On March 9, 1999 the Company completed the acquisition of Arizona Mica,
which owned the rights to develop 43 unpatented lode-mining claims located in
Yavapai County, Arizona. This acquisition was accomplished through the merger of
Arizona Mica with and into the Company's wholly owned subsidiary, Sanchez, with
Sanchez being the surviving corporation in the merger. Sanchez has subsequently
changed its name to AZCO Mica, Inc. ("AZCO Mica").
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AZCO Mica has staked 226 additional claims adjacent to the original
property and has defined, through its initial drill program, a deposit of
390,000 tons of muscovite mica resource. Construction is underway on a 10,000
tpy wet ground mica processing facility in Glendale, Arizona, approximately 40
miles from the Black Canyon Mica Mine.
Through August 31, 1999 the Company has expended a total of $3,361,338
on the construction of the Glendale processing facility and mine development.
Total capital costs for the Black Canyon Mica project are currently budgeted at
$5,387,000. AZCO Mica is expecting to be in production of high quality muscovite
mica by the end of 1999.
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 been advanced and a geological and ore deposit model
has been prepared. A pre-feasibility report has been prepared and a $3,600,000
work budget advancing the project towards a bankable feasibility has been
approved and initiated.
The Company estimates that the Piedras Verdes property contains a 316
million ton deposit grading .37% copper or 2.34 billion pounds of contained
copper (at a .2% cut-off).
SUAQUI VERDE PROJECT
Cobre de Suaqui Verde, S.A. de C.V., a Mexican corporation that is owned
99.97% by AZCO, leased the Suaqui Verde copper property. Effective July 31, 1999
Cobre de Suaqui Verde, S.A. de C.V., under the direction of the Company,
terminated the June 17, 1991 Suaqui Verdi Agreement with Mrs. Maria Dausinger
and is currently having the mineral concessions transferred to Mrs. Dausinger.
MALI GOLD CONCESSIONS
On May 9, 1996 the Company signed an agreement with West Africa Gold &
Exploration Ltd., Eagle and Lion that provided 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
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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 $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, Lion and AZCO, AZCO gave notice of default to its
joint-venture partners. This dispute is still outstanding and the Company is
currently trying to resolve it. Eagle is currently bankrupt as indicated in Item
3. "LEGAL PROCEEDINGS".
On January 21, 1999 the Company announced that it had entered into a
joint venture with Randgold whereby Randgold acquired the right to earn up to
75% of the Company's interest in WAG. To earn this consideration Randgold has
agreed, over the next 36 months, to conduct exploration on the WAG concessions
at a minimum cost of $2 million, with the aim of establishing whether there is a
viable economic gold resource, as defined in the agreement, of at least one
million ounces. Thereafter Randgold is required to prepare a Bankable
Feasibility Study on any such resource for WAG within a further 12 months in
order to earn its interest therein.
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 that is currently being disseminated to a
number of companies, which have expressed an interest in joint-venturing the
properties.
ITEM 3. LEGAL PROCEEDINGS
On January 22, 1999 the trustee ("Petitioner") in bankruptcy proceedings
against Eagle served a petition, in the Quebec Superior Court, District of Hull,
upon the Company in order to recuperate assets from the Company. The Petitioner
alleges that the Company owes an accounting to the Petitioner for certain stock
in its subsidiary and other alleged assets which, the Petitioner has alleged,
represent hypothetical values that may aggregate, if one accepts the
Petitioner's claims of private stock values, up to $3,400,000. The Company
considers the Petitioner's claims to be without merit and has engaged counsel
that is disputing
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the matter vigorously on behalf of the Company. To the knowledge of the Company
it is also the largest creditor of Eagle (a claim has been made in excess of
$4,000,000) and, therefore, it is ultimately the Company's and Canadian
counsel's view that the Petitioner will be primarily accountable to the Company
for any assets recovered, whether such should be through the Company or any
other party.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
On May 26, 1999 the Company held an annual and special meeting of
shareholders. A brief discussion of the matters voted upon follows:
1. Alan P. Lindsay, Anthony R. Harvey, Ian M. Gray, Lawrence G. Olson
and Paul A. Hodges were elected directors of the Company to hold
office until the next annual general meeting of the Company or until
their successors are elected or appointed subject to the provisions
of the Company's by-laws;
2. It was resolved that PricewaterhouseCoopers would serve as the
Company's auditors for the fiscal year ending June 30, 1999;
3. It was resolved that the Voting Agreement among the Company, Arizona
Mica, Lawrence G. Olson, John O. Rud, Floyd R Bleak, Alan P. Lindsay
and Anthony R. Harvey be authorized and approved;
4. It was resolved that the maximum number of shares for which options
may be granted under the Company's existing Stock Option Plan be
fixed at 5,950,424; and
5. It was resolved that the proposal to amend certain issued and
outstanding options to acquire shares of common stock of the Company
in the manner as set forth in the Company's Proxy Statement be
authorized and approved.
The following table states the number of shares cast as to each matter.
<TABLE>
<CAPTION>
In Favor Against Withhold Abstain Not Voted
--------- --------- -------- ------- ---------
<S> <C> <C> <C> <C> <C>
1a Alan P. Lindsay 19,902,031 0 29,800 269,092 0
1b Anthony R. Harvey 19,901,331 0 30,500 269,092 0
1c Ian M. Gray 19,885,431 0 46,400 269,092 0
1d Paul A. Hodges 19,900,231 0 31,600 269,092 0
1e Lawrence G. Olson 19,905,606 0 26,225 269,092 0
2 Auditors 20,016,973 98,870 0 85,080 0
3 Voting Agreement 6,103,631 642,465 0 229,180 11,088,541
4 Stock Option Plan 6,956,787 1,715,939 0 439,655 11,088,542
5 Amendment to Stock Options 4,729,479 1,801,864 0 443,932 11,088,542
</TABLE>
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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 23, 1999, was 1,036.
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 Stock Exchange (Canadian $) American Stock Exchange (U.S. $)
- ------------- ------------------------------------ --------------------------------
High Low High Low
---- --- ---- ---
<S> <C> <C> <C> <C>
1997
----
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
09/30/98 1.13 0.70 0.75 0.44
12/31/98 0.95 0.70 0.63 0.44
1999
----
03/31/99 1.30 0.75 0.75 0.56
06/30/99 1.80 0.80 1.31 0.63
</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 certain arrangements
with Lines in relation to the Mali Project, on March 11, 1999 AZCO issued
4,500,000 common shares to three sophisticated investors in connection with the
acquisition of Arizona Mica and on June 10, 1999 AZCO issued 30,000 common
shares to Cortez in connection with the acquisition of the Silverado property.
The above mentioned transactions are 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.
12
<PAGE> 13
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 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 Item 7. "MANAGEMENT'S DISCUSSION
AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS" included below.
<TABLE>
<CAPTION>
For the Year Ended June 30
-----------------------------------------------------------------
1999 1998 1997 1996 1995
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
INCOME STATEMENT:
Revenues $917,391 $1,061,398 $1,368,753 $26,893,607 $100,800
Net income (loss) (4,528,006) (3,044,112) (8,155,700) 17,127,455 (4,698,537)
Per share $(.17) $(.12) $(.32) $.67 $(.19)
Weighted Avg. #
Of common shares
& common equiv. 26,787,226 25,646,449 25,787,247 25,554,322 25,006,637
BALANCE SHEET:
Mineral Properties $2,219,997 $nil $nil $nil $12,573,096
Total Assets 17,353,717 19,486,669 22,345,247 30,033,118 15,791,656
Notes Payable nil nil nil nil 2,540,715
Total Liabilities 387,984 299,061 337,050 58,217 3,594,210
Total Stock-holders'
equity 16,965,733 19,187,608 22,008,197 29,974,901 12,197,446
</TABLE>
ITEM 7. MANAGEMENT DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
GENERAL
All material revenues received during fiscal 1999 and 1998 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 various mineral properties.
13
<PAGE> 14
RESULTS OF OPERATIONS
TWELVE MONTHS ENDED JUNE 30, 1999 COMPARED TO TWELVE MONTHS ENDED JUNE 30, 1998.
AZCO had a net loss of $4,528,006 in fiscal 1999 compared to net loss of
$3,044,112 in 1998. The increase in net loss for the year ended June 30, 1999
was the result of a provision for income tax benefit booked in fiscal 1998.
The Company's provision for income tax benefit in fiscal 1998 was
$2,109,237 compared to $4,186 for 1999 due to federal income tax refunds
received as a result of taxes paid on the sale of assets in 1996.
Exploration expense in 1999 was $3,041,175 as compared to $3,261,405 in
1998. Exploration expense for the current period includes $1,241,359
representing advances and accrued interest under the OAL debenture agreement.
The decision to expense all costs related to this project was made after OAL
defaulted on its interest payment due on September 1, 1999.
Miscellaneous expense in fiscal 1998 resulted from the $400,000 payment
to AIOC Corporation ("AIOC") as full and final payment of all matters and claims
between AIOC, AZCO and Sanchez.
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 was 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
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.
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.
14
<PAGE> 15
At June 30, 1999 and June 30, 1998 the Company had cash and cash
equivalents of $12,106,173 and $18,320,882, respectively, and working capital of
$11,813,811 and $19,021,047, respectively. Total liabilities at June 30, 1998
were $299,061 as compared to $387,984 on June 30, 1999.
The Company feels that its current cash position is strong enough to
fund all capital requirements in fiscal 2000. 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. The continued development of the Black Canyon Mica project is expected to
be funded from the Company's treasury. 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 that project.
ADDRESSING 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 that use certain dates in 1999 to represent something other than a
date. The effects of the Year 2000 issue may be experienced before, on or after
January 1, 2000, and, if not addressed, the impact on operations and financial
reporting may range from minor errors to significant systems failure that could
affect an entity's ability to conduct normal business operations. However, the
Company has installed updated accounting software that 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 7A. 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.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS
Not applicable.
15
<PAGE> 16
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 23, 1999. 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, and length of time served in each capacity and other
matters relevant to each individual is set forth below in 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, Director
Executive Vice President and Secretary
Paul Arthur Hodges Director of the Company
Dr. Ian McFarlane Gray Director of the Company
Lawrence G. Olson Director of the Company
Ryan Andrew Modesto Vice President Finance
Gary L. Simmerman Vice President Operations
Douglas W. Ramshaw Vice President Corporate Development
</TABLE>
All of 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 49, 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.
Mr. Harvey, aged 65, 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
16
<PAGE> 17
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 72, a 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 the President of Anamax Mining
Company at Twin Buttes. Most recently Mr. Hodges was the 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 63, a P.Eng. of Ontario, Canada, and a Fellow of the
Society of Economics Geologists, became a director of the Company on September
4, 1996. Dr. Gray, a Mining Geologist from the Royal School of Mines in London,
UK, has spent over 40 years in the international mining industry. His experience
ranges from mineral exploration through project development to mine production
for a wide variety of minerals throughout North, Central and South America,
Australia, East and Southeast Asia and Central and Southern Africa. During his
career Dr. Gray has held senior positions with major mining companies such as
Inco Ltd. and BP Minerals International Ltd., followed by considerable
experience in the formation and general management of Canadian based junior
mining public companies. Notable achievements include important roles in the
development of the huge Olympic Dam copper, uranium and gold production complex
in South Australia and the 370,000 ounce per year Fort Knox gold mine located
near Fairbanks Alaska.
Mr. Olson, aged 62, became a director of the Company on March 15, 1999
in connection with the acquisition of Arizona Mica (see Item 13 "CERTAIN
RELATIONSHIPS AND RELATED TRANSACTIONS" in respect to the arrangements under
which Mr. Olson became a director). Mr. Olson has owned and operated his own
business, Olson Precast of Arizona Inc., since 1973. In 1998 Olson Precast of
New Mexico, Inc., a company controlled by Mr. Olson, was liquidated under the
United States Bankruptcy law in proceedings in the United States Bankruptcy
Court for the district of New Mexico. Mr. Olson received a B.S. in Civil
Engineering from the University of Southern California in 1959.
Mr. Simmerman, aged 49, joined the Company in September 1992 as Chief
Engineer of the Sanchez Project, and in October of 1998 was appointed
Vice-President of Operations. Mr. Simmerman, a Mining Engineer from the
University of Arizona, has been working in the mining industry since 1974, and
has been involved in exploration, development and production operations in gold,
silver, copper, cobalt, coal and uranium. For the five years prior to joining
the Company Mr. Simmerman was Chief Engineer for Santa Fe Pacific Gold's Rabbit
Creek Mine and was involved in the original determinations of the ore reserves
and the
17
<PAGE> 18
feasibility stage through startup, production and expansion to a 200,000 ton per
day operation.
Mr. Modesto, aged 44, Vice President Finance since October 26, 1998
joined the Company in June of 1994 as Controller of the Sanchez project. Mr.
Modesto served as the Company's Corporate Controller and Principal Accounting
Officer from January of 1996 to October of 1998. Mr. Modesto earned a B.S. in
Accounting from the University of Utah in 1977 and has 22 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 Inc.'s Santa
Fe Mine located in Nevada.
Mr. Ramshaw, aged 28, 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 52, Chief Geologist joined AZCO on August 1, 1997. Dr.
Badham resigned from his position with the Company effective July 31, 1999.
Prior to being associated with AZCO Dr. Badham was Chief Geologist for RTZ
Mining and 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, 1999, all filing requirements
applicable to its officers, directors and greater than ten percent beneficial
owners were complied with, except for one late filing of a Form 3 reporting
eleven sales in July 1999 by Dr. Badham.
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 $100,000 for the year ended June 30, 1999, as well as the total compensation
paid to each such individual for the Company's three previous fiscal years:
18
<PAGE> 19
<TABLE>
<CAPTION>
Summary Compensation Table
(As at year ended June 30, 1999)
- --------------------------------------------------------------------------------------------------
Long Term
Annual Compensation Compensation
------------------------------------------------- ------------
Securities
Underlying
Options/
Other Annual SARs
Name and Principal Salary Bonus Compensation Granted
Position Year ($) ($) ($) (#)
- ------------------ ---- ---------- ----- ------------ ----------
<S> <C> <C> <C> <C> <C>
Alan P. Lindsay 1999 183,750(1) 9,000 9,000(3) 200,000
President, Chairman 1998 139,169(1) 5,500 7,250(3) 0
of the Board and CEO 1997 110,000(1) 5,500 6,000(3) 0
Anthony R. Harvey 1999 183.750(2) 9,000 9,000(3) 200,000
Vice Chairman, Exec. Vice 1998 139,169(2) 5,500 7,250(3) 0
President, Secretary 1997 110,000(2) 5,500 6,000(3) 0
Dr. Nick P. Badham(6) 1998 154,083 7,750 0 0
Chief Geologist 1997 148,000 7,500 0 0
1996 48,000 0 0 100,000
Ryan A. Modesto 1999 109,084 5,500 0 70,000
Vice President Finance 1998 97,200 4,800 30,000(4) 13,000
1997 84,479 4,100 0 50,000
Gary L. Simmerman 1999 115,973 7,500 30,000(5) 155,000
Vice President Operations 1998 96,000 4,800 0 30,000
1997 88,344 4,100 0 45,000
</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.
19
<PAGE> 20
(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.
(5) Mr. Simmerman was granted a $30,000 relocation allowance in conjunction with
the Company's establishment of its Glendale office to oversee the Black
Canyon Mica project.
(6) Dr. Badham resigned his position with the Company on July 31, 1999.
OPTION GRANTS IN LAST FISCAL YEAR
<TABLE>
<CAPTION>
Potential
Realized Value
(Cdn $) at
Number Assumed Annual
of % of Total Rates
Securities Options of Stock Price
Underlying Granted to Appreciation For
Options Employees Exercise or Option Term
Granted in Fiscal Base Price ------------------
Name (#) Year (Cdn $/Sh) Expiration Date 5% 10%
- --------------- ---------- ---------- ----------- --------------- ------ ------
<S> <C> <C> <C> <C> <C> <C>
Ryan A. Modesto 30,000(1) 4% 0.80 July 13,2003 6,631 14,652
Gary L. Simmerman 25,000(2) 4% 0.70 October 23,2003 4,834 10,684
Ryan A. Modesto 20,000(2) 3% 0.70 October 23,2003 3,868 8.547
Alan P. Lindsay 200,000(3) 29% 0.80 February 22,2004 44,205 97,681
Anthony R. Harvey 200,000(3) 29% 0.80 February 22,2004 44,205 97,681
Gary L. Simmerman 30,000(3) 4% 0.80 February 22,2004 6,681 14,652
Ryan A. Modesto 20,000(4) 3% 1.05 March 11,2004 5,802 12,820
Gary L. Simmerman 100,000(4) 15% 1.05 March 11,2004 29,010 64,104
</TABLE>
(1) These options are exercisable from the date of grant (July 13, 1998).
(2) These options are exercisable from the date of grant (October 23, 1998).
(3) These options are exercisable from the date of grant (February 22, 1999).
(4) These options are exercisable from the date of grant (March 11, 1999).
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR
AND FY-END OPTIONS VALUES
<TABLE>
<CAPTION>
Number of Securities
Underlying Value of Unexercised
Unexercised Options In-The-Money Options at
at FY-End FY-End ($)(*)
------------------------------ -----------------------------
Name Exercisable Unexercisable Exercisable Unexercisable
- ----------------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C>
Alan P. Lindsay 500,000 0 146,290 0
Anthony R. Harvey 500,000 0 146,290 0
Dr. Nick Badham 100,000 0 22,470 0
Gary L. Simmerman 265,000 0 70,576 0
Ryan A. Modesto 170,000 0 48,042 0
</TABLE>
20
<PAGE> 21
(*) Based on the closing price of $0.94 of the Company's common stock as quoted
on The American Stock Exchange on June 30, 1999.
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
1999 non-officer directors received a total of $320 in consulting fees.
REPORT ON REPRICING OF OPTIONS
The Company's Board of Directors on March 10, 1999 repriced all
outstanding stock options of employees and directors to Cdn. $1.05, the closing
price at that date on the Toronto Stock Exchange. This repricing was
subsequently ratified by the Company's shareholders at the annual and special
meeting of shareholders on May 26, 1999. The Board believes that the repricing
was necessary to keep compensation competitive in the industry. The following
table represents all repricings of stock option held by executive officers of
the Company during the last ten years.
TEN-YEAR OPTION REPRICINGS
<TABLE>
<CAPTION>
Market
Price Exercise Length of
Number of of Stock at Price at New Original Term
Underlying time of Time Exercise Remaining at
Options Repricing of Repricing Price Date of
Name Date Repriced (Cdn.$) (Cdn.$) (Cdn.$) Repricing
- ------------------ ------------- ---------- ----------- ------------ -------- -------------
<S> <C> <C> <C> <C> <C> <C>
Alan P. Lindsay March 11,1999 300,000 $1.05 $1.80 $1.05 2 years
(CEO)
Anthony R. Harvey March 11,1999 300,000 $1.05 $1.80 $1.05 2 years
(Executive VP)
Ryan A. Modesto March 11,1999 12,000 $1.05 $3.50 $1.05 4 months
(VP Finance)
March 11,1999 25,000 $1.05 $1.80 $1.05 2 years
March 11,1999 50,000 $1.05 $1.87 $1.05 3 years,
2 months
March 11,1999 13,000 $1.05 $1.70 $1.05 3 years,
9 months
G. L. Simmerman March 11,1999 35,000 $1.05 $1.80 $1.05 2 years
(VP Operations)
March 11,1999 45,000 $1.05 $1.87 $1.05 3 years,
2 months
March 11,1999 30,000 $1.05 $1.80 $1.05 3 years,
1 month
Doug W. Ramshaw March 11,1999 100,000 $1.05 $2.32 $1.05 2 years,
(VP Corp. Dev.) 11 months
Dr. Nick Badham March 11,1999 100,000 $1.05 $1.95 $1.05 3 years,
(Chief Geologist) 4 months
</TABLE>
The foregoing report is submitted by the entire board of directors Mr.
Alan P. Lindsay, Mr. Anthony R. Harvey, Mr. Paul A. Hodges, Dr. Ian M. Gray and
Mr. Lawrence G. Olson.
EMPLOYMENT CONTRACTS AND CHANGE-IN-CONTROL ARRANGEMENTS
21
<PAGE> 22
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 is therein
provided with a base fee of $180,000 annually and an 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 is to be increased by the greatest 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 renews 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 the
agreement is terminated, or fails to renew due to failure of agreement after the
issuance of a non-renewal notice, Associates will 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 and (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
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. It is the Company's estimation
that if the management agreement with Associates was terminated September 23,
1999 Associates would be due $454,420 as a termination fee. This fee represents
$186,670 (Cdn.$275,000) for the buyout of outstanding stock options on September
23, 1999 and $267,750 as the aggregate remaining base fee for the remainder of
the term of the agreement.
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 is therein provided with a base
fee of $180,000 annually and an 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 is to
be increased by the greatest 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 renews 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 the agreement is terminated, or
fails to renew due to failure of agreement after the issuance of a non-renewal
notice, Management will 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
22
<PAGE> 23
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 and (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. It
is the Company's estimation that if the management agreement with Management was
terminated September 23, 1999 Management would be due $454,420 as a termination
fee. This fee represents $186,670 (Cdn.$275,000) for the buyout of outstanding
stock options on September 23, 1999 and $267,750 as the aggregate remaining base
fee for the remainder of the term of the agreement.
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 each of Mr. Modesto, on November 19,
1996, and Mr. Simmerman, on October 23, 1998. 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 circumstances:
(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;
(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 also effective in the
event of a change in control of the Company. These Director's Agreements provide
for a lump
23
<PAGE> 24
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 1999 the entire board of directors acted
as the Company's compensation committee.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The table below sets forth information, as of September 23, 1999, 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 Percent of
Of Beneficial Owner Ownership Shares Class
- ------------------------------- ---------- ------------ -------------
<S> <C> <C> <C>
Alan P. Lindsay Record and 1,178,569(1) 3.89%
999 W. Hastings, Ste 1250 Beneficial
Vancouver, BC, Canada V6C 2W2
Anthony R. Harvey Record and 653,252(2) 2.15%
999 W. Hastings, Ste 1250 Beneficial
Vancouver, BC, Canada V6C 2W2
Paul A. Hodges Record and 116,524(3) *
4536 N. Via Bellas Catalinas Beneficial
Tucson, AZ 85718
Dr. Ian M. Gray
Copper Hill House, Buller Hill Record and 150,000(4) *
Redruth,Cornwall U.K., TR16 6SR Beneficial
Lawrence G. Olson 5.85%
3045 S. 35th Avenue Record and 1,750,000(5)
Phoenix, AZ 85009 Beneficial
Ryan A. Modesto Record and 170,000(6)
PO Box 1895 Beneficial *
Ferndale, WA 98248
Gary L. Simmerman Record and 265,000(7) *
1211 W. Crystal Palace Place Beneficial
Oro Valley, AZ 85737
Floyd R. Bleak Record and 1,500,000 5.03%
3616 E. Omega Circle Beneficial
Mesa, AZ 85215
Officers & Directors Record and 4,393,345 13.85%
As a Group (8 persons) Beneficial
</TABLE>
*- indicates less than 1%
24
<PAGE> 25
(1) Includes 605,308 shares owned by a corporation controlled by Mr. Lindsay.
Includes options to acquire 300,000 shares at an exercise price of CDN $1.05
per share and 200,000 shares at an exercise price of CDN $0.80 per share.
(2) Includes 122,224 shares owned by Mr. Harvey's wife. Includes options to
acquire 300,000 shares at an exercise price of CDN $1.80 per share and
200,000 shares at an exercise price of CDN $0.80 per share.
(3) Includes options to acquire 50,000 shares at an exercise price of CDN $1.05
per share and 50,000 shares at an exercise price of CDN $0.70 per share.
(4) Represents options to acquire 100,000 shares at an exercise price of CDN
$1.05 per share and 50,000 shares at an exercise price of CDN $0.70 per
share.
(5) Includes an options to acquire 100,000 shares at an exercise price of CDN
$1.05 per share.
(6) Represents options to acquire 120,000 shares at an exercise price of CDN
$1.05 per share, 20,000 shares at an exercise price of CDN $0.70 per share
and 30,000 shares at an exercise price of CDN $0.80 per share.
(7) Represents options to acquire 210,000 shares at an exercise price of CDN
$1.05 per share, 25,000 shares at an exercise price of CDN $0.70 per share
and 30,000 shares at an exercise price of CDN $0.80 per share.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
On March 9, 1999 the Company completed the acquisition of Arizona Mica,
which owned the rights to develop 43 unpatented lode-mining claims located in
Yavapai County, Arizona. This acquisition was accomplished through the merger of
Arizona Mica with and into the Company's wholly owned subsidiary, Sanchez, with
Sanchez being the surviving corporation in the merger. Sanchez has subsequently
changed its name to AZCO Mica, Inc. In connection with the merger, the Company
issued an aggregate of 4,500,000 shares (the "Shares") of its common stock to
the three shareholders of Arizona Mica, Messrs. Lawrence G. Olson, John O. Rud
and Floyd R. Bleak, with each such shareholder receiving 1,500,000 shares of the
Company's common stock. The Shares were issued as "restricted securities", as
that term is defined in Rule 144 promulgated under the United States Securities
Act of 1933, as amended (the "Act"), and the certificates representing the
shares bear a restrictive legend permitting transfer only pursuant to
registration or applicable exemption under the Act.
As part of the merger transaction Messrs. Olson, Bleak and Rud also
entered into a Voting Agreement (the "Voting Agreement") with the Company,
Arizona Mica and Messrs. Alan P. Lindsay and Anthony R. Harvey, who are
officers, directors and shareholders of the Company. The Voting Agreement has a
term of five years commencing March 9,1999 and the principal provisions of the
Voting Agreement are as follows:
1. Messrs. Olson, Rud and Bleak each grant to the management of the Company, as
such may exist from time to time, the right to vote their Shares in favor of
25
<PAGE> 26
the nominees to the Company's Board of Directors proposed by management at any
meeting of Shareholders of the Company. This provision is implemented through
the grant of an irrevocable proxy by Messrs. Olson, Rud and Bleak to such member
of the Board of Directors of the Company as the Board of Directors may specify
from time to time;
2. The Company agrees to appoint one nominee (the "Nominee") of Messrs. Olson,
Rud and Bleak to the Company's Board of Directors and agrees to include the
Nominee in the management's slate of directors at any meeting, of the
Shareholders of the Company;
3. Messrs. Olson, Rud and Bleak are permitted to sell, assign or otherwise
transfer the Shares covered by the Voting Agreement provided that such transfers
comply with applicable securities laws. Any Shares so transferred will no longer
subject to the terms of the Voting Agreement; and
Lawrence G. Olson, a non-officer director of the Company since March 15,
1999, is the owner of Olson Precast of Arizona Inc. ("Precast"). Precast,
through a closed bidding arrangement, was awarded the concrete contract on the
Company's Glendale, Arizona, mica processing facility. Precast was compensated a
total of $141,385 for the contract.
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-22.
3. Exhibits
<TABLE>
<S> <C>
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 By-laws(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 and Phelps Dodge (2)
</TABLE>
26
<PAGE> 27
<TABLE>
<S> <C>
10.4 Memorandum of Agreement between West Africa Gold & Exploration Ltd., Eagle, Lion and the Registrant (4)
10.5 Management Agreement dated February 1, 1998 between the Registrant and ARH Management Ltd. (5)
10.6 Management Agreement dated February 1, 1998 between the Registrant and Alan Lindsay and Associates, Ltd. (5)
10.7 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. (5)
10.8 Debenture Agreement dated May 22, 1998, where Registrant purchases a $1,500,000 convertible debenture of
Oro Argentina Limited. (5)
10.9 Right of First Refusal Agreement dated June 18, 1998 between the Registrant and Minera Cortez Resources Ltd. (5)
10.10 Mineral Property Option Agreement dated July 21, 1998, for the La Adelita property, between the Registrant and
Minera Cortez Resources Ltd. (5)
10.11 Change in Control Management Agreements between the Registrant and each of Messrs. Lindsay, Harvey, Modesto
and Ramshaw. (5)
10.12 Change in Control Director's Agreements between the Registrant and each of Mr. Hodges and Dr. Gray. (5)
10.13 Cobre del Mayo, S.A. de C.V. Shareholders' & Operator's Agreement. (5)
10.14 Agreement and Plan of Merger of Arizona Mica Properties, Inc, into Sanchez Mining Inc. dated March 10, 1999. (6)
10.15* Shareholders Agreement between the Registrant, Sanou, WAG and Randgold dated March 31, 1999.
10.16* Mineral Property Option Agreement dated May 20, 1999, for the Silverado property, between the Registrant and
Minera Cortez Resources Ltd.
10.17* Agreement in Principle dated August 9, 1999, between the Registrant Mr. Thomas Ford and Calgem, Inc.
21.1* Subsidiaries of the Registrant.
24.1* Consent of PricewaterhouseCoopers.
27.1* Financial Data Schedule.
</TABLE>
- ------------
(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).
27
<PAGE> 28
(2) Exhibit nos. 3.3, 3.4 and 10.3 are incorporated by reference from exhibit
nos. 3.3, 3.4 and 10.20, respectively, 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 that was filed with the SEC
on July 21, 1992.
(4) Exhibit No. 10.4 is incorporated by reference from exhibit no. 10.10 from
the Registrant's Annual Report on Form 10-K for the fiscal year ended June
30, 1996.
(5) Exhibit nos. 10.5, 10.6, 10.7, 10.8, 10.9, 10.10, 10.11, 10.12 and 10.13 are
incorporated by reference from exhibit nos. 10.7, 10.8, 10.9, 10.10, 10.12,
10.13, 10.15, 10.16 and 10.17, respectively, from the Registrant's Annual
Report on Form 10-K for the fiscal year ended June 30, 1998.
(6) Exhibit No. 10.14 is incorporated by reference from exhibit no. 1 from the
Registrant's Form 8K filed with the SEC and dated March 9, 1999.
* Filed herewith.
(b) Reports on Form 8K:
March 9, 1999. Acquisition of Arizona Mica Properties Inc.
