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[TRANSLATED FROM SPANISH TO ENGLISH]
BASES OF AGREEMENT
BETWEEN
MINERA FREMONT GOLD CHILE S.A.
AND
▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇ P. AND OTHERS
In Santiago, Chile on 22 January 1997, between the representatives of
Minera Fremont Gold Chile S.A., Messrs. ▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇ Irarrazabal and ▇▇▇▇▇▇▇
▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇, all domiciled for this purpose at ▇▇▇ ▇▇▇ ▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇
▇▇▇▇▇▇, as the first party, hereinafter "the Company," and as the other party,
hereinafter "the Proprietors," Messrs. ▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇ ▇▇▇▇▇▇▇, ▇▇▇▇ ▇▇▇▇▇▇▇
▇▇▇▇▇ ▇▇▇▇▇▇ and ▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇ ▇▇▇▇▇▇, all domiciled, for this purpose, at
▇▇▇▇ ▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇▇▇▇ ▇▇▇, ▇▇▇ ▇▇▇▇▇▇, it has been agreed that the bases will
be established for an agreement of mining exploration and operation, under the
terms mentioned hereinafter:
FIRST: ▇▇. ▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇ Prohens, ▇▇. ▇▇▇▇ ▇▇▇▇▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇▇ and
▇▇. ▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇ ▇▇▇▇▇▇ are owners of or own rights in twenty-three (23)
mining properties and two (2) overlapping mining properties located in the
sector of Aldebarran in the Maricunga mountain chain. The individualization of
these mining properties and their plans are included in Annex 1 attached hereto
and which for all purposes must be understood to be part and parcel of same.
SECOND: On its part, Minera Fremont Gold Chile S.A. is a company that
has the financial and technical resources that permit it to explore the mining
properties mentioned in the previous clause, and if the reports confirm the
existence of ore in them, to develop an operation project according to the
potential that may be established.
THIRD: Taking the statements of the previous clauses into
consideration, the Proprietors have agreed with the Company that at this time
they will establish the basic conditions and set up a procedure that will allow
them to become partners or stockholders in one same company, intended for the
mining of the mineral ores that may be discovered.
FOURTH: For this purpose, the parties hereto hereby agree to proceed as
follows:
A. Organization of the Partnership.
1. The Proprietors must organize a stock company or
contractual mining company within the time period of ninety(90) days counted
from this date, to which the mentioned twenty-five (25) mining properties must
be contributed and the future rights on the application for water rights that is
in the pipeline according to file ND 0302428 order number 495. At the moment of
the organization, a stockholders' pact must be signed that considers all the
agreements established in this document.
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2. The capital stock shall be U.S. $3,000,000 of which U.S.
$2,000,000 will be equivalent to the price of the mining properties and U.S.
$1,000,000 the value of the works that the Company must execute. These amounts
will be capitalized through the subscription of cash shares for the same value.
3. The Proprietors will sell to the Company five hundred (500)
Series A shares of the new Partnership in the amount of U.S. $500,000 according
to the payment formula mentioned hereinafter (number 7 below).
4. As a result of the sale of shares and the valuation of the
exploration work capitalized, the stockholders of the Partnership shall be the
Proprietors and the Company, each one with fifty percent (50%) of the shares.
5. The Partnership will issue 3,000 shares of which 1,500 will
be Series A and 1,500 shall be Series B.
6. The Series B shares will always receive a percentage of the
patrimony and rights in the Company (right to vote at the stockholders'
meetings) equivalent to twenty-five percent (25%) of the total.
7. The U.S. $500,000 mentioned in number 3 above, equivalent
to 500 Series A shares, will be paid by the Company on the following dates:
a. U.S. $30,000 when this Agreement is signed;
b. U.S. $135,000 on or before 30 April 1997;
c. U.S. $135,000 on or before 30 November 1997;
d. U.S. $100,000 on or before 31 March 1998;
and
e. U.S. $100,000 on or before 31 March 199.
The shares will be transferred on the same date and on the same
occasion when the quota mentioned in letter "e" is paid. Non-payment of one of
the quotas will give the sellers the right to consider this Agreement finished,
and this does not imply that the Proprietors must pay back to the Company the
amount of the quotas that has already been paid.
