EXPLORATION, DEVELOPMENT AND MINE OPERATING AGREEMENT

EXHIBIT 10.1

EXPLORATION, DEVELOPMENT AND MINE OPERATING AGREEMENT

This Agreement is made effective as of March 9, 2009 (“Effective Date”) between MGC RESOURCES INC., a Nevada corporation, whose address for the purpose of this agreement is ▇▇▇ ▇▇▇▇ ▇▇▇▇▇▇ ▇▇▇▇▇ ▇▇, ▇▇▇▇▇▇, ▇▇▇▇▇▇▇ ▇▇▇▇▇ (“MGC”), and ▇▇▇▇▇▇▇ GOLD EXPLORATION INC., a Delaware corporation with an office at ▇▇▇ ▇▇▇▇▇▇ ▇▇▇▇, ▇▇▇▇, ▇▇▇▇▇▇ ▇▇▇▇▇ (“Barrick”).

RECITALS

A.        MGC owns record title to or holds a leasehold or other contractual interest in certain fee lands and unpatented mining claims and millsites in Pershing County, State of Nevada, which properties are described in Exhibit A and defined in Exhibit C (the “Properties”).

B.        MGC desires to grant exclusively to Barrick all of MGC’s rights to explore, to develop and to exercise all other uses of the Properties incident to the exploration and development thereof, including without limitation, the reclamation of the Properties.

C.        MGC further desires to grant to Barrick an exclusive right to earn an interest in and to enter into a joint venture with MGC for the purposes of developing and, if justified, mining of mineral resources within the Properties, all as set forth in this Agreement.

▇.        ▇▇▇▇▇▇▇ desires to explore, to develop, and to exercise all other uses of the Properties incident to the exploration thereof, including without limitation, the reclamation of the Properties.

▇.        ▇▇▇▇▇▇▇ further desires to earn an interest in and to enter into a joint venture with MGC for the purposes of developing and, if justified, mining of mineral resources within the Properties, all as set forth in this Agreement.

NOW THEREFORE, in consideration of the covenants and conditions contained herein, MGC and Barrick agree as follows:

ARTICLE I

DEFINITIONS AND CROSS-REFERENCES

A.        Definitions. The terms defined in Exhibit C and elsewhere shall have the defined meaning wherever used in this Agreement, including in Exhibits.

B.        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.

 

 

C.        Interpretation. Use of the word “including” in this Agreement shall mean “including without limitation.”

ARTICLE II

NAME, PURPOSES AND TERM

D.        General. MGC and Barrick hereby enter into this Agreement for the purposes hereinafter stated. All of the rights and obligations of the Participants in connection with the Assets, the Area of Interest and all Operations shall be subject to and governed by this Agreement.

E.        Name. If the Participants elect to enter into a joint venture as provided in Section 5.4, the Assets shall be managed and operated by the Participants under the name of the Spring Valley Venture. The Manager shall accomplish any registration required by applicable assumed or fictitious name statutes and similar statutes.

F.        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:

G.        Limitation. Unless the Participants otherwise agree in writing, the Operations shall be limited to the purposes described in Section 2.3, and nothing in this Agreement shall be construed to enlarge such purposes or to change the relationships of the Participants as set forth in Article IV.

H.        Term. Unless earlier terminated as provided herein, the term of this Agreement shall be for 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 this Agreement 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 365 consecutive days.

ARTICLE III

REPRESENTATIONS AND WARRANTIES; TITLE TO ASSETS; INDEMNITIES

I.              Representations and Warranties of Both Participants. As of the Effective Date, each Participant warrants and represents to the other that:

J.            Representations and Warranties of MGC. As of the Effective Date, MGC makes the following representations and warranties to Barrick:

 

 

 

 

been paid in a manner consistent with that required of the Manager pursuant to Subsection 8.2(k) as required to hold the MGC Acquired Claims through the assessment year ending September 1, 2009; (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 arising by, through, or under MGC; and (iv) MGC has no knowledge and has not been notified by a third party of conflicting mining claims. Nothing in this Subsection, however, shall be deemed to be a representation or a warranty that any of the MGC Acquired Claims contains a valuable discovery of minerals, or that the MGC Acquired Claims constitute a compact group of contiguous claims free of interior gaps or fractions.

(i)        to MGC’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, other than as may be allowed under the Existing Permits;

(ii)       to MGC’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”), other than as may be allowed under the Existing Permits; and

(iii)      MGC has not received inquiry from or notice of a pending investigation from any governmental agency or of any administrative or judicial proceeding concerning the violation of any Laws.

 

 

The representations and warranties set forth above shall survive the execution and delivery of any documents of Transfer provided under this Agreement. For a representation or warranty made to a Participant’s “knowledge,” the term “knowledge” shall mean actual knowledge on the part of the officers, employees, and agents of the representing Participant or of facts that would reasonably lead to the indicated conclusions, without independent inquiry.

K.        Disclosures. Each of the Participants represents and warrants that it is unaware of any material facts or circumstances that have not been disclosed in this Agreement, which should be disclosed to the other Participant in order to prevent the representations and warranties in this Article from being materially misleading. MGC has disclosed to Barrick all information it reasonably believes to be relevant concerning the Assets and has provided to or made available for inspection by Barrick all such information, but does not make any representation or warranty, express or implied, as to the accuracy, reliability 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 any mineral potential or mineralization associated therewith, and upon its own geologic and engineering interpretations related thereto.

L.        Record Title. Until Barrick has earned its interest in the Properties as provided in Section 5.3, title to the Assets shall be held by MGC. If the Participants enter into a joint venture as provided in Section 5.4, title to the Assets shall be held by the Participants as tenants in common, subject to the terms and conditions of this Agreement, as their Participating Interests are determined pursuant to this Agreement.

M.       Loss of Title. Prior to the time that Barrick has completed its Initial Contribution, any failure or loss of title to the Assets caused by the gross negligence or willful misconduct of Barrick, and all costs associated therewith, shall be borne solely by Barrick and not included in Exploration Expenditures. All costs of curing or defending title to the Assets with respect to claims asserted or litigation commenced during the Exploration Period shall be borne by Barrick and may be included in Exploration Expenditures. Any costs of curing or defending title to the Assets relating to claims asserted or litigation commenced prior to the Effective Date shall be borne solely by Midway. Upon completion of ▇▇▇▇▇▇▇’▇ Initial Contribution, any failure or loss of title to the Assets, and all costs of defending title, shall be charged to the Business Account, except that throughout the term of this Agreement all costs and losses arising out of or resulting from breach of the representations and warranties of MGC as to title shall be charged to MGC.

N.        Royalties, Production Taxes and Other Payments Based on Production. All required payments of production royalties, taxes based on production of Products, and other payments out of production to private parties and governmental entities shall be determined and made by the Manager on behalf of each Participant in proportion to its Participating Interest, and charged against each Participant’s interest in the production of Products.

 

 

(iv)      any Material Loss arising out of Operations conducted by it during the Exploration Period;

(v)       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;

(vi)      failure of a Participant or its Affiliates to comply with the non-compete or provisions of Section 12.6;

(vii)     failure of a Participant or its Affiliates to comply with the preemptive right under Section 15.3 and Exhibit G.

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 Two Hundred Thousand Dollars ($200,000.00) relating to breaches of warranties, representations and covenants contained in this Agreement.

 

 

shall have the right to retain legal counsel, at its expense, to participate in the defense of any such suit or action. No such suit or action shall be settled, discontinued, nor shall judgment be permitted to be entered without the written consent of the Indemnified Participant, which consent shall not be unreasonably withheld, delayed or conditioned. Any damages to the assets or business of the Indemnified Participant caused by a failure by the Indemnifying Participant to defend, compromise, or settle a claim or demand in a reasonable and expeditious manner requested by the Indemnified Participant, after the Indemnifying Participant has given notice that it will assume control of the defense, compromise, or settlement of the matter, shall be included in the damages for which the Indemnifying Participant shall be obligated to indemnify the Indemnified Participant. Any settlement or compromise of a matter by the Indemnifying Participant shall include a full release of claims against the Indemnified Participant which has arisen out of the indemnified claim or demand.

ARTICLE IV

RELATIONSHIP OF THE PARTICIPANTS

P.        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.

Q.        Federal Tax Elections and Allocations. The Participants elect to be excluded from Subchapter K of Section 761(a) of the United States Internal Revenue Code of 1986, as amended. The Participants shall make such filings as are required to exclude the Business from Subchapter K and shall report their shares of tax items of the Business in a manner consistent with an election out of Subchapter K.

R.        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.

 

 

S.        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 the Business, without consulting with, or obligation to, the other Participant. The doctrines of “corporate opportunity” or “business opportunity” shall not be applied to the 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 Agreement. 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.

T.        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.

U.        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.

V.        Implied Covenants. There are no implied covenants contained in this Agreement other than those of good faith and fair dealing.

W.       No Third Party Beneficiary Rights. This Agreement shall be construed to benefit the Participants and their respective successors and assigns only, and shall not be construed to create third party beneficiary rights in any other party or in any governmental organization or agency.

ARTICLE V

CONTRIBUTIONS BY PARTICIPANTS

X.        Exploration Rights and Obligations. During the Exploration Period and subject to Barrick making the Exploration Expenditures as provided in Section 5.2, MGC grants to Barrick the exclusive right to conduct Exploration on the Properties and the option to earn an undivided sixty percent (60%) interest in the Properties.

 

 

conducting such Operations Barrick shall be required to fulfill all of the applicable obligations of the Manager set forth in Subsections 8.2(c), (e), (f), (g(i)), and (q). In addition, until Barrick has completed its Initial Contribution it shall not be entitled (without MGC’s prior written consent) or required to perform the activities described in Subsections 8.2(g), (i), and (l) that would otherwise require consent of the Management Committee or of both participants as applicable. For all such Operations, Barrick shall provide for accrual of reasonably anticipated Environmental Compliance expenses, which may be included as Exploration Expenditures, and upon completion of its Initial Contribution, Barrick shall transfer any accrued but unexpended amounts to the Environmental Compliance Fund established under Paragraph 2.14 of Exhibit B. Prior to completion of its Initial Contribution, Barrick, in lieu of any reporting requirements under Section 8.2, shall:

(i)        within 60 days following each anniversary of the Effective Date, provide MGC with a reasonably detailed written report of all Operations conducted during the preceding Agreement year, with a copy of all data, in digital format, including PDF, JPG, ASCII, DXF, Access, Excel, PowerPoint software/file formats copied to an Annual, Comprehensive Project Data update CD or DVD. The annual report will also include a statement of Exploration Expenditures incurred during the annual period in question (as well as such back-up information as is reasonably necessary for MGC to confirm the reported amounts and nature of the reported Exploration Expenditures) and a summary of the upcoming year’s planned Operations;

(ii)       provide MGC with quarterly update reports, including all material data received during the period, including assays, drill logs and drill hole locations within thirty (30) days following the end of each calendar quarter, which shall include a current estimate of Exploration Expenditures incurred; and

(iii)      make available for inspection and copying by MGC when reasonably requested by MGC all factual data and information and interpretive reports, studies and analyses concerning the Properties, and make all core and other samples available for inspection by MGC.

Barrick makes no representation or warranty, express or implied, as to the accuracy of the data and information provided to MGC in accordance with (i), (ii) and (iii) above, but does represent and warrant that the data and information will be complete, in a form that can be independently verified as per industry standards and timely, and will consist of all of the material data and information available for the periods covered.

 

 

above within three months after receipt of the statement. Failure to provide such notice within the three-month period shall constitute acceptance by MGC of the stated Exploration Expenditures. During that three-month period, as reasonably requested by MGC, Barrick shall make available to MGC and its representatives all back-up data and information used by Barrick to calculate the reported Exploration Expenditures, in order to allow MGC to confirm the amounts and nature of the reported Exploration Expenditures. If MGC identifies any shortfall in Exploration Expenditures for an annual period, it shall notify Barrick, and the amount of any such shortfall shall be paid by Barrick to MGC within 30 days after ▇▇▇▇▇▇▇’▇ receipt of such notice.

 

 

 

 

 

 

5.1(b) or 5.2(e) above, if not cured within 30 days after notice by MGC of such default, shall be deemed to be a withdrawal of Barrick from the Business, and this Agreement shall terminate. Upon such event, Barrick shall have no further right, title or interest in the Assets and it shall take such actions as are necessary to ensure that all Assets are free and clear of any Encumbrances arising by, through or under it, except for such Encumbrances to which the Participants may have agreed. Subject to Subsection 5.2(g) below, ▇▇▇▇▇▇▇’▇ withdrawal shall be effective upon such failure, but such withdrawal shall not relieve Barrick of its obligation to MGC to fund Operations up to the amount of ▇▇▇▇▇▇▇’▇ contractual obligations to third parties, nor shall such withdrawal relieve Barrick of its responsibility to fund and satisfy ▇▇▇▇▇▇▇’▇ liabilities to third persons (regardless of whether such liabilities accrue before or after such withdrawal), including Environmental Liabilities, Continuing Obligations and Environmental Compliance, arising out of ▇▇▇▇▇▇▇’▇ Operations with respect to the Properties under this Agreement prior to ▇▇▇▇▇▇▇’▇ withdrawal. In addition, if such failure pertains to the first annual period after the Effective Date, then Barrick shall, at MGC’s election, either (i) pay to MGC the difference between the amount of Exploration Expenditures actually incurred and $4,000,000, although in that event such a payment shall not allow Barrick to maintain the Agreement in force, or (ii) complete the expenditure of the required amount of Exploration Expenditures in a timely and miner-like manner. Except as provided in this Subsection, ▇▇▇▇▇▇▇’▇ withdrawal shall relieve Barrick from any other obligation to make contributions hereunder.

 

 

and operate under each such Existing Permit until Barrick has obtained a replacement permit (or any alternative permit as it desires) in its own name. Barrick and MGC shall use commercially reasonable efforts to obtain replacements for the Existing Permits (and related Existing Bonds, as defined below) as expeditiously as possible. MGC shall maintain any related bond, letter of credit, guarantee or other security or support required by Law for each such Existing Permit (the “Existing Bonds”) until Barrick has finalized the transfer or replacement of such Existing Permit and any corresponding Existing Bond. Barrick agrees to reimburse MGC for bond premiums, fee payments and other direct costs incurred by MGC in connection with the maintenance of the Existing Permits and the Existing Bonds after the Effective Date, up to the date that the transfer or reissuance of the Existing Permit occurs and the Existing Bond related thereto is released. Such costs (not including any principal amount of any bond) shall constitute Exploration Expenditures hereunder. If MGC receives a notice of violation under any Existing Permit following the Effective Date but before the transfer or replacement of such Existing Permit, which is based on or arises out of the Operations of Barrick after the Effective Date, MGC will promptly notify Barrick, and Barrick shall use commercially reasonable efforts to cure such violation and any obligation or liability associated therewith as provided in Section 3.7 above. If Barrick fails to incur the Exploration Expenditures necessary to earn a 60% interest in the Properties as provided in Section 5.2(a), MGC and Barrick shall use commercially reasonable efforts to obtain replacements in the name of MGC for the Existing Permits and any new permits acquired by Barrick (and related Existing Bonds, or new bonds) as expeditiously as possible.

▇.        ▇▇▇▇▇▇▇’▇ Initial Contribution. Barrick shall have the right, but except as provided in Subsection 5.3(a), not the obligation to make the following investments as its Initial Contribution.

(iv)      If Barrick timely incurs Exploration Expenditures in an amount at least equal $30,000,000 during the Exploration Period, in accordance with the provisions of Subsection 5.2(a), but elects not to earn an additional 10% interest, Barrick shall earn a 60% interest in the Properties. MGC shall convey or assign (by special warranty deed or other appropriate conveyance of that nature) to Barrick an undivided 60% interest in the Properties within 10 days after notifying Barrick that it has

 

 

confirmed that Barrick has timely incurred the required amount of Exploration Expenditures.

