-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, QlPKfLeeftwCcA00W5asizn0dzuFK8V2UArR+41t4Kn2ySBY/Q46I1N4n+4fHIln Ff3DQtic5GdmgAbGrp1ftA== 0001028269-99-000035.txt : 19990712 0001028269-99-000035.hdr.sgml : 19990712 ACCESSION NUMBER: 0001028269-99-000035 CONFORMED SUBMISSION TYPE: 10SB12G PUBLIC DOCUMENT COUNT: 21 FILED AS OF DATE: 19990709 FILER: COMPANY DATA: COMPANY CONFORMED NAME: CAN CAL RESOURCES LTD CENTRAL INDEX KEY: 0001083848 STANDARD INDUSTRIAL CLASSIFICATION: [] IRS NUMBER: 880336988 STATE OF INCORPORATION: NV FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10SB12G SEC ACT: SEC FILE NUMBER: 000-26669 FILM NUMBER: 99662192 BUSINESS ADDRESS: STREET 1: 1505 BLACKCOMBE STREET STREET 2: BLDG II UNIT 203 CITY: LAS VEGAS STATE: NV ZIP: 89128 BUSINESS PHONE: 7022406565 MAIL ADDRESS: STREET 1: 1505 BLACKCOMBE STREET BLDG II UNIT 203 CITY: LAS VEGAS STATE: NV ZIP: 89128 10SB12G 1 FORM 10-SB UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-SB GENERAL FORM FOR REGISTRATION OF SECURITIES OF SMALL BUSINESS ISSUERS UNDER SECTION 12(B) OR (G) OF THE SECURITIES EXCHANGE ACT OF 1934 Can-Cal Resources, Ltd. - -------------------------------------------------------------------------------- (Name of Small Business Issuer in its charter) Nevada 88-0336988 - ---------------------------------- ---------------------------------------- (State or other jurisdiction of (I.R.S. Employer Identification No.) incorporation or organization) 1505 Blackcombe St., Bldg. 2, Unit #203, Las Vegas, NV 89128 - ----------------------------------------------------------- -------------- (Address of principal executive offices) (Zip Code) Issuer's telephone number, ( 702 ) 240 - 6565 --------- -------------------- ------------------- Securities to be registered under Section 12(b) of the Act: Title of each class Name of each exchange on which to be so registered each class is to be registered - ---------------------------------- ----------------------------------------- - ---------------------------------- ----------------------------------------- Securities to be registered under Section 12(g) of the Act: Common stock, par value $.001, - -------------------------------------------------------------------------------- (Title of class) Preferred stock, par value $.001, non-voting, 5% cumulative - -------------------------------------------------------------------------------- (Title of class) 1 ITEM 1. DESCRIPTION OF BUSINESS (a) Business Development (a)(1) Form and Year of Organization Can-Cal Resources, Ltd., a Nevada corporation ("the Company"), was originally incorporated in the state of Nevada on March 22, 1995 under the name of British Pubs USA, Inc. as a wholly owned subsidiary of 305856 B.C., Ltd. dba N.W. Electric Carriage Company ("NWE"), a Company formed under the laws of British Columbia, Canada ("NWE"). On April 12, 1995, NWE exchanged shares of British Pubs USA, Inc. for shares of NWE held by its existing shareholders, on a share for share basis. Its name was changed to Can-Cal Resources, Ltd. on July 2, 1996. This transaction is believed to have been exempt pursuant to Section 3(a)(9) of the Securities Act of 1933. (a)(2) Any Bankruptcy, Receivership or Similar Proceeding None. (a)(3) Any Material Reclassification, Merger, Consolidation, or Purchase or Sale of a Significant Amount of Assets not in the Ordinary Course of Business On December 3, 1997, the shareholders of Can-Cal approved the acquisition of the assets of Aurum LLC ("Aurum"), a California limited liability company, which consisted of the Volcanic Cinders property at Pisgah, California, and the cancellation of indebtedness to Aurum, in exchange for 2,181,752 restricted shares of its common stock (see Item 7, Certain Relationship and Related Transactions). On January 29, 1999, the Company sold its Canadian subsidiary, Scotmar Industries, Inc. (See Item 7, Certain Relationships and Related Transactions). (b) Business of Issuer The Company is a mining company in the exploration stage. Since about May 1996, the Company has been devoting its resources to examining various mineral properties prospective for precious metals and minerals and acquiring those which it deems promising. It has determined that its focus is to attempt to locate and acquire properties prospective for precious metals and minerals in the southwestern United States, principally in the states of California, Arizona, and Nevada. The Company owns leases or has an interest in five properties. All properties which the Company has reviewed, and those which it has acquired, are "grass roots" properties, in that they are not known to contain any proven or probable reserves of precious metals or minerals. The Company also has been using the Tyro Mill (near Bullhead City, Arizona), but does not own the property or the equipment located on the property. 2 However, the Company has done an extensive amount of preliminary testing and assaying on four of its properties which indicate the existence of precious metals on those properties. The Company has performed in excess of 700 "in-house" assays on mineral samples from those properties and has caused a significant number of assays to be performed by independent assayers, which has principally consisted of performing fire assays. The Company's policy is to acquire those properties which its assaying, or assaying by others, indicate the presence of precious metals. The Company contracts with persons who are experienced in performing assays, but are not independent assayers, to conduct "in-house" assays using equipment provided by the Company, on material from properties it is considering acquiring or which it has acquired. It may also send samples of materials on which it obtains the most promising assays to outside independent assayers for assays. However, even if assays indicate the existence of precious metals, a very substantial amount of additional testing and drilling is necessary to determine whether a property contains a sufficient amount of precious metals to constitute "reserves," and whether any such reserves are capable of economic production. On April 12 1999, the Company hired Terry Rice as its Vice-President - Operations. Mr. Rice is a metallurgical engineer and has 24 years of experience in the mining industry. Mr. Rice is in charge of all the Company's mining and mineral operations. None of the Company's other officers or directors has had any prior experience in mining. Until Mr. Rice was hired, the Company had been relying upon consultants and other persons experienced in mining with whom the Company had contracted with respect to the identity of properties to be investigated, reviewed and tested for possible acquisition, in the actual testing of the properties, and in the attempted production from mineralized material and ores obtained from others. The Company will continue to use consultants to aid in all phases of its evaluation of properties. Ronald D. Sloan, the Company's President, has worked for the Company on a full time basis since May 1996. On March 2, 1999, the Company purchased a reverse circulation drill rig capable of drilling to a depth of approximately 150 feet and began a drilling program on the Owl Canyon properties. The Company is currently utilizing that rig to drill exploratory holes on its properties, beginning with the Owl Canyon properties owned and operated by the S & S Joint Venture, in which the Company owns a 50% interest. The Joint Venture has also acquired a core drill rig and is currently engaged in drilling exploratory holes in the Owl Canyon properties. The Joint Venture, as of May 25, 1999, had drilled 58 holes and is engaged in assaying samples and analyzing results of the drilling. The Company has also conducted blasting operations on the Owl Canyon properties. It is anticipated that the drilling program will continue into July 1999. See the "S & S Joint Venture." Following completion of the drilling program of the Owl Canyon properties, the Company intends to conduct a drilling program on its Cerbat property. On March 16, 1999, the Company purchased a newly developed "concentrator" from its Canadian inventor which produces concentrates from loose material on placer claims. The concentrator is capable of concentrating approximately 50 tons of material per hour. The Company 3 also purchased a truck which it utilized to transport the concentrator from Washington state to its properties, and will use in its operations. The Company intends to attempt to produce precious metals from placer material on its properties and from placer material or properties belonging to others. The Company is in the initial phases of concentrating placer material, utilizing the concentrator. In the event that drilling and/or testing by the Company indicates the presence of precious metals or minerals on a property which may be able to be produced on an economic basis, and the cost of doing so and/or the expertise needed is beyond the Company's capabilities, the Company intends to attempt to form a joint venture with a larger mining company to develop and operate the property, where the larger mining company would pay the exploratory and, if warranted, development costs. Alternatively, the Company may attempt to sell a portion, or possibly all, of that property to a larger mining company. There is no assurance that the Company will be able to enter into any such arrangement. The Company has been attempting to produce precious metals utilizing the facilities of the Tyro Mill near Bullhead City, Arizona. In March 1999, after several months of testing and processing various materials, the Company produced 16.8 ounces of gold from concentrates obtained from a third party and received $3,654.88 after paying refining costs and fees. The Company does not consider the production of precious metals from those concentrates economic, but is continuing to attempt to produce precious metals on a testing basis utilizing other materials. Through Scotmar Industries, Inc., a Canadian subsidiary, the Company was also engaged in the business of purchasing damaged trucks from insurance companies and dismantling the vehicles for the sale of guaranteed truck parts to others. This business was not profitable. (b)(1) On January 29, 1999, the Company sold Scotmar Industries, Inc., its Canadian subsidiary, which was engaged in the business of purchasing damaged trucks from insurance companies and dismantling the vehicles for the sale of guaranteed truck parts for repair shops, collision repair shops, and the retail public. (b)(2) The Company has shipped two dore bars to a California refinery to separate into precious metals for sale. The Company received $3,654.88 from the sale of the 16.8 ounces of gold produced. (b)(3) The Company has not publicly announced any new product(s) or service(s). (b)(4) The evaluation and acquisition of precious metals, mining properties and mineral properties is very highly competitive. There are numerous companies involved in the mining and minerals business, virtually all of which are larger, better capitalized, and have more experienced personnel than the Company. 4 Exploration for and production of minerals is highly speculative and involves greater risks than exist in many other industries. Many exploration programs do not result in the discovery of mineralization and any mineralization discovered may not be of a sufficient quantity or quality to be profitably mined. Also, because of the uncertainties in determining metallurgical amenability of any minerals discovered, the mere discovery of mineralization may not warrant the mining of the minerals on the basis of available technology. The Company's decision as to whether any of the mineral properties it now holds, or which it may acquire in the future, contain commercially mineable deposits, and whether such properties should be brought into production, will depend upon the results of the exploration programs and/or feasibility analysis and the recommendation of engineers and geologists. The decision will involve the consideration and evaluation of a number of significant factors, including, but not limited to: 1. the ability to obtain all required permits; 2. costs of bringing the property into production, including exploration and development or preparation of feasibility studies and construction of production facilities; 3. availability and costs of financing; 4. ongoing costs of production; 5. market prices for the metals to be produced; and 6. the existence of reserves or mineralization with economic grades of metals or minerals. No assurance can be given that any of the properties the Company owns, leases or acquires contain (or will contain) commercially mineable mineral deposits, and no assurance can be given that the Company will ever generate a positive cash flow from production operations on such properties. Although many companies and individuals are engaged in the mining business, including large, established mining companies, there is a limited supply of minerals land available for claim staking, lease or other acquisition in the southwestern United States, where the Company conducts its activities. The Company may be at a competitive disadvantage in acquiring suitable mining properties, since it must compete with these other individuals and companies, virtually all of which have greater financial resources and larger staffs than the Company. (b)(5) The Company has processed ores and mineralized materials and produced a limited amount of precious metals on a testing basis. Those materials have come from various sources, none of which is material to the Company. (b)(6) The Company is not dependent upon one or a few major customers. (b)(7) The Company holds no patents, trademarks, licenses, franchises, concessions, or royalty agreements, and has no labor contracts. (b)(8) Mining operations are subject to statutory and agency requirements which address various issues, including: (i) environmental permitting and ongoing compliance, including plans of operations which are supervised by the Bureau of Land Management ("BLM"), the Environmental Protection Agency ("EPA") and state and county regulatory authorities and agencies (e.g., state departments of environmental quality) for water and air quality, hazardous waste, etc.; (ii) mine safety and OSHA generally; and (iii) wildlife (Department of Interior for migratory fowl, if 5 attractive standing water is involved in operations). See (b)(11) below. Certain permits issued by San Bernardino County and agencies relating to the Company's Volcanic Cinders property in Pisgah, California, are presently in the process of being transferred from the name of its licensee to the joint names of its licensee and the Company, thereby effectively adding the Company's name to the permits. The transfer of these permits is being done pursuant to the provision of the mining lease agreement. The Company anticipates that those transfers will be allowed in due course, without objection. See Item 3, Description of Properties - Volcanic Cinders Property - Mining Lease Agreement with Twin Mountain Rock Venture. (b)(9) Because any mining operations of the Company would be subject to the permitting requirements of one or more agencies, the commencement of any such operations could be delayed, pending agency approval (or a determination that approval is not required because of size, etc.), or the project might even be abandoned due to prohibitive costs (for example, water treatment facilities for mine water discharge might be too expensive to build). Generally, the effect of governmental regulations on the Company cannot be determined until a specific project is undertaken by the Company. (b)(10) The Company has not expended funds on research and development activities. The Company does not consider testing or assaying of material or processing of material as research and development activities. (b)(11) Federal, state and local provisions regulating the discharge of material into the environment, or otherwise relating to the protection of the environment, such as the Clean Air Act, Clean Water Act, the Resource Conservation and Recovery Act, and the Comprehensive Environmental Response Liability Act ("Superfund") affect mineral operations. For mining operations, applicable environmental regulation includes a permitting process for mining operations, an abandoned mine reclamation program and a permitting program for industrial development and siting. Other non-environmental regulations can impact mining operations and indirectly affect compliance with environmental regulations. For example, a state highway department may have to approve a new access road to make a project accessible at lower costs, but the new road itself may raise environmental issues. Compliance with these laws, and any regulations adopted thereunder, can make the development of mining claims prohibitively expensive, thereby frustrating the sale or lease of properties, or curtailing profits or royalties which might have been received therefrom. In 1997, the S & S Joint Venture spent approximately $32,000 to clean up areas of the Owl Canyon properties as requested by the BLM. This work has been completed. The Company cannot anticipate what the further costs and/or effects of compliance with any environmental laws might be. (b)(12) The Company's President, Ronald D. Sloan, and Terry Rice, its Vice-President Operations, are the Company's only full-time employees. The Company contracts with other persons to perform services as independent contractors. At the present time, independent contractors are performing a variety of duties for the Company and the S & S Joint Venture, such 6 as drilling, building roads, assaying, and refabricating the Tyro Mill. The Company has no computer operations that it believes will be affected by the year 2000 issue. ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION (a) Plan of Operation The Company's plan of operation through July 2000 includes completing the drilling program at the S & S Joint Venture's properties, in which it owns a 50% interest (see Item 3. below), determining whether those properties contain precious metals, and if so, determining whether the property contains a sufficient amount of precious metal which can be mined at a profit so as to constitute "reserves" and, if so, the amount of those reserves. If the property contains "reserves" in an amount sufficient to justify development, the Company intends to attempt to joint venture or sell an interest in the property to a larger mining company, on the condition that the larger mining company will develop the property. Following completion of the drilling program at the Owl Canyon properties, the Company intends to conduct a drilling program on its Cerbat properties, which it leases with an option to purchase (see Item 3), to determine the nature and extent of mineralization existing on the property. Since the Company has not performed any drilling operations on that property, it is as yet unable to state the nature and extent or cost of the drilling it will undertake. This drilling program is expected to begin in the latter part of 1999. The Company also intends to concentrate various placer material available to it using its newly acquired "concentrator." The Company has conducted a significant number of "in-house" assays on various placer materials available to it and, based upon those assays, believes that the placer material contains precious metals which the Company believes may exist in sufficient amounts to be mined commercially. If the testing continues to be promising, the Company may seek to claim other placer properties. However, since its concentrating activities have only recently been initiated, there is no assurance that precious metals exist in the placer material in commercial quantities, or that the Company can produce it at a profit. In addition, the Company intends to continue testing Volcanic Cinders from its property at Pisgah, California. It is not anticipated that the Company will purchase (or sell) any significant amount of equipment or other assets, or experience any significant change in the number of personnel who work for the Company, during the 12 months ending July 2000. The Company believes it has sufficient funds to satisfy its cash requirements through July 2000. Should it be necessary for the Company to obtain additional funds, the Company may attempt to sell an interest in one or more of its properties or otherwise obtain funds from outside sources. 7 The Company believes that it may be possible for it to borrow additional funds, using its Volcanic Cinders property as collateral, but there are no loan facilities in place to date. (b) Management's Discussion and Analysis of Financial Condition and Results of Operations General The following discussion and analysis should be read in conjunction with the consolidated financial statements of the Company and the notes thereto, included elsewhere in this Form 10-SB. Can-Cal Resources, Ltd. (the "Company") holds an interest in four mining properties in the southwestern United States. None of these properties have any proven or probable reserves and none of these properties is in production. Consequently, the Company has no current operating income or cash flow from its mining operation other than the receipt of $3,654.88 that it received in May 1999 from the sale of gold obtained from processing ore obtained from others. December 31, 1998 Compared with December 31, 1997 All the Company sales, cost of goods sold, gross profit, operating and general administrative expenses, and loss from operations for 1998 resulted from Scotmar Industries, Inc. The Company capitalized all expenses related to its mineral operations. For 1997, all of the Company's "sales" were from Scotmar. Scotmar's results for 1997 and 1998 were as follows: 1998 1997 ---- ---- Sales $ 97,720 $ 79,258 Cost of good sold 74,783 51,323 Gross profit 22,987 27,935 Net loss for the year (100,344) (90,130) In addition, the Company loaned Scotmar, as of December 31, 1998, $83,400.00. Since Scotmar was sold after December 31, 1998, the Company will be devoting all its resources toward its mining activities. The Company's historical capital needs have been met by equity subscriptions and loans from related parties (see Item 7. Certain Relationships and Related Transactions and Notes 7 and 8 to the Financial Statements). The Company believes it has sufficient working capital to fund its ongoing exploration program and to meet its administrative and overhead expenses anticipated over the next year. However, the Company will require additional financing to fund further exploration. The amount of such additional funding is not determinable as of this date. The Company does not expect to receive any revenue from any of its properties in the foreseeable future. Debt financing may be feasible using the Volcanic Cinders property as collateral, but no loan facilities have been established to date, and such debt financing may not be feasible. 8 The Company's financial success will be dependent upon the extent to which it can discover mineralization, and the economic viability of developing its mineral properties. Such development may take years to complete and the amount of resulting income, if any, cannot be determined with any certainty. The Company has no material commitments for capital expenditures. ITEM 3. DESCRIPTION OF PROPERTIES The Company owns or has an interest in five properties, one which it owns in fee (the Volcanic Cinders property) and one which it leases with an option to purchase (the Cerbat property). The remaining properties are unpatented mining claims acquired through filings with the BLM. Each placer claim covers 160 acres. Each lode claim covers 20 acres. The Company is obligated to pay a holding fee or spend $100.00 in work per claim each year in order to maintain the claims. Unpatented claims are located upon federal public land pursuant to procedure established by the General Mining Law. Requirements for the location of a valid mining claim on public land depend on the type of claim being staked, but generally include posting thereon of a location notice, marking the boundaries of the claim with monuments, and filing a certificate of location with the county in which the claim is located and with the BLM. If the statutes and regulations for the location of a mining claim are complied with, the locator obtains a valid possessory right to the contained minerals. To preserve an otherwise valid claim, a claimant must also annually pay certain rental fees to the federal government (currently $100 per claim) and make certain additional filings with the county and the BLM. Failure to pay such fees or make the required filings may render the mining claim void or voidable. Because mining claims are self-initiated and self-maintained, they possess some unique vulnerabilities not associated with other types of property interests. It is impossible to ascertain the validity of unpatented mining claims solely from public real estate records and it can be difficult or impossible to confirm that all of the requisite steps have been followed for location and maintenance of a claim. If the validity of an unpatented mining claim is challenged by the government, the claimant has the burden of proving the present economic feasibility of mining minerals located thereon. Thus, it is conceivable that during times of falling metal prices, claims which were valid when located could become invalid if challenged. Disputes can also arise with adjoining property owners for encroachment or under the doctrine of extralateral rights. The U.S. Congress has, in legislative sessions in recent years, actively considered several proposals for major revision of the General Mining Law, which governs mining claims and related activities on federal public lands. If any of the recent proposals become law, it could result in the imposition of a royalty upon production of minerals from environmental control measures. It remains unclear whether the current Congress will pass such legislation and, if passed, the extent such new legislation will affect existing mining claims and operations. The effect of any revision of the General Mining Law on the Company's operations cannot be determined conclusively until such a revision is enacted. 9 THE S & S JOINT VENTURE'S OWL CANYON PROPERTY - --------------------------------------------- As of September 13, 1996, the Company entered into a Joint Venture Agreement with the Schwarz family covering approximately 425 acres of unpatented placer and lode mining claims in the Silurian Hills of California, known as Owl Canyon. The S & S Joint Venture has since increased its holdings to approximately 1,600 acres of placer claims, of which 160 acres are also covered by lode claims and five acres by a mill site claim. These claims are deemed to be prospective for precious metals and some base metals. The property is located approximately 23 miles northeast of Baker, California. The property is accessible by a road which consists of nine miles of paved surface and fourteen miles of dirt surface. Pursuant to the terms of the Agreement, the Company and the Schwarz family each have a 50% interest in the S & S Joint Venture which is operated by the Management Committee, comprised of Mr. Sloan the Company's president, and Ms. Robin Schwarz, a member of the Schwarz family. Pursuant to the terms of the Joint Venture Agreement, the Company has been and is funding the Joint Venture's operations. Any income from the Joint Venture will first be paid to the Company to repay monies advanced to the Joint Venture or spent on its account, with any additional income divided 50% to the Company and 50% to the Schwarz family. As the acquisition price of its 50% interest in the S & S Joint Venture, the Company issued 500,000 shares of its common stock to the Schwarz family, subject to investment restrictions. The shares may only be sold in compliance with United States securities laws, including Rule 144. Appropriate stop transfer instructions have been issued to the Company's transfer agent. None of those shares have been sold. The shares were issued with "No Sale" restrictions, all of which have expired, except that 100,000 of the shares cannot be sold until after November 5, 1999. As of December 31, 1998, the Company had a total investment of approximately $826,000 in the S & S Joint Venture. The Joint Venture has the following equipment and facilities, all of which are used, but are operational: a refurbished 8-level screen classifier which separates various grades of ores; five concentrate tables to obtain concentrates from the "in-house" processed ore; a fire assay furnace so that the Venture is able to assay ores and concentrates at its own facility without using independent sources; a smelting furnace for the production of precious metals; an impact mill which is used for crushing rock; a conveyor feeding system, built for quantity, fed by a front end loader which was purchased in 1998 to process mineralized material from lode mining claims; an additional screening system constructed for the processing of placer material; several platforms designed and constructed to access the furnaces and ore loading areas; two 400 lb. capacity furnaces, (five total furnaces on the property); sediment tanks, with two additional 3,000 gallon tanks, run by pumps for recycling thousands of gallons of water used for concentrating shaker tables; plumbing and PVC installed underground to move water from four levels of the property; a self contained trailer to facilitate the transportation of water to Owl Canyon; two air compressors, one a portable for jack hammering on the hillside, the second on a trailer for portability up and down the canyon; a core drill capable of drilling to about 80' for further testing; equipment to construct a 7,500' bucket line to transport head ore from the mountain to the mill site; and rebuilt engines and new engines for the milling facility. 10 A new generating power plant has also been added. New roads have been constructed throughout the canyon to allow accessibility to the various deposits. The Venture spent approximately $32,000 to clean up all areas of the property to the BLM's satisfaction. The Joint Venture retained Wilmarth & Associates, which is operated by L. Wade Wilmarth, a registered geologist, to prepare a preliminary geologic mapping report of the Owl Canyon properties. That report, dated January 21, 1998, contains the following description of the geological setting of the Owl Canyon properties. GEOLOGICAL SETTINGS Geological units within the Silurian Hills consist of Precambrian metamorphic and granitic rocks; approximately 11,000 feet of Precambrian clastic sedimentary rocks assigned to the Pahrump Group; Paleozoic (?) recrystallized carbonate rocks (Riggs Formation), Cretaceous (?) granitic rocks which intrude older rocks; Tertiary volcanic and sedimentary rocks and Cenozoic monolithologic megabreccia deposit consisting of Paleozoic carbonate rocks derived from apparently, the Goodsprings Dolomite (which occurs only within the northeast section of the Silurian Hills) and Cenozoic fan gravels and terrace gravels. Terrace gravels locally overlie the older rocks. A relatively flat, locally domed faulted, thrust fault forms the main structural element of the Silurian Hills. The fault, termed the Riggs thrust, separates Precambrian rocks of the Pahrump Group on the lower plate from Paleozoic rocks of the Riggs Formation on the upper plate. Faulting the Riggs thrust are significant and numerous north/south to near north/south faults. Underlying the Riggs thrust are a "chaos" structure and a "megabreccia" deposit. As noted in Reference 2, "The chaos is a mass of large and small blocks generally lenticular and elongate in shape and ranging in size from pods a few feet in diameter to blocks hundreds of feet long." Each block is bounded on all sides by surfaces of movement. The Owl Canyon area and southerly adjacent terrain exhibits an overall strike of approximately N70W for the canyon drainages and immediate southerly ridge lines. To the north, Owl Canyon exposes Paleozoic(?) dolomite rocks with remnant bedding. Within Owl Canyon, Precambrian metasediments are exposed locally throughout the canyon within bedded and recrystallized dolomite rock. Along the northerly-facing ascending southern canyon wall, in fault-contact between recrystallized dolomite rocks are Precambrian metasediments and granitic rock. Capping the immediate ridge, south of Owl Canyon are recrystallized Paleozoic dolomite rocks. To the south descending from the main ridge line, in fault contact with dolomite rocks, are 11 Precambrian granite and metamorphic rocks. Locally, quartzite rock occurs throughout the rock sequence. Structurally, described rock units are in fault contact aligned primarily with the overall trend of Owl Canyon (N70W). Pervasive faulting oriented near north/south to north/south occurs throughout the Owl Canyon area and the southerly terrain. Dominant closely spaced north/south trending faulting occurs in the near central area of Owl Canyon where they intersect with northwest trending faults. In this area, vicinity of north/south faulting, the rocks are highly fractured with secondary alteration zones due to migrating hydrothermal fluids. The strike and dip of remnant bedding, foliations and rock fabric parallel canyon and ridge alignments. Dominant dip is to the south at moderate to steep angles with an average near 45 degrees. Mineralization of the mapped area appears to be related to Tertiary(?) hydrothermal fluids migrating along north/south oriented faulting and at the contact between metamorphic and dolomite rocks. Along the southerly ridge adjacent to Owl Canyon, metalliferous deposits along north/south oriented fractures are prevalent near the central area of Owl Canyon. Centrally, along the southern side of Owl Canyon, fault contact areas exhibit localized zone alteration from migrating hydrothermal fluids producing mineral-rich deposits (pyrite, chalcopyrite, argentite(?) manganese, limonite sylvanite (?), malachite, copper, lead, barite, scheelite, gold and silver tellurides). Typically, hydrothermal deposits range in width from approximately 18 inches to 3 feet. 12 OWL CANYON ASSAYS - ----------------- Although the Joint Venture has the capability to, and does, perform its own fire assays, it has sent both samples and whole rocks taken from the surface of the property to independent laboratories for fire assays. Most of the samples from the lode claims have been sent to Cone Geochemical, Inc., Denver, Colorado, an assay firm. Of the most promising surface samples taken, Cone Geochemical, Inc. reported the following assay results: Sample ID Location Assay Results --------- -------- ------------- SQHO Owl Canyon 0.577 oz/ton gold/86 oz/ton silver SQ Rock 3 Owl Canyon 0.559 oz/ton gold/19.8 oz/ton silver SQH 0300 Owl Canyon 1.396 oz/ton gold/311 oz/ton silver SSQ Head Ore Screen Owl Canyon 0.690 oz/ton gold/118 oz/ton silver In order to determine if those values continued below the surface, approximately 15 tons of material was removed to a depth of 3 to 4 feet to expose a continuation of one of the veins. Following that vein structure 8 feet, a sample was removed from a depth of approximately 3 to 4 feet, and the sample was again sent for an independent assay. Cone Geochemical, Inc. reported the following assay on that sample: 8FTSOQ 11-24 Owl Canyon 1.351 oz/ton gold/66.5 oz/ton silver Wilmarth & Associates then selected four surface samples from different areas of the lode claims which they sent to Cone Geochemical, Inc. for fire assay. The results were as follows: SAMPLE OZ/TON GOLD OZ/TON SILVER W-1 0.257 5.08 W-2 0.002 0.35 W-3 0.009 0.2 W-4 0.274 1.94 The Joint Venture also had another mining Company perform assays on surface samples taken from the surface of another area of its lode claims. That mining Company reported the following results: Owl Canyon ssq rock & crushed 0.400 oz/ton gold/13.855 oz/ton silver (Super Quartz) Super Quartz "Owl Canyon" 0.590 oz/ton gold/84.545 oz/ton silver 13 The Joint Venture also sent a surface sample to Dr. Ralph Pray, an assayer, who reported the following results: RRXX Owl Canyon 2.41 oz/ton gold/24.5 oz/ton silver The Joint Venture has performed in excess of 500 "in-house"assays from surface samples on its Owl Canyon lode claims, over 90% of which produced gold and/or silver beads in varying sizes. Although the work to date indicated that there are mineralized materials on the property, the extent, grade and ease of processing of those materials has not been established. Following two years of extensive exploration work, testing, and assaying on the claims, the management committee determined there is sufficient evidence to continue further exploration of the property, including both lode and placer areas. Following this determination, the Joint Venture acquired two drill rigs, one reverse circulation rig, and one core rig, which are currently drilling a series of exploratory holes. As of May 25, 1999, 58 exploratory holes have been drilled to date in two small sections of the properties under the direction of the geologists and others with whom the Company contracts. Samples were taken from each hole for testing, assaying and analysis. This process is ongoing. In addition, in April and May 1999, the Joint Venture conducted two blasting operations in which it opened up areas of the property which it believes contain a vein or veins with precious metal content. The material obtained from drilling and blasting is currently being assayed and analyzed. It is estimated that this process will take approximately two months to complete. THE CERBAT PROPERTY - ------------------- On March 12, 1998, the Company entered into a Lease and Purchase Option Agreement covering six patented mining claims in the Cerbat Mountains, Hualapai Mining District, Mojave County, Arizona. The patented claims cover approximately 120 acres. The Company has paid $10,000 as the initial lease payments and is obligated to pay the sum of $1,500 per quarter as minimum advance royalties. To date, the Company has made all minimum advance royalty payments required. The Company has the option to purchase the property for $250,000, less payments already made. In the event the Company produces precious metals from the Cerbat Property prior to the exercise of the Purchase Option, it is required to pay to the lessor a production royalty of 5% of the gross returns received by the Company from the sale or other disposition of metals produced. An exploratory drilling program is scheduled for 1999 on the claims to determine the length of the structures in existence on the property. The Company has been informed that the property contains several mine shafts of up to several hundred feet in length and tailing piles containing thousands of tons of tailings. The Company has also been informed that the Cerbat Property has not produced since the late 1800's. However, prior to its entering into the Lease and Purchase Option Agreement, the Company received assays of samples taken from tailings and near the entrance of the mine shafts, as well as engineering reports from reputable assayers and engineers indicating the presence of precious metals in what may be commercial amounts. The Company also performed "in-house"assays on samples 14 taken from the property, with similar results. Extensive additional testing will be necessary to determine whether the property contains any reserves. CERBAT GEOLOGY - -------------- The Company's geologic information regarding the Cerbat claims comes from a report prepared by a consulting engineer in 1943. The relevant information contained in that report is as follows: Veins: The vein system of the Cerbat Group consists of two parallel veins which are approximately 70 feet apart at the New Discovery shaft on the Rolling Wave claim. The eastern branch is, in my opinion, the southern exposure of the main Cerbat vein on which the principal development work has been done to a vertical depth of 250 feet. This is a strong Mineralization outcropping at intervals for approximately 3000 feet in the Cerbat, Red Dog and Rolling Wave claims. The vein is steeply dipping and varies in width from 4.5 feet in its most southerly exposure to an average of 5.5 feet in the main workings of the Cerbat mine some 3000 feet to the north. The vein material is limonite in a quartz gangue carrying cerrusite with occasional bunches of very high grade galena. The accompanying metals are gold and silver. The western branch of these parallel veins shows only a short segment exposed at and near the New Discovery shaft. The hanging wall of this vein is well formed and sharply defined but the footwall as exposed in the superficial workings of this shaft is a series of short slips parallel to the strike of the vein, N55W. They have created what is apparently a false wall which is soft and "drumy" indicating a talcose condition. Insufficient work has been done in the single short, superficial drift to determine what extent these slips may have affected the continuity of the ore both horizontally and longitudinally. If the Cerbat workings had been available for study a more definite conclusion could probably be reached. The primary ore minerals in evidence are galena, sphalerite and occasional small showings of pyrite. Location: The Cerbat Group of claims is located in the Hualapai Mining District about 15 miles north from Kingman which is the nearest railroad and supply point. The state highway from Kingman to Boulder Dam and Las Vegas passes within four miles of the property and a good County road connects the state highway with the mine. The County road passes through the Rolling Wave and Red Dog claims making transportation available to the lower workings. An old road connects the New Discovery shaft with the Cerbat workings near the crest of the hill. Because of disuse this road needs some minor repairs to effect truck transportation to the upper Cerbat workings. This group of claims is favorably situated for trucking and transportation purposes. 15 THE VOLCANIC CINDERS PROPERTY - ----------------------------- During December 1997, the Company acquired fee title to the Volcanic Cinders property at Pisgah, San Bernardino County, California. The property is comprised of approximately 120 acres, containing a very large hill of volcanic cinders, with easy road access from Interstate 40. Garvin Surveying Sciences, a California based company, completed a survey of the property estimating approximately 13,500,000 tons of volcanic cinders above the surface. The Company has not verified any tonnage existing below the surface. Approximately 3,000,000 tons of the cinders have been screened and stockpiled. The following equipment is located on the property: a large ball mill (which crushes the cinders), truck loading pads, two buildings, large storage tanks, conveyors to load trucks, ore silos and grizzly screening equipment. The Company has caused independent assays to be performed for gold, silver, and platinum group metals. Those assays (fire assay for gold and nickel sulfide assays for platinum group metals) indicated only trace amounts of those metals. The Company has taken samples from 30 different locations on the surface of the cinder hill and performed "in-house" assays. Of the samples, 28 proved positive for the existence of gold and silver in varying, although small, amounts. Mining Lease Agreement with Twin Mountain Rock Venture: In order to generate cash for its operations, the Company, effective May 1, 1998, entered into a Mining Lease Agreement on its Volcanic Cinders property with Twin Mountain Rock Venture, a California general partnership ("Twin Mountain"), which is an indirect subsidiary of Peter Kiewit & Sons, Inc. of Omaha, Nebraska. The Agreement is for an Initial Term of ten years, with an option to allow Twin Mountain to renew the Lease for an Additional Term of ten years. The Company has agreed to make 600,000 tons of volcanic cinders available to Twin Mountain during the Initial Term, and an additional 600,000 tons during the Additional Term, which Twin Mountain will process and sell primarily as decorative rock. The Agreement provides for minimum annual royalty payments by Twin Mountain of $22,500 per year for the Initial Term and $27,500 per year for the Additional Term. Twin Mountain is also obligated to pay the Company a monthly production royalty for all material mined, processed, consumed, and/or sold or removed from the premises, calculated as follows: i. the greater 5% of gross sales F.O.B. Pisgah Crater, or $.80 per ton for material used for block material; and ii. 10% of gross sales F.O.B. Pisgah Crater for all other material; and iii. Twin Mountain receives a credit against the amount of any production royalty payment for minimum royalty payments previously made. The Company received the initial payment of $22,500 from Twin Mountain upon execution of the Agreement. Twin Mountain has not yet removed any material from the property and has indicated to the Company that it is unlikely it will remove any such material for a period of about two years. However, Twin Mountain does not have the right to remove or extract any precious metals from the property. Twin Mountain has agreed to use its good faith efforts to cause its mining permit, reclamation permit, and air quality permit to be issued in the name of both Twin Mountain and the Company. This process is currently underway. The transfer will save the Company significant effort and expense related to obtaining those permits. Financing Based on the Twin Mountain Lease Agreement: On February 12, 1998, in order to obtain additional funds for its operations, the Company entered into a Loan Agreement with a 16 lender in which the lender agreed to loan the Company up to $150,000, subject to the Company entering into a Mining Lease Agreement with Twin Mountain which was acceptable to the lender. The Mining Lease Agreement with Twin Mountain was acceptable to the lender. That Agreement was amended on June 1, 1998, to reduce the maximum amount of the loan to $127,500. $25,000 was advanced to the Company by the lender on signing. The lender has loaned the Company a total of $77,500 and the Company does not anticipate that any additional amounts will be loaned. The loan bears interest at the rate of 8% and is due and payable on July 31, 2001. As security for the loan, the Company has granted the lender a first deed of trust on the Volcanic Cinders property at Pisgah and has assigned all payments due it from Twin Mountain to the lender until such time as the loan and interest are paid in full. In May 1999, Twin Mountain made the second payment of $22,500 to the lender pursuant to the assignment of payments. On May 10, 1998, the Company sold 100,000 shares of its common stock to James Dacyszyn, a citizen and resident of Canada, at $.45 per share ($45,000). Mr. Dacyszyn was elected a director of the Company on February 8, 1999. Mr. Dacyszyn had the option at the end of the year to return the 100,000 shares in exchange for the Company's Promissory Note due one year from the date of issuance, with interest at 8%, secured by a second mortgage on the Company's Volcanic Cinders property. Mr. Dacyszyn has elected to retain his shares. Plasma Furnacing Testing: In the summer of 1998, the Company engaged in a testing program in which the volcanic cinders were subjected to plasma furnacing. The Company has submitted samples of volcanic cinders to a third party which has informed the Company that it has developed a proprietary plasma furnace, including proprietary plasma furnacing techniques. The Company does not have access to the plasma furnace or any related technology. It is the Company's general understanding, however, that, among other things, plasma furnacing includes heating the cinders to extremely high temperatures, far in excess of those utilized in conventional assay procedures, and then treating that material utilizing proprietary techniques to separate any precious metals from the cinders. The plasma furnacing is conducted exclusively by the third party to whom the Company submits samples and from whom it receives the treated material. The Company has caused treated material from the surface of the Volcanic Cinders property and also from concentrates of its volcanic cinders obtained from plasma furnacing to be analyzed by a highly experienced independent assayer selected by it who utilizes Induced Coupled Plasma assaying equipment. The analytical reports received to date from the assayer indicate the presence of precious metals. However, all testing to date has been performed on small quantities of the volcanic cinders, e.g., three ounce samples. These analytical procedures are not equivalent to conventional fire assay tests. The Company has been informed that the plasma furnacing equipment is still under development and is not presently capable of treating large amounts of cinders. As a result, the Company has not been able to have any of its volcanic cinder material plasma furnaced since the fall of 1998. It is the Company's intention to use its best efforts to cause additional testing to be conducted and, if possible, to cause greater amounts of its volcanic cinders to be plasma furnaced to determine the presence of precious metals in the materials. No precious metals have been produced from the volcanic cinders and there is no assurance that any will be produced. 17 The Company has been advised orally by the developer of the plasma furnacing technology and equipment that if the equipment is fully developed and becomes operational, and if production results are successful, the Company will be given the first opportunity to negotiate a long-term arrangement or acquire the technology and related equipment. Any such arrangement would be subject to appropriate due diligence. There is no assurance that the equipment will be fully developed, become operational, or that it will achieve any production or any such arrangement can be achieved. Reductive Fusion Testing: In May 1999, the Company engaged a California company which indicated that it had developed a proprietary Reductive Fusion process to extract precious metals from material containing those metals. The Company had tests run on 90 gram samples of its volcanic cinders and concentrates therefrom which had been treated by the Reductive Fusion Process. The analytical results indicated the presence of precious metals. The Company then had the California company process 400 lbs. of its volcanic cinders which it had processed and concentrated. Those concentrates are currently being tested to determine whether, in fact, they contain any precious metals and if they do contain any precious metals, whether they can be extracted on an economic basis. There is no assurance that any precious metals exist in the material, or that if they do exist, that they can be profitably extracted. THE LIMESTONE PROPERTY - ---------------------- This property consists of 460 acres of lode claims on BLM property , which the Company regards as prospective for use in cement. The property is located 18 miles southeast of Lucerne Valley, California, off highway 247. The first 12 miles is paved surface and the next six miles is excellent dirt road. The deposit is contained in a very large hill, with the deposit rising from the ground level to several hundred and possibly a thousand feet up within the hill. There are dirt roads to the top of the property. The Company is informed that the property was previously mined by a cement company which discontinued its mining operation around 1981. There are other companies currently mining limestone deposits in the same general area. The Company has initiated discussions with companies engaged in the cement business with respect to the possible sale of the property to them, but has not yet reached any agreement to do so. There is no assurance that those companies have any interest in acquiring the property or that the Company will be able to reach any agreement to sell it. The Company does not intend to attempt to mine the property itself. HASSYAMPA PROPERTY - ------------------ This property consists of 960 acres of placer claims on BLM property near Tonapah, Arizona. The Company has spent approximately four months testing and assaying this placer material which, in the Company's opinion, may contain precious metals. However, further testing of the property will await finishing, pending exploratory work on other properties the Company owns or is considering acquiring. 18 PROCESSING OF MATERIAL - TYRO MILL - ---------------------------------- During 1996 and 1997, the Company utilized the facilities of the Tyro Mill located near Bull Head City, Arizona to test and process certain materials and conduct assaying and other related operations. In that connection, the Company advanced a substantial amount of funds to Tyro, Inc., a Nevada corporation ("Tyro"), which asserted that it owned or had the right to acquire the Tyro Mill and equipment located thereon. Certain disputes arose between the Company and Tyro, which were resolved by an agreement executed between the Company, Tyro, and its two owners, individually, whereby Tyro and its two owners individually agreed to pay the Company the sum of $65,000. That debt is secured by a financing statement on a substantial amount of equipment at the Tyro Mill, including mixers, electronic equipment, electrowinning equipment, pumps, tanks and related materials. The $65,000 was due and payable on May 10, 1998. However, only $15,000 has been paid and the balance of $50,000, plus interest, is currently in default. On March 30, 1998, the Company instituted litigation against Tyro and its two owners to collect the balance of the funds owed, plus interest, to which each of the Defendants executed confessions of judgment. The Company has not pursued the collection of the amounts owed as of this time, pending its determination of the feasibility of utilizing the Tyro Mill in its operations and possible negotiations with persons claiming an interest in the Mill site and/or the equipment located thereon. The Tyro Mill is located on BLM land. The Company has investigated the ownership of the title to the claims to the property on which the Tyro Mill is located and the equipment located thereon. While the issue is not free from doubt, and will likely be contested, the Company believes that the proper owner of the claims is someone other than Tyro. The Company is negotiating with that person to retain the use of the Tyro Mill, even if the ownership is transferred to another party. Disputes may also exist regarding ownership of certain equipment at the Tyro Mill. The Company is informed that the Tyro Mill was constructed, beginning in 1980-82, at a cost in excess of $3 million. Additional equipment has recently been purchased by the Company and installed in order to accommodate incoming material for processing purposes. The mill consists of a carbon and pulp factory and includes buildings, a laboratory, five 33,000 gallon leach tanks with agitation, numerous smaller tanks, an electrical plan, 120 thousand gallon water storage tanks, a 4 inch water line approximately five miles in length from Lake Mohave, an atomic absorption analyzer, a Northwest 20 ton crane, an Eimco filter press, an Ametek belt filter, a jaw crusher, ball mills, an 8 yard 400 Hough loader, furnaces, conveyors; electrowinning equipment, a primary crushing circuit capable of crushing 80 tons per hour, four Chuga carbon pulp 3,000 pound tanks, three 150 horsepower air compressors, a power line 41/2 miles long, and two 500 KW power service transformers. The plant was designed to process a capacity of 500 tons of ore per day. Beginning in about May 1998, the Company obtained the use of the Tyro Mill on a limited test basis to test various ores and mineralized material to determine if they contained precious metals and, if so, whether they could be extracted on an economic basis. The Company contracted 19 with a third party which provided a foreman, a person experienced in conducting various assaying procedures and personnel capable of operating the equipment located at the mill to conduct testing and processing. The Company utilized the facilities of the Tyro Mill in producing the 16.8 ounces of gold it produced. The Tyro Mill is not currently permitted. The Mill will require an aquifer permit and an air quality permit, with a reclamation plan and bonding and perhaps other permits from Arizona state agencies and the BLM. The Company has been informed that the person who the Company believes is the proper owner of the claims is negotiating with other persons to advance the funds necessary to obtain the required permits. However, the cost of obtaining all necessary permits will likely be substantial, and possibly prohibitive, will likely involve posting of reclamation or other bonds, and could take a substantial period of time to obtain. The availability of the Tyro Mill to the Company will be subject to proper permitting by others. If that permitting is not obtained, the Company will likely not be able to utilize the Tyro Mill, which may have an adverse effect on the Company's ability to test and process materials and ores. SCOTMAR INDUSTRIES, INC., dba TRUCK CITY - ---------------------------------------- Truck City, which was owned and operated by a wholly owned Canadian subsidiary of the Company, Scotmar Industries, Inc., engaged in the business of purchasing damaged trucks from insurance companies and dismantling the vehicles for the sale of guaranteed truck parts to repair shops, collision repair shops and the retail public. When Truck City was purchased, management decided to convert it to the specialized field of General Motors trucks only. The Company was prepared to sustain some losses until the conversion was complete. However, the conversion required substantial additional funding. The Company determined to sell Scotmar Industries because it believed that its available funds could be better utilized in acquiring mineral and testing properties and because Scotmar Industries would likely continue to incur losses unless and until it obtained significant additional financing. On January 29, 1999, the Company sold Scotmar Industries to an unaffiliated British Columbia Company (see Item 7. Certain Relationships and Related Transactions). ITEM 4. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT Set forth in the table below is the number of equity securities of the Company beneficially owned by all officers and directors as of June 21, 1999. There were 7,592,282 shares of common stock outstanding on that date. There are no persons other than those listed below who, to the Company's knowledge, own more than 5% of the Company's common shares. 20
Title of Class Name and Address of Amount and Nature Percent of Class Beneficial Owner of Beneficial Owner - ----------------- ------------------- ------------------- ----------------- Common stock, par Ronald D. Sloan*, 785,431 10.3% value $.001 Vancouver, British Columbia Common stock, par John Brian Wolf, 785,431 10.3% value $.001 Vancouver, British Columbia Common stock, par Barry E. Amies, 175,571 2.3% value $.001 Vancouver, British Columbia Common stock, par James Dacysyzn 470,000 6.1% value $.001 Vancouver, British Columbia Common stock, par Terry Rice -0- -0- value $.001 Kingman, Arizona Common stock, par All Officers and 2,216,433 29.1% value $.001 Directors as a group * Mr. Sloan's wife owns 100,000 shares of the Company's common stock. Mr. Sloan disclaims any beneficial ownership in those shares.
