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Agreement |
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2003 |
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AGREEMENT
BETWEEN
GOLDEN PHOENIX MINERALS, INC.
AND
BOREALIS MINING COMPANY
(BOREALIS PROPERTY, MINERAL COUNTY, NEVADA)
THIS AGREEMENT, dated as of July 21, 2003 ("EFFECTIVE DATE"), is
between GOLDEN PHOENIX MINERALS, INC., a Minnesota corporation (hereinafter
referred to as "GOLDEN PHOENIX"), and BOREALIS MINING COMPANY, a Nevada
corporation (hereinafter referred to as "BOREALIS") which is a wholly-owned
subsidiary of Gryphon Gold Corporation, a Nevada corporation.
FOR AND IN CONSIDERATION OF the payment by Borealis to Golden Phoenix
of US$125,000.00, the mutual covenants contained herein, and other good and
valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, the parties agree as follows:
ARTICLE I
DEFINITIONS
1.1 DEFINITIONS. The following definitions shall apply in this
Agreement:
(a) "AREA OF INTEREST" means the area described in Exhibit A
hereto.
(b) "CLAIMS" means the GP Claims and the Leased Claims.
(c) "LEASE" means the Mining Lease described in Exhibit B hereto,
under which Golden Phoenix is the current and only lessee.
(d) "GP CLAIMS" means the unpatented lode mining claims owned by
Golden Phoenix described in Exhibit C hereto.
(e) "LEASED CLAIMS" means the unpatented mining claims that are
subject to the Lease, which claims are described in Exhibit D hereto.
(f) "MINING VENTURE AGREEMENT" means the Mining Venture Agreement
attached as Exhibit E hereto, which is patterned after the Rocky Mountain
Mineral Law Foundation's Exploration, Development and Mine Operating Agreement
Model Form 5A.
(g) "PROPERTIES" means the Claims, the Lease and any properties in
the Area of Interest that become subject to this Agreement.
{PAGE}
ARTICLE II
GRANT
2.1 GRANT. Subject to the terms and conditions of this Agreement,
Golden Phoenix hereby grants to Borealis the right to acquire up to an undivided
seventy percent (70%) interest in the Properties.
2.2 PERMITTED USES AND ACTIVITIES. Subject to the paramount title of
the United States in the Claims and applicable federal and state laws and
regulations, and subject to the Lease and the terms of this Agreement, Borealis
shall have the exclusive right during the term of this Agreement to enter upon
the Properties and to explore for, prospect for, develop and produce any and all
metals, ores, minerals, mineral substances and materials of all kinds which may
be found in, upon, under or within the Properties. Borealis's rights in this
regard include, but are not limited to, the following:
(a) to construct roads and other improvements upon the surface
of the Properties for use by Borealis's personnel and equipment;
(b) to locate upon the Properties such structures and
improvements as may be required to house Borealis's equipment, supplies and
personnel;
(c) to conduct exploration upon the Properties by whatever
methods and to whatever extent Borealis deems advisable in its sole discretion
and to remove from the Properties samples of any and all mineral substances
found therein;
(d) to conduct exploration, geological, geophysical and
geochemical evaluation and testing and assaying of the Properties;
(e) to construct facilities and improvements for the
development of the Properties and for the production of mineral substances found
within the Properties;
(f) to develop and produce mineral substances found within the
Properties;
(g) to use, to the extent necessary or convenient to the
exercise of any or all of the rights granted to Borealis herein, any surface and
underground water and water rights now existing or subsequently discovered or
developed in or upon or appurtenant to the Properties and to use all reciprocal
rights which any of the Properties may have with respect to other properties in
the area;
(h) to use all easements and rights-of-way on or appurtenant
to the Properties in the exercise of rights granted to Borealis hereunder;
2
{PAGE}
(i) to do all things which are incidental to or which may be
useful, desirable or convenient in Borealis's exercise of any or all of the
rights granted to Borealis hereunder.
2.3 OPERATIONAL AUTHORITY. Golden Phoenix also grants to Borealis all
authority and rights necessary or incident to or for the enjoyment of the rights
granted to Borealis by this Agreement, including without limitation authority to
apply for all permits, licenses and other approvals deemed necessary or
appropriate by Borealis in connection with the conduct of the activities
contemplated herein.
ARTICLE III
GOLDEN PHOENIX'S REPRESENTATIONS AND
WARRANTIES; TITLE MATTERS
3.1 REPRESENTATIONS AND WARRANTIES. Golden Phoenix represents and
warrants as follows:
(a) Golden Phoenix has full power and authority to enter into
this Agreement and to perform the transactions contemplated hereby. This
Agreement and the provisions hereof constitute legal and binding obligations of
Golden Phoenix enforceable in accordance with their terms. Neither the execution
and delivery of this Agreement nor compliance by Golden Phoenix with any of the
provisions hereof will conflict with or result in a breach of or default under
any of the terms, conditions or provisions of any agreement or instrument to
which Golden Phoenix is a party or of any law or governmental or administrative
regulation or restriction applicable to it.
(b) The interests of Golden Phoenix in the Claims and the
Lease, and potentially in other lands included in the Area of Interest, are not
subject to any preferential right to purchase, right of first refusal, area of
interest provision, or the like, pursuant to which any other person or entity
has any rights to acquire an interest therein that is or will be violated or
contravened by the terms of this Agreement or the performance thereof.
(c) There are no consents under the terms of the Lease, other
than consents that have been obtained in writing by Golden Phoenix and provided
to Borealis, that are required with respect to the grant of rights or the
conveyance of an interest to Borealis as provided herein.
(d) There are no actions, suits, claims, proceedings,
litigation or investigations pending or, to the best of Golden Phoenix's
knowledge, threatened at law or in equity, or in arbitration, or before or by
any federal, state, municipal or other governmental instrumentality which relate
to this Agreement, or the Lease or any of the Claims, or which could, if
continued, adversely affect Golden Phoenix's ability to fulfill the obligations
undertaken hereby or Borealis's ability to explore or develop the Claims and the
Lease. Golden Phoenix knows of no requirements of federal, state or local law
particular to the Claims or the Lease that could materially and adversely affect
Borealis's ability to explore or develop the Claims or the Lease.
3
{PAGE}
(e) The Lease is valid, in good standing with all previously
due payments made, and enforceable in accordance with its terms. There has been
no act or omission by Golden Phoenix which could result by notice or lapse of
time in the breach, termination, abandonment, forfeiture, relinquishment or
other premature termination of the rights of Golden Phoenix in the Lease.
(f) To the best of Golden Phoenix's knowledge, the lessors
under the Lease hold good and marketable possessory title to the Leased Claims,
subject to paramount title of the United States, free and clear of all defects,
liens or encumbrances. To the best of Golden Phoenix's knowledge, the Leased
Claims have been properly located and maintained in compliance with applicable
state and federal laws. There are no liens or encumbrances relating to the
Leased Claims arising by, through or under Golden Phoenix.
(g) Golden Phoenix has good and marketable possessory title to
the GP Claims, subject to the paramount title of the United States. The GP
Claims have been properly located and maintained in compliance with applicable
state and federal laws. There are no liens or encumbrances relating to the GP
Claims.
(h) Golden Phoenix has good and marketable title to the
leasehold interest in the Lease as the sole lessee, free from any defects, liens
or encumbrances arising by, through or under Golden Phoenix. Golden Phoenix has
no knowledge of any claims that conflict with the Claims or of any lands covered
by the Claims that are or were not open to location.
(i) There are no royalties, fees or monies payable or required
to be paid to persons having an interest in the Claims or in the Lease except
for the lessors under the Lease.
(j) Golden Phoenix has delivered to Borealis all information
concerning title to the Properties in Golden Phoenix's possession or control,
including, but not limited to, true and correct copies of the Lease and any
other contracts relating to the Properties of which Golden Phoenix has
knowledge.
(k) As of the Effective Date, there are no existing permits or
approvals in effect relating to operations and activities on the Properties from
any governmental or regulatory entity.
(l) Except as set forth on Schedule 3.1(l), attached hereto
and made a part hereof, Golden Phoenix has no knowledge or information
indicating that:
(i) hazardous substances from any source (mining or
otherwise) have been released on the Properties; or
(ii) any underground or above-ground site of historic
or current mining operations on the Properties could cause or constitute a
release or threat of release of hazardous substances into the environment,
subject, however, to the parties' acknowledgment that prior mining operations
have occurred on the Properties and that certain facilities, more particularly
described in Exhibit F hereto, still exist on the Properties as a consequence of
such operations; or
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{PAGE}
(iv) any part of the Properties has been included or
proposed for inclusion on the National Priorities List (40 C.F.R. Section 300
App. B); or
(iv) any part of the Properties has been studied or
proposed for study by the Environmental Protection Agency and/or any state
regulatory agency; or
(v) any site of historic or current mining, milling
and/or smelting workings on the Properties is presently in such condition as to
potentially raise liability to the past, present or future owner(s) and/or
operator(s) of the Properties pursuant to the Comprehensive Environmental
Response, Compensation and Liability Act and amending statutes ("CERCLA"); or
(vi) any reclamation or cleanup obligations for prior
operations on the Properties are unsatisfied.
