-----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, L3H99KR8I2FRs9zu46Puz+dzhSV24mztyglDonfK7A/DGy5Ins4MG6WanIqhuZWL w6Lw4ZvGOEUFGZvWiohxtQ== 0000940180-97-000760.txt : 19970912 0000940180-97-000760.hdr.sgml : 19970912 ACCESSION NUMBER: 0000940180-97-000760 CONFORMED SUBMISSION TYPE: S-1 PUBLIC DOCUMENT COUNT: 36 FILED AS OF DATE: 19970829 SROS: NONE FILER: COMPANY DATA: COMPANY CONFORMED NAME: APEX SILVER MINES LTD CENTRAL INDEX KEY: 0001011509 STANDARD INDUSTRIAL CLASSIFICATION: [] FILING VALUES: FORM TYPE: S-1 SEC ACT: SEC FILE NUMBER: 333-34685 FILM NUMBER: 97673344 BUSINESS ADDRESS: STREET 1: 0ALEDONIAN HOUSE GROUND FL GEORGETOWN CITY: GRAND CAYMAN CAYMAN STATE: E9 BUSINESS PHONE: 8099490050 MAIL ADDRESS: STREET 1: CALEDONIAN HOUSE MARY STREET STREET 2: GEORGE TOWN GRAND CAYMAN ISLAND BWI S-1 1 REGISTRATION STATEMENT AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON AUGUST 29, 1997 REGISTRATION NO.: 333- - ------------------------------------------------------------------------------- - ------------------------------------------------------------------------------- SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 ---------------- FORM S-1 REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 ---------------- APEX SILVER MINES LIMITED (EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER) CAYMAN ISLANDS 1044 NOT APPLICABLE (STATE OR OTHER (PRIMARY STANDARD (I.R.S. EMPLOYER JURISDICTION INDUSTRIAL IDENTIFICATION NO.) OF INCORPORATION) CLASSIFICATION CODE NUMBER) CALEDONIAN HOUSES, GROUND FLOOR MARY STREET GEORGE TOWN, GRAND CAYMAN CAYMAN ISLANDS, BRITISH WEST INDIES (345) 949-0050 (ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE OF REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES) ---------------- THOMAS S. KAPLAN PRESIDENT & CHIEF EXECUTIVE OFFICER APEX SILVER MINES CORPORATION 1700 LINCOLN STREET, SUITE 3050 DENVER, COLORADO 80203 (303) 839-5060 (NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE, OF AGENT FOR SERVICE) ---------------- COPIES TO: PATRICK J. DOOLEY, ESQ. ROBERT F. WALL, ESQ. AKIN, GUMP, STRAUSS, HAUER & FELD, WINSTON & STRAWN L.L.P. 35 WEST WACKER DRIVE, SUITE 4200 590 MADISON AVENUE CHICAGO, ILLINOIS 60601 NEW YORK, NEW YORK 10022 (312) 558-5600 (212) 872-1000 ---------------- APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon as practicable after the effective date of this Registration Statement. If any of the securities being registered on this Form are to be offered on a delayed or continuous basis pursuant to Rule 415 under the Securities Act of 1933, check the following box. [_] If this Form is filed to register additional securities for an offering pursuant to Rule 462(b) under the Securities Act, please check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. [_] If this Form is a post-effective amendment filed pursuant to Rule 462(c) under the Securities Act, check the following box and list the Securities Act registration number of the earlier effective registration statement for the same offering. [_] If delivery of the prospectus is expected to be made pursuant to Rule 434, please check the following box. [_] CALCULATION OF REGISTRATION FEE - ------------------------------------------------------------------------------- - -------------------------------------------------------------------------------
PROPOSED PROPOSED AMOUNT MAXIMUM MAXIMUM TITLE OF EACH CLASS OF TO BE OFFERING PRICE AGGREGATE AMOUNT OF SECURITIES TO BE REGISTERED REGISTERED(1) PER SHARE(2) OFFERING PRICE(2) REGISTRATION FEE - --------------------------------------------------------------------------------------------- Ordinary Shares, par value $0.01 per share............. -- -- $100,000,000 $30,304
- ------------------------------------------------------------------------------- - ------------------------------------------------------------------------------- (1) Includes up to [ ] Ordinary Shares which the U.S. Underwriters and Managers have the option to purchase solely to cover over-allotments, if any. The number of Ordinary Shares to be registered also includes any Ordinary Shares initially offered or sold outside the United States that are thereafter reoffered or resold in the United States. See "Underwriting". (2) Estimated solely for the purpose of calculating the registration fee pursuant to Rule 457(o) under the Securities Act of 1933, as amended. ---------------- THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL FILE A FURTHER AMENDMENT THAT SPECIFICALLY STATES THAT THIS REGISTRATION STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(a) OF THE SECURITIES ACT OF 1933 OR UNTIL THIS REGISTRATION STATEMENT SHALL BECOME EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(a), MAY DETERMINE. - ------------------------------------------------------------------------------- - ------------------------------------------------------------------------------- EXPLANATORY NOTE This registration statement contains two forms of prospectus; one to be used in connection with an offering in the United States and Canada (the "U.S. Prospectus") and one to be used in connection with a concurrent international offering outside the United States and Canada (the "International Prospectus"). The two prospectuses are identical except for the front and back cover pages. The form of U.S. Prospectus is included herein and is followed by the front and back cover pages for the International Prospectus. The alternate front cover page and alternate back cover page for the International Prospectus included herein are labeled "Alternate Front Cover Page for International Prospectus" and "Alternate Back Cover Page for International Prospectus", respectively. ++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++ +INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION AND AMENDMENT. A + +REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE + +SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY + +OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THIS REGISTRATION STATEMENT + +BECOMES EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR + +THE SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE + +SECURITIES IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE + +UNLAWFUL PRIOR TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF + +ANY SUCH STATE. + ++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++ SUBJECT TO COMPLETION AUGUST 29, 1997 PROSPECTUS [ ] SHARES [LOGO OF APEX SILVER MINES LIMITED] APEX SILVER MINES LIMITED ORDINARY SHARES (PAR VALUE $0.01 PER SHARE) Of the [ ] shares (the "Shares") of ordinary shares, par value $0.01 per share, (the "Ordinary Shares") of Apex Silver Mines Limited (the "Company") offered hereby (the "Offering"), [ ] Shares are being offered initially in the United States and Canada by the U.S. Underwriters and [ ] Shares are being offered initially outside the United States by the Managers. See "Underwriting". Upon completion of the Offering (assuming the over-allotment options granted to the U.S. Underwriters and the Managers are not exercised), the Company will own [ ] percent of the outstanding share capital of Apex Silver Mines LDC ("Apex LDC"), the Company's principal operating subsidiary. See "Corporate Structure". The minority shareholders of Apex LDC (the "Minority Shareholders") are entitled to sell their shares of Apex LDC to the Company for, at the Company's sole option, Ordinary Shares on a one-for-one basis, cash, or a combination of cash and Ordinary Shares. The Company currently expects that any future purchases by the Company of shares of Apex LDC from the Minority Shareholders will involve only Ordinary Shares of Apex Silver Mines Limited. Any such transactions will not affect the beneficial or economic interest in Apex LDC attributable to shareholders of Apex Silver Mines Limited. Currently, the Company has approximately 13,601,544 Ordinary Shares outstanding and approximately 7,077,007 Ordinary Shares reserved for issuance for approximately 7,077,007 shares of Apex LDC owned by the Minority Shareholders. If all such shares of Apex LDC were issued, the Company would have 20,678,551 Ordinary Shares outstanding. See "Certain Transactions". [AN APPLICATION WILL BE MADE TO LIST THE SHARES FOR QUOTATION ON THE AMERICAN STOCK EXCHANGE UNDER THE TRADING SYMBOL [" "], SUBJECT TO NOTICE OF ISSUANCE.] Prior to the Offering, there has been no public market for the Shares. It is anticipated that the initial offering price will be between [$ ] and [$ ] per share. See "Underwriting" for information relating to the factors considered in determining the initial public offering price. FOR A DISCUSSION OF CERTAIN FACTORS THAT SHOULD BE CONSIDERED BY PROSPECTIVE INVESTORS IN PURCHASING THE SHARES OFFERED HEREBY, SEE "RISK FACTORS" ON PAGE 8. THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THE PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE. - --------------------------------------------------------------------------------
PRICE TO UNDERWRITING PROCEEDS TO PUBLIC DISCOUNT(1) COMPANY(2) Per Ordinary Share.................. $ . $ . $ . Total(3)................................. $ . $ . $ .
- -------------------------------------------------------------------------------- (1) The Company has agreed to indemnify the U.S. Underwriters against certain liabilities, including liabilities under the Securities Act of 1933, as amended. See "Underwriting". (2) Before deducting certain expenses of the Offering, payable by the Company, estimated to be [$ ]. (3) The Company has granted the U.S. Underwriters a 30-day option to purchase up to [ ] additional Ordinary Shares, at the Price to Public, less Underwriting Discount, solely to cover over-allotments, if any. If the U.S. Underwriters exercise such option in full, the total Price to Public, Underwriting Discount, Proceeds to Company [ ]. See "Underwriting". These Shares are offered subject to receipt and acceptance by the U.S. Underwriters, to prior sale, and to the U.S. Underwriters' right to reject any order in whole or in part and to withdraw, cancel or modify the offer without notice. It is expected that delivery of the Shares will be made at the office of Salomon Brothers Inc, Seven World Trade Center, New York, New York, or through the facilities of the Depository Trust Company, on or about [ ], 1997. SALOMON BROTHERS INC PAINEWEBBER INCORPORATED SCOTIA CAPITAL MARKETS The date of this Prospectus is [ ], 1997. [WORLD MAP TO FOLLOW] CERTAIN PERSONS PARTICIPATING IN THE OFFERING MAY ENGAGE IN TRANSACTIONS THAT STABILIZE, MAINTAIN OR OTHERWISE AFFECT THE PRICE OF THE SHARES, INCLUDING STABILIZING BIDS, SYNDICATE COVERING TRANSACTIONS AND THE IMPOSITION OF PENALTY BIDS. FOR A DESCRIPTION OF THESE ACTIVITIES, SEE "UNDERWRITING". (i) ENFORCEABILITY OF CIVIL LIABILITIES UNDER UNITED STATES LAWS Apex Silver Mines Limited is a Cayman Islands corporation, and certain of its officers and directors are residents of various jurisdictions outside the U.S. All or a substantial portion of the assets of the Company and of such officers and directors, at any one time, are or may be located in jurisdictions outside the U.S. In particular, Apex Silver Mines LDC, the Company's majority-owned subsidiary, through which the Company conducts all of its operations, is a Cayman Islands exempted limited duration company. Therefore, it ordinarily could be difficult for investors to effect within the U.S. service of process on the Company or any of those officers and directors who reside outside the U.S. or to recover against the Company or such individuals on judgments of courts in the U.S., including judgments predicated upon civil liability under the U.S. federal securities laws and similar state laws. Notwithstanding the foregoing, the Company has irrevocably agreed that it may be served with process with respect to actions based on offers of Shares made hereby in the U.S. by serving Apex Silver Mines Corporation, 1700 Lincoln Street, Suite 3050, Denver, Colorado 80203, its United States agent appointed for that purpose. The Company has been advised by its Cayman Islands counsel, W. S. Walker & Company, that there may be circumstances where the courts of the Cayman Islands would not enforce (i) judgments of U.S. courts obtained in actions against the Company or officers or directors of the Company not resident within the U.S. predicated upon the civil liability provisions of the U.S. federal securities laws and similar state laws or (ii) original actions brought in the Cayman Islands against the Company or such persons predicated solely upon U.S. federal securities laws. There is no treaty in effect between the U.S. and the Cayman Islands providing for such enforcement, and there are grounds upon which Cayman Islands courts may not enforce judgments of U.S. courts. Certain remedies available under the laws of U.S. jurisdictions, including certain remedies under U.S. federal securities laws, may not be allowed in Cayman Islands courts as contrary to public policy. * * * * * Except as expressly provided in the Underwriting Agreement, no Shares may be offered or sold in the Cayman Islands. (ii) PROSPECTUS SUMMARY The following summary is qualified in its entirety by, and should be read in conjunction with, the more detailed information and financial statements, including the notes thereto, appearing elsewhere in this Prospectus. Unless otherwise indicated, (i) all references to the "Company" include Apex Silver Mines Limited, its predecessor entities, and each of its direct and indirect subsidiaries or other entities in which Apex Silver Mines Limited has a direct or indirect equity or voting interest, (ii) all references to "Apex Limited" refer exclusively to Apex Silver Mines Limited and (iii) all references to "dollars" or "$" refer to dollars of the United States of America. Except where otherwise specified, all information in this Prospectus assumes that the over- allotment options granted to the U.S. Underwriters and the Managers are not exercised. Capitalized terms used herein without definition are defined elsewhere in this Prospectus. See "Glossary" for definitions of certain technical terms. THE COMPANY Apex Silver Mines Limited is engaged in the exploration and development of silver properties in South America, Central America and Central Asia. The Company believes it has accumulated one of the largest, privately controlled portfolios of silver exploration properties in the world. Since 1993, the Company has acquired the rights to or gained control of 27 non-producing silver properties located in or near the traditional silver producing regions of Bolivia, Peru, Chile, Honduras, Mexico, Kyrghyzstan, Mongolia and Tajikistan. Exploration efforts since 1993 have successfully produced the Company's first development project, the San Cristobal project (the "San Cristobal Project") located in southern Bolivia, where regular and close spaced drilling and analysis have delineated substantial proven and probable reserves of silver, zinc and lead. In addition, exploration activities at the Company's other properties in Bolivia, Peru and Honduras indicate the presence of significant quantities of mineralized material containing silver and other metals. A first phase feasibility study (the "San Cristobal Study") was completed in August of 1997 with respect to the San Cristobal Project, which is located in the San Cristobal district of the Potosi department in southern Bolivia, a region that has historically produced a significant portion of the world's silver supply. The San Cristobal Study indicates that the San Cristobal Project contains in excess of 219 million ounces of silver in the proven and probable reserves of 122.9 million tonnes of ore based on an average grade of approximately 1.8 ounces of silver per tonne and contains in excess of 1.8 million tons of zinc and 0.6 million tonnes of lead in these proven and probable reserves, based on average grades of 1.49 and 0.51 percent, respectively. At and near the San Cristobal Project, several deposits contain an additional 57.1 million tonnes of mineralized material, comprised of 43.3 million tonnes of mineralized material with average grades of 1.28 ounces of silver per tonne and 1.1 percent of zinc and 0.34 percent of lead and 13.8 million tonnes of mineralized material at an average grade of 4.21 ounces of silver per tonne. The full dimensions of the mineral deposits at the San Cristobal Project have not yet been determined; mineralized material extends outward from the identified ore body in most directions as well as to depths below 200 meters. The reserve estimates are limited by the current extent of the Company's program of closely spaced drilling analysis. The Company will be conducting an ongoing exploration program in order to fully delineate the mineralized zones. The San Cristobal Study was prepared for the Company by Kvaerner Metals, Davy Nonferrous Division ("Davy"), an international engineering procurement, construction and management firm. Davy was also retained by the Company to confirm independently the reliability of the Company's drilling and sampling procedures at the San Cristobal Project. 1 All aspects of this confirmatory process were controlled by Davy, including (i) the number of test holes required (four), site selection and drilling of the four reverse circulation drill holes parallel to holes previously drilled by the Company; (ii) sample collection, preparation and transportation; and (iii) assay analysis. Davy's work confirmed results reported by the Company. Behre Dolbear & Company Inc. ("Behre Dolbear"), a geological and mining consulting firm, conducted a technical audit of and confirmed, within the accuracy of plus or minus 25 to 30 percent, the work undertaken by Davy and the other independent technical specialists who contributed to the San Cristobal Study. The San Cristobal Study concluded with an economic assessment of the identified mineral deposits. Based on the San Cristobal Study, the San Cristobal Project, as currently delineated, is forecast to produce an average of 14 million ounces of silver, 132,700 tonnes of zinc and 39,500 tonnes of lead per year over the anticipated 11.5 year life of the project. The San Cristobal Project is expected to consist of two large scale, open pit mining operations using conventional mining and processing technologies capable of producing and processing an aggregate 30,000 tonnes per day ("tpd") of ore. The stripping ratio for open pit operations is 1.66 tonnes of waste for each tonne of ore. The average cash production cost over the life of the San Cristobal Project is forecast to be $2.69 per silver equivalent ounce. Capital expenditures are estimated to total $354 million for pre-production development and construction to complete the San Cristobal Project. Based on the favorable results of the San Cristobal Study, the Company is targeting the completion of a second phase feasibility study of the San Cristobal Project by the third quarter of 1998 with a goal of securing committed financing by late 1998. Subject to the completion of a second phase feasibility study and securing committed financing, the Company anticipates beginning construction at the San Cristobal Project in early 1999, with silver, zinc and lead production commencing in early 2001. In addition, the Company's recent drilling at its Cobrizos property, located approximately 12 kilometers north of the San Cristobal Project within the San Cristobal district, has identified approximately 10.8 million tonnes of mineralized material with an average grade of 4.3 ounces of silver per tonne. The Company plans to conduct further drilling and engineering studies to establish proven and probable reserves. The Company believes that its San Cristobal district properties may contain some of the largest known open pit silver, zinc and lead deposits in the world. Based on the general geology of the San Cristobal district, the drilling and analysis performed for the San Cristobal Study, and the amount of mineralized material identified to date, the Company believes that the San Cristobal Project could be extended in life and/or increased in scale. The Company is currently evaluating three other advanced-stage exploration properties: the El Ocote silver property in southwestern Honduras; the San Juan de Lucanas silver and gold property in southern Peru; and the Choroma silver prospect in southern Bolivia. At the El Ocote property, the Company has completed a conceptual engineering study in order to determine the feasibility of bringing the property into production. Based on the results of this study, the Company is planning a comprehensive metallurgical sampling and test program. Upon completion of the registration of its ownership of the San Juan de Lucanas property, the Company will conduct a focused exploration and evaluation program to establish and develop reserves by, among other things, drilling targets identified by previous exploration activities. Sampling of outcrops at the Choroma silver prospect has defined several anomalies which the Company plans to drill to test for bulk mineable mineralization and access existing underground workings for further sampling. The Company controls a portfolio of silver properties covering more than two million acres of mineral rights in eight countries. The Company has conducted limited drilling and sampling at some of these other exploration properties and believes that certain of these properties may contain significant silver mineralization. 2 BUSINESS STRATEGY The Company is one of a limited number of mining companies with a primary focus on silver exploration, development and production. The Company's business strategy is to capitalize on its sizeable reserve and mineralized material base in order to achieve long-term profitable growth and enhance shareholder value. The principal elements of the Company's business strategy are as follows: (i) to complete a second phase feasibility study of a large scale open pit mining operation at the San Cristobal Project; (ii) to secure the financing required to develop the San Cristobal Project; (iii) to proceed to develop the San Cristobal Project into a large scale open pit mining operation; (iv) to continue exploration and evaluation activities at the Cobrizos property in southern Bolivia, the El Ocote property in southwestern Honduras, the San Juan de Lucanas property in southern Peru, and to commence drilling and underground sampling at the Choroma property in Southern Bolivia; (v) to evaluate other properties in the Company's portfolio of silver exploration properties, focusing the Company's exploration and development efforts on those properties which are most likely to contain significant silver mineralization and divesting itself of those properties that are not of continuing interest to the Company; and (vi) to identify and acquire additional mining and mineral properties that the Company believes contain significant amounts of silver or have exploration potential. The Company believes that its expanding international portfolio of development and exploration properties position it to take advantage of future increases in demand for silver and certain co-occurring minerals, such as zinc, lead, copper and gold. BUSINESS STRENGTHS The Company believes that its substantial proven and probable reserves of silver, zinc and lead, its additional significant silver, zinc, lead, copper and gold mineralized material, its large exploration property portfolio and its experienced management team position the Company to become a major precious and base metals producer and to benefit from favorable developments in these markets. MAJOR SILVER DEVELOPMENT PROJECT The San Cristobal Study indicates that the San Cristobal Project may constitute one of the largest known mineable silver deposits in the world. Based on the San Cristobal Study, two of the 15 mineralized deposits identified at the San Cristobal Project are estimated to contain total proven and probable reserves of 219 million ounces of contained silver as well as significant amounts of zinc and lead. The Company believes that production at the San Cristobal Project could commence as early as 2001 at a rate of 30,000 tpd of ore producing on average 14 million ounces of silver, 132,700 tonnes of zinc metal and 39,500 tonnes of lead metal, subject to the results of a second phase feasibility study and securing the required financing. The Company believes that the nature and extent of the deposits at the San Cristobal Project will enable the development of a large scale, open pit mining operation with low stripping ratios that utilizes conventional mining and processing technology, enabling the Company to benefit from economies of scale in production. DIVERSIFIED PORTFOLIO OF SILVER PROPERTIES The Company's current property portfolio is diversified not only in terms of property location, but also in terms of stages of evaluation. The Company's development, advanced exploration and other exploration stage mineral properties are located primarily in or near traditional silver producing regions in South America, Central America and Central Asia. These properties include substantial holdings throughout southern Bolivia, northern Chile, southwestern Honduras, southern Peru, and the Zacatecas district of Mexico, as well as significant mineral concessions in Kyrghyzstan, Mongolia and Tajikistan. Initial analyses of several of the Company's early-stage exploration properties indicate the 3 presence of sufficient silver mineralization to warrant additional exploration and evaluation in order to determine the potential for future development. Notwithstanding its primary focus on silver, the Company intends to exploit, where economically feasible, co-occurring minerals, such as zinc, lead, copper and gold, at its mineral properties. EXPERIENCED MANAGEMENT TEAM The management of the Company is comprised of an experienced team of mining experts, whose experience in managing, identifying, developing, building and bringing into production major mining enterprises averages approximately 30 years. In addition, many of the members of the Company's management team have extensive experience in operating large scale mining projects for major international mining companies throughout the world. Certain of the Company's senior executives and the members of its Development Committee have had overall responsibility for the development and operation of major mining operations, including, among others, one major expansion of an existing iron ore mine costing $170 million, two new mine developments each costing $165 million, the operation and administration of major open pit iron and zinc/silver mines located in Peru, the development, construction and start up of the $230 million Muruntau gold project in Zarafshan, Uzbekistan, the $450 million (Australian) Mount Keith open pit nickel mine, and participation in the identification of several multi-million ounce gold deposits. RESERVES AND MINERALIZED MATERIAL DATA The following table sets forth the Company's proven and probable reserves of silver, zinc and lead as of August 29, 1997 at the San Cristobal Project. The reserves reflected below are based on an equivalent cut-off grade of 1.0 ounce of silver per tonne and prices of $5.00 per ounce for silver and $0.55 and $0.30 per pound for zinc and lead, respectively. Proven and probable reserves include an average recovery of 75.5 percent for silver, 78.0 percent for zinc and 73.3 percent for lead. The proven and probable reserves and mineralized material have been determined by Mine Reserves Associates Inc. ("MRA"), independent consultants working as members of the first phase feasibility consultants' team. Confirmation of the reserves and mineralized material was also conducted by another independent consulting firm, Pincock, Allen & Holt ("PAH") which developed an independent resource grade model using a common data set that checked closely with the reserve estimates. Davy and, separately, Behre Dolbear acting as technical auditor, reviewed the reserve estimates and confirmed the results reported below within the accuracy of the study. See "Properties--Development Project--San Cristobal Project--Reserves and Mineralized Material." PROVEN AND PROBABLE RESERVES--SAN CRISTOBAL PROJECT
CONTAINED METALS AVERAGE GRADE (000'S) -------------------------------- --------------------- TONNES SILVER SILVER ZINC LEAD (000'S) (OUNCES/TONNE) ZINC (%) LEAD (%) OUNCES TONNES TONNES -------- -------------- -------- -------- ------- ------ ------ 122,891 1.79 1.49 0.51 219,472 1,836 629
Stripping ratio for the open pit operations is 1.66 tonnes of waste for each tonne of ore. The following table sets forth the Company's estimates of the silver, zinc and lead mineralized material contained in its property portfolio. Mineralized material is that part of mineral deposits for which (i) tonnage and grade are computed (a) partly from specific measurements, samples or production data compiled from assays of outcrops, trenches, underground workings or drill holes and 4 (b) partly from projections based on geological evidence, and (ii) have not been measured and sampled with sufficient confidence to determine that the identified deposit can be economically and legally extracted at the time of such determination. The mineralized material estimates were determined by MRA for the Tesorera and Jayula deposits, and by the Company with respect to the other deposits. In the case of the Cobrizos deposit, the mineralized material estimates were verified by MRA. In the case of the El Ocote deposit, the mineralized material estimates were developed by the Company and reviewed by Behre Dolbear. MINERALIZED MATERIAL
AVERAGE GRADE -------------------------------- SILVER TONNES (000'S) (OUNCES/TONNE) ZINC (%) LEAD (%) -------------- -------------- -------- -------- San Cristobal District Tesorera deposit.............. 2,611 0.77 1.37 0.37 Jayula deposit................ 32,122 1.22 0.91 0.22 Animas deposit................ 8,600 1.67 1.71 0.76 Toldos deposit................ 3,000 3.86 -- -- Cobrizos deposit.............. 10,800 4.31 -- -- El Ocote deposit................ 2,100 9.90 -- --
COMPANY HISTORY The Company was founded in 1993 to acquire and develop attractive silver properties throughout the world. Since 1993, the Company has accumulated a portfolio of silver exploration properties covering more than two million acres in eight countries. These acquisitions were premised on several factors, including (i) the low price of silver relative to the price of other precious metals, (ii) a perception that silver supply and demand fundamentals were stronger than the then-prevailing price of silver suggested, (iii) the general scarcity of attractive publicly-traded silver companies and (iv) the perception of negative sentiment within the traditional silver mining community. In December of 1994, in connection with an investment by Silver Holdings LDC ("Silver Holdings"), the Company reorganized as a Cayman Islands holding company with regionally targeted subsidiaries. See "Corporate Structure", "Certain Transactions" and "Principal Shareholders". Following this reorganization and new investment, Apex Silver Mines LDC, an exempted limited duration company organized under the laws of the Cayman Islands ("Apex LDC"), accelerated its program of acquiring silver exploration properties. In March of 1996, in connection with a private placement of common stock (the "1996 Private Placement"), Apex Limited was organized. The 1996 Private Placement, which was completed as of August 6, 1996, raised gross proceeds of $34.1 million. See "Certain Transactions". Apex Limited conducts all of its operations through Apex LDC and the subsidiaries of Apex LDC; Apex Limited's assets consist exclusively of its shares in Apex LDC. Prior to the Offering, Apex Limited owned approximately 66 percent of the issued and outstanding shares of Apex LDC; upon completion of the Offering (assuming the over-allotment options granted to the U.S. Underwriters and Managers are not exercised), Apex Limited will own approximately [ ] percent of the issued and outstanding share capital of Apex LDC. Currently, Apex Limited has approximately 13,601,544 Ordinary Shares outstanding and approximately 7,077,007 Ordinary Shares reserved for issuance for approximately 7,077,007 shares of Apex LDC owned by the Minority Shareholders. If all such shares of Apex LDC were issued, Apex Limited would have 20,678,551 Ordinary Shares outstanding. See "Corporate Structure" and "Certain Transactions". 5 ADDRESS, PRINCIPAL OFFICE The Company was formed under the laws of the Cayman Islands and maintains its registered office at Caledonian House, Ground Floor, Mary Street, George Town, Grand Cayman, Cayman Islands, British West Indies. The Company has contracted with Apex Silver Mines Corporation ("Apex Corporation"), a wholly-owned subsidiary of Apex LDC, for certain management services. Apex Corporation maintains its principal office at 1700 Lincoln Street, Suite 3050, Denver, Colorado 80203. 6 THE OFFERING Ordinary Shares offered by the Company: U.S. Offering................................. [ ] shares International Offering........................ [ ] shares ----- Total(1).................................... [ ] shares Ordinary Shares to be outstanding after the Offerings(1)(2)................................ [$ ] Net Proceeds.................................... [$ ] million ($ million if the U.S. Underwriters' and Managers' over-allotment options are exercised in full).
- -------- (1) Does not include up to an aggregate of [ ] shares of the Company's share capital subject to over-allotment options granted to the U.S Underwriters and the Managers. See "Underwriting". (2) Excludes (i) Ordinary Shares reserved for issuance pursuant to options that were or may be granted pursuant to the Company's Employee Share Option Plan and Non-employee Director Share Option Plan, and (ii) approximately 7,077,007 Ordinary Shares reserved for issuance to the Minority Shareholders. See "Executive Compensation--Share Option Plans" and "Certain Transactions". USE OF PROCEEDS: The Company intends to use the net proceeds for one or more of the following purposes: (i) feasibility studies, financing and construction and development of its San Cristobal district properties in Bolivia, (ii) exploration and development activities at any of the other properties within the Company's existing portfolio, (iii) maintenance of control or ownership of the Company's existing mineral properties including ongoing lease payments, and paying royalties and other maintenance and registration fees, and (iv) acquisition of additional properties or businesses that are complementary to those of the Company. In addition, the Company may use the net proceeds as working capital and to finance other general corporate purposes. Apex Limited will contribute the gross proceeds from the Offering, and all associated expenses, to Apex LDC. AMERICAN STOCK EXCHANGE [ ] SYMBOL: RISK FACTORS PROSPECTIVE INVESTORS SHOULD CONSIDER CAREFULLY CERTAIN RISK FACTORS RELATING TO AN INVESTMENT IN THE SHARES. SEE "RISK FACTORS". 7 RISK FACTORS Prospective purchasers of the Shares offered hereby should consider carefully, in addition to the other information contained in this Prospectus, the following risk factors: RESERVE AND OTHER MINERALIZATION ESTIMATES The reserves and other mineralization figures presented herein, unless otherwise indicated, are based on estimates of contained silver and other metals made by independent geologists and/or the Company's personnel. These estimates are imprecise and depend on geological interpretation and statistical inferences drawn from drilling and sampling which may prove unreliable. There can be no assurance that such estimates will be accurate, or that indicated reserves or mineralization can be profitably exploited. Since production has not yet commenced on any of the Company's properties, reserves and other mineralization estimates for these properties may require adjustments or downward revisions based on actual production experience. Any material reductions in estimates of the Company's reserves and other mineralization, or of the Company's ability to extract such reserves or mineralization, could have a material adverse effect on the results of operations and financial condition of the Company. The Company has completed a first phase feasibility study with respect to a portion of only one of its properties, the San Cristobal Project. Accordingly, the Company has not established the presence of any proven or probable reserves at any of its other mineral properties. Although conceptual studies have been prepared with respect to the Company's El Ocote and San Juan de Lucanas exploration properties by independent parties using data and assumptions provided by the Company, these studies involve assumptions and projections based on a level of data insufficient to establish the presence of proven or probable reserves. There can be no assurance that subsequent testing or future feasibility studies will establish additional reserves at the Company's properties. The failure to so establish additional reserves could restrict the Company's ability to successfully implement its strategies for long term growth. In addition, there can be no assurance that the proven or probable reserves set forth in the San Cristobal Study will actually be able to be mined and processed profitably, if at all. The San Cristobal Study is based on many assumptions, any, some, or all of which may prove to be inaccurate. The failure of any such assumptions to prove accurate may alter the conclusions of the San Cristobal Study and may have a material adverse effect on the Company. In addition, the economics of mining at San Cristobal are based on (i) bench scale metallurgical testing of drill samples from the property to estimate extraction yields of silver and other metals, (ii) estimates of the cost of creating and operating the necessary mine process infrastructure and transport facilities to profitably extract the minerals at the property and (iii) estimates of the market price of silver, zinc and lead. Such estimates can be highly inaccurate. There can be no assurance that the Company will achieve the anticipated extraction rates or operating costs, or create the necessary facilities within the budgets, proposed by the San Cristobal Study. SAN CRISTOBAL PROJECT RISKS In addition to the other risk factors, the San Cristobal Project involves the following risks: The proximity of the town of San Cristobal may adversely affect the Company's ability to efficiently mine the San Cristobal Project. The Company expects to seek to relocate the local population of approximately 350. There can be no assurance that the Company will be able to develop an amicable and economically feasible relocation program within the time period anticipated by the Company's development plans. See "Properties--Development Project--San Cristobal Project". Although the Company anticipates that the development of the San Cristobal Project will be successfully completed and that the resulting operations will be in full production by early 2001, no 8 assurance can be given that the development of the San Cristobal Project will be completed on a timely basis, that the operations will achieve the anticipated production capacity or that the construction costs or ongoing operating costs associated with the development of the San Cristobal Project will not be higher than anticipated. The construction of expanded mining operations involves a number of uncertainties, including factors beyond the Company's control. Failure to complete the development of the San Cristobal Project on a timely basis or unexpected cost increases could have a material adverse effect on future results of operations and financial condition of the Company. If the capital expenditures required to complete the development of the San Cristobal Project are significantly higher than expected, there is no assurance that the Company's capital resources would be sufficient to cover such costs or that the Company would be able to obtain alternative sources of financing to cover such costs. See "Use of Proceeds" and "Properties-- Development Project--San Cristobal Project". NO PRODUCTION HISTORY The Company has no history of silver production. The Company's strategy to develop its economically feasible properties will require the construction or rehabilitation and operation of mines, processing plants and related infrastructure. As a result, the Company is subject to all of the risks inherent in the establishment of new mining operations and business enterprises. There can be no assurance that the Company will successfully establish mining operations or profitably produce silver or other metals at any of its properties. MANAGEMENT OF GROWTH The Company anticipates that as its mineral properties are brought into production and as it acquires additional mineral rights, it will experience significant growth in its operations. This growth is expected to create new responsibilities for management personnel, as well as added demands on the Company's operating and financial systems. There can be no assurance that the Company will be successful in meeting such demands and managing its anticipated growth. The Company's growth is dependent, in part, on the continued identification and acquisition of additional mineral rights. There can be no assurance that the Company will be successful in acquiring additional mineral rights. VOLATILITY OF METALS PRICES The profitability of the Company and its long-term viability are dependent in large part on the market price of silver and other metals, including zinc and lead. The market prices for such metals are volatile and are affected by numerous factors beyond the Company's control, including expectations for inflation, speculative activities, currency exchange fluctuations, global or regional consumption patterns, supply of and demand for silver and the other metals, political and economic conditions and production and transportation costs. The aggregate effect of these factors is impossible for the Company to predict and could have a material adverse effect on the Company and the results of its operations. Certain mining operations, including the San Cristobal Project, may be dependent upon anticipated proceeds from the production of secondary metals and a decline in the price of any metals extracted by the Company could materially adversely affect the profitability of the Company. If the market price for these metals falls below the Company's production costs and remains at such level for any sustained period, the Company will experience additional losses and may determine to discontinue the development of a project or mining at one or more of its properties. See "Metals Market Overview". EXPLORATION AND DEVELOPMENT RISKS The degree of profitability of the Company's operations will be affected by the costs and results of its continued exploration and development programs. The Company is seeking to expand its reserves 9 through a broad program of exploration and development, including ongoing development activities at the San Cristobal Project. Mineral exploration is highly speculative in nature, involves many risks, and frequently is nonproductive. There can be no assurance that the Company's mineral exploration efforts will be successful. Once mineralization is discovered, it usually takes a number of years from the initial phases of exploration until production is possible, during which time the economic feasibility of production may change. Substantial expenditures are required to establish ore reserves through drilling, to determine metal content and metallurgical processes to extract such metal from the ore and, in the case of new properties, to construct mining and processing facilities. As a result of these uncertainties, no assurance can be given that the Company's exploration programs will result in the establishment of new ore reserves. None of the Company's mineral properties have an operating history upon which estimates of future cash operating costs may be based. Estimates of reserves and cash operating costs, particularly for development projects, to a large extent, are based upon the interpretation of geologic data obtained from drill holes and other sampling techniques, and feasibility studies which derive estimates of cash operating costs based upon anticipated tonnage and grades of ore to be mined and processed, the configuration of the ore body, expected recovery rates of silver and other metals from the ore, comparable facility and equipment operating costs, anticipated climatic conditions, and other factors. As a result, it is possible that actual cash operating costs and economic returns may differ significantly from those currently estimated by the Company. It is not unusual in new mining operations to experience unexpected problems during the start-up phase. There are a number of uncertainties inherent in any development program, including the location and dimensions of a deposit, metal content, development of appropriate metallurgical processes, receipt of necessary governmental permits and the construction of mining and processing facilities. The costs involved in building or upgrading all necessary power, water or transportation facilities at any given property may be considerable, particularly in light of the frequently remote locations of the Company's properties. The development of many of the Company's properties will require the creation of extensive infrastructure in order to commence production at such sites. No assurance can be given that minerals will be discovered in sufficient quantities to justify commercial operations or that the funds required for development can be obtained at all, or on a timely basis. Accordingly, there can be no assurance that the Company's future development activities or exploration efforts will result in profitable mineral production. TITLE TO MINERAL PROPERTIES Although it is the Company's policy to seek to confirm the validity of its rights to title to, or contract rights with respect to, each mineral property in which it has a material interest, there is no guarantee that title to its properties will not be challenged or impugned. Title insurance generally is not available, and the Company's ability to ensure that it has obtained secure claim to individual mineral properties or mining concessions may be severely constrained. The Company has not conducted surveys of all of the claims in which it holds direct or indirect interests and, therefore, the precise area and location of such claims may be in doubt. Accordingly, the Company's mineral properties may be subject to prior unregistered agreements, transfers or claims, and title may be affected by, among other things, undetected defects. In addition, the Company may not be able to operate its properties as permitted, or to enforce its rights with respect to such properties. The Company's rights to certain of its mineral properties, including certain of its principal properties at the San Cristobal Project, derive from leaseholds or purchase option agreements which require the payment of rent or other installment fees. In the event the Company fails to make such payments with respect to any of its mineral properties on the relevant due date, the Company's rights to any such property may lapse. There can be no assurance that the Company will, or will be able to, 10 effect all such payments by the requisite payment dates. In addition, certain of the Company's contracts with respect to its mineral properties mandate development or production schedules. There can be no assurance that the Company will be able to meet any or all of such development or production schedules. In addition, the Company's ability to transfer or sell its rights to certain mineral properties may require governmental approvals or third party consents, which may not be granted. The Company's title to, and control over its San Juan de Lucanas property in Peru has been contested by certain employee creditors of the prior operator of the property. During the last three years, parts of the property have been physically controlled by individuals challenging the Company's ownership. There can be no assurance that the Company will prevail in its attempt to register title to the property. See "Properties--Advanced Exploration Properties--San Juan de Lucanas". MINING RISKS AND INSURANCE The business of mining is generally subject to a number of risks and hazards, including adverse environmental effects, industrial accidents, labor disputes, technical difficulties posed by unusual or unexpected geologic formations, cave-ins, flooding and periodic interruptions due to inclement or hazardous weather conditions. Such risks can result in damage to and destruction of, mineral properties or producing facilities, as well as personal injury, environmental damage, delays in mining, monetary losses and possible legal liability. Although the Company maintains, and intends to continue to maintain, insurance with respect to its operations and mineral properties within ranges of coverage consistent with industry practice, no assurance can be given that such insurance will be available at economically feasible premiums. Insurance against environmental risks (including potential liability for pollution or other disturbances resulting from mining exploration and production) is not generally available to the Company. FOREIGN OPERATIONS The Company currently conducts exploration activities in countries with developing economies, including Bolivia, Chile, Honduras, Mexico and Peru in Latin America, and Kyrghyzstan, Mongolia and Tajikistan in Central Asia. Each of these countries has experienced recently, or is experiencing currently, economic or political instability. Hyperinflation, volatile exchange rates and rapid political and legal change, often accompanied by military insurrection, have been common in these and certain other emerging markets in which the Company may conduct operations. The Company may be materially adversely affected by possible political or economic instability in any one or more of those countries. The risks include, but are not limited to, terrorism, military repression, expropriation, changing fiscal regimes, extreme fluctuations in currency exchange rates, high rates of inflation and the absence of industrial and economic infrastructure. Changes in mining or investment policies or shifts in the prevailing political climate in any of the countries in which the Company conducts exploration and development activities could adversely affect the Company's business. Operations may be affected in varying degrees by government regulations with respect to production restrictions, price controls, export controls, income and other taxes, expropriation of property, maintenance of claims, environmental legislation, labor, welfare benefit policies, land use, land claims of local residents, water use and mine safety. The effect of these factors cannot be accurately predicted. GOVERNMENT REGULATION AND ENVIRONMENTAL MATTERS All commercial production and mineral exploration and development by the Company will be subject to foreign laws and regulations controlling not only the mining of and exploration for mineral properties, but also the possible effects of such activities upon the environment. These laws and regulations are comprehensive and deal with matters such as air and water quality, mine reclamation, waste handling and disposal, the protection of certain species and the preservation of certain lands. These environmental laws and regulations may require the acquisition of permits or other 11 authorizations for certain activities. Environmental legislation is evolving in a manner which will require stricter standards and enforcement, increased fines and penalties for non-compliance, more stringent environmental assessments of proposed projects and a heightened degree of responsibility for companies and their officers, directors and employees. Permits from a variety of regulatory authorities are required for many aspects of mine operation and reclamation. The Company cannot predict what environmental legislation or regulations will be enacted or adopted in the future or how future laws and regulations will be administered or interpreted. Compliance with more stringent laws and regulations, as well as potentially more vigorous enforcement policies or regulatory agencies or stricter interpretation of existing laws, may necessitate significant capital outlays, may materially adversely affect the Company's future operations or may cause material changes or delays in the Company's intended activities. The Company's preliminary analysis of the existing mining activities conducted by the current owner and operator of the Toldos mine at the San Cristobal Project indicates that low-level effluents from the site may be draining into a seasonal stream which flows into the Rio Grande and, ultimately, into the Salar de Uyuni, a salt lake to the north of the San Cristobal Project. See "Properties--Development Project--San Cristobal Project". Pursuant to the recently enacted Bolivian mining code, mining companies are not liable for identified pre-existing conditions. Nonetheless, if the Company acquires the Toldos property from its current owner, the Company expects to improve the environmental situation which may currently exist at the site. The Company does not expect any such remediation program to have a material adverse effect on the Company's proposed operations at the San Cristobal Project. Environmental conditions may exist on other mineral properties currently owned or controlled by the Company which are unknown to the Company at present and which have been caused by previous or existing owners or operators of the properties. The Company has not sought an environmental analysis at any of its mineral properties, nor has it conducted a comprehensive review of the environmental laws and regulations applicable to it in each of the various jurisdictions in which it owns or controls mineral properties. To the extent the Company is subject to environmental liabilities, the satisfaction of such liabilities would reduce the Company's net cash flow and could have a material adverse effect on the Company's financial position and results of operations. Should the Company be unable to fund fully the cost of remediation of any environmental condition, the Company might be required to suspend operations or enter into interim compliance measures pending completion of the required remediation. COMPETITION The mining industry is intensely competitive. The Company competes with many companies possessing greater financial resources, operational experience and technical facilities than itself. Competition in the mining business could adversely affect the Company's ability to attract requisite capital funding or acquire suitable producing properties or prospects for mineral exploration in the future. The Company recently has encountered increasing competition from other mining groups in its efforts to acquire mineral properties. HOLDING COMPANY STRUCTURE RISKS The Company currently conducts, and will continue to conduct, all of its operations through subsidiaries. The Company's ability to obtain dividends or other distributions from its subsidiaries may be subject to, among other things, restrictions on dividends under applicable local law and foreign currency exchange regulations in the jurisdictions in which the subsidiaries operate. The subsidiaries' ability to pay dividends or make other distributions to the Company may also be subject to their having sufficient funds from their operations legally available for the payment thereof which are not needed to fund their operations, obligations or other business plans. If the Company's subsidiaries are unable to 12 pay dividends or make other distributions to the Company, the Company's growth may be inhibited after the proceeds of the Offering are exhausted, unless the Company is able to obtain additional debt or equity financing on terms which are acceptable to the Company. In the event of a subsidiary's liquidation, there may not be assets sufficient for the Company to recoup its investment therein. LIMITED OPERATING HISTORY; HISTORY OF LOSSES The Company, incorporated in the Cayman Islands in March of 1996, is the successor to the mineral property acquisition, exploration and development activities conducted by its affiliates since 1993. The Company has incurred losses since its inception, and expects to incur additional losses for at least the next four years. As of June 30, 1997, the Company had an accumulated deficit of $24,975,158. See "Management's Discussion and Analysis of Financial Condition and Results of Operations". DISCRETION AS TO USE OF PROCEEDS Apex Limited will contribute the gross proceeds of the Offering, and all associated expenses, to Apex LDC. While the Company has identified certain anticipated uses for the net proceeds, it will have broad discretion as to the expenditure of such proceeds. REQUIREMENT OF ADDITIONAL FINANCING The net proceeds of the Offering will not be sufficient to complete the Company's planned development of the San Cristobal Project. The Company intends to seek additional financing to complete development of the San Cristobal Project and to fund the development of other of its mineral properties, including the Cobrizos, El Ocote, San Juan de Lucanas, and Choroma properties. Sources of such external financing include bank borrowings and future debt and equity offerings. There can be no assurance that additional financing will be available on terms acceptable to the Company and its shareholders, or at all. The failure to obtain such additional financing could have a material adverse effect on the results of operations and the financial condition of the Company. The operations contemplated by the Company are expected to be highly capital intensive. There can be no assurance that the Company will be able to secure the financing necessary to retain its rights to, or to begin, or, if begun, to sustain production at the Company's mineral properties. DEPENDENCE ON KEY PERSONNEL The Company is dependent on the services of certain key executives including its Chairman and the Chief Operating Officer. The loss of these persons, other key executives or personnel, or the inability to attract and retain the additional highly skilled employees required for the expansion of the Company's activities, may have a material adverse effect on the Company's business or future operations. The Chairman does not have a written contract. See "Executive Compensation--Employment Agreements". The Company does not intend to maintain "key-man" life insurance on any of its executive officers or other personnel. SUBSTANTIAL CONTROL BY DIRECTORS AND SIGNIFICANT SHAREHOLDERS Upon the completion of this Offering, Thomas S. Kaplan and the Company's directors and principal shareholders, together with members of their families and entities that may be deemed affiliates of or related to such persons or entities, will beneficially own approximately [ ] percent of the Ordinary Shares outstanding after the Offering, including approximately 7,077,007 Ordinary Shares which would be issued in the event the Company elected to satisfy all of its obligations to the Minority Shareholders of Apex LDC arising under the Buy-Sell Agreement through the issuance of Ordinary Shares. See "Certain Transactions". Mr. Kaplan and others, together with certain of the shareholders of Apex LDC, have entered into an agreement with respect to the appointment of two members of the Company's board of directors. See "Certain Transactions". Such a high level of 13 ownership by such persons may have a significant effect in delaying, deferring or preventing a change in control of the Company or other events which could be of benefit to the Company's other shareholders. See "Principal Shareholders". CONFLICTS OF INTEREST Certain officers and directors of the Company are officers and/or directors of, or are associated with, other natural resource companies that acquire interests in mineral properties. Such associations may give rise to conflicts of interest from time to time. See "Certain Transactions." SUBSTANTIAL DILUTION As a result of the Offering, persons purchasing Shares in the Offering will experience immediate and substantial dilution in the net tangible book value per share of $[ ]. See "Dilution". ABSENCE OF DIVIDENDS The Company does not anticipate paying dividends to existing or future shareholders for the foreseeable future. It is the present intention of the Company to retain all earnings, if any, in order to support the future growth of its business. Any determination in the future to pay dividends will be dependent upon the Company's consolidated results of operations, financial condition, cash requirements, future prospects and such other factors as the Company deems appropriate at the time. NO PRIOR PUBLIC MARKET Prior to the Offering, there has been no public market for the Shares. An application will be made to have the Shares listed for quotation on the American Stock Exchange. There can be no assurance that an active public market for the Shares will develop, or if such market does develop, be sustained. The initial public offering price for the Shares will be determined by negotiations among the Company and the underwriters. There can be no assurance that the market price of the Shares after the Offering will equal or exceed the initial public offering price. The market price of the Shares could be subject to significant fluctuations in response to variations in quarterly operating results, developments relating to the Company and general trends affecting the metals industry. In addition, broad market fluctuations and general economic and political conditions may adversely affect the market price of the Shares regardless of the Company's performance. See "Underwriting" for a description of the factors to be considered in determining the initial public offering price. ORDINARY SHARES ELIGIBLE FOR FUTURE SALE Sales of substantial amounts of Ordinary Shares in the public market following the Offering could adversely affect the market price of the Shares. The Company and certain of its directors and executive officers, and all current shareholders (including the shareholders of Apex LDC) have agreed, during the 180 days following the date of the Prospectus, not to sell any Ordinary Shares without the prior written consent of Salomon Brothers Inc ("Salomon"). See "Certain Transactions", "Ordinary Shares Eligible for Future Sale" and "Underwriting". TAX RISKS Potential investors should inform themselves as to the tax consequences of acquiring, holding and disposing of Shares in their particular circumstances. In particular, potential investors that are U.S. taxpayers should consider that the Shares may be considered interests in a "passive foreign investment company" ("PFIC") for U.S. tax purposes, and should consult their own tax advisers as to the taxation of U.S. shareholders of PFICs in light of their particular circumstances. If the Company 14 were deemed to be a PFIC, then a U.S. taxpayer who disposes or is deemed to dispose of Shares at a gain generally would be required to treat such gain as ordinary income and pay an interest charge on a portion of the gain unless the U.S. taxpayer makes a timely election (a "QEF election") to have the Company treated as a "qualified electing fund". A U.S. taxpayer who makes a QEF election generally must report on a current basis his share of any ordinary earnings and net capital gain of the Company for any taxable year in which the Company is a PFIC. A QEF election generally must be made for the first taxable year of the U.S. taxpayer's ownership of Shares during which the Company is a PFIC, provided that the Company complies with certain reporting requirements. The Company intends to comply with all reporting requirements necessary for U.S. investors to make QEF elections with respect to the Company and will upon request provide to U.S. investors such information as may be required to make such QEF elections effective. For taxable years beginning after December 31, 1997, a U.S. investor who owns marketable stock in a PFIC may elect to recognize gain or loss on a mark-to- market basis in lieu of making a QEF election. For a further discussion, see "Taxation--United States Federal Income Taxation--Passive Foreign Investment Company Considerations". FORWARD-LOOKING STATEMENTS This Prospectus contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended (the "Securities Act"), and Section 21E of the Securities Exchange Act of 1934, as amended (the "Exchange Act"). All statements, other than statements of historical facts, included in this Prospectus that address activities, events or developments that the Company expects, believes, intends or anticipates will or may occur in the future, including such matters as future investments in existing development projects and the acquisition of new mineral properties (including the amount and nature thereof), the use of proceeds of this Offering, business strategies and the future need for additional funds from outside sources, are forward-looking statements. Forward-looking statements are inherently subject to risks and uncertainties, many of which cannot be predicted with accuracy and some of which might not even be anticipated. Future events and actual results, financial and otherwise, could differ materially from those set forth in or contemplated by the forward-looking statements herein. 15 USE OF PROCEEDS The aggregate net proceeds to the Company from the sale of Shares offered hereby are estimated to be approximately [$ . ] (or approximately [$ . ] if the U.S. Underwriters' and the Managers' over-allotment options are exercised in full) after deducting the underwriting discount and estimated fees and expenses payable by the Company in connection with the Offering. The Company intends to use the net proceeds for one or more of the following purposes: (i) feasibility studies, financing, and construction and development of the San Cristobal Project, (ii) exploration and development activities at any of the other properties within the Company's existing portfolio, (iii) maintenance of control or ownership of the Company's existing mineral properties by making ongoing lease payments, and paying royalties and other maintenance and registration fees, and (iv) acquisition of additional properties or businesses that are complementary to those of the Company. In addition, the Company may use the net proceeds for working capital and other general corporate purposes. Apex Limited will contribute the gross proceeds from the Offering, and all associated expenses, to Apex LDC in exchange for an equal number of Apex LDC shares. The Company has not determined a specific allocation of proceeds among the various uses described above. Accordingly, the Company anticipates that the proceeds from the sale of the Shares offered hereby will not be sufficient to fund the development of its mineral properties. Additional financing will be required to fund future development activities and there can be no assurance that such financing will be available at all, or on terms acceptable or favorable to the Company and its shareholders. See "Risk Factors--Discretion as to Use of Proceeds" and "--Requirement of Additional Financing". DIVIDEND POLICY The Company has never paid any dividends on its Ordinary Shares and expects for the foreseeable future to retain all of its earnings from operations for use in expanding and developing its business. Any future decision as to the payment of dividends will be at the discretion of the Company's board of directors and will depend upon the Company's earnings, receipt of dividends from its subsidiaries, financial position, capital requirements, plans for expansion and such other factors as the board of directors deems relevant. See "Risk Factors--Absence of Dividends". 16 CAPITALIZATION The following table sets forth the capitalization of the Company as of June 30, 1997, and such capitalization as adjusted to reflect (i) the sale of [ ] Shares offered hereby, after deduction of the underwriting discount and estimated expenses of the Offering payable by the Company and (ii) the application of the estimated net proceeds. See "Certain Transactions" and "Underwriting". This table should be read in conjunction with the Consolidated Financial Statements of the Company and the notes thereto included elsewhere in the Prospectus. See "Use of Proceeds".
JUNE 30, 1997 --------------------- ACTUAL AS ADJUSTED -------- ----------- (IN THOUSANDS) SHAREHOLDERS' EQUITY: Ordinary Shares, $0.01 par value, 50,000,000 Ordinary Shares authorized, 13,194,453 Ordinary Shares issued and outstanding prior to the Offering, [ ] Ordinary Shares issued and outstanding upon consummation of the Offering.......................................... $ 132 $ Contributed Surplus.................................... 38,149 Accumulated Deficit.................................... (24,975) -------- ---- Total Shareholders' Equity............................. 13,306 -------- ---- Total capitalization................................. $ 13,306 $ ======== ====
17 DILUTION As of June 30, 1997, the net tangible book value of the Company was $13,163,995 or $1.00 per share outstanding. After giving effect to the sale of the [ ] Shares offered hereby, deduction of the underwriting discount and estimated expenses of the Offering payable by the Company and the application of the net proceeds therefrom as set forth under "Use of Proceeds", the pro forma net tangible book value of the Company as of June 30, 1997 would have been [ ] or [ ] per share. This change represents an immediate increase in net tangible book value of [ ] per share to existing shareholders and an immediate dilution of [ ] per share to purchasers of the shares of the Company's share capital at the initial public offering price. The following table illustrates this per share dilution: Initial public offering price............................... [$ ] Net tangible book value per share at June 30, 1997(1)...... $1.00 Increase attributable to the sale by the Company of [ ] Ordinary Shares(2)........................................ [ ] ----- Pro forma net tangible book value per share after the Offering(2)(3)......................................... [ ] ------ Dilution to new investors................................... [$ ] ======
The following table sets forth as of June 30, 1997, the difference between the number of Shares purchased, the total consideration paid and the average price per share paid by the existing shareholders and to be paid by new investors in the Offering:
SHARES PURCHASED TOTAL CONSIDERATION ------------------ ------------------- AVERAGE PRICE NUMBER PERCENT AMOUNT PERCENT PER SHARE ---------- ------- ----------- ------- ------------- Existing shareholders...... 13,194,453 [ ]% $38,280,632 [ ]% $2.90 New investors.............. [ ] [ ] [ ] [ ] [ ] ---------- ----- ----------- ----- Total.................... [ ] 100.0% [ ] 100.0% ========== ===== =========== =====
- -------- (1) Net tangible book value per share is determined by dividing total net tangible assets (assets less deferred organizational costs less liabilites) by the number of Ordinary Shares outstanding prior to the Offering. (2) Excludes the exercise of options to purchase 427,499 Ordinary Shares and includes the issuance of approximately 7,077,007 Ordinary Shares in exchange for approximately 7,077,007 shares of Apex LDC, pursuant to the Buy-Sell Agreement. See "Incentive Compensation" and "Certain Transactions". (3) Pro forma net tangible book value per share is determined by dividing the number of Ordinary Shares outstanding after giving effect to the Offering into the net tangible book value of the Company after application of the net proceeds of the Offering. Dilution is determined by substituting pro forma net tangible value per share after the Offering from the initial public offering price per Share to be paid by new investors for each Share. 18 SELECTED CONSOLIDATED FINANCIAL DATA The selected consolidated financial data for the Company for the years ended December 31, 1996 and 1995, and the period from December 22, 1994 (inception) through December 31, 1994 are derived from the audited consolidated financial statements of the Company. The selected consolidated financial data as of and for the six month periods ended June 30, 1997 and 1996 have been derived from the Company's unaudited financial statements which, in the opinion of management, include all significant normal and recurring adjustments necessary for a fair presentation of the financial position and results of operations for such unaudited period. The selected financial data not been presented herein as it was immaterial. The following table should be read in conjunction with the Consolidated Financial Statements and Management's Discussion and Analysis of Financial Condition and Results of Operations.
FOR THE PERIOD DECEMBER 22, 1994 SIX MONTHS ENDED (INCEPTION) JUNE 30, YEAR ENDED DECEMBER 31, THROUGH ------------------- ------------------------- DECEMBER 31, 1997 1996 1996 1995 1994 --------- -------- ------------ ----------- -------------- --- (UNAUDITED) (DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS) STATEMENT OF OPERATIONS: Interest income......... $ 475 $ 72 $ 575 $ 462 $ 15 --------- -------- ------------ ----------- ------ Total income............ 475 72 575 462 15 --------- -------- ------------ ----------- ------ Expenses Exploration............ 7,961 4,323 9,591 1,560 105 Administrative......... 1,814 498 1,924 982 148 Consulting............. 1,060 792 2,506 560 145 Professional fees...... 776 421 1,096 657 20 Amortization and depre- ciation............... 41 28 57 57 -- --------- -------- ------------ ----------- ------ Total expenses.......... 11,652 6,062 15,174 3,816 418 --------- -------- ------------ ----------- ------ Loss before minority interest............... (11,177) (5,990) (14,599) (3,354) (403) Minority interest....... -- 2,666 2,876 1,493 190 --------- -------- ------------ ----------- ------ Net loss for the period................. $ (11,177) $ (3,324) $ (11,723) $ (1,861) $ (213) ========= ======== ============ =========== ====== Net loss per Ordinary Share.................. $ (0.85) $ (0.38) $ (1.11) $ (0.21) $(0.02) ========= ======== ============ =========== ====== Weighted average number of Ordinary Shares outstanding ........... 13,195 8,823 10,596 8,823 8,823 CASH FLOW DATA: Net cash provided by financing activities .. $ 172 $ 2,820 $ 35,269 $ 6,430 $ 686 Net cash used in operating activities... (12,982) (4,939) (12,092) (3,491) (329) Net cash used in investing activities... (9,051) -- (524) -- -- --------- -------- ------------ ----------- ------ Net increase (decrease) in cash................ $ (21,861) $ (2,119) $ 22,653 $ 2,939 $ 357 ========= ======== ============ =========== ====== JUNE 30, DECEMBER 31, ------------------- ----------------------------------------- 1997 1996 1996 1995 1994 --------- -------- ------------ ----------- -------------- (UNAUDITED) (DOLLARS IN THOUSANDS) BALANCE SHEET DATA: Total assets............ $ 14,291 $ 1,476 $ 26,797 $ 6,820 $9,929 Total liabilities....... 985 1,005 2,486 359 114 Minority interest....... -- 210 -- 2,876 4,369 Shareholders' equity.... 13,306 261 24,311 3,585 5,446
19 CORPORATE STRUCTURE HISTORY OF THE COMPANY Beginning in 1993, the Company and its founders embarked on a program of acquiring silver exploration properties throughout the world. In December of 1994, in connection with an investment by Silver Holdings, the Company reorganized as a Cayman Islands holding company with subsidiaries based on regional operations. See "Certain Transactions". Following this reorganization and new investment, Apex LDC accelerated its program of acquiring silver exploration properties. In March of 1996, in connection with the 1996 Private Placement, Apex Silver Mines Limited was organized. The 1996 Private Placement, which was completed as of August 6, 1996, raised gross proceeds of $34.1 million for an approximately 21 percent interest (on a fully diluted basis) in the Company. See "Certain Transactions". As an "exempted" company under the laws of the Cayman Islands, the Company may not carry on business in the Cayman Islands, except in furtherance of the business of the Company carried on outside the Cayman Islands. Substantially all of Apex Limited's assets consist of shares of Apex LDC. Currently, Apex Limited owns approximately 66 percent of Apex LDC. Upon completion of the Offering (assuming the over-allotment options granted to the U.S. Underwriters and the Managers are not exercised), Apex Limited will own [ ] percent of the outstanding share capital of Apex LDC. The Minority Shareholders are entitled to sell their shares of Apex LDC to Apex Limited for, at Apex Limited's sole option, Ordinary Shares on a one-for-one basis, cash, or a combination of cash and Ordinary Shares. The Company currently expects that any future purchases by Apex Limited of shares of Apex LDC from the Minority Shareholders will involve only Ordinary Shares of Apex Limited. Any such transactions will not affect the beneficial and economic interest in Apex LDC attributable to shareholders of Apex Limited. Currently, Apex Limited has approximately 13,601,544 Ordinary Shares outstanding and approximately 7,077,007 Ordinary Shares reserved for issuance for approximately 7,077,007 shares of Apex LDC owned by the Minority Shareholders. If all such shares of Apex LDC were issued, Apex Limited would have 20,678,551 Ordinary Shares outstanding. See "Principal Shareholders" and "Certain Transactions". Apex LDC conducts its business primarily through a series of directly and indirectly owned subsidiaries. The Company has approximately 33 full-time employees. Apex LDC's, and hence the Company's, principal operating subsidiaries are (i) Andean Silver Corporation LDC ("Andean"), which is indirectly engaged in exploration and development activities in South America; (ii) Apex Asia LDC ("Apex Asia"), which is engaged, directly and indirectly, in exploration activities in Asia; (iii) Apex Corporation, which serves as the principal management services provider to the Company pursuant to the terms of a Management Services Agreement executed in connection with Apex Corporation's formation in the fall of 1996; (iv) Minera de Cordilleras (Honduras), S. de R.L. ("Cordilleras Honduras"), which is engaged in exploration and development activities in Honduras; (v) Cordilleras Silver Mines, Ltd. ("Cordilleras Bahamas"), which is indirectly engaged in exploration and development activities in Mexico and Honduras; and (vi) Compania Minerales de Zacatecas, S. de R.L. de C.V. ("CMZ"), which is indirectly engaged in exploration activities in Mexico. See "Certain Transactions". Apex LDC is the sole beneficial owner of Andean, with a 99 percent interest; the remaining one percent interest is held by Apex Partners LDC ("Apex Partners"), which is wholly beneficially owned by Apex LDC. Andean owns 97.5 percent of ASC Bolivia LDC ("ASC Bolivia"); Apex LDC holds the remaining 2.5 percent. Apex LDC is the sole beneficial owner of ASC Peru LDC ("ASC Peru"); Andean holds a 99 percent interest in ASC Peru, and ASC Partners LDC ("ASC Partners"), which is wholly and beneficially owned by Apex LDC, holds the remaining one percent interest. The Company anticipates that individual properties will be contributed to new special purpose holding companies prior to the commencement of production at such properties. The formation of such additional subsidiaries will not involve any dilution to the Company's beneficial ownership of the underlying properties. 20 Apex Asia, which is wholly beneficially owned by Apex LDC, has formed joint venture entities to own or otherwise hold interests in silver resource properties in Kyrghyzstan and Mongolia, and is in the process of doing so in Tajikistan. In Kyrghyzstan, Apex Asia holds a 50 percent interest in " "JSC' Kumushtak" ("Kumushtak Mining"). The remaining 50 percent interest in Kumushtak Mining and KMC is held by the North Kyrghyz Geological Expedition, a government mining enterprise which operates in the Kumushtak region in northwestern Kyrghyzstan. Apex Asia owns 99 percent of " "JSC' Kumushtak Management Company' " ("Kumushtak Management Company"); Apex Partners holds the remaining one percent. In Mongolia, Apex Asia has organized "Asgatmongu' Company, Ltd. ("Asgat Mining"). Apex Asia holds approximately one half of the total interests in Asgat Mining and has appointed two individuals, including the chairman, of Asgat Mining's four member board of managers. Mongolrostvetmet, a joint association owned by the government of Mongolia and Zarubeshvetmet, a recently privatized company organized under the laws of the Russian Federation, holds the remaining interest in Asgat Mining. In Tajikistan, Apex Asia has entered into an agreement with the Adrasman Mining Venture ("Adrasman Mining"), an agency of the government of Tajikistan, to form "Kanimansur Ltd." Joint Mining Venture ("Kanimansur Mining"). Kanimansur Mining will be 49 percent owned by Apex Asia. In Mexico, CMZ serves as the holding company for Compania Metalurgica Largo, S. de R.L. de C.V. ("Largo") and Compania Metalurgica Barones, S. de R.L. de C.V. ("Barones"). Apex LDC is the sole beneficial shareholder of each of Cordilleras Bahamas, Cordilleras Cayman, and Cordilleras Honduras and Apex Corporation. Cordilleras Cayman owns 99 percent of the shares of Cordilleras Mexico; the remaining one percent interest is held by Apex Partners. Cordilleras Honduras is 99 percent owned by Apex LDC; the remaining one percent interest is owned by Apex Partners. 21 MANAGEMENT'S DISCUSSION AND ANALYSIS OFFINANCIAL CONDITION AND RESULTS OF OPERATIONS GENERAL The following discussion and analysis should be read in conjunction with the Consolidated Financial Statements and related notes thereto which appear elsewhere in this Prospectus. The Company is a mining exploration and development company that holds a portfolio of silver exploration and development properties in South America, Central America and Central Asia. None of these properties are on production and, consequently, the Company has no current operating income or cash flow. BACKGROUND In mid-1993, Apex Silver Mines Ltd. ("Apex Bermuda") was established to acquire and develop silver exploration properties throughout the world. On December 22, 1994, Apex Bermuda contributed substantially all of its assets to Apex LDC, a limited duration company formed under the laws of the Cayman Islands. In March of 1996, Apex Limited, a limited liability company formed under the laws of the Cayman Islands, was incorporated in order to facilitate the 1996 Private Placement. In connection with the 1996 Private Placement, Apex Limited issued Ordinary Shares to certain of the non-U.S. investors in Apex LDC in exchange for their interests in Apex LDC. These transactions, and the 1996 Private Placement were completed effective as of August 6, 1996. Currently, Apex Limited owns approximately 66 percent of Apex LDC. Upon the completion of the Offering (assuming the over-allotment options granted to U.S. Underwriters and the Managers are not exercised) Apex Limited will own [ ] percent of the outstanding share capital of Apex LDC. The Minority Shareholders are entitled to sell their shares of Apex LDC to the Company for, at Apex Limited's sole option, Ordinary Shares of Apex Limited on a one for one basis, cash, or a combination of cash and Ordinary Shares. The Company currently expects that any future purchases by Apex Limited of shares of Apex LDC from the Minority Shareholders will involve only Ordinary Shares. Any such transactions will not affect the beneficial and economic interest in Apex LDC attributable to shareholders of Apex Limited. See "Certain Transactions". Currently, Apex Limited has approximately 13,601,544 Ordinary Shares outstanding and approximately 7,077,007 Ordinary Shares reserved for issuance for approximately 7,077,007 shares of Apex LDC owned by the Minority Shareholders. If all such shares of Apex LDC were issued, Apex Limited would have 20,678,551 Ordinary Shares outstanding. For United States investors, ownership of the Shares may have certain tax consequences. See "Tax Considerations". THE SAN CRISTOBAL PROJECT From 1994 to 1996, the properties comprising the San Cristobal Project were acquired in a series of transactions. See "Properties--Development Project-- San Cristobal Project." In 1996, the Company began exploring these properties, and discovered the presence of a significant silver zinc and lead deposit with the potential to be developed as a large scale open-pit mining project. In the, fall of 1996, an in-fill drilling program using reverse circulation ("RC") and diamond core drilling was continued in order to delineate the deposit and the amount of reserves. In addition, an expanded exploration effort at the San Cristobal Project resulted in the discovery of additional silver and base metal anomalies. Based on the San Cristobal Study, the San Cristobal Project is forecast to produce annually an average of 14 million ounces of silver, 132,700 tonnes of zinc and 39,500 tonnes of lead during an expected minimum life of 11.5 years. The San Cristobal Project is expected to consist of two large 22 scale, open pit mining operations using conventional mining and processing technologies capable of producing and processing an aggregate 30,000 tonnes per day ("tpd") of ore. The average cash production cost over the life of the San Cristobal Project is forecast to be $2.69 per silver equivalent ounce. See "Glossary". Capital expenditures are estimated to total $354 million for pre- production development and construction to complete the San Cristobal Project. Based on the favorable results of the San Cristobal Study, the Company is targeting the completion of a second phase feasibility study of the San Cristobal Project by the third quarter of 1998 with a goal of securing committed financing by late 1998. Subject to the completion of a second phase feasibility study and committed financing, the Company anticipates beginning construction at the San Cristobal Project in early 1999, with silver, zinc and lead production commencing in early 2001. The Company plans to commission this second phase feasibility study in the fall of 1997, immediately after the completion of the Offering. The Company also intends to continue an extensive drilling program in order to (i) further define the existing ore bodies, (ii) increase the San Cristobal Project's proven and probable reserves and (iii) evaluate other areas of potential mineralization. At the same time, contracts for power supply, transportation, and smelting and refining of metal concentrates will be negotiated. If the results of this second phase feasibility study confirm the economic feasibility of the San Cristobal Project, and if no new properties emerge in the interim that are considered to be more attractive development opportunities, the Company expects to devote the majority of the proceeds from the Offering to financing its equity portion of the construction and development costs of the San Cristobal Project. See "Use of Proceeds". The Company has retained N.M. Rothschild & Sons Limited and Barclays Bank PLC as the Company's financial advisor and arranger, respectively, in connection with the anticipated project financing of the San Cristobal Project. The Company anticipates that project financing activities will commence on a preliminary basis in late 1997 and then accelerate with the delivery of the a second phase feasibility study in mid-1998 with financing to be secured by late 1998. If this timetable is achieved, project construction could commence in early 1999 and, after an approximate two-year construction and development program, production could commence in early 2001. The Company has engaged Salomon and Credit Suisse First Boston Corporation ("Credit Suisse First Boston") to act as the Company's financial advisors with respect to the identification of, and negotiation with, potential joint venture mining partners in the San Cristobal Project. The Company has paid each of Salomon and Credit Suisse First Boston a financial advisory fee and has agreed to pay each of them monthly advisory fees and a success-based transaction fee, and to reimburse their respective out-of-pocket expenses. In addition, the Company has agreed to indemnify each of Salomon and Credit Suisse First Boston against certain liabilities. OTHER PROJECTS The Company is also assessing the economic viability of (i) the Cobrizos property in Bolivia, which may be developed in conjunction with the San Cristobal Project; (ii) the El Ocote project in Honduras; (iii) the San Juan de Lucanas project in Peru; and (iv) the Choroma property in Bolivia. The Cobrizos property is located approximately 12 kilometers north of the San Cristobal Project. Recent drilling by the Company suggests the presence of approximately 10.8 million tonnes of mineralized material containing 4.3 ounces of silver per tonne and 0.2 percent copper. This mineralized material estimate has been reviewed and verified by MRA, an independent mine geology consulting firm. The mineralized body is amenable to open pit mining and is being considered as a satellite mining operation that could provide additional feed to the proposed mill to be constructed at the San Cristobal Project, thereby enhancing the silver grade of the ore processed by the mill after the early years of operation at the San Cristobal Project. 23 The El Ocote property is located in southeast Honduras. Behre Dolbear reviewed the Company's estimate that the property contains approximately 2.1 million tonnes of mineralized material averaging 9.9 ounces of silver per tonne and prepared a conceptual study of this property for the Company in 1996. On the basis of this initial study, the Company conducted further field work and a second conceptual study. This latest study, which was performed by Davy, utilized the earlier resource estimates, and estimated new capital and operating costs and production schedules based on underground mining and heap leach processing. The Company expects to conduct an additional round of field work and to undertake metallurgical sampling and heap leach tests. If warranted, these analyses will be followed by additional drilling to establish proven and probable reserves. In June of 1995, PAH prepared a conceptual study for the rehabilitation of an idled mine at the San Juan de Lucanas property. The results indicated that approximately $10 million in capital expenditures would be required to rehabilitate the mine to a 500 tpd capacity operation. The Company believes that the identification of additional reserves at the site would be required to justify such an investment. In addition, the Company has experienced lengthy delays in its effort to register its title to the properties comprising the San Juan de Lucanas property. While the Company believes its legal position is secure, it is not currently possible to estimate when this registration process will be completed. The Company expects to begin exploration and commission a first phase feasibility study of the property after its title thereto has been perfected. The Choroma property is located in the Bolivian silver-lead belt, 600 kilometers south of La Paz and 80 kilometers north of the Argentine border near the town of Tupiza at an elevation of approximately 3,300 meters. During early 1996, the Company channel-sampled many of the rock outcrops and identified several anomalies 44 to 86 meters long with average grades between 1.8 and 4.0 ounces of silver per tonne. These anomalies will be drilled and sampled to test for bulk mineable mineralization. In addition, the Company will gain access to existing underground workings to sample these structures, and to test further for bulk mineralization. RESULTS OF OPERATIONS Loss Before Minority Interest. The Company does not produce silver or any other mineral products and has no revenues from product sales. The only source of revenue is interest income. The loss before minority interest for the six month period ended June 30, 1997 was $11,177,495 compared to a loss before minority interest of $5,990,521 for the six month period ended June 30, 1996, and the loss before minority interest for the year ended December 31, 1996 was $14,599,240 compared to a loss before minority interest of $3,354,160 in 1995 and a net loss before minority interest of $403,149 in 1994. The Company's expenses for the year ended December 31, 1996 were substantially higher than 1995 and 1994 due to increased exploration activity and higher general and administrative expenses. Exploration. Mineral exploration expenditures are expensed as incurred prior to the determination of the feasibility of mining operations. Once it has been determined that a mineral property has proven and probable ore reserves, subsequent development and exploration expenses are capitalized. Through June 30, 1997, all acquisition and exploration costs have been expensed as incurred. The Company will capitalize future exploration and development costs associated with the San Cristobal Project commencing with the start-up of the second phase feasibility study. Exploration expenses were $7,961,583 for the six month period ended June 30, 1997 compared to $4,322,867 for the six month period ended June 30, 1996, and were $9,590,632 for the year ended December 31, 1996, compared to $1,559,874 in 1995 and $105,185 in 1994. The increased exploration expenses from 1995 to 1996 were due to an increase in exploration activity at the San 24 Cristobal Project. Total cumulative exploration expense at the San Cristobal Project was [$ ] through June 30, 1997. Administrative. Administrative expenses were $1,814,480 for the six month period ended June 30, 1997, compared to $497,874 for the six month period ended June 30, 1996, and totaled $1,923,165 for the year ended December 31, 1996, compared to $982,261 in 1995 and $147,780 in 1994. The increased expenditures in 1996 relative to 1995 were primarily due to the hiring of key management personnel during the second half of 1996 and the opening of Apex Corporation's Denver office. Consulting. Consulting fees were $1,059,669 for the six month period ended June 30, 1997 compared to $792,417 for the six month period ended June 30, 1996, and were $2,506,250 for the year ended December 31, 1996, compared to $560,060 in 1995 and $144,840 in 1994. The increase in 1996 over 1995 is primarily due to expenses associated with retaining third party consultants to prepare technical studies on various properties and executive recruiters to identify and hire key personnel. Professional Fees. Professional fees were $775,863 for the six month period ended June 30, 1997, compared to $421,055 for the six month period ended June 30, 1996, and totaled $1,096,271 for the year ended December 31, 1996, compared to $657,621 in 1995 and $20,600 in 1994. The increase in 1996 over 1995 was primarily due to higher legal and accounting fees. Amortization and Depreciation. Amortization and depreciation expense was $41,198 for the six month period ended June 30, 1997, compared to $28,295 for the six month period ended June 30, 1996, and totaled $57,392 for the year ended December 31, 1996, compared to $56,591 in 1995 and $-0- in 1994. Costs incurred in the organization of the Company and its subsidiaries were capitalized and are being amortized on a straight-line basis over five years. Interest Income. The primary source of income for the Company since inception is interest income. Interest income for the six month period ended June 30, 1997 was $475,298 compared to $71,987 for the six month period ended June 30, 1996, and totaled $574,470 for the year ended December 31, 1996, compared to $462,247 in 1995 and $15,256 in 1994. The Company's policy is to invest all excess cash in liquid, high credit quality, short term financial instruments. The increase in interest income for the comparative periods was due to the additional cash raised in the 1996 Private Placement. Income Taxes. Apex Corporation, the Company's U.S. management services company, is subject to U.S. income taxes. Otherwise the Company pays no income tax in the U.S. since the Company is incorporated in the Cayman Islands and conducts no business that currently generates U.S. taxable income. There is currently no corporate taxation imposed by the Cayman Islands. If any form of taxation were to be enacted in the Cayman Islands, the Company has been granted exemption until January 16, 2015. See "Tax Considerations". EMPLOYEE BENEFITS The Company does not provide any post-retirement or post-employment benefits to its employees and therefore does not accrue for such expenses. In 1997, Apex Corporation instituted a 401(k) Plan for its U.S. employees. Apex Corporation makes monthly contributions to this 401(k) Plan, and currently matches 50 percent of each employee's contribution up to an employee contribution of six percent of base salary. Employees vest in the Company's contribution at 50 percent after one year of service and 100 percent after two years of service. Although the Company does not currently have a formal bonus or incentive plan for any of its employees, it anticipates instituting a bonus plan in the future. See "Executive Compensation--Other Plans". 25 LIQUIDITY AND CAPITAL RESOURCES As of June 30, 1997, the Company had cash and short-term investments of $13,088,342 compared to $25,949,771 at December 31, 1996 compared with $3,296,618 at December 31, 1995 and $356,942 at December 31, 1994. The increase in 1996 relative to 1995 was due primarily to the receipt of net proceeds from the 1996 Private Placement and the payment of the Silver Holdings demand note discussed below. On December 22, 1994, the Company received, in consideration for the issuance of shares of Apex LDC to Silver Holdings, a $10,000,000 non- negotiable demand note, with interest accrued thereon at an interest rate equal to the one month London Interbank Offered Rate for U.S. dollar deposits. The principal outstanding under this demand note was $2,819,718 on December 31, 1995 and $9,250,000 on December 31, 1994. On February 5, 1996, the remaining balance was fully paid. See "Certain Transactions". In connection with the 1996 Private Placement, which closed effective August 6, 1996, the Company issued 4,256,700 Ordinary Shares at a price of $8.00 per share and received net proceeds of $32,449,350. The net cash used in operating activities for the six month period ended June 30, 1997 was $12,981,766 compared with $4,938,517 for the six month period ended June 30, 1996, and was $12,091,580 for the year ended December 31, 1996, compared with $3,490,631 in 1995 and $328,586 in 1994. The variance in the net cash used in operating activities between the comparative periods was due to the increased exploration activity and the San Cristobal Study. The net cash provided by financing activities was $171,659 for the six month period ended June 30, 1997, compared with $2,819,718 for the six month period ended June 30, 1996, and $35,269,068 for the year ended December 31, 1996, compared with $6,430,307 in 1995 and $685,528 in 1994. The Company is subject to a series of obligations with respect to its mineral properties; the failure to meet any of these commitments could result in the loss or forfeiture of one or more of the Company's properties. These obligations consist of government mineral patent fees and commissions, work commitments, lease payments and advance royalties. In addition, a number of the Company's property interests derive from contractual purchase options. In order to acquire such properties, the Company will be obliged to make certain payments to the registered concession holders and others who have interests in the properties. See "Notes to the Consolidated Financial Statements". The Company does not currently have a line of credit with any financial institution. The Company's future revenues and earnings will be influenced by currency exchange rates and by world market prices for silver, zinc, lead, copper and gold, which fluctuate and over which the Company has no control. See "Metals Market Overview". Depending upon market conditions for currency exchange and metal prices, the Company may from time to time hedge its metal or currency exposure in order to decrease fluctuations in revenues and earnings. The Company does not currently have a set of policies or guidelines for hedging foreign currency, interest rate or metals price exposure. See "Risk Factors-- Volatility of Metals Prices". The Company does not know of any trends, demands, commitments, events or incidents that may result in the Company's liquidity either materially increasing or decreasing at present or in the foreseeable future other than the Offering. It is anticipated that the Company will devote the majority of the net proceeds from the Offering to financing its equity portion of the San Cristobal Project's construction and development. In addition, it is anticipated that significant expenditures will be made for other continuing exploration, property acquisition, property evaluation and general corporate expenses. 26 The development program at the San Cristobal Project will require significant additional financing. Sources of financing may include bank borrowings and future additional debt or equity financings. There can be no assurance that any such financing will be obtainable on terms that are attractive to the Company, or at all. The Company has retained N.M. Rothschild & Sons Limited and Barclays Bank PLC to act as the Company's financial advisor and arranger, respectively, in connection with the anticipated project financing for the San Cristobal Project. The Company has engaged Salomon and Credit Suisse First Boston to act as the Company's financial advisors with respect to the identification of, and negotiation with, potential joint venture mining partners in the San Cristobal Project. The Company has paid each such financial advisor a financial advisory fee and has agreed to pay each of them monthly advisory fees and a success- based transaction fee, and to reimburse their respective out-of-pocket expenses. In addition, the Company has agreed to indemnify each financial advisor against certain liabilities. As of the date hereof, the Company does not plan to declare or pay a dividend. ENVIRONMENTAL COMPLIANCE The Company's current and future mining and processing operations and exploration activities will be subject to various federal, state and local laws in the countries in which it conducts its activities, which govern the protection of the environment, prospecting, development, production, taxes, labor standards, occupational health, mine safety, toxic substances and other matters. Management does not believe that compliance with such regulations will have a material adverse effect on its competitive position. The Company intends to obtain all licenses and permits required by all applicable regulatory agencies in connection with its mining operations and exploration activities. The Company's preliminary analysis of the previous and temporarily continuing leaching operations at the Toldos mine operated by the current owner and operator indicates that some effluents from the site may be draining into a seasonal stream which flows into the Rio Grande and, ultimately, into the Salar de Uyuni, a salt lake to the north of the San Cristobal Project. Under Bolivian law the Company is not obliged to remediate known pre-existing environmental conditions. Nonetheless, if the Company acquires the Toldos property from its current owner, the Company expects to improve the environmental situation which may currently exist at the Toldos property. The Company does not expect any such program to have a material adverse effect on the Company's proposed operations at the San Cristobal Project. The Company intends to maintain standards of environmental compliance consistent with World Bank environmental guidelines. See "Properties--Development Property-- San Cristobal Project". 27 THE COMPANY The Company is engaged in the exploration and development of silver properties in South America, Central America and Central Asia. The Company believes it has accumulated one of the largest privately controlled portfolios of silver exploration properties in the world. Since 1993, the Company has acquired the rights to or gained control of 27 non-producing silver properties located in or near the traditional silver producing regions of Bolivia, Peru, Chile, Honduras, Mexico, Kyrghyzstan, Mongolia and Tajikistan. Exploration efforts since 1993 have successfully produced the Company's first development project, the San Cristobal Project located in southern Bolivia, where regular and close spaced drilling and analysis has delineated substantial proven and probable reserves of silver, zinc and lead. In addition, exploration activities at the Company's other properties in Bolivia, Peru and Honduras indicate the presence of significant quantities of mineralized material containing silver and other metals. The San Cristobal Study was completed in August of 1997 with respect to the San Cristobal Project, which is located in the Potosi department in southern Bolivia, a region that has historically produced a significant portion of the world's silver supply. BUSINESS STRATEGY The Company was founded in 1993 to acquire and develop attractive silver properties throughout the world. Since 1993, the Company has acquired a portfolio of silver properties covering approximately two million acres in eight countries. These acquisitions were premised on several factors, including (i) the low price of silver relative to the price of other precious metals, (ii) a perception that silver supply and demand fundamentals were stronger than the then-prevailing price of silver suggested, (iii) the general scarcity of attractive publicly-traded silver companies, and (iv) the perception of negative sentiment within the traditional silver mining community. As a consequence of a prolonged depressed price for silver, which culminated in a low of $3.51 per ounce in 1993, many marginal silver producers around the world were forced to scale back, and in some cases shut down, their silver mining operations. The resultant mine closures, bankruptcies and low prices contributed to a generally depressed market for silver mining properties around the world. Competition for the purchase of silver properties was further dampened by the fact that many of the silver mining companies that maintained operations became less aggressive in their search for new silver properties and/or attempted to diversify into other metals in order to mitigate their exposure to low silver prices. Negative sentiment among silver producers was reflected in reduced exploration expenditures. The Company's founders believed that these market conditions provided the Company with compelling opportunities to purchase silver exploration properties at attractive prices. While this "bear market" psychology resulted in a soft market for silver properties, the Company believed that the fundamental outlook for silver was improving. The trend of large annual surpluses in silver supply relative to demand, which had peaked in the early 1980s, began to reverse by the early 1990s, when rising industrial demand for silver, combined with declining production profiles, caused substantial supply deficits. The Company believed that the disequilibrium in supply and demand suggested that the "bear market" in silver was nearing an end. Encouraged by what it considered a discrepancy between market perceptions and improving fundamentals, the Company embarked on a program of acquiring silver exploration properties globally and recruiting a professional management team with a proven track record of developing and operating mining properties worldwide. The Company believes that it has successfully achieved the objectives of its initial acquisition program by assembling a portfolio comprised of approximately 27 non-producing silver properties covering more than two million acres of land located in or near traditional silver mining regions of South 28 America, Central America and Central Asia. Moreover, the Company has recruited an experienced management team with significant experience in the identification, exploration and development of mineral properties, as well as the construction and operation of large-scale mining projects. Finally, the Company has successfully enlisted the support of major financial institutions and investors through two private placements: a $10 million offering in December of 1994, and a $34.1 million offering in August of 1996. Upon completion of the Offering, the Company will focus on achieving the following five objectives: (i) to complete a second phase feasibility study of a large scale open pit mining operation at the San Cristobal Project; (ii) to secure the financing required to develop the San Cristobal Project; (iii) to proceed to develop the San Cristobal Project into a large scale open pit mining operation; (iv) to continue exploration and evaluation activities at the Cobrizos property in southern Bolivia, the El Ocote property in southwestern Honduras, the San Juan de Lucanas property in southern Peru, and to commence drilling and underground sampling of the Choroma property in Southern Bolivia; (v) to evaluate other properties in the Company's portfolio of silver exploration properties, focusing the Company's exploration and development efforts on those properties which are most likely to contain significant silver mineralization and divesting itself of those properties that are not of continuing interest to the Company; and (vi) to identify and acquire additional mining and mineral properties that the Company believes contain significant amounts of silver or have exploration potential. 29 PROPERTIES The Company's portfolio of silver properties in Bolivia, Peru, Chile, Honduras, Mexico, Kyrghyzstan, Mongolia and Tajikistan, which cover an area in excess of two million acres, contain identified silver mineralization or offer significant exploration potential. These mineral properties consist of (i) mining concessions which the Company has acquired, or is in the process of acquiring, directly; (ii) concessions which the Company has leased, generally with an option to purchase; (iii) concessions which the Company has agreed to explore and develop and, if feasible, bring into production, in concert with local joint venture partners; and (iv) new claims, principally to mineral properties which the Company believes offer significant exploration opportunities and which the Company has staked on its own behalf. The Company's exploration and development activities are currently focused on five properties: the San Cristobal Project and the Cobrizos property in southern Bolivia, the El Ocote property in southwestern Honduras, the San Juan de Lucanas property in southern Peru, and the Choroma property in southern Bolivia. All five of these properties remain subject to various stages of exploration, analysis and development. The Company has completed a first phase feasibility study with respect to the San Cristobal Project. Based on the favorable results of the San Cristobal Study, the Company is targeting the completion of a second phase feasibility study of the San Cristobal Project by late 1998. The Company expects to commission a conceptual study with respect to the Cobrizos property in the second half of 1997, and expects to commission a drilling and underground sampling program of the Choroma property. The Company has completed conceptual studies with respect to the El Ocote and San Juan de Lucanas properties. Although the San Cristobal Project remains the Company's top development priority, the initial analysis from the Cobrizos, El Ocote, San Juan de Lucanas and Choroma properties have been promising and the Company believes that these properties may be economic development and production candidates. In addition to the aforementioned properties, the Company controls a portfolio of silver exploration properties located in eight countries in South America, Central America and Central Asia. The Company generally seeks to structure its acquisitions of mineral rights so that individual properties can be explored without significant expense and acquired if significant development opportunities are identified. Properties which the Company determines do not warrant further exploration or development expenditures will be sold or otherwise relinquished, typically without further financial obligation to the Company. Although the Company believes that its exploration properties may contain significant silver mineralization, the Company's analysis of such properties is at a preliminary stage. The activities performed to date at these properties often have involved the analysis of data from previous exploration undertaken with respect to a property, as supplemented by the Company's own field work and sampling programs. See "Risk Factors -- Reserve and Other Mineralization Estimates". 30 DEVELOPMENT PROJECT SAN CRISTOBAL PROJECT Location and Access The San Cristobal Project is located in the San Cristobal district of Nor Lipez province in the Potosi department in southern Bolivia, approximately 500 kilometers south of La Paz and 90 kilometers south of the town of Uyuni. The San Cristobal Project is named after the town of San Cristobal which is situated in the midst of the project area. The San Cristobal Project is comprised of 15 separate identified mineralized anomalies, including the Toldos deposit, which has been recently mined. The town of San Cristobal is accessible by a gravel road which runs approximately 50 kilometers north to the railroad at Rio Grande and a further 60 kilometers northeast to Uyuni. A small unpaved airstrip is also located approximately six kilometers from the Toldos deposit. The Company has constructed unpaved roads to access the individual deposits at the site. The Company anticipates that prior to the commencement of operations at the San Cristobal Project it will be necessary to construct an approximately 53 kilometer rail spur and road linking the site to the existing main rail line siding located 40 kilometers north of the property. The Company also expects (i) to construct a 110 kilometer electric line to supply power to the San Cristobal Project, and (ii) to pump water approximately ten kilometers to the site from wells which will be drilled near the Rio Grande river. The property is largely undisturbed, except for the Toldos deposit, which has been mined by underground block caving and open pit mining. At present, there is no significant plant or equipment on site. There is an active mining camp at the Toldos deposit. A small river, the Rio Grande, passes approximately 11 kilometers south of the site. Due to the remote location and small size of the town of San Cristobal, the Company expects that it will have to recruit skilled and unskilled labor from neighboring areas. Operating History Silver was discovered in what is now the San Cristobal district in the early seventeenth century, and mining has occurred intermittently in the area ever since. Although no records from the Spanish colonial era mines have survived, and few records exist with respect to production in the district during the nineteenth and twentieth centuries, the Company estimates that the district has produced in excess of 60 million ounces of silver. The Toldos mine was operated as a block-caving underground operation between 1985 and 1988, and was operated as an open pit mine between 1989 and 1995. Empresa Minera Yana Mallcu, S.A. ("Yana Mallcu"), a Bolivian mining corporation, continues to operate a remnant heap leaching operation at Toldos, reprocessing the tailings from the former mining operation. Title and Ownership Rights Since commencing its acquisition program in the San Cristobal district, the Company has secured contract rights over, outright ownership of or the first claim of all of the mineral properties that it has identified to be of interest within a radius of approximately 50 kilometers from the San Cristobal Project. In October of 1994, the Company, acting through its agent Mineria Tecnica Consultores Asociados ("Mintec"), entered into lease and option agreements with the owner of ten mining concessions pertaining to approximately 1,134 acres of mineral rights including the mineralized areas known as Jayula and Tesorera. Pursuant to this agreement, which was assigned by Mintec to the Company in July 1996, the Company is leasing the ten concessions until October of 1998 for a monthly rent of $12,000. The contract governing the concessions affords the Company a two-year option, which expires in November of 1998, to purchase the properties for $2,000,000, less the sum of all prior lease payments. In August of 1995, the Company, again acting through its agent Mintec, acquired a two-year purchase option for the mining concessions containing the Animas deposit from Cooperativa Minera Litoral Ltda. ("Litoral"), a Bolivian mining cooperative. In July of 1997, the Company exercised its option to purchase the property. The acquisition price was $150,000, less 50 percent of the aggregate prior monthly payments to Litoral. 31 In February of 1996, the Company, again acting through its agent Mintec, acquired from Yana Mallcu an option to acquire mining concessions controlling approximately 4,692 acres of mineral rights in the San Cristobal district, including the entire Toldos mineralized dome. Under the terms of this option agreement, which expires in February of 1998, the Company has agreed to pay $6,000 per month to Yana Mallcu for the duration of the contract or until such time as the Company exercises its option to purchase the concessions. The Company is entitled to purchase the concessions for the sum of $500,000 and the assumption of up to $5,750,000 of Yana Mallcu's indebtedness. The Company has engaged Salomon and Credit Suisse First Boston to act as the Company's financial advisors with respect to the identification of, and negotiation with, potential joint venture mining partners in the San Cristobal Project. Geology and Mineralization The San Cristobal Project occupies the central portion of a volcanic depression probably resulting from the collapse of a Miocene age volcanic peak. The collapse resulted in the formation of a four kilometer diameter depression, which was subsequently filled with fine to coarse-grained volcaniclastic sedimentary rocks (shale, conglomerate, sandstone, landslide debris, talus, etc.). In the late Miocene age, after sedimentation had nearly filled the depression, a series of dacite and andesite porphyry sills and domes intruded into the volcaniclastics, with disseminated and stockwork silver-lead-zinc mineralization forming both within the volcaniclastics and in the intrusions themselves. As a result, mineralization occurs in the San Cristobal district in shallow intrusive dacite sills and domes, intrusive breccia bodies and volcaniclastics. The disseminated mineralization has not been mined in the past except for some areas of the Toldos mine. Previous workings were only on mineralized veins. Company studies indicate the presence of at least 15 mineralized domes, all located in close proximity to one another. Most of the identified mineralized domes are hydrothermally altered and all have been found to be strongly mineralized. Nine of these domes have been drilled by the Company. To date, drilling has been conducted in sufficient detail to allow estimates of proven and probable reserves at the Tesorera and Jayula domes and additional mineralized material at Tesorera, Jayula, Animas and Toldos domes. As previously noted, the Company currently controls the mineral rights to all of these domes. The following paragraphs describe the geology and mineralization of the more intensely drilled areas of the San Cristobal district. The two largest identified areas of mineralization, the Jayula and Tesorera deposits, appear to be portions of one single mineralized body, and even though they will be identified separately below, recent drilling results suggest that the two bodies may be connected with ore grade mineralization. The Company intends to analyze these and other areas in conjunction with the overall exploration and development plans for the San Cristobal Project. Jayula. The Jayula deposit consists of a dacite porphyry sill intruded into volcaniclastics that filled the depression. Both the dacite intrusion and the adjacent sediments have been cut by numerous narrow veins and veinlets, forming a mineralized stockwork over large areas. Mineralization in the stockwork consists of iron oxides, clays, galena, barite, sphalerite, pyrite, tetrahedrite, and acanthite. Veins and veinlets are most common in the dacite sill, near its contact with the sedimentary rocks. Within the volcaniclastics rocks themselves, and locally within the intrusive sill, is a second form of mineralization, characterized by disseminated galena, sphalerite and acanthite. This disseminated mineralization is predominately confined to coarser-grained sedimentary beds, usually conglomerates and coarse sandstones. As the extent of ore grade mineralization is confined to the limits of the planar beds of coarse-grained units, the mineral zones within the sediments are both stratiform and 32 stratibound, forming gently-dipping planar bodies of mineralization which parallel the bedding of the sediments. Oxidation of the mineralized zone in the Jayula deposit has occurred to a depth averaging 40 meters. In this oxide zone, zinc has been nearly completely leached out; silver values, however, are greatly enhanced due to secondary enrichment processes. In the oxide zone, the dominant minerals are iron oxides, clays, native silver, and secondary acanthite. Based on the assay results of samples taken from old small scale underground workings, surface exposures, and seven diamond core and 50 RC holes drilled by the Company, the Company believes that the dacite porphyry intrusion hosts approximately 75 percent of the mineralization identified at Jayula, with the volcaniclastics hosting the remainder. The mineralized zone at Jayula covers an area no less than 500 meters by 600 meters on the surface, and ore grade mineralization extends to at least 200 meters below the surface. Of the 57 holes drilled at Jayula, approximately one-half had ore-grade mineralization at their lowest depth. The mineralized zone has not been fully delineated by the drilling, with ore grade mineralization over significant widths being found at the southeast, west and northwest perimeters of the drilled area and at depth. The exploration program has delineated the boundaries of the deposit only at the northeast corner of the deposit. Tesorera. The Tesorera deposit is 1,300 meters southwest of the Jayula deposit, and both appear to be part of the same large mineralized system. The geology and mineralization at Tesorera are nearly identical to Jayula. At Tesorera, the west side of the deposit consists of a dacite porphyry sill intruded into the caldera-fill sediments, and, as at Jayula, disseminated mineralization occurs within certain coarse-grained sedimentary beds and in the intrusion itself. This mineralization is similarly stratabound and stratiform, forming several subparallel, gently-dipping horizons parallel to the bedding of the volcaniclastics. The mineralogy is identical to that at Jayula, consisting of pyrite, iron oxides, barite, clays, galena, sphalerite, tetrahedrite, and acanthite. Oxidation has affected the Tesorera deposit to a greater depth than at the nearby Jayula deposit, typically extending to a depth of 75 meters. The oxide zone mineralogy of Tesorera, like that at Jayula, is dominated by iron oxides, clays, native silver, and secondary acanthite. The Tesorera deposit has been drilled by 139 RC and ten diamond core holes have been drilled at the Tesorera deposit. The assays indicate that the mineralization is present over an area of 950 meters by 450 meters. As at Jayula, the deposit is open to depth and in three directions but it is closed to the west, as the dacite intrusion appears to have received minimal mineralization. Approximately 40 percent of the holes had ore-grade mineralization at their lowest depth, which was usually in excess of 200 meters below the surface. Animas. The Animas deposit, located two kilometers west of Tesorera, is hosted by a subvertical breccia pipe adjacent to a stockwork-veined rhyolite porphyry dike. The volcaniclastic rocks are not present at Animas, and thus stratibound mineralization is absent. The breccia pipe occurs along the eastern margin of a north-trending rhyolite dike. The pipe follows the margin for a distance of 400 meters, and varies from 20 meters to 200 meters wide. It has been drilled to a depth of 200 meters, and is found to be shaped in cross section like an inverted cone that is narrower at depth. Mineralization is primarily sulfide and consists of massive galena and sphalerite as a matrix around the breccia fragments. Silver is present as acanthite and minor tetrahedrite. The Company has drilled 33 reverse circulation holes at Animas. Toldos. The Toldos deposit consists of a series of a parallel, high-angle veins. These veins were mined to a depth of approximately 100 meters below the surface. These veins averaged approximately 15 ounces of silver per tonne. The wall rock adjacent to the veins also contained disseminated 33 and veinlet mineralization. The Company believes that the wall rock and lower grade ore has not been systematically mined. Yana Mallcu converted its operations at the Toldos dome from underground narrow vein mining to bulk mining methods, principally block caving in 1985 and open pit mining in 1989. Beginning in 1985, ore was processed through a conventional heap leaching circuit at a rate of 3,000 tonnes per day. With the exception of some minor leaching of the mine tailings undertaken by the former owner of the Toldos mine, mining activities at the Toldos deposit were discontinued in 1995. Drilling Program The Company has been engaged in a comprehensive delineation and in-fill drilling program at the San Cristobal Project since October of 1996. This program was designed to substantiate initial positive drill results at several of the numerous intrusive dacite or breccia domes located in the district and has concentrated on the Tesorera, Jayula, and Animas mineralized dome complexes. The Company has drilled 278 reverse circulation drill holes and 17 diamond core drill holes for a total of 64,554 meters of reverse circulation RC drilling and 4,752 meters of diamond core drilling at the San Cristobal Project. These drill holes were generally spaced at intervals from 25 up to 150 meters. Although this drilling is sufficient to establish the presence of proven and probable ore reserves at the Tesorera and Jayula deposits, drilling has been too widely spaced to establish proven and probable reserves at the Animas deposit. The following table summarizes the Company's drilling activities at San Cristobal.