28
<PAGE> 29
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 27, 1999 By: /s/ Alan P. Lindsay
--------------------------------------
Alan P. Lindsay
President, Chairman of the Board and
Chief Executive Officer
Date: September 27, 1999 By: /s/ Ryan A. Modesto
--------------------------------------
Ryan A. Modesto
Vice President Finance
Pursuant to the requirements of the Securities Exchange Act of 1934, the
following persons on behalf of the registrant and in the capacities and on the
dates indicated have signed this report below.
<TABLE>
<CAPTION>
Signature Title Date
--------- ----- ----
<S> <C> <C>
/s/ Alan P. Lindsay President, Chairman of the September 27, 1999
- --------------------- Board and Chief Executive
Alan P. Lindsay Officer
/s/ Anthony R. Harvey Vice Chairman, Executive September 27, 1999
- --------------------- Vice President, Secretary
Anthony R. Harvey and Director
/s/ Paul A. Hodges Director September 27, 1999
- ---------------------
Paul A. Hodges
/s/ Dr. Ian M. Gray Director September 27, 1999
- ---------------------
Dr. Ian M. Gray
/s/ Paul A. Hodges Director September 27, 1999
- ---------------------
Paul A. Hodges
</TABLE>
<PAGE> 30
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, 1999 and 1998 F-3
Consolidated Statements of Loss for the fiscal years
ended June 30, 1999, 1998 and 1997 F-4
Consolidated Statements of Stockholders' Equity for the fiscal years
ended June 30, 1999, 1998 and 1997 F-5
Consolidated Statements of Cash Flows for the fiscal years
ended June 30, 1999, 1998 and 1997 F-6
Notes to Consolidated Financial Statements F-7
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, 1999, 1998 and 1997 F-22
</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.
<PAGE> 31
[PRICEWATERHOUSECOOPERS LLP LETTERHEAD]
September 4, 1999
AUDITORS' REPORT
TO THE SHAREHOLDERS 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, 1999 and the consolidated results of their
operations and their cash flows for each of the three years in the period ended
June 30, 1999 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 LLP
CHARTERED ACCOUNTANTS
F-2
<PAGE> 32
AZCO MINING INC. (DELAWARE)
Consolidated Balance Sheets
AS AT JUNE 30, 1999 AND 1998
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
1999 1998
---------- ----------
$ $
<S> <C> <C>
ASSETS
CURRENT ASSETS
Cash and cash equivalents 12,106,173 18,320,882
Restricted cash -- 16,165
Prepaids and other 95,623 201,061
Income taxes receivable -- 782,000
-----------------------------
TOTAL CURRENT ASSETS 12,201,796 19,320,108
-----------------------------
PROPERTY AND EQUIPMENT
Mineral properties, plant and equipment (note 5) 5,076,969 --
Furniture and equipment 74,502 90,440
-----------------------------
5,151,471 90,440
Less: Accumulated depreciation and amortization (57,863) (66,382)
-----------------------------
5,093,608 24,058
INVESTMENT AND ADVANCES (note 4) 50,588 134,778
-----------------------------
OTHER ASSETS 7,725 7,725
-----------------------------
TOTAL ASSETS 17,353,717 19,486,669
=============================
LIABILITIES
CURRENT LIABILITIES
Accounts payable and accrued liabilities 387,984 299,061
-----------------------------
CONTINGENCIES AND COMMITMENTS (notes 6 and 11)
STOCKHOLDERS' EQUITY
CAPITAL STOCK
Authorized
100,000,000 common shares with a par value of $0.002 per share
Issued and outstanding
29,832,121 (1998 - 25,680,497) common shares 59,664 51,361
ADDITIONAL PAID-IN CAPITAL 28,297,561 25,999,733
DEFICIT (11,391,492) (6,863,486)
-----------------------------
16,965,733 19,187,608
-----------------------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY 17,353,717 19,486,669
=============================
</TABLE>
F-3
<PAGE> 33
AZCO MINING INC. (DELAWARE)
Consolidated Statements of Loss
FOR THE YEARS ENDED JUNE 30, 1999, 1998 AND 1997
<TABLE>
<CAPTION>
1999 1998 1997
--------- --------- ----------
$ $ $
<S> <C> <C> <C>
REVENUE
Interest income 905,891 1,052,516 1,332,679
Gain (loss) on sale of assets 1,500 (970) 11,074
Other income 10,000 9,852 25,000
-----------------------------------------------
917,391 1,061,398 1,368,753
-----------------------------------------------
OPERATING EXPENSES
Salaries (note 11) 1,091,914 1,007,740 1,107,910
General and administrative 1,037,957 1,138,682 1,037,253
Exploration (notes 4 and 6) 3,041,175 3,263,405 7,575,006
Accounting and legal 263,633 384,870 254,288
Depreciation and amortization 14,904 20,050 33,498
Financing and acquisition -- -- 113,031
Legal settlement costs (note 11) -- 400,000 --
-----------------------------------------------
5,449,583 6,214,747 10,120,986
-----------------------------------------------
LOSS BEFORE INCOME TAXES (4,532,192) (5,153,349) (8,752,233)
INCOME TAX BENEFIT (note 8) 4,186 2,109,237 596,533
-----------------------------------------------
LOSS FOR THE YEAR (4,528,006) (3,044,112) (8,155,700)
=================================== ===========
BASIC LOSS PER COMMON SHARE (note 9) (0.17) (0.12) (0.32)
=================================== ===========
DILUTED LOSS PER COMMON SHARE (note 9) (0.17) (0.12) (0.32)
=================================== ===========
WEIGHTED AVERAGE NUMBER OF COMMON SHARES
OUTSTANDING 26,787,226 25,646,449 25,787,247
=================================== ===========
</TABLE>
F-4
<PAGE> 34
AZCO MINING INC. (DELAWARE)
Consolidated Statements of Stockholders' Equity
FOR THE YEARS ENDED JUNE 30, 1999, 1998 AND 1997
<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, 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
Loss for the year -- -- -- (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
Loss for the year -- -- -- (3,044,112) (3,044,112)
-----------------------------------------------------------------------------------
BALANCE - JUNE 30, 1998 25,680,497 51,361 25,999,733 (6,863,486) 19,187,608
Stock options exercised 50,000 100 34,917 -- 35,017
Issued for exploration property
interests 405,000 810 261,690 -- 262,500
Issued for acquisition (note 5) 4,500,000 9,000 2,280,388 -- 2,289,388
Repurchase of Company's shares (803,376) (1,607) (465,767) -- (467,374)
Stock option compensation -- -- 186,600 -- 186,600
Loss for the year -- -- -- (4,528,006) (4,528,006)
-----------------------------------------------------------------------------------
BALANCE - JUNE 30, 1999 29,832,121 59,664 28,297,561 (11,391,492) 16,965,733
===================================================================================
</TABLE>
F-5
<PAGE> 35
AZCO MINING INC. (DELAWARE)
Consolidated Statements of Cash Flows
FOR THE YEARS ENDED JUNE 30, 1999, 1998 AND 1997
<TABLE>
<CAPTION>
1999 1998 1997
---- ---- ----
$ $ $
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Loss for the year (4,528,006) (3,044,112) (8,155,700)
Items not affecting cash
Depreciation and amortization 14,904 20,050 33,498
Stock option compensation expense (note 7) 186,600 119,230 149,996
Issuance of common stock for property interest 262,500 50,000 --
Amortization of premium on investment securities -- -- 5,686
Loss (gain) on sale of furniture and equipment (1,500) 970 (11,074)
Loss on write-down of refundable deposits -- 370,505 --
Loss on write down of investment (note 4) 1,241,359 -- --
Net change in assets and liabilities
Restricted cash 16,165 17,941 17,504
Prepaids and other 105,438 (120,168) 135,768
Refundable deposits -- 244,750 (615,255)
Income taxes receivable 782,000 (302,272) (479,728)
Accounts payable and accrued liabilities 45,923 (37,989) 278,833
Deposit -- 4,000,000 --
-----------------------------------------------
(1,874,617) 1,318,905 (8,640,472)
-----------------------------------------------
CASH FLOWS FROM INVESTING ACTIVITIES
Proceeds from maturity of short-term investments -- -- 1,395,000
Purchase of furniture and equipment and construction in
progress (7,485) (2,900) (22,163)
Proceeds from sale of furniture and equipment 1,500 5,102 13,090
Purchase of Minera Cortez Resources Ltd. shares (16,533) (34,055) --
Purchase of investment in OAL (1,140,636) (100,723) --
Purchase of mine property, plant and equipment (2,744,581) -- --
-----------------------------------------------
(3,907,735) (132,576) 1,385,927
-----------------------------------------------
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from exercise of stock options 35,017 54,293 39,000
Purchase of treasury stock (467,374) -- --
-----------------------------------------------
(432,357) 54,293 39,000
-----------------------------------------------
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS (6,214,709) 1,240,622 (7,215,545)
CASH AND CASH EQUIVALENTS - BEGINNING OF YEAR 18,320,882 17,080,260 24,295,805
-----------------------------------------------
CASH AND CASH EQUIVALENTS - END OF YEAR 12,106,173 18,320,882 17,080,260
===============================================
</TABLE>
F-6
<PAGE> 36
AZCO MINING INC. (DELAWARE)
Notes to Consolidated Financial Statements
JUNE 30, 1999, 1998 AND 1997
- --------------------------------------------------------------------------------
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 assets, the 100% owned Black Canyon Mica Project in
Arizona and a 30% interest in the Piedras Verdes Project, through its
acquisition of other mineral properties. As at June 30, 1999, no property
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, PLANT AND EQUIPMENT
Mineral properties, plant and equipment are recorded at cost.
Depletion of mineral properties and development costs is to be provided on
the unit-of-production method, based on proven and probable ore reserves.
Buildings, plant and equipment is to be depreciated on a straight-line basis
over their estimated useful lives.
EXPLORATION PROPERTIES
The Company expenses prospecting and exploration costs and capitalizes costs
directly attributable to the acquisition of mineral properties, pending
determination as to their commercial feasibility (to contain a viable
mineral deposit). 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.
F-7
<PAGE> 37
AZCO MINING INC. (DELAWARE)
Notes to Consolidated Financial Statements
JUNE 30, 1999, 1998 AND 1997
- --------------------------------------------------------------------------------
PROPERTY EVALUATION
Recoverability of investments in operating and 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. Where property costs are not recoverable reductions in
the carrying value of each property are recorded to the extent the remaining
investment exceeds the estimate of fair value. Changes in the geological and
engineering interpretations of the Company's ore bodies, mica prices and
operating costs may change the Company's estimate of proven and probable
reserves. It is reasonably possible that the Company's estimate of proven
and probable reserves will change in the near term resulting in additional
charges for depreciation and reclamation in future reporting periods.
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.
ENVIRONMENTAL AND RECLAMATION COSTS
Estimated costs of decommission and reclamation associated with mineral
properties, plant and equipment, as well as revised regulatory requirements
are accrued over the life of the mine through periodic charges to earnings
on the unit-of-production method.
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.
F-8
<PAGE> 38
AZCO MINING INC. (DELAWARE)
Notes to Consolidated Financial Statements
JUNE 30, 1999, 1998 AND 1997
- --------------------------------------------------------------------------------
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.
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. 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 options
using APB No. 25. The fair value of options granted to non-employees 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. 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, 1999 and 1998, cash equivalents of $11,800,000
and $18,300,000, respectively, were invested with one bank's trust and
institutional portfolio department.
4 INVESTMENT AND ADVANCES
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-9
<PAGE> 39
AZCO MINING INC. (DELAWARE)
Notes to Consolidated Financial Statements
JUNE 30, 1999, 1998 AND 1997
- --------------------------------------------------------------------------------
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.
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.
During the year ended June 30, 1999, the Company made the decision to write
off all the investment in OAL. This resulted in a charge to exploration
expense of $1,241,359 during the year.
5 MINERAL PROPERTIES, PLANT AND EQUIPMENT
<TABLE>
<CAPTION>
1999 1998
$ $
--------- ---------
<S> <C> <C>
Mineral properties 2,219,996 --
Land and buildings 285,533 --
Plant and mining equipment 1,789,975 --
Development costs 781,465 --
--------- ---------
5,076,969 --
========= =========
</TABLE>
BLACK CANYON MICA PROJECT
On March 10, 1999 the Company announced that it had acquired Arizona Mica
Properties, Inc. ("AMPI") through a merger with the Company's subsidiary,
Sanchez Mining Inc. AMPI is the owner of the Black Canyon Mica Project, a
significant source of high-quality mica and a pilot processing plant
situated near Phoenix, Arizona.
F-10
<PAGE> 40
AZCO MINING INC. (DELAWARE)
Notes to Consolidated Financial Statements
JUNE 30, 1999, 1998 AND 1997
- --------------------------------------------------------------------------------
The acquisition has been accounted for by the purchase method, and the
results of AMPI have been reflected in the Company's results of operations
from March 10, 1999. The Company issued to the principals of AMPI 4,500,000
shares of the Company's common stock (subject to certain trading and voting
trust restrictions) with a value of $2,289,388, in exchange for all the
outstanding shares of AMPI. Details of the net assets acquired are as
follows:
<TABLE>
<CAPTION>
$
<S> <C>
Net assets acquired
Mineral properties 2,219,996
Development costs 112,392
Lease obligation (43,000)
Deferred income tax liability (754,800)
Recognition of deferred income tax asset 754,800
----------
2,289,388
==========
</TABLE>
The issuance of the Company's shares to acquire shares of AMPI is a non-cash
investing and financing activity, and accordingly, the transaction is not
reflected in the Consolidated Statement of Cash Flows.
6 EXPLORATION PROPERTIES
a) 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).
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, 1999, the Company has advanced $3,865,511 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:
i) $10,000 per month from the execution of the agreement until
production begins;
ii) three payments of $299,035 due on the date of execution and on the
first and second anniversaries of the date of execution;
F-11
<PAGE> 41
AZCO MINING INC. (DELAWARE)
Notes to Consolidated Financial Statements
JUNE 30, 1999, 1998 AND 1997
- --------------------------------------------------------------------------------
iii) royalties equal to three percent of the net value of mineral
production; and
iv) 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.
Following the results of a pre-feasibility study carried out by Phelps
Dodge and announced in November 1998, Phelps Dodge has approved and
initiated a $3,600,000 work budget advancing the project towards a
bankable feasibility. Under the terms of the agreement, the Company is
responsible for funding 30% of this work.
b) 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.
During the year ended June 30, 1998, MPDM terminated the option
agreement with the Company.
On July 17, 1999, the Company decided to terminate the agreement with
the property owners and made the final payment due under the agreement.
The Company intends to leave the property in good standing and have paid
the mineral duties on the concessions until December 31, 1999.
c) La Adelita Property
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; and
iii) by incurring exploration expenditures on the property totalling
$500,000 over the next three years.
During the year ended June 30, 1999, the company has expended $228,256
on the La Adelita property and thus completing its first year's
commitment to the property.
On June 10, 1999, the Company acquired 100% interest in the Silverado
property, which surrounds the La Adelita property, from Cortez for
$20,000 and 30,000 of the Company's shares.
F-12
<PAGE> 42
AZCO MINING INC. (DELAWARE)
Notes to Consolidated Financial Statements
JUNE 30, 1999, 1998 AND 1997
- --------------------------------------------------------------------------------
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 loss.
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.
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 ran 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.
F-13
<PAGE> 43
AZCO MINING INC. (DELAWARE)
Notes to Consolidated Financial Statements
JUNE 30, 1999, 1998 AND 1997
- --------------------------------------------------------------------------------
On April 6, 1998, the Company entered into an agreement with Lines
Overseas Management Ltd. (Lines). 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.
On January 22, 1999, the trustee ("Petitioner") in bankruptcy
proceedings against Eagle River International Ltd. ("Eagle") served a
petition, in the Quebec Superior Court, District of Hull, upon the
Company in order to recuperate assets from the Company (see note 11).
On March 31, 1999 the Company announced that it had entered into a joint
venture with Randgold Resources Ltd. ("Randgold") whereby Randgold
acquired the right to earn up to 75% of the Company's interest. To earn
this consideration Randgold has agreed, over the next 36 months, to
conduct exploration on the WAG concessions at a minimum cost of $2
million, with the aim of establishing whether there is a viable economic
gold resource, as defined in the agreement, of at least one million
ounces. Thereafter Randgold shall prepare a Bankable Feasibility Study
on any such resource for WAG within a further 12 months in order to earn
its interest therein.
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 received a refund of $244,750 in deposits on
one of the properties. The remaining $370,505 in deposits was written
off to exploration expenses in the year ended June 30, 1998.
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.
On March 18, 1999 the Company made an additional payment of $20,000 to
extend the option to January 1, 2000.
F-14
<PAGE> 44
AZCO MINING INC. (DELAWARE)
Notes to Consolidated Financial Statements
JUNE 30, 1999, 1998 AND 1997
- --------------------------------------------------------------------------------
7 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 1999: risk-free interest rate from
4.07% to 5.50%, no dividend, volatility factor of the expected market price
of the Company's common stock of 0.71, and an expected life of five years.
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 $303,580 (1998 - $59,141; 1997 - $376,394) is expensed when the
options are granted as the options are fully vested when granted. Additional
fair value of the options of $269,760 (1998 - $nil; 1997 - $nil) is expensed
when certain options were repriced during the year. The Company's pro forma
information for fiscal 1999, 1998 and 1997 follows:
<TABLE>
<CAPTION>
1999 1998 1997
$ $ $
<S> <C> <C> <C>
Pro forma net loss (5,101,346) (3,103,293) (8,532,094)
Pro forma basic loss per share (0.19) (0.12) (0.33)
Pro forma diluted loss (0.19) (0.12) (0.33)
</TABLE>
The estimated fair value of options granted to non-employees of $186,600
(1998 - $119,230; 1997 - $149,995) has been credited to paid-in capital and
shown as a charge to salaries in the statement of operations.
F-15
<PAGE> 45
AZCO MINING INC. (DELAWARE)
Notes to Consolidated Financial Statements
JUNE 30, 1999, 1998 AND 1997
- --------------------------------------------------------------------------------
Plan activity for the years ended June 30, 1999, 1998 and 1997 was as
follows:
<TABLE>
<CAPTION>
NUMBER OF
SHARES PRICE RANGE OF OPTIONS
<S> <C> <C>
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
Granted 1,580,000 Cdn. $0.70 to U.S. $1.75
Cancelled (175,000) Cdn. $1.80 to Cdn. $2.89
Exercised (50,000) Cdn. $1.05
----------
Balance - outstanding at June 30, 1999 3,514,500 Cdn. $0.70 to U.S. $3.00
==========
</TABLE>
At June 30, 1999 and 1998, 928,424 and 1,485,545 shares of common stock were
reserved for future grants of options, respectively.
Of the 3,514,500 stock options outstanding at June 30, 1999, 2,070,000 stock
options were issued to directors, employees or key advisors of the Company.
Stock options exercisable at June 30, 1999 include the following:
<TABLE>
<CAPTION>
WEIGHTED WEIGHTED
AVERAGE AVERAGE
NUMBER OF EXERCISE PRICE REMAINING
PRICE RANGE OF OPTIONS SHARES CDN. $ LIFE
<S> <C> <C> <C>
Cdn. $0.70 to Cdn. $1.05 2,520,000 0.96 56 months
U.S. $1.00 to Cdn. $1.80 391,500 1.74 25 months
U.S. $1.25 to U.S. $1.75 403,000 2.07 20 months
Cdn. $2.65 to U.S. $3.00 200,000 3.53 21 months
</TABLE>
F-16
<PAGE> 46
AZCO MINING INC. (DELAWARE)
Notes to Consolidated Financial Statements
JUNE 30, 1999, 1998 AND 1997
- --------------------------------------------------------------------------------
8 INCOME TAXES
The income tax benefit is as follows:
<TABLE>
<CAPTION>
1999 1998 1997
$ $ $
<S> <C> <C> <C>
Current
Federal 4,186 2,109,237 568,524
State -- -- 28,009
-----------------------------------------
Total tax benefit 4,186 2,109,237 596,533
=========================================
</TABLE>
The income tax 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>
1999 1998 1997
$ $ $
<S> <C> <C> <C>
Tax benefit at the federal statutory rate 1,524,583 1,803,678 3,027,500
State tax 403,566 257,668 431,477
Change in valuation allowance (1,133,208) 162,463 (2,874,764)
Write-down of deferred tax asset for stock options -- -- (96,692)
Deferred tax asset recognized on acquisition (note 5) (754,800) -- --
Other (35,955) (114,572) 109,012
--------------------------------------------
Tax benefit 4,186 2,109,237 596,533
============================================
</TABLE>
The components of the deferred tax asset and deferred tax liability at June
30, 1999 and 1998 are as follows:
<TABLE>
<CAPTION>
1999 1998
$ $
<S> <C> <C>
Deferred tax asset
Federal net operating loss carryforward 844,060 --
State net operating loss carryforward 819,000 379,960
Foreign mineral properties 1,772,080 1,167,188
Other 27,860 27,844
Valuation allowance (2,708,200) (1,574,992)
---------------------------
Net deferred tax asset 754,800 --
Deferred tax liability
Black Canyon Mica Project (754,800) --
---------------------------
-- --
===========================
</TABLE>
F-17
<PAGE> 47
AZCO MINING INC. (DELAWARE)
Notes to Consolidated Financial Statements
JUNE 30, 1999, 1998 AND 1997
- --------------------------------------------------------------------------------
At June 30, 1999, the Company had net operating loss carryforwards for
Arizona income tax purposes of approximately $9.1 million (1998 - $7.6
million). These losses expire in the amount of $5.3 million on June 30,
2002, $2.3 million on June 30, 2003 and $1.5 million on June 30, 2004.
At June 30, 1999, the Company had net operating loss carryforward for
federal income tax purposes of approximately $2.5 million (1998 - $nil).
These losses expire on June 30, 2019.
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 loss, 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 1999, 1998 and
1997:
<TABLE>
<CAPTION>
1999 1998 1997
$ $ $
<S> <C> <C> <C>
Loss applicable to basic and diluted loss per
share (4,528,006) (3,044,112) (8,155,700)
Weighted average number of common shares
assuming no dilution 26,787,226 25,646,449 25,787,247
Weighted average common shares applicable to
income per common share 26,787,226 25,646,449 25,787,247
Weighted average number of common shares
assuming full dilution 26,787,226 25,646,449 25,787,247
Basic loss per common share (0.17) (0.12) (0.32)
Diluted loss per common share (0.17) (0.12) (0.32)
</TABLE>
Stock options that are anti-dilutive have not been included in the
computation of diluted income per common share.
F-18
<PAGE> 48
AZCO MINING INC. (DELAWARE)
Notes to Consolidated Financial Statements
JUNE 30, 1999, 1998 AND 1997
- --------------------------------------------------------------------------------
10 SEGMENTAL INFORMATION
The Company has one operating sector, mineral exploration and development,
and geographical segments as follows:
<TABLE>
<CAPTION>
USA OTHER TOTAL
$ $ $
<S> <C> <C> <C>
June 30, 1999
Capital assets 5,076,969 16,639 5,093,608
=======================================
June 30, 1998
Capital assets -- 24,058 24,058
=======================================
</TABLE>
11 CONTINGENCIES AND COMMITMENTS
EAGLE RIVER INTERNATIONAL LTD.
LITIGATION
On January 22, 1999, the trustee ("Petitioner") in bankruptcy proceedings
against Eagle River International Ltd. ("Eagle") served a petition, in the
Quebec Superior Court, District of Hull, upon the Company in order to
recuperate assets from the Company (see note 6(d)). It is the understanding
of the Company and its Canadian legal counsel that the Petitioner alleges
that, through the Company's involvement with Eagle in the Mali Project, the
Company is guilty of contractual breaches in excess of $3,400,000. In
management's opinion this claim is unfounded, although the eventual outcome
of the case is not yet determinable.
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 settlement cost. The remaining deposit with interest
held in escrow has been refunded to the Company.
F-19
<PAGE> 49
AZCO MINING INC. (DELAWARE)
Notes to Consolidated Financial Statements
JUNE 30, 1999, 1998 AND 1997
- --------------------------------------------------------------------------------
EMPLOYMENT AGREEMENTS
The Company has entered into agreements with four 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:
a) 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
b) 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, 1999, the Company paid $403,500 in management
fees to companies controlled by directors. This amount has been recorded as
salaries expense.
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.
On April 1, 1999, the Company cancelled the agreement. The stock option was
still outstanding at June 30, 1999.
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 aggregate annual rental commitment under
the leases is as follows:
F-20
<PAGE> 50
AZCO MINING INC. (DELAWARE)
Notes to Consolidated Financial Statements
JUNE 30, 1999, 1998 AND 1997
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
$
<S> <C>
2000 99,660
2001 99,660
2002 93,264
2003 66,375
2004 55,311
-------
414,270
=======
</TABLE>
Rental expense, net of sublease income, for the years ended June 30, 1999,
1998 and 1997 was $60,732, $60,514 and $68,121, respectively.
12 FAIR VALUE OF FINANCIAL INSTRUMENTS
The carrying amounts of cash and cash equivalents and restricted cash
approximated fair value as of June 30, 1999 and 1998 because of the
relatively short maturity of these instruments. It was not practicable to
estimate the fair value of advances to OAL as at June 30, 1998 because the
ultimate recovery of the advances was dependent on the ability of OAL to
realize its exploration and development assets, which are subject to the
measurement uncertainty inherent in such assets. This investment was written
off during the year ended June 30, 1999.
13 FOURTH QUARTER CHARGES
During the fourth quarter of fiscal 1999, the Company recorded a
compensation expense credit of $123,400 relating to an over-provision in the
accounting of stock options granted to non-employees under SFAS No. 123 in
the third quarter of fiscal 1999. The company recognized a deferred tax
asset of $754,800 to offset the deferred tax liability arising on the
acquisition, during the third quarter of fiscal 1999, of the Black Canyon
Mica Project. In addition, the Company wrote off $1,241,359 investment in
Oro Argentina Limited due to uncertainty of recoverability.
14 NEW PRONOUNCEMENTS
The Financial Accounting Standards Board has issued Statement of Financial
Accounting Standards No. 133, "Accounting for Derivative Instruments and
Hedging Activities." The Company is currently assessing the impact of this
statement for fiscal years beginning after June 15, 2000.
F-21
<PAGE> 51
AZCO MINING INC. (DELAWARE)
Schedule II - Valuation and Qualifying Accounts
FOR THE YEARS ENDED JUNE 30, 1999, 1998 AND 1997
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
COL. A COL. B COL. C COL. D COL. E
BALANCE AT BALANCE AT
BEGINNING END OF
DESCRIPTIONS OF YEAR ADDITIONS DEDUCTIONS YEAR
$ $ $ $
<S> <C> <C> <C> <C>
Valuation allowance for
deferred tax asset(1)
June 30, 1999 1,574,992 1,133,208 -- 2,708,200
June 30, 1998 1,737,455 -- 162,463 1,574,992
June 30, 1997 1,128,408 609,047 -- 1,737,455
</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-22
<PAGE> 1
Exhibit 10.15
SHAREHOLDERS AGREEMENT
BETWEEN:
AZCO MINING INC.
("Azco")
AND
SANOU MINING CORPORATION
("Sanou")
AND:
WESTERN AFRICAN GOLD AND EXPLORATION S.A.
("WAG")
AND:
RANDGOLD RESOURCES LIMITED
("Randgold")
1
<PAGE> 2
<TABLE>
<CAPTION>
TABLE OF CONTENTS
ARTICLE CLAUSE PAGE NO.
<C> <C> <C>
1. DEFINITIONS 4
2. PURPOSES AND TERMS 6
3. UNDERTAKING BY RANDGOLD 7
4. UNDERTAKING BY AZCO 8
5. UNDERTAKING BY WAG 8
6. ADDITIONAL SHAREHOLDING - WAG 9
7. ACQUISITION BY RANDGOLD OF SHARES IN WAG 9
8. ISSUANCE OF THE RANDGOLD SHARES 10
9. LOSS OF TERRITORY OF PERMITS 10
10. SALE AND PRE-EMPTIVE RIGHTS TO SHARES 10
11. FURTHER EXPENDITURE 11
12. BANKABLE FEASIBILITY STUDY 13
13. DILUTION OF SHAREHOLDING 13
14. MANAGER 15
15. FORMATION OF MINING COMPANY 19
16. DISTRIBUTION OF PROFITS 20
17. DISTRIBUTION OF CASH 21
18. CAMP EQUIPMENT AND DRILLING EQUIPMENT 21
19. WITHDRAWAL AND TERMINATION 21
20. REPRESENTATIONS AND WARRANTIES; TITLE TO ASSETS 22
21. RELATIONSHIP OF THE PARTIES 24
22. GENERAL PROVISIONS 25
</TABLE>
<TABLE>
<CAPTION>
SCHEDULES
<S> <C>
SCHEDULES 1 AND 2 THE PERMITS
SCHEDULE 3 HEADS OF AGREEMENT
SCHEDULE 4 WARRANTIES
ANNEXURE"A" TO SCHEDULE 4 WARRANTIES: DISCLOSURES
SCHEDULE 5 NET PROFITS INTEREST
SCHEDULE 6 EQUIPMENT PURCHASE AGREEMENT
</TABLE>
2
<PAGE> 3
THIS SHAREHOLDERS AGREEMENT made effective on the Effective Date as hereafter
set forth.
BETWEEN:
AZCO MINING INC., a company duly incorporated in the state of
Delaware, USA, and having an office for service of notices
hereunder at Suite 1250 - 999 West Hastings Street, Vancouver, BC
V6C 2W2 and SANOU MINING CORPORATION ("Sanou"), a wholly owned
subsidiary of Azco Mining Inc.
