August __, 2006
August
__, 2006
▇▇▇▇
▇▇▇▇▇▇▇▇▇▇ ▇▇▇, ▇▇▇▇▇ ▇▇▇
Reno,
Nevada 89521
Fax
number:
▇▇▇-▇▇▇-▇▇▇▇
Attention:
▇▇▇▇ ▇. ▇▇▇▇▇▇, Chief Executive Officer
Re:
Illipah Gold Project - Asset Purchase
Gentlemen:
This
letter sets forth the terms of an agreement for your approval (“Letter
Agreement”)
to be
effective as of August __, 2006 (“Effective
Date”),
by
and among Tornado
Gold International Corp.,
a
Nevada corporation, whose mailing address is ▇▇▇▇ ▇▇▇▇▇▇▇▇▇▇ ▇▇▇, ▇▇▇▇▇ ▇▇▇,
▇▇▇▇, ▇▇▇▇▇▇ ▇▇▇▇▇ (“Tornado”),
and
Golden Cycle Gold Corporation, a Colorado corporation (“Golden
Cycle”).
Tornado and Golden Cycle are referred to herein individually as a “Party”
and
collectively as the “Parties.”
Background
| 1. |
Golden
Cycle currently has an exploration and mining lease on 139 unpatented
mining claims described in Schedule
A.
(“Leased
Claims”)
and located an additional 52 unpatented mining claims in White Pine
County, Nevada, more particularly described in Schedule
B
(“GCC
Claims”)
and together with the Leased Claims, the “Illipah
Claims.”
|
| 2. |
Golden
Cycle acquired the Leased Claims from ▇▇▇▇ ▇▇▇▇▇▇ and ▇▇▇▇▇ ▇▇▇▇▇▇
under
the terms of the Mining Claims Purchase and Royalty Agreement dated
effective as of August 31, 2001 and the Mining Deed attached thereto,
each
of which is attached hereto as Schedule
C
(the “▇▇▇▇▇▇
Agreement”)
and incorporated herein by reference.
|
| 3. |
Tornado
desires to acquire the Illipah Claims from Golden Cycle, and Golden
Cycle
desires to sell, transfer and assign the Illipah Claims to Tornado
pursuant to the terms of this Letter Agreement.
|
Agreement
For
and
in consideration of the mutual covenants contained herein, and other good and
valuable consideration, the receipt and sufficiency of which are hereby
expressly acknowledged, the Parties agree as follows:
| 1) |
Transfer
and Assignment of Illipah Claims.
In consideration of the payment of the Purchase Price (as defined below)
by Tornado to Golden Cycle and the covenants, agreements, representations,
warranties and deliveries of Tornado and Golden Cycle set forth in
this
Letter Agreement, and subject to the terms set forth in this Letter
Agreement on the Closing Date, (a) Golden Cycle shall sell, assign,
convey
and transfer to Tornado all right, title and interest of Golden Cycle
in
and to the Illipah Claims, and (b) Tornado shall purchase from Golden
Cycle all right, title and interest of Golden Cycle in and to the Illipah
Claims and accept, assume and be liable for the due performance of
all
obligations and liabilities related to the Illipah Claims and the ▇▇▇▇▇▇
Agreement (collectively, the “Transaction”).
|
Page
1
| 2) |
Consideration
for Illipah Claims.