There are no arrangements which may result in a change in control of the Company. There are no warrants or options outstanding to purchase any shares of the Company. ITEM 5. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS, AND CONTROL PERSONS Ronald Daniel Sloan, age 58, is President and Treasurer, and a Director of the Company. Mr. Sloan has been employed full time with the Company since May 2, 1996. For the past 10 years, Mr. Sloan, through a number of companies, has been engaged in the automotive brokerage business, dealing with total loss vehicles for insurance companies. Since 1994, Mr. Sloan has owned Canadian Auto Market Trends Ltd., a Company engaged in that business. From approximately 1986 to 1996, Mr. Sloan owned Knight Auto Recyclers Ltd., an automotive parts company which dismantled total loss vehicles and sold guaranteed parts to automotive dealers, collision repair shops and the retail public. From 1992 until 1996, Mr. Sloan worked at Truck City, Inc., which is engaged in the business of purchasing damaged trucks from insurance companies and dismantling the vehicles for the sale of parts. Until approximately 1990, Mr. Sloan was a director and secretary of 21 Save-On Used Auto and Truck Parts Ltd., which was sold to unaffiliated persons. He was elected President on May 2, 1996 and a Director on May 3, 1996. Terry Rice, age 52, joined the Company in April 12, 1999 as Vice President - Operations. Mr. Rice attended the University of Idaho from 1989 through 1994 and received a B. Sc. in metallurgical engineering in 1994. From January 1975 through 1985, Mr. Rice worked with Intermountain Mineral Engineers, Inc. as a metallurgist and mill foreman. He was responsible for metallurgical reports and testing, lining out crews, and scheduling maintenance at Intermountain's 250 tpd custom mill that milled for themselves, as well as several other companies, including Bunker Hill and Independence. From approximately 1985 through 1990, Mr. Rice worked for American Smelting and Refining Company as an underground miner. He worked as raise, drift and stope miner. As a result of an injury, he was unable to continue as an underground miner and enrolled at the University of Idaho. From January 1990 through December 1995, Mr. Rice worked part time for Pintlar Corporation, Citizens Utilities, and the University of Idaho, doing computer drafting and driving a truck while earning a degree at the University of Idaho. From January 1995 through July 1998, Mr. Rice worked for Addwest Minerals, Inc. at its Gold Road Mine as a metallurgist, mill superintendent, and environmentalist. He was responsible for metallurgical testing, daily and monthly metallurgical and mill reports, the mill budget, purchasing, scheduling maintenance, environmental sampling and reporting, lab and mill supervision, selling gold, and coordinating the mill with the mine at a 500 tpd CIP mill. From July 1998 through December 1998, Mr. Rice worked at Martha Mine in Oregon and prepared a feasibility study on opening a small mine and mill. Brian John Wolfe, age 46, is Secretary and a Director of the Company. He was elected Secretary on May 2, 1996 and a Director on May 3, 1996. Mr. Wolfe has, since 1987, owned Wolfe & Associates Appraisal Services, which appraises damages sustained by vehicles, recreation vehicles, motorcycles and equipment after an accident, for insurance companies throughout North America. Prior to 1987, Mr. Wolfe managed Collision Repair Shops in the Vancouver, B.C. area. Barry E. Amies, age 55, has been Vice President and a Director of the Company since October 14, 1998. Mr. Amies has extensive experience in financing, insurance and mining. He started Baron Insurance Agency in 1968 and built it from a one-man operation to 45 employees, when he sold it in 1994. He also started Baron Financial, which was added to the insurance business to incorporate financial investments. Mr. Amies was the President of the Insurance Brokers of British Columbia, Director and Vice President of Insurance Brokers of Canada, President/Chairman for the Centre for the Study of Insurance Operations of Canada, and was Chairman of the Insurance Council of British Columbia, which is a regulatory body for brokers. In 1990, he was the Insurance Marketer of the Year for North America. Since 1980, Mr. Amies has been President of Zalmac Mines, Ltd., which has properties in Canada prospective for gold, silver, molybdenum, and other metals. James Dacyszyn, age 68, was elected as a Director of the Company on February 8, 1999. Mr. Dacyszyn is a Canadian citizen who is semi-retired and is a member of the association of 22 professional engineers, geologists andgeophysicists of Alberta, Canada. Mr. Dacyszyn currentlyowns and operates several concrete transit mix plants and gravel operations in central Alberta, Canada. The companies are now being managed by his son, a professional engineer, and Mr. Dacyszyn is retained in a consulting capacity. Mr. Dacyszyn brings his experience in materials engineering, including drill testing and engineering evaluation of fine grained soils, sands and gravels. Messrs. Sloan and Wolfe may be deemed promoters of the Company in its present business and operations. ITEM 6. EXECUTIVE COMPENSATION No Officer or Director of the Company, other than Mr. Rice, receives any compensation and no officer or director has any options or other rights to purchase any shares of the Company. They are reimbursed for out of pocket expenses incurred on behalf of the Company. Mr. Sloan, a resident of Vancouver, British Columbia, spends virtually all of his time at the Company's properties and is reimbursed for the costs of maintaining an apartment in Las Vegas (which also serves as the Company's executive office). The Company does not have any stock option or similar plan. In the event the Company's financial condition becomes adequate to provide for the payment of other compensation, the Company will consider the issue at that time. ITEM 7. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS Acquisition of Assets From Aurum LLC - ------------------------------------ During 1997, the Company's operations were financed in part by funds loaned by Aurum LLC ("Aurum"), a California limited liability Company. Messrs. Sloan and Wolfe, Directors of the Company, each owned 36% of Aurum. As of October 27, 1997, Aurum had loaned $315,045.98 to the Company. The Company was unable to repay those funds because it has been using all its available funds in connection with its mining activities, principally the S & S Joint Venture. In October 1997, the Directors of the Company, including Messrs. Sloan and Wolfe, determined that it would be in the Company's best interests to acquire the Pisgah Volcanic Cinders property from Aurum, as well as to seek cancellation of the Company's indebtedness to Aurum and seek possible additional financing from Aurum on an equity, as opposed to the debt, basis. The Company determined that by acquiring the Pisgah Volcanic Cinders property and cancellation of its indebtedness for stock, it would become debt free, and it would give the Company a significant positive book value and would make it far more likely that it would be able to obtain financing to continue its exploration on the S & S Joint Venture property (Owl Canyon), as well as explore the Pisgah Volcanic Cinders property. 23 Aurum indicated it believed that it could sell its Volcanic Cinders property, which it acquired from the Burlington Northern Santa Fe Foundation on December 19, 1996, for a price in excess of its cost. However, Aurum agreed, in order to facilitate the transaction and to insure its fairness to the Company, to sell the Pisgah Volcanic Cinders property to the Company at its out-of-pocket cost of $553,716.94, plus legal fees and related costs of $25,755.59 incurred in acquiring the property, for a total acquisition cost of $579,472.53, cancel the indebtedness of $315,045.98, for a total cost of $894,518.51, and not charge the Company any interest for the use of funds that it had invested in the Volcanic Cinders property or the money it had loaned the Company. In addition, Aurum agreed to use its best efforts to provide additional equity financing to the Company in amounts that the Company may reasonably request. The Company's book value per share as of December 31, 1997, was approximately $.038 per share. Taking into account the Company's book value, its interest in the S & S Joint Venture and other operations, the fact that the Company would obtain cancellation of all its indebtedness to Aurum and obtain the Pisgah Volcanic Cinders property, which was deemed to have significant potential value, that trading in the Company stock had been limited for an extended period of time, that the shares issued to Aurum would be a long-term investment and illiquid and could not be sold for a considerable period of time, and then only in very limited amounts, it was determined by the Directors to value the Company's restricted shares issued to Aurum at $.41 per share and that, therefore, based on the total cost of $894,518.51, a total of 2,181,752 shares of the Company's common stock would be issued to Aurum. The Directors, including Messrs. Sloan and Wolfe, unanimously passed a resolution to this effect and, on October 27, 1997, an agreement was entered into with Aurum providing for the acquisition of the Pisgah Volcanic Cinders property by the Company and cancellation of the $315,045.98 of indebtedness by the Company to Aurum in exchange for 2,181,752 shares of the Company's common stock subject to investment restrictions, and Aurum agreeing to use its best efforts to provide additional equity financing as reasonably requested by the Company by purchasing additional restricted shares of the Company's common stock at the same price. This transaction was submitted to and approved by the Company's shareholders at the Company's annual meeting on December 3, 1997. In addition, Aurum forgave indebtedness of an additional $80,100 which it had loaned to the Company. The Company has not requested Aurum to provide any additional equity financing. Following shareholder approval of this transaction, Aurum distributed the shares to the owners of its beneficial interests. Messrs. Sloan and Wolfe each received 785,431 shares. All shares are subject to investment restrictions and Rule 144. None of the shares distributed have been sold. Scotmar Industries, Inc. - ------------------------ On February 13, 1997, Scotmar Industries, Inc.("Scotmar") was acquired by the Company from Mr. Sloan's wife and son-in-law, both citizens and residents of Canada, for 200,000 shares of the Company's common stock, which are subject to investment restrictions. None of those shares have been sold. Scotmar, a Canadian Company operating under the name of Truck City, engaged 24 in the business of purchasing damaged trucks from insurance companies and dismantling the vehicles for the sale of guaranteed truck parts to repair shops, collision repair shops, and the retail public. It was the intention of management to expand Truck City by opening new outlets which would specialize in specified product lines. The Company advanced a total of $84,820 to Scotmar to finance its operations. Mr. Sloan's wife and son-in-law advanced a total of $132,000 to Scotmar. However, the operations of Scotmar proved to be unsuccessful. Effective January 29, 1999, the Company sold Scotmar to an unaffiliated person for $65,300. In order to consummate this sale and avoid bank foreclosure, Mr. Sloan's wife paid approximately $16,500 of Scotmar's bank loans and was reimbursed at the initial closing. It is anticipated that substantially all the balance of the proceeds will be used to pay Scotmar's obligations. Loans by Ronald D. Sloan - ------------------------ As of December 31, 1998, Mr. Sloan had loaned the Company an aggregate of $43,800 to finance its operations. The loan is unsecured, due on demand, and bears interest at 1% over prime. Purchases of Stock From the Company - ----------------------------------- Mr. Amies and Amies Holdings Ltd., a Canadian Corporation owned by him and members of his family, have made the following purchases of stock from the Company. Date Number of Shares Price ---- ---------------- ----- 10-28-98 60,000 $.50 per share 12-24-98 38,571 $.35 per share 02-18-99 62,500 $.40 per share 05-14-99 15,000 $.50 per share Mr. Dacyszyn made the following purchases of stock from the Company: Date Number of Shares Price ---- ---------------- ----- 07-11-98 100,000 $.45 per share 12-24-98 200,000 $.35 per share 02-18-99 70,000 $.40 per share 5-14-99 100,000 $.50 per share All shares purchased are subject to investment restrictions contained in Regulation S and Rule 144. All shares were sold by the Company to obtain funds to finance its operations. 25 ITEM 8. LEGAL PROCEEDINGS On March 30, 1998, the Company filed a lawsuit in the District Court for Clark County, Nevada, against Tyro, Inc., a/k/a Tyro Precious Metals Processing Center, et al, seeking to collect the $50,000, plus interest and attorneys fees, for breach of an agreement to pay that amount to Can- Cal. Each of the Defendants has executed a Confession of Judgment. The Company has not yet filed the Confession of Judgment in Court or taken any further action to collect the amounts owed, pending the Company's decisions regarding the Tyro Mill in which the Defendants are involved. In the Company's opinion, the amounts owed it are fully collectible. ITEM 9. MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTER The Company's common stock is traded on the NASDAQ OTC Electronic Bulletin Board under the trading symbol CCRE. The following table sets forth in United States dollars the high and low bid quotation for such shares. Such bid quotations reflect inter-dealer prices, without retail mark-up, mark-down, or commissions, and do not necessarily represent actual transactions. The source of the following information is the National Association of Securities Dealers, Inc.'s NASDAQ Electronic Bulletin Board. COMMON STOCK ------------ 1997 LOW HIGH ---- First Quarter No trades No trades Second Quarter No trades No trades Third Quarter $1.375 $1.625 Fourth Quarter $0.321 $2.63 1998 LOW HIGH ---- First Quarter $0.375 $0.930 Second Quarter $0.406 $1.125 Third Quarter $0.375 $1.00 Fourth Quarter $0.281 $0.600 1999 LOW HIGH ---- First Quarter $0.375 $0.812 Second Quarter $0.406 $1.875 (through June 24) 26 Penny Stock Rules: The Securities and Exchange Commission has promulgated rules pursuant to the Securities Exchange Act of 1934 which may adversely affect the market for the Company's common stock. The Company's common stock is a "penny stock," as that term is defined by both statute and rule. Generally, a penny stock is a security that: o is priced under five dollars; o is not traded on a national stock exchange or on NASDAQ (the NASD's automated quotation system for actively traded stocks); o may be listed in the "pink sheets" or the NASD OTC Bulletin Board; o is issued by a company that has less than $5 million in net tangible assets and has been i n business less than three years, or by a Company that has under $2 million in net tangible assets and has been in business for at least three years, or by a Company that has revenues of $6 million in three years. The penny stock rules approval procedure and related rules may have a negative effect on the market and the market price for the Company's common stock. In order to approve a person's account for transactions in penny stocks, a broker-dealer must first obtain from the person information concerning the person's financial situation, investment experience, and investment objectives (Rule 15g-9(b)(1)). The broker-dealer is to use this information to make a reasonable determination that transactions in penny stocks are suitable for the person, and that the person (or the person's independent adviser) has sufficient knowledge and experience in financial matters that the person or the adviser reasonably may be expected to be capable of evaluating the risks of transactions in penny stocks (Rule 15g-9(b)(2)). The broker-dealer is then required to deliver to the person a written statement setting forth the basis on which the broker-dealer made the determination regarding suitability of penny stock transactions (Rule 15g-9(b)(3)(i)). A manually signed and dated copy of this written statement must be obtained from the person by the broker-dealer (Rule 15g-9(b)(4)). The written statement is to explain, in highlighted format, that it is unlawful for the broker-dealer to effect a transaction in a penny stock subject to the provisions of Rule 15g-9(a)(2) unless the broker-dealer has received from the person, prior to the transaction, a written agreement to the transaction (Rule 15g-9(b)(3)(ii)). Also in highlighted format, immediately preceding the customer signature line, the written statement must explain that the broker-dealer is required to provide the person with the written statement and that the person should not sign and return the written statement if it does not accurately reflect the person's financial situation, investment experience, and investment objectives (Rule 15g-9(b)(3)(iii)). 27 (b) Holders The Company has approximately 251 shareholders of record. (c) Dividends The Company has never paid any dividends. There are no legal restrictions which limit the Company's ability to pay dividends but, based on its present financial situation, it is extremely unlikely to do so in the near future. ITEM 10. RECENT SALES OF UNREGISTERED SECURITIES 1999: In the last three years, the Company has sold unregistered securities as set forth below. No underwriters were involved in these transactions. During 1999, the Company sold an aggregate of 587,121 shares of its common stock in Canada to citizens and residents of Canada. 62,500 shares were sold on February 18 to Barry E. Amies, an Officer and Director of the Company, for $.40 per share, for a total price of $25,000, and an additional 15,000 shares were sold to Amies Holdings, Inc. on May 14, 1999 for $.50 per share. On February 18, 1999, the Company sold 70,000 shares to James Dacyszyn, a Director of the Company, for $.40 per share, for a total price of $28,000 and on May 14, 1999, sold an additional 100,000 shares to Mr. Dacyszyn at $.50 per share, for a total price of $50,000. 40,000 shares, valued at $.50 per share, were issued to a Canadian citizen and resident as payment for a Ford one ton diesel truck on or about March 17, 1999. The remaining 299,621 shares were sold for $.50 per share. All the purchasers were relatives, friends and/or business associates of officers and directors of the Company. The Company relied on the exemption provided by Regulation S promulgated pursuant to the Securities Act of 1933. All shares issued are subject to the investment restrictions of Rule 144 and the provisions of Regulation S. The certificates are legended and appropriate instructions have been issued to the Company's transfer agent. The shares may be resold only pursuant to an effective registration statement under the Securities Act of 1933 or pursuant to an exemption from registration. In 1998, the Company contracted with an organization to perform services in connection with the Company's activities at the Tyro Mill. That organization requested that the Company pay 25% of the monies due it by issuing the Company's common stock, subject to investment restrictions. That organization requested that shares due it be distributed directly to persons who performed the services. On April 19, 1999, the Company issued 32,121 shares of its common stock to five individuals, all of whom are U.S. persons. Robin Schwarz, an owner of the S & S Joint Venture, received 8,000 shares. All those persons are fully familiar with the Company's properties and operations. All shares are subject to investment restrictions. The certificates are legended and appropriate instructions have been issued to the Company's transfer agent. The shares may be resold only pursuant to an effective registration statement under the Securities Act of 1933 or pursuant to 28 any exemption from registration. The Company relied upon the exemption from registration provided by Section 4(2) of the Securities Act of 1933. 1998: During 1998, the Company sold a total of 557,509 shares, for a total consideration of $211,800. All but one of the purchasers are citizens and residents of Canada and the sales were made in Canada. Of those shares, 300,000 were sold to James Dacyszyn, who was subsequently elected a director of the Company. 100,000 shares were sold to Mr. Dacyszyn on or about May 10, 1998, at a price of $.45 per share, for a total price of $45,000. The remaining 200,000 shares were sold to Mr. Dacyszyn on or about December 24, 1998, at $.35 per share, for a total consideration of $70,000. 65,000 shares were sold to Amies Holdings, a company owned by Barry Amies, an officer and director of the company, on or about October 29, 1998, at a price of $.50 per share, for a total consideration of $32,500, and an additional 38,571 shares were sold to Amies Holdings on or about December 24, 1998, at a price of $.35 per share, for a total price of $13,499.85. 109,450 shares were sold at a price of $.40 per share, in September and/or October of 1998. Each of the purchasers is a relative, friend and/or business associate of the officers and directors of the Company. On or about December 10, 1998, 22,049 shares were sold to two individuals who are citizens and residents of Canada, at a price of $.41 U.S. per share. On or about December 10, 1998, 2,439 shares were sold to a U.S. person for a price of $.41 per share, for a total purchase price of $1,000. That person is a close friend of the Schwarz family, which owns 50% of the S & S Joint Venture. With respect to all offers and sales of shares to persons who are residents and citizens of Canada, the Company relied on the exemption provided by Regulation S. All shares are issued subject to investment restrictions and Regulation S. The certificates are legended and appropriate instructions have been issued to the Company's transfer agent. The shares may be resold only pursuant to an effective registration statement under the Securities Act of 1933 or pursuant to an exemption from registration. None of those shares have been sold. With respect to the one U.S. person who purchased 2,439 shares at $.41 U.S. per share, those shares are subject to investment restrictions and Rule 144. The certificate evidencing ownership of those shares is legended and appropriate instructions have been issued to the Company's transfer agent. That person is familiar with the Company and its properties and its business and operations. The Company relies upon the exemption from registration provided by Section 4(2) of the Securities Act of 1933. The shares may be resold only pursuant to an effective registration statement under the Securities Act of 1933 or pursuant to an exemption from registration. None of the shares issued have been sold. 1997: In January 1997, the Company issued 200,000 shares of its common stock in exchange for all the outstanding shares of Scotmar Industries, Inc., a British Columbia corporation. Mr. Sloan's wife and son-in-law were the only shareholders of Scotmar and each received 100,000 shares of the Company's common stock. Both are citizens and residents of Canada. The shares issued are subject to investment restrictions and Rule 144. The shares may only be resold pursuant to an effective registration statement or pursuant to an exemption from registration. The Company 29 relied on the exemption provided by regulations promulgated pursuant to the Securities Act of 1933. None of those shares have been sold. In October 1997, the Company exercised its option to acquire a 50% interest in the S & S Joint Venture and, in consideration for the acquisition of that 50% interest, issued 500,000 shares of its common stock to six members of the Schwarz family, all of whom are U.S. persons. In issuing those shares, the Company relied on the exemption from registration provided by Section 4(2) of the Securities Act of 1933. The Securities are legended and appropriate instructions have been issued to the Company's transfer agent. The shares may be resold only pursuant to an effective registration statement or pursuant to an exemption from registration. None of those shares have been sold. On December 3, 1997, the Company issued 2,181,752 shares of its common stock to Aurum LLC, a California limited liability company. Messrs. Sloan and Wolfe, officers and directors of the Company, each owed 36% of the beneficial interest in Aurum. All shares are subject to investment restrictions and Rule 144. The shares may be resold only pursuant to an effective registration statement under the Securities Act of 1933 or pursuant to an exemption from registration. The Company relied on the exemption provided by Section 4(2) of the Securities Act of 1933. None of the shares issued have been sold. (See Item 7. Certain Relationships and Related Transactions) On December 4, 1997, the Company issued 40,000 shares and 2,000 shares respectively of its common stock to two individuals in consideration for rendering geologic assaying and related services to the Company in connection with its mining properties, particularly the S & S Joint Venture. Both individuals were fully familiar with the Company, its properties and all other material matters relating to its operations. The person to whom the 2,000 shares were issued is a citizen and resident of Canada. The person to whom 40,000 shares were issued is a U.S. person. All shares issued are subject to investment restrictions and Rule 144. With respect to the issuance of shares to the Canadian citizen, the Company also relied on the exemption provided by Regulation S. With respect to the issuance of shares to the U.S. person, the Company relied upon the exemption from registration provided by section 4(2) of the Securities Act of 1933. The certificates are legended and appropriate instructions have been issued to the Company's transfer agent. The shares may be resold only pursuant to an effective registration statement under the Securities Act of 1933 or pursuant to an exemption from registration. None of those shares have been sold. In September and/or October 1997, the Company sold 77,108 shares of its common stock to 24 persons, 16 of whom were citizens and residents of Canada and eight of whom were U.S. persons. 59,528 shares were sold to Canadian citizens and residents for $44,641. 16,180 shares were issued to U.S. persons for $12,244 and services valued at $3,053. All certificates evidencing ownership of the shares are legended and subject to the provisions of Rule 144. Appropriate instructions have been issued to the Company's transfer agent. The shares may be resold only pursuant to an effective registration statement under the Securities Act of 1933 or pursuant to an exemption from registration. The Company relied on the exemption from registration provided by 30 Regulation S. One of the U.S. persons was Aylward Schwarz, an owner of the S & S Joint Venture. The other U.S. persons are friends of the Schwarz family. One person received 1,500 shares for fabricating services rendered on the S & S Joint Venture's Owl Canyon properties. In November 1997, the Company issued 5,475 shares to individuals for services. Robin Schwarz, an owner of the S & S Joint Venture, received 2,975 shares. 2,000 and 500 shares respectively were issued to two persons who performed other services for the Company. Those persons were familiar with the Company's properties and operations. The Company relied on the exemption from registration provided by Section 4(2) of the Securities Act of 1933. The shares may be resold only pursuant to an effective registration statement under the Securities Act of 1933 or pursuant to an exemption from registration. None of those shares have been sold. 1996: From approximately May to September 1996, the Company sold 1,576,190 shares of its common stock for total proceeds of $639,249. All those shares were offered and sold in Canada to persons who were Canadian citizens and residents who were relatives, friends and business associates of officers and directors of the Company. To the Company's knowledge, there was no trading of the Company's shares until the third quarter of 1997. The offer and sale of those shares were made in reliance on the exemption from registration provided by Regulation S promulgated pursuant to the Securities Act of 1933. Appropriate instructions were given to the Company's transfer agent. ITEM 11. DESCRIPTION OF SECURITIES (a) Common or Preferred Stock There are no preemptive rights to subscribe to shares of either common or preferred stock of the Company. All common shares are entitled to one vote per share. There are no cumulative voting provisions. Common shares are entitled to dividends when and if declared by the Board of Directors. The preferred shares are 5% non-voting, cumulative preferred shares. No preferred shares have been issued. ITEM 12. INDEMNIFICATION OF DIRECTORS AND OFFICERS The Company's Articles of Incorporation provide in relevant part, as follows: Twelfth, no director or officer of the Corporation shall be personally liable to the Corporation or any of its stockholders for damages for breach of fiduciary duty as a director or officer involving any act or omission of any such director or officer; provided, however, that the foregoing provision shall not eliminate or limit the liability of a director or officer (i) for acts or omissions which involve intentional misconduct, fraud or a knowing violation of law, or (ii) the payment of dividends in violation of Section 78.300 of the Nevada Revised Statutes. Any repeal or modification of this Article by the stockholders of the Corporation shall be prospective only, and shall not adversely affect any limitation on the personal liability of a director or officer of the Corporation for acts or omissions prior to such repeal or modification. 31 Article V of the Company's By-Laws provide as follows: 1. The Corporation shall indemnify any and all of its Directors and Officers, and its former Directors and Officers, or any person who may have served at the Corporation's request as a Director or Officer of another corporation in which it owns shares of capital stock or of which it is a creditor, against expenses actually and necessarily incurred by them in connection with the defense of any action, suit or proceeding in which they, or any of them, are made parties, or a party, by reason of being or having been Director(s) or Officer(s) of the corporation, or of such other corporation, except, in relation to matters as to which any such Director or Officer or former Director or Officer or person shall be adjudged in such action, suit or proceeding to be liable for negligence or misconduct in the performance of duty. Such indemnification shall not be deemed exclusive of any other rights to which those indemnified may be entitled, under By-Law, agreement, vote of stockholders or otherwise. The Nevada Corporation Laws, N.R.S. 78.751, provides as follows: 1. A corporation may indemnify any person who was or is a party or is threatened to be made a party to any threatened, pending or completed action, suit of proceeding, whether civil, criminal, administrative or investigative, except an action by or in the right of the corporation, by reason of the fact that he is or was a director, officer, employee or agent of the corporation, or is or was serving at the request of the corporation as a director, officer, employee or agent of another corporation, partnership, joint venture, trust or other enterprise, against expenses, including attorneys' fees, judgments, fines and amounts paid in settlement actually and reasonably incurred by him in connection with the action, suit or proceeding if he acted in good faith and in a manner which he reasonably believed to be in or not opposed to the best interest of the corporation, and, with respect to any criminal action or proceeding, had no reasonable cause to believe his conduct was unlawful. The termination of any action, suit or proceeding by judgment, order, settlement, conviction, or upon a plea of nolo contendere or its equivalent, does not, of itself, create a presumption that the person did not act in good faith and in a manner which he reasonably believed to be in or not opposed to the best interests of the corporation, and that, with respect to any criminal action or proceeding, he had reasonable cause to believe that his conduct was unlawful. 2. A corporation may indemnify any person who was or is a party or is threatened to be made a party to any threatened, pending or completed action or suit by or in the right of the corporation to procure a judgment in its favor by reason of the fact that he is or was a director, officer, employee or agent of the corporation, or is or was serving at the request of the corporation as a director, officer, employee or agent of another corporation, partnership, joint venture, trust or other enterprise against expenses, including amounts paid in settlement and attorneys' fees actually and reasonably incurred by him in connection with the defense or settlement of the action or suit if he acted in good faith and in a manner which he reasonably believed to be in or not opposed to the best interests of the corporation. Indemnification may not be made for any claim, issue or matter as to which such a person has been adjudged by a court of competent jurisdiction, after exhaustion of all appeals therefrom, to be liable to the corporation or for amounts paid in settlement to the 32 corporation, unless and only to the extent that the court in which the action or suit was brought or other court of competent jurisdiction determines upon application that in view of all the circumstances of the case, the person is fairly and reasonably entitled to indemnity for such expenses as the court deems proper. 3. To the extent that a director, officer, employee or agent of a corporation has been successful on the merits or otherwise in defense of any action, suit or proceeding referred to in subsections 1 and 2, or in defense of any claim, issue or matter therein, he must be indemnified by the corporation against expenses, including attorneys' fees, actually and reasonably incurred by him in connection with the defense. 4. Any indemnification under subsections 1 and 2, unless ordered by a court or advanced pursuant to subsection 5, must be made by the corporation only as authorized in the specific case upon a determination that indemnification of the director, officer, employee or agent is proper in the circumstances. The determination must be made: (a) By the stockholders; (b) By the board of directors by majority vote of a quorum consisting of directors who were not parties to the act, suit or proceeding; (c) If a majority vote of a quorum consisting of directors who were not parties to the act, suit or proceeding so orders, by independent legal counsel in a written opinion; or (d) If a quorum consisting of directors who were not parties to the act, suit or proceeding cannot be obtained, by independent legal counsel in a written opinion. 5. The articles of incorporation, the bylaws or an agreement made by the corporation may provide that the expenses of officers and directors incurred in defending a civil or criminal action, suit or proceeding must be paid by the corporation as they are incurred and in advance of the final disposition of the action, suit or proceeding, upon receipt of an undertaking by or on behalf of the director or officer to repay the amount if it is ultimately determined by a court of competent jurisdiction that he is not entitled to be indemnified by the corporation. The provisions of this subsection do not affect any rights to advancement of expenses to which corporate personnel other than directors or officers may be entitled under any contract or otherwise by law. 6. The indemnification and advancement of expenses authorized in or ordered by a court pursuant to this section: (a) Does not exclude any other rights to which a person seeking indemnification or advancement of expenses may be entitled under the articles of incorporation or any bylaw, agreement, vote of stockholders or disinterested directors or otherwise, for either an action in his official capacity or an action in another capacity while holding his office, except that 33 indemnification, unless ordered by a court pursuant to subsection 2 or for the advancement of expenses made pursuant to subsection 5, may not be made to or on behalf of any director or officer if a final adjudication establishes that his acts or omissions involved intentional misconduct, fraud or a knowing violation of the law and was material to the cause of action. (b) Continues for a person who has ceased to be a director, officer, employee or agent and inures to the benefit of the heirs, executors and administrators of such a person. ITEM 13. FINANCIAL STATEMENTS The Financial Statements follow the Signature Page. ITEM 14. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE (a) (1) (i) David E. Coffey, who was the Company's auditor for its financial statements for the year ended December 31, 1996, declined to continue as the Company's auditor for subsequent years. Mr. Coffey represented to the Company that he was a sole practitioner with an active practice of auditing small companies and was unable to audit the Company's financial statements for subsequent years in view of his schedule and the Company's growing operations. (ii) The principal accountant's report on the financial statements for 1997 and 1998 did not contain an adverse opinion or disclaimer of opinion and was not modified as to uncertainty, audit scope or accounting principles. (iii) Mr. Coffey's inability to continue as the Company's auditor was accepted by the Board of Directors. (iv) (A.) There were no disagreements with Mr. Coffey on any matter of accounting principles or practices, financial statement disclosure or auditing scope or procedure. (a) (2) The accounting firm of Murphy, Bennington & Co., CPAs, was engaged to audit Can- Cal's financial statements on approximately February 15, 1998. (a) (3) The Company has provided Mr. Coffey with a copy of the disclosures it is making in response to this item. Mr. Coffey's letter addressed to the Commission is Exhibit 16 hereto. FORWARD LOOKING STATEMENTS - -------------------------- Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934 provide a "safe harbor" for forward looking statements that are based on current expectations, estimates and projections, and management's beliefs and assumptions. Words such as "believes," "expects," "intends," "plans," "estimates," "may," "attempt," "will," "goal," 34 "promising," or variations of such words and similar expressions are intended to identify such forward-looking statements. These statements are not guarantees of future performance and involve certain risks and uncertainties which are difficult or impossible to predict. Therefore, actual outcomes and results may differ materially from what is expressed or forecasted in such forward- looking statements. The Company undertakes no obligation to update publicly any forward-looking statement whether as a result of new information, future events or otherwise. Such risks and uncertainties include, but are not limited to, the availability of ore, the existence of precious metals in the ore available to the Company in an amount which permits their production on an economic basis; the Company's ability to drill holes and properly test and assay samples, and its ability to locate and acquire mineral properties which contain sufficient grades of precious metals and/or minerals; the Company's ability to sell a portion or all of any of its properties to larger mining companies, to enter into agreements with larger mining companies to explore and possibly develop its properties, to produce precious metals on a commercial basis, the prices of precious metals, obtaining a mill or refinery to extract precious metals on an economic basis, the Company's ability to maintain the facilities it currently utilizes; obtain permitting requirements for any mining and milling operations and pay the costs thereof; have good title to claims and equipment, and the Company's ability to obtain financing necessary to maintain its operations. SIGNATURES In accordance with Section 12 of the Securities Exchange Act of 1934, the Registrant caused this Registration Statement to be signed on its behalf by the undersigned, thereunto duly authorized. Can-Cal Resources, Ltd. Registrant DATE: July 7, 1999 By: /s/ Ronald D. Sloan ---------------------------- ---------------------------------- President 35 CAN-CAL RESOURCES, LTD. REPORT ON AUDITS OF CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEARS ENDED DECEMBER 31, 1998 AND 1997 36 CAN-CAL RESOURCES, LTD. FOR THE YEARS ENDED DECEMBER 31, 1998 AND 1997 CONTENTS PAGE INDEPENDENT AUDITORS' REPORT 1 CONSOLIDATED FINANCIAL STATEMENTS: Consolidated balance sheets 2 Consolidated statements of operations 3 Consolidated statements of changes in stockholders' deficit 4 Consolidated statements of cash flows 5 Notes to consolidated financial statements 6-14 INDEPENDENT AUDITOR'S REPORT ON SUPPLEMENTAL INFORMATION 15 SUPPLEMENTARY SCHEDULE: Supplemental schedule I - Consolidated operating, general and administrative expenses 16 37 INDEPENDENT AUDITORS' REPORT ---------------------------- To the Board of Directors and Stockholders Can-Cal Resources, Ltd. Las Vegas, Nevada We have audited the accompanying consolidated balance sheets of Can-Cal Resources, Ltd. (a Nevada corporation) and subsidiary as of December 31, 1998 and 1997, and the related consolidated statements of operations, changes in stockholders' equity, and cash flows for the years then ended. These consolidated financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits. We did not audit the financial statements of Scotmar Industries, Inc., a wholly owned subsidiary, which statements reflect total assets of $88,900 and $137,500 as of December 31, 1998 and 1997, respectively, and total revenues of $97,700 and $79,300, respectively, for the years then ended. Those statements were audited by other auditors whose report has been furnished to us, and in our opinion, insofar as it relates to the amounts included for Scotmar Industries, Inc., is based solely on the reports of the other auditors. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits of the balance sheet provides a reasonable basis for our opinion. In our opinion, based on our audits and the reports of other auditors, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of Can-Cal Resources, Ltd. and subsidiary as of December 31, 1998 and 1997, and the results of their operations and their cash flows for the year then ended in conformity with generally accepted accounting principles. MURPHY, BENNINGTON & CO. /s/ Murphy, Bennington & Co. May 14, 1999 38 CAN-CAL RESOURCES, LTD. CONSOLIDATED BALANCE SHEETS DECEMBER 31, 1998 AND 1997 (ROUNDED TO THE NEAREST HUNDRED, EXCEPT SHARE DATA)
ASSETS 1998 1997 -------------- -------------- CURRENT ASSETS: CASH $ 41,600 $ 14,200 ACCOUNTS RECEIVABLE 6,900 7,700 NOTES RECEIVABLE, RELATED PARTIES (NOTE 3) 41,600 38,100 INVENTORY 72,500 116,100 PREPAID EXPENSES 6,600 5,800 OTHER CURRENT ASSETS 100 300 -------------- -------------- TOTAL CURRENT ASSETS 169,300 182,200 PROPERTY AND EQUIPMENT, NET (NOTES 1 AND 4) 264,600 20,400 OTHER ASSETS (NOTE 5) 95,300 65,000 LONG-TERM INVESTMENTS (NOTE 6) 1,365,700 1,362,800 -------------- -------------- $ 1,894,900 $ 1,630,400 ============== ============== LIABILITIES AND STOCKHOLDERS' DEFICIT CURRENT LIABILITIES: BANK LINE OF CREDIT $ 12,400 $ 35,000 ACCOUNTS PAYABLE 12,800 8,500 ACCRUED EXPENSES 26,200 -- DUE TO RELATED PARTIES -- 148,900 -------------- -------------- TOTAL CURRENT LIABILITIES 51,400 192,400 NOTE PAYABLE, (NOTE 7) 77,500 -- NOTES PAYABLE, RELATED PARTIES (NOTE 8) 243,500 35,600 -------------- -------------- 372,400 228,000 -------------- -------------- COMMITMENTS (NOTE 10) -- -- STOCKHOLDERS' DEFICIT: COMMON STOCK, $.001 PAR VALUE; AUTHORIZED, 15,000,000 SHARES; ISSUED AND OUTSTANDING, 7,005,161 SHARES 7,000 6,400 PREFERRED STOCK, $.001 PAR VALUE; AUTHORIZED, 10,000,000 SHARES; NONE ISSUED OR OUTSTANDING -- -- ADDITIONAL PAID-IN-CAPITAL 1,887,600 1,676,400 CUMULATIVE TRANSLATION ADJUSTMENT 8,500 -- ACCUMULATED DEFICIT (380,600) (280,400) -------------- -------------- $ 1,894,900 $ 1,630,400 ============== ============== The accompanying notes are an integral part of these consolidated financial statements.
39 CAN-CAL RESOURCES, LTD. CONSOLIDATED STATEMENTS OF OPERATIONS YEARS ENDED DECEMBER 31, 1998 AND 1997 (ROUNDED TO THE NEAREST HUNDRED, EXCEPT SHARE DATA)
1998 1997 -------------- -------------- SALES $ 97,700 $ 79,300 COST OF GOODS SOLD 74,800 148,800 -------------- -------------- GROSS PROFIT 22,900 (69,500) OPERATING, GENERAL AND ADMINISTRATIVE EXPENSES 131,500 214,800 -------------- -------------- LOSS FROM OPERATIONS (108,600) (284,300) OTHER INCOME (EXPENSES): Other income 5,700 3,900 Interest income 6,600 -- Interest expense (3,800) -- -------------- -------------- NET INCOME(LOSS) $ (100,100) $ (280,400) ============== ============== NET INCOME (LOSS) PER SHARE OF COMMON STOCK AND COMMON STOCK EQUIVALENTS: BASIC EPS Net loss from continuing operations $ (0.02) $ (0.07) ============== ============== Weighted average shares outstanding $ 6,546,149 $ 4,103,115 ============== ============== DILUTED EPS Net loss from continuing operations $ (0.02) $ (0.07) ============== ============== Weighted average shares outstanding $ 6,546,149 $ 4,103,115 ============== ============== The accompanying notes are an integral part of these consolidated financial statements.
40 CAN-CAL RESOURCES, LTD. CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' DEFICIT YEARS ENDED DECEMBER 31, 1998 AND 1997 (ROUNDED TO THE NEAREST HUNDRED, EXCEPT SHARE DATA)
Additional Cumulative Total paid-in Accumulated translation stockholders' Common Stock capital Deficit adjustment equity ----------------------- ----------- ----------- ---------- ------------ Shares Amount ---------- --------- BALANCE, DECEMBER 31, 1996 3,441,217 $ 3,400 $ 625,000 $ (498,000) -- $ 130,400 Adjustment of accumulated deficit (Note 11) -- -- -- 497,900 -- 497,900 ---------- --------- ----------- ----------- ---------- ------------ BALANCE DECEMBER 31, 1996, AS RESTATED 3,441,217 3,400 625,000 (100) -- 628,300 Issuance of common stock (Note 9) 500,000 500 18,500 -- -- 19,000 Issuance of common stock (Note 9) 200,000 200 81,800 -- -- 82,000 Issuance of common stock (Note 9) 2,181,752 2,200 892,300 -- -- 894,500 Issuance of common stock 124,683 100 58,800 -- -- 58,900 Net income (loss) for the year -- -- -- (280,400) -- (280,400) ---------- --------- ----------- ----------- ---------- ------------ BALANCE, DECEMBER 31, 1997 6,447,652 6,400 1,676,400 (280,500) -- 1,402,300 Issuance of common stock 557,509 600 211,200 -- -- 211,800 Translation adjustment -- -- -- -- 8,500 8,500 Net income (loss) for the year -- -- -- (100,100) -- (100,100) ---------- --------- ----------- ----------- ---------- ------------ BALANCE, DECEMBER 31, 1998 7,005,161 $ 7,000 $ 1,887,600 $ (380,600) 8,500 $ 1,522,500 ========== ========= =========== =========== ========== ============ The accompanying notes are an integral part of these consolidated financial statements.
41 CAN-CAL RESOURCES, LTD. CONSOLIDATED STATEMENTS OF CASH FLOWS YEARS ENDED DECEMBER 31, 1998 AND 1997 (ROUNDED TO THE NEAREST HUNDRED)
1998 1997 -------------- -------------- CASH FLOWS FROM OPERATING ACTIVITIES: $ (100,100) $ (280,600) Adjustments to reconcile net income to net cash provided by operating activities: Depreciation 1,500 4,000 Bad debt expense -- 1,700 Changes in operating assets and liabilities: (Increase) decrease in accounts receivable 10,300 (36,000) (Increase) decrease in inventories 43,600 16,400 (Increase) decrease in prepaid expenses (800) (1,800) (Increase) decrease in other assets (41,900) -- Increase (decrease) in accounts payable and other current liabilities 29,400 (300) -------------- -------------- NET CASH PROVIDED (USED) BY OPERATING ACTIVITIES (58,000) (296,600) -------------- -------------- CASH FLOW FROM INVESTING ACTIVITIES: Capital expenditures related to investment property (24,100) 319,300 Purchase of property and equipment (251,100) -- Proceeds from sale of assets 2,100 (14,000) -------------- -------------- NET CASH PROVIDED BY INVESTING ACTIVITIES (273,100) 305,300 CASH FLOW FROM FINANCING ACTIVITIES: Increase in related party debt 50,800 -- Principal payments on note payable (21,900) -- Proceeds from issuance of common stock 191,800 -- Proceeds from debt issuance 129,300 -- -------------- -------------- NET CASH USED BY FINANCING ACTIVITIES 350,000 -- NET CHANGE IN CUMULATIVE TRANSLATION ADJUSTMENT 8,500 -- NET INCREASE (DECREASE) IN CASH 27,400 8,700 CASH AT BEGINNING OF YEAR 14,200 5,500 -------------- -------------- CASH AT END OF YEAR $ 41,600 $ 14,200 ============== ============== SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION: CASH PAID DURING THE YEAR FOR: Interest $ 3,800 $ -- ============== ============== Income taxes $ -- $ -- ============== ============== The accompanying notes are an integral part of these consolidated financial statements.
