-----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, F67tsin/l2riGlEaRFgRCtDY9DokW4fw8XZ4lwzYRXj82q1S8FHrEl8bI/gAAma4 Gp+BsE+bwD+2Lc+S4b6wBA== 0001046008-97-000002.txt : 19971024 0001046008-97-000002.hdr.sgml : 19971024 ACCESSION NUMBER: 0001046008-97-000002 CONFORMED SUBMISSION TYPE: SB-2 PUBLIC DOCUMENT COUNT: 18 FILED AS OF DATE: 19971023 SROS: NONE FILER: COMPANY DATA: COMPANY CONFORMED NAME: MAXAM GOLD CORP CENTRAL INDEX KEY: 0001046008 STANDARD INDUSTRIAL CLASSIFICATION: [] IRS NUMBER: 880203182 STATE OF INCORPORATION: UT FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: SB-2 SEC ACT: SEC FILE NUMBER: 333-38577 FILM NUMBER: 97699756 BUSINESS ADDRESS: STREET 1: 528 FON DU LAC DR CITY: EAST PEORIA STATE: IL ZIP: 61611 BUSINESS PHONE: 3906998725 MAIL ADDRESS: STREET 1: 528 FON DU LAC DR CITY: EAST PEORIA STATE: IL ZIP: 61611 SB-2 1 1 As filed with the Securities and Exchange Commission on _______________. Registration No. _________. ===================================================================== SECURITIES AND EXCHANGE COMMISSION Washington, D. C. 20549 ---------------------------------- FORM SB-2 REGISTRATION STATEMENT Under The Securities Act of 1933 --------------------------------- MAXAM GOLD CORPORATION - --------------------------------------------------------------------- (Exact name of Registrant specified in charter) Utah 1330 88-0203182 - --------------------------------------------------------------------- (State of (Primary Industrial (I.R.S. Employer Incorporation) Classification) I.D.#) 528 Fon du Lac Drive East Peoria, Illinois 61611 Tel: (309) 699-8725 - --------------------------------------------------------------------- (Address, including zip code of principal place of business and telephone number, including area code of Registrant's principal executive offices.) Conrad C. Lysiak Attorney and Counselor at Law West 601 First Avenue, Suite 503 Spokane, Washington 99204 (509) 624-1475 - --------------------------------------------------------------------- (Name, address, including zip code and telephone number, including area code of agents for service.) Approximate date of commencement date or proposed sale to the public: As soon as practicable after this Registration Statement becomes effective. 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 [x]. The Exhibit Index for this Registration Statement begins on sequential page number _____. ==================================================================== 2 CALCULATION OF REGISTRATION FEE
- ------------------------------------------------------------------------------- Proposed Proposed Title of Maximum maximum each class of offering aggregate securities to Amount to be price per offering Amount of be registered registered Share [1] price registration fee - ------------------------------------------------------------------------------- Warrants 9,109,172 $ 0.00 $ 0 $ 0.00 Shares issuable 9,109,172 $ 1.00 $ 9,109,172 $ 2,760.36 upon the exercise of the Warrants - ------------------------------------------------------------------------------- TOTAL REGISTRATION FEE 9,109,172 $ 1.00 $ 9,109,172 $ 2,760.36 - -------------------------------------------------------------------------------
[1] Estimated solely for the purpose of calculating the registration fee. 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 which specifically states that the registration statement shall thereafter become effective in accordance with Section 8(a) of the Securities Act of 1933 or until this registration statement shall be come effective on such date as the Commission, acting pursuant to said Section 8(a), may determine. 3 MAXAM GOLD CORPORATION CROSS REFERENCE SHEET PURSUANT TO RULE 404 (a) AND ITEM 501 (b) OF REGULATION S-B Form S-B Item # and Caption Caption in Prospectus - ------------------------------------------------------------------- 1 Front of Registration Statement and Outside Front Cover of Prospectus FACING PAGE; CROSS REFERENCE SHEET; OUTSIDE FRONT COVER PAGE 2 Inside Front and Outside Back Cover of Pages of Prospectus INSIDE FRONT COVER PAGE; OUTSIDE BACK COVER PAGE 3 Summary Information and Risk Factors PROSPECTUS SUMMARY; RISK FACTORS; THE COMPANY 4 Use of Proceeds PROSPECTUS SUMMARY; USE OF PROCEEDS 5 Determination of Offering Price OUTSIDE FRONT COVER PAGE; PLAN OF DISTRIBUTION 6 Dilution DILUTION 7 Selling Securityholders NOT APPLICABLE 8 Plan of Distribution INSIDE FRONT COVER PAGE; PLAN OF DISTRIBUTION 9 Legal Proceedings BUSINESS 10 Directors, Executive Officers, Promoters and Control Persons MANAGEMENT 11 Security Ownership of Certain Beneficial Owners and Management MANAGEMENT 12 Description of Securities OUTSIDE FRONT COVER PAGE; DESCRIPTION OF SECURITIES; PLAN OF DISTRIBUTION 13 Interest of Named Experts and Counsel LEGAL MATTERS; EXPERTS 4 Form S-B Item # and Caption Caption in Prospectus - ------------------------------------------------------------------ 14 Disclosure of Commission Position on Indemnification for Securities Act Liabilities BUSINESS 15 Organization Within Last 5 Years THE COMPANY; BUSINESS 16 Description of Business PROSPECTUS SUMMARY; BUSINESS 17 Management's Discussion and Analysis or Plan of Operation MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS 18 Description of Property BUSINESS 19 Certain Relationships and Related Transactions MANAGEMENT 20 Market for Common Equity and Related Stockholder Matters DIVIDEND POLICY; PRINCIPAL SHAREHOLDERS; SHARES AVAILABLE FOR FUTURE SALES 21 Executive Compensation MANAGEMENT 22 Financial Statements FINANCIAL STATEMENTS 23. Changes In and Disagreements with Accountants on Accounting and Financial Disclosures NOT APPLICABLE 5 PROSPECTUS MAXAM GOLD CORPORATION 9,109,172 Warrants to Purchase, 9,109,172 Shares of Common Stock and 9,109,172 Shares of Common Stock. This Prospectus relates to the issuance of 9,109,172 Warrants to purchase 9,109,172 shares of Common Stock (the "Warrants") of MAXAM GOLD CORPORATION (the "Company") and 9,109,172 shares of Common Stock of the Company, $0.00001 par value (the "Common Stock"), underlying the Warrants which are offered by the Company. Each Redeemable Warrant (the Redeemable Warrant") entitled the holder to purchase one share of Common Stock at $1.00, until March 13, 1999. The Redeemable Warrants are callable by the Company upon thirty (30) days written notice. Beginning on the effective date of the offering, the holders thereof may offer the Warrants and/or Common Stock for sale in regular market transactions or through broker/dealers at prevailing market prices or otherwise from time to time. The Company will receive the exercise price of each Warrant, but will not receive any of the proceeds of from the sale of the Warrants or Common Stock. Warrants are being issued exclusively to shareholders of the Company. Warrants will be issued to shareholders of record on March 13, 1997. One Warrant will be issued for each five shares owned by a shareholder. Fractional Warrants will not be issued. Fractional Warrants will be rounded down to the next whole Warrant. The Warrants are not traded, however, the Common Stock is traded in the over-the-counter market. Quotations for the Common Stock are published on the OTC Bulletin Board operated by the National Association of Securities Dealers, Inc. (the "Bulletin Board") under the symbol "MXAM." On October 7, 1997, the closing per share bid price for the Company's Common Stock, as reported on the Bulletin Board was $0.86. This price does not represent a transaction price and there is no assurance that a significant quantity of the Common Stock could be sold at this price. FOR A DISCUSSION OF CERTAIN RISKS OF AN INVESTMENT IN THE COMMON STOCK AND WARRANTS, SEE "RISK FACTORS at page 7." THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND EXCHANGE COMMISSION NOR HAS THE COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE. UNTIL ________________________, (NINETY DAYS AFTER THE EFFECTIVE DATE OF THIS PROSPECTUS) ALL DEALERS EFFECTING TRANSACTIONS IN THE REGISTERED SECURITIES, WHETHER OR NOT PARTICIPATING IN THIS DISTRIBUTION, MAY BE REQUIRED TO DELIVER A PROSPECTUS. THIS IS IN ADDITION TO THE OBLIGATION OF DEALERS TO DELIVER A PROSPECTUS WHEN ACTING AS UNDERWRITERS WITH RESPECT TO THEIR UNSOLD ALLOTMENTS OR SUBSCRIPTIONS. The date of this Prospectus is _________________. 6 - --------------------------------------------------------------------- PROSPECTUS SUMMARY - --------------------------------------------------------------------- THIS SUMMARY IS QUALIFIED IN ITS ENTIRETY BY THE MORE DETAILED INFORMATION APPEARING ELSEWHERE IN THIS PROSPECTUS. The Company MAXAM GOLD CORPORATION (the "Company") is a U.S. mineral resource company incorporated under the laws of the State of Utah. The Company is engaged in the business of acquiring and exploring mineral properties containing gold. See "Business." The Company's offices are located at 528 Fon du Lac Drive, East Peoria, Illinois 61611. The Company's telephone number is (309) 699-8725. The Offering The Company is distributing 9,109,172 Warrants (the "Warrants") to purchase 9,109,172 Shares of common stock of the Company. In addition, the Company is registering 9,109,172 shares of common stock (the "Common Stock") underlying the Warrants. See "Description of Securities."
50% of the 100% of the Warrants Warrants Exercised Exercised Shares being Offered. . . 4,554,586 9,109,172 Shares Outstanding . . . . 45,545,863 45,545,863 Shares to be Outstanding . . . 50,100,449 54,655,035 Gross Proceeds from the Exercise of the Warrants . . $4,554,586 $9,109,172 Estimated Expenses of the Offering . $ 20,000 $ 20,000 Net Proceeds to the Company After Deducting Estimated Expenses . . $4,534,586 $9,089,172
Use of Proceeds The net proceeds available to the Company upon completion of this offering and after deducting the estimated offering expenses will be approximately $4,534,586 if 50% of the Warrants are exercised and $9,089,172 if 100% of the Warrants are exercised. The Company intends to use the proceeds for working capital. The Company will not receive any proceeds from the distribution of the Warrants or sale of the Shares. See "Use of Proceeds" and "Business." 7 Risk Factors Investment in the Warrants and/or Shares should be considered highly speculative. The Company has a limited operating history and is subject to all of the inherent risks of a developing business enterprise. The Company is in need of additional capital and has no revenues. There are non-arms length transactions with affiliates involving conflicts of interest. The Company does not anticipate paying any dividends on its Common Stock. Selected Financial Information The Company has no operating history and maybe considered a developmental enterprise. The Company has no revenues and there is no assurance that the Company will ever have material revenues or that its operations will be profitable. The following financial data summarizes certain information concerning the Company is based upon the financial statements and notes, thereto, contained in this Prospectus. See "Financial Statements." Balance Sheet as of June 30, 1997 (unaudited): Assets Current Assets . . . . . . $ 309,404 Total Assets . . . . . . . 1,415,618 Current Liabilities . . . . . 1,088,408 Stockholders' Equity . . . . . 327,210 Total Liabilities & Stockholders' Equity. . . . . . 1,415,618 Net Tangible Book Value Per Share . . . $ 0.01
- --------------------------------------------------------------------- RISK FACTORS - --------------------------------------------------------------------- THE SECURITIES BEING OFFERED INVOLVE A HIGH DEGREE OF RISK AND, THEREFORE, SHOULD BE CONSIDERED EXTREMELY SPECULATIVE. THEY SHOULD NOT BE PURCHASED BY PERSONS WHO CANNOT AFFORD THE POSSIBILITY OF THE LOSS OF THEIR ENTIRE INVESTMENT. PROSPECTIVE INVESTORS SHOULD READ THE ENTIRE PROSPECTUS AND CAREFULLY CONSIDER, AMONG THE OTHER FACTORS AND FINANCIAL DATA DESCRIBED HEREIN, AND THE FOLLOWING RISK FACTORS: 1. Lack of Revenue. The Company needs additional capital and currently has no revenues. Substantial expenditures are required to establish ore reserves through drilling, to determine metallurgical processes to extract the mineralization from the ore and, in the case of new properties, to construct mining and processing facilities. The Company lacks a constant and continual flow of revenue. The Company currently holds certain royalty interests in several mining 8 properties previously sold, but there is no assurance that the Company will receive royalty payments, or that the Company will otherwise receive adequate funding to be able to finance its exploration activities. The Company is looking for revenue sources on an on-going basis, but there can be no assurance that such sources can be found or that, if available, the terms of such financing will be commercially acceptable to the Company. Because of the Company's need for additional capital to fund its present operations, to complete the acquisition of certain mineral rights, and to provide for further exploration and development, the lack of consistent revenue could be a detrimental factor in the progress of the Company. See "Business" and "Management's Discussion and Analysis of Financial Condition and Results of Operations." 2. Realization of Investments in Mineral Properties and Additional Capital Needs. The ultimate realization of the Company's investments in mineral properties is dependent upon the existence of economically recoverable reserves, the ability of the Company to obtain financing or make other arrangements for development and upon future profitable production. The Company expects to finance its operations for fiscal 1997 through the exercise of the Warrants and loans from Phoenix International Mining, Inc., a Nevada corporation. The Company does not have sufficient capital of its own to explore and develop its mineral properties and there can be no assurance that the Company will be successful in obtaining the required funds to finance its long-term capital needs. See "Management's Discussion and Analysis of Financial Condition and Results of Operations." 3. Retention and Attraction of Key Personnel. The Company's success will depend, in large part, on its ability to retain and attract highly qualified personnel. The Company's success in retaining its present staff and in attracting additional qualified personnel will depend on many factors, including its ability to provide them with competitive compensation arrangements, equity participation and other benefits. There is no assurance that the Company will be successful in retaining or attracting highly qualified individuals in key management positions. 4. Regulatory Concerns. Environmental and other government regulations at the federal, state and local level pertaining to the Company's business and properties may include: (a) surface impact; (b) water acquisition; (c) site access; (d) reclamation; (e) wildlife preservation; (f) licenses and permits; and, (e) maintaining the fees for unpatented mining claims. See "Business - Government Regulation and Environmental Concerns." 5. Working Capital Deficits; Accumulated Deficit; Working Capital Deficit; Auditor's Report. Although it commenced operations more than twelve years ago, the Company remains in the development stage. At June 30, 1997, the Company had a negative working capital deficit of $(779,004) and an accumulated deficit of $(2,302,389) which deficits and losses are expected to continue for the foreseeable future. The Company's operations are subject to numerous risks associated with the mining industry. See "Financial Statements." 9 6. Exercise Price Arbitrarily Determined. The exercise price of the Warrants was established arbitrarily by the Company. There is no direct relationship between the exercise price and the assets or shareholders' equity of the Company of any other criterion of value. Further, since the Company has not retained an underwriter in connection with this offering, the exercise price has not been determined by negotiation with an underwriter. 7. Risk Relating to Partial Exercise of Warrants. In the event only a small portion of the Warrants are exercised, the Company will receive only a small portion of the proceeds that it may need to complete its planned activities. There is a risk that the lack of contemplated working capital so resulting could have a materially detrimental impact on the financial condition of the Company. See "Management's Discussion and Analysis of Financial Condition and Results of Operations." 8. Reliance Upon Directors and Officers. The Company is wholly dependent, at the present, upon the personal efforts and abilities of its Officers and Directors who exercise control over the day to day affairs of the Company. There can be no assurance as to the volume of business, if any, which the Company may succeed in obtaining, nor that its proposed operations will prove to be profitable. See "Business" and "Management." 9. Indemnification of Officers and Directors for Securities Liabilities. The Bylaws of the Company provide that the Company may indemnify any Director, Officer, agent and/or employee as to those liabilities and on those terms and conditions as are specified in the Utah Business Corporation Act. Further, the Company may purchase and maintain insurance on behalf of any such persons whether or not the corporation would have the power to indemnify such person against the liability insured against. The foregoing could result in substantial expenditures by the Company and prevent any recovery from such Officers, Directors, agents and employees for losses incurred by the Company as a result of their actions. Further, the Company has been advised that in the opinion of the Securities and Exchange Commission, indemnification is against public policy as expressed in the Securities Act of 1933, as amended, and is, therefore, unenforceable. See "Management." 10. Cumulative Voting, Preemptive Rights and Control. There are no preemptive rights in connection with the Company's Common Stock. The shareholders purchasing in this offering may be further diluted in their percentage ownership of the Company in the event additional shares are issued by the Company in the future. Cumulative voting in the election of Directors is not provided for. Accordingly, the holders of a majority of the shares of Common Stock, present in person or by proxy, will be able to elect all of the Company's Board of Directors. See "Description of the Securities." 10 11. Potential Future Sales Pursuant to Rule 144. Approximately 45,545,863 shares of Common Stock are presently issued and outstanding of which 33,825,563 shares are "Restricted Securities" as that term is defined in Rule 144 promulgated under the Securities Act of 1933, as amended. In general, under Rule 144, a person (or persons whose shares are aggregated) who has satisfied a one year holding period, may sell within any three month period, an amount which does not exceed the greater of 1% of the then outstanding shares of Common Stock or the average weekly trading volume during the four calendar weeks prior to such sale. Rule 144 also permits the sale of shares, under certain circumstances, without any quantity limitation, by persons who are not affiliates of the Company and who have beneficially owned the shares for a minimum period of two (2) years. Hence, the possible sale of these restricted shares may, in the future dilute an investors percentage of free-trading shares and may have a depressive effect on the price of the Company's securities and such sales, if substantial, might also adversely effect the Company's ability to raise additional equity capital. See "Description of Securities - Shares Eligible for Future Sale." 12. No Dividends. The holders of the Common Stock are entitled to receive dividends when, as and if declared by the Board of Directors out of funds legally available therefore. To date, the Company has not paid any cash dividends. The Board does not intend to declare any dividends in the foreseeable future, but instead intends to retain all earnings, if any, for use in the Company's business operations. As the Company will be required to obtain additional financing, it is likely that there will be restrictions on the Company's ability to declare any dividends. See "Dividend Policy" and "Description of Securities." 13. No Market for the Warrants. There is no market for the Warrants and none is expected to ever develop. See "Description of the Securities - Market for the Company's Securities." 14. Warrant Holders May be Unable to Exercise Warrants. The exercise by the holders of the Warrants to be sold pursuant to this offering is subject to the Company either maintaining the effectiveness of the registration statement, of which this Prospectus forms a part, on a current basis or filing an effective registration statement with the Securities and Exchange Commission and complying with the appropriate state securities laws. While the Company has agreed to use its best efforts to so make the underlying stock available for the Warrant Holders, no assurance can be given that at the time that a Warrant Holder seeks to exercise the right to purchase the Company's stock that an effective registration statement will in fact be in, effect. The Company is obligated under the Warrant Agreements to maintain this Prospectus current by making such post-effective amendments as may be necessary from time to time. See "Description of Securities - Redeemable Warrants." 11 15. Redeemable Warrants. The Warrants are by the Company. Each Redeemable Warrant entitles the holder to purchase one share of Common Stock at a price of $1.00, until March 13, 1999. The Warrants are callable by the Company upon thirty (30) days written notice, if the holder does not exercise the Redeemable Warrants, the Redeemable Warrants will loose all value. See "Description of Securities - Redeemable Warrants." FOR ALL OF THE AFORESAID REASONS AND OTHERS SET FORTH HEREIN, THE PURCHASE OF THE SHARES OFFERED HEREBY INVOLVES A HIGH DEGREE OF RISK. ANY PERSON CONSIDERING AN INVESTMENT IN THE SHARES OFFERED HEREBY SHOULD BE AWARE OF THESE AND OTHER FACTORS SET FORTH IN THIS PROSPECTUS. THE SHARES SHOULD BE PURCHASED ONLY BY PERSONS WHO CAN AFFORD TO ABSORB A TOTAL LOSS OF THEIR INVESTMENT IN THE COMPANY AND HAVE NO NEED FOR A RETURN ON THEIR INVESTMENT. - --------------------------------------------------------------------- CAPITALIZATION - --------------------------------------------------------------------- The following table sets forth the capitalization of the Company as of June 30, 1997, as adjusted to reflect the exercise of 50% of the Warrants and 100% of the Warrants. This table should be reviewed in conjunction with the financial statements of the Company and the notes thereto included elsewhere in this Prospectus. See "Financial Statements."
June 30, 1997 As Adjusted for the As Adjusted for the Exercise of 50% of Exercise of 100% of Actual Warrants Pro Forma the Warrants Pro Forma Stockholder's Equity: Common Stock $0.00001 par value 100,000,000 shares authorized 45,545,863 shares outstanding $ 455 50,100,449 shares outstanding (50% of Warrants Exercised) $ 501 54,655,035 shares outstanding (100% of Warrants Exercise) $ 547 Paid-In Capital $ 2,629,144 $ 7,163,229 $11,717,769 Accumulated Deficit-Estimate $(2,302,389) $(2,302,389) $(2,302,389) TOTAL STOCKHOLDERS' EQUITY $ 327,210 $ 4,861,796 $ 9,416,382
12 - -------------------------------------------------------------------- DILUTION - --------------------------------------------------------------------- As of June 30, 1997, the Company had 45,545,863 shares of Common Stock outstanding with a net tangible book value of approximately $0.01 per share. Assuming the exercise of all of the Warrants (9,109,172 at $1.00 per warrant) and assuming no other changes to the Company's financial position, the net tangible book value of the Company would be $9,416,382 or approximately $0.1722 per share. This represents an immediate dilution of 0.83 per share to new investors and an immediate increase in the net tangible book value of shares held by present shareholders of $0.16 per share. Assuming the exercise of 50% of the Warrants (4,554,586 at $1.00 per Warrant), and assuming no other changes to the Company's financial position, the net tangible book value of the Company would be $4,861,796 or approximately $0.10 per share. This represents an immediate dilution of $0.90 per share to new investors and an immediate increase in the net tangible book value of shares held by present shareholders of $0.09 per share. "Net tangible book value" is the amount that results from subtracting the total liabilities, deferred costs, and intangible assets of the Company from its total assets. "Dilution" is the difference between the public offering price and the net tangible book value of the shares immediately after the offering. Additionally, dilution is calculated based on book value of the Company's assets, which may not necessarily reflect the actual market value of such assets. The following table illustrates the per share dilution:
Assuming 50% Assuming 100% of the Warrants of the Warrants Exercised Exercised Exercise Price per Share . . . $ 1.00 $ 1.00 Net tangible book value per share before Warrants Exercised . . . $ 0.01 $ 0.01 Increase per share attributable to existing investors . . . . $ 0.09 $ 0.16 Net tangible book value per share after Warrants Exercised . . $ 0.10 $ 0.17 Dilution of net tangible book value per share of Warrants exercised . $ 0.90 $ 0.83
13 - --------------------------------------------------------------------- SELECTED FINANCIAL DATA - --------------------------------------------------------------------- The selected financial data presented below has been derived from the financial statements of the Company, which financial statements have been examined by Morgenstern & Alexander, independent public accountants, as indicated in their report included elsewhere herein. The information below should be read in conjunction with the Company's Financial Statements and the notes thereto, and "Management's Discussion and Analysis of Financial Condition and Results of Operations." For the reasons set forth in the "Prospectus Summary - Risk Factors" the information shown below may not be indicative of the Company's future results of operations.
