EXHIBIT "2.2"
DYNARESOURCE, INC.
"MINE OPERATING AGREEMENT"
"MOAG"
MINE OPERATING AGREEMENT
This Mine Operating Agreement (the "Operating Agreement") is made
effective as of August 19, 1998, between West Coast Mines, Inc. ("West Coast")
on the one hand and Minera Finisterre, S.A. de C.V. ("Minera" or "Finisterre")
and Golden Hemlock Explorations, Ltd. ("Golden") (collectively
"Finisterre/Golden") on the other hand. For and in consideration of the mutual
covenants contained in this Operating Agreement, and the forbearance of certain
actions, the sufficiency of which is expressly acknowledged and agreed to by the
parties hereto, the parties enter into this Agreement on the terms and
conditions set forth as follows:
RECITALS
WHEREAS, effective as of December 20, 1996, Dynacap/San Xxxx Resource
Group, L.L.C. ("Dynacap"), West Coast and Finisterre/Golden (collectively the
"Parties") entered into that certain Amended and Restated Loan Agreement (the
"Amended Loan Agreement") setting forth the terms and conditions of the Parties'
respective obligations relating to the Mine as that term is defined therein.
Dynacap has transferred and assigned all its right, title and interest in and to
the Amended Loan Agreement and in and to the Mine to West Coast. Golden has
acquired one hundred percent (100%) of Minera and/or the rights in and to one
hundred percent (100%) of Minera;
Finisterre/Golden has conducted exploration activities at the Mine and
otherwise undertook activities under the Amended Loan Agreement. Disagreements
between the Parties have arisen with respect to the scope of, the interpretation
of, and the performance under the Amended Loan Agreement;
Following the execution of the Amended Loan Agreement, West Coast has
contributed additional sums and consideration to the Mine in an amount not less
than $150,000.00 U.S. Dollars. Disagreements have arisen between the Parties
regarding the purpose and treatment of such payments;
In order to resolve the current disputes between the Parties and to
further progress the exploration, development and operation of the Mine, the
Parties desire to amend and restate the Amended Loan Agreement. West Coast and
Finisterre/Golden hereby further amend and restate the Amended Loan Agreement
and intend that the terms of this Operating Agreement as set forth herein shall
govern and control the obligations, responsibilities, duties and rights of the
Parties from this day forward.
ARTICLE 1
DEFINITIONS
1.01 For purposes of this Agreement, the following definitions shall be
used:
(a) Available Cash at any point in time means (i) Cash Flow, plus (ii)
decreases in Cash Reserves (as defined in Section 1.01(e)), less (iii) Operating
Expenses, and less (iv) increases in Cash Reserves.
(b) Cash Flow for any period of time means any consideration without
limitation, whether cash, stock, other interests or anything of value, derived
from the Operation of the Mine.
(c) Operating Expenses for any period of time means subject to the
limitations expressed below, the costs, charges, expenses and disbursements
which Finisterre/Golden (or West Coast, as the case may be) shall directly incur
and pay in connection with development, maintenance, operation, management and
production of the Mine, as approved by the Operating Committee (defined in
Article 6 below) and determined in accordance with generally accepted accounting
principles consistently applied. Any indebtedness, including principal and
interest on any indebtedness for which Finisterre/Golden is liable and which was
incurred to finance the Operation of the Mine will not be an Operating Expense,
unless approved unanimously by the Operating Committee. In order for any payment
to qualify as an Operating Expense, such payment must be approved by the
Operating Committee through the operating budget as provided in Article 6.02 or
through written consent of the Operating Committee. Operating Expenses do not
include costs, charges, expenses or disbursements for exploration of the Mine
unless any such funds disbursed and/or contributed for exploration are generated
from production of the Mine and are approved unanimously by the Operating
Committee and disbursed via the Trust Account. Operating Expenses do not include
income taxes paid by Finisterre/Golden or West Coast and do not include interest
or principal paid to West Coast. Operating Expenses do not include property
payments.
(d) Operation of the Mine means any and all activities which are
derived from or in any way related to the Mine, including without limitation,
exploration of the Mine, any mining activities, the sale of minerals extracted
from the Mine, the sale or licensing of any rights to derive minerals or income
from the Mine, the sale of any rights in the Concessions, and the sale,
transfer, or assignment of any rights or interests whatsoever to directly or
indirectly, develop, operate, control or produce the Mine.
(e) Cash Reserves for any period of time means such amounts of cash
(derived from production of the Mine) to be held in the Trust Account described
in Article 4 as the Operating Committee deems necessary for contingent or
unforeseen liabilities or for obligations of Finisterre/Golden arising out of or
related to the business of the Operation of the Mine. The parties anticipate
that additional funds will be infused by Finisterre/Golden or parties related to
Finisterre/Golden to be deposited into the Capital or Exploration Accounts
described in Article 4. Cash Reserves shall be established and approved by the
Operating Committee for the proper expenditure of any such earmarked cash
infusions into the Capital or Exploration Accounts.
(f) The Mine means the various mineral claims and/or concessions
located in Sinaloa, Mexico described on the attached Exhibit "A," together with
any mineral claims, interest, rights or concessions acquired or optioned by
Finisterre/Golden, its parent or subsidiary companies, successors, assigns,
transferees and related or affiliated companies within a ten-mile radius
(measured from the geographical center point) of the claims and/or concessions
described on Exhibit "A" (the "Concessions") and including any replacement or
successor claims or concessions, and all mining leases and other mining
interests derived from any such claims. The definition of Mine is intended to be
construed as broadly as possible such that all questions regarding rights,
interests, concessions, claims or the like are to be resolved in favor of being
included within the definition of Mine. Finisterre represents and covenants that
Finisterre is the legal owner of the Mine and legal holder of the Concessions.