42 CAN-CAL RESOURCES, LTD. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS YEARS ENDED DECEMBER 31, 1998 AND 1997 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES: Organization and nature of business: Can-Cal Resources, Ltd. ( the "Company") is a corporation formed under the laws of the State of Nevada on March 22, 1995. The company, through its wholly owned subsidiary, Scotmar Industries, Inc., a Canadian corporation, is engaged in the precious metal processing industry, automobile parts salvage, and other investment opportunities. The consolidated financial statements include the accounts of the Company and Scotmar Industries, Inc. All material intercompany transactions have been eliminated in consolidation. Revenue recognition: Sales revenues are recognized at the point of sale. Basis of accounting: The Company prepares its financial statements in accordance with generally accepted accounting principles. Cash: For purposes of preparing the statement of cash flows, unrestricted currency, demand deposits, and money market accounts are considered cash and cash equivalents. Inventories: Inventories are stated at the lower of cost or market on the first-in, first-out basis. Property, equipment and depreciation: Property and equipment are stated at cost less accumulated depreciation. Depreciation is provided on the straight-line method over the estimated useful lives of the assets. The amounts of depreciation provided are sufficient to charge the cost of the related assets to operations over their estimated useful lives. The cost of maintenance and repairs is charged to expense as incurred. Expenditures for betterments and renewals are capitalized. Upon sale or other disposition of depreciable property, cost and accumulated depreciation are removed from the accounts and any gain or loss is reflected in income. 43 CAN-CAL RESOURCES, LTD. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) YEARS ENDED DECEMBER 31, 1998 AND 1997 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED): Concentration of credit risk: A majority of the Company's business activity is with customers primarily located in the metropolitan area of Langley, British Columbia, Canada and Las Vegas, NV, USA. The company and its subsidiary maintain multiple cash balances at financial institutions located in Langley, British Columbia, Canada and Las Vegas, NV, USA. The accounts at the institutions in the USA are insured by the Federal Deposit Insurance Corporation ("FDIC") up to $100,000. As of December 31, 1998, the Company and its subsidiary had no funds in excess of FDIC limits. Income taxes: The Company accounts for income taxes under Statement of Financial Accounting Standards No. 109, "Accounting for Income Taxes." This statement requires an asset and liability approach to account for income taxes. The Company provides deferred income taxes for temporary differences that will result in taxable or deductible amounts in future years based on the reporting of certain costs in different periods for financial statement and income tax purposes. Provision is made for taxes on unremitted earnings of related companies to the extent that such earnings are not deemed to be permanently invested. The Company and its wholly owned subsidiary file separate income tax returns. Use of estimates: The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. Reclassifications: Certain financial statements from prior years have been reclassified to conform with current year presentation. Foreign currency translation: Assets and liabilities of the Company's Foreign operations are translated into U.S. dollars at the exchange rate in effect at the balance sheet date, and revenue and expenses are translated at the 44 CAN-CAL RESOURCES, LTD. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) YEARS ENDED DECEMBER 31, 1998 AND 1997 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED): Foreign currency translation (continued): average exchange rate for the period. Translation gains or losses of the Company's foreign subsidiary are not included in net income but are reported as a separate component of stockholders' equity. The functional currency of the subsidiary is the primary currency in which the subsidiary operates. The Company typically does not enter into foreign exchange transactions to hedge balance sheet and intercompany balances against movements in foreign exchange rates. Net income (loss) per share of common stock: In1997 the Company adopted Statement of Financial Accounting Standards No. 128 ("SFAS 128"), "Earnings Per Share," which sets forth the basis for the computation of "basic" earnings per share and "dilutive" earnings per share. Basic EPS excludes dilution and is computed by dividing income (loss) available to common stockholders by the weighted-average number of common shares outstanding for the period. Diluted EPS reflects the potential dilution that could occur if securities or other contracts to issue common stock were exercised or converted into common stock or resulted in the issuance of common stock that would then share in the earnings of the entity. Diluted EPS is computed on the basis of the weighted-average shares of Common Stock outstanding plus common equivalent shares arising from the effect of cumulative convertible Preferred Stock, using the if- converted method, and dilutive stock options, using the treasury-stock method. All EPS amounts for prior years have been restated to conform to these new standards, and the effect of the restatement was not significant. Recent accounting pronouncements: In 1997, the Financial Accounting Standards Board issued Statement No. 130 ("SFAS 130"), "Reporting Comprehensive Income". SFAS 130 requires that all items that are required to be recognized under accounting standards as components of comprehensive income be reported in a financial statement that is displayed with the same prominence as other financial statements. The statement requires that an enterprise classify items of other comprehensive income by their nature in a financial statement and to display the accumulated balance of other comprehensive income separately from retained earning earnings and additional paid-in capital in the equity section of a statement of financial position. SFAS 130 is effective for fiscal years beginning after December 15, 1997. 2. BUSINESS ACQUISITIONS: Inaccordance with accounting principles associated with a transaction where the acquired company has been acquired by a development stage company and the acquired company is considered a promoter in founding and organizing the business, the acquired business assets will be recorded at the historical cost basis of the predecessor. If the transaction is accounted for in a manner similar to a 45 CAN-CAL RESOURCES, LTD. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) YEARS ENDED DECEMBER 31, 1998 AND 1997 2. BUSINESS ACQUISITIONS (CONTINUED): pooling of interest, the accompanying financial statements have been restated to include the accounts of the pooled companies as if they had always been combined. If the transaction is accounted for in a manner similar to a purchase, the net assets of the acquired company have been recorded as net proceeds from an issuance of stock, and the results of operations will be included with the results of the Company following the date of acquisition. Scotmar Industries, Inc. On February 13, 1997 the Company issued 200,000 shares of common stock, in exchange for all of the issued and outstanding common stock of Scotmar Industries, Inc. 3. NOTES RECEIVABLE (RELATED PARTIES): Notes receivable, related parties, at December 31, 1998 consisted of the following: Note receivable from S&S Mining, Inc., a joint venture partner, unsecured, interest imputed at 8%, due on demand $ 28,000 Note receivable from an individual, unsecured, interest imputed at 8%, due on demand $ 12,000 Accrued interest receivable 7,200 ------------- 47,200 Allowance for uncollectible accounts 5,600 ------------- $ 41,600 =============
4. PROPERTY AND EQUIPMENT: Property and equipment at December 31, 1998 consisted of the following: Buildings and plant $ 238,500 Machinery and equipment 35,200 Transportation equipment 27,800 Office equipment and furniture 3,800 ------------- 305,300 Less accumulated depreciation (40,700) ------------- $ 264,600 =============
Depreciation expense for the year ended December 31,1998 totaled $1,500. 46 CAN-CAL RESOURCES, LTD. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) YEARS ENDED DECEMBER 31, 1998 AND 1997 5. OTHER ASSETS: Other assets at December 31, 1998 consisted of the following: Note receivable from Tyro, Inc., and principals, a corporation, secured by equipment, interest accrued at 6% per annum, due on demand $ 53,300 Deposits 5,600 Mining claims 36,400 ------------ $ 95,300 ============
6. LONG-TERM INVESTMENTS: Long-term investments at December 31, 1998 consisted of the following: Pisgah property $ 567,000 Investment in S&S Mining joint venture 798,700 ------------ $ 1,365,700 ============
7. NOTE PAYABLE: Note payable at December 31, 1998 consisted of the following: Note payable to joint venture; secured by 1st deed of trust; interest at 8% per annum; matures July 31, 2001 $ 77,500 ============ 8. NOTES PAYABLE, RELATED PARTIES: Notes payable, related parties, at December 31, 1998 consisted of the following: Note payable to shareholder; unsecured; interest at prime plus 1.00% per annum, due on demand $ 43,800 Note payable to shareholder; unsecured; interest at prime plus 1.00% per annum, due on demand 127,100 Note payable to shareholder; unsecured; interest at prime plus 1.00% per annum, due on demand 34,000 Note payable to shareholder; unsecured; interest at prime plus 1.00% per annum, due on demand 38,600 ------------- $ 243,500 =============
47 CAN-CAL RESOURCES, LTD. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) YEARS ENDED DECEMBER 31, 1998 AND 1997 9. STOCKHOLDERS' EQUITY: COMMON STOCK: On September 13, 1996, the Board of Directors approved the issuance of 500,000 shares of Can-Cal common stock along with a cash payment of $100,000 in exchange for a 50% interest in S&S Mining, a joint venture. Additionally, the Company agreed to loan the joint venture up to $48,000. On February 13, 1997 the Board approved the acquisition of Scotmar Industries, Inc. 200,000 shares of Can-Cal common stock were issued in return for all of the issued and outstanding stock of the acquired company. On October 27, 1997 the Board approved the issuance of 2,181,752 restricted common shares to ARUM, LLC to repay an existing debt of approximately $315,045.98 and to purchase a property located in San Bernadino County, California, known as the Pisgah property. During November, 1997 the Board approved the sale of 124,683 restricted common shares to various investors. During December, 1997 the Board approved the issuance of 42,000 restricted common shares in return for services rendered. In July, 1998 the Board approved the issuance 122,000 restricted common shares to various investors. In October, 1998 the Board approved the sale of 172,450 restricted common shares to various investors. During December, 1998 the Board approved the sale of 263,059 restricted common shares to various investors. 10. COMMITMENTS: Lease commitments: The Company leases property for the operations of the subsidiary under an operating lease due to expire June 30, 2001.The lease may be renewed at the option of the company for a period of three years. Lease payments for the year ended December 31, 1998 totaled $44,400. Minimum future rental payments for operating leases for the next five fiscal year ends are as follows: 48 CAN-CAL RESOURCES, LTD. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) YEARS ENDED DECEMBER 31, 1998 AND 1997 10. COMMITMENTS (CONTINUED): Lease commitments (continued):
YEAR ENDING DECEMBER 31, --------------- 1999 $ 49,000 2000 50,000 2001 26,000 Thereafter -- ------------- $ 125,000 =============
Auto leases: The Company entered into two operating leases for automobiles that expire during the year 2000. The monthly lease payments currently total $300 per month. Lease payments for the year ended December 31, 1998 totaled $10,900. Minimum future rental payments for operating leases for the next five fiscal year ends are as follows:
YEAR ENDING DECEMBER 31, ---------------- 1999 $ 7,400 2000 4,800 Thereafter -- ------------- $ 12,200 =============
11. PRIOR PERIOD ADJUSTMENTS: Subsequent to the issuance of the 1996 financial statements, development stage accumulated deficit of the corporation was reclassified as an increase in the investment in S&S Mining, a development stage joint venture of which Can-Cal Resources, Ltd. is a 50% venture partner. The restatement of accumulated deficit for 1996 is as follows: Accumulated deficit, as previously reported $ (498,000) Increase in long-term investments 497,900 ------------- Accumulated deficit, as restated $ (100) =============
49 CAN-CAL RESOURCES, LTD. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) YEARS ENDED DECEMBER 31, 1998 AND 1997 12. INCOME TAXES: Deferred income taxes are provided for the temporary differences between the financial reporting basis and the tax basis of the Company and subsidiary's assets and liabilities. The temporary difference that give rise to the deferred tax asset is primarily as follows: Net operating loss carry forward - December 31, 1998 $ 100,300 Net operating loss carry forward - December 31, 1997 280,400 ----------- 380,700 Deferred tax assets 113,900 Total valuation allowance recognized for deferred tax assets (113,900) ----------- Net deferred tax asset $ 0 ===========
13. NEW ACCOUNTING STANDARD: OnJanuary 1, 1998, the Company adopted Statement of Financial/Accounting Standards No. 130 ("SFAS 130") "Reporting Comprehensive Income", which requires companies to report all changes in equity during a period, except those resulting from investment by owners and distribution to owners. The components for comprehensive income are as follows:
1998 1997 ------------- ------------- Net income (loss) $ (100,100) $ (280,400) Translation adjustment 8,500 -- ------------- ------------- Comprehensive income $ (91,600) $ 280,400)
14. SUBSEQUENT EVENTS: On January 29, 1999 the Company completed the divestiture of its wholly owned subsidiary, Scotmar Industries, Inc., to 545538 B.C. Ltd., a Canadian corporation for approximately $65,300 and forgiveness of Scotmar Industries, Inc. payable to the Company. 50 CAN-CAL RESOURCES, LTD. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) YEARS ENDED DECEMBER 31, 1998 AND 1997 15. FAIR VALUE OF FINANCIAL INSTRUMENTS: The following table presents the carrying amounts and estimated fair value of the Company's financial instruments at December 31, 1998:
CARRYING FAIR AMOUNT VALUE ------------- ------------- Financial assets: Loans receivable-related party $ 41,600 $ 41,600 Inventory 72,500 72,500 Property and equipment 264,600 264,600 Other assets 95,300 95,300 Long-term investments 1,365,700 1,365,700 Financial liabilities: Notes payable, related parties 243,500 243,500 Note payable 77,500 77,500
The carrying amounts of cash, trade receivables, prepaid expenses, other current assets, accounts payable and accrued expenses approximate fair value because of the short maturity of those instruments. The fair value of bank line of credit is based upon the borrowing rates currently available to the Company for bank loans with similar terms and average maturities. 16. YEAR 2000 COMPLIANCE: Historically. certain computerized systems have had two digits rather than four digits to define the applicable year, which could result in recognizing a date using "00" as the year 1900 rather than the year 2000. This could result in major failures or miscalculations and is generally referred to as the "Year 2000 issue." The Company has reviewed, and continues to review, possible effects of this issue on its financial and operating systems. Review of external dependencies has revealed that the Company will be exposed to disruption if there is widespread and prolonged interruption of electricity, water, and telecommunications services. The total cost to the Company of these Year 2000 problem related activities is not anticipated to be material. The costs the Company may incur to solve the Year 2000 problem are based on management's estimates. However, there can be no assurance that these estimates will be achieved and the costs of solving the Year 2000 problem could differ significantly from management's estimates. 51 INDEPENDENT AUDITORS' REPORT ON SUPPLEMENTAL INFORMATION To the Board of Directors and Stockholders Can-Cal Resources, Ltd. Las Vegas, Nevada Our report on the audits of the basic consolidated financial statements of Can-Cal Resources, Ltd. for the years ended December 31, 1998 and 1997, appears on page one. These audits were made for the purpose of forming an opinion on the basic consolidated financial statements taken as a whole. The supplemental schedule of consolidated operating, general and administrative expenses are presented for purposes of additional analysis and are not a required part of the basic consolidated financial statements. Such information has been subjected to the auditing procedures applied in the audit of the basic consolidated financial statements and, in our opinion, is fairly stated in all material respects in relation to the basic consolidated financial statements taken as a whole. MURPHY, BENNINGTON & CO. /s/ Murphy, Bennington & Co. May 14, 1999 52 CAN-CAL RESOURCES, LTD. SUPPLEMENTAL SCHEDULE I -- CONSOLIDATED OPERATING, GENERAL AND ADMINISTRATIVE EXPENSES YEARS ENDED DECEMBER 31, 1998 AND 1997
1998 1997 ---------- --------- OPERATING, GENERAL AND ADMINISTRATIVE EXPENSES: Office rent $ 44,400 $ 39,800 Wages and benefits 44,400 41,900 Lease expense 10,900 3,600 Telephone 6,800 19,600 Bank charges 6,500 5,600 Repairs and maintenance 3,500 3,200 Insurance 3,000 2,800 Supplies 3,000 6,500 Office expense 2,700 5,900 Accounting and legal 2,300 9,900 Depreciation expense 1,500 4,000 Advertising and promotion 1,400 1,800 Utilities 1,100 1,300 Bad debt expense -- 1,700 Consulting -- 47,900 Miscellaneous -- 7,500 Travel -- 11,800 ---------- --------- $ 131,500 $ 214,800 ========== =========
53 EXHIBITS Sequential Exhibit No. Title of Exhibit Page No. - ----------- ---------------- ----------- Exhibit 3.0 Articles of Incorporation....................................56 Exhibit 3.1 Amendment to the Articles of Incorporation...................64 Exhibit 3.2 By-Laws......................................................65 Exhibit 10.0 Joint Venture Agreement between Robin Schwarz, Aylward Schwarz, S&S Mining, a Nevada corporation, and Can-Cal Resources, Ltd...................................72 Exhibit 10.1 Mining Lease Agreement between Can-Cal Resources, Ltd. and Twin Mountain Rock Venture dated May 1, 1998...........................................108 Exhibit 10.2 Loan Agreement between Owen Sequoia, Inc. and Can-Cal Resources, Ltd..................................120 Exhibit 10.3 Amendment to Loan Agreement dated June 9, 1998..............123 Exhibit 10.4 Second Amendment to Loan Agreement .........................132 Exhibit 10.5 Deed of Trust, Security Agreement, Financing Statement, and Fixture Filing with Assignment of Rents.................140 Exhibit 10.6 Lease and Purchase Option Agreement dated March 12, 1998 between Arthur James Good and Wanda Mae Good and Can-Cal Resources, Ltd..................................167 Exhibit 10.7 Agreement between Can-Cal Resources, Ltd. and Aurum, LLC dated October 27, 1997.......................176 Exhibit 10.8 Quit Claim Deed from Aurum, LLC to Can-Cal Resources, Ltd...................................181 Exhibit 10.9 Agreement between Tyro, Inc., Dean Willman, Roland S. Ericsson, and Can-Cal Resources, Ltd..............185 Exhibit 10.10 Complaint filed in District Court for Clark County, Nevada on March 30, 1998......................190 54 Sequential Exhibit No. Title of Exhibit Page No. - ----------- ---------------- -------- Exhibit 10.11 Confession of Judgment executed by Tyro, Inc., Dean Willman, and Roland S. Ericsson........................196 Exhibit 10.12 Agreement between Can-Cal Resources, Ltd., 545538 B.C., Ltd., a body incorporated under the laws of the Province of British Columbia, and Ronald Daniel Sloan dated January 29, 1999................................... 200 Exhibit 11.0 Statement re: Computation of per share earnings.............211 Exhibit 16.0 Letter from David E. Coffey on change of certifying accountant..........................212 Exhibit 23.0 Consent of Independent Auditors, Murphy, Bennington & Co.....................................213 Exhibit 27 Financial Data Schedule.....................................214 55 EX-3.0 2 ARTICLES OF INCORPORATION EXHIBIT 3.0 ARTICLES OF INCORPORATION OF BRITISH PUBS USA INC. FIRST. The name of the corporation is: BRITISH PUBS USA INC SECOND. Its registered office in the State of Nevada is located at 253 North Carson Street, Carson City, Nevada 89706 that this Corporation may maintain an office, or offices, in such other place within or without the Stare of Nevada as may be from time to time designated by the Board of Directors, or by the By-Laws of said Corporation, and that this Corporation may conduct all Corporation business of any kind and nature, including the holding of all meetings of Directors and Stockholders, outside the State of Nevada as well as within the State of Nevada. THIRD. The objects for which this Corporation is formed are: To engage in any lawful activity, including, but not limited to the following: (A) Shall have such rights, privileges and powers as may be conferred upon corporations by any existing law. (B) May at any time exercise such rights, privileges and powers, when not inconsistent with the purposes and objects for which this corporation is organized. 56 C) Shall have power to have succession by its Corporate name for the period limited in its certificate or articles of incorporation, and when no period is limited, perpetually, or until dissolved and its affairs wound up according to law. (D) Shall have power to sue and be sued in any court of law or equity. (E) Shall have power to make contracts. (F) Shall have power to hold, purchase and convey real and personal estate and to mortgage or lease any such real and personal estate with its franchises. The power to hold real and personal estate shall include the power to take the same by devise or bequest in the State of Nevada, or in any other state, territory or country. (G) Shall have power to appoint such officers and agents as the affairs of the corporation shall require, and to allow them suitable compensation. (H)Shall have power to make By-Laws not inconsistent with the constitution or laws of the United States, or of the State of Nevada, for the management, regulation and government of its affairs and property, the transfer of its stock, the transaction of its business, and the calling and holding of meetings of its stockholders. (I) Shall have power to wind up and dissolve itself, or be wound up or dissolved. (J) Shall have power to adopt and use a common seal or stamp, and alter the same at pleasure. The use of a seal or stamp by the corporation on any corporate documents is not necessary. The corporation may use a seal or stamp, if it desires, but such use or nonuse shall not in any way affect the legality of the document. (K) Shall have power to borrow money and contract debts when necessary for the transaction of its business, or for the exercise of its corporate rights, privileges or franchises, or for 57 any other lawful purpose of its incorporation; to issue bonds, promissory notes, bills of exchange, debentures, and other obligations and evidences of indebtedness, payable at a specified time or times, or payable upon the happening of a specified event or events, whether secured by mortgage, pledge or otherwise, or unsecured, for money borrowed, or in payment for property purchased, or acquired, or for any other lawful object. (L) Shall have power to guarantee, purchase, hold, sell, assign, transfer, mortgage, pledge or otherwise dispose of the shares of the capital stock of, or any bonds, securities or evidences of the indebtedness created by, any other corporation or corporations of the State of Nevada, or any other state or government, and, while owners of such stock, bonds, securities or evidences of indebtedness, to exercise all the rights, powers and privileges of ownership, including the right to vote, if any. (M) Shall have power to purchase, hold, sell and transfer shares of its own capital stock, and use therefor its capital, capital surplus, surplus, or other property or fund. (N) Shall have power to conduct business, have one or more offices, and hold, purchase, mortgage and convey real and personal property in the State of Nevada, and in any of the several states, territories, possessions and dependencies of the United States, the District of Columbia, and any foreign countries. (O) Shall have power to do all and everything necessary and proper for the accomplishment of the objects enumerated in its certificate or articles of incorporation, or any amendment thereof, or necessary or incidental to the protection and benefit of the corporation, and, in general, to carry on any lawful business necessary or incidental to the attainment of the objects 58 of the corporation, whether or not such business is similar in nature to the objects set forth in the certificate or articles of incorporation of the corporation, or any amendment thereof. (P) Shall have power to make donations for the public welfare or for charitable, scientific or educational purposes. (Q) Shall have power to enter into partnerships, general or limited, or joint ventures, in connection with any lawful activities, as may be allowed by law. FOURTH. That the total number of shares of stock authorized to be issued by the Corporation is TWENTY-FIVE MILLION (25,000,000) shares as follows: FIFTEEN MILLION (15,000,000) shares of common stock @ $0.001 par value and TEN MILLION (10,000,000) shares of 5% non-voting, cumulative preferred shares @ $0.001 per share, redeemable at original invested value, together with cumulative interest thereon at the discretion of the Board of Directors and no other class of stock shall be authorized. Said shares may be issued by the corporation from time to time for such considerations as may be fixed by the Board of Directors. FIFTH. The governing board of this corporation shall be known as directors, and directors may from time to time be increased or decreased in such manner as shall be provided by the By-Laws of this Corporation, providing that the number of directors shall not be reduced to fewer than one (1). The name and post office address of the first board of Directors shall be one (1) in number and listed as follows: NAME POST OFFICE ADDRESS ---- ------------------- Cheryl Mall 2533 N. Carson Street Carson City, Nevada 89706 59 SIXTH. The capital stock, after the amount of the subscription price, or par value, has been paid in, shall not be subject to assessment to pay the debts of the corporation. SEVENTH. The name and post office address of the Incorporator signing the Articles of Incorporation is as follows: NAME POST OFFICE ADDRESS ---- ------------------- Cheryl Mall 2533 North Carson Street Carson City, Nevada 89706 EIGHTH. The resident agent for this Corporation shall be: LAUGHLIN ASSOCIATES, INC. The address of said agent, and, the registered or statutory address of this corporation in the state of Nevada, shall be: 2533 North Carson Street Carson City, Nevada 89706 NINTH. The corporation is to have perpetual existence. TENTH. In furtherance and not in limitation of the power conferred by statute, the Board of Directors is expressly authorized: Subject to the By-Laws, if any, adopted by the Stockholders, to make, alter or amend the By-Laws of the Corporation. To fix the amount to be reserved as working capital over and above its capital stock paid in; to authorize and cause to be executed mortgages and liens upon the real and personal property of this Corporation. 60 By resolution passed by a majority of the whole Board, to designate one (1) or more committees, each committee to consist of one or more of the Directors of the Corporation, which, to the extent provided in the resolution, or in the By-Laws of the Corporation, shall have and may exercise the powers of the Board of Directors in the management of the business and affairs of the Corporation. Such committee, or committees, shall have such name, or names, as may be stated in the By-Laws of the Corporation, or as may be determined from time to time by resolution adopted by the Board of Directors. When and as authorized by the affirmative vote of the Stockholders holding stock entitling them to exercise at least a majority of the voting power given at a Stockholders meeting called for that purpose, or when authorized by the written consent of the holders of at least a majority of the voting stock issued and outstanding, the Board of Directors shall have power and authority at any meeting to sell, lease or exchange all of the property and assets of the Corporation, including its good will and its corporate franchises, upon such terms and conditions as its board of Directors deems expedient and for the best interests of the Corporation. ELEVENTH. No shareholder shall be entitled as a matter of right to subscribe for or receive additional shares of any class of stock of the Corporation, whether now or hereafter authorized, or any bonds, debentures or securities convertible into stock, but such additional shares of stock or other securities convertible into stock may be issued or disposed of by the Board of Directors to such persons and on such terms as in its discretion it shall deem advisable. TWELFTH. No director or officer of the Corporation shall be personally liable to the Corporation or any of its stockholders for damages for breach of fiduciary duty as a director or officer involving any act or omission of any such director or officer; provided, however, that the 61 foregoing provision shall not eliminate or limit the liability of a director or officer (i) for acts or omissions which involve intentional misconduct, fraud or a knowing violation of law, or (ii) the payment of dividends in violation of Section 78.300 of the Nevada Revised Statutes. Any repeal or modification of this Article by the stockholders of the Corporation shall be prospective only, and shall not adversely affect any limitation on the personal liability of a director or officer of the Corporation for acts or omissions prior to such repeal or modification. THIRTEENTH. This Corporation reserves the right to amend, alter change or repeal any provision contained in the Articles of Incorporation, in the manner now or hereafter prescribed by statute, or by the Articles of Incorporation, and all rights conferred upon Stockholders herein are granted subject to this reservation. 62 I, THE UNDERSIGNED, being the Incorporator hereinbefore named for the purpose of forming a Corporation pursuant to the General Corporation Law of the State of Nevada, do make and file these Articles of Incorporation, hereby declaring and certifying that the facts herein stated are true, and accordingly have hereunto set my hand this 22nd day of March, 1995. /s/ Cheryl Mall ------------------------------ Cheryl Mall STATE OF NEVADA ) )SS. CARSON CITY ) On this 22nd day of March, 1995, in Carson City, Nevada, before me, the undersigned, a Notary Public in and for Carson City, State of Nevada, personally appeared: Cheryl Mall Known to me to be the person whose name is subscribed to the foregoing document and acknowledged to me that she executed the same. MARK SHATAS NOTARY PUBLIC - NEVADA CARSON CITY /s/ Mark Shatas My Appt. Expires March 12, 1996 ------------------------------ Notary Public I, Laughlin Associates, Inc. hereby accept as Resident Agent for the previously named Corporation. 3/22/95 /s/ Cheryl Mall - -------------------------------------------- Date Service Coordinator 63 EX-3.1 3 AMENDMENT TO ARTICLES OF INCORPORATION EXHIBIT 3.1 STATE OF NEVADA AUG 06 1996 No. C4655-95 CERTIFICATE AMENDING ARTICLES OF INCORPORATION BRITISH PUBS USA INC. The undersigned, being President and Secretary of BRITISH PUBS USA INC., a Nevada Corporation, hereby certify that by majority vote of the Boards of Directors and majority vote of the stockholders at a meeting held on July 2nd, 1996, it was agreed by unanimous vote that this CERTIFICATE AMENDING ARTICLES OF INCORPORATION be filed. The undersigned further certify that the original Articles of Incorporation of BRITISH PUBS USA INC. were filed with the Secretary of State of Nevada on the 23rd day of March, 1995. The undersigned further certify that Articles First of the original Articles of Incorporation filed on the 23rd day of March 1995, hearin is amended to read as follows: ARTICLE FIRST FIRST. The name shall be CAN-CAL RESOURCES LTD. The undersigned hearby certify that they have on this 2nd day of July, 1996, executed this Certificate Amending the original Articles of Incorporation heretofore filed with the Secretary of State of Nevada. /s/ Carl Evans ----------------------------------- President and Secretary State of California ) )SS. County of San Diego ) On this 2nd day of July 1996, before me the undersigned a Notary Public in and for the County of San Diego, State of California, personally appeared Carl Evans known to be the person whose name is subscribed to the foregoing Certificate Amending Articles of Incorporation and acknowledged to me that they executed the same. /s/ Ranji Patel ----------------------------------- 64 EX-3.2 4 BY-LAWS EXHIBIT 3.2 BRITISH PUBS USA INC -------------------- BY-LAWS ARTICLE I MEETINGS OF STOCKHOLDERS - ------------------------------------- 1. Stockholders' Meetings shall be held in the office of the corporation, at Carson City, NV, or at such other place or places as the Directors shall from time to time determine. 2. The annual meeting of the stockholders of this corporation shall be held at 11:00 a.m., on the 22nd day of March of each year beginning in 1996, at which time there shall be elected by the stockholders of the corporation a Board of Directors for the ensuing year, and the stockholders shall transact such other business as shall properly come before them. 3. A notice signed by any officer of the corporation or by any person designated by the Board of Directors, which sets forth the place of the annual meeting, shall be personally delivered to each of the stockholders of record, or mailed postage prepaid, at the address as appears on the stock book of the company, or if no such address appears in the stock book of the company, to his last known address, at least ten (10) days prior to the annual meeting. Whenever any notice whatever is required to be given under any article of these By-Laws, a waiver thereof in writing, signed by the person or persons entitled to the notice, whether before or after the time of the meeting of the stockholders, shall be deemed equivalent to proper notice. 65 4. If a quorum is not present at the annual meeting, the stockholders present, in person or by proxy, may adjourn to such future time as shall be agreed upon by them, and notice of such adjournment shall be mailed, postage prepaid, to each stockholder of record at least ten (10) days before such date to which the meeting was adjourned; but if a quorum is present, they may adjourn from day to day as they see fit, and no notice of such adjournment need be given. 5. Special meetings of the stockholders may be called at anytime by the President; by all of the directors provided there are no more than three, or if more than three, by any three Directors; or by the holder of a majority share of the capital stock of the corporation. The Secretary shall send a notice of such called meeting to each stockholder of record at least ten (10) days before such meeting, and such notice shall state the time and place of the meeting, and the object thereof. No business shall be transacted at a special meeting except as stated in the notice to the stockholders, unless by unanimous consent of all stockholders present, either in person or by proxy, all such stock being represented at the meeting. 6. A majority of the stock issued and outstanding, either in person or by proxy, shall constitute a quorum for the transaction of business at any meeting of the stockholders. 7. Each stockholder shall be entitled to one vote for each share of stock in his own name on the books of the company, whether represented in person or by proxy. 8. All proxies shall be in writing and signed. 9. The following order of business shall be observed at all meetings of the stockholders so far as is practicable; a. Call the roll; 66 b. Reading, correcting, and approving of the minutes of the previous meeting; c. Reports of officers; d. Reports of Committees; e. Election of Directors; f. Unfinished business; and g. New business. ARTICLE II STOCK - ------------------ 1. Certificates of stock shall be in a form adopted by the Board of Directors and shall be signed by the President and Secretary of the Corporation. 2. All certificates shall be consecutively numbered; the name of the person owning the shares represented thereby, with the number of such shares and the date of issue shall be entered on the company's books. 3. All certificates of stock transferred by endorsement thereon shall be surrendered by cancellation and new certificates issued to the purchaser or assignee. ARTICLE III DIRECTORS - ---------------------- 1. A Board of Directors, consisting of at least one (1) person shall be chosen annually by the stockholders at their meeting to manage the affairs of the company. The Directors' term of office shall be one (1) year, and Directors may be re-elected for successive annual terms. 67 2. Vacancies on the board of Directors by reason of death, resignation or other shall be filled by the remaining Director or Directors choosing a Director or Directors to fill the unexpired term. 3. Regular meetings of the Board of Directors shall be held at 1:00 p.m., on the 22nd day of March of each year beginning in 1996 at the office of the company at Carson City, NV, or at such other time or place as the Board of Directors shall by resolution appoint; special meetings may be called by the President or any Director giving ten (10) days notice to each Director. Special meetings may also be called by execution of the appropriate waiver of notice and call when executed by a majority of the Directors of the company. A majority of the Directors shall constitute a quorum. 4. The Directors shall have the general management and control of the business and affairs of the company and shall exercise all the powers that may be exercised or performed by the corporation, under the Statutes, the certificates of incorporation, and the By-Laws. Such management will be by equal vote of each member of the Board of Directors with each Board member having an equal vote. 5. A resolution, in writing, signed by all or a majority of the members of the Board of Directors, shall constitute action by the Board of Directors to effect therein expressed, with the same force and effect as though such resolution had been passed at a duly convened meeting; and it shall be the duty of the Secretary to record every such resolution in the Minute Book of the corporation under its proper date. 68 ARTICLE IV OFFICERS - --------------------- 1. The officers of this company shall consist of: a President, one or more Vice Presidents, Secretary, Treasurer, and such other officers as shall, from time to time, be elected or appointed by the Board of Directors. 2. The PRESIDENT shall preside at all meetings of the Directors and the Stockholders and shall have general charge and control over the affairs of the corporation subject to the Board of Directors. He shall sign or countersign all certificates, contracts and other instruments of the corporation as authorized by the Board of Directors and shall perform all such other duties as are incident to his office or are required by him by the Board of Directors. 3. The VICE PRESIDENT shall exercise the functions of the President during the absence or disability of the President and shall have such powers and such duties as may be assigned to him from time to time by the Board of Directors. 4. The SECRETARY shall issue notices for all meetings as required by the ByLaws, shall keep a record of the minutes of the proceedings of the meetings of the Stockholders and Directors, shall have charge of the corporate books, and shall make such reports and perform such other duties as are incident to his office, or properly required of him by the Board of Directors. He shall be responsible that the corporation complies with Section 78.105 of the Nevada Corporation Laws and supplies to the Nevada Resident Agent or Registered Office in Nevada, any and all amendments to the Corporation's Articles of Incorporation and any and all amendments or changes to the By-Laws of the Corporation. In compliance with Section 78.105, he will also supply to the Nevada Resident Agent or Registered Office in Nevada, and maintain, a current statement setting out the name of the custodian of the stock ledger or duplicate stock 69 ledger, and the present and complete Post Office address, including street and number, if any, where such stock ledger or duplicate stock ledger specified in the section is kept. 5. The TREASURER shall have the custody of all monies and securities of the corporation and shall keep regular books of account. He shall disburse the funds of the corporation in payment of the just demands against the corporation, or as may be ordered by the Board of Directors, making proper vouchers for such disbursements and shall render to the Board of Directors, from time to time, as may be required of him, an account of all his transactions as Treasurer and of the financial condition of the corporation. He shall perform all duties incident to his office or which are properly required of him by the Board of Directors. 6. The RESIDENT AGENT shall be in charge of the corporation's registered office in the State of Nevada, upon whom process against the corporation may be served and shall perform all duties required of him by statute. 7. The salaries of all officers shall be fixed by the Board of Directors and may be changed from time to time by a majority vote of the Board. 8. Each of such officers shall serve for a term of one (1) year or until their successors are chosen and qualified. Officers may be re-elected or appointed for successive annual terms. 9. The Board of Directors may appoint such other officers and agents, as it shall deem necessary or expedient, who shall hold their offices for such terms and shall exercise such powers and perform such duties as shall be determined from time to time by the Board of Directors. 70 ARTICLE V INDEMNIFICATION OF OFFICERS AND DIRECTORS - ------------------------------------------------------ 1. The Corporation shall indemnify any and all of its Directors and Officers, and its former Directors and Officers, or any person who may have served at the Corporations request as a Director or Officer of another corporation in which it owns shares of capital stock or of which it is a creditor, against expenses actually and necessarily incurred by them in connection with the defense of any action, suit or proceeding in which they, or any of them, are made parties, or a party, by reason of being or having been Director(s) or Officer(s) of the corporation, or of such other corporation, except, in relation to matters as to which any such Director or Officer or former Director or Officer or person shall be adjudged in such action, suit or proceeding to be liable for negligence or misconduct in the performance of duty. Such indemnification shall not be deemed exclusive of any other rights to which those indemnified may be entitled, under ByLaw, agreement, vote of stockholders or otherwise. ARTICLE VI AMENDMENTS ---------------------- 1. Any of these By-Laws may be amended by a majority vote of the stockholders at any annual meeting or at any special meeting called for that purpose. 2. The Board of Directors may amend the By-Laws or adopt additional By-Laws but shall not alter or repeal any By-Laws adopted by the stockholders of the company. ******************************************************************************** CERTIFIED TO BE THE BY-LAWS OF: BRITISH PUBS USA INC BY: /s/ Carl Evans ------------------------------ Secretary 71 EX-10.0 5 JOINT VENTURE AGREEMENT - SCHWARZ EXHIBIT 10.0 JOINT VENTURE AGREEMENT BETWEEN ROBIN SCHWARZ, AYLWARD SCHWARZ, S & S MINING, A NEVADA CORPORATION AND CAN-CAL RESOURCES, LTD. 72 JOINT VENTURE AGREEMENT ----------------------- THIS JOINT VENTURE AGREEMENT, made as of the 13th day of September, 1996, by and between ROBIN SCHWARZ, AYLWARD SCHWARZ, and S & S MINING, a Nevada corporation (hereinafter collectively referred to as "Schwarz" or "Venturer"), and CAN-CAL RESOURCES, LTD., a Nevada Corporation (hereinafter referred to as "Can-Cal" or "Venturer"). RECITALS WHEREAS, Schwarz owns or has possessory rights to certain mining claims in San Bernardino County, California, and may acquire or stake additional mining claims in San Bernardino County, California (the "Area of Interest" as defined herein) (the "Claims"), and WHEREAS, Schwarz believes that its claims are prospective for the existence and commercial extraction and production of precious metals; and WHEREAS, Schwarz does not have funds with which to engage in the necessary work and procedures to determine the existence of precious metals on the claims; and WHEREAS, Can-Cal is willing to advance certain funds to Schwarz to ascertain whether precious metals exist on the claims; WHEREAS, Can-Cal is willing to advance funds only if it acquires a 50% interest in the claims and its other advances are secured; and WHEREAS, the parties believe that it is in their respective best interests to pool their resources to attempt to ascertain the existence of precious metals of the claims and, if so, to commercially exploit the claims and the precious metals contained thereon; and 73 WHEREAS, Schwarz and Can-Cal wish to make arrangements for the exploration, evaluation, development, production and sale of precious metals, if any, produced from the claims all through this Joint Venture. NOW THEREFORE, in consideration of the covenants and agreements contained herein, SCHWARZ AND CAN-CAL AGREE AS FOLLOWS: ARTICLE I --------- DEFINITIONS ----------- 1.1 "Accounting Procedure" means the procedures as agreed upon by the Venturers. 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 Venturer. 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 a five mile radius around the claims listed on Exhibit A and no other physical areas. 1.5 "Assets" means the Property, Products and all other real and personal property, tangible and intangible, held by or for the benefit of the Venturers hereunder. 1.6 "Capital Account" means the Capital Account as defined herein. 74 1.7 "Claims" means the mining claims listed on Exhibit A hereto. 1.8 "Default" means the occurrence of one or more of the events listed in Section 10.2. 1.9 "Development" means all preparation for the removal and recovery of Products, including the construction or installation of any improvements to be used for the mining or handling, but not the milling or other processing, or Products. 1.10 "Exploration" means all activities directed toward ascertaining the existence, location, quantity, quality or commercial value of deposits of Products. 1.11 "Initial Contribution" means that contribution each Venturer agrees to make, or is deemed to have made, pursuant to Section 5. 1. 1.12 "Joint Account" means the account maintained in accordance with the Accounting Procedure showing the charges and credits accruing to the Venturers. 1.13 "Losses" shall have the meaning set forth in Section 4. 1 (b) herein. 1.14 "Management Committee" means the committee established under Article VII. 1.15 "Milling" means the milling or processing of ores into precious metals. 1. 16 "Mining" means the mining, extracting, producing, hauling and handling of ore from the Property. 1. 17 "Net Proceeds" means net cash flow from Operations. 75 1.18 "Operations" means the Exploration, Development and Mining activities carried out under this Agreement. 1.19 "Venturer" and "Venturers" mean the persons or entities that from time to time have Participating Interests in the Claims. 1.20 "Participating Interest(s)" means the percentage interest representing the operating ownership interest of a Venturer in Assets, and all other rights and obligations arising under this Agreement, as such interest may from time to time be adjusted hereunder. Participating Interest 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 Interest of the Venturers are set forth in Section 6. 1. 1.21 "Products" means all ores, minerals, mineral resources and precious metals (including, where appropriate, gold) produced from the Claims. 1.22 "Program" means a description of the Exploration, Development, Mining and Milling to be conducted by the joint venture. ARTICLE II ---------- REPRESENTATIONS AND WARRANTIES, TITLE TO ASSETS ----------------------------------------------- 2.1 Representations and Warranties. Each of Robin Schwarz, Aylward Schwarz and S&S Mining and Can-Cal represents and warrants as follows: (i) that S & S Mining and Can-Cal are each a corporation duly incorporated and in good standing in its state of incorporation and that it is qualified to do business and is in good standing in the state of its incorporation and such other states where necessary in order to carry out the purposes of this Agreement; 76 (ii) that each 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; (iii) that this Agreement has been duly executed and delivered by it and is valid, binding and full enforceable against it in accordance with its terms; (iv) that there is no order, writ, injunction, judgment, award or decree outstanding, and no legal, administration, arbitration or other proceeding ("Legal Proceeding") pending against it or involving any of its directors, officers or employees or properties or assets, or to its knowledge, threatened against it or any of its directors, officers or employees or properties or assets, which Legal Proceedings, if determined adversely, would have a material adverse effect on such Venturer or the Joint Venture; (v) that (A) the execution, delivery and performance by it of this Agreement and the consummation of the transactions contemplated hereby will not conflict with or result in a breach of any of the terms or provisions of, or constitute a default under, or result in the creation or imposition of any lien, change or encumbrance upon any of its property or assets pursuant to the terms of any indenture, mortgage, deed of trust, loan agreement or other agreement or instrument by which it is bound or to which any of its property or assets is subject, or will such action result in any violation of the provisions of its charter or by-laws or of any statute or any order, rule or regulation of any court or governmental agency or body of the United States, any State or any political subdivision of either having jurisdiction over it or any of its properties or assets; and (B) except what which has already been obtained by it, no consent, approval, authorization, order, registration, filing, qualification, license or permit of or with any such court or any such regulatory authority or other such governmental agency or body in required to be obtained by or with respect to it in connection with the execution, delivery and performance by it of this Agreement and the consummation of the transactions contemplated hereby. 77 2.2 Disclosures. Each of the Venturers represents and warrants that it is unaware of any material facts or circumstances which have not been disclosed in this Agreement, and which should be disclosed to the other Venturers in order to prevent the representations in this Article II from being materially misleading or which could foreseeable have a material adverse effect on the business or assets of the Joint Venture. ARTICLE III ----------- FORMATION, PURPOSES AND TERM ---------------------------- 3.1 Formation of Joint Venture. Schwarz and Can-Cal hereby form a Joint Venture for the purposes set forth below. All real and personal property acquired by the Joint Venture after the date hereof shall be held in its name, and not in the names of the Venturers, and no Venturer shall have any individual ownership in such property except for its rights as a Venturer in the Joint Venture. 3.2 Name. The name of this Joint Venture shall be the Schwarz - Can-Cal Joint Venture or such other name as determined by the Management Committee. The principal place of business of the Joint Venture shall be 3651 Lindell, Suite A, Las Vegas, Nevada, or such other place as the Management Committee may determine. 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 Venturers, or either of them, accomplish such purposes: (a) to conduct Exploration on the Claims to ascertain whether precious metals exist on the Claims; (b) to evaluate the possible Development of the Claims; 78 (c) to engage in Development and Mining Operations on the Claims and milling of the ore to the maximum extent possible; (d) to engage in marketing of precious metals recovered from the Claims; (e) to sell forward, purchase or borrow precious metals from such at such prices as determined by the Management Committee; (f) to borrow money necessary to finance the Joint Venture's activities in accordance with a Program and as directed by the Management Committee; and (g) to perform any other operation or activity necessary, appropriate, or incidental to any of the foregoing. 3.4 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 fifty (50) years from the effective date, unless the Agreement is earlier terminated as herein provided. ARTICLE IV ---------- RELATIONSHIP OF THE VENTURERS ----------------------------- 4.1 Relationship; Indemnification. (a) No Venturer in its capacity as a Venturer may, without the prior authorization of the Management Committee or except as expressly provided herein, take any act on behalf of the Joint Venture or affecting any of the Assets. (b) Each Venturer shall indemnify, defend and hold harmless the other Venturer, its directors, officers, and employees from and against any and all losses, claims, damages, liabilities and expenses (including reasonable legal fees and expenses incurred as a result of any such claims 79 made by third parties against such other Venturer) ("Losses") arising out of (i) any act or any assumption of liability, by the indemnifying Venturer, or any of its directors, officers or employees, done or undertaken, or apparently done or undertaken, on behalf of the other Venturer, except for acts taken in good faith pursuant to the authority expressly granted herein or otherwise agreed in writing between the Venturers, (ii) any breach of this Agreement by the indemnifying Venturer, or (iii) the wilful misconduct or negligence of the indemnifying Venturer. 4.2 Federal Tax Elections and Allocations. The Venturers agree that their relationship shall constitute a tax partnership within the meaning of Section 761 (a) of the United States Internal Revenue Code of 1986. 4.3 State Income Tax. The Venturers also agree that, to the extent possible under applicable law, their relationship shall be treated for state income tax purposes in the same manner as it is for Federal income tax purposes. 4.4 Tax Returns. The Tax Matters Venturer, Can-Cal, shall prepare and shall file, after approval by the Management Committee, any tax returns or other tax forms required. 4.5 Other Business Opportunities. Subject to the provisions of Article XI and Section 10.7, the parties hereto agree that any Venturer or its Affiliates may engage in any other business or investment, whether or not the same shall be in competition with the business or investment of the Joint Venture or any other venture, including, without limitation, the acquisition of property outside the Area of Interest at any time. 4.6 Termination of Rights to Properties. Except as otherwise provided in this Agreement, neither Venturer shall permit or cause all or any part of its interest in the Property and the assets to be sold, exchanged, encumbered, surrendered, abandoned or otherwise terminated. 4.7 Implied Covenants. There are no implied covenants contained in this Agreement other than those of good faith and fair dealing. 80 ARTICLE V --------- CONTRIBUTIONS BY VENTURERS; CERTAIN COVENANTS --------------------------------------------- 5.1 Venturers' Initial Contributions. (a) Schwarz, as its Initial Contribution, hereby transfers to Can-Cal (A) a 50% interest in all of its right, title and interest in and to the Claims listed on Exhibit A hereto (subject to the payment of $100,000 by Can-Cal of expenses relating to the purposes for which this Joint Venture was formed); and (B) contributes to the Joint Venture its experience and expertise regarding analyses, processes, formulas and all other information it has regarding the Claims, to the Joint Venture. Schwarz will forthwith execute all documents requested by Can-Cal to transfer a 50% interest in the Claims to Can-Cal. (b) Can-Cal, as its Initial Contribution, (i) hereby agrees to contribute $100,000 to the Joint Venture. All such funds shall be spent for the purposes set forth herein and no other. (ii)Can-Cal hereby issues in Schwarz's name 500,000 Can-Cal common shares. Those shares shall be held in escrow by Can-Cal pending a determination by Can-Cal, in its sole discretion, whether precious metals exist on the Claims and whether it is economically feasible to produce them. Can-Cal shall make that determination no later than September 30, 1997 and shall notify Schwarz in writing within fourteen (14) days of its determination. In the event Can- Cal determines that the production of precious metals from the claims is not economically feasible, Can-Cal shall return those shares from escrow to Can- Cal and Schwarz shall have no claim or right to any of those shares. In the event Can-Cal determines that production of precious metals from the Claims is economically feasible, Can-Cal shall deliver the 500,000 shares to Schwarz. Schwarz represents that they are familiar with the business, 81 operations and financial condition of Can-Cal and have worked extensively with Can-Cal's management in connection with Can-Cal's other properties and are familiar with them and that they are acquiring those shares for investment purposes. Schwarz shall execute all documents required by law in connection with issuance of those shares, including, but not limited to, investment representations and stop transfer instructions. In addition to restrictions imposed by law restricting resale, Schwarz agrees that the shares shall be, in no event, salable by them earlier than in accordance with the following schedule: May 5, 1998 200,000 shares November 5, 1998 100,000 shares May 5, 1999 100,000 shares November 5, 1999 100,000 shares Schwarz agrees not to sell any Can-Cal shares except in strict compliance with federal and state securities laws. 5.2 Additional Cash Advances. In addition, Can-Cal agrees to loan the joint venture $48,000, on the terms to be agreed upon, to be used for the purposes set forth herein. Can-Cal reserves the right to loan the Joint Venture additional funds, in its sole discretion, with the consent of the Management Committee. 