(v)       Upon timely incurring Exploration Expenditures in an amount at least equal to $38,000,000, Barrick shall provide notice thereof to MGC and such notice shall include a statement setting forth the Exploration Expenditures incurred in reasonable detail. If Barrick timely incurs Exploration Expenditures of at least $38,000,000 during the Exploration Period, in accordance with the provisions of Subsection 5.2(b), Barrick shall earn a 70% interest in the Properties. MGC shall convey or assign (by special warranty deed or other appropriate conveyance of that nature) to Barrick an undivided 70% interest in the Properties within 10 days after notifying Barrick that it has confirmed that Barrick has timely incurred the required amount of Exploration Expenditures.

(vi)      If Barrick elects to earn an additional 10% interest in the Properties as provided in Subsection 5.2(b), but fails to incur Exploration Expenditures of at least $38,000,000 in the one year immediately following vesting at 60%, then ▇▇▇▇▇▇▇’▇ interest in the Properties shall remain at 60% and MGC shall convey or assign (by special warranty deed or other appropriate conveyance of that nature) to Barrick an undivided 60% interest in the Properties within 10 days after receiving notice from Barrick that Barrick did not incur $38,000,000 in the one year immediately following vesting at 60%. The provisions of Section 5.4 shall then apply.

(vii)     Within 45 days of any notice delivered by Barrick pursuant to this Subsection 5.3(a) Barrick shall submit a proposed Budget for Operations going forward from and after the date of such proposal through the commencement of Commercial Production, and a proposed Program and Budget for the next year. With respect to the proposed Program and Budget for the next year only, unless (A) Barrick makes the election to earn an additional interest pursuant to Subsection 5.2(b), or (B) MGC elects not to go forward with a joint venture as provided in Subsection 5.4(d), MGC shall have a period of 75 days (rather than 30 days) to submit the response called for in Section 9.4.

 

 

detail. MGC shall convey or assign to Barrick an undivided 5% interest in the Properties within 10 days after notifying Barrick that it has confirmed that Barrick has timely incurred the required amount of MGC Development Costs advanced by Barrick. MGC shall have the right to audit the amount of reported MGC Development Costs in the same manner as set forth in Subsection 5.1(b).

(viii)    upon receipt of notice from Barrick as provided in Subsection 5.3(a), if Barrick elects not to earn an additional 10% interest as provided in Subsection 5.2(b),

(ix)      upon receipt of notice from Barrick as provided in Subsection 5.3(a)(ii), if Barrick elects to and earns an additional 10% interest as provided in Section 5.2(b), or

(x)       upon receipt of notice from Barrick as provided in Subsection 5.3(a)(iii), if Barrick fails to timely incur an additional $8,000,000 in Exploration Expenditures.

(xi)      As its Initial Contribution, MGC shall contribute the Assets described in Exhibit A to the purposes of this Agreement.

(xii)     As its Initial Contribution, Barrick shall contribute its funding of Exploration Expenditures to the purposes of this Agreement.

(xiii)    The Participants’ Participating Interests and Equity Accounts shall be established as follows:

(A)      If Barrick has incurred a total of $30,000,000 in Exploration Expenditures and has earned a 60% interest in the Properties, then the Participating Interests of the Participants shall be:

 

 

and the amounts of $36,000,000 and $24,000,000 shall be credited to ▇▇▇▇▇▇▇’▇ and MGC’s Equity Accounts, respectively.

(B)      If Barrick has incurred a total of $38,000,000 in Exploration Expenditures and has earned a 70% interest in the Properties, then the Participating Interests of the Participants shall be:

and the amounts of $44,000,000 and $19,000,000 shall be credited to ▇▇▇▇▇▇▇’▇ and MGC’s Equity Accounts, respectively.

(xv)     Barrick shall have the option to purchase MGC’s interest in the Assets, which Barrick shall elect by notice to MGC within 365 days after MGC elects not to enter into a joint venture. If Barrick fails to provide notice to MGC within the 365-day period, Barrick shall be deemed to have elected not to purchase MGC’s interest in the Assets. If Barrick elects to purchase MGC’s interest in the Assets, then there shall be a closing within 30 days of ▇▇▇▇▇▇▇’▇ notice. At the closing, Barrick shall pay to MGC $40,000,000 and grant to MGC a 2% Net Smelter Return Royalty on Production from the Properties and MGC shall convey and assign (by special warranty deed or other appropriate conveyance of that nature) all of its interests in the Assets to Barrick.

(xvi)    If Barrick elects not to purchase MGC’s interest in the Assets, then the joint venture shall be formed as provided in Subsection 5.4(c). In that event, (A) MGC shall be deemed to have exercised the Carry Option, effective as of the date of its original notice to Barrick electing not to enter into a joint venture, and (B) MGC’s share of any costs of Operations incurred by Barrick during the 365-day period referred to in Subsection 5.4(d)(i) shall be MGC Development Costs.

 

 

BB.     Additional Contributions. At such time as Barrick has contributed the full amount of its Initial Contribution, the Participants, subject to MGC’s right to exercise the Carry Option and any election permitted by Subsection 9.5(a), shall be obligated to contribute funds to adopted Programs and Budgets in proportion to their respective Participating Interests.

CC.     Alternative Programs and Budgets. After completion by Barrick of its Initial Contribution, and if MGC has not elected to exercise the Carry Option, whenever Barrick proposes a Program and Budget for any annual period of less than $350,000, MGC shall have a period of 30 days from and after its receipt of such a proposed Program and Budget to propose a substitute Program and Budget that calls for expenditures in excess of $350,000. If Barrick elects not to participate in that substitute Program and Budget at a level that is in accordance with its Participating Interest (with respect to any substitute Program and Budget, Barrick shall have the right only to participate fully in any such substitute Program and Budget, or not at all), then MGC may elect to require the Management Committee to adopt that Program and Budget, and in that event MGC’s Participating Interest shall be increased by one percentage point for each complete $500,000 increment spent by it pursuant to that substitute Program and Budget. By way of example (but not limitation), if Barrick had elected only to earn a 60% Participating Interest, and if during the relevant time period MGC proposed a substitute Program and Budget calling for expenditures of $1,000,000, and Barrick elected not to participate, upon completion and full funding of that Program and Budget, MGC’s Participating Interest would automatically increase from 40% to 42%, and ▇▇▇▇▇▇▇’▇ Participating Interest would automatically decrease from 60% to 58%. Subsequently, if MGC proposed a substitute Program and Budget calling for expenditures of $2,500,000, and Barrick elected not to participate, upon completion and full funding of that Program and Budget MGC’s Participating Interest would automatically increase from 42% to 45%, and ▇▇▇▇▇▇▇’▇ Participating Interest would automatically decrease from 58% to 55%. The provisions of this Section 5.6 shall apply until such time, if any, as MGC has increased its Participating Interest to at least 70%. Thereafter, the standard dilution formula (as described in Section 9.5) shall apply.

ARTICLE VI

INTERESTS OF PARTICIPANTS

DD.     Changes in Participating Interests. Upon formation of the joint venture, the Participating Interests shall be eliminated or changed as follows:

 

 

 

 

to a Net Smelter Returns Royalty (if applicable) and Net Proceeds under Subsection 6.2(a) shall terminate; and (iv) the Manager, on behalf of the Participants, shall make any necessary reimbursements, reallocations of Products, contributions and other adjustments as provided in Subsection 9.6(d). Similarly, if such final adjustment under Section 9.6 results in a Recalculated Participating Interest for either Participant of less than ten percent (10%) for a Program Period as to which the provisional calculation under Section 9.5 had not resulted in a Participating Interest of less than ten percent (10%), then such Participant, at its election within thirty (30) days after notice of the final adjustment, may contribute an amount resulting in a revised final adjustment and resultant Recalculated Participating Interest as provided for in Section 9.6. If no such election is made, such Participant shall be deemed to have withdrawn under the terms of Subsection 6.2(b) as of the beginning of such Program Period, and the Manager, on behalf of the Participants, shall make any necessary reimbursements, reallocations of Products, contributions and other adjustments as provided in Subsection 9.6(d), including of any Net Proceeds, or any Net Smelter Returns (if applicable) to which such Participant may be entitled for such Program Period.

FF.      Continuing Liabilities Upon Adjustments of Participating Interests. Any reduction or elimination of either Participant’s Participating Interest under Section 6.2 shall not relieve such Participant of its share of any liability, including, without limitation, Continuing Obligations, Environmental Liabilities and Environmental Compliance, whether arising, before or after such reduction or elimination, out of acts or omissions occurring or conditions existing prior to the Effective Date or out of Operations conducted during the term of this Agreement but prior to such reduction or elimination, regardless of when any funds may be expended to satisfy such liability. For purposes of this Section, such Participant’s share of such liability shall be equal to its Participating Interest at the time the act or omission giving rise to the liability occurred, or, as to such liability arising out of acts or omissions occurring or conditions existing prior to the Effective Date, equal to such Participant’s initial Participating Interest. Should the cumulative cost of satisfying Continuing Obligations be in excess of cumulative amounts accrued or otherwise charged to the Environmental Compliance Fund as described in Exhibit B, each of the Participants shall be liable for its proportionate share (i.e., Participating Interest at the time of the act or omission giving rise to such liability occurred of the cost of satisfying such Continuing Obligations, notwithstanding that either Participant has previously withdrawn from the Business or that its Participating Interest has been reduced or converted to an interest in Net Proceeds pursuant to Subsection 6.2(b)).

GG.     Documentation of Adjustments to Participating Interests. Adjustments to the Participating Interests need not be evidenced during the term of this Agreement by the execution and recording of appropriate instruments, but each Participant’s Participating Interest and related Equity Account balance shall be shown in the accounting records of the Manager, and any adjustments thereto shall be made monthly. However, either Participant, at any time upon the request of the other Participant, shall execute and acknowledge instruments necessary to

 

 

evidence such adjustments in form sufficient for filing and recording in the jurisdiction where the Properties are located.

II.        Subordination of Interests. Each Participant shall, from time to time, take all necessary actions, including execution of appropriate agreements, to pledge and subordinate its Participating Interest, any liens it may hold which are created under this Agreement other than those created pursuant to Section 6.5 hereof, and any other right or interest it holds with respect to the Assets (other than any statutory lien of the Manager) to any secured borrowings for Operations approved by the Management Committee, including any secured borrowings relating to Project Financing, and any modifications or renewals thereof.

ARTICLE VII

MANAGEMENT COMMITTEE

JJ.        Organization and Composition. If a joint venture is formed as provided in Section 5.4, the Participants will establish a Management Committee to determine overall policies, objectives, procedures, methods and actions under this Agreement. The Management Committee shall consist of two members appointed by MGC and two members appointed by Barrick. Each Participant may appoint one or more alternates to act in the absence of a regular member. Any alternate so acting shall be deemed a member. Appointments by a Participant shall be made or changed by notice to the other members. Barrick shall designate one of its members to serve as the chair of the Management Committee.

 

 

(a)       After Barrick has completed its Initial Contribution, the Management Committee shall hold regular meetings at least quarterly in Elko, Nevada, or at other agreed places. The Manager shall give 10 days notice to the Participants of such meetings. Additionally, either Participant may call a special meeting upon seven days notice to the other Participant. In case of an emergency, reasonable notice of a special meeting shall suffice. There shall be a quorum if at least one member representing each Participant is present; provided, however, that if a Participant fails to attend two consecutive properly called meetings, then a quorum shall exist at the second meeting if the other Participant is represented by at least one appointed member, and a vote of such Participant shall be considered the vote required for the purposes of the conduct of all business properly noticed unless such vote would otherwise require unanimity.

 

 

acceptable to both Participants. If the Management Committee does not reach agreement on the minutes of the meeting within such 30 day period, the minutes of the meeting as prepared by the Manager together with the other Participant’s proposed changes shall collectively constitute the record of the meeting. If personnel employed in Operations are required to attend a Management Committee meeting, reasonable costs incurred in connection with such attendance shall be charged to the Business Account. All other costs shall be paid by the Participants individually.

LL.      Action Without Meeting in Person. In lieu of meetings in person, the Management Committee may conduct meetings by telephone or video conference, so long as minutes of such meetings are prepared in accordance with Subsection 7.3(c). The Management Committee may also take actions in writing signed by all members.

MM.    Matters Requiring Approval. Except as provided in Subsection 5.1(a) and as otherwise delegated to the Manager in Section 8.2, the Management Committee shall have exclusive authority to determine all matters related to overall policies, objectives, procedures, methods and actions under this Agreement.

ARTICLE VIII

MANAGER

NN.     Appointment. Upon the formation of the joint venture, the Participants appoint Barrick as the Manager with overall management responsibility for Operations. Barrick hereby agrees to serve until it resigns as provided in Section 8.4.

OO.     Powers and Duties of Manager. Subject to the terms and provisions of this Agreement, the Manager shall have the following powers and duties, which shall be discharged in accordance with adopted Programs and Budgets.

 

 

Assets free and clear of all Encumbrances, except any such Encumbrances listed in Exhibit A and those existing at the time of, or created concurrent with, the acquisition of such Assets, or mechanic’s or materialmen’s liens (which shall be contested, released or discharged in a diligent matter) or Encumbrances specifically approved by the Management Committee.

 

 

or administrative proceedings. The non-managing Participant shall approve in advance any settlement involving payments, commitments or obligations in excess of $500,000.00 in cash or value.

 

 

 

 

Committee may reasonably request. Subject to Article XVII, at all reasonable times the Manager shall provide the Management Committee, or other representative of a Participant upon the request of such Participant’s member of the Management Committee, access to, and the right to inspect and, at such Participant’s cost and expense, copies of the Existing Data and all maps, drill logs and other drilling data, core, pulps, reports, surveys, assays, analyses, production reports, operations, technical, accounting and financial records, and other Business Information, to the extent preserved or kept by the Manager, subject to Article XVII. In addition, the Manager shall allow the non-managing Participant, at the latter’s sole risk, cost and expense, and subject to reasonable safety regulations, to inspect the Assets and Operations at all reasonable times, so long as the non-managing Participant does not unreasonably interfere with Operations.

 

 

PP.      Standard of Care. The Manager shall discharge its duties under Section 8.2 and conduct all Operations in a good, workmanlike and efficient manner, in accordance with sound mining and other applicable industry standards and practices, and in accordance with Laws and with the terms and provisions of leases, licenses, permits, contracts and other agreements pertaining to the Assets. So long as it is performing all of its obligations under this Agreement, the Manager shall not be liable to the other Participant for any act or omission resulting in damage or loss except to the extent caused by or attributable to the Manager’s willful misconduct or gross negligence. The Manager shall not be in default of any of its duties under Section 8.2 if its inability or failure to perform results from the failure of the other Participant to perform acts or to contribute amounts required of it by this Agreement.

QQ.     Resignation; Deemed Offer to Resign. The Manager may resign upon not less than three months’ prior notice to the other Participant, in which case the other Participant may elect to become the new Manager by notice to the resigning Participant within 30 days after the notice of resignation. If any of the following shall occur, the Manager shall be deemed to have resigned upon the occurrence of the event described in each of the following Subsections, with the successor Manager to be appointed by the other Participant at a subsequently called meeting of the Management Committee, at which the Manager shall not be entitled to vote. The other Participant may appoint itself or a third party as the Manager.

 

 

Under Subsections (d), (e) or (f) above, the appointment of a successor Manager shall be deemed to pre-date the event causing a deemed resignation.

RR.     Payments To Manager. The Manager shall be compensated for its services and reimbursed for its costs hereunder in accordance with Exhibit B.