June 30, June 30, December December 1997 1996 31, 1996 31, 1995 (Unaudited) (Unaudited) (Audited) (Audited) Statement of Operations and Accumulated Deficit Data: Revenues $ 11,014 $ -0- $ 21,398 $ -0- Operating Expenses $ 743,107 $ 477,895 $ 1,045,314 $ 157,017 Net loss $ 730,653 $ 477,845 $ 1,021,566 $ 157,017 Net Loss per share $ (0.02) $ (0.01) $ 0.02 $ -0- Balance Sheet Data: Work Capital (Deficit) $ (779,004) $ 25,142 $ 312,458 $ 550,009 Total Assets $1,415,618 $ 1,350,650 $ 1,688,199 $ 829,561 Long-term Debt $ -0- $ -0- $ -0- $ -0- Stockholders' Equity $ 327,210 $ 640,683 $ 1,057,863 $ 629,429
- --------------------------------------------------------------------- MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS - --------------------------------------------------------------------- The following discussion should be read in conjunction with the consolidated financial statements and notes thereto. General The Company has not generated any revenues from its operations during the last two fiscal years or through the date of this registration statement. There is no assurance that the Company will generate any revenues in the future. The Company is currently developing the Peoria Seven mine site located seven miles south of Gila Bend, Arizona. 14 The Company intends to use the proceeds from the exercise of the Redeemable Warrants to cover the cost of operating the Peoria Seven site for the next twelve months. There is no assurance however, that any of the Redeemable Warrants will be exercised and in the event that only 3,720,000 Redeemable Warrants are exercised, the Company will have to raise additional capital through the sale of securities or borrowed funds. At the present time the Company has no plans to issue additional securities, other than the Redeemable Warrants being registered herein and the shares of common stock underlying the Redeemable Warrants. On May 9, 1997, the Company entered into an agreement with Phoenix International Mining, Inc., a Nevada corporation, ("Phoenix") wherein Phoenix agreed to loan to the Company up to $2,000,000. As of September 29, 1997, Phoenix has loaned the Company $1,126,000. Accordingly, if only 3,720,000 Redeemable Warrants are exercised or the Company will have to borrow additional funds from Phoenix or raise additional capital. In the event that a sufficient number of Redeemable Warrants are not exercised and/or the Company is unable to borrow more than $874,000 from Phoenix, the Company may have to cease its operations on the Peoria Seven site. In the last twelve months, the Company has spent funds for drilling and surveying ($14,800); the acquisition of an on-site house trailer ($6,500); the development of an on-site laboratory to evaluate the results of the Company's operations ($35,000); the acquisition of equipment to operate the Peoria Seven site ($400,000); and the payment of fees to laborers and consultants ($302,000). Further, the Company intends to spend additional funds to move its corporate headquarters from East Peoria, Illinois to Phoenix, Arizona (estimated at $165,000) and to pay all moving expenses for two of the current directors (estimated at $15,000). The Company intends to continue the foregoing plan of operations until such time as it begins generating revenues or ceases operations. - --------------------------------------------------------------------- USE OF PROCEEDS - --------------------------------------------------------------------- The net proceeds from the exercise of the Warrants offered hereby will be approximately $4,534,586 if the 50% of the Warrants are exercised and $9,089,172 if the maximum number of Warrants are exercised. The Company will not receive any proceeds from the sale of the Warrants or sale of the Shares. The Company intends to utilize the proceeds from the exercise of the Warrants for working capital. Until required for working capital, the net proceeds may be invested temporarily in short-term obligations such as certificates of deposit issued by banks and short term government obligations. The Company reserves the right to amend the use of proceeds, by vote of a majority of the Board of Directors. 15 It is anticipated that the exercise of 3,720,000 Warrants will be sufficient to fund operations for a period of at least twelve (12) months. It is, however, impossible to predict what additional expenses may be since the costs of operations associated with development stage companies frequently involve unanticipated expenditures. If the Company should be unable to meet currently unanticipated expenses, the Company expects that it will have cash requirements for working capital which will have to be met through bank indebtedness or through the private or public sale of the Company's debt or equity securities. There can be no assurance that the Company would be able to obtain such financing or that such financing, if available, would be on terms and conditions acceptable to the Company. If the Company were unable to obtain needed funds, it could be forced to curtail or cease its activities. See "Risk Factors - Need for Additional Financing." - --------------------------------------------------------------------- DIVIDEND POLICY - --------------------------------------------------------------------- The Company has never paid a cash dividend on its Common Stock and does not expect to pay a cash dividend in the foreseeable future, but intends to devote all funds to the operations of its business. See "Risk Factors - No Dividends Anticipated." - --------------------------------------------------------------------- GLOSSARY - --------------------------------------------------------------------- Acid Mine Drainage Acidic run-off water from mine waste dumps and mill tailings ponds containing sulfide minerals. Also refers to ground water pumped to surface from mines. Active Mining and milling of ore. Adit An opening driven horizontally into the side of a mountain or hill for providing access to a mineral deposit. Alteration Any physical or chemical change in a rock or mineral subsequent to its formation. Milder and more localized than metamorphism. Anticline An arch or fold in layers of rock shaped like the crest of a wave. Assay A chemical test performed on a sample of ores or minerals to determine the amount of valuable metals contained. Backfill Waste material used to fill the void created by mining an orebody. 16 Ball Mill A steel cylinder filled with steel balls into which crushed ore is fed. The ball mill is rotated, causing the balls to cascade and grind the ore. Basement Rocks The underlying or older rock mass. Often refers to rocks of Precambrian age which may be covered by younger rocks. Base Metal Any non-precious metal (e.g. copper, lead, zinc, nickel, etc.). Bedding The arrangement of sedimentary rocks in layers. Block Caving An inexpensive method of mining in which large blocks of ore are undercut, causing the ore to break or cave under its own weight. Breccia A rock in which angular fragments are surrounded by a mass of fine-grained minerals. Bulk Mining Any large-scale, mechanized method of mining involving many thousands of tons of ore being brought to surface per day. Cathode A rectangular plate of metal, produced by electrolytic refining, which is melted into commercial shapes such as wirebars, billets, ingots, etc. Chalcocite A sulfide mineral of copper common in the zone of secondary enrichment. Channel Sample A sample composed of pieces of vein or mineral deposit that have been cut out a small trench or channel, usually about ten cm wide and two cm deep. Chute An opening, usually constructed of timber and equipped with a gate, through which ore is drawn from a stope into mine cars. Complex Ore An ore containing a number of minerals of economic value. The term often implies that there are metallurgical difficulties in liberating and separating the valuable metals. Cone Crusher A machine which crushes ore between a gyrating cone or crushing head and an inverted, truncated cone known as a bowl. 17 Concentrate A fine, powdery product of the milling process containing a high percentage of valuable metal. Conglomerate A sedimentary rock consisting of rounded, water-worn pebble or boulders cemented into a solid mass. Contact A geological term used to describe the line or plane along which two different rock formations meet. Core The long cylindrical piece of rock, about an inch in diameter, brought to surface by diamond drilling. Crosscut A horizontal opening driven from a shaft and (or near) right angles to the strike of a vein or other orebody. Cut-and-fill A method of stopping in which ore is removed in slices, or lifts, and then the excavation is filled with rock or other waste material (backfill), before the subsequent slice is extracted. Cyanidation A method of extracting exposed gold or silver grains from crushed or ground ore by dissolving it in a weak cyanide solution. May be carried out in tanks inside a mill or in heaps of ore out of doors. Decline An underground passageway connecting one or more levels in a mine, providing adequate traction for heavy, self-propelled equipment. Such underground openings are often driven in an upward or downward spiral, much the same as a spiral staircase. Development Work carried out for the purpose of opening up a mineral deposit and making the actual ore extraction possible. Development Drilling Drilling to establish accurate estimates of mineral reserves. Diamond Drill A rotary type of rock drill that cuts a core of rock that is recovered in long cylindrical sections, two centimeters or more in diameter. Dilution (mining) Rock that is, by necessity, removed along with the ore in the mining process, subsequently lowering the grade of the ore. 18 Dip The angle at which a vein, structure or rock bed is inclined from the horizontal as measured at right angles to the strike. Disseminated Ore Ore carrying small particles of valuable minerals spread more or less uniformly through the hose rock. Dore Unparted gold and silver poured into molds when molten to form buttons or bars. Further refining is necessary to separate the gold and silver. Drift A horizontal underground opening that follows along the length of a vein or rock formation as opposed to a cross-cut which crosses the rock formation. Drill-Indicated Reserves The size and quality of a potential orebody as suggested by widely spaced drill holes; more work is required before reserves can be classified as probable or proven. Due Diligence The degree of care and caution required before making a decision; loosely, a financial and technical investigation to determine whether an investment is sound. Electrolytic Refining The process of purifying metal ingots that are suspended as anodes in an electrolytic bath, alternated with refined sheets of the same metal which act as starters or cathodes. Environmental Impact Study A written report, compiled prior to a production decision, that examines the effects proposed mining activities will have on the natural surroundings. Epithermal Deposit A mineral deposit consisting of veins and replacement bodies, usually in volcanic or sedimentary rocks, containing precious metals, or, more rarely, base metals. Exploration Work involved in searching for ore, usually by drilling or driving a drift. Face The end of a drift, crosscut or stope in which work is taking place. Fissure An extensive crack, break or fracture in rocks. 19 Float Pieces of rock that have been broken off and moved from their original location by natural forces such as frost or glacial action. Flotation A milling process in which valuable mineral particles are induced to become attached to bubbles and float, and others sink. Footwall The rock on the underside of a vein or ore structure. Fracture A break in the rock, the opening of which allows mineral bearing solutions to enter. A "cross-fracture" is a minor break extending at more-or-less right angles to the direction of the principal fractures. Free Milling Ores of gold or silver from which the precious metals can be recovered by concentrating methods without resort to pressure leaching or other chemical treatment. Galena Lead sulfide, the most common ore mineral of lead. Gossan The rust-colored capping or staining of a mineral deposit, generally formed by the oxidation or alteration of iron sulfides. Grab Sample A sample from a rock outcrop that is assayed to determine if valuable elements are contained in the rock. A grab sample is not intended to be representative of the deposit, and usually the best-looking material is selected. Grade The average assay of a ton of ore, reflecting metal content. Hangingwall The rock on the upper side of a vein or ore deposit. Head Grade The average grade of ore fed into a mill. 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. High Grade Rich ore. As a verb, it refers to selective mining of the best ore in a deposit. 20 Host Rock The rock surrounding an ore deposit. Hydrometallurgy The treatment of ore by wet processes (e.g., leaching) resulting in the solution of a metal and its subsequent recovery. Intrusive A body of igneous rock formed by the consolidation of magma intruded into other rocks, in contrast to lavas, which are extruded upon the surface. Lagging Planks or small timbers placed between steel ribs along the roof of a stope or drift to prevent rocks from falling, rather than to support the main weight of the overlying rocks. Lens Generally used to describe a body of ore that is thick in the middle and tapers towards the ends. Level The horizontal openings on a working horizon in a mine; it is customary to work mines from a shaft, establishing levels at regular intervals, generally about 50 meters or more apart. Limestone A bedded, sedimentary deposit consisting chiefly of calcium carbonate. Lode A mineral deposit in solid rock. Metamorphic Rocks Rocks which have undergone a change in texture or composition as the result of heat and/or pressure. 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 affect recovery of the pure metal. Milling Ore Ore that contains sufficient valuable mineral to be treated by the milling process. Mineable Reserves Ore reserves that are known to be extractable using a given mining plan. Mineral A naturally occurring homogeneous substance having definite physical properties and chemical composition and, if formed under favorable conditions, a definite crystal form. 21 Mineralized Material or Deposit A mineralized body which has been delineated by appropriate drilling and/or underground sampling to support a sufficient tonnage and average grade of metal(s). Under SEC standards, such a deposit does not qualify as a reserve until a comprehensive evaluation, based upon unit cost, grade, recoveries, and other factors, conclude economic feasibility. Muck Ore or rock that has been broken by blasting. Native Metal A metal occurring in nature in pure form, uncombined with other elements. Net Profit Interest A portion of the profit remaining after all charges, including taxes and bookkeeping charges (such as depreciation) have been deducted. Net Smelter Return A share of the net revenues generated from the sale of metal produced by a mine. Open Pit A mine that is entirely on surface. Also referred to as open-cut or open-cast mine. Ore Material that can be mined and processed at a positive cash flow. Ore Pass Vertical or inclined passage for the downward transfer of ore connecting a level with the hoisting shaft or a lower level. Ore body A natural concentration of valuable material that can be extracted and sold at a profit. Ore Reserves The calculated tonnage and grade of mineralization which can be extracted profitably; classified as possible, probable and proven according to the level of confidence that can be placed in the data. Oreshott The portion, or length, of a vein or other structure, that carries sufficient valuable mineral to be extracted profitably. Oxidation A chemical reaction caused by exposure to oxygen that results in a change in the chemical composition of a mineral. 22 Participating Interest A company's interest in a mine, which entitles it to a certain percentage of profits in return for putting up an equal percentage of the capital cost of the project. Patent The ultimate stage of holding a mineral claim in the United States, after which no more assessment work is necessary because all mineral rights have been earned. Patented Mining Claim A parcel of land originally located on federal lands as an unpatented mining claim under the General Mining Law, the title of which has been conveyed from the federal government to a private party pursuant to the patenting requirements of the General Mining Law. Pillar A block of solid ore or other rock left in place to structurally support the shaft, walls or roof of a mine. Porphyry Any igneous rock in which relatively large crystals, called phenocrysts, are set in a fine-grained groundness. Precambrian Shield The oldest, most stable regions of the Earth's crust, the largest of which is the Canadian Shield. Prospect A mining property, the value of which has not been determined by exploration. Proven and Probable Mineral Reserves Reserves that reflect estimates of the quantities and grades of mineralized material at a mine which the Company believes could be recovered and sold at prices in excess of the cash cost of production. The estimates are based largely on current costs and on projected prices and demand for such mineralized material. Mineral reserves are stated separately for each such mine, based upon factors relevant to each mine. Proven and probable mineral reserves are based on calculations of reserves provided by the operator of a property that have been reviewed but not independently confirmed by the Company. Changes in reserves represent general indicators of the results of efforts to develop additional reserves as existing reserves are depleted through production. 23 Grades of ore fed to process may be different from stated reserve grades because of variation in grades in areas mined from time to time, mining dilution and other factors. Reserves should not be interpreted as assurances of mine life or of the profitability of current or future operations. Probable Reserves Resources for which tonnage and grade and/or quality are computed primarily from information similar to that used for proven reserves, 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 Resources for which tonnage is computed from dimensions revealed in outcrops, trenches, workings or drill holes and for which the grade and/or quality is computed from the results of detailed sampling. The sites for inspection, sampling and measurement are spaced so closely and the geologic character is so well defined that size, shape, depth and mineral content of reserves are well established. The computed tonnage and grade are judged to be accurate, within limits which are stated, and no such limit is judged to be different from the computed tonnage or grade by more than 20 percent. Raise A vertical or inclined underground working that has been excavated from the bottom upward. Rake The trend of an orebody along the direction of its strike. Reclamation The restoration of a site after mining or exploration activity is completed. Recovery The percentage of valuable metal in the ore that is recovered by metallurgical treatment. Replacement Ore Ore formed by a process during which certain minerals have passed into solution and have been carried away, while valuable minerals from the solution have been deposited in the place of those removed. 24 Reserves That part of a mineral deposit which could be economically and legally extracted or produced at the time of the reserve determination. Reserves are customarily stated in terms of "Ore" when dealing with metalliferous minerals. Resources The calculated amount of material in a mineral deposit, based on limited drill information. Rib Samples Ore taken from rib pillars in a mine to determine metal content. Rockbolting The act of supporting openings in rock with steel bolts anchored in holes drilled especially for this purpose. Rockburst A violent release of energy resulting in the sudden failure of walls or pillars in a mine, caused by the weight or pressure of the surrounding rocks. Rock Mechanics The study of the mechanical properties of rocks, which includes stress conditions around mine openings and the ability of rocks and underground structures to withstand these stresses. Room-and-Pillar Mining A method of mining flat-lying ore deposits in which the mined-out area, or rooms, are separated by pillars of approximately the same size. Rotary Drill A machine that drills holes by rotating a rigid, tubular string of drill rods to which is attached a bit. Commonly used for drilling large-diameter blastholes in open pit mines. Royalty An amount of money paid at regular intervals by the lessee or operator of an exploration or mining property to the owner of the ground. Generally based on a certain amount per ton or a percentage of the total production or profits. Also, the fee paid for the right to use a patented process. Run-of-Mine A loose term used to describe ore of average grade. Sample A small portion of rock or a mineral deposit, taken so that the metal content can be determined by assaying. 25 Secondary Enrichment Enrichment of a vein or mineral deposit by minerals that have been taken into solution from one part of the vein or adjacent rocks and redeposited in another. Shaft A vertical or steeply inclined excavation for the purpose of opening and servicing a mine. It is usually equipped with a hoist at the top which lowers and raises a conveyance for handling personnel and materials. Shear or Shearing The deformation of rocks by lateral movement along unnumberable parallel planes, generally resulting from pressure and producing such metamorphic structures as cleavage and schistosity. Shrinkage Stopping A stopping method which uses part of the broken ore as a working platform and as support for the walls of the stope. Siderite Iron carbonate, which when pure, contains 48.2% iron; must be roasted to drive off carbon dioxide before it can be used in a blast furnace. (Roasted product is called sinter.) Skarn Name for the metamorphic rocks surrounding an igneous intrusive where it comes in contact with a limestone or dolomite formation. Solvent Extraction-Electrowinning G(SX/EW) A metallurgical technique, so far applied only to copper ores, in which metal is dissolved from the rock by organic solvents and recovered from solution by electrolysis. Sphalerite A zinc sulfide mineral; the most common ore mineral of zinc. Step-out Drilling Holes drilled to intersect a mineralization horizon or structure along strike or down dip. Stockpile Broken ore heaped on surface, pending treatment or shipment. Stope Underground excavation from which ore has been extracted either above or below mine level. 26 Stratigraphy Strictly, the description of bedded rock sequences; used loosely, the sequence of bedded rocks in a particular area. Strike The direction, or bearing from true north, of a vein or rock formation measured on a horizontal surface. Stringer A narrow vein or irregular filament of a mineral or minerals traversing a rock mass. Stripping Ratio The ratio of tons removed as waste relative to the number of tons or ore removed from an open pit mine. Sublevel A level or working horizon in a mine between main working levels. Sulfide A compound of sulfur and some other element. Tailings Material rejected from a mill after more of the recoverable valuable minerals have been extracted. Tailings Pond A low-lying depression used to confine tailings, the prime function of which is to allow enough time for heavy metals to settle out or for cyanide to be destroyed before water is discharged into the local watershed. Trend The direction, in the horizontal plane, or a linear geological feature (for example, an ore zone), measured from true north. Troy Ounce Unit of weight measurement used for all precious metals. The familiar 16-ounce avoirdupois pound equals 14.583 Troy Ounces. Unpatented Mining Claim A parcel of property located on federal lands pursuant to the General Mining Law and the requirements of the state in which the unpatented claim is located, the paramount title of which remains with the federal government. The holder of a valid, unpatented lode mining claim is granted certain rights including the right to explore and mine such claim under the General Mining Law. Vein A mineralized zone having a more or less regular development in length, width and depth which clearly separates it from neighboring rock. 27 Volcanogenic A term used to describe the volcanic origin of mineralization. Vug A small cavity in a rock, frequently lined with well-formed crystals. Amethyst commonly forms in these cavities. Wall Rocks Rock units on either side of an orebody. The hanging-wall and footwall rocks of an orebody. Waste Barren rock in a mine, or mineralized material that is too low in grade to be mined and milled at a profit. Winze An internal shaft. Zone of Oxidation The upper portion of an ore body that has been oxidized. 28 - --------------------------------------------------------------------- BUSINESS - --------------------------------------------------------------------- General MAXAM Gold Corporation (the "Company") was formed on August 7, 1974, as a natural resource company. The Company was originally named State Cycle. Since that time the following name changes have occurred: Universal AMC, Inc. February 19, 1975 Caption Industries, Inc. November 15, 1993 Madonna Mining Co., Inc. February 7, 1984 Maxam International Corp. June 12, 1985 Maxam Gold Corporation December 26, 1995 The business of the Company is the acquisition, exploration, and if warranted, development of mineral properties and the production of minerals therefrom. Property Location, Description and Access. The Company owns 456 unpatented mining claims contained on approximately 72,960 acres. The claims are located in La Paz, Maricopa and Yuma counties, Arizona. The unpatented mining claims are possessory only and are held by right of location. Management believes that all of its unpatented claims are properly staked and recorded, and that it has the right to possession of them and the right to remove minerals therefrom. Unpatented mining claims require an annual payment of $100 to the Bureau of Land Management (the "BLM"), to date all payments to the BLM have been made. The claims have been properly recorded at the BLM, and with the various county recorders, in compliance with federal and state filing requirements. A general description of the properties is as follows: # of 160 Property Name Acre Claims Location Peoria Seven 4 Maricopa County 7 miles south of Gila Bend, AZ Peoria South 6 8 miles south of Gila Bend, AZ Gila Claims 25 East of Peoria Seven 29 SRF Claims 48 East of Gila Claims Uranco Claims 24 South and southeast of Peoria Seven Vekol Valley 212 20 miles east and 10 miles south of Gila Bend Copper Valley 26 Approximately 55 miles northeast of Gila Bend Copper Wash 48 Approximately 55 miles northeast of Gila Bend Coyote Peak 63 Approximately 10 miles southeast of I-10, Exit 53 Peoria Seven Properties. The Peoria Seven properties ("Peoria Seven Properties") consists of four claims of 160 acres each and are located in Maricopa County, Arizona. Management believes the Peoria Seven Properties are ready to commence mining, milling and leaching ore on a five acre track, which is exempt from the BLM. The ore can be leached in a closed loop leaching system without the need of a permit. The tails are being analyzed to determine if they are inert. If inert the Department of Environmental Quality will issue an opinion allowing the Company to return the tails to the pit whence they came. Should the tails be active the Company will leach on a pilot scale basis and stock pile the ore while a full scale permit is processed. The time frame to apply for and have a permit issued is approximately six months. Peoria South Properties The Peoria South properties ("Peoria South Properties") consist of six claims containing 640 acres which are located immediately south of the Peoria Seven Properties. The Peoria South Properties have been partially drilled and assays indicate approximately 330,000 ounces of possible gold on 100 acres at 30 feet in depth. Additional drilling has been conducted but assay results have not been completed as of this date. In connection with the Peoria South Properties, the Company has applied for a Small Miners 5 Acre exemption. This exemption will allow the Company to commence pilot scale operations on five (5) acres while a permit is processed to allow mining on a larger area. A portion of the property has been drilled. The drill site contained commercial grade gold ore. Therefore management staked this group of claims. 30 Copper Valley The property to the west and south has been drilled and sampled. The drill site contains commercial grade gold ore. Coyote Peak The Company will assay samples drilled from 60 holes to 100 feet. If an ore body is found the Company will seek a joint venture partner or financing for an operating budget. Drilling Reports Hewlett Mineral Management of Ridgecrest, California, a consulting firm, reports the following reserves from drilling and assay of drill samples: Grade Name Tons oz/ton Troy oz Peoria Seven 73,337,443 0.050 3,822,427 Proven Approximately and probable 460 acres Peoria South 6,666,666 0.053 353,333 Proven 100 acres Coyote Peak 26,400,000 0.055 1,452,000 Possible 100 acres ___________ History. There is no known recovery of precious metals from the Company's claims. There are some abandoned mines in the mountains nearby to all the claim blocks owned by the Company. Geology. The sites lie within the Basin and Range province of Southwest Arizona and are accessible by all weather ranch roads. Each site is in the flat lying, gently sloping and relatively uncut area between and a long the adjacent mountains. The sites are covered (or filled) by basin fill that is recent to Pleistocene in age. The source areas for the basin fill are the surrounding ranges of hills and mountains. The basin fill is composed of unconsolidated gravel, sand, silt, clays, and possibly some glacial till and debris. The silt and clays are water deposited although there is evidence that some of the silty sand may be air-borne and deposited. The gravel may or may not be water worn-usually the top or upper layers of coarser material are angular indicating that this material has not travelled far from its in-situ location. 31 Possible Future Acquisitions. Management may enter into new mining ventures with joint venturers, partners or other third parties. Such arrangements may be multi-party ventures to which the Company will contribute stock, cash and/or mineral interests. In such arrangements, the Company's participation in revenues and profits, if any, will be reduced. At this time, the Company has no agreement or understanding with any third parties for the formation of a joint mining operation. In determining the suitability of any property as a prospective acquisition, factors to be considered by the Company will include, but not be limited to, the following: (a) whether the asking price is competitive and permits possible appreciation in value; (b) condition of title; (c) whether the geological features of the property indicate the probable likelihood of gold mineralization of a commercial grade that is of sufficient quantity to justify further exploration and development; (d) time and expenses which will be involved in the exploration and development of the property; and, (e) procedure for exploration and development (individually or joint venture). Management, together with such professional advisors which the Company deems appropriate, will investigate prospective properties through on-site examination, reviewing available geologic reports or publications relating to the property, and a general field reconnaissance to secure preliminary information regarding characteristics of the property. If, from such preliminary reviews, management deems it advisable to further investigate the property, the Company may determine the condition of title and ownership by using abstractors or title companies, and may obtain a preliminary feasibility study by one or more geologists, mining engineers, or accountants. If, after the foregoing preliminary investigation, management determines that the property does not meet the Company's acquisition criteria, efforts to acquire the property would be abandoned, in which case costs incurred in conducting the investigation would not be recoverable. In the event the property is abandoned, the Company intends to reallocate the unexpended proceeds for the acquisition and/or exploration of other prospects. At the present time, the Company has no plans to acquire additional claims. Exploration. The Company expects to concentrate its main exploration efforts during 1997-98 in the Peoria Seven Properties and the Peoria South Properties, by developing existing ore bodies through geophysics then by reverse circulation drilling. Government Regulation and Environmental Controls. The Company is committed to complying and, to its knowledge, is in compliance with all governmental and environmental regulations. The Company's activities are subject to extensive federal, state and local laws and regulations controlling not only the mining of and exploration for mineral properties, but also the possible effects of 32 such activities upon the environment. Permits from a variety of regulatory authorities are required for many aspects of mine operation and reclamation. The Company cannot predict the extent to which future legislation and regulation could cause additional expense, capital expenditures, restrictions and delays in the development of the Company's properties, including those with respect to unpatented mining claims. As used in this SB-2 Registration Statement, the term "unpatented mining claim" refers to a mining claim on federal lands which has not been converted into full fee ownership in the name of a private person or entity. The process of converting ownership was established under the United States General Mining Law of 1872, as amended, (the "General Mining Law"), and requires that the U.S. Government transfer ownership of the underlying property (held to that point in the public trust) to the private person or entity by granting fee simple and conveying full private ownership of the subject mineral property, including mineral rights, surface, subsurface and appurtenant rights, subject to any vested and accrued water rights. The act of granting full fee ownership is accomplished by a duly endorsed instrument referred to as a "patent." Until such time as a mining claim on federal land may be "patented," the claim is deemed as "unpatented mining claim" and ownership is held in the public trust by the U.S. government subject to existing federal mining laws and other applicable statutory or regulatory provisions as may be implemented by the federal bureaucracy. In 1992, the United States Congress passed a number of amendments to the General Mining Law which governs mining claims and related activities on federal lands. A holding fee of $100 and a filing assessment of $35 per claim was imposed upon unpatented mining claims located on federal lands. Since 1992, a variety of legislation has been proposed to further amend the General Mining Law. The proposed legislation would, among other things, impose royalties and add requirements affecting reclamation, environmental controls, and restoration. Although such legislative proposals are not currently in effect, the likelihood or extent of subsequent enactments is not presently known and the potential impact on the Company as a result of future congressional action cannot be predicted. The Company's activities are not only subject to extensive federal, state and local regulations controlling the mining of and exploration for mineral properties, but also the possible effects of such activities upon the environment. Future legislation and regulations could cause additional expense, capital expenditures, restrictions and delays in the development of the Company's properties, the extend of which cannot be predicted. Also, as discussed above, permits from a variety of regulatory authorities are required for many aspects of mine operation and reclamation. In the context of environmental permitting, including the approval of reclamation plans, the Company must comply with known standards, existing laws and regulations that may entail greater or lesser costs and delays depending on the nature of the activity to be permitted 33 and how stringently the regulations are implemented by the permitting authority. While it is possible that the costs and delays associated with the compliance of such laws, regulations, and permits could become such that the Company would not proceed with the development or operation of a mine, the Company is not presently aware of any material environmental constraint affecting its properties that would preclude the economic development or operation of any specific property. Mining and processing operations and exploration activities are subject to various federal, state and local laws and regulations relating to the protection of the environment. These laws mandate, among other things, the maintenance of air and water quality standards, and the preservation of certain archeological sites. These laws also set forth limitations on the generation, transportation, storage and disposal of solid and hazardous waste. Compliance with statutory environmental quality requirements may necessitate significant capital outlays; materially affect the earning power of the Company; or may cause material changes in the Company's intended activities. No assurance can be given that environmental standards imposed by either federal or state governments will not be changed or become more stringent, thereby possibly materially adversely affecting the proposed activities of the Company. Competition and Markets. Many of the Company competitors have greater financial resources and more extensive operating histories that the Company. There is no assurance the Company will be able to begin exploration work which result in the discovery of commercially producible quantities of gold or other precious metals. In addition, there is no assurance that the Company's property interests can be economically maintained. The exploration and development of mineral properties, and the marketing of minerals, are affected by a number of facts which are beyond the Company's control. These factors include fluctuations in the market price of gold and precious minerals, availability of adequate transportation, marketing of competitive minerals, prices of fuels and fluctuating supply and demand for minerals. Subsidiary Corporation. The Company owns approximately 96% of the issued and outstanding shares of Common Stock of Peoria Seven Mining, LLC, ("PSM") an Arizona Limited Liability Corporation. 