5.3 Schwarz's Option to Repurchase Can-Cal's 50% Interest.. In the event Can-Cal determines by September 30, 1997 that production of precious metals from the Claims is not economically feasible, Schwarz shall have the option to purchase Can-Cal's 50% interest in the Claims by paying Can-Cal all funds paid by Can-Cal for its 501/6 interest plus all funds advanced by Can-Cal to the Joint Venture. Schwarz must exercise that option and make payment of the option price in full no later than December 31, 1998. If Schwarz does not exercise the option and pay the 82 option price in full by December 31, 1998, it shall have no further rights with respect to Can-Cal's 50% interest in the Claims. 5.4 Financing. After Can-Cal makes the balance of its Initial Contribution in accordance with Section 5. 1 (b) herein, and makes the determination that production of precious metals from the Claims is economically feasible, Schwarz and Can-Cal through the Management Committee hereby agree to use their best efforts to arrange with third-party lenders for working capital financing for the Joint Venture as required to finance a Program. 5.5 Cash Calls. In the event the Joint Venture is unable to obtain financing from third party lenders, the Management Committee shall make a determination of whether or not to make a cash call on the Venturers. In the event the Management Committee makes a cash call, the parties agree to contribute their portion of any such cash call to the Joint Venture that percentage of funds required equal to its Participating interest, as determined by the Management Committee. ARTICLE VI ---------- INTERESTS OF VENTURERS ---------------------- 6.1 Initial Participating Interests. The Venturers shall have the following initial Participating Interests subject to Can-Cal contributing the balance of its Initial Contribution in accordance with Section 5. 1 (b)(i) herein: Schwarz 50% Can-Cal 50% 6.2 Changes in Participating Interests. A Venturer's Participating Interest may be changed as follows: (a) As provided in Sections 10.2 and 10.3; or 83 (b) By transfer by a Venturer of less than all its Participating Interest in accordance with Article XII. 6.3 Elimination of Minority Interest. Upon the reduction of its Participating Interest to less than ten percent (10%), a Venturer shall be deemed to have withdrawn from this Agreement and shall relinquish its entire Participating Interest. Such relinquished Participating Interest shall be deemed to have accrued automatically to the other Venturer, who at its option, may cause the interest of the diluted Venturer's Participating Interest to be exchanged for a two percent (2 %) net profits interest of the Joint Venture. For purposes of this Section 6.3, net profits is defined as gross revenue less expenses, where expenses include but are not limited to mining, extraction, haulage, processing, milling, marketing, severance and ad valorem taxes, depreciation of Claims, plant and equipment and amortization of development and exploration, using unit of production method of accounting. 6.4 Continuing Liabilities Upon Adjustments of Participating Interests. Any reduction of a Venturer's Participating Interest Under Article X shall not relieve such Venturer of its share of any liabilities to third persons, whether it accrues before or after such reduction, arising out of Operations conducted prior to such reduction, or of its other obligations under this Agreement. For purposes of this Section, such Venturer'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 Venturer as a result of the reduction of the other Venturer's Participating Interest shall be free of royalties, liens or other encumbrances arising by, through or under such other Venturer, other than those existing at the time the Claims were acquired or those to which both Venturers 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 instruments, but each Venturer's Participating Interest shall be shown in the books of the Joint Venture. Either Venturer, at any time upon request of the other Venturer, shall execute and acknowledge instruments necessary to evidence such adjustment in form sufficient for recording in the jurisdiction where the Claims are located. 84 ARTICLE II ---------- MANAGEMENT COMMITTEE -------------------- 7.1 Organization and Composition. The Venturers hereby establish a Management Committee to determine overall policies, objectives, procedures, methods and actions under this Agreement. The Management Committee shall consist of two members, one member appointed by Schwarz and one member appointed by Can-Cal. Each Venturer may appoint one or more alternates to act in his or her absence as a regular member (including another member by proxy). Any alternate so acting shall be deemed a member. Appointments shall be made or changed by notice to the other Venturer. The initial members shall be Robin Schwarz (appointed by Schwarz) and Ronald Sloan (appointed by Can-Cal). 7.2 Decisions. Each Venturer, acting through its appointed members, shall have one vote on the Management Committee. Unless otherwise specifically provided in this Agreement, the vote of the Venturer with a Participating Interest over fifty percent (50%) shall determine the decisions of the Management Committee, It shall also supervise and control all aspects of the Joint Venture's business and operations including, but not limited to, exploration, a development, haulage, processing, milling and marketing of the ore on the Claims. 7.3 Meetings. The Management Committee shall hold regular meetings, at least quarterly, at 3651 Lindell, Suite A, Las Vegas, Nevada, or at any other mutually agreed upon place. The Secretary shall give five business days' notice to the Venturers of such regular meetings. The initial regular meeting shall be held on June 2, 1997. Additionally, either Venturer may call a special meeting upon five business days' notice to the other Venturer. In case of emergency, reasonable notice of a special meeting shall suffice. There shall be a quorum if at least one member representing a Venturer is present. Each notice of a meeting shall include an itemized agenda prepared by the Secretary in the case of a regular meeting, or by the Venturer calling the meeting in the case of a special meeting, but any matters may be considered with the consent of all Venturers. The Secretary shall prepare minutes of all meetings and shall distribute copies of such minutes of all meetings to the Venturers within 14 days after the meeting. The minutes, when signed 85 by all Venturers, shall be the official record of the decisions made by the Management Committee and shall be binding on the Venturers. If personnel employed in Operations are required to attend a Management Committee meeting, reasonable out-of-pocket costs incurred in connection with such attendance shall be an expense chargeable to the Joint Venture. All other expenses shall be paid for by the Venturers individually. 7.4 Action Without Meeting. In lieu of participation at meetings in person, any member of the Management Committee may participate by telephone. All decisions made at such telephonic conferences will be immediately confirmed in writing by the Venturers. 7.5 Matters Requiring Approval. The Management Committee shall have exclusive authority to determine all management matters related to this Agreement. 7.6 Appointment of Secretary. The Venturers may appoint a Secretary to keep the books and records of the Joint Venture, give notices and perform such other duties as the Management Committee may delegate. 7.7 Transactions with Affiliates. If the Joint Venture engages Affiliates of either Venturer to provide services hereunder, it shall do so on terms no less favorable to the Joint Venture than would be the case with unrelated persons in arm's-length transactions. ARTICLE VIII ------------ PROGRAMS -------- 8.1 Initial Program. The initial Program shall be adopted by the Venturers within thirty (30) days of the date that Can-Cal makes its determination pursuant to paragraph 5.1(b)(ii). 8.2 Operations Pursuant to Programs. Operations shall be conducted, expenses shall be incurred, and Assets shall be acquired only pursuant to approved Programs. 86 8.3 Election to Venturers. Within five (5) days after the final vote adopting a Program or such later date specified by the Management Committee, the Venturers shall contribute to the Joint Venture amounts necessary, over and above that which has been financed with the approval of the Management Committee, to implement such Program in proportion to its respective Participating Interest as of the beginning of the period covered thereby. 8.4 Deadlock on Proposed Programs. If the Venturers, acting through the Management Committee, fail to approve a Program by the beginning of the period to which the proposed Program applies, or fail to present Program, a Program comparable to the last adopted Program shall automatically be adopted. ARTICLE IX ---------- DISTRIBUTIONS ------------- 9.1 Distributions. Joint Venture cash, after due allowance for the cash necessary for the operation of the Joint Venture business and requirements of any agreements relating to indebtedness of the Joint Venture, shall be allocated and distributed to the Venturers in accordance with their respective Participating Interests, subject to the provisions set forth in Article X, in aggregate amounts and at times determined by the Management Committee. Any disproportionate distributions due to differing tax liabilities between the Venturers shall be taken into account in future distributions, subject to other provisions of this Article and Article X, in order to have aggregate distributions to the Venturers in accordance with their respective Joint Venture Interests. In making determinations regarding distributions, and subject to the provisions of this Section, the Management Committee shall act consistently with the principle that available cash should not be distributed to Venturers in any year until annual operating costs and expenses for that year have been paid or reserved against and only after an annual audit has been prepared of the financial statements of the Joint Venture for that year. All funds in excess of immediate cash requirements shall be invested in interest-bearing accounts for the benefit of the Joint Account. 87 ARTICLE X --------- DISSOLUTION AND TERMINATION --------------------------- 10.1 Dissolution. The Joint Venture shall dissolve upon, but not before, the first occur of: (a) the expiration of the term of the Joint Venture; (b) the sale, transfer, condemnation or destruction of all or substantially all of the Claims, except for a sale or transfer in connection with a sale-leaseback financing transaction or in which the Joint Venture acquires a purchase money mortgage; (c) the unanimous written consent of the Venturers; (d) an election pursuant to Section 10.2(b) hereof to dissolve. Except as provided herein, no Venturer shall have the right to terminate or dissolve the Joint Venture. 10.2 Events of Default. (a) If any of the following events occur: (i) the entry of a decree or order by a court having jurisdiction in the premises adjudging a Venturer a bankrupt or insolvent, or approving as properly filed a petition seeking reorganization, arrangement, adjustment or composition of or in respect of a Venturer or any of its Parents under any bankruptcy, insolvency, or other similar state or federal law; or appointing a receiver, liquidator, assignee, trustee, sequestrator (or other similar official) of the Venturer or any of its Parents or of any substantial part of the Claims of a Venturer or any of its Parents, or ordering the winding up or liquidation of the affairs of a Venturer or any of its Parents, 88 and the continuance of any such decree or order remains unstayed and in effect for a period of ninety (90) consecutive days; or (ii) the institution by a Venturer or its Parent of bankruptcy proceedings or other proceedings to be adjudicated as bankrupt or insolvent, or the consent by a Venturer or its Parent to the institution of bankruptcy or insolvency proceedings against a Venturer or its Parent, or the filing of a petition or answer of consent by a Venturer or its Parent seeking reorganization or relief under any bankruptcy, insolvency, or other similar state or federal law, or the consent by a Venturer or its Parent to the filing of such petition or to the appointment of a receiver, liquidator, assignee, trustee, sequestrator (or similar official) of the Venturer or its Parent or of any substantial part of the Claims of a Venturer or its Parent, or the making by a Venturer or its Parent or an assignment for the benefit of creditors, or the admission by a Venturer or its parent in writing of its inability to pay its debts generally as they become due, or the taking of corporate action by a Venturer or its Parent in furtherance of any such action; or (iii) any part of the Participating Interest of a Venturer is seized by a creditor of such Venturer, and the same is not released from seizure or bonded out within sixty (60) days from the date of notice of seizure; or (iv) Can-Cal fails to make the balance of its Initial Contribution or a Venturer fails to advance funds as required by Section 5.2, or any other provisions of this Agreement, or to perform any other material obligation imposed upon such Venturers under any agreement relating to borrowed money of the Joint Venture or of such Venturer; or (v) a Venturer fails to perform any of its obligations under this Agreement or has breached any of the terms, conditions, representations, warranties or covenants of this Agreement and any such failure or breach has continued for more than thirty (30) days after written notice by Non-Defaulting Venturer to the Venturer so failing to perform any of the obligations, terms, conditions or covenants hereinabove cited, or which has breached, this Agreement; then such 89 Venturer shall be deemed to be in default hereunder and shall be referred to as the Defaulting Venturer, and the other Venturer shall be referred to as the Non-Defaulting Venturer. Any Non-Defaulting Venturer shall have the right to give the Defaulting Venturer a Notice of Default ("Notice") which shall be in writing, shall set forth the nature of the Default and, if, applicable, the obligations that the Defaulting Venturer has not performed, or is in breach of, and shall set forth the date by which such Default must be cured, which date shall be ten (10) days after receipt of the Notice if payment or money is required, or thirty (30) days after receipt of the Notice for events other than defaults in the payment of money; provided, however, that in the event of a nonmonetary default if, within the thirty (30) day period following receipt of the Notice, the Venturer in good faith commences to perform such obligation and cure such Default and thereafter prosecutes to completion with diligence and continuity the curing thereof and cures such default within a reasonable time, not to exceed an additional sixty (60) days, then no Default shall have occurred and the Venturer shall lose no rights hereunder, or such shorter period as may be necessary in the good faith judgment of such Non-Defaulting Venturer to prevent a default under any agreement for borrowed money to which the Joint Venture is a party or to avoid jeopardizing its investment in the Joint Venture. If, within the period specified in the Notice, the Defaulting Venturer cures such Default, the Notice shall be inoperative and the Defaulting Venturer shall lose no rights hereunder. If, within such specified period, the Defaulting Venturer does not cure such Default, any Non-Defaulting Venturer at the expiration of such period, shall have the rights hereinafter specified. (b) Upon the occurrence and during the continuance of a Default and the expiration of any applicable grace period, the Non-Defaulting Venturer shall have the option, in its sole discretion, to: (i) dissolve the Joint Venture; or (ii) expel the Defaulting Venturer and purchase on a date specified by such Non-Defaulting Venturer in a written notice, which date shall be not more than one hundred 90 twenty (120) days from the date of such notice, all of the Defaulting Venturer's Participating Interest at a price which for such purposes shall be equal in amount to the Defaulting Venturer's Participating Interest in the lesser of (A) the fair market value of the Joint Venture on the date of such purchase, as determined by an independent recognized expert selected by the Non-Defaulting Venturer, or (B) the net book value of the Joint Venture, as determined by generally accepted accounting principles as consistently applied by the Joint Venture (excluding goodwill and any capital resulting from write-up of assets) as shown on the Joint Venture books as of the date hereof but after deducting any amounts payable to the Joint Venture by the Defaulting Venturer as of the date of purchase;, any costs of remedying the Default and any damages or costs to the Joint Venture or Non-Defaulting Venturer resulting from the Default. Payment to the Defaulting Venturer may take the form of a ten (10) year note with interest at the floating "Prime Rate" announced from time to time by The Chase Manhattan Bank as in effect (the Prime Rate) and providing for ten (10) equal principal payments on the first ten (10) anniversaries of the making of such note, annual payment of interest in arrears, and a right to prepay all of part of the note without penalty. In the event the Joint Venture suffers liability in respect of a period prior to the expulsion of the Defaulting Joint Venture which liability had not been accrued on the books of the Joint Venture on the date the purchase price of the Defaulting Venturer's interest was determined, the payment provided for above shall be reduced by an amount equal to the Defaulting Venturer's Participating Interest in such liability; or (iii) cure the Default, and the cost of such curing shall be charged against the Defaulting Venturer's Capital Account and credited to the Non-Defaulting Venturer's Capital Account, and the Participating Interest of the Defaulting Venturer shall be decreased, and the Participating Interest of the Non-Defaulting Venturer shall be increased in proportion to the foregoing adjustments to the capital accounts; or (iv) in the case of a breach of a Venturer's obligation under Sections 5.1(b) or 5.2, exercise the remedies set forth in Section 10. 3. 91 None of the foregoing options shall relieve the Defaulting Venturer of its share of liabilities to third persons (whether such accrues before or after such Default) arising out of Operations conducted prior to such Default. For purposes of this Section, the Defaulting Venturer's share of such liabilities shall be equal to its Participating Interest immediately prior to Default. 10.3 Default in Making Contributions. (a) If a Venturer Defaults in making a contribution or cash call required pursuant to Sections 5.1(b) or 5.2, the Non-Defaulting Venturer may advance the defaulted contribution on behalf of the Defaulting Venturer. The Non-Defaulting Venturer may at its election treat such advance, together with accrued interest, as a demand loan to the Defaulting Venturer bearing interest from the date of the advance at the rate provided in Section 10.2(b)(ii). The failure to repay said loan within thirty (30) days of notice of demand shall be an event of Default pursuant to Article X. Each Venturer hereby grants to the other a security interest in its rights under this Agreement and in its Participating Interest in the Assets, and the proceeds therefrom, to secure any loan made hereunder, including the interest thereon, reasonable attorney's fees and all other reasonable costs and expenses incurred in enforcing such lien or security interest, or both. Each Venturer hereby irrevocably appoints the other its attorney-in-fact to execute, file and record all instruments necessary to perfect or effectuate the provisions hereof. No later than the end of the fiscal year in which such advance was made the Non-Defaulting Venturer shall be entitled to receive the amount of such advance plus interest from the Defaulting Venturer. At its election, the Non-Defaulting Venturer may, in lieu of receiving repayment of the advance plus interest from the Defaulting Venturer, instruct the Joint Venture to make a preferential cash distribution equal to the amount of such advance plus a 10% rate of return. No distributions (other than amounts required to pay income taxes on Joint Venture income if any cash is available) shall be made to a Defaulting Venturer until such advance has been repaid. In addition, the amount of such advance, plus interest thereon, shall be credited to the Non-Defaulting Venturer's Capital Account. Upon return of such advance, the amount of such repaid advance, plus interest or other return, shall be deducted from the Non- Defaulting Venturer's Capital Account. 92 (b) The Venturers acknowledge that if a Venturer Defaults in making a contribution, or a cash call, or in repaying a loan, as required hereunder, it will be difficult to measure the damages resulting from such Default whether or not a Non-Defaulting Venturer makes an advance under Section 10.3(a). In the event of such Default and in addition to, and not in lieu of, provisions of Section 10.3(a), as reasonable liquidated damages, the Non-Defaulting Venturer shall be entitled to receive a preferential cash distribution, in addition to any distribution made under Section 9. 1, equal to the Adjusted Percent of the Joint Venture's Net Proceeds for that year (which distribution shall be paid out of the Defaulting Venturer's share of Joint Venture Net Proceeds) and each additional year for which the advance referred to in Section 10.3(a) is outstanding. Any such distribution shall be made at the end of the fiscal year in which any such advance has been outstanding. For purposes of this Section, the "Adjusted Percent" means a percentage equal to the excess of (a) the quotient calculated by dividing (i) the sum of (x) the value of the Non-Defaulting Venturer' s initial contribution under Section 5.1, and (y) the total of all of the Non-Defaulting Venturer's contributions under Sections 5.2 (including amounts advanced pursuant to Section 10.3(4);) by (ii) the sum of (x) and (y) above for all Venturers (with amounts advanced by a Venturer; pursuant to Section 10.3 (a) being treated as a contribution of such Venturer); and then multiplied the result by one hundred, over (b) fifty (50); provided, however, that in no event shall the Adjusted Percent exceed ten (10). Such distribution shall not be deemed a repayment of the advance under Section 10.3(a). 10.4. Continuing Obligations. On dissolution of this Agreement under Section 10.1, the Venturers 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. 10.5 Disposition of Assets on Termination. (a) Upon the dissolution of the Joint Venture pursuant to Section 10.1 the liquidating trustee shall take all action necessary to wind up the activities of the Joint Venture, and 93 all costs and expenses incurred in connection with the termination of the Joint Venture shall be expenses chargeable to the Joint Venture. Any Venturer that has a negative Capital Account balance when the Joint Venture is terminated shall contribute to the Assets of the Joint Venture an amount sufficient to raise such balance to zero. The Assets shall first be paid, applied, or distributed in the following order of priority to the extent available: (i) first, to the payment of any debts and liabilities of the Joint Venture to persons who are not Venturers which shall then be due and payable (other than liabilities expressly assumed by one of the Venturers pursuant hereto); (ii) second, to the Venturers pro-rata until each shall have received the outstanding principal of, and accrued and unpaid interest on, any loans made to the Joint Venture; (iii) third, to the establishment of any reserve which the Management Committee or liquidating trustee deems necessary in its sold discretion to provide for any contingent or unforeseen liabilities or obligations of the Joint Venture (other than liabilities expressly assumed by one of the Venturer's pursuant hereto). (At the expiration of such period of time as the Management Committee or liquidating trustee deems advisable, the balance remaining in any such reserve after payment of any such liabilities and obligations shall be distributed in the manner hereinafter set forth in this Section; (iv) fourth, to the Venturers pro rata until each shall have received all accrued and unpaid interest on any additional capital contributions to the Joint Venture made pursuant to Section 10.3(b) hereof; (v) fifth, to the Venturers in an amount equal to the positive balances in their respective Capital Accounts on the date of distribution; provide, however, that in the event there shall be insufficient funds to repay in full such Capital Accounts, payment shall be made to Venturers with the greatest balances in their capital accounts until capital accounts are all in the same ratio as their respective Participating Interests; and 94 (vi) the balance, if any, shall be distributed to the Venturers in accordance with their respective Participating Interests in the Joint Venture. (b) No right, power or remedy conferred upon the Venturers or the Joint Venture with respect to any Defaulting Partner under this Article shall be inclusive, and each such Venturer under this Article shall be exclusive, and each such right, power or remedy shall be cumulative and in addition to every other right, power or remedy whether conferred by this Agreement or hereafter available at law or equity or by statute or otherwise. No course of dealing between the Venturers and any Defaulting Venturer and no delay in exercising any right, power or remedy conferred in this Article or now or hereafter available at law or in equity or by statute or otherwise, shall operate as a waiver or otherwise prejudice any such right, power or remedy. (c) No Venturer shall be entitled to withdraw any part of its capital contributions to the Joint Venture, or to receive any distribution from the Joint Venture, except as expressly provided in this Agreement. 10.6 Withdrawal. At any time after the third anniversary of the date of this Agreement, a Venturer may elect to withdraw by giving written notice to the other Venturer of the effective date of withdrawal, which shall be the later of the end of the then current Program or at least thirty (30) days after the date of the notice. Upon receipt of such notice the other Venturer may elect at any time to either (a) dissolve the Joint Venture; or (b) purchase, on a date specified by the non- withdrawing Venturer, all of the withdrawing Venturer's Participating Interest at a price which for such purposes be equal in amount to the withdrawing Venturer's Participating Interest in the lesser of (x) the fair market value of the Joint Venture, as determined by an independent recognized expert selected by the non-withdrawing Venturer, or (y) the net book value of the Joint Venture, as determined by generally accepted accounting principles as consistently applied by the Joint Venture (excluding goodwill and any capital resulting from write-up of assets) as shown on the Joint Venture books as of the date hereof but after deducting any amounts payable as of the date of withdrawal to the Joint Venture by the withdrawing Venturer. 95 10.7 Non-Compete Covenants. A withdrawing Venturer shall not directly or indirectly acquire any interest in Claims within the Area of Interest for twelve (12) months after the date of withdrawal. If a withdrawing Venturer, or the Affiliate of a withdrawing Venturer, breaches this Section, such Venturer or Affiliate shall be obligated to offer to convey to the non-withdrawing Venturer, without cost, any such Claims or interest acquired in such breach. Such offer shall be made in writing and can be accepted by the non-withdrawing Venturer at any time within fortyfive (45) days after it is received by such non-withdrawing Venturer. ARTICLE XI ---------- ACQUISITIONS WITHIN AREA OF INTEREST ------------------------------------ 11.1 General. Any interest or option to acquire any interest in real property, including mining claims, within the Area of Interest owned on the date hereof or acquired thereafter during the term of this Agreement by or on behalf of a Venturer or any Affiliate shall, except as provided in this Article, be included in the Claims and shall be subject to the terms and provisions of this Agreement. 11.2 Notice to Nonacquiring Venturer. Within sixty (60) days after the acquisition of any interest or the option to acquire any interest in real Claims wholly or partially within the Area of Interest, the acquiring Venturer shall notify the other Venturer of such acquisition. The acquiring Venturer's notice shall describe in detail the acquisition, the lands and minerals covered thereby, the cost thereof, and the reasons why the acquiring Venturer believes that the acquisition of the interest is in the best interests of the Venturers under this Agreement. In addition to such notice, the acquiring Venturer shall make any and all information concerning the acquired interest available for inspection by the other Venturer. 11.3 Option Exercised. If, within thirty (30) days after receiving the acquired Venturer's notice, the other Venturer notifies the acquiring Venturer of its election to accept a proportionate interest in the acquired interest equal to its Participating Interest, the acquiring Venturer shall convey to the other Venturer, by special warranty deed, such a proportionate undivided interest 96 therein. The acquired interest shall become a part of the Claims for all purposes of this Agreement immediately upon the notice of such other Venturer's election to accept the proportionate interest therein. Such other Venturer shall promptly pay to the acquiring Venturer its proportionate share of the latter's actual out-of-pocket acquisition costs. 11.4 Option Not Exercised. If the other Venturer does not give such notice within the thirty (30) day period set forth above, it shall have no interest in the acquired interest, and the acquired interest shall not be a part of the Claims or be subject to this Agreement. ARTICLE XII ----------- TRANSFER OF INTEREST -------------------- 12.1 General. A Venturer shall have the right to transfer, grant, assign, encumber, pledge or otherwise commit or dispose of ("transfer") to any third party all of any part of its interests in or to this Agreement, its Participating Interest, or the Assets solely as provided in this Article. 12.2 Limitations on Free Transferability. The transfer right of a Venturer in Section 12.1 shall be subject to the following terms and conditions: (a) No transferee of all or part of the interests of a Venturer in this Agreement, any Participating Interest, or the Assets shall have the rights of a Venturer unless and until the transferring Venturer has provided to the other Venturer notice of the transfer, and the transferee, as of the effective date of the transfer, has committed in writing to be bound by this Agreement to the same extent and nature as the transferring Venturer; and, except as provided in Sections 12.2(g) and 12.2(h), the transfer, as of the effective date of the transfer, has committed in writing to be bound by this Agreement to the same extent and nature as the transferring Venturer. (b) No Venturer, without the consent of the other Venturer, shall make a transfer which shall cause termination of the tax partnership established by the provisions of Section 4.2; 97 (c) No transfer permitted by this Article shall relieve the transferring Venturer of its share of any liability, whether accruing before or after such transfer, which arises out of Operations conducted prior to such transfer; (d) The transferring Venturer and the transferee shall bear all tax consequences of the transfer; (e) In the event of a transfer of less than all of a Participating Interest, the transferring Venturer and its transferee shall act and be treated as one Venturer; (f) No Venturer shall transfer any interest in this Agreement or the Assets except by transfer of part or all of its participating Interest; (g) 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 Venturer 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 Venturer hereunder. Upon any foreclosure or other enforcement of rights in the security interest, the acquiring third party shall be deemed to have assumed the position of the encumbering Venturer with respect to this Agreement and the other Venturer, and it shall comply with the terms and conditions of Article XIII; (h) If a sale or other commitment or disposition of Products or proceeds from the sale of Products by a Venturer upon distribution to it pursuant to Section 9.1 creates in a third party a security interest in Products or proceeds therefrom prior to such distribution, such sales, commitment or disposition shall be subject to the terms and conditions of this Article; (i) If, contrary to Section 12.2(b), a transfer is made which causes termination of the tax partnership established by Section 4.2, the transferring Venturer shall indemnify, defend and hold 98 harmless the other Venturer from and against any and all loss, cost, expense or damage arising from such termination; (j) Such transfer shall be subject to a preemptive right in the other Venturer as provided in Section 12.3; and (k) No transfer may be made without the consent of the other Venturer. 12.3 Preemptive Right. Except as otherwise provided in Section 12.4, if a Venturer desires to transfer all or any part of its interest in this Agreement, and Participating Interest, or the Assets, the other Venturer shall have a preemptive right to acquire such interests as provided in this Section on substantially the same terms and conditions as agreed to by any proposed transferee. 12.4 Exceptions to Preemptive Right and Transfer Restrictions. Sections 12.3 and 12.2(k) shall not apply to the following transfers: (a) (i) Incorporation of a Venturer, or corporate merger, consolidation, amalgamation or reorganization of a Venturer by which the surviving entity shall possess substantially all of the stock, or all of the Claims rights and interests, and be subject to substantially all of the liabilities and obligations of that Venturer or (ii) transfer to an Affiliate, provided that consent is obtained, which consent shall not be unreasonably withheld; and (b) The grant by a Venturer 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 encumbrances with the written consent of the Management Committee. 99 ARTICLE XIII ------------ GENERAL PROVISIONS ------------------ 13.1 Notices. All notices, payments and other required communications ("Notices") to the Venturers or the Management Committee members shall be in writing and shall be given (i) by personal delivery to the Venturer, or (ii) by electronic communication, with a confirmation sent by registered or certified mail return receipt requested, or (iii) by registered or certified mail return receipt requested. Notices shall be addressed as follows: If to Schwarz (or its member representatives on the Management Committee): Robin Schwarz 16008 Ash Street Hesperia, CA 92345 If to Can-Cal (or its member representatives on the Management Committee): Ronald Sloan 110 - 5769 201 A Street Langley, B.C., Canada V3A 8H9 All notices shall be effective if sent to the address specified above and shall be deemed delivered (i) if by personal delivery on the date of delivery, (ii) if by electronic communication on the next business day following receipt of the electronic communication, and (iii) if solely by mail on the next business day after actual receipt. A Venturer may change its address from time to time for the purposes hereof by written notice to the other Venturer. 13.2 Waiver. The failure of a Venturer 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 Venturer's right thereafter to enforce any provision or exercise right. 100 13.3 Modification. No modification or amendment of this Agreement shall be valid unless made in writing and duly executed by the Venturers. 13.4 Force Majeure. The obligations of a Venturer shall be suspended to the extent and for the period that performance is prevented by any cause, whether foreseeable or unforeseeable, beyond its reasonable contract, including, without limitation, labor disputes (however arising and whether or not employee demands are reasonable or within the power of the Venturer 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, state 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, labor, 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 Venturer shall promptly give notice to the other Venturer of the suspension of performance, stating therein the nature of the suspension, the reasons therefor, and the expected duration thereof. The affected Venturer shall resume performance as soon as reasonably possible. 13.5 Governing Law. Except as otherwise specifically provided in Article XIV, this Agreement shall be governed by and interpreted in accordance with the internal laws but not the laws of conflict of the State of Nevada. 13.6 Rule Against Perpetuities. Any right or option to acquire any interest in real or personal Claims under this Agreement must be exercised, if at all, so as to vest such interest in the acquirer within twenty-one (21) years after the effective date of this Agreement. 101 13.7 Further Assurance. Each of the Venturers agrees that it shall 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. 13.8 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 Venturers in whose favor they run: Sections 4.1(b), 6.4, 10.3, 10.4, 10.5 and 10.6. 13.9 Entire Agreement; Successors and Assigns. This Agreement contains the entire understanding of the Venturers and supersedes all prior agreements and understandings between the Venturers relating to the subject matter hereof. This Agreement shall be binding upon and inure to the benefit of the respective successors and permitted assigns of the Venturers. 13.10 Validity and Severability. If any provision of this Agreement is held to be illegal, invalid or unenforceable under the present or future laws effective during the term of this Agreement, such provision shall be fully severable; this Agreement shall be construed and enforced as if such illegal, invalid, or unenforceable provision had never comprised a part of this Agreement; and the remaining provisions of this Agreement shall remain in full force and shall not be affected by the illegal, invalid or unenforceable provision or by its severance from this Agreement. Furthermore, in lieu of such illegal, invalid, or unenforceable provision, there shall be added automatically as a part of this Agreement a provision similar in terms to such illegal, invalid or unenforceable provision. 13.11 Counterparts. This Agreement may be executed by the parties hereto in separate counterparts, each of which when so executed and delivered shall be an original, but all such counterparts shall together constitute but one and the same instrument. 102 ARTICLE XIV ----------- RESOLUTION OF DISPUTES; ARBITRATION ----------------------------------- 14.1 Subject of Arbitration. In the event of disagreement between the Venturers with respect to any question of fact involved in the application of this Agreement or of any action of the Management Committee, or the interpretation of any provision of this Agreement or any action of the Management Committee (whether legal or factual), the matter involved in the disagreement shall, upon demand of any Venturer, be submitted to arbitration in the manner hereinafter provided. Submission of a matter to arbitration, as hereinafter provided, shall be a condition precedent to any right to institute proceedings at law or in equity concerning such matter, except for injunctive or other provisions relief pending the arbitration of a matter subject to arbitration pursuant to this Agreement. 14.2 Agreement to Arbitrate. The Venturers will make every responsible effort to resolve disputes, claims and controversies through decisions of the Management Committee prior to any such dispute, claim or controversy reaching a state that required implementation of this Article for resolution. However, should any controversy arise between or among the Venturers as to which the Venturers are unable to effect a satisfactory resolution and which, under the terms and provisions of this Agreement may be submitted to arbitration, such controversy shall be submitted to arbitration in accordance with the terms and provisions of this Article, and in accordance with the rules of the American Arbitration Association (or any successor organization). 14.3 Submission to Arbitration and Selection of Arbitrators. A Venturer desiring to submit to arbitration any such controversy shall furnish its demand for arbitration in writing to the other Venturer, which demand shall contain a brief statement of the matter if controversy, as well as a list containing the names of three (3) suggested arbitrators from which list, or from other sources, all of the Venturers shall choose one (1) mutually acceptable arbitrator. If the Venturers are unable to agree upon the identity of a single arbitrator, within ten (10) days from receipt of such demand, each Venturer, within a period of five (5) additional days, shall name one (1) arbitrator by 103 written notice to the other Venturer. Within ten (10) days after this notice, the two (2) arbitrators so named shall choose a third arbitrator. If any Venturer fails to name an arbitrator within the specified five (5) day period or if the two arbitrators chosen by the Venturers fail to select a third arbitrator within the ten (10) days period, then either Venturer, on behalf of and on notice to the other Venturer, may request appointment by the American Arbitration Association (or any organization successor thereto) in accordance with its rules then prevailing of the required additional arbitrators. If the American Arbitration Association (or such organization successor thereto) should fail to appoint the necessary arbitrator(s) within fifteen (15) days after such request is made, then either Venturer may apply, on notice to the other Venturer, to a court in Nevada for the appointment of such necessary additional arbitrators. Each of the arbitrator(s) chosen or appointed pursuant to this Section shall be a person having at least ten (10) years experience in the United States in a profession or professions related to the subject matter involved in the dispute and shall not be a past or present officer, director or employee of, or have any material interest in, any Venturer or its Affiliate. 14.4 Arbitration Procedure. Each Venturer shall furnish the arbitrator or arbitrators and all other Venturers with a written statement of matters it deems to be in controversy for purposes of the arbitration procedures. Such statement shall also include all arguments, contentions and authorities which it contends substantiate its position. Hearings may be scheduled by the arbitrator or arbitrators, provided that if any such hearings are to be held, they shall be scheduled no later than ten (10) days following the appointment of such arbitrator or arbitrators. If only one (1) arbitrator is appointed pursuant to Section 14.3 hereof, such arbitrator shall render his decision and award as soon as possible but no later than thirty (30) days after the conclusion of any hearings before such arbitrators. Any such hearings shall be held in Las Vegas, Nevada or such other location as the parties may agree upon. If, however, three (3) arbitrators are appointed, they shall render their decision and award upon the concurrence of at least two (2) of their number, as soon as possible but not later than thirty (30) days after the conclusion of any hearings before such arbitrators. The decision and award shall in either case be in writing and counterpart copies thereof shall be delivered to each of the Venturers. Such decision shall be based solely upon the written arguments 104 and contentions coupled in appropriate cases with evidence and/or legal authorities, submitted by each Venturer. Except with the consent of each Venturer, the arbitrator shall not retain or consult any experts in arriving at the decision. In rendering such decision and award, the arbitrator(s) shall not add to, subtract from or otherwise modify the provisions of this Agreement. Each Venturer agrees that judicial judgment may be held on the decision and award of the arbitrator(s) so rendered and may be enforced in accordance with the laws of the State of Nevada. 14.5 Successor Arbitrators. Notwithstanding the above, in the event any arbitrator appointed by a Venturer dies, refuses to act, or becomes incapable of acting, then such Venturer shall appoint a successor arbitrator within five (5) days of notice of said disability. In the event such Venturer fails to appoint the required successor within such time, the other Venturer, on notice, may apply to a court in Nevada for the appointment of such necessary arbitrator. If a third arbitrator dies, refuses to act, or become incapable of acting, then a successor arbitrator shall be chosen pursuant to Section 14.3 hereof. 14.6 Cost of Arbitration. Each Venturer shall bear the expense of the arbitrator appointed by or for such Venturer, its own counsel, experts and presentation of proof. The Venturers shall share equally the expense of the additional arbitrators (or the expense of the single arbitrator if only one (1) arbitrator is appointed), and all other expenses of the arbitration. 14.7 Submission to Jurisdiction. Schwarz and Can-Cal hereby irrevocably submit to the non-exclusive jurisdiction of the courts of the State of Nevada and/or the federal courts in the District of Nevada, over any suit, action or proceeding to enforce an arbitration award (each a "Proceeding"). Each Venturer irrevocably waives, to the fullest extent permitted by law, any objection which it may now or hereafter have to the laying of the venue of any such Proceeding brought in any such court and any claim that any such Proceeding brought in such court has been brought in an inconvenient forum. Each Venturer agrees that a final judgment in any such Proceeding brought in such a court shall be conclusive and binding upon it. Each Venturer agrees not to commence any Proceeding in any jurisdiction other than Nevada. 105 14.8 Choice of Forum. Schwarz and Can-Cal hereby agree that the choice of judicial forum for all matters affecting this Agreement shall be the state or federal courts located in the State of Nevada, except to enforce an arbitration award in such circumstances as the court in Nevada may not have subject matter jurisdiction to enforce the award. Each Venturer irrevocably waives, to the fullest extent permitted by law, any objection which it may now or hereafter have to the laying of venue of any such matter brought in any such court and any claim that any such matter brought in such court has been brought in an inconvenient forum. Nothing in this Section shall be deemed to contravene Section 14. 1. IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the date first above written. /s/ Robin Schwarz ----------------------------------------- Robin Schwarz /s/ Aylward Schwarz ----------------------------------------- Aylward Schwarz S & S MINING By: /s/ Robin Schwarz -------------------------------------- CAN-CAL RESOURCES, LTD By: /s/ R. D. Sloan -------------------------------------- Ronald Sloan, President 106 EXHIBIT A County Document # Name of Claim CAMC - ----------------- ------------- ---- 19960300074 Aylward 1 104432 19960300074 Aylward 2 104433 19960300074 Aylward 3 104434 19960300074 Lori Lee 104438 19960300074 Ruth 1 133937 19960300074 Ruth 2 133938 19960300074 Ruth 3 133939 19960300074 Mill Site 171940 19960457449 S&S Mining Placer #1 271288 19960457450 S&S Mining Placer #2 271289 19960457451 S&S Mining Placer #3 271290 19960457452 S&S Mining Placer #4 271291 19960457453 S&S Mining Placer #5 271292 19970136121 S&S Mining, Inc. Placer #9 271524 19970136122 S&S Mining, Inc. Placer #10 271525 107 EX-10.1 6 MINING LEASE - TWIN MOUNTAIN ROCK EXHIBIT 10.1 MINING LEASE AGREEMENT THIS MINING LEASE AGREEMENT ("Lease") is made and entered into this 1 day of May , 1998 (the "Effective Date"), by and between CAN-CAL RESOURCES, LTD., a Nevada corporation ("Lessor") and TWIN MOUNTAIN ROCK VENTURE, a California general partnership ("Lessee"). PRELIMINARY STATEMENT. Lessor is the owner of certain real property and all mineral rights with respect thereto located in San Bernardino County, California. Lessee desires to lease such real property from the Lessor together with the appurtenances, rights, interest, easements and privileges pertaining thereto for such purposes and upon such terms and conditions as specified in this Lease. NOW, THEREFORE, in consideration of the premises and the mutual covenants and agreements contained herein, and such other good and valuable consideration, the receipt and sufficiency of which is hereby acknowledged, the parties hereto, intending to be legally bound, hereby agree as follows: 1. Grant. Lessor hereby leases to Lessee, and Lessee hereby leases from Lessor, that certain real property situated in San Bernardino County, California, as more specifically described on Exhibit A attached hereto, together with all appurtenances, easements and privileges pertaining thereto (the "Leased Premises"), solely for the purpose of removing volcanic cinders ("Material") and certain rights associated thereto, in accordance with the terms of, and as specified, in this Lease. 2. Amount of Material . Lessor represents and warrants that it will make available to Lessee 600,000 tons of Finished Material during the Initial Term (the "Initial Amount"). Lessor further represents and warrants that it will make available to Lessee 600,000 tons of Finished Material during the Additional Term (the "Additional Amount"). For purposes hereof, "Finished Material" shall mean Material sold, available for sale, or used in block material by or on behalf of Lessee. 3. Use. Lessee shall designate the Portion of the Leased Premises from which it desires to remove Material (the "Designated Portion"), which shall be reasonably calculated to enable Lessee to process the Initial Amount and the Additional Amount. Lessee shall have the use of and right and easement to the Leased Premises for the purpose of mining and removing Material from the Designated Portion. Lessee's rights hereunder shall be exclusive except to the extent of Lessor's rights reserved in Paragraph 9 hereof in connection with Lessee's rights granted herein, Lessee shall have and may exercise the following rights: (a) the right to enter into possession of the Leased Premises, and during the term of this Lease, to remain in possession thereof; (b) the right to use the Leased Premises, including the right to disturb so much of the Leased Premises as Lessee may require to conduct its operation on the Leased Premises and the use of any surface or underground 108 water or water rights occurring therein or appurtenant to the Leased Premises; (c) the right to mine, extract, and remove from the Designated Portion the Material in any manner deemed necessary or convenient by Lessee, whether by surface or other mining methods; (d) the right to crush, stockpile, store, bag, and otherwise prepare for market all Material; (e) the right to construct, use, and operate on the Leased Premises structures, excavations, roads, equipment, and other improvements and facilities necessary for Lessee for full use and enjoyment of the Leased Premises; (f) rights of surface access for persons, equipment, supplies, utilities, and water as may be necessary or convenient for the conduct of Lessee's operations, including reasonable access under, upon, and across any other intervening or contiguous land owned or controlled by Lessor or over which Lessor may have dominion or control; (g) the right to temporarily store on or in the Leased Premises those minerals, water, byproduct, or materials produced from the Leased Premises; and (h) all things which in Lessee's judgment with the consent of Lessor (which shall not be unreasonably withheld) are reasonably necessary or incidental to such operations. Lessee's use of and rights to Leased Premises shall not include the right to remove or extract precious metals. 4. Commencement of Operations; Removal of Material. Lessee shall give Lessor three (3) months written notice prior to the commencement of operations on the Leased Premises. Such notice shall state the amount of Material anticipated to be removed, the period of time during which it is anticipated such removal will occur and the means that will be utilized to effect such removal. Lessor shall make all arrangements necessary to permit Lessee to remove the Material. 5. Term and Duration. (a) The initial term of this Lease (the "Initial Term") shall be the period commencing on the Effective Date and terminating on the earlier of: (i) ten (10) years from the Effective Date or (ii) the date upon which Lessee exhausts the Initial Amount. (b) If Lessee is not then in default under this Lease, Lessee shall have the option to extend the Initial Term of this Lease for one (1) additional period commencing on the date of expiration of the Initial Term and terminating on the earlier of: (i) ten (10) years from the date of expiration of the Initial Term or (ii) the date upon which Lessee has exhausted the Additional Amount (the "Additional Term"), upon all of the terms and conditions of this Lease. Lessee may exercise such option by giving written notice to Lessor prior to the expiration of the Initial Term. If Lessee is entitled to and does exercise such option, then this Lease automatically shall be extended for the Additional Term and no further documentation shall be required. (c) Lessee shall have a period of three (3) months from the expiration of the term of this Lease to remove all of its personal property and equipment from the Leased Premises and to comply with the terms of the Reclamation Plan filed by Lessee with San Bernardino County. 6. Royalty Payments. (a) Subject to the provisions of this Paragraph 6, during the Initial Term, Lessee shall pay Lessor a minimum annual royalty of $22,500 ("Minimum Royalty") for each twelve (12) month period ("Year") commencing on the Effective Date. The Minimum Royalty for the Additional Term shall be $27,500 a Year. The Minimum Royalty shall be payable by Lessee in advance of the commencement of each applicable Year. The 109 Minimum Royalty shall be credited as payment on account of all Production Royalty payments to be paid by Lessee to Lessor hereunder. (b) Subject to the provisions of this Paragraph 6, during the Initial Term and the Additional Term, Lessee shall pay Lessor a monthly production royalty ("Production Royalty") for all Material mined, processed, consumed and sold or removed from the Leased Premises, during such month, calculated as follows: (i) the greater of 5% of gross sales, F.O.B. Pisgah Crater, or $.80 per ton for Material used for block material; and (ii) 10% of gross sales, F.O.B. Pisgah Crater, for all other Material. Lessee shall receive a credit against the amount of any Production Royalty payment payable hereunder in an amount equal to the amount of any Minimum Royalty payments which have not previously been credited against Production Royalty payments. (c) Lessee shall install and maintain a certified scale to weigh all Material removed from the Leased Premises. Scale tickets or other automatic means shall be used to record the net weight of all such Material removed. For the purpose of permitting verification by Lessor of any amounts due hereunder, Lessee will keep and preserve supporting documentation and records which shall disclose in reasonable detail all information required to permit Lessor to verify the Production Royalty calculations under this Lease. Upon reasonable advance notice to Lessee, Lessor or its agents shall have the right, during Lessee's regular business hours, to examine or audit such supporting documentation and records. Lessee shall retain such supporting documentation and records for a period of one (1) year following the termination or expiration of this Lease. (d) On or before the 25th day of the month following each full month of this Lease, Lessee shall forward to Lessor, at the address herein given, or at such other place or places as shall from time to time designate in writing, monthly reports indicating thereon the quantity of Material sold or removed from the Leased Premises during the previous month, as well as a computation of the Production Royalty due thereon, and a check in payment of the total amount due thereon. 7. Taxes and Utilities. (a) Lessor shall pay, prior to their delinquency, all real taxes and assessments which may be levied or assessed by any lawful authority against the Leased Premises with respect to any period wholly or partially within the term of this Lease. Lessee shall pay prior to delinquency all personal property taxes applicable to Lessee's personal property fixtures, furnishing and equipment located on the Leased Premises, as well as all production or severance taxes computed or based upon production or removal by Lessee of Materials from the Leased Premises. If Lessee shall in good faith desire to contest the validity or amount of any tax, assessment, levy, or other governmental charge herein agreed to be paid by Lessee, Lessee shall be permitted to do so, and to defer payment of such tax or charge, until final determination of the contest. If the outcome of such contest is unfavorable to Lessee, Lessee shall immediately pay all taxes, charges, interest and penalties determined to be due. (b) Lessee agrees to pay all expenses for heat, electricity, lighting, telephone, waste management fees and charges for water assessed against the Leased Premises after Lessee takes 110 possession of the Leased Premises, arising from Lessee's activities thereon, at such time as said charges become due. 8. Permits. (a) Lessee shall use its good faith efforts to cause its Mining Permit, Reclamation Plan and Air Quality Permits to be issued in the names of Lessor and Lessee; provided, however, that the parties agree and acknowledge that such permits are only applicable for activities associated with mining and production of Material. Lessee shall pay for any fees or costs associated with obtaining and maintaining such permits, except that Lessor shall be solely responsible for any additional incremental fees or costs attributable to Lessor's operations. Lessor shall be responsible for posting any required reclamation bond related to its activities. Lessor shall be solely responsible for obtaining any required permits or approvals necessary for Lessor to conduct any other operations. (b) In the event that Lessee's permits are terminated or not renewed as a result of Lessor's actions, Lessee may, in its sole discretion, either (i) terminate this Lease with no further obligations hereunder; or (ii) suspend the term of this Lease until Lessee reinstates such permits, up to a maximum period of two (2) years. During such suspension period, Lessee shall have no obligation to make any Minimum Royalty payments. In the event Lessee's permits are not reinstated prior to the expiration of such two (2) year period, or in the event Lessee notifies Lessor that it has abandoned its efforts to reinstate such permits, this Lease shall terminate, and Lessee shall have no further obligations hereunder. In the event that Lessee reinstates such permits within such two (2) year period, the applicable term of this Lease shall be extended for the period of suspension. 9. Lessor's Reserved Rights. (a) The rights of Lessee granted hereby shall be subject to Lessor's reserved concurrent right to use the Leased Premises for the purpose of exploration, development and mining of Material and the use of any surface or underground water or water rights occurring on or appurtenant to the Leases Premises; so long as Lessor's use does not interfere with the rights granted Lessee herein. Lessee shall be entitled to compensation for any damages caused by Lessor's use of the Leased Premises. (b) Lessor shall not be entitled to remove or otherwise take possession of any Material mined or processed by Lessee without Lessee's prior consent; provided, however, that Lessee agrees that it will identify those Materials which it classifies as "reject" Materials, which reject Materials shall immediately, upon identification, become available to Lessor for its use as permitted hereunder. (c) Lessor shall conduct its operations within the limits of, and pursuant to the terms and conditions of all of Lessee's operating permits, including, without limitation, the Mining Permit and Reclamation Plan and Air Quality Permits issued by San Bernardino County. Lessor shall indemnify Lessee for all costs and liabilities related to, connected with or arising from Lessor's violation of any such permits. 111 (d) Lessor shall not conduct its operations in any way which would adversely affect Lessee's lawful use of the Leased Premises. (e) Lessor agrees that for so long as this Lease is in effect, it will not use any Material from the Leased Premises in any manner which is in competition of Lessee's Business. (f) The rights reserved by Lessor hereby are personal in nature, and may not be assigned, to any party which competes with Lessee's Business, without the prior written consent of Lessee, which consent shall not be unreasonably withheld. (g) For purposes hereof, "Lessee's Business" shall mean the business of mining, production and sale of Material for sale or use in connection with construction materials, block products, landscaping and snow control within a 500 mile radius of the Leased Premises. 10. Insurance. Each party shall, at its sole cost and expense, commencing no later than the date upon which either Lessor or Lessee commences operations on the Leased Premises, and continuing throughout the duration of this Lease, obtain, keep, and maintain in full force and effect comprehensive general public liability insurance against claims for personal injury, bodily injury, death, or property damage occurring in, upon, or about the Leased Premises in an amount of not less than Two Million Dollars ($2,000,000.00) in respect to injury or death of one person and to the limit of not less than Two Million Dollars ($2,000,000.00) in respect to any one accident, and to the limit of not less than Two Million Dollars ($2,000,000.00) in respect to property damage with respect to the use of the Leased Premises. Each party shall deliver to the other party certificates of insurance, which shall declare that the respective insurer may not cancel the same, in whole or in part, without giving each party written notice of its intention to do so at least thirty (30) days' prior written notice. 11. Indemnification. (a) Lessee shall pay, defend and indemnify and hold Lessor and its officers, directors, shareholders, agents and employees ("Lessor Indemnified Parties," individually a "Lessor Indemnified Party") harmless from and against any and all claims of liability for injury or damage to any person or property arising from the use of the Leased Premises by Lessee, or from the conduct of Lessee's business, or from any activity, work or thing done, permitted or suffered by Lessee or Lessee's invitees, licensees, agents, contractors or employees in or about the Leased Premises or elsewhere. Lessee shall further pay, defend, indemnify and hold the Lessor Indemnified Parties harmless from and against any and all claims arising from any breach of any representation, warranty or covenant hereunder, or default in the performance of any obligation on Lessee's part to be performed under this Lease, or arising from any negligence of Lessee or Lessee's invitees, licensees, agents, contractors or employees, and from and against all costs, attorneys' fees, expenses and liabilities incurred in the defense of any such claim or action or proceeding brought thereon. In the event any action or proceeding is brought against any Lessor Indemnified Party by reason of any such claim, Lessee, upon notice from such Lessor Indemnified Party, shall defend the same at Lessee's expense by counsel reasonably satisfactory to such Lessor Indemnified Party. 112 (b) Lessor shall pay, defend and indemnify and hold Lessee and its officers, directors, shareholders, agents and employees ("Lessee Indemnified Parties," individually a "Lessee Indemnified Party") harmless from and against any and all claims of liability for injury or damage to any person or property arising from the use of the Leased Premises by Lessor, or from the conduct of Lessor's business, or from any activity, work or thing done, permitted or suffered by Lessor or Lessor's invitees, licensees, agents, contractors or employees in or about the Leased Premises or elsewhere. Lessor shall further pay, defend, indemnify and hold the Lessee Indemnified Parties harmless from and against any and all claims arising from any breach of any representation, warranty or covenant hereunder or default in the performance of any obligation on Lessor's part to be performed under this Lease, or arising from any negligence of Lessor or Lessor's invitees, licensees, agents, contractors or employees, and from and against all costs, attorneys' fees, expenses and liabilities incurred in the defense of any such claim or action or proceeding brought thereon. In the event any action or proceeding is brought against any Lessee Indemnified Party by reason of any such claim, Lessor, upon notice from such Lessee Indemnified Party, shall defend the same at Lessor's expense by counsel reasonably satisfactory to such Lessee Indemnified Party. 12. Liens. If any liens or claims of mechanics, laborers, or materialmen shall be filed against the Leased Premises or any part or parts thereof, for any work, labor, or materials furnished or claimed to be furnished to Lessee, or on behalf of Lessee, then Lessee shall cause such lien to be discharged within thirty (30) days after the date such lien is filed; or if such lien is disputed by Lessee and Lessee contests the same in good faith, Lessee shall cause such lien to be discharged within thirty (30) days after the date of any judgment by any court of competent jurisdiction shall become final. 13. Compliance with Laws. Lessee covenants and agrees that, during the term of this Lease, Lessee shall comply with all applicable laws, ordinances, orders, rules, regulations, and requirements of any federal, state, county, city, and municipal government with respect to the Leased Premises. 14. Default; Remedies. (a) The following shall each be deemed to be an event of default under this Lease: (i) The failure by Lessee to pay Minimum Royalties, Production Royalties or any other amount payable by Lessee under this Lease if such failure continues for twenty (20) days after written notice from Lessor that such amount is due; or (ii) A failure by either party to observe and perform any provisions of this Lease to be observed or performed by such party (other than Lessee's obligation to pay), where such failure continues for thirty (30) days after written notice of such failure; provided, however, that if the nature of the obligation is such that more than thirty (30) days are required for performance, then the party shall not be in default if it commences performance within such thirty day period and thereafter diligently prosecutes the same to completion. 113 (b) In the event of any such default by either party, the non-defaulting party may elect to terminate this Lease by written notice to the defaulting party. In addition to the foregoing, if a party fails to keep or perform any obligation required hereunder, the non-defaulting party shall have the right, but not the obligation, to perform such obligation on behalf of the defaulting party, and the defaulting party shall reimburse the non-defaulting party for any and all sums so paid or costs and expenses incurred within ten (10) days after submission of written verification of such payments. If the defaulting party has not reimbursed the non-defaulting party within said ten (10) day period, the non-defaulting party shall have the right to offset such amounts against any payments due the defaulting party hereunder. (c) In the event of a default by Lessee and termination of this Lease by Lessor, Lessor may, at any time after such default, without limiting Lessor in the exercise of any rights or remedies at law or in equity which Lessor may have by reason of such default, re-enter and take possession of the Leased Premises and remove any persons or property by appropriate legal action. (d) No remedy specified herein shall be exclusive of any other remedy, but each shall be cumulative and in addition to every other remedy available hereunder, at law or in equity. 15. Condemnation. (a) In the event a part of the Leased Premises shall be taken, by eminent domain for any public or quasi-public purpose, or transferred by agreement in connection with such public or quasi-public use, with or without any condemnation proceeding being instituted, and such taking does not materially affect Lessee's operations, only the Lease on the portion taken shall then expire, on the date when title to such portion of the Leased Premises vests in the appropriate authority or on the date possession is required to be surrendered, whichever is earlier. The compensation or damages for this taking shall be apportioned by and between the Lessor and Lessee taking into consideration the residual value of the land and surface rights to Lessor, the value of this Lease and the unmined Material at the time of taking to the Lessee, and the future anticipated royalties to the Lessor. (b) In the event that all or substantially all of the Leased Premises shall be taken by eminent domain for any public or quasi-public purpose such that Lessee's operations are no longer economically feasible, then this Lease shall expire on the date when title to the Leased Premises vests in the appropriate authority or on the date possession is required to be surrendered, whichever is earlier. The compensation or damages for this taking shall be apportioned by and between the Lessor and Lessee taking into consideration the residual value of the land and surface rights to Lessor, the value of this Lease and the unmined Material at the time of taking to the Lessee, and the future anticipated royalties to the Lessor. (c) A voluntary sale or conveyance under threat of condemnation but in lieu of condemnation shall be deemed an appropriation or taking under the power of eminent domain. 16. Subordination. This Lease at Lessor's option shall be subject and subordinate to the lien of any mortgages or deeds of trust in any amount whatsoever now or in the future placed on or 114 against the Leased Premises; provided, however, that as long as Lessee is not in default hereunder, any lien or encumbrance shall provide that the holder thereof will recognize Lessee's rights under this Lease notwithstanding foreclosure of such lien or encumbrance. 17. Representations and Warranties. (a) Lessor represents and warrants that: (i) it is the true and lawful owner of the Leased Premises free and clear of all matters affecting the Lessor's title to or possession of the Leased Premises, subject to matters of public record (the "Permitted Encumbrances"); (ii) it has good right and lawful authority to grant to Lessee the rights granted herein; (iii) neither the execution and delivery of this Lease, nor the fulfillment of or compliance with the terms and conditions hereof, conflicts with or results in a breach of any of the terms, conditions or provisions of any other restriction, agreement or instrument to which the Lessor is a party or by which it or the Leased Premises are bound; (iv) to Lessor's actual knowledge, there is no condemnation claim or other litigation or claim pending or threatened with respect to the Leased Premises; (v) except for the Permitted Encumbrances, there are no leases, subleases, licenses or other agreements granting other parties the right to use the Leased Premises or options or rights of refusal to purchase the Leased Premises; and (vi) all buildings, fixtures and improvements located on the Leased Premises are in good operating condition and repair and the use thereof does not violate in any material respects any applicable laws, ordinances, orders, rules, regulations, or requirements of any governmental authority. (b) Lessor represents and warrants that it has not used the Leased Premises or done or permitted anything to be done in or about the Leased Premises which in any way conflicts with any law, statute, zoning restriction, ordinance or governmental rule or regulation or requirements or duly constituted public authorities. 18. Notices. Any notice or other communication which may be permitted or required under this Lease shall be in writing and shall be delivered personally or sent by United States registered or certified mail, postage prepaid, addressed as follows, or to any other address as either party may designate by notice to the other party: If to Lessor: Can-Cal Resources, Ltd. 1505 Blackcombe Street Las Vegas, Nevada 89128 With a copy to: William R. Fishman, Esq. 1600 Broadway, Suite 2600 Denver, Colorado 80202 If to Lessee: Twin Mountain Rock Venture 1000 Kiewit Plaza Omaha, Nebraska 68131 Attention: Real Estate Department 115 19. Assignment. Lessee shall not assign or transfer this Lease, or sublet the Leased Premises or any part thereof, without Lessor's prior written consent, which consent will not be unreasonably withheld or delayed; except that such consent shall not be required if such sublease, assignment, or transfer by Lessee is to an affiliate of Lessee. 20. Binding on Successors and Assigns. All covenants, agreements, provisions, and conditions of this Lease shall be binding upon and inure to the benefit of the parties hereto, their respective heirs, personal representatives, successors, and assigns. 21. Partial Invalidity. If any term or provision of this Lease shall to any extent be held invalid or unenforceable, then the remaining terms and provisions of this Lease shall not be affected thereby, but each term and provision of this Lease shall be valid and be enforced to the fullest extent permitted by law. In the event that any provision of Agreement relating to the time periods and/or geographic areas of any restriction shall be declared by a court of competent jurisdiction to exceed the maximum time period or areas that such court deems reasonable and enforceable, the time period and/or geographic areas of restriction deemed reasonable and enforceable by the court shall become and thereafter be the maximum time period and/or geographic areas. 22. Quiet Enjoyment. So long as Lessee is not in default under the covenants and agreements of this Lease, Lessee shall and may peaceably and quietly have, hold and enjoy the Leased Premises for the term of this Lease. 23. Governing Law. This Lease shall be governed by the laws of the State of California. 24. Captions. The captions of this Lease are for convenience only and are not to be construed as part of this Lease and shall not be construed as defining or limiting in any way the scope or intent of the provisions of this Lease. 25. No Waiver. No waiver of any covenant or condition contained in this Lease or of any breach of any such covenant or condition shall constitute a waiver of any subsequent breach of such covenant or condition by either party or justify or authorize the non-observance on any other occasion of the same or any other covenant or condition. 26. Entire Agreement: Modification. This Lease represents the entire understanding and agreement between the parties and supersedes all prior written instruments or memoranda with respect thereto. No modification of this Lease shall be binding unless it is in writing and executed by an authorized representative of Lessor and Lessee. 27. Counterparts. This Lease may be executed in one or more counterparts which together, shall constitute an original and binding agreement on the parties hereto. 28. Holding Over . If Lessee remains in possession of the Leased Premises after the expiration of this Lease without the execution of a new lease, then Lessee shall be deemed to 116 occupying the Leased Premises as a tenant from month-to-month, subject to all of the conditions provisions, and obligations of this Lease. 29. Short Form Lease. This Lease shall not be recorded, but the parties agree, at the request of either of them, to execute a Short Form Lease for recording, containing the names the parties, the legal description of the Leased Premises, and the term of the Lease. 30. Relationship of the Parties. Nothing contained in this Lease shall be deemed construed by the parties hereto, nor by any third party, as creating the relationship of principal and agent, partnership, or joint venture between the parties hereto, it being understood and agreed that no provision contained in this Lease nor any acts of the parties hereto shall be deemed to create any relationship other than the relationship of landlord and tenant. 31. Incorporation of Exhibits. This Lease shall be deemed to have incorporated by reference all of the Exhibits referred to herein to the same extent as if such Exhibits were fully set forth herein. 32. Attorneys' Fees. If either party takes any steps or brings any action to compel performance of or to recover for breach of any term of this Lease, the losing party shall pay reasonable attorneys' fees of the prevailing party, in addition to the amount of any judgment and costs. 33. Access. The parties acknowledge that Lessee's obligations hereunder are conditioned upon its continued access to the Leased Premises. IN WITNESS WHEREOF, Lessor and Lessee have executed or caused their duly authorized representatives to execute this Lease as of the date first above written. CAN-CAL RESOURCES LTD. By: /s/ Ronald D. Sloan ------------------------------------------ Name: Ronald D. Sloan Title: President TWIN MOUNTAIN ROCK VENTURE By: /s/ R. David Jennings ------------------------------------------ Name: R. David Jennings Title: Member Mgt. Committee 117 EXHIBIT A TO EXHIBIT 10.1 PAGE 1 OF 2 LEASED PREMISES N 1/2 NW 1/4, W 1/2 NW 1/4 NE 1/4, and N 1/2 SE 1/4 NW 1/4, Section 32, Township 8 North, Range 6 East of the San Bernardino Base and Meridian; and Parcels 2 and 3 as more fully described in a quitclaim deed dated November 4, 1997 between Aurum, LLC and Can Cal Resources, Ltd. recorded on November 19, 1997 with a document number of 19970424165. all of the above being in San Bernardino County, California DESIGNATED PORTION That portion of the Leased Premises (as described above) that is more specifically illustrated on page 2 of this exhibit. Both the "Mining Area" and the "Plant Area" are to be considered the Designated Portion. 118 EXHIBIT A TO EXHIBIT 10.1 PAGE 2 OF 2 PHOTOGRAMMETRY SITE MAP Prepared by: Zenith Aerial, Inc. 2720 Loker Ave. West Suite P Carlsbad, CA 92008 119 EX-10.2 7 LOAN AGREEMENT EXHIBIT 10.2 LOAN AGREEMENT This Agreement is entered into by and between Owen Sequoia, Inc. ("Holder") and Can Cal Resources Limited ("Maker"). RECITALS WHEREAS, Maker owns certain unimproved real property located in San Bernardino, California (the "Property"). WHEREAS, Maker seeks financing from Holder in the original principal amount of $150,000. WHEREAS, Maker intends to enter into a Mining Lease Agreement with Twin Mountain Rock Venture, a California general partnership ("Twin Mountain"), for the purpose of permitting Twin Mountain to mine certain minerals from the "Property" for certain consideration. NOW, THEREFORE, in consideration of the mutual obligations of the parties herein, and other good and valuable consideration, the parties agree as follows: 1. Subject to the following terms and conditions, Holder agrees to lend Maker $150,000 ("principal'). Holder shall deliver to Maker $25,000 on or before close of business February 12, 1998 or on Maker's execution of this Agreement, whichever is later, and the balance of the $150,000, or $125,000, shall, be delivered to Maker upon Maker's delivery to Holder of an executed Mining Lease Agreement in a form satisfactory to Holder. 2. The Maker promises to pay Holder the principal, plus interest at 8% per annum on the amount of principal owing, principal and interest all due and payable on or before June 15, 1998. 3. In order to induce Holder to extend the financing referenced herein and in order to cover certain costs of Holder, including attorney's fees, Maker shall pay Holder a $5,000 non-refundable fee upon execution of this Agreement by Maker. 4. Maker understands that Holder's obligation to lend the $125,000 payment to Maker referenced in paragraph 1 is expressly made conditioned upon Maker and Twin Mountain Rock Venture entering into a Mining Lease Agreement acceptable to Holder. Should Maker or Twin Mountain fail for any reason to make such an agreement, Holder shall be under no obligation to deliver such sum to Maker. 5. The privilege is reserved of prepaying in full or in any amount of the outstanding principal balance due hereunder on any interest date. 120 6. While any default exists in the making of any of the payments, agreements or conditions of this Agreement or the Deed of Trust, the undersigned recognizes that such default will result in the loss and additional expenses to the Holder of this Agreement in servicing the indebtedness evidenced hereby, handling such delinquent payments and meeting its other financial obligations. Therefore, if any installment of principal and/or interest due hereunder is not paid when due, and Holder of this Agreement does not accelerate this Agreement as provided in Paragraph 8 below, then a reasonable late charge in an amount equal to six percent (6%) of the delinquent payment may be charged by the Holder of this Agreement, at its option, for the purpose of defraying such losses and expenses. If applicable law requires a lesser such charge, however, then the maximum charge permitted by such law may be charged by the Holder of this Agreement for said purposes. The late charges that accrue during any month shall be payable on the next monthly payment date. Failure to assert or collect a late charge for any particular month or months shall not waive Holder's right to assert and collect late charges in subsequent months. 7. Maker agrees that any installment not paid within fifteen days of the date that such installment was due shall be subject to the late charge discussed in Paragraph 6 and shall bear interest from the date such payment was due which shall be compounded monthly on the first day of each calendar mouth at that rate of interest equal to the rate of interest under this Agreement, or the maximum amount allowed by law, whichever is the lesser. 8. While any default exists in the making of any of said payments or in the performance or observance of any of the covenants, agreements or conditions of this Agreement or the Deed of Trust, the Holder of this Agreement may apply payments received on any amounts due hereunder or under the terms of any instrument now or hereafter evidencing or securing said indebtedness as said holder may determine and if the Holder of this Agreement so elects, notice of election being expressly waived, the principal remaining unpaid with accrued interest shall at once become due and payable. 9. If amounts due under this Agreement are not paid when due, whether at maturity or by acceleration, the undersigned promises to pay all costs of collection, including, but not limited to, reasonable attorneys' fees, and all expenses incurred in connection with the protection or realization of any collateral or enforcement of any guaranty, incurred by the holder hereof, on account of any such collection, whether or not suit is filed hereon or on any instrument granting a security interest or on any guaranty related to this Agreement. 10. The Maker expressly waives presentment, protest and demand, notice of protest, demand and dishonor and nonpayment of this Agreement and all other notices of any kind, and expressly agrees that this Agreement, or any payment thereunder, may be extended from time to time without in any way affecting the liability of the Maker. To the fullest extent permitted by law, the defense of the statute of limitations in any action on this Agreement is waiver by the undersigned. This Note is to be governed by the laws of the State of California and venue for any action brought regarding the interpretation or enforcement of this Agreement shall lie exclusively in San Bernardino County, California. 121 11. No single or partial exercise of any power hereunder shall preclude any other or further exercise thereof or the exercise of any other power. No delay or omission on the part of the holder hereof in exercising any right hereunder shall operate as a waiver of such right or of any other right under this Agreement shall not operate to release any other party liable hereon. 12. All agreements between the undersigned and the holder hereof are expressly limited so that in no contingency or event whatsoever, whether by acceleration of maturity of the unpaid principal balance hereof or otherwise, shall the amount paid or agreed to be paid to the holder hereof for the use, forbearance or detention of the money to be advanced hereunder exceed the highest lawful rate permissible under applicable usury laws. If, for any circumstances whatsoever, fulfillment of any provision hereof at the time performance of such provision shall be due, shall involve transcending the limit of validity prescribed by law which a court of competent jurisdiction may deem applicable hereto, then ipso facto, the obligation to be fulfilled shall be reduced to the limit of such validity, and if from any circumstances the holder hereof shall ever receive as interest an amount which would exceed the highest lawful rate, such amount which would be excessive interest shall be applied to the reduction of the unpaid principal balance due hereunder and not to the payment of interest. This provision shall control every other provision of all agreements between the undersigned and the Holder hereof. 13. This Agreement may from time to time be extended or renewed, with notice to and acceptance by the undersigned and any related right may be waived, exchanged, surrendered or otherwise dealt with, all without affecting the liability of the undersigned hereon. 14. If the Maker consists of more than one person or entity, all agreements, conditions, covenants, provisions, stipulations, authorizations made or given by the Maker shall be joint and several and shall bind and affect all persons and entities who are defined as Maker. 15. The obligations referenced in this Agreement are secured by a Deed of Trust. IN WITNESS WHEREOF, the parties hereto have executed or caused this Agreement to be executed on the date referenced below. OWEN SEQUOIA, INC. By: /s/ John Edwards --------------------------------------------- February 12, 1998 ------------------------------- Date CAN CAL RESOURCES LIMITED By: /s/ R. D. Sloan, President --------------------------------------------- FEB 12/98 ------------------------------- Date 122 EX-10.3 8 AMENDMENT TO LOAN EXHIBIT 10.3 AMENDMENT TO LOAN AGREEMENT This AMENDMENT TO LOAN AGREEMENT (the "Agreement") is made as of the 9th day of June , 1998 by and between CAN CAL RESOURCES LIMITED ("Borrower") and OWEN SEQUOIA, INC. ("Lender"). RECITALS A. On or about February 12, 1998, Lender and Borrower entered into a Loan Agreement whereby, subject to the terms and conditions of that agreement, Lender agreed to provide financing to Borrower. B. Pursuant to the terms of the Loan Agreement, Borrower executed a deed of trust in favor of the Lender recorded against certain real property owned by Borrower located at Pisgah, San Bernardino (the "Deed of Trust"), and Borrower assigned to Lender all rights to income and profits emanating from that certain Mining Lease Agreement executed by and between Borrower and Twin Mountain Rock Venture (the "Mining Lease"), a true and correct copy of which is attached hereto as Exhibit "A". C. On or about May 1, 1998, Borrower received $22,500 from Twin Mountain Rock Venture pursuant to the terms of the Mining Lease. D. As of May 15, 1998, Borrower owes Lender the sum of $25,000 as principal plus accrued interest resulting from Lender's loan to Borrower of $25,000 (the "Initial Obligation") pursuant to the terms of the Loan Agreement. E. The Loan Agreement, the Deed of Trust and Mining Lease will sometimes hereafter be referred to as the "Existing Documents". F. The Borrower has requested that Lender modify the Existing Documents. As consideration for the requested modification, the Borrower has agreed to the terms and conditions as set forth in this Agreement. The Existing Documents and this Agreement may sometimes hereinafter be referred to as the "Financing Documents". NOW, THEREFORE, WITNESSETH that in consideration of the mutual covenants and agreements contained herein and other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the Borrower and Lender agree as follows: 1. Recitals. The Recitals are incorporated into and made a part of this Agreement. 123 2. Existing Financing Modification Terms. The Existing Documents shall be modified as follows: (a) Additional Loan Amount. On or before July 31, 1998, Lender shall lend Borrower up to the principal sum of $102,500 which represents the $150,000 referenced in the Loan Agreement minus the Initial Obligation minus the $22,500 received by the Borrower from Twin Mountain Rock Venture. The sum of $102,500 representing principal plus the Initial Obligation plus all interest plus any other cost or charge referenced herein will hereafter be referred to as the "Obligation". (b) Term. The Obligation, including interest and all other charges, is due and payable July 31, 2001. (c) Interest Rate. The Obligation shall bear interest at the rate depicted in the Loan Agreement. Unless specifically modified herein, the terms and conditions under the Loan Agreement shall remain in full force and effect. 3. Representation and Warranties. In order to induce Lender to enter into this Agreement, the Borrower, for itself and for its heirs, personal representatives, successors, and assigns, hereby acknowledges, represents, and warrants to Lender as follows: (a) Lender is not required to extend the Borrower any more financing. (b) The Loan Agreement constitutes the legal, valid and binding obligation of the Borrower. This Agreement when executed by the Borrower shall constitute the legal, valid, and binding obligations of such party, enforceable in accordance with their respective terms. (c) The Borrower has no defenses, affirmative defenses, setoffs, claims, counterclaims, actions, or causes of action of any kind of nature whatsoever against Lender or any of its or their respective past, present, or future directors, officers, employees, agents, attorneys, legal representatives, predecessors, affiliates, successors, or assigns, or the Initial Obligation, directly or indirectly, arising out of, based upon, or in any manner connected with any transaction, event, circumstance, action, failure to act, or occurrence of any sort or type, whether known or unknown, which occurred, existed, was taken, permitted, or begun prior to the execution of this Agreement and occurred, existed, was taken, permitted, or begun in accordance with, pursuant to, or by virtue of any of the terms of the Existing Documents. (d) There is no litigation, at law or in equity, nor any proceeding before any federal, state, or other governmental or administrative agency or any arbitration pending or, to the knowledge of the Borrower, threatened against the Borrower nor any other litigation or proceeding pending or, to the knowledge of the Borrower, threatened affecting any collateral in favor of Lender. 124 (e) All documents, reports, certificates, and statements furnished to Lender by or on behalf of Borrower in connection with the transactions contemplated hereby are true, correct, and complete; do not contain any untrue statement of material fact; and do not omit any fact necessary to make the information contained therein not misleading. (f) All taxes, assessments, levies, license fees, permit fees and all other charges heretofore levied, assessed, confirmed, or imposed upon, or in respect of, or which might become a lien upon, any collateral in favor of Lender under the Loan Agreement or the Financing Documents have been paid in full. (g) Borrower has not received any more money from Twin Mountain Rock Venture pursuant to the Mining Lease other than the $22,500 referenced in the Recitals. The continued validity in all respects of all representations and warranties made in this Agreement and all other documents delivered by the Borrower in connection with this Agreement will be a condition precedent to Lender obligations and agreements created by this Agreement. 4. Covenants of Obligors. In addition to the covenants and warranties provided to Lender, the Borrower covenants as follows: (a) The Borrower shall duly and punctually pay all sums to be paid to Lender in accordance with the terms and conditions of this Agreement and the Financing Documents. (b) The Borrower consents to allow Lender to communicate with Twin Mountain Rock Venture regarding the Mining Lease and consents to allow Lender to receive the income and profits from the Mining Lease directly from Twin Mountain Rock Venture. Borrower agrees that should it receive any monies from Twin Mountain rock Venture pursuant to the Mining Lease, it will immediately deliver such monies to Lender. All monies received by Lender shall be credited towards the Obligation, first to interest, then to principal. 5. Events of Default. The occurrence of any one or more of the following shall constitute an "Event of Default" under this Agreement: (a) Failure of Borrower to make any payment to Lender on or before the date on which such payment is due or failure to pay all remaining principal and interest and all other charges and costs due Lender. (b) Default by Borrower under any of the Existing Documents or further default by Borrower under any of the Financing Documents. (c) Entry of a judgment or filing of a lien against Borrower or any its properties, which remains unpaid, unstayed, unbonded, undischarged, or undismissed for a period longer than thirty (30) days. 125 (d) Failure of Borrower to execute and/or deliver any of the documents provided for in this Agreement or any other documents required by Lender. (e) Failure of Borrower to observe or perform any covenant, agreement, term, or condition of this Agreement or the Financing Documents, as and when provided herein. (f) If any representation or warranty made herein, in the Financing Documents, or in any report, certificate, financial statement or other instrument or document furnished in connection with this Agreement or contemplated hereby, shall prove to have been materially false or misleading on the date as of which it was made. (g) If Borrower shall: (U) apply for or consent to or suffer the appointment of a receiver, trustee, or liquidator for its properties; (V) admit in writing an inability to pay its debts as they mature; (W) make a general assignment for the benefit of creditors; (X) file a voluntary petition or a petition or answer seeking reorganization or an arrangement with creditors or take advantage of any bankruptcy, reorganization, insolvency, readjustment of debt, dissolution, or liquidation statute or law, or make or file an answer admitting material allegations of a petition filed against it in any proceeding under any such law; (Y) fail to cause to be dismissed any bankruptcy proceedings commenced against it within sixty (60) days after commencement of the same; or (Z) have entered against it an order, judgment, or decree of any court of competent jurisdiction, approving a petition seeking reorganization of assets or appointing a receiver, trustee, or liquidator for any assets. 6. Remedies. (a) Immediately upon the occurrence of any Event of Default, the obligation and agreements of Lender set forth in this Agreement shall terminate and Lender shall have the right to exercise any and all rights and remedies available to it hereunder, under the Financing Documents, and under applicable law to the same extent as though this Agreement had not been executed, without regard to any notice or cure period contained therein or otherwise available. (b) All rights and remedies available to Lender under any of the Existing Documents, and applicable law may be asserted concurrently, cumulatively, or successively, from time to time, as long as any indebtedness or obligations under the Financing Documents shall remain unpaid or outstanding. 7. Cross-Default. Any default under this Agreement, the Loan Agreement, or any of the Financing Documents shall constitute an event of default under all other agreements, financing statements or documents related to the transaction referenced herein. 8. Release and Waivers. Borrower, for itself and its heirs, personal representatives, successors, and assigns, hereby jointly and severally, knowingly and voluntarily RELEASES, DISCHARGES, and FOREVER WAIVES and RELINQUISHES any and all claims, demands, obligations, liabilities, defenses, affirmative defenses, setoffs, counterclaims, actions, and causes 126 of action of whatsoever kind or nature, whether known or unknown, which he or it has, may have, or might have or may assert now or in the future against Lender directly or indirectly, arising out of, based upon, or in any manner connected with any transaction, event, circumstance, action, failure to act, or occurrence of any sort or type, whether known or unknown, which occurred, existed, was taken, permitted, or begun prior to the execution of this Agreement and occurred, existed, was taken, permitted, or begun in accordance with, pursuant to, or by virtue of the transaction referenced herein or any of the terms of any of the Existing Documents, or which was related or connected in any manner, directly or indirectly, to the Initial Obligation, the transaction referenced herein or the Existing Documents, or any part thereof. Borrower hereby acknowledges and agrees that the execution of this Agreement by Lender shall not constitute an acknowledgment of or admission by Lender of the existence of any such claims or of liability for any matter or precedent upon which any liability may be asserted. Borrower hereby further acknowledges and agrees that, to the extent that any such claims may exist, they are of a speculative nature so as to be incapable of objective valuation and that, in any event, the value to the Borrower of the covenants and obligations of Lender contained in this Agreement and the other documents and instruments executed and delivered in connection herewith substantially and materially exceeds any and all value of any kind or nature whatsoever of any such claims. In connection with the general release set forth above, Borrower, for themselves and Borrower's Affiliates, and each of them, hereby waive and relinquish all rights and benefits afforded under the provisions of Section 1542 of the California Civil Code, which provides as follows: "A GENERAL RELEASE DOES NOT EXTEND TO CLAIMS WHICH THE CREDITOR DOES NOT KNOW OR SUSPECT TO EXIST IN HIS FAVOR AT THE TIME OF EXECUTING THE RELEASE, WHICH IF KNOWN BY HIM MUST HAVE MATERIALLY AFFECTED HIS SETTLEMENT WITH THE DEBTOR." 9. Waiver of Jury by Trial. Each party to this Agreement agrees that any suit, action, or proceeding brought or instituted by any party hereto or any successor or assign of any party on or with respect to this Agreement, any of the documents executed in connection with this Agreement, or any of the Financing Documents or any event, transaction or occurrence arising out of or in any way connected therewith, or the dealings of the parties with respect thereto, shall be tried only by a court and not a jury. EACH PARTY HEREBY EXPRESSLY WAIVES ANY RIGHT TO A TRIAL BY JURY IN ANY SUCH SUIT, ACTION, OR PROCEEDING. Borrower acknowledges and agrees that this provision is a specific and material aspect of this Agreement between the parties and that Lender would not agree to the restructure of obligations, extension of the time of payment, or forbearance from exercising its rights and remedies if this waiver of jury trial provision were not a part of this Agreement. 127 10. Miscellaneous. (a) No Oral Modifications. No modification or waiver of any provision of this Agreement, any documents executed in connection with this Agreement, the Existing Documents, and no consent by Lender to any departure by the Borrower therefrom shall in any event be effective unless the same shall be in writing and then such waiver or consent shall be effective only in the specific instance or for the purpose for which given. No notice to, or demand upon the Borrower in any case shall entitle Borrower to any other or further notice or demand in the same, similar, or other circumstances. (b) No Release or Discharge; No Novation. Nothing contained in this Agreement is intended to or shall act to nullify, discharge, release, or extinguish, in whole or in part, any or all of the obligations or indebtedness under the Existing Documents or to waive or release any collateral securing the loan referenced herein or discharge any guarantor thereof, nor shall this Agreement and the documents executed in connection herewith be deemed or considered to operate as a novation of any of the Existing Documents, except as otherwise provided in this Agreement and the documents executed in connection herewith. This Agreement represents a modification, amendment, restatement, and continuation of the contractual obligations and indebtedness of the Borrower under certain of the Financing Documents. This Agreement and the documents executed in connection herewith set out the terms and conditions under which the Borrower will satisfy its obligations to Lender pursuant to the Financing Documents. Except to the extent of any express conflict with this Agreement and except to the extent modified by this Agreement, each and all of the terms and conditions of the Existing Documents shall remain in full force and effect. (c) Interpretation. To the extent, if any, that any of the terms and provisions of this Agreement or of any of the other documents or instruments executed and delivered in connection herewith are inconsistent with any of the terms and provisions of the Existing Documents, this Agreement and the documents and instruments executed and delivered in connection herewith shall control. (d) Applicable Law. The performance, construction, and enforcement of this Agreement and each of the other Financing Documents shall be governed by the laws of the State of California. (e) Survival; Successors and Assigns. All covenants, agreements, representations, and warranties made in this Agreement and in the Financing Documents shall survive settlement and shall continue in full force and effect. Whenever in this Agreement any of the parties hereto is referred to, such reference shall be deemed to include the successors and assigns of such party, but this shall not be deemed to permit assignment by the Borrower of any or all of its interests in the Deed of Trust or any part thereof. All covenants, agreements, representations, and warranties by or on behalf of the Borrower that are contained in this Agreement of any of the Financing Documents shall inure to the benefit of Lender and its successors and assigns and shall bind the Borrower, and its respective heirs, personal representatives, successors, and assigns. Borrower may not assign this Agreement or any of its rights hereunder. 128 (f) Severability. If any term, provision, or condition, or any part thereof, of this Agreement or of any of the Financing Documents shall for any reason be found or held to be invalid or unenforceable by any court or governmental agency of competent jurisdiction, such invalidity or unenforceability shall not affect the remainder of such term, provision, or condition or any other term, provision, or condition, and this Agreement, and any Financing Document shall survive and be construed as if such invalid or unenforceable term, provision, or condition had not been contained therein. (g) Merger and Integration. This Agreement, the Financing Documents, and any documents or instruments to be delivered in accordance with this Agreement contain the entire agreement of the parties hereto with respect to the matters covered and the transactions contemplated hereby, and no other agreement, statement, representation, warranty or promise made prior hereto or contemporaneously herewith by any party hereto, or any employee, officer, agent, or attorney of any party hereto, shall be valid or binding or relied upon by any party as an inducement to enter into, or as consideration for, this Agreement. (h) Construction of Agreement. Each party acknowledges (i) that it has participated in the negotiation of this Agreement and the other documents executed and delivered in connection herewith, and no provision of this Agreement or the other documents executed and delivered in connection herewith shall be construed against or interpreted to the disadvantage of any party hereto or thereto by any court or other governmental or judicial authority by reason of such party having or being deemed to have structured, dictated or drafted such provision; (ii) that the Borrower, at all times have had access to an attorney in the negotiation of the terms of and in the preparation and execution of this Agreement and the other documents executed and delivered in connection herewith, and the Borrower, has had the opportunity to review, analyze, and discuss with its counsel this Agreement and the other documents executed and delivered in connection herewith, and the underlying factual matters relevant to this Agreement, for a sufficient period of time prior to the execution and delivery hereof and thereof; (iii) that all of the terms of this Agreement and the other documents executed and delivered in connection herewith were negotiated at arm's-length; (iv) that this Agreement and the other documents executed and delivered in connection herewith were prepared and executed without fraud, duress, undue influence, or coercion of any kind exerted by any of the parties upon the others; and (v) that the execution and delivery of this Agreement is the free and voluntary act of the Borrower. (i) Notices. Any notices required or permitted by this Agreement shall be in writing and shall be deemed delivered if hand delivered or delivered by certified mail, postage prepaid, return receipt requested, first class mail postage prepaid, or by telecopy (immediately followed by hard copy by first class mail) as follows, unless such address is changed by written notice as provided hereunder: 129 If to the Borrower: CAN CAL RESOURCES LIMITED Attn: 20140 49 A Avenue Langley, B.C., Canada V3A 3S1 Telephone: (604) 534-7283 Facsimile: (604) 532-6811 If to the Lender: OWEN SEQUOIA, INC. c/o Attn: Bruce G. Holden, Esq. Arter & Hadden LLP 5 Park Plaza, Suite 1000 Irvine, CA 92614-8528 Telephone: (949) 252-3102 Facsimile: (949) 833-96042 (j) Gender. The singular includes the plural and vice versa. Each gender includes all other genders. (k) Counterparts. This Agreement may be executed simultaneously in any number of counterparts, each of which shall be deemed an original, but all of which shall constitute one in the same agreement. (l) Binding Effect. This Agreement shall have no effect at law or in equity unless and until this Agreement has been executed by Lender. Lender in its sole discretion may require that all of the exhibits to this Agreement are fully executed and delivered simultaneously with Lender execution of this Agreement. (m) Third Party Obligations. No person not a party to this Agreement will be a third-party beneficiary or acquire any rights hereunder. (n) Costs. Any costs incurred by Lender resulting from the transactions contemplated by this Agreement such as legal expense, the filing of any financing statement, or property inspection, shall be solely at Borrower's expense and without right of setoff. (o) Venue. Venue for any action brought regarding the interpretation of this Agreement shall lie exclusively in Orange County, California. 130 IN WITNESS WHEREOF, the parties hereto have executed or caused to be executed, this Agreement under seal as of the date first written above. Borrower: CAN CAL RESOURCES LIMITED By: /s/ R. D. Sloan -------------------------------- Lender: OWEN SEQUOIA, INC. By: /s/ John Edwards -------------------------------- 131 EX-10.4 9 SECOND AMENDMENT TO LOAN EXHIBIT 10.4 SECOND AMENDMENT TO LOAN AGREEMENT This SECOND AMENDMENT TO LOAN AGREEMENT (the "Agreement") is made as of the day of 2nd day of August, 1998 by and between CAN CAL RESOURCES LIMITED ("Borrower") and OWEN SEQUOIA, CORP. ("Lender"). RECITALS A. On or about February 12, 1998, Lender and Borrower entered into a Loan Agreement whereby, subject to the terms and conditions of that agreement, Lender agreed to provide financing to Borrower. B. Pursuant to the terms of the Loan Agreement, Borrower executed a deed of trust in favor of the Lender recorded against certain real property owned by Borrower located at Pisgah, San Bernardino (the "Deed of Trust"), and Borrower assigned to Lender all rights to income and profits emanating from that certain Mining Lease Agreement executed by and between Borrower and Twin Mountain Rock Venture (the "Mining Lease"). C. On or about May 1, 1998, Borrower received $22,500 from Twin Mountain Rock Venture pursuant to the terms of the Mining Lease. D. As of May 15, 1998, Borrower owed Lender the sum of $25,000 as principal plus accrued interest resulting from Lender's loan to Borrower of $25,000 (the "Initial obligation") pursuant to the terms of the Loan Agreement. E. On or about June 9, 1998 the Loan Agreement was amended pursuant to the terms of an Amendment to Loan Agreement made between Borrower and Lender (the "First Amendment") and the total present principal amount owed by the Borrower to Lender including the Initial Obligation is $100,000 (the "Present Obligation"). F. The Loan Agreement, the Deed of Trust, Mining Lease and First Amendment will sometimes hereafter be referred to as the "Existing Documents". G. The Borrower has requested that Lender modify the Existing Documents. As consideration for the requested modification, the Borrower has agreed to the terms and conditions as set forth in this Agreement. The Existing Documents and this Agreement may sometimes hereinafter be referred to as the "Financing Documents". 132 NOW, THEREFORE, WITNESSETH that in consideration of the mutual covenants and agreements contained herein and other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the Borrower and Lender agree as follows: 1. Recitals. The Recitals are incorporated into and made a part of this Agreement. 2. Existing Financing Modification Terms. The Existing Documents shall be modified as follows: (a) Additional Loan Amount. On or before November 30, 1998, Lender shall lend Borrower up to the principal sum of $50,000. This sum plus the Present Obligation plus interest owed on the Present Obligation and any other cost or charge owed by Borrower pursuant to this Agreement shall hereafter be referred to as the "Obligation". (b) Term. The obligation, including interest and all other charges, is due and payable July 31, 2001. (c) Interest Rate. The Obligation shall bear interest at the rate depicted in the Loan Agreement. Unless specifically modified herein, the terms and conditions under the Loan Agreement as amended by the First Amendment shall remain in full force and effect. 3. Representation and Warranties. In order to induce Lender to enter into this Agreement, the Borrower, for itself and for its heirs, personal representatives, successors, and assigns, hereby acknowledges, represents, and warrants to Lender as follows: (a) Lender is not required to extend the Borrower any more financing. (b) The Loan Agreement constitutes the legal, valid and binding obligation of the Borrower. This Agreement when executed by the Borrower shall constitute the legal, valid, and binding obligations of such party, enforceable in accordance with their respective terms. (c) The Borrower has no defenses, affirmative defenses, setoffs, claims, counterclaims, actions, or causes of action of any kind of nature whatsoever against Lender or any of its or their respective past, present, or future directors, officers, employees, agents, attorneys, legal representatives, predecessors, affiliates, successors, or assigns, or the Obligation, directly or indirectly, arising out of, based upon, or in any manner connected with any transaction, event, circumstance, action, failure to act, or occurrence of any sort or type, whether known or unknown, which occurred, existed, was taken, permitted, or begun prior to the execution of this Agreement and occurred, existed, was taken, permitted, or begun in accordance with, pursuant to, or by virtue of any of the terms of the Existing Documents. 133 (d) There is no litigation, at law or in equity, nor any proceeding before any federal, state, or other governmental or administrative agency or any arbitration pending or, to the knowledge of the Borrower, threatened against the Borrower nor any other litigation or proceeding pending or, to the knowledge of the Borrower, threatened affecting any collateral in favor of Lender. (e) All documents, reports, certificates, and statements furnished to Lender by or on behalf of Borrower in connection with the transactions contemplated hereby are true, correct, and complete; do not contain any untrue statement of material fact; and do not omit any fact necessary to make the information contained therein not misleading. (f) All taxes, assessments, levies, license fees, permit fees and all other charges heretofore levied, assessed, confirmed, or imposed upon, or in respect of, or which might become a lien upon, any collateral in favor of Lender under the Loan Agreement or the Financing Documents have been paid in full. (g) Borrower has not received any more money from Twin Mountain Rock Venture pursuant to the Mining Lease other than the $22,500 referenced in the Recitals. The continued validity in all respects of all representations and warranties made in this Agreement and all other documents delivered by the Borrower in connection with this Agreement will be a condition precedent to Lender obligations and agreements created by this Agreement. 4. Events of Default. The occurrence of any one or more of the following shall constitute an "Event of Default" under this Agreement: (a) Failure of Borrower to make any payment to Lender on or before the date on which such payment is due or failure to pay all remaining principal and interest and all other charges and costs due Lender. (b) Default by Borrower under any of the Existing Documents or further default by Borrower under any of the Financing Documents. (c) Entry of a judgment or filing of a lien against Borrower or any its properties, which remains unpaid, unstayed, unbonded, undischarged, or undismissed for a period longer than thirty (30) days. (d) Failure of Borrower to execute and/or deliver any of the documents provided for in this Agreement or any other documents required by Lender. (e) Failure of Borrower to observe or perform any covenant, agreement, term, or condition of this Agreement or the Financing Documents, as and when provided herein. 134 (f) If any representation or warranty made herein, in the Financing Documents, or in any report, certificate, financial statement or other instrument or document furnished in connection with this Agreement or contemplated hereby, shall prove to have been materially false or misleading on the date as of which it was made. (g) If Borrower shall: (U) apply for or consent to or suffer the appointment of a receiver, trustee, or liquidator for its properties; (V) admit in writing an inability to pay its debts as they mature; (W) make a general assignment for the benefit of creditors; (X) file a voluntary petition or a petition or answer seeking reorganization or an arrangement with creditors or take advantage of any bankruptcy, reorganization, insolvency, readjustment of debt, dissolution, or liquidation statute or law, or make or file an answer admitting material allegations of a petition filed against it in any proceeding under any such law; (Y) fail to cause to be dismissed any bankruptcy proceedings commenced against it within sixty (60) days after commencement of the same; or (Z) have entered against it an order, judgment, or decree of any court of competent jurisdiction, approving a petition seeking reorganization of assets or appointing a receiver, trustee, or liquidator for any assets. 