DIAMOND DRILL HOLES RC DRILL HOLES -------------------- ------------------- # OF AVG. # OF AVG. HOLES DEPTH SPACING HOLES DEPTH SPACING ----- ----- -------- ----- ----- ------- Dome Complex Jayula............................... 7 250m 100-150m 50 225m 60-150m Tesorera............................. 10 250m 50-150m 139 225m 25-70m Animas............................... 0 -- -- 33 200m 40-120m --- --- Subtotal........................... 17 -- -- 222 -- -- Surrounding Anomalies.................. 0 NA NA 56 250m random --- --- Total Drilling..................... 17 278 === ===
First Phase Feasibility Study In early 1997, the Company commissioned Davy to conduct the San Cristobal Study. This first phase feasibility study was completed in August of 1997 and has estimated accuracies ranging from plus or minus 25 to 30 percent. Davy served as lead engineers, and reviewed the efforts and contributions of the other independent San Cristobal Study consultants. MRA performed ore reserve estimates using kriging estimating methods and prepared mine production schedules, and estimated capital and operating costs. PAH developed an independent resource grade model using the same database used by MRA which checked closely with the MRA reserve estimates. Mineral Resource Development Inc. ("MRDI") conducted the metallurgical test work and developed the process flow sheet. Knight Piesold LLC was contracted to perform the preliminary environmental assessment and geotechnical estimates, including mill tailings pond design. The firm of Behre Dolbear was hired by the Company to conduct and oversee a technical audit of Davy's procedures and analyses as well as the work of the technical subcontractors. CPM Group ("CPM") was retained by the Company to provide an independent analysis of the silver, lead and zinc markets. The Company purchased published studies from Brook Hunt & Associates and the International Lead Zinc Study Group regarding the lead and zinc markets. Proven and probable reserve estimates are based on regularly spaced drilling at the Tesorera and Jayula mineralized domes. Proven and probable reserves were calculated using (i) the cost 34 assumptions delineated in the San Cristobal Study (see below) and (ii) the market price assumptions of $5.00 per ounce of silver, $0.55 per pound of zinc and $0.30 per pound of lead. The cut-off grade was based on a combined value of $4.18 per tonne of ore. The ore reserve estimation method used was kriging, a method which automatically moderates exceptionally high grades consistent with the geostatistical character of its mineralization. The following table summarizes the estimated proven and probable reserves and mineralized material at the San Cristobal Project, as indicated by the drilling completed to date. The reserve estimates for the Tesorera and Jayula deposits were prepared by the San Cristobal Study consultants, and check closely with an independent resource grade model developed by PAH. The additional mineralized material which occurs proximate to the San Cristobal Project was estimated by MRA for the Tesorera and Jayula deposits and the others were estimated by the Company. The Company's Mineralized Material estimates with respect to the Cobrizos deposit were confirmed by MRA.
AVERAGE GRADE CONTAINED METALS ----------------------- --------------------- TONNAGE SILVER ZINC LEAD SILVER ZINC LEAD (000S GRADE GRADE GRADE OUNCES TONNES TONNES TONNES) (OZ./TONNE) (%) (%) (000S) (000S) (000S) ------- ----------- ----- ----- ------- ------ ------ PROVEN AND PROBABLE RESERVES Tesorera.............. 42,113 1.88 2.00 0.67 79,384 842 282 Jayula................ 80,778 1.73 1.23 0.43 140,088 994 347 ------- ---- ---- ---- ------- ----- --- Total Proven and Probable Reserves.. 122,891 1.79 1.49 0.51 219,472 1,836 629 ======= ==== ==== ==== ======= ===== === Stripping ratio for the combined open pit operations is 1.66 tonnes of waste for each tonne of ore. ADDITIONAL MINERALIZED MATERIAL Tesorera.............. 2,611 0.77 1.37 0.37 Jayula................ 32,122 1.22 0.91 0.22 Animas................ 8,600 1.67 1.71 0.76 ------- ---- ---- ---- Subtotal............ 43,333 1.28 1.10 0.34 ------- ---- ---- ---- Toldos................ 3,000 3.86 -- -- Cobrizos.............. 10,800 4.31 -- -- ------- ---- ---- ---- Total Additional Mineralized Materi- al................. 57,133 1.99 -- -- ======= ==== ==== ====
Sampling Procedures The approximate 30 kilograms of RC drill cuttings from every two meters of drill depth were sampled at the drill site by splitting the drill chips ejected from the drill in a vezin type sampler. This splitting process and the moisture content of the ejected material results in approximately one-half of the sample being collected in plastic buckets placed in series. The pulp is allowed to settle and the excess water decanted off the sample. The sample is then reslurried and split in half using a Jones type riffle. Each half is then placed in a sample bag and most of the remaining water is allowed to drain for one to two days. One sample is sent to an assay laboratory for sample preparation and analysis; the second sample is stored for later reference and possible confirmatory testing. Drill core samples are prepared by first sawing the core in half with a rock saw. Half of the core is bagged for assay and the other half is used for geological logging and then saved. These samples are also taken at intervals of approximately every two meters of the drill core, depending upon rock type changes. The six-kilogram RC drilling samples and the half core samples received at the lab are first dried in an oven at a temperature not to exceed 85 degrees centigrade. After drying, the 35 samples are first crushed to minus ten (-10) mesh (1.68 millimeters) and split in half. One of these samples is pulverized to minus 65 mesh and again this is mixed and split down to 250 to 500 grams using Jones type riffles. The remaining sample is bagged as a reserve. The sample is then pulverized in a ring and puck pulverizer to minus 200 mesh (0.074 millimeters). The minus 200 mesh sample is analyzed for silver using standard fire assay procedures using a one assay tonne sample size. Samples with low silver values are finished by atomic adsorption while samples with high silver values are finished gravimetrically. Assay results are reported in parts per million (grams per tonne). The sample is also analyzed for lead and zinc using standard total wet analytical methods using a four acid digestion and atomic adsorption. Results are reported in parts per million or percent, depending upon the values encountered. Davy conducted its own independent drilling sampling and assay analysis of a representative sample of four drill holes. Davy independently determined how many holes and their positioning and managed the drilling of these four "twin" holes, the collection of the resultant drill samples, and maintained custody of the samples from the drill site to their independent assay laboratory in the United States. This independent test program confirmed the Company's drilling results. First Phase Feasibility Study Results The San Cristobal Study was based on field work involving extensive drilling with typically evenly spaced drill holes designed to establish the presence and dimensions of measurable mineralization. The Company's field work was conducted in accordance with generally accepted mining industry procedures. In addition, bench scale metallurgical test work was conducted. A summary of the key conclusions from the first phase feasibility study is provided below. Production Rates The first phase feasibility study utilized a base case incorporating an ore production rate of 30,000 tonnes per day (10.8 million tonnes per year) resulting in a minimum mine life of 11.5 years based on current reserves. An average waste to ore strip ratio of 1:66:1 is indicated with the ratio varying from approximately 2.0:1 in the early years to 0.5:1 in the later years of the mine life. The ore is near the surface and outcrops in some areas and the study estimates 30 million tonnes of pre-production waste stripping will be required. Production will utilize conventional large scale open pit mining methods and equipment. Processing The bench scale metallurgical tests and analysis indicate successful use of conventional flotation separation of waste rock from minerals and separate collection of silver rich zinc and lead concentrates for both oxide and sulfide ores. Test results indicate average metallurgical recovery rates of 77 percent for silver, 85 percent for zinc and 75 percent for lead in the sulphide ores, and 60 percent for silver and 55 percent for lead in the oxide ores. These concentrates are expected to have metal content well within the norms of downstream smelting and refining processes. Consequently, the process selected by the study includes conventional primary crushing, followed by semi-autogenous-grinding (SAG) milling, followed by differential flotation which will produce separate zinc and lead concentrates each containing approximately half of the silver produced. Metal in Concentrate Production The profile of the production of metals contained in concentrate is estimated below.
YEARS 1 TO AVERAGE METAL 5 YEARS 6 TO 12 PER YEAR ----- ---------- ------------- ---------- Silver (ounces)............................ 15,400,000 13,000,000 14,000,000 Zinc (tonnes).............................. 114,600 146,500 132,700 Lead (tonnes).............................. 44,209 35,890 39,507
36 Cost Estimates Mine site cash production costs for mining, including stripping waste, processing, overhead, reclamation, and general and administration costs are estimated to be $6.44 per tonne of ore mined. These estimates assume the use of a large scale mining contractor who will drill, blast, and transport the ore and waste rock from the mine to the process plant and waste rock piles. Average transport costs for concentrate produced to the market is estimated to be $70 per tonne of concentrate from the mine gate. Treatment charges for smelting and refining are estimated to be $175 per tonne of lead and zinc concentrates. Stripping ratio for the combined open pit operation is 1.66 tonnes of waste for each tonne of ore. The cash production cost is estimated to be $2.69 per equivalent ounce of silver. Capital cost estimates for the completion of the second phase feasibility study and financing, which the Company anticipates will be completed in late 1998, as well as the development and construction of mining, processing and infrastructure and the inclusion of working capital, which the Company anticipates will be completed in late 2000, total $354 million. This amount includes $15 million of working capital, $24 million of pre-construction capital, $25.5 million pre-production waste stripping, $289.6 million for the construction of the process plant and necessary infrastructure. The process plant and infrastructure estimates include a 20 percent contingency. These estimates include the construction of transportation facilities and other requisite infrastructure, but exclude the cost of mobile mining equipment which will be provided by a mining contractor. Proposed Development Program In the event no new properties emerge in the interim which represent more attractive development opportunities, it is anticipated that the Company will devote the majority of the proceeds from the Offering to develop the San Cristobal Project. Part of the continuing development of the San Cristobal Project will be the completion of a second-phase feasibility study. This study, and the field work required in connection with it will involve: . Additional in-fill and extension drilling intended to delineate significant additional proven and probable reserves; . Sterilization drilling to confirm surface plant and infrastructure siting; . Collection of bulk and composite samples for additional bench scale and pilot plant scale metallurgical test work; . Comprehensive environmental sampling and monitoring including the preparation of an environmental impact study; . Discussions and negotiations with national and international service providers with respect to power supply and transportation, and negotiations with smelters and refiners of metal concentrates; . Collection of detailed and extensive cost information from national and international sources; . Preliminary engineering for mine, plant, and infrastructure to be advanced to approximately ten percent of final engineering so as to provide capital and operating cost estimates within an accuracy range of plus or minus ten percent; and . Continuing updates of metal markets dynamics and forecasts. The Company has retained N.M. Rothschild & Sons Limited and Barclays Bank PLC as the Company's financial advisor and arranger, respectively, in connection with the anticipated project financing of the San Cristobal Project. The Company anticipates that project financing activities will commence on a preliminary basis in late 1997 and then accelerate with the delivery of the 37 second phase feasibility study in mid-1998 with financing to be secured by late 1998. If this timetable is achieved, project construction could commence in early 1999 and, after an approximate two-year construction and development program, production could commence in early 2001. Exploration and Development Jayula. The Company plans to continue drilling the Jayula deposit in order to determine the limits of economic mineralization. As the deposit is open in most directions, and at depth, such drilling is required to determine the full size of the deposit for pit design and mine planning. Preliminary drilling west of the Jayula deposit indicates that the deposit may converge with the Tesorera deposit, thus this probability will be tested by numerous closely spaced drill holes. Tesorera. The Company intends to continue drilling the Tesorera deposit in order to determine the full extent of the mineralization. A primary goal is to determine the extent of mineralization, particularly toward the Jayula deposit, to test the probability that the ore-grade mineralization at the Tesorera deposit is indeed connected to that at the Jayula deposit, 1,300 meters to the northeast. Additional deep drilling will be conducted to determine the depth of the mineralization at Tesorera, as many of the holes have bottomed in ore grade mineralization. Animas. The Animas deposit is relatively small in comparison to the Tesorera and Jayula deposits. Therefore, although much additional drilling is necessary to put the mineralized material into a proven and probable category, drilling at the site will likely take a lower priority than drilling at the other, larger deposits. There is good exploration potential at the Animas deposit, especially to the west of the rhyodocite dike, and to the north on strike of the known breccia pipe. During routine district-wide exploration, these potential areas will be tested. Cobrizos. Cobrizos is a joint venture between the Company and the Corporacion Minera Boliviano S.A. ("Comibol"), a government agency, and is described in more detail below. Nevertheless, it is included under this heading as its proximity to the San Cristobal Project makes it likely that it will be developed in conjunction with the San Cristobal Project. Therefore, future work will include drilling along strike beyond the currently defined zone of mineralization, and diamond drilling to confirm the results of reserve-circulation drilling as well as gather samples for metallurgical testing. See "Advanced Exploration Properties--Cobrizos". Toldos. The Company has started drilling reconnaissance holes in the area at the Toldos deposit. Several of these holes show favorable results, and additional drilling will be conducted to test the mineralized material for proven and probable reserves. Satellite Deposits, including Inca, Colon, and Cerillos. In addition to the above, the Company has additional anomalous zones in this area that it will explore during the second phase feasibility study. Environmental and Other Issues The Company's preliminary analysis of the existing tailings operations at the Toldos deposit at the San Cristobal Project indicates that some effluents from the Toldos deposit may be draining into a seasonal stream which drains into the Rio Grande and, ultimately, flows into the Salar de Uyuni, a salt lake to the north of the San Cristobal Project. If the Company exercises its option to acquire the Toldos property from its current owner, the Company expects to improve the environmental situation which may currently exist at the mine. The Company does not expect any such program to have a material adverse effect on the Company's proposed operations at the San Cristobal Project. See "Risk Factors--Government Regulation and Environmental Matters". 38 The Company has determined that the town of San Cristobal, its church, and its cemetery are located in close proximity to the planned Jayula and Tesorera pits. The Company's efficiency when mining the deposits may be limited without the resettlement of the residents of the town and the possible replacement of its church. The Company is currently working with the residents of the town, which it estimates has approximately 350 inhabitants, to develop an economically feasible relocation plan sensitive to the interests of the residents and the traditions of the town. See "Risk Factors--San Cristobal Project Risks". 39 ADVANCED EXPLORATION PROPERTIES COBRIZOS Location and Access The Cobrizos property is located on level terrain 12 kilometers north of the San Cristobal Project in southern Bolivia. The proximity to the San Cristobal Project affords significant potential operating efficiencies. The former railroad maintenance town of Uyuni lies 70 kilometers to the northeast and the railroad to the Chilean port of Antofagasta, 460 kilometers distant, passes 20 kilometers to the north. The Bolivian commercial centers of Oruro and La Paz, respectively, are located 350 kilometers and 500 kilometers to the north. Operating History Green and blue colored copper carbonate minerals were produced from the deposit for use as pigment during pre-Columbian times and Spanish miners subsequently engaged in small scale native copper and copper sulfate mining. Between 1892 and 1906 Compania Arenal sank shafts as deep as 60 meters and produced copper from approximately 100,000 tonnes of material extracted from shallow underground and open cast workings. A combination of flooding and carbon dioxide build-up in the workings ultimately forced a cessation of operations. Title and Ownership Rights The Company acquired the right to enter into a joint venture with Comibol on its approximately 4,178 acres of mining rights at the Cobrizos property through public tender in August of 1996. An agreement defining the joint venture was signed on September 11, 1996. Pursuant to this agreement, the Company must complete certain payments and work commitments in order for its rights to vest in this joint venture at the Cobrizos property, to which Comibol contributes only the mining rights. These obligations are summarized below.
PAYMENT PER MINIMUM WORK PERIOD ACRE COMMITMENT ------ ------- ------------ 0-24 months.......................................... $ 1.44 $625,000 25-48 months......................................... $ 48.28 No minimum 49-60 months......................................... $240.89 No minimum
Comibol will receive five percent of the operating cash flow, as defined below, from production at the Cobrizos property until the Company has recovered its entire capital investment; thereafter, Comibol will receive 15 percent of operating cash flow. The Company has the right, in its discretion, to reduce the acreage subject to the joint venture agreement prior to commencement of the third year thereof and again prior to the commencement of the fifth year thereof. Operating cash flow is defined in the agreement as the gross revenues less the cost of transportation, smelting and refining, marketing commissions, production costs and administrative expenses. Financing costs and depreciation are not deductible from gross revenues. Geology The Cobrizos property hosts an oxidized copper-silver deposit of the red bed-type composed of narrow (less than ten centimeters thick) veins in a stockwork cutting shale and sandstone of the Jurassic Potoco Formation, which dips steeply to the east. Mineralized Material In November and December of 1995, prior to entering into the aforementioned joint venture agreement with Comibol, the Company conducted initial field studies including geologic mapping and 40 the collection of 108 samples for geochemical analysis of gold, silver, and copper. After successfully bidding for and acquiring the Cobrizos property, the Company conducted a mercury vapor survey over the greater mineralized area in August of 1996. In October of 1996, the Company drilled 11 inclined (-60 degrees) reverse-circulation holes. Four of the holes drilled in a row 700 meters long and spaced no less than 150 meters apart tested a single stratigraphic horizon and intersected silver and copper mineralization. These drill results precipitated a follow-up drilling phase focused on this single stratographic horizon during which eight additional holes were drilled over a strike length of 850 meters which, together with the four earlier holes, resulted in all the drill holes being spaced approximately 75 meters apart. The results indicate a steeply dipping mineralized zone with an average width of 55 meters over the 855 meters of strike length. The indicated depth from surface or near surface is at least 100 meters. The Cobrizos property contains mineralized material of 10.8 million tonnes at an average grade of 4.3 ounces of silver per tonne and approximately 0.22 percent of copper. These estimates were confirmed by MRA. Exploration and Development The Company intends to commission a conceptual study of the property in the fall of 1997. Further drilling will be conducted in order to increase the reliability of current data, to determine the limits of the mineralization at the site, and to establish proven and probable reserves. The Company believes that the proximity of the Cobrizos property to the San Cristobal Project may result in significant operating efficiencies. Open pit mining with processing either at the deposit site or at the proposed milling and processing facility at the San Cristobal Project will be evaluated, and metallurgical test work will be conducted. EL OCOTE Location and Access The El Ocote property in southwestern Honduras is located near the town of Santa Lucia in the municipality of La Labor, department of Ocotepeque, approximately 150 kilometers south of the major city of San Pedro Sula and approximately 30 kilometers east of the Guatemalan border. The property is accessible by means of the paved Pan-American Highway which passes within one kilometer of the deposit. Power, water and labor are available within two kilometers of the property. The site is largely unimproved with no equipment on site; some underground development has occurred, and it is possible to inspect the mineral body from four adits. Operating History A portion of the El Ocote property was first explored and put into production in the late nineteenth century. Rosario Resources ("Rosario"), a New York-based company, subsequently acquired the property and in 1963 drilled four diamond drill holes. According to Rosario's geologists responsible for the project, Rosario decided against further development due to difficult logistics and what was perceived to be unfavorable metallurgy. Rosario's metallurgical studies at the time indicated that the mineralized material at the site was best processed by flotation. Title and Ownership Rights In 1983, a Honduran entity, Compania Minera Ocote, S. de R.L. ("Minera Ocote") acquired the property. In June of 1994, the Company, acting through an agent, acquired an exclusive five-year exploitation concession and purchase option for the El Ocote property from Minera Ocote totaling 986 acres. Minera Ocote's rights to the property derive from a 40-year mining concession granted by the government of Honduras in March of 1983, which may be extended for an additional 20-year term. 41 Pursuant to the contract with Minera Ocote, the Company has committed to undertake a five-year, $1,000,000 exploration and development program on the property, and to advance production royalties of $50,000 and $75,000 to Minera Ocote on the fourth and fifth anniversaries, respectively, of the agreement. The Company is also responsible for maintaining Minera Ocote's concession until such time as title has been formally transferred to the Company. Minera Ocote has agreed to transfer the title to the property on the fifth anniversary of the aforementioned contract, assuming the property is in production, or at such earlier time as the Company may request. Upon the commencement of commercial production at the property, the Company will pay Minera Ocote a five percent NSR royalty. In addition to the aforementioned concession at the El Ocote property, the Company has also contracted with Minera Ocote to acquire an exploration permit, the Ocote Exploration Zone, covering approximately 17,414 acres of adjacent territory. Minera Ocote's title to this exploration permit was formally granted in March of 1996. This exploration permit will have a life of four years, extendible for an additional two years before converting into an exploitation concession. The Company expects that if it elects to acquire this permit outright from Minera Ocote, title to the property will be assigned to Cordilleras Honduras. The Company also holds a right of first refusal with respect to another property contiguous to the El Ocote property. Geology The major geological feature of the El Ocote property is a zone of mineralized breccia rock contained in a near vertical pipe-shaped structure. This pipe is located at an altitude of approximately 1,600 meters on the side of the very steep eastern slopes of Cordillera Del Merendo. The deposit is hosted by a thin package of Tertiary andesitic volcanics, which overlie Tertiary sediments and volcaniclastics, as well as Cretaceous Yojoa Group limestones. Although faults are believed to be present immediately east and northeast of the structure, it does not appear to have been subjected to any significant post-mineral faulting. The deposit consists of a near vertical column of brecciated diorite, roughly oval in plan section, in which silver and copper minerals, plus fluorite, and quartz form the cement around the breccia fragments. This structure in plan has dimensions of 150 meters (north-south) by 90 meters (east-west). Within the mineralized structure, the fragments comprise angular to rounded diorite and diorite porphyry. The degree of brecciation decreases with depth, such that at a depth of less than approximately 50 meters below the 1,200 level, there is no longer significant brecciation and the rock is merely weakly jointed. The bulk of the silver mineralization is in one massive block of breccia near the surface, with the grade diminishing rapidly below the 1,200 meter level. Below that level, most of the higher grade material takes the form of several arcuate bands, concave upward, which extend downward from the west side of the structure and which terminate with depth toward the east. Mineralized Material In 1995, the Company began a process of evaluating the exploration and development potential of the identified mineralized zone at the El Ocote property. Specifically, the Company resampled four preexisting mine levels, mapped the geology of the area, prepared topographic maps of the site, and drilled 16 RC drill holes into the pipe-like structure and two RC holes into the surrounding host rock. A total of 3,422 meters of drilling was completed during this program and a total of 2,258 samples from these holes were sent for assay. Using this drill assay data and the data from 313 samples from the underground mine workings, the Company estimated that the deposit contains approximately 2.1 million tonnes of mineralized material containing 9.9 ounces of silver per tonne at a cut-off grade of 2.0 ounces of silver per tonne. 42 Conceptual Study The Company commissioned Davy to prepare a conceptual study in order to estimate the potential and timing of undertaking rapid exploitation of the property via rapid bulk underground mining and heap leach extraction methods. This study utilized the Company's estimate of mineralized material mentioned above. This study was completed in July of 1997 and concluded as follows: . The project's economics are sensitive to metallurgical recovery and metal prices. Assuming a 50 percent heap leach recovery, the project's internal rate of return is positive with silver prices of approximately $6.00 per ounce, or at a 75 percent recovery, a positive rate of return begins at prices above $4.00 per ounce of silver. . Metallurgical test work should be undertaken to determine cyanide consumption and silver recovery rates. . Upside potential lies in lower cyanide consumption rates and the discovery of ore reserves to improve the return on capital invested in the mining and processing facilities. Exploration and Development The Company plans to commission an extensive metallurgical sampling and testing program as the next step in its continuing evaluation of this property. The Company believes that there is little likelihood of discovering additional resources within the pipe structure itself. Nonetheless, as part of the appraisal of the mineral potential of the El Ocote property, a regional stream sediment survey was conducted over an area of 80 square kilometers. The stream draining the mineralized area at the El Ocote property assayed 0.6 parts per million ("ppm") silver. Most other streams in the immediate area assayed under 0.5 ppm silver. However, a large number of streams draining an area 4.5 kilometers southwest of the mineralized structure assayed from 0.6 to 2.6 ppm silver. As numerous streams draining this area are strongly anomalous in silver, the Company believes it is likely that additional silver mineralization may occur in the headwaters of those sampled streams. The Company plans to conduct further reconnaissance field work in this anomalous area until the source of the silver is discovered. SAN JUAN DE LUCANAS Location and Access The San Juan de Lucanas property is located 147 kilometers east of the town of Nazca in the San Juan district of the Lucanas province in the department of Ayacucho in southern Peru, approximately 500 kilometers south of Lima. The property is accessible by means of a partly-paved, well-maintained highway from Nazca which extends to within ten kilometers of the property and is connected to the mine and mill site by well-established gravel roads. Water and labor are available on site while power must be generated at the site. Operating History Mineralization was discovered in the San Juan district in colonial times. Documented mining has occurred intermittently in the area since 1938. Empresa Minera San Juan de Lucanas S.A. ("EMSJ") operated the San Juan de Lucanas mine from 1966 until 1990, at which time operations were discontinued 43 due to operating losses. Between 1990 and early 1996, a small mining cooperative intermittently ran the San Juan de Lucanas mine at a low production level. Since 1951, the three mined veins at San Juan de Lucanas property have produced approximately 3,000,000 tonnes of ore grading an average of 13.8 ounces of silver per tonne and 0.061 ounces of gold per tonne. Mill recoveries of 84 percent silver and 91 percent gold resulted in district production of approximately 35,830,000 ounces of silver and 170,400 ounces of gold. Title and Ownership Rights Through its new claims and the acquisition of mining concessions and certain contract rights entitling it to explore and develop mining concessions in the district, the Company has acquired title to, or otherwise controls, mineral rights to more than 52,000 acres of properties dispersed over an area of approximately 150 square miles in the San Juan district of the Lucanas province of Peru. The Company has contracted to acquire 38 existing mining concessions relating to 42,071 acres of land, including the aforementioned pre-existing mining complex, and has staked new claims covering more than 10,131 acres. The Company believes that it controls all known mineralized structures in the San Juan district. The registered holders of title to the 38 mining concessions include EMSJ and Banco Minero del Peru, S.A. ("Banco Minero"), a Peruvian state bank which is in liquidation. Among EMSJ's creditors were Banco Minero, which became EMSJ's sole shareholder, and EMSJ's former employees, who where the beneficiaries of certain statutory labor liens on EMSJ's assets. As a result, these mining assets, although primarily registered in the name of EMSJ, also included certain properties registered in the name of Banco Minero which are now registered in the name of ASC Peru, a subsidiary of the Company. In June of 1993, Banco Minero agreed to transfer ownership of the San Juan de Lucanas mining complex to EMSJ's former workers in exchange for a release of all claims by such workers against EMSJ and its successor in interest, Banco Minero. The Banco Minero settlement agreement was subject to (i) a two-step court approval process and (ii) subsequent registration with the Peruvian Registry of Mines. The approval process has been completed and the registration of the settlement agreement has been ordered by the Labor Court in Lima. The registration of the settlement agreement, transfer of title to the Company and the raising to public deed of the Company's rights to acquire the concessions, however, remain pending. The Company has contracted with more than 90 percent in interest of the beneficiaries of the Banco Minero settlement agreement to acquire all of their rights in the San Juan de Lucanas mining complex (such contracts, the "San Juan Contracts"). The Company has obtained the opinion of local counsel attesting to the validity and enforceability of the San Juan Contracts. In order for the Company to perfect its title to the San Juan de Lucanas mining complex, the Banco Minero settlement agreement must be duly registered with the Peruvian Registry of Mines. Since Peruvian law does not provide for fractional interests in mining properties as an administrative procedure, a special purpose mining entity, to be named SMRL Dorita I de Ica ("SMRL"), which will be beneficially owned by the workers party to the settlement agreement, will become the holder of the title to the San Juan de Lucanas property. The SMRL is broadly analogous to a Peruvian limited liability corporation. Pursuant to the San Juan Contracts, the Company will become the holder of at least 90 percent of the participating interests in SMRL. The Company expects that pursuant to the San Juan Contracts, SMRL will be compelled to sell the San Juan de Lucanas property to the Company or its designee upon the registration of the settlement agreement. As several of the former workers party to the Banco Minero settlement either are not party to the San Juan Contracts, or have sought or may be expected to seek to opt out of the San Juan Contracts, the Company's interest in particular properties comprising the San Juan de Lucanas mining complex may be subject to a small amount of dilution. Management does not believe that any such dilution will have a material adverse effect on its interests or activities in the San Juan district. The Company is 44 pursuing the rapid resolution of all title disputes and is committed to an amicable settlement with all parties involved. Concurrent with the resolution of outstanding administrative legal issues, the Company has taken steps to maintain an orderly physical presence in the San Juan district. Of the 337 surviving ex-workers, approximately 60 continue to live at the mining camp while the others no longer live in the district. Those at the camp are living at a subsistence level. The Company provides periodic truckloads of food and other supplies and has provided some assistance to the local school and sports teams. The Company has two representatives at the camp who periodically report to management, and the Company's engineering personnel have made numerous uneventful visits to the camp. However, the situation is unstable and is likely to remain so until such time as the Company is able to make purchase payments on the SMRL properties. The Company expects to make such payments as soon as the registration of the settlement agreements have been completed and the San Juan Contracts have been raised to public deed. Geology The mineral deposits at the San Juan de Lucanas property are epithermal, with mineralization occurring in a number of steeply dipping veins, running along two well defined orientations. The north-south veins include the veins known as Santa Rosa, Saramarca, Yanarumi, Ventanilla and Rosaura; the northeast-southwest vein is known as Concepcion-Raquel. The outcrops of the Ventanilla and Concepcion-Raquel structures can be followed on the surface for over one kilometer. The rocks hosting the veins consist of lava flows and tuff flows with conglomerate. There are several systems of veins on the property. The Concepcion-Raquel vein forms the most important structure in the district and is comprised of two sets of three parallel structures each. The width of the veins varies between two and four meters, although in some sections of the mine, widths over 20 meters can be found. The Santa Rosa vein and another associated vein, Alfa Romeo, form the second most important vein system; with vein widths varying from one to seven meters. The third most important vein system is the Saramarca system which is comprised of a series of veins and mineralization occurring in lenses. All three vein systems are mineralized with gold, chalcopyrite, sphalerite, galena, argentite and ruby silvers. Successive processes of leaching and oxidation led to the formation of an enriched zone which constitutes the most readily mineable portion of the deposit. The main minerals at the surface are oxides extending to a depth of approximately 100 meters. The oxides contain significant grades of silver and gold in some areas. Below this level, an enriched zone with a vertical interval of 200 to 250 meters is present in most of the known veins. Mineralized Material Underground mineralized material is estimated at 139,000 tonnes with an average silver grade of 9.27 ounces per tonne and gold grade of 0.086 ounces per tonne. During January and February of 1995, the Company engaged independent contractors to survey and drill, under the supervision of Company geologists, the two tailings dumps using impact casing methods. Twenty holes were drilled, and 149 samples obtained. Approximately 85 percent of the tailings area was sampled, and there is no reason to believe that the remaining 15 percent would yield significantly different results. Based on the work described above, the Company estimates that the two tailings dumps contain at least 1.75 million tonnes of mineralized material with an average silver grade of 1.74 ounces per tonne and gold grade of 0.006 ounces per tonne. The Company sent a 60 pound (30 kilogram) sample to the University of Cardiff, Wales, for metallurgical testing to estimate recoveries, material balances 45 for various throughputs for processing the tailings, reagent consumption and preliminary equipment and capital specifications. PAH found that these test results support the concept of reprocessing the tailings profitably, assuming a tailings reclaim agglomerate and heap leach process for a new or refurbished underground mine combined operation. The tailings component would contribute a net cash margin (before tax) of $1.99 per ounce of silver at an assumed price of $5.15 per ounce of silver. Conceptual Study In June of 1995, PAH performed a conceptual study evaluating the rehabilitation of the idled San Juan de Lucanas mine complex. PAH concluded that rehabilitation would be feasible, and require approximately $10 million to return the mine to a 500 tpd underground mining operation. Operating cash costs of a rehabilitated and developed mine were estimated by PAH to be approximately $2.40 per ounce of silver when fully operational. PAH outlined a mine and power rehabilitation program and also defined requirements for replacement of the crushing and grinding sections, a new flotation plant, thickening section and cyanidation section, and repairs to the Merrill-Crowe precipitation section. All ancillary structures would have to be rebuilt. The Company believes additional reserves, which could result from such proposed exploration, would be required to justify such investment. Exploration and Development The Company has defined a two stage, 5,500 meter core drilling program with the goal of delineating an additional two million tonnes of reserves within the known vein system. The first stage would consist of 12 core holes drilled into eight veins to depths averaging 250 meters, for a total of 2,875 meters. The second stage would consist of another 10 holes in the same veins, for a total of 2,625 meters. If successful, a third phase consisting of additional drilling and underground drifting will be conducted, the results of which will be used to justify the rehabilitation and development of the mine, as well as further exploration on other parts of the property. CHOROMA Location and Access The Choroma property is located in the Bolivian silver-tin belt, 600 kilometers south of La Paz and 80 kilometers north of the border with Argentina. It is 15 kilometers northeast of the small regional commercial center of Tupiza, which is served by the railroad connecting Salta, Argentina with Antofagasta, Chile and La Paz. Elevations in the prospect area range from 3,100 to 3,500 meters above mean sea level. Title and Ownership Rights The property is covered by approximately 310 acres of mining rights owned by Comibol. The right to joint venture with Comibol was acquired through public tender and contracted in July of 1996. The terms of the 40-year renewable agreement provide for an initial five-year exploration period during which the Company must make the following payments and investments in the property in order to maintain the joint venture:
PAYMENT MINIMUM WORK PERIOD PER ACRE COMMITMENT ------ --------- ------------ 0-24 months.......................................... $ 1.44 $213,000 25-48 months.......................................... $ 48.18 No minimum 49-60 months.......................................... $240.89 No minimum
46 Comibol will receive five percent of the operating cash flow, as defined below, from production at the Choroma property until the Company has recovered its entire capital investment; thereafter, Comibol will receive 15 percent of operating cash flow. The Company has the right, in its discretion, to reduce the acreage subject to the joint venture agreement prior to commencement of the third year thereof and again prior to the commencement of the fifth year thereof. Operating cash flow is defined in the agreement as the gross revenues less the cost of transportation, smelting and refining, marketing commissions, production costs and administrative expenses. Financing costs and depreciation are not deductible from gross revenues. Operating History Production records are not available for the Choroma property. Pods of high- grade lead-silver oxide ores were mined from veins during the Spanish Colonial era. During the first half of the twentieth century, the deposit belonged to Simon I. Patino until it was nationalized in 1952, when the property became part of Comibol. Comibol leased the property to Messrs. H. Berinduague and A. Levy, and finally to a miners' cooperative. Between 1976 and 1985, Comibol rehabilitated several mine workings, carried out 526 meters of development on several veins, and drilled 3,336 meters of core in 15 holes. The results of this work are not in the Company's possession and reportedly have been lost by Comibol. The mine was inactive when the United Nations Development Program (UNDP) issued its report in December of 1990, following a 15-day field study. UNDP concluded that the deposit had potential for the discovery of bulk mineable material in fractured or brecciated rock as well as for traditional vein ore bodies. During the first quarter of 1996, geologists for the Company channel sampled many of the outcrops at the Choroma property. This work defined several lines 44 to 86 meters long which each averaged between 1.8 ounces of silver per tonne and 4.0 ounces of silver per tonne. The Company acquired the property on the basis of this work and the earlier reports. Geology The deposit is located near the southern end of the Bolivian silver-tin belt in a sequence of dark colored shales of Ordovician age that have been intruded by one or more porphyry domes of quartz dacitic to rhyolitic composition. Veins and associated hydrothermal breccias occupy steep fractures trending northwest. Hydrothermal alteration in rocks flanking the mineralized structures consists of locally intense silification overprinted on more broadly distributed propyllitic dominated by chlorite. Vein filling consists of quartz, siderite, pyrite, chalcopyrite, arsenopyrite, galena, sphalerite, tetrahedrite, tenantite and argentite with local concentrations of canfieldite and agyrodite. Gold grades of up to 0.064 ounces per tonne are present in at least one vein. Exploration Sampling of outcrops has defined several anomalies, which the Company intends to drill in order to test for bulk mineable mineralization. In addition, access will be gained to underground workings for sampling of structures and wallrocks to further test for bulk mineable mineralization as well as ore hosted by veins. 47 OTHER MINERAL PROPERTIES In addition to the aforementioned development project and advanced exploration properties, the Company has a portfolio of more than two million acres of exploration properties located in the traditional silver producing regions of the world or otherwise identified by the Company as areas which warrant exploration. The Company generally seeks to structure its acquisitions of mineral properties in order to allow the Company to engage in phased exploration of individual properties at a relatively low cost and to acquire those properties that it regards as presenting significant development opportunities. Properties which the Company determines do not warrant further exploration or development will be sold or otherwise relinquished, typically without further cost obligations to the Company. The Company currently holds, controls or has options to acquire 22 major groups of exploration properties located in eight countries. The distribution of these holdings is summarized in the table below. LOCATION AND DISTRIBUTION OF EXPLORATION PROPERTIES
NUMBER OF PERCENTAGE OF COUNTRY PROPERTIES ACREAGE(1) TOTAL ACREAGE(1) ------- ---------- ---------- ---------------- SOUTH AMERICA Bolivia................................ 4 949,607 47.1% Chile.................................. 3 53,127 2.6 Peru................................... 3 87,908 4.4 --- --------- ----- Subtotal............................. 10 1,090,642 54.1 --- --------- ----- CENTRAL AMERICA Honduras............................... 5 344,556 17.1 Mexico................................. 3 26,275 1.3 --- --------- ----- Subtotal............................. 8 370,831 18.4 --- --------- ----- CENTRAL ASIA Kyrghyzstan............................ 1 534,477 26.5 Mongolia............................... 1 4,201 0.2 Tajikistan............................. 2 14,332 0.7 --- --------- ----- Subtotal............................. 4 553,010 27.5 --- --------- ----- Total................................ 22 2,014,483 100.0% === ========= =====
- -------- (/1/) Acreage and percent of total acreage figures do not include land considered part of the San Cristobal Project, El Ocote, San Juan de Lucanas, Cobrizos and Choroma properties. These five properties consist of claims and concessions comprising approximately 6,518 acres, 988 acres, 52,200 acres, 4,178 acres and 309 acres, respectively. While the Company in the near term expects to focus primarily on the development of the San Cristobal Project, the acquisition, exploration and evaluation of properties will be vigorously pursued in order to unlock the potential value of the Company's existing exploration property portfolio as well as to sustain continuing corporate growth objectives. Drilling and geophysical engineering services are frequently subcontracted to regional and/or international firms. Chemical analysis generally is performed in laboratories located in the same regions as the specific property, with metallurgical testing and analysis conducted in the U.S. When using core drilling, the Company uses conventional split core sampling in its testing, retaining one half of all drill cores for reference and confirmatory testing processes. Similarly, representative portions of chip samples from rotary percussion, reverse circulation drilling are processed leaving substantial quantities of the chip sample material for reexamination and other future test work. The Company's international exploration activities are described on a country-by-country basis below. Due to the limited nature of the available information regarding these properties, the general exploration portfolio is addressed below in a summary manner only. 48 BOLIVIA The Company has continued its aggressive land acquisition program throughout Bolivia, making the Company one of this country's largest private owners of mineral rights. The Company's holdings and joint ventures, excluding the Cobrizos property, the Choroma property and the San Cristobal Project, now total almost 950,000 acres, including its existing joint venture interests for the historic Pulacayo mine and options on several properties being explored presently. The Company expects to pursue aggressively its exploration program in Bolivia. CHILE The Company has been systematically staking concessions in northern Chile. This program, which is based on efforts to identify promising silver exploration zones, has resulted in the staking of 22 claims over an area of more than 53,000 acres. The Company's exploration of its Chilean property holdings are at an early stage. PERU In addition to its San Juan de Lucanas property, the Company has undertaken numerous activities in Peru, including: (i) the acquisition and preliminary evaluation of the Otuzco property located in northern Peru which has been leased and is subject to a purchase option held by the Company; and (ii) technical evaluation of a number of the mining properties being sold by Centromin, the Peruvian state-owned mining company. The Company is presently engaged in land acquisition programs in several districts. MEXICO Exploratory work in Mexico has successfully secured a significant land position in the vicinity of Zacatecas, historically Mexico's largest silver producing district. An initial exploration program was completed in March of 1997. The Company believes that this program has indicated considerable potential for several underground silver operations. Additional exploration targets throughout Mexico are being analyzed by the Company's Zacatecas office. HONDURAS In addition to its El Ocote property, the Company has acquired an extensive land position in Honduras, encompassing more than 396,000 acres of exploration and exploitation concessions. The Company's analysis of these properties remains preliminary. Over the course of the next 12 to 18 months, the Company expects to conduct additional field reconnaissance in order to determine further drill targets at these properties. KYRGHYZSTAN On March 26, 1996, the Company established Kumushtak Mining, a 50/50 joint venture with North-Kyrghyz Geological Expedition, a state enterprise organized under the laws of the Kyrghyz Republic. Kumushtak Mining holds concessions located in a belt of silver occurrences which extends for several hundred kilometers in the Kumushtak river valley in western Kyrghyzstan. The area encompasses several historic mining districts. The Company recently completed its first round of drilling at one significant silver anomaly situated in Kumushtak. The results of such drilling indicate insufficient grades to sustain economic production at prevailing silver prices. However, due to Kumushtak Mining's large property holdings and exploration potential, the Company intends to preserve a strategic position in this region and continue with its interest in Kumushtak Mining. The Company believes that Kumushtak Mining's extraordinarily large concession offers the possibility of numerous occurrences of silver and gold. 49 MONGOLIA On March 26, 1996, the Company established Asgat Mining, a 50/50 joint venture with Mongolrostvetmet, a joint association owned by the Mongolian government and Zarubeshvetmet, a privatized company formed under the laws of the Russian Federation. Asgat Mining is involved in the evaluation of the Asgat silver deposits in northwestern Mongolia (the "Asgat Silver Property"). Work on the Asgat Silver Property, which already contains some underground development, has principally involved data preparation for a feasibility study. Recently, metallurgical bench scale test work has been conducted with mixed results. While recoveries of silver and copper were high, the results indicated large amounts of arsenic and antimony. The Company regards the Asgat Silver Property as a strategic property position with potential long term development prospects. Asgat Mining is presently assessing other precious metal prospects based on its detailed knowledge of information and conditions in Mongolia. TAJIKISTAN The Company is in the process of obtaining an exclusive, irrevocable license to exploit the Bolshoi Kanimansur and the Western Kanimansur silver deposits in northern Tajikistan, through the formation of Kanimansur Mining, which will be 49 percent owned by Apex Asia and 51 percent by Adrasman Mining. The Company is considering entering into a joint venture with respect to the property with Zarabeshtsvetmet, a Russian mining company. 50 METALS MARKET OVERVIEW SILVER MARKET Silver has traditionally served as a medium of exchange, much like gold. While silver continues to be used for currency, the principal uses of silver can be divided into three main categories: (i) industrial uses, primarily electrical and electronic components; (ii) photography; and (iii) jewelry and silverware. According to the Silver Institute, in 1996, approximately 720 million ounces of silver were consumed for these and other industrial purposes. Silver's strength, malleability, ductility, thermal and electrical conductivity, sensitivity to light and ability to endure extreme changes in temperature combine to make silver a widely-used industrial metal. Specifically, it is used in batteries, computer chips, electrical contacts, and high-technology printing. Silver's anti-bacterial properties also make it valuable for use in medicine and in water purification. Most silver production is obtained from mining operations for which silver is not the principal or primary product. Approximately 83 percent of mined silver is produced as a by-product of mining of lead, zinc, gold or copper deposits. According to the Silver Institute, approximately 400 million ounces of silver were mined in 1996. CPM estimates that recycled or secondary production accounts for a decreasing proportion of total silver supply, approximately 29 percent of total silver production in 1996, compared to an average of 36 percent of aggregate silver production between 1980 and 1990. CPM further estimates that total silver supply (from mine production, recycling and estimated dishoarding and government stockpile sales) has been insufficient to meet industrial demand since 1989, and stockpiles have been diminishing. CPM studies indicate that approximately 576 million ounces of silver were supplied from all sources in 1996. The following table sets forth the London Silver Market's annual average (except for 1997), high and low spot price of silver in U.S. dollars per troy ounce since 1977.
YEAR AVERAGE HIGH LOW ---- ------- ------ ----- (DOLLARS PER TROY OUNCE) 1977......................................... $ 4.63 $ 4.97 $4.31 1978......................................... 5.42 6.26 4.82 1979......................................... 11.06 32.20 5.94 1981......................................... 10.49 16.30 8.03 1982......................................... 7.92 11.11 4.90 1983......................................... 11.43 14.67 8.37 1984......................................... 8.14 10.11 6.22 1985......................................... 6.13 6.75 5.45 1986......................................... 5.46 6.31 4.85 1987......................................... 7.01 10.93 5.36 1988......................................... 6.53 7.82 6.05 1989......................................... 5.50 6.21 5.04 1990......................................... 4.83 5.36 3.95 1991......................................... 4.06 4.57 3.55 1992......................................... 3.95 4.34 3.65 1993......................................... 4.31 5.42 3.56 1994......................................... 5.28 5.75 4.64 1995......................................... 5.19 6.04 4.41 1996......................................... 5.19 5.83 4.71 1997 (to June 30)............................ 4.89 5.31 4.64
- -------- (Source: Silver Institute) 51 ZINC AND LEAD MARKETS The Company anticipates that the San Cristobal Project will, and that other future projects may, involve the production of economically significant quantities of metals other than silver. The Company expects that production from the San Cristobal Project will include the extraction, processing and sale of significant quantities of zinc and lead. Zinc is utilized for its resistance to corrosion, and, in the form of steel coating, is widely used in construction of infrastructure, housing and office buildings. In the automotive industry, zinc is used for steel coating, and die casting, and is an important component of tires and motor oil. Smaller quantities of various forms of zinc are used in fertilizers, food supplements and cosmetics, and in specialty electronic applications such as satellite receivers. Industrial consumption of zinc in 1996 was estimated by the International Lead Zinc Study Group (the "ILZSG") at 6.28 million tonnes. Recycled zinc accounts for about 30 percent of the zinc consumed on an annual basis. According to the ILZSG, 5.94 million tonnes of zinc were produced in 1996. The primary use of lead is in motor vehicle batteries, but it is also used in cable sheathing, shot for ammunition and alloying, and in chemical form for use in alloys, glass and plastics. Industrial consumption of lead in 1996 is estimated by the ILZSG at 5.08 million tonnes. Lead is widely recycled with secondary production accounting for a steady 54 percent of total supply. According to the ILZSG, 5 million tonnes of lead were produced in 1996. The following table sets forth the annual average (except for 1997) spot prices for zinc and lead on the London Metals Exchange since 1977.
YEAR ZINC LEAD ---- ---- ---- (U.S. CENTS PER POUND) 1977...................................................... 34.4c 30.7c 1978...................................................... 31.0 33.7 1979...................................................... 33.5 52.6 1980...................................................... 34.4 41.4 1981...................................................... 38.3 33.5 1982...................................................... 33.7 24.7 1983...................................................... 34.6 19.3 1984...................................................... 41.7 20.1 1985...................................................... 35.5 17.7 1986...................................................... 34.1 18.4 1987...................................................... 36.2 27.0 1988...................................................... 56.3 29.7 1989...................................................... 77.6 30.5 1990...................................................... 68.9 36.7 1991...................................................... 50.7 25.3 1992...................................................... 56.2 24.6 1993...................................................... 43.6 18.4 1994...................................................... 45.3 24.9 1995...................................................... 46.8 28.6 1996...................................................... 46.5 35.1 1997 (to June 30)......................................... 58.3 30.9
- -------- (Source: Flemings Global Mining Group) 52 REPUBLIC OF BOLIVIA The following information has been compiled by the Company from governmental and private publications. GENERAL INFORMATION Bolivia is situated in central South America and is bordered by Peru, Brazil, Paraguay, Argentina and Chile. It has an area of 1,098,581 square kilometers and a population of approximately 7.7 million people. Bolivia's official and most widely spoken language is Spanish, but over 70 percent of the population is either native Aymara or Quechua Indian. Sucre is the capital city of Bolivia. La Paz is the seat of government and, with a population of over one million people, the largest city in Bolivia. La Paz is situated on the Altiplano, the high plateau which separates the eastern and western ranges of the Andes. The land in this part of the country is largely semi-desert plains bordered by steep, rugged mountains. The eastern portion of the country consists of sparsely populated low-lands bordering the Brazilian Amazon basin where temperate and tropical forest dominate. Santa Cruz is the principal city of the low country with a population of approximately 700,000. The government of Bolivia consists of a directly elected president and a bicameral congress. Since the military government stepped down in 1982, Bolivia has maintained a stable democratic system with elections every four years. The current president, Hugo Banzer, was elected by the Congress on August 5, 1997, after no presidential candidate succeeded in winning a majority of the votes in the general election held in June of 1997. ECONOMY The Bolivian economy has experienced continuous growth and relatively low, stable inflation in recent years. This economic performance is generally ascribed to the deregulation of key sectors of the economy, including oil and gas, communications, transport and finance, and to foreign direct investment which has occurred as part of the recent privatization of formerly government- owned electricity, telecommunications, railways, aviation and oil and gas companies. The country's privatization program has involved (i) the sale of shares in government-owned entities in exchange for capital contributions to the privatized entities, and (ii) the contribution of government-owned shares in such privatized entities to trust funds established on behalf of all Bolivians over the age of 21 at the end of 1995. In connection with this program, the Company has entered into joint venture agreements with the government mining company, Comibol, with respect to two properties. Summary information on the Bolivian economy is set forth in the table below.
1992 1993 1994 1995 1996 ------ ------ ------ ------ ------ GDP Growth............................ 1.6% 4.7% 5.0% 3.7% 4.0% GDP per Capita........................ $ 764 $ 791 $ 756 $ 812 $ 860 Inflation............................. 10.5% 9.3% 8.5% 12.6% 7.9% Public Sector Deficit (non-financial) as % of GDP.......................... 4.6% 6.5% 3.2% 2.3% 2.1% Exports FOB (in millions)............. $ 774 $ 809 $1,124 $1,181 $1,326 Imports CIF (in millions)............. $1,131 $1,177 $1,196 $1,433 $1,635 Current Account Balance (% GDP)....... 7.8% 8.4% 3.6% 5.0% 5.2% Total Investment (in millions)........ $ 794 $ 760 $ 794 $ 898 $1,173 Share of GDP (%)...................... 14.1% 13.3% 13.3% 13.7% 16.5% Public Investment (in millions)....... $ 532 $ 481 $ 505 $ 524 $ 540 Share of GDP (%)...................... 9.4% 8.4% 8.5% 8.0% 7.6% Private Investment (in millions)...... $ 262 $ 279 $ 288 $ 373 $ 632 Share of GDP (%)...................... 4.6% 4.9% 4.8% 5.7% 8.9%
- -------- Source: Latin Finance 53 The official monetary unit of Bolivia is the boliviano, which was introduced in January of 1987 following the adoption in 1985 of a broad based reform program known as the "New Economic Policy". In the mid-1980s, prior to the New Economic Policy, Bolivia suffered from hyperinflation, declining foreign investment, growing balance of payments deficits and a foreign exchange shortage fueled in part by an increasing disparity between the official and unofficial exchange rates. The New Economic Policy removed restrictions on exports and imports, ended most price controls and subsidies, instituted a freeze on public sector wages and subjected the public sector to rigorous cost cutting. By 1986, inflation was under control and the International Monetary Fund resumed stand-by assistance. During the period of the New Economic Policy, the gap between the official exchange rate and the parallel unofficial rate was bridged. On December 31, 1996, the exchange rate was 5.19 bolivianos to one U.S. dollar compared to the exchange rate on December 31, 1995 of 4.94 bolivianos to one U.S. dollar. On June 30, 1997, the exchange rate was 5.23 bolivianos to one U.S. dollar; over the past year the boliviano has shown a tendency to depreciate approximately US$0.01 every 15 days. The boliviano is freely convertible in Bolivia at a single, public exchange rate established by twice-weekly auctions held by the Bolivian Central Bank. FOREIGN INVESTMENT AND TAX Since the New Economic Policy, most restrictions on trade have been removed or are in the process of being phased out. Currently, import levies stand at ten percent for all items except capital goods, which are subject to a five percent levy. In March of 1991, a new export code introduced further measures to liberalize trade. In order to prevent transfer pricing and other tax avoidance mechanisms, almost all foreign trade transactions require the filing of an aviso de conformidad describing the terms of the underlying transactions. The 1990 Investment Law provides for unrestricted repatriation of capital, freedom to import goods and services, equality under the law between foreign and domestic companies, and the creation of "free trade zones". Mining companies in Bolivia are subject to a 25 percent income tax. Taxable income is determined in accordance with Bolivian generally accepted accounting principles. However, earnings reinvested (for specified purposes) in Bolivia are deductible in computing taxable profits. If the reinvested capital exceeds retained profits, the excess may not be carried forward. Income from the export of derivative products from precious metals which include Bolivian added value is exempt from taxes under the Bolivian Mining Code. Under the new Bolivian Mining Code, which came into effect on March 17, 1997, there is Complementary Mining Tax applicable to whomever carries out mining activities, which would be payable if greater than the Bolivian income tax. Mining activities are defined to include: prospecting and exploration; mining or extracting minerals or metals; concentrating mine products; smelting and refining; marketing of minerals and metals. The Complementary Mining Tax is calculated by applying an aliquot to the taxable base. The aliquot of the Complementary Mining Tax is a variable percentage (which fluctuates between three percent and seven percent for precious stones and metals and between one percent and five percent for other metallic minerals) indexed to the official U.S. dollar market price for the relevant metal or mineral. The taxable base is construed as the amount that results from multiplying the weight of the fine content of the mineral or metal by its official U.S. dollar market price. This tax is creditable against corporate income and is, in effect, a minimum tax on mining companies. Manufacturing or processing involving minerals is not subject to the Complementary Mining Tax. Bolivian source income, including dividends, interest, management fees and expenses charged to a Bolivian company by foreign affiliates is subject to a withholding tax of 12.5 percent. 54 Operating losses (as adjusted for inflation) may be carried forward and deducted from taxable income indefinitely. However, if accrued losses exceed 50 percent of capital (including that of a branch) the capital must be increased. Bolivia assesses a 12.5 percent tax on profits of a branch of a foreign corporation operating in Bolivia. The branch tax is calculated on the book profits of the branch regardless of remittances or reinvestment of profits in the branch. Book profits are deemed remitted 120 days after the end of the fiscal year. There is a 13 percent value added tax ("VAT") on all sales, including mineral commodities, a five percent import duty on machinery and equipment and a ten percent duty on imported raw materials and components. The VAT paid on purchases is recoverable against VAT collected on Bolivian sales. Exports are not subject to VAT. The exporter can offset the VAT credit arising from purchases with domestic sales or can apply for a refund of import duties and VAT paid on inputs and raw materials included in the cost of exported goods. However, the refund of credits arising from imports is limited to 13 percent of the total value of the exports and therefore is not recoverable during the exploration phase. MINING INDUSTRY Bolivia produces a number of mineral commodities including tin, gold, silver, lead, zinc, antimony, tungsten, copper and bismuth. The country has long been a leading mineral and precious metals producer. Bolivia was colonized in the early sixteenth century by Spaniards who arrived in search of silver and gold. The extensive silver mining operations in Potosi which developed under Spanish rule led to the region being described as the "treasury of the Spanish empire". In the early Twentieth Century, tin became the country's leading mineral export although in recent years the focus has returned to gold, silver, lead and zinc. The country's principal mining regions are the eastern part of Bolivia along the Brazilian border, and the traditional mining areas of the Altiplano and Cordillera. Recent regulatory reforms have resulted in increased exploration activities, particularly with respect to precious metals. In the early 1990s, the government reformed the land tenure system, reduced taxes on mining operations, established equal treatment under the law between Comibol and foreign companies in obtaining mineral concessions, and created a national Mining Inventory Service which will maintain up-to-date information, including maps, for exploration and mining exploration concessions. MINING CONCESSIONS Pursuant to the Bolivian constitution, all mineral deposits are the property of the State. Mining concessions, which may be awarded by the government, grant the holder, subject to the payment of patents, the real and exclusive right to carry out prospecting, exploration, exploitation, concentration, smelting, refining and marketing activities with respect to all mineral substances located within a given concession. Individual mineral claims consist of indivisible squares shaped like an inverted pyramid, whose lower vertex is the center of the earth and whose surface area covers a total area of 25 hectares. Mining concessions are comprised of no fewer than one and no more than 2,500 adjacent squares. Mining concessions are distinct from the surface rights which comprise traditional land ownership; holders of mining concessions are entitled to explore and exploit a property and to use the water found at the property. Expropriation or the establishment of easements may not be legally carried out if the water supplies for a population are interrupted or negatively affected. Holders of mining concessions are obliged to pay an annual mining patent. Co-owners are jointly and severally responsible for the patent payment. The patent is progressive and fees are based on the number of years of existence of the concession. Concessions established before the enactment of the new Mining Code, which comprise an area of up to 1,000 mining claims, pay the equivalent of $1.00 55 per claim per year. Concessions established before the enactment of the new Mining Code which comprise an area of more than 6,000 mining claims pay the equivalent of $1.00 per claim per year for the first five years of the existence of the concession; thereafter, the patent increases to the equivalent of $2.00 per claim per year. Concessions established under the new Mining Code pay the following: for the first five years of the existence of a concession, the owner is required to pay the equivalent of $25.00 per square per year; thereafter the patent increases to the equivalent of $50.00 per square per year. All of the Company's Bolivian concessions were established prior to enactment of the new Mining Code. Mining concessions are liable to forfeiture when the corresponding annual patent fails to be paid. Forfeiture is governed by law and does not require any administrative or judicial declaration. When a concession has been forfeited, the mining concession reverts to the State. The Mining Code requires concession holders to minimize damage to surface rights, to neighboring concessions and to the environment. Concession holders are liable for damage or injury caused by their operations. Concession holders are not obliged to remediate environmental damage caused prior to the effectiveness of the Environmental Law or the date on which the mining concession was obtained, if the concession was granted at a later date. On becoming the owner of a concession, the concession holder must carry out an environmental audit to determine the extent of any environmental damage. If an environmental audit is not performed, the concession holder assumes the responsibility to mitigate all environmental damage. Environmental liabilities incurred under this new regime survive the existence or ownership of the relevant concession. In 1992, the Bolivian government passed environmental legislation that establishes a comprehensive scheme for the initiation of a national environmental policy to protect the environment, promote sustainable development, promote the preservation of biological diversity and promote environmental education. Few environmental regulations specifically applicable to mineral exploration companies in Bolivia have been proclaimed to date. At present, concession holders must maintain waterways running through their concessions in their unspoiled state and concession holders must employ exploration and development techniques that will minimize environmental damage. Under Bolivia's environmental regulations, environmental impact assessments are required. In practice, foreign mining companies operating in Bolivia generally adhere to U.S. and European environmental standards for mining and exploration. LABOR MARKET Bolivia has a large pool of unskilled and, in the mining sector, semi- skilled labor, but a relative shortage of skilled labor and managerial expertise overall. One percent of the payroll tax is used for worker training. A large portion of the labor force that is engaged in wage employment is also unionized, although union participation is not mandatory. Strikes, which have decreased greatly since the early 1980s, are not forbidden. However, before a strike may be called, all legally-mandated alternatives, such as negotiation, mediation and conciliation, must have been exhausted. Collective agreements are very rare, as negotiations are generally carried out between an individual company's union and management. 56 MANAGEMENT DIRECTORS Set forth below are the names, ages, positions with the Company, business experience and directorships in other companies of the directors of the Company. Apex Limited has no executive officers. Under the Companies Law (1995 Revision) of the Cayman Islands, directors are authorized to bind the corporation that they represent.
NAME AGE POSITION ---- --- -------- Michael Comninos......................................... 66 Director Harry M. Conger.......................................... 67 Director Eduardo S. Elsztain...................................... 37 Director David Sean Hanna......................................... 36 Director Ove Hoegh................................................ 58 Director Keith R. Hulley.......................................... 57 Director Thomas S. Kaplan......................................... 34 Chairman, Director Richard Katz............................................. 55 Director Paul Soros............................................... 70 Director
Michael Comninos. Mr. Comninos has been a director of the Company since April of 1997. An international financier, Mr. Comninos joined N.M. Rothschild & Sons in 1954, becoming a Partner in its corporate finance group in 1965, and, later, upon the firm's incorporation as N.M. Rothschild & Sons Limited in 1970, a director. Prior to his retirement in 1991, Mr. Comninos served as the head of the firm's investment management division, its credit division and for ten years served as the chairman of N.M. Rothschild & Sons (C.I.) Ltd., the firm's merchant banking affiliate in Guernsey. Mr. Comninos has served as a director of numerous listed real estate and investment funds and is currently a member of the investment committee of the East European Food Fund, a Luxembourg investment fund managed by Jupiter Asset Management Bermuda Limited. Mr. Comninos is a member of the Institute of Investment Management and Research, The Institute of Bankers, The Institute of Chartered Secretaries and Administrators and the Association of Corporate Treasurers. Harry M. Conger. Mr. Conger has been a director of the Company since April of 1997. A leading figure in the international mining community, Mr. Conger has 42 years of industry experience, rising from a position as shift boss to Chairman and Chief Executive Officer of Homestake Mining Company ("Homestake"), a New York Stock Exchange listed-company. He served as Chairman of Homestake from 1982 and retired from the Chief Executive Officer position in May 1986, remaining as Chairman. Over the course of his career, Mr. Conger has been involved in gold, silver, lead, zinc, uranium, sulfur, coal, iron ore and copper mining. He has been extensively involved in numerous major project developments, with both on-site and broader supervisory responsibility, including the expansion, at a cost of $170 million, of an iron ore mine to 25 million tons of material mined per year, greenfield development of a large surface coal mine moving 20 million tonnes per year at a cost of $165 million, and development of a new gold mine with new technology at a cost of $165 million. Mr. Conger is a former Chairman of the American Mining Congress, the World Gold Council and is a member of the National Academy of Engineering. He currently serves on the boards of directors of ASA Limited, a closed-end portfolio of gold stocks listed on the New York Stock Exchange, and Pacific Gas and Electric Company (PG&E), a San Francisco based utility company. He recently retired from Baker Hughes Inc., an oil and mining services company based in Houston, Texas under their ten year tenure rule; and Cal Mat Company of Los Angeles, an integrated producer of cement, construction aggregates, pre-mixed concrete and asphalt mixes, and real estate developer. Mr. Conger retired as Chief Executive Officer of Homestake in February of 1997. 57 Eduardo S. Elsztain. Mr. Elsztain has been a director of the Company since its inception in March of 1996 and until the Offering was a director of Apex LDC. He is also a director of, and an indirect shareholder in, Silver Holdings. See "Principal Shareholders". Mr. Elsztain is the founder of Consultores Asset Management S.A. ("Consultores"), a leading securities portfolio management firm in Buenos Aires, Argentina formerly known as Consultores de Inversiones Bursatiles y Financiera S.A. He has served as the President of Consultores since 1989. Mr. Elsztain is currently the Chairman of the board of directors of IRSA Inversiones y Representaciones S.A., an Argentine real estate company listed on the Buenos Aires stock exchange and on the New York Stock Exchange. He is also the Chairman of the board of directors of Cresud S.A.C.I.F. y A. and of SAMAP Sociedad Anonima Mercado de Abasto Proveedor, companies listed on the Buenos Aires Stock Exchange. Mr. Elsztain studied Economics at the University of Buenos Aires. David Sean Hanna. Mr. Hanna has been a director of the Company since its inception in March of 1996 and until the Offering was a director of Apex LDC. See "Principal Shareholders" and "Certain Transactions". Mr. Hanna is a specialist in corporate law with the Bahamas law firm of Arthur D. Hanna & Co., of which he is a Partner. Mr. Hanna is also a director of each of (i) Andean, (ii) ASC Peru, (iii) ASC Partners, (iv) Cordilleras Bahamas, (v) Cordilleras Cayman, (vi) Litani LDC, and (vii) Consolidated. See "Corporate Structure". Mr. Hanna was called to the Bar of England and Wales in 1983. He holds an LLB (Honours) from the University of Buckingham, England. Ove Hoegh. Mr. Hoegh has been a director of the Company since April of 1997. A member of the board of directors until July of 1997 of Leif Hoegh & Co. A/S, a family owned shipping business with more than $1 billion in assets, Mr. Hoegh has more than 30 years of experience in the international shipping industry. Mr. Hoegh began his career in commercial fishing, and joined the board of directors of Leif Hoegh & Co. in 1966. From 1970 to 1982, he served as Chief Operating Officer and Chief Executive Officer of Leif Hoegh & Co. Since 1982, he has served as the senior partner of Hoegh Invest, a family investment company with a diversified portfolio of technology, oil and gas and real estate holdings. In addition, Mr. Hoegh served for eight years as a member of the board of directors and executive committee of Brown Boveri (Norway), and also has served on the shareholders' councils of Esso Norway, Den Norske Creditbank, and Det Norske Veritas. A member of the board of the Energy Policy Foundation of Norway, Mr. Hoegh is a former member of the steering committee of the International Maritime Industry Forum, a former Vice Chairman of the executive committee of the Independent Tanker Owners' Association, and served for five years as a member of the Harvard Business School Visiting Committee. Mr. Hoegh is a graduate of the Royal Norwegian Naval Academy and holds an M.B.A. from Harvard University. Keith R. Hulley. Mr. Hulley has been a director of the Company since April of 1997 and, upon consummation of the Offering, will become a director of Apex LDC. A mining engineer with more than 30 years experience, Mr. Hulley has served as the Executive Vice President and Chief Operating Officer of Apex Corporation since its formation in October of 1996. From early 1991 until he joined the Company, he served as a member of the board of directors and the Director of Operations at Western Mining Holdings Limited Corporation ("Western Mining"), a publicly-traded international nickel, gold and copper producer. At Western Mining, Mr. Hulley's responsibilities included supervising on a global basis strategic planning, mine production, concentrating, smelting, refining and sales. During this period, Western Mining produced on an annual basis approximately 90,000 tonnes of nickel, 700,000 ounces of gold, 80,000 tonnes of refined copper and 1,500 tonnes of uranium oxide. Mr. Hulley also supervised the development and operation of Western Mining's Mount Keith open-pit nickel mine, a $450 million mining project. Prior to joining Western Mining, Mr. Hulley was the President, Chief Executive Officer and Chairman of the board of directors of USMX Inc., a publicly-traded precious-metals exploration company. Mr. Hulley has also served as the President of the minerals division and Senior Vice President for Operations of Atlas Corporation, where he was in charge of mining 58 exploration, development and production. Previously he was Vice President of Mining and Development of the U.S. division of BP Minerals, Inc. Over the course of his career, Mr. Hulley has worked as a miner and shift supervisor in the gold mines of South Africa, Mine Operation Superintendent of Kennecott Corporation's Bingham Canyon mine which processed 100,000 tonnes of ore per day, and project manager of the early phase of the Ok Tedi exploration and development projects in Papua New Guinea. A member of the American Institute of Mining and Metallurgical Engineers and a Fellow of the Australian Institute of Mining and Metallurgy, Mr. Hulley holds a B.S. in Mining Engineering from the University of Witwatersrand and an M.S. in Mineral Economics from Stanford University. Thomas S. Kaplan. Mr. Kaplan has been the Chairman of the board of directors of the Company since its inception in March of 1996 and is a director and was the founder of Apex LDC and its predecessor, Apex Bermuda, which contributed substantially all of its assets to Apex LDC in December of 1994. Mr. Kaplan is a director of Litani LDC and a principal shareholder in Consolidated. Consolidated is a shareholder of Apex Limited, and Litani LDC is a shareholder of both Apex Limited and Apex LDC. See "Principal Shareholders". Mr. Kaplan also serves as a director of each of the Company's subsidiary entities, except for Cordilleras Bahamas, Asgat Mining, Kumushtak Mining and Kumushtak Management Company. For the past ten years, Mr. Kaplan has served as an advisor to private clients, trusts and fund managers in the field of strategic forecasting, an analytical method which seeks to identify and assess global trends in politics and economics and the way in which such trends relate to international financial markets, particularly in the developing markets of Asia, Latin America, the Middle East and Africa. Mr. Kaplan has managed numerous venture capital investments and portfolio investment accounts, and is a principal of several entities specializing in direct and portfolio investments, including Feder Information Services Corporation, Tigris Financial Group Ltd., FMS Partners L.P. and Bridge Capital Group L.P. Mr. Kaplan also serves as a director of African Plantations Corporation LDC, a Cayman Islands limited duration company which owns and operates coffee and tea plantations in eastern and southern Africa. Mr. Kaplan was educated in Switzerland and England and holds B.A., M.A., and D. Phil. degrees in History from the University of Oxford. Richard Katz. Mr. Katz has been a director of the Company since April of 1997. An investment banker specializing in international finance, Mr. Katz was a director of N.M. Rothschild & Sons Limited, London, England from 1977 until March 1993, having joined them in 1969; he was also a managing director of Rothschild Italia S.p.A., Milan, Italy from its inception in 1989 until December 1993. Mr. Katz has been a supervisory director of Quantum Fund N.V., a Netherlands Antilles investment fund, or one of its subsidiaries, since 1986. He is also a member of the board of supervisory directors of a number of other investment funds affiliated with Mr. George Soros, including Quasar International Fund N.V. and Quantum Emerging Growth Fund N.V., and is the Chairman of the board of supervisory directors of Quota Fund N.V., and the Chairman of the boards of advisors of Quantum Realty Fund Limited, Asian Infrastructure Development Fund Ltd., and Quantum Industrial Holdings Ltd., an indirect shareholder of the Company. See "Principal Shareholders". Paul Soros. Mr. Soros has been a director of the Company since its inception in March of 1996 and, until the Offering, was a director of Apex LDC. Principally involved in private investment activities during the past five years, Mr. Soros is a director of, and an indirect shareholder in, Silver Holdings. Mr. Soros is a member of the Investment Advisory Committee of Quantum Industrial. Quantum Industrial is the largest shareholder in Silver Holdings. See "Principal Shareholders" and "Certain Transactions". Mr. Soros is involved in the monitoring of the Quantum Group of Fund's shareholding in Companhia Vale do Rio Doce S.A. ("CVRD") of Brazil, its participation in Global Power Investments, L.P., a joint venture with the International Finance Corporation and GE Capital Corporation to develop power projects in emerging economies, serves on the Board of Directors of TVX Gold Inc., and is an active advisor to the Company. Mr. Soros is the founder and former president of Soros Associates, an international engineering firm specializing in port development, offshore terminal and material handling 59 projects for the mining industry and other basic industries. Soros Associates was involved in projects in more than 80 countries, acting on behalf of consortia including USX Corporation, The Broken Hill Proprietary Company Limited, Alcan Aluminium Limited and Aluminium Company of America, and was involved in projects in a majority of the largest mineral ports in the world. Mr. Soros has served on the Review Panel of the President's Office of Science and Technology and the U.S.-Japan Natural Resources Commission. He received the Outstanding Engineering Achievement Award of the National Society of Professional Engineers in 1989. Mr. Soros holds a Masters of Mechanical Engineering degree from the Polytechnic Institute of Brooklyn and is a licensed professional engineer in New York and numerous other states. In addition, he holds several patents in material handling and offshore technology, and is the author of over 100 technical articles. COMMITTEES OF THE BOARD OF DIRECTORS The Company has established an Audit Committee of its board of directors. The Audit Committee will review the accounting and auditing principles and procedures of the Company with a view to providing for the safeguard of the Company's assets and the reliability of its financial records, recommending to the board of directors the engagement of the Company's independent accountants, reviewing with the independent accountants the plans and results of the auditing engagement, and considering the independence of the Company's accountants. Messrs. Comninos, Katz and Hoegh currently serve on the Audit Committee. A Compensation Committee has also been established to review the Company's compensation policies and supervise the Company's Share Option Plans. See "Executive Compensation--Share Option Plans". Messrs. Conger and Soros currently serve on the Compensation Committee. The Company's board of directors is divided into three classes designated Class I, Class II and Class III. Each class of directors consists of one-third of the total number of directors constituting the entire board and approximately one-third of the members of the board are elected at each annual meeting of stockholders. The Class I directors are Messrs. Conger, Katz and Comninos; the Class II directors are Messrs. Hulley, Soros and Hoegh; and the Class III directors are Messrs. Kaplan, Elsztain and Hanna. The term of the Class I directors will end on the date of the 1998 annual meeting of stockholders. The term of the Class II directors will end on the date of the 1999 annual meeting of stockholders. The term of the Class III directors will end on the date of the 2000 annual meeting of stockholders. If the number of directors is changed, any increase or decrease in the number of directors will be apportioned among the classes so as to maintain the number of directors in each class as nearly equal as possible, and any additional directors of any class elected to fill a vacancy resulting from an increase in such class will hold office for a term that coincides with the remaining term of that class. Each director will hold office until the annual meeting for the year in which his term expires and until his successor shall be elected, subject, however, to his prior death, resignation, retirement or removal from office. Any vacancy occurring in the board for any reason will be filled by a vote of the majority of the directors then in office, even if less than a quorum, or by a sole remaining director. Any director elected to fill a vacancy will hold office for a term that coincides with the term of the class to which such director was elected. EXECUTIVES AND KEY PERSONNEL Apex Corporation As discussed above, the Company has no executive officers. The Company has entered into a Management Services Agreement dated as of October 22, 1996, pursuant to which the Company has 60 engaged Apex Corporation to provide a broad range of corporate management and advisory services. See "Certain Transactions". Thomas S. Kaplan. Mr. Kaplan serves as the Chairman of the board of directors of the Company and President and Chief Executive Officer of Apex Corporation. See "Management--Directors". Keith R. Hulley. Mr. Hulley serves as the Executive Vice President and Chief Operating Officer of Apex Corporation and as a director of Andean Silver Corporation LDC. See "Management--Directors". Marcel F. DeGuire. Mr. DeGuire serves as Vice President of Development of Apex Corporation and as a director of Apex Asia. Prior to joining Apex in August of 1996, he served as Vice President of Project Development and Regional Director for the jurisdictions formerly part of the Soviet Union of Newmont Gold Company. During this period, Mr. DeGuire acted as Project Leader of Newmont Gold's Muruntau large scale open pit heap leach gold project in Uzbekistan. This facility processes 37,800 tonnes of ore per day and was built at a cost of $225 million. Mr. DeGuire was directly involved in the joint venture negotiations leading up to the project, the subsequent feasibility studies, completion of construction and the commencement of mining operations. In addition to his work in Central Asia, Mr. DeGuire has been responsible for numerous feasibility analyses, including the Yanacocha gold project in Peru, on behalf of Newmont Mining Corp. During his almost 20 years with Newmont Mining, Mr. DeGuire worked as resident manager of a uranium mine and rose to President of several of Newmont Mining's subsidiaries and became a leading expert in environmental management and mine reclamation, serving as Newmont Mining's Vice President of Environmental Affairs and Research and Development as well as other senior executive positions. Mr. DeGuire is a member of the American Institute of Mining, Metallurgical and Petroleum Engineers, the Canadian Institute of Metallurgy, the Mining and Metallurgical Society of America and has published numerous articles on mineral processing and environmental matters. Mr. DeGuire holds a B.S. in Metallurgical Engineering from Michigan Technological University and M.S. in Metallurgical Engineering from the University of Nevada, Reno. Gregory G. Marlier. Mr. Marlier serves as the Vice President of Finance and Chief Financial Officer of Apex Corporation. From August of 1991 until November of 1996, when he joined Apex Corporation, Mr. Marlier was the Treasurer and Chief Financial Officer of Cambior USA, Inc., the mineral resources exploration and development subsidiary of Cambior, Inc., an international mining company based in Montreal, Canada. Mr. Marlier has almost 25 years of mining industry finance experience, serving as Chief Financial Officer and Corporate Secretary of Westmont Mining, Inc. (a predecessor of Cambior USA), Controller and Corporate Secretary of New Castle Energy Corporation and director of administrative services of Dorchester Coal Company. Mr. Marlier has also worked with Northern Coal Company and Consolidation Coal Company (Consol). A member of the Association of Mining Financial Professionals and National Mining Association, Mr. Marlier holds a B.S. in Business Administration and Accounting from John Carroll University, Cleveland, Ohio. Dr. Larry J. Buchanan. Dr. Buchanan serves as Chief Geologist to the Company and is a principal advisor to its international operations. Dr. Buchanan is a noted exploration geologist with a reputation as one of the industry's leading experts on epithermal deposits, on which he has written several definitive texts. His analysis of such deposits has given rise to the industry paradigm known as "The Buchanan Model". Dr. Buchanan has published eight geological texts, played a key role in identifying several multi-million ounce gold deposits, and developed implementation programs for numerous currently producing mines. His consulting clients have included Cyprus Minerals Company, FMC Corporation, Total Resources, Inc. and Fischer-Watt Gold Co. Inc. ("Fischer-Watt"). Dr. Buchanan is a shareholder and director of Begeyge Minera Ltda. Dr. Buchanan holds a B.Sc. and an M.Sc. in Geological Engineering and Ph.D in Economic Geology from the Colorado School of Mines. 61 Douglas M. Smith, Jr. Mr. Smith serves as Vice President of Exploration for Apex Corporation. Mr. Smith began his career with Minas de San Luis, S.A., where he was District Geologist at the Taylotita mine, one of the largest epithermal silver-gold deposits in the world, and became Chief Geologist at the Company. Prior to joining Apex, Mr. Smith was employed for almost 20 years by ASARCO Incorporated ("ASARCO"), which he joined in 1977. During his tenure at ASARCO, he held numerous positions including Manager of the Rocky Mountain Exploration Division and, most recently, Chief Geologist of the Latin American Exploration Division, where he was responsible for overseeing all aspects of exploration and project evaluation in Spanish-speaking countries of the Americas, including Bolivia, Peru, Chile and Mexico. Mr. Smith left ASARCO in 1997 to join Apex Corporation. Mr. Smith holds a B.S. in Geology from the University of New Mexico. Leni S. Berliner. Ms. Berliner serves as Commercial Development Manager for Apex Corporation. Prior to joining the Company in the fall of 1996, Ms. Berliner was the Chief Administrator-South America for Andean, a position she had held since Andean's inception in 1994; prior to the formation of Andean, she represented Andean Bahamas in a similar capacity starting in mid-1993. Before joining the Company, Ms. Berliner was a private sector development analyst and management consultant for ten years devising country investment strategies for, among others, the Inter-American Investment Corporation, the investment arm of the Inter-American Development Bank. Ms. Berliner is a specialist in Latin American business and banking, and has worked extensively throughout the region and in other emerging markets. She holds a B.A. with honors from the University of Massachusetts, Amherst, and an MPIA in Economic and Social Development from, and was a Public Service Fellow at, the University of Pittsburgh. Latin America Johnny Delgado Achaval. Mr. Delgado serves as the Chief Executive Officer of Andean. Mr. Delgado has over 30 years experience in the South American mining industry, including 15 years as President, and principal shareholder, of Mintec, one of Bolivia's leading mining consulting firms, and the agent for Andean Silver Corporation LDC since the formation of its Bolivian branch in 1994. Mr. Delgado founded Mintec in 1981. Prior to the formation of Mintec, Mr. Delgado worked with International Mining Company from 1966 to 1981, where he served initially as Chief of Exploration and Project Manager and then as Technical Vice President of its tungsten mining holding company, Estalsa Boliviana S.A. Both before and during his tenure at Mintec, Mr. Delgado was involved in all aspects of international mining, including the direction of major exploration efforts in Bolivia, Peru, Brazil, Ecuador, Argentina and Chile, as well as management of mining operations in Bolivia. Mr. Delgado has taught mining engineering, mining finance and mine geology. He is a member of the Geological Society of Bolivia, the Society of Bolivian Engineers and the Mining Club. Felipe de Lucio Pezet. Mr. De Lucio serves as the General Manager of ASC Peru. Mr. de Lucio is a mining engineer with over 30 years experience in the Peruvian mining industry. Over the course of his career, Mr. de Lucio has been the Head of Mining Engineering for Cerro De Pasco Corporation, the Deputy Manager of Operations for the Compania Minera Caylloma S.A., the General Manager of Compania Minera Colquirrumi S.A., the Manager of Operations for Sociedad Minera Austria Duvaz S.A., and the Chief Executive Officer of Hierro Peru, S.A. In addition, he has served on the Board of Directors of Sociedad Minera Austria Duvaz S.A., the Corporacion Financiera de Desarrollo, S.A., Hierro Peru S.A., Banco Minero del Peru, S.A., Compania Mercantil de Industrial Inga and Empresa Minera del Centro del Peru. In 1990, Mr. de Lucio served on the Advisory Committee to the Minister of Energy and Mines and acted as the head of the council responsible for the design and implementation of the Government of Peru's Mining Development Plan. Mr. de Lucio is a former President of the Mining Engineers' Association. He holds mining and engineering degrees from National University of Engineering in Lima, as well as the University of Arizona and the Michigan Technological University. 62 Jon Gelvin. Mr. Gelvin serves as Chief Geologist for Cordilleras Mexico, Cordilleras Bahamas and Cordilleras Honduras and is the Company's chief representative in Central America. Mr. Gelvin has 30 years experience as a professional geologist/engineer and mining exploration consultant in South America and Central America. From 1976 to 1989, Mr. Gelvin served as a mining exploration consultant in all of Central America and South America, with the exception of Uruguay and Paraguay. In 1990, Mr. Gelvin joined Fischer-Watt to supervise a Honduran mining exploration project; he left Fischer-Watt in 1993. He joined Cordilleras Mexico in 1994 as an explorer, and became Chief Geologist for CMZ in January of 1997. Mr. Gelvin is a shareholder and director of Begeyge Minera Ltda. Mr. Gelvin holds a B.Sc. in petroleum engineering from the Colorado School of Mines. Asia Dekel Golan. Mr. Golan serves as the President and a director of Apex Asia. Mr. Golan is the founder and manager of MADA Holdings and Management Ltd., a limited liability company organized and existing under the laws of Israel, engaged in business development operations, including the promotion of chemicals, mining and agricultural ventures. Mr. Golan served as head of Competitive Intelligence and Business Development for Dead Sea Bromine Group, the world's largest bromine producer and a subsidiary of Israel Chemicals Ltd., Israel's leading mineral exploitation company. Mr. Golan holds a B.Sc. in General Science from the Tel Aviv University. Alexander Becker. Mr. Becker serves as Apex Asia's principal advisor with respect to mining exploration, development and production in Kyrghyzstan. Mr. Becker is an experienced geologist with extensive mining experience. Prior to emigrating from Russia to Israel in 1991, where he became a senior scientific researcher for the Ramon Science Center at Ben Gurion University, Mr. Becker served as Geologist in Chief of the Northern Kyrghyzstan Geological Expedition at the Kyrghyzstan Ministry of Geology in Frunze. Mr. Becker has authored numerous papers and reports on Kyrgyzstani geology, with particular regard to the Northern Tien Shan region. He holds an M.Sc. in Geology from the Tomsk State University and a Ph.D. in Geology, specializing in the Northern Tien Shan region, from the Academy of Science in Frunze, Kyrghyzstan. Boris Miletsky. Mr. Miletsky serves as Vice President of Apex Asia, and is Apex Asia's principal advisor with respect to mining exploration, development and production in Mongolia. Prior to emigrating from Russia to Israel in 1993, Mr. Miletsky served as the Managing Director of the Russian concern Geologodzevska, the largest geological entity active in Mongolia, and as the Soviet Ministry of Geology's representative to Mongolia. At Geologodzevska, Mr. Miletsky supervised more than 3,000 workers, and served as the company's chief negotiator with the governments of Mongolia and the Russian Federation. Mr. Miletsky played a key role in negotiating Apex Asia's joint venture with Mongolrostvetmet. Mr. Miletsky holds an M.Sc. in Geological and Mineral Sciences from the Academy for the Geological Sciences in Kazakhstan. 63 EXECUTIVE COMPENSATION COMPENSATION OF DIRECTORS Directors do not receive any cash compensation from the Company for serving on the board of directors, although each non-employee director (other than Mr. Conger) received, in April of 1997 options to purchase 6,250 Ordinary Shares at a price of $8.00 per share and each non-employee director (including Mr. Conger) is eligible to receive grants of Options under the Non-employee Director Share Option Plan. See "Share Option Plans--Non-employee Directors Share Option Plan". The Company has agreed to reimburse the directors for all reasonable out-of-pocket costs incurred by them in connection with their services to the Company. Mr. Conger received options to purchase 25,000 Ordinary Shares for certain consulting services performed for the Company and options to purchase 3,125 Ordinary Shares for being a member of the Company's Development Committee, all of which options are exercisable at a price of $8.00 per share. The options for the 25,000 Ordinary Shares vest ratable over four years with the first tranche vesting in October 1996. COMPENSATION OF OFFICERS The following table sets forth certain information with respect to the annual compensation paid by the Company during the fiscal year ended December 31, 1996 to the Chief Executive Officer of Apex Corporation and the four other most highly compensated executive officers and certain other officers of the Company:
ANNUAL LONG-TERM COMPENSATION COMPENSATION ---------------- ------------ SECURITIES UNDERLYING ALL OTHER NAME AND PRINCIPAL POSITION SALARY BONUS OPTIONS COMPENSATION --------------------------- -------- ------- ------------ ------------ Thomas S. Kaplan................ $120,625 -- -- -- Chairman and Chief Executive Officer, Apex Corporation (1) Keith R. Hulley................. 56,250 -- 125,000 $93,167 Executive Vice President and Chief Operating Officer, Apex Corporation(2) Marcel F. DeGuire............... 67,500 -- 62,500 -- Vice President of Development, Apex Corporation(3) Gregory G. Marlier.............. 20,833 -- 31,250 -- Vice President of Finance and Chief Financial Officer, Apex Corporation(4) Douglas M. Smith Jr. ........... -- -- -- -- Vice President of Exploration, Apex Corporation(5) Johnny Delgado Achaval.......... 25,000 -- -- -- Chief Executive Officer, Andean ASC (6) Dekel Golan..................... 120,000 -- -- -- President, Apex Asia(7) Larry J. Buchanan............... 70,700 $10,000 37,500 -- Chief Geologist, Apex Corporation Leni S. Berliner................ 80,000 5,000 -- -- Manager Commercial Development, Apex Corporation(8) Felipe de Lucio Pezet Manager ASC Peru(9)............ 66,000 7,500 -- -- Kerry A. McDonald............... 76,000 -- -- -- Manager, Cordilleras Mexico(10)
- -------- (1) Effective April 1, 1997, Mr. Kaplan's annual base salary is $240,000. (2) Mr. Hulley joined the Apex group of companies on October 1, 1996. His annual base salary is $225,000. The $93,167 of other compensation was for taxable moving expenses and tax reimbursement. (3) Mr. DeGuire joined the Apex group of companies on August 19, 1996. His annual base salary is $180,000. (4) Mr. Marlier joined Apex Corporation on November 1, 1996. His annual base salary is $125,000. 64 (5) Mr. Smith joined Apex Corporation on March 7, 1997. His annual base salary is $120,000. (6) Mr. Delgado Achaval joined Andean on November 1, 1996. His annual base salary is $125,000. He also receives an additional $25,000 in annual compensation in lieu of Company benefits. (7) Mr. Golan has served as the President of Apex Asia since December 21, 1994. His annual base salary is $120,000. Mr. Golan is also compensated for his services to the Company through payments to two companies that he owns or otherwise controls (i) Mada Limited, and (ii) MADA Holdings & Management Ltd. (8) On January 1, 1997, Ms. Berliner became Manager of Commercial Development for Apex Corporation. Her annual base salary is $80,000. (9) Mr. de Lucio Pezet joined ASC Peru on March 6, 1995. His annual base salary is $72,000. (10) Mr. McDonald resigned from his position as Manager of Cordilleras Honduras in April of 1997. Currently, Mr. McDonald serves as a consultant to the Company's subsidiaries in Mexico. The following table contains further information concerning the share options grants made to each of the officers of Apex Corporation during the fiscal year ended December 31, 1996. OPTION GRANTS IN LAST FISCAL YEAR
POTENTIAL REALIZABLE VALUE AT ASSUMED ANNUAL RATES OF SHARE PRICE APPRECIATION FOR INDIVIDUAL GRANTS OPTION TERM(4) -------------------------------------------- --------------------- % OF TOTAL NUMBER OF OPTIONS SECURITIES GRANTED TO UNDERLYING EMPLOYEES EXERCISE OR OPTIONS IN FISCAL BASE PRICE EXPIRATION GRANTED(1) YEAR(2) ($/SH)(3) DATE 5% 10% ---------- ---------- ----------- ---------- ---------- ---------- Keith R. Hulley......... 125,000 44.44 $8.00 9/2/06 Marcel F. DeGuire....... 62,500 22.22 8.00 8/5/06 Gregory G. Marlier...... 31,250 11.11 8.00 10/2/06 Larry J. Buchanan....... 37,500 13.33 8.00 9/1/06
- -------- (1) All options granted in 1996, except for those granted to Dr. Buchanan, vest ratably over four years, with the first tranche vesting on the date of grant. The options granted to Dr. Buchanan vest ratably over three years, with the first tranche vesting on the date of grant. (2) Based on 281,250 options granted to employees in fiscal 1996. (3) All share options were granted with exercise prices of $8.00 per share. (4) These amounts are based on compounded annual rates of share price appreciation of five and ten percent over the 10-year term of the options, as mandated by rules of the Securities and Exchange Commission, and are not indicative of expected share price performance. Actual gains, if any, on share option exercises are dependent on future performance of the overall market conditions, as well as the option holders' continued employment throughout the vesting period. The amounts reflected in this table may not necessarily be achieved or may be exceeded. The indicated amounts are net of the option exercise price but before taxes that may be payable upon exercise. 65 AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR AND FISCAL YEAR-END OPTION VALUES
SHARES ACQUIRED NUMBER OF VALUE OF ON VALUE SECURITIES UNDERLYING UNEXERCISED EXERCISE REALIZED UNEXERCISED OPTIONS AT IN-THE-MONEY OPTIONS NAME (#) ($) FISCAL YEAR-END AT FISCAL YEAR-END * - ---- -------- -------- ------------------------- ------------------------- EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE Keith R. Hulley......... -- -- 31,250 93,750 -- -- Marcel F. DeGuire....... -- -- 15,625 46,875 -- -- Gregory G. Marlier...... -- -- 7,813 23,437 -- -- Larry J. Buchanan....... -- -- 12,500 25,000 -- --
- -------- * Computed based upon a fair market value of $8.00 per share on December 31, 1996 as determined by the Company. EMPLOYMENT AGREEMENTS The Company and Keith Hulley, a director of the Company, entered into an agreement on September 2, 1996 with respect to Mr. Hulley's employment as Executive Vice President and Chief Operating Officer of Apex Corporation. Pursuant to such employment agreement, the Company, through Apex Corporation, will pay Mr. Hulley an annual salary of $225,000, plus a performance-based bonus starting in 1998. In addition, the employment agreement provides that Mr. Hulley is eligible to participate in the Company's and Apex Corporation's employee benefit plans, including the Employee Share Option Plan pursuant to which Mr. Hulley received options to purchase 125,000 Ordinary Shares. Twenty- five percent of the options vested on appointment, the remaining 75 percent vest over the three-year period ending September 2, 1999 at a rate of 25 percent per annum. The employment agreement, which may be terminated for cause by the Company at any time, contains a severance arrangement that entitles Mr. Hulley to receive his existing salary and all benefits for one year from the date of termination if he is terminated, other than for cause, at any time within three years from the date of the employment agreement. The employment agreement also contains a non-compete covenant with a term of two years after the termination of Mr. Hulley's employment. Marcel DeGuire, Vice President of Project Development of Apex Corporation, and the Company entered into an employment agreement on August 1, 1996. Pursuant to such employment agreement the Company, through Apex Corporation, will pay Mr. DeGuire an annual salary of $180,000. In addition, the employment agreement provides that Mr. DeGuire is eligible to participate in the Company's employee benefit plans, including the Employee Share Option Plan pursuant to which Mr. DeGuire received options to purchase 62,500 Ordinary Shares. Twenty-five percent of the options vested on appointment, the remaining 75 percent vest over the three-year period ending August 1, 1999 at a rate of 25 percent per annum. The employment agreement, which may be terminated for cause by the Company at any time, contains a severance arrangement that entitles Mr. DeGuire to receive his existing salary and all benefits for one year from the date of termination if he is terminated, other than for cause, at any time within three years from the date of the employment agreement. The employment agreement also contains a non-compete covenant with a term of two years after the termination of Mr. DeGuire's employment. 66 Gregory Marlier, Vice President of Finance and Chief Financial Officer of Apex Corporation, and the Company entered into an employment agreement on October 2, 1996. Pursuant to such employment agreement the Company, through Apex Corporation, will pay Mr. Marlier an annual salary of $125,000, plus a performance-based bonus starting in 1998. In addition, the employment agreement provides that Mr. Marlier is eligible to participate in the Company's employee benefit plans, including the Employee Share Option Plan pursuant to which Mr. Marlier received options to purchase 31,250 Ordinary Shares. Twenty-five percent of the options vested on appointment, the remaining 75 percent vest over the three-year period ending July 24, 1999 at a rate of 25 percent per annum. The employment agreement, which may be terminated for cause by the Company at any time, contains a severance arrangement which entitles Mr. Marlier to receive his existing salary and all benefits for one year from the date of termination if he is terminated, other than for cause, at any time within three years from the date of the employment agreement. The employment agreement also contains a non-compete covenant with a term of two years after the termination of Mr. Marlier's employment. Douglas Smith, Vice President of Exploration of Apex Corporation, and the Company entered into an employment agreement on January 23, 1997. Pursuant to such employment agreement the Company, through Apex Corporation, will pay Mr. Smith an annual salary of $120,000. In addition, the employment agreement provides that Mr. Smith is eligible to participate in the Company's employee benefit plans, including the Employee Share Option Plan pursuant to which Mr. Smith received options to purchase 31,250 Ordinary Shares. Twenty-five percent of the options vested on appointment, the remaining 75 percent vest over the three-year period ending January 23, 2000 at a rate of 25 percent per annum. The employment agreement also contains a confidentiality covenant with a term of two years after the termination of Mr. Smith's employment. SHARE OPTION PLANS The Company has established two Share option plans; one for officers, employees, consultants and agents of the Company and its subsidiaries, the other for non-employee directors of the Company. Employee Share Option Plan The Company has established a share option plan for officers, employees, consultants and agents of the Company and its subsidiaries (the "Employee Share Option Plan"). The Employee Share Option Plan provides for the grant of Ordinary Share options (including incentive Ordinary Share options as defined in Section 422 of the U.S. Internal Revenue Code of 1986, as amended, (the "Code")), Ordinary Share appreciation rights and other Share awards (including restricted Ordinary Share awards, contingent Ordinary Share awards and dividend or equivalent Ordinary Share awards) (collectively "Awards"). The total number of options outstanding at any time cannot exceed ten percent of the number of Ordinary Shares outstanding from time to time. Options granted under the Employee Share Option Plan are non-assignable and exist for a term, not to exceed ten years, fixed by the Compensation Committee of the board of directors of the Company (the "Committee"). The exercise price of options granted on or before the date of the Offering is $8.00 per share. The exercise price of options granted after the date of the Offering is determined by the Committee at the time the option is granted; provided that the exercise price shall not be less than 100 percent of the fair market value of the share on the date of the grant. In the case of an incentive share option granted to an employee owning (actually or constructively under Section 422(d) of the Code), more than ten percent of the total combined voting power of all classes of Ordinary Shares of the Company, the price of any such option shall not be less than 110 percent of the fair market value of the Ordinary Shares on the date of grant. The aggregate fair market value (determined at the time the incentive share options are granted) of the Ordinary Shares with respect to which incentive share options are exercisable for the first time by any optionee during any calendar year under all plans of the Company shall not exceed $100,000. Awards may be granted by the Committee on such terms, including vesting schedules, price, restriction 67 or option period, dividend rights, post-retirement and termination rights, and payment forms as they deem appropriate. Unless terminated by the board of directors, the Employee Share Option Plan continues until August 1, 2006. Options grants made under the Employee Share Option Plan provide that in the event of a Change in Control (as defined in the Employee Share Option Plan), the options whether or not currently vested and exercisable, shall become immediately vested and exercisable as of the effective date of the Change of Control. Under the Employee Share Option Plan, as of the date hereof, options to purchase an aggregate of 415,000 Ordinary Shares are outstanding. All such options are exercisable at a price of $8.00 per share. See "Principal Shareholders". Non-Employee Director Share Option Plan The Company has established, a share option plan for non-employee directors of the Company (the "Non-employee Director Share Option Plan"). The total number of options outstanding at any time cannot exceed five percent of the number of Ordinary Shares outstanding from time to time. Options granted under the Non-employee Director Share Option Plan are non-assignable (except for approved assignments to immediate family members) and expire at the earlier of (i) ten years after the date of the grant of the option or (ii) one year after the director ceases to be a director of the Company. Options shall have an exercise price of 100 percent of the Fair Market Value (as defined in the Non- employee Director Share Option Plan) of the Ordinary Shares on the date of the grant. The Non-employee Director Share Option Plan provides for the automatic grant of (i) an option to purchase the number of Ordinary Shares equal to $50,000 divided by the Fair Market Value of the Ordinary Shares on the date of the grant to each non-employee director at the effective date of their initial election to the board of directors and, (ii) an option to purchase the number of Ordinary Shares equal to $50,000 divided by the Fair Market Value of the Ordinary Shares on the date of the grant at the close of business of each annual meeting of the shareholders of the Company. No options have been granted under the Non-employee Director Share Option Plan. However, non-employee directors have received options pursuant to individual grants. See "Principal Shareholders". OTHER PLANS In 1997, Apex Corporation instituted a 401(k) Plan for its U.S. employees. Apex Corporation makes monthly contributions to this 401(k) Plan, and currently matches 50 percent of each employee's contribution up to an employee contribution of six percent of base salary. Employees vest in the company's contribution at 50 percent after one year of service and 100 percent after two years of service. Although the Company does not currently have a formal bonus or incentive plan for any of its employees, it anticipates instituting a bonus plan in the future. 68 PRINCIPAL SHAREHOLDERS The following table sets forth certain information with respect to the beneficial ownership of the Ordinary Shares by (i) each person known by the Company to beneficially hold five percent or more of the outstanding Ordinary Shares, (ii) each director of Apex Limited, (iii) each executive officer of the Company named in the table on page 64, and (iv) all executive officers and directors as a group. All Ordinary Share numbers set forth in the table have been rounded up to the nearest whole number. Except as otherwise noted, the Company believes that all of the persons and groups shown below, based on information furnished by such owners, have sole voting and investment power with respect to the shares indicated. See "Certain Transactions".