The purchase price (the “Purchase
Price”)
payable by Tornado to Golden Cycle for Golden Cycle’s right, title and
interest in and to the Illipah Claims shall be payable as
follows:
|
| a) |
Cash
Payments:
Tornado will pay to Golden Cycle:
|
| i) |
Fifty
Thousand Dollars (US$50,000) payable in cash immediately upon execution
and delivery of this Letter Agreement;
|
| ii) |
Forty-eight
Thousand Six Dollars and fifty cents (US$48,006.50) payable in cash
immediately upon signing of this Letter Agreement for (A) the payment
of
United States Department of the Interior Bureau of Land Management
(“BLM”)
mining claim maintenance fees in the amount of Twenty-three Thousand
Eight
Hundred Seventy-five Dollars (US$23,875) due in accordance with 43
Code of
Federal Regulations §§ 3833 et
seq
and required to maintain the Illipah Claims in good standing for the
United States mining assessment year; (B) the payment of annual
maintenance and filing fees to White Pine County in the amount of Sixteen
Hundred Thirty-one Dollars and fifty cents (US$1,631.50) and (C) advanced
minimum royalty payments under the ▇▇▇▇▇▇ Agreement in the amount of
Twenty-two Thousand Fifty Dollars (US$22,500) representing the
4th
anniversary payment; and
|
| iii) |
Fifty
Thousand Dollars (US$50,000) payable in cash 90 days after the execution
and delivery of this Letter Agreement.
|
| b) |
Common
Stock Payments:
Tornado will issue to Golden Cycle Three Hundred Fifty Thousand (350,000)
shares of common stock of Tornado, which shall be registered for resale
under the terms of a registration rights obligation, issued as
follows:
|
| i) |
Fifty
Thousand (50,000) shares of common stock of Tornado issued 90 days
after
the execution and delivery of this Letter Agreement;
|
| ii) |
One
Hundred Thousand (100,000) shares of common stock of Tornado issued
one
hundred eighty (180) days after the execution and delivery of this
Letter
Agreement; and
|
| iii) |
Two
Hundred Thousand (200,000) shares of common stock of Tornado issued
one
(1) year after the execution and delivery of this Letter
Agreement.
|
| iv) |
Golden
Cycle acknowledges that the common stock issuable under this Letter
Agreement have not been registered under the Securities Act of 1933,
as
amended (the “1933
Act”),
and may not be offered or sold absent registration or an available
exemption from registration. Tornado shall prepare and file with the
SEC
within sixty (60) calendar days after the Closing Date (as defined
in the
Definitive Agreement, but in any event no later than 150 days after
the
execution and delivery of this Letter Agreement) a registration statement
(on Form S-3, SB-1, SB-2, S-1, or other appropriate registration statement
form reasonably acceptable to the Subscriber) under the 1933 Act (the
“Registration
Statement”),
at the sole expense of Tornado, in respect of Golden Cycle, so as to
permit a public offering and resale of the common stock issued under
this
Letter Agreement in the United States under the 1933 Act by Golden
Cycle
as selling stockholder and not as underwriter. Tornado shall use its
best
efforts to cause such Registration Statement to become effective as
soon
as possible thereafter, and within the earlier of: (A) one hundred
twenty
(120) calendar days after the Closing Date (as defined in the Definitive
Agreement, but in any event no later than 210 days after the execution
and
delivery of this Letter Agreement), or (B) five (5) calendar days of
the
SEC clearance to request acceleration of effectiveness. Tornado will
notify Golden Cycle of the effectiveness of the Registration Statement
within three (3) business days.
|
Page
2
| c) |
Production
Royalties to Golden Cycle:
|
| i) |
Tornado
will grant to Golden Cycle production royalties for the rents, issues,
profits and Bullion and Other Products derived from any lands within
one
(1) mile of any boundary line of any Illipah Claim located on the date
of
this Letter Agreement (hereafter the “Area
of Interest”)
of two percent (2%) of Net Smelter Returns calculated in accordance
with
Exhibit
I attached
hereto (the “GC
Production Royalties”);
and
|
| ii) |
Tornado
will have the option, exercisable at any time prior to commercial
production on any of the Illipah Claims, to reduce the GC Production
Royalties from two percent (2%) to one percent (1%) by paying Golden
Cycle, at Golden Cycle’s sole option (A) the sum of One Million Dollars
(US$1,000,000) in cash or (B) that number of ounces of gold bullion
equal
to One Million Dollars (US$1,000,000) divided by the closing price
of gold
on the New York Commodity Exchange on the date of this Letter
Agreement.