5. Remedies. (a) Immediately upon the occurrence of any Event of Default, the obligation and agreements of Lender set forth in this Agreement shall terminate and Lender shall have the right to exercise any and all rights and remedies available to it hereunder, under the Financing Documents, and under applicable law to the same extent as though this Agreement had not been executed, without regard to any notice or cure period contained therein or otherwise available. (b) All rights and remedies available to Lender under any of the Existing Documents, and applicable law may be asserted concurrently, cumulatively, or successively, from time to time, as long as any indebtedness or obligations under the Financing Documents shall remain unpaid or outstanding. 6. Cross-Default. Any default under this Agreement, the Loan Agreement, the First Amendment or any of the Financing Documents shall constitute an event of default under all other agreements, financing statements or documents related to the transaction referenced herein. 7. Release and Waivers. Borrower, for itself and its heirs, personal representatives, successors, and assigns, hereby jointly and severally, knowingly and voluntarily RELEASES, DISCHARGES, and FOREVER WAIVES and RELINQUISHES any and all claims, demands, obligations, liabilities, defenses, affirmative defenses, setoffs, counterclaims, actions, and causes of action of whatsoever kind or nature, whether known or unknown, which he or it has, may have, or might have or may assert now or in the future against Lender directly or indirectly, arising out of, based upon, or in any manner connected with any transaction, event, circumstance, action, failure to act, or occurrence of any sort or type, whether known or unknown, which occurred, existed, was taken, permitted, or begun prior to the execution of this Agreement and occurred, existed, was taken, permitted, or begun in accordance with, pursuant to, or by virtue of the transaction referenced herein 135 or any of the terms of any of the Existing Documents, or which was related or connected in any manner, directly or indirectly, to the obligation, the First Amendment, the transaction referenced herein or the Existing Documents, or any part thereof. Borrower hereby acknowledges and agrees that the execution of this Agreement by Lender shall not constitute an acknowledgment of or admission by Lender of the existence of any such claims or of liability for any matter or precedent upon which any liability may be asserted. Borrower hereby further acknowledges and agrees that, to the extent that any such claims may exist, they are of a speculative nature so as to be incapable of objective valuation and that, in any event, the value to the Borrower of the covenants and obligations of Lender contained in this Agreement and the other documents and instruments executed and delivered in connection herewith substantially and materially exceeds any and all value of any kind or nature whatsoever of any such claims. In connection with the general release set forth above, Borrower, for themselves and Borrower's Affiliates, and each of them, hereby waive and relinquish all rights and benefits afforded under the provisions of Section 1542 of the California Civil Code, which provides as follows: "A GENERAL RELEASE DOES NOT EXTEND TO CLAIMS WHICH THE CREDITOR DOES NOT KNOW OR SUSPECT TO EXIST IN HIS FAVOR AT THE TIME OF EXECUTING THE RELEASE, WHICH IF KNOWN BY HIM MUST HAVE MATERIALLY AFFECTED HIS SETTLEMENT WITH THE DEBTOR." 8. Waiver of Jury by Trial. Each party to this Agreement agrees that any suit, action, or proceeding brought or instituted by any party hereto or any successor or assign of any party on or with respect to this Agreement, any of the documents executed in connection with this Agreement, or any of the Financing Documents or any event, transaction or occurrence arising out of or in any way connected therewith, or the dealings of the parties with respect thereto, shall be tried only by a court and not a jury. EACH PARTY HEREBY EXPRESSLY WAIVES ANY RIGHT TO A TRIAL BY JURY IN ANY SUCH SUIT, ACTION, OR PROCEEDING. Borrower acknowledges and agrees that this provision is a specific and material aspect of this Agreement between the parties and that Lender would not agree to the restructure of obligations, extension of the time of payment, or forbearance from exercising its rights and remedies if this waiver of jury trial provision were not a part of this Agreement. 9. Miscellaneous. (a) No Oral Modifications. No modification or waiver of any provision of this Agreement, any documents executed in connection with this Agreement, the Existing Documents, and no consent by Lender to any departure by the Borrower therefrom shall in any event be effective unless the same shall be in writing and then such waiver or consent shall be effective only in the specific instance or for the purpose for which given. No notice to, or demand upon the Borrower in 136 any case shall entitle Borrower to any other or further notice or demand in the same, similar, or other circumstances. (b) No Release or Discharge; No Novation. Nothing contained in this Agreement is intended to or shall act to nullify, discharge, release, or extinguish, in whole or in part, any or all of the obligations or indebtedness under the Existing Documents or to waive or release any collateral securing the loan referenced herein or discharge any guarantor thereof, nor shall this Agreement and the documents executed in connection herewith be deemed or considered to operate as a novation of any of the Existing Documents, except as otherwise provided in this Agreement and the documents executed in connection herewith. This Agreement represents a modification, amendment, restatement, and continuation of the contractual obligations and indebtedness of the Borrower under certain of the Financing Documents. This Agreement and the documents executed in connection herewith set out the terms and conditions under which the Borrower will satisfy its obligations to Lender pursuant to the Financing Documents. Except to the extent of any express conflict with this Agreement and except to the extent modified by this Agreement, each and all of the terms and conditions of the Existing Documents shall remain in full force and effect. (c) Interpretation. To the extent, if any, that any of the terms and provisions of this Agreement or of any of the other documents or instruments executed and delivered in connection herewith are inconsistent with any of the terms and provisions of the Existing Documents, this Agreement and the documents and instruments executed and delivered in connection herewith shall control. (d) Applicable Law. The performance, construction, and enforcement of this Agreement and each of the other Financing Documents shall be governed by the laws of the State of California. (e) Survival; Successors and Assigns. All covenants, agreements, representations, and warranties made in this Agreement and in the Financing Documents shall survive settlement and shall continue in full force and effect. Whenever in this Agreement any of the parties hereto is referred to, such reference shall be deemed to include the successors and assigns of such party, but this shall not be deemed to permit assignment by the Borrower of any or all of its interests in the Deed of Trust or any part thereof. All covenants, agreements, representations, and warranties by or on behalf of the Borrower that are contained in this Agreement of any of the Financing Documents shall inure to the benefit of Lender and its successors and assigns and shall bind the Borrower, and its respective heirs, personal representatives, successors, and assigns. Borrower may not assign this Agreement or any of its rights hereunder. (f) Severability. If any term, provision, or condition, or any part thereof, of this Agreement or of any of the Financing Documents shall for any reason be found or held to be invalid or unenforceable by any court or governmental agency of competent jurisdiction, such invalidity or enforceability shall not affect the remainder of such term, provision, or condition or any other term, provision, or condition, and this Agreement, and any Financing Document shall survive and be 137 construed as if such invalid or unenforceable term, provision, or condition had not been contained therein. (g) Merger and Integration. This Agreement, the Financing Documents, and any documents or instruments to be delivered in accordance with this Agreement contain the entire agreement of the parties hereto with respect to the matters covered and the transactions contemplated hereby, and no other agreement, statement, representation, warranty or promise made prior hereto or contemporaneously herewith by any party hereto, or any employee, officer, agent, or attorney of any party hereto, shall be valid or binding or relied upon by any party as an inducement to enter into, or as consideration for, this Agreement. (h) Construction of Agreement. Each party acknowledges (i) that it has participated in the negotiation of this Agreement and the other documents executed and delivered in connection herewith, and no provision of this Agreement or the other documents executed and delivered in connection herewith shall be construed against or interpreted to the disadvantage of any party hereto or thereto by any court or other governmental or judicial authority by reason of such party having or being deemed to have structured, dictated or drafted such provision; (ii) that the Borrower, at all times have had access to an attorney in the negotiation of the terms of and in the preparation and execution of this Agreement and the other documents executed and delivered in connection herewith, and the Borrower, has had the opportunity to review, analyze, and discuss with its counsel this Agreement and the other documents executed and delivered in connection herewith, and the underlying factual matters relevant to this Agreement, for a sufficient period of time prior to the execution and delivery hereof and thereof; (iii) that all of the terms of this Agreement and the other documents executed and delivered in connection herewith were negotiated at arm's-length; (iv) that this Agreement and the other documents executed and delivered in connection herewith were prepared and executed without fraud, duress, undue influence, or coercion of any kind exerted by any of the parties upon the others; and (v) that the execution and delivery of this Agreement is the free and voluntary act of the Borrower. (i) Notices. Any notices required or permitted by this Agreement shall be in writing and shall be deemed delivered if hand delivered or delivered by certified mail, postage prepaid, return receipt requested, first class mail postage prepaid, or by telecopy (immediately followed by hard copy by first class mail) as follows, unless such address is changed by written notice as provided hereunder: If to the Borrower: CAN CAL RESOURCES LIMITED 1505 Blackcombe Street Unit 203, Building #2 Las Vegas, NV 89123 138 If to the Lender: OWEN SEQUOIA, CORP. c/o Attn: Bruce G. Holden, Esq. Arter & Hadden LLP 5 Park Plaza, Suite 1000 Irvine, CA 92614-8528 Telephone: (949) 252-3102 Facsimile: (949) 833-9604 (j) Gender. The singular includes the plural and vice versa. Each gender includes all other genders. (k) Counterparts. This Agreement may be executed simultaneously in any number of counterparts, each of which shall be deemed an original, but all of which shall constitute one in the same agreement. (1) Binding Effect. This Agreement shall have no effect at law or in equity unless and until this Agreement has been executed by Lender. Lender in its sole discretion may require that all of the exhibits to this Agreement are fully executed and delivered simultaneously with Lender execution of this Agreement. (m) Third Party Obligations. No person not a party to this Agreement will be a third-party beneficiary or acquire any rights hereunder. (n) Costs. Any costs incurred by Lender resulting from the transactions contemplated by this Agreement such as legal expense, the filing of any financing statement, or property inspection, shall be solely at Borrower's expense and without right of setoff. (o) Venue. Venue for any action brought regarding the interpretation of this Agreement shall lie exclusively in Orange County, California. IN WITNESS WHEREOF, the parties hereto have executed or caused to be executed, this Agreement under seal as of the date first written above. Borrower: CAN CAL RESOURCES LIMITED By: /s/ R. D. Sloan ------------------------------- Lender: OWEN SEQUOIA CORP. By: /s/ John Edwards ------------------------------- 139 EX-10.5 10 DEED OF TRUST EXHIBIT 10.5 RECORDING REQUESTED BY WHEN RECORDED MAIL TO Arter & Hadden Attn: Bruce G. Holden, Esq. 5 Park Plaza, Suite 1000 Irvine, CA 92614-8528 DEED OF TRUST, SECURITY AGREEMENT, FINANCING STATEMENT AND FIXTURE FILING WITH ASSIGNMENT OF RENTS ATTENTION: COUNTY RECORDER -- THIS INSTRUMENT COVERS GOODS THAT ARE OR ARE TO BECOME FIXTURES ON THE REAL PROPERTY DESCRIBED HEREIN AND IS TO BE FILED FOR RECORD IN THE RECORDS WHERE DEEDS OF TRUST ON REAL ESTATE ARE RECORDED. ADDITIONALLY, AS A DEED OF TRUST, BUT ALSO AS A FINANCING STATEMENT COVERING GOODS THAT ARE OR ARE TO BECOME FIXTURES ON THE REAL PROPERTY DESCRIBED HEREIN. THE MAILING ADDRESSES OF THE TRUSTOR (DEBTOR) AND BENEFICIARY (SECURED PARTY) ARE SET FORTH IN SECTION 4.5 OF THIS DEED OF TRUST. This Deed of Trust, Security Agreement, Financing Statement and Fixture Filing With Assignment of Rents (this "Deed of Trust") is made as of February 12, 1998 by and among Can Cal Resources Limited, a Nevada corporation ("Trustor"), CHICAGO TITLE INSURANCE COMPANY ("Trustee"), whose address is 560 E. Hospitality Lane, San Bernardino, California, and OWEN SEQUOIA, INC., a Nevada Corporation ("Beneficiary") whose address is 3651 Lindell Road, Suite A, Las Vegas, Nevada 89103. This Deed of Trust is given, inter alia, for the purpose of securing a loan (the "Loan") from Beneficiary, as lender, to Trustor, as borrower. FOR GOOD AND VALUABLE CONSIDERATION, including the indebtedness herein recited and the trust herein created, the receipt of which is hereby acknowledged, Trustor hereby irrevocably grants, transfers, conveys and assigns to Trustee, IN TRUST, WITH POWER OF SALE, for the benefit and security of Beneficiary, under and subject to the terms and conditions hereinafter set forth, the real property located in the County of San Bernardino, State of California, more particularly described in Exhibit A attached hereto (the "Premises"). 140 TOGETHER WITH any and all buildings and improvements now or hereafter erected on the Premises including, but not limited to the fixtures, attachments, appliances, equipment, machinery, and other articles attached to said buildings and improvements (the "Improvements"), all of which shall be deemed and construed to be a part of the realty; TOGETHER WITH all rents, issues profits, royalties, income and other benefits (collectively, the "Rents") derived from any lease, sublease, license, franchise, concession or other agreement (collectively, the "Leases") now or hereafter affecting all or any portion of the Premises and the Improvements or the use or occupancy thereof; TOGETHER WITH all interests, estates or other claims, both in law and in equity, which Trustor now has or may hereafter acquire in the Premises or the Improvements; TOGETHER WITH all easements, rights-of-way and rights now owned or hereafter acquired by Trustor used in connection therewith or as a means of access thereto, including, without limiting the generality of the foregoing, all rights pursuant to any trackage agreement and all rights to the nonexclusive use of common drive entries, and all tenements, hereditaments and appurtenances thereof and thereto, and all water and water rights and shares of stock evidencing the same; TOGETHER WITH all leasehold estate, right, title and interest of Trustor in and to all Leases covering the Premises, the Improvements or any portion thereof now or hereafter existing or entered into, and all right, title and interest of Trustor thereunder including, without limitation, all cash or security deposits, advance rentals, and deposits or payments of similar nature; TOGETHER WITH all right, title and interest now owned or hereafter acquired by Trustor in and to any greater estate in the Premises or the Improvements; TOGETHER, with any and all of Trustor's interest in any and all tangible personal property owned by Trustor now or any time hereafter located on or used in any way in connection with the use, enjoyment, occupancy or operation of the Premises or the Improvements or any portion thereof, including, but not limited to, all goods, machinery, tools, equipment (including fire sprinklers and alarm systems, air conditioning, heating, boilers, refrigerating, electronic monitoring, water, lighting, power, sanitation, waste removal, entertainment, recreational, window or structural cleaning rigs, maintenance and all other equipment of every kind), lobby and all other indoor or outdoor furniture (including tables, chairs, planters, desks, sofas, shelves, lockers and cabinets), furnishings, appliances, inventory, rugs, carpets and other floor coverings, draperies, drapery rods and brackets, awnings, venetian blinds, partitions, chandeliers and other lighting fixtures, and all other fixtures, apparatus, equipment, furniture, furnishings, and articles located on or used in any way in connection with the use, enjoyment, occupancy or operation of the Premises or the Improvements or any portion thereof, it being understood that the enumeration of any specific articles of property shall in nowise result in or be held to exclude any items of property not specifically mentioned; 141 TOGETHER WITH all right, title and interest of Trustor, now owned or hereafter acquired, in and to any land lying within the right-of-way of any street, open or proposed, adjoining the Premises, and any and all sidewalk, alleys and strips and gores of land adjacent to or used in connection with the Premises; TOGETHER WITH all the estate, interest, right, title, other claim or demand, both in law and in equity, including claims or demands with respect to the proceeds of insurance in effect with respect thereto, which Trustor now has or may hereafter acquire in the Premises or the Improvements, and any and all awards made for the taking by eminent domain, or by any proceeding or purchase in lieu thereof, of the whole or any part of the Trust Estate (as hereinafter defined), including, without limitation, any awards resulting from a change of grade of streets and awards for severance damages. TOGETHER WITH all collections, proceeds and products of any of the foregoing. The entire estate, property and interest hereby conveyed to Trustee may hereafter be collectively referred to as the "Trust Estate". FOR THE PURPOSE OF SECURING: (a) payment of indebtedness in the total principal amount of up to One Hundred Fifty Thousand Dollars ($150,000) with interest thereon, evidenced by that certain Secured Promissory Note (the "Note") of even date herewith executed by Trustor, which Note and any and all modifications, extensions, renewals and replacements thereof are by this reference hereby made a part hereof; (b) payment of all sums advanced by Beneficiary to protect the Trust Estate, with interest thereon from the date of the advance at the rate of interest as set forth in the Note (which rate of interest is hereinafter referred to as the "Agreed Rate"); (c) payment of all other sums, with interest thereon, which may hereafter be loaned to Trustor, or its successors or assigns, by Beneficiary, or its successors or assigns when evidenced by a promissory note or notes reciting that they are secured by this Deed of Trust; (d) payment of all other sums, with interest thereon, becoming due and payable under the provisions of the Loan Documents; (e) performance of every obligation, covenant or agreement of Trustor contained herein and in the Note, and all supplements, amendments and modifications thereto and all extensions and renewals thereof; 142 (f) performance of every obligation, covenant and agreement of Trustor contained in any agreement now or hereafter executed by Trustor which recites that the obligations thereunder are secured by this Deed of Trust; (g) compliance with and performance of each and every material provision of any declaration of covenants, conditions and restrictions pertaining to the Trust Estate or any portion thereof. This Deed of Trust, the Note, the Assignment of Rents, and any other deeds of trust, mortgages, agreements, guaranties or other instruments given to evidence or further secure the payment and performance of any obligation secured hereby may hereafter be collectively referred to as the "Loan Documents." TO PROTECT THE SECURITY OF THIS DEED OF TRUST, TRUSTOR, HEREBY COVENANTS AND AGREES AS FOLLOWS: ARTICLE I COVENANTS AND AGREEMENTS OF TRUSTOR 1.1 Payment of Secured Obligations. Trustor shall pay when due the principal of and the interest on the indebtedness evidenced by the Note; all charges, fees and other sums as provided in the Loan Documents; the principal of and interest on any future advances secured by this Deed of Trust; and the principal of and interest on any other indebtedness secured by this Deed of Trust. 1.2 Application of Payment. Except as otherwise expressly provided by applicable law or any other provision of this Deed of Trust, all payments received by Beneficiary from Trustor under the Note or this Deed of Trust shall be applied by Beneficiary in the following order: (1) costs, fees, charges, and advances paid or incurred by Beneficiary or payable to Beneficiary, and interest thereon pursuant to any provision of the Note, this Deed of Trust, and any other loan documents securing the Note, in such order as Beneficiary, in Beneficiary's sole discretion, elects; (2) interest payable under the Note; and (3) principal payable under the Note. 1.3 Estoppel Certificates. Within ten (10) days after any request by Beneficiary for such information, Trustor will execute and deliver to Beneficiary, and any third party designated by Beneficiary, in recordable form, a certificate reciting that the Note and this Deed of Trust are unmodified and in full force and effect, or that the Note and this Deed of Trust are in full force and effect as modified and specifying all modifications asserted by Trustor. Such certificate shall also recite the amount(s) of principal, interest, and other sums payable under either the Note or this Deed of Trust that remain unpaid, the date(s) through which payments due and owing under the Note or under this Deed of Trust have been paid, the amount(s) of any payments theretofore made under the Note and/or this Deed of Trust, and a 143 detailed statement of any right of set-off, counterclaim, or other defense that exists or which Trustor contends exists, against any indebtedness secured by this Deed of Trust or any obligation of borrower under this Deed of Trust. Should Trustor fail to execute and deliver such certificate within ten (10) day period: (a) the Note and this Deed of Trust shall, as to Trustor, conclusively be deemed to be either in full force and effect, without modification, or in full force and effect, modified in the manner and to the-extent specified by Beneficiary, whichever Beneficiary reasonably and in good faith may represent; and (b) Trustor shall conclusively be deemed irrevocably to have constituted and appointed Beneficiary as Trustor's special attorney-in-fact to execute and deliver such certificate to any third party. Trustor and Beneficiary expressly agree that any certificate executed and delivered by Trustor, or any representation in lieu of a certificate made by Beneficiary under this Deed of Trust may be relied upon by any prospective purchaser of the estate, or any prospective assignee of any interest of Beneficiary in the Property, and any other person, without independent investigation or examination to determine the accuracy, reasonableness, or good faith of the recitals. The exercise by Beneficiary of any right or remedy provided by this paragraph shall not constitute a waiver of, or operate to cure any default by Trustor under this Deed of Trust, or preclude any other right or remedy that is otherwise available to Beneficiary under this Deed of Trust or applicable law. 1.4 Future Advances. Upon request by Trustor, Beneficiary, at Beneficiary's option, may make future advances to Trustor. All such future advances, with interest thereon, shall be added to and become a part of the indebtedness secured by this Deed of Trust when evidenced by promissory note(s) reciting that such note(s) are secured by this Deed of Trust. 1.5 Maintenance. Repair. Alterations and Compliance with Laws. Trustor shall: (a) Maintain, preserve and keep the Trust Estate in good condition and repair; (b) Not remove, demolish or substantially alter any of the Improvements except upon the prior written consent of Beneficiary; (c) Complete promptly and in a good and workmanlike manner any Improvement which m ay be now or hereafter constructed on the Premises and promptly restore in like manner any portion of the Improvements which may be damaged or destroyed thereon from any cause whatsoever, and pay when due all claims for labor performed and materials furnished therefor; 144 (d) Comply with all laws, ordinances, regulations, covenants, conditions and restrictions now and hereafter affecting the Trust Estate or any part thereof or requiring any alterations or Improvements; (e) Not commit or permit any waste or deterioration of the Trust Estate, and keep and maintain abutting grounds, sidewalks, roads, parking and landscape areas in good and neat order and repair; (f) Comply with the provisions of any lease, if this Deed of Trust is on a leasehold; and (g) Not commit, suffer or permit any act to be done in or upon the Trust Estate in violation of any law, ordinance or regulation. Trustor shall not apply for, willingly suffer or permit any change in zoning, subdivision or land use regulations affecting the Property without first obtaining the written consent of Beneficiary which consent shall not be unreasonably withheld. 1.6 Required Insurance. Trustor shall at all times provide, maintain and keep in force or cause to be provided, maintained and kept in force, at no expense to Trustee or Beneficiary, policies of insurance in form and amounts and issued by companies, associations or organizations reasonably satisfactory to Beneficiary covering such casualties, risks, perils, liabilities and other hazards as Beneficiary may reasonably require. All such policies of insurance required by the terms of this Deed of Trust shall contain an endorsement or agreement by the insurer that any loss shall be payable in accordance with the terms of such policy notwithstanding any act or negligence of Trustor or any party holding under Trustor which might otherwise result in forfeiture of said insurance and the further agreement of the insurer waiving all rights of setoff, counterclaim or deductions against Trustor. 1.7 Delivery of Policies. Payment of Premiums. (a) At Beneficiary's option all policies of insurance shall either have attached thereto a lender's loss payable endorsement for the benefit of Beneficiary in form and substance satisfactory to Beneficiary or shall name Beneficiary as an additional insured. Trustor shall furnish Beneficiary with an original, a certified copy of an original or a certificate of all policies of insurance required under Section 1.6 above which sets forth the coverage, the limits of liability, the name of the carrier, the Policy number and the period of coverage. If Beneficiary consents, Trustor may provide any of the required insurance through blanket policies carried by Trustor and covering more than one location, or by policies procured by a tenant or other party holding under Trustor; provided, however, all such policies shall be in form and substance and issued by companies satisfactory to Beneficiary. At least thirty (30) days prior to the expiration of each required policy, Trustor shall deliver to Beneficiary evidence of the renewal or replacement of such policy, continuing insurance in form and substance as required by this Deed of Trust. All such policies shall contain a provision that, notwithstanding any contrary agreement 145 between Trustor and insurance company, such policies will not be cancelled, allowed to lapse without renewal, surrendered or materially amended, which term shall include any reduction in the scope or limits of coverage, without at least thirty (30) days' prior written notice to Beneficiary. (b) In the event Trustor fails to provide, maintain, keep in force or deliver to Beneficiary the policies of insurance required by this Deed of Trust Beneficiary may (but shall have no obligation to) procure such insurance or single-interest insurance for such risks covering Beneficiary's interest, and Trustor will pay all premiums thereon promptly upon demand by Beneficiary, and until such payment is made by Trustor, the amount of all such premiums shall bear interest at the Agreed Rate. Upon the occurrence of an Event of Default and request by Beneficiary, Trustor shall deposit with Beneficiary in monthly installments, an amount equal to one-twelfth (1/12) of the estimated aggregate annual insurance premiums on all policies of insurance required by this Deed of Trust. In such event Trustor further agrees to cause all bills, statements or other documents relating to the foregoing insurance premiums to be sent or mailed directly to Beneficiary. Upon receipt of such bills, statements or other documents evidencing that a premium for a required policy is then payable, and providing Trustor has deposited sufficient funds with Beneficiary pursuant to this Section 1.7, Beneficiary shall timely pay such amounts as may be due thereunder out of the funds so deposited with Beneficiary. If at any time and for any reason the funds deposited with Beneficiary are or will be insufficient to pay such amounts as may be then or subsequently due, Beneficiary shall notify Trustor and Trustor shall immediately deposit an amount equal to such deficiency with Beneficiary. Notwithstanding the foregoing, nothing contained herein shall cause Beneficiary to be deemed a trustee of said funds or to be obligated to pay any amounts in excess of the amount of funds deposited with Beneficiary pursuant to this Section 1.7, nor shall anything contained herein modify the obligation of Trustor set forth in Section 1.6 hereof to maintain and keep such insurance in force at all times. Beneficiary may commingle said reserve with its own funds and Trustor shall be entitled to no interest thereon. 1.8 Casualties: Insurance Proceeds. In the event of any loss, whether or not covered by insurance, Trustor shall give immediate written notice to the Beneficiary and to the insurance carrier, if applicable, on an insured risk. Trustor authorizes and empowers irrevocably, at Beneficiary's option and in Beneficiary's sole discretion as attorney-in-fact for Trustor, to make proof of loss, to adjust and compromise any claim under insurance policies, to appear in and prosecute any action arising from such insurance policies, to collect and receive insurance proceeds, and to deduct therefrom Beneficiary's expenses incurred in the collection of such proceeds, including reasonable attorneys' fees. Trustor further authorizes Beneficiary, at Beneficiary's option and in Beneficiary's sole discretion, and regardless of whether there is any impairment of the security for this Deed of Trust: (a) to apply the balance of such proceeds, or any portion of them, upon any indebtedness secured by this Deed of Trust, whether or not then due, including but not limited to, principal, accrued interest and advances, and in such order or combination as Beneficiary may determine; or (b) to hold the balance of such proceeds, or any portion of them, in a noninterest bearing liability account to be used for the cost of 146 reconstruction, repair, or alteration of the Improvements on the property; or (c) to release the balance of such proceeds, or any portion of them, to the Trustor. If the insurance proceeds are held by Beneficiary to be used to reimburse Trustor for the costs of restoration and repair of the Improvements, the Improvements shall be restored to the equivalent of its original condition, or such other condition as Beneficiary may approve in writing, and Beneficiary may, at Beneficiary's option, condition disbursement of the proceeds on Beneficiary's approval of such plans and specifications prepared by an architect satisfactory to Beneficiary, contractor's cost estimates, architect's certificates, waivers of liens, sworn statements of mechanics and materialmen, and such other evidence of costs, percentage completion of construction, application of payments, and satisfaction of liens, as Beneficiary may reasonably require. Prior to disbursement or application of the proceeds, they may be utilized by Beneficiary, who is entitled to all earnings on the proceeds, if any. If the insurance proceeds are applied to the payment of the sums secured by this Deed of Trust, any such application of proceeds to principal shall not extend or postpone the due date of the monthly installments referred to in this Deed of Trust or change the amount of such installment. If, after default under this Deed of Trust, the Premises are sold or the Premises are acquired by Beneficiary, all right, title, and interest of Trustor in and to any insurance policies and unearned premiums on those, policies and in and to the proceeds of those policies, resulting from damage to the Premises prior to the sale or acquisition, shall pass to Beneficiary. In no event shall either Trustee or Beneficiary be obligated to see to, approve, or supervise the proper application of any hazard insurance proceeds released to Trustor. The receipt, application, use, and release of the hazard insurance proceeds shall not cure or constitute a waiver of any default or pending notice of default under this Deed of Trust, nor invalidate any act done pursuant to such notice. No hazard insurance proceeds paid or released to Trustor or applied on the cost of repair, restoration, or alteration of the Improvements shall constitute a payment of the indebtedness secured by this Deed of Trust. It is further expressly understood and agreed between Trustor and Beneficiary that the right and option of Beneficiary, in the exercise of its sole discretion, to apply the proceeds or so much of them as may be necessary to pay the indebtedness secured by this Deed of Trust, in whole or in part, is absolute, and is not contingent or conditional upon the adequacy or value of the remaining property to secure such unpaid indebtedness, or the nature, or extent of the loss or damage for which such insurance proceeds are paid. 1.9 Assignment of Policies Upon Foreclosure. In the event of foreclosure of this Deed of Trust or other transfer of title or assignment of the Trust Estate in extinguishment, in 147 whole or in part, of the debt secured hereby, all right, title and interest of Trustor in and to all policies of insurance required by Section 1.3 and covering solely the Trust estate or any portion thereof shall inure to the benefit of and pass to the successor in interest to Trustor or to the purchaser or grantee of the Trust Estate. 1.10 Indemnification: Subrogation: Waiver of Offset. (a) If Beneficiary is made a party to any litigation concerning the Deed of Trust, any of the Loan Documents, the Trust Estate or any part thereof or interest therein, or the occupancy of the Trust Estate by Trustor, then Trustor shall indemnify, defend and hold Beneficiary harmless from all liability by reason of said litigation, including reasonable attorneys' fees and expenses incurred by Beneficiary as a result of any such litigation, whether or not any such litigation is prosecuted to judgment. However, Trustor shall not be obligated to indemnify, defend and hold Beneficiary harmless from and against any claims which arise solely out of the gross negligence or willful misconduct of Beneficiary. Beneficiary may employ an attorney or attorneys to protect its rights hereunder, and in the event of such employment following any breach by Trustor, Trustor shall pay Beneficiary reasonable attorneys' fees and expenses incurred by Beneficiary, whether or not an action is actually commenced against Trustor by reason of its breach. (b) Trustor waives any and all right to claim or recover against Beneficiary, its officers, employees, agents and representatives, for loss of or damage to Trustor, the Trust Estate, Trustor's property or the property of others under Trustor's control from any cause insured against or required to be insured against by the provisions of this Deed of Trust. (c) All sums payable by Trustor pursuant to this Deed of Trust shall be paid without notice, demand, counterclaim, setoff, deduction or defense and without abatement, suspension, deferment, diminution or reduction, and the obligations and liabilities of Trustor hereunder shall in no way be released, discharged or otherwise affected (except as expressly provided herein) by reason of: (i) any damage to or destruction of or any condemnation or similar taking of the Trust Estate or any part thereof; (ii) any restriction or prevention of or interference by any third party with any use of the Trust Estate or any part thereof; (iii) any title defect or encumbrance or any eviction from the Premises or the Improvements or any part thereof by title paramount or otherwise; (iv) any bankruptcy, insolvency, reorganization, composition, adjustment, dissolution, liquidation or other like proceeding relating to Beneficiary, or any action taken with respect to this Deed of Trust by any trustee or receiver of Beneficiary, or by any court, in any such proceeding; (v) any claim which Trustor has or might have against Beneficiary; (vi) any default or failure on the part of Beneficiary to perform or comply with any of the terms hereof or of any other agreement with Trustor; or (vii) any other occurrence whatsoever, whether similar or dissimilar to the foregoing whether or not Trustor shall have notice or knowledge of any of the foregoing. Except as expressly provided herein, Trustor waives all rights now or hereafter conferred by statute or otherwise to any abatement, 148 suspension, deferment, diminution or reduction of any sum secured hereby and payable by Trustor. 1.11 Taxes and Impositions. (a) Trustor shall pay, or cause to be paid prior to delinquency, all real property taxes and assessments, general and special, and all other taxes and assessments of any kind or nature whatsoever, including, without limitation, nongovernmental levies or assessments such as maintenance charges, levies or charges resulting from covenants, conditions and restrictions affecting the Trust Estate, which are assessed or imposed upon the Trust Estate, or become due and payable, and which create, may create or appear to create a lien upon the Trust Estate, or any part thereof, or upon any property, equipment or other facility used in the operation or maintenance thereof (all the above shall collectively be hereinafter referred to as "Impositions"); provided, however, that if, by law any such Imposition is payable, or may at the option of the taxpayer be paid, in installments, Trustor may pay the same or cause it to be paid, together with any accrued interest on the unpaid balance of such Imposition, in installments as the same become due and before any fine, penalty, interest or cost may be added thereto for the nonpayment of any such installment and interest. (b) If at any time after the date hereof there shall be assessed or imposed (i) a tax or assessment on the Trust Estate in lieu of or in addition to the impositions payable by Trustor pursuant to Section 1.11(a), or (ii) a license fee, tax or assessment imposed on Beneficiary and measured by or based in whole or in part upon the amount of the outstanding obligations secured hereby, then all such taxes, assessments or fees shall be deemed to be included within the term "Impositions" as defined in Section 1.11(a) and Trustor shall pay and discharge the same as herein provided with respect to the payment of Impositions. If Trustor fails to pay such Impositions prior to delinquency or if Trustor is prohibited by law from paying such Impositions, Beneficiary may at its option declare all obligations secured hereby together with all accrued interest thereon, immediately due and payable. Anything to the contrary herein notwithstanding, Trustor shall have no obligation to pay any franchise, estate, inheritance, income, excess profits or similar tax levied on Beneficiary or on the obligations secured hereby. (c) Subject to the provisions of Section 1.11(d) and upon request by Beneficiary, Trustor shall deliver to Beneficiary within thirty (30) days after the last date prior to delinquency for payment of any such Imposition official receipts of the appropriate taxing authority, or other proof satisfactory to Beneficiary, evidencing the payment thereof. (d) Trustor shall have the right before any delinquency occurs to contest or object to the amount or validity of any such Imposition by appropriate proceedings, but such right shall not be deemed or construed in any way as relieving, modifying or extending Trustor's covenant to pay any such Imposition at the time and in the manner provided in this Section 1.11, unless Trustor has given prior written notice to Beneficiary of Trustor's intent to so contest or object to an Imposition, and unless, at Beneficiary's sole option, (i) Trustor shall demonstrate to 149 Beneficiary's satisfaction that the proceedings to be initiated by Trustor shall conclusively operate to prevent the sale of the Trust Estate, or any part thereof, and to satisfy such Imposition prior to final determination of such proceedings; and (ii) Trustor shall furnish a good and sufficient bond or surety as requested by and satisfactory to Beneficiary; or (iii) Trustor shall demonstrate to Beneficiary's satisfaction that Trustor has provided a good and sufficient undertaking as may be required or permitted by law to accomplish a stay of any such sale. (e) Upon the occurrence of any Event of Default and request by Beneficiary, Trustor shall pay to Beneficiary an initial cash reserve in an amount adequate to pay all Impositions for the ensuing tax fiscal year and shall thereafter continue to deposit with Beneficiary, in monthly installments, an amount equal to one twelfth (1/12) of the sum of the annual Impositions reasonably estimated by Beneficiary, for the purpose of paying the installment of Impositions next due on the Trust Estate (funds deposited for this purpose shall hereinafter be referred to as "Impounds"). In such event Trustor further agrees to cause all bills, statements or other documents relating to Impositions to be sent or mailed directly to Beneficiary. Upon receipt of such bills, statements or other documents, and providing Trustor has deposited sufficient Impounds with Beneficiary pursuant to this Section 1.11(e), Beneficiary shall timely pay such amounts as may be due thereunder out of the Impounds so deposited with Beneficiary. If at any time and for any reason the Impounds deposited with Beneficiary are or will be insufficient to pay such amounts as may then or subsequently be due, Beneficiary may notify Trustor and upon such notice Trustor shall deposit immediately an amount equal to such deficiency with Beneficiary. Notwithstanding the foregoing, nothing contained herein shall cause Beneficiary to be deemed a trustee of said funds or to be obligated to pay any amounts in excess of the amount of funds deposited with Beneficiary pursuant to this Section 1.11(e). Beneficiary may commingle Impounds with its own funds and shall not be obligated to pay or allow any interest on any Impounds held by Beneficiary pending disbursement or application hereunder. Beneficiary may reserve for future payment of Impositions such portion of the Impounds as Beneficiary may in its absolute discretion deem proper. Upon an Event of Default under any of the Loan Documents or this Deed of Trust, Beneficiary may apply the balance of the Impounds upon any indebtedness or obligation secured hereby in such order as Beneficiary may determine, notwithstanding that said indebtedness or the performance of said obligation may not yet be due according to the terms thereof. Should Trustor fail to deposit with Beneficiary (exclusive of that portion of said payments which has been applied by Beneficiary upon any indebtedness or obligation secured hereby) sums sufficient to fully pay such Impositions at least fifteen (15) days before delinquency thereof, Beneficiary may, at Beneficiary's election, but without any obligation so to do, advance any amounts required to make up the deficiency, which advances, if any, shall be secured hereby and shall be repayable to Beneficiary as herein elsewhere provided, or at the option of Beneficiary the latter may, without making any advance whatever, apply any Impounds held by it upon any indebtedness or obligation secured hereby in such order as Beneficiary may determine, notwithstanding that said indebtedness or the performance of said obligation may not yet be due according to the terms thereof. Should any Event of Default occur or exist on the part of the Trustor in the payment or performance of any of Trustor's or any guarantor's obligations under the terms of the Loan 150 Documents, Beneficiary may, at any time, at Beneficiary's option, apply any sums or amounts in its hands received pursuant to Sections 1.11(e) hereof, or as rents or income of the Trust Estate or otherwise, to any indebtedness or obligation of the Trustor secured hereby in such manner and order as Beneficiary may elect, notwithstanding said indebtedness or the performance of said obligation may not yet be due according to the terms thereof. The receipt, use or application of any such Impounds paid by Trustor to Beneficiary hereunder shall not be construed to affect the maturity of any indebtedness secured by this Deed of Trust or any of the rights or powers of Beneficiary or Trustee under the terms of the Loan Documents or any of the obligations of Trustor or any guarantor under the Loan Documents. (f) Trustor shall not suffer, permit or initiate the joint assessment of any real and personal property which may constitute all or a Portion of the Trust Estate or suffer, Permit or initiate any other procedure whereby the lien of the real property taxes and the lien of the personal property taxes shall be assessed, levied or charged to the Trust Estate as a single lien. (g) If requested by Beneficiary, Trustor shall cause to be furnished to Beneficiary a tax reporting service covering the Trust Estate of the type, duration and with a company satisfactory to Beneficiary. 1.12 Utilities. Trustor shall pay or shall cause to be paid when due all utility charges which are incurred by Trustor for the benefit of the Trust Estate or which may become a charge or lien against the Trust Estate for gas, electricity, water or sewer services furnished to the Trust Estate and all other assessments or charges of a similar nature, whether public or private, affecting or related to the Trust Estate or any portion thereof, whether or not such taxes, assessments or charges are or may become liens thereon 1.13 Actions Affecting Trust Estate. Trustor shall appear in and contest any action or proceeding purporting to affect the security hereof or the rights or powers of Beneficiary or Trustee; and shall pay all costs and expenses, including the cost of evidence of title and attorneys' fees, in any such action or proceeding in which Beneficiary or Trustee may appear. 1.14 Actions By Trustee or Beneficiary to Preserve Trust Estate. If Trustor fails to make any payment or to do any act as and in the manner provided in any of the Loan Documents, Beneficiary and/or Trustee, each in its own discretion, without obligation so to do, without releasing Trustor from any obligation, and without notice to or demand upon Trustor, may make or do the same in such manner and to such extent as either may deem necessary to protect the security hereof. In connection therewith (without limiting their general powers, whether conferred herein, in another Loan Document or by law), Beneficiary and Trustee shall have and are hereby given the right, but not the obligation, (i) to enter upon and take possession of the Trust Estate; (ii) to make additions, alterations, repairs and improvements to the Trust Estate which they or either of them may consider necessary or proper to keep the Trust Estate in good condition and repair; (iii) to appear and participate in any action or proceeding affecting or which may affect the security hereof or the rights or powers of Beneficiary or Trustee; (iv) to 151 pay, purchase, contest or compromise any encumbrance, claim, charge, lien or debt which in the judgment of either may affect or appear to affect the security of this Deed of Trust or be prior or superior hereto; and (v) in exercising such powers, to pay necessary expenses, including employment of counsel or other necessary or desirable consultants. Trustor shall, immediately upon demand therefor by Beneficiary and Trustee or any of them, pay to Beneficiary and Trustee an amount equal to all respective costs and expenses incurred by them in connection with the exercise by either Beneficiary or Trustee or both of the foregoing rights, including, without limitation, costs of evidence of title, court costs, appraisals, surveys and receiver's, trustee's and attorneys' fees, together with interest thereon from the date of such expenditures at the Agreed Rate. 1.15 Transfer of Trust Estate by Trustor. In order to induce Beneficiary to make the loan secured hereby, Trustor agrees that, in the event of any transfer of the Trust Estate without the prior written consent of the Beneficiary, Beneficiary shall have the absolute right at its option, without prior demand or notice, to declare all sums secured hereby immediately due and payable. Consent to one such transaction shall not be deemed to be a waiver of the right to require consent to future or successive transactions. Beneficiary may grant or deny such consent in its sole discretion and, if consent should be given, any such transfer shall be subject to this Deed of Trust, and any such transferee shall assume all obligations hereunder and agree to be bound by all provisions contained herein. Such assumption shall not, however, release Trustor or any maker or guarantor of the Note from any liability thereunder without the prior written consent of Beneficiary. As used herein, "transfer" includes the direct or indirect sale, agreement to sell, transfer, conveyance, pledge, collateral assignment or hypothecation of the Trust Estate, or any portion thereof or interest therein, whether voluntary, involuntary, by operation of law or otherwise, the execution of any installment land sale contract or similar instrument affecting all or a portion of the Trust Estate, or the lease of all or substantially all of the Trust Estate. The term "transfer" shall also include the direct or indirect transfer, assignment, hypothecation or conveyance of legal or beneficial ownership of (i) any partnership interest in Trustor (general or limited), or (ii) more than 50% of the voting stock of Trustor. The term "transfer" shall not include the sale of any portion of the Premises so long as Trustor complies with any reasonable conditions specified by Beneficiary relating to such sales activity. 1.16 Full Performance Required: Survival of Warranties. All representations, warranties and covenants of Trustor contained in any loan application or made to Beneficiary in connection with the loan secured hereby or contained in the Loan Documents or incorporated by reference therein, shall survive the execution and delivery of this Deed of Trust and shall remain continuing obligations, warranties and representations of Trustor so long as any portion of the obligations secured by this Deed of Trust remain outstanding. 1.17 Eminent Domain. In the event that any proceeding or action be commenced for the taking of the Trust Estate, or any part thereof or interest therein, for public or quasi-public use under the power of eminent domain, condemnation or otherwise, or if the same be taken or damaged by reason of any public improvement or condemnation proceeding, or in any other 152 manner, or should Trustor receive any notice or other information regarding such proceeding, action, taking or damage, Trustor shall give prompt written notice thereof to Beneficiary. Beneficiary shall be entitled at its option, without regard to the adequacy of its security, to commence, appear in and prosecute in its own name any such action or proceeding. Beneficiary shall also be entitled to make any compromise or settlement in connection with such taking or damage. All compensation, awards, damages, rights of action and proceeds awarded to Trustor by reason of any such taking or damage to the Premises or the Improvements, or any part thereof or any interest therein for public or quasi-public use under the power of eminent domain by reason of any public improvement or condemnation proceeding, or in any other manner (the "Condemnation Proceeds") are hereby assigned to Beneficiary and Trustor agrees to execute such further assignments of the Condemnation Proceeds as Beneficiary or Trustee may require. After deducting therefrom all costs and expenses (regardless of the particular nature thereof and whether incurred with or without suit), including attorneys' fees, incurred by it in connection with any such action or proceeding, Beneficiary shall apply all such Condemnation Proceeds to the restoration of the Improvements, provided that the taking or damage will not, in Beneficiary's reasonable judgment, materially affect the contemplated use and operation of the Improvements. If the above condition is met, Beneficiary shall disburse the Condemnation Proceeds as repairs or replacements are effected and continuing expenses become due and payable. If the following completion of all such repairs and replacements any Condemnation Proceeds remain undisbursed, then Beneficiary shall apply such undisbursed Condemnation Proceeds toward payment of the outstanding balance of the Loan, and any Condemnation Proceeds which remain undisbursed after payment in full of the Loan shall be released by Beneficiary to the person or persons legally entitled thereto. If any one or more of the above conditions are not met, Beneficiary shall apply all of the Condemnation Proceeds, after deductions as herein provided, to the repayment of the outstanding balance of the Note, together with accrued interest thereon, notwithstanding that said outstanding balance may not be due and payable. If the Condemnation Proceeds are not sufficient to repay the Note in full, Trustor shall immediately pay any remaining balance, together with accrued interest thereon. Application or release of the Condemnation Proceeds as provided herein shall not cure or waive any default or notice of default hereunder or under any other Loan Document or invalidate any act done pursuant to such notice. 1.18 Additional Security. No other security now existing, or hereafter taken, to secure the obligations secured hereby shall be impaired or affected by the execution of this Deed of Trust, and all additional security shall be taken, considered and held as cumulative. The taking of additional security, execution of partial releases of the security, or any extension of the time of payment of the indebtedness shall not diminish the force, effect or lien of this Deed of Trust and shall not affect or impair the liability of any maker, surety or endorser for the payment of said indebtedness. In the event Beneficiary at any time holds additional security for any of the obligations secured hereby, it may enforce the sale thereof or otherwise realize upon the same, at its option, either before, concurrently, or after a sale in made hereunder. 153 1.19 Appointment of Successor Trustee. Beneficiary may, from time to time, by a written instrument executed and acknowledged by Beneficiary, mailed to Trustor and recorded in the county in which the Trust Estate is located and by otherwise complying with the provisions of applicable law, substitute a successor or successors to any Trustee named herein or acting hereunder; and said successor shall, without conveyance from the Trustee predecessor, succeed to all title, estate, rights, powers and duties of said predecessor. 1.20 Successors and Assigns. This Deed of Trust applies to, inures to the benefit of and binds all parties hereto, their heirs, legatees, devisees, administrators, executors, successors and assigns. The term "Beneficiary" shall mean the owner and holder of the Note, whether or not named as Beneficiary herein. 1.21 Inspections. Beneficiary, or it agents, representatives or workers, are authorized to enter at any reasonable time upon or in any part of the Trust Estate for the purpose of inspecting the same and for the purpose of performing any of the acts it is authorized to perform hereunder or under the terms of any of the Loan Documents. 1.22 Liens. Trustor shall pay and promptly discharge, at Trustor's cost and expense, all liens, encumbrances and charges upon the Trust Estate, or any part thereof or interest therein; provided that Trustor shall have the right to contest in good faith the validity of any such lien, the encumbrance or charge. If Trustor shall fail to remove and discharge any such lien, encumbrance or charge, then, in addition to any other right or remedy of Beneficiary, Beneficiary may, but shall not be obligated to, discharge the same, either by paying the amount claimed to be due, or by procuring the discharge of such lien, encumbrance or charge by depositing in a court a bond or the amount claimed or otherwise giving security for such claim, or by procuring such discharge in such manner as is or may be prescribed by law. Trustor shall, immediately upon demand therefor by Beneficiary, pay to Beneficiary an amount equal to all costs and expenses incurred by Beneficiary in connection with the exercise by Beneficiary of the foregoing right to discharge any such lien encumbrance or charge, together with interest thereon from the date of such expenditure at the Agreed Rate. 1.23 Trustee's Powers. At any time, or from time to time, without liability therefor and without notice, upon written request of Beneficiary and presentation of this Deed of Trust and the Note secured hereby for endorsement, and without affecting the personal liability of any person for payment of the indebtedness secured hereby or the effect of this Deed of Trust upon the remainder of said Trust Estate, Trustee may (i) reconvey any part of said Trust Estate, (ii) consent in writing to the making of any map or plat thereof, (iii) join in granting any easement thereon, (iv) or join in any extension agreement or any agreement subordinating the lien or charge hereof. 