3.2 CURE OF DEFECTS. Borealis, without waiver of any rights or
remedies, may at its option, take any action necessary to cure any defects in
the title to the Properties without the prior written consent of Golden Phoenix;
provided, however, that any such action shall be subject to such restrictions
and requirements as exist under the Lease. Golden Phoenix agrees to cooperate
with Borealis in any such actions taken and to execute all documents and to take
such other action as may be reasonably necessary to assist Borealis but shall
not have any obligation to incur costs in so doing. Borealis may charge all
reasonable costs and expenses (including attorneys' fees) incurred by Borealis
in curing any defect in title to the Properties as Expenditures pursuant to
Article IV below. If the United States or any third person attacks the validity
of any of the unpatented mining claims included in the Properties, Borealis may,
at its option, choose to defend their validity, and in such event Borealis may
charge all reasonable costs and expenses (including attorneys' fees) incurred by
Borealis in defending the validity of such claims as Expenditures pursuant to
Article IV below. Golden Phoenix agrees to give Borealis notice promptly of any
such problems as to which it has knowledge.
3.3 INCOMPLETE TITLE. If Golden Phoenix's title is less than the full
undivided title to the Claims and the Lease, Borealis shall have, in addition to
such other rights and remedies as it may have, the right to elect to accept such
lesser title by giving written notice of such election to Golden Phoenix, in
which event all Expenditure requirements set forth in Article IV hereunder shall
be reduced to the same proportions thereof as the undivided title actually owned
by Golden Phoenix bears to the undivided title warranted herein. If Golden
Phoenix's title is less than the full undivided title to some, but not all, of
the Claims and the Lease, then the Expenditure requirements shall be reduced on
a proportionate acreage basis.
ARTICLE IV
EXPLORATION AND DEVELOPMENT PROGRAM
4.1 DEFINITION OF EXPENDITURES. "EXPENDITURES" referred to herein shall
include the following:
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{PAGE}
(a) all direct costs incurred by Borealis incident to carrying
out activities permitted in Article II or elsewhere herein, on or in connection
with the Properties, including, but not limited to, expenditures for wages,
salaries, equipment, supplies, traveling expenses, legal expenses, photography,
geologic mapping and sampling, assays, maintenance of field offices, drilling,
trenching, sampling, assaying, conducting geophysical or geochemical surveys,
permitting, road building, engineering, planning, financing (and arranging for
the same) if such financing is for the benefit of both parties, construction of
mining and processing facilities, equipment and parts, exploration, development,
mining and processing, project administration, reclamation, payments made to
Golden Phoenix pursuant to this Agreement and pursuant to a preceding Agreement
in Principle, and property acquisition and maintenance. Property acquisition
costs shall include without limitation payments to owners of properties in the
Area of Interest that become Properties, payments for other property rights
necessary to conduct operations on the Properties, related costs of negotiating,
preparing, and completing agreements to acquire property rights or agreements
needed to conduct operations thereon, and costs of locating, relocating,
amending, or converting claims. Property maintenance costs shall include without
limitation all expenditures incurred to preserve the Properties and agreements
related to the conduct of operations thereon in good standing, specifically
including the performance of assessment work, the payment of claim maintenance
fees and the satisfaction of payment and other obligations to the lessors under
the Lease or other leases or other agreements affecting the Properties or the
conduct of operations thereon.
(b) Expenditures shall also include (a) a payroll burden
amounting to 22.5% of gross payroll costs to allow for workmens' compensation
and unemployment insurance, pensions and other employee benefits and fringe
benefits, and (b) an overhead burden amounting to 10% of direct costs (excluding
gross payroll costs and work done by independent contractors) to allow for
administration, purchasing, accounting, engineering, legal and other services
performed for the project and not directly allocated.
4.2 WORK PROGRAMS. During the term of this Agreement an annual work
program will be formulated by a joint development committee comprised of
representatives from Borealis and Golden Phoenix. The work programs shall last
for one year and shall begin and end on the anniversary of the Effective Date.
Borealis will carry out the work programs and provide its own personnel or
contractors to do so, but Borealis shall have reasonable access to Golden
Phoenix personnel when their expertise would facilitate completion of the work
program, on a fully reimbursed basis to Golden Phoenix for the hourly cost of
those personnel at normal commercial rates, which costs shall qualify as
Expenditures hereunder. Unless the parties agree otherwise, the initial work
program will commence on the Effective Date and will focus initially on
completing the following activities: evaluation and if deemed appropriate
production of the old leach pads (phase 1), further evaluation and if deemed
appropriate production of the remaining oxide ores in the district (phase 2),
and evaluation and if deemed appropriate production of the deeper, high-grade
sulfide mineralization found in numerous areas of the Properties (phase 3).
6
{PAGE}
4.3 OPERATIONS. During the term of this Agreement, Borealis shall be
solely responsible for conducting the work programs and shall have complete and
exclusive control, charge, supervision and management of all work program
activities on or for the benefit of the Properties and of any and all equipment,
supplies, machinery or other assets purchased or otherwise acquired for or in
connection with such activities.
4.4 EXPENDITURE REQUIREMENTS FOR 50% INTEREST. In order to earn an
initial undivided fifty percent (50.0%) right, title and interest in and to the
Properties, Borealis must incur a total of five million dollars
(US$5,000,000.00) in Expenditures as follows:
(a) by expending US$800,000.00 in Expenditures within twelve
months from the Effective Date of this Agreement, or by alternatively paying to
Golden Phoenix an amount equal to the difference between the Expenditures
incurred by Borealis and US$800,000.00;
(b) by expending an additional US$1,000,000.00 in Expenditures
within twenty-four months from the Effective Date of this Agreement, or by
alternatively paying to Golden Phoenix an amount equal to the difference between
the Expenditures incurred by Borealis and US$1,800,000.00;
(c) by expending an additional US$1,500,000.00 in Expenditures
within thirty-six months from the Effective Date of this Agreement, or by
alternatively paying to Golden Phoenix an amount equal to the difference between
the Expenditures incurred by Borealis and US$3,300,000.00; and
(d) by expending an additional US$1,700,000.00 in Expenditures
within forty-eight months from the Effective Date of this Agreement, or by
alternatively paying to Golden Phoenix an amount equal to the difference between
the Expenditures incurred by Borealis and US$5,000,000.00.
4.5 DECLINING DIFFERENTIAL PAYMENTS; CARRYOVER OF EXPENDITURES. With
regard to all differential payments referenced in Section 4.4 above, Golden
Phoenix shall have the right to decline payment and instead require Borealis to
expend that amount in Expenditures during the next 12 month period (in addition
to Expenditures otherwise required during that 12 month period). Any
Expenditures in excess of the amounts set forth above will be credited toward
the next phase of required Expenditures.
4.6 EXPENDITURES NOT MANDATORY. The parties agree that Borealis can
terminate this Agreement prior to incurring the Expenditures necessary to
acquire a 50% interest in the Properties, and thus is not obligated to actually
expend any particular amount of Expenditures; however, Borealis shall not earn a
50% interest in the Properties unless it does in fact timely make the
Expenditures set forth in Section 4.4 above.
7
{PAGE}
4.7 VESTING OF TITLE TO 50% INTEREST. At such time as Borealis has
incurred US$5,000,000.00 in Expenditures as herein provided, Borealis's right to
receive a 50% undivided interest pursuant to Section 4.4 shall vest. Borealis
will give written notice to Golden Phoenix when its interest has vested (but
failure or delay of Borealis to give such notice shall not be a condition to
vesting or to any other rights of Borealis hereunder). Golden Phoenix shall,
within 15 days after receiving notice from Borealis that its 50% interest has
vested, assign to Borealis an undivided 50% right, title and interest in and to
the Properties free of any defects, liens or encumbrances arising by or through
Golden Phoenix (the "50% ASSIGNMENT").
4.8 RELEASE UPON PRIOR TERMINATION. If this Agreement is terminated
prior to Borealis's becoming vested with a 50% interest in the Properties as
provided in Section 4.7, Borealis shall execute and deliver to Golden Phoenix a
recordable release relinquishing to Golden Phoenix all of Borealis's interest in
the Properties free of any defects, liens or encumbrances arising by or through
Borealis.