(Azco Mining Inc. hereafter called "Azco");
OF THE FIRST PART
AND:
WESTERN AFRICAN GOLD AND EXPLORATION S.A., a company duly
incorporated in Mali, of Tidiane Derne, Notary, B.P. 1945
Bamako, Mali
("WAG");
OF THE SECOND PART
AND:
RANDGOLD RESOURCES LIMITED, incorporated in Jersey, Channel
Islands, of 5 Press Avenue, Selby, Johannesburg, South Africa
("Randgold")
OF THE THIRD PART
WHEREAS:
A. WAG holds the Permits in Mali which give it the exclusive rights to
explore for gold and associated minerals and platinoids in the areas of
Dandoko and Medinandi in Mali.
B. WAG is wholly owned by Sanou, which is a wholly owned subsidiary of Azco
and Azco is additionally acting as agent for Sanou in this Agreement.
C. Randgold is actively engaged in, and has the expertise and capability to
prospect and mine for gold in Mali.
D. Azco and Randgold wish to establish a venture under which Randgold may
commence an exclusive prospecting, exploration and evaluation program to
determine whether potentially economic deposits of gold may exist on the
Permit Areas, and if so, the manner under which, through a joint
shareholding of WAG, Randgold and Azco, through its subsidiary Sanou,
will proceed to develop and conduct mining Operations in respect of any
such deposits.
3
<PAGE> 4
E. In pursuance of D above, Randgold and WAG have entered into a legally
binding Heads of Agreement dated 5 August 1998 under which the parties
have agreed on the basic terms of the Agreement.
F. Randgold, WAG, Sanou, and Azco have each taken all necessary action to
permit and authorize it to enter into this Agreement.
NOW THEREFORE THIS AGREEMENT WITNESSETH that in consideration of the mutual
covenants and provisions herein contained, THE PARTIES HERETO AGREE AS FOLLOWS:
ARTICLE I
DEFINITIONS
1.1 Affiliate or Affiliates. means any person, partnership, joint venture,
or other form of enterprise which directly or indirectly controls, or is
controlled by or is under common control with a party, and in the case
of Randgold shall mean its partners in the Loulo project in Mali. For
this purpose, "control" shall mean the ability, directly or indirectly,
to direct or cause direction of management and policies through
ownership of voting shares, securities, contract, voting trust or
otherwise. Control shall mean de facto control, including without
limitation the power to appoint the majority of the directors or
equivalent officers of the body corporate or the control of the majority
of the voting rights of the body corporate;
1.2 Agreement. means this Agreement, including all amendments and
modifications which may be made to it from time to time, and all
schedules to this Agreement, which are incorporated in this Agreement by
this reference;
1.3 Assets. means all assets of WAG including the Permits from time to time;
1.4 Board. means the Board of Directors of WAG;
1.5 Budget. means a detailed estimate of all costs to be incurred by the
parties with respect to a Program and an estimated schedule of cash
advances to be made in respect of that Program;
1.6 Confidential Information. means the information referred to as such in
clause 22.7;
1.7 "$" or dollar. means the currency of the United States of America;
1.8 Effective Date. means the date of the last signature hereto;
1.9 Exploration. means, inter alia, all direct and indirect preparation,
analysis (and activities incident thereto), administration and filing
work and Exploration Expenditures conducted and incurred by the Manager
on the Permit Areas, at their instruction, or on their behalf, or by
assignment to another party, for the purpose of determining the
existence of ore on the Permit Areas and the economic viability of
extracting the same;
1.10 Exploration Expenditures. means all cash, expenses, obligations and
liabilities of whatever kind or nature spent directly or indirectly by
the Manager, and any person on their behalf or in substitution for them,
in connection with Exploration of the Permit Areas and any Programs,
including without limiting the generality of the foregoing, monies
expended in maintaining the Permits in good standing by doing and filing
4
<PAGE> 5
assessment work, in doing geophysical, geochemical and geological
surveys, drilling, assaying and metallurgical testing (and any costs
pursuant to seeking and performing a Feasibility Study), in acquiring
facilities, in paying the fees, wages, salaries, third party costs
(including legal, accounting, geological consultants and all other
parties engaged), traveling expenses and fringe benefits (whether or not
required by law) of all persons engaged in work with respect to and for
the benefit of the Permits, in paying for the food, lodging and other
reasonable needs of such men, in paying the Manager's administration fee
of 5% for supervision of all work done by the Manager and its
consultants and contractors for the benefit of the Permits;
1.11 Feasibility Study. means the final report produced in a form sufficient
to obtain financing and to obtain financial approval to develop a mine
within the Permit Area and otherwise to ascertain whether gold, or other
product which the Permit allows to be produced, from one or more
substantial deposits suitable for development within the Permit Area can
profitably be extracted, treated and sold under circumstances that would
provide a reasonable long term return to the parties. Such a report:
1.11.1 shall report on the economic feasibility of establishing a
mine and constructing facilities for removing and processing
deposits of gold;
1.11.2 shall include (amongst other matters) a review of geology, ore
reserves, metallurgy, environmental considerations, mining
methods, mine capital and operating cost estimates, process
flow sheets, process plant capital and specifications and
requirements, capital and operating cost estimates,
rate-of-return calculations, general personnel requirements
and appropriate sensitivity analyses incorporating price costs
sensitivities, and such other information as the Manager deems
appropriate; and
1.11.3 may be prepared by the Manager, an associated company of the
Manager or a contractor chosen by the Manager;
1.12 Heads of Agreement. means the Heads of Agreement dated 5 August 1998
between the parties referred to in Recital E, a copy of which is
attached as Schedule "3";
1.13 Implementation Date. means the date on which Randgold Shares are
transferred, which shall occur as best efforts by March 30, 1999 and
closing shall thereupon be deemed to occur effective on December 31,
1998, it being recognized that the effective date for recognition of
rights and obligations of this Agreement is the Effective Date;
1.14 Liabilities or Liability. means any and all claims, demands,
investigations, judgments, losses, liabilities, costs and expenses,
including reasonable attorneys' fees;
1.15 Mali. means the Republic of Mali;
1.16 Manager. means the person or entity appointed under clause 14.1 to
manage Operations, and includes any person appointed from time to time
to succeed the incumbent Manager in managing operations;
1.17 Operations. means the exploration, development, mining and other
activities of the parties in the Permit Areas, carried out under this
Agreement;
1.18 Permit Areas. means the area to which the Permits apply at the Effective
Date, as that area may be reduced from time to time in accordance with
the Permits;
5
<PAGE> 6
1.19 Permits. means the exclusive prospecting permits held under Arrete No.
97-1129/MMEH-SG transferring Arrete No. 92-7113/MMIE-CAB of 31 December
1992 and its renewal on 25 October 1996 by Arrete No. 96-1676/MMEH-SG,
from Consortium Miniere Industriel par Action "GUEFEST" in respect of
the areas known as Dandoko and Medinandi, copies of which are attached
as Schedules 1 and 2;
1.20 Program. means a description in reasonable detail of Operations relating
to the Permits to be conducted by the Manager for a year or for any
longer period and for which Budgets have been prepared;
1.21 Randgold Shares. means the shares in WAG to be acquired by Randgold so
as to make it a 75% shareholder in WAG;
1.22 Shareholding. means the percentage interest representing the ownership
interest of a party in the Operations, and all other rights and
obligations and items of property arising under this Agreement or to
which this Agreement relates, as such interest may from time to time be
adjusted. Shareholding shall be calculated to three decimal places and
rounded to two. Decimals of .005 shall be rounded down;
1.23 Shares. means the issued shares in WAG from time to time;
1.24 Year. means a period of 12 months, commencing on the anniversary of the
Effective Date.
ARTICLE 2
PURPOSES AND TERMS
2.1 General. Azco and Randgold enter into this Agreement to constitute
themselves shareholders of WAG with effect from the Effective Date, and
to pursue the purposes hereinafter mentioned, and they agree that all of
their rights and liabilities as against each other, and all of the
Operations, on or in connection with the Permit and the Permit Areas
shall be subject to and governed by this Agreement.
2.2 Purposes. The parties enter into this Agreement for the following
purposes and for no others:
2.2.1 in the case of WAG to make all its right, title and interest,
whether direct or indirect, or legal or beneficial, in the
Permits available for the purposes of and for use in connection
with the Operations;
2.2.2 in the case of Azco, as principal shareholder of WAG on the
Effective Date, to approve this Agreement as such shareholder and
to vote its Shares to instruct WAG to comply with the terms of
this Agreement and to procure that the other shareholders
similarly give their approval and vote their Shares;
2.2.3 in the case of Randgold to conduct Exploration within the Permit
Areas, to incur the expenditures provided for by this Agreement,
to act as Manager of activities on the Permit Areas, to maintain
the Permits in accordance with the Law of Mali, to safeguard the
Randgold Shares, as controlling shareholder of WAG to cause WAG
to be safeguarded and maintained free of liability or encumbrance
arising from the activities of Randgold as Manager, to evaluate
possible development and mining of the Permit Areas, to produce a
Bankable Feasibility Study, as Manager to engage in development
and mining in the Permit Areas, and to perform any other
operation or activity necessary, appropriate or incidental to any
of the
6
<PAGE> 7
foregoing.
2.3 Limitation. Unless the parties otherwise agree in writing, the
Operations shall be limited to the purposes described in clause 2.2, and
nothing in this Agreement shall be construed so as to enlarge such
purposes.
2.4 Effective Date and Term. The Effective Date shall be the date of the
last signature hereto. The term of this Agreement shall, unless it is
earlier terminated in accordance with its terms, be for so long as both
Azco and Randgold are shareholders of WAG.
ARTICLE 3
UNDERTAKING BY RANDGOLD
3.1 Randgold undertakes that from the Implementation Date it will over the
following 36 months, conduct Exploration over the Permit Areas, at a
minimum cost of $2 million, with the aim of establishing whether there
is a viable economic gold indicated resource of at least one million
ounces and thereafter it shall prepare a Bankable Feasibility Study on
such a resource for WAG, to be completed on a best efforts basis within
a further 12 months but to be completed within 18 months. Should the
indicated resource be less than 1,000,000 ounces but be a viable
resource then the parties shall in good faith continue this Agreement
with such amendments as are considered necessary and mutually agreeable.
3.2 In undertaking Exploration, Randgold will use methods and techniques
consistent with modern exploration practices.
3.3 The preparation of Budgets, target generation, management of Exploration
and the day to day activities associated therewith will be the sole
prerogative of the Board. The Board shall not effect certain decisions
except with the unanimous consent of the Board in the following
circumstances:
3.3.1 The abandonment, assignment, sale, surrender, or any other
disposition of a substantial or an economically material portion
of the Permits or the Permit Areas or of the workings established
thereon other than as is required in terms of the laws of Mali as
it affects the Permits;
3.3.2 joint venturing or otherwise optioning or permitting the entry of
any other party into this joint venture enterprise, except as
otherwise permitted in this Agreement;
3.3.3 financing of the enterprise herein contemplated on terms which
are not within normal commercial parameters prevailing in normal
corporate practice in the mining industry;
3.3.4 securitizing the enterprise herein contemplated;
3.3.5 contracting of any part of the enterprise on terms which are not
commercially reasonable within prevailing industry practice;
3.3.6 the acquiring of assets or the incurring of capital expenditure;
3.3.7 non-arms length transactions with any party hereto or an
Affiliate; or
3.3.8 any other transaction which creates an unequal or unusual benefit
or detriment to any Party.
7
<PAGE> 8
3.4 As controlling shareholder of WAG from the Implementation Date, Randgold
will vote its Randgold Shares to cause WAG to fulfill the terms of this
Agreement and Randgold will exercise its vote of its Randgold Shares to
cause Azco to have a 25% representation on the Board and, further, will
render Azco all such assistance as it may require to enforce its rights
hereunder in respect to WAG's compliance with this Agreement and to
require such of the Board of WAG.
3.5 Randgold, as controlling shareholder of WAG, shall ensure that WAG
properly renews the Permits as the law requires and maintains such
Permits in good standing. Randgold acknowledges that to the
Implementation Date Azco has been making application for the renewed
Permits based upon budgets and data provided by Randgold and in
contemplation of Randgold assuming responsibility for the same.
ARTICLE 4
UNDERTAKING BY AZCO
4.1 As the controlling shareholder of WAG on the Implementation Date, Azco
undertakes to vote its shareholdings to cause Sanou to cause WAG to
allot and issue to Randgold, sufficient WAG ordinary shares so as to
make Randgold a 75% shareholder of WAG as contemplated in parts 7 and 8
hereof.
4.2 Sanou and Azco will vote its Shares to cause WAG to fulfills its
obligations in terms of this Agreement while Azco has a controlling
interest.
4.3 Sanou and Azco will pass such resolutions and give such consent as is
required to give effect to this Agreement.
ARTICLE 5
UNDERTAKING BY WAG
5.1 WAG undertakes on the Implementation Date to allot and issue to Randgold
such shares as to make Randgold a holder of 75% of its issued ordinary
shares.
5.2 All governmental approvals which may be required to implement this
Agreement in Mali will be obtained by WAG as expeditiously as possible.
Randgold and Azco will provide whatever facilities may be necessary to
assist in such implementation.
5.3 Upon the implementation of the new shareholding, WAG will constitute the
Board so as to ensure that Randgold has a 75% representation and Azco a
25% representation. If necessary, changes to WAG statutes to give effect
to the implementation of this Agreement will be made by WAG. Upon the
termination of this Agreement Randgold will provide Azco with those
corporate documents provided to Randgold in clauses 8.1.1.2 and 8.1.1.7.
ARTICLE 6
ADDITIONAL SHAREHOLDING - WAG
6.1 In terms of the Convention d'Establishment, under the laws of Mali it is
understood by the parties hereto that the government of Mali has the
right to receive, at its election, a 15% carried interest in the Permit
Areas or in the company owning such. The government also has the right
to receive an additional 5% working interest. The parties acknowledge
the dilution effect of such government elections and shall suffer such
dilution pro-rata with their interests being 75% to Randgold and 25% to
Azco, or such interests as they may have at the relevant time in
accordance with any dilution which may have occurred
8
<PAGE> 9
to the date of the government's election.
ARTICLE 7
ACQUISITION BY RANDGOLD OF SHARES IN WAG
7.1 On the Implementation Date, Azco will vote for and approve and WAG
undertakes, to allot and issue and deliver to the escrow agent, as
contemplated in Article 7.2 and Article 8, such number of shares in
WAG's capital, so as to vest Randgold with 75% of the issued share
capital of WAG and Azco the holder of 25%. In connection with such
subscription WAG and Azco give Randgold the warranties set out in
Schedule "4".
7.2 The Randgold Shares will be retained in escrow by an agent in England
mutually acceptable to the parties, together with share transfer forms
signed by Randgold authorizing the transfer of the Randgold Shares to
Azco in the event of Randgold defaulting under the terms of this
Agreement and failing to cure such default (as either acknowledged by
Randgold or as adjudged by a competent tribunal) or this Agreement
terminating without Randgold having completed the expenditures
contemplated by this Agreement for Exploration and production of the
Bankable Feasibility Study
7.3 Once Randgold has spent $2 million on Exploration and concluded the
Bankable Feasibility Study acceptable to independent financial
institutions on the Permit Areas, the escrow agent shall release the
Randgold Shares and the signed share transfer forms to Randgold upon
receipt of such a written instruction from Azco and Randgold or upon
order of a competent tribunal.
7.4 All fees of the escrow agent shall be borne by the parties pro rata in
accordance with their ownership interests in WAG.
7.5 The transfer fees and expenses for the transfer of the Randgold Shares
to Randgold in terms of 7.1 above, will be for the account of Randgold,
and those for the transfer back from Randgold to Azco will be for Azco's
account.
ARTICLE 8
ISSUANCE OF THE RANDGOLD SHARES
8.1 Issuance of the Randgold Shares shall be effected upon the mutually
agreed Implementation Date (failing mutual agreement such shall occur on
the last day) at the Randgold offices in Bamako in the following
manner:
8.1.1 WAG shall deliver:
8.1.1.1 to the escrow agent, in accordance with a mutually acceptable
escrow agreement, a share certificate in respect of the
Randgold Shares made in the name of Randgold, together with a
transfer form, to be signed by Randgold to transfer the
Randgold Shares back to Azco in the event of a termination of
the agreement and undated resignations of Randgold Board
directors (to be released whenever a new Board member is
appointed by Randgold) as contemplated in, inter alia, Article
7 above and the below provisions;
8.1.1.2 to Randgold the books and records of WAG, to be immediately
returned in the event of Randgold not earning its Randgold
Shares, and WAG shall, and Randgold shall give all assistance
whenever requested to do so by Azco, give Azco and its
authorized representatives access
9
<PAGE> 10
to such books and records (and Azco and its representatives
shall be entitled to make and keep copies of such books and
records or extracts from such books and records) as Azco or
such representatives may reasonably require;
8.1.1.3 to Randgold a resolution by the shareholders and directors of
WAG approving, in terms of WAG's statutes, the issue of the
Randgold Shares;
8.1.1.4 to Randgold the appointment of the Randgold Board nominees and
the resignation of sufficient WAG directors to cause the Board
to be composed of 75% Randgold nominees and 25% Azco nominees.
8.1.1.5 to Randgold the written resignation of the secretary and public
officer of WAG, if required by Randgold;
8.1.1.6 to Randgold the written undertaking of the auditors of WAG to
resign upon the written request of Randgold;
8.1.1.7 to Randgold possession of the statutes of WAG, books of
account, Minute Books, tax files and all other documents owned
by WAG, to be returned immediately to Azco in the event that
Randgold does not earn the Randgold Shares.
ARTICLE 9
LOSS OF TERRITORY OF PERMITS
9.1 It is acknowledged by the parties that, consequent upon the operation of
the laws of Mali, that 50% of the Permits area must be abandoned upon
the renewal of the Permits. It is acknowledged that the area being
abandoned has been mutually agreed as that presently excluded from that
being applied for under the Permits renewal. It is further agreed that
if either party shall, legally or beneficially, acquire any interest in
the abandoned area during the currency of this Agreement that such shall
be deemed acquired on behalf of Randgold and Azco, or their appointed
nominees.
ARTICLE 10
SALE AND PRE-EMPTIVE RIGHTS TO SHARES
10.1 The Randgold Shares may not be sold, assigned, hypothecated, or
otherwise have any interest therein disposed until such time as Randgold
has fully earned the same. Thereafter the Randgold Shares may be sold in
accordance with the following provisions.
10.2 A shareholder wishing to sell or otherwise dispose of any interest in
all or part of its shares in WAG shall serve upon WAG notice in writing
of its intention to sell its shares, together with the share
certificates and signed transfer forms in respect of the shares
concerned ("the identified shares"). The offer shall specify the number
of identified shares offered for sale, the purchase price per share at
which the offeror is prepared to sell the identified shares, the value
of any offeror's loan accounts associated with such identified interest
offered for sale, the identity of any third party who has offered to
purchase the identified shares, the period for which the offer shall
remain open, (which shall not be less than 30 (thirty) days), and any
other material matter deemed by the offeror to be relevant to a
prospective purchaser of the identified shares. The offeror shall be
under no restriction as to the price at which it is prepared to sell the
identified shares. The offer shall be deemed to constitute WAG as the
agent of the offeror for the sale of the
10
<PAGE> 11
identified shares at the purchase price per share stated in the offer.
10.3 WAG shall offer the identified shares to the remaining shareholder or
shareholders.
10.4 If the remaining shareholder does not purchase all (or some lesser part
if approved by the offeror) the identified shares within the period for
which the offer is open, the offeror may dispose of the identified
shares (or at the election of the offeror the balance of the identified
shares) to a third party, provided that:
10.4.1 none of the terms and conditions of the disposal is more
favourable to the third party than the equivalent term or
condition specified in any offer to the remaining shareholder;
10.4.2 the disposal is concluded within 120 (one hundred and twenty)
days of the expiry of the offer to the remaining shareholder;
10.4.3 the purchasing party becomes a party to this Agreement;
10.4.4 the purchasing party shall have the capacity at the time of
sale to perform the obligations of the offeror and to enter
into all such guarantees, suretyships, or any other obligation
of the offeror, failing which, at the sole discretion of the
other shareholders, the offeror shall not be relieved of any
obligations arising from this agreement or any other agreement
entered into in the course of the development of the Permits.
10.4.5 If at the expiry of the offer period the remaining shareholder
has notified its willingness to accept the offered identified
shares, WAG shall record the transfer of such identified
shares to the remaining shareholder who shall be bound to pay
the price for the identified shares and the offeror shall be
bound upon payment to transfer the shares to the remaining
shareholder.
10.5 If upon the expiry of the offer period the aggregate of the shares for
which acceptances have been received is less than the aggregate of the
identified shares, the offeror may within 14 days elect to withdraw the
offer in which case the offer shall be deemed to be withdrawn and the
offeror shall be entitled to retain the identified shares.
10.6 The offeror shall execute and deliver, or cause to be delivered to each
purchaser of identified shares such documents, duly completed and
signed, as are necessary to transfer complete and full title in respect
of the shares sold to those purchasers.
10.7 Notwithstanding the provisions of this clause, any share may be
transferred by either shareholder to an Affiliate provided such
Affiliate becomes a party to this Agreement and the rights of
pre-emption conferred on the shareholders shall not arise on the
occasion of such transfer.
ARTICLE 11
FURTHER EXPENDITURE
11.1 Once Randgold has expended US $2,000,000.00 on Exploration during the
three year period and has produced the Bankable Feasibility Study, it
will be the unrestricted owner of 75% of WAG constituting the Randgold
Shares and such shall be released to Randgold from escrow.
11.2 After Randgold has expended funds on Exploration and produced the
Bankable Feasibility Study then the Board of WAG will thereafter call
for contributions from its
11
<PAGE> 12
shareholders for funds for further Budgets in accordance with programs
and Budgets approved by the Board. A Budget requiring cash calls in
excess of $1,000,000US shall be approved unanimously by the Board but in
the event of disagreement and dead-lock extending in excess of 30 days,
the Manager shall have a casting vote which shall determine the issue. A
cash call for a Budget shall be for no more than the projected Budget
requirements for the succeeding quarter, unless additional expenditure
is approved by all parties.
11.3. Within 45 days of the approval by the Board of such program and budget,
the shareholders may elect to contribute to such program and budget as
follows:
11.3.1 in proportion to their then existing shareholding as at the
beginning of the period covered thereby; or
11.3.2 in some lesser amount than its respective shareholding, or not
at all, in which case its shareholding shall be recalculated
as provided in Article 13.
11.4 In the event that none of the shareholders will contribute their portion
of a Budget, or in the event that any part of a Budget is unfunded and
no shareholder will assume the unfunded portion, then the Budget shall
be considered void and the Manager and the Board shall produce a new
Budget for which the shareholders will fund the entire Budget.
11.5 From the commencement of a Budget the Manager shall immediately notify
the Board of any material departure from an approved program and Budget.
If the Manager exceeds an approved Budget by more than 10% (ten
percent), then the excess over 10% (ten percent), unless directly caused
by an emergency or unexpected expenditure or unless otherwise authorized
by the Board and the parties hereto, shall be for the sole account of
the Manager, and such excess shall not be included in the calculations
of the shareholding for the purpose of dilution or otherwise. Budget
overruns of 10% (ten percent) or less shall be borne by the contributing
parties in proportion to their respective shareholding as of the
beginning of the period covered by the program and budget in question.
Such overrun shall be funded by the parties in accordance with their
shareholding within 30 days of invoice by the Manager.
11.6 From the commencement of a Budget in case of emergency, the Manager may
take any action it deems necessary to protect life, limb or property, to
protect the assets or to comply with law or government regulation.
Likewise, the Manager may make expenditures for unexpected events which
are beyond its reasonable control and which do not result from a breach
by it of its standard of care. In the case of either an emergency or
unexpected expenditure, the Manager shall promptly notify the parties of
the emergency or unexpected expenditure, and the Manager shall be
reimbursed therefore by the parties in proportion to their respective
shareholding as of the beginning of the period covered by the then
current program and budget.
11.7 Within 15 (fifteen) days of a shareholder's election in terms of
subclause 11.3 for a Budget which has been fully committed for funding
the shareholders shall advance to the Manager their proportionate share
of the estimated amount of the forthcoming calendar quarter adjusted if
necessary to take account of the election. Thereafter on the basis of
the approved program and Budget, the Manager shall submit to the
shareholders 15 days prior to the last day of each calendar quarter a
billing for estimated cash requirements for the next ensuing calendar
quarter. The shareholders shall advance to the Manager their
proportionate share of the estimated amount by the first day of such
next ensuing quarter. Time is of the essence for payment of such
billings.
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<PAGE> 13
11.8 If a shareholder fails to meet cash calls in the amount and at the times
specified in clause 11.7 they shall be in default. Such default if not
rectified within 14 (fourteen) days.
following receipt of written notification by the Manager shall result in
a dilution by the shareholder as provided for in clause 13.
ARTICLE 12
BANKABLE FEASIBILITY STUDY
12.1 At any time during the duration of the first 36 months of the Agreement
the Manager may decide that the results of the Exploration warrants the
preparation of a Bankable Feasibility Study.
12.2 To the extent that Randgold has not completed its funding of
US$2,000,000 in Exploration expenditure then Randgold shall apply such
unexpended amount to the funding of the Bankable Feasibility Study.
ARTICLE 13
DILUTION OF SHAREHOLDING
13.1 Once Randgold has fully earned its interest in accordance with the terms
of this Agreement then the shareholders of WAG shall contribute to the
costs of Budgets and programs in proportion to their shareholding at any
relevant time.
13.2 It is anticipated, and permitted, that the parties shall largely or
fully fund Budgets through inter-corporate loans to WAG and it is
acknowledged that all funds advanced to date are in the form of loans.
All loans shall be advanced under a first charge security which shall
rank between the parties equally and ratably in accordance with their
shareholder interests, subject only to subordination to bona fide third
party lenders approved by the Board or to charges required by law. Until
Randgold has fully earned its Randgold Shares, all loans shall rank
equally and ratably with the actual amount of outstanding loans as
between Azco and Randgold. It is acknowledged that in regard to Azco's
historical debt of approximately $4,000,000 US (the "Azco Debt"), and
the debenture of such amount outstanding on the books of WAG, that upon
Randgold earning its Randgold Shares the Azco Debt shall be amended to
provide that such shall be an encumbrance only on the interest of Azco
in WAG, shall not be a general liability of such company, and shall only
be paid from the revenue of WAG attributable to Azco's equity interest
in WAG.
13.3 In the event that Mali elects to receive a non-contributory 15% and
further elects to receive a 5% working interest then the other
shareholders in the mining company will be required to contribute the
proportionate costs towards further Budgets in the following proportions
or dilute:
13.3.1 If Mali elects to receive the 15% carried plus the 5% working interest,
then the shareholding and contributions in the mining company will be:
<TABLE>
<CAPTION>
Shareholding Contribution
------------ ------------
<S> <C> <C>
Randgold 60% 71.25%
Azco 20% 23.75%
Mali 20% 5%
</TABLE>
13.3.2 If Mali elects not to receive a 5% working interest but to
remain with its 15%
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<PAGE> 14
non-contributory interest, the parties shareholding and contributions
will be:
<TABLE>
<CAPTION>
Shareholding Contribution
------------ ------------
<S> <C> <C>
Randgold 63.75% 75%
Azco 21.25% 25%
Mali 15% 0%
</TABLE>
13.4 The shareholding of that party electing to reduce its contribution to a
Budget or not to contribute at all or failing to make a cash call, shall
be recalculated at the time of election or default and abated in
accordance with the formula set out hereunder. The percentage interest
of a Party shall be recalculated by multiplying such percentage interest
by a factor (hereafter called "X"), expressed as a decimal factor
derived by the following formula. The Party not being diluted shall have
its interest increased by the interest lost by the diluting party
resulting from the following formula:
<TABLE>
<S> <C>
A + B
X = -----
C + D
</TABLE>
Where X is the recalculation factor; and
A is the deemed expenditure of the party whose interest is being diluted
and shall be the sum of the following as identified for each party:
1) US $2,000,000 (two million United States Dollars) plus all other
costs to the completion of the Bankable Feasibility Study for
Randgold (the "Randgold Expenses") plus Azco's historical
expenditures of sec. 13.4(3) below multiplied by Randgold's
contribution percentage of sections 13.3.1 or 13.3.2, dependent
upon Mali's election, shall be deemed for Randgold;
2) Azco's contribution percentage of section 13.3.1 or 13.3.2,
dependent upon the relevant Mali election, multiplied by the
Randgold Expenses shall be deemed for Azco; and
3) Azco's historical expenditure to acquire the Permits and to
explore the same in the amount of $4,000,000 US for Azco (less
the amount paid by Randgold to Azco for the camp);
B is the diluting party's actual contribution to Budgets to date;
C is the total deemed expenditure for a Party, of numerator A 1 to 3
above;
D is the total amount which a Party should have contributed in
accordance with its contributory interest of sections 13.3.1 or
13.3.2.
13.5 Once a party has suffered dilution of its shareholding, it shall be
entitled to resume contributions to Budgets for the next quarter and
thereafter, only at the diluted level of its shareholding, provided
however, that the shareholding of a diluted party may be increased in
the event of any other party subsequently itself suffering dilution of
its shareholding in terms of the above. However, a diluted party may
employ a one time election at any time, for a period of 12 months
following dilution, to regain its interest ("Repurchase Election") by
paying the party which has borne the additional cost the total costs
during that period the paying party has borne for the other party's
diluted interest to the date of the Repurchase Election plus a fifty
(50%) percent premium plus interest at
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<PAGE> 15
US Treasury Department month end prime plus 4% and calculated monthly on
the non-premium amount.
13.6 If a party's interest is diluted to 5% or less of WAG then it shall
relinquish all of its interest and shareholding and receive a 4% net
profits interest ("NPI"). The NPI shall be calculated on the net profit
determined in accordance with Schedule "5" hereto.
