SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
FORM 10-K
Annual Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934 for the Fiscal Year Ended June 30, 1998.
Commission File No. 0-5664
ROYAL GOLD, INC.
------------------------------------------------------
(Exact Name of Registrant as Specified in its Charter)
DELAWARE 84-0835164
-------------------------------- -------------------
(State or Other Jurisdiction of (I.R.S. Employer
Incorporation or Organization) Identification No.)
1660 Wynkoop Street
Suite 1000
Denver, Colorado 80202-1132
--------------------- ----------
(Address of Principal (Zip Code)
Executive Offices)
(303) 573-1660
----------------------------------------------------
(Registrant's Telephone Number, including Area Code)
Securities Registered Pursuant to Section 12(b) of the Act: None
Securities Registered Pursuant to Section 12(g) of the Act:
Common Stock $0.01 Par Value NASDAQ National Market System
-------------------------------- ------------------------------------
(Title of Class) Name of Exchange on which registered
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 ninety (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. [ X ]
As of August 27, 1998, the average bid and asked price of the Company's
stock was $3.53. The aggregate market value of voting stock held by non-
affiliates was $45,023,000. As of August 27, 1998, there were 16,926,876
shares of Common Stock, $0.01 par value, outstanding.
Documents Incorporated By Reference
Portions of the Proxy Statement for the Annual Meeting of Stockholders
scheduled to be held on November 17, 1998: Part III, Items 11, 12 and 13.
Total Number of Pages: 65 Exhibit Index - Page 63
TABLE OF CONTENTS
Part I PAGE
Items 1.
and 2. Business and Properties 1
Item 3. Legal Proceedings 24
Item 4. Submission of Matters to a Vote
of Security Holders 25
Part II
Item 5. Market for Registrant's Common Equity
and Related Stockholder Matters 26
Item 6. Selected Financial Data 27
Item 7. Management's Discussion and Analysis of
Financial Condition and Results of
Operations 28
Item 8. Financial Statements
and Supplementary Data 32
Part III
Item 10. Directors and Executive Officers of the
Registrant 57
Item 11. Executive Compensation 58
Item 12. Security Ownership of Certain Beneficial
Owners and Management 58
Item 13. Certain Relationships and Related
Transactions 58
Part IV
Item 14. Exhibits, Financial Statement Schedules
and Reports on Form 8-K 59
Exhibit A. The Company and Its Subsidiaries 62
Signatures 63
Cautionary "Safe Harbor" Statement Under the Private Securities Litigation
Reform Act of 1995. With the exception of historical matters, the matters
discussed in this report are forward-looking statements that involve risks
and uncertainties that could cause actual results to differ materially from
projections or estimates contained herein. Such forward-looking statements
include statements regarding planned levels of exploration and other
expenditures, anticipated mine lives, timing of production and schedules for
development. Factors that could cause actual results to differ materially
from projections or estimates include, among others, decisions and activities
of Cortez regarding Pipeline and South Pipeline, unanticipated grade,
geological, metallurgical, processing or other problems, conclusions of
feasibility studies, changes in project parameters as plans continue to be
refined, the timing of receipt of governmental permits, the failure of plant,
equipment or processes to operate in accordance with specifications or
expectations, results of current exploration activities, accidents, delays in
start-up dates, environmental costs and risks, changes in gold prices, as well
as other factors described elsewhere in this report. Most of these factors are
beyond the Company's ability to predict or control. The Company disclaims any
obligation to update any forward-looking statement made herein. Readers are
cautioned not to put undue reliance on forward-looking statements. See
"Business and Properties - Risk Factors".
PART I
Items 1 and 2. BUSINESS AND PROPERTIES
GENERAL
Royal Gold, Inc. (together with its subsidiaries, "Royal Gold" or the
"Company"), is engaged in the acquisition, exploration and
development of gold properties, and in the acquisition of gold royalties.
The Company conducts exploration and development activity on gold and other
properties containing precious minerals and seeks to obtain royalty and
other carried ownership interests in these properties through the subsequent
transfer of operating interests to other mining companies. The Company also
seeks to acquire existing royalties. Substantially all of the Company's
revenues are and can be expected to be derived from royalty interests,
rather than from mining operations conducted by the Company.
The Company's principal mineral property interests are a carried 20% net
profits royalty interest in the South Pipeline property, operated by Cortez
Gold Mines, and a 1.75% net smelter returns royalty interest on
approximately 81% of the Bald Mountain mine, operated by Placer Dome U.S.
Inc. South Pipeline is located in Crescent Valley, Nevada, and gold
production commenced at that property in September 1994 (see "South Pipeline
Property" below.) In fiscal 1998, the Company generated revenues of
$2,175,786 from its royalty interest at South Pipeline. Effective January
1, 1998, the Company purchased an existing royalty on portions of the Bald
Mountain Mine. During fiscal 1998, this royalty yielded $128,643 in
revenues to Royal Gold. The Company also owns three other royalty interests
on exploration projects in Nevada. The Company also conducted its own
development program at Long Valley, in Mono County, California, and is
engaged in exploration at the Milos Gold project, Milos Greece, and at
several other prospects in Nevada. The Company is also evaluating
opportunities in Europe and Australia.
The Company is also engaged, through two wholly-owned subsidiaries, Denver
Mining Finance Company ("DMFC") and Environmental Strategies, Inc. ("ESI"),
in providing financial, operational, and environmental consulting services
to the mining industry and to companies serving the mining industry. During
fiscal 1998, income generated from consulting services was not material.
1
The Company was incorporated under the laws of the State of Delaware on
January 5, 1981. Its executive offices are located at 1660 Wynkoop Street,
Suite 1000, Denver, Colorado 80202. See Exhibit 21, "The Company and Its
Subsidiaries."
Developments During Fiscal 1998
- - -------------------------------
The highlights of fiscal 1998 were:
(1) The Company earned $2,047,143 on its net profits interest at South
Pipeline. Mill-grade ore yielded $1,604,856 and heap leach material
produced revenues of $442,287. This compares with $8,899,537 earned on its
net profits in fiscal 1997.
(2) Effective January 1, 1998, the Company acquired a 50% undivided
interest in a 3 1/2% sliding-scale net smelter return royalty that burdens
approximately 81% of the Bald Mountain Mine, White Pine County, Nevada. At
December 31, 1997, the portion of the mine covered by this royalty contained
proven and probable reserves of 11,628,000 tons of ore, at an average grade
of 0.064 ounces per ton ("opt"), containing approximately 748,000 ounces of
gold. The Company acquired the interest for $2,250,000 and assumed $218,312
in debt. The Company earned $128,643 on its royalty interest at Bald
Mountain.
(3) In March 1998, the Company signed agreements with Athens-based Silver
and Baryte Ores Mining Company S.A., and with an Australian investor group,
to explore for and mine gold and other materials in the public mining areas
on the Greek island of Milos, and on other islands in the Cyclades chain, in
the south Aegean Sea. Under the Agreement, Royal Gold and the Australian
investors will jointly fund not less than $5.0 million ($2.5 million each)
in exploration and development expenses on the Milos project during a three
year period, at a rate of at least $1.7 million per year.
(4) In December 1997, the Company's estimate of the mineralized deposit at
South Pipeline was increased to 113 million tons of mineralized material,
with an average grade of 0.046 opt, based on drilling during the period
September 1994 through calendar year 1997 carried out by Cortez. At June
30, 1998, Cortez updated its reserve estimate (to reflect a gold price of
$350 per ounce) at South Pipeline to 70.6 million tons of ore at an average
grade of 0.045 ounces of gold per ton, containing 3.15 million ounces of
gold.
(5) In December 1997, gold spot prices fell to $283 per ounce, an eighteen
year low. Subsequent to June 30, 1998, the gold price was depressed further
to $273 per ounce.
(6) In August 1997, the Company entered into an agreement with Amax Gold,
Inc. This agreement provided that Amax Gold had an option, exercisable
2
through December 31, 1997, to enter into a lease and become responsible for
further exploration, permitting, and development of the Long Valley project.
Upon execution of this agreement with Amax Gold, the Company received a
payment of $150,000. In November 1997, Amax Gold, Inc. terminated its
option to explore the Long Valley property.
(7) The Company increased its reserve estimate at the Long Valley property
to 39.1 million tons of ore, at an average grade of 0.018 opt, containing
704,000 ounces of gold (at an assumed gold price of $350 per ounce). (See
"Properties - Long Valley" below.)
PROPERTIES
- - ----------
Recent activities at each of the significant properties in which the Company
has an interest are described below. Reference is made to footnotes in the
financial statements for more information on property histories.
In all instances, the Company has estimated gold-bearing material by the use
of drilling, mapping, sampling, geological interpretation, assaying and
other standard evaluation methods generally applied by the mining industry.
The Company has relied on its joint venture partners and previous owners of
certain of its properties for the preparation of certain data and other
information. Any information prepared by others has been reviewed by the
Company and its consultants.
South Pipeline Property
- - -----------------------
The South Pipeline property royalty interest is the Company's most
significant gold property interest. The South Pipeline Project is operated
by Cortez Gold Mines ("Cortez"), a joint venture of Placer Dome U.S. Inc.
("PDUS") and Kennecott Corporation. The South Pipeline Project is located
in Lander County, Nevada, approximately 60 miles southwest of Elko. The
project involves over 4,000 acres of unpatented mining claims (the "GAS
Mining Claims"), which Cortez leases from ECM, Inc. ("ECM").
The Company currently holds a fully-carried royalty interest in the South
Pipeline Project. (That is, the Company is never obliged to advance any of
the costs of exploration, development or production at South Pipeline.)
During payback of capital expenditures, the Company receives 4% of net
profits. After payback of capital expenditures, the Company, at its annual
election, can either receive a 20% net profits royalty interest or a sliding
scale 2.5% to 5.5% net smelter returns ("NSR" (1)) royalty interest in all
- - ------------------------
(1)"Net smelter returns" or "NSR" royalty interest means that the
royalty holder receives a defined percentage of the gross revenue less a
proportionate share of incidental transportation, insurance and processing
costs.
3
production from the GAS Mining Claims. Under either royalty interest, the
Company may elect to take its share of production in-kind. In November
1997, the Company made its annual election to receive its production in-kind
for the next year.
Background
- - ----------
As has been described extensively in prior years, the Company has been
involved with this property since 1987. The Company, as the original
operator of a joint venture with Cortez, conducted the initial exploration
work at South Pipeline, which was then referred to as "Crescent Valley."
Reverse circulation drilling programs conducted by the Company in calendar
years 1988, 1989 and 1990 resulted in identification of one sediment-hosted,
"Carlin-type" disseminated gold deposit and the identification of other gold
anomalies.
In 1991, the Company decided to sell its interest in the property to Cortez.
In September 1992, however, the Company recovered a 20% net profits interest
on the South Pipeline property following settlement of litigation brought by
the Company against Cortez. Under the Agreement, Cortez, as operator and
manager, committed to an exploration and development work program and also
agreed to pay the Company an advance minimum royalty of $150,000 per year,
for the life of the project. The Company's royalty will be subject to
payback of certain capital expenditures by Cortez for each new mining unit
put into production. During payback, the Company will receive a 4% net
profits interest. After payback, the Company will receive a 20% net profits
royalty or, at its election beginning with production and annually
thereafter, an NSR royalty according to a schedule tied to indexed gold
prices. The NSR royalty ranges from 2.5% for an indexed price of $350 per
ounce to 5.5% for an indexed price in excess of $500 per ounce. Under
either royalty arrangement, the Company may elect to take its royalty "in-
kind."
If Cortez does not elect to put any deposit containing at least 300,000
ounces of gold into production within two years of its identification, then
the Company may elect to put that deposit into production, thereby securing
100% of the working interest therein, subject to granting a 20% net profits
interest royalty to Cortez identical to the one described above.
Royal Gold would then also be entitled to use, under a normal tolling
arrangement and as available, the Cortez milling facilities in the vicinity,
including any built or to be built for the Pipeline project.
4
Development
- - -----------
Since November 1992, Cortez has conducted an aggressive program of
exploration and development drilling at South Pipeline, and has spent over
$20 million through June 30, 1998.
On December 31, 1996, Cortez announced that the mineral deposit at South
Pipeline was estimated to contain 86.1 million tons of ore, with an average
grade of 0.048 opt. In May 1997, the Company announced that its estimate of
the mineral deposit at South Pipeline had increased to 112.9 million tons of
ore at an average grade of 0.046 ounces of gold per ton. In December 1997,
the Company announced that its estimate of the mineral deposit at South
Pipeline had increased to 116.6 million tons of ore at an average grade of
0.047 ounces of gold per ton.
In addition to the South Pipeline gold deposits that have been defined to
date, other important gold intercepts have been made on the South Pipeline
property, which suggests that additional deposits may exist on the property.
Additional exploration was conducted through calendar year 1997, as Cortez
focused on expanding the South Pipeline reserve. Based on this drilling,
Cortez increased the reserve at South Pipeline to 70.6 million tons of ore,
at an average grade of 0.045 opt, containing 3.1 million ounces. This
increase in reserves is net of all production at the Crescent Pit.
In June 1994, Cortez began open pit mining at the Crescent Pit, a near-
surface portion of the South Pipeline deposit. Initially, Cortez combined
the Crescent Pit ore with ore from the Pipeline mine (in which the Company
has no interest), and processed all such ore at the Cortez mill ("Cortez
#1"), a 2,000 ton per day facility that is located a few miles east of the
Crescent Pit. In February 1996, Cortez notified the Company that it would
stop commingling ores at the Cortez mill and that it would dedicate the
Cortez mill exclusively to Crescent Pit mill ore, at least through the end
of calendar year 1996. Beginning in March 1997, Cortez committed 100% of
the capacity of its new Cortez mill (Cortez #2) to Crescent Pit ore. This
new mill, constructed by Cortez for the processing of its Pipeline deposit,
was designed for throughput of 10,000 tons of ore per day. With this
increase in processing capacity, the production at the Crescent Pit
increased substantially, and was completed on June 24, 1997.
In September 1996, Cortez filed its "1996 Amendment to the Pipeline Plan of
Operations for the South Pipeline Project" with the Bureau of Land
Management. (Pipeline is an open pit project immediately to the north that
is operated by Cortez. Royal Gold has no interest in the Pipeline deposit.)
In this amendment, Cortez states that the pre-stripping of the open pit mine
at South Pipeline is expected to take about 18 months and will begin at the
end of the third year of mining activity at Pipeline. Processing of the
Pipeline Deposit commenced on June 28, 1997. The mine life of Pipeline is
estimated to be five plus years after commissioning of a mill with
throughput of 10,000 tons of ore per day. Cortez also stated that South
5
Pipeline ore will be processed after mining of the Pipeline deposit has been
completed. The majority of the South Pipeline Project ore will be processed
in the Pipeline processing facilities, extending the Pipeline/South Pipeline
Project life by an additional eight years.
Subsequent to year-end, PDUS advised the Company that Cortez now forecasts
an acceleration of the development and production of the South Pipeline
deposit, with the recent completion of the 1998 life of mine plan update.
PDUS advised the Company that it projects the total cash production cost of
operations at South Pipeline for the first five years of production, based
on the current reserve estimate, will vary between $120 and $155 per ounce
(in constant 1998 U.S. dollars). The current mine plan anticipates that all
required permits for the full-scale mining and processing of South Pipeline
ore may be issued prior to July 1999, and that Cortez will commence pre-
stripping operations at South Pipeline in 2001, with significant production
for South Pipeline commencing in 2002. The Company will receive 4% of net
profits during payback of capital expenditures.
Timing of production at the South Pipeline deposit remains subject to
permitting and decisions of the operator. The Company continues to monitor
the progress of development of the South Pipeline deposit and meets
periodically with PDUS to ensure compliance with the terms of the Agreement.
Cortez has advised the Company that it has been planning to develop the
Pipeline/South Pipeline deposits on a sequential basis. The Company's
Agreement with Cortez contemplates the possibility of this situation and has
provisions to ensure that development of the South Pipeline deposit is not
discriminated against, even in the event that the operator has more
profitable opportunities in the area. The Agreement states that Cortez
shall be the sole judge of the rate and manner of production and processing
of ore, so long as its judgments are based upon its good faith determination
of what a prudent operator would do with respect to production at South
Pipeline, without regard to other properties or facilities operated by
Cortez in the vicinity. In order to fulfill this prudent operator test,
Cortez has created a "stand alone" study that considers development of South
Pipeline without regard to its Pipeline project. The Company is currently
preparing its own stand alone analysis, and the Company continues to have
discussions with PDUS regarding this discrimination issue.
Crescent Pit Operations
- - -----------------------
The Crescent Pit operation, encompassing some 320 acres within the 4,000
acre claim block of the South Pipeline Project, was planned to recover some
217,000 ounces of mill-grade gold over a four-year period. In July 1995,
production commenced at the Crescent Pit heap leach facility and it was
anticipated that 34,000 ounces of gold would be recovered from the heap
leach material over a five year period. Gold production from the Crescent
Pit has exceeded initial expectations, for both mill-grade and heap leach
material.
6
Crescent Pit Production
- - -----------------------
During fiscal 1998, Royal Gold earned $2,047,143 on its 20% net profits
interest royalty at the Crescent Pit, a portion of the South Pipeline
deposit. Royalties from mill-grade ore were $1,604,856 which relates to
material that was work-in-process inventory at June 30, 1997. All mill-
grade material from the Crescent Pit has been processed. During fiscal
1998, the Company earned $442,287 from production relating to Crescent Pit
heap leach operations. At June 30, 1998, 473,450 tons of ore at an average
grade of 0.023 opt of Crescent Pit heap leach ore was stockpiled.
7
Set forth below is an illustration of the Company's net profits interest
royalty from the substantially completed Crescent Pit. This chart details
the life of mine production for the Crescent Pit, in which the Company holds
a 20% NPI:
Crescent Pit
Life of Mine Production
September 1994 Through June 30, 1998
Mill Heap Leach Combined
----------- ----------- -----------
Tons 2,265,128 3,243,109 5,508,237
Grade 0.147 0.024 0.075
Recoveries 87% 69%(1) 84%
Ounces 290,222 53,998 344,220
Average Gold Price 368 366 367
----------- ----------- -----------
Revenues $106,660,269 $ 19,789,579 $126,449,848
Costs 37,721,702 3,666,214 41,387,916
----------- ----------- -----------
Net Profits $ 68,938,567 $ 16,123,365 $ 85,061,932
=========== =========== ===========
4%/20% NPI $ 13,787,713 $ 3,224,673 $ 17,012,386
Capital recouped 1,204,717 757,918 1,962,635
----------- ----------- -----------
Royalty to
Royal Gold $ 12,582,996 $ 2,466,755 $ 15,049,751
=========== =========== ===========
NSR Equivalent (2) 11.8% 12.5% 11.9%
Royalty per ounce $43.36 $45.68 $43.72
Cash Cost/Oz $130 $68 $120
Total Cost/Oz (3) $151 $138 $149
(1)Heap leach production is ongoing on the current heap leach pad.
Stockpiled material is being added periodically and cumulative recovery
rates should increase over time.
(2)NSR Equivalent is computed by dividing the royalty received by the
total revenues and is indicative of the level of NSR that would be
required to receive the same amount of royalty.
(3)Total cost includes capital recoupment.
Note: This information is not necessarily indicative of the royalty that
will be received at the larger South Pipeline deposit. At the South
Pipeline deposit a higher stripping ratio will be encountered, more of the
material will be processed by heap leach production, and certain economies
of scale will be realized.
8
Reserves and Other Mineralization
- - ---------------------------------
Set forth below is a table showing the reserves that have been defined at
the South Pipeline property, in which the Company holds a 20% NPI:
South Pipeline Property
Proven and Probable Reserves (1)
June 30, 1998
Average
Tons Grade Contained
(millions) (oz Au/ton) Oz Au (2)
---------- ----------- ---------
South Pipeline Deposit:
Mill Grade Ore (3) 13.7 0.123 1,688,000
Heap Leach Ore (3) 56.9 0.026 1,459,000
(1) "Reserve" is that part of a mineral deposit which could be economically
and legally extracted or produced at the time of the reserve determination.
"Proven (Measured) Reserves" are reserves for which (a) quantity is
computed from dimensions revealed in outcrops, trenches, workings or drill
holes and the grade is computed from the results of detailed sampling, and
(b) the sites for inspection, sampling and measurement are spaced so closely
and the geologic character is so well defined that the size, shape, depth
and mineral content of the reserves are well-established.
"Probable (Indicated) Reserves" are reserves for which the quantity and
grade are computed from information similar to that used for proven
(measured) reserves, but the sites for inspection, sampling, and measurement
are farther apart or are otherwise less adequately spaced. The degree of
assurance of probable (indicated) reserves, although lower than that for
proven (measured) reserves, is high enough to assume geological continuity
between points of observation.
(2) Contained ounces shown are before an allowance for dilution of ore in
the mining process. The assumed recovery rates are 86% for South Pipeline
mill-grade ore, and 65% for heap leach material. These reserves are based
on an expected gold price of $350 per ounce.
(3) Amounts shown represent 100% of the reserves. The Company holds a 20%
NPI in this property.
9
Set forth below is a table showing the additional gold deposit that has been
defined at the South Pipeline property, in which the Company owns a 20% NPI:
South Pipeline Property
Gold Deposits/Mineralization (1)(2)
December 31, 1997
Average
Tons Grade
(millions) (oz Au/ton)
---------- -----------
South Pipeline Deposit 46.0 0.051
(1) Gold mineralization has not been included in the proven and probable ore
reserve estimates because even though drilling, trenching and/or underground
work indicate a sufficient quantity and grade to warrant further exploration
or development expenditures, these deposits do not qualify as commercially
mineable ore bodies until further drilling and metallurgical work are
completed, and until other economic and technical feasibility factors based
upon such work are resolved.
(2) Amounts shown represent 100% of the deposits. The Company holds a 20%
net profits interest in this property.
Long Valley
- - -----------
The Long Valley project consists of 197 unpatented mining claims located 45
miles north of Bishop, in Mono County, California. The Company has been
involved with this property since 1989, when it entered into a joint venture
with Standard Industrial Minerals, Inc. ("Standard"). Standard owns 105 of
the claims that comprise the Long Valley project, and operates a kaolin mine
that is adjacent to the property. The Company located the additional 92
claims.
Under the joint venture agreement, the Company has an option, exercisable
through December 31, 1998, to acquire the entirety of Standard's interest in
Long Valley for $900,000. During the term of the option, the Company has no
specific work commitment.
During 1994, the Company completed 18 reverse circulation holes, aggregating
some 16,000 feet. Based on the results of such drilling, and data generated
by predecessors in interest, Royal Gold determined the existence of two new
areas of gold mineralization (the "Hilton Creek Zone" and the "Southeast
10
Zone"). These two areas are separated by about 2,000 feet, and it is
estimated that such zones contain a total of 49,640,000 tons of gold
mineralization, with an average grade of 0.018 opt.
Royal Gold has continued to drill at Long Valley since 1994 and, through
June 30, 1998, has completed more than 550 reverse-circulation holes,
aggregating more than 168,000 feet of drilling. The program has confirmed
the existence of continuous mineralization between the Hilton Creek and
Southeast Zones and has discovered additional mineralization to the north
and to the south of the Hilton Creek Zone.
Based on the drilling results, the Company commissioned a reserve study.
Based on this study, the Company has determined that Long Valley contains
reserves, suitable for open pit mining, as set forth below. Based on these
reserves the Company designated this project as a development property as of
July 1, 1995. All costs incurred at Long Valley since July 1, 1995 have
been capitalized.
In August 1997, the Company entered into an agreement with Amax Gold, Inc.
This agreement provided that Amax Gold had an option, exercisable through
December 31, 1997, to enter into a lease and become responsible for further
exploration, permitting, and development of Long Valley, and for
construction and operation of any mine that may be developed. Amax Gold was
able to terminate the agreement at any time, but would thereby relinquish
any interest in the property. Upon execution of this agreement with Amax
Gold, the Company received a payment of $150,000. In November 1997, Amax
Gold Inc. terminated its option to explore the Long Valley property.
In November 1997, the Company announced an increase in the reserve estimate
for Long Valley. Based on Royal Gold's drilling results through August
1997, Long Valley contains proven and probable reserves, at a gold price of
$350 per ounce, of approximately 39.1 million tons of ore, averaging 0.018
opt (at a cut-off grade of 0.008 opt). The reserves are contained within a
mineralized deposit that includes approximately 47.0 million tons of
oxidized material, averaging 0.018 opt (using a cut-off of 0.01 opt).
In December 1997, Royal Gold announced that it had secured, for $100,000, a
one-year extension of its option to acquire all of the interest of Standard
Industrial Minerals Inc. in the Long Valley Gold project. Under the terms
of the extension, Royal Gold is required to pay $900,000 to Standard
Industrial Minerals by December 31, 1998, or else it will forfeit the right
to acquire all of Standard Industrial's interest in the Long Valley project.
11
Reserves and Other Mineralization
- - ---------------------------------
Set forth is a table showing the proven and probable reserves that have been
defined at Long Valley:
Long Valley Property
Proven and Probable Reserves (1)(3)
June 30, 1998
Average
Tons Grade Contained
(millions) (oz Au/ton) Oz Au (2)
---------- ----------- ---------
Long Valley 39.1 0.018 704,000
(1) "Reserve" is that part of a mineral deposit which could be economically
and legally extracted or produced at the time of the reserve determination.
"Proven (Measured) Reserves" are reserves for which (a) quantity is
computed from dimensions revealed in outcrops, trenches, workings or drill
holes and the grade is computed from the results of detailed sampling, and
(b) the sites for inspection, sampling and measurement are spaced so closely
and the geologic character is so well defined that the size, shape, depth
and mineral content of the reserves are well-established.
"Probable (Indicated) Reserves" are reserves for which the quantity and
grade are computed from information similar to that used for proven
(measured) reserves, but the sites for inspection, sampling, and measurement
are farther apart or are otherwise less adequately spaced. The degree of
assurance of probable (indicated) reserves, although lower than that for
proven (measured) reserves, is high enough to assume geological continuity
between points of observation.
(2) Contained ounces shown are before an allowance for dilution of ore in
the mining process. The assumed recovery rate for heap leach material is
70%.
(3) These reserves were computed using a gold price of $350 per ounce and a
cut-off grade of 0.010 ounces per ton of gold.
In addition to the above identified reserves at Long Valley, the Company has
identified additional mineralization of 8.7 million tons of mineralized
material at an average grade of 0.018 opt. This gold mineralization has not
been included in the proven and probable ore reserve estimates because even
though drilling, trenching and/or underground work indicates a sufficient
12
quantity and grade to warrant further exploration or development
expenditures, these deposits do not qualify as commercially mineable ore
bodies until further drilling and metallurgical work are complete, and until
other economic and technical feasibility factors based upon such work are
resolved.
Bald Mountain Royalty
- - ---------------------
Effective January 1, 1998, the Company purchased a 50% undivided interest in
a sliding-scale net smelter returns royalty that burdens approximately 81%
of the Bald Mountain Mine, White Pine County, Nevada, Bald Mountain is an
open pit, heap leach mine that is operated by Placer Dome U.S. Inc ("PDUS").
The Company purchased the royalty, effective January 1, 1998, for a cash
consideration of $2,250,000 and assumption of $218,312 in debt to the
operator. One-half of each quarterly royalty payment is being withheld by
the operator until this debt is paid in full.
At December 31, 1997, the portion of the mine covered by this royalty
contained proven and probable reserves of 11,628,000 tons of ore, at an
average grade of 0.064 ounces per ton ("opt"), containing approximately
748,000 ounces of gold. At June 30, 1998, PDUS advised the Company that the
mineral deposit related to the Company's royalty was estimated to contain
proven and probable reserves of 12,594,000 tons of ore, with an average
grade of 0.061 opt of gold, containing approximately 771,000 ounces of gold.
In addition PDUS informed the Company that the property contains additional
mineralization of 10,942,000 tons of mineralized material at an average
grade of 0.037 opt of gold.
Union Pacific Exploration Project
- - ---------------------------------
Under its agreement with Union Pacific Resources Group, Inc. ("UPR"),
originally executed in May 1994, the Company conducted reconnaissance on
some 7.5 million acres of UPR land in Utah, Wyoming and Colorado, including
the State Line District of Wyoming and Colorado. The Company conducted
preliminary exploration throughout UPR's holdings and then designated 50,000
acres for more extensive exploration.
During fiscal 1996, Royal Gold and UPR amended their agreement, to reflect
additional expenditure levels, and an emphasis on diamond exploration on the
State Line District of Colorado and Wyoming. The entire term of the
agreement remained unchanged, expiring on December 31, 1999, with aggregate
exploration commitments totaling $2.375 million. Royal Gold may also elect
to terminate the agreement after spending at least $375,000 in either of
calendar years 1997 or 1998. The Company has met these spending
obligations.
13
The Company identified ten large prospect areas in the State Line District
where it conducted geochemical sampling surveys that yielded indicator
minerals. These indicator minerals suggest the presence of kimberlites and
the potential for diamond discoveries, in drainages where kimberlites were
not previously known to exist. During the fall and winter of 1997, the
Company drilled six of the target areas without encountering any
kimberlites. Exploring for diamonds is a long and complicated process which
is both expensive and time consuming. At this early stage of exploration,
there is no assurance that kimberlites or commercial quantities of diamonds
will be found within any of the ten prospect areas, or anywhere else in the
State Line District. The Company conducted additional geochemical sampling
in 1998, and is now evaluating the results of that work.
If the Company identifies attractive deposits on the UPR lands, it has the
opportunity, under the terms of its agreements with UPR, to assign further
exploration and development rights to third parties; to develop such
deposits in collaboration with UPR; or to develop such deposits for Royal
Gold's own account. In all circumstances where UPR does not itself elect to
become operator, UPR will retain a royalty interest. Under certain other
circumstances, UPR may elect both a minority working interest plus a royalty
interest.
The extent of any such UPR royalty will depend on market factors, including,
among others, the desirability to a third party of the particular deposit
that may be discovered on the UPR property.
Buckhorn South
- - --------------
The Buckhorn South project is located in Eureka County, Nevada,
approximately 50 miles southwest of Elko. The property consists of 265
unpatented mining claims.
Of the 265 claims that comprise Buckhorn South, the Company leased 131 such
claims from Ronald and Arlene Damele, et al., and the Company staked the
balance of the project area. The leased claims are burdened by cumulative
royalties equal to a 4% NSR; the remaining claims are subject to a 1% NSR.
A predecessor in interest at the property completed some 10,400 feet of
drilling, and on the basis of such work and other exploration had, by 1984,
estimated that the "Zeke" deposit contains two million tons of
mineralization with an average grade of 0.056 opt.
During 1994, the Company conducted geophysical surveys and drilled nine
holes aggregating 6,800 feet. Through its work, the Company identified new
areas of gold mineralization about one mile south of the Zeke deposit, and
also identified structurally complex areas that may contain significant
alteration and sulfides.
14
During 1995, the Company drilled 24 reverse-circulation holes, totaling
13,825 feet. As anticipated, gold mineralization was discovered, and
several of the drill holes contained intervals exceeding 0.01 opt.
During fiscal 1997, seven additional reverse-circulation holes were drilled.
Gold mineralization in five of these drill holes contained intervals
exceeding 0.045 opt of gold.
During fiscal 1998, the Company optioned its Buckhorn South project, to
Independence Mining Company, Inc.("IMC"). Under the agreement, IMC was to
explore Buckhorn South and, depending upon the exploration results, take an
assignment of Royal Gold's interest in the property, subject to assumption
of all existing burdens and with Royal Gold retaining a 14% NPI royalty.
After the close of the fiscal year, IMC exercised its option at Buckhorn
South, and Royal Gold assigned its working interest in the property to IMC,
in exchange for various net profits and net smelter return royalties as
follows:
a) A 14% net profits interest in any mineral production for Buckhorn
South;
b) Conveyance by IMC to Royal Gold of a 2% net smelter returns royalty
on production from Lone Mountain, a 49-claim parcel that is near IMC's
Jerritt Canyon operation, in Elko County, Nevada; and
c) Conveyance by IMC to Royal Gold of a 15% net profits interest royalty
on production from 24 claims that comprise a portion of IMC's Carico Lake
property, in Lander County, Nevada, and conveyance of a 2% net smelter
returns royalty on production for the other 381 claims that make up the
Carico Lake property.
Milos Gold Project
- - ------------------
In March 1998, the Company signed agreements with Athens-based Silver &
Baryte Ores Mining Company S.A., and with an Australian investor group, to
explore for and mine gold and other minerals in the public mine areas on the
Greek island of Milos, and on other islands in the Cyclades chain, in the
south Aegean Sea.
Silver & Baryte, through its Greek subsidiary Midas S.A., holds a Greek
lease to prospect, explore, and mine gold from public mining sites on the
island of Milos and on the related islands.
Under the agreements, Royal Gold and the Australian investors will jointly
fund not less than $5.0 million ($2.5 million each)in exploration and
development expenses on the Milos project, over a period of three years, at
15
a rate of at least $1.7 million per year. Royal Gold is the operator of the
project.
Upon completion of the $5.0 million in expenditures, Royal Gold and the
Australian investors will have earned a 50% interest in Midas S.A., and the
parties will thereafter participate jointly in further exploration and
development. Silver & Baryte may elect to maintain a 50% interest in Midas
S.A., or convert to a 20% net profits interest or a 5% net smelter returns
interest, in any mining project on Milos.
Prior exploration at Milos by Silver & Baryte and by Renison Goldfields, a
major Australian gold producer, has confirmed that the island has the
potential to host epithermal gold deposits.
Manhattan Project
- - -----------------
The Manhattan project is located in Nye County, Nevada, approximately 60
miles north of Tonopah. Through two transactions, Royal Gold has
consolidated a sizable land position in this historic mining district, and
is currently conducting the first round of drilling at the property.
The first transaction, executed in December 1997, gave Royal Gold the right
to explore for gold on four separate parcels that had been assembled by New
Concept Mining, Inc. These parcels, aggregating 3 patented and 115
unpatented mining claims had been the object of prior exploration, which
identified some mineralization of gold.
Under the New Concept agreement, the Company took a responsibility for
underlying landowner payments totaling $875,000 over a four year period,
together with an annual work commitment of $250,000 and reservation of a 4%
NSR in favor of New Concept. The New Concept agreement also provided that
Royal Gold has an option, exercisable through November 30, 2001, to acquire
all of New Concept's interest in the project following aggregate payments of
$3.475 million.
The second transaction was executed in August 1998, following the close of
the fiscal year. Royal Gold entered into a joint venture with Battle
Mountain Gold to explore and develop a parcel, known as "Black Mammoth,"
that consists of 33 unpatented claims and one patented claim. Black Mammoth
is contiguous with two of the four parcels that Royal Gold controls through
the New Concept arrangement.
Under the joint venture agreement with Battle Mountain, Royal Gold is the
operator of the project, and may earn a 50% interest in Black Mammoth by
funding and managing $650,000 in exploration work over a four year period,
with a first year work commitment of $150,000.
16
As of August 31, 1998, the Company had embarked upon a 10,000 to 15,000 foot
reverse circulation drilling program that would test designated drill
targets on all of the Black Mammoth and contiguous New Concept parcels, and
would also satisfy the respective work commitments for each property.
Alligator Ridge
- - ---------------
Alligator Ridge is located about 100 miles south-southeast of Elko, in White
Pine County, Nevada, and about 30 miles directly south of Placer Dome's Bald
Mountain operations.
In August 1998, then Company entered into an agreement with Placer Dome
U.S., Inc. pursuant to which Royal Gold will undertake approximately $4
million in exploration work, over the next six years. Depending on the
results of Royal Gold's exploration program, and at the option of Placer
Dome, either Royal Gold will acquire ownership of up to 1,638 unpatented
claims that are now included within the Alligator Ridge claim block (such
conveyance would be subject to a reservation by Placer Dome of a 5% net
proceeds royalty interest), or else Placer Dome will reimburse Royal Gold
for 200% of its cumulative investment in Alligator Ridge, and will also
grant to Royal Gold a 22% net proceeds royalty interest in any future
production.
Over the period 1980 through 1992, cumulative production from Alligator
Ridge was approximately 700,000 ounces of gold. Since Placer Dome acquired
the property in 1993, it has produced 160,000 ounces, primarily from heap
leach operations in the Yankee and Vantage Basins. (The Yankee and Vantage
Basins comprise 329 claims and are excluded from this agreement because of
continuing production and reclamation operations in those areas.)
Under the terms of the agreement, Royal Gold has a firm commitment to spend
at least $300,000 in defined work during the first year. In years two
through six, Royal Gold must spend successively greater amounts to keep the
agreement in force, but the Company may also unilaterally terminate the
agreement at any time after the first full year. Maximum required
expenditures by Royal Gold over the six year term of the agreement are $4
million. Claims maintenance fees and other land holding costs are included
in the work commitments.
Ferber
- - ------
The Ferber project is located in Elko County, Nevada, approximately 80 miles
southeast of Elko, and consists of 98 unpatented mining claims. Royal Gold
leases 51 of the claims from Donald Jennings, and Royal Gold located the
other 47 claims. The Jennings lease involves advance minimum royalties of
$10,000 per year, expiring in February 1998, and a royalty burden of 2% NSR.
The Company also has work commitments of $100,000 per year in 1999 and 2000,
17
and $150,000 per year from 2001 through 2003. In April 1995, five reverse
circulation holes were completed totaling 3,020 feet. These holes were
drilled to test for mineralization along the southwestern margin of an
intrusive where copper and gold are known to occur in skarns. Three of the
holes encountered strongly anomalous gold and copper in both the skarn and
the intrusive. The presence of such anomalous intervals in the intrusive
opens large areas of the district for further exploration. Additional
drilling was conducted in October 1995 and December 1997.
Other Exploration Properties
- - ----------------------------
During fiscal 1998, the Company explored five additional properties in
Nevada and Utah, and determined to terminate its interest in the two Utah
properties and in one of the Nevada properties. The Company will continue
to acquire and explore other properties, to the extent that the Company
believes they have the potential to host major gold deposits. It can be
anticipated, because of the nature of the business, that exploration on many
of these properties will prove unsuccessful and that the Company will
terminate its interest in such properties. As significant results are
generated at any exploration property, the Company will re-evaluate the
property, and the Company may substantially increase or decrease the level
of expenditures on any particular property, at any time.
Other Foreign Exploration
- - -------------------------
The Company owns a 50% interest in Greek American Exploration Ltd.
("GRAMEX"), a Bulgarian private limited company that has entered into an
agreement with the Bulgarian Committee of Geology and Mineral Resources to
conduct geological research and exploration over 700 square kilometers in
the Krumovgrad and Ivaylovgrad areas of Bulgaria.
This cancelable agreement was for an initial term of two years, requiring
expenditures of $100,000 per year by GRAMEX. The agreement was extended for
an additional two year period, expiring 1999. The Company is obligated to
fund 50% of GRAMEX's expenditures.
GRAMEX and Phelps Dodge Exploration Corporation ("PDX") joined together to
form a Bulgarian company named Sofia Minerals Ltd. ("SOMIN"). SOMIN is a
joint venture company held equally by GRAMEX and PDX. SOMIN will explore,
evaluate and develop properties in Bulgaria. SOMIN has signed a concession
agreement with the Bulgarian Committee of Geology and Mineral Resources to
conduct geological research in two major areas in Bulgaria.
The Company has also formed an entity that will seek to acquire existing
gold royalties in Australia as well as invest in junior Australian resource
companies with emerging or advanced exploration projects. Investment may be
by way of loans with a convertibility element to royalties at a later stage.
18
The new company, Royal Australia Pty Ltd, is based in Perth, Western
Australia, and the Company has a 67% interest in the entity. The remainder
of the equity in the new entity is held by affiliates of Resource Finance
Corporation ("RFC"). RFC is an investment and merchant banking firm that
caters to natural resource firms.
Sales Contracts
- - ---------------
The Company sold 23,000 ounces of gold bullion in fiscal 1998, utilizing two
metal traders during the period, at an average realized price of $298.75/oz.
The Company maintains trading relationships with a number of metal traders.
The Company is currently receiving its net profits interest royalty in-kind.
Competition
- - -----------
There is aggressive competition within the minerals industry to discover and
acquire properties considered to have commercial potential. The Company
competes for the opportunity to participate in promising exploration
projects with other entities, many of which have greater resources than the
Company. In addition, the Company competes with others in efforts to obtain
financing to explore and develop mineral properties, and it also competes
with others in efforts to purchase gold royalty interests.
Company Personnel
- - -----------------
At September 1, 1998, the Company had fifteen full-time employees located in
Denver, Colorado. The Company's employees are not subject to a union labor
contract or collective bargaining agreement.
Consulting services, relating primarily to geologic and geophysical
interpretations, and advice with respect to metallurgical, engineering,
legal and such other technical matters as may be deemed useful in the
operation of the Company's business, are provided by independent
contractors.
Regulation
- - ----------
The Company's activities in the United States are subject to various
federal, state and local laws and regulations governing prospecting,
development, production, labor standards, occupational health, mine safety,
control of toxic substances, and other matters involving environmental
protection, and taxation. The environmental protection laws address, among
other things, the maintenance of air and water quality standards, the
preservation of threatened and endangered species of wildlife and
vegetation, the preservation of certain archaeological sites, reclamation,
19
and limitations on the generation, transportation, storage and disposal of
solid and hazardous wastes. There can be no assurances that all the
required permits and governmental approvals can be obtained on a timely
basis and maintained as required. In 1992, the Company received notice of a
response action initiated by the U.S. Forest Service with respect to
Goldstripe, but based on information currently available believes that no
further action by the Company is likely to be required. Therefore, the
Company believes that the response action will not result in any material
adverse effect on the Company. See "LEGAL PROCEEDINGS." The Company
believes that the properties and operations in which it retains interests
are currently in material compliance with all applicable laws and
regulations.
RISK FACTORS
- - ------------
Risks of Passive Ownership
- - --------------------------
At present, the Company's principal asset is its interest in the South
Pipeline property. The Company's success is dependent on the extent to
which South Pipeline proves to be successful and on the extent to which
Royal Gold is able to acquire or create other lucrative royalty interests.
The holder of a royalty interest typically has no executive authority
regarding development or operation of a mineral property. Therefore, unless
the Company is able to secure and enforce certain extraordinary rights, it
can be expected that the Company will not be in control of basic decisions
regarding development and operation of the other properties in which the
Company may have an interest.
Thus, the Company's strategy of having others operate properties in which it
retains a royalty or other passive interest puts the Company generally at
risk to the decisions of others regarding all basic operating matters,
including permitting, feasibility analysis, mine design and operation, and
processing, plant and equipment matters, among others. While the Company
attempts to obtain contractual rights that will permit the Company to
protect its position, there can be no assurance that such rights will be
sufficient or that the Company's efforts will be successful in achieving
timely or favorable results.
Fluctuations in the Market Price of Minerals
- - --------------------------------------------
The profitability of gold mining operations (and thus the value of the
Company's royalty interests and exploration properties) is directly related
to the market price of gold. The market price of gold fluctuates widely and
is affected by numerous factors beyond the control of any mining company.
These factors include expectations with respect to the rate of inflation,
20
the exchange rate of the dollar and other currencies, interest rates, global
or regional political, economic or banking crises, and a number of other
factors. If the market price of gold should drop dramatically, the value of
the Company's royalty interests and exploration properties could also drop
dramatically, and the Company might not be able to recover its investment in
those interests or properties. The selection of a property for exploration
or development, the determination to construct a mine and place it into
production, and the dedication of funds necessary to achieve such purposes
are decisions that must be made long before the first revenues from
production will be received. Price fluctuations between the time that such
decisions are made and the commencement of production can drastically affect
the economics of a mine.
The volatility in gold prices is illustrated by the following table, which
sets forth, for the periods indicated, the high and low prices in U.S.
dollars per ounce of gold based on the London PM fix.
Year Gold Price Per Ounce($)
---- -----------------------
High Low
---- ----
1993 406 327
1994 396 370
1995 393 372
1996 416 368
1997 367 335
January-June, 1998 313 279
At August 29, 1998, the gold price was $273.40 per ounce, a nineteen year
low. At present, the Company has no hedging programs in place. At June 30,
1998, the Company held 150 ounces of gold bullion in inventory.
Additionally, at June 30, 1998, the Company had a royalty receivable of 278
ounces. The Company would consider hedging programs in the event certain
production levels are obtained and maintained, and market conditions justify
the economic use of hedging programs.
Risks Inherent in the Mining Industry
- - -------------------------------------
Mineral exploration and development is highly speculative and capital
intensive. Most exploration efforts are not successful, in that they do not
result in the discovery of mineralization of sufficient quantity or quality
to be profitably mined. The operations of the Company are also indirectly
subject to all of the hazards and risks normally incident to developing and
operating mining properties. These risks include insufficient ore reserves,
fluctuations in production costs that may make mining of reserves
uneconomic; significant environmental and other regulatory restrictions;
labor disputes; geological problems; failure of pit walls or dams; force
majeure events; and the risk of injury to persons, property or the
environment.
21
Uncertainty of Reserves and Mineralization Estimates
- - ----------------------------------------------------
There are numerous uncertainties inherent in estimating proven and probable
reserves and mineralization, including many factors beyond the control of
the Company. The estimation of reserves and mineralization is a subjective
process and the accuracy of any such estimates is a function of the quality
of available data and of engineering and geological interpretation and
judgment. Results of drilling, metallurgical testing and production, and
the evaluation of mine plans subsequent to the date of any estimate may
justify revision of such estimates. No assurances can be given that the
volume and grade of reserves recovered and rates of production will not be
less than anticipated. Assumptions about prices are subject to greater
uncertainty and gold prices have fluctuated widely in the past. Declines in
the market price of gold or other precious metals also may render reserves
or mineralization containing relatively lower grades of ore uneconomic to
exploit. Changes in operating and capital costs and other factors
including, but not limited to, short term operating factors such as the need
for sequential development of ore bodies and the processing of new or
different ore grades, may materially and adversely affect reserves. The
Long Valley project is very sensitive to the gold price and a sustained
period of low gold prices could affect the Company's ability to farm out
this project.
Proposed Federal Legislation
- - ----------------------------
The U.S. Congress recently considered a proposed major revision of the
General Mining Law, which governs the creation of mining claims and related
activities on federal public lands in the United States and it is
anticipated that another bill may be introduced in the Senate yet this
session, and it is possible that a new law could be enacted. The Company
expects that if and when the new law is effective, it will impose a royalty
upon production of minerals from federal lands and will contain new
requirements for mined land reclamation, and similar environmental control
and reclamation measures. It remains unclear to what extent any such new
legislation may affect existing mining claims or operations. The effect of
any such revision of the General Mining Law on the Company's operations in
the United States cannot be determined conclusively until such revision is
enacted; however, such legislation could materially increase costs at Long
Valley and at a number of the Company's other exploration properties in the
United States, which are located on federal lands, and such revision could
also impair the Company's ability to develop any mineral prospects that are
located on unpatented mining claims in the future.
Environmental Risks
- - -------------------
Mining is subject to potential risks and liabilities associated with
pollution of the environment and the disposal of waste products occurring as
22
a result of mineral exploration and production. Insurance against
environmental risks (including potential liability for pollution or other
hazards as a result of the disposal of waste products occurring from
exploration and production) is not generally available to the Company (or to
other companies within the gold industry) at a reasonable price. To the
extent that the Company becomes subject to environmental liabilities, the
satisfaction of any such liabilities would reduce funds otherwise available
to the Company and could have a material adverse effect on the Company.
Laws and regulations intended to ensure the protection of the environment
are constantly changing, and are generally becoming more restrictive.
Title to Properties
- - -------------------
The validity of unpatented mining claims, which constitute a significant
portion of the Company's property holdings in the United States, is often
uncertain, and such validity is always subject to contest. Unpatented mining
claims are unique property interests and are generally considered subject to
greater title risk than patented mining claims, or real property interests
that are owned in fee simple. The Company has not yet filed a patent
application for any of its properties that are located on federal public
lands in the United States and, under proposed legislation to change the
General Mining Law, patents may be hard to obtain. Although the Company has
attempted to acquire satisfactory title to its undeveloped properties, the
Company does not generally obtain title opinions until financing is sought
to develop a property, with the attendant risk that title to some
properties, particularly title to undeveloped properties, may be defective.
Foreign Operations
- - ------------------
The Company's foreign activities are subject to the risks normally
associated with conducting business in foreign countries, including exchange
controls and currency fluctuations, limitations on repatriation of earnings,
foreign taxation, laws or policies of particular countries, labor practices
and disputes, and uncertain political and economic environments, as well as
risks of war and civil disturbances, or other risks that could cause
exploration or development difficulties or stoppages, restrict the movement
of funds or result in the deprivation or loss of contract rights or the
taking of property by nationalization or expropriation without fair
compensation. Foreign operations could also be adversely impacted by laws
and policies of the United States affecting foreign trade, investment and
taxation. The Company currently has exploration projects in Bulgaria, and
is actively seeking other gold exploration and gold royalty acquisition or
development opportunities in several countries, including Australia, Europe,
Russia and other republics of the former Soviet Union.
23
Year 2000 Impact
- - ----------------
The Year 2000 issue relates to equipment which contain hardware and/or
software programmed to read the year based on its last two digits. This
equipment will not be able to differentiate between years at the turn of the
century and, if this problem is left uncorrected, may result in malfunctions
of the equipment.
Throughout the Company, the use of computers is limited to Windows operating
systems on personal computers linked to Local Area Networks. Software
consists of standardized packages from major developers. The Year 2000
issue also relates to other office equipment, such as telephones, voice mail
and the office security system. The Company is in the process of contacting
all affected vendors and manufacturers to determine whether any updates or
replacements will be required. The cost of the project to date has not been
material and the Company does not expect future costs of the project to be
material. An entire system replacement of all computers and software would
total approximately $75,000. Many components have been certified as Year
2000 compliant. Those companies that provide banking, insurance and other
administrative services are also being contacted for Year 2000 compliance.
Item 3. LEGAL PROCEEDINGS
Goldstripe Project
- - ------------------
Following cessation of the Company's operations at Goldstripe, on August 5,
1992, the U.S. Forest Service notified the Company that it had determined to
initiate a response action at the Goldstripe site, under the Comprehensive
Environmental Response, Compensation, and Liability Act ("CERCLA"), in order
to assess the threat of a possible release of cyanide from a processed
material residue pile. To date, the only action undertaken by the Forest
Service in connection with the response action has been to establish four
monitoring wells at the site, at an estimated cost of $27,000. Although not
formally related to the response action notice, on October 5, 1992, the
Company released $341,000 in cash security for a reclamation bond to fund
reclamation to be performed at Goldstripe by the Forest Service. The
Company believes, based on oral communications with the Forest Service,
that approximately $325,000 of the $341,000 has been spent to date. The
Company also believes, based on such communications over several years, and
the current status of reclamation at the site, that no additional "response
action" or other remediation is likely to be undertaken by the Forest
Service under CERCLA or under any other governmental regulation.
In August 1998, the U.S. Forest Service reconfirmed to the Company that its
reclamation activities were substantially completed at the Goldstripe
property, located in Plumas County, California, and that the Forest Service
believed that such activities should satisfy all outstanding permit
24
requirements for reclamation, except for ongoing post-reclamation monitoring
of water quality. However, it is possible that additional reclamation or
water quality monitoring could be required, and that any such requirement
could result in additional cost to the Company.
Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters were submitted to a vote of security holders during the quarter
ended June 30, 1998. Annual meeting results will be described in Item 4 to
the Company's report that will be filed on Form 10-Q, for the quarter ended
December 31, 1998.
25
PART II
Item 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED
STOCKHOLDER MATTERS
The Common Stock of the Company is traded on the NASDAQ Stock Market's
National Market System, under the symbol "RGLD." The following table shows
the high and low closing sales prices for the Common Stock for each quarter
since June 30, 1996.
Sales Prices
------------------
High Low
Fiscal Year Closing Closing
- - ----------- ------- -------
1997:
First Quarter (July, Aug., Sept. - 1996) $14 1/2 $ 9 7/8
Second Quarter (Oct., Nov., Dec. - 1996) $14 1/8 $12
Third Quarter (Jan., Feb., March - 1997) $13 1/2 $10
Fourth Quarter (April, May, June - 1997) $10 3/4 $ 8 1/4
1998:
First Quarter (July, Aug., Sept. - 1997) $ 9 3/8 $ 7 1/4
Second Quarter (Oct., Nov., Dec. - 1997) $ 8 3/4 $ 4
Third Quarter (Jan., Feb., March - 1998) $ 6 $ 4 1/4
Fourth Quarter (April, May, June - 1998) $ 7 $ 4 1/2
As of August 30, 1998, there were approximately 1,082 shareholders of record
of the Company's common stock.
Dividends
- - ---------
The Company has never paid any cash dividends on its Common Stock and does
not have any current plans to pay such dividends.
26
Item 6. SELECTED FINANCIAL DATA
For the Year Ended June 30,
-------------------------------------------
Selected Statement of 1998 1997 1996 1995 1994
Operations Data ---- ---- ---- ---- ----
(Amounts in thousands, except per share data)
Royalty income $ 2,176 $ 8,890 $ 3,680 $ 470 $ 153
Exploration expense 2,001 1,738 1,434 1,485 686
General and
administrative
expense 1,704 1,706 1,204 1,015 753
Earnings (loss) (3,543) 4,054 589 (2,025) (1,452)
Basic earnings
(loss) per share $ (0.21) $ 0.26 $ 0.04 $ (0.14) $ (0.11)
Diluted earnings
(loss) per share $ (0.21) $ 0.24 $ 0.04 $ (0.14) $ (0.11)
As of June 30,
--------------------------------------------
1998 1997 1996 1995 1994
---- ---- ---- ---- ----
Selected Balance (Amounts in thousands)
Sheet Data
Total assets $20,927 $18,981 $14,063 $10,273 $ 8,183
Working capital 11,437 13,942 11,130 8,723 6,884
Long-term obligations 108 134 111 117 131
27
Item 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
Liquidity and Capital Resources
- - -------------------------------
At June 30, 1998, the Company had current assets of $12,208,000 compared to
current liabilities of $771,000 for a current ratio of 16 to 1. This
compares to current assets of $15,056,000 and current liabilities of
$1,114,000, at June 30, 1997, resulting in a current ratio of 14 to 1. The
Company's current assets include $3,008,000 of marketable securities that
consist of U.S. treasury securities with maturities of 12 months or less.
The Company also holds $2,012,000 of noncurrent marketable securities with
maturities of 17 to 20 months. The Company's initial cost of these
marketable securities was $5,019,000.
During fiscal 1998, liquidity needs were met from: (i) $2,176,000 in
revenues from production at the Crescent Pit and at Bald Mountain, (ii) the
Company's available cash resources, and interest and other income of
$786,000, (iii) the sale of substantially all of the Company's gold
inventory, (iv) private placement of $6,198,000, and (v) cash receipts from
the exercise of options and warrants of $346,000.
During the fiscal year, the Company spent $561,000 on development at the
Long Valley property.
The only material commitments of the Company that cannot be terminated at
the sole discretion of the Company are (i) employment agreements with four
officers, calling for minimum payments of approximately $385,000 through
January 1999; and (ii) office lease payments of $1,094,000 through the lease
period ending October 2005.
The Company anticipates total expenditures for fiscal 1999 for general and
administrative expenses to be approximately $2,000,000 and expenditures for
exploration and property holding costs to be approximately $2,000,000.
Development costs at Long Valley are anticipated to be $980,000 which
includes the $900,000 payment to Standard Industrial Minerals. Exploration
and holding cost expenditures include $400,000 for Alligator Ridge, $450,000
for Manhattan, $800,000 for the Milos Gold project, $50,000 for the Royal
High Desert joint venture, $60,000 for Union Pacific and $140,000 for
generative exploration. These amounts could increase or decrease
significantly, at any time during the fiscal year, based on exploration
results and decisions about releasing or acquiring additional properties,
among other factors.
The Company will continue to explore its remaining properties and intends to
acquire new projects, all with a view to enhancing the value of such
properties prior to possible farm out to major mining company partners.
28
Recently, spot gold prices have hit nineteen year lows and gold prices could
continue at these depressed prices. The Company's revenues at both South
Pipeline and Bald Mountain are directly affected by the gold price.
The Company's current financial resources and sources of income should be
adequate to cover the Company's anticipated expenditures for general and
administrative costs, exploration and leasehold expenses, and capital
expenditures for at least the next fiscal year.
Year 2000 Impact
- - ----------------
The Year 2000 issue relates to equipment which contain hardware and/or
software programmed to read the year based on its last two digits. This
equipment will not be able to differentiate between years at the turn of the
century, and if this problem is left uncorrected, may result in malfunctions
of the equipment.
Throughout the Company, the use of computers is limited to Windows operating
systems on personal computers linked to Local Area Networks. Software
consists of standardized packages from major developers. The Year 2000
issue also relates to other office equipment, such as telephones, voice mail
and the office security system. The Company is in the process of contacting
all affected vendors and manufacturers to determine whether any updates or
replacements will be required. The cost of the project to date has not been
material and the Company does not expect future costs of the project to be
material. An entire system replacement of all computers and software would
total approximately $75,000. Many components have been certified as Year
2000 compliant. Those companies that provide banking, insurance and other
administrative services are also being contacted for Year 2000 compliance.