Equity interest in the Mine is achieved through ownership of stock in
Finisterre.
Election of Net Profits Interest
1.02 Pursuant to Articles 2.04 and 2.05 of the Amended Loan Agreement,
West Coast, at its sole discretion, hereby elects to maintain its 24.9% Net
Profits Interest of Available Cash over the life of the Mine (hereinafter
referred to as the "24.9% Net Profits Interest") as defined and granted in the
Amended Loan Agreement. The 24.9% Net Profits Interest is a pre-tax, carried
interest and is owned by West Coast for so long as the Mine is in existence and
cannot be avoided, diluted, encumbered or hindered in any way without first
obtaining West Coast's prior written consent thereto. The 24.9% Net Profits
Interest shall entitle West Coast to 24.9% of all Available Cash generated from
the Mine over the life of the Mine. West Coast's 24.9% Net Profits Interest set
forth herein is owned and controlled exclusively by West Coast, unencumbered by
any other interest, right, option, lien or agreement.
Loan and Interest Debt Satisfaction
1.03 For good and valuable consideration, including that which is noted
herein, West Coast hereby cancels, forgives, and forever waives any claims that
it has or had to repayment of principal and interest under Articles 1 and 2 of
the Amended Loan Agreement and the December 20, 1996 Promissory Note referenced
therein. In exchange for the debt forgiveness, previous capital contributions
and other good and valuable consideration, Finisterre/Golden grants to West
Coast the 24.9% Net Profits Interest, the shares of stock in Finisterre noted in
Article 2 below, the option described in Article 2.03, and other good and
valuable consideration. West Coast hereby covenants that it will execute
simultaneous with the execution of this Operating Agreement the Cancellation of
Promissory Note attached hereto as Exhibit "B."
Statements
1.04 On or before the tenth day following the end of each calendar
month, the Operating Committee shall furnish to West Coast: (a) a statement
detailing the Available Cash, and specifying the Cash Flow, decreases in
Reserves, Operating Expenses, exploration expenses, and increases in Reserves
for the preceding month; and (b) payments due under this Agreement for the
preceding month. The Parties hereby covenant and agree to promptly provide and
make available to the Operating Committee all information and data requested by
the Secretary to the Operating Committee, so that the Operating Committee can
provide the statements herein on a timely and informed basis.
24.9% Net Profits Interest Payments
1.05 The Operating Committee as defined below shall be responsible for
determining all payments to be made to West Coast under this Article 1 for their
24.9% Net Profits Interest. Absent any contrary decisions by the unanimous vote
of the Operating Committee, West Coast shall be entitled to payments for their
24.9% Net Profits Interest on the 15th day of each month following any Operation
of the Mine.
Right of First Refusal
1.06(a) West Coast hereby grants a right of first refusal to Golden for
the purchase of the 24.9% Net Profits Interest and its Minera Finisterre stock
should West Coast elect to sell, convey, or otherwise dispose of the 24.9% Net
Profits Interest or its Minera Finisterre stock and hereby covenants and agrees
that West Coast shall offer the 24.9% Net Profits Interest and its Minera
Finisterre stock in writing for purchase by Golden prior to selling, conveying,
or otherwise disposing of the 24.9% Net Profits Interest or its Minera
Finisterre stock to any entity or person at or for the same consideration
offered to such entity or person. Upon receipt of written notice from West
Coast, Golden shall have ten (10) days to elect to exercise its right of first
refusal and thereafter, twenty (20) days to close. Should Golden fail to elect
to exercise its right of first refusal timely, or fail to close timely, Golden's
right of first refusal expires.
1.06(b) Should Golden elect not to continue ownership of Minera or
ownership, operation, development, exploration or production of the Mine, Golden
hereby (1) grants a right of first refusal to West Coast for the purchase of its
interest in Minera and/or the Mine and hereby covenants and agrees that Golden
shall offer its interest in Minera and/or the Mine in writing for purchase by
West Coast prior to selling, conveying, or otherwise disposing of such interest
to any entity or person at or for the same consideration offered to such entity
or person and (2) agrees to assign to West Coast immediately without delay or
condition, its option agreement dated April 23, 1996 (defined as the "126
Agreement" in Article 2.07). Upon receipt of written notice from Golden, West
Coast shall have sixty (60) days to elect to exercise its right of first refusal
and thereafter, one hundred twenty (120) days to close. Should Golden fail to
continue ownership of Minera or ownership, operation, development, exploration
or production of the Mine, such failure shall not diminish, dilute or reduce
Minera's obligations and responsibility to develop the Mine and perform under
this Operating Agreement.
1.06(c) Upon the sale, transfer, conveyance, assignment or exchange of
any of Finisterre's or Golden's interest, right, ownership, claim or control in
the Concessions or the Mine, all consideration without limitation, including
cash, stock or other interests of value, received for such sale, transfer,
conveyance, assignment or exchange shall be immediately deposited into the Trust
Account and disbursed in accordance with Article 4.01.
1.06(d) Any deviation of Article 1.06(c) above shall specifically
require the unanimous written consent of the Operating Committee.
Value Added Tax
1.07 Any liability for value added tax is the sole liability of
Finisterre/Golden, and such tax shall not reduce any payments to West Coast
under this Operating Agreement. Taxes, such as sales taxes, incurred on
purchases of equipment in connection with the Operation of the Mine may be an
Operating Expense, if such purchase has been approved by the Operating
Committee.