4.9 OPTION TO ACQUIRE ADDITIONAL 20% INTEREST. If Borealis earns a 50%
interest as provided herein, then Borealis shall have the exclusive and
irrevocable option (the "ADDITIONAL INTEREST OPTION") to earn an additional
undivided 20% right, title and interest in and to the Properties by delivering
to Golden Phoenix a feasibility study analyzing a specific portion the
Properties, or alternatively by incurring an additional US$4,000,000.00 in
Expenditures on the Properties (or by paying to Golden Phoenix the difference
between actual Expenditures incurred and US$4,000,000.00, in which event Golden
Phoenix shall have the right to decline such payment and instead require
Borealis to expend that amount on development of the Properties during the
following 12 month period). The feasibility study, if delivered, shall be a
detailed study evaluating the technical and economic feasibility of placing a
specific portion of the Properties into commercial production with a mineable
reserve containing a threshold of at least 500,000 ounces of gold or gold
equivalent, and shall be in a form and of a scope generally acceptable to
reputable financial institutions that provide financing to the mining industry.
If Borealis prepares the feasibility study, it must be audited and confirmed by
either Pincock, Allen & Holt or Behre Dohlber, as determined by Borealis, or by
another engineering firm proposed by Borealis and approved by Golden Phoenix.
Borealis must fulfill these obligations within 18 months after the Additional
Interest Option is exercised in order to earn the additional 20% interest
(unless Golden Phoenix has declined payment and elected to require Borealis to
expend that amount in additional Expenditures as contemplated above, in which
case the 18-month period for fulfilling these obligations will be extended by 12
months). The Additional Interest Option may be exercised at any time within 30
days after Borealis receives the 50% Assignment (the "ADDITIONAL INTEREST OPTION
PERIOD"). Borealis may exercise the Additional Interest Option by giving Golden
Phoenix written notice thereof in accordance with Section 10.9 below at any time
during the Additional Interest Option Period.
4.10 VESTING OF ADDITIONAL 20% INTEREST. At such time as Borealis has
satisfied the requirements of Section 4.9 above, Borealis's right to receive an
additional 20% undivided interest in the Properties pursuant to Section 4.9
shall vest. Borealis will give written notice to Golden Phoenix when its
additional 20% interest has vested (but failure or delay of Borealis to give
such notice shall not be a condition to vesting or to any other rights of
Borealis hereunder). Golden Phoenix shall, within 15 days after receiving notice
from Borealis that its additional 20% interest
8
{PAGE}
has vested, assign to Borealis an additional undivided 20% right, title and
interest in and to the Properties free of any defects, liens or encumbrances
arising by or through Golden Phoenix.
4.11 ADDITIONAL EXPENDITURES NOT MANDATORY. The parties agree that,
notwithstanding Borealis's exercise of the Additional Interest Option, Borealis
shall not be obligated to prepare or deliver a feasibility study or to incur any
additional Expenditures or make any payments to acquire an additional 20%
interest in the Properties; however, Borealis shall not earn an additional 20%
interest in the Properties unless it does in fact timely complete the
requirements set forth in Section 4.9 above. Any failure by Borealis to earn an
additional 20% interest in the Properties shall not affect Borealis's 50% vested
interest in the Properties.
ARTICLE V
JOINT VENTURE
5.1 JOINT VENTURE AFTER 50% INTEREST EARNED. If Borealis earns a 50%
interest in the Properties pursuant to Section 4.4 above, Golden Phoenix and
Borealis shall thereupon execute the Mining Venture Agreement, which agreement
shall thereafter govern the parties' rights and obligations with respect to the
Properties except as otherwise provided in this Article V. The parties' initial
Participating Interests as specified in Section 6.1 of the Mining Venture
Agreement shall be 50% for Borealis and 50% for Golden Phoenix. If Borealis
exercises the Additional Interest Option then Golden Phoenix shall not be
required to contribute any capital costs to the venture prior to the vesting of
Borealis's additional 20% interest, and Golden Phoenix's share of venture
revenues, if any, shall be credited against Golden Phoenix's share of operating
costs until the vesting of Borealis's additional 20% interest occurs.
5.2 JOINT VENTURE AFTER 50% INTEREST EARNED BUT 20% ADDITIONAL INTEREST
NOT EARNED. If Borealis earns a 50% interest in the Properties and exercises the
Additional Interest Option but fails to timely complete the requirements set
forth in Section 4.9 above for earning an additional 20% interest in the
Properties, then Borealis's Participating Interest in the venture shall remain
50% and Golden Phoenix's Participating Interest in the venture shall remain 50%,
and this Agreement shall terminate at the conclusion of the time period allowed
in Section 4.9 for completing said requirements.
5.3 JOINT VENTURE AFTER 70% INTEREST EARNED. If Borealis earns a 70%
interest in the Properties pursuant to Section 4.9 above, then Borealis's
Participating Interest in the venture shall be increased to 70%, Golden
Phoenix's Participating Interest in the venture shall be decreased to 30%, and
this Agreement shall terminate.
9
{PAGE}
ARTICLE VI
CORPORATE INVOLVEMENT BY GOLDEN PHOENIX
6.1 BOARD PARTICIPATION. Following the execution of this Agreement and
for as long as this Agreement remains in effect, Golden Phoenix shall be
entitled to provide one person of its choice to serve on the board of directors
of Borealis. Golden Phoenix shall identify that person to Borealis in writing
and that person shall thereafter be appointed to the board of directors as soon
as reasonably possible in accordance with ordinary corporate procedures. Golden
Phoenix shall have the right to decline to provide any such board member.
ARTICLE VII
OPERATIONS BY BOREALIS
7.1 CLAIM MAINTENANCE. For as long as this Agreement remains in effect,
Borealis shall timely pay the necessary claim maintenance fees for all
unpatented mining claims included in the Properties and shall make all related
federal and county filings. All such payments shall qualify as Expenditures.
7.2 LEASE MAINTENANCE. Borealis shall make all payments due under the
Lease while this Agreement is in effect. All such payments shall qualify as
Expenditures. Borealis shall comply with all the provisions of the Lease with
respect to the conduct of operations on the Properties; provided, however, that
in the event of any conflict or inconsistency between this Agreement and the
Lease as between Borealis and Golden Phoenix, this Agreement shall govern.
7.3 AMENDMENT, RELOCATION AND CONVERSION OF CLAIMS. Borealis shall have
the right, but not the obligation, during the term of this Agreement and without
the prior consent of Golden Phoenix, but with prior notice to Golden Phoenix, to
amend or relocate the Claims and any other claims included in the Properties.
Any such action shall be subject to such restrictions and requirements as exist
under the Lease. All expenses incurred by Borealis in connection with such
amendments or relocations shall be borne by Borealis, but shall be credited as
Expenditures. Borealis shall have the right, but not the obligation, during the
term of this Agreement and without the prior consent of Golden Phoenix, but with
prior notice to Golden Phoenix, to convert the Claims and any other claims
included in the Properties as permitted under any amendment or replacement of
the federal mining laws. The rights of Borealis under this Agreement shall
extend to all amended locations and relocations of any claims included in the
Properties, and to any other interest(s) acquired by Golden Phoenix or Borealis
under the federal mining laws and any amendments or replacements thereof by
reason of their interest in the Properties.
7.4 INSURANCE. Prior to the commencement of operations under this
Agreement, Borealis shall obtain workmen's compensation insurance, liability
insurance (with coverage amounts of not less than $1,000,000.00 for death or
bodily injury and not less than $500,000.00 for property damage) and policies of
insurance against other risks for which insurance is customarily obtained in
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similar operations, but not less than any coverage required by the Lease. All
such insurance shall be maintained by Borealis at its own expense throughout the
duration of this Agreement, but the cost thereof shall qualify as Expenditures.
Upon request by Golden Phoenix, Borealis shall furnish to Golden Phoenix
evidence that such insurance is being maintained.
7.5 INDEMNIFICATION. Borealis shall indemnify, defend, and hold
harmless Golden Phoenix from and against any cost, loss, expense, claim or
liability resulting from work or operations on the Properties by Borealis
pursuant to this Agreement (excluding any liability resulting from breach of any
warranty or representation of Golden Phoenix), including without limitation
liability, claims and causes of action for injury to, or death of, persons,
damage to property, liens claimed or arising from work performed or things
furnished, and failure to comply, or claims of failure to comply, with
applicable governmental laws, regulations, licenses and permits.
7.6 PAYMENT FOR MATERIALS AND LABOR. Borealis shall pay for all labor
performed upon and material furnished to the Properties by or at the request of
Borealis and shall keep the Properties free and clear from any and all liens of
mechanics or materialmen in connection with services performed and material
supplied at Borealis's request; provided, however, that Borealis shall have the
right in good faith to contest the validity of any lien, claim or liability so
long as such contest does not jeopardize the Properties or the Lease or create
any burden on the interest of Golden Phoenix therein.