1.24 Beneficiary's Powers. Without affecting the liability of any other person liable for the payment of any obligation herein mentioned, and without affecting the lien or charge of this Deed of Trust upon any portion of the Trust Estate not then or theretofore released as 154 security for the full amount of all unpaid obligations, Beneficiary may, from time to time and without notice (i) release any person so liable, (ii) extend the maturity or alter any of the terms of any such obligation, (iii) grant other indulgences, (iv) release or reconvey, or cause to be released or reconveyed at any time at Beneficiary's option any parcel, portion or all of the Trust Estate, (v) take or release any other or additional security for any obligation herein mentioned, or (vi) make compositions or other arrangements with debtors in relation thereto. 1.25 Trade Names. At the request of Beneficiary, Trustor shall execute a certificate in form satisfactory to Beneficiary listing the trade names or fictitious business names under which Trustor intends to operate the Trust Estate or any business located thereon and representing and warranting that Trustor does business under no other trade names or fictitious business name*-- with respect to the Trust Estate. Trustor shall immediately notify Beneficiary in writing of any change in said trade names or fictitious business names, and will, upon request of Beneficiary, execute any additional financing statements and other certificates necessary to reflect the change in trade names or fictitious business names. 1.26 Leasehold. If a leasehold estate constitutes a portion of the Trust Estate, Trustor agrees not to amend, change, terminate or modify such leasehold estate or any interest therein without the prior written consent of Beneficiary. Consent to one amendment, change, agreement or modification shall not be deemed to be a waiver of the right to require consent to other, future or successive amendments, changes, agreements or modifications. Trustor agrees to perform all obligations and agreements under said leasehold and shall not take any action or omit to take any action which would effect or permit the termination of said leasehold. Trustor agrees to promptly notify Beneficiary in writing with respect to any default or alleged default by any party thereto and to deliver to Beneficiary copies of all notices, demands, complaints or other communications received or given by Trustor with respect to any such default or alleged default. Beneficiary shall have the option to cure any such default and to perform any or all of Trustor's obligations thereunder. All sums expended by Beneficiary in curing any such default shall be secured hereby and shall be immediately due and payable without demand or notice and shall bear interest from date of expenditure at the Agreed Rate. ARTICLE II ASSIGNMENT OF RENTS, ISSUES AND PROFITS 2.1 Assignment of Rents, Issues and Profits. Trustor further irrevocably grants, transfers and assigns to Beneficiary the rents, income, issues, and profits from the Premises, absolutely and unconditionally, and not merely as additional collateral security for the indebtedness secured by this Deed of Trust. In addition, upon execution by Trustor, Trustor assigns all right to income and profits emanating from that certain Mining Lease Agreement by and between Trustor and Twin Mountain Rock Venture to Beneficiary, and Beneficiary shall have the right to directly make demand on Twin Mountain Rock Venture for such income and profits. 155 2.2 Assignment to Beneficiary. Trustor hereby assigns and transfers to Beneficiary all the Rents of the Trust Estate, and hereby gives to and confers upon Beneficiary the right, power and authority to collect such Rents. Trustor irrevocably appoints Beneficiary its true and lawful attorney-in-fact, at the option of Beneficiary at any time and from time to time, to demand, receive and enforce payment, to give receipts, releases and satisfactions, and to sue, in the name of Trustor, Trustee or Beneficiary, for all such Rents, issues and profits and apply the same to the indebtedness secured hereby; provided, however, that so long as an Event of Default shall not have occurred hereunder and be continuing, Trustor shall have the right to collect such Rents in accordance with and subject to the provisions of the Assignment of Rents. Upon request of Beneficiary, Trustor shall execute and deliver to Beneficiary, in recordable form, a specific assignment of any Lease, now or hereafter affecting the Trust Estate or any portion thereof, to further evidence the assignment hereby made. 2.3 Election of Remedies. Upon the occurrence of an Event of Default hereunder Beneficiary may, at its option, exercise its rights under the Assignment of Rents or exercise (or cause the Trustee to exercise) its rights hereunder. If Beneficiary elects to exercise its rights hereunder, Beneficiary or Trustee may, at any time without notice, either in person, by agent or by a receiver appointed by a court, enter upon and take possession of all or any portion of the Trust Estate, enforce all Leases, collect all Rents, including those past due and unpaid, and apply the same, to the costs and expenses of operation of the Trust Estate and collection, including, without limitation, attorneys' fees, and to any indebtedness then secured hereby, and in such order as Beneficiary may determine. In connection with the exercise by Beneficiary of its rights hereunder or under the Assignment of Rents, Trustor agrees that Beneficiary shall have the right to specifically enforce such rights and to obtain the appointment of a receiver in accordance with the provisions of Section 3.4 hereof without regard to the value of the Trust Estate or the adequacy of any security for the obligations then secured hereby. The collection of such Rents or the entering upon and taking possession of the Trust Estate, or the application thereof as aforesaid, shall not cure or waive any default or notice of default hereunder or invalidate any act done in response to such default or pursuant to such notice of default, or be deemed or construed to make Beneficiary a mortgage-in-possession of the Trust Estate or any portion thereof. ARTICLE III REMEDIES UPON DEFAULT 3.1 Events of Default. Any of the following events shall be deemed an Event of Default hereunder (an "Event of Default"): (a) Default shall be made in the payment of any installment of principal or interest or any other sum secured hereby when due; or (b) A failure by Trustor to perform any other covenant or obligation or any breach by Trustor of any other agreements, representations or warranties contained in this Deed of Trust, the Note, the Assignment of Rents, or any other Loan Document; or 156 (c) the occurrence of a default or an "Event of Default" under any of the Loan Documents; (d) A writ of execution or attachment or any similar process shall be issued or levied against all or any part of or interest in the Premises, or any judgment involving monetary damages in any such case shall be entered against Trustor which shall become a lien on the Premises or any portion thereof. (e) A default by Trustor of any terms or conditions of a Prior Encumbrance. For purposes of this Deed of Trust, the term "Prior Encumbrance" shall mean any lien or encumbrance upon the Premises or any part thereof on a parity with or prior or superior to the lien of this Deed of Trust. 3.2 Acceleration Upon Default, Additional Remedies. Upon the occurrence of an Event of Default, Beneficiary may, at its option, declare all indebtedness secured hereby to be immediately due and payable without any presentment, demand, protest or notice of any kind. Thereafter, Beneficiary may: (a) Either in person or by agent, with or without bringing any action or proceeding, or by a receiver appointed by a court and without regard to the adequacy of its security, enter upon and take possession of the Trust Estate, or any part thereof, in its own name or in the of Trustee, and do any act which it deems necessary or desirable to preserve the value, marketability or rentability of the Trust Estate, or any part thereof or interest therein, increase the income therefrom or protect the security thereof and, with or without taking possession of the Trust Estate, sue for or otherwise collect the rents, issues and profits thereof, including those past due and unpaid, and apply the same, less costs and expenses of operation and collection including, without limitation, attorneys' fees, upon any indebtedness secured hereby, all in such order as Beneficiary may determine. The entering upon and taking possession of the Trust Estate, the collection of such rents, issues and profits and the application thereof as aforesaid, shall not cure or waive any default or notice of default hereunder or invalidate any act done in response to such default or pursuant to such notice of default and, notwithstanding the continuance in possession of all or any portion of the Trust Estate or the collection, receipt and application of rents, issues or profits, Trustee or Beneficiary shall be entitled to exercise every right provided for in any of the Loan Documents or by law upon occurrence of any Event of Default, including the right to exercise the power of sale; (b) Commence an action to foreclose this Deed of Trust as a mortgage, appoint a receiver, or specifically enforce any of the covenants hereof; (c) Deliver to Trustee a written declaration of default and demand for sale, and a written notice of default and election to cause Trustor's interest in the Trust Estate to be sold, 157 which notice Trustee or Beneficiary shall cause to be duly filed for record in the Official Records of the county in which the Trust Estate is located; or (d) Exercise all other rights and remedies provided herein in any Loan Document or other document or agreement now or hereafter securing all or any portion of the obligations secured hereby, or by law. 3.3 Foreclosure by Power of Sale. Should Beneficiary elect to foreclose by exercise of the power of sale hereby contained, Beneficiary shall notify Trustee and shall deposit with Trustee this Deed of Trust and the Note and such receipt and evidence of expenditures made and secured hereby as Trustee may require. (a) Upon receipt of such notice from Beneficiary, Trustee shall cause to be recorded, published and delivered to Trustor such Notice of Default and Election to Sell as then required by law and by this Deed of Trust. Trustee shall, without demand on Trustor, after lapse of such time as may then be required by law and after recordation of such Notice of Default and after Notice of Sale having been given as required by law, sell the Trust Estate at the time and place of sale fixed by it in said Notice of Sale, either as a whole, or in separate lots or parcels or items as Trustee shall deem expedient, and in such order as it may determine, at public auction to the highest bidder for cash in lawful money of the United States payable at the time of sale. Trustee shall deliver to such purchaser or purchasers thereof its good and sufficient deed or deeds conveying the property so sold, but without any covenant or warranty, express or implied. The recitals in such deed of any matters or facts shall be conclusive proof of the truthfulness thereof. Any person, including, without limitation, Trustor, Trustee or Beneficiary, may purchase at such sale and Trustor hereby covenants to warrant and defend the title of such purchaser or purchasers. (b) After deducting all costs, fees and expenses of Trustee and of this Trust, including costs of evidence of title in connection with sale, Trustee shall apply the proceeds of sale in the following priority, to payment of: (i) first, all sums expended under the terms hereof, not then repaid, with accrued interest at the Agreed Rate; (ii) second, all other sums then secured hereby; and (iii) the remainder, if any, to the person or persons legally entitled thereto. (c) Subject to California Civil Code Section 2924g, Trustee may postpone sale of all or any portion of the Trust Estate by public announcement at such time and place of sale, and from time to time thereafter may postpone such sale by public announcement or subsequently noticed sale, and without further notice make such sale at the time fixed by the last postponement, or may, in its discretion, give a new notice of sale. 3.4 Appointment of Receiver. Upon the occurrence of an Event of Default hereunder, Beneficiary, as a matter of right and without notice to Trustor or anyone claiming under Trustor, and without regard to the then value of the Trust Estate or the adequacy of any security for the obligations then secured hereby, shall have the right to apply to any court having 158 jurisdiction to appoint a receiver or receivers of the Trust Estate, and Trustor hereby irrevocably consents to such appointment and waives notice of any application therefor. Any such receiver or receivers shall have all the usual powers and duties of receivers in like or similar cases and all the powers and duties of Beneficiary in case of entry as provided herein and shall continue as such and exercise all such powers until the later of (i) the date of confirmation of sale of the Trust Estate; (ii) the disbursement of all proceeds of the Trust Estate collected by such receiver and the payment of all expenses incurred in connection therewith; or (iii) the termination of such receivership with the consent of Beneficiary or pursuant to an order of a court of competent jurisdiction. 3.5 Remedies Not Exclusive. Trustee and Beneficiary, and each of them, shall be entitled to enforce payment and performance of any indebtedness or obligations secured hereby and to exercise all rights and powers under this Deed of Trust or under any Loan Document or other agreement or any laws now or hereafter in force, notwithstanding some or all of the said indebtedness and obligations secured hereby may now or hereafter be otherwise secured, whether by mortgage, deed of trust, pledge, lien, assignment or otherwise. Neither the acceptance of this Deed of Trust nor its enforcement whether by court action or pursuant to the power of sale or other powers herein contained, shall prejudice or in any manner affect Trustee's or Beneficiary's right to realize upon or enforce any other security now or hereafter held by Trustee or Beneficiary, it being agreed that Trustee and Beneficiary, and each of them, shall be entitled to enforce this Deed of Trust and any other security now or hereafter held by Beneficiary or Trustee in such order and manner as they or either of them may in their absolute discretion determine. No remedy herein conferred upon or reserved to Trustee or Beneficiary is intended to be exclusive of any other remedy herein or by law provided or permitted, but each shall be cumulative and shall be in addition to every other remedy given hereunder or now or hereafter existing at law or in equity or by statute. Every power or remedy given by any of the Loan Documents to Trustee or Beneficiary or to which either of them may be otherwise entitled, may be exercised, concurrently or independently, from time to time and as often as may be deemed expedient by Trustee or Beneficiary and either of them may pursue inconsistent remedies. No waiver of any default of the Trustor hereunder shall be implied from any omission by the Beneficiary to take any action on account of such default if such default persists or be repeated, and no express waiver shall affect any default other than the default specified in the express waiver and that only for the time and to the extent therein stated. No acceptance of any payment of any one or more delinquent installments which does not include interest at the penalty or default rate from the date of delinquency, together with any required late charge, shall constitute a waiver of the right of Beneficiary at any time thereafter to demand and collect payment of interest at such default rate or of late charges, if any. 3.6 Request for Notice. Trustor hereby requests a copy of any notice of default and that any notice of sale hereunder by mailed to it at the address set forth in Section 4.5 of this Deed of Trust. 159 ARTICLE IV MISCELLANEOUS 4.1 Amendments. This Deed of Trust nor any provision hereof cannot be waived, changed, discharged or terminated orally, but only by an instrument in writing signed by the party against whom enforcement of any waiver, change, discharge or termination is sought. 4.2 Trustor Waiver of Rights. Trustor waives to the extent permitted by law, (i) the benefit of all laws now existing or that may hereafter be enacted providing for any appraisement before sale of any portion of the Trust Estate, and, (ii) all rights of redemption, valuation, appraisement, stay of execution, notice of election to mature or declare due the whole of the secured indebtedness and marshaling in the event of foreclosure of the liens hereby created, and (iii) all rights and remedies which Trustor may have or be able to assert by reason of the laws of the State of California pertaining to the rights and remedies of sureties; provided, however, nothing contained herein shall be deemed to be a waiver of Trustor's rights under Section 2924c of the California Civil Code. 4.3 Statements by Trustor. Trustor shall, within ten (10) days after written notice thereof from Beneficiary, deliver to Beneficiary a written statement stating the unpaid principal of and interest on the Note and any other amounts secured by this Deed of Trust and stating whether any offset or defense exists against such principal and interest. 4.4 Reconveyance by Trustee. Upon written request of Beneficiary stating that all sums secured hereby have been paid in full, and upon surrender of this Deed of Trust and the Note to Trustee for cancellation and retention, and upon payment by Trustor of Trustee's fees, Trustee shall reconvey to Trustor, or to the person or persons legally entitled thereto, without warranty, any portion of the Trust Estate then held hereunder. The recitals in such reconveyance of any matters or facts shall be conclusive proof of the truthfulness thereof. The grantee in any reconveyance may be described as "the person or persons legally entitled thereto." 4.5 Notices. All notices, requests and demands to be made hereunder to the parties hereto shall be in writing and shall be delivered by hand or sent by registered or certified mail, return receipt requested, postage pre-paid through the United States Postal Service to the addresses shown below or such other addresses which the parties may provide to one another in accordance herewith. Such notices, requests and demands, if sent by mail, shall be deemed given five (5) days after deposit in the United States mails and if delivered by hand, shall be deemed given when delivered. To Beneficiary: Owen Sequoia, Inc. 3651 Lindell Road, Suite A Las Vegas, NV 89103 160 With a copy to: Arter & Hadden Attn: Bruce G. Holden, Esq. Jamboree Center 5 Park Plaza, Suite 1000 Irvine, CA 92714 To Trustor: Can Cal Resources, Ltd Attn: Ron Sloan 1505 Blackcombe St., Unit 203 Las Vegas, NV 89128 4.6 Acceptance by Trustee. Trustee accepts this Trust when this Deed of Trust, duly executed and acknowledged, is made a public record as provided by law. 4.7 Captions. The captions or headings at the beginning of each Section hereof are for the convenience of the parties and are not a Part of this Deed of Trust. 4.8 Invalidity of Certain Provisions. Every provision of this Deed of Trust is intended to be severable. In any event any term or provision hereof is declared to be illegal or invalid for any reason whatsoever by a court of competent jurisdiction, such illegality or invalidity shall not affect the balance of the terms and provisions hereof, which terms and provisions shall remain binding and enforceable. If the lien of this Deed of Trust is invalid or unenforceable as to any part of the debt, or if the lien is invalid or unenforceable as to any part of the Trust Estate, the unsecured or partially unsecured portion of the debt shall be completely paid prior to the payment of the remaining and secured or partially secured portion of the debt, and all payments made on the debt, whether voluntary or under foreclosure or other enforcement action or procedure, shall be considered to have been first paid on and applied to the full payment of that portion of the debt which is not secured or fully secured by the lien of this Deed of Trust. 4.9 Subrogation. To the extent that proceeds of the Note are used to pay any outstanding lien, charge or Prior Encumbrance against the Trust Estate, such proceeds have been or will be advanced by Beneficiary at Trustor's request and Beneficiary shall be subrogated to any and all rights and liens held by any owner or holder of such outstanding liens, charges and Prior Encumbrances irrespective of whether said liens, charges or encumbrances are released. 4.10 Attorneys' Fees. If the Note is not paid when due or if any Event of Default occurs, Trustor promises to pay all costs of enforcement and collection, including but not limited to, reasonable attorneys' fees, whether or not such enforcement and collection includes the filing of a lawsuit. As used herein, the term "attorneys' fees" or "attorneys' fees and costs" shall have the meanings usually given such terms. 4.11 No Merger of Lease. If both the lessor's and lessee's estate under any lease or any portion thereof which constitutes a part of the Trust Estate shall at any time become vested in 161 one owner, this Deed of Trust and the lien created hereby shall not be destroyed or terminated by application of the doctrine of merger unless Beneficiary so elects as evidenced by recording a written declaration so stating, and, unless and until beneficiary so elects, Beneficiary shall continue to have and enjoy all of the rights and privileges of Beneficiary as to the separate estates. In addition, upon the foreclosure of the lien created by this Deed of Trust on the Trust Estate pursuant to the provisions hereof, any leases or subleases then existing and affecting all or any portion of the Trust Estate shall not be destroyed or terminated by application of the law of merger or as a matter of law or as a result of such foreclosure unless Beneficiary or any purchaser at such foreclosure sale shall so elect. No act by or on behalf of Beneficiary or any such purchaser shall constitute a termination of any Lease or sublease unless Beneficiary or such purchaser shall give written notice thereof to such tenant or subtenant. 4.12 Governing Law. This Deed of Trust shall be governed by and construed in accordance with the laws of the State of California. 4.13 Joint and Several Obligations. Should this Deed of Trust as signed by more than one party, all obligations herein contained shall be deemed to be the joint and several obligations of each party executing this Deed of Trust. Any married person signing this Deed of Trust agrees that recourse may be had against community assets and against his or her separate property for the satisfaction of all obligations contained herein. 4.14 Interpretation. In this Deed of Trust the singular shall include the plural and the masculine shall include the feminine and neuter and vice versa, if the context so requires. 4.15 Loan Statement Fees. Trustor shall pay the amount demanded by Beneficiary or its authorized loan servicing agent for any statement regarding the obligations secured hereby; provided, that such amount may not exceed the maximum amount allowed law at the time request for the statement is made. 4.16 Counterparts. This Deed of Trust may be executed and acknowledged in counterparts, all of which executed and acknowledged counterparts shall together constitute a single document. Signature and acknowledgement pages may be detached from the counterparts and attached to a single copy of this document to physically form one document, which may be recorded. 4.17 Financing Statement and Fixture Filing. (a) This Deed of Trust constitutes a Security Agreement with respect to all personal property and fixtures in which Beneficiary is granted a security interest hereunder, and Beneficiary shall have all of the rights and remedies of a secured party under the California Commercial Code as well as all other rights and remedies available at law or in equity. Trustor hereby agrees to execute and deliver on demand and hereby irrevocably constitutes and appoints Beneficiary the attorney-in-fact of Trustor, to execute, deliver and, if appropriate, to file with the 162 appropriate filing officer or office such security agreements, financing statements, continuation statements or other instruments as Beneficiary may request or require in order to impose, perfect or continue the perfection of, the lien or security interest created hereby. Upon the occurrence and during the continuance of any default by Trustor hereunder, Beneficiary shall have the right to cause any of the Trust Estate which is personal property and subject to the security interest of Beneficiary hereunder to be sold at any one or more public or private sales as permitted by applicable law, and Beneficiary shall further have all other rights and remedies, whether at law, in equity, or by statute, as are available to secured creditors under applicable law. Any such disposition may be conducted by an employee or agent of Beneficiary or Trustee. Any person, including both Trustor and Beneficiary, shall be eligible to purchase any part or all of such property at any such disposition. Expenses of retaking, holding, preparing for sale, selling or the like shall be borne by Trustor and shall include Beneficiary's and Trustee's reasonable attorneys' fees and legal expenses. Trustor, upon demand of Beneficiary, shall assemble such personal property and make it available to Beneficiary at the Premises, a place which is hereby deemed to be reasonably convenient to Beneficiary and Trustor. Beneficiary shall give Trustor at least five (5) days prior written notice of the time and place of any public sale or other disposition of such property or of the time of or after which any private sale or any other intended disposition is to be made, and if such notice is sent to Trustor, as the same is provided for the mailing of notices herein, it is hereby deemed that such notice shall be and is reasonable notice to Trustor. (b) This Deed of Trust constitutes a financing statement filed as a fixture filing in the Official Records of the county recorder of the county in which the Premises are located with respect to any and all fixtures included within the term "Trust Estate" as used herein and with respect to any goods or other personal property that may now be, or hereafter become, such fixtures 4.18 Further Assurances. Trustor, Beneficiary and Trustee agree to do or to cause to be done such further acts and things and to execute and deliver or to cause to be executed and delivered such additional assignments, agreements, powers and instruments, as any of them may reasonably require or deem advisable to keep valid and effective the charges and lien hereof, to carry into effect the purposes of this Deed of Trust or to better assure and confirm unto any of them their rights, powers and remedies hereunder; and, upon request by Beneficiary, shall supply evidence or fulfillment of each of the covenants herein contained concerning which a request for such evidence has been made 4.19 Nonforeign Entity. Section 1445 of the Internal Revenue Code of 1986, as amended (the "Internal Revenue Code") and Section 18805 of the California Revenue and Taxation Code provides that a transferee of a U.S. real property interest must withhold tax if the transferor is a foreign person. To inform Beneficiary that the withholding of tax will not be required in the event of the disposition of the Premises or Improvements pursuant to the terms of this Deed of Trust, Trustor hereby certifies, under penalty of perjury that: 163 (a) Trustor is not a foreign corporation, foreign partnership, foreign trust or foreign estate, as those terms are defined in the Internal Revenue Code and the regulations promulgated thereunder; and (b) Trustor's U.S. employer identification number has been applied for and promptly upon receipt shall be provided to Beneficiary; and (c) Trustor's principal place of business is 1505 Blackcombe St., Unit 203, Las Vegas, Nevada 89128. It is understood that beneficiary may disclose the contents of this certification to the Internal Revenue Service and the California Franchise Tax Board and that any false statement contained herein could be punished by fine, imprisonment or both. Trustor covenants and agrees to execute such further certificates, which shall be signed under penalty of perjury, as Beneficiary shall reasonably require. The covenant set fort herein shall survive the foreclosure of the lien of this Deed of Trust or acceptance of a deed in lieu thereof. IN WITNESS WHEREOF, Trustor has executed this Deed of Trust as of the day and year first above written. Trustor: CAN CAL RESOURCES LIMITED By: /s/ R. D. Sloan - President --------------------------------- 164 EXHIBIT "A" LEGAL DESCRIPTION OF REAL PROPERTY PARCEL NO. 1: A PARCEL OF LAND BEING A PORTION OF THE ATCHISON, TOPEKA AND SANTA FE RAILWAY COMPANY'S PROPERTY LYING IN SAID RAILWAY COMPANY'S NEEDLES SUBDIVISION AND THIS PARCEL OF LAND BEING ALL OF THAT CERTAIN MINING CLAIM OR PREMISES DESCRIBED IN A MINING CLAIM BETWEEN THE UNITED STATES GOVERNMENT, GRANTOR, AND THE ATCHISON, TOPEKA AND SANTA FE RAILWAY COMPANY, GRANTEE, (SANTA FE DOCUMENT DEED NO. CL-11310) DATED APRIL 8, 1963, AS RECORDED IN BOOK 5907, PAGE 451, ON MAY 10, 1963 IN THE OFFICE OF THE RECORDS OF SAN BERNARDINO COUNTY, CALIFORNIA, THE ABOVE REFERENCED PARCEL OF LAND, KNOW AS THE CINDER AND CINDER #2 PLACER MINING CLAIMS AND LYING IN THE NORTH HALF OF SECTION 32, TOWNSHIP 8 NORTH, RANGE 6 EAST OF THE SAN BERNARDINO MERIDIAN, SAN BERNARDINO COUNTY, CALIFORNIA BEING DESCRIBED IN SAID MINING CLAIM AS FOLLOWS: CINDER CLAIM, EMBRACING: THE NORTH HALF OF THE NORTHWEST QUARTER, (N1/2, NW1/4), AND THE WEST HALF OF THE NORTHWEST QUARTER OF THE NORTHEAST QUARTER, (W1/2, NW1/4, NE1/4), OF SAID SECTION 32. CINDER #2, EMBRACING: THE NORTH HALF OF THE SOUTHEAST QUARTER OF THE NORTHWEST QUARTER, (N1/2, SE1/4, NW1/4) OF SAID SECTION 32. EXCEPTING THEREFROM ANY VEINS OR LOOKS OF QUARTZ OR OTHER ROCK IN PLACE NEARING GOLD, SILVER, CINNABAR, LEAD, TIN, COPPER OR OTHER VALUABLE DEPOSITS WITHIN THE LAND ABOVE DESCRIBED WHICH MAY HAVE BEEN DISCOVERED OR KNOW TO EXIST PRIOR TO SEPTEMBER 11, 1959. EXCEPTING THEREFROM CERTAIN OIL, GAS, CASING-HEAD GAS AND ORES AND MINERALS AS RESERVED IN THE DEED RECORDED DECEMBER 19, 1996 AS INSTRUMENT NO. 96-465341 OFFICIAL RECORDS. 165 PARCEL NO. 2: AN EASEMENT FOR A PRIVATE ROAD AND A POLE LINE FOR TELEPHONE AND POWER WIRES OVER A STRIP OF LAND SIXTY AND 00/100 (60.00) FEET IN WIDTH BEING ALL THAT PORTION OF SECTION TWENTY-NINE (29), TOWNSHIP EIGHT (8) NORTH, RANGE SIX (6) EAST, SAN BERNARDINO BASE AND MERIDIAN, ACCORDING TO THE OFFICIAL PLAT THEREOF, LYING BETWEEN LINES WHICH ARE PARALLEL WITH AND DISTANT THIRTY AND 00/100 (30.00) FEET MEASURED AT RIGHT ANGLES FROM AND ON EACH SIDE OF THE FOLLOWING DESCRIBED CENTER LINES: BEGINNING AT A POINT IN THE NORTH LINE OF SAID SECTION TWENTY-NINE (29), DISTANT EASTERLY ALONG SAID NORTH LINE NINE HUNDRED AND 00/100 (900.00) FEET FROM AA ONE-HALF (1/2) INCH PIPE SET FOR THE NORTHWEST CORNER OF SAID SECTION TWENTY-NINE (29); THENCE SOUTHWESTERLY ALONG A DIRECT LINE DEFLECTING SOUTHWESTERLY FROM SAID NORTH LINE AN ANGLE OF SIXTY-ONE DEGREES (61(degree)), A DISTANCE OF ONE THOUSAND FOUR HUNDRED THIRTY-FIVE AND 00/100 (1,435.00) FEET; THENCE SOUTHWESTERLY ALONG A DIRECT LINE DEFLECTING AN ANGLE OF SIXTEEN DEGREES, THIRTY MINUTES (16(degree)30') TO THE LEFT FROM LAST COURSE, A DISTANCE OF ONE THOUSAND SEVEN HUNDRED EIGHT-FIVE AND 00/100 (1,785.00) FEET; THENCE SOUTHEASTERLY ALONG A DIRECT LINE DEFLECTING AN ANGLE OF EIGHTEEN DEGREES, THIRTY MINUTES (18(degree)30') TO THE LEFT FROM LAST COURSE, A DISTANCE OF FOUR HUNDRED FIFTY AND 00/100 (450.00) FEET; THENCE SOUTHEASTERLY ALONG A DIRECT LINE DEFLECTING AN ANGLE OF FORTY-ONE DEGREES, THIRTY MINUTES (23(degree)30') TO THE RIGHT FROM LAST COURSE, A DISTANCE OF SEVEN HUNDRED AND 00/100 (700.00) FEET; THENCE SOUTHEASTERLY ALONG A DIRECT LINE DEFLECTING AN ANGLE OF EIGHTEEN DECREES (18(degree)) TO THE LEFT FROM LAST COURSE, A DISTANCE OF ONE THOUSAND THREE HUNDRED THIRTY AND 00/100 (1,330.00) FEET; THENCE SOUTHWESTERLY ALONG A DIRECT LINE DEFLECTING AN ANGLE OF FORTY-THREE DEGREES, THIRTY MINUTES (43(degree)30') TO THE RIGHT FROM LAST COURSE, A DISTANCE OF SIXTY AND 00/100 (60.00) FEET MORE OR LESS TO POINT OF ENDING IN THE SOUTH LINE OF SAID SECTION TWENTY-NINE (29), AND BEING OVER THE WEST HALF OF WEST HALF (W1/2 OF W1/2) OF SAID SECTION TWENTY- NINE (29). THE SIDE LINES OF SAID STRIP TO BE LENGTHENED OR SHORTENED AS THE CASE MAY BE SO THAT ALL PORTIONS OF SAID STRIP SHALL FALL WITHIN THE BOUNDARIES OF SAID SECTION TWENTY-NINE (29). 166 EX-10.6 11 LEASE AND PURCHASE OPTION EXHIBIT 10.6 LEASE AND PURCHASE OPTION AGREEMENT BY THIS LEASE AND OPTION AGREEMENT dated the 12th day of March, 1998, by and between ARTHUR JAMES GOOD (also know as A. J. Good) and WANDA MAE GOOD, husband and wife whose address is 620 El Rancho Drive, Kingman Arizona 86401 ("LESSOR" herein), and Can-Cal Resources, Ltd., whose address is 1505 Blackcombe Street, Unit 203, Las Vegas, Nevada 89128 ("Lessee" herein) the Lessor, in consideration of the payments and promises set forth herein, has granted certain rights to Lessee under the following terms and conditions: 1. GRANT a. LEASE - Lessor hereby grants, demises, leases and lets those certain patented mining claims known as JUROR #1, JUROR #2, CERBAT, REDDOG and ROLLING WAVE, located in the Gold Nugget Cerbat Mountain, Hualapai Mining District, Mojave County, Arizona, more particularly described in the attached Exhibit "A" (the "Property" herein), including all rights appurtenant to the Property recognized under the mining laws of the United States or established under the laws of the State of Arizona, including water rights, easements, and rights-of-way pertaining or appurtenant to the Property, exclusively unto Lessee, its successors, and assigns, with the exclusive rights and privileges to explore for, mine (by open pit, strip, underground, solution mining or any other method, including and method hereafter developed), extract, mill, store, process, remove and market all ores and minerals as may be authorized by the mineral laws of the United States from in, upon or under the Property. Lessee is further granted the right to place, construct, maintain, use, and remove such structures, facilities, equipment, roadways, haulage ways and such other improvements on the surface or subsurface of the Property as Lessee, consistent with authorizations obtained from the Governmental Agencies, if applicable, 167 may deem necessary, useful or convenient for the full enjoy enjoyment of all the rights herein granted. 2. b. TERM Unless sooner terminated under the termination provisions hereinafter contained, the term of this Agreement shall be for a term of Twenty (20) years commencing on the effective date hereof. 3. PAYMENTS TO LESSOR a. COMPENSATION - Lessee shall pay Lessor as compensation upon execution of this Agreement a total of Two Thousand Five Hundred Dollars ($2,500.00). b. Lessee shall pay Lessor as additional compensation thirty days from the date of execution of this Agreement an additional Two Thousand Five Hundred Dollars ($2,500.00). c. Lessee shall pay Lessor as additional compensation sixty days from the date of execution of this Agreement an additional Five Thousand Dollars ($5,000.00). d. MINIMUM ROYALTY - Beginning with the first yearly quarter after the effective date of this agreement, the sum of fifteen hundred dollars ($1,500.00) will be paid. Every quarter thereafter a payment of fifteen hundred dollars ($1,500.00) will be paid. Such advance royalties shall be a credit toward any moneys due Lessor under the provision of subsection c of this Section 3. e. PRODUCTION ROYALTY - If Lessee mines and markets Leased Substances from the Property, Lessee shall pay to Lessor a production royalty of FIVE PERCENT (%5) of the "Gross Returns" received by Lessee from the sale or other disposition of Leased Substances. The term "Gross Returns" received by Lessee from the sale or other disposition of Leased Substances. The term "Gross Returns" shall mean the total dollar value received from the purchaser of Leased Substances, less only any weighing, sampling, penalty, processing or other charges assessed by the purchaser. Production Royalty is to continue for 10 years or until the Lessee exercises it option to purchase, whichever occurs sooner. 168 f. PAYMENT OF PRODUCTION ROYALTY - (1) Production royalty paid to Lessor hereunder shall be due and payable within thirty (30) days after the end of each calendar quarter for those Leased Substances sold and a settlement sheet received during the applicable calendar quarter after first deducting any advance minimum royalty paid under subsection b of Section 3 not previously recovered from prior payments under this subsection d. All production royalty shall be accompanied by the settlement sheets or a similar statement showing the basis upon which the payment was computed. (2) Lessor may elect to receive its royalty in kind by physical delivery of gold and/or silver bullion for any calendar year, by notifying Lessee of its election on or before December 1 in the preceding calendar year. An election by Lessor to receive its royal in kind shall be irrevocable for the calendar year for which it was made. Failure of Lessor to notify Lessee by December 1 or its election to take the royalty in kind, shall be deemed a waiver by Lessor of all rights to take the royalty in kind during the following calendar year. (3) On or before the fifth day of the month following the end of each calendar quarter, Lessee shall make the bullion available to Lessor at the place where the bullion has been refined. The bullion shall be in the form in which Lessee sells or otherwise disposes of same. Lessee shall provide ten (10) days' prior notice Lessor of the name and location of the refinery and the date or dates on which the bullion will be available to Lessor. If Lessor desires Lessee to deliver the bullion to it at a place other than the place of refining, Lessor shall reimburse Lessee for the costs incurred by Lessee in making such delivery, which costs include transportation and insurance. (4) The value of any in kind royalty delivered to Lessor for purposes of establishing the credit for advance minimum royalty shall be based upon the "Quarterly Average Gold Price" as of the date of delivery to Lessor. The Quarterly Average Gold Price shall be the price for immediate delivery quoted at the close of business by the COMEX, calculated by dividing the sum of all such prices reported for the quarter by the number of days for which such prices were quoted. (e) METHOD OF MAKING PAYMENTS - All payments required hereunder may be mailed or delivered to Lessor's address or to any single depository as Lessor may instruct. Upon making payment to the authorized agent or depository, Lessee shall be relieved of any 169 responsibility for the distribution of such payment to Lessor. The delivery or the deposit in the mail of any payment hereunder on or before the due date thereof shall be deemed timely payment hereunder. 4. EXERCISE OF OPTION; PURCHASE PRICE a. Exercise of Option - Lessee may elect to exercise its option to purchase the Property at any time during the term specified in Section 2 by giving written notice of its election in the manner specified in Section 9 of this Agreement, which notice shall also designate a bank or title insurance company within the state of Arizona to serve as escrow agent. Lessor and Lessee shall promptly execute and deliver instructions to the escrow agent consistent with the terms and conditions of this Agreement. b. PURCHASE PRICE - If Lessee exercises its option to purchase the Property, the purchase price shall be (1) Two Hundred Fifty Thousand Dollars ($250,000.00) plus interest at the rate of EIGHT PERCENT (%8) compounded annually from and after the date of its exercise of the option to purchase the property. If Lessee exercises its option to so purchase, all funds paid to Lessor under the terms of Section 3 hereof shall be a credit toward such purchase price as of the date such payments were made hereunder. c. CLOSING - Within the (10) days after Lessee has exercised its option to purchase, Lessor shall furnish escrow agent with a conveyance of the Property in a form acceptable to Lessee. Lessee shall, within the (10) days after its receipt of the form of the conveyance pay the purchase price to the escrow agent. Upon such receipt, escrow agent shall close the escrow by recording the conveyance in the official records of Mojave County and paying the purchase price to Lessor. One-half of the charges of the escrow agent shall be paid by each party. Lessee shall pay all recording fees in connection with its exercise of its option to purchase. 5. INSPECTION Lessor (or any agent of Lessor with authorization in writing), at Lessor's risk and expense, may (1) enter upon the Property to inspect the same at such times and upon such notice to lessee as shall not unreasonably or unnecessarily hinder or interrupt the operations of Lessee, and (2) inspect the accounts and records used in calculating production royalty paid to Lessor hereunder, which right may be exercised, at any reasonable time during a period of one (1) year from and after the date on which the applicable quarterly payment of production royalty was 170 made. Lessor agrees to treat all information received hereunder as confidential and not to disclose the same without proper permission of Lessee. 6. OBLIGATIONS OF LESSEE a. CONDUCT OF OPERATIONS - All work performed by Lessee on the Property pursuant to this Agreement shall be done in good and workmanlike manner and in compliance with all state and federal laws and regulations governing such operations, together with all local ordinances, including without limitation, those regulations related to the use of the Property and all sanitary and health regulations. The operations of Lessee shall be further subject to the following special requirements: (1) Lessor shall be furnished with copies of all notices of intent, plans of operation, or other documents furnished to government entities having supervision or control of Lessee's activities hereunder; and (2) Lessee shall not stockpile ore or concentrates off of the Property without the prior written consent of Lessor. b. PROTECTION FROM LIENS - Lessee shall pay all expenses incurred by it in its operation on the Property hereunder and shall allow no liens arising from any act of Lessee to remain upon the property; provided, however, that Lessee shall not be required to remove any such lien as long as Lessee is contesting in good faith the validity or amount thereof. Lessee shall post and maintain upon the Property a notice of non-liability. c. INDEMNITY AND INSURANCE - Lessee shall protect, defend and indemnify Lessor against and hold Lessor harmless from any suit, claim, judgment or demand, administrative proceeding or sanction, expense, including attorney's fees, whatsoever arising out of Lessee's exercise of any of its rights pursuant to this Agreement, provided that if any individual Lessor or any person or instrumentality acting on Lessor's behalf shall have been a contributing cause to the event giving rise to such suit, claim, demand or judgment, Lessee's obligation to indemnify Lessor hereunder shall be limited to the extent permitted by law under the permitted application of rules of contributory or comparative negligence. Lessee shall further maintain insurance to support the combined bodily injury and property damage, and a similar amount of property damage. Lessor shall be named as co-insured under such policies and Lessee shall furnish Lessor with a certificate of such insurance prior to conducting any activities on the Property 171 pursuant to this Agreement excepting such activities as securing mine shafts, tunnels, holes or other hazardous situations. d. PAYMENT OF TAXES - Lessee shall pay all taxes levied against the Property and production therefrom. Lessee shall not be liable for any taxes levied or measured by income of Lessor. Lessee shall have the right to contest, in the courts or otherwise, the validity or amount of any taxes or assessments, before it shall be required to pay the same. If this Agreement is terminated or otherwise expires, and if the Property is classified as an "Operating Mine" as a result of lessee's activities, Lessee shall pay all ad valorem taxes based on such classification until such classification is removed. 7. TITLE MATTERS a. REPRESENTATION - Lessor represents to lessee that to the best of its knowledge: (1) the patented mining claims constituting the Property have been located and appropriate record made thereof in compliance with the laws of the United States and the laws of Arizona; (2) there is no claim of adverse mineral rights affecting such claims; (3) except as specified in Exhibit A, Lessor's possessory right and title to the Property is free and clear of all lines and encumbrances, and (4) the Lessor has the full right, power and capacity to enter into this Agreement upon the terms set forth herein. b. TITLE DOCUMENTS; DATA - Upon written request of Lessee at any time during the term hereof, Lessor shall promptly deliver to Lessee all abstracts of title to and copies of all title do cuments affecting the Property which Lessor has in its possession. c. OBJECTIONS TO TITLE - If, during the first six months from and after the effective date of this Agreement, Lessee notifies Lessor of the existence of any matter related to the status of title to the Property constituting a material violation of the representations made under in subsection a of this Section 6, Lessor agrees to either (1) remove such defects at lessor's costs, or (2) return all funds theretofore paid to Lessor under the terms of Section 3. d. CHANGE OF LAW - If the laws of the United States concerning mineral rights on private managed lands is repealed, amended, or new legislation is enacted, Lessee shall have the right to take whatever action it deems appropriate to preserve a right to explore for, develop, and mine Leased Substances. If Lessee elects to take any action under the terms of this subsection, it shall first notify Lessor in writing setting forth the nature of the proposed action and an 172 explanation thereof. Lessor agrees to cooperate with Lessee and execute whatever documents are deemed necessary to Lessee to accomplish such action. Nothing in this subsection shall impose any obligation upon Lessee to take any action, or diminish the right of Lessor to take action it deems appropriate; provided, however, that if Lessor chooses to take any action, it will first inform Lessee of the nature of such contemplated action. e. GENERAL - Nothing herein contained and no notice or action which may be taken under this Section 7 shall limit or detract from Lessee's right to terminate this Agreement in the manner hereinafter provided. 8. TERMINATION; REMOVAL OF PROPERTY; DATA a. TERMINATION BY LESSOR - If Lessee defaults in the performance of its obligations hereunder, Lessor shall give Lessee written notice specifying the default. If the default is not cured within sixty (60) days after Lessee has received the notice, or if Lessee has not within that time begun action to cure the default and does not thereafter diligently prosecute such action to completion, Lessor may terminate this Agreement by delivering to Lessee written notice of such termination, subject to Lessee's right to remove its property and equipment from the Property, as hereinafter provided. If Lessee in good faith disputes the existence of a default, Lessee shall initiate appropriate action in court of competent jurisdiction within the 60-day period and the time to cure shall run from the date of a final determination that a default exists. Lessor shall have no right to terminate this Agreement except as set forth in this subsection a of Section 8. b. TERMINATION BY LESSEE - Lessee shall have the right to terminate this Agreement at any time by written notice from Lessee to Lessor. From and after the date of termination, all right, title and interest of Lessee under this Agreement shall terminate, and Lessee shall not be required to make any further payments or to perform any further obligations hereunder concerning the property, except payment and obligations the due dates for the payment or performance of which occur prior to the termination date, including the obligations related to damages to the surface and improvements thereon. c. REMOVAL OF PROPERTY - Upon any termination or expiration of this Agreement Lessee shall have a period of one (1) year from and after the effective date of termination within which it may elect to remove from the Property all of its machinery, buildings, structures, facilities, equipment and other property of every nature and description erected, placed or 173 situated thereon, except supports placed in shafts, drifts or opening in the property. Failure of Lessee to do so shall constitute an abandonment by Lessee to Lessor of the same; provided, however, that Lessee may be required to remove such property upon notice form Lessor given at any time during the one-year period and sixty (60) days thereafter. d. RELINQUISHMENT OF RECORD - If this Agreement is terminated or otherwise expires, Lessee shall provide Lessor with a recordable document sufficient to provide notice that Lessee no longer asserts rights to the Property under this Agreement. 9. NOTICES Any notice or communication required or permitted hereunder shall be effective when personally delivered or deposited, postage prepaid, certified or registered, in the United States mail to the address specified above. Either party may, by notice to the other given as aforesaid, change its mailing address for future notices. 10. BINDING EFFECT; ASSIGNMENT The rights of either party hereunder may be assigned in whole or in part and the provisions hereof shall inure to the benefit of and be binding upon the heirs, personal representative, beneficiaries, successors and assigns, but no change or division of ownership of the Property or payments hereunder, however accomplished, shall operate to enlarge the obligations or diminish the rights of Lessee hereunder. No such change or division in the ownership of the Property shall be binding upon Lessee for any purpose until the first day of the month next succeeding the month in which such person acquiring any interest shall furnish evidence to Lessee's satisfaction of such change, transfer or division of ownership. 11. FORCE MAJEURE If Lessee is delayed or interrupted in or prevented from excising its rights or performing its obligation, as herein provided by reason of "force majeure," then, and in all such cases, Lessee shall be excused, without liability, from performance of its obligations set forth in this Agreement (except as to obligations to pay money set forth in Section 3 and 6), but the provisions shall again come into full force and effect upon the termination of the period of delay, prevention, disability or condition. Lessee shall notify Lessor of the beginning and ending date of any period of force majeure and the period of the disability. "Force majeure" includes all 174 disabilities arising from causes beyond reasonable control of Lessee, including without limitation, acts of God, accidents, fires, damages to facilities, labor troubles, unavailability of fuels, supplies and equipment, orders or requirements of courts or government agencies, or the inability to obtain environmental clearance or operating permits that may be required by governmental authorities. 12. MEMORANDUM The parties to this Agreement agree to execute and record a Memorandum of this Agreement in a form sufficient to constitute record notice to third parties of the rights granted hereunder, which may be recorded in the official records of Mojave County, Arizona. 13. CONSTRUCTION a. GOVERNING LAW - This Agreement shall be construed by the internal laws but not the laws of conflict of the State of Arizona. b. HEADINGS - The headings used in this Agreement are for convenience only and shall not be deemed to be a part of this Agreement for purposes of construction. c. INTEGRATION - The entire agreements and understandings of the parties with reference to the Property are contained in this Agreement and this Agreement superseded all prior agreements and understandings regarding the Property. SIGNED, effective as of the date recited above. LESSOR LESSEE . /s/ Arthur James Good CAN-CAL RESOURCES, LTD - ---------------------------------- Arthur James Good /s/ R. D. Sloan ------------------------------------ Ronald D. Sloan, President /s/ Wanda Mae Good - ---------------------------------- Wanda Mae Good /s/ Jean Ervin /s/ Bettyann Sloan - ---------------------------------- ------------------------------------ Witness Witness 175 EX-10.7 12 AGREEMENT - AURUM EXHIBIT 10.7 AGREEMENT THIS AGREEMENT made this 27th day of October, 1997, by and between Can-Cal Resources, Ltd ("Can-Cal"), a Nevada corporation, and Aurum LLC ("Aurum"), a California limited liability company. WHEREAS, Aurum owns approximately 120 acres located near Pisgah, San Bernardino County, California ("the Property"), which has approximately 13.5 million tons of volcanic cinders; and WHEREAS Aurum has loaned $315,045.98 to Can-Cal ("the Indebtedness"); and WHEREAS, Can-Cal does not have funds with which to repay the Indebtedness; and WHEREAS, Can-Cal has a continuing need for funds and wishes to be able to obtain those funds on an equity basis to avoid incurring additional indebtedness which it may be unable to repay; and WHEREAS, Can-Cal wishes to acquire the Property and obtain cancellation of the Indebtedness in exchange for shares of Can-Cal; and WHEREAS, Aurum is willing to transfer the Property to Can-Cal and cancel the Indebtedness in exchange for shares of Can-Cal's common stock and arrange for equity financing for Can-Cal, all on the terms set forth herein. NOW, THEREFORE, in consideration of the premises and other good and valuable consideration, receipt whereof is hereby acknowledged, it is agreed as follows: 1. Can-Cal shall purchase and Aurum shall sell to Can-Cal the Property by a Quitclaim Deed identical to the Quitclaim Deed that it received from Burlington Northern Santa Fe Foundation when it acquired the Property. The Property is situated near the station of Pisgah, in San Bernardino County, California, as shown on the map marked Exhibit "A," dated July 22, 1996 attached hereto and made a part hereof. Aurum has furnished Can-Cal with the documentation relating to its acquisition of the Property 2. Aurum hereby cancels and extinguishes the Indebtedness of $315,045.98 which Can- Cal owes it and waives any claim it has to interest on that Indebtedness. Aurum represents that Can- Cal is not indebted to it in any amount. 3. In consideration for the transfer of the Property and the cancellation of the Indebtedness, Can-Cal herewith issues to Aurum 2,181,752 shares of its common stock, par value 176 $.001. Can-Cal represents and warrants that the 2,181,752 shares of its common stock issued to Aurum are validly issued, fully paid and non-assessable. All such shares are "restricted securities" pursuant to the Securities Act of 1933 and are subject to the restrictions imposed by that Act and Rule 144 promulgated thereunder. Aurum agrees that an appropriate legend shall be printed on the stock certificate evidencing ownership of those shares and appropriate stock transfer instructions will be issued to Can-Cal's stock transfer agent. 4. Aurum agrees that the sale of the Property to Can-Cal will be on the same terms and conditions that it acquired that property from the Burlington Northern Santa Fe Foundation and at its cost plus its out of pocket expenses incurred in connection with the acquisition of that Property. which Aurum represents to be $553,716.94, plus legal fees and related costs of $25,755.59, for a total purchase price of $579,472.53. 5. (a) Aurum also agrees to use its best efforts to furnish funds as may reasonably be requested by Can-Cal by purchasing common shares of Can-Cal at $.41 per share, the same price at which the shares are valued for purposes of acquiring the Property and cancellation of the Indebtedness. In the event Can-Cal requests Aurum to purchase shares of its common stock, it shall do so by written notice not less than ten (10) calendar days prior to the date it wants the funds, which notice shall include the amount of funds it requires and the date it requires those funds. Aurum shall use its best efforts to furnish Can-Cal with the funds it requires by purchasing shares of Can-Cal's common stock. Can-Cal represents and warrants that all shares purchased by Aurum shall be validly issued, fully paid and nonassessable. This agreement by Aurum shall not be construed as a guarantee or assurance that it will be able to purchase a sufficient number of Can-Cal common shares or that Can-Cal will receive the funds it needs on the terms and conditions set forth herein. All shares issued pursuant to purchases made by Aurum will be "restricted shares" as that term is defined in the Securities Act of 1933 and subject to the investment. (b) Nothing herein shall obligate Can-Cal to obtain financing from Aurum. Can-Cal is free to obtain financing from any source it deems appropriate. CONVEYANCE - ---------- 6. Aurum shall convey, or cause to be conveyed, all of Aurum's right, title and interest in and to the Property, if any, to Can-Cal by Quitclaim Deed subject to the exceptions and reservations, whether or not of record and in accordance with the other terms, conditions and reservations contained herein. Aurum represents that the Quitclaim Deed to Can-Cal is identical to the Quitclaim Deed it received from Burlington Northern Santa Fe Foundation from whom it purchased the Property. 177 SUCCESSORS IN INTEREST - ---------------------- 7. Wherever referred to herein, Aurum shall imply, mean and apply to Aurum, its successors, assigns, heirs, executors, administrators, or designees, who shall be severally and collectively liable for any and all performance hereunder. 8. Wherever referred to herein, Can-Cal shall imply, mean and apply to Can-Cal, its successors, assigns, heirs, executors, administrators, or designees, who shall be severally and collectively liable for any and all performance hereunder. 