The cancellation of the U.S. $135,000 mentioned in letter "b" will be
subject to the Partnership being organized by that date. The mentioned payment
will only be made once the mentioned Partnership and the Stockholders' Agreement
that picks up the terms of this Agreement have been established.
B. Obligations of the Company in the Preliminary Stages.
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1. To be able to have access to the option to subscribe 1,000
Class A cash shares of the new Partnership, the Company must execute the work
specified hereinafter at its own expense, valued at approximately $1,000,000.
2. The mentioned works shall consist of the following:
a. Period January 1997 - April 1997
(1) Geological survey and mapping
(2) Study of satellite images
b. Period September 1997 - March 1998
(1) Geophysical survey
(2) Geochemical surveys
(3) Sampling and prospect pits
(4) First phase of drilling program
with RC (3,000 meters or its
equivalent in diamantine)
(5) Laboratory analysis of rock
sampling, reverse air drilling
and/or diamantine drill cores
c. Period September 1998 - March 1999
(1) Second phase of drilling program
with RC (6,000 meters or its
equivalent in diamantine)
(2) Laboratory analysis of rock
sampling, reverse air drilling
and/or diamantine drill cores
d. Period February 1997 - March 1999
(1) Maintenance costs for patents,
measurements and water rights
included.
It is hereby put on record that the amount of U.S. $1,000,00 for the
works specified above is merely an estimate, and may vary for or against the
Company, but this is no reason for a variation in the number of cash shares
which must be issued once the above-described works are concluded.
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The parties hereto also agree that the number of surveys may vary
depending on the result of each one of the stages. The decision as to the
technology to be used shall be the responsibility of and will depend on the
criteria of the Company.
The work period may be put forward or be delayed for climatic reasons.
If the calendar of the period should be modified, the payments indicated in the
fourth clause of A7 will be put forward or postponed simultaneously.
C. Patents, Measurements and Applications for Water Rights.
All expenses during the currency of the exploration period until the
option to subscribe cash shares that originate in patents and costs of
measurements and water feasibilities, shall be chargeable to the Company. These
amounts will be allocated to the U.S. $1,000,000 considered as a cost of the
works to be executed.
On the other hand, the Proprietors will be responsible for the judicial
protection of the mining properties and they will be responsible for advising
the Company of the date on which taxes or rights chargeable to the Company must
be paid. This notice must be sent by letter to the legal place of business of
the Company at least thirty (30) days prior to the date of payment.
If the Company, having been correctly notified of its obligation to
make a payment of those mentioned above, does not do so within the proper time,
and odes not give the Proprietors fifteen (15) days prior notice before the
expiry date of the payment of their intention not to fulfill said obligation,
not only will this cause the Company to lose its share option, but the Company
may also be subject to the payment of damages as may be determined by the
arbitrating arbiter.
If the Company is not notified correctly of the need to make any of the
above-mentioned payments, this being understood to mean an indication of the
amount and moment of the payments, and because of this fact this should cause
the Company some damages, the arbiter will be authorized to determine the amount
of said damages and may demand the respective indemnity from the Proprietors.
D. Unilateral Waiver.
The Company, if it wishes, may waive, unilaterally and with
explanation, the option to subscribe the above-mentioned cash shares, as well as
the possibility of purchasing the five- hundred (500) shares under the
conditions indicated in letter A number 7.
The Company must execute the waiver of the option by means of a letter
addressed to the legal place of business of the Proprietors.
If the waiver of the option and purchase of shares should take place,
the Company must give the Proprietors all the objective information which has
been produced as a result of the execution of the exploration work.
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E. Advance Closing of the Option.
1. The Company will be considered as having lost the right to
the option to purchase shares and subscribe cash shares, under the
above-mentioned conditions, if it does not execute the works mentioned in the
fourth clause letter B number 2, does not comply with the payments described in
the same fourth clause letter A number 3, nor pays within the time period agreed
upon for the purchase of shares, as established in clause four letter A number
7.
In spite of the above, the Company may delay the payments for a maximum
period of sixty (60) days counted from the date on which they should have been
made, and this delay shall not imply for the Company the loss of the options to
purchase or subscribe cash shares.