34 Offices. The Company's headquarters and executive offices are located at 528 Fon du Lac Drive, East Peoria, Illinois 61611 and the telephone number is (309) 699-8725. The office space is leased from Dale L. Runyon, the Company's Chairman of the Board of Directors and Chief Executive Officer, on a month-to-month basis, pursuant to a written lease. The monthly rental payments are $1,200 payable in advance on the first day of each month, for a total annual lease payment of $14,400. The Company has signed a lease agreement for office space in Scottsdale, Arizona at 15500 Greenway-Way Loop, Scottsdale, Arizona 85260. The office space is leased from Hewson/Breckner Airpark, LLC. pursuant to a written lease agreement to commence on December 1, 1997 and continue for sixty months thereafter. The monthly rental payments are $12,039 payable in advance on the first day of each month to commence on December 1, 1997 for a total of $723,340. The Company anticipates occupying the foregoing premises on or about December 1, 1997. Peoria Seven leases an office in Gila Bend, Arizona at 402 Papago, Gila Bend, Arizona 85337. The monthly rental is $350.00. Employees. In addition to the retention of its Officers, the Company currently employs two full-time employees and no part-time employees. The Company's wholly owned subsidiary corporation, Peoria Seven, in addition to its officers and directors, employees five full-time employees and no part-time employees. The Company anticipates adding additional employees as needed in the future. - --------------------------------------------------------------------- MANAGEMENT - --------------------------------------------------------------------- The following table sets forth the name, age and position of each Officer and Director of the Company: Position Name Age Since Position Dale L. Runyon 70 1987 Chairman of the Board of Directors and Chief Executive Officer Alan Hubbard 60 1995 President, Treasurer, Chief Financial Officer and a member of the Board of Directors Michael Runyon-Davis 46 1995 Vice President of Operations, Secretary and a member of the Board of Directors 35 The authorized number of directors of the Company is presently fixed at ten. Each director serves for a term of one year that expires at the following annual shareholders' meeting. Each Officer serves at the pleasure of the Board of Directors and until a successor has been qualified and appointed. There are no family relationships, or other arrangements or understandings between or among any of the directors, executive officers or other person pursuant to which such person was selected to serve as a director or officer, other than as disclosed herein. Officers and Directors of the Company: Dale L. Runyon - Chairman of the Board of Directors and Chief Executive Officer. Mr. Runyon is a founder of the Company. Since 1987, he has been the Company's Chairman of the Board of Directors and Chief Executive Officer. Since March 1995, Mr. Runyon has been Secretary/Treasurer, Chief Financial Officer and a member of the Board of Directors of Turtleback Mountain Gold, Inc. Turtleback Mountain Gold is involved in the business of mining. Since 1978, Mr. Runyon has been a business consultant in the mining industry. As a consultant, he assists companies with economic analysis of potential mining properties and, in general, supervises "turnkey projects" from start to finish. Since 1986, Mr. Runyon has been the Chairman of the Board and Chief Executive Officer of Phoenix International Mining, Inc., a Nevada corporation. Mr. Runyon received a B.A. from Knox College and is a retired Colonel in the United States Army. Mr. Runyon is the father-in-law of Michael Runyon-Davis. Alan Hubbard - President, Treasurer, Chief Financial Officer and a member of the Board of Directors of the Company. Since August 1995, Mr. Hubbard has been the President, Treasurer, Chief Financial Officer and a member of to the Board of Directors of the Company. Since November 19, 1996, Mr. Hubbard has been the President and a member of the Board of Directors of Turtleback Mountain Gold Co., Inc. Since May 1988, Mr. Hubbard has been the President and Chief Executive of Al Hubbard Associates, Inc., a Texas corporation. Since August 1996, Mr. Hubbard has been the President and a member of the Board of Directors of Phoenix International Mining, Inc., a Nevada corporation. Phoenix International Mining, Inc. is a natural resource company. Mr. Hubbard received a B.A. from Bradley University. Michael Runyon-Davis - Vice President of Operations, Secretary and a member of the Board of Directors Since December 1995, Mr. Runyon-Davis has been the Vice President of Operations and a member of the Board of Directors of the Company, and during September 1997, Mr. Runyon-Davis became the Secretary. Since January 1996, Mr. Runyon-Davis has been the assistant manager of Peoria Seven Mining, LLC. From June 1993 to July 1996, Mr. Runyon-Davis did business as Lone Mountain 36 Enterprises, Lone Mountain provided mining related contract services to mining companies. From September 1990 to June 1993, Mr. Runyon- Davis was a senior Army Instructor, at Rider High School, JROTC program, Wichita Falls, Texas. Mr. Runyon-Davis is the son-in-law of Dale Runyon. Indemnification The Company's Bylaws provide that the Company's directors and officers will be indemnified to the fullest extent permitted by the Utah Corporation Code, however, such indemnification shall not apply to acts of intentional misconduct; a knowing violation of law; or, any transaction where an officer or director personally received a benefit in money, property, or services to which to the director was not legally entitled. The Company has been advised that in the opinion of the Securities and Exchange Commission indemnification is against public policy as expressed in the Securities Act of 1933, as amended, and is, therefore, unenforceable. - --------------------------------------------------------------------- CERTAIN TRANSACTIONS - --------------------------------------------------------------------- Certain of the directors and/or officers of the Company also serve as directors and/or officers of other companies involved in natural resource exploration and development and, consequently, there exists the possibility for such directors and officers to be in a position of conflict. Any decision made by such directors and officers involving the Company, as the case may be, will be made in accordance with their duties and obligation to deal fairly and in good faith with the Company and such other companies. In addition, such directors and officers are required to declare and refrain from voting on any matter in which such directors and officers may have a conflict of interest. The Company has engaged in transactions with its officers, directors and principal shareholders, including the issuance of the initial shares of the Company. Such transactions may be considered as not having occurred at arm's length. The Company may be engaged in transactions with management and others involving conflicts of interest, including conflicts on salaries and other payments to such parties, as well as business opportunities which may arise. In this regard, the directors of the Company are involved in other companies and may have conflicts of interest in allocating time between the Company and other entities to which they are affiliated. 37 Relationships and Transactions Pertaining to the Company. On September 23, 1987, Phoenix International Mining, S.A. (a Panamanian corporation) purchased 20,000,000 shares of the outstanding common stock of Maxam International Corporation which constituted 80% of the issued and outstanding common shares of the Company in exchange for four mining claims. On October 2, 1987, Phoenix International Mining, S.A. transferred approximately 53.2% of these outstanding shares to related entities of Phoenix International Mining, S.A. These mining properties have been recorded on the books of the Company at the allocated cost basis of $9,520 as originally recorded by Phoenix International Mining, S.A. At the annual meeting of shareholders on July 14, 1993 approval was granted for the acquisition of twelve 160 acre mining claims in Southwest Arizona for 1,500,000 shares of the Company's Common Stock. Six of the claims were owned by a Company shareholder while the President (decease) and Chairman of the Board of the Company each owned one claim. The remaining four claims were owned by a corporation in which the Chairman of the Board of the Company was a Director. In addition, the sellers of the mining claims are to receive 5% of the net profit before taxes realized by the Company from the minerals mined and sold on a consolidated pro rata basis. The 1,500,000 shares were subsequently issued in 1995 at the allocated cost basis of $4,800. At the annual meeting of shareholders held on July 14, 1993, it was approved that the officers and directors of the Company be compensated for past services (October 1987 thru December 31, 1992) in the amount of $150,000 and reimbursement of expenses of $17,991. In lieu of cash they were to receive 3,359,820 shares of the Company's common stock. Subsequently in 1994 these shares were issued. On August 31, 1993, the Company entered into an Agreement with Quilotosa Wash, a Trust located in Peoria, Illinois, whereby the Company assigned to Quilotosa Wash eight of the above mentioned mining claims. Quilotosa Wash agreed to seek adequate financing to mine and process one thousand tons of ore per day from the mining claims. Quilotosa Wash will receive ten percent of the net profits from the operation as a management fee. In addition, Quilotosa Wash is authorized to pay a total of five percent of the net profits before taxes earned by the Company from the operation to the three former sellers of the mining properties. In the event Quilotosa Wash does not obtain adequate financing by July 1, 1994, the Company has the right to buy back the eight mining claims for ten dollars and other good and valuable consideration. On July 1, 1994, the Agreement was extended to November 1, 1994 and on October 24, 1994 was extended to June 30, 1996. Subsequently, on February 6, 1996, the Agreement was again extended to June 30, 1997. 38 On August 31, 1993, the Company entered into an Agreement with Red Raven III, a Trust located in St. Louis, Missouri, whereby the Company assigned to Red Raven III the remaining four mining claims. The terms of this Agreement were substantially the same as those made with Quilotosa Wash. On July 1, 1994, the Agreement was extended to January 1, 1995 and on December 28, 1994 was extended to June 30, 1996. Subsequently on February 13, 1996, the Agreement was against extended to June 30, 1997. In April 1994, the Company entered into an option agreement with The Hanover Group Inc. ("Hanover") and received $87,000 for a six month option for Hanover to test and develop the above mining claims and the eight claims held by Quilotosa Wash through October 31, 1994. On August 30, 1994, the Agreement was extended to April 30, 1995 and on March 30, 1995, was extended to April 30, 1996 for consideration of a promissory note payable to the Company in the amount of $11,600 at an annual interest rate of 8%. The note has not been recorded as an asset of the Company since the agreement was not extended after April 30, 1996 and no collections have been received to dated. On May 2, 1994, the Company entered into three agreements to acquire six month options to test and develop mining claims from the following related entities in which the Company's Chairman has financial interests: 25 claims from Gila Mining, LLC. $ 17,500 68 claims from Sigma Refining Company On behalf of: 48 claims from RFS Mining LLC 33,600 20 claims from Uranco - Marston Mining LLC 14,000 -------- $ 65,100 ======== On August 30, 1994, the Company received an advance from Hanover of $11,600 for the purpose of paying maintenance fees to the Bureau of Land Management for the mining claims under option to Hanover. The Company subsequently repaid the $11,600 to Hanover. As additional consideration the Company has agreed that in the event Hanover does not exercise its option on the mining claims that the Company will repay the $87,000 option income to Hanover. The $87,000 will be paid out from any production income the Company may receive from any mining claims it owns. In the event there is no production income the $87,000 will not be repaid. 39 On October 25, 1994, the Company exercised its rights under the option agreements to purchase the above claims by granting irrevocable ownership pre-rated interests of all pre-tax net profits realized by the Company from the sale of all metals extracted from the claims as follows: .00833 to Gila Mining LLC .016 to RFS Mining LLC .00734 to Uranco-Marston Mining LLC Current notes receivable from related parties are as follows: Turtleback Mountain Gold Co., Inc. $ 5,900 Interest rate of 12% per annum Payable on demand RFS Mining LLC $ 13,990 Interest rate of 12% per annum Payable on demand Phoenix International Mining, Inc. $ 11,920 Interest rate of 12% per annum Payable on demand At the annual meeting of shareholders held on March 13, 1995, it was approved that the officers and directors of the Company be compensated for past services of 1993 and 1994 in the amount of $170,000 and reimbursement of expenses and loans of $9,495. In lieu of cash they received 2,454,319 shares of the Company's common stock. Other notes payable are due to the following related parties: 1996 1995 Individual shareholders and members $ 285,000 $ 5,000 Entities in which the Chairman and Chief Executive Officer of the Company are also an officer/director - 25,200 Phoenix International Mining, Inc. - 24,000 Chairman and Chief Executive Officer of the Company - 5,600 Due to the Estate of the former President of the Company who repaid demand note payable to Hanover Group, Inc. on behalf of the Company in March 1995 - 11,600 --------- -------- $ 285,000 $ 71,400 ========= ======== 40 All notes are due within one year with interest at 12% and 18%. On December 11, 1995, the Company agreed to acquire $2,400,000 in International Precious Metals Corporation (IPM) convertible debentures from Phoenix International Mining, Inc., a Nevada corporation, for 9,600,000 shares of the Company's common stock. The convertible debentures had been previously issued to Phoenix International Mining, Inc. by IPM under the terms of a renegotiated Joint Venture Agreement between the two entities. These debentures are convertible into common shares on NASDAQ for the 20 trading days prior the debenture's due date of $5.00 per share, subject to the approval of all regulatory authorities. The debentures are comprised of four amounts of $500,000 with due dates in 1996 of January 1, April 1, July 1 and October 1, and one $400,000 with a due date of January 1, 1997. Each debenture accrues interest beginning on its due date at the prime rate of Bank One in Phoenix, Arizona, plus 2%. In the event that IPM is not able to obtain regulatory approval to effect the conversion of the debentures by September 1, 1996, the debentures become payable on demand. At the Annual Meeting of Shareholders on March 8, 1996, the adoption of a non-qualified incentive stock option plan was approved. Subsequently, at the Board of Directors meeting on March 14, 1997, the 1996 Nonqualifying Stock Option Plan was accepted with Directors and Officers to be offered 2,400,000 shares at an option price of $0.32 per share. The remaining 2,600,000 shares will carry an option price of $1.00 per share and distribution will be determined by the compensation committee for 1997. To date no options have been issued. At a Special Board of Directors meeting held on April 2, 1996, it was agreed to sell the January 1, 1996 ($500,000) and April 1, 1996 ($500,000) debentures to David Hannon et al of Lindfield, Australia for $750,000. No decision was made regarding the July 1, 1996 debenture. The October 1, 1996, debenture was pledged as collateral for interim financing loans on behalf of Peoria Seven Mining LLC. On July 1, 1996, the Company signed an office lease with the Chairman and Chief Executive Officer of the Company for monthly rental payments of $1,200 on a month-to-month basis. The Company agreed to pay Phoenix International Mining, Inc. $2,400 per annum for calendar years 1995 and 1994 for rent and services. In prior years, the Company utilized the address of Phoenix International Mining, Inc. at no charge to the Company. On November 15, 1996, Red Raven III sold the four mining claims to Turtleback Mountain Gold Co., Inc. ("Turtleback") in exchange for 80,000,000 shares of Turtleback common stock, plus 80,000,000 "A" Warrants and 80,000,000 "B" Warrants. The Warrants are exercisable at $0.01 and $0.02 per warrant, respectively, for five years. Subsequently, Red Raven III distributed 76,000,000 of the shares as well as the A and B Warrants to the Company. The 76,000,000 common 41 shares and Warrants of Turtleback are valued at the original costs of the mining claims sold in the amount of $1,600. The Chairman and Chief Executive Officer of the Company is also the Secretary/Treasurer, Chief Financial Officer and a member of the Board of Directors of Turtleback. Due to the financial condition of IPM, limited marketability of the debentures and the uncertainty of the approval from the regulatory authorities no valuation was assigned to the remaining $1,400,000 Convertible Debentures as of December 31, 1995. However, during 1996 the debenture due July 1, 1996 and October 1, 1996 or $500,000 were collected in full including accrued interest income. Subsequently, the $400,000 debenture due January 1, 1997 was collected in full with accrued interest. In March and May 1997, the Company acquired an additional 351 mining claims bringing the total holdings of the Company to 456 claims. Included in the additional claims are 63 which were acquired from Uranco Mining LLC, a related entity in which one of the principal interest holders is also the Chairman and the Chief Executive Officer of the Company. Further, the Company has entered an agreement to provide Uranco Mining LLC with 630,000 shares of the Company's Common Stock and warrants at $1.50 per share to be exercised within five years with a maximum of 10,000,000 warrants. The number of warrants will be determined as one warrant for each 10 ounces of proven and/or probable gold, or gold equivalent from surface to 100 feet in drilling depth. In addition, there will be a 1% royalty on net smelter returns from all production from the 63 claims. During the quarter ended June 30, 1997, the Company borrowed $350,000 from Phoenix International Mining, Inc., pursuant to a line of credit in which the Company may borrow up to $2,000,000 from May 9, 1997, payable on demand with interest at 12% per year, the full amount of interest and principle outstanding due not later than five years from the date of the agreement. - --------------------------------------------------------------------- MANAGEMENT REMUNERATION - --------------------------------------------------------------------- Summary Compensation. The following table sets forth compensation information for each officer and/or director during each of the last three fiscal years. This information includes the dollar value of base salaries, bonus awards and number of stock options granted, and certain other compensation, if any. 42 SUMMARY COMPENSATION TABLE
Long-Term Compensation Name and Annual Compensation Restricted ------------ Principal ----------------------- Stock Options All Other Position Year Salary Bonus Award Granted Compensation Dale Runyon 1995 -0- -0- 1,607,386 700,000 -0- CEO, Vice 125,000 President & Chairman William Marston [1] 1995 -0- -0- 707,695 -0- -0- President & 125,000 Director Billie J. Allred [2] 1995 -0- -0- 139,238 -0- -0- Secretary & Director Alan Hubbard [3] 1995 -0- -0- -0- 100,000 -0- Director Michael Runyon- Davis [4] 1995 -0- -0- -0- 100,000 -0- Director Dale Runyon 1996 $60,000 -0- -0- 700,000 $81,000 [5] CEO & Chairman Alan Hubbard 1996 $60,000 -0- -0- 350,000 $20,000 [6] President & Director Michael Runyon- Davis 1996 $30,000 -0- -0- 175,000 -0- Director Dale Runyon 1997 $90,000 -0- -0- -0- -0- CEO & Chairman Alan Hubbard 1997 $90,000 -0- -0- -0- -0- President & Director Michael Runyon- Davis [7] 1997 $45,000 -0- -0- -0- -0- Secretary & Director
[1] Mr. Marston died in July 1995. [2] Mr. Allred resigned in November 1995. [3] Mr. Hubbard was appoint to the Board of Directors in August 1995. [4] Mr. Runyon-Davis was appointed to the Board of Directors in December 1995. [5] Mr. Runyon was paid as a consultant until June 1996. [6] Mr. Hubbard was paid as a consultant until June 1996. [7] Mr. Runyon-Davis was appointed Secretary on September 1997. 43 These amounts were approved by the Board in recognition of the work and efforts. Further, the Board recognized the significant role of these three individuals in managing the Company's principal office in East Peoria, Illinois and in raising funds for the Company's exploration and development activities. Finally, the Board of Directors took into account the reasonableness of these salaries in comparison with Executive salaries within the mining region. On the basis of the above factors, the Board determined that these salaries were proper and fitting. No other officers received a salary during Fiscal 1996 nor during 1997. The Board believes that executive compensation during Fiscal 1996 substantially reflects the Company's compensation policy. Option Grants Table. The following table sets forth information concerning stock options granted to the Named Officers in 1995:
OPTION GRANTS IN FISCAL 1995 and 1996 Percentage of Options Granted Number of Shares to Employees Underlying During Exercise Price Expiration Name Options Grant Fiscal Year Per Share Date Dale Runyon 1,400,000 65.8% $0.32 March 14, 2007 Alan Hubbard 450,000 21.2% $0.32 March 14, 2007 Michael Runyon-Davis 275,000 12.9% $0.32 March 14, 2007 Named Executive Officers 2,125,000 99.9%
Aggregated Option Exercises. No options were exercised by the Named Officers during 1995, 1996 and first three quarters of 1997. The following table sets forth certain information concerning the number of shares covered by both exercisable and unexercisable stock options as of September 30, 1997. Also reported are values of "in- the-money" options that represent the positive spread between the respective exercise prices of outstanding stock options and the fair market value of the Company's Common Stock as of September 30, 1997. The dollar values in columns (a) and (c) are calculated by determining the difference between the fair market value of the underlying stock and the exercise price or base price of the options at exercise or through the third quarter of 1997, respectively. The stock's fair market value on August 15, 1997 was $0.86 per share. Even if there were, it is possible they might never be exercised. Actual gains realized, if any, on stock option exercises and Common Stock holdings are dependent on the future performance and value of the Common Stock and overall stock market conditions. There can be no assurance that projected gains and values would be realized. 44
FISCAL YEAR-END OPTION VALUES (a) (b) (c) (d) Number of Shares Subject Value of in-the-money To Unexercised Options Options at Fiscal at Fiscal Year-End Year End [1] Name Exercisable Unexercisable Exercisable Unexercisable Dale Runyon 1,400,000 -0- $756,000 $ -0- Alan Hubbard 450,000 -0- $243,000 $ -0- Michael Runyon-Davis 275,000 -0- $ 148,500 $ -0-
[1] Based on estimated fair market value of $0.86 per share on December 31 1996. 1996 Nonqualifying Stock Option Plan. In March 1996, the Board of Directors adopted the 1996 Nonqualifying Stock Option Plan (the "Plan"). The Plan provides for the award of stock options to the Company's key employees. The total number of shares of Common Stock that may be issued under the Plan will not exceed 5,000,000. The Plan is administered by the Board of Directors, which has the authority, subject to the terms of the Plan, to determined the persons to whom options or rights may be granted, the exercise price and number of shares subject to each option or right, the character of the grant, the time or times at which all or a portion of each option or right may be exercised and certain other provisions of each option or right. The Board of Directors may also delegate authority to administer the Plan to a committee of the Board of Directors or to a senior officer of the Company, or both. Long-Term Incentive Plan Awards. The Company does not have any formalized long-term incentive plan (excluding restricted stock, stock option and SAR plans) that provides compensation intended to serve as incentive for performance to occur over a period longer than one fiscal year, whether such performance is measured by reference to financial performance of the Company or an affiliate, the Company's stock price, or any other measure other than the 1996 Non-Qualified Incentive Stock Option Plan. Compensation of Directors. Directors receive no compensation for services as a result of being a member of the Board of Directors. There are no contractual arrangements with any member of the Board of Directors. 45 - --------------------------------------------------------------------- PRINCIPAL SHAREHOLDERS - --------------------------------------------------------------------- Security Ownership of Certain Beneficial Owners and Management. The following table sets forth as of June 30, 1997, the beneficial ownership of Common Stock with respect to: (1) All persons known to the Company to be the beneficial owners of more than five percent of the outstanding shares of Common Stock (the "Principal Shareholders"); (2) Each director and director nominee of the Company; (3) Each Named Executive Officer (as that term is defined in the section entitled "Executive Compensation," below) who is listed in the "Summary Compensation Table," below; and, (4) All directors and executive officers as a group. At July 7, 1997, the number of shares of common stock of the Company issued and outstanding was 45,545,863.
Percent Common Stock Beneficially Owned No. of Shares of Class 1. Shareholders Phoenix International Mining 18,790,090 41.26% 528 Fon du Lac Drive East Peoria, Illinois 61611 2. Directors Alan Hubbard 100,000 0.22% 528 Fon du Lac Drive East Peoria, Illinois 61611 Dale Runyon 4,806,101 10.55% 528 Fon du Lac Drive East Peoria, Illinois 61611 Michael Runyon-Davis 1,129,487 2.48% 528 Fon du Lac Drive East Peoria, Illinois 61611 3. Named Executive Officers (Excluding Any Director Named Above) n/a 4. All Directors and Executive Officers as a Group (3 Persons) 6,035,588 13.25%
All shares are owned beneficially and of record, unless otherwise noted. 46 - --------------------------------------------------------------------- DESCRIPTION OF THE SECURITIES - --------------------------------------------------------------------- The Company is presently authorized to issue up to 100,000,000 shares of its $0.00001 par value Common Stock. Presently 45,545,863 shares are issued and outstanding and 9,109,172 additional shares will be issued if the maximum number of Warrants are exercised at $1.00 per Warrant. The holders of the Company's Common Stock are entitled to one vote per share on each matter submitted to a vote at any meeting of shareholders. Rights of Common Stock Shareholders Shares of Common Stock do not carry cumulative voting rights and, therefore, a majority of the outstanding Common Stock will be able to elect the entire Board of Directors and, if they do so, minority shareholders would not be able to elect any members to the Board of Directors. See "Capitalization" and "Risk Factors - Cumulative Voting, Preemptive Rights and Control." Shareholders of the Company have no preemptive rights to acquire additional shares of Common Stock or other securities. The Common Stock is not subject to redemption and carries no subscription or conversion rights. In the event of liquidation of the Company, the shares of Common Stock are entitled to share equally in corporate assets after satisfaction of all liabilities. The shares of Common Stock, when issued, will be fully paid and non-assessable. There are no outstanding options, warrants or rights to purchase shares of the Company's Common Stock, other than as disclosed herein in this Prospectus. Shares Eligible for Future Sale Upon completion of this offering the Company will have outstanding 50,100,449 shares of Common Stock if 50% of the Warrants are exercised and 54,655,035 shares of Common Stock if the maximum number of Warrants are exercised. The 9,109,172 shares, issued pursuant to the exercise of the Warrants will be freely tradeable without restriction or further registration under the Securities Act of 1933, as amended (the "Act"). Of the remaining 45,545,863 shares 11,720,300 are freely tradeable without restriction and 33,825,563 are "restricted" securities as defined in Rule 144 of the Act. See "Plan of Distribution." In general, under Rule 144, a person (or persons whose shares are aggregated) who has satisfied a one (1) year holding period may sell in ordinary market transactions through a broker or with a market maker, within any three (3) month period a number of shares which does not exceed the greater of one percent (1%) of the number of outstanding shares of Common Stock or the average of the weekly trading volume of the Common Stock during the four calendar weeks prior to such sale. Sales under Rule 144 require the filing of Form 144 with the Securities and Exchange Commission. If the shares of Common Stock have been held for more than two (2) years by a person 47 who is not an affiliate, there is no limitation on the manner of sale or the volume of shares that may be sold and no Form 144 is required. Sales under Rule 144 may have a depressive effect on the market price of the Company's Common Stock. Dividends Holders of Common Stock are entitled to receive such dividends as the Board of Directors may from time to time declare out of funds legally available for the payment of dividends. The Company seeks growth and expansion of its business through the reinvestment of profits, if any, and does not anticipate that it will pay dividends in the foreseeable future. Description of Redeemable Warrants The Redeemable Warrants will be issued under warrant certificates (the "Warrant Certificate") to be dated as of the date of this Prospectus, between the Company and Interwest Transfer Company, as Warrant Agent (the "Warrant Agent"). A copy of the Redeemable Warrant Certificate is filed as an exhibit to the registration statement and also may be examined at the office of the Company or of the Warrant Agent. The following summary of certain provisions of the Warrant Certificate does not purport to be complete and is qualified in its entirety by reference to the Warrant Certificates. Each Redeemable Warrant entitles the holder to purchase one share of Common Stock at a price of $1.00 per share, until March 13, 1999. The Redeemable Warrants are callable by the Company upon thirty (30) days written notice. At the time a Redeemable Warrant is exercised, the exercise price for the Redeemable Warrant shall be paid in full. Prior to expiration, the Redeemable Warrants may be exchanged, transferred or exercised by the registered Warrant Holder by presenting the Redeemable Warrants to the Warrant Agent. See "Risk Factors - Redeemable Warrants." The Redeemable Warrants do not confer on the holders thereof any voting or other rights of a stockholder of the Company. The Company will have authorized and reserved for sale the stock purchasable upon exercise of the Redeemable Warrants. When delivered, such shares of stock shall be fully paid and non-assessable. The Exercise Price and the number of shares issuable upon exercise of the Redeemable Warrants are subject to adjustment upon the occurrence of certain events, including the issuance of any Common Stock as a dividend or any stock split or reverse split as a dividend. Adjustments in the number of shares issuable or in the Exercise Price or both shall also be made in the event of any merger or other reorganization. The Warrant Certificates will provide that the Company and the Warrant Agent may, without the consent of the holders of the Redeemable Warrants, make changes in the Warrant Certificates which do not adversely effect, alter or change the rights, privileges or immunities of the registered holders of the Redeemable Warrants. 48 The Company may pay a solicitation fee of 10% of the exercise price of the Warrants to any NASD registered representative who, if after one year from the effective date of the registration statement the Warrants are called, causes the exercise thereof prior to the expiration as set forth in the Warrant Agreement, subject however, to the provisions of the NASD Notice to Members 81-38 (September 22, 1981). NASD Notice to Member 81-38 provides that an NASD registered representative may not receive compensation as a result of any of the following transactions: (1) the exercise of Redeemable Warrants where the market price of the underlying security is lower than the exercise price; (2) the exercise of Redeemable Warrants held in any discretionary account (3) the exercise of Redeemable Warrants where disclosure of compensation arrangements has not been made in documents provided to customers both as part of the original offering and at the time of exercise; and, (4) the exercise of Redeemable Warrants in unsolicited transactions. Unless granted an exemption from Rule 10b-6 of the Securities and Exchange Act of 1934, the Selling Agent and any soliciting broker/dealers will be prohibited from engaging in any market making activities with regards to the Company's securities for the period from nine (9) business days prior to any solicitation of the exercise of any Warrants until the later of the termination of the solicitation activity or the termination (by waiver or otherwise) of any right that the Selling Agent and soliciting broker/dealers may have to receive a fee for the exercise of Warrants following such solicitation. As a result, the Selling Agent and soliciting broker/dealers may be unable to continue to provide a market for the Company's securities during certain periods while the Warrants are exercisable. Transfer Agent The Company's Transfer Agent is: Interwest Tranfer Company P. O. Box 17136 Salt Lake City, Utah 84117 The Company's common shares are traded on the Bulletin Board operated by the National Association of Securities Dealers, Inc. under the symbol "MXAM." The prices listed below were obtained from the National Quotation Bureau, Inc., and are the highest and lowest bids reported during each fiscal quarter for the period December 31, 1995, through June 30, 1997. The Company's Common Stock did not begin to trade until the third quarter of 1996. These bid prices are over-the-counter market quotations based on interdealer bid prices, without markup, markdown, or commission and may not necessarily represent actual transactions: 49 Fiscal Quarter Ended High Bid ($) Low Bid ($) - -------------------- ------------ ----------- June 30, 1997 $ 1.0625 $ 0.625 March 31, 1997 $ 1.6875 $ 0.017 December 31, 1996 $ 0.16 $ 0.11 September 30, 1996 $ 0.17 $ 0.15 June 30, 1996 $ 0.00 $ 0.00 March 31, 1996 $ 0.00 $ 0.00 December 31, 1995 $ 0.00 $ 0.00 September 30, 1995 $ 0.00 $ 0.00 June 30, 1995 $ 0.00 $ 0.00 March 31, 1995 $ 0.00 $ 0.00
On October 7, 1997, the average of the high bid and low ask quotation for the Company's common shares as quoted on the OTC Bulletin Board operated by the National Association of Securities Dealers was $0.86. The approximate number of holders of common stock of record on October 7, 1997, was 365. There is no market for the Warrants and none is expected to develop. See "Risk Factors - No Market for the Warrants." - --------------------------------------------------------------------- PLAN OF DISTRIBUTION - --------------------------------------------------------------------- The Warrants will be distributed to shareholders of record as of March 13, 1997, on the basis of one (1) Warrant for every five (5) shares owned. Fractional warrants will not be issued. In the event a shareholder does not own a number of shares evenly divisible by five (5) the Company will round down. The distribution of the Warrants and/or Common Stock offered by the Company may be effected by one or more transactions that may take place in the over-the-counter market, including ordinary brokers' transactions, privately negotiated transactions, or through sales to one or more dealers for resale of such securities as principals, at market prices prevailing at the time of sale, at prices related to such prevailing market prices or at negotiated prices. All proceeds from the exercise of the Warrants will be immediately available for use by the Company. The Company will not receive any proceeds from the sale of the Warrants or the sale of the Common Stock. SEC 15(g) of the Securities Exchange Act of 1934. The Company's shares of Common Stock are covered by Section 15g of the Securities Exchange Act of 1934, as amended, that imposes additional sales practice requirements on broker/dealers who sell such securities to persons other than established customers and accredited investors (generally institutions with assets in excess of $5,000,000 or individuals with net worth in excess of $1,000,000 or 50 annual income exceeding $200,000 or $300,000 jointly with their spouses). For transactions covered by the Rule, the broker/dealer must make a special suitability determination for the purchase and have received the purchaser's written agreement to the transaction prior to the sale. Consequently, the Rule may affect the ability of broker/dealers to sell the Company's securities and also may affect the ability of purchasers in this offering to sell their shares in the secondary market. Section 15(g) also imposes additional sales practice requirements on broker/dealers who sell penny securities. These rules require a one page summary of certain essential items. The items include the risk of investing in penny stocks in both public offerings and secondary marketing; terms important to in understanding of the function of the penny stock market, such as "bid" and "offer" quotes, a dealers "spread" and broker/dealer compensation; the broker/dealer compensation, the broker/dealers duties to its customers, including the disclosures required by any other penny stock disclosure rules; the customers rights and remedies in causes of fraud in penny stock transactions; and, the NASD's toll free telephone number and the central number of the North American Administrators Association, for information on the disciplinary history of broker/dealers and their associated persons. - --------------------------------------------------------------------- LITIGATION - --------------------------------------------------------------------- The Officers and Directors of the Company certify that to the best of their knowledge, neither the Company nor any of its Officers and Directors are parties to any legal proceeding or litigation. Further, the Officers and Directors know of no threatened or contemplated legal proceedings or litigation. None of the Officers and Directors have been convicted of a felony or none have been convicted of any criminal offense, felony and misdemeanor relating to securities or performance in corporate office. To the best of the knowledge of the Officers and Directors, no investigations of felonies, misfeasance in office or securities investigations are either pending or threatened at the present time. - --------------------------------------------------------------------- LEGAL MATTERS - --------------------------------------------------------------------- Legal matters in connection with the Warrants and underlying Common Stock of the Company to be issued in connection with the offering will be passed upon for the Company by Conrad C. Lysiak, Attorney and Counselor at Law, West 601 First Avenue, Suite 503, Spokane, Washington 99204. 51 - --------------------------------------------------------------------- EXPERTS - --------------------------------------------------------------------- The financial statements of the Company appearing in this Prospectus and the Registration Statement have been examined by the accounting firm of Morgenstern & Alexander, Certified Public Accountants, 300 Broadway, Fourth Floor, New York, New York 10013, as indicated in its report contained herein. Such financial statements are included in this Prospectus in reliance upon the said report, given upon such firm's authority as an expert in auditing and accounting. - --------------------------------------------------------------------- ADDITIONAL INFORMATION - --------------------------------------------------------------------- The Company has filed with the Securities and Exchange Commission, 450 Fifth Street, N.W. Washington D.C. 20549, a registration statement under the Act, as amended with respect to the securities offered hereby. This Prospectus does not contain all of the information set forth in the registration statement, exhibits and schedules thereto. For further information with respect to the Company and the securities offered hereby, reference is made to the registration statement, exhibits and schedules, copies of which may be obtained from the Commission's principals officers in Washington, D.C., upon payment of the fees prescribed by the Commission. 52 MORGENSTERN & ALEXANDER CERTIFIED PUBLIC ACCOUNTANTS 350 Broadway, 4th Floor New York, New York 10013-3911 TEL: (212) 925-9490 FAX: (212) 226-9134 INDEPENDENT AUDITOR'S REPORT To the Shareholders and Board of Directors Maxam Gold Corporation We have audited the accompanying consolidated balance sheets of Maxam Gold Corporation and subsidiary as of December 31, 1996 and December 31, 1995, and the related consolidated statements of income, shareholders' equity, and cash flows for each of the three years in the period ended December 31, 1996. 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 in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of Maxam Gold Corporation and subsidiary as of December 31, 1996 and December 31, 1995, and the consolidated results of their operations and their cash flows for each of the three years in the period ended December 31, 1996, in conformity with generally accepted accounting principles. /s/ Morgenstern & Alexander Morgenstern & Alexander Certified Public Accountants May 20, 1997 F-1 53 MAXAM GOLD CORPORATION AND SUBSIDIARY CONSOLIDATED BALANCE SHEETS DECEMBER 31, ASSETS