BENEFICIAL BENEFICIAL OWNERSHIP OWNERSHIP AFTER PRO FORMA PRIOR TO THE OFFERING AS ADJUSTED(1) THE OFFERING(2) AS ADJUSTED(3) ------------------------- -------------------- ----------------- ----------------- NUMBER PERCENTAGE NUMBER PERCENTAGE NUMBER PERCENTAGE NUMBER PERCENTAGE ------------ ------------ --------- ---------- ------ ---------- ------ ---------- DIRECTORS, OFFICERS AND 5% SHAREHOLDERS(4) Silver Holdings(5)...... 1 * 6,297,321 30.45% Moore Global Investments Ltd./Remington Investment Strategies, L.P.(6)................ 937,500 6.89% 937,500 4.53% C.A. Delaney Capital Management Limited(7).. 750,000 5.51% 750,000 3.63% Leni S. Berliner(8)..... 27,346 * 27,346 * Larry J. Buchanan(9).... 50,000 * 50,000 * Michael Comninos(10).... 6,250 * 6,250 Harry S. Conger(11)..... 15,625 * 15,625 * Marcel F. DeGuire(12)... 31,250 * 31,250 * Johnny Delgado Achaval(13)............ 394,591 2.90% 394,591 1.91% Felipe de Lucio Pezet(14).............. 27,346 * 27,346 * Eduardo S. Elsztain(15)........... 31,250 * 157,197 * Dekel Golan(16)......... 52,346 * 52,346 * David Sean Hanna(17).... 6,250 * 6,250 * Ove Hoegh(18)........... 6,250 * 6,250 * Keith R. Hulley(19)..... 62,500 * 62,500 * Thomas S. Kaplan(20).... 6,674,979 49.08% 6,674,979 32.28% Richard Katz(21)........ 6,250 * 6,250 * Gregory G. Marlier(22).. 15,626 * 15,626 * Kerry A. McDonald(23)... 31,250 * 31,250 * Douglas M. Smith(24).... 7,813 * 7,813 * Paul Soros(25).......... 6,250 * 321,116 1.52% DIRECTORS AND OFFICERS AS A GROUP............. 7,453,172 54.80% 7,893,985 38.17%
- ------- *The percentage of Ordinary Shares beneficially owned is less than 1%. (1) Adjusted as if Ordinary Shares were issued in exchange for all shares of Apex LDC owned by the Minority Shareholders, on a one-for-one basis, pursuant to the terms of the Buy-Sell Agreement. See "Certain Transactions". (2) Reflects the sale of Shares in the Offering (assuming no exercise of the U.S. Underwriters and Managers over-allotment options). (3) Adjusted as if Ordinary Shares were issued in exchange for all of the shares of Apex LDC owned by the Minority Shareholders, pursuant to the terms of the Buy-Sell Agreement. (4) Unless otherwise specified, the address for directors and officers of the Company is 1700 Lincoln Street, Suite 3050, Denver, Colorado 80203, U.S.A. (5) The address for Silver Holdings is Kaya Flamboyan 9, Willemstad, Curacao, Netherlands Antilles. Quantum Industrial Partners LDC ("Quantum Industrial"), an exempted limited duration company formed under the laws of the Cayman Islands is a 50 percent shareholder in Silver Holdings LDC ("Silver Holdings"), an exempted limited duration company formed under the laws of the Cayman 69 Islands, the registered owner of 6,297,320 shares of Apex LDC. QIH Management Investor, L.P. ("QIHMI"), an investment advisory firm organized as a Delaware limited partnership, is a minority shareholder of, and is vested with investment discretion with respect to portfolio assets held for the account of Quantum Industrial. The sole general partner of QIHMI is QIH Management, Inc. ("QIH Management"), a corporation formed under the laws of the State of Delaware. Mr. George Soros, the sole shareholder of QIH Management, has entered into an agreement with Soros Fund Management LLC ("SFM LLC"), a limited liability company formed under the laws of the State of Delaware, pursuant to which Mr. George Soros has, among other things, agreed to use his best efforts to cause QIH Management to act at the direction of SFM LLC (the "QIP Contract"). Mr. George Soros is Chairman of SFM LLC, and as a result of such position and the QIP Contract, may be deemed the beneficial owner of shares held for the account of Quantum Industrial. Mr. Stanley F. Druckenmiller, the Lead Portfolio Manager of SFM LLC, by virtue of such position and the QIP Contract, also may be deemed the beneficial owner of shares held for the account of Quantum Industrial. Emerging Dolphin Limited is a private, open-end investment fund formed under the laws of the Isle of Man. It is managed by Consultores Management Company (Isle of Man) Limited, a wholly-owned subsidiary of Consultores Asset Management, S.A., and holds a 26.5 percent interest in Silver Holdings LDC. Geosor Corporation ("Geosor"), a corporation formed under the laws of the State of New York which is wholly-owned by Mr. George Soros, is a 15 percent shareholder of Silver Holdings LDC. Mr. Eduardo Elsztain is the Chairman and Majority Shareholder of Consultores Asset Management. See "Certain Transactions". (6) The address is 1251 Avenue of the Americas, 53rd Floor, New York, New York 10020. Moore Capital Management, Inc., a Connecticut corporation, is vested with investment discretion with respect to portfolio assets held for the account of Moore Global Investments, Ltd. ("MGI"). Moore Capital Advisors, L.L.C., a New York limited liability company, is the sole general partner of Remington Investment Strategies, L.P. ("Remington"). Mr. Louis M. Bacon is the majority shareholder of Moore Capital Management, Inc. and is the majority equity holder of Moore Capital Advisors, L.L.C. As a result, Mr. Bacon may be deemed to be the indirect beneficial owner of the aggregate 937,500 shares held by MGI and Remington. (7) The address of C.A. Delaney Capital Management Limited ("C.A. Delaney") is 161 Bay Street, Suite 5100, Toronto, Ontario M5J251. C.A. Delaney serves as an agent on behalf of Spectrum United Canadian Growth Fund, the beneficial owners of 750,000 Ordinary Shares. (8) Ms. Berliner is the registered owner of 25,000 Ordinary Shares and has vested options to purchase 2,346 Ordinary Shares pursuant to the Employee Share Option Plan. (9) Dr. Buchanan is the registered owner of 25,000 Ordinary Shares of the Company. Pursuant to the Employee Plan, Dr. Buchanan has vested options to purchase 12,500 Ordinary Shares and options to purchase 12,500 Ordinary Shares which vest on September 1, 1997. (10) Mr. Comninos is a director of the Company and has received, pursuant to a grant as of April 10, 1997, vested options to purchase 6,250 Ordinary Shares as compensation for becoming a director of the Company. (11) Pursuant to a grant as of October 8, 1996 and a grant as of April 10, 1997, Mr. Conger has been granted vested options to purchase 15,625 Ordinary Shares. (12) Mr. DeGuire has been granted vested options to purchase 31,250 Ordinary Shares pursuant to the Employee Share Option Plan. (13) Mr. Delgado Achaval is the registered owner of 113,595 Ordinary Shares and has vested options to purchase 12,500 Ordinary Shares pursuant to the Employee Plan. In addition, Mr. Delgado Achaval has voting and dispositive control with respect to 268,496 Ordinary Shares of the Company owned by Mineria Tecnica Consultores, S.A. (14) Mr. de Lucio Pezet is the registered owner of 25,000 Ordinary Shares of the Company and has vested options to purchase 2,346 Ordinary Shares pursuant to the Employee Share Option Plan. 70 (15) Mr. Elsztain, a director of the Company, is the registered owner of 25,000 Ordinary Shares. Pursuant to a grant as of April 10, 1997, Mr. Elsztain has vested options to purchase 6,250 Ordinary Shares of the Company. Mr. Elsztain also serves as a director of Silver Holdings, the registered owner of 6,297,320 shares of Apex LDC. He is the Chairman and Majority Shareholder of Consultores Asset Management, S. A. ("Consultores") which is a 2.5 percent shareholder of Silver Holdings and the sole owner of Consultores Management Company (Isle of Man) Limited ("Consultores Management"). Consultores Management is the manager of Emerging Dolphin Limited, a private open-end investment fund formed under the laws of the Isle of Man which owns 26.5 percent of Silver Holdings. (16) Mr. Golan has voting and dispositive control of Mada Limited which is the registered owner of 50,000 Ordinary Shares. Mr. Golan has vested options to purchase 2,346 Ordinary Shares pursuant to the Employee Share Option Plan. (17) Mr. Hanna is a director of the Company and has received, pursuant to a grant as of April 10, 1997, vested options to purchase 6,250 Ordinary Shares of the Company. (18) Mr. Hoegh is a director of the Company and has received, pursuant to a grant as of April 10, 1997, options to purchase 6,250 Ordinary Shares of the Company. (19) Mr. Hulley has been granted vested options to purchase 62,500 Ordinary Shares pursuant to the Employee Share Option Plan. (20) Pursuant to Voting Trust Agreements, Mr. Kaplan has voting and dispositive control with respect to 2,739,154 shares of the Company owned by Argentum LLC and 3,935,825 shares of the Company owned by Consolidated Commodities, Ltd. (21) Mr. Katz is a director of the Company and has received, pursuant to a grant as of April 10, 1997, vested options to purchase 6,250 shares of the Company. (22) Mr. Marlier has vested options to acquire 15,626 Ordinary Shares pursuant to the Employee Share Option Plan. (23) Mr. McDonald is the indirect owner of 31,250 shares of the Company through Celtic Group Ltd., an international business corporation organized under the laws of the British Virgin Islands. (24) Mr. Smith has vested options to acquire 7,812.50 Ordinary Shares pursuant to the Employee Share Option Plan. (25) Mr. Soros is a director of the Company and has received, pursuant to a grant as of April 10, 1997, options to purchase 6,250 shares of the Company. Mr. Soros is also a director and indirect five percent shareholder of Silver Holdings, which is the registered owner of 6,297,320 shares of Apex LDC. He also serves on the board of advisors of Quantum Industrial, a 50 percent shareholder of Silver Holdings. 71 CERTAIN TRANSACTIONS In December of 1994, Silver Holdings LDC, a Cayman Islands exempted limited duration company formed by (i) Quantum Industrial Partners LDC, (ii) Geosor Corporation, (iii) VDM, Inc. (iv) entities affiliated with Mr. Elsztain, and (v) Jack Nash, purchased a 75 percent interest in Apex LDC in exchange for a $10 million demand note (the "Note") payable to Apex LDC. Upon Silver Holdings' investment, Mr. Paul Soros and Mr. Elsztain were appointed to Apex LDC's board of directors. As part of this investment, Litani Capital Management Ltd. ("Litani Ltd."), an international business company formed under the laws of the Bahamas was granted an option to purchase 35 percent of the issued and outstanding shares of Apex LDC from Silver Holdings for an amount equal to Silver Holdings' initial purchase price for such shares, plus interest thereon calculated at an annual rate of 20 percent. In connection with the investment by Silver Holdings, Apex LDC agreed to pay Tigris Financial Group Ltd. ("Tigris"), a corporation formed under the laws of the State of Delaware, an annual advisory fee of $75,000, plus expenses, in consideration for Mr. Kaplan's services to Apex LDC and its subsidiaries. Mr. Kaplan is the sole shareholder of Tigris. This consulting arrangement was terminated at the end of the first quarter of 1997, following the formation of Apex Corporation. In addition, Apex LDC agreed to pay Litani Ltd. an annual advisory fee of $45,000, plus expenses, in consideration for Litani Ltd.'s services to Apex LDC and its subsidiaries. The right to this fee was subsequently assigned to LCM Holdings LDC, a limited duration company formed under the laws of the Bahamas ("LCM Holdings LDC"). This consulting arrangement was terminated at the end of the first quarter of 1997. In the first half of 1995, Litani Capital Management LDC ("Litani LDC") succeeded to Litani Ltd.'s contract rights with respect to Apex LDC, including the option, but excluding LCM Holdings LDC's advisory fee. In July of 1995, Litani LDC completed the sale, in a Private Placement, of 30 percent of its shares (representing an approximately 10.5 percent beneficial economic interest in Apex LDC) for approximately $6 million. In early August of 1995, Litani LDC exercised its option to acquire from Silver Holdings 35 percent of the issued and outstanding shares of Apex LDC for a price equal to approximately $5,250,000. Substantially all of Litani LDC's assets consisted of its shares of Apex LDC. In January of 1996, the Company delivered to Silver Holdings a capital call for the amount of the outstanding balance due on the Note. Silver Holdings made its final payment under the Note, in the amount of just over $2.9 million, effective as of January 31, 1996. In the first four months of 1996, Apex LDC was restructured in order to facilitate the 1996 Private Placement which was completed effective August 6, 1996. As part of this restructuring, Apex Limited was formed to serve as the majority shareholder of Apex LDC. Apex LDC also formed ASM Holdings Limited ("ASM Holdings"), an exempted limited liability company organized and existing under the laws of the Cayman Islands, and Apex Partners in order to facilitate the purchase of minority interests in certain of Apex LDC's subsidiaries from five officers of Apex Corporation. Apex Partners subsequently acquired a one percent interest in each of Apex Asia, Cordillera Minera de Zacatecas, Cordilleras Honduras, Andean and ASC Partners. The Company also purchased certain minority profit interests in Honduran and Mexican properties from the individual who had represented the Company in connection with the initial acquisition of such properties. As part of the 1996 Private Placement, 4,256,700 shares of the Company were sold at a price of US $8.00 per Ordinary Shares. The gross proceeds from the 1996 Private Placement were $34,053,600. The Private Placement agents for the sale included Salomon Brothers Inc and S.G. Warburg & Co. Inc. In connection with the 1996 Private Placement, Consolidated contributed its 25 percent interest in Apex LDC to the Company in exchange for 3,935,825 Ordinary Shares, and approximately 84 percent of the shareholders of Litani LDC exchanged their interests in Apex LDC for Ordinary Shares of the Company. Further in connection with the 1996 Private Placement, Apex LDC, the Company and the other beneficial owners of Apex LDC entered into a Buy-Sell Agreement dated as of August 6, 1996 (the 72 Buy-Sell Agreement"). Pursuant to the terms of the Buy-Sell Agreement, upon a request by a Minority Shareholder, the Company is required to purchase, at its sole option, for cash, for Ordinary Shares or for a combination of cash and Ordinary Shares, the shares of Apex LDC owned by such shareholder. The Company currently expects that any future purchases by Apex Limited of shares of Apex LDC from the Minority Shareholders will involve only Ordinary Shares of Apex Limited. Any such transaction will not effect the beneficial and economic interest in Apex LDC attributable to shareholders of Apex Limited. Pursuant to a Shareholders' Agreement dated as of August 6, 1996 (the "Shareholders' Agreement") by and among Apex LDC, the Company, the other shareholders of Apex LDC, and each purchaser of Ordinary Shares in the 1996 Private Placement, such shareholders have agreed not to offer, sell, contract to sell or otherwise dispose of, directly or indirectly, or announce the offering of any Shares, including any such Shares beneficially or indirectly owned or controlled by the Company, or any securities convertible into, or exchangeable or exercisable for Shares, for 180 days from the date of this Prospectus, without the prior written consent of Salomon. Dr. Larry J. Buchanan and Jon Gelvin, officers of the Company, are shareholders and directors of Begeyge Minera Ltda. ("Begeyge"), from which the Company purchased options for three properties in Honduras for a total of $20,000. The Company declined to exercise its option to purchase two of the three properties. The Company spent a total of $182,324 in connection with the returned properties. The Company still has an option to purchase the remaining property for $3,000,000. Begeyge also serves as an associate of the Company and during the period ended December 31, 1996, total expenditures charged to the Company by Begeyge amounted to $106,691. In 1996, Mr. Harry Conger, a director of the Company, received options to purchase 25,000 Ordinary Shares at $8 per share. The option, were granted in consideration of his consulting services for the Company and vest ratably over four years, with the first tranch vesting on the date of grant. In August 1997, the Company issued Mada Limited 25,000 shares in consideration of its services to the Company. In August of 1997, the Company exchanged 268,496 Ordinary Shares for Mintec's 2.5 percent interest in ASC Bolivia. In August of 1997, the Company issued Johnny Delgado Achaval, an officer of the Company 113,595 Ordinary Shares of the Company in consideration of his services to the Company. The Company is negotiating an agreement with Mintec in which the Company would purchase from Mintec (i) its non-land assets for approximately $500,000 and (ii) concessions with respect to approximately 126,000 acres of land for approximately $550,000. The closing of such transaction will not occur until after the Offering. Silver Holdings and the Company intend to enter into a Board Designation Agreement pursuant to which the Company will agree to nominate and support for nomination two individuals designated by Silver Holdings, for so long as Silver Holdings owns one percent of the outstanding Ordinary Shares. 73 Silver Holdings, Argentum LLC, Consolidated Commodities Ltd., Thomas Kaplan, Aurum LLC and the Company will enter into a registration rights and voting agreement, pursuant to which each of Silver Holdings and Argentum LLC are entitled to demand registration of any Ordinary Shares owned by either of them. Silver Holdings and Argentum LLC may make such demand up to three times each on Form S-1 or S-2 of the Securities Act and up to three times each on Form S-3, when such form is available for use by the Company. The Company is not required to effect any demand registration within 120 days after the effective date of a previous demand registration and may postpone, on one occasion in any 365-day period, the filing or effectiveness of a registration statement for a demand registration for up to 120 days under certain circumstances, including pending material transactions. Silver Holdings, Argentum LLC, Aurum LLC and Consolidated Commodities Ltd. are also entitled to unlimited piggyback registrations. All such registrations would be at the Company's expense, exclusive of underwriting discounts and commissions. The Company and such shareholders have entered into customary indemnification and contribution provisions. In addition, the parties to such agreement have agreed to vote for the two individuals designated by Silver Holdings for election to the board of directors. Apex Corporation provides management, advisory and administrative services for the Company pursuant to a Management Services Agreement dated October 22, 1996. The services provided by Apex Corporation include identifying and evaluating investment opportunities, making recommendations to the board of directors with respect to the Company's exploration and development activities, staffing employees and providing the necessary expertise to manage the Company's affairs and monitor its exploration and development activities, advising the Company with respect to investments, contractual and financing activities and providing financial services. The Company pays Apex Corporation a service fee in an amount equal to the direct and indirect costs incurred by Apex Corporation in providing its services, plus 10 percent of such costs. 74 DESCRIPTION OF ORDINARY SHARES The following summarizes certain provisions of the Memorandum of Association (the "Memorandum") and the Articles of Association, as amended (the "Articles") of the Company. Such summaries do not purport to be complete and are subject to, and are qualified in their entirety by reference to, all of the provisions of the Memorandum and the Articles, including the definitions thereof to certain terms. Copies of the Memorandum and Articles are filed as exhibits to the Registration Statement of which this Prospectus is part. GENERAL The authorized share capital of the Company consists of one class of 50,000,000 ordinary shares, par value $0.01 per share, of which 13,601,544 shares were outstanding as of the date of this Prospectus. Approximately 7,077,007 shares may be issued on a one-for-one basis in exchange for the Shares of Apex LDC subject to the terms of the Buy-Sell Agreement. See "Certain Transactions". SHARES The Shares offered hereby are validly issued, fully paid and nonassessable. There are no provisions of Cayman Islands law or the Company's Articles of Association which impose any limitation on the rights of shareholders to hold or vote Ordinary Shares by reason of their not being resident of the Cayman Islands. Dividend Rights. Holders of Ordinary Shares are entitled to receive dividends ratably when and as declared by the board of directors out of funds legally available therefor. Liquidation. In the event of any dissolution, liquidation or winding up of the Company, whether voluntary or involuntary, after there shall have been paid or set aside for payment to the holders of any outstanding shares ranking senior to the Shares as to distribution on liquidation, distribution or winding up, the full amount to which they shall be entitled, the holders of the then outstanding Ordinary Shares shall be entitled to receive, pro rata according to the number of Ordinary Shares registered in the names of such shareholders, any remaining assets of the Company available for distribution to its shareholders; provided, if, at such time, the holder of Ordinary Shares has any outstanding debts, liabilities or engagements to or with the Company (whether presently payable or not, either alone or jointly with any other person, whether a shareholder or not (including, without limitation, any liability associated with the unpaid purchase price of such Ordinary Shares), the liquidator appointed to oversee the liquidation of the Company shall deduct from the amount payable in respect of such Ordinary Shares the aggregate amount of such debts, liabilities and engagements and apply such amount to any of such holder's debts, liabilities or engagements to or with the Company (whether presently payable or not). The liquidator may distribute, in kind, to the holders of the Ordinary Shares remaining assets of the Company or may sell, transfer or otherwise dispose of all or any part of such remaining assets to any other corporation, trust or entity and receive payment therefor in cash, shares or obligations of such other corporation, trust or entity or any combination thereof, and may sell all or any part of the consideration so received, and may distribute the consideration received or any balance or proceeds thereof to holders of the Ordinary Shares. Voting Rights. The Articles provide that the quorum required for a general meeting of the shareholders is not less than one shareholder present in person or by proxy holding at least 50 percent of the issued and outstanding shares entitled to vote at such meeting. Subject to applicable law and any provision of the Articles requiring a greater majority, the Company may from time to time by special resolution alter or amend the Memorandum or Articles; voluntarily liquidate, dissolve or wind-up the affairs of the Company; reduce its share capital or any capital, redemption or reserve funds, or any share premium account; or change its name or alter its objects. 75 Each shareholder is entitled to one vote per share on all matters submitted to a vote of shareholders at any such meeting. All matters, including the election of directors, voted upon at any duly held shareholders' meeting shall be carried by ordinary resolution, except (i) approval of a merger, consolidation or amalgamation which requires (in addition to any regulatory or court approvals) the approval of at least seventy-five percent of the outstanding voting shares, voting together as a single class, (ii) any matter that must be approved by special resolution, including any amendment of the Memorandum and Articles, and (iii) as otherwise provided in the Articles. A special resolution requires the approval of at least two-thirds of the votes cast by holders of the outstanding voting shares voting together as a single class represented in person or by proxy at a duly convened meeting. An ordinary resolution requires the approval of a simple majority of votes cast at a meeting of shareholders represented in person or by proxy. The Articles provide that, except as otherwise required by law and subject to the rights of the holders of any class or series of shares issued by the Company having a preference over the Ordinary Shares as to dividends or upon liquidation to elect directors in specified circumstances, extraordinary general meetings of the shareholders may be called only by (i) the directors or (ii) at the request in writing of shareholders owning at least 25 percent of the outstanding shares generally entitled to vote. The Ordinary Shares have noncumulative voting rights, which means that the holders of a majority of the Ordinary Shares may elect all of the directors of the Company and, in such event, the holders of the remaining Ordinary Shares will not be able to elect any directors. The board of directors of the Company is presently divided into three classes, of three directors each. At present, each class is elected for a term of three years, with the result that shareholders will not vote for the election of a majority of directors in any single year. See "Management". Pursuant to the Articles, Directors may be removed by the shareholders only for cause. This classified board provision could prevent a party who acquires control of a majority of the outstanding voting power from obtaining control of the board of directors until the second annual shareholders meeting following the date the acquirer obtains the controlling share interest. The classified board provision could have the effect of discouraging a potential acquirer from making a tender offer or otherwise attempting to obtain control of the Company and could thus increase the likelihood that incumbent directors will retain their positions. Preemption Rights. No holder of shares of the Company shall, by reason of such holding, have any preemptive right to subscribe to any additional issue of shares of any class or series nor to any security convertible into such shares. Transfer of Shares. The Articles also provide that the board of directors may suspend the registration of transfers of Ordinary Shares for such periods as the board of directors may determine, but shall not suspend the registration of transfers for more than 40 days. The existing holders of Ordinary Shares have agreed not to offer, sell, contract to sell or otherwise dispose of, directly or indirectly, or announce the offering of any Ordinary Shares, including any such Ordinary Shares beneficially or indirectly owned or controlled by the Company, or any securities convertible into, or exchangeable or exercisable for Ordinary Shares, for 180 days from the date of this Prospectus, without the prior written consent of Salomon. OTHER CLASS OR SERIES OF SHARES The Articles authorize the directors to create and issue one or more classes or series of shares and determine the rights and preferences of each such class or series, to the extent permitted by the 76 Articles and applicable law. Among other rights, the directors may determine: (i) the number of shares of that class or series and the distinctive designation thereof; (ii) the voting powers, full or limited, if any, of the shares of that class or series; (iii) the right in respect of dividends on the shares of that class or series, whether dividends shall be cumulative and, if so, from which date or dates and the relative rights or priority, if any, of payment of dividends on shares of that class or series and any limitations, restrictions or conditions on the payment of dividends; (iv) the relative amounts, and the relative rights or priority, if any, of payment in respect of shares of that class or series, which the holders of the shares of that class or series shall be entitled to receive upon any liquidation, dissolution or winding up of the Company; (v) the terms and conditions (including the price or prices, which may vary under different conditions and at different redemption dates), if any, upon which all or any part of the shares of that class or series may be redeemed, and any limitations, restrictions or conditions on such redemption; (vi) the terms, if any, of any purchase, retirement or sinking fund to be provided for the shares of that class or series; (vii) the terms, if any, upon which the shares of that class or series shall be convertible into or exchangeable for shares of any other class, classes or series, or other securities, whether or not issued by the Company; (viii) the restrictions, limitations and conditions, if any, upon issuance of indebtedness of the Company so long as any shares of that class or series are outstanding; and (ix) any other preferences and relative, participating, optional or other rights and limitations not inconsistent with applicable law or the Articles. REGISTRATION RIGHTS Silver Holdings, Argentum LLC, Consolidated Commodities Ltd., Aurum LLC, Thomas Kaplan and the Company will enter into a registration rights and voting agreement, dated as of , 1997, pursuant to which each of Silver Holdings and Argentum LLC are entitled to demand registration of any Ordinary Shares owned by either of them. Silver Holdings and Argentum LLC may make such demand up to three times each on Form S-1 or S-2 of the Securities Act and up to three times each on Form S-3, when such form is available for use by the Company. The Company is not required to effect any demand registration within 120 days after the effective date of a previous demand registration and may postpone, on one occasion in any 365-day period, the filing or effectiveness of a registration statement for a demand registration for up to 120 days under certain circumstances, including pending material transactions. Silver Holdings, Argentum LLC, Aurum LLC and Consolidated Commodities Ltd. are also entitled to unlimited piggyback registrations. All such registrations would be at the Company's expense, exclusive of underwriting discounts and commissions. The Company and such shareholders have entered into customary indemnification and contribution provisions. TRANSFER AGENT The Company's registrar and transfer agent for all Ordinary Shares is [ ]. DIFFERENCES IN CORPORATE LAW The Companies Law (1995 Revision) (the "Companies Law") of the Cayman Islands is modeled after that of England, and differs in certain respects from such laws generally applicable to United States corporations and their shareholders. Set forth below is a summary of certain significant provisions of the Companies Law (including such modifications thereto adopted pursuant to the Articles) applicable to the Company which differ from provisions generally applicable to United States corporations and their shareholders. These statements are a brief summary of certain significant provisions of the Companies Law and, as such, do not deal with all aspects of every law that may be relevant to corporations and their shareholders. Interested Directors. The Company's Articles provide that any transaction entered into by the Company in which a director has an interest is not voidable by the Company nor can such director be liable to the Company for any profit realized pursuant to such transaction. A director having an interest 77 in a transaction is entitled to vote in respect of such transaction provided the nature of the interest is disclosed at or prior to the vote on such transaction. Mergers and Similar Arrangements. The Company may acquire the business of another company and carry on such business when it is within the objects of the Memorandum. The approval of the holders of at least 75 percent of the outstanding shares entitled to vote, voting together as a single class, at a meeting called for such purpose is required for the Company to (i) merge, consolidate or amalgamate with another company, (ii) reorganize or reconstruct itself pursuant to a plan sanctioned by the Cayman Islands courts or (iii) sell, lease or exchange all or substantially all of its assets, except in the case of a transaction between the Company and any entity which the Company, directly or indirectly, controls. In order to merge or amalgamate with another company or to reorganize and reconstruct itself, as a general rule, the relevant plan would need to be approved in accordance with the provisions of the Companies Law by the holders of not less than 75 percent of the votes cast at a general meeting called for such purpose and thereafter sanctioned by the Cayman Islands court. In respect of such a court sanctioned reorganization, while a dissenting shareholder may have the right to express to a Cayman Islands court his view that the transaction sought to be approved would not provide the shareholders with the fair value of their shares, (i) the court ordinarily would not disapprove the transaction on that ground absent other evidence of fraud or bad faith, and (ii) if the transaction were approved and consummated, the dissenting shareholder would have no rights comparable to the appraisal rights (as here defined, rights to receive payment in cash for the judicially determined value of their shares) ordinarily available to dissenting shareholders of United States corporations. Shareholders' Suits. There does not appear to be any history of either a class action or a derivative action ever having been brought by shareholders in the Cayman Islands courts. There has, however, until recently been no official law reporting in the Cayman Islands and actions subject to the Confidential Relationships (Preservation) Law of 1976, as amended, are held in closed court. However, in this regard, the Cayman Islands courts ordinarily would be expected to follow English precedent, which would permit a minority shareholder to commence an action against or a derivative action in the name of the corporation only (i) where the act complained of is alleged to be beyond the corporate power of the corporation or illegal, (ii) where the act complained of is alleged to constitute a fraud against the minority perpetrated by those in control of the corporation, (iii) where the act requires approval by a greater percentage of the corporation's shareholders than actually approved it, or (iv) where there is an absolute necessity to waive the general rule that a shareholder may not bring such an action in order that there not be a denial of justice or a violation of the corporation's memorandum of association. Indemnification; Exculpation. Cayman Islands law does not limit the extent to which a company's Articles of Association may provide for the indemnification of officers and directors, except to the extent that such provision may be held by the Cayman Islands courts to be contrary to public policy (for instance, for purporting to provide indemnification against the consequences of committing a crime). In addition, an officer or director may not be indemnified for fraud or wilful default. The Company's Articles contain provisions providing for the indemnity by the Company of an officer, director, consultant, employee or agent of the Company for threatened, pending or contemplated actions, suits or proceedings, whether civil, criminal, administrative or investigative (including, without limitation, an action by or the right of the company), brought against such indemnified person by reason of the fact that such person was an officer, director, consultant, employee or agent of the Company. In addition, the board of directors may authorize the Company to purchase and maintain insurance on behalf of any such person against any liability asserted against him and incurred by him in any such capacity, or arising out of his status as such, whether or not the company would have the power to indemnify him against such liability under the provisions of the Articles. 78 The Company also purchases directors and officers liability insurance from third parties for its directors and officers. The Company's Article's provide that directors and officers of the Company shall have no liability (i) for the acts, receipts, neglects, defaults or omissions of any other such director or officer or agent of the Company or (ii) by reason of his having joined in any receipt for money not received by him personally or (iii) for any loss on account of defect of title to any property of the Company or (iv) on account of the insufficiency of any security in or upon which any money of the Company shall be invested or (v) for any loss incurred through any bank, broker or other agent or (vi) for any loss occasioned by any negligence, default, breach of duty, breach of trust, error of judgement or oversight on his part of (vii) for any loss, damage or misfortune whatsoever which may happen in or arise from the execution or discharge of the duties, powers, authorities, or discretions of his office or in relation thereto, unless the same shall happen through his own dishonesty. Inspection of Books and Records. Shareholders of a Cayman Islands company have no general rights to inspect or obtain copies of the list of shareholders or corporate records of a corporation. ANTI-TAKEOVER EFFECTS OF ARTICLES OF ASSOCIATION The Articles contain certain provisions that make more difficult the acquisition of control of the Company by means of a tender offer, open market purchase, a proxy fight or otherwise. These provisions are designed to encourage persons seeking to acquire control of the Company to negotiate with the directors. The directors believe that, as a general rule, the interests of the Company's shareholders would be best served if any change in control results from negotiations with the directors. The directors would negotiate based upon careful consideration of the proposed terms, such as the price to be paid to shareholders, the form of consideration to be paid and the anticipated tax effects of the transaction. However, these provisions could have the effect of discouraging a prospective acquirer from making a tender offer or otherwise attempting to obtain control of the Company. To the extent these provisions discourage takeover attempts, they could deprive shareholders of opportunities to realize takeover premiums for their shares or could depress the market price of the shares. In addition to those provisions of the Articles discussed above, set forth below is a description of other relevant provisions of the Articles. The descriptions are intended as a summary only and are qualified in their entirety by reference to the Articles, which are filed as an exhibit to the Registration Statement of which this Prospectus is a part. Shareholder Action by Written Consent. Cayman law permits shareholders to act by unanimous written consent. Availability of Ordinary Shares of the Company for Future Issuances. The availability for issue of shares by the directors of the Company without further action by shareholders (except as may be required by applicable stock exchange requirements) could be viewed as enabling the directors to make more difficult a change in control of the Company, including by issuing warrants or rights to acquire shares to discourage or defeat unsolicited share accumulation programs and acquisition proposals and by issuing shares in a Private Placement or public offering to dilute or deter share ownership of persons seeking to obtain control of the Company. The Company has no present plan to issue any shares other than possibly pursuant to employee benefit plans. Shareholder Proposals. The Articles provide that if a shareholder desires to submit a proposal for consideration at an annual general meeting or extraordinary general meeting, or to nominate persons for election as directors, written notice of such shareholder's intent to make such a proposal or nomination must be given and received by the secretary of the Company at the principal executive offices of the Company not later than (i) with respect to an annual general meeting, 60 days prior to the anniversary date of the immediately preceding annual general meeting, and (ii) with respect to an extraordinary general meeting, the close of business on the tenth day following the date on which notice of such meeting is first sent or given to shareholders. The notice must describe the proposal or 79 nomination in sufficient detail for a proposal or nomination to be summarized on the agenda for the meeting and must set forth (i) the name and address of the shareholder, (ii) a representation that the shareholder is a holder of record of shares of the Company entitled to vote at such meeting and intends to appear in person or by proxy at the meeting to present such proposal or nomination, and (iii) the class and number of shares of the Company which are beneficially owned by the shareholder. In addition, the notice must set forth the reasons for conducting such proposed business at the meeting and any material interest of the shareholder in such business. In the case of a nomination of any person for election as a director, the notice shall set forth: (i) the name and address of any person to be nominated; (ii) a description of all arrangements or understandings between the shareholder and each nominee and any other person or persons; (iii) such other information regarding such nominee proposed by such shareholder as would be required to be included in a proxy statement filed pursuant to Regulation 14A under the Exchange Act, whether or not the Company is then subject to such Regulation; and (iv) the consent of each nominee to serve as a director of the Company, if so elected. The presiding officer of the annual general meeting or extraordinary general meeting shall, if the facts warrant, refuse to acknowledge a proposal or nomination not made in compliance with the foregoing procedure. The advance notice requirements regulating shareholder nominations and proposals may have the effect of precluding a contest for the election of directors or the introduction of a shareholder proposal if the procedures summarized above are not followed and may discourage or deter a third party from conducting a solicitation of proxies to elect its own slate of directors or to introduce a proposal. 80 SHARES ELIGIBLE FOR FUTURE SALE After consummation of the Offering, there will be [ ] Ordinary Shares still owned by the current shareholders of the Company. Approximately 7,077,007 Ordinary Shares may be issued to the Minority Shareholders on a one- for-one basis for the shares of Apex LDC subject to the terms of the Buy-Sell Agreement. See "Certain Transactions". Shareholders will only be able to sell such Ordinary Shares pursuant to a registration statement under the Securities Act or an exemption therefrom. Rule 144 under the Securities Act provides such an exemption for resales of securities under certain circumstances. Under Rule 144, as currently in effect, a person (or persons whose shares are aggregated) who beneficially owns "restricted" shares that have been issued and not held by an affiliate of the Company for at least one year from the time the shares were fully paid for will be entitled to sell in "brokers' transactions" or to market makers, within any three-month period, a number of shares that does not exceed the greater of (i) one percent of the shares then outstanding or (ii) the average weekly trading volume of the shares on all national securities exchanges and/or reported through the automated quotation system of a registered securities association during the four calendar weeks preceding such sale. Sales under Rule 144 are also subject to certain notice requirements, and the availability of current public information about the Company. Restricted shares held for two years by a person who is not, at the time of sale and has not been at any time within three months prior thereto, an affiliate of the Company may be sold without regard to the volume limitations or manner of sale restrictions under Rule 144. The foregoing summary of Rule 144 is not intended to be a complete description thereof. The existing holders of Ordinary Shares have agreed with the representatives of the U.S. Underwriters subject to certain exceptions, not to register any transfer of such shares, without the consent of Salomon until at least the date 180 days from the date of this Prospectus. See "Underwriting". In addition, after the Offering approximately [ ] Ordinary Shares (including all Ordinary Shares issuable pursuant to the Buy-Sell Agreement) will be entitled to certain rights with respect to registration of such Shares under the Securities Act. See "Description of Ordinary Shares--Registration Rights". There has been no public market in the shares prior to the Offering and no predictions can be made as to the effect, if any, that additional sales of Ordinary Shares in the future by any Shareholders or the availability of such Ordinary Shares for sale will have on the market price prevailing from time to time. Sales of substantial amounts of additional Ordinary Shares in the public market, or the perception that such sales could occur, could adversely affect prevailing market prices and the Company's ability to raise additional equity capital (although the Company has no current plans to do so). 81 UNDERWRITING Subject to the terms and conditions set forth in an underwriting agreement among the Company and the U.S. Underwriters (the "U.S. Underwriting Agreement"), the Company has agreed to sell to each of the U.S. Underwriters named below (the "U.S. Underwriters"), and each of the U.S. Underwriters for whom Salomon Brothers Inc, PaineWebber Incorporated and Scotia Capital Markets (USA) Inc., are acting as the representatives (the "U.S. Representatives"), has severally agreed to purchase the number of Shares set forth opposite its name below:
UNDERWRITING U.S. UNDERWRITERS COMMITMENT - ----------------- ------------ Salomon Brothers Inc............................................... PaineWebber Incorporated........................................... Scotia Capital Markets (USA) Inc. ................................. ---- Total............................................................ ====
The Company has been advised by the U.S. Representatives that the several U.S. Underwriters initially propose to offer such Shares to the public at the Price to Public set forth on the cover page of this Prospectus and to certain dealers at such price less a concession not in excess of $[ ] per Share. The U.S. Underwriters may allow, and such dealers may re-allow, a concession not in excess of $[ ] per Share to other dealers. After the Offerings, the Price to Public and such concessions may be changed. The Company has granted to the U.S. Underwriters and the Managers (collectively, the "Underwriters") options, exercisable during the 30-day period after the date of this Prospectus, to purchase up to [ ] additional Shares from the Company at the Price to Public less the Underwriting Discount, solely to cover over-allotments. To the extent that the U.S. Underwriters and the Managers exercise such options, each of the U.S. Underwriters and the Managers, as the case may be, will be committed, subject to certain conditions, to purchase a number of option shares proportionate to such U.S. Underwriter's or Manager's initial commitment. The Company has entered into an International Underwriting Agreement with the Managers named therein, for whom Salomon Brothers International Limited, PaineWebber International (U.K.) Limited and ABN AMRO Rothschilds are acting as the representatives (the "International Representatives" and, together with the U.S. Representatives, the "Representatives"), providing for the concurrent offer and sale of [ ] Shares (in addition to the shares covered by the over- allotment options described above) outside the U.S. and Canada. Both the U.S. Underwriting Agreement and the International Underwriting Agreement provide that the obligations of the U.S. Underwriters and the Managers are such that if any of the Shares are purchased by the U.S. Underwriters pursuant to the U.S. Underwriting Agreement, or by the Managers pursuant to the International Underwriting Agreement, all the Shares agreed to be purchased by either the U.S. Underwriters or the Managers, as the case may be, pursuant to their respective agreements must be so purchased. The Price to Public and Underwriting Discount per Share for the U.S. Offering and International Offering will be identical. The closing of the International Offering is a condition to the closing of the U.S. Offering and the closing of the U.S. Offering is a condition to the closing of the International Offering. Each U.S. Underwriter has severally agreed that, as part of the distribution of the [ ] Shares offered by the U.S. Underwriters: (i) it is not purchasing any Shares for the account of anyone other than a U.S. or Canadian Person; (ii) it has not offered or sold, and will not offer or sell, directly or indirectly, any Shares or distribute this Prospectus to any person outside of the U.S. or Canada, or to anyone other than a U.S. or Canadian Person; and (iii) any dealer to whom it may sell any Shares will 82 represent that it is not purchasing for the account of anyone other than a U.S. or Canadian Person and agree that it will not offer or resell, directly or indirectly, any Shares outside of the U.S. or Canada, or to anyone other than a U.S. or Canadian Person or to any other dealer who does not so represent and agree. Each Manager has severally agreed that, as part of the distribution of the [ ] Shares offered by the Managers: (i) it is not purchasing any Shares for the account of any U.S. or Canadian Person; (ii) it has not offered or sold, and will not offer or sell, directly or indirectly, any Shares or distribute any Prospectus relating to the International Offering to any person in the U.S. or Canada, or to any U.S. or Canadian Person; and (iii) any dealer to whom it may sell any Shares will represent that it is not purchasing for the account of any U.S. or Canadian Person and agree that it will not offer or resell, directly or indirectly, any Shares in the U.S. or Canada, or to any U.S. or Canadian Person or to any other dealer who does not so represent and agree. The foregoing limitations do not apply to stabilization transactions or to certain other transactions specified in the Agreement Between U.S. Underwriters and the Managers. "U.S. or Canadian Person" means any person who is a national or resident of the U.S. or Canada, any corporation, partnership or other entity created or organized in or under the laws of the U.S. or Canada or of any political subdivision thereof, and any estate or trust the income of which is subject to U.S. or Canadian federal income taxation, regardless of its source (other than any non-U.S. or non-Canadian branch of any U.S. or Canadian Person), and includes any U.S. or Canadian branch of a person other than a U.S. or Canadian Person. Pursuant to the Agreement Between U.S. Underwriters and the Managers, sales may be made between the U.S. Underwriters and the Managers of such number of Shares as may be mutually agreed. The price of any Shares so sold shall be the Price to Public, less an amount not greater than the concession to securities dealers. To the extent that there are sales between the U.S. Underwriters and the Managers pursuant to the Agreement Between U.S. Underwriters and the Managers, the number of Shares initially available for sale by the U.S. Underwriters or by the Managers may be more or less than the amount specified on the cover page of this Prospectus. Any offer of the Shares in Canada will be made only pursuant to an exemption from the prospectus filing requirement and an exemption from the dealer registration requirement (where such an exemption is not available, offers shall be made only by a registered dealer) in the relevant Canadian jurisdiction where such offer is made. The U.S. Underwriting Agreement provides that the Company will indemnify the U.S. Underwriters against certain liabilities and expenses, including liabilities under the Securities Act, or contribute to payments the U.S. Underwriters may be required to make in respect thereof. The International Underwriting Agreement provides that the Company will indemnify the Managers against certain liabilities and expenses. The existing holders of Shares have agreed not to offer, sell, contract to sell or otherwise dispose of, directly or indirectly, or announce the offering of any Shares, including any such Shares beneficially or indirectly owned or controlled by the Company, or any securities convertible into, or exchangeable or exercisable for Shares, for 180 days from the date of this Prospectus, without the prior written consent of Salomon. During and after the Offerings, the Underwriters may purchase and sell the Shares in the open market. These transactions may include overallotment and stabilizing transactions and purchases to cover syndicate short positions created in connection with the Offerings. The Underwriters also may impose a penalty bid, whereby selling concessions allowed to syndicate members of other broker-dealers, in respect of the Shares sold in the Offerings for their account may be reclaimed by the syndicate if such Shares are repurchased by the syndicate in stabilizing or covering transactions. These activities may stabilize, maintain or otherwise affect the market price of the Shares which may be higher than the price that might otherwise prevail in the open market. 83 Prior to the Offerings, there has been no public market for the Shares. The Price to Public was determined by negotiations between the Company and the Representatives. Among the factors considered in determining the Price to Public were prevailing market conditions, the market values of publicly traded companies that the Underwriters believed to be somewhat comparable to the Company, the demand for the Shares and for similar securities of publicly traded companies that the Underwriters believed to be somewhat comparable to the Company, the future prospects of the Company and its industry in general, sales, earnings and certain other financial and operating information of the Company in recent periods, and other factors deemed relevant. There can be no assurance that the prices at which the Shares will sell in the public market after the Offerings will not be lower than the Price to Public. Certain of the U.S. Underwriters and Managers provide financial advisory services to or are engaged in other financial transactions with the Company for which they have received and will receive customary compensation. The Company has retained N.M. Rothschild & Sons Limited, an affiliate of ABN AMRO Rothschilds, to act as the Company's financial advisor in connection with the anticipated project financing with respect to the San Cristobal Project. The Company has engaged Salomon and Credit Suisse First Boston to act as the Company's financial advisors with respect to the identification of, and negotiation with, potential joint venture mining partners in the San Cristobal Project. The Company has paid Salomon and Credit Suisse First Boston financial advisory fees and has agreed to pay them monthly advisory fees and success- based transaction fees, and to reimburse their respective out-of-pocket expenses. The Company has also agreed to indemnify Salomon and Credit Suisse First Boston against certain liabilities. 84 TAXATION The following discussion is a summary of certain Cayman Islands and U.S. federal income tax consequences of the acquisition, ownership and disposition of Shares. The discussion does not purport to be a comprehensive discussion and is based on the Code, and the tax laws of the Cayman Islands as in effect on the date hereof, which are subject to change. The discussion does not consider any specific facts or circumstances that may apply to a particular investor, some of which (for example, tax-exempt entities, insurance companies, banks, broker-dealers, investors liable for alternative minimum tax, investors who hold Shares as part of straddles or hedging or conversion transactions or constructive sales, and investors whose functional currency is not the U.S. dollar) may be subject to special rules. In addition, the discussion does not address special rules that could in certain circumstances apply to a U.S. Holder (as defined below) of Shares that owns directly or by attribution 10 percent or more of the Ordinary Shares. Because the discussion is not exhaustive of all possible tax considerations relevant to the ownership of Shares, prospective investors are urged to consult their tax advisors regarding the U.S. federal, state, local and foreign tax consequences, including the Cayman Islands tax consequences, of the acquisition, ownership and disposition of Shares in their particular circumstances. CAYMAN ISLANDS TAXATION There is, at present, no direct income taxation in the Cayman Islands. Accordingly, income and gains received by the Company, and distributions by the Company to its shareholders and gains realized upon the disposition of Shares, will be received free of all Cayman Islands income and withholding taxes. The Company is registered as an exempted Company under Cayman Islands law, and the Company has received an undertaking from the Governor-in-Council of the Cayman Islands to the effect that, for a period of 20 years from the date of the undertaking, no law that is enacted in the Cayman Islands imposing any tax to be levied on profits or income or gains or appreciations will apply to the Company nor shall any tax in the nature of estate duty or inheritance tax be payable on the shares, debentures or other obligations of the Company. UNITED STATES FEDERAL INCOME TAXATION For purposes of this discussion, a "U.S. Holder" is any beneficial owner that owns Shares as a capital asset and is (i) a citizen or resident of the U.S., (ii) a corporation or partnership that is created or organized in the U.S. or under the law of the U.S. or any state thereof, (iii) an estate that is subject to U.S. federal income tax on its income regardless of source, or (iv) a trust if a court within the U.S. is able to exercise primary supervision over the administration of the trust and one or more U.S. fiduciaries have authority to control all substantial decisions of the trust. TAXATION OF DIVIDENDS Subject to the discussion under "Passive Foreign Investment Company Considerations" and "Foreign Personal Holding Company Considerations", under U.S. federal income tax law, U.S. Holders will include in gross income as a dividend the gross amount of any distribution paid by the Company to the extent of its current or accumulated earnings and profits (as determined for U.S. federal income tax purposes) as ordinary income when the dividend is received by the U.S. Holder. The dividend will not be eligible for the dividends-received deduction generally allowed to U.S. corporations. In general, the dividend will be income from sources outside the U.S., and generally will be treated together with other items of "passive income" (or, in the case of certain holders, "financial services income") for U.S. foreign tax credit purposes. TAXATION OF CAPITAL GAINS Subject to the discussion under "Passive Foreign Investment Company Considerations", upon a sale or other disposition of Shares, a U.S. Holder will recognize gain or loss for U.S. federal income 85 tax purposes in an amount equal to the difference between the U.S. dollar value of the amount realized and the U.S. Holder's tax basis (determined in U.S. dollars) in such Shares. Such gain or loss will be capital gain or loss and, if the U.S. Holder's holding period for such Shares exceeds 18 months, will be long-term capital gain or loss. PASSIVE FOREIGN INVESTMENT COMPANY CONSIDERATIONS Classification as a PFIC. The Company will be a PFIC for any taxable year if 75 percent or more of its gross income for the taxable year is "passive" income or 50 percent or more of its assets produce or are held for the production of "passive" income. For purposes of applying these income and asset tests, the Company is deemed to receive its pro rata share of the income, and to own its pro rata share of the assets, of any corporation in which the Company directly or indirectly owns 25 percent or more of the stock (measured by value). In addition, although not free from doubt, it is expected that the Company will be deemed to receive its pro rata share of the income, and to own its pro rata share of the assets, of any partnership in which the Company is a partner (either directly or through one or more intervening partnerships). U.S. Holders should be aware that the Shares may be treated as stock of a passive foreign investment company ("PFIC") for U.S. federal income tax purposes because the Company will earn significant passive income from investments relative to any non-passive income of the Company prior to the commencement by the Company of substantial mining operations. Further, the Code treats gains from transactions in commodities, such as silver, as passive income for PFIC purposes unless "substantially all" of a company's business is as an active producer of the commodity. Applicable U.S. Treasury Regulations interpret "substantially all" to mean that 85 percent or more of a producer's taxable income must be gross receipts from sales in the active conduct of a commodities business or certain related activities. Under these rules, there can be no assurance that the Company would not be treated as a PFIC in future taxable years even after it has begun to earn income from mining operations. In this regard, prospective investors should note that the Company would likely constitute a PFIC even after it begins to generate significant income from mining operations in the event the Company conducts its mining operations predominantly through the use of independent contractors rather than directly through the use of its own employees. Prospective investors should note that the PFIC classification rules are complex and may apply in numerous unexpected circumstances. Under these rules, the Company could be classified as a PFIC in various circumstances in addition to those described in the preceding paragraphs. For example, the Company could constitute a PFIC for any taxable year as a consequence of owning substantial "passive assets" such as cash and marketable securities (including any cash derived from the issuance of Company securities or the sale of assets of the Company), even in a year in which the Company generates significant income from direct mining operations. Consequences of PFIC Status. If the Company were treated as a PFIC, unless a U.S. Holder makes a "QEF election" or "mark to market election" in respect of the Company, as described below, such U.S. Holder will be subject to a special tax regime (i) in respect of gains realized on the sale or other disposition of Shares, and (ii) in respect of distributions on Shares held for more than one taxable year to the extent those distributions constitute "excess distributions". Although not entirely free from doubt, the PFIC rules should not apply to gain realized in respect of any Shares disposed of during the same taxable year in which the Shares are acquired. An excess distribution generally includes dividends or other distributions received from a PFIC in any taxable year to the extent the amount of such distributions exceeds 125 percent of the average distributions for the three preceding years (or, if shorter, the investor's holding period). In general, under the PFIC rules, a U.S. Holder will be required to allocate such excess distributions and any gain realized on sale of the Shares to each day during the Holder's holding period for the Shares, and will be taxable at the highest rate of taxation applicable to ordinary income for the year to which the excess distribution or gain is allocable (without regard to the U.S. Holder's other items of income and loss for such taxable year) (the "deferred tax"). The deferred tax (other than the tax on amounts allocable to the year of disposition or receipt of the 86 distribution) will then be increased by an interest charge computed by reference to the rate generally applicable to underpayments of tax (which interest charge generally will be non-deductible interest expense for individual taxpayers). QEF Election. The special PFIC tax rules described above will not apply to a U.S. Holder if the U.S. Holder elects to have the Company treated as a "qualified electing fund" ("QEF election") in the first taxable year of the holder's ownership of the Shares during which the Company is a PFIC and the Company complies with certain reporting requirements. The Company intends to comply with all reporting requirements necessary for U.S. Holders to make a QEF election with respect to the Company and will upon request provide to U.S. Holders such information as may be required to make such QEF election effective. A U.S. Holder that makes a QEF election with respect to the Company will be currently taxable on its pro rata share of ordinary earnings and net capital gain of the Company for each taxable year of the Company in which the Company qualifies as a PFIC, regardless of whether the holder receives any distribution from the Company. The U.S. Holder's basis in the Shares of the Company will be increased to reflect taxed but undistributed income of the Company. Distributions of income that previously had been taxed will result in a corresponding reduction of basis in the Shares and will not be taxed again as a distribution to the U.S. Holder. During the period in which the Company may be a PFIC, the Company may be entitled to deductions under U.S. federal income tax principles that may substantially offset earnings of the Company. As a result, the pro rata share of the ordinary earnings and net capital gain of the Company that would be includable by a U.S. Holder making a QEF election may not be material. If this were the case, U.S. Holders generally could obtain the benefits of making a QEF election in respect of the Company (i.e., the elimination of deferred tax and interest charges on excess distributions and realized gains) without having to bear current inclusions of income substantially in excess of distributions received. U.S. Holders should consult their own tax advisors concerning the most appropriate manner in which to make a QEF election. Lower-Tier PFICs. At the present time, none of the Company's non-U.S. subsidiaries is classified as a corporation for U.S. federal income tax purposes. Accordingly, U.S. Holders are not subject to the PFIC rules with respect to their indirect ownership interests in these subsidiaries. If, in the future, the Company acquires a non-U.S. subsidiary that is classified as a corporation for U.S. federal income tax purposes, the Company will notify its shareholders so that U.S. Holders may determine whether to make a QEF election with respect to the subsidiary. If the Company were a PFIC, U.S. Holders generally would be deemed to own, and also would be subject to the PFIC rules with respect to, their indirect ownership interests in any corporate subsidiaries of the Company which themselves constitute PFICs ("lower-tier PFICs"). If the Company were a PFIC and a U.S. Holder does not make a QEF election in respect of any lower-tier PFIC, the U.S. Holder could incur liability for the deferred tax and interest charge described above if either (i) the Company receives a distribution from, or disposes of all or part of its interest in, a lower-tier PFIC or (ii) the U.S. Holder disposes of all or part of its Shares. The Company intends to cause any lower-tier PFIC to comply with all reporting requirements necessary for a U.S. Holder to make a QEF election with respect to the lower-tier PFIC. Mark to Market Election. For taxable years beginning after December 31, 1997, a U.S. Holder who owns marketable stock of a PFIC may elect to recognize any gain or loss on the stock on a mark-to-market basis at the end of the U.S. Holder's taxable year. If an election is made, any mark-to-market gains, and any gains realized on disposition of the stock, will be treated as ordinary income. Mark-to-market losses, and any losses recognized on disposition of the stock to the extent of the holder's net mark-to-market gains, will be treated as ordinary losses. U.S. Holders should consult their tax advisors regarding the effect of making a mark-to-market election with respect to the Shares, including the effect of such an election on any lower-tier PFICs that the holder is deemed to own. 87 A U.S. Holder who owns Shares during any year that the Company is a PFIC must file an Internal Revenue Service Form 8621 in respect of such Shares and, under proposed U.S. Treasury Regulations, in respect of interests in any lower-tier PFICs. Prospective investors are urged to consult their own tax advisors regarding the possible classification of the Company as a PFIC as well as the potential tax consequences arising from the ownership and disposition (directly or indirectly) of interests in a PFIC. FOREIGN PERSONAL HOLDING COMPANY CONSIDERATIONS Prospective investors should also be aware that special U.S. tax laws would apply to U.S. Holders if the Company (or any corporate subsidiary of the Company) is characterized as a foreign personal holding company ("FPHC"). In particular, if the Company (or any corporate subsidiary) is an FPHC in respect of any taxable year of the Company, U.S. Holders may be subject to current tax on their (direct or indirect) pro rata share of the income of the FPHC (as determined for purposes of the FPHC rules), even if no cash dividend is actually paid by the FPHC. In general, the Company (or any corporate subsidiary of the Company) will constitute a FPHC during a taxable year if (i) a specified percentage of its income is passive for purposes of the FPHC rules, and (ii) at any time during the taxable year five or fewer individuals who are U.S. citizens or residents own (directly, indirectly or constructively) more than 50 percent of the voting power or value of such company's stock. The Company does not anticipate that it or any of its subsidiaries will be an FPHC immediately following the Offering or in the future. The Company, however, can provide no assurance as to such conclusion. TAXATION OF NON-U.S. HOLDERS An investor who is not a U.S. Holder will not be subject to U.S. federal income tax on any dividends received on the Shares unless (i) the investor has an office or other fixed place of business in the U.S. to which the dividends are attributable and either the dividends are derived in the active conduct of a banking, finance or similar business in the U.S. or the investor is a non- U.S. corporation the principal business of which consists of trading in stocks or securities for its own account and certain other conditions are met or (ii) the investor is a foreign insurance company that conducts business in the U.S. and the dividends are attributable to such business. An investor who is not a U.S. Holder will not be subject to U.S. federal income tax on any gain realized on the sale or other disposition of Shares unless (i) the investor is engaged in the conduct of a trade or business in the U.S. and the gain is effectively connected with such trade or business or (ii) the investor is an individual who is present in the U.S. for 183 days or more during the taxable year in which the gain is realized and certain other conditions are met. UNITED STATES INFORMATION REPORTING AND BACKUP WITHHOLDING Under current U.S. federal income tax law, payments of dividends to certain U.S. Holders are subject to information reporting, and a "back up" withholding tax at a rate of 31 percent if such persons fail to supply correct taxpayer identification numbers and certain other information in the required manner. Payments of dividends to a U.S. Holder (a) made by mail or wire transfer to an address in the U.S. , (b) made by a paying agent, broker or other intermediary in the U.S. or (c) made by a U.S. broker or by a custodian, nominee or agent that is (i) a U.S. person, (ii) a controlled foreign corporation for U.S. tax purposes, or (iii) a foreign person 50% or more of whose gross income is from a U.S. trade or business (hereinafter, any of the persons described in (i), (ii) and (iii) shall be referred to as a "U.S. Controlled Person") to such holder outside the U.S. may be subject to U.S. information reporting requirements. Payments of dividends received by investors who are not U.S. Holders generally would be exempt from these reporting requirements, but such persons may be required to comply with certification and identification procedures in order to prove their exemption from the reporting requirements. Treasury regulations currently in effect do not require backup withholding with respect to dividends paid by a foreign corporation such as the Company. 88 The payment of proceeds of the disposition of Shares by a holder to or through the U.S. office of a broker generally will be subject to information reporting and backup withholding at a rate of 31 percent, unless the holder either certifies its status as a non-U.S. Holder under penalties of perjury or otherwise establishes an exemption. The payment of proceeds of the disposition by a holder of Shares to or through a non-U.S. office of a broker will generally not be subject to backup withholding and information reporting. However, information reporting (but not backup withholding) may apply to such a holder who sells a beneficial interest in Shares through a non U.S. branch of a U.S. broker, or through a non-U.S. office of a U.S. Controlled Person, in either case unless the holder establishes an exemption or the broker has documentary evidence in its files of the holder's status as a non-U.S. person. Any amounts withheld under the backup withholding rules from payment to a holder will be refunded (or credited against the holder's United States federal income tax liability, if any) provided that the required information is furnished to the United States Internal Revenue Service. EXPERTS The consolidated financial statements as of December 31, 1996 and 1995 and for each of the years in the two year period ended December 31, 1996 and for the periods from December 22, 1994 (inception) through December 31, 1994 and from inception through December 31, 1996 included in this Prospectus have been so included in reliance on the report of Price Waterhouse LLP, independent accountants, given on the authority of said firm as experts in auditing and accounting. The estimates of the Company's development and operating costs for the San Cristobal property appearing herein were based upon the first phase feasibility report prepared by the independent engineering firm Kvaerner Metals, Davy Nonferrous Division; reserves for the San Cristobal Project were based upon estimates prepared by Mine Reserves Associates Inc. and were corroborated by an independent grade model prepared by Pincock, Allen & Holt. Mineral Resources Development Inc. conducted the metallurgical test work and developed the process flow sheet. Knight Piesold LLC was contracted to perform the preliminary environmental assessment and geotechnical estimates, including mill tailings design. The independent engineering firm of Behre Dolbear was hired by the Company to conduct and oversee a technical audit of Davy's procedures and analyses as well as the work of the technical subcontractors. All such figures are included herein in reliance upon the authority of said firms as experts in such matters. The estimates of the Company's development and operating costs for the El Ocote property appearing herein were based upon the conceptual study prepared by Davy, and are included herein in reliance upon the authority of said firm as an expert in such matters. LEGAL MATTERS Certain United States legal matters will be passed upon for the Company by Akin, Gump, Strauss, Hauer & Feld, L.L.P., New York, New York, and certain Cayman Islands legal matters, including the validity of the Shares offered hereby will be passed upon for the Company by W.S. Walker & Company, Grand Cayman, Cayman Islands. Certain United States legal matters will be passed upon for the U.S. Underwriters by Winston & Strawn, Chicago, Illinois. 89 ADDITIONAL INFORMATION The Company has filed with the Securities and Exchange Commission (the "Commission") a Registration Statement on Form S-1 under the Securities Act with respect to the Shares offered hereby. The Prospectus does not contain all of the information set forth in the Registration Statement and the exhibits thereto. For further information with respect to the Company and the Shares, reference is made to such Registration Statement and Exhibits. Statements made in the Prospectus as to the contents of any contract, agreement or other documents referred to are not necessarily complete. With respect to each such contract, agreement or other document filed as an exhibit to the Registration Statement, reference is made to the exhibit for a more complete description of the matter involved. The Registration Statement and exhibits may be inspected without charge and copied at the public reference facilities maintained by the Commission at 450 Fifth Street, N.W., Washington, D.C. 20549, and at the Commission's regional offices at Northwestern Atrium Center, 500 West Madison, Suite 1400, Chicago, Illinois 60661 and Seven World Trade Center, Suite 1300, New York, New York 10048. Copies of such material may be obtained at prescribed rates from the Commission's Public Reference Section at 450 Fifth Street, N.W., Washington, D.C. 20549. Such material may also be accessed electronically by means of the Commission's home page on the Internet at http://www.sec.gov. Material filed by the Company may also be inspected at the offices of the American Stock Exchange. The Company will be subject to the periodic reporting and other informational requirements of the Exchange Act, and in accordance therewith will file reports and other information with the Commission. Such reports and other information concerning the Company can be inspected and copied at the public reference facilities and regional offices referred to above, or can be accessed electronically as referred to above. 90 GLOSSARY ADIT--a horizontal or nearly horizontal passage driven from the surface for the working of a mine. BACK--a mining term indicating the rock volume which is above a level in a mine; the term may also refer to the roof of a mine working. BRECCIATION or BRECCIA--fracturing of preexisting rocks by natural forces; a rock type formed in this manner. BULK MINING--surface or underground mining methods applied to large bodies of ore which involve large-scale, automated excavation techniques. CASH PRODUCTION COST PER EQUIVALENT OUNCE--the total equivalent ounces divided by the sum of the mine site cash production costs plus the transport costs of the concentrates to the market. CONCENTRATE--a mineral processing product that generally describes the material that is produced after crushing and grinding ore and then effecting significant separation of gangue (waste) minerals from the metal and/or metal minerals, discarding the waste and minor amounts of metal and/or metal minerals leaving a "concentrate" of metal and/or metal minerals with a consequent order of magnitude higher content of metal and/or metal minerals than the beginning ore material. CONCEPTUAL STUDY--an initial technical financial study of a project at a sufficient level of accuracy and detail to allow a decision as to whether to undertake a feasibility study with respect to a given property. CORE--a sample of rock produced by diamond drilling. CUT-OFF GRADE--the minimum grade of mineralization or ore used to establish quantitative estimates of total mineralized ore. DEVELOPMENT--work carried out for the purpose of opening up a mineral deposit and making the actual ore extraction possible. DIAMOND DRILL--a type of rotary drill in which the cutting is done by abrasion rather than by percussion. The hollow bit of the drill cuts a core of rock which is recovered in long cylindrical sections. DORE--unrefined gold and silver in bullion form. DRIFT--a horizontal passage underground that follows along the length of a vein or mineralized rock formation. EPITHERMAL--a term applied to deposits formed at shallow depths from ascending solutions of moderate temperatures. EQUIVALENT SILVER OUNCES--is calculated by dividing the gross net smelter return of silver, zinc and lead by the market price of silver per ounce. For purposes of this Prospectus, the market price of silver is assumed to be $5.00 per ounce of silver, and the market prices of zinc and lead are assumed to be $0.55 and $0.30 per pound, respectively. EXPLORATION--work involved in searching for ore, by geological mapping, geochemistry, geophysics, drilling and other methods. FAULT--a fracture in a rock where there has been displacement of the two sides. FEASIBILITY STUDY--a technical financial study of a project at sufficient level of accuracy and detail to allow a decision as to whether a given project should proceed. FRACTURE--breaks in a rock, usually due to intensive folding or faulting. 91 GRADE--the average assay of a ton of ore, reflecting metal content. HEAP LEACHING--a process involving the percolation of a cyanide solution through crushed ore heaped on an impervious pad or base to dissolve minerals or metals out of the ore. IMMEDIATELY ACCESSIBLE--blocks of ore immediately accessible from current mine workings. INVERSE DISTANCE ESTIMATING METHOD--a method of establishing the importance accorded to specific data points of a three dimensional block model in order to determine the economic value of the minerals located in such block. This determination is a weighted average with the individual weights of each data point computed as an inverse power of distance as follows: wi = di -poweri = 1. . .number of samples --- Sdi
where w is the weight computed for each sample; i, each distance; d, the distance between the location being estimated and sample i; and -power is the inverse distance weighting power. KRIGING--a geostatistical estimation method for calculating a geological three dimensional model for the estimation of mineralized material and proven and probable reserves. This method was developed to provide the "best linear, unbiased estimate" for grade based on a least squares minimization of the error estimation, or Kriging errors. LEVEL--a subhorizontal working in a mine, like a drift or a tunnel, often given a number which relates its depth below an arbitrarily chosen reference point, e.g., the -300 Level usually means the working is 300 meters below some chosen reference point. MILL--a processing plant that produces a concentrate of the valuable minerals or metals contained in an ore. The concentrate must then be treated in some other type of plant, such as a smelter, to effect recovery of the pure metal. MINEABLE--the portion of a resource for which extraction is technically and economically feasible. MINERALIZATION--the concentration of metals and their compounds in rocks, and the processes involved therein. MINERALIZED MATERIAL--mineralized rock which (i) tonnage and grade are computed (a) partly from specific measurements, samples or production data compiled from assays of outcrops, trenches, underground working or drill holes, and (b) partly from projections based on geological evidence, and (ii) has not been determined, pursuant to a full feasibility study, to be economically and legally extractable at the time of such determination. NET SMELTER RETURN OR NSR--a return based on the actual proceeds from sale of metal or mineral products received less the cost of refining or smelting at an off-site refinery. OPEN PIT--a surface working open to daylight, such as a quarry. ORE--material that can be economically mined and processed. OUNCE--a unit of measurement of weight. In the precious metals industry, and at Apex one troy ounce, the equivalent of 31.103 grams. PORPHYRY--an igneous rock of any composition that contains conspicuous crystals in a fine-grained rock mass. 92 PROBABLE RESERVES--reserves for which quantity and grade and/or quality are computed from information similar to that used for proven reserves (see below), but the sites for inspection, sampling and measurement are farther apart or are otherwise less adequately spaced. The degree of assurance, although lower than that for proven reserves, is high enough to assume continuity between points of observation. PROVEN RESERVES--reserves for which (a) quantity is computed from dimensions revealed in outcrops, trenches, workings and drill holes and grade and/or quality are computed from the results of detailed sampling; and (b) the sites for inspection, sampling and grade measurement are spaced so closely and the geological character is so well defined that size, shape, depth and mineral content of reserves are well established. RECOVERY--the percentage of contained of metal extracted from ore in the course of processing such ore. REFINING--the final stage of metal production in which residual impurities are removed from the metal. RESERVES--that part of a mineral deposit with adequate measurements which may be economically and legally extracted or produced at the time of the reserve determination. REVERSE CIRCULATION DRILL--a rotary drill or rotary percussion drill in which the drilling fluid and cuttings return to the surface through the drill pipe, minimizing contamination. SEMI-AUTOGENOUS-GRINDING OR SAG--a grinding method that uses a rotating mill drum of large diameter, versus its axial length, to tumble ores that have characteristics of hardness and particle size requiring only small amounts of grinding steel balls added to the mill to aid the grinding process. SHAFT--a vertical or steeply inclined excavation for the purposes of opening and servicing an underground mine. It is usually equipped with a hoist at the top which lowers and raises a conveyance for handling personnel and materials. SKARN--a rock composed of calc-silicate minerals formed by the action of igneous bodies intruding into a calcium-rich rock such as limestone. Precious metals and sulfides of copper, lead and zinc may be introduced as part of the process. SMELTING--heating ore or concentrate material with suitable flux materials at high temperatures creating a fusion of these materials to produce a melt consisting of two layers on top, a slag of the flux and gangue (waste) minerals, and below molten impure metals. This generally produces an unfinished product requiring refining. STOCKWORK--a mineral deposit in the form of a three dimensional network of anastomosing veinlets diffused in the host rock. STOPE--an excavation in a mine from which ore is being or has been extracted. STRIKE--the course or bearing of a vein or a layer of rock. TAILINGS--the finely-ground waste product from ore processing. TON--a dry short ton (2,000 pounds). TONNE--a metric ton (1,000 kilograms, or 2,205 pounds). VEIN--a mineralized zone having a more or less regular development in length, width and depth which clearly separates it from neighboring rock. WASTE--barren rock in a mine, or mineralization that is too low in grade to be mined and milled at a profit. 93 CONVERSION TABLE In this Prospectus, figures are presented in both United States standard and metric measurements. Conversion rates from United States standard to metric and metric to United States standard measurement systems are provided in the table below.
U.S. MEASURE METRIC UNIT - ------------ ----------- 2.47 acres.............. 1 hectare 3.28 feet............... 1 meter 0.62 miles.............. 1 kilometer 0.032 ounces (troy)..... 1 gram 1.102 tons.............. 1 tonne
METRIC MEASURE U.S. UNIT - -------------- --------- 0.4047 hectares......... 1 acre 0.3048 meters........... 1 foot 1.609 kilometer......... 1 mile 31.103 grams............ 1 ounce (troy) 0.907 tonnes............ 1 ton
94 INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
PAGE ---- Report of Independent Accountants......................................... F-2 Consolidated Balance Sheet at June 30, 1997 (unaudited) and at December 31, 1996 and 1995........................................................ F-3 Consolidated Statement of Operations for the six month periods ended June 30, 1997 and 1996 (unaudited), the years ended December 31, 1996 and 1995, the period from December 22, 1994 (inception) through December 31, 1994, and the period from inception through December 31, 1996............ F-4 Consolidated Statement of Changes in Shareholders' Equity for the six month period ended June 30, 1997 (unaudited), for the years ended December 31, 1996 and 1995, and for the period ended December 31, 1994 ......................................................................... F-5 Consolidated Statement of Cash Flows for the six month periods ended June 30, 1997 and 1996 (unaudited), the years ended December 31, 1996 and 1995, the period from December 22, 1994 (inception) through December 31, 1994, and the period from inception through December 31, 1996............ F-6 Notes to the Consolidated Financial Statements............................ F-7
F-1 REPORT OF INDEPENDENT ACCOUNTANTS To the Board of Directors and Shareholders of Apex Silver Mines Limited (Successor to Apex Silver Mines LDC), an Exploration Stage Company In our opinion, the accompanying consolidated balance sheet and the related consolidated statements of operations, of changes in shareholders' equity and of cash flows present fairly, in all material respects, the financial position of Apex Silver Mines Limited (successor to Apex Silver Mines LDC) and its subsidiaries at December 31, 1996 and 1995 and the results of their operations and their cash flows for the years ended December 31, 1996 and 1995, the period from December 22, 1994 (inception) through December 31, 1994 and the period from inception through December 31, 1996 in conformity with generally accepted accounting principles. These financial statements are the responsibility of the Company's management; our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits of these statements in accordance with generally accepted auditing standards which 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, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for the opinion expressed above. PRICE WATERHOUSE LLP Denver, Colorado August 29, 1997 F-2 APEX SILVER MINES LIMITED (SUCCESSOR TO APEX SILVER MINES LDC) AN EXPLORATION STAGE COMPANY CONSOLIDATED BALANCE SHEET (EXPRESSED IN UNITED STATES DOLLARS)
JUNE 30, DECEMBER 31, DECEMBER 31, 1997 1996 1995 ------------ ------------ ------------ (UNAUDITED) ASSETS Current assets Cash and cash equivalents............. $ 4,088,342 $25,949,771 $ 3,296,618 Short-term investments................ 9,000,000 -- -- Note and accrued interest receivable.. -- -- 2,885,830 Prepaid expenses and other assets..... 499,180 154,225 -- Cash advances to associates........... -- -- 311,246 ------------ ----------- ----------- Current assets....................... 13,587,522 26,103,996 6,493,694 Plant, buildings and equipment (net)... 561,953 523,534 -- Deferred organizational costs (net).... 141,479 169,774 226,365 Loan receivable from associates........ -- -- 100,000 ------------ ----------- ----------- Total assets......................... $ 14,290,954 $26,797,304 $ 6,820,059 ============ =========== =========== LIABILITIES AND SHAREHOLDERS' EQUITY Current liabilities Amounts due to related parties........ $ 1,703 $ 533,275 $ 110,933 Accrued salaries, wages and benefits.. 33,135 310,669 -- Accounts payable and other accrued liabilities.......................... 950,642 1,642,050 247,926 ------------ ----------- ----------- Current liabilities.................. 985,480 2,485,994 358,859 Commitments and contingencies (Note 10)............................. -- -- -- Minority interest in consolidated subsidiary............................ -- -- 2,875,927 Shareholders' equity Ordinary shares, $.01 par value, 50,000,000 shares authorized; 13,194,453, 13,079,246 and 8,822,546, shares issued and outstanding, respectively (See Note 1d)........... 131,944 130,792 88,225 Contributed surplus................... 38,148,688 37,978,181 5,571,398 Accumulated deficit................... (24,975,158) (13,797,663) (2,074,350) ------------ ----------- ----------- Total shareholders' equity........... 13,305,474 24,311,310 3,585,273 ------------ ----------- ----------- Total liabilities and shareholders' equity.............................. $ 14,290,954 $26,797,304 $ 6,820,059 ============ =========== ===========
The accompanying notes form an integral part of these consolidated financial statements. F-3 APEX SILVER MINES LIMITED (SUCCESSOR TO APEX SILVER MINES LDC) AN EXPLORATION STAGE COMPANY CONSOLIDATED STATEMENT OF OPERATIONS (EXPRESSED IN UNITED STATES DOLLARS)
FOR THE PERIOD DECEMBER 22, PERIOD 1994 FROM SIX MONTHS SIX MONTHS (INCEPTION) INCEPTION ENDED ENDED YEAR ENDED YEAR ENDED THROUGH THROUGH JUNE 30, JUNE 30, DECEMBER 31, DECEMBER 31, DECEMBER 31, DECEMBER 31, 1997 1996 1996 1995 1994 1996 ------------ ----------- ------------ ------------ -------------- ------------ (UNAUDITED) Income Interest income........ $ 475,298 $ 71,987 $ 574,470 $ 462,247 $ 15,256 $ 1,051,973 ------------ ----------- ------------ ----------- --------- ------------ Total income........... 475,298 71,987 574,470 462,247 15,256 1,051,973 ------------ ----------- ------------ ----------- --------- ------------ Expenses Exploration............ 7,961,583 4,322,867 9,590,632 1,559,874 105,185 11,255,691 Administrative......... 1,814,480 497,874 1,923,165 982,261 147,780 3,053,206 Consulting............. 1,059,669 792,417 2,506,250 560,060 144,840 3,211,150 Professional fees...... 775,863 421,055 1,096,271 657,621 20,600 1,774,492 Amortization and depreciation.......... 41,198 28,295 57,392 56,591 -- 113,983 ------------ ----------- ------------ ----------- --------- ------------ Total expenses......... 11,652,793 6,062,508 15,173,710 3,816,407 418,405 19,408,522 ------------ ----------- ------------ ----------- --------- ------------ Loss before minority interests.............. (11,177,495) (5,990,521) (14,599,240) (3,354,160) (403,149) (18,356,549) Minority interest in loss of consolidated subsidiary............. -- 2,666,424 2,875,927 1,492,975 189,984 4,558,886 ------------ ----------- ------------ ----------- --------- ------------ Net loss for the period................ $(11,177,495) ($3,324,097) $(11,723,313) $(1,861,185) $(213,165) $(13,797,663) ============ =========== ============ =========== ========= ============ Net loss per ordinary share.................. $ (0.85) $ (0.38) $ (1.11) $ (0.21) $ (0.02) ============ =========== ============ =========== ========= Weighted average ordinary shares outstanding (See Note 1d).......... 13,194,453 8,822,546 10,596,171 8,822,546 8,822,546 ============ =========== ============ =========== =========
The accompanying notes form an integral part of these consolidated financial statements. F-4 APEX SILVER MINES LIMITED (SUCCESSOR TO APEX SILVER MINES LDC) AN EXPLORATION STAGE COMPANY CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDERS' EQUITY (EXPRESSED IN UNITED STATES DOLLARS)
ORDINARY SHARES -------------------- TOTAL SHARES CONTRIBUTED ACCUMULATED SHAREHOLDERS' OUTSTANDING AMOUNT SURPLUS DEFICIT EQUITY ----------- -------- ----------- ------------ ------------- Issuance of shares upon incorporation--December 22, 1994............... 8,822,546 $ 88,225 $ 5,571,398 $ -- $ 5,659,623 Net loss................ -- -- -- (213,165) (213,165) ---------- -------- ----------- ------------ ----------- Balance, December 31, 1994................... 8,822,546 88,225 5,571,398 (213,165) 5,446,458 Net loss................ -- -- -- (1,861,185) (1,861,185) ---------- -------- ----------- ------------ ----------- Balance, December 31, 1995................... 8,822,546 88,225 5,571,398 (2,074,350) 3,585,273 Issuance of shares in private placement...... 4,256,700 42,567 32,406,783 -- 32,449,350 Net loss................ -- -- -- (11,723,313) (11,723,313) ---------- -------- ----------- ------------ ----------- Balance, December 31, 1996................... 13,079,246 130,792 37,978,181 (13,797,663) 24,311,310 Issuance of shares (unaudited)............ 115,207 1,152 170,507 -- 171,659 Net loss (unaudited).... -- -- -- (11,177,495) (11,177,495) ---------- -------- ----------- ------------ ----------- Balance, June 30, 1997 (unaudited)............ 13,194,453 $131,944 $38,148,688 $(24,975,158) $13,305,474 ========== ======== =========== ============ ===========
The accompanying notes form an integral part of these consolidated financial statements. F-5 APEX SILVER MINES LIMITED (SUCCESSOR TO APEX SILVER MINES LDC) AN EXPLORATION STAGE COMPANY CONSOLIDATED STATEMENT OF CASH FLOWS (EXPRESSED IN UNITED STATES DOLLARS)
FOR THE PERIOD DECEMBER 22, 1994 PERIOD FROM SIX MONTHS SIX MONTHS (INCEPTION) INCEPTION ENDED ENDED YEAR ENDED YEAR ENDED THROUGH THROUGH JUNE 30, JUNE 30, DECEMBER 31, DECEMBER 31, DECEMBER 31, DECEMBER 31, 1997 1996 1996 1995 1994 1996 ------------ ----------- ------------ ------------ -------------- ------------ (UNAUDITED) Cash flows from operating activities: Net loss.............. $(11,177,495) $(3,324,097) $(11,723,313) $(1,861,185) $(213,165) $(13,797,663) Adjustments to reconcile net loss to net cash used in operating activities: Amortization and depreciation......... 41,198 28,295 57,392 56,591 -- 113,983 Minority interest in loss of consolidated subsidiary........... -- (2,666,424) (2,875,927) (1,492,975) (189,984) (4,558,886) Changes in operating assets and liabilities: (Increase) decrease in accrued interest receivable.......... -- 66,112 66,112 (50,856) (15,256) -- (Increase) decrease in prepaid expenses and other assets.... (344,955) -- (154,225) 24,167 (24,167) (154,225) (Increase) decrease in cash advances to and loan receivable from associates..... -- 311,246 411,246 (411,246) -- -- Increase (decrease) in current liabilities......... (1,500,514) 646,351 2,127,135 244,873 113,986 2,485,994 ------------ ----------- ------------ ----------- --------- ------------ Net cash used in operating activities......... (12,981,766) (4,938,517) (12,091,580) (3,490,631) (328,586) (15,910,797) ------------ ----------- ------------ ----------- --------- ------------ Cash flows from investing activities: Purchases of short- term investments..... (9,000,000) -- -- -- -- -- Purchases of property and equipment........ (51,322) -- (524,335) -- -- (524,335) ------------ ----------- ------------ ----------- --------- ------------ Net cash used in investing activities......... (9,051,322) -- (524,335) -- -- (524,335) ------------ ----------- ------------ ----------- --------- ------------ Cash flows from financing activities: Proceeds from issuance of ordinary shares... 171,659 2,819,718 35,269,068 6,430,307 968,484 42,667,859 Deferred organizational costs................ -- -- -- -- (282,956) (282,956) ------------ ----------- ------------ ----------- --------- ------------ Net cash provided by financing activities......... 171,659 2,819,718 35,269,068 6,430,307 685,528 42,384,903 ------------ ----------- ------------ ----------- --------- ------------ Net increase (decrease) in cash and cash equivalents........... (21,861,429) (2,118,799) 22,653,153 2,939,676 356,942 25,949,771 Cash and cash equivalents: Beginning of period... 25,949,771 3,296,618 3,296,618 356,942 -- -- ------------ ----------- ------------ ----------- --------- ------------ End of period......... $ 4,088,342 $ 1,177,819 $ 25,949,771 $ 3,296,618 $ 356,942 $ 25,949,771 ============ =========== ============ =========== ========= ============
The accompanying notes form an integral part of these consolidated financial statements. F-6 APEX SILVER MINES LIMITED (SUCCESSOR TO APEX SILVER MINES LDC) AN EXPLORATION STAGE COMPANY NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (EXPRESSED IN UNITED STATES DOLLARS) 1.INCORPORATION, RECAPITALIZATION, OWNERSHIP AND OPERATIONS a. Apex Silver Mines Limited ("Apex Limited" or the "Company") was formed under the laws of the Cayman Islands in March of 1996 for the sole purpose of serving as a holding company for certain ownership interests in Apex Silver Mines LDC ("Apex LDC"). On April 15, 1996, holders of approximately 55% of the then-outstanding shares of Apex LDC elected to participate, effective as of the completion of a proposed private placement of shares of Apex Limited which was completed as of August 6, 1996, in a recapitalization effected by an exchange, on a one-for-one basis, of their shares in Apex LDC for identical equity instruments of Apex Limited (the "Recapitalization"). The balance of shareholders retained a direct ownership interest in Apex LDC. As a result of this recapitalization, Apex LDC became a majority-owned subsidiary of Apex Limited. The accompanying financial statements reflect the historical accounts of the Company's predecessor, Apex LDC. For purposes of the accompanying consolidated financial statements of Apex Limited, the recapitalization has been given retroactive effect to the date of incorporation of Apex LDC, with the results of operations and equity attributable to the other ownership interests in Apex LDC being reflected in "minority interest in consolidated subsidiary". Consequently, for purposes of these financial statements, Apex Limited is considered the successor to Apex LDC. b. In August of 1996, Apex Limited issued 4,256,700 ordinary shares in a private placement transaction (the "Private Placement") for net proceeds of $32.4 million. These proceeds were contributed to Apex LDC in exchange for the issuance by Apex LDC of 4,256,700 shares of its share capital. As a result of this private placement, the Company's ownership interest in Apex LDC was increased from approximately 55% to 65%. c. Apex LDC was incorporated under the laws of the Cayman Islands on November 23, 1994 as a 30-year limited duration company on the contribution of all the assets of its predecessor entity, Apex Silver Mines Ltd., a Bermuda corporation. (Actual contribution occurred on December 22, 1994.) The activity of the predecessor has not been presented herein as it was immaterial. However, all expenses incurred by the predecessor have been presented. The Company's principal activity is the exploration of mineral properties. The Company participates in the acquisition and exploration of mineral properties for possible future development directly and indirectly through Apex LDC's principal subsidiaries, Andean Silver Corporation LDC ("Andean"), ASC Bolivia LDC ("ASC Bolivia"), Apex Asia LDC ("Apex Asia"), Minera de Cordilleras (Honduras), S. de R.L. ("Cordilleras Honduras"), Cordilleras Silver Mines Ltd. ("Cordilleras Bahamas"), Cordilleras Silver Mines (Cayman) LDC ("Cordilleras Cayman"), Compania Minerales de Zacatecas, S. de R.L. de C.V. ("CMZ"), Apex Silver Mines Corporation, ("Apex Corporation") and ASC Peru LDC ("ASC Peru"). d. In conjunction with the Recapitalization and the Private Placement, Apex Limited and the shareholders of Apex LDC entered into a Buy-Sell Agreement (the "Buy-Sell Agreement") which is intended to maintain the same beneficial interest in Apex LDC attributable to all shareholders of Apex LDC prior to the Recapitalization and Private Placement. Pursuant to the terms of the Buy-Sell Agreement, upon a request by a shareholder of Apex LDC, Apex Limited is required to purchase, at its sole option, for cash, for ordinary shares or for a combination thereof, the shares of Apex LDC owned by such shareholder. Apex Limited currently expects that any purchase of shares of Apex LDC will involve only an equal number of ordinary shares. As of August 29, 1997, Apex Limited has approximately 13,601,544 shares outstanding and approximately 7,077,007 ordinary shares reserved F-7 APEX SILVER MINES LIMITED (SUCCESSOR TO APEX SILVER MINES LDC) AN EXPLORATION STAGE COMPANY NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) (EXPRESSED IN UNITED STATES DOLLARS) for issuance for the approximately 7,077,007 shares of Apex LDC owned by such shareholders. If all such ordinary shares were issued, the Company would have approximately 20,678,551 ordinary shares outstanding. Because of the provisions of the Buy-Sell Agreement, all of the outstanding shares of Apex LDC are considered ordinary share equivalents for purposes of computing net loss per ordinary share but are not included in the computation for any of the periods presented because they are antidilutive. If all of the Apex LDC shares were assumed to be purchased in all periods, the outstanding ordinary shares and the net loss per ordinary share as of and for the periods ended June 30, 1997 and 1996 and December 31, 1996, 1995 and 1994, on a pro forma basis, would have been (all unaudited) 20,271,460, 15,899,553, 17,673,178, 15,899,553 and 15,899,553 ordinary shares and $(0.55), $(0.21), $(0.66), $(0.12) and $(0.01) net loss per ordinary share. e. The Company, through its direct and indirect subsidiaries, is active in Central America, South America and Central Asia and currently holds interests in, or is the beneficial owner of, non-producing silver resource properties in Chile, Bolivia, Honduras, Kyrghyzstan, Mexico, Mongolia, Peru and Tajikistan. The Company is in the process of evaluating its properties to determine economic feasibility of bringing one or more of the properties into production. 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES These consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America ("GAAP"). The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts and disclosures in the financial statements. Actual results could differ from those estimates. The policies adopted, considered by management to be significant, are summarized as follows: a. Basis of consolidation These consolidated financial statements include the accounts of the Company and its majority owned subsidiaries. Investment in 50% joint ventures are proportionately consolidated. b. Interim financial data The interim financial data as of June 30, 1997 and for the six-month periods ended June 30, 1997 and 1996 are unaudited; however, in the opinion of management, such interim data includes all adjustments (consisting only of normal recurring adjustments) considered necessary for a fair presentation of financial position and results of operations for the interim periods. All data included herein as of such date and for such periods are unaudited. c. Translation of foreign currencies All expenditures are made in United States dollars. Accordingly, the Company uses the United States dollar as its functional currency. F-8 APEX SILVER MINES LIMITED (SUCCESSOR TO APEX SILVER MINES LDC) AN EXPLORATION STAGE COMPANY NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) (EXPRESSED IN UNITED STATES DOLLARS) d. Cash, cash equivalents and short-term investments The Company considers all highly liquid investments with a maturity of three months or less when purchased to be cash equivalents. Short-term investments include certificates of deposit with maturities greater than three months, but not exceeding six months. Short-term investments are recorded at cost which approximates fair value. e. Exploration and development costs The Company expenses general prospecting costs and the costs of acquiring and exploring unevaluated mining properties. When a property is determined to have proven and probable reserves, further exploration costs and development costs are capitalized. When commercially profitable ore reserves are developed and operations commence, capitalized costs will be amortized using the units- of-production method. Upon abandonment or sale of projects, all capitalized costs relating to the specific project are written off in the year abandoned or sold and a gain or loss is recognized. As of December 31, 1996, no exploration and development costs have been capitalized. f. Fixed assets Buildings and equipment are carried at cost and are depreciated on a straight-line basis over estimated useful lives of three to thirty years. g. Deferred organizational costs Costs incurred in the organization of the Company have been capitalized and are being amortized on a straight-line basis over five years. h. Asset impairment The Company evaluates its long-lived assets for impairment when events or changes in circumstances indicate that the related carrying amount may not be recoverable. If the sum of estimated future net cash flows on an undiscounted basis is less than the carrying amount of the related asset, an asset impairment is considered to exist. The related impairment loss is measured by comparing estimated future net cash flows on a discounted basis to the carrying amount of the asset. Changes in significant assumptions underlying future cash flow estimates may have a material effect on the Company's financial position and results of operations. To date no such impairments have been identified. i. Fair value of financial instruments The Company's financial instruments consist of cash, receivables, accounts payable and other current liabilities. The carrying amounts of these financial instruments approximate fair value due to their short maturities. F-9 APEX SILVER MINES LIMITED (SUCCESSOR TO APEX SILVER MINES LDC) AN EXPLORATION STAGE COMPANY NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) (EXPRESSED IN UNITED STATES DOLLARS) j. Stock compensation As permitted under Statement of Financial Accounting Standards ("SFAS") No. 123, "Accounting for Stock-Based Compensation," the Company has elected to measure compensation expense as prescribed by Accounting Principles Board Opinion No. 25, "Accounting for Stock Issued to Employees." Under that method, the difference between the exercise price and the estimated fair value of the shares at the date of grant is charged to compensation expense ratably over the vesting period. k. Net loss per ordinary share Net loss per ordinary share is computed using the weighted average number of ordinary and equivalent shares outstanding during the period. Equivalent shares are excluded from the computation if their effect is antidilutive except that, pursuant to the requirements of the Securities and Exchange Commission, equivalent shares relating to options issued and ordinary shares sold at less than the initial public offering price during the twelve-month period prior to the initial public offering contemplated hereby are included in the computations for all periods presented. l. New accounting pronouncements During February of 1997, the Financial Accounting Standards Board released SFAS No. 128, Earnings per Share, which requires the disclosure of both basic earnings per share and diluted earnings per share. The Company will be required to adopt SFAS No. 128 effective December 31, 1997, and believes it will not have a material impact on previously reported losses per share. Other pronouncements issued by authoritative bodies with future effective dates are either not applicable or not material to the consolidated financial statements of the Company. 3. INCOME TAXES The provision for income taxes includes United States federal, state and foreign income taxes currently payable and deferred based on currently enacted tax laws. Deferred income taxes are provided for the tax consequences of differences between the financial statement and tax bases of assets and liabilities. A valuation allowance is recognized if, based on the weight of available evidence, it is more likely than not that some portion or all of the deferred tax asset will not be realized. There is currently no taxation imposed by the Cayman Islands. If any form of taxation were to be enacted, the Company has been granted exemption therefrom to January 16, 2015. The Company's subsidiaries which do business in other countries have not generated income and therefore are not liable for local income taxes. Apex Corporation, a Delaware corporation, is the only entity within the Company which is currently subject to United States federal and state income taxes. As of June 30, 1997 and December 31, 1996, Apex Corporation had a United States net operating loss carryforward of approximately $1,300,000 (unaudited) and $500,000, respectively. As such, no United States tax provision is included in the accompanying financial statements. Additionally, as of June 30, 1997 and December 31, 1996, Apex Corporation had net deferred tax assets of approximately $500,000 (unaudited) and $200,000, respectively, primarily as a result of operating loss carryforwards which are entirely offset by a valuation allowance. F-10 APEX SILVER MINES LIMITED (SUCCESSOR TO APEX SILVER MINES LDC) AN EXPLORATION STAGE COMPANY NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) (EXPRESSED IN UNITED STATES DOLLARS) As of June 30, 1997 and December 31, 1996, operating loss carryforwards generated by ASC Bolivia amounted to approximately $9.7 million (unaudited) and $3.4 million, respectively. Operating losses (as adjusted for inflation) may be carried forward and deducted from taxable income indefinitely. The deferred tax asset resulting from the operating loss carryforwards has been entirely offset by a valuation allowance. No net deferred tax assets related to operating losses generated through June 30, 1997 by the Company's other foreign subsidiaries have been included in the accompanying financial statements, as all such assets have been entirely offset by a valuation allowance. 4. NOTE RECEIVABLE At December 31, 1995, the note receivable represents the outstanding balance of a $10,000,000 non-negotiable secured demand note, dated December 22, 1994, on demand at any time, accruing interest at LIBOR, issued by Silver Holdings LDC in consideration for 7,500 shares of the share capital (75% of the then issued and outstanding shares) of Apex LDC. The balance at December 31, 1995 is comprised of the note receivable in the amount of $2,819,718 and accrued interest of $66,112. The note was paid in full during 1996. 5. PLANT, BUILDINGS AND EQUIPMENT The components of plant, buildings and equipment were as follows:
JUNE 30, DECEMBER 31, 1997 1996 ----------- ------------ (UNAUDITED) Buildings.......................................... $274,054 $274,054 Mining equipment................................... 228,168 183,356 Other furniture and equipment...................... 73,435 66,925 -------- -------- 575,657 524,335 Less: Accumulated depreciation..................... (13,704) (801) -------- -------- $561,953 $523,534 ======== ========
Depreciation expense for the six months ended June 30, 1997 and the year ended December 31, 1996 totaled $12,903 and $801, respectively. 6. DEFERRED ORGANIZATIONAL COSTS
JUNE 30, 1997 DECEMBER 31, 1996 DECEMBER 31, 1995 ------------- ----------------- ----------------- (UNAUDITED) Organizational costs..... $282,956 $282,956 $282,956 Less: Accumulated amortization............ (141,477) (113,182) (56,591) -------- -------- -------- $141,479 $169,774 $226,365 ======== ======== ========
Amortization expense for the six-month period ended June 30, 1997 was $28,295 and for each of the years ended December 31, 1996 and 1995 was $56,591. F-11 APEX SILVER MINES LIMITED (SUCCESSOR TO APEX SILVER MINES LDC) AN EXPLORATION STAGE COMPANY NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) (EXPRESSED IN UNITED STATES DOLLARS) 7. STOCK OPTION PLANS During 1996, options to purchase 281,250 shares of the Company's ordinary shares were granted, exercisable at a price of $8.00 per share. Of these options, 73,438 vested immediately. The remainder of the options vest ratably over periods of up to four years with the first tranche vesting on the date of grant. Unexercised options expire ten years after the date of grant. The following table summarizes stock option information:
YEAR ENDED DECEMBER 31, 1996 ----------------- Options granted at $8 during period........................ 281,250 Options outstanding at end of period....................... 281,250 Options exercisable at end of period....................... 73,438
The weighted average grant-date fair value of options granted for the year ended December 31, 1996 is $1.30. The weighted average remaining contractual life of the options at December 31, 1996 is 11.1 years. To date, none of these options have been exercised. Pro forma information regarding net income is required by SFAS No. 123, and has been determined as if the Company has accounted for its employees' stock options under the fair value method of SFAS No. 123. For purposes of calculating the fair value of options, volatility was not considered for the options granted in 1996 since the Company was non-public at the date of grant. The Company currently does not foresee the payment of dividends in the near term. The fair value for these options was estimated at the date of grant using the Black-Scholes option pricing model with the following assumptions:
YEAR ENDED DECEMBER 31, 1996 ----------------- Weighted average risk-free interest rate................... 6.45% Expected dividend yield.................................... -- Weighted average expected life (in years).................. 2.78
For the purposes of pro forma disclosures, the estimated fair value of the options is amortized to expense over the options' vesting period. The Company's pro forma information follows:
YEAR ENDED DECEMBER 31, 1996 ------------- As reported Net loss........................................................ $(11,723,313) Net loss per ordinary share..................................... (1.11) Pro forma Net loss........................................................ (11,852,522) Net loss per ordinary share..................................... (1.12)
F-12 APEX SILVER MINES LIMITED (SUCCESSOR TO APEX SILVER MINES LDC) AN EXPLORATION STAGE COMPANY NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) (EXPRESSED IN UNITED STATES DOLLARS) 8. EVENT SUBSEQUENT TO DECEMBER 31, 1996 Effective as of August 15, 1997, the minority shareholder of ASC Bolivia exchanged its 2.5% interest for 268,496 shares of Apex Limited and the Company granted two associates a total of 138,595 shares of the Company in consideration for services. 9. RELATED PARTY TRANSACTIONS Apex LDC engaged Tigris Financial Group Ltd. ("Tigris") and LCM Holdings LDC ("LCM") to provide management advisory services to Apex LDC and its subsidiaries. Tigris is wholly owned by Mr. Thomas S. Kaplan, a director and officer of Apex LDC and its subsidiaries, and an indirect shareholder. LCM is wholly owned by an indirect shareholder of Apex LDC. This consulting arrangement was terminated at the end of the first quarter of 1997, following the formation of Apex Corporation. Apex Corporation provides management, advisory and administrative services for the Company pursuant to a Management Services Agreement dated October 22, 1996. The Company pays Apex Corporation in providing its services, plus 10 percent of such costs. During the periods ended December 31, 1996, 1995 and 1994 fees paid to Tigris and LCM for such services amounted to $423,684, $143,368 and $21,250, respectively. As of December 31, 1996, the amount payable for such services was $11,119. Apex LDC hires both individuals and companies ("associates") to perform services on its behalf in countries in which it has mineral interests. These services include administrative expenses, obtaining interests in properties on Apex LDC's behalf, and consulting services. In certain cases persons affiliated with such associates serve as officers or directors of Apex LDC's subsidiaries. During the periods ended December 31, 1996, 1995 and 1994, the total amounts charged to Apex LDC by such related associates were $5,695,193, $1,965,276 and $275,653, respectively, and are included in the statement of operations under the applicable captions. As of December 31, 1996, the amount payable for such services was $386,639. During the periods ended December 31, 1996, 1995 and 1994, Apex LDC paid an associate who, until August 6, 1996, was a shareholder of certain subsidiaries of Apex LDC $485,179, $239,647 and $14,104, respectively, in consideration for geology services provided and disbursements made on Apex LDC's behalf. As of December 31, 1996, the amount payable for such services was $135,517. During the year ended December 31, 1995, Apex LDC made an interest-free loan to an indirect shareholder in the amount of $100,000. The loan was forgiven by Apex LDC as of August 6, 1996, as partial payment for that shareholder's remaining interest in one subsidiary and his profits interests in certain properties owned or controlled by Apex LDC or its subsidiaries. Apex LDC received interest income on the note receivable issued by Silver Holdings LDC, a shareholder of Apex LDC. During the periods ended December 31, 1995 and 1994, such interest income amounted to $360,937 and $15,256, respectively. Two individuals, one of whom is an officer and indirect shareholder of Apex LDC, the second of whom is an officer of certain of Apex LDC's subsidiaries, are also shareholders and directors of Begeyge Minera Ltda. ("Begeyge"), with whom the Company has a non-binding commitment to purchase the Suyatal Project for an aggregate purchase price of $3,000,000 (see Note 10). Begeyge also served as an associate and during the year ended December 31, 1996, total amounts charged to Apex LDC by Begeyge were $106,691. F-13 APEX SILVER MINES LIMITED (SUCCESSOR TO APEX SILVER MINES LDC) AN EXPLORATION STAGE COMPANY NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) (EXPRESSED IN UNITED STATES DOLLARS) 10. COMMITMENTS AND CONTINGENCIES The Company had outstanding nonbinding commitments relating to certain mineral properties at December 31, 1996 (as adjusted for contract terminations and modifications through August 15, 1997) as follows:
1997 1998 1999 2000 2001 THEREAFTER ---------- ---------- -------- -------- ---------- ---------- HONDURAS El Ocote(/1/)......... $ 250,000 $ 93,866 $ 75,000 $ -- $ -- $ -- Suyatal(/2/).......... 15,000 25,000 40,000 40,000 40,000 2,825,000 Tatumbla(/3/)......... 66,667 66,667 66,666 -- -- -- BOLIVIA San Cristobal(/4/).... 297,000 120,000 -- -- -- -- Choroma(/5/).......... 227,000 349,250 -- -- -- -- Cobrizos(/6/)......... 318,841 214,675 201,314 201,314 1,006,551 -- General............... 170,000 170,000 170,000 170,000 170,000 -- PERU Otuzco(/7/)........... 36,000 18,000 18,000 18,000 18,000 450,000 Total............... $1,380,508 $1,057,458 $570,980 $429,314 $1,234,551 $3,275,000
- -------- (/1/) Upon production, the Company will also pay a 5% net smelter return ("NSR") royalty. (/2/) Annual installments are not to exceed the greater of $40,000, or a 2% NSR. (/3/) In addition, beginning in January of 1999, the Company will pay the greater of a $20,000 per year advance against future NSR royalties, or a 2% NSR. Upon the earlier of the fifth anniversary of commercial production or recovery of the Company's entire capital investment, the Company will pay the higher of the $20,000 per year advance, or a 3% NSR, plus an additional 2% NSR on production from the project. (/4/) The Company, through a wholly-owned subsidiary has an option to purchase these properties prior to October of 1998 for $2,000,000, less the sum of all prior lease payments ($12,000 per month). In addition, the Company has an option to acquire mining concessions for $6,000 per month until February 1, 1998. Upon exercise of the option, a payment of $250,000 is due, to be followed by another $250,000 due on February 1, 1999 plus the assumption of certain indebtedness of the seller. (/5/) Upon production, the Company will pay a royalty of 5% of operating cash flow until the investment has been recovered, and a 15% royalty thereafter. (/6/) The commitments relating to the years 1999 to 2001 are for land taxes. The amounts disclosed represent the maximum possible payment. Upon production, the Company will pay a royalty of 5% of operating cash flow until the investment has been recovered, and a 15% royalty thereafter. (/7/) The lease agreement related to this property also includes payment of a production royalty of 4.5% NSR. Concurrent with the lease is a four-year option to purchase the property for $350,000. In addition, the Company has a $40,400 per year payment due for land taxes on staked claims. In addition to those summarized above, the Company has the following nonbinding commitments: Honduras--Portrerillos: Payments of $50,000 per year are required until production begins. Upon production, Cordilleras Honduras will pay the greater of $200,000, or a 3% NSR. Cordilleras Honduras may purchase the pre-production payments and 3% NSR royalty for $3,000,000. If this option is elected prior to June of 1999, all prior payments will be credited towards the purchase price. F-14 Bolivia--Pulacayo: ASC Bolivia is obligated to pay $1,500 per month during exploration until completion of a feasibility study. If the property is developed, ASC Bolivia will be required to pay a 5% NSR. Peru--San Juan de Lucanas: Andean has contracted to purchase mining concessions for total payment of $2,100,000 over a fourteen month period. Tajikistan--Kanimansur Ore Field: The joint venture agreement related to this proposed acquisition is still awaiting approval by the government. An initial capital contribution of $49,000 must be effected within one year of the formal registration of Kanimansur Mining. F-15 NO DEALER, SALESPERSON OR ANY OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY IN- FORMATION OR TO MAKE ANY REPRESENTATIONS OTHER THAN THOSE CONTAINED IN THE PRO- SPECTUS IN CONNECTION WITH THE OFFER MADE BY THE PROSPECTUS AND, IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY THE COMPANY OR ANY OF THE U.S. UNDERWRITERS. NEITHER THE DE- LIVERY OF THE PROSPECTUS NOR ANY SALE MADE HEREUNDER SHALL UNDER ANY CIRCUM- STANCES CREATE ANY IMPLICATION THAT THERE HAS BEEN NO CHANGE IN THE AFFAIRS OF THE COMPANY SINCE THE DATE HEREOF. THE PROSPECTUS DOES NOT CONSTITUTE AN OFFER OR SOLICITATION BY ANYONE IN ANY JURISDICTION IN WHICH SUCH OFFER OR SOLICITA- TION IS NOT AUTHORIZED OR IN WHICH THE PERSON MAKING SUCH OFFER OR SOLICITA- TION. ---------------- TABLE OF CONTENTS
PAGE ---- Prospectus Summary....................................................... 1 Risk Factors............................................................. 8 Use of Proceeds.......................................................... 16 Dividend Policy.......................................................... 16 Capitalization........................................................... 17 Dilution................................................................. 18 Selected Consolidated Financial Data..................................... 19 Corporate Structure...................................................... 20 Management's Discussion and Analysis of Financial Condition and Results of Operations........................................................... 22 The Company.............................................................. 28 Properties............................................................... 30 Development Project...................................................... 31 Advanced Exploration Properties.......................................... 40 Other Mineral Properties................................................. 48 Metals Market Overview................................................... 51 Republic of Bolivia...................................................... 53 Management............................................................... 57 Executive Compensation................................................... 64 Principal Shareholders................................................... 69 Certain Transactions..................................................... 72 Description of Ordinary Shares........................................... 75 Shares Eligible for Future Sale.......................................... 81 Underwriting............................................................. 82 Taxation................................................................. 85 Experts.................................................................. 89 Legal Matters............................................................ 89 Additional Information................................................... 90 Glossary................................................................. 91 Conversion Table......................................................... 94 Index to Consolidated Financial Statements............................... F-1
UNTIL [ ], 1997 ALL DEALERS EFFECTING TRANSACTIONS IN THE SHARES, WHETHER OR NOT PARTICIPATING IN THE DISTRIBUTION, MAY BE REQUIRED TO DELIVER A PROSPECTUS. THIS DELIVERY REQUIREMENT IS IN ADDITION TO THE OBLIGATION OF DEALERS TO DE- LIVER A PROSPECTUS WHEN ACTING AS U.S. UNDERWRITERS AND WITH RESPECT TO THEIR UNSOLD ALLOTMENTS. [ ] SHARES APEX SILVER MINES LIMITED ORDINARY SHARES (PAR VALUE $0.01 PER SHARE) [LOGO OF APEX SILVER MINES LIMITED] SALOMON BROTHERS INC PAINEWEBBER INCORPORATED SCOTIA CAPITAL MARKETS PROSPECTUS AUGUST , 1997 [ALTERNATE FRONT COVER PAGE FOR INTERNATIONAL PROSPECTUS] ++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++ +INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A + +REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE + +SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY + +OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THIS REGISTRATION STATEMENT + +BECOMES EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR + +THE SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE + +SECURITIES IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE + +UNLAWFUL PRIOR TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF + +ANY STATE. + ++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++ SUBJECT TO COMPLETION AUGUST 29, 1997 PROSPECTUS [ ] SHARES [LOGO OF APEX SILVER MINES LIMITED] APEX SILVER MINES LIMITED ORDINARY SHARES (PAR VALUE $0.01 PER SHARE) Of the [ ] shares (the "Shares") of ordinary shares, par value $0.01 per share, (the "Ordinary Shares") of Apex Silver Mines Limited (the "Company") offered hereby (the "Offering"), [ ] Shares are being offered initially in the United States and Canada by the U.S. Underwriters and [ ] Shares are being offered initially outside the United States by the Managers. See "Underwriting". Upon completion of the Offering (assuming the over-allotment options granted to the U.S. Underwriters and the Managers are not exercised), the Company will own [ ] percent of the outstanding share capital of Apex Silver Mines LDC ("Apex LDC"), the Company's principal operating subsidiary. See "Corporate Structure". The minority shareholders of Apex LDC (the "Minority Shareholders") are entitled to sell their shares of Apex LDC to the Company for, at the Company's sole option, shares of the Company on a one-for-one basis, cash, or a combination of cash and Ordinary Shares. The Company currently expects that any future purchases by the Company of shares of Apex LDC from the Minority Shareholders will involve only Ordinary Shares of Apex Silver Mines Limited. Any such transactions will not affect the beneficial or economic interest in Apex LDC attributable to shareholders of Apex Silver Mines Limited. Currently, the Company has approximately 13,601,544 Ordinary Shares outstanding and approximately 7,077,007 Ordinary Shares reserved for issuance for 7,077,007 shares of Apex LDC owned by the Minority Shareholders. If all such shares of Apex LDC were issued, the Company would have 20,678,551 Ordinary Shares outstanding. See "Certain Transactions". [AN APPLICATION WILL BE MADE TO LIST THE SHARES FOR QUOTATION ON THE AMERICAN STOCK EXCHANGE UNDER THE TRADING SYMBOL [" "], SUBJECT TO NOTICE OF ISSUANCE.] Prior to the Offering, there has been no public market for the Shares. It is anticipated that the initial offering price will be between [$ ] and [$ ] per share. See "Underwriting" for information relating to the factors considered in determining the initial public offering price. FOR A DISCUSSION OF CERTAIN FACTORS THAT SHOULD BE CONSIDERED BY PROSPECTIVE INVESTORS IN PURCHASING THE SHARES OFFERED HEREBY, SEE "RISK FACTORS" ON PAGE 8. THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THE PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE. - --------------------------------------------------------------------------------
PRICE TO UNDERWRITING PROCEEDS TO PUBLIC DISCOUNT(1) COMPANY(2) Per Ordinary Share.................. $ . $ . $ . Total(3)............................ $ . $ . $ .
- -------------------------------------------------------------------------------- (1) The Company has agreed to indemnify the Managers against certain liabilities, including liabilities under the Securities Act of 1933, as amended. See "Underwriting". (2) Before deducting certain expenses of the Offering, payable by the Company, estimated to be [$ ]. (3) The Company has granted the Managers a 30-day option to purchase up to [ ] additional Ordinary Shares, at the Price to Public, less Underwriting Discount, solely to cover over-allotments, if any. If the Managers exercise such option in full, the total Price to Public, Underwriting Discount, Proceeds to Company [ ]. See "Underwriting". These Shares are offered subject to receipt and acceptance by the Managers, to prior sale, and to the Managers' right to reject any order in whole or in part and to withdraw, cancel or modify the offer without notice. It is expected that delivery of the Shares will be made at the office of Salomon Brothers Inc, Seven World Trade Center, New York, New York, or through the facilities of the Depository Trust Company, on or about [ ], 1997. SALOMON BROTHERS INTERNATIONAL LIMITED PAINEWEBBER INTERNATIONAL ABN AMRO ROTHSCHILDS The date of this Prospectus is [ ], 1997. [ALTERNATE BACK COVER PAGE FOR INTERNATIONAL PROSPECTUS] NO DEALER, SALESPERSON OR ANY OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY IN- FORMATION OR TO MAKE ANY REPRESENTATIONS OTHER THAN THOSE CONTAINED IN THE PRO- SPECTUS IN CONNECTION WITH THE OFFER MADE BY THE PROSPECTUS AND, IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY THE COMPANY OR ANY OF THE MANAGERS. NEITHER THE DELIVERY OF THE PROSPECTUS NOR ANY SALE MADE HEREUNDER SHALL UNDER ANY CIRCUMSTANCES CREATE ANY IMPLICATION THAT THERE HAS BEEN NO CHANGE IN THE AFFAIRS OF THE COMPANY SINCE THE DATE HEREOF. THE PROSPECTUS DOES NOT CONSTITUTE AN OFFER OR SOLICITA- TION BY ANYONE IN ANY JURISDICTION IN WHICH SUCH OFFER OR SOLICITATION IS NOT AUTHORIZED OR IN WHICH THE PERSON MAKING SUCH OFFER OR SOLICITATION. --------------- TABLE OF CONTENTS
PAGE ---- Prospectus Summary....................................................... 1 Risk Factors............................................................. 8 Use of Proceeds.......................................................... 16 Dividend Policy.......................................................... 16 Capitalization........................................................... 17 Dilution................................................................. 18 Selected Consolidated Financial Data..................................... 19 Corporate Structure...................................................... 20 Management's Discussion and Analysis of Financial Condition and Results of Operations........................................................... 22 The Company.............................................................. 28 Properties............................................................... 30 Development Project...................................................... 31 Advanced Exploration Properties.......................................... 40 Other Mineral Properties................................................. 48 Metals Market Overview................................................... 51 Republic of Bolivia...................................................... 53 Management............................................................... 57 Executive Compensation................................................... 64 Principal Shareholders................................................... 69 Certain Transactions..................................................... 72 Description of Ordinary Shares........................................... 75 Shares Eligible for Future Sale.......................................... 81 Underwriting............................................................. 82 Taxation................................................................. 85 Experts.................................................................. 89 Legal Matters............................................................ 89 Additional Information................................................... 90 Glossary................................................................. 91 Conversion Table......................................................... 94 Index to Consolidated Financial Statements............................... F-1
UNTIL [ ], 1997 ALL DEALERS EFFECTING TRANSACTIONS IN THE SHARES, WHETHER OR NOT PARTICIPATING IN THE DISTRIBUTION, MAY BE REQUIRED TO DELIVER A PROSPECTUS. THIS DELIVERY REQUIREMENT IS IN ADDITION TO THE OBLIGATION OF DEALERS TO DE- LIVER A PROSPECTUS WHEN ACTING AS MANAGERS AND WITH RESPECT TO THEIR UNSOLD AL- LOTMENTS. [ ] SHARES APEX SILVER MINES LIMITED ORDINARY SHARES (PAR VALUE $0.01 PER SHARE) [LOGO OF APEX SILVER MINES LIMITED] SALOMON BROTHERS INTERNATIONAL LIMITED PAINEWEBBER INTERNATIONAL ABN AMRO ROTHSCHILDS PROSPECTUS AUGUST , 1997 PART II INFORMATION NOT REQUIRED IN THE PROSPECTUS ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION. The following are the estimated expenses, other than the underwriting discounts and commissions, expected to be incurred in connections with the issuance and distribution of the securities registered under this Registration Statement: Securities and Exchange Commission Registration Fee............... $30,304 AMEX Listing Fee.................................................. $ ** NASD Filing Fee................................................... $10,500 Blue Sky Fees and Expenses*....................................... $ ** Printing and Engraving Expenses*.................................. $ ** Legal Fees and Expenses*.......................................... $ ** Accounting Fees and Expenses*..................................... $ ** Transfer Agent's Fees and Expenses*............................... $ ** Miscellaneous..................................................... $ ** ------- Total........................................................... $ ** =======
- -------- * Estimated ** To be filed by Amendment. ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS. The Companies Act (1995 Revision) of the Cayman Islands provides in Section 77 that: The liability of the directors, manager or the managing director of a company may, if so provided by the memorandum of association, be unlimited. The Articles of Association of the Company provide as follows: 85. (a) Every Director (including for the purposes of this Article any Alternate Director appointed pursuant to the provisions of these Articles), Managing Director, Secretary, Assistant Secretary, and, at the discretion of the Board of Directors, other officer, consultant, employee or agent, for the time being and from time to time of the Company and the personal representatives of the same shall be indemnified and secured harmless out of the assets and funds of the Company against all actions, proceedings, costs, charges, expenses, losses, damages or liabilities incurred or sustained by him in or about the conduct of the Company's business or affairs or in the execution or discharge of his duties, powers, authorities or discretions, including without prejudice to the generality of the foregoing, any costs, expenses, losses or liabilities incurred by him in defending (whether successfully or otherwise) any civil proceedings concerning the Company or its affairs in any court whether in the Cayman Islands or elsewhere provided, that no indemnification shall be available in the case of wilful default or fraud. (b) No such Director, Alternate Director, Managing Director, agent, Secretary, Assistant Secretary or other officer of the Company shall be liable (i) for the acts, receipts, neglects, defaults or omissions of any other such director or officer or agent of the Company or (ii) by reason of his having joined in any receipt for money not received by him personally or (iii) for any loss on account of defect of title to any property of the Company or (iv) on account of the insufficiency of any security in or upon which any money of the Company shall be invested or (v) for any loss incurred through any bank, broker or other agent or (vi) for any loss occasioned by any negligence, default, breach of duty, breach of trust, error of II-1 judgment or oversight on his part or (vii) for any loss, damage or misfortune whatsoever which may happen in or arise from the execution or discharge of the duties, powers authorities, or discretions of his office or in relation thereto, unless the same shall happen through his own dishonesty. (c) The Board of Directors may authorize the Company to purchase and maintain insurance on behalf of any person described in Section 83(a), against any liability asserted against him and incurred by him in any such capacity, or arising out of his status as such, whether or not the Company would have the power to indemnify him against such liability under the provisions of this Section 83. To the extent that it is permitted to do so by these provisions, the Company intends to give an indemnity to each of its directors and to arrange for the liabilities under these indemnities to be covered. ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES. Since its formation in March of 1996, Ordinary Shares have been issued in the following transactions: 1. Effective as of August 6, 1996, the Company issued 4,256,700 Ordinary Shares at a price of $8.00 per share to subscribers in a Private Placement. Salomon Brothers Inc, S.G. Warburg & Co. Inc. and Matrix U.S.A., LLC acted as Private Placement agents for the Offering. The Company paid $1,243,050 to the Private Placement agents as a fee for their services. All of the shares issued were issued to "accredited investors" as defined within Regulation D under the Securities Act of 1933, as amended. 2. Effective as of August 6, 1996, the Company issued (i) 25,000 Ordinary Shares at a price of $8.00 per share to each of Ms. Berliner and Messrs. Buchanan, Mohamed Kashoggi and de Lucio in exchange for their respective two and one-half percent (2.5%) interests in Andean; (ii) 25,000 Ordinary Shares at a price of $8.00 per share to Mr. McDonald in exchange for his profits interests in certain Mexican and Honduran properties and his one share of Cordillera Mexico; and (iii) 25,000 Ordinary Shares at a price of $8.00 per share to Mr. Golan in exchange for his two and one-half percent (2.5%) interest in Apex Asia. 3. Effective as of September 30, 1996, the Company issued 115,207 Ordinary Shares to Mr. William Natbony at the then per share book value of the Company in exchange for consulting services. 4. Effective as of August 15, 1997, the Company issued (i) 268,496 Ordinary Shares to Mintec in exchange for Mintec's two and one-half percent (2.5%) interest in ASC Bolivia, (ii) 113,595 Ordinary Shares to Johnny Delgado Achaval in consideration of his consulting and other work for the Company, and (iii) 25,000 Ordinary Shares to Mada Limited in consideration for its and Mr. Golan's work for the Company. The Company believes that the foregoing described issuances of securities, if they constitute sales, are exempt from registration under the Securities Act of 1933, as amended, by virtue of the exemption provided by Section 4(2) thereof for transactions not involving a public offering. II-2 ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES. (a) Exhibits. Attached hereto are the following exhibits:
EXHIBIT NUMBER DESCRIPTION OF EXHIBIT ------- ---------------------- 1.1 Form of Underwriting Agreement between the Registrant and the U.S. Underwriters.** 1.2 Form of Underwriting Agreement between the Registrant and the Managers.** 3.1 Form of Amended and Restated Memorandum of Association of the Registrant. 3.2 Form of Amended and Restated Articles of Association of the Registrant. 4.1 Specimen of certificates representing the Registrant's Ordinary Shares, par value U.S. $0.01 each. ** 5.1 Opinion of W.S. Walker & Company as to the validity of the Ordinary Shares (Cayman Islands law).** 10.1 Shareholders' Agreement, dated as of August 6, 1996, among the Shareholders of the Registrant.** 10.2 Form of consent to amendment of above Shareholders' Agreement, dated March 21, 1995. 10.3 Buy-Sell Agreement, dated as of August 6, 1996, by and among the Registrant, Apex LDC, Litani and Silver Holdings. 10.4 Summary of the Registrant's 401(K) Plan. 10.5 Management Services Agreement among the Registrant and its subsidiaries.** 10.6 Form of Registrant's Non-Employee Director's Plan. 10.7 Form of Registrant's Employees' Share Option Plan. 10.8 Form of Registrant's Share Option Agreement. 10.9 Employment contract between the Registrant and Marcel F. DeGuire, dated July 23, 1996. 10.10 Employment contract between the Registrant and Gregory Marlier, dated September 26, 1996. 10.11 Employment contract between the Registrant and Keith R. Hulley, dated August 14, 1996. 10.12 Employment contract between the Registrant and Douglas M. Smith, Jr., dated January 21, 1997. 10.13 English translation of Deed of Lease and Purchase Option Contract between Monica de Prudencio and Mineria Tecnia Consultores Asociados S.A. ("Mintec"), dated November 7, 1994, regarding the Tesorera concession, with an attached note from Keith Hulley, a director of the Registrant, as required by Rule 306 of Regulation S-T. 10.14 English translation of Assignment Agreement, between ASC Bolivia LDC and Mintec regarding the rights to the above agreement, with an attached note from Keith Hulley, a director of the Registrant, as required by Rule 306 of Regulation S-T.** 10.15 English translation of the Lease and Purchase Option Contract between Empresa Minera Yana Mallcu S.A. and Mintec, dated February 7, 1996, regarding the Toldos concession, with an attached note from Keith Hulley, a director of the Registrant, as required by Rule 306 of Regulation S-T. 10.16 English translation of the Assignment of Lease and Purchase Option Agreement among Banco Industrial S.A., Mintec and ASC Bolivia LDC, with an attached note from Keith Hulley, a director of the Registrant, as required by Rule 306 of Regulation S-T. 10.17 English translation of the Purchase Option Agreement between Mintec and Litoral Mining Cooperative Ltd., dated August 17, 1995, regarding the Animas concession, with an attached note from Keith Hulley, a director of the Registrant, as required by Rule 306 of Regulation S-T.
II-3
EXHIBIT NUMBER DESCRIPTION OF EXHIBIT ------- ---------------------- 10.18 English translation of the Assignment and Assumption Agreement between Mintec and ASC Bolivia LDC, dated May 22, 1996, regarding the Animas concession, with an attached note from Keith Hulley, a director of the Registrant, as required by Rule 306 of Regulation S-T. 10.19 English translation of the Purchase Agreement between ASC Bolivia LDC and Litoral Mining Cooperative Ltd., regarding the Animas concessions with an attached note from Keith Hulley, a director of the Registrant, as required by Rule 306 of Regulation S-T.** 10.20 English translation of the Joint Venture Agreement between Corporacion Minera Boliviano S.A. ("Comibol") and ASC Bolivia LDC, regarding the Cobrizos Concession, with an attached note from Keith Hulley, a director of the Registrant, as required by Rule 306 of Regulation S-T. 10.21 English translation of the Joint Venture Agreement between Comibol and ASC Bolivia LDC, regarding the Choroma Concession, with an attached note from Keith Hulley, a director of the Registrant, as required by Rule 306 of Regulation S-T. 10.22 Mining Agreement between Compania Minera Ocote and Kerry A. McDonald, dated June 24, 1994, regarding the El Ocote concession. 10.23 Assignment and Assumption Agreement between Kerry A. McDonald and Cordilleras Silver Mines Ltd., dated September 27, 1994, regarding the assignment of the above Mining Agreement. 10.24 Acknowledgment from Bruce Wallis in his capacity as President of Compania Minera Octoe S. de R.L. that Cordilleras Silver Mines (Cayman) LDC has been assigned Kerry A. McDonald's rights under the above Mining Agreement, dated July 10, 1995. 10.25 English translation of the agreement between Andean Silver Corporation LDC and 190 of the co-owners of the assets which previously belonged to Empressa Minera San Juan de Lucanas, S.A. ("EMSJ"), regarding the San Juan de Lucanas concession, dated January 12, 1995, with an attached note from Keith Hulley, a director of the Registrant, as required by Rule 306 of Regulation S-T. 10.26 English translation of the agreement between Andean Silver Corporation LDC and 133 of the co-owners of the assets which previously belonged to EMSJ, regarding the San Juan de Lucanas concession, dated January 12, 1995, with an attached note from Keith Hulley, a director of the Registrant, as required by Rule 306 of Regulation S-T. 10.27 English translation of the form of agreement between 16 individuals who are some of the co-owners of the assets which previously belonged to EMSJ, regarding the San Juan de Lucanas concession, with an attached note from Keith Hulley, a director of the Registrant, as required by Rule 306 of Regulation S-T. 10.28 Board Designation Agreement, dated [ ], 1997, by and between the Registrant and Silver Holdings.** 10.29 Registration Rights and Voting Agreement, dated [ ], 1997 by and among the Registrant, Silver Holdings, Consolidated, Argentum, Aurum LLC and Thomas S. Kaplan.** 21 List of Subsidiaries. 23.1 Consent of W.S. Walker & Company (included as part of Exhibit 5.1).** 23.3 Consent of Price Waterhouse LLP. 23.4 Consent of CPM Group. 23.5 Consent of Mineral Resource Development Inc. 23.6 Consent of Knight Piesold LLC. 23.7 Consent of Pincock, Allen & Holt.
II-4
EXHIBIT NUMBER DESCRIPTION OF EXHIBIT ------- ---------------------- 23.8 Consent of Mine Reserves Associates, Inc. 23.9 Consent of Kvaerner Metals. 23.10 Consent of Behre Dolbear. 24.1 Powers of attorney of the Registrant (included on page II-7 hereof).
- -------- ** To be filed by Amendment. ITEM 17. UNDERTAKINGS. Insofar as indemnification for liabilities arising under the Securities Act of 1933 may be permitted to directors, officers and controlling persons of the registrant pursuant to the provisions described in Item 14 of this registration statement or otherwise may be permitted, the registrant has been advised that in the opinion of the Securities and Exchange Commission such indemnification is against public policy as expressed in the Securities Act and is, therefore, unenforceable. In the event that a claim for indemnification against such liabilities (other than the payment by the registrant of expenses incurred or paid by a director, officer or controlling person of the registrant in the successful defense of any action, suit or proceeding) is asserted by such director, officer or controlling person in connection with the securities being registered, the registrant will, unless in the opinion of its counsel the matter has been settled by controlling precedent, submit to a court of appropriate jurisdiction the question whether such indemnification by it is against public policy as expressed in the Securities Act and will be governed by the final adjudication of such issue. The undersigned registrant hereby undertakes that: (1) For purposes of determining any liability under the Securities Act of 1933, the information omitted from the form of prospectus filed as part of this registration statement in reliance upon Rule 430A and contained in a form of prospectus filed by the registrant pursuant to Rule 424(b)(1) or (4) or 497(h) under the Securities Act shall be deemed to be part of this registration statement as of the time it was declared effective. (2) For the purpose of determining any liability under the Securities Act of 1933, each post-effective amendment that contains a form of prospectus shall be deemed to be a new registration statement relating to the securities offered therein, and the offering of such securities at that time shall be deemed to be the initial bona fide offering thereof. (3) The undersigned registrant hereby undertakes to provide the underwriters at the closing specified in the underwriting agreements certificates in such denominations and registered in such names as required by the underwriters to permit prompt delivery to each purchaser. II-5 SIGNATURES Pursuant to the requirements of the Securities Act of 1933, as amended, the registrant certifies that it has reasonable grounds to believe that it meets all of the requirements for filing on Form S-1 and has duly caused this registration statement to be signed on its behalf by the undersigned, thereunto duly authorized in, Paris, France on August 29, 1997. Apex Silver Mines Limited /s/ Thomas S. Kaplan By: _________________________________ THOMAS S. KAPLAN CHAIRMAN, BOARD OF DIRECTORS II-6 POWER OF ATTORNEY KNOW ALL MEN BY THESE PRESENTS, that each of the persons who name and signature appears below constitutes and appoints Thomas S. Kaplan and Keith R. Hulley and each of them, his or her true and lawful attorneys-in-fact and agents with full power of substitution and resubstitution, for him and in his name, place and stead, in any and all capacities, to sign any and all amendments (including post-effective amendments) to this Registration Statement, and any and all registration statements relating to the Shares filed pursuant to Rule 462(b) under the Securities Act of 1933, as amended, and to file the same with all exhibits thereof, and all documents in connection therewith, with the Securities and Exchange Commission, granting unto said attorneys-in-fact and agents, and each of them, full power and authority to do and perform each and every act and thing requisite and necessary to be done in and about the premises, as fully and to all intents and purposes as he might or could do in person, hereby ratifying and confirming all that said attorneys-in-fact and agents or any of them, or their or his substitute or substitutes may lawfully do or cause to be done by virtue hereof. Pursuant to the requirements of the Securities Act of 1933, as amended, this registration statement has been signed by the following persons in the capacities as set forth below on August 29, 1997. SIGNATURE TITLE DATE /s/ Thomas S. Kaplan Director - ------------------------------------- (Registrant's THOMAS S. KAPLAN authorized representative in the United States) /s/ Harry M. Conger Director - ------------------------------------- HARRY M. CONGER /s/ Michael Comninos Director - ------------------------------------- MICHAEL COMNINOS /s/ Eduardo S. Elsztain Director - ------------------------------------- EDUARDO S. ELSZTAIN /s/ David Sean Hanna Director August 29, 1997 - ------------------------------------- DAVID SEAN HANNA /s/ Ove Hoegh Director - ------------------------------------- OVE HOEGH /s/ Keith R. Hulley Director - ------------------------------------- KEITH R. HULLEY /s/ Richard Katz Director - ------------------------------------- RICHARD KATZ /s/ Paul Soros Director - ------------------------------------- PAUL SOROS II-7 EXHIBIT INDEX
EXHIBIT NUMBER DESCRIPTION OF EXHIBIT ------- ---------------------- 1.1 Form of Underwriting Agreement between the Registrant and the U.S. Underwriters.** 1.2 Form of Underwriting Agreement between the Registrant and the Managers.** 3.1 Form of Amended and Restated Memorandum of Association of the Registrant. 3.2 Form of Amended and Restated Articles of Association of the Registrant. 4.1 Specimen of certificates representing the Registrant's Ordinary Shares, par value U.S. $0.01 each.** 5.1 Opinion of W.S. Walker & Company as to the validity of the Ordinary Shares (Cayman Islands law).** 10.1 Shareholders' Agreement, dated as of August 6, 1996, among the Shareholders of the Registrant.** 10.2 Form of consent to amendment of above Shareholders' Agreement, dated March 21, 1995. 10.3 Buy-Sell Agreement, dated as of August 6, 1996, by and among the Registrant, Apex LDC, Litani and Silver Holdings. 10.4 Summary of the Registrant's 401(K) Plan. 10.5 Management Services Agreement among the Registrant and its subsidiaries.** 10.6 Form of Registrant's Non-Employee Director's Plan. 10.7 Form of Registrant's Employees' Share Option Plan. 10.8 Form of Registrant's Share Option Agreement. 10.9 Employment contract between the Registrant and Marcel F. DeGuire, dated July 23, 1996. 10.10 Employment contract between the Registrant and Gregory Marlier, dated September 26, 1996. 10.11 Employment contract between the Registrant and Keith R. Hulley, dated August 14, 1996. 10.12 Employment contract between the Registrant and Douglas M. Smith, Jr., dated January 21, 1997. 10.13 English translation of Deed of Lease and Purchase Option Contract between Monica de Prudencio and Mineria Tecnia Consultores Asociados S.A. ("Mintec"), dated November 7, 1994, regarding the Tesorera concession, with an attached note from Keith Hulley, a director of the Registrant, as required by Rule 306 of Regulation S-T. 10.14 English translation of Assignment Agreement, between ASC Bolivia LDC and Mintec, regarding the rights to the above agreement, with an attached note from Keith Hulley, a director of the Registrant, as required by Rule 306 of Regulation S-T.** 10.15 English translation of the Lease and Purchase Option Contract between Empresa Minera Yana Mallcu S.A. and Mintec, dated February 7, 1996, regarding the Toldos concession, with an attached note from Keith Hulley, a director of the Registrant, as required by Rule 306 of Regulation S-T. 10.16 English translation of the Assignment of Lease and Purchase Option Agreement among Banco Industrial S.A., Mintec and ASC Bolivia LDC, with an attached note from Keith Hulley, a director of the Registrant, as required by Rule 306 of Regulation S-T. 10.17 English translation of the Purchase Option Agreement between Mintec and Litoral Mining Cooperative Ltd. dated, August 17, 1995, regarding the Animas concession, with an attached note from Keith Hulley, a director of the Registrant, as required by Rule 306 of Regulation S-T.
EXHIBIT NUMBER DESCRIPTION OF EXHIBIT ------- ---------------------- 10.18 English translation of the Assignment and Assumption Agreement between Mintec and ASC Bolivia LDC, dated May 22, 1996, regarding the Animas concession, with an attached note from Keith Hulley, a director of the Registrant, as required by Rule 306 of Regulation S-T. 10.19 English translation of the Purchase Agreement between ASC Bolivia LDC and Litoral Mining Cooperative Ltd., regarding the Animas Concession with an attached note from Keith Hulley, a director of the Registrant, as required by Rule 306 of Regulation S-T.** 10.20 English translation of the Joint Venture Agreement between Corporacion Minera Boliviano S.A. ("Comibol") and ASC Bolivia LDC, regarding the Cobrizos Concession, with an attached note from Keith Hulley, a director of the Registrant, as required by Rule 306 of Regulation S-T. 10.21 English translation of the Joint Venture Agreement between Comibol and ASC Bolivia LDC, regarding the Choroma Concession, with an attached note from Keith Hulley, a director of the Registrant, as required by Rule 306 of Regulation S-T. 10.22 Mining Agreement between Compania Minera Ocote and Kerry A. McDonald, dated June 24, 1994, regarding the El Ocote concession. 10.23 Assignment and Assumption Agreement between Kerry A. McDonald and Cordilleras Silver Mines Ltd., dated September 27, 1994, regarding the assignment of the above Mining Agreement. 10.24 Acknowledgment from Bruce Wallis in his capacity as President of Compania Minera Octoe S. de R.L. that Cordilleras Silver Mines (Cayman) LDC has been assigned Kerry A. McDonald's rights under the above Mining Agreement, dated July 10, 1995. 10.25 English translation of the agreement between Andean Silver Corporation LDC and 190 of the co-owners of the assets which previously belonged to Empressa Minera San Juan de Lucanas, S.A. ("EMSJ"), regarding the San Juan de Lucanas concession, dated January 12, 1995, with an attached note from Keith Hulley, a director of the Registrant, as required by Rule 306 of Regulation S-T. 10.26 English translation of the agreement between Andean Silver Corporation LDC and 133 of the co-owners of the assets which previously belonged to EMSJ, regarding the San Juan de Lucanas concession, dated January 12, 1995, with an attached note from Keith Hulley, a director of the Registrant, as required by Rule 306 of Regulation S-T. 10.27 English translation of the form of agreement between 16 individuals who are some of the co-owners of the assets which previously belonged to EMSJ, regarding the San Juan de Lucanas concession, with an attached note from Keith Hulley, a director of the Registrant, as required by Rule 306 of Regulation S-T. 10.28 Board Designation Agreement, dated [ ], 1997, by and between the Registrant and Silver Holdings.** 10.29 Registration Rights and Voting Agreement, dated [ ], 1997 by and among the Registrant, Silver Holdings, Consolidated, Argentum, Aurum LLC and Thomas S. Kaplan.** 21 List of Subsidiaries. 23.1 Consent of W.S. Walker & Company (included as part of Exhibit 5.1).** 23.3 Consent of Price Waterhouse LLP. 23.4 Consent of CPM Group. 23.5 Consent of Mineral Resource Development Inc. 23.6 Consent of Knight Piesold LLC. 23.7 Consent of Pincock, Allen & Holt.
EXHIBIT NUMBER DESCRIPTION OF EXHIBIT ------- ---------------------- 23.8 Consent of Mine Reserves Associates, Inc. 23.9 Consent of Kvaerner Metals. 23.10 Consent of Behre Dolbear. 24.1 Powers of attorney of the Registrant (included on page II-7 hereof).
- -------- ** To be filed by Amendment. EX-3.1 2 FORM OF AMENDED AND RESTATED MEMORANDUM EXHIBIT 3.1 THE COMPANIES LAW (1995 REVISION) --------------------------------- COMPANY LIMITED BY SHARES ------------------------- MEMORANDUM OF ASSOCIATION OF APEX SILVER MINES LIMITED (Amended and Re-Stated by Special Resolution dated _______, 1997) 1. The name of the Company is Apex Silver Mines Limited. 2. The Registered Office of the Company will be situate at the offices of CALEDONIAN BANK & TRUST LIMITED, GROUND FLOOR, CALEDONIAN HOUSE, MARY STREET, P.O. BOX 1043, GEORGE TOWN, GRAND CAYMAN, CAYMAN ISLANDS or at such other location as the Directors may from time to time determine. 3. The objects for which the Company is established are unrestricted and the Company shall have full power and authority to carry out any object not prohibited by any law as provided by Section 6(4) of The Companies Law (1995 Revision). 4. The Company shall have and be capable of exercising all the functions of a natural person of full capacity irrespective of any question of corporate benefit as provided by Section 26(2) of The Companies Law (1995 Revision). 5. Nothing in the preceding sections shall be deemed to permit the Company to carry on the business of a Bank or Trust Company without being licensed in that behalf under the provisions of the Banks and Trust Companies Law (1995 Revision), or to carry on Insurance Business from within the Cayman Islands or the business of an Insurance Manager, Agent, Sub-agent or Broker without being licensed in that behalf under the provisions of the Insurance Law (1995 Revision), or to carry on the business of Company Management without being licensed in that behalf under the provisions of the Companies Management Law (1996 Revision). 6. The Company will not trade in the Cayman Islands with any person, firm or corporation except in furtherance of the business of the Company carried on outside the Cayman Islands; Provided that nothing in this section shall be construed as to prevent the Company effecting and concluding contracts in the Cayman Islands, and exercising in the Cayman Islands all of its powers necessary for the carrying on of its business outside the Cayman Islands. 7. The liability of the Shareholders is limited. 8. The capital of the Company is US$750,000.00 divided into 75,000,000 shares of a nominal or par value of US$0.01 each provided always that subject to the provisions of The Companies Law (1995 Revision) and the Articles of Association the Company shall have power to redeem or purchase any of its shares and to sub-divide or consolidate the said shares or any of them and to issue all or any part of its capital whether original, redeemed, increased or reduced with or without any preference, priority or special privilege or subject to any postponement of rights or to any conditions or restrictions whatsoever and so that unless the conditions of issue shall otherwise expressly provide every issue of shares whether stated to be Ordinary, Preference or otherwise shall be subject to the powers on the part of the Company hereinbefore provided. 9. The Company may exercise the power contained in Section 223 of The Companies Law (1995 Revision) to deregister in the Cayman Islands and be registered by way of continuation in some other jurisdiction. EX-3.2 3 AMENDED/RESTATED MEMO-ARTICLES OF ASSOCIATION EXHIBIT 3.2 THE COMPANIES LAW (1995 REVISION) --------------------------------- COMPANY LIMITED BY SHARES ------------------------- ARTICLES OF ASSOCIATION OF APEX SILVER MINES LIMITED (Amended and Re-Stated by Special Resolution dated _______, 1997) The Articles contained or incorporated in Table 'A' in the First Schedule of the Companies Law (1995 Revision) shall not apply to this Company and the following Articles shall comprise the Articles of Association of the Company:- 1. In these Articles:- (a) "Holder" means, in relation to registered shares, the Shareholder whose name is entered in the Register of Members as the holder of those shares and, in the case of shares issued in bearer form, the holder for the time being of the certificate representing the same; (b) "Law" means the Companies Law (1995 Revision) of the Cayman Islands and any statutory amendment or modification thereof. Where any provision of the law is referred to, the reference is to that provision as modified by any law for the time being in force. Unless the context otherwise requires, expressions defined in the law or any statutory modification thereof in force at the date at which these Articles become binding on the Company, shall have the meanings so defined; (c) "Ordinary Resolution" means a resolution of a general meeting of the Shareholders passed by simple majority vote; (d) "Register of Members" means the Register of Members of the Company maintained in accordance with Section 39 of the Law at such place or places as the Directors may from time to time determine; (e) "Registered Office" means the registered office of the Company in the Cayman Island, as determined by the Directors from time to time; (f) "Secretary" means any person appointed by the Directors to perform any of the duties of the Secretary of the Company; (g) "Securities Exchange Act" means the Securities Exchange Act of 1934, as amended, of the United States of America; (h) "Shareholder" means a Shareholder of the Company whose name is entered in the Register of Members; (i) "Special Resolution" means a special resolution of the Company passed in accordance with Section 59 of the Law. SHARES 2. Subject as herein provided all shares in the capital of the Company for the time being and from time to time unissued shall be under the control of the Directors, and may be allotted or disposed of in such manner, to such persons and on such terms as the Directors in their absolute discretion may think fit. 3. If at any time the share capital is divided into different classes of shares, the rights attached to any class (unless otherwise provided by the terms of issue of the shares of that class) may be varied with the consent in writing of the holders of two-thirds of the issued shares of that class, or with the sanction of a special resolution passed at a separate general meeting of the holders of the shares of the class. To every such separate general meeting the provisions of these Articles relating to general meetings shall mutatis mutandis apply, but so that the necessary quorum shall be one person at least holding or representing by proxy one-third of the issued shares of the class and that any holder of shares of the class present in person or by proxy may demand a vote. SHARE CERTIFICATES 4. No Share may be issued other than as fully paid and the Company shall decline to allot Shares to satisfy any application unless cleared funds in full payment of the Shares to which an application relates have been received by the Company by close of business in such place on such date as may be determined by the Directors. 5. Every person whose name is entered as a Shareholder in the Register of Members shall, without payment, be entitled to a certificate under the seal of the Company specifying the share or shares held by him and the amount paid up thereon, provided that in respect of a share or shares held jointly by several persons the Company shall not be bound to issue more than one certificate, and delivery of a certificate for a share to one of several joint holders shall be sufficient delivery to all. 6. If a share certificate is defaced, lost or destroyed it may be renewed on such terms, if any, as to evidence and indemnity as the Directors think fit. FRACTIONAL SHARES 7. The Directors may issue fractions of a share of any class of shares, and, if so issued, a fraction of a share shall be subject to and carry the corresponding fraction of liabilities (whether with respect to nominal or par value, premium, contribution, calls or otherwise howsoever), limitations, preferences, privileges, qualifications, restrictions, rights (including, without prejudice to the foregoing generality, voting and participation rights) and other attributes of a whole share of the same class of shares. If more than one fraction of a share of the same class 2 is issued to or acquired by the same Shareholder such fractions shall be accumulated. For the avoidance of doubt it is hereby declared that in these Articles the expression "share" shall include a fraction of a share. TRANSFER OF SHARES 8. The instrument of transfer of any share shall be executed by or on behalf of the transferor and if so required by the Directors shall also be executed on behalf of the transferee and the transferor shall be deemed to remain a holder of the share until the name of the transferee is entered in the Register of Members in respect thereof. Transfers of shares shall be made on only by the registered holder thereof, or by such holder's attorney thereunto authorized by power of attorney filed with the Secretary or any transfer agent. The Company shall be entitled to recognize the exclusive right of a person registered in the Register of Members as the owner of shares to receive dividends, and to vote as such owner. 9. The following provisions shall apply to all shares:- (a) Shares shall be transferred in any usual or common form approved by the Directors or failing such determination in the following form: "I [TRANSFEROR] for good and valuable consideration received by me from [TRANSFEREE] do hereby transfer to the said [TRANSFEREE] the [ ] share(s) standing in my name in the Register of APEX SILVER MINES LIMITED to hold unto the said [TRANSFEREE] his executors, administrators and assigns, subject to the several conditions on which I held the same at the time of the execution hereof: and I, the said [TRANSFEROR] do hereby consent that my name remain on the Register of the said Company until such time as the said Company may enter the transferee's name thereon; And I the said [TRANSFEREE] do hereby agree to take the said share(s) subject to the same conditions. As witness our hands Signed by the said [TRANSFEROR] on the day of [199 ] in the presence of: __________________ ____________________ Witness Transferor Signed by the said [TRANSFEREE] on the day of [199 ] in the presence of: ____________________ ____________________ Witness Transferee (b) The Directors may decline to recognize any instrument of transfer unless the instrument of transfer is accompanied by the certificate of the shares to which it relates, and such other evidence as the Directors may reasonably require to show the right of the transferor to make the transfer. (c) The legal personal representative of a deceased sole holder of a share shall be the 3 only person recognized by the Company as having any title to the share. In the case of a share registered in the name of two or more holders, the survivors or survivor, or the legal personal representatives of the deceased survivor, shall be the only person recognized by the Company as having any title to the share. (d) Any person becoming entitled to a share in consequence of the death or bankruptcy of a Shareholder shall upon such evidence being produced as may from time to time be properly required by the Directors, have the right either to be registered as a Shareholder in respect of the share or, instead of being registered himself, to make such transfer of the share as the deceased or bankrupt person could have made; but the Directors shall, in either case, have the same right to decline or suspend registration as they would have had in the case of a transfer of the share by the deceased or bankrupt person before the death or bankruptcy. (e) A person becoming entitled to a share by reason of the death or bankruptcy of the holder shall be entitled to the same dividends and other advantages to which he would be entitled if he were the registered holder of the share, except that he shall not, before being registered as a Shareholder in respect of the share, be entitled in respect of it to exercise any right conferred by Shareholdership in relation to meetings of the Company. ALTERATION OF CAPITAL 10. The Company may from time to time by Ordinary Resolution increase the share capital by such sum, to be divided into shares of such amount, as the resolution shall prescribe. 11. The new shares shall be subject to the same provisions with reference to the payment of calls, lien, transfer, transmission, forfeiture and otherwise as the shares in the original share capital. 12. The Company may by Ordinary Resolution:- (a) consolidate and divide all or any of its share capital into shares of larger amount than its existing shares; (b) sub-divide its existing shares, or any of them into shares of smaller amount than is fixed by the Memorandum of Association, subject nevertheless to the provisions of Section 12 of the Law; (c) cancel any shares which, at the date of the passing of the resolution, have not been taken or agreed to be taken by any person. 13. The Company may by Special Resolution reduce its share capital and any capital redemption reserve in any manner authorized by law. REDEMPTION AND PURCHASE OF OWN SHARES 14. (a) Subject to the provisions of the Law, the Company may (i) issue shares which are to be redeemed or are liable to be redeemed at the option of the Company or the holder; 4 (ii) purchase its own shares (including any redeemable shares); and (iii) make a payment in respect of the redemption or purchase of its own shares otherwise than out of profits or the proceeds of a fresh issue of shares. (b) A share which is liable to be redeemed may be redeemed by either the Company or the Holder giving to the other not less than thirty days notice in writing of the intention to redeem such shares specifying the date of such redemption which must be a day on which banks in the Cayman Islands are open for business. (c) The amount payable on such redemption on each share so redeemed shall be the amount determined by the Directors as being the fair value thereof as between a willing buyer and a willing seller. (d) Any share in respect of which notice of redemption has been given shall not be entitled to participate in the profits of the Company in respect of the period after the date specified as the date of redemption in the notice of redemption. (e) The redemption or purchase of any share shall not be deemed to give rise to the redemption or purchase of any other share. (f) At the date specified in the notice of redemption or purchase, the holder of the shares being redeemed or purchased shall be bound to deliver up to the Company at its registered office the certificate thereof for cancellation and thereupon the Company shall pay to him the redemption or purchase monies in respect thereof. (g) The Directors may when making payments in respect of redemption or purchase of shares in accordance with the provisions of this , if authorized by the terms of issue of the shares being redeemed or purchased or with the agreement of the holder of such shares, make such payment either in cash or in specie. CLOSING REGISTER OF MEMBERS OF FIXING RECORD DATE 15. For the purpose of determining Shareholders entitled to notice of or to vote at any meeting of Shareholders or any adjournment thereof, or Shareholders entitled to receive payment of any dividend, or in order to make the determination of Shareholders for any other proper purpose, the Directors may provide that the Register of Members shall be closed for transfers for a stated period but not to exceed in any case forty days. If the Register of Members shall be so closed for the purpose of determining Shareholders entitled to notice of or to vote at a meeting of Shareholders such register shall be so closed for at least ten days immediately preceding such meeting and the record date for such determination shall be the date of the closure of the Register of Members. 16. In lieu of or apart from closing the Register of Members, the Board may fix in advance a date as the record date for any such determination of Shareholders entitled to notice of or to vote at a meeting of the Shareholderss, and for the purpose of determining the Shareholders entitled to receive payment of any dividend, the Board may fix a subsequent date no later than the date of payment as the record date for such dividend. 5 17. If the Register of Members is not so closed and no record date is fixed for the determination of Shareholders entitled to notice of or to vote at a meeting of Shareholders or Shareholders entitled to receive payment of a dividend, the date on which notice of the meeting is mailed or the date on which the resolution of the Board declaring such dividend is adopted, as the case may be, shall be the record date for such determination of Shareholders. When a determination for Shareholders entitled to vote at any meeting of Shareholders has been made as provided in this Article, such determination shall apply to any adjournment thereof. For the purpose of determining Shareholders entitled to notice of or to vote at any meeting of Shareholders or any adjournment thereof, or Shareholders entitled to receive payment of any dividend, or in order to make the determination of Shareholders for any other proper purpose, the Directors may provide that the Register of Members shall be closed for transfers for a stated period but not to exceed in any case forty days. If the Register of Members shall be so closed for the purpose of determining Shareholders entitled to notice of or to vote at a meeting of Shareholders such register shall be so closed for at least ten days immediately preceding such meeting and the record date for such determination shall be the date of the closure of the Register of Members GENERAL MEETINGS 18. (a) The Directors may, whenever they think fit, convene a general meeting of the Company. (b) Except as otherwise required by law, and subject to the terms of any class or series of shares issued by the Company having a preference over the ordinary shares as to dividends or upon liquidation, or to elect directors, general meetings may also be convened upon the written request of Shareholders holding a majority of the outstanding ordinary shares generally entitled to vote. General meetings shall also be convened on the written requisition of any two Shareholders of the Company deposited at the Registered Office of the Company specifying the objects of the meeting and signed by the requisitionists, and if the Directors do not within twenty-one days from the date of deposit of the requisition proceed duly to convene the meeting, the requisitionists themselves may convene the general meeting in the same manner, as nearly as possible, as that in which meetings may be convened by the Directors, and all reasonable expenses incurred by the requisitionists as a result of the failure of the Directors shall be reimbursed to them by the Company. NOTICE OF GENERAL MEETINGS 19. Subject to the provisions of Section 59 of the Law relating to Special Resolutions, seven days' notice at the least counting from the date service is deemed to take place as provided in these Articles specifying the place, the day and the hour of the meeting and, in case of special business, the general nature of that business, shall be given in manner hereinafter provided or in such other manner (if any) as may be prescribed by the Company in general meeting to such persons as are, under the Articles of the Company, entitled to receive such notices from the Company; but with the consent of all the Shareholders entitled to receive notice of some particular meeting, that meeting may be convened by such shorter notice or without notice and in such manner as those Shareholders may think fit. 20. The accidental omission to give notice of a meeting to or the non-receipt of a notice of a meeting by any Shareholder shall not invalidate the proceedings at any meeting. 6 PROCEEDINGS AT GENERAL MEETINGS 21. All business carried out at a general meeting shall be deemed special with the exception of sanctioning a dividend, the consideration of the accounts, balance sheets, and ordinary report of the Directors and auditors, and the appointment and removal of Directors and the fixing of the remuneration of the auditors. No special business shall be transacted at any general meeting without the consent of all Shareholders entitled to receive notice of that meeting unless notice of such special business has been given in the notice convening that meeting. 22. No business shall be transacted at any general meeting unless a quorum of Shareholders is present at the time when the meeting proceeds to business; save as herein otherwise provided one or more Shareholders holding at least a majority in number of the issued shares of the Company present in person or by proxy shall be a quorum. 23. If within half an hour from the time appointed for the meeting a quorum is not present, the meeting, if convened upon the requisition of Shareholders, shall be dissolved; in any other case it shall stand adjourned to the same day in the next week, at the same time and place, and if at the adjourned meeting a quorum is not present within half an hour from the time appointed for the meeting the Shareholder or Shareholders present shall be a quorum. 24. The Chairman, if any, of the Board of Directors, or an Director designated by the Board of Directors, shall preside as Chairman at every general meeting of the Company. 25. If there is no such Chairman, or if at any meeting he is not present within one hour after the time appointed for holding the meeting or is unwilling to act as Chairman, and the Board of Directors shall not elect someone to act as Chairman, the Shareholders present shall choose one of their number to be Chairman. 26. The Chairman may with the consent of any meeting at which a quorum is present (and shall if so directed by the meeting) adjourn a meeting from time to time and from place to place, but no business shall be transacted at any adjourned meeting other than the business left unfinished at the meeting from which the adjournment took place. When a meeting is adjourned for ten days or more, notice of the adjourned meeting shall be given as in the case of an original meeting. Save as aforesaid it shall not be necessary to give any notice of an adjournment or of the business to be transacted at an adjourned meeting. 27. At any general meeting a resolution put to the vote of the meeting shall be decided by Ordinary Resolution unless required by Law or these Articles to be decided by Special Resolution. 28. Subject to the terms of any class or series of shares issued by the Company, if a Shareholder desires to nominate persons for election as Directors at any general meeting duly called for the election of Directors, written notice of such Shareholder's intent to make such a nomination must be given and received by the Secretary of the Company at the principal executive offices of the Company not later than (i) with respect to an annual general meeting of Shareholders, sixty days in advance of the anniversary date of the immediately preceding annual general meeting, and (ii) with respect to an extraordinary general or special meeting, the close of business on the tenth day following the date on which notice of such meeting is first sent or given to Shareholders. Each such notice shall set forth (i) the name and address, as it appears in the Register of Shareholder, of the Shareholder who intends to make the nomination and of the person or persons to be nominated, (ii) a representation that the 7 Shareholder is a holder of record of shares of the Company entitled to vote at such meeting and intends to appear in person or by proxy at the meeting to nominate the person or persons specified in the notice, (iii) the class and number of shares of the Company which are beneficially owned by the Shareholder, (iv) a description of all arrangements or understandings between the Shareholder and each nominee and any other person or persons (naming such person or persons) pursuant to which the nomination or nominations are to be made by the Shareholder, (v) such other information regarding each nominee proposed by such Shareholder as would be required to be included in a proxy statement filed pursuant to Regulation 14A under the Securities Exchange Act of 1934, whether or not the Company is then subject to such Regulation and (vi) the consent of each nominee to serve as a Director. The Chairman of the annual general meeting or extraordinary general or special meeting shall, if the facts warrant, refuse to acknowledge a nomination not made in compliance with the foregoing procedure, and any such nomination not properly brought before the meeting shall not be considered. 29. Subject to the terms of any class or series of shares issued by the Company, if a Shareholder desires to submit a proposal for consideration by the Shareholders at any general or special meeting, written notice of such Shareholder's intent to submit such a proposal must be given and received by the Secretary of the Company at the principal executive offices of the Company not later than (i) with respect to an annual general meeting of Shareholders, sixty days in advance of the anniversary date of the immediately preceding annual general meeting, and (ii) with respect to an extraordinary general or special meeting, the close of business on the tenth day following the date on which notice of such meeting is first sent or given to Shareholders. Each such notice shall set forth (i) the name and address, as it appears in the Register of Shareholder, of the Shareholder who intends to submit such proposal, (ii) a representation that the Shareholder is a holder of record of shares of the Company entitled to vote at such meeting and intends to appear in person or by proxy at the meeting to submit such proposal, (iii) the class and number of shares of the Company which are beneficially owned by the Shareholder, (iv) such other information regarding each proposal submitted by such Shareholder as would be required to be included in a proxy statement filed pursuant to Regulation 14A under the Securities Exchange Act of 1934, whether or not the Company is then subject to such Regulation and (vi) the consent of each nominee to serve as a Director. The Chairman of the annual general meeting or extraordinary general or special meeting shall, if the facts warrant, refuse to acknowledge a proposal not made in compliance with the foregoing procedure, and any such proposal not properly brought before the meeting shall not be considered. 30. A vote demanded on the election of a Chairman or on a question of adjournment shall be taken forthwith. A vote demanded on any other question shall be taken at such time as the Chairman of the meeting directs. VOTES OF SHAREHOLDERS 31. Subject to the terms of any class or series of shares issued by the Company,on a vote every Shareholder and every person representing a Shareholder by proxy shall have one vote for each share of which he or the person represented by proxy is the holder. 32. In the case of joint holders the vote of the senior who tenders a vote whether in person or by proxy shall be accepted to the exclusion of the votes of the joint holders; and for this purpose seniority shall be determined by the order in which the names stand in the Register of Members. 8 33. A Shareholder of unsound mind, or in respect of whom an order has been made by any court having jurisdiction in lunacy, may vote by his committee, or other person in the nature of a committee appointed by that court, and any such committee or other person, may vote by proxy. 34. No Shareholder shall be entitled to vote at any general meeting unless he is registered as a Shareholder of the Company on the record date for such meeting or holds a valid proxy of such a Shareholder and unless all sums presently payable by him in respect of shares in the Company have been paid. 35. Votes may be given either personally or by proxy. 36. The instrument appointing a proxy shall be in writing under the hand of the appointor or of his attorney duly authorized in writing or, if the appointor is a corporation, either under seal or under the hand of an officer or attorney duly authorized. A proxy need not be a Shareholder of the Company. 37. An instrument appointing a proxy may be in any form approved by the Directors, or failing any such approval by the Directors, shall be in the following form:- APEX SILVER MINES LIMITED I/We the undersigned being a Shareholder in the above Company HEREBY APPOINT [ ] whom failing [ ] to be my proxy and on my/our behalf to attend, vote at and do all acts and things which I/We could personally have done at a meeting of Shareholders of the said Company to be held at the Registered Office of the Company on the day of [199 ] and at all continuations and adjournments thereof. Date:____________________ _____________________ Signature of Shareholder 38. The instrument appointing a proxy shall be deemed to confer authority to demand or join in demanding a vote. 39. A resolution in writing signed by all of the Shareholders for the time being entitled to receive notice of and to attend and vote at general meetings (or being corporations by their duly authorized representatives) shall be as valid and effective as if the same had been passed at a general meeting of the Company duly convened and held. CORPORATIONS ACTING BY REPRESENTATIVES AT MEETINGS 40. Any corporation which is a Shareholder or a Director of the Company may by resolution of its directors or other governing body authorize such person as it thinks fit to act as its representative at any meeting of the Company or of any class of Shareholders of the Company or of the Board of Directors of the Company or of a Committee of Directors, and the person so authorized shall be entitled to exercise the same powers on behalf of the corporation which he represents as that corporation could exercise if it were an individual Shareholder or Director of the Company. 9 DIRECTORS 41. (a) The Board of Directors shall consist of not less than five nor more than twenty-one persons. Subject to Article 41(c), the Board of Directors shall have the exclusive power and right to set the exact number of Directors within that range from time to time by resolution adopted by the vote of a majority of the whole Board of Directors. Until the Board of Directors adopts such a resolution, the exact number of Directors shall be nine. (b) The Directors shall be divided into three classes of equal size, designated as Class I, Class II and Class III, each class to be comprised of at least three Directors; provided, however, if the total number of Directors is 5, 7, 8, 10, 11, 13, 14, 16, 17, 19 or 20, one Class may have one fewer or one more Director than the other two Classes. The Board of Directors shall make the subsequent appointments of individual Directors to particular Classes. The Directors initially appointed to Class I will hold office for a term expiring at the 1998 annual general meeting of Shareholders; the Directors initially appointed to Class II will hold office for a term expiring at the 1999 annual general meeting of Shareholders; and the Directors initially appointed to Class III will hold office for a term expiring at the 2000 annual general meeting of Shareholders. At each annual general meeting of Shareholders, the successors of the class of Directors whose terms expire at that meeting shall be of the same class as the Directors they succeed and shall be elected for three-year terms. (c) Unless for cause, no resolution of the Board of Directors may be adopted if its effect would be to remove from office, or shorten the term of, any incumbent Director. (d) A Director shall hold office until the annual general meeting for the year in which his term expires and until his successor shall be elected and shall qualify, subject, however, to prior death, resignation, retirement or removal from office. Any newly created directorship resulting from an increase in the number of Directors and any other vacancy on the Board of Directors, however caused, may be filled by a majority of the Directors then in office, although less than a quorum, or by a sole remaining Director. Any Director elected by the Board of Directors to fill a vacancy shall hold office until the annual general meeting of Shareholders for the year in which the term of the Director vacating office expires and until his successor shall have been elected and qualified. Any newly created directorship resulting from an increase in the number of Directors may be created in any class of Directors that the Board of Directors may determine, and any Director elected to fill the newly created vacancy shall hold office until the term of office of such class expires. (e) One or more or all of the Directors of the Company may be removed only for cause by the affirmative vote of the holders of at least a majority of the outstanding shares generally entitled to vote, voting together as a single class, at a meeting of Shareholders for which proper notice of the proposed removal has been given. 42. The Board of Directors shall have the authority to fix the compensation of Directors, which may include their expenses, if any, of attendance at each meeting of the Board of Directors or of a committee. 43. A Director may hold any other office or place of profit under the Company in conjunction with his office of Director for such period and on such terms as to remuneration and otherwise as the Board of Directors may determine. 10 44. A Director may act by himself or his firm in a professional capacity for the Company and he or his firm shall be entitled to remuneration for professional services as if he were not a Director. No share ownership qualification for Directors shall be required. 45. A Director of the Company may be or become a Director or other officer of or otherwise interested in any company promoted by the Company or in which the Company may be interested as Shareholder or otherwise and no such Director shall be accountable to the Company for any remuneration or other benefits received by him as a director or officer of, or from his interest in, such other company. 46. No person shall be disqualified from the office of Director or prevented by such office from contracting with the Company, either as vendor, purchaser or otherwise, nor shall any such contract or any contract or transaction entered into by or on behalf of the Company in which any Director shall be in any way interested or be liable to be avoided, nor shall any Director so contracting or being so interested be liable to account to the Company for any profit realized by any such contract or transaction by reason of such Director holding office or of the fiduciary relation thereby established. A Director shall be at liberty to vote in respect of any contract or transaction in which he is so interested as aforesaid; provided, however, that the nature of the interest of any Director in any such contract or transaction shall be disclosed by him at or prior to its consideration and any vote thereon. 47. A general notice that a Director is an officer, director or Shareholder of any specified firm or company and is to be regarded as interested in any transaction with such firm or company shall be sufficient disclosure under Article 46 and after such general notice it shall not be necessary to give special notice relating to any particular transaction. ALTERNATE DIRECTOR 48. Any Director may in writing appoint another person to be his alternate to act in his place at any meeting of the Directors at which he is unable to be present. Every such alternate shall be entitled to notice of meetings of the Directors and to attend and vote thereat as a Director when the person appointing him is not personally present and where he is a Director to have a separate vote on behalf of the Director he is representing in addition to his own vote. A Director may at any time in writing revoke the appointment of an alternate appointed by him. Such alternate shall not be an officer of the Company and shall be deemed to be the agent of the Director appointing him. The remuneration of such alternate shall be payable out of the remuneration of the Director appointing him and the proportion thereof shall be agreed between them. 49. Any Director may appoint any person, whether or not a Director of the company, to be the proxy of that Director to attend and vote on his behalf, in accordance with instructions given by that Director, or in the absence of such instructions at the discretion of the proxy, at a meeting or meetings of the Directors which that Director is unable to attend personally. The instrument appointing the proxy shall be in writing under the hand of the appointing Director and shall be in the form printed below or any other form approved by the Directors, and must be lodged with the Chairman of the meeting of the Directors at which such proxy is to be used, or first used, prior to the commencement of the meeting:- 11 APEX SILVER MINES LIMITED I the undersigned being a Director of the above Company HEREBY APPOINT [ ] when failing [ ] to be my Proxy and on my behalf to attend, vote at and to do all acts and things which I could personally have done at a meeting of Directors of the said Company to be held on the day of [199 ] and all continuations and adjournments thereof. Date:____________________ ________________________ Signature of Director POWERS AND DUTIES OF DIRECTORS 50. The business of the Company shall be managed by the Directors, who may pay all expenses incurred in getting up and registering the Company and may exercise all such powers of the Company as are not, by the Law or these Articles, required to be exercised by the Company in general meeting, subject, nevertheless, to any regulation of these Articles, to the provisions of the Law, and to such Articles, being not inconsistent with the aforesaid Articles, or provisions as may be prescribed by the Company in general meeting; but no Article made by the Company in general meeting shall invalidate any prior act of the Directors which would have been valid if that Article had not been made. 51. The Directors may from time to time appoint any person, whether or not a director of the Company to hold such office in the Company as the Directors may think necessary for the administration of the Company, including without prejudice to the foregoing generality, the office of President, one or more Vice-Presidents, Treasurer, Assistant Treasurer, Manager or Controller, and for such term and at such remuneration (whether by way of salary or commission or participation in profits or partly in one way and partly in another), and with such powers and duties as the Directors may think fit. The Directors may also appoint one or more of their number to the office of Managing Director upon like terms, but any such appointment shall ipso facto determine if any Managing Director ceases from any cause to be a Director, or if the Company in general meeting resolves that his tenure of office be terminated. 52. The Directors shall appoint the Company Secretary (and if need be an Assistant Secretary or Assistant Secretaries) who shall hold office for such term, at such remuneration and upon such conditions and with such powers as they think fit. Any Secretary or Assistant Secretary so appointed by the Directors may be removed by the Directors. 53. The Directors may delegate any of their powers to committees consisting of such Shareholder or Shareholders of their body as they think fit; any committee so formed shall in the exercise of the powers so delegated conform to any Articles that may be imposed on it by the Directors. 54. The Directors may from time to time and at any time: (a) by power of attorney appoint any company, firm or person or body of persons, whether nominated directly or indirectly by the Directors, to be the attorney or attorneys of the Company for such purposes and with such powers, authorities and discretion (not exceeding those vested in or exercisable by the Directors under these Articles) and for such period and subject to such conditions as they may think fit, and any such power of attorney may contain such provisions for the protection and convenience of persons dealing with any such attorney as the Directors may think fit, and may also authorize any such attorney to delegate all or any of the powers, authorities and discretion vested in him. 12 (b) provide for the management of the affairs of the Company in such manner as they shall think fit and the provisions contained in the three next following paragraphs shall be without prejudice to the general powers conferred by this paragraph. (c) establish any committees, local boards or agencies for managing any of the affairs of the Company and may appoint any persons to be Shareholders of such committees or local boards and may appoint any managers or agents of the Company and may fix the remuneration of any of the aforesaid. (d) delegate to any such committee, local board, manager or agent any of the powers. authorities and discretion for the time being vested in the Directors and may authorize the Shareholders for the time being of any such local board, or any of them to fill up any vacancies therein and to act notwithstanding vacancies and any such appointment or delegation may be made on such terms and subject to such conditions as the Directors may think fit and the Directors may at any time remove any person so appointed and may annul or vary any such delegation, but no person dealing in good faith and without notice of any such annulment or variation shall be affected thereby. Any such delegates as aforesaid may be authorized by the Directors to subdelegate all or any of the powers, authorities, and discretion for the time being vested to them. BORROWING POWERS OF DIRECTORS 55. The Directors may exercise all the powers of the Company to borrow money and to mortgage or charge its undertaking, property and uncalled capital or any part thereof, to issue debentures, debenture stock and other securities whenever money is borrowed or as security for any debt, liability or obligation of the Company or of any third party. THE SEAL 56. (a) The Seal of the Company shall not be affixed to any instrument except by the authority of a resolution of the Board of Directors provided always that such authority may be given prior to or after the affixing of the Seal and if given after may be in general form confirming a number of affixings of the Seal. The Seal shall be affixed in the presence of a Director or the Secretary (or an Assistant Secretary) of the Company or in the presence of any one or more persons as the Directors may appoint for the purpose and every person as aforesaid shall sign every instrument to which the Seal of the Company is so affixed in their presence. (b) The Company may maintain a facsimile of its Seal in such countries or places as the Directors may appoint and such facsimile Seal shall not be affixed to any instrument except by the authority of a resolution of the Board of Directors provided always that such authority may be given prior to or after the affixing of such facsimile Seal and if given after may be in general form confirming a number of affixings of such facsimile Seal. The facsimile Seal shall be affixed in the presence of such person or persons as the Directors shall for this purpose appoint and such person or persons as aforesaid shall 13 sign every instrument to which the facsimile Seal of the Company is so affixed in their presence and such affixing of the facsimile Seal and signing as aforesaid shall have the same meaning and effect as if the Company Seal had been affixed in the presence of and the instrument signed by a Director or the Secretary (or an Assistant Secretary) of the Company or in the presence of any one or more persons as the Directors may appoint for the purpose. (c) Notwithstanding the foregoing, the Secretary or any Assistant Secretary shall have the authority to affix the Seal, or the facsimile Seal, to any instrument for the purposes of attesting authenticity of the matter contained therein but which does not create any obligation binding on the Company. DISQUALIFICATION OF DIRECTORS 57. The office of Director shall be vacated, if the Director:- (a) becomes bankrupt or makes any arrangement or composition with his creditors; (b) is found to be or becomes of unsound mind; or (c) resigns his office by notice in writing to the Company. PROCEEDINGS OF DIRECTORS 58. The Directors may meet together (either within or without the Cayman Islands) for the despatch of business, adjourn, and otherwise regulate their meetings and proceedings as they think fit. Questions arising at any meeting shall be decided by a majority of votes. Any two Directors or the Chariman may, and the Secretary or Assistant Secretary on the requisition of such persons shall, at any time summon a meeting of the Directors. 59. At least one meeting to the Board of Directors shall be held in the Cayman Islands in each calendar year. 60. A Director or Directors may participate in any meeting of the Board, or of any committee appointed by the Board of which such Director or Directors are Shareholders, by means of telephone or similar communication equipment by way of which all persons participating in such meeting can hear each other and such participation shall be deemed to constitute presence in person at the meeting. 61. The quorum necessary for the transaction of the business of the Directors may be fixed by the Directors, and unless so fixed, if there be more than two Directors shall be a majority of Directors, and if there be two or less Directors shall be one. A director represented by proxy or by an Alternate Director at any meeting shall be deemed to be present for the purposes of determining whether or not a quorum is present. 62. A Director who is in any way, whether directly or indirectly, interested in a contract or proposed contract with the Company shall declare the nature of his interest at a meeting of the Directors. A general notice given to the Directors by any Director to the effect that he is a Shareholder of any specified company or firm and is to be regarded as interested in any contract which may thereafter be made with that company or firm shall be deemed a sufficient declaration of interest in regard to any contract so made. A Director may vote in respect of any contract or proposed contract or arrangement notwithstanding that he may be interested 14 therein and if he does so his vote shall be counted and he may be counted in the quorum at any meeting of the Directors at which any such contract or proposed contract or arrangement shall come before the meeting for consideration. 63. A Director may hold any other office or place of profit under the Company (other than the office of auditor) in conjunction with his office of Director for such period and on such terms (as to remuneration and otherwise) as the Directors may determine and no Director or intending Director shall be disqualified by his office from contracting with the Company either with regard to his tenure of any such other office or place of profit or as vendor, purchaser or otherwise, nor shall any such contract or arrangement entered into by or on behalf of the Company in which any Director is in any way interested, be liable to be avoided, nor shall any Director so contracting or being so interested be liable to account to the Company for any profit realized by any such contract or arrangement by reason of such Director holding that office or of the fiduciary relation thereby established. A Director, notwithstanding his interest, may be counted in the quorum present at any meeting whereat he or any other Director is appointed to hold any such office or place of profit under the Company or whereat the terms of any such appointment are arranged and he may vote on any such appointment or arrangement. 64. Any Director may act by himself or his firm in a professional capacity for the Company, and he or his firm shall be entitled to remuneration for professional services as if he were not a Director; provided that nothing herein contained shall authorize a Director or his firm to act as auditor to the Company. 65. The Directors shall cause minutes to be made in books or loose-leaf folders provided for the purpose of recording: (a) all appointments of officers made by the Directors; (b) the names of the Directors present at each meeting of the Directors and of any committee of the Directors; (c) all resolutions and proceedings at all meetings of the Company, and of the Directors and of committees of Directors. 66. When the Chairman and Secretary of a meeting of the Directors sign the minutes of such meeting the same shall be deemed to have been duly held notwithstanding that all the Directors have not actually come together or that there may have been a technical defect in the proceedings. 67. A resolution signed by all the Directors shall be as valid and effectual as if it had been passed at a Meeting of the Directors duly called and constituted. When signed a resolution may consist of several documents each signed by one or more of the Directors. 68. The continuing Directors may act notwithstanding any vacancy in their body but if and so long as their number is reduced below the number fixed by or pursuant to these Articles as the necessary quorum of Directors, the continuing Directors may act for the purpose of increasing the number, or of summoning a general meeting of the Company, but for no other purpose. 69. The Directors may elect a Chairman of their meetings and determine the period for which he is to hold office; but if no such Chairman is elected, or if at any meeting the Chairman is not present within one hour after the time appointed for holding the same, the Directors present may choose one of their number to be Chairman of the meeting. 15 70. A committee appointed by the Directors may elect a Chairman of its meetings; if no such Chairman is elected, or if at any meeting the Chairman is not present within five minutes after the time appointed for holding the same, the Shareholders present may choose one of their number to be Chairman of the meeting. 71. A committee appointed by the Directors may meet and adjourn as it thinks proper. Questions arising at any meeting shall be determined by a majority of votes of the committee Shareholders present. 72. All acts done by any meeting of the Directors or of a committee of Directors, or by any person acting as a Director, shall notwithstanding that it be afterwards discovered that there was some defect in the appointment of any such Director or person acting as aforesaid, or that they or any of them were disqualified, be as valid as if every such person had been duly appointed and was qualified to be a Director. DIVIDENDS 73. Subject to Law, the Board of Directors may from time to time declare dividends on shares of the Company outstanding and authorize payment of the same out of the profits of the Company (realized or unrealized), share premium account, or any other account permitted by Law, and may from time to time pay to the Shareholders such interim dividends, as appears to the Board of Directors to be appropriate. 74. The Board of Directors may declare that any dividend be paid wholly or partly by the distribution of shares or other securities of the Company and/or specific assets and in particular of paid up shares, debentures, or debenture stock of any other company or in any one or more of such ways and where any difficulty arises in regard to such distribution, the Board of Directors may settle the same as it deems expedient and in particular may issue fractional shares and fix the value for distribution of such specific assets or any party thereof and may determine that cash payments shall be made to any Shareholder upon the basis of the value so fixed in order to adjust the rights of all Shareholders and may vest any such specific assets in trustees as may seem expedient to the Board of Directors. 75. No dividend shall bear interest against the Company unless expressly authorized by the Board of Directors. ACCOUNTS 76. The books of account relating to the Company's affairs shall be kept in such manner as may be determined from time to time by the Directors. 77. The books of account shall be kept at the Registered Office of the Company, or at such other place or places as the Directors think fit, and shall always be open to the inspection of the Directors. 78. The Directors shall from time to time determine whether and to what extent and at what times and places and under what conditions or Articles the accounts and books of the Company or any of them shall be open to the inspection of Shareholders not being Directors, and no Shareholder (not being a Director) shall have any right of inspecting any account or book or document of the Company except as conferred by Law or authorized by the Directors or by the Company in general meeting. 16 CAPITALIZATION OF PROFITS 79. The Company may upon the recommendation of the Directors resolve that it is desirable to capitalise any part of the amount for the time being standing to the credit of any of the Company's reserve accounts or to the credit of the profit and loss account or otherwise available for distribution, and accordingly that such sum be set free for distribution amongst the Shareholders who would have been entitled thereto if distributed by way of dividend and in the same proportions on condition that the same be not paid in cash but be applied either in or towards paying up any amounts for the time being unpaid on any shares held by such Shareholders respectively or paying up in full unissued shares or debentures of the Company to be allotted and distributed credited as fully paid up to and amongst such Shareholders in the proportion aforesaid, or partly in the one way and partly in the other, and the Directors shall give effect to such resolution; Provided always that a share premium account and capital redemption reserve may only be applied in accordance with the provisions of the Law. 80. Whenever such a resolution as aforesaid shall have been passed the Directors shall make all appropriations and applications of the undivided profits resolved to be capitalised thereby, and all allotments and issues of fully paid shares or debentures, if any, and generally shall do all acts and things required to give effect thereto, with full power to the Directors to make such provision by payment in cash or otherwise as they think fit for the case of shares or debentures becoming distributable in fractions. NOTICES 81. A notice may be given by the Company or by the persons entitled to give notice to any Shareholder personally by sending it by post, air courier, cable, facsimile transmission or telex to him to the address as shown in the Register. Any such notice shall be deemed to have beenb effected on the date the letter containing the same is posted as aforesaid, or sent by air courier, cable, facsimile transmission or telex. 82. A notice may be given by the Company to the joint holders of a share by giving the notice to the joint holder named first in the Register of Members in respect of the share. 83. A notice may be given by the Company to the persons entitled to a share in consequence of the death or bankruptcy of a Shareholder by sending it through the post in a prepaid letter addressed to them by name, or by the title of representatives of the deceased, or trustee of the bankrupt, or by any like description at the address, if any, supplied for the purpose by the persons claiming to be so entitled, or (until such address has been so supplied) by giving the notice in any manner in which the same might have been given if the death or bankruptcy had not occurred. 84. Notice of every general meeting shall be given in some manner hereinbefore authorized to:- (a) all Shareholders who have supplied to the Company an address for the giving of notices to them; and (b) every person entitled to a share in consequence of the death or bankruptcy of a Shareholder, who but for his death or bankruptcy would be entitled to receive notice of the meeting. No other person shall be entitled to receive notices of general meetings. 17 INDEMNITY 85. (a) Every Director (including for the purposes of this Article any Alternate Director appointed pursuant to the provisions of these Articles), Managing Director, Secretary, Assistant Secretary, and, at the discretion of the Board of Directors, other officer, consultant, employee or agent, for the time being and from time to time of the Company and the personal representatives of the same shall be indemnified and secured harmless out of the assets and funds of the Company against all actions, proceedings, costs, charges, expenses, losses, damages or liabilities incurred or sustained by him in or about the conduct of the Company's business or affairs or in the execution or discharge of his duties, powers, authorities or discretions, including without prejudice to the generality of the foregoing, any costs, expenses, losses or liabilities incurred by him in defending (whether successfully or otherwise) any civil proceedings concerning the Company or its affairs in any court whether in the Cayman Islands or elsewhere, provided, that no indemnification shall be available in the case of wilful default or fraud. (b) No such Director, Alternate Director, Managing Director, agent, Secretary, Assistant Secretary or other officer of the Company shall be liable (i) for the acts, receipts, neglects, defaults or omissions of any other such director or officer or agent of the Company or (ii) by reason of his having joined in any receipt for money not received by him personally or (iii) for any loss on account of defect of title to any property of the Company or (iv) on account of the insufficiency of any security in or upon which any money of the Company shall be invested or (v) for any loss incurred through any bank, broker or other agent or (vi) for any loss occasioned by any negligence, default, breach of duty, breach of trust, error of judgement or oversight on his part or (vii) for any loss, damage or misfortune whatsoever which may happen in or arise from the execution or discharge of the duties, powers authorities, or discretions of his office or in relation thereto, unless the same shall happen through his own dishonesty. (c) The Board of Directors may authorize the Company to purchase and maintain insurance on behalf of any person described in Section 83(a), against any liability asserted against him and incurred by him in any such capacity, or arising out of his status as suche, whether or not the Company would have the power to indemnify him against such liability under the provisions of this Article 85. NON-RECOGNITION OF TRUSTS 86. No person shall be recognized by the Company as holding any shares upon any trust and the Company shall not be bound by or be compelled in any way to recognize (even when having notice thereof) any equitable, contingent, future or partial interest in any of its shares or any other rights in respect thereof except an absolute right to the entirety thereof in each Shareholder registered in the Company's Register of Members. 18 WINDING UP 87. If the Company shall be wound up the liquidator may, with the sanction of an Ordinary Resolution of the Company divide amongst the Shareholders in specie or kind the whole or any part of the assets of the Company (whether they shall consist of property of the same kind or not) and may, for such purpose set such value as he deems fair upon any property to be divided as aforesaid and may determine how such division shall be carried out as between the Shareholders or different classes of Shareholders. The liquidator may, with the like sanction, vest the whole or any part of such assets in trustees upon such trusts for the benefit of the contributories as the liquidator, with the like sanction shall think fit, but so that no Shareholder shall be compelled to accept any shares or other securities whereon there is any liability. AMENDMENT OF MEMORANDUM AND ARTICLES OF ASSOCIATION 88. Subject to and insofar as permitted by the provisions of the Law, the Company may from time to time by Special Resolution alter or amend its Memorandum of Association or these Articles in whole or in part. REGISTRATION BY WAY OF CONTINUATION 89. (a) The Company may by Special Resolution resolve to be registered by way of continuation in a jurisdiction outside the Cayman Islands or such other jurisdiction in which it is for the time being incorporated, registered or existing; (b) In furtherance of a resolution adopted pursuant to sub-clause (a) of this Article, the Directors may cause an application to be made to the Registrar of Companies to deregister the Company in the Cayman Islands or such other jurisdiction in which it is for the time being incorporated, registered or existing and may cause all such further steps as they consider appropriate to be taken to effect the transfer by way of continuation of the Company. 19 EX-10.2 4 FORM OF CONSENT TO AMENDMENT Exhibit 10.2 APEX SILVER MINES LIMITED CALEDONIAN HOUSE, MARY STREET GEORGE TOWN, GRAND CAYMAN CAYMAN ISLANDS March 21, 1997 Dear Investor: Reference is made to the terms of that certain Shareholders' Agreement (the "Agreement") dated as of August 6, 1996 by and among Apex Silver Mines Limited (the "Company"), you (or your organization, as applicable), and certain other shareholders of the Company or Apex Silver Mines LDC. The Company has determined that it is in its best interests to have the flexibility to increase or decrease the size of its board of directors. Therefore, the parties to the Agreement agree as follows: 1. All defined terms used herein and not otherwise defined are as defined in the Agreement. 2. Section 2(c) of the Agreement is hereby amended by designating such section 2(d) and substituting the following as Section 2(c): "(c) Notwithstanding anything else contained in Sections 2(a) or 2(b) to the contrary, the Board shall have the authority to increase or decrease the size of the Board (and fill any vacancy occurring from such increase) so long as each of the Consolidated Representatives, the Litani Representative and the Silver Holdings Representatives approves such increase or decrease and any such new director. To the extent Litani has not exercised such right then the Consent of Litani shall be required." 3. Except as so modified, the Agreement is hereby ratified and confirmed in all respects. APEX SILVER MINES LIMITED Thomas S. Kaplan Chairman APPROVED AND AGREED TO AS OF THE DATE FIRST WRITTEN ABOVE. - ---------------------------------------------------------- By: ---------------------------- Name: Title: PLEASE FAX SIGNED CONSENT TO: AKIN, GUMP STRAUSS, HAUER & FELD, L.L.P. ATTENTION: STEPHEN CULHANE, ESQ. FACSIMILE NO.: (212) 872-1002 EX-10.3 5 BUY-SELL AGREEMENT Exhibit 10.3 BUY-SELL AGREEMENT ------------------ THIS BUY-SELL AGREEMENT (this "Agreement") is made as of August 6, 1996, by --------- and among Apex Silver Mines Limited, an exempted limited liability company organized and existing under the laws of the Cayman Islands (the "Company"), ------- Apex Silver Mines LDC, an exempted limited duration company organized and existing under the laws of the Cayman Islands ("Apex LDC"), Litani Capital -------- Management LDC, a limited duration company organized and existing under the laws of the Bahamas ("Litani"), Silver Holdings LDC, an exempted limited duration ------ company organized and existing under the laws of the Cayman Islands ("Silver ------ Holdings"). - -------- WHEREAS, each of the LDC Shareholders, together with Consolidated Commodities Ltd., a limited liability company organized and existing under the laws of Bermuda ("Consolidated"), are the sole owners of shares of Apex LDC (the ------------ "Sub Shares"); ---------- WHEREAS, the Company has agreed to sell shares of its common stock (such shares, "Shares") in a private placement (the "Placement") closing as of the ------ --------- date hereof; WHEREAS, in connection with the Placement, Consolidated will contribute its Sub Shares to the Company in exchange for an equal number of Shares and the sole shareholders of Apex LDC will be the Company, Litani and Silver Holdings (Litani and Silver Holdings, collectively, the "LDC Shareholders"); ---------------- WHEREAS, in connection with the Placement, the Company shall enter into a Shareholders' Agreement dated as of the date hereof (the "Shareholder's ------------- Agreement") by and between each of the Company, Apex LDC, Consolidated, Litani, - --------- Silver Holdings and each of the shareholders from time to time of the Company (such shareholders, collectively, the "Stockholders") which shall establish, ------------ inter alia, certain voting and transfer restrictions on the Sub Shares and the Shares; WHEREAS, the Company and Apex LDC shall during such time as this Agreement shall remain in effect have the same number of authorized shares of common stock, and the Company shall retain in treasury form Shares equal in number to the number of Shares required to purchase, in exchange for Shares, any and all outstanding Sub Shares and such authorized and unissued Shares shall be reserved and set aside by the Company exclusively for the purpose of purchasing such Sub Shares as the LDC Shareholders may from time to time sell to the Company pursuant to the terms hereof; WHEREAS, the LDC Shareholders wish to be able to sell their Sub Shares to the Company in connection with, or subsequent to, a Public Sale or an Approved Sale (as such terms defined herein), and the Company has agreed that it will purchase such Sub Shares; WHEREAS, the parties hereto desire to enter into this Agreement to establish the terms and conditions upon which the LDC Shareholders shall be entitled to sell from time to time all or any portion of their Sub Shares to the Company; NOW, THEREFORE, the parties to this Agreement hereby agree as follows: 1. DEFINITIONS. All terms not otherwise defined herein shall have the ----------- meanings set forth in this Section 1: "APPROVED SALE" has the meaning set forth in the Shareholders' Agreement. "CONVERSION PRICE" with respect to each Sub Share, the amount in immediately available United States dollars equal to the then prevailing Market Price of each Company Share. "MARKET PRICE" means the average of the closing prices of sales of Shares on all securities exchanges on which such Shares may at the time be listed, or, if there have been no sales on any such exchange on any day, the average of the highest bid and lowest asked prices on all such exchanges at the end of such day, or, if on any day such security is not so listed, the average of the representative bid and asked prices quoted in the NASDAQ System as of 4:00 P.M., New York time, on such day, or, if on any day Shares are not quoted in the NASDAQ System, the average of the highest bid and lowest asked prices on such day in the over-the-counter market as reported by the National Quotation Bureau, Incorporated, or any similar successor organization, in each such case averaged over a period of 21 days consisting of the day as of which "Market Price" is being determined and the 20 consecutive business days prior to such day. If at any time Shares are not listed on any securities exchange or quoted in the NASDAQ System or the over-the-counter market, the "Market Price" shall be the fair value thereof determined jointly by the Company and the LDC Shareholders seeking to sell their Sub Shares. If such parties are unable to reach agreement within a reasonable period of time, such fair value shall be determined by an independent appraiser experienced in valuing securities jointly selected by the Company and the LDC Shareholders seeking to sell their Sub Shares. The determination of such appraiser shall be final and binding upon the parties, and the Company shall pay the fees and expenses of such appraiser. "PERSON" means an individual, a partnership, a corporation, a limited liability company, an association, a joint stock company, a trust, a joint venture, an unincorporated organization and a governmental entity or any department, agency or political subdivision thereof. "PUBLIC SALE" means any sale of Shares to the public pursuant to an offering registered under the Securities Act or any similar statute of any jurisdiction in which the Shares may be registered or to the public through a broker, dealer or market maker pursuant to the provisions of Rule 144 adopted under the Securities Act. 2 "SECURITIES ACT" means the United States Securities Act of 1933, as amended from time to time. 2. EFFECTIVE DATE. The LDC Shareholders' right to sell Sub Shares -------------- hereunder shall vest immediately prior to the earlier of (i) an Approved Sale, or (ii) the first Public Sale, which Public Sale may or may not include, at the Company's discretion, Shares or Sub Shares held by the LDC Shareholders. 3. SALE AND PURCHASE OF SUB SHARES. Following the completion of the ------------------------------- initial Public Sale, the LDC Shareholders, individually, shall be entitled, from time to time, to require the Company, upon ten days written notice to the Company, to purchase all or any portion of their Sub Shares. The Company shall purchase from such LDC Shareholders the number of Sub Shares indicated in the LDC Shareholder's notice to the Company, on the tenth day following the delivery of such notice, for, at the option of the Company (i) immediately available United States dollars equal to the aggregate Conversion Price for such tendered Sub Shares, (ii) an equal number of Shares, or (iii) a combination of Shares and immediately available United States dollars as determined at the applicable Conversion Price. 4. SHARE CAPITAL. For so long as this Agreement remains in effect, the ------------- Company and Apex LDC shall maintain an equal number of shares of capital stock. In the event the capital structure of the Company or Apex LDC is altered, or the number of issued and outstanding Shares or Sub Shares is changed as the result of a stock dividend, split or consolidation, the ratio at which Shares may be exchanged for Sub Shares shall be adjusted to reflect such change in the ratio of issued and outstanding Shares to Sub Shares so that the LDC Shareholders' beneficial interest in the Company shall not be affected by such stock dividend, split or consolidation. 5. COMPANY TREASURY SHARES. For so long as this Agreement remains in ----------------------- effect, the Company shall retain at all times authorized and unissued Shares in a number equal to the number of Shares required to purchase for Shares any and all issued and outstanding Sub Shares held by the LDC Shareholders. 6. EXCHANGE OF SHARES FOR SUB SHARES. In the event the Company elects to --------------------------------- purchase in exchange for Shares any Sub Shares tendered by the LDC Shareholders in accordance with the provisions of this Agreement, all such Shares, when issued, shall be duly and validly issued, fully paid and nonassessable and free from all taxes, liens and charges. The Company shall take all such actions as may be necessary to assure that all such Shares may be so issued without violation of any applicable law or governmental regulation or any requirements of any domestic securities exchange upon which Shares may be listed (except for official notice of issuance which shall be immediately delivered by the Company upon each such issuance). In addition, prior to the issuance of any Shares hereunder, the Company shall at its expense procure the listing of such Shares as then may be required on all stock exchanges or interdealer quotation systems on which the common stock of the Company is then listed and shall maintain such listing if and so long as any shares of the common stock of the Company shall be listed on such stock exchanges or interdealer quotation systems. 3 7. AMENDMENT AND WAIVER. Except as otherwise provided herein, no -------------------- modification, amendment or waiver of any provision of this Agreement shall be effective against the Company unless such modification, amendment or waiver is approved in writing by the Company. Except as otherwise provided herein, no modification, amendment or waiver of any provision of this Agreement shall be effective against the LDC Shareholders unless such modification, amendment or waiver is approved in writing by the LDC Shareholders. 8. SEVERABILITY. Whenever possible, each provision of this Agreement ------------ shall be interpreted in such manner as to be effective and valid under applicable law, but if any provision of this Agreement is held to be invalid, illegal or unenforceable in any respect under any applicable law or rule in any jurisdiction, such invalidity, illegality or unenforceability shall not affect any other provision or the effectiveness or validity of any provision in any other jurisdiction, and this Agreement shall be reformed, construed and enforced in such jurisdiction as if such invalid, illegal or unenforceable provision had never been contained herein. 9. ENTIRE AGREEMENT. Except as otherwise expressly set forth herein, this ---------------- document, the Shareholders' Agreement, and the Amended Investment Agreement embody the complete agreement and understanding among the parties hereto with respect to the subject matter hereof and supersede and preempt any prior understandings, agreements or representations by or among the parties, written or oral, which may have related to the subject matter hereof in any way. 10. SUCCESSORS AND ASSIGNS. Except as otherwise provided herein, this ---------------------- Agreement shall bind and inure to the benefit of and be enforceable by the Company and its successors and assigns and the LDC Shareholders and any subsequent holders of Sub Shares and the respective successors and assigns of each of them, so long as they hold Sub Shares. The parties hereto hereby agree that the shareholders of Litani and Silver Holdings constitute third party beneficiaries of this Agreement and are hereby entitled to enforce the terms of this Agreement against the Company. 11. COUNTERPARTS. This Agreement may be executed in separate counterparts ------------ each of which shall be an original and all of which taken together shall constitute one and the same agreement. 12. REMEDIES. The parties hereto agree and acknowledge that money damages -------- may not be an adequate remedy for any breach of the provisions of this Agreement and that the Company and any LDC Shareholder shall have the right to injunctive relief, in addition to all of its rights and remedies at law or in equity, to enforce the provisions of this Agreement. Nothing contained in this Agreement shall be construed to confer upon any Person who is not a signatory hereto any rights or benefits, as a third party beneficiary or otherwise. 13. EXPIRATION. This Agreement shall expire upon the purchase by the ---------- Company of all outstanding Sub Shares held by or on behalf of the LDC Shareholders, their successors or assigns. 4 14. NOTICES. All notices, demands or other communications to be given or ------- delivered under or by reason of the provisions of this Agreement shall be in writing and shall be deemed to have been given when personally delivered or received by certified mail, return receipt requested, confirmed telecopy or sent by guaranteed overnight courier service. Such notices, demands and other communications will be sent to the LDC Shareholders at the addresses indicated for such Persons in the Company's or Apex LDC's shareholders' register, or to such other or additional addresses as such Persons have specified by prior written notice to the Company. 15. GOVERNING LAW. The corporate law of the Cayman Islands will govern ------------- all issues concerning the relative rights of the Company and its stockholders. All other issues concerning this Agreement shall be governed by and construed in accordance with the laws of the State of New York, without giving effect to any choice of law or conflict of law provision or rule (whether of the State of New York or any other jurisdiction) that would cause the application of the law of any jurisdiction other than the State of New York. 16. DESCRIPTIVE HEADINGS. The descriptive headings of this Agreement are -------------------- inserted for convenience only and do not constitute a part of this Agreement. * * * * * 5 IN WITNESS WHEREOF, the parties hereto have executed this Buy-Sell Agreement on the day and year first above written. APEX SILVER MINES LIMITED By: /s/ Thomas S. Kaplan ------------------------------ Name: Thomas S. Kaplan Title: Director APEX SILVER MINES LDC By: /s/ Thomas S. Kaplan ------------------------------ Name: Thomas S. Kaplan Title: Director LITANI CAPITAL MANAGEMENT LDC By: /s/ David Sean Hanna ------------------------------ Name: David Sean Hanna Title: Director SILVER HOLDINGS LDC By: /s/ Sean C. Warren ------------------------------ Name: Sean C. Warren Title: EX-10.4 6 SUMMARY OF THE REGISTRANT'S 401(K) PLAN EXHIBIT 10.4 - -------------------------------------------------------------------------------- APEX SILVER MINES CORPORATION 401(K) PLAN SUMMARY PLAN DESCRIPTION - -------------------------------------------------------------------------------- TABLE OF CONTENTS INTRODUCTION TO YOUR PLAN GENERAL INFORMATION ABOUT YOUR PLAN ELIGIBILITY AND PARTICIPATION YOUR CONTRIBUTIONS TO THE PLAN YOUR EMPLOYER'S CONTRIBUTIONS TO THE PLAN YOUR BENEFITS UNDER THE PLAN SPECIAL DISTRIBUTION EVENTS LOANS TOP HEAVY RULES ROLLOVERS AND TRANSFERS PERIOD OF SEVERANCE RULES QUALIFIED DOMESTIC RELATIONS ORDERS PLAN AMENDMENT OR TERMINATION SPECIAL TAX TREATMENT OF DISTRIBUTIONS STATEMENT OF ERISA RIGHTS PENSION BENEFIT GUARANTY CORPORATION 2 INTRODUCTION TO YOUR PLAN Your Employer has instituted this Plan to reward efforts made by Employees who contribute to the overall success of the Company. The Plan is exclusively for the benefit of Participants and their Beneficiaries. The purpose of the Plan is to help you build financial security for your retirement and to help protect you and your Beneficiaries in the event of your death or Disability. This Plan is commonly known as a 401(k) plan. It offers you a built in savings system through pre-tax payroll deductions. It also offers attractive tax advantages, the freedom to choose investments according to your needs, the flexibility to change your investments as your needs change, and a way to build capital for a secure retirement. Under the terms of this Plan, you may choose to defer a portion of your current salary, which your Employer then contributes to the plan on a pre-tax basis. Contributions are not subject to Federal income tax, and in most cases are also exempt from state or local income taxes. Since your contributions are not included in your compensation for Federal income tax purposes, your taxable income is reduced. The laws governing plans like this one contain many provisions that may affect your retirement. You should contact your Plan Administrator with any questions about the Plan before you make any decisions related to your retirement. For specific tax advice, you should contact your tax advisor. This Summary Plan Description (SPD) summarizes the key features of your Plan, and your rights, obligations and benefits under the Plan. Some of the statements made in this SPD are dependent upon this Plan being "qualified", or approved by the Internal Revenue Service. Please contact your Plan Administrator with any questions you may have after you have read this summary. Every effort has been made to make this description as accurate as possible. However, this booklet is not a Plan document. This SPD is not meant to ------------------------ interpret, extend, or change the provisions of the Plan in any way. The terms - ------------------------------------------------------------------------------ of the Plan are stated in and will be governed in every respect by the Plan - --------------------------------------------------------------------------- document. Your right to any benefit depends on the actual facts and the terms - --------- and conditions of the Plan document, and no rights accrue by reason of any statement in this summary. A copy of the Plan document is available at the principal office of your Employer for inspection by you, your Beneficiaries, or your legal representatives at any reasonable time. 3 GENERAL INFORMATION ABOUT YOUR PLAN There is certain general information you may need to know about the Plan. This section summarizes that information for you: EMPLOYER/PLAN SPONSOR PLAN TRUSTEE(S) - --------------------- --------------- Apex Silver Mines Corporation Gregory G. Marlier 1700 Lincoln Street Suite 3050 1700 Lincoln Street Suite 3050 Denver, CO 80203-4530 Denver, CO 80203-4530 (303) 839-5060 PLAN ADMINISTRATOR EMPLOYER'S TAX I. D. NUMBER: ------------------ 84-1363747 Apex Silver Mines Corporation PLAN INFORMATION 1700 Lincoln Street Suite 3050 - ---------------- Denver, CO 80203-4530 (303) 839-5060 PLAN NAME: Apex Silver Mines Corporation 401(k) Plan TAX YEAR: January 1st through December 31st. PLAN NUMBER: 001 PLAN YEAR: January 1st through December 31st. PLAN EFFECTIVE DATE: January 1, 1997 All Plan Records will be kept on the basis of the Plan Year. The Plan Administrator keeps the records for the Plan, and is responsible for the interpretation and administration of the Plan. The Plan Administrator may engage the services of a third party record keeper to perform the administrative functions of the Plan, however, any questions you have about the Plan should be directed, in writing, to the Plan Administrator. THE PLAN ADMINISTRATOR AND THE TRUSTEES ARE DESIGNATED AS THE AGENTS FOR SERVICE OF LEGAL PROCESS. 4 ELIGIBILITY AND PARTICIPATION All Employees of the Employer are eligible to participate in this Plan. If you were employed on or before 06/01/97, you will be a Participant as of that date If you were employed after 06/01/97, you will be eligible to Participate after you have attained age twenty-one (21) and completing one-half of a (1/2) Year of Service. Since the service requirement is less than one year, you are not required to complete a specific number of Hours of Service during the service period. Instead, your service will be measured by the length of time you are employed. You will become eligible to participate in the Plan on your 6 month anniversary of your Date of Hire. For example: If your Date of Hire is April 1st, you will become eligible to participate in the Plan on October 1st. You will become a Participant in the Plan on the Entry Date coincident with or next following the date you meet the participation requirements. The Entry Dates for this Plan are January 1, April 1, July 1, and October 1. To begin payroll deductions, you must complete an Enrollment Form and submit it to the Plan Administrator. If you do not meet the eligibility requirements, you will not be eligible to participate in this Plan. YOUR CONTRIBUTIONS TO THE PLAN Your Contributions to your Plan are based on your Compensation. Compensation means the total salary or wages paid to you by your Employer during the Plan Year, including bonuses, commissions and overtime. For purposes of your Salary Deferral Contributions, you may defer only current Compensation. The total Compensation that can be considered for contribution purposes for 1997 is $160,000. This limit is adjusted periodically by the IRS. SALARY DEFERRAL CONTRIBUTIONS You may elect to defer any percentage of your current Compensation into the Plan, subject to a maximum of 15% or $9,500, whichever is least. This limitation is an aggregate limit that applies to all deferrals you make to this Plan and to any other salary deferral plan, including tax sheltered annuity contracts, simplified employee pension plans, or other 401(k) plans. The $9,500 limit for 1997 is subject to possible cost of living adjustments each year by the IRS. 5 You may increase or decrease your Salary Deferral Contribution Percentage at quarterly intervals throughout the Plan Year. You may suspend your Salary Deferral Contributions at any time upon written notice to your Plan Administrator. Your instructions to cease Salary Deferrals will be implemented as of the first payroll period following the date you notified your Plan Administrator. To resume your Salary Deferral Contributions, you must provide written notice to your Plan Administrator, and wait until the next quarterly interval. Investment of Contributions - --------------------------- As a Participant in this Plan, you direct the investment of your Salary Deferral Contributions, Employer Profit Sharing Contributions, and Employer Matching Contributions. Your Plan provides a menu of investment options from which you may select your investments. You may modify your investment elections, transfer existing account balances, and obtain information regarding your investments on a daily basis, through the Interactive Voice Response System. You should be aware that your investment decisions will ultimately affect the retirement benefits to which you will become entitled. Your Employer and the Plan Trustee(s) cannot provide you with investment advice, nor are they obligated to reimburse any participant for any investment loss that may occur as a result of his or her investment decisions. There is no guarantee that any of the investment options available in this Plan will retain their value or appreciate. YOUR EMPLOYER'S CONTRIBUTIONS TO THE PLAN Your Employer's Contributions to your Plan are based on your Compensation. Compensation means the total salary or wages paid to you by your Employer during the Plan Year, including bonuses, commissions and overtime. For the first year you participate in the Plan, only Compensation earned after your Entry Date will be used to determine your share of your Employer's Contribution. The total Compensation that can be considered for contribution purposes for 1997 is $160,000. This limit is adjusted periodically by the IRS. 401(K) MATCHING CONTRIBUTIONS Your Employer will make a contribution to the Plan, known as a 401(k) Matching Contribution, on behalf of those Participants who have made Salary Deferral Contributions. Only those Participants who have made Salary Deferral Contributions will receive a 401(k) Matching Contribution. Your Employer's 401(k) Matching Contribution will be an amount to equal 50% of the first 6% of your Compensation contributed as a Salary Deferral. 6 PROFIT SHARING CONTRIBUTIONS Your Employer may make a contribution to the Plan for you and other Participants. The amount of this contribution, if any, will be determined by your Employer. Your share of your Employer's Profit Sharing Contribution will be allocated to your account based on the ratio that your Compensation bears to the total Compensation of all Participants eligible for a share of this Contribution. Eligibility for Employer Profit Sharing Contributions - ----------------------------------------------------- To receive a share of your Employer's Profit Sharing Contribution, you must complete 1,000 Hours of Service during the Plan Year, and be employed on the last day of the Plan Year. In addition, any Participant who died, retired or became Disabled during the Plan Year will receive an Employer Profit Sharing Contribution, if any, for the Plan Year. BENEFITS UNDER YOUR PLAN Benefits Upon Termination of Employment - --------------------------------------- If you terminate Employment for reasons other than death, Disability or retirement, you will be entitled to receive only that portion of your benefit in which you are vested. Vesting means that for each Year of Service you complete, you become entitled to all or a portion of your Employer Contributions Account. For purposes of determining your vested account balance, all of your Years of Service, beginning on your date of hire, will be counted. You will have completed a Year of Service for vesting purposes on each anniversary of your Date of Hire with your Employer. You will be vested according to the following schedule:
YEARS OF SERVICE VESTED PERCENTAGE 1 50% 2 100%
YOU ARE ALWAYS 100% VESTED IN YOUR SALARY DEFERRAL CONTRIBUTIONS. 7 Forfeitures - ----------- If you terminate service prior to being fully vested in your Employer Contributions Account, you forfeit the amount in which you are not vested. Forfeitures on Matching 401(k) Contributions will be used to reduce future Employer Contributions to the Plan. Forfeitures on Profit Sharing Contributions will be reallocated among remaining Participants. If you terminate service prior to accruing any vested interest in your Employer Contributions Account, your unvested account balance will be forfeited immediately. Retirement Benefits - ------------------- You will be 100% vested in your Employer Contributions Account upon attaining your Normal Retirement Age, which is age sixty-five (65). Your Retirement Date is the first day of the month following attainment of Normal Retirement Age. Benefit payments will begin as soon as feasible after your Retirement Date. Disability Retirement Benefits - ------------------------------ You will be considered to be disabled if your injury or medical condition causes you to be unable to perform your usual and customary duties for your Employer for a continuous period of at least twelve months. If it is determined that you are disabled, you will be treated as though you have retired. You will become 100% vested in your Employer Contributions Account, and benefit payments will begin as soon as feasible after your Disability Retirement Date. Death Benefits - -------------- Your Employer Contributions Account becomes 100% vested upon your death. Your Beneficiary will be entitled to receive the vested benefit. If you are married at the time of your death, your spouse is your Beneficiary unless: . You elect otherwise in writing (with the consent of your spouse), . Your spouse cannot be located, . Your spouse has validly waived any right to the death benefit. If you want to designate a Beneficiary other than your spouse, (an "alternate Beneficiary") you must do so on a form provided by the Plan Administrator. You may revoke or change this designation at any time by filing written notice with the Plan Administrator, however, your spouse must consent, in writing, to any alternate Beneficiary. Your spouse's consent must be witnessed by a Notary Public or Plan official. It is important that you notify the Plan Administrator of any change in your marital status or change in your Beneficiary Designation. 8 If death occurs before Retirement Benefits begin, your Beneficiary may choose to defer payment, or to receive payment based on the following general guidelines: . Payment may be made in the form of a life annuity for Participants who transferred money from a prior plan where this option was available, . Payment may be made in installments payable in cash or kind, or part in cash and part in kind over a period not to exceed your lifetime, or the joint lifetime of you and your spouse, . The entire sum may be distributed no later than the last day of the year of the fifth anniversary of your death, . If your Beneficiary is your spouse, payment may be postponed until December 31st of the calendar year in which you would have attained age 65. If you fail to designate an alternate Beneficiary, or your alternate Beneficiary does not survive you, the benefit payable from this Plan as a result of your death will be payable to your Surviving Spouse, or if you have no Surviving Spouse, the death benefit will be paid to your estate. Forms of Benefit - ---------------- The normal form of benefit payable under this Plan is a lump sum. If the amount payable to you is $3,500 or less, you will receive a lump sum distribution as soon as feasible following the date you terminated employment, and no optional form of benefit will be available to you. If the amount payable to you is greater than $3,500, you (and your spouse, if applicable) must give written consent before the distribution can be made. A second form of benefit is installments payable in cash or kind, or part in cash and part in kind over a period not to exceed your lifetime, or the joint lifetime of you and your spouse. A third possible form of benefit which may be available to certain Participants* is annuity contracts payable as: . A single life annuity. . A joint and 50% survivor annuity with a contingent annuitant. . A joint and 100% survivor annuity with a contingent annuitant. . An annuity for the life of the Participant with 120 months certain. *Annuities are only available to Participants who transferred money from a prior plan where this option was available. 9 SPECIAL DISTRIBUTION EVENTS Although your Plan is designed as a way for you to build savings for the future, it also allows you access to your accounts under certain circumstances: In-Service Distributions: As an active Participant in the Plan, you may, upon - ------------------------- attaining age 59 1/2, submit a written application to the Plan Administrator to withdraw all or a portion of your vested account balance. Hardship Withdrawals: As an active Participant in the Plan, you may submit a - --------------------- written application to the Plan Administrator for a hardship withdrawal, if you are experiencing an immediate and heavy financial need. Generally, to qualify as a reason for a hardship distribution, the request must be made for one of the following reasons: . to cover medical expenses incurred by you, your spouse or your dependents; . for the purchase of a principal residence (excluding mortgage payments); . for the payment of post-secondary education tuition expenses; . for the payment of amounts necessary to prevent eviction from or foreclosure on your principal residence. You will be eligible for a hardship withdrawal only after all other forms of financial assistance have been explored and exhausted, including Plan loans. If you take a hardship withdrawal, your Salary Deferral Contributions must be suspended for a period of twelve months following the date of the withdrawal. Tax Consequences of Taking Distributions While Still Actively Employed - ---------------------------------------------------------------------- Any distribution of your account balance will reduce the value of benefits you will receive at retirement. Distribution or withdrawal of your pre-tax contributions or earnings on your pre-tax contributions may be subject to ordinary income taxes or early distribution penalties. Please consult your tax advisor prior to taking any distribution or withdrawal. 10 LOANS As an active Participant in the Plan, you may request a loan from the Plan. The loan amount is available by calling the 800#. Once you request a loan, your Employer is required to approve the loan. After approval, you will receive a check with an attached promissory note. By endorsing the check, you agree to the terms and repayment conditions in the Promissory note. A loan allows you to borrow money from your account without incurring a distribution penalty. You must repay the loan with interest on an after tax basis, through payroll deduction. Loans are subject to certain requirements. Among these are the following: . Loans are available to all participants in the Plan on a uniform and nondiscriminatory basis. . Loans must bear a reasonable rate of interest. A reasonable rate of interest is the prevailing commercial rate for loans of similar types. . The loan must be adequately secured. . Loans can be granted after approval from your Employer. Loan Limitations - ---------------- You may borrow the lesser of 50% of your vested account balance or $50,000. The amount available to you for borrowing will be reduced by the amount of your highest outstanding loan balance during the previous one year period. The available loan balance may be obtained by calling your 800#. Loan Repayments - --------------- Repayment of a loan is required within a five year period, except for the purchase of a primary residence. Tax Consequences of Plan Loans - ------------------------------ If you fail to make loan repayments when they are due, you may be considered to have defaulted on the loan. Defaulting on a loan may be considered a distribution to you from the Plan, resulting in taxable income to you and may ultimately reduce your benefit from the Plan. 11 YOUR PLAN'S TOP HEAVY RULES A plan that primarily benefits "key employees" is called a "top-heavy" plan. Key Employees are certain owners or officers of your Employer. Your Plan will become top-heavy when more than 60% of the Plan's assets have been allocated to key employees. Each year, the Plan Administrator is responsible for determining whether your Plan is a top-heavy plan. If your Plan becomes top heavy, non-key employees may be entitled to certain top-heavy minimum benefits, and other special rules may apply. Among these top- heavy rules are the following: . Each non-key employee may receive a minimum contribution from the Employer. The minimum contribution will be at least as much as the lesser of: . three percent (3%) of Compensation; or . the largest percentage of Compensation contributed by the Employer on behalf of key employees. . If you are a Participant in more than one Plan maintained by your Employer, you may not be entitled to minimum benefits in more than one plan. . The Vesting Schedule outlined earlier in this booklet will apply. ROLLOVERS AND TRANSFERS You may be able to rollover or transfer to this Plan a distribution you received from your previous employer's plan, subject to the following: . You must submit a written request to your Plan Administrator, who will determine whether the rollover or transfer is acceptable; . You may make such a contribution to this Plan prior to being eligible for the Plan; . Any amount rolled over or transferred to this Plan cannot include personal IRA contributions; . Prior to making a rollover or transfer, you should consult with your tax advisor. 12 PERIOD OF SEVERANCE RULES Under the elapsed time method, your Period of Service runs from the date you first perform an Hour of Service for your Employer until the severance from service date. A Period of Severance begins on the earlier of: . The date you quit, retire, are discharged, or die. OR . The first anniversary of the first date of a period in which you remain absent from service with your Employer (with or without pay) for any reason other than quitting, retirement, discharge, or death. These reasons include vacation, holiday, sickness, disability, leave of absence, or layoff. A leave of absence includes maternity or paternity leave. For example, if you went on maternity leave on October 1, 1995, you would not be considered to have severed service with your Employer if you returned to work and performed an Hour of Service before October 1, 1996. If you did not return to work on or before October 1, 1996, you would incur a Period of Severance. Reemployment After a Period of Severance - ---------------------------------------- If you are reemployed after you incur a Period of Severance and you were vested when you terminated employment, upon your reemployment, you will be immediately eligible for the Plan, and you will be vested at the same percentage as when you left. If you are reemployed after you incur a Period of Severance and you were not vested when you terminated employment, you will lose credit for service you completed prior to your termination if your absence is longer than five years. If you are reemployed after you incur a Period of Severance, and you received a full or partial distribution, you may repay the amount distributed to you to the Plan. If you make such a repayment, your account balance will be restored to its original amount as though you had never left. If you terminate service prior to becoming a Participant in the Plan, you will be treated as a new employee upon your reemployment. To participate, you must meet the Eligibility Requirements. 13 QUALIFIED DOMESTIC RELATIONS ORDERS As a general rule, your account balance, including your vested portion, may not be assigned. This means that your accounts cannot be sold, used as collateral for a loan, given away, or otherwise transferred. In addition, your creditors may not attach, garnish or otherwise interfere with your account. An exception to this general rule is a "Qualified Domestic Relations Order" or QDRO. A QDRO is a domestic relations order that creates, recognizes, or assigns to an alternate payee the right to receive all or a portion of your benefits in the Plan. An "alternate payee" may be a spouse, former spouse, child or other dependent. If a QDRO in which you are involved is received by your Plan Administrator, all or a portion of your benefits may be used to satisfy the obligation. Your Plan Administrator will determine if the order is a QDRO based on uniform and nondiscriminatory policies. PLAN AMENDMENT OR TERMINATION Your Employer reserves the right to amend the Plan at any time. However, no amendment can deprive you of any vested benefits. Although your Employer expects to continue this Plan permanently, it reserves the right to terminate the Plan. If the Plan is terminated, you will be 100% vested in your total account balance under the Plan. In general, funds that have been paid to the Plan by your Employer may not, under any circumstance, revert to your Employer. SPECIAL TAX TREATMENT OF DISTRIBUTIONS This section of your Summary Plan Description contains important information you will need before you decide how to receive your benefits from the Plan upon termination or retirement. You should consult your tax advisor prior to taking any distribution from the Plan. A payment from the Plan that is an "eligible rollover distribution" can be taken in two ways. You can have all or a portion of your payment either: 1) Paid in a "DIRECT ROLLOVER" or 2) PAID TO YOU. This choice will affect the tax you owe. 14 An "eligible rollover distribution" is the taxable portion of a payment except a payment that is part of a series of equal (or almost equal) payments that are made at least once a year and will last for: . your lifetime (or your life expectancy), or . your lifetime and your beneficiary's lifetime (or life expectancies), or . a period of ten years or more. PLEASE NOTE: The portion of any payments made to you after you reach age 70 1/2 to meet your required minimum payments may not be rolled over. If you choose a DIRECT ROLLOVER: . Your payment will be made directly to your IRA, or if you choose, to your new employer's retirement plan, provided it accepts rollovers. . Your payment will not be taxed in the current year, and no income tax will be withheld. . Your payment will be taxed later when you take it out of the IRA or employer plan. If you choose to have your eligible rollover distribution PAID TO YOU: . Your Plan Administrator is required to withhold 20% of the eligible rollover distribution and send it to the IRS as income tax withholding to be credited against your taxes. . Your payment will be taxed in the current year unless you roll it over. You may be able to use special tax rules that could reduce the tax you owe. However, if you receive the payment before age 59 1/2, you may also have to pay an additional 10% tax. . After you have received the distribution, if you want to roll over 100% of the payment to an IRA or to your new employer's plan, YOU MUST FIND OTHER MONEY TO REPLACE THE MONEY THAT WAS WITHHELD. If you roll over only the 80% that you received, you will be taxed on the 20% that was withheld and that is not rolled over. STATEMENT OF ERISA RIGHTS Participant Rights - ------------------ As a Participant in the Plan, you are entitled to certain rights and protection under the Employee Retirement Income Security Act of 1974 (ERISA). Your Employer may not fire you or discriminate against you to prevent you from obtaining a benefit from the Plan or exercising your rights under ERISA. ERISA provides that all Plan Participants shall be entitled to: . Examine, without charge, at your Plan Administrator's office, all Plan documents, insurance contracts, if any, and copies of all documents filed by your Plan with the U. S. Department of Labor, such as annual reports and Plan descriptions. . Obtain copies of all Plan documents and other Plan information upon written request to your Plan Administrator. Your Plan Administrator may impose a reasonable charge for the copies. . Receive a summary of the Plan's annual financial report. Your Plan Administrator is required by law to provide each Participant with a copy of the Plan's Summary Annual Report. . Obtain an annual statement telling you whether you have a right to receive a benefit under the Plan, and if so, what your benefits would be if you stop working for your Employer now. If you do not have a right to a benefit under the Plan, the statement must tell you how many years you have to work to get a benefit under the Plan. The Plan may require a written request for this statement, but it must be provided free of charge. . File suit in Federal court if any materials requested are not received within 30 days of your request unless the materials were not sent because of matters beyond the control of your Plan Administrator. The court may require your Plan Administrator to pay you up to $100 per day for each day's delay until the materials are received by you. In addition to creating rights for Plan participants, ERISA imposes obligations upon the persons who are responsible for the operation of the Plan. These persons are referred to as "fiduciaries". Fiduciaries must act solely in the interest of plan participants and must exercise prudence in the performance of their plan duties. Fiduciaries who do not comply with ERISA may be removed and required to make good any losses they have caused the Plan. If Plan fiduciaries are misusing the Plan's assets, as a Participant in the Plan, you have the right to file suit in a Federal court or to request assistance from the U. S. Department of Labor. If you are successful in your lawsuit, the court may require the other party to pay your legal costs, including attorney's fees. If you are unsuccessful in your lawsuit, or the court finds your action frivolous, the court may order you to pay these costs and fees. 15 Claims Procedures - ----------------- If your Employer denies your claim for benefits under the Plan, you must be given written notice within 90 days after the claim was filed with your Employer or its representatives (or 180 days if special circumstances exist). Any notice of denial must include the following information: . The specific reason or reasons for the denial; . The specific plan provisions on which the denial is based; . An explanation of what additional material or information is necessary for you to correct your claim if it is incomplete, along with an explanation of why that information is needed; and . An explanation of the Plan's claims review procedure. Following receipt of such denial, you or your authorized representatives may: . Request a review of the denial by filing a written application for review with your Employer within 60 days of receipt of the denial; . Review documents pertinent to your claim at such reasonable time and location as can be mutually agreed upon by all parties involved in the dispute; and . Submit issues and comments in writing to your Employer relating to its review of your claim. After consideration of your request for review, your Employer will make a decision and provide you with written notice of the decision within 60 days of receiving your request for review. The notice to you must include the specific reasons for the decision and specific references to the provisions of the Plan on which the decision is based. If your claim is denied or ignored in whole or in part, you may file suit in Federal court. If you have any questions about this statement or your rights under ERISA, you should contact your Plan Administrator or the nearest district office of the U. S. Department of Labor, specifically, the Labor-Management Service Administration. PENSION BENEFIT GUARANTY CORPORATION The type of Plan your Employer has adopted is a defined contribution plan. As a rule, the benefits provided by this Plan are not subject to or insured by the Pension Benefit Guaranty Corporation (PBGC). Under Title IV of ERISA, the insurance provisions of the PBGC do not apply to this Plan. 16 EX-10.6 7 REGISTRANT'S NON-EMPLOYEE DIRECTOR'S PLAN Exhibit 10.6 APEX SILVER MINES LIMITED NON-EMPLOYEE DIRECTORS' SHARE PLAN 1. PURPOSE. The purpose of this Non-Employee Directors' Share Plan (the "Director Plan") of APEX SILVER MINES LIMITED (the "Company"), is to advance the interests of the Company and its shareholders by providing a means to attract and retain highly qualified persons to serve as non-employee directors of the Company and to enable such persons to acquire or increase a proprietary interest in the Company, thereby promoting a closer identity of interests between such persons and the Company's shareholders. 2. DEFINITIONS. In addition to terms defined elsewhere in the Director Plan, the following are defined terms under the Director Plan: (a) "Code" means the U.S. Internal Revenue Code of 1986, as amended from time to time. References to any provision of the Code shall be deemed to include regulations thereunder and successor provisions and regulations thereto. (b) "Exchange Act" means the U.S. Securities Exchange Act of 1934, as amended. References to any provision of the Exchange Act shall be deemed to include rules thereunder and successor provisions and rules thereto. (c) "Fair Market Value" of a Share on a given date means the last sales price or, if last sales information is generally unavailable, the average of the closing bid and asked prices per Share on such date (or, if there was no trading or quotation in the stock on such date, on the next preceding date on which there was trading or quotation) as reported in the WALL STREET JOURNAL; PROVIDED, HOWEVER, that the "Fair Market Value" of a Share subject to Options granted effective on the date on which the Company commences an Initial Public Offering shall be the price of the shares so issued and sold, as set forth in the first final prospectus used in such Initial Public Offering. (d) "Initial Public Offering" means an initial public offering of Shares in a firm commitment underwriting register with the U.S. Securities and Exchange Commission in compliance with the provisions of the U.S. Securities Act of 1933, as amended. (e) "Option" means the right, granted to a director under Section 6, to purchase a specified number of Shares at the specified exercise price for a specified period of time under the Director Plan. All Options will be non- qualified Share Options. (f) "Participant" means a person who, as a non-employee director of the Company, has been granted an Option which remains outstanding. (g) "Share" means a share of the share capital, $.01 par value, of the Company and such other securities as may be substituted for such share or such other securities pursuant to Section 7. 3. SHARES AVAILABLE UNDER THE DIRECTOR PLAN. Subject to adjustment as provided in Section 7, the total number of Shares reserved and available for issuance under the Director Plan shall not exceed 5 percent of the Company's share capital. Such Shares may be authorized but unissued Shares, treasury Shares, or Shares acquired in the market for the account of the Participant. For purposes of the Director Plan, Shares that may be purchased upon exercise of an Option will not be considered to be available after such Option has been granted, except for purposes of issuance in connection with such Option; PROVIDED, HOWEVER, that, if an Option expires for any reason without having been exercised in full, the Shares subject to the unexercised portion of such Option will again be available for issuance under the Director Plan. 4. ADMINISTRATION OF THE DIRECTOR PLAN. The Director Plan will be administered by the board of directors (the "Board") of the Company; PROVIDED, HOWEVER, that any action by the Board relating to the Director Plan will be taken only if, in addition to any other required vote, such action is approved by the affirmative vote of a majority of the directors who are not then eligible to participate in the Director Plan. 5. ELIGIBILITY. Each director of the Company who, on any date on which an Option is to be granted under Section 6, is not an employee of the Company or any subsidiary of the Company will be eligible, at such date, to be granted an Option under Section 6. No person other than those specified in this Section 5 will be eligible to participate in the Director Plan. 6. OPTIONS. An Option to purchase the number of Shares equal to $50,000 divided by the Fair Market Value of the Shares on the date of the grant, subject to adjustment as provided in Section 7, will be automatically granted, (i) at the effective date of initial election to the Board, to each person so elected or appointed who is eligible under Section 5 at that date (the "Initial Grant"). In addition, an Option to purchase the number of Shares equal to $50,000 divided by the Fair Market Value of the Shares on the date of the grant, subject to adjustment as provided in Section 7, will be automatically granted, at the close of business of each annual meeting of shareholders of the Company, to each member of the Board who is eligible under Section 5 at the close of business of such annual meeting (the "Annual Grant"). Notwithstanding the foregoing, any person who received an Initial Grant shall not automatically receive an Annual Grant at the first annual meeting of shareholders if such annual meeting takes place within three months of the effective date of such person's receipt of an Initial Grant. 2 (a) EXERCISE PRICE. The exercise price per Share purchasable upon exercise of an Option will be equal to 100% of the Fair Market Value of a Share on the date of grant of the Option. (b) OPTION EXPIRATION. A Participant's Option will expire at the earlier of (i) 10 years after the date of grant or (ii) one year after the date the Participant ceases to serve as a director of the Company for any reason. (c) EXERCISABILITY. Each Option may be exercised commencing immediately upon its grant. (d) METHOD OF EXERCISE. A Participant may exercise an Option, in whole or in part, at such time as it is exercisable and prior to its expiration, by giving written notice of exercise to the Secretary of the Company, specifying the Option to be exercised and the number of Shares to be purchased, and paying in full the exercise price in cash (including by check) or by surrender of Shares already owned by the Participant having a Fair Market Value at the time of exercise equal to the exercise price, or by a combination of cash and Shares. 7. ADJUSTMENT PROVISIONS. (a) RECAPITALIZATION. The aggregate number of Shares as to which Options may be granted to Participants, the number of Shares thereof covered by each outstanding Option granted or to be granted in accordance with the formula set forth in Section 6 hereof, and the price per Share thereof in each such Option, shall all be proportionately adjusted for any increase or decrease in the number of issued Shares resulting from a subdivision or consolidation of Shares or other capital adjustment, or the payment of a Share dividend or other increase or decrease in such Shares, effected without receipt of consideration by the Company, or other change in corporate or capital structure; provided, however, that any fractional shares resulting from any such adjustment shall be eliminated. The Board may also make the foregoing changes and any other changes, including changes in the classes of securities available, to the extent it is deemed necessary or desirable to preserve the intended benefits of the Director Plan for the Company and the Participants in the event of any other reorganization, recapitalization, merger, consolidation, spin-off, extraordinary dividend or other distribution or similar transaction. Notwithstanding any other provision of the Director Plan, the Board may cause any Option granted hereunder to be canceled in consideration of a cash payment or alternative award made to the holder of such canceled Option equal in value to the Fair Market Value of such canceled Option. Notwithstanding anything to the contrary in this Section 7, no issuance of Shares effected pursuant to the terms of the Buy-Sell Agreement dated as of August 6, 1996 by and among, inter alia, the Company, Consolidated Commodities Ltd., Argentum LLC and Silver Holdings LDC or certain entities affiliated therewith, that does not constitute 3 a change in control shall result in any adjustment to the number or value of any Shares to be issued pursuant to any Option hereunder. (b) INSUFFICIENT NUMBER OF SHARES. If at any date an insufficient number of Shares are available under the Director Plan for the automatic grant of Options, Options will be automatically granted proportionately to each eligible director, to the extent Shares are then available (provided that no fractional Shares will be issued upon exercise of any Option) and otherwise as provided under Section 6. 8. CHANGES TO THE DIRECTOR PLAN. The Board may amend, alter, suspend, discontinue, or terminate the Director Plan or authority to grant Options under the Director Plan without the consent of shareholders or Participants, except that any amendment or alteration will be subject to the approval of the Company's shareholders at or before the next annual meeting of shareholders for which the record date is after the date of such Board action if such shareholder approval is required by any U.S. federal or state law or regulation or the rules of any stock exchange or automated quotation system as then in effect, and the Board may otherwise determine to submit other such amendments or alterations to shareholders for approval; PROVIDED, HOWEVER, that, without the consent of an affected Participant, no such action may materially impair the rights of such Participant with respect to any previously granted Option or any previous payment of fees in the form of Shares. 9. GENERAL PROVISIONS. (a) AGREEMENTS. Options may be evidenced by agreements or other documents executed by the Company and the Participant incorporating the terms and conditions set forth in the Director Plan, together with such other terms and conditions not inconsistent with the Director Plan, as the Board may from time to time approve. (b) COMPLIANCE WITH LAWS AND OBLIGATIONS. The Company will not be obligated to issue or deliver Shares in connection with any Option in a transaction subject to the registration requirements of the Securities Act of 1933, as amended, or any other U.S. federal or state securities law, any requirement under any listing agreement between the Company and any stock exchange or automated quotation system, or any other law, regulation, or contractual obligation of the Company, until the Company is satisfied that such laws, regulations, and other obligations of the Company have been complied with in full. Certificates representing Shares issued under the Director Plan will be subject to such stop-transfer orders and other restrictions as may be applicable under such laws, regulations, and other obligations of the Company, including any requirement that a legend or legends be placed thereon. (c) LIMITATIONS ON TRANSFERABILITY. Options will not be transferable by a Participant except by will or the laws of descent and distribution or to a Beneficiary in the event of the Participant's death, and, if exercisable, shall be 4 exercisable during the lifetime of a Participant only by such Participant or his guardian or legal representative. Notwithstanding the foregoing, the Committee may, in its discretion, authorize all or a portion of the Options granted to a Participant to be on terms which permit transfer by such Participant to (i) the spouse, children or grandchildren of such Participant ("Immediate Family Members"), (ii) a trust or trusts for exclusive benefit of such Immediate Family Members, or (iii) a partnership in which such Immediate Family Members are the only partners, provided that (x) there may be no consideration for any such transfer, (y) the Option must be approved by the Committee and must expressly provide for transferability in a manner consistent with this Section, and (z) subsequent transfers of transferred Options shall be prohibited except those occurring by laws of descent and distribution. Following transfer, any such awards shall continue to be subject to the same terms and conditions as were applicable immediately prior to transfer, provided that for purposes of the Director Plan, the term Participant shall be deemed to refer to the transferee. Options may not be pledged, mortgaged, hypothecated or otherwise encumbered, and shall not be subject to the claims of creditors. (d) NO RIGHT TO CONTINUE AS A DIRECTOR. Nothing contained in the Director Plan or any agreement hereunder will confer upon any Participant any right to continue to serve as a director or advisory director of the Company. (e) NO SHAREHOLDER RIGHTS CONFERRED. Nothing contained in the Director Plan or any agreement hereunder will confer upon any Participant (or any person or entity claiming rights by or through a Participant) any rights of a shareholder of the Company unless and until Shares are in fact issued to such Participant (or person) or, in the case an Option, such Option is validly exercised in accordance with Section 6. (f) NONEXCLUSIVITY OF THE DIRECTOR PLAN. Neither the adoption of the Director Plan by the Board nor its submission to the shareholders of the Company for approval shall be construed as creating any limitations on the power of the Board to adopt such other compensatory arrangements for directors as it may deem desirable. (g) GOVERNING LAW. The validity, construction, and effect of the Director Plan and any agreement hereunder will be determined in accordance with the laws of the Cayman Islands. 10. SHAREHOLDER APPROVAL, EFFECTIVE DATE, AND DIRECTOR PLAN TERMINATION. The Director Plan will be effective as of the date of its adoption by the Board, subject to shareholder approval prior to the commencement of the Initial Public Offering, and, unless earlier terminated by action of the Board, shall terminate at such time as no Shares remain available for issuance 5 under the Director Plan and the Company and Participants have no further rights or obligations under the Director Plan. 6 EX-10.7 8 REGISTRANT'S EMPLOYEES' SHARE OPTION PLAN Exhibit 10.7 APEX SILVER MINES LIMITED EMPLOYEES' SHARE OPTION PLAN I. PURPOSE. -------- The purpose of the Apex Silver Mines Limited (the "Company") Employees' Share Option Plan (the "Employee Plan") is to attract and retain and provide incentives to employees, officers, consultants and agents of the Company, and to thereby increase overall shareholder value. The Employee Plan generally provides for the granting of Shares options, Shares appreciation rights, restricted shares or any combination of the foregoing to the eligible participants. II. DEFINITIONS. ------------ (a) "Award" includes, without limitation, Share options (including incentive Share options within the meaning of Section 422(b) of the Code) with or without stock appreciation rights, dividend equivalent rights, Share awards, restricted Share awards, or other awards that are valued in whole or in part by reference to, or are otherwise based on, Shares ("other Share-based Awards"), all on a stand alone, combination or tandem basis, as described in or granted under this Employee Plan. (b) "Award Agreement" means a written agreement setting forth the terms and conditions of each Award made under this Employee Plan. (c) "Board" means the Board of Directors of the Company. (d) "Cause" means (i) the commission of a felony or a crime involving moral turpitude or the commission of any other act involving dishonesty, disloyalty or fraud with respect to the Company, (ii) conduct tending to bring the Company into substantial public disgrace or disrepute, (iii) substantial and repeated failure to perform duties as reasonably directed by the Board, (iv) gross negligence or willful misconduct with respect to the Company or any of its Subsidiaries, or (v) any other material breach of any agreement between the Participant and the Company or its Subsidiaries which is not cured within 15 days after written notice thereof to the Participant. (e) "Change of Control" shall be deemed to have occurred if, at any time following the Effective Date, (i) two of the three Founders sell or dispose of 50 percent or more of the Shares held by such Founders on the Effective Date to any Person who was not either (A) an Affiliate of the Company on the Effective Date, or (B) a Permitted Transferee, (ii) at least two of the three Founders, or their respective designees, do not continue as senior managers or members of the Board other than as a result of death or Disability, or (iii) all or substantially all of the Company's assets are sold. (f) "Code" means the Internal Revenue Code of 1986, as amended from time to time. (g) "Committee" means the Compensation Committee of the Board or such other committee of the Board as may be designated by the Board from time to time to administer this Employee Plan, provided however, that the Committee shall consist of at least two (2) nonemployee directors within the meaning of Rule 16b-3(b)(3). (h) "Shares" means the Company's ordinary shares, par value US$0.01 and other rights with respect to such shares. (i) "Company" means Apex Silver Mines Limited, an exempted limited liability company organized and existing under the laws of the Cayman Islands. (j) "Disability" means the Participant's inability, due to illness, accident, injury, physical or mental incapacity or other disability, to carry out effectively his duties and obligations to the Company and its Subsidiaries or to participate effectively and actively in the management of the Company and its Subsidiaries for a period anticipated to last at least six (6) months, as determined in the good faith judgment of the Board. In the event the Company adopts a plan which provides for long-term disability insurance, "Disability" shall have the meaning set forth in such plan. (k) "Employee" means an employee of the Company or a Subsidiary. (l) "Fair Market Value" means the closing price for the Shares as officially reported on the relevant date (or if there were no sales on such date, on the next preceding date on which such closing price was recorded) by the principal national securities exchange on which the Shares are listed or admitted to trading, or, if the Shares are not listed or admitted to trading on any such national securities exchange, the closing price as furnished by the National Association of Securities Dealers through NASDAQ or a similar organization, or if NASDAQ is no longer reporting such information, or, if the Shares are not quoted on NASDAQ, as determined in good faith by resolution of the Committee (whose determination shall be conclusive), based on the best information available to it. 2 (m) "Founders" means Consolidated Commodities Ltd., Argentum LLC and Silver Holdings LDC and their respective shareholders or affiliates as of the date hereof. (n) "Participant" means an employee, officer, consultant or agent who has been granted an Award under the Plan. (o) "Plan Year" means a twelve-month period beginning with January 1 of each year. (p) "Qualified Public Offering" means the sale in a firm commitment underwritten public offering registered under the Securities Act of Shares. (q) "Retirement" means (i) a Participant's retirement from the Company or a Subsidiary, as applicable (other than for Cause), or (ii) as otherwise defined by the Committee. (r) "Subsidiary" means any corporation or other entity, whether organized under the laws of the Cayman Islands or any other jurisdiction, in which the Company has or obtains, directly or indirectly, a proprietary interest of more than 50 percent by reason of Shares ownership or otherwise. III. ELIGIBILITY. ------------ Any person selected by the Committee who is an employee, officer, consultant or agent of the Company or any Subsidiary, selected by the Committee is eligible to receive an Award. Notwithstanding the foregoing, only employees of the Company and any present or future corporation which is or may be a "subsidiary corporation" of the Company (as such term is defined in Section 424(q) of the Code) shall be eligible to receive incentive Share options. IV. EMPLOYEE PLAN ADMINISTRATION. ----------------------------- (a) Except as otherwise determined by the Board, the Employee Plan shall be administered by the Committee. The Board, or the Committee to the extent determined by the Board, shall periodically make determinations with respect to the participation of employees, officers, consultants and agents in the Employee Plan and, except as otherwise required by law or this Employee Plan, the grant terms of Awards, including vesting schedules, exercise, awards price, restriction or option period, dividend rights, post-retirement and termination rights, payment alternatives such as cash, Shares, contingent awards or other means of payment consistent with the purposes of this Employee Plan, and such other terms and conditions as the 3 Board or the Committee deems appropriate which shall be contained in an Award Agreement with respect to a Participant. (b) The Committee may delegate to one or more of its members or to any other persons such ministerial duties as it may deem advisable. The Committee may also employ attorneys, consultants, accountants, or other professional advisors and shall be entitled to rely upon the advice, opinions or valuations of any such advisors. (c) The Committee shall have authority to interpret and construe the provisions of the Employee Plan and any Award Agreement and make determinations pursuant to any Employee Plan provision or Award Agreement which shall be final and binding on all persons. No member of the Committee shall be liable for any action or determination made in good faith, and the members shall be entitled to indemnification and reimbursement in the manner provided in the Company's Memorandum and Articles of Association, as the same may be amended from time to time, or as otherwise provided in any agreement between any such member and the Company. (d) No member of the Committee, nor any person to whom ministerial duties have been delegated, shall be personally liable for any action, interpretation or determination made with respect to the Employee Plan or awards made thereunder and each member of the Committee shall be fully indemnified and protected by the Company with respect to any liability he or she may incur with respect to any such action, interpretation or determination, to the extent permitted by applicable law and to the extent provided in the Company's Memorandum and Articles of Association, as amended from time to time, or under any agreement between any such member and the Company. (e) The Committee shall have the authority at any time to provide for the conditions and circumstances under which Awards shall be forfeited. The Committee shall have the authority to accelerate the vesting of any Award and the times at which any Award becomes exercisable. V. SHARES SUBJECT TO THE PROVISIONS OF THIS PLAN. --------------------------------------------- (a) The shares of the Company's share capital subject to the provisions of this Employee Plan shall be authorized but unissued Shares and treasury Shares. Subject to adjustment in accordance with the provisions of Section X, and subject to Section V(c) below, the total number of Shares available for grants of Awards shall not exceed 10 percent of the Company's share capital. (b) The grant of a restricted Share Award shall be deemed to be equal to the maximum number of Shares which may be issued under the 4 Award. Awards payable only in cash will not reduce the number of Shares available for Awards granted under the Employee Plan. (c) There shall be carried forward and be available for Awards under the Employee Plan, in addition to Shares available for grant under paragraph (a) of this Section V, all of the following: (i) any unused portion of the limit set forth in paragraph (a) of this Section V; (ii) Shares represented by Awards which are canceled, forfeited, surrendered, terminated, paid in cash or expire unexercised; and (iii) the excess amount of variable Awards which become fixed at less than their maximum limitations. VI. AWARDS UNDER THIS EMPLOYEE PLAN . --------------------------------- As the Board or Committee may determine, the following types of Awards and other Share-based Awards may be granted under this Employee Plan on a stand alone, combination or tandem basis: (i) Share Options. A right to buy a specified number of Shares at a fixed exercise price during a specified time, all as the Committee may determine. The exercise price of options granted prior to a Qualified Public Offering shall be $8.00 per Share. The exercise price of any option granted after a Qualified Public Offering shall not be less than 100 percent of the Fair Market Value of the Shares on the date of grant of the Award unless the Committee determines that an exercise price lower than the Fair Market Value is warranted. In the case of incentive Share options granted to an employee owning (actually or constructively under Section 422(d) of the Code), more than ten percent (10%) of the total combined voting power of all classes of shares of the Company or of a Subsidiary (a "10% Shareholder"), the price of any such option shall not be less than 110 percent of the Fair Market Value of the Shares on the date of grant. (A) Limitation on Time of Grant. No grant of a Share Options --------------------------- shall be made after August 1, 2006. (B) Term. The term of each Share option granted hereunder shall ---- be determined by the Committee; provided that notwithstanding any other provision of the Employee Plan, in no event shall a Share option be exercisable after 10 years from the date it is granted. (ii) Incentive Share Options. An Award in the form of a share options which shall comply with the requirements of Section 422 of the Code or any successor section as it may be amended from time to time. (A) Limitation on Amount of Incentive Share Options. In the ----------------------------------------------- case of incentive Share options, the aggregate Fair Market 5 Value (determined at the time the incentive Share options are granted) of the Shares with respect to which incentive Share options are exercisable for the first time by any optionee during any calendar year (under all plans of the Company and any Subsidiary) shall not exceed $100,000. (B) Limitation on Time of Grant. No grant of incentive Share --------------------------- options shall be made under the Employee Plan more than ten (10) years after the date the Employee Plan is approved by shareholders of the Company. (C) Term. Notwithstanding any other provision of the Employee ---- Plan, in no event shall incentive Share options be exercisable after ten (10) years from the date they are granted, or in the case of incentive Share options granted to a 10% shareholder, five (5) years from the date they are granted. (iii) Share Appreciation Rights. Rights, which may or may not be contained in the grant of share options or incentive Share options, to receive in cash (or its equivalent value in Shares) the excess of the Fair Market Value of the Shares on the date the rights are surrendered over the options exercise price or other price specified in the Award Agreement. (iv) Restricted Shares. The issuance of Shares to a Participant subject to forfeiture until such restrictions, terms and conditions as the Committee may determine are fulfilled. (v) Dividend or Equivalent. A right to receive dividends or their equivalent in value in Shares, cash or in a combination of both with respect to any new or previously existing Award. (vi) Share Awards. The issuance of Shares, which may be on a contingent basis, to a Participant. (vii) Other Share-Based Awards. Other Share-based Awards which are related to or serve a similar function to those Awards set forth in this Section VI. VII. AWARD AGREEMENTS. ----------------- Each Award under the Employee Plan shall be evidenced by an Award Agreement setting forth the terms and conditions of the Award and executed by the Company and Participant. 6 VIII. OTHER TERMS AND CONDITIONS. --------------------------- (a) Assignability. Unless provided to the contrary in any Award, no Award shall be assignable or transferable except by will or by the laws of descent and distribution and, during the lifetime of a Participant, the Award shall be exercisable only by such Participant. (b) Termination of Employment or Other Relationship. The Committee shall determine the disposition of the grant of each Award in the event of the retirement, disability, death or other termination of a Participant's employment or other relationship with the Company or a Subsidiary. (c) Rights as a Shareholder. A Participant shall have no rights as a shareholder with respect to Shares covered by an Award until the date the Participant is the holder of record. No adjustment will be made for dividends or other rights for which the record date is prior to such date. (d) No Obligation to Exercise. The grant of an Award shall impose no obligation upon the Participant to exercise the Award. (e) Payments by Participants. The Committee may determine that Awards for which a payment is due from a Participant may be payable: (i) in U.S. dollars by personal check, bank draft or money order payable to the order of the Company, by money transfers or direct account debits; (ii) through the delivery of Shares with a Fair Market Value equal to the total payment due from the Participant; (iii) pursuant to a broker- assisted "cashless exercise" program if established by the Company; (iv) by a combination of the methods described in (i) through (iii) above; or (v) by such other methods as the Committee may deem appropriate. (f) Exercise of Awards. Awards shall be exercisable at such times, or upon the occurrence of such event or events as the Committee shall determine at or subsequent to grant. Awards may be exercised in whole or in part. Shares purchased upon the exercise of an Award shall be paid for in full at the time of such purchase. Such payment may be made (i) the deduction of withholding and any other taxes required by law will be made from all amounts paid in cash and (ii) in the case of payments of Awards in Shares, the Participant shall be required to pay the amount of any taxes required to be withheld prior to receipt of such Shares, or alternatively, a number of Shares the Fair Market Value of which equals the amount required to be withheld may be deducted from the payment. (g) Share Certificates. All Share certificates representing Shares acquired pursuant to the exercise of an option or any other award issued by the Company shall contain, until such time as their has been a Qualified Public Offering of Shares, a legend substantially in the following form: 7 "THE SECURITIES EVIDENCED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED UNDER THE UNITED STATES SECURITIES ACT OF 1933, AS AMENDED, AND MAY NOT BE SOLD, TRANSFERRED, ASSIGNED FOR HYPOTHECATED UNLESS THERE IS AN EFFECTIVE REGISTRATION STATEMENT UNDER SUCH ACT COVERING SUCH SECURITIES. THE SALE IS MADE IN ACCORDANCE WITH RULE 144 UNDER THE ACT OR THE COMPANY RECEIVES AN OPINION OF COUNSEL TO THE HOLDER OF THESE SECURITIES REASONABLY SASTISFACTORY TO THE COMPANY, STATING THAT SUCH SALE, TRANSFER, ASSIGNMENT OR HYPOTHECATION IS EXEMPT FROM THE REGISTRATION AND PROSPECTUS DELIVERY REQUIREMENTS OF SUCH. IN ADDITION, THE SECURITIES EVIDENCED BY THIS CERTIFICATE ARE SUBJECT TO CERTAIN TRANSFERS AND VOTING RESTRICTIONS PURSUANT TO A SHAREHOLDERS' AGREEMENT AMONG THE COMPANY AND CERTAIN OF THE COMPANY'S MEMBERS. A COPY OF SUCH SHAREHOLDERS' AGREEEMENT WILL BE FURNISHED WITHOUT CHARGE BY THE COMPANY TO THE HOLDER HEREOF UPON WRITTEN REQUEST." (h) Listing and Qualification of Shares. The Employee Plan and grant and exercise of options or other awards hereunder, and the obligation of the Company to sell and deliver Shares under such awards, shall be subject to all applicable United States federal and state laws, rules and regulations and to such approvals by any government or regulatory agency as may be required. The Company, in its discretion, may postpone the issuance or delivery of Shares upon any exercise of an Award until completion of any stock exchange listing, or other qualification of such Shares under any United States federal or state law rule or regulation as the Company may consider appropriate, and may require any individual to whom an Award is granted, such individual's beneficiary or legal representative, as applicable, to make such representations and furnish such information as the Committee may consider necessary, desirable or advisable in connection with the issuance or delivery of the shares in compliance with applicable laws, rules and regulations. (i) Non-Uniform Determinations. The Committee's determinations under the Employee Plan (including, without limitation, determinations of the persons to receive Awards, the form, term, provisions, amount and timing of the grant of such Awards and of the Agreements evidencing the same) need not be uniform and may be made by it selectively 8 among persons who receive, or are eligible to receive, Awards under the Employee Plan, whether or not such persons are similarly situated. IX. TERMINATION, MODIFICATION AND AMENDMENTS. ----------------------------------------- (a) The Board may at any time terminate the Employee Plan or from time to time make such modifications or amendments of the Employee Plan as it may deem advisable; provided, however, that the Board shall not make any material amendments to the Employee Plan without the approval of at least the affirmative vote of the holders of a majority of the outstanding Shares of the Company present or represented and entitled to vote at a duly held Shareholders meeting. (b) No termination, modification or amendment of the Employee Plan may adversely affect the rights conferred by an Award without the consent of the recipient thereof. X. RECAPITALIZATION. ----------------- The aggregate number of Shares as to which Awards may be granted to Participants, the number of Shares thereof covered by each outstanding Award and by each option Award granted or to be granted in accordance with the formula set forth in paragraph (ii) of Section VI hereof, and the price per Share thereof in each such Award, shall all be proportionately adjusted for any increase or decrease in the number of issued Shares resulting from a subdivision or consolidation of Shares or other capital adjustment, or the payment of a Share dividend or other increase or decrease in such Shares, effected without receipt of consideration by the Company, or other change in corporate or capital structure; provided, however, that any fractional shares resulting from any such adjustment shall be eliminated. The Committee may also make the foregoing changes and any other changes, including changes in the classes of securities available, to the extent it is deemed necessary or desirable to preserve the intended benefits of the Employee Plan for the Company and the Participants in the event of any other reorganization, recapitalization, merger, consolidation, spin-off, extraordinary dividend or other distribution or similar transaction. Notwithstanding any other provision of the Employee Plan or the Award Agreement, the Committee may cause any Award granted hereunder to be canceled in consideration of a cash payment or alternative Award made to the holder of such canceled Award equal in value to the Fair Market Value of such canceled Award. Notwithstanding anything to the contrary in this Section X, no issuance of Shares effected pursuant to the terms of the Buy-Sell Agreement dated as of August 6, 1996 by and among, inter alia, the Company and the Founders, or certain entities affiliated therewith, that does not constitute a change in control shall result in any adjustment to the number or value of any shares to be issued pursuant to any Award hereunder. 9 XI. NO RIGHT TO EMPLOYMENT. ----------------------- No person shall have any claim or right to be granted an Award, and the grant of an Award shall not be construed as giving a Participant the right to be retained in the employ of, or in any other relationship with, the Company or any Subsidiary. Further, the Company and each Subsidiary expressly reserve the right at any time to dismiss a Participant free from any liability, or any claim under the Employee Plan, except as provided herein or in any Award Agreement issued hereunder. XII. GOVERNING LAW. -------------- To the extent that United States federal laws do not otherwise control, the Employee Plan shall be construed in accordance with and governed by the laws of the Cayman Islands. XIII. SAVINGS CLAUSE. --------------- This Employee Plan is intended to comply in all aspects with applicable laws and regulations. In case any one more of the provisions of this Employee Plan shall be held invalid, illegal or unenforceable in any respect under applicable law or regulation, the validity, legality and enforceability of the remaining provisions shall not in any way be affected or impaired thereby and the invalid, illegal or unenforceable provision shall be deemed null and void; however, to the extent permissible by law, any provision which could be deemed null and void shall first be construed, interpreted or revised retroactively to permit this Employee Plan to be construed in compliance with all applicable laws so as to foster the intent of this Plan. XIV. EFFECTIVE DATE AND TERM. ------------------------ The effective date of this Employee Plan is August 1, 1996. The Employee Plan shall terminate on the tenth anniversary of the date of the adoption of this Employee Plan. No awards shall be granted after the termination of the Employee Plan. 10 EX-10.8 9 FORM OF REGISTRANT'S SHARE OPTION AGREEMENT Exhibit 10.8 APEX SILVER MINES LIMITED SHARE OPTION AGREEMENT This Share Option Agreement (the "Agreement"), made as of the [ ] -- day of [DATE OF ISSUANCE OF OPTION], by and between Apex Silver Mines Limited, an exempted limited liability company duly formed and existing under the laws of the Cayman Islands (the "Company"), and [ ] (the "Participant"). ------- WHEREAS, the Company desires to encourage and enable the Participant tO acquire a proprietary interest in the Company through the ownership of the Company's ordinary shares, par value US$0.01 per share (the "Shares") pursuant to the terms and conditions of the Apex Share Option Employee Plan (the "Employee Plan") and this Agreement. Such ownership will provide the Participant with a more direct stake in the future welfare of the Company and encourage the Participant to remain with the Company and/or its Subsidiaries, as applicable. NOW, THEREFORE, in consideration of the mutual covenants hereinafter set forth and for other good and valuable consideration, the parties agree as follows: 1. DEFINITIONS. For purposes of this Agreement, all capitalized ------------ terms used herein and not otherwise defined herein shall have the meanings ascribed to them in the Employee Plan. 2. GRANT OF OPTION. The Company hereby grants to the Participant a --------------- non-qualified (unapproved) option (the "Option") to purchase l ] Shares at a share exercise price (the "Exercise Price") of $8.00 per Share, subject to the terms hereof. 3. OPTION TERM. The Option granted hereby is granted for a period ------------ of 10 years and shall expire on [A DATE NO LATER THAN THE TENTH ANNIVERSARY HEREOF] (the "Expiration Date"). No Option may be exercised after the Expiration Date. 4. WHEN VESTED AND EXERCISABLE. Subject to Section 5, the Option --------------------------- shall vest and be exercisable by the Participant in accordance with the following schedule: YEARS TO DATE AMOUNT OF GRANT VESTED -------- ------ One *% Two *% Three *% Four *% Five *% 5. TERMINATION OF EMPLOYMENT: DEATH; DISABILITY; RETIREMENT; CAUSE. -------------------------------------------------------------- (a) If the services of a Participant who holds an unexercised Option are terminated for any reason other than death, Disability, Retirement, or Cause, the portion of the Option that was not vested on the date of such termination of employment shall expire and be forfeited; however, the vested portion of the Option shall be exercisable by the Participant at any time prior to the Expiration Date of the Option or within 180 days after the date of such termination of employment, whichever is earlier. Any Option not exercised within the period described in the preceding sentence, for whatever reason, shall terminate. (b) In the event of the Disability or Retirement of a Participant, the unvested portion of the Option shall immediately vest and the entire Option which is held by such Participant on the date of such Disability or Retirement shall be exercisable at any time until the Expiration Date of the Option or within 12 months and one day after the date of termination of employment, whichever is earlier. Any Option not exercised within the period described in the preceding sentence, for whatever reason, shall terminate. (c) In the event of the death of a Participant while an employee of the Company or any Subsidiary, the unvested portion of the Option shall immediately vest and the entire Option which is held by such Participant at the date of death shall be exercisable by the beneficiary designated by the Participant for such purpose (the "Designated Beneficiary") or if no Designated Beneficiary shall be appointed or if the Designated Beneficiary shall predecease the Participant, by the Participant's personal representatives, heirs or legatees at any time within 12 months and one day from the date of death. Any Option not exercised within the period described in the preceding sentence, for whatever reason, Shall terminate. 2 (d) In the event of the death of a Participant following a termination of employment due to Retirement or Disability, if such death occurs before the Option is exercised, the Option held by such Participant on the date of termination of employment shall be exercisable by such Participant's Designated Beneficiary, or if no Designated Beneficiary shall be appointed or if the Designated Beneficiary shall predecease such Participant, by such Participant's personal representatives, heirs or legatees, to the same extent such Option was exercisable by the Participant following such termination of employment. (e) In the event the Participant is terminated for Cause, the Option (including any vested portion) shall be forfeited as of the date of termination. 6. CHANGE OF CONTROL. Subject to Section 5, in the event of a ----------------- Change in Control, the Company shall give the Participant notice thereof and the Option, whether or not currently vested and exercisable, shall become immediately vested and exercisable as of the effective date of the Change of Control. 7. NON-ASSIGNABILITY. The Option granted hereby and any right ----------------- arising thereunder may not be transferred, assigned, pledged or hypothecated (whether by operation of law or otherwise), except as provided by testate or the applicable laws of descent and distribution, and the Option and any right arising thereunder shall not be subject to execution, attachment or similar process. Any attempted assignment, transfer, pledge, hypothecation or other disposition of an Option not specifically permitted herein shall be null and void and without effect. An Option may be exercised by the Participant only during his or her lifetime, or following his or her death pursuant to Section 5(c) hereof. 8. TRANSFER RESTRICTIONS. At any time prior to the consummation of --------------------- a Qualified Public Offering of the Shares, each Share acquired by an exercise of an Option granted under the Employee Plan may not be transferred other than by the laws of descent and distribution. The Participant acknowledges that the Shares will be purchased for investment only. The Participant further understands that the Shares issuable upon the exercise of the Option will contain the following legend: "THE SHARES OF APEX SILVER MINES LIMITED EVIDENCED BY THIS CERTIFICATE ARE SUBJECT TO THE TERMS AND RESTRICTIONS OF THE APEX SHARE OPTION EMPLOYEE PLAN. SUCH SHARES MAY NOT BE SOLD, TRANSFERRED, ASSIGNED, PLEDGED, ENCUMBERED OR OTHERWISE ALIENATED OR HYPOTHECATED EXCEPT PURSUANT TO THE PROVISIONS OF SUCH EMPLOYEE PLAN 3 AND THE AGREEMENT ENTERED INTO PURSUANT THERETO, A COPY OF SUCH EMPLOYEE PLAN AND AGREEMENT ARE AVAILABLE FROM THE SECRETARY OF APEX SILVER MINES LIMITED UPON REQUEST." 9. MODE OF EXERCISE. Subject to section 5, the Option may be ---------------- exercised in whole or in part. Shares purchased upon the exercise of the Option shall be paid for in full at the time of such purchase. Such payment shall be made in cash or by wire transfer in immediately available funds in either event denominated in the lawful currency of the United States. Upon receipt of notice of exercise and payment in accordance with procedures to be established by the Committee, the Company or its agent shall deliver to the person exercising the Option (or his or her designee) a certificate for such Shares. [Payment for this Option may also be made by cashless exercise.] 10. OPTION SUBJECT TO THE EXCHANGE ACT AND OTHER REGULATIONS. An -------------------------------------------------------- Option granted hereunder shall be subject to the requirement that if at any time the Committee or the Board, as the case may be, shall determine, in its discretion, that the listing, registration or qualification of the Shares subject to the Option upon any securities exchange or under any state or federal securities or other law or regulation, or the consent or approval of any governmental regulatory body, is necessary or desirable as a condition to or in connection, with the granting of the Option or the issuance or purchase of Shares thereunder, no Option may be granted or exercised, in whole or in part, unless such listing, registration, qualification, consent or approval shall have been effected or OBTAINED FREE OF ANY conditions not acceptable to the Committee or the Board. The holders of such Option shall supply the Company with such certificates, representations and information as the Company shall request and shall otherwise cooperate with the Company in obtaining such listing, registration, qualification, consent or approval. If the Company, as part of an offering of securities or otherwise, finds it desirable because of United States federal or state regulatory requirements to reduce the period during which any Option may be exercised, the Committee or the Board may, in its discretion and without the Participant's consent, so reduce such period on not less than 15 days' written notice to the holders thereof. 11. ANTIDILUTION ADJUSTMENTS. The aggregate number of Shares as ------------------------ to which Awards may be granted to Participants, the number of Shares thereof covered by each outstanding Award and by each option Award granted or to be granted in accordance with the formula set forth in paragraph (ii) of Section VI hereof, and the price per Share thereof in each such Award, shall all be proportionately adjusted for any increase or decrease in the number of issued Shares resulting from a subdivision or consolidation of Shares or other capital adjustment, or the payment of a Share dividend or other increase or decrease in such Shares, effected without receipt of consideration by the Company, or other change in corporate or capital structure; provided, however, that any fractional shares resulting from any such adjustment shall 4 be eliminated. The Committee may also make the foregoing changes and any other changes, including changes in the classes of securities available, to the extent it is deemed necessary or desirable to preserve the intended benefits of the Employee Plan for the Company and the Participants in the event of any other reorganization, recapitalization, merger, consolidation, spin-off, extraordinary dividend or other distribution or similar transaction. Notwithstanding any other provision of the Employee Plan or the Award Agreement, the Committee may cause any Award granted hereunder to be canceled in consideration of a cash payment or alternative Award made to the holder of such canceled Award equal in value to the Fair Market Value of such canceled Award. Notwithstanding anything to the contrary in this Section X, no issuance of Shares effected pursuant to the terms of the Buy-Sell Agreement dated as of August 6, 1996 by and among, inter alia, the Company and the Founders, or certain entities affiliated therewith, that does not constitute a change in control shall result in any adjustment to the number or value of any shares to be issued pursuant to any Award hereunder. 12. EMPLOYEE PLAN CONTROLLING. This Agreement is intended to ------------------------- conform in all respects with the Employee Plan. Inconsistencies between this Agreement and the Employee Plan shall be resolved according to the terms of the Employee Plan. The Participant acknowledges receipt of a copy of the Employee Plan. 13. RIGHTS PRIOR TO EXERCISE OF OPTION. The Participant shall not ---------------------------------- have any rights as a shareholder with respect to any Shares subject to the Option prior to the date on which he is recorded as the holder of such Shares on the records of the Company. 14. TAXES. The Company shall have the right to require ----- Participants or their beneficiaries or legal representatives to remit to the Company an amount sufficient to satisfy any Cayman Islands or United States federal, state and local withholding tax requirements. Whenever payments under the Employee Plan are to be made to any Participant in cash, such payments shall be net of any amounts sufficient to satisfy all applicable taxes, including without limitation, all applicable Cayman Islands or United States federal, state and local withholding tax requirements. The Committee may, in its sole discretion, permit a Participant to satisfy his or her tax withholding obligation either by (i) surrendering Shares owned by the Participant or (ii) having the Company withhold from Shares otherwise deliverable to the Participant. Shares surrendered or withheld shall be valued at their Fair Market Value as of the date on which income is required to be recognized for income tax purposes. 15. NO LIABILITY OF BOARD MEMBERS. No member of the Board shall be ----------------------------- personally liable by reason of any contract or other instrument executed by such member or on his behalf in his capacity as a member of the Board nor for any mistake of judgment made in good faith. 5 * * * * * 6 16. GOVERNING LAW. This Agreement and all rights arising hereunder ------------- shall be governed by, and construed and interpreted in accordance with, the laws of the Cayman Islands. THE EMPLOYEE PLAN AND THIS AGREEMENT SHALL NOT BE CONSTRUED AS GIVING THE PARTICIPANT THE RIGHT TO BE RETAINED IN THE EMPLOY OF THE CORPORATION OR ANY SUBSIDIARY THEREOF, NOR SHALL THEY INTERFERE IN ANY WAY WITH THE RIGHT OF THE CORPORATION OR ANY SUBSIDIARY THEREOF, AS APPLICABLE, TO TERMINATE THE PARTICIPANT'S EMPLOYMENT AT ANY TIME WITH OR WITHOUT CAUSE. Executed as of the day and year first above written. APEX SILVER MINES LIMITED By: __________________________________ Name: Title: PARTICIPANT By: ___________________________________ Name: Title 7 EX-10.9 10 EMPLOYMENT CONTRACT - MARCEL F. DEGUIRE EXHIBIT 10.9 APEX SILVER MINES LIMITED Caledonian House Mary Street, P.O. Box 1043 George Town, Grand Cayman Cayman Islands July 23, 1996 Mr. Marcel F. DeGuire 1079 Soda Creek Drive Evergreen, Colorado 80439 Re: Apex Silver Mines Limited Offer Of Employment Dear Mac, In line with our recent discussions, we are pleased to present herein the terms of our employment offer with Apex Silver Mines Limited or its United States affiliate as applicable (collectively the "Company"). I. THE POSITION We have discussed, at some length, the content of the job and I believe we are in agreement on it. As I now envision it the principal responsibilities of this position involve: . Developing initial evaluations of all the Company's mineral projects by preparing economic models; . Preparing and maintaining on an ongoing basis priorities for further evaluation and development and projections for the further evaluation and development of requisite capital costs; . Developing economic models for new mining opportunities brought into the Company; . Overseeing the preparation of prefeasibility and feasibility studies and participating in them at key points; . Identifying the critical scheduling elements of each development project; . Overseeing design, development and construction of projects; . Providing technical services to the ongoing operations; . Monitoring the technical performance of the properties; . Reviewing major capital expenditures for technical performance and economics; Mr. Marcel DeGuire July 23, 1996 Page 2 . Acting as the Company's eyes and ears for new technical developments; . Monitoring all environmental activities. You will report to the Executive Vice President, Development and Operations. You will be an officer of the Company with the title of Vice President. Naturally, you agree all information concerning the Company business will be treated as confidential. You will be based in Denver, Colorado, and travel will be based upon the requirements of the position. You agree to devote your full working time to the Apex Silver Mines Group of companies. II. START DATE You may start employment with us at a mutually agreed upon date. Your compensation and benefits will commence on your first day of employment. Your base compensation will be reviewed on a formal basis at least once every two years. III. COMPENSATION 1. BASE COMPENSATION You will be paid an annual base compensation of US$180,000, payable monthly. 2. BENEFITS The Company presently has no benefit plans (because it has no employees; our present staff of 15 people for the most part function as independent contractors mostly on a full-time basis). We (assisted by Anderson & Schwab) are in the process of establishing an appropriate and attractive benefits package that reflects competitive U.S. mining industry practice. We invite you to provide your inputs as well. 3. STOCK OPTIONS You will be eligible for participation in the Company's stock option plan. Thus, we will provide you with options on approximately $500,000 of stock of Apex Silver Mines Limited at a price to be determined by the current private placement program being managed by Salomon and S. G. Warburg. You will vest in these options over a four year period at 25 percent per year. You will be eligible to vest immediately upon joining the Company, at which time you will be subject to the same shareholders' agreement entered into by all Apex's shareholders. Mr. Marcel DeGuire July 23, 1996 Page 3 4. VACATION You will be eligible for four weeks vacation per year. 5. REIMBURSABLE EXPENSES You will be reimbursed for all expenses incurred in connection with travel on Company business. IV. SEVERANCE AGREEMENT In the event the Company should desire to terminate your employment, except for cause, within three years after your employment starting date, you will be entitled to severance pay for a twelve-month period at your existing salary, as well as a continuation of your benefits. Upon such an occurrence, bonus awards and stock options will be suspended. You agree that in the event you leave Apex that for a period of two years you will not join any company whose primary business is the acquisition and development of silver mines. * * * * I have enjoyed getting acquainted with you over the last several months. As a result of getting to know you, I believe that you can make a major contribution to our business and that you will find the work interesting and challenging. I hope you will find these terms of employment attractive. If you accept it, please sign in the space indicated below and return the designated copy to us. Sincerely, /s/ Thomas S. Kaplan -------------------- Thomas S. Kaplan Chairman AGREED TO AND ACCEPTED: - ----------------------- /s/ Marcel F. DeGuire --------------------- Marcel F. DeGuire August 5, 1996 -------------- Date EX-10.10 11 EMPLOYMENT CONTRACT - GREGORY MARLIER Exhibit 10.10 APEX SILVER MINES LIMITED Caledonian House Mary Street, P.O. Box 1043 George Town, Grand Cayman Cayman Islands September 26, 1996 Mr. Gregory G. Marlier 6237 South Locust Street Englewood, CO 80111 Re: Apex Silver Mines Limited Offer Of Employment Dear Greg, In line with our recent discussions, we are pleased to present herein the terms of our employment offer with Apex Silver Mines Limited or its United States affiliate as applicable (collectively the "Company"). I. THE POSITION The principal responsibilities of this position involve: . Formulate, with the approval of the CEO, the company's financial policies. . Develop and manage the company's financial controls. . Administer and manage the company's accounting structure, systems, and processes. . Prepare, issue and explain the company's financial statements. . Administer the company's budgetary process. . Manage the company's cash. . Be responsible for all internal audit activities. . Be responsible for all tax activities, to include policies and execution. . Take the lead in structuring the financial aspects of mining deals. . Play a hands-on-role in preparation and management of all financial structures for financings. . Play a hands-on role in selecting the company's offices in Denver and negotiating the deal for the space and furnishings. Mr. Gregory G. Marlier September 26, 1996 Page 2 . Supervise the company's administration functions to include the administrative aspects of its human resource activities. . Handle the company's SEC filings (when the company becomes public). Naturally, you agree that all information concerning the Company's business will be treated as confidential. You will be based in Denver, Colorado, and travel will be based upon the requirements of the position. You agree to devote your full working time to the Apex Silver Mines Group of companies. II. TITLE AND REPORTING RELATIONSHIPS 1. TITLE Your title will be Vice President Finance & Controller. 2. REPORTING RELATIONSHIPS You will report directly to the CEO. III. START DATE You may start employment with us at a mutually agreed upon date. Your compensation and benefits will commence on your first day of employment. IV. COMPENSATION 1. BASE COMPENSATION You will be paid an annual base compensation of US$125,000, payable monthly. Your first review of base compensation will be in 18 months of your joining the company. 2. BONUS I plan to install a Performance Bonus Plan at Apex covering the Calendar Year 1998 to be paid out according to the provisions of the Performance Bonus Plan when it is adopted which will undoubtedly occur after 1998. Mr. Gregory G. Marlier September 26, 1996 Page 3 3. BENEFITS Quite obviously a mining junior does not compete with a major mining company in terms of providing a complete comprehensive and top of the line benefit plan. However, I plan to install an appropriate personnel benefit plan for Apex's U.S. based executives at the earliest possible time. In that regard, as you may know, I recently commissioned Anderson & Schwab to conduct a compensation and benefit survey comprising juniors, intermediate and senior mining companies. I then asked A&S to recommend what they considered to be relevant competitive benefit plans that would be suitable for Apex. These plans, which are discussed below represent our present thinking on benefits that we plan to adopt for Apex. Although these plans are likely to be adopted, they have not yet been finalized. Apex' intent with regard to each benefit plan is as follows:
Title of Plan Likely Apex Plan ------------- ---------------- Medical Plan HMO or PPO. If PPO: 80/20 coverage, deductible $200 per person, $400 per family, annual maximum $1,000 per person, $2,000 per family, $1,000,000 lifetime maximum. Dental Plan Either a plan with a $150 family deductible and $1,250 maximum annual benefit or a Dental HMO. Vision Plan None, but a Medical Reimbursement Account is contemplated, funded by the Company, that can be used for certain health care expenditures such as vision. Short-Term Disability 6 months full pay based on service.
Mr. Gregory G. Marlier September 26, 1996 Page 4 Long-Term Disability 66% of pay up to $12K per month. Survivor Benefit Plan Probably won't have one Life Insurance Plan 2 x salary at $500K maximum AD&D Insurance Plan 2 x salary at $500K maximum Travel Accident Insurance Plan Covered by life insurance and AD&D insurance Savings Plan 401K plan or equivalent savings plan with company matching 50% of individual's contribution up to 6% of individual's salary up to a federally mandated cap, which is currently $150K. Increase in Apex's contributions to be considered when company is in production and has a positive cash flow. Pension Plan Some form of pension to be considered in the long-term future.
Should you accept this offer of employment, it is our intent to work with you regarding your being covered under these plans in a timely way. This work will be done by A&S' Dick Hinkel, who is a career long human resources specialist whose prior assignment (for fifteen years) was as Vice President, Human Resources, for Homestake Mining. Dick took the lead in doing the compensation and benefits survey described above. 4. STOCK OPTIONS You will be eligible for participation in the Company's stock option plan. Thus, we will provide you with options on approximately $225,000 of stock of Apex Silver Mines Limited. The price of Apex's stock is based on the value of the company (US $160 million) as was determined by the recent successful completion of our private placement. . You will vest in these options over a four year period at 25 percent per year. Mr. Gregory G. Marlier September 26, 1996 Page 5 . You will be eligible to vest 25% immediately upon joining the Company, at which time you will be subject to the same shareholders' agreement entered into by all Apex's shareholders. V. OTHER 1. VACATION Four weeks vacation per year. 2. REIMBURSABLE EXPENSES . You will be reimbursed in accordance with company policy and guidelines for all reasonable expenses incurred in connection with travel on company business. . The company is considering and probably will adopt the policy of providing corporate credit cards to cover travel, hotel, etc. However, a final judgment on this point has not been made. . As to class of travel, domestic travel will be coach and all international travel will be business class. . Frequent flyer miles will be the property of the user. 3. YOUR PAY Upon joining, and until Apex establishes a Denver office, you will be paid by wire to your bank account. 4. COMPANY OFFICE The company will establish a Denver office but it will take a while to do so. Until then the company will require that you work out of your home when you are in Denver. This, of course, means that if it will take a month or even longer before an office is established, that the company would expect you to put in a separate business telephone line and a fax machine for which they would reimburse you fully for both installation and use. If you find for this interim period your home to be an unacceptable place to work, then the company will arrange some type of interim office arrangements. Mr. Gregory G. Marlier September 26, 1996 Page 6 VI. SEVERANCE AGREEMENT In the event the Company should desire to terminate your employment, except for cause, within three years after your employment starting date, you will be entitled to severance pay for a twelve-month period at your existing salary, as well as a continuation of your benefits. Upon such an occurrence, bonus awards and stock options will be suspended. You agree that in the event you leave Apex that for a period of two years you will not join any company whose primary business is the acquisition and development of silver mines. * * * * I have enjoyed getting acquainted with you over the last several months. As a result of getting to know you, I believe that you can make a major contribution to our business and that you will find the work interesting and challenging. I hope you will find these terms of employment attractive. If you accept our offer of employment, please sign in the space indicated below and return the designated copy to us. Sincerely, /s/ Thomas S. Kaplan -------------------------------- Thomas S. Kaplan Chairman AGREED TO AND ACCEPTED: - ----------------------- /s/ Gregory G. Marlier - ----------------------- Gregory G. Marlier October 2, 1996 - ----------------------- Date EX-10.11 12 EMPLOYMENT CONTRACT - KEITH R. HULLEY Exhibit 10.11 APEX SILVER MINES LIMITED Caledonian House Mary Street, P.O. Box 1043 George Town, Grand Cayman Cayman Islands August 14, 1996 FAX: 011-613-9824-8475 Mr. Keith R. Hulley 6 Boandyne Court Toorak, VIC 3142, Australia Re: Apex Silver Mines Limited Offer Of Employment Dear Keith, In line with our recent discussions, we are pleased to present herein the terms of our employment offer with Apex Silver Mines Limited or its United States affiliate as applicable (collectively the "Company"). I. THE POSITION We have discussed, at some length, the content of the job and I believe we are in agreement on it. As I now envision it the principal responsibilities of this position involve: . Determine and provide to the Chairman views on optimum strategies for development as well as relevant implementation programs and timetable. Function along with the Chairman and Mining Oriented Director as key participants in the strategic development process. . Manage the evaluation of specific potential acquisitions, i.e., land positions, reserves, abandoned mines and active mines from both a future economic and risk assessment point of view. . Manage mine/mill development programs to include all prefeasibility and feasibility studies, involving both underground and open pit mines. . Assure that all significant design, engineering and construction work is done in a cost and quality effective mode in a manner consistent with the company's strategy, long term plan and financial and people resources. Oversee the preparation of prefeasibility and feasibility studies and participate in them at key points. . Assure that a satisfactory transition is made from a development project to an operating mine/mill. . Build a solid core of operating management that can function effectively in all the company's properties. Mr. Keith R. Hulley August 14, 1996 Page 2 . Provide input to the Chairman on the current operating capabilities of proposed joint venture partner(s). . Function as principal operating liaison with joint venture partners. . Participate, along with the Chairman, in the formulation of the internal capital development process and programs for the Company as decided on by the Chairman. . Take the management responsibility for the successful execution of these programs. . Participate in the formulation of the planning and budget process for all properties for which the company has operating responsibilities and/or minority rights and veto powers. . Stay on top of all environmental developments, domestic and international and assure that they are handled/managed effectively. . Provide judgments to the CEO as to how effectively the company is interfacing with the host country governments, culture and other mining companies operating there. . Be prepared to travel extensively as required by the needs of the business. Naturally, you agree that all information concerning the Company business will be treated as confidential. You will be based in Denver, Colorado, and travel will be based upon the requirements of the position. You agree to devote your full working time to the Apex Silver Mines Group of companies You agree not to accept any additional Directorships unless approved by Apex's Chairman. II. TITLE AND REPORTING RELATIONSHIPS 1. TITLE Your title will be Executive Vice President and Chief Operating Officer. In addition, upon your joining the company, I will recommend to the Board of Directors that you be elected a Director of the company. 2. REPORTING RELATIONSHIPS You will report directly to me. Mr. Keith R. Hulley August 14, 1996 Page 3 III. START DATE You may start employment with us at a mutually agreed upon date. Your compensation and benefits will commence on your first day of employment. IV. COMPENSATION 1. BASE COMPENSATION You will be paid an annual base compensation of US$225,000, payable monthly. Your first review of base compensation will be in 18 months of your joining the company. 2. BONUS I plan to install a Performance Bonus Plan at Apex covering the Calendar Year 1998 to be paid out according to the provisions of the Performance Bonus Plan when it is adopted which will undoubtedly occur after 1998. 3. BENEFITS Quite obviously a mining junior does not compete with a major mining company in terms of providing a complete comprehensive and top of the line benefit plan. As you know, I recently commissioned Anderson & Schwab to conduct a compensation and benefit survey comprising juniors, intermediate and senior mining companies. I then asked A&S to recommend what they considered to be relevant competitive benefit plans that would be suitable for Apex. These plans, which are discussed below represent our present thinking on benefits that we plan to adopt for Apex. Although these plans are likely to be adopted, they have not yet been finalized. Apex' intent with regard to each benefit plan is as follows:
Title of Plan Likely Apex Plan ------------- ---------------- Medical Plan HMO or PPO. If PPO: 80/20 coverage, deductible $200 per person, $400 per family, annual maximum $1,000 per person, $2,000 per family, $1,000,000 lifetime maximum. Dental Plan Either a plan with a $150 family deductible and $1,250 maximum annual benefit or a Dental HMO. Vision Plan None, but a Medical Reimbursement Account is contemplated, funded by
Mr. Keith R. Hulley August 14, 1996 Page 4 the Company, that can be used for certain health care expenditures such as vision. Short-Term Disability 6 months full pay based on service. Long-Term Disability 66% of pay up to $12K per month. Survivor Benefit Plan Probably won't have one Life Insurance Plan 2 x salary at $500K maximum AD&D Insurance Plan 2 x salary at $500K maximum Travel Accident Insurance Plan Covered by life insurance and AD&D insurance Savings Plan 401K plan or equivalent savings plan with company matching 50% of individual's contribution up to 6% of individual's salary up to a federally mandated cap, which is currently $150K. Increase in Apex's contributions to be considered when company is in production and has a positive cash flow. Pension Plan Some form of pension to be considered in the long-term future.
Should you accept this offer of employment, it is our intent to work with you regarding your being covered under these plans in a timely way. This work will be done by A&S' Dick Hinkel, who is a career long human resources specialist whose prior assignment (for fifteen years) was as Vice President, Human Resources, for Homestake Mining. Dick took the lead in doing the compensation and benefits survey described above. 4. STOCK OPTIONS You will be eligible for participation in the Company's stock option plan. Thus, we will provide you with options on approximately $1,000,000 of stock of Apex Silver Mines Limited. The price of Apex's stock is based on the value of the company (US $160 million) as was determined by the recent successful completion of our private placement. . You will vest in these options over a four year period at 25 percent per year. Mr. Keith R. Hulley August 14, 1996 Page 5 . You will be eligible to vest immediately upon joining the Company, at which time you will be subject to the same shareholders' agreement entered into by all Apex's shareholders. V. OTHER 1. VACATION Four weeks vacation per year. 2. REIMBURSABLE EXPENSES . You will be reimbursed for all expenses incurred in connection with travel on company business. , The company is considering and probably will adopt the policy of providing corporate credit cards to cover travel, hotel, etc. However, a final judgment on this point has not been made. . As to class of travel, domestic travel will be coach and all international travel will be business class. . Frequent flyer miles will be the property of the user. 3. YOUR PAY Upon joining, and until Apex establishes a Denver office, you will be paid by wire to your bank account. 4. COMPANY OFFICE The company will establish a Denver office but it will take a while to do so. Until then the company will require that you work out of your home when you are in Denver. This, of course, means that if it will take a month or even longer before an office is established, that the company would expect you to put in a separate business telephone line and a fax machine for which they would reimburse you fully for both installation and use. 5. ALLOWANCE FOR MOVING/RELOCATION In principle, Apex will pay the moving expenses for you and your wife from Melbourne to Denver in accordance with the provisions of generally accepted relocation plans of mid sized mining companies. I have asked A&S to recommend an appropriate relocation plan to cover its senior management people which plan will apply to your forthcoming relocation. VI. SEVERANCE AGREEMENT In the event the Company should desire to terminate your employment, except for cause, within three years after your employment starting date, you will be entitled to severance pay for a twelve-month period at your existing salary, as well as a Mr. Keith R. Hulley August 14, 1996 Page 6 continuation of your benefits. Upon such an occurrence, bonus awards and stock options will be suspended. You agree that in the event you leave Apex that for a period of two years you will not join any company whose primary business is the acquisition and development of silver mines. * * * * I have enjoyed getting acquainted with you over the last six months. As a result of getting to know you, I believe that you can make a major contribution to our business and that you will find the work interesting and challenging. I hope you will find these terms of employment attractive. If you accept our offer of employment, please sign in the space indicated below and return the designated copy to us. Sincerely, /s/ Thomas S. Kaplan -------------------------------- Thomas S. Kaplan Chairman AGREED TO AND ACCEPTED: - ----------------------- /s/ Keith R. Hulley - ----------------------- Keith R. Hulley September 2, 1996 - ----------------------- Date EX-10.12 13 EMPLOYMENT CONTRACT - DOUGLAS M. SMITH, JR. Exhibit 10.12 APEX SILVER MINES CORPORATION 1700 Lincoln Street Suite 3050 Denver, Colorado 80203 (303) 839-5060 (303) 839-5907 Fax January 21, 1997 Mr. Douglas M. Smith, Jr. 358 Greystone Road Evergreen, Colorado 80439 Dear Doug: Further to our discussions, this letter is to offer you the position of Vice President Exploration of Apex Silver Mines Corporation based in Denver, reporting to me. Your starting base salary will be $120,000 with fringe benefits as outlined in the attached. You will be entitled to four weeks annual vacation. As I indicated to you, a stock option plan is also part of your package and I believe it is important to your expectations and consideration of this offer. You will be eligible to participate in the company's stock option plan. You will receive approximately $250,000 of stock of Apex Silver Mines Limited. The price of Apex's stock is based on the value of the company (US$160 million) as was determined by the recent successful completion of our private placement. You will commence vesting in these options immediately upon joining the company and will vest at the rate of 25 percent per year. In addition to the above and the health and life insurance plans attached, the company will be considering a bonus plan in the near future. Your prime responsibilities will be as follows: . Visit and evaluate all Apex Silver Mines' exploration activities and programs world-wide and advise local and corporate management. . Visit and monitor all Apex Silver Mines' geologists providing them with intellectual support and guidance, coaching and council. In so doing you are expected to set high standards and provide an example of professionalism. . Respond to calls from the various satellite corporate offices to provide trouble shooting and other forms of exploration and geological assistance as needed. Mr. Douglas M. Smith, Jr. January 21, 1997 Page 2 . Participate in corporate planning and propose strategies to optimize the outcome of all exploration activities. . Participate in the planning and guidance of all the field sampling and drilling programs and estimating methodology and activities pursued in the development of mineral resource determinations. . Participate in corporate presentations to bankers and investors, sharing this role with Larry Buchanan. Your reporting framework will be "solid" line to me and "dotted" line to the senior geologists working in and for the Apex satellite organizations, per the attached organization chart. However, whilst we observe this organization, we encourage a free flow of information, and development and use of strong networks throughout the organization. We require only that superiors should be kept informed so as to minimize surprises. Proper protocol should also be observed when entering and leaving an Apex satellite domain ensuring that its CEO is well informed of your activities, council, and recommendations. Further to our discussion, Laity Buchanan will be semi-retiring to become our Executive Geological Consultant ("Guru"). He expects to spend initially approximately half of his time monitoring and advising the on-going exploration and geological activities. It is important that you are willing and comfortable in embracing him in this role as he is highly regarded at all levels in the company and by its investors. You are expected to provide your own transportation from you home to your office in Denver. Business travel will be provided by the company with economy domestic fares and business class fares for all international flights. Business communications expenses will be reimbursed by the company. You will be expected to maintain a fax machine or equivalent at home. Being a member of a small executive group based in Denver, it is important that we have confidence in each other and have good "chemistry" in our relations. We all felt comfortable with you in our meetings which should give you comfort in your deliberations. The matter of confidentiality of data and intellectual property is particularly important in the role you would play during and after employment with Apex Silver Mines Corporation. I know that you are familiar with this issue and therefore expect that you will accept the industry standards of behavior in this regard. Specifically you must treat all sensitive and valuable Apex information and intellectual property that is not in the public domain during and for at least two 2 Mr. Douglas M. Smith, Jr. January 21, 1997 Page 3 years after terminating your employment with Apex as confidential. Your signature below will indicate your acceptance of this confidentiality requirement. I ask that you give us your decision by January 24, 1997. Should you have any further issues or questions, please call me and we will discuss them. I look forward to the prospect of you joining our team. Sincerely, /s/ Keith R. Hulley -------------------- Keith R. Hulley Chief Operating Officer KRH:po Attachments I agree to the above /s/ Douglas M. Smith, Jr. January 23, 1997 ------------------------- ---------------- Douglas M. Smith, Jr. Date 3 EX-10.13 14 DEED OF LEASE & PURCHASE CONTRACT - ENGLISH TRANS. Attach to Exhibit 10.13 Attached hereto is an English translation of the original Spanish version of the Deed of Lease and Purchase Option contract between Monica de Prudencio and Mineria Tecnica Consultores Asociados S.A. ("Mintec") dated November 7, 1994, regarding the Tesorera concession. The Company employed translators to translate the above referenced agreement and based on this the undersigned believes that the attached is a fair and accurate English translation of the above referenced agreement. /s/ Keith R. Hulley ------------------- Keith R. Hulley Director Apex Silver Mines Limited Date: August 29, 1997 Exhibit 10.13 Unofficial Translation Contract between MINTEC and Monica de Prudencio/1/ Mr. Special Notary for Mines and Petroleum: in the registries of public deeds under your responsibility, please insert [a deed] of lease with option to buy mining concessions which we, the undersigned, celebrate under the following clauses: First I, Monica de Prudencio, of age, married, teacher, from Potosi, resident - ----- in this city [La Pas], with I.D. No. 089567 L.P. and capable by law, declare myself to be the legitimate and sole owner of the following mining concessions, located in the Canton of San Cristobal, of the Province of Nor Lipez, Department of Potosi: SANTA BARBARA DE JAYULA of 49 mining claims with Title Document No. 14, dated December 19, 1990; SAN JUAN DE DIOS SEGUNDA of 18 mining claims with Title Document No. 33 dated December 18, 1990; SAN JUAN DE DIOS of 8 mining claims with Title Document No. 32 dated December 18, 1990; CASUALIDAD of 10 mining claims with Title Document No. 38 dated December 24, 1990; LOS PERDIDOS of 20 mining claims with Title Document No. 36 dated December 21,1990; SUCESIVAS DON JOSE of 12 mining claims with Title Document No. 31 dated December 17, 1990; 25 DE MAYO SEGUNDA of 71 mining claims with Title Document No. 30 dated December 17, 1990; CALAMEnA SEGUNDA of 52 mining claims with Title Document No. 37 dated December 21, 1990; HALCA of 117 mining claims with Title Document No. 35 dated December 19, 1990, and DON JOSE of 102 mining claims with Title Document No. 27 dated October 18, 1993. All of the Title Documents referred to above were given by the Regional Superintendent of Mines of the provinces of Nor and Sud Chicas, Nor and Sud Lipez, Daniel Campos, Modesto Omiste and Enrique Baldivieso of the Department of Potosi, Dr. Feliciano Torrico Tapia, via public deeds whose numbers were specified individually in the foregoing paragraph of the present clause, and extended before the Special Notary and Registrar of Mines of Tuoiza, Mr. Saturnino Vargas Fernandez. Second Now, as it is convenient to my interests, of my free and spontaneous - ------ will, I given in lease, with option to buy, the mining concessions referred to above, in favor of Mineri Teonica Consultores "MINTEC S.A.", represented on this occasion by Ing. Johnny Delgado Achaval, whose power to do so forms part of the respective public deed, under the following conditions and modalities: A. The term of the lease shall be for four years counted from the date of public deed corresponding to the present document. B. The term of the option to buy shall be two years counted from the 15th of November 1996 to the 15 of November 1998. C. The rental fee to be paid by MINTEC is US$12,000 (twelve thousand and 00/00 U.S. dollars) monthly from the 15th of November of the present year in advance form. D. The rental fee described in the previous subsection shall be made the 15th of each month, with a tolerance of 15 days which, if passed without payment having been made, the present contract shall be automatically concluded without any obligation for the owner and with responsibility of MINTEC. E. The price for execution of the option is US$2,000,000 (two million and 00/00 U.S. dollars) which MINTEC may pay at any time from entry into the period of the option, at one time. F. The taxes owed for the lease and for the option, will be on the account of the owner. G. The payment of annual mineral patents for each and every one of the concessions, will be on the account of the owner. H. In the event the option is exercised all of the monthly payments made to the owner, shall be counted against the total price. Third Within the period of leasing and the mining concessions motive of this - ----- contract, MINTEC shall have the ability and the right to, at its exclusive judgment, make studies, technical tests, reconnaissance and works of exploration and/or exploitation with no limit whatsoever, including the purchase of equipment and machinery, contracting of personnel and implementation of mineral sales or exports which it deems convenient. Fourth During the life of this contract, the owner may not sell concessions to - ------ third parties, nor may she lien them or constitute on them any real or personal right, nor give any class of rights, which in any way could affect that conferred on MINTEC S.A., under penalty of nullity of any contract given in contravention tot his clause, and without having to pay MINTEC any damages which this may occasion. Fifth Should MINTEC S.A., in use of the right given in this contract, decide to - ----- execute the option, and consequently acquire the concessions, the following stipulations shall be observed: a) MINTEC, S.A. will notify the owner in writing about the execution b) The owner, together with her husband, within five days of receipt of the notification, commits herself to sign the respective document and public deed of transfer which will include all of the usages and easements of the concessions and the price of US$2,000,000 (two million U.S. dollars), deducting from that the amounts paid by way of lease fees, which shall be paid on the owner's signing of the cited public deed. 2 c) The transactions tax shall be on the account and charge of the owner, and all of the expenses required to perfect the property right of MINTEC, S.A. shall be at its expense. d) The owner will confirm in the public deed of sale, that the concessions have their titles in order, and have no class of lien or mortgage against them. Thus, the owner shall deliver to MINTEC S.A. the corresponding up to date receipts of payment of patents. Sixth MINTEC S.A., at its discretion and without need to show cause, may - ----- communicate to the owner at any time during the life of the contract, regarding recission of same. In such case, the present contract, from the date of the owner having received this notification, will be resolved [sic: should be "dissolved"] fully and without any legal affect nor further responsibility by the contracting parties. As a result of this contractual recission, MINTEC S.A. may freely withdraw all of the machinery and equipment which may have been installed on the concessions. The contracting parties commit, and at the requirement of either of them, to sign a document and public deed of recission. Seventh Any discrepancy arising from this Contract shall be resolved via - ------- arbitration in accordance with the norms and regulations of the Interamerican Commission on Commercial Arbitration (CLAC). Eighth For communication between the parties, the following domiciles are - ------ signalled: Owner: Monica Prudencio, Edificio Castillo 7th Floor, Office 701 MINTEC S.A.: Avenida Arce 2678, La Paz, Bolivia Ninth MINTEC, S.A. is expressly authorized to subrogate, in whole or in part, - ----- the present contract, to any other person, natural or juridical, dedicated to mining activity and of good reputation. Tenth All of the mining claims made by the owner or the lessee/optioner in the - ----- area where the concessions subject of this contract are located, for 5 km [11 miles] beyond the limits of the properties, shall pertain to this contract. Eleventh I, Luis Prudencio Tardio, of age, married, resident of this city, with - -------- I.D. no. 2022219 L.P., and qualified by law, manifest my complete agreement with the entire tone of the present contract, and declare that I understand that it includes my community property rights which I as husband of Mrs. Monica de Prudencio possess in the mining concessions object of this contract. 3 Twelfth I, Johnny Delgado Achaval, of age, married, resident of this city, - ------- engineer, with I.D. No. 39745 L.P., and qualified by law in my capacity as Chairman of the Board of Directors of MINTEC, S.A., accept the tenor of each and every one of the preceding clauses. Mr. Notary, please add the other clauses of rigor and style for legal validity. La Paz, October 15, 1994 - ----------------------- ------------------------- Sra. Monica de Prudencio Luis Prudencio Tardio --------------------------- Ing. Johnny Delgado Achaval ------------------------- Alberto Sivila Cortas (lawyer) 4 EX-10.15 15 LEASE & PURCHASE OPTION CONTRACT - ENGLISH TRANS. Attach to Exhibit 10.15 Attached hereto is an English translation of the original Spanish version of the Lease and Purchase Option Contract between Empressa Minera Yana Mallcu S.A. and Mintec, dated February 7, 1996, regarding the Toldos concession. The Company employed translators to translate the above referenced agreement and based on this the undersigned believes that the attached is a fair and accurate English translation of the above referenced agreement. /s/ Keith R. Hulley ------------------- Keith R. Hulley Director Apex Silver Mines Limited Date: August 29, 1997 Exhibit 10.15 Special Notary of Mines and Petroleum Dr. Maria Esther Vallejos In the registries of public deed under your charge, please insert one of option to buy and irrevocable promise to sell, which the contracting parties sign below the following clauses: First. - (Contracting Parties). - There are party to the present contract the - ----- Empresa Minera Yana Mallcu S.A. "EMYAMSA", represented by its Executive Chairman, Mr. Jaime A. Quiroga M., as witnessed by order no. 166 given on May 26, 1989, henceforth called the Company, constituted via public deed number 152/82 with commercial license 7-8569-1 TIN 2190664, and Mineria Tecnica Consultores Asociados "MINTEC S.A.", represented by Mr. Jaime Rubin de Celis, as witnessed by order number 186/93 given on June 15, 1993, henceforth called the Optioner. Second. - (Antecedents). - The Company is the sole and exclusive owner of the - ------ following mining concessions on lead, silver and other ores, located in San Cristobal canton of the province of Nor Lipez in the department of Potosi. "Don Luis". - Of 65 (sixty-five) hectares [mining pertenences], with Executive Title number 1/1940, dated January 26, 1940 given before the Notary of Mines of the city of Potosi, Mr. Daniel Valencia Valle. "Sucesivas Don Luis". - Of 72 (seventy-two hectares), with Executive Title number 14/1971, dated February 25, 1971, given before the Notary of Mines of the locality of Tupiza, Dr. Fernando Humerez C. "Don Luis II". - Of 33 (thirty-three) hectares, with Executive Title number 13/1971, given before the Notary of Mines of the locality of Tupiza, Dr. Saturnino Humerez C. "Yana Mallcu". - Of 286 (two hundred eighty six) hectares, with Executive Title number 8/1988, dated February 4, 1988, given before the Notary of Mines of the locality of Tupiza, Dr. Saturnino Vargas Fernandez. "Toldos II". - Of 286 (two hundred eighty six) hectares, with Executive Title number 21/1978, dated october 20, 1978, given before the Notary of Mines of the locality of Tupiza, Dr. Fernando Humerez C. "Toldos". - Of 91 (ninety-one) hectares, with Executive Title number 35/1973, dated [??], given before the Notary of Mines of the locality of Tupiza Dr. Fernando Humerez C. "Augusto". - Of 56 (fifty-six) hectares, with Executive Title number 17/1971, dated February 26, 1971, given before the Notary of Mines of the locality of Tupiza, Dr. Fernando Humerez C. "Luis Miguel". - Of 110 (one hundred ten) hectares, with Executive Title number 16/1971, dated February 26, 1971, given before the Notary of Mines of the locality of Tupiza, Dr. Fernando Humerez C. "16 de Julio". - Of 15 (fifteen) hectares, with Executive Title number 45/1973, dated November 12, 1973, given before the Notary of Mines of the locality of Tupiza, Dr. Fernando Humerez C. "EMILIO". - Of 20 (twenty) hectares, with Executive Title number 18/1920 dated April 22, 1920, given before the Notary of Mines of the city of Potosi, Dr. Vicente Larrazabal Vargas. "DON CRISTIAN". - Of 50 (fifty) hectares, with Executive Title number 64/1920, dated December 20, 1920, given before the Notary of Mines of the city of Potosi, Dr. Alejandro Vera. "Carlos Antonio". - Of 52 (fifty-two) hectares, with Executive Title number 63/1967, dated December 23, 1967, given before the Notary of Mines of the locality of Tupiza, Dr Fernando Humerez C. "Victoria". - Of 30 (thirty) hectares with Executive Title number 35/1974 dated December 6, 1974, given before the Notary of Mines of the locality of Tupiza, Dr. Fernando Humerez C. "Virgen del Carmelo". - Of 30 (thirty) hectares with Executive Title number 36/1974, dated December 6, 1974, given before the Notary of Mines of the locality of Tupiza, Dr. Fernando Humerez C. "Jose". - Of 33 (thirty-three) hectares, with Executive Title number 15/1971, dated February 26, 1971, given before the Notary of Mines of the locality of Tupiza, Dr. Fernando Humerez C. "Maria Dolores". - Of 115 (one hundred fifteen) hectares, with Executive Title number 7/1988, dated [SEPTEMBER 10, 1992], given before the Notary of Mines of the city of Potosi, Dr. Saturnino Vargas Fernandez. "Don Julio". - Of 81 (eighty-one) hectares, with Executive Title number 27/1974, dated September 24, 1974, given before the Notary of Mines of the locality of Tupiza, Dr. Fernando Humerez C. "Delfin". - Of 32 (thirty-two) water concession hectares, with Executive Title number 34/1977, dated October 16, 1977, given before the Notary of Mines of the city of Potosi, Dr. Julio Ugarte Ramos. 2 "La Perdida". - Of 83 (eighty-three) water concession hectares, with Executive Title number 16/1977, dated May 25, 1977, given before the Notary of Mines of the locality of Tupiza, Dr. Fernando Humerez Canaviri. "Ingenio Mayu". - Of 64 (sixty-four) water concession hectares with Executive Title number 23/1978, dated October 26, 1978, given before the Notary of Mines of the city of Potosi, Dr. Julio Ugarte Ramos. "Hidro I". - Of 91 (ninety-one) water concession hectares, with Executive Title number 21/1977, dated June 1, 1977, given before the Notary of Mines of the locality of Tupiza, Dr. Fernando Humerez Canaviri. Third. - (Purpose of the Contract). The purpose of the present contract is - ----- the giving on the part of the Company an option to buy with firm and irrevocable promise to sell in favor of the Optioner, of [sic] each and every one of the mining concessions specified in the preceding second clause, with all of the uses, customs, easements, tailings, waste piles, water rights and civil works as well as all of the machinery and equipment existing as of this date on the reference concessions, in conformity with Annex 1 which, duly signed by the contracting parties, forms part of the present contract. The option to buy with irrevocable promise to sell, is agreed under the following modalities and conditions: 1. (Price). - The price for the mining concessions including their rights, machinery and equipment referred to in the preceding clauses consists of: I. The Optioner will pay the Company the sum of US$500,000 -- (five hundred thousand and no hundredths american dollars) in two payments of $US250,000 -- (two hundred fifty thousand and no hundredths American dollars) each, the first to be paid at the moment of signing the public deed exercising the option, and the second, one year from having exercised the option, in both cases without postponement of any kind. II. The Optioner takes under this executive responsibility, the obligations which the Company owes to banks and natural and juridical persons up to the sum of US$5,750,000 -- (five million seven hundred and fifty thousand and no hundredths American dollars) once these debts have been negotiated by the Optioner with the corresponding creditors, which negotiation should take place, necessarily, during the period in which the option to buy is in force. Should the Optioner achieve reduction in any of the debts, these reductions shall be to his exclusive benefit. III. Whichever payment made by the Company during the two years duration of the option to buy, to whichever of the creditors included in Annex 2, by way of principal and/or interest, with whom the Optioner will not have arrived at 3 an agreement during the period of the option, will be recognized by the Optioner and paid to the Company at the moment of signing the contract of sale, if any only if the Optioner will have had due knowledge and have authorized those payments. The creditors referred to in sub-paras. II and III of the third clause of the present contract, with their respective receivables, are detailed in Annex 2 which, duly signed by the contracting parties, forms part of the present contract. 2. (Term). - The option to buy with firm and irrevocable promise of sale object of the present contract, shall have a duration of two years, counted from the signature of the public deed corresponding to this minute. Fourth. - (Collateral Obligations). The Optioner will pay the Company the sum - ------ of US$6,000 -- (six thousand and 00/100 American dollars) monthly for the term of two years duration of the Option, and obligation which is totally independent of the price of the Option and has the character of being non-reimbursable whether or not the option to purchase is exercised. If the Optioner exercises his right to purchase the concessions before the two years fixed by this contract, this payment will be suspended on the date the deed of sale is signed. Likewise this payment will be suspended in the event the Optioner should not exercise the option, from 30 days after having made known his decision to the Company via notarized letter. Fifth. - (Freedom of Work). During the two years of the option, the Company - ----- remains in complete freedom to continue its current mining operations or to expand them, in accordance with its will but under its exclusive risk and benefit, making unrestricted use of all of the facilities of the sector, concerning its mining operations. Sixth. - (Faculties of the Optioner). During the time stipulated for the - ----- option, the Optioner has the faculty and exclusive right to buy the concessions, the civil works and all existing machinery and equipment and the Company has the obligation to sell them, the Optioner being able to exercise the Option in his favor, cede it or transfer it in favor of any individual or collective person, national or foreign. The Optioner has also the right to make, without any limitation, studies of reconnaissance, prospection, works of exploration on all of the concessions, being able to obtain samples in the quantities he deems necessary. All of the works of exploration will be brought to bear following norms and techniques appropriate to the effect, [he may also] enter freely the concessions without prior authorization it being sufficient the present contract, he may use the infrastructure that may be necessary, [with] prior authorization of the Company. Seventh. - (Obligations of the Seller). - During the period of the Option, the - ------- Company may not sell, cede, transfer any of the concessions, civil works, machinery and equipment object of this contract, neither may it lien them or constitute on them any real or personal right, with the exception of those exiting at present, nor give any class of rights which 4 may in any way affect those conferred on the Optioner, under penalty of nullity of whichever contract may be given in contravention of this clause with prejudice to payment of damages which may be occasioned. The Company obliges itself as well to maintain current its right on the concessions and to guarantee the quiet and pacific possession of the goods and if necessary defend against any suit or action which could be presented against it. Eighth. - (Executive of the Option). Should the Optioner in use of the right - ------ given him by this contract decide to execute the option and consequently acquire the concessions, he will notify the Company in writing and the latter in the period of seven days from notification, will sign the corresponding public deed of definitive transfer, pending compliance with that agreed in the third clause, sub-para 1, and the other stipulations contained in this contract; in the negative instance [should the Company not sign], the parties concede sufficient competence and jurisdiction to whichever circuit judge of La Paz, authority to extend the corresponding minute of sale. Ninth. - (Renouncement of the Option). The Optioner reserves to himself the - ----- right to conclude the present contract during the life of the option, without showing cause and at any time. To this effect he will notify the Company of his decision to not exercise the option and with this notification the contract will be resolved in full law and without need of judicial intervention, as supported by Article 569 of the Civil Code. During the fifteen days after receipt of this notification, the parties obligate themselves to sign the corresponding minute and public deed of conclusion of the contract. Tenth. - (Domicile of the Parties) To effect communications that as a - ----- consequence of this contract the parties must make between themselves, the following domiciles are indicated: the Company: Avenida 20 de Octubre number 2201 La Paz, Box number 5821, telephone number 35-1238. The Optioner: Calle Campos number 265 La Paz, Box number 13790, telephone number 43-3800. Eleventh. - (Arbitration). Whatever divergence between the contracting parties - -------- in relation to this contract, shall be resolved via arbitration in accordance wit the dispositions contained in the Code of Civil Procedure, and in the event the third arbitrator is not designated by one of the parties, he shall be named by the Confederacion de Empresarios Privados de Bolivia. Twelfth. - (Reach of this Document). Until its is raised to public deed, this - ------- document is assigned the value and effect of a private document. Thirteenth. - (Acceptance). We, Jaime A. Quiroga M., of age, married, mining - ---------- industrialist, resident of this city, empowered by law, with identity card No. 209506 L.P., in representation of EMYAMSA for one part, and for the other Jaime Rubin de Celis, of age, married, resident of this city, empowered by law, with identity card no. 371070 in representation of MINTEC S.A., manifest our acceptance and full agreement with the 5 integral tenor of the present contract in each and every one of its clauses and sub-paragraphs. Madam notary please add the other clauses of rigor and style for its legal validity. La Paz, February 1, 1996 - ----------------------- ------------------------ Jaime A. Quiroga M. Jaime Rubin de Celis 6 EX-10.16 16 ASSMNT. OF LEASE AND PURC. OPTION - ENGLISH TRANS. Attached hereto is an English translation of the original Spanish version of the assignment of Lease and Purchase Option contract among Banco Industrial S.A., Mineria Tecnica Consultores Asociados and ASC Bolivia. The Company employed translators to translate the above referenced agreement and based on this the undersigned believes that the attached is a fair and accurate English translation of the above referenced agreement. /s/ Keith R. Hulley --------------------------- Keith R. Hulley Director Apex Silver Mines Limited Date: August 28, 1997 Exhibit 10.16 PRIVATE DOCUMENT Witness by the present private document, able to be raised to public instrument at the request of whichever of the contracting parties, the following agreement, signed to the tenor of the following clauses: First. (of the parties). There are parties to the present document: the Banco Industrial S.A., henceforth called simply Bank, for one part, and for the other ASC Bolivia LDC and Mineria Tecnica Consultores Asociados-MINTEC S.A., henceforth called simply MINTEC. Second. (antecedents). 1. The Bank is a creditor of the Empresa Minera Yana Mallcu S.A. (EMYAMSA), for the sum of US$911,388.31 (nine hundred eleven thousand three hundred eighty- eight and 31/100 american dollars), which is witnessed by Public Deed No. 59, extended before the Special Notary of Mines and Petroleum of La Paz dated March 18, 1992, a sum which may be paid with 5% (five percent) of the gross production of the Toldos Mining Group. 2. MINTEC has signed with Empresa Minera Yana Mallcau S.A. (EMYAMSA), an option contract to purchase Toldos Mining Group, for the period of two years, via Public Deed No. 25 given before the Notary of Mines and Petroleum of La Paz on February 23, 1996. The mentioned purchase option will be subrogated by MINTEC in favor of ASC Bolivia LDC. Third. (object). By the present contract, the parties, since it is convenient to their interests, commit themselves to the following obligations: ASC Bolivia LDC commits itself to: I. Realize on Toldos Mining Group an investment of risk [sic] in exploration, determination of positive reserves and metallurgical studies to design the definitive feasibility project in a period of two years counted from February 23, 1996, date of the signing of the purchase option contract, informing BISA periodically on the advance of the works. II. Deliver to the Bank 5% (five percent) of the gross production or its equivalent in US dollars, until paying the amount of US$911,388.31 owed by the Empresa Minera Yana Mallcu S.A. (EMYAMSA), should ASC Bolivia LDC exercise its right of option to purchase the Toldos Mining Group. These payments will begin in the first year of business production of the indicated Mining Group. III. Deliver to the Bank, 5% (five percent) of the gross production, if during the period of two years of the option ASC Bolivia LDC were to have any production which was not destined for metallurgical sampling and analysis. IV. Permit that the Bank make periodic supervisions, having to allow free access to personnel of the Bank. ASC Bolivia LDC reserves the right to drop the option contract to purchase the Toldos Mining Group within the two years of life of same, in which case the present contract will remain with no effect whatsoever. The Bank, for its part, commits itself to: I. Give its consent for ASC Bolivia LDC to exercise its right to purchase the Toldos Mining Group, the Bank maintaining in its favor the guarantees it has at present, until the entirety of its credit of US$911,388.31 has been paid. II. Defend the rights contained in Contract No. 59 of March 18, 1992, against any intervention of third parties whatever, to the end of maintaining and conserving during the aforementioned option period, its quality of mortgage creditor, with the first mortgage on Toldos Mining Group. Fourth. (Life of Contract). It is expressly established that the present contract does not enervate nor diminish in virtue the terms of the contract signed by public deed no. 59 of March 18, 1992 extended before the Special Notary of Mines and Petroleum, which remains in full force until the debtor, Empresa Minera Yana Mallcu S.A., has paid the entirety of the sum owed. Fifth. (Acceptance). Empresa Minera Yana Mallcu S.A., represented by Mr. Jaime Quiroga Matos, expresses its agreement and acceptance with the foregoing clauses, signing this document. Sixth. (Agreement). We, Banco Industrial S.A., represented by Messrs. Jose Luis Aranguren A. and Jorge Velasco T., National Business Manager and La Paz Business Manager, and ASC Bolivia LDC and MINTEC, represented by Ing. Johnny Delgado A., manifest their agreement with the foregoing clauses and oblige themselves to its faithful and strict fulfillment. 2 BANCO INDUSTRIAL S.A. ------------------- By: Jorge Velasco T. La Paz Business Manager -------------------------- By: Jose Luis Aranguren National Business Manager Signed by: EMPRESA MINERA YANA MALLOV S.A. -------------------- Jaime Quiroga M. Signed by: ASC BOLIVIA L.D.C. Y MINTEC --------------------- Johnny Delgado A. 3 EX-10.17 17 PURCHASE OPTION AGMNT - ENGLISH TRANS. - 8/17/95 Attached hereto is an English translation of the original Spanish version of the purchase option contract between Mineria Tecnica Consultores Asociados and Litoral Mining Cooperative Ltd. regarding the Animas concession, dated August 17, 1995. The Company employed translators to translate the above referenced agreement and based on this the undersigned believes that the attached is a fair and accurate English translation of the above referenced agreement. /s/ Keith R. Hulley ------------------------- Keith R. Hulley Director Apex Silver Mines Limited Date: August 28, 1997 Exhibit 10.17 Animas Contract Witness No. 173 of the inscription of option to buy and irrevocable promise to sell of the mining concessions "Animas" and "Sucesivas Animas" located in San Cristobal canton of the province of Nor Lipez of the department of Potosi, signed between Cooperative Mineria Litoral Ltd. and the company Mineria Tecnica Consultores Asociados S.A. MINTEC S.A. In the City of La Paz at 5:30 pm August 17, 1995, before me lawyer Maria Esther Vallejos H., Special Notary of Mines and Petroleum and witnesses named at the end who signed. There were present Cooperative Mineral Litoral Ltd. represented by Messrs. Pedro Calcina Quispe, Epifanio Calcina Calcina and Hillarton Calcina Quispe for the one part, and for the other Empresa Mineria Tecnica Consultores Asociados S.A. MINTEC S.A. represented by Ing. Jaime Rubin de Cells Navarro, all of age, empowered by law, residents of this city, whom I swear I know and they said: that they agree to raise to public deed the minute which they have presented to me accompanied by the legalized Act of Assembly of Members of the Cooperative Minera Litoral Ltd. of June 4, 1995, witness of power, mining patents and receipt of bank deposit, whose literal tenor is as follows: Minute Special Notary of Mines and Petroleum - In the registries of public - ------ mining deed under your charge, please insert the present option to buy and irrevocable promise to sell the mining concessions denominated "Animas" and "Sucesivas Animas", signed under the following clauses: One, Of the Parties: They are parties to this contract the Cooperative Minera - -------------------- Litoral Ltd., with juridical personality duly recognized via Resolution No. 00296 dated November 11, 1963, and represented in this contract by Messrs. Pedro Calcina Quispe, Epifario Calcina Calcina and Hilarion Calcina Quispe with special power of attorney sufficient for this act No. 5/1995 officially recorded before the Notary of Mines in the city of Tupiza, dated July 10, 1995, which forms part of this deed. The company Mineria Tecnica Consultores Asociados S.A. MINTEC S.A., which is a company legally constituted in the country, via public deed No. 4 dated January 11, 1991, given before the Notary of Mines of this city, inscribed in the Commercial Registry with Administrative Resolution no. 26157 dated November 7, 1991, license No. 7-21907-1, TIN No. 2197049, represented in the contract by its General Manager Ing. Jaime Rubin de Celis Navarro. Second, Declaration of Property. Say that the Mining Cooperative "Litoral Ltd." - -------------------------------- declares itself to be the legitimate and sole concession-holder of the mining concessions denominated "Animas" and "Sucesivas Animas" comprised of 200 and 80 mining claims respectively, for exploitation, on veins, placers and gravels of lead, silver, zinc and other ores, located in the jurisdiction of San Cristobal canton, province of Nor Lipez, department of Potosi, which are found under Executive Title under Law No. 7/1970 dated February 11, 1970 and No. 24/1968 dated August 15, 1968, both duly inscribed in the Mining Registry and the Registry of Real Property, there being found all of the documentation which accredits the rights of property in order, as well as the mining patents paid up to date. Third, Object of the Contract. It being agreeable to the Interest of the - ----------------------------- Cooperative in a free and voluntary form, in its status of legitimate concession-holder of the mining concessions "Animas" and "Sucesivas Animas", it is given in favor of the company Mineria Tecnica Consultores S.A. MINTEC S.A., represented by Ing. Jaime Rubin de Cells Navarro, of an exclusive and irrevocable character, the right of option to purchase the concessions "Animas" and "Sucesivas Animas" in all of their extension and also their uses, water rights, customs and easements without any limitation whatsoever, assuming the obligation to sell the concessions in accordance with the stipulations of this contract, subject to the unilateral decision of the operator, in conformity with that disposed by Article 64 of the Civil Code, a right which the optioner shall exercise in his favor or in favor of the individual or collective person he may designate. Fourth, Period. The option to which the present contract refers will have a - --------------- duration of two years counted from the date of official registry of this document. Fifth, Authorities of the Optioner. During the time stipulated for the option, - ----------------------------------- MINTEC S.A. will have the authority and the exclusive right to purchase the concessions and the Cooperative [will have] the irrevocable obligation to sell them, the optioner being able to use this option in his favor, code it or transfer it in favor of any person, likewise it may do, without any limitation whatever and during the referred period, studies, reconnaissance, exploration and exploitation work on the concessions "Animas" and "Sucesivas Animas" being able to obtain samples in the quantities deemed necessary. All of the works of exploration shall be done following appropriate norms and techniques for the purpose. [MINTEC] may also freely enter the concessions without prior authorization it being sufficient the present contract, [and] may use that Infrastructure which may be necessary including the camp. All of the works effected by the optioner shall be at his own risk and expense. During the life of this contract, the Cooperative may continue its habitual works, without interfering with those of MINTEC. Sixth, Price of Option and Form of Payment. The price freely agreed between the - ------------------------------------------- parties for exercise of the purchase option and subsequent transfer of the concessions "Animas" and "Sucesivas Animas" is US$ 150,000 (one hundred fifty thousand american dollars), which shall be paid in the following manner. During the first six months of the life of this contract, no sum will be paid, MINTEC being able to realize its work in a most complete way. From the seventh month of the life of this contract under the twenty-third month inclusive, MINTEC S.A. will pay the Cooperative the sum of US$ 2,000 (two thousand american dollars) monthly, at the end of each month. 2 If MINTEC S.A. decides to exercise its right of option to purchase before the two years [are up], the monthly payments are suspended and the balance of total price will be paid. If MINTEC S.A. acquires the concessions "Animas" and "Sucesivas Animas", 50% of the monthly payments until that time will be considered as payment counted toward the total price and the other 50% will benefit the Cooperative. Seventh. Obligations of the Seller. During the period of the option, the - ----------------------------------- Cooperative may not sell the concessions to third persons, nor may it lien them or constitute on them any real or personal right, nor give any class of rights, which in any way could affect that conferred on the optioner, under penalty of nullity of whatever contract given in contravention of this clause and without prejudice to payment of damages which may be occasioned. The Cooperative is also obliged to maintain current its right on the concessions "Animas" and "Sucesivas Animas", and when necessary defend any suit which may be presented against it. The patents during the life of the contract shall be paid by MINTEC. Eighth. Execution of the Option. Should the company in exercise of its right - -------------------------------- given by this contract, decide to execute the option and consequently acquire the concessions "Animas" and "Sucesivas Animas", it will notify the Cooperative of this in writing; within; within seven days of notification, it will sign the corresponding public deed of definitive transfer, against delivery of the balance and complying with the other conditions stipulated in the contract; [should it] not do so, the parties concede sufficient competency and jurisdiction to any district judge of the city of La Paz the authority to extend the corresponding minute of sale. Ninth. Renouncement of the Option. MINTEC S.A. reserves the right to conclude - ---------------------------------- [sic] this contract during the period of the option, without demonstration of cause, at any time. To this effect, it will notify the seller of its decision to not exercise the option 30 days in advance and with this notification the present contract will remain concluded, with full right and without need of judicial intervention covered by Article 589 of the Civil Code. The monies which may have been paid to the seller under this contract shall remain to the benefit of the Cooperative, and the optioner will deliver to the Cooperative the studies and maps elaborated on the concessions "Animas" and "Sucesivas Animas" at no cost. Within 15 days of receipt of notification, the parties oblige themselves to sign the respective minute and public deed of conclusion of the contract, in which it will be stated that the concessions revert to the seller and the optioner is freed of payment of the balance of the total price and monthly quotas. Tenth. Priorities for the Cooperative. During the exploration phase, MINTEC - -------------------------------------- S.A. concedes priority right to the cooperative members for contracting workers in accordance to its needs, equally should it enter the exploitation phase, with priority it will contract Cooperative personnel for these works. 3 In the event MINTEC does not exercise its right of option, all of the improvements made on the concessions "Animas" and "Sucesivas Animas" will remain in benefit of the Cooperative, however MINTEC may freely withdraw its machinery and equipment from its property. Eleventh. Notices. For the purpose of communications resulting from this - ------------------ contract, the parties indicate the following domiciles: La Cooperative Minera "Litoral Ltda", Calle Avenida Arce esquina Peru No. 401, Uyuni telephone 0693- 2198. MINTEC S.A. Calle Campos No. 265, P.O. Box 13790, telephone 433800. Twelfth. Arbitration. Any divergence between the contracting parties in - --------------------- relation to this contract shall be resolved via binding arbitration in accordance with dispositions of the Code of Civil Procedure and in the event the third arbiter is not designated by the parties, he shall be designated by the President of the Bolivian Confederation of Private Businessmen. Thirteenth. Reaches of this Document. Until it is raised to public deed, this - ------------------------------------- minute is given the value and effect of a private document. Fourteenth. Acceptance. We Pedro Calcina Quispe, Epifanio Calcina Calcina, and - ----------------------- Hilarion Calcina Quispe, President, Secretary and Treasurer of the Administrative Council, respectively, of the Cooperative Minera Litoral Ltda. For the one part, and for the other Ing. Jaime Rubin de Celis Navarro, legal representative of the company Mineria Tecnica Consultores Asociados S.A. MINTEC S.A., manifest our acceptance and full agreement with the entire tone of the present contract in each and every one of its clauses. ---------------------------- - ------------------- Dra. Maria Esther Vallejos H. Nieves Rocha U. Special Notes of Mines and Petroleum Witness ------------------ Guido Ortiz M. Witness ------------------------ Signed by Pedro Calcina Quispe ---------------------------- Signed by Epifanio Calcina Clacina --------------------------- Signed by Hilarion Calcina Quispe ------------------------ Signed by Jaime Rubin de Celis (Mintec S.A.) 4 EX-10.18 18 PURCHASE OPTION AGMNT. - ENG. TRANS. - 5/22/96 Attach to Exhibit 10.18 Attached hereto is an English translation of the original Spanish version of the Assignment Agreement regarding Mintec's rights and obligations under the Purchase Option Agreement between Mintec and ASC Bolivia LDC. The Company employed translators to translate the above referenced agreement and based on this the undersigned believes that the attached is a fair and accurate English translation of the above referenced agreement. /s/ Keith R. Hulley ------------------- Keith R. Hulley Director Apex Silver Mines Limited Date: August 29, 1997 Exhibit 10.18 Special Notary of Mines and Petroleum, La Paz, Bolivia. Deed number 111: Cession of Option to Buy with Irrevocable Promise to Sell mining concessions called Animas and Sucesivas Animas, located in the jurisdiction of San Cristobal canton in Nor Lipez and Villa Martin provinces, respectively, of Potosi Department, signed between the Litoral Mining Cooperative, Ltd., Empresa Minera Tecnica Consultores Asociados S.A. (MINTEC) and the company ASC Bolivia LDC. First. Antecedents. Via Deed No. 173 ("Contract") given on the 17/th/ of - ------------------- August 1995 by the Special Notary of Mines and Petroleum of this City, the Litoral Ltd. Mining Cooperative ("Seller") gave in favor the company Mineria Tecnica Consultores SA (MINTEC) the option to purchase the following mining concessions: 1. "Animas" of 200 mining pertenences of exploitation, with Executive Title of Law No. 7/1970 dated February 11, 1970 duly inscribed in the Mining and Real Property registry. 1. "Sucesivas Animas" of 80 mining pertenences of exploitation, with Executive Title of Law No. 24/1968 dated August 15/th/ nineteen sixty-eight, duly inscribed in the Mining and Real Property Registry. The mentioned mining concessions are to be found in the jurisdiction of San Cristobal canton, Nor Lipez province, Potosi Department. Second. Cession. It being convenient to the interests of the mentioned - ---------------- contracting parties, MINTEC S.A. under the support of articles 539 et seq of the Civil Code cedes the Contract in favor of ASC Bolivia LDC. As a consequence, from the date of this document ASC Bolivia LDC assumes all of the rights and obligations of MINTEC S.A. under the Contract, the Seller recognizing in favor of ASC Bolivia LDC exclusively and irrevocably, the right to purchase the mining concessions described in the first clause of this clause, with more [sic] its uses, customs and easements, without any limitation save that stipulated in the Contract, which remains in force and with legal validity between the Seller and ASC Bolivia LDC and in all ways which are not contradictory to this contract. Third. Liberation of MINTEC S.A. As a consequence of this cession, MINTEC S.A. - --------------------------------- has been completely freed of each and every one of its obligations under the Contract, the same that has been assumed by ASC Bolivia LDC in accordance with the stipulated in same. Fourth, Acceptance. Expenses and Registrations. All of the expenses including - ------------------ notarial and other registrations shall be borned by ASC Bolivia LDC. Fifth. Acceptance. - ------------------ for the Cooperative: Pedro Calcina Quispe, Epifanio Calcina Calcina and Hilarion Calcina Quispe. for MINTEC: ------------------------ Jaime Rubin de Celis for ASC Bolivia: ------------------ Fernando Rojas Witness: ----------------------------- Sandra Salinas Valdivieso Powers of Attorney... Signed, May 22, 1996. EX-10.20 19 JOINT VENTURE AGREEMENT - ENG. TRANS. 9/11/97 Attach to Exhibit 10.20 Attached hereto is an English translation of the Joint Venture Agreement between Corporacion Minera Boliviano S.A. ("Comibol") and ASC Bolivia LDC, regarding the Cobrizos Concession. The Company employed translators to translate the above referenced agreement and based on this the undersigned believes that the attached is a fair and accurate English translation of the above referenced agreement. /s/ Keith R. Hulley ------------------- Keith R. Hulley Director Apex Silver Mines Limited Date: August 29, 1997 1 C O R R E S P O N D S (SEAL) *******************************AFFIDAVIT No.230/96***************************** FOR THE JOINT VENTURE WRIT FOR THE DEVELOPMENT OF MINING ACTIVITIES, SUBSCRIBED BETWEEN: THE CORPORACION MINERA DE BOLIVIA (COMIBOL), REPRESENTED BY DR. ALBERTO ALANDIA BARRON - PRESIDENT AND LIC. LUIS ARNAL VELASCO - MANAGER OF THE CONTRACTS AND FINANCES UNIT, AND "ASC BOLIVIA LDC" COMPANY, REPRESENTED BY MR. JOHNNY DELGADO ACHAVAL.= ******************************************************************************** In La Paz city, at nine hours of October fifteen of the year nineteen ninety six; before me, lawyer Dr. MARIA ESTHER VALLEJOS H., SPECIAL NOTARY OF MINES AND PETROLEUM and witnesses named and signed at the end, presented themselves: For one party, the CORPORACION MINERA DE BOLIVIA (COMIBOL), REPRESENTED BY DR. ALBERTO ALANDIA BARRON, with ID No. 1191239 PT. (PRESIDENT) AND LIC. LUIS ARNAL VELASCO, with ID No. 332387 L.P. (MANAGER OF THE CONTRACTS AND FINANCES UNIT), and "ASC BOLIVIA LDC" COMPANY, REPRESENTED BY MR. JOHNNY DELGADO ACHAVAL, with ID No. 39745 L.P.; all full of age, able by right, neighbors of this city, of whose identity I certify, and said: They agree to convert into a public deed the writ presented to me related to: WRIT FOR A JOINT VENTURE FOR THE DEVELOPMENT OF MINING ACTIVITIES, accompanied by: Supreme Resolution No. 213601 dated 16/II/94; COMIBOL's Board of Directors Resolution No. 1084 dated 22/XII/95; COMIBOL's Board of Directors Resolution No. 1105 dated 06/II/96; COMIBOL's Board of Directors Resolution No. 1183 dated 28/VI/96; Power of Attorney Affidavits Nos. 140/94, 205/94 and 105/96; Annex "A" and "B"; Payment Receipts for Mining License for the "Cobrizos" Mining Concession; Industry and Commerce Registration Certificate for the "ASC BOLIVIA LDC" Company (Bolivian Branch); and Bank Deposit Receipt; documents that fully transcribed are as follows: ================== WRIT.- SPECIAL NOTARY OF MINES: In the public deeds register under your - ------ charge, please insert a Joint Venture Contract for the Development of mining activities subscribed between the CORPORACION MINERA DE BOLIVIA (COMIBOL) and ASC BOLIVIA LDC company, according to the following clauses and conditions: ========================================== FIRST.- OF THE LEGAL CAPACITY OF THE PARTIES AND THOSE UNDERSIGNING.- 1.1 - ------- Undersign this Joint Venture Contract, on one side the 2 CORPORACION MINERA DE BOLIVIA, from now on called COMIBOL, a decentralized Autarkic Entity belonging to the State created by S.D. 3196 dated October second nineteen fifty two, passed as law on the twenty ninth of October, nineteen fifty six with its own legal capacity and total administration autonomy, exercising the Administration and High Direction of all the mining deposits, tailings, mill tailings and slags, establishments, facilities, mine camps, complementary properties in general, without exceptions, constituting the state owned mining, whether they might be a result of the Mines' Nationalization or acquired after it.======================== 1.2. Subscribing the CONTRACT on the other side, the company whose trade name is ASC BOLIVIA LDC, a limited liability company, a subsidiary of ANDEAN SILVER CORPORATION LDC, an international mining company constituted at the Cayman Islands through a constitution certificate dated September seventh nineteen ninety five, whose original has been legalized by the Bolivian Consulate in London (England) on the fourteenth of the same month and year, a subsidiary legally constituted in Bolivia, through public Deed No. 49, issued before the Special Notary of Mines of La Paz on the tenth of November nineteen ninety five, registered at the General Register of Commerce and Stock Companies under Register No. 09-037162-01 dated December six nineteen ninety five and at the Taxpayers' Unique Register with RUC No. 7836635. ===== 1.3. LEGAL CAPACITY OF THE SUBSCRIBING PARTIES. - COMIBOL subscribes the Contract represented by its PRESIDENT, DR. ALBERTO ALANDIA BARRON, who has the legal representation of the entity by virtue of S.D. 23727 dated February eleventh nineteen ninety four, of his official appointment made by Supreme Resolution No. 213601 dated February sixteenth of the same year and exercising the capacity conferred to him by COMIBOL's General Board of Directors, by Resolution No. 826/94 dated March fifteenth, nineteen ninety four, as well as LIC. LUIS ARNAL VELASCO, MANAGER OF THE CONTRACTS AND FINANCES UNIT, appointed as such by COMIBOL'S General Board of Directors Resolution No. 860/94 dated June thirteenth, nineteen ninety four and in use of the powers conferred through Special Power by the said PRESIDENT OF COMIBOL, through instrument No. 222/94 dated July eleventh, nineteen ninety four undersigned before Public Notary in La Paz under the charge of Dr. Nelly Alfaro and registered before the Notary of Mines in La Paz, under No. 205 dated twenty eight of July nineteen ninety four; that will be inserted in the corresponding Public Deed. =========== 1.4. Subscribing the Contract, in representation of ASC BOLIVIA LDC, by virtue of a Limited Power conferred to him, mister JOHNNY DELGADO ACHAVAL, as truly and legal agent and proxy, through instrument granted the seventh of March nineteen ninety six before Notary Public at the Cayman Islands, George M. Shortridge, certified by the Bolivian Consul in London (England), documents that have been judicially translated from English to Spanish, by the authority of the Fifth Civil Trial Judge in La Paz, and legalized before the Special Notary of Mines of this capital city, under No. 105 on the first of April nineteen ninety six and registered at the General Register of Commerce under Entry No. 728 in Book 07-0 on the eighth of the same month and year, special power that, as a whole, will be inserted in the corresponding Public Deed. ======================= 3 SECOND.- CONTRACT BACKGROUND.- 2.1. In compliance of the Supreme Government's - -------- Mining Policies and within the framework of the legal provisions in force, on the matter, COMIBOL has publicly invited Mining Companies, national and foreign, interested in the EXPLORATION with the option to EXPLOITATION and subsequent MARKETING of the non-developed mining deposits, among others, those of the LOS LIPEZ zone in the Department of Potosi, so that they can present proposals to that end, and the Terms of Reference and the legal and administrative requirements for the Public Tender have been widely published. In order to guarantee the total legality of the public tender's results, as well as the greatest efficiency in the judgment of the proposals to be presented, independent consulting companies of recognized technical experience and managerial solvency were equally involved. The evaluation results by BEHRE DOLBEAR & COMPANY INC., the independent consultant selected, according to that presented in the report dated January, nineteen ninety six, qualifies ASC BOLIVIA LDC to be awarded the JOINT VENTURE CONTRACT for Mining Concessions to be later described and that form part of ANNEX "A" of the Contract, a report that has been approved by COMIBOL'S Board of Directors with Resolution No. 1105/96 dated February six, nineteen ninety six, and that at the same time authorized the negotiations for the respective CONTRACT with ASC BOLIVIA LDC. ============================================= THIRD.- DEFINITIONS.- The following definitions are established in the present - ------- Contract, in an enunciative but not limited manner: 3.1. AREA GRANTED.- The -------------- mining concessions belonging to COMIBOL included in this Contract and whose total area is 1,687 hectares plus 4 hectares of Demasias Cobrizos. ======== The concessions of the AREA GRANTED are described individually in page four of the Technical-Economical Proposal by ASC BOLIVIA LDC and in ANNEX "A" of the Contract.- COMIBOL by express and written request from ASC BOLIVIA LDC will be able to formulate mining petitions or grant complementary areas neighboring to the GRANTED AREA, in which case ASC BOLIVIA LDC will formulate a Specific Work Plan and will guarantee a minimal investment in the same conditions to that for the AREA GRANTED. ======================= 3.2. INVESTED CAPITAL.- Are all the expenses and investments made by ASC ------------------ BOLIVIA LDC for the exploration and development of mineral reserves, preparation of pre-feasibility and feasibility studies; basic and in-detail engineering designs; purchase, transport and import of equipment, machinery and materials; installation of all the mining equipment and machinery, minerals concentrating and refinery plants, workshops, laboratories, warehouses, offices, etc.; construction of camps and buildings, tailings and waste accumulation systems, energy distribution systems, energy plants, security systems, water reception and storage systems; etc. and starting of the production operations, according to generally accepted accounting principles. =================== 3.3. MINING CONCESSIONS.- Set of mining properties (Art. 33 of the Mining -------------------- Code), in which the activities foreseen in the Contract can be performed. ===== 3.4 MARKETING COMMISSION.- Payment in money for the sale management of the ---------------------- minerals or metals produced by ASC BOLIVIA LDC.- This commission is not an integral part of the Marketing Costs. ============================ 4 3.5 PRODUCTION EXPENSES.- Are all the operational expenses made by ASC BOLIVIA --------------------- LDC during the minerals production process, up to obtaining the final products to be marketed or exported placed in the mine, either these be mineral concentrates or metals, according to generally accepted accounting principles. ================= 3.6 ADMINISTRATIVE EXPENSES (OVERHEADS).- Are all the expenses made by ASC ------------------------------------- BOLIVIA LDC in the administrative duties and direction of the Joint Venture Contract, different from the production expenses, according to generally accepted accounting principles. ===================================== 3.7 MARKETING EXPENSES.- Are all those that are made to convert the minerals in -------------------- metals, by the smelting or refining company; they include metallurgical deductions, treatment expenses, smelting and refining, analysis, assays, arbitrations, penalties and other deductions and expenses directly related to the conversion process to marketable metals. ============================= 3.8 DEPRECIATION.- A deduction made according to Bolivian laws, due to the -------------- reduction, wear and loss of value of the capital assets, for their reposition. ===== 3.9 DELIVERY.- The date in which COMIBOL will deliver and officially the ---------- GRANTED AREA to ASC BOLIVIA LDC.- The physical delivery will be documents through a detailed Minutes to be drawn up in some place of the AREA GRANTED. The Minutes will be signed by the parties' representatives appointed to that end, with a prior written notice to them. The delivery will be done not later than within thirty (30) days after the CONTRACT is signed. ===== 3.10 OPERATIONAL CASH FLOW.- It is the sales values minus the costs of ----------------------- disposal, marketing commissions, marketing expenses, production expenses and administrative expenses, excluding the financial expenses, depreciation, deferred expenses or taxes. ======================================== 3.11 COSTS OF DISPOSAL.- Are all those directly related to the transport of ------------------- concentrates or final products, from the mine to the smelter; they include decreases, road, air and sea transport fees, transport insurance, handling, port charges and other related. These costs of disposal are not an integral part of the Marketing Expenses. ============================================= 3.12 DEFERRED EXPENSES.- Are all payments or charges made and whose application ------------------- is deferred until some previously stated terms are complied with or the application period of the expense has expired. ====================== 3.13 FINANCIAL EXPENSES.- Are all the capital amortization expenses and bank or -------------------- from financial entities credits, interests, contracted by ASC BOLIVIAL LDC for the compliance and execution of the Joint Venture Contract. =============== 3.14 TAXES.- Are all taxes, national, municipal or of any other nature, created ------- or to be created by Law, that are applied to mining operations developed by ASC BOLIVIA LDC, as a result of this Contract. ============================ 3.15 PAY BACK PERIOD.- Any period, either be the initial one or any later one, ----------------- including the month starting now, in which an expense has been made for improvements in the capital and previous to the first day of the following month to that in which ASC BOLIVIA LDC has recovered from the Cash Flow all the costs and expenses for capital improvements. =============================== 5 3.16 PRODUCT(S).- All the materials, minerals, precipitates from mineral ------------ resources, concentrates, dore and any other product or sub-product, originated in the GRANTED AREA. ========================================== 3.17 PAY BACK.- Means the date in which ASC BOLIVIA LDC'S shareholders have ---------- received from the Cash Flow all the costs and expenses for capital improvements really made and registered according to generally accepted principles in Bolivia. The calculation will be done at the end of each ASC BOLIVIA LDC's fiscal year.- Nonetheless, COMIBOL's participation, mentioned in paragraph 11.1.2, will be applied from the moment in which the pay back is finished. =========================== 3.18 SALES GROSS VALUE.- Are the payments that ASC BOLIVIA LDC will receive ------------------- from third parties, natural or juristic, for the sale of the refined metals or concentrates, produced during the exploitation period, from which all the expenses and costs established in point 3.7 will be deducted. ============== FOURTH.- APPLICABLE LAWS.- 4.1. This Contract is subscribed and is governed by - -------- the legal provisions that in a merely enunciative and not limitative manner are expressed as follows: Arts. 136 and 138 of the Pol. Const. of Bolivia, S.D. 3196 (2-10/52), L. (2910/56), S.D. 22407 (11-01/90), S.D. 22408 (11-01/90), L. 1182 (17-09/90), L. 1297 (27-11/91), S.D. 23059 (13-02/92), L. 1243 (11-04/92), L. 1333 (29-04/92), without regulations that came into force by S.D. 24176 dated 8/12/95, S.D. 23214 (21-07/92), D.S. 23230-A (30-07/92) and other legal provisions in force on the matter or to be enacted in the future. This Joint Venture Contract was approved by COMIBOL'S Board of Directors, through Resolution No. 1183/96 dated June twenty eight nineteen ninety six. ========= FIFTH.- OF THE JOINT VENTURE CONTRACT, NAME AND ADDRESS.- 5.1. The Joint - ------- Venture Contract, constituted by this document, called from now on CONTRACT, does not compromise the patrimony of either of the associates nor affects in any way the legal capacity of the signing parties; nor constitutes a society, nor establishes an independent jurisdic person. ======= In the CONTRACT, it is not established, for associates, a responsibility, solidary, jointly nor unlimited for the acts, contracts and obligations that each one could perform, celebrate and assume in the execution and compliance with the CONTRACT. == 5.2 As a consequence of the CONTRACT, ASC BOLIVIA LDC does not acquire a right of property at all in the civil regime nor as mining concessionaire in the mining regime, on the land nor on the underground of the GRANTED AREA, nor on the water rights, servitudes and customs, access roads, camps, constructions or any other facilities that could exist. ================================= 5.3. In the terms and conditions given in the CONTRACT, COMIBOL grants ASC BOLIVIA LDC, in an express manner, the exclusive exploration rights, the option to enter into the exploitation phase, once the first phase exploration is entirely finished, as well as the marketing of the minerals to be mined over an area of One Thousand Six Hundred and Eighty Seven (1,687) hectares of the "COBRIZOS" Mining Concession, plus Four (4) hectares of Demasias Cobrizos, located in the Rio Grande County, Nor Lipez Province of the Department of Potosi, whose detail is expressed in Annex "A" of the CONTRACT. ========== 6 5.4. This exclusive right, in the conditions stated in the CONTRACT, is the sole and total contribution by COMIBOL to the Joint Venture Contract convened in this document, without any obligation nor responsibility from COMIBOL for the execution and compliance with the CONTRACT. It also means that COMIBOL, during the term of the contract, will not reduce, transfer, effect nor compromise its rights and interests on the deposits it contributes to the joint venture, in any measure nor for any motive, guaranteeing ASC BOLIVIA LDC the peaceful possession, the use and enjoyment of the mining concessions object of the CONTRACT. =================================================== 5.5. The parties, by mutual agreement convene in naming this Joint Venture Contract as COMIBOL - ANDEAN - COBRIZOS R.C., with legal address in La Paz city, Campos Street No. 265, Telephone 433800, Telefax (5912) 433737. ============================================================== SIXTH.- OBJECT OF THE CONTRACT.- 6.1. Based on the background previously - ------- stated, COMIBOL and ASC BOLIVIA LDC, through this contract convene in subscribing a Joint Venture Contract for the exploration and exploitation option, concentration, refining and smelting without any reserve and the marketing of the mineral, metal products and sub-products that will be exploited at the deposits situated in the GRANTED AREA, under the technical conditions described in the proposal by ASC BOLIVIA LDC and accepted by COMIBOL, as stated in its Proposal and constitutes part of the present CONTRACT. =============================== 6.2. The activities, object of the CONTRACT, comprise the identification and development of reserves, design of the mining operation, rational and efficient exploitation of the mineral resources, optimizing treatment processes and metallurgical recovery, preparation of the respective technical and economical feasibility projects and, in general, the application of a modern technology and an efficient management of the performance of the mining operations, as well as comply with the environmental obligations established by law, according to Seventeenth Clause of the CONTRACT. ============================== SEVENTH.- TERM OF EXPLORATION.- 7.1. The maximum term for the Exploration - --------- period will be of Five (5) years starting from the physical and official delivery of the GRANTED AREA in this CONTRACT by COMIBOL to ASC BOLIVIA LDC.- This delivery will be registered in a detailed minutes drawn up on site or where the parties agree upon, and it must be subscribed by the officials to be appointed to that end, with the presence of a competent authority. =================================== 7.2. The term of five (5) years of exploration, divided in three (3) phases is as follows: ===== FIRST PHASE with a duration of twenty four (24) months. ===== SECOND PHASE with a duration of twenty four (24) months. ===== THIRD PHASE with a duration of twelve (12) months. ===== TOTAL SIXTY (60) MONTHS, equivalent to FIVE (5) YEARS.============================== 7.3. The First Phase is compulsory and thus its strict obeyance is guaranteed by ASC BOLIVIA LDC, according to that stated in Clauses 9.1 and 9.2 of this CONTRACT. =================================================== 7.4. During the First Phase, ASC BOLIVIA LDC, will execute the Work Program consisting of page six up to page ten of their accepted and awarded Proposal, a work 7 plan that will form part of this CONTRACT without the need of officially registering it. ASC BOLIVIA LDC can explore the entire mining concessions or part of them according to their election, but in any sectors the Work Plan will be executed faithfully and totally, COMIBOL at a written and express request by ASC BOLIVIA LDC can formulate mining petitions or grant complementary areas within two (2) neighboring kilometers with the GRANTED AREA, in that case ASC BOLIVIA LDC will formulate a specific Work Plan and will guarantee a minimal investment to be made in such complementary areas, which will be subject to the same conditions established for the Work Plan as well as the minimal investment of the GRANTED AREA. =========================== 7.5 ASC BOLIVIA LDC, during the First Phase, can anticipate the conclusion of the twenty four (24) months term, under the express condition that the execution of the pledged Work Program has been finished for this Phase and, as a consequence, can enter into the other exploration phases or exercise immediately its option right to enter into the Exploitation Phase in the areas its studies would have determined as positives. In this case, the Bank Guarantee Certificate for the Compliance of Contract will be returned by COMIBOL within a term not longer than sixty (60) days after the First Exploration Phase is finished. The compliance with the Work Plan, as well as the starting of the Exploitation will be unreservedly verified by COMIBOL, which will present the detailed reports of one and the other situation, within sixty (60) days. ========================== 7.6. ASC BOLIVIA LDC, at any time during the First Phase, but only after the Minimum Work Program has been complied with, and not later than the last day of the maximum term for the Phase, can suspend definitely the exploration of the areas object of this CONTRACT and withdraw from the Joint Venture Contract, in which case the CONTRACT will be resolved of full right at the date ASC BOLIVIA LDC gives notice to COMIBOL of its decision. If ASC BOLIVIA LDC has not fulfilled the Minimum Work Program, COMIBOL will cash the Bank Guarantee Certificate of Contract Compliance, without the right to an appeal, claim nor any exception that ASC BOLIVIA LDC could oppose against COMIBOL in the judicial or extra-judicial way. The Joint Venture Contract will thus be rendered totally null and judicially void. =================== 7.7. The simple reduction of the extension of any of the areas, constituting the AREA GRANTED, according to that recommended by the studies done by ASC BOLIVIA LDC, will not mean the suspension of the exploration according to that stated by point 7.6 previous and ASC BOLIVIA LDC is obliged to continue the execution of the Work Plan pledged in its proposal on the areas selected as attractive, which will be executed until the expiry of the term established for the First Phase. ====================== EIGHT.- EXPLORATION INITIAL PAYMENTS.- 8.1. ASC BOLIVIA LDC, according to the - ------- Terms of Reference of the Public Tender will pay COMIBOL the following scale of Exploration Initial Payments: FIRST PHASE.- Three 57/100 American Dollars ($US 3.57) per hectare on the - ------------- entire extension of the GRANTED AREA on 1.687 hectares plus 4 hectares of Demasias Cobrizos. ============================================== 8.2. The payments described and stated in the previous Point (8.1), will be paid on the 1.687 hectares plus 4 hectares of Demasias Cobrizos or mining properties, within thirty 8 (30) days of the physical delivery of the concessions by COMIBOL to ASC BOLIVIA LDC. Any reduction in the extension of the areas in any of the concessions of the GRANTED AREA, either be during the maximum term of 24 months, or the Second or Third Phases, will not cause the return or reimbursement of the Exploration Initial Fees agreed upon in Points 8.1, 8.3 and 8.4 of this CONTRACT, by COMIBOL to ASC BOLIVIA LDC and the amounts paid will be consolidated definitely in favor of COMIBOL. ================== 8.3. SECOND PHASE: One Hundred and Nineteen 05/100 American Dollars ($US 119.05) per Hectare on the extension of the concessions that, at the start of the Second Phase, decides to explore within the term of 24 months established for this Phase. The exploration operations discontinuity is admitted within a same mining concession.- The first phase area can also be reduced or request COMIBOL, or perform mining petitions to the State for larger extensions should there be free land, according to that explained in the Twenty Sixth Clause of this CONTRACT and according to that laid down in the last part of Clause 7.4 of the CONTRACT.- ASC BOLIVIA LDC is obliged to notify COMIBOL of any area reductions of the GRANTED AREA with a thirty (30) days' notice prior to the ending of the preceding Phase term. It will also notify of any anticipation in the term computing due to entering to the Exploitation Phase, in the same conditions. ===================================================== 8.4 THIRD PHASE: Five Hundred Ninety Five 24/100 American Dollars ($US 595.24) per hectare as Initial Exploration Fee on the extensions of the mining concessions, that at the start of the Third phase decides to exploit within the term of TWELVE (12) MONTHS. ===== In this phase, the exploration operations discontinuity is admitted within the same concession. The exploration area can also be reduced with relation to the First and Second Phases or request COMIBOL or make mining petitions to the State for a larger extension should there be free land according to that established in Clause Twenty Sixth of this CONTRACT.- ASC BOLIVIA LDC is obliged to notify COMIBOL of any reduction of areas of the GRANTED AREA, with no less of THIRTY (30) DAYS before the conclusion of the Second Phase. ===== It will also notify COMIBOL of the anticipated conclusion within the term of this Phase when it decides to enter the Exploitation Phase. ======================================= 8.5. All the Payments of the Exploration Initial Fees established in Points 8.1, 8.2, 8.3 and aforementioned will be done by ASC BOLIVIA LDC before the start of the corresponding Phase and within a term of thirty (30) days maximum, at COMIBOL'S offices in La Paz city, receiving the corresponding fiscal receipts for tax purposes. =================================================== NINTH.- MINIMUM GUARANTEED INVESTEMENT DURING THE FIRST PHASE OF EXPLORATION.- - ------- 9.1. According to the Public Tender's Terms of Reference, ASC BOLIVIA LDC accepts and is compelled to make a guaranteed Minimum Investment during the First Phase of the Exploration Period of Six Hundred and Twenty Five Thousand 00/100 American Dollars ($US625,000.00), pledged in the Chapter and Investment Plan, Page Eleven of its Proposal. ===== 9.2. As a consequence, ASC BOLIVIA LDC guarantees the minimum total investment of the established amount in the previous Point, through the presentation to COMIBOL of a Bank Guarantee Certificate for Contract Compliance, issued irrevocably in favor of 9 COMIBOL by BHN MULTIBANCO Bank of La Paz City, under No. 10001821 dated September six nineteen ninety six for One Hundred and Twenty Five Thousand 00/100 American Dollars ($US 125,000.00) valid for Thirty (30) Months, equivalent to twenty percent (20%) of the minimum investment pledged. ================ 9.3. Whilst ASC BOLIVIA LDC, during the First Phase, is making the corresponding investments, it can request COMIBOL the return of the original Guarantee Certificate, simultaneously substituting it with a new certificate covering the rest of the guarantee for the investment not yet made, and for the corresponding term until in the term of twenty four (24) months, or before it if the exploration term for the First Phase is anticipated, the minimum total investment pledged has been made according to Clauses 7.3 and 9.1 of this CONTRACT. The changeover of the guarantee certificates will be done within 30 days maximum, with prior verification and acceptance by COMIBOL that the investments have been made by ASC BOLIVIA LDC, through documented evidence, with attesting receipts and a report by an independent auditor. ====== 9.4. If the last day of the twenty four (24) month period for the First Phase has expired, and there would be a remainder of the investment not made by ASC BOLIVIA LDC, COMIBOL will be able to execute and cash the Guarantee Certificate valid at that date, and ASC BOLIVIA LDC won't be able to oppose a recourse nor an exception of any nature. ============================== 9.6. The Three Phases that form part of the Exploration Period, have the objective of developing mineralogical reserves, design of treatment plants and the preparation of a rational and mechanized exploitation plan, design and optimization of the metallurgical treatment and recovery processes, drawing up technical-economical feasibility projects and the adoption of appropriate measures for the protection of the environment, pollution control and recovery of the land, objectives described in ASC BOLIVIA LDC'S Proposal Work Program. ============================================================== 9.7. Thus, it is agreed that, if ASC BOLIVIA LDC considered attractive determined areas to start in them the Exploitation Phase, at any time within the determined terms for any of the Three Phases, but if and when the Work Program has been complied with entirely of the Exploration Phase given in ASC BOLIVIA LDC'S proposal described in ANNEX "B" of this CONTRACT and the minimum investment has been entirely made, apart from the technical-economical study, ASC BOLIVIA LDC can enter into the exploitation phase, and must notify COMIBOL of this decision for the purposes of verifying the compliance of the aforementioned conditions and the financial-accounting management of the corresponding share of COMIBOL established in ASC BOLIVIA LDC'S proposal. ========================================= 9.8. If ASC BOLIVIA LDC does not exercise its Exploitation option rights at the end of the Exploitation Period, either it occurs at the expiry of any of its Phases determined in the CONTRACT, or before, be decision of ASC BOLIVIA LDC, the latter is obliged to present COMIBOL, without any charge or reimbursement of any nature, all the technical information, drawings, maps, designs, calculations and reports. =========== 9.9. The suspension or no performance of the compulsory minimum investment pledged by ASC BOLIVIA LDC within the terms and conditions stated in this 10 CONTRACT, will mean for all legal ends and purposes, the statement by ASC BOLIVIA LDC of its decision to withdraw from the Joint Venture Contract constituted in this CONTRACT and COMIBOL without the need to comply with the prior special formality will cash the Bank Guarantee Certificate presented by ASC BOLIVIA LDC, without any right to appeal, exception nor protest of any kind by the latter, either be judicially or extra-judicially. ==================== 9.10. As a result, also, all the extension of the AREA GRANTED, object of this CONTRACT, will be reverted to COMIBOL'S total domain. Within ninety (90) days maximum, ASC BOLIVIA LDC must withdraw all the equipment and machinery employed until then, assuming the costs and risks. ============== The buildings, access roads and other facilities adhered to the ground that would have been installed will remain for the benefit of COMIBOL as improvements, without the right to a reimbursement nor any type of compensation and the CONTRACT will be extinguished purely and simply. ====================== The equipment and machinery adhered to the ground can also be withdrawn if and only the foundations nor the walls to which they are adhered, are not destroyed. These tasks will be executed under the exclusive risk and charge of ASC BOLIVIA LDC. ============================================= 9.11. If the exploration areas cover only part of the GRANTED AREA, they must conform squares parallel to the perimeter of such concessions. ============= 9.12. The areas that in turn are rejected by ASC BOLIVIA LDC at the end of each exploration phase, they will be excluded from the CONTRACT and will be reverted to COMIBOL'S exclusive domain. In turn, the new areas will be annexed to the CONTRACT, in the conditions stated in Clauses 3.1, 7.4 of the CONTRACT. =================================================== TENTH.- OF THE EXPLOITATION PERIOD.- 10.1. Once all the stated conditions in - ------- this CONTRACT are complied with, for the First and in its case for the Second and/or Third Phases of the Exploration Period by ASC BOLIVIA LDC, without any exception, not later than the last day of the maximum term for each phase, ASC BOLIVIA LDC will notify COMIBOL about the areas it has selected in order to start the Exploitation Period of the deposits contained therein, which will mean the exercise of its option rights, which will be notified to COMIBOL through a notarized letter enclosing the technical-economical feasibility studies for the exploitation to be done and the marketing of the products. ====================================================== 10.1. COMIBOL will issue its approval of the feasibility study or its observations of the same, within ninety (90) days. COMIBOL can post observations due to technical and economical reasons, the same will be transmitted to ASC BOLIVIA LDC for their solution. If ASC BOLIVIA LDC dissents from COMIBOL'S opinion, the dispute will be resolved via the arbitral procedures established in Clause Twenty Third of this CONTRACT. =================================== 10.2. When ASC BOLIVIA LDC exercises its exploitation option rights, the parties will not be subject to any negotiation, limiting themselves to the compliance of the provisions in this CONTRACT. =================================== 10.4. Before the Exploitation Period is started, ASC BOLIVIA LDC is empowered to establish the non-attractive areas and that will be rejected, the same will be reverted of 11 right to COMIBOL'S whole domain and will be automatically excluded from this Joint Venture Contract. ============================= 10.5. COMIBOL will exercise its full and irrestrict right and administrative powers on the rejected areas. ============================================ ELEVENTH.- OF COMIBOL'S SHARE OF THE EXPLOITATION RESULTS.- 11.1 COMIBOL'S - ---------- share of the exploitation period is determined as follows, according to ASC BOLIVIA LDC'S Proposal, of 14 pages. ================= 11.1.1. During the recovery period of the capital invested by ASC BOLIVIA LDC in the construction, installation and starting stages of the production operations, ASC BOLIVIA LDC will pay COMIBOL an income equivalent to Five percent (5%) of the Positive Operational Cash Flow, according to the definition of the Third Clause Point 3.10 of this CONTRACT. =========================== 11.1.2. After the repayment of the initial investment, ASC BOLIVIA LDC will pay COMIBOL Fifteen percent (15%) of the Positive Operational Cash Flow as defined in Clause Three Point 3.10 of this CONTRACT. =================== 11.1.4. ASC BOLIVIA LDC is also compelled to increase COMIBOL'S share for each Ten Cents of a Dollar ($US 0.10), on One Dollar Fifty Cents ($US 1.50) of the international price of a pound of copper, with One percent (1%), up to a ceiling of Twenty Two percent (22%) of the share of the operational cash Flow (e.g., for $US 1.60 for a pound of copper, COMIBOL'S share will be 16%; for $US 1.70 COMIBOL'S share will be 17% and so on). ========================= 11.1.5. The periodicity of the payments for the share by ASC BOLIVIA LDC to COMIBOL will be done every three months with settlements or annual adjustments. =================================================== 11.2. It is expressly agreed that COMIBOL, during all the time this CONTRACT is in force, will have the right to supervise, verify and control the regularity of the financial processes described in Points 11.1.1, 11.1.2., 11.1.3, 11.1.4 and 11.1.5 aforementioned, through the accounting analysis of ASC BOLIVIA LDC documents, in order to establish exactingly COMIBOL'S share, and ASC BOLIVIA LDC is compelled to disclose to COMIBOL the complete and authentic documents so that the financial and accounting revisions be effective. ASC BOLIVIA LDC is also compelled to employ generally accepted accounting principles, for the accounting of its financial and marketing operations. The supervision, verification and control of the operations accounting, will be done by COMIBOL in ASC BOLIVIA LDC's offices and will be executed periodically, according to that determined by the Administration Committee in the Internal Regulations, approved by the parties. ========================= TWELFTH.-CONSTRUCTION, INSTALLATION, STARTING AND OPERATION STAGES.- 12.1. The - --------- Construction, Installation and Starting of the Operations as a whole, will not exceed Three (3) years starting as of the date ASC BOLIVIA LDC notifies COMIBOL as stated in Point 10.1 of Clause Tenth of this CONTRACT, unless force majeure defined later on in this CONTRACT. ==== 12.2. During the Exploitation Period, ASC BOLIVIA LDC will hold the exclusive administration and will run all the risks of the operations, with absolute autonomy in managerial decision making. With the same reaches and risks will also have the 12 exclusive administration and autonomy in the marketing of the minerals it produces, without any limitation, either be it locally or through exports. ========= 12.3. COMIBOL will not be held responsible at all for the development or the financial results of the operations, its performance will be limited to the punctual perception of its share in the Cash Flow and its share in the coordinating, information and supervision organisms. =============================== 12.4. Nonetheless, the hiring parties agree that the administrative expenses of the joint venture can not exceed Five percent (5%) of the production direct costs.- Equally, it is also stated that the marketing commission and the marketing costs can not exceed, as a whole, Two percent (2%) of the Net Smelter's Return. ================================================ 12.5. ASC BOLIVIA LDC will establish and execute a minerals marketing system that will allow an efficient, transparent management, guaranteeing the nonexistence of eventual benefits within or outside the country, for the benefit of one of the parties to the detriment of the other. ========================= 12.6. The purchase of equipment, machinery, materials, facilities and raw materials by ASC BOLIVIA LDC will be done in such a manner that the interests of the parties will not be affected and in particular COMIBOL's share. ======== THIRTEENTH.-TERM OF THE CONTRACT.- 13.1. This Joint Venture Contract will have - ------------ a term of Forty (40) Years, starting as of the physical and official delivery of the areas stated in this CONTRACT by COMIBOL to ASC BOLIVIA LDC. ===== This term will be renewed in the same contract conditions for just one more time, with a prior technical and economical justification, if ASC BOLIVIA LDC expresses, in writing, its will to do it.- The stated term includes the Exploration Period, either be in its entirety (5 years) or less, if ASC BOLIVIA LDC enters into the Exploitation Period beforehand according to that laid down in Clause 8.4 of the CONTRACT. =================================== FOURTEENTH.- INVESTMENTS AND FINANCING.- 14.1. ASC BOLIVIA LDC Is empowered to - ------------ finance on its account and risk the exploitation operations, either be with its own or from others. COMIBOL will not acquire any type of obligation related to such financing, whose service will be exclusively in charge of ASC BOLIVIA LDC.============================================ 14.2. The previous powers are translated in that ASC BOLIVIA LDC is obliged and pledges to perform all the necessary investments in order to implement into the operations modern technology, services, machinery, equipment, implements, materials, facilities, constructions and suchlike, as well as assume the commitments that will allow a rational exploitation of the mineralogical deposits of the AREA GRANTED, object of this CONTRACT. ===================== 14.3. The investments regime, initial as well as future, will respect invariably and at all times, that stated in Clauses Eleventh of this CONTRACT, relative to COMIBOL'S share of the results, regime that will remain invariable during the whole term of the CONTRACT. ===================================== FIFTEENTH.- LABOR RELATIONS- 15.1. The hiring and administration of the - ----------- workforce, technicians and employees during the Exploration Stage, as well as during the Exploitation Stage is of the absolute and total responsibility of ASC BOLIVIA LDC, 13 and it is of its entire responsibility the compliance with the Labor General Law, its Regulatory Decree and related legal provisions and complementary in force or to be enacted, as well as those provisions relative to social security, professional risks, employer's and employee's contributions, whilst COMIBOL is totally exempt of responsibility, and can not be demanded in any lawsuit of labor nature nor in any civil, penal, tax, fiscal coactive, social coactive nature, nor administrative, as an result of acts or omissions resulting from the execution of this CONTRACT by ASC BOLIVIA LDC. ============= 15.2. COMIBOL will deliver ASC BOLIVIA LDC the AREA GRANTED, object of this CONTRACT, free from encumbrance or obligations of labor or legal character. ===================================================== SIXTEENTH.- FORCE MAJURE.- 16.1. None of the hiring parties can demand of the - ----------- other the compliance with the obligations acquired in this CONTRACT, when the compliance has been delayed, hindered or impeded by causes not blamed on the obligated party. Such causes will constitute those of force majeure or fortuitous cases, as earthquakes, flooding, fire, strikes declared illegal, civil commotion, factors that can affect transport in general, governmental prohibitions and catastrophes in general, according to that laid down by articles 379 and 380 of the Civil Code. ===== It will also be considered as a force majeure a sustained fall for over six (6) months in the price of minerals to be produced under the minimum established by the feasibility study, if and when such situation causes the stoppage of the extraction or production operations of the minerals. If these operations continue even under such market conditions, the force majeure will disappear. ==================================== 16.2. The period during which ASC BOLIVIA LDC will be hindered to normally comply with this CONTRACT, will be added to the term stated in Clause Thirteenth. ===================================================== 16.3. Should a force majeure cause happen, ASC BOLIVIA LDC is obliged to notify COMIBOL within the next five days, describing the nature of the happening and its effects. ========================================= 16.4. The omission of this notice will maintain COMIBOL'S indemnity in the regularity of its share in the results and in the accounting of the time period. === 16.5. When the force majeure causes are of such nature and magnitude that the objectives of this CONTRACT and the joint venture in general are substantially and permanently harmed or are affected in a continuous manner for more than six months, the hiring parties can agree upon the termination of the CONTRACT. ============================================================== SEVENTEENTH.- ENVIRONMENTAL STANDARDS AND ENVIRONMENTAL MANAGEMENT PLAN.- 17.1. - ------------- During the performance of the works and during the life of this CONTRACT, ASC BOLIVIA LDC will be subject to the environmental requirements, that is to say, the allowable pollution limits in force in the country, established by Law. No. 1333 dated April twenty seventh nineteen ninety two and the regulations enacted by S.D. 24176 dated December nineteen ninety five and other provisions in force or to be enacted in the future. ======== 17.2 ASC BOLIVIA LDC will draw up the environmental management plan, starting from an initial audit, in order to avoid or mitigate the environmental impact, as 14 established by the next Clause 17.4, as well as the work plan for the execution and closure of activities. ================================== 17.3. The environmental management mainly comprises the recovery of the exploited areas, in order to control the erosion, stabilize the ground and protect the waters and the atmosphere, perform the treatment of waster materials and eliminate in a safe manner the tailings, mill tailings and dumps. ======================= 17.4. When ASC BOLIVIA LDC starts its activities, it will determine the environmental liabilities that could exist in the deposits, object of this CONRACT, through the performance of the respective environmental audit, according to that established in Clause 17.8.1. ========= 17.5. ASC BOLIVIA LDC will be held responsible for the environmental pollution flows originated in its mining works and through the accumulation of wastes during the performance of its activities. In turn, COMIBOL will be responsible for the accumulations and flows coming from mining works, done prior to this CONTRACT, established in the environmental audit according to the previous Clause 17.4. ============================================ 17.6. When ASC BOLIVIA LDC does not comply with that determined in Clause 17.4 it will assume the exclusive responsibility for the flows and accumulations resulting from the old and new mining works. =========================== 17.7. ASC BOLIVIA LDC will pay for damages, to those affected by the environmental pollution generated by the accumulations and flows coming from its mining works with absolute exclusion of COMIBOL. ==================== 17.8. The environmental management, particularly in order to establish the polluting accumulations and flows, will be controlled by ASC BOLIVIA LDC in the following manner:================== 17.8.1. Through the drawing up of an initial environmental audit done by ASC BOLIVIA LDC, to be done during the first six (6) months of the Exploitation Period. ======================================================== 17.8.2. Should COMIBOL have its own audit and ASC BOLIVIA LDC accept it, it will be applicable and ASC BOLIVIA LDC must draw up the environmental management plan within four (4) months, starting from the date of the affidavit corresponding to the CONTRACT. =================================== 17.8.3. Through environmental audits for the compliance of obligations and the establishment of responsibilities, resulting from the environmental management plan, to be done every three years by specialized companies or entities of national or international prestige, hired and paid by ASC BOLIVIA LDC. ====== 17.8.4. Through annual reports on the environmental management prepared by ASC BOLIVIA LDC.============================================== 17.8.5. COMIBOL can ask ASC BOLIVIA LDC the environmental information it considers necessary and can perform on its own the audits it deems necessary. ============================================================= 17.8.6 The environmental management according to that established in Point 17.4, comprises the recovery of the exploited areas in order to reduce and control erosion, stabilize the grounds and protect the waters and the atmosphere, perform the treatment 15 of waste materials and eliminate in a safe manner the tailings, mill tailings and dumps. ============================ 17.8.7. The joint venture will not be able to be resolved as long as the terms given in this Clause are not complied with. ===== On the other hand, ASC BOLIVIA LDC will continue having the responsibilities corresponding to its environmental management, according to the law, once the CONTRACT is dissolved. ===================================================== 17.8.8. In order to avoid controversies ASC BOLIVIA LDC will timely and sufficiently inform the representatives of the local populations, on the aspects related to the protection of the environment and will try to interest them in the environmental repair works. ===== Also, ASC BOLIVIA LDC must comply with the legal requirements regarding the information to third parties and others that correspond. ==================================================== EIGHTEENTH.- INEXISTENCE OF SOLIDARITY.- 18.1. it is expressly agreed that the - ------------ hiring parties do not assume a joint solidarity of any nature with respect to the obligations contracted by any of them for the compliance of the obligations resulting from this CONTRACT, unless that eventually and by free will and in an express manner any of them assumes such obligations, which will be truly recorded in a notarized document. =================================== 18.2. It is also expressly convened that this document contains all the agreements, specifications and provisions agreed by the hiring parties, and none of them will be obliged nor related to the other by any statement, pledge or verbal or written agreement that is not expressly incorporated in this CONTRACT. =================================================== NINETEENTH.- QUALITY OF THE CONCESSIONAIRE.- 19.1. According to that laid down - ------------ by Art. 197 of Law No. 1243 for the Updating of the Mining Code, ASC BOLIVIA LDC does not acquire property rights nor a mining concession at all on the soil or underground of the mining concessions forming part of the AREA GRANTED. === 19.2. Nonetheless, COMIBOL grants in favor of ASC BOLIVIA LDC the operational exclusiveness during the exploration phase as well as during the construction, installation, starting and exploitation and the annexing of facilities, equipment, machinery and other complementary assets, such as constructions, access roads, water and right of way servitudes and customs of the said concessions, understanding as exclusiveness the fact that during the life of this CONTRACT none of COMIBOL's rights on such concessions, understanding as exclusiveness the fact that during the life of this CONTRACT none of COMIBOL's rights on such concessions, servitudes, uses and customs will be affected, reduced nor harmed in any way, guaranteeing the quiet and peaceful possession, use and enjoyment of the same, protecting all the investment and development of ASC BOLIVIA LDC's activities, defending such rights against incursions, invasions and other disturbances by third parties, either they be trade unions, cooperatives, entities or persons, appealing to the means and resources given by the laws of the Republic. ================== TWENTIETH.- COORDINATION, INFORMATION AND SUPERVISION OF THE JOINT VENTURE.- - ----------- 20.1. ASC BOLIVIA LDC will have under its exclusive and autonomous control and responsibility the management of all the exploration and exploitation 16 operations, without any exclusion nor limitation, with the restrictions established in the laws of the Republic. =============================== 20.2. Nonetheless, this Joint Venture Contract will have as coordination, information and follow-up organism, a COMMITTEE constituted at the signing of the CONTRACT, that will be composed by four (4) members, two (2) of them appointed by COMIBOL, and the other two (2) by ASC BOLIVIA LDC, whose emoluments will be paid by the party appointing them. ==================== 20.3. The COMMITTEE will constitute the main relationship means between COMIBOL and ASC BOLIVIA LDC during the life of the CONTRACT.- The main responsibility of the COMMITTEE will be to maintain the best managerial relations between the parties and to contribute so that any disagreement, that could come up between them, be discussed and resolved in a concerted manner. ======================================================= 20.4. The COMMITTEE's attributions, among others that it will determine, will be: =========================================================== a) Approve during its first meetings an internal bylaw that will regulate the COMMITTEE's activities. ========================================== b) Verify the proper compliance of the conditions of this CONTRACT. ======== c) Create a communications system between ASC BOLIVIA LDC'S managerial body and the COMMITTEE in order to ease the flow of the relations between both bodies. ================================================= d) Formulate the recommendations it considers opportune for the better compliance of the CONTRACT'S objectives, not meaning that such recommendations are compulsory for the parties. ======================== e) Gather all the technical, administrative and financial information in order to conserve it within reach for its inspection and study by the parties. =========== f) Recommend the execution of technical audits of the performed operations by the virtue of this CONTRACT, taking care that such audits at no time hinder or interfere with the operations or impairs ASC BOLIVIA LDC's administrative autonomy. These audits will be paid by the party requiring them. ============ g) Periodically formulate the recommendations that are considered necessary, with relation to the development of ASC BOLIVIA LDC's operational plans. ==== TWENTY-FIRST.- BOARD OF DIRECTORS.- 21.1. Within fifteen days of having signed - -------------- the parties this CONTRACT, these will organize a BOARD OF DIRECTORS. ================================================== 21.2. This BOARD OF DIRECTORS will be formed by representatives from both parties, COMIBOL and ASC BOLIVIA LDC, with equal number of members, whose emoluments will be paid by the party appointing them. ============== 21.3. The BOARD OF DIRECTORS will meet whenever necessary and called by the President at his/her own initiative or at the request of the parties. ======= 21.4. The President of the BOARD OF DIRECTORS will be appointed by the members of the BOARD OF DIRECTORS at the first ordinary meeting of such organism. ====================================================== 21.5. The responsibilities of the BOARD OF DIRECTORS are, apart from those it decides: ===================================================== 17 21.5.1. To determine the general policies of the joint venture; ============== 21.5.2. To approve the financial statements of the joint venture; ============ 21.5.3. To approve the hire of external independent auditors so they will emit an opinion on the joint venture's annual financial statements; ================= 21.5.4. To know and approve the recommendations with regard to the plans, projects and reports put before them by the COMMITTEE;================= 21.5.5. The joint venture's BOARD OF DIRECTORS will be the relations organism between COMIBOL'S Board of Directors and ASC BOLIVIA LDC's executive body, for everything concerning to the running of the joint venture.============ 21.5.6. To know the audited financial statements done by external and independent auditors of optimum quality, at the end of each fiscal year; ======= 21.6 The BOARD OF DIRECTORS' duties will, at no time, interfere nor impair the administrative autonomy of ASC BOLIVIA LDC, on the joint venture's operations during the Exploitation Stage and marketing of the minerals. ====== 21.7 The BOARD OF DIRECTORS will carry a chronological and circumstantial minutes of every and all their meetings, and the former will be signed by those present. ======================================================= TWENTY-SECOND.- TAX AND CONTRIBUTIONS REGIME.-22.1 All the taxes and liens - --------------- applicable to the mining industry, as well as those applicable to the import of equipment, machinery, raw materials, materials and other assets, to the marketing of minerals locally and for export, in force at the date of the signing of this CONTRACT that will be enacted in the future will be exclusively paid by ASC BOLIVIA LDC, and effects on COMIBOL'S corresponding share will be regulated by that stated in Clause Eleventh of this CONTRACT. ================================================= 22.2. Those taxes applicable to profits each party will obtain from the mining operation, object of this CONTRACT will be the entire responsibility of each of them, without any other responsibility for the other party. ================= 22.3 The contributions to entities of Social Security Complementary Funds or similar other ones existing or to be created, are of the exclusive responsibility and charge of ASC BOLIVIA LDC, with COMIBOL's absolute exclusion. ====== TWENTY-THIRD.- RESOLVING OF CONFLICTS BETWEEN PARTIES AND ARBITRATION.- 23.1 - -------------- All controversies and claims that could arise between parties with regards to the interpretation or execution of this CONTRACT, will be tried to resolve them amicably and fast between such parties. In case they can not resolve them through mutual negotiations within sixty (60) days, any of the hiring parties can request the matter under conflict to be put before an arbitrator. ======================================================== 23.2 In such circumstances, the controversy or interpretation will be resolved through settlement and/or arbitration according to the Regulations given by the National Chamber of Commerce's Settlement and Arbitration Center in La Paz (Bolivia) that, forming part of this Clause, the parties declare to know and accept. The Center will appoint the arbitrator from among the members of the Arbitral Body of such Settlement and Arbitration Center belonging to the aforementioned Chamber. ========================================= 18 23.3 No recourse will proceed against the Arbitrator's decisions, thus the parties expressly resign to put it forward. ==================================== 23.4 The arbitration costs will be paid by the loser in the Arbitral Decision. ==== TWENTY-FOURTH.- CONTRACT TRANSFERRAL TO A THIRD PARTY.- 24.1. This Joint - --------------- Venture Contract is a result of the award to a proposal formulated by ASC BOLIVIA LDC to COMIBOL involving the evaluation of certain technical, financial conditions and of the industrial capability and competence of the bidder. Nonetheless, ASC BOLIVIA LDC is empowered to incorporate into the CONTRACT's execution one or more members of known prestige and capability in the Mining Industry, or in the investments and financial branch, as well as transfer or subrogate partially their share or obligations resulting from this CONTRACT.- To that effect, the previous conditions stated as follows must be complied with: ================================================== 24.2 To this effect, it will request the prior and written authorization from COMINOL, providing all the details demonstrating the suitability of the collective or individual persons that are pretended to be incorporated or those that will partially substitute ASC BOLIVIA LDC's participation. ==================== 24.3 COMIBOL reserves itself the right to assess the industrial and/or financial sufficiency of the Entity or person acquiring or is subrogated the partial share of ASC BOLIVIA LDC in the CONTRACT, with the right to veto if that or this does not have the required conditions to the effect, with the sole obligations to give the concrete and reasonable motives restricting its acceptance. ===== The third parties that could be incorporated to the Joint Venture Contract, will assume the obligations, that as members, are stated in this CONTRACT. =============== 24.4 Any modification to the partial participation or share of ASC BOLIVIA LDC in this CONTRACT, by virtue of having obtained it through a public tender under special conditions, either be the incorporation of new members, transfer of rights, subrogation of rights or other contractual forms, the rights and shares corresponding to COMIBOL stated in this CONTRACT won't be able to be altered, modified, reduced nor affected. =============================== TWENTY FIFTH.- RESCISSION OF CONTRACT.- 25.1. During the exploration phases, - -------------- COMIBOL will be able to rescind the CONTRACT unilaterally, in the following cases: =================================== 25.1.1. Nonfulfillment of the initial payments by ASC BOLIVIA LDC for each phase, which should be done within the first thirty (30) days. =============== 25.1.2. Nonfulfillment in executing the work program and minimum investment pledged by ASC BOLIVIA LDC for the First Exploration Phase, in which case the Bank Guarantee Certificate presented by ASC BOLIVIA LDC to COMIBOL will be cashed, and COMIBOL will give notice to ASC BOLIVIA LDC furnishing the motives. ==================================================== 25.2. In case the contract is terminated for any reason during the Exploration Phase, all the improvements made by ASC BOLIVIA LDC in the areas of the CONTRACT will stay behind for the benefit of the concessions, object of the former, without any charge for COMIBOL, with the exception of the tools, equipment, vehicles, materials and those facilities liable to be withdrawn that have not been adhered to the ground, all of which 19 will be able to be withdrawn by ASC BOLIVIA LDC. ===== All the technical information related to the explored areas, together with the charts, studies, calculations and complementary details, will also pass as COMIBOL'S property, without any charge to it. ============= 25.3. The CONTRACT can also be terminated due to the following causes: === 25.3.1. If the CONTRACT has expired, if it hadn't been extended according to that laid down in Clause Thirteenth; ================================== 25.3.2. By mutual agreement of the hiring parties; ======================= 25.3.3. By ASC BOLIVIA LDC's unilateral decision, when certain circumstances appear that make unviable the exploitation in rentable economical conditions. == 25.3.4. When the construction, installation and starting of the operation exceed Three (3) years since the notification by ASC BOLIVIA LDC to COMIBOL announcing its exercise of right to option, unless there are force majeure causes. ============================================================== 25.3.5. When the force majeure causes are produced, such as defined in Clause Sixteenth of this CONTRACT. ==================================== 25.4. In case of termination of this contract for any of the motives stated in this CONTRACT, either be during the Exploration Period or in the Exploitation phase, ASC BOLIVIA LDC will be obliged to comply with the delivery of the studies and other information in the next ninety (90) days. ========================== TWENTY-SIXTH.- EXCLUSION AREA.- 26.1 ASC BOLIVIA LDC can not formulate petitions - -------------- nor perform mining activities, either by itself or through an intermediary, in an area of two (2) kilometers from the perimeter of the concession the object of this CONTRACT, unless there is an express authorization from COMIBOL. In any case, the petition made infringing this prohibition, will be considered as done for and for COMIBOL's benefit. ======================== 26.2 COMIBOL also won't be able to perform mining activities, either by itself or through an intermediary, in an exclusion area of one kilometer from the perimeter of the concessions object of this CONTRACT, unless the parties agree to the contrary. ====================================================== TWENTY-SEVENTH.- OPTION TO PURCHASE.- 27.1. At the definitive closure of - ----------------- operations due to the CONTRACT's expiry, ASC BOLIVIA LDC grants COMIBOL the option rights, for a period of ninety (90) days, for the purchase of its rights and tangible assets in the joint venture, in equal opportunities as other interested parties. ======================================================= 27.2. COMIBOL and ASC BOLIVIA LDC will appoint an expert appraiser in charge of establishing the price of the assets, using as basis for the appraisal the market value. =============================================== 27.3. If COMIBOL decides to exercise its option rights, it must notify so of its decision to ASC BOLIVIA LDC through a notarized letter, within the term established in Point 27.1. ==================================================== 27.4. The payment of the price will be done within the following sixty (60) days after the notice provided in the previous point is given. =================== 20 TWENTY EIGHT.- CONTRACT'S CONSTITUTIVE DOCUMENTS.- 28.1. Are part of this - -------------- CONTRACT and will be inserted in the corresponding Public Deed the following documents: ============================================= A) Supreme Decree No. 213601 dated February sixteenth nineteen ninety four.= B) COMIBOL'S Board of Directors Resolution No. 1084 dated December twenty second nineteen ninety five. ======================================== C) COMIBOL's Board of Directors Resolution No. 1105 dated February six nineteen ninety six. ============================================== D) General Administration Power of Attorney conferred to Dr. Alberto Alandia Barron No. 140 awarded in the Notary of Mines in La Paz on may seventeenth nineteen ninety four. ============================================ E) Special Power of Attorney conferred to Lic. Luis Arnal Velasco, registered in the Notary of Mines in La Paz, under No. 205 on July twenty eight nineteen ninety four. ======================================================== F) Special Power of Attorney conferred to Mr. Johnny Delgado Achaval, registered in the Notary of Mines in La Paz, under No. 105 on April first nineteen ninety six, registered in the Commerce General Register, Entry 728, Book 07-0 the same month and year. G) COMIBOL'S Board of Directors Resolution No. 1183/96 dated June twenty eight nineteen ninety six. ============================================== H) Pages 4, 11, and 14 of ASC BOLIVIA LDC'S proposal. ================= TWENTY-NINTH.- MINING LICENSES.- 29.1.- During the Exploration Phase, the - -------------- mining licenses on all the areas forming part of the mining concessions of the AREA GRANTED will be in charge of COMIBOL. ============================= 29.2. Starting from the date ASC BOLIVIA LDC notifies COMIBOL that it will make use of its option right, the mining licenses on the areas declared as positive by ASC BOLIVIA LDC and in which the Exploration Phase will be developed, will be paid by ASC BOLIVIA LDC on behalf of COMIBOL and the receipts will be given by ASC BOLIVIA LDC to COMIBOL since they are documents representative of its concessionaire right. This payment won't be compensated nor reimbursed by COMIBOL nor by the joint venture and will be done exclusively by ASC BOLIVIA LDC. ====================================================== THIRTIETH.- OFFICIAL REGISTRATION OF THE CONTRACT.- 30.1. The official - ----------- registration's expenses for this CONTRACT, together with the ANNEXES and corresponding documents, will be paid by ASC BOLIVIA LDC, at the Special Notary of Mines in La Paz city. ==================================== 30.1 ASC BOLIVIA LDC is obliged to present COMIBOL Three (3) Affidavits of the officially registered CONTRACT, without any charge for COMIBOL, within sixty (60) days after the writ is signed. ======================================= THIRTY-FIRST.- CONSENT AND ACCEPTANCE.- 31.1. We, DR. ALBERTO ALANDIA BARRON, - -------------- PRESIDENT OF THE CORPORACION MINERA DE BOLIVIA (COMIBOL) and LIC. LUIS ARNAL VELASCO, MANAGER OF THE CONTRACTS AND FINANCE UNIT OF THE CORPORACION MINERA DE BOLIVIA (COMIBOL), both full of age, neighbors of this city, with ID.'s No. 1191230 Pt. and No. 332387 L.P., respectively, able by right, on one side, and MR. JOHNNY DELGADO ACHAVAL, in 21 representation of ASC BOLIVIA LDC, of full age, neighbor of this city, with ID No. 39745 L.P., able by right, we give our full consent and accept every and each of the clauses, terms and conditions of this CONTRACT, to which we give full validity as Private Document between parties, whilst it is converted into a public deed, pledging to a faithful and strict compliance, subscribing it in La Paz city, on the Eleventh of September nineteen ninety six.- And you, Special Notary of Mines will add all the rest of safety and style clauses. ========================================== FOR CORPORACION MINERA DE BOLIVIA: Signed.- Lic. Luis Arnal Velasco.- MANAGER OF CONTRACTS AND FINANCES.- Signed.- Dr. Alberto Alandia Barron.- PRESIDENTE. ===== FOR ASC BOLIVIA LDS: Signed.- Mr. Johnny Delgado Achaval. AGENT AND PROXY. ===== Signed. Dr. Jorge Eyzaguirre Duran. - RUC 02199106.- C. Ab. 0157.- LEGAL ADVISOR COMIBOL. ===== JED/rav. ====================================================== ANNEX "A".- ASC BOLIVIA LDC.- MINING CONCESSION TO BE EXPLORED.- The area of - ----------- interest is located in the Lipez region and our proposal is specifically referred to the following mining concessions: =========
NAME OF THE CONCESSION NO. OF HECTARES - ------------------------------ --------------- Cobrizos 168 Ines 99 Kohollpani 100 Puntillas 250 Reintegro 100 Santo Tomas 500 Santo Tomas II 470 TOTAL 1,687
Our offer puts emphasis on the development of a complete exploration program for the First Phase in the mining concessions Cobrizos and Reintegro. Also proposes a minimum work scope in the rest of the concessions without the restriction that, if the results are encouraging, they will continue with exploration works over the minimum investment proposed for each one. =====SEAL: Legal Advisory COMIBOL. It is a faithful copy of the original. La Paz, 13 Sept. 1996.- Signed: Dr. Jorge Eyzaguirre Duran.- RUC 02199106 C. Ab. 0157. LEGAL ADVISOR COMIBOL. ============ Signed: Dra. Nelly A. Maldonado.- Lawyer - 048903.- Notary Public 1/st/ class. - La Paz - Bolivia 003. ================================================ BUDGETS AND INVESTMENT PLAN.- For the execution of the First Phase in - ----------------------------- Reintegro, we propose a minimum investment of US$ 248,000 (Two hundred seventy seven thousand American dollars). For Cobrizos we propose a minimum investment of US$ 248,000 (Two hundred forty eight thousand American dollars, in the understanding that in this concession US$ 29,000 have already been invested for the execution of the prospection visit, mapping, outcrops sampling and part of soil geochemistry. For the First Phase in Cobrizos and Reintegro, it is proposed a total minimum investment of US$ 525,000.- The execution of the Second Phase will depend on the results obtained in the First Phase and in the case it is decided to continue with the Second Phase in one or both properties, this will be timely notified to COMIBOL. An investment of US$ 22 425,000 has been estimated for the Second Phase in each of the selected properties. ===== We also propose to execute only Stage One of the First Phase in the Ines, Kohllpani, Puntillas, Santo Tomas and Santo Tomas II concessions, with a minimum investment of US$ 20,000 (Twenty thousand American dollars) in each, making a total of US$ 100,000 (One hundred thousand American dollars) for all five concessions. Should we decide to stop after executing Stage One or to continue exploring in any of these concessions, COMIBOL will be timely notified of such; and the rest of the Stages of the First Phase can thus immediately continue. ===== The estimated costs for each exploration activity are given below, pointing out that are referred only to direct exploration expenses and the administrative expenses are not considered. ===== SEAL: Legal Advisory COMIBOL.- It is a faithful copy of the original.- La Paz, 13 Sept. 1996.- Signed: Dr. Jorge Eyzaguirre Duran.-RUC 02199106.- C. Ab. 0157.- Legal Advisor COMIBOL.- Signed: Dra. Nelly A. de Maldonado.- Lawyer 048903.- Notary Public 1/st/ Class. - La Paz - Bolivia 003. === PARTICIPATION OFFERED TO COMIBOL.- In case the feasibility study for one or - ---------------------------------- several concessions is positive and our company decides to exercise its right to exploitation, a detailed investment plan will be prepared. At present, we are in conditions to offer COMIBOL the following participation terms during the production period: ============================================== 1. 5% (Five percent) of the positive operational cash flow during the recovery period of the invested capital. ===================================== 2. 15% (Fifteen percent) of the positive operation cash flow after the recovery of the investments. ============================================== 3. For each 10 cents of a dollar over US $1.50 of the international price for one pound of copper, we will increase on 1% COMIBOL'S share up to a ceiling of 22% of the operational cash flow's share (e.g.: for US$ 1.60 for one pound copper, COMIBOL'S share will be 16%, for US$ 1.70 it will be 17%, etc.). ===== The advantage of applying this scale as a function of the market's price for copper is that COMIBOL'S share improves when the project by itself considers it feasible; that is to say, improves COMIBOL'S share whilst at the same time the company's situation improves. ===== ASC BOLIVIA LDC does not wish to speculate and we do not refuse to offer fixed share percentages before knowing the results from the feasibility study; we think that it should be clear that our wish is to offer COMIBOL a substantial share when the market conditions so allow. ===== SEAL: Legal Advisory COMIBO.- It is a faithful copy of the original.- La Paz, 13 Sept. 1996.- Signed: Dr. Jorge Eyzaguirre Duran.- RUC 02199106.- C. Ab. 0157. Legal Advisor COMIBOL. Signed: Dra. Nelly A. De Maldonado.- Lawyer 048903.- Notary Public 1/st/ Class. - La Paz - Bolivia 003. ============ ANNEX "B".- ASC BOLIVIA LDC. - EXPLORATION PROGRAM.- OBJECTIVES.- Our - ----------- objective is to discover, delimit, make feasible and exploit at least one low grade copper - silver deposit and a minimum volume of 10 millions tons, susceptible to be open pit exploited. ===== GENERAL PLAN.- The exploration program for the First Phase in the Cobrizo and Reintegro concessions will consist of the following: geological mapping, detailed sampling of the outcrops, soil geochemistry, geophysical survey when necessary, trench geological sampling and mapping, preliminary drillings, 23 metallurgical tests and pre-feasibility conceptual study.- The First Phase in the Ines, Kohollpani, Puntillas, Santo Tomas and Santo Tomas II properties will consist only of the execution, during the first year, of detailed geological mapping and detailed samplings of rocks and soils. Depending on the results it will be decided whether or not to continue with exploration works during the second year. ===== The First Phase will be divided in three stages: Stage 1 will include a prospection visit, rocks outcrops mapping and sampling; Stage 2 will consist of the enabling and ventilation of old mining workings, soil geochemistry, geophysics of trenches; finally Stage 3 will include primary drillings using reverse circulation, metallurgical tests and a pre-feasibility conceptual study. ===== We propose to gradually perform the following tasks: ===== YEAR 1: Mapping, sampling, geochemistry/geophysics. ===== YEAR 2: Trenches, preliminary drilling, metallurgical tests and pre-feasibility study. ===== A field team will be working permanently during Year one and a second team will be added in Year two for the start and continuation of the drilling if we decide to continue with more than one concession. ===== Apart from the geological field work to be completed during Year one of the First Phase, we will pay greater attention in the neighboring areas to COMIBOL'S concessions with the objective of obtaining new concessions in case that the results of the exploration done so justify. ===== FIRST PHASE IN COBRIZOS AND REINTEGRO.- In July nineteen ninety five, our company signed an agreement with the Litoral Cooperative in order to explore the Cobrizos concession in the understanding that this Cooperative had a lease CONTRACT in force with COMIBOL. Based on this agreement we have completed Stage One of the exploration program of the First Phase for Cobrizos. It will be required to execute Stage One in Reintegro and then the program will continue until the First Phase is completed in both concessions. ===== FIRST PHASE IN THE REMAINING CONCESSIONS.- The exploration in the other concession (Ines, Kohollpani, Puntialls, Santo Tomas and Santo Tomas II), will start after the mapping/sampling is done in Reintegro.- The team will got to the extreme southwest and will start the geological mapping and sampling in Santo Tomas, then in Santo Tomas II, Ines, Puntillas and finally Kohollpani. All this work will be done during the first year. ===== Where the results from the first year work be favorable, we will continue with the next exploration stages programmed for the First Phase, otherwise the property(ies) will be rejected. ===== Chart No. 1 shows a general chronogram for the execution of the works programmed. =============================== 24 "A S C B O L I V A L D C"
CHART NO. 1 GENERAL CHRONOGRAM *********************************************************************************************************************************** CONCESSIONS FIRST PHASE: SECOND PHASE: THIRD PHASE: NAME/ACTIVITY EXPLORATION FEASIBILITY DEVELOPMENT YEAR 1 YEAR 2 YEAR 1 YEAR 2 YEAR 1 YEAR 2 - ----------------------------------------------------------------------------------------------------------------------------------- COBRIZOS MAPPING done SAMPLING partially done REHABILITATION OF GALLERIES X GEOCHEMISTRY done GEOPHYSICS/TRENCHES X PRELIMINARY DRILLINGS X METALLURGICAL TESTS X PRE-FEASIBILITY X DRILLING TO TEST RESERVES X FEASIBILITY X FINANCING X START OF DEVELOPMENT X - ---------------------------------------------------------------------------------------------------------------------------------- REINTEGRO MAPPING X SAMPLING X REHABILITATION OF GALLERIES X GEOCHEMISTRY X GEOPHYSICS/TRENCHES X PRELIMINARY DRILLINGS X METALLURGICAL TESTS X PRE-FEASIBILITY X DRILLING TO TEST RESERVES X FEASIBILITY X FINANCING X START OF DEVELOPMENT X - ----------------------------------------------------------------------------------------------------------------------------------- PUNTILLAS-INES MAPPING X SAMPLING X REHABILITATION OF GALLERIES X GEOCHEMISTRY X GEOPHYSICS/TRENCHES X PRELIMINARY DRILLINGS X METALLURGICAL TESTS X X PRE-FEASIBILITY X DRILLING TO TEST RESERVES X FEASIBILITY X FINANCING X START OF DEVELOPMENT X - ----------------------------------------------------------------------------------------------------------------------------------- SANTO TOMAS I - II MAPPING X SAMPLING X REHABILITATION OF GALLERIES X - -----------------------------------------------------------------------------------------------------------------------------------
25
************************************************************************************************************************************ CONCESSIONS FIRST PHASE: SECOND PHASE: THIRD PHASE: NAME/ACTIVITY EXPLORATION FEASIBILITY DEVELOPMENT YEAR 1 YEAR 2 YEAR 1 YEAR 2 YEAR 1 YEAR 2 - ----------------------------------------------------------------------------------------------------------------------------------- GEOCHEMISTRY X GEOPHYSICS/TRENCHES X PRELIMINARY DRILLINGS X METALLURGICAL TESTS X PRE-FEASIBILITY X DRILLING TO TEST RESERVES X FEASIBILITY X FINANCING X START OF DEVELOPMENT X - ----------------------------------------------------------------------------------------------------------------------------------- KOHOLLPANI MAPPING X SAMPLING X REHABILITATION OF GALLERIES X GEOCHEMISTRY X GEOPHYSICS/TRENCHES X PRELIMINARY DRILLINGS X METALLURGICAL TESTS X PRE-FEASIBILITY X DRILLING TO TEST RESERVES X FEASIBILITY X FINANCING X START OF DEVELOPMENT X - -----------------------------------------------------------------------------------------------------------------------------------
26 WORK SCOPE, METHODOLOGY AND EXCUTORS - FIRST PHASE. ======= Using Cobrizos as an example, we proposed the following work scope: ===== MAPPING.- The geological mapping will be done at scales of 1:2,000 and 1:10,000. Where there are underground workings, the mappings will be done at a scale of 1:200. These mappings will be done by Scott McDonald, a geologist from Andean Silver, and/or Dra. Catrin Ellis Jones, geologist from MINTEC.- The mapping at Cobrizos has been finished except in areas where there are old underground workings, where the mapping will be done at a scale 1:500 after clearing and an adequate ventilation. ===== SAMPLING.- The exact nature of the sampling programs will depend on the own characteristics of each mining concession.- In some places we will sample intensively the rock outcrops; in other places the rock wall will be sampled in order to determine if dissemination exists or not.- Approximately 300 samples will be taken from the outcrops and mining workings at Cobrizos; to date, 83 samples have already been obtained, the remainder will be obtained from underground workings once they have been cleared and ventilated. Geochemical sampling programs will be executed in each concession.- Recently, at Cobrizos we have done a geochemical sampling in an area 750 x 750 meters, taking samples every 25 meters on a square grid. In total, 480 samples have been obtained that will be analyzed for Au, Ag, Cu, Pb and Zn. We propose to perform similar programs at each of the concessions of interest. These works will also be executed by geologists Scott McDonald and Catrin Ellis Jones and support personnel from MINTEC. ===== TRENCHES AND/OR GEOPHYSICS.- In areas where there are no rock outcrops, low frequency geophysical methods will be employed in order to determine the most propitious places to dig trenches, which will be mapped and sampled in detail. Also, when necessary and advisable, detailed geophysical surveys in order to direct and if possible, pinpoint the drilling objectives. ==== A local services company that has experience in similar jobs and good quality equipment, will be hired for trench digging; an alternative is Terra Ltda. That has already done several similar jobs for MINTEC's projects.- The geophysical surveys will be executed by a specialized company from Canada or U.S.A. (Val D'or, Gradient, Quantec, etc.).- The mapping and sampling will be done by the aforementioned geologists. ====== PRELIMINARY DRILLING.- For these works we will hire with priority the known drilling services company Layne Drilling; the supervision, control and samples preparation will be in charge of specialized personnel from MINTEC, the samples' chemical analysis will be done at Bondar Clegg's laboratory in Oruro or S.G.S. in La Paz; the control for these analysis will be done in prestigious laboratories in Canada or U.S.A. ====== 1,200 meters will be drilled in six wells using reverse circulation equipment in order to verify geological concepts and estimate mineral contents. Each well will have an approximate depth of 200 meters, with a 5.5" diameter and samples to be analyzed will be taken every meter. ===== METALLURGICAL TESTS.- At present we are using and will continue to do so, the services from Kappes Cassidy to perform metallurgical tests; also, should the case be, we would hire the University of Cardiff to do this work for Cobrizos and those concessions related with possible copper-silver deposits.- These laboratories will perform, at our request, cyaniding tests (cyanide leach), flotation tests, solvent extraction tests and other required mineralogical tests. ===== PRE-FEASIBILITY STUDY.- Before starting with 27 the drilling program in detail, a pre-feasibility conceptual study will be made for the Cobrizos - Reintegro projects and for any concession reaching this exploration stage.- In order to make this study, the services of Pincock Allen & Holt will be hired, who have already done similar studies for ASC Peru LDC. ==== SECOND PHASE.- With the execution of the Second Phase in Cobrizos -Reintegro, it is hoped to reach the target of delimiting a minimum of 10 million tons of reserves indicated up to 50 million tons depending on the results from the metallurgical tests and pre-feasibility analysis. At the present state of our knowledge, it is not yet possible even to estimate the reach of the Second Phase at the rest of the mining properties. ====== DRILLING TO DELIMIT RESERVES.- In order to delimit a minimum of 10 million tons, approximately 2,250 meters will be drilled with reverse circulation, distributed in 15 wells of around 150 meters deep each. Should the metallurgical tests and other results indicate that we can hope to delimit some 50 million tons, 25 wells, 200 meters deep each, will be drilled, totaling 5,000 meters of drilling of an equivalent amount depending on the nature of the deposit. ====== FEASIBILITY STUDY.- In order to perform this study, the services of Pincock Allen & Holt will be hired.- This study will be done if and when the drilling results are sufficient; otherwise more drilling and other works will be done to prepare this study during the Third Phase. ====================================== PAYMENT ------- RECEIPT FOR THE "COBRIZOS" MINING LICENSES.- DATE: La Paz, 15 March 1996.- - -------------------------------------------- NAME: CORPORATION MINERA DE BOLIVIA.- Register No. 03.- TRADE NAME: GRUPO MINERO NOR LIPEZ.- Address: Potosi.- KEYS: 526.0.4.- 1165.0.5.- 1123.0.0.- TAX CODE.- 1105.0.7. ===== DETAILS: Payment for mining licenses call CONCESSION: 25 de Julio.- Aguilar.- Alianza.- Bolivar.- COBRIZOS.- Copacabana.- - ----------- Don Bruno.- El Morro.- German Busch.- Ines. === COUNTY: Soniquera.- Soniquera. - -San Agustin.- San Cristobal. - Rio Grande.- Soniquera.- San Agustin.- San Agustin.- San Agustin ====PROVINCES: -Nor Lipez. Nor Lipez. Nor Lipez - Nor Lipez.- Nor Lipez.- Nor Lipez.- Nor Lipez.-Nor Lipez.- Nor Lipez.- Nor Lipez.- ====== HAS: 1.000.-300.-120.-500.-168.-80.- 136.- 10.- 180.-99.- TOTAL: 2.593==== corresponding to the 1/st/ Semester 1996. ===== Interests.- Fines on interests.-Art. 121 Fines for non-compliance. - Rep. Of Receipt ===== TAXES: Bs. 6.482,50.-Bs. 88,07. - Bs. 8,81. - Bs. 648,25. - Bs. 2,00. - TOTAL: ------ SONIQUERA.- San Agustin. ==== PROVINCES: Nor Lipez.- Nor Lipez. ====== HAS: - --------- ---------- ---- 1.000.- 300.- 120.- 500.- 168.- 80.- 136.- 10.- 180.- 99.- TOTAL: 2.593. ====== ------ corresponding to the 1/st/ Semester 1996. ===== Interests.- Fines on interests. - - Art. 121 Fines for non-compliance. - Rep. Of Receipt ===== TAXES: Bs. 7.229,63. ===== THEY ARE: Seven Thousand Two Hundred and Twenty Nine 63/100 Bolivianos. ==== SEAL: Regional Administration Revenue Service.- Paid.- 15 Mar. 1996.- Teller 1.- La Paz - Bolivia. === Signed: Rene Burgoa Calderon.- Chief Fiscal Obligations Control Unit a.i..- Reg. Administration. === Initials of Paymaster: G.O.A. ====== OTHER PAYMENT RECEIPT OF THE "COBRIZOS" MINING ---------------------------------------------- LICENSE.- DATE: La Paz, 27 May 1996.- NAME: CORPORATION MINERA DE BOLIVIA.- - --------- Register No. 03.- TRADE NAME: GRUPO MINERO NOR LIPEZ.- Address: Potosi.- KEYS: 526.0.4.- 1165.0.5- 1123.0.0- TAX CODE.- 1105.0.7. ===== DETAILS: Payment for mining licenses called: CONCESSION: 25 de Julio.- Aguilar.- Alianza.- ----------- Bolivar.- COBRIZOS.- Copacabana.- Don Bruno.- El Morro.- German Busch.- Ines. === COUNTY: Soniquera.- Soniquera.- San Agustin.- San Cristobol.- Rio Grande.- ------- Soniquera.- San Agustin.- San Agustin.- San Agustin. ==== PROVINCES: Nor Lipez.- ---------- Nor Lipez.- Nor Lipez.- Nor Lipez.- Nor Lipez.- Nor Lipez.- Nor Lipez.- Nor Lipez.- Nor Lipez.- Nor Lipez.- Nor Lipez. ====== HAS: 1.000.- 300.- 120.- 500.- ---- 168.- 80.- 136.- 10.- 180.- 99.- TOTAL: ----- 28 2.593. ==== Corresponding to the 2/nd/ Semester 1996. === Rep. of Receipt. ==== TAXES: Bs. 6,573,26.- Bs. 2,00. TOTAL: Bs. 6,575.26. ===== THEY ARE: Six Thousand Five Hundred and Seventy Five 26/100 Bolivianos. ==== SEAL: Regional Administration Revenue Service.- Paid.- 4 Jun. 1996.- Teller 1.- La Paz - Bolivia. === Signed: Rene Burgoa Calderon.- Chief Fiscal Obligations Control Unit a.i..- Reg. Administration. === Initials of Paymaster: G.O.A. === REGISTRATION CERTIFICATE AT THE INDUSTRY AND COMMERCE ----------------------------------------------------- REGISTER FOR "ASC BOLIVIA LDC" COMPANY.- MINISTRY OF FINANCES AND ECONOMICAL - ---------------------------------------- DEVELOPMENT.- National Secretariat for Industry and Commerce.- General Direction for the Register of Commerce and Stock Companies.- Bolivia.- CERTIFICATE OF --------- -------------- REGISTRATION.- No. 016458.- The General Director for the Register of Commerce - -------------- and Stock Companies, empowered by the Code of Commerce and Decree Law No. 16833 dated July 19, 1979, at the written request by the interested party. ==== CERTIFIES: That the company of Trade Name: ASC BOLIVIA L.D.C. (BOLIVIAN - ---------- BRANCH).- Dedicated to the main activity of: MINING, GEOLOGY.- With legal representation by Mr. JOHNNY DELGADO ACHAVAL.- and Legal Address at: Federico Zuazo Street No. 1598,.- La Paz District,.- and type of legal organization: BRANCH OF COMPANY CONSTITUTED OVERSEAS.- With a principal paid of Bs. 24,400.- According to Balance Sheet AP.AL 15-11-95.- Taxpayer Unique Register RUC 7836635.- It is legally registered in this Direction.- Under Register No. 9- -------------------------------------------- 37162-1.- Approved by Administrative Resolution No. 6594,- dated 06-12-95.- Having complied with the requirements demanded by Law, the aforementioned company can perform activities in its sector.- This Certificate only certifies the object pointed out before and is valid for Sixty days starting from the date it was issued, IT IS NOT RENEWED. === La Paz, July Third nineteen ninety six. ==== Seal: National Secretariat for Industry and Commerce.- La Paz - Bolivia.- Signed: Dra. Angelina Vucsanovich de Vargas.- GENERAL DIRECTOR FOR THE REGISTER OF COMMERCE AND STOCK COMPANIES. ======== BANK DEPOSIT RECEIPT.- Banco de La Paz S.A. Place: La Paz.- Day: ---------------------- twelve.- Month: September.- Year: Ninety six.- Current Account X.- Account Number: 11101077251.- Name or Trade Name: Annex: Official Gazette.- National Chamber of Mining.- Cobrizos Project Joint Venture COMIBOL and ASC BOLIVIA LDC.- Depositor's illegible signature.- Cash Deposit: 40.- Total deposited: 40.- They are: Forty 00/100 Bolivianos. --- Bank Signature and Seal: Banco de La Paz S.A..- Main Office.- 12 Sept. 1996. === Ninoska Quint Pantoja.- Teller Section.- Illegible signature. =========================== CONCLUSIONS: It is according ------------ to the original writ and annexed documents presented before me, the same after being numbered and signed by me the Notary, have been added to the collection of its class according to articles thirty one of the Law of the Notary and two hundred and sixteen of the Mining Code.- Those appearing before approve and ratify this JOINT VENTURE CONTRACT AFFIDAVIT FOR THE DEVELOPMENT OF MINING ACTIVITIES, SUBSCRIBED BETWEEN: THE CORPORACION MINERA DE BOLIVA (COMIBOL), REPRESENTED BY DR. ALBERTO ALANDIA BARRON - PRESIDENT AND LIC. LUIS ARNAL VELASCO - MANAGER OF THE CONTRACT AND FINANCES UNIT, AND THE COMPANY "ASC BOLIVIA LDC", REPRESENTED BY MR. JOHNNY DELGADO ACHAVAL, signing together with the witnesses citizens Custodia Claure J., with ID No. 467852 L.P. and Leonardo Linares N., with ID No. 3361005 L.P., full of age, 29 able by right, neighbors of this city, who are informed of this contents, without any observations to the latter. I GIVE FAITH. ==== Signed: FOR CORPORACION MINERA DE BOILIVA: DR. ALBERTO ALANDIA BARRON - PRESIDENT. === and LIC. LUIS ARNAL VELASCO - MANAGER OF CONTRACTS AND FINANCES. === Signed: FOR ASC BOLIVIA LDC: MR. JOHNNY DELGADO ACHABAL.- AGENT AND PROXY. === Signed: Custodia Claure J. ID No. 467852 L.P.-WITNESS.- Signed: Leonardo Linares N., ID No. 3361005 L.P.- WITNESS.- Signed before me, Lawyer MARIA ESTHER VALLEJOS H.- SPECIAL NOTARY OF MINES AND PETROLEUM. VERIFIES: THIS AFFIDAVIT COMPARES WITH -------- THE ORIGINAL REFERRED TO AND TO WHICH I REMIT MYSELF, THE SAME THAT AFTER BEING COMPARED, FAITHFULLY AND LEGALLY CORRECTED, I AUTHORIZE, SEAL, SIGN AND STAMP IN LA PAZ CITY ON THE TWENTY EIGHTH OF OCTOBER NINETEEN NINETY SIX. ================================= (SEAL): Special Notary of Mines and Petroleum MARIA ESTHER VALLEJOS H. LAWYER NOTARY La Paz - Bolivia (Signed) Dra. Maria Esther Vallejos H. SPECIAL NOTARY OF MINES AND PETROLEUM La Paz - Bolivia NOTE OF MINING REGISTER: Date: 30 of October 1996, under item 248 of Book 'B' the previous Affidavit has been registered La Paz, 30 of October 1996 (Signed) Dra. Maria Esther Vallejos H. SPECIAL NOTARY OF MINES AND PETROLEUM La Paz - Bolivia EX-10.21 20 JOINT VENTURE AGMNT. - ENG. TRANS. - 7/15/96 Attach to Exhibit 10.21 Attached hereto is an English translation of the original Spanish version of the Joint Venture Agreement between Comibol and ASC Bolivia LDC, regarding the Choroma Concession. The Company employed translators to translate the above referenced agreement and based on this the undersigned believes that the attached is a fair and accurate English translation of the above referenced agreement. /s/ Keith R. Hulley ------------------- Keith R. Hulley Director Apex Silver Mines Limited Date: August 29, 1997 EXHIBIT 10.21 PROTOCOL No.244/97 FOR THE: JOINT VENTURE CONTRACT WRIT FOR THE DEVELOPMENT OF MINING ACTIVITIES; SUBSCRIBED BETWEEN THE CORPORACION MINERA DE BOLIVIA (COMIBOL) REPRESENTED BY ITS PRESIDENT DR. ALBERTO ALANDIA BARRON AND ITS CONTRACTS AND FINANCES MANAGER LIC. LUIS ARNAL VELASCO; AND ASC BOLIVIA LDC REPRESENTED BY JOHNNY DELGADO ACHAVAL. In La Paz City, Republic of Bolivia, at fifteen thirty hours August fourteen ninety seven, before me, lawyer MARIA ESTHER VALLEJOS H., SPECIAL NOTARY OF MINES AND PETROLEUM and witnesses that at the end are named and sign the document, presented themselves, on one side DR. ALBERTO ALANDIA BARRON with ID 1191230 Pt. and LIC. LUIS ARNAL VELASCO with ID 332387 LP, PRESIDENT AND MANAGER OF CONTRACTS AND FINANCES RESPECTIVELY, FOR THE "CORPORATION MINERA DE BOLIVIA" and on the other side ENG. JOHNNY DELGADO ACHAVAL with ID 39745 LP, REPRESENTATIVE FOR "ASC BOLIVIA LDC," all full of age, able by right, neighbors of this city, whom I certify to have identified and said: That, they agree to convert into a public deed the WRIT that has been presented to me, together with: ASC BOLIVIA LDC'S PROPOSAL, PAGES 5, 9, 10 AND 11, BOARD OF DIRECTOR'S RESOLUTION NO. 1105/96, GENERAL BOARD OF DIRECTORS' RESOLUTION No. 1229/96, SUPREME RESOLUTION No. 213601/94, POWER OF ATTORNEY No. 140/94, POWER OF ATTORNEY NO. 205/94 AND POWERS WRIT No. 105/96, with literal contents as follows: WRIT.- CONT. GUC-DJ-352/96 SPECIAL NOTARY OF MINES: In the public deeds - ---- register under your charge, please insert a Joint Venture Contract for the development of mining activities subscribed between the CORPORACION MINERA DE BOLIVIA (COMIBOL) and ASC BOLIVIA LDC company, with the clauses and conditions given below: FIRST.- THE JURISTIC PERSON OF THE PARTIES AND THE LEGAL STATUS OF THE SUBSCRIBING PERSONS. 1.1. This Joint Venture Contract is subscribed by, on one side, the CORPORACION MINERA DE BOLIVIA, known from now on as COMIBOL, a decentralized Autarkic Entity of the State, created by S.D.3196 dated October two, nineteen fifty six, enacted as Law on October twenty nine, nineteen fifty six, with its own juristic person and full administration autonomy, exercising the Administration and Higher Direction of all the mining deposits, dumps, tailings and slags, establishments, facilities, camps, complementary property in general, without exception, constituting the state owned mines, either these be as a result of the mines' nationalization or purchased after it 1.2. On the other hand, the company subscribing the CONTRACT IS ASC BOLIVIA LDC, a stock company, SUBSIDIARY OF ANDEAN SILVER CORPORATION LDC, an international mining company constituted in the Great Cayman Islands, through constitution certificate dated September seven, nineteen ninety five, whose original copy has been certified by the Bolivian Consulate in London (England) on the 14th of the same month and year, a legally constituted subsidiary in Bolivia, through Public Deed No 49, granted by the Special Notary oF Mines in La Paz on November ten, nineteen ninety five, registered in the General Registry of Commerce and Stock Companies, under Registration No 09-037169-01 dated December six, nineteen ninety five and in the Unique Taxpayers' Register with RUC No 7836635. 1.3. LEGAL STATUS OF THOSE SUBSCRIBING. COMIBOL'S subscribes the Contract represented by its PRESIDENT, DR. ALBERTO ALANDIA BARRON, who exercises the legal representation of the entity by virtue of S. D 23727 dated February elevens nineteen ninety four, by official appointment given by Supreme Resolution No 213601 dated February sixteen of the same year and exercising the powers conferred to him by COMIBOL'S General Board of Directors, through Resolution No 896194 dated March fifteen. Nineteen ninety four, as well as LIC. LUIS ARNAL VELASCO, MANAGER OF THE CONTRACTS AND FINANCES UNIT, appointed in such position through COMIBOL'S General Board of Directors' Resolution No 860/94 dated June thirteen, ninety four and empowered through Special Power of Attorney by the said PRESIDENT OF COMIBOL, through instrument No. 222/94 dated July eleven, nineteen ninety tour before a Public Notary in La Paz in charge of Dra. Nelly Alfaro and Registered in the Notary of Mines in La Paz, under No 205 dated July twenty eight, nineteen ninety four; which will be enclosed in the corresponding public deed 14. Subscribes the Contract, in representation of ASC BOLIVIA LDC, by virtue of the Limited Power of Attorney conferred to him, Mr. JOHNNY DELGADO ACHAVAL, as its truly and legal agent and proxy, through instrument granted on March seven, nineteen ninety six before Notary Public in the Cayman Islands, George M Shortridge, certified by the Bolivian Consul in London (England), documents that have been judicially translated from English into Spanish, by orders from the Fifth Civil Judge in La Paz, and registered before the Special Notar of Mines of this Capital City, under No 105 dated April first, nineteen ninety six and registered in the General Register of Commerce under item No 798 of Book 07-0 on the eighth of the same month and year. Special power of attorney that, as a whole, will be enclosed in the corresponding Public Deed. SECOND.- BACKGROUND FOR THE CONTRACT. 2.1. Applying the Supreme Government's Mining Policies and within the framework of the legal provisions in force, valid for this matter, COMIBOL has publicly invited national and foreign Mining Companies, interested in the EXPLORATION with option to the EXPLOITATION and posterior MARKETING of the non-developed mining deposits, among others, those from the SUD CHICHAS Province zone in the Department of Potosi, so that they present proposals to that end, and the Terms of Reference and the legal and administrative requirements for the Public Tender have been widely advertized. In order to guarantee the total legality of the public tender's results, as well as the greatest efficiency in the evaluation of the proposals to be presented, independent consulting firms of recognized technical experience and company solvency were equally invited. The 2 evaluation's result made by BEHRE DOLBEAR & COMPANY INC., the selected independent consulting firm, as can be seen in the Report dated September nineteen ninety six, chose ASC BOLIVIA LDC for the awarding of the JOINT VENURE CONTRACT for the Mining Concessions described later on and that form part of ANNEX "A" of the Contract, a report that has been approved by COMIBOL'S Board of Directors through Resolution No. 1105/96 dated February six, nineteen ninety six and that at the same time authorized the negotiations for the respective CONTRACT with ASC BOLIVIA LDC. THIRD.-DEFINITIONS. The following definitions are established in this Contract. in an enunciative but not limitative manner: 3.1. AREA GRANTED.- MINING concessions belonging to COMIBOL included in ------------ Contract and whose total surface area is 125 hectares. The concessions of the AREA GRANTED are individually described in page five of the Technical- Economical Proposal presented by ASC BOLIVIA LDC and in ANNEX "A" of the Contract. COMIBOL at the express and written request by ASC BOLIVIA LDC can formulate petitions or grant complementary areas neighboring with the AREA GRANTED, in which case ASC BOLIVIA LDC will prepare a specific work plan and will guarantee a minimum investment in the same conditions as those for the AREA GRANTED. 3.2. INVESTED CAPITAL.- Are all the expenses and investments made by ASC ---------------- BOLIVIA LDC for the exploration and development of the mineral reserves, preparation of pre-feasibility and feasibility studies. basic and hi-detail engineering designs; purchase, transport and import of equipment, machinery and materials: installation of all the mine equipment and machinery, mineral concentrating and refinery plants, workshops, laboratories, warehouses, offices. etc.. building of camps and buildings, tailings and waste accumulation systems, energy distribution systems, energy plants, safety systems, water catchment and accumulation systems; etc. and starting of the production operations, according to generally accepted accounting principles. 3.3. MINING CONCESSIONS.- Set of mining properties (AD. 33 of the Mining Code), ------------------ in which the activities established in the Contract can be performed. 3.4. MARKETING COMMISSION FEES.- Payment in money for the administration of the ------------------------- sale of the mineral metals produced by ASC BOLIVIA LDC. These commission fees do not form part of the marketing costs. 3.5. PRODUCTION COSTS.- Are all the operational expenses made by ASC BOLIVIA LDC ---------------- during the minerals production process up to the obtaining of the saleable or exportable final products in the mine, either these be mineral concentrates or metals, according to generally accepted accounting practices and principles. 3 3.6. OVERHEADS.- Are all the expenses made by ASC BOLIVIA LDC for the --------- administration and direction of the Joint Venture Contract, different from the production costs, according to generally accepted accounting practices and principles. 3.7. MARKETING COSTS. - Are all those that are done in order to convert the --------------- minerals in metals, by the smelter or refining company; they include metallurgical deductions, treatment, smelting and refining expenses, analysis, assays, arbitrations, penalties and other deductions and expenses directly related to the conversion process to marketable metals. 3.8. DEPRECIATION. - A deduction made according to Bolivian laws. due to the ------------ reduction, wear and value loss of the capital assets, for their replacement. 3.9. DELIVERY. - The date on which COMIBOL will deliver physically and -------- officially the AREA GRANTED to ASC BOLIVIA LDC. The physical delivery will be documented by the detailed minutes to be drawn up in some place of the AREA GRANTED. The minutes will be signed by the parties' representatives appointed for that purpose, with a prior written notice between them. The delivery will be done not later than thirty (30) days after the CONTRACT is signed. 3.10. OPERATIONAL CASH FLOW. - It is the gross value of sales' expenses minus --------------------- the realization expenses, marketing commission fees, marketing costs, production costs and administrative costs, excluding the financial expenses, depreciation, deferred expenses and taxes. 3.11. REALIZATION EXPENSES.- Are all those directly related to the transport of --------------------- concentrates or final products from the mine up to the smelters; they include losses, road, air and sea transport tees, transport insurance. handling, port expenses and other related. these realization expenses do not form part of the Marketing Costs. 3.12. DEFERRED EXPENSES.- Are all the payments or charges made and whose ----------------- application is deferred until certain terms laid down previously are met or the application period for the expense has expired. 3.13. FINANCIAL EXPENSES.- Are all the debt services for banking credits or from ------------------ financing entities hired by ASC BOLIVIA LDC for the compliance and execution of the Joint Venture Contract. 3.14. TAXES.- Are all the national, municipal taxes, or of any other type, ----- already created or to be created by Law, applied to the mining operations developed bY ASC BOLIVIA LDC, as a result of this Contract. 3.15. PAY BACK PERIOD.- Any period, either being the initial one or a posterior --------------- one, including the month starting in which an expense has been made for capital improvements and prior to the first day of the following month to that in which ASC BOLIVIA LDC has recovered all the costs and expenses for capital improvements from the Cash Flow. 4 3.16. PRODUCT(S).- All the materials, minerals, precipitates from mining ---------- resources, concentrates, core, and any other product or sub-product, originated in the AREA GRANTED. 3.17. PAY BACK.- Means the date on which ASC BOLIVIA LDC'S shareholders have -------- received all the costs and expenses for capital improvements from the Cash Flow, really made and registered according to generally accepted principles in Bolivia. The calculation will be done ate the end of each ASC BOLIVIA LDC'S fiscal year. Nonetheless, COMIBOL'S participation, mentioned in paragraph 11.1.2, will be applied from the moment the pay back is finished. 3.18. SALE CROSS VALUE.- Are the payments to be received by ASC BOLIVIA LDC, ---------------- from natural or juristic third persons, for the sale of refined metals or concentrates, produced during the exploitation period, from which all the expenses and costs established in point 3.7 will be deducted. 3.19. NET SMELTER RETURN.- It is the gross value for the sale of the minerals, ------------------ minus the marketing costs and the realization expenses. FOURTH.- APPLICABLE LAWS. 4.1. This Contract is subscribed and is regulated by the legal provisions that in a mere enunciative but not limitative manner are given below: Arts. 136 and 138 of the Poll Const. of the State, S.D. 3196 (2-10/52), L. (2910/56), L. 843 (2005/86), S.D. 22407 (11-0 1/901 S.D. 22408 (11-01190), L. 1182 ( 1 7-09/90), L. 1 297 (27-11/9 1 ), S.D. 23059 (13-02/92), L. 1243 (11-04/92), L. 1333 (29-04/92), its regulations enacted through S.D. 24176 dated 8/12/95, S.D. 23214 (21-07/92), S.D. 23230-A (30-07/92) and other legal provisions on the matter or to be enacted in the future. This Joint Venture Contract was approved by COMIBOL'S Board of Directors, through Resolution No. 1229/96 dated 27-09-96. FIFTH. - THE JOINT VENTURE CONTRACT, TRADE NAME AND ADDRESS. 5.1. The Joint Venture Contract, constituted by this document. known from now on as CONTRACT, does not compromise the patrimony of any of the associated parties nor it affects h1 any way the juristic person of the hiring parties; it neither constitutes a partnership, nor it establishes an independent juristic person. It is not established in the CONTRACT, for the associated parties, a jointly and severally nor limited responsibility for the acts, contracts and obligations each party could male, celebrate and assume in the execution and compliance of this CONTRACT. 5.2. As a result from the CONTRACT, ASC BOLIVIA LDC does not acquire any property rights in the civil regime nor as mining concessionaire in the mining regime, on the soil nor the underground of the AREA GRANTED, nor on the water nights, servitudes and uses, access roads, camps, constructions or any other facilities that could exist. 5 5.3. In the terms and conditions stated in the CONTRACT, COMIBOL grants ASC BOLIVIA LDC. in an express manner, the exclusive exploration rights, the option to enter into a exploitation phase, once the first exploration phase is completely finished, as well as the marketing of the minerals to be exploited over a surface are of One Hundred and Twenty Five (135) hectares of the Mining concession "CHOROMA", located in Tupiza County, Sud Chichas Province of the Department of Potosi , whose detail is expressed in ANNEX "A" of the CONTRACT. 5.4. This exclusive right, in the conditions stated in the CONTRACT, is the sole and total COMIBOL'S contribution to the Joint Venture Contract agreed upon in this document, and comibol does not acquire any obligation nor responsibility for the execution and compliance of the CONTRACT. It also means that COMIBOL, during the time the CONTRACT is in force, will not reduce, cede, affect nor compromise its rights and interests on the deposits contributed to the joint venture, in any measure nor for any motive, guaranteeing ASC BOLIVIA LDC the peaceful possession, the use and enjoyment of the mining concessions object of the CONTRACT. 5.5. The parties, by mutual agreement, convene in appointing this Joint Venture Contract with the trade name of COMIBOL-ANDEAN-CHOROMA R.C., with legal address in La Paz City, Campos Street No. 265, Telephone 433800, Fax (5912) 433737. SIXTH.- OBJECT OF THE CONTRACT. 6.1. Based on the background given before, COMIBOL and ASC BOLIVIA LDC, through this document agree to subscribe a Joint Venture Contract for the exploration, and option to exploit, concentrate, refine and smelt without any reserve and the marketing of the mineral products, metals and sub- products that could be exploited in the deposits located in the AREA GRANTED, under the technical conditions described in ASC BOLIVIA LDC'S proposal and accepted by COMIBOL, as laid down in its proposal and that constitutes annex "b" of this CONTRACT. documents that, without being registered, are an inseparable and constitutive part of this CONTRACT. 6.2. The activities object of this CONTRACT, comprise the identification and development of reserves, design of the mining operation, rational and efficient exploitation of the mineral resources, optimization of the treatment and metallurgical recovery processes, preparation of the respective technical and economical feasibility projects and, in general, the application of modern technology and an efficient management in the performance of the mining operations, as well as comply with the environmental obligations established by law, according to clause seventeenth of the CONTRACT. SEVENTH.- TERM FOR EXPLORATION 7.1. The maximum term for the Exploration Period will be of Five (5) years starting from the physical and official delivery of the AREA GRANTED in this CONTRACT, by 6 COMIBOL to ASC BOLIVIA LDC, this delivery will be documented through detailed minutes drawn up in the site or where the parties agree to, and must be signed by the officials appointed to that effect, with the presence of a competent authority. 7.2. The said term of five (5 ) years for exploration. is divided in three (3 ) phases as follows: FIRST PHASE with a duration of twenty four (24) months. SECOND PHASE with a duration of twenty four (24) months. THIRD PHASE with a duration of twelve ( 12) months. TOTAL SIXTY (60) months, equivalent to FIVE (5) YEARS. 7.3. The First Phase is compulsory and thus its strict observance is guaranteed by ASC BOLIVIA LDC, according to that laid down in Clauses 9.1 and 9.2 of this CONTRACT. 7.4. During the First Phase. ASC BOLIVIA LDC, will execute the Work Program appearing in page 6 to page 8 of its accepted and awarded Proposal, a work plan that will form part of this CONTRACT without the need of its registration, ASC BOLIVIA LDC con explore the whole of the mining concessions or part of them at its will, but in any sector, the work plan will be executed faithfully and fully. COMIBOL, at the written and express request by ASC BOLIVIA LDC, can formulate mining petitions or grant complementary areas within the two (2) kilometers neighboring the area granted, in which case ASC BOLIVIA LDC will formulate a specific work plan and will guarantee a minimum investment to be made in such complementary areas that will be subject to the same conditions established for the work plan as well as the minimum investment for the AREA GRANTED. 7.5. ASC BOLIVIA LDC, during the First Phase, can anticipate the conclusion of the twenty four (24) months term, under the express condition of having finished the execution of the Work Program committed for this Phase and, as a result, can enter into the other Exploration Phases or exercise immediately its option rights to enter into the Exploitation Phase in the areas its studies would have determined as positive. In this case, the Bank Guarantee Certificate for the Compliance of the CONTRACT will be returned by COMIBOL, within sixty (60) days once the First Exploration Phase is finished. The observance of the Work Plan, as well as the start of the Exploitation will be irrevocably verified by COMIBOL, which will issue the detailed reports of one and other situation, within sixty (60) days. 7.6. ASC BOLIVIA LDC, at any time during the First Phase, but only after having complied with the Minimum Work Program and not later than the last day of the maximum term for the Phase can definitely suspend the Exploration in the areas object of this CONTRACT and withdraw from the Joint Venture Contract, in the case that the CONTRACT will be canceled of full right on the date of ASC BOLIVIA LDC'S notice to COMIBOL of its decision. Should ASC BOLIVIA LDC hadn't fulfilled with the Minimum Work Program, COMIBOL will cash the Bank Guarantee Certificate for Contract Compliance, without any right to recourse, claim nor any exception ASC 7 BOLIVIA LDC could oppose against COMIBOL, either judicially or outside the court. The Joint Venture Contract will, thus, become null and without any legal validity. 7.7. The simple reduction of the surface area of any of the areas, forming part of the AREA GRANTED according to that recommended by the studies done by ASC BOLIVIA LDC, will not mean the suspension of the exploration to the ends expressed in the previous point 7.6 and ASC BOLIVIA LDC is obliged to continue the execution of the Work Plan committed in its proposal on the areas selected as attractive, which will be done until the conclusion of the term established for the First Phase. EIGHT. - EXPLORATION INITIAL PAYMENTS. 8.1. ASC BOLIVIA LDC, according to the public tender s terms of reference, will pay COMIBOL the following exploration initial payments scale. FIRST PHASE three 57/100 American Dollars ($us 3.57) per hectare on the ----------- whole surface of the AREA GRANTED, that is to say, 125 hectares. 8.2. The payments described and stated in the previous Point (8.1), will be paid on the 125 hectares or mining properties, within thirty (30) days after the physical delivery of the concessions by COMIBOL to ASC BOLIVIA LDC. Any reduction in the surface area of any of the concessions of the AREA GRANTED, either be during a maximum term of 24 months, or of the Second or Third Phases, will not give rise to a return or reimbursement of the Exploration Initial Rates agreed upon in Numbers 8.1, 8.3 and 8.4 of this CONTRACT, by COMIBOL to ASC BOLIVIA LDC and the amounts paid will be consolidated in COMIBOL'S favor . 8.3. SECOND PHASE: One Hundred and Nineteen 05/100 American Dollars ($us 119.05), per hectare on the extension of the concessions that at the start of the Second Phase, decides to explore within the teen of 24 months established for this Phase. The discontinuity of the exploration operations is admitted within a same mining concession. The First Phase area can also be reduced or request COMIBOL, or perform mining petitions to the State or larger extensions should there be tree land, according to that explained in the Twenty Sixth Clause of this CONTRACT and according to that laid down in the last part of Clause 7.4 of the CONTRACT, ASC BOLIVIA LDC is obliged to notify COMIBOL of any areas' reduction of the AREA GRANTED with a thirty (30) days notice prior to the ending of the proceeding Phase Term. It will also notify of any anticipation in the term due to having entered into the Exploitation Phase under the same conditions. 8.4. THIRD PHASE: Five Hundred and Ninety Five 24/100 American Dollars ($us 595.24) per hectare as an Exploration Initial Rate on the mining concessions' extensions, that at the start of the Third Phase decides to explore within TWELVE ( 12) MONTHS. In this phase, the exploration operations discontinuity is admitted within the same concession. The exploration area can also be reduced with relation to the First and 8 Second Phases or request COMIBOL or make mining petitions to the state for a larger extension should there be free land according to that laid down in Clause Twenty Sixth of this COMIBOL. ASC BOLIVIA LDC is obliged to notify COMIBOL of any areas reduction in the AREA GRANTED, with no less than THIRTY (30) DAYS notice before the end of the Second Phase. It will also notify COMIBOL of the anticipated conclusion of this Phase's term when it decides to enter into the Exploitation Phase. 8.5. All the Payments for the Exploration Initial Rates established in Points 8.1, 8.2, 8.3 and 8.4 previous, will by done by ASC BOLIVIA LDC before the start of the corresponding Phase and within a maximum of thirty (30) days, in COMIBOL'S of flees in La Paz city, receiving the corresponding fiscal receipts for tax purposes. NINTH.- MINIMUM GUARANEED INVESTMENT DURING THE FIRST EXPLORATION PHASE. 9.1. According to the Public Tender's Tends of Reference, ASC BOLIVIA LDC accepts and is compelled to make an guaranteed Minimum Investment during the First Phase of the Exploration period Of Two Hundred Thirteen Thousand 00/100 American Dollars ($us 213,000.00) pledged in the Budget and Investment Plan, page 9 of its Proposal. 9.2. As a result, ASC BOLIVIA LDC guarantees the Minimum Total Investment of the amount established in the previous Point, through the presentation to COMIBOL of a Bank Guarantee Certificate for Contract Compliance, issued irrevocably in favor of COMIBOL by BHN MULTIBANCO Bank of LA PAZ CITY, under No. 10004176 dated 05-02-97 for Forty Two Thousand Six Hundred 00/100 American Dollars ($us 42,600.00), equivalent to twenty percent (20%) of the amount of the minimum investment pledged. 9.3. Whilst ASC BOLIVIA LDC, during the First Phase, is malting the corresponding investments, can request COMIBOL the presentation of the original Guarantee Certificate, substituting it simultaneously with a new certificate covering the remainder of the guarantee or the investment not yet made, and/or the corresponding tend until, within twenty four (24) months. Or before if the First Phase of the exploration term is anticipated, the minimum investment pledged has teen made according to Clauses 7.3 and 9.1 of this CONTRACT. The Guarantee Certificates exchange will be done within maximum 30 days, with a prior COMIBOL'S verification and acceptance that the investments made by ASC BOLIVIA LDC, through documented evidence, with attesting and independent auditor's report. 9.4. If once the last day of the twenty four (24) month period for the First Phase has expired, there would be a balance of investment not made by ASC BOLIVIA LDC, COMIBOL can cash the Bank Guarantee Certificate valid at that date, and ASC BOLIVIA LDC won't be able to oppose a recourse nor an exception of any nature. 9 9.5. The Exploitation Phase can only be entered into once the amount for the minimum investment has been really and totally invested by ASC BOLIVIA LDC, either this occurs at the end of the term appointed for the First Phase of prior to any of the terms established for each one of the Phases, which will be decided by ASC BOLIVIA LDC for having determined a positive sector in any of the concessions. 9.6. The Three Phases forming part of the Exploration Period. have the purpose of developing mineralogical reserves. Design of the treatment plants and the preparation of a rational and mechanized exploitation plan, design and optimization of the treatment processes and metallurgical recovery, the preparation of technical economical feasibility projects and the adoption of appropriate environmental protection measures. pollution control and soil recovery, objectives that are described in the World; program of ASC BOLIVIA LDC'S proposal. 9.7. Thus, it is agreed that, if ASC BOLIVIA LDC considers attractive certain areas to start in them the Exploitation Phase, at any time within the established periods for any of the Three Phases, but if and when the Work Program of the Exploration Program of ASC BOLIVIA LDC'S proposal has been complied with entirely as described in ANNEX "B" of this CONTRACT and the minimum investment has been totally made, apart from the technical- economical feasibility study, ASC BOLIVIA LDC can enter into the exploitation phase, and must notify COMIBOL of this decision or the purposes of the verification of the compliance of the beforesaid conditions and the financial-accounting management of the COMIBOL'S share established in ASC BOLIVIA LDC'S Proposal. 9.8. If ASC BOLIVIA LDC does not exercise its Exploitation option rights at the end of the Exploration Period, either if it occurs at the expiry of any of its Phases determined in the contract. or before, by ASC BOLIVIA LDC'S decision, the latter is obliged to present COMIBOL, without any charge or reimbursement of any nature, all the technical information, drawings, maps, designs, calculations and reports. 9.9. The suspension or no performance of the compulsory minimum investment pledged by ASC BOLIVIA LDC, withal the times and conditions stated in this CONTRACT, will mean for all legal purposes, the statement by ASC BOLIVIA LDC of its decision to withdraw from the Joint Venture Contract. constituted in this contract and COMIBOL, without the need to comply with a prior special formality, will cash the Bank Guarantee Certificate presented by ASC BOLIVIA LDC, without any right to recourse, exception or protest any by the latter, either judicially or out of court. 9.10. As a result, all the extension of the AREA GRANTED, object of this CONTRACT will be reverted to COMIBOL'S total domain within ninety (90) days maximum, ASC BOLIVIA LDC must withdraw all the equipment and machinery employed until then, assuming the costs and risks. The buildings, access roads and other facilities adhered to the ground that would have been installed will remain for COMIBOL benefit as improvements, without the right to a reimbursement nor any type of compensation and the CONTRACT will be extinguished purely and simply. The equipment and machinery 10 adhered to the ground can also be withdrawn if and when the foundations nor the wall to which they are adhered to, are not destroyed. This tasks will be executed under ASC BOLIVIA LDC'S exclusive risk and charge. 9.11. If the exploration areas cover only part of the AREA GRANTED, they must conform squares parallel to the perimeter of such concessions. 9.12. The areas that in tune are rejected by ASC BOLIVIA LDC' at the end of each exploration Phase, will be excluded from the CONTRACT and will be everted to COMIBOL exclusive domain. In turn, the new areas will be annexed to the CONTRACT, in the conditions stated in Clauses 3. i and 7.4 of the CONTRACT. TENTH.- TIIE EXPLOITATION PERIOD 10.1. Once all the stated conditions in this CONTRACT are complied with, for the first and, in its case, for the Second and/or Third Phases of the Exploration Period by ASC BOLIVIA LDC, without any exception, not later than the last day of the maximum term for each phase, ASC BOLIVIA LDC trill notify COMIBOL about the areas it has selected in order to start the Exploitation period of the deposits contained therein, which will mean the exercise of its option rights, which will be notified to COMIBOL through a notarized letter, enclosing the technical-economical feasibility studies for the exploitation to be done and the marketing of the products. 10.2. COMIBOL will issue its approval of the feasibility study or its observations to it, within ninety (90) days. COMIBOL can pose observations due to technical and economical reasons, the same all be transmitted to ASC BOLIVIA LDC for their solution. if ASC BOLIVIA LDC dissents from COMIBOL'S opinion, the dispute will be resolved via the arbitral procedures established in Clause Twenty Third of this CONTRACT. 10.3. When ASC BOLIVIA LDC exercises its exploitation option rights, the parties will not be subject to any negotiation, limiting themselves to the compliance of the provisions in this CONTRACT. 10.4. Before the Exploitation Period is started, ASC BOLIVIA LDC is empowered to establish the non-attractive areas and that will be rejected, the same will be reverted of right to COMIBOL'S whole domain and will be automatically excluded from this Joint Venture Contract. 10.5. COMIBOL will exercise its full and unrestricted right and administrative powers on the areas rejected. ELEVENTH. - COMIBOL'S SHARE OF THE EXPLOITATION RESULTS. 11.1. COMIBOL'S share during the exploitation period is established as follows, according to ASC BOLIVIA LDC'S fourteen pages' Proposal 11 11.1.1. During the recovery period of the invested capital by ASC BOLIVIA LDC in the construction, installation and starting stage of production operations, ASC BOLIVIA LDC will pay COMIBOL an income equivalent to Five percent (5%) of the Positive Operational Cash Flow, according to the definition given in Clause Three, Point 3 10 of this CONTRACT. 11.1.2. After the repayment of the initial investment, ASC BOLIVIA LDC will pay COMIBOL Fifteen percent ( 1 Who) of the Positive Operation Cash Flow as defined in Clause Three. Point 3 10 of this CONTRACT. 11.1.3. In case ASC BOLIVIA LDC makes new investments for the expansion of perations or for the change of method or processes, excluding the replacement of assets, COMIBOL share will come down again to Five percent (5%) of the Positive Operational Cash Flow, during the recovery period for the new investments. 11.1.4. The periodicity of the shares' payments by ASC BOLIVIA LDC to COMIBOL will be done every three months, with annual settlements or adjustments 11.2. It is expressely agreed that COMIBOL during all the time this CONTRACT is in force will have the right to supervise, verify and control the regularity of the financial processes described in the proceeding points 11 1 1, 11 1 2, 11 1 3, 11 1 4 and 11 1 5, through the accounting analysis of ASC BOLIVIA LDC'S documents, in order to establish exactly COMIBOL'S share, and ASC BOLIVIA LDC is obliged to disclose to COMIBOL the complete and authentic documents so that the financial and accounting revisions be effective ASC BOLIVIA LDC is also compelled to employ generally accepted accounting principles, for the accounting of its financial and marketing operations the supervision, verification and control for the operations accounting, will be done by comibol in ASC BOLIVIA LDC'S offices and will be executed periodically, according to that determined by the Administration Committee in the Internal Regulations approved by the parties. TWELVETH. - CONSTRUCTION, INSTALLATION, STARTING AND OPERATION STAGES. 12.1. The Construction. Installation and Starting of the Operations as a whole, will not exceed Three (3) years starting as of the date ASC BOLIVIA LDC notifies COMIBOL as stated in point 10.1 of Clause Tenth of this CONTRACT, unless force majeure defined later on in this CONTRACT. 12.2. During the Exploitation Period, ASC BOLIVIA LDC will hold the exclusive administration and will run all the risks of the operations, with absolute autonomy in managerial decision mailing. With the same reaches and risks will also have the exclusive 12 administration and autonomy in the marketing of the minerals it produces, without any limitation, either be locally or through exports. 12.3. COMIBOL will not be held responsible at all for the development or the financial results of the operations, its performance will be limited to the punctual perception of its share in the Cash Flow and its share in the coordinating, information and supervision organisms. 12.4. Nonetheless. the hiring parties agree that the administrative expenses of the joint venture can not exceed Five percent (5%) of the production direct costs. Equally, it is also stated that the marketing commission and the realization costs can not exceed' as a whole, Two percent (2%) of the Net Smelter's Return. 12.5. ASC BOLIVIA LDC will establish and execute a minerals marketing system that will allow an efficient, transparent management, guaranteeing the nonexistence of eventual benefits within or outside the country, for the benefit of one of the parties to the detriment of the other. 12.6. The purchase of equipment, machinery, materials, facilities and raw materials by ASC BOLIVIA LDC will be done in such manner that the interests of the parties will not be affected and in particular COMIBOL'S share. THIRTEENTH. - TERM OF THE CONTRACT. 13.1. This Joint Venture Contract will have a term of Forty (40) Years, starting as of the physical and official delivery of the areas stated in this CONTRACT BY COMIBOL TO ASC BOLIVIA LDC. This term will be renewed in the same contract conditions for just one more time, with a prior technical and economical justification, if ASC BOLIVIA LDC expresses, in writing, its will to do it. The stated term includes the exploration period, either be in its entirety (5 years) or less, if asc bolivia ldc enters into the exploitation period beforehand according to that laid down in Clause 8.4 of the CONTRACT. FOURTEENTH.- INVESTMENTS AND FINANCING. 14.1. ASC BOLIVIA LDC is empowered to finance on its account and risk the exploitation operations, either be with its own resources or front others.-COMIBOL will not acquire at any time any type of obligation related to such financing, whose service will be exclusively in charge of ASC BOLIVIA LDC. 14.2. The previous popovers are translated in that ASC BOLIVIA LDC is obliged and pledges to perform all the necessary investments in order to implement into the operations modern technology, services, machinery, equipment, implements, materials, facilities, constructions and such like, as well as assume the commitments that will allow a rational exploitation of the mineralogical deposits of the AREA GRANTED, object of this CONTRACT. 13 14.3. The investments' regime, initial as well as future, will respect invariably and at all times, that stated in Clauses Eleventh of this CONTRACT, relative to COMIBOL'S share of the results, regime that will remain unvariable during the whole term of the CONTRACT. FIFTEENTH.- LABOR RELATIONS. 15.1. The hiring and administration of the workforce, technicians and employees during the exploration stage, as well as during the exploitation stage is of the absolute and total responsibility of ASC BOLIVIA LDC, and it is of its entire responsibility the compliance with the Labor General Law, its Regulatory Decree and related legal provisions and complementary in force or to be enacted, as well as those provisions relative to social security, professional risks, employer's and employee's contributions, whilst COMIBOL is totally exempt of responsibility, and can not be demanded in any lawsuit of labor nature nor in any civil, penal, tax, fiscal coactive, social coactive nature, nor administrative, as an result of acts or omissions resulting from the execution of this CONTRACT by ASC BOLIVIA LDC. 15.2. COMIBOL will deliver ASC BOLIVIA LDC the AREA GRANTED, object of this CONTRACT free from encumbrance or obligations of labor or legal character. SIXTEENTH. - FORCE MAJEURE. 16.1. None of the hiring parties can demand of the other the compliance with the obligations acquired in this CONTRACT, when the compliance has been delayed, hindered or impeded by causes not blamed on the obliged party. Such causes will constitute those of force majoure or fortuitous cases, as earthquakes, flooding, fire, strikes declared illegal, civil commotion, factors that can affect transport in general, governmental prohibitions and catastrophes in general, according to that laid down by articles 379 and 380 of the Civil Code. It will also be considered as a force majeure a sustained fall for over six (6) months in the price of minerals to be produced under the minimum established by the feasibility study, if and when such situation causes the stoppage of the extraction of the minerals or production operations. If these operations continue even under such market conditions, the force majeure cause will disappear. 16.2. The period during which ASC BOLIVIA LDC will be hindered to normally comply with this CONTRACT, will be added to the term stated in Clause Thirteenth. 16.3. Should a force majeure cause happens, ASC BOLIVIA LDC is obliged to notify COMIBOL within the next five days, describing the nature of the happening and its effects. 14 16.4. The omission of this notice will maintain COMIBOL indemnity in the regularity of its share in the results and h1 the accounting of the time period. 16.5. When the force majeure causes are of such nature and magnitude that the objectives of this CONTRACT and the joint venture in general are substantially and permanently harmed or are affected in a continuous manner for more than six months. the hiring parties can agree upon the temptation of the CONTRACT. SEVENTEENTH.- ENVIRONMENTAL STANDARDS AND ENVIRONMENTAL MANAGEMENT PLAN 17.1. During the performance of the works and during the life of this CONTRACT, ASC BOLIVIA LDC will be subject to the environmental requirements, that is to say, the allowable pollution limits in force in the country, established by Law No. 1333 dated April Twenty Seventh nineteen ninety two and the regulations enacted by S.D. 24t76 dated December nineteen ninety five and other provisions in force or to be enacted in the future. 17.2. ASC BOLIVIA LDC will draw up the environmental management plan, starting from an initial audit. in order to avoid or mitigate the environmental impact, as established by the next Clause 17 4, as well as the work plan for the execution and closure of activities. 17.3. The environmental management mainly comprises the recovery of the exploited areas, in order to control the erosion, stabilize the ground and protect the waters and the atmosphere, perform the treatment of waste materials and eliminate in a safe manner the tailings, mill tailings and dumps. 17.4. When ASC BOLIVIA LDC starts its activities, it will determine the environmental liabilities that could exist in the deposits, object of this CONTRACT, through the performance of the respective environmental audit, according to that established in Clause 17.8.1. 17.5. ASC BOLIVIA LDC will be held responsible for the environmental pollution flows originated in its mining works and through the accumulation of wastes during the performance of its activities. in turn, COMIBOL will be responsible for the accumulations and flows coming from mining works, done prior to this CONTRACT, established in the environmental audit according to the previous Clause 17.4. 17.6. When ASC BOLIVIA LDC does not comply with that determined in Clause 17.4, it will assume the exclusive responsibility for the flows and accumulations resulting from the old and new mining works. 17.7. ASC BOLIVIA LDC will pay for damages, to those affected by the environmental pollution generated by the accumulations and flows coming from its mining works with an absolute exclusion of COMIBOL. 15 17.8. The environmental management, particularly in order to establish the polluting accumulations and flows. will be controlled by ASC BOLIVIA LDC in the following manner: 17.8.1. Through the drawing up of an initial environmental audit done by ASC BOLIVIA LDC, to be done during the first six (6) months of the Exploitation period. Starting from the audit, ASC BOLIVIA LDC will prepare, in the next to months, the environmental management plan. 17.8.2. Should COMIBOL has its own audit and ASC BOLIVIA LDC accepts it, it will be applicable and ASC BOLIVIA LDC must draw up the environmental management plan within four (4) months, starting from the date of the affidavit corresponding to this CONTRACT. 17.8.3. Through environmental audits for the compliance of obligations and the establishment of responsibilities, resulting from the environmental management plan, to be done every three years by specialized companies or entities of national or international prestige, hired and paid by ASC BOLIVIA LDC. 17.8.4. Through annual reports on the environmental management prepared by ASC BOLIVIA LDC. 17.8.5. COMIBOL can ask ASC BOLIVIA LDC the environmental information it considers necessary and can perform on its own the audits it deems necessary. 17.8.6. The environmental management according to that established in Point 17.4, comprises the recovery of the exploited areas in order to reduce and control erosion, stabilize the grounds and protect the waters and the atmosphere, perform the treatment of waste materials and eliminate in a safe manner the tailings, mill tailings and dumps. 17.8.7. The joint venture will not be able to be resolved as long as the terms given in this Clause are not complied with. On the other hand, ASC BOLIVIA LDC will continue having the responsibilities corresponding to its environmental management, according to the law, once the CONTRACT is dissolved. 17.8.8. In order to avoid controversies ASC BOLIVIA LDC will timely and sufficiently inform the representatives of the local populations, on the aspects related to the protection of the environment and will try to interest them in the environmental repair works. Also, ASC BOLIVIA LDC must comply with the legal requirements regarding the information to third parties and others that correspond. EIGHTEENTH.- NON-EXISTENCE OF SOLIDARITY. 16 18.1. It is expressly agreed that the hiring parties do not assume a joint solidarity of any nature with respect to the obligations contracted by any of them for the compliance of the obligations resulting from this CONTRACT, unless that eventually and by free will and in an express manner any of them assumes such obligations, which will be truly recorded in a notarized document. 18.2. It is also expressly convened that this document contains all the agreements, specifications and provisions agreed by the hiring parties, and none of them will be obliged nor related to the other by any statement, pledge or verbal or written agreement that is not expressly incorporated in this CONTRACT. NINETEENTH -QUALITY OF THE CONCESSIONAIRE. 19.1. According to that laid down by Art. 197 of Law No. 1243 for the Updating of the Mining Code, ASC BOLIVIA LDC does not acquire property rights nor a mining concession at all on the soil or underground of the mining concessions forming part of the AREA GRANTED. 19.2. Nonetheless, COMIBOL grants in favor of ASC BOLIVIA LDC the operational exclusiveness during the exploration phase as well as during the construction, installation, starting and exploitation and the annexing of facilities, equipment, machinery and other complementary assets, such as constructions, access roads, water and right of way servitudes uses and customs of the said concessions, understanding as exclusiveness the fact that during the life of this CONTRACT none of COMIBOL'S rights on such concessions. servitudes, uses and customs will be affected, reduced nor impaired in any way, guaranteeing the quiet and peaceful possession, use and enjoyment of the same, protecting all the investment and development of ASC BOLIVIA LDC'S activities, defending such rights against incursions, invasions and other disturbances by third parties, either they be trade unions, cooperatives, entities or persons, appealing to the means and resources given by the laws of the Republic. TWENTIETH.- COORDINATION, INFORMATION AND SUPERVISION OF THE JOINT VENTURE. 20.1. ASC BOLIVIA LDC will have under its exclusive and autonomous control and responsibility the management of all the exploration and exploitation operations, without any exclusion nor limitation, with the restrictions established in the laws of the Republic. 20.1. Nonetheless, this Joint Venture Contract will have as coordination, information and follow-up organization, a COMMITTEE constituted at the signing of the CONTRACT, that will be composed by four (4) members, two (2) of them appointed by COMIBOL, and the other two (2) by ASC BOLIVIA LDC, whose emoluments will be paid by the party appointing them. 17 20.3. The COMMITTEE will constitute the main relationship means between COMIBOL AND ASC BOLIVIA LDC during the life of the CONTRACT. The main responsibility of the COMMITTEE will be to maintain the best managerial relations between the parties and to contribute so that any disagreement, that could come up between them, be discussed and resolved in a concerted manner. 20.4. The COMMITTEE'S attributions, among others that it will determine. will be: a) Approve during its first meetings an internal bylaw that will norm the COMMITTEE'S activities; b) Verify the proper compliance of the conditions of this CONTRACT; c) Create a communications system between ASC BOLIVIA LDC'S managerial organism and the committee in order to ease the flow of the relations between both organisms; d) Formulate the recommendations it considers opportune for the better compliance of the CONTRACT'S objectives, not meaning that such recommendations are compulsory for the parties; e) Gather all the technical, administrative and financial information in order to conserve it within reach for its inspection and study by the parties; f) Recommend the execution of technical audits of the performed operations by virtue of this CONTRACT, taking care that such audits at no time hinder or interfere with the operations or impairs asc bolivia ldc's administrative autonomy. These audits will be paid by the party requiring them; g) Periodically formulate the recommendations that are considered necessary, with relation to the development of ASC BOLIVIA LDC's operational plans. TWENTY FIRST.- BOARD OF DIRECTORS. 21.1. Within fifteen days of having signed this CONTRACT, the parties will organize a BOARD OF DIRECTORS. 21.2. This BOARD OF DIRECTORS will be formed by representatives from both parties, COMIBOL and ASC BOLIVIA LDC, with equal number of members, whose emoluments will be paid by the party appointing them. 21.3. The BOARD OF DIRECTORS will meet whenever necessary and called by the president at his/her own initiative or at the request of the parties. 18 21.4. The President of the BOARD OF DIRECTORS will be appointed by the members of the BOARD OF DIRECTORS at the first ordinary meeting of such organism. 21.5. The responsibilities of the BOARD OF DIRECTORS are, apart from those it decides: 21.5.1. To determine the general policies of the joint venture; 21.5.2. To approve the financial statements of the joint venture; 21.5.3. To approve the hire of external independent auditors so they will submit an opinion on the joint venture's annual financial statements; 21.5.4. To know and approve the recommendations with regards to the plans, projects and reports put before them by the COMMITTEE; 21.5.5. The joint venture's BOARD OF DIRECTORS will be the relations organism between COMIBOL'S board of directors and ASC BOLIVIA LDCA'S executive organisms, for everything concerning to the running of the joint venture. 21.5.6. To know the audited financial statements done by external and independent auditors of optimum quality, at the end of each fiscal year. 21.6. The BOARD OF DIRECTORS' duties will, at no time, interfere nor impair the administrative autonomy of ASC BOLIVIA LDC, on the joint venture's operations during the exploitation stage and marketing of the minerals. 21.7. The BOARD OF DIRECTORS will carry a chronological and circumstantial minutes of every and all their meetings, and the former will be signed by those present. TWENTY SECOND.- TAX AND CONTRIBUTIONS REGIME. 22.1. All the taxes and liens applicable to the mining industry, as well as those applicable to the import of equipment, machinery, raw materials, materials and other assets, to the marketing of minerals locally and for export, in force at the date of the signing of this CONTRACT or that will be enacted in the future will be exclusively paid by ASC BOLIVIA LDC and its effects on COMIBOL'S corresponding share will be regulated by that stated in clause eleventh of this CONTRACT. 22.2. Those taxes applicable to profits each party will obtain from the mining operation, object of this CONTRACT will be the entire responsibility of each of them, without any other responsibility for the other party. 19 22.3. The contributions to entities of Social Security and Complementary Funds or similar other ones existing or to be created, are of the exclusive responsibility and charge of ASC BOLIVIA LDC, with COMIBOL'S ABSOLUTE EXCLUSION. TWENTY THIRD.- RESOLVING OF CONFLICTS BETWEEN PARTIES AND ARBITRATION 23.1. All controversies and claims that could arise between parties with regards the interpretation or execution of this CONTRACT, will be tried to resolve them amicably and fast between such parties. in case that they can not resolve them through mutual negotiations within sixty (60) days, any of the hiring parties can request the matter under conflict to be put before an arbitrer. 23.2. In such circumstances, the controversy or interpretation will be resolved through settlement and/or arbitration according to the Regulations given by the National Chamber of Commerce's Settlement and Arbritation Center in La Paz (Bolivia) that, forming part of this Clause, the parties declare to know and accept. The Center will appoint the arbitrer from among the members of the Arbitral Body of such Settlement and Arbitration Center belonging to the aforementioned Chamber. 23.3. No recourse will proceed against the Arbitrer's resolutions, thus the parties expressly resign to put it forward. 23.4. The arbitration costs will be paid by the loser in the Arbitral Decision. TWENTY FOURTH.- CONTRACT TRANSFERRAL TO A THIRD PARTY. 24.1. This Joint Venture Contract is a result of the award to a proposal formulated by ASC BOLIVIA LDC to COMIBOL involving the evaluation of certain technical, financial conditions and of the industrial capability and competence of the bidder. Nonetheless, ASC BOLIVIA LDC is empowered to incorporate into the contract's execution one or more members of known prestige and capability in the mining industry, or in the investments and financial branch, as well as transfer or subrogate but only partially their share in the CONTRACT to third parties, but without this meaning nor representing the total of their rights, share or obligations resulting from this CONTRACT. To that effect, the previous conditions stated as follows must be complied with: 24.2. To this effect, it will request the prior and written authorization from COMIBOL, providing all the details demonstrating the suitability of the collective or individual persons that are pretended to be incorporated or those that will partially substitute ASC BOLIVIA LDC'S participation. 24.3. COMIBOL reserves itself the right to assess the industrial and or financial sufficiency of the entity or person acquiring or is subrogated the partial share of ASC BOLIVIA LDC in the CONTRACT, with the right to veto if that or this does not have the required 20 conditions to the effect, with the sole obligation to give the concrete and reasonable motives restricting its acceptance. the third parties that could be incorporated to the joint venture contract, will assume the obligations, that as members, are stated in this CONTRACT. 24.4. Any modification to the partial participation or share of ASC BOLIVIA LDC in this contract, by virtue of having obtained it through a public tender under special conditions, either be the incorporation of new members, transfer of rights, subrogation of rights or other contractual forms, the rights and shares corresponding to COMIBOL stated in this CONTRACT won't be able to be altered, modified, reduced nor affected. TWENTY FIFTH.- RESCISSION OF CONTRACT 25.1. During the exploration phases, COMIBOL will be able to rescind the CONTRACT unilaterally, in the following cases: 25.1.1. Nonfulfillment of the initial payments by ASC BOLIVIA LDC for each phase, which should be done within the first thirty (30) days; 25.1.2. Nonfulfillment in executing the work program and minimum investment pledged by ASC BOLIVIA LDC for the first exploration phase, in which case the bank guarantee certificate presented by ASC BOLIVIA LDC to COMIBOL will be cashed in. and COMIBOL will give notice to ASC BOLIVIA LDC furnishing the motives. 25.2. In case the contract is terminated for any reason, during the Exploration Phase, all the improvements made by ASC BOLIVIA LDC in the areas of the CONTRACT, will stay behind for the benefit of the concessions, object of the former, without any charge for COMIBOL, with the exception of the tools, equipment, vehicles, materials and those facilities liable to be withdrawn that have not been adhered to the ground, all of which will be able to be freely withdrawn by ASC BOLIVIA LDC. All the technical information related to the explored areas, together with the charts, studies, calculations and complementary details, will also go as COMIBOL'S property, without any charge to it. 25.3. The CONTRACT can also be terminated due to the following causes: 25.3.1. If the CONTRACT has expired, if it hadn't been extended according to that laid down in Clause Thirteenth; 25.3.2. By mutual agreement of the hiring parties; 25.3.3. By ASC BOLIVIA LDC'S unilateral decision, when certain circumstances appear that make unviable the exploitation in rentable economical conditions. 21 25.3.4. When the construction, installation and starting of the operations exceed Three (3) years since the notification by ASC BOLIVIA LDC to COMIBOL announcing its exercise of right to option, unless there are force majeure causes. 25.3.5. When the force majeure causes are produced, such as defined in Clause Sixteenth of this CONTRACT. 25.4. In case or termination of this CONTRACT for any of the motives stated in this CONTRACT, either be during the exploration period or in the exploitation phase, ASC BOLIVIA LDC will be obliged to comply with the delivery of the studies and other information in the next ninety (90) days. TWENTY SIXTH. - EXCLUSION AREA. 26.1. ASC BOLIVIA LDC can not formulate petitions nor perform mining activities, either by itself or through and intermediary, in an area of two (2) kilometers from the perimeter of the concession object of this CONTRACT, unless there is an express authorization from COMIBOL. In any case, the petition made infringing this prohibition, will be considered as done for and for COMIBOL'S benefit. 26.2. COMIBOL also won't be able to perform mining activities, either by itself or through an intermediary, in an exclusion area of one kilometer from the perimeter of the concessions object of this CONTRACT, unless the parties agree to the contrary. TWENTY SEVENTH.- OPTION TO PURCHASE. 27.1. At the definitive closure of operations due to the CONTRACT'S expiry, ASC BOLIVIA LDC grants COMIBOL the option rights, for a period of ninety (90) days, for the purchase of its rights and tangible assets of the joint venture, in equal opportunities as other interested parties. 27.2. COMIBOL and ASC BOLIVIA LDC will appoint an expert appraiser in charge of establishing the price of the assets, using as basis for the appraisal, the market value. 27.3. If COMIBOL decides to exercise its option rights, it must notify so of its decision to ASC BOLIVIA LDC through a notarized letter, within the term established in Point 27.1. 27.4. The payment of the price will be done within the following sixty (60) days after the notice provided in the previous point, is given. TWENTY EIGHT.-CONTRACT'S CONSTITUTIVE DOCUMENTS. 22 28.1. Are part of this CONTRACT and will be inserted in the corresponding Public Deed the following documents. a) Supreme Decree No. 213601 dated February sixteenth nineteen ninety four. b) COMIBOL'S board of directors resolution no. 1105 dated February six nineteen c) General Administration Power of Attorney conferred to Dr. Alberto Alandia Barron No. 1-10 awarded in the Notary of Mines in La Paz on May seventeenth nineteen ninety four. d) Special Power of Attorney conferred to Lic. Luis Arnal Velasco, registered in the Notary of Mines in La Paz, under No. 205 on July twenty eight nineteen ninety four. e) Special Power of Attorney conferred to Mr. Johnny Delgado Achaval, registered in the Notary of Mines in La Paz, under No. 105 on April first nineteen ninety six, registered in the Commerce General Register, Entry 728, Book 07-0, the same month and year. f) COMIBOL'S board of directors resolution no. 1229 dated September twenty seven nineteen ninety six. g) Pages 5, 9 10 and 11 of ASC BOLIVIA LDC'S proposal. TWENTY NINTH.-MINING LICENSES. 29.1. During the Exploration Phase, the mining licenses on all the areas forming part of the mining concessions of the AREA GRANTED will be in charge of COMIBOL. 29.2. Starting from the date ASC BOLIVIA LDC notifies COMIBOL that it will make use of its option right, the mining licenses on the areas declared as positive by ASC BOLIVIA LDC and in which the Exploitation Phase will be developed, will be paid by ASC BOLIVIA LDC on behalf of COMIBOL and the receipts will be presented by ASC BOLIVIA LDC to COMIBOL since they are documents representative of its concessionaire right. this payment won't be compensated nor reimbursed by COMIBOL nor by the joint venture and will be done exclusively by ASC BOLIVIA LDC. THIRTIETH.- OFFICIAL REGISTRATION OF THE CONTRACT. 30.1. The official registration's expenses for this CONTRACT, together with the ANNEXES and corresponding documents, will be paid by ASC BOLIVIA LDC, at the Special Notary of Mines in La Paz City 23 30.2. ASC BOLIVIA LDC is obliged to present COMIBOL Three (3) Affidavits of the officially registered CONTRACT, without any charge for COMIBOL, within sixty (60) days after the writ is signed. THIRTY FIRST.- CONSENT AND ACCEPTANCE. 31.1. We, DR. ALBERTO ALANDIA BARRON, PRESIDENT OF THE CORPORACION MINERA DE BOLIVIA (COMIBOL) and LIC. LUIS ARNAL VELASCO, MANAGER OF THE CONTRACTS AND FINANCE UNIT OF THE CORPORACION MINERA DE BOLIVIA (COMIBOL), both of full age, neighbors of this city, with i.d. no. 1191230 pt. and no. 332387 l.p., respectively, able by right, on one side, and MR. JOHNNY DELGADO ACHAVAL, in representation of ASC BOLIVIA LDC, of full age, neighbor if this city, with i.d. no. 39745 l.p., ably: by right, give our full consent and accept every and each of the clauses, terms and conditions of this CONTRACT, to which we give full validity as Private Document between parties, whilst it is converted into a public deed, pledging to a faithful and strict compliance, subscribing it in La Paz City, on the Twenty first of November nineteen ninety six.- And you, Special Notary of Mines will add all the rest of safety and style clauses. Signed FOR CORPORACION MINERA DE BOLIVIA: Lic. Luis Arnal Velasco MANAGER OF CONTRACTS AND FINANCES. Dr. Alberto Alandia Barron.- PRESIDENTE. Signed FOR ASC BOLIVIA LDC: Mr. Johnny Delgado Achaval AGENT AND PROXY. Signed.- Dr. Jorge Eyzaguirre Duran.- RUC 02199106.- C. Ab. 0157.- LEGAL ADVISOR COMIBOL. - 24 EX-10.22 21 MINING AGREEMENT DATED JUNE 24, 1994 Exhibit 10.22 - -------------------------------------------------------------------------------- MINING AGREEMENT - -------------------------------------------------------------------------------- between COMPANIA MINERA OCOTE, S. de R. L. AND KERRY A. McDONALD
TABLE OF CONTENTS ----------------- RECITALS........................................................... 1 SECTION ONE - Exploration License and Mining Agreement............. 1 1.1 Exploration License......................................... 1 1.2 Work Obligation............................................. 2 1.3 Advance Royalties........................................... 3 1.4 Production Royalties........................................ 3 1.5 Transfer of Title........................................... 4 1.6 Delivery of Data............................................ 5 SECTION TWO - Mining Operations.................................... 5 2.1 Rights to Explore, Develop and Mine......................... 5 2.2 Conduct of Work............................................. 5 2.3 Liability and Insurance..................................... 5 2.4 Liens....................................................... 6 2.5 Installation of Equipment................................... 6 2.6 Acquisition of Permits...................................... 6 2.7 Drill Logs, Assays, and Maps................................ 6 SECTION THREE - Inspection by Minera Ocote......................... 7 3.1 Inspection of Property...................................... 7 3.2 Inspection of Accounts...................................... 7 SECTION FOUR - Taxes............................................... 7 SECTION FIVE - Termination and Default............................. 8 5.1 Termination................................................. 8 5.2 Default..................................................... 8 SECTION SIX - Notices.............................................. 9 6.1 Notices..................................................... 9 6.2 Payments.................................................... 9 SECTION SEVEN - Assignment......................................... 9 SECTION EIGHT - Warranty of Title................................. 10 SECTION NINE - Force Majeure...................................... 10 9.1 Suspension of Obligations.................................. 10 9.2 Definition of Force Majeure................................ 10 9.3 Economic Force Majeure..................................... 11 i SECTION TEN - Miscellaneous Provisions............................ 11 10.1 Binding Effect............................................. 11 10.2 Applicable Law............................................. 11 10.3 Entire Agreement........................................... 11 10.4 Void or Invalid Provisions................................. 11 10.5 Time of the Essence ....................................... 12 10.6 Area of Interest........................................... 12 EXHIBIT A - Property Description................................. 14 EXHIBIT B - Map.................................................. 15
ii MINING AGREEMENT ---------------- THIS MINING AGREEMENT is made this 24/th/ day of June, 1994 by and between COMPANIA MINERA OCOTE, S. de R. L., a Honduran company ("Minera Ocote"); and KERRY A. MCDONALD, ("McDonald"). RECITALS -------- A. Minera Ocote has acquired the El Ocote #1 mining exploitation concession affecting 400 hectares, more or less, in the municipality of La Labor, Department of Ocotepeque, Honduras. The concession will be referred to as the "Property." The Property is described on Exhibit A attached hereto and depicted on the map attached as Exhibit B. B. McDonald wishes to explore, develop, and mine the Property on the terms and conditions set forth below. THEREFORE, the parties have agreed as follows: SECTION ONE Exploration License and Mining Agreement ---------------------------------------- 1.1 Exploration License. Minera Ocote hereby grants to McDonald the ------------------- exclusive right and license to explore the Property. The license shall have an initial term of five (5) years, commencing on execution of this Agreement. At the end of the five-year term, provided that McDonald is then engaged in mining operations on the Property, Minera Ocote shall assign the concession to McDonald, together with any other contracts, rights-of-way, permits, or other rights associated with the Property. 1 1.2 Work Obligation. During the term of the exploration license, McDonald --------------- shall expend the following sums on exploration, development, permitting, testing, and other work on the Property: a. During the first year of this Agreement, McDonald shall spend a minimum of ONE HUNDRED THOUSAND DOLLARS ($100,000.00) on the Property. This shall be a firm commitment, and McDonald shall not be relieved of this requirement if he terminates the Agreement during the first year. If McDonald spends less than $100,000.00 on exploration of the Property during the first year, he shall pay the difference between his actual expenditures and $100,000.00 to Minera Ocote . b. During the second, third, fourth, and fifth years of the exploration license, McDonald shall make the following expenditures on the Property:
Contract Year Expenditures --------------- ------------ 2 $150,000.00 3 $200,000.00 4 $250,000.00 5 $300,000.00
Any expenditures in excess of the yearly minimum obligation may be applied as a credit to the following year's obligation. The costs of maintaining the concession in good standing shall be included in the work obligation. 2 Within thirty (30) days following the end of each contract year, McDonald shall prepare a detailed report to Minera Ocote describing the work performed during the previous year, the cost of such work, and the general results of the exploration program. 1.3 Advance Royalties. McDonald shall not be obliged to pay any advance ----------------- royalties to Minera Ocote during the first three years of this Agreement. At the beginning of the fourth contract year, McDonald shall pay an advance royalty of FIFTY THOUSAND DOLLARS ($50,000.00) to Minera Ocote. On the fifth anniversary of this Agreement, and on each anniversary thereafter, McDonald shall pay an advance royalty of SEVENTY FIVE THOUSAND DOLLARS ($75,000.00) to Minera Ocote. Each advance royalty payment may be offset against production royalties generated during the ensuing contract year, but the advance royalties shall not accrue from year to year as a credit against production royalties. For example, if McDonald pays $75,000.00 to Minera Ocote on the fifth anniversary of the Agreement, and operations on the Property generate $100,000.00 in production royalties during the 12 months following the fifth anniversary, McDonald shall pay the additional sum of $25,000.00 to Minera Ocote. 1.4 Production Royalties. Upon commencing production of valuable minerals -------------------- from the Property, McDonald shall pay to Minera Ocote a royalty on production equal to five percent (5%) of net smelter returns. The term "net smelter returns" shall mean the gross value of ores or concentrates shipped to a smelter or other processor (as reported on the smelter settlement sheet) less the following expenses actually incurred and borne by McDonald: a. Sales, use, gross receipts, severance, and other taxes, if any, payable with respect to severance, removal, sale on disposition of the 3 minerals from the Property, but excluding any taxes on production or net income; b. Charges and costs, if any, for transportation from the mine or mill to places where the minerals are smelted, refined and/or sold; and c. Charges, costs, including assaying and sampling costs specifically related to smelting and/or refining, and all penalties, if any, for smelting and/or refining. In the event smelting or refining are carried out in facilities owned or controlled in whole or in part, by McDonald, charges, costs and penalties for such operations shall mean the amount McDonald would have incurred if such operations were carried out at facilities not owned or controlled by McDonald then offering comparable services for comparable products on prevailing terms. Payment of production royalties shall be made not later than thirty (30) days after receipt of payment from the smelter. All payments shall be accompanied by a statement explaining the manner in which the payment was calculated. 1.5 Transfer of Title. Following execution of this Agreement, McDonald ----------------- shall undertake all steps necessary to maintain the concession to the Property in good standing, including payment in full of all sums required by the government of Honduras. At such time as McDonald begins production of valuable minerals from the Property, McDonald shall give written notice to Minera Ocote requesting transfer of the concession and other property interests. Minera Ocote shall then assign the concession and related property interests to McDonald by suitable instruments, subject to any approvals required by the government of Honduras. 4 1.6 Delivery of Data. Upon execution of this Agreement, Minera Ocote ---------------- shall deliver to McDonald copies of all maps, deeds, and other documents in its possession which pertain to the concession, prior workings, production history, and so forth. SECTION TWO Mining Operations ----------------- 2.1 Rights to Explore, Develop and Mine. Upon execution of this ----------------------------------- Agreement, McDonald shall have the right to make geological investigations and surveys, to drill on the Property by any means, and to have all the rights and privileges incident to ownership and possession of the Property, including without limitation the right to mine underground or on the surface, extract by leaching in place or any other means, remove, save, mill, concentrate, treat, and sell or otherwise dispose of ores, concentrates, mineral-bearing earth and rock and other products therefrom. 2.2 Conduct of Work. McDonald shall perform his mining activities on the --------------- Property in accordance with good mining practice, and shall comply with the applicable laws and regulations relating to the performance of mining operations on the Property. 2.3 Liability and Insurance. During the term of the Agreement, McDonald ----------------------- shall indemnify and hold Minera Ocote harmless from any claims, demands, liabilities or liens arising out of McDonald's activities on the Property. To that end, McDonald shall immediately obtain and carry a policy of public liability insurance in the amount of $500,000.00 ($1,000,000.00 for mining) or more for personal injury and $100,000.00 for property damage, protecting Minera Ocote against any claims for injury to persons or damage to property resulting from McDonald's operations. The insurance policy shall name Minera Ocote as a co-insured. 5 2.4 Liens. McDonald shall keep the Property free and clear from any and ----- all mechanics' or laborers' liens arising from labor performed on or material furnished to the Property at McDonald's request. However, a lien on the Property shall not constitute a default if McDonald, in good faith, disputes the validity of the claim, in which event the existence of the lien shall constitute a default thirty (30) days after the validity of the lien has been adjudicated adversely to McDonald. 2.5 Installation of Equipment. McDonald may install, maintain, replace, ------------------------- and remove during the term of this Agreement any and all mining machinery, equipment, tools, and facilities which it may desire to use in connection with its mining activities on the Property. Upon termination of this Agreement for any reason, McDonald shall have a period of one hundred eighty (180) days following such termination during which it may remove all or part of the above items at its sole cost and expense. Any equipment remaining on the Property after one hundred eighty (180) days shall become the property of Minera Ocote. 2.6 Acquisition of Permits. McDonald shall acquire all permits required ---------------------- for its operations by the government of Honduras. Following termination of this Agreement, McDonald shall reclaim and restore the Property in accordance with Honduran laws and regulations. 2.7 Drill Logs, Assays, and Maps. Copies of all drill logs, exploration ---------------------------- information, assays, maps metallurgical studies, and other information shall be furnished by McDonald to Minera Ocote annually and upon the expiration or termination of this Agreement. 6 SECTION THREE Inspection by Minera Ocote -------------------------- 3.1 Inspection of Property. Minera Ocote, or its authorized agents or ---------------------- representatives, shall be permitted to enter upon the Property with one day's advance notice for the purpose of inspection, but shall enter upon the Property at its own risk and so as not to hinder unreasonably the operations of McDonald. Minera Ocote shall indemnify and hold McDonald harmless from any damage, claim, or demand by reason of injury to Minera Ocote or its agents or representatives on the Property or the approaches thereto. 3.2 Inspection of Accounts. McDonald agrees to keep accurate books of ---------------------- account reflecting the mining operations, and Minera Ocote shall have the right, either personally or through a qualified accountant of its choice and at its cost, and upon seven days' advance notice, to examine and inspect the books and records of McDonald pertaining to the mining, milling and shipping operations of McDonald. SECTION FOUR Taxes ----- McDonald shall pay all taxes levied or assessed upon any improvements placed on the Property by McDonald. Upon termination of this Agreement for any reason, taxes shall be apportioned between the parties on a calendar year basis for the remaining portion of the calendar year. However, Minera Ocote shall not be liable for taxes on any tools, equipment, machinery, facilities, or improvements placed upon the Property unless McDonald fails to remove them within the time provided by this Agreement. 7 SECTION FIVE Termination and Default ----------------------- 5.1 Termination. McDonald shall have the right to terminate this ----------- Agreement at its sole discretion at any time upon thirty (30) days' written notice to Minera Ocote. Upon termination, Minera Ocote shall retain all payments previously made as liquidated damages and this Agreement shall cease and terminate. McDonald will provide Minera Ocote with all data, maps, assays, and reports pertaining to the Property. McDonald will also deliver a Quitclaim Deed to Minera Ocote. In the event of termination, McDonald shall surrender possession of the Property to Minera Ocote and shall have no further liability or obligation under this Agreement except for its obligation (1) to pay its apportioned share of taxes, as provided for in Section Four; (2) to pay any monies or production royalties then owned to Minera Ocote; (3) to pay the cost of removal of all equipment as stated in Section 2.4; (4) to fulfill its reclamation responsibilities as stated in Section 2.5; (5) to deliver final reports and data; and (6) to satisfy any accrued obligations or liabilities. 5.2 Default. If McDonald fails to perform its obligation under this ------- Agreement, and in particular fails to make any payment due to Minera Ocote hereunder, Minera Ocote may declare McDonald in default by giving McDonald written notice of default which specifies the obligation(s) which McDonald has failed to perform. If McDonald fails to remedy a default in payment within fifteen days (15) of receiving the notice of default, and to remedy or commence to remedy any other default within thirty (30) days of receiving the notice of default, Minera Ocote may terminate this Agreement 8 and McDonald shall peaceably surrender possession of the Property to Minera Ocote. Notice of termination shall be in writing and served in accordance with this Agreement. SECTION SIX Notices and Payments -------------------- 6.1 Notices. All notices to McDonald or Minera Ocote shall be in writing ------- and shall be sent certified or registered mail, return receipt requested, to the addresses below. Notice of any change in address shall be given in the same manner. TO MINERA OCOTE: Mr. Bruce Wallis Compania Minera Ocote 225 Baronne Street, Suite 1418 New Orleans, Louisiana 70112 Telephone: (504) 525-1152 Telecopier: (504) 525-1153 TO MCDONALD: Mr. Kerry McDonald 6821 North Montezuma Drive Tuscon, Arizona 85718 Telephone: (602) 529-3329 Telecopier: (602) 529-6698 6.2 Payments. All payments shall be in U.S. Currency payable to Minera -------- Ocote at the address above, or to such other address as Minera Ocote may designate. SECTION SEVEN Assignment ---------- McDonald may assign this Agreement to any responsible party with the prior written consent of Minera Ocote, which shall not be unreasonably withheld. 9 SECTION EIGHT Warranty of Title ----------------- Minera Ocote warrants that the concession to the Property is in good standing; that Minera Ocote has not created any liens, encumbrances, or first rights of refusal affecting the property; and that Minera Ocote is a Honduran corporation in good standing with the authority to enter into this Agreement. SECTION NINE Force Majeure ------------- 9.1 Suspension of Obligations. If McDonald is prevented by Force Majeure ------------------------- from timely performance of any of its obligations hereunder, except the payment of money, the failure of performance shall be excused and the period for performance shall be extended for an additional period equal to the duration of Force Majeure. Upon the occurrence and upon the termination of Force Majeure, McDonald shall promptly notify Minera Ocote in writing. McDonald shall use reasonable diligence to remedy Force Majeure, but shall not be required to contest the validity of any law or regulation or any action or inaction of civil or military authority. 9.2 Definition of Force Majeure. "Force Majeure" means cause beyond a --------------------------- party's reasonable control, including but not limited to law or regulation; action or inaction of civil or military authority; inability to obtain any license, permit, or other authorization that may be required to conduct operations on or in connection with the Property; unusually severe weather; mining casualty; unavoidable mill shutdown; damage to or destruction of mine plant or facility; fire; explosion; flood; insurrection; riot; labor 10 disputes; inability after diligent effort to obtain workmen or material; delay in transportation; and acts of God (but except any obligation to pay money). 9.3 Economic Force Majeure. During the extended term of this Agreement, ---------------------- McDonald shall have the right to suspend operations and hold the Property during periods of Economic Force Majeure. "Economic Force Majeure" shall mean periods during which the price of gold or other mineral commodities is too low to allow economic recovery and sale of ore from the Property. However, McDonald shall continue to pay advance royalties during conditions of Economic Force Majeure. SECTION TEN Miscellaneous Provisions ------------------------ 10.1 Binding Effect. This Agreement shall inure to the benefit of and be --------------- binding upon the parties hereto, their respective heirs, executors, administrators, successors, and assigns. 10.2 Applicable Law. This Agreement shall initially be governed by the -------------- laws of the State of Arizona. Following assignment of the concession to McDonald, and once this Agreement has been translated into Spanish and duly registered with the appropriate authorities, the Agreement shall be governed by the laws of Honduras. 10.3 Entire Agreement. This Agreement terminates and replaces all prior ---------------- agreements, either written, oral or implied, between the parties hereto, and constitutes the entire agreement between the parties. 10.4 Void or Invalid Provisions. If any term, provision, covenant or -------------------------- condition of this Agreement, or any application thereof, should be held by a court of competent jurisdiction to be invalid, void or unenforceable, all provisions, covenants and 11 conditions of this Agreement, and all applications thereof not held invalid, void or unenforceable, shall continue in full force and effect and shall in no way be affected, impaired, or invalidated thereby. 10.5 Time of the Essence. Time is of the essence of this Agreement and ------------------- each and every part thereof. 10.6 Area of Interest. Any property interests acquired by either ---------------- party within two (2) kilometers of the exterior boundaries of the Property shall be subject to this Agreement. IN WITNESS WHEREOF, the parties hereto have executed this Agreement on the day and year first written above. COMPANIA MINERA OCOTE A. de R. L., a Honduran company By: /s/ R. Bruce Wallis ------------------- R. BRUCE WALLIS President /s/ Kerry McDonald ------------------ KERRY A. MCDONALD STATE OF LOUISIANA ) ) ss. PARISH OF ORLEANS ) On this 24/th/ day of June in the year 1994, before me, a Notary Public ----- ---- in and for said state, personally appeared R. BRUCE WALLIS, who is President of COMPANIA MINERA OCOTE, S. de R. L., a Honduran company, personally known (or proved) to me to be the person who executed the above instrument, and acknowledged to me that he executed the same for purposes stated therein. /s/ Phillip K. Riegel --------------------- Notary Public 12 STATE OF ARIZONA ) ) ss. COUNTY OF Pima ) On this 24/th/ day of June in the year 1994, before me, a Notary Public ----- ---- in and for said state, personally appeared KERRY A. McDONALD, personally known (or proved) to me to be the person who executed the above instrument, and acknowledged to me that he executed the same for purposes stated therein. /s/ Pamela Dewey ---------------- Notary Public 13 EXHIBIT A EL OCOTE NO. 1 EXPLOITATION CONCESSION -------------------------------------- Location: Municipality of La Labor, Department of Ocotepeque, Honduras Surface Area: (+)(-)339.13 Hectares Description: Starting from the northwest corner of the dam located on Los Jutes creek, go North 11.00 East for a distance of 740 meters and arrive at point No.1; from this point go due south for a distance of 2,000 meters and arrive at point No.2; from this point go due West for a distance of 2,000 meters and arrive at point No.3; from this point go due North for a distance of 2,000 meters and arrive at point No.4; from this point go due East for a distance of 1,998.32 meters and arrive at point No.1, thus closing the perimeter. 14 [MAP THIS PAGE] 15 EX-10.23 22 ASSMNT. AND ASSUMPTION AGMNT. DATED 9/27/97 EXHIBIT 10.23 ASSIGNMENT AND ASSUMPTION AGREEMENT ASSIGNMENT AND ASSUMPTION AGREEMENT, dated as of September 27, 1994, by and between Kerry A. McDonald (the "Assignor") and Cordilleras Silver Mines Ltd., a Bahamian corporation (the "Assignee"). W I T N E S S E T H: WHEREAS, pursuant to the provisions of the Cordilleras Shareholders Agreement, dated as of July 20, 1994, by and between the Assignor, the Assignee, and Thomas S. Kaplan, the Assignor (i) desires to assign, transfer, convey and deliver to the Assignee, all of the rights, licenses, title and interest in and to the mining exploitation concession named "El Ocote #1" (the "El Ocote Assets"), which the Assignor acquired under a mining agreement between the Assignor and Compania Minera El Ocote, E. de R.L., dated June 24, 1994 (the "El Ocote Agreement"), and (ii) desires to be released from any and all further obligations under the El Ocote Agreement; and WHEREAS, the Assignee (i) seeks to acquire and accept all of the Assignor's right, license, title and interest in and to the El Ocote Assets, and (ii) seeks to assume the Assignor's obligations under the El Ocote Agreement; NOW, THEREFORE, in consideration of the premises and other good and valuable consideration had and received, the sufficiency of which is hereby acknowledged, the parties hereby agree as follows: 1. The Assignor hereby assigns, transfers, conveys and delivers all of his right, title and interest in and to the El Ocote Assets to the Assignee. 2. The Assignor hereby convenants and agrees for himself and his legal representatives that he or they, as the case may be, shall execute and deliver such further or other documents, deeds, or other instruments as shall be necessary to give effect to the terms and intent expressed herein without further or other consideration, but at the expense of the Assignee, its successors and assigns. 3. The Assignee hereby assumes, and agrees to pay, perform and discharge as and when they become due, the Assignor's obligations under the El Ocote Agreement. 4. This Assignment and Assumption Agreement is in accordance with and is subject to all of the representations, warranties, covenants, exclusions and indemnities set forth in the El Ocote Agreement, all of which are incorporated herein by reference. 5. This Assignment and Assumption Agreement shall be of no force or effect unless signed, in original or in counterpart copies, by each of the Assignor and the Assignee. 6. This Assignment and Assumption Agreement shall be binding on and inure to the benefit of the Assignor and the Assignee and their respective successors and assigns. 7. This Assignment and Assumption Agreement shall be governed by and construed in accordance with the internal substantive laws of the State of New York without giving effect to conflict of laws principles thereof. IN WITNESS WHEREOF, the parties hereto have caused this Assignment and Assumption Agreement to the duly executed as of the date and year first above written. KERRY A. MCDONALD /s/ Kerry A. McDonald -------------------------------- CORDILLERAS SILVER MINES LTD. By: /s/ David Sean Hanna ----------------------------- Name: D.S. Hanna Title: Director 2 EX-10.24 23 ACKNOWLEDGMENT FROM BRUCE WALLIS Exhibit 10.24 Cordilleras Silver Mines (Cayman)LDC July 10, 1995 Mr. R. Bruce Wallis President Compania Minera Ocote 5, de R.I. 225 Baronne Street, Suite 1418 New Orleans, Louisiana 70112 Dear Bruce: This is to confirm our conversation today in which the following representations were made. 1. Compania Minera Ocote warrants that it has not created any debts, liens, encumbrances, first rights of refusal or other agreements affecting the rights to the El Ocote property other than that which was signed by Kerry A. McDonald (on 24 June 1994) and which has been assigned, with your consent, to Cordilleras Silver Mines (Cayman) LDC ("Cordilleras"). 2. Compania Minera Ocote warrants that, during the life of its agreement with Cordilleras, Compania Minera Ocote will not create any debts, liens or encumbrances on the El Ocote property nor will it enter into any agreement with third parties which in any way could affect those rights conferred on Cordilleras. 3. Compania Minera Ocote warrants that, should Cordilleras begin production of valuable minerals from the El Ocote property and request transfer of the concession and related property interests to itself, the concession to the El Ocote property will be transferred to Cordilleras free of any debts, liens, or encumbrances. Most Sincerely, /s/ Thomas S. Kaplan - -------------------- Thomas S. Kaplan Acknowledged and Agreed: Director /s/ R. Bruce Wallis ------------------- R. Bruce Wallis President Compania Minera Ocote S. de R.I. EX-10.25 24 AGMNT. BETWEEN ANDEAN SILVER AND 190 CO-OWNERS Attached hereto is an English translation of the original Spanish version of contracts dated January 12, 1995 between Andean Silver Corporation LDC and 190 of the co-owners of the assets which previously belonged to Empresa Minera San Juan de Lucanas, S.A. The Company employed translators to translate the above referenced agreement and based on this the undersigned believes that the attached is a fair and accurate English translation of the above reference agreement. /s/ Keith R. Hulley ------------------------ Keith R. Hulley Director Apex Silver Mines Limited Date: August 28, 1997 Exhibit 10.25 Mr. Notary Please draw up in your registry of public deeds one of transfer of mining goods, being celebrated on the one part by Andean Silver Corporation, a foreign- constituted and domiciled company having domicile for the purposes of this contract at Las Camelias 755-301, Lima 27, Peru, who shall henceforth be called the Buyer, represented by its agent Ing. Felipe De Lucio Pezet; and on the other part by the co-owners of the assets which belonged to the Empresa Minera San Juan de Lucanas, S.A., a list of whom is detailed in Annex IA, with domicile at Av. Chiclayo 779-201, Lima 18, Peru, and who shall henceforth be called the Titleholders, who act now represented by powers inscribed in Public Deed, by Messrs. Juan de Dios Mejia Sulca, Roberto Romulo Salcedo Vargas, Aparicio Silva Oropesa, Edwin Marcial Silva Velarde, Carlos Sucantaype Barba and Victo Velarde Moran, under the following terms and conditions: First The ex-workers of San Juan de Lucanas, S.A. described in Annex IB, among - ----- whom are included the Titleholders, are co-owners of the entirety of the assets which belonged to the Empresa Minera San Juan de Lucanas, S.A., and thus, are co-owners of the San Juan de Lucanas mining complex, comprised of the mining rights, milling plant, hydroelectric plants, workshops, camp, equipment, machinery and other goods of mining activity integrated in the "Unidad Economica Administrativa Dorita", located in the District of San Juan, Province of Lucanas, Department of Ayacucho, Peru, as well as other assets, all of which are described in Annex II. This mining complex belonged to its former owner, the Empresa Minera San Juan de Lucanas, S.A., which has been sued by the Titleholders in a judicial proceeding of Judgement of Executive Resolution before the First Labor Court of Lima, Clerk Dr. Otto Heimann. In said proceeding the Empresa Minera San Juan de Lucanas, S.A. has suffered the embargo of its goods and in the file there is the private contract celebrated between the parties to said litigation, dated June 16, 1993, approved by the Court which knows cause via resolution of June 23, 1993, by way of which the assets of the company have been delivered in property to the workers in payment of their social benefits. Equally resolved and filed is the appraiser's report valuing the mining complex, there being lacking only the verdict to dispose the formalization of the transfer of title to said goods. Second By way of the present Contract of Transfer, the Titleholders sell and - ------ the Buyer buys, the mining rights and other goods of Annex II, as well all of the rights and easements inherent in same, in the following terms and under the suspensive conditions and periods signalled below. It is agreed that in the event that the transfer of property of the assets of Empresa Minera San Juan de Lucanas S.A. to its ex-workers, for any reason, remains null or is questioned or not approved by the Labor Court - and, as a consequence, the property reverts to the aforementioned Empresa - the dispositions of the Civil Code referring to these types of sales shall apply. Third The total price to be paid for the transfer of the total of the mining - ----- rights and goods of Annex II is US$2,100,000.00, which will be paid according to the following schedule: a) On signature of the Public Deed brought about by this document, which shall be no sooner than 120 calendar days from signature of this document, the Buyer will pay the amount of US$50,000.00; b) At the end of the first month from the signature of Public Deed US$50,000.00 will be paid; c) At the end of the second month from the signature of Public Deed US$50,000.00 will be paid; d) At the end of the third month from the signature of Public Deed US$100,000.00 will be paid; e) At the end of the fourth month from the signature of Public Deed US$150,000.00 will be paid; f) At the end of the fifth month from the signature of Public Deed US$150,000.00 will be paid; g) At the end of the sixth month from the signature of Public Deed US$150,000.00 will be paid; h) At the end of the seventh month from the signature of Public Deed US$150,000.00 will be paid; i) At the end of the eighth month from the signature of Public Deed US$150,000.00 will be paid; j) At the end of the ninth month from the signature of Public Deed US$150,000.00 will be paid; k) At the end of the tenth month from the signature of Public Deed US$150,000.00 will be paid; l) At the end of the eleventh month from the signature of Public Deed US$150,000.00 will be paid; m) At the end of the twelfth month from the signature of Public Deed US$200,000.00 will be paid; n) At the end of the thirteenth month from the signature of Public Deed US$200,000.00 will be paid; n) At the end of the fourteenth month from the signature of Public Deed US$250,000.00 will be paid. 2 All of the payments will begin to be counted from the signature of the Public Deed of Transfer originated by this contract and understood as calendar months such that the payments coincide on the same day of each month. The Titleholders declare their agreement that this price is the sole and total [one] for 100% of the rights on the entirety of the assets material to this contract, by which [they agree] there will remain a balance of the price for alicuots which belong to workers included in Annex IB who do not transfer their participation via the present document. The lack of compliance with the schedule of payments will give rise to the measures contemplated in the Civil Code. Fourth The schedule of payments detailed in the foregoing clause are subject to - ------ the suspensive condition of formalization of the transfer of title material to the present contract, which will have occurred when in the Public Mining Registry either the ex-workers of San Juan de Lucanas or the legal or conventional company constituted by them appear as owners of the mining rights and accessories contained in Annex II. Fifth If after 120 days have transpired from the date of signature of the - ----- present contract the workers have not complied with the formalization of the transfer of assets to their name up to and including inscription in the Public Mining Registry, that is, if they have not complied with the suspensive condition during this period, the Buyer will have the right to annul the contract of transfer, by which he will be automatically exempt from compliance with the obligations he will have assumed in the present contract. This right may be exercised by the Buyer by way of written communication remitted to the domicile signalled by the Titleholders in the introduction to this contract, which may be done at any time once the period for compliance with the suspensive condition has expired. In the event that the Buyer chooses to not annul the contract for this non-compliance and the obligation of the Titleholders to proceed with inscription is in force, all of the payments and other obligations of the Buyer will remain in suspense until the complete formalization of the transfer of assets to the Titleholders. Sixth While the suspensive condition has not been met, the rights of the Buyer - ----- will be in force, [so that] he may act as owner of the assets. Consequently, the Buyer may study the mine, its installations and equipments, as well as review the technical, accounting and legal archives. Nonetheless, the Titleholders will have the right of usufruct of the mining complex for 120 days counted from the signature of this document, including the mining rights, the milling plant and other goods of mining activity material to this contract. This period may be amplified by the Buyer. Seventh Notwithstanding the expiration of the period for compliance with the - ------- agreed suspensive condition, the obligations assumed by the Titleholders in the prevent contract will remain in force, and they will be obliged to transfer to the Buyer all of the assets contained in Annex II once they obtain title to same, unless the Buyer will have exercised his right to annul the contract. Eighth In view of the fact that on inscription in the Public Mining Registry of - ------ the contract of transfer described in the first clause, there will be more than one holder of title to the mining 3 rights included in Annex II and the registrar must, by legal mandate, automatically constitute a Limited Mining Partnership, unless the ex-workers decide to constitute a conventional corporation, it could be that the owner of the goods specified in Annex II will not be the titleholders, but rather a legal or conventionel corporation in which the Titleholders and other ex-workers are shareholders or participationists [sic]. Therefore, should this be the case, automatically and without any additional economic burden or obligation for the Buyer, he may opt that the transfer material to this contract will not be made on alicuots of assets but rather on participations or shares of the corporate titleholder. For the exercise of the alternative given to the Buyer to change the object of the transfer, it will be enough to remit a written communication to the domicile of the Titleholders signalled in the introduction to this contract, and will not require any other additional document nor celebration of a new contract. Ninth During the life of the present commitment, the Titleholders commit - ----- themselves to not alienate, pledge, mortgage, cede, give in concession, lease nor affect in any way, any of the goods material to this contract without the written consent of the Buyer, as well as to do all possible [to ensure] that third parties or previous owners do not celebrate any of the acts detailed in this clause or any contract that would limit, restrict or prejudice their right of ownership of the assets material to this contract, with the sole exception of the formalization of the agreement of transfer to the Titleholders. Likewise, the Titleholders oblige themselves to not sign any document of option of transfer, nor letters of intent, nor any offer of any kind, on the goods material to this contract or on the participations or shares of the legal or conventional corporation which may be constituted [and] which may be holder of title to such assets. Tenth The Titleholders declare that the assets material to the present contract - ----- are found with title in order, that they have complied with all of the substantive and formal obligations required by mining and commercial law, and that there is no cause of extinction on them. They also declare that on these [assets] there does not weigh any charge, tariff, judicial or extra-judicial measure which could restrict or put at risk the rights of the owner. The only judicial measure pending as of today is the embargo placed by the same workers before the First Labor Court in the file mentioned in the first clause, which the Titleholders commit themselves to lifting since the labor credit has been satisfied with the adjudication of the assets of their ex-employer. Eleventh On signing the public deed given rise to by this document, and - -------- beginning to make the payments assumed by the Buyer, each of the payments will be channeled through a Bank chosen and contracted by the Buyer, which will act as Trust Bank. The Buyer will make the deposits in the Trust Bank in the amounts and times agreed in the third clause and will distribute them among the Titleholders shown in Annex IA in accordance with the share which each has in the title of the assets or the participations or shares in the legal or conventional corporation which may be constituted, share which is clearly expressed in Annex IB. Nonetheless, in the event that the assets material to this contract are contributed to a legal or conventional corporation, by virtue of that described in the eighth clause, and the Buyer opts for the purchase of shares and participations and not for alicuots of assets, the Trust Bank will make the payments corresponding to such a corporate owner of said assets, if and when the mentioned corporation ratifies via its relevant organs the transfer witnessed in the present 4 document. Should it be the case that it is a conventional corporation in which not all of the ex-workers included in Annex IB participate, the payments which correspond to this corporation will only reach the amount which corresponds to the partners or shareholders. It remains understood that the ratification mentioned in the foregoing paragraph is only for effect of charging the price and giving assurances to the Trust Bank, and its non-observance or non-application in no way will affect the transfer to the Buyer. The deposit in the Trust Bank will be considered as payment of the valid price and shall be sufficient proof of compliance with the obligation assumed by the Buyer in the third clause. The distribution of the funds deposited by the Buyer shall be the exclusive province of the ex-workers of San Juan de Lucanas and any conflict generated by the distribution of the agreed price or by the charging of the price shall be resolved internally among them. Twelfth Without prejudice to the right contained in the fifth clause, the Buyer - ------- may annul the present contract at any time and without need for expression of cause, for which it will be enough to remit a written communication to the domicile signalled by the Titleholders in the introduction to this contract. Should the Buyer choose to annul the present contract, be it by virtue of this clause or by the right conferred on him in the fifth clause, he will have no monetary obligation before the Titleholders nor before third parties, nor shall any investment commitments which may have been agreed remain in force, nor shall he have any responsibility for exploration and similar works which may have been made. On annulment of the contract by the Buyer, the payments which may have already been made in accordance with the schedule of payments contained in the third clause shall remain in the hands of the Titleholders, and future payments shall be automatically voided along with annulment of the contract, remaining no obligation whatsoever between the Buyer and the Titleholders. It is understood that on annulment of the contract of transfer the title to the assets material to this contract will revert to the Titleholders. Thirteenth As a guaranty of payment of the pending payments being charged, - ---------- amounting to US$2,050,000.00, the Buyer constitutes in favor of all of the sellers listed in Annex IA, a mortgage on the mining rights detailed in Annex II, which shall be reduced as the agreed monthly payments are complied with. Fourteenth Any conflict which may arise in relation to the transfer of the - ---------- assets or of the shares or participations, be it in relation to issues or discrepancies relative to its celebration or execution, shall be submitted to legal arbitration, which shall unfold in the city of Lima in conformity with the rules and procedures of the Chamber of Commerce of Lima. Incorporate, Sir, the legal introduction and conclusion, as well as the annexes and other inserts which may be necessary, and proceed to dispatch the corresponding parts to the Public Mining Registry. Lima, January 12, 1995 5 EX-10.26 25 AGMNT. BETWEEN ANDEAN SILVER AND 133 CO-OWNERS Attached hereto is an English translation of the original Spanish version of contracts dated January 12, 1995 between Andean Silver Corporation LDC and 133 of the co-owners of the assets which previously belonged to Empresa Minera San Juan de Lucanas, S.A. The Company employed translators to translate the above referenced agreement and based on this the undersigned believes that the attached is a fair and accurate English translation of the above reference agreement. /s/ Keith R. Hulley - ------------------------ Keith R. Hulley Director Apex Silver Mines Limited Date: August 28, 1997 Exhibit 10.26 Mr. Notary Please draw up in your registry of public deeds one of transfer of mining goods, being celebrated on the one part by Andean Silver Corporation, a foreign- constituted and domiciled company having domicile for the purposes of this contract at Las Camelias 755-301, Lima 27, Peru, who shall henceforth be called the Buyer, represented by its agent Ing. Felipe De Lucio Pezet; and on the other part by the co-owners of the assets which belonged to the Empresa Minera San Juan de Lucanas, S.A., a list of whom is detailed in Annex IA, with domicile at Av. Chiclayo 779-201, Lima 18, Peru, and who shall henceforth be called the Titleholders, who act now represented by powers inscribed in Public Deed, by Messrs. Juan de Dios Mejia Sulca, Roberto Romulo Salcedo Vargas, Aparicio Silva Oropesa, Edwin Marcial Silva Velarde, Carlos Sucantaype Barba and Victo Velarde Moran, under the following terms and conditions: First The ex-workers of San Juan de Lucanas, S.A. described in Annex IB, among - ----- whom are included the Titleholders, are co-owners of the entirety of the assets which belonged to the Empresa Minera San Juan de Lucanas, S.A., and thus, are co-owners of the San Juan de Lucanas mining complex, comprised of the mining rights, milling plant, hydroelectric plants, workshops, camp, equipment, machinery and other goods of mining activity integrated in the "Unidad Economica Administrativa Dorita", located in the District of San Juan, Province of Lucanas, Department of Ayacucho, Peru, as well as other assets, all of which are described in Annex II. This mining complex belonged to its former owner, the Empresa Minera San Juan de Lucanas, S.A., which has been sued by the Titleholders in a judicial proceeding of Judgement of Executive Resolution before the First Labor Court of Lima, Clerk Dr. Otto Heimann. In said proceeding the Empresa Minera San Juan de Lucanas, S.A. has suffered the embargo of its goods and in the file there is the private contract celebrated between the parties to said litigation, dated June 16, 1993, approved by the Court which knows cause via resolution of June 23, 1993, by way of which the assets of the company have been delivered in property to the workers in payment of their social benefits. Equally resolved and filed is the appraiser's report valuing the mining complex, there being lacking only the verdict to dispose the formalization of the transfer of title to said goods. Second By way of the present Contract of Transfer, the Titleholders sell and - ------ the Buyer buys, the mining rights and other goods of Annex II, as well all of the rights and easements inherent in same, in the following terms and under the suspensive conditions and periods signalled below. It is agreed that in the event that the transfer of property of the assets of Empresa Minera San Juan de Lucanas S.A. to its ex-workers, for any reason, remains null or is questioned or not approved by the Labor Court - and, as a consequence, the property reverts to the aforementioned Empresa - the dispositions of the Civil Code referring to these types of sales shall apply. Third The total price to be paid for the transfer of the total of the mining - ----- rights and goods of Annex II is US$2,100,000.00, which will be paid according to the following schedule: a) On signature of the Public Deed brought about by this document, which shall be no sooner than 120 calendar days from signature of this document, the Buyer will pay the amount of US$50,000.00; b) At the end of the first month from the signature of Public Deed US$50,000.00 will be paid; c) At the end of the second month from the signature of Public Deed US$50,000.00 will be paid; d) At the end of the third month from the signature of Public Deed US$100,000.00 will be paid; e) At the end of the fourth month from the signature of Public Deed US$150,000.00 will be paid; f) At the end of the fifth month from the signature of Public Deed US$150,000.00 will be paid; g) At the end of the sixth month from the signature of Public Deed US$150,000.00 will be paid; h) At the end of the seventh month from the signature of Public Deed US$150,000.00 will be paid; i) At the end of the eighth month from the signature of Public Deed US$150,000.00 will be paid; j) At the end of the ninth month from the signature of Public Deed US$150,000.00 will be paid; k) At the end of the tenth month from the signature of Public Deed US$150,000.00 will be paid; l) At the end of the eleventh month from the signature of Public Deed US$150,000.00 will be paid; m) At the end of the twelfth month from the signature of Public Deed US$200,000.00 will be paid; n) At the end of the thirteenth month from the signature of Public Deed US$200,000.00 will be paid; n) At the end of the fourteenth month from the signature of Public Deed US$250,000.00 will be paid. 2 All of the payments will begin to be counted from the signature of the Public Deed of Transfer originated by this contract and understood as calendar months such that the payments coincide on the same day of each month. The Titleholders declare their agreement that this price is the sole and total [one] for 100% of the rights on the entirety of the assets material to this contract, by which [they agree] there will remain a balance of the price for alicuots which belong to workers included in Annex IB who do not transfer their participation via the present document. The lack of compliance with the schedule of payments will give rise to the measures contemplated in the Civil Code. Fourth The schedule of payments detailed in the foregoing clause are subject to - ------ the suspensive condition of formalization of the transfer of title material to the present contract, which will have occurred when in the Public Mining Registry either the ex-workers of San Juan de Lucanas or the legal or conventional company constituted by them appear as owners of the mining rights and accessories contained in Annex II. Fifth If after 120 days have transpired from the date of signature of the - ----- present contract the workers have not complied with the formalization of the transfer of assets to their name up to and including inscription in the Public Mining Registry, that is, if they have not complied with the suspensive condition during this period, the Buyer will have the right to annul the contract of transfer, by which he will be automatically exempt from compliance with the obligations he will have assumed in the present contract. This right may be exercised by the Buyer by way of written communication remitted to the domicile signalled by the Titleholders in the introduction to this contract, which may be done at any time once the period for compliance with the suspensive condition has expired. In the event that the Buyer chooses to not annul the contract for this non-compliance and the obligation of the Titleholders to proceed with inscription is in force, all of the payments and other obligations of the Buyer will remain in suspense until the complete formalization of the transfer of assets to the Titleholders. Sixth While the suspensive condition has not been met, the rights of the Buyer - ----- will be in force, [so that] he may act as owner of the assets. Consequently, the Buyer may study the mine, its installations and equipments, as well as review the technical, accounting and legal archives. Nonetheless, the Titleholders will have the right of usufruct of the mining complex for 120 days counted from the signature of this document, including the mining rights, the milling plant and other goods of mining activity material to this contract. This period may be amplified by the Buyer. Seventh Notwithstanding the expiration of the period for compliance with the - ------- agreed suspensive condition, the obligations assumed by the Titleholders in the prevent contract will remain in force, and they will be obliged to transfer to the Buyer all of the assets contained in Annex II once they obtain title to same, unless the Buyer will have exercised his right to annul the contract. Eighth In view of the fact that on inscription in the Public Mining Registry of - ------ the contract of transfer described in the first clause, there will be more than one holder of title to the mining 3 rights included in Annex II and the registrar must, by legal mandate, automatically constitute a Limited Mining Partnership, unless the ex-workers decide to constitute a conventional corporation, it could be that the owner of the goods specified in Annex II will not be the titleholders, but rather a legal or conventionel corporation in which the Titleholders and other ex-workers are shareholders or participationists [sic]. Therefore, should this be the case, automatically and without any additional economic burden or obligation for the Buyer, he may opt that the transfer material to this contract will not be made on alicuots of assets but rather on participations or shares of the corporate titleholder. For the exercise of the alternative given to the Buyer to change the object of the transfer, it will be enough to remit a written communication to the domicile of the Titleholders signalled in the introduction to this contract, and will not require any other additional document nor celebration of a new contract. Ninth During the life of the present commitment, the Titleholders commit - ----- themselves to not alienate, pledge, mortgage, cede, give in concession, lease nor affect in any way, any of the goods material to this contract without the written consent of the Buyer, as well as to do all possible [to ensure] that third parties or previous owners do not celebrate any of the acts detailed in this clause or any contract that would limit, restrict or prejudice their right of ownership of the assets material to this contract, with the sole exception of the formalization of the agreement of transfer to the Titleholders. Likewise, the Titleholders oblige themselves to not sign any document of option of transfer, nor letters of intent, nor any offer of any kind, on the goods material to this contract or on the participations or shares of the legal or conventional corporation which may be constituted [and] which may be holder of title to such assets. Tenth The Titleholders declare that the assets material to the present contract - ----- are found with title in order, that they have complied with all of the substantive and formal obligations required by mining and commercial law, and that there is no cause of extinction on them. They also declare that on these [assets] there does not weigh any charge, tariff, judicial or extra-judicial measure which could restrict or put at risk the rights of the owner. The only judicial measure pending as of today is the embargo placed by the same workers before the First Labor Court in the file mentioned in the first clause, which the Titleholders commit themselves to lifting since the labor credit has been satisfied with the adjudication of the assets of their ex-employer. Eleventh On signing the public deed given rise to by this document, and - -------- beginning to make the payments assumed by the Buyer, each of the payments will be channeled through a Bank chosen and contracted by the Buyer, which will act as Trust Bank. The Buyer will make the deposits in the Trust Bank in the amounts and times agreed in the third clause and will distribute them among the Titleholders shown in Annex IA in accordance with the share which each has in the title of the assets or the participations or shares in the legal or conventional corporation which may be constituted, share which is clearly expressed in Annex IB. Nonetheless, in the event that the assets material to this contract are contributed to a legal or conventional corporation, by virtue of that described in the eighth clause, and the Buyer opts for the purchase of shares and participations and not for alicuots of assets, the Trust Bank will make the payments corresponding to such a corporate owner of said assets, if and when the mentioned corporation ratifies via its relevant organs the transfer witnessed in the present 4 document. Should it be the case that it is a conventional corporation in which not all of the ex-workers included in Annex IB participate, the payments which correspond to this corporation will only reach the amount which corresponds to the partners or shareholders. It remains understood that the ratification mentioned in the foregoing paragraph is only for effect of charging the price and giving assurances to the Trust Bank, and its non-observance or non-application in no way will affect the transfer to the Buyer. The deposit in the Trust Bank will be considered as payment of the valid price and shall be sufficient proof of compliance with the obligation assumed by the Buyer in the third clause. The distribution of the funds deposited by the Buyer shall be the exclusive province of the ex-workers of San Juan de Lucanas and any conflict generated by the distribution of the agreed price or by the charging of the price shall be resolved internally among them. Twelfth Without prejudice to the right contained in the fifth clause, the Buyer - ------- may annul the present contract at any time and without need for expression of cause, for which it will be enough to remit a written communication to the domicile signalled by the Titleholders in the introduction to this contract. Should the Buyer choose to annul the present contract, be it by virtue of this clause or by the right conferred on him in the fifth clause, he will have no monetary obligation before the Titleholders nor before third parties, nor shall any investment commitments which may have been agreed remain in force, nor shall he have any responsibility for exploration and similar works which may have been made. On annulment of the contract by the Buyer, the payments which may have already been made in accordance with the schedule of payments contained in the third clause shall remain in the hands of the Titleholders, and future payments shall be automatically voided along with annulment of the contract, remaining no obligation whatsoever between the Buyer and the Titleholders. It is understood that on annulment of the contract of transfer the title to the assets material to this contract will revert to the Titleholders. Thirteenth As a guaranty of payment of the pending payments being charged, - ---------- amounting to US$2,050,000.00, the Buyer constitutes in favor of all of the sellers listed in Annex IA, a mortgage on the mining rights detailed in Annex II, which shall be reduced as the agreed monthly payments are complied with. Fourteenth Any conflict which may arise in relation to the transfer of the - ---------- assets or of the shares or participations, be it in relation to issues or discrepancies relative to its celebration or execution, shall be submitted to legal arbitration, which shall unfold in the city of Lima in conformity with the rules and procedures of the Chamber of Commerce of Lima. Incorporate, Sir, the legal introduction and conclusion, as well as the annexes and other inserts which may be necessary, and proceed to dispatch the corresponding parts to the Public Mining Registry. Lima, January 12, 1995 5 EX-10.27 26 FORM OF AGREEMENT BETWEEN 16 INDIVIDUALS EXHIBIT 10.27 MR. NOTARY: Kindly enter in your registry of public deeds one registering the transferring of mining rights and other assets entered into by and between ASC PERU LDC (Sucursal del Peru), with offices at Las Camelias 755-301, Lima 27 Peru, hereinafter referred to as the PURCHASER, acting by and through its attorney in fact, Felipe de Lucio Pezet, Eng., as party of the first park; and, as party of the second part, [Seller], joint owner of the assets which formerly belonged to Empresa Minera San Juan de Lucanas, S.A., identified by Registration Card No. [________], married to [__________], identified by Voter's Registration Card No. [__________], with usual residence at [_________], Peru, hereinafter referred to as the TITLEHOLDER, under the following terms and conditions: ONE. - The TITLEHOLDER was a worker for Empresa Minera San Juan de Lucanas S.A. - --- and is the joint owner of the whole assets which formerly belonged to the said company; therefore, he is the joint owner of the San Juan de Lucanas mining complex, consisting, of the mining rights, beneficiation plant, power stations, workshops, camps, equipment, machinery and other goods related to the mining activity integrated into the "Dorita Economic and Adminis Unit", located in the District of San Juan, Province of Lucanas, Department of Ayacucho, Peru as well as other goods, all of them described in Annex 1 hereto. The above-referred mining complex belonged to its former owner, Empresa Minera San Juan de Lucanas S.A., which, at present, is the defendant in a lawsuit filed by the TITLEHOLDER, before the First Labor Court in and for Lima, with Otto Heimann acting as Clerk, whereby the TITLEHOLDER Requests the Execution of an Administrative Resolution. in the course of such proceedings, an attachment was imposed on the assets of Empresa Minera San Juan de Lucanas S.A. and the docket of the case contains the private agreement which was entered into by the parties thereto on june 16, 1993, whereby the assets of the companies were transferred to the workers as payment for social benefits. Although the perfection of such transfer has not been completed yet, in practice, the TITLEHOLDER has been acting as owner of the assets and at present he declares that he is in condition of offering for sale his aliquot part on the assets which he co-owns and the award of which will be perfected by the judgment approving the private agreement. TWO.- The TITLEHOLDER does hereby sell and the PURCHASER does hereby purchase - --- the mining rights and other assets listed in Annex I, as well as all the rights and other assets listed in Annex i, as well as all the rights and easements inherent thereto, under the following terms and provided the conditions precedent and the terms stipulated hereinafter are fully complied with. It is hereby understood that should the transfer of the assets of Empresa Minera San Juan de Lucanas S.A. to its former workers, for any reason whatsoever, remain without effect or were objected or denied approval by the Labor Court and, consequently, the property would return to the aforesaid Company, the provisions of the Civil Code regarding the sale of property belonging to another shall apply, specifically the stipulations contained in Articles 1537 and 1538 of the said Code. THREE.- The price for the transfer of all the mining rights and assets listed in - ----- annex 1 hereto is US$2,100,000.00 which payment shall be made according to the schedule contained in Annex 11. Payment deadlines shall be counted as from the date of execution of the Public Deed evidencing the Transfer resulting from the preliminary deed dated [______], executed by the PURCHASER and a group of former workers of Empresa Minera San Juan de Jucanas, acting by and through Mr. Cirilo Paredes Tapia, identified by Voter's Registration Card No. [______]. The TITLEHOLDER acknowledges that this is the sole and total price for 100% of the rights over the whole assets transferred hereunder and that there will remain a price balance corresponding to the aliquots of workers who have not transferred their interest in such assets to the said PURCHASER. FOUR.- The schedule of payments appearing in Annex II hereto is subject to the - ---- condition precedent of perfecting the transfer of ownership hereunder, which shall take place when in the records of the Public Register of Mines appears the name of the PURCHASER or the person designated as the owner of the mining rights and the ancillary parts thereof, as listed in Annex 1. FIVE.- The PURCHASER may authorize the TITLEHOLDER in writing, to exploit the - ---- mining rights subject matter hereof in the volumes, terms and areas as may be deemed convenient. SIX.- Until the condition precedent has been performed as regards to payments, - --- the rights of the PURCHASER shall remain in force, and the PURCHASER may act as the owner of the assets. Therefore, the PURCHASER may study the mine, its facilities and equipment and examine its technical, accounting and legal files. SEVEN. - Notwithstanding the expiry of the term for performing the condition - ----- precedent agreed by the parties, the obligations assumed hereunder by the TITLEHOLDER shall remain in force and the TITLEHOLDER shall be bound to transfer to the PURCHASER any and all assets listed in annex 1 as soon as the title to same is obtained, unless the PURCHASER has exercised its right to terminate the agreement. EIGHT.- Since upon registration of the transfer agreement described in Clause - ----- One, above, in the Public Register of Mines, there will be more than one titleholder of the mining rights listed in Annex 1, and pursuant to law, the registrar will be compelled to organize a Limited Liability Mining Company, unless the former workers decide to organize a conventional company, it might happen that the joint owner of the assets listed in Annex I is not the TITLEHOLDER but a registered or conventional company of 2 which the TITLEHOLDER and the other former workers are shareholders or Participants. Therefore, in such case, the PURCHASER may automatically and without this representing any economic charge or additional obligation for it, decide that the transfer hereunder is not understood as referred to aliquot parts of the assets but to interests or shares of the titleholdering company. to exercise this option to trade by barter the assets being transferred to the PURCHASER, a written notice sent to the domicile of the TITLEHOLDER appearing in the introduction hereof shall suffice, without it being necessary to provide any additional document nor to enter into a new agreement. NINE. - As from the date of execution hereof, the TITLEHOLDER will have - ---- transferred his right to the joint ownership of the mining rights and the ancillaries thereof, as well as other assets listed in Annex I for which reason he will neither alienate, pledge, mortgage, assign, convey, lease nor encumber in any manner whatsoever, none of the assets subject matter hereof and shall use its best efforts to prevent Empresa Minera San Juan de Lucanas S.A., which is no longer the titleholder of said assets, to enter into any of the acts listed above or enter into a contract that may limit, restrict or damage the property rights of the PURCHASER over the assets subject matter hereof, with the sole exception of perfecting the transfer agreement in favor of the TITLEHOLDER. Likewise, the TITLEHOLDER undertakes not to sign any option contract, letter of intention, or offer of any nature whatsoever concerning the assets subject matter hereof nor the interest or shares of the registered or conventional company that will eventually be organized with the purpose of becoming the titleholder of such assets. TEN. - Upon execution of the public deed mentioned in Clause Three hereof and as - --- soon as the payments scheduled in Annex II to be made by the PURCHASER become due, each of the said payments shall be channeled through a bank to be designated and contracted by the PURCHASER which shall act as trustee thereof. The PURCHASER shall make the deposits in the trust bank in the amounts and on the dates set forth in Annex II, which sums shall be delivered by the bank to the TITLEHOLDER in each case according to his share in the title to the assets or the interests or shares of the registered or conventional company that may be organized. The share of the TITLEHOLDER in the total price in respect of which distributions shall be made is explained in Annex III hereto. The deposit in the trust bank shall be deemed as payment of the valid price and shall be sufficient evidence of performance of the obligation assumed by the purchaser under Clause Three hereof. The PURCHASER shall not be held liable for any withdrawal of funds from the account(s) to be opened by the trust bank by the TITLEHOLDER, or for any refusal to withdraw funds or any failure to collect same. The PURCHASER shall neither be held responsible for any disputes that may arise as regards to the amounts corresponding to each former worker or any conflicts in relation to the collection or distribution of the price paid since the interest of each former worker is clearly defined in Annex III which has been granted final approval by the titleholders. 3 This instrument is signed by the spouse of the TITLEHOLDER, Gloria Lourdes Florencia Gomez Wagner, identified by Voter's Registration Card No. [_____], to show her agreement to the contents hereof. ELEVEN. - Should any conflict arise in relation to the transfer of assets or of - ------ the shares or interests, both as regards to doubts or discrepancies related to the entering of this agreement or the execution thereof, the issue shall be submitted to arbitration to be held in the City of Lima in compliance with the rules and procedures set forth by the Lima Chamber of Commerce. Kindly add, Mr. Notary, the introduction and conclusion required by law as well as any annexes and other inserts that may be necessary and forward notices thereof to the Public Register of Mines. Lima, [______], 1995 4 ANNEX II SCHEDULE OF PAYMENTS The total price for the transfer of the mining rights and assets listed in Annex I is US$2,100,000.00 which shall be paid as follows: a) US$50,000.00 to be paid by the PURCHASER on the date of signing the Public Deed. b) US$50,000.00 on completion of one month following the date of signing the Publhic Deed. c) US$50,000.00 on completion of two months following the date of signing the Public Deed. d) US$150,000.00 on completion of three months following the date of signing the Public Deed. e) US$150,000.00 on completion of four months following the date of signing the Public Deed. f) US$150,000.00 on completion of five months following the date of signing the Public Deed. g) US$150,000.00 on completion of six months following the date of signing the Public Deed. h) US$150,000.00 on completion of seven months following the date of signing the Public Deed. i) US$150,000.00 on completion of eight months following the date of signing the Public Deed. j) US$150,000.00 on completion of nine months following the date of signing the Public Deed. k) US$150,000.00 on completion of ten months following the date of signing the Public Deed. l) US$150,000.00 on completion of eleven months following the date of signing the Public Deed. m) US$200,000.00 on completion of twelve months following the date of signing the Public Deed. n) US$200,000.00 on completion of thirteen months following the date of signing the Public Deed. o) US$250,000.00 on completion of fourteen months following the date of signing the Public Deed. 5 Payment deadlines shall be counted as from the date of execution of the Public Deed of Transfer arising herefrom and shall be understood to refer to calendar months so that payments shall be made each month on the same day. 6 EX-21 27 LIST OF SUBSIDIARIES EXHIBIT 21
Name Jurisdiction - ---- ------------ 1. Apex Silver Mines LDC Cayman Islands 2. ASM Holdings Limited Cayman Islands 3. Apex Silver Mines Corporation Delaware, USA 4. Apex Partners LDC Cayman Islands 5. Andean Silver Corporation Cayman Islands 6. ASC Peru LDC Cayman Islands 7. ASC Partners LDC Cayman Islands 8. ASC Boliver LDC Cayman Islands 9. Apex Asia LDC Cayman Islands 10. 'JSC' Kumushtak Kyrghyzstan 11. Kumushtak Management Company Kyrghyzstan 12. 'Asgadmongu' COMPANY Ltd. Mongolia 13. Kanimansur LTD Mining Joint Venture (Formation Pending) Tajikistan 14. Minera de Cordilleras (Honduras), S. de R.L. Honduras 15. Cordilleras Silver Mines Ltd. Bahamas 16. Cordilleras Silver Mines (Cayman) LDC Cayman Islands 17. Minera de Cordilleras, S. de R.L. de C.V. Mexico 18. Compania Minerales de Zacatecas, S. de R.L. de C.V. Mexico 19. Compania Metalurgica Baronse, S. de R.L. de C.V. Mexico 20. Compania Metalurgica Largo, S. de R.L. de C.V. Mexico 21. SMRL Dorita I de Ica (Formation Pending) Peru
EX-23.3 28 CONSENT OF PRICE WATERHOUSE LLP EXHIBIT 23.3 CONSENT OF INDEPENDENT ACCOUNTANTS We hereby consent to the use in the Prospectus constituting part of this Registration Statement on Form S-1 of our report dated August 29, 1997, relating to the financial statements of Apex Silver Mines Limited, which appears in such Prospectus. We also consent to the reference to us under the heading "Experts" in such Prospectus. PRICE WATERHOUSE LLP Denver, Colorado August 29, 1997 EX-23.4 29 CONSENT OF CPM GROUP EXHIBIT 23.4 CONSENT OF CPM GROUP We hereby consent to references to our name and to any analyses performed by us in our capacity as an independent [Advisor] to Apex Silver Mines Limited the ("Company") which are set forth in the Registration Statement on Form S-1 filed by the Company with the Securities Exchange Commission ("Commission") on August 29, 1997 or in any related, abbreviated registration statement filed by the Company with the Commission pursuant to Rule 462(b) under the Securities Act of 1933, as amended. /s/ Jeffrey M. Christian -------------------------- CPM Group New York, NY August 19, 1997. EX-23.5 30 CONSENT OF MINERAL RESOURCE DEVELOPMENT INC. EXHIBIT 23.5 Consent of Mineral Resource Development Inc. We hereby consent to references to our name and to any analyses performed by us in our capacity as an independent consultant to Apex Silver Mines Limited the ("Company") which are set forth in the Registration Statement on Form S-1 filed by the Company with the Securities Exchange Commission ("Commission") on August 29, 1997 or in any related, abbreviated registration statement filed by the Company with the Commission pursuant to Rule 462(b) under the Securities Act of 1933, as amended. /s/ DEEPAK MULHOTRA --------------------------------- Mineral Resource Development Inc. [city],[state] August [19], 1997. EX-23.6 31 CONSENT OF KNIGHT PIESOLD LLC EXHIBIT 23.6 [Logo of Knight Piesold] CONSENT OF KNIGHT PIESOLD LLC We hereby consent to references to our name, Knight Piesold LLC, and to any analyses performed by us in our capacity as an independent consultant to Apex Silver Mines Limited (the "Company") which are set forth in the Registration Statement on Form S-1 filed by the Company with the Securities Exchange Commission ("Commission") on August 29, 1997 or in any related, abbreviated registration statement filed by the company with the Commission pursuant to Rule 462(b) under the Securities Act of 1933, as amended. KNIGHT PIESOLD LLC By: Knight Piesold Management Corp. its manager /s/ DONALD R. EAST ------------------------------------ Donald R. East, President Denver, Colorado August 19, 1997 EX-23.7 32 CONSENT OF PINCOCK, ALLEN & HOLT Exhibit 23.7 [Pincock, Allen & Holt Letterhead] August 22, 1997 Mr. Marcel F. DeGuire Vice President Project Development Apex Silver Mines Corporation 1700 Lincoln Street, Suite 3050 Denver, CO 80203 RE: CONSENT OF PINCOCK, ALLEN & HOLT Dear Mr. DeGuire: We hereby consent to references to our name and to any analyses performed by us in our capacity as an independent consultant to Apex Silver Mines Limited the ("Company") which are set forth in the Registration Statement on Form S-1 filed by the Company with the Securities Exchange Commission ("Commission") on August 22, 1997 or in any related, abbreviated registration statement filed by the Company with the Commission pursuant to Rule 462(b) under the Securities Act of 1933, as amended. Sincerely, PINCOCK, ALLEN & HOLT /s/ John W. Rozelle John W. Rozelle Principal Geologist JWR/sp EX-23.8 33 CONSENT OF MIN RESERVES ASSOCIATES, INC. EXHIBIT 23.8 CONSENT OF MINE RESERVES ASSOCIATES, INC. We hereby consent to references to our name and to any analyses performed by us in our capacity as an independent consultant to Apex Silver Mines Limited (the "Company") which are set forth in the registration statement on Form S-1 filed by the Company with the Securities Exchange Commission ("Commission") on August 29, 1997 or in any related abbreviated registration statement filed by the Company with the Commission pursuant to Rule 462(b) under the Securities Act of 1933, as amended. /s/ Donald C. Elkin ------------------------- Donald C. Elkin Principal Geological Engineer Mine Reserves Associates, Inc. Wheat Ridge, Colorado August 27, 1997 EX-23.9 34 CONSENT OF KVAENER METALS EXHIBIT 23.9 [LOGO OF KVAERNER METALS] CONSENT OF KVAERNER METALS We hereby consent to references to our name and to any analyses performed by us in our capacity as an independent engineer to Apex Silver Mines Limited (the "Company") which are set forth in the Registration Statement on Form S-1 filed by the Company with the Securities Exchange Commission ("Commission") on August 29, 1997, or in any related, abbreviated registration statement filed by the Company with the Commission pursuant to Rule 462(b) under the Securities Act of 1933, as amended, each subject to prior review and approval by Kvaener Metals. /s/ Boyd L. Cox ----------------------------- Kvaerner Metals San Ramon, California August 28, 1997 EX-23.10 35 CONSENT OF BEHRE DOLBEAR EXHIBIT 23.10 [LETTERHEAD OF BEHRE DOLBEAR & COMPANY, INC.] CONSENT OF BEHRE DOLBEAR & COMPANY, INC. We hereby consent to references to our name and to any analyses performed by us in our capacity as an independent consultant to Apex Silver Mines Limited the ("Company") which are set forth in the Registration Statement on Form S-1 filed by the Company with the Securities Exchange Commission ("Commission") this August 29, 1997. /s/ Bernard Guarnera ----------------------------- For Behre Dolbear & Company, Inc. Denver, Colorado August 29, 1997. EX-27 36 FINANCIAL DATA SCHEDULE
5 This schedule contains summary financial information extracted from the Consolidated Balance Sheet at June 30, 1997 (unaudited) and Consolidated Statement of Operations for the year ended December 31, 1996 of Apex Silver Mines Limited. 6-MOS YEAR DEC-31-1997 DEC-31-1996 JAN-01-1997 JAN-01-1996 JUN-30-1997 DEC-31-1996 13,088,342 25,949,771 0 0 0 0 0 0 0 0 13,587,522 26,103,996 575,657 524,335 (13,704) (801) 14,290,954 26,797,304 985,480 2,485,994 0 0 0 0 0 0 131,944 130,792 0 0 14,290,954 26,797,304 0 0 475,298 574,470 0 0 11,652,793 15,173,710 0 0 0 0 0 0 (11,177,495) (14,599,240) 0 0 0 0 0 0 0 0 0 2,875,927 (11,177,495) (11,723,313) (.85) (1.11) (.85) (1.11) Total Current Assets include "prepaid expenses" of $499,180 in 1997 and $154,225 in 1996. Total Assets include "deferred organizational costs" (net) of $141,479 for 1997 and $169,774 for 1996. Changes equals a "minority interest" of 2,875,927
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