|
| d) |
Work
Commitment:
Tornado will undertake an exploration program on the Area of Interest
and
incur exploration and development expenditures in the following
amounts:
|
| i) |
at
least Two Hundred Fifty Thousand Dollars (US$250,000) within one (1)
year
of the execution and delivery of this Letter
Agreement;
|
| ii) |
at
least Seven Hundred Fifty Thousand Dollars (US$750,000) in aggregate
within two (2) years of the execution and delivery of this Letter
Agreement; and
|
| iii) |
within
forty-five (45) days of each fiscal calendar quarter of Tornado and
90
days of the fiscal year end of Tornado. Tornado shall provide Golden
Cycle
with a report of exploration and development expenditures related to
the
Area of Interest, certified by the Chief Financial and Accounting Officer,
and Golden Cycle may, for a period of fifteen (15) days after receipt
of
the report, request that the auditor for Tornado commence and complete
as
soon as reasonably possible thereafter, an audit of the books and records
of Tornado related to the Illipah Claims to verify the reported
exploration and development expenditures. Golden Cycle shall be solely
responsible for reimbursement of all reasonable costs and expenses
of the
audit unless the calculation of exploration and development expenditures
by the auditor is less than the calculation of exploration and development
expenditures by Tornado by more than ten percent (10%), in which case
the
cost of the audit shall be paid by
Tornado.
|
Page
3
| 3) |
Assumption
of ▇▇▇▇▇▇ Agreement Obligations.
Upon execution and delivery of this Letter Agreement, Tornado will
assume
all of Golden Cycle’s rights, obligations, covenants and commitments under
the ▇▇▇▇▇▇ Agreement, including but not limited to, the payment of
BLM
mining claim maintenance fees and annual rental fees, due to the United
States and any fees required by the State of Nevada and any agency
or
subdivision of the State of Nevada or County or municipality, advance
royalty payments and royalties on production of minerals, title fees,
recordation fees, reclamation costs, service fees and other costs to
keep
the Illipah Claims in good standing, except as otherwise paid by Golden
Cycle and reimbursed by Tornado under section
2(a)(ii).
|
| 4) |
Maintenance
of GCC Claims.
Upon execution and delivery of this Letter Agreement, Tornado will
assume
all of Golden Cycle’s rights, obligations, covenants and commitments
related to maintaining the GCC Claims, including but not limited to,
the
payment of BLM mining claim maintenance fees and annual rental fees,
due
to the United States and any fees required by the State of Nevada and
any
agency or subdivision of the State of Nevada or County or municipality,
advance royalty payments and royalties on production of minerals, title
fees, recordation fees, reclamation costs, service fees and other costs
to
keep the GCC Claims in good standing (collectively, the “Maintenance
Obligations”),
except as otherwise paid by Golden Cycle and reimbursed by Tornado
under
section 2(a)(ii). Tornado will provide Golden Cycle evidence of payment
and performance of the Maintenance Obligations no later than forty-five
(45) days prior to the due date of such obligations. The Parties agreed
that a failure to provide such notice shall constitute an event of
default
under this Letter Agreement.
|
| 5) |
Assumption
of Reclamation Obligations.
Tornado, its successors and assigns, hereby releases Golden Cycle from
and
against any environmental liabilities including any present or future
claims arising from any environmental laws which Tornado can, shall
or may
have at any time against Golden Cycle, and Tornado agrees not to make
or
to directly or indirectly cause, facilitate or promote any environmental
claim to be made or threatened against Golden Cycle (whether by Tornado,
any government authority or any third party) or to allege or claim
that
Golden Cycle is responsible directly or indirectly, in whole or in
part,
for any remediation of any part of the Area of Interest, any activity
related to such remediation, or the presence of any contaminants which
are
in, on or under or which may have originated from any part of the Area
of
Interest, or any reclamation of any part of the Area of Interest.
|
| 6) |
Notice
of Impairment of Claims.