Assuming that the Company requests the extension of the deadlines for
payment, this mere fact will place it under the obligation to pay within the
time period agreed upon, with the risk that it may lose the described options
irremediably. Nevertheless, if the Company does not pay within the time period
agreed upon, the Proprietors must notify the Company of the non-payment of the
amount owed and in this case the Company must proceed with the cash payment of
its obligation within a maximum time period of ten (10) days.
It is also agreed that if the Company does not request an extension of
the time period for payment, it is understood that it is waiving the options.
2. Another cause for the early cancellation of the option is
the fact that the Company does not deliver the information required pursuant to
letter F below; or, if having delivered it, its content has been altered and can
be considered fraudulent. In this event, the arbitrating arbiter appointed
hereinafter will be the one to decide on the cancellation or continuity of the
option based on the antecedents and tests that the claimant gives him.
Notwithstanding the above, the Proprietors will have the right to request that
the arbiter set damages for nonfulfillment by the Company.
F. Information.
The Company undertakes to deliver to the Proprietors all the objective
information produced by the surveys and explorations carried out in the mining
properties that are the subject matter of this Agreement. For this purpose, the
Company, before May 15 of each year, must make a formal presentation to the
Proprietors of the works and surveys executed during the summer season
immediately prior to that date.
It is hereby put on record that technical reports issued by third
parties will not commit the Company with regard to the content of their
conclusions, whether these originate from the same third parties or from the
Company, because for all purposes they must be considered as being for
illustration purposes only.
G. Agreements Subsequent to the Exercising of the Options.
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1. Share Structure. Once the Company has exercised the
mentioned options to purchase and subscribe shares, the share structure of the
mining partnership set up pursuant to letter A1 of this clause will be divided
into 1,500 Series A shares subscribed by the Company and 1,500 Series B shares
subscribed by the Proprietors.
2. Administration. The Company feels that an essential
condition to the signing of this Agreement is that the administration and
operation of the Company to be organized shall be in the hands or and be the
responsibility of Miner Fremont Gold Chile S.A.
3. Board of Directors. Notwithstanding what is stated in the
previous number, the parties hereby agree that the Board of Directors of the
Company shall consist of five members, two chosen by the Company, two chosen by
the Proprietors and one chosen by mutual agreement.
On the other hand, they undertake to establish the administrative
authority invested in the Board of Directors, in order to clearly establish the
framework for said Board of Directors and separate the powers of administration
and management in the new partnership that the Company considers essential for
the future. In effect, the parties agree to establish the following powers for
the Board of Directors:
- Appointment of auditors or other professionals that have to be
hired for an adequate control of the Company's administration.
- Study and develop new business.
- Purchase or rent the goods that are not necessary for the
operation of the Company.
- Sale or rental of the Company's assets.
- Establish liens on the Company's goods to guarantee its own
obligations, except with regard to guaranties granted for the
construction of the plant, where the intent of the Company
will be enough.
- Hold the Partnership liable with the purpose of guaranteeing
third party commitments.
- Indebtedness with banks except to obtain financing for working
capital (including leasing).
- Contracts with future and operations with by-products.
- Institutions with which financial investments can be made.
- Lawsuits with third parties started by the Partnership or
against the Partnership.
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- Distribution of dividends above the legal limitations.
- Operations with companies or related persons.
- Investments that represent more than U.S. $1,000,000 must be
made with a prior public or private call for bids, unless
specifically authorized by the Board of Directors.
4. Mutual Right to First Option. The stockholders of the new
Partnership may freely sell and rent stock with the condition that they must
first offer the other stockholders, in proportion to their stock participation,
a first option of sale or rental under the same conditions that they are being
offered to a third party.
If a third party should prove to be interested in the purchase or
rental of stock, all the stockholders must be notified of the conditions of the
ale or rental in a bona fide offer signed by the interested third party.
In spite of the above, the Proprietors are free to contribute and
without prior notification to the rest of the stockholders, all or part of their
Series A or B block to a holding company.