ARTICLE VIII
TERM; TERMINATION
8.1 TERM. The term of this Agreement shall commence as of the Effective
Date and shall continue for the period of time allowed herein for Borealis to
complete the actions set forth in Article IV for earning a 70% interest in the
Properties, unless sooner terminated in the manner herein provided.
8.2 TERMINATION BY BOREALIS. Borealis may terminate this Agreement at
any time by giving written notice of the same to Golden Phoenix. Borealis may at
its election relinquish its interest hereunder in any portion of the Properties
by giving written notice of the same to Golden Phoenix, without terminating this
Agreement as to the remaining portion of the Properties.
8.3 DEFAULT. In the event Golden Phoenix believes Borealis to be in
default in the observance or performance of any of Borealis's covenants or
obligations hereunder, Golden Phoenix may give written notice of such alleged
default, specifying the details of the same. Borealis shall have 60 days
following said notice within which to remedy the default described therein, or
with respect to a default which cannot be cured by the payment of money, to
commence action in good faith to remedy such default. Unless Borealis shall so
comply or commence to comply this Agreement may be terminated at the option of
Golden Phoenix; provided, however, that in the event Borealis believes that it
is not in default, Borealis may give written notice to Golden Phoenix within
such 60-day period setting forth such fact. If Golden Phoenix gives written
notice within 30 days of
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Borealis's notice that Golden Phoenix rejects Borealis's position, then this
Agreement shall not be terminable by Golden Phoenix until there is a final
judicial determination by a court of competent jurisdiction that a default
exists and shall not be terminated thereafter if Borealis shall satisfy such
judgment within 60 days following its entry (or if an appeal of such judgment is
taken, within 60 days after its affirmance by the highest court to which such an
appeal is made). Failure of Golden Phoenix to give such notice shall constitute
agreement by Golden Phoenix that Borealis is not in default. Golden Phoenix
shall not be entitled to terminate this Agreement for any default which by its
nature it not retroactively curable if Borealis has used its best efforts to
cure such a default to the extent practical or if Borealis has paid Golden
Phoenix damages for Borealis's default where damages are an appropriate remedy.
8.4 PERSONAL PROPERTY. All personal property of Borealis on the
Properties shall remain the property of Borealis. Golden Phoenix shall not be
responsible for any personal property of Borealis.
8.5 INFORMATION AND DATA. In this Agreement expires or is terminated by
the parties without entering into the Mining Venture Agreement, then Borealis
shall, within 60 days of such expiration or termination, furnish to Golden
Phoenix one set of copies of all available noninterpretive data which Borealis
is not prohibited from disclosing under the terms of any agreement, and which
was not previously received by Golden Phoenix pertaining to the Properties and
developed or prepared by or for Borealis, and shall authorize and permit Golden
Phoenix, within 120 days of such expiration or termination, to take possession
of any available drill core and cuttings derived from the Properties, whether or
not such material is stored on the Properties. Borealis's furnishing of such
data, core and cuttings shall be without any representations or warranties,
express or implied, as to accuracy, reliability or completeness. Golden Phoenix
shall assume all risks stemming from reliance upon such data, core and cuttings
by itself and by third parties after disclosure or disposition thereof by Golden
Phoenix and shall indemnify and hold harmless Borealis as to any claims made by
such third parties.
ARTICLE IX
AREA OF INTEREST
9.1 ACQUIRED PROPERTIES. Any properties or property rights acquired by
Borealis or Golden Phoenix or any affiliate of Borealis or Golden Phoenix in the
Area of Interest while this Agreement is in effect shall be subject to the terms
of this Agreement. Any mining claims that are partially within the Area of
Interest shall be considered to be entirely in the Area of Interest. The parties
agree to execute such documents as are appropriate to provide record notice that
such new properties are subject to this Agreement. In the event that Borealis
terminates this Agreement, Borealis shall, upon Golden Phoenix's written
request, assign any properties or property rights acquired by Borealis within
the Area of Interest to Golden Phoenix, subject to any necessary approvals. If
such properties are held under leases or other grants of possessory rights from
third parties and lie partially within and partially outside the Area of
Interest, only such portion that lies
12
{PAGE}
within the Area of Interest shall be assigned to Golden Phoenix unless the
properties held under any such lease or other grant are not severable.
ARTICLE X
GENERAL PROVISIONS
10.1 COMPLIANCE WITH LAWS. Borealis shall conduct all of its operations
on the Properties in full compliance with all applicable laws and regulations
and permits, including without limitation all laws and regulations and permits
related to environmental protection and reclamation. Borealis shall have no
obligation to reclaim any disturbances existing prior to the Effective Date or
to perform any corrective, remedial or removal actions with regard to any
conditions or occurrences not solely and directly attributable to Borealis.
10.2 CONFIDENTIALITY. The parties hereto shall treat all data, reports,
records and information relating to the Properties and this Agreement as
confidential ("CONFIDENTIAL INFORMATION"). Confidential Information shall not be
released to any person or entity not a party to this Agreement, except to
auditors, counsel, engineering and other professional consultants, investment
bankers, institutional lenders and broker-dealers designated by the parties,
provided that non-party uses of Confidential Information are strictly limited to
those purposes necessary for non-party users to perform the function for which
they were retained by the parties. Notwithstanding the foregoing, Confidential
Information may be disclosed to persons other than those set forth above upon
the mutual agreement of the parties or by either party upon providing to the
other party (a) a copy of the proposed disclosure not less than 48 hours prior
to the planned date of release, and (b) a written determination in good faith by
the disclosing party that such disclosure is necessary or desirable in
connection with the disclosing party's disclosure obligations under any
securities laws, rules or regulations or stock exchange listing agreement or its
obligations in connection with existing or proposed credit arrangements.
10.3 MEMORANDUM OF AGREEMENT. This Agreement shall not be recorded for,
by or on behalf of either party. The parties agree, however, to execute a
memorandum of this Agreement of even date herewith, which shall be a form
suitable for recording under the state and local laws of Nevada specifying that
Borealis's interest in the Properties is subject to the terms and conditions of
this Agreement.
10.4 ENCUMBRANCES. Each party shall keep the Properties debt free and
unencumbered throughout the term of this Agreement unless otherwise mutually
agreed. Either party may encumber its contractual interest in this Agreement for
project financing purposes, provided that any such encumbrance shall be subject
and subordinate to the terms of this Agreement.
10.5 NO RESTRICTIONS ON OTHER ACTIVITIES. This Agreement is, and the
rights and obligations of the parties are, strictly limited to the Properties,
and the parties shall have the free and unrestricted right to independently
engage in and receive the full benefits of any and all business ventures of any
sort whatsoever, whether or not competitive with the activities undertaken
pursuant
13
{PAGE}
hereto, without consulting the other or inviting or allowing the other to
participate therein. Neither of the parties shall be under any fiduciary or
other duty to the other which will prevent it from engaging in or enjoying the
benefits of any competing venture or ventures within the general scope of the
activities contemplated by this Agreement.
10.6 ACCESS BY GOLDEN PHOENIX. During the term of this Agreement,
Golden Phoenix and its duly authorized agents, employees and representatives, at
its and their sole risk and expense, and upon giving to Borealis reasonable
notice, shall have access to the Properties to observe Borealis's activities
thereon, provided that such access and observation do not unreasonably interfere
with or delay the conduct of Borealis's activities upon the Properties.
10.7 FORCE MAJEURE. All obligations of Borealis, other than cash
payment obligations, and all conditions to the continuation of this Agreement
shall be suspended and Borealis shall not be deemed in default or liable for
damages or other legal or equitable remedies while, but only as long as,
Borealis is prevented from complying with such obligations or conditions in
whole or in part by strikes, lockouts, acts of God, explosion, flood, epidemics,
unavoidable accidents, uncontrollable delays in transportation, inability to
obtain necessary materials or services in the open market, inability to obtain
necessary permits or approvals, unusually severe weather, any local, state or
federal law, regulation, order, arbitration, administrative or judicial action,
or any other matters beyond the reasonable control of Borealis, whether similar
to the matters herein specifically enumerated or not; provided, however, that
performance shall be resumed within a reasonable time after such cause has been
removed. The term of this Agreement shall be extended by the duration of any
such suspension. Borealis shall not be required, against its will, to adjust any
labor disputes or to question the validity or to refrain from judicially testing
the validity of any local, state or federal order, regulation or law.
10.8 NO PARTNERSHIP. This Agreement is not intended and shall not be
construed to create a partnership within the meaning of the federal common law
or the applicable laws of any state or under the laws of the state in which any
party hereto is incorporated, organized or conducting business. The parties
expressly agree that neither party shall be responsible for the obligations of
the other party, each party being responsible only for its obligations arising
hereunder. It is not the purpose or intention of this Agreement to create, and
this Agreement should never be construed as creating, a relationship whereby any
of the parties shall be held liable for acts, either of omission or commission,
of any other party hereto. This Agreement shall not create any fiduciary duty on
the part of either party.