SS.      Transactions With Affiliates. If the Manager engages Affiliates to provide services hereunder, it shall do so on terms no less favorable than would be the case in arm’s-length transactions with unrelated persons.

TT.      Activities During Deadlock. If the Management Committee for any reason fails to adopt an Exploration, Pre-Feasibility Study, Management Assessment Study or Development Program and Budget, the Manager shall continue Operations at levels sufficient to maintain the Properties. If the Management Committee for any reason fails to adopt an initial Mining Program and Budget or any Expansion or Modification Programs and Budgets, the Manager shall continue Operations at levels sufficient to maintain the then current Operations and Properties. If the Management Committee for any reason fails to adopt Mining Programs and Budgets subsequent to the initial Mining Program and Budget, subject to the contrary direction of the Management Committee and receipt of necessary funds, the Manager shall continue Operations at levels comparable with the last adopted Mining Program and Budget. All of the foregoing shall be subject to the contrary direction of the Management Committee and the receipt of necessary funds.

ARTICLE IX

PROGRAMS AND BUDGETS

UU.     Initial Program and Budget. Upon the formation of the joint venture, Barrick shall prepare and submit to the Participants an Initial Program and Budget which will be reviewed and approved as provided in this Article IX.

 

 

VV.     Operations Pursuant to Programs and Budgets. Except as otherwise provided in Subsection 5.2, Section 9.12, and Article XII, Operations shall be conducted, expenses shall be incurred, and Assets shall be acquired only pursuant to adopted Programs and Budgets. Every Program and Budget adopted pursuant to this Agreement shall provide for accrual of reasonably anticipated Environmental Compliance expenses for all Operations contemplated under the Program and Budget.

WW.   Presentation of Programs and Budgets. Proposed Programs and Budgets shall be prepared by the Manager for a period of one year or any other shorter period as approved by the Management Committee, and shall be submitted to the Management Committee for review and consideration. All proposed Programs and Budgets may include Exploration, Pre-Feasibility Studies, Management Assessment Study, Development, Mining and Expansion or Modification Operations components, or any combination thereof, and shall be reviewed and adopted upon a vote of the Management Committee in accordance with Sections 7.2 and 9.4. Each Program and Budget adopted by the Management Committee, regardless of length, shall be reviewed at least once a year at a meeting of the Management Committee. During the period encompassed by any Program and Budget, and at least two months prior to its expiration, a proposed Program and Budget for the succeeding period shall be prepared by the Manager and submitted to the Management Committee for review and consideration.

XX.     Review and Adoption of Proposed Programs and Budgets. Within 30 days after submission of a proposed Program and Budget, each Participant shall submit in writing to the Management Committee:

If a Participant fails to give any of the foregoing responses within the allotted time, the failure shall be deemed to be a vote by the Participant for adoption of the Manager’s proposed Program and Budget. If a Participant makes a timely submission to the Management Committee pursuant to Subsections 9.4(a), (b) or (c), then the Manager working with the other Participant shall seek for a period of time not to exceed 20 days to develop a complete Program and Budget acceptable to both Participants. The Manager shall then call a Management Committee meeting in accordance with Section 7.3 for purposes of reviewing and voting upon the proposed Program and Budget.

 

 

(i)        for an election made before Payout, by dividing: (A) the sum of (1) the amount credited to the Reduced Participant’s Equity Account with respect to its Initial Contribution under Section 5.4(c)(iii), (2) the amount of all of the Reduced Participant’s contributions under Section 5.5, and (3) the amount, if any, the Reduced Participant elects to contribute to the adopted Program and Budget; by (B) the sum of (1), (2) and (3) above for both Participants; and then multiplying the result by one hundred; or

(ii)       for an election made after Payout, by reducing its Participating Interest in an amount equal to two times the amount by which it would have been reduced under Subsection 9.5(b)(i) if such election were made before Payout.

The Participating Interest of the other Participant shall be increased by the amount of the reduction in the Participating Interest of the Reduced Participant, and if the other Participant elects not to fund the entire deficiency, the Manager shall adjust the Program and Budget to reflect the funds available.

 

 

ZZ.      Recalculation or Restoration of Reduced Interest Based on Actual Expenditures.

 

 

(iii)      analyses of various alternatives for mining, processing and beneficiation of Products;

(iv)      analyses of alternative mining, milling, and production rates;

(v)       analyses of alternative sites for placement of facilities (i.e., water supply facilities, transport facilities, reagent storage, offices, shops, warehouses, stock yards, explosives storage, handling facilities, housing, public facilities);

(vi)      analyses of alternatives for waste treatment and handling (including a description of each alternative of the method of tailings disposal and the location of the proposed disposal site);

(vii)     estimates of recoverable proven and probable reserves of Products and of related substances, in terms of technical and economic constraints (extraction and treatment of Products), including the effect of grade, losses, and impurities, and the estimated mineral composition and content thereof, and review of mining rates commensurate with such reserves;

(viii)    analyses of environmental impacts of the various alternatives, including an analysis of the permitting, environmental

 

 

liability and other Environmental Law implications of each alternative, and costs of Environmental Compliance for each alternative;

(ix)      conduct of appropriate metallurgical tests to determine the efficiency of alternative extraction, recovery and processing techniques, including an estimate of water, power, and reagent consumption requirements;

(x)       conduct of hydrology and other studies related to any required dewatering; and

(xi)      conduct of other studies and analyses approved by the Management Committee.

BBB.   Completion of Pre-Feasibility Studies and Selection of Approved Alternatives. As soon as reasonably practical following completion of all Pre-Feasibility Studies required to evaluate fully the alternatives studied pursuant to Pre-Feasibility Programs, the Manager shall prepare a report summarizing all Pre-Feasibility Studies and shall submit the same to the Management Committee. Such report shall incorporate the following:

(xii)     capitalized pre-stripping expenditures, if an open pit or surface mine is proposed;

(xiii)    expenditures required to purchase, construct and install all machinery, equipment and other facilities and infrastructure (including contingencies) required to bring a mine into Commercial Production, including an analysis of costs of equipment or supply contracts in lieu of Development costs for each Development and Mining alternative evaluated;

 

 

(xiv)    expenditures required to perform all other related work required to commence Commercial Production of Products and, if applicable, process Products (including reasonable estimates of working capital requirements); and

(xv)     all other direct and indirect costs and general and administrative expenses that may be required for a proper evaluation of the Development and Mining alternatives and annual production levels evaluated. The capital cost estimates shall include a schedule of the timing of the estimated capital requirements for each alternative;

Within 60 days after delivery of the Pre-Feasibility Study summary to the Participants, a Management Committee meeting shall be convened for the purposes of reviewing the Pre-Feasibility Study summary and selecting one or more Approved Alternatives, if any.

CCC.   Programs and Budgets for Management Assessment Study. Within 30 days following the selection of an Approved Alternative, the Manager shall submit to the

 

 

Management Committee a Program and a Budget, which shall include necessary Operations, for the preparation of a Management Assessment Study. A Management Assessment Study may be prepared by the Manager, Feasibility Contractors, or both, or may be prepared by the Manager and audited by Feasibility Contractors, as the Management Committee determines.

DDD.  Development Programs and Budgets. Unless otherwise determined by the Management Committee, the Manager shall not submit to the Management Committee a Program and Budget including Development of the mine described in a completed Management Assessment Study until 90 days following the receipt by Manager of the Management Assessment Study. The Program and Budget, which includes Development of the mine described in the completed Management Assessment Study, shall be based on the estimated cost of Development described in the Management Assessment Study for the Approved Alternative, unless otherwise directed by the Management Committee.

EEE.   Expansion or Modification Programs and Budgets. Any Program and Budget proposed by the Manager involving Expansion or Modification shall be based on a Management Assessment Study prepared by the Manager, Feasibility Contractors, or both, or prepared by the Manager and audited by Feasibility Contractors, as the Management Committee determines. The Program and Budget, which include Expansion or Modification, shall be submitted for review and approval by the Management Committee within 90 days following receipt by the Manager of such Management Assessment Study.

FFF.    Budget Overruns; Program Changes. For Programs and Budgets adopted after completion of ▇▇▇▇▇▇▇’▇ Initial Contribution, the Manager shall immediately notify the Management Committee of any material departure from an adopted Program and Budget. If the Manager exceeds an adopted Budget by more than 10% in the aggregate, then the excess over 10%, unless directly caused by an emergency or unexpected expenditure made pursuant to Section 9.13 or unless otherwise authorized or ratified by the Management Committee, shall be for the sole account of the Manager and such excess shall not be included in the calculations of the Participating Interests nor deemed a contribution under this Agreement. Budget overruns of 10% or less in the aggregate shall be borne by the Participants in proportion to their respective Participating Interests.

GGG.  Emergency or Unexpected Expenditures. In case of emergency, the Manager may take any reasonable action it deems necessary to protect life or property, to protect the Assets or to comply with Laws. The Manager may make reasonable expenditures on behalf of the Participants for unexpected events that are beyond its reasonable control and that do not result from a breach by it of its standard of care. The Manager shall promptly notify the Participants of the emergency or unexpected expenditure, and the Manager shall be reimbursed for all resulting costs by the Participants in proportion to their respective Participating Interests.

 

 

ARTICLE X

ACCOUNTS AND SETTLEMENTS

HHH.  Monthly Statements. After completion of ▇▇▇▇▇▇▇’▇ Initial Contribution, and subject to Barrick electing to carry MGC to Commercial Production pursuant to Subsection 5.2(c) above, the Manager shall promptly submit to the Management Committee monthly statements of account reflecting in reasonable detail the charges and credits to the Business Account during the preceding month.

III.       Cash Calls. Unless MGC has elected to exercise the Carry Option, on the basis of each Program and Budget adopted by the Management Committee, the Manager shall submit prior to the last day of each month a billing for estimated cash requirements for the next month. Within 10 days after receipt of each billing, or a billing made pursuant to Section 9.12 or 12.4, each Participant shall advance its proportionate share of such cash requirements. The Manager shall record all funds received in the Business Account. All funds in excess of immediate cash requirements shall be invested by the Manager for the benefit of the Business in cash management accounts and investments selected at the discretion of the Manager, which accounts may include, but are not limited to, money market investments and money market funds.

JJJ.      Failure to Meet Cash Calls. A Participant that fails to meet cash calls in the amount and at the times specified in Section 10.2 shall be in default, and the amounts of the defaulted cash call shall bear interest from the date due at an annual rate equal to two percentage points over the Prime Rate, but in no event shall the rate of interest exceed the maximum permitted by Law. Such interest shall accrue to the benefit of and be payable to the non-defaulting Participant, but shall not be deemed as amounts contributed by the non-defaulting Participant in the event dilution occurs in accordance with Article VI. In addition to any other rights and remedies available to it by Law, the non-defaulting Participant shall have those other rights, remedies, and elections specified in Sections 10.4 and 10.5.

KKK.  Cover Payment. If a Participant defaults in making a contribution or cash call required by an adopted Program and Budget, the non-defaulting Participant may, but shall not be obligated to, advance some portion or all of the amount in default on behalf of the defaulting Participant (a ”Cover Payment”). Each and every Cover Payment shall constitute a demand loan bearing interest from the date of the advance at the rate provided in Section 10.3. If more than one Cover Payment is made, the Cover Payments shall be aggregated and the rights and remedies described herein pertaining to an individual Cover Payment shall apply to the aggregated Cover Payments. The failure to repay such loan upon demand shall be a default.

LLL.   Remedies. The Participants acknowledge that if either Participant defaults in making a contribution required by Section 5.5 or a cash call, or in repaying a loan, as required under Sections 10.2, 10.3 or 10.4, whether or not a Cover Payment is made, it will be difficult to measure the damages resulting from such default (it being hereby understood and agreed that the Participants have attempted to determine such damages in advance and determined that the calculation of such damages cannot be ascertained with reasonable certainty). Both Participants acknowledge and recognize that the damage to the non-defaulting Participant could be

 

 

significant. In the event of such default, as reasonable liquidated damages, the non-defaulting Participant may, with respect to any such default not cured within 90 days after notice to the defaulting Participant of such default, elect the following remedy of diluting or eliminating the defaulting Participant’s Participating Interest by giving notice to the defaulting Participant. Such election may be made with respect to each failure to meet a cash call relating to a Program and Budget, regardless of the frequency of such cash calls, provided such cash calls are made in accordance with Section 10.2.

(i)        For a default occurring before Payout relating to a Program and Budget covering in whole or in part Exploration, Pre-Feasibility Study or Management Assessment Study Operations, the Reduced Participant’s Participating Interest shall be recalculated by dividing: (X) the sum of (1) the value of the Reduced Participant’s Initial Contribution under Section 5.4 (c)(iii), (2) the total of all the Reduced Participant contributed under 5.5, and (3) the amount, if any, the Reduced Participant contributed to the adopted Program and Budget with respect to which the default occurred; by (Y) the sum of (1), (2) and (3) above for both Participants; and then multiplying the result by one hundred. For such a default occurring after Payout, the Reduced Participant’s Participating Interest shall be reduced in an amount equal to two times the amount by which it would have been reduced if such default had occurred before Payout. For such a default, whether occurring before or after Payout, the Recalculated Participating Interest shall then be further reduced:

(A)      for a default relating exclusively to an Exploration Program and Budget, by multiplying the Recalculated Participating Interest by 80%; or

(B)      for a default relating to a Program and Budget covering in whole or in part Pre-Feasibility Study and/or Management Assessment Study Operations, by multiplying the Recalculated Participating Interest by 60%.

The Participating Interest of the other Participant shall be increased by the amount of the reduction in the Participating Interest of the Reduced Participant, including the further reduction under Subsections 10.5(a)(i)(A) or (B).

(ii)       For a default relating to a Program and Budget covering in whole or in part Development or Mining, at the non-defaulting Participant’s election, the defaulting Participant shall be deemed to have withdrawn and to have automatically relinquished its interest in the Assets to the non-defaulting Participant; provided, however, the defaulting

 

 

Participant shall have the right to receive only from 10% of Net Proceeds, if any, and not from any other source, an amount equal to 75% of the defaulting Participant’s Equity Account balance at the time of such default. Upon receipt of such amount the defaulting Participant shall thereafter have no further right, title or interest in the Assets (except for MGC’s right under Subsection 6.2(a) to receive a Net Smelter Returns Royalty), and shall be relieved from any further liability to the non-defaulting Participant to the extent that such amount forms the basis for the reduction or elimination of the defaulting Participant’s Participating Interest.

(iii)      Dilution under this Subsection 10.5(a) shall be effective as of the date of the original default, and for greater certainty shall be subject to the provisions of Section 6.2. The amount of any Cover Payment under Section 10.4 and interest thereon, or any interest accrued in accordance with Section 10.3, shall be deemed to be amounts contributed by the non-defaulting Participant, and not as amounts contributed by the defaulting Participant.

(iv)      Whenever the Participating Interests are recalculated pursuant to this Subsection 10.5(a), the Equity Accounts of both Participants shall be adjusted to bear the same ratio to each other as their recalculated Participating Interests.

 

 

ARTICLE XI

DISPOSITION OF PRODUCTION

NNN.  Taking In Kind. Each Participant shall take in kind or separately dispose of its share of all Products in proportion to its Participating Interest. Any extra expenditure incurred in the taking in kind or separate disposition by either Participant of its proportionate share of Products shall be borne by such Participant. Nothing in this Agreement shall be construed as providing, directly or indirectly, for any joint or cooperative marketing or selling of Products or permitting the processing of Products owned by any third party at any processing facilities constructed by the Participants pursuant to this Agreement. The Manager shall give notice in advance of the anticipated delivery date upon which Products will be available.