Withholding Tax
1.08 The parties understand that the payments under this Operating
Agreement may be subject to a withholding tax pursuant to the Convention between
United States and Mexico for Avoidance of Double Taxation and Prevention of
Fiscal Evasion with Respect to Income Taxes, which rate is subject to a
reduction to ten percent (10%) upon certain conditions. For so long as the
treaty is in effect, Finisterre/Golden and West Coast shall use their best
efforts to comply with the conditions so as to qualify for ten percent (10%)
withholding tax.
ARTICLE 2
EQUITY INTEREST
2.0 1(a) Transfer of Minera Finisterre Shares. Finisterre/Golden agree
to transfer to West Coast twenty-five percent (25%) of the one hundred percent
(100%) of shares of stock presently issued and outstanding in Minera Finisterre,
S.A. de C.V. Such number of shares shall be calculated by determining the total
number of Minera Finisterre shares outstanding and multiplying such number by
twenty-five percent (25%). Such shares shall be immediately transferred to West
Coast upon execution of this Operating Agreement. Except as provided in Article
2.04 or as otherwise approved by the unanimous vote of the Operating Committee,
West Coast's twenty-five percent (25%) ownership of Minera Finisterre shares,
shall not be diluted or diminished in any way.
2.0 1(b) Private Placement of Golden Shares. Simultaneous with the
final execution of this Operating Agreement, Golden shall submit private
placement documents to West Coast for the private placement of 333,333 shares of
Golden stock at fifteen cents ($. 15) (Cnd.) per share, together with Options
for 333,333 shares of Golden stock, exercisable by West Coast within a two-year
period, at fifteen cents ($.15) (Cnd.) during the first year, and at seventeen
and one-half cents ($.175) (Cnd.) per share during the second year.
Upon the full and final execution of this Operating Agreement, and upon
West Coast's receipt of the private placement documents described in this
Article 2.01(b) and upon West Coast's receipt of the Finisterre shares described
in Article 2.01(a) above, West Coast shall tender the sum of $50,000.00 (Cnd.)
to Golden. Golden's receipt of the $50,000.00 (Cnd.) is to be used by Golden to
return the Company to regulatory compliance with the Vancouver Stock Exchange.
Capital Contribution Calculation
2.02 For purposes of calculating the equity contributions made by the
parties, the following estimated amounts are hereby agreed to be the capital
contributions of the parties made to date:
Golden $4,500,000.00 (Cnd.) 75%
West Coast $l.500~000.00 (Cnd.) 25%
---------- -------------------------
Total $6,000,000.00 (Cnd.) 100%
The $4,500,000.00 (Cnd.) assigned to Golden is comprised primarily of property
and cash payments and the waiver of the obligations of Golden to contribute
$250,000.00 (U.S.) to the Capital Account (see Article 2.06.). The $1,500,000.00
(Cnd.) assigned to West Coast is comprised primarily of cash payments and
forgiveness of debt, accelerated payback and interest as noted herein. The
contribution calculations contained within this paragraph shall serve as the
basis for future rights for equity contributions provided for under this
Operating Agreement. Thus, the parties' interests in Minera Finisterre will vary
according to the party's actual contribution in accordance with the following
formula:
% = actual expenses of a party x 100
actual expenses of both parties
West Coast Equity Infusions
2.03(a) S350.000.00 (Cnd.) Commitment. Notwithstanding the above, West
Coast will contribute no less than $350,000.00 (Cnd.) on or before December 31,
1999, With respect to this $350,000.00 (Cnd.) contribution by West Coast, Golden
shall have no right to contribute unless agreed to by West Coast. West Coast
shall receive Minera Finisterre stock directly in proportion to the increase in
its capital contribution divided by the total capital contributions made by
Golden and West Coast. The calculations for equity interest shall be made based
upon the total capital contributions by the parties of $6,000,000.00 (Cnd.), and
shall be increased incrementally based upon the percentage of additional
contribution. Therefore, West Coast will earn additional equity interest of four
and thirteen one-hundredth's percent (4.13%) of the additional outstanding
Minera Finisterre stock by contributing $350,000.00 (Cnd.), thereby increasing
West Coast's total capital contribution to $1,850,000.00 (Cnd.), or twenty-nine
and thirteen one-hundredth's percent (29.13%) of the total $6,350,000.00 (Cnd.)
contributed by the Parties. Thus, at the conclusion of West Coast's $350,000.00
(Cnd.) contribution, West Coast will own twenty-nine and thirteen-hundredth's
percent (29.13%) of the outstanding stock in Minera Finisterre. West Coast's
failure to contribute the $350,000.00 (Cnd.) on or before December 31, 1999,
shall result in the immediate forfeiture of the First and Second Options defined
below. The Option forfeiture shall be Finisterre/Golden's sole remedy for West
Coast's failure to contribute said $350,000.00 (Cnd.)..