10.9 NOTICES. All notices, payments and other required communications
("NOTICES") by and to the parties shall be in writing and shall be addressed
respectively as follows:
If to Borealis Borealis Mining Company
1153 Bergen Parkway, Suite 290
Evergreen, CO 80439-9773
Fax: (303) 679-9589
14
{PAGE}
If to Golden Phoenix Golden Phoenix Minerals, Inc.
3595 Airway Drive, Suite 405
Reno, NV 89511
Fax: (775) 853-5010
All Notices shall be given (a) by personal delivery to the party, or (b) by
facsimile, with the original sent by certified mail return receipt requested, or
(c) by certified mail return receipt requested. All Notices shall be effective
and shall be deemed delivered (a) if by personal delivery on the date of
delivery if delivered during normal business hours, and, if not delivered during
normal business hours, on the next business day following delivery, (b) if by
facsimile on the next business day following receipt of the faxed copy, and (c)
if solely by certified mail on the next business day after actual receipt. A
party may change its address by Notice to the other party.
10.10 COSTS AND EXPENSES. Except as otherwise specifically set forth
herein, each of the parties shall bear its own expenses in connection with the
negotiation, preparation and performance of this Agreement.
10.11 CURRENCY. All monetary references herein are to United States
Dollars.
10.12 GOVERNING LAW; JURISDICTION AND VENUE. This Agreement shall be
governed by the laws of the State of Nevada. Each of the parties hereby attorns
to the exclusive jurisdiction of the courts of the state of Nevada or the
federal district court for the District of Nevada, as may be applicable, in
respect of any disputes arising hereunder, with venue to be in the state of
Nevada.
10.13 HEADINGS. The titles of the Articles and Sections of this
Agreement are for the purpose of reference only and shall not in any way affect
the interpretation of this Agreement.
10.14 COMPLETE AGREEMENT. This Agreement, together with its Exhibits A,
B, C, D and E, represents the entire agreement between the parties hereto and
supersedes all prior agreements and understandings concerning its subject
matter, including without limitation the Agreement in Principle dated May 8,
2003. This Agreement shall not be amended or modified except by written
instrument signed by both parties hereto. This Agreement has been carefully
reviewed and negotiated by both parties, and it shall be construed as though
both parties drafted it.
10.15 DISPUTES NOT TO INTERRUPT OPERATIONS. Any disputes or differences
between the parties shall not interrupt performance of this Agreement or
continuation of the parties' rights hereunder, and operations on the Properties
may continue pending an appropriate resolution of the dispute or difference.
10.16 PERPETUITIES CLAUSE. In the event that any provision of this
Agreement is determined to be in violation of the Rule Against Perpetuities or
any related rule relating to the vesting of property interests or restraints
upon alienation, it is the intent and desire of the parties hereto that this
Agreement shall not be void or voidable, but that the appropriate court shall
reform such
15
{PAGE}
provision in such a way as to approximate most closely the intent of the parties
hereto within the limits permissible under such Rule or related rule.
10.17 COUNTERPARTS. This Agreement may be executed in multiple
counterparts, which taken together shall constitute one and the same document.
10.18 FAXED SIGNATURES. This Agreement may be executed by facsimile
signatures, each of which will be deemed an original for purposes of execution.
16
{PAGE}
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as
of the Effective Date.
GOLDEN PHOENIX MINERALS, INC., a
Minnesota corporation
By:
--------------------------------------------
Name:
-----------------------------------------
Title:
-----------------------------------------
BOREALIS MINING COMPANY, a Nevada corporation
By:
--------------------------------------------
Name:
-----------------------------------------
Title:
-----------------------------------------
17
{PAGE}
STATE OF ______________)
: SS
COUNTY OF _____________)
This instrument was acknowledged before me on this _____ day of
____________________. 20____, by ________________________________ as
_______________________ of GOLDEN PHOENIX MINERALS, INC. a Minnesota
corporation.
-----------------------------------
NOTARY PUBLIC, residing in
[seal]
-----------------------------------
My commission expires:
---------------------------
STATE OF ______________)
: SS
COUNTY OF _____________)
This instrument was acknowledged before me on this _____ day of
____________________. 20____, by ________________________________ as
_______________________ of BOREALIS MINING COMPANY. a Nevada corporation.
-----------------------------------
NOTARY PUBLIC, residing in
[seal]
-----------------------------------
My commission expires:
---------------------------
18
{PAGE}
EXHIBIT A
TO
AGREEMENT BETWEEN GOLDEN PHOENIX MINERALS, INC.
AND BOREALIS MINING COMPANY
(BOREALIS PROPERTY, MINERAL COUNTY, NEVADA)
AREA OF INTEREST
The Area of Interest is the same as the Borealis Project Area as
described in Exhibit III of the Lease.
A-1
{PAGE}
EXHIBIT B
TO
AGREEMENT BETWEEN GOLDEN PHOENIX MINERALS, INC.
AND BOREALIS MINING COMPANY
(BOREALIS PROPERTY, MINERAL COUNTY, NEVADA)
LEASE
That certain Mining Lease dated January 24, 1997 from Richard J. Cavell
TTTEE F/T Richard J. Cavell Trust Dated 2/23/94, Hardrock Mining Company, a
Nevada corporation, and John W. Whitney, as lessors, and J.D. Welsh &
Associates, Inc., a Nevada corporation, as lessee, a memorandum of which is
recorded as Entry 115828 in Book 169 at page 489 in the official records of
Mineral County, Nevada.
B-1
{PAGE}
EXHIBIT C
TO
AGREEMENT BETWEEN GOLDEN PHOENIX MINERALS, INC.
AND BOREALIS MINING COMPANY
(BOREALIS PROPERTY, MINERAL COUNTY, NEVADA)
GPM & GG CLAIMS
The 111 GPM & GG Claims are described on the following three pages.
C-1
{PAGE}
EXHIBIT D
TO
AGREEMENT BETWEEN GOLDEN PHOENIX MINERALS, INC.
AND BOREALIS MINING COMPANY
(BOREALIS PROPERTY, MINERAL COUNTY, NEVADA)
LEASED CLAIMS
The 124 Leased Claims are described on the following six pages.
D-1
{PAGE}
EXHIBIT E
TO
AGREEMENT BETWEEN GOLDEN PHOENIX MINERALS, INC.
AND BOREALIS MINING COMPANY
(BOREALIS PROPERTY, MINERAL COUNTY, NEVADA)
MINING VENTURE AGREEMENT
EXPLORATION, DEVELOPMENT AND
MINE OPERATING AGREEMENT
(Modified Rocky Mountain Mineral Law Foundation Form 5A)
TABLE OF CONTENTS
{TABLE}
{CAPTION}
PAGE
{S} {C}
ARTICLE I DEFINITIONS AND CROSS-REFERENCES .....................................................
1.1 DEFINITIONS...........................................................................
1.2 CROSS-REFERENCES .....................................................................
ARTICLE II NAME, PURPOSES AND TERM ..............................................................
2.1 GENERAL...............................................................................
2.2 NAME .................................................................................
2.3 PURPOSES .............................................................................
2.4 LIMITATION ...........................................................................
2.5 TERM .................................................................................
ARTICLE III REPRESENTATIONS AND WARRANTIES; TITLE TO
ASSETS; INDEMNITIES ..................................................................
3.1 REPRESENTATIONS AND WARRANTIES
OF BOTH PARTICIPANTS .................................................................
3.2 REPRESENTATIONS AND WARRANTIES OF GOLDEN PHOENIX .....................................
3.3 DISCLOSURES............................................................................
3.4 RECORD TITLE ..........................................................................
3.5 LOSS OF TITLE..........................................................................
3.6 ROYALTIES, PRODUCTION TAXES AND OTHER PAYMENTS
BASED ON PRODUCTION ..................................................................
3.7 INDEMNITIES/LIMITATION OF LIABILITY....................................................
{/TABLE}
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{PAGE}
{TABLE}
PAGE
{S} {C}
ARTICLE IV RELATIONSHIP OF THE PARTICIPANTS ......................................................
4.1 NO PARTNERSHIP ........................................................................
4.2 FEDERAL TAX ELECTIONS AND ALLOCATIONS..................................................
4.3 STATE INCOME TAX ......................................................................
4.4 TAX RETURNS............................................................................
4.5 OTHER BUSINESS OPPORTUNITIES ..........................................................
4.6 WAIVER OF RIGHTS TO PARTITION OR OTHER DIVISION
OF ASSETS .............................................................................
4.7 TRANSFER OR TERMINATION OF RIGHTS TO
PROPERTIES ............................................................................