OOO.  Failure of Participant to Take In Kind. If a Participant fails to take its proportionate share of Products in kind, the Manager shall have the right, but not the obligation, for a period of time consistent with the minimum needs of the industry, but not to exceed one year from the notice date described in Section 11.1, to purchase the Participant’s share for its own account or to sell such share as agent for the Participant at not less than the prevailing market price in the area. Subject to the terms of any such contracts of sale then outstanding, during any period that the Manager is purchasing or selling a Participant’s share of production, the Participant may elect by notice to the Manager to take in kind. The Manager shall be entitled to deduct from proceeds of any sale by it for the account of a Participant reasonable expenses incurred in such a sale.

PPP.    Hedging. Neither Participant shall have any obligation to account to the other Participant for, nor have any interest or right of participation in any profits or proceeds nor have any obligation to share in any losses from, futures contracts, forward sales, trading in puts, calls, options or any similar hedging, price protection or marketing mechanism employed by a

 

 

Participant with respect to its proportionate share of any Products produced or to be produced from the Properties.

ARTICLE XII

WITHDRAWAL AND TERMINATION

QQQ.  Termination by Expiration or Agreement. This Agreement shall terminate as expressly provided herein, unless earlier terminated by written agreement.

RRR.   Termination by Deadlock. If the Management Committee fails to adopt a Program and Budget for 12 months after the expiration of the latest adopted Program and Budget, either Participant may elect to terminate the Business by giving 90 days notice of termination to the other Participant.

SSS.    Withdrawal. A Participant may elect to withdraw from the Business by (i) in the case of Barrick, failing to make the Exploration Expenditures as required by Subsection 5.2, or (ii) giving notice to the other Participant of the effective date of withdrawal, which shall be the later of the end of the then current Program Period or 30 days after the date of the notice. Upon such withdrawal, the Business shall terminate, and the withdrawing Participant shall be deemed to have transferred to the remaining Participant all of its Participating Interest, including all of its interest in the Assets, without cost and free and clear of all Encumbrances arising by, through or under such withdrawing Participant, except those described in Exhibit A and those to which both Participants have agreed. The withdrawing Participant shall execute and deliver all instruments as may be necessary in the reasonable judgment of the other Participant to effect the transfer of its interests in the Assets to the other Participant. If within a 60 day period both Participants elect to withdraw, then the Business shall instead be deemed to have been terminated by the consent of the Participants pursuant to Section 12.1.

TTT.   Continuing Obligations and Environmental Liabilities. On termination of the Business under Sections 12.1, 12.2 or 12.3, each Participant shall remain liable for its respective share of liabilities to third persons (whether such arises before or after such withdrawal), including Environmental Liabilities and Continuing Obligations. The withdrawing Participant’s share of such liabilities shall be equal to its Participating Interest at the time such liability was incurred, after first taking into account any reduction, readjustment, and restoration of Participating Interests under Sections 6.2, 9.5, 9.6 and 10.5.

UUU.  Disposition of Assets on Termination. Promptly after termination under Sections 12.1 or 12.2, the Manager shall take all action necessary to wind up the activities of the Business. All costs and expenses incurred in connection with the termination of the Business shall be expenses chargeable to the Business Account.

VVV.  Non-Compete Covenants. Neither a Participant that withdraws pursuant to Section 12.3, or is deemed to have withdrawn pursuant to Sections 5.2, 6.3 or 10.5, nor any Affiliate of such a Participant, shall directly or indirectly acquire any interest or right to explore or mine, or both, on any property any part of which is within the Area of Interest for 12 months

 

 

after the effective date of withdrawal. If a withdrawing Participant, or the Affiliate of a withdrawing Participant, breaches this Section 12.6, such Participant shall be obligated to offer to convey to the non-withdrawing Participant, without cost, any such property or interest so acquired (or ensure its Affiliate offers to convey the property or interest to the non-withdrawing Participant, if the acquiring party is the withdrawing Participant’s Affiliate). Such offer shall be made in writing and can be accepted by the non-withdrawing Participant at any time within 10 days after the offer is received by such non-withdrawing Participant. Failure of a Participant’s Affiliate to comply with this Section 12.6 shall be a breach by such Participant of this Agreement.

WWW.           Right to Data After Termination. After termination of the Business pursuant to Sections 12.1 or 12.2, each Participant shall be entitled to make copies of all applicable information acquired hereunder before the effective date of termination not previously furnished to it, but a terminating or withdrawing Participant shall not be entitled to any such copies after any other termination or withdrawal.

XXX.  Continuing Authority. On termination of the Joint Venture under Sections 12.1, 12.2 or 12.3 or the deemed withdrawal of either Participant pursuant to Section 10.5, the Participant which was the Manager prior to such termination or withdrawal (or the other Participant in the event of a withdrawal by the Manager) shall have the power and authority to do all things on behalf of both Participants which are reasonably necessary or convenient to: (a) wind up Operations and (b) complete any transaction and satisfy any obligation, unfinished or unsatisfied, at the time of such termination or withdrawal, if the transaction or obligation arises out of Operations prior to such termination or withdrawal. The Manager shall have the power and authority to grant or receive extensions of time or change the method of payment of an already existing liability or obligation, prosecute and defend actions on behalf of both Participants and the Joint Venture , encumber Assets, and take any other reasonable action in any matter with respect to which the former Participants continue to have, or appear or are alleged to have, a common interest or a common liability.

ARTICLE XIII

ACQUISITIONS WITHIN AREA OF INTEREST

YYY.  General. Any interest or right to acquire any interest in real property within the Area of Interest either acquired or proposed to be acquired during the term of this Agreement by or on behalf of either Participant (“Acquiring Participant”) or any Affiliate of such Participant shall be subject to the terms and provisions of this Agreement. Barrick and MGC and their respective Affiliates for their separate account shall be free to acquire lands and interests in lands outside the Area of Interest and to locate mining claims outside the Area of Interest. Failure of any Affiliate of either Participant to comply with this Article XIII shall be a breach by such Participant of this Agreement.

ZZZ.   Acquisitions During Exploration Period. During the Exploration Period, Barrick shall promptly notify MGC of any acquisitions by Barrick of any interests in real property wholly or partially within the Area of Interest, and all such interests shall automatically

 

 

become part of the Properties and subject to this Agreement. Barrick may include the costs of such acquisitions as Exploration Expenditures.

AAAA.           Notice to Non-Acquiring Participant. If the Participants have entered into a joint venture, than the remaining provisions of this Article XIII shall apply. Within 15 days after the acquisition or proposed acquisition, as the case may be, of any interest or the right to acquire any interest in real property or water rights wholly or partially within the Area of Interest (except real property acquired by the Manager pursuant to a Program), the Acquiring Participant shall notify the other Participant of such acquisition by it or its Affiliate; provided further that if the acquisition of any interest or right to acquire any interest pertains to real property or water rights partially within the Area of Interest, then all such real property (i.e., the part within the Area of Interest and the part outside the Area of Interest) shall be subject to this Article XIII. The Acquiring Participant’s notice shall describe in detail the acquisition, the acquiring party if that party is an Affiliate, the lands and minerals covered thereby, any water rights related thereto, the cost thereof, and the reasons why the Acquiring Participant believes that the acquisition (or proposed acquisition) of the interest is in the best interests of the Participants under this Agreement. In addition to such notice, the Acquiring Participant shall make any and all information concerning the relevant interest available for inspection by the other Participant.

BBBB.Option Exercised. Within 30 days after receiving the Acquiring Participant’s notice, the other Participant may notify the Acquiring Participant of its election to accept a proportionate interest in the acquired interest equal to its Participating Interest. Promptly upon such notice, the Acquiring Participant shall convey or cause its Affiliate to convey to the Participants, in proportion to their respective Participating Interests, by special warranty deed with title held as described in Section 3.4, all of the Acquiring Participant’s (or its Affiliate’s) interest in such acquired interest, free and clear of all Encumbrances arising by, through or under the Acquiring Participant (or its Affiliate) other than those to which both Participants have agreed. The acquired interests shall become a part of the Properties for all purposes of this Agreement immediately upon such notice. The other Participant shall promptly pay to the Acquiring Participant its proportionate share of the latter’s actual out of pocket acquisition costs.

CCCC.Option Not Exercised. If the other Participant does not give such notice within the 30-day period set forth in Section 13.4, it shall have no interest in the acquired interests, and the acquired interests shall not be a part of the Assets or continue to be subject to this Agreement.

DDDD.           Water Rights. If either Participant acquires any water rights for the use on or for the benefit of the Properties, that Participant shall contribute those acquired water rights for the benefit of the Business, and shall contribute those water rights to the Business, or if such water rights are acquired by Barrick and Barrick does not complete its Initial Contribution, Barrick shall convey such water rights to MGC.

 

 

ARTICLE XIV

ABANDONMENT AND SURRENDER OF PROPERTIES

Either Participant may request the Management Committee to authorize the Manager to surrender or abandon part or all of the Properties. If the Management Committee does not authorize such surrender or abandonment, or authorizes any such surrender or abandonment over the objection of either Participant, the Participant that desires to surrender or abandon shall assign to the objecting Participant, by special warranty deed and without cost to the objecting Participant, all of the abandoning Participant’s interest in the Properties sought to be abandoned or surrendered, free and clear of all Encumbrances created by, through or under the abandoning Participant other than those to which both Participants have agreed. Upon the assignment, such properties shall cease to be part of the Properties. The Participant that desires to abandon or surrender shall remain liable for its share (determined by its Participating Interest as of the date of such abandonment, after first taking into account any reduction, readjustment and restoration of Participating Interest under Sections 6.2, 9.5, 9.6 or 10.5) of any liability with respect to such Properties, including, without limitation, Continuing Obligations, Environmental Liabilities and Environmental Compliance, whether accruing before or after such abandonment, arising out of activities prior to the Effective Date and out of Operations conducted prior to the date of such abandonment, regardless of when any funds may be expended to satisfy such liability.

ARTICLE XV

TRANSFER OF INTEREST; PREEMPTIVE RIGHT

EEEE. General. A Participant shall have the right to Transfer to a third party an interest in its Participating Interest, including an interest in this Agreement or the Assets, solely as provided in this Article XV.

FFFF.  Limitations on Free Transferability. Any Transfer by either Participant under Section 15.1 shall be subject to the following limitations:

 

 

(i)        agree, as between themselves, that one of them is authorized to act as the sole agent (“Agent”) on their behalf with respect to all matters pertaining to this Agreement and the Business; and

(ii)       notify the other Participant of the designation of the Agent, and in such notice warrant and represent to other Participant that:

(A)      the Agent has the sole authority to act on behalf of, and to bind, the transferring Participant and its transferee with respect to all matters pertaining to this Agreement and the Business;

(B)      the other Participant may rely on all decisions of, notices and other communications from, and failures to respond by, the Agent, as if given (or not given) by the transferring Participant and its transferee; and

(C)      all decisions of, notices and other communications from, and failures to respond by, the other Participant to the Agent shall be deemed to have been given (or not given) to the transferring Participant and its transferee.

The transferring Participant and its transferee may change the Agent (but such replacement must be one of them) by giving notice to the other Participant, which notice must conform to Subsection 15.2(e)(ii).

 

 

subject to the terms of this Agreement and the rights and interests of the other Participant hereunder (including without limitation under Section 6.7). Any such Encumbrance shall be further subject to the condition that the holder of such Encumbrance (“Chargee”) first enter into a written agreement with the other Participant in form satisfactory to the other Participant, acting reasonably, binding upon the Chargee, to the effect that:

(iii)      the Chargee shall not enter into possession or institute any proceedings for foreclosure or partition of the encumbering Participant’s Participating Interest and that such Encumbrance shall be subject to the provisions of this Agreement;

(iv)      the Chargee’s remedies under the Encumbrance shall be limited to the sale of the whole (but only of the whole) of the encumbering Participant’s Participating Interest to the other Participant, or, failing such a sale, at a public auction to be held at least 15 days after prior notice to the other Participant, such sale to be subject to the purchaser entering into a written agreement with the other Participant whereby such purchaser assumes all obligations of the encumbering Participant under the terms of this Agreement. The price of any preemptive sale to the other Participant shall be the remaining principal amount of the loan plus accrued interest and related expenses, and such preemptive sale shall occur within 60 days of the Chargee’s notice to the other Participant of its intent to sell the encumbering Participant’s Participating Interest. Failure of a sale to the other Participant to close by the end of such period, unless failure is caused by the encumbering Participant or by the Chargee, shall permit the Chargee to sell the encumbering Participant’s Participating Interest at a public sale; and

(v)       the charge shall be subordinate to any then-existing debt, including Project Financing previously approved by the Management Committee, encumbering the transferring Participant’s Participating Interest;

GGGG.           Preemptive Right. Any Transfer by either Participant under Section 15.1 and any Transfer by an Affiliate of Control of either Participant shall be subject to a preemptive right of the other Participant to the extent provided in Exhibit G. Failure of a Participant’s

 

 

Affiliate to comply with this Article XV and Exhibit G shall be a breach by such Participant of this Agreement.

ARTICLE XVI

DISPUTES

HHHH.           Governing Law. This Agreement shall be governed by and interpreted in accordance with the laws of the State of Nevada, without regard for any conflict of laws or choice of laws principles that would permit or require the application of the laws of any other jurisdiction.

IIII.     Dispute Resolution. Any dispute, controversy or claims arising out of or relating to this Agreement or the breach, termination, interpretation or invalidity thereof (a “Dispute”) shall be resolved as follows:

ARTICLE XVII

CONFIDENTIALITY, OWNERSHIP, USE

AND DISCLOSURE OF INFORMATION

JJJJ.    Business Information. All Business Information shall be owned jointly by the Participants as their Participating Interests are determined pursuant to this Agreement. Both

 

 

before and after the termination of the Business, all Business Information may be used by either Participant for any purpose, whether or not competitive with the Business, without consulting with, or obligation to, the other Participant. Except as provided in Sections 17.3 and 17.4, or with the prior written consent of the other Participant, each Participant shall keep confidential and not disclose to any third party or the public any portion of the Business Information that constitutes Confidential Information.

KKKK.           Participant Information. In performing its obligations under this Agreement, neither Participant shall be obligated to disclose any Participant Information. If a Participant elects to disclose Participant Information in performing its obligations under this Agreement, such Participant Information, together with all improvements, enhancements, refinements and incremental additions to such Participant Information that are developed, conceived, originated or obtained by either Participant in performing its obligations under this Agreement (“Enhancements”), shall be owned exclusively by the Participant that originally developed, conceived, originated or obtained such Participant Information. Each Participant may use and enjoy the benefits of such Participant Information and Enhancements in the conduct of the Business hereunder, but the Participant that did not originally develop, conceive, originate or obtain such Participant Information may not use such Participant Information and Enhancements for any other purpose. Except as provided in Section 17.4, or with the prior written consent of the other Participant, which consent may be withheld in such Participant’s sole discretion, each Participant shall keep confidential and not disclose to any third party or the public any portion of Participant Information and Enhancements owned by the other Participant that constitutes Confidential Information.

LLLL. Permitted Disclosure of Confidential Business Information. Either Participant may disclose Business Information that is Confidential Information:

The Participant disclosing Confidential Information pursuant to this Section 17.3, shall disclose such Confidential Information to only those parties who have a bona fide need to have access to

 

 

such Confidential Information for the purpose for which disclosure to such parties is permitted under this Section 17.3 and who have agreed in writing supplied to, and enforceable by, the other Participant to protect the Confidential Information from further disclosure, to use such Confidential Information solely for such purpose and to otherwise be bound by the provisions of this Article XVII. Such writing shall not preclude parties described in Subsection 17.3(b) from discussing and completing a Transfer with the other Participant. The Participant disclosing Confidential Information shall be responsible and liable for any use or disclosure of the Confidential Information by such parties in violation of this Agreement and such other writing.