ARTICLE 14
MANAGER
14.1 Appointment
14.1.1 Each party hereby appoints Randgold as the Manager of WAG for
the period in which Randgold is the largest shareholder of WAG
and agrees that the Manager shall have overall management
responsibility for WAG. The parties agree that Randgold may
from time to time appoint an Affiliate to be Manager to act on
its behalf under this Agreement and that, in this respect,
Randgold may appoint Affiliates to manage (in accordance with
this Agreement) all or any other specific areas to which this
Agreement relates. Randgold agrees to serve as Manager unless
and until it resigns (whether by Randgold nominating an
Affiliate to act as Manager in its place or otherwise) or is
deemed to resign as provided in clause 14.4
14.1.2 If Randgold assigns or transfers its shares in WAG to an
Affiliate then, if Randgold is the Manager at the time of such
assignment or transfer, Randgold shall continue as Manager
under this Agreement, unless it otherwise determines to
transfer the Manager's duties to such Affiliate.
14.1.3 In the event that an Affiliate succeeds Randgold as Manager
Randgold and the Affiliate shall take such transitional steps
as are necessary for the Affiliate to assume and perform the
powers and duties of Manager under this Agreement.
14.1.4 Subject to notice to the Board and non-objection thereby and
subject to Randgold's continuing obligations of supervision,
Randgold may sub-contract part or all of its duties as Manager
to reputable and capable independent contractors so long as
such sub-contracts do not materially add to cost in the areas
where Randgold has capability to perform the duties.
14.2 Powers And Duties Of Manager
Subject to the provisions of this Agreement, the Manager shall have the
following powers and duties:
14.2.1 The Manager shall, by itself or through its employees, agents,
independent contractors or Affiliates, manage, direct and
control operations on behalf of WAG in regard to the Permits,
and for that purpose shall have control of all the Assets. The
Manager shall conduct operations in accordance with programs
and budgets adopted by, and the lawful decisions and directions
of the Board, but shall otherwise be entitled to conduct
operations in the Manager's absolute discretion.
14.2.2 The preparation of budgets and the expenditure of funds shall
be at Randgold's sole discretion, save that such expenditure
shall comply with the undertaking by Randgold to expend $2
million on Exploration on the Permit
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<PAGE> 16
Areas within 3 years of the Implementation Date.
14.2.3 The Manager shall implement the decisions of the Board, shall make all
expenditure necessary to carry out adopted programs, and shall promptly
advise the Board if it lacks sufficient funds to carry out its
responsibilities under this Agreement.
14.2.4 The Manager shall:
14.2.4.1 purchase or otherwise acquire all material, supplies,
equipment, water, utility and transportation services required
for Operations, such purchases and acquisitions to be made on
the best terms available, taking into account all of the
circumstances;
14.2.4.2 obtain such customary warranties and guarantees as are
available in connection with such purchases and acquisitions;
14.2.4.3 keep the Assets free or procure that the Assets are kept, free
and clear of all liens and encumbrances, except for those
existing at the time of, or created concurrent with, the
acquisition of such Assets; and
14.2.4.4 pay, on behalf of such parties as are liable to contribute, all
costs and expenses incurred through the conduct of Operations.
14.2.5 The Manager shall conduct such title examinations and, to the extent it
is able to do so in view of which entity holds title to the Permits,
cure such title defects as may be advisable in the reasonable judgment
of the Manager.
14.2.6 The Manager shall:
14.2.6.1 make or arrange for all payments required by permits, licenses,
concessions, contracts and other agreements related to the
Permits;
14.2.6.2 pay all taxes, assessments and like charges on Operations and
Assets except taxes determined or measured by a party's sales
revenue or net income; and
14.2.6.3 do all other acts, including the preparation and lodgment of
such reports as are required by law, as are reasonably
necessary to maintain the Assets in good standing.
14.2.7 The Manager shall:
14.2.7.1 apply for all necessary permits, licenses and approvals
required for or in connection with operations;
14.2.7.2 comply with applicable laws and regulations;
14.2.7.3 notify the Board promptly of any allegations of substantial
violation of such applicable laws or regulations;
14.2.7.4 prepare and file all reports or notices for Operations;
14.2.7.5 shall prosecute and defend on behalf of WAG but shall not
initiate
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<PAGE> 17
without consent of the Board, any litigation or administrative
proceedings arising out of Operations. The parties shall have
the right to participate, at their own expense, in such
litigation or administrative proceedings;
14.2.8 The Manager shall notify each party of any litigation or administrative
proceeding of which it becomes aware which is instituted against the
Manager or the parties arising out of Operations, and of any material
matter arising out of Operations which could reasonably be regarded as
giving rise to a right in the parties or the Manager to commence any
litigation or administrative proceeding. If the Board does not consent
to the Manager initiating a litigation or administrative proceeding, a
party may institute that proceeding in its own name and at its own
expense, but shall keep the Manager and each other party fully informed
of the progress of the proceeding and shall indemnify the Manager and
each other party against all losses, liabilities, damages and such costs
which they may incur in respect of or arising out of the proceeding.
14.2.9 The Manager shall procure and maintain such insurance as may be required
by all applicable laws, rules or regulations and good mining practice in
respect of Operations. No other insurance shall be provided for the
benefit of the parties. However, a party may procure and maintain at its
cost and expense such other specific insurance relating to Operations as
it shall consider necessary and such other insurance shall be solely for
the benefit of the party procuring the same and the premium therefor
shall be for the account of that party. Further, such insured party
shall indemnify each other party against any liabilities incurred by the
other party as a result of a claim by the relevant insurer, whether by
subrogation or otherwise.
14.2.10 The Manager may not dispose of Assets, whether by sale, assignment,
abandonment or other transfer, except with the consent of all of the
parties. Notwithstanding, the Manager shall carry out all procedures
required on behalf of WAG to abandon any part of the Permits required by
law and to the extent determined by the Board and the Manager shall also
act to secure such new permit areas as the Board may determine to
acquire.
14.2.11 The Manager shall have the right to carry out its powers, duties and
obligations under this Agreement through its employees, agents,
independent contractors or Affiliates.
14.2.12 The Manager shall keep and maintain all required accounting and
financial records in respect of WAG in accordance with customary cost
accounting practices in the mining industry.
14.2.13 The Manager shall select and employ at competitive rates all supervision
and labour necessary or appropriate to all Operations. All persons
engaged or employed hereunder, the number thereof, their hours of labour
and their compensation shall be determined by the Manager, and they may
be employees of the Manager.
14.2.14 At the end of each half year, the Manager shall provide to the parties a
report on Operations which shall include copies of all information
acquired in Operations, including, but not limited to, maps, drill logs,
core tests, reports, surveys, assays, analyses, production reports,
Operations, technical,
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<PAGE> 18
accounting and financial records. In addition, the Manager shall, upon
receiving reasonable notice and at reasonable times, allow the parties
at their sole risk and expense, and subject to reasonable safety
regulations, to:
14.2.14.1 inspect the Assets and Operations, but shall be entitled to
request that the inspecting parties first undertake not
unreasonably to interfere with Operations; and
14.2.14.2 have access to, and inspect and copy, all information
relating to Operations.
14.2.15 The Manager shall undertake all other activities reasonably
necessary to fulfill the foregoing.
14.2.16 If the Manager fails to adequately insure the project or
causes the insurance to fail then the Manager shall indemnify
and hold harmless the parties hereto and their directors,
officers, employees, agents and any other person to which a
party hereto has responsibility for all damages, costs,
injury, litigation, liability, indemnity, prosecution or any
other matter arising from the acts or omissions of the
Manager arising from willful acts or omissions or gross
negligence.
14.2.17 The Manager shall not be in default of its duties if its
inability to perform results from the failure of the parties
to perform acts or to contribute funds, call or other amounts
required of them by this Agreement.
14.3 Standard of Care
The Manager shall conduct all Operations in a good workmanlike and
efficient manner, in accordance with sound mining and other applicable
international industry standards and practices and shall operate in
accordance with all applicable laws of Mali and in accordance with the
terms and provisions of the Permits.
14.4 Resignation and Deemed Offer to Resign
The Manager may resign as Manager of WAG at any time upon three month's
prior written notice to the directors of WAG and Azco, or may be deemed
to have resigned on the date of occurrence of the following, and in
either case WAG shall elect a new Manager:
14.4.1 where Randgold's shareholding in WAG is no longer the
largest; or
14.4.2 the Manager, in that capacity, fails to perform a material
obligation imposed upon it under this Agreement and such
failure continues for a period of 60 days after notice from a
party demanding performance and the Manager has not disputed
the default, otherwise has been adjudged in default; or
14.4.3 the Manager fails to pay the bills of WAG within 60 days after
they are due, provided such failure is not as a result of a
party failing to make part or all of the cash calls or other
contributions required of it under this Agreement; or
14.4.4 the Manager suffers the appointment of a receiver, liquidator,
administrators, assignee, custodian, trustee, sequestrator or
similar official for a substantial part of its assets in a
proceeding brought against or initiated by it, and such
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<PAGE> 19
appointment is neither made ineffective nor discharged within
90 days after the making thereof or such appointment is
consented to, requested by or acquiesced in by it; or
14.4.5 the Manager:
14.4.5.1 commences a voluntary case under any applicable bankruptcy,
insolvency or similar law now or hereafter in effect; or
14.4.5.2 consents to the entry of an order of relief in an involuntary
case under any such law or to the appointment of or taking
possession by a receiver, liquidator, administrator,
assignee, custodian, trustee, sequestrator or other similar
official of any substantial part of its assets; or
14.4.5.3 makes a general assignment for the benefit of creditors; or
14.4.6 entry is made against the Manager of a judgment, decree or
order for relief by a court of competent jurisdiction in an
involuntary case commenced under any applicable bankruptcy,
insolvency or other similar law of any jurisdiction now or
hereafter in effect.
14.4.7 in the event that Randgold is the majority shareholder but
has elected or failed to contribute to two or more quarterly
Budgets then Randgold may be replaced by the next largest
shareholder which is contributing to Budgets and wishes to be
Manager; or
14.4.8 on termination of this Agreement.
14.5 Charges Levied by Manager
14.5.1 The Manager shall be entitled to charge each month a
management fee equal to 5% of the funds expended in respect
of Operations on or relating to the Permit Areas during the
previous month.
14.5.2 The management fee charged by the Manager under this clause
may be regarded for all purposes as part of the relevant
party's contribution to the minimum exploration expenditure
of $2 million which relates to the period during which the
charge is made.
14.5.3 Nothing contained in this Agreement shall require the
Manager, in its capacity as such, to advance its own funds
for costs or expenses of the parties under this Agreement
except for the Manager's obligation to fund cost overruns as
contemplated in Article 11.
14.6 Transactions With Affiliates
If the Manager engages Affiliates to provide services hereunder, it
shall do so on terms no less favourable than would be the case with
arm's length transactions.
ARTICLE 15
FORMATION OF MINING COMPANY
15.1 After completion of a Bankable Feasibility Study, if the parties elect
to proceed with the
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<PAGE> 20
development and if the law of Mali so requires, they shall form a mining
company for that purpose. If the law of Mali does not require a new
mining company then WAG shall continue as the mining company unless the
parties mutually agree otherwise. The interest in the new mining company
shall be held by WAG or, if the parties so elect, the new mining company
shall allot to each of the parties the number of shares in accordance
with their interests in WAG, adjusted for any dilution, and proportional
in terms of the interest elected to be received by Mali as set forth
below.
15.1.1 Shareholding if Mali elects not to contribute towards Further
Expenditure:
<TABLE>
<S> <C> <C>
WAG 85%
MALI 15%
</TABLE>
15.1.2 Shareholding if Mali contributes in full (5%) towards Further
Expenditure:
<TABLE>
<S> <C> <C>
WAG 80%
MALI - 20%
</TABLE>
15.2 The mining company shall adopt a memorandum and articles of association
in the form normally adopted at the relevant time by Malian mining
companies unless the parties otherwise agree.
15.3 The mining company shall apply for an exploitation permit in its own
name in respect of the Permit Areas or if that cannot be done, the
parties shall jointly do so on behalf of the mining company.
15.4 Randgold will be appointed the first Manager and operator of the mining
company on the same terms of this Agreement.
15.5 The Manager shall arrange financing for the development of a mine by the
mining company. The intention of the parties is that external project
finance be arranged to the maximum available. Any project financing
shortfall shall be met by Randgold and Azco and if it elects to
participate, by Mali, pro-rata to their shareholding in the mining
company.
ARTICLE 16
DISTRIBUTION OF PROFITS
16.1 All charges and expenses, as set forth in Part 13 regarding dilution
which for the purposes hereof include exploration, operating,
administration and depreciation costs incurred by Randgold and Azco on
the Permit Areas up to the completion of the Bankable Feasibility Study,
shall be considered as a loan by those parties to WAG.
16.2 The expenditure by Randgold and Azco up to the date of completion of the
Bankable Feasibility Study will not bear interest. Expenses incurred
after that date will bear monthly interest at the following rate:
16.2.1 if the funds have been borrowed, the rate of interest must be
such as to cover the interest on the borrowed funds together
with all other costs associated with the loan;
16.2.2 if the funds have not been borrowed, the interest rate must
be that which the
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<PAGE> 21
party's main bank will charge to its preferential clients,
on a non-guaranteed loan.
16.3 The above loans together with the interest shall be repaid to Azco and
Randgold out of the proceeds of the sale of the product of the mine
subject to cash being available in WAG as determined by the Manager on a
reasonable basis after considering submissions from the parties.
16.4 The net after-tax profit of WAG, after setting aside sufficient for
working capital and capital expenditure, shall be distributed in the
following preferential order:
16.4.1 to satisfy the obligations of the mining company to Mali;
16.4.2 to repay loans from third parties in accordance with the
terms of such loan agreements;
16.4.3 to pay interest on party loans, then to repay in the order in
which they were advanced the principal of non-interest
bearing loans as defined above to Randgold and Azco and
thereafter to pay principal on party loans ratably in
accordance with shareholdings;
16.4.4 the balance to the parties in accordance with their
shareholding applicable at that time.
ARTICLE 17
DISTRIBUTION OF CASH
17.1 All the cash available for payment of loans and distribution in
accordance with Article 16.4 above, as at the last day of each quarter
shall be distributed to the parties within 14 (fourteen) days after the
end of such quarter in the proportions of their shareholding.
17.2 Should any difference arise between the parties as to the amount of cash
available for distribution as at the last day of any quarter, the
difference shall be determined by WAG's auditor or another party
mutually selected to mediate.
ARTICLE 18
CAMP EQUIPMENT AND DRILLING EQUIPMENT
18.1 Randgold has offered to buy from WAG or Azco (in accordance with their
ownership) and Azco and WAG have accepted the offer, camp equipment and
drilling equipment located at Dabia. Any proceeds WAG is to receive as
an allocation of any part, or all, of the equipment, the parties agree
shall be paid directly to Azco as a reduction of its loan to WAG. A copy
of the offer and its acceptance is attached hereto as Schedule `6'. The
basis of the sale is that the equipment is sold as is, and no
representations are made as to its conditions and suitability, other
than that no other party has any rights to the equipment, which is fully
paid for.
18.2 Effective as of 13 October 1998 this equipment is the property of
Randgold subject to execution of this Agreement.
18.3 Payment of the purchase price of US$277,500 will be made by Randgold to
Azco within 90 days of the actual closing of the issue of WAG shares to
Randgold, for the equipment and prices set forth in the enclosed
Schedule "6".
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<PAGE> 22
ARTICLE 19
WITHDRAWAL AND TERMINATION
19.1 Termination
The parties may terminate this Agreement at any time by unanimous
written agreement. Randgold shall be entitled to terminate this
Agreement at any time until it has fully earned its Randgold Shares on
the giving of 90 days' prior written notice to each other party and
subject to all obligations arising from Randgold's operations as Manager
and controlling shareholder of WAG shall have been discharged or Azco
shall have been satisfied that sufficient security has been given for
such discharge. However, termination shall not be effected in the time
frame which is less than 180 days prior to the expiration of the Permits
unless such shall be left in good standing adequate to renew the Permits
in accordance with the terms of the Permits and Malian law. Termination
shall be deemed to occur on the later of the last day of the notice
period or the day that unfulfilled obligations are finally fulfilled.
19.2 Continuing Obligations
Upon termination of this Agreement each party shall remain bound by and
liable to satisfy, perform and fulfill their or its (as the case may be)
obligations which are or were due to be satisfied, performed or
fulfilled prior to the date of termination or withdrawal (as the case
may be), and also any obligations which are expressed by this Agreement
to survive termination or withdrawal (as the case may be).
19.3 Return of WAG Shares on Termination
Promptly after termination the escrow agent shall be instructed by
Randgold to deliver the Randgold Shares together with the transfer forms
to Azco. Azco may then deal with or transfer the shares as it requires,
at its cost. The Manager shall take all action necessary to wind up the
activities of the operations and all costs and expenses incurred in
connection with the termination of this Agreement shall be expenses
chargeable to Randgold save for the share transfer fees.
19.4 Right to Data After Termination
After termination of this Agreement each party shall be entitled to
copies of all information acquired in connection with this Agreement as
of the date of termination and not previously furnished to it.
ARTICLE 20
REPRESENTATIONS AND WARRANTIES; TITLE TO ASSETS
20.1 Capacity Disclosures
Each of the parties represents, warrants and undertakes that:
20.1.1 it is a company duly incorporated and in good standing in its
place of incorporation and that it is qualified to do
business and is in good standing in such jurisdictions as are
necessary in order to enable it to carry out the purposes of
this Agreement;
20.1.2 it has the capacity to enter into and perform this Agreement
and all transactions and obligations which are contemplated
and provided for in this Agreement;
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<PAGE> 23
20.1.3 all corporate and other action required to authorize it to
enter into and perform this Agreement and all transactions
and obligations which are contemplated and provided for in
this Agreement (including the obtaining and effecting of such
consents, authorizations, registrations and other authorities
as it requires in connection with entering into and
performance of this Agreement and such transactions) have
been properly taken;
20.1.4 it will not breach any other agreement or arrangement by
entering into or performing this Agreement and that this
Agreement has been duly executed and delivered by it and is
valid and binding upon it in accordance with its terms;
20.1.5 no litigation, arbitration, tax claim, dispute or
administrative or other proceedings is current or pending or,
to its knowledge, threatened which may have a material
adverse effect on its ability to perform its obligations
under this Agreement or on its financial condition or
business and in each case it shall provide such evidence of
the same as the other party may reasonably require; and
20.1.6 in addition, each party represents and warrants that it has
disclosed to the other parties all material facts and
circumstances which, if not disclosed, would cause the
representations and warranties given by the party in this
clause to be materially misleading.
20.2 Mineral Rights
Additionally, WAG represents, warrants and undertakes to Randgold that,
as at the date of this Agreement:
20.2.1 it is the registered holder of the Permits listed in clause
1.19; and
20.2.2 to be best of its knowledge and belief (having made all
reasonable inquiries):
20.2.2.1 no option, pre-emptive right, lease, prospecting
contract or other right or interest vested in any
third party exists in respect of the Permits,
which might restrict, prejudice, or in any way
detract from the rights conferred on Randgold
under this Agreement; and
20.2.2.1 there are no restrictions or limitations on
exploration or mining in or on the Permit Areas
other than the normal restrictions imposed by law
and the restrictions set out in the Permits;
20.2.3 the Permits are in good standing at the Effective Date, and
remain in good standing as at the Implementation Date of this
Agreement;
20.2.4 it has disclosed to Randgold all obligations that must be
fulfilled to keep the Permits in good standing during the
duration of this Agreement;
20.2.5 it will, and it shall procure that its Affiliates will make
no further commitment to the Malian Ministry of Mines, or
other relevant mining authorities, or any other person, that
would affect the conditions required to be met to maintain
the Permits in good standing without first discussing and
agreeing those conditions and commitments with Randgold;
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20.2.6 all prospecting and other activities by it and its Affiliates
up to the Effective Date in the Permit Areas have been in
accordance with the rights granted under the Permits;
20.2.7 since the Effective Date it has delivered to or made
available to Randgold all data, records and other information
concerning title to, and all geological data relating to, the
Permits and the Permit Areas which was in its or its
Affiliates' possession or control as at the Effective Date or
which has since come into its or its Affiliates' possession
or control; and
20.2.8 it has been entitled to, and shall continue to be entitled
to, deliver or make available to Randgold all data, records
and information of the type referred to in clause 20.2.7 and
that the data, records and information are, and shall be,
complete, true and accurate.
20.3 Azco Covenants
Azco covenants and agrees as follows and each of these covenants shall
continue during the term of this Agreement:
20.3.1 Azco will assist, to the extent that it reasonably can and at
the cost of Randgold, the Manager in any aspects of
administration of title to the Permits which, because of the
operation of Malian law, regulation or practice, the Manager
is unable to fully perform or comply;
20.3.2 without limitation to clause 20.3.1, at any time, and in any
case at the request of the Manager, it shall use its best
efforts to assist the Manager in obtaining or maintaining the
Permits which are necessary to the conduct of Operations, and
it shall assist the Manager by informing the Manager of title
and mining problems or items which may affect the Permits;
20.3.3 it shall make known and available to the Manager, its
employees and agents any and all data, maps, or other
documents or information which Azco may have or may acquire
from time to time pertaining to the Permits or pertaining to
the Permit Areas;
20.3.4 it will not, unless expressly permitted by this Agreement,
enter into any agreement or arrangement, or purport to enter
into any agreement or arrangement, pursuant to which any third
party, entity or person would or may obtain any interest in,
or rights in respect of, the Permits, or any rights to
prospect, explore or mine in, or to evaluate or develop, the
Permit Areas.
ARTICLE 21
RELATIONSHIP OF THE PARTIES
21.1 No Partnership
Nothing contained in this Agreement shall be deemed to constitute a
party the partner of the other parties or, except as otherwise herein
expressly provided, to constitute a party the agent or legal
representative of the other parties or to create any fiduciary
relationship between the parties. It is not the intention of the parties
to create, nor shall this Agreement be construed to create, any mining,
commercial or other partnership. Neither parties shall have any
authority to act for or to assume any obligation or responsibility on
behalf of the other parties except as otherwise expressly provided
herein. The rights,
24
<PAGE> 25
duties, obligations and liabilities of the parties shall be several and
not joint or collective. Each party shall be responsible only for its
obligations as set out in this Agreement and shall be liable only for
its share of the costs and expenses as provided in this Agreement.
21.2 Tax Returns
Each party shall be responsible for its own tax returns.
21.3 Other Business Opportunities
Except as expressly provided in this Agreement, each party shall have
the right independently to engage in and receive full benefits from
business activities, except where directly competitive with Operations,
without consulting the other, unless such competitive operation exists
on the Implementation Date and has been disclosed. Neither party shall
have any obligation to the other party with respect to any opportunity
to acquire any property outside the Permit Areas at any time, except as
provided herein or in any other agreements between the parties. Each
party shall indemnify, defend and hold harmless the other party and its
Affiliates, and its or their respective directors, officers and agents
from and against any liabilities which may be imposed upon, asserted
against or incurred by any of them and which arise out of or result from
any act or any assumption of liability by the indemnifying party, or any
of its directors, officers, shareholders, employees, agents, attorneys
and Affiliates, when such assumption is done or undertaken, or
apparently done or undertaken, on behalf of the other parties or its
Affiliates, other than pursuant to the authority expressly granted
herein or as otherwise agreed in writing between the parties.
21.4 Termination of Rights
Except as otherwise provided in this Agreement, neither Azco nor
Randgold shall permit or cause all or any part of its interest in the
shares of WAG, and WAG shall not permit or cause all or any part of its
interest in the Permits to be sold, exchanged, encumbered, surrendered,
abandoned or otherwise terminated.
21.5 Prohibition on Partition and Disposition
No party shall seek partition, or sale in lieu of partition of the
Permits or the Permit Areas during the continuance of this Agreement,
and each party waives any rights which it may have in this regard. WAG,
nor any party, shall dispose of any interest in the Permits or the
Permit Areas or any material Assets except if unanimously approved by
the parties hereto or where required by law.
21.6 Employees
Where the Manager is a party, employees of the Manager are not and shall
not be regarded as, and shall not be held out to be, employees of the
other parties.
ARTICLE 22
GENERAL PROVISIONS
22.1 Notices
All notices, payments and other required communications hereunder
("Notices") between the parties and the Manager shall be in writing and
shall be addressed, respectively, as follows. All notices shall be
given:
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22.1.1 by personal delivery to the parties or its representative; or
22.1.2 by electronic communication, with a confirmation sent by
registered or certified mail, return receipt requested. All
notices shall be effective and shall be deemed delivered:
22.1.2.1 if by personal delivery on the date of delivery
and
22.1.2.2 if by electronic communication on the date of receipt of
the electronic communication. A party may change its
address from time to time by notice to the other party
and the Manager;
If to Azco:
at the address first herein set forth
If to WAG:
at the address notified by the board
If to Randgold:
Randgold Resources Limited
P O Box 82291, Southdale, 2135
SOUTH AFRICA
Attn: Company Secretary
Fax No: 27 11 837 1068
22.2 Waiver
The failure of a party to insist on the strict performance of any
provision of this Agreement or to exercise any right, power or remedy
upon a breach hereof shall not constitute a waiver of any provision of
this Agreement or limit the party's right thereafter to enforce any
provision or exercise any right.
22.3 Modification
No modification or amendment of this Agreement shall be valid unless
made in writing and duly signed by the parties. If, in the event of
experience gained through the operation of this Agreement, the parties
agree that application of any of its provisions results in a material
inequity to one or all of the parties, then the parties agree that they
will meet to discuss possible changes in such provision(s) proposed by
the parties as a means of obviating such inequity.
22.4 Force Majeure
The obligations of a party shall be suspended to the extent and for the
period that performance is prevented by any cause, whether foreseeable
or unforeseeable, beyond its reasonable control, including, without
limitation, labour disputes (however arising and whether or not employee
demands are reasonable or within the power of the party to grant); acts
of God; laws, regulations, orders, proclamations, instructions or
requests of any government or governmental entity; judgments or orders
of any court; inability to obtain on reasonably acceptable terms any
public or private exploration or exploitation, right, License, permit or
concession; curtailment or suspension of activities to remedy or
26
<PAGE> 27
avoid an actual or alleged, present or prospective violation of federal,
state or local environmental standards; acts of war or conditions
arising out of or attributable to war, whether declared or undeclared;
riot, civil strife, insurrection or rebellion; fire, explosion,
earthquake, storm, flood, sink holes, drought or other adverse weather
condition; delay or failure by suppliers or transporters of materials,
parts supplies, services or equipment or by contractors or
subcontractors' shortage of, or inability to obtain, labour,
transportation, materials, machinery, equipment, supplies, utilities, or
services; accidents; breakdown of equipment, machinery or facilities; or
any other cause, whether similar or dissimilar to the foregoing. The
affected party shall promptly give notice to the other party and the
Manager of the suspension of performance, stating therein the nature of
the suspension, the reasons therefor and the expected duration thereof.
The affected party shall resume performance as soon as reasonably
possible.
22.5 Governing Law
22.5.1 This Agreement shall be governed by and interpreted in
accordance with the laws of England. The parties submit to
the exclusive jurisdiction of the courts exercising
jurisdiction there in connection with matters concerning this
Agreement.
22.5.2 In event of any dispute, the parties shall attempt to resolve
the matter amicably by negotiation of not less than 60 days,
following which the matter shall be referred to the
respective Chairmen of the parties. If the Chairmen of the
parties are unable to resolve the matter within 30 days of
notice to negotiate the dispute shall be determined
judicially.
22.6 Further Assurances
Each of the parties agree that it shall take from time to time such
action and sign or execute such additional instruments as may be
reasonably necessary or convenient to implement and carry out the intent
and purpose of this Agreement.
22.7 Confidentiality and Public Statements
22.7.1 Except as otherwise provided herein, the terms and conditions
of this Agreement, and all data, reports, records and other
information of any kind whatsoever developed or acquired by
either party in connection with this Agreement (together
"Confidential Information"), shall be treated by the parties
as confidential, and no party shall reveal or otherwise
disclose such Confidential Information to third parties
without the prior written consent of the other party.
22.7.2 Confidentiality shall not apply to:
22.7.2.1 the disclosure of Confidential Information to any
Affiliate, or to the directors, officers or employees
of a party or any Affiliate, or to the directors,
officers or employees of a party of any Affiliate to
any public or private financing agency or institution,
to any contractors or subcontractors which the parties
may engage and to employees and consultants of the
parties or to any third party to which a party
contemplates the transfer of all or part of its
shareholding in WAG, provided that in each case, other
than the disclosure of Confidential Information to
Affiliates and directors, officers, employees of the
party and its Affiliates, only such Confidential
Information as the disclosee
27
<PAGE> 28
shall have a legitimate business need to know shall be
disclosed, and that in each case the party shall
ensure that the disclosee protects the confidential
nature of such information at least to the same extent
as the parties are obligated to do under this clause;
22.7.2.2 Confidential Information which comes into
the public domain other than through a breach of this
clause;
22.7.2.3 the disclosure by a party of the minimum information
necessary in order to comply with any applicable law
or legally binding order of any government agency or
judicial body or of securities laws or listings
agreements to which a party may be subject.
22.7.3 The provisions of this clause shall apply during the term of
this Agreement and shall also continue to apply for one year
following its termination, and shall continue to apply to a
party which forfeits, surrenders, assigns, transfers or
otherwise disposes of its shares for one year following the
date of such occurrence.
22.7.4 Subject to requirements of relevant securities laws and
rules, a party shall not make any public announcement or
public disclosure with regard to this Agreement, whether or
not relating to Confidential Information, without the prior
written consent of the other parties as to the content and
timing of such announcement or disclosure, which consent
shall not be unreasonably withheld.
22.8 Entire Agreement, Successors and Assigns
This Agreement supersedes all prior agreements and understandings
between the parties relating to the subject matter hereof, including the
Heads of Agreement. This Agreement shall be binding upon and inure to
the benefit of the respective successors and permitted assigns of the
parties.
22.9 Severability
If part of this Agreement is rendered illegal, invalid or unenforceable
under applicable law, the remaining provisions of this Agreement shall
continue in force.