2.03(b) West Coast's First Option. West Coast will have the exclusive
option (the "First Option") to contribute up to a total of $650,000.00 (Cnd.) to
acquire or earn additional equity interest (i.e., Minera Finisterre stock) in
proportion to the contributions of the previous Article 2.02 and 2.03(a). The
First Option shall expire December 31, 1999. With respect to any contribution(s)
made by West Coast in connection with this First Option, Golden shall have no
right to contribute unless agreed to by West Coast. West Coast shall receive
Minera Finisterre stock directly in proportion to the increase in its capital
contribution in proportion to the total capital contributions made by Golden and
West Coast. The calculations for equity interest shall be made based upon the
total capital contributions by the Parties of $6,350,000.00 (Cnd.), and shall be
increased incrementally based upon the percentage of additional contribution. By
way of example, West Coast may earn additional equity interest up to a maximum
of six and fifty-seven hundredth's percent (6.5 7%) of the additional
outstanding Minera Finisterre stock by contributing up to $650,000.00 (Cnd.),
thereby increasing West Coast's total capital contribution to $2,500,000.00
(Cnd.) or thirty-five and seven-tenth's percent (35.7%) of the total
$7,000,000.00 (Cnd.) contributed by the Parties. Under this example, West Coast
will own thirty-five and seven-tenth's percent (35.7%) of the outstanding stock
in Minera Finisterre. Golden acknowledges that West Coast is not obligated to
contribute the entire $650,000.00 (Cnd.) and may contribute any amount(s), in
West Coast's sole and absolute discretion, up to $650,000.00 (Cnd.) and earn
equity interest in Minera Finisterre proportionately.
2.03(c) West Coast's Second Option. Assuming West Coast exercises any
portion of the First Option set forth in Article 2.03(b) above, West Coast will
have the exclusive option to contribute additional capital (without opportunity
for Golden to match), in an amount up to and including $1,000,000.00 (Cnd.)
prior to December 31, 2000 (the "Second Option"). Said additional
contribution(s) by West Coast pursuant to this Second Option is to acquire or
earn additional equity interest (i.e., Minera Finisterre stock) in proportion to
the contributions of the previous Articles 2.02 and 2.03(a) and (b). West Coast
shall receive Minera Finisterre stock directly in proportion to the increase in
its capital contribution in proportion to the total capital contributions made
by Golden and West Coast. The calculations for such equity interest shall be
made just as in Article 2.03(a) and (b) above. By way of example, West Coast may
earn additional equity interest up to a maximum of eight and five-hundredth's
percent (8.05%) of the additional outstanding Minera Finisterre stock by
exercising the Second Option and contributing up to an additional $1,000,000.00
(Cnd.), thereby increasing West Coast's total capital contribution to
$3,500,000.00 (Cnd.), or forty-three and three-fourths percent (43.75%) of the
total $8,000.000.00 (Cnd.) contributed by the Parties. Under this example, West
Coast will own forty-three and three-fourths percent (43.75%) of the outstanding
stock in Minera Finisterre. Golden acknowledges that West Coast is not obligated
to contribute the entire $1,000,000.00 (Cnd.) and may contribute any amount, in
West Coast's sole and absolute discretion, up to $1,000,000.00 (Cnd.) and earn
equity interest in Minera Finisterre proportionately.
2.03(d) With respect to the timing of the contributions referenced in
Articles 2.03(a), (b) and (c), the Parties acknowledge and agree that such
contributions by West Coast shall be deemed contributed when deposited into the
Exploration and/or Capital accounts referenced in Articles 4.02 and 4.03,
respectively. Once the contributions are made to the respective accounts by West
Coast, Golden/Finisterre covenant and agree to immediately cause the issuance
and/or transfer to West Coast of sufficient shares of Minera Finisterre stock
such that West Coast equity ownership of Minera Finisterre will equal its
percentage contributions referenced in Articles 2.03(a), (b) and (c) above. By
way of example only, immediately upon the conclusion of West Coast's commitment
in 2.03(a) and the contribution of $350,000.00 (Cnd.) being deposited by West
Coast into either the Exploration or Capital account, Golden and/or Finisterre
will cause the immediate issuance and/or transfer of sufficient number of shares
to West Coast such that West Coast will own and physically possess twenty-nine
and thirteen one-hundredth's percent (29.13%) of the outstanding stock of Minera
Finisterre.
2.03(e) Notwithstanding anything in Articles 2.03(a), (b), (c) and (d)
above, Finisterre/ Golden shall remain obligated and responsible for prudent and
professional development of the Mine.
Dilution Clause
2.04 The proportionate level of the respective interests of West Coast
and Golden in Minera Finisterre will not change so long as each party
contributes its proportionate share of costs and expenses relating to
exploration or development programs for the Mine, as approved by the Operating
Committee, save and except West Coast's contributions in Articles 2.03(a),
2.03(b) and 2.03(c) above to spend the above-referenced $350,000.00 (Cnd.) and
up to $2,000,000.00 (Cnd.) to earn an additional interest in Minera Finisterre.
Thus, West Coast has a guaranteed right to receive a forty-three and
three-fourth's percent (43.75%) interest in Minera Finisterre through
contributions of an additional $2,000,000.00 (Cnd.) up to December 31, 2000.
Prior to making any further contributions, Golden must provide West Coast the
opportunity to maintain its percentage ownership by a proportionate contribution
equal in percentage to the respective interests of the parties to any
contribution made by Golden. Thus, by example, in order to maintain its
forty-three and three-fourth's percent (43.75%) interest after contribution of
the additional $2,000,000.00 (Cnd.) prior to December 31, 2000, West Coast will
be required to contribute forty-three and three-fourth's percent (43.75%) of any
further contributions by Golden which have been previously approved by the
Operating Committee.
In respect to subsequent programs or expenditures approved by the
Operating Committee, within thirty (30) days of the approval of the program or
expenditure by the Operating Committee, each of West Coast and Golden will give
written notice to the Operating Committee stating whether or not it elects to
contribute its proportionate share of the costs of such program. Failure to give
such notice shall be deemed to be an election not to contribute. If either West
Coast or Golden elects or is deemed to have elected not to contribute its
proportionate share of the costs of a program approved by the Operating
Committee, then the other party may give notice in writing to the
non-contributing party that it will contribute all of the required expenditures
in addition to its own share of the expenditures. Such party shall then be
entitled to a respective increase in its interest in Minera Finisterre in
proportion to the overall costs expended by such party.