MMMM.        Disclosure Required By Law. Notwithstanding anything contained in this Article XVII, a Participant or any of its Affiliates may disclose any Confidential Information if, in the reasonable opinion of the disclosing Participant’s legal counsel: (a) such disclosure is legally required to be made in a judicial, administrative or governmental proceeding pursuant to a valid subpoena or other applicable order; or (b) such disclosure is legally required to be made pursuant to the rules or regulations of a stock exchange or similar trading market applicable to the disclosing Participant or any of its Affiliates.

Prior to any disclosure of Confidential Information under this Section 17.4, the disclosing Participant shall give the other Participant at least 10 days prior written notice (unless less time is permitted by such rules, regulations or proceeding) and, in making such disclosure, the disclosing Participant shall disclose only that portion of Confidential Information required to be disclosed and shall take all reasonable steps to preserve the confidentiality thereof, including, without limitation, obtaining protective orders and supporting the other Participant in intervention in any such proceeding.

NNNN.           Public Announcements. Prior to making or issuing any press release or other public announcement or disclosure of Business Information that is not Confidential Information, a Participant (or any of its Affiliates) shall first consult with the other Participant as to the content and timing of such announcement or disclosure, unless in the good faith judgment of such Participant, there is not sufficient time to consult with the other Participant before such announcement or disclosure must be made under applicable Laws; but in such event, the disclosing Participant shall notify the other Participant, as soon as possible, of the pendency of such announcement or disclosure, and it shall notify the other Participant before such announcement or disclosure is made if at all reasonably possible. Any press release or other public announcement or disclosure to be issued by either Participant (or any of its Affiliates) relating to this Business shall also identify the other Participant. Notwithstanding any of the provisions of the Article XVII to the contrary, the Participants agree that MGC (or any Affiliate of MGC) may issue quarterly press releases based on the information provided by Barrick to MGC in the quarterly reports referred to in Subsection 5.1(a)(ii), in accordance with the provisions of this Section 17.5.

OOOO.           NI 43-101. Where either Participant or any Affiliate of either Participant (collectively, the “Discloser”) desires or is required by National Instrument 43-101 Standards of

 

 

Disclosure for Mineral Projects as amended from time to time (“NI 43-101”) to file a Technical Report with respect to the Properties:

ARTICLE XVIII

GENERAL PROVISIONS

PPPP.  Notices. All notices, payments and other required or permitted communications (“Notices”) to either Participant shall be in writing, and shall be addressed respectively as follows:

If to MGC:

 

MGC Resources Inc.

▇▇▇ ▇▇▇▇ ▇▇▇▇▇▇ ▇▇▇▇▇ ▇▇

▇▇▇▇▇▇, ▇▇▇▇▇▇▇ ▇▇▇▇▇

 

 

With a Copy to:

 

Midway Gold Corp.

Unit 1 – ▇▇▇▇▇ ▇▇▇▇▇▇ ▇▇▇▇▇

▇▇▇▇▇ ▇▇▇▇, ▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇, ▇▇▇▇▇▇

▇▇▇ ▇▇▇

If to Barrick:

 

▇▇▇▇▇▇▇ Gold Exploration Inc.

▇▇▇ ▇▇▇▇▇▇ ▇▇▇▇

▇▇▇▇, ▇▇▇▇▇▇ ▇▇▇▇▇

With a Copy to:

 

▇▇▇▇▇▇▇ Gold of North America, Inc.

▇▇▇ ▇▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇▇

▇▇▇▇ ▇▇▇▇ ▇▇▇▇, ▇▇▇▇ ▇▇▇▇▇

All Notices shall be given (a) by personal delivery to the Participant, (b) by facsimile, (c) by registered or certified mail return receipt requested; or (d) by overnight or other express courier service. All Notices shall be effective and shall be deemed given on the date of receipt at the principal address if received during normal business hours, and, if not received during normal business hours, on the next business day following receipt. Either Participant may change its address by Notice to the other Participant.

QQQQ.           Gender. The singular shall include the plural, and the plural the singular wherever the context so requires, and the masculine, the feminine, and the neuter genders shall be mutually inclusive.

RRRR.Currency. All references to “dollars” or “$” herein shall mean lawful currency of the United States of America.

SSSS.  Headings. The subject headings of the Sections and Subsections of this Agreement and the Paragraphs and Subparagraphs of the Exhibits to this Agreement are included

 

 

for purposes of convenience only, and shall not affect the construction or interpretation of any of its provisions.

TTTT. Waiver. The failure of either Participant to insist on the strict performance of any provision of this Agreement or to exercise any right, power or remedy upon a breach hereof shall not constitute a waiver of any provision of this Agreement or limit such Participant’s right thereafter to enforce any provision or exercise any right.

UUUU.           Modification. No modification of this Agreement shall be valid unless made in writing and duly executed by both Participants.

VVVV.           Force Majeure. Except for the obligation to make payments when due hereunder, the obligations of a Participant shall be suspended to the extent and for the period that performance is prevented by any cause, whether foreseeable or unforeseeable, beyond its reasonable control, including, without limitation, labor disputes (however arising and whether or not employee demands are reasonable or within the power of the Participant to grant); acts of God; Laws, instructions or requests of any government or governmental entity; judgments or orders of any court; inability to obtain on reasonably acceptable terms any public or private license, permit or other authorization; curtailment or suspension of activities to remedy or avoid an actual or alleged, present or prospective violation of Environmental Laws; action or inaction by any federal, state or local agency that delays or prevents the issuance or granting of any approval or authorization required to conduct Operations beyond the reasonable expectations of the Participant seeking the approval or authorization (including, without limitation, a failure to complete any review and analysis required by the National Environmental Policy Act or any similar state law within 36 months of initiation of that process); acts of war or conditions arising out of or attributable to war, whether declared or undeclared; riot, civil strife, insurrection or rebellion; fire, explosion, earthquake, storm, flood, sink holes, drought or other adverse weather condition; delay or failure by suppliers or transporters of materials, parts, supplies, services or equipment or by contractors’ or subcontractors’ shortage of, or inability to obtain, labor, transportation, materials, machinery, equipment, supplies, utilities or services; accidents; breakdown of equipment, machinery or facilities; actions by native rights groups, environmental groups, or other similar special interest groups; or any other cause whether similar or dissimilar to the foregoing. The affected Participant shall promptly give notice to the other Participant of the suspension of performance, stating therein the nature of the suspension, the reasons therefor, and the expected duration thereof. The affected Participant shall resume performance as soon as reasonably possible. During the period of suspension the obligations of both Participants to advance funds pursuant to Section 10.2 shall be reduced to levels consistent with then current Operations.

WWWW.        Rule Against Perpetuities. The Participants do not intend that there shall be any violation of the Rule Against Perpetuities, the Rule Against Unreasonable Restraints on the Alienation of Properties, or any similar rule. Accordingly, if any right or option to acquire any interest in the Properties, in a Participating Interest, in the Assets, or in any real property exists under this Agreement, such right or option must be exercised, if at all, so as to vest such

 

 

interest within time periods permitted by applicable rules. If, however, any such violation should inadvertently occur, the Participants hereby agree that a court shall reform that provision in such a way as to approximate most closely the intent of the Participants within the limits permissible under such rules.

XXXX.           Further Assurances. Each of the Participants shall take, from time to time and without additional consideration, such further actions and execute such additional instruments as may be reasonably necessary or convenient to implement and carry out the intent and purpose of this Agreement or as may be reasonably required by lenders in connection with Project Financing.

YYYY.           Entire Agreement; Successors and Assigns. This Agreement contains the entire understanding of the Participants and supersedes all prior agreements and understandings between the Participants relating to the subject matter hereof. This Agreement shall be binding upon and inure to the benefit of the respective successors and permitted assigns of the Participants.

ZZZZ. Memorandum. A Memorandum or short form of this Agreement, and at the request of either Participant after completion by Barrick of its Initial Contribution, a Financing Statement(s) (to which copies of the Memorandum or short form of this Agreement shall be attached) shall be prepared by the Manager, executed and acknowledged by both Participants, and delivered to the Manager for recording and filing in those appropriate recording districts and Uniform Commercial Code filing offices as may be necessary to provide constructive notice of this Agreement and the rights and obligations of the Participants hereunder. The Manager shall record and file in the proper recording districts, county recording offices and Uniform Commercial Code filing offices, all such documents delivered to it by the Participants. Unless both Participants agree, this Agreement shall not be recorded.

18.12   Counterparts. This Agreement may be executed in any number of counterparts, and it shall not be necessary that the signatures of both Participants be contained on any counterpart. Each counterpart shall be deemed an original, but all counterparts together shall constitute one and the same instrument.            

18.13   Inflation/Deflation of Certain Amounts. The dollar amounts set forth in the following Sections shall be increased or decreased each calendar year by the percentage of increase or decrease in the Cost Index for the each calendar year for which the adjustment is made: Sections 8.2(g) and 8.2(i) and Exhibit B--Sections 2.6 and 2.9.

 

 

IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the Effective Date.

MGC RESOURCES INC.

 

 

▇▇▇▇▇▇▇ GOLD EXPLORATION INC.

 

 

 

 

 

EXHIBIT A

To

EXPLORATION, DEVELOPMENT AND MINE OPERATING AGREEMENT

By And Between

MGC RESOURCES INC.

And

▇▇▇▇▇▇▇ GOLD EXPLORATION INC.

ASSETS

 

Township 29 North, Range 34 East, MDM, Pershing County, Nevada.

 

Section 25: E½, N½NW¼, SE¼NW¼, E½NE¼SW¼, E½SE¼SW¼.

Section 27: SE¼, SE¼SW¼.

Section 27: E½NE¼.

Section 35: W½NW¼, SE¼NW¼. 100% surface and minerals. 120

gross/net acres

Section 35: NE¼NW¼.

 

The Property acquired by MGC pursuant to this Mining Deed is burdened by a 3% NSR royalty payable to Seymork.

 

 

Township 28 North, Range 34 East, MDM, Pershing County, Nevada.  

 

Section 3: ▇▇▇▇ ▇,▇,▇,▇,▇,▇,▇,▇▇,▇▇,▇▇, ▇▇ ▇▇ ▇▇, ▇▇▇ ▇▇, ▇▇▇▇▇▇, E½NW¼SE¼, N½SE¼SE¼, NE¼SW¼SE¼.

 

Township 29 North, Range 34 East, MDM, Pershing County, Nevada.  

 

Section 35: NE¼NW¼.

 

SEE ATTACHED EXHIBIT A-1 (CLAIM LIST)

 

 

Township 29 North, Range 34 East, MDM, Pershing County, Nevada.

 

Unpatented lode mining claims in Sections 33, 34 and 35.

SV 1 – 44 as listed on the EXHIBIT A-1 (CLAIM LIST).

 

The claims acquired by MGC pursuant to this Mining Deed are burdened by a primary royalty on any commercial production of gold exceeding 500,000 ounces on a sliding scale NSR which varies from 2.0% to 7.0% percent (according to the price of gold) payable to ▇▇▇▇▇▇▇. Furthermore, MGC granted ▇▇▇▇▇▇▇ a one percent (1.0%) NSR perimeter royalty on lands owned by MGC or an affiliate of MGC and located within intersecting lines drawn parallel to and one-half (1/2) mile from the outer boundaries of the claims, but excluding the area within the claims themselves.

 

 

 

EXHIBIT A-1 (CLAIM LIST). The SV Claims covered by the Option Agreement are burdened by a 2% NSR royalty payable to the Optionor.

 

None of Record

 

 

Nevada Division of Water Resources exploration permit numbers ▇▇ ▇▇▇▇▇ and ▇▇ ▇▇▇▇▇, expiring February 1, 2013.

 

 

 

A.        Deed and Assignment dated December 15, 1983 between Asarco Incorporated, a New Jersey corporation and Coeur d’▇▇▇▇▇ ▇▇▇▇▇ Corporation, an Idaho corporation as to the mineral royalty reservation retained by Asarco Incorporated recorded in Book 182 under Pages 440-447 in the records of Pershing County, Nevada. Covering the Crown Hills #7 through Crown Hills #10 (NMC39574 through NMC39595) and HMS #4 through HMS #6 (NMC140862 through NMC140864) and ▇▇▇ # ▇▇ through HMS # 87 (▇▇▇▇▇▇▇▇▇ through NMC140944) unpatented lode claims.

 

 

B.        License No. SPL-4157 dated February 14, 1986 by and between MGC Resources Inc., a Nevada corporation (Licensor) (successor in interest to Southern Pacific Land Company, a California corporation) and Coeur d’▇▇▇▇▇ ▇▇▇▇▇ Corp., an Idaho corporation (Licensee) granting rights for construction, reconstruction, maintenance, and use of a pipeline, electric powerline, and telephone line over and across ▇▇▇▇ ▇, ▇, ▇, ▇▇, ▇▇ of ▇▇▇ ▇▇, ▇▇▇ ▇▇, ▇▇▇▇▇▇▇▇ and NE¼SW¼SE¼ of Section 3, Township 28 North, Range 34 East, MDM, Pershing County, Nevada.

C.        Wind Energy Facilities Right-of-Way, N-77992 (Humboldt Range Anemometer Tower Site and Wind Energy Testing Project Area), held by Power Partners Southwest LLC, a Delaware corporation, covering the E½ of Section 33, Township 29 North, Range 34 East; SW¼ of Section 3, and ▇▇▇▇ ▇, ▇, ▇, ▇, ▇▇, ▇▇, ▇▇, ▇▇, and SE¼ of Section 4, the W½ of Section 10, Township 28 North, Range 34 East, MDM, Pershing County, Nevada.

D.        The rights of third parties to use the surface of unpatented mining claims under the Multiple Surface Use Act of July 23, 1955 (69 ▇▇▇▇. ▇▇▇, ▇▇ ▇.▇.▇. secs. 601-615).

E.        Potentially conflicting/overlapping Terraco (TGC Holdings Ltd.) claims in Sections 21 through 28, Township 29 North, Range 34 East, MDM, Pershing County, Nevada.

 

 

properties covered by the Mining Deed described in Part 1.1.A of this Exhibit A.

H.        The Mining Lease described in Part 1.1.C.6 of this Exhibit A gives the Lessor thereunder certain rights to conduct activities on the surface of the claims covered thereby and to recover minimal ounces of gold.

I.         The Mining Lease described in Part 1.1.C.8 of this Exhibit A gives the Lessor thereunder certain rights to conduct activities on the surface of the claims covered thereby and to recover minimal ounces of gold.

J.         Certain preemptive rights and rights to re-acquire claims were reserved by Coeur in the Purchase and Sale Agreement referred to in Part 1.1.C.2 of this Exhibit A.

K.        Amended Notice of Appeal filed by ▇▇▇▇ ▇▇▇▇▇▇ on February 25, 2009 in Case No. CV 06-10030, in the Sixth Judicial District Court for the State of Nevada in and for the County of Pershing, said case being more particularly described in Midway Gold Corp.’s Form 10-Q Quarterly Report for the quarterly period ended September 30, 2008, filed with the U.S. Securities and Exchange Commission on November 14, 2008.

L.        All liens, claims and encumbrances disclosed in the public records of Pershing County and the Bureau of Land Management reviewed by Barrick in conducting due diligence in connection with entering into this Agreement.

.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

EXHIBIT A-2

To

EXPLORATION, DEVELOPMENT AND MINE OPERATING AGREEMENT

By And Between

MGC RESOURCES INC.

And

▇▇▇▇▇▇▇ GOLD EXPLORATION INC.

 

 

 

 

 

EXHIBIT B

To

EXPLORATION, DEVELOPMENT AND MINE OPERATING AGREEMENT

By And Between

MGC RESOURCES INC.