22.10 Default
If a party defaults in the performance of any obligation under this
Agreement or any provision of this Agreement (the "defaulting party"),
each other party (the "non-defaulting party") may serve upon the
defaulting party written notice of default. If the defaulting party
within 30 (thirty) days following such notice does not cure the alleged
default, the defaulting party shall be deemed to be in default of this
Agreement, except as may be expressly provided otherwise in this
Agreement, and the non-defaulting party may at that point exercise such
rights and remedies which it has in respect of the default. Except as
otherwise provided, the rights and remedies for default provided in this
Agreement shall be in addition to, and not in lieu of, any other rights
or remedies available to the non-defaulting party under this Agreement
or under law including, without limitation, specific performance and
injunctive relief.
[The remainder of this page intentionally left blank]
28
<PAGE> 29
IN WITNESS WHEREOF the parties have hereunto set their hands and seals in the
presence of their duly authorized signatories effective as at the Effective Date
as defined in this Agreement.
The CORPORATE SEAL of
AZCO MINING INC.
was hereunto affixed in the presence of:
- ---------------------------------------------
Authorized Signatory
DATE:
-----------------------
The CORPORATE SEAL of
SANOU MINING CORPORATION
was hereunto affixed in the presence of:
- ---------------------------------------------
Authorized Signatory
DATE:
-----------------------
The CORPORATE SEAL of
WESTERN AFRICAN GOLD AND
EXPLORATION S.A.
was hereunto affixed in the presence of:
- ---------------------------------------------
Authorized Signatory
DATE:
-----------------------
Executed by the authorized signatory of
RANDGOLD RESOURCES LIMITED:
- ---------------------------------------------
Authorized Signatory
DATE:
29
<PAGE> 1
EXHIBIT 10.16__________
MINERAL PROPERTY OPTION AGREEMENT
BETWEEN:
MINERA CORTEZ RESOURCES LTD.
AND:
AZCO MINING INC.
DEVLIN JENSEN
Barristers and Solicitors
P.O. Box 12077
Harbour Centre Tower
Suite 2550, 555 West Hastings Street
Vancouver, British Columbia, V6B 4N5
----------
-- Mineral Property Option Agreement --
-- Azco Mining Inc. --
<PAGE> 2
MINERAL PROPERTY OPTION AGREEMENT
THIS MINERAL PROPERTY OPTION AGREEMENT is made and dated for
reference effective as of the 20th day of May, 1999.
BETWEEN:
MINERA CORTEZ RESOURCES LTD., AND ON BEHALF OF ITS MEXICAN
SUBSIDIARY, a company duly incorporated under the laws of the
Province of British Columbia and having an address for notice and
delivery located at Suite 5640 Marine Drive, West Vancouver,
British Columbia, V7W 2R6
(the "Optionor");
OF THE FIRST PART
AND:
AZCO MINING INC., a company 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
(the "Optionee");
OF THE SECOND PART
(the Optionor and the Optionee being hereinafter singularly also
referred to as a "Party" and collectively referred to as the
"Parties" as the context so requires).
WHEREAS:
A. The Optionor, through its Mexican subsidiary, is the beneficial owner of
certain mineral property interests which are located in the State of Sonora,
Mexico (collectively, the "Property"), and which mineral interests comprising
the Property are more particularly described in Schedule "A" which is attached
hereto and which forms a material part hereof;
B. The Optionor has herein agreed to grant an option to the Optionee (the
"Option") to acquire an undivided one hundred percent (100%) legal and
beneficial interest in and to the mineral property interests comprising the
Property; and
C. The Parties hereto have agreed to enter into this Agreement which clarifies
their respective duties and obligations with respect to the Property and the
Option granted thereon on the terms and conditions herein contained;
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NOW THEREFORE THIS AGREEMENT WITNESSETH that in consideration of
the mutual covenants and provisos herein contained, THE PARTIES HERETO AGREE AS
FOLLOWS:
ARTICLE 1
DEFINITIONS, SCHEDULES 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 Mineral Property Option Agreement as
entered into between the Parties hereto, together with any
amendments thereto and any Schedules as attached thereto;
(b) "Arbitration Act" means the Commercial Arbitration Act of the
Province of British Columbia, R.S.B.C. 1996, as amended from time
to time, as set forth in Article "12" hereinbelow;
(c) "Cash Payment" has the meaning ascribed to it in section "2.2"
hereinbelow;
(d) "Closing" has the meaning ascribed to it in section "6.1"
hereinbelow and includes, without limitation, the closing of each
of the transactions contemplated hereby which shall occur after
the conditions precedent set out in Article "5" hereinbelow have
been satisfied in their entirety;
(e) "Closing Date" has the meaning ascribed to it in section "6.1"
hereinbelow;
(f) "Confidential Information" has the meaning ascribed to it in
section "10.1" hereinbelow;
(g) "Defaulting Party" and "Non-Defaulting Party" have the meanings
ascribed to them in section "13.1" hereinbelow;
(h) "Effective Date" means the date of acceptance for filing of the
transactions contemplated by this Agreement by the Regulatory
Authorities;
(i) "Escrow Agent" means Devlin Jensen, Barristers and Solicitors, or
such other mutually agreeable escrow agent as may be selected by
the Parties hereto either prior to or after the Execution Date
and who agrees to be bound by the terms and conditions of this
Agreement;
(j) "Exchange" means The Toronto Stock Exchange;
(k) "Execution Date" means the actual date of the complete execution
of this Agreement and any amendments thereto as set forth on the
front page of this Agreement;
(l) "Option" has the meaning ascribed to it in recital "B"
hereinabove as effected in the manner as set forth in Article "2"
hereinbelow;
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<PAGE> 4
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(m) "Optionee" means Azco Mining Inc., a company duly incorporated
pursuant to the laws of the State of Delaware, U.S.A., or any
successor company, however formed, whether as a result of merger,
amalgamation or other action;
(n) "Option Period" has the meaning as set forth in section "2.1"
hereinbelow;
(o) "Option Price" has the meaning ascribed to it in section "2.2"
hereinbelow;
(p) "Optionor" means Minera Cortez Resources Ltd., a company duly
incorporated pursuant to the laws of the Province of British
Columbia, or any successor company, however formed, whether as a
result of merger, amalgamation or other action, or any subsidiary
of the Optionor;
(q) "Party" or "Parties" means the Optionor and/or the Optionee
hereto, together with their respective successors and permitted
assigns as the context so requires;
(r) "person" or "persons" means an individual, corporation,
partnership, party, trust, fund, association and any other
organized group of persons and the personal or other legal
representative of a person to whom the context can apply
according to law;
(s) "Property" has the meaning ascribed to it in recital "A."
hereinabove; and which mineral interests comprising the Property
are particularly described in Schedule "A" which is attached
hereto together with any other claim or property interests of the
Parties hereto which are incorporated into the Property by the
terms of this Agreement;
(t) "Property Documentation" means any and all technical records and
other factual engineering data and information relating to the
mineral interests comprising the Property and including, without
limitation, all plans, maps, agreements and records which are in
the possession or control of any Party hereto;
(u) "Property Rights" means all mineral licenses and all prioritized
and protocoled applications for exploration licenses, permits,
easements, rights-of-way, certificates, exclusive prospecting
orders and other approvals obtained by either of the Parties
either before or after the Execution Date of this Agreement and
necessary for the exploration and development of any of the
mineral interests comprising the Property;
(v) "Regulatory Approval" means the acceptance for filing of the
transactions contemplated by this Agreement by the Regulatory
Authorities;
(w) "Regulatory Authorities" means the Exchange and such other
regulatory bodies and agencies who have jurisdiction over the
affairs of any of the Parties hereto and including, without
limitation, 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;
(x) "Securities Act" means the Securities Act of the Province of
British Columbia, S.B.C. 1985, as amended from time to time,
together with the Rules and Regulations to the Securities Act;
(y) "Subject Removal Date" has the meaning ascribed to it in section
"5.1" hereinbelow;
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<PAGE> 5
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(z) "subsidiary" means any company or companies of which more than
50% of the outstanding shares carrying votes at all times
(provided that the ownership of such shares confers the right at
all times to elect at least a majority of the board of directors
of such company or companies) are for the time being owned by or
held for a company and/or any other company in like relation to
the company, and includes any company in like relation to the
subsidiary;
(aa) "Trading Shares" has the meaning ascribed to it in section "2.2"
hereinbelow; and
(ab) "Transfer Documents" has the meaning as set forth in section
"7.2" hereinbelow.
1.2 SCHEDULES. For the purposes of this Agreement, except as otherwise expressly
provided or unless the context otherwise requires, the following shall represent
the Schedule which is attached to this Agreement and which forms a material part
hereof:
Schedule Description
Schedule "A": Property
1.3 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 permitted 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.
ARTICLE 2
GRANT, MAINTENANCE, EXERCISE AND TERMINATION OF THE OPTION
2.1 GRANT OF THE OPTION. Subject to the terms and conditions hereof and based
upon the representations, warranties and covenants contained in Articles "3" and
"4" hereinbelow and the prior satisfaction of the conditions precedent which are
set forth in Article "5" hereinbelow, the Optionor hereby agrees to give and
grant to the Optionee the sole and exclusive right and option to acquire an
undivided one hundred percent (100%) legal and beneficial interest in and to the
mineral interests comprising the Property (again the "Option") and, in order to
maintain the Option in good standing and in full force and effect, the Optionee
hereby agrees to exercise the Option on or before the Closing Date (as
hereinafter determined) (which period in time from the Execution Date herein to
the Closing Date is referred to as the "Option Period") for the Cash Payment and
the Trading Share issuance to be paid and issued in accordance with section
"2.2" hereinbelow, and, in consideration therefor, the Optionor does hereby
undertake for the Optionor, together with the Optionor's agents, advisors and
subsidiaries, that they will not until the earlier of the Closing Date or the
termination of this Agreement approach other potential optionees,
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-5-
make, invite, entertain or accept any offer for the sale of any of the mineral
interests comprising the Property, or disclose any of the terms of this
Agreement, without the Optionee's prior written consent.
2.2 CONSIDERATION FOR AND MAINTENANCE OF THE OPTION. In order to keep the right
and Option granted to the Optionee in respect of the Property in good standing
and in force and effect during the Option Period the Optionee shall be obligated
to pay and issue the following Cash Payment and Trading Share issuance
(collectively, the "Option Price") to and for the order of the Optionor in the
following manner:
(a) Cash Payment: pay to the order and direction of the Optionor the
sum of U.S. $20,000 (the "Cash Payment") on or before two
calendar days from the Effective Date of this Agreement; and
(b) Trading Share Issuance: issue to the Optionor a total of 30,000
fully paid and non-assessable trading common shares in the
capital of the Optionee (each a "Trading Share"), at a deemed
issuance price of U.S. $1.00 per Trading Share, on or before two
calendar days from the Effective Date of this Agreement.
2.3 RESALE RESTRICTIONS. The Optionor hereby acknowledges and agrees that the
Optionee makes no representations as to any resale or other restriction
affecting the Trading Shares, and that it is presently contemplated that the
Trading Shares will be issued by the Optionee to the Optionor in reliance upon
the registration and prospectus exemptions contained in sections 45(2)(19) and
74(2)(18) of the Securities Act which will impose a trading restriction in the
Province of British Columbia on the Trading Shares for a period of at least 12
months from their date of issuance. In addition, the obligation of the Optionee
to issue the Trading Shares pursuant to section "2.2" hereinabove is subject to
the Optionee being satisfied that an exemption from applicable registration and
prospectus requirements is available under the securities laws of the Province
of British Columbia and the United States in respect of the Optionor, and the
Optionee shall be relieved of any obligation whatsoever to issue Trading Shares
in respect of the Optionor where the Optionee reasonably determines that a
suitable exemption is not available to it.
2.4 TERMINATION OF THE OPTION. The Option shall terminate upon two calendar
days' prior written notice being first being provided by the Optionor to the
Optionee:
(a) if the Optionee fails to make the required Cash Payment to the
order and direction of the Optionor in accordance with paragraph
"2.2(a)" hereinabove within the time period specified in
paragraph "2.2(a)"; or
(b) if the Optionee fails to make the required Trading Share issuance
to the Optionor in accordance with paragraph "2.2(b)" hereinabove
within the time periods specified in paragraph "2.2(b)".
2.5 TERMINATION BY THE OPTIONEE. Prior to the exercise of the Option the
Optionee may terminate the Option by providing a notice of termination to the
Optionor in writing of its desire to do so at least two calendar days prior to
its decision to do so. After such two calendar days' period the Optionee shall
have no further obligations, financial or otherwise, under this Agreement,
except that the provisions of section "2.7" hereinbelow shall become immediately
applicable to the Optionee upon providing the said notice of termination to the
Optionor.
2.6 NO INTEREST IN THE PROPERTY. If the Option is so terminated in accordance
with either of sections "2.4" or "2.5" hereinabove the Optionee shall have no
interest in and to any of
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the mineral interests comprising the Property, and the provisions of section
"2.7" hereinbelow shall become immediately applicable to the Optionee.
2.7 OBLIGATIONS ON TERMINATION. If the Option is terminated otherwise than upon
the exercise thereof pursuant to this Article, then the Optionee shall deliver
at no cost to the Optionor within 30 calendar days of such termination copies of
all reports, maps, assay results and other relevant technical data compiled by
or in the possession of the Optionee with respect to the mineral interests
comprising the Property and not theretofore already furnished to the Optionor.
2.8 DEEMED EXERCISE OF THE OPTION. At such time as the Optionee has made each of
the required Cash Payment and Trading Share issuance in accordance with section
"2.2" hereinabove, within the Option Period and the time periods as specified in
section "2.2", then the Option shall be deemed to have been exercised by the
Optionee, and the Optionee shall have thereby, in accordance with the terms and
conditions of this Agreement and without any further act required on its behalf,
acquired an undivided one hundred percent (100%) legal and beneficial interest
in and to the mineral property interests comprising the Property.
ARTICLE 3
REPRESENTATIONS, WARRANTIES AND COVENANTS BY THE OPTIONOR
3.1 REPRESENTATIONS, WARRANTIES AND COVENANTS BY THE OPTIONOR. In order to
induce the Optionee to enter into and consummate this Agreement, the Optionor
hereby represents to, warrants to and covenants with the Optionee, with the
intent that the Optionee will rely thereon in entering into this Agreement and
in concluding the transactions contemplated herein, that, to the best of the
knowledge, information and belief of the Optionor, after having made due
inquiry:
(a) the Optionor is qualified to do business in those jurisdictions
where it is necessary to fulfill the Optionor's obligations under
this Agreement, and the Optionor has the full power and authority
to enter into this Agreement and any agreement or instrument
referred to or contemplated by this Agreement;
(b) the Optionor has the requisite power, authority and capacity to
fulfill the Optionor's obligations under this Agreement;
(c) the execution and delivery of this Agreement and the agreements
contemplated hereby have been duly authorized by all necessary
action on the Optionor's part;
(d) this Agreement constitutes a legal, valid and binding obligation
of the Optionor enforceable against the Optionor in accordance
with its terms, except as enforcement may be limited by laws of
general application affecting the rights of creditors;
(e) prior to the Subject Removal Date the Optionor will have obtained
all authorizations, approvals, including Regulatory Approval, or
waivers that may be necessary or desirable in connection with the
transactions contemplated in this Agreement, and other actions
by, and have made all filings with, any 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 herein, and all such
authorizations, approvals and other actions will be in full force
and effect, and all such filings will have been accepted by the
Optionor who will be in compliance with, and have not committed
any breach of,
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any securities laws, regulations or policies of any Regulatory
Authority to which either the Optionor or any of the mineral
interests comprising the Property may be subject;
(f) except for Regulatory Approval of this Agreement by the
appropriate Regulatory Authorities, there are no other consents,
approvals or conditions precedent to the performance of this
Agreement which have not been obtained;
(g) the Optionor is not in breach of any laws, ordinances, statutes,
regulations, by-laws, orders or decrees to which the Optionor is
subject or which apply to the Optionor;
(h) no proceedings are pending for, and the Optionor is unaware of,
any basis for the institution of any proceedings leading to the
placing of the Optionor in bankruptcy or subject to any other
laws governing the affairs of insolvent persons;
(i) the Optionor acknowledges that the Trading Shares will be issued,
and reserved for issuance where applicable, under certain
exemptions from the registration and prospectus filing
requirements otherwise applicable under the Securities Act, and
that, as a result, the Optionor may be restricted from using most
of the remedies that would otherwise be available to the Optionor
and will not receive information that would otherwise be required
to be provided to the Optionor, and the Optionee is relieved from
certain obligations that would otherwise apply to the Optionee,
in either case, under applicable securities legislation;
(j) the Optionor has not received, nor has the Optionor requested or
does the Optionor require to receive, any offering memorandum or
similar document describing the business and affairs of the
Optionee in order to assist the Optionor in entering into this
Agreement and in consummating the transactions contemplated
herein;
(k) the Optionor acknowledges and agrees that the Trading Shares have
not been and will not be qualified or registered under the
securities laws of the Province of British Columbia or under any
federal or state laws of the United States and, as such, the
Optionor may be restricted from selling or transferring such
Trading Shares under applicable law;
(l) the Optionor will not take any action which may require the
Optionee to register with any applicable securities regulatory
authority or to file a prospectus under applicable securities
laws in respect of this Agreement or the transactions
contemplated herein;
(m) the Optionor is resident in the jurisdiction as set forth on the
front page of this Agreement, and that all negotiations and other
acts in furtherance of the execution and delivery of this
Agreement by the Optionor in connection with the transactions
contemplated herein have taken place and will take place solely
in such jurisdiction or the Province of British Columbia;
(n) the Optionor, through its Mexican subsidiary, is authorized to
hold the legal and beneficial right to explore and develop each
of the mineral interests comprising the Property and all Property
Rights held by the Optionor, through its Mexican subsidiary, in
and to the mineral interests comprising the Property;
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(o) the Optionor, through its Mexican subsidiary, beneficially holds
all of the mineral interests comprising the Property free and
clear of all liens, charges and claims of others;
(p) no other person, firm or corporation has any written or oral
agreement, option, understanding or commitment, or any right or
privilege capable of becoming an agreement, for the purchase from
the Optionor of any interest in and to any of the mineral
interests comprising the Property;
(q) the mineral interests comprising the Property have been duly and
validly located and recorded in a good and minerlike manner
pursuant to applicable mining laws;
(r) all permits and licenses covering the mineral interests
comprising the Property have been duly and validly issued
pursuant to applicable mining laws and are in good standing by
the proper doing and filing of assessment work and the payment of
all fees, taxes and rentals in accordance with the requirements
of applicable mining laws and the performance of all other
actions necessary in that regard;
(s) all conditions on and relating to the mineral interests
comprising the Property and the operations conducted thereon by
or on behalf of the Optionor, through its Mexican subsidiary, are
in compliance with all applicable laws, regulations or orders and
including, without limitation, all laws relating to environmental
matters, waste disposal and storage and reclamation;
(t) there are no outstanding orders or directions relating to
environmental matters requiring any work, repairs, construction
or capital expenditures with respect to any of the mineral
interests comprising the Property and the conduct of the
operations related thereto, nor has the Optionor received any
notice of same;
(u) there is no adverse claim or challenge against or to the
ownership of or title to any of the mineral interests comprising
the Property or which may impede the development of any of the
mineral interests comprising the Property, nor, to the best of
the knowledge, information and belief of the Optionor, after
having made due inquiry, is there any basis for any potential
claim or challenge, and, to the best of the knowledge,
information and belief of the Optionor, after having made due
inquiry, no person has any royalty, net profits or other
interests whatsoever in any production from any of the mineral
interests comprising the Property;
(v) there are no actions, suits, proceedings or investigations
(whether or not purportedly against or on behalf of the
Optionor), pending or threatened, which may affect, without
limitation, the rights of the Optionor to transfer any interest
in and to the mineral interests comprising the Property to the
Optionee at law or in equity, or before or by any federal, state,
provincial, municipal or other governmental department,
commission, board, bureau, agency or instrumentality, domestic or
foreign, and, without limitation, there are no claims or
potential claims under any relevant family relations legislation
or other equivalent legislation affecting any of the mineral
interests comprising the Property. In addition, the Optionor is
not now aware of any existing ground on which any such action,
suit or proceeding might be commenced with any reasonable
likelihood of success;
(w) the Optionor has delivered to the Optionee all Property
Documentation in the Optionor's possession or control relating to
the mineral interests comprising the Property together with
copies of all permits, permit applications and applications
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<PAGE> 10
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for exploration and exploitation rights respecting any of the
mineral interests comprising the Property;
(x) the Optionor is not, nor until or at the Closing Date will the
Optionor be, in breach of any provision or condition of, nor has
the Optionor done or omitted to do anything that, with or without
the giving of notice or lapse or both, would constitute a breach
of any provision or condition of, or give rise to any right to
terminate or cancel or accelerate the maturity of any payment
under, any deed of trust, contract, certificate, consent, permit,
license or other instrument to which the Optionor is a party, by
which the Optionor is bound or from which the Optionor derives
benefit, any judgment, decree, order, rule or regulation of any
court or governmental authority to which the Optionor is subject,
or any statute or regulation applicable to the Optionor, to an
extent that, in the aggregate, has a material adverse affect on
either the Optionor or on any of the mineral interests comprising
the Property;
(y) the Optionor will give to the Optionee, within at least two
calendar days prior to the Closing Date, by written notice,
particulars of:
(i) each occurrence within the Optionor's knowledge after the
Execution Date of this Agreement that, if it had occurred
before the Execution Date, would have been contrary to any
of the Optionor's representations or warranties contained
herein; and
(ii) each occurrence or omission within the Optionor's
knowledge after the Execution Date that constitutes a
breach of any of the Optionor's covenants contained in
this Agreement;
(z) the making of this Agreement and the completion of the
transactions contemplated hereby and the performance of and
compliance with the terms hereof does not and will not:
(i) conflict with or result in a breach of or violate any of
the terms, conditions or provisions of any law, judgment,
order, injunction, decree, regulation or ruling of any
court or governmental authority, domestic or foreign, to
which the Optionor is subject, or constitute or result in
a default under any agreement, contract or commitment to
which the Optionor is a party;
(ii) give to any party the right of termination, cancellation
or acceleration in or with respect to any agreement,
contract or commitment to which the Optionor is a party;
(iii) give to any government or governmental authority, or any
municipality or any subdivision thereof, including any
governmental department, commission, bureau, board or
administration agency, any right of termination,
cancellation or suspension of, or constitute a breach of
or result in a default under, any permit, license, control
or authority issued to the Optionor which is necessary or
desirable in connection with the conduct and operations of
the Optionor's business and the ownership or leasing of
the Optionor's business assets; or
(iv) constitute a default by the Optionor, or any event which,
with the giving of notice or lapse of time or both, might
constitute an event of default, under any agreement,
contract, indenture or other instrument relating to any
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<PAGE> 11
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indebtedness of the Optionor which would give any party to
that agreement, contract, indenture or other instrument
the right to accelerate the maturity for the payment of
any amount payable under that agreement, contract,
indenture or other instrument;
(aa) neither this Agreement nor any other document, certificate or
statement furnished to the Optionee by or on behalf of the
Optionor in connection with the transactions contemplated hereby
knowingly or negligently contains any untrue or incomplete
statement of material fact or omits to state a material fact
necessary in order to make the statements therein not misleading
which would likely affect the decision of the Optionee to enter
into this Agreement; and
(ab) the Optionor is not aware of any fact or circumstance which has
not been disclosed to the Optionee which should be disclosed in
order to prevent the representations, warranties and covenants
contained in this section from being misleading or which would
likely affect the decision of the Optionee to enter into this
Agreement.
3.2 CONTINUITY OF THE REPRESENTATIONS, WARRANTIES AND COVENANTS BY THE OPTIONOR.
The representations, warranties and covenants by the Optionor contained in this
Article "3", or in any certificates or documents delivered pursuant to the
provisions of this Agreement or in connection with the transactions contemplated
hereby, will be true at and as of the Closing Date as though such
representations, warranties and covenants were made at and as of such time.
Notwithstanding any investigations or inquiries made by the Optionee or by the
Optionee's professional advisors prior to the Closing Date, or the waiver of any
condition by the Optionee, the representations, warranties and covenants of the
Optionor contained in this Article "3" shall survive the Closing Date and shall
continue in full force and effect for a period of 90 calendar days from the
Closing Date; provided, however, that the Optionor shall not be responsible for
the breach of any representation, warranty or covenant of the Optionor contained
herein caused by any act or omission of the Optionee prior to the Execution Date
hereof of which the Optionor was unaware or as a result of any action taken by
the Optionee after the Execution Date. In the event that any of the said
representations, warranties or covenants are found by a court of competent
jurisdiction to be incorrect and such incorrectness results in any loss or
damage sustained directly or indirectly by the Optionee, then the Optionor will
pay the amount of such loss or damage to the Optionee within 30 calendar days of
receiving notice of judgment therefor; provided, however, that the Optionee will
not be entitled to make any claim unless the loss or damage suffered may exceed
the amount of U.S. $1,000.
ARTICLE 4
WARRANTIES, REPRESENTATIONS AND COVENANTS BY THE OPTIONEE
4.1 WARRANTIES, REPRESENTATIONS AND COVENANTS BY THE OPTIONEE. In order to
induce the Optionor to enter into and consummate this Agreement, the Optionee
hereby warrants to, represents to and covenants with the Optionor, with the
intent that the Optionor will rely thereon in entering into this Agreement and
in concluding the transactions contemplated herein, that, to the best of the
knowledge, information and belief of the Optionee, after having made due
inquiry:
(a) the Optionee is a corporation duly incorporated under the laws of
the State of Delaware, U.S.A., is validly existing and is in good
standing with respect to all statutory filings required by the
State of Delaware;
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<PAGE> 12
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(b) the Optionee is qualified to do business in those jurisdictions
where it is necessary to fulfill the Optionee's obligations under
this Agreement, and the Optionee has the full power and authority
to enter into this Agreement and any agreement or instrument
referred to or contemplated by this Agreement;
(c) the execution and delivery of this Agreement and the agreements
contemplated hereby has been duly authorized by all necessary
corporate action on the Optionee's part;
(d) prior to the Subject Removal Date the Optionee will have obtained
all authorizations, approvals, including Regulatory Approval, or
waivers that may be necessary or desirable in connection with the
transactions contemplated in this Agreement, and other actions
by, and have made all filings with, any 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 herein, and all such
authorizations, approvals and other actions will be in full force
and effect, and all such filings will have been accepted by the
Optionee who will be in compliance with, and have not committed
any breach of, any securities laws, regulations or policies of
any Regulatory Authority to which the Optionee may be subject;
(e) except for Regulatory Approval of this Agreement by the
appropriate Regulatory Authorities, there are no other consents,
approvals or conditions precedent to the performance of this
Agreement which have not been obtained;
(f) this Agreement constitutes a legal, valid and binding obligation
of the Optionee enforceable against the Optionee in accordance
with its terms, except as enforcement may be limited by laws of
general application affecting the rights of creditors;
(g) all of the issued and outstanding shares of the Optionee are
listed and posted for trading on the Exchange, and the Optionee
is not in material default of any of the terms and conditions of
its listing agreement with the Exchange or of any of the rules
and policies of the Exchange;
(h) the Optionee will allot and issue the Trading Shares during the
Option Period and in accordance with section "2.2" hereinabove as
fully paid and non-assessable in the capital of the Optionee,
free and clear of all actual or threatened liens, charges,
options, encumbrances, voting agreements, voting trusts, demands,
limitations and restrictions of any nature whatsoever, other than
hold periods or other restrictions imposed under applicable
securities legislation or by securities regulatory authorities,
including the Exchange;
(i) the Optionee is not aware of any court order which restricts or
prevents the issuance by the Optionee of any shares from
treasury;
(j) the shares in the capital of the Optionee are not subject to or
affected by any actual or, to the knowledge of the Optionee,
pending or threatened cease trading, compliance or denial of use
of exemptions orders of, or action, investigation or proceeding
by or before, any securities regulatory authority, court,
administrative agency or other tribunal;
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<PAGE> 13
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(k) the making of this Agreement and the completion of the
transactions contemplated hereby and the performance of and
compliance with the terms hereof does not and will not:
(i) conflict with or result in a breach of or violate any of
the terms, conditions or provisions of the incorporation
documents of the Optionee;
(ii) conflict with or result in a breach of or violate any of
the terms, conditions or provisions of any law, judgment,
order, injunction, decree, regulation or ruling of any
court or governmental authority, domestic or foreign, to
which the Optionee is subject, or constitute or result in
a default under any agreement, contract or commitment to
which the Optionee is a party;
(iii) give to any party the right of termination, cancellation
or acceleration in or with respect to any agreement,
contract or commitment to which the Optionee is a party;
(iv) give to any government or governmental authority, or any
municipality or any subdivision thereof, including any
governmental department, commission, bureau, board or
administration agency, any right of termination,
cancellation or suspension of, or constitute a breach of
or result in a default under, any permit, license, control
or authority issued to the Optionee which is necessary or
desirable in connection with the conduct and operations of
the Optionee's business and the ownership or leasing of
the Optionee's business assets; or
(v) constitute a default by the Optionee or any event which,
with the giving of notice or lapse of time or both, might
constitute an event of default, under any agreement,
contract, indenture or other instrument relating to any
indebtedness of the Optionee which would give any party to
that agreement, contract, indenture or other instrument
the right to accelerate the maturity for the payment of
any amount payable under that agreement, contract,
indenture or other instrument;
(l) neither this Agreement nor any other document, certificate or
statement furnished to the Optionor by or on behalf of the
Optionee in connection with the transactions contemplated hereby
knowingly or negligently contains any untrue or incomplete
statement of material fact or omits to state a material fact
necessary in order to make the statements therein not misleading;
and
(m) the Optionee is not aware of any fact or circumstance which has
not been disclosed to the Optionor which should be disclosed in
order to prevent the representations, warranties and covenants
contained in this section from being misleading or which would
likely affect the decision of the Optionor to enter into this
Agreement.
4.2 CONTINUITY OF THE REPRESENTATIONS, WARRANTIES AND COVENANTS BY THE OPTIONEE.
The representations, warranties and covenants of the Optionee contained in this
Article "4", or in any certificates or documents delivered pursuant to the
provisions of this Agreement or in connection with the transactions contemplated
hereby, will be true at and as of the Closing Date as though such
representations, warranties and covenants were made at and as of such time.