June 30, 1997 (Consolidated) 1996 (Unaudited) (Consolidated) 1995 Current Assets: Cash $ 230,025 $ 454,406 $ 141 Marketable security: Trading security carried at fair value - 400,000 750,000 Notes receivable 66,690 83,610 - Prepaid expenses and miscellaneous receivables 12,689 4,778 - ---------- ---------- --------- Total Current Assets 309,404 942,794 750,141 ---------- ---------- --------- Fixed Assets: Office equipment 10,140 8,563 - Machinery & equipment 1,074,465 688,728 - Transportation equipment 64,869 17,047 - ---------- ---------- --------- 1,149,474 714,338 - Less accumulated depreciation 129,888 60,189 - ---------- ---------- --------- Net Fixed Assets 1,019,586 654,149 - ---------- ---------- --------- Other Assets: Note receivable, less current portion 6,983 11,581 - Mining properties 77,820 77,820 79,420 Investment in affiliate 1,600 1,600 - Other 225 255 - ---------- ---------- --------- 86,628 91,256 79,420 ---------- ---------- --------- Total Assets $1,415,618 $1,688,199 $ 829,561 ========== ========== ========= LIABILITIES AND SHAREHOLDERS' EQUITY Current Liabilities: Note payable to bank $ 58,885 $ 28,381 $ - Other notes payable 585,000 285,000 71,400 Obligation under capital lease 116,746 220,518 - Accounts payable and accrued expenses 272,607 65,322 45,508 Due to officers and shareholders 55,170 31,115 83,224 ---------- ---------- --------- Total Liabilities 1,088,408 630,336 200,132 ---------- ---------- --------- Shareholders' Equity: Common stock, par value $.00001, authorized 100,000,000 shares, issued and outstanding 45,545,863 shares as of December 31, 1996 and 45,336,963 as of December 31, 1995 455 455 453 Paid in capital 2,629,144 2,629,144 1,179,146 Retained earnings (Deficit) (2,302,389) (1,571,736) (550,170) ---------- ---------- --------- Total Shareholders' Equity 327,210 1,057,863 629,429 Total Liabilities and ---------- ---------- --------- Shareholders' Equity $1,415,618 $1,688,199 $ 829,561 ========== ========== =========
See notes to consolidated financial statements. F-2 54 In order to transmit these documents to the SEC via EDGAR, Maxam Gold Corporation and Subsidiary, Consolidated Statements of Income, has been formatted to fit across two pages. This is page 1 of 2. MAXAM GOLD CORPORATION AND SUBSIDIARY CONSOLIDATED STATEMENTS OF INCOME FOR THE YEARS ENDED DECEMBER 31,
For The Six For The Six Months Ended Months Ended June 30, 1997 June 30, 1996 (Consolidated) (Consolidated) 1996 (Unaudited) (Unaudited) (Consolidated) Revenues: Mining Options -0- -0- -0- Interest income 11,014 -0- 21,398 ---------- ---------- ----------- 11,014 -0- 21,398 ---------- ---------- ----------- Expenses: Mining Expenses 297,050 331,864 541,578 General and administrative 174,980 121,356 237,875 Officers' compensation 150,000 -0- 150,000 Depreciation and amortization 69,729 12,090 60,234 Interest expense 51,348 12,535 55,627 ---------- ---------- ----------- 743,107 477,845 1,045,314 ---------- ---------- ----------- Loss before minority interest (732,093) (477,845) (1,023,916) Minority interest in loss of consolidated subsidiary 1,440 1,600 2,350 ---------- ---------- ----------- Net Loss $ (730,653) $ (476,245) $(1,021,566) ========== ========== =========== Net Loss per common share $ (.02) $ (.01) $ (.02) ========== ========= =========== F-3 55 In order to transmit these documents to the SEC via EDGAR, Maxam Gold Corporation and Subsidiary, Consolidated Statements of Income, has been formatted to fit across two pages. This is page 2 of 2. 1995 1994 -0- 87,000 -0- -0- ---------- ---------- -0- 87,000 ---------- ---------- 15,980 10,850 55,842 42,694 79,525 170,000 -0- -0- 5,670 4,269 ---------- ---------- 157,017 227,813 ---------- ---------- -0- -0- -0- -0- ---------- ---------- $ (157,017) $ (140,813) ========== ========== $ (Nil) $ (Nil) ========== ==========
See notes to consolidated financial statements. F-3a 56 Page 1 of 2 MAXAM GOLD CORPORATION AND SUBSIDIARY CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY FOR THE PERIOD JANUARY 1, 1994 TO DECEMBER 31, 1996
Retained Total # of Par Value Paid In Earnings Shareholders' Shares $.00001 Capital (Deficit) Equity Balance at 12/31/93 25,000,000 $ 250 $ 62,270 $(252,340) $(189,820) Issuance of 3,449,820 common shares in exchange for $172,491 of amounts due to officers and stockholders 3,449,820 35 172,456 172,491 Issuance of 10,000 common shares for cash 10,000 5,000 5,000 Issuance of 1,500,000 common shares in exchange for 12 mining claims 1,500,000 15 4,785 4,800 Net loss for the year ended December 31, 1994 (140,813) (140,813) ---------- -------- ------- --------- --------- Balance at 12/31/94 29,959,820 300 244,511 (393,153) (148,342) Issuance of 2,454,319 common shares in exchange for $179,495 of amounts due to officers 2,454,319 24 179,471 179,495 Issuance of 3,322,824 common shares re: Consulting Agreement with Timberline Consulting Inc. 3,322,824 33 5,260 5,293 Issuance of 9,600,000 common shares for acquisition of convertible debentures 9,600,000 96 749,904 750,000 Net loss for the year ended 12/31/95 (157,017) (157,017) ---------- -------- --------- --------- --------- Balance at 12/31/95 45,336,963 453 1,179,146 (550,170) 629,429
See notes to consolidated financial statements. F-4 57 Page 2 of 2 MAXAM GOLD CORPORATION AND SUBSIDIARY CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY FOR THE PERIOD JANUARY 1, 1994 TO DECEMBER 31, 1996
Retained Total # of Par Value Paid In Earnings Shareholders' Shares $.00001 Capital (Deficit) Equity Issuance of 200,000 common shares for cash 200,000 2 49,998 50,000 Issuance of 8,900 common shares re notes payable 8,900 To record balance of convertible debentures re 1995 issuance of 9,600,000 common shares 1,400,000 1,400,000 Net loss for the year ended 12/31/96 (1,021,566) (1,021,566) --------- -------- --------- ----------- ---------- Balance at 12/31/96 45,545,863 $ 455 $2,629,144 $(1,571,736)$ 1,057,863 Net loss for the six month period ended June 30, 1997 (Unaudited) (730,653) (730,653) ---------- -------- ---------- ----------- ----------- Balance at June 30, 1997 (Unaudited) 45,545,863 $ 455 $2,629,144 $(2,302,389) $ 327,210 ========== ======== ========== =========== ===========
See notes to consolidated financial statements. F-5 58 In order to transmit these documents to the SEC via EDGAR, Maxam Gold Corporation and Subsidiary, Consolidated Statements of Cash Flows, has been formatted to fit across two pages. This is page 1 of 2. MAXAM GOLD CORPORATION AND SUBSIDIARY CONSOLIDATED STATEMENTS OF CASH FLOWS FOR THE YEARS ENDED DECEMBER 31,
For The Six For The Six Months Ended Months Ended June 30, 1997 June 30, 1996 (Consolidated) (Consolidated) 1996 (Unaudited) (Unaudited) (Consolidated) Cash Flows From (Used For) Operating Activities Net Loss $(730,653) $(476,245) $(1,021,566) Adjustments to reconcile net loss to net cash provided by operating activities: Depreciation and amortization 69,729 12,090 60,234 Consulting expense - Change in assets and liabilities: Decrease in marketable trading security 400,000 312,500 350,000 (Increase) decrease in prepaid expenses and miscellaneous receivables (7,911) (12,976) (4,778) Increase in other assets - - (300) Increase in accounts payable and accrued expenses 207,285 50,219 19,814 --------- --------- ----------- Net cash used for operating activities (61,550) (114,412) (596,596) --------- --------- ----------- Cash Flows Used For Investing Activities Purchase of mining options - - - Purchase of equipment (435,136) (231,244) (403,018) --------- --------- ----------- Net cash used for investing activities (435,136) (231,244) (403,018) --------- --------- ----------- Cash Flows From (Used For) Financing Activities (Increase) decrease in notes receivable 21,518 - (101,810) Increase in note payable to bank 30,504 - 35,000 Increase in other notes payable 300,000 202,000 213,600 Principal payments under capital lease obligation (103,772) - (90,802) Increase (decrease) in amount due to officers and stockholders 24,055 (53,700) (52,109) Proceeds from issuance of common stock - - 50,000 Increase in paid in capital re: convertible debentures - 482,137 1,400,000 --------- --------- ----------- Net cash from financing activities 272,305 630,437 1,453,879 --------- --------- ----------- Net increase (decrease) in cash (224,381) 284,781 454,265 Cash at beginning of year 454,406 141 141 --------- --------- ----------- Cash at end of year $ 230,025 $ 284,922 $ 454,406 ========= ========= =========== Supplemental Disclosure of Cash Flow Information Interest paid $ 51,348 $ 12,535 $ 55,627 ========= ========== =========== See notes to consolidated financial statements. F-6 59 In order to transmit these documents to the SEC via EDGAR, Maxam Gold Corporation and Subsidiary, Consolidated Statements of Cash Flows, has been formatted to fit across two pages. This is page 2 of 2. 1995 1994 $ (157,017) $ (140,813) - - 5,293 - - - - 1,000 - - 34,384 1,300 ---------- ---------- (117,340) (138,513) ---------- ---------- - (65,100) - - ---------- ---------- - (65,100) ---------- ---------- - - - - 36,800 19,100 - - 80,554 178,695 - 5,000 - - ---------- ---------- 117,354 202,795 ---------- ---------- 14 (818) 127 945 ---------- ---------- $ 141 $ 127 ========== ========== $ 5,670 $ 4,269 ========== ==========
See notes to consolidated financial statements. F-6a 60 Page 2 of 2. MAXAM GOLD CORPORATION AND SUBSIDIARY CONSOLIDATED STATEMENTS OF CASH FLOWS FOR THE YEARS ENDED DECEMBER 31, Supplemental Schedule of Noncash Investing And Financing Activities (Continued) 1994 - ---- (a) Issuance of 3,359,820 common shares in exchange for $167,991 due to officers for past services and reimbursement of expenses of amounts due to officers and stockholders which had been accrued as of December 31, 1993 (b) Issuance in 1994 of 30,000 common shares in lieu of cash for accrued consulting fees of $1,500 and 60,000 common shares issued in 1994 for cash received in 1993 of $3,000. (c) Issuance of 1,500,000 common shares in exchange for 12 mining claims. 1995 - ---- (d) Issuance of 2,454,319 common shares in exchange for $179,495 of amounts due to stockholders which had been accrued as of December 31, 1994 (e) Issuance of 3,322,824 common shares re: Consulting Agreement with Timberline Consulting Inc. (f) Issuance of 9,600,000 common shares for acquisition of convertible debentures. 1996 - ---- (g) In 1996, four of the Company's claims were sold in exchange for 76,000,000 common shares and warrants of an affiliated Company valued at the original cost of the mining claims of $1,600. (h) In 1996, the Company entered into a lease purchase agreement for used mining equipment with a down payment of $100,000 and remaining principal payments of $311,320. (i) In 1996, the long term note receivable due from an individual and the note payable to the bank were both decreased by $6,619 due to the payments made to the bank on behalf of the Company by the individual. See notes to consolidated financial statements. F-7 61 MAXAM GOLD CORPORATION AND SUBSIDIARY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 1996 NOTE 1 - ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES The Company was incorporated in the State of Utah as State Cycle on August 7, 1974. Since that time, the following amendments have been made to the Articles of Incorporation: February 19, 1975 - name was changed to Universal AMC, Inc. November 15, 1983 - name changed to Caption Industries, Inc. and authorized capitalization changed from 150,000 common shares of $1.00 par value to 50,000,000 common shares of $.001 par value. February 7,1984 - name was changed to Madonna Mining Co., Ltd and authorized capitalization changed from 50,000,000 common shares of $.001 par value to 100,000,000 common shares of $.00001 par value. June 12, 1985 - name changed to Maxam International Corporation. December 26, 1995 - name changed to Maxam Gold Corporation. The Company and its majority-owned subsidiary Peoria Seven Mining, LLC (Peoria) (Note 2) is engaged in the business of mining and refining of gold, other precious and non-precious metals. On October 2, 1987 shareholders donated mining claims to the Company (Note 3(a)). The Company had been inactive since 1985. BASIS OF CONSOLIDATION The financial statements for 1996 have been consolidated and include the accounts of the Company and its majority-owned subsidiary which was organized in May 1996. All significant intercompany accounts and transactions have been eliminated in consolidation. USE OF ESTIMATES The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. Actual results could differ from those estimates. F-8 62 MAXAM GOLD CORPORATION AND SUBSIDIARY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 1996 NOTE 1 - ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) Mining Properties Consist of mining claims located in Arizona which were donated to the Company by shareholders and other related parties (Note 3(a)) or obtained through the issuance of the Company's common stock to related parties (Note 3(b)). The mining properties have been recorded at the allocated cost basis as originally recorded by the related parties. Mining options, which were exercised on October 25, 1994, have been recorded at the cost basis at which they were acquired from related entities (Note 3(c)). All other mining costs have been expensed as incurred. Fixed Assets Fixed assets are carried at cost. Costs of major additions, replacements and betterments are capitalized and maintenance and repairs which do not extend the life of the respective assets are expensed as incurred. Depreciation is computed by the straight-line method over the estimated useful lives of the assets which range from five to ten years. Cash and Cash Equivalents The Company considers all highly liquid investments with a maturity of three months or less when purchased to be cash equivalents. Income Taxes The Company has net operating loss carryforwards for federal income tax purposes of approximately $1,500,000 which are available to offset future taxable income and will expire if not used in the period 2006-2011. Environmental Expenditures The operations of the Company have been, and may in the future be, affected from time to time in varying degree by changes in environmental regulations, including those for future removal and site restoration costs. The Company's policy is to meet or, if possible, surpass standards set by relevant legislation, by application of technically proven and economically feasible measures. Environmental expenditures that relate to ongoing environmental and reclamation programs will be charged against earnings as incurred or capitalized and depreciated depending on their future economic benefits. F-9 63 MAXAM GOLD CORPORATION AND SUBSIDIARY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 1996 NOTE 2 - ORGANIZATION OF SUBSIDIARY In May, 1996 Peoria Seven Mining, LLC, (Peoria) a limited liability Company, was organized under the laws of the State of Arizona. Under the Articles of Organization Maxam Gold Corporation (Maxam) is a member with 5,750,000 shares out of a total of 6,250,000 shares with the manager of Peoria also being the Chairman and Chief Executive Officer of Maxam. Maxam assigned mining rights on four claims that it owns and authorized the loaning of funds at an interest rate of 10% to Peoria in consideration for the 5,750,000 shares. The remaining 500,000 shares were offered through units in which 1 unit was offered for $5,050 of which $5,000 was for a twelve month loan at 12% and $50 was to purchase 5,000 shares in Peoria. As of December 31, 1996 proceeds of $237,350 had been collected of which $2,350 was for 235,000 shares. As of December 31, 1996 Maxam owned 96.07% of Peoria. NOTE 3 - RELATED PARTY TRANSACTIONS (a) On September 23, 1987, Phoenix International Mining, S.A. (A Panamanian Corporation) purchased 20,000,000 shares of the outstanding common stock of Maxam International Corporation which constituted 80% of the issued and outstanding common shares of the Company in exchange for four mining claims. On October 2, 1987 Phoenix International Mining, S.A. transferred approximately 53.2% of these outstanding shares to related entities of Phoenix International Mining, S.A. These mining properties have been recorded on the books of the Company at the allocated cost basis of $9,520 as originally recorded by Phoenix International Mining, S.A. (b) At the annual meeting of shareholders on July 14, 1993 approval was granted for the acquisition of twelve 160 acre mining claims in Southwest Arizona for 1,500,000 shares of the Company's common stock. Six of the claims were owned by a Corporate shareholder while the President (deceased) and Chairman of the Board of the Company each owned one claim. The remaining four claims were owned by a Corporation in which the Chairman of the Board of the Company was a Director. In addition, the Sellers of the mining claims are to receive 5% of the net profit before taxes realized by the Company from the minerals mined and sold on a consolidated pro rata basis. The 1,500,000 shares were subsequently issued in 1995 at the allocated cost basis of $4,800. F-10 64 MAXAM GOLD CORPORATION AND SUBSIDIARY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 1996 NOTE 3 - RELATED PARTY TRANSACTIONS (CONTINUED) On August 31, 1993 the Company entered into an Agreement with Quilotosa Wash, a Trust located in Peoria, Illinois, whereby the Company assigned to Quilotosa Wash eight of the above mentioned mining claims. Quilotosa Wash agreed to seek adequate financing to mine and process one thousand tons of ore per day from the mining claims. Quilotosa Wash will receive ten percent of the net profits from the operation as a management fee. In addition, Quilotosa Wash is authorized to pay a total of five percent of the net profits before taxes earned by the Company from the operation to the three former sellers of the mining properties. In the event Quilotosa Wash does not obtain adequate financing by July 1, 1994, the Company has the right to buy back the eight mining claims for ten dollars and other good and valuable consideration. On July 1, 1994 the Agreement was extended to November 1, 1994 and on October 24, 1994 was extended to June 30, 1996. Subsequently, on February 6, 1996 the Agreement was again extended to June 30, 1997. On August 31, 1993 the Company entered into an Agreement with Red Raven III, a Trust located in St. Louis, Missouri, whereby the Company assigned to Red Raven III the remaining four mining claims. The terms of this Agreement were substantially the same as those made with Quilotosa Wash. On July 1, 1994 the Agreement was extended to January 1, 1995 and on December 28, 1994 was extended to June 30, 1996. Subsequently, on February 13, 1996 the Agreement was again extended to June 30, 1997. On November 15, 1996 Red Raven III sold the four mining claims to Turtleback Mountain Gold Co., Inc. (Turtleback) in exchange for 80,000,000 shares of Turtleback common stock plus 80,000.000 "A" warrants and 80,000,000 "B" warrants. The warrants are exercisable at $ .01 and $.02 per warrant, respectively, for five years. Subsequently, Red Raven III distributed 76,000,000 of the shares as well as the A and B warrants to the Company. The 76,000,000 common shares and warrants of Turtleback are valued at the original cost of the mining claims sold in the amount of $1,600. The Chairman and Chief Executive officer of the Company is also the Secretary/Treasurer, Chief Financial officer and a member of the Board of Directors of Turtleback. F-11 65 MAXAM GOLD CORPORATION AND SUBSIDIARY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 1996 NOTE 3 - RELATED PARTY TRANSACTIONS (CONTINUED) (c) On May 2, 1994 the Company entered into three agreements to acquire six month options to test and develop mining claims from the following related entities in which the Company's Chairman has financial interests: 25 claims from Gila Mining LLC $ 17,500 68 claims from Sigma Refining Company in behalf of: 48 claims from RFS Mining LLC 33,600 20 Claims from Uranco - Marston Mining LLC 14,000 -------- $ 65,100 ======== On October 25, 1994 the Company exercised its rights under the option agreements to purchase the above claims by granting irrevocable ownership pro-rated interests of all pre-tax net profits realized by the Company from the sale of all metals extracted from the claims as follows: .00833 to Gila Mining LLC .016 to RFS Mining LLC .00734 to Uranco-Marston Mining LLC In April 1994, the Company entered into an option agreement with The Hanover Group, Inc. (Hanover) and received $87,000 for a six month option for Hanover to test and develop the above mining claims and the 8 claims held by Quilotosa Wash (Note 3(b)) through October 31, 1994. On August 30, 1994 the agreement was extended to April 30, 1995 and on March 30, 1995, was extended to April 30, 1996 for consideration of a promissory note payable to the Company in the amount of $11,600 at an annual interest rate of 8%. The note has not been recorded as an asset of the Company since the agreement was not extended after April 30, 1996 and no collections have been received to date. F-12 66 MAXAM GOLD CORPORATION AND SUBSIDIARY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 1996 NOTE 3 - RELATED PARTY TRANSACTIONS (CONTINUED) On August 30, 1994 Maxam received an advance from Hanover of $11,600 for the purpose of paying maintenance fees to the Bureau of Land Management for the mining claims under option to Hanover. The Company subsequently repaid the $11,600 to Hanover. As additional consideration the Company has agreed that in the event Hanover does not exercise its option on the mining claims that the Company will repay the $87,000 option income to Hanover. The $87,000 will be paid out from any production income the Company may receive from any mining claims it owns. In the event there is no production income the $87,000 will not be repaid. (d) Included in current notes receivable are the following notes receivable from related parties: Turtleback Mountain Gold Co., Inc. $ 5,900 Interest rate of 12% per annum payable on demand RFS Mining LLC $13,990 Interest rate of 12% per annum payable on demand Phoenix International Mining, Inc. $11,920 Interest rate of 18% per annum payable on demand (e) (1) At the annual meeting of shareholders held on March 13, 1995 it was approved that the officers and directors of the Company be compensated for past services of 1993 and 1994 in the amount of $170,000 and reimbursement of expenses and loans of $9,495. In lieu of cash they received 2,454,319 shares of the Company's Common stock. (2) At the annual meeting of shareholders held on July 14, 1993 it was approved that the officers and directors of the Company be compensated for past services (October 1987 thru December 31, 1992) in the amount of $150,000 and reimbursement of expenses of $17,991. In lieu of cash they were to receive 3,359,820 shares of the Company's common stock. Subsequently in 1994 these shares were issued. F-13 67 MAXAM GOLD CORPORATION AND SUBSIDIARY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 1996 NOTE 3 - RELATED PARTY TRANSACTIONS (CONTINUED) (f) Other notes payable are due to the following related parties: 1996 1995 (a) Individual shareholders and members $285,000 $ 5,000 (b) Entities in which the Chairman and Chief Executive Officer of the Company is also an officer/director - 25,200 (c) Phoenix International Mining, Inc. - 24,000 (d) Chairman and Chief Executive Officer of the Company - 5,600 (e) Due to the Estate of the former President of the Company who repaid demand note payable to Hanover Group, Inc. on behalf of the Company in March 1995. - 11,600 -------- ------- $285,000 $71,400 ======== =======
All notes are due within one year with interest at 12% and 18%. (g) On July 1, 1996 the Company signed an office lease with the Chairman and Chief Executive Officer of the Company for monthly rental payments of $1,200 on a month-to-month basis. The Company agreed to pay Phoenix International Mining, Inc. $2,400 per annum for calendar years 1995 and 1994 for rent and services. In prior years, the Company utilized the home address of Phoenix International Mining, Inc. at no charge to the Company. (h) On December 11, 1995 the Company agreed to acquire $2,400,000 in International Precious Metals Corporation (IPM) convertible debentures from Phoenix International Mining, Inc. for 9,600,000 shares of the Company's common stock. The convertible debentures had been previously issued to Phoenix International Mining, Inc. by IPM under the terms of a renegotiated Joint Venture Agreement between the two entities. These debentures are convertible into common shares at the lesser of the average bid price of the IPM's shares on NASDAQ for the 20 trading days prior to the debenture's due date or $5.00 per share, subject to the approval of all regulatory authorities. The debentures are comprised of four amounts of $500,000 with due dates in 1996 of January 1, April 1, July 1 and October 1, and one $400,000 with a due date of January 1, 1997. Each debenture accrues interest beginning on its due date at the prime rate of Bank One in Phoenix, Arizona, plus 2%. In the event that IPM is not able to obtain regulatory approval to effect the conversion of the debentures by September 1, 1996, the debentures become payable on demand. F-14 68 MAXAM GOLD CORPORATION AND SUBSIDIARY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 1996 NOTE 3 - RELATED PARTY TRANSACTIONS (CONTINUED) At a Special Board of Directors meeting held on April 2, 1996 it was agreed to sell the January 1, 1996 ($500,000) and April 1, 1996 ($500,000) debentures to David Hannon et al of Lindfield, Australia for $750,000.00. No decision was made regarding the July 1, 1996 debenture. The October 1, 1996 debenture was pledged as collateral for interim financing loans on behalf of Peoria Seven Mining LLC. Due to the financial condition of IPM, limited marketability of the debentures and the uncertainty of the approval from the regulatory authorities no valuation was assigned to the remaining $1,400,000 Convertible Debentures as of December 31, 1995. However, during 1996 the debentures due July 1, 1996 and October 1, 1996 of $500,000 were collected in full including accrued interest income. Subsequently, the $400,00 debenture due January 1, 1997 was collected in full with accrued interest. NOTE 4 - OBLIGATION UNDER CAPITAL LEASE On April 24, 1996 the Company entered into a Lease Purchase Agreement with an individual to acquire used mining equipment with a down payment of $100,000 and eleven monthly payments of $33,000 and a final payment of $33,000 at which time title to the mining equipment will pass to the Company. The mining equipment was valued at $411,320. In December 1996 the payment schedule was revised, for the six month period December 1996 through May 1997, whereby the monthly payments were decreased to $16,500 with an annualized interest charges of 20% on the unpaid balance. Starting in June 1997 the original $33,000 monthly payment will resume. The individual with whom the Company entered into the Lease Purchase Agreement also entered into a Consulting Agreement with the Company on April 15, 1996 to perform consulting services regarding the production of gold and other precious metals. Under the terms of the Agreement he will be compensated at $1,500 per week plus reimbursed expenses and various incentives based on production. NOTE 5 - WARRANTS At a Board of Directors meeting held on March 14, 1997 the Board of Directors authorized the issuance of Warrants to the shareholders of the Company under the following conditions: (1) One Warrant will be issued for each five shares of the Company's stock held as of the record date of March 13, 1997. (2) Each Warrant entitles the holder to purchase one share of the Company's common stock for $1.00 within a period of two years from March 14, 1997. F-15 69 MAXAM GOLD CORPORATION AND SUBSIDIARY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 1996 NOTE 5 - WARRANTS (CONTINUED) (3) The Company intends filing with the Securities and Exchange Commission a registration statement, registering the warrants and the underlying shares. The warrants may not be exercised unless a current registration statement is effective with the Securities and Exchange Commission. The Company may call the warrants upon 30 days written notice. NOTE 6 - STOCK OPTION PLAN At the shareholders annual meeting on March 8, 1996 the adoption of a non-qualified incentive stock option plan was approved. Subsequently, at the Board of Directors meeting on March 14, 1997 the 1996 Nonqualifying Stock Option Plan was accepted with Directors and Officers to be offered 2,400,000 shares at an option price of $.32 per share. The remaining 2,600,000 shares will carry an option price of $1.00 per share and distribution will be determined by the compensation committee for 1997. To date no options have been issued. NOTE 7 - LITIGATION The Company signed a Consulting Agreement effective February 2, 1995 with Timberline Consulting Inc.(Consultant) under which the Consultant promised to perform certain investor, brokerage, and public relations services. In consideration of those services, the Company provided certain remuneration and 1,667,000 shares of Company stock to be held in escrow by the Consultants' attorney. In addition, exclusive of the Consulting Agreement, the Company sent 307,690 shares to the Consultant for the purpose of the Consultant raising capital from the sale of these Company shares. The Company terminated the Consulting Agreement in October 1995 contending non-performance by the Consultant. The Company instituted litigation proceedings with a lawsuit titled Maxam Gold Corporation v. Timberline Consultants, Inc. et al in the United States District Court for the District of Colorado. In January 1997 the lawsuit was settled and dismissed under terms requiring the Consultant to return the majority of the stock it received. To date, 911,000 shares of the Company stock has been returned to the Companys' attorneys. The attorneys are still awaiting the stock power from the Consultant in transferring the shares. F-16 70 MAXAM GOLD CORPORATION AND SUBSIDIARY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 1996 NOTE 8 - SUBSEQUENT EVENTS In March and May, 1997 the Company acquired an additional 351 mining claims bringing the total holdings of the Company to 456 claims. Included in the additional claims are 63 which were acquired from Uranco Mining LLC, a related entity in which one of the principal interest holders is also the Chairman and the Chief Executive Officer of the Company. The Company will provide Uranco Mining LLC with 630,000 shares of the stock of the Company and warrants at $1.50 per share to be exercised within five years with a maximum of 10,000,000 warrants. The number of warrants will be determined as one warrant for each 10 ounces of proven and/or probable gold, or gold equivalent from surface to 100 feet in drilling depth. In addition there will be a 1% royalty on net smelter returns from all production from the 63 claims. F-17 71 MAXAM GOLD CORPORATION AND SUBSIDIARY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS JUNE 30, 1997 (UNAUDITED) NOTE 9 - RELATED PARTY TRANSACTIONS - OTHER NOTES PAYABLE During the quarter ended June 30, 1997 the Company borrowed $350,000 from Phoenix International Mining, Inc. payable on demand with interest at 12% per year. F-18 72 UNTIL __________, 1997, (NINETY DAYS AFTER THE EFFECTIVE DATE OF THIS PROSPECTUS) ALL DEALERS EFFECTING TRANSACTIONS IN THE REGISTERED SECURITIES, WHETHER OR NOT PARTICIPATING IN THIS DISTRIBUTION, MAY BE REQUIRED TO DELIVER A PROSPECTUS. TABLE OF CONTENTS Prospectus Summary . . MAXAM GOLD CORPORATION Risk Factors . . . Capitalization . . . 9,109,172 Warrants to Purchase Dilution . . . . 9,109,172 Shares of Common Stock Selected Financial Data . and 9,109,172 Shares of Common Management's Discussion Stock Underlying the Warrants and Analysis of Financial Condition and Results of Operations . Use of Proceeds . . Dividend Policy . . Glossary . . . Business . . . . __________________________ Management . . . PROSPECTUS Certain Transactions . __________________________ Management Remuneration . Principal Shareholders . DATED: ___________________ Description of the Securities Plan of Distribution . . MAXAM GOLD CORPORATION Litigation . . . 528 Fon du Lac Drive Legal Matters . . . East Peoria, Illinois 61611 Experts . . . . Additional Information . (309) 699-8725 Financial Statements . F-1 No dealer, salesman or any other person has been authorized to give any information or to make any representations other than those contained in this Prospectus in connection with the offer contained in this Prospectus and, if given or made, such information must not be relied upon as having been authorized by the Company. Neither the deliver 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. This Prospectus does not constitute an offer to sell or the solicitation of an offer to buy an security other than the shares of Common Stock offered by this Prospectus, nor does it constitute an offer to sell or a solicitation of an offer to buy the shares of Common Stock by anyone in any jurisdiction in which such offer or solicitation is not authorized or in which the person making such offer or solicitation is not qualified to do so, to any person to whom it is unlawful to make such offer or solicitation. 73 PART II INFORMATION NOT REQUIRED IN PROSPECTUS ITEM 22. Indemnification of Directors and Officers. The only statutes, charter provisions, bylaws or other arrangements under which any controlling person, Director or Officer of the Registrant is insured or indemnified in any manner against liability which he may incur in his capacity as such are set forth below. The Utah Revised Statutes provides for indemnification where a person who was or is a party or is threatened to be made a party to any threatened, pending or contemplated action, suit or proceeding, whether civil, criminal, administrative or investigative (other than action by or in right of a corporation), by reason of fact he is or was a Director, Officer, employee or agent of a corporation or serving another corporation at the request of the corporation, against expenses (including attorneys' fees), judgments, fines, and amounts paid in settlement, actually and reasonably incurred by him if he acted in good faith and in a manner he reasonably believed to be in or not opposed to the best interest of the corporation and, with respect to criminal action or proceeding, had no reasonable cause to believe his conduct unlawful. Lack of good faith is not presumed from settlement or nolo contendere plea. Indemnification of expenses (including attorneys' fees) allowed in derivative actions except in the case of misconduct in performance of duty to corporation unless the Court decides indemnification is proper. To the extent any such person succeeds on the merits or otherwise, he shall be indemnified against expenses (including attorneys' fees). Determination that the person to be indemnified met applicable standards of conduct, if not made by the Court, is made by the Board of Directors by majority vote of quorum consisting of the Directors not party to such action, suit or proceeding or, if a quorum is not obtainable or a disinterested quorum so directs, by independent legal counsel or by the stockholders. Expenses may be paid in advance upon receipt of undertakings to repay unless it shall ultimately be determined that he is entitled to be indemnified by the corporation. The Corporation may purchase indemnity insurance. In so far as indemnification for liability arising from the Securities Act of 1933 may be permitted to Directors, Officers or persons controlling the Company, it has been informed that in the opinion of the Securities and Exchange Commission such indemnification is against public policy as expressed in the Act and is, therefore, unenforceable. 74 ITEM 23. Other Expenses of Issuance and Distribution. The following table sets forth all expenses in connection with the issuance and distribution of the shares being registered. All the amounts shown are estimates, except the registration fee. [S] [C] Registration Fee - SEC . . $ 2,760.36 Printing and Engraving . . 2,000.00 Legal Fees and Disbursements . 10,000.00 Accounting Fees . . . 2,000.00 Transfer Agent Fees . . . 1,000.00 Blue Sky Fees and Expenses . 2,239.64 TOTAL . . . . . $20,000.00 75 ITEM 24. Recent Sales of Unregistered Securities. The following table set forth information as to recent sales of the Registrant's Common Stock since the formation of the Registrant, all of which shares were not registered under the Securities Act of 1933, as amended: Amount of Shares Consideration Date of Name of Owner Acquired Cash/Other Sale - --------------------------------------------------------------------- Marilyn and Lowell Rask 10,000 $ 5,000.00 11/3/94 P. O. Box 98 Victoria, IL 61485 Red Raven Corporation 500,000 Mining Claims 02/06/95 528 Fon Du Lac Drive $500.00 East Peoria, IL 61611 Peoria Seven, Inc. 750,000 Mining Claims 02/06/95 7 Martin Lane $750.00 Pekin, IL 61554 William T. Marston 125,000 Mining Claims 02/06/95 1204 Fieldhurst Drive $125.00 Ballwin, MO 63011 Dale L. Runyon 125,000 Mining Claims 02/06/95 528 Fon Du Lac Drive $125.00 East Peoria, IL 61611 William T. Marston 707,695 Services and 03/15/95 1204 Fieldhurst Drive Loans Ballwin, MO 63011 $51,000.00 Dale L. Runyon 1,607,386 Services and 03/15/95 528 Fon Du Lac Drive Loans East Peoria, IL 61611 $118,344.53 Billie J. Allred 139,238 Services 03/15/95 4633 S. 36th Place $10,300.00 Phoenix, AR 85040 Michael and Susan 846,151 Exchange 03/20/95 Ruynon-Davis Free trading 814 S. Pleasant Hill Rd. for restricted East Peoria, IL 61611 shares 76 Amount of Shares Consideration Date of Name of Owner Acquired Cash/Other Sale - --------------------------------------------------------------------- Merle H. Glick 166,667 Exchange 03/20/95 7 Martin Lane Free trading Pekin, IL 61554 for restricted shares Louis L. and 166,667 Exchange 03/20/95 Paula Myers Free trading 595 Lime Drive for restricted Petersburg, IL 62675 shares H.W.W. Foundation 226,667 Exchange 03/20/95 1918 N. Missouri Free trading Peoria, IL 61603 for restricted shares Patricia L. Runyon 333,334 Exchange 03/20/95 528 Fon Du Lac Dr. Free trading East Peoria, IL 61611 for restricted shares Carol J. Runyon 416,667 Exchange 03/20/95 528 Fon Du Lac Dr. Free trading East Peoria, IL 61611 for restricted shares Danial L. and 666,667 Exchange 03/20/95 Karan M. Runyon Free trading 1458 McClardy Rd. for restricted Clarksville, TN 37042 shares Alexandra M. Runyon 83,333 Exchange 03/20/95 1458 McClardy Rd. Free trading Clarksville, TN 37042 for restricted shares Zechariah E. Runyon 83,334 Exchange 03/20/95 1458 McClardy Dr. Free trading Clarksville, TN 37042 for restricted Shares Sarah Rose Runyon-Davis 83,334 Exchange 03/20/95 528 Fon Du Lac Dr. Free trading East Peoria, IL 61611 for restricted shares Lydia Marie Runyon-Davis 83,334 Exchange 03/20/95 528 Fon Du Lac Dr. Free trading East Peoria, IL 61611 for restricted shares 77 Amount of Shares Consideration Date of Name of Owner Acquired Cash/Other Sale - --------------------------------------------------------------------- Tabitha Jean Runyon-Davis 83,334 Exchange 03/20/95 528 Fon Du Lac Dr. Free trading East Peoria, IL 61611 for restricted shares Jessica Lynn Runyon-Davis 83,334 Exchange 03/20/95 528 Fon Du Lac Dr. Free trading East Peoria, IL 61611 for restricted shares Phoenix International Mining, Inc. 9,600,000 $2,400,000 01/06/96 528 Fon Du Lac Dr. Debentures East Peoria, IL 61611 Clark L. Rians 200,000 $50,000.00 04/23/96 4729 Crown Blvd. Denver, CO 80239 Betty L. Paps 1,000 $10,000.00 12/06/96 1 Heatherwood Ct. Loan Indian Head Park, IL 60525 Shirley A. Roemer 500 $5,000.00 12/06/96 R.R. #5, Box 78 Loan Metamora, IL 61548 Roger D. Roemer 500 $5,000.00 12/06/96 R.R. #5, Box 78 Loan Metamora, IL 61548 Richard D. Brenneman 1,000 $10,000.00 12/06/96 R.R. #1, Box 23 Loan Metamora, IL 61548 Dale E. and 500 $5,000.00 12/06/96 Doris M. Brenneman Loan 1312 Chesapeake Ave. #B-3 Naples, FL 33962 Bliss S. and Marilyn K. 300 $3,000.00 12/06/96 Phillips Loan 3417 West Capital Dr. Peoria, IL 61614 J.W. Bruckman 1,100 $11,000.00 12/06/96 204 N. Main Loan Washington, IL 61571 William M. Brown 4,000 $40,000.00 12/06/96 4010 N. Brandywine Rd. Loan Peoria, IL 61614