And

▇▇▇▇▇▇▇ GOLD EXPLORATION INC.

ACCOUNTING PROCEDURES

The financing and accounting procedures to be followed by the Manager and the Participants under the Agreement are set forth below. All capitalized terms in these Accounting Procedures shall have the definition attributed to them in the Agreement, unless defined otherwise herein.

The purpose of these Accounting Procedures is to establish equitable methods for determining charges and credits applicable to Operations. It is the intent of the Participants that neither of them shall lose or profit by reason of the designation of one of them to exercise the duties and responsibilities of the Manager. The Participants shall meet and in good faith endeavor to agree upon changes deemed necessary to correct any unfairness or inequity. In the event of a conflict between the provisions of these Accounting Procedures and those of the Agreement, the provisions of the Agreement shall control.

ARTICLE I

GENERAL PROVISIONS

1.1       General Accounting Records. The Manager shall maintain detailed and comprehensive cost accounting records in accordance with these Accounting Procedures, including general ledgers, supporting and subsidiary journals, invoices, checks and other customary documentation, sufficient to provide a record of revenues and expenditures and periodic statements of financial position and the results of Operations for managerial, tax, regulatory or other financial, regulatory, or legal reporting purposes related to the Business. Such records shall be retained for the duration of the period allowed the Participants for audit or the period necessary to comply with tax or other regulatory requirements. The records shall reflect all obligations, advances and credits of the Participants.

1.2       Cash Management Accounts. The Manager shall maintain one or more separate cash management accounts for the payment of all expenses and the deposit of all cash receipts for the Business.

 

 

 

 

1.3       Statements and ▇▇▇▇▇▇▇▇. The Manager shall prepare statements and ▇▇▇▇ the Participants as provided in Article X of the Agreement. Payment of any such ▇▇▇▇▇▇▇▇ by either Participant, including the Manager, shall not prejudice such Participant’s right to protest or question the correctness thereof for a period not to exceed 24 months following the calendar year during which such ▇▇▇▇▇▇▇▇ were received by such Participant. All written exceptions to and claims upon the Manager for incorrect charges, ▇▇▇▇▇▇▇▇ or statements shall be made upon the Manager within such 24 month period. The time period permitted for adjustments hereunder shall not apply to adjustments resulting from periodic inventories as provided in Paragraphs 5.1 and 5.2.

ARTICLE II

CHARGES TO BUSINESS ACCOUNT

Subject to the limitations hereinafter set forth, the Manager shall charge the Business Account with the following:

2.1       Properties Acquisition Costs, Rentals, Royalties and Other Payments. All property acquisition and holding costs, including Governmental Fees, filing fees, license fees, costs of permits and assessment work, delay rentals, production royalties, including any required advances, lease payments, real property taxes and all other payments made by the Manager which are necessary to acquire or maintain title to the Assets.

(a)       Salaries and wages of the Manager’s employees directly engaged in Operations, including salaries or wages of employees who are temporarily assigned to and directly employed by same.

(b)       The Manager’s cost of holiday, vacation, sickness and disability benefits, and other customary allowances applicable to the salaries and wages chargeable under Subparagraph 2.2(a) and Paragraph 2.12. Such costs may be charged on a “when and as paid basis” or by “percentage assessment” on the amount of salaries and wages. If percentage assessment is used, the rate shall be applied to wages or salaries excluding overtime and bonuses. Such rate shall be based on the Manager’s cost experience and it shall be periodically adjusted at least annually to ensure that the total of such charges does not exceed the actual cost thereof to the Manager.

(c)       The Manager’s actual cost of established plans for employees’ group life insurance, hospitalization, pension, retirement, thrift, bonus (except production or incentive bonus plans under a union contract based on actual rates of production, cost savings and other production factors, and similar non-union bonus plans customary in the industry or necessary to attract competent employees, which bonus payments shall be considered salaries and wages under Subparagraph 2.2(a) or Paragraph 2.12 rather than employees’ benefit plans) and other benefit plans of a like

 

 

 

 

nature applicable to salaries and wages chargeable under Subparagraphs 2.2(a) or Paragraph 2.12, provided that the plans are limited to the extent feasible to those customary in the industry.

(d)       Cost of assessments imposed by governmental authority that are applicable to salaries and wages chargeable under Subparagraph 2.2(a) and Paragraph 2.12, including all penalties except those resulting from the willful misconduct or gross negligence of the Manager.

(e)       All payments made by Barrick to MGC for the use of full-time and part-time Midway Personnel, as set forth in that Service Agreement between Barrick and MGC of even date herewith.

2.3       Materials, Equipment and Supplies. The cost of materials, equipment and supplies (herein called “Material”) purchased from unaffiliated third parties or furnished by either Participant as provided in Paragraph 3.1. The Manager shall purchase or furnish only so much Material as may be required for immediate use in efficient and economical Operations. The Manager shall also maintain inventory levels of Material at reasonable levels to avoid unnecessary accumulation of surplus stock.

2.4       Equipment and Facilities Furnished by Manager. The cost of machinery, equipment and facilities owned by the Manager and used in Operations or used to provide support or utility services to Operations charged at rates commensurate with the actual costs of ownership and operation of such machinery, equipment and facilities. Such rates shall include costs of maintenance, repairs, other operating expenses, insurance, taxes, depreciation and interest at a rate not to exceed Prime Rate plus three percent (3%) per annum. Such rates shall not exceed the average commercial rates currently prevailing in the vicinity of the Operations.

2.5       Transportation. Reasonable transportation costs incurred in connection with the transportation of employees and material necessary for Operations.

2.6       Contract Services and Utilities. The cost of contract services and utilities procured from outside sources, other than services described in Paragraphs 2.9 and 2.13. If contract services are performed by the Manager or an Affiliate thereof, the cost charged to the Business Account shall not be greater than that for which comparable services and utilities are available in the open market within the vicinity of Operations. The cost of professional consultant services procured from outside sources in excess of $100,000.00 per annum per contract shall not be charged to the Business Account unless approved by the Management Committee.

2.7       Insurance Premiums. Net premiums paid for insurance required to be carried for Operations for the protection of the Participants. When Operations are conducted in an area where the Manager may self-insure for Worker’s Compensation and/or Employer’s Liability under state law, the Manager may elect to include such risks in its self-insurance program and shall charge its

 

 

 

 

costs of self-insuring such risks to the Business Account provided that such charges shall not exceed published manual rates.

2.8       Damages and Losses. All costs in excess of insurance proceeds necessary to repair or replace damage or losses to any Assets resulting from any cause other than the willful misconduct or gross negligence of the Manager. The Manager shall furnish the Management Committee with written notice of damages or losses as soon as practicable after a report thereof has been received by the Manager.

2.9       Legal and Regulatory Expense. Except as otherwise provided in Paragraph 2.13, all legal and regulatory costs and expenses incurred in or resulting from Operations or necessary to protect or recover the Assets of the Business, including costs of title investigation and title curative services. All attorneys fees and other legal costs to handle, investigate and settle litigation or claims, and amounts paid in settlement of such litigation or claims in excess of $100,000.00 per annum shall not be charged to the Business Account unless approved by the Management Committee.

2.11     Taxes. All taxes, assessments and like charges on Operations and Assets which have been paid by the Manager for the benefit of the Participants. Each Participant is separately responsible for taxes determined or measured by a Participant’s sales revenue or net income.

2.12     District and Camp Expense (Field Supervision and Camp Expenses). A pro rata portion of: (i) the salaries and expenses of the Manager’s superintendent and other employees serving Operations to the extent their time is spent directly on such Operations, and (ii) the costs of maintaining and operating an office and any necessary suboffice, and (iii) all necessary camps, including housing facilities for employees, used for Operations. The expense of those facilities, less any revenue therefrom, shall include depreciation or a fair monthly rental in lieu of depreciation of the investment. The total of such charges for all Properties served by the Manager’s employees and facilities shall be apportioned to the Business Account on the basis of a ratio to be approved by the Management Committee.

(a)       Each month, the Manager shall charge the Business Account a sum for each phase of Operations as provided below, which shall be a liquidated amount to reimburse the Manager for its home office overhead and general and administrative expenses to conduct each phase of Operations, and which shall be in lieu of any management fee and for taxes based on production of Products:

 

 

 

 

(b)       The term “Allowable Costs” as used in this Paragraph for a particular phase of Operations shall mean all charges to the Business Account excluding:

(i) the administrative charge referred to herein;

(ii) depreciation, depletion or amortization of tangible or intangible Assets;

(iii) amounts charged in accordance with Paragraphs 2.1 and 2.9, and

(iv) marketing costs.

(v) The Manager shall attribute such Allowable Costs to a particular phase of Operations by applying the following guidelines:

(A)      The Exploration Phase shall cover those Operations conducted to ascertain the existence, location, extent or quantity of any deposit of ore or mineral.

(B)      The Development Phase shall cover those Operations, including Pre-Feasibility and Management Assessment Study Operations, conducted to assess a commercially feasible ore body or to extend production of an existing ore body, and to construct or install related fixed Assets.

(C)      The Major Construction Phase shall include all Operations involved in the construction of a mill, smelter or other ore processing facilities.

(D)      The Mining Phase shall include all other Operations activities not otherwise covered above, including activities conducted after Mining Operations have ceased.

(c)       Various phases of Operations may be conducted concurrently, in which event the administrative charge shall be calculated separately for Allowable Costs attributable to each phase.

(d)       The monthly administration charge determined for each phase of Operations shall be a liquidated amount to reimburse Manager for its home office overhead and general and administrative expenses for its conduct of Operations, and shall be equitably apportioned among all

 

 

 

 

of the properties served during such monthly period on the basis of a ratio approved by the Management Committee.

(e)       The following is a representative list of items that constitute the Manager’s principal business office expenses that are expressly covered by the administrative charge provided in this Paragraph, except to the extent that such items are directly chargeable to the Business Account under other provisions of this Article II:

(i)        Administrative supervision, which includes all services rendered by managers, department supervisors, officers and directors of the Manager for Operations.

(ii)       Accounting, data processing, personnel administration, billing and record keeping in accordance with governmental regulations and the provisions of the Agreement, and preparation of reports;

(iii)      The services of tax counsel and tax administration employees for all tax matters, including any protests, except any outside professional fees which the Management Committee may approve as a direct charge to the Business Account;

(iv)      Routine legal services rendered by outside sources and the Manager’s legal staff not otherwise charged to the Business Account under Paragraph 2.9, including property acquisition, attorney management and oversight, and support services provided by Manager’s legal staff concerning any litigation; and

(v)       Rentals and other charges for office and records storage space, telephone service, office equipment and supplies.

(f)        The Management Committee shall annually review the administrative charges and shall amend the methodology or rates used to determine such charges if they are found to be insufficient or excessive based on the principles that the Manager shall not make a profit or suffer a loss and that it should be fairly and adequately compensated for its costs and expenses.

2.14     Environmental Compliance Fund. Costs of reasonably anticipated Environmental Compliance which, on a Program basis, shall be determined by the Management Committee and shall be based on proportionate contributions in an amount sufficient to establish a fund, which through successive proportionate contributions during the life of the Business, will pay for ongoing Environmental Compliance conducted during Operations and which will aggregate the reasonably anticipated costs of mine closure, post-Operations Environmental Compliance and Continuing Obligations. The Manager shall invest such amounts on behalf of the Participants as provided in Subsection 8.2(r).

 

 

 

 

2.15     Other Expenditures. Any reasonable direct expenditure, other than expenditures which are covered by the foregoing provisions, incurred by the Manager for the necessary and proper conduct of Operations.

ARTICLE III

BASIS OF CHARGES TO BUSINESS ACCOUNT

3.1       Purchases. Material purchased and services procured from third parties shall be charged to the Business Account by the Manager at invoiced cost, including applicable transfer taxes, less all discounts taken. If any Material is determined to be defective or is returned to a vendor for any other reason, the Manager shall credit the Business Account when an adjustment is received from the vendor.

3.2       Material Furnished by a Participant for Use in the Business. Any Material furnished by either Participant for use in the Business or distributed to either Participant by the Manager shall be priced on the following basis:

(a)       New Material: New Material furnished by either Participant shall be priced F.O.B. the nearest reputable supply store or railway receiving point, where like Material is available, at the current replacement cost of the same kind of Material, exclusive of any available cash discounts, at the time it is furnished (herein called “New Price”).

(i)        Used Material in sound and serviceable condition and suitable for reuse without reconditioning shall be priced as follows:

(A)      Used Material furnished by either Participant shall be priced at 75% of the New Price;

(B)      Used Material distributed to either Participant shall be priced (i) at 75% of the New Price if such Material was originally charged to the Business Account as new Material, or (ii) at 65% of the New Price if such Material was originally charged to the Business Account as good used Material at 75% of the New Price.

(ii)       Other used Material that, after reconditioning, will be further serviceable for original function as good secondhand Material, or that is serviceable for original function but not substantially suitable for reconditioning, shall be priced at fifty percent (50%) of New Price. The cost of any reconditioning shall be borne by the transferee.

 

 

 

 

(iii)      Bad-Order Material which is no longer usable for its original purpose without excessive repair cost but further usable for some other purpose shall be priced on a basis comparable with items normally used for that purpose.

(iv)      All other Material, including junk, shall be priced at a value commensurate with its use or at prevailing prices.

(c)       Obsolete Material. Any Material that is serviceable and usable for its original function, but its condition is not equivalent to that which would justify a price as provided above, shall be priced by the Management Committee. Such price shall be set at a level that will result in a charge to the Business Account equal to the value of the service to be rendered by such Material.

3.3       Premium Prices. Whenever Material is not readily obtainable at published or listed prices because of national emergencies, strikes or other unusual circumstances over which the Manager has no control, the Manager may charge the Business Account for the required Material on the basis of the Manager’s direct cost and expenses incurred in procuring such Material and making it suitable for use. The Manager shall give written notice of the proposed charge to the Participants prior to the time when such charge is to be billed, whereupon either Participant shall have the right, by notifying the Manager within 10 days of the delivery of the notice from the Manager, to furnish at the usual receiving point all or part of its share of Material suitable for use and acceptable to the Manager.

3.4       Warranty of Material Furnished by the Manager or Participants. Neither Participant warrants any Material furnished beyond any dealer’s or manufacturer’s warranty and no credits shall be made to the Business Account for defective Material until adjustments are received by the Manager from the dealer, manufacturer or their respective agents.

ARTICLE IV

DISPOSAL OF MATERIAL

4.1       Disposition Generally. The Manager shall have no obligation to purchase either Participant’s interest in Material. The Management Committee shall determine the disposition of major items of surplus Material, provided the Manager shall have the right to dispose of normal accumulations of junk and scrap Material either by sale or by transfer to the Participants as provided in Paragraph 4.2.

4.2       Distribution to Participants. Any Material to be distributed to the Participants shall be made in proportion to their respective Participating Interests, and corresponding credits shall be made to the Business Account on the basis provided in Paragraph 3.2.

 

 

 

 

4.3       Sales. Sales of Material to third parties shall be credited to the Business Account at the net amount received. Any damages or claims by the Purchaser shall be charged back to the Business Account if and when paid.

ARTICLE V

INVENTORIES

5.1       Periodic Inventories, Notice and Representations. At reasonable intervals, inventories shall be taken by the Manager, which shall include all such Material as is ordinarily considered controllable by operators of mining properties, and the expense of conducting such periodic inventories shall be charged to the Business Account. The Manager shall give written notice to the Participants of its intent to take any inventory at least 30 days before such inventory is scheduled to take place. A Participant shall be deemed to have accepted the results of any inventory taken by the Manager if the Participant fails to be represented at such inventory.

5.2       Reconciliation and Adjustment of Inventories. Reconciliation of inventory with charges to the Business Account shall be made, and a list of overages and shortages shall be furnished to the Management Committee within 6 months after the inventory is taken. Inventory adjustments shall be made by the Manager to the Business Account for overages and shortages, but the Manager shall be held accountable to the Business only for shortages due to lack of reasonable diligence.

 

 

 

 

EXHIBIT C

To

EXPLORATION, DEVELOPMENT AND MINE OPERATING AGREEMENT

By And Between

MGC RESOURCES INC.

And

▇▇▇▇▇▇▇ GOLD EXPLORATION INC.

DEFINITIONS

“Accounting Procedures” means the procedures set forth in Exhibit B.

“Affiliate” means any person, partnership, limited liability company, joint venture, corporation, or other form of enterprise which Controls, is Controlled by, or is under common Control with a Participant.

“Agreement” means this Exploration, Development and Mine Operating Agreement, including all amendments and modifications, and all schedules and exhibits, all of which are incorporated by this reference.

“Approved Alternative” means a Development and Mining alternative selected by the Management Committee from various Development and Mining alternatives analyzed in the Pre-Feasibility Studies.

“Area of Interest” means any interest in real properties within the area depicted on the map attached hereto as Exhibit A-2.

“Assets” means the Properties, Products, Business Information, and all other real and personal property, tangible and intangible, including existing or after-acquired properties and all contract rights held for the benefit of the Participants hereunder.

“Budget” means a detailed estimate of all costs to be incurred and a schedule of cash advances to be made by the Participants with respect to a Program.

“Business” means the contractual relationship of the Participants under this Agreement.

“Business Account” means the account maintained by the Manager for the Business in accordance with Exhibit B.

 

 

 

 

“Business Information” means the terms of this Agreement, and any other agreement relating to the Business, the Existing Data, and all information, data, knowledge and know-how, in whatever form and however communicated (including, without limitation, Confidential Information), developed, conceived, originated or obtained by either Participant in performing its obligations under this Agreement. The term “Business Information” shall not include any improvements, enhancements, refinements or incremental additions to Participant Information that are developed, conceived, originated or obtained by either Participant in performing its obligations under this Agreement.

“Commercial Production” means (i) the operation of the Properties or any portion thereof as a producing mine and the production of Products therefrom, for a minimum period of 60 consecutive days at an average rate of not less than seventy-five percent (75%) of the initial rated capacity of the mining facilities, as set out in a Management Assessment Study, or (ii) the date of first shipment of Products in commercial quantities to off-site processing facilities (other than for testing purposes) if the plans for the Business do not include the construction of on-site processing facilities. For greater certainty, Commercial Production does not include milling for the purpose of testing, milling by a pilot plant, or milling during an initial tune-up period of the processing facilities;

“Confidential Information” means all information, data, knowledge and know-how (including, but not limited to, formulas, patterns, compilations, programs, devices, methods, techniques and processes) that derives independent economic value, actual or potential, as a result of not being generally known to, or readily ascertainable by, third parties and which is the subject of efforts that are reasonable under the circumstances to maintain its secrecy, including without limitation all analyses, interpretations, compilations, studies and evaluations of such information, data, knowledge and know-how generated or prepared by or on behalf of either Participant.

“Continuing Obligations” mean obligations or responsibilities that are reasonably expected to continue or arise after Operations on a particular area of the Properties have ceased or are suspended, including future monitoring, stabilization, or Environmental Compliance.

“Control” used as a verb means, when used with respect to an entity, the ability, directly or indirectly through one or more intermediaries, to direct or cause the direction of the management and policies of such entity through (i) the legal or beneficial ownership of voting securities or membership interests; (ii) the right to appoint managers, directors or corporate management; (iii) contract; (iv) operating agreement; (v) voting trust; or otherwise; and, when used with respect to a person, means the actual or legal ability to control the actions of another, through family relationship, agency, contract or otherwise; and “Control” used as a noun means an interest which gives the holder the ability to exercise any of the foregoing powers.

 

 

 

 

“Cost Index” means the Consumer Price Index for All Items (Series ID CUUR0000SA0 or replacement thereof), not seasonally adjusted, published by the United States Department of Labor, Bureau of Statistics.

“Cover Payment” shall have the meaning as set forth in Section 10.4 of the Agreement.

“Development” means all preparation (other than Exploration) for the removal and recovery of Products, including construction and installation of a mill or any other improvements to be used for the mining, handling, milling, processing, or other beneficiation of Products, and all related Environmental Compliance.

“Effective Date” means the date set forth in the preamble to this Agreement.

“Encumbrance” or “Encumbrances” means mortgages, deeds of trust, security interests, pledges, liens, net profits interests, royalties or overriding royalty interests, other payments out of production, or other burdens of any nature.

“Environmental Compliance” means actions performed during or after Operations to comply with the requirements of all Environmental Laws or contractual commitments related to reclamation of the Properties or other compliance with Environmental Laws.

“Environmental Laws” means Laws aimed at reclamation or restoration of the Properties; abatement of pollution; protection of the environment; protection of wildlife, including endangered species; ensuring public safety from environmental hazards; protection of cultural or historic resources; management, storage or control of hazardous materials and substances; releases or threatened releases of pollutants, contaminants, chemicals or industrial, toxic or hazardous substances as wastes into the environment, including without limitation, ambient air, surface water and groundwater; and all other Laws relating to the manufacturing, processing, distribution, use, treatment, storage, disposal, handling or transport of pollutants, contaminants, chemicals or industrial, toxic or hazardous substances or wastes.

“Environmental Liabilities” means any and all claims, actions, causes of action, damages, losses, liabilities, obligations, penalties, judgments, amounts paid in settlement, assessments, costs, disbursements, or expenses (including, without limitation, attorneys’ fees and costs, experts’ fees and costs, and consultants’ fees and costs) of any kind or of any nature whatsoever that are asserted against either Participant, by any person or entity other than the other Participant, alleging liability (including, without limitation, liability for studies, testing or investigatory costs, cleanup costs, response costs, removal costs, remediation costs, containment costs, restoration costs, corrective action costs, closure costs, reclamation costs, natural resource damages, property damages, business losses, personal injuries, penalties or fines) arising out of, based on or resulting from (i) the presence, release, threatened release, discharge or emission into the environment of any hazardous

 

 

 

 

materials or substances existing or arising on, beneath or above the Properties and/or emanating or migrating and/or threatening to emanate or migrate from the Properties to off-site properties; (ii) physical disturbance of the environment; or (iii) the violation or alleged violation of any Environmental Laws.

“Equity Account” means the account maintained for each Participant by the Manager in accordance with Subsection 8.2(n) of the Agreement.

“Existing Data” means maps, drill logs and other drilling data, core tests, pulps, reports, surveys, assays, analyses, production reports, operations, technical, accounting and financial records, and other material information developed in operations on the Properties prior to the Effective Date.

“Existing Permits” means those governmental permits, licenses and other approvals that are currently in place pertaining to the Properties, as set forth in Part 3 of Exhibit A.

“Expansion” or “Modification” means (i) a material increase in mining or production capacity; (ii) a material change in the recovery process; or (iii) a material change in waste or tailings disposal methods. An increase or change shall be deemed “material” if it is anticipated to cost more than 75% of original capital costs attributable to the Development of the mining or production capacity, recovery process or waste or tailings disposal facility to be expanded or modified.

“Exploration” means all activities directed toward ascertaining the existence, location, quantity, quality or commercial value of deposits of Products, including but not limited to additional drilling required after discovery of potentially commercial mineralization, and including related Environmental Compliance.

“Exploration Expenditures” means all costs, fees, expenses, liabilities and charges paid or incurred by Barrick which are directly related to Exploration, including all costs of land holdings, evaluation, exploration and development of the Assets and Property, drilling, drifting and tunneling costs, machinery, equipment and supply costs, salaries, benefits and wages of employees, contractor charges and fees (including any costs incurred under the service agreement between the Participants), assay, metallurgical and other lab fees, permitting and environmental compliance costs, land maintenance costs, bonding and insurance costs (but not including the principal amount of any bond), local office and camp expenses, utility and infrastructure costs, and all costs that would be chargeable to the Business Account as provided in Article II of Exhibit B (excluding paragraph 2.10 of Exhibit B).

“Exploration Period” means the period of time commencing on the Effective Date and continuing until December 31, 2013, unless Barrick elects to earn an additional interest in the Properties as provided in Subsection 5.2(b) of the Agreement, in which case the Exploration

 

 

 

 

Period shall extend until December 31, 2014. Provided, however, that the Exploration Period shall terminate upon the withdrawal of Barrick prior to the completion of ▇▇▇▇▇▇▇’▇ Initial Contribution or upon Barrick earning an interest in the Properties by completing its Initial Contribution pursuant to the provisions of Section 5.2 of the Agreement. Notwithstanding the foregoing, the Exploration Period shall be deemed to have commenced (i) on January 1, 2009 with respect to the use of Midway Personnel under Section 4.9, and (ii) on October 17, 2008 with respect to title work performed by or on behalf of Barrick relating to the Properties, the parties having agreed that such activities will be included as Exploration Expenditures and subject to the terms of this Agreement.

“Feasibility Contractors” means one or more engineering firms approved by the Management Committee for purposes of preparing or auditing any Pre-Feasibility Study or Management Assessment Study.

“Governmental Fees” means all location fees, mining claim rental fees, mining claim maintenance payments and similar payments required by Law to locate and hold unpatented mining claims and millsites.

“Initial Contribution” means that contribution each Participant has made or agrees to make pursuant to Section 5.4 of the Agreement.

“Law” or “Laws” means all applicable federal, state and local laws (statutory or common), rules, ordinances, regulations, grants, concessions, franchises, licenses, orders, directives, judgments, decrees, and other governmental restrictions, including permits and other similar requirements, whether legislative, municipal, administrative or judicial in nature.

“Management Assessment Study” means a detailed report to be prepared following selection by the Management Committee of one or more Approved Alternatives, which may but need not be in the form of a feasibility study shall include a review of information presented in any Pre-Feasibility Studies concerning the Approved Alternative(s). The Management Assessment Study shall be in a form and of a scope as is necessary to meet the standards of North American financial institutions for the purpose of determining the advisability of providing project financing on a commercial, competitive basis, taking into consideration all relevant criteria deemed to be both normal and prudent for the mining industry at that time.

“Management Committee” means the committee established under Article VII of the Agreement.

“Manager” means the Participant appointed under Article VIII of the Agreement to manage Operations, or any successor Manager.

 

 

 

 

“MGC Development Costs” means MGC’s share (30%) of the Project Financing and costs of Operations incurred through the Major Construction Phase, as defined in Exhibit B, Subparagraph 2.13(b)(v)(C), of a project approved by the Management Committee, and thereafter up to the date that Commercial Production of Products has been established.

“Midway Personnel” means an employee or employees of MGC.

“Mining” means the mining, extracting, producing, beneficiating, handling, milling or other processing of Products.

“Mining Leases” means those mining leases to which MGC is a party identified in Exhibit A.

“Net Proceeds” means certain amounts calculated as provided in Exhibit E, which may be payable to a Participant under the Agreement.

“Net Smelter Returns Royalty” means certain amounts calculated as provided in Exhibit D, which may be payable to MGC under the Agreement.

“Operations” means the activities carried out under this Agreement.

“Participant” means MGC or Barrick, or any permitted successor or assign of MGC or Barrick under the Agreement.

“Participant Information” means all information, data, knowledge and know-how, in whatever form and however communicated (including, without limitation, Confidential Information but excluding the Existing Data), which, as shown by written records, was developed, conceived, originated or obtained by a Participant: (a) prior to entering into this Agreement, or (b) independent of its performance under the terms of this Agreement.

“Participating Interest” means the percentage interest representing the ownership interest of a Participant in the Assets assuming a joint venture is formed under Section 5.4 of the Agreement, and all other rights and obligations arising under this Agreement, as such interest may from time to time be adjusted hereunder. Participating Interests shall be calculated to three decimal places and rounded to two decimal places as follows: Decimals of .005 or more shall be rounded up (e.g., 1.519% rounded to 1.52%); decimals of less than .005 shall be rounded down (e.g., 1.514% rounded to 1.51%). The initial Participating Interests of the Participants are set forth in Section 6.1 of the Agreement.

“Payout” means the date on which the Equity Account balance of each of the Participants has become zero or a negative number, regardless of whether the Equity Account balance of either

 

 

 

 

or both Participants subsequently becomes a positive number. If one Participant’s Equity Account balance becomes zero or a negative number before the other Participant’s, “Payout” shall not occur until the date that the other Participant’s Equity Account balance first becomes zero or a negative number.

“Pre-Feasibility Studies” means one or more studies prepared to analyze whether economically viable Mining Operations may be possible on the Properties.

“Prime Rate” means the interest rate quoted and published as “Prime” as published in The Wall Street Journal, under the heading “Money Rate,” as the rate may change from day to day.

“Products” means all ores, minerals and mineral resources produced from the Properties.

“Program” means a description in reasonable detail of Operations to be conducted and objectives to be accomplished by the Manager for a period determined by the Management Committee.

“Program Period” means the time period covered by an adopted Program and Budget.

“Project Financing” means any financing approved by the Management Committee and obtained by the Participants for the purpose of placing a mineral deposit situated on the Properties into Commercial Production, including any financing arranged for by Barrick on behalf of MGC to fund MGC Development Costs, but shall not otherwise include any financing obtained individually by either Participant to finance payment or performance of its obligations under the Agreement.

“Properties” means those interests in real property described in Exhibit A and all other interests in real property that are acquired and held subject to the Agreement.

“Qualified Person” means an individual who (a) is an engineer or geoscientist with at least five years experience in mineral exploration, mine development or operation or mineral project assessment, or any combination of these; (b) has experience relevant to the subject matter of the mineral project and the Technical Report; and (c) is a member in good standing of a statutorily recognized self-regulating professional organization with disciplinary powers. The parties acknowledge and agree that the definition of “Qualified Person” under this Agreement will be deemed to be automatically modified if the definition of that term is modified in the National Instrument 43 101, “Standards of Disclosure for Mineral Projects” applicable to all companies listed on a Canadian stock exchange.

“Recalculated Participating Interest” means the reduced Participating Interest of a Participant as recalculated under the Agreement.

 

 

 

 

“Reduced Participant” means a Participant whose Participating Interest is reduced under the Agreement.

“Spot Price” means: In the case of gold, the London PM fixing in U.S. Dollars for refined gold (as shown in the column of the Wall Street Journal entitled “Cash Prices” under the sub-entry entitled “Precious Metals”) for the trading day on which Products are shipped to the refinery, or the next subsequent trading day if Products are shipped on a day when no London P.M. fixing is quoted. In the case of silver, the Handy & ▇▇▇▇▇▇ base price for silver in U.S. Dollars (as shown in the column of the Wall Street Journal entitled “Cash Prices” under the sub-entry entitled “Precious Metals”) for the trading day on which Products are shipped to the refinery, or the next subsequent trading day if Products are shipped on a day when no Handy & ▇▇▇▇▇▇ base price is quoted. If either of such fixings or prices are discontinued, the daily calculated spot COMEX closing prices for such shipping date (or the next subsequent daily calculated spot COMEX closing prices if those prices are not quoted on any shipping date) shall be used. Spot Price for other minerals shall be determined from a source mutually agreed to by the Participants and generally accepted in the industry as accurately reflecting the price of such mineral on the open market at the date and at the place of shipment

“Technical Report” means a report prepared, filed and certified in accordance with this Agreement and National Instrument 43-101F (as the same may be amended or replaced from time to time), applicable to all companies listed on a Canadian stock exchange.

“Transfer” means, when used as a verb, to sell, grant, assign, create an Encumbrance, pledge or otherwise convey, or dispose of or commit to do any of the foregoing, or to arrange for substitute performance by an Affiliate or third party (except as permitted under Subsection 8.2(j) and Section 8.6 of the Agreement), either directly or indirectly; and, when used as a noun, means such a sale, grant, assignment, Encumbrance, pledge or other conveyance or disposition, or such an arrangement.

 

 

 

 

EXHIBIT D

To

EXPLORATION, DEVELOPMENT AND MINE OPERATING AGREEMENT

By And Between

MGC RESOURCES INC.,

And

▇▇▇▇▇▇▇ GOLD EXPLORATION INC.

NET SMELTER RETURNS ROYALTY CALCULATION

 

(a) In the case of Products refined into gold or silver of a purity of at least .995 in the case of gold and at least .999 in the case of silver (collectively “Refined Precious Metals”), the net number of ▇▇▇▇ ounces of Refined Precious Metals delivered or credited to the account of the remaining Participant, or its order, as the case may be, as evidenced by the metals return statements received from the refinery, subject in each case to final adjustments with the refinery, multiplied by the Deemed Sales Price as defined below, less the deductions as provided in Paragraph 1(d).

 

(b) In the case of Products (including refined metals) that are not Refined Precious Metals and which are sold by the remaining Participant, the gross amount actually received by the remaining Participant from the purchaser for the Products so sold, less the deductions as provided in Paragraph 1(d). If the purchaser of any such Products is an Affiliate of the seller, the Products will be valued at fair market value. If the parties fail to agree on such fair market value, the matter shall be resolved as provided in Article XVI of the Agreement.

 

(c) “Deemed Sales Price” means: In the case of gold, the average of the London PM fixings in U.S. Dollars for refined gold (as shown in the column of the Wall Street Journal entitled “Cash Prices” under the sub-entry entitled “Precious Metals”) for each trading day during the calendar month in which the final settlement date with the refinery falls, such date to be evidenced by the refinery metal return statements and, for any subsequent adjustment, for the calendar month in which such adjustment is made. In the case of silver, the average of the Handy & ▇▇▇▇▇▇ base price for silver in U.S. Dollars (as shown in the column of the Wall Street Journal entitled “Cash Prices” under the sub-entry entitled “Precious Metals”) for each trading day during the calendar month in which the final settlement date with the refinery falls, such date to be evidenced by the refinery metal return statements and, for any subsequent adjustment, for the calendar month in which such adjustment is made. If either of such fixings or prices are not available for any reason for more than half of the trading days in the relevant month, or are

 

 

 

 

discontinued, the average of the daily calculated spot COMEX closing prices for such month shall be used.

 

(d) The remaining Participant shall deduct from Net Smelter Returns, but only to the extent actually incurred and borne by the remaining Participant:

 

(i) sales, use, gross receipts, severance, ad valorem, goods and services taxes, or any similar tax provided it is not subject to an input tax credit which is actually claimed and received, and other taxes, if any, however denominated, payable with respect to the existence, severance, production, removal, sale or disposition of Products, but excluding any taxes on net income, net proceeds, and any royalty or tax or lease payment based on units of production;

 

(ii) charges and costs, if any, for transportation to places where Products are smelted, refined and sold;

 

(iii) charges, costs and penalties, if any, for smelting, refining and

marketing; and

 

(iv) royalties, rentals, fees and charges payable to the Government with respect to the Products.

 

In the event smelting or refining are carried out in facilities owned or controlled, in whole or in part, by the remaining Participant, charges, costs and penalties with respect to such operations, including transportation, shall mean reasonable charges, costs and penalties for such operations but not in excess of the amounts that the remaining Participant would have incurred if such operations were carried out at facilities not owned or controlled by the remaining Participant then offering comparable custom services.

 

In the event the remaining Participant receives insurance proceeds for any loss of Products production, the remaining Participant shall pay to the royalty recipient the Net Smelter Returns Royalty on such Products, based upon a deemed sale of such Products deemed to have been made on the date such proceeds are received by the remaining Participant.

 

(e) All royalty payments shall be made in cash. Royalties shall be paid (i) for Refined Precious Metals on or before the 30th day after the last day of the calendar quarter in which the final settlement date for such Refined Precious Metals falls and (ii) for Products that are not Refined Precious Metals on or before the 30th day after the last day of the calendar quarter in which the remaining Participant or its Affiliates actually receives payment for such Products. Each such payment shall be provisional and subject to adjustment as of the end of the remaining Participant’s fiscal year. All royalty payments shall be accompanied by a statement and

 

 

 

 

settlement sheet showing the quantities and grades of metals, ores, minerals, or materials mined and sold from the Properties, proceeds of sale, costs assays and other information in sufficient detail to explain calculation of the royalty payment.

(f) Within 90 days after the end of each calendar year, the remaining Participant shall deliver to the royalty recipient an unaudited statement of royalties paid during the year and the calculation thereof. All year-end statements shall be deemed true and correct six months after presentation, unless within that period the royalty recipient delivers notice to the remaining Participant specifying with particularity the grounds for each exception. The royalty recipient shall be entitled at the royalty recipient’s expense to an annual independent audit of the statement by a certified public accountant of recognized standing acceptable to the remaining Participant, but only if the royalty recipient delivers a demand for audit to the remaining Participant within three months after presentation of the related year-end statement. The remaining Participant shall account for any agreed upon excess or deficit in any payment made to the royalty recipient hereunder by adjusting the next quarterly royalty payment following completion of such audit to account for such excess or deficit. If the results of such audit reveal an underpayment of royalties in excess of ten percent (10%) of the amount that was otherwise owed, the remaining participant shall reimburse the royalty recipient for the reasonable costs of such audit.

 

(g) The remaining Participant may commingle ores and minerals from the Properties with other ores and minerals. Before commingling, the remaining Participant shall weigh (or calculate by volume), sample and assay such ores and minerals in accordance with sound mining and metallurgical practices for moisture and payable content. The remaining Participant shall keep records of such determination for one year after the end of the calendar year in which such determinations are made.

 

(h)  The royalty recipient shall have the inspection rights set forth in Subsection 5.1(c) of the Agreement.

 

(i)  All profits and losses resulting from the remaining Participant engaging in any commodity futures trading, option trading, or metals trading, or any combination thereof, and any other hedging transactions (collectively “hedging transactions”) are specifically excluded from Net Smelter Returns Royalty calculation. All hedging transactions by the remaining Participant, and any profits or losses associated therewith, shall be solely for the remaining Participant’s account.

 

(j)  Not later than March 1 of each year the remaining Participant shall provide to the royalty recipient an annual report of all activities and operations conducted upon or with respect to the Properties during the preceding calendar year. Such annual report shall include estimates

 

 

 

 

of proposed expenditures upon, anticipated production from, and estimated remaining ore reserves on the Properties as of the end of the preceding calendar year.

 

                

 

 

 

 

EXHIBIT E

To

EXPLORATION, DEVELOPMENT AND MINE OPERATING AGREEMENT

By And Between

MGC RESOURCES INC.

And

▇▇▇▇▇▇▇ GOLD EXPLORATION INC.

NET PROCEEDS CALCULATION

1.1       Income and Expenses. Net Proceeds shall be calculated by deducting from the Gross Revenue (as defined below) realized (or deemed to be realized), such costs and expenses attributable to Exploration, Development, Mining, the marketing of Products and other Operations as would be deductible under generally accepted accounting principles and practices consistently applied, including without limitation:

(a)       All costs and expenses of replacing, expanding, modifying, altering or changing from time to time the Mining facilities. Costs and expenses of improvements (such as haulage ways or mill facilities) that are also used in connection with workings other than the Properties shall be charged to the Properties only in the proportion that their use in connection with the Properties bears to their total use;

(b)       Ad valorem real property and unsecured personal property taxes, and all taxes, other than income taxes, applicable to Mining of the Properties, including without limitation all state mining taxes, sales taxes, severance taxes, license fees and governmental levies of a similar nature;

(c)       Allowance for overhead in accordance with Paragraph 2.13 of Exhibit B;

(d)       All expenses incurred relative to the sale of Products, including an allowance for commissions at rates which are normal and customary in the industry;

(e)       All amounts payable to the remaining Participant during Mining pursuant to any applicable operating or similar agreement in force with respect thereto;

(f)        The actual cost of investment under the Agreement but prior to beginning of Mining, which shall include all expenditures for Exploration and Development of the

 

 

 

 

Properties incurred by the non-withdrawing Participant both prior and subsequent to the withdrawing Participant acquiring a Net Proceeds interest;

(g)       Interest on monies borrowed or advanced for costs and expenses, but in no event in excess of the maximum permitted by law;

(i)        Costs of funding the Environmental Compliance Fund as provided in Paragraph 2.14 of Exhibit B;

For purposes hereof, the term “Gross Revenue” shall mean the sum of (i) gross receipts from sale of Products, less any charges for sampling, assaying, or penalties; (ii) gross receipts from the sale or other disposition of Assets; (iii) insurance proceeds; (iv) compensation for expropriation of Assets; and (v) judgment proceeds. Gross receipts for sale of Products shall mean: in the case of gold, the London PM fixing in U.S. Dollars for refined gold (as shown in the column of the Wall Street Journal entitled “Cash Prices” under the sub-entry entitled “Precious Metals”) for the date of sale; in the case of silver, the Handy & ▇▇▇▇▇▇ base price for silver in U.S. Dollars (as shown in the column of the Wall Street Journal entitled “Cash Prices” under the sub-entry entitled “Precious Metals”) for the date of sale; and for all other Products, the gross amount actually received by the remaining Participant from the purchaser for the Products so sold.

It is intended that the remaining Participant shall recoup from Gross Revenue all of its on-going contributions for Exploration, Development, Mining, Expansion and Modification and marketing Products before any Net Proceeds are distributed to any person holding a Net Proceeds interest. No deduction shall be made for income taxes, depreciation, amortization or depletion. If in any year after the beginning of Mining of the Properties an operating loss relative thereto is incurred, the amount thereof shall be considered as and be included with outstanding costs and expenses and carried forward in determining Net Proceeds for subsequent periods. If Products are processed by the remaining Participant, or are sold to an Affiliate of the remaining Participant, then, for purposes of calculating Net Proceeds, such Products shall be deemed conclusively to have been sold at a price equal to fair market value to an arm’s length purchaser FOB the concentrator for the Properties, and Net Proceeds relative thereto shall be calculated without reference to any profits or losses attributable to smelting or refining.

 

 

 

 

1.2       Payment of Net Proceeds. Payments of Net Proceeds shall commence in the calendar quarter following the calendar quarter in which Net Proceeds are first realized, and shall be made forty-five (45) days following the end of each calendar quarter during which Net Proceeds are realized, and shall be subject to adjustment, if required, at the end of each calendar year. The recipient of such Net Proceeds payments shall have the right to audit such payments following receipt of each payment by giving notice to the remaining Participant and by conducting such audit in accordance with Section 10.6 of the Agreement. Costs of such an audit shall be borne by the holder of the Net Proceeds interest described herein.

1.3       Definitions. All capitalized words and terms used herein have the same meaning as in the Agreement.

 

 

 

 

EXHIBIT F

To

EXPLORATION, DEVELOPMENT AND MINE OPERATING AGREEMENT

By And Between

MGC RESOURCES INC.

And

▇▇▇▇▇▇▇ GOLD EXPLORATION INC.

INSURANCE

The Manager shall, at all times while conducting Operations, comply fully with the applicable worker’s compensation laws and purchase, or provide protection for the Participants comparable to that provided under standard form insurance policies for the following risk categories: (i) comprehensive public liability and property damage with combined limits of not less than $5,000,000 for bodily injury and property damage; (ii) automobile insurance with combined limits of not less than $5,000,000; and (iii) adequate and reasonable insurance against risk of fire and other risks ordinarily insured against in similar operations. If the Manager elects to self-insure, it shall charge to the Business Account an amount equal to the premium it would have paid had it secured and maintained a policy or policies of insurance on a competitive bid basis in the amount of such coverage. Each Participant shall self-insure or purchase for its own account such additional insurance as it deems necessary.

 

 

 

 

EXHIBIT G

To

EXPLORATION, DEVELOPMENT AND MINE OPERATING AGREEMENT

By And Between

MGC RESOURCES INC.

And

▇▇▇▇▇▇▇ GOLD EXPLORATION INC.

PREEMPTIVE RIGHTS

1.1       Preemptive Rights. If either Participant intends to Transfer all or any part of its Participating Interest, or an Affiliate of either Participant intends to Transfer Control of such Participant (“Transferring Entity”), but not in the event of a proposed acquisition of Control of an Affiliate of a Participant, such Participant shall promptly notify the other Participant of such intentions. The notice shall state the price and all other pertinent terms and conditions of the intended Transfer, and shall be accompanied by a copy of the offer or the contract for sale. If the consideration for the intended transfer is, in whole or in part, other than monetary, the notice shall describe such consideration and its monetary equivalent (based upon the fair market value of the nonmonetary consideration and stated in terms of cash or currency). The other Participant shall have 30 days from the date such notice is delivered to notify the Transferring Entity (and the Participant if its Affiliate is the Transferring Entity) whether it elects to acquire the offered interest at the same price (or its monetary equivalent in cash or currency) and on the same terms and conditions as set forth in the notice. If it does so elect, the acquisition by the other Participant shall be consummated promptly after notice of such election is delivered;

(a)       If the other Participant fails to so elect within the period provided for above, the Transferring Entity shall have 120 days following the expiration of such period to consummate the Transfer to a third party at a price and on terms no less favorable to the Transferring Entity than those offered by the Transferring Entity to the other Participant in the aforementioned notice;

(b)       If the Transferring Entity fails to consummate the Transfer to a third party within the period set forth above, the preemptive right of the other Participant in such offered interest shall be deemed to be revived. Any subsequent proposal to Transfer such interest shall be conducted in accordance with all of the procedures set forth in this Paragraph.

 

EXHIBIT G

PAGE 1

 

 

 

 

1.2       Exceptions to Preemptive Right. Paragraph 1.1 above shall not apply to the following:

 

(a)       Transfer by either Participant of all or any part of its Participating Interest to an Affiliate;

(b)       Incorporation of either Participant, or corporate consolidation or reorganization of either Participant by which the surviving entity shall possess substantially all of the stock or all of the property rights and interests, and be subject to substantially all of the liabilities and obligations of that Participant;

(c)       Corporate merger or amalgamation involving either Participant by which the surviving entity or amalgamated company shall possess all of the stock or all of the property rights and interests, and be subject to substantially all of the liabilities and obligations of that Participant; provided, however, that the value of the merging or amalgamating Participant’s Net Worth does not exceed 50% percent of the Net Worth of the surviving entity or amalgamated company;

(d)       the transfer of Control of either Participant by an Affiliate to such Participant or to another Affiliate;

(e)       subject to Subsection 14.2(f) of the Agreement, the grant by either Participant of a security interest in its Participating Interest by Encumbrance;

(f)        the creation by any Affiliate of either Participant of an Encumbrance affecting its Control of such Participant;

(g)       a sale or other commitment or disposition of Products or proceeds from sale of Products by either Participant upon distribution to it pursuant to Article XI of the Agreement; or

(h)       a transfer by an Affiliate of either Participant of direct Control of such Participant to a third party, provided the Net Worth of such Participant does not exceed 50% of the Net Worth of the transferring Affiliate, or does not exceed 50% of the Net Worth of Transferee.

For purposes hereof, the term “Net Worth” shall mean the remainder after total liabilities are deducted from total assets. In the case of a corporation, Net Worth includes both capital stock and surplus. In the case of a limited liability company, Net Worth includes member contributions. In the case of a partnership or sole proprietorship, Net Worth includes the original investment plus accumulated and reinvested profits.