Treatment of Prior Contributions by West Coast
2.05 The twenty-five percent (25%) interest in Minera Finisterre earned
by West Coast noted in Article 2.02 above, includes the following payments
totaling $1,500,000.00 (Cnd.):
1. $85,000.00 (U.S.) (Santa Xxxx Claim);
2. $35,000.00 (U.S.) (payments made to Pamicon Developments, Ltd.);
3. $30,000.00 (U.S.) (interest past due from Finisterre/Golden);
4. $500,000.00 (U.S.) (loan satisfaction -- Article 1.03); and
5. $350,000.00 (U.S.) (waiver of accelerated payback).
Because West Coast has received equity credit for each of these
contributions herein, no further liability for these payments shall exist and
West Coast waives any further claims to such amounts. The Parties agree that the
May 14, 1998 Amended Proposal executed by and between West Coast and Golden
regarding contributions to the Santa Xxxx claim and additional funding by West
Coast is hereby revoked, cancelled and rescinded and otherwise superseded by
this Operating Agreement.
Golden Contribution
2.06 Golden's obligations as previously provided in Article 4.03 of the
Amended Loan Agreement to contribute $250,000.00 (U.S.) to the Capital Account
is hereby waived.
Completion of 126 Agreement
2.07 Finisterre/Golden hereby represent and agree that they have
satisfied and fulfilled the Option Agreement dated April 23, 1996 between No.
126 Corporate Ventures, Ltd., Golden Hemlock Exploration, Ltd., Xxxxxx X.
Tammekand and Xxxxxx X. Xxxxxxxxxx (the "126 Agreement"), except for the final
issuance of the remaining thirty percent (3 0%) of Minera stock pursuant to
paragraph 2 of the 126 Agreement. Finisterre/Golden hereby represent and affirm
that they will undertake all necessary actions in order to assure this final
step in the fulfillment of the 126 Agreement and the complete one hundred
percent (100%) acquisition of Minera by Golden on or before thirty (30) days
from the execution of this Operating Agreement. Finisterre/Golden covenant and
agree that they will provide complete and accurate documentation confirming the
fulfillment of the final thirty percent (30%) stock issuance to the Operating
Committee, within fifteen (15) days thereof. Finisterre/Golden also represent
and covenant that the 126 Agreement is valid and in effect, the parties are not
in default or breach and upon closing the remaining thirty percent (30%) of
Minera into Golden, the 126 Agreement will be completely performed with no
obligations, rights or responsibilities remaining.
ARTICLE 3
INDEMNITY
3.01 West Coast shall never be responsible or liable for payment of all
or any part of the Operating Expenses, debts, indebtedness, costs, expenses, or
liabilities incurred in connection with the Operation of the Mine, nor any
financial obligations or responsibilities of Finisterre and Golden and/or
against any and all such responsibility and liability Finisterre/Golden
covenants with West Coast to indemnify and save it harmless; provided, however,
such costs and expenses may be included as Operating Expenses if approved by the
Operating Committee.
ARTICLE 4
SPECIAL ACCOUNTS
4.01 Trust Account.
As security for performance of obligations and responsibilities as
provided herein, the Operating Committee has established a trust account in the
name of Finisterre (the "Trust Account") with the following bank located in
Dallas, Texas:
NationsBank - Texas ABA Number: 111 0000 25
Las Colinas Branch Acct. Name: Minera/San Xxxx Xx Xxxxxx
0000 X. X'Xxxxxx Xxxx. Xxxx. Number: 0047 7046 9775
Xxx Xxxxxxx, XX 00000
(000) 000-0000
(000) 000-0000 (FAX)
Finisterre/Golden shall require all purchasers of minerals extracted
from the Mine to make payment for the minerals to the Trust Account.
Finisterre/Golden shall deposit all other cash, gross receipts, stock or any
other consideration received from or in connection with the Operation of the
Mine in the Trust Account. Disbursements from the Trust Account may be made only
with the consent of the Operating Committee.
4.02 Exploration Account.
West Coast shall establish an Exploration Account in which all monies
contributed to or designated for exploration of the Mine shall be deposited.
Such bank account shall be located in Dallas, Texas. Disbursements from the
Exploration Account shall be made in accordance with the exploration budget
approved by the Operating Committee; provided that any disbursements over and
above the exploration budget approved by the Operating Committee may be made
only with the consent of the Operating Committee. Any and all funds deposited
into or disbursed from the Exploration Account shall not be considered Operating
Expenses and shall not be subject to the lien referenced in Article 7.01 of this
Operating Agreement, unless unanimously approved by the Operating Committee as
an Operating Expense with such funds being deposited into and disbursed from the
Trust Account described in Article 4.01.
4.03 Capital Account.
West Coast shall establish a Capital Account in which funds and other
contributions shall be deposited for production of the Mine. Such bank account
shall be located in Dallas, Texas. Disbursements from the Capital Account may be
made only with the consent of the Operating Committee. Any funds deposited into
or disbursed from the Capital Account shall not be considered Operating Expense,
and shall not be subject to the lien as set forth in Article 7.01 of this
Agreement, unless unanimously approved by the Operating Committee as an
Operating Expense with such funds being deposited into and disbursed from the
Trust Account described in Article 4.01.
4.04 It is the intent of the Parties that all consideration, including
money, funds, stock or other things of value contributed or relating to the Mine
or generated from or in connection with the Operation of the Mine must flow
through one of these three (3) accounts. All capital infusions and injections in
cash or other funds for the exploration, development, maintenance or production
of the Mine must be a deposited into and disbursed from either the Trust
Account, the Exploration Account or the Capital Account, as the case may be;
provided that any and all Operating Expenses must be disbursed through the Trust
Account. The Secretary of the Operating Committee will have signatory authority
on the above Accounts.
ARTICLE 5
BOOKS AND RECORDS
5.01 Finisterre/Golden shall keep and maintain proper books and records
with respect to all income and expenses, including exploration activities,
relating to the Mine. The Operating Committee and West Coast or its
representative shall have access to such books and records at all reasonable
times during business hours. The books shall be kept in accordance with
generally accepted accounting procedures. Finisterre/Golden's books and records
relating to the Mine shall be reviewed annually by a certified public accountant
selected by the Operating Committee. The selected accountant shall (1) annually
prepare and deliver to West Coast and Finisterre/Golden the appropriate tax
returns and all schedules to those returns, and (2) within ninety days following
the end of each calendar year, deliver to each party financial statements,
relating to the Mine, including balance sheets, profit and loss statements, and
statements showing allocations and distributions to each party. The costs of
such accounting services shall be considered an Operating Expense under Section
2.02.
5.02 Finisterre and Golden covenant and agree, at all times, to timely
and properly comply with all laws, statutes, ordinances and the like,
promulgated by any regulatory or governing body including, but not limited to,
the Vancouver Stock Exchange and to maintain all corporate reporting and
existence requirements in conformity therewith.
ARTICLE 6
MANAGEMENT OF MINING OPERATIONS
General Management of the Mine
6.01 Except as may be otherwise provided in this Agreement, the
management and control of all matters relating to the Mine and/or the Operation
of the Mine shall rest exclusively with the Operating Committee.
Finisterre/Golden are charged with the sole responsibility and obligation to
make all property payments and to keep, restore, renew and/or maintain all
fights, claims, concessions and the like in the Mine as well as the Mine itself
in good standing and valid and enforceable. Finisterre/Golden shall deliver
copies of all documents relating to the acquisition, renewal and maintenance of
all Concessions to the Secretary of the Operating Committee within fifteen (15)
days of the date of such documents. Finisterre/Golden warrant that they will
continue to develop the Mine in a reasonable and timely manner. However, all
material operations of the Mine shall ultimately be under the control of the
Operating Committee, except as expressly delegated by the Operating Committee.
Operating Committee
6.02 Finisterre/Golden and West Coast have appointed an Operating
Committee whose responsibilities include: control and management of all aspects
of the Mine; approval of an annual budget related to Operation of the Mine;
approval of disbursements from the Trust Account, Exploration Account and
Capital Account pursuant to Article 4; approval of all expenditures related to
the Mine pursuant to Section 2.02(c); approval of borrowings or equity
infusions; the establishment of Reserves pursuant to Section 2.02(e); control
and supervision of all negotiations and discussions relating to prospects for
the sale, transfer or exchange of any interests in the Mine; approval of any
sale, transfer or exchange of any interest or rights in the Concessions or the
Mine; approval of information disseminated to the public relating to the Mine;
approval of any transfer of any monies or funds between the accounts referenced
in Article 4; and the discharge of other responsibilities set forth in this
Agreement.
Committee Control of All Activities
6.03 The Operating Committee shall exercise exclusive control over the
exploration, development and production of the Mine. The Operating Committee
shall hire an independent contractor to direct and manage all the exploration,
development and production activities of the Mine. Such independent contractor
shall answer to and be subject only to the Operating Committee.
Finisterre/Golden hereby represent and agree that they will not interfere with
such exercise of control over the independent contractor by the Operating
Committee.
Committee Membership
6.04 The Operating Committee shall be comprised of four (4) persons.
West Coast and Finisterre/Golden shall each designate two (2) persons to serve
on the Operating Committee with each person entitled to one vote. The persons
comprising the Operating Committee may be removed and replaced by majority vote
of the Operating Committee. The initial Operating Committee shall consist of:
Xxxxxx Xxxxxxxxxx Xxxxx Xxxxxxx
Xxx Xxxxxxxx Xxxxxxx Xxxxx
Committee Voting
6.05 All members of the Operating Committee shall cooperate in good
faith towards the common goal of timely, efficient and sound operation and
development of the Mine. Unless otherwise stated herein, the majority vote of
the Operating Committee shall control the activities or decisions of the
Operating Committee. If the vote on any particular item or subject is deadlocked
(i.e., no clear majority), then the members of the Operating Committee shall
diligently and in good faith attempt to resolve the deadlock. If the deadlock
remains, the Operating Committee shall, within five (5) business days after an
impasse is reached, submit the dispute to non-binding mediation in Dallas, Texas
before a mediator mutually agreeable to the members of the Operating Committee.
If, after mediation, the deadlock or impasse remains, then the parties shall
immediately proceed to arbitration under the provisions of Article 9
hereinafter.
Management of the Operating Committee
6.06 One person on the Operating Committee shall be commissioned to
manage the Operating Committee (the "Secretary"). Such Secretary shall be
assigned the tasks of general oversight of the Operating Committee, including
all tasks necessary to assure the proper performance of the Operating
Committee's rights and responsibilities hereunder. West Coast shall have the
authority and responsibility to designate the Secretary of the Operating
Committee through December 31, 2000. Through execution of this Operating
Agreement, West Coast hereby nominates and elects Xxx Xxxxxxxx as the Secretary
of the Operating Committee. Xx. Xxxxxxxx shall serve as the Secretary of the
Operating Committee until written notice of resignation by him or December 31,
2000. Thereafter, the Secretary of the Operating Committee shall be elected by
majority vote of the Operating Committee. If any deadlock in the Operating
Committee develops, the vote shall be resolved in accordance with the guidelines
set forth in Article 6.05 above.
Committee Meetings
6.07 The Secretary of the Operating Committee shall be responsible for
calling all meetings of the Operating Committee either on his own initiative or
upon the request of a member of the Operating Committee. The Secretary shall be
responsible for providing written notice to all Committee members of Committee
meetings. Such Committee meetings shall be set with written notice at least
twenty-one (21) days prior to the meeting date, unless otherwise agreed to by
all of the Committee Members or unless shorter notice is required because of
emergency circumstances. The Secretary shall further be responsible for issuing
the written notice specifying the date, time and place of the meeting, the
business to be transacted at the meeting, and providing all Operating Committee
members with such material and data as may be reasonably required to enable the
members to reasonably evaluate and determine the position they should take with
respect to any vote. The Operating Committee shall meet in Irving, Texas at the
offices of West Coast, unless otherwise designated by the Secretary. However,
any Operating Committee member may participate by telephone conference or other
appropriate arrangements. Voting of the Operating Committee may be conducted by
verbal, written, facsimile or telex ballot.
Alternate Operating Committee Members
6.08 Provided that prior, written, and majority approval of the
Operating Committee is obtained, any member of the Operating Committee may
appoint an alternative representative by providing at least forty-eight (48)
hours written notice to all other Committee members of the name, address and
telephone number of the alternate to be appointed by the specific Operating
Committee member. Alternate members may attend meetings of the Operating
Committee and, in the absence of the member of the Operating Committee, may act
and/or vote in the place of the appointer member.
Golden Announcement
6.09 Finisterre/Golden represent and agree that, immediately following
the execution and final approval of this Operating Agreement, they will issue a
public announcement through the Golden Board of Directors: (1) commissioning the
Operating Committee to carry out all of its rights and responsibilities herein,
including day-to-day management and control of the exploration activities,
control over the independent contractor hired to control exploration activities,
and control over all other material operations of the Mine; and (2)
acknowledging the general terms of this Agreement, with emphasis on the
anticipated additional contributions and expected regulatory compliance. Such
announcement to be approved by the Operating Committee.
ARTICLE 7
SECURITY
Trust Account Lien
7.01 As security for satisfaction of the obligations as set forth in
this Agreement, Finisterre/Golden grants to West Coast a lien on the Trust
Account established pursuant to Article 4, and agrees to execute all necessary
documentation perfecting this lien at the request of West Coast. The Parties
agree that the Trust Account is set up and Finisterre/Golden covenant and agree
to execute any and all documents required by West Coast and/or necessary to
perfect the lien referenced in this Article.
Equipment Lien
7.02 As further security for repayment of the obligations as provided
herein, Finisterre/ Golden grants to West Coast a lien or liens on the equipment
identified with Exhibit "C" attached to the Amended Loan Agreement and on all
equipment and other tangible assets purchased in connection with or relating to
the Mine and Finisterre/Golden agrees that the Pledge Agreement executed on or
about December 20, 1996 in connection with the Amended Loan Agreement (Exhibit
"C" thereto) shall remain in full force and effect and guarantee all obligations
herein as if executed herewith.
Foreclosure for Default
7.03 Should Finisterre/Golden default under the terms of this
Operating Agreement, in addition to other remedies available under law, the
liens provided for in Sections 7.01 and 7.02 of this Agreement may be
immediately foreclosed by West Coast.
ARTICLE 8
LEGAL FEES
Finisterre/Golden agrees to pay or reimburse all legal fees incurred
by West Coast in conjunction with this Operating Agreement and the negotiation
and preparation of this Operating Agreement and any amendments or supplements
thereto, and such payment will be considered an Operating Expense under Section
2.02.
ARTICLE 9
ARBITRATION
The parties agree to do business in a fair and cooperative spirit for
mutual benefit and profits, and also agree to solve amicably any dispute,
controversy or difference arising out of or in relation to or in connection with
this Operating Agreement, or for the breach thereof, but in case such dispute,
controversy or difference is not settled by mutual consent and personal
negotiations, the matter will be settled by a panel of arbitrators, composed of
one member selected by Finisterre/ Golden, one member selected by West Coast,
and a third member selected by the two enumerated arbitrators, all in accordance
with the Commercial Rules and Regulations of the American Arbitration
Association, in Dallas, Texas, United States of America. Expenses for such
arbitration shall be borne equally by the parties. The arbitration panel shall
award costs, fees and expenses, including fees for experts and attorneys to the
prevailing party in any arbitration. The proceedings shall be conducted in
English. Each of the parties hereto hereby recognizes and consents to the
jurisdiction of the American Arbitration Association in Dallas, Texas and the
entry of judgment in Texas, Mexico and Canada upon the award rendered by the
arbitrators, by a court having jurisdiction thereof, providing that the parties
thereto serve upon the party to be charged by the demand for arbitration of any
such dispute. The Parties acknowledge that if injunctive relief is required to
preserve the status quo during the pendency of any dispute that any such
injunctive relief may be sought in a court of law in Dallas, Texas, United
States of America.
ARTICLE 10
GENERAL PROVISIONS
Notices
10.01 All notices, payments and other communications required or
permitted under this Operating Agreement shall be in writing and shall be
effective when delivered to the following addresses:
If to West Coast:
West Coast Mines, Inc.
Towers at Xxxxxxxx Square
0000 X. X'Xxxxxx, Xxxxx 000
Xxxxxx, Xxxxx 00000
Attn: Xxx Xxxxxxxx
Phone: (000) 000-0000
Fax: (000) 000-0000
If to Finisterre:
Minera Finisterre, S.A. de C.V.
Xx. Xxxxxxx Xxxxxx X/X
Xxxxx Xxxxxx #0
Xxxxxxxx, Xxxxxxx, Xxxxxx
Attn: Xxx Tammekand
Phone: 000-000-000-0000
Fax: 000-000-000-0000
-- and to --
Xxxxxx Xxxxxxxxxx
000-00 0 Xxxxxxx Xxxxxx
Xxxxxxxxx, X.X., Xxxxxx X0X 0X0
Phone: (000) 000-0000
Fax: (000) 000-0000
If to Golden:
Golden Hemlock Explorations, Ltd.
#000 - 000 Xxxx Xxxxxx Xxxxxx
Xxxxxxxxx, X.X., Xxxxxx X0X 0X0
Attn: Xxxxx Xxxxxxx
Phone: 000-000-0000
Fax: 000-000-0000
A party may, by written notice so delivered to the others change the address to
which delivery shall thereafter be made.
Modification and Waiver
10.02 This Operating Agreement may not be altered nor amended, nor any
rights hereunder be waived, except by an instrument in writing executed by the
party or parties to be charged with such amendment or waiver. No waiver of any
term, provision or condition of this Operating Agreement, in any one or more
instances, shall be deemed to be, or construed as, a further or continuing
waiver, of any such term, provision or condition, or as a waiver of any other
term, provision or condition of this Operating Agreement.
Exchange Rate
10.03(a) The exchange rate to be used to determine the U.S. dollar
amount of any amounts paid in pesos shall be the exchange rate (net of bank
charges) quoted by Banamex in Mexico City to convert pesos to U.S. dollars on
the date on which payment is made in volume equivalent to volume of pesos being
valued for conversion.
10.03(b) The exchange rate to be used to determine the U.S. dollar
amount of any amounts paid in Canadian dollars shall be the exchange rate (net
of bank charges) quoted by Royal Bank of Canada to convert Canadian dollars to
U.S. dollars on the date on which payment is made in volume equivalent to volume
of Canadian dollars being valued for conversion.
Press Releases
10.04 The parties shall consult with each other with regard to all
press releases and other announcements concerning this Operating Agreement or
the transaction contemplated hereby and neither party shall issue any such press
release or make any other announcement without the prior written consent of the
Operating Committee.
Applicable Law
10.05 This Operating Agreement and the transactions contemplated
hereby shall be construed in accordance with and governed by the laws of the
State of Texas. The parties expressly acknowledge and agree that Venue and
Jurisdiction for any dispute resolution, including litigation, mediation and
arbitration shall be Dallas, Texas, United States of America and the parties
agree not to challenge or object to same.
Entire Agreement
10.06 This Operating Agreement constitutes the entire understanding of
the parties with respect to the subject matter hereof and supersedes all
negotiations, prior discussions and prior agreements and understandings relating
to such subject.
Binding Effect
10.07 This Operating Agreement shall be binding upon and shall inure
to the benefit of the parties hereto, and except as otherwise prohibited, their
respective successors and assigns. Nothing contained in this Operating
Agreement, express or implied, is intended to confer upon any other person or
entity, any benefits, rights or remedies. Finisterre/Golden shall not assign
this Operating Agreement or its obligations under this Operating Agreement,
without the express written consent of West Coast. It is expressly acknowledged
and understood by the Parties that in the event Finisterre or Golden assign this
Operating Agreement or its obligations pursuant to this Operating Agreement,
Finisterre and Golden shall nevertheless remain liable to perform all
obligations of the Operating Agreement.
Execution of Other Instruments
10.08 The parties covenant and agree that they will execute any other
instruments and documents that (i) are requested by West Coast; (ii) may become
necessary or convenient to effectuate and carry out the purposes of this
Operating Agreement; or (iii) may become necessary or convenient to obtain
minimum withholding tax liabilities relating to West Coast's Net Profit
Interests. Finisterre/Golden covenants and warrants that it will obtain express
written approval from its directors regarding the terms and conditions of this
Operating Agreement. Finisterre/Golden covenant and agree to obtain full
approval from the Vancouver Stock Exchange for this Operating Agreement and
provide West Coast confirmation of same.
Headings
10.09 The headings used in this Operating Agreement are used for
administrative purposes only and shall not be considered in construing the terms
of this Operating Agreement.
Effect of Partial Invalidity
10.10 If any one or more of the provisions contained in this Operating
Agreement shall, for any reason, be held invalid, illegal, or unenforceable in
any respect, that invalidity, illegality, or unenforceability shall not affect
any other provision of this Operating Agreement, and this Operating Agreement
shall be construed as if that invalid, illegal, or unenforceable provision had
never been contained in this Operating Agreement.
Joint and Several Obligations
10.11 It is the express intent of the Parties hereto that all the
obligations, responsibilities and liabilities set forth in this Operating
Agreement shall be the joint and several liabilities, obligations and
responsibilities of Finisterre and Golden and that West Coast can enforce the
provisions of this Operating Agreement against Finisterre, Golden or both
Finisterre and Golden, and their respective successors, assigns, parent or
subsidiary, related or affiliated companies.
EXHIBIT "A"
The following claims and/or concessions are located in the State of
Sinaloa, Mexico and are listed in the Public Registry of Mining and are governed
by the Mine Operating Agreement:
