10.06
[GERALD METALS, INC. LETTERHEAD]
April 10, 1997
Alta Gold Co.
▇▇▇ ▇▇▇▇▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇
▇▇▇▇▇ ▇▇
▇▇▇▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇
ATTN: ▇▇. ▇▇▇▇▇▇ ▇. ▇▇▇▇▇
Gentlemen:
This Agreement sets forth the provisions in fulfillment of margin
obligations by Alta Gold Co. in connection with presently
outstanding and future contracts entered into from time to time
between Alta Gold Co. ("Alta Gold") and ▇▇▇▇▇▇ Metals, Inc.
("▇▇▇▇▇▇") for the purchase and sale of gold and gold options.
1. DEFINITIONS
A. "Forward Contract" means any contract between the
parties for the purchase or sale of gold having a
maturity date more than two (2) business days forward.
A Forward Contract is outstanding until payment and
performance are completed in accordance with its terms.
B. "Contract Value" of any Forward Contract means the
product obtained by multiplying (i) the number of fine
▇▇▇▇ ounces of gold covered by that Forward Contract by
(ii) the price per ▇▇▇▇ ounce specified in that Forward
Contract.
C. "Market Value" for margin purposes of any Forward
Contract means the product obtained by multiplying
(i) the number of fine ▇▇▇▇ ounces of gold covered by
that Forward Contract by (ii) the settlement quotation
of gold on the commodity Exchange, Inc. ("Comex")
corresponding to the delivery month specified in the
contract or if no such quotation is available then the
settlement quotation of gold for such month shall be
determined in good faith by ▇▇▇▇▇▇. However, in the
event the spot quotation of gold on the Comex changes
more than the limit change allowed for the forward
quotations then the settlement quotation of the forward
months shall be adjusted to reflect the excess market
move.
Alta Gold Co.
April 10, 1997
Page 2
D. "Business Day" shall mean a day on which banks in New
York City and the Comex are open for business.
E. "Metal" shall mean gold in the form of 400 fine ▇▇▇▇
ounce (minimum .995 fine) bars, subject to variations
permitted in the trade.
F. "Call Option" shall mean that the purchaser has the
right but not the obligation to purchase Metal.
G. "Put Option" shall mean that the purchaser has the
right but not the obligation to sell Metal.
H. "Option" or "Options" shall mean Put and Call Options
collectively.
I. "Metal Quantity" for any Option means the number of
▇▇▇▇ ounces of Metal covered by that Option as stated
in the confirming telex, as defined in paragraph 2.
J. The term "Metal Value" of any Option on any day, shall
mean the value of Metal for delivery on the expiration
date as extrapolated from Comex gold futures
settlements per ▇▇▇▇ ounce multiplied by the Metal
Quantity of that option.
K. "Strike Price" of any Option means the price fixed by
the Option for the purchase (in the case of a Call
Option) or the sale (in the case of a Put Option) of
the Metal Quantity covered thereby. "Strike Value" of
any Option shall mean an amount equal to its Strike
Price multiplied by its Metal Quantity.
L. "Intrinsic Value" at any time shall mean, (i) in the
case of a Call Option, an amount in U.S. Dollars equal
to the amount, if any, by which its Metal Value exceeds
its Strike Value and (ii) in the case of a Put Option,
an amount in U.S. Dollars equal to the amount, if any,
by which its Strike Value exceeds its Metal Value.
M. "Time Value" at any time shall mean the theoretical
value as calculated using a standard formula accepted
in the industry, using as volatility input ▇▇▇▇▇▇'s
best estimate of appropriate volatility. Whenever
appropriate, volatility will be calculated so as to be
in line with the volatility of respective Comex gold
option contracts.
Alta Gold Co.
April 10, 1997
Page 3
N. "Option Value" shall mean the sum of Intrinsic Value,
if any, plus Time Value.
O. "Funds" shall mean U.S. Dollars paid by wire transfer
in immediately available funds to the bank account
designated by the party receiving payment.
P. "Grantor" shall mean the party writing an Option.
Q. "Holder" shall mean the party to which an Option is
granted.
R. "Expiration Date" shall mean 9:30 a.m. (New York Time)
on the date agreed to by the Grantor and the Holder and
set forth in the confirmation of the transaction, at
which time the Option shall expire worthless unless
previously exercised in accordance herewith.
S. "Premium Amount" shall mean the consideration for an
Option paid by the Holder to the Grantor.
T. "European Option" shall mean an option which may be
exercised only on the agreed Expiration Date of the
option, although irrevocable notice of intent to
exercise a European Option may be given prior to
Expiration Date.
2. OPTION CONFIRMATION
Each Option purchased and sold hereunder shall be evidenced by a
written or telex confirmation listing:
a) trade date e) metal type (gold)
b) premium payment due date f) metal quantity
c) premium amount g) option type (European)
d) strike price h) option expiration date and time
3. OPTION TERMS AND CONDITIONS
A. The Premium Amount for any Option granted hereunder
shall be paid by the Holder of such Option to the
Grantor two Business Days after the date such Option is
entered into.
Alta Gold Co.
April 10, 1997
Page 4
B. In the event an Option is exercised, on the second
Business Day after the date of exercise, (i) in the
case of a Put Option, the Grantor shall pay the Strike
Value of that Option to the Holder and the Holder shall
deliver the Metal Quantity of that Option to the
Grantor and (ii) in the case of a Call Option, the
Grantor shall deliver to the Holder the Metal Quantity
of that Option, and the Holder shall pay the Strike
Value of that Option to the Grantor; except that at the
Holder's option, expressed by irrevocable notice to the
Grantor at the time the Option is entered into, or at
any other time by mutual agreement of the parties, the
Option may be settled in cash (and thus no delivery of
Metal will take place) by the Grantor transferring to
the Holder on such second Business Day after the date
of exercise an amount equal to the Option Value of such
Option at the time of exercise adjusted for any margin
advances, if any, for the specific Option.
4. PAYMENT AND DELIVERY
A. All amounts payable hereunder and under any Forward
Contract or Option shall be paid in Funds.
B. Delivery of Metal under any Forward Contract or Option
shall be effected by credit of the appropriate type of
Metal (in form and purity qualifying as such) to the
unallocated account specified in the Forward Contract
or Option, or such other location as mutually agreed.
5. MARGIN
In order to secure Alta Gold's obligations to ▇▇▇▇▇▇ under this
Agreement and any outstanding Forward Contracts and Options, ▇▇▇▇
▇▇▇▇ agrees to margin its obligations under Forward Contracts and
Options in the following manner:
A. The amount of exposure under all Options outstanding
between ▇▇▇▇▇▇ and ▇▇▇▇ Gold shall be the sum of the
Option Value of all outstanding options granted by Alta
Gold less the sum of the Option Value of all
outstanding Options granted by ▇▇▇▇▇▇, hereafter
referred to as the "Option Exposure".
Alta Gold Co.
April 10, 1997
Page 5
B. It is agreed that the purchaser under a Forward
Contract, has an unrealized gain if the Market Value of
such contract exceeds its Contract Value and that the
seller under a Forward Contract, has a unrealized gain
if the Contract Value of such contract exceeds its
Market Value. At the close of business on each
Business Day, the net unrealized gain of all Forward
Contracts then outstanding shall be calculated by
(i) determining the difference between the Market Value
and Contract Value of each Forward Contract and
(ii) netting these amounts against each other. The net
unrealized gain is referred to herein as the "Market
Exposure", and the party having the net unrealized gain
is referred to as the party then "Market Exposed".
C. For purposes of all margin calculations under this
Agreement, all purchase and sales of Forward Contracts
shall be netted. Furthermore, the combination of the
Option Exposure and the Market Exposure is referred to
as the "Total Exposure".
D. During the period that any Forward Contracts are
outstanding and ▇▇▇▇▇▇'s Total Exposure equals or
exceeds US $1,500,000 (One Million Five Hundred
Thousand U.S. Dollars) (the "Margin Line") ▇▇▇▇▇▇ shall
receive a margin deposit from Alta Gold for amounts in
excess of US $1,500,000 (One Million Five Hundred
Thousand U.S. Dollars) in the form of Funds, or other
mutually agreed upon forms of margin. Thereafter,
margin cover shall be deposited or returned whenever
▇▇▇▇▇▇'s Total Exposure, less margin already deposited
increases or decreases by US $150,000 (One Hundred
Fifty Thousand U.S. Dollars). All margin deposits or
returns shall be made by the close of business on the
business day following notification. In no event shall
▇▇▇▇▇▇ return funds greater than the total funds
received from Alta Gold.
Alta Gold Co.
April 10, 1997
Page 6
▇. ▇▇▇▇▇▇ received in the form of cash shall be credited
with interest at a rate equal to the overnight federal
funds rate as published by the New York Federal Reserve
Bank, basis a 360 day year. Interest charges shall be
credited and paid monthly by wire transfer to the
account of Alta Gold.
6. SECURITY INTEREST
Each party hereby represents that it is now, and will at all
times during the continuance of this Agreement be, the sole
and absolute owner of any property delivered by such party
as margin hereunder, free and clear of any and all charges,
liens, encumbrances or security interests of any kind other
than the interest of the other party provided for in this
paragraph 6. Without prejudice to any other rights which a
party may have hereunder, any margin delivered to a party
hereunder shall be and hereby is pledged to such party by
way of a first priority security interest as security for
all obligations of the party delivering such margin under
all contracts and transactions relating or pursuant thereto.
The security interest provided for herein is to be a
continuing security interest, notwithstanding any
intermediate payment or settlement of any such obligations.
Neither this Agreement nor the security interest provided
for herein shall be terminated, affected or prejudiced by
any bankruptcy, liquidation, amalgamation, reorganization or
reconstruction of, or merger involving, the party delivering
margin to which such security interest attaches.
7. NON-PERFORMANCE
Notwithstanding any other provisions hereof or any Forward
Contract or Option, in the event Alta Gold (a) defaults in
the payment or performance of any obligation to ▇▇▇▇▇▇
hereunder or under any other agreements with ▇▇▇▇▇▇
including any loan agreements, (b) filed a petition or
otherwise commences or authorizes the commencement of a
proceeding under any bankruptcy or similar law or have any
such petition filed or proceeding commenced against it,
(c) discontinues operation of a material portion of its
business for any reason, (d) is unable to pay its debts as
they fall due; then in any such event ▇▇▇▇▇▇ shall have the
right at any time:
Alta Gold Co.
April 10, 1997
Page 7
A. To reduce the Margin Line as specified herein to U.S.
$1.00 (One U.S. Dollar) (the "Reduced Margin Line") and
thereby accelerate any and all of ▇▇▇▇▇▇'s Total
Exposure as margin due and payable to ▇▇▇▇▇▇ by ▇▇▇▇
Gold, by the close of business in New York on the next
Business Day. Margin cover shall be deposited in the
form of cash or other mutually acceptable form of
margin. Thereafter, the Reduced Margin Line shall be
effective until ▇▇▇▇▇▇ notifies Alta Gold, in writing,
as to otherwise;
B. To liquidate any or all Forward Contracts and Options
then outstanding by:
(i) Closing out each Forward Contract and Option at
the time of liquidation so that each such Forward
Contract and Option is canceled and market damages
equal to their then Total Exposure is calculated
and a settlement payment in an amount equal to
such Total Exposure, if any, less any margin held,
is then due the party then Market Exposed.
(ii) Setting off against each other all settlement
payments which ▇▇▇▇▇▇ ▇▇▇▇ to ▇▇▇▇ Gold as a
result of such liquidation and all settlement
payments which Alta Gold owes to ▇▇▇▇▇▇ as a
result thereof, and all other settlements or
payments due or payable under any other Agreements
including any margin deposits or other collateral,
so that all such amounts are netted to a single
liquidated amount payable by one party to the
other party. The net amount so determined shall
be paid by the close of business in New York on
the next Business Day. ▇▇▇▇▇▇'s rights under this
paragraph 6 shall be in addition to, and not in
limitation or exclusion of, any other rights which
▇▇▇▇▇▇ ▇▇▇ have, whether by agreement, operation
of law or otherwise;
C. To terminate performance of any or all of its
obligations to Alta Gold;
D. To draw on any Letter of Credit or otherwise convert to
cash any margin deposits and set off such amounts in
accordance with paragraph 7 B. (ii);
E. Claim and receive payment from Alta Gold for all
expenses including reasonable legal expenses incurred
in the exercise of the foregoing and any other
remedies.
Alta Gold Co.
April 10, 1997
Page 8
8. MISCELLANEOUS
A. Each Forward Contract shall be governed by the "terms
and conditions" set forth on the reverse side of
▇▇▇▇▇▇'s "Confirmation of Contract" annexed hereto as
an exhibit. In case of conflict with this Agreement,
this Agreement will prevail.
B. This Agreement and each Forward Contract and Option is
for the benefit of the parties and their respective
successors and permitted assigns. No other person or
entity (including without limitation any customer of
either party) shall have any rights hereunder or
thereunder. This Agreement and each Forward Contract
and Option and the rights and duties under this
Agreement or any Forward Contract or Option may not be
assigned by either party (in whole or in part) without
the written consent of the other party, except that
▇▇▇▇▇▇ ▇▇▇ assign this agreement and any or all Forward
Contracts and Options entered into between the parties
for financing purposes.
C. Neither this Agreement nor any Forward Contract or
Option may be amended except by a writing signed by
both parties or by a telex sent by each party to the
other. The paragraph headings are for convenience and
reference only and shall not affect the confirmation or
interpretation of any provisions hereunder.
D. This Agreement shall be governed by the laws of the
State of New York without giving effect to principles
of conflict of laws. Each party hereto consents to the
exclusive jurisdiction of the courts of the State of
New York and/or of any U.S. Federal Court located in
the City of New York over any disputes arising in
connection with the transaction contemplated hereby and
thereby. Final judgment in any action shall be binding
upon the parties hereto and may be enforced in such
courts or in the courts of any country to which
jurisdiction the party against whom the action is
brought is subject. ALTA GOLD AND ▇▇▇▇▇▇ EACH WAIVES
TRIAL BY JURY IN ANY LEGAL ACTION, PROCEEDING OR
COUNTERCLAIM BROUGHT BY EITHER OF THEM AGAINST THE
OTHER ON ANY MATTER WHATSOEVER ARISING HEREUNDER
(INCLUDING, WITHOUT LIMITATION, ANY ACTION, PROCEEDING
OR COUNTERCLAIM ARISING OUT OF OR IN ANY WAY CONNECTED
WITH THIS AGREEMENT, ANY OTHER DOCUMENTS EXECUTED IN
CONNECTION HEREWITH OR ANY OF THE TRANSACTIONS
CONTEMPLATED HEREIN OR THEREIN).
Alta Gold Co.
April 10, 1997
Page 9
E. This Agreement, together with all Forward Contracts and
Options entered into, shall be considered one
integrated contract. Performance by any party on any
day hereunder or under any Forward Contract or Option
is conditional on performance then due by the other
party hereunder or thereunder. The parties hereby
acknowledge that all transactions under these
Agreements are commercial transactions.
F. Each party hereto represents and warrants to the other
that it possesses all necessary power, authority and,
to the extent applicable, approvals necessary to enter
into this Agreement and any Forward Contracts or
Options it enters into, that the execution and
implementation hereof or thereof will not cause such
party to be in violation of any other agreement or law,
regulation, order or court process or decision to which
it is a party or to which it is in any way subject, and
that this Agreement and each Forward Contract and
Option constitutes its valid and binding agreement
enforceable against it in accordance with its terms.
G. Each party hereto represents and warrants to the other
that, on the date hereof, and at the time any Forward
Contract or Option is entered into, it is a producer,
processor or commercial user of, or a merchant handling
gold or the products or by-products thereof, and is
entering into this Agreement and any Forward Contract
or Option solely for the purpose of its business as
such.
H. In case any one or more of the provisions contained in
this Agreement should be invalid, illegal or
unenforceable in any respect, the validity, legality
and enforceability of the remaining provisions
contained herein shall not in any way be affected or
impaired thereby. The parties shall endeavor in good
faith negotiations to replace the invalid, illegal or
unenforceable provisions with valid provisions the
economic effect of which comes as close as possible to
that of the invalid, illegal or unenforceable
provisions.
I. Each party reserves the right to review and/or withdraw
this Agreement in accordance with changing market
and/or financial conditions. In no event will such
withdrawal of this Agreement affect outstanding
transactions or obligations.
Alta Gold Co.
April 10, 1997
Page 10
▇. ▇▇▇▇▇▇▇ a failure nor a delay on the part of either
party in exercising any right, power or privilege,
hereunder, shall operate as a waiver thereof, nor shall
a single or partial exercise thereof preclude any other
or future exercise, or the exercise of any other right,
power or privilege.
9. NOTICES
All notices hereunder shall be in writing or by telex or
telefax and deemed given when received at the respective
party's address set forth below unless sent by telex or
telefax in which case the same shall be deemed given when
sent to the telex or telefax address of the respective party
set forth below and for telex confirmed by the respective
answerback specified below, and for telefax confirmed as
being received by the respective party.
If to ▇▇▇▇▇▇: If to Alta Gold:
▇▇▇▇▇▇ Metals, Inc. Alta Gold Co.
P.O. Box 10134 ▇▇▇ ▇▇▇▇▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇
▇▇▇▇-▇▇▇▇▇ ▇▇▇▇ ▇▇▇▇▇ ▇▇
▇▇▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇
ATTN: ▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇ ATTN: ▇▇▇▇▇▇ ▇. ▇▇▇▇▇
Telefax: (▇▇▇) ▇▇▇-▇▇▇▇ Telefax:
cc: Treasurer
ACCEPTED BY:
ALTA GOLD CO. ▇▇▇▇▇▇ METALS, INC.
By: By:
▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇
Vice President
Date: By:
▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇▇
Director, Structured Finance