4.8 IMPLIED COVENANTS......................................................................
4.9 NO THIRD PARTY BENEFICIARY RIGHTS......................................................
ARTICLE V CONTRIBUTIONS BY PARTICIPANTS..........................................................
5.1 PARTICIPANTS' INITIAL CONTRIBUTIONS....................................................
5.2 VALUE OF INITIAL CONTRIBUTIONS ........................................................
5.3 ADDITIONAL CONTRIBUTIONS ..............................................................
ARTICLE VI INTERESTS OF PARTICIPANTS ..............................................................
6.1 INITIAL PARTICIPATING INTERESTS........................................................
6.2 CHANGES IN PARTICIPATING INTERESTS ....................................................
6.3 ELIMINATION OF MINORITY INTEREST ......................................................
6.4 CONTINUING LIABILITIES UPON ADJUSTMENTS
OF PARTICIPATING INTERESTS.............................................................
6.5 DOCUMENTATION OF ADJUSTMENTS TO
PARTICIPATING INTERESTS ...............................................................
6.6 GRANT OF LIEN AND SECURITY INTEREST....................................................
6.7 SUBORDINATION OF INTERESTS ............................................................
ARTICLE VII MANAGEMENT COMMITTEE ..................................................................
7.1 ORGANIZATION AND COMPOSITION ..........................................................
7.2 DECISIONS..............................................................................
7.3 MEETINGS ..............................................................................
7.4 ACTION WITHOUT MEETING IN PERSON ......................................................
7.5 MATTERS REQUIRING APPROVAL ............................................................
ARTICLE VIII MANAGER................................................................................
8.1 APPOINTMENT............................................................................
8.2 POWERS AND DUTIES OF MANAGER ..........................................................
8.3 STANDARD OF CARE ......................................................................
8.4 RESIGNATION; DEEMED OFFER TO RESIGN....................................................
{/TABLE}
E-2
{PAGE}
{TABLE}
{CAPTION}
PAGE
{S} {C}
8.5 PAYMENTS TO MANAGER....................................................................
8.6 TRANSACTIONS WITH AFFILIATES ..........................................................
8.7 ACTIVITIES DURING DEADLOCK ............................................................
ARTICLE IX PROGRAMS AND BUDGETS ..................................................................
9.1 INITIAL PROGRAM AND BUDGET ............................................................
9.2 OPERATIONS PURSUANT TO PROGRAMS AND BUDGETS............................................
9.3 PRESENTATION OF PROGRAMS AND BUDGETS ..................................................
9.4 REVIEW AND ADOPTION OF PROPOSED PROGRAMS AND
BUDGETS ...............................................................................
9.5 ELECTION TO PARTICIPATE ...............................................................
9.6 RECALCULATION OR RESTORATION OF REDUCED INTEREST
BASED ON ACTUAL EXPENDITURES ..........................................................
9.7 PRE-FEASIBILITY STUDY PROGRAM AND BUDGETS ..............................................
9.8 COMPLETION OF PRE-FEASIBILITY STUDIES AND
SELECTION OF APPROVED ALTERNATIVES ....................................................
9.9 PROGRAMS AND BUDGETS FOR FEASIBILITY STUDY .............................................
9.10 DEVELOPMENT PROGRAMS AND BUDGETS; PROJECT
FINANCING ..............................................................................
9.11 EXPANSION OR MODIFICATION PROGRAMS AND BUDGETS .........................................
9.12 BUDGET OVERRUNS; PROGRAM CHANGES .......................................................
9.13 EMERGENCY OR UNEXPECTED EXPENDITURES ...................................................
ARTICLE X ACCOUNTS AND SETTLEMENTS ..............................................................
10.1 MONTHLY STATEMENTS ....................................................................
10.2 CASH CALLS ............................................................................
10.3 FAILURE TO MEET CASH CALLS ............................................................
10.4 COVER PAYMENT .........................................................................
10.5 REMEDIES ...............................................................................
10.6 AUDITS .................................................................................
ARTICLE XI DISPOSITION OF PRODUCTION ..............................................................
11.1 TAKING IN KIND ........................................................................
11.2 FAILURE OF PARTICIPANT TO TAKE IN KIND ................................................
11.3 HEDGING................................................................................
ARTICLE XII WITHDRAWAL AND TERMINATION ............................................................
12.1 TERMINATION BY EXPIRATION OR AGREEMENT ................................................
12.2 TERMINATION BY DEADLOCK................................................................
12.3 WITHDRAWAL ............................................................................
12.4 CONTINUING OBLIGATIONS AND ENVIRONMENTAL
LIABILITIES ...........................................................................
{/TABLE}
E-3
{PAGE}
{TABLE}
{CAPTION}
PAGE
{S} {C}
12.5 DISPOSITION OF ASSETS ON TERMINATION ..................................................
12.6 NON-COMPETE COVENANTS..................................................................
12.7 RIGHT TO DATA AFTER TERMINATION........................................................
12.8 CONTINUING AUTHORITY ..................................................................
ARTICLE XIII ACQUISITIONS WITHIN AREA OF INTEREST ..................................................
13.1 GENERAL................................................................................
13.2 NOTICE TO NON-ACQUIRING PARTICIPANT....................................................
13.3 OPTION EXERCISED ......................................................................
13.4 OPTION NOT EXERCISED ..................................................................
ARTICLE XIV ABANDONMENT AND SURRENDER OF
PROPERTIES.............................................................................
ARTICLE XV SUPPLEMENTAL BUSINESS AGREEMENT .......................................................
ARTICLE XVI TRANSFER OF INTEREST; PREEMPTIVE RIGHT ................................................
16.1 GENERAL................................................................................
16.2 LIMITATIONS ON FREE TRANSFERABILITY....................................................
16.3 PREEMPTIVE RIGHT ......................................................................
ARTICLE XVII DISPUTES ..............................................................................
17.1 GOVERNING LAW .........................................................................
17.2 JURISDICTION AND VENUE.................................................................
17.3 DISPUTE RESOLUTION......................................................................
ARTICLE XVIII CONFIDENTIALITY, OWNERSHIP, USE AND DISCLOSURE
OF INFORMATION ........................................................................
18.1 BUSINESS INFORMATION...................................................................
18.2 PARTICIPANT INFORMATION ...............................................................
18.3 PERMITTED DISCLOSURE OF CONFIDENTIAL
BUSINESS INFORMATION ..................................................................
18.4 DISCLOSURE REQUIRED BY LAW.............................................................
18.5 PUBLIC ANNOUNCEMENTS ..................................................................
ARTICLE XIX GENERAL PROVISIONS ....................................................................
19.1 NOTICES ...............................................................................
19.2 GENDER ................................................................................
19.3 CURRENCY ..............................................................................
19.4 HEADINGS ..............................................................................
19.5 WAIVER ................................................................................
{/TABLE}
E-4
{PAGE}
{TABLE}
PAGE
{S} {C}
19.6 MODIFICATION ..........................................................................
19.7 FORCE MAJEURE..........................................................................
19.8 RULE AGAINST PERPETUITIES..............................................................
19.9 FURTHER ASSURANCES ....................................................................
19.10 ENTIRE AGREEMENT; SUCCESSORS AND ASSIGNS ..............................................
19.11 MEMORANDUM ............................................................................
19.12 COUNTERPARTS ..........................................................................
EXHIBIT A ASSETS AND AREA OF INTEREST
EXHIBIT B ACCOUNTING PROCEDURES
EXHIBIT C TAX MATTERS
EXHIBIT D DEFINITIONS
EXHIBIT E NET PROCEEDS CALCULATION
EXHIBIT F INSURANCE
EXHIBIT G INITIAL PROGRAM AND BUDGET
EXHIBIT H PREEMPTIVE RIGHTS
EXHIBIT I EXISTING FACILITIES
{/TABLE}
E-5
{PAGE}
EXPLORATION, DEVELOPMENT AND MINE OPERATING AGREEMENT
This Agreement is made as of _______________________
("EFFECTIVE DATE") between GOLDEN PHOENIX MINERALS, INC., a Minnesota
corporation ("GOLDEN PHOENIX"), the address of which is 3595 Airway Drive, Suite
405, Reno, NV 89511, and BOREALIS MINING COMPANY, a Nevada corporation
("BOREALIS"), the address of which is 1153 Bergen Parkway, Suite 290, Evergreen,
CO 80439-9773.
RECITALS
A. Golden Phoenix owns or controls certain properties in Mineral
County, State of Nevada, which properties are described in EXHIBIT A and defined
in EXHIBIT D.
B. Borealis wishes to participate with Golden Phoenix in the
exploration, evaluation and if justified the development and mining of mineral
resources within the Properties, and Golden Phoenix is willing to grant such
rights to Borealis.