RESULTS OF OPERATIONS
- - ---------------------
Fiscal Year Ended June 30, 1998 Compared with Fiscal Year Ended
- - ---------------------------------------------------------------
June 30, 1997
- - -------------
For the year ended June 30, 1998, the Company recorded a net loss of
$3,543,000, or $0.21 per diluted share, as compared to net income of
$4,055,000, or $0.24 per diluted share, for the year ended June 30, 1997.
The net loss for the current fiscal year reflects the completion of mining
at the Crescent Pit in fiscal 1997.
The Company received net profits interest royalty income from the Crescent
Pit of $1,605,000 relating to mill-grade material and $442,000 relating to
heap leach material. This was reduced by a realized loss on gold held in
inventory of $832,000 compared to a loss of $697,000 in fiscal 1997. As of
June 30, 1998, all of the Crescent Pit mill-grade material had been
processed. It is anticipated that ongoing heap leach production will
29
continue in fiscal 1999 at a comparable level to heap leach production in
fiscal 1998.
Costs of operations decreased compared to the prior year, which related to
the payment of Nevada Net Proceeds Tax associated with the decreased
production at the Crescent Pit, somewhat offset by increased costs of
monitoring the Company's 20% NPI at South Pipeline.
General and administrative expenses remained flat at $1,704,000, for the
year ended June 30, 1998, compared to $1,706,000 for the year ended June 30,
1997. General and administrative expenses consist primarily of employee
compensation and benefits, office lease expense, investor relations
expenses, office equipment expenses, travel and communication costs.
Exploration costs increased from $1,737,000 in fiscal 1997 to $2,001,000 in
fiscal 1998, due to expenditures at the Milos Gold project. Lease
maintenance and holding costs increased from $266,000 in fiscal 1997 to
$736,000 in fiscal 1998, primarily due to increased holding costs at
Buckhorn South and costs associated with the Manhattan project.
Interest and other income was $786,000 in fiscal 1998, up from $413,000 in
fiscal 1997, due primarily to increased funds available for investing.
Depreciation and amortization increased from $51,000 for fiscal 1997 to
$155,000 for fiscal 1998, primarily due to the depletion associated with the
Company's recently acquired Bald Mountain royalty.
Fiscal Year Ended June 30, 1997 Compared with Fiscal Year Ended
- - ---------------------------------------------------------------
June 30, 1996
- - -------------
For the year ended June 30, 1997, the Company recorded net income of
$4,055,000, or $0.26 per share, as compared to a net income of $589,000, or
$0.04 per share, for the year ended June 30, 1996. The net income for the
1997 fiscal year resulted mainly from the increased royalty revenue related
to the Company's interest in the Crescent Pit.
The Company received net profits interest royalty income from the Crescent
Pit of $6,855,000 relating to mill-grade material and $1,580,000 relating to
heap leach material. This was reduced by an unrealized loss on gold held in
inventory, as of June 30, 1997, of $697,000. As of June 30, 1997, all of
the Crescent Pit mill-grade material had been processed.
Costs of operations increased over the prior year, which related to the
payment of Nevada Net Proceeds Tax associated with the increased production
at the Crescent Pit.
General and administrative expenses of $1,706,000, for the year ended June
30, 1997, increased from $1,204,000 for the year ended June 30, 1996, as a
30
result of increased employee compensation, the cost of listing on the NASDAQ
National Market System, increased investor relations expenses and increased
office expenses. General and administrative expenses consist primarily of
employee compensation and benefits, office lease expense, investor relations
expenses, office equipment expenses, travel and communication costs.
Exploration costs increased from $1,434,000 in fiscal 1996 to $1,737,000 in
fiscal 1997, due to expenditures at the Royal High Desert joint venture and
increased expenses related to analysis of potential gold royalty
acquisitions.
Lease maintenance and holding costs remained flat, at $266,000 in fiscal
1997 and $275,000 in fiscal 1996, as the Company maintained its level of
property holding costs.
Interest and other income was $413,000 in fiscal 1997, down from $442,000 in
fiscal 1996, due primarily to decreased funds available for investing.
Depreciation and amortization decreased from $229,000 for fiscal 1996 to
$51,000 for fiscal 1997, primarily due to the depletion associated with the
Company's capped net smelter return royalty at South Pipeline.
Impact of Inflation
- - -------------------
The Company's operations have been subject to general inflationary
pressures, which have not had a significant impact on its operating costs.
31
Item 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
ROYAL GOLD, INC. AND SUBSIDIARIES
INDEX TO FINANCIAL STATEMENTS
PAGE
REPORT OF INDEPENDENT ACCOUNTANTS 33
FINANCIAL STATEMENTS
Consolidated Balance Sheets 34
Consolidated Statements of Operations 36
Consolidated Statements of Stockholders' Equity 37
Consolidated Statements of Cash Flows 39
Notes to Consolidated Financial Statements 41
32
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors
Royal Gold, Inc.:
In our opinion, the accompanying consolidated balance sheets and related
consolidated statements of operations, shareholders' equity and cash flows
present fairly, in all material respects, the consolidated financial
position of Royal Gold, Inc. and Subsidiaries as of June 30, 1998 and 1997
and the consolidated results of their operations and cash flows for each of
the three years in the period ended June 30, 1998, in conformity with
generally accepted accounting principles. These financial statements are
the responsibility of the Company's management; our responsibility is to
express an opinion on these financial statements based on our audits. We
conducted our audits in accordance with generally accepted auditing
standards, which require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements.
An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for the opinion expressed above.
PricewaterhouseCoopers LLP
Denver, Colorado
September 25, 1998
33
ROYAL GOLD, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
as of June 30, 1998 and 1997
ASSETS
1998 1997
----------- -----------
Current Assets
Cash and cash equivalents $ 8,462,083 $ 3,333,298
Marketable securities 3,007,505 4,995,370
Receivables
Trade and other 516,186 77,546
Royalties receivable in gold 83,194 2,542,975
Inventory 69,101 2,872,366
Prepaid expenses and other 70,065 599,091
Deferred income tax benefit,
net 0 635,000
----------- -----------
Total current assets $ 12,208,134 $ 15,055,646
----------- -----------
Property and equipment, at cost
Mineral properties 6,949,655 4,070,390
Furniture, equipment
and improvements 681,073 814,976
----------- -----------
7,630,728 4,885,366
Less accumulated depreciation
and depletion (981,625) (982,950)
----------- -----------
Net property and equipment 6,649,103 3,902,416
----------- -----------
Other Assets
Noncurrent marketable securities 2,012,500 0
Other 57,567 22,767
----------- -----------
Total other assets 2,070,067 22,767
----------- -----------
Total Assets $ 20,927,304 $ 18,980,829
=========== ===========
(continued)
34
ROYAL GOLD, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS, Continued
as of June 30, 1998 and 1997
LIABILITIES AND STOCKHOLDERS' EQUITY
1998 1997
----------- -----------
Current Liabilities
Accounts payable $ 548,904 $ 961,059
Taxes payable 45,280 0
Accrued liabilities
Retirement benefits 26,400 26,400
Accrued compensation 140,000 100,000
Other 10,190 26,455
----------- -----------
Total current liabilities $ 770,774 $ 1,113,914
Retirement benefit liabilities 107,497 133,897
Commitments and contingencies
(Notes 2, 6 & 10)
Stockholders' equity
Common stock, $.01 par value, authorized
40,000,000 shares; and issued
17,069,602 and 15,877,202 shares,
respectively 170,696 158,772
Additional paid-in capital 53,978,827 47,447,397
Accumulated deficit (33,340,707) (29,797,978)
----------- -----------
20,808,816 17,808,191
Less treasury stock, at cost
(143,726 and 15,026 shares,
respectively) (759,783) (75,173)
----------- -----------
Total stockholders' equity 20,049,033 17,733,018
----------- -----------
Total liabilities and stockholders'
equity $ 20,927,304 $ 18,980,829
=========== ===========
The accompanying notes are an integral
part of these consolidated financial statements.
35
ROYAL GOLD, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
for the years ended June 30, 1998, 1997 and 1996
1998 1997 1996
----------- ---------- ---------
Royalty income $ 2,175,786 $ 8,899,537 $3,680,145
Loss on gold inventory (831,510) (697,488) 0
Consulting revenue 31,691 18,585 31,544
Costs and expenses
Costs of operations 367,010 645,627 371,777
Direct costs of consulting 6,786 5,796 13,215
General and administrative 1,704,108 1,705,649 1,203,846
Exploration 2,001,118 1,737,798 1,434,264
Lease maintenance and
holding costs 736,457 266,245 274,864
Depreciation and depletion 155,296 50,953 228,936
----------- ---------- ---------
Total costs and expenses 4,970,775 4,412,068 3,526,902
----------- ---------- ---------
Operating income (loss) (3,594,808) 3,808,566 184,787
Interest and other income 786,090 412,523 441,728
Loss on marketable securities (53,731) (23,895) (37,320)
Interest and other expense 0 (27,670) 0
----------- ---------- ---------
Income (loss) before income taxes (2,862,449) 4,169,524 589,195
----------- ---------- ---------
Income tax expense (680,280) (115,000) 0
----------- ---------- ---------
Net earnings (loss) $ (3,542,729)$ 4,054,524 $ 589,195
=========== ========== =========
Basic earnings (loss) per share $ (0.21)$ 0.26 $ 0.04
=========== ========== =========
Basic weighted average shares
outstanding 16,617,133 15,615,729 14,868,109
Diluted earnings (loss) per share $ (0.21)$ 0.24 $ 0.04
=========== ========== =========
Diluted weighted average
shares outstanding 16,617,133 16,568,360 16,363,988
The accompanying notes are an integral
part of these consolidated financial statements.
36
ROYAL GOLD, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
for the years ended June 30, 1998, 1997 and 1996
Additional
Common Stock Paid-In
Shares Amount Capital
---------- --------- ----------
Balance, June 30, 1995 14,492,962 $ 144,930 $44,314,602
Issuance of common stock for:
Exercise of options 11,190 112 22,521
Exercise of warrants 974,000 9,740 2,863,520
Net income for the year
ended June 30, 1996
---------- --------- ----------
Balance, June 30, 1996 15,478,152 $ 154,782 $47,200,643
---------- --------- ----------
Issuance of common stock for:
Exercise of options 168,550 1,685 110,414
Exercise of warrants 230,500 2,305 127,820
Issuance of treasury shares
for lease bonus payment 8,520
Net income for the year
ended June 30, 1997
---------- --------- ----------
Balance, June 30, 1997 15,877,202 $ 158,772 $47,447,397
---------- --------- ----------
Issuance of common stock for:
Exercise of options 189,400 1,894 39,187
Exercise of warrants 203,000 2,030 302,470
Private placement 800,000 8,000 6,189,773
Purchases of common stock
Net loss for the year
ended June 30, 1998
---------- --------- ----------
Balance, June 30, 1998 17,069,602 $ 170,696 $53,978,827
========== ========= ==========
(continued)
37
ROYAL GOLD, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY, Continued
for the years ended June 30, 1998, 1997 and 1996
Total
Stock-
Accumulated Treasury Stock holders'
Deficit Shares Amount Equity
----------- ------- -------- ----------
Balance, June 30, 1995 $(34,441,697) 15,986 $ (79,973)$ 9,937,862
Issuance of common stock for: - - - -
Exercise of options - - - 22,633
Exercise of warrants - - - 2,873,260
Net income for the year
ended June 30, 1996 589,195 - - 589,195
----------- ------- -------- ----------
Balance, June 30, 1996 $(33,852,502) 15,986 $ (79,973)$13,422,950
----------- ------- -------- ----------
Issuance of common stock for:
Exercise of options - - - 112,099
Exercise of warrants - - - 130,125
Issuance of treasury shares
for lease bonus payment - (960) 4,800 13,320
Net income for the year
ended June 30, 1997 $ 4,054,524 - - $ 4,054,524
----------- ------- -------- ----------
Balance, June 30, 1997 $(29,797,978) 15,026 $ (75,173)$17,733,018
----------- ------- -------- ----------
Issuance of common stock for:
Exercise of options - - - 41,081
Exercise of warrants - - - 304,500
Private placement - - - 6,197,773
Purchases of common stock - 128,700 (684,610) (684,610)
Net loss for the year
ended June 30, 1998 $ (3,542,729) - $ - $(3,542,729)
----------- ------- -------- ----------
Balance, June 30, 1998 $(33,340,707) 143,726 $(759,783)$20,049,033
=========== ======= ======== ==========
The accompanying notes are an integral
part of these consolidated financial statements.
38
ROYAL GOLD, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
for the years ended June 30, 1998, 1997 and 1996
1998 1997 1996
Cash flows from operating activities
Net income (loss) $(3,542,729) 4,054,524 $ 589,195
---------- ---------- ----------
Adjustments to reconcile
net income (loss) to net
cash provided by(used in)
operating activities:
Depreciation, depletion and
amortization 155,296 50,953 228,936
Loss on marketable
securities 53,731 23,895 37,320
Non cash exploration expense 0 13,320 0
Deferred taxes 635,000 115,000 0
(Increase) decrease in:
Marketable securities (78,366) (4,265) (40,750)
Trade and other receivables (438,640) 258,616 (128,478)
Royalties receivable in gold 2,459,781 (905,402) (1,608,738)
Inventory 2,803,265 (1,666,960) (1,051,168)
Prepaid expenses and other 529,026 (467,373) (41,811)
Increase (decrease) in:
Accounts payable and
accrued liabilities (343,140) 584,385 311,052
Retirement benefit liabilities (26,400) 23,348 (6,400)
---------- ---------- ----------
Total adjustments 5,749,553 (1,974,483) (2,300,037)
Net cash provided by (used in)
operating activities $ 2,206,824$ 2,080,041 $(1,710,842)
---------- ---------- ----------
(continued)
39
ROYAL GOLD, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS CASH FLOWS, Continued
for the years ended June 30, 1998, 1997 and 1996
1998 1997 1996
---------- ---------- ----------
Cash flows from investing activities
Capital expenditures for
property and equipment $(2,901,983) $(2,297,259)$(1,300,853)
(Increase) decrease in
other assets (34,800) 0 0
---------- ---------- ----------
Net cash used in
investing activities $(2,936,783) $(2,297,259)$(1,300,853)
---------- ---------- ----------
Cash flows from financing activities
Purchase of common stock (684,610) 0 0
Proceeds from issuance of
common stock 6,543,354 242,224 2,895,893
---------- ---------- ----------
Net cash provided by
financing activities 5,858,744 242,224 2,895,893
---------- ---------- ----------
Net increase (decrease) in cash
and equivalents 5,128,785 25,006 (115,802)
---------- ---------- ----------
Cash and equivalents at beginning
of period 3,333,298 3,308,292 3,424,094
---------- ---------- ----------
Cash and equivalents at
end of period $ 8,462,083 $ 3,333,298 $ 3,308,292
========== ========== ==========
Supplemental Information:
The Company paid federal income taxes of $57,500 in fiscal 1998.
In fiscal 1997, 960 shares of treasury stock were issued for lease bonus
payments.
The accompanying notes are an integral
part of these consolidated financial statements.
40
1. Operations and Summary of Significant Accounting Policies
Operations:
Royal Gold, Inc. (the "Company" or "Royal Gold"), was incorporated
under the laws of the State of Delaware on January 5, 1981, and is
engaged in the acquisition, exploration, development, and sale of gold
properties, and in the acquisition of gold royalty interests. The
Company also provides financial, operational, and environmental
consulting services to companies in the mining industry. Substantially
all the Company's revenues are and can be expected to be derived from
royalty interests rather than mining activity conducted by the Company.
Year 2000 Impact
The Year 2000 issue relates to equipment which contain hardware and/or
software programmed to read the year based on its last two digits.
This equipment will not be able to differentiate between years at the
turn of the century, and if this problem is left uncorrected, may
result in malfunctions of the equipment.
Throughout the Company, the use of computers is limited to Windows
operating systems on personal computers linked to Local Area Networks.
Software consists of standardized packages from major developers. The
Year 2000 issue also relates to other office equipment, such as
telephones, voice mail and the office security system. The Company is
in the process of contacting all affected vendors and manufacturers to
determine whether any updates or replacements will be required. The
cost of the project to date has not been material and the Company does
not expect future costs of the project to be material. An entire
system replacement of all computers and software would total
approximately $75,000. Many components have been certified as Year
2000 compliant. Those companies that provide banking, insurance and
other administrative services are also being contacted for Year 2000
compliance.
Summary of Significant Accounting Policies:
Use of Estimates:
The preparation of the Company's 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 dates of the financial statements and the reported
amounts of revenues and expenses during the reporting periods. Actual
results could differ from those estimates.
41
Basis of Consolidation:
The consolidated financial statements include the accounts of the
Company, its wholly-owned subsidiaries and its proportionate share of
the accounts of unincorporated joint ventures. All significant
intercompany transactions and account balances have been eliminated in
consolidation.
Cash Equivalents:
For purposes of the statements of cash flows, the Company considers all
highly liquid investments purchased with an original maturity of three
months or less to be cash equivalents. At June 30, 1998, the Company
held $400,000 of U.S. government securities under an agreement to
resell in July 1998. Due to the short term nature of the agreement,
the Company did not take possession of the securities, which were
instead held in the Company's safekeeping account by FBS Investments
Services, Inc. At June 30, 1998, cash equivalents included
approximately $6,232,000 of temporary cash investments in an uninsured
government securities money market fund.
Marketable securities:
Effective July 1, 1998, the Company has reclassified marketable
securities to held-to-maturity. These securities will be recorded at
market value, which approximates the amortized cost basis. At June 30,
1998, the Company held U.S. treasury securities in a principal amount
of $5,000,000. The Company acquired these securities, with maturities
ranging from November 1998 to November 1999, at a cost of $5,018,906.
Any premium or discount is amortized over the remaining life of the
security. At June 30, 1998, the market value of these securities was
$5,020,005. Included in the statement of operations is the net change
in unrealized gains for the trading securities of $8,494 and $4,198 for
the years ended June 30, 1998 and 1997, respectively.
Royalties Receivable in Gold:
Royalties receivable consists of gold held by Cortez, the operator of
the South Pipeline Project, prior to making in-kind royalty payments.
These quarterly, in-kind royalty payments are received one month and
one day after the relevant production quarter. At June 30, 1998, there
was 278 ounces of gold related to the June 30 quarterly production
recorded as a receivable valued at current market value. This gold was
received on August 1, 1998. Royal Gold has exposure for any changes in
gold price on this receivable between the end of the quarter and the
time of receipt.
42
Gold Inventory:
Gold inventory on the balance sheet consists of refined gold bullion
held in uninsured accounts. This gold is stored by the Company's
refiner in Utah. The inventory is carried at market value with
unrealized gains or losses included in the results of operations for
the period. At June 30, 1998, the Company held 150 ounces of gold
bullion in inventory.
Mineral Properties:
Acquisition costs relating to mineral properties with a known
mineralization are deferred until the properties are put into
commercial production, sold or abandoned. Exploration costs, including
an allocation of employee salaries and related costs, are charged to
operations when incurred. Mine development costs incurred to develop
new ore bodies, to expand or rehabilitate the capacity of operating
mines, or to develop areas substantially in advance of production are
deferred. For properties placed in production, the related deferred
costs are depleted using the units-of-production method over the life
of the reserves. Deferred costs applicable to sold or abandoned
properties are charged against operations at the time of sale or
abandonment of the property. Upon disposition of a portion of a
mineral property, including equipment sales, any proceeds are treated
as a reduction of the carrying value of the portion of the property
retained. The recoverability of the carrying value of development
projects is evaluated based upon estimated future net cash flows from
each property using estimates of contained mineralization expected to
be classified as proven and probable reserves upon completion of a
feasibility study. Reductions in the carrying value of each property
are recorded to the extent that the Company's carrying value in each
property exceeds its estimated future undiscounted cash flows.
Management's estimate of the gold prices, recoverable proven and
probable reserves, operating, capital and reclamation costs are subject
to certain risks and uncertainties which may affect the recoverability
of the Company's investment in property, plant and equipment. Although
management has made its best estimate of these factors based on current
conditions, it is possible that changes could occur in the near term
which could adversely affect management's estimate of the net cash
flows expected to be generated from properties in operation.
Office Furniture, Equipment and Improvements:
The Company depreciates its office furniture, equipment and
improvements over estimated useful lives of 15 years for office
furniture, 3 years for computer equipment, and 5 years for other office
equipment, using the straight-line method. The cost of normal
43
maintenance and repairs is charged to expenses as incurred.
Significant expenditures which increase the life of the asset are
capitalized and depreciated over the estimated remaining useful life of
the asset. Upon retirement or disposition of office furniture,
equipment, or improvements, related gains or losses are recorded in
operations.
Income Taxes:
Deferred income taxes reflect the expected future tax consequences of
temporary differences between the tax basis amounts and financial
statement carrying amounts of assets and liabilities at each year end
and the expected future benefits of net operating loss carryforwards,
tax credits and other carryforwards.
Reclassifications:
Certain accounts in the prior period financial statements have been
reclassified for comparative purposes to conform with the presentation
in the current period financial statements.
Earnings (Loss) Per Share:
Basic earnings (loss) per share is computed by dividing the net income
or loss by the weighted average number of common shares outstanding
during each year. Diluted earnings per share reflects the effect of
dilutive options and warrants.
In February 1997, the Financial Accounting Standards Board issued
Statement No. 128, Earnings Per Share ("SFAS 128"),effective for
periods ending after December 15, 1997, which the Company adopted
December 31, 1997, and applied retroactively for all periods presented.
New accounting pronouncements:
In June 1997, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards No. 130 (" SFAS 130"), Comprehensive
Income, which is effective for periods beginning after December 15,
1997. SFAS 130 establishes standards for the reporting and display of
comprehensive income and its components in financial statements.
Comprehensive income generally represents all changes in shareholders'
equity except those resulting from investments by or distributions to
shareholders. Management is currently evaluating the requirements of
SFAS 130.
In June, 1997, American Institute of Certified Public Accountants
issued Statement of Financial Accounting Standards No. 131,
"Disclosure about Segments of an Enterprise and Related Information".
This statement establishes standards for the way that public businesses
report information about operating segments in annual financial
44
statements and requires that those enterprises report selected
information about operating segments in interim financial reports
issued to shareholders. It also standards for related disclosures
about products and services, geographic areas, and major customers.
This statement is effective for financial statements for periods
ending after December 15, 1997, and adoption of the statement is not
anticipated to have a material impact on the Company's financial
position, results of operations, liquidity or current disclosures.
2. Property and Equipment
The net carrying value of the Company's property and equipment consists
of the following components at June 30, 1998 and 1997:
1998 1997
--------- ---------
Mineral Properties:
South Pipeline-
Net Profits Interest $ - $ -
Long Valley 4,086,233 3,675,281
Bald Mountain 2,369,353 -
Camp Bird 120,110 120,110
6,575,696 3,795,391
--------- ---------
Office furniture, equipment
and improvements 73,407 107,025
--------- ---------
Net property and equipment $6,649,103 $3,902,416
========= =========
The Company's mining operations and exploration activities are subject to
various federal, state, and local laws and regulations governing
protection of the environment. These laws are continually changing and,
as a general matter, are becoming more restrictive. Management believes
that the Company is in material compliance with all applicable laws and
regulations.
Presented below is a discussion of the status of each of the Company's
currently significant mineral properties.
A. South Pipeline Project
----------------------
The Company owns a 20% royalty interest in the South Pipeline Project, a
sediment-hosted gold deposit located in Lander County, Nevada, which
covers over 4,000 acres of unpatented mining claims. The South Pipeline
45
Project is operated by Cortez Gold Mines ("Cortez"), a joint venture of
Placer Dome U.S. Inc. ("PDUS") and Kennecott Corporation.
Under a royalty interest agreement, Cortez, as operator, committed to an
exploration and development work program. After payback, as defined in
the agreement, the Company will receive a 20% net profits royalty or, at
its election beginning with production and annually thereafter, a net
smelter returns ("NSR") royalty according to a schedule tied to indexed
gold prices. The NSR royalty ranges from 2.5% for an indexed price of
$350 per ounce to 5.5% for an indexed price in excess of $500 per ounce.
Under either royalty arrangement, the Company may elect to take its
royalty "in-kind."
The Company receives advance royalty payments of $150,000 per year for
the life of the project, and all such payments are to be recouped by
Cortez from production royalty payments.
If Cortez does not diligently proceed with development of the Project,
then the Company may elect to put the Project into production, thereby
securing 100% of the working interest therein, subject to granting a 20%
production royalty to Cortez identical to the one described above. Royal
Gold would then be entitled to use, under a normal tolling arrangement
and as available, the Cortez milling facilities in the vicinity,
including any built or to be built for the Pipeline project.
B. Bald Mountain Royalty
---------------------
The Company purchased a 50% undivided interest in a sliding-scale net
smelter returns royalty that burdens approximately 81% of the Bald
Mountain Mine, White Pine County, Nevada, Bald Mountain is an open pit,
heap leach mine that is operated by Placer Dome U.S. Inc.
The Company purchased the royalty, effective January 1, 1998, for a cash
consideration of $2,250,000 and assumption of $218,312 in debt to the
operator. One-half of each quarterly royalty payment is being withheld
by the operator until this debt is paid in full.
C. Long Valley
-----------
In April 1989, the Company entered into a joint venture agreement with
Standard Industrial Minerals, Inc. ("Standard") to explore and develop a
property located in Mono County, California (the "Long Valley Project").
In November 1993, the Company and Standard amended the joint venture
agreement to provide for the Company's option, exercisable through
December 31, 1997, to acquire the entirety of Standard's interest at Long
Valley upon payment of $1,000,000. Option consideration payments
aggregating $125,000 were paid through 1996.
46
The Company conducted substantial drilling programs at Long Valley in
fiscal years 1995, 1996, 1997, and 1998, and discovered additional
deposits of gold mineralization.
Based on the results of the drilling, the Company determined that proven
and probable reserves existed at the Long Valley property as of July 1,
1995.
In August 1997, the Company entered into an agreement with Amax Gold Inc.
This agreement provided that Amax Gold had an option, exercisable through
December 31, 1997, to enter into a lease and become responsible for
further exploration, permitting, and development of Long Valley, and for
construction and operation of any mine that would have been developed.
If Amax Gold had exercised its option, it would have then paid $300,000
to Royal Gold and made advance minimum royalty payments of $250,000 per
year to Royal Gold until the Long Valley property was in production.
In November 1997, Amax Gold, Inc. terminated its option to explore the
Long Valley Project and relinquished any interest in the property.
In December 1997, Royal Gold announced that it had secured, for $100,000,
a one-year extension of its option to acquire all of the interest of
Standard Industrial Minerals, Inc. in the Long Valley Gold project.
Under the terms of the extension, Royal Gold is required to pay $900,000
to Standard Industrial Minerals by December 31, 1998, or else forfeit the
right to acquire all of Standard Industrial's interest in the Long Valley
project.
The Company now controls 100% of the Long Valley property, subject to a
property payment of $900,000. Management believes that it will be able
to farm-out this property and receive a royalty interest, and recoup all
of its invested costs. The development of the Long Valley property is
dependent on the gold price, and is less profitable at lower gold prices.
The Long Valley project is marginally profitable at current gold prices.
A further decline in gold price could result in an impairment of the Long
Valley project.
C. Camp Bird Mine
--------------
The Camp Bird Venture was formed in August 1986, primarily for the
purpose of re-opening the Camp Bird Mine, located in Ouray County,
Colorado, as a gold and silver mine.
At June 30, 1998, capitalized costs of $120,110 reflect the Company's
ownership of these patented mining claims. Management believes these
claims are valuable both for their mineral and real estate potential.
47
3. Earnings per share ("EPS") computation
For the twelve months ended June 30, 1998
Income(Loss) Shares Per-Share
(Numerator) (Denominator) Amount
---------- ------------- ---------
Basic EPS
Income available to
common stockholders $(3,542,729) 16,617,133 $ (0.21)
Effect of
dilutive securities 0
---------- ---------- -------
Diluted EPS $(3,542,729) 16,617,133 $ (0.21)
========== ========== =======
Options to purchase 609,520 shares of common stock at an average purchase
price of $0.35 per share were not included in the computation of diluted
EPS because the Company experienced a net loss in the twelve month period
and these options were antidilutive. Options to purchase 703,498 shares
of common stock, at an average price of $6.39 per share, were outstanding
at June 30, 1998, but were not included in the computation of diluted EPS
because the exercise price of these options were greater than the average
market price of the common shares.
For the twelve months ended June 30, 1997
Income(Loss) Shares Per-Share
(Numerator) (Denominator) Amount
---------- ---------- -------
Basic EPS
Income available to
common stockholders $4,054,524 15,615,729 $ 0.26
Effect of
dilutive securities
Options 785,455
Warrants 167,176
---------- ---------- -------
Diluted EPS $4,054,524 16,568,360 $ 0.24
========== ========== =======
Options to purchase 214,000 shares of common stock, at an average price
of $13.89 per share, were outstanding at June 30, 1997, but were not
included in the computation of diluted EPS because the exercise price of
these options were greater than the average market price of the common
shares.
48
For the twelve months ended June 30, 1996
Income(Loss) Shares Per-Share
(Numerator) (Denominator) Amount
---------- ---------- -------
Basic EPS
Income available to
common stockholders $ 589,195 14,868,109 $ 0.04
Effect of
dilutive securities
Options 1,095,725
Warrants 400,154
---------- ---------- -------
Diluted EPS $ 589,195 16,363,988 $ 0.04
========== ========== =======
4. Retirement Benefits
In 1987, the Company's Board of Directors agreed to provide retirement
benefits for the remaining lifetime of a former executive officer. At
June 30, 1998, the liability of $133,897 represents the net present value
of estimated future payments to this former officer, adjusted for
payments made to date.
5. Income Taxes
The tax effects of significant temporary differences and carryforwards
which give rise to the Company's deferred tax assets and liabilities at
June 30, 1998 and 1997, are as follows:
1998 1997
---------- ----------
Net operating loss carryforwards $ 7,969,998 $ 8,994,000
Mineral property basis 966,038 265,000
AMT credit carryforward 99,172 -
Loss on sale of gold 291,029 -
Other 232,946 235,000
---------- ----------
Total gross deferred tax assets 9,559,183 9,494,000
Valuation allowance (8,063,920) (6,354,000)
---------- ----------
Net deferred tax assets 1,495,263 3,140,000
---------- ----------
Gold inventory (213,026) (1,918,000)
Mineral property basis (1,097,872) (576,000)
Other (184,366) (11,000)
---------- ----------
Total deferred tax liabilities (1,495,263) (2,505,000)
---------- ----------
Total net deferred taxes $ - $ 635,000
========== ==========
49
At June 30, 1998, the Company has approximately $22.8 million of net
operating loss carryforwards which, if unused, will expire during the
years 2001 through 2016. The Company's ability to generate future
taxable income to realize the benefit of its tax assets will depend
primarily on the timing and amount of royalty revenue from its South
Pipeline net profits interest royalty. Due to the uncertainty of future
production and the Company's expected future losses, a full valuation
allowance has been established for the deferred tax assets at June 30,
1998.
The components of income tax expense (benefit) for the years ended June
30, 1998, 1997 and 1996, are as follows:
1998 1997 1996
-------- -------- --------
Current federal tax expense $ 680,280 $ - $ -
Deferred tax expense(benefit) - 935,000 136,000
Increase (decrease) in
deferred tax asset
valuation allowance - (820,000) (136,000)
-------- -------- --------
$ 680,280 $ 115,000 $ -
======== ======== ========
The provision for income taxes for the years ended June 30, 1998, 1997
and 1996, differs from the amount of income tax determined by applying
the applicable U.S. statutory federal income tax rate to pre-tax loss
from operations as a result of the following differences:
1998 1997 1996
-------- -------- --------
Total expense(benefit)
computed by applying
statutory rate $(1,001,857) $ 1,418,000 $ 200,000
Adjustments of valuation
allowance 1,853,461 (1,310,000) (227,000)
Excess depletion (156,865) - -
Other (14,459) 7,000 27,000
-------- -------- --------
$ 680,280 $ 115,000 $ -
======== ======== ========
The change in the valuation allowance in fiscal 1998 is related to
establishing a valuation allowance for the current year net operating
losses.
Included in the fiscal 1997 adjustments of valuation allowance is
$820,000 related to fiscal 1997 and $490,000 related to fiscal 1996
caused by changes in fiscal 1996 taxable temporary differences.
50
Included in the fiscal 1996 adjustments of valuation allowance is
$136,000 related to fiscal 1996 and $91,000 related to fiscal 1995 caused
by changes in fiscal 1995 temporary differences.
6. Commitments
Operating Lease
The Company leases office space under a lease agreement which expires
October 31, 2005. Future minimum cash rental payments are as follows:
Years ending June 30,
---------------------------
1999 $ 140,858
2000 $ 158,473
2001 $ 171,741
2002 $ 178,629
2003 $ 185,812
2004 $ 193,290
2005 $ 65,272
---------
$1,094,075
=========
Rent expense charged to operations for the years ended June 30, 1998,
1997, and 1996, amounted to $135,838, $122,300 and $143,300,
respectively. The Company subleased a portion of its premises on a
month-to-month basis during the stated period.
In order for the Company to maintain its current exploration and
development properties through fiscal 1999, the Company would incur
lease maintenance and holding costs of $1,200,000, which includes the
$900,000 payment at the Long Valley property. It can be anticipated,
because of the nature of the business, that exploration on many of
these properties will prove unsuccessful and that the Company will
terminate its interest in these properties rather than continue to pay
holding costs.
Employment Agreements
The Company has one-year employment agreements with four of its
officers which require total minimum future compensation, at June 30,
1998, of $385,000 through January 1999. The terms of each of these
agreements automatically extend, every February, for one additional
year, unless terminated by the Company or the officer, according to
the terms of the agreements.
51
7. Stockholders' Equity
Preferred Stock:
The Company has 10,000,000 authorized and unissued shares of $.01 par
value Preferred Stock.
Private Placements:
During fiscal 1996, warrants to purchase a total of 974,000 shares
were exercised, providing proceeds to the Company of $2,864,000.
During fiscal 1997, warrants to purchase a total of 230,500 shares
were exercised, providing proceeds to the Company of $130,125.
During fiscal 1998, the Company sold 800,000 shares of common stock,
to an institutional investor in Canada, resulting in a net proceeds of
$6,200,000. The proceeds of this offering will be used to advance the
Company's royalty acquisition program, exploration activities, and for
general corporate purposes.
Also during fiscal 1998, the Company repurchased 128,700 shares of
common stock at an average cost of $5.32 per share. This buyback was
in accordance with the Company's stock repurchase program announced
May 2, 1997, in which the Board of Directors authorized the repurchase
of up to $5 million of the Company's common stock, from time-to-time,
in the open market or in privately negotiated transactions.
On September 10, 1997, the Company's board of directors adopted a
stockholders' rights plan in which preferred stock purchase rights
("Rights") were distributed as a dividend at the rate of one Right for
each share of common stock held as of close of business on September
11, 1997. The terms of the Rights plan provide that if any person or
group were to announce an intention to acquire or were to acquire 15
percent or more of the Company's outstanding common stock, then the
owners of each share of common stock (other than the acquiring person
or group) would become entitled to exercise a right to buy one one-
hundredth of a newly issued share of Series A Junior Participating
Preferred Stock of the Company at an exercise price of $50 per Right.
Stock Options and Warrants:
During fiscal 1990, the Directors Stock Option Plan ("Directors Plan")
was adopted and the Company reserved 200,000 shares of common stock
for issuance under this Plan. Only non-employee directors are
eligible to participate in the Directors' plan. Options granted under
the Directors Plan are exercisable at prices equal to the market value
of the Company's common stock at the date of grant. The options are
exercisable for a period of five years and terminate three months
after the director resigns or is removed from office. During fiscal
52
1996, no options were exercised. Additionally, options for an
additional 30,000 shares were issued during the year.
During fiscal 1989, an Employee Stock Option Plan ("Employee Plan")
was adopted. In December 1994, shareholders approved an amendment
increasing the aggregate number of shares available for issuance under
the Employee Plan to 2,150,000. Provisions of the Employee Plan
provide for the issuance of either incentive or non-qualified stock
options or stock appreciation rights.
In December 1996, shareholders approved the adoption of an Equity
Incentive Plan to replace the Directors' and Employees' Stock Option
Plans. A total of 800,000 shares of the Company's common stock have
been reserved for issuance under the new Plan. The options are
exercisable at prices equal to the market value of the Company's
common stock as of the date of grant, vest in one year from date of
grant, and expire ten years after the date of grant. There have been
no stock appreciation rights granted under either the Employee Plan or
the Equity Incentive Plan. During fiscal 1998, options were exercised
for 189,400 shares for a total of $41,081 in proceeds to the Company.
The following schedules detail activity related to options and
warrants for the years ended June 30, 1996, 1997 and 1998:
Optioned Average
Shares Option Prices
--------- -------------
Options Outstanding, June 30, 1995 1,211,970 $ 1.85
Granted 191,000 $ 8.50
Exercised (11,190) $ 3.25
Surrendered or expired (1,810) $ 7.88
---------
Options Outstanding, June 30, 1996 1,389,970 $ 2.75
---------
Granted 204,000 $14.13
Exercised (168,550) $ 0.67
---------
Options Outstanding, June 30, 1997 1,425,420 $ 4.63
---------
Granted 804,998 $ 6.38
Exercised (189,400) $ 0.22
Surrendered or expired (728,000) $ 9.59
---------
Options Outstanding, June 30, 1998 1,313,018 $ 3.59
=========
All options outstanding at each year end, except for current year grants,
are exercisable. Options outstanding at June 30, 1998, consist of: 574,520
options at a strike price of $0.125 and a remaining contractual life of 3.4
years; 587,498 options at an average strike price of $5.31 (a range of $4.00
to $5.63), and a weighted average remaining contractual life of 6.0 years;
and 151,000 options at an average strike price of $10.06 (a range of $7.88
to $14.13), and a weighted average remaining contractual life of 3.7 years.
53
Warranted Average
Shares Warrant Prices
--------- --------------
Warrants Outstanding, June 30, 1995 1,407,500 $ 2.35
Exercised (974,000) $ 2.95
---------
Warrants Outstanding, June 30, 1996 433,500 $ 1.00
---------
Exercised (230,500) $ 0.56
Warrants Outstanding, June 30, 1997 203,000 $ 1.50
---------
Exercised (203,000) $ 1.50
---------
Warrants Outstanding, June 30, 1998 0 $ 0.00
=========
The shares and exercise prices listed above are generally subject to
adjustment in accordance with antidilution provisions of each of the
warrant agreements.
In October 1997, stock options were awarded to certain employees at
the then current market price.
On May 29, 1998, the Board of Directors approved the implementation of
a Stock Option Exchange Program for current employees of Royal Gold.
In effect, the Exchange Program will give employees a period of time
to exchange their options for a lesser number of new options with an
exercise price based on the closing price of the stock on May 29, 1998
($5.375/share). Under this Exchange Program, 715,750 options will be
canceled and 522,498 new options will be issued. The new options will
not be exercisable for six months from the date of grant. The vesting
of the new options will be the same as for the old options. At June 30,
1998, no options had been exchanged.
The new number of options which were offered to each employee were
computed in reliance on the Black-Scholes Model. The net result of
applying this model is that the exercise price for the options will be
lower, and the number of shares subject to each such option was
reduced.
The Company measures compensation cost as prescribed by APB Opinion
No. 25 ("APB 25"), Accounting for Stock Issued to Employees. No
compensation cost has been recognized in the financial statements as
the exercise price of all options grants is equal to the market price
of the Company's common stock at the date of grant. In October 1995,
the Financial Accounting Standards Board ("FASB") issued Statement of
Financial Accounting Standards No. 123 ("SFAS 123"). SFAS defines a
"fair value" based method of accounting for employee options or
similar equity instruments. Had compensation cost been determined
54
under the provisions of SFAS 123, the following pro forma net income
(loss) and per share amounts would have been recorded.
1998 1997
---------- ---------
Net income (loss)
As reported $(3,542,729) $4,054,503
Pro Forma $(4,232,401) $3,187,290
Net income (loss) per basic share
As reported $ (0.21) $ 0.26
Pro Forma $ (0.25) $ 0.20
Net income (loss) per diluted share
As reported $ (0.21) $ 0.24
Pro Forma $ (0.25) $ 0.19
The pro forma amounts were determined using the Black-Scholes model
with the following assumptions:
1998 1997
------ ------
Weighted average
expected volatility 64.4% 53.2%
Weighted average
expected option term 3.8 years 4.8 years
Weighted average
risk-free interest rate 5.5% 6.2%
Forfeiture rate 5% 5%
Weighted average grant
date fair value $2.28 $4.25
Preferred Stock Purchase Rights:
On September 10, 1997, the Company's board of directors adopted a
Stockholders' Rights Plan in which preferred stock purchase rights
("Rights") were distributed as a dividend at the rate of one Right for
each share of common stock held as of the close of business on
September 11, 1997. The terms of the Rights plan provide that if any
person or group were to announce an intention to acquire or were to
acquire 15 percent or more of the Company's outstanding common stock,
then the owners of each share of common stock (other than the
acquiring person or group) would become entitled to exercise a right
to buy one one-hundredth of a newly issued share of Series A Junior
Participating Preferred Stock of the Company at an exercise price of
$50 per Right.
55
8. Major Customers
In each of fiscal years 1998, 1997, and 1996, $2,047,142, $8,202,049
and $3,680,145, respectively, of the Company's royalty income was
received from the same source. (See Note 2.A.)
9. Simplified Employee Pension ("SEP") Plan
The Company maintains a SEP Plan in which all employees are eligible
to participate. The Company contributes a minimum of 3% of an
employee's compensation to an account set up for the benefit of the
employee. If an employee also chooses to contribute to the SEP Plan
through salary reduction contributions, the Company will match such
contributions to a maximum of 7% of the employee's salary. The
Company contributed $75,510, $67,041 and $59,157, in fiscal years
1998, 1997, and 1996, respectively.
10. Contingencies
The Goldstripe Mine was an open pit, heap leach facility located in
Plumas County, California. A subsidiary of the Company operated
Goldstripe, but discontinued mining operations after the 1989 season.
The Company completed required reclamation work on the mine pits and
at the plant facility site, and disposed of all major mining and
crushing equipment.
The Forest Service has advised the Company that all outstanding
requirements, except for post-reclamation groundwater monitoring, have
been satisfied.
At this time, the Company believes that it will have no further
reclamation liability related to the Goldstripe property, unless post-
reclamation groundwater monitoring indicates unanticipated migration
of residual cyanide into ground or surface waters.
56
PART III
Item 10 DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
Stanley Dempsey
- - ---------------
Age 59, Director Since August 1984; Term Expires 2000
Chairman of the Board and Chief Executive Officer of the Company since April
4, 1988. President and Chief Operating Officer of the Company from July 1,
1987 to April 4, 1988. Consultant to the Company from 1986 to 1987. Member
of the Board of Directors of Dakota Mining Corporation, Hazen Research, Inc.
and Behre Dolbear and Company, Inc. Prior to 1986, was a Vice President of
AMAX, Inc., Greenwich, Connecticut, and Sydney and Perth, Australia, and an
attorney at law in private practice. (1)
Edwin W. Peiker, Jr.
- - --------------------
Age 67; Director Since May 1987; Term Expires 1999
Director. President and Chief Operating Officer of the Company from April
4, 1988, until retirement on February 1, 1992. Vice President of
Engineering of the Company from May 1987 to April 4, 1988. From 1983 to
1986, Mr. Peiker was engaged in mineral consulting activities. Mr. Peiker
was also a principal in Denver Mining Finance Company from 1984 until 1986.
During the period 1966-1983, Mr. Peiker was with the Climax Molybdenum
division of AMAX involved in exploration activities worldwide. (1) (2)
John W. Goth
- - ------------
Age 71; Director Since August 1988; Term Expires 2000
Director. Executive Director of the Denver Gold Group. Vice Chairman of the
Minerals Information Institute and a consultant to the mining industry. Mr.
Goth was formerly a senior executive of AMAX, Inc. and a Director of Magma
Copper Company. Mr. Goth is a Director of U.S. Gold Corporation, Qualchem,
Inc. and Behre Dolbear. (2) (3)
James W. Stuckert
- - -----------------
Age 60; Director Since September 1989; Term Expires 1998
Director. Chairman and CEO of Hilliard Lyons, Inc. Mr. Stuckert is also a
Director of Hilliard, Lyons, Inc., Thomas Transportation, Inc. and a Board
Member of the Security Industries Association. (2) (3)
Pierre Gousseland
- - -----------------
Age 76; Director Since June 1992; Term Expires 1998
Director. Financial Consultant. Mr. Gousseland is Chairman of the Board of
Directors of Golden Star Resources Ltd. and a director of Guyanor
Ressources, S.A. From 1977 until January 1986, Mr. Gousseland was Chairman
and Chief Executive Officer of AMAX, Inc. Formerly, Director of the French
American Banking Corp. of New York, the American International Group, Inc.,
Union Miniere, S.A. (Belgium), Degussa AG (Germany) and IBM World Trade
Europe/Middle East Africa Corporation. Mr. Gousseland has served on the
Chase Manhattan and Creditanstaldt (Vienna, Austria) International Advisory
Boards and is Past President of the French American Chamber of Commerce in
the United States. (3)
57
S. Oden Howell, Jr.
- - -------------------
Age 58; Director Since December 1992; Term Expires 1999
Director. Consultant to H&N Constructors, Inc., a contractor specializing
in remodeling and rehabilitation of government facilities. From 1972 until
1988, Mr. Howell was Secretary/Treasurer of Howell & Howell, Inc. He is
currently Director of Florafax International, Inc.
Merritt Marcus
- - --------------
Age 64; Director Since December 1992; Term Expires 1998
Director. President and Chief Executive Officer of Marcus Paint Company, a
manufacturer of industrial coatings and Performance Powders, L.L.C., a
manufacturer of industrial powder coatings. Mr. Marcus has served several
terms as a Director of the National Paint and Coatings Association.
Peter B. Babin
- - --------------
Age 44; Director Since December 1997; Term Expires 2000
Director. President of the Company since December 1996, formerly Executive
Vice President from July 1995 through December 1996 and Senior Vice
President from July 1993 through June 1995. From 1989 until 1993, Mr. Babin
was a consultant to the Company. From 1986 through 1989, Mr. Babin was
Senior Vice President and General Counsel of Medserv Corporation.
Thomas A. Loucks: Age 49
Executive Vice President and Treasurer of the Company. From August 1985
until August 1988, Mr. Loucks was a Business Development Analyst with
Newmont Mining Company.
Karen P. Gross: Age 44
Vice President of the Company since June of 1994. Corporate Secretary of
the Company since 1989. From 1987 until 1989, Ms. Gross was the Assistant
Secretary to the Company and Executive Assistant.
(1) Member of Executive Committee
(2) Member of Audit Committee
(3) Member of Compensation Committee
The officers of the Company have one-year employment agreements that renew
for an additional year in February each year.
ITEMS 11,12, and 13
The information called for by Item 11, "Executive Compensation," Item 12,
"Security Ownership of Certain Beneficial Owners and Management," and Item
13, "Certain Relationships and Related Transactions," is incorporated by
reference to the Company's definitive proxy statement to be filed with
respect to the upcoming Annual Meeting of Stockholders to be held November
17, 1998 in Denver, Colorado.
58
PART IV
Item 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON
FORM 8-K
(a) The following is a list of documents filed as part of this report and
are included herewith (*) or have been filed previously:
(1) Financial Statements included in Item 8.
(2) Financial Statement schedules:
All Schedules are omitted because the information called for is not
applicable or is not required or because the required information is
set forth in the financial statements or notes thereto.
(3) The following exhibits are filed with this annual report on Form 10-
K. The exhibit numbers correspond to the numbers assigned in Item
601 of Regulation S-K. Those exhibits that have been marked with an
asterisk are filed herewith; all other exhibits have been previously
filed with the Commission pursuant to the Company's various reports
on Forms 10-K, 10-Q, 8-K, 8-A, S-1 and S-8, and are incorporated
herein by reference.
Exhibit
Number
-------
3 (a) Certificate of Incorporation - Exhibit (b) to the Company's Form
10-K for the fiscal year ended December 31, 1980.
(b) Amendment to Certificate of Incorporation - Exhibit (c) to the
Company's Form 10-K for the fiscal year ended December 31, 1980.
(c) Amendment to Certificate of Incorporation dated February 2, 1983
- Exhibit 3 (c) of Registration Statement on Form S-1,
Registration No. 2-84642.
(d) Amendments to Articles of Incorporation dated May 7, 1987 -
Exhibit (xiv) to the Company's Form 10-K for the year ended June
30, 1987.
(e) Amendment to Articles of Incorporation dated February 2, 1988 -
Exhibit 3(f) to the Company's Form 10-K for the year ended June
30, 1990.
(f) By-Laws - Exhibit (d) to the Company's Form 10-K, for the fiscal
year ended December 31, 1980.
59
Exhibit
Number
-------
10 (a) Employee Stock Option Plan - Exhibit 4(a) to the Company's Form
S-8 dated February 6, 1990.
(b) Directors' Stock Option Plan - Exhibit 4(b) to the Company's Form
S-8 dated February 6, 1990.
(c) Lease of premises at 1660 Wynkoop Street, Denver, Colorado, dated
November 1, 1989 - Exhibit 10 (c) to the Company's Form 10-K for
the year ended June 30, 1990.
(d) Agreement for Resolution of Disputes and Litigation and for the
Formation of the South Pipeline Project, dated September 18,
1992, between Royal Crescent Valley, Inc., and Placer Dome U.S.
Inc - Exhibit 10(l) to the Company's Form 10-K for the year ended
June 30, 1992.
(e) Memorandum of Royalty Interest executed September 18, 1992, by
Royal Gold, Inc. and Cortez Gold Mines - Exhibit 10(m) to the
Company's Form 10-K for the year ended June 30, 1992.
(f) Mining Lease and Purchase Option, dated effective August 23,
1993, between Royal Gold, Inc. and Donald K. Jennings, relating
to the "Ferber" claims, in Elko County, Nevada - Exhibit 10(o) to
the Company's Form 10-K for the year ended June 30, 1993.
(g) Mining Claim and Purchase Option Agreement, dated effective
November 30, 1993, between Standard Industrial Minerals, Inc. and
Royal Long Valley, Inc - Exhibit 10(p) to the Company's Form 10-K
for the year ended June 30, 1994.
(h) Option Agreement and Grant of Exploration Rights, dated effective
May 1, 1994, between Union Pacific Minerals, Inc. and Royal Gold,
Inc - Exhibit 10(q) to the Company's Form 10-K for the year ended
June 30, 1994.
(i) Amendment to Option Agreement and Grant of Exploration Rights
between Union Pacific Minerals, Inc. and Royal Gold, Inc., dated
effective November 30, 1994, - Exhibit 10(k) to the Company's
Form 10-K for the year ended June 30, 1995.
(j) Assignment Agreement dated effective December 1, 1994, between
Royal Gold, Inc. and Santa Fe Pacific Gold Corporation, relating
to the Bob Creek Project - Exhibit 10(l) to the Company's Form
10-K for the year ended June 30, 1995.
60
Exhibit
Number
-------
10 (k) Second Amendment to Option Agreement and Grant of Exploration
Rights between Union Pacific Minerals, Inc. and Royal Gold, Inc.,
dated effective January 1, 1996 - Exhibit 10(k) to the Company's
Form 10-K for the year ended June 30, 1996.
(l) Third Amendment to Option Agreement and Grant of Exploration
Rights between Union Pacific Minerals, Inc. and Royal Gold, Inc.,
dated effective August 15, 1996 - Exhibit 10(l) to the Company's
Form 10-K for the year ended June 30, 1996.
(m) Consent of Independent Accountants - Exhibit 10(m) to the
Company's Form 10-K for the year ended June 30, 1996.
(n) Consent of Independent Accountants - Exhibit 10(n) to the
Company's Form 10-K for the year ended June 30, 1996.
(o) Shareholders' Rights Agreement Exhibit B to the Company's Form 8-
A dated September 11, 1997.
(p) Restated Option Agreement and Grant of Exploration Rights between
Union Pacific Minerals, Inc. and Royal Gold, Inc. dated effective
August 22, 1997.
(q) Letter agreement among Royal Gold, Inc. and Amax Gold Inc. -
Lease and Option to Purchase dated effective August 1, 1997.
(r)* Mining Lease and Option to Purchase Agreement between New Concept
Mining Inc. and Royal Gold, Inc. dated effective November 21,
1997.
(s)* Private Agreement between Rakov Pty. Ltd., Silver and Baryte Ores
Mining Co. S.A., and Royal Gold, Inc., dated effective March 30,
1998.
(t)* Private Agreement between Rakov Pty. Ltd. And Royal Gold, Inc.
dated effective March 28, 1998.
(u)* Exploration , Development and Mine Operating Agreement between
Battle Mountain Exploration Company and Royal Gold, Inc. dated
effective June 30, 1998.
(v)* Exploration and Development Option Agreement between Placer Dome
U.S., Inc. and Royal Gold, Inc. dated effective July 1, 1998.
21*(a) The Company and Its Subsidiaries.
* - Filed herewith.
(b) Reports on Form 8-K:
1. None.
61
EXHIBIT A
ROYAL GOLD, INC. AND SUBSIDIARIES
Denver Mining Finance Company (1)
Royal Trading Company (1)
Calgom Mining, Inc. (1)(4)
Royal Long Valley, Inc. (1)
Royal Camp Bird, Inc. (1)
Royal Crescent Valley, Inc. (1)
Royal Kanaka Creek Corporation (1)
Environmental Strategies, Inc. (2)
GRAMEX LTD (3)
SOMIN LTD (5)
Royal Gold Australia (3)
Milos Gold S.A. (3)
(1) Owned 100% by Royal Gold, Inc.
(2) Owned 100% by Denver Mining Finance Company
(3) Owned 50% by Royal Gold, Inc.
(4) Owns a 100% interest in the Goldstripe Project.
(5) Owned 25% by Royal Gold, Inc.
62
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.
ROYAL GOLD, INC.
Date: September 28, 1998 By: /s/Stanley Dempsey
------------------
Stanley Dempsey, Chairman,
Chief Executive Officer, and Director
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the dates indicated.
Date: September 28, 1998 By: /s/Stanley Dempsey
------------------
Stanley Dempsey, Chairman,
Chief Executive Officer, and Director
Date: September 28, 1998 By: /s/Thomas A. Loucks
-------------------
Thomas A. Loucks,
Treasurer
Date: September 28, 1998 By: /s/John Skadow
--------------
John Skadow
Controller
Date: September 28, 1998 By: /s/Edwin W. Peiker, Jr.
-----------------------
Edwin W. Peiker, Jr.,
Director
Date: September 28, 1998 By: /s/John W. Goth
---------------
John W. Goth,
Director
63
Date: September 28, 1998 By: /s/James W. Stuckert
--------------------
James W. Stuckert,
Director
Date: September 28, 1998 By: /s/Pierre Gousseland
--------------------
Pierre Gousseland,
Director
Date: September 28, 1998 By: /s/Merritt E. Marcus
--------------------
Merritt E. Marcus
Director
Date: September 28, 1998 By: /s/S. Oden Howell, Jr.
----------------------
S. Oden Howell, Jr.
Director
Date: September 28, 1998 By: /s/Peter B. Babin
-----------------
Peter B. Babin
Director
64
Mining Lease and Option to Purchase Agreement
This Mining Lease and Option to Purchase Agreement
("Agreement") is made and entered into by and between New
Concept Mining, Inc., a Nevada corporation ("Owner"), and Royal
Gold, Inc., a Delaware corporation ("Royal Gold").
Recitals
A. Owner owns two (2) patented and fifteen (15)
unpatented mining claims situated in Nye County, Nevada, which
are described in Exhibit A-1 attached to this Agreement.
B. Owner and Crown Resources Corp. of Colorado, a
Colorado corporation ("Crown"), are parties to the Purchase Option
Agreement dated as of November 2, 1994, concerning the twenty-six
(26) unpatented mining claims and one patented mining claim
situated in Nye County, Nevada, which are described in Exhibit A-2
attached to this Agreement.
C. Owner and the Norman Coombs/Bottom Family
Trust ("Bottom Trust") are parties to the Mining, Exploration and
Development Lease/Purchase Agreement dated effective March 13,
1996, concerning forty-one (41) unpatented mining claims situated
in Nye County, Nevada, which are described in Exhibit A-3 attached
to this Agreement.
D. Owner, Dixie Exploration Company, a Nevada
corporation, and Anthony C. Selig (the latter two parties being
collectively referred to as "Dixie-Selig") are parties to the
Lease/Purchase Agreement dated as of March 14, 1997, concerning
the thirty-three (33) unpatented mining claims situated in Nye
County, Nevada, which are described in Exhibit A-4 attached to this
Agreement.
E. Owner and Royal Gold are parties to the Letter of
Intent dated October 27, 1997, and desire to formalize the agreement
between them. This Agreement supersedes the Letter of Intent.
Now, therefore, in consideration of their mutual promises, the
parties agree as follows:
1. Definitions. The following defined terms, wherever used in
this Agreement, shall have the meanings described below:
1.1 "Bottom Agreement" means the agreement described
in Recital C.
1.2 "Bottom Option" means the option to purchase the
Bottom Agreement granted by Owner to Royal Gold in accordance
with Section 6 and Section 45.
1.3 "Closing" means the delivery of the Purchase Price
for the Option and the exchange of the instruments deposited in
escrow as described in Section 6.
1.4 "Closing Date" means the date on which the Closing
occurs.
1.5 "Crown Agreement" means the agreement described
in Recital B.
1.6 "Diligence Period" means the period beginning on the
Effective Date and ending on the earlier of December 31, 1997, or
the date on which Royal Gold elects to proceed under this
Agreement in accordance with Section 45.
1.7 "Dixie Agreement" means the agreement described
in Recital D.
1.8 "Effective Date" means the date this Agreement has
been executed by all parties.
1.9 "Lease Year" means each one (1) year period
following the Effective Date and each anniversary of the Effective
Date. "Lease Anniversary" means each anniversary of the Effective
Date.
1.10 "Minerals" means gold, silver, platinum, antimony,
mercury, copper, lead, zinc, and all other metals, mineral elements
and mineral compounds, and geothermal resources, which are
contemplated to exist on the Property or which are after the Effective
Date discovered on the Property and which can be extracted, mined
or processed by any method presently known or developed or
invented after the Effective Date.
1.11 "Minimum Payments" means the payments payable
by Royal Gold in accordance with Section 5.2.
1.12 "Net Smelter Returns" means the net smelter returns
from production of Minerals and Ore from the Property to be
determined and paid in accordance with Exhibit B attached to and by
this reference incorporated in this Agreement.
1.13 "Option" means the option to purchase the Property
granted by Owner to Royal Gold in accordance with Section 6.
1.14 "Ore" means material from the Property, the nature
and composition of which, in Royal Gold's sole judgment, justifies
either: (1) mining or removing from the Property during the term of
this Agreement, and shipping and selling the same, or delivering the
same to a processing plant for physical or chemical treatment; or (2)
treatment, including leaching, on the Property during the term of this
Agreement.
1.15 "Owner" means New Concept Mining, Inc., a Nevada
corporation, and its successors and assigns.
1.16 "Product" means the following:
1.16.1 All Minerals and Ore mined or removed from
the Property during the term of this Agreement and shipped and sold
by Royal Gold before treatment; and,
1.16.2 All concentrates, precipitates and mill
products produced by or for Royal Gold from Minerals and Ore
mined from the Property and sold by Royal Gold, or from Minerals
and Ore leached or treated on the Property and sold by Royal Gold
during the term of this Agreement.
1.17 "Property" means the lands and unpatented mining
claims described in Recital A of this Agreement and all of Owner's
right, title, and interest in the lands and the unpatented mining
claims described in Exhibits A-1, A-2, A-3 and A-4 and made
subject to this Agreement, including all Minerals and mineral rights.
1.18 "Purchase Price" means the price to be paid by Royal
Gold for its purchase of the Property on exercise of the Option.
1.19 "Royal Gold" means Royal Gold, Inc., a Delaware
corporation, and its successors and assigns.
1.20 "Royalty" means the Net Smelter Returns production
royalty payable to Owner in accordance with Section 5.3.
1.21 "Underlying Agreements" means, collectively, the
Crown Agreement, the Bottom Agreement and the Dixie Agreement,
as they may be amended from time to time.
1.22 "Waste" means earth, rock or material mined or
removed from the Property during the term of this Agreement, but
which is not Ore.
2. Relationship of the Parties.
2.1 Limitation. Royal Gold's performance of its duties
and obligations under this Agreement shall not obligate Royal Gold
to perform any additional services to Owner nor to invest any funds
in the exploration for, development or production of Minerals on or
under the Property. Royal Gold may explore, conduct geological,
geochemical and geophysical investigations, sample, drill or
otherwise explore for, in the manner and to the extent that Royal
Gold, in its sole discretion, deems advisable. Only the express
duties and obligations described in this Agreement are binding upon
Royal Gold, and, except as expressly provided in this Agreement,
Royal Gold shall have no duties or obligations, implied or otherwise,
to explore for, develop or mine Minerals or Ore from the Property,
it being agreed that Royal Gold's Minimum Payments are in lieu of
any implied duties or obligations.
2.2 No Partnership. This Agreement shall not be
deemed to constitute any party as the partner, agent or legal
representative of any other party, or to create any partnership,
mining partnership or other partnership relationship, or fiduciary
relationship between them, for any purpose.
2.3 Competition. Except as expressly provided in this
Agreement, each party shall have the free and unrestricted right
independently to engage in and receive the full benefits of any and
all business endeavors of any sort outside the Property or outside the
scope of this Agreement whether or not competitive with the
endeavors contemplated under this Agreement without consultation
with or participation of the other party. In particular, without
limiting the foregoing, neither party to this Agreement shall have
any obligation to the other as to any opportunity to acquire any
interest, money, property or right offered to it outside the scope of
this Agreement.
3. Grant of Exploration Privilege, Sublease and Assignment.
3.1 Diligence Examination. Owner grants to Royal
Gold the exclusive right and privilege to enter on the Property for
the purposes of examining the condition of the Property and
identification of any environmental conditions which are or might be
violative of any federal, state or local law, regulation or ordinance
concerning preservation or protection of the environment.
3.2 Grant of Exploration Privilege. Owner grants to
Royal Gold the exclusive right and privilege to enter on the Property
for the purposes of exploration and prospecting for any and all
Minerals, mineral substances, metals, ore-bearing materials and
rocks of every kind, including the right of ingress and egress for
personnel, machinery, equipment, supplies and products and the
right to use so much of the surface of and water on or appurtenant to
the Property as Royal Gold needs.
3.3 Lease. Owner leases exclusively to Royal Gold the
Property for the purposes of development, mining, production,
removal and sale of all Minerals, mineral substances, metals, Ore,
ore-bearing materials and rocks of every kind. The rights granted
under this Agreement include all the right, title and interest of
Owner in the Property, lands and mining claims described in this
Agreement, including, but not limited to, the surface and subsurface,
all Ore, Minerals, mineral elements and compounds, and mineral
rights, all water and water rights, geothermal resources and
geothermal water, in, upon and under the Property, all of the
interests of Owner in all options, contracts, easements and rights-of-
way reserved or granted in, upon or pertaining to the Property, and
all right, title and interest which may be acquired by or for Owner in
or pertaining to the Property or any part, during the term of this
Agreement, together with any and all veins, lodes and mineral
deposits now owned or acquired by Owner after the Effective Date
extending from or into or contained in the Property, and all
tenements, hereditaments and appurtenances.
3.4 Assignment and Sublease. Owner assigns
exclusively to Royal Gold all of Owner's interests under the
Underlying Agreements (reserving to Owner, however, the
obligations described in this Section 3.4), and subleases to Royal
Gold the property interests subject to the Underlying Agreements.
Royal Gold accepts the assignment and sublease and agrees to
perform all of the obligations of Owner under the Underlying
Agreements, except for the obligations reserved to Owner in this
Section 3.4, which accrue or arise after the Effective Date so long as
they are subject to this Agreement. During the term of this
Agreement, Royal Gold shall have the exclusive right to exercise all
elections, privileges and rights granted to Owner, or Owner's
predecessors-in-interest, under each of the Underlying Agreements,
and Owner grants and transfers to Royal Gold full power and right
of substitution and subrogation in and to all credits in Owner's favor
and all covenants, representations and warranties made by each
lessor, sublessor or optionor of Owner under the Underlying
Agreements. On Royal Gold's exercise of the Option, Owner shall
assign, convey and transfer to Royal Gold all of Owner's right, title
and interest in and under each of the Underlying Agreements and in
and to all of the property interests subject to each of the Underlying
Agreements. There are reserved to Owner, and Owner agrees to pay
and perform, the payment obligations of Owner under the Dixie
Agreement. Within five (5) business days following the due date of
each payment payable by Owner under the Dixie Agreement, Owner
shall deliver to Royal Gold documentary proof that Owner has paid
the payments payable by Owner under the Dixie Agreement. If
Owner fails to pay the payments payable under the Dixie Agreement
or Owner fails to timely deliver proof of payment of such payments,
Royal Gold, in its sole and exclusive election and without obligation
to do so, may make the payments payable by Owner under the Dixie
Agreement. Any and all payments paid by Royal Gold on Owner's
behalf in accordance with this Section shall be credited to Royal
Gold's account and against Royal Gold's payment obligations under
this Agreement.
3.5 Uses. Royal Gold is granted the right to use the
Property including, but without being limited to, the full right,
authority and privilege of placing and using excavations, open pit
mines, injection and production wells, openings, shafts, ditches and
drains, and of constructing, erecting, maintaining, using and, at its
election, removing any and all buildings, structures, plants,
roadways, pumps, pipelines, electrical power lines and facilities,
stockpiles, waste piles, heap leach pads, tailings ponds and facilities,
settling ponds, and all other improvements, property and fixtures for
mining, removing, beneficiating, concentrating, smelting, extracting,
leaching (in place or otherwise), refining and shipping of Minerals,
Ore or Product, or for any incidental activities, whether presently
contemplated or known to be used in the mining, extraction,
production or processing of Minerals, water or geothermal water, or
geothermal resources, or to any of the rights or privileges of Royal
Gold under this Agreement. Royal Gold is further granted the right,
to the extent Owner lawfully may grant the right, to divert streams,
to remove lateral and subjacent supports, to use, cave, subside,
consume, or destroy the surface or any part of it, to deposit earth,
rocks, waste, lean Ore and materials on any part of the Property, to
leach the same, and to commit waste.
3.6 Water Rights. Owner leases to Royal Gold all of
Owner's water rights appurtenant to the Property. Subject to the
regulations of the state in which the Property is situated concerning
the appropriation and taking of water, Royal Gold shall have the
right to appropriate and use water, to drill wells for the water on the
Property and to lay and maintain all necessary water lines as may be
required by Royal Gold in its operations on the Property.
4. Term. The term of this Agreement shall be from the Effective
Date for twenty (20) years, and for so long after the end of the
primary term as Royal Gold conducts exploration or development
activities on the Property or Royal Gold mines or produces Minerals
or Ore from the Property, unless this Agreement is sooner terminated
or cancelled in accordance with its terms or Royal Gold exercises
and consummates the Option.
5. Payments. Royal Gold shall make the following payments
under this Agreement:
5.1 Acknowledgment of Prior Payment. Owner
acknowledges that Royal Gold has paid or will pay to the Bottom
Trust the sum of Fifty Thousand Dollars ($50,000.00) representing
payment of a minimum payment due and payable by Owner to the
Bottom Trust on or about September 13, 1997, in accordance with
the Bottom Agreement.
5.2 Minimum Payments. Royal Gold shall pay to the
lessors, sublessors and optionors, as applicable, under the
Underlying Agreements the minimum payments payable in
accordance with the Underlying Agreements which accrue during
the term of this Agreement and after expiration of the Diligence
Period (provided Royal Gold elects to proceed under this Agreement
in accordance with Section 45), except the payments payable under
the Dixie Agreement which Owner acknowledges Owner, and not
Royal Gold, shall pay in accordance with Section 3.4.
5.3 Production Royalty. Royal Gold shall pay to Owner
the Royalty described in this Section 5.3. Payments of the Royalty
shall be determined at the end of each calendar quarter after the
Effective Date. The Royalty shall be determined quarterly on the
basis such that payments will be determined as of and payable within
thirty (30) days after the last day of each calendar quarter during
which Royal Gold receives any Net Smelter Returns. The Royalty
payable by Royal Gold to Owner under this Agreement shall be
based solely on the payments actually received by Royal Gold for
Net Smelter Returns. Royal Gold shall have no obligation to
account to Owner, and Owner shall have no interest or right of
participation in, any profits or proceeds of futures contracts, forward
sales, hedging or other similar marketing mechanisms used by Royal
Gold or any of its affiliates concerning any Minerals, Ores or
Product. Royal Gold shall have no obligation to Owner to complete
or perform any futures contracts, forward sales, hedging or any other
marketing agreement which Royal Gold or any of its affiliates may
hold concerning Minerals, Ores or Product. The Royalty percentage
rate payable to Owner shall be four percent (4%) of the Net Smelter
Returns less: (a) one-half (1/2) of the amount of any production
royalties payable by Royal Gold in accordance with the terms of the
Underlying Agreements, provided that Royal Gold shall deduct
production royalties against only the portion of the Royalty
attributable to production of Minerals from the property interests
subject to the respective Underlying Agreements in respect of which
the production royalties are paid; and (b) one-half (1/2) of the
amount of any production or other royalty that may after the
Effective Date be assessed by the United States against the
production of Minerals from the Property.
5.4 Method of Payment. All payments made by Royal
Gold to Owner shall be paid by check delivered to Owner's address
for notice purposes. Royal Gold shall be obligated to deliver only
a single check or payment, and Royal Gold shall have no
responsibility for disbursement or distribution of any payment after
receipt by the described payee. If Owner constitutes two or more
parties, such parties shall designate a single agent or depository for
payment of all payments to be made by Royal Gold under this
Agreement. At the time of making a Royalty payment, Royal Gold
shall deliver to Owner a statement showing the amount of the
Royalty due and the manner in which it was determined and shall
submit to Owner data reasonably necessary to enable Owner to
verify the determination.
5.5 Payment Credits. The payment paid by Royal Gold
to the Bottom Trust before the Effective Date and all Minimum
Payments paid by Royal Gold to the lessors, sublessors and
optionors, as applicable, in accordance with the Underlying
Agreements shall be credited cumulatively to Royal Gold's account
and against Royal Gold's obligations under this Agreement and the
Underlying Agreements. All such payments made by Royal Gold,
together with all Royalty payments made by Royal Gold, shall be
credited cumulatively to Royal Gold's account and against the
Purchase Price.
5.6 Audit. At Owner's expense, Owner or its authorized
agents shall have a right to audit and inspect Royal Gold's accounts
and records used in calculating the Royalty payments, which right
may be exercised as to each payment at any reasonable time during
a period of two (2) years from the date on which the payment was
made by Royal Gold. If no such audit is performed during such
period, such accounts, records and payments shall be conclusively
deemed to be true, accurate and correct. If any audit determines that
there has been an underpayment of five percent (5%) or more of any
previous Royalty payment, then Royal Gold shall bear the expense
of such audit.
6. Purchase Option. Owner grants to Royal Gold the exclusive
right to purchase all of Owner's interests in: (a) the Bottom
Agreement; and (b) the Underlying Agreements and the Property.
Royal Gold may exercise the Bottom Option in accordance with
Section 45. Royal Gold may exercise the Option in respect of the
Underlying Agreements and the Property in accordance with this
Section 6. The Purchase Price for the Owner's interests in the
Underlying Agreements and the Property shall be Four Million
Three Hundred Fifty Thousand Dollars ($4,350,000.00) in United
States currency. Royal Gold may exercise the Option at any time on
or before November 30, 2001. Owner's assertion of a default by
Royal Gold under this Agreement shall not bar or negate Royal
Gold's right to exercise the Option.
6.1 Notice of Election. Royal Gold may give written
notice of its election to exercise the Option or Royal Gold may pay
the entire Purchase Price which shall be deemed Royal Gold's
exercise of the Option. On Owner's receipt of Royal Gold's notice
of its exercise of the Option or on Royal Gold's payment of the
entire Purchase Price, the parties shall make diligent efforts to close
the conveyance of the Property to Royal Gold within thirty (30) days
after Owner's receipt of Royal Gold's notice or as soon as the
transaction can be closed.
6.2 Escrow and Delivery of Instruments. On execution
of this Agreement, Owner and Royal Gold shall execute and deliver
to an escrow agent satisfactory to Royal Gold the following: (a)
Owner shall execute and deliver a conveyance of the Property and
an irrevocable assignment of the Underlying Agreements each in
form acceptable to Royal Gold and proper for recording; (b) Owner
and Royal Gold shall execute and deliver such general conditions as
are reasonably requested by the escrow agent; and (c) Owner and
Royal Gold shall provide such other assurances and execute and
deliver such other instruments as are reasonably requested by Royal
Gold, Owner or the escrow agent for the purpose of closing the
purchase under this Agreement. On Royal Gold's exercise of the
Option and Royal Gold's payment of the Purchase Price to Owner,
the escrow agent shall deliver to Royal Gold the documents
delivered by Owner and Royal Gold to the escrow agent. If this
Agreement is otherwise terminated in accordance with its terms, the
escrow agent shall deliver to Owner the documents delivered by
Owner and Royal Gold to the escrow agent.
6.3 Closing Costs. Royal Gold shall pay the real
property transfer tax, if any, the costs of escrow, and all recording
costs incurred in the Closing.
6.4 Taxes. Payment of any and all state and local real
and personal property taxes levied on the Property purchase and not
otherwise provided for in this Agreement shall be prorated between
the parties as of the Closing on the basis of a thirty (30) day month.
6.5 Payment of Purchase Price. On the Closing, Royal
Gold shall pay to Owner, if it has not previously done so, in cash or
by check, the balance of the Purchase Price.
6.6 Effect of Exercise. On the Closing, Royal Gold shall
acquire and own all of Owner's right, title and interest in and to the
Property and the Underlying Agreements, and Owner shall have no
right, title or interest in and to the Property or the Underlying
Agreements. The Royalty shall terminate.
7. Compliance With The Law. All exploration and
development work performed by Royal Gold during the term of this
Agreement shall conform with the applicable laws and regulations
of the state in which the Property is situated and the United States of
America. Royal Gold shall be fully responsible for compliance with
all applicable federal, state and local reclamation statutes, regulations
and ordinances relating to such work, all at Royal Gold's
cost, and Royal Gold shall indemnify, defend and hold Owner
harmless from any and all claims, assessments, fines and actions
arising from Royal Gold's failure to perform the foregoing
obligations. Owner agrees to cooperate with Royal Gold in Royal
Gold's application for governmental licenses, permits and approvals,
the costs of which shall be borne by Royal Gold.
8. Mining Practices; Inspection of Data.
8.1 Mining Practices. Royal Gold shall work the
Property in a miner-like fashion.
8.2 Inspection of Data. During the term of this
Agreement and at Owner's expense, Owner shall have the right to
examine noninterpretive factual data regarding the Property,
provided that such data is in Royal Gold's possession and that it is
examined during reasonable business hours and upon prior notice,
provided, however, that the rights of Owner to examine such data
shall be exercised in a manner such that such inspection does not
delay, hinder or interfere with the operations of Royal Gold.
8.3 Measurements; Analysis. Royal Gold shall measure
Ore and grade and take and analyze samples in accordance with
mining industry practices, and shall keep accurate records as a basis
for computing the Royalty payments. These records shall be
available for inspection by Owner, at Owner's expense, at reasonable
times subject to the provisions of this Agreement regarding
accounts, inspection, records and payments.
9. Production Records. Royal Gold shall keep accurate
records of the sale or shipment of Product from the Property, and
these records shall be available for inspection by Owner, at Owner's
expense, at reasonable times subject to the provisions of this
Agreement regarding accounts, inspection, records and payments.
10. Consolidation of Operations.
10.1 Cross Mining. Royal Gold is granted the right to
mine and remove Minerals, Ore, Product and materials from the
Property through or by means of shafts, openings or pits which may
be in or upon adjoining or nearby lands owned or controlled by
Royal Gold. Royal Gold may use the Property and any shafts,
openings and pits on the Property for the mining, removal, treatment
and transportation of ores and materials from adjoining or nearby
lands, or for any purpose connected with such activities. Royal Gold
shall have the right to treat or process, in any manner (including in
situ or solution mining), any Minerals, Ore, material and products
mined or produced from the Property and from other lands. Such
treatment may be conducted wholly or in part at facilities established
or maintained on the Property or on other lands. The tailings and
residue from such treatment shall be deemed Waste and may be
deposited on the Property or on other lands and Royal Gold shall
have no obligation to remove such Waste from the Property nor to
return to the Property Waste resulting from the processing of Ores
or materials from the Property.
10.2 Unitization. Royal Gold's operations on the Property
and its operations on other lands may be conducted upon the
Property and upon any and all such other lands as a single mining
operation, to the same extent as if all such properties constituted a
single tract of land.
10.3 Boundary Areas. Owner waives all rights, statutory
and otherwise, to require Royal Gold to maintain adjacent support
for the Property and any contiguous property owned, leased, or
controlled by Royal Gold or any other party. Owner waives its right
to prohibit Royal Gold from mining within any minimum distance
of any boundary line of the Property and contiguous lands, and
grants to Royal Gold the authority to act as Owner's agent and
representative to enter into agreements with the owners of
contiguous properties so as to allow mining of all Ores located on,
near or under the boundary of the Property. Owner waives all
extralateral rights appurtenant to each unpatented mining claim
which constitutes part of the Property, and agrees that Royal Gold's
obligations to account for and to pay the Royalty shall apply and
extend only to Minerals and Ores produced from within the vertical
planes of the exterior boundaries of the Property extended downward
to the center of the earth.
11. Stockpiling; Waste.
11.1 Stockpiling. Royal Gold shall have the right to
stockpile on the Property or on other lands any Minerals, Ore,
Product, materials or Waste mined or produced from the Property at
such place or places as Royal Gold may elect, without the obligation
to remove them from where stockpiled or to return them to the
Property. The stockpiling of Minerals, Ore, Product or materials
from the Property on other lands shall not be deemed a removal or
shipment requiring payment in respect of Owner's interest. Royal
Gold shall have the right to stockpile on the Property any ore,
materials or waste mined or produced by Royal Gold from other
lands without obligation to remove the same at any time. Owner
agrees to recognize the rights and interests of others in such other
ores, materials and waste stockpiled on the Property and to permit
their removal by Royal Gold or the owner of such other ores,
materials and wastes.
11.2 Waste. Waste, overburden, surface stripping and
other materials from the Property may be deposited on or off the
Property. Nothing in this Section shall limit the provisions of this
Agreement concerning stockpiling Product on or off the Property.
12. Mixing. Royal Gold shall have the right to commingle
Minerals, Ore and Product from the Property and materials from
other properties. Before commingling, Minerals, Ore and Product
from the Property and other ore and materials shall be measured and
sampled by Royal Gold in accordance with sound mining and
metallurgical practice. Representative samples of Ore and other ores
shall be retained by Royal Gold, and assays of these samples shall
be made before commingling to determine the metal content of each
ore. Royal Gold shall keep records of the measurements, samples
and assays of metal content of the Ore and other ore.
13. Treatment. Royal Gold shall have the right, but shall not be
required, to beneficiate, concentrate, smelt, refine, leach and
otherwise treat, in any manner, any Minerals, Ore, Product and
materials mined or produced from the Property and from other lands.
Such treatment may be conducted wholly or in part at a plant or
plants established or maintained on the Property or on other lands.
The tailings and residue from such treatment may be deposited on
the Property or on other lands. Owner shall have no right, title or
interest in the tailings or residue; provided, however, that any of the
tailings or residue remaining on the Property for a period of one (1)
year after the date on which this Agreement has expired, or has been
terminated by Royal Gold as to all of the Property, except on Royal
Gold's exercise of the Option, shall be deemed abandoned by Royal
Gold and shall become the property of Owner.
14. Scope of Agreement. This Agreement shall extend to and
include only the unpatented mining claims and patented mining
claims which comprise the Property on the Effective Date as
described in Exhibits A-1 through A-4.
15. Work Obligations.
15.1 Assessment Work. Beginning with the annual
assessment work period of September 1, 1998, to September 1,
1999, and for each annual assessment work year commencing during
the term of this Agreement, Royal Gold shall perform for the benefit
of the Property work of a type customarily deemed applicable as
assessment work and of sufficient value to satisfy the annual
assessment work requirements, if any, of all applicable federal, state
and local laws, regulations and ordinances, and shall prepare
evidence of the same in form proper for recordation and filing, and
shall timely record and/or file such evidence in the appropriate
federal, state and local office as required by applicable federal, state
and local laws, regulations and ordinances, provided that if Royal
Gold elects to terminate this Agreement or surrender any of the
unpatented mining claims which are part of the Property before July
1 of any year, it shall have no further obligation to perform annual
assessment work nor to prepare, record and/or file evidence of the
same with respect to that year for all of the unpatented mining
claims or the surrendered unpatented mining claims, as the case may
be. If under applicable federal laws and regulations federal annual
mining claim maintenance or rental fees are required to be paid for
the unpatented mining claims which constitute all or part of the
Property, beginning with the annual assessment work year of
September 1, 1998, to September 1, 1999, Royal Gold shall timely
and properly pay the federal annual mining claim maintenance or
rental fees, and shall execute and record or file, as applicable, proof
of payment of the federal annual mining claim maintenance or rental
fees and of Owner's intention to hold the Property, provided that if
Royal Gold elects to terminate this Agreement or surrender any of
the unpatented mining claims which are part of the Property before
July 1 of any year, it shall have no further obligation to pay the fees
and record or file proof of payment of the fees with respect to that
year for all of the unpatented mining claims or the surrendered
unpatented mining claims, as the case may be.
15.2 Work Commitment. During each Lease Year,
Royal Gold shall expend the sum of Two Hundred Fifty Thousand
Dollars ($250,000.00) on or for the exploration and development of
the Property. The work commitment expenditures may consist of
expenses incurred solely in connection with exploration on and
development of the Property for: (a) geochemical, geological and
geophysical survey and sampling of the property; (b) allocable
salaries and wages of Royal Gold's employees; (c) travel and living
expenses of Royal Gold employees; (d) consultants' and contractors'
services; (e) drilling; (f) sampling and assaying; (g) location,
amendment and relocation of unpatented mining claim; (h)
examination of or preservation of title to the Property; and (i) all
other expenses reasonably incurred by Royal Gold to explore for
Minerals on and to develop the Property. On Owner's written
demand, Royal Gold shall produce documentary evidence sufficient
to prove Royal Gold has performed its work commitment
obligations. If Royal Gold terminates this Agreement during any
Lease Year before Royal Gold has performed its work commitment
obligation for such Lease Year, Royal Gold shall expend an amount
representing the proportion of the expenditure requirement prorated
to and including the date of termination of this Agreement, provided,
however, alternatively, Royal Gold may pay to Owner the difference
between $250,000.00 and the amount actually incurred by Royal
Gold on and before the termination date. If during any Lease Year
Royal Gold does not incur expenditures in an amount equal to or
greater than $250,000.00, Royal Gold may pay to Owner the
difference between $250,000.00 and the amount actually incurred by
Royal Gold during the Lease Year. All work commitment
expenditures incurred by Royal Gold during any Lease Year in
excess of $250,000.00 shall be credited, insofar as such expenditures
will go, against Royal Gold's work commitment obligations for any
one or more subsequent Lease Years. If Royal Gold is unable to
obtain any approval, consent, license or permit required by an
federal, state or local government agency for Royal Gold's
performance of its work obligations within thirty (30) days after
Royal Gold's application for such approval, consent, license or
permit, the period during which Royal Gold must complete its work
obligation shall be extended by the time required for Royal Gold to
obtain such approval, consent, li cense or permit. Royal Gold shall
notify Owner that Royal Gold must extend the work obligation
period, and Royal Gold shall deliver to Owner documentation which
evidences Royal Gold's application for and the delays incurred by
Royal Gold in respect of any approval, consent, license or permit.
16. Patent Application. Royal Gold may, at its expense, seek
to patent, in Owner's name, any or all of the unpatented mining
claims which constitute all or part of the Property. Owner pledges
full cooperation to Royal Gold in executing any documents
necessary to accomplish patenting if so desired by Royal Gold. If
Royal Gold begins patent proceedings and Royal Gold desires to
discontinue them, or if this Agreement is terminated while patent
proceedings are pending, Royal Gold shall have no further
obligation with respect to the patent proceedings, except to pay any
unpaid expenses accrued in such proceedings before its request to
discontinue, or before termination, whichever occurs first. If the
patent application results in cancellation of any unpatented claims,
under no circumstances shall Royal Gold be liable for any claims,
losses or damages resulting from such cancellation. Owner appoints
Royal Gold as Owner's lawful attorney-in-fact for the purpose of
patent applications. All patents shall be part of the Property and the
parties will promptly after issuance of each patent execute and
deliver an addendum to this Agreement and a memorandum of this
Agreement to such effect.
17. Amendment of Mining Laws. The parties acknowledge
that legislation for the amendment or repeal of the mining laws of
the United States applicable to the Property has been, and may be,
considered by the United States Congress. The parties desire to
insure that any and all interests of the parties in the lands subject to
the unpatented mining claims which comprise all or part of the
Property, including any rights or interests acquired in such lands
under the mining laws as amended, repealed or superseded, shall be
part of the Property and shall be subject to the Agreement. If the
mining laws applicable to the unpatented mining claims subject to
this Agreement are amended, repealed or superseded, the termination
or conversion of Owner's interest in the Property pursuant to such
amendment, repeal or supersession of the mining laws shall not be
considered a deficiency or defect in Owner's title in the Property,
and Royal Gold shall have no right or claim against Owner resulting
from the conversion, diminution, or loss of Owner's interest in and
to the Property except as expressly provided in this Agreement.
If pursuant to any amendment or supersession of the mining
laws Owner is granted the right to convert its interest in the
unpatented mining claims comprising the Property to a permit,
license, lease, or other right or interest, Royal Gold may, in Royal
Gold's discretion, elect to exercise such right of conversion in
Owner's name. Owner shall promptly execute and deliver any and
all instruments necessary or convenient to Royal Gold's election of
the right of conversion. Owner shall bear the cost of the application
for such conversion, however, Royal Gold shall during the term of
this Agreement pay to the United States all periodic payments
required to preserve or maintain such converted interests, including,
without limitation, permit, license, lease, production royalties,
holding fees, or other periodic payments. All converted interests or
rights shall be deemed to be part of the Property subject to this
Agreement. Upon the grant or issuance of such converted interests
or rights, the parties shall execute and deliver an addendum to this
Agreement, in recordable form, by which such converted interests
or rights are made subject to this Agreement.
18. Liens and Notices of Non-Responsibility. Owner and
Royal Gold agree to keep the Property at all times free and clear of
all liens, charges and encumbrances of any and every nature and
description done, made or caused by them, and to pay all
indebtedness and liabilities incurred by or for them which may or
might become a lien, charge or encumbrance against the Property
before such indebtedness and liabilities shall become a lien, charge
or encumbrance; except that Royal Gold need not discharge or
release any such lien, charge or encumbrance so long as Royal Gold
disputes or contests the lien, claim or encumbrance. The parties
agree that Owner shall be informed immediately of the execution of
this Agreement by Royal Gold in order that Owner can properly and
timely record a notice of non-responsibility in the office of the
county recorder of the county in which the Property is located.
Nothing in this Agreement shall be construed to prevent Royal Gold
from assigning, pledging, encumbering or otherwise transferring its
interest in this Agreement or the Property for the purpose of
acquiring financing for its activities or operations on the Property or
for any other purpose, which acts are expressly authorized.
19. Taxes.
19.1 Real Property Taxes. Owner shall pay any and all
real property taxes assessed against the Property before execution of
this Agreement. Royal Gold shall pay promptly before delinquency
all real property taxes and assessments, whether general, special,
ordinary or extraordinary, that may be levied or assessed during the
term of this Agreement and on the Property then remaining subject
to this Agreement, except those which are assessed or imposed
against or levied on Owner's share of production or net proceeds of
Minerals, Ore or Product, or in respect of any payments to Owner
under this Agreement. All taxes which Royal Gold is obligated to
pay for the year in which this Agreement is executed and for the year
in which this Agreement terminates shall be prorated between
Owner and Royal Gold, except that neither Owner nor Royal Gold
shall be responsible for the payment of any taxes which are based
upon income, net proceeds, production or revenues from the
Property assessed solely to the other party. Royal Gold always shall
have the right to contest, in the courts or otherwise, in its own name
or in the name of Owner, the validity or amount of any such taxes or
assessments, if it deems the same unlawful, unjust, unequal or
excessive, or to take such other steps or proceedings as it may deem
necessary to secure a cancellation, reduction, readjustment or
equalization, before it shall be required to pay the taxes. Royal Gold
shall upon request furnish to Owner copies of receipts or proof of
payment for all such taxes and assessments when paid.
19.2 Personal Property Taxes. Each party shall pay all
taxes assessed against such party's personal property, improvements
or structures placed or used on the Property.
19.3 Income Taxes. Royal Gold shall not be liable for
any taxes levied on or measured by income or net proceeds, or other
taxes applicable to Owner, based upon payments under this
Agreement or based upon the production or net proceeds of
Minerals, Ore or Product from the Property. Each of Owner and
Royal Gold shall pay the net proceeds of mines taxes assessed
against such party's respective share of production of Minerals, Ore
or Product from the Property.
19.4 Delivery of Tax Notices. If Owner receives tax bills
or claims which are Royal Gold's responsibility, Owner shall
promptly forward them to Royal Gold for appropriate action, and if
they are not received by Royal Gold by the later of: (a) ten (10)
business days before any payment is due; or (b) five (5) business
days after Owner's receipt of the tax bills or claims. Royal Gold
shall not be responsible for any interest, penalty, charge, expense, or
other liability arising from late payment. Owner agrees to indemnify
and save harmless Royal Gold from all of the interest, penalties,
charges, expense or liabilities that may be incurred by Royal Gold
from time to time as a result of Owner's failure to promptly forward
tax bills or claims to Royal Gold.
20. Indemnity. Royal Gold shall defend, indemnify and save
harmless Owner, its successors and assigns, of and from any and all
liability whatsoever for any claims, actions or damages, including
court costs and attorney's fees, in any way arising from or relating to
Royal Gold's occupation, ownership and use of the Property, or its
operations on or in the Property after the Effective Date. Owner
shall defend, indemnify and save harmless Royal Gold, its
successors and assigns, of and from any and all liability whatsoever
for any claims, actions or damages, including court costs and
attorney's fees, in anyway arising from or relating to Owner's
occupation, ownership and use of the Property, or its operations on
or in the Property, before the Effective Date or after termination of
this Agreement, except on Royal Gold's exercise of the Option, or
after Royal Gold's reconveyance to Owner of any unpatented mining
claims surrendered by Royal Gold in accordance with this
Agreement. The parties' defense, indemnification and hold harmless
obligations shall extend to and include any and all claims, actions or
damages arising from or relating to federal, state or local laws,
regulations or ordinances concerning the preservation of the
environment or reclamation of the Property, including the
Comprehensive Environmental Response, Compensation and
Liability Act, and the Resource Conservation and Recovery Act, and
shall survive termination of this Agreement. Owner shall be named
as an additional insured on all insurance policies maintained by
Royal Gold with respect to the Property and Royal Gold's operations
on the Property.
21. Inspection. At Owner's expense and on Owner's advance
request and notice to Royal Gold, Owner or Owner's duly authorized
representatives shall be permitted to enter on the Property and Royal
Gold's workings at reasonable times for the purpose of inspection,
but they shall enter on the Property at their own risk and in such a
manner as not to unreasonably delay, hinder, or interfere with the
operations of Royal Gold. Owner shall defend, indemnify and hold
Royal Gold harmless from any and all damages, claims or demands
arising from injury to Owner, Owner's agents or representatives or
any third party, on the Property or on any access to the Property
arising from or relating to Owner's entry and inspection.
22. Title Information and Data. On execution of this
Agreement, Owner shall promptly obtain and deliver to Royal Gold
copies of all title abstracts, documents, opinions and reports affecting
the Property which Owner has in its possession or available to
it, including copies of any plats and field notes of surveys of the
Property. Owner agrees to deliver to Royal Gold copies of any
exploration data, assays, logs, maps, geological, geochemical and
geophysical surveys and reports that Owner may have in its
possession, without charge.
23. Representation of Title.
23.1 Unpatented Mining Claims. Regarding the
unpatented mining claims which constitute all or a portion of the
Property, Owner covenants, represents and warrants, which
covenants, representations and warranties shall survive termination
of this Agreement, that: (a) the claims were properly located in
accordance with applicable federal and state laws and regulations;
(b) all assessment work requirements for the claims have been
performed and all filings and recordings of proof of performance
have been made properly and all federal annual unpatented mining
claim maintenance and rental fees have been paid properly and
timely; (c) the claims are in good standing and Owner has good title
to and owns the entire undivided legal and equitable interest in the
claims, subject to the paramount title of the United States and other
matters of title disclosed in this Agreement; (d) Owner has good
right and full power to lease and to convey the interests described in
this Agreement; (e) the claims are free and clear of all liens, claims
and encumbrances except as otherwise provided in this Agreement
(and the Exhibits attached to this Agreement); (f) Owner shall not
commit any act or acts which will encumber or cause a lien to be
placed on the claims; and (g) Owner will defend title to the claims
consistent with these representations and warranties. Owner makes
no representation or warranty concerning the discovery or presence
of valuable minerals on the unpatented mining claims which
comprise all or a portion of the Property.
23.2 Patented Mining Claims. Regarding the patented
lands which constitute all or a portion of the Property, Owner
covenants, represents and warrants, which covenants,
representations and warranties shall survive termination of this
Agreement, that: (a) Owner has good title to and owns the entire
undivided legal and equitable interest in the patented lands; (b)
Owner has good right and full title to lease and convey the interests
in the patented lands described in this Agreement; (c) the patented
lands are free and clear of all liens, claims and encumbrances,
except as otherwise provided in this Agreement (and the Exhibits
attached to this Agreement); (d) Owner shall not commit any act or
acts which will encumber or cause a lien to be placed on the
patented lands; and (e) Owner will defend title to the patented lands
consistent with these representations and warranties.
23.3 Underlying Agreements. Owner covenants,
represents and warrants, which covenants, representations and
warranties shall survive termination of this Agreement, that: (a)
Owner's execution and delivery of this Agreement and the
instruments to be executed and delivered by Owner in accordance
with the terms of this Agreement will not conflict with or result in
a breach of or default under any of the terms, conditions or
provisions of any of the Underlying Agreements; (b) there are no
actions, claims, litigation, proceedings or suits pending or
threatened against Owner or any of the Properties which could, if
continued, adversely affect Owner's ability to fulfill Owner's
obligations under this Agreement; (c) Owner has not previously
assigned, optioned, subleased or otherwise encumbered its interest
in the Underlying Agreements; (d) except as to the matter referred
to in Section 5.1 concerning the Bottom Agreement, there has been
no act or omission by Owner which could result by notice or lapse
of time in the abandonment, breach, default, forfeiture,
relinquishment or termination of any of the Underlying
Agreements; and (e) at Royal Gold's request, Owner will request
and obtain from each lessor, sublessor or optionor, as applicable,
under the Underlying Agreements an instrument in accordance with
which each such party certifies that the Underlying Agreement to
which it is a party is fully effective and in good standing.
24. Remedies for Defects in Title.
24.1 Royal Gold's Remedies. If Owner owns an interest
in the Property which is less than the entire interest, except such
lesser interests as are described in this Agreement, Royal Gold may
seek any remedies available to it at law or in equity, including, but
not limited to, acquisition of any interest not owned by Owner, the
restitution of any and all payments made by Royal Gold pursuant to
this Agreement, recovery of costs incurred by Royal Gold pursuant
to this Agreement, termination or rescission of this Agreement and
recovery of damages incurred by Royal Gold. If Owner does not
promptly remedy any defects in title or to pay, when due, rents,
mortgages or other liens against the Property, Royal Gold shall have
the right, but shall not be obligated, to remedy such defects or to pay
such amounts, and if it does so, Royal Gold shall be subrogated to
all the rights of the holder of such rights. Royal Gold shall have the
right to offset and credit against payments due to Owner under this
Agreement and any conveyance by which Owner reserves the
Royalty all of Royal Gold's costs incurred and payments made to
remedy such defects or to pay such amounts, including any and all
costs incurred by Royal Gold to acquire from any third party any
interest in the Property or any portion of the Property. If Royal Gold
acts to remedy such defects, such action shall not constitute an
election of remedies on part of Royal Gold.
24.2 Lesser Interest. as otherwise disclosed in the
Exhibits attached to this Agreement, Owner owns an interest in the
Property which is less than the entire and undivided estate in the
Property, the Purchase Price and the Royalty shall be reduced
proportionately in accordance with the nature and extent of Owner's
interest so that the Purchase Price and the Royalty shall be paid to
Owner only in the proportion that Owner's interest bears to the entire
and undivided estate in the Property. Such reduction shall in no way
be construed as a measure of damages that may be suffered by Royal
Gold or to in any way limit the rights of Royal Gold to seek the
remedies available to it.
24.3 Escrow of Payments Pending Dispute. If at any
time a third party asserts a claim of ownership in the Property or the
Minerals which is adverse to the interest of Owner or Royal Gold,
or if Royal Gold is advised by legal counsel for Royal Gold that it
appears that a third party may have such a claim, Royal Gold may
deposit any payments which would otherwise be due to Owner into
escrow and give notice of such deposit to Owner. In the event of a
dispute concerning ownership of the Property, the Minerals, the
surface of the Property or the Royalty, payment of the Minimum
Payments, or the Royalty payments, or the Purchase Price, as
applicable, may be deferred until twenty (20) days after Royal Gold
is furnished satisfactory evidence that such dispute has been finally
settled and all provisions as to keeping this Agreement in force shall
relate to such extended time for payment.
24.4 Survival of Royal Gold's Rights. The provisions of
this Section shall survive any termination of this Agreement.
25. Amendment and Relocation of Claims. Royal Gold shall
have the right to amend or relocate in the name of Owner any of the
unpatented mining claims subject to this Agreement which Royal
Gold deems advisable to so amend or relocate. Royal Gold shall
have the right to abandon any unpatented mining claims subject to
this Agreement and relocate the lands formerly appropriated by
abandoned mining claims as mill sites. Owner appoints Royal Gold
as Owner's lawful attorney-in-fact for the purpose of the location,
amendment or relocation of any such claims. All amended or new
locations shall be part of the mining claims subject to this
Agreement and the parties will promptly after amendment or
location of such claims execute and deliver an addendum to this
Agreement and an amended memorandum of this Agreement to such
effect.
26. Covenants, Warranties and Representations. Each of the
parties covenants, warrants and represents for itself as follows:
26.1 Compliance with Laws. That it has complied with
and will comply with all applicable laws and regulations of any
governmental body, federal, state or local, regarding the terms of and
performance of its obligations under this Agreement.
26.2 No Pending Proceedings. That there are no lawsuits
or proceedings pending or threatened which affect its ability to
perform the terms of this Agreement.
26.3 Authority. That it has the full right, title and
authority to enter into this Agreement and to perform its obligations,
and neither this Agreement, nor its performance, violates or
constitutes a default under the provisions of any other agreement to
which it is a party or by which it is bound.
26.4 Commissions; Finder's Fees. That it has not
utilized the services of a broker or a finder in the negotiation and/or
execution of this Agreement, and that it has not incurred any
obligation to pay a broker's commission or finder's fee upon the
execution and consummation of this Agreement.
26.5 Performance of Obligations. That it shall have
performed, satisfied and complied with all covenants, agreements
and conditions required by it on or before the Closing Date.
26.6 Costs. That it shall pay all costs and expenses
incurred or to be incurred by it in negotiating and preparing this
Agreement and in closing and carrying out the transactions
contemplated by this Agreement.
27. Owner's Covenants, Representations and Warranties.
Owner covenants, represents and warrants as follows:
27.1 Noninterference. Owner covenants that Owner will
not do or permit to be done any act which would or might hinder or
impair the rights of Royal Gold to exercise any right granted to
Royal Gold under this Agreement or to acquire all right, title and
interest in and to the Property. Owner acknowledges that the rights
granted to Royal Gold under this Agreement are exclusive to Royal
Gold, and Owner covenants that Owner will not enter into any
agreement, contract, lease, option or other instrument for the grant
to any other party of any rights to explore for, develop or mine any
Minerals on the Property.
27.2 Estoppel Certificate. On Royal Gold's written
request, Owner will execute and deliver to Royal Gold an estoppel
certificate, in form acceptable to Royal Gold, whereby Owner
confirms that this Agreement is in full force and effect and that there
are no defaults by Owner or Royal Gold under this Agreement.
27.3 Environmental Conditions. Owner is not aware of
nor has it received notice from any governmental agency of any
condition existing on the Property or created by Owner which is or
might be a violation of any applicable federal, state or local law,
regulation or ordinance.
27.4 Non-Foreign Status. Owner is not a "foreign
person" as defined under section 1445(f) of the Internal Revenue Code.
At Royal Gold's request Owner shall furnish Royal Gold an affidavit
confirming its non-foreign status in such form as is reasonably
required by Royal Gold.
28. Termination by Owner. In the event of any default or
failure by Royal Gold to comply with any of the Covenants, terms
or conditions of this Agreement, Owner shall be entitled to give
Royal Gold written notice of the default, specifying details of the
same. If such default is not remedied within thirty (30) days after
receipt of the notice, provided the same can reasonably be done
within that time, or, if not, if Royal Gold has not within that time
commenced action to cure the same or does not after such
commencement diligently prosecute such action to completion,
Owner may terminate this Agreement by delivering notice to Royal
Gold of Owner's termination of this Agreement. Termination shall
not be based on a default or on a failure to remedy the same which
results from any cause beyond the reasonable control of Royal Gold,
including, without limitation, the force majeure provisions of this
Agreement. If Royal Gold contests any alleged default, Royal Gold
may give written notice of such contest to Owner during the period
allowed for Royal Gold's cure of any alleged default. If Royal Gold
notifies Owner of Royal Gold's contest of the alleged default, Owner
shall have no right to deliver notice of termination or to terminate
this Agreement until such time as a court of competent jurisdiction
enters a decree or order that Royal Gold is in fact in default under
this Agreement and the times for amendment, appeals and review of
the decree or order have expired. If a court of competent jurisdiction
enters a decree or order that Royal Gold is in fact in default under
this Agreement, Royal Gold shall have thirty (30) days after entry of
the decree or order and expiration of all times for amendment, appeal
and review of the decree or order during which to commence action
to cure the default as determined by the court of competent
jurisdiction.
29. Surrender and Termination.
29.1 Termination by Royal Gold. Royal Gold may at
any time terminate this Agreement by giving written notice to
Owner. On or promptly after delivery of the notice of termination,
Royal Gold shall deliver to Owner a written release of this
Agreement in proper form for recording. If Royal Gold terminates
this Agreement, Royal Gold shall not be required to perform the
obligations or the work commitment, if any, or pay the Minimum
Payments which accrue or come due after the termination date,
except as expressly provided in this Agreement. Owner shall
assume and perform all duties, obligations and responsibilities in
respect of the Property which accrue or arise after the date of
termination, and Owner shall defend, indemnify and hold Royal
Gold harmless from any claims, damages, liabilities, losses or
responsibilities arising from or relating to Owner's activities on
ownership, possession or use of the Property.
29.2 Partial Surrender of Mining Claims. During the
term of this Agreement, Royal Gold may at any time surrender any
unpatented mining claim which constitutes part of the Property. If
during the term of this Agreement, Royal Gold intends to surrender
any unpatented mining claim, it shall give written notice to Owner.
Owner shall have ten (10) days following Owner's receipt of Royal
Gold's notice during which to notify Royal Gold that Owner requests
a reconveyance to Owner of the mining claim(s) proposed to be
surrendered by Royal Gold. If Owner does not timely request a
reconveyance of the mining claim(s), Owner shall be deemed to
have irrevocably waived its right to request a reconveyance of the
surrendered mining claim(s). If Owner timely requests that Royal
Gold reconvey the mining claim(s), Royal Gold shall promptly
execute and deliver to Owner a quitclaim deed of Royal Gold's right,
title and interest in and to the mining claim(s) proposed to be
surrendered. At such time Owner shall assume and perform all
duties, obligations and responsibilities in respect of the mining
claim(s) which accrue or arise after the date of Royal Gold's
execution of the quitclaim deed, and Owner shall defend, indemnify
and hold harmless Royal Gold from any claims, damages, liabilities,
losses or responsibilities arising from or relating to Owner's
activities on, ownership, possession or use of the reconveyed mining
claim(s).
29.3 Surrender of Underlying Agreements. During the
term of this Agreement, Royal Gold may at any time surrender any
Underlying Agreement which constitutes part of the Property. If
during the term of this Agreement, Royal Gold intends to surrender
any Underlying Agreement, it shall give written notice to Owner.
Owner shall have ten (10) days following Owner's receipt of Royal
Gold's notice during which to notify Royal Gold that Owner requests
a reassignment to Owner of the Underlying Agreement proposed to
be surrendered by Royal Gold. If Owner does not timely request a
reassignment of the Underlying Agreement, Owner shall be deemed
to have irrevocably waived its right to request a reassignment of the
surrendered Underlying Agreement. If Owner timely requests that
Royal Gold reassign the Underlying Agreement, Royal Gold shall
promptly execute and deliver to Owner an assignment of Royal
Gold's right, title and interest in and to the Underlying Agreement
proposed to be surrendered. At such time Owner shall assume and
perform all duties, obligations and responsibilities in respect of the
Underlying Agreement which accrue or arise after the date of Royal
Gold's execution of the assignment, and Owner shall defend,
indemnify and hold Royal Gold harmless from any claims, damages,
liabilities, losses or responsibilities arising from or relating to
Owner's activities on, ownership, possession or use of the
reconveyed Underlying Agreement.
30. Entry After Termination. After termination of this
Agreement, except on Royal Gold's exercise of the Option, Royal
Gold shall have one hundred and one hundred eighty (180) days
during which to remove from the Property all buildings, structures,
and equipment. Also, Royal Gold shall have the right to enter on the
Property, without obligation, to pay any payments to Owner or to
perform any other obligations under this Agreement, for the purpose
of reclamation, remediation or restoration of the Property as required
under any applicable federal, state or local laws, regulations or
ordinances.
31. Data. Upon termination of this Agreement, except on Royal
Gold's exercise of the Option, Owner shall have the right to request
copies of all noninterpretive factual data regarding the Property in
Royal Gold's possession at the time of termination which have
before termination not been delivered to Owner. Royal Gold agrees
that it will within thirty (30) days after receipt of a timely written
demand by Owner deliver to Owner a copy of all such
noninterpretive factual data. Royal Gold shall have no liability on
account of any such information received or acted on by Owner or
any other party to whom Owner delivers such information. Owner
must exercise its right to request the information in writing and must
give such written request within thirty (30) days after termination of
this Agreement, and absent such timely written demand, Royal Gold
shall have no obligation under this Section to provide such
information.
32. Confidentiality. The data and information, including the
terms of this Agreement, coming into the possession of Owner or
Royal Gold by virtue of this Agreement, shall be deemed
confidential and shall not be disclosed to outside third parties except
as may be required to publicly record or protect title to the Property
or to publicly announce and disclose information under the laws and
regulations of the United States or any state or local government or
any country, or under the rules and regulations of any stock
exchange on which stock of any party, or the parent or affiliates of
any party, is listed. Each of the parties agrees, with respect to any
public announcements or disclosures so required, including the
announcement of the execution of this Agreement, if any, to inform
the other party of the content of the announcement or disclosure in
advance of its intention to make such announcement or disclosure in
sufficient time to permit the other party to jointly or simultaneously
make a similar public announcement or disclosure if the other party
so desires. Nothing in this Agreement shall limit or restrict the right
of either party to provide, deliver or release to parent companies,
companies with a common parent, subsidiary companies, affiliated
or related companies and/or co-venturers the data and information,
including the terms of this Agreement, coming into the possession
of such party by virtue of this Agreement.
33. Force Majeure. The respective obligations of either party,
except Royal Gold's obligation to pay the Minimum Payments and
perform the annual assessment work or pay the federal annual
mining claim maintenance or rental fees required under this
Agreement, shall be suspended during the time and to the extent that
such party is prevented from compliance, in whole or in part, by war
or war conditions, actual or potential, earthquake, fire, flood, strike,
labor stoppage, accident, riot, unavoidable casualty, act or restraint,
present or future, of any lawful authority, statute, governmental
regulation or ordinance, environmental restrictions or conditions,
permit or license approvals, act of God, act of public enemy, delays
in transportation, lack of market for the sale of Ore, Minerals or
Product, or other cause of the same or other character beyond the
reasonable control of such party.
34. Disputes not to Interrupt Operations. Disputes or
differences between the parties shall not interrupt performance of
this Agreement or the continuation of Royal Gold's operations.
In the event of any dispute or difference, operations may be continued,
and settlements and payments may be made in the same manner as before
such dispute or difference.
35. Memorandum Agreement. Upon execution of this
Agreement, the parties shall execute and deliver a short form of this
Agreement which shall be recorded in the office of the recorder of
each county in which all or part of the Property is located. The
execution and recording of the memorandum of agreement shall not
limit, increase or in any manner affect any of the terms of this
Agreement, or any rights, interest or obligations of the parties.
36. Notices. Any notices required or authorized to be given by
this Agreement shall be in written form. Any notices required or
authorized to be given by this Agreement may be sent by registered
or certified delivery, postage prepaid and return receipt requested,
addressed to the proper party at the following address or such
address as the party shall have designated to the other parties in
accordance with this Section. Any notice required or authorized to
be delivered by this Agreement shall be deemed to have been
sufficiently delivered or served in written form if: (a) mailed in
accordance with this Section; (b) personally delivered to the proper
party; or (c) delivered by telex, telegraph, facsimile or other
electronic transmission and actually received by such party.
Delivery of notice shall be effective on the first business day after
the party deposits the notice for mailing or delivers the notice by the
other means authorized in this Section, as applicable
If to Owner: New Concept Mining, Inc.
1017 South Mountain
Monrovia, California 91016
If to Royal Gold: Royal Gold, Inc.
1660 Wynkoop Street
Suite 1000
Denver, Colorado 80202
37. Binding Effect of Obligations. This Agreement shall be
binding upon and inure to the benefit of the respective parties and
their successors and assigns.
38. Whole Agreement. This Agreement supersedes all prior
agreements between the parties. The whole agreement between the
parties is written in this Agreement and in a memorandum of
agreement of even date which is intended to be recorded. There are
no terms or conditions, express or implied, other than those
expressly stated in this Agreement. This Agreement may be
amended or modified only by an instrument in writing, signed by the
parties with the same formality as this Agreement.
39. Governing Law and Forum Selection. This Agreement
shall be construed and enforced in accordance with the laws of the
state in which the Property is situated. The parties submit to the
jurisdiction of the state courts within and the United States District
Court for the district and division in which the Property is situated,
and waive any objections to the jurisdiction of such courts and venue
of any actions or proceedings in such courts arising from or relating
to this Agreement.
40. Multiple Counterparts. This Agreement may be executed
in any number of counterparts, each of which shall be deemed to be
an original, but all of which shall constitute the same Agreement.
41. Other Interests. Owner represents that Royal Gold has not
induced or caused Owner to terminate any previous license, lease
agreement, or otherwise, for the Property subject to this Agreement,
and/or to discontinue or interfere with a business relationship with
any such licensee(s) or Royal Gold(s), or otherwise. Owner agrees
to defend, indemnify and hold harmless Royal Gold against any and
all claims, demands or suits for damages or injunctive relief which
may be brought against Royal Gold, incident to, arising from, in
connection with or resulting from any such termination and/or
discontinuance of a business relationship.
42. Severability. If any part, term or provision of this
Agreement is held by a court of competent jurisdiction to be illegal
or in conflict with any law of the United States or any state, the
validity of the remaining portions or provisions shall not be affected,
and the rights and obligations of the parties shall be construed and
enforced as if the Agreement did not contain the particular part, term
or provision held to be invalid.
43. Assignment.
43.1 By Royal Gold. Royal Gold may assign, sublease or
transfer this Agreement or any part of its interest as Royal Gold
determines in its discretion, provided that the proposed assignee,
sublessee or transferee executes and delivers to Owner a written
instrument in accordance with which the proposed assignee,
sublessee or transferee agrees to assume, perform and undertake all
of Royal Gold's obligations under this Agreement which accrue on
and after the effective date of the proposed assignment, sublease or
transfer, and, provided, that the proposed assignee, sublessee or
transferee has the financial ability to assume and perform such
obligations. If Royal Gold assigns its interest under this Agreement,
it shall be relieved of any obligations or liabilities under this
Agreement which accrue after the effective date of the assignment.
43.2 By Owner. If Owner intends to transfer all or any
part of its interest in the Property or in or under this Agreement in
accordance with the terms of an agreement which Owner determines
is acceptable, Owner shall promptly notify Royal Gold of Owner's
intentions. The notice shall state all pertinent terms and conditions
of the intended transfer, and shall be accompanied by a copy of the
agreement, contract, offer or other instrument governing the terms
of the transfer. If the consideration for the intended transfer is, in
whole or in part, other than monetary, the notice shall describe such
consideration and its monetary equivalent (based upon the fair
market value of the nonmonetary consideration and stated in terms
of cash or currency). Royal Gold shall have sixty (60) days from the
date Royal Gold receives such notice to notify Owner that Royal
Gold elects to acquire the offered interest at the same price (or its
monetary equivalent in cash or currency) and on the same terms and
conditions as described in Owner's notice. If Royal Gold fails to
elect within the period provided for in this Section, Owner shall have
thirty (30) days following the expiration of such period to
consummate the transfer to a third party at a price upon terms no less
favorable to Owner than those offered by Owner to Royal Gold in
Owner's notice. If Owner fails to consummate the transfer to a third
party within the period described in this Section, Royal Gold's
preferential right to acquire such offered interest shall be deemed to
be revived. Any subsequent proposal by Owner to transfer its
interest in the Property in or under this Agreement shall be
conducted in accordance with all of the procedures described in this
Section. No change in ownership of Owner's interest in the Property
shall affect Royal Gold's obligations under this Agreement unless
and until Owner delivers and Royal Gold receives certified copies of
instruments recorded or other documents necessary to demonstrate
the change in ownership of Owner's interest. No other type of
notice, whether actual or constructive, shall be binding on Royal
Gold. Until Royal Gold receives Owner's notice and the documents
required to be delivered under this Section, Royal Gold may
continue to make all payments under this Agreement as if the
transfer of Owner's ownership interest had not occurred. No division
of Owner's ownership as to all or any part of the Property shall
enlarge Royal Gold's obligations or diminish Royal Gold's rights
under this Agreement, and Royal Gold may disregard any such
division.
44. Attorney's Fees and Costs. If any action or proceeding is
commenced by one party against any other party to this Agreement,
the party prevailing in such proceeding or action, as determined by
final judgment in any such proceeding or action, shall be entitled to
such party's costs incurred, including reasonable attorney's fees and
court costs.
45. Conditions and Bottom Option. Royal Gold's obligations
under this Agreement are conditional on completion on or before
expiration of the Diligence Period to Royal Gold's satisfaction,
determined in its sole discretion, of the following conditions:
45.1 Environmental Assessment. Royal Gold shall have
completed an environmental assessment and examination of the
Property. Royal Gold's conduct of an environmental assessment and
examination of the Property shall not release or waive any of
Owner's covenants, representations, obligations or warranties or
Royal Gold's rights under this Agreement.
45.2 Litigation and Title Examination. Royal Gold shall
have completed its examination and evaluation of Owner's title to
the Property and any actions or proceedings concerning title to the
Property. Royal Gold's examination and evaluation of Owner's title
to the Property and any litigation or proceedings shall not release or
waive any of Owner's covenants, obligations, representations or
warrants or Royal Gold's rights under this Agreement.
At any time during the Diligence Period, Royal Gold may:
(a) terminate this Agreement in its entirety; (b) elect to exercise the
Bottom Option, in which case Owner shall execute and deliver to
Royal Gold an assignment of all of Owner's right, title and interest
in and to the Bottom Agreement and the part of the Property subject
to it, in form acceptable to Royal Gold, and terminate this
Agreement in respect of the other Underlying Agreements and the
portions of the Property subject to the other Underlying Agreements;
or (c) notify Owner that Royal Gold elects to proceed under this
Agreement. If Royal Gold exercises the Bottom Option, Royal Gold
shall assume and perform all of Owner's obligations under the
Bottom Agreement, and Owner shall have no right, title or interest
in or under the Bottom Agreement or in the part of the Property
subject to the Bottom Agreement. In such case, this Agreement shall
terminate in respect of the other Underlying Agreements, and Royal
Gold shall have no obligations whatever to Owner under this
Agreement in respect of the other Underlying Agreements or the
parts of the Property subject to such other Underlying Agreements.
If Royal Gold elects to proceed under this Agreement, all of Royal
Gold's obligations, including those which accrue on expiration of
the Diligence Period, shall be binding on it.
The parties have executed this Agreement effective as of
November 21, 1997.
New Concept Mining, Inc.
By: /S/
Bill Foster, President
Tax Identification No.
Royal Gold, Inc.
By: /S/
Peter Babin, President
STATE OF FLORIDA, )
ss.
COUNTY OF )
This Mining Lease and Option to Purchase Agreement was
acknowledged before me on December _____, 1997, by Bill Foster
as President of New Concept Mining, Inc.
Notary Public
My commission
expires
STATE OF COLORADO, )
ss.
COUNTY OF DENVER. )
This Mining Lease and Option to Purchase Agreement was
acknowledged before me on December _____, 1997, by Peter Babin
as President of Royal Gold, Inc.
Notary Public
My commission
expires
PRIVATE AGREEMENT
ROYAL GOLD, INC.,
RAKOV PTY LTD,
SILVER & BARYTE ORES MINING CO. S.A.,
and
MIDAS S.A.
PRIVATE AGREEMENT
THIS PRIVATE AGREEMENT (the "Agreement"), is made and
entered into in Athens, Greece this 30th day of March, 1998,
by and between:
"ROYAL GOLD, INC.," a company incorporated under the
laws of Delaware, Colorado with its principal offices in Denver,
Colorado, Suite 1000, 1660 Wynkoop Street, Denver, Colorado
80202-1132, USA duly represented by Mr. Stanley Dempsey, Chairman and
CEO of said company, to be referred to hereinafter as "ROYAL";
"RAKOV PTY LTD" a company incorporated under the laws
of Australia, (ACN 081 173 555) with its principal offices in
Sydney, Australia, Level 3, 55 Harrington Street, Sydney, New South
Wales 2000, duly represented by Mr. Ian Plimer, Director of said company,
to be referred to hereinafter as "RAKOV";
"SILVER & BARYTE ORES MINING CO. S.A." an anonymous company duly
organized and existing under the laws of Greece with principal
offices in Athens, Greece, 21A, Amerikis Str. duly represented by
Messrs. Emmanuel Voulgaris and George Xydous, to be referred to
hereinafter as "S&B"; and
"MIDAS S.A.," an anonymous company duly organized and
existing under the laws of Greece with principal offices in
Athens, Greece, Xenias str. 24, duly represented by
Messrs. George Xydous and Mihail Karamihas, to be referred to
hereinafter as "MIDAS."
A. WHEREAS S&B and the Greek Government have entered
into a lease agreement Nr. 12.967/6.2.1992 of the Notary Public
Mr. Vassilios Sigalos (hereinafter "The Lease"), which
entitles S&B to explore for and exploit, if mineable
reserves are found, gold and other minerals (other than
industrial minerals, silver and baryte) on the islands of
Milos, Kimolos, Polyegos and Antimilos (hereinafter
"The Area").
B. WHEREAS S&B has established MIDAS for the purpose of
carrying out the Lease through that company and S&B
has transferred the Lease to MIDAS.
C. WHEREAS MIDAS' Shareholders are today S&B holding a
percentage of 49.257% the share capital, i.e.
9,610 Shares and RGC (United Kingdom) Holdings Limited
(hereinafter to be referred to as "RGC") holding a percentage
of 50.743% of the share capital, i.e. 9,900 Shares.
D. WHEREAS RGC has already given notice to S&B that it is not
willing to participate any more in MIDAS and it will
transfer its Shares to S&B.
E. WHEREAS ROYAL and RAKOV have experience in the
exploitation and financing of precious metals in the
international market.
F. WHEREAS the parties hereto have agreed to cooperate in the
exploration, development and mining of precious metals
(gold and silver) in the Area, under the terms and
conditions of the Lease, and have adopted on July 18,
1997 the guidelines of this cooperation (hereinafter
"Heads of Agreement").
G. WHEREAS according to the Heads of Agreement the
cooperation of the Parties will be effected within the
framework of MIDAS.
H. WHEREAS ROYAL and RAKOV will establish a new company
(hereinafter to be referred to as "NEWCO"), and their
participation in MIDAS will be effected through that
company.
NOW THEREFORE, IT HAS BEEN AGREED BETWEEN THE PARTIES AS FOLLOWS:
1. DEFINITIONS
As used hereinafter in the Agreement, the following expressions
shall have the following meanings:
1.1. "Affiliate" means any company or entity as to which a
Party or a Party's Shareholder:
(a) by the exercise of some power exercisable by it, without
the consent or concurrence of any other person,
can appoint or remove or prevent the appointment
or removal of all or a majority of the members of
the board of directors or equivalent body of that
company or entity; or
(b) controls directly or indirectly, more than half of the voting
power of that company or entity; or
(c) holds more than half of the issued share capital of that
company or entity.
1.2. "Agreement" means this agreement, as amended from
time to time.
1.3. "Annual Program and Budget" means a program for
carrying on the Business during a Fiscal Year and it
consists of:
(i) a business plan setting out in detail MIDAS's proposed
Exploration and marketing plans, finance arrangements,
capital expenditures and activities for carrying out the
Business during that Fiscal Year.
(ii) a budget specifying in detail the funds and the
funding arrangements required for carrying out
the Business for the specific Fiscal Year,
accompanied by an itemized list of all expenses
reasonably expected to be incurred in the
implementation of this business plan. A budget
will contain:
a. salaries, wages and reasonable oncosts of
MIDAS' employees and other persons for
the time directly engaged in the Business;
b. travel, living and relocation expenses of the
personnel engaged in the Business;
c. costs of purchase or hire and operation of plant
and equipment;
d. premiums paid on insurance effected pursuant to the
Agreement and all damages paid in settlement of claims
and expenses related thereto not recovered from insurers;
e. field office charges and expenses;
f. costs associated with securing or preserving the right to
carry out Exploration, Development and Mining Operations
according to the Lease;
g. costs incurred in complying with environmental protection
and rehabilitation requirements imposed by or pursuant to
the Lease or by a competent authority;
h. rental, fees, deposits, costs and expenses of whatever nature
incurred in maintaining, renewing or relinquishing the Lease;
i. all capital and operating costs; and
j. costs of specialist sources used in the Business;
1.4. "Area" has the meaning determined under Clause A hereinabove.
1.5. "Articles" means the articles of incorporation of MIDAS,
as amended from time to time.
1.6. "Auditors" means the auditors appointed by the Shareholders.
1.7. "Board" means the first after the Effective Date Board of
Directors of MIDAS who, until replaced, will be the ones
identified in Annexure A, attached hereto.
1.8. "Business" or "Operations" means all undertaking,
activities and operations and includes Exploration for and
exploitation of the Product within the Area; carrying out
all researches and studies required to complete a feasibility
study that might support an extension of credit
by an institutional lender (a "bankable feasibility study")
and Mine Development Plan; construction and commissioning of
facilities and, generally, the Development of the mine on the
Area in order to facilitate the carrying on of Mining
Operations; and the delivery of Product in such form and to
such delivery point as may be required by MIDAS from time to
time.
1.9. "Business Day" means a day on which banks are open for general
banking business in Greece, USA and Australia.
1.10. "Buyer" means the buyer at the buyout procedure described under
Clause 15.7.
1.11. "Clause" means any of the clauses of the Agreement.
1.12. "Commencement Date" means the 1st of September 1997.
1.13. "Confidential Information" means all information,
forms, specifications, processes, statements, formulae,
know-how, ideas, drawings, maps, data bases, concepts,
technology, manufacturing processes, industrial
marketing, commercial knowledge, chemical,
geochemical and other analysis and results, including
Exploration results, related to or developed in connection
with or in support of:
(a) the Operations, past, present or future;
(b) the organization, finance, customers, markets,
suppliers, intellectual property and know-how of MIDAS; or
(c) the operations and transactions of the Parties
concerning the Business or the shareholding of NEWCO or S&B in MIDAS;
Provided, however, that such confidential information
shall not include information which is in the public
domain or becomes part of the public domain through no
fault of any of the Parties herein.
1.14. "Contract" means the agreement between S&B and MIDAS for the
production and sale of silver as described in Clause 25.1.
1.15. "Default Notice" is the notice given to a Shareholder in
case of an Event of Default, as defined in Clause 12.1(a),
and in accordance with the procedure described in Clause
12.2.
1.16. "Defaulting Shareholder" and "Defaulting Party" has
the meaning described in Clauses 12.2(b) and 12.10,
respectively.
1.17. "Development" means the implementation and
commissioning, in accordance with the Agreement and
sound industry practices of any mine and/or processing
facilities for Product in the Area and includes, but is not
limited to the specification and/or design of all necessary
construction works, as well as the preparation, procurement,
construction, installation and commissioning of the necessary
infrastructure and all plant, machinery and equipment.
1.18. "Dilution Participating Interest" means that proportion
of a Shareholder's Participating Interest which it elects to
dilute to in accordance with Clause 11.11.
1.19. "Diluting Shareholder" means the Shareholder who has
elected to dilute its Participating Interest as per Clause
11.11.
1.20. "Directors" means the members of the Board.
1.21. "Earn-In Date" means the date upon which NEWCO has
wholly contributed to MIDAS or spent or advanced on
behalf of MIDAS, the Sum.
1.22. "Earn-In Period" means the period between the
Effective Date and the Earn-In Date.
1.23. "Effective Date" means the date the Agreement enters
into force as per Clause 3.3.
1.24. "Escrow Agent" means the person holding in escrow the
Shares corresponding to the capitalization of the Sum, as
described in the Escrow Agreement annexed hereto as
Annexure B.
1.25. "Escrow Agreement" means the agreement between the
Parties, as described under Clause 6.7 and annexed hereto
as Annexure B.
1.26. "Event of Default" has the meaning described in Clause
12.1.
1.27. "Expenses" means all costs and expenses of whatever
nature relating to the Business, including:
a. costs and expenses incurred during the Interim Period and
b. costs and expenses incurred after the Effective Date in
accordance with an approved Annual Program and Budget.
1.28. "Exploration" means the act of exploring for mineral
resources and the evaluation of such resources for the
Development of a mine.
1.29. "First Bidder" means the Shareholder making the higher offer
in the buyout procedure described in Clause 15.7.
1.30. "Fiscal Year" means a period of twelve consecutive
months beginning on July 1st of a calendar year and
ending on June 30th of the following year.
1.31. "General Manager" means the General Manager of
MIDAS, who shall be nominated by NEWCO subject to
Clause 8.7.
1.32. "Government" means responsible governmental or
statutory bodies, officials, departments, agencies or
authorities.
1.33. "Guarantee" means the guarantee of ROYAL and
RAKOV on behalf of NEWCO, as determined in Clause
18.
1.34. "Interim Period" means the period between the Commencement Date
and the Effective Date.
1.35. "International Stock Exchange" means any recognized
stock exchange based in Athens, London, Toronto or New York.
1.36. "Mining Operations" means that part of the Business
consisting of the mining of the Area on a commercial
basis and the processing and other treatment, storage and
delivery of Product.
1.37. "Mine Development Plan" means all of the plans and
studies, including a bankable feasibility study report,
required for financing and construction or preparation of
Mining Operations, to be submitted to the Board to make
an investment decision for the Mining Operations.
1.38. "Minimum Sum" means the sum of 1,700,000 US$ that
NEWCO is obliged to contribute to MIDAS, or to spend
or advance on behalf of MIDAS, according to Clauses 6.3
and 27.1.
1.39. "Minister of Development" means the Minister charged, inter alia,
with any issue in respect of the mines and the mining rights.
1.40. "Notice of Dilution" means the notice given by the
Diluting Shareholder under Clause 11.11.1.
1.41. "Notice of Transfer" means the notice given by the
Transferring Shareholder under Clause 13.3.
1.42. "Panel" means the panel of experts appointed for the
resolution of the deadlocks as per Clause 15.2.
1.43. "Parcel" means the whole or part of the Participating
Interest which a Shareholder is interested to transfer as
per Clause 13.1.
1.44. "Participating Interest" means the proportion of a
Shareholder's direct share interest in MIDAS, which
include the Shares together with such Shareholder's
relevant proportionate Shareholders loan or advance
pursuant to funding of MIDAS as determined by the
various Annual Programs and Budgets and potentially by
the Mine Development Plan, as may be changed from
time to time.
1.45. "Party" means any of ROYAL or RAKOV or NEWCO
or MIDAS or S&B.
1.46. "Product" means gold and other associated metals and
minerals, provided for in the lease.
1.47. "S&B Lease" has the meaning determined in Clause 25.1.
1.48. "Seller" means the seller determined through the buyout
procedure described in Clause 15.7.
1.49. "Share(s)" means the issued shares in the capital of
MIDAS, at their par value.
1.50. "Shareholder" means NEWCO and S&B and any other
party which may acquire in the future a Participating
Interest in MIDAS and has signed the Agreement.
1.51. "Silver" means the silver produced in the course of
production of gold as described in Clause 25.1.
1.52. "Sum" means the amount of at least 5,000,000 US $,
which NEWCO has to contribute to MIDAS in order to acquire
50% of the Shares as determined in Clause 6.1.
1.53. "Team" means the team of independent experts for the
valuation of a Participating Interest, as provided for under
Clause 12.2.
1.54. "To encumber" means to mortgage, pledge, charge, assign as
security or otherwise burden.
1.55. "To transfer" means to sell, assign, transfer, convey or
otherwise dispose of, whether directly or indirectly.
1.56. "Transferring Shareholder" means a Shareholder
wishing to transfer a Parcel, as provided for under Clause
13.2.
2. THE BUSINESS
2.1. The Parties form hereby a joint venture for the purpose of
undertaking and carrying out the Business pursuant to the
terms and conditions of the Lease, the Agreement, the
Articles and the provisions of the applicable Greek
mining legislation.
2.2. Each of the Parties hereto warrants to the other to fulfill
all its obligations, duties and conditions each as related to
the Area and to observe any legislation applicable to the
operations hereunder.
2.3. As soon as NEWCO is established it will send to S&B a
letter by which it will be fully and unreservedly
undertaking any and all obligations related to NEWCO,
and provided for under the Agreement and the Lease.
2.4. NEWCO assumes no liability for any Expenses of
MIDAS incurred prior to the Commencement Date. Any
such obligations shall be for S&B's account.
3. STATUS OF THE LEASE
3.1. MIDAS has submitted to the Government, as of the 5th of
January 1998, the technical - financial study required by
article 5.1 of the Lease.
3.2. MIDAS has also submitted to the Government on 15.12.97, an
application for the extension of the exploration period that
is stipulated in article 4 of the Lease.
3.3. The Agreement (except for the Clauses determined under
Clause 26.1) will enter into force ("the Effective Date") as
follows:
3.3.1. In the event the two month period specified in article 5.1
of the Lease expires without any modification from the
Minister of Development, the Agreement will enter into
force on the day following the last day of this two month
period.
3.3.2. In the event the Minister of Development introduces
modifications to the technical - financial study, as he has
the right to do, then the Agreement will come into force
fifteen days after notification of such modifications,
provided NEWCO has been made aware of same as soon
as they are made known to MIDAS. Nevertheless, if the
conditions of the approval may be considered in good
faith to be overly burdensome, NEWCO is entitled to
withdraw from the Agreement by written notice given to
S&B within the above fifteen days period. In this
notification, NEWCO may determine that its withdrawal
shall become effective only if negotiations with the
Minister of Development to achieve a less burdensome
arrangement do not reach a positive result.
3.3.3. In the event the Minister instead of accepting the
technical - financial study, accepts MIDAS' application
for a least two year extension of the exploration period
stipulated in Article 4 of the Lease, then the Agreement
will enter into force upon the receipt of such notification
by MIDAS. The provisions of Clause 3.3.2 will apply mutatis
mutandis.
4. INTERIM PERIOD
4.1. During the Interim Period, the Parties will cooperate and
use their best endeavors in order to maintain the Lease in
good standing.
4.2. All Expenses incurred during the Interim Period are
deemed to be incurred for the benefit of MIDAS. These
amounts include costs incurred for further Exploration,
necessary costs for maintaining the Lease, as well as costs
and expenses incurred in relation with the application,
procedure and approval of either the technical financial study
(Clause 3.1.) or the extension of the Exploration period
(Clause 3.2.) and the execution -if necessary- of any relevant
modification to the Lease. MIDAS may determine to incur
certain Expenses during the Interim Period, in which event
Clause 4.5. will apply.
4.3. NEWCO is not obliged to contribute to the Expenses of
the Interim Period. Should it elect to contribute a certain
amount, this amount is deemed to be contributed towards the Sum.
4.4. To the extent that NEWCO seeks to apply against the
Sum any Expenses that it has incurred (or that it will
incur) during the Interim Period, NEWCO shall first
account to S&B for such Expenses, and shall secure
S&B's concurrence that such Expenses were or are
appropriate.
4.5. If the Agreement enters into force, MIDAS will be
reimbursed by NEWCO for the Expenses incurred by
MIDAS during the Interim Period and the reimbursement
amount will be computed towards the Sum.
4.6. If the Agreement is terminated following notice of NEWCO
as per Clauses 3.3.2. or 3.3.3. no Party is entitled to any
reimbursement for Expenses borne by it according to Clauses 4.2.
and 4.3.
4.7. During the Interim Period, RGC will transfer its Shares to
S&B, provided that the transfer is previously approved by the
Minister of Development.
5. PARTICIPATING INTERESTS
5.1. The Parties hereby acknowledge and agree that, subject to
the previous approval by the Minister of Development, according
to Clause 6.6, their Participating Interests in MIDAS following
the Earn-In Date shall be:
a. NEWCO: 19,510 Shares, which represent 50% of
MIDAS' issued share capital, and
b. S&B: 19,510 Shares which will represent 50% of MIDAS'
issued share capital together with the Parties' respective
proportionate Shareholder's loan, if any.
5.2 The Participating Interests may change from time to time,
in accordance with the provisions contained herein. The
Shareholder's loans do not affect the voting rights, which
are always based on the number of Shares held by a Shareholder.
6. CONTRIBUTION OF THE SUM
6.1 From the Effective Date, or even prior to it if NEWCO
elects to do so, the Expenses shall be funded exclusively
by NEWCO up to the amount of 5,000,000 US $ ("The
Sum") at a rate of at least 1,700,000 US $ per year as
determined in the Annual Programs and Budgets and
following the procedure described in Clauses 6.3 and 6.4.
Any Expenses incurred by NEWCO during the Interim
Period shall be credited against the Sum.
6.2 After the expenditure of the Sum as aforementioned,
Expenses shall be funded in the manner provided for in
Clause 7.
6.3 NEWCO shall, upon written notice of the General
Manager as per Clause 7.8, make advances to MIDAS
against future capital increases of MIDAS, to meet
Expenses until the date the aggregate of such advances
equals 1,700,000 US $ ("Minimum Sum"). The Shareholders shall,
promptly thereafter, cause MIDAS,
through its Shareholders' Meeting, to increase the
capital by the issue of 6.634 new Shares of nominal value of
1,000 drs each and at an issue price of 74,000 drs each.
Such capital increase will be covered exclusively by the
advances aggregating 1,700,000 US $ made by NEWCO.
6.4 If, after the contribution of the Minimum Sum, NEWCO
does not exercise its right to withdraw from the
Agreement under Clause 27.1, the balances of the Sum
required to be funded by NEWCO shall be met by way of
advances against further capital increases. On each
occasion that such advances reach 500,000 US $ or
higher, or at least every six months, the above advances
will be capitalized through a Shareholder's Meeting
decision, by the issue of such number of new Shares as
will arise from the division of the advances by the issue
price of 74,000 drs per Share. This procedure will continue
until the Sum is fully paid by NEWCO to
MIDAS, or otherwise advanced by NEWCO on behalf of
MIDAS. All such capital increases will be made through
the issue of Shares at an issue price of 74,000
drs each except the last increase for which the issue
price will be adjusted accordingly to reflect any
differences in currency rates between US $ and drachma.
The total number of Shares issued after the capitalization
of the Sum contributed to MIDAS will amount to
19,510.
6.5 Subject to Clauses 6.6 for legal and tax
reasons, the legal owner of the Shares issued afterthe
capital increases hereinabove mentioned will be
NEWCO, which nevertheless has not, until the Earn-In
Date, according to the Agreement, any right, except the
voting right, deriving from these Shares.
6.6 S&B, with the assistance and collaboration of NEWCO,
ROYAL and RAKOV, will proceed to file with the
Ministry of Development all applications necessary for
the approval of the acquisition by NEWCO of the Shares
in Escrow.
6.7 Escrow Agreement: For the purpose of Clause 6.5, and
in order to secure the rights of S&B, the Parties have
entered into an Escrow Agreement, which is attached to
the Agreement as Annexure B, and forms an integral part
thereof, by which the Shares, to be issued as per Clauses
6.3 and 6.4, will be held by the Escrow Agent until the
Sum is wholly funded by NEWCO.
7. FUNDING AFTER CONTRIBUTION OF THE SUM
7.1 After the funding of the Sum in MIDAS by NEWCO, the
Shareholders must ensure that MIDAS has sufficient
funds to carry on the Business from:
(a) further subscriptions of equity capital by the
Shareholders;
(b) cash generated by income earned;
(c) loans by the Shareholders to MIDAS;
(d) initial public offering or private placement of debt or
equity securities;
(e) floating of MIDAS in the International Stock Exchange;
or
(f) external borrowings by MIDAS.
7.2 All funding determined in the Annual Program and
Budget and approved by the Board to be necessary for the
proper running of MIDAS and agreed to be financed by
the Shareholders, shall be provided, after payment of the
Sum by NEWCO, by all Shareholders when and as
required, in cash, in proportion to their then existing
respective Participating Interests. In the event that a
Shareholder has made an advance of a loan to MIDAS
above its Participating Interest's requirement, such
surplus shall be offset against any cash call.
Contributions by the Shareholders to funding may be
provided as loans or by way of subscription for shares,
provided that the Shareholders at all times provide their
respective contributions in the same way.
7.3 Loans made in accordance with Clause 7.1(c) will be
made in proportion to the Shareholders' respective
Participating Interests and on such terms and conditions
(including terms and conditions concerning times for
repayment of principal and interest and rate ofinterest) as
are agreed from time to time by the Shareholders and the
Board, provided that all such loans and any securities
shall be subordinated to any external borrowings and
securities thereof.
7.4 Funding by an initial public offering or private placement
of debt or equity securities as per Clause 7.1(d), will be
effected on terms and conditions decided by the Board
and the General Assembly of the Shareholders, and the
resulting dilution shall be borne by the Shareholders in
proportion to their Participating Interests at the time of
the transaction.
7.5 Subject to obtaining any governmental approvals
that may be required and to any special conditions any
Shareholder may wish to set before it grants its
consent/agreement, the Shareholders may unanimously
agree to float MIDAS in an International Stock Exchange as
provided for under Clause 7.1(e) for the purpose of raising
enough funds to finance the Development or the commencement
or expansion of the Mining Operations, or even the Exploration.
7.6 The Shareholders must ensure that a commercially
prudent debt to equity ratio is maintained by MIDAS,
provided that any Shareholders loans or advances pursuant to this
Clause shall be included in equity.
7.7 The Mine Development plan shall include adequate
funding through the commencement of commercial
production.
7.8 The General Manager shall give written notice to each
Shareholder of all calls for funding hereunder or for
written assurances of availability thereof, in which notice
the manner of furnishing the same shall be specified, and
each Shareholder shall furnish its proportionate share of
such funding, as called for by the General Manager,
promptly and in any event within 30 days following
receipt of such notice.
7.9 If any Shareholder fails for any reason to furnish its
proportionate contribution to the funding of MIDAS
under this Clause within the time required, or within an
extension of such time as may be set by the Board,then
the other Shareholders, at their option, may either:
(a) furnish any such deficiency, as a loan payable on demand
by the Shareholder in default, who shall be
liable to pay interest to the other Shareholder(s)
on the amount in default at the rate per annum,
which is two (2%) percentage points above the
Libor Rate for one-year maturities, as adjusted
from time to time, commencing from the date of
payment by the other Shareholders furnishing
such deficiency; or
(b) elect to treat the failure of the Defaulting
Shareholder as an Event of Default, in accordance with Clause 12.
8. MANAGEMENT OF MIDAS
8.1 The General Manager shall be responsible for the
execution of the Board's decisions concerning the
management and administration of MIDAS.
8.2 All operations relevant to the management and
administration shall be conducted by the General
Manager in accordance with the decisions and directions
of the Board, as defined in Clause 9, in a careful and
workmanlike manner, in full compliance with all laws,
ordinances, rules, regulations, orders and directives of
any and all Government having jurisdiction over the
Business, and in accordance with the provisions of the
Lease and the Agreement. The General Manager shall
not make any profit through being General Manager, but
shall be compensated for his/her services by MIDAS as
provided for hereinafter.
8.3 Two signatures to be specified by the Board shall be
required on all binding documents executed in the name
of MIDAS. Such documents shall include, indicatively
and not by way of limitation, contracts for goods, services
and personnel as well as any other document necessary or
advisable for the conduct of the Business. The General
Manager shall use procedures and manuals approved by
the Board for the procurement of goods and services.
8.4 The General Manager shall be responsible for and ensure
that all Exploration / mining rights of MIDAS under the
Lease are and remain in good standing by taking all
actions necessary to that effect. S&B, together with
ROYAL and RAKOV, have undertaken to provide to the
General Manager all reasonable assistance that may be
required or requested under this Clause 8.4.
8.5 The General Manager shall carry out or cause to be
carried out, at the expense of MIDAS and for the
protection of MIDAS, such minimum amounts of
insurance cover as may be required by applicable law, or
such greater amounts as may be approved by the Board
from time to time.
8.6 The General Manager shall also be responsible for and
do, either himself or through personnel hired for this
purpose, the following:
8.6.1 Draw up and submit to the Board for its approval, at least
3 months before commencement of each Fiscal Year,
a draft of a proposed Annual Program and Budget for the
following Fiscal Year. Such proposed Annual Program
and Budget shall be the first part of the five-year rolling
business plan provided for in Clause 8.6.2.
8.6.2 Draw up and submit to the Board for its consideration, a
draft of a proposed five year rolling business plan at the
time provided in Clause 8.6.1.
8.6.3 Draw up and submit to the Board for its approval, the
relevant feasibility study and Mine Development Plan,
when appropriate.
8.6.4 Hire and dismiss the personnel of MIDAS, provided that
the compensation of such personnel is not greater than
50% of the compensation of the General Manager. To
the extent that the General Manager seeks to hire or
dismiss more highly compensated personnel, he shall do
so only with the concurrence of the Board.
8.6.5 Provide to the Shareholders monthly reports on
the status of Business.
8.6.6 Permit and facilitate the inspection by any Shareholder,
through its authorized representatives or recognized
chartered accountants of all the books, maps,
correspondence, directives, drawings, invoices, reports,
memos and any other document of the General Manager,
related to and connected with the Business. Any
Shareholder shall be entitled to make copies of any of the
said documents. To this purpose, the General Manager
shall be obligated to maintain the documents and the
written material of MIDAS for a period of seven (7) years
or longer, if the relevant laws so require.
8.6.7 Keep, or cause to be kept, comprehensive, true and
accurate records and accounts of the Business, the
General Manager's performance of his/her duties under
the Agreement, all property, real and personal belonging
to, and of all transactions entered into by or on behalf of
MIDAS, the costs and expenses relating to the
Operations, and such other matters as may be required
from time to time by the Board.
8.6.8 Ensure that MIDAS adheres to and implements each
approved Annual Program and Budget.
8.6.9 Ensure that the Directors receive sufficient management
and financial information and reports to allow them to
evaluate the carrying out of the Business and the
proposed Annual Program and Budget.
8.6.10 Ensure that MIDAS allows, after receiving reasonable
notice, a Director or his or her representative, and a
representative of any Shareholder, to visit and inspect the
premises and any property of MIDAS; to inspect and take
copies of the documents relating to the Business and
MIDAS' affairs, including its books of account; and to
discuss MIDAS' affairs, finance and accounts, with
MIDAS' officers, employees and Auditors, at all
reasonable times.
8.6.11 To the extent possible, after having given consideration to
the requirements of the Business, to use the services of
one geologist/mining engineer seconded to MIDAS by S&B; or, if this is
not possible, to allow one of S&B's geologists/mining engineers, who will
be on S&B's payroll, to observe and participate in the
Exploration and Mining Operations.
8.6.12 Keep MIDAS' assets in good condition.
8.6.13 Ensure that MIDAS complies with all requirements of
Government relating to the Business.
8.6.14 Perform all duties specifically delegated to
him/her by the Board.
8.7 Until the Sum has been paid, the General Manager is to
be appointed by the Board upon NEWCO's proposal, and
may be dismissed by the Board upon written request of
either NEWCO or any Director. Following the payment
of the Sum, the Board on an annual basis will appoint the
General Manager, without any obligation to appoint the one, if any,
proposed by NEWCO.
9. BOARD
9.1 The Board will be responsible for the management and
administration of MIDAS. The Board will indicatively
and not by way of limitation, decide upon the following
matters:
9.1.1 the voluntary relinquishment of all or any part of the
Lease according to the terms and conditions of the Lease;
9.1.2 undertakings vis-a-vis the Government which materially
increase the obligations of MIDAS with respect to the
Business;
9.1.3 approval, revision and amendments of the Annual
Programs and Budgets and the relevant Mine Development Plan;
9.1.4 terms and conditions of external borrowing and terms and
conditions of any Shareholder loans;
9.1.5 the hiring and dismissal of the General Manager, subject to
Clause 8.7, as well as the delegating of material powers and
responsibilities to the General Manager;
9.1.6 mortgages and other encumbrances on real property or
mining rights of MIDAS;
9.1.7 guarantees of MIDAS on behalf of third parties;
9.1.8 release of any debt owing to MIDAS or compromise of
any claim vested in MIDAS;
9.2 As from the Effective Date, the Board of MIDAS shall
consist of eight (8) Directors, four (4) Directors proposed
by NEWCO and four (4) proposed by S&B. The first
Directors shall be the ones identified in Annexure A. In
addition to the Directors, each Shareholder may, upon
prior approval of the Board, bring to all such meetings
such technical and other advisers as it may deem
appropriate. Until the Sum has been paid, the Chairman
of the Board of MIDAS shall be selected from among the
Directors proposed by NEWCO; the Vice-Chairman shall
be selected from among the directors proposed by S&B.
9.3 All costs associated with any technical or other advisors
brought to such meetings and other expenses incurred by
a Shareholder with regards to such meetings shall be
borne individually by each Shareholder and shall not be
regarded as Expenses, unless the Board previously agrees
otherwise.
9.4 The meetings of the Board shall be held at such times as
the Board shall determine, provided that the Board shall
meet at least once a month in order to meet the minimum
number of Board meetings required by law.
All costs and expenses associated with a meeting of the
Board incurred by or on behalf of a Director, mentioned
in Clause 9.2, will be borne individually by the
Shareholder that nominated such Director.
9.5 Except as otherwise specifically provided in the
Agreement, each meeting of the Board shall be convened
and held in accordance with the Articles and applicable
law. No meeting may be called on less than fifteen (15)
days advance written notice unless the Directors
otherwise mutually agree. Such request and notice shall
include an agenda setting forth in sufficient detail all
matters to be discussed and decided. A matter not
included in an agenda for a meeting shall not be
considered without the prior unanimous consent of all
Directors. Any Director failing to attend any meeting
properly called for or failing to vote with respect to any
item properly included on the agenda of any meeting
shall be bound by any decision properly made at such
meeting with respect to any matter properly considered at
such meeting or with respect to any item properly
included on the agenda, as the case may be. Meetings
shall be held in Athens or such other place as the
Directors may decide from time to time.
9.6 Under Greek law as it currently stands, it is not possible
for the Board to adopt decisions through circulating
resolutions. If in the future such possibility is acceptable,
decisions will be taken also by circulating resolutions.
The Shareholders will make every effort to facilitatethe
deliberation and decision-making process through written
and verbal communications prior to the holding of the
Board's meetings.
9.7 All the decisions on the Board shall be made by simple
majority of the Directors present or lawfully represented
at the meeting.
10. SHAREHOLDERS' GENERAL ASSEMBLY
10.1 The Shareholders' General Assembly shall convene at
least once a year and as often as is required, if decisions
need to be made that can only be made by the
Shareholders. Such meetings shall be called by the
Chairman of the Board, or by a Shareholder as provided
in the Articles and the law. Written notice to that
effect must be given to the Shareholders at least twenty
(20) days prior to the date of the meeting.
10.2 Before the Earn-In Date, all decisions of the
Shareholders' General Assembly, which are required by
law to be taken by an increased majority shall require
unanimous consent of the votes represented at the
General Assembly and entitled to vote at that time.
10.3 After the Earn-In Date, the above-described decisions
shall be taken by the increased majority determined by
applicable law.
11. ANNUAL PROGRAMS AND BUDGETS
11.1 Within thirty (30) days following the Effective Date, and
on or before April 1 of each calendar year, the General
Manager shall prepare and submit to the Board for
approval its proposed Annual Program and Budget for the
Operations to be conducted during the Fiscal Year
commencing on the 1st of July of the following year,
together with a five-year rolling business plan for the
Board's consideration.
11.2 Each proposed Annual Program and Budget prepared by
the General Manager shall specify, in reasonable detail,
all Operations which the General Manager recommends
to be carried out during the period covered thereby
together with the General Manager's best estimate of the
costs and expenditures for such Operations. The
proposed Budget shall be broken down in firm budget
items and contingent budget items. Indirect expenditures
shall be specified in separate categories with an
explanation of the allocation principles and the
assumptions made by the General Manager.
11.3 Each Annual Program and Budget shall include
provisions for adequate funding for the corresponding
period. As regard Shareholders' contributions, absent
unanimous consent of the Shareholders, Annual Programs
and Budgets may not provide for more than 10,000,000
US $ per year, nor for less than 1,700,000 US $ per year,
during the Earn-In Period, nor for less than 1,000,000 US
$ per year after the Earn-In Date.
11.4 All Expenses to be incurred by the General Manager
shall, unless the Board directs otherwise, be specified in
the proposed Annual Program and Budget in Drachmas,
notwithstanding that the General Manager may incur
certain or all of the Expenses in some other currency.
11.5 The Board shall, if thought fit, approve with or without
amendments each proposed Annual Program and Budget
submitted by the General Manager. Each proposed
Annual Program and Budget shall be sent to each
Director thirty (30) to forty-five (45) days prior to the
meeting of the Board at which same will be presented for
consideration and approval.
11.6 If the Board does not approve the Annual Program and
Budget, in total or in part, the General Manager shall
prepare and circulate to the Board a revised Annual
Program and Budget. In the event the Annual Program
and Budget and any revision thereof, is not approved by
the 1st of July, then the Annual Program and Budget of
the previous Fiscal Year shall be carried forward, and the
General Manager shall continue to incur and discharge
Expenses consistent with the levels set forth in such
Annual Program and Budget, until the Annual Program and
Budget for that Fiscal Year is finally
approved by the Board upon which time the one of the
previous Fiscal Year shall cease to apply and the new
one will be implemented. For example,
if the Annual Program and Budget for the Fiscal Year
ended June 30, 1999 permits spending at the level of
1,000,000 US $ and then the Board does not timely
approve an Annual Program and Budget for the fiscal
Year beginning on July 1st, 1999, the General Manager may
continue to incur Expenses during such latter Fiscal Year,
at the level of 1,000,000 US $.
11.7 If in the course of a Fiscal Year, any modification of or
amendment to the approved Annual Program and Budget
becomes necessary or desirable, the General Manager or a
Director may submit new or revised proposals to the
Board for a decision by the Board to amend or modify. If
no decision to amend or modify can be reached, then the
approved Annual Program and Budget to which
amendments or modifications were proposed will
continue in effect without the proposed amendments or
modifications.
11.8 All Annual Programs and Budgets proposed by the
General Manager and approved by the Board shall
contain adequate provision for the discharge of all
obligations and commitments vis-a-vis the Government,
if any, in respect of the Lease.
11.9 Subject to the delegation of powers by the Board, the
General Manager is authorized to carry out all Operations
contained in an approved Annual Program and Budget
and to make expenditures and incur liabilities up to the
amounts of the respective items of the approved Budget
(but not in excess of such amounts, unless specifically
authorized).
11.10 In the event of any emergency, the General Manager may
take such action, and make such expenditures as may be
necessary, in the General Manager's reasonable
judgment, for the protection of life and property, whether
or not such expenditures are included in an approved
Annual Program and Budget, and the General Manager
shall promptly notify the Shareholders of the particulars
of such emergency and of the steps taken to overcome
same.
11.11 Dilution.
11.11.1 Following the Earn-In Date, at any time until the
Annual Program and Budget and/or the Mine
Development Plan Budget (the "Budget") is approved,
any Shareholder (herein called "Diluting Shareholder")
may elect not to contribute the whole or part of its
budgeted proportionate contribution to the Budget. Such
election shall be made by the Diluting Shareholder by
written notice to the other Shareholder prior to the
approval of the Budget (the "Notice of Dilution"). Such
notice must specify the amount of the contribution which
the Diluting Shareholder is committed to make.
11.11.2 The Board will examine the Budget, taking into
consideration the Notice of Dilution. Should the
approved Budget provide for the Diluting Shareholder's
contribution to be more than the amount the Diluting
Shareholder is committed to pay, then the following
dilution mechanism will apply:
DPI = (A+B):C
Whereas:
DPI means = Dilution Participating Interest
A means = the total amount of Participating Interest
already financed by the Diluting Shareholder up to the date of Notice of
Dilution
B means = the amount the Diluting Shareholder is
committed to contribute to the relevant Budget
C means = the total amount of all Participating
Interests already financed by all Shareholders plus the total amount to be
contributed to the relevant Budget by all Shareholders.
For the purposes of this Clause 11.11.2, S&B will be
deemed to have also contributed an amount equal to the
Sum. By way of example, if the first Program and Budget after
the Earn-In Date calls for expenditure of 10,000,000 US
$, or 5,000,000 US $ for S&B and 5,000,000 US $ for
NEWCO and S&B agreed to be committed to only 2,000,000 US $,
the dilution mechanism will operate as
follows:
A for S&B = 5,000,000 US $ (This is the deemed value
of S&B's contribution to the joint venture. This is the
amount that was matched by NEWCO to earn 50% of
the share capital of MIDAS.)
B = 2,000,000 US $ (Amount S&B is willing to be
committed to contribute.)
C = 20,000,000 US $ (NEWCO and S&B's previous
contributions plus the total amount of the new Program
and Budget.)
DPI = (A+B) : C
DPI = (5+2) : 20 = 7 : 20 = 35%
11.11.3 Thereafter, the Shareholders shall adjust the respective
Participating Interests to reflect the result of the various
Participating Interests after dilution. In the event hat a
Participating Interest consists of both Shares and
Shareholders loans, the respective portion of Sharesand
Shareholders loans shall be adjusted on a pro rata basis
such that at all times the Shareholders hold bothShares
and Shareholders loan in proportion to their respective
Participating Interest as the same may be adjusted
pursuant to this Clause 11.11.
11.11.4 This Clause 11.11 does not prevent any Director from
voting against the Budget.
12. DEFAULT
12.1 The following events are Events of Default under this
Agreement:
(a) the Transfer or encumbrance of all or any Shares
or
Participating Interest by a Shareholder except in
accordance with the Agreement;
(b) a breach of a material provision of the
Agreement;
(c) a petition in bankruptcy or a winding-up petition (except
for the purposes of reconstruction) in respect of a
Shareholder, ROYAL or RAKOV, filed by or
against it, and such petition is not withdrawn or
dismissed within thirty (30) days after its filing; or
(d) a Shareholder, ROYAL or RAKOV shall make an
assignment for the benefit of its creditors; or
(e) a receiver or compulsory administrator is appointed for a
Shareholder or ROYAL or RAKOV or its assets,
and such appointment is not discharged within
thirty (30) days; or
(f) a Shareholder or ROYAL or RAKOV ceases to carry on
its business; or
(g) a Shareholder fails to make contributions to funding of
MIDAS as provided in Clause 7.
12.2. If a Shareholder is responsible for an Event of Default, as
such are listed above, the other Shareholder may:
(a) put such Shareholder in default by giving it notice in
writing, setting out the default ("Default Notice")
to this Shareholder; and
(b) if default is not cured within thirty (30) days from such
Default Notice, the non-Defaulting Shareholder
may select a team of independent experts (the
"Team"), consisting of one mining engineer and
one accounting firm. Such Team shall be subject
to the approval of the Shareholder in default (the
"Defaulting Shareholder") with regards to the
expertise of its member in the subjects at issue as
well as their complete independence from all
Shareholders. This approval, however, shall not
be unreasonably withheld. In the event the
Shareholders cannot agree on the Team within
thirty days, the Chairman of the Technical
Chamber of Greece (TEE) shall be requested to appoint the
mining engineer and to appoint one of the top six
accounting firms in Greece, provided such firm is
totally independent from each Shareholder. Once
the selection process is completed, the non-
Defaulting Shareholder shall give a copy of the
Default Notice to the Team, which within
sixty (60) days shall at the cost of the Defaulting
Shareholder present its estimate of the value of
the Participating Interest held by the Defaulting
Shareholder at the time of default.
12.3 In making a valuation of the Participating Interest held by
the Defaulting Shareholder, the Team will:
(a) assume that a reasonable time is available in which to
obtain a sale of the Participating Interest in the
open market; and
(b) have regard to the following factors (in addition to any
other factors which the Team believes should be
properly taken into account), based on the best
information available at the time:
(i) prospects of the Business;
(ii) the value, at a specified capitalization rate appropriate to
the Business, of the estimated future maintainable
earnings of MIDAS;
(iii) the yield which an open-market investor would
reasonably require in an acquisition of the
Participating Interest;
(iv) the net tangible assets of MIDAS as disclosed in the
audited accounts for the last preceding Fiscal Year
or, if no audited accounts of MIDAS are available,
as disclosed in the latest management accounts of
MIDAS;
(v) the comments and recommendations made by each
Shareholder;
(vi) the Participating Interest to be offered for sale is to be
considered neither as a controlling nor a non-
controlling interest; the concept of control is to be
disregarded, as is the concept of a minority
interest;
(vii) the valuation of the Participating Interest is to be
determined having regard to MIDAS as an
undivided whole. The value ascribed to the
relevant parcel of Participating Interest is to be the
proportion of the value of MIDAS as an undivided
whole which the number of Shares in such parcel
bears to the whole of the Participating Interest of
MIDAS;
(viii) values established in comparable transactions involving
similar assets.
(c) Act as an expert and not as an arbitrator;
(d) Establish a single value and not a range of values;
(e) Carry out such valuation with due care and professional
responsibility.
12.4 On serving a Default Notice on the Defaulting
Shareholder, the non-Defaulting Shareholder, in addition
to, and without prejudice to the non-Defaulting
Shareholder's other rights at law or in equity, shall enjoy
an option to acquire the Defaulting Shareholder's
Participating Interest using the following procedure:
(a) the Team will make, under Clause 12.3, a valuation of the
Defaulting Shareholder's Participating Interest
using the guidelines set out in Clause 12.3(b); and
(b) the Team will serve a copy of the valuation on each of the
Defaulting Shareholder and the non-Defaulting
Shareholder; the non-Defaulting Shareholder will have an option to
acquire the Defaulting Shareholder's Participating
Interest:
(i) ithin 30 days after receipt of the Team's valuation;
(ii) at a purchase price per Share equal to 90% of the Team's
valuation of the Defaulting Shareholder's
Participating Interest;
(iii) by serving written notice of exercise of the option on the
Defaulting Shareholder with a cheque for the
purchase price less the following amounts
(without duplication);
(A) any payments incurred by the non-Defaulting Shareholder
for the Defaulting Shareholder, including any
accrued and unpaid interest thereon;
(B) the costs of the expert Team making the valuations
referred to in Clause 12.4(a);
(C) all moneys due by the Defaulting Shareholder to MIDAS,
which shall be paid by the non-Defaulting
Shareholder to MIDAS.
(d) In the event the non-Defaulting Shareholder elects not to
exercise this option or in the event the thirty (30)
days' time period lapses and the option has not
been exercised, then any non-Defaulting
Shareholder may apply for the winding up of
MIDAS;
(e) if the non-Defaulting Shareholder exercises the option
under paragraph (c) , then the Defaulting
Shareholder must immediately deliver to the non-
Defaulting Shareholder the share certificates for
the Defaulting Shareholder's Shares, together with
executed Share transfers in favor of the non-
Defaulting Shareholder, together with such
documents as may be necessary to assign any
loans made by the Defaulting Shareholder to
MIDAS pursuant to Clause 7 and signed
resignations of any Directors proposed by the
Defaulting Shareholder, and all such
documents and necessary acts to be completed
upon payment to the Defaulting Shareholder.
Each Shareholder hereby irrevocably constitutes
the other its lawful attorney for the purpose of
completing any sale transaction pursuant to this
Clause and obtaining the necessary approvals by
the Minister of Development.
12.5 The provisions of this Clause 12 regarding default are
subject to the provisions of Clause 22 regarding Disputes
and Arbitration.
12.6 When an Event of Default occurs pursuant to this
Clause:
(a) the Board may apply any dividends or interest payments
which accrue or are payable to the Defaulting
Shareholder towards any moneys which the
Defaulting Shareholder is liable to pay or provide
to MIDAS, and which have not been so paid or
provided;
(b) the Board may treat any amount due and payable to
MIDAS by a Defaulting Shareholder as a debt,
and that amount shall be deemed prima facie to be
a true and lawful debt owed to MIDAS, and the
Board may charge the Defaulting Shareholder
interest on the amount of the debt, at the rate
determined by them to be the overdraft rate of
interest at the time of the Event of Default, which
would be applicable to MIDAS, plus 2% per
annum;
(c) neither the Defaulting Shareholder nor any of its
nominees holding shares in MIDAS shall be
entitled to vote in respect of its Shares at any
General Assembly of MIDAS during the period
from the date of the Event of Default to the date
that it is fully rectified, and the other Shareholder
hereto shall take all such necessary steps to ensure
that the Defaulting Shareholder and its nominees
are not entitled to vote; and
(d) neither the Defaulting Shareholder nor its nominees shall
be entitled to propose in the General Assembly of
the Shareholders any Directors during the period
between the date of any relevant Event of Default
and the date that it is fully rectified, and the other
Shareholder shall take all necessary steps to
ensure that any Director or Directors proposed by
the Defaulting Shareholder (or its nominees)
resign.
12.7 In case that in the future there will exist more than one (1)
Defaulting or non-Defaulting Shareholder, the non-
Defaulting Shareholders will have an option, within the
30 days' period provided for in Clause 12.4(c)(i), to
acquire the Defaulting Shareholder's Participating
Interest in proportion to their then-existing Participating
Interests unless a non-Defaulting Shareholder exercises
its option for a proportion less than the proportion
corresponding to its Participating Interest. On the other
hand, the non-Defaulting Shareholders exercising their
option may also indicate in their notice any additional
proportion of the Defaulting Shareholder's Participating
Interest they wish to acquire, should any non-Defaulting
Shareholder determine not to exercise (wholly or
partially) its option of acquisition.
12.8 If, after the expiry of the 30 days' period, one or
more
non-Defaulting Shareholders have not exercised
(wholly
or partially) their option, the available parcel of the
Defaulting Shareholder's Participating Interest will
be
transferred to the non-Defaulting Shareholders who
have
exercised this option with respect to their
notification for
an additional parcel of the Defaulting Shareholder's
Participating Interest.
12.9 If the options exercised by the non-Defaulting
Shareholders do not wholly cover the Participating
Interest of the Defaulting Shareholder, Clause
12.4(d)
applies.
12.10 Notwithstanding any contrary provision of this
Clause 12, in
case either ROYAL or RAKOV (but not NEWCO)
is in
default ("Defaulting Party"), it is
obliged to transfer its shares in NEWCO to ROYAL
or RAKOV
respectively at 90% of their value determined by the
Team with the same procedure provided for
hereinabove,
provided that ROYAL or RAKOV exercises its
option of acquisition of the Shares within 30 days
after
receipt of the Team's valuation. If the
non-Defaulting
Party (ROYAL or RAKOV) does not exercise its
option,
S&B may acquire the Shares of the Defaulting Party
at
the same value.
13. TRANSFER OF INTEREST
13.1 Any Shareholder may transfer, after the Earn-In
Date, all
or part of its Participating Interest (the "Parcel")
subject
to the provisions of the Agreement.
13.2 In case a Shareholder wishes to transfer a Parcel
(the
"Transferring Shareholder"), the other Shareholder
has a
preemptive right in the acquisition of this Parcel
according to the procedure provided for in the
following
Clauses.
13.3 The Transferring Shareholder shall give notice to
the
other Shareholder, including the price and terms and
conditions of the transfer ("Notice of Transfer"). If
the
Transferring Shareholder has received an offer from
a
third party, the Notice of Transfer will include the
offered
price, terms and conditions.
13.4 The non-Transferring Shareholder, so notified,
must
respond to the Transferring Shareholder within thirty
days from the Notice of Transfer whether it is
interested
in acquiring the Parcel under the same terms and
conditions included in the Notice.
13.5 In case the non-Transferring Shareholder exercises
its
option of acquisition, the transfer shall be effected
within
60 days from the Notice of Transfer, provided that
the
Transferring Shareholder has obtained the necessary
approvals form the Ministry of Development for the
transfer of the respective Shares.
13.6 In the event the non-Transferring Shareholder does
not
express within the stipulated time period its interest
to
purchase the Parcel and a third party had made an
offer,
the Transferring Shareholder shall be free to transfer
it to
the third party at the stated price and under the stated
terms and conditions within a period of ninety days
following either the rejection by the
non-Transferring
Shareholder or the expiration of the time period
determined in Clause 13.4, provided that the
Transferring
Shareholder has obtained all necessary approvals.
13.7 The transfer of the Parcel to such third party will
only be
effective if and when the transferee enters into a
deed
with the non-Transferring Shareholder agreeing to
be
bound by the terms and conditions of the Agreement
(and
agreeing to assume with respect to the Parcel
purchased,
the obligations pertinent under the Agreement and
the
Articles).
13.8 For the purpose of making certain that any third
party to
whom a Parcel is transferred hereunder is financially
capable of assuming the financial burden
accompanying
such Parcel, no transfer may be made by either
Shareholder without first obtaining the consent of
the
Board with respect thereto, which consent shall not
be
unreasonably withheld.
13.9 The restrictions (right of first refusal) stipulated in
this
Clause or anywhere else in the Agreement with
regards to
the transfer of the Parcel shall not apply in the event
such
transfer is to an Affiliate of the Transferring
Shareholder.
13.10 In case that in the future there will exist more
than two
Shareholders, the non-Transferring Shareholders
will
have an option to acquire the Parcel in proportion to
their
then existing Participating Interests, and the
provisions of
Clauses 12.7 and 12.8 shall apply mutatis mutandis.
13.11 If the options exercised by the
non-Transferring
Shareholders do not wholly cover the Parcel, Clause
13.6
applies.
14. CONFIDENTIALITY
14.1 The Parties shall agree upon appropriate
procedures for
the protection of technical and other information that
is
designated as "proprietary" or "confidential."
14.2 No Shareholder or Party, without the prior written
consent of the other Parties, shall disclose to any
unrelated third person, unless required by law or
regulation including, but not limited to stock
exchange
regulations in Greece, Europe, Australia, USA or
elsewhere, any Confidential Information.
14.3 Where information is required to be released in
respect to
stock exchange requirements or securities laws or
regulations, the Parties shall be required to approve
the
draft of any planned release prior to such release,
prepared by any Party, such approval not to be
unreasonably or unduly withheld, and each Party
shall act
promptly in approving such release. In the event
that the
addressee with respect to the proposed release
receives no
comment within five business days from receipt of
notice,
the release shall be deemed approved by the Party
not
making comments.
14.4 No Party shall make advertisements, release
publicity
material, publications, news statements or similar
written
matters which relate to the Operations until the same
shall
be submitted to and approved by the other Party or
Parties, such approval not to be unreasonably
withheld.
14.5 The Parties agree that Confidential Information
shall be
kept confidential throughout the duration of the
Agreement and that further additional documents
necessary to implement that intention will be
executed by
the Parties, including a confidentiality agreement
with
similar content with third parties, including but not
limited to prospective purchasers and consultants.
However, such confidentiality agreement will not
release
the Party from any liability in case of disclosure of
such
confidential information by the third party infringing
such
confidentiality agreement.
15. DEADLOCK
15.1 If, at a meeting of the Board, a deadlock situation
(an
equality of votes or lack of majority required for a
decision on an issue of major importance) has come
to
exist which, despite any amicable efforts of the
Shareholders, remains unsolved during a period of
one
(1) month as from the date of the relevant meeting,
either
Shareholder may give notice in writing to the other
Shareholder requesting the appointment of experts
for the
purpose of this Clause.
15.2 The Shareholders will appoint one expert each,
within ten
(10) days following the notice for the appointment of
experts of the preceding Clause. No later than ten
(10)
days from the date of the appointment of the last
expert,
both experts will meet to identify the issues and
appoint a
third expert who shall preside over the panel of
experts
(the "Panel"). Such appointment must have been
concluded no later than 15 days following the initial
meeting of the two experts.
15.3 The Shareholders will prepare and submit to the
Panel all
necessary documents providing the information and
the
arguments/positions of the Shareholders in order for
the
Panel to reach a decision. The Panel will also
examine
the witnesses of the Shareholders. Each Shareholder
is
entitled to propose two (2) witnesses to be examined
by
the Panel.
15.4 The documents will be submitted in their original
language and translation will be required, if such
original
language is other than English. The language of the
procedure will be English and the place will be
Athens,
Greece.
15.5 The Panel must reach a recommendation within
three (3)
months following the appointment of the third expert
as
to how the deadlock ought to be resolved. The
recommendation will be taken by majority. The
Panel
will determine by majority vote all necessary details
pertaining to the procedure established by this
Clause.
However, any extension of the deadlines established
hereby will be effected only by unanimous decision
of the
Panel.
15.6 Each Shareholder will bear its expenses, whereas
the
expenses of the third expert and of the procedure
will be
split equally (50-50) between the Shareholders.
15.7 The decision of the Panel is not binding on the
Shareholders. In the event the Shareholders have
not
reached an agreement to comply with the decision of
the
Panel or have not reached a settlement within fifteen
days
following such decision, the following shall occur:
Each Shareholder must offer to the other
Shareholder a
certain price per Share in a meeting of all
Shareholders, to take place sixty (60) to ninety
(90) days following expiration of the preceding
fifteen (15) days' time period.
The Shareholder to which the offer of the higher
price is
made may, within fifteen (15) days of service of
such offer either accept that offer or serve a
notice
on the other Shareholder (the "First Bidder"),
unconditionally offering to purchase all of the
Participating Interest held by the First Bidder.
The price per Share offered to be paid by the
other
Shareholder must be at least 5% higher than the
offer price per Share specified in the First
Bidder's offer.
Further counteroffers are made by either Shareholder
subject to the same fifteen (15) days' time limits
and with each new offer price per Share
exceeding
the previous offer price per Share by at least 5%.
If a new offer price per Share in a counteroffer
does not exceed the previous offer price per Share
by at least 5%, that counteroffer is deemed not to
have been made for the purposes of this Clause.
When fifteen (15) days has elapsed without the then-
current bid being accepted or countered by a
further bid, there will, subject to any Government
or other consents and approvals which are
required to be obtained at that time, be a binding
contract between the then current highest bidder
("Buyer") and the other Shareholder ("Seller"),
and the Seller is deemed to have accepted the
offer to purchase its Participating Interest made
by
the Buyer.
The completion of the transfer of the Seller's
Participating Interest to the Buyer will take place
on or before the fifteen (15) days after the Seller
has accepted or is deemed to have accepted the
offer made by the Buyer and provided that all
necessary consents and approvals have been
obtained. At the time of completion of the
transfer, the Seller will hand to the Buyer the
certificates for the Seller's Shares along with an
assignment of the Shareholder's loans included in
its Participating Interest, and the Buyer will
simultaneously hand to the Seller a bank cheque
for the total purchase price.
In the event a Shareholder has failed to present an
offer at
the specified time and place, the bid process will
start on the price offered by the Shareholder that
has presented an offer.
16. FORCE MAJEURE
16.1 For the purpose of the Agreement, "force majeure"
means
act of God, strike, lockout or other industrial
disturbance,
unavoidable accident, act of the public enemy, war,
blockade, public riot, earthquake, lightning, fire,
storm,
flood, explosion, governmental restraint, acts of
governmental agencies, definite inability to obtain or
comply with necessary permits and Greek State
consents
including transfer of Shares from RGC to S&B, or
from
S&B to NEWCO or vice versa, or the acquisition of
new
Shares by S&B or NEWCO, any other cause
whatsoever,
whether of a kind specifically enumerated above or
otherwise, which is beyond the reasonable control of
the
Shareholders, and renders the performance of the
Agreement impossible even through any alternative
legal
means that the Shareholders will have to seek in
good
faith, provided that lack of funds for any reason shall
not
be construed as a cause beyond the reasonable
control of
the Shareholder affected, unless the lack of funds is
a
direct result of any restriction, control, penalty or
other
measure imposed by any Government or agency
thereof.
16.2 If a Shareholder is rendered unable wholly or in
part by
force majeure, as defined in Clause 16.1, to carry out
its
obligations under the Agreement, other than in
respect to
the payment of called sums or other moneys payable
by
that Shareholder under the Agreement, that
Shareholder
shall give to the other Shareholder or Shareholders,
and to
the General Manager, prompt written notice of the
force
majeure occurrence, with reasonably full particulars
concerning it, and the Shareholder giving the notice
shall
be excused from performing its obligations during,
but
not longer than, the continuance of the force
majeure, and
that Shareholder shall not, for reason of that inability
or
delay, be or be deemed to be a Defaulting
Shareholder.
16.3 The Shareholder giving notice of force majeure
shall use
its reasonable endeavors and all reasonable diligence
to
remove the cause of the force majeure and shall
begin or
resume performance of its suspended obligations as
soon
as possible after that cause has been removed. To
that
end, the other Shareholder or Shareholders shall
offer to
the Shareholder giving notice of force majeure all
reasonable assistance.
17. APPROVALS NOT OBTAINED
17.1 If the Minister of Development refuses to grant
consent to
the application of S&B for the acquisition by
NEWCO of
the new Shares issued after the capitalization of the
Sum
funded by NEWCO, the Parties will negotiate in
good
faith to determine a manner in which NEWCO can
participate in the Exploration, Development and
Mining
Operations of the Product with rights which are as
near as
possible and equivalent to the rights provided for in
the
Agreement.
18. GUARANTEE
18.1 ROYAL and RAKOV irrevocably and
unconditionally
guarantee to S&B or its successors or permitted
assigns,
as prime obligors, jointly and severally with
NEWCO,
the good performance of all the obligations of
NEWCO
under the Agreement, in each case waiving their
rights of
exception and division (the "Guarantee").
18.2 Within the frame of Guarantee, the above Parties
agree to
indemnify S&B against all losses or damages that
the
latter may suffer as a result of either a breach by or
failure
of performance by NEWCO of any of the aforesaid
obligations under the Agreement.
18.3 The Guarantee remains in full force and effect
until such
time as NEWCO is fully discharged of all its
obligations
under the Agreement.
19. TRANSFER OF SHARES IN NEWCO
19.1 If ROYAL or RAKOV wish to transfer their
shares in
NEWCO, S&B has a preemptive right to acquire the
number of shares either of ROYAL or RAKOV is
willing
to transfer, and Clause 13 applies mutatis mutandis.
19.2 The preemptive right does not apply for the
transfer of
shares of NEWCO by either of ROYAL or RAKOV
to an
Affiliate, or from ROYAL to RAKOV, or vice
versa.
19.3 Neither ROYAL nor RAKOV shall have the right
to float
their shares in NEWCO in an International Stock
Exchange without the prior written consent of S&B.
Such written consent shall not be necessary in case
S&B
has first noticed that it has determined not to take
MIDAS
public. In any case, during the Exploration and
Development, ROYAL and/or RAKOV may float
such
shares of NEWCO so that they don't lose capital and
management control of NEWCO.
20. ESTABLISHMENT OF NEWCO
20.1 Until establishment of NEWCO by ROYAL and
RAKOV, all rights of NEWCO under the Agreement
will
be exercised by ROYAL and all liabilities affecting
NEWCO will be fully undertaken by ROYAL. In
such
case, every reference in the Agreement to NEWCO
is
deemed to be a reference to ROYAL.
21. NOTICES
21.1 Any notice or other communications pursuant to
the
Agreement shall be in writing, delivered in person or
sent
by registered mail, return receipt requested,
addressed as
follows:
If to S&B:
To the Chairman, Vice-Chairman, Managing
Director and Executive Director
21A Amerikis Str.
106 72 Athens
Tel.: 0030-1-3690-111
Fax: 0030-1-3601-169
If to NEWCO:
If to ROYAL:
To the Chairman, Royal Gold, Inc.
Suite 1000, 1660 Wynkoop Street
Denver, Colorado 80202-1132
Tel.: (303) 573-1660
Fax: (303) 595-9385
If to RAKOV:
The effective date of such notices shall be the date of
receipt by the addressee as evidenced by the post
office or
the courier service.
21.2 Any Party may change its address for the purposes
of the
Agreement by giving at least fourteen (14) days'
notice in
writing to the other Parties hereto.
22. DISPUTES ARBITRATION
22.1 Any dispute, controversy, claim arising out of or
relating
to the Agreement or the subject matter of the
Agreement,
or the execution, validity, interpretation,
implementation,
breach or termination hereof, or the rights and
liabilities
of the Parties hereunder shall be settled by
arbitration in
accordance with the Rules of Conciliation and
Arbitration
of the International Chamber of Commerce. The
Arbitration court shall comprise 3 arbitrators, each
Party
appointing one arbitrator, and the third arbitrator,
being
the Chairman, shall be appointed by the Court of
Arbitration in accordance with the said Rules. The
arbitrators shall apply the substantive laws of the
Greek
State. The award of the arbitration shall be in the
English
language and shall be final, irrevocable and binding
on all
the Parties which were invited to participate in the
arbitration proceedings, without recourse to any
regular
or extraordinary means of appeal and shall be
enforceable
in any court of law having jurisdiction over the
Parties.
The cost of such arbitration shall be assessed to such
Party or Parties as may be determined by the
arbitrators.
23. GOVERNING LAW
23.1 The Agreement shall be governed by and
construed in
accordance with the laws of the Greek State.
24. MISCELLANEOUS
24.1 The Agreement sets forth the full and complete
understanding of the Parties with respect to the
subject
matter hereof as of the date first above stated, and it
supersedes all previous agreements, representations,
minutes and memoranda made or dated prior hereto
and
relating to the subject matter hereof.
24.2 Any modification or amendment of the Agreement
or any
agreement of the Parties required by the Agreement
shall
not be of any force or effect unless it is in writing
and
signed by each of the Parties.
24.3 Any invalidity of a term, section, Clause or
provision of
the Agreement judged to be invalid for any reason
whatsoever by the arbitrator or a court of competent
jurisdiction, shall not affect the validity or operation
of
any other term, section, Clause or provision of the
Agreement.
24.4 The Agreement shall be binding upon and inure
for the
benefit of the Parties hereto and their respective
permitted
assigns and successors in title, but all in accordance
with
the provisions hereof.
24.5 Each party will bear its own legal expenses, other
than
the payment of stamp duty, incurred in the
preparation
and settling of the Agreement. Any stamp duty
payable
on the Agreement shall be a MIDAS expense
payable by
the Parties in proportion to their respective
Participating
Interests.
24.6 Each Party will do, execute, acknowledge and
deliver all
and every such further acts, deeds, agreements,
assignments and assurances as shall be reasonably
necessary and required for the purposes of giving
full
effect to the Agreement.
24.7 Headings and paragraph titles are for the sole
purpose to
facilitate the review of the text and have no further
legal
significance.
24.8 If there is any conflict between the provisions of
the
Agreement and the Articles, the provisions of the
Agreement shall prevail and on written request by
either
Shareholder to the Chairman of the Board, the
Articles
shall be amended, to the extent possible, to remove
any
such conflict.
24.9 Unless another provision of the Agreement
specifies to
the contrary, a Party must not unreasonably withhold
or
delay any approval or consent that may be required
from
that Party under the Agreement.
24.10 No Shareholder shall be entitled to mortgage,
pledge,
charge, encumber or create or suffer to exist, a lien,
charge, or encumbrance over in respect of all or part
of its
Participating Interest without the prior written
consent of
the other Shareholder, which consent may not be
unreasonably withheld, in order to facilitate project
finance.
24.11 All contracts for goods or services with respect
to the
Business shall be negotiated on an arm's length and
competitive basis, even if the services or goods
required
can be provided by one of the Shareholders or their
respective Affiliates. In the event of equal terms, the
Affiliates will be chosen.
25. PRODUCTS OTHER THAN PRODUCTS
25.1 If, in the conduct of Business, MIDAS produces
silver in
connection with the gold production, this product
will be
included in the meaning of Product. In such case,
MIDAS will undertake any and all relevant
obligations of
S&B vis a vis the Greek State.
25.2 If, in the conduct of Business, MIDAS produces
industrial minerals and baryte, S&B has the right to
obtain such products from MIDAS and MIDAS is
obliged to deliver them to S&B, as only S&B is
entitled
to those products.
25.3 S&B shall pay to MIDAS the proportional share of
the
Expenses incurred, which the market value of the
products, described in Clause 25.2, bears to the total
market value of the Product.
25.4 The prospective precious metals exploration
projects
throughout the world held by or known to RAKOV
are
not within the scope of the Agreement, but the
Parties
will use their best endeavors to conclude separate
agreements in relation thereto.
26. TERM OF AGREEMENT
26.1 The Agreement shall come into effect on the
Effective
Date except for Clauses 2, 3, 4, 14, 18, 19, 20, 21, 22
and
23, which produce effect from the date of execution
of the
Agreement, and shall remain in full force and effect
until:
terminated by written agreement between all
Shareholders; or
any Shareholder holds all of the Participating
Interests; or
MIDAS is liquidated or wound up.
26.2 Termination of the Agreement does not extinguish
or
otherwise affect any rights of any Shareholder
against the
other which:
accrued before the time at which termination or
release
occurred; or
by necessary implication shall survive the
termination of
the Agreement.
26.3 Clauses which are expressed to survive
termination will
do so.
27. WITHDRAWAL
27.1 NEWCO may not withdraw from the Agreement
unless it
has paid in to MIDAS, or has paid or advanced on
behalf
of MIDAS, the Minimum Sum (or unless NEWCO
is
acting under Clause 3.3).
27.2 In case NEWCO withdraws from the Agreement
before
the Earn-In Date, it shall do all things necessary to
fully
and effectively transfer the Shares issued at its name
to
S&B for a purchase price of 1,000 Drs for all of
them.
NEWCO hereby irrevocably constitutes S&B its
lawful
attorney for the purpose of completing any
transaction
pursuant to this clause and obtaining the necessary
approvals by the Minister of Development.
Notwithstanding the above right of S&B, NEWCO
shall
not be released from any of its obligations under the
Agreement until it has completed all things
necessary for
the transfer of its Shares. NEWCO shall not be
reimbursed for Expenses incurred before the Earn-In
Date.
27.3 After the Earn-In Date, either Shareholder may
withdraw
from the Agreement at any time provided that this
Shareholder gives Notice of Transfer of its
Participating
Interest and the other Shareholder exercises its
preemptive right as per Clause 13.
28. ROYALTY INTEREST OF S&B
28.1 Upon completion and approval of a positive Mine
Development Plan for a commercial gold project on
Milos, S&B will have the option either to participate
in
such Development in accordance with its then
existing
Participating Interest or to transfer such Participating
Interest.
28.2 The transfer of S&B's Participating Interest will be
effected either in accordance with Clause 13 or in
exchange for reservation of a royalty interest paid by
MIDAS. In case S&B elects the royalty interest, its
Participating Interest will be transferred to NEWCO.
28.3 The royalty interest will amount, at S&B's option,
either
to 5% of the net smelter returns or to 20% of
MIDAS' net
profits, provided, however, that this royalty will be
paid
to S&B after all Shareholders shall have recovered
their
respective capital investment in MIDAS out of
cumulative distributions of operating cash flow from
MIDAS actually received by them. Until the
recovery of
the Shareholders' capital investment, the royalty
interest
paid to S&B will amount either to 1% of the net
smelter
returns or to 4% of MIDAS' net profits.
28.4 If S&B elects the royalty interest, and if it should
thereafter determine to transfer all or any portion of
such
royalty interest, then the provisions of Clause 13 will
apply, mutatis mutandis.<PAGE>
IN WITNESS WHEREOF the Parties hereto have
executed these
presents in five (5) original copies, the day and year
first
hereinabove written. Each party has taken one copy,
whereas the
fifth one will be deposited with the pertinent Tax
Office, as
provided by law.
ROYAL GOLD, INC.
By: ________________________________
RAKOV PTY LTD
By: ________________________________
SILVER & BARYTE ORES MINING CO. S.A.
By: ________________________________
MIDAS S.A.
By: ________________________________
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C> <C>
<PERIOD-TYPE> 3-MOS 12-MOS
<FISCAL-YEAR-END> JUN-30-1998 JUN-30-1998
<PERIOD-END> JUN-30-1998 JUN-30-1998
<CASH> 8,462,083 8,462,083
<SECURITIES> 3,007,505 3,007,505
<RECEIVABLES> 599,380 599,380
<ALLOWANCES> 0 0
<INVENTORY> 69,101 69,101
<CURRENT-ASSETS> 12,208,134 12,208,134
<PP&E> 7,630,728 7,630,728
<DEPRECIATION> 981,625 981,625
<TOTAL-ASSETS> 20,927,304 20,927,304
<CURRENT-LIABILITIES> 770,774 770,774
<BONDS> 0 0
0 0
0 0
<COMMON> 54,149,523 54,149,523
<OTHER-SE> 0 0
<TOTAL-LIABILITY-AND-EQUITY> 20,927,304 20,927,304
<SALES> 0 0
<TOTAL-REVENUES> 171,813 2,207,477
<CGS> 0 0
<TOTAL-COSTS> 1,266,033 4,970,775
<OTHER-EXPENSES> 0 0
<LOSS-PROVISION> 0 0
<INTEREST-EXPENSE> 0 0
<INCOME-PRETAX> (1,027,639) (2,862,449)
<INCOME-TAX> 680,280 680,280
<INCOME-CONTINUING> (1,707,919) (3,542,729)
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> (1,707,919) (3,542,729)
<EPS-PRIMARY> (0.10) (0.21)
<EPS-DILUTED> (0.10) (0.21)
</TABLE>
PRIVATE AGREEMENT
ROYAL GOLD, INC.
a n d
RAKOV PTY LTD
PRIVATE AGREEMENT
THIS PRIVATE AGREEMENT (the "Agreement"), is made and
entered into in London, England this 26th day of March 1998, by
and between:
"RAKOV PTY LTD," an Australian registered company (ACN
081 713 555) incorporated under the laws of Australia, duly
represented by Mr. Ian Plimer, with its principal office in Australia,
at 55 Harrington Street, Sydney, NSW 2000, to be referred to
hereinafter as "Rakov";
and
"ROYAL GOLD, INC.," an American registered company
incorporated under the laws of the State of Delaware, with its
principal offices at Suite 1000, 1660 Wynkoop Street, Denver,
Colorado 80202-1132, USA duly represented by Mr. Peter Babin,
President of the Company, to be referred to hereinafter as "Royal."
(Rakov and Royal are collectively referred to, herein, as the
"Parties.")
A. WHEREAS Silver & Baryte Ores Mining Co. S.A., an
anonymous company duly organized and existing under the
laws of Greece with principal offices in Athens, Greece, to
be referred to hereinafter as "S&B," and the Greek
Government have entered into a lease agreement, Nr
12.967/6.2.1992 of the Notary Public Mr Vassilios Sigalos
(hereinafter "The Lease"), which entitles S&B to explore
for and exploit, if mineable reserves are found, gold and
other minerals (other than industrial minerals, silver and
baryte) on the islands of Milos, Kimolos, Polyegos and
Antimilos (hereinafter "The Area")
B. WHEREAS S&B has established a company by the name
of MIDAS SA (hereinafter to be referred to as "MIDAS")
for the purpose of carrying out the Lease through that
company, and S&B has transferred the Lease to MIDAS.
C. WHEREAS Royal and Rakov have agreed to cooperate
with S&B and MIDAS in the exploration, development,
and mining of precious metals (gold and silver) in the Area,
under the terms and conditions of the Lease, and such
parties, together with S&B and MIDAS, have thus
adopted, on March 27th, 1998, a Private Agreement
memorializing the guidelines of this cooperation
(hereinafter, the "Midas Agreement", a copy of which is
attached to this Agreement, as Annexure A).
D. WHEREAS according to the Midas Agreement the
cooperation of the Parties will be effected within the
framework of MIDAS.
E. WHEREAS Royal and Rakov have agreed to establish a
new company (hereinafter to be referred to as "NEWCO"),
and their participation in the Midas Agreement will be
effected through NEWCO.
NOW THEREFORE, IT HAS BEEN AGREED BETWEEN
THE PARTIES AS FOLLOWS:<PAGE>
1 DEFINITIONS
As used hereafter in the Agreement, specific terms not defined
herein shall have the same meaning as is set forth for such terms in
the Midas Agreement.
2 THE BUSINESS
The Parties agree to form a corporation ("NEWCO"), under the
laws of Greece, for the purpose of performing the joint and several
obligations of Royal and Rakov under the Midas Agreement.
Royal is hereby authorized to prepare and file any and all such
documents and to do such necessary acts as are required to form
NEWCO. Rakov hereby irrevocably constitutes Royal its lawful
attorney for the purposes of completing such incorporation and
qualification to do business. NEWCO shall be incorporated as a
Greek Societe Anonyme, unless the Parties agree on another type
of entity. The costs of incorporation will be shared equally by the
Parties. The name of NEWCO will be "Milos Gold S.A.," if that
name is available.
The Parties will cause NEWCO to enter into the Midas
Agreement as "NEWCO," as that term is defined in the Midas
Agreement.
As soon as NEWCO is established the Parties will cause it to
send to S&B a letter by which it will be fully and unreservedly
undertaking any and all obligations related to NEWCO and
provided for under the Midas Agreement and under the Lease.
As long as NEWCO is not established, or so long as it is
established but has not yet responded to the obligation set forth in
Clause 2.3 above, any reference to NEWCO under this Agreement
and under the Midas Agreement shall be deemed to be a reference
to Royal. In such circumstances, Royal shall exercise all of
NEWCO s rights, and Royal shall be liable for all of NEWCO s
obligations.
3 INTERIM PERIOD
3.1 During the Interim Period (September 1, 1997 through the
Effective Date under the Midas Agreement), the Parties will
cooperate and use their best endeavours in order to maintain
the Lease in good standing.
3.2 All Expenses incurred by any of NEWCO, Royal or Rakov
during the Interim Period shall be deemed to be incurred by
or on behalf of NEWCO, for the benefit of MIDAS.
"Expenses" shall include all costs incurred for further
Exploration, and necessary costs for maintaining the Lease,
as well as costs and expenses incurred in connection with the
application, procedure and approval of the Extension, and the
execution of any relevant modification to the Lease.
3.3 If the Greek Minister of Development approves the
Extension, and the Midas Agreement then enters into force
as set forth in Clause 3.3 of such agreement (the "Effective
Date"), MIDAS will be reimbursed by NEWCO for the
Expenses incurred by MIDAS during the Interim Period, and
such reimbursement amount will be computed towards the
Sum.
3.4 If the Midas Agreement is terminated according to Clause 3.3
of the Midas Agreement, no Party shall be entitled to any
reimbursement for Expenses borne by it during the Interim
Period.
4 PARTICIPATING INTERESTS
4.1 The Parties hereby acknowledge and agree that their initial
Participating Interests in NEWCO, following the formation
of NEWCO, shall be:
a. Rakov: 400,000 Shares, which shall represent 50% of NEWCO s
issued share capital; and
b. Royal: 400,000 Shares, which shall represent 50% of NEWCO s
issued share capital.
4.2 The Participating Interests of the Parties may change from
time to time in accordance with the provisions contained
herein.
5 CONTRIBUTION OF THE SUM
5.1 From September 1, 1997 forward, the Expenses which are
required or permitted by the Midas Agreement shall be
funded exclusively by or on behalf of NEWCO, up to the
amount of 5,000,000 US $ ("The Sum"), at a rate of at least
1,700,000 US $ per year, as determined in the Annual
Programs and Budgets that are to be prepared and submitted
pursuant to the procedure described in Clauses 6.3. and 6.4
of the Midas Agreement. Any Expenses incurred by or on
behalf of NEWCO during the Interim Period shall be credited
against the Sum.
5.2 After the expenditure of the Sum as aforementioned,
Expenses shall be funded by NEWCO and by S&B in the
manner provided for in Clause 7 of the Midas Agreement.
5.3 As of January 31, 1998, Royal has already expended, on
behalf of NEWCO, and as a contribution towards the Sum,
a total of [+$400,000 (US).] Rakov shall, within sixty (60)
days following execution of this Agreement, reimburse to
Royal 50% of the stated amount.
5.4 Rakov and Royal shall, upon written notice of the General
Manager of NEWCO, as described in Clause 6.7 of this
Agreement, make further advances to NEWCO to meet
Expenses until the date the aggregate of such advances
equals 1,800,000 US $. The Shareholders shall, promptly
thereafter, cause NEWCO, through its Shareholders Meeting,
to increase NEWCO's capital by the issue of 54,000 new
Shares of nominal value of 1,000 drs each and at an issue
price of 1,000 drs each. Such capital increase will be covered
exclusively by the advances of 1,800,000 US $ made to
NEWCO by Royal and Rakov.
5.5 If after the contribution of the Minimum Sum under the
Midas Agreement, NEWCO does not exercise its right to
withdraw from the Midas Agreement under Clause 27.1
thereof, the balance of the Sum required to be funded by
NEWCO shall be met by way of further advances by Rakov
and Royal to NEWCO, against further capital increases by
NEWCO. On each occasion that such advances reach
2,000,000 US $ or higher, or at least every six months, the
herein-described advances will be capitalized through a
NEWCO Shareholders Meeting decision, by the issue of such
a number of new Shares of NEWCO as will arise from the
appropriate division of the advances, at the issue price of
1,000 drs per Share. This procedure will continue until the
entire Sum required under the Midas Agreement has been
fully paid by NEWCO to MIDAS, or has otherwise been
advanced by NEWCO on behalf of MIDAS. All such capital
increases will be made through the issue of NEWCO Shares
at an issue price of 1,000 drs each.
6 FUNDING AFTER CONTRIBUTION OF THE SUM
6.1 After the funding of the Sum that NEWCO is required to
contribute to MIDAS (or that NEWCO is required to expend
for or on behalf of MIDAS), the Shareholders of NEWCO
must ensure that NEWCO has sufficient funds to carry on the
Business of MIDAS from:
(a) further subscriptions of equity capital by the Shareholders;
(b) cash generated by income earned;
(c) loans by the Shareholders to NEWCO;
(d) initial public offering or private placement of debt or equity
securities, if permitted under the Midas Agreement;
(e) floating of NEWCO in an International Stock Exchange; or
(f) external borrowings by NEWCO.
6.2 After the payment of the Sum, NEWCO's share of all funding
determined in any Annual Program and Budget that is
approved by the Board of MIDAS, shall be provided to
NEWCO, by all Shareholders of NEWCO, when and as
required, in cash, in proportion to such Shareholders' then-
existing Participating Interests in NEWCO. In the event that
a Shareholder has made an advance or a loan to NEWCO
above such Shareholder's Participating Interest's requirement,
such surplus shall be offset against any cash call.
Contributions by the Shareholders of NEWCO may be
provided as loans or by way of subscription for shares,
provided that the NEWCO Shareholders at all times provide
their respective contributions in the same way.
6.3 Loans made in accordance with Clause 6.1(c) of this
Agreement will be made in proportion to the Shareholders
respective Participating Interests, and on such terms and
conditions (including terms and conditions concerning times
for repayment of principal and interest and rate of interest) as
are agreed from time to time by the Shareholders and the
Board, provided that all such loans and any securities shall be
subordinated to any external borrowings and securities
thereof.
6.4 Funding by an initial public offering or private placement of
debt or equity securities, as per Clause 6.1(d) of this
Agreement, will be effected on terms and conditions decided
by the Board and the Shareholders, and any resulting dilution
shall be borne by the Shareholders in proportion to their
Participating Interests at the time of the transaction.
6.5 The Shareholders may agree to float NEWCO in an
International Stock Exchange, as provided for under Clause
6.1(e) of this Agreement, for the purpose of raising enough
funds to finance NEWCO's share of Expenses for MIDAS.
6.6 The Shareholders shall ensure that NEWCO maintains a
commercially prudent debt to equity ratio.
6.7 The General Manager shall give written notice to each
Shareholder of all calls for funding hereunder, or for written
assurances of availability thereof, in which notice the manner
of furnishing the same shall be specified, and each
Shareholder shall furnish its proportionate share of such
funding, as called for by the General Manager, promptly, and
in any event within 30 days following receipt of any such
notice.
6.8 If any Shareholder fails for any reason to furnish its
proportionate contribution to the funding of NEWCO's share
of Expenses for MIDAS, within the time required, or within
an extension of such time as may be set by the Board, then
the other Shareholder, at its option, may either -
(a) furnish any such deficiency, and the Shareholder in default
shall be liable to pay interest to the non-Defaulting Shareholder
on the amount in default at the rate per annum which is two
(2%) percentage points above the LIBOR Rate for one-year
maturities, as adjusted from time to time, and with interest
commencing on the date that the funded deficiency was
otherwise due to be paid and with such interest accruing until
such deficiency and all interest thereon is paid in full; or
(b) elect to treat the failure of the defaulting Shareholder as an
Event of Default, in accordance with Clause 12 of this
Agreement.
7 MANAGEMENT OF NEWCO
7.1 Rakov agrees to vote its shares of NEWCO to elect or
appoint Royal's nominee to be General Manager of NEWCO
during the Earn-In Period that is provided for in the Midas
Agreement. (Such nominee shall also serve as General
Manager of MIDAS during the Earn-In Period.)
7.2 The General Manager shall be responsible for the execution
of the NEWCO Board's decisions with respect to
management and administration of NEWCO.
7.3 All operations relevant to the management and administration
of NEWCO shall be conducted by the General Manager in
accordance with the decisions and directions of the Board, as
defined in Clause 8, in a careful and workmanlike manner, in
full compliance with all laws, ordinances, rules, regulations,
orders and directives of any and all authorities having
jurisdiction over the Business.
7.4 Two signatures to be specified by the Board shall be required
on all binding documents executed in the name of NEWCO.
Such documents shall include, indicatively and not by way of
limitation, contracts for goods, services and personnel as well
as any other document necessary or advisable for the conduct
of the Business. The General Manager shall use procedures
and manuals approved by the Board for the procurement of
goods and services.
7.5 The General Manager shall procure, at the expense of
NEWCO and for the protection of NEWCO, such minimum
amounts of insurance cover as may be required by applicable
law or such greater amounts as may be approved by the
Board.
7.6 The General Manager shall also be responsible for and do,
either himself or through personnel hired for this purpose, the
following :
7.6.1 Draw up and submit to the Board, for its consideration, a
draft of an Annual Program and Budget, such draft to be
presented at least three (3) months prior to the
commencement of the Fiscal Year to which such Annual
Program and Budget relates. (Fiscal Years shall run from
July 1 of any calendar year to June 30 of the next succeeding
calendar year.) The proposed Annual Program and Budget
shall form a part of the rolling five-year business plan
described in Clause 7.6.2 hereof.
7.6.2 Draw up and submit to the Board, for its consideration, a
draft of a proposed five-year rolling business plan, each such
plan to be submitted at the same time as the draft of the
Annual Program and Budget that is provided for in Clause
7.6.1.
7.6.3 Secure and submit to the Board, for its approval, the relevant
MIDAS feasibility study and Mine Development Plan, when
appropriate.
7.6.4 Provide to the Shareholders monthly reports on the status of
the Business.
7.6.5 Permit and facilitate the inspection by any Shareholder,
through its authorised representatives or recognised chartered
accountants, of all the books, maps, correspondence,
directives, drawings, invoices, reports, memos and any other
document of the General Manager related to and connected
with the Business. Any Shareholder shall be entitled to make
copies of any of the said documents. The General Manager
shall be obligated to maintain all documents and written
material for a period of seven (7) years, or longer if the
relevant laws so require.
7.6.6 Keep or cause to be kept comprehensive, true and accurate
records and accounts of the Business, the General Manager's
performance of his/her duties under this Agreement, all
property, real and personal belonging to, and of all
transactions entered into by or on behalf of NEWCO, the
costs and expenses relating to the Operations, and such other
matters as may be required from time to time by the Board.
7.6.7 Ensure that NEWCO adheres to and implements each
approved Annual Program and Budget.
7.6.8 Ensure that the Directors receive sufficient management and
financial information and reports to allow them to evaluate
the carrying out of the Business and the proposed Annual
Program and Budget.
7.6.9 Ensure that NEWCO allows, after receiving reasonable
notice, a Director or his or her representative, and a
representative of any Shareholder, to visit and inspect the
premises and any property of NEWCO or MIDAS; to inspect
and take copies of the documents relating to the Business,
and relating to NEWCO's and MIDAS' affairs, including all
books of account; and to discuss the affairs, finances and
accounts of NEWCO and MIDAS with the officers,
employees and Auditors of NEWCO and MIDAS, at all
reasonable times.
7.6.10 Keep NEWCO's assets in good condition.
7.6.11 Ensure that NEWCO complies with all requirements of
government authorities relating to the Business.
7.6.12 Perform all duties specifically delegated to him/her.
7.6.13 Until the Earn-In under the Midas Agreement is complete,
the General Manager is to be appointed by the Board upon
Royal's proposal. The General Manager may be dismissed by
the Board, but only with the concurrence of Royal.
Following the payment of the Sum under the Midas
Agreement, the Board, on an annual basis, will appoint the
General Manager of NEWCO, and the General Manager will
then serve at the pleasure of the Board.
8 BOARD
8.1 The Board will be responsible for the management and
administration of NEWCO. The Board will, indicatively and
not by way of limitation, decide upon the following matters:
8.2 NEWCO's position with respect to any vote within MIDAS
on
8.2.1 the voluntary relinquishment of all or any part of the Lease
according to the terms and conditions of the Lease;
8.2.2 undertakings vis-a-vis the Greek State which materially
increase the obligations of NEWCO or MIDAS with respect
to the Business;
8.2.3 approval, revision and amendments of the Annual Programs
and Budgets and the relevant Mine Development Plan;
8.2.4 terms and conditions of any external borrowings, and terms
and conditions of any Shareholder loans;
8.2.5 the hiring of the General Manager, subject to Clauses 7.1.
and 7.6.13., as well as the delegating of material powers and
responsibilities to the General Manager;
8.2.6 mortgages and other encumbrances on real property or
mining rights of NEWCO;
8.2.7 guarantees of NEWCO on behalf of third parties;
8.2.8 release of any debt owing to NEWCO, or compromise of any
claim vested in NEWCO;
8.3 The Board of NEWCO shall consist of 4 Directors, 2
Directors proposed by Rakov and 2 proposed by Royal. The
first Directors shall be the ones identified in Annexure B. In
addition to the Directors, each Shareholder may, upon prior
approval of the Board, bring to all such meetings such
technical and other advisers as it may deem appropriate. Until
the Sum has been paid or expended on behalf of MIDAS
under the Midas Agreement, the Chairman of the Board shall
be selected from among the Directors proposed by Royal; the
Vice-Chairman of the Board shall be selected from among the
Directors proposed by Rakov.
8.4 All costs associated with any technical or other advisors
brought to such meetings of the Board and other expenses
incurred by a Shareholder with regards to such meetings,
shall be borne individually by each Shareholder and shall not
be regarded as Expenses, unless the Board previously agrees
otherwise.
8.5 The meetings of the Board shall be held at such times as the
Board shall determine, provided that the Board shall meet at
least once a month in order to meet the minimum number of
Board meetings required by law. All costs and expenses
associated with a meeting of the Board incurred by or on
behalf of any individual Director shall be borne by the
Shareholder that nominated such Director.
8.6 Except as otherwise specifically provided in the Agreement,
each meeting of the Board shall be convened and held in
accordance with the Articles of NEWCO and applicable law.
No meeting may be called on less than fifteen (15) days
advance written notice unless the Directors otherwise
mutually agree. Such request and notice shall include an
agenda setting forth in sufficient detail all matters to be
discussed and decided. A matter not included in an agenda
for a meeting shall not be considered without the prior
unanimous consent of all Directors. Any Director failing to
attend any meeting properly called for, or failing to vote with
respect to any item properly included on the agenda of any
meeting, shall be bound by any decision properly made at
such meeting with respect to any matter properly considered
at such meeting or with respect to any item properly included
on the agenda, as the case may be. Meetings shall be held in
Athens or such other place as the Shareholders may decide
from time to time.
8.7 Under Greek law as it currently stands, it is not possible for
the Board to adopt enforceable decisions through circulating
resolutions. If in the future such possibility is available,
decisions will be taken by circulating resolutions. The
Shareholders will make every effort to facilitate the
deliberation and decision making process through written and
oral communications prior to the holding of the Board's
meetings.
8.8 All the decisions of the Board other than those provided for
herein shall be made by simple majority of the Directors
present or lawfully represented at the meeting.
9 SHAREHOLDERS' GENERAL ASSEMBLY
9.1 The Shareholders' General Assembly shall convene at least
once a year and as often as is required, if decisions are
required to be made that can only be made by the
Shareholders. Such meetings shall be called by the Chairman
of the Board, or by any Shareholder as provided in the
Articles and applicable law. Written notice to that effect must
be given to the Shareholders at least twenty (20) days prior
to the date of the meeting.
9.2 Rakov agrees to vote for Royal's nominee for Chairman
throughout the Earn-In Period called for in the Midas
Agreement.
9.3 Before the Earn-In Date all decisions of the Shareholders'
General Assembly which are required by law to be taken by
an increased majority shall require unanimous consent of the
votes represented at the General Assembly and entitled to
vote at that time.
9.4 After the Earn-In Date, decisions of the General Assembly
that are required by law to be taken by an increased majority
shall be taken by the increased majority determined under the
Articles of NEWCO and applicable law.
10 DILUTION
10.1 Following (but only following) the Earn-In Date under the
Midas Agreement, the provisions of Clause 11 of the Midas
Agreement shall apply to the Shareholders of NEWCO,
mutatis mutandis.
11 DEFAULT
11.1 The following events are Events of Default under this
Agreement:
(a) Failure by Royal or Rakov to make timely delivery of funds
called for by the General Manager during the Earn-In
Period;
(b) the Transfer or encumbrance (or attempted Transfer or
encumbrance) of all or any Shares or Participating
Interest by a Shareholder, except in accordance with
the provisions of this Agreement;
(c) a breach of a material provision of the this Agreement
(d) a petition in bankruptcy or a winding-up petition (except for
the purposes of reconstruction) in respect of a
Shareholder, filed by or against it and such petition is
not withdrawn or dismissed within thirty (30) days
after its filing; or
(e) the making of an assignment for the benefit of creditors of a
Shareholder; or
(f) A receiver or compulsory administrator is appointed for a
Shareholder or its assets and such appointment is not
discharged within thirty (30) days; or
(g) a Shareholder ceases to carry on its business.
11.2 If a Shareholder is responsible for an Event of Default, as
such are listed above, during the Earn-In Period, the other
Shareholder may:
(a) Put such Shareholder in default by giving it notice in writing
setting out the default ("Default Notice") to this
Shareholder; and
(b) If such default is not cured within thirty (30) days following
receipt of such Default Notice, the non-Defaulting
Shareholder shall be entitled to delivery of all of the
Defaulting Shareholder's Shares of NEWCO,
together with appropriate transfer instruments, duly
endorsed, and together with such other documents as
may be necessary to assign any loans made by the
Defaulting Shareholder to NEWCO pursuant to
Clause 6.1(c) of this Agreement. The Defaulting
Shareholder shall also deliver executed resignations
of any Directors that had been nominated by the
Defaulting Shareholder. Each Shareholder hereby
irrevocably constitutes the other its lawful attorney
for the purpose of completing any transaction
pursuant to this Clause, and obtaining the necessary
approvals from the Minister of Development.
11.3 If a Shareholder is responsible for an Event of Default after
the Earn-In Period, then the provisions of Clause 12 of the
Midas Agreement shall apply, mutatis mutandis.
11.4 The provisions of this Clause 11 regarding default are subject
to the provisions of Clause 22 of this Agreement regarding
Disputes and Arbitration.
11.5 Wherever an Event of Default occurs pursuant to this Clause:
(a) the Board may apply any dividends or interest
payments which have accrued or are payable to the
Defaulting Shareholder towards any moneys which
the Defaulting Shareholder is liable to pay or provide
to NEWCO, and which have not been so paid or
provided;
(b) the Board may treat any amount due and payable to
NEWCO by a Defaulting Shareholder as a debt, and
that amount shall be deemed prima facie to be a true
and lawful debt owed to NEWCO, and the Board
may charge the Defaulting Shareholder interest on the
amount of the debt at the rate determined to be the
overdraft rate of interest, as under Clause 7.9 of the
Midas Agreement at the time of the Event of Default;
(c) neither the Defaulting Shareholder nor any of its nominees
holding shares in NEWCO shall be entitled to vote in
respect of its Shares at any General Assembly of
NEWCO during the period from the date of the
Event of Default to the date that such Event of
Default is fully rectified, and the other Shareholder
hereto shall take all such necessary steps to ensure
that the Defaulting Shareholder and its nominees are
not entitled to vote; and
(d) neither the Defaulting Shareholder nor its nominees shall be
entitled to propose in the General Assembly of the
Shareholders any Directors during the period
between the date of any relevant Event of Default and
the date that such Event of Default is fully rectified,
and the Defaulting Shareholder shall take all
necessary steps to ensure that any Director or
Directors proposed by the Defaulting Shareholder (or
its nominees) resign promptly following any Event of
Default.
12 TRANSFER OF INTEREST
12.1 Any Shareholder may transfer all or part of its Participating
Interest ("the Parcel") subject to the provisions of this
Agreement.
12.2 In case a Shareholder wishes to transfer a Parcel (the
"Transferring Shareholder"), the other Shareholder has a pre-
emptive right in the acquisition of this Parcel according to the
procedure provided for in the following Clauses.
12.3 The Transferring Shareholder shall give notice to the other
Shareholder including the price and terms and conditions of
the transfer ("Notice of Transfer"). If the Transferring
Shareholder has received an offer from a third party the
Notice of Transfer will include the offered price, terms and
conditions.
12.4 The non-Transferring Shareholder, so notified, must respond
to the Transferring Shareholder within thirty days from the
Notice of Transfer whether it is interested in acquiring the
Parcel under the same terms and conditions included in the
notice.
12.5 In case the non-Transferring Shareholder exercises its option
of acquisition, the transfer shall be effected within sixty (60)
days after the Notice of Transfer, provided that the
Transferring Shareholder has obtained the necessary
approvals from the Ministry of Development for the transfer
of the respective Shares.
12.6 In the event the non-Transferring Shareholder does not
express within the stipulated time period its interest to
purchase the Parcel, and a third party had made an offer, the
Transferring Shareholder shall be free to transfer the Parcel
to the third party at the stated price and under the stated
terms and conditions within a period of ninety days following
either the rejection by the non-Transferring Shareholder or
the expiration of the time period determined in Clause 12.3,
provided that the Transferring Shareholder has obtained all
necessary approvals.
12.7 The transfer of the Parcel to such third party will only be
effective if and when the transferee enters into a deed with
the non-Transferring Shareholder agreeing to be bound by
the terms and conditions of this Agreement (and agreeing to
assume with respect to the Parcel purchased, the obligations
pertinent under this Agreement and the Articles), and also
agreeing to be bound by the terms and conditions of the
Midas Agreement.
12.8 For the purpose of making certain that any third party to
whom a Parcel is transferred hereunder is capable of
assuming the financial burden accompanying such Parcel, no
transfer may be made by either Shareholder without first
obtaining the consent of the Board with respect thereto,
which consent shall not be unreasonably withheld.
12.9 The restrictions (right of first refusal) stipulated in this Clause
or anywhere else in the Agreement with regards to the
transfer of the Parcel shall not apply in the event that the
proposed transfer is to an Affiliate of the Transferring
Shareholder, provided that such Affiliate adheres to Clause
12.7 hereof.
12.10 In the event that, in the future, there exists more than two
Shareholders, the non-Transferring Shareholders will have an
option to acquire the Parcel in proportion to their then-
existing Participating Interests.
12.11 If the options exercised by the non-Transferring Shareholders
do not wholly cover the Parcel, Clause 12.6 of this
Agreement shall apply.
13 CONFIDENTIALITY
13.1 The Parties shall agree upon appropriate procedures for the
protection of technical and other information that is
designated as "proprietary" or "confidential".
13.2 No Shareholder or Party, without the prior written consent
of the other Parties, shall disclose to any unrelated third
person, unless required by law or regulation, including but
not limited to stock exchange regulations in Greece, Europe,
Australia, USA or elsewhere, any Confidential Information.
13.3 Where information is required to be released in respect of
Stock Exchange requirements or securities laws or
regulations, the Parties shall be required to approve the draft
of any planned release prior to such release, prepared by any
Party, such approval not to be unreasonably or unduly
withheld, and each Party shall act promptly in approving such
release. In the event that the addressee, with respect to the
proposed release, receives no comment within five business
days from receipt of notice, the release shall be deemed
approved by the Party not making comments.
13.4 No Party shall make advertisements, release publicity
material, publications, news statements or similar written
matters which relate to the Operations until the same shall be
submitted to and approved by the other Party or Parties, such
approval not to be unreasonably withheld.
13.5 The Parties agree that Confidential Information shall be kept
confidential throughout the duration of the Agreement, and
that further additional documents necessary to implement that
intention will be executed by either Party, when and as
requested by the other Party. Confidential Information may
be shared by either Party with any third party, subject to prior
execution of an appropriate confidentiality agreement, and
provided that any such confidentiality agreement will not
release the Party from liability in case of disclosure of
Confidential Information by the third party that breaches such
confidentiality agreement.
14. [This section has been omitted.]
15. DEADLOCK
15.1 If at a meeting of the Board a deadlock situation (an equality of
votes, or a lack of majority required for a decision on an issue
of major importance) has come to exist, and despite any
amicable efforts of the Shareholders, such situation remains
unresolved during a period of one (1) month as from the date
of the relevant meeting, either Shareholder may give notice
in writing to the other Shareholder requesting the
appointment of experts for the purpose of this Clause. For
the purposes of this Clause, neither Party is permitted to
cause a deadlock by adopting a position that would cause
NEWCO to be in default under the Midas Agreement.
15.2 In the event of deadlock, the Shareholders will appoint one expert
each within ten (10) days following the notice for the
appointment of experts under the preceding Clause. No later
than ten (10) days from the date of the appointment of the
last expert, both experts will meet to identify the issues and
appoint a third expert, who shall preside over the panel of
experts (the "Panel"). Such appointment shall be concluded
no later than fifteen (15) days following the initial meeting of
the two experts.
15.3 The Shareholders will prepare and submit to the Panel all necessary
documents providing the information and the
arguments/positions of the Shareholders in order for the
Panel to reach a decision. The Panel will also examine the
witnesses of the Shareholders. Each Shareholder is entitled to
propose two (2) witnesses to be examined by the Panel.
15.4 The documents will be submitted in their original language, and
translation will be required, if such original language is other
than English. The language of the procedure will be English
and the place will be Athens, Greece.
15.5 The Panel must reach a recommendation within three (3) months
following the appointment of the third expert as to how the
deadlock ought to be resolved, and the recommendation of
the Panel will also be taken by majority vote. The Panel will
determine by majority vote all necessary details pertaining to
the procedure established by this Clause. However, any
extension of the deadlines established hereby will be effected
only by unanimous decision of the Panel.
15.6 Each Shareholder will bear its own expense and the expenses of its
expert in resolving any deadlock, but the expenses of the
third expert and of the procedure will be split equally (50-50)
between the Shareholders.
15.7 The decision of the Panel shall not be binding on the Shareholders.
In the event the Shareholders have not reached an agreement
to comply with the decision of the Panel, or have otherwise
not reached a settlement within fifteen (15) days following
the decision of the Panel, the following shall occur :
(a) Each Shareholder must offer to the other Shareholder a certain
price per Share, in a meeting of all Shareholders to
take place sixty (60) to ninety (90) days following
expiration of the preceding fifteen (15) days time
period.
(b) The Shareholder to which the offer of the higher price is made
may, within fifteen (15) days after service of such
offer either accept that offer or serve a notice on the
other Shareholder (the "First Bidder"),
unconditionally offering to purchase all of the
Participating Interest held by the First Bidder. The
price per Share offered to be paid to the First Bidder
by the other Shareholder must be at least 5% higher
than the offer price per Share specified in the First
Bidder's offer.
(c) Further counter-offers may be made by either Shareholder,
subject to the same fifteen (15) days time-limits and
with each new offer price per Share exceeding the
previous offer price per Share by at least 5 %. If a
new offer price per Share in a counter-offer does not
exceed the previous offer price per Share by at least
5%, that counter-offer shall be deemed not to have
been made for the purposes of this Clause.
(d) When fifteen (15) days has elapsed without the then current
bid being accepted or countered by a further bid there
will, subject to any Government or other consents
and approvals which are required to be obtained at
that time, be a binding contract between the then
current highest bidder ('Buyer') and the other
Shareholder ('Seller'), and the Seller shall be deemed
to have accepted the offer to purchase its
Participating Interest made by the Buyer.
(e) The completion of the transfer of the Seller's Shares or
Participating Interest to the Buyer will take place on
or before fifteen (15) days after the Seller has
accepted or is deemed to have accepted the offer
made by the Buyer, provided that all necessary
consents and approvals have been obtained. At the
time of completion of the transfer the Seller will hand
to the Buyer the certificates for the Seller's Shares,
along with an assignment of any Shareholders' loans
included in its Participating Interest and the Buyer
will simultaneously hand to the Seller a bank cheque
for the total purchase price.
(f) In the event a Shareholder has failed to present an offer at the
specified time and place, the bid process will start at
the price offered by the Shareholder which has
presented an offer.
16 FORCE MAJEURE
16.1 For the purpose of the Agreement "force majeure" means act of God,
strike, lockout or other industrial disturbance, unavoidable
accident, act of the public enemy, war, blockade, public riot,
earthquake, lightning, fire, storm, flood, explosion,
governmental restraint, acts of governmental agencies,
definite inability to obtain or comply with necessary permits
and Greek State consents, including transfer of MIDAS
Shares from RGC to S&B, or from S&B to NEWCO or vice
versa, or the acquisition of new MIDAS Shares by S&B or
NEWCO, any other cause whatsoever whether of a kind
specifically enumerated above or otherwise, which is beyond
the reasonable control of the Shareholders, and renders the
performance of the Agreement impossible even through any
alternative legal means that the Shareholders may seek in
good faith, provided that lack of funds for any reason shall
not be construed as a cause beyond the reasonable control of
the Shareholder affected, unless the lack of funds is a direct
result of any restriction, control, penalty or other measure
imposed by any government or agency thereof.
16.2 If a Shareholder is rendered unable wholly or in part, by force
majeure, as defined in Clause 16.1, to carry out its obligations
under the Agreement, other than in respect of the payment of
called sums or other moneys payable by that Shareholder
under the Agreement, that Shareholder shall give to the other
Shareholder and to the General Manager prompt written
notice of the force majeure occurrence, with reasonably full
particulars concerning it, and the Shareholder giving the
notice shall be excused from performing its obligations
during, but not longer than, the continuance of the force
majeure, and such Shareholder shall not, for reason of that
inability or delay, be or be deemed to be a Defaulting
Shareholder.
16.3 The Shareholder giving notice of force majeure shall use its
reasonable endeavours and all reasonable diligence to remove
the cause of the force majeure and shall begin or resume
performance of its suspended obligations as soon as possible
after that cause has been removed. To that end, the other
Shareholder or Shareholders shall offer to the Shareholder
giving notice of force majeure all reasonable assistance.
17 APPROVALS NOT OBTAINED
If the Greek Minister of Development refuses to grant consent to
the application of S&B for the acquisition by NEWCO of the new
Shares of MIDAS that are to be issued after the capitalization of the
Sum that is to be funded by NEWCO, the Parties will negotiate in
good faith with S&B to determine a manner in which NEWCO can
participate in the Exploration, Development and Mining Operations
of the Product within the Area, with rights that are, as near as
possible, equivalent to the rights provided for in the Midas
Agreement.
18 GUARANTEE
18.1 Royal and Rakov have irrevocably and unconditionally guaranteed to
S&B and to its successors or permitted assigns, as prime
obligors, jointly and severally, with NEWCO, the good
performance of all the obligations of NEWCO under the
Midas Agreement, in each case waiving their rights of
exception and division ("The Guarantee").
18.2 Within the framework of the Guarantee, the Parties have agreed
to indemnify S&B against all losses or damages that the latter may
suffer as a result of either a breach by or failure of performance by
NEWCO of any of the aforesaid obligations under the Midas
Agreement.
18.3 The Guarantee shall remain in full force and effect, jointly and
severally, until such time as NEWCO is fully discharged of all its
obligations under the Midas Agreement.
19 S&B'S PRE-EMPTIVE RIGHTS UPON TRANSFER OF SHARES IN NEWCO
19.1 If Royal or Rakov wish to transfer their shares in NEWCO, S&B has
a pre-emptive right (subordinate to the respective pre-
emptive rights of Rakov or Royal) to acquire the number of
shares that the disposing party is willing to transfer, and
Clause 12 of this Agreement applies mutatis mutandis.
19.2 The pre-emptive right of S&B does not apply to any proposed
transfer of NEWCO shares to an Affiliate of Royal or Rakov, or from
Royal to Rakov, or vice versa.
19.3 Neither Royal nor Rakov shall have the right to float their shares
in NEWCO of an International Stock Exchange without the prior
written consent of S&B, unless S&B has first noticed that it has
determined not to take MIDAS public.
20 NOTICES
20.1 Any notice or other communications pursuant to the
Agreement shall be in writing, delivered in person or sent by
registered mail-return receipt requested, addressed as follows:
(a) If to Royal:
To the Chairman, Royal Gold, Inc.
Suite 1000, 1660 Wynkoop Street
Denver, Colorado 80202-1132
Tel.: (303) 573-1660
Fax: (303) 595-9385
(b) If to Rakov:
[To be furnished.]
The effective date of such notices shall be the date of receipt by
the addressee, as evidenced by the post office or the courier
service, or fax confirmation.
20.2 Any Party may change its address for the purposes of the
Agreement by giving at least fourteen (14) days notice in
writing to the other Parties hereto.
21. [This section has been omitted.]
22 DISPUTES - ARBITRATION
Any dispute, controversy, claim arising out of or relating to the
Agreement or the subject matter of the Agreement, or the
execution, validity, interpretation, implementation, breach or
termination hereof, or the rights and liabilities of the Parties
hereunder shall be settled by arbitration in accordance with the
Rules of Conciliation and Arbitration of the International Chamber
of Commerce. The Arbitration court shall comprise 3 arbitrators;
each Party appointing one arbitrator and the third arbitrator being
the Chairman shall be appointed by the two arbitrators. The
arbitration proceedings shall take place in Athens, in the English
language, before one arbitrator who shall be appointed by the
Court of Arbitration in accordance with the said Rules. The
arbitrators shall apply the substantive laws of the Greek State. The
award of the arbitration shall be in the English language and shall
be final, irrevocable and binding on all the Parties which were
invited to participate in the arbitration proceedings, without
recourse to any regular or extraordinary means of appeal and shall
be enforceable in any Court of law having jurisdiction over the
Parties. The cost of such arbitration shall be assessed to such Party
or Parties as may be determined by the arbitrators.
23 GOVERNING LAW
This Agreement shall be governed by and construed in
accordance with the laws of the Greek State.
24 MISCELLANEOUS
24.1 The Agreement sets forth the full and complete understanding of
the Parties with respect to the subject matter hereof as of
the date first above stated, and it supersedes all previous
agreements, representations, minutes and memoranda made
or dated prior hereto and relating to the subject matter
hereof
24.2 Any modification or amendment of the Agreement or any
agreement of the Parties required by the Agreement shall
not be of any force or effect unless it is in writing and
signed by each of the Parties.
24.3 Any invalidity of a term, section, Clause or provision of the
Agreement judged to be invalid for any reason whatsoever
by the arbitrator or a court of competent jurisdiction shall
not affect the validity or operation of any other term,
section, Clause or provision of the Agreement.
24.4 The Agreement shall be binding upon and inure for the benefit of
the Parties hereto and their respective permitted assigns
and successors in title, but all in accordance with the
provisions hereof.
24.5 Each party will bear its own legal expenses, other than the
payment of stamp duty, incurred in the preparation and
settling of the Agreement. Any stamp duty payable on the
Agreement shall be a NEWCO expense, payable by the
Parties in proportion to their respective Participating
Interests.
24.6 Each Party will do, execute, acknowledge and deliver all and every
such further acts, deeds, agreements, assignments and
assurances as shall be reasonably necessary and required
for the purposes of giving full effect to the Agreement.
24.7 Headings and paragraph titles are for the sole purpose of
facilitating the review of the text, and have no further legal
significance.
24.8 If there is any conflict between the provisions of the Agreement
and the Articles, the provisions of the Agreement shall
prevail and on written request by either Shareholder to the
Chairman of the Board, the Articles shall be amended, to
the extent possible, to remove any such conflict.
24.9 Unless another provision of the Agreement specifies to the
contrary, a Party must not unreasonably withhold or delay
any approval or consent that may be required from that
Party under the Agreement.
24.10 No Shareholder shall be entitled to mortgage, pledge, charge,
encumber or create or suffer to exist, a lien, charge, or
encumbrance over in respect of all or part of its
Participating Interest without the prior written consent of
the other Shareholder.
24.11 All contracts for goods or services respecting the Business shall be
negotiated on an arm's length and competitive basis even if
the services or goods required can be provided by one of
the Shareholders or their respective Affiliates. In the event
of equal terms, a Shareholder or its Affiliate will be
preferred over any third party.
25 [This section has been omitted.]
26 TERM OF AGREEMENT
26.1 The Agreement shall come into effect on the date
of execution, with retroactive application as set forth herein
regarding Expenses incurred since September 1, 1997, and the
Agreement shall remain in full force and effect until:
(a) terminated by written agreement between all
Shareholders; or
(b) any Shareholder holds all of the Participating
Interests, or
(c) NEWCO is liquidated or wound up
26.2 Termination of the Agreement does not extinguish
or otherwise affect any rights of any Shareholder against the other
which:
(a) accrued before the time at which termination or release
occurred; or
(b) by necessary implication shall survive the termination of the
Agreement.
26.3 Clauses that are expressed to survive termination
will do so.
27 WITHDRAWAL FROM MIDAS AGREEMENT
27.1 Subject to Clause 27.2, NEWCO may not withdraw from the
Midas Agreement until it has paid in to MIDAS, or until it
has expended on behalf of MIDAS, the Minimum Sum, as
described in the Midas Agreement (1,700,000 US $).
27.2 Depending upon the Minister's approval for the Extension of
the Lease as described in Clause 3.3 of the Midas Agreement,
NEWCO may withdraw from the Midas Agreement within fifteen
(15) days following the above ministerial decision, if the conditions
of the approval for the Extension may be considered, in good faith,
to be overly burdensome.
27.3 In case NEWCO withdraws from the Midas Agreement before
the Earn-In Date, it shall do all things necessary to fully and
effectively transfer the MIDAS Shares issued in its name to S&B,
for a purchase price of 1,000 Drs for all such Shares. NEWCO
hereby irrevocably constitutes S&B its lawful attorney for the
purpose of completing any transaction pursuant to this clause and
obtaining the necessary approvals by the Greek Minister of
Development. Notwithstanding the above right of S&B, NEWCO
shall not be released from any of its obligations under the Midas
Agreement until it has completed all such acts necessary for the
transfer to S&B of any of its Shares in MIDAS.
27.4 After the Earn-In Date, under the Midas Agreement, any
Shareholder of MIDAS may withdraw from the Midas Agreement
at any time, provided that such Shareholder gives Notice of
Transfer of its Participating Interest, and provided that the other
Shareholders of MIDAS have an opportunity to exercise their pre-
emptive rights as per Clause 13 of the Midas Agreement.
IN WITNESS WHEREOF the Parties hereto have executed these
presents in three (3) original copies, the day and year first
hereinabove written. Each Party has taken one fully-executed
copy, whereas the third copy will be deposited with the pertinent
Tax Office, as provided by law.
ROYAL GOLD, INC.
By: /s/
Peter B. Babin
President
RAKOV PTY LTD
By: /s/
Ian Plimer
Managing Director
EXPLORATION, DEVELOPMENT AND
MINE OPERATING AGREEMENT FOR THE
BLACK MAMMOTH PROJECT
(NYE COUNTY, NEVADA)
BATTLE MOUNTAIN EXPLORATION COMPANY
AND
ROYAL GOLD, INC.
JUNE 30, 1998
TABLE OF CONTENTS
Page
ARTICLE I DEFINITIONS AND CROSS-REFERENCES. . 1
1.1 Definitions. . . . . . . . . . 1
1.2 Cross-References . . . . . . . 1
ARTICLE II NAME, PURPOSES AND TERM . . . . . . 1
2.1 General. . . . . . . . . . . . 1
2.2 Name . . . . . . . . . . . . . 2
2.3 Purposes . . . . . . . . . . . 2
2.4 Limitation. . . . . . . . . . 2
2.5 Term . . . . . . . . . . . . . 2
ARTICLE III REPRESENTATIONS AND WARRANTIES;
TITLE TO ASSETS; INDEMNITIES . . . 3
3.1 Representations and Warranties
of Both Participants. . . . . 3
3.2 Representations and Warranties
of BATTLE MOUNTAIN. . . . . . 3
3.3 Disclosures. . . . . . . . . . 5
3.4 Record Title . . . . . . . . . 5
3.5 Loss of Title. . . . . . . . . 5
3.6 Royalties, Production Taxes
and Other Payments Based on
Production. . . . . . . . . . 6
3.7 Indemnities/Limitation of
Liability . . . . . . . . . . 6
ARTICLE IV RELATIONSHIP OF THE PARTICIPANTS. . 7
4.1 No Partnership. . . . . . . . 7
4.2 Federal Tax Elections and
Allocations . . . . . . . . . 8
4.3 State Income Tax . . . . . . . 8
4.4 Tax Returns. . . . . . . . . . 8
4.5 Other Business Opportunities . 8
4.6 Waiver of Rights to Partition
or Other Division of Assets . 8
4.7 Transfer or Termination of
Rights to Properties. . . . . 8
4.8 Implied Covenants. . . . . . . 8
4.9 No Third Party Beneficiary
Rights. . . . . . . . . . . . 8
ARTICLE V CONTRIBUTIONS BY PARTICIPANTS . . . 9
5.1 Participants' Initial
Contributions . . . . . . . . 9
5.2 Failure to Make Initial
Contribution . . . . . . . . . 10
5.3 Additional Contributions . . . 11
ARTICLE VI INTERESTS OF PARTICIPANTS . . . . . 11
6.1 Initial Participating
Interests . . . . . . . . . . . 11
6.2 Changes in Participating
Interests. . . . . . . . . . . 11
6.3 Elimination of Minority
Interest . . . . . . . . . . . 12
6.4 Continuing Liabilities Upon
Adjustments of Participating
Interests . . . . . . . . . . . 13
6.5 Documentation of Adjustments
to Participating Interests . . 13
6.6 Grant of Lien and Security
Interest . . . . . . . . . . . 13
6.7 Subordination of Interests . . 14
ARTICLE VII MANAGEMENT COMMITTEE . . . . . . . . 14
7.1 Organization and Composition. . 14
7.2 Decisions . . . . . . . . . . . 14
7.3 Meetings . . . . . . . . . . . 14
7.4 Action Without Meeting in
Person . . . . . . . . . . . . 15
7.5 Matters Requiring Approval. . . 15
ARTICLE VIII MANAGER . . . . . . . . . . . . . . 16
8.1 Designation . . . . . . . . . . 16
8.2 Powers and Duties of Manager. . 17
8.3 Standard of Care . . . . . . . 21
8.4 Resignation; Deemed Offer to
Resign . . . . . . . . . . . . 21
8.5 Payments To Manager . . . . . . 23
8.6 Transactions With Affiliates. . 23
8.7 Activities During Deadlock . . 23
ARTICLE IX PROGRAMS AND BUDGETS . . . . . . . . 22
9.1 Initial Program and Budget. . . 22
9.2 Operations Pursuant to Programs
and Budgets . . . . . . . . . . 22
9.3 Presentation of Programs and
Budgets . .. . . . . . . . . . 22
9.4 Review and Adoption of Proposed
Programs and Budgets . . . . . 23
9.5 Election to Participate . . . . 23
9.6 Recalculation or Restoration of
Reduced Interest Based on
Actual Expenditures . . . . . . 24
9.7 Pre-Feasibility Study Programs
and Budgets . . . . . . . . . . 25
9.8 Completion of Pre-Feasibility
Studies and Selection of
Approved Alternatives . . . . 27
9.9 Programs and Budgets for
Feasibility Study . . . . . . . 28
9.10 Development Programs and
Budgets; Project Financing . . 28
9.11 Expansion or Modification
Programs and Budgets . . . . . 29
9.12 Budget Overruns; Program
Changes . . . . . . . .. . . . 29
9.13 Emergency or Unexpected
Expenditures . . . . . . . . . 29
ARTICLE X ACCOUNTS AND SETTLEMENTS . . . . . 30
10.1 Monthly Statements . . . . . . 30
10.2 Cash Calls . . . . . . . . . . 30
10.3 Failure to Meet Cash Calls . . 30
10.4 Cover Payment . . . . . . . . 30
10.5 Remedies . . . . . . . . . . 30
10.6 Audits . . . . . . . . . . . . 33
ARTICLE XI DISPOSITION OF PRODUCTION . . . . . 34
11.1 Taking In Kind . . . . . . . . 34
11.2 Failure of Participant to
Take In Kind . . . . . . . . . 34
11.3 Hedging . . . . . . . . . . . . 34
ARTICLE XII WITHDRAWAL AND TERMINATION . . . . . 34
12.1 Termination by Expiration or
Agreement . . . . . . . . . . 34
12.2 Termination by Deadlock . . . 34
12.3 Withdrawal . . . . . . . . . . 35
12.4 Continuing Obligations and
Environmental Liabilities . . . 35
12.5 Disposition of Assets on
Termination . . . . . . . . . 35
12.6 Non-Compete Covenants . . . . . 35
12.7 Right to Data After
Termination . . . . . . . . . . 36
12.8 Continuing Authority . . . . . 36
ARTICLE XIII ACQUISITIONS WITHIN AREA OF
INTEREST . . . . . . . . . . . . . 36
13.1 General . . . . . . . . . . . 36
13.2 Notice to Non-Acquiring
Participant . . . . . . . . . . 36
13.3 Option Exercised . . . . . . . 37
13.4 Option Not Exercised . . . . . 37
ARTICLE XIV ABANDONMENT AND SURRENDER OF
PROPERTIES . . . . . . . . . . . . 37
ARTICLE XV SUPPLEMENTAL BUSINESS AGREEMENT . . 38
ARTICLE XVI TRANSFER OF INTEREST; PREEMPTIVE
RIGHT . . . . . . . . . . . . . . . 38
16.1 General . . . . . . . . . . . . 38
16.2 Limitations on Free
Transferability . . . . . . . . 38
16.3 Preemptive Right . . . . . . . 41
ARTICLE XVII DISPUTES . . . . . . . . . . . . . 41
17.1 Governing Law . . . . . . . . 41
17.2 Forum Selection . . . . . . . . 41
17.3 Dispute Resolution . . . . . . 41
ARTICLE XVIII CONFIDENTIALITY, OWNERSHIP, USE
AND DISCLOSURE OF INFORMATION. . . . 41
18.1 Business Information . . . . . 41
18.2 Participant Information . . . . 41
18.3 Permitted Disclosure of
Confidential Business
Information . . . . . . . . . . 42
18.4 Disclosure Required By Law . . 42
18.5 Public Announcements . . . . . 43
ARTICLE XIX GENERAL PROVISIONS . . . . . . . . 43
19.1 Notices . . . . . . . . . . . 43
19.2 Gender . . . . . . . . . . . . 44
19.3 Currency . . . . . . . . . . . 44
19.4 Headings . . . . . . . . . . . 44
19.5 Waiver . . . . . . . . . . . . 44
19.6 Modification . . . . . . . . . 44
19.7 Force Majeure . . . . . . . . . 44
19.8 Rule Against Perpetuities . . . 45
19.9 Further Assurances . . . . . . 45
19.10 Entire Agreement; Successors
and Assigns . . . . . . . . . 45
19.11 Memorandum . . . . . . . . . . 45
19.12 Counterparts . . . . . . . . . 46
EXHIBIT A ASSETS AND AREA OF INTEREST
EXHIBIT B ACCOUNTING PROCEDURES
EXHIBIT C TAX MATTERS
EXHIBIT D DEFINITIONS
EXHIBIT E NET RETURNS CALCULATION
EXHIBIT F INSURANCE
EXHIBIT G INITIAL PROGRAM AND BUDGET
EXHIBIT H PREEMPTIVE RIGHTS
EXPLORATION, DEVELOPMENT AND MINE OPERATING AGREEMENT
This Agreement is made as of June 30, 1998 ("Effective Date")
between BATTLE MOUNTAINEXPLORATION COMPANY, a Texas corporation ("BATTLE
MOUNTAIN"), the address of which is Suite 102, 690 Kresge
Lane, Sparks, Nevada 89431 and ROYAL GOLD, INC., a
Delaware corporation ("ROYAL"), the address of which is Suite
1000, 1660 Wynkoop Street, Denver, Colorado 80202.
RECITALS
A. BATTLE MOUNTAIN owns or controls
certain properties in Nye County, State of Nevada, which
properties are described in Exhibit A and defined in Exhibit D (the
"Properties").
B. ROYAL wishes to participate with
BATTLE MOUNTAIN in the exploration, evaluation and if
justified the development and mining of mineral resources within
the Properties, and BATTLE MOUNTAIN is willing to grant
such rights to ROYAL.
NOW THEREFORE, in consideration of the
covenants and conditions contained herein, BATTLE
MOUNTAIN and ROYAL agree as follows:
ARTICLE I
DEFINITIONS AND CROSS-REFERENCES
1.1 Definitions. The terms defined in
Exhibit D and elsewhere shall have the defined meaning wherever
used in this Agreement, including in Exhibits.
1.2 Cross-References. References to
"Exhibits," "Articles," "Sections" and "Subsections" refer to
Exhibits, Articles, Sections and Subsections of this Agreement.
References to "Paragraphs" and "Subparagraphs" refer to
paragraphs and subparagraphs of the referenced Exhibits.
ARTICLE II
NAME, PURPOSES AND TERM
2.1 General. BATTLE MOUNTAIN and
ROYAL hereby enter into this Agreement for the purposes
hereinafter stated. All of the rights and obligations of the
Participants in connection with the Assets or the Area of Interest
and all Operations shall be subject to and governed by this
Agreement.
2.2 Name. The Assets shall be managed and
operated by the Participants under the name of "BLACK
MAMMOTH PROJECT (the "Project")." The Manager shall
accomplish any registration required by applicable assumed or
fictitious name statutes and similar statutes.
2.3 Purposes. This Agreement is entered into
for the following purposes and for no others, and shall serve as
the exclusive means by which each of the Participants
accomplishes such purposes:
(a) to conduct Exploration within the
Properties,
(b) to acquire additional property and
other interests within the Area of
Interest,
(c) to evaluate the possible
Development and Mining of the
Properties, and, if justified, to
engage in Development and
Mining,
(d) to engage in Operations on the
Properties,
(e) to engage in marketing Products, to
the extent provided by Article XI,
(f) to complete and satisfy all
Environmental Compliance
obligations and Continuing
Obligations affecting the Properties,
and
(g) to perform any other activity
necessary, appropriate, or
incidental to any of the foregoing.
2.4 Limitation. Unless the Participants
otherwise agree in writing, the Operations shall be limited to the
purposes described in Section 2.3, and nothing in this Agreement
shall be construed to enlarge such purposes or to change the
relationships of the Participants as set forth in Article IV.
2.5 Term. The term of this Agreement shall be
for twenty (20) years from the Effective Date and for so long
thereafter as Products are produced from the Properties on a
continuous basis, and thereafter until all materials, supplies,
equipment and infrastructure have been salvaged and disposed of,
any required Environmental Compliance is completed and
accepted and the Participants have agreed to a final accounting,
unless the Business is earlier terminated as herein provided. For
purposes hereof, Products shall be deemed to be produced from
the Properties on a "continuous basis" so long as production in
commercial quantities is not halted for more than one hundred
eighty (180) consecutive days.
ARTICLE III
REPRESENTATIONS AND WARRANTIES; TITLE TO
ASSETS; INDEMNITIES
3.1 Representations and Warranties of Both
Participants. As of the Effective Date, each Participant warrants
and represents to the other that:
(a) it is a corporation duly organized
and in good standing in its state of incorporation and is qualified
to do business and is in good standing in those states where
necessary in order to carry out the purposes of this Agreement;
(b) it has the capacity to enter into and
perform this Agreement and all transactions contemplated herein
and that all corporate, board of directors, shareholder, surface and
mineral rights owner, lessor, lessee and other actions required to
authorize it to enter into and perform this Agreement have been
properly taken;
(c) it will not breach any other
agreement or arrangement by entering into or performing this
Agreement;
(d) it is not subject to any governmental
order, judgment, decree, debarment, sanction or Laws that would
preclude the permitting or implementation of Operations under
this Agreement; and
(e) this Agreement has been duly
executed and delivered by it and is valid and binding upon it in
accordance with its terms.
3.2 Representations and Warranties of
BATTLE MOUNTAIN. As of the Effective Date, BATTLE
MOUNTAIN makes the following representations and warranties
to ROYAL:
(a) With respect to those Properties
BATTLE MOUNTAIN owns in fee simple, if any, BATTLE
MOUNTAIN is in exclusive possession of and owns such
Properties free and clear of all Encumbrances or defects in title
except those specifically identified in Paragraph 1.1 of
Exhibit A.
(b) With respect to those Properties in
which BATTLE MOUNTAIN holds an interest under leases or
other contracts: (i) BATTLE MOUNTAIN is in exclusive
possession of such Properties; (ii) BATTLE MOUNTAIN has not
received any notice of default of any of the terms or provisions of
such leases or other contracts; (iii) BATTLE MOUNTAIN has
the authority under such leases or other contracts to perform fully
its obligations under this Agreement; (iv) to BATTLE
MOUNTAIN's knowledge, such leases and other contracts are
valid and are in good standing; (v) BATTLE MOUNTAIN has no
knowledge of any act or omission or any condition on the
Properties which could be considered or construed as a default
under any such lease or other contract; and (vi) to BATTLE
MOUNTAIN's knowledge, such Properties are free and clear of
all Encumbrances or defects in title except for those specifically
identified in Paragraph 1.1 of Exhibit A.
(c) BATTLE MOUNTAIN has
delivered to or made available for inspection by ROYAL all
Existing Data in its possession or control, and true and correct
copies of all leases or other contracts relating to the Properties.
(d) With respect to unpatented mining
claims and millsites located by BATTLE MOUNTAIN that are
included within the Properties, except as provided in Paragraph
1.1 of Exhibit A and subject to the paramount title of the United
States: (i) to the best of its knowledge, the unpatented mining
claims were properly laid out and monumented; (ii) all required
location and validation work was properly performed; (iii) to the
best of its knowledge, location notices and certificates were
properly recorded and filed with appropriate governmental
agencies; (iv) all assessment work required to hold the unpatented
mining claims has been performed and all Governmental Fees
have been paid in a manner consistent with that required of the
Manager pursuant to Subsection 8.2(k) through the assessment
year ending September 1, 1998; (v) all affidavits of assessment
work, evidence of payment of Governmental Fees, and other
filings required to maintain the claims in good standing have been
properly and timely recorded or filed with appropriate
governmental agencies; (vi) to the best of its knowledge, the
claims are free and clear of Encumbrances or defects in title; and
(vii) BATTLE MOUNTAIN has no knowledge of conflicting
mining claims. Nothing in this Subsection, however, shall be
deemed to be a representation or a warranty that any of the
unpatented mining claims contains a valuable mineral deposit.
(e) With respect to unpatented mining
claims and millsites not located by BATTLE MOUNTAIN but
which are included within the Properties, except as provided in
Paragraph 1.1 of Exhibit A and subject to the paramount title of
the United States: (i) all assessment work required to hold the
unpatented mining claims has been performed and all
Governmental Fees have been paid in a manner consistent with
that required of the Manager pursuant to Subsection 8.2(k)through the
assessment year ending September 1, 1998; (ii) all
affidavits of assessment work, evidence of payment of
Governmental Fees, and other filings required to maintain the
claims in good standing have been properly and timely recorded
or filed with appropriate governmental agencies; (iii) to the best
of its knowledge, the claims are free and clear of Encumbrances
or defects in title; and (iv) BATTLE MOUNTAIN has no
knowledge of conflicting mining claims, except for those
specifically identified in Paragraph 1.1 of Exhibit A. Nothing in
this Subsection, however, shall be deemed to be a representation
or a warranty that any of the unpatented mining claims contains a
valuable discovery of minerals.
(f) With respect to the Properties, to
BATTLE MOUNTAIN's knowledge, there are no pending or
threatened actions, suits, claims or proceedings, and there have
been no previous transactions affecting its interests in the
Properties which have not been for fair consideration.
(g) Except as to matters otherwise
disclosed in writing to ROYAL prior to the Effective Date:
(i) to BATTLE MOUNTAIN's
knowledge, the conditions existing on or with respect to the
Properties and its ownership and operation of the Properties are
not in violation of any Laws (including without limitation any
Environmental Laws), nor causing or permitting any damage
(including Environmental Damage, as defined below) or
impairment to the health, safety, or enjoyment of any person at or
on the Properties or in the general vicinity of the Properties;
(ii) to BATTLE MOUNTAIN's
knowledge, there have been no past violations by it or by any of
its predecessors in title of any Environmental Laws or other Laws
affecting or pertaining to the Properties, nor any past creation of
damage or threatened damage to the air, soil, surface waters,
groundwater, flora, fauna, or other natural resources on, about or
in the general vicinity of the Properties ("Environmental
Damage"); and
(iii) BATTLE MOUNTAIN has
not received inquiry from or notice of a pending investigation
from any governmental agency or of any administrative or judicial
proceeding concerning the violation of any Laws.
The representations and warranties set forth
above shall survive the execution and delivery of any documents
of Transfer provided under this Agreement. For a representation
or warranty made to a Participant's "knowledge," the term
"knowledge" shall mean actual knowledge on the part of the
officers, employees, and agents of the representing Participant, or
knowledge of facts that would reasonably lead to the indicated
conclusions.
3.3 Disclosures. Each of the Participants
represents and warrants that it is unaware of any material facts or
circumstances that have not been disclosed in this Agreement,
which should be disclosed to the other Participant in order to
prevent the representations and warranties in this Article from
being materially misleading. BATTLE MOUNTAIN has
disclosed to ROYAL all information it believes to be relevant
concerning the Assets and has provided to or made available for
inspection by ROYAL all such information, but does not make
any representation or warranty, express or implied, as to the
accuracy or completeness of the information (except as provided
in Section 3.2) or as to the boundaries or value of the Assets.
Each Participant represents to the other that in negotiating and
entering into this Agreement it has relied solely on its own
appraisals and estimates as to the value of the Assets and upon its
own geologic and engineering interpretations related thereto.
3.4 Record Title. Title to the Assets shall be
held by BATTLE MOUNTAIN for BATTLE MOUNTAIN and
ROYAL, as their Participating Interests are determined pursuant
to this Agreement.
3.5 Loss of Title. Any failure or loss of title to
the Assets, and all costs of defending title, shall be charged to the
Business Account, except that all costs and losses arising out of or
resulting from breach of the representations and warranties of
BATTLE MOUNTAIN as to title shall be charged to BATTLE
MOUNTAIN.
3.6 Royalties, Production Taxes and Other
Payments Based on Production. All required payments of
production royalties, taxes based on production of Products, and
other payments out of production to private parties and
governmental entities shall be determined and made by the
Manager and charged to the Equity Account of each Participant in
proportion to its Participating Interest at the time of such payment.
If separate payment is required, each Participant shall determine
and pay its proportionate share of any such payment, and, in such
event, each Participant shall furnish to the other Participant
evidence of timely payment for all such required payments. In the
event that either Participant fails to make any such required
payment, the other Participant shall have the right to make such
payment and shall thereby become subrogated to the rights of such
third party; provided, however, that the making of any such
payment on behalf of the other Participant shall not constitute
acceptance by the paying Participant of any liability to such third
party for the underlying obligation.
3.7 Indemnities/Limitation of Liability.
(a) Each Participant shall indemnify the
other Participant, its directors, officers, employees, agents and
attorneys, or Affiliates (collectively "Indemnified Participant")
from and against the entire amount of any Material Loss. A
"Material Loss" shall mean all costs, expenses, damages or
liabilities, including attorneys' fees and other costs of litigation
(either threatened or pending) arising out of or based on a breach
by a Participant ("Indemnifying Participant") of any
representation, warranty or covenant contained in this Agreement,
including without limitation:
(i) any failure by a Participant
to determine accurately and make timely payment of its
proportionate share of required royalties, production taxes and
other payments out of production to third parties as required by
Section 3.6;
(ii) any action taken for or
obligation or responsibility assumed on behalf of the other
Participant, its directors, officers, employees, agents and
attorneys, or Affiliates by a Participant, any of its directors,
officers, employees, agents and attorneys, or Affiliates, in
violation of Section 4.1;
(iii) failure of a Participant or its
Affiliates to comply with the non-compete or Area of Interest
provisions of Section 12.6 or Article XIII;
(iv) any Transfer that causes
termination of the tax partnership established by Section 4.2,
against which the transferring Participant shall indemnify the
non-transferring Participant as provided in Article V of
Exhibit C; and
(v) failure of a Participant or its
Affiliates to comply with the preemptive right under Section 16.3 and
Exhibit H.
A Material Loss shall not be deemed to have
occurred until, in the aggregate, an Indemnified Participant incurs
losses, costs, damages or liabilities in excess of One Hundred
Thousand Dollars ($100,000) relating to breaches of warranties,
representations and covenants contained in this Agreement.
(b) If any claim or demand is asserted
by a third party against an Indemnified Participant in respect of
which such Indemnified Participant may be entitled to
indemnification under this Agreement, written notice of such
claim or demand shall promptly be given to the Indemnifying
Participant. The Indemnifying Participant shall have the right, but
not the obligation, by notifying the Indemnified Participant within
thirty (30) days after its receipt of the notice of the claim or
demand, to assume the entire control of (subject to the right of the
Indemnified Participant to participate, at the Indemnified
Participant's expense and with counsel of the Indemnified
Participant's choice), the defense, compromise, or settlement of
the matter, including, at the Indemnifying Participant's expense,
employment of counsel of the Indemnifying Participant's choice.
Any damages to the assets or business of the Indemnified
Participant caused by a failure by the Indemnifying Participant to
defend, compromise, or settle a claim or demand in a reasonable
and expeditious manner requested by the Indemnified Participant,
after the Indemnifying Participant has given notice that it will
assume control of the defense, compromise, or settlement of the
matter, shall be included in the damages for which the
Indemnifying Participant shall be obligated to indemnify the
Indemnified Participant. Any settlement or compromise of a
matter by the Indemnifying Participant shall include a full release
of claims against the Indemnified Participant which has arisen out
of the indemnified claim or demand.
ARTICLE IV
RELATIONSHIP OF THE PARTICIPANTS
4.1 No Partnership. Nothing contained in this
Agreement shall be deemed to constitute either Participant the
partner or the venturer of the other, or, except as otherwise herein
expressly provided, to constitute either Participant the agent or
legal representative of the other, or to create any fiduciary
relationship between them. The Participants do not intend to
create, and this Agreement shall not be construed to create, any
mining, commercial or other partnership or joint venture. Neither
Participant, nor any of its directors, officers, employees, agents
and attorneys, or Affiliates, shall act for or assume any obligation
or responsibility on behalf of the other Participant, except as
otherwise expressly provided herein, and any such action or
assumption by a Participant's directors, officers, employees,
agents and attorneys, or Affiliates shall be a breach by such
Participant of this Agreement. The rights, duties, obligations and
liabilities of the Participants shall be several and not joint or
collective. Each Participant shall be responsible only for its
obligations as herein set out and shall be liable only for its share
of the costs and expenses as provided herein, and it is the express
purpose and intention of the Participants that their ownership of
Assets and the rights acquired hereunder shall be as tenants in
common.
4.2 Federal Tax Elections and Allocations.
Without changing the effect of Section 4.1, the relationship of the
Participants shall constitute a tax partnership within the meaning
of Section 761(a) of the United States Internal Revenue Code of
1986, as amended. Tax elections and allocations shall be made as
set forth in Exhibit C.
4.3 State Income Tax. To the extent
permissible under applicable law, the relationship of the
Participants shall be treated for state income tax purposes in the
same manner as it is for federal income tax purposes.
4.4 Tax Returns. After approval of the
Management Committee, any tax returns or other required tax
forms shall be filed in accordance with Exhibit C.
4.5 Other Business Opportunities. Except as
expressly provided in this Agreement, each Participant shall have
the right to engage in and receive full benefits from any
independent business activities or operations, whether or not
competitive with this Business, without consulting with, or
obligation to, the other Participant. The doctrines of "corporate
opportunity" or "business opportunity" shall not be applied to
this Business nor to any other activity or operation of either
Participant. Neither Participant shall have any obligation to the
other with respect to any opportunity to acquire any property
outside the Area of Interest at any time, or, except as otherwise
provided in Section 12.6, within the Area of Interest after the
termination of the Business. Unless otherwise agreed in writing,
neither Participant shall have any obligation to mill, beneficiate or
otherwise treat any Products in any facility owned or controlled
by such Participant.
4.6 Waiver of Rights to Partition or Other
Division of Assets. The Participants hereby waive and release all
rights of partition, or of sale in lieu thereof, or other division of
Assets, including any such rights provided by Law.
4.7 Transfer or Termination of Rights to
Properties. Except as otherwise provided in this Agreement,
neither Participant shall Transfer all or any part of its interest in
the Assets or this Agreement or otherwise permit or cause such
interests to terminate.
4.8 Implied Covenants. There are no implied
covenants contained in this Agreement other than those of good
faith and fair dealing.
4.9 No Third Party Beneficiary Rights. This
Agreement shall be construed to benefit the Participants and their
respective successors and assigns only, and shall not be construed
to create third party beneficiary rights in any other party or in any
governmental organization or agency, except to the extent
required by Project Financing and as provided in Subsection
3.7(a).
4.9 Layback Agreements. In the event the
Participants are asked to consider a layback or similar agreement
with respect to lands that are adjacent to but not part of the
Properties (regardless of whether such lands are controlled by a
Participant), such agreements shall be negotiated in good faith and
at arms-length; provided, further, the terms and conditions of such
agreements must not diminish the purpose of this Agreement.
ARTICLE V
CONTRIBUTIONS BY PARTICIPANTS
5.1 Participants' Initial Contributions.
(a) BATTLE MOUNTAIN, as its
Initial Contribution, hereby contributes the Assets described in
Exhibit A to the purposes of this Agreement. The amount of Six
Hundred Fifty Thousand Dollars ($650,000) shall be credited to
BATTLE MOUNTAIN's Equity Account, on the Effective Date,
with respect to BATTLE MOUNTAIN's Initial Contribution.
(b) Subject to ROYAL's right of
withdrawal as set forth in Section 5.2, ROYAL, as its Initial
Contribution, shall fund Operations under Subsection 5.1(c) totaling
Six Hundred Fifty Thousand Dollars ($650,000) on or
before the fourth anniversary of the Effective Date. In
determining whether such funding obligation has been met, only
costs that are properly chargeable to the Business Account under
Exhibit B shall be included ("Qualifying Expenses"); provided,
however, ROYAL shall not be entitled to an Administrative
Charge during the time it is making Qualifying Expenses.
Notwithstanding the total Initial Contribution funding by ROYAL of
$650,000.00, Operations shall be funded at a minimal level of
not less than $150,000 per year, and any expenditures in excess
of such minimum level shall be credited against the next
succeeding year's obligation. Upon completion of the funding of
ROYAL's Initial Contribution, this amount shall be credited to
ROYAL's Equity Account.
(c) Subject only to the provisions of
Section 9.1, until ROYAL has completed its Initial Contribution,
ROYAL shall have the sole right to determine the nature, timing,
scope, extent and method of all Operations, without any obligation
to hold meetings of the Management Committee, to prepare
Programs and Budgets for review, comment or approval by
BATTLE MOUNTAIN, or to obtain the approval or consent of
BATTLE MOUNTAIN or the Management Committee. In
conducting such Operations, ROYAL shall be entitled, but shall
not be obligated, to exercise any of the applicable powers of the
Manager in Section 8.2, except that until ROYAL has completed
its Initial Contribution it shall not be entitled or required to
perform the activities described in Subsections 8.2(g), (i), (l) and
(s) that would otherwise require consent of the Management
Committee or of BATTLE MOUNTAIN. For all such
Operations, ROYAL shall provide for accrual of reasonably
anticipated Environmental Compliance expenses, which shall
constitute Qualifying Expenses, and upon completion of its Initial
Contribution, ROYAL shall transfer any accrued but unexpended
amounts to the Environmental Compliance Fund established under
Paragraph 2.14 of Exhibit B. Prior to completion of its Initial
Contribution, ROYAL, in lieu of any reporting requirements
under this Agreement, shall:
(i) keep BATTLE MOUNTAIN
generally informed concerning all material Operations and other
material activities affecting the Properties;
(ii) within thirty (30) days after
the end of each calendar quarter, including the calendar quarter
that ends on the Effective Date, furnish to BATTLE
MOUNTAIN a reasonably detailed written report of all
Operations conducted on or for the benefit of the Properties and
an interim statement of Qualifying Expenses incurred during the
preceding quarter;
(iii) make available for inspection
and copying by BATTLE MOUNTAIN all factual and
interpretive reports, studies and analyses concerning the
Properties, and make all core and other drilling samples available
for inspection by BATTLE MOUNTAIN; and
(iv) on or before a date three (3)
months after each anniversary of the Effective Date, submit to
BATTLE MOUNTAIN a final statement of Qualifying Expenses
incurred during the preceding year.
ROYAL makes no representation or
warranty, express or implied, as to the accuracy or completeness
of the data and information that shall be provided to BATTLE
MOUNTAIN in accordance with (i) through (iv) above.
(d) BATTLE MOUNTAIN shall
provide ROYAL with written notice of any exceptions it may
have to any statement of Qualifying Expenses submitted to it as
provided above within three (3) months after receipt of any
statement. Failure to provide such notice within the three (3)
month period shall constitute acceptance by BATTLE
MOUNTAIN of the stated Qualifying Expenses.
(e) Upon execution of the Agreement,
ROYAL shall pay BATTLE MOUNTAIN Nineteen Thousand
Three Hundred Dollars ($19,300) in consideration of BATTLE
MOUNTAIN's payment of the May 6, 1998 option payment in
accordance with the provisions of the Brokaw Option Agreement
and BATTLE MOUNTAIN's obligation to: (i) make the $12,000
payment on or before July 5, 1998 in accordance with the
provisions of the DeMers Option Agreement; and (ii) file mining
claim maintenance fees, for the year ending August 31, 1999, on
the thirty-three (33) unpatented claims that comprise part of the
Properties. The $19,300 payment described in this Subsection
shall be a Qualifying Expense.
5.2 Failure to Make Initial Contribution.
(a) ROYAL's failure to make its Initial
Contribution in accordance with the provisions of this Article, if
not cured within thirty (30) days after notice by BATTLE
MOUNTAIN of such default, shall be deemed to be a withdrawal
of ROYAL from the Business, the termination of its Participating
Interest hereunder and a transfer of its Participating Interest and
Capital Account to BATTLE MOUNTAIN. Upon such event,
ROYAL shall have no further right, title or interest in the Assets
and it shall take such actions as are necessary to ensure that all
Assets are free and clear of any Encumbrances arising by, through
or under it, except for such Encumbrances to which the
Participants may have agreed. Subject to Subsection 5.2(b)below, ROYAL's
withdrawal shall be effective upon such failure,
but such withdrawal shall not relieve ROYAL of its obligation to
BATTLE MOUNTAIN to fund Operations up to the amount of
ROYAL's contractual obligations to third parties including
payments or other obligations with respect to the Properties in
which BATTLE MOUNTAIN holds an interest under leases or
contracts, nor shall such withdrawal relieve ROYAL of its
responsibility to fund and satisfy ROYAL's share of liabilities to
third persons (regardless of whether such liabilities accrue before
or after such withdrawal), including Environmental Liabilities,
Continuing Obligations and Environmental Compliance, arising
prior to ROYAL's withdrawal, which responsibility shall be
based on ROYAL's initial Participating Interest.
(b) Notwithstanding Subsection 5.2(a)above, in the event
ROYAL, within sixty (60) days after the
Effective Date, determines that conditions may exist on the
Properties which may, in ROYAL's judgment, result in violation
of Environmental Laws, ROYAL shall have the right to withdraw
from the Business by giving written notice to BATTLE
MOUNTAIN of such withdrawal. ROYAL's withdrawal shall be
effective upon receipt by BATTLE MOUNTAIN of such notice.
Except as provided in this Subsection and except as may be
otherwise expressly provided herein, ROYAL's withdrawal shall
relieve ROYAL from any other obligation to make contributions
hereunder.
5.3 Additional Contributions. At such time as
ROYAL has contributed the full amount of its Initial
Contribution, the Participants, subject to any election permitted by
Subsection 9.5(a), shall be obligated to contribute funds to
adopted Programs and Budgets in proportion to their respective
Participating Interests.
ARTICLE VI
INTERESTS OF PARTICIPANTS
6.1 Initial Participating Interests. The
Participants shall have the following initial Participating Interests:
BATTLE MOUNTAIN - 50%
ROYAL - 50%
6.2 Changes in Participating Interests. The
Participating Interests shall be eliminated or changed as follows:
(a) Upon withdrawal or deemed
withdrawal as provided in Sections 5.2, 6.3, and Article XII;
(b) Upon an election by either
Participant pursuant to Section 9.5 to contribute less to an adopted
Program and Budget than the percentage equal to its Participating
Interest, or to contribute nothing to an adopted Program and
Budget;
(c) In the event of default by either
Participant in making its agreed-upon contribution to an adopted
Program and Budget, followed by an election by the other
Participant to invoke any of the remedies in Section 10.5;
(d) Upon Transfer by either Participant
of part or all of its Participating Interest in accordance with
Article XVI; or
(e) Upon acquisition by either
Participant of part or all of the Participating Interest of the other
Participant, however arising.
6.3 Elimination of Minority Interest.
(a) A Reduced Participant whose
Recalculated Participating Interest becomes less than ten percent
(10%) shall be deemed to have withdrawn from the Business and
shall relinquish its entire Participating Interest free and clear of
any Encumbrances arising by, through or under the Reduced
Participant, except any such Encumbrances listed in Paragraph
1.1 of Exhibit A or to which the Participants have agreed. Such
relinquished Participating Interest shall be deemed to have accrued
automatically to the other Participant. The Reduced Participant's
Capital Account shall be transferred to the remaining Participant.
The Reduced Participant shall thereafter have the right to receive
two percent (2%) of Net Returns, if any, to a maximum amount
of one hundred percent (100%) of the Reduced Participant's
Equity Account balance as of the effective date of the withdrawal;
provided, further, in the event Products become subject to a
government royalty that is equal to or greater than four percent
(4%) of Net Returns; then, the Net Returns payable under this
Subsection 6.3(a) shall be reduced from two percent (2%) to one
percent (1%). Upon receipt of such amount, and subject to
Section 6.4, the Reduced Participant shall thereafter have no
further right, title, or interest in the Assets or under this
Agreement, and the tax partnership established by Exhibit C shall
dissolve pursuant to Paragraph 4.2 of Exhibit C. In such event,
the Reduced Participant shall execute and deliver an appropriate
conveyance of all of its right, title and interest in the Assets to the
remaining Participant.
(b) The relinquishment, withdrawal and
entitlements for which this Section provides shall be effective as
of the effective date of the recalculation under Sections 9.5 or
10.5. However, if the final adjustment provided under Section
9.6 for any recalculation under Section 9.5 results in a
Recalculated Participating Interest of ten percent (10%) or more:
(i) the Recalculated Participating Interest shall be deemed,
effective retroactively as of the first day of the Program Period,
to have automatically revested; (ii) the Reduced Participant shall
be reinstated as a Participant, with all of the rights and obligations
pertaining thereto; (iii) the right to Net Returns under Subsection
6.3(a) shall terminate; and (iv) the Manager, on behalf of the
Participants, shall make any necessary reimbursements,
reallocations of Products, contributions and other adjustments as
provided in Subsection 9.6(d). Similarly, if such final adjustment
under Section 9.6 results in a Recalculated Participating Interest
for either Participant of less than ten percent (10%) for a Program
Period as to which the provisional calculation under Section 9.5 had not
resulted in a Participating Interest of less than ten percent
(10%), then such Participant, at its election within thirty (30) days
after notice of the final adjustment, may contribute an amount
resulting in a revised final adjustment and resultant Recalculated
Participating Interest of ten percent (10%). If no such election is
made, such Participant shall be deemed to have withdrawn under
the terms of Subsection 6.3(a) as of the beginning of such
Program Period, and the Manager, on behalf of the Participants,
shall make any necessary reimbursements, reallocations of
Products, contributions and other adjustments as provided in
Subsection 9.6(d), including of any Net Returns to which such
Participant may be entitled for such Program Period.
6.4 Continuing Liabilities Upon Adjustments
of Participating Interests. Any reduction or elimination of either
Participant's Participating Interest under Section 6.2 shall not
relieve such Participant of its share of any liability, including,
without limitation, Continuing Obligations, Environmental
Liabilities and Environmental Compliance, whether arising before
or after such reduction or elimination, or out of acts or omissions
occurring or conditions existing prior to the Effective Date or out
of Operations conducted during the term of this Agreement but
prior to such reduction or elimination, regardless of when any
funds may be expended to satisfy such liability. For purposes of
this Section, such Participant's share of such liability shall be
equal to its Participating Interest at the time the act or omission
giving rise to the liability occurred, after first taking into account
any reduction, readjustment and restoration of Participating
Interests under Sections 6.3, 9.5, 9.6 and 10.5 (or, as to such
liability arising out of acts or omissions occurring or conditions
existing prior to the Effective Date, equal to such Participant's
initial Participating Interest). Should the cumulative cost of
satisfying Continuing Obligations be in excess of cumulative
amounts accrued or otherwise charged to the Environmental
Compliance Fund as described in Exhibit B, each of the
Participants shall be liable for its proportionate share (i.e.,
Participating Interest at the time of the act or omission giving rise
to such liability occurred), after first taking into account any
reduction, readjustment and restoration of Participating Interests
under Sections 6.3, 9.5, 9.6 and 10.5, of the cost of satisfying
such Continuing Obligations, notwithstanding that either
Participant has previously withdrawn from the Business or that its
Participating Interest has been reduced or converted to an interest
in Net Returns pursuant to Subsection 6.3(a).
6.5 Documentation of Adjustments to Participating Interests.
Adjustments to the Participating Interests need
not be evidenced during the term of this Agreement by the
execution and recording of appropriate instruments, but each
Participant's Participating Interest and related Equity Account
balance shall be shown in the accounting records of the Manager,
and any adjustments thereto, including any reduction,
readjustment, and restoration of Participating Interests under
Sections 6.3, 9.5, 9.6 and 10.5, shall be made monthly.
However, either Participant, at any time upon the request of the
other Participant, shall execute and acknowledge instruments
necessary to evidence such adjustments in form sufficient for
filing and recording in the jurisdiction where the Properties are
located.
6.6 Grant of Lien and Security Interest.
(a) Subject to Section 6.7, each
Participant grants to the other Participant a lien upon and a
security interest in its Participating Interest, including all of its
right, title and interest in the Assets, whenever acquired or
arising, and the proceeds from and accessions to the foregoing.
(b) The liens and security interests
granted by Subsection 6.6(a) shall secure every obligation or
liability of the Participant granting such lien or security interest
created under this Agreement, including the obligation to repay a
Cover Payment in accordance with Section 10.4. Each
Participant hereby agrees to take all action necessary to perfect
such lien and security interest and hereby appoints the other
Participant its attorney-in-fact to execute, file and record all
financing statements and other documents necessary to perfect or
maintain such lien and security interest.
6.7 Subordination of Interests. Each
Participant shall, from time to time, take all necessary actions,
including execution of appropriate agreements, to pledge and
subordinate its Participating Interest, any liens it may hold which
are created under this Agreement other than those created
pursuant to Section 6.6 hereof, and any other right or interest it
holds with respect to the Assets (other than any statutory lien of
the Manager), to any secured borrowings for Operations approved
by the Management Committee, including any secured borrowings
relating to Project Financing, and any modifications or renewals
thereof.
ARTICLE VII
MANAGEMENT COMMITTEE
7.1 Organization and Composition. The
Participants hereby establish a Management Committee to
determine overall policies, objectives, procedures, methods and
actions under this Agreement. The Management Committee shall
consist of two (2) member(s) appointed by BATTLE
MOUNTAIN and two (2) member(s) appointed by ROYAL.
Each Participant may appoint one or more alternates to act in the
absence of a regular member. Any alternate so acting shall be
deemed a member. Appointments by a Participant shall be made
or changed by notice to the other members. From time to time,
the Manager shall designate one of its representative members on
the Management Committee to serve as the chair of the
Management Committee.
7.2 Decisions. After ROYAL has completed
its Initial Contribution, each Participant, acting through its
appointed member(s) in attendance at the meeting, shall have a
number of votes on the Management Committee in proportion to
its Participating Interest. Unless otherwise provided in this
Agreement, the vote of the Participant with a Participating Interest
over fifty percent (50%) shall determine the decisions of the
Management Committee. In the event of a deadlock, the chairman
of the Management Committee shall cast the deciding vote.
7.3 Meetings.
(a) After ROYAL has completed its
Initial Contribution, the Management Committee shall hold
regular meetings at least semi-annually in Reno, or at other agreed
places. The Manager shall give at least thirty (30) days notice to
the Participants of such meetings. Additionally, either Participant
may call a special meeting upon seven (7) days notice to the other
Participant. In case of an emergency, reasonable notice of a
special meeting shall suffice. There shall be a quorum if at least
one member representing each Participant is present; provided,
however, that if a Participant fails to attend two consecutive
properly called meetings, then a quorum shall exist at the second
meeting if the other Participant is represented by at least one
appointed member, and a vote of such Participant shall be
considered the vote required for the purposes of the conduct of all
business properly noticed even if such vote would otherwise
require unanimity.
(b) If business cannot be conducted at a
regular or special meeting due to the lack of a quorum, either
Participant may call the next meeting upon seven (7) days notice
to the other Participant.
(c) Each notice of a meeting shall
include an itemized agenda prepared by the Manager in the case
of a regular meeting or by the Participant calling the meeting in
the case of a special meeting, but any matters may be considered
if either Participant adds the matter to the agenda at least three (3)
days before the meeting or with the consent of the other
Participant. The Manager shall prepare minutes of all meetings
and shall distribute copies of such minutes to the other Participant
within thirty (30) days after the meeting. Either Participant may
electronically record the proceedings of a meeting with the
consent of the other Participant. The other Participant shall sign
and return or object to the minutes prepared by the Manager
within thirty (30) days after receipt, and failure to do either shall
be deemed acceptance of the minutes as prepared by the Manager.
The minutes, when signed or deemed accepted by both
Participants, shall be the official record of the decisions made by
the Management Committee. Decisions made at a Management
Committee meeting shall be implemented in accordance with
adopted Programs and Budgets. If a Participant timely objects to
minutes proposed by the Manager, the members of the
Management Committee shall seek, for a period not to exceed
thirty (30) days from receipt by the Manager of notice of the
objections, to agree upon minutes acceptable to both Participants.
If the Management Committee does not reach agreement on the
minutes of the meeting within such thirty (30) day period, the
minutes of the meeting as prepared by the Manager together with
the other Participant's proposed changes shall collectively
constitute the record of the meeting. If personnel employed in
Operations are required to attend a Management Committee
meeting, reasonable costs incurred in connection with such
attendance shall be charged to the Business Account. All other
costs shall be paid by the Participants individually.
7.4 Action Without Meeting in Person. In
lieu of meetings in person, the Management Committee may
conduct meetings by telephone or video conference, so long as
minutes of such meetings are prepared in accordance with
Subsection 7.3(c). The Management Committee may also take
decisions memorialized by a writing that is executed by all
Participants.
7.5 Matters Requiring Approval. Except as
provided in Subsection 5.1(c) and as otherwise delegated to the
Manager in Section 8.2, the Management Committee shall have
exclusive authority to determine all matters related to overall
policies, objectives, procedures, methods and actions under this
Agreement.
ARTICLE VIII
MANAGER
8.1 Designation.
(a) Upon ROYAL's completion of its
Initial Contribution as provided for in Section 5.1, ROYAL shall,
within sixty (60) days thereafter, provide BATTLE MOUNTAIN a comprehensive
report detailing exploration, engineering,
economic, environmental, regulatory and all other relevant
information that ROYAL has generated or otherwise acquired
with respect to the Properties. Upon receipt of such report by
BATTLE MOUNTAIN, BATTLE MOUNTAIN shall have the
following sixty (60) day period within which to notify ROYAL in
writing of its election to either: (a) become and serve as Manager
until it resigns as provided in Section 8.4; or (b) decline to
become Manager, in which case ROYAL shall remain Manager
and serve as such until it resigns as provided in Section 8.4.
(b) In the event that BATTLE MOUNTAINelects to become and serve
as Manager under Section 8.1(a), then, notwithstanding any other provision of
this Agreement, if at any time thereafter BATTLE MOUNTAIN submits a Program
and Budget that ROYAL, in good faith, believes to be inadequate
to achieve the objectives of the Business in timely fashion, and if
ROYAL is unable to achieve satisfactory modification of such
proposed Program and Budget (the "objectionable Program and
Budget") pursuant to the procedures outlined in Section 9.4hereof, then,
ROYAL may, upon its submission of a Program and
Budget (the "more aggressive Program and Budget") calling for
expenditures at a level of not less than 300% of the level of
expenditures called for in the objectionable Program and Budget
and upon ten (10) days' consideration thereof by BATTLE
MOUNTAIN, require that BATTLE MOUNTAIN elect either (i)
to adopt the more aggressive Program and Budget, submit same
to the Management Committee, and execute such Program and
Budget, as Manager; or (ii) resign as Manager, in favor of
ROYAL, provided that ROYAL must then adopt the more
aggressive Program and Budget, submit same to the Management
Committee, and execute such Program and Budget, as Manager.
(c) The mechanism set forth in Section 8.1(b),
by which ROYAL, as non-managing Participant, may resume
control of the Business, as Manager, under defined circumstances,
is intended to be a bi-lateral right. That is, if the mechanism of
Section 8.1(b) is employed by ROYAL in such fashion that
ROYAL resumes as Manager, and BATTLE MOUNTAIN thereafter, as the non-managing
Participant, in good faith, believes
that a substantially more aggressive Program and Budget than that
proposed by ROYAL is appropriate, then BATTLE
MOUNTAIN may likewise implement the mechanism set forth in
Section 8.1(b) (after first adhering to the procedure set forth in
Section 9.4), and so on, with the Participants alternating as to the
ability to exercise such right of forcing development.
8.2 Powers and Duties of Manager. Subject
to the terms and provisions of this Agreement, the Manager shall
have the following powers and duties, which shall be discharged
in accordance with adopted Programs and Budgets.
(a) The Manager shall manage, direct
and control Operations, and shall prepare and present to the
Management Committee proposed Programs and Budgets as
provided in Article IX.
(b) The Manager shall implement the
decisions of the Management Committee, shall make all
expenditures necessary to carry out adopted Programs, and shall
promptly advise the Management Committee if it lacks sufficient
funds to carry out its responsibilities under this Agreement.
(c) The Manager shall use reasonable
efforts to: (i) purchase or otherwise acquire all material, supplies,
equipment, water, utility and transportation services required for
Operations, such purchases and acquisitions to be made to the
extent reasonably possible on the best terms available, taking into
account all of the circumstances; (ii) obtain such customary
warranties and guarantees as are available in connection with such
purchases and acquisitions; and (iii) keep the Assets free and clear
of all Encumbrances, except any such Encumbrances listed in
Paragraph 1.1 of Exhibit A and those existing at the time of, or
created concurrent with, the acquisition of such Assets, or
mechanic's or materialmen's liens (which shall be contested,
released or discharged in a diligent matter) or Encumbrances
specifically approved by the Management Committee.
(d) The Manager shall conduct such title
examinations of the Properties and cure such title defects
pertaining to the Properties as may be advisable in its reasonable
judgment.
(e) The Manager shall: (i) make or
arrange for all payments required by leases, licenses, permits,
contracts and other agreements related to the Assets; (ii) pay all
taxes, assessments and like charges on Operations and Assets
except taxes determined or measured by a Participant's sales
revenue or net income and taxes, including production taxes,
attributable to a Participant's share of Products, and shall
otherwise promptly pay and discharge expenses incurred in
Operations; provided, however, that if authorized by the
Management Committee, the Manager shall have the right to
contest (in the courts or otherwise) the validity or amount of any
taxes, assessments or charges if the Manager deems them to be
unlawful, unjust, unequal or excessive, or to undertake such other
steps or proceedings as the Manager may deem reasonably
necessary to secure a cancellation, reduction, readjustment or
equalization thereof before the Manager shall be required to pay
them, but in no event shall the Manager permit or allow title to
the Assets to be lost as the result of the nonpayment of any taxes,
assessments or like charges; and (iii) do all other acts reasonably
necessary to maintain the Assets.
(f) The Manager shall: (i) apply for all
necessary permits, licenses and approvals; (ii) comply with all
Laws; (iii) notify promptly the Management Committee of any
allegations of substantial violation thereof; and (iv) prepare and
file all reports or notices required for or as a result of Operations.
The Manager shall not be in breach of this provision if a violation
has occurred in spite of the Manager's good faith efforts to
comply consistent with its standard of care under Section 8.3. In
the event of any such violation, the Manager shall timely cure or
dispose of such violation on behalf of both Participants through
performance, payment of fines and penalties, or both, and the cost
thereof shall be charged to the Business Account.
(g) The Manager shall prosecute and
defend, but shall not initiate without consent of the Management
Committee, all litigation or administrative proceedings arising out
of Operations. The non-managing Participant shall have the right
to participate, at its own expense, in such litigation or
administrative proceedings. The non-managing Participant shall
approve in advance any settlement involving payments,
commitments or obligations in excess of Fifty Thousand Dollars
($50,000) in cash or value.
(h) The Manager shall provide insurance
for the benefit of the Participants as provided in Exhibit F or as
may otherwise be determined from time to time by the
Management Committee.
(i) The Manager may dispose of Assets,
whether by abandonment, surrender, or Transfer in the ordinary
course of business, except that Properties may be abandoned or
surrendered only as provided in Article XIV. Without prior
authorization from the Management Committee, however, the
Manager shall not: (i) dispose of Assets in any one transaction (or
in any series of related transactions) having a value in excess of
Fifty Thousand Dollars ($50,000); (ii) enter into any sales
contracts or commitments for Product, except as permitted in
Section 11.2; (iii) begin a liquidation of the Business; or
(iv) dispose of all or a substantial part of the Assets necessary to
achieve the purposes of the Business.
(j) The Manager shall have the right to
carry out its responsibilities hereunder through agents, Affiliates
or independent contractors.
(k) The Manager shall perform or cause
to be performed all assessment and other work, and shall pay all
Governmental Fees required by Law in order to maintain the
unpatented mining claims, mill sites and tunnel sites included
within the Properties. The Manager shall have the right to
perform the assessment work required hereunder pursuant to a
common plan of exploration, and continued actual occupancy of
such claims and sites shall not be required. The Manager shall
not be liable on account of any determination by any court or
governmental agency that the work performed by the Manager
does not constitute the required annual assessment work or
occupancy for the purposes of preserving or maintaining
ownership of the claims, provided that the work done is pursuant
to an adopted Program and Budget and is performed in accordance
with the Manager's standard of care under Section 8.3. The
Manager shall timely record with the appropriate county and file
with the appropriate United States agency any required affidavits,
notices of intent to hold and other documents in proper form
attesting to the payment of Governmental Fees, the performance
of assessment work or intent to hold the claims and sites, in each
case in sufficient detail to reflect compliance with the
requirements applicable to each claim and site. The Manager
shall not be liable on account of any determination by any court
or governmental agency that any such document submitted by the
Manager does not comply with applicable requirements, provided
that such document is prepared and recorded or filed in
accordance with the Manager's standard of care under Section
8.3.
(l) If authorized by the Management
Committee, the Manager may: (i) locate, amend or relocate any
unpatented mining claim or mill site or tunnel site, (ii) locate any
fractions resulting from such amendment or relocation, (iii) apply
for patents or mining leases or other forms of mineral tenure for
any such unpatented claims or sites, (iv) abandon any unpatented
mining claims for the purpose of locating mill sites or otherwise
acquiring from the United States rights to the ground covered
thereby, (v) abandon any unpatented mill sites for the purpose of
locating mining claims or otherwise acquiring from the United
States rights to the ground covered thereby, (vi) exchange with or
convey to the United States any of the Properties for the purpose
of acquiring rights to the ground covered thereby or other adjacent
ground, and (vii) convert any unpatented claims or mill sites into
one or more leases or other forms of mineral tenure pursuant to
any Law hereafter enacted.
(m) The Manager shall keep and
maintain all required accounting and financial records pursuant to
the procedures described in Exhibit B and in accordance with
customary cost accounting practices in the mining industry, and
shall ensure appropriate separation of accounts unless otherwise
agreed by the Participants.
(n) The Manager shall maintain Equity
Accounts for each Participant. Each Participant's Equity Account
shall be credited with the value of such Participant's contributions
under Subsections 5.1(a) and 5.1(b) and shall be credited with
amounts contributed by such Participant under Section 5.3. Each
Participant's Equity Account shall be charged with the cash and
the fair market value of property distributed to such Participant
(net of liabilities assumed by such Participant and liabilities to
which such distributed property is subject). Contributions and
distributions shall include all cash contributions or distributions
plus the agreed value (expressed in dollars) of all in-kind
contributions or distributions. Solely for purposes of determining
the Equity Account balances of the Participants, the Manager shall
reasonably estimate the fair market value of all Products
distributed to the Participants, and such estimated value shall be
used regardless of the actual amount received by each Participant
upon disposition of such Products.
(o) Subject to Subsection 5.1(c), the
Manager shall keep the Management Committee advised of all
Operations by submitting in writing to the members of the
Management Committee: (i) monthly progress reports that
include statements of expenditures and comparisons of such
expenditures to the adopted Budget; (ii) periodic summaries of
data acquired; (iii) copies of reports concerning Operations; (iv) a
detailed final report within ninety (90) days after completion of
each Program and Budget, which shall include comparisons
between actual and budgeted expenditures and comparisons
between the intended objectives and actual results of Programs;
and (v) such other reports as any member of the Management
Committee may reasonably request. Subject to Article XVIII, at
all reasonable times the Manager shall provide the Management
Committee, or other representative of a Participant upon the
request of such Participant's representative member of the
Management Committee, access to, and the right to inspect and,
at such Participant's cost and expense, copies of the Existing Data
and all maps, drill logs and other drilling data, core, pulps,
reports, surveys, assays, analyses, production reports, operations,
technical, accounting and financial records, and other Business
Information, to the extent preserved or kept by the Manager,
subject to Article XVIII. In addition, the Manager shall allow the
non-managing Participant, at the latter's sole risk, cost and
expense, and subject to reasonable safety regulations, to inspect
the Assets and Operations at all reasonable times, so long as the
non-managing Participant does not unreasonably interfere with
Operations.
(p) The Manager shall prepare an
Environmental Compliance plan for all Operations consistent with
the requirements of any applicable Laws or contractual obligations
and shall include in each Program and Budget sufficient funding
to implement the Environmental Compliance plan and to satisfy
the financial assurance requirements of any applicable Law or
contractual obligation pertaining to Environmental Compliance.
To the extent practical, the Environmental Compliance plan shall
incorporate concurrent reclamation of Properties disturbed by
Operations.
(q) The Manager shall undertake to
perform Continuing Obligations when and as economic and
appropriate, whether before or after termination of the Business.
The Manager shall have the right to delegate performance of
Continuing Obligations to persons having demonstrated skill and
experience in relevant disciplines. As part of each Program and
Budget submittal, the Manager shall specify in such Program and
Budget the measures to be taken for performance of Continuing
Obligations and the cost of such measures. The Manager shall
keep the other Participant reasonably informed about the
Manager's efforts to discharge Continuing Obligations.
Authorized representatives of each Participant shall have the right
from time to time to enter the Properties to inspect work directed
toward satisfaction of Continuing Obligations and audit books,
records, and accounts related thereto.
(r) The funds that are to be deposited
into the Environmental Compliance Fund shall be maintained by
the Manager in a separate, interest bearing cash management
account, which may include, but is not limited to, money market
investments and money market funds, and/or in longer term
investments if approved by the Management Committee. Such
funds shall be used solely for Environmental Compliance and
Continuing Obligations, including the committing of such funds,
interests in property, insurance or bond policies, or other security
to satisfy Laws regarding financial assurance for the reclamation
or restoration of the Properties, and for other Environmental
Compliance requirements.
(s) If Participating Interests are adjusted
in accordance with this Agreement the Manager shall propose
from time to time one or more methods for fairly allocating costs
for Continuing Obligations.
(t) The Manager shall undertake all
other activities reasonably necessary to fulfill the foregoing, and
to implement the policies, objectives, procedures, methods and
actions determined by the Management Committee pursuant to
Section 7.1.
8.3 Standard of Care. The Manager shall
discharge its duties under Section 8.2 and conduct all Operations
in a good, workmanlike and efficient manner, in accordance with
sound mining and other applicable industry standards and
practices, and in accordance with Laws and with the terms and
provisions of leases, licenses, permits, contracts and other
agreements pertaining to the Assets. The Manager shall not be
liable to the other Participant for any act or omission resulting in
damage or loss except to the extent caused by or attributable to the
Manager's willful misconduct or gross negligence. The Manager
shall not be in default of any of its duties under Section 8.2 if its
inability or failure to perform results from the failure of the other
Participant to perform acts or to contribute amounts required of it
by this Agreement.
8.4 Resignation; Deemed Offer to Resign.
The Manager may resign upon not less than six (6) months' prior
notice to the other Participant, in which case the other Participant
may elect to become the new Manager by notice to the resigning
Participant within thirty (30) days after the notice of resignation.
If any of the following shall occur, the Manager shall be deemed
to have resigned upon the occurrence of the event described in
each of the following Subsections, with the successor Manager to
be appointed by the other Participant at a subsequently called
meeting of the Management Committee, at which meeting the
incumbent Manager shall not be entitled to vote. The other
Participant may appoint itself or a third party as the Manager.
(a) The aggregate Participating Interest
of the Manager and its Affiliates becomes less than the
Participating Interest of any other Participant;
(b) The Manager fails to perform a
material obligation imposed upon it under this Agreement and
such failure continues for a period of sixty (60) days after notice
from the other Participant demanding performance;
(c) The Manager fails to pay or contest
in good faith its bills and Business debts as such obligations
become due;
(d) A receiver, liquidator, assignee,
custodian, trustee, sequestrator or similar official for a substantial
part of its assets is appointed and such appointment is neither
made ineffective nor discharged within sixty (60) days after the
making thereof, or such appointment is consented to, requested
by, or acquiesced in by the Manager;
(e) The Manager commences a
voluntary case under any applicable bankruptcy, insolvency or
similar law now or hereafter in effect; or consents to the entry of
an order for relief in an involuntary case under any such law or to
the appointment of or taking possession by a receiver, liquidator,
assignee, custodian, trustee, sequestrator or other similar official
of any substantial part of its assets; or makes a general assignment
for the benefit of creditors; or takes corporate or other action in
furtherance of any of the foregoing; or
(f) Entry is made against the Manager
of a judgment, decree or order for relief affecting its ability to
serve as Manager, or a substantial part of its Participating Interest
or its other assets by a court of competent jurisdiction in an
involuntary case commenced under any applicable bankruptcy,
insolvency or other similar law of any jurisdiction now or
hereafter in effect.
Under Subsections (d), (e) or (f) above, the appointment of a
successor Manager shall be deemed to pre-date the event causing
a deemed resignation.
8.5 Payments To Manager. The Manager
shall be compensated for its services and reimbursed for its costs
hereunder in accordance with Exhibit B.
8.6 Transactions With Affiliates. If the
Manager engages Affiliates to provide services hereunder, it shall
do so on terms no less favorable than would be the case in
arm's-length transactions with unrelated persons.
8.7 Activities During Deadlock. If the
Management Committee for any reason fails to adopt an
Exploration, Pre-Feasibility Study, Feasibility Study or
Development Program and Budget, the Manager shall continue
Operations at levels sufficient to maintain the Properties. If the
Management Committee for any reason fails to adopt an initial
Mining Program and Budget or any Expansion or Modification
Programs and Budgets, the Manager shall continue Operations at
levels sufficient to maintain the then current Operations and
Properties. If the Management Committee for any reason fails to
adopt Mining Programs and Budgets subsequent to the initial
Mining Program and Budget, subject to the contrary direction of
the Management Committee and receipt of necessary funds, the
Manager shall continue Operations at levels comparable with the
last adopted Mining Program and Budget. All of the foregoing
shall be subject to the contrary direction of the Management
Committee and the receipt of necessary funds.
ARTICLE IX
PROGRAMS AND BUDGETS
9.1 Initial Program and Budget. The Initial
Program and Budget to which both Participants have agreed is
hereby adopted and is attached as Exhibit G.
9.2 Operations Pursuant to Programs and
Budgets. Except as otherwise provided in Subsection 5.1(c),
Section 9.13, and Article XIII, Operations shall be conducted,
expenses shall be incurred, and Assets shall be acquired only
pursuant to adopted Programs and Budgets. Every Program and
Budget adopted pursuant to this Agreement shall provide for
accrual of reasonably anticipated Environmental Compliance
expenses for all Operations contemplated under the Program and
Budget.
9.3 Presentation of Programs and Budgets.
Proposed Programs and Budgets shall be prepared by the Manager
for a period of one (1) year or any other period as approved by the
Management Committee, and shall be submitted to the
Management Committee for review and consideration. All
proposed Programs and Budgets may include Exploration,
Pre-Feasibility Studies, Feasibility Study, Development, Mining
and Expansion or Modification Operations components, or any
combination thereof, and shall be reviewed and adopted upon a
vote of the Management Committee in accordance with Sections
7.2 and 9.4. Each Program and Budget adopted by the
Management Committee, regardless of length, shall be reviewed
at least once a year at a meeting of the Management Committee.
During the period encompassed by any Program and Budget, and
at least three (3) months prior to its expiration, a proposed
Program and Budget for the succeeding period shall be prepared
by the Manager and submitted to the Management Committee for
review and consideration.
9.4 Review and Adoption of Proposed
Programs and Budgets. Within thirty (30) days after submission
of a proposed Program and Budget, each Participant shall submit
in writing to the Management Committee:
(a) Notice that the Participant approves
any or all of the components of the proposed Program and Budget;
(b) Modifications proposed by the
Participant to the components of the proposed Program and
Budget; or
(c) Notice that the Participant rejects
any or all of the components of the proposed Program and Budget.
If a Participant fails to give any of the foregoing responses within
the allotted time, the failure shall be deemed to be a vote by the
Participant for adoption of the Manager's proposed Program and
Budget. If a Participant makes a timely submission to the
Management Committee pursuant to Subsections 9.4(a), (b) or
(c), then the Manager, working with the other Participant, shall
seek for a period of time not to exceed twenty (20) days to
develop a complete Program and Budget acceptable to both
Participants. The Manager shall then call a Management
Committee meeting in accordance with Section 7.3 for purposes
of reviewing and voting upon the proposed Program and Budget.
9.5 Election to Participate.
(a) By notice to the Management
Committee within twenty (20) days after the final vote adopting a
Program and Budget, and notwithstanding its vote concerning
adoption of a Program and Budget, a Participant may elect to
participate in the approved Program and Budget: (i) in proportion
to its respective Participating Interest, (ii) in some lesser amount
than its respective Participating Interest, or (iii) not at all. In case
of an election under Subsection 9.5(a)(ii) or (iii), the Participating
Interest of such electing Participant shall be recalculated as
provided in Subsection 9.5(b) below, with dilution effective as of
the first day of the Program Period for the adopted Program and
Budget. If a Participant fails to so notify the Management
Committee of the extent to which it elects to participate, the
Participant shall be deemed to have elected to contribute to such
Program and Budget in proportion to its respective Participating
Interest as of the beginning of the Program Period.
(b) If a Participant elects to contribute
to an adopted Program and Budget some lesser amount than in
proportion to its respective Participating Interest, or not at all, and
the other Participant elects to fund all or any portion of the
deficiency, the Participating Interest of the Reduced Participant
shall be provisionally recalculated as follows:
(i) for an election made before
Payout, by dividing: (A) the sum of (1) the amount credited to the
Reduced Participant's Equity Account with respect to its Initial
Contribution under Section 5.1, (2) the total of all of the Reduced
Participant's contributions under Section 5.3, and (3) the amount,
if any, the Reduced Participant elects to contribute to the adopted
Program and Budget; by (B) the sum of (1), (2) and (3) above for
both Participants; and then multiplying the result by one hundred;
or
(ii) for an election made after
Payout, by reducing its Participating Interest in an amount equal
to two times the amount by which it would have been reduced
under Subsection 9.5(b)(i) if such election were made before
Payout.
The Participating Interest of the other Participant shall be
increased by the amount of the reduction in the Participating
Interest of the Reduced Participant, and if the other Participant
elects not to fund the entire deficiency, the Manager shall adjust
the Program and Budget to reflect the funds available.
(c) Whenever the Participating Interests
are recalculated pursuant to this Subsection 9.5, (i) the Equity
Accounts of both Participants shall be revised to bear the same
ratio to each other as their recalculated Participating Interests; and
(ii) the portion of Capital Account attributable to the reduced
Participating Interest of the Reduced Participant shall be
transferred to the other Participant.
9.6 Recalculation or Restoration of Reduced
Interest Based on Actual Expenditures.
(a) If a Participant makes an election
under Subsection 9.5(a)(ii) or (iii), then within sixty (60) days
after the conclusion of such Program and Budget, the Manager
shall report the total amount of money expended plus the total
obligations incurred by the Manager for such Budget.
(b) If the Manager expended or incurred
obligations that were more or less than the adopted Budget, the
Participating Interests shall be recalculated pursuant to
Subsection 9.5(b) by substituting each Participant's actual
contribution to the adopted Budget for that Participant's estimated
contribution at the time of the Reduced Participant's election
under Subsection 9.5(a).
(c) If the Manager expended or incurred
obligations of less than ninety percent (90%) of the adopted
Budget, within thirty (30) days of receiving the Manager's report
on expenditures, the Reduced Participant may notify the other
Participant of its election to reimburse the other Participant for the
difference between any amount contributed by the Reduced
Participant to such adopted Program and Budget and the Reduced
Participant's proportionate share (at the Reduced Participant's
former Participating Interest) of the actual amount expended or
incurred for the Program, plus interest on the difference accruing
at the rate described in Section 10.3 plus two (2) percentage
points. The Reduced Participant shall deliver the appropriate
amount (including interest) to the other Participant with such
notice. Failure of the Reduced Participant to so notify and tender
such amount shall result in dilution occurring in accordance with
this Article IX and shall bar the Reduced Participant from its
rights under this Subsection 9.6(c) concerning the relevant
adopted Program and Budget.
(d) All recalculations under this Section
IX shall be effective as of the first day of the Program Period for
the Program and Budget. The Manager, on behalf of both
Participants, shall make such reimbursements, reallocations of
Products, contributions and other adjustments as are necessary so
that, to the extent possible, each Participant will be placed in the
position it would have been in had its Participating Interests as
recalculated under this Section been in effect throughout the
Program Period for such Program and Budget. If the Participants
are required to make contributions, reimbursements or other
adjustments pursuant to this Section, the Manager shall have the
right to purchase or sell a Participant's share of Products in the
same manner as under Section 11.2 and to apply the proceeds of
such sale to satisfy that Participant's obligation to make such
contributions, reimbursements or adjustments.
(e) Whenever the Participating Interests
are recalculated pursuant to this Section, (i) the Participants'
Equity Accounts shall be revised to bear the same ratio to each
other as their Recalculated Participating Interests; and (ii) the
portion of Capital Account attributable to the reduced
Participating Interest of the Reduced Participant shall be
transferred to the other Participant.
9.7 Pre-Feasibility Study Program and
Budgets.
(a) At such time as either Participant is
of the good faith and reasonable opinion that economically viable
Mining Operations may be possible on the Properties, the
Participant may propose to the Management Committee that a Pre-
Feasibility Study Program and Budget, or a Program and Budget
that includes Pre-Feasibility Studies, be prepared. Such proposal
shall be made in writing to the other Participant, shall reference
the data upon which the proposing Participant bases its opinion,
and shall call a meeting of the Management Committee pursuant
to Section 7.3. If such proposal is adopted by the Management
Committee, the Manager shall prepare or have prepared a Pre-
Feasibility Study Program and Budget as approved by the
Management Committee and shall submit the same to the
Management Committee within One hundred twenty (120) days
following adoption of the proposal.
(b) Pre-Feasibility Studies may be
conducted by the Manager, Feasibility Contractors, or both, or
may be conducted by the Manager and audited by Feasibility
Contractors, as the Management Committee determines. A Pre-
Feasibility Study Program shall include the work necessary to
prepare and complete the Pre-Feasibility Study approved in the
proposal adopted by the Management Committee, which may
include some or all of the following:
(i) analyses of various
alternatives for mining, processing and beneficiation of Products;
(ii) analyses of alternative
mining, milling, and production rates;
(iii) analyses of alternative sites
for placement of facilities (i.e., water supply facilities, transport
facilities, reagent storage, offices, shops, warehouses, stock
yards, explosives storage, handling facilities, housing, public
facilities);
(iv) analyses of alternatives for
waste treatment and handling (including a description of each
alternative of the method of tailings disposal and the location of
the proposed disposal site);
(v) estimates of recoverable
proven and probable reserves of Products and of related
substances, in terms of technical and economic constraints
(extraction and treatment of Products), including the effect of
grade, losses, and impurities, and the estimated mineral
composition and content thereof, and review of mining rates
commensurate with such reserves;
(vi) analyses of environmental
impacts of the various alternatives, including an analysis of the
permitting, environmental liability and other Environmental Law
implications of each alternative, and costs of Environmental
Compliance for each alternative;
(vii) conduct of appropriate
metallurgical tests to determine the efficiency of alternative
extraction, recovery and processing techniques, including an
estimate of water, power, and reagent consumption requirements;
(viii) conduct of hydrology and
other studies related to any required dewatering; and
(ix) conduct of other studies and
analyses approved by the Management Committee.
(c) The Manager shall have the
discretion to base its and any Feasibility Contractors' Pre-
Feasibility Study on the cumulative results of each discipline
studied, so that if a particular portion of the work would result in
the conclusion that further work based on these results would be
unwarranted for a particular alternative, the Manager shall have
no obligation to continue expenditures on other Pre-Feasibility
Studies related solely to such alternative.
9.8 Completion of Pre-Feasibility Studies and
Selection of Approved Alternatives. As soon as reasonably
practical following completion of all Pre-Feasibility Studies
required to evaluate fully the alternatives studied pursuant to Pre-
Feasibility Programs, the Manager shall prepare a report
summarizing all Pre-Feasibility Studies and shall submit the same
to the Management Committee. Such report shall incorporate the
following:
(a) the results of the analyses of the
alternatives and other matters evaluated in the conduct of the Pre-
Feasibility Programs;
(b) reasonable estimates of capital costs
for the Development and start-up of the mine, mill and other
processing and ancillary facilities required by the Development
and Mining alternatives evaluated (based on flowsheets, piping
and instrumentation diagrams, and other major engineering
diagrams), which cost estimates shall include reasonable estimates
of:
(i) capitalized pre-stripping
expenditures, if an open pit or surface mine is proposed;
(ii) expenditures required to
purchase, construct and install all machinery, equipment and other
facilities and infrastructure (including contingencies) required to
bring a mine into commercial production, including an analysis of
costs of equipment or supply contracts in lieu of Development
costs for each Development and Mining alternative evaluated;
(iii) expenditures required to
perform all other related work required to commence commercial
production of Products and, if applicable, process Products
(including reasonable estimates of working capital requirements);
and
(iv) all other direct and indirect
costs and general and administrative expenses that may be
required for a proper evaluation of the Development and Mining
alternatives and annual production levels evaluated. The capital
cost estimates shall include a schedule of the timing of the
estimated capital requirements for each alternative;
(c) a reasonable estimate of the annual
expenditures required for the first year of Operations after
completion of the capital program described in Subsection 9.8(b) for each
Development alternative evaluated, and for subsequent
years of Operations, including estimates of annual production,
processing, administrative, operating and maintenance
expenditures, taxes (other than income taxes), working capital
requirements, royalty and purchase obligations, equipment leasing
or supply contract expenditures, work commitments,
Environmental Compliance costs, post-Operations Environmental
Compliance and Continuing Obligations funding requirements and
all other anticipated costs of such Operations. This analysis shall
also include an estimate of the number of employees required to
conduct such Operations for each alternative;
(d) a review of the nature, extent and
rated capacity of the mine, machinery, equipment and other
facilities preliminarily estimated to be required for the purpose of
producing and marketing Products under each Development and
Mining alternative analyzed;
(e) an analysis (and sensitivity analyses
reasonably requested by either Participant), based on various
target rates of return and price assumptions requested by either
Participant, of whether it is technically, environmentally, and
economically feasible to place a prospective ore body or deposit
within the Properties into commercial production for each of the
Development and Mining alternatives analyzed (including a
discounted cash flow rate of return investment analysis for each
alternative and net present value estimate using various discount
rates requested by either Participant); and
(f) such other information as the
Management Committee deems appropriate.
Within ninety (90) days after delivery of the Pre-Feasibility Study
summary to the Participants, a Management Committee meeting
shall be convened for the purposes of reviewing the Pre-
Feasibility Study summary and selecting one or more Approved
Alternatives, if any.
9.9 Programs and Budgets for Feasibility
Study. Within thirty (30) days following the selection of an
Approved Alternative, the Manager shall submit to the
Management Committee a Program and a Budget, which shall
include necessary Operations, for the preparation of a Feasibility
Study. A Feasibility Study may be prepared by the Manager,
Feasibility Contractors, or both, or may be prepared by the
Manager and audited by Feasibility Contractors, as the
Management Committee determines.
9.10 Development Programs and Budgets;
Project Financing.
(a) Unless otherwise determined by the
Management Committee, the Manager shall not submit to the
Management Committee a Program and Budget including
Development of the mine described in a completed Feasibility
Study until ninety (90) days following the receipt by Manager of
the Feasibility Study. The Program and Budget, which includes
Development of the mine described in the completed Feasibility
Study, shall be based on the estimated cost of Development
described in the Feasibility Study for the Approved Alternative,
unless otherwise directed by the Management Committee.
(b) Promptly following adoption of the
Program and Budget, which includes Development as described
in a completed Feasibility Study, but in no event more than ninety
(90) days thereafter, the Manager shall submit to the Management
Committee a report on material bids received for Development
work ("Bid Report"). If bids described in the Bid Report result
in the aggregate cost of Development work exceeding one hundred
ten percent (110%) of the Development cost estimates that formed
the basis of the Development component of the adopted Program
and Budget, the Program and Budget, which includes relevant
Development, shall be deemed to have been resubmitted to the
Management Committee based on the aggregate costs as described
in the Bid Report on the date of receipt of the Bid Report and shall
be reviewed and adopted in accordance with Sections 7.2 and 9.4.
(c) If the Management Committee
approves the Development of the mine described in a Feasibility
Study and also decides to seek Project Financing for such mine,
each Participant shall, at its own cost, cooperate in seeking to
obtain Project Financing for such mine; provided, however, that
all fees, charges and costs (including attorneys and technical
consultants fees) paid to the Project Financing lenders shall be
borne by the Participants in proportion to their Participating
Interests, unless such fees are capitalized as a part of the Project
Financing.
9.11 Expansion or Modification Programs and
Budgets. Any Program and Budget proposed by the Manager
involving Expansion or Modification shall be based on a
Feasibility Study prepared by the Manager, Feasibility
Contractors, or both, or prepared by the Manager and audited by
Feasibility Contractors, as the Management Committee
determines. The Program and Budget, which include Expansion
or Modification, shall be submitted for review and approval by the
Management Committee within sixty (60) days following receipt
by the Manager of such Feasibility Study.
9.12 Budget Overruns; Program Changes. For
Programs and Budgets adopted after completion of ROYAL's
Initial Contribution, the Manager shall immediately notify the
Management Committee of any material departure from an
adopted Program and Budget. If the Manager exceeds an adopted
Budget by more than ten percent (10%) in the aggregate, then the
excess over ten percent (10%), unless directly caused by an
emergency or unexpected expenditure made pursuant to Section
9.13 or unless otherwise authorized or ratified by the Management
Committee, shall be for the sole account of the Manager and such
excess shall not be included in the calculations of the Participating
Interests nor deemed a contribution under this Agreement. Budget
overruns of ten percent (10%) or less in the aggregate shall be
borne by the Participants in proportion to their respective
Participating Interests.
9.13 Emergency or Unexpected Expenditures.
In case of emergency, the Manager may take any reasonable
action it deems necessary to protect life or property, to protect the
Assets or to comply with Laws. The Manager may make
reasonable expenditures on behalf of the Participants for
unexpected events that are beyond its reasonable control and that
do not result from a breach by it of its standard of care. The
Manager shall promptly notify the Participants of the emergency
or unexpected expenditure, and the Manager shall be reimbursed
for all resulting costs by the Participants in proportion to their
respective Participating Interests.
ARTICLE X
ACCOUNTS AND SETTLEMENTS
10.1 Monthly Statements. After completion of
ROYAL's Initial Contribution, the Manager shall promptly
submit to the Management Committee monthly statements of
account reflecting in reasonable detail the charges and credits to
the Business Account during the preceding month.
10.2 Cash Calls. On the basis of each adopted
Program and Budget, the Manager shall submit prior to the last
day of each month a billing for estimated cash requirements for
the next month. Within ten (10) days after receipt of each billing,
or a billing made pursuant to Section 9.13 or 12.4, each
Participant shall advance its proportionate share of such cash
requirements. The Manager shall record all funds received in the
Business Account. The Manager shall at all times maintain a cash
balance approximately equal to the rate of disbursement for up to
sixty (60) days. All funds in excess of immediate cash
requirements shall be invested by the Manager for the benefit of
the Business in cash management accounts and investments
selected at the discretion of the Manager, which accounts may
include, but are not limited to, money market investments and
money market funds.
10.3 Failure to Meet Cash Calls. A Participant
that fails to meet cash calls in the amount and at the times
specified in Section 10.2 shall be in default, and the amounts of
the defaulted cash call shall bear interest from the date due at an
annual rate equal to two (2) percentage points over the Prime
Rate, but in no event shall the rate of interest exceed the
maximum permitted by Law. Such interest shall accrue to the
benefit of and be payable to the non-defaulting Participant, but
shall not be deemed as amounts contributed by the non-defaulting
Participant in the event dilution occurs in accordance with Article
VI. In addition to any other rights and remedies available to it by
Law, the non-defaulting Participant shall have those other rights,
remedies, and elections specified in Sections 10.4 and 10.5.
10.4 Cover Payment. If a Participant defaults
in making a contribution or cash call required by an adopted
Program and Budget, the non-defaulting Participant may, but shall
not be obligated to, advance some portion or all of the amount in
default on behalf of the defaulting Participant (a "Cover
Payment"). Each and every Cover Payment shall constitute a
demand loan bearing interest from the date of the advance at the
rate provided in Section 10.3. If more than one Cover Payment
is made, the Cover Payments shall be aggregated and the rights
and remedies described herein pertaining to an individual Cover
Payment shall apply to the aggregated Cover Payments. The
failure to repay such loan upon demand shall be a default.
10.5 Remedies. The Participants acknowledge
that if either Participant defaults in making a contribution required
by Article V or a cash call, or in repaying a loan, as required
under Sections 10.2, 10.3 or 10.4, whether or not a Cover
Payment is made, it will be difficult to measure the damages
resulting from such default (it being hereby understood and agreed
that the Participants have attempted to determine such damages in
advance and determined that the calculation of such damages
cannot be ascertained with reasonable certainty). Both
Participants acknowledge and recognize that the damage to the
non-defaulting Participant could be significant. In the event of
such default, as reasonable liquidated damages, the non-defaulting
Participant may, with respect to any such default not cured within
thirty (30) days after notice to the defaulting Participant of such
default, elect any of the following remedies by giving notice to the
defaulting Participant. Such election may be made with respect to
each failure to meet a cash call relating to a Program and Budget,
regardless of the frequency of such cash calls, provided such cash
calls are made in accordance with Section 10.2.
(a) The defaulting Participant grants to
the non-defaulting Participant a power of sale as to all or any
portion of its interest in any Assets or in its Participating Interest
that is subject to the lien and security interest granted in Section
6.6 (whether or not such lien and security interest has been
perfected), upon a default under Sections 10.3 or 10.4. Such
power shall be exercised in the manner provided by applicable
Law or otherwise in a commercially reasonable manner and upon
reasonable notice. If the non-defaulting Participant elects to
enforce the lien or security interest pursuant to the terms of this
Subsection, the defaulting Participant shall be deemed to have
waived any available right of redemption, any required valuation
or appraisal of the secured property prior to sale, any available
right to stay execution or to require a marshaling of assets, and
any required bond in the event a receiver is appointed, and the
defaulting Participant shall be liable for any deficiency.
(b) The non-defaulting Participant may
elect to have the defaulting Participant's Participating Interest
diluted or eliminated as follows:
(i) For a default occurring
before Payout relating to a Program and Budget covering in whole
or in part Exploration, Pre-Feasibility Study or Feasibility Study
Operations, the Reduced Participant's Participating Interest shall
be recalculated by dividing: (X) the sum of (1) the value of the
Reduced Participant's Initial Contribution under Section 5.1,
(2) the total of all of the Reduced Participant's contributions under
Section 5.3, and (3) the amount, if any, the Reduced Participant
contributed to the adopted Program and Budget with respect to
which the default occurred; by (Y) the sum of (1), (2) and (3)
above for both Participants; and then multiplying the result by one
hundred. For such a default occurring after Payout, the Reduced
Participant's Participating Interest shall be reduced in an amount
equal to three (3) times the amount by which it would have been
reduced if such default had occurred before Payout. For such a
default, whether occurring before or after Payout, the
Recalculated Participating Interest shall then be further reduced:
(A) for a default relating
exclusively to an Exploration Program and Budget, by multiplying
the Recalculated Participating Interest by the following
percentage: 95%; or
(B) for a default relating
to a Program and Budget covering in whole or in part Pre-
Feasibility Study and/or Feasibility Study Operations, by
multiplying the Recalculated Participating Interest by the
following percentage: 90%.
The Participating Interest of the other Participant shall be
increased by the amount of the reduction in the Participating
Interest of the Reduced Participant, including the further reduction
under Subsections 10.5(b)(i)(A) or (B).
(ii) For a default relating to a
Program and Budget covering in whole or in part Development or
Mining, at the non-defaulting Participant's election, the defaulting
Participant shall be deemed to have withdrawn and to have
automatically relinquished its interest in the Assets to the
non-defaulting Participant; provided, however, the defaulting
Participant shall have the right to receive only from two percent
(2%) of Net Returns, if any, and not from any other source, an
amount equal to one hundred percent (100%) of the defaulting
Participant's Equity Account balance at the time of such default;
provided, further, in the event Products become subject to a
government royalty that is equal to or greater than four percent
(4%) of Net Returns; then, the Net Returns payable under this
Subsection 10.5(b)(ii) shall be reduced from two percent (2%) to
one percent (1%). Upon receipt of such amount the defaulting
Participant shall thereafter have no further right, title or interest
in the Assets, but shall remain liable to the extent provided in
Section 6.4.
(iii) Dilution under this
Subsection 10.5(b) shall be effective as of the date of the original
default, and Section 9.6 shall not apply. The amount of any
Cover Payment under Section 10.4 and interest thereon, or any
interest accrued in accordance with Section 10.3, shall be deemed
to be amounts contributed by the non-defaulting Participant, and
not as amounts contributed by the defaulting Participant.
(iv) Whenever the Participating
Interests are recalculated pursuant to this Subsection 10.5(b),
(A) the Equity Accounts of both Participants shall be adjusted to
bear the same ratio to each other as their recalculated Participating
Interests; and (B) the portion of Capital Account attributable to the
reduced Participating Interest of the Reduced Participant shall be
transferred to the other Participant.
(c) If a Participant has defaulted in
meeting a cash call or repaying a loan, and if the non-defaulting
Participant has made a Cover Payment, then, in addition to a
reduction in the defaulting Participant's Participating Interest
effected pursuant to Subsection 10.5(b), the non-defaulting
Participant shall have the right, if the indebtedness arising from a
default or Cover Payment is not discharged within forty-five (45)
days of the default and upon not less than thirty (30) days advance
notice to the defaulting Participant, to elect to purchase all the
right, title, and interest, whenever acquired or arising, of the
defaulting Participant in the Assets, including but not limited to its
Participating Interest or interest in Net Proceeds, together with all
proceeds from and accessions of the foregoing (collectively the
"Defaulting Participant's Entire Interest") at a purchase price
equal to thirty percent (30%) of the fair market value thereof as
determined by a qualified independent appraiser appointed by the
non-defaulting Participant. If the defaulting Participant conveys
notice of objection to the person so appointed within ten (10) days
after receiving notice thereof, then an independent and qualified
appraiser shall be appointed by the joint action of the appraiser
appointed by the non-defaulting Participant and a qualified
independent appraiser appointed by the defaulting Participant;
provided, however, that if the defaulting Participant fails to
designate a qualified independent appraiser for such purpose
within ten (10) days after giving notice of such objection, then the
person originally designated by the non-defaulting Participant
shall serve as the appraiser; provided further, that if the appraisers
appointed by each of the Participants fail to appoint a third
qualified independent appraiser within five (5) days after the
appointment of the last of them, then an appraiser shall be
appointed by a judge of a court of competent jurisdiction in the
state in which the Assets are situated upon the application of either
Participant. There shall be withheld from the purchase price
payable, upon transfer of the Defaulting Participant's Entire
Interest, the amount of any Cover Payment under Section 10.4 and unpaid
interest thereon to the date of such transfer, or any
unpaid interest accrued in accordance with Section 10.3 to the
date of such transfer. Upon payment of such purchase price, the
defaulting Participant shall be deemed to have relinquished all of
the Defaulting Participant's Entire Interest to the non-defaulting
Participant, but shall remain liable to the extent provided in
Section 6.4.
10.6 Audits.
(a) After completion of ROYAL's
Initial Contribution, within one hundred twenty (120) days after
the end of each calendar year, at the request of a Participant, an
audit shall be completed by certified public accountants selected
by, and independent of, the Manager. The audit shall be
conducted in accordance with generally accepted auditing
standards and shall cover all books and records maintained by the
Manager pursuant to this Agreement, all Assets and
Encumbrances, and all transactions and Operations conducted
during such calendar year, including production and inventory
records and all costs for which the Manager sought reimbursement
under this Agreement, together with all other matters customarily
included in such audits. All written exceptions to and claims upon
the Manager for discrepancies disclosed by such audit shall be
made not more than three (3) months after receipt of the audit
report, unless either Participant elects to conduct an independent
audit pursuant to Subsection 10.6(b) which is ongoing at the end
of such three (3) month period, in which case such exceptions and
claims may be made within the period provided in Subsection
10.6(b). Failure to make any such exception or claim within such
period shall mean the audit is deemed to be correct and binding
upon the Participants. The cost of all audits under this Subsection
shall be charged to the Business Account.
(b) Notwithstanding the annual audit
conducted by certified public accountants selected by the
Manager, each Participant shall have the right to have an
independent audit of all Business books, records and accounts,
including all charges to the Business Account. This audit shall
review all issues raised by the requesting Participant, with all
costs borne by the requesting Participant. The requesting
Participant shall give the other Participant thirty (30) days prior
notice of such audit. Any audit conducted on behalf of either
Participant shall be made during the Manager's normal business
hours and shall not interfere with Operations. Neither Participant
shall have the right to audit records and accounts of the Business
relating to transactions or Operations more than twenty-four (24)
months after the calendar year during which such transactions, or
transactions related to such Operations, were charged to the
Business Account. All written exceptions to and claims upon the
Manager for discrepancies disclosed by such audit shall be made
not more than three (3) months after completion and delivery of
such audit, or they shall be deemed waived.
ARTICLE XI
DISPOSITION OF PRODUCTION
11.1 Taking In Kind. Each Participant shall
take in kind or separately dispose of its share of all Products in
proportion to its Participating Interest. Any extra expenditure
incurred in the taking in kind or separate disposition by either
Participant of its proportionate share of Products shall be borne by
such Participant. Nothing in this Agreement shall be construed as
providing, directly or indirectly, for any joint or cooperative
marketing or selling of Products or permitting the processing of
Products owned by any third party at any processing facilities
constructed by the Participants pursuant to this Agreement. The
Manager shall give notice in advance of the anticipated delivery
date upon which Products will be available.
11.2 Failure of Participant to Take In Kind.
If a Participant fails to take its proportionate share of Products in
kind, the Manager shall have the right, but not the obligation, for
a period of time consistent with the minimum needs of the
industry, but not to exceed one (1) year from the notice date
described in Section 11.1, to purchase the Participant's share for
its own account or to sell such share as agent for the Participant
at not less than the prevailing market price in the area. Subject to
the terms of any such contracts of sale then outstanding, during
any period that the Manager is purchasing or selling a
Participant's share of production, the Participant may elect by
notice to the Manager to take in kind. The Manager shall be
entitled to deduct from proceeds of any sale by it for the account
of a Participant reasonable expenses incurred in such a sale.
11.3 Hedging. Neither Participant shall have
any obligation to account to the other Participant for, nor have any
interest or right of participation in any profits or proceeds nor
have any obligation to share in any losses from, futures contracts,
forward sales, trading in puts, calls, options or any similar
hedging, price protection or marketing mechanism employed by
a Participant with respect to its proportionate share of any
Products produced or to be produced from the Properties.
ARTICLE XII
WITHDRAWAL AND TERMINATION
12.1 Termination by Expiration or Agreement.
This Agreement shall terminate as expressly provided herein,
unless earlier terminated by written agreement.
12.2 Termination by Deadlock. If the
Management Committee fails to adopt a Program and Budget for
six (6) months after the expiration of the latest adopted Program
and Budget, either Participant may elect to terminate the Business
by giving thirty (30) days notice of termination to the other
Participant.
12.3 Withdrawal. A Participant may elect to
withdraw from the Business by (i) in the case of ROYAL, failing
to complete its Initial Contributions as required by
Subsection 5.1(b), or (ii) giving notice to the other Participant of
the effective date of withdrawal, which shall be the later of the
end of the then current Program Period or thirty (30) days after
the date of the notice. Upon such withdrawal, the Business shall
terminate, and the withdrawing Participant shall be deemed to
have transferred to the remaining Participant all of its
Participating Interest, including all of its interest in the Assets,
without cost and free and clear of all Encumbrances arising by,
through or under such withdrawing Participant, except those
described in Paragraph 1.1 of Exhibit A and those to which both
Participants have agreed. The withdrawing Participant shall
execute and deliver all instruments as may be necessary in the
reasonable judgment of the other Participant to effect the transfer
of its interests in the Assets to the other Participant. If within a
sixty (60) day period both Participants elect to withdraw, then the
Business shall instead be deemed to have been terminated by the
consent of the Participants pursuant to Section 12.1.
12.4 Continuing Obligations and
Environmental Liabilities. On termination of the Business under
Sections 12.1, 12.2 or 12.3, each Participant shall remain liable
for its respective share of liabilities to third persons (including
payments or other obligations with respect to the Properties in
which BATTLE MOUNTAIN holds an interest under leases or
contracts) (whether such arises before or after such withdrawal),
including Environmental Liabilities and Continuing Obligations.
The withdrawing Participant's share of such liabilities shall be
equal to its Participating Interest at the time such liability was
incurred, after first taking into account any reduction,
readjustment, and restoration of Participating Interests under
Sections 6.3, 9.5, 9.6 and 10.5 (or, as to liabilities arising prior
to the Effective Date, its initial Participating Interest).
12.5 Disposition of Assets on Termination.
Promptly after termination under Sections 12.1 or 12.2, the
Manager shall take all action necessary to wind up the activities
of the Business, in accordance with Exhibit C. All costs and
expenses incurred in connection with the termination of the
Business shall be expenses chargeable to the Business Account.
12.6 Non-Compete Covenants. Neither a
Participant that withdraws pursuant to Section 12.3, or is deemed
to have withdrawn pursuant to Sections 5.2, 6.3 or 10.5, nor any
Affiliate of such a Participant, shall directly or indirectly acquire
any interest or right to explore or mine, or both, on any property
any part of which is within the Area of Interest for twelve (12)
months after the effective date of withdrawal. If a withdrawing
Participant, or the Affiliate of a withdrawing Participant, breaches
this Section 12.6, such Participant shall be obligated to offer to
convey to the non-withdrawing Participant, without cost, any such
property or interest so acquired (or ensure its Affiliate offers to
convey the property or interest to the non-withdrawing
Participant, if the acquiring party is the withdrawing Participant's
Affiliate). Such offer shall be made in writing and can be
accepted by the non-withdrawing Participant at any time within
ten (10) days after the offer is received by such non-withdrawing
Participant. Failure of a Participant's Affiliate to comply with this
Section 12.6 shall be a breach by such Participant of this
Agreement.
12.7 Right to Data After Termination. After
termination of the Business pursuant to Sections 12.1 or 12.2,
each Participant shall be entitled to make copies of all applicable
information acquired hereunder before the effective date of
termination not previously furnished to it, but a terminating or
withdrawing Participant shall not be entitled to any such copies
after any other termination or withdrawal.
12.8 Continuing Authority. On termination of
the Business under Sections 12.1, 12.2 or 12.3 or the deemed
withdrawal of either Participant pursuant to Sections 5.2 or 10.5,
the Participant which was the Manager prior to such termination
or withdrawal (or the other Participant in the event of a
withdrawal by the Manager) shall have the power and authority to
do all things on behalf of both Participants which are reasonably
necessary or convenient to: (a) wind up Operations and
(b) complete any transaction and satisfy any obligation, unfinished
or unsatisfied, at the time of such termination or withdrawal, if
the transaction or obligation arises out of Operations prior to such
termination or withdrawal. The Manager shall have the power
and authority to grant or receive extensions of time or change the
method of payment of an already existing liability or obligation,
prosecute and defend actions on behalf of both Participants and the
Business, encumber Assets, and take any other reasonable action
in any matter with respect to which the former Participants
continue to have, or appear or are alleged to have, a common
interest or a common liability.
ARTICLE XIII
ACQUISITIONS WITHIN AREA OF INTEREST
13.1 General. Any interest or right to acquire
any interest in real property or water rights related thereto within
the Area of Interest either acquired or proposed to be acquired
during the term of this Agreement by or on behalf of either
Participant ("Acquiring Participant") or any Affiliate of such
Participant shall be subject to the terms and provisions of this
Agreement. BATTLE MOUNTAIN and ROYAL and their
respective Affiliates for their separate account shall be free to
acquire lands and interests in lands outside the Area of Interest
and to locate mining claims outside the Area of Interest. Failure
of any Affiliate of either Participant to comply with this Article
XIII shall be a breach by such Participant of this Agreement.
13.2 Notice to Non-Acquiring Participant.
Within thirty (30) days after the acquisition or proposed
acquisition, as the case may be, of any interest or the right to
acquire any interest in real property or water rights wholly or
partially within the Area of Interest (except real property acquired
by the Manager pursuant to a Program), the Acquiring Participant
shall notify the other Participant of such acquisition by it or its
Affiliate; provided further that if the acquisition of any interest or
right to acquire any interest pertains to real property or water
rights partially within the Area of Interest, then all such real
property (i.e., the part within the Area of Interest and the part
outside the Area of Interest) shall be subject to this Article XIII.
The Acquiring Participant's notice shall describe in detail the
acquisition, the acquiring party if that party is an Affiliate, the
lands and minerals covered thereby, any water rights related
thereto, the cost thereof, and the reasons why the Acquiring
Participant believes that the acquisition (or proposed acquisition)
of the interest is in the best interests of the Participants under this
Agreement. In addition to such notice, the Acquiring Participant
shall make any and all information concerning the relevant interest
available for inspection by the other Participant.
13.3 Option Exercised. Within thirty (30) days
after receiving the Acquiring Participant's notice, the other
Participant may notify the Acquiring Participant of its election to
accept a proportionate interest in the acquired interest equal to its
Participating Interest. Promptly upon such notice, the Acquiring
Participant shall convey or cause its Affiliate to convey to the
Participants, in proportion to their respective Participating
Interests, by special warranty deed with title held as described in
Section 3.4, all of the Acquiring Participant's (or its Affiliate's)
interest in such acquired interest, free and clear of all
Encumbrances arising by, through or under the Acquiring
Participant (or its Affiliate) other than those to which both
Participants have agreed. The acquired interests shall become a
part of the Properties for all purposes of this Agreement
immediately upon such notice. The other Participant shall
promptly pay to the Acquiring Participant its proportionate share
of the latter's actual out-of-pocket acquisition costs.
13.4 Option Not Exercised. If the other
Participant does not give such notice within the thirty (30) day
period set forth in Section 13.3, it shall have no interest in the
acquired interests, and the acquired interests shall not be a part of
the Assets or continue to be subject to this Agreement.
ARTICLE XIV
ABANDONMENT AND SURRENDER OF PROPERTIES
Either Participant may request the Management
Committee to authorize the Manager to surrender or abandon part
or all of the Properties. If the Management Committee does not
authorize such surrender or abandonment, or authorizes any such
surrender or abandonment over the objection of either Participant,
the Participant that desires to surrender or abandon shall assign to
the objecting Participant, by special warranty deed and without
cost to the objecting Participant, all of the abandoning
Participant's interest in the Properties sought to be abandoned or
surrendered, free and clear of all Encumbrances created by,
through or under the abandoning Participant other than those to
which both Participants have agreed. Upon the assignment, such
properties shall cease to be part of the Properties. The Participant
that desires to abandon or surrender shall remain liable for its
share (determined by its Participating Interest as of the date of
such abandonment, after first taking into account any reduction,
readjustment, and restoration of Participating Interests under
Sections 6.3, 9.5, 9.6 and 10.5) of any liability with respect to
such Properties, including, without limitation, Continuing
Obligations, Environmental Liabilities and Environmental
Compliance, whether accruing before or after such abandonment,
arising out of activities prior to the Effective Date and out of
Operations conducted prior to the date of such abandonment,
regardless of when any funds may be expended to satisfy such
liability.
ARTICLE XV
SUPPLEMENTAL BUSINESS AGREEMENT
At any time during the term of this Agreement, the
Management Committee may determine by unanimous vote of
both Participants after ROYAL's Initial Contribution obligations
have been fully satisfied that it is appropriate to segregate the
Area of Interest into areas subject to separate Programs and
Budgets for purposes of conducting further Exploration, Pre-
Feasibility or Feasibility Studies, Development, or Mining. At
such time, the Management Committee shall designate which
portion of the Properties will comprise an area of interest under
a separate business arrangement ("Supplemental Business"), and
the Participants shall enter into a new agreement ("Supplemental
Business Agreement") for the purpose of further exploring,
analyzing, developing, and mining such portion of the Properties.
The Supplemental Business Agreement shall be in substantially the
same form as this Agreement, with rights and interests of the
Participants in the Supplemental Business identical to the rights
and interests of the Participants in this Business at the time of the
designation, unless otherwise agreed by the Participants, and with
the Participants agreeing to new Capital and Equity Accounts
which reflect the capital expended on the segregated portion of the
Properties and other terms necessary for the Supplemental
Business Agreement to comply with the nature and purpose of the
designation. Following execution of the Supplemental Business
Agreement, this Agreement shall terminate insofar as it affects the
Properties covered by the Supplemental Business Agreement.
ARTICLE XVI
TRANSFER OF INTEREST; PREEMPTIVE RIGHT
16.1 General. A Participant shall have the right
to Transfer to a third party an interest in its Participating Interest,
including an interest in this Agreement or the Assets, solely as
provided in this Article XVI.
16.2 Limitations on Free Transferability. Any
Transfer by either Participant under Section 16.1 shall be subject
to the following limitations:
(a) Neither Participant shall Transfer
any interest in this Agreement or the Assets (including, but not
limited to, any royalty, profits, or other interest in the Products)
except in conjunction with the Transfer of part or all of its
Participating Interest;
(b) No transferee of all or any part of a
Participant's Participating Interest shall have the rights of a
Participant unless and until the transferring Participant has
provided to the other Participant notice of the Transfer, and,
except as provided in Subsections 16.2(g) and 16.2(h), the
transferee, as of the effective date of the Transfer, has committed
in writing to assume and be bound by this Agreement to the same
extent as the transferring Participant;
(c) Neither Participant, without the
consent of the other Participant, shall make a Transfer that shall
violate any Law, or result in the cancellation of any permits,
licenses, or other similar authorization;
(d) Without written consent of the non-
transferring Participant, no transfer permitted by this Article XVI shall
relieve the transferring Participant of its share of any
liability, whether accruing before or after such Transfer, which
arises out of Operations conducted prior to such Transfer or exists
on the Effective Date;
(e) Neither Participant, without the
consent of the other Participant, shall make a Transfer that shall
cause termination of the tax partnership established by Section
4.2. If such termination is caused, the transferring Participant
shall indemnify the other Participant for, from and against any and
all loss, cost, expense, damage, liability or claim therefor arising
from the Transfer, including without limitation any increase in
taxes, interest and penalties or decrease in credits caused by such
termination and any tax on indemnification proceeds received by
the Indemnified Participant.
(f) In the event of a Transfer of less
than all of a Participating Interest, the transferring Participant and
its transferee shall act and be treated as one Participant; provided
however, that in order for such Transfer to be effective, the
transferring Participant and its transferee must first:
(i) agree, as between
themselves, that one of them is authorized to act as the sole agent
("Agent") on their behalf with respect to all matters pertaining to
this Agreement and the Business; and
(ii) notify the other Participant of
the designation of the Agent, and in such notice warrant and
represent to other Participant that:
(A) the Agent has the sole
authority to act on behalf of, and to bind, the transferring
Participant and its transferee with respect to all matters pertaining
to this Agreement and the Business;
(B) the other Participant
may rely on all decisions of, notices and other communications
from, and failures to respond by, the Agent, as if given (or not
given) by the transferring Participant and its transferee; and
(C) all decisions of,
notices and other communications from, and failures to respond
by, the other Participant to the Agent shall be deemed to have
been given (or not given) to the transferring Participant and its
transferee.
The transferring Participant and its transferee may change the
Agent (but such replacement must be one of them) by giving
notice to the other Participant, which notice must conform to
Subsection 16.2(f)(ii).
(g) If the Transfer is the grant of an
Encumbrance in a Participating Interest to secure a loan or other
indebtedness of either Participant in a bona fide transaction, other
than a transaction approved unanimously by the Management
Committee or Project Financing approved by the Management
Committee, such Encumbrance shall be granted only in connection
with such Participant's financing payment or performance of that
Participant's obligations under this Agreement and shall be subject
to the terms of this Agreement and the rights and interests of the
other Participant hereunder (including without limitation under
Section 6.7). Any such Encumbrance shall be further subject to
the condition that the holder of such Encumbrance ("Chargee")
first enter into a written agreement with the other Participant in
form satisfactory to the other Participant, acting reasonably,
binding upon the Chargee, to the effect that:
(i) the Chargee shall not enter
into possession or institute any proceedings for foreclosure or
partition of the encumbering Participant's Participating Interest
and that such Encumbrance shall be subject to the provisions of
this Agreement;
(ii) the Chargee's remedies under
the Encumbrance shall be limited to the sale of the whole (but
only of the whole) of the encumbering Participant's Participating
Interest to the other Participant, or, failing such a sale, at a public
auction to be held at least sixty (60) days after prior notice to the
other Participant, such sale to be subject to the purchaser entering
into a written agreement with the other Participant whereby such
purchaser assumes all obligations of the encumbering Participant
under the terms of this Agreement. The price of any preemptive
sale to the other Participant shall be the remaining principal
amount of the loan plus accrued interest and related expenses, and
such preemptive sale shall occur within sixty (60) days of the
Chargee's notice to the other Participant of its intent to sell the
encumbering Participant's Participating Interest. Failure of a sale
to the other Participant to close by the end of such period, unless
failure is caused by the encumbering Participant or by the
Chargee, shall permit the Chargee to sell the encumbering
Participant's Participating Interest at a public sale; and
(iii) the charge shall be
subordinate to any then-existing debt, including Project Financing
previously approved by the Management Committee, encumbering
the transferring Participant's Participating Interest;
(h) If a sale or other commitment or
disposition of Products or proceeds from the sale of Products by
either Participant upon distribution to it pursuant to Article XI creates
in a third party a security interest by Encumbrance in
Products or proceeds therefrom prior to such distribution, such
sales, commitment or disposition shall be subject to the terms and
conditions of this Agreement including, without limitation,
Section 6.7.
16.3 Preemptive Right. Any Transfer by either
Participant under Section 16.1 and any Transfer by an Affiliate of
Control of either Participant shall be subject to a preemptive right
of the other Participant to the extent provided in Exhibit H.
Failure of a Participant's Affiliate to comply with this Article
XVI and Exhibit H shall be a breach by such Participant of this
Agreement.
ARTICLE XVII
DISPUTES
17.1 Governing Law. Except for matters of title
to the Properties or their Transfer, which shall be governed by the
law of their situs, this Agreement shall be governed by and
interpreted in accordance with the laws of the State of Nevada,
without regard for any conflict of laws or choice of laws
principles that would permit or require the application of the laws
of any other jurisdiction.
17.2 Forum Selection. Any action or
proceeding to construe or enforce the terms of this Agreement
shall be commenced and maintained in the Nevada District Court
or in the United States District Court in Reno, Nevada.
17.3 Dispute Resolution. All disputes arising
under or in connection with this Agreement which cannot be
resolved by agreement between the Participants shall be resolved
in accordance with applicable Law. If any legal action or other
proceeding is brought for the enforcement of this Agreement, or
because of an alleged dispute, breach, default, or
misrepresentation in connection with any of the provisions of this
Agreement, the successful or substantially prevailing Participant
shall be entitled to recover reasonable attorneys' fees and other
costs incurred in that action or proceeding, in addition to any
other relief to which it or they may be entitled.
ARTICLE XVIII
CONFIDENTIALITY, OWNERSHIP, USE AND
DISCLOSURE OF INFORMATION
18.1 Business Information. All Business
Information shall be owned jointly by the Participants as their
Participating Interests are determined pursuant to this Agreement.
Both before and after the termination of the Business, all Business
Information may be used by either Participant for any purpose,
whether or not competitive with the Business, without consulting
with, or obligation to, the other Participant. Except as provided
in Sections 18.3 and 18.4, or with the prior written consent of the
other Participant, each Participant shall keep confidential and not
disclose to any third party or the public any portion of the
Business Information that constitutes Confidential Information.
18.2 Participant Information. In performing its
obligations under this Agreement, neither Participant shall be
obligated to disclose any Participant Information. If a Participant
elects to disclose Participant Information in performing its
obligations under this Agreement, such Participant Information,
together with all improvements, enhancements, refinements and
incremental additions to such Participant Information that are
developed, conceived, originated or obtained by either Participant
in performing its obligations under this Agreement
("Enhancements"), shall be owned exclusively by the Participant
that originally developed, conceived, originated or obtained such
Participant Information. Each Participant may use and enjoy the
benefits of such Participant Information and Enhancements in the
conduct of the Business hereunder, but the Participant that did not
originally develop, conceive, originate or obtain such Participant
Information may not use such Participant Information and
Enhancements for any other purpose. Except as provided in
Section 18.4, or with the prior written consent of the other
Participant, which consent may be withheld in such Participant's
sole discretion, each Participant shall keep confidential and not
disclose to any third party or the public any portion of Participant
Information and Enhancements owned by the other Participant that
constitutes Confidential Information.
18.3 Permitted Disclosure of Confidential
Business Information. Either Participant may disclose Business
Information that is Confidential Information: (a) to a Participant's
officers, directors, partners, members, employees, Affiliates,
shareholders, agents, attorneys, accountants, consultants,
contractors, subcontractors or advisors, for the sole purpose of
such Participant's performance of its obligations under this
Agreement; (b) to any party to whom the disclosing Participant
contemplates a Transfer of all or any part of its Participating
Interest, for the sole purpose of evaluating the proposed Transfer;
(c) to any actual or potential lender, underwriter or investor for
the sole purpose of evaluating whether to make a loan to or
investment in the disclosing Participant; or (d) to a third party
with whom the disclosing Participant contemplates any
independent business activity or operation.
The Participant disclosing Confidential
Information pursuant to this Section 18.3, shall disclose such
Confidential Information to only those parties who have a bona
fide need to have access to such Confidential Information for the
purpose for which disclosure to such parties is permitted under
this Section 18.3 and who have agreed in writing supplied to, and
enforceable by, the other Participant to protect the Confidential
Information from further disclosure, to use such Confidential
Information solely for such purpose and to otherwise be bound by
the provisions of this Article XVIII. Such writing shall not
preclude parties described in Subsection 18.3(b) from discussing
and completing a Transfer with the other Participant. The
Participant disclosing Confidential Information shall be
responsible and liable for any use or disclosure of the Confidential
Information by such parties in violation of this Agreement and
such other writing.
18.4 Disclosure Required By Law.
Notwithstanding anything contained in this Article XVIII, a
Participant may disclose any Confidential Information if, in the
opinion of the disclosing Participant's legal counsel: (a) such
disclosure is legally required to be made in a judicial,
administrative or governmental proceeding pursuant to a valid
subpoena or other applicable order; or (b) such disclosure is
legally required to be made pursuant to the rules or regulations of
a stock exchange or similar trading market applicable to the
disclosing Participant.
Prior to any disclosure of Confidential
Information under this Section 18.4, the disclosing Participant
shall give the other Participant at least ten (10) days prior written
notice (unless less time is permitted by such rules, regulations or
proceeding) and, in making such disclosure, the disclosing
Participant shall disclose only that portion of Confidential
Information required to be disclosed and shall take all reasonable
steps to preserve the confidentiality thereof, including, without
limitation, obtaining protective orders and supporting the other
Participant in intervention in any such proceeding.
18.5 Public Announcements. Prior to making
or issuing any press release or other public announcement or
disclosure of Business Information that is not Confidential
Information, a Participant shall first consult with the other
Participant as to the content and timing of such announcement or
disclosure, unless in the good faith judgment of such Participant,
there is not sufficient time to consult with the other Participant
before such announcement or disclosure must be made under
applicable Laws; but in such event, the disclosing Participant shall
notify the other Participant, as soon as possible, of the pendency
of such announcement or disclosure, and it shall notify the other
Participant before such announcement or disclosure is made if at
all reasonably possible. Any press release or other public
announcement or disclosure to be issued by either Participant
relating to this Business shall also identify the other Participant.
ARTICLE XIX
GENERAL PROVISIONS
19.1 Notices. All notices, payments and other
required or permitted communications ("Notices") to either
Participant shall be in writing, and shall be addressed respectively
as follows:
If to BATTLE MOUNTAIN: 333 Clay St.
42ndFloor
Houston, Texas 77002
Attention: Legal Department
Telephone: 713-650-6400
Facsimile: 713-650-0600
With a Copy to: 690 Kresge Lane
Suite 102
Sparks, Nevada 89431
If to ROYAL: Suite 1000
1660 Wynkoop Street
Denver, Colorado 80202-1132
Attention: Peter Babin, President
Telephone: 303-573-1660
Facsimile: 303-595-9385
All Notices shall be given (a) by personal
delivery to the Participant, (b) by electronic communication,
capable of producing a printed transmission, (c) by registered or
certified mail return receipt requested; or (d) by overnight or
other express courier service. All Notices shall be effective and
shall be deemed given on the date of receipt at the principal
address if received during normal business hours, and, if not
received during normal business hours, on the next business day
following receipt, or if by electronic communication, on the date
of such communication. Either Participant may change its address
by Notice to the other Participant.
19.2 Gender. The singular shall include the
plural, and the plural the singular wherever the context so
requires, and the masculine, the feminine, and the neuter genders
shall be mutually inclusive.
19.3 Currency. All references to "dollars" or
"$" herein shall mean lawful currency of the United States of
America.
19.4 Headings. The subject headings of the
Sections and Subsections of this Agreement and the Paragraphs
and Subparagraphs of the Exhibits to this Agreement are included
for purposes of convenience only, and shall not affect the
construction or interpretation of any of its provisions.
19.5 Waiver. The failure of either Participant to
insist on the strict performance of any provision of this Agreement
or to exercise any right, power or remedy upon a breach hereof
shall not constitute a waiver of any provision of this Agreement
or limit such Participant's right thereafter to enforce any provision
or exercise any right.
19.6 Modification. No modification of this
Agreement shall be valid unless made in writing and duly
executed by both Participants.
19.7 Force Majeure. Except for the obligation
to make payments when due hereunder, including payments with
respect to Properties in which BATTLE MOUNTAIN holds an
interest under leases or contracts, the obligations of a Participant
shall be suspended to the extent and for the period that
performance is prevented by any cause, whether foreseeable or
unforeseeable, beyond its reasonable control, including, without
limitation, labor disputes (however arising and whether or not
employee demands are reasonable or within the power of the
Participant to grant); acts of God; Laws, instructions or requests
of any government or governmental entity; judgments or orders
of any court; inability to obtain on reasonably acceptable terms
any public or private license, permit or other authorization;
curtailment or suspension of activities to remedy or avoid an
actual or alleged, present or prospective violation of
Environmental Laws; action or inaction by any federal, state or
local agency that delays or prevents the issuance or granting of
any approval or authorization required to conduct Operations
beyond the reasonable expectations of the Participant seeking the
approval or authorization (including, without limitation, a failure
to complete any review and analysis required by the National
Environmental Policy Act or any similar state law within eighteen
(18) months of initiation of that process); acts of war or conditions
arising out of or attributable to war, whether declared or
undeclared; riot, civil strife, insurrection or rebellion; fire,
explosion, earthquake, storm, flood, sink holes, drought or other
adverse weather condition; delay or failure by suppliers or
transporters of materials, parts, supplies, services or equipment or
by contractors' or subcontractors' shortage of, or inability to
obtain, labor, transportation, materials, machinery, equipment,
supplies, utilities or services; accidents; breakdown of equipment,
machinery or facilities; actions by native rights groups,
environmental groups, or other similar special interest groups; or
any other cause whether similar or dissimilar to the foregoing.
The affected Participant shall promptly give notice to the other
Participant of the suspension of performance, stating therein the
nature of the suspension, the reasons therefor, and the expected
duration thereof. The affected Participant shall resume
performance as soon as reasonably possible. During the period of
suspension the obligations of both Participants to advance funds
pursuant to Section 10.2 shall be reduced to levels consistent with
then current Operations.
19.8 Rule Against Perpetuities. The
Participants do not intend that there shall be any violation of the
Rule Against Perpetuities, the Rule Against Unreasonable
Restraints on the Alienation of Property, or any similar rule.
Accordingly, if any right or option to acquire any interest in the
Properties, in a Participating Interest, in the Assets, or in any real
property exists under this Agreement, such right or option must
be exercised, if at all, so as to vest such interest within time
periods permitted by applicable rules. If, however, any such
violation should inadvertently occur, the Participants hereby agree
that a court shall reform that provision in such a way as to
approximate most closely the intent of the Participants within the
limits permissible under such rules.
19.9 Further Assurances. Each of the
Participants shall take, from time to time and without additional
consideration, such further actions and execute such additional
instruments as may be reasonably necessary or convenient to
implement and carry out the intent and purpose of this Agreement
or as may be reasonably required by lenders in connection with
Project Financing.
19.10 Entire Agreement; Successors and
Assigns. This Agreement contains the entire understanding of the
Participants and supersedes all prior agreements and
understandings between the Participants relating to the subject
matter hereof. This Agreement shall be binding upon and inure
to the benefit of the respective successors and permitted assigns of
the Participants.
19.11 Memorandum. At the request of either
Participant, a Memorandum or short form of this Agreement, or
a Financing Statement(s) (to which copies of the Memorandum or
short form of this Agreement shall be attached) shall be prepared
by the Manager, executed and acknowledged by both Participants,
and delivered to the Manager for recording and filing in those
appropriate recording districts and Uniform Commercial Code
filing offices as may be necessary to provide constructive notice
of this Agreement and the rights and obligations of the
Participants hereunder. The Manager shall record and file in the
proper recording districts, county recording offices and Uniform
Commercial Code filing offices, all such documents delivered to
it by the Participants. Unless both Participants agree, this
Agreement shall not be recorded.
19.12 Counterparts. This Agreement may be
executed in any number of counterparts, and it shall not be
necessary that the signatures of both Participants be contained on
any counterpart. Each counterpart shall be deemed an original,
but all counterparts together shall constitute one and the same
instrument.
IN WITNESS WHEREOF, the parties hereto have
executed this Agreement as of the Effective Date.
BATTLE MOUNTAIN EXPLORATION COMPANY
By ________________
Ian Atkinson
Senior Vice President, Exploration
By ________________
David G. Dehlin
Vice President
ROYAL GOLD, INC.
By ________________
Peter B. Babin
President
State of Texas )
) ss.
County of Harris )
On this 31st day of July 1998, before me
the undersigned, a Notary Public in and for said State, personally
appeared Ian Atkinson and David G. Dehlin of Battle Mountain Exploration
Company, personally known to me or proved to me to be the person
who executed the within instrument.
_____/s/_____________________
Notary Public
My Commission Expires: Juy 31, 2000
State of Colorado )
) ss.
City and County of Denver )
On this 28th day of July 1998, before me
the undersigned, a Notary Public in and for said State, personally
appeared Peter B. Babin, President of Royal Gold, Inc., personally
known to me or proved to me to be the person who executed the
within instrument.
____/s/_____________________
Notary Public
My Commission Expires: June 10,2000
EXPLORATION AND DEVELOPMENT OPTION AGREEMENT
THIS EXPLORATION AND DEVELOPMENT OPTION
AGREEMENT is made and entered into effective as of July 1,
1998, by and between Royal Gold, Inc., a Delaware corporation,
whose address is 1660 Wynkoop Street, Suite 1000, Denver,
Colorado 80202 ("Royal"), and Placer Dome U.S. Inc., a California
corporation, whose address for purposes hereof is 240 South Rock
Boulevard, Suite 117, Reno, Nevada, U.S.A. 89502 (hereinafter
referred to as "PDUS"). Royal and PDUS will be collectively
referred to hereinafter as the "Parties."
RECITALS
A. PDUS is the owner of certain unpatented mining
claims situated in White Pine County, Nevada, as more particularly
described in part 1 of Exhibit A (the "Owned Claims"), and holds
a leasehold interest (either directly or through participation in a
joint venture) in certain unpatented mining claims situated in White
Pine County, Nevada, pursuant to (i) that certain Mining Lease
dated April, 1, 1991 among Sam and Neva Bida, the Estate of Leon
Belaustegui, and Velma Belaustegui, as lessors, and USMX, Inc.
(predecessor in interest to PDUS), as lessee; (ii) that Lease and
Option Agreement dated December 3, 1979, among Sam and Neva
Bida and Leon and Velma Belaustegui, as lessors, and Borane
Mining Corporation (predecessor in interest to USMX, Inc.);
(iii) that Assignment Agreement dated effective July 1, 1992,
between Nevada Mine Properties, Inc. and USMX, Inc., and
(iv) that Joint Venture Agreement dated May 1, 1986 among
Suneva Resources Limited, Borane Mining Corporation, Priority
Minerals Ltd., WFD Limited and WCC Inc. (the latter three entities
collectively the predecessor in interest to USMX, Inc.), all as more
particularly described in part 2 of Exhibit A (collectively the
"Leased Claims"). The Owned Claims and the Leased Claims,
together with all improvements and all easements, rights-of-way,
water rights, and all other appurtenances thereto, will be
collectively referred to hereinafter as the "Property."
B. PDUS desires to grant to Royal and Royal desires to
acquire an exclusive right to explore, evaluate and develop the
Property and an option to purchase all of the right, title and interest
of PDUS in and to the Property, reserving to PDUS either (i) an
interest in 5% of the Net Proceeds (as defined below) from the
Property, or (ii) an option to retain ownership of the Property,
subject to certain reimbursement obligations to Royal and the
obligation to convey to Royal an interest in 22% of the Net
Proceeds from the Property.
AGREEMENT
NOW, THEREFORE, for and in consideration of Royal's
firm commitment to pay all land holding costs associated with the
Property for a period of one year from and after the Effective Date,
and to incur certain expenditures on exploration of the Property, as
more fully described in Section 2.2(a) below, and other good and
valuable consideration, the receipt and sufficiency of which the
Parties hereby confirm and acknowledge, and the mutual promises,
covenants, and conditions herein contained and recited, the Parties
hereto agree as follows:
ARTICLE 1
DEFINITIONS
As used in this Agreement, the following terms shall have
the meanings assigned to them in this Article 1.
1.1 "Acquisition Costs" shall mean costs incurred by
Royal in acquiring property interests within the exterior boundaries
of the Property, including direct costs and expenses incurred by
Royal in conducting negotiations and due diligence, attorneys' fees
actually incurred by Royal in connection with any such acquisition,
and all moneys paid by Royal in acquiring and holding such
property interests.
1.2 "Acquisition Date" shall mean the date Royal
acquires an undivided 100% of the right, title and interest of PDUS
in and to the Property, reserving to PDUS an interest in five percent
of Net Proceeds from the Property.
1.3 "Affiliate" shall mean any person, partnership, joint
venture, corporation or other form of enterprise which directly or
indirectly controls, is controlled by, or is under common control
with, a party to this Agreement. For purposes of the preceding
sentence, "control" means possession, directly or indirectly, of the
power to direct or cause direction of management and policies
through ownership of voting securities, contract, voting trust or
otherwise.
1.4 "Agreement" shall mean this Exploration and
Development Option Agreement, the recitals and all exhibits
attached hereto and by this reference incorporated herein.
1.5 "Anniversary Date" shall mean the date falling one
or more years after the Effective Date.
1.6 "Annual Period" shall mean each period of one year
during the term of this Agreement which commences on the
Effective Date or any Anniversary Date and ends on the same date
the following calendar year.
1.7 "Completion Requirement" shall have the meaning
set forth in Section 2.2(b).
1.8 "Effective Date" shall mean July 1, 1998.
1.9 "Evaluation Period" shall mean the period of time
commencing on the Effective Date and continuing until Royal has
either achieved the Completion Requirement or else relinquished its
rights hereunder.
1.10 "Exploration, Development and Related Work" shall
mean and include all operations and activities of Royal on or
relating to the Property for purposes of determining ore reserves
and mineralization, and for purposes of development of Valuable
Minerals from the Property (but not for purposes of mining,
processing or marketing of Valuable Minerals) including, without
limitation, the right to enter upon the Property for purposes of
surveying, exploring, testing, sampling, trenching, bulk sampling,
prospecting and drilling for Valuable Minerals, and to construct and
use buildings, roads, power and communication lines, and to use so
much of the surface of the Property in such manner as Royal deems
necessary for the enjoyment of any rights and privileges to Royal
hereunder or otherwise necessary to effect the purposes of this
Agreement.
1.11 "Exploration and Development Expenses" shall
mean and include all costs or fees, expenses, liabilities and charges
paid or incurred by Royal which are related to Exploration,
Development and Related Work conducted during the Evaluation
Period for the purpose of discovery, location, delineation,
evaluation or development of Valuable Minerals from the Property,
including without limitation:
(a) All costs and expenses incurred in
conducting exploration and prospecting activities, including,
without limitation, the preparation of feasibility studies, the active
pursuit of required federal, state or local authorizations or permits
and the performance of required environmental protection or
restoration obligations, the building, maintenance and repair of
roads, drill site preparation, drilling, trenching, bulk sampling,
tracking, digging test pits, shaft sinking, acquiring, diverting and/or
transporting water necessary for exploration, logging of drill holes
and drill core, completion and evaluation of geological,
geophysical, geochemical or other exploration data and preparation
of interpretive reports, and surveying and laboratory costs and
charges (including assays or metallurgical analyses and tests);
(b) All expenses incurred in conducting
development activities on or in connection with the Property, the
active pursuit of required federal, state or local authorization or
permits and the performance of required environmental protection
or restoration obligations, pre-stripping and stripping, the
construction and installation of a mill, leach pads or other
beneficiation facilities for Valuable Minerals, and other activities,
operations or work performed in preparation for the removal of
Valuable Minerals from the Property;
(c) All Acquisition Costs;
(d) All costs incurred in performing any
reclamation, restoration or other work required by any federal, state
or local agency or authority;
(e) Salaries, wages, expenses and benefits of
Royal's employees or consultants engaged in operations relating to
the Property, including salaries and fringe benefits of those who are
temporarily assigned to and directly employed on work relating to
the Property for the periods of time such employees are engaged in
such activities and reasonable transportation expenses for all such
employees to and from their regular place of work to the Property;
(f) All costs incurred in connection with the
preparation of feasibility studies and economic and technical
analyses pertaining to the Property, whether carried out by Royal
or by third parties under contract with Royal;
(g) Taxes and assessments, other than income
taxes, assessed or levied upon or against the Property or any
improvements situated thereon, for which Royal is responsible or
for which Royal reimburses PDUS;
(h) Costs of material, equipment and supplies
acquired, leased or hired, for use in conducting exploration or
development operations relating to the Property; provided,
however, that equipment owned and supplied by Royal shall be
chargeable at rates no greater than the most favorable rental rates
available in the area of the Property;
(i) Costs and expenses of establishing and
maintaining field offices, camps and housing facilities;
(j) Costs incurred by Royal in examining and
curing title to any part of the Property and in maintaining the
Property whether through the performance of assessment work or
otherwise, in making required payments under the Leases, in
satisfying surface use or damage obligations to landowners, or in
conducting any analyses of the environmental conditions at the
Property; and
(k) An additional 10% as overhead on all costs
and expenses described in items (a) through (j) above.
1.12 "Leases" shall mean the mining leases and other
agreements covering the Leased Claims, as more particularly
described in Recital A and part 2 of Exhibit A.
1.13 "Minimum Work Requirement" shall have the
meaning set forth in Section 2.2(a) below.
1.14 "Net Proceeds" shall have the meaning set forth in
Exhibit B.
1.15 "PDUS Option" shall mean PDUS' exclusive option,
pursuant to Section 2.3, to either (a) offer to convey to Royal all of
PDUS' interest in the Property, reserving to PDUS an interest in
5% of Net Proceeds from the Property, or (b) reimburse Royal for
200% of its Exploration and Development Expenses incurred
during the Evaluation Period and convey to Royal an interest in
22% of Net Proceeds from the Property.
1.16 "Valuable Minerals" shall mean all ores, minerals,
mineral deposits or mineral substances of every kind or character
located in, on or under the Property.
1.17 "$" shall mean United States currency.
ARTICLE 2
GRANT OF RIGHTS AND OPTIONS
2.1 Rights Granted to Royal.
(a) PDUS hereby grants to Royal the exclusive
right to enter upon the Property during the Evaluation Period for the
purpose of conducting Exploration, Development and Related
Work. All of Royal's Exploration, Development and Related Work
shall be subject to prior coordination with PDUS, to ensure that
such work does not interfere with PDUS' ongoing reclamation
work on the Property.
(b) During the Evaluation Period, PDUS shall
have reasonable and continuing rights of access to and from and
across the Property for the purpose of conducting exploration,
development, mining and reclamation activities at the Vantage and
Yankee claim blocks described in part 3 of Exhibit A, and
reclamation activities at the Property.
(c) Upon the receipt of five days' advance
written notice from Royal, PDUS shall consider in good faith any
requests by Royal to traverse portions of the Vantage and Yankee
claim blocks described in Part 3 of Exhibit A, in order for Royal to
explore that ground comprising a portion of the Property and lying
to the south and west of the Amselco heaps and to the south of the
Vantage claim block, and to explore along the range front to the
east of the Yankee claim block. Royal agrees that each such notice
will include the proposed route of access and the level of activity
contemplated by Royal to be associated with such access. PDUS
shall grant such access to Royal so long as the proposed activities
on the part of Royal as set forth in the notice do not unreasonably
interfere with any of the activities or contemplated activities of
PDUS at the Yankee or Vantage claim blocks.
(d) Royal shall have the right to delete portions
of the Property from the scope of the Agreement; provided that
Royal shall have no right to so delete any portions of the Property
during the months of July or August of any year, and provided
further that as to the groups of claims that are subject to the Leases,
(i) Royal shall have no right to delete any portions of those claims
from the scope of the Agreement between May 15th and September
1st of any year or at any time within 60 days of the respective dates
that annual minimum royalty or other advance payments are due
under the particular Lease(s) covering those groups of claims, and
(ii) Royal may delete from the scope of the Agreement all but not
less than all of any group of claims covered by any particular
Lease(s).
2.2 Minimum Work Requirement and Completion Requirement.
(a) In order to retain the right to either acquire
the Property or an interest in 22% of the Net Proceeds from the
Property, in addition to fulfilling its obligations set forth in Article
IV, Royal shall during the Evaluation Period incur on an annual
basis Exploration and Development Expenses in at least the
following amounts (on an annual basis, the "Minimum Work
Requirement"):
First Annual Period $ 300,000
Second Annual Period $ 350,000
Third Annual Period $ 500,000
Fourth Annual Period $ 650,000
Fifth Annual Period $ 1,100,000
Sixth Annual Period $ 1,100,000
Any Exploration and Development Expenses incurred by Royal in
excess of the Minimum Work Requirement for any particular
Annual Period may be carried forward by Royal and shall apply as
a credit toward Exploration and Development Expenses required to
be incurred by Royal during the next Annual Period. If Royal
elects for any reason not to meet the Minimum Work Requirement
for the first Annual Period, it shall nonetheless be obligated to
tender the amount of any deficiency ($300,000 less the amount of
Exploration and Development Expenses actually incurred) to
PDUS. If Royal elects not to timely meet the Minimum Work
Requirement for any subsequent Annual Period, Royal may keep
the Agreement in full force and effect by paying the amount of any
deficiency to PDUS no later than 30 days after the end of that
Annual Period.
(b) Upon timely incurring a minimum of
$4,000,000 in Exploration and Development Expenses (the
"Completion Requirement"), Royal shall promptly notify PDUS.
Together with such notice, Royal shall deliver to PDUS (to the
extent not previously provided to PDUS) copies of all data in its
possession or reasonably available to it relating to the title to the
Property or environmental conditions at or pertaining to the
Property, and all maps, assays, surveys, technical reports, drill logs,
samples, mine, mill, processing and smelter records, and
metallurgical, geological, geophysical, geochemical and
engineering data, and interpretive reports derived therefrom,
concerning the Property and developed by Royal during the
Evaluation Period. Royal makes no representation or warranty as
to the accuracy, reliability or completeness of any such data, and
PDUS shall rely on the same at its sole risk.
(c) Royal shall provide PDUS with a written
statement of Exploration and Development Expenditures, certified
as being complete and accurate by Royal, within 30 days after the
end of each calendar quarter during each Annual Period during the
term of this Agreement, and shall make available for review by
PDUS, during normal business hours, for a period of six months
after the end of each Annual Period, backup invoices, statements
and the like verifying such expenditures. In connection with such
a review, Royal may satisfy the Minimum Work Requirement or
the Completion Requirement by the payment to PDUS of any
agreed-upon deficiency within 30 days after any reported
expenditure has later been determined not to be a valid Exploration
and Development Expenditure, or the amount of required
Exploration and Development Expenditures has later been
determined to be deficient.
2.3 Right to Exercise the PDUS Option.
(a) Within 90 days after receipt of the notice of
satisfaction of the Completion Requirement and the information
required to be included therewith, PDUS shall be obligated to
exercise the PDUS Option by making one of the two following
elections: PDUS shall, in its sole discretion, either (i) offer, in
writing, to convey the Property to Royal, reserving to PDUS an
interest in 5% of the Net Proceeds from the Property, or (ii) provide
notice to Royal, in writing, that PDUS will retain ownership of the
Property but shall convey to Royal an interest in 22% of the Net
Proceeds from the Property.
(b) If PDUS makes the election to retain
ownership of the Property as set forth in Section 2.3(a)(ii), that
election will be subject to the following obligations:
(i) PDUS shall, at the time of that election, reimburse
to Royal an amount equal to 200% of the Exploration and Development
Expenses Royal incurred during the Evaluation Period; and
(ii) PDUS shall, not later than 15 days
after the date of that election, convey to Royal an interest in 22% of
the Net Proceeds from the Property, in the form of the Conveyance
of Royalty Interest set forth as Exhibit C attached hereto and
incorporated herein by reference.
(c) If PDUS makes the election to offer to
convey the Property to Royal as set forth in Section 2.3 (a)(i), then
Royal must respond, in writing, within 15 days after the receipt of
PDUS' offer, advising PDUS whether Royal shall accept such
conveyance of the Property (with the described reservation of a 5%
Net Proceeds Interest), or whether Royal declines to accept such
offered conveyance. In the event that Royal declines to accept such
conveyance, Royal shall thereafter retain no interest in the Property.
In the event that Royal confirms that it shall accept the offered
conveyance of the Property, then PDUS, within 15 days after its
receipt of Royal's notice of acceptance of the offered conveyance
of the Property, shall execute and deliver to Royal recordable
conveyances of all of PDUS' interest in the Owned Claims, the
Leased Claims and the Leases in the forms of (i) the Special
Warranty Deed set forth as Exhibit D attached hereto (reserving to
PDUS an interest in 5% of the Net Proceeds from the Owned
Claims), and (ii) the Assignment set forth as Exhibit E attached
hereto (reserving to PDUS an interest in 5% of Net Proceeds from
the Leased Claims).
2.4 Failure by Royal to Complete Minimum Work
Requirement or Completion Requirement. In the event Royal fails
to complete the Minimum Work Requirement during any Annual
Period or the Completion Requirement, and fails to timely pay to
PDUS the amount of any deficiency, this Agreement shall be
conclusively deemed terminated in accordance with Article 9;
provided, however, that if Royal fails to complete the Minimum
Work Requirement during the first Annual Period, Royal shall
nonetheless be obligated to tender the amount of any deficiency
($300,000 less the amount of Exploration and Development
Expenses actually incurred) to PDUS.
2.5 Geological and Other Data. Upon execution of this
Agreement, PDUS shall use good faith efforts to make available to
Royal all records, information and data in PDUS' possession
relating to title to the Property or environmental conditions at or
pertaining to the Property, and all maps, assays, surveys, technical
reports, drill logs, samples, mine, mill, processing and smelter
records, and metallurgical, geological, geophysical, geochemical,
and engineering data concerning the Property. PDUS makes no
representation or warranty as to the accuracy, reliability or
completeness of any such records, information or data, and Royal
shall rely on the same at its sole risk.
2.6 Acquisition of Additional Claims. During the
Evaluation Period, Royal may locate or otherwise acquire
additional unpatented claims within the exterior boundaries of the
Property, provided that any such additional claims shall become a
part of the Property for all intents and purposes under this
Agreement.
ARTICLE 3
RIGHTS OF ROYAL DURING THE EVALUATION PERIOD
3.1 Royal's Rights. During the Evaluation Period,
Royal's rights shall include, without limitation, the following:
(a) Royal may carry out such operations at the
Property as it may, in its sole discretion, determine to be warranted,
provided that Royal shall have no right to engage in any mining,
mineral processing or marketing operations or activities at or on the
Property, and Royal shall have exclusive control of all exploration,
and development operations on or for the benefit of the Property,
and of any and all equipment, supplies, machinery or other assets
purchased or otherwise acquired in connection with such
exploration or development operations; and
(b) Royal's rights shall include all other rights
necessary or incident to or for its performance of its operations
hereunder, including, but not limited to the authority to apply for all
necessary permits, licenses and other approvals from the United
States of America, the State of Nevada or any other governmental
or other entity having regulatory authority over any part of the
Property.
ARTICLE 4
OBLIGATIONS OF THE PARTIES DURING THE EVALUATION PERIOD
4.1 Conduct of Operations by Royal at the Property. All
of the Exploration, Development and Related Work and any other
activities which may be performed by Royal hereunder shall be
performed in accordance with all of the terms and provisions of the
Leases (as to the Leased Claims) and good mining practices, but the
timing, nature, manner and extent of any exploration, development
or any other operations or activities hereunder shall be in the sole
discretion of Royal, and there shall be no implied covenant to begin
or continue any such operations or activities.
4.2 Indemnity. Except for damages sustained by PDUS
while on the Property pursuant to Section 4.5, Royal agrees to
indemnify and hold PDUS harmless from and against any loss,
liability, cost, expense or damage (including reasonable attorneys'
fees) PDUS may incur for injury to or death of persons or damage
to property, or otherwise, as the result of Royal conducting any
operations on or in connection with the Property.
4.3 Insurance. Royal agrees to carry such insurance,
covering all persons working at or on the Property for Royal, as will
fully comply with the requirements of the statutes of the State of
Nevada pertaining to worker's compensation and occupational
disease and disabilities as are now in force or as may be hereafter
amended or enacted. In addition, during the Evaluation Period,
Royal agrees to carry liability insurance with respect to its
operations at the Property in reasonable amounts in accordance with
accepted industry practices. Royal agrees that PDUS shall be
named as an additional insured on all such policies, and agrees to
forward to PDUS certificates of such insurance policies not later
than 10 days prior to the date Royal commences any activities on
the Property. Royal shall have no right to commence any such
activities until such certificates are delivered to PDUS.
4.4 Compliance with Laws. Royal agrees to conduct
and perform all of its operations at the Property during the
Evaluation Period in compliance with all valid and applicable
federal, state and local laws, rules and regulations, including,
without limitation, such laws, rules and regulations pertaining to
environmental protection, human health and safety, social security,
unemployment compensation, wages and hours and conditions of
labor, and Royal shall indemnify and hold PDUS harmless from
and against any loss, liability, cost, expense or damage (including
reasonable attorneys' fees) arising from or related to Royal's failure
to comply with said laws.
4.5 Inspection. During the Evaluation Period, PDUS
and its authorized agents, at PDUS' sole risk and expense, shall
have the right, exercisable during regular business hours, at a
mutually convenient time, in compliance with Royal's safety rules
and regulations, and in a reasonable manner so as not to interfere
with Royal's operations, to go upon the Property for the purpose of
confirming that Royal is conducting its operations in the manner
required by this Agreement, and to review any and all data and
information associated with such operations. PDUS shall
indemnify and hold Royal harmless from and against any loss,
liability, cost, expense or damage (including reasonable attorneys'
fees) arising out of any death, personal injury or property damage
sustained by PDUS, its agents or employees, while in or upon the
Property pursuant to this Section 4.5, unless such death, injury or
damage is due to Royal's negligence or misconduct.
4.6 Taxes. During the Evaluation Period, Royal shall
be responsible for payment of all taxes levied or assessed upon or
against the Property, as well as any facilities or improvements
located thereon.
4.7 Liens and Encumbrances. Royal shall keep the title
to the Property free and clear of all liens and encumbrances
resulting from its operations hereunder; provided, however, that
Royal may refuse to pay any claims asserted against it which it
disputes in good faith. At its sole cost and expense, Royal shall
contest any suit, demand or action commenced to enforce such a
claim and, if the suit, demand or action is decided by a court or
other authority of ultimate and final jurisdiction against Royal or
the Property, Royal shall promptly pay the judgment and shall post
any bond and take all other action necessary to prevent any sale or
loss of the Property or any part thereof.
4.8 Reclamation and Remediation. Royal shall reclaim
the Property, to the extent disturbed by Royal during the Evaluation
Period and thereafter, in accordance with and as required by
applicable federal, state and local laws, rules and regulations. If
PDUS elects to retain ownership of the Property as set forth in
Section 2.3(a)(ii), PDUS agrees to grant to Royal such access to the
Property following termination as is reasonably necessary to
complete such reclamation and restoration work.
4.9 Property Holding Costs. PDUS shall timely pay all
required Property holding costs during the Evaluation Period,
including without limitation all required payments under the
Leases, all required claim maintenance fees and all required
property taxes, and shall timely make all filings and recordings in
the appropriate governmental offices required in connection with
such payments. Royal agrees to promptly reimburse PDUS for the
payment of such holding costs upon receipt from PDUS of evidence
of such payment.
4.10 Information and Data. During the Evaluation
Period, from time to time at the request of PDUS, Royal shall
provide to PDUS copies of records, information and data in its
possession or reasonably available to it relating to title to the
Property or environmental conditions at or pertaining to the
Property, and all maps, assays, surveys, technical reports, feasibility
studies or other economic evaluations, drill logs, samples, mine,
mill, processing and smelter records, and metallurgical, geological,
geophysical, geochemical, and engineering data, and interpretive
reports derived therefrom, concerning the Property and developed
by Royal during the Evaluation Period. Royal makes no
representation or warranty as to the accuracy, reliability or
completeness of any such records, information or data, and PDUS
shall rely on the same at its sole risk.
ARTICLE 5
REPRESENTATIONS AND WARRANTIES OF PDUS
5.1 Representations and Warranties. PDUS represents
and warrants to Royal as of the date hereof as follows, and
covenants that these representations and warranties will be true and
correct through the Evaluation Period (provided that representations
and warranties which are expressly made as of a specified date need
only be true as of such specified date):
(a) Organization and Standing. PDUS is a
corporation duly organized, validly existing, and in good standing
under the laws of the State of California and is duly qualified to
conduct business as a foreign corporation in Nevada.
(b) Corporate Power. PDUS has the requisite
corporate power and authority (i) to enter into this Agreement and
all other agreements contemplated hereby, and (ii) to carry out and
perform its obligations under the terms and provisions of this
Agreement and all agreements contemplated hereby.
(c) Authorization. All requisite corporate action
on the part of PDUS and its officers, directors, and shareholders,
necessary for the execution, delivery, and performance of this
Agreement and all other agreements of PDUS contemplated hereby,
have been taken. This Agreement and all agreements and
instruments contemplated hereby are, and when executed and
delivered, will be (assuming they are duly and validly executed and
delivered by Royal), legal, valid, and binding obligations of PDUS
enforceable against PDUS in accordance with their respective
terms. The execution, delivery and performance of this Agreement
will not violate any provision of law; any order of any court or
other agency of government; or any provision of any indenture,
agreement or other instrument to which PDUS is a party or by
which its properties or assets are bound; or be in conflict with,
result in a breach of or constitute (with due notice and lapse of
time) a default under any such indenture, agreement or other
instrument. There is no law, rule or regulation, nor is there any
judgment, decree or order of any court or governmental authority
binding on PDUS which would be contravened by the execution,
delivery, performance, or enforcement of this Agreement or any
instrument or agreement required hereunder. Notwithstanding the
foregoing, no representation is made as to the remedy of specific
performance or other equitable remedies for the enforcement of this
Agreement or any other agreement contemplated hereby.
Additionally, this representation is limited by applicable
bankruptcy, insolvency, moratorium, and other similar laws
affecting generally the rights and remedies of creditors and secured
parties.
(d) Royalties. Except as set forth in the Leases,
there are no royalties or other burdens on production arising by,
through or under PDUS and affecting the Property.
(e) Title to the Owned Claims and the Leased Claims.
(i) PDUS represents that it is in
exclusive possession of the Owned Claims, and further represents
and warrants that, to its knowledge, (A) the Owned Claims were
properly located and monumented; (B) location notices and
certificates were properly posted and recorded for each of the
Owned Claims; (C) all filings and recordings required to maintain
the Owned Claims in good standing through the Effective Date,
including evidence of proper performance of annual assessment
work or payment of required claim maintenance fees, have been
timely and properly made in the appropriate governmental offices;
(D) assessment work, performed reasonably and in good faith in
accordance with accepted industry practice, which PDUS believes
was sufficient to satisfy the requirements for holding the Owned
Claims was performed through the assessment year ending
September 1, 1992; and (E) all required annual claim maintenance
fees and other payments necessary to maintain the Owned Claims
through the assessment year ending September 1, 1998, have been
timely and properly made.
(ii) PDUS represents and warrants that it
is in exclusive possession of the Leased Claims, and further
represents and warrants that, to its knowledge and from and after
the date it acquired an interest in the Leased Claims, (A) all filings
and recordings required to maintain the Leased Claims in good
standing through the Effective Date, including evidence of proper
performance of annual assessment work or payment of required
claim maintenance fees, have been timely and properly made; (B)
assessment work, performed reasonably and in good faith in
accordance with accepted industry practice, which PDUS believes
was sufficient to satisfy the requirements for holding the Leased
Claims, was performed through the assessment year ending
September 1, 1992; and (C) all required annual claim maintenance
fees and other payments necessary to maintain the Leased Claims
through the assessment year ending September 1, 1998, have been
timely and properly made.
(iii) PDUS represents and warrants that
the Owned Claims and the Leased Claims are free and clear of all
liens, claims and encumbrances arising by, through and under
PDUS, including (other than the Leases) any lease, right or license,
except taxes not yet due and payable.
(iv) PDUS makes no representation or
warranty whatsoever, express or implied, as to the existence of any
discovery of Valuable Minerals on any of the Owned Claims or the
Leased Claims.
(v) PDUS has conducted all of its
operations on the Leased Claims in compliance with the Leases, the
Leases are in full force and effect, and PDUS is aware of no
defaults or events that could give rise to a default in existence
thereunder.
(f) Environmental Compliance. To the
knowledge of PDUS, there is no condition or activity at the
Property which constitutes a nuisance or which would result in a
violation of or liability under applicable federal, state or local laws,
orders, regulations, directives or restrictions concerning protection
of the environment or health and safety. PDUS has not received
any notice of violation or any consent order issued under applicable
federal, state or local laws, orders, regulations, directives or
restrictions concerning protection of the environment and health
and safety to which the Property or PDUS' operations thereon are
now subject or may become subject. To the knowledge of PDUS,
there are no pending or threatened proceedings by or before any
court or other governmental authority with respect to operations on
or the ownership of the Property alleged to be, or to have been, in
violation of, or to be the basis of liability under, any federal, state
or local law, order, rule, regulation, ordinance, directive or
restriction concerning protection of the environment or health and
safety, and PDUS is not aware of any "release" of any "hazardous
substance" (as those terms are defined in the U.S. Comprehensive
Environmental Response, Compensation and Liability Act of 1980,
as amended) at, from or affecting the Property.
(g) Material Contracts and Commitments.
PDUS has performed all material obligations required to be
performed by it under any contracts and commitments affecting the
Property to which it is a party, and is not in default, and will not be
in default as a result of the consummation of the transactions
contemplated herein, under any contract, agreement, commitment,
mortgage, indenture, loan agreement, lease, license, or other
instrument to which it is a party, including, without limitation, the
Leases. True and correct copies of all such agreements and
commitments, as amended, have been provided to Royal.
(h) Legality. PDUS is not in material violation
of any law, rule, ordinance, or other governmental regulation,
including, without limitation, those relating to zoning,
condemnation, mining, reclamation, environmental matters, equal
employment, and federal, state, or local health and safety laws,
rules, and regulations, the lack of compliance with which could
materially adversely affect the Property.
(i) Litigation and Claims. To the knowledge of
PDUS, there are no actions, suits or proceedings pending or
threatened against or affecting the Property, including any actions,
suits, or proceedings being prosecuted by any federal, state or local
department, commission, board, bureau, agency, or instrumentality.
To the knowledge of PDUS, it is not subject to any order, writ,
injunction, judgment or decree of any court or any federal, state or
local department, commission, board, bureau, agency, or
instrumentality which relates to the Property.
(j) Consents. PDUS has obtained all consents,
approvals, authorizations, declarations, or filings required by any
federal, state, local, or other authority, stock exchange or any other
third party, including, without limitation, any consents required
under the Leases, in connection with the valid execution, delivery,
and performance of this Agreement and the consummation of the
transactions contemplated hereby.
(l) Taxes. All federal, state and local excise,
property and other taxes and assessments pertaining to or assessed
against the Property have been timely and properly paid.
(m) Brokerage or Finder's Fee. All negotiations
relative to this Agreement and the transactions contemplated hereby
have been carried on by PDUS in such manner as not to give rise to
any valid claim against PDUS or any other third party for a
brokerage commission, finder's fee, or other fee or commission
arising by reason of the transactions contemplated by this
Agreement.
(n) Representations. No statements, warranties,
or representations made by PDUS herein contain any untrue
statement of a material fact or omit to state a material fact necessary
in order to make the statements made, in light of the circumstances
under which such statements were or will be made, not misleading.
ARTICLE 6
REPRESENTATIONS AND WARRANTIES OF ROYAL
6.1 Representations and Warranties of Royal. Royal
represents and warrants to PDUS as of the date hereof as follows,
and covenants that these representations and warranties will be true
and correct through the Evaluation Period (provided that
representations and warranties which are expressly made as of a
specified date need only be true as of such specified date):
(a) Organization and Standing. Royal is a
corporation duly organized, validly existing, and in good standing
under the laws of the State of Delaware and is duly qualified to
conduct business as a foreign corporation in Nevada.
(b) Corporate Power. Royal has the requisite
corporate power and authority (i) to enter into this Agreement and
all other agreements contemplated hereby, and (ii) to carry out and
perform its obligations under the terms and provisions of this
Agreement and all agreements contemplated hereby.
(c) Authorization. All requisite corporate action
on the part of Royal, and its officers, directors, and shareholders
necessary for the execution, delivery and performance of this
Agreement and all other agreements of Royal contemplated hereby
have been taken. This Agreement and all agreements and
instruments contemplated hereby, when executed and delivered by
Royal, will be (assuming they are duly and validity executed and
delivered by PDUS) the legal, valid, and binding obligations of
Royal enforceable against Royal in accordance with their terms.
The execution, delivery and performance of this Agreement will not
violate any provision of law; any order of any court or other agency
of government; or any provision of any indenture, agreement or
other instrument to which Royal is a Party or by which its
properties or assets are bound; or be in conflict with, result in a
breach of or constitute (with due notice and lapse of time) a default
under any such indenture, agreement or other instrument. There is
no law, rule or regulation, nor is there any judgment, decree or
order of any court or governmental authority binding on Royal
which would be contravened by the execution, delivery,
performance or enforcement of this Agreement or any instrument
or agreement required hereunder. Notwithstanding the foregoing,
no representation is made as to the remedy of specific performance
or other equitable remedies for the enforcement of this Agreement
or any other agreement contemplated hereby. Additionally, this
representation is limited by applicable bankruptcy, insolvency,
moratorium, and other similar laws affecting generally the rights
and remedies of creditors and secured parties.
(d) Brokerage or Finder's Fee. All negotiations
relative to this Agreement and the transactions contemplated hereby
have been carried on by Royal in such manner as not to give rise to
any valid claim against Royal or any third party for a brokerage
commission, finder's fee or other fee or commission arising by
reason of the transactions contemplated by this Agreement.
(e) Representations. No statements, warranties
or representations made by Royal herein contain any untrue
statement of material fact or omit to state a material fact necessary
in order to make the statement made in light of the circumstances
under which such statements were made or will be made, not
misleading.
ARTICLE 7
NOTICES
7.1 Notices. All notices given in connection herewith
shall be in writing, and all such notices and deliveries to be made
pursuant hereto shall be given or made in person, by certified or
registered mail, by reputable overnight courier, or by facsimile
acknowledged upon receipt. Such notices and deliveries shall be
deemed to have been duly given and received when actually
delivered in person or sent by facsimile (during normal business
hours), on the next business day following the date they are sent by
courier, or three business days after registered or certified mailing
when deposited in a receptacle for United States mail, postage
prepaid, and addressed as follows:
(a) If to PDUS:
Placer Dome U.S. Inc.
240 South Rock Boulevard
Suite 117
Reno, Nevada, U.S.A. 89502
Facsimile No.: (702) 856-7509
Attention: Land and Legal Department
with a copy to:
Placer Dome U.S. Inc.
Suite 600-1055 Dunsmuir Street
Vancouver, British Columbia, Canada
V7X 1L3
Attention: Secretary and General Counsel
(b) If to Royal:
Royal Gold, Inc.
1660 Wynkoop Street
Suite 1600
Denver, Colorado 80112
Facsimile No. (303) 595-9385
Attention: President
ARTICLE 8
INDEMNIFICATION
8.1 By PDUS. In addition to the indemnification
obligations set forth in Section 4.5, PDUS agrees to defend,
indemnify and hold harmless Royal, its successors, affiliates,
assigns, officers, directors and employees from and against any and
all claims, actions, suits, losses, liabilities, damages, assessments,
judgments, costs and expenses, including reasonable attorneys' fees,
arising out of or related to (i) any breach by PDUS of any
representation or warranty or failure by PDUS to perform any
covenant or obligation set forth herein, or (ii) any activities
conducted by PDUS on or in connection with the Property prior to
the Effective Date.
8.2 By Royal. In addition to the indemnification
obligations set forth in Sections 4.2 and 4.4, Royal agrees to
defend, indemnify and hold harmless PDUS, its successors,
affiliates, assigns, officers, directors and employees from and
against any and all claims, actions, suits, losses, liabilities,
damages, assessments, judgments, costs and expenses, including
reasonable attorneys' fees, arising out of or related to (i) any breach
by Royal of any representation or warranty or failure by Royal to
perform any covenant or obligation set forth herein, or (ii) any
activities conducted by Royal on or in connection with the Property
during the Evaluation Period or thereafter.
8.3 Notification. Any Party who has a claim giving rise
to indemnification liability pursuant to this Agreement (an
"Indemnified Party") which results from a claim by a third party
shall give prompt notice to the other Party (the "Indemnifying
Party") of such claim, together with a reasonable description
thereof. Failure to provide such notice shall not relieve a Party of
any of its obligations hereunder except to the extent materially
prejudiced thereby. With respect to any claim by a third party
against any Party to this Agreement which is subject to
indemnification under this Agreement, the Indemnifying Party shall
be afforded the opportunity, at its expense, to defend or settle the
claim if it utilizes counsel reasonably satisfactory to the
Indemnified Party, and promptly commences the defense of such
claim and pursues such defense with diligence; provided, however,
that the Indemnifying Party shall secure the consent of the
Indemnified Party to any settlement, which consent shall not be
unreasonably withheld. The Indemnified Party may participate in
the defense of any claim at its expense, and until the Indemnifying
Party has agreed to defend such claim, the Indemnified Party may
file any motion, answer or other pleading or take such other action
as it deems appropriate to protect its interests or those of the
Indemnifying Party. If an Indemnifying Party does not elect to
contest any third-party claim, the Indemnifying Party shall be
bound by the results obtained with respect thereto by the
Indemnified Party, including any settlement of such claim.
ARTICLE 9
TERM AND TERMINATION
9.1 Term and Termination. This Agreement will remain
in effect during the Evaluation Period, after which, upon exercise
of the PDUS Option, it will terminate automatically, unless it is
sooner terminated pursuant to the provisions of this Article 9.
9.2 Termination by Royal. Royal shall have the right to
terminate, surrender and relinquish this Agreement at any time
during the Evaluation Period by giving 60 days' advance written
notice to PDUS of such election. Any termination by Royal
pursuant to this Section 9.2 will be effective 60 days after the date
such notice is effective as provided in Section 7.1 above. Upon
termination of this Agreement pursuant to this Section 9.2, Royal
shall have no right, title or interest in or to the Property, and shall
have no further liability or obligations hereunder or with respect to
the Property, except with respect to the obligations set forth in
Sections 2.2(a), 2.4, 4.2, 4.4, 4.7, 4.8, 4.9, 4.10, 8.2, 8.3, 9.4, 9.5,
9.6 and 10.1, and PDUS shall have no further liability or obligations
hereunder, except with respect to the obligations set forth in
Sections 4.5, 8.1, 8.3 and 10.1.
9.3 Termination by PDUS. In the event of a default
hereunder on the part of Royal, PDUS shall provide to Royal
written notice specifying the particular default or defaults asserted,
and, in the case of a default other than with respect to the payment
of money, Royal shall have 30 days after the receipt of said notice
within which either to cure such specified defaults, or to undertake
to cure the same and diligently thereafter promptly to cure the
same. In the event of such a cure by Royal, this Agreement shall
continue in full force and effect as though no default had occurred.
In the event such curative action is not so completed or diligent
efforts to cure such defaults are not undertaken within the
applicable 30-day period and thereafter diligently pursued to
completion, PDUS may elect to terminate this Agreement by notice
to Royal as provided in Section 7.1. In the case of a default by
Royal relating to the payment of any funds to PDUS or to any third
party as required hereunder, Royal shall have five days after receipt
of notice of such default to rectify the same, failing which PDUS
may elect to terminate this Agreement by written notice to Royal as
provided in Section 7.1. Upon termination of this Agreement
pursuant to this Section 9.3, Royal shall have no further right, title
or interest in or to the Property, and shall have no further liability
or obligations hereunder or with respect to the Property, except with
respect to the obligations set forth in Sections 2.2(a), 2.4, 4.2, 4.4,
4.7, 4.8, 4.9, 4.10, 8.2, 8.3, 9.4, 9.5, 9.6 and 10.1, and PDUS shall
have no further liability or obligations hereunder, except with
respect to the obligations set forth in Sections 4.5, 8.1, 8.3 and 10.1.
9.4 Return of Data. As soon as practicable upon the
termination of this Agreement, unless PDUS elects to convey the
Property to Royal pursuant to Section 2.3(a)(i), Royal shall return
to PDUS copies of all title, environmental, metallurgical,
geological, geophysical, milling and other data concerning the
Property and furnished to Royal by PDUS. At such time, Royal
shall also make available to PDUS for examination and copying all
survey maps, drill hole logs, sample locations and assays developed
by Royal with respect to the Property during the term of this
Agreement and not previously made available to PDUS.
9.5 Release. Upon termination of this Agreement during
the Evaluation Period, Royal will promptly execute and deliver to
PDUS appropriate documents of conveyance releasing and
conveying its interest in the Property to PDUS.
9.6 Surrender of Possession and Removal of Equipment.
Upon termination of this Agreement, unless PDUS has elected to
convey the Property to Royal pursuant to Section 2.3(a)(i), Royal
shall surrender possession of the Property, subject to the condition
that Royal shall have the right at any time within one year (or such
longer period as Royal can demonstrate is reasonably necessary)
after such surrender or termination of this Agreement to complete
any reclamation obligations required of Royal pursuant to
Section 4.8 and remove all of its tools, equipment, machinery,
supplies, fixtures, buildings, structures and other property erected
or placed on such property by Royal, excepting only timber, chutes
and ladders in place for underground support and entry. Title to
such property not removed within the time period set forth above
shall, at the election of PDUS, pass to PDUS. Alternatively, at the
end of the time period set forth above, PDUS may remove any such
property from the Property and dispose of the same in a
commercially reasonable manner, all at the expense of Royal.
ARTICLE 10
AMENDMENT, RELOCATION OR ABANDONMENT
10.1 Amendment and Relocation of Unpatented Claims.
(a) During the Evaluation Period, subject to
PDUS' prior written approval (which shall not be unreasonably
withheld) and in accordance with and to the extent permitted under
the Leases, Royal shall have the full, exclusive right, but not the
obligation, to relocate, amend, defend contests or adverse actions
or suits and negotiate settlement thereof with respect to any and all
of the Owned Claims or the Leased Claims, and PDUS shall
cooperate with Royal and shall execute any and all documents
necessary or desirable in the opinion of Royal to further such
amendments, relocations, contests, adverse actions or suits, or
settlement of such contests or adverse actions or suits. Royal shall
not be liable to PDUS for the loss of any of the Owned Claims or
the Leased Claims as a result of such amendments, relocations,
contests or adverse actions or suits, so long as the same are
undertaken in good faith and, as to the Leased Claims, in
accordance with the provisions of the Leases.
(b) Subsequent to PDUS exercising the PDUS
Option, the owner of the Property (whether PDUS or Royal) may
in its sole discretion abandon, relocate, or amend any of the
unpatented mining claims that comprise the Property, provided that,
as to any of the Leased Claims, any such actions are taken in
accordance with the provisions of the applicable Lease(s), and
provided further that if the owner re-acquires any interest in any
ground covered by any such abandoned claims within 3 years after
their abandonment, such ground shall be deemed to be included in
the Property for all intents and purposes under this Agreement and
any other instruments or agreements contemplated hereby.
ARTICLE 11
TITLE TO AFTER-ACQUIRED INTERESTS
11.1 After-Acquired Property. This Agreement applies
and extends to any further or additional right, title, interest or estate
heretofore or hereafter acquired by PDUS in or to the Property or
any part thereof. In the event that PDUS acquires such right, title,
interest or estate, PDUS will formally submit the same to Royal in
an appropriate writing to the effect that the terms and conditions
provided in this Agreement shall apply to and govern such interest.
ARTICLE 12
ENTIRE AGREEMENT/AMENDMENT
12.1 Entire Agreement. This Agreement is the complete
expression of all agreements, contracts, covenants, and promises
between the Parties, and all negotiations, understandings, and
agreements between the Parties are set forth in this Agreement,
which solely and completely expresses their understanding, and
shall be construed without reference to any such negotiations,
understandings and agreements.
12.2 No Implied Covenants. No implied term, covenant,
condition or provision of any kind whatsoever shall affect any of
the Parties' respective rights and obligations hereunder, including,
without limitation, rights and obligations with respect to
exploration, development, mining, processing and marketing of
minerals, and the only terms, covenants, conditions or provisions
which shall in any way affect any of their respective rights and
obligations shall be those expressly set forth in this Agreement.
12.3 Amendments. This Agreement may not be amended
or modified, nor may any obligation hereunder be waived, except
by writing duly executed on behalf of all Parties, and unless
otherwise specifically provided in such writing, any amendment,
modification, or waiver shall be effective only in the specific
instance and for the purpose it is given.
ARTICLE 13
FORCE MAJEURE
13.1 Effect of Occurrence. In the event Royal is rendered
unable, wholly or in part, by force majeure applying to it, to timely
achieve the Minimum Work Requirement (during any Annual
Period) or the Completion Requirement, or to carry out any of its
obligations under this Agreement (other than the fulfillment of
required obligations under the Leases), it is agreed that such
obligations of Royal, so far as they are affected by such force
majeure, shall be suspended during the continuance of any inability
so caused, but for no longer period; that the various periods and
terms provided for herein shall be extended for a period equivalent
to such period of force majeure; and that such cause shall, so far as
possible, be remedied with all reasonable dispatch. Royal will
promptly notify PDUS of the commencement and termination of
any event of force majeure.
13.2 Definition. The term "force majeure," as employed
herein, shall mean acts of God, strikes, lockouts or other industrial
disturbances, unavoidable accidents, uncontrollable delays in
transportation, inability to obtain necessary materials in the open
market, any state or federal laws, regulations or requirements
(expressly including inability to timely obtain, after diligent efforts,
necessary governmental approvals, licenses and permits on terms
reasonably acceptable to Royal), or other matters beyond the
reasonable control of Royal, whether similar to matters herein
specifically enumerated or not; provided, however, that
performance shall be resumed within a reasonable period of time
after such cause has been removed; and provided further that Royal
shall not be required against its will to adjust any labor dispute or
to question the validity of or to refrain from judicially testing the
validity of any state or federal order, regulation or law.
ARTICLE 14
GENERAL PROVISIONS
14.1 Governing Law. This Agreement, and the rights and
liabilities of the Parties hereunder, shall be governed by and
construed in accordance with the laws of the State of Nevada, other
than its rules as to conflicts of law.
14.2 Parties in Interest; Assignment. All of the terms and
provisions of this Agreement shall be binding upon and inure to the
benefit of and be enforceable by the respective Parties hereto and
their successors and permitted assigns, whether hereinabove so
expressed or not. The rights, powers, privileges, and interests
hereunder shall not be assignable by either Party, except to affiliates
or subsidiaries, or as otherwise specifically provided for herein,
without the prior written consent of the non-assigning Party, which
consent shall not be unreasonably withheld; provided that any
affiliate or subsidiary or third party to whom any rights, powers,
privileges or interests hereunder are assigned shall agree in writing
to be bound by all the terms and conditions of this Agreement.
14.3 Other Business Opportunities. This Agreement is,
and the rights and obligations of the Parties are, strictly limited to
the matters set forth herein. Subject to the provisions of Article 11
relating to after-acquired title, the Parties shall have the free and
unrestricted right to independently engage in and receive the full
benefits of any and all business ventures of any sort whatever,
whether or not competitive with the matters contemplated hereby
without consulting the other or inviting or allowing the other to
participate therein.
14.4 Confidentiality. Except as set forth in Section 14.6,
the Parties hereto agree to treat all data, reports, records and other
information developed under this Agreement and applicable to the
property as confidential, and unless any Party is required by any
law, rule, regulation, or order, to disclose any of such information,
information shall not be disclosed to any person other than
consultants, contractors, or potential investors or assignees, without
prior written agreement of both Parties, which will not be
unreasonably withheld.
14.5 Memorandum for Recording. Simultaneous with the
execution of this Agreement, the Parties agree to execute for
recording purposes a written Short Form of Exploration and
Development Option Agreement, in the form attached hereto as
Exhibit F, setting forth the basic terms and conditions of this
Agreement as necessitated or permitted by Nevada law.
14.6 Public Announcements. Disclosure of information
relating to this Agreement or the Property may be made by either
Party if such information is required to be disclosed to any federal,
state or local government or appropriate agencies and departments
thereof or if such information is required by law, stock exchange
rule or regulation to be publicly announced. Otherwise, public
announcements or reports by either Party of information relating to
this Agreement or the Property shall be made only on the basis of
agreed texts upon the prior written consent of the other Party, which
consent shall not be unreasonably withheld. Each of PDUS and
Royal accordingly agrees that it will, not less than forty-eight hours
in advance of making public any information referred to in the
preceding sentence, give the other Party written notice of the text
of the proposed report and provide the non-disclosing Party with
the opportunity to object to the form and content thereof before the
same is issued. The non-disclosing Party shall respond within
forty-eight hours of receipt of such notice, or its silence will
constitute a waiver of objection to the terms of the proposed text.
14.7 Waiver; Amendment. Any of the terms or
conditions of this Agreement may be waived at any time by the
Party which is entitled to the benefit thereof, but no such waiver
shall affect or impair the right of the waiving Party to require
observance, performance, or satisfaction of any other term or
condition hereof. Any of the terms or provisions of this Agreement
may be amended or modified at any time by agreement in writing.
14.8 Severability. In the event that any one or more of
the provisions contained in this Agreement or in any other
instrument or agreement contemplated hereby shall, for any reason,
be held to be invalid, illegal, or unenforceable in any respect, such
invalidity, illegality, or unenforceability shall not affect any other
provision of this Agreement or any such other instrument or
agreement.
14.9 Attorneys' Fees. In the event of any controversy,
claim, or dispute between the Parties hereto, arising out of or
relating to this Agreement or the breach thereof, the prevailing
Party shall be entitled to recover from the losing Party reasonable
expenses, attorneys' fees, and costs.
14.10 Further Documents. At the request of either Party,
the Parties shall execute and deliver any further instruments,
agreements, documents or other papers reasonably requested by
either Party to effect the purposes of this Agreement and the
transactions contemplated hereby.
14.11 Dispute Resolution. The Parties hereby agree that
any dispute arising under this Agreement shall be subject to the
informal dispute resolution procedure set forth in this
Section 14.11. The Party asserting the existence of a dispute as to
the interpretation of any provision of this Agreement or the
performance by the other Party of any of its obligations hereunder
shall notify the other Party of the nature of the asserted dispute.
Within seven business days of receipt of such notice, the
Land/Legal Manager of PDUS and the President of Royal shall
arrange for a personal or telephone conference in which they use
good faith efforts to resolve such dispute. If those individuals are
unable to resolve the dispute, they shall jointly prepare and, within
seven business days after their conference, circulate to the Vice
President of Exploration of PDUS and the CEO of Royal a
memorandum outlining in reasonable detail the nature of the
dispute. Within five business days after receipt of that
memorandum, the individuals to whom that memorandum was
addressed shall arrange for a personal or telephone conference in
which they attempt to resolve such dispute. If those individuals are
unable to resolve the dispute, either Party may proceed with any
legal remedy available to it; provided, however, that the Parties
agree that any statement made as to the subject matter of the dispute
in any of the conferences referred to in this Section 14.11 shall not
be used in any legal proceeding against the Party that made such
statement.
14.12 Counterparts. This Agreement may be executed in
multiple counterparts, and all such counterparts taken together shall
be deemed to constitute one and the same document.
IN WITNESS WHEREOF, the Parties hereto have caused
this Exploration and Development Option Agreement to be duly
executed, delivered, and effective from the date first above written.
Placer Dome U.S. Inc.,
a California corporation
By: /S/
Gregory M. Cox
Vice-President, PDX Americas and
as Exploration Manager for PDUS
Royal Gold, Inc.,
a Delaware corporation
By: /S/
Peter B. Babin
President
Acknowledgments
STATE OF CALIFORNIA )
) ss.
COUNTY OF SANTA CLARA)
The foregoing instrument was acknowledged before me this
20th day of August, 1998 by Gregory M. Cox, as Vice-President
PDX of Placer Dome U.S. Inc., a California corporation, on behalf
of the corporation.
Witness my hand and official seal.
My commission expires: November 11, 2000
/S/ (Cheryl N. Rohde)
Notary Public
[SEAL]
STATE OF COLORADO)
) ss.
COUNTY OF DENVER )
The foregoing instrument was acknowledged before me this
17th day of August, 1998 by Peter B. Babin as President of Royal
Gold, Inc., a Delaware corporation, on behalf of the corporation.
My commission expires: June 10, 2000
/S/ (Courtney T.-K. Yoder)
Notary Public
[SEAL]
