EXHIBIT NO. 3.9
JOINT VENTURE AGREEMENT
THIS AGREEMENT is made as of the 18th day of April, 1996
BETWEEN: FOREFRONT VENTURES LTD.
Xxxxx 0000 - 000 Xxxxxxxxx Xxxxxx
Xxxxxxxxx, X.X.
X0X 0X0
("Forefront") OF THE FIRST PART
AND: STIRRUP CREEK GOLD LTD.
Xxxxx 000, 0000 000xx Xxxxxx
Xxxxxx, X.X.
X0X 0X0
("Stirrup Creek") OF THE SECOND PART
RECITALS
WHEREAS:
A. Forefront currently holds the rights to acquire an undivided 100% interest
in the Property as described in Exhibit A and defined in Section 1.21;
B. Stirrup Creek wishes to acquire an undivided 75% interest in the Property
and the parties wish to participate jointly in the exploration, evaluation,
development and mining of mineral resources within the Property or any other
properties acquired pursuant to the terms of this Agreement; and
C. Stirrup Creek has agreed to act as the Operator of the Venture as defined
hereafter.
NOW THEREFORE, in consideration of the covenants and agreements contained
herein, the parties hereto agree as follows:
ARTICLE I
DEFINITIONS
1.1 "Accounting Procedure" means the procedures set forth in Exhibit B.
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1.2 "Affiliate" means any person, partnership, joint venture, corporation
or other form of enterprise which directly or indirectly controls, is
controlled by, or is under common control with, a Participant. For purposes
of the preceding sentence, "control" means possession, directly or
indirectly, of the power to direct or cause direction of management and
policies through ownership of voting securities, contract, voting trust or
otherwise.
1.3 "Agreement" means this Joint Venture Agreement, including all
amendments and modifications thereof, and all schedules and exhibits, which
are incorporated herein by this reference.
1.4 "Area of Interest" means the area described in Part 2 of Exhibit A.
1.5 "Assets" means the Property, Products and all other real and personal
property, tangible and intangible, held for the benefit of the Participants
hereunder.
1.6 "Budget" means a detailed estimate of all costs to be incurred by the
Participants with respect to a Program and a schedule of cash advances to be
made by the Participants.
1.7 "Development" means all preparation for the removal and recovery of
Products, including the construction or installation of a mill or any other
improvements to be used for the mining, handling, milling, processing or
other benefication of Products.
1.8 "Exploration" means all activities directed toward ascertaining the
existence, location, quantity, quality or commercial value of deposits of
Products.
1.9 "Initial Contribution" means that contribution each Participant has
made or agrees to make pursuant to Section 5.1.
1.10 "Joint Account" means the account maintained in accordance with the
Accounting Procedure showing the charges and credits accruing to the
Participants.
1.11 "Management Committee" means the committee established under Article
VII.
1.12 "Mining" means the mining, extracting, producing, handling, milling or
other processing of Products.
1.13 "Net Proceeds" means certain amounts calculated as provided in Exhibit
C, which may be payable to a Participant under Section 6.4.
1.14 "Operations" means the activities carried out under this Agreement.
1.15 "Operator" means the person or entity appointed under Article VIII to
manage Operations, or any successor Operator.
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1.16 "Participant" and "Participants" mean the persons or entities that from
time to time have Participating Interests.
1.17 "Participating Interest" means the percentage interest representing the
operating ownership interest of a Participant in Assets, 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 (e.g., 1.519% rounded to 1.52%).
Decimals of .005 or more shall be rounded up to .01, decimals of less than
.005 shall be rounded down. The initial Participating Interests of the
Participants are set forth in Section 6.1.
1.18 "Prime Rate" means the interest rate quoted as "Prime" by the Royal
Bank of Canada, at its Royal Centre Branch in Vancouver, British Columbia, as
said rate may change from day to day (which quoted rate may not be the lowest
rate at which the Bank loans funds).
1.19 "Products" means all ores, minerals and mineral resources produced from
the Property under this Agreement.
1.20 "Program" means a description in reasonable detail of Operations to be
conducted and objectives to be accomplished by the Operator for a year or any
longer period.
1.21 "Property" means those interests in real property described in Part I
of Exhibit A and all other interests in real property within the Area of
Interest which are acquired and held subject to this Agreement.
1.22 "Transfer" means sell, grant, assign, encumber, pledge or otherwise
commit or dispose of.
1.23 "Venture" means the business arrangement of the Participants under this
Agreement.
ARTICLE II
REPRESENTATIONS AND WARRANTIES; TITLE TO ASSETS
2.1 CAPACITY OF PARTICIPANTS. Each of the Participants represents and
warrants as follows:
a) that it is a corporation duly incorporated and in good standing in the
Province of British Columbia and that it is qualified to do business
and is in good standing in those jurisdictions where necessary in
order to carry out the purposes of this Agreement;
b) that it has the capacity to enter into and perform this Agreement and
all transactions contemplated herein and that all corporate and other
actions required to authorize it to enter into and perform this
Agreement have been properly taken;
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c) that it will not breach any other agreement or arrangement by entering
into or performing this Agreement;
d) that this Agreement has been duly executed and delivered by it and is
valid and binding upon it in accordance with its terms; and
e) that it is resident in Canada within the meaning of Section 116 of the
INCOME TAX ACT (Canada).
2.2 DISCLOSURES. Each of the Participants represents and warrants that it
is unaware of any material facts or circumstances which have not been disclosed
in this Agreement, which should be disclosed to the other Participants in order
to prevent the representations in this Article II from being materially
misleading.
2.3 JOINT LOSS OF TITLE. Any failure or loss of title to the Assets, and
all costs of defending title, shall be charged to the Joint Account, except that
all costs and losses arising out of or resulting from breach of the
representations and warranties of a Participant shall be charged to that
Participant.
ARTICLE III
ACQUISITION, NAME AND TERM
3.1 ACQUISITION OF INTEREST. Concurrent with the execution of this
Agreement, and by the execution hereof, Forefront hereby grants to Stirrup Creek
the option to acquire an undivided 75% interest in and to the Property for the
following consideration:
a) the payment to Forefront of the sum of $10,750, the receipt of which
Forefront hereby acknowledges;
b) the payment by Stirrup Creek to the appropriate persons and agencies
of all costs of acquiring the Property, including $72,100 U.S. for the
necessary Contracts of Work; and
c) the payment by Stirrup Creek of the first $250,000 towards a Program
or Programs carried out hereunder.
3.2 NAME. The name of the Venture shall be the Xxxx Joint Venture.
3.3 PURPOSES. This Agreement is entered into for the following purposes
and for no others, and shall serve as the exclusive means by which the
Participants, or any of them, accomplish such purposes:
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a) to conduct Exploration within the Area of Interest;
b) to acquire additional properties within the Area of Interest;
c) to engage in Development and Mining Operations on the Property;
d) to engage in marketing Products, to the extent permitted by Article
XI; and
e) to perform any other activity necessary, appropriate, or incidental to
any of the foregoing.
3.4 LIMITATION. Unless the Participants otherwise agree in writing, the
Operations shall be limited to the purposes described in Section 3.3, and
nothing in this Agreement shall be construed to enlarge such purposes.
3.5 EFFECTIVE DATE AND TERM. The effective date of this Agreement shall
be the date first recited above. 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 Property, unless the Agreement is earlier terminated as herein
provided.
ARTICLE IV
RELATIONSHIP OF THE PARTICIPANTS
4.1 NO PARTNERSHIP. Nothing contained in this Agreement shall be deemed
to constitute any Participant the partner of the other, nor, except as otherwise
herein expressly provided, to constitute any Participant the agent or legal
representative of the other, nor to create any fiduciary relationship between
them. It is not the intention of the Participants to create, nor shall this
Agreement be construed to create, any mining, commercial or other partnership.