78 ITEM 25. Exhibits. The following documents are incorporated herein: Number Document - --------------------------------------------------------------------- 3.1 Article of Incorporation. 3.2 Article of Amendment. 3.3 Article of Amendment. 3.4 Article of Amendment. 3.5 Article of Amendment. 3.6 Article of Amendment. 3.7 Bylaws. 4.1 Form Stock Certificate (filed via Form SE). 5.1 Opinion of Conrad C. Lysiak 10.1 Stock Option Agreement. 10.2 Office Lease between Dale L. Runyon and Maxam Gold Corporation. 10.3 Promissory Note between Phoenix International Mining and Maxam Gold Corporation. 10.4 Promissory Note between Maxam Gold Corporation and Peoria Seven Mining LLC. 10.5 Office lease between Hewson/Brechner Airpark and the Company. 24.1 Consent of Independent Auditor, Morgenstern & Alexander. 24.2 Consent of Conrad C. Lysiak, Attorney at Law. 27 Financial Data Schedule. 28.1 Warrant Agreement between the Company and Interwest Transfer Co., Inc. All other schedules and exhibits are omitted, as the required information is not applicable or is not present in amount sufficient to require submission of the schedule or because the information required is included in the financial statements and notes thereto. 79 ITEM 26. Undertakings. A. The undersigned Registrant hereby undertakes: To provide to the Underwriters, if any, at the closing specified in the Underwriting Agreement certificates in such denominations and registered in such names as required by the Underwriter to permit prompt delivery to each purchaser. B. The undersigned registrant hereby undertakes: 1. To file, during any period in which offers or sales are being made, a post effective amendment to this registration statement: (a) To include any prospectus required by Section 10(a)(3) of the Securities Act of 1933; (b) To reflect in the prospectus any facts or events arising after the effective date of the registration statement (or the most recent post-effective amendment thereof) which, individually or in the aggregate, represent a fundamental change in the information set forth in the registration statement; and, (c) To include any material information with respect to the plan of distribution not previously disclosed in the registration statement or any material change to such information in the registration statement. 2. That, for the purpose of determining any liability under the Securities Act of 1933, as amended, each such post-effective amendment 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. To remove from registration by means of a post-effective amendment any of the securities being registered which remain unsold at the termination of the offering. C. 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 foregoing provisions, or otherwise, 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 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 a 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 of whether such indemnification by it is against public policy as expressed in the Act and shall be governed by the final adjudication of such issue. 80 Pursuant to the requirements of the Securities Act of 1933, the Registrant certifies that it has reasonable grounds to believe that it meets all of the requirements for filing of this Form SB-2 Registration Statement and has duly caused this Form SB-2 Registration Statement to be signed on its behalf by the undersigned, thereunto duly authorized, in East Peoria, Illinois, on this 23rd day of October, 1997. MAXAM GOLD CORPORATION BY: /s/ Alan E. Hubbard President KNOW ALL MEN BY THESE PRESENT, that each person whose signature appears below constitutes and appoints Alan E. Hubbard as true and lawful attorney-in-fact and agent, with full power of substitution, for his and in his name, place and stead, in any and all capacities, to sign any and all amendment (including post-effective amendments) to this registration statement, and to file the same, therewith, with the Securities and Exchange Commission, and to make any and all state securities law or blue sky filings, granting unto said attorney-in-fact and agent, full power and authority to do and perform each and every act and thing requisite or necessary to be done in about the premises, as fully to all intents and purposes as he might or could do in person, hereby ratifying the confirming all that said attorney-in-fact and agent, or any substitute or substitutes, may lawfully do or cause to be done by virtue hereof. Pursuant to the requirements of the Securities Act of 1933, this Form SB-2 Registration Statement has been signed by the following persons in the capacities and on the dates indicated: Signature Title Date /s/ Dale L. Runyon Chief Executive Officer October 23, 1997 and Chairman of the Board of Directors /s/ Alan E. Hubbard President, Treasurer, October 23, 1997 Chief Financial Officer and a member of the Board of Directors /s/ Michael W. Vice President, October 23, 1997 Runyon-Davis Secretary and a member of the Board of Directors 81 EXHIBIT INDEX The following documents are incorporated herein: Number Document - --------------------------------------------------------------------- 3.1 Article of Incorporation. 3.2 Article of Amendment. 3.3 Article of Amendment. 3.4 Article of Amendment. 3.5 Article of Amendment. 3.6 Article of Amendment. 3.7 Bylaws. 4.1 Form Stock Certificate (filed via Form SE). 5.1 Opinion of Conrad C. Lysiak. 10.1 Stock Option Agreement. 10.2 Office lease between Dale L. Runyon and Maxam Gold Corporation. 10.3 Promissory Note between Phoenix International Mining and Maxam Gold Corporation. 10.4 Promissory Note between Maxam Gold Corporation and Peoria Seven Mining LLC. 10.5 Office lease between Hewson/Brechner Airpark and the Company. 24.1 Consent of Independent Auditor, Morgenstern & Alexander. 24.2 Consent of Conrad C. Lysiak, Attorney at Law. 27 Financial Data Schedule 28.1 Warrant Agreement between the Company and Interwest Transfer Co., Inc. All other schedules and exhibits are omitted, as the required information is not applicable or is not present in amount sufficient to require submission of the schedule or because the information required is included in the financial statements and notes thereto. EX-3 2 1 ARTICLES OF INCORPORATION OF STATE CYCLE KNOW ALL MEN BY THESE PRESENTS: That we, the undersigned, natural persons of the age of twenty-one years or more, acting as incorporators of a corporation under the Utah Business Corporation Act, adopt the following Articles of Incorporation for such corporation ARTICLE I The name of the corporation is STATE CYCLE. ARTICLE II The period of its duration is perpetual. ARTICLE III The purpose for which the corporation is organized are: (a) To engage in the sale and distribution, at wholesale and retail, of motorcycles, motor bikes, recreational vehicles and other mechanically propelled vehicles and automobile parts and sundries; to vend and deal in motorcycles, motor bikes, recreational vehicles, automobiles, motor cars, trucks and other mechanically propelled vehicles and automobile parts and sundries and other articles; to acquire and own patents, improvements and franchises and to operate such other patents, improvements and franchises. (b) To buy, sell and manufacture all kinds of automobile parts, machinery, accessories, oils, paints, greases of every kind, nature and description, to operate chain stores and general merchandising pertaining to motorcycles, motor bikes, recreational vehicles, automobiles, automobile sales rooms, supplies and generally deal in all kinds of merchandise, fixtures, accessories and chattels relating to the sale and manufacture of motorcycles, motor bikes, recreational vehicles and automobiles; to manufacture, buy, sell and generally deal in all kinds of general merchandise of every kind, nature and description. (c) To purchase, sell, lease, make repairs to and store motorcycles, motor bikes, recreational vehicles, automobiles, their parts and accessories, and to buy, sell, own, lease and operate garages, service stations and repair shops and to carry on all business incident thereto. 2 (d) To own, lease, buy, sell, hypothecate and otherwise deal in real property incident to the operation of a new and used motorcycle agency. (e) To generally deal in the sale, purchase, trading, leasing and otherwise dealing in new and used motorcycles, motor bikes, recreational vehicles, automobiles of all types, kinds and makes, at wholesale and retail, and to otherwise operate a motorcycle sales agency, lot, store and business. (f) In general, to carry on any other lawful business whatsoever, in connection with the foregoing or which is calculated, directly or indirectly, to promote the interest of the corporation or to enhance the value of its properties. ARTICLE IV The aggregate number of shares which the corporation shall have authority to issue is 50,000 shares of common stock of the par value of $1.00 per share, which stock shall be fully paid up and is non assessable. ARTICLE V The corporation shall not commence business until at least One Thousand Dollars ($1,000) has been received by it as consideration for the issuance of shares. ARTICLE VI Upon any increased issue of stock, the stockholders shall have the pro rata preferential pre-emptive right to subscribe therefore at such price and on such terms as the Board of Directors may in each instance fix. ARTICLE VII The Board of Directors shall consist of not less than three (3) and not more than seven (7) persons elected by the stockholders for a term of one year and no person shall be eligible to the office of director of this corporation who is not a stockholder of record. Said directors shall hold office until their successors are elected and qualified. ARTICLE VIII The regular meeting of the stockholders for the election of directors and for the transaction of other business shall be held at the office of the corporation on the first Monday of the month of August, 1975 and on the first Monday of August every year thereafter. 3 ARTICLE IX The vote for the election of the directors shall be by ballot and the election may be conducted in such a manner and form as may be provided by the Bylaws. In all election for directors, each stockholder shall be entitled to one vote for each share of stock owned by him or her for each director. ARTICLE X The Board of Directors shall elected and appoint such employees and agents as they deem advisable and define the authority of each and prescribe their duties. ARTICLE XI The officers of this corporation shall be president, vice president, secretary and treasurer, who shall each hold office for a term of one year or until their successors are elected and qualifies. ARTICLE XII The directors shall appoint the above-named officers at the first meeting after the regular annual meeting of the stockholders. ARTICLE XIII One person may be both secretary and treasurer or one person may be secretary and another person treasurer, at the option of the Board of Directors. ARTICLE XIV The Board of Directors, at their regular meeting of said Board or at a special meeting called for that purpose, may enlarge the number of directors from three to seven by appointing additional directors to act on said Board until the regular annual stockholders' meeting. ARTICLE XV Special meetings of the stockholders may be called by the Board of Directors in the manner provided by law or by the Bylaws of this corporation and must be called whenever the owners, as shown by the Company's books, of twenty-five percent (25%) or more of stock of the corporation, in writing, request the Board to call a special meeting of the stockholders. 4 ARTICLE XVI Any officer of this corporation may resign on giving five (5) days notice to the Board of Directors and the Board of Directors shall fill the vacancy for the unexpired term of such officer. ARTICLE XVII The number of directors constituting the initial Board of Director is three (3) and the names and addresses of the persons who are to serve as directors until their successors are elected and qualify are: Anthony R. Hernandes 5680 South State President and Murray, Utah 84107 Director Paul N. Cotro-Manes 430 Judge Building Vice President Salt Lake City, Utah and Director 84111 Hugh Gardner 110 North Main Secretary Springville, Utah Treasurer and 84663 and Director ARTICLE XVIII A majority of the Board of Directors shall be necessary to form a quorum and to be authorized to transact the business and exercise the corporate powers of this corporation. ARTICLE XIX The Board of Directors is expressly authorized, with the assent of the vote of the stockholders, to make, alter, amend or rescind the Bylaws of the corporation. ARTICLE XX The private property of the stockholders shall not be liable for the corporate debts. ARTICLE XXI These Articles of Incorporation may be changed, altered or amended at any annual regular stockholders' meeting by a vote of the stockholders representing a majority of the stock issued and outstanding or at any special meeting called for that purpose. 5 ARTICLE XXII The address of the initial registered office of the corporation is 430 Judge Building, Salt Lake City, Utah 84111 and the name of its initial registered agent at such address is Paul N. Cotro-Manes. ARTICLE XXIII The names and addresses of the incorporators are: Name Address Anthony R. Hernandes 5680 South State Murray, Utah 84107 Paul N. Cotro-Manes 430 Judge Building Salt Lake City, Utah 84111 Hugh Gardner 110 North Main Springville, Utah 84663 Dated at Salt Lake City, this 31st day of July, 1974. /s/ Anthony R. Hernandez /s/ Paul N. Cotro-Manes /s/ Hugh Gardner STATE OF UTAH ) ) ss. County of Salt Lake ) On the 31st day of July, 1974, personally appeared before me, the undersigned Notary Public, Anthony R. Hernandez, Paul N. Cotro-Manes and Hugh Gardner, who being be me first duly sworn, severally declared that he is the person who signed the foregoing document as an incorporator and that the statements therein . . . . IN WITNESS WHEREOF, I have hereunto set my hand and seal the day first above written. /s/ Lynda J. Barken Notary Public Residing at Salt Lake City, Utah My Commission Expires: May 22, 1977. EX-3 3 1 ARTICLES OF AMENDMENT OF STATE CYCLE STATE OF UTAH : : ss. County of Salt Lake : We, Anthony R. Hernandez and Hugh Gardner, President and Secretary of State Cycle, a corporation created and organized under the laws of the State of Utah, do hereby certify that at a special meeting of the stockholders regularly held, pursuant to notice given in accordance with the requirements of the laws of the State of Utah, at the office of said corporation in Salt . . . sen either in person or by proxy, said shares of stock totalling the sum of 50,000 shares, and all of said shares having votes for the following resolution amending the articles of incorporation of the Company, to-wit: BE IT RESOLVED, that the Article of Incorporation of the Company be and the same are hereby changed and amended, by amending Article I and Article IV of the Articles of Incorporation, so that the amended articles will read as follows: ARTICLE I The name of the corporation is Universal AMC, Inc. ARTICLE IV The aggregate number of shares which the corporation shall have authority to issue is 150,000 shares of common stock of the par value of One Dollar ($1.00) per share, which stock shall be fully paid up; and is non-assessable. Given under our names, . . . on this 11th day of February, 1975. /s/ Anthony R. Hernandez President of State Cycle /s/ Hugh Gardner Secretary of State Cycle 2 STATE OF UTAH : : ss. County of Salt Lake : On the 11th day of February, 1975, personally appeared before me, the undersigned Notary Public, Anthony R. Hernandez and Hugh Gardner, who being be me first duly sworn, severally declared that he is the person who signed the foregoing document as President and Secretary and that the statements therein contained are true. IN WITNESS WHEREOF, I have hereunto set my hand and seal the day first above written. /s/ Rita Perry Notary Public Residing at Salt Lake City, Utah My Commission Expires: September 9, 1997 EX-3 4 ARTICLES OF AMENDMENT TO THE ARTICLES OF INCORPORATION OF UNIVERSAL AMC, INC. Pursuant to the provisions of the Utah Business Corporation Act, the undersigned Corporation hereby adopts the following Articles of Amendment to its Articles of Incorporation: FIRST: The name of the Corporation is Universal AMC, Inc. SECOND: The following Amendment to the Articles of Incorporation was duly adopted by the shareholders of the corporation: Article I of the Articles of Incorporation is hereby Amended as follows: The name of the corporation is Caption Industries, Inc. Article IV of the Articles of Incorporation is hereby Amended as follows: The Aggregated number of shares which the corporation shall have authority to issue is 50,000,000 shares of capital stock with a par value of $0.001 per share, each of which shall have equal voting rights. THIRD: The foregoing Amendment to the Articles of Incorporation was adopted by the shareholders of the corporation on the 15th day of November, 1983, in the manner prescribed by the laws of the State of Utah. FOURTH: The number of shares outstanding on said date was 50,000 shares and the number of shares entitled to vote was 50,000. FIFTH: The number of shares voted for said Amendment was 42,000 shares and the number of shares voted against such amendment was none. SIXTH: No class of shares was entitled to vote thereon as a class. SEVENTH: The manner in which any exchange reclassification or cancellation of issued and outstanding shares provided here shall be effected as follows: 2 Name Change Capitalization /s/ K Pinkerton President /s/ Paul Hahn(sp) STATE OF UTAH ) : ss. County of Salt Lake ) On the 15th day of November, 1983, personally appeared before me the above signed persons, known to me to be the President and Secretary of Universal AMC, Inc., and upon being duly sworn did state that the foregoing instrument was voluntarily signed by them for the purposes above stated. /s/ Lois Crowder Notary Public Residing at Salt Lake City, Utah My Commission Expires: March 4, 1985. EX-3 5 1 ARTICLES OF AMENDMENT TO THE ARTICLES OF INCORPORATION CAPTION INDUSTRIES, INC. Pursuant to the provisions of the Utah Business Corporation Act, the undersigned corporation hereby adopts the following Articles of Amendment to its Articles of Incorporation: FIRST: The name of the corporation is: Caption Industries, Inc. SECOND: The following amendment to the Articles of Incorporation was duly adopted by the shareholders of the Corporation: Article I of the Articles of Incorporation is hereby Amended as follows: The name of the Corporation is Madonna Mining Co., Ltd. Article IV of the Articles of Incorporation is hereby amended as follows: The aggregate number of shares which the corporation shall have authority to issue is 100,000,000 shares of capital stock with par value of $0.00001 per share, each of which shall have equal voting rights. THIRD: The foregoing Amendment to the Articles of Incorporation was adopted by the shareholders of the corporation on the 18th day of January, 1984 in the manner prescribed by the laws of Utah. FOURTH: The number of shares outstanding on said date was 5,000,000 and the number of shares entitled to vote was 5,000,000. FIFTH: The number of shares voted for said Amendment was 3,940,000 and number of shares voted against such amendment. SIXTH: No class of shares was entitled the vote thereon as a class. SEVENTH: The manner in which any exchange reclassification or cancellation of issued and outstanding shares provided for here shall be effected as follows: 2 No change /s/ Ted Saylor President /s/ Thomas M. Phillips Secretary STATE OF NEW YORK COUNTY OF NEW YORK On the 18th day of January, 1984, personally appeared before me the above signed persons, known to me to the President and Secretary, respectively, of Caption Industries, Inc., and upon being duly sworn did state that the foregoing instrument was voluntarily signed by them for the purpose above stated. /s/ Benjamin Gedal Sprecher Notary Public, State of New York No. 41-4690211 Qualified in Queens County Commission Expires March 30, 1985 EX-3 6 1 ARTICLES OF AMENDMENT TO THE ARTICLES OF INCORPORATION MADONNA MINING CO., LTD. Pursuant to the provisions of the Utah Business Corporation Act, the undersigned corporation hereby adopts the following Articles of Amendment to its Articles of Incorporation: FIRST: The name of the corporation is: MADONNA MINING CO., LTD. SECOND: The following amendment to the Articles of Incorporation was duly adopted by the shareholders of the corporation: The name of the corporation is: MAXAM INTERNATIONAL CORPORATION THIRD: The foregoing Amendment to the Articles of Incorporation was adopted by the shareholders of the corporation on the 6th day of May, 1985, in the manner prescribed by the laws of Utah. FOURTH: The number of shares outstanding on said date was 25,000,000 and the number of shares entitled to vote was 25,000,000. FIFTH: The number of shares voted for said Amendment was 19,000,000 and the number of shares voted against said Amendment was none. SIXTH: No class of shares was entitled the vote thereon as a class. SEVENTH: The manner in which any exchange, reclassification or cancellation of issued and outstanding shares provided for here shall be effected as follows: No change. Seal /s/ Bill R. Presley, President /s/ Sean F. Deneny, Secretary 2 STATE OF IDAHO : : ss. COUNTY OF ADA : On the 6th day of June, 1985, before me, a Notary Public for said state, personally appeared Bill R. Presley, know to me to be the person whose name is subscribed to the within instrument, and acknowledged to me that he executed the same. IN WITNESS WHEREOF, I have hereunto set my hand and affixed by official seal, on the day and year in the certificate first above written. /s/ Peter Schemer Notary Public for the State of Idaho, residing at Boise, Idaho. 1-19-91 STATE OF NEW YORK : : ss. COUNTY OF NEW YORK : On the 7th day of June, 1985, personally appeared before me, the above signed person, know to me to be the Secretary of Madonna Mining Co., Ltd., and upon being duly sworn did state that the forgoing instrument was voluntarily signed by him for the purposes above stated. /s/ Peter Quaglia Notary Public Seal STATE OF UTAH DEPARTMENT OF COMMERCE DIVISION OF CORPORATIONS AND COMMERCIAL CODE SEAL EX-3 7 1 SEAL ARTICLES OF AMENDMENT OF MAXAM INTERNATIONAL CORPORATION STATE OF MISSOURI : : ss. COUNTY OF PLATTE : WE, Allen E. Hubbard and Michael W. Runyon-Davis, President and Assistant Secretary of Maxam International Corporation, a corporation created and organized under the laws of the State of Utah, do hereby certify that at a special meeting of the Board of Directors, via teleconferencing, was conducted at the office of said corporation in East Peoria, Illinois, without shareholder approval and shareholder approval was not required, on the 11th day of December, 1995, at which meeting the following resolution amending the Articles of Incorporation of the company, to-wit: BE IT RESOLVED that the Articles of Incorporation of the company be and the same are hereby changed and amended, by amending Article I of the Articles of Incorporation, so that the amended article will read as follows: ARTICLE I The name of the corporation is MAXAM GOLD CORPORATION. Given under our hand and the seal of said corporation this 26th day of December, 1995. /s/ Allen E. Hubbard President of Maxam International Corporation /s/ Michael W. Runyon-Davis Assistant Secretary of Maxam International Corporation STATE OF MISSOURI : : ss. COUNTY OF PLATTE : On the 26th day of December, 1995, personally appeared before me, the undersigned Notary Public, Allen E. Hubbard, who being by me duly sworn, severally declared that he is the person who signed the foregoing document as President and that the statements therein contained are true. 2 IN WITNESS WHEREOF, I have hereunto set my hand and seal the day first above written. /s/ Ann M. Miller Notary Public My Commission Expires: Seal STATE OF ILLINOIS : : ss. COUNTY OF TAZEWELL : On the 29th day of December, 1995, personally appeared before me, the undersigned Notary Public, Michael W. Runyon- Davis, who being by me duly sworn, severally declared that he is the person who signed the foregoing document as Assistant Secretary and that the statements therein contained are true. IN WITNESS WHEREOF, I have hereunto set my hand and seal the day first above written. /s/ Janet Hoffman Notary Public My Commission Expires: 12-29-97 Seal EX-3 8 1 BYLAWS UNIVERSAL AMC, INC. ARTICLE I - OFFICES The office of the Corporation shall be located in the City and State designated in the Articles of Incorporation. The Corporation may also maintain offices at such other places within or without the United States as the Board of Directors may, from time to time, determine. ARTICLE II - ANNUAL MEETING The annual meeting of the shareholders of the Corporation shall be held within five months after the close of the fiscal year of the Corporation, for the purpose of electing directors, and transacting such other business as may properly come before the meeting. Special meetings of the shareholders may be called at any time by the Board of Directors or by the President, and shall be called by the President or the Secretary at the written request of the holders of ten percent (10%) of the shares then outstanding and entitled to vote thereat, or as otherwise required under the provisions of the Business Corporation Act. All meetings of shareholders shall be held at the principal office of the Corporation, or at such other places as shall be designated in the notices or waivers of notice of such meetings. Notice of Meetings: (a) Written notice of each meeting of shareholders, whether annual or special, stating the time, when and place where it is to be held, shall be served either personally or by mail, not less than ten or more than fifty days before the meeting, upon each shareholders of record entitled to vote at such meeting, and to any other shareholder to whom the giving of notice may be required by law. Notice of a special meeting shall also state the purpose or purposes for which the meeting is called, and shall indicate that it is being issued by or at the direction of, the person or persons calling the meeting. If, at any meeting, action is proposed to be taken that would, if taken, entitle shareholders to receive payment for their shares pursuant to the Business Corporation Act, the notice of such meeting shall include a statement of that purpose and to that effect. If mailed, such notice shall be directed to each such shareholder at his address, as it appears on the records of the 2 shareholders of the Corporation, unless he shall have previously filed with the Stock Transfer Agent a written request that notices intended for him be mailed to some other address, in which case, it shall be mailed to the address designated in such request. (b) Notice of any meeting need not be given to any person who may become a shareholder of record after the mailings of such notice and prior to the meeting, or to any shareholder who attends such meeting, in person or by proxy, or to any shareholder who, in person or by proxy, submits a signed wavier of notice either before or after such meeting. Notice of any adjourned meeting of shareholders need not be given, unless otherwise required by statute. Quorum: (a) Except as otherwise provided herein, or by statute, or the Articles of Incorporation (such Articles and any amendments thereof being hereinafter collectively referred to as the "Articles of Incorporation"), at all meetings of shareholders holdings of record a majority of the total number of shares of the Corporation, then issued and outstanding and entitled to vote, shall be necessary and sufficient to constitute a quorum for the transaction of any business. The withdrawal of any shareholder after the commencement of a meeting shall have no effect on the existence of a quorum, after a quorum has been established at such meeting. (b) Despite the absence of a quorum at any annual or special meeting of shareholders, the shareholders, by a majority of the votes cast by the holders of shares entitled to vote thereon, may adjourn the meeting. At any such adjourned meeting at which a quorum is present, any business may be transacted which might have been transacted at the meeting as originally called if a quorum had been present. Voting: (a) Except as otherwise provided by statute or by the Articles of Incorporation, any corporate action, other than the election of directors to be taken by vote of the shareholders, shall be authorized by a majority of votes cast at a meeting of shareholders by the holders of shares entitled to vote thereon. (b) Except as otherwise provided by statute or by the Articles of Incorporation, at each meeting of shareholders, each holder of record of shares of the corporation entitled to vote thereat, shall be entitled to one vote for each share registered in his name on the books of the Corporation. 3 (c) Each shareholder entitled to vote or to express consent or dissent without a meeting, may do so by proxy; provided, however, that the instrument authorizing such proxy to act shall have been executed in writing by the shareholder himself, or by his attorney-in-fact thereunto duly authorized in writing. No proxy shall be valid after the expiration of eleven months from the date of its execution, unless the persons executing it shall have specified therein the length of time it is to continue in force. Such instrument shall be exhibited to the Secretary at the meeting and shall be filed with the records of the Corporation. (d) Any resolution in writing, signed by all of the shareholders entitled to vote thereon, shall be and constitute action by such shareholders to the effect therein expressed, with the same force and effect as if the same had been duly passed by unanimous vote at a duly called meeting of shareholders and such resolution so signed shall be inserted in the Minute Book of the Corporation under its proper date. ARTICLE III - BOARD OF DIRECTORS Number, Election and Term of Office: (a) The number of the directors of the Corporation shall be three (3), unless and until otherwise determined by vote of a majority of the entire Board of Directors. The number of Directors shall not be less than three, unless all of the outstanding shares are owned beneficially and of record by less than three shareholders, in which event the number of directors shall not be less then the number of shareholders. (b) Except as may otherwise be provided herein or in the Articles of Incorporation, the members of the Board of Directors of the Corporation, who need not be shareholders, shall be elected by a majority of the votes cast at a meeting of shareholders, by the holders of shares entitled to vote in the election. (c) Each director shall hold office until the annual meeting of the shareholders next succeeding his election, and until his successor is elected and qualified, or until his prior death, resignation or removal. Duties and Powers: The Board of Directors shall be responsible for the control and management of the affairs, property and interests of the Corporation, and may exercise all powers of the Corporation, except as are in the Articles of Incorporation or by statute expressly conferred upon or reserved to the shareholders. 4 Annual and Regular Meetings; Notices: (a) A regular annual meeting of the Board of Directors shall be held immediately following the annual meeting of shareholders. (b) The Board of Directors, from time to time, may provide by resolution for the holding of other regular meetings of the Board of Directors, and may fix the time and place thereof. (c) Notice of any regular meeting of the Board of Directors shall not be required to be given and, if given, need not specify the purpose of the meeting; provided, however, that in case the Board of Directors shall fix or change the time or place of any regular meeting, notice of such action shall be given to each director who shall not have been present at the meeting at which such action was taken within the time limited, and in the manner set forth in paragraph (b) of the Special Meetings; Notices of the Article III, with respect to special meetings, unless such notice shall be waived in the manner set forth in paragraph (c) of Special Meetings; Notices. Special Meetings; Notice: (a) Special Meetings of the Board of Directors shall be held whenever called by the President or by one of the Directors, at such time and place as may be specified in the respective notices or waivers of notice thereof. (b) Notice of special meetings shall be mailed directly to each director, addressed to him at his residence or usual place of business, at least two (2) days before the day on which the meeting is to be held, or shall be sent to him at such place by telegram, radio or cable, or shall be delivered to him personally or given to him orally, not later than the day before the day on which the meeting is to be held. A notice or wavier of notice, except as required by vacancies of this Article III, need not specify the purpose of the meetings. (c) Notice of any special meeting shall not be required to be given to any director who shall attend such meeting without protesting prior thereto or at is commencement, the lack of notice to him, or who submits a signed waiver of notice, whether before or after the meeting. Notice of any adjourned meetings shall not be required to be given. Chairman: At all meetings of the Board of Directors, the Chairman of the Board, if any and if present, shall preside. If there shall be no Chairman, or he shall be absent, then the President shall preside, and in his absence, a chairman chosen by the Directors shall preside. 5 Quorum and Adjournments: (a) At all meetings of the Board of Directors, the presence of a majority of the entire Board shall be necessary and sufficient to constitute a quorum for the transaction of business, except as otherwise provided by laws, by the Articles of Incorporation, or by these By-laws. (b) A majority of the directors present at the time and place of any regular or special meeting, although less then a quorum, may adjourn the same from time to time without notice, until a quorum shall be present. Manner of Acting: (a) At all meetings of the Board of Directors, each director present shall have one vote, irrespective of the number of shares of stock, if any, which he may hold. (b) Except as otherwise provided by statute, by the Articles of Incorporation or by these By-laws, the action of a majority of the directors present at any meeting at which a quorum is present shall be the act of the Board of Directors. Any action authorized, in writing, by all of the directors entitled to vote thereon and filed with the minutes of the corporation shall be the act of the Board of Directors with the same force and effect as if the same had been passed by unanimous vote at a duly called meeting of the Board. Vacancies: Any vacancy in the Board of Directors occurring by reason of increase in the number of directors, or by reason of the death, resignation, disqualification, removal (unless a vacancy created by the removal of a director by the shareholders shall be filled by the shareholders at the meeting at which the removal was effected) or inability to act of any director, or otherwise shall be filled for the unexpired portion of the term by a majority vote of the remaining directors, though less than a quorum, at any regular meeting or special meeting of the Board of Directors called for that purpose. Resignation: Any director may resign at any time by giving written notice to the Board of Directors, the President or the Secretary of the Corporation. Unless otherwise specified in such written notice, such resignation shall take effect upon receipt thereof by the Board of Directors or such office, and the acceptance of such resignation shall not be necessary to make it effective. 