NOW THEREFORE, in consideration of the covenants and conditions
contained herein, Golden Phoenix and Borealis agree as follows:
ARTICLE I
DEFINITIONS AND CROSS-REFERENCES
1.1 DEFINITIONS. The terms defined in EXHIBIT D and elsewhere shall
have the defined meaning wherever used in this Agreement, including in Exhibits.
1.2 CROSS-REFERENCES. References to "EXHIBITS," "ARTICLES," "SECTIONS"
and "SUBSECTIONS" refer to Exhibits, Articles, Sections and Subsections of this
Agreement. References to "PARAGRAPHS" and "SUBPARAGRAPHS" refer to paragraphs
and subparagraphs of the referenced Exhibits.
ARTICLE II
NAME, PURPOSES AND TERM
2.1 GENERAL. Golden Phoenix and Borealis hereby enter into this
Agreement for the purposes hereinafter stated. All of the rights and obligations
of the Participants in connection with the Assets or the Area of Interest and
all Operations shall be subject to and governed by this Agreement.
2.2 NAME. The Assets shall be managed and operated by the Participants
under the name of the BOREALIS JOINT VENTURE. The Manager shall accomplish any
registration required by applicable assumed or fictitious name statutes and
similar statutes.
2.3 PURPOSES. This Agreement is entered into for the following purposes
and for no others, and shall serve as the exclusive means by which each of the
Participants accomplishes such purposes:
E-6
{PAGE}
(a) to conduct Exploration within the Area of
Interest,
(b) to acquire additional real property and
other interests within the Area of Interest,
(c) to evaluate the possible Development and
Mining of the Properties, and, if justified,
to engage in Development and Mining,
(d) to engage in Operations on the Properties,
(e) to engage in marketing Products, to the
extent provided by ARTICLE XI,
(f) to complete and satisfy all Environmental
Compliance obligations and Continuing
Obligations affecting the Properties, and
(g) to perform any other activity necessary,
appropriate, or incidental to any of the
foregoing.
2.4 LIMITATION. Unless the Participants otherwise agree in writing, the
Operations shall be limited to the purposes described in SECTION 2.3, and
nothing in this Agreement shall be construed to enlarge such purposes or to
change the relationships of the Participants as set forth in ARTICLE 4.
2.5 TERM. The term of this Agreement shall be for twenty (20) years
from the Effective Date and for so long thereafter as Products are produced from
the Properties on a continuous basis, and thereafter until all materials,
supplies, equipment and infrastructure have been salvaged and disposed of, any
required Environmental Compliance is completed and accepted and the Participants
have agreed to a final accounting, unless the Business is earlier terminated as
herein provided. For purposes hereof, Products shall be deemed to be produced
from the Properties on a "CONTINUOUS BASIS" so long as production in commercial
quantities is not halted for more than _________ consecutive years.
ARTICLE III
REPRESENTATIONS AND WARRANTIES; TITLE TO ASSETS; INDEMNITIES
3.1 REPRESENTATIONS AND WARRANTIES OF BOTH PARTICIPANTS. As of the
Effective Date, each Participant warrants and represents to the other that:
(a) it is a corporation duly organized and in good standing in its
state of incorporation and is qualified to do business and is in good standing
in those states where necessary in order to carry out the purposes of this
Agreement;
(b) it has the capacity to enter into and perform this Agreement
and all transactions contemplated herein and that all corporate, board of
directors, shareholder,
E-7
{PAGE}
surface and mineral rights owner, lessor, lessee and other actions required to
authorize it to enter into and perform this Agreement have been properly taken;
(c) it will not breach any other agreement or arrangement by
entering into or performing this Agreement;
(d) it is not subject to any governmental order, judgment, decree,
debarment, sanction or Laws that would preclude the permitting or implementation
of Operations under this Agreement; and
(e) this Agreement has been duly executed and delivered by it and
is valid and binding upon it in accordance with its terms.
3.2 REPRESENTATIONS AND WARRANTIES OF GOLDEN PHOENIX. As of the
Effective Date, Golden Phoenix makes the following representations and
warranties to Borealis:
(a) With respect to those Properties Golden Phoenix owns in fee
simple, if any, Golden Phoenix is in exclusive possession of and owns such
Properties free and clear of all Encumbrances or defects in title except those
specifically identified in PARAGRAPH 1.1 OF EXHIBIT A.
(b) With respect to those Properties in which Golden Phoenix holds
an interest under leases or other contracts: (i) Golden Phoenix is in exclusive
possession of such Properties; (ii) Golden Phoenix has not received any notice
of default of any of the terms or provisions of such leases or other contracts;
(iii) Golden Phoenix has the authority under such leases or other contracts to
perform fully its obligations under this Agreement; (iv) to Golden Phoenix's
knowledge, such leases and other contracts are valid and are in good standing;
(v) Golden Phoenix has no knowledge of any act or omission or any condition on
the Properties which could be considered or construed as a default under any
such lease or other contract; and (vi) to Golden Phoenix's knowledge, such
Properties are free and clear of all Encumbrances or defects in title except for
those specifically identified in PARAGRAPH 1.1 OF EXHIBIT A.
(c) Golden Phoenix has delivered to or made available for
inspection by Borealis all Existing Data in its possession or control, and true
and correct copies of all leases or other contracts relating to the Properties.
(d) With respect to unpatented mining claims and millsites located
by Golden Phoenix that are included within the Properties, except as provided in
PARAGRAPH 1.1 OF EXHIBIT A and subject to the paramount title of the United
States: (i) the unpatented mining claims were properly laid out and monumented;
(ii) all required location and validation work was properly performed; (iii)
location notices and certificates were properly recorded and filed with
appropriate governmental agencies; (iv) all assessment work required to hold the
unpatented mining claims has been performed and all Governmental Fees have been
paid in a manner consistent with that required of the Manager pursuant to
SUBSECTION 8.2(K) through the assessment year ending September 1, _____; (v) all
affidavits of assessment work, evidence of payment of Governmental Fees, and
other filings required to maintain the claims in good standing have been
properly and timely recorded or filed with appropriate governmental agencies;
(vi) the claims are free and clear of Encumbrances or
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defects in title; and (vii) Golden Phoenix has no knowledge of conflicting
mining claims. Nothing in this SUBSECTION, however, shall be deemed to be a
representation or a warranty that any of the unpatented mining claims contains a
valuable mineral deposit.
(e) With respect to unpatented mining claims and millsites not located
by Golden Phoenix but which are included within the Properties, except as
provided in PARAGRAPH 1.1 OF EXHIBIT A and subject to the paramount title of the
United States: (i) all assessment work required to hold the unpatented mining
claims has been performed and all Governmental Fees have been paid in a manner
consistent with that required of the Manager pursuant to SUBSECTION 8.2(K)
through the assessment year ending September 1, _____; (ii) all affidavits of
assessment work, evidence of payment of Governmental Fees, and other filings
required to maintain the claims in good standing have been properly and timely
recorded or filed with appropriate governmental agencies; (iii) the claims are
free and clear of Encumbrances or defects in title; and (iv) Golden Phoenix has
no knowledge of conflicting mining claims. Nothing in this SUBSECTION, however,
shall be deemed to be a representation or a warranty that any of the unpatented
mining claims contains a valuable discovery of minerals.
(f) With respect to the Properties, to Golden Phoenix's knowledge,
there are no pending or threatened actions, suits, claims or proceedings, and
there have been no previous transactions affecting its interests in the
Properties which have not been for fair consideration.
(g) Except as to matters otherwise disclosed in writing to Borealis
prior to the Effective Date,
(i) to Golden Phoenix's knowledge, the conditions existing on or
with respect to the Properties and its ownership and operation of the Properties
are not in violation of any Laws (including without limitation any Environmental
Laws), nor causing or permitting any damage (including Environmental Damage, as
defined below) or impairment to the health, safety, or enjoyment of any person
at or on the Properties or in the general vicinity of the Properties;
(ii) to Golden Phoenix's knowledge, there have been no past
violations by it or by any of its predecessors in title of any Environmental
Laws or other Laws affecting or pertaining to the Properties, nor any past
creation of damage or threatened damage to the air, soil, surface waters,
groundwater, flora, fauna, or other natural resources on, about or in the
general vicinity of the Properties ("ENVIRONMENTAL DAMAGE"), subject, however,
to the parties' acknowledgment that prior mining operations have occurred on the
Properties and that certain facilities, more particularly described in EXHIBIT I
hereto, still exist on the Properties as a consequence of such operations.
(iii) Golden Phoenix has not received inquiry from or notice of a
pending investigation from any governmental agency or of any administrative or
judicial proceeding concerning the violation of any Laws.
The representations and warranties set forth above shall survive the
execution and delivery of any documents of Transfer provided under this
Agreement. For a representation or warranty made to a Participant's "KNOWLEDGE,"
the term "knowledge" shall mean
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actual knowledge on the part of the officers, employees, and agents of the
representing Participant or of facts that would reasonably lead to the indicated
conclusions.