No Participant shall have any authority to act for or to assume any obligation
or responsibility on behalf of the other Participants, except as otherwise
expressly provided herein. 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, it being
the express purpose and intention of the Participants that their ownership of
Assets and the rights acquired hereunder shall be as tenants in common. Each
Participant shall indemnify, defend and hold harmless the other Participants,
its directors, officers, employees, agents and attorneys from and against any
and all losses, claims, damages and liabilities arising out of any act or any
assumption of liability by the indemnifying Participant, or any of its
directors, officers, agents and attorneys done or undertaken, or apparently done
or undertaken, on behalf of the other Participants, except pursuant to the
authority expressly granted herein or as otherwise agreed in writing between the
Participants.
4.2 OTHER BUSINESS OPPORTUNITIES. Except as expressly provided in this
Agreement, each
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Participant shall have the right independently to engage in and receive full
benefits from business activities, whether or not competitive with the
Operations, without consulting the other. The doctrines of "corporate
opportunity" or "business opportunity" shall not be applied to any other
activity, venture, or operation of any Participant, and, except as otherwise
provided in Section 12.6, no 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 within the Area of Interest after the
termination of this Agreement. Unless otherwise agreed in writing, no
Participant shall have any obligation to mill, beneficiate or otherwise treat
any Products or any other Participant's share of Products in any facility
owned or controlled by such Participant.
4.3 WAIVER OF RIGHT TO PARTITION. 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 statute.
4.4 TRANSFER OR TERMINATION OF RIGHTS TO PROPERTY. Except as otherwise
provided in this Agreement, no Participant shall Transfer all or any part of its
interest in the Assets or this Agreement or otherwise permit or cause such
interests to terminate.
4.5 IMPLIED COVENANTS. There are no implied covenants contained in this
Agreement other than those of good faith and fair dealing.
ARTICLE V
CONTRIBUTIONS BY PARTICIPANTS
5.1 PARTICIPANTS' INITIAL CONTRIBUTIONS. The initial Participating
Interests of the parties are as set forth in Section 6.1. Upon Stirrup Creek
completing the expenditure contemplated by subsection 3.1(c) the agreed value
of each party's Initial Contribution will be $300,000 for Stirrup Creek and
$100,000 for Forefront and the receipt by the Venture of the Initial
Contribution of each Participant shall thereupon be deemed to be acknowledged
by the parties hereto.
5.2 ADDITIONAL CASH CONTRIBUTIONS. Subject to the obligation of Stirrup
Creek to expend the first $250,000 as set forth in Section 3.1 and any election
permitted by Section 6.3, the Participants shall hereafter be obligated to
contribute funds to adopted Programs in proportion to their respective
Participating Interests.
ARTICLE VI
INTERESTS OF PARTICIPANTS
6.1 INITIAL PARTICIPATING INTERESTS. The Participants shall have the
following initial Participating Interests:
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Stirrup Creek - 75%
Forefront - 25%
6.2 CHANGES IN PARTICIPATING INTERESTS. A Participant's Participating
Interest shall be changed as follows:
a) upon an election by a Participant pursuant to Section 6.3 to
contribute less to an adopted Program and Budget than the percentage
reflected by its Participating Interest; or
b) pursuant to the operation of Section 6.4; or
c) transfer by a Participant of less than all its Participating Interest
in accordance with Article XV; or
d) acquisition of less than all of the Participating Interest of the
other Participant, however arising.
6.3 REDUCTION IN PARTICIPATION. A Participant may elect, as provided in
Section 9.5, to limit its contributions to an adopted Program and Budget as
follows:
a) to some lesser amount than its respective Participating Interest; or
b) not at all.
If a Participant elects to contribute to an adopted Program and Budget some
lesser amount than its respective Participating Interest, or not at all, the
Participating Interest of that Participant shall be recalculated, subject to
Section 6.4, at the time of election by dividing: (i) the sum of (a) the agreed
value of the Participant's Initial Contribution under Section 5.1, (b) the total
of all of the Participant's contributions under Section 5.3, and (c) the amount,
if any, the Participant elects to contribute to the adopted Program and Budget;
by (ii) the sum of (a), (b) and (c) above for all Participants; and then
multiplying the result by one hundred. The combined Participating Interests of
the other Participants shall thereupon become the difference between 100% and
the recalculated Participating Interest.
6.4 FOREFRONT'S DEFAULT POSITION. As a result of the operation of Section
6.3, the interest of Forefront in the Venture shall not become less than 20%
and in the event of the reduction of Forefront's interest to 20% or lower as a
result of the application of Section 6.3, Forefront shall for all purposes be
deemed to hold the 20% carried interest described herein (the "Carried
Interest"). In the event that Forefront is reduced to the Carried Interest,
then Stirrup Creek may thereafter expend all monies necessary to place the
Property into commercial production in accordance with the terms of this
Agreement. Forefront shall not be required, in that event, to expend any
further monies hereunder. Upon the Property being placed into commercial
production, all of the Net Proceeds therefrom shall be paid to Stirrup Creek
until such time as 20% of Net Proceeds is
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equivalent to twice the amount of money that Forefront would have had to
contribute to the Venture, plus interest at the Prime Rate calculated from
the date such monies should have been contributed, in order to maintain a 20%
Participating Interest in the Venture. Once Stirrup Creek has received such
payment, Forefront shall thereafter, for all purposes including the
distribution of profits, be deemed to have a 20% Participating Interest in
the Venture, until such time as the interests of the parties may be further
altered in accordance with the terms of this Agreement. Stirrup Creek's
receipt of Net Proceeds as described in the foregoing shall constitute its
sole remedy with respect to a failure in the part of Forefront to contribute
to a Program or Budget. Notwithstanding the fact that Forefront may be
reduced to a Carried Interest hereunder, Forefront shall continue to be
deemed a Participant for the purposes of Articles XII, XIII, XIV, XV, XVI and
XVII of this Agreement.
6.5 CONTINUING LIABILITIES UPON ADJUSTMENTS OF PARTICIPATING INTERESTS.
Any reduction of a Participant's Participating Interest under this Article VI
shall not relieve such Participant of its share of any liability, whether it
accrues before or after such reduction, arising out of Operations conducted
prior to such reduction. For purposes of this Article VI, such Participant's
share of such liability shall be equal to its Participating Interest at the time
such liability was incurred. The increased Participating Interest accruing to a
Participant as a result of the reduction of another Participant's Participating
Interest shall be free of royalties, liens or other encumbrances arising by,
through or under such other Participant, other than those existing at the time
the Property was acquired or those to which all Participants have given their
written consent. An adjustment to a Participating Interest need not be
evidenced during the term of this Agreement by the execution and recording of
appropriate instruments, but each Participant's Participating Interest shall be
shown in the books of the Operator. However, any Participant, at any time upon
the request of another Participant, shall execute and acknowledge instruments
necessary to evidence such adjustment in form sufficient for recording in the
jurisdiction where the Property is located.
ARTICLE VII
MANAGEMENT COMMITTEE
7.1 ORGANIZATION AND COMPOSITION. The Participants hereby establish a
Management Committee to determine overall policies, objectives, procedures,
methods and actions under this Agreement. The Management Committee shall
consist of one member appointed by each Participant, unless a Participant is
reduced to a Carried Interest pursuant to Section 6.4 in which event the
Management Committee shall consist only of the member appointed by the other
Participant. 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 shall be made or changed by notice to the other Participants.