The norms that will govern the manner in which the offer of stock among
the stockholders, deadlines, etc., will be put into effect shall be established
in the Bylaws of the Company that will be organized.
It is hereby put on record that the norms that will govern the first
option of sale or rental of stock will not apply in the case of transactions
between the stockholders that form part of the Proprietors or of the Company.
5. Financing of Stages Subsequent to Those Indicated in
Letter B Number 2 and Feasibility Studies.
(a) The cost of stages subsequent to those
indicated in clause four letter B number 2
of this Agreement, until the completion of
the feasibility study, will be financed by
the stockholders in proportion to their
share participation, whether they are Series
A or B stockholders.
The parties and in the future stockholders
undertake to take part in the financing
under the mentioned terms. In this respect,
they agree that they must have sufficient
funds to take part in the mentioned
financing, within the time period of 180
days for the first stage and 60 days for the
remaining stages, counted from the
notification which Minera Fremont Gold Chile
S.A. must send to all the stockholders of
the new Partnership, indicating the need to
count on sufficient resources to continue
developing the project.
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(b) Once the feasibility study is finished, it
is agreed that the new Partnership will
issue 3,000 Series A cash shares which may
be subscribed by all the stockholders in
proportion to the percentage contributed
towards the total financing of the mentioned
study.
If the Series B stock does not take part in
the financing of the feasibility study, it
cannot be diluted to less than twenty-five
percent (25%) of the patrimony and company
rights pursuant to stipulations in clause
four letter A number 6.
6. Special Option for B Series Stockholders. Once the
feasibility study is finished, the Series B stockholders will have the option to
exchange all their stock for the right to obtain a net smelter return of three
percent (3%) calculated on the production of all the mineral ore obtained from
the working of the mineral deposit.
The mentioned option will have a duration of one hundred and twenty
(120) days counted from the notification that the Company must make informing
that the feasibility study has been finished. The notification must be
accompanied by a copy of the mentioned study.
7. Financing of the Plant.
(a) The financing of the construction of an ore
processing plant, its operation and other
costs related to a mining project under
execution, must be requested by the new
Partnership, and, to guarantee the credits,
it may establish liens on the Company's
assets and, if necessary, the stockholders
must be willing to mortgage their own stock.
(b) The parties hereto agree that additional
investments in the form of an "equity" or
subordinate debt may be required by other
financial institutions in order to ensure
the primary financing of the plant.
(c) The Company assumes the obligation to
finance the capital increases which the
Series B stockholders may be obliged to
make, as described in letter G7b so that the
new Partnership may have sufficient
resources to develop the project.
(d) The Company also undertakes to do its best,
at its own discretion, to obtain the
financing of the other Series A stockholders
on the occasion of increases in the capital
stock of the new Partnership, in order to
develop the mining project that is the
subject matter of this Agreement.
(e) Inasmuch as the Company provides the capital
required by the Series B stock, pursuant to
the provisions of letter G7b, the
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Company may charge the Series B stockholder
an interest rate equal to the LIBOR rate
plus a maximum of five percent (5%).
(f) If the company obtains the financing,
pursuant to the provisions of letter G7b,
for the Series A stockholders in the part
related to the Proprietors, the latter shall
be obliged to pay a rate of two and one half
percent (2.5%) over the sum financed.
(g) If the Proprietors cannot or do not wish to
concur with their obligation to participate
in the financing of the plant under the
terms established in letter G7b, the
Proprietors hereby agree to authorize with
their vote the issuing of a number of Series
A stock which will permit the attraction of
the required capital.
(h) With regard to the payment of investments
subsequent to the feasibility study and
dividend to the stockholders and with the
object of establishing the priority of the
distribution of income, the concept of "net
cash flow" equal to net earnings plus
depreciation plus depletion plus indexing to
inflation minus debts to third parties will
be used. The priority of the net cash flow
must be:
(1) Its distribution among the
stockholders in proportion to their
stock participation.
(2) With regard to the Series B stock,
the respective flow must be paid to
the Company until the latter
receives the total amounts loaned
plus the interest to the owners of
Series B stock.