3.3 DISCLOSURES. Each of the Participants represents and warrants that
it is unaware of any material facts or circumstances that have not been
disclosed in this Agreement, which should be disclosed to the other Participant
in order to prevent the representations and warranties in this ARTICLE III from
being materially misleading. Golden Phoenix has disclosed to Borealis all
information it believes to be relevant concerning the Assets and has provided to
or made available for inspection by Borealis all such information, but does not
make any representation or warranty, express or implied, as to the accuracy or
completeness of the information (except as provided in SECTION 3.2) or as to the
boundaries or value of the Assets. Each Participant represents to the other that
in negotiating and entering into this Agreement it has relied solely on its own
appraisals and estimates as to the value of the Assets and upon its own geologic
and engineering interpretations related thereto.
3.4 RECORD TITLE. Title to the Assets shall be held by the Participants
as co-tenants for the benefit of the Business.
3.5 LOSS OF TITLE. Any failure or loss of title to the Assets, and all
costs of defending title, shall be charged to the Business Account, except that
all costs and losses arising out of or resulting from breach of the
representations and warranties of Golden Phoenix or Borealis as to title shall
be charged to Golden Phoenix or Borealis, as the case may be.
3.6 ROYALTIES, PRODUCTION TAXES AND OTHER PAYMENTS BASED ON PRODUCTION.
All required payments of production royalties, taxes based on production of
Products, and other payments out of production to private parties and
governmental entities shall be determined and made by each Participant in
proportion to its Participating Interest, and each Participant undertakes to
make such payments timely and otherwise in accordance with applicable laws and
agreements. If separate payment is not permitted, each Participant shall
determine and pay its proportionate share in advance to the Participant
obligated to make such payment and such Participant shall timely make such
payment. Each Participant shall furnish to the other Participant evidence of
timely payment for all such required payments. In the event that either
Participant fails to make any such required payment, the other Participant shall
have the right to make such payment and shall thereby become subrogated to the
rights of such third party; provided, however, that the making of any such
payment on behalf of the other Participant shall not constitute acceptance by
the paying Participant of any liability to such third party for the underlying
obligation.
3.7 INDEMNITIES/LIMITATION OF LIABILITY.
(a) Each Participant shall indemnify the other Participant, its
directors, officers, employees, agents and attorneys, or Affiliates
(collectively "INDEMNIFIED PARTICIPANT") from and against the entire amount of
any Material Loss. A "MATERIAL LOSS" shall mean all costs, expenses, damages or
liabilities, including attorneys' fees and other costs of litigation (either
threatened or pending) arising out of or based on a breach by a Participant
("INDEMNIFYING PARTICIPANT") of any representation, warranty or covenant
contained in this Agreement, including without limitation:
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(i) any failure by a Participant to determine accurately and make
timely payment of its proportionate share of required royalties, production
taxes and other payments out of production to third parties as required by
SECTION 3.6;
(ii) any action taken for or obligation or responsibility assumed
on behalf of the other Participant, its directors, officers, employees, agents
and attorneys, or Affiliates by a Participant, any of its directors, officers,
employees, agents and attorneys, or Affiliates, in violation of SECTION 4.1;
(iii) failure of a Participant or its Affiliates to comply with
the non-compete or Area of Interest provisions of SECTION 12.6 or ARTICLE XIII;
(iv) any Transfer that causes termination of the tax partnership
established by SECTION 4.2, against which the transferring Participant shall
indemnify the non-transferring Participant as provided in ARTICLE V of EXHIBIT
C; and
(v) failure of a Participant or its Affiliates to comply with the
preemptive right under SECTION 16.3 and EXHIBIT H.
A Material Loss shall not be deemed to have occurred until, in the
aggregate, an Indemnified Participant incurs losses, costs, damages or
liabilities in excess of __________ Dollars ($_____) relating to breaches of
warranties, representations and covenants contained in this Agreement. Golden
Phoenix's aggregate liability to all Indemnified Participants under this SECTION
for breaches of the representations in SUBSECTION 3.2(G) shall not, however,
exceed __________ Dollars ($__________).
(b) If any claim or demand is asserted against an Indemnified
Participant in respect of which such Indemnified Participant may be entitled to
indemnification under this Agreement, written notice of such claim or demand
shall promptly be given to the Indemnifying Participant. The Indemnifying
Participant shall have the right, but not the obligation, by notifying the
Indemnified Participant within thirty (30) days after its receipt of the notice
of the claim or demand, to assume the entire control of (subject to the right of
the Indemnified Participant to participate, at the Indemnified Participant's
expense and with counsel of the Indemnified Participant's choice), the defense,
compromise, or settlement of the matter, including, at the Indemnifying
Participant's expense, employment of counsel of the Indemnifying Participant's
choice. Any damages to the assets or business of the Indemnified Participant
caused by a failure by the Indemnifying Participant to defend, compromise, or
settle a claim or demand in a reasonable and expeditious manner requested by the
Indemnified Participant, after the Indemnifying Participant has given notice
that it will assume control of the defense, compromise, or settlement of the
matter, shall be included in the damages for which the Indemnifying Participant
shall be obligated to indemnify the Indemnified Participant. Any settlement or
compromise of a matter by the Indemnifying Participant shall include a full
release of claims against the Indemnified Participant which has arisen out of
the indemnified claim or demand.
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ARTICLE IV
RELATIONSHIP OF THE PARTICIPANTS
4.1 NO PARTNERSHIP. Nothing contained in this Agreement shall be deemed
to constitute either Participant the partner or the venturer of the other, or,
except as otherwise herein expressly provided, to constitute either Participant
the agent or legal representative of the other, or to create any fiduciary
relationship between them. The Participants do not intend to create, and this
Agreement shall not be construed to create, any mining, commercial or other
partnership or joint venture. Neither Participant, nor any of its directors,
officers, employees, agents and attorneys, or Affiliates, shall act for or
assume any obligation or responsibility on behalf of the other Participant,
except as otherwise expressly provided herein, and any such action or assumption
by a Participant's directors, officers, employees, agents and attorneys, or
Affiliates shall be a breach by such Participant of this Agreement. The rights,
duties, obligations and liabilities of the Participants shall be several and not
joint or collective. Each Participant shall be responsible only for its
obligations as herein set out and shall be liable only for its share of the
costs and expenses as provided herein, and it is the express purpose and
intention of the Participants that their ownership of Assets and the rights
acquired hereunder shall be as tenants in common.
4.2 FEDERAL TAX ELECTIONS AND ALLOCATIONS. Without changing the effect
of SECTION 4.1, the relationship of the Participants shall constitute a tax
partnership within the meaning of Section 761(a) of the United States Internal
Revenue Code of 1986, as amended. Tax elections and allocations shall be made as
set forth in EXHIBIT C.
4.3 STATE INCOME TAX. To the extent permissible under applicable law,
the relationship of the Participants shall be treated for state income tax
purposes in the same manner as it is for federal income tax purposes.
4.4 TAX RETURNS. After approval of the Management Committee, any tax
returns or other required tax forms shall be filed in accordance with EXHIBIT C.
4.5 OTHER BUSINESS OPPORTUNITIES. Except as expressly provided in this
Agreement, each Participant shall have the right to engage in and receive full
benefits from any independent business activities or operations, whether or not
competitive with this Business, without consulting with, or obligation to, the
other Participant. The doctrines of "CORPORATE OPPORTUNITY" or "BUSINESS
OPPORTUNITY" shall not be applied to this Business nor to any other activity or
operation of either Participant. Neither Participant shall have any obligation
to the other with respect to any opportunity to acquire any property outside the
Area of Interest at any time, or, except as otherwise provided in SECTION 12.6,
within the Area of Interest after the termination of the Business. Unless
otherwise agreed in writing, neither Participant shall have any obligation to
mill, beneficiate or otherwise treat any Products in any facility owned or
controlled by such Participant.
4.6 WAIVER OF RIGHTS TO PARTITION OR OTHER DIVISION OF ASSETS. The
Participants hereby waive and release all rights of partition, or of sale in
lieu thereof, or other division of Assets, including any such rights provided by
Law.
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4.7 TRANSFER OR TERMINATION OF RIGHTS TO PROPERTIES. Except as
otherwise provided in this Agreement, neither Participant shall Transfer all or
any part of its interest in the Assets or this Agreement or otherwise permit or
cause such interests to terminate.
4.8 IMPLIED COVENANTS. There are no implied covenants contained in this
Agreement other than those of good faith and fair dealing.
4.9 NO THIRD PARTY BENEFICIARY RIGHTS. This Agreement shall be
construed to benefit the Participants and their respective successors and
assigns only, and shall not be construed to create third party beneficiary
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