Tornado, its successors and assigns, shall (a) give Golden Cycle, its
successors and assigns, not less than ninety (90) days’ written notice of
its intent to (i) reduce the Illipah Claims in number or area within
the
Area of Interest or (ii) withdraw from the project area of the Illipah
Claims, the mine, if any, or the Area of Interest, and (b) Golden Cycle,
its successors and assigns, shall have the right, at its sole option,
to
reacquire title to such interest and Tornado will cooperate with Golden
Cycle, its successors and assigns, in reacquiring title thereto. The
maintenance fees and associated charges and recordings shall be paid
and
filed by Tornado within the time thereafter allowed by law so as to
preserve the title for such acquisition by Golden Cycle, its successors
or
assigns.
|
Page
4
| 7) |
Formal
Agreement.
The Parties shall prepare and execute formal agreements to memorialize
the
Transaction acceptable to Tornado and Golden Cycle to satisfy United
States corporate security requirements and incorporating the provisions
of
this Letter Agreement and such other commercial terms as are generally
applicable in the mining industry to a lease and an option of unpatented
mining claims and other properties (“Formal
Agreements”).
In the event the Parties do not execute the Formal Agreements on or
before
January 1, 2007, Golden Cycle shall have the right to terminate this
Letter Agreement upon written notice to Sellers not later than thirty
(30)
days from January 1, 2007. Upon termination, Golden Cycle shall reimburse
Tornado for US$25,506.50 related to the payment of the BLM mining claim
maintenance fees and the payment of annual maintenance and filing fees
paid to White Pine County. The balance of the payments made under Section
2(a)(i) and (ii) shall be retained by Golden Cycle. If Golden Cycle
does
not elect to terminate this Letter Agreement as provided herein, this
Letter Agreement shall remain fully enforceable whether or not the
Formal
Agreements are executed.
|
| 8) |
Failure
to Pay Purchase Price or Failure to Maintain Illipah
Claims.
The Parties acknowledge that Golden Cycle is transferring a valuable
right
and interest in the Illipah Claims and its rights to develop the Area
of
Interest. The Parties acknowledge that there is no adequate remedy
at law
for failure by Tornado to satisfy its obligations under this Letter
Agreement, including but not limited to, payment of the Purchase Price
under Section 2, performance of the obligations under the ▇▇▇▇▇▇ Agreement
under Section 3, maintenance of the GCC Claims under Section 4, assumption
of the reclamation obligations under Section 5 and notice of impairment
under Section 6, and that such failure would not be adequately compensable
in damages. Therefore, ▇▇▇▇▇▇▇ agrees that in the event that within
ten
(10) days after a written notice of default upon failure to make any
payment when due or satisfy its obligations under this Letter Agreement,
Tornado will transfer all rights title and interest in the Illipah
Claims
to Golden Cycle, free of all liens, claims and charges of any kind,
as
liquidated damages and not as a penalty for such failure. The Parties
agree that such transfer will be evidenced by quit claim deed delivered
at
Closing under the terms of the Formal Agreements, but in no event later
than one hundred twenty (120) days after the execution and delivery
of
this Letter Agreement.
|
| 9) |
Term.
Any
right to acquire any interest in real or personal property under this
Letter Agreement shall be exercised, if at all, so as to vest such
interest in Tornado within twenty-one (21) years after the date of
this
Letter Agreement.
|
| 10) |
Costs
and Expenses.
Except as provided in this Letter Agreement, each Party shall pay its
own
costs and expenses in connection with the proposed Transaction and
the
activities contemplated herein, including but not limited to any fees
payable to attorneys, consultants and other
advisors.
|
| 11) |
Assignment.
Neither this Letter Agreement nor any rights hereunder shall be assignable
by any Party without the prior written consent of the other Parties
hereto, which may be withheld for any
reason.
|
| 12) |
No
Third Party Beneficiaries.
Nothing in this Letter Agreement is intended, nor shall it be construed
to
give any person other than the Parties hereto and their successors
and
permitted assigns any legal or equitable right, remedy or claim under
or
in respect of this Letter Agreement or any provision contained
herein.
|
Page
5
| 13) |
Entire
Agreement.
This Letter Agreement constitutes the entire understanding between
the
Parties with respect to the Transaction and supersedes all negotiations,
prior discussions or prior agreements and understandings relating to
such
matters, provided that this Letter Agreement shall be replaced by the
Formal Agreements upon their execution.
|
| 14) |
Governing
Law.
This Letter Agreement shall be governed and construed under the laws
of
the State of Colorado without regard to its conflicts of laws
principles.
|
| 15) |
Amendment.
This Letter Agreement shall not be amended except by a written instrument
executed by all of the Parties hereto.
|
| 16) |
Counterparts.
This Letter Agreement may be executed in counterparts, each of which
shall
be deemed to constitute an original but all of which together shall
constitute one and the same instrument.
|
If
the
terms of this Letter Agreement are in accordance with your understanding of
the
Transaction, please sign and return the enclosed duplicate of this Letter
Agreement to Golden Cycle.
|
Very
truly yours,
GOLDEN
CYCLE GOLD CORPORATION
By:
_______________________________
Name:
_____________________________
Title:
______________________________
|
▇▇▇▇
agreed to and executed
as
of the
Effective Date.
| By | |||
| Name: | |||
| Title: | |||
| Date: |
Page
6
STATE
OF
_________________)
)SS
COUNTY
OF
_______________)
Subscribed,
sworn to and acknowledged before me this __ day of ________________,
2006,
by _________________________,
the
________________________ of
Golden
Cycle Gold Corporation., a Colorado corporation, who stated that the foregoing
instrument was signed on behalf of said corporation.
My
commission expires: __________________________________.
| ____________________________________ | ||
| NOTARY PUBLIC |
STATE
OF
_________________)
)SS
COUNTY
OF
_______________)
Subscribed,
sworn to and acknowledged before me this __ day of ________________,
2006,
by _________________________,
the
________________________ of
Tornado
Gold International Corp.,
a
Nevada corporation, who stated that the foregoing instrument was signed on
behalf of said corporation.
My
commission expires: __________________________________
| ____________________________________ | ||
| NOTARY PUBLIC |
Schedule
A
Schedule
B
Schedule
C
Exhibit
I
A. Production
Royalties. Golden Cycle Gold Corporation (“Golden
Cycle”)
and
Tornado Gold International Corp. (“Tornado”)
agree
that production royalties shall be paid quarterly in a timely manner to Golden
Cycle according to the following provisions of this
paragraph (A):
| (1) |
Net
Smelter Returns for Bullion. Net Smelter Returns shall be paid to Golden
Cycle for fine gold and/or silver bullion or dore bullion (collectively
“Bullion”
in this paragraph (A)) produced from the Area of Interest during each
calendar quarter as “production”
is defined in paragraph (A)(1)(c) below, regardless of whether Tornado
actually sells such Bullion to a third party during such calendar quarter.
The Net Smelter Returns calculation described in this paragraph (A)(1)
shall be applied if products are produced from the Area of Interest
in the
form of Bullion.
|
| (a) |
Net
Smelter Returns Calculation. For Bullion, Net Smelter Returns shall
mean
the quantity of recoverable fine gold or silver contained in the Bullion
produced (as defined in Paragraph (A)(1)(c) below) from the Area of
Interest during each calendar quarter, multiplied by its average price
(as
calculated under paragraph (A)(1)(b) below), less one percent (1%)
of such
amount for reimbursement to Tornado for all costs associated with refining
the Bullion, insuring the Bullion, transporting the Bullion to the
place
of sale, marketing the Bullion, and the amount of all taxes imposed
upon
or in connection with the Bullion, excepting federal and state income
taxes. If the actual amount of fine gold or silver actually recovered
from
the Bullion differs from the amount determined at the time the Bullion
is
produced, the amount of royalty paid will be adjusted in the next calendar
quarter to reflect the overpayment or underpayment that resulted from
such
difference.
|
| (b) |
Price.
The price for the Bullion shall be the average of the closing prices
for
gold or silver on the New York Commodity Exchange (“COMEX”) for the
calendar quarter in which gold or silver is produced from the Area
of
Interest. The average gold and silver prices for each calendar quarter
shall be determined by dividing the sum of all the daily prices in
U.S.
dollars per ▇▇▇▇ ounce, as posted during the calendar quarter, by the
number of days that prices were posted. The posted price shall be obtained
from the Wall
Street Journal or
other reliable source agreeable to both
parties.
|
| (c) |
Definition
of Production. For the purposes of this paragraph (A)(1), production
of
Bullion shall be defined as follows:
|
| (i) |
when
Bullion is processed within the Area of Interest at a smelter or refinery
owned or controlled by Tornado, Bullion shall be deemed to have been
produced from the Area of Interest on the date Tornado completes the
final
process necessary for the metal product to be in a saleable form,
or
|
| (ii) |
when
Bullion is processed off the Area of Interest at a smelter or refinery
owned or controlled by Tornado, Bullion shall be deemed to have been
produced from the Area of Interest on the date Tornado completes the
final
process necessary for the metal product to be in a saleable form,
or
|
| (iii) |
when
Bullion is sold to a third party smelter or refiner or to another
purchaser as final product, Bullion shall be deemed to have been produced
from the Area of Interest when credited to Tornado’s account by such
purchaser, or
|
| (iv) |
when
Bullion is smelted or refined at a smelter or refinery not owned or
controlled by Tornado, under an arrangement whereby Tornado retains
title
to the resultant metal product, Bullion shall be deemed to have been
produced from the Area of Interest on the date of final settlement
by
Tornado with the smelter or refinery.
|
| (2) |
Net
Smelter Returns for Other Products. Net Smelter Returns shall be paid
to
Golden Cycle for all products other than Bullion which are produced
from
the Area of Interest during each calendar quarter as “production” is
defined in paragraph (A)(2)(c) below. Such other products shall include,
without limitation, concentrates, precipitates, slags, carbon fines,
or
any other final product derived from metalliferous ores, except Bullion
(collectively “Other Products” in this paragraph (A)). Other Products
shall not include non-locatable substances (including, without limitation,
rock, dirt, limestone, or similar materials) whether used by Tornado
in
its operations or not. The Net Smelter Returns calculation described
in
this paragraph (A)(2) shall be applied if products are sold, transferred
or transported directly from the Area of Interest in the form of Other
Products.
|
| (a) |
Net
Smelter Returns Calculations. For Other Products, Net Smelter Returns
shall mean the total price received by Grantor (as calculated under
paragraph (A)(2)(b) below) for the Other Products produced from the
Area
of Interest (as defined in paragraph (A)(2)(c) below) during each calendar
quarter, less five percent (5%) of such amount for reimbursement to
Tornado for all costs associated with insuring the Other Products,
transporting the Other Products from the Area of Interest to the place
of
sale or transfer, marketing the Other Products, and the amount of all
taxes imposed upon or in connection with the Other Products, excepting
federal and state income taxes.
|
| (b) |
Price.
For sales to nonaffiliated persons or entities in arm’s length
transactions, the price for Other Products shall be the actual amounts
received by Tornado for the Sale of Other Products, including all credits
and bonuses. For sales or transfers to affiliates of Tornado, or
purchasers or transferees owned or controlled by Tornado, the price
for
Other Products shall be the greater of the amounts received by Tornado,
including all credits and bonuses, or the fair market value of the
Other
Products had they been sold or transferred in an arm’s length transaction
with a nonaffiliated purchaser, provided, however, that in all cases,
if
Tornado has not sold Other Products within twelve (12) months of the
date
upon which they were produced, the Other Products will be deemed to
have
been sold at the fair market value of the Other
Products.
|
| (c) |
Definition
of Production. For the purposes of this paragraph (A)(2), production
of
Other Products shall be defined as
follows:
|
| (i) |
when
Other Products are processed by Tornado on the Area of Interest at
a
facility owned or controlled by Tornado, Other Products Shall be deemed
to
have been produced from the Area of Interest on the date Tornado completes
the final process necessary for the mineral product to be sold in a
saleable form, or
|
| (ii) |
when
Other Products are processed off the Area of Interest either at a facility
owned or controlled by Tornado or a third-party facility, Other Products
shall be deemed to have been produced from the Area of Interest on
the
date the Other Products are removed from the Area of Interest,
or
|
| (iii) |
when
Other Products are sold, transferred or transported directly from the
Area
of Interest in a crude or unprocessed state, Other Products shall be
deemed to have been produced from the Area of Interest on the date
the
Other Products are removed from the Area of
Interest.
|
| (3) |
Other
Costs. Except as specifically set forth herein, Tornado shall not deduct
any costs of mining, milling, leaching, or other processing costs incurred
by Tornado in the determination of the Net Smelter Returns, and provided,
in all cases, that if raw ore is transported from the Area of Interest
to
be processed, no transportation or added processing costs incurred
by
Tornado shall be deducted in the determination of the Net Smelter
Returns.
|
| (4) |
Payment
of Production Royalties. The amount of Net Smelter Returns due Golden
Cycle shall be payable in the following alternative manners, depending
upon the product produced:
|
| (a) |
For
Bullion, Production Royalties payable to Golden Cycle shall be calculated
by multiplying the dollar amount of Net Smelter Returns determined
in
accordance with paragraph (A)(2) above by two percent
(2%).
|
| (b) |
For
Other Products, Production Royalties payable to Golden Cycle shall
be
calculated by multiplying the dollar amount of Net Smelter Returns
determined in accordance with paragraph (A)(2) above by two percent
(2%).
|
| (5) |
Data
and Statements. Tornado shall provide to Golden Cycle data describing
the
date on which products are produced from the Area of Interest, the
product
produced, the shipment dates, and the quantity shipped. Final settlement
data, identifying shipments and the quantities of shipments, shall
be
provided to Golden Cycle as received by Tornado, but not less frequently
than annually. Each payment of Net Smelter Returns royalty to Golden
Cycle
shall be accompanied by a statement showing the basis for calculating
the
Net Smelter Returns royalty and copies of all data relating to the
royalty
calculation (including, but not limited to, settlement sheets used
in
calculating the royalty).
|
| (6) |
Examination
of Statements. Each statement rendered and Net Smelter Returns amount
paid
by Tornado may, at Golden Cycle’s written request given to Tornado within
six (6) months following the delivery of such statement or payment,
be
verified by Golden Cycle and its agents and representatives from the
financial and production records maintained by Tornado. The verification
shall be at Golden Cycle’s sole risk and expense and shall be conducted so
as not to interfere or conflict with Tornado’s operations. All statements
rendered and Net Smelter Returns royalties paid shall conclusively
be
presumed to be correct and accepted by Golden Cycle as rendered or
paid
unless Golden Cycle timely requests verification in accordance with
the
provisions of this paragraph (A)(6).
|
| (7) |
Commingling.
Tornado may commingle products produced from the Area of Interest with
similar product from other properties. If Tornado engages in such
commingling, Tornado shall establish procedures for determining the
proportional amount of the total metal content in the commingled ores
and
concentrates attributable to the input from each of the properties,
so
that production royalties applicable to ores produced from each of
the
properties from which ores are commingled may reasonably be determined.
The procedures to be used by Tornado shall represent standard industry
practices for ores and processes similar to those encountered or used
in
connection with the Area of Interest.
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| (8) |
Golden
Cycle agrees that Tornado shall have the exclusive right to market
and
sell to third parties all Bullion produced from the Area of Interest,
including, without limitation, the forward sale of Bullion on the
commodity markets and the repayment of gold loans. Golden Cycle shall
have
no right to participate in any hedging or price protection activities
of
Tornado, including any sales of Bullion by Tornado on the commodity
markets, nor shall Golden Cycle otherwise share in any profits or losses
received or incurred by Tornado as a result of Tornado’s marketing or
hedging activities.
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