Exhibit 10.a
STOCK PURCHASE OPTION AGREEMENT
BY AND AMONG
ANGLOGOLD (JERRITT CANYON) CORP.
AND
ANGLOGOLD NORTH AMERICA INC., Seller
AND
LEADVILLE MINING & MILLING CORPORATION
AND
LEADVILLE MINING & MILLING HOLDING CORPORATION, Buyer
Dated Effective December 15, 2000
THIS STOCK PURCHASE OPTION AGREEMENT (the "Agreement") is made effective as
of the 15th day of December, 2000, (the "Effective Date") by and among AngloGold
(Jerritt Canyon) Corp. , a Delaware corporation and AngloGold North America
Inc., a Colorado corporation, (collectively "Seller"), and Leadville Mining &
Milling Corporation, a Nevada corporation, and Leadville Mining & Milling
Holding Corporation, a Nevada corporation, (collectively, "Buyer"). Seller and
Buyer are sometimes individually referred to herein as a "Party" and sometimes
collectively as the "Parties."
WITNESSETH
WHEREAS, Seller owns 100% of the issued and outstanding shares of the
capital stock of Minera Chanate, S.A. de C.V., a Mexican corporation
incorporated by means of public instrument number 18,820, executed on September
17, 1999, before ▇▇. ▇▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇, Notary Public 102 of the
Federal District, registered with the Public Registry of Commerce of the Federal
District, under mercantile folio 229861 on November 4, 1997, and with the
Mexican Public Mining Registry under number 14, pages 18 front to 20 back,
volume XXXV, book of Mining Corporations on January 30, 1998 ("Minera Chanate"),
consisting of 4,850,000 shares ("Chanate Shares"); and
WHEREAS, Buyer desires to obtain from Seller the exclusive option to
purchase all of the Chanate Shares from Seller, and Seller desires to grant such
an option to Buyer, upon the terms and conditions set forth in this Agreement.
NOW, THEREFORE, for good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the Parties hereby agree as
follows:
ARTICLE I
THE TRANSACTION
Section 1.1 Grant of Option and Purchase and Sale.
Section 1.1.1 Grant of Option. Seller hereby grants to Buyer the exclusive
and irrevocable option to purchase the Chanate Shares (the "Option"). The Option
must be exercised, if at all, on or before the end of the Due Diligence Period
(as defined in Section 1.1.3 below).
Section 1.1.2 Purchase Price. Subject to the terms and conditions of this
Agreement, if Buyer timely exercises the Option, Seller hereby agrees to sell,
transfer, assign and convey to Buyer on the Closing Date, as hereinafter
defined, all of the Chanate Shares, and Buyer hereby agrees to purchase all of
the Chanate Shares from Seller and to pay Seller the following (collectively the
"Purchase Price"):
(a) On or before one year following the Effective Date, Buyer shall pay
Seller the sum of Fifty Thousand Dollars (US$50,000; all further references
to dollars in this Agreement shall be to United States dollars).
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(b) Following the commencement of production of Products (as defined in
Schedule 1.1.2) from any portion of the property described on Schedule
2.2.11 (the "Property") Buyer shall pay Seller an additional sum, to be
designated by Seller prior to the Closing Date and not to exceed Eighteen
Million Eighteen Thousand Three Hundred Fifty Five Dollars (US$18,018,355),
payable as follows:
(i) Buyer shall pay to Seller payments based upon production of
Products equal to the following percentage of "Net Returns," as
defined in Schedule 1.1.2(b)(i):
Gold Price (US$) NSR
---------------- ---
Less than US$300/oz. 2%
$300/oz. to US$350/oz 3%
Greater than US$350/oz 4%
(ii) Buyer shall pay to Seller payments based upon production of Products
from the Property equal to ten percent (10%) of "Net Profits," as defined
in Schedule 1.1.2(b)(ii); provided, however that such payments shall in no
event exceed in the aggregate the amount of US$1,000,000.
Each of the components of Purchase Price based upon production of Products from
the Property set forth in Sections 1.1.2(b)(i) and (b)(ii) are contractual
obligations of Buyer, shall automatically terminate upon aggregating to a total
amount to be designated by Seller prior to the Closing Date, but in no event
exceeding $18,018,355 (or upon Seller's exercise of its Back-In Option as
described in Section 6.7), and are not and shall not be construed to be royalty
payments. Notwithstanding the foregoing, if any withholding tax is determined to
be payable to the Mexican government or any other jurisdiction on such payments,
the full and timely payment of such tax shall be the obligation of Buyer, but
the amount of any such tax paid by Buyer shall not be offset against the amount
due Seller hereunder. The obligation to pay that portion of the Purchase Price
set forth in Section 1.1.2(b)(i) shall be an obligation running with the
Concessions (as defined in Section 1.1.5); provided, however, that Buyer or
Minera Chanate shall no longer be responsible for making such payments for any
Concessions that are dropped (and not subsequently reacquired by Buyer or Minera
Chanate or a related third party) or conveyed to an unrelated third party in a
bona fide arms-length transaction. The obligation to pay that portion of the
Purchase Price set forth in Section 1.1.2(b)(ii) shall not apply to any
Concessions sold by Buyer or Minera Chanate to an unrelated third party in a
bona fide arms-length transaction.
Section 1.1.3 Due Diligence Period. In consideration of the Five Thousand
Dollars (US$ 5,000) paid by Buyer to Seller prior to the Effective Date (the
receipt of which is hereby acknowledged) and the other consideration set forth
in Sections 1.1.5 and 1.1.6, Buyer shall have the exclusive right for the period
beginning on the date of execution of this Agreement and ending ninety (90) days
thereafter (the "Due Diligence Period") to conduct such investigations and
analyses as it deems necessary and appropriate, in its sole discretion, to
determine whether Buyer wishes to exercise its Option to purchase the Chanate
Shares on the
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terms herein provided. During the Due Diligence Period, Buyer shall have
reasonable access to inspect all records and data of Minera Chanate, and, to the
extent Seller is authorized to provide such access, to the Property. Buyer
understands that Minera Chanate does not have any employees. Buyer shall have
the right, at its sole cost, to take samples directly from the Property,
including portions of existing drill core and drill cuttings, for the purpose of
checking assays, metallurgical testing and any other testing that Buyer deems
appropriate. All data and information made available by Seller to Buyer
hereunder or obtained or generated by Buyer concerning Minera Chanate or the
Property shall be maintained confidential by Buyer and shall not be disclosed to
any third party without Seller's prior written consent (which consent shall not
be unreasonably withheld), except for consultants and financial advisors of
Buyer who agree to be bound by the terms hereof, and except to the extent
disclosure is required by law or stock exchange rule. The parties hereby
acknowledge and agree that this Agreement will constitute a material contract
for Buyer, and as such will be disclosed and attached to documents Buyer files
with the United States Securities Exchange Commission or otherwise makes public
under U.S. securities laws.
Section 1.1.4 Notice to Proceed or Terminate. On or before 5:00 p.m.
Denver, Colorado time on the last day of the Due Diligence Period, Buyer shall
notify Seller in writing either that it (a) elects to purchase the Chanate
Shares on the terms herein provided, or (b) elects not to purchase the Chanate
Shares on the terms herein provided. If Buyer elects to purchase the Chanate
Shares, Buyer shall specify a Closing Date, as referred to in Section 5.1, which
shall be not more than thirty (30) days following the date of the notice. If
Buyer fails to make the election provided for in this Section 1.1.4, or if
notice of such election is not timely received by Seller, Buyer shall be deemed
to have chosen to purchase the Chanate Shares on the terms herein provided, and
Seller shall specify a Closing Date reasonably satisfactory to Buyer. If Buyer
elects not to purchase the Chanate Shares on the terms herein provided, this
Agreement shall terminate, as provided in Section 7.2.
Section 1.1.5 Buyer's Obligations for 2001 Holding Costs. As partial
consideration for the rights granted to Buyer pursuant to Section 1.1.3, Buyer
shall be liable for the payment of all Holding Costs for the year 2001 in
respect of the Property. As used herein, the term "Holding Costs" means all
payments required to be made to the Mexican Secretaria de Hacienda y Credito
Publico and thereafter filed with the Secretaria de Economia in January 2001 and
July 2001 in order to maintain each of the concessions comprising a portion of
the Property (the "Concessions") in good standing as valid concessions under the
laws of Mexico (or equivalent termination payments if any such Concessions are
dropped prior to July of 2001). A schedule of those Holding Costs is attached as
Schedule 1.1.5 hereto. The term "Holding Costs" also includes full compliance
with any filing or other documentary requirements in connection with those
payments to maintain the Property in good standing as valid concessions under
the laws of Mexico. Seller hereby acknowledges receipt of a check from Buyer in
the amount of $126,600, which funds the Parties agree are to be utilized by
Seller only for the payment of Holding Costs. The Parties acknowledge and agree
that Seller has arranged for $68,000 to be allocated to the payment of Holding
Costs due during January 2001, and Seller has arranged and is responsible for
the timely payment of those Holding Costs and full and timely compliance with
any filing or other documentary requirements associated therewith (evidence of
which shall be provided to Buyer as soon as reasonably practicable after the
date such payments are due).
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The Parties agree that, if Buyer timely exercises the Option, upon written
notice from Buyer, Seller shall forward $58,600 to an address or account
designated by Buyer, such funds to then be utilized by Buyer only for the
payment of Holding Costs due during July 2001. Buyer shall arrange for the
timely payment of the entire amount of Holding Costs due by the end of July of
2001 and full and timely compliance with any filing or other documentary
requirements associated therewith (evidence of which shall be provided to Seller
at least three business days prior to the date such payments are due).
Section 1.1.6 Indemnification. Except to the extent arising from Seller's
gross negligence or willful misconduct, Buyer shall indemnify, defend and hold
harmless Seller and its directors, officers, employees and agents and each of
the heirs, executors, successors and assigns of any of the foregoing from and
against any and all actual out-of-pocket damages, liabilities, losses, costs and
expenses (including reasonable attorneys' fees and expenses) arising from or
related to Buyer's or its representatives' activities or presence on the
Property during the Due Diligence Period.
ARTICLE II
REPRESENTATIONS AND WARRANTIES
Section 2.1 Buyer's Representations and Warranties. Each of the
corporations comprising Buyer hereby jointly and severally represents and
warrants to Seller as of the Effective Date (which representations and
warranties shall remain true and correct as of and through the Closing Date) as
set forth below: Section 2.1.1 Due Organization. Buyer consists of two (2)
corporations, each of which is duly incorporated, validly existing and in good
standing, under the laws of the jurisdiction(s) in which it was formed.
Section 2.1.2 Due Authorization. Each of the corporations comprising Buyer
has the full corporate power and authority to enter into and perform this
Agreement and to consummate the transactions contemplated hereby. The execution
and delivery of this Agreement by each of the corporations comprising Buyer, the
consummation of the transactions contemplated hereby, and the performance by
each of the corporations comprising Buyer of all of its obligations under this
Agreement have been duly authorized and approved by such corporation. This
Agreement has been executed and delivered by duly authorized officers of each of
the corporations comprising Buyer.
Section 2.1.3 Enforceability. This Agreement constitutes the legal, valid
and binding obligation of each of the corporations comprising Buyer, enforceable
against each such corporation in accordance with its terms, except as such
enforceability may be limited by applicable bankruptcy, insolvency,
reorganization, moratorium or other laws of general application referring to or
affecting the enforcement of creditors' rights, or by general equitable
principles.
Section 2.1.4 No Conflict. Neither the execution and delivery of this
Agreement by either of the corporations comprising Buyer, nor the consummation
by either such
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corporation of the transactions contemplated hereby, will conflict with or
result in a breach of any of the terms, conditions or provisions of the
certificates of incorporation, articles of incorporation, by-laws, or other
organizational instruments of either of the corporations comprising Buyer, any
law applicable to it or any of its properties or assets, or any order, writ,
injunction, judgment or decree of any governmental authority or any arbitration
award applicable to it or its properties or assets.
Section 2.1.5 No Contract Conflict. Neither the execution and delivery of
this Agreement by either of the corporations comprising Buyer, nor the
consummation by either such corporation of the transactions contemplated hereby
will conflict with, or result in a breach of or give rise to a default or
violation on the part of such corporation under any obligation, lease, license,
agreement, contract, plan, or other arrangement to which it is a party or by
which it is bound.
Section 2.1.6 No Litigation Conflict. There is no action, suit or
proceeding pending or, to the knowledge of either of the corporations comprising
Buyer, threatened against or affecting either of the corporations comprising
Buyer or any of its properties or assets, at law or in equity, or before any
governmental authority, which would be reasonably likely to interfere with such
corporation's ability to consummate this Agreement or the transactions
contemplated hereby.
Section 2.1.7 Regulatory Approvals and Third Party Consents. No
governmental notice, filing, authorization, approval, order or consent is
required to be given, filed or obtained by either of the corporations comprising
Buyer from any governmental authority or any third party in connection with the
execution, delivery and performance by such corporation of this Agreement or the
transactions contemplated hereby.
Section 2.1.8 Investment Intent. If the Option is exercised, each of the
corporations comprising Buyer will be acquiring the Chanate Shares for its own
account for investment purposes only and not with a view to, or for sale or
resale in connection with, any public distribution thereof or with any present
intention of selling, distributing, or otherwise disposing of the Chanate
Shares. Each of the corporations comprising Buyer is capable of evaluating the
merits and risks of its investment, has the capacity to protect its own
interests, and has the financial ability to bear the economic risks of the
investment.
Section 2.1.9 No Commissions. Neither of the corporations comprising Buyer
has retained any broker, investment banker or other person or entity entitled to
any commission or similar compensation in connection with this Agreement or the
transactions contemplated by this Agreement.
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Section 2.2 Seller's Representations and Warranties. Each of the
corporations comprising Seller hereby jointly and severally represents and
warrants to Buyer as of the Effective Date (which representations and warranties
shall remain true and correct as of and through the Closing Date) as set forth
below:
Section 2.2.1 Due Organization. Seller consists of two (2) corporations,
each of which is duly incorporated, validly existing and in good standing, under
the laws of the jurisdictions in which it was formed.
Section 2.2.2 Due Authorization. Each of the corporations comprising Seller
has the full corporate power and authority to enter into and perform this
Agreement and to consummate the transactions contemplated hereby. The execution
and delivery of this Agreement by each of the corporations comprising Seller,
the consummation of the transactions contemplated hereby, and the performance by
each of the corporations comprising Seller of all of its obligations under this
Agreement have been duly authorized and approved by such corporation. This
Agreement has been duly executed and delivered by duly authorized officers of
each of the corporations comprising Seller.
Section 2.2.3 Enforceability. This Agreement constitutes the legal, valid
and binding obligation of each of the corporations comprising Seller enforceable
against it in accordance with its terms, except as such enforceability may be
limited by applicable bankruptcy, insolvency, reorganization, moratorium or
other laws of general application referring to or affecting the enforcement of
creditors' rights, or by general equitable principles.
Section 2.2.4 No Conflict. Neither the execution and delivery of this
Agreement by either of the corporations comprising Seller, nor the consummation
by either of the corporations comprising Seller of the transactions contemplated
hereby, will conflict with or result in a breach of any of the terms, conditions
or provisions of the certificates of incorporation, articles of incorporation,
by-laws of such corporation, any law applicable to it or its properties or
assets, or any order, writ, injunction, judgment or decree of any governmental
authority or any arbitration award applicable to it or its properties or assets.
Section 2.2.5 No Contract Conflict. Neither the execution and delivery of
this Agreement by either of the corporations comprising Seller, nor the
consummation by either such corporation of the transactions contemplated hereby,
will conflict with or result in a breach of or give rise to a default or
violation on the part of such corporation under any obligation, lease, license,
agreement, contract, plan, or other arrangement to which it is a party or by
which it is bound.
Section 2.2.6 No Litigation Conflict. There is no action, suit or
proceeding pending or, to the knowledge of either of the corporations comprising
Seller, threatened against or affecting either such corporation or any of its
properties or assets, at law or in equity, or before any governmental authority,
which would be reasonably likely to interfere with its ability to consummate
this Agreement or the transactions contemplated hereby.
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Section 2.2.7 Regulatory Approvals and Third Party Consents. No
governmental notice, filing, authorization, approval, order or consent is
required to be given, filed or obtained by either of the corporations comprising
Seller from any governmental authority or any third party in connection with the
execution, delivery and performance by it of this Agreement or the transactions
contemplated hereby.
Section 2.2.8 Title to Stock. Each of the corporations comprising Seller
has good and valid title to those of the Chanate Shares shown on the records of
Minera Chanate to be owned by it, 4,849,999 by AngloGold (Jerritt Canyon) Corp.
and one by AngloGold North America Inc., free and clear of any encumbrance, and
has the right, power, authority and capacity to sell and transfer such Chanate
Shares to Buyer in the manner provided herein, free and clear of any
encumbrance. The Chanate Shares are not subject to any voting trust or voting
agreement, nor is any proxy in effect with respect to any of the Chanate Shares.
The Chanate Shares represent all of the issued and outstanding shares of capital
stock of Minera Chanate.
Section 2.2.9 Articles of Incorporation, Bylaws. The Articles of
Incorporation and By-Laws of Minera Chanate, which will be made available to
Buyer for its inspection as soon as reasonably practicable following the date of
execution of this Agreement, are complete and correct, have not been amended
since the Effective Date, and are in full force and effect.
Section 2.2.10 Financial Statements. Attached as Schedule 2.2.10 are the
existing statements of assets and liabilities of Minera Chanate as of and for
the years ended December 31, 1997, December 31, 1998 and December 31, 1999
(collectively, the "Financial Statements"). To the best of Seller's knowledge,
the Financial Statements present fairly and accurately, in all material
respects, the assets, liabilities, expenses and financial condition of Minera
Chanate at December 31, 1997, 1998 and 1999, and its operating revenues and
direct expenses and cash flows for each of the three years ended December 31,
1997, 1998 and 1999, in conformity with Mexican generally accepted accounting
principles consistently applied.
Section 2.2.11 Real Property and Mining Concessions. The attached Schedule
2.2.11 lists all real property interests ("Real Property") and mining
concessions held or to be held by Minera Chanate prior to the Closing. To the
best of the knowledge of each of the corporations comprising Seller, Minera
Chanate holds title to the Real Property and to each of those Concessions free
and clear of all claims, liens, encumbrances and defects arising by, through or
under it or either of those corporations. To the best of knowledge of each of
the corporations comprising Seller, Minera Chanate has performed all actions and
made all payments necessary to keep each of the Concessions identified on
Schedule 2.2.11 in good standing under the Mexican Mining Law ("Ley Minera"),
the Regulations of the Mining Law ("Reglamento de la Ley Minera"), and the
administrative rules derived therefrom, through the date of execution of this
Agreement.
Section 2.2.12 Environmental Compliance. To the best of knowledge of each
of the corporations comprising Seller, (a) Minera Chanate is in material
compliance with all applicable environmental laws, and (b) there are no (i)
adverse environmental conditions at any of the Concessions or any other portion
of the Property, or (ii) administrative proceedings for environmental issues
pending before any Mexican authorities with jurisdiction.
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Section 2.2.13 Compliance with Laws. To the knowledge of each of the
corporations comprising Seller, Minera Chanate is in material compliance with
all laws, rules and regulations of all governmental authorities applicable to
its existence, business, operations and assets.
Section 2.2.14 Licenses, Permits, Approvals. To the knowledge of each of
the corporations comprising Seller, Minera Chanate possesses all licenses,
permits and governmental approvals and authorizations which are required in
order to operate its business as currently operated.
Section 2.2.15 Minera Chanate Assets and Liabilities. To the best of the
knowledge of each of the corporations comprising Seller, Minera Chanate (a) owns
no assets other than the Real Property and the Concessions, (b) is subject to no
liabilities or obligations other than those imposed by law in connection with
the maintenance of the Concessions, property taxes payable on the Real Property,
or as reflected in the Financial Statements, (c) has no employees, (d) to the
extent it had employees in the past, has paid those former employees the
severance and other amounts required by applicable Mexican labor laws, and (e)
has not entered into any oral or written agreements (other than those set forth
on Schedule 2.2.15).
Section 2.2.16 No Commissions. Neither of the corporations comprising
Seller has retained any broker, investment banker or other person or entity
entitled to any commission or similar compensation in connection with this
Agreement or the transactions contemplated by this Agreement.
Section 2.2.17 Capitalization. The authorized capital stock of Minera
Chanate consists of 4,850,000 shares of common stock, no par value, all of which
have been issued and are outstanding. All of the Chanate Shares have been duly
authorized and validly issued, and are fully paid and nonassessable, are not
subject to any preemptive right, were not issued in violation of the terms of
any agreement or other understanding binding upon Minera Chanate, Seller or, to
the knowledge of Seller, any other person, and were issued in compliance with
all applicable securities laws. There are no securities convertible into or
exchangeable for the stock of Minera Chanate, and there are no outstanding
securities, options, warrants, rights, agreements, calls, subscriptions,
commitments, demands or understandings of any character whatsoever, fixed or
contingent, that directly or indirectly (a) call for the issuance, sale or other
disposition of any capital stock of Minera Chanate; (b) obligate Seller or
Minera Chanate to grant, offer or enter into any of the foregoing; or (c) relate
to the voting or control of any capital stock of Minera Chanate.
Section 2.2.18 Constitutional Documents; Agreements. The constitutional
documents, minute books, capital variations book and stock record book (ledger)
of Minera Chanate, which will be made available for Buyer's review as soon as
reasonably practicable after the execution of this Agreement, are complete and
correct in all material respects, and accurately reflect all formal actions of
the shareholders or other owners and boards of directors or other governing
bodies of Minera Chanate during its existence.
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Section 2.2.19 Royalties. Except as payable under the terms of this
Agreement, there are no advance or production royalties payable in connection
with the production of ores or minerals of any kind derived from the Property.
Section 2.2.20 Absence of Changes or Events. Except as otherwise
contemplated or permitted by this Agreement, since December 31, 1999 and through
the date of execution of this Agreement, Minera Chanate has conducted its
operations and maintained its assets and performed, paid and discharged its
liabilities only in the ordinary course of business consistent with past
practices, and no events or conditions have occurred or been discovered that
are, individually or in the aggregate, reasonably expected to have a material
adverse effect on Minera Chanate.
Section 2.2.21 Bank Relationships. Schedule 2.2.21, to be delivered by
Seller to Buyer at or prior to the Closing, sets forth: (a) the names of all
banks and other financial institutions that are depositories of funds of Minera
Chanate; (b) the names of all persons authorized to draw or sign checks or
drafts upon such accounts; (c) the names and locations of any institutions in
which Minera Chanate has safety deposit boxes or lockbox accounts; (d) the names
of the persons having access to such safety deposit boxes or lockbox accounts;
and (e) the names of all officers of Minera Chanate who, according to the
records of banks or other lending institutions, are authorized and empowered to
make any borrowings on behalf of Minera Chanate.
Section 2.2.22 Powers of Attorney. Except as set forth on Schedule 2.2.22,
there is no executed power of attorney to which Minera Chanate is a party that
will remain in effect following the Closing Date.
Section 2.2.23 Tax and Accounting Matters. Minera Chanate has timely filed
all Tax Returns that it was required to file, and all such Tax Returns were
correct and complete in all material respects, and all Taxes owed by Minera
Chanate have been paid. The term "Tax Return" shall refer to any return,
information return, or report with respect to Taxes. "Taxes" shall mean all
national, provincial, local and foreign taxes, assessments, levies, and other
governmental charges, including without limitation income, gross receipts,
license, payroll, employment, severance, ad valorem, property, excise, stamp,
premium, environmental, customs duties, capital stock, franchise, profits,
withholding, social security (and similar taxes), unemployment, real property,
personal property, sales, use, transfer, registration, value added, minimum,
estimated taxes, together with any interest penalties, additions to tax and
other assets thereon or related thereto. The assets of Minera Chanate are not
subject to any encumbrances with respect to Taxes other than Taxes that are not
yet due and payable. Minera Chanate is not a party to any tax allocation or tax
sharing agreement, and has no liability for the Taxes of any other person as a
transferee or successor, by contract, or otherwise. There is no material dispute
or claim concerning Minera Chanate's liability for Taxes either (a) claimed or
raised by any authority in writing, or (b) as to which Seller has any knowledge.
Seller does not reasonably expect that any taxing authority will assess
additional Taxes with respect to any Tax Returns have been filed by Minera
Chanate. To the best of the knowledge of Seller, Minera Chanate has complied
with all the accounting requirements of applicable Mexican tax and commercial
laws.
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ARTICLE III
COVENANTS AND AGREEMENTS
Section 3.1 Joint Covenants and Agreements.
Section 3.1.1 Consents of Others. If Buyer elects to purchase the Chanate
Shares as provided in Section 1.1.4, each Party shall thereafter use its
reasonable efforts prior to the Closing to take, or cause to be taken, all
actions and to do, or cause to be done, all things necessary, proper or
advisable to consummate and make effective as promptly as practicable the
transactions contemplated hereby, and to cooperate with the other in connection
with the foregoing, to obtain all authorizations, consents and permits required
of them to permit them to consummate the transactions contemplated by this
Agreement.
Section 3.1.2 Publicity. Subject to requirements of law and the applicable
rule of any stock exchange and the provisions of Section 1.1.3, the Parties
shall consult in advance of all public announcements in respect to the existence
or subject matter of this Agreement. The content of any such announcements shall
require the agreement of the Parties prior to publication, such agreement not to
be unreasonably withheld or delayed.
Section 3.2 Covenants and Agreements of Seller.
Section 3.2.1 Ordinary Course of Business. Except as otherwise contemplated
by this Agreement, as may be necessary to effect the transactions contemplated
by this Agreement, until the Closing, the Seller shall ensure that Minera
Chanate conducts its business in the ordinary course in a manner consistent with
past practice.
Section 3.2.2 Exclusivity. Until the Closing Date, unless this Agreement
shall have been terminated pursuant to Article VII, Seller shall not and shall
cause Minera Chanate and each of their respective officers, directors,
employees, representatives and agents not to (a) directly or indirectly solicit,
initiate, authorize the solicitation of, respond to or enter into any
discussions with any person other than Buyer involving the possible acquisition
of all or part of Minera Chanate or the Property; (b) enter into any transaction
with any person, other than Buyer, involving the possible acquisition of all or
part of Minera Chanate or the Property; or (c) participate in any discussions or
negotiations or furnish any information to any person with respect to the
possible acquisition of all or part of Minera Chanate or the Property.
Section 3.2.3 Transfer of Concessions. Seller agrees, prior to the Closing,
to cause its wholly-owned subsidiaries to convey to Minera Chanate all right,
title and interest in and to those Concessions not currently owned by Minera
Chanate (as indicated on Schedule 2.2.11).
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Section 3.3 Covenants and Agreements of Buyer. Buyer agrees that any
activities it conducts on the Property during the Due Diligence Period shall be
conducted in accordance with applicable federal, state and local laws, rules and
regulations, and in accordance with accepted industry practices.
ARTICLE IV
CONDITIONS PRECEDENT TO THE CLOSING
Section 4.1 Conditions Precedent to Buyer's Obligations. The obligations of
Buyer to consummate the transactions contemplated under Section 1.1.4 are
subject to the fulfillment of the following conditions on or prior to the
Closing Date (unless waived in writing in the sole discretion of Buyer):
Section 4.1.1 Accuracy of Warranties and Performance of Covenants.
(a) The representations and warranties of Seller contained herein
shall be accurate in all material respects when made and as of the Closing
Date. Seller shall have performed all of its obligations and shall have
complied with each and all of the covenants and agreements required to be
performed or complied with on or prior to the Closing Date.
(b) Buyer's sole and exclusive remedy, in law or in equity, for any
claim, in contract, tort, or otherwise, related to or arising out of a
failure of a condition precedent or a breach by Seller of a representation
contained in Article II (but not for a unilateral decision by Seller not to
proceed with the Closing) which renders Buyer unwilling to complete the
Closing, shall be to refuse to complete the Closing; provided, however,
that in such an event Seller shall be obligated to refund to Buyer (a) all
portions of the Purchase Price previously paid by Buyer, and (b) all
Holding Costs paid or forwarded by Buyer.
Section 4.1.2 Absence of Litigation. No suit or proceeding by any
governmental authority or third party seeking to restrain enjoin, hinder or
obtain damages on account of the consummation of the transactions contemplated
under this Agreement shall be pending. Section 4.2 Conditions Precedent to
Seller's Obligations. The obligations of Seller to consummate the transactions
contemplated hereby are subject to fulfillment of the following conditions on or
prior to the Closing Date (unless waived in writing in the sole discretion of
Seller):
Section 4.2.1 Accuracy of Warranties and Performance of Covenants.
(a) The representations and warranties of Buyer contained herein shall
be accurate in all material respects when made and as of the Closing Date.
Buyer shall have performed in all material respects all of its obligations
and complied in
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all material respects with each and all of the covenants and agreements
required to be performed or complied with on or prior to the Closing Date.
(b) Seller's sole and exclusive remedy, in law or in equity, for any
claim, in contract, tort or otherwise, related to or arising out of a
failure of a condition precedent or a breach by Buyer of a representation
contained in Article II which renders Buyer unable or Seller unwilling to
complete the Closing, shall be to refuse to complete the Closing; provided,
however, that in such an event Seller shall be entitled to retain all
payments and funds for Holding Costs previously made by Buyer to Seller.
Section 4.2.2 Absence of Litigation. No suit or proceeding by any
governmental authority or third party seeking to restrain enjoin, hinder or
obtain damages on account of the consummation of the transactions contemplated
under this Agreement shall be pending.
ARTICLE V
THE CLOSING
Section 5.1 The Closing Date. Subject to the terms of this Agreement, the
consummation of the transactions contemplated by this Agreement (the "Closing")
shall take place at such time and place as the Parties shall mutually agree on
the date specified in the notice to proceed delivered pursuant to Section 1.1.4
(or if the conditions to Closing shall not be satisfied on such date, as
promptly as practicable following the satisfaction or waiver thereof) (the
"Closing Date"), or on such other date as the Parties shall mutually agree.
Section 5.2 Deliveries at the Closing.
Section 5.2.1 Buyer's Execution and Delivery of Documents and Payment.
Buyer shall deliver or execute and deliver, as the case may be, to Seller all of
the following:
A receipt, duly executed by Buyer, acknowledging receipt of the
certificates representing the Chanate Shares; and
Any other documents reasonably requested by Seller.
Section 5.2.2 Seller's Execution and Delivery of Documents. Seller shall
deliver or execute and deliver, as the case may be, to Buyer all of the
following:
The resignations of all of Minera Chanate's directors, officers and
attorneys-in-fact;
Minera Chanate's by-laws, minute books, stock ledger, capital
variations book, powers of attorney and all similar corporate records (to
the extent not previously delivered to Buyer);
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To the extent not previously delivered to Buyer, (a) any and all of
Minera Chanate's accounting and tax documents and records; (b) original
titles of the Concessions and any and all documents pertaining to the
Concessions; (c) any and all documents pertaining to the Real Property; (d)
any and all documents pertaining to the performance of Minera Chanate's
obligations with the National Registry of Foreign Investment and in general
with the Mexican Secretaria de Economia; (e) any and all documents
pertaining to the performance of Minera Chanate's obligations with the
Mexican customs authorities; and (f) in general, any and all documentation
belonging to Minera Chanate or in its possession for any reason, even if
not specifically identified above.
One or more certificates duly endorsed by Seller and in proper form
for transfer to Buyer, or accompanied by duly executed stock powers,
evidencing all of the Chanate Shares; and
Any other documents reasonably requested by Buyer.
Section 5.2.3 Minera Chanate's Execution and Delivery of Documents. Buyer
shall cause Minera Chanate to execute and deliver to Seller the following:
A document suitable for filing with the appropriate governmental
agencies and in a form mutually agreeable to the Parties, evidencing Minera
Chanate's guarantee of the obligation to pay that portion of the Purchase
Price set forth in Sections 1.1.2(b)(i) and (ii).
Section 5.3 Simultaneous Closing. All actions taken at the Closing are to
be part of a simultaneous transaction, and no action is to be considered
completed until all actions necessary to be completed at the Closing have been
completed.
ARTICLE VI
POST-CLOSING AGREEMENTS AND OTHER MATTERS
Section 6.1 Post-Closing Agreements. From and after the Closing, the
Parties shall have the respective rights and obligations which are set forth in
the remainder of this Article VI.
Section 6.2 Mutual Assistance and Further Assurances. The Parties shall
cooperate with each other, and make available the reasonable assistance of their
employees to each other, for a period of sixty (60) days after the Closing. The
Parties shall execute such further documents, and perform such further acts, as
may be necessary to effect the transactions contemplated hereby, on the terms
herein contained and otherwise to comply with the terms of this Agreement;
provided, that, except as contemplated by this Agreement, no Party shall be
required to waive any right or incur any obligation in connection therewith.
Section 6.3 Reports. On or before January 30th each year following the
Closing Date, Buyer or Minera Chanate will furnish to Seller a summary of
activities on or with respect to the Property, that shall include a statement of
all Project Costs (as defined in Section 6.7(a)) incurred
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during the preceding year and the total quantity of Drill Inferred Resources (as
defined in Section 6.7(a)) that Buyer or Minera Chanate has determined exist on
or in the Property.
Section 6.4 Survival of Representations, Warranties, Covenants, Agreements
and Indemnifications. The representations, warranties, covenants and
indemnification obligations contained in this Agreement shall survive the
Closing and be enforceable for a period of twenty-four (24) months and shall
thereafter be of no force or effect, except as they relate to claims for which
written notice, specifying with particularity the facts underlying the claim,
has been provided prior to the expiration of the twenty-four (24) month survival
period.
Section 6.5 Indemnification by Seller. Subject to Section 6.4, and
notwithstanding the provisions of Section 4.1.1(b), each of the corporations
comprising Seller shall jointly and severally indemnify, defend and hold
harmless Buyer and Minera Chanate and their directors, officers, employees and
agents and each of the heirs, executors, successors and assigns of any of the
foregoing (collectively, the "Buyer Indemnified Parties") from and against any
and all actual out-of-pocket damages, liabilities, penalties, losses, costs and
expenses (including reasonable attorneys' fees and expenses in connection with
any third party proceeding relating thereto) (collectively, "Losses") incurred
by the Buyer Indemnified Parties to the extent arising from: (a) the breach or
inaccuracy of any representations or warranties made by Seller herein or (b) any
failure to comply, in whole or in part, with the covenants or agreements made by
Seller herein.
Section 6.6 Indemnification by Buyer. Subject to Section 6.4, and
notwithstanding the provisions of Section 4.2.1(b), each of the corporations
comprising Buyer shall jointly and severally indemnify, defend and hold harmless
Seller and its directors, officers, employees and agents, and each of the heirs,
executors, successors and assigns of any of the foregoing (collectively, the
"Seller Indemnified Parties") from and against any and all Losses incurred by
the Seller Indemnified Parties to the extent arising from: (a) the future
businesses, assets, liabilities, operations or other activities of Minera
Chanate arising after the Closing, (b) the breach or inaccuracy of any
representations or warranties made by Buyer herein, (c) any failure to comply,
in whole or in part, with the covenants or agreements made by Buyer herein, or
(d) from the imposition of a withholding tax (but not the imposition of a tax on
income or capital gains) of the nature described in Section 1.1.2 by any
authority of the Republic of Mexico upon the payments of the Purchase Price to
be made to Seller pursuant to Sections 1.1.2(b)(i) or (ii).
Section 6.7 Back-In and Share Repurchase Option.
(a) Buyer hereby grants to Seller the right to designate a Mexican company
wholly owned by Seller to receive a one-time option, on the terms and
conditions provided in this Section 6.7, to purchase fifty-one percent
(51%) of the outstanding shares of Minera Chanate (or the equivalent rights
or interests in order to vest in Seller a 51% interest in the Property, if
the Property is no longer held, in whole or in part, by Minera Chanate,
excluding any Concessions or portions of the Property which have been
dropped or sold in a bona fide arms-length transaction to a third party
unrelated to Buyer) for a purchase price equal to two (2) times the Project
Costs (Seller's "Back-In Option"). As used herein, "Project Costs" means
all reasonable, documented costs for those activities
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conducted to ascertain the existence, location, extent or quantity of one
of more deposits of gold-bearing ore (or other ores and minerals) on or in
either the El Chanate Property or any Additional Property (as those terms
are defined below), incurred by Buyer or Minera Chanate during the period
commencing on the Effective Date and ending on the date on which Buyer
receives notice from Seller that Seller wishes to exercise its Back-In
Option. Project Costs shall specifically include all costs or fees, taxes,
expenses, liabilities and charges paid or incurred by Buyer or Minera
Chanate which are related to exploration, development and related work
conducted after the Effective Date for the purposes of discovery, location,
delineation, evaluation or development of gold-bearing ores and minerals
from the Property, consisting of:
(i) 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,
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);
(ii) All costs and 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, ▇▇▇▇▇ pads or other beneficiation facilities
for minerals, and other activities, operations or work performed in
preparation for the removal of minerals from the Property;
(iii) All costs of acquiring additional real property interests
(including without limitation rights to use the surface) within the
Property and in the vicinity of the Property to the extent reasonably
necessary to facilitate the conduct of activities on the Property;
(iv) All costs incurred in performing any reclamation,
restoration or other work required by any federal, state or local
agency or authority;
(v) Salaries, wages, expenses and benefits of Buyer's or Minera
Chanate'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
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transportation expenses for all such employees to and from their
regular place of work to the Property;
(vi) All costs incurred in connection with the preparation of
feasibility studies and economic and technical analyses pertaining to
the Property, whether carried out by Buyer or Minera Chanate or by
third parties under contract with Buyer or Minera Chanate;
(vii) Taxes and assessments, other than income taxes, assessed or
levied upon or against the Property or any improvements thereon
situated thereon for which Buyer or Minera Chanate is responsible;
(viii) 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 Buyer shall be chargeable at rates no greater than the
most favorable rental rates available in the area of the Property;
(ix) Costs and expenses of establishing and maintaining field
offices, camps and housing facilities;
(x) Costs incurred by Buyer or Minera Chanate in examining and
curing title to any part of the Property and in defending title to and
maintaining the Property, in satisfying surface use or damage
obligations to landowners, or in conducting any analyses of the
environmental conditions at the Property; and
(xi) An additional amount as overhead, not to exceed the lesser
of (A) five percent (5%) or (B) Buyer's or Minera Chanate's actual
overhead on all costs and expenses described in items (i) through (x)
above.
Project Costs specifically exclude any costs not set forth in items
(i) through (xi) above, and in particular exclude all costs related to
obtaining financing.
As used in this Agreement, "Drill Indicated Resources" means a
deposit or deposits of gold-bearing ore within either (1) the
Concessions comprising the El Chanate Property, as identified on
Schedule 2.2.11, or (2) the Concessions comprising any one of the El
Antimonio, Banco de Oro, La ▇▇▇▇▇▇, Sierra del Alamo, ▇▇▇▇▇ ▇▇▇▇▇▇,
San ▇▇▇▇▇, Aries or Gato Properties (collectively, the "Additional
Properties" and individually, an "Additional Property"), as identified
on Schedule 2.2.11.
(b) At the time, if ever, that Buyer or Minera Chanate either (i) makes a
good faith determination (in accordance with industry standards), for any
purpose, that the Drill Indicated Resources on and in the El Chanate
Property or any individual Additional Property are greater than two million
(2,000,000) ▇▇▇▇ ounces of contained gold, or (ii) has, on an aggregated
basis, mined, produced and sold,
17
from the El Chanate Property or any individual Additional Property, a
number of ounces of gold that, when combined with the Drill Indicated
Resources for that particular property, exceeds two million (2,000,000)
ounces, Buyer shall give Seller prompt notice of such determination (a
"Contained Resources Notice"). The Contained Resources Notice shall be
accompanied by a detailed statement of Project Costs. Seller shall have one
hundred and eighty (180) days following the receipt of a Contained
Resources Notice ("Seller's Option Period") to determine whether to
exercise the Back-In Option. During Seller's Option Period, Seller shall
have the right to conduct such investigations and analyses as it deems
necessary and appropriate, in its sole discretion, to determine whether to
exercise such option, including the right (i) to inspect and copy all
records, reports and data of Buyer and Minera Chanate relating to the
Property, (ii) to inspect, to the extent Minera Chanate or Buyer is
authorized to provide such access, the Property, and (iii) to have Buyer's
and Minera Chanate's books and records relating to Project Costs audited
(at Seller's sole expense). Seller shall have the right, at its sole cost,
to take samples directly from the Property, including portions of existing
drill core and drill cuttings, for the purpose of checking assays,
metallurgical testing and any other testing that Seller deems appropriate.
All data and information made available by Buyer to Seller pursuant to this
Section or obtained or generated by Seller concerning Minera Chanate or the
Property shall be maintained confidential by Seller and, except as required
by law or applicable stock exchange rule, shall not be disclosed to any
third party without Buyer's prior written consent (which consent shall not
be unreasonably withheld), except for consultants and financial advisors of
Buyer who agree to be bound by such confidentiality restrictions. Buyer and
Minera Chanate hereby disclaim any representation, warranty or covenant as
to the accuracy, reliability or completeness of any such data and
information, and Seller shall rely on the same at its sole risk.
(c) The Parties hereby agree that any dispute arising under this Agreement,
including without limitation a dispute as to whether Drill Indicated
Resources at the El Chanate Property or any individual Additional Property
are greater than two million (2,000,000) ounces, shall be subject to the
informal dispute resolution procedure set forth in this Section 6.7(c). 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 (7) business days of receipt of such notice,
a designated representative of Buyer and a designated representative of
Seller shall arrange for a personal or telephone conference in which they
use good faith efforts to resolve such dispute. If those individuals are
18
unable to resolve the dispute, they shall jointly prepare and, within seven
business days after their conference, circulate to the President of Buyer
and the CEO of Seller a memorandum outlining in reasonable detail the
nature of the dispute. Within five (5) 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 6.7(c) shall not be used in any legal proceeding against the Party
that made such statement.
(d) During Seller's Option Period, Buyer and Seller shall negotiate in good
faith, with the advice of their legal and tax advisors, to determine how
best to structure the business arrangement that would exist between them or
their subsidiaries if Seller were to exercise the Back-In Option to
accomplish the business and tax objectives of both Parties. Unless the
Parties otherwise mutually agree, upon exercise of the Back-In Option,
Seller or its designee under Section 6.7(a) shall pay Buyer twice the
amount of the Project Costs and shall receive fifty-one percent (51%) of
the capital stock of Minera Chanate and the business arrangement between
the parties shall be set forth in a shareholders agreement, subject to the
principles set forth in Section 6.7(e); provided that, if the Property is
no longer held, in whole or in part, by Minera Chanate and has not been
dropped or sold in a bona fide arms-length transaction to a third party
unrelated to Buyer, upon exercise of the Back-In Option Seller shall
receive rights or interests sufficient to vest in Seller a 51% interest in
the Property and the same rights contemplated in Section 6.7(e).
(e) If Seller timely exercises its Back-In Option, the Parties shall enter
into a mutually acceptable shareholders' or similar agreement using the
concepts of the Rocky Mountain Mineral Law Foundation Forms 5 and 5A as
models, governed to the maximum extent possible by the laws of the State of
Colorado, but subject to the modifications agreed upon by the Parties and
any requirements to ensure that the agreement is valid and enforceable, to
the extent necessary, under applicable Mexico federal, state and local
laws.
(f) Seller may elect to exercise its Back-In Option at any time during
Seller's Option Period by notice to Buyer. If Buyer timely exercises its
Back-In Option, the closing of the business arrangement agreed to by the
Parties pursuant to Section 6.7(d) and the execution of the shareholders'
or similar agreement shall be held within sixty (60) business days
thereafter.
(g) None of the provisions of this Section 6.7 shall be deemed to prohibit
Buyer or Minera Chanate from commencing commercial production of a deposit
or deposit of ores and minerals from all or any portion of either the El
Chanate Property or any one or more of the Additional Properties, to the
extent that the Drill Indicated Resources contained therein are less than
two million (2,000,000) ▇▇▇▇ ounces of contained gold.
Section 6.8 Maintenance of Concessions Included in the Property. If Buyer
chooses to cause Minera Chanate to drop any, but not all, of the Concessions
that are part of the Property at any time, Buyer shall offer to convey those
Concession(s) it intends to drop to Seller not less
19
than ninety (90) days prior to the date on which any payment and/or filing
requirement must be made to maintain such Concession(s) as valid, and Seller
shall have the option, exercisable for a period of thirty (30) days after its
receipt of such notice, to accept assignment of such Concession(s) to a Mexican
company to be designated by Seller at no cost to Seller other than payments
required to maintain the validity of the Concession(s). If, subsequent to the
date one year after the Effective Date, Buyer chooses to cause Minera Chanate to
drop all of the Concessions that comprise the Property, Buyer shall offer either
to reconvey all of the stock of Minera Chanate to Seller or such Concessions
that comprise the Property as Seller may choose, without cost to Seller, such
offer to be made not less than ninety (90) days prior to the date on which any
payment and/or filing requirement must be made to maintain the validity of such
Concessions (provided that Buyer shall have no such reconveyance obligation if
Seller does not notify Buyer of its election to reacquire all of the stock of
Minera Chanate or any particular Concessions within thirty (30) days after its
receipt of such offer). If Buyer chooses to cause Minera Chanate to drop all of
the Concessions in the manner set forth in the preceding sentence between
December 16, 2001 and February 1, 2002, and Seller timely elects to reacquire
all of the stock of Minera Chanate, this Agreement shall be deemed rescinded,
although Buyer shall have no right to recover any Holding Costs or its initial
$5,000 payment made to Seller. If Buyer chooses to cause Minera Chanate to drop
all of the Concessions that comprise the Property on or prior to one year
following the Effective Date, Buyer shall notify Seller on or prior to the date
one year following the Effective Date, and Seller may elect to reacquire, by
written notice to Buyer within thirty (30) days after its receipt of such offer,
all of the issued and outstanding stock of Minera Chanate for no additional
consideration, in which case this Agreement shall be deemed rescinded, although
Buyer shall have no right to recover any Holding Costs or its initial $5,000
payment made to Seller. Regardless of whether Seller elects to reacquire the
stock of Minera Chanate pursuant to the preceding sentence, Buyer's obligation
to make the $50,000 payment to Seller set forth in Section 1.1.2 shall not
apply. The provisions of this Section 6.8 shall be a covenant running with the
Concessions.
Section 6.9. Notification. Any Party who has a claim giving rise to
indemnification liability pursuant to this Agreement (an "Indemnified Party")
whether resulting from a claim by a third party or otherwise, 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 the Indemnifying 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.
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Section 6.10. Limitation. Notwithstanding anything in this Agreement that
would appear to the contrary, under no circumstances shall an Indemnifying Party
have any liability to any Indemnified Party in an aggregate amount greater than
US$250,000.
ARTICLE VII
TERMINATION
Section 7.1 Termination. This Agreement may be terminated prior to the
Closing as follows:
Section 7.1.1 Mutual Consent. Upon the mutual written consent of Seller and
Buyer; or
Section 7.1.2 Pursuant to Section 1.1.4. By notice delivered to Seller by
Buyer pursuant to Section 1.1.4; or
Section 7.1.3 Litigation. By Seller or Buyer if an injunction or other
order shall have been issued by a governmental authority, which restrains or
otherwise makes unlawful the consummation of the transactions contemplated by
this Agreement and such injunction or other order shall have become final and
non-appealable; provided however that no Party shall be entitled to terminate
this Agreement in reliance on this Section 7.1.3 if such injunction or order
shall have resulted from a breach by such Party of this Agreement.
Section 7.2 Effect of Termination. In the event of termination of this
Agreement, this Agreement and the proposed transactions contemplated hereunder
shall terminate and, each Party hereto shall have no further obligation or
liability hereunder, provided, however, that:
(a) Seller shall retain the US$ 5,000 paid to it by Buyer on the
Effective Date;
(b) Buyer shall remain obligated to pay the Holding Costs due by July
31, 2001, as set forth in Section 1.1.5, and Buyer's indemnity obligations
under Section 1.1.6 and the provisions of Sections 8.11, 8.12 and 8.13
shall survive such termination for a period of twenty-four (24) months ;
and
(c) within thirty (30) days after such termination, Buyer shall
deliver to Seller all factual, non-interpretive data generated by Buyer
with respect to the Property and all data, information, documents and other
materials furnished to or obtained by Buyer regarding the Property or
Minera Chanate, but Buyer shall not be deemed to have made any
representations or warranties as to the accuracy, reliability or
completeness of any data delivered to Seller pursuant to this Section 7.2
and Buyer shall not be liable on account of any use thereof by Seller or
any third party.
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ARTICLE VIII
MISCELLANEOUS
Section 8.1 Exclusivity of Representations and Warranties; Relationship
Between the Parties. Notwithstanding anything in this Agreement to the contrary,
it is the explicit intent and understanding of the Parties that none of the
Parties nor any of their respective representatives is making any representation
or warranty whatsoever, oral or written, express or implied, other than those
set forth in this Agreement and that none of the Parties is relying on any
statement, representation or warranty, oral or written, express or implied, made
by any other Party or such other Party's representatives except for the
representations and warranties expressly set forth in this Agreement. EXCEPT AS
OTHERWISE SPECIFICALLY SET FORTH IN THIS AGREEMENT, THE PARTIES EXPRESSLY
DISCLAIM ANY IMPLIED WARRANTY OR REPRESENTATION AS TO TITLE, OWNERSHIP, USE,
POSSESSION, VALUE, NATURE OF MINERAL RESERVES OR RESOURCES, MINEABILITY,
CONDITION, LIABILITIES, FUTURE RESULTS, MERCHANTABILITY, FITNESS FOR A
PARTICULAR PURPOSE, SUITABILITY OR OTHERWISE.
Section 8.2 Entire Agreement. This Agreement, together with the Schedules
attached hereto, constitutes the entire agreement between the Parties and
supersedes any and all other prior or contemporaneous understandings,
negotiations or agreements between the Parties relating to the transactions
contemplated hereby, and shall be binding upon and inure to the benefit of the
Parties hereto and their respective legal representatives.
Section 8.3 Amendments. Any amendment, supplement, variation, alteration or
modification to this Agreement must be made in writing and duly executed by an
authorized representative or agent of each of the Parties hereto.
Section 8.4 Severability. Any provision of this Agreement which is
prohibited or unenforceable in any jurisdiction shall, as to such jurisdiction,
be ineffective to the extent of such prohibition or unenforceability without
invalidating the remaining provisions hereof, and any such prohibition or
unenforceability in any other jurisdiction shall not invalidate or render
unenforceable such provision in any other jurisdiction. Each Party hereby waives
the benefit of any law which renders any provision hereof prohibited or
unenforceable in any respect.
Section 8.5 Counterparts. This Agreement may be executed in counterparts,
each of which shall be deemed to be an original, and all such counterparts shall
be deemed to constitute one and the same instrument.
Section 8.6 No Waiver. The failure in any one or more instances of a Party
to insist upon performance of any of the terms, covenants or conditions of this
Agreement, to exercise any right or privilege in this Agreement conferred, or to
waive any breach of any of the terms, covenants or conditions of this Agreement,
shall not be construed as a subsequent waiver of any such terms, covenants,
conditions, rights or privileges, but the same shall continue and remain in full
force and effect as if no such forbearance or waiver had occurred. No waiver
shall be effective unless it is in writing and signed by an authorized
representative of the waiving Party.
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Section 8.7 Assignment. This Agreement and all the rights and obligations
granted hereby shall bind and inure to the benefit of the Parties and their
respective successors and assigns, it being expressly agreed that this Agreement
shall not be assigned nor shall any rights or obligations arising hereunder be
transferred by one Party without the prior written consent of the other Parties;
provided, however, that no such consent shall be required (a) in the event of an
assignment by a Party to an affiliate or subsidiary entity, (b) in the event of
a corporate reorganization, merger or consolidation in which either Party is
involved, or (c) to the extent such an assignment is made in connection with the
granting of a security interest for financing purposes.
Section 8.8 Fees, Costs and Expenses. Each Party shall be responsible for
its own fees, costs and expenses incurred by it in connection with this
Agreement and the transactions contemplated hereby. In the event that either
Party is required to enforce its rights hereunder through litigation,
arbitration or similar process, the substantially prevailing Party shall be
entitled to recover its reasonable attorneys' fees, costs and expenses in
addition to any other award.
Section 8.9 No Third Party Beneficiaries. Nothing in this Agreement is
intended to create, nor shall anything in the Agreement be deemed to create or
have created, any third party beneficiary rights.
Section 8.10 Construction. Words importing the singular shall include the
plural and vice versa, and words importing a gender shall include other genders.
Whenever the context may require, any pronoun shall include the corresponding
masculine, feminine or neuter form. The words "include," "includes" and
"including" shall be deemed to be followed by the phrase "without limitation."
The headings contained in this Agreement are inserted for convenience only and
shall not constitute a part hereof or affect any interpretation hereof. All
references herein to articles, sections, and subsections shall be deemed to be
references to articles, sections and subsections of this Agreement unless the
context shall otherwise require. References in this Agreement to any article
shall include all sections, subsections, paragraphs in such article; references
in this Agreement to any section shall include all subsections and paragraphs in
such section; and references in this Agreement to any subsection shall include
all paragraphs in such subsection. The exhibits and attachments to the Schedules
form an integral part of the Schedules and are incorporated by reference for all
purposes as if set forth fully therein. This Agreement shall be construed in
accordance with its fair meaning and shall not be construed strictly against
either Party, without regard to which Party drafted this Agreement.
Section 8.11 Consent to Jurisdiction and Related Matters. Each of the
Parties hereby irrevocably and unconditionally submits, for itself and its
property, to the exclusive jurisdiction of any Colorado State court or Federal
court sitting in the State of Colorado and any appellate court from any thereof,
in any action or proceeding arising out of or relating to this Agreement or the
transactions contemplated hereby or for recognition or enforcement of any
judgment relating thereto, and each of the Parties hereby irrevocably and
unconditionally agrees that all claims in respect of any such action or
proceeding may be heard and determined in such Colorado State court or, to the
extent permitted by law, in such Federal court. Each of the Parties agrees that
a
23
final judgment in any such action or proceeding shall be conclusive and may be
enforced in other jurisdictions by suit on the judgment of in any other manner
provided by law.
Each of the Parties hereby irrevocably and unconditionally waives, to the
fullest extent it may legally and effectively do so, any objection which it may
now or hereafter have to the laying of venue of any suit, action or proceeding
arising out of or relating to this Agreement or the transactions contemplated
hereby in the Federal District Court for the District of Colorado. Each of the
Parties hereby irrevocably and unconditionally waives, to the fullest extent
permitted by law, the defense of any inconvenient forum to the maintenance of
such action or proceeding in any such court.
Section 8.12 Notices. All notices and other communications hereunder shall
be in writing and shall be deemed to have been duly given when personally
delivered, five (5) business days after mailing when mailed by certified mail,
return receipt requested, postage pre-paid, or one (1) business day after
sending via overnight courier service, or when receipt is confirmed when sent by
facsimile. Such notices or other communications shall be sent to the following
addresses, unless other addresses are subsequently specified in writing:
Buyer:
Leadville Mining and Milling Corporation
Leadville Mining and Milling Holding Corporation
▇▇ ▇▇▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇
▇▇▇ ▇▇▇▇, ▇▇▇ ▇▇▇▇ ▇▇▇▇▇
Attention: Director of Investor Relations
Fax No.: (▇▇▇) ▇▇▇-▇▇▇▇
Tel. No.: (▇▇▇) ▇▇▇-▇▇▇▇
Seller:
AngloGold North America Inc.
AngloGold (Jerritt Canyon) Corp.
▇▇▇▇ ▇▇▇ ▇▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇
▇▇▇▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇
Attention: Land Manager
Fax No.: (▇▇▇) ▇▇▇-▇▇▇▇
Tel. No.: (▇▇▇) ▇▇▇-▇▇▇▇
Section 8.13 Governing Law; Jurisdiction. THIS AGREEMENT SHALL BE GOVERNED
BY AND CONTROLLED AS TO ITS VALIDITY, ENFORCEMENT, INTERPRETATION, CONSTRUCTION,
EFFECT AND IN ALL OTHER RESPECTS BY THE LAWS OF THE STATE OF COLORADO (WITHOUT
GIVING EFFECT TO ANY CHOICE OR CONFLICT OF LAW PROVISION OR RULE THEREOF)
APPLICABLE TO CONTRACTS MADE AND TO BE PERFORMED IN THAT STATE.
Section 8.14 Payments. All currency amounts provided for in this Agreement
refer to the lawful currency of the United States of America. Any late payment
hereunder shall be
24
subject to interest calculated from the date due until the date paid at an
interest rate equal to two percent (2%) above the rate charged by Chase
Manhattan Bank, New York City, New York, to its best customers.
Section 8.15 Savings Clause. Any right or option to acquire any interest in
real property under this Agreement must be exercised, if at all, so as to vest
such interest in the acquireror within 21 years after the death of any of the
living children or grandchildren of ▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇, former Attorney General
of the United States.
IN WITNESS WHEREOF, the Parties have executed this Agreement effective on
the date first above written.
SELLER:
ANGLOGOLD NORTH AMERICA INC.
By: /s/ ▇▇▇ Konadina
---------------------------------------
Name: ▇▇▇ Konadina
---------------------------------------
Title: CEO
---------------------------------------
ANGLOGOLD (JERRITT CANYON)
CORP.
By: /s/ ▇▇▇ Konadina
---------------------------------------
Name: ▇▇▇ Konadina
---------------------------------------
Title: President
---------------------------------------
25
BUYER:
LEADVILLE MINING & MILLING CORPORATION
By: /s/ ▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇
---------------------------------------
Name: ▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇
---------------------------------------
Title: President
---------------------------------------
LEADVILLE MINING & MILLING HOLDING CORPORATION
By: /s/ ▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇
---------------------------------------
Name: ▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇
---------------------------------------
Title: President
---------------------------------------
26
SCHEDULE 1.1.2(b)(i)
Net Returns Calculation
1. Purchase Price Payment Measured by Net Returns
As part of the Purchase Price, assuming it exercises the Option, Buyer or
Minera Chanate on Buyer's behalf shall pay to Seller pursuant to Section
1.1.2(b)(i) an amount based upon a percentage of the Net Value (as hereinafter
defined) of Products mined, removed and sold (or deemed sold as hereinafter
described) from the Property. For purposes of this Agreement: (i) "Products"
shall mean Precious Metals and Other Products; (ii) "Precious Metals" shall mean
gold, silver, platinum and palladium in any form; and (iii) "Other Products"
shall mean all other metallic and non-metallic minerals of every kind except:
(a) Precious Metals and (b) oil, gas, casinghead gas and associated liquid and
gaseous hydrocarbon substances.
The payments of the Purchase Price based on net smelter returns provided
for in Section 1.1.2(b)(i) of the Agreement shall be based upon: (a) the value
of dore produced from ores and minerals mined from the Property, determined at
the Property or at such other facility producing such dore, sold or deemed sold,
determined by reference to published prices for refined gold and silver and
other Precious Metals (as hereinafter defined), and (b) the value of all Other
Products produced from ores and minerals mined from the Property, determined at
the Property or at such other facility producing such Product, sold or deemed
sold, determined by reference to published prices for such Other Products all as
hereinafter provided. It is acknowledged that to the extent it is necessary to
process, treat or upgrade Precious Metals or Other Products at a location or
locations not on the Property before they are sold or deemed to be sold, then in
order to determine the value of such Precious Metals or Other Products of the
Property or other facility producing dore or Other Products, all costs incurred
or deemed to be incurred by Buyer or Minera Chanate with respect to the
transporting, processing, treatment or upgrading of the Precious Metals or Other
Products after they have been processed shall be deducted from the proceeds
received or deemed to be received by Buyer or Minera Chanate as hereinafter set
forth.
2. Net Value and Related Definitions
As used herein, "Net Value" means the Gross Value of Precious Metals or
Other Products, less Allowable Deductions. As used herein, "Allowable
Deductions" means (i) with respect to Precious Metals all costs, charges and
expenses paid or incurred by Producer after production of dore, and (ii) with
respect to Other Products, all costs, charges and expenses paid or incurred by
Producer after production of concentrates, whether at the Property or elsewhere,
in either case for the transportation, processing, treatment or upgrading of the
dore or concentrates such costs, charges and expenses to include the following:
(a) charges for treatment in the smelting and refining processes (including
handling, processing, interest and provisional settlement fees, sampling,
assaying and representation costs, penalties and other processor deductions);
-1-
(b) actual costs of transportation (including freight, insurance, security,
transaction taxes, handling, port, demurrage, delay, and forwarding expenses
incurred by reason of or in the course of such transportation) of dore or
concentrates from the Property or other facility producing dore or concentrates
to the place of additional treatment and to the place of sale;
(c) actual sales and brokerage costs of Precious Metals or Other Products
for which are based on proceeds received by Buyer as hereinafter provided in
Section 3(d) below, and an allowance for reasonable sales and brokerage costs
for refined Precious Metals hereinafter provided in Sections 3(a), (b) and (c)
below; and
(d) all governmental royalties, mining, severance, net proceeds or other
taxes or assessments attributable to the production of ores and minerals from
the Property.
As used herein, "Producer" means the corporation or entity that produces
Products from the Property.
3. Gross Value and Related Definitions
As used herein, "Gross Value" shall have the following meanings:
(a) If Producer causes refined gold which meets or exceeds generally
accepted commercial standards for the sale of refined gold (it being understood
that the specifications for refined gold published by the London Metal Exchange
presently meet such standards) to be produced from ores and minerals mined from
the Property and, if Section 3(d) shall not be applicable, for purposes of
determining the payment due Seller, the refined gold shall be deemed to have
been sold at the Monthly Average Gold Price for the month in which it was
refined, and the Gross Value shall be determined by multiplying Gold Production
during the calendar month by the Monthly Average Gold Price. As used in this
Agreement, "Gold Production" means the quantity of refined gold in ▇▇▇▇ ounces
outturned to Producer's pool account (or to a third-party account for the
benefit of Producer) by an independent third-party refinery from ores and
minerals mined from the Property on either a provisional or final settlement
basis each calendar month. As used herein, "Monthly Average Gold Price" means
the average London Bullion Market Association P.M. Gold Fix for a ▇▇▇▇ ounce of
refined gold of a quality that is equal to or less than the quality of refined
gold produced from the ores and minerals and meeting the standards applicable to
the refined gold for which the Gross Value is to be determined hereunder,
calculated by dividing the sum of all such prices reported for the month in
question by the number of days for which such prices were reported.
If the London Bullion Market Association P.M. Gold Fix ceases or quotes
prices for refined gold of a quality that is greater than the quality of refined
gold for which the Gross Value is being determined hereunder, all such
references shall be replaced with references to prices of gold of a comparable
quality for immediate delivery in the most nearly comparable established market
selected by Producer as such prices are published in "Metals Week" or a similar
publication.
-2-
(b) If Producer causes refined silver which meets or exceeds generally
accepted commercial standards for the sale of refined silver (it being
understood that the specifications for refined silver published by Handy &
▇▇▇▇▇▇ presently meet such standards) to be produced from ores and minerals
mined from the Property and, if Section 3(d) shall not be applicable, for
purposes of determining the payment due Seller, the refined silver shall be
deemed to have been sold at the Monthly Average Silver Price for the month in
which it was refined, and the Gross Value shall be determined by multiplying
Silver Production during the calendar month by the Monthly Average Silver Price.
As used herein, "Silver Production" means the quantity of refined silver in ▇▇▇▇
ounces outturned to Producer's pool account (or to a third-party account for the
benefit of Producer) by an independent third-party refinery from ores and
minerals mined from the Property on either a provisional or final settlement
basis each calendar month. As used herein, "Monthly Average Silver Price" means
the average New York Silver Price as published daily by Handy & ▇▇▇▇▇▇ for a
▇▇▇▇ ounce of refined silver of a quality that is equal to or less than the
quality of refined silver produced from the ores and minerals meeting the
standards applicable to the refined silver for which the Gross Value is to be
determined hereunder, calculated by dividing the sum of all such prices reported
for the calendar month in question by the number of days for which such prices
were reported.
If the Handy & ▇▇▇▇▇▇ quotation ceases or quotes prices for refined silver
of a quality that is greater than the quality of refined silver for which the
Gross Value is being determined hereunder, all such references shall be replaced
with references to prices of silver of a comparable quality for immediate
delivery in the most nearly comparable established market selected by Producer
as published in "Metals Week" or a similar publication.
(c) If Producer causes refined or processed Precious Metals, other than
refined gold and refined silver, which meet or exceed commercial standards for
the sale of such Precious Metals, or refined or processed Other Products, to be
produced from ores and minerals mined from the Property, and if Section 3(d)
shall not be applicable, for purposes of determining the Gross Value of such
Precious Metals (other than refined gold and refined silver) or refined or
processed Other Products hereunder, the same shall be deemed to have been sold
at the Monthly Average Metal Price for the same for the month in which it was
refined, and the Gross Value shall be determined by multiplying Metal Production
of the same during the calendar month by the Monthly Average Metal Price for the
same. As used herein, "Metal Production" means the quantity of such Precious
Metals (other than refined gold and refined silver) or refined or processed
Other Products in standard commercial units outturned to Producer's pool account
(or to a third-party account for the benefit of Producer) by an independent
third-party refinery from ores and minerals mined from the Property on either a
provisional or final settlement basis each calendar month. As used herein,
"Monthly Average Metal Price" means the price for each such standard commercial
unit of such Precious Metals (other than refined gold and refined silver) or
refined or processed Other Products for immediate delivery in an established
market selected by Producer as such price is published in "Metals Week" or a
similar publication.
(d) If Producer sells raw ores of Precious Metals or Other Products or
concentrates or dore produced from such ores and minerals mined from the
Property, then the Gross Value shall be calculated as set forth in Section 3(a),
(b) and (c), except that Gold Production, Silver Production or Metal Production
shall, in each case, be equal to the amount of
-3-
gold, silver, other Precious Metals and Other Products contained in such raw
ores, concentrates or dore sold in the specified month multiplied by (i) the
recovery rate for such gold, silver, other Precious Metals and Other Products
contractually determined between Producer and a third party processor or (ii) if
there is not a specifically contracted recovery rate, then by an assumed
recovery rate equal to the average actual recovery rate experienced by Producer
from the beneficiation of such ores and minerals for such gold, silver, other
Precious Metals and Other Products for the latest calendar quarter ended prior
to such month. In the event that such ores and minerals have not been so
beneficiated by Producer during any such calendar quarter, the recovery rate
shall be the actual recovery rate experienced by the purchaser of such ores and
minerals determined in good faith by Producer.
(e) Where outturn of Precious Metals or Other Products is made by an
independent third-party refinery on a provisional basis, the Gross Value shall
be based upon the amount of such provisional settlement, but shall be adjusted
in subsequent statements to account for the amount of such Precious Metals or
Other Products established by final settlement by such refinery.
4. Forward Sales
Seller acknowledges that Producer shall have the right (but not the
obligation) to market and sell or refrain from selling Products mined from the
Property in any manner it may elect. Accordingly, Gross Value shall be
determined as provided in Section 3 of this Schedule irrespective of any actual
selling arrangements entered into by Producer, specifically including, but not
limited to, forward sales, futures trading or commodity options trading, and any
other price hedging, price protection and speculative arrangements which may
involve the possible delivery of ores and minerals and Precious Metals or Other
Products produced from ores and minerals mined from the Property, and Seller
shall have neither the right nor the obligation to participate in any way in
profits or losses arising from the same.
5. Measurement of Products
All ores and minerals mined from the Property shall be weighed or measured
and sampled in accordance with sound mining and metallurgical practices, after
which Producer may mix or commingle such ores and minerals, Precious Metals or
Other Products mined from the Property with ores or other materials from
properties other than the Property.
6. Payment
Net Value shall be determined on a calendar month basis. The payment of the
Purchase Price measured by such Net Value shall be made to Seller on or before
the tenth business day following the last day of each calendar quarter. At the
time of payment, Buyer shall deliver to Seller a statement showing, in
reasonable detail, the quantities and grades of the refined Precious Metals,
dore, concentrates, Other Products or ores and minerals produced and sold or
deemed to be sold by Producer in the preceding quarter; the Average Monthly
Price determined, as herein provided, for refined Precious Metals and Other
Products on which the payment is due; Allowable Deductions; and other pertinent
information, in reasonable detail, to explain the
-4-
calculation of the payment with respect to each month in such quarter. Payment
to Seller shall be made in cash or by check, or upon 48 hours prior written
notice from Seller, by wire transfer to the account specified by Seller in such
notice. In the event a payment is not due for any quarter, Producer shall not be
required to provide Seller with any statement hereunder.
Such quarterly statement shall also list the quantity and quality of any
Precious Metals dore in inventory, if any, for more than ninety (90) days. No
payment shall be due with respect to ores and minerals, Precious Metals or Other
Products mined from the Property or stockpiles of the same unless and until the
same are actually sold or deemed sold as expressly set for the above.
7. Assignment of Payments
Seller may transfer, pledge, mortgage, charge or otherwise encumber all or
any part of its right, title and interest in and to the payments to be made
pursuant to Section 1.1.2; provided, however, that Buyer or Minera Chanate shall
be under no obligation to make its payments hereunder to any such assignee,
transferee, pledgee or other third party until Buyer's receipt of written notice
concerning the transfer, pledge, mortgage, charge or other encumbrance and
provided further that in no event shall Buyer or Minera Chanate be obligated to
deliver payment or notices pursuant to this Agreement to more than one entity or
location.
8. No Covenants
The Parties agree that in no event, whether arising from Buyer's agreement
to pay a portion of the Purchase Price to Seller based upon a percentage of the
Net Value of Products mined, removed and sold from the Property or otherwise,
shall Buyer or Minera Chanate have any duty or obligation, express or implied,
to explore for, develop, mine or produce ores, minerals or Products from the
Property, and the timing, manner, method and amounts of such exploration,
development, mining or production, if any, shall be in the sole discretion of
Buyer or Minera Chanate.
-5-
SCHEDULE 1.1.2(b)(ii)
Net Profits Calculation
1. Purchase Price Payment Measured by Net Profits
As part of the Purchase Price, assuming Buyer exercises the Option, Buyer
or Minera Chanate on Buyer's behalf shall pay to Seller pursuant to Section
1.1.2(b)(ii) an amount equal to ten percent (10%) of the Net Profits (as
hereafter defined) from operations of the Property on the terms and conditions
specified in this Schedule.
2. Net Profits Definition
As used herein, "Net Profits" for any Year means Gross Proceeds accrued for
that Year less the sum of: (i) Operating Costs incurred or accrued for that
Year, (ii) the Exploration and Development Charge incurred or accrued in that
Year, and (iii) the aggregate amount, if any, of the unrecovered Operating Loss
from any prior Year or Years.
3. Payback Definition.
As used herein, "Payback" means the first day of the first month following
the month in which Buyer or Minera Chanate has received cumulative Gross
Proceeds in an amount equal to all of their collective costs, expenses and
capital expenditures (including Operating Costs and Exploration and Development
Expenditures) incurred in the exploration and development of, and the
construction of facilities and acquisition of equipment in preparation of mining
and processing metals, minerals products and minerals from, the Property,
incurred or expended from the Effective Date of the Agreement through the
Commencement of Commercial Production, including without limitation the
applicable Overhead Charge.
(a) Net Profits Interest Payable Prior to Payback. Prior to Payback, the
percentage of Net Profits payable to Seller as a portion of the Purchase Price
shall be calculated based on the average London Bullion Market Association P.M.
Gold Fix for a ▇▇▇▇ ounce of refined gold of a quality that is equal to or less
than the quality of refined gold produced from the ores and minerals and meeting
the standards applicable to the refined gold for which Gross Proceeds are to be
determined hereunder, calculated by dividing the sum of all such prices reported
for the Year in question by the number of days for which such prices were
reported (the "Yearly Average Gold Price"), as follows: (i) if the Yearly
Average Gold Price is less than US$300/oz., eighty percent (80%) of Net Profits
shall be dedicated to the recoupment by Buyer or Minera Chanate of such
unreimbursed expenses as have been incurred or accrued by Minera Chanate or
Buyer for the benefit of the Property, from and after the Effective Date of the
Agreement, and Seller shall receive a pro rata portion of ten percent (10%) of
twenty percent (20%) (two percent of one hundred percent) of Net Profits; (ii)
if the Yearly Average Gold Price is between US$300 and US$350, fifty percent
(50%) of Net Profits shall be dedicated to the recoupment by Buyer or Minera
Chanate of such unreimbursed expenses as have been incurred or accrued by Minera
Chanate or Buyer for the benefit of the Property from and after the Effective
Date of the Agreement, and Seller shall receive a pro rata portion of ten
percent (10%) of fifty percent (50%) (five percent of one hundred percent) of
Net Profits; and (iii) if the Yearly
-1-
Average Gold Price is greater than US $350/oz., twenty percent (20%) of Net
Profits shall be dedicated to the recoupment by Buyer or Minera Chanate of such
unreimbursed expenses as have been incurred or accrued by Minera Chanate or
Buyer for the benefit of the Property from and after the Effective Date of the
Agreement, and Seller shall receive a pro rata portion of ten percent (10%) of
eighty percent (80%) (eight percent of one hundred percent) of Net Profits.
(b) Net Profits Interest Payable after Payback. After Payback, Seller shall
be entitled to receive an amount equal to ten percent (10%) of one hundred
percent (100%) of the Net Profits.
4. Gross Proceeds Definition
As used herein, "Gross Proceeds" shall have the following meanings for the
following categories of metals, minerals products and minerals produced and sold
by Buyer or Minera Chanate (collectively, "Producer"):
(a) If Producer causes refined gold which meets or exceeds generally
accepted commercial standards for the sale of refined gold (it being understood
that the specifications for refined gold published by the London Metal Exchange
presently meet such standards) to be produced from ores and minerals mined from
the Property and, if Section 3(d) shall not be applicable, for purposes of
determining the payment due Seller, the refined gold shall be deemed to have
been sold at the Monthly Average Gold Price for the month in which it was
refined, and the Gross Proceeds shall be determined by multiplying Gold
Production during the calendar month by the Monthly Average Gold Price. As used
in this Agreement, "Gold Production" means the quantity of refined gold in ▇▇▇▇
ounces outturned to Producer's pool account (or to a third-party account for the
benefit of Producer) by an independent third-party refinery from ores and
minerals mined from the Property on either a provisional or final settlement
basis each calendar month. As used herein, "Monthly Average Gold Price" means
the average London Bullion Market Association P.M. Gold Fix for a ▇▇▇▇ ounce of
refined gold of a quality that is equal to or less than the quality of refined
gold produced from the ores and minerals and meeting the standards applicable to
the refined gold for which the Gross Proceeds are to be determined hereunder,
calculated by dividing the sum of all such prices reported for the month in
question by the number of days for which such prices were reported.
If the London Bullion Market Association P.M. Gold Fix ceases or quotes
prices for refined gold of a quality that is greater than the quality of refined
gold for which the Gross Proceeds are being determined hereunder, all such
references shall be replaced with references to prices of gold of a comparable
quality for immediate delivery in the most nearly comparable established market
selected by Producer as such prices are published in "Metals Week" or a similar
publication.
(b) If Producer causes refined silver which meets or exceeds generally
accepted commercial standards for the sale of refined silver (it being
understood that the specifications for refined silver published by Handy &
▇▇▇▇▇▇ presently meet such standards) to be produced from ores and minerals
mined from the Property and, if Section 3(d) shall not be applicable, for
purposes of determining the payment due Seller, the refined silver shall be
deemed
-2-
to have been sold at the Monthly Average Silver Price for the month in which it
was refined, and the Gross Proceeds shall be determined by multiplying Silver
Production during the calendar month by the Monthly Average Silver Price. As
used herein, "Silver Production" means the quantity of refined silver in ▇▇▇▇
ounces outturned to Producer's pool account (or to a third-party account for the
benefit of Producer) by an independent third-party refinery from ores and
minerals mined from the Property on either a provisional or final settlement
basis each calendar month. As used herein, "Monthly Average Silver Price" means
the average New York Silver Price as published daily by Handy & ▇▇▇▇▇▇ for a
▇▇▇▇ ounce of refined silver of a quality that is equal to or less than the
quality of refined silver produced from the ores and minerals meeting the
standards applicable to the refined silver for which the Gross Proceeds are to
be determined hereunder, calculated by dividing the sum of all such prices
reported for the calendar month in question by the number of days for which such
prices were reported.
If the Handy & ▇▇▇▇▇▇ quotation ceases or quotes prices for refined silver
of a quality that is greater than the quality of refined silver for which the
Gross Proceeds is being determined hereunder, all such references shall be
replaced with references to prices of silver of a comparable quality for
immediate delivery in the most nearly comparable established market selected by
Producer as published in "Metals Week" or a similar publication.
(c) If Producer causes refined or processed Precious Metals, other than
refined gold and refined silver, which meets or exceeds commercial standards for
the sale of such Precious Metals, or refined or processed Other Products, to be
produced from ores and minerals mined from the Property, and if Section 3(d)
shall not be applicable, for purposes of determining the Gross Proceeds of such
Precious Metals (other than refined gold and refined silver) or refined or
processed Other Products hereunder, the same shall be deemed to have been sold
at the Monthly Average Metal Price for the same for the month in which it was
refined, and the Gross Proceeds shall be determined by multiplying Metal
Production of the same during the calendar month by the Monthly Average Price
for the same. As used herein, "Metal Production" means the quantity of such
Precious Metals (other than refined gold and refined silver) or refined or
processed Other Products in standard commercial units outturned to Producer's
pool account (or to a third-party account for the benefit of Producer by an
independent third-party refinery from ores and minerals mined from the Property
on either a provisional or final settlement basis each calendar month. As used
herein, "Monthly Average Metal Price" means the price for each such standard
commercial unit of such Precious Metals (other than refined gold and refined
silver) or refined or processed Other Products for immediate delivery in an
established market selected by Producer as such price is published in "Metals
Week" or a similar publication.
(d) If Producer sells raw ores of Precious Metals or Other Products or
concentrates or dore produced from such ores and minerals mined from the
Property, then the Gross Proceeds shall be calculated as set forth in Section
3(a), (b) and (c), except that Gold Production, Silver Production or Metal
Production shall, in each case, be equal to the amount of gold, silver, other
Precious Metals and Other Products contained in such raw ores, concentrates or
dore sold in the specified month multiplied by (i) the recovery rate for such
gold, silver, other Precious Metals and Other Products contractually determined
between Producer and a third party processor or (ii) if there is not a
specifically contracted recovery rate, then by an assumed recovery rate equal to
the average actual recovery rate experienced by Producer from the
-3-
beneficiation of such ores and minerals for such gold, silver, other Precious
Metals and Other Products for the latest calendar quarter ended prior to such
month. In the event that such ores and minerals have not been so beneficiated by
Producer during any such calendar quarter, the recovery rate shall be the actual
recovery rate experienced by the purchaser of such ores and minerals determined
in good faith by Producer.
(e) Where outturn of Precious Metals or Other Products is made by an
independent third-party refinery on a provisional basis, the Gross Proceeds
shall be based upon the amount of such provisional settlement, but shall be
adjusted in subsequent statements to account for the amount of such Precious
Metals or Other Products established by final settlement by such refinery.
(f) Seller acknowledges that Producer shall have the right (but not the
obligation) to market and sell or refrain from selling Products mined from the
Property in any manner it may elect. Accordingly, Gross Proceeds shall be
determined as provided in Section 3 of this Schedule irrespective of any actual
selling arrangements entered into by Producer, specifically including, but not
limited to, forward sales, futures trading or commodity options trading, and any
other price hedging, price protection and speculative arrangements which may
involve the possible delivery of ores and minerals and Precious Metals or Other
Products produced from ores and minerals mined from the Property, and Seller
shall have neither the right nor the obligation to participate in any way in
profits or losses arising from the same.
5. Operating Costs and Related Definitions
As used herein, "Operating Costs" shall mean the sum of Mining Costs,
Milling and Processing Costs, General and Administrative Costs, Selling and
Delivery Costs, Interest, and Taxes.
As used herein, "Mining Costs" shall mean costs and expenses accrued or
incurred in accordance with generally accepted accounting principles by Minera
Chanate or Buyer after Commencement of Commercial Production (as defined below)
in exploring for, developing, mining, extracting, removing, and transporting to
the Mill (as hereinafter defined) or other processing site, including heap
leaching sites, ores or minerals produced from the Property. Such costs and
expenses shall include, without limitation, those incurred for labor (including
salaries, wages, costs and benefits), machinery operation, fuel, explosives and
other materials, exploration drilling, developmental or ore delineation
drilling, depreciation and amortization of mining equipment and machinery
acquired (or altered or modified) after Commencement of Commercial Production,
and a reasonable allowance for future costs anticipated to be incurred by Minera
Chanate or Buyer in reclaiming the Property in accordance with applicable laws,
regulations and agreements. Mining Costs shall not include depletion or income
taxes.
As used herein, "Milling and Processing Costs" shall mean costs and
expenses incurred after Commencement of Commercial Production by Minera Chanate
or Buyer in milling, treating or processing ores and minerals produced from the
Property at processing and treatment sites, including heap leaching sites,
and/or at Producer's mill or central processing facility utilized by Producer to
process ores and minerals produced from the Property (hereinafter referred to as
-4-
the "Mill"), if any. The Producer shall be entitled to depreciation of Mill and
other processing and treatment facilities and equipment acquired (or altered or
modified) after Commencement of Commercial Production; capital costs incurred
prior to the Commencement of Commercial Production are subject to recoupment
under the definition of "Exploration and Development Expenditures" set forth
below. "Milling and Processing Costs" shall also include all costs, charges and
expenses paid or incurred by Minera Chanate or Buyer, as the case may be, with
respect to such products for treatment in the smelting and refining processes
(including handling, processing, interest, and provisional settlement fees,
representation costs, penalties, and other processor deductions); and sales and
brokerage costs and actual costs of transportation (including freight,
insurance, transaction taxes, handling, port, demurrage, delay, and forwarding
expenses incurred by reason of or in the course of such transportation) of ores,
minerals, concentrates or other products from the Property to the place of
treatment and then to the place of sale.
As used herein, "General and Administrative Costs" shall mean costs and
expenses incurred by Minera Chanate or Buyer and reasonably allocable to the
administration of the Property and the production of ores and minerals
therefrom, including the lesser of (a) an additional five percent (5%) charge or
(b) Producer's actual overhead costs as an allowance for overhead (the "Overhead
Charge"), but not including any general and administrative costs incurred with
respect to operations of Producer or its affiliates not directly related to the
administration of the Property or to the production of ores and minerals
therefrom. General and Administrative Costs shall include, without limitation,
insurance costs, contract services and consulting expenses, costs incurred in
connection with environmental and project permitting and compliance, including
costs of acquiring and maintaining bonds, the accrual of a cash reserve equal to
three (3) months' cash outlays as budgeted, legal, auditing and regulatory
costs, expenses, liabilities and charges incurred in connection with or
resulting from matters arising out of operations on the Property or as necessary
to protect the interests of Producer and Seller in the Property, all costs of
acquisition of surface rights used in connection with mining, milling,
processing, treatment and other operations conducted in connection with the
Property, all costs payable to any governmental agency to maintain the
Concessions, and any and all advance royalties, production royalties, or other
payments of any nature whatsoever payable to third parties, including to Seller,
having an interest in the Property.
As used herein, "Selling and Delivery Costs" shall mean costs and expenses
incurred by Minera Chanate or Buyer in or in connection with the marketing of
ores and minerals from the Property and the delivery of such ores and minerals
to points of ultimate delivery to customers.
As used herein, "Interest" shall mean any interest cost actually incurred
in any bona fide financing transaction directly related to the development or
operation of, or the acquisition of equipment in connection with operations on,
the Property, as well as costs (such as lender's commitment or facility or
attorneys' fees) actually incurred in connection with such financing. In the
event that such a financing transaction is with an affiliate of Producer, the
terms of such transaction shall provide for a reasonable reduction of
outstanding indebtedness and shall not be less favorable to Minera Chanate or
Buyer than that which would have been applicable with respect to a similar
financing transaction with an unaffiliated third party and, in any event, at an
interest rate not greater than two percentage points higher than that charged by
Chase
-5-
Manhattan Bank, N.A., New York, New York, with respect to short-term loans to
its most preferred commercial customers (commonly referred to as the "prime
rate").
As used herein, "Taxes" shall mean all taxes levied against operations on
the Property and/or levied against the Property, excluding income taxes imposed
upon profits, but including government royalties and mining, and severance and
net proceeds taxes.
Where any Operating Costs are incurred with respect to the mining, milling,
processing, selling, or delivering of ores and minerals produced from the
Property in conjunction with the mining, milling, processing, selling, or
delivering of ores and minerals produced from other properties controlled by
Buyer or Minera Chanate, such Operating Costs shall be allocated and apportioned
in accordance with generally accepted practices in the mining industry.
6. Exploration and Development Charge Definition
As used herein, "Exploration and Development Charge" shall mean in any Year
a proportion of total Exploration and Development Expenditures incurred or
accrued to date determined by amortization on a unit of production basis,
according to generally accepted accounting principles.
"Exploration and Development Expenditures" shall mean the total costs and
expenses incurred by Minera Chanate or Buyer with respect to examining,
exploring, and developing the Property and all other rights and interests in
surface and mineral property and all matters connected therewith incurred after
the Effective Date, and prior to Commencement of Commercial Production,
including, without limitation, costs and expenses incurred with respect to the
construction of processing and treatment facilities, including heap leaching
facilities, and of the Mill (if any) or related facilities, together with costs
and expenses relating to geological, geochemical and geophysical studies,
feasibility studies, exploration and developmental drilling, sampling and
assaying, mine design and development, the cost of any mining equipment or
machinery purchased prior to Commencement of Commercial Production, compliance
with environmental and regulatory requirements (including attorneys' fees),
pre-production stripping, the construction of roads connecting the Property to a
central road system, and any other costs or expenses which would be included in
the definition of Mining Costs and/or Milling and Processing Costs if such costs
or expenses are incurred after Commencement of Commercial Production. It is the
intention of the Parties that, in calculating Net Profits, Producer shall be
limited to a single recovery of capital either by recoupment of Exploration and
Development Expenditures through the Exploration and Development Charge or by
depreciation of capital costs included within the definitions of Mining Costs
and/or Milling and Processing Costs. If the costs and expenses incurred with
respect to construction of processing and treatment facilities, including heap
leaching facilities, and of the Mill (if any) or other Exploration and
Development Expenditures benefit the development of other mineral properties
controlled by Producer, such Exploration and Development Expenditures shall be
allocated and apportioned by Producer, as the case may be, in accordance with
generally-accepted accounting principles as applied in the mining industry for
the purpose of computing the NPI Payments pursuant to the terms hereof.
-6-
7. Operating Losses and Related Definitions
As used herein, "Operating Loss" in any Year means the excess of the sum of
Operating Costs and the Exploration and Development Charge incurred and accrued
in that Year over Gross Proceeds accrued in that Year.
As used herein, "Year" or "Years" shall mean a calendar year, but for the
first Year shall begin at the Commencement of Commercial Production.
As used herein, "Commencement of Commercial Production" shall occur when a
mine and processing facilities have been constructed upon the Property
substantially in accordance with the feasibility study upon which a production
decision was based, and all development activities pertaining to the development
of a mine on the Property, including, without limitation, pre-stripping and
operational and environmental permitting, have been completed, and the operator
of the mine has milled or otherwise processed ore mined and removed from the
Property for a start-up period of not less than ninety (90) consecutive days at
a rate of not less than seventy-five percent (75%) of the designed capacity of
the processing facilities for the mine.
8. Payment
The payment of the portion of the Purchase Price due pursuant to Section
1.1.2(b)(ii) shall be made on an annual basis sixty (60) days following the last
day of the Year in which the same accrued. Such payments shall be made by check
and shall be accompanied by a settlement sheet showing in reasonable detail the
quantities and grades of the refined metals, dore, concentrates, or other
mineral products sold or deemed sold by Producer in the preceding calendar
quarter; the average monthly price determined as herein provided for refined
metals on which such payments are due; the proceeds of sale, costs, and other
deductions; and other pertinent information in sufficient detail to explain the
calculation of the payment.
9. No Covenants
The parties agree that in no event, whether arising from Buyer's agreement
to pay a portion of the Purchase Price to Seller from ten percent (10%) of Net
Profits or otherwise, shall Minera Chanate or Buyer have any duty or obligation,
express or implied, to explore for, develop, mine or produce ores, minerals or
Products from the Property, and the timing, manner, method and amounts of such
exploration, development, mining or production, if any, shall be in the sole
discretion of Minera Chanate or Buyer.
-7-
SCHEDULE 2.2.10
Financial Statements
Minera Chanate, S. A. de
C.V.
Financial Statements for the year ended December
31, 1998 and for the Period from September 17
(Date of Establishment) to December 31, 1997, and
Independent Auditors' Report
1 OF 11
Deloitte &
Touche --------------------------------------------------------
[LOGO] ▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇▇▇▇, TeIefono: (▇▇) ▇▇-▇▇-▇▇-▇▇
Chavero, Yamazaki, S.C. Fax: (▇▇) ▇▇-▇▇-▇▇-▇▇
▇▇▇▇▇ ▇▇▇▇▇▇ ▇▇. ▇▇ ▇▇▇.▇▇▇▇▇▇▇.▇▇▇.▇▇
▇▇▇▇▇▇▇▇ ▇, ▇▇▇▇▇▇▇
▇▇▇▇▇ ▇▇▇▇▇▇, D.F.
INDEPENDENT AUDITORS' REPORT
To the Board of Directors and Stockholders of
Minera Chanate, S. A. de C. V.:
We have audited the accompanying balance sheet of Minera Chanate, S. A. de C. V.
as of December 31, 1998 and 1997 ,and the related statements of operations,
changes in stockholders' equity and changes in financial position for the year
ended December 31, 1998 and period from September 17 (date of establishment) to
December 31, 1997, all expressed in Mexican pesos. These financial statements
are the responsibility of the Company's management. Our responsibility is to
express an opinion on these financial statements based on our audit.
Except as mentioned in the following paragraph, we conducted our audit in
accordance with auditing standards generally accepted in Mexico. Those standards
require that we plan and perform the audit to obtain a reasonable assurance
about whether the financial statements are free of material misstatement and
that they are prepared in accordance with accounting principles generally
accepted in Mexico. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant estimates
made by management as well as evaluating the overall financial statement
presentation. We believe that our audit provides a reasonable basis for our
opinion.
We were unable to verify the determination of the revaluation of land and its
effect on the revaluation surplus arising from the split mentioned in Note 2. As
a result, we were unable to obtain sufficient evidence to express an opinion on
said balance at December 31, 1998 and 1997.
As mentioned in Note 1, the accompanying financial statements do not recognize
the effects of inflation in financial information, as required by accounting
principles generally accepted in Mexico. These effects are material due to the
amount and aging of nonmonetary assets, stockholders' equity and the average
monetary position maintained during the Company's existence.
As mentioned in Note 1 to the financial statements for the year ended December
31, 1998, the Company had a loss of $ 32,655,758 ; furthermore, at that date it
has an accrued deficit of $167,331,046. In addition, the Company has lost, more
than two-thirds of its common stock which, in accordance with the Mexican, could
give cause for early dissolution of the entity at the request of any interested
third party. These factors, among others, indicate that the Company may be
unable to continue operations. The financial statements do not include any
adjustment related to the valuation and classification of assets and the
classification and amount of liabilities, which might be necessary if the
Company were unable to continue as a going concern.
Deloitte Touche
Tohmatsu
2 of 11
Due to the limited scope of our work, as mentioned in paragraph three, and the
importance of failure to recognize the effects of inflation in financial
information, as explained in the preceding paragraph, we refrain from expressing
an opinion on the financial statements of Minera Chanate, S. A. de C. V. at
December 31, 1998, take as a whole.
/s/ C.P. ▇▇▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇▇▇
-----------------------------
C.P. ▇▇▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇▇▇
July 16, 1999
3 of 11
MINERA CHANATE, S. A. DE C. V.
STATEMENT OF OPERATIONS
YEAR ENDED DECEMBER 31, 1998 AND PERIOD FROM SEPTEMBER 17 (DATE OF
ESTABLISHMENT) TO DECEMBER 31,1997
--------------------------------------------------------------------------------
1998 1997
OPERATING EXPENSES $1,668,887 $ 2,846
EXCHANGE LOSS 30,986,916 5,040,756
OTHER INCOME 45 --
----------- ----------
NET LOSS $32,655,758 $5,943,602
=========== ==========
See accompanying notes to financial statements.
4 of 11
MINERA CHANATE, S.A. DE C. V.
BALANCE SHEET
DECEMBER 31, 1998 AND 1997
--------------------------------------------------------------------------------
ASSETS 1998 1997
CURRENT ASSETS:
Cash $ 3,172 $ 10,498
Exploration y Mineria
Independencia, S.A. de C.V. Affiliate -- 1,661,750
Recoverable value added tax 703 --
------------ ------------
Total current assets 3,875 1,672,248
LAND (Note 2) 160,000,000 160,000,000
------------ ------------
TOTAL $160,003,875 $161,672,248
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Income tax $ 469 $ --
LONG-TERM DEBT
Independence Mining Co. Inc. - Holding company 167,736,472 136,749,556
------------ ------------
Total Liabilities 167,736,941 136,749,556
------------ ------------
STOCKHOLDERS' EQUITY (Note 3);
Commmon stock 4,850,000 4,850,000
Deficit (167,331,046) (134,675,288)
Revaluation surplus 154,747,980 154,747,980
------------ ------------
Total stockholders' equity 7,733,066 24,922,692
------------ ------------
TOTAL $160,003,875 $161,672,248
============ ============
See accompanying notes to financial statements.
5 of 11
MINERA CHANATE, S. A. DE C. V.
STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY (Notes I and 4)
YEAR ENDED DECEMBER 31, 1998 AND PERIOD FROM SEPTEMBER 17 (DATE OF
ESTABLISHMENT) TO DECEMBER 31, 1997
--------------------------------------------------------------------------------
Total
Common Revolution Stockholders'
Stock Deficit Surplus Equity
OPENING BALANCE
AFTER SPLIT $4,850,000 $129,631,686) $154,747,980 $29,966,294
Net loss (5,043,602 (5,043,602)
---------- ------------- ------------ -----------
BALANCE, DECEMBER
31, 1997 $4850,000 $(134,675,288) $154,747,980 $24,922,692
Net loss (32,655,758 (32,655,758)
---------- ------------- ------------ -----------
BALANCE, DECEMBER
31, 1998 $4,850,000 $(167,331,046) $154,747,980 $(7,733,066)
========== ============= ============ ===========
See accompanying notes to financial statements.
6 of 11
MINERA CHANATE, S. A. DE C. V.
STATEMENT OF CHANGES IN FINANCIAL POSITION
YEAR ENDED DECEMBER 31, 1998 AND PERIOD FROM SEPTEMBER 17 (DATE OF
ESTABLISHMENT) TO DECEMBER 31, 1997
--------------------------------------------------------------------------------
1998 1997
OPERATING ACTIVITIES:
Net loss $ (32,655,758) $(5,043,602)
Changes in current assets and liabilities:
Exploracion y Mineria Independencia - Affiliate 1,661,750 (1,661,750
Recoverable value added tax (703) --
Income tax 469 --
Independence Mining Co, Inc. - Holding company 30,986,916 136,749,556
------------- ------------
Net resources provided by operating activities (7,326) 130,044,204
FINANCING ACTIVITIES:
Split of common stock -- 29,966,294
INVESTING ACTIVITIES: -- (160,000,000)
------------- ------------
Split of fixed assets - Net
CASH
(Decrease) increase (7,326) 10,498
Beginning of year 10,498 --
------------- ------------
End of year $ 3,172 $ 10,498
============ ============
7 of 11
See accompanying notes to financial statements.
MINERA CHANATE, S. A. DE C. V.
NOTES TO FINANCIAL STATEMENTS
PERIOD FROM SEPTEMBER 17 (DATE OF ESTABLISHMENT TO DECEMBER 31 1998
--------------------------------------------------------------------------------
1. GOING CONCERN
The financial statements have been prepared on a going concern basis, which
in considers the realization of assets and liquidation of liabilities in
the ordinary course of business, and does not include any adjustment for
the recovery and classification of assets and liabilities which might
result from this uncertainty. As presented in the financial statements at
December 31, 1998, the Company has an accrued deficit of $167,331,046,
total liabilities exceed current assets by $167,333,066, and a deficiency
in stockholders' equity of $7,733,066. Furthermore, the Company has lost
more has two-thirds of its common stock, which, in accordance with the
Mexican Law, this could give cause for the early disolution of the entity
at the request of any interested third parry. These factors, among others,
indicate that the Company might be unable to continue as a going concern.
Continuation as a going concern depends on the Company's ability to obtain
additional financing from its stockholders or third parties, as required,
and timely pay its obligations and generate operations.
2. NATURE OF BUSINESS AND BASIS OF PRESENTATION
Nature of Business - Minera Chanate, S. A. de C. V. (the Company) was
established on September 17, 1997, from the split of Exploraci6n y Mineria
Independencia, S. A. de C. V. and is engaged in the mining-metallurgical
industzy in general and in executing all kinds of acts to achieve its
corporate purpose. The company has no employees and is in preoperating
period. The opening balances after split are as follows:
Balance sheet:
Land $ 160,000,000
Other assets 1,675,095
-----------------
Total assets $ 161,675,095
=================
Liabilities $ 131,708,801
Stockholders' equity -----------------
Common stock 4,850,000
Deficit (129,631,686)
Revaluation surplus 154,747,980
-----------------
Stockholders' equity 29,966,294
-----------------
Total liabilities and stockholders' equity $ 161,675,095
=================
3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Significant accounting policies - The Company's accounting policies are
with generally accepted accounting principles and are summarized as
follows:
8 of 11
a. Recognition of the effects of inflation in financial information -
Application of the guidelines of Bulletin B-10 "Recognition of the
Effects of Inflation in Financial Information", issued by the Mexican
Institute of Public Accountants is mandatory in the preparation of its
financial statements. However, the Company decided not to apply these
guidelines in the preparation of its financial statements, which were
prepared on the basis of original historical values.
b. Land - Land is stated at acquisition cost plus the revaluation effect
determined by the Company.
c. Income tax - Income tax is recognized in results of the year in which
incurred, and is adjusted for the effects of temporary items which are
nonrecurring and expected to reverse in a definite period.
4. STOCKHOLDERS' EQUITY
a. Common stock at par value at December 31, 1998 is as follows:
Number of
Shares Par Value
Fixed capital 4,850,000 $4,850,000
========= ==========
b. Stockholders' equity, except restated capital paid in and tax retained
earnings, will incur dividend tax, payable by the Company, in case of
distribution. Due to amendments to the Income Tax Law, effective
January 1, 1999, this tax is incurred at the 35% rate, and any
dividends paid to individuals or entities resident abroad are subject
to 5% withholding tax, which in both cases is calculated in accordance
with the procedure established in said law, however, deficit must be
firstly redeemed, in accordance with accounting principles generally
accepted in Mexico.
5. FOREIGN CURRENCY BALANCES AND TRANSACTIONS
Foreign currency transactions are recorded at the exchange rate applicable
at the transaction date. Monetary assets and liabilities denominated in
foreign currency are valued in Mexican pesos at the exchange rate
applicable at the date of the financial statements. Exchange fluctuations
are taken into income currently.
a. At December 31, 1998, balances denominated in foreign currency are as
follows:
Mexican Peso
Currency Balance Equivalent
U.S. dollars
Liabilities 16,949,413 $167,736,472
========== ============
9 of 11
b. Exchange rates in effect at the balance sheet date and of the
independent auditors' report, respectively, were as follows:
December 31, July 16,
1998 1997 1999
Bank dollar $ 9.89 $8.06 $ 9.50
5. INCOME TAX AND TAX ON ASSETS
a. For the years, ended december 31, 1998 and 1997 the Company incurred
tax loss of $19,238,827 and $4,247,780, which differs from accounting
result mainly due to deductible interest and exchange loss.
b. In conformity with the Tax on Assets Law, the Company is discharged
from paying tax on assets, because it is in preoperating period.
c. At December 31, 1998, the Company has tax loss carryforwards of
$217,541,819 (restated values for tax purposes) as a result of the
split of Exploraci6n y Minerfa Independiencia, S. A. de C. V.
splitting party (from years 1991 to 1997), which consist of the
following:
Year Year of
Generated Expiration Amount
1998 2008 $ 20,872,203
1997 2007 4,599,071
1996 2006 29,504,478
1995 2005 64,467,053
1994 2004 66,252,595
1993 2003 22,477,506
1992 2002 8,733,551
1991 2001 635,362
-------------
$ 217,541,819
=============
6. CONTINGENCIES
Year 2000 (Unaudited)
The Company is not in the process of updating its computer systems to
ensure compliance with the requirements of the year 2000. The process
includes all reviews, testing and changes to financial, administrative and
operating systems and includes coordination with customers and suppliers to
avoid a possible interruption of operations.
******
10 of 11
MINERA CHANATE SA DE CV
BALANCE SHEET
DECEMBER 31, 1999
(UNAUDITED)
(IN MEXICAN PESOS)
ASSETS LIABILITIES AND STOCKHOLDERS EQUITY
CURRENT ASSETS: CURRENT LIABILITIES:
--------------------- -----------------------------------------
Cash and Investements 11,164 Intercompanies 161,395,698
Value Added Tax Reeceivable 1,423 -----------
TOTAL CURRENT ASSETS 12,587 TOTAL CURRENT LIABILITIES 161,395,698
EQUIPMENT: TOTAL LIABILITIES 161,395,698
160,000,000
-----------
TOTAL EQUIPMENT 160,000,000
OTHER ASSETS: STOCKHOLDERS EQUITY:
--------------------- -----------------------------------------
Fixed Common Stock 4,850,000
TOTAL ASSETS 160,012,587 Current value surplus 154,747,980
Deficit from previous year -167,331,045
Profit of the year 6,349,954
-----------
TOTAL STOCKHOLDERS EQUITY -1,383,111
-----------
TOTAL LIABILITIES AND STOCKHOLDERS EQUITY 160,012,587
===========
SCHEDULE 2.2.11
Real Property and Mining Concessions
Real Property
Rural property consisting of 466 Has. in Altar, Sonora, purchased on January 27,
1998, by public deed 19,591 granted by ▇▇. ▇▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇, Notary
Public 102 of the Federal District, registered at the Public Registry of
Property of Caborca, Sonora, under number 36026, book one, volume 169 of the
real estate registry section on May 7, 1998.
Mining Concessions
Lot Title Has. Property
--- ----- ---- --------
▇▇▇ ▇▇▇▇* ▇▇▇▇▇▇ 96.0000 El Chanate
▇▇▇ ▇▇▇ ▇▇▇▇▇▇ ▇▇▇▇▇▇ 132.2350 El Chanate
Rono #1 206408 82.1902 El Chanate
Rono #3 198040 197.2180 ▇▇ ▇▇▇▇▇▇▇
▇▇ ▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇ 172.0000 El ▇▇▇▇▇▇▇
▇▇▇▇ 197010 2035.3996 El ▇▇▇▇▇▇▇
▇▇▇▇* 199046 669.9594 ▇▇ ▇▇▇▇▇▇▇
▇▇▇▇▇ ▇▇▇▇▇▇ 78.4717 El Chanate
Ema* 199050 331.5057 El ▇▇▇▇▇▇▇
▇▇▇* 199045 190.0000 ▇▇ ▇▇▇▇▇▇▇
▇▇▇ ▇▇▇▇▇▇ 416.8961 ▇▇ ▇▇▇▇▇▇▇
▇▇▇▇▇ ▇▇▇▇▇▇ 20.5510 El Chanate
Mony 196078 2159.2501 El ▇▇▇▇▇▇▇
▇▇▇▇ ▇▇▇▇▇▇ 60.5866 El ▇▇▇▇▇▇▇
▇▇▇▇* 199668 24.0423 El Chanate
Sol 201148 5.2093 El Antimonio
Susy 201149 27.6548 El Antimonio
Susy I Fraccion 1 202656 4.2110 El Antimonio
Susy I Fraccion 2 202657 29.0532 El Antimonio
▇▇▇▇* 200711 2.9402 El Antimonio
▇▇▇▇ I* 200674 3.0000 El Antimonio
▇▇▇▇▇ 201970 529.2185 El Antimonio
▇▇▇▇▇ I 201954 589.3471 El Antimonio
▇▇▇▇▇ ▇▇ 201957 371.1251 El Antimonio
▇▇▇▇▇ VII Fraccion 1 201834 .1302 El Antimonio
-1-
Lot Title Has. Property
--- ----- ---- --------
▇▇▇▇▇ VII Fraccion 2 201835 4.0216 El Antimonio
▇▇▇▇▇ VIII Fraccion 1 202650 27.6331 El Antimonio
▇▇▇▇▇ VIII Fraccion 2 202649 .0524 El Antimonio
Bolivia* 200919 23.4235 ▇▇ ▇▇▇▇▇▇▇▇▇
▇▇▇▇▇ ▇▇ ▇▇▇▇▇▇ 338.5172 El Antimonio
▇▇▇▇▇ ▇▇ 201955 231.8353 ▇▇ ▇▇▇▇▇▇▇▇▇
▇▇▇▇▇ ▇▇▇ ▇▇▇▇▇▇ 52.0000 El Antimonio
▇▇▇▇▇ V 201959 487.3869 El Antimonio
Oly II 202849 1,910.5887 El Antimonio
Oly IV 206527 2.8536 El Antimonio
Oly III 206971 97.1572 El Antimonio
Oly V 206972 1,876.9151 ▇▇ ▇▇▇▇▇▇▇▇▇
▇▇ ▇▇▇▇▇ ▇▇ ▇▇▇▇▇▇ 132.9714 El Antimonio
▇▇▇▇ ▇▇ 209357 5.8377 El Antimonio
▇▇▇▇ IV (not issued) El Antimonio
▇▇▇▇▇ VII Fraccion 3 (not issued) El Antimonio
▇▇▇▇▇ ▇▇▇ ▇▇▇▇▇▇▇▇ ▇ (▇▇▇ ▇▇▇▇▇▇) ▇▇ ▇▇▇▇▇▇▇▇▇
▇▇▇▇▇▇ ▇▇▇▇▇▇ ▇▇.▇▇▇▇ ▇▇ ▇▇▇▇▇▇▇▇▇
▇▇ Union IV 209015 229.0251 ▇▇ ▇▇▇▇▇▇▇▇▇
▇▇ ▇▇▇▇▇ ▇ ▇▇▇▇▇▇ 454.2937 El Antimonio
Auro* 199375 474.4163 Banco de Oro
Auro Fraccion I* 199376 123.0000 Banco de Oro
▇▇▇▇▇▇* 200665 252.0000 ▇▇▇▇▇ ▇▇ ▇▇▇
▇▇▇▇ ▇ ▇▇▇▇▇▇ 583.1037 Banco de Oro
▇▇▇▇▇* 200712 130.0000 Banco de Oro
▇▇▇▇▇▇ I* 200883 100.0000 ▇▇▇▇▇ ▇▇ ▇▇▇
▇▇▇▇ ▇▇▇ ▇▇▇▇▇▇ 110.4989 ▇▇▇▇▇ ▇▇ ▇▇▇
▇▇▇▇ ▇▇▇▇▇▇ 613.9314 ▇▇▇▇▇ ▇▇ ▇▇▇
▇▇▇▇▇ ▇▇▇▇▇▇ 36.0000 ▇▇▇▇▇ ▇▇ ▇▇▇
▇▇▇▇ ▇▇ ▇▇▇▇▇▇▇▇ ▇ ▇▇▇▇▇▇ 32.3554 ▇▇▇▇▇ ▇▇ ▇▇▇
▇▇▇▇ ▇▇ ▇▇▇▇▇▇▇▇ ▇ ▇▇▇▇▇▇ 5.0000 ▇▇▇▇▇ ▇▇ ▇▇▇
▇▇▇▇▇▇ ▇▇ ▇▇▇▇▇▇ 399.5819 ▇▇▇▇▇ ▇▇ ▇▇▇
▇▇▇▇ ▇▇▇ ▇▇▇▇▇▇ 2.2668 Banco de Oro
Auro I 208079 30.0000 Banco de Oro
-2-
Lot Title Has. Property
--- ----- ---- --------
Auro IV 208078 100.0000 ▇▇▇▇▇ ▇▇ ▇▇▇
▇▇▇* ▇▇▇▇▇▇ 21.0000 La ▇▇▇▇▇▇
▇▇▇▇ 1* 208172 11,600.0000 La ▇▇▇▇▇▇
▇▇▇▇ 3* 209083 50.0000 La ▇▇▇▇▇▇
▇▇▇▇▇* 199517 32.7710 Sierra del Alamo
Eclipse 200972 514.0000 ▇▇▇▇▇▇ ▇▇▇ ▇▇▇▇▇
▇▇▇▇▇▇ ▇ ▇▇▇▇▇▇▇▇ ▇ ▇▇▇▇▇▇ 45.0116 ▇▇▇▇▇▇ ▇▇▇ ▇▇▇▇▇
▇▇▇▇▇▇ ▇ ▇▇▇▇▇▇▇▇ ▇ ▇▇▇▇▇▇ 42.2374 Sierra del Alamo
Sol 1 208077 3.1954 Sierra ▇▇▇ ▇▇▇▇▇
▇▇ ▇▇▇▇▇▇ ▇▇▇▇▇▇ 99.6038 ▇▇▇▇▇ ▇▇▇▇▇▇
▇▇▇▇▇▇ ▇▇ 201194 300.0000 Lista ▇▇▇▇▇▇
▇▇▇▇▇▇ I 201227 243.8939 ▇▇▇▇▇ ▇▇▇▇▇▇
▇▇▇▇▇▇ ▇▇ 201228 263.9452 Lista ▇▇▇▇▇▇
▇▇▇▇▇▇ ▇▇▇ ▇▇▇▇▇▇ 434.0000 Lista ▇▇▇▇▇▇
▇▇▇▇▇▇ ▇ ▇▇▇▇▇▇ 21.1494 Lista ▇▇▇▇▇▇
▇▇▇▇▇ ▇▇▇▇▇▇ 270.5523 San ▇▇▇▇▇
▇▇▇▇▇ I 201960 4.0461 ▇▇▇ ▇▇▇▇▇
▇▇▇▇▇ ▇▇▇▇▇▇ 4.2912 San ▇▇▇▇▇
▇▇▇▇▇ ▇▇ (not issued) San ▇▇▇▇▇
▇▇▇▇▇ 2 209467 4.2234 San ▇▇▇▇▇
▇▇▇▇ 201952 12,741.4980 San ▇▇▇▇▇
Aries* 200668 12,349.0000 Aries
Aries I Fraccion 1 203294 5,319.6830 Aries
Aries I Fraccion 2 203295 107.5471 Aries
Aries 4 206862 12.0656 Aries
Aries 2 206863 5,504.0000 Aries
Aries 3 207076 4,112.0000 Aries
Gato I 201727 405.0000 Gato
Gato 201728 408.8419 Gato
Gato II 202459 394.9492 Gato
Gato III 202460 796.9454 Gato
Gato IV 208076 52.1758 Gato
San ▇▇▇▇▇* ** 189165 27.0000 ▇▇▇▇▇ ▇▇ ▇▇▇▇▇
Fiona** 210180 9150.0000 ▇▇▇▇▇ ▇▇ ▇▇▇▇▇
-3-
Lot Title Has. Property
--- ----- ---- --------
Fiona ▇▇▇▇ ▇ (▇▇▇ ▇▇▇▇▇▇) ▇▇▇▇▇ ▇▇ ▇▇▇▇▇
▇▇▇▇▇ ▇▇ (not issued) ▇▇▇▇▇ ▇▇ ▇▇▇▇▇
Fiona V (not issued) ▇▇▇▇▇ ▇▇ ▇▇▇▇▇
▇▇▇▇▇ V Fraccion 1 (not issued) ▇▇▇▇▇ ▇▇ ▇▇▇▇▇
El ▇▇▇▇** 209763 1996.0913 ▇▇▇▇▇ ▇▇ ▇▇▇▇▇
Cosmos II** 208616 48.4681 Emisa
Paredones I** 209147 91.0000 Emisa
Cosmos 3** 209466 139.0162 ▇▇▇▇▇
▇▇▇▇▇ III** 210277 39.0000 Emisa
▇▇▇▇▇ ▇▇** 208955 76.7219 Emisa
▇▇▇▇▇ III** 210617 104.0633 ▇▇▇▇▇
▇▇▇▇ III** 210616 9.0003 Emisa
Rio 15** 208154 9928.2338 La Dicha
*signifies exploitation concession
**to be assigned to Minera Chanate, S.A. de C.V.
-4-