(3) Finally, with regard to the net cash
flow of the Series A stock, it must
be delivered entirely to the Company
until completion of payment of the
loan which the Company may have
made, plus its interest.
8. Financing of Future Explorations. The financing of future
explorations within the grounds that make up the Santa ▇▇▇▇▇▇ mining properties
must be financed chargeable to the net cash flow defined above.
FIFTH: The parties hereto agree that an essential condition for the
agreements in this document to be put into effect is that legal title to the
mining properties identified in Annex 1, which must be contributed to the
Partnership that will be organized, will comply with the law.
In this respect, the Proprietors will have a time period of thirty (30)
days counted from this date to deliver the respective documents to the Company,
and these shall be studied by the lawyer specializing in mining law, ▇▇. ▇▇▇▇▇▇▇
▇▇▇▇▇.
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SIXTH: In consideration of the payment of U.S. $30,000 made in this
act, the parties hereto agree that if the titles to the mining properties do not
comply with the law, the Proprietors must reimburse the mentioned amount. For
this purpose they leave in the hands of the Notary Public, ▇▇. ▇▇▇▇ ▇▇▇▇▇▇▇ San
▇▇▇▇▇▇ Urrajola, a bank document for the equivalent in local currency of the
mentioned amount, with instructions that it is to be delivered to a
representative of Minera Fremont Gold Chile S.A., if it can prove, attaching the
corresponding report issued by the lawyer, ▇▇. ▇▇▇▇▇▇▇, that the titles to the
mining properties do not comply with the law.
SEVENTH: In addition to the stipulations in the preceding clause, the
parties hereto agree that further to the payment of the U.S. $30,000, the
Proprietors must reimburse the Company for all expenses incurred in patents,
taxes, studies and exploration in the mining properties as of the date and the
date of ▇▇. ▇▇▇▇▇▇▇'▇ negative legal report.
EIGHTH: All doubts and difficulties that may arise between the parties
as a result of the stipulations of this Agreement, whether they refer to the
appreciation of the existence or nonexistence, validity or nullity, fulfillment
and nonfulfillment, revocation, application, interpretation or any other matters
related directly or indirectly with same, shall be resolved by arbitrating
arbiter or friendly mediator chosen by the parties who will have the most ample
authority, including determining the merits of their own capability establishing
norms of procedure and granting the characteristic of civil obligations to those
that may not assemble these requirements. The arbiter who takes office shall act
without a lawsuit and there shall be no appeal to his resolutions, and the
parties hereto hereby waive their right to appeal. For this arbitration and for
the appointment of the arbiter, the parties agree to apply to the Center of
Arbitration of Santiago, pursuant to the Regulations of the Center of
Arbitration of the Chamber of Commerce, whose provisions are on record in the
public writ dated 10 December 1992, issued by the Office of the notary Public of
Santiago, Mr. ▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇, and which were published in the Official
Gazette of the 22nd of June 1993 and are part and parcel of this clause and
which the parties hereto declare they accept and are familiar with. Pursuant to
the above, the parties grant a special irrevocable power of attorney to the
▇▇▇▇▇▇▇▇ Chamber of Commerce so that, at the request of any one of them, it will
appoint an arbitrating arbiter from among the members of this arbitration
association of the Center of Arbitration of this Chamber. The parties also
establish that the arbitration will be permanently open, so that the arbiter may
carry out his work as many times as may be necessary and in each case will have
a time period of two (2) years in which to carry out his assignment. The arbiter
will always be authorized, if the parties cannot come to an agreement as to
procedure, to establish the procedure as he may wish, including matters
referring to the system of notifications; but the first of these must
necessarily be executed pursuant to the rules of the Section Six of the First
book of the Code of Civil Procedure. The court costs resulting of the
arbitration and the arbiter's fees must always be chargeable to both parties, by
halves.
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NINTH: For all legal purposes of this contract, the parties hereto
establish their domicile in the City of ▇▇▇▇▇▇▇▇.
/s/ ▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇ Irarrazabel /s/ ▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇ Prohens
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Minera Fremont Gold Chile S.A. ▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇ Prohens
/s/▇▇▇▇ ▇▇▇▇▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇▇ /s/▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇ ▇▇▇▇▇▇
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