6 Removal: Any director may be removed with or without cause at any time by the shareholders, at a special meeting of the shareholders called for that purpose, and may be removed for cause by action by the Board. Salary: No stated salary shall be paid to directors, as such, for their service, but by resolution of the Board of Directors a fixed sum and expenses of attendance, if any, may be allowed for attendance at each regular or special meeting of the Board; provided, however, that nothing herein contained shall be construed to preclude any director from serving the Corporation in any other capacity and receiving compensation therefor. Contracts: (a) No contract or other transaction between this Corporation and any other corporation shall be impaired, affected or invalidated, nor shall nay director be liable in any way by reason of the fact that any one or more of the directors of this Corporation is or are interested in, or is a director or officer, or are director or officers of such other Corporation, provided that such facts are disclosed or made known to the Board of Directors. (b) Any director, personally and individually, may be a party to or may be interested in any contract or transaction of this Corporation, and no director shall b e liable in any way by reason of such interest, provided that the fact of such interest be disclosed or made known to the Board of Directors, and provided that the Board of Directors shall authorize, approve or ratify such contract or transaction by the vote ( not counting the vote of any such director) of a majority of a quorum, notwithstanding the presence of any such director at the meeting at which such action is taken. Such director or directors may be counted in determining the presence of a quorum at such meeting. This Section shall not be construed to impair or invalidate or in any way affect any contract or other transaction which would otherwise be valid under the law (common, statutory or otherwise) applicable thereto. Committees: The Board of Directors, by resolution adopted by a majority of the entire Board, may from time to time designate from among its members an executive committee and such other committees, and alternate members thereof, as they deem desirable, each consisting of one or more members, with such powers and authority (to the extent permitted by law) as may be provided in such resolution. Each such committee shall serve at the pleasure of the Board. 7 ARTICLE IV - OFFICERS Number, Qualifications, Election and Term of Office: (a) The officers of the Corporation shall consist of a President, a Secretary, a Treasurer, and such other officers, including one or more Vice Presidents, as the Board of Directors may from time to time deem advisable. Any officer may be, nut is not required to be, a director of the Corporation. Any two or more offices may be held by the sam person, except the office of the President. (b) The officers of the Corporation shall be elected by the stockholders of the Corporation at the annual meting of the stockholders. (c) Each officer shall hold office until the annual meeting of the shareholders next succeeding his election, and until his successor shall have been elected and qualified by the Board of Directors, or until his death, resignation or removal. Resignation: Any officer may be removed, wither with or without cause, and a successor elected by the Board of Directors. Vacancies: A vacancy in any office by reason of death, resignation, inability to act, disqualification, or any other case, may at any time be filled for the unexpired portion of the term by the Board of Directors. Duties of Officers: Officers of the Corporation shall, unless otherwise provide by the Board of Directors, each have such powers and duties as generally pertain to their respective offices as well as such powers and duties as may be set forth in these By-laws, or may from time to time be specifically conferred or imposed by the Board of Directors. The President shall be the chief executive officer of the Corporation. Sureties & Bonds: In case the Board of Directors shall so require, any officer, employee or agent of the Corporation shall execute to the Corporation a bond in such sum, and with such surety or sureties as the Board of Directors may direct, conditioned upon the faithful performance of his duties to the Corporation, including responsibility for negligence and for the accounting for all property, funds or securities of the Corporation which may come into his hands. 8 Shares of Other Corporations: Whenever the Corporation is the holder of shares of any other corporation, any right or power of the Corporation as such shareholder (including the attendance, action and voting at shareholders' meetings and execution of waivers, consents, proxies or other instruments) may be exercised on behalf of the Corporation by the President, any Vice President, or such other person as the Board of Directors may authorize. ARTICLE V - SHARES OF STOCK (a) The certificates representing shares of the Corporation shall be in such form as shall be adopted by the Board of Directors, and shall be numbered and registered in the order issued. They shall bear the holder's name and the number of shares, and shall either be signed by the President, a Vice President, the Secretary, or any Assistant Secretary, or a facsimile signature of any two of the above listed officers of the Corporation. The stock certificates will require the signature of the stock transfer agent, and may bear the Corporate seal. (b) No certificate representing shares shall be issued until the full amount of consideration therefor has been paid, except as otherwise permitted by law. (c) The Board of Directors may authorized the issuance of certificates for fractions of a share which shall entitle the holder to exercise voting rights, receive dividends and participate in liquidating distributions in proportion to the fractional holdings; or it may authorize the payment in cash of the fair value of fractions of a share as of the time when those entitled to receive such fractions are determined; or it may authorized the issuance, subject to such conditions as may be permitted by law, of script in registered or bearer from over the signature of an officer or agent of the Corporation, exchangeable as therein provided for full shares, but such scrip shall not entitle the holder to any rights of a shareholder except as therein provided. Lost or Destroyed Certificates: The holder of any certificate representing shares of the Corporation shall immediately notify the Corporation of any loss or destruction of the certificates representing the same. The Corporation may issue a new certificate in the place of any certificate thereto fore issued by it, alleged to have been lost or destroyed. On production of such evidence of loss or destruction as the Board of Directors in its discretion, require the owner of the lost or destroyed certificate, or his legal representative, to give the corporation a bon in such sum as the Board may direct, and with such surety or sureties as may be satisfactory to the Board, to indemnify the Corporation against any claims, loss, liability or damage it may suffer on account of the issuance of the new certificate. A new certificate may be issued without requiring any such evidence or bond when, in the judgement of the Board of Directors, it is proper so to do. Transfer of Shares: (a) Transfer of shares of the Corporation shall be made on the share records of the Corporation only by the holder of record thereof, in person or by his duly authorized attorney, upon surrender for cancellation of the certificate or certificates representing such shares, with an assignment or power of transfer endorsed thereon or delivered therewith duly executed, with such proof of the authenticity of the signature and of authority to transfer and of payment of transfer fees and taxes as the Corporation or its agents may require. (b) The Corporation shall be entitled to treat the holder of record of any share or shares as the absolute owner thereof or all purposes and, accordingly, shall not be bound to recognize any legal, equitable or other claim to, or interest in, such share or shares on the part of any other person, whether or not it shall have express or other notice thereof, except as otherwise expressly provided by law. Record Date: In lieu of closing the share records of the Corporation, the Board of Directors may fix, in advance, a date not exceeding fifty days, nor less than ten days, as the record date for the determination of shareholders entitled to receive notice of, or to vote at, any meeting of shareholders, or to consent to any proposal without a meeting, or for the purpose of determining shareholders entitled to receive payment of any dividends, or allotment of any rights, or for the purpose of any other action. If no record date is fixed, the record date for the determination of shareholders entitled to notice of or to vote at a meeting of shareholders shall be at the close of business on the day next preceding the day on which notice is given, or, if no notice is given, the day on which the meeting is held. The record date for determining shareholders for any other purpose shall be at the close of business on the day on which the resolution of the directors relating thereto is adopted. When a determination of shareholders of record entitled to notice of or to vote at any meeting of shareholders has been made as provided for herein, such determination shall apply to any adjournment thereof, unless the directors fix a new record date for the adjourned meeting. ARTICLE VI - DIVIDENDS Subject to applicable law, dividends may be declared and paid out of any funds available therefor, as often, in such amounts, and at such time as the Board of Directors may determine. 10 The fiscal year of the Corporation shall be fixed by the Board of Directors from time to time, subject to applicable law. ARTICLE VIII - CORPORATE SEAL The corporate seal, if any, shall be in such form as shall be approved from time to time by the Board of Directors. ARTICLE IX - AMENDMENTS By Shareholders: All By-laws of the Corporation shall be subject to alteration or repeal, and new By-laws may be made, by a majority vote of the shareholders at the time entitled to vote in the election of directors. By Directors: The Board of Directors shall have power to make, adopt, alter, amend and repeal, from time to time, By-laws of the Corporation; provided, however, that the shareholders entitled to vote with respect thereto as in this Article IX above-provided may alter, amend or repeal By-laws made by the Board of Directors, except that the Board of Directors shall have no power to change the quorum form meetings of shareholders or of the Board of Directors, or to change any provisions of the Bylaws with respect to the removal of directors or the filling of vacancies in the Board of Directors resulting from the removal by the shareholders. If any Bylaws regulating an impending election of directors is adopted, amended or repealed by the Board of Directors, there shall be set forth in the notice of the next meeting of shareholders for the election of directors, the By- laws so adopted, amended or repealed, together with a concise statement of the change. The undersigned certify the foregoing By-laws have been adopted as the first By-laws of the Corporation in accordance with the requirements of the Business Corporation Act. Dated: November 1, 1975 /s/ illegible signature /s/ illegible signature /s/ illegible signature EX-5 9 1 CONRAD C. LYSIAK Attorney and Counselor at Law 601 West First Avenue Suite 503 Spokane, Washington 99204 (509) 624-1478 FAX (509) 747-1770 October 23, 1997 Securities and Exchange Commission 450 Fifth Avenue N.W. Washington, D. C. 20549 RE: Maxam Gold Corporation Gentlemen: Please be advised that, I have reached the following conclusions regarding the above offering: 1. Maxam Gold Corporation (the "Company") is a duly and legally organized and exiting Utah state corporation, with its registered office located in Salt Lake City, Utah and its principal place of business located in East Peoria, Illinois. The Articles of Incorporation and corporate registration fees were submitted to the Utah Secretary of State's office and filed with the office on August 7, 1974. The Company's existence and form is valid and legal pursuant to the representation above. 2. The Company is a fully and duly incorporated Utah corporate entity. The Company has one class of Common Stock at this time. Neither the Articles of Incorporation, Bylaws, and amendments thereto, nor subsequent resolutions change the non-assessable characteristics of the Company's common shares of stock. The Common Stock previously issued by the Company is in legal form and in compliance with the laws of the state of Utah, and when such stock was issued it was fully paid for and non-assessable. The warrants and/or common stock to be sold under this Form SB-2 Registration Statement are likewise legal under the laws of the state of Utah, and the common stock to be issued upon the exercise of the warrants common stock, when exercised, will be legally issued, fully paid for and non-assessable. 2 Securities and Exchange Commission RE: Maxam Gold Corporation October 23, 1997 3. To my knowledge, the Company is not a party to any legal proceedings nor are there any judgments against the Company, nor are there any actions or suits filed or threatened against it or its officers and directors, in their capacities as such, other than as set forth in the registration statement. I know of no disputes involving the Company and the Company has no claims, actions or inquires from any federal, state or other governmental agency, other than as set forth in the registration statement. I know of no claims against the Company or any reputed claims against it at this time, other than as set forth in the registration statement. 4. The Company's outstanding shares are all common shares. There are no liquidation preference rights held by any of the shareholders upon voluntary or involuntary liquidation of the Company. 5. The directors and officers of the Company are indemnified against all costs, expenses, judgments and liabilities, including attorney's fees, reasonably incurred by or imposed upon them or any of them in connection with or resulting from any action, suit or proceedings, civil or general, in which the officer or director is or may be made a party by reason of his being or having been such a director or officer. This indemnification is not exclusive of other rights to which such director or officer may be entitled as a matter of law. 6. All tax benefits to be derived from the Company's operations shall inure to the benefit of the Company. Shareholders will receive no tax benefits from their stock ownership, however, this must be reviewed in light of the Tax Reform Act of 1986. 7. By director's resolution, the Company is authorized the issuance of up to 9,109,172 Warrants to purchase 9,109,172 shares of Common Stock and 9,109,172 shares of Common Stock. The Company's Articles of Incorporation presently provide the authority to the Company to issue 100,000,000 shares of Common Stock, $0.00001 par value. Therefore, a Board of Directors' Resolution which authorized the issuance for sale of up to 9,109,172 Warrants to purchase 9,109,172 shares of Common Stock thereunder, would be within the authority of the Company's directors and would result in the legal issuance of said shares. Yours truly, /s/ Conrad C. Lysiak EX-10 10 1 MAXAM GOLD CORPORATION 1996 NONQUALIFYING STOCK OPTION PLAN ARTICLE I Purpose of Plan This 1996 NONQUALIFYING STOCK OPTION PLAN (the "Plan") of MAXAM GOLD CORPORATION (the "Company") for persons employed or associated with the Company, including without limitation any employee, director, general partner, officer, attorney, accountant, consultant or advisor, is intended to advance the best interests of the Company by providing additional incentive to those persons who have a substantial responsibility for its management, affairs, and growth by increasing their proprietary interest in the success of the Company, thereby encouraging them to maintain their relationships with the Company. Further, the availability and offering of Stock Options under the Plan supports and increases the Company's ability to attract, engage and retain individuals of exceptional talent upon whom, in large measure, the sustained progress growth and profitability of the Company for the shareholders depends. ARTICLE II Definitions For Plan purposes, except where the context might clearly indicate otherwise, the following terms shall have the meanings set forth below: "Board" shall mean the Board of Directors of the Company. "Code" shall mean the Internal Revenue Code of 1986, as amended, and the rules and regulations promulgated thereunder. "Committee" shall mean the Compensation Committee, or such other committee appointed by the Board, which shall be designated by the Board to administer the Plan. The Committee shall be composed of two or more persons as from time to time are appointed to serve by the Board and may be members of the Board. "Common Shares" shall mean the Company's Common Shares $0.001 par value per share, or, in the event that the outstanding Common Shares are hereafter changed into or exchanged for different shares or securities of the Company, such other shares or securities. "Company" shall mean MAXAM GOLD CORPORATION, a Utah corporation, and any parent or subsidiary corporation of MAXAM GOLD CORPORATION, as such terms are defined in Section 425(e) and 425(f), respectively of the Code. 2 "Optionee" shall mean any person employed or associated with the affairs of the Company who has been granted one or more Stock Options under the Plan. "Stock Option" or "NQSO" shall mean a stock option granted pursuant to the terms of the Plan. "Stock Option Agreement" shall mean the agreement between the Company and the Optionee under which the Optionee may purchase Common Shares hereunder. ARTICLE III Administration of the Plan 1. The Committee shall administer the plan and accordingly, it shall have full power to grant Stock Options, construe and interpret the Plan, establish rules and regulations and perform all other acts, including the delegation of administrative responsibilities, it believes reasonable and proper. 2. The determination of those eligible to receive Stock Options, and the amount, price, type and timing of each Stock Option and the terms and conditions of the respective stock option agreements shall rest in the sole discretion of the Committee, subject to the provisions of the Plan. 3. The Committee may cancel any Stock Options awarded under the Plan if an Optionee conducts himself in a manner which the Committee determines to be inimical to the best interest of the Company and its shareholders as set forth more fully in paragraph 8 of Article X of the Plan. 4. The Board, or the Committee, may correct any defect, supply any omission or reconcile any inconsistency in the Plan or in any granted Stock Option, in the manner and to the extent it shall deem necessary to carry it into effect. 5. Any decision made, or action taken, by the Committee or the Board arising out of or in connection with the interpretation and administration of the Plan shall be final and conclusive. 6. Meetings of the Committee shall be held at such times and places as shall be determined by the Committee. A majority of the members of the Committee shall constitute a quorum for the transaction of business, and the vote of a majority of those members present at any meeting shall decide any question brought before that meeting. In addition, the Committee may take any action otherwise proper under the Plan by the affirmative vote, taken without a meeting, of a majority of its members. 3 7. No member of the Committee shall be liable for any act or omission of any other member of the Committee or for any act or omission on his own part, including, but not limited to, the exercise of any power or discretion given to him under the Plan except those resulting form his own gross negligence or willful misconduct. 8. The Company, through its management, shall supply full and timely information to the Committee on all matters relating to the eligibility of Optionees, their duties and performance, and current information on any Optionee's death, retirement, disability or other termination of association with the Company, and such other pertinent information as the Committee may require. The Company shall furnish the Committee with such clerical and other assistance as is necessary in the performance of its duties hereunder. ARTICLE IV Shares Subject to the Plan 1. The total number of shares of the Company available for grants of Stock Options under the Plan shall be 5,000,000 Common Shares, subject to adjustment as herein provided, which shares may be either authorized but unissued or reacquired Common Shares of the Company. 2. If a Stock Option or portion thereof shall expire or terminate for any reason without having been exercised in full, the unpurchased shares covered by such NQSO shall be available for future grants of Stock Options. ARTICLE V Stock Option Terms and Conditions 1. Consistent with the Plan's purpose, Stock Options may be granted to any person who is performing or who has been engaged to perform services of special importance to management in the operation, development and growth of the Company. 2. Determination of the option price per share for any stock option issues hereunder shall rest in the sole and unfettered discretion of the Committee. 3. All Stock Options granted under the Plan shall be evidenced by agreements which shall be subject to applicable provisions of the Plan, and such other provisions as the Committee may adopt, including the provisions set forth in paragraphs 2 through 11 of this Article V. 4. All Stock Options granted hereunder must be granted within ten years from the date this Plan is adopted. 4 5. No Stock Option granted hereunder shall be exercisable after the expiration of ten years from the date such NQSO is granted. The Committee, in its discretion, may provide that an option shall be exercisable during such ten year period or during any lesser period of time. The Committee may establish installment exercise terms for a Stock Option such that the NQSO becomes fully exercisable in a series of cumulating portions. If an Optionee shall not, in any given installment period, purchase all the Common Shares which such Optionee is entitled to purchase within such installment period, such Optionee's right to purchase any Common Shares not purchased in such installment period shall continue until the expiration or sooner termination of such NQSO. The Committee may also accelerate the exercise of any NQSO. 6. A Stock Option, or portion thereof, shall be exercised by delivery of (i) a written notice of exercise to the Company specifying the number of Common Shares to be purchased, and (ii) payment of the full price of such Common Shares, as fully set forth in paragraph 7 of this Article V. No NQSO or installment thereof shall be reusable except with respect to whole shares, and fractional share interests shall be disregarded. Not less than 100 Common Shares may be purchased at one time unless the number purchased is the total number at the time available for purchase under the NQSO. Until the Common Shares represented by an exercised NQSO are issued to an Optionee, he shall have none of the rights of a shareholder. 7. The exercise price of a Stock Option, or portion thereof, may be paid: A. In United States dollars, in cash or by cashier's check, certified check, bank draft or money order, payable to the order of the Company in an amount equal to the option price; or, B. At the discretion of the Committee, through the delivery of fully paid and nonassessable Common Shares, with an aggregate fair market value (determined as the average of the highest and lowest reported sales prices on the Common Shares as of the date of exercise of the NQSO, as reported by such responsible reporting service as the Committee may select, or if there were not transactions in the Common Shares on such day, then the last preceding day on which transactions took place), as of the date of the NQSO exercise equal to the option price, provided such tendered shares, or any derivative security resulting in the issuance of Common Shares, have been owned by he Optionee for at least 30 days prior to such exercise; or, 5 C. By a combination of both A and B above. The Committee shall determine acceptable methods for tendering Common Shares as payment upon exercise of a Stock Option and may impose such limitations and prohibitions on the use of Common Shares to exercise an NQSO as it deems appropriate. 8. With the Optionee's consent, the Committee may cancel any Stock Option issued under this Plan and issue a new NQSO to such Optionee. 9. Except by will, the laws of descent and distribution, or with the written consent of the Committee, no right or interest in any Stock Option granted under the Plan shall be assignable or transferable, and no right or interest of any Optionee shall be liable for, or subject to, any lien, obligation or liability of the Optionee. Upon petition to, and thereafter with the written consent of the Committee, an Optionee may assign or transfer all or a portion of the Optionee's rights and interest in any stock option granted hereunder. Stock Options shall be exercisable during the Optionee's lifetime only by the Optionee or assignees, or the duly appointed legal representative of an incompetent Optionee, including following an assignment consented to by the Committee herein. 10. No NQSO shall be exercisable while there is outstanding any other NQSO which was granted to the Optionee before the grant of such option under the Plan or any other plan which gives the right to the Optionee to purchase stock in the Company or in a corporation which is a parent corporation (as defined in Section 425(e) of the Code) of the Company, or any predecessor corporation of any of such corporations at the time of the grant. An NQSO shall be treated as outstanding until it is either exercised in full or expires by reason of lapse of time. 11. Any Optionee who disposes of Common Shares acquired on the exercise of a NQSO by sale or exchange either (i) within two years after the date of the grant of the NQSO under which the stock was acquired, or (ii) within one year after the acquisition of such Shares, shall notify the Company of such disposition and of the amount realized upon such disposition. The transfer of Common Shares may also be restricted by applicable provisions of the Securities Act of 1933, as amended. 6 ARTICLE VI Adjustments or Changes in Capitalization 1. In the event that the outstanding Common Shares of the Company are hereafter changed into or exchanged for a different number of kinds of shares or other securities of the Company by reason of merger, consolidation, other reorganization, recapitalization, reclassification, combination of shares, stock split-up or stock dividend: A. Prompt, proportionate, equitable, lawful and adequate adjustment shall be made of the aggregate number and kind of shares subject to Stock Options which may be granted under the Plan, such that the Optionee shall have the right to purchase such Common Shares as may be issued in exchange for the Common Shares purchasable on exercise of the NQSO had such merger, consolidation, other reorganization, recapitalization, reclassification, combination of shares, stock split-up or stock dividend not taken place; B. Rights under unexercised Stock Options or portions thereof granted prior to any such change, both as to the number or kind of shares and the exercise price per share, shall be adjusted appropriately, provided that such adjustments shall be made without change in the total exercise price applicable to the unexercised portion of such NQSO's but by an adjustment in the price for each share covered by such NQSO's; or, C. Upon any dissolution or liquidation of the Company or any merger or combination in which the Company is not a surviving corporation, each outstanding Stock Option granted hereunder shall terminate, but the Optionee shall have the right, immediately prior to such dissolution, liquidation, merger or combination, to exercise his NQSO in whole or in part, to the extent that it shall not have been exercised, without regard to any installment exercise provisions in such NQSO. 2. The foregoing adjustment and the manner of application of the foregoing provisions shall be determined solely by the Committee, whose determination as to what adjustments shall be made and the extent thereof, shall be final, binding and conclusive. No fractional Shares shall be issued under the Plan on account of any such adjustments. 7 ARTICLE VII Merger, Consolidation or Tender Offer 1. If the Company shall be a party to a binding agreement to any merger, consolidation or reorganization or sale of substantially all the assets of the Company, each outstanding Stock Option shall pertain and apply to the securities and/or property which a shareholder of the number of Common Shares of the Company subject to the NQSO would be entitled to receive pursuant to such merger, consolidation or reorganization or sale of assets. 2. In the event that: A. Any person other than the Company shall acquire more than 20% of the Common Shares of the Company through a tender offer, exchange offer or otherwise; B. A change in the "control" of the Company occurs, as such term is defined in Rule 405 under the Securities Act of 1933; C. There shall be a sale of all or substantially all of the assets of the Company; any then outstanding Stock Option held by an Optionee, who is deemed by the Committee to be a statutory officer ("insider") for purposes of Section 16 of the Securities Exchange Act of 1934 shall be entitled to receive, subject to any action by the Committee revoking such an entitlement as provided for below, in lieu of exercise of such Stock Option, to the extent that it is then exercisable, a cash payment in an amount equal to the difference between the aggregate exercise price of such NQSO, or portion thereof, and, (i) in the event of an offer or similar event, the final offer price per share paid for Common Shares, or such lower price as the Committee may determine to conform an option to preserve its Stock Option status, times the number of Common Shares covered by the NQSO or portion thereof, or (ii) in the case of an event covered by B or C above, the aggregate fair market value of the Common Shares covered by the Stock Option, as determined by the Committee at such time. 3. Any payment which the Company is required to make pursuant to paragraph 2 of this Article VII, shall be made within 15 business days, following the event which results in the Optionee's right to such payment. In the event of a tender offer in which fewer than all the shares which are validity tendered in compliance with such offer are purchased or exchanged, then only that portion of the shares covered by an NQSO as results from multiplying such shares by a fraction, the numerator of which is the number of Common Shares acquired purchase to the offer and 8 the denominator of which is the number of Common Shares tendered in compliance with such offer, shall be used to determine the payment thereupon. To the extent that all or any portion of a Stock Option shall be affected by this provision, all or such portion of the NQSO shall be terminated. 4. Notwithstanding paragraphs 1 and 3 of this Article VII, the Company may, by unanimous vote and resolution, unilaterally revoke the benefits of the above provisions; provided, however, that such vote is taken no later than ten business days following public announcement of the intent of an offer of the change of control, whichever occurs earlier. ARTICLE VIII Amendment and Termination of Plan 1. The Board may at any time, and from time to time, suspend or terminate the Plan in whole or in part or amend it from time to time in such respects as the Board may deem appropriate and in the best interest of the Company. 2. No amendment, suspension or termination of this Plan shall, without the Optionee's consent, alter or impair any of the rights or obligations under any Stock Option theretofore granted to him under the Plan. 3. The Board may amend the Plan, subject to the limitations cited above, in such manner as it deems necessary to permit the granting of Stock Options meeting the requirements of future amendments or issued regulations, if any, to the Code. 4. No NQSO may be granted during any suspension of the Plan or after termination of the Plan. ARTICLE IX Government and Other Regulations The obligation of the Company to issue, transfer and deliver Common Shares for Stock Options exercised under the Plan shall be subject to all applicable laws, regulations, rules, orders and approval which shall then be in effect and required by the relevant stock exchanges on which the Common Shares are traded and by government entities as set forth below or as the Committee in its sole discretion shall deem necessary or advisable. Specifically, in connection with the Securities Act of 1933, as amended, upon exercise of any Stock Option, the Company shall not be required to issue Common Shares unless the Committee has received evidence satisfactory to it to the effect that the Optionee will not transfer such shares except pursuant to a registration statement in effect under such Act or unless an opinion of counsel satisfactory to the Company has been received by the Company to the effect that such registration is not required. Any determination in this connection 9 by the Committee shall be final, binding and conclusive. The Company may, but shall in no event be obligated to take any other affirmative action in order to cause the exercise of a Stock Option or the issuance of Common Shares purchase thereto to comply with any law or regulation of any government authority. ARTICLE X Miscellaneous Provisions 1. No person shall have any claim or right to be granted a Stock Option under the Plan, and the grant of an NQSO under the Plan shall not be construed as giving an Optionee the right to be retained by the Company. Furthermore, the Company expressly reserves the right at any time to terminate its relationship with an Optionee with or without cause, free from any liability, or any claim under the Plan, except as provided herein, in an option agreement, or in any agreement between the Company and the Optionee. 2. Any expenses of administering this Plan shall be borne by the Company. 3. The payment received from Optionee from the exercise of Stock Options under the Plan shall be used for the general corporate purposes of the Company. 4. The place of administration of the Plan shall be in the State of Utah and the validity, contraction, interpretation, administration and effect of the Plan and its rules and regulations, and rights relating to the Plan, shall be determined solely in accordance with the laws of the State of Utah. 5. Without amending the Plan, grants may be made to persons who are foreign nationals or employed outside the United States, or both, on such terms and conditions, consistent with the Plan's purpose, different from those specified in the Plan as may, in the judgment of the Committee, be necessary or desirable to create equitable opportunities given differences in tax laws in other countries. 6. In addition to such other rights of indemnification as they may have as members of the Board or Committee, the members of the Committee shall be indemnified by the Company against all costs and expenses reasonably incurred by them in connection with any action, suit or proceeding to which they or any of them may be party by reason of any action taken or failure to act under or in connection with the Plan or any Stock Option granted thereunder, and against all amount paid by them in settlement thereof (provided such settlement is approved by independent legal counsel selected by the Company) or paid by them in satisfaction of a judgment in any such action, suit or proceeding, except a judgment based upon a finding of bad faith; provided that upon the institution of any such action, suit or proceeding a Committee member shall in writing, give the 10 Company notice thereof and an opportunity, at its own expense, to handle and defend the same before such Committee member undertakes to handle and defend it on his own behalf. 7. Stock Options may be granted under this Plan from time to time, in substitution for stock options held by employees of other corporations who are about to become employees of the Company as the result of a merger or consolidation of the employing corporation with the Company or the acquisition by the Company of the assets of the employing corporation or the acquisition by the Company of stock of the employing corporation as a result of which it become a subsidiary of the Company. The terms and conditions of such substitute stock options so granted my vary from the terms and conditions set forth in this Plan to such extent as the Board of Director of the Company at the time of grant may deem appropriate to conform, in whole or in part, to the provisions of the stock options in substitution for which they are granted, but no such variations shall be such as to affect the status of any such substitute stock options as a stock option under Section 422A of the Code. 8. Notwithstanding anything to the contrary in the Plan, if the Committee finds by a majority vote, after full consideration of the facts presented on behalf of both the Company the Optionee, that the Optionee has been engaged in fraud, embezzlement, theft, commission of a felony or proven dishonesty in the course of his association with the Company or any subsidiary corporation which damaged the Company or any subsidiary corporation, or for disclosing trade secrets of the Company or any subsidiary corporation, the Optionee shall forfeit all unexercised Stock Options and all exercised NQSO's under which the Company has not yet delivered the certificates and which have been earlier granted the Optionee by the Committee. The decision of the Committee as to the case of an Optionee's discharge and the damage done to the Company shall be final. No decision of the Committee, however, shall affect the finality of the discharge of such Optionee by the Company or any subsidiary corporation in any manner. Further, if Optionee voluntarily terminates employment with the Company, the Optionee shall forfeit all unexercised stock options. ARTICLE XI Written Agreement Each Stock Option granted hereunder shall be embodied in a written Stock Option Agreement which shall be subject to the terms and conditions prescribed above and shall be signed by the Optionee and by the President or any Vice President of the Company, for and in the name and on behalf of the Company. Such Stock Option Agreement shall contain such other provisions as the Committee, in its discretion shall deem advisable. 11 ARTICLE XII Effective Date This Plan shall become unconditionally effective as of the effective date of approval of the Plan by the Board of Directors of the Company. No Stock Option may be granted later than ten (10) years from the effective date of the Plan; provided, however, that the Plan and all outstanding Stock Options shall remain in effect until such NQSO's have expired or until such options are cancelled. Number of Shares: Date of Grant: 12 NON QUALIFYING STOCK OPTION AGREEMENT AGREEMENT made this _____ day of _______________, 19__, between ______________________________ (the "Optionee"), and MAXAM GOLD CORPORATION, a Utah corporation (the "Company"). 1. Grant of Option. The Company, pursuant to the provisions of the MAXAM GOLD CORPORATION 1996 Nonqualifying Stock Option Plan (the "1996 Plan"), set forth as Attachment A hereto, hereby grants to the Optionee, subject to the terms and conditions set forth or incorporated herein, an Option and Purchase from the Company all or any part of an aggregate of ______________ Common Shares, as such Common Shares are now constituted, at the purchase price of $________ per share. The provisions of the 1996 Plan governing the terms and conditions of the Option granted hereby are incorporated in full herein by reference. 2. Exercise. The Option evidenced hereby shall be exercisable in whole or in part (but only in multiples of 100 Shares unless such exercise is as to the remaining balance of this Option) on or after ______________ and on or before ______________, provided that the cumulative number of Common Shares as to which this Option may be exercised (except as provided in paragraph 1 of Article VI of this 1996 Plan) shall not exceed the following amounts: Cumulative Number Prior to Date of Shares (Not Inclusive of) The Option evidenced hereby shall be exercisable by the deliver to and receipt by the Company of (i) a written notice of election to exercise, in the form set forth in Attachment B hereto, specifying the number of shares to be purchased; (ii) accompanied by payment of the full purchase price thereof in case or certified check payable to the order of the Company, or by fully-paid and nonassessable Common Shares of the Company properly endorsed over to the Company, or by a combination thereof; and, (iii) by return of this Stock Option Agreement for endorsement of exercise by the Company on Schedule I hereof. In the event fully paid and nonassessable Common Shares are submitted as whole or partial payment for Shares to be purchased hereunder, such Common Shares will be valued at their Fair Market Value (as defined in the 1996 Plan) on the date such Shares are received by the Company and applied to payment of the exercise price. 13 3. Transferability. The Option evidenced hereby is NOT assignable or transferable by the Optionee other than by the Optionee's will, by the laws of descent and distribution, as provided in paragraph 9 of Article V of the 1996 Plan. The Option shall be exercisable only by the Optionee during his lifetime. MAXAM GOLD CORPORATION BY: __________________________________ Alan Hubbard, President ATTEST: ________________________________ Secretary Optionee hereby acknowledges receipt of a copy of the 1996 Plan, attached hereto and accepts this Option subject to each and every term and provision of such Plan. Optionee hereby agrees to accept as binding, conclusive and final, all decisions or interpretations of the Compensation Committee of the Board of Directors administering the 1996 Plan on any questions arising under such Plan. Optionee recognizes that if Optionee's employment with the Company or any subsidiary thereof shall be terminated with cause, or by the Optionee, all of the Optionee's rights hereunder shall thereupon terminate; and that, pursuant to paragraph 10 of Article V of the 1996 Plan, this Option may not be exercised while there is outstanding to Optionee any unexercised Stock Option, granted to Optionee before the date of grant of this Option, to purchase Common Shares of the Company or any parent or subsidiary thereof. Dated: _____________________________ Optionee ______________________________________ Type or Print Name ______________________________________ Address ______________________________________ ______________________________________ Social Security No. 14 ATTACHMENT B (Suggested form of letter to be used for notification of election to exercise.) Date: Secretary, MAXAM GOLD CORPORATION 528 Fon du Lac Drive East Peoria, Illinois 61611 Dear Sir: In accordance with paragraph 2 of the Nonqualifying Stock Option Agreement evidencing the Option granted to me on ___________________________ under the MAXAM GOLD CORPORATION 1996 Nonqualifying Stock Option Plan, I hereby elect to exercise this Option to the extent of _______________ Common Shares. Enclosed are (i) Certificate(s) No.(s) __________ representing fully-paid Common Shares of MAXAM GOLD CORPORATION endorsed to the Company with signature guaranteed, and/or a certified check payable to the order of MAXAM GOLD CORPORATION in the amount of $__________ as the balance of the purchase price of $______________ for the Shares which I have elected to purchase and (ii) the original Stock Option Agreement for endorsement by the Company as to exercise on Schedule I thereof. I acknowledge that the Common Shares (if any) submitted as part payment for the exercise price due hereunder will be valued by the Company at their Fair Market Value (as defined in the 1996 Plan) on the date this Option exercise is effected by the Company. In the event I hereafter sell any Common Shares issued pursuant to this option exercise within one year from the date of exercise or within two years after the date of grant of this Option, I agree to notify the Company promptly of the amount of taxable compensation realized by me by reason of such sale for federal income tax purposes. When the certificate for Common Shares which I have elected to purchase has been issued, please deliver it to me, along with my endorsed Stock Option Agreement in the event there remains an unexercised balance of Shares under the Option, at the following address: _________________________________________ _________________________________________ ________________________________________ _____________________________________ Signature of Optionee _____________________________________ Type or Print Name 15 Optionee ___________________________________________________________ Date of Grant ______________________________________________________ SCHEDULE I - -------------------------------------------------------------------- Unexercised Issuing Shares Payment Shares Officer Date Purchased Received Remaining Initials - -------------------------------------------------------------------- EX-10 11 1 OFFICE LEASE This Lease Agreement (this "Lease") is made effective as of July 1, 1996, by and between Dale L. Runyon, ("Landlord"), and Maxam Gold Corporation ("Tenant"). The parties agree as follows: PREMISES. Landlord, in consideration of the lease payment sprovided in this Lease, leases to Tenant office facilities (the "Premises") located at 528 Fon du Lac Drive, East Peoria, Illinois 61611. TERM. The lease term will begin on July 1, 1996 and will continue on a monht-to-month basis. LEASE PAYMENT. Tenant shall pay to Landlord monthly payment of $1,200.00 per month, payable in advance on the first day of each month, for a toral annual lease payment of $14,400.00. Lease payments shall be made to the Landlord at 528 Fon du Lac Drive, East Peoria, Illinois 61611, as may be changed from time to time by Landlord. POSSESSION. Tenant shall be entitled to possession on the first day of the term of this Lease, and shall yield possession to Landlord on the last day of the term of this Lease, unless otherwise agreed by both parites in writing. USE OF PREMISES. Tenant may use the Premises only for the transaction of official business. The Premises may be used for any other pupose only with the prior written consent of Landlord, which shall not be unreasonably withheld. Tenant shall notify Landlord of any anticipated extended absence from the Premises not later thant he first day fo the extended absence. PROOPERTY INSURANCE. Landlord and Tenent shall be responsible to maintain appropriate insurance for their respective interests in the Premises and property located on the Premises. DEFAULTS. Tenant shall be in default of this Lease, if Tenant fails to fulfill any lease obligation or term by which Tenant is bound. Subject to any governing provisions of law to the contrary, if Tenant fails to cure any financial obligation within 30 days after written notice of such default is provided by Landlord to Tenant, Landlord may take possession of the Premises without further notice (to the extent permitted by law), and wihtout prejudicing Landlord's rights to damages. In the alternative, Landlord may elect to cure any default and the costs of such action shall be added to Tenant's financial obligations under this Lease. Tenant shall pay all costs, damages, and expenses (including reaonsable attorney fees and expenses) 2 suffered by Landlord by reason of Tenant's defaults. All sums of money or charges required to be paid by Tenant under this Lease shall be additional rent, whether or not such sums of charges are designated as "additional rent." NOTICE. Notices under this Lease shall not be deemed valid unless given or served in writing and forwarded by mail, postage prepaid, addressed as follows: LANDLORD: Dale L. Runyon 205 Alice East Peoria, Illinois 61611 TENANT: Maxam Gold Corporation 528 Fon dur Lac Drive East Peoria, Illinois 61611 Such addresses may be changed from time to time by either party by providing notice as set forth above. ENTIRE AGREEMETN/AMENDMENT. This Lease Agreement contains the entire agreemetn of the parites and there are no other promises or conditions in any other agreement whether oral or written. This Lease may be modified or amended in writing, if the writing is signed by the party obligated under the amendment. SEVERABILITY. If any portion of this Lease shall be hadl to be invalid or unenforceable for any reason, the remaining provisions shall continue to be valid and enforceable. If a court finds that any provision of this Lease is invalid or unenforceable, but that by limiting such provision, it woudl become vaild and enforceable, then such provision shall be deemed to be written, construed, and enforced as so limited. WAIVER. The failure of either party to enforce any provisions of this Lease shall not be construed as a waiver or limitatino of that party's right ot subsequently enforece and comple strict compliance with every provision of this Lease. CUMULATIVE RIGHTS. The rights of the parties under this Lease are cumulative, and shall not be construed as exclusive unelss otherwise required by law. GOVERNING LAW. This Lease shall be construed in accordance with the laws of the State of Illinois. LANDLORD TENANT MAXAM GOLD CORPORATION /s/ Dale L. Runyon BY: /s/ Alan E. Hubbard President EX-10 12 1 PROMISSORY NOTE OF MAXAM GOLD CORPORATION A Utah Corporation MAXAM GOLD CORPORATION (MAXAM), a Utah corporation, hereby establishes a line of credit with PHOENIX INTERNATIONAL MINING, INC. (PHOENIX), a Nevada corporation, in which MAXAM may borrow, from time to time in varying amounts, up to the sum of Two Million Dollars ($2,000,000.00), within two years from the date of this document with interest thereon at the rate of one (1) percent per month, or as mutually agreed upon at the time, on the outstanding balance. Said note will be paid at the discretion of MAXAM with payments first being applied to accrued interest and then to principle, (or as agreed upon in writing between the parties), with the full amount of interest and principle outstanding due not later than five years from the date of this document. IN WITNESS WHEREOF, MAXAM GOLD CORPORATION, a Utah corporation, has caused this notices to be executed by its duly authorized Officer. May 9, 1997 MAXAM GOLD CORPORATION BY: /s/ Dale L. Runyon, CEO (SEAL) - no seal (Acknowledgement) - no acknowledgement EX-10 13 1 PROMISSORY NOTE OF PEORIA SEVEN MINING, LLC An Arizona Corporation PEORIA SEVEN MINING, LLC (PEORIA 7), an Arizona corporation, hereby establishes a line of credit with MAXAM GOLD CORPORATION (MAXAM), a Utah corporation, in which Peoria 7 may borrow, from time to time in varying amounts, up to the sum of Three Million Dollars ($3,000,000.00), within three years from the date of this document with interest thereon at the rate of one (1) percent per month, or as mutually agreed upon at the time, on the outstanding balance. Said note will be paid at the discretion of Peoria 7 with payments first being applied to accrued interest and then to principle, (or as agreed upon in writing between the parties), with the full amount of interest and principle outstanding due not later than five years from the date of this document. IN WITNESS WHEREOF, PEORIA SEVEN MINING, LLC, an Arizona Limited Liability Company, has caused this notices to be executed by its duly authorized Officer. April 15, 1996 PEORIA SEVEN MINING, LLC BY: /s/ Dale L. Runyon, Manager (SEAL) - no seal (Acknowledgement) - no acknowledgement EX-10 14 1 STANDARD FORM MULTI-TENANCY INDUSTRIAL LEASE (TRIPLE NET) Landlord HEWSON/BRECKNER AIRPARK, L.L.C., an Arizona limited liability company Tenant MAXAM GOLD CORPORATION, a Utah corporation Dated as of October 8, 1997 TABLE OF CONTENTS 1. Defined Terms . . . . . . . . . 1 2. Leased Premises . . . . . . . . 2 (a) Property to be Leased . . . . . . 2 (b) Common Areas . . . . . . . . 2 (c) Reserved Rights of Landlord . . . . . 2 3. Completion of Premises . . . . . . . 3 (a) Plans . . . . . . . . . 3 (b) Scheduled Commencement Date . . . . . 3 (c) Remedy . . . . . . . . . 3 (d) Changes . . . . . . . . . 3 (e) Ready for Occupancy . . . . . . . 3 (f) Construction Representative . . . . . 4 (g) Early Entry . . . . . . . . 4 (h) Quality of Construction . . . . . . 4 4. Term . . . . . . . . . . . 4 5. Rent . . . . . . . . . . . 4 (a) Fixed Rent . . . . . . . . 4 (b) Adjustments . . . . . . . . 4 (c) Pro Rata Rent . . . . . . . . 5 (d) Net Lease . . . . . . . . . 5 (e) Reimbursable Expenses . . . . . . 5 6. Security . . . . . . . . . . 6 (a) Security Deposit . . . . . . . 6 (b) Lien and Security Interest . . . . . 7 7. Use . . . . . . . . . . . 7 (a) General . . . . . . . . . 7 (b) Compliance with Law . . . . . . . 7 (c) Existing Title and Condition of Premises . . 7 (d) Signs . . . . . . . . . 7 (e) Governmental Regulation . . . . . . 8 (f) Security Devices . . . . . . . 8 8. Maintenance and Repairs . . . . . . . 8 (a) Operating Expenses . . . . . . . 8 (b) Tenant's Maintenance . . . . . . 8 (c) Landlord's Obligations to Repair . . . . 9 (d) Surrender . . . . . . . . . 9 (e) Cleaning Deposit . . . . . . . 9 9. Utilities . . . . . . . . . . 9 2 10. Alterations and Additions . . . . . . 10 (a) Limitation . . . . . . . . 10 (b) Liens . . . . . . . . . 10 (c) Removal . . . . . . . . . 10 (i) Tenant Improvement Allowance . . . . 4(a) (j) Sunshade . . . . . . . . 4(b) 11. Insurance . . . . . . . . . . 10 (a) General Liability . . . . . . . 10 (b) Extended Coverage . . . . . . . 10 (c) Policies . . . . . . . . . 11 (d) Waiver of Subrogation . . . . . . 11 (e) Tenant's Contents . . . . . . . 11 (f) Workmen's Compensation . . . . . . 11 12. Indemnity; Exemption of Landlord from Liability . . 12 (a) General . . . . . . . . . 12 (b) Tenant's Business . . . . . . . 12 13. Damage or Destruction; Obligation to Rebuild . . . 12 (a) Landlord's Obligation to Rebuild . . . . 12 (b) Abatement of Rent . . . . . . . 12 (c) Option to Terminate . . . . . . . 12 (d) Uninsured Casualties . . . . . . 13 (e) Tenant's Waiver . . . . . . . 13 14. Taxes . . . . . . . . . . 13 (a) Tenant's Share of Property Taxes . . . . 13 (b) Tenant's Personal Property . . . . . 13 (c) Rent Tax . . . . . . . . . 13 15. Condemnation . . . . . . . . . 14 (a) Rent Reduction or Lease Termination . . . 14 (b) Award . . . . . . . . . 14 (c) Temporary Condemnation . . . . . . 14 16. Assignment and Subletting . . . . . . 14 (a) Consent . . . . . . . . . 14 (b) Tenant's Continuing Liability . . . . . 15 (c) Information . . . . . . . . 15 (d) Excess Sublease Rental . . . . . . 15 (e) Release . . . . . . . . . 15 (f) Controlled Entity . . . . . . . 16 (g) Attorneys' Fees . . . . . . . 16 17. Defaults; Remedies . . . . . . . . 16 (a) Defaults . . . . . . . . . 16 (b) Remedies . . . . . . . . . 17 (c) Late Charges . . . . . . . . 19 (d) Payment or Performance by Landlord . . . . 19 18. Miscellaneous . . . . . . . . . 19 (a) Estoppel Certificate . . . . . . 19 (b) Landlord's Liability . . . . . . 20 (c) Construction . . . . . . . . 20 (d) Interest on Past-Due Obligations . . . . 20 (e) Time of Essence . . . . . . . 20 (f) Counterparts . . . . . . . . 20 (g) Incorporation of Prior Agreements; Amendments . 20 (h) Notices . . . . . . . . . 20 3 (i) Waivers . . . . . . . . . 20 (j) Recording . . . . . . . . . 21 (k) Holding Over . . . . . . . . 21 (l) Covenants and Conditions . . . . . . 21 (m) Binding Effect . . . . . . . . 21 (n) Subordination . . . . . . . . 21 (o) Attorneys' Fee . . . . . . . . 21 (p) Landlord's Access . . . . . . . 21 (q) Auctions . . . . . . . . . 22 (r) Merger . . . . . . . . . 22 (s) Joint and Several Liability . . . . . 22 (t) Individual Liability . . . . . . 22 (u) Attornment . . . . . . . . 22 (v) Lenders Right to Cure . . . . . . 22 (w) Revisions to Lease . . . . . . . 22 (x) Administrative Charge . . . . . . 22 (y) Substituted Premises . . . . . . 23 19. Toxic Materials . . . . . . . . 23 (a) Definitions . . . . . . . . 23 (b) Prohibition on Hazardous Materials . . . . 23 (c) Exception to Prohibition . . . . . . 24 (d) Compliance with Environmental Laws . . . . 24 (e) Environmental Notices . . . . . . 24 (f) Environmental Indemnity . . . . . . 24 (g) Remedial Work . . . . . . . . 25 (h) Landlord's Option . . . . . . . 25 (I) Injunctive Relief . . . . . . . 25 (j) Self-Help . . . . . . . . . 25 (k) Other Tenants . . . . . . . . 25 (l) Environmental Inspection . . . . . . 25 (m) Surrender of Premises Environmental Considerations . . . . . 26 20. Additional Security . . . . . . . 26(a) Exhibit A The Premises Exhibit B Preliminary Plans Exhibit C Tenant Improvements Exhibit D Hazardous Materials Exhibit E Letter of Credit Requirements 1. Defined Terms. Each reference in this Lease to any of the following terms shall incorporate the data stated for that term. Other terms are as defined in the Lease. (a) Landlord and Landlord's Hewson/Breckner Airpark, L.L.C. Address (subparagraph c/o Hewson Properties, Inc. 18(h)): 4636 East University Drive Suite 265 Phoenix, Arizona 85034 (b) Tenant and Tenant's Maxam Gold Corporation Address for Notices 528 Fon du Lac Drive (subparagraph 18(h)): East Peoria, Illinois 61611 4 (c) Street Address of Pre- 15500 Greenway-Hayden Loop mises (paragraph 2): Scottsdale, Arizona 85260 (d) Approximate Square 12,039 square feet Footage of Premises (paragraph 2): (e) Project in which Pre- N/A mises are located (paragraph 2): (f) Landlord's Construction Mr. Steven Schwarz Representative (subpara- graph 3(f)): (g) Tenant's Construction Mr. Dale Runyon and Michael Representative (subpara- Runyon-Davis graph 3(f)): (h) Term (paragraph 4): Sixty (60) months (i) Scheduled Commencement 12:01 a.m. on December 1, 1997 Date (paragraph 4): (Initialed by parties) (j) Fixed Rent (subpara- $12,039 per month, plus applicable graph 5(a)): sales tax per month (k) Rental Period (sub- A calendar month during the lease paragraph 5(a)): Term (l) Security Deposit (sub- $12,500 paragraph 6(a)): (m) Permitted Uses (para- General office; the storage of graph 7): vehicles, equipment, ore sample, and other material associated with mining of precious metals or minerals; and a laboratory used solely for the testing of precious metals and minerals (n) Cleaning Deposit (sub- -0- paragraph 8(e)): (o) Tenant's Share of 27.64%; provided, however, if any Operating Expenses such Expenses or Taxes are not (paragraph 8), In- specifically identifiable as attri- surance Expense (para- butable solely to the Building and graph 11) and Property the real property immediately Taxes (paragraph 14); adjacent to the Building but are attributable to the Project, Tenant's Share of such Expenses and Taxes shall be N/A % (p) Liability Insurance $2,000,000 (subparagraph 11(a)): 2. Leased Premises. (a) Property to be Leased. Landlord hereby leases to Tenant, and Tenant hereby leases from Landlord, subject to the terms and conditions contained herein certain floor space (the "Premises") located in the building (the "Building") located (or to be constructed) on that certain real property located at the street address set forth in paragraph 1 hereof (the "Property"). The Building is located in Landlord's Project set forth in paragraph 1 above. The Premises, which are more particularly described on Exhibit A attached hereto and incorporated herein by this reference, shall be deemed to extend from the top surface of subfloor to the bottom surface of ceilings above but shall not include the common stairways, stairwells, hallways, accessways, and pipes, ducts, conduits, wires and appurtenant fixtures serving exclusively or in common other parts of the Building, and (if the Premises include less than the entire rentable area of any floor) shall not include the remainder of the Floor Common Area (as defined below). The Approximate Square Footage of the Premises is set forth in paragraph 1 above. (b) Common Areas. Tenant shall have, as appurtenant to the Premises, rights to use in common, subject to reasonable rules from time to time made by Landlord of which Tenant is given notice: (i) The common stairways and accessways, loading docks and platforms and any passageways thereto, and the common pipes, ducts, conduits, wires and appurtenant equipment serving the Premises; (ii) If the Premises include less than the entire rentable area of any floor, the common lobbies, hallways, toilets and other common facilities (the "Floor Common Area"); and (iii) Common walkways, sidewalks, and driveways necessary for access to the Building; greenbelt areas; and, except for parking spaces which may be reserved for persons other than Tenant, parking spaces or area from time to time maintained on the Project for use by tenants in and visitors to the Building and, to the extent from time to time arranged by Landlord, maintained on adjacent real property for such use. Twenty (20) parking spaces shall be available for Tenant and Tenant's employees and visitors free of charge throughout the Term of this Lease. Nine (9) of such spaces shall be covered and reserved for the Tenant and eleven (11) of such spaces shall be uncovered and unreserved. 6 (c) Reserved Rights of Landlord. Notwithstanding the foregoing, Landlord reserves the right from time to time, without unreasonable interference with Tenant's use: (i) To install, use, maintain, repair and replace pipes, ducts, conduits, wires and appurtenant meters and equipment for service to other parts of the Building above the ceiling surfaces, below the floor surfaces, within the walls and in the central core areas, and to replace any pipes, ducts, conduits, wires and appurtenant meters and equipment included in the Premises which are so located or located elsewhere outside the Premises; (ii) To alter or relocate any other common facility; provided, however, that substitutions are substantially equivalent or better in quality; and (iii) To alter the boundaries of the Property, grant easements on the Property and dedicate for public use portions thereof without Tenant's consent, provided that no such grant or dedication shall unreasonably interfere with Tenant's use of the Premises or otherwise cause Tenant to incur cost or expense. 3. Completion of Premises. (a) Plans. Landlord and Tenant have approved the preliminary plans and outline specifications (the "Preliminary Plans") identified in Exhibit B for the construction of improvements in and to the Premises, the ("Tenant Improvements"), which Tenant Improvements are listed on Exhibit C attached hereto and by this reference made a part hereof. If necessary, Landlord shall cause to be prepared final plans and specifications (the "Final Plans") substantially in conformity with the Preliminary Plans, which need not include working detail drawings. The term "Plans" shall hereinafter mean the Preliminary Plans and, if and when prepared, the Final Plans. The Final Plans, if necessary, shall be delivered to Tenant as soon as reasonably possible from the date hereof, subject to any period of delay encountered by Landlord in such preparation as a result of requests by Tenant for changes in the Final Plans subsequent to the date hereof. Within ten (10) days after delivery of the Final Plans, Tenant shall set forth in writing, with particularity and precision, any corrections or changes necessary to bring the Final Plans into substantial conformity with the Preliminary Plans, except that Tenant may not object to any logical development or refinement of the Preliminary Plans. Failure to deliver to Landlord written notice of any such corrections or changes within said ten (10) day period shall constitute approval of the Final Plans by Tenant. Following such approval of the Final Plans, both parties shall endorse approval for filing purposes thereon, in duplicate, and thereafter changes may be made only in accordance with subparagraph (d) below. 7 (b) Scheduled Commencement Date. Landlord, at its sole expense, shall proceed diligently with construction and completion of the Premises substantially in accordance with the Plans. Landlord shall complete the Premises and they shall be Ready for Occupancy (as defined below) by Tenant not later than the Scheduled Commencement Date set forth in paragraph 1 above; provided, however, that such Scheduled Commencement Date shall be extended for a period of time equal to the period of any delay or delays encountered by Landlord affecting construction because of fire, earthquake, inclement weather, or other acts of God, acts of the public enemy, riot, insurrection, governmental regulations of the sales of materials or supplies or the transportation thereof, strikes or boycotts, shortages of material or labor, Tenant's early entry under the provisions of subparagraph (g) below, changes in the Plans pursuant to subparagraph (d) below, or any other cause beyond the control of Landlord. (c) Remedy. If the Premises are not completed on or before the Scheduled Commencement Date as extended pursuant to subparagraph (b) above, the sole remedy of either party shall be the option to terminate this Lease by the delivery to the other party of written notice within ten (10) days after the day three (3) months following the Scheduled Commencement Date, as extended. (d) Changes. Tenant shall have the right to request changes in the Plans, which request shall not be unreasonably denied, provided, however, that: (i) such right shall not be exercised unreasonably, (ii) no such request shall affect any structural change in the Premises, (iii) Tenant shall pay any additional cost or economic detriment incurred by Landlord required to implement or incurred as a result of such request or change, including without limitation loss of rents, architecture fees, increase in construction costs and any other charges payable hereunder caused by delay, with all said costs, and detriments, to be paid immediately upon demand by Landlord, and (iv) such requests shall constitute an agreement on the part of Tenant to accept any delay in completion caused by reviewing, processing and implementing any such changes. (e) Ready for Occupancy. The Premises shall be deemed to be ready for occupancy ("Ready for Occupancy") when the architect or engineer in charge of the work of construction certifies: (i) that the work of construction has been substantially completed in accordance with the Plans; and (ii) the date of such completion. Landlord shall diligently complete, as soon as reasonably possible, any items of work and adjustment not completed when the Premises are Ready for Occupancy. 8 (f) Construction Representative. In connection with the original construction of the Premises each party shall be bound by its Construction Representative set forth in paragraph 1 above. A party may designate a substitute Construction Representative by giving written notice to the other party. (g) Early Entry. With the prior written consent of Landlord, Tenant may, at any time prior to the commencement of the Term, at its sole risk, enter upon and install such trade fixtures and equipment in the Premises as it may elect; provided, however, that (i) Tenant's early entry shall not interfere with Landlord's work of construction or cause labor difficulties; (ii) Tenant shall execute an indemnity agreement in favor of Landlord in form and substance satisfactory to Landlord; (iii) Tenant shall pay for and provide evidence of insurance satisfactory to Landlord; and (iv) Tenant shall pay utility charges reasonably allocated to Tenant by Landlord. Tenant shall not use the Premises for the storage of inventory or otherwise commence the operation of business prior to the commencement of the Term without the express prior written consent of Landlord. (h) Quality of Construction. All work shall be done in a good and workmanlike manner and in compliance with all applicable laws and lawful ordinances, bylaws, regulations and orders of governmental authority and of the insurers of the Improvements. Landlord assumes no liability for special, consequential or incidental damages of any kind. There are no representations, warranties or guaranties, express or implied, including warranties of merchantability or use of the Premises, except as are expressly set forth herein. Tenant hereby waives the benefit of any rule that disclaimers of warranty shall be construed against Landlord. (i) Tenant Improvement Allowance. The cost of constructing the Tenant Improvements shall be paid by Landlord; provided, however, if the amount charged to the Landlord by Landlord's general contractor (the "Contractor") for acquisition, construction and installation of the Tenant Improvements, plus architectural fees and permits relating to such construction and installation, is more than $216,702, Tenant hereby agrees to pay for all costs incurred in connection with the Tenant Improvements except for $216,702, which is the Landlord's entire monetary obligation for the Tenant Improvements ("Landlord's Portion"). In the event that the initial contract amount charged by the Contractor, plus architectural fees and permits, indicates that the total cost of the Tenant Improvements will be greater than Landlord's Portion, Tenant shall be obligated to make the first payments for the Tenant Improvements up to an amount equal to the difference between the initial contract amount, plus architectural fees and permits, and the Landlord's Portion ("Tenant's Initial Payment"). Tenant shall make Tenant's Initial Payment based upon requisitions setting forth in reasonable 9 detail the work performed and containing invoices, together with any other information reasonably requested by Tenant, and shall be paid by Tenant within ten (10) business days of receipt of each such requisition and other information. After Tenant has met its initial obligation by paying all of the Tenant's Initial Payment, the Landlord shall be obligated to pay the Landlord's Portion. In the event that change orders or other events cause the final cost of the Tenant Improvements to be less than the sum of the Landlord's Portion and Tenant's Initial Payment, then Landlord shall reimburse Tenant such excess up to the amount of Tenant's Initial Payment. In the event that change orders or other events cause the final cost of the Tenant Improvements to be more than the sum of the Landlord's Portion and Tenant's Initial Payment, then Tenant shall pay each such increase as soon as any such increase is determined in accordance with the same procedures as for the payment of Tenant's Initial Payment. Except as otherwise provided above, Tenant shall have complete responsibility for the cost of the Tenant Improvements and for the construction of any other improvements and alterations to the Premises in connection with Tenant's occupancy thereof, Tenant agreeing to accept the same "AS IS", subject only to the construction of the Tenant Improvements. It is contemplated that the Contractor will be Bjerk Builders, Inc. ("Bjerk"). Landlord shall furnish Tenant with estimates of the costs of the various Tenant Improvements promptly after receipt thereof from Bjerk and of Bjerk's total bid price for the construction of the Tenant Improvements. If Tenant is dissatisfied with such estimates or bid, Tenant may exercise its rights under subparagraph 3(d) above to request a change in the Plans. In addition, if Tenant believes that lower costs may be obtainable for the Tenant Improvements, Tenant may, by a written request received by Landlord within five (5) business days after the furnishing to Tenant any such estimate or bid (and prior to commencement of the Tenant Improvements) request that Landlord seek bids for the construction of the Tenant Improvements from other general contractors. Upon receipt of such request for rebidding and after consultation with Tenant, Landlord shall request bids from not less than two (2) alternative general contractors for the construction of the Tenant Improvements and Landlord will consider the results of such bids in determining, along with the Tenant, the general contractor who will construct the Tenant Improvements; provided, however, Landlord (1) may consider reasonable factors other than price in determining the general contractor to be selected, including but not limited to the willingness of the general contractor to execute the standard construction contract used by Landlord and its affiliates, and (2) may also permit Bjerk to reduce its bid. Tenant also agrees to accept any delays, costs and charges resulting from the requesting of such additional bids and use of any substituted general contractor or Bjerk, if applicable, with the same force and effect as if Tenant had 10 requested a change in the Plans as provided in subparagraph 3(d) above. Landlord shall execute a construction contract with Bjerk or other bidder, as applicable, to be the Contractor, with the Contract Sum to be based on the bid made by the selected general contractor. (j) Sunshade. In addition to the Tenant Improvements Landlord shall also cause to be installed a sunshade for the glass curtain wall constructed by Landlord as a part of the Building (the "Sunshade"). The Sunshade shall be selected by Tenant, subject to Landlord's approval, which approval shall not be unreasonably withheld, and installed by the Contractor. The cost of acquiring, installing, and constructing the Sunshade shall be paid by Landlord; provided, however, if the amount charged to the Landlord by the Contractor for acquisition, construction and installation of the Sunshade is more than $7,000, Tenant hereby agrees to pay for all costs incurred in connection with the Sunshade except for $7,000 which is the Landlord's entire monetary obligation for the Sunshade. In the event that the amount charged by the Contractor is or will be greater than $7,000, Tenant shall be obligated to pay to Landlord the amount equal to the difference between the cost thereof and $7,000. Tenant shall make such payment(s) based upon requisitions setting forth in reasonable detail the cost of the Sunshade and any other information reasonably requested by Tenant and shall be paid by Tenant within ten (10) business days of receipt of each such requisition and other information. For all purposes of this Lease except paragraph 3 the Sunshade shall be considered as a Tenant Improvement installed by Landlord. 4. Term. The Term of this Lease, which shall be for the period set forth in paragraph 1 above, shall commence on the first to occur of the following dates (the "Commencement Date") (it being agreed that if the Term of this Lease shall not commence within one (1) year of the Scheduled Commencement Date this Lease shall terminate and be of no further force and effect): (a) The Scheduled Commencement Date set forth in paragraph 1 above (as it may be extended pursuant to the terms of paragraph 3 above); (b) The date on which the Premises are Ready for Occupancy; or (c) The date upon which Tenant actually commences to do business in the Premises. 5. Rent. (a) Fixed Rent. Tenant shall pay Landlord as fixed rent for the Premises a sum equal to the Fixed Rent set forth in paragraph 1 on or before the first day of each and every calendar month during the Term of this Lease, except that Fixed 11 Rent for the first full calendar month of the Term shall be payable simultaneously with the execution of this Lease by Tenant. (b) Adjustments. Commencing on the thirty-first (31st) Rental Period of the Term of this Lease and continuing thereafter through the sixtieth (60th) Rental Period of the Term of this Lease (the "Adjustment Period"), in addition to the Fixed Rent due pursuant to subparagraph (a) above, Tenant shall pay as additional rent an additional amount (the "Adjustment") to be determined in accordance with the variations, if any, in the costs of living as shown by the Consumer Price Index for all Urban Consumers (average of all cities), as published by the Bureau of Labor Statistics, United States Department of Labor, or any successor agency (the "CPI"). Except as hereinafter provided, the Adjustment for each Rental Period of the Adjustment Period shall be an amount equal to (i) the product obtained by multiplying the Fixed Rent by a fraction, the numerator of which shall equal the CPI reported for the calendar month occurring three (3) months prior to the first day of such Adjustment Period (e.g., if the first day of the Adjustment Period shall be June 1, the CPI used shall be that of the immediately preceding month of March) and the denominator of which shall equal the CPI reported for the calendar month occurring three (3) months prior to the first day of the month in which the Commencement Date shall occur less (ii) the Fixed Rent; provided, however, the Adjustment shall not be less than the amount determined by accruing interest on the Fixed Rent at a rate of three percent (3%) per annum, compounded annually, during the period from the Commencement Date until the first day of the Adjustment Period and not more than the amount determined by accruing interest on the Fixed Rent at a rate of six percent (6%) per annum, compounded annually, during the period from the Commencement Date until the first day of the Adjustment Period. (c) Pro Rata Rent. Rent for any period during the Term which is for less than one month shall be a pro rata portion of the Rental Period installment. Rent shall be payable, without deduction or offset, in lawful money of the United States to Landlord at the address stated herein or to such other persons or at such other places as Landlord may designate in writing. (d) Net Lease. This Lease is what is commonly called a "net lease", it being understood that Landlord shall receive the Rent set forth in this paragraph free and clear of any and all impositions, taxes, liens, charges or expenses of any nature whatsoever in connection with its ownership and leasing of the Premises. In addition to the Rent provided in this paragraph, Tenant shall pay all impositions, taxes, insurance premiums, operating charges, costs and expenses which arise or may be contemplated under any provisions of this Lease during the Term. All of such charges, costs and expenses shall constitute additional rent, and upon the failure of Tenant to pay any of such costs, charges or expenses, Landlord shall have the same rights and remedies as otherwise provided in this Lease for the failure of Tenant to pay Rent. It is the intention of the parties hereto that Tenant shall in no event be entitled to any abatement of or reduction in Rent or additional rent payable hereunder, except as expressly provided herein. Any present or future law to the contrary shall not alter this agreement of the parties. (e) Reimbursable Expenses. The sums payable by Tenant for Operating Expenses, Insurance Expenses and Property Taxes (hereinafter sometimes cumulatively referred to as the "Reimbursable Expenses") under subparagraphs 8(a), 11(b) and 14(a) of this Lease shall be paid in accordance with the following procedures: (i) Landlord shall prepare an annual statement (the "Annual Statement") setting forth the sum of the Reimbursable Expenses for the calendar year ending on the prior December 31 and Tenant's Share thereof and setting forth the estimated Reimbursable Expenses that will be incurred by Landlord during the current calendar year ending on the next following December 31 and Tenant's Share thereof. (ii) Landlord shall endeavor to give to Tenant such Annual Statement on or before March 1 of each calendar year throughout the Term of the Lease, but Landlord's failure to provide Tenant with an Annual Statement by said date shall not constitute a waiver by Landlord of its right to require payment by Tenant of Tenant's Share of estimated Reimbursable Expenses or actual Reimbursable Expenses. (iii) Tenant's Share of estimated Reimbursable Expenses for the calendar year in which the Annual Statement is received shall be divided by twelve (12) and one such installment shall be paid concurrently with each rental payment thereafter until receipt by Tenant of the next Annual Statement. In addition, Tenant shall pay in full concurrently with the first monthly rent payment due following receipt of the Annual Statement an amount equal to the excess of the monthly installment required to be paid under the most current Annual Statement over the monthly installment made under the preceding Annual Statement (or the amount specified in subparagraph (v) below, as applicable) multiplied by the number of months from January through the month in which the Annual Statement is received by Tenant. (iv) If Tenant's Share of actual Reimbursable Expenses for the past calendar year as shown on the Annual Statement is greater than the payments made by Tenant for that calendar year, then concurrently with the first monthly rent 13 payment due following receipt by Tenant of the Annual Statement, Tenant shall pay in full an amount equal to such excess. If Tenant's Share of actual Reimbursable Expenses for the past calendar year as shown on the Annual Statement is less than the payments made by Tenant for that calendar year, the amount of such overpayment shall be credited against the next monthly rent payment(s) falling due. (v) An Annual Statement need not be given during the period from the Commencement Date (or implementation of this monthly payment program) until December 31 of the year in which the Commencement Date (or implementation of this monthly payment program) occurs and estimated payments of Reimbursable Expenses during such period and until the first Annual Statement is issued to Tenant in the next calendar year shall be in the amount specified by Landlord. (vi) Even though the Term has expired and the Tenant has vacated the Premises when the final determination is made of Tenant's Share for the calendar year in which the Lease expires, Tenant shall immediately pay the excess of Tenant's Share for the portion of such year in which Tenant was in occupancy over the estimated payments made by Tenant for that calendar year and, conversely, any overpayment made shall be immediately rebated by Landlord to Tenant. (vii) An administrative charge equal to five percent (5%) of the Reimbursable Expenses shall be added to each installment payment due under this subparagraph (e) (including the estimated payments and any reconciliation payment), which administrative charge shall be reflected in the Annual Statement, shall be payable in addition to the Reimbursable Expenses and shall be intended to compensate Landlord for supervision, administrative and clerical costs. (viii) Each Annual Statement shall be prepared in accordance with generally recognized and established accounting practices and each determination and Annual Statement, certified by Landlord, shall be final and conclusive on both parties, including any determination made by Landlord of the appropriate estimated payment during the period prior to issuance of the first Annual Statement to Tenant. 6. Security. (a) Security Deposit. Tenant shall deposit with Landlord upon execution hereof the Security Deposit set forth in paragraph 1 above as security for Tenant's faithful performance of Tenant's obligations hereunder. If Tenant fails to pay Rent or any other charges payable by Tenant hereunder, or otherwise defaults with respect to any provision of this Lease, Landlord may at its option use, apply or retain all or any portion of the Security Deposit (i) to remedy Tenant's defaults in the payment of Rent or any other sums payable by Tenant pursuant to the terms hereof, (ii) to repair any damage to the Premises, (iii) to clean and otherwise maintain the Premises, or (iv) to compensate Landlord for any other loss or damage which Landlord may suffer thereby. If Landlord so uses or applies all or any portion of the Security Deposit, Tenant shall, within ten (10) days after written demand therefor, deposit cash with Landlord in an amount sufficient to restore the Security Deposit to the full amount hereinabove stated and Tenant's failure to do so shall be a breach of and a default under this Lease. Landlord shall not be required to keep the Security Deposit separate from its general accounts. If Tenant performs all of Tenant's obligations hereunder, the Security Deposit, or so much thereof as has not theretofore been applied by Landlord, shall be returned, without payment of interest or other increment for its use, to Tenant (or, at Landlord's option, to the last assignee, if any, of Tenant's interest hereunder) at the expiration of the Term hereof, after Tenant has vacated the Premises. (b) Lien and Security Interest. Tenant hereby grants to Landlord a lien and security interest upon all property of Tenant now or hereafter placed in or about the Premises to secure payment of all rents and other sums payable to Landlord hereunder and the payment of any damages or losses suffered by Landlord by reason of Tenant's breach of this Lease. Landlord, as secured party, shall be entitled to all rights and remedies afforded a secured party under the Arizona Uniform Commercial Code, such rights and remedies to be in addition to and cumulative of any landlord's lien granted by law or elsewhere in this Lease. Tenant shall execute appropriate UCC forms upon request by Landlord. 7. Use. (a) General. The Premises shall be used and occupied only for the Permitted Uses set forth in paragraph 1 above and for no other purpose. (b) Compliance with Law. Tenant shall, at Tenant's sole cost and expense, comply with all present and future laws, ordinances, orders, declarations of covenants and restrictions, rules, regulations and requirements of all federal, state and municipal governments, courts, departments, commissions, boards and officers, and any national or local Board of Fire Underwriters, or any other body exercising functions similar to those of any of the foregoing, foreseen or unforeseen, ordinary as well as extraordinary, which may be applicable to the Premises, the Building, and the Property or to the use or manner of use of the Premises. Tenant shall obtain any required certificate of occupancy with respect to its use of the Premises, the Building and the Property within thirty (30) days from the Commencement Date and shall deliver a copy thereof to Landlord within such thirty (30) day period; provided, however, Landlord shall obtain any certificate of occupancy required for the shell 15 of the Building and any improvements to the Premises to be made by Landlord pursuant to paragraph 3 above. Tenant shall not use or permit the use of the Premises in any manner that will tend to create waste or a nuisance. (c) Existing Title and Condition of Premises. Tenant hereby accepts the Premises in their condition existing as of the Commencement Date and also accepts the Premises and this Lease subject to all applicable zoning, municipal, county and state laws, ordinances and regulations governing and regulating the use of the Premises, subject to all covenants, conditions and restrictions affecting the Property, Project or Premises and subject to all liens, claims and encumbrances currently existing against the Premises or any part thereof, including all matters disclosed by any of the foregoing or by any exhibits attached hereto; provided, however, Tenant shall be deemed to have consented to private covenants, conditions and restrictions in favor of third parties and private liens, claims or encumbrances asserted by third parties only if copies thereof have been furnished to Tenant or such items are referred to in a title insurance commitment or title report furnished by Landlord to Tenant; Landlord, in accordance with (and except as otherwise provided in) subparagraph 8(c) below, shall be responsible for causing the roof and bearing walls of the Premises to be in good condition and repair at the Commencement Date and shall also cause the heating, ventilating and air conditioning system, the plumbing system and the electrical system to be in operating condition as of the Commencement Date. All such systems shall be deemed in the condition required at the Commencement Date unless Tenant gives Landlord written notice of any defects in such systems on or before ten (10) days after the Commencement Date. Except for any representation or warranty which may be specifically set forth in this Lease, Tenant acknowledges that neither Landlord nor Landlord's agents have made any representations or warranties as to the Premises, including without limitation, any representation or warranty as to condition or fitness of the Building or the suitability of the Building for the conduct of Tenant's business. (d) Signs. Tenant shall not erect or install on any exterior or interior window, any door, or any exterior wall any signs, advertising media, placards, trademarks, drapes, screens, tinting materials, shades, blinds or similar items, without first securing Landlord's written permission. It is contemplated, however, that Landlord will consent to the installation of exterior building signs, flag poles and monument signs which otherwise comply with the covenants, conditions and restrictions of record and with the requirements of this subparagraph (d) and, with respect to all signage on the Building, are of a size which does not exceed (on a cumulative basis) that percentage of all signage on the Building which is equal to the percentage which the Premises is of all of the leasable space in the Building. Landlord will also not permit other lessees of space in the 16 Building to have exterior signage which would, under applicable governmental restrictions, prevent Tenant from having signage area on the Building which is a percentage of all of the signage area on the Building that is less than the percentage which the Premises is of all leasable space in the Building. All signs shall comply with all applicable governmental requirements, shall conform to the design, motif and decor of the Property and shall be in good taste, as determined in Landlord's reasonable discretion. Landlord may also establish such sign criteria as Landlord deems appropriate for the Property and Tenant shall cause all signs which are located on the Premises and are visible from outside the Premises to conform to such sign criteria. Tenant shall properly maintain all approved signs. Upon expiration of the Lease, Tenant promptly shall remove all signs placed in and around the Premises by Tenant and shall repair any damage to the Premises, Building or other portions of the Project caused by the removal of such signs. Landlord may also require Tenant to erect an exterior identifying sign in form and substance satisfactory to Landlord, which sign shall also be subject to all of the other provisions of this subparagraph (d). (e) Governmental Regulation. In addition to the general obligation of Tenant to comply with laws and without limitation thereof, Landlord shall not be liable to Tenant nor shall this Lease be affected if any parking privileges appurtenant to the Premises, the Building and the Property are impaired by reason of any moratorium, initiative, referendum, statute, regulation, or other governmental decree or action which could in any manner prevent or limit the parking rights of Tenant hereunder. Any governmental charges or surcharges or other monetary obligations imposed relative to parking rights with respect to the Premises, the Building and the Property shall be considered as Property Taxes and shall be payable by Tenant under the provisions of paragraph 14 hereof. (f) Security Devices. Tenant may not install any alarm boxes, foil protection tape or other security equipment on the Premises without Landlord's prior written consent, which consent shall not be unreasonably withheld with respect to a commercial security system of a type in typical use in the Phoenix metropolitan area but may be conditioned upon compliance with reasonable requirements set forth for the protection of the Building and adjoining property. 8. Maintenance and Repairs. (a) Operating Expenses. As additional rent during the Term, Tenant shall pay to Landlord an amount equal to the product obtained by multiplying (i) Tenant's Share of Operating Expenses (as set forth in paragraph 1 above) by (ii) the amount which Landlord expends for Operating Expenses for the Term hereof. "Operating Expenses" shall include all reasonable and necessary expenses actually incurred by Landlord for the operation, cleaning, maintenance (including but not 17 limited to preventive maintenance), repair and property management of the Building and the Property and, if applicable, the Project, including, without limitation, the roof and walls (other than for the structural repair of such roof and walls), utility systems and related equipment serving all of the Building or the Project and all walks, driveways, parking areas, loading areas, lawns and landscaping. Among the items included in Operating Expenses under the foregoing definition are expenses for utilities furnished to the common areas of the Building and Property and fees and charges paid to the property manager for the Building; provided, however, the amount of the property manager's fee included in Operating Expenses of the Building for any calendar year shall not exceed an amount equal to five percent (5%) of the gross receipts received by Landlord from the Building for such calendar year. If Landlord determines that a utility system and related equipment or portion thereof serves one or more tenant suites in addition to the Premises but less than all of the tenant suites in the Building or the Project, the system and equipment or portion thereof, as applicable, which serves the Premises and such additional suites, to the extent the operation, cleaning, maintenance, repair and/or replacement thereof is not the responsibility of the applicable utility company, shall be deemed a part of the Building and the Project for the purposes of this subparagraph 8(a), except that the amount of the reimbursement by Tenant to Landlord for such items shall be separately stated and shall be determined by multiplying the reasonable and necessary expenses incurred by Landlord for such items by the percentage which the Premises is of the total space leased or available for lease which is served by such systems and equipment or portion thereof instead of by the Tenant's Share of Operating Expenses as set forth in paragraph 1. Sums payable by Tenant pursuant to this subparagraph shall be paid in accordance with the provisions of subparagraph 5(e) above. Landlord may enter upon the Premises to the extent necessary or appropriate to do any work described in this subparagraph 8(a), Landlord shall not be liable for any inconvenience, annoyance, disturbance, loss of business or other damage of Tenant by reason of performing any such work or on account of bringing materials, tools, supplies or equipment into or through the Premises during the course thereof, and the obligations of Tenant under this Lease shall not be affected thereby. (b) Tenant's Maintenance. Tenant shall, at Tenant's sole cost and expense, keep and maintain the Premises, subfloors and floor coverings in good repair and in a clean and safe condition, casualties covered by insurance coverage excepted to the extent of proceeds received by Landlord. Tenant's obligations shall include the cleaning, operation, maintenance, repair and replacement of all utility systems and related equipment and portions thereof located within the Premises except to the extent Landlord performs such cleaning, operation, maintenance, repair 18 and/or replacement under subparagraph 8(a) above because all or portions of the system and equipment serve more than one tenant suite. Tenant shall, at Tenant's own expense, immediately replace all interior, exterior or other glass in or about the Premises that may be broken during the Term with glass at least equal to the specification and quality of the glass so replaced. If Tenant fails to perform Tenant's obligations under this subparagraph, Landlord may at its option enter upon the Premises after ten (10) days prior written notice to Tenant and put the same in good order, condition and repair, and the cost thereof together with interest thereon at the rate of fifteen percent (15%) per annum shall become due and payable as additional rental to Landlord together with Tenant's next monthly Rent payment. Nothing herein shall imply any duty upon the part of Landlord to do any such work and the performance thereof by Landlord shall not constitute a waiver of Tenant's default in failing to perform the same. Landlord may, during the progress of any such work in or on the Premises, keep and store therein all necessary materials, tools, supplies and equipment. Landlord shall not be liable for the inconvenience, annoyance, disturbance, loss of business or other damage of Tenant by reason of making such repairs or the performance of any such work, or on account of bringing materials, tools, supplies or equipment into or through the Premises during the course thereof, and the obligations of Tenant under this Lease shall not be affected thereby. (c) Landlord's Obligations to Repair. Landlord shall, at its expense, after written notice from Tenant, repair in a prompt and diligent manner any damage to structural portions of the roof and bearing walls of the Premises; provided, however, that if such damage is caused by an act or omission of Tenant or Tenant's agents, invitees, employees or contractors, then such repairs shall be at Tenant's expense, payable to Landlord pursuant to this paragraph. There shall be no abatement of Rent during the performance of such work. Landlord shall not be liable to Tenant for injury or damage that may result from any defect in the construction or conditions of the Premises and Tenant shall seek recovery for such injury or damage solely from Tenant's insurance and/or any other persons or entities which may be liable to Tenant. Tenant waives any right to make repairs at the expense of Landlord under any law, statute or ordinance now or hereafter in effect unless Tenant has given Landlord written notice of the need for such repairs, such repairs are the obligation of Landlord under this Lease and Landlord has failed to make the needed repairs within a reasonable period of time after the receipt of such notice. (d) Surrender. On the last day of the Term, or on any sooner termination of this Lease, Tenant shall surrender the Premises to Landlord in the same condition as when received, broom clean, ordinary wear and tear alone excepted. Tenant shall repair any damage to the Premises, the Building and the Project 19 occasioned by the removal of Tenant's alterations and improvements (including, without limitation, its trade fixtures, furnishings and equipment), which repair shall include, without limitation, the patching and filling of holes and repair of structural damage. (e) Cleaning Deposit. Tenant shall deposit with Landlord upon execution hereof the Cleaning Deposit set forth in paragraph 1 above, which Cleaning Deposit shall be nonrefundable and may be used by Landlord for general cleaning and restoration of the Premises after termination of this Lease. Such Cleaning Deposit shall not affect the obligation of Tenant to surrender the Premises to Landlord upon termination of this Lease in the condition required by subparagraph 8(d) above and shall not be deemed a part of, or in lieu of, the Security Deposit. 9. Utilities. Tenant shall pay for water, gas, heat, light, power, telephone and other utilities and services supplied to the Premises, together with any taxes thereon. If any such services are not separately metered to Tenant, when the Tenant Improvements have been completed, Tenant shall pay a reasonable proportion to be determined by Landlord of all charges jointly metered with other premises, and Landlord's determination thereof, in good faith, shall be conclusive; provided, however, if feasible Tenant may, after commencement of the Term and with Landlord's approval, which approval shall not be unreasonably withheld, install separate meters for the furnishing to Tenant of any such jointly metered services in accordance with the provisions of paragraph 10 below; Landlord reserves the right to grant easements on the Premises, and to dedicate for public use portions thereof, without Tenant's consent provided that no such grant or dedication shall interfere with Tenant's use of the Premises or otherwise cause Tenant to incur cost or expense. From time to time upon Landlord's demand, Tenant shall execute, acknowledge and deliver to Landlord, in accordance with Landlord's instructions, any and all documents or instruments necessary to effect Tenant's covenants herein. 10. Alterations and Additions. (a) Limitation. Tenant shall not, without Landlord's prior written consent, make any alterations, improvements, additions, or utility installations (which term "utility installations" shall include ducting, power panels, fluorescent fixtures, space heaters, conduits and wiring) in, on or about the Premises, except for interior nonstructural alterations to the Premises costing less than Ten Thousand Dollars ($10,000) in the aggregate over any one (1) year period. As a condition to giving such consent, Landlord may require that Tenant agree to (i) remove any such alterations, improvements, additions or utility installations at the expiration of the Term and restore the Premises to their prior condition or, in the alternative, (ii) require that such alterations, improvements, additions or utility installations shall become the property of 20 Landlord and shall be left by Tenant upon the expiration of the Term. As a further condition to giving such consent, Landlord may require Tenant to provide Landlord, at Tenant's sole cost and expense, lien and completion bonds in an amount equal to one hundred five percent (105%) of the estimated cost of such improvements to insure Landlord against any liability for mechanics' and materialmen's liens and to insure completion of the work. (b) Liens. Tenant shall pay, when due, all claims for labor or materials furnished or alleged to have been furnished to or for Tenant at or for use on or in connection with the Premises, which claims are or may be secured by any mechanics' or materialmens' lien against the Premises or any interest therein. Tenant shall give Landlord not less than ten (10) days notice prior to the commencement of any work on the Premises, and Landlord shall have the right to post notices of non-responsibility in or on the Premises as provided by law. (c) Removal. Unless Landlord requires their removal as set forth in subparagraph (a) above or otherwise consents to such removal, all alterations, improvements, additions and utility installations which may be made on or to the Premises shall become the property of Landlord and remain upon and be surrendered with the Premises at the expiration of the Term. Notwithstanding the provisions of this subparagraph (c), Tenant's machinery and equipment, other than that which is affixed to the Premises so that it cannot be removed without material damage to the Premises, shall remain the property of Tenant and may be removed by Tenant subject to the provisions of paragraph 8(d) above. 11. Insurance. (a) General Liability. Tenant at its sole cost and expense shall maintain commercial general liability insurance ("Liability Insurance") on an "occurrence basis" against claims for "personal injury," including without limitation, bodily injury, death or property damage, occurring upon, in or about the Premises, the Building and the Property, such insurance to afford immediate minimum protection, at the time of the inception of this Lease, and at all times during the Term, to a limit of not less than Two Million Dollars ($2,000,000) with respect to personal injury or death to any one or more persons or to damage to property. Such insurance shall designate, and be for the benefit of, Tenant as the named insured and Landlord as an additional insured. Such insurance shall also include coverage against liability for bodily injury or property damage arising out of the use, by or on behalf of Tenant, or any other person or organization, of any owned, non-owned, leased or hired automotive equipment in the conduct of any and all operations called for under this Lease. The limits of said insurance shall not, however, limit the liability of Tenant hereunder. 21 (b) Extended Coverage. During the Term, Landlord shall procure and maintain in full force and effect with respect to the Building, a policy or policies of fire insurance with extended coverage endorsement attached, including vandalism and malicious mischief coverage, and any other endorsements (such as earthquake coverage) which Landlord may elect to obtain or which may be required by the holder of any fee or leasehold mortgage, which insurance coverage may be in an amount up to one hundred percent (100%) of the full insurance replacement value (replacement cost new, including debris removal and demolition) thereof. Landlord shall further obtain rental abatement insurance against abatement or loss of Rent in case of fire or other casualty, in an amount at least equal to the amount of the Rent payable by Tenant during one (1) year next ensuing as reasonably determined by Landlord. Tenant shall pay to Landlord, in accordance with the provisions of subparagraph 5(e) above, an amount equal to Tenant's Share of Insurance Expenses multiplied by the premium or premiums on insurance maintained by Landlord pursuant to this subparagraph ("Insurance Expenses"), with appropriate proration at the beginning and end of the Term. (c) Policies. Insurance required hereunder shall be by companies rated AX or better in "Best's Insurance Guide" licensed to do business in the state in which the Premises are located and acceptable to Landlord and the holder of any mortgage or deed of trust on the Premises or any part or portion thereof. Tenant shall deliver to Landlord copies of policies of such insurance or certificates evidencing the existence and amounts of such insurance with loss payable clauses satisfactory to Landlord. No such policy shall be cancelable or subject to reduction of coverage or other modification except after thirty (30) days written notice to Landlord. Tenant shall, within ten (10) days of the expiration of such policies, furnished Landlord with renewals or "binders" thereof, or Landlord may order such insurance and charge the cost thereof to Tenant, which amount shall be payable by Tenant upon demand. Each such policy or certificate therefor issued by the insurer shall to the extent obtainable contain (i) a provision that no act or omission of Tenant which would otherwise result in forfeiture or reduction of the insurance therein provided shall affect or limit the obligation of the insurance company to pay the amount of any loss sustained and (ii) an agreement by the insurer that such policy shall not be canceled without at least thirty (30) days prior written notice by registered mail to Landlord. Tenant shall not do or permit to be done anything which shall invalidate the insurance policies referred to herein. If Tenant shall fail to procure and maintain any insurance required to be maintained by it by virtue of any provision of this paragraph, Landlord may, but shall not be required to, procure and maintain the same, but at the expense of Tenant. 22 (d) Waiver of Subrogation. Landlord and Tenant each hereby waive any and all rights of recovery against the other, or against the partners, officers, employees, agents and representatives of the other, for loss of or damage to such waiving party or its property or the property of the other under its control to the extent that such loss or damage is insured against under any insurance policy in force at the time of such loss or damage. Tenant shall, upon obtaining the policies of insurance required hereunder, give notice to the insurance carrier or carriers that the foregoing mutual waiver of subrogation is contained in this Lease. (e) Tenant's Contents. Tenant shall assume the risk of damage to any fixtures, goods, inventory, merchandise, equipment, furniture and leasehold improvements which remain the property of Tenant or as to which Tenant retains the right of removal from the Premises, and Landlord shall not be liable for injury to Tenant's business or any loss of income therefrom relative to such damage. Tenant shall maintain the following insurance coverage with respect to such items during the Term: (i) Against fire, extended coverage, and vandalism and malicious mischief perils in an amount not less than ninety percent (90%) of the full replacement cost thereof; (ii) Broad form boiler and machinery insurance on a blanket repair and replacement basis with limits per accident not less than the replacement cost of all leasehold improvements and of all boilers, pressure vessels, air conditioning equipment, miscellaneous electrical apparatus and all other insurable objects owned or operated by the Tenant or by others (other than Landlord) on behalf of Tenant in the Premises, or relating to or serving the Premises; and; (iii) Business interruption insurance in such an amount as will reimburse Tenant for direct or indirect loss of earnings attributable to all such perils insured against in subparagraphs 11(e)(i) and (ii) hereinabove. (f) Workmen's Compensation. Tenant shall, at its own cost and expense, keep and maintain in full force and effect during the Term, a policy or policies of workmen's compensation insurance covering all Tenant's employees working in the Premises, and shall furnish Landlord with certificates thereof. 12. Indemnity; Exemption of Landlord from Liability. (a) General. In addition to any other obligations of Tenant hereunder, including the obligations of Tenant to provide insurance, Tenant shall indemnify and hold Landlord harmless for, from and against any and all claims arising from Tenant's use of the Premises, or from the conduct of Tenant's business or from 23 any activity, work or things done, permitted or suffered by Tenant in or about the Premises or elsewhere and shall further indemnify and hold Landlord harmless for, from and against any and all claims arising from any breach or default in the performance of any obligation on Tenant's part to be performed under the terms of this Lease, or arising from any negligence of Tenant, or any of Tenant's agents, contractors, or employees, and for, from and against all costs, attorneys' fees, expenses and liabilities incurred in the defense of any such claim or any action or proceeding brought thereon; and in case any action or proceeding be brought against Landlord by reason of any such claim, Tenant upon notice from Landlord shall defend the same at Tenant's expense by counsel satisfactory to Landlord; provided, however, the foregoing indemnity shall not apply to claims made as a result of the sole negligence or intentional misconduct of Landlord. Tenant, as a material part of the consideration to Landlord for Landlord's execution of this Lease, also hereby assumes all risk of damage to property or injury to persons in, upon or about the Premises arising from any cause whatsoever; hereby waives all claims in respect thereof against Landlord; and agrees that all claims with respect thereto shall be made solely against any insurance carried by Tenant and/or against any other persons or entities which may be liable for such claims. (b) Tenant's Business. In addition to any other obligation of Tenant hereunder, including any obligation of Tenant to provide insurance, Tenant hereby agrees that Landlord shall not be liable for injury to Tenant's business or any loss of income therefrom or for damage to the goods, wares, merchandise or other property of Tenant, Tenant's employees, invitees, customers, or any other person in or about the Premises, nor shall Landlord be liable for injury to the person of Tenant or Tenant's employees, agents or contractors, whether such damage or injury is caused by or results from fire, steam, electricity, gas, water or rain, or from the breakage, leakage, obstruction or other defects of pipes, sprinklers, wires, appliances, plumbing, air conditioning or lighting fixtures, or from any other cause whatsoever, resulting from conditions arising upon the Premises, or from other sources or places, and regardless of whether the cause of such damage or injury or the means of repairing the same is inaccessible to Tenant. Instead, Tenant shall seek recovery for any such injury, loss or damage solely from any insurance carried by Tenant and/or from any other persons or entities which may be liable to Tenant for such injury, loss or damage. 13. Damage or Destruction; Obligation to Rebuild. (a) Landlord's Obligation to Rebuild. If the Premises are damaged or destroyed during the Term, Landlord shall, except as hereinafter provided, diligently repair or rebuild them to substantially the condition in which they existed immediately prior to such damage or destruction; provided that any damage which is estimated in good faith by Landlord to be under Two Thousand Five Hundred 24 Dollars ($2,500.00) shall be repaired by Tenant, and Landlord shall reimburse Tenant upon demand for expenses incurred in such repair work to the extent of any proceeds received by Landlord from extended coverage insurance maintained pursuant to paragraph 11 above. (b) Abatement of Rent. Rent due and payable hereunder shall be abated, but only to the extent of any proceeds received by Landlord from rental abatement insurance maintained pursuant to paragraph 11 above, during the period commencing with such damage or destruction and ending with a substantial completion by Landlord of the work of repair or reconstruction which Landlord is obligated or undertakes to do. (c) Option to Terminate. If the Building or the Premises are damaged or destroyed to the extent that Landlord determines that the same cannot, with reasonable diligence, be fully repaired or restored by Landlord within one hundred eighty (180) days after the date of the damage or destruction, the sole right of both Landlord and Tenant shall be the option to terminate this Lease as hereinafter provided; provided, however, Tenant shall not have the right to terminate this Lease unless Landlord determines that the Premises cannot be so repaired or restored within such one hundred eighty (180) day period of time. Landlord shall determine whether the Building and, if applicable, the Premises can be fully repaired or restored within the one hundred eighty (180) day period, and Landlord's determination shall be conclusive on Tenant. Landlord shall notify Tenant of its determination, in writing, within thirty (30) days after the date of the damage or destruction. If Landlord determines that the Building, including the Premises, can be fully repaired or restored within the one hundred eighty (180) day period, or if it is determined that such repair or restoration cannot be made within said period but no party having the right to do so elects to terminate within thirty (30) days from the date of said determination, this Lease shall remain in full force and effect and Landlord shall diligently repair and restore the damage as soon as reasonably possible. (d) Uninsured Casualties. Notwithstanding anything contained herein to the contrary, in the event of damage to or destruction of all or any portion of the Building which is not fully covered (except for deductible amounts) by the insurance proceeds received by Landlord under the insurance policies required to be maintained pursuant to paragraph 10 above, or in the event that any portion of such insurance proceeds must be paid over to or are retained by the holder of any mortgage or deed of trust on the Property or Premises, Landlord may terminate this Lease by written notice to Tenant, given within thirty (30) days after the date of notice to Landlord that said damage or destruction is not so covered or that the proceeds are not available for repair of the damage or destruction. If Landlord 25 does not elect to terminate this Lease, the Lease shall remain in full force and effect and the Building shall be repaired and rebuilt in accordance with the provisions for repair set forth in this paragraph 13. (e) Tenant's Waiver. With respect to any destruction which Landlord is obligated to repair or may elect to repair under the terms of this paragraph, Tenant hereby waives all right to terminate this Lease pursuant to rights otherwise presently or hereafter accorded by the provisions of Arizona Revised Statutes Section 33-343 or other applicable laws to tenants, except as expressly otherwise provided herein. 14. Taxes. (a) Tenant's Share of Property Taxes. Tenant shall pay to Landlord Tenant's Share of Property Taxes (as set forth in paragraph 1 hereof) multiplied by the sum of the following: all real estate taxes and all other taxes relating to the Premises, the Building and the Property, all other taxes which may be levied in lieu of real estate taxes, assessments, and other governmental charges, or levies, general and special, ordinary and extraordinary, unforeseen as well as foreseen, of any kind and nature for public improvements, services or benefits (collectively, "Property Taxes"), which are assessed, levied, confirmed, imposed or become a lien upon the Premises, the Building or the Property, or become payable during the Term; provided, however that: (i) any Property Taxes shall be prorated between Landlord and Tenant so that Tenant shall pay only that proportion thereof which the part of such period within the Term bears to the entire period; and (ii) any such sum payable by Tenant, which would not otherwise be due until after the date of the termination of this Lease, shall be paid by Tenant to Landlord upon such termination. Any sum payable by Tenant pursuant to this subparagraph for any period during the Term shall be paid by Tenant in accordance with the provisions of subparagraph 5(e) above. (b) Tenant's Personal Property. Tenant shall pay prior to delinquency all taxes assessed against and levied upon trade fixtures, furnishings, equipment and all other personal property of Tenant contained on the Premises or elsewhere. Tenant shall cause such trade fixtures, furnishings, equipment and all other personal property to be assessed and billed separately from the Premises, the Building and the Property. (c) Rent Tax. Tenant shall pay to Landlord a sum equal to the amount which Landlord is required to pay or collect by reason of any privilege tax, sales tax, gross proceeds tax, rent tax, or 26 like tax levied, assessed or imposed by any governmental authority or subdivision thereof, upon or measured by any Rent, Reimbursable Expense, or other charges or sums required to be paid or improvements to be made by Tenant under this Lease. Such sum shall be paid simultaneously with the payment by Tenant to Landlord of the Fixed Rent or other charge to which such tax is attributable or, in the case of a tax not attributable to Fixed Rent or other charges, at such time as Landlord shall demand payment thereof. Nothing contained in this Lease shall require Tenant to pay any franchise, corporate, estate, inheritance, succession, or transfer tax of Landlord or any tax upon the net income of Landlord. 15. Condemnation. (a) Rent Reduction or Lease Termination. If the Premises or any