7.2 DECISIONS. Each Participant, acting through its appointed members,
shall have one vote on the Management Committee. Unless otherwise provided in
this Agreement, the vote of the Participant with a Participating Interest over
50% shall determine the decisions of the Management Committee. In the event of
a tie vote as between the Participants on any matter, the casting vote on
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such matter shall be exercised by the member representing the Operator.
7.3 MEETINGS. The Management Committee shall hold regular meetings at
least annually in Vancouver, British Columbia, or at other mutually agreed
places. The Operator shall give 30 days' notice to the Participants of such
regular meetings. Additionally, a Participant may call a special meeting upon
60 day's notice to the Operator and the other Participants. In case of
emergency, reasonable notice of a special meeting shall suffice. There shall be
a quorum if at least one member representing each Participant is present. Each
notice of a meeting shall include an itemized agenda prepared by the Operator in
the case of a regular meeting, or by the Participant calling the meeting in the
case of a special meeting, but any matters may be considered with the consent of
all Participants. The Operator shall prepare minutes of all meetings and shall
distribute copies of such minutes to the Participants within 15 days after the
meeting. The minutes, when signed by all Participants, shall be the official
record of the decisions made by the Management Committee and shall be binding on
the Operator and the Participants. If personnel employed in Operations are
required to attend a Management Committee meeting, reasonable costs incurred in
connection with such attendance shall be a Venture cost. All other costs shall
be paid by the Participants individually.
7.4 ACTION WITHOUT MEETING. In lieu of meetings, the Management Committee
may hold telephone conferences, so long as all decisions are immediately
confirmed in writing by the Participants.
7.5 MATTERS REQUIRING APPROVAL. Except as otherwise delegated to the
Operator in Section 8.2, the Management Committee shall have exclusive authority
to determine all management matters related to this Agreement.
ARTICLE VIII
OPERATOR
8.1 APPOINTMENT. The Participants hereby appoint Stirrup Creek as the
Operator with overall management responsibility for Operations. Stirrup Creek
hereby agrees to serve as Operator until it resigns as provided in Section 8.4.
8.2 POWERS AND DUTIES OF OPERATOR. Subject to the terms and provisions of
this Agreement, the Operator shall have the following powers and duties which
shall be discharged in accordance with adopted Programs and Budgets:
a) The Operator shall manage, direct and control Operations.
b) The Operator shall implement the decisions of the Management
Committee, shall make all expenditures necessary to carry out adopted
Programs, and shall promptly advise the Management Committee if it
lacks sufficient funds to carry out its
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responsibilities under this Agreement.
c) The Operator shall:
i) purchase or otherwise acquire all material, supplies, equipment,
water, utility and transportation services required for
Operations, such purchases and acquisitions to be made on the
best terms available, taking into account all of the
circumstances;
ii) obtain such customary warranties and guarantees as are available
in connection with such purchases and acquisitions; and
iii) keep the Assets free and clear of all liens and encumbrances,
except for 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 released or discharged in a
diligent manner, or liens and encumbrances specifically approved
by the Management Committee.
d) The Operator shall conduct such title examinations and cure such title
defects as may be advisable in the reasonable judgment of the
Operator.
e) The Operator shall:
i) make or arrange for all payments required by leases, licenses,
permits, contracts and other agreements related to the Assets;
ii) pay all taxes, assessments and like charges on Operations and
Assets except taxes determined or measured by a Participant's
sales revenue or net income.
If authorized by the Management Committee, the Operator shall
have the right to contest in the courts or otherwise, the
validity or amount of any taxes, assessments or charges if the
Operator deems them to be unlawful, unjust, unequal or excessive,
or to undertake such other steps or proceedings as the Operator
may deem reasonably necessary to secure a cancellation,
reduction, readjustment or equalization thereof before the
Operator shall be required to pay them, but in no event shall the
Operator permit or allow title to the Assets to be lost as the
result of the nonpayment of any taxes, assessments or like
charges;
iii) shall do all other acts reasonably necessary to maintain the
Assets.
f) The Operator shall:
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i) apply for all necessary permits, licenses and approvals;
ii) comply with applicable federal, provincial and local laws and
regulations;
iii) notify promptly the Management Committee of any allegations of
substantial violation thereof; and
iv) prepare and file all reports or notices required for Operations.
The Operator shall not be in breach of this provision if a
violation has occurred in spite of the Operator's good faith
efforts to comply, and the Operator has timely cured or
disposed of such violation through performance, or payment
of fines and penalties.
g) The Operator shall prosecute and defend, but shall not initiate
without consent of the Management Committee, all litigation or
administrative proceedings arising out of Operations. A Participant
shall have the right to participate, at its own expense, in such
litigation or administrative proceedings. The Management Committee
shall approve in advance any settlement involving payments,
commitments or obligations in excess of $10,000.00 in cash or value.
h) The Operator may dispose of Assets, whether by abandonment, surrender
or Transfer in the ordinary course of business, except that Property
may be abandoned or surrendered only as provided in Article XIV.
However, without prior authorization from the Management Committee,
the Operator shall not:
i) dispose of Assets in any one transaction having a value in excess
of $50,000.00;
ii) enter into any sales contracts or commitments for Products,
except as permitted in Section 11.2;
iii) begin a liquidation of the Venture; or
iv) dispose of all or a substantial part of the Assets necessary to
achieve the purposes of the Venture.
i) The Operator shall have the right to carry out its responsibilities
hereunder through a corporate representative, agents, Affiliates or
independent contractors.
j) The Operator shall perform or cause to be performed and record or
cause to be recorded during the term of this Agreement all assessment
and other work required to maintain in good standing mineral claims
and other mineral rights included within
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the Property, unless prevented from so doing by an action or the
inaction of the Management Committee.
k) If authorized by the Management Committee, the Operator may stake or
restake or abandon any mineral claims or other interests comprising
the Property, apply for mining leases or other forms of mineral tenure
for any mineral claims or other interests comprising the Property and
generally deal with the claims and other interests comprising the
Property as may be considered prudent.
l) The Operator shall keep and maintain all required accounting and
financial records pursuant to the Accounting Procedure and in
accordance with customary cost accounting practices in the mining
industry.
m) The Operator shall keep the Management Committee advised of all
Operations by submitting in writing to the Management Committee:
i) monthly progress reports which include statements of expenditures
and comparisons of such expenditures to the adopted Budget;
ii) periodic summaries of data acquired;
iii) copies of reports concerning Operations;
iv) a detailed final report within 90 days after completion of each
Program and Budget, which shall include comparisons between the
objectives and results of Programs; and
v) such other reports as the Management Committee may reasonably
request.
At all reasonable times the Operator shall provide the Management
Committee or the representative of any Participant, upon the request
of any member of the Management Committee, access to, and the right to
inspect and copy all maps, drill logs, core tests, reports, surveys,
assays, analyses, production reports, operations, technical,
accounting and financial records, and other information acquired in
Operations. In addition, the Operator shall allow any Participant, at
its sole risk and expense, and subject to reasonable safety
regulations, to inspect the Assets and Operations at all reasonable
times, so long as the inspecting Participant does not unreasonably
interfere with Operations.
n) The Operator shall undertake all other activities reasonably necessary
to fulfil the foregoing.
The Operator shall not be in default of any duty under this Section 8.2 if its
failure to perform results
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from the failure of a Participant to perform acts or to contribute amounts
required of it by this Agreement.
8.3 STANDARD OF CARE. The Operator shall 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 the
terms and provisions of leases, licenses, permits, contracts and other
agreements pertaining to Assets. The Operator shall not be liable to any
Participant for any act or omission resulting in damage or loss except to the
extent caused by or attributable to the Operator's wilful misconduct or gross
negligence.
8.4 RESIGNATION; DEEMED OFFER TO RESIGN. The Operator may resign upon
60 days prior notice to the Management Committee, in which case the Management
Committee shall appoint an Operator. If any of the following shall occur, the
Operator shall be deemed to have offered to resign, which offer may be accepted
by the Management Committee, if at all, within 60 days following such deemed
offer:
a) The Operator fails to perform a material obligation imposed upon it
under this Agreement and such failure continues for a period of
30 days after notice from the Management Committee demanding
performance; or
b) A receiver, liquidator, assignee, custodian, trustee, sequestrator or
similar official for a substantial part of its assets is appointed and
such appointment is neither made ineffective nor discharged within
60 days after the making thereof, or such appointment is consented to,
requested by, or acquiesced in by the Operator; or
c) The Operator commences a voluntary case under any applicable
bankruptcy, insolvency or similar law now or hereafter in effect; or
consents to the entry of an order for relief in an involuntary case
under any such law or to the appointment of or taking possession by a
receiver, liquidator, assignee, custodian, trustee, sequestrator or
other similar official of any substantial part of its assets; or makes
a general assignment for the benefit of creditors; or fails generally
to pay its debts as such debts become due; or takes corporate or other
action in furtherance of any of the foregoing; or
d) Entry is made against the Operator of a judgment decree or order for
relief affecting a substantial part of its assets by a court of
competent jurisdiction in an involuntary case commenced under any
applicable bankruptcy, insolvency or other similar law of any
jurisdiction now or hereafter in effect.
8.5 PAYMENTS TO OPERATOR. The Operator shall be compensated for its
services and reimbursed for its costs hereunder in accordance with the
Accounting Procedure.
8.6 TRANSACTIONS WITH AFFILIATES. If the Operator engages Affiliates to
provide services
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hereunder, it shall do so on terms no less favourable than would be the case
with unrelated persons in arm's-length transactions.
8.7 ACTIVITIES DURING DEADLOCK. If the Management Committee for any
reason fails to adopt a Program and Budget, subject to the contrary direction of
the Management Committee and to the receipt of necessary funds, the Operator
shall continue Operations at levels comparable with the last adopted Program and
Budget. For purposes of determining the required contributions of the
Participants and their respective Participating Interests, the last adopted
Program and Budget shall be deemed extended.
ARTICLE IX
PROGRAMS AND BUDGETS
9.1 INITIAL PROGRAM AND BUDGET. The initial Program and Budget, which is
deemed to have been adopted by the Participants, shall not exceed $250,000 and
shall be in the sole discretion of Stirrup Creek. The following provisions of
this Article IX shall not apply to the first $250,000 in expenditures, required
to be made solely by Stirrup Creek pursuant to subsection 3.1(c), which
expenditures shall be in the sole discretion of Stirrup Creek.
9.2 OPERATIONS PURSUANT TO PROGRAMS AND BUDGETS. All Operations shall be
conducted, expenses shall be incurred, and Assets shall be acquired only
pursuant to approved Programs and Budgets, except as otherwise provided in
Section 9.8 and Article XIII, and except in the case of Forefront's reduction to
a Carried Interest as provided in Section 6.4, in which event the conduct of
Operations shall be in the sole discretion of Stirrup Creek.
9.3 PRESENTATION OF PROGRAMS AND BUDGETS. Proposed Programs and Budgets
shall be prepared by the Operator for a period of one year or any longer
period. Each adopted Program and Budget, regardless of length, shall be
reviewed at least once a year at the annual meeting of the Management
Committee. During the period encompassed by any Program and Budget, and at
least three months prior to its expiration, a proposed Program and Budget for
the succeeding period shall be prepared by the Operator and submitted to the
Participants.
9.4 REVIEW AND APPROVAL OF PROPOSED PROGRAMS AND BUDGETS. Within 45 days
after submission of a proposed Program and Budget, each Participant shall submit
to the Management Committee:
a) Notice that the Participant approves the proposed Program and Budget;
or
b) Proposed modifications of the proposed Program and Budget; or
c) Notice that the Participant rejects the proposed Program and Budget.
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If a Participant fails to give any of the foregoing responses within the
allotted time, the failure shall be deemed to be an approval by the Participant
of the Operator's proposed Program and Budget. If a Participant makes a timely
submission to the Management Committee pursuant to Section 9.4(b) or (c), then
the Management Committee shall seek to develop a Program and Budget acceptable
to the Participants.
9.5 ELECTION TO PARTICIPATE. By notice to the Management Committee within
20 days after the final vote adopting a Program and Budget, a Participant may
elect to contribute to such Program and Budget in some lesser amount than its
respective Participating Interest, or not at all, in which cases its
Participating Interest shall be recalculated as provided in Article VI. If a
Participant fails to so notify the Management Committee, the Participant shall
be deemed to have elected to contribute to such Program and Budget in proportion
to its respective Participating Interest as of the beginning of the period
covered by the Program and Budget.
9.6 DEADLOCK ON PROPOSED PROGRAMS AND BUDGETS. If the Participants,
acting through the Management Committee, fail to approve a Program and Budget by
the beginning of the period to which the proposed Program and Budget applies,
the provisions of Sections 8.7 and 12.2 shall apply.
9.7 BUDGET OVERRUNS; PROGRAM CHANGES. The Operator shall immediately
notify the Management Committee of any material departure from an adopted
Program and Budget. The Operator shall not exceed an adopted Budget by more
than 10% unless directly caused by an emergency or unexpected expenditure made
pursuant to Section 9.8 or unless otherwise authorized by the Management
Committee. Budget overruns shall be borne by the Participants in proportion to
their respective Participating Interests as of the time the overrun occurs.
9.8 EMERGENCY OR UNEXPECTED EXPENDITURES. In case of emergency, the
Operator may take any reasonable action it deems necessary to protect life,
limb or property, to protect the Assets or to comply with law or government
regulation. The Operator may also make reasonable expenditures for
unexpected events which are beyond its reasonable control and which do not
result from a breach by it of its standard of care. The Operator shall
promptly notify the Participants of the emergency or unexpected expenditure,
and the Operator shall be reimbursed for all resulting costs by the
Participants in proportion to their respective Participating Interests at the
time the emergency or unexpected expenditures are incurred.
ARTICLE X
ACCOUNTS AND SETTLEMENTS
10.1 MONTHLY STATEMENTS. The Operator shall promptly submit to the
Management Committee monthly statements of account reflecting in reasonable
detail the charges and credits to the Joint Account during the preceding month.
10.2 CASH CALLS. On the basis of the adopted Program and Budget, the
Operator shall
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submit to each Participant prior to commencing the Program, a
billing for estimated cash requirements for the Program. Within 10 days after
receipt of each billing, each Participant shall advance to the Operator its
proportionate share of the estimated amount. Time is of the essence of payment
of such xxxxxxxx. The Operator shall at all times maintain a cash balance
sufficient to meet disbursement obligations for up to 21 days. All funds in
excess of immediate cash requirements shall be invested in interest-bearing
accounts with the Royal Bank of Canada, for the benefit of the Joint Account.
10.3 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 shall be deemed to have elected to reduce its Participating
Interest pursuant to Section 6.3.
10.4 AUDITS. Upon request made by any Participant within 24 months
following the end of any calendar year (or, if the Management Committee has
adopted an accounting period other than the calendar year, within 24 months
after the end of such period), the Operator shall order an audit of the
accounting and financial records for such calendar year (or other accounting
period). All written exceptions to and claims upon the Operator for
discrepancies disclosed by such audit shall be made not more than 3 months after
receipt of the audit report. Failure to make any such exception or claim within
the 3 month period shall mean the audit is correct and binding upon the
Participants. The audits shall be conducted by a firm of Chartered Accountants
selected by the Operator, unless otherwise agreed by the Management Committee.
ARTICLE XI
DISPOSITION OF PRODUCTION
11.1 TAKING IN KIND. Each Participant shall take in kind or separately
dispose of its share of all Products in accordance with its Participating
Interest. Any extra expenditure incurred in the taking in kind or separate
disposition by any 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 of any parties
other than the Participants at any processing facilities constructed by the
Participants pursuant to this Agreement. The Operator shall give the
Participants notice at least 10 days in advance of the delivery date upon which
their respective shares of Products will be available.
11.2 FAILURE OF PARTICIPANT TO TAKE IN KIND. If a Participant fails to
take in kind, the Operator 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, to purchase the Participant's share for its own account or to
sell such share as agent for the Participant to the other Participants or any
third party 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 Operator is purchasing or selling a Participant's share of production,
the Participant may elect by notice to the Operator to take in kind.
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The Operator 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.
ARTICLE XII
WITHDRAWAL AND TERMINATION
12.1 TERMINATION BY EXPIRATION OR AGREEMENT. This Agreement shall
terminate as expressly provided in this Agreement, unless earlier terminated by
written agreement.
12.2 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, any Participant may elect to terminate this Agreement by
giving notice of termination to the other Participants.
12.3 WITHDRAWAL. A Participant may elect to withdraw as a Participant from
this Agreement by giving notice to the other Participants of the effective date
of withdrawal, which shall be the later of the end of the then current Program
and Budget or at least 30 days after the date of the notice. Upon such
withdrawal, this Agreement shall terminate, and the withdrawing Participant
shall be deemed to have transferred to the remaining Participants, without cost
and free and clear of royalties, liens or other encumbrances arising by, through
or under such withdrawing Participant, except those exceptions to title
described in Part 1 of Exhibit A and those to which all Participants have given
their written consent after the date of this Agreement, all of its Participating
Interest in the Assets and in this Agreement. Any withdrawal under this
Section 12.3 shall not relieve the withdrawing Participant of its share of
liabilities to third persons (whether such accrues before or after such
withdrawal) arising out of Operations conducted prior to such withdrawal. For
purposes of this Section 12.3, the withdrawing Participant's share of such
liabilities shall be equal to its Participating Interest at the time such
liability was incurred.
12.4 CONTINUING OBLIGATIONS. On termination of this Agreement under
Section 12.1 or 12.2, the Participants shall remain liable for continuing
obligations hereunder until final settlement of all accounts and for any
liability, whether it accrues before or after termination, if it arises out of
Operations during the term of the Agreement.
12.5 DISPOSITION OF ASSETS ON TERMINATION. Promptly after termination
under Section 12.1 or 12.2, the Operator shall take all action necessary to wind
up the activities of the Venture, and all costs and expenses incurred in
connection with the termination of the Venture shall be expenses chargeable to
the Venture. The Assets shall first be paid, applied, or distributed in
satisfaction of all liabilities of the Venture to third parties and then to
satisfy any debts, obligations, or liabilities owed to the Participants. Before
distributing any funds or Assets to Participants, the Operator shall have the
right to segregate amounts which, in the Operator's reasonable judgment, are
necessary to discharge continuing obligations or to purchase for the account of
the Participants, bonds or other securities for the performance of such
obligations. The foregoing shall not be construed to include
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the repayment of any Participant's capital contributions. Thereafter, any
remaining cash and all other Assets shall be distributed (in undivided
interests unless otherwise agreed) to the Participants, in proportion to
their respective Participating Interests, subject to any dilution, reduction,
or termination of such Participating Interests as may have occurred pursuant
to the terms of this Agreement. No Participant shall receive a distribution
of any interest in Products or proceeds from the sale thereof if such
Participant's Participating Interest therein has been terminated pursuant to
this Agreement.
12.6 NON-COMPETE COVENANTS. A Participant that withdraws pursuant to the
terms of this Agreement shall not directly or indirectly acquire any interest in
property within the Area of Interest for 12 months after the effective date of
withdrawal. If a withdrawing Participants, or the Affiliate of a withdrawing
Participant, breaches this Section 12.6, such Participant or Affiliate shall be
obligated to offer to convey to the non-withdrawing Participants, without cost,
any such property or interest so acquired. Such offer shall be made in writing
and can be accepted by the non-withdrawing Participants at any time within
45 days after it is received by such non-withdrawing Participants.
12.7 RIGHT TO DATA AFTER TERMINATION. After termination of this Agreement
pursuant to Section 12.1 or 12.2, each Participant shall be entitled to copies
of all 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 any
withdrawal.
12.8 CONTINUING AUTHORITY. On termination of this Agreement, the Operator
shall have the power and authority, subject to control of the Management
Committee, if any, to do all things on behalf of the 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 Operator 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 the Participants and the Venture,
mortgage 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
13.1 GENERAL. Any interest or right to acquire any interest in real
property within the Area
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of Interest acquired during the term of this Agreement by or on behalf of a
Participant or any Affiliate shall be subject to the terms and provisions of
this Agreement.
13.2 NOTICE TO NONACQUIRING PARTICIPANT. Within 10 days after the
acquisition of any interest or the right to acquire any interest in real
property wholly or partially within the Area of Interest (except real property
acquired by the Operator pursuant to a Program), the acquiring Participant shall
notify the other Participants of such acquisition. The acquiring Participant's
notice shall describe in detail the acquisition, the lands and minerals covered
thereby, the cost thereof, and the reasons why the acquiring Participant
believes that the 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 acquired interest
available for inspection by the other Participants.
13.3 OPTION EXERCISED. If, within 30 days after receiving the acquiring
Participant's notice, the other Participants notify the acquiring Participant of
their election to accept a proportionate interest in the acquired interest equal
to their Participating Interests, the acquiring Participant shall convey to the
other Participants such a proportionate undivided interest therein. The
acquired interest shall become a part of the Property for all purposes of this
Agreement immediately upon the notice of such other Participants election to
accept the proportionate interest therein. Such other Participants shall
promptly pay to the acquiring Participant their proportionate share of the
latter's actual out-of-pocket acquisition costs.
13.4 OPTION NOT EXERCISED. If the other Participants do not give such
notice within the 30 day period set forth in Section 13.3, they shall have no
interest in the acquired interest, and the acquired interest shall not be a part
of the Property or be subject to this Agreement.
ARTICLE XIV
ABANDONMENT AND SURRENDER OF PROPERTY
14.1 SURRENDER OR ABANDONMENT OF PROPERTY. The Management Committee may
authorize the Operator to surrender or abandon part or all of the Property. If
the Management Committee authorizes any such surrender or abandonment over the
objection of a Participant, the Participants that desire to abandon or surrender
shall assign to the objecting Participant, without cost to the surrendering
Participants, all of the surrendering Participants' interest in the Property to
be abandoned or surrendered, and the abandoned or surrendered property shall
cease to be part of the Property.
14.2 REACQUISITION. If any Property is abandoned or surrendered under the
provisions of this Article XIV, then, unless this Agreement is earlier
terminated, no Participant nor any Affiliate thereof shall acquire any interest
in such Property or a right to acquire such Property for a period of five years
following the date of such abandonment or surrender. If a Participant
reacquires any Property in violation of this Section 14.2, the other
Participants may elect by notice to the
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reacquiring Participant within 45 days after they have actual notice of such
reacquisition, to have such properties made subject to the terms of this
Agreement. In the event such an election is made, the reacquired properties
shall thereafter be treated as Property, and the costs of reacquisition shall
be borne solely by the reacquiring Participant and shall not be included for
purposes of calculating the Participants' respective Participating Interests.
ARTICLE XV
TRANSFER OF INTEREST
15.1 GENERAL. A Participant shall have the right to Transfer to any third
party all or any part of its interest in or to this Agreement, its Participating
Interest, or the Assets solely as provided in this Article XV.
15.2 LIMITATIONS ON FREE TRANSFERABILITY. The Transfer right of a
Participant in Section 15.1 shall be subject to the following terms and
conditions:
a) No transferee of all or any part of the interest of a Participant in
this Agreement, any Participating Interest, or the Assets shall have
the rights of a Participant unless and until the transferring
Participant has provided to the other Participants notice of the
Transfer, and except as provided in Sections 15.2(g) and 15.2(h), the
transferee, as of the effective date of the Transfer, has committed in
writing to be bound by this Agreement to the same extent as the
transferring Participant;
b) No transfer permitted by this Article XV shall relieve the
transferring Participant of its share of any liability, whether
accruing before or after such Transfer, which arises out of Operations
conducted prior to such Transfer;
c) The transferring Participant and the transferee shall bear all tax
consequences of the Transfer;
d) In the event of a Transfer of less than all of a Participating
Interest, the transferring Participant and its transferee shall act
and be treated as one Participant;
e) No Participant shall Transfer any interest in this Agreement or the
Assets except by Transfer of part or all of its Participating
Interest;
f) If the Transfer is the grant of a security interest by mortgage, deed
of trust, pledge, lien or other encumbrance of any interest in this
Agreement, any Participating Interest or the Assets to secure a loan
or other indebtedness of a Participant in a bona fide transaction,
such security interest shall be subordinate to the terms of this
Agreement and the rights and interests of the other Participants
hereunder. Upon any foreclosure or other enforcement of rights in the
security interest the acquiring third
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party shall be deemed to have assumed the position of the encumbering
Participant with respect to this Agreement and the other Participants,
and it shall comply with and be bound by the terms and conditions of
this Agreement; and
g) If a sale or other commitment or disposition of Products or proceeds
from the sale of Products by a Participant upon distribution to it
pursuant to Article XI creates in a third party a security interest in
Products or proceeds therefrom prior to such distribution, such sale,
commitment or disposition shall be subject to the terms and conditions
of this Agreement.
15.3 PREEMPTIVE RIGHT. Except as otherwise provided in Section 15.4, if a
Participant desires to Transfer all or any part of its interest in this
Agreement, any Participating Interest, or the Assets, the other Participants
shall have a preemptive right to acquire such interests as provided in this
Section 15.3.
a) A Participant intending to Transfer all or any part of its interest in
this Agreement, any Participating Interest, or the Assets shall
promptly notify the other Participants of its 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 contract for sale. Each of the other Participants shall have
45 days from the date such notice is delivered to notify the
transferring Participant whether it elects to acquire its
proportionate share, based on its Participating Interest, of the
offered interest at the same price and on the same terms and
conditions as set forth in the notice. If it does so elect, the
Transfer shall be consummated promptly after notice of such election
is delivered to the transferring Participant.
b) If either of the other Participants fails to so elect within the
period provided for in Section 15.3(a), the transferring Participant
shall have 90 days following the expiration of such period to
consummate the Transfer to a third party of that interest in respect
of which no election has occurred at a price and on terms no less
favourable than those offered by the transferring Participant to the
other Participants in the notice required in Section 15.3(a).
c) If the transferring Participant fails to consummate the Transfer to a
third party within the period set forth in Section 15.3(b), the
preemptive right of the other Participants 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 Section 15.3.
15.4 EXCEPTIONS TO PREEMPTIVE RIGHTS. Section 15.3 shall not apply to the
following:
a) Transfer by a Participant of all or any part of its interest in this
Agreement, any Participating Interest, or the Assets to an Affiliate;
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b) The corporate merger, consolidation, amalgamation or reorganization of
a 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) The grant by a Participant of a security interest in any interest in
this Agreement, any Participating Interest, or the Assets by mortgage,
deed of trust, pledge, lien or other encumbrance; or
d) A sale or other commitment or disposition of Products or proceeds from
sale of Products by a Participant upon distribution to it pursuant to
Article XI.
ARTICLE XVI
CONFIDENTIALITY
16.1 GENERAL. The financial terms of this Agreement and all information
obtained in connection with the performance of this Agreement shall be the
exclusive property of the Participants and, except as provided in Section 16.2,
shall not be disclosed to any third party or the public without the prior
written consent of the other Participants, which consent shall not be
unreasonably withheld.
16.2 EXCEPTIONS. The consent required by Section 16.1 shall not apply to a
disclosure:
a) to an Affiliate, consultant, contractor or subcontractor that has a
bona fide need to be informed;
b) to any third party to whom the disclosing Participant contemplates a
Transfer of all or any part of its interest in or to this Agreement,
its Participating Interest, or the Assets; or
c) to a governmental agency or to the public which the disclosing
Participant believes in good faith is required by pertinent law or
regulation or the rules of any stock exchange.
In any case to which this Section 16.2 is applicable, the disclosing Participant
shall give notice to the other Participants concurrently with the making of such
disclosure. As to any disclosure pursuant to Section 16.2(a) or (b), only such
confidential information as such third party shall have a legitimate business
need to know shall be disclosed and such third party shall first agree in
writing to protect the confidential information from further disclosure to the
same extent as the Participants are obligated under this Article XVII.
16.3 DURATION OF CONFIDENTIALITY. The provisions of this Article XVII
shall apply during
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the term of this Agreement and for two years following termination of this
Agreement pursuant to Section 12.1 or 12.2, and shall continue to apply to
any Participant who withdraws, who is deemed to have withdrawn, or who
Transfers its Participating Interest, for two years following the date of
such occurrence.
ARTICLE XVII
GENERAL PROVISIONS
17.1 NOTICES. All notices, payments and other required communications
("Notices") to a Participant shall be in writing, and shall be addressed to the
Participant at its address set forth on the first page of this Agreement. All
Notices shall be given:
a) by personal delivery to the Participant; or
b) by electronic communication, with a confirmation sent by registered or
certified mail return receipt requested; or
c) by registered or certified mail return receipt requested.
All Notices shall be effective and shall be deemed delivered
a) if by personal delivery on the date of delivery if delivered during
normal business hours, and, if not delivered during normal business
hours, on the next business day following delivery,
b) if by electronic communication on the next business day following
receipt of the electronic communication; and
c) if solely by mail on the next business day after actual receipt.
A Participant may change its address by Notice to the other Participants.
17.2 WAIVER. The failure of a 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 the Participant's right thereafter to enforce any
provision or exercise any right.
17.3 MODIFICATION. No modification of this Agreement shall be valid unless
made in writing and duly executed by the Participants.
17.4 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
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prevented by any cause, whether foreseeable or unforeseeable, beyond its
reasonable control, including, without limitation, labour disputes (however
arising and whether or not employee demands are reasonable or within the
power of the Participant to grant); acts of God; laws, regulations, orders,
proclamations, 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 federal, provincial or
local environmental standards; 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, labour, transportation, materials, machinery, equipment, supplies,
utilities or services; accidents; breakdown of equipment, machinery or
facilities; 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 the Participants to
advance funds pursuant to Section 10.2 shall be reduced to levels consistent
with Operations.
17.5 GOVERNING LAW. This Agreement shall be governed by and interpreted in
accordance with the laws of the Province of British Columbia.
17.6 RULE AGAINST PERPETUITIES. If any right, power or interest of any
party in any property under this Agreement would violate the rule against
perpetuities, then such right, power or interest shall terminate at the
expiration of 20 years after the death of the last survivor of all the lineal
descendants of Her Majesty, Queen Xxxxxxxxx XX of England, living on the date of
this Agreement.
17.7 FURTHER ASSURANCES. Each of the Participants agrees to take from time
to time such 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.
17.8 SURVIVAL OF TERMS AND CONDITIONS. The following Sections shall
survive the termination of this Agreement to the full extent necessary for their
enforcement and the protection of the Participant in whose favour they
run: Sections 2.1, 2.2, 2.3, 4.2, 6.5, 10.3, 12.3, 12.4, 12.5, 12.6, 12.7 and
12.8.
17.9 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 enure to the benefit of the respective
successors and permitted assigns of the Participants. In the event of any
conflict between this Agreement and any Exhibit attached hereto, the terms of
this Agreement shall be controlling.
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17.10 MEMORANDUM. At the request of any Participant, a Memorandum or
short form of this Agreement, as appropriate, which shall not disclose financial
information contained herein, shall be prepared and recorded by the Operator.
This Agreement shall not be recorded.
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IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the
date first above written.
THE COMMON SEAL of FOREFRONT
VENTURES LTD. was hereunto
affixed in the presence of: c/s
----------------------------
----------------------------
THE COMMON SEAL of STIRRUP CREEK
GOLD LTD. was hereunto affixed in
the presence of: c/s
----------------------------
----------------------------
EXHIBIT A
PART 1
DESCRIPTION OF PROPERTY
14,420 hectares of mining claims located on the island of
Kalimantan, Indonesia, more particularly described in the
following documentation.
PART 2
AREA OF INTEREST
The Area of Interest shall comprise all interests in real
property located within three kilometres of the boundaries
of the Property as they exist on the date of execution of
this Agreement.
EXHIBIT B
ACCOUNTING PROCEDURE
The financial and accounting procedures to be followed by the Operator and the
Participants under the Agreement are set forth below. References in this
Accounting Procedure to Sections and Articles are to those located in this
Accounting Procedure unless it is expressly stated that they are references to
the Venture Agreement. All capitalized words and terms used herein and not
otherwise defined herein have the same meaning as in the Agreement to which this
Exhibit B is attached.
ARTICLE I
GENERAL PROVISIONS
1.1 GENERAL ACCOUNTING RECORDS. The Operator shall maintain detailed and
comprehensive cost accounting records in accordance with this Accounting
Procedure, including general ledgers, supporting and subsidiary journals,
invoices, cheques 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 reporting purposes. 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 BANK ACCOUNTS. The Operator shall maintain one or more separate bank
accounts for the payment of all expenses and the deposit of all cash receipts
for the Venture.
1.3 STATEMENTS AND XXXXXXXX. The Operator shall prepare statements and
xxxx the Participants as provided in Article X of the Agreement. Payment of any
such xxxxxxxx by any Participant, including the Operator, shall not prejudice
such Participant's right to protest or question the correctness thereof for a
period not to exceed twenty-four (24) months following the calendar year during
which such xxxxxxxx were received by the Participant. All written exceptions to
and claims upon the Operator for incorrect charges, xxxxxxxx or statements shall
be made upon the Operator within such twenty-four (24) month period. The time
period permitted for adjustments hereunder shall not apply to adjustments
resulting from periodic inventories as provided in Article V.
ARTICLE II
CHARGES TO JOINT ACCOUNT
Subject to the limitations hereinafter set forth, the Operator shall charge the
Joint Account with the following:
2.1 RENTALS, ROYALTIES AND OTHER PAYMENTS. All property acquisition and
holding costs, including filing fees, license fees, costs of permits and
assessment work, delay rentals, productionroyalties, including any required
advances, and all other payments made by the Operator
which are necessary to acquire or maintain title to the Assets.
2.2 LABOUR AND EMPLOYEE BENEFITS.
a) Salaries and wages of the Operator's employees directly engaged in
Operations, including salaries or wages of employees who are
temporarily assigned to and directly employed by same;
b) The Operator's cost of holiday, vacation, sickness and disability
benefits, and other customary allowances applicable to the salaries
and wages chargeable under Sections 2.2(a) and 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 Operator'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 Operator.
c) The Operator's actual cost of established plans for employees' group
life insurance, hospitalization, pension, retirement, stock purchase,
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
Sections 2.2(a) or 2.12; rather than employees' benefit plans) and
other benefit plans of a like nature applicable to salaries and wages
chargeable under Sections 2.2(a) or 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 which are
applicable to salaries and wages chargeable under Sections 2.2(a) and
2.12, including all penalties except those resulting from the wilful
misconduct or gross negligence of the Operator.
2.3 MATERIALS, EQUIPMENT AND SUPPLIES. The cost of materials, equipment
and supplies (herein called "Material") purchased from unaffiliated third
parties or furnished by the Operator or any Participant as provided in
Article III. The Operator shall purchase or furnish only so much Material as
may be required for immediate use in efficient and economical Operations. The
Operator shall also maintain inventory levels of Material at reasonable levels
to avoid unnecessary accumulation of surplus stock.
2.4 EQUIPMENT AND FACILITIES FURNISHED BY OPERATOR. The cost of
machinery, equipment and facilities owned by the Operator 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 fifteen percent (15%) 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 the
Operations.
2.6 CONTRACT SERVICES AND UTILITIES. The cost of contract services and
utilities procured from outside sources, other than services described in
Sections 2.9 and 2.13. If contract services are performed by the Operator or an
Affiliate thereof, the cost charged to the Joint Account shall not be greater
than that for which comparable services and utilities are available in the open
market within the vicinity of the Operations. The cost of professional
consultant services procured from outside sources in excess of $25,000 shall not
be charged to the Joint 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.
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 wilful misconduct or gross negligence of the Operator. The
Operator 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
Operator.
2.9 LEGAL AND REGULATORY EXPENSE. Except as otherwise provided in
Section 2.13, all legal and regulatory costs and expenses incurred in or
resulting from the Operations or necessary to protect or recover the Assets of
the Venture. All attorney's fees and other legal costs to handle, investigate
and settle litigation or claims, including the cost of legal services provided
by the Operator's legal staff, and amounts paid in settlement of such litigation
or claims in excess of $25,000 shall not be charged to the Joint Account unless
approved by the Management Committee.
2.10 AUDIT. Cost of annual audits under Section 10.4 of the Venture
Agreement if approved by all of the Participants.
2.11 TAXES. All taxes (except income taxes) of every kind and nature
assessed or levied upon or in connection with the Assets, the production of
Products or Operations, which have been paid by the Operator for the benefit of
the Participants. Each Participant is separately responsible for income taxes
which are attributable to its respective Participating Interest.
2.12 DISTRICT AND CAMP EXPENSE (FIELD SUPERVISION AND CAMP EXPENSES). A
PRO RATA portion of (i) the salaries and expenses of the Operator's
superintendent and other employees serving Operations whose time is not
allocated directly to such Operations, and (ii) the costs of maintaining and
operating an office (herein called "the Operator's Project 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 Operator's employees and facilities shall be apportioned to the
Joint Account on the basis of
a ratio, the numerator of which is the direct labour costs of the Operations
and the denominator of which is the total direct labour costs incurred for
all activities served by the Operator.
2.13 ADMINISTRATIVE CHARGE.
a) Each month, the Operator shall charge the Joint Account a sum of 5% of
Allowable Costs for exploration, development, major construction and
mining, which shall be a liquidated amount to reimburse the Operator
for its home office overhead and general and administrative expenses
to conduct each said phase of the Operations, and which shall be in
lieu of any management fee.
b) The term "Allowable Costs" as used in this Section 2.13 for a
particular phase of Operations shall mean all charges to the Joint
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 Sections 2.1 and
2.9. The Operator shall attribute such Allowable Costs to a
particular phase of Operations by applying the following guidelines:
i) The exploration phase shall cover those activities conducted to
ascertain the existence, location, extent or quantity of any
deposit of ore or mineral. Such phase shall cease when a
commercially recoverable reserve is determined to exist.
ii) The development phase shall cover those activities conducted to
access a commercially feasible ore body or to extend production
of an existing ore body, and to construct or install related
fixed assets.
iii) The major construction phase shall include all activities
involved in the construction of a mill, smelter or other ore
processing facilities.
iv) The mining phase shall include all other activities not otherwise
covered above, including activities conducted after mining
operations have ceased.
(c) The following is a representative list of items comprising the
Operator's principal business office expenses that are expressly
covered by the administrative charge provided in this Section 2.13:
i) Administrative supervision, which includes services rendered by
managers, department supervisors, officers and directors of the
Operator for Operations, except to the extent that such services
represent a direct charge to the Joint Account, as provided for
in Section 2.2;
ii) Accounting, data processing, personnel administration, billing
and record keeping in accordance with governmental regulations
and the provisions of the Venture 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 Joint Account;
iv) Routine legal services rendered by outside sources and the
Operator's legal staff not otherwise charged to the Joint Account
under Section 2.9; and
v) Rentals and other charges for office and records storage space,
telephone service, office equipment and supplies.
d) The Management Committee shall annually review the administration
charges and may, with the consent of the Operator, amend the
methodology or rates used to determine such charges if they are found
to be insufficient or excessive.
2.14 OTHER EXPENDITURES. Any reasonable direct expenditure, other than
expenditures which are covered by the foregoing provisions, incurred by the
Operator for the necessary and proper conduct of Operations.
ARTICLE III
BASIS OF CHARGES TO JOINT ACCOUNT
3.1 PURCHASES. Material purchased and services procured from third
parties shall be charged to the Joint Account by the Operator 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 Operator shall credit the Joint Account when an adjustment is received from
the vendor.
3.2 MATERIAL FURNISHED BY OR TRANSFERRED TO THE OPERATOR OR A
PARTICIPANT. Any Material furnished by the Operator or a Participant from its
stocks or transferred to the Operator or Participant shall be priced on the
following basis:
a) NEW MATERIAL: New Material transferred from the Operator or
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 of the transfer (herein
called, "New Price").
b) USED MATERIAL.
1) Used Material in sound and serviceable condition and suitable for
reuse without reconditioning shall be priced as follows:
i) Used Material transferred by the Operator or Participant
shall be
priced at seventy-five percent (75%) of the New Price;
ii) Used Material transferred to the Operator or Participant
shall be priced (i) at seventy-five percent (75%) of the New
Price if such Material was originally charged to the Joint
Account as new Material, or (ii) at sixty-five percent (65%)
of the New Price if such Material was originally charged to
the Joint Account as good used Material at seventy-five
percent (75%) of the New Price.
2) Other used Material which, after reconditioning will be further
serviceable for original function as good secondhand Material, or
which 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.
3) All other Material, including junk, shall be priced at a value
commensurate with its use or at prevailing prices. Material no
longer suitable for its original purpose but usable for some
other purpose shall be priced on a basis comparable with items
normally used for such other purposes.
c) OBSOLETE MATERIAL. Any Material which 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 which will
result in a charge to the Joint 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 Operator has no control, the Operator may
charge the Joint Account for the required Material on the basis of the
Operator's direct cost and expenses incurred in procuring such Material and
making it suitable for use. The Operator shall give written notice of the
proposed charge to the Participants prior to the time when such charge is to be
billed, whereupon any Participant shall have the right, by notifying the
Operator within ten days of the delivery of the notice from the Operator, to
furnish at the usual receiving point all or part of its share of Material
suitable for use and acceptable to the Operator.
3.4 WARRANTY OF MATERIAL FURNISHED BY THE OPERATOR OR PARTICIPANTS.
Neither the Operator nor any Participant warrants the Material furnished beyond
any dealer's or manufacturer's warranty and no credits shall be made to the
Joint Account for defective Material until adjustments are received by the
Operator from the dealer, manufacturer or their respective agents.
ARTICLE IV
DISPOSAL OF MATERIAL
4.1 DISPOSITION GENERALLY. The Operator shall have no obligation to
purchase a Participant's interest in Material. The Management Committee
shall determine the disposition of major items of surplus Material, provided
the Operator 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 Section 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 Joint
Account on the basis provided in Section 3.2.
4.3 SALES. Sales of Material to third parties shall be credited to the
Joint Account at the net amount received. Any damages or claims by the
Purchaser shall be charged back to the Joint Account if and when paid.
ARTICLE V
INVENTORIES
5.1 PERIODIC INVENTORIES, NOTICE AND REPRESENTATIONS. At reasonable
intervals, inventories shall be taken by the Operator, 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 Joint Account. The Operator shall give written
notice to the Participants of its intent to take any inventory at least
thirty (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 Operator if the Participant fails to be represented at such
inventory.
5.2 RECONCILIATION AND ADJUSTMENT OF INVENTORIES. Reconciliation of
inventory with charges to the Joint Account shall be made, and a list of
overages and shortages shall be furnished to the Management Committee within
six (6) months after the inventory is taken. Inventory adjustments shall be
made by the Operator to the Joint Account for overages and shortages, but the
Operator shall be held accountable to the Venture only for shortages due to
lack of reasonable diligence.
EXHIBIT C
NET PROCEEDS CALCULATION
1. INCOME AND EXPENSE. Net Proceeds shall be calculated by deducting
from the gross revenues realized (or deemed to be realized) from the sale (or
deemed sale) of Products, such costs and expenses attributable to
Exploration, Development, Mining and the marketing of Products as would be
deductible under generally accepted accounting principles and the practices
consistently applied as employed by the Operator, 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 Property shall be charged to the Property only in the
proportion that their use in connection with the Property 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 Property, including without limitation all provincial mining
taxes, sales taxes, severance taxes, royalties, license fees and
governmental levies of a similar nature.
c) Allowance for overhead in accordance with Section 2.13 of the
Accounting Procedure.
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 Operator of the Property during
Mining pursuant to any applicable operating or similar agreement
in force with respect thereto.
f) The actual cost of investment prior to beginning of Mining which
shall include all expenditures for Exploration and Development
of the Property incurred by the nonwithdrawing Participant
subsequent to the withdrawing Participant acquiring a Net
Proceeds interest.
g) Interest on monies borrowed or advanced for costs and expenses,
at an annual rate equal to two (2) percentage points above the
Prime Rate, but in no event in excess of the maximum permitted
by law.
h) An allowance for reasonable working capital and inventory.
i) Reasonably anticipated reclamation costs.
It is intended that the Operator and the nonwithdrawing Participants shall
recoup from net cash flow all of their contributions for Exploration,
Development, Mining, 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 Property 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 Operator or a Participant, or are sold to an Affiliate of the Operator
or a 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 arm's length purchasers FOB the concentrator for the
Property, and Net Proceeds relative thereto shall be calculated without
reference to any profits or losses attributable to smelting or refining.
2. PAYMENT OF NET PROCEEDS. Payment of Net Proceeds shall commence in
the calendar year next following the calendar year in which Net Proceeds are
first realized, and shall be made 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 within
the time and in the manner provided in Section 10.4 of the Agreement.
3. DEFINITIONS. All capitalized words and terms used herein have the
same meaning as in the Agreement to which this Exhibit C is attached.