9. This Agreement shall bind and inure to the benefit of Aurum, Can-Cal and their heirs, executors, administrators, successors and assigns. THIS OFFER IS, AND THE CONVEYANCE OF THE PROPERTY SHALL BE, SUBJECT TO THE FOLLOWING TERMS, CONDITIONS AND RESERVATIONS 10. REAL ESTATE COMMISSIONS. Can-Cal and Aurum represent and warrant to each other that no real estate broker or agent has a valid claim for commissions in connection with this transaction and agree to indemnify and hold harmless each other from any such claims arising out of their actions. 11. OTHER LIENS. Any judgment against Aurum which may appear of record as a lien against the Property shall be settled and satisfied by Aurum if and when it is judicially determined to be valid, and Aurum hereby indemnifies Can-Cal for all loss arising out of Aurum's failure to have a judgment lien so settled and satisfied. All outstanding assessments levied or due in the year the deed is delivered shall be paid Can-Cal. 12. GENERAL REAL ESTATE TAXES. Real estate taxes or assessments payable or paid in the year the deed is delivered shall be prorated by the parties as of the date on which the deed is delivered on the basis of the most recent ascertainable taxes assessed against the subject Property, or as may be equitably apportioned thereto by Aurum if the Property is not separately assessed or unless the payment of same has been assumed by a tenant under an existing lease to be assigned to Can-Cal. 13. TRANSFER TAXES. Can-Cal agrees to purchase, affix and cancel any and all documentary stamps in the amount prescribed by statute, and to pay any and all required transfer taxes, excise taxes and any and all fees incidental to recordation of the conveyance instrument. In the event of Can-Cal's failure to do so, if Aurum shall be obligated so to do, Can-Cal shall be liable for all costs, expenses and judgments to or against Aurum, including all of Aurum's legal fees and expenses and same shall constitute a lien against the Property to be conveyed until paid by Can-Cal. 14. NOTICES AND DEMANDS. All notices, demands, payments and other instruments required or permitted to be given or served by either party shall be in writing and deemed to have 178 been given or serve by either party if sent by registered or certified mail, addressed to the other party at the address shown herein. 15. GOVERNMENTAL APPROVAL. If the approval of any governmental agency is required for the sale of the Property, it is understood and agreed that this Agreement is subject thereto and that both parties shall use their best efforts to obtain such approval. In the event a city, county, or other governing authority wherein said Property is located requires a survey or plat or has a subdivision ordinance, Can-Cal shall obtain such survey or plat, all at Can-Cal's sole cost and expense. The survey or plat shall be submitted by Can-Cal to Aurum for review and approval prior to recording and within a period of forty-five (45) days after the date of Aurum's acceptance of this offer. 16. COMPLETE AGREEMENT. This Agreement contains the entire agreement between Aurum and Can-Cal with respect to the Property and, except as set forth in this Agreement, neither Aurum, nor Aurum's agents or employees, have made any agreements, covenants, warranties or representations of any kind or character, express or implied, oral or written, with respect to the Property. 17. Aurum is a California limited liability company and not a foreign person as the term is used and defined in Section 1445 of the Internal Revenue Code of 1954, as amended, and the regulations promulgated thereunder. 18. Can-Cal has been allowed to make an inspection of the Property and has knowledge as to the past use of the Property. Based on this inspection and knowledge Can-Cal is aware of the condition of the Property and BUYER IS AWARE THAT BUYER IS PURCHASING THE PROPERTY ON AN "AS-IS WITH ALL FAULTS" BASIS WITH ANY AND ALL PATENT AND LATENT DEFECTS AND THAT CAN-CAL IS NOT RELYING ON ANY REPRESENTATIONS OR WARRANTIES, EXPRESS OR IMPLIED, OF ANY KIND WHATSOEVER FROM AURUM AS TO ANY MATTERS CONCERNING THE PROPERTY, including the physical condition of the property and any defects thereof, the presence of any hazardous substances, wastes or contaminants in, on or under the Property, the condition or existence of any of the above-ground or underground structures or improvements in, on or under the Property, the condition of title to the Property, and the leases, easements or other agreements affecting the Property. Can-Cal is aware of the risk that hazardous substances and contaminants may be present on the Property, and indemnifies, holds harmless and hereby waives, releases and discharges forever Aurum from any and all present or future claims or demands, and any and all damages, loss, injury, liability, claims or costs, including fines, penalties and judgments, and attorney's fees, arising from or in any way related to the condition of the Property or alleged presence, use, storage, generation, manufacture, transport, release, leak, spill disposal or other handling of any hazardous substances or contaminants in, on or under the Property. Losses shall include, without limitation, (a) the cost of any investigation, removal, remedial or other response action that is required by any environmental law, that is required by judicial order or by order of or 179 agreement with any governmental authority, or that is necessary or otherwise is reasonable under the circumstances, (b) capital expenditures necessary to cause Aurum's remaining property or the operations or business of Aurum on its remaining property to be in compliance with the requirements of any environmental law, (c) losses for injury or death of any person, and (d) losses arising under any environmental law enacted after transfer. The rights of Aurum under this section shall be in addition to and not in lieu of any other rights or remedies to which it may be entitled under this document or otherwise. This indemnity specifically includes the obligation of Can-Cal to remove, close, remediate, reimburse or take other actions requested or required by any governmental agency concerning any hazardous substances or contaminants on the Property. This section shall survive closing. The term "environmental law" means any federal, state or local statute, regulation, code, rule, ordinance, order, judgment, decree, injunction or common law pertaining in any way to the protection of human health or the environment, including without limitation, the Resource Conservation and Recovery Act, the Comprehensive Environmental Response, Compensation and Liability Act, the Toxic Substances Control Act, and any similar or comparable state or local law. The term "hazardous substance" means any hazardous, toxic, infections substance, material or waste as defined, listed or regulated under any environmental law, and incudes, without limitation, petroleum oil and any of its fractions. 19. All terms, conditions and provisions of this Agreement shall survive closing. AURUM LLC, BY ACQUITAINE TRUST, ITS MANAGER /s/ John D. Edwards ---------------------------------------------- John D. Edwards, Trustee for Acquitaine Trust CAN-CAL RESOURCES, LTD. /s/ R. D. Sloan ---------------------------------------------- 180 EX-10.8 13 QUIT CLAIM DEED EXHIBIT 10.8 RECORDING REQUESTED BY Recorded in Official Records, County of ARTER & HADDEN San Bernardino, Errol J. Mackzum, Recorder 634.00 AND WHEN RECORDED MAIL THIS DEED AND, UNLESS Doc No. 19970424165 OTHERWISE SHOWN BELOW, MAIL TAX STATEMENT TO: 10:10 am 11/19/97 NAME BILL FISHMAN, ESQ. STREET ADDRESS 1600 Broadway, Suite 2600 CITY, STATE & ZIP CODE Denver, CO 80202-4926 TITLE ORDER NO. __________ ESCROW NO.________ DOCUMENTARY TRANSFER TAX $ 605.00 X computed on full value of property conveyed, or QUITCLAIM DEED computed on full value less liens and encumbrances remaining at time of sale. /s/ Bruce G. Holden, Esq. Arter & Hadden Signature of Declarant or Agent Determining Tax Firm Name AURUM, LLC - -------------------------------------------------------------------------------- (NAME OF GRANTOR(S)) the undersigned grantor(s), for a valuable consideration, receipt of which is hereby acknowledged, do ___ hereby remise, release and forever quitclaim to Can-Cal Resources, Ltd. ----------------------- (NAME OF GRANTEE(S)) the following described real property in the City of N/A , County of San Bernardino , State of CA : Legally described in Exhibit A attached hereto and incorporated herein by reference. Assessor's parcel No. 0552-0110-10 Executed on November 4 , 1997 , at Irvine, California ------------------ ------- ---------------------------------- (CITY AND STATE) AURUM, LLC STATE OF California By Acquitaine Trust, Manager COUNTY OF Orange By: /s/ John Edwards, Trustee RIGHT THUMBPRINT (Optional) Thumbprint on Document Here On November 4, 1997 before me, Deborah Kae Colsch personally appeared John Edwards, Trustee proved me on the basis of satisfactory evidence) to be the person whose name is subscribed to the within instrument and acknowledged to me that he executed the CAPACITY CLAIMED BY SIGNER(S) same in his capacity, and that by his __ INDIVIDUALS signature on the __ CORPORATE instrument the person, or the entity upon OFFICERS(S) ______________ behalf of which the person acted, (TITLES) executed the instrument. __ PARTNER(S) __ LIMITED __ GENERAL __ ATTORNEY IN FACT X TRUSTEE WITNESS my hand and official seal. __ GUARDIAN/CONSERVATOR __ OTHER:____________________ DEBORAH KAE COLSCH Commission # 1152519 Notary Public - California Orange County My Comm. Expires Aug 22, 2001 /s/ Deborah Kae Colsch - ------------------------------------ (SIGNATURE OF NOTARY) MAIL TAX Can Cal Resources, Ltd., c/o Bill Fishman, Esq. STATEMENTS TO: 1600 Broadway, Suite 2600, Denver, CO 80202-4926 SIGNER IS REPRESENTING Person(s) or Entity(ies) cquitaine Trust, Manager 181 EXHIBIT A - --------- TO QUITCLAIM DEED - ----------------- PARCEL l - --------- A parcel of land being a portion of the Atchison, Topeka and Santa Fe Railway Company's property lying in said Railway Company's Needles Subdivision and this parcel of land being all of that certain mining claim or premises described in a mining claim between the United States Government, Grantor, and The Atchison, Topeka and Santa Fe Railway Company, Grantee, dated April 8, 1963, and recorded in Book 5907, Page 451, on May 10, 1963 in the Office of Records of San Bernardino County, California, the above referenced parcel of land, known as the Cinder and Cinder No. 2 Placer Mining Claims, being the N1/2NW1/4, the W1/2NW1/4NE1/4 and the Nl/2SE1/4NW1/4 of Section 32, Township 8 North, Range 6 East of the San Bernardino Base and Meridian, San Bernardino County, California, EXCEPTING THEREFROM, any veins or lodes of quartz or other rock in place bearing gold, silver, cinnabar, lead, tin, copper or other valuable deposits within the land above described which may have been discovered or known to exist prior to September 11, 1959; also, PARCEL 2 -------- All that certain 60.0 foot wide road described in deed dated November 16, 1956, from Southern Pacific Land Company to The Atchison, Topeka and Santa Fe Railway Company, recorded December 24, 1956 in Book 4117 of Official Records at Page 24 of the Records of the County Recorder's Office of said County, described for reference as follows: An easement for a private road and a pole line for telephone and power wires over a strip of land 60.0 feet wide, being all that portion of Section 29, Township 8 North, Range 6 East, San Bernardino Base and Meridian, according to the Official Plat thereof, lying between lines which are parallel with and distant 30.0 feet, as measured at right angles from and on each side of the following described centerlines: Beginning at a point in the North line of said Section 29, distant 900.0 feet Easterly, as measured along said North line from a 1/2 inch pipe set for the Northwest corner of said Section 29; thence Southwesterly along a direct line, deflecting Southwesterly from said North line an angle of 61(degree)00', a distance of 1,435.0 feet; thence Southwesterly along a direct line, deflecting an angel of 16(degree)30' to the left from the last described course, a distance of 1,785.0 feet; thence Southeasterly along a direct line, deflecting an angle of 18(degree)30' to the left from the last described course, a distance of 450.0 feet; thence Southeasterly along a direct line, deflecting an angle of 41(degree)30' to the left from the last described course, a distance of 240.0 feet; thence Southeasterly along a direct line, deflecting an angle of 23(degree)30' to the right from the last described course, a distance of 700.0 feet; thence Southeasterly along a direct line, deflecting an angel of 18(degree)00' to the left from the last described course, a distance of 1,330.0 feet; thence Southwesterly along a direct line, deflecting an angle of 43(degree)30' to the right from the last described course, a distance of 182 60.0 feet, more or less, to a point in the South line of said Section 29, and there terminating. The side lines of said strip to be lengthened or shortened as the case may be so that all portions of said strip shall fall within the boundaries of said Section 29; also, PARCEL 3 All of Grantor's right, title and interest in and to the 60.0 foot wide strip lying over, under, upon through and across Sections 20 and 30, all in Township 8 North, Range 6 East of the San Bernardino Base and Meridian, for an existing access roadway to the hereinabove described PARCEL 1, as it now exists. SUBJECT, however, to all existing interests, including but not limited to all reservations, rights-of-way and easements of record or otherwise. Grantee has been allowed to make an inspection of the property and has knowledge as to the past use of the property. Based upon this inspection and knowledge, Grantee is aware of the condition of the property and GRANTEE ACKNOWLEDGES THAT GRANTEE IS PURCHASING THE PROPERTY IN AN "AS-IS WITH ALL FAULTS" BASIS WITH ANY AND ALL PATENT AND LATENT DEFECTS AND THAT GRANTEE IS NOT RELYING ON ANY REPRESENTATION OR WARRANTIES, EXPRESS OR IMPLIED, OF ANY KIND WHATSOEVER FROM GRANTOR AS TO ANY MATTERS CONCERNING THE PROPERTY, including the physical condition of the property and any defects thereof, the presence of any hazardous substances, wastes or contaminants in, on or under the property, the condition or existence of any of the above ground or underground structures or improvements in, on or under the property, the condition of title to the property, and the leases, easements or other agreements affecting the property. Grantee is aware of the risk that hazardous substances and contaminants may be present on the property, and indemnifies, holds harmless and hereby waives, releases and discharges forever Grantor from any and all present or future claims or demands, and any and all damages, loss, injury, liability, claims or costs, including fines, penalties and judgments, and attorney's fees, arising from or in any way related to the condition of the property or alleged presence, use, storage, generation, manufacture, transport, release, leak, spill, disposal or other handling of any hazardous substances or contaminants in, on or under the property. Losses shall include without limitation (a) the cost of any investigation, removal, remedial or other response action that is required by any Environmental Law, that is required by judicial order or by order of or agreement with any governmental authority, or that is necessary or otherwise is reasonable under the circumstances, (b) capital expenditures necessary to cause the Grantor's remaining property or the operations or business of the Grantor on its remaining property to be in compliance with the requirements of any Environmental Law, (cr Losses for injury or death of any person, and (d) Losses arising under any Environmental Law enacted after transfer. The rights of Grantor under this section shall be in addition to and not in lieu of any other rights or remedies to which it may be entitled under this document or otherwise. This indemnity specifically includes the obligation of Grantee to remove, close, 183 remediate, reimburse or take other actions requested or required by any governmental agency concerning any hazardous substances or contaminants on the property. The term "Environmental Law" means any federal, state or local statute, regulation, code, rule, ordinance, order, judgment, decree, injunction or common law pertaining in any way to the protection of human health or the environment, including without limitation, the Resource Conservation and Recovery Act, the Comprehensive Environmental Response, Compensation and Liability Act, the Toxic Substances Control Act, and any similar or comparable state or local law. The term "Hazardous Substance" means any hazardous, toxic, radioactive or infectious substance, material or waste as defined, listed or regulated under any Environmental Law, and includes without limitation petroleum oil and any of its fractions. 184 EX-10.9 14 AGREEMENT - TYRO EXHIBIT 10.9 AGREEMENT Agreement dated this 30th day of October, 1997, by and between Tyro Inc., a Nevada corporation, also known as Tyro Precious Metals Processing Center ("Tyro"), Dean Willman ("Willman"), Individually, and Roland S. Ericsson (Ericsson), Individually (collectively referred to as "Debtors"), and Can-Cal Resources Ltd. ("Can-Cal"). WHEREAS, by letter of agreement dated September 11, 1996 and amendments thereto, by and between Tyro, A. R. Trust, acting on behalf of Can-Cal, entered into an agreement to process precious metals and perform other services; and WHEREAS, disputes have risen by and between the parties with respect to the propriety of expenditures of monies advanced by Can-Cal through A. R. Trust to the escrow account of Ericsson to Tyro; and WHEREAS, the parties desire to resolve their differences amicably and provide for the repayment of a portion of funds advanced by Can-Cal through A. R. Trust to Tyro; and WHEREAS, the parties wish to, upon completion of payments required by this Agreement, release each other from any other and further obligations to each other. NOW, THEREFORE, it is agreed as follows: PAYMENTS TO CAN-CAL 1.Tyro, Willman, Individually, and Ericsson, Individually, (Collectively "Debtors") each hereby jointly and severally covenant and promise to pay to Can-Cal the sum of $65,000 as follows: Date Due Amount -------- ------ November 10, 1997 $10,000 December 10, 1997 $10,000 January 10, 1998 $10,000 February 10, 1998 $10,000 March 10, 1998 $10,000 April 10, 1998 $10,000 May 10, 1998 $ 5,000 There shall be a ten (10) day grace period before a default is declared by Can-Cal, with the exception of the payment due on November 10,1997 which must be made on that date. All payments 185 shall bear interest at six percent (6%) per annum with the exception of the first payment of $10,000 due on November 10,1997 which shall be paid without any interest. Debtors each agree that they are primarily liable for the payment of all monies as set forth herein and that, in the event of the occurrence of an event of default, they will pay to Can-Cal all costs including reasonable attorney's fees incurred in enforcing this Agreement, their lien and security interests, or the rights and remedies herein provided. COLLATERAL - ---------- 2. Debtors hereby agree to secure and collateralize the obligation of $65,000 to Can-Cal by pledging to Can-Cal the collateral listed on Exhibit A hereto. Debtors will forthwith execute appropriate financing statements and all other documents as Can-Cal may reasonably require in order to make all required filings as evidence of the pledge of the collateral to Can-Cal. DEBTORS' REPRESENTATIONS AND WARRANTIES - --------------------------------------- 3. Debtors hereby represent and warrant: a. that they own each item of collateral set forth on Exhibit A free and clear of all liens, security interests, encumbrances or claims by third parties and that by pledging the collateral to Can-Cal they are not violating any agreement, covenant, promise or undertaking. b. that the collateral will be kept and stored at Tyro's facilities near Bullhead City, Arizona and will not be removed therefrom without the express prior written consent of Can- Cal; and c. Debtors will defend the collateral against claims or demands made by all persons claiming either the collateral or any interest in it. d. Debtors will promptly pay when due all taxes, assessments, liens and encumbrances levied against the collateral or upon the use of the collateral or upon operations in which the collateral is used, or those levied against the obligation secured by this Agreement. If the collateral is attached to real property owned by Debtors or under any contract which obligates Debtors to pay taxes on the real property, Debtors agree to pay taxes, assessments and encumbrances upon the real property on which the collateral is located. USE OF COLLATERAL - ----------------- 4. Until the occurrence of any event of default, Debtors may have possession of the collateral. Debtors may use the collateral in any lawful manner which is not inconsistent with this Agreement, any policy of insurance upon the collateral or the laws and regulations of the State of Arizona. Debtors will maintain and keep the collateral in good order and repair and agree not to use 186 the collateral in any manner which results in waste, unreasonable deterioration or depreciation. Can- Cal's representatives may enter upon the Debtors' property and inspect the collateral at any reasonable time. EVENTS QF DEFAULT - ----------------- 5. Debtors are in default under this Agreement upon the happening of one or more of the following events or conditions: a. Default in the payment of monies when due; b. If a warranty, representation or statement made or furnished by Debtors to Can-Cal is false or proves to have been false in any material respect when it was made; c. Loss, theft, damage, destruction, sale or encumbrance of the collateral or any part of it, or a levy, seizure or attachment of the collateral or any part of it; d. Debtors' failure to perform any covenant in this Agreement or the taking of action by Debtors which is inconsistent with or in violation of this Agreement; or which endangers the safety or integrity of the collateral or Can-Cal's security interest; e. Dissolution, termination of existence, insolvency of any Debtor, appointment of a receiver for any part of any property belonging to Debtors whether or not it is collateral under this Agreement, assignment for the benefit of creditors, or the commencement of proceedings under a bankruptcy or insolvency law by or against the Debtors. ACCELERATION - ------------ 6. Upon the happening of an event of default, all amounts owed by Debtors to Can-Cal, pursuant to this Agreement, shall become immediately due and payable. 7. Upon the occurrence of any event of default hereunder, Can-Cal shall have the right to take possession of the collateral and to sell or any part thereof consistent with commercially reasonable standards at public or private sale at Can-Cal's option at any time or times without advertisement or demand upon or notice to any Debtor (all of which are hereby waived), except such notice as is required by applicable statute and cannot be waived; with the right on the part of Can- Cal or its nominee to become the purchaser thereof at any such sale (unless prohibited by statute), free from any equity of redemption and from all other claims, and after deducting all legal and other expenses for maintaining or selling the collateral and all attorneys fees, legal or other expenses for collection, sale and delivery, to apply the residue of the proceeds of such sale or sales to pay all amounts owed by Debtors to Can-Cal. 187 OTHER REMEDIES AVAILABLE TO CAN-CAL - ----------------------------------- 8. The amount to be paid by Debtors to Can-Cal pursuant to this Agreement represents a compromise of claims asserted by Can-Cal against Debtors. In the event the Debtors fail to make timely payment of the amounts due pursuant to paragraph 1 herein, Can-Cal, in addition to its rights to obtain judgment for any unpaid balance due, shall have the right to file a lawsuit against Debtors seeking damages in addition to the amounts required to be paid hereunder. DEBTORS' AUTHORITY - ------------------ 9. Debtors have the authority to enter into this Agreement and any person signing it on Debtors' behalf does so with the authority of the Debtors. REPRESENTATIONS AND WARRANTIES OF CAN-CAL - ----------------------------------------- 10. Can-Cal represents that it has, either directly or through A. R. Trust advanced funds to Tyro by depositing them in the escrow account of Ericsson and that no other party has any interest in the funds advanced by it. Can-Cal further represents that it has the authority to enter into this Agreement and any person signing it on Can-Cal's behalf does so with the authority of Can-Cal. ASSIGNMENT OF RIGHTS - -------------------- 11. Debtors, and each of them, hereby assign to Can-Cal any and all rights, claims, or causes of action they have or may have against John Doherty for actions taken or failed to be taken, monies spent, monies received or any other matter relating to services performed or failed to be performed, equipment purchased or obtained in connection with services performed by Debtors for Can-Cal. RELEASES - -------- 12. Upon receipt of all payments required by paragraph 1 of this Agreement timely made by Debtors, Can-Cal irrevocably releases Debtors and each of them from all actions, causes of action, suits, debts and all other matters Can-Cal ever had or has by reason of any matter to the date of this Agreement. 188 13. In consideration of the execution of this Agreement by Can-Cal, Debtors and each of them hereby release Can-Cal from all actions, causes of action, suits, debts and all other matters Debtors ever had or has by reason of any matter to the date of this Agreement. TYRO INC., A NEVADA CORPORATION By: /s/ Dean Willman, President ------------------------------------ /s/ Dean Willman ---------------------------------------- Dean Willman, Individually /s/ Roland S. Ericsson ----------------------------------------- Roland S. Ericsson, Individually CAN-CAL RESOURCES LTD. By: /s/ R. D. Sloan ------------------------------------- 189 EX-10.10 15 COMPLAINT EXHIBIT 10.10 SYLVESTER & POLEDNAK, ESQ. DONALD T. POLEDNAK, ESQ. Nevada Bar No. 4721 601 S. Sixth Street Las Vegas, Nevada 8901 (702) 952-5200 DISTRICT COURT CLARK COUNTY, NEVADA CAL-CAN RESOURCES, LTD., ) ) Case No. A386420 Plaintiff ) Dept. No. VII ) Docket No. P vs. ) ) EXEMPT FROM ARBITRATION TYRO, INC., a Nevada corporation, ) DISPUTE IN EXCESS OF $40,000 aka TYRO PRECIOUS METALS ) PROCESSING CENTER, DEAN ) WILLMAN and ROLAND S. ERICSSON, ) and DOES I through X, inclusive, ) ) Defendants ) ) - -------------------------------------------- COMPLAINT Cal-Can Resources, Ltd. ("Plaintiff"), by and through its legal counsel, Donald T. Polednak, Esq. of the law firm of Sylvester & Polednak, Ltd., hereby alleges and complains of the Defendants, and each of them, as follows: 190 GENERAL ALLEGATIONS 1. Plaintiff is a corporation formed and existing under the laws of the State of Nevada, with its principal place of business located at 1505 Blackcombe Street, Suite 203, Las Vegas, Nevada 89128. 2. Defendant Tyro, Inc. aka Tyro Precious Metals Processing Center ("Tyro") is a corporation formed and exiting under the laws of the State of Nevada with its principal place of business located in Clark County, Nevada. 3. Defendant Dean Willman ("Willman") is an individual residing in Clark County, Nevada. 4. Defendant Roland S. Ericsson ("Ericsson") is an individual residing in Clark County, Nevada. 5. The true names and capacities of Defendant DOES I through V are unknown to Plaintiff, and Plaintiff therefore sues said Defendants by said fictitious names. Plaintiff is informed and believes, and thereupon alleges that each of the Defendants designated as DOE is responsible in some manner for the events and happenings referred to and caused the damages to Plaintiff as alleged, and Plaintiff will ask leave of this court to amend this Complaint to insert the true names and capacities of DOES I through V when they are ascertained by Plaintiff together with appropriate charges and allegations to join such Defendants in this action. 6. On or about October 30, 1997, the above-named Defendants, jointly and severally, entered into an agreement (the "Agreement") with Plaintiff memorializing certain 191 indebtedness owed to Plaintiff by Defendants. A true and correct copy of the Agreement is attached hereto as Exhibit "1" and incorporated herein by this reference. 7. Pursuant to the terms of the Agreement, and repayment schedule contained therein, the Defendants, individually, and jointly and severally, covenanted and promised to pay Plaintiff the total sum of $65,000 pursuant to the terms set forth in the Agreement. 8. The Defendants, and each of them, agreed and covenanted that they were primarily liable for all monies set forth in the Agreement, and in that of the event of any default, they would pay Plaintiff all costs, including reasonable attorney's fees and costs in enforcing the Agreement, its lien and security interest, and the rights and remedies provided within the Agreement. 9. The Agreement contains an "acceleration clause" which provides that upon the occurrence of an event of default all amounts owed by the Defendants pursuant to the Agreement become immediately due and payable to Plaintiff. 10. Events of default under the Agreement specifically include failure to repay any of the amounts set forth in to the Agreement. 11. Defendants, and each of them, have failed to make payments pursuant to the terms of the Agreement despite demand and it has been necessary for Plaintiff to retain the services of an attorney to bring suit to recover amounts due under the Agreement. Pursuant to the specific terms of the Agreement, the Plaintiff is entitled to recover its attorney's fees and costs incurred in the enforcement of the Agreement. 192 FIRST CLAIM FOR RELIEF (Breach of Contract) 12. Plaintiff restates and realleges paragraphs 1 through 11 as though fully set forth herein at length. 13. The Agreement between the parties constitutes a contract. 14. Defendants, and each of them, have failed, despite demand, to perform under the terms of the contract by specifically failing and refusing to make payments due under the payment schedule set forth in the Agreement. As of the date of the filing of this Complaint, the Plaintiff is owed the approximate amount of $50,000, exclusive of interest accruing pursuant to the terms of the Agreement and attorney's fees and costs of suit incurred. 15. As a result of Defendants failure to make payment under the terms of the contract between the parties, Plaintiff has been damaged in an amount in excess of $10,000. 16. Plaintiff has been required to retain the services of legal counsel to enforce the Agreement and, pursuant to the terms of the Agreement, is entitled to recovery of attorney's fees and costs of suit. WHEREFORE, Plaintiff prays that judgment be entered against Defendants, jointly and severally as follows: As to the First Cause of Action - ---------------------------------- (a) For damages pursuant to the terms of the Agreement in the amount of $50,000.00 (in excess of $10.000), plus accruing interest. (b) For attorney's fees and costs of suit incurred herein. 193 (c) For such other and further relief as is deemed just and appropriate. DATED this 30th day of March, 1998. SYLVESTER & POLEDNAK, LTD. By /s/ Donald T. Polednak, Esq. ----------------------------------------- Donald T. Polednak, Esq. 601 S. Sixth Street Las Vegas, Nevada 89101 194 EXHIBIT 1 AGREEMENT DATED OCTOBER 30, 1997 BETWEEN CAN-CAL RESOURCES AND TYRO PRECIOUS METALS CENTER IS FILED AS EXHIBIT 10.9 TO THE FORM 10SB OF WHICH THIS COMPLAINT IS MADE A PART OF AS EXHIBIT 10.10. 195 EX-10.11 16 CONFESSION OF JUDGMENT EXHIBIT 10.11 SYLVESTER & POLEDNAK, ESQ. DONALD T. POLEDNAK, ESQ. Nevada Bar No. 4721 601 S. Sixth Street Las Vegas, Nevada 8901 (702) 952-5200 DISTRICT COURT CLARK COUNTY, NEVADA CAL-CAN RESOURCES, LTD., ) ) Case No. A386420 Plaintiff ) Dept. No. VII ) Docket No. P vs. ) ) TYRO, INC., a Nevada corporation, ) aka TYRO PRECIOUS METALS ) PROCESSING CENTER, DEAN ) WILLMAN and ROLAND S. ERICSSON, ) and DOES I through X, inclusive, ) ) Defendants ) ) - -------------------------------------------- CONFESSION OF JUDGMENT Defendants, Tyro, Inc., Dean Willman and Roland S. Ericsson, jointly and severally, pursuant to NRS 17.090, et seq., hereby confess judgment in favor of the above named 196 Plaintiff, Can-Cal Resources, Ltd. (filed as Cal-Can Resources, Ltd. hereafter "Can-Cal") and authorize judgment to be entered in the total amount of: 1. The principal amount of $50,000.00, with interest thereon accruing at the rate of six percent (6%) per annum on the unpaid principal balance from December 10, 1997, together with attorney fees and costs incurred in the amount of $900.00. 2. The total amount above, less any payments made thereon, is justly due from Defendants, jointly and severally, to Can-Cal. 3. The total amount above became payable to Can-Cal as a result of Defendants', and each of them, breach of the Agreement executed by Defendants in favor of Can-Cal. A copy of said Agreement is attached hereto as Exhibit "1" and incorporated herein by this reference. DATED this 7th day of May, 1998. /s/ Roland S. Ericsson /s/ Dean Willman - ---------------------------------- ------------------------------------ Roland S. Ericsson Dean Willman TYRO, INC. By /s/ Dean Willman --------------------------------- Its President --------------------------------- 197 VERIFICATION STATE OF NEVADA ) COUNT OF CLARK ) I hereby certify that I have read the foregoing CONFESSION OF JUDGMENT and know the contents thereof. I am informed and believe, and on that ground state, that the matters set forth therein are true. /s/ Roland S. Ericsson ------------------------------------ Roland S. Ericsson SUBSCRIBED and SWORN before me this 7th day of May , 1998. /s/ Yesenia Otero (Notary Seal) - ---------------------------------- NOTARY PUBLIC STATE OF NEVADA ) COUNT OF CLARK ) I hereby certify that I have read the foregoing CONFESSION OF JUDGMENT and know the contents thereof. I am informed and believe, and on that ground state, that the matters set forth therein are true. /s/ Dean Willman ------------------------------------ Dean Willman SUBSCRIBED and SWORN before me this 7th day of May , 1998. /s/ Veronica Sue Smith (Notary Seal) - ---------------------------------- NOTARY PUBLIC STATE OF NEVADA ) COUNT OF CLARK ) I hereby certify that I have read the foregoing CONFESSION OF JUDGMENT and know the contents thereof. I am informed and believe, and on that ground state, that the matters set forth therein are true. TYRO, INC. By /s/ Dean Willman --------------------------------- Its President --------------------------------- SUBSCRIBED and SWORN before me this 7th day of May , 1998. /s/ Veronica Sue Smith (Notary Seal) NOTARY PUBLIC 198 EXHIBIT 1 AGREEMENT DATED OCTOBER 30, 1997 BETWEEN CAN-CAL RESOURCES AND TYRO PRECIOUS METALS CENTER IS FILED AS EXHIBIT 10.9 TO THE FORM 10SB OF WHICH THIS COMPLAINT IS MADE A PART OF AS EXHIBIT 10.11. 199 EX-10.12 17 AGREEMENT - 545538 EXHIBIT 10.12 THIS AGREEMENT made as of the 29th day of January, 1999. BETWEEN: CAN-CAL RESOURCES LTD., a body corporate, having a place of business situate at 3651 Lindell Road, Las Vegas, Nevada USA 89103; (hereinafter called the "Vendor") OF THE FIRST PART AND: 545538 B.C. LTD., (Inc. No. 545538), a body corporate, duly incorporated under the laws of the Province of British Columbia and having its registered office situate at #208 - 1899 Willingdon Avenue, Burnaby, B.C. V5C 5Tl; (hereinafter called the "Purchaser") OF THE SECOND PART AND: RONALD DANIEL SLOAN, Businessman, of #203, Building 2, 1505 Blackcomb Street, Las Vegas, Nevada USA 89128 (hereinafter called the "Covenantor") OF THE THIRD PART WITNESSETH that for and in consideration of the promises, covenants and agreements hereinafter set forth, the parties hereto agree as follows: 1. VENDORS WARRANTIES AND REPRESENTATIONS -------------------------------------- 1.01 The Vendor warrants and represents that: (a) SCOTMAR INDUSTRIES INC. (hereinafter called the "Company") is a corporation duly incorporated under the laws of the Province of British Columbia as a non-reporting company, is validly existing, and is in good standing in British Columbia and does not carry on business outside that province; 200 (b) The authorized capital of the Company is THREE HUNDRED THOUSAND shares divided into One Hundred Thousand Class "A" Voting Common Shares without par value; One Hundred Thousand Class "B" Non-Voting Common Shares without par value; and One Hundred Thousand Class "C" Non-Voting Preference Shares without par value, of which there are Ten (10) Class "A Voting Common Shares and One (1) Class "B" Non-Voting Common Shares issued and outstanding as fully paid and non-assessable Shares; (c) The Vendor is the registered holder and beneficial owner of the following, shares: Name Number/Class/Kind ---- ----------------- Can-Cal Resources Ltd. Ten (10) Class "A" Voting Common Shares Can-Cal Resources Ltd. One (1) Class "B" Non-Voting Share (hereinafter called the "Vendor's Shares"); (d) The Vendor's Shares are validly issued and outstanding as fully paid and non- accessible in the capital of the Company and are free and clear of all liens, charges and encumbrances; (e) The Vendor has good and sufficient right and authority to enter into this Agreement on the terms and conditions herein set forth and to transfer the legal and beneficial title and ownership of the Vendor's Shares to the Purchaser; (f) There are no outstanding securities of the Company which are convertible into shares in the capital of the Company and there are no outstanding options on or rights to subscribe for any of the unissued shares in the capital of the Company or options to purchase the Vendor's Shares; (g) The directors and officers of the Company are as follows: Directors: - SCOTT A. NICHOLS Officers: President - SCOTT A. NICHOLS Secretary - KIM NICHOLS (h) The unaudited balance sheet of the Company as of December 31, 1997 and the supporting statements for the year ended December 31, 1997 which are attached to this Agreement as Schedule "A" were prepared by Bouchard & Company, Chartered Accountants, in accordance with generally accepted accounting principles applied on a basis consistent with prior years and the monthly financial statements for the year 1998 are substantially correct in every particular and present fairly and 201 accurately the financial condition and position of the Company as at December 31, 1998 and the results of its operations for the year ended on December 31, 1998; (i) There are no liabilities of the Company arising in respect of operations of the Company or incurred on or before December 31, 1998 not disclosed or reflected in Schedule "A" and no such undisclosed liabilities have been paid since December 31, 1998; (j) There are no liabilities of the Company which are not disclosed or reflected in Schedule "A" except those incurred in the ordinary course of its business since December 31, 1998; (k) The provision for doubtful accounts receivable as recorded in Schedule "A" are, and collections since December 31, 1998 have proven them to be, adequate; (l) Since December 31, 1998: (i) no dividends of any kind have been declared or paid by the Company; (ii) no capital expenditures or commitments therefore have been made by the Company; (iii) there has been no material adverse change in the financial position or condition of the Company and no damage, loss or destruction materially affecting the business or property of the Company; (iv) the Company has not increased the pay of or paid or agreed to pay any pension, bonus, share of profits or other similar benefit to, or for the benefit of, any employee, director, or officer of the Company, except increases in normal course of business to employees other than officers and directors; and (v) the Company has conducted its business in its usual and normal manner; (m) The Company has good title to and possession of all the assets referred to in Schedule "A" and all assets acquired since December 31, 1998, are free and clear of all liens, charges or encumbrances except those described in Schedule "B", and is not in default of any term of any lien, charge or encumbrance described in Schedule "B". All machinery and equipment comprised in the assets are in normal operating condition and in a state of reasonable maintenance and repair; (n) The Company is the holder of a valid and subsisting Lease Agreement with Yuk Lan Kwun and Benny Kwun of the lands and premises more particularly described in Schedule "C" hereto; 202 (o) All leases of equipment as more particularly described in Schedule "D" hereto are valid and subsisting leases and the rents thereby reserved have been fully and duly paid up to the Closing Date as hereinafter defined and the covenants and conditions therein contained have been duly performed by the Company to the date hereof and the Company has not assigned or encumbered any such leases; (p) The Company is indebted to the Vendor in the amount of ONE HUNDRED SIXTY- SEVEN THOUSAND FOUR HUNDRED SEVENTY-SEVEN DOLLARS AND SIXTY-THREE CENTS ($167,477.63), which said sum the Vendor shall assign to the Purchaser on the Closing Date (hereinafter called the "Vendor's Shareholder Loans"); (q) The Company is not subject to any contract or agreement running for more than one year save and except for the following: (i) Lease relating to the Promises of the Company. (r) The Company has been assessed for federal and provincial income tax for all years to and including the fiscal year of the Company ended December 31, 1998 and adequate provision will be made on Closing for any and all taxes payable by the Company for the period of operations to and including December 31, 1998; (s) The office or employment of all employees and officers of the Company can be terminated by not more than 4 weeks notice; (t) The Vendor is not indebted to the Company; (u) To the best of the Vendor's knowledge, the Company is not in breach of any statute, regulation or by-law applicable to the Company or its operations; (v) The Vendor is not "resident in Canada" within the meaning of that phrase in Section 116 of the Income Tax Act of Canada; (w) The Company holds all permits, licences, consents and authorities issued by any federal, provincial, regional or municipal government or agency thereof which are necessary or desirable in connection with the operations of the Company and the ownership of its assets and a true and complete list of the permits, authorities, licences and consents held by the Company is set out in Schedule "E"; (x) To the best of the: Vendor's knowledge, the making of this Agreement and the completion of the transactions contemplated hereby and the performance of and compliance with the terms thereof, does not conflict with or result in the breach of or the acceleration of any indebtedness under, any terms, provisions or conditions of, or constitute default under the Memorandum or Articles of the Company or any 203 indenture, mortgage, deed of trust, agreement, lease, franchise, certificate, consent, permit, licence, authority, or other instrument to which the Company is a party or is bound or any judgment, decree, order, rule or regulation of any court or administrative body by which the Company is bound or, to the knowledge of the Vendor any statute or regulation applicable to the Company; (y) The Company has no bank or chequing accounts, safety deposit boxes or other depositories except as set out in Schedule "F"; (z) **deleted** (aa) The Company is not party to any collective agreement with any labour union or other association of employees; (bb) The Company is not a party to any pension, profit sharing, group insurance, or similar plans or other deferred compensation plans, save and except for a group insurance plan with the Automotive Retailers Association; (cc) The Company has not experienced nor is it aware of any occurrence or event which has had, or might reasonably be expected to have, a materially adverse effect on its business or the results of its operations; (dd) The Company has made all elections required to be made under the Income Tax Act in connection with any distributions by the Company and all such elections were true and correct; (ee) The Company has withheld and remitted to Revenue Canada, or the applicable tax collecting authority, all amounts required to be withheld and remitted to Revenue Canada or the tax collecting authority respecting payments to employees and has paid all installments of corporate taxes due and payable; (ff) All Workers' Compensation Board, corporation capital tax, provincial sales tax and federal tax returns, and all employee remittances, Canada Pension Plan, Unemployment Insurance and other reports and information required to be filed with all applicable government authorities, agencies and regulatory bodies have been duly and timely filed; and (gg) **deleted** 2. SURVIVAL OF COVENANTS --------------------- 2.01 The representations, warranties, covenants and agreements by the Vendor and the Purchaser contained in this Agreement or in the documents delivered pursuant hereto or in connection with 204 the transactions contemplated hereby shall be true at and as of the time of closing as though such representations were made at and as of such time. 2.02 Notwithstanding any investigations or enquiries made by the Purchaser prior to the closing or the waiver of any condition by the Purchaser, the representations, warranties, covenants and agreements of the Vendor and the Purchaser shall survive the closing and notwithstanding the closing of the purchase and sale herein contemplated shall continue in full force and effect. 3. PURCHASE AND SALE ----------------- 3.01 On the basis of the warranties and representations of the Vendor set forth in Paragraph 1 of this Agreement and subject to the terms and conditions of this Agreement, the Purchaser agrees to buy from the Vendor and the Vendor agrees to sell to the Purchaser, on the Closing Date (hereinafter defined), the Vendor's Shares and the Vendor's Shareholder Loans for the sum of NINETY-NINE THOUSAND EIGHT HUNDRED ($99,800.00) Dollars of lawful money of Canada (hereinafter called the "Purchase Price"). The Purchase Price shall be allocated as follows: (a) Vendor's Shares $ 1.00 (b) Vendor's Shareholder Loans 99,799.00 ----------- TOTAL: $99,800.00 3.02. The Purchase Price shall be paid and satisfied as follows: (a) the sum of $1,000.00 at or before the execution hereof, the receipt of which the Vendor does hereby acknowledge; (b) the sum of $43,800.00 shall be paid by the Purchaser to the Vendor on the Closing Date, subject to the provisions of this Agreement; and (c) the balance, namely the sum of $55,000.00, together with interest at the rate of Eight (8%) Percent per annum, calculated yearly, not in advance, as and from the Closing Date until paid, shall be paid by the Purchaser to the Vendor on February 25, 1999, provided that the Vendor has delivered a Certificate as contemplated in paragraph 4.04. In the event the Vendor has not delivered a Certificate within 90 days from the Closing Date, then the Purchaser shall be entitled to invoke the provisions of paragraph 4.04 hereof. 4. COVENANTS OF THE VENDOR ----------------------- 4.01 The Vendor shall do all reasonable acts and things to assist the Purchaser and the officers and directors of the Company in continuing and furthering the business and goodwill of the Company. 205 4.02 The Vendor will cause the Company at all reasonable times prior to the Closing Date to permit representatives of the Purchaser full access to its property and books and records including contracts and agreements, minute books and share registers, to give the Purchaser and its representatives such information with respect thereto as may be reasonably required and to permit the Purchaser to make such audit (at its cost) of the books of account of the Company as the Purchaser may see fit. 4.03 The vendor shall cause to be obtained on the Closing Date the written resignation of Scott A. Nichols as a director and officer and Kim Nichols as an officer. 4.04 The Vendor shall, if required by the Purchaser, cause to be delivered to the Purchaser a certificate issued pursuant to Section 116(4) of the Income Tax Act of Canada, or a certificate issued pursuant to Section 116(2) of the Income Tax Act of Canada in respect of the purchase and sale contemplated by this Agreement fixing a certificate limit which is not less than the cost to the Purchaser of the Assets, or failing delivery of either certificate, will permit the Purchaser to withhold such amount as the Purchaser would be liable to pay on behalf of the Vendor pursuant to Section 116(5) of the Income Tax Act of Canada (hereinafter called the "Holdback") from any amount or amounts otherwise payable to the Vendor pursuant to this Agreement. The Holdback will be paid in trust to Messrs. Hawthorne, Piggott & Company to pay the Holdback to the Vendor upon delivery to Messrs. Hawthorne, Piggott & Company of a certificate issued pursuant to Section 116 of the Income Tax Act of Canada which is satisfactory to the Purchaser or to pay out of the Holdback the tax payable by the Purchaser pursuant to Section 116(5) of the Income Tax Act of Canada and the balance, if any, to the Vendor. 4.05 The Vendor shall pay all wages and salaries and all amounts due in lieu of holiday pay to and including the Effective Date to all officers and employees of the Company. The Vendor shall and the Covenantor shall remain solely liable for any and all severance due to any such officer and/or employee 4.06 The Vendor will cause its Chartered Accountants to prepare audited Financial Statements for the Company as of December 31, 1998, together with all schedules and corporate Income Tax Returns, at the Vendor's cost. 5. CONDITIONS ---------- 5.01 The Purchaser's obligation to carry out the terms of this Agreement and to complete the purchase referred to in paragraph 3 hereof is subject to the following conditions: (a) that on the Closing Date the warranties and representations of the Vendor as set forth in paragraph 1 of this Agreement shall be true in every particular as if such warranties and representations had been made by the Vendor on the Closing Date; 206 (b) that all of the agreements to be performed by the Vendor hereunder shall have been performed; (c) that the Vendor shall have delivered to the Purchaser: (i) Resignations in writing of all directors and officers of the Company; (ii) a certified copy of a resolution of the directors of the Company authorizing the transfer of the Vendor's Shares and registration of the same in the name of the Purchaser and authorizing the issue of new share certificates representing the Vendor's Shares in the name of the Purchaser; (iii) a duly executed share certificate in the name of the Purchaser representing the Vendor's Shares; (iv) all corporate records of the Company including the minute books, share register book, share certificate books and annual reports as well as the common seal of the Company; (v) all share certificates of the Vendor, duly endorsed, for transfer; and (vi) a General Security Agreement executed by the Company in order to secure the balance due under paragraph 3.02(c); (vii) a guarantee in the form set forth in Schedule "G"; (viii) **deleted** (ix) an Assignment of Shareholder Loans in favour of the Purchaser. 5.02 The conditions set forth in paragraph 5 of this Agreement are for the exclusive benefit of the Purchaser and may be waived by the Purchaser in writing in whole or in part on or before the Closing Date but except as so waived the completion of the purchase referred to in paragraph 3 hereof by the Purchaser shall not prejudice or affect in any way the rights of the Purchaser in respect of the warranties and representations of the Vendor set forth in paragraph 1 of this Agreement. 6. INDEMNIFICATION --------------- 6.01 The Vendor and the Covenantor, jointly and severally, covenant and agree to indemnify and save the Purchaser harmless from all loss, damage, costs, actions and suits arising out of or in connection with any breach of any representation, warranty, covenant, agreement or condition contained in this Agreement including any loss resulting from any reassessment for income or corporate tax, interest and/or penalties for a period up to the Closing Date. The Vendor and the 207 Covenantor acknowledge and agree that the Purchaser has entered into this Agreement relying on the warranties and representations and other terms and conditions of this Agreement and that no information which is now known or which may hereafter become known to the Purchaser or its officers, directors or professional advisors shall limit or extinguish the right to indemnity hereunder. The Purchaser may deduct the amount of any loss or damage from any installment of the unpaid purchase price. 7. GENERAL PROVISIONS ------------------ 7.01 Time shall be of the essence of this Agreement. 7.02 The parties hereto shall execute and deliver such further and other documents, instruments and things and do all acts and things as may be requisite either before or after the Closing Date to carry out the full intent and meaning of this Agreement. 7.03 This Agreement contains the whole agreement between the parties hereto in respect of the purchase and sale contemplated herein, and there are no warranties, representations, terms, conditions or collateral agreements, express, implied or statutory other than as expressly set forth in this Agreement. 7.04 Delivery of an executed copy of this Agreement by telecopy, telex or other means of electronic communication producing a printed copy will be deemed to be execution and delivery of this Agreement on the date of such communication by the party so delivering such copy, subject to delivery of an originally executed copy of this Agreement to the other parties hereto within two (2) weeks of the date of delivery of the copy sent via the electronic communication. 7.05 This Agreement may be executed by the parties in two or more counterparts and such counterparts as so executed together form one original Agreement and shall be read together and construed as if all the parties had executed one original Agreement 8. NOTICE ------ 8.01 Any notice to be given under this Agreement shall be duly and properly given if mailed by prepaid registered post in British Columbia addressed as follows and any such notice shall be deemed to be received 48 hours after the hour of mailing: (a) To the Purchaser: 545538 B.C. LTD., #208-1899 Willingdon Avenue, Burnaby, B.C. V5C 5T1 208 (b) To the Vendor: CAN-CAL RESOURCES LID., 3651 Lindell Road, Las Vegas, Nevada USA 89103 (d) To the Covenantor: RONALD DANIEL SLOAN, #203 Building 2, 1505 Blackcomb Street, Las Vegas, Nevada USA 89128 or at such other address as the Purchaser or the Vendor may from time to time designate by notice in writing to the other. 9. CLOSING DATE ------------ 9.01 The purchase and sale contemplated herein shall take effect as of and from the closing of business on January 29, 1999 (hereinafter called the "Effective Date") and the Closing shall take place by an exchange of documents with appropriate solicitors' undertakings, on January 29, 1999 (which date is herein called the "Closing Date"). IN WITNESS WHEREOF the parties hereto have hereunto set their hands and seals the day and year first above written. The Common Seal of CAN-CAL ) RESOURCES LTD. was ) hereunto affixed in the presence of: ) ) c/s ) ) Per: /s/ Brian Wolfe ) ------------------------------ Authorized Signatory SIGNED, SEALED AND DELIVERED ) by the Covenantor, RONALD DANIEL ) SLOAN in the presence of: ) ) /s/ R. D. Sloan Robin Schwarz ) ---------------------- - ----------------------------------- ) RONALD D. SLOAN 16008 Ash St. ) - ------------------------------------ ) Hesperia, CA 92345 ) - ------------------------------------ 209 The Common Seal of 545538 B.C. LTD. ) was hereunto affixed in the presence of: ) ) ) c/s ) Per: /s/ Michael Gordon ) ------------------------------- Authorized Signatory 210 EX-11.0 18 COMPUTATIONS OF EARNINGS PER SHARE EXHIBIT 11.0 COMPUTATION OF EARNINGS PER SHARE YEAR ENDED DECEMBER 31, 1998 (ROUNDED TO THE NEAREST HUNDRED DOLLARS, EXCEPT SHARE DATA) Weighted average number of common shares outstanding 6,546,149 - -------------------------------------------------------------------------------- Common stock equivalents - stock options 0 Common stock equivalents - preferred stock 0 - -------------------------------------------------------------------------------- Average common and common stock equivalents outstanding 6,546,149 - -------------------------------------------------------------------------------- Net income (loss) $ (100,100) - -------------------------------------------------------------------------------- Earnings per share (1) $ (0.02) - -------------------------------------------------------------------------------- (1) Fully diluted earnings per share have not been presented because the effects are not material. 211 EX-16.0 19 CHAGE IN AUDITORS EXHIBIT 16.0 DAVID E. COFFEY 3651 Lindell Rd. - Suite H Las Vegas, NV 89103 - -------------------------------------------------------------------------------- Certified Public Accountant (702) 871-3979 June 30, 1999 United States Securities and Exchange Commission Washington, D.C. Gentlemen, I have been furnished the disclosure made by Can-Cal Resources, Ltd. in Item 14 of its Form 10-SB. I agree with the statements made by Can-Cal Resources, Ltd. there were no disagreements on any matter of accounting principle or practices, financial statement disclosures or auditing scope or procedure. I was unable to continue as the Company's auditor in view of my personal schedule and time availability. Sincerely, /s/ David E. Coffey David E. Coffey 212 EX-23.0 20 CONSENT OF AUDITORS EXHIBIT 23.0 CONSENT OF INDEPENDENT AUDITORS We hereby consent to the publication of our report dated May 14, 1999 on the financial statements on form 10-SB of Can-Cal Resources, Ltd. for the year ended December 31, 1998. MURPHY, BENNINGTON & CO. /s/ Murphy, Bennington & Co. June 28, 1999 213 EX-27 21 FINANCIAL DATA SCHEDULE
5 This schedule contains summary financial information extracted from the accompanying financial statements and is qualified in its entirety by reference to such financial statements 0001083848 CAN-CAL RESOURCES,LTD 12-MOS DEC-31-1998 DEC-31-1998 41,600 0 101,500 5,600 72,500 169,300 264,600 1,500 1,894,900 318,500 0 0 0 7,000 1,515,500 1,894,900 97,700 97,700 74,800 131,500 0 0 3,800 (100,100) 0 0 0 0 0 (100,100) (0.02) (0.02)
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