Notwithstanding any investigations or inquiries made by the Optionor or by the
Optionor's professional advisors prior to the Closing Date, or the waiver of any
condition by the Optionor, the representations, warranties and covenants of the
Optionee contained in this Article
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<PAGE> 14
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"4" shall survive the Closing Date and shall continue in full force and effect
for a period of 90 calendar days from the Closing Date; provided, however, that
the Optionee shall not be responsible for the breach of any representation,
warranty or covenant of the Optionee contained herein caused by any act or
omission of the Optionor prior to the Execution Date hereof of which the
Optionee was unaware or as a result of any action taken by the Optionor after
the Execution Date. In the event that any of the said representations,
warranties or covenants are found by a court of competent jurisdiction to be
incorrect and such incorrectness results in any loss or damage sustained
directly or indirectly by the Optionor, then the Optionee will pay the amount of
such loss or damage to the Optionor within 30 calendar days of receiving notice
of judgment therefor; provided, however, that the Optionor will not be entitled
to make any claim unless the loss or damage suffered may exceed the amount of
$1,000.
ARTICLE 5
CONDITIONS PRECEDENT TO CLOSING
5.1 THE OPTIONOR'S CONDITIONS PRECEDENT. The rights, duties and obligations of
the Optionor under this Agreement are subject to the following conditions
precedent for the exclusive benefit of the Optionor fulfilled in all material
aspects in the reasonable opinion of the Optionor or to be waived by the
Optionor as soon as possible after the Execution Date, however, unless
specifically indicated as otherwise, not later than 10 calendar days after the
Execution Date (such date being the "Subject Removal Date"):
(a) the representations, warranties and covenants of the Optionee
contained herein shall be true and correct as of and on the
Subject Removal Date;
(b) the Optionee shall have complied with all warranties,
representations, covenants and agreements herein agreed to be
performed or caused to be performed by the Optionee on or before
the Subject Removal Date;
(c) the Optionee will have obtained all authorizations, approvals,
including Regulatory Approval, or waivers that may be necessary
or desirable in connection with the transactions contemplated in
this Agreement, and other actions by, and have made all filings
with, any 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 herein, and all such authorizations, approvals and
other actions will be in full force and effect, and all such
filings will have been accepted by the Optionee who will be in
compliance with, and have not committed any breach of, any
securities laws, regulations or policies of any Regulatory
Authority to which the Optionee may be subject;
(d) all matters which, in the opinion of counsel for the Optionor,
are material in connection with the transactions contemplated by
this Agreement shall be subject to the favourable opinion of such
counsel, and all relevant records and information shall be
supplied to such counsel for that purpose;
(e) no material loss or destruction of or damage to the Optionee
shall have occurred since the Execution Date; and
(f) no action or proceeding at law or in equity shall be pending or
threatened by any person, company, firm, governmental authority,
regulatory body or agency to enjoin or prohibit:
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<PAGE> 15
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(i) the purchase or transfer of any interest in and to the
mineral interests comprising the Property as contemplated
by this Agreement or the right of the Optionor to dispose
of any interest in and to any of the mineral interests
comprising the Property; or
(ii) the right of the Optionee to conduct the Optionee's
operations and carry on, in the normal course, the
Optionee's business and operations as the Optionee has
carried on in the past.
5.2 THE OPTIONOR'S WAIVER OF CONDITIONS PRECEDENT. The conditions precedent set
forth in section "5.1" hereinabove are for the exclusive benefit of the Optionor
and may be waived by the Optionor in writing and in whole or in part at any time
after the Execution Date, however, unless specifically indicated as otherwise,
not later than five calendar days prior to the Subject Removal Date.
5.3 THE OPTIONEE'S CONDITIONS PRECEDENT. The rights, duties and obligations of
the Optionee under this Agreement are subject to the following conditions
precedent for the exclusive benefit of the Optionee fulfilled in all material
aspects in the reasonable opinion of the Optionee or to be waived by the
Optionee as soon as possible after the Execution Date, however, unless
specifically indicated as otherwise, not later than five calendar days prior to
the Subject Removal Date:
(a) the representations, warranties and covenants of the Optionor
contained herein shall be true and correct as of and on the
Subject Removal Date;
(b) the Optionor shall have complied with all warranties,
representations, covenants and agreements herein agreed to be
performed or caused to be performed by the Optionor on or before
the Subject Removal Date;
(c) the Optionor will have obtained all authorizations, approvals,
including Regulatory Approval, or waivers that may be necessary
or desirable in connection with the transactions contemplated in
this Agreement, and other actions by, and have made all filings
with, any 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 herein, and all such authorizations, approvals and
other actions will be in full force and effect, and all such
filings will have been accepted by the Optionor who will be in
compliance with, and have not committed any breach of, any
securities laws, regulations or policies of any Regulatory
Authority to which the Optionor may be subject;
(d) all matters which, in the opinion of counsel for the Optionee,
are material in connection with the transactions contemplated by
this Agreement shall be subject to the favourable opinion of such
counsel, and all relevant records and information shall be
supplied to such counsel for that purpose;
(e) no material loss or destruction of or damage to any of the
mineral interests comprising the Property shall have occurred
since the Execution Date;
(f) no action or proceeding at law or in equity shall be pending or
threatened by any person, company, firm, governmental authority,
regulatory body or agency to enjoin or prohibit:
(i) the sale or transfer of any interest in and to the mineral
interests comprising the Property as contemplated by this
Agreement or the right of
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<PAGE> 16
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the Optionee to acquire any interest in and to any of
the mineral interests comprising the Property; or
(ii) the right of the Optionee to conduct the Optionee's
operations and carry on, in the normal course, the
Optionee's business and operations as the Optionee has
carried on in the past.
(g) the delivery to the Optionee by the Optionor, on a confidential
basis, of all Property Documentation and including, without
limitation,:
(i) a copy of all material contracts, agreements, reports and
title information of any nature respecting any of the
mineral interests comprising the Property; and
(ii) details of any lawsuits, claims or potential claims
relating to any of the mineral interests comprising the
Property of which the Optionor is aware and the Optionee
is unaware; and
(h) the completion by the Optionee and by the Optionee's professional
advisors of a thorough due diligence and operations review of the
mineral property interests comprising the Property, of the
business and operations of the Optionor and of the
transferability of the mineral interests comprising the Property
as contemplated by this Agreement, to the sole and absolute
satisfaction of the Optionee.
5.4 OPTIONEE'S WAIVER OF CONDITIONS PRECEDENT. The conditions precedent set
forth in section "5.3" hereinabove are for the exclusive benefit of the Optionee
and may be waived by the Optionee in writing and in whole or in part at any
after the Execution Date, however, unless specifically indicated as otherwise,
not later than five calendar days prior to the Subject Removal Date.
ARTICLE 6
CLOSING AND EVENTS OF CLOSING
6.1 CLOSING AND CLOSING DATE. Subject to the prior and due and complete exercise
of the Option by the Optionee in accordance with Article "2" hereinabove, the
closing (the "Closing") of the within purchase and delivery of an undivided one
hundred percent (100%) legal and beneficial interest in and to the mineral
interests comprising the Property, as contemplated in the manner as set forth in
Article "2" hereinabove, together with all of the transactions contemplated by
this Agreement, shall occur on the day which is two calendar days following the
due and complete exercise of the Option by the Optionee in accordance with
section "2.2" hereinabove (the "Closing Date"), or on such earlier or later
Closing Date as may be agreed to in advance and in writing by each of the
Parties hereto, and will be closed at the offices of the Devlin Jensen,
Barristers and Solicitors (herein the "Escrow Agent"), at Suite 2550, 555 West
Hastings Street, Vancouver, British Columbia, V6B 4N5, at 2:00 p.m. (Vancouver
time) on the Closing Date.
6.2 LATEST CLOSING DATE. If the Closing Date has not occurred by 5:00 p.m.
(Vancouver time) on June 10, 1999 this Agreement will be terminated and
unenforceable unless the Parties hereto agree in writing to grant an extension
of the Closing Date.
6.3 DOCUMENTS TO BE DELIVERED BY THE OPTIONOR PRIOR TO THE CLOSING DATE. Not
later than two calendar days prior to the Closing Date, and in addition to the
documentation which is required by the agreements and conditions precedent which
are set forth in Articles "2"
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and "5" hereinabove, the Optionor shall also execute and deliver, or cause to be
delivered, to the Escrow Agent all such other documents, resolutions and
instruments as may be necessary, in the opinion of counsel for the Optionee,
acting reasonably, to complete all of the transactions contemplated by this
Agreement and including, without limitation, the necessary transfer of an
undivided one hundred percent (100%) legal and beneficial interest in and to the
mineral interests comprising the Property to the Optionee free and clear of all
liens, charges and encumbrances, and in particular including, but not being
limited to, the following materials:
(a) all documentation as may be necessary and as may be required by
the solicitors for the Optionee, acting reasonably, to ensure
that an undivided one hundred percent (100%) legal and beneficial
interest in and to the mineral interests comprising the Property
has been duly transferred and assigned and is registerable in the
name of and for the benefit of the Optionee under the laws of
Mexico;
(b) all necessary deeds, conveyances, bills of sale, assurances,
transfers, assignments and consents, including all necessary
consents and approvals, and any other documents necessary or
reasonably required to effectively transfer an undivided one
hundred percent (100%) legal and beneficial registerable interest
in and to the mineral interests comprising the Property to the
Optionee with good and marketable title, free and clear of all
mortgages, liens, charges, pledges, claims, security interests or
encumbrances whatsoever;
(c) all necessary consents and approvals in writing to the completion
of the transactions contemplated herein and including, without
limitation, Regulatory Approval from all Regulatory Authorities
having jurisdiction over either the Optionor or any of the
mineral interests comprising the Property;
(d) any remaining Property Documentation; and
(e) all such other documents and instruments as the Optionee and the
Optionee's solicitors may reasonably require.
6.4 DOCUMENTS TO BE DELIVERED BY THE OPTIONEE PRIOR TO THE CLOSING DATE. Not
later than two calendar days prior to the Closing Date, and in addition to the
documentation which is required by the agreements and conditions precedent which
are set forth in Articles "2" and "5" hereinabove , the Optionee shall also
execute and deliver, or cause to be delivered, to the Escrow Agent all such
other documents, resolutions and instruments as are necessary, in the opinion of
counsel for the Optionor, acting reasonably, to complete all of the transactions
contemplated by this Agreement and including, without limitation, effectively
accepting the transfer to the Optionee of an undivided one hundred percent
(100%) legal and beneficial interest in and to the mineral interests comprising
the Property free and clear of all liens, charges and encumbrances, and in
particular including, but not being limited to, the following materials:
(a) a certified copy of the resolutions of the directors of the
Optionee providing for the approval of the terms and conditions
of this Agreement and all of the transactions contemplated
hereby;
(b) all necessary consents and approvals in writing to the completion
of the transactions contemplated herein and including, without
limitation, Regulatory Approval from all Regulatory Authorities
having jurisdiction over the Optionee; and
(c) all such other documents and instruments as the Optionor and the
Optionor's solicitors may reasonably require.
-- Mineral Property Option Agreement --
-- Azco Mining Inc. --
<PAGE> 18
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ARTICLE 7
APPOINTMENT OF ESCROW AGENT AND TRANSFER DOCUMENTS
7.1 APPOINTMENT OF ESCROW AGENT. The Parties hereto hereby acknowledge and
appoint the Escrow Agent as escrow agent herein.
7.2 ESCROW OF TRANSFER DOCUMENTS. Subject to and in accordance with the terms
and conditions hereof and the requirements of Articles "2", "5" and "6"
hereinabove, and without in any manner limiting the obligations of each of the
Parties hereto as contained therein and hereinabove, it is hereby acknowledged
and confirmed by the Parties hereto that each of the Parties will execute,
deliver, or cause to be delivered, all such documentation as may be required by
the requirements of Articles "2", "5" and "6" hereinabove (herein, collectively,
the "Transfer Documents") and deposit the same with the Escrow Agent, or with
such other mutually agreeable escrow agent, together with a copy of this
Agreement, there to be held in escrow for release by the Escrow Agent to the
Parties in accordance with the strict terms and provisions of Articles "2" and
"6" hereinabove.
7.3 RESIGNATION OF ESCROW AGENT. The Escrow Agent may resign from its duties and
responsibilities if it gives each of the Parties hereto two calendar days'
written notice in advance. Upon receipt of notice of the Escrow Agent's
intention to resign the Parties shall, within two calendar days, select a
replacement escrow agent and jointly advise the Escrow Agent in writing to
deliver the Transfer Documents to the replacement escrow agent. If the Parties
fail to agree on a replacement escrow agent within two calendar days of such
notice, the replacement escrow agent shall be selected by a Judge of the Supreme
Court of the Province of British Columbia upon application by any Party hereto.
The Escrow Agent shall continue to be bound by this Agreement until the
replacement escrow agent has been selected and the Escrow Agent receives and
complies with the joint instructions of the Parties to deliver the Transfer
Documents to the replacement escrow agent. The Parties agree to enter into an
escrow agreement substantially in the same form of this Agreement with the
replacement escrow agent.
7.4 INSTRUCTIONS TO ESCROW AGENT. Instructions given to the Escrow Agent
pursuant to this Agreement shall be given by duly authorized signatories of the
respective Parties hereto.
7.5 NO OTHER DUTIES OR OBLIGATIONS. The Escrow Agent shall have no duties or
obligations other than those specifically set forth in this Article.
7.6 NO OBLIGATION TO TAKE LEGAL ACTION. The Escrow Agent shall not be obligated
to take any legal action hereunder which might, in its judgment, involve any
expense or liability unless it shall have been furnished with a reasonable
indemnity by all of the Parties hereto together with such other third parties as
the Escrow Agent may require in its sole and absolute discretion.
7.7 NOT BOUND TO ANY OTHER AGREEMENTS. The Escrow Agent is not bound in any way
by any other contract or agreement between the Parties hereto whether or not it
has knowledge thereof or of its terms and conditions and its only duty,
liability and responsibility shall be to hold and deal with the Transfer
Documents as herein directed.
7.8 NOTICE. The Escrow Agent shall be entitled to assume that any notice and
evidence received by it pursuant to these instructions from anyone has been duly
executed by the Party by whom it purports to have been signed and that the text
of any notice and evidence is accurate and the truth. The Escrow Agent shall not
be obliged to inquire into the sufficiency or authority of the text or any
signatures appearing on such notice or evidence.
-- Mineral Property Option Agreement --
-- Azco Mining Inc. --
<PAGE> 19
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7.9 INDEMNITY. The Parties hereto, jointly and severally, covenant and agree to
indemnify the Escrow Agent and to hold it harmless against any loss, liability
or expense incurred, without negligence or bad faith on its part, arising out of
or in connection with the administration of its duties hereunder and including,
without limitation, the costs and expenses of defending itself against any claim
or liability arising therefrom.
7.10 NOT REQUIRED TO TAKE ANY ACTION. In the event of any disagreement between
any of the Parties hereto to these instructions or between them or either or any
of them and any other person resulting in adverse claims or demands being made
in connection with the Transfer Documents, or in the event that the Escrow Agent
should take action hereunder, it may, at its option, refuse to comply with any
claims or demands on it, or refuse to take any other action hereunder, so long
as such disagreement continues or such doubt exists and, in any such event, it
shall not be or become liable in any way or to any person for its failure or
refusal to act and it shall be entitled to continue so to refrain from acting
until:
(a) the rights of all Parties shall have been fully and finally
adjudicated by a court of competent jurisdiction; or
(b) all differences shall have been adjusted and all doubt resolved
by agreement among all of the interested persons and it shall
have been notified thereof in writing signed by all such persons.
ARTICLE 8
DUE DILIGENCE INVESTIGATION
8.1 DUE DILIGENCE. Each of the Parties hereto shall forthwith conduct such
further due diligence examination of the other Parties hereto as it deems
appropriate.
8.2 CONFIDENTIALITY. Each Party may in a reasonable manner carry out such
investigations and due diligence as to the other Parties hereto, at all times
subject to the confidentiality provisions of Articles "9" and "10" hereinbelow,
as each Party deems necessary. In that regard the Parties agree that each shall
have full and complete access to, if and where applicable, the other Parties'
respective books, records, financial statements and other documents, articles of
incorporation, by-laws, minutes of Board of Directors' meetings and its
committees, investment agreements, material contracts and as well as such other
documents and materials as the Parties hereto, or their respective solicitors,
may deem reasonable and necessary to conduct an adequate due diligence
investigation of each Party and its respective operations and financial
condition prior to the Closing.
ARTICLE 9
NON-DISCLOSURE
9.1 NON-DISCLOSURE. Subject to the provisions of section "9.3" hereinbelow, the
Parties hereto, for themselves and, if and where applicable, their officers,
directors, shareholders, consultants, employees and agents, agree that they each
will not disseminate or disclose, or knowingly allow, permit or cause others to
disseminate or disclose to third parties who are not subject to express or
implied covenants of confidentiality, without the other Parties' express written
consent, either: (i) the fact or existence of this Agreement or discussions
and/or negotiations between them involving, inter alia, possible business
transactions; (ii) the possible substance or content of those discussions; (iii)
the possible terms and conditions of any proposed transaction; (iv) any
statements or representations (whether verbal or written) made by either
-- Mineral Property Option Agreement --
-- Azco Mining Inc. --
<PAGE> 20
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Party in the course of or in connection with those discussions; or (v) any
written material generated by or on behalf of any Party and such contacts, other
than such disclosure as may be required under applicable securities legislation
or regulations, pursuant to any order of a court or on a "need to know" basis to
each of the Parties' respective professional advisors.
9.2 DOCUMENTATION. Any document or written material generated by either Party
hereto in the course of, or in connection with, the due diligence investigations
conducted pursuant to this Agreement shall be marked "Confidential" and shall be
treated by each Party as a trade secret of the other Parties. Upon termination
of this Agreement prior to Closing all copies of any and all documents obtained
by any Party from any other Party herein, whether or not marked "Confidential",
shall be returned to the other Parties forthwith.
9.3 PUBLIC ANNOUNCEMENTS. Notwithstanding the provisions of this Article, the
Parties hereto agree to make such public announcements of this Agreement
promptly upon its execution in accordance with the requirements of applicable
securities legislation and regulations.
ARTICLE 10
PROPRIETARY INFORMATION
10.1 CONFIDENTIAL INFORMATION. Each Party hereto acknowledges that any and all
information which a Party may obtain from, or have disclosed to it, about the
other Parties constitutes valuable trade secrets and proprietary confidential
information of the other Parties (collectively, the "Confidential Information").
No such Confidential Information shall be published by any Party without the
prior written consent of the other Parties hereto; however, such consent in
respect of the reporting of factual data shall not be unreasonably withheld and
shall not be withheld in respect of information required to be publicly
disclosed pursuant to applicable securities or corporation laws. Furthermore,
each Party hereto undertakes not to disclose the Confidential Information to any
third party without the prior written approval of the other Parties hereto and
to ensure that any third party to which the Confidential Information is
disclosed shall execute an agreement and undertaking on the same terms as
contained herein.
10.2 IMPACT OF BREACH OF CONFIDENTIALITY. The Parties hereto acknowledge and
agree that the Confidential Information is important to the respective
businesses of each of the Parties and that, in the event of disclosure of the
Confidential Information, except as authorized hereunder, the damage to each of
the Parties hereto, or to either of them, may be irreparable. For the purposes
of the foregoing sections the Parties recognize and hereby agree that a breach
by any of the Parties of any of the covenants therein contained would result in
irreparable harm and significant damage to each of the other Parties that would
not be adequately compensated for by monetary award. Accordingly, the Parties
agree that in the event of any such breach, in addition to being entitled as a
matter of right to apply to a court of competent equitable jurisdiction for
relief by way of restraining order, injunction, decree or otherwise as may be
appropriate to ensure compliance with the provisions hereof, any such Party will
also be liable to the other Parties, as liquidated damages, for an amount equal
to the amount received and earned by such Party as a result of and with respect
to any such breach. The Parties also acknowledge and agree that if any of the
aforesaid restrictions, activities, obligations or periods are considered by a
court of competent jurisdiction as being unreasonable, the Parties agree that
said court shall have authority to limit such restrictions, activities or
periods as the court deems proper in the circumstances. In addition, the Parties
further acknowledge and agree that all restrictions or obligations in this
Agreement are necessary and fundamental to the protection of the respective
businesses of each of the Parties and are reasonable and valid, and all defenses
to the strict enforcement thereof by either of the Parties are hereby waived by
the other Parties.
-- Mineral Property Option Agreement --
-- Azco Mining Inc. --
<PAGE> 21
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ARTICLE 11
FORCE MAJEURE
11.1 EVENTS. If any Party hereto is at any time 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.
11.2 NOTICE. A Party shall, within three calendar days, give notice to the other
Parties of each event of force majeure under section "11.1" hereinabove and,
upon cessation of such event, shall furnish the other Parties 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.
ARTICLE 12
ARBITRATION
12.1 MATTERS FOR ARBITRATION. The Parties hereto agree that all questions or
matters in dispute with respect to this Agreement shall be submitted to
arbitration pursuant to the terms hereof.
12.2 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 two calendar days' prior written notice of its intention to do so to the
other Parties together with particulars of the matter in dispute. On the
expiration of such two calendar days the Party who gave such notice may proceed
to refer the dispute to arbitration as provided in section "12.3" hereinbelow.
12.3 APPOINTMENTS. The Party desiring arbitration shall appoint one arbitrator,
and shall notify the other Parties of such appointment, and the other Parties
shall, within two calendar days after receiving such notice, appoint an
arbitrator, and the two arbitrators so named, before proceeding to act, shall,
within two 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 chairperson of the arbitration herein provided for. If the other Parties
shall fail to appoint an arbitrator within two calendar days after receiving
notice of the appointment of the first arbitrator, or if the two arbitrators
appointed by the Parties shall be unable to agree on the appointment of the
chairperson, the chairperson shall be appointed under the provisions of 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 chairperson, or in the case where only one arbitrator is
appointed, the single arbitrator, shall fix a time and place in Vancouver,
British Columbia, for the purpose of hearing the evidence and representations of
the Parties, and such arbitrator shall preside over the arbitration and
determine all questions of procedure not provided for under such 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.
-- Mineral Property Option Agreement --
-- Azco Mining Inc. --
<PAGE> 22
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12.4 AWARD. The Parties hereto 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.
ARTICLE 13
DEFAULT AND TERMINATION
18.1 DEFAULT. The Parties hereto agree that if any Party hereto is in default
with respect to any of the provisions of this Agreement (herein called the
"Defaulting Party"), the non-defaulting Parties (herein called, collectively,
the "Non-Defaulting Party") shall give notice to the Defaulting Party
designating such default, and within two calendar days 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 as herein provided.
13.2 ARBITRATION. If arbitration is sought a Party shall not be deemed in
default until the matter shall have been determined finally by appropriate
arbitration under the provisions of Article "12" hereinabove.
13.3 CURING THE DEFAULT. If:
(a) the default is not so cured or the Defaulting Party does not
commence or diligently proceed to cure the default; or
(b) arbitration is not so sought; or
(c) the Defaulting Party is found in arbitration proceedings to be in
default, and fails to cure it within two calendar days after the
rendering of the arbitration award,
the Non-Defaulting Party may, by written notice given to the Defaulting Party at
any time while the default continues, terminate the interest of the Defaulting
Party in and to this Agreement.
13.4 TERMINATION. In addition to the foregoing it is hereby acknowledged and
agreed by the Parties hereto that this Agreement will be immediately terminated
in the event that:
(a) the Option is terminated in accordance with section "2.4"
hereinabove;
(b) either of the Parties hereto has either not satisfied or waived
each of their respective conditions precedent prior to the
Subject Removal Date in accordance with the provisions of Article
"5" hereinabove;
(c) the conditions specified in section "5.1" hereinabove have not
been satisfied by May 30, 1999;
(d) either of the Parties hereto has failed to deliver, or caused to
be delivered, any of their respective materials required to be
delivered in accordance with Articles "5" and "6" hereinabove
prior to each of the Subject Removal Date and the Closing Date in
accordance with the provisions of Articles "5" and "6"
hereinabove;
-- Mineral Property Option Agreement --
-- Azco Mining Inc. --
<PAGE> 23
-22-
(e) either of the Parties hereto has not provided a satisfactory
report on its respective due diligence as contemplated in
accordance with Articles "5" and "6" hereinabove;
(f) the Closing Date has not occurred by 5:00 p.m. (Vancouver time)
on June 10, 1999; or
(g) by agreement in writing by each of the Parties hereto;
and in such event this Agreement will be terminated and be of no further force
and effect other than the obligations under each of section "2.7" and Articles
"9" and "10" hereinabove.
ARTICLE 14
GENERAL PROVISIONS
14.1 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.
14.2 ENUREMENT. This Agreement will enure to the benefit of and will be binding
upon the Parties hereto and their respective heirs, executors, administrators
and assigns.
14.3 SCHEDULE. The Schedule to this Agreement is hereby incorporated by
reference into this Agreement in its entirety.
14.4 TIME OF THE ESSENCE. Time will be of the essence of this Agreement.
14.5 REPRESENTATION AND COSTS. It is hereby acknowledged by each of the Parties
hereto that, as between the Parties hereto, Devlin Jensen, Barristers and
Solicitors, acts solely for the Optionee, and that the Optionor has been advised
by each of Devlin Jensen and the Optionee to obtain independent legal advice
with respect to the Optionor's respective review and execution of this
Agreement. In addition, it is hereby further acknowledged and agreed by the
Parties hereto that each Party to this Agreement will bear and pay its own
costs, legal and otherwise, in connection with its respective preparation,
review and execution of this Agreement and, in particular, that the costs
involved in the preparation of this Agreement, and all documentation necessarily
incidental thereto, by Devlin Jensen shall be at the cost of the Optionee.
14.6 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 and the courts prevailing in
the Province of British Columbia.
14.7 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.
14.8 CURRENCY. Unless otherwise stipulated, all payments required to be made
pursuant to the provisions of this Agreement and all money amount references
contained herein are in lawful currency of the United States of America.
-- Mineral Property Option Agreement --
-- Azco Mining Inc. --
<PAGE> 24
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14.9 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 any of the Parties
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).
14.10 CAPTIONS. The captions, section numbers and Article numbers appearing in
this Agreement 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.
14.11 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 Post Office in North America addressed to
the Party entitled to receive the same, or delivered to such Party, at the
address for such Party specified above. 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 calendar 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. Either Party may at any
time and from time to time notify the other Parties in writing of a change of
address and the new address to which notice shall be given to it thereafter
until further change.
14.12 COUNTERPARTS. This Agreement may be signed by the Parties hereto in as
many counterparts as may be necessary and, if required, by facsimile, each of
which so signed being 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.
14.13 NO PARTNERSHIP OR AGENCY. The Parties hereto 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.
14.14 CONSENTS AND WAIVERS. No consent or waiver expressed or implied by either
Party hereto in respect of any breach or default by any other Party 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.
-- Mineral Property Option Agreement --
-- Azco Mining Inc. --
<PAGE> 25
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IN WITNESS WHEREOF each of the Parties hereto have hereunto set
their respective hands and seals in the presence of their duly authorized
signatories effective as of the Execution Date as set forth in the front page of
this Agreement.
The CORPORATE SEAL of )
MINERA CORTEZ RESOURCES LTD., )
the Optionor herein, was hereunto affixed )
in the presence of: ) (C/S)
)
__________________________________________ )
Authorized Signatory )
The CORPORATE SEAL of )
AZCO MINING INC., )
the Optionee herein, was hereunto affixed )
in the presence of: ) (C/S)
)
__________________________________________ )
Authorized Signatory )
----------
<PAGE> 1
EXHIBIT 10.17
AZCO MINING INC.
2068 Main Street, Suite C, P.O. Box 1895
Ferndale, Washington, U.S.A., 98248
(the "Purchaser")
-----------------------
August 9, 1999 (the "Execution Date")
To:
MR. THOMAS FORD
ON HIS OWN BEHALF, AS THE MAJORITY SHAREHOLDER OF CALGEM, INC. AND, IF
APPLICABLE, ON BEHALF OF AND AS ATTORNEY AND DULY AUTHORIZED REPRESENTATIVE OF
ANY MINORITY SHAREHOLDER(S) OF CALGEM, INC.
(collectively, the "Shareholder")
And to:
CALGEM, INC.
TOGETHER WITH SUCH OTHER COMPANY OR COMPANIES WHICH ARE OWNED OR CONTROLLED BY
THOMAS FORD OR CALGEM, INC. IN THE BUSINESS PF PRECIOUS GEMS
(collectively, the "Company")
Both c/o 1823 Armour Lane, Redondo Beach
California, U.S.A., 90503
Re:
Offer to purchase all of the shares of each of the SHAREHOLDER in the Company by
the PURCHASER or, subject to the Purchaser's sole determination, all of the
assets of the Company
(the Shareholder and the Company being, collectively, herein the "Vendors", and
the Shareholder, the Company and the Purchaser being, collectively, herein the
"Parties")
AGREEMENT IN PRINCIPLE
This letter will confirm our agreement (herein the "Agreement")
pursuant to which, and subject to such legal, accounting and tax advice
(collectively, the "Advice") as may be provided to the Purchaser by its various
professional advisors and counsel prior to the completion of the transactions
contemplated by the terms and conditions of this Agreement, such Advice to be
for the sole and absolute benefit of and in the sole and absolute discretion of
the Purchaser, the Vendors wish to sell and the Purchaser wishes to purchase all
of the issued and outstanding shares of the Company (collectively, the
"Purchased Shares") and/or the business assets of the Company (collectively, the
"Business Assets") (the Purchased Shares and the Business Assets being
hereinafter collectively referred to as the "Property"), as the Advice may
determine and the Purchaser solely determine, and, in connection therewith, the
Vendors have herein agreed to provide the Purchaser with a formal and exclusive
option (the "Option") to purchase the Property upon the terms and conditions as
set forth in this Agreement.
We understand and confirm that the Company is a body corporate
subsisting under and registered pursuant to the laws of the State of California
and is in the present business of developing, managing, operating
<PAGE> 2
and marketing gemstones and jewelry through various television, Internet and
telemarketing campaigns and venues (collectively, the "Business").
We also understand and confirm that this Agreement is a binding
agreement, but that a more formal agreement (the "Formal Agreement") may or
shall be entered into in accordance with the Purchaser's Advice pursuant to
which the Company will agree to sell and the Purchaser will agree to purchase,
as the Advice. AT ALL TIMES THE UNDERSIGNED HERETO ACKNOWLEDGE AND AGREE THAT
THE COMPLETION OF ANY SUCH FORMAL AGREEMENT, AND FINAL BINDING NATURE ON THE
PURCHASER (WHICH MAY BE WAIVED BY THE PURCHASER AT ANY TIME AND AT ITS SOLE
DISCRETION) IS SUBJECT TO APPROVAL OF THE TERMS AND CONDITIONS OF ANY SUCH
FORMAL AGREEMENT BY, IF APPLICABLE, SHAREHOLDERS OF THE PURCHASER AND SUCH
SECURITIES REGULATORY AUTHORITIES AS MAY HAVE JURISDICTION OVER THE PURCHASER
AND, IN PARTICULAR AND WITHOUT LIMITATION, THE TORONTO STOCK EXCHANGE AND THE
AMERICAN STOCK EXCHANGE (collectively, the "Exchange").
ARTICLE 1
GRANT, MAINTENANCE, EXERCISE AND TERMINATION OF THE OPTION
2.1 GRANT OF THE OPTION TO ACQUIRE THE PROPERTY. Subject to such Advice as may
be provided to the Purchaser prior to the completion of the transactions
contemplated by the terms and conditions of this Agreement, such Advice to be
for the sole and absolute benefit of and in the sole and absolute discretion of
the Purchaser, and subject to the terms and conditions hereof and based upon the
representations, warranties and covenants contained in Article "5" hereinbelow
and the prior satisfaction of the conditions precedent which are set forth in
Article "6" hereinbelow, the Vendors hereby agree, individually and
collectively, to give and grant to the Purchaser the sole and exclusive right
and Option to purchase, at the Closing Date (as hereinafter determined), all of
their respective and collective right, title and interest in and to the
Purchased Shares and/or Business Assets on the terms and subject to the
conditions contained in this Agreement, and, in order to maintain the Option in
good standing and in full force and effect, the Purchaser hereby agrees to
exercise the Option on or before the Closing Date (as hereinafter determined and
which period in time between the Execution Date and the Closing Date is herein
also referred to as the "Option Period") for the Acquisition Share (as
hereinafter determined) issuance and for the Acquisition Payment (as hereinafter
determined) to be made and paid in accordance with section "1.2" hereinbelow,
and, in consideration therefor, the Vendors do hereby undertake for each of the
Vendors and for the Vendors' respective agents and advisors that they will not
until the earlier of either the Closing Date (as hereinafter determined) or the
termination of this Agreement approach other potential purchasers, make, invite,
entertain or accept any offer for the sale of any of the Property or disclose
any of the terms of this Agreement without the Purchaser's prior written
consent.
1.2 CONSIDERATION FOR AND MAINTENANCE OF THE OPTION. In order to keep the right
and Option granted to the Purchaser in respect of the Property in good standing
and in force and effect during the Option Period the Purchaser shall be
obligated to make the following Acquisition Share issuance and Acquisition
Payment (collectively, the "Option Price") to and for the order and direction of
the Vendors, as the Vendors may determine, in the Vendors' sole and absolute
discretion and advise the Purchaser of prior to such Acquisition Share issuance
or Acquisition Payment, in the following manner:
(a) Acquisition Share Issuance: issue to order and direction of the
Vendors, and in conjunction with Article "7" hereinbelow, an
aggregate of 250,000 common shares in the capital of the
Purchaser (each an "Acquisition Share"), at a deemed issuance
price of U.S. $0.95 per Acquisition Share, on or before 10
calendar days after the Purchaser's receipt of Exchange approval
to the terms and conditions of this Agreement (the "Effective
Date"); and
(b) Acquisition Payment: pay to the order and direction of the
Vendors the aggregate sum of U.S. $150,000 (collectively, the
"Acquisition Payment") in the following manner:
(i) an initial U.S. $75,000 of the Acquisition Payment on or
before six months from the Effective Date of this
Agreement; and
(ii) the balance of U.S. $75,000 of the Acquisition Payment on
or before 12 months from the Effective Date of this
Agreement.
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<PAGE> 3
1.3 TERMINATION OR DEEMED EXERCISE OF THE OPTION. The Option shall terminate
upon 30 calendar days' prior written notice being first being provided by each
of the Vendors to the Purchaser:
(a) if the Purchaser fails to make the required Acquisition Share
issuance to the order and direction of the Vendors in accordance
with paragraph "1.2(a)" hereinabove within the time period as
specified in paragraph "1.2(a)"; or
(b) if the Purchaser fails to make any of the required Acquisition
Payments to the order and direction of the Vendors in accordance
with paragraph "1.2(b)" hereinabove within the time periods as
specified in paragraph "1.2(b)".
At such time as the Purchaser has made each of the required
Acquisition Share issuance and Acquisition Payments in accordance with section
"1.2" hereinabove, within the Option Period and the time periods as specified in
section "1.2", then the Option shall be deemed to have been exercised by the
Purchaser, and the Purchaser shall have thereby, in accordance with the terms
and conditions of this Agreement and without any further act required on its
behalf, acquired such portion (that being, based upon its prior Advice, the
Purchased Shares and/or the Business Assets) of the Property subject only to the
Consulting Fee (as hereinafter determined) payment consideration and to the
Royalty Performance Share (as hereinafter determined) issuance consideration
which may be payable and issuable by the Purchaser to the Vendors in accordance
with Articles "2" and "3", respectively, hereinbelow.
ARTICLE 2
GENERAL SERVICES AND COMPENSATION THEREFORE
2.1 GENERAL SERVICES. During the Initial Term (as hereinafter determined) of
this Agreement, and in conjunction with the general intent of the Parties hereto
which, upon the due and complete exercise by the Purchaser to acquire the
Property in accordance with section "1.2" hereinabove, seeks to have the
Purchaser further develop and expand the Vendors' existing Business interests,
the Purchaser hereby agrees to retain the Shareholder as a management consultant
to and on behalf of the Purchaser, or any of the Purchaser's subsidiaries, as
the case may be and as may be determined by the Purchaser in its sole and
absolute discretion, and the Shareholder hereby agrees to accept such position
in order to provide such consulting, technical, marketing and management
services (collectively, the "General Services") as may be necessary and
determined by the Purchaser, from to time and in its sole and absolute
discretion, to both develop and market the Business and Property interests
during the Initial Term and during the continuance of this Agreement; it being
expressly acknowledged and agreed by the Parties hereto that the Shareholder
shall commit and provide to the Purchaser the General Services on a full-time
basis during the Initial Term and during the continuance of this Agreement for
which the Purchaser, as more particularly set forth hereinbelow, hereby agrees
to pay to the order and direction of the Shareholder the Consulting Fee (as
hereinafter determined) in accordance with section "2.7" hereinbelow and during
the Initial Term only of this Agreement. In this regard it is hereby
acknowledged and agreed that the Shareholder shall be entitled to communicate
with and rely upon the immediate advice and instructions of Mr. Anthony R.
Harvey, the current Vice-Chairman, Vice-President, Secretary and a Director of
the Purchaser, or upon the advice or instructions of such other Director or
Officer of the Company as Mr. Harvey shall, from time to time, designate in
times of his absence, in order to initiate, coordinate and implement the General
Services for the Purchaser as contemplated herein.
2.2 INITIAL TERM IN RESPECT OF THE GENERAL SERVICES ONLY. The initial term of
this Agreement (the "Initial Term") in connection with the General Services only
is for the period commencing on the Effective Date of this Agreement and ending
on the date which is one calendar year from such Effective Date subject, at all
times, to the Purchaser's prior receipt, if required, of Regulatory Approval
from each of the Regulatory Authorities to the terms and conditions of and the
transactions contemplated by this Agreement.
2.3 RENEWAL BY THE PURCHASER IN RESPECT OF THE GENERAL SERVICES ONLY. Subject at
all times to sections "2.4" and "2.5" hereinbelow, the Initial Term in
connection with the General Services only shall renew automatically if not
specifically terminated in accordance with the following provisions. The
Purchaser agrees to notify the Shareholder in writing at least 30 calendar days
prior to the end of the Initial Term of its intent not to renew the General
Services portion only of this Agreement (the "Purchaser's Non-Renewal Notice").
Should the Purchaser fail to provide a Purchaser's Non-Renewal Notice the
General Services portion of this Agreement
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<PAGE> 4
only shall automatically renew for a further one calendar year period until
otherwise specifically renewed in writing by each of the Parties hereto for the
next one calendar year period or, otherwise, terminated upon delivery by the
Purchaser of a corresponding and follow-up 30-calendar day Purchaser's
Non-Renewal Notice in connection with and within 30 calendar days prior to the
end of any such one calendar year renewal period. Any such renewal on a one
calendar year to one calendar year basis shall be on the same terms and
conditions for the delivery and compensation of such General Services as
contained in this Agreement unless otherwise modified and agreed to in writing
by the Shareholder and the Purchaser hereto.
2.4 TERMINATION OF THE GENERAL SERVICES FOR CAUSE BY ANY PARTY. Notwithstanding
any other provision of this Agreement, the General Services portion of this
Agreement only may be terminated at any time by either Party upon written notice
to the other Party and damages sought if:
(a) the other Party fails to cure a material breach of any provision
of this Agreement relating to the provision for General Services
only 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 to cure said breach);
(b) the other Party is willfully non-compliant in the performance of
its respective duties under this Agreement relating to the
provision for General Services only within 30 calendar days from
its receipt of written notice from said Party (unless such
willful non-compliance cannot be reasonably corrected within said
30 calendar days and the other Party is actively pursuing to cure
said willful non-compliance);
(c) the other Party commits fraud or serious neglect or misconduct in
the discharge of its respective duties relating to the provision
for General Services only hereunder or under the law; or
(d) the other Party becomes adjudged bankrupt or a petition for
reorganization or arrangement under any law relating to
bankruptcy, and where any such involuntary petition is not
dismissed within 10 calendar days.
2.5 TERMINATION WITHOUT CAUSE BY THE PURCHASER. Notwithstanding any other
provision of this Agreement, the General Services portion of this Agreement only
may be terminated by the Purchaser at any time after the Effective Date and
during the Initial Term and during the continuance of this Agreement upon its
delivery to the Shareholder of prior written notice of its intention to do so
(the "Purchaser's Notice of Termination") at least 10 calendar days prior to the
effective date of any such termination (the "Effective Termination Date"). In
any such event the respective obligations of each of Parties hereto under this
Agreement (and including, without limitation, the Shareholder's ongoing
obligation to provide the General Services and the Purchaser's ongoing
obligation to provide the Consulting Fee) will continue until such Effective
Termination Date as provided for in the Company's Notice of Termination and,
furthermore, upon the Effective Termination Date the Purchaser will also be
obligated to provide the Shareholder the then balance of any Consulting Fee (as
hereinafter determined) and Expense (as hereinafter determined) payment
reimbursement which would then be due and owing by the Purchaser to the
Shareholder to the completion of the Initial Term of this Agreement and, in
addition, and if this Agreement had then been previously and automatically
renewed for a further one calendar year period in accordance with section "3.5"
hereinabove, until the end of any such further one calendar year period in
conjunction with section "3.5". In addition, and again upon the Effective
Termination Date, the Purchaser will continue to be obligated to issue and pay,
respectively, the Acquisition Shares and the Acquisition Payment in order to
exercise the Option during the remaining portion of the Option Period
outstanding on the Effective Termination Date and, furthermore, to maintain the
Car Lease and Purchase Benefit (as hereinafter determined).
2.6 CONSULTING FEE. It is understood hereby that the Shareholder shall render
the General Services as defined hereinabove during the Initial Term and during
the continuance of this Agreement and shall thus be compensated on a monthly
basis by the Purchaser from the Effective Date of this Agreement to the
termination of the same by way of the payment by the Purchaser to the
Shareholder, or to the further order or direction of the Shareholder as the
Shareholder may determine, in the Shareholder's sole and absolute discretion,
and advise the Purchaser of prior to such payment, of a monthly fee of U.S.
$20,000 (the "Consulting Fee"), with such Consulting Fee being due and payable
by the Purchaser to the Shareholder, or to the further order or direction of
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<PAGE> 5
the Shareholder as the Shareholder may determine, in the Shareholder's sole and
absolute discretion, and advise the Purchaser of prior to such payment, on the
first business day of the month following the then monthly period of service
during the Initial Term and during the continuance of this Agreement. In this
regard, and for the purposes of evidencing the Purchaser's ongoing commitment to
compensate the Shareholder together with the Shareholder's ongoing commitment to
perform the General Services faithfully, diligently, to the best of the
Shareholder's abilities and in the best interests of the Purchaser during the
Initial Term and during the continuance of this Agreement, it is hereby
acknowledged and agreed that the Purchaser shall provide the Shareholder, in the
manner aforesaid, with the initial month's and the final month's Consulting Fee
payments for the Initial Term of this Agreement on the first business day
following the Effective Date of this Agreement.
2.7 REIMBURSEMENT OF EXPENSES. It is also understood hereby that the Shareholder
shall also be reimbursed for all pre-approved direct reasonable expenses
actually and properly incurred by the Shareholder for the benefit of the
Purchaser (collectively, the "Expenses"), which Expenses have first been
approved by the Board of Directors of the Purchaser, and which Expenses, it is
hereby acknowledged and agreed, shall be payable by the Purchaser to the order,
direction and account of the Shareholder as the Shareholder may designate in
writing, from time to time, in the Shareholder's sole and absolute discretion,
as soon as conveniently possible after the prior delivery by the Shareholder of
written substantiation on account of each such reimbursable Expense.
2.8 CAR LEASE AND PURCHASE BENEFIT. It is further understood hereby that,
notwithstanding the prior termination of the General Services portion only of
this Agreement, the Purchaser shall make available for use by the Shareholder,
and for a period of four years from the Effective Date hereof, a new "BMW 540i"
of the Shareholder's choosing which the Purchaser will lease for the benefit of
the Shareholder during such four year term and, thereafter, transfer to the
Shareholder for the sum of U.S. $1.00; it being acknowledged and agreed that the
Purchaser shall thereupon be responsible for satisfying any residual amount
owing under said car lease prior to the corresponding transfer of the car to the
order and direction of the Shareholder in that instance (collectively, the "Car
Lease and Purchase Benefit").
ARTICLE 3
TRADING SUBSIDIARY, GROSS SALES AND COMPENSATION THEREFORE
3.1 CREATION OF TRADING SUBSIDIARY. Upon the due and complete exercise of the
Option by the Purchaser in accordance with section "1.2" hereinabove, and in
conjunction with the corresponding completion of the sale and purchase of the
Property in accordance with Article "7" hereinbelow such that the Purchaser is
the registered and beneficial owner of a one hundred percent (100%) undivided
interest in and to the Property, it is hereby acknowledged and agreed by the
Parties hereto that it is then presently intended that the Purchaser, or any of
the Purchaser's subsidiaries, as the case may be and as may be determined by the
Purchaser in its sole and absolute discretion, will establish one or more
trading subsidiaries (each a "Trading Subsidiary") for the purposes of
developing, marketing and maintaining the Business and Property interests
utilizing the Shareholder's General Services and in particular, however, without
limitation, for the purpose of generating and collecting all Gross Sales (as
hereinafter determined) and of any other benefit, directly or indirectly
collected or received, whether for cash or credit or by way of any benefit,
advantage, equity or concession from the research, development, marketing and
maintenance of the Business and Property interests or any other activity in
relation to the sale of any Product therefrom (collectively, the "Gross Sales").
3.2 CAPITAL FUNDING OF PROPOSED TRADING SUBSIDIARY. Upon the due and complete
exercise of the Option by the Purchaser in accordance with section "1.2"
hereinabove and the corresponding completion of the sale and purchase of the
Property in accordance with Article "7" hereinbelow, and in conjunction with any
and all proposed Loans (as hereinafter determined) in accordance with section
"4.1" hereinbelow, it is hereby acknowledged and agreed by the Parties hereto
that it is then presently intended that the Purchaser, or any of the Purchaser's
subsidiaries, as the case may be and as may be determined by the Purchaser in
its sole and absolute discretion, will, from time to time, however, during the
initial four month period after the Closing (as hereinafter determined) herein,
and again in the Purchaser's sole and absolute discretion, advance by way of a
loan or loans to any such Trading Subsidiary the aggregate sum of up to U.S.
$1,000,000 (collectively, the "Advance"), together with interest accruing
thereon at such rate as may be determined by the Purchaser from time to time, in
its sole and absolute discretion, compounded semi-annually and not in advance
(the "Interest") prior to maturity, which Advance and Interest will be payable
by the Trading Subsidiary to the Purchaser on
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<PAGE> 6
such terms as may determined by the Purchaser, in its sole and absolute
discretion, prior to the advancement of any such Advance, and which Advance and
Interest will be secured, contemporaneously with the advancement of any funds
under any such Advance, by way of a senior fixed and floating charge on all of
the assets of such Trading Subsidiary. In this regard it is hereby acknowledged
and agreed that any said Advance will be utilized, at all times, by the Trading
Subsidiary under the control and direction of the Board of Directors of the
Purchaser, however, it is hereby also acknowledged and understood that it is
presently intended that any said Advance will at least be utilized in
conjunction with, but not limited to, the purchasing of Product and gemstones in
conjunction with the ongoing development, marketing and maintenance of the
Business and Property interests utilizing the Shareholder's General Services and
in particular, however, again without limitation, in the furtherance of
generating Gross Sales for the Purchaser through the Trading Subsidiary.
3.3 DEBT FUNDING OF PROPOSED TRADING SUBSIDIARY. Upon the due and complete
exercise of the Option by the Purchaser in accordance with section "1.2"
hereinabove, and in conjunction with any and all proposed Advances under section
"3.2" hereinabove and any and all proposed Loans (as hereinafter determined)
under section "4.1" hereinbelow, it is hereby further acknowledged and agreed by
the Parties hereto that it is then presently intended that the Purchaser, or any
of the Purchaser's subsidiaries, as the case may be and as may be determined by
the Purchaser in its sole and absolute discretion, will, from time to time,
however, during the Initial Term only of this Agreement, and again in the
Purchaser's sole and absolute discretion, arrange up to U.S. $1,000,000 in line
of credit financing(s) for the Trading Subsidiary (collectively, the "Line of
Credit"), on such terms as may determined by the Purchaser, in its sole and
absolute discretion, and in and for such jurisdiction(s) as may be determined by
the Purchaser, with the reasonable advice of the Vendors, and in conjunction
with, but not limited to, the purchasing of Product and gemstones in conjunction
with the ongoing development, marketing and maintenance of the Business and
Property interests utilizing the Shareholder's General Services and in
particular, however, without limitation, in the furtherance of generating Gross
Sales for the Purchaser through the Trading Subsidiary. In this regard it is
hereby further acknowledged and agreed that the Purchaser will be entitled, in
its sole and absolute discretion and in conjunction with any such Line of
Credit, to pledge and/or hypothecate such assets of the Trading Subsidiary and
the Company as may be reasonably required in order to secure any such Line of
Credit for the Trading Subsidiary.
3.4 PERFORMANCE SHARE CONSIDERATION IN RESPECT OF GROSS SALES. Upon the due and
complete exercise of the Option by the Purchaser in accordance with section
"1.2" hereinabove, and in conjunction with the corresponding completion of the
sale and purchase of the Property in accordance with Article "7" hereinbelow
such that the Purchaser is the registered and beneficial owner of a one hundred
percent (100%) undivided interest in and to the Property, the Purchaser hereby
acknowledges and agrees that it shall thereby be committed and hereby
contractually obligated, while it is the registered and beneficial owner of a
one hundred percent (100%) undivided interest in and to the Property, to provide
to the order and direction of the Vendors, or to the further order or direction
of the Vendors as the Vendors may determine, in the Vendors' sole and absolute
discretion, and advise the Purchaser of prior to such provision, a further fee
(the "Royalty") in respect of all Gross Sales received by either the Purchaser,
its subsidiary or its Trading Subsidiary, as the case may be, from the research,
development, marketing and maintenance of the Business and Property interests or
any other activity in relation to the sale of any Product therefrom. In this
regard said Royalty shall be satisfied by way of the issuance from treasury by
the Purchaser to order and direction of the Vendors, or to the further order or
direction of the Vendors as the Vendors may determine, in the Vendors' sole and
absolute discretion, and advise the Purchaser of prior to such Royalty
provision, and in conjunction with Article "7" hereinbelow, of an aggregate of
up to 750,000 additional common shares in the capital of the Purchaser (each a
"Performance Share"), at a deemed issuance price of U.S. $0.95 per Performance
Share, in the following manner (it being acknowledged and agreed that each of
the following Performance Share issuance circumstances are consecutive and
dependent upon the prior completion of each such issuance):
(a) an initial 250,000 of the Performance Shares shall be issuable to
the order and direction of the Vendors on or before 60 calendar
days from the last day of any calendar month which is determined
to be the fifth such consecutive calendar month during a period
in which either the Purchaser, its subsidiary or its Trading
Subsidiary, as the case may be, first maintained Gross Sales of
at least U.S. $570,000 during each of such initial five months
and, in addition, during each of which initial five months a
profit margin (the "Profit Margin") of at least twenty percent
(20%) was maintained by either the Purchaser, its subsidiary or
its Trading Subsidiary, as the case may be, in respect of all
such Gross Sales (the "Initial Performance Share Issuance");
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<PAGE> 7
(b) subject to the prior obligation and completion of the Initial
Performance Share Issuance under the conditions and during the
initial five month period as contemplated in paragraph "3.4(a)"
hereinabove, a further 250,000 of the Performance Shares shall be
issuable to the order and direction of the Vendors on or before
60 calendar days from the last day of any calendar month which is
determined to then be the fourth such consecutive calendar month
during a period in which either the Purchaser, its subsidiary or
its Trading Subsidiary, as the case may be, maintained Gross
Sales of at least U.S. $600,000 during each of such four
additional months and, in addition, during each of which
additional four months a similar Profit Margin of at least twenty
percent (20%) was maintained by either the Purchaser, its
subsidiary or its Trading Subsidiary, as the case may be, in
respect of such Gross Sales (the "Second Performance Share
Issuance"); and
(c) subject to the prior obligation and completion of each of the
Initial Performance Share Issuance and the Second Performance
Share Issuance under the conditions and during the initial five
month and additional four month periods as contemplated in
paragraphs "3.4(a)" and "3.4(b)" hereinabove, the final 250,000
of the Performance Shares shall be issuable to the order and
direction of the Vendors on or before 60 calendar days from the
last day of any calendar month which is determined to then be the
third such further consecutive calendar month during a period in
which either the Purchaser, its subsidiary or its Trading
Subsidiary, as the case may be, maintained Gross Sales of at
least U.S. $800,000 during each of such three additional months
and, in addition, during each of which additional three months a
similar Profit Margin of at least twenty percent (20%) was
maintained by either the Purchaser, its subsidiary or its Trading
Subsidiary, as the case may be, in respect of such Gross Sales.
3.5 CALCULATION AND COLLECTION OF GROSS SALES. It is hereby acknowledged and
agreed that the Royalty shall be accounted for monthly, and within 30 calendar
days after the end of each such month, and that the first month shall commence
on the first business day of the month following the month of the Effective Date
hereof. The Royalty shall be calculated on all amounts invoiced, or deemed
invoiced, in a month. Within 30 calendar days (or such extended time as the
Parties may permit) of the end of each month the Purchaser, its subsidiary or
its Trading Subsidiary, as the case may be, shall be required to render a
monthly accounting statement with explanatory notes, shall make any adjustments
thereto and shall calculate any Royalty due from such adjustment upon
presentation of such accounting or give notice of any deduction to be carried to
apply to Gross Sales for the next month. The calculation of Gross Sales shall be
carried out in accordance with generally accepted United States accounting
principles applied on a consistent basis. In this regard the Vendors may contest
any accounting within 15 calendar days of presentation of such report. However,
an accounting may be challenged at any time if it comes to the attention of the
Vendors that the Purchaser has failed to clearly disclose any material fact or
Gross Sale therein. It will be the responsibility of the Purchaser, its
subsidiary or its Trading Subsidiary, as the case may be, to collect the amounts
of Gross Sales and all risk of such shall be that of the Purchaser.
Notwithstanding that the Purchaser shall not have invoiced a customer, it shall
be deemed to have invoiced for all Product on the tenth calendar day after
delivery of the same unless special circumstances, with prior approval in
writing by the Vendors, pertain. However, the Purchaser may deduct from Gross
Sales upon which a Royalty is calculated the uncollected receivables from
preceding months which the Purchaser has made bona fide and reasonable best
efforts to collect, but the cost of collection shall not be deducted from Gross
Sales for the purpose of any Royalty calculation. All calculated Gross Sales
figures shall be made in U.S. dollars without any reduction or deduction of any
nature or kind whatsoever, except as set forth in this Agreement. In this regard
the Purchaser shall not exercise any set-off, deduction or any other reduction
to the Gross Sales whether for claims of damages, costs or any other amount
excepting only the uncollected receivables as set forth hereinabove. In the
event that there is any dispute about the calculation or deductibility of
uncollected receivables, such shall be determined by arbitration in accordance
with Article "17" hereinbelow.
ARTICLE 4
INTERIM SECURED LOAN AND SECURITY THEREFORE
4.1 INTERIM SECURED LOAN FROM THE PURCHASER TO THE VENDORS. In conjunction with
and as a condition to the entering into of this Agreement by the Parties hereto,
and prior to the Closing (as hereinafter determined) the Purchaser has agreed to
hereby advance by way of a loan or loans to the Vendors (collectively,
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<PAGE> 8
the "Loan") the aggregate principal sum of up to U.S. $250,000 (collectively,
the "Principal Sum"), together with interest accruing thereon at the rate of ten
percent (10%) per annum, compounded semi-annually and not in advance (the
"Interest") prior to maturity, which Principal Sum and Interest will be payable
by the Vendors to the Purchaser on such terms as may agreed upon by the
Purchaser and the Vendors prior to the advancement of any such Loan, and which
Principal Sum and Interest will be secured, contemporaneously with the
advancement of any funds under any such Loan, by way of a senior fixed and
floating charge on all of the assets of the Vendors (collectively, the
"Security"). In this regard it is hereby acknowledged and agreed that, upon the
completion of the within purchase and sale, it is intended, subject to the
Purchaser's prior receipt of appropriate accounting and legal advice, that the
Loan will simply be forgiven or become an inter-company account as the situation
may require.
4.2 COVENANTS OF THE VENDORS IN CONNECTION WITH ANY LOAN. In order to induce the
Purchaser to provide any such Loan as contemplated by section "4.1" hereinabove,
the Vendors hereby, jointly and severally, covenant with the Purchaser, with the
intent that the Purchaser will rely thereon in providing any such Loan and in
concluding the transactions contemplated thereby, that:
(a) the Vendors will use any such Principal Sum monies which may be
advanced by the Purchaser by way of Loan for the sole purpose of
purchasing Product and gemstones on behalf of, in the name of and
as agent only for either the Purchaser, its subsidiary or its
Trading Subsidiary, as the case may be, and, furthermore, in
conjunction with the ongoing development, marketing and
maintenance of the Business and Property interests utilizing the
Shareholder's General Services through the Purchaser and in
particular, however, without limitation, in the furtherance of
generating Gross Sales for the Purchaser; and
(b) any such Principal Sum will be advanced by the Purchaser to the
Vendors subject to the fulfillment and/or the continuing
fulfillment of at least the following Security conditions to the
sole and absolute satisfaction and discretion of the Purchaser:
(i) the execution by the Vendors of formal Loan documentation
in form and substance satisfactory to the Purchaser and
the Purchaser's counsel, acting reasonably;
(ii) the granting and delivery by the Vendors to the Purchaser
of such Security documentation (and including, without
limitation, promissory notes, security instruments and
United States Uniform Commercial Code registration
statements) as may be required by the Purchaser and its
counsel, acting reasonably, in order to evidence the Loan,
together with and all other supporting documents required
under any such Security documentation; and
(iii) the execution by the Vendors of such formal documentation
in form and substance satisfactory to the Purchaser and
the Purchaser's counsel, acting reasonably, necessarily
providing that any Product and gemstones which are
purchased by the Vendors utilizing any such Principal Sum
monies will be held on behalf of, in the name of and in a
trading account to be established for the Trading
Subsidiary and jointly administered by the Purchaser and
the Shareholder (the "Trading Account") in that instance,
whereupon, should either this Agreement be terminated for
any reason whatsoever by either or both Parties, or should
the Purchaser either relinquish, abandon or transfer back
to the Vendors all or any portion of the Property at any
time after the Execution Date hereof, then all Product,
gemstones and funds then remaining in such Trading Account
shall be returned to the sole and absolute benefit and
direction of the Purchaser without recourse to the
Vendors.
ARTICLE 5
REPRESENTATIONS, WARRANTIES AND COVENANTS BY THE VENDORS
5.1 REPRESENTATIONS, WARRANTIES AND COVENANTS BY THE VENDORS. In order to induce
the Purchaser to enter into and consummate this Agreement, each of the Vendors
hereby, jointly and severally, represents and warrants to the Purchaser, with
the intent that the Purchaser will rely thereon in entering into this
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<PAGE> 9
Agreement and in concluding the transactions contemplated herein, that, to the
best of the knowledge, information and belief of each of the Vendors, after
having made due inquiry:
(a) the execution and delivery of this Agreement and the agreements
contemplated hereby have been duly authorized by all necessary
action, corporate or otherwise, on its respective part, and this
Agreement constitutes a legal, valid and binding obligation of it
enforceable against it in accordance with its terms, except as
enforcement may be limited by laws of general application
affecting the rights of creditors;
(b) the Vendors are the registered and beneficial owners of all of
the interests comprising the Business Assets and the Vendors are
authorized to hold the right to develop and maintain each of the
interests comprising the Business Assets, and the Vendors hold of
all of the interests comprising the Business Assets free and
clear of all liens, charges and claims of others;
(c) no person, firm or corporation has any written or oral agreement,
option, understanding or commitment, or any right or privilege
capable of becoming an agreement, for the purchase from the
Vendors of any interest in and to any of the interests comprising
the Business Assets;
(d) all permits and licenses covering the interests comprising the
Business Assets have been duly and validly issued pursuant to
applicable laws and are in good standing by the proper payment of
all fees, taxes and rentals in accordance with the requirements
of applicable laws and the performance of all other actions
necessary in that regard, and the Vendors have insured the
interests comprising the Business Assets against loss or damage
on a replacement cost basis;
(e) the Shareholder (or the Shareholder as a majority owner and as
the attorney and duly authorized representative of any resulting
minority shareholder of the Company, as the case may be) has good
and marketable title to and is the legal and beneficial owner of
all of the Purchased Shares and has the power and capacity to own
and dispose of the Purchased Shares;
(f) no other person, firm or corporation has any agreement, option or
right capable of becoming an agreement for the purchase of any of
the Purchased Shares;
(g) there are no actions, suits, proceedings or investigations
(whether or not purportedly against or on behalf of the Vendors,
the Company or the Property), pending or threatened, which may
affect, without limitation, the rights of the Vendors (or the
Shareholder as a majority owner and as the attorney and duly
authorized representative of any resulting minority shareholder
of the Company, as the case may be) to transfer any of the
Property to the Purchaser at law or in equity, or before or by
any federal, state, provincial, municipal or other governmental
department, commission, board, bureau, agency or instrumentality,
domestic or foreign, and, without limiting the generality of the
foregoing, there are no claims or potential claims under any
relevant family relations legislation or other equivalent
legislation affecting the Property. In addition, the Vendors are
not now aware of any existing ground on which any such action,
suit or proceeding might be commenced with any reasonable
likelihood of success;
(h) the Company is not, nor until or at the Closing Date (as
hereinafter determined) will it be, in breach of any provision or
condition of, nor has it done or omitted to do anything that,
with or without the giving of notice or lapse or both, would
constitute a breach of any provision or condition of, or give
rise to any right to terminate or cancel or accelerate the
maturity of any payment under, any deed of trust, contract,
certificate, consent, permit, license or other instrument to
which it is a party, by which it is bound or from which it
derives benefit, any judgment, decree, order, rule or regulation
of any court or governmental authority to which it is subject, or
any statute or regulation applicable to it, to an extent that, in
the aggregate, has a material adverse affect on it;
(i) until the Closing Date the Company will:
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(i) maintain its Business Assets and other assets in a manner
consistent with and in compliance with applicable law; and
(ii) not enter into any material transaction or assume or incur any
material liability outside the normal course of its business;
(j) the Vendors have delivered to the Purchaser all Business
Documentation (as hereinafter determined) in their possession or
control relating to the interests comprising the Business Assets and
copies of all permits and permit applications respecting any of the
interests comprising the Business Assets; and
(k) neither this Agreement nor any other document, certificate or
statement furnished to the Purchaser by or on behalf of the Vendors
in connection with the transactions contemplated hereby knowingly or
negligently contains any untrue or incomplete statement of material
fact or omits to state a material fact necessary in order to make the
statements therein not misleading, and it is not aware of any fact or
circumstance which has not been disclosed to the Purchaser which
should be disclosed in order to prevent the representations,
warranties and covenants contained in this section from being
misleading or which would likely affect the decision of the Purchaser
to enter into this Agreement.
5.2 THE VENDORS' ADDITIONAL DOCUMENT COVENANTS. The Vendors will also deliver,
or caused to be delivered, to the Purchaser as soon as conveniently possible
after the Execution Date, however, prior to the Subject Removal Date (as
hereinafter determined), a comprehensive business plan and/or independent
assessment report respecting the interests comprising the Property, together
with such title opinion or other opinions respecting the interests comprising
the Property (collectively, the "Business Documentation"), all as addressed to
the Vendors, the Purchaser and the Purchaser's counsel and prepared in
accordance with the applicable rules and policies of the Exchange, together with
such other documentation as the Purchaser may require in order to seek and
obtain Regulatory Approval for each of the transactions contemplated by this
Agreement.
ARTICLE 6
CONDITIONS PRECEDENT TO CLOSING
6.1 PURCHASER'S CONDITIONS PRECEDENT PRIOR TO THE CLOSING DATE. The rights,
duties and obligations of the Purchaser under this Agreement are subject to the
following conditions precedent for the exclusive benefit of the Purchaser
fulfilled in all material aspects in the reasonable opinion of the Purchaser or
to be waived by the Purchaser as soon as possible after the Execution Date,
however, unless specifically indicated as otherwise, not later than five
calendar days prior to the Subject Removal Date:
(a) the representations and warranties of each of the Vendors
contained herein shall be true and correct as of and on the
Subject Removal Date, and the Vendors shall have complied with
all warranties, representations, covenants and agreements herein
agreed to be performed or caused to be performed by the Vendors
on or before the Subject Removal Date;
(b) the Purchaser will have obtained all authorizations, approvals or
waivers that may be necessary or desirable in connection with the
transactions contemplated in this Agreement, and other actions
by, and have made all filings with, any 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 herein, and all such
authorizations, approvals and other actions will be in full force
and effect, and all such filings will have been accepted by the
Vendors who will be in compliance with, and have not committed
any breach of, any securities laws, regulations or policies of
any regulatory authority to which either of the Vendors may be
subject;
(c) all matters which, in the opinion of counsel for the Purchaser,
are material in connection with the transactions contemplated by
this Agreement shall be subject to the favourable opinion of such
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counsel, and all relevant records and information shall be
supplied to such counsel for that purpose;
(d) no material loss or destruction of or damage to either of the
Vendors, to any of the interests comprising the Business Assets
or to any of the Purchased Shares shall have occurred since the
Execution Date;
(e) no action or proceeding at law or in equity shall be pending or
threatened by any person, company, firm, governmental authority,
regulatory body or agency to enjoin or prohibit:
(i) the purchase or transfer of any of the Property interests
contemplated by this Agreement or the right of the Vendors
to dispose of any of the Property interests; or
(ii) the right of the Vendors to conduct their respective
operations and carry on, in the normal course, their
respective businesses and operations as they have carried
on in the past;
(f) delivery to the Purchaser by the Vendors, on a confidential
basis, of all Business Documentation (as hereinafter determined)
and including, without limitation,:
(i) a copy of all material contracts, agreements, reports and
title information of any nature respecting the Vendors,
the Business Assets and the Purchased Shares; and
(ii) details of any lawsuits, claims or potential claims
relating to either of the Vendors, to any of the Business
Assets or to any the Purchased Shares of which either of
the Vendors is aware and the Purchaser is unaware;
(g) the Company will, for a period of at least five calendar days
prior to the Subject Removal, during normal business hours:
(i) make available for inspection by the solicitors, auditors
and representatives of the Purchaser, at such location as
is appropriate, all of the Company's books, records,
contracts, documents, correspondence and other written
materials, and afford such persons every reasonable
opportunity to make copies thereof and take extracts
therefrom at the sole cost of the Purchaser; provided such
persons do not unduly interfere in the operation of the
Company;
(ii) authorize and permit such persons at the risk and the sole
cost of the Purchaser, and only if such persons do not
unduly interfere in the operations of the Company, to
attend at all of its places of business and operations to
observe the conduct of its business and operations,
inspect its properties and Business Assets and make
physical counts of its respective inventories, shipments
and deliveries; and
(iii) require the Company's management personnel to respond to
all reasonable inquiries concerning the Company's Business
Assets or the conduct of its business relating to its
liabilities and obligations; and
(h) the completion by the Purchaser and by the Purchaser's
professional advisors of a thorough due diligence and operations
review of both the respective businesses and operations of the
Vendors together with the transferability of the Property
interests as contemplated by this Agreement, to the sole and
absolute satisfaction of the Purchaser.
6.2 WAIVER OF CONDITIONS PRECEDENT. The conditions precedent set forth
hereinabove are for the exclusive benefit of the Purchaser and may be waived in
writing and in whole or in part at any after the Execution Date, however, unless
specifically indicated as otherwise, not later than five calendar days prior to
the Subject Removal Date.
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ARTICLE 7
CLOSING, EVENTS OF CLOSING AND ESCROW AGENT THEREFORE
7.1 CLOSING AND CLOSING DATE. The closing (the "Closing") of the within purchase
and delivery of the Property interests, as contemplated in the manner as set
forth in Article "2" hereinabove, together with all of the transactions
contemplated by this Agreement, shall occur on the day which is 10 calendar days
following the due and complete exercise of the Option by the Purchaser in
accordance with section "1.2" hereinabove (the "Closing Date"), or on such
earlier or later Closing Date as may be agreed to in advance and in writing by
each of the Parties hereto, and will be closed at the offices of counsel for the
Purchaser, 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) on the Closing Date.
7.2 LATEST CLOSING DATE. If the Closing Date has not occurred by March 30, 2000
this Agreement will be terminated and all advances by the Purchaser to, or to
the benefit, of the Vendors will be immediately repaid, unless the Parties
hereto agree in writing to grant an extension of the Closing Date.
7.3 DOCUMENTS TO BE DELIVERED BY EACH OF THE VENDORS PRIOR TO THE CLOSING DATE.
Not later than five calendar days prior to the Closing Date, and in addition to
the documentation which is required by the agreements and conditions precedent
which are set forth in Articles "6" hereinabove, the Vendors shall also execute
and deliver, or cause to be delivered, to the Escrow Agent (as hereinafter
determined) all such other documents, resolutions and instruments as may be
necessary, in the opinion of counsel for the Purchaser, acting reasonably, to
complete all of the transactions contemplated by this Agreement including,
without limitation, the necessary transfer of all of the Property interests to
the Purchaser free and clear of all liens, charges and encumbrances, and in
particular including, but not being limited to, the following materials:
(a) all documentation as may be necessary and as may be required by
the solicitors for the Purchaser, acting reasonably, to ensure
that all of the Property interests have been transferred,
assigned and are registerable in the name of and for the benefit
of the Purchaser under applicable corporate laws;
(b) if applicable, a certified copy of the resolutions of the
directors and/or shareholders of the Company authorizing the
transfer by such shareholders to the Purchaser of the Purchased
Shares in accordance with the terms of this Agreement;
(c) a copy of all respective corporate records and books of account
of the Company and including, without limitation, a copy of all
minute books, share register books, share certificate books and
annual reports;
(d) all necessary consents and approvals in writing to the completion
of the transactions contemplated herein from all regulatory
authorities having jurisdiction over the Vendors;
(e) certificates of the Vendor and of an officer of the Company,
dated as of the Closing Date, acceptable in form to counsel for
the Purchaser, acting reasonably, certifying that the
representations, warranties, covenants and agreements of the each
of the Vendors contained in this Agreement are true and correct
in all respects as of the Execution Date of this Agreement and
will be true and correct as of the Closing Date as if made by the
each of the Vendors on the Closing Date;
(f) an opinion of counsel to the Vendors, dated as at the Closing
Date and addressed to the Purchaser and its counsel, in form and
substance satisfactory to the Purchaser's counsel, acting
reasonably, to the effect that:
(i) the Vendors are the registered and beneficial owners of
all of the interests comprising the Property prior to the
completion of the transactions contemplated by this
Agreement;
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(ii) the Company holds the right to develop each of the
interests comprising the Business Assets;
(iii) the Vendors, as the registered and beneficial owners of
all of the interests comprising the Property, hold of all
of the interests comprising the Property free and clear of
all liens, charges and claims of others;
(iv) based on actual knowledge and belief, such counsel knows
of no adverse claim or challenge against or to the
ownership of or title to any of the interests comprising
the Property or which may impede the Business Assets'
development, and, based on actual knowledge and belief,
such counsel is not aware of any basis for any potential
claim or challenge, and there are no outstanding
agreements or options to acquire or purchase any of the
interests comprising the Property;
(v) the Company is a corporation duly incorporated under the
laws of its respective jurisdiction of incorporation and
is validly existing and in good standing with respect to
all statutory filings required by the applicable corporate
laws;
(vi) the Vendors have the requisite power, authority and
capacity to own and use all of their respective Business
Assets and to carry on their respective businesses as
presently conducted by them;
(vii) all necessary steps and corporate proceedings have been
taken by the Vendors to permit the Property interests to
be duly and validly transferred to and registered in the
name of the Purchaser as at the Closing Date;
(viii) the number of authorized and issued shares in the share
capital of the Company is as warranted by the Company, and
all of such issued shares are duly authorized, validly
issued and outstanding as fully paid and non-assessable;
(ix) based on actual knowledge and belief, such counsel knows
of no claims, judgments, actions, suits, litigation,
proceedings or investigations, actual, pending or
threatened, against either of the Vendors or the interests
comprising the Property which might materially affect
either of the Vendors or the Property interests or which
could result in any material liability to the Vendors or
the Property interests; and
(x) as to all other legal matters of a like nature pertaining
to the Vendors, the Property interests and to the
transactions contemplated hereby as the Purchaser or the
Purchaser's counsel may reasonably require;
(g) any remaining Business Documentation; and
(h) all such other documents and instruments as the Purchaser's
counsel may reasonably require.
7.4 APPOINTMENT OF ESCROW AGENT. The Parties hereto hereby acknowledge and
appoint Devlin Jensen, Barristers and Solicitors, of Suite 2550, 555 West
Hastings Street, Vancouver, British Columbia, V6B 4N5, counsel for the Purchaser
herein, as escrow agent (the "Escrow Agent") herein, or such other Escrow Agent
as may be mutually determined by the Parties hereto prior to the Subject Removal
Date, and the Escrow Agent will thereby agree to act as Escrow Agent in
accordance with the terms of this Agreement.
7.5 ESCROW OF TRANSFER DOCUMENTS. Subject to and in accordance with the terms
and conditions hereof and the requirements of Articles "2", "3", "4", "5" and
"6" hereinabove, and without in any manner limiting the obligations of each of
the Parties hereto as contained therein and hereinabove, it is hereby
acknowledged and confirmed by the Parties hereto that each of the Parties will
execute, deliver, or cause to be delivered, all such documentation as may be
required by the requirements of Articles "2", "3", "4", "5" and "6" hereinabove
(herein, collectively, the "Transfer Documents") and deposit the same with the
Escrow Agent, or with such other mutually agreeable escrow agent, together with
a copy of this Agreement, there to be held in
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escrow for release by the Escrow Agent to the Parties in accordance with the
strict terms and provisions of Articles "2", "3", "4", "5", and "6" hereinabove.
7.6 RESIGNATION OF ESCROW AGENT. The Escrow Agent may resign from its duties and
responsibilities if it gives each of the Parties hereto three calendar days'
written notice in advance. Upon receipt of notice of the Escrow Agent's
intention to resign, the Parties shall, within three calendar days, select a
replacement escrow agent and jointly advise the Escrow Agent in writing to
deliver the Transfer Documents to the replacement escrow agent. If the Parties
fail to agree on a replacement escrow agent within three calendar days of such
notice, the replacement escrow agent shall be selected by a Judge of the Supreme
Court of the Province of British Columbia upon application by any Party hereto.
The Escrow Agent shall continue to be bound by this Agreement until the
replacement escrow agent has been selected and the Escrow Agent receives and
complies with the joint instructions of the Parties to deliver the Transfer
Documents to the replacement escrow agent. The Parties agree to enter into an
escrow agreement substantially in the same form of this Agreement with the
replacement escrow agent.
7.7 INSTRUCTIONS TO, DUTIES AND OBLIGATIONS OF AND INDEMNITY OF THE ESCROW
AGENT. Instructions given to the Escrow Agent pursuant to this Agreement shall
be given by duly authorized signatories of the respective Parties hereto. The
Escrow Agent shall have no duties or obligations other than those specifically
set forth in this Article. The Escrow Agent shall not be obligated to take any
legal action hereunder which might, in its judgment, involve any expense or
liability unless it shall have been furnished with a reasonable indemnity by all
of the Parties hereto together with such other third parties as the Escrow Agent
may require in its sole and absolute discretion. The Escrow Agent is not bound
in any way by any other contract or agreement between the Parties hereto whether
or not it has knowledge thereof or of its terms and conditions and its only
duty, liability and responsibility shall be to hold and deal with the Transfer
Documents as herein directed. The Escrow Agent shall be entitled to assume that
any notice and evidence received by it pursuant to these instructions from
anyone has been duly executed by the Party by whom it purports to have been
signed and that the text of any notice and evidence is accurate and the truth.
The Escrow Agent shall not be obliged to inquire into the sufficiency or
authority of the text or any signatures appearing on such notice or evidence.
The Parties hereto, jointly and severally, covenant and agree to indemnify the
Escrow Agent and to hold it harmless against any loss, liability or expense
incurred, without negligence or bad faith on its part, arising out of or in
connection with the administration of its duties hereunder including, without
limitation, the costs and expenses of defending itself against any claim or
liability arising therefrom.
ARTICLE 8
DUE DILIGENCE, NON-DISCLOSURE AND CONFIDENTIALITY
8.1 DUE DILIGENCE. Each of the Parties hereto may conduct such further due
diligence examination of the other Parties hereto as it deems appropriate. Each
Party may in a reasonable manner carry out such investigations and due diligence
as to the other Parties hereto, at all times subject to the confidentiality
provisions hereinbelow, as each Party deems advisable. In that regard the
Parties agree that each shall have full and complete access to the other
Parties' books, records, financial statements and other documents, articles of
incorporation, by-laws, minutes of Board of Directors' meetings and its
committees, investment agreements, material contracts and as well such other
documents and materials as the Parties hereto, or their respective counsel, may
deem reasonable and necessary to conduct an adequate due diligence investigation
of each Party, its respective operations and financial condition prior to the
Closing.
8.2 NON-DISCLOSURE. Subject to the provisions of hereinbelow, the Parties
hereto, for themselves, their officers, directors, shareholders, consultants,
employees and agents, agree that they each will not disseminate or disclose, or
knowingly allow, permit or cause others to disseminate or disclose to third
parties who are not subject to express or implied covenants of confidentiality,
without the other Parties' express written consent, either: (i) the fact or
existence of this Agreement or discussions and/or negotiations between them
involving, inter alia, possible business transactions; (ii) the possible
substance or content of those discussions; (iii) the possible terms and
conditions of any proposed transaction; (iv) any statements or representations
(whether verbal or written) made by either Party in the course of or in
connection with those discussions; or (v) any written material generated by or
on behalf of any Party and such contacts, other than such disclosure as may be
required under applicable securities legislation or regulations, pursuant to any
order of a Court or on a "need to know" basis to each of the Parties' respective
professional advisors. Any document or written material
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<PAGE> 15
generated by either Party hereto in the course of, or in connection with, the
due diligence investigations conducted pursuant to this Agreement shall be
marked "Confidential" and shall be treated by each Party as a trade secret of
the other Parties. Upon termination of this Agreement prior to Closing all
copies of any and all documents obtained by any Party from any other Party
herein, whether or not marked "Confidential", shall be returned to the other
Parties forthwith. Notwithstanding the provisions of this Article, the Parties
hereto agree to make such public announcements of this Agreement promptly upon
its execution in accordance with the requirements of applicable securities
legislation and regulations.
8.3 CONFIDENTIAL INFORMATION. Each Party hereto acknowledges that any and all
information which a Party may obtain from, or have disclosed to it, about the
other Parties constitutes valuable trade secrets and proprietary confidential
information of the other Parties (collectively, the "Confidential Information").
No such Confidential Information shall be published by any Party without the
prior written consent of the other Parties hereto, however, such consent in
respect of the reporting of factual data shall not be unreasonably withheld, and
shall not be withheld in respect of information required to be publicly
disclosed pursuant to applicable securities or corporation laws. Furthermore,
each Party hereto undertakes not to disclose the Confidential Information to any
third party without the prior written approval of the other Parties and to
ensure that any third party to which the Confidential Information is disclosed
shall execute an agreement and undertaking on the same terms as contained
herein. The Parties hereto acknowledge that the Confidential Information is
important to the respective businesses of each of the Parties and that, in the
event of disclosure of the Confidential Information, except as authorized
hereunder, the damage to each of the Parties hereto, or to either of them, may
be irreparable. For the purposes of the foregoing sections the Parties recognize
and hereby agree that a breach by any of the Parties of any of the covenants
therein contained would result in irreparable harm and significant damage to
each of the other Parties that would not be adequately compensated for by
monetary award. Accordingly, the Parties agree that in the event of any such
breach, in addition to being entitled as a matter of right to apply to a Court
of competent equitable jurisdiction for relief by way of restraining order,
injunction, decree or otherwise as may be appropriate to ensure compliance with
the provisions hereof, any such Party will also be liable to the other Parties,
as liquidated damages, for an amount equal to the amount received and earned by
such Party as a result of and with respect to any such breach. The Parties also
acknowledge and agree that if any of the aforesaid restrictions, activities,
obligations or periods are considered by a court of competent jurisdiction as
being unreasonable, the Parties agree that said court shall have authority to
limit such restrictions, activities or periods as the court deems proper in the
circumstances. In addition, the Parties further acknowledge and agree that all
restrictions or obligations in this Agreement are necessary and fundamental to
the protection of the respective businesses of each of the Parties and are
reasonable and valid, and all defenses to the strict enforcement thereof by
either of the Parties are hereby waived by the other Parties.
ARTICLE 9
ARBITRATION
9.1 MATTERS FOR AND NOTICE OF ARBITRATION. The Parties hereto agree that all
questions or matters in dispute with respect to this Agreement shall be
submitted to arbitration pursuant to the terms hereof. 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 calendar days' prior written
notice of its intention to do so to the other Parties together with particulars
of the matter in 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
in section "9.2" hereinbelow.
9.2 APPOINTMENTS AND AWARD. The Party desiring arbitration shall appoint one
arbitrator, and shall notify the other Parties of such appointment, and the
other Parties shall, within 10 calendar days after receiving such notice,
appoint an arbitrator, and the two arbitrators so named, before proceeding to
act, shall, within 10 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
Parties shall fail to appoint an arbitrator within 10 calendar days after
receiving notice of the appointment of the first arbitrator, or if the two
arbitrators appointed by the Parties shall be unable to agree on the appointment
of the chairman, the chairman shall be appointed under the provisions of the
Commercial Arbitration Act (British Columbia) (the "Act"). Except as
specifically otherwise provided in this section, the arbitration herein provided
for shall be conducted in accordance with such Act. The chairman, or in the case
where only one arbitrator is appointed, the single arbitrator, shall fix a time
and place in Vancouver, British
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Columbia, 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 under such 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. The
Parties hereto 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.
ARTICLE 10
DEFAULT AND TERMINATION
10.1 DEFAULT. The Parties hereto agree that if any Party hereto is in default
with respect to any of the provisions of this Agreement (herein called the
"Defaulting Party"), the non-defaulting Parties (herein called, collectively,
the "Non-Defaulting Party") shall give notice to the Defaulting Party
designating such default, and within 10 calendar days 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 as herein provided.
10.2 ARBITRATION. If arbitration is sought, a Party shall not be deemed in
default until the matter shall have been determined finally by appropriate
arbitration under the provisions of Article "9" hereinabove.
10.3 CURING THE DEFAULT. If:
(a) the default is not so cured or the Defaulting Party does not
commence or diligently proceed to cure the default; or
(b) arbitration is not so sought; or
(c) the Defaulting Party is found in arbitration proceedings to be in
default, and fails to cure it within five calendar days after the
rendering of the arbitration award,
the Non-Defaulting Party may, by written notice given to the Defaulting Party at
any time while the default continues, terminate the interest of the Defaulting
Party in and to this Agreement.
10.4 TERMINATION. In addition to the foregoing it is hereby acknowledged and
agreed by the Parties hereto that this Agreement will be immediately terminated
in the event that:
(a) the Purchaser is not in recent of formal approval from its Board
of Directors to the terms and conditions of this Agreement within
10 calendar days of the Execution Date hereof;
(b) the Parties hereto have not executed a Formal Agreement
incorporating the terms and conditions of this Agreement within
30 calendar days of the Execution Date hereof;
(c) either of the Parties hereto has not provided a satisfactory
report on its respective due diligence as contemplated in
accordance with Articles "5" and "8" hereinabove;
(d) either of the Parties hereto has either not satisfied or waived
each of their respective conditions precedent prior to the
Subject Removal Date in accordance with the provisions of Article
"5" hereinabove;
(e) the conditions specified in Article "5" hereinabove have not been
satisfied by June 30, 2000;
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(f) either of the Parties hereto has failed to deliver, or caused to
be delivered, any of their respective materials required to be
delivered in accordance with Articles "5" and "6" hereinabove
prior to each of the Subject Removal Date and the Closing Date in
accordance with the provisions of Articles "5" and "6"
hereinabove;
(g) the Option is terminated in accordance with section "1.3"
hereinabove; or
(h) by agreement in writing by each of the Parties hereto;
and in such event this Agreement will be terminated and be of no further force
and effect other than the obligations under Article "8" hereinabove.
ARTICLE 11
GENERAL PROVISIONS
11.1 FORCE MAJEURE. If any Party hereto is at any time 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. A Party shall, within
seven calendar days, give notice to the other Parties of each event of force
majeure and, upon cessation of such event, shall furnish the other Parties 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.
11.2 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 Post Office in North America addressed to the
Party entitled to receive the same, or delivered to such Party, at the address
for such Party specified above. 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 calendar 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. Either Party may at any
time and from time to time notify the other Parties in writing of a change of
address and the new address to which notice shall be given to it thereafter
until further change.
11.3 ASSIGNMENT. Save and except as provided hereinbelow, no Party may sell,
assign, pledge or mortgage or otherwise encumber all or any part of its interest
herein without the prior written consent all of the other Parties; provided that
any Party may at anytime at its sole discretion and without the prior approval
of the other Parties assign and transfer its interest herein to any wholly owned
subsidiary, subject at all times to the requirement that any such subsidiary
remain wholly owned by the Party hereto failing which any such interest must be
immediately transferred back to such Party hereto; and provided further that any
transfer of all or any part of a Party's interest herein to its wholly owned
subsidiary shall be accompanied by the written agreement of any such subsidiary
to assume the obligations of such Party hereunder and to be bound by the terms
and conditions hereof.
11.4 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.
11.5 ENUREMENT. This Agreement will enure to the benefit of and will be binding
upon the Parties hereto, their respective heirs, executors, administrators and
assigns.
-17-
<PAGE> 18
11.6 TIME OF THE ESSENCE. Time will be of the essence of this Agreement.
11.7 REPRESENTATION AND COSTS. It is hereby acknowledged by each of the Parties
hereto that, as between the Parties hereto, Devlin Jensen, Barristers and
Solicitors, acts solely for the Purchaser, and that each of the Vendors has been
advised by each of Devlin Jensen and the Purchaser to obtain independent legal
advice with respect to their respective reviews and execution of this Agreement.
In addition, it is hereby further acknowledged and agreed by the Parties hereto
that each Party to this Agreement will bear and pay its own costs, legal and
otherwise, in connection with its respective preparation, review and execution
of this Agreement and, in particular, that the costs involved in the preparation
of this Agreement, and all documentation necessarily incidental thereto, by
Devlin Jensen shall be at the cost of the Purchaser.
11.8 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 and Courts prevailing in the
Province of British Columbia.
11.9 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.
11.10 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 any of the Parties
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). In addition, the captions, section numbers and Article numbers appearing
in this Agreement 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.
11.11 COUNTERPARTS. This Agreement may be signed by the Parties hereto in as
many counterparts as may be necessary and, if required, by facsimile, each of
which so signed being 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.
ACCEPTANCE AND EXECUTION
Please acknowledge your acceptance of the terms of this Agreement
by executing the same in the space provided hereinbelow.
Yours very truly,
AZCO MINING INC.
Per:
------------------------------------------
Alan P. Lindsay, Authorized Signatory
THE WITHIN OFFER AND TERMS OF THIS AGREEMENT ARE HEREBY ACCEPTED
BY THE SHAREHOLDER AND THE COMPANY EFFECTIVE ON THIS DAY OF AUGUST, 1999:
CALGEM, INC.
Per:
----------------------- ----------------------------------
THOMAS FORD Thomas Ford, Authorized Signatory
-18-
<PAGE> 1
EXHIBIT 21.1
SUBSIDIARIES OF THE COMPANY
<TABLE>
<CAPTION>
NAME JURISDICTION OF INCORPORATION
---- -----------------------------
<S> <C>
AZCO Mica, 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 September 4, 1999, on our audits of the financial statements and
financial statement schedule of AZCO Mining Inc. as of June 30, 1999 and 1998,
and for the years ended June 30, 1999, 1998 and 1997, which report is included
in this Annual Report on Form 10-K.
PricewaterhouseCoopers LLP
Vancouver, British Columbia
September 27, 1999
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> JUN-30-1999
<PERIOD-START> JUL-01-1998
<PERIOD-END> JUN-30-1999
<CASH> 12,106,173
<SECURITIES> 0
<RECEIVABLES> 95,623
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 12,201,796
<PP&E> 5,209,784
<DEPRECIATION> (57,863)
<TOTAL-ASSETS> 17,353,717
<CURRENT-LIABILITIES> 387,984
<BONDS> 0
0
0
<COMMON> 0
<OTHER-SE> 16,965,733
<TOTAL-LIABILITY-AND-EQUITY> 17,353,717
<SALES> 0
<TOTAL-REVENUES> 917,391
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 5,449,583
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> (4,532,192)
<INCOME-TAX> 4,186
<INCOME-CONTINUING> (4,528,006)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (4,528,006)
<EPS-BASIC> (0.17)
<EPS-DILUTED> (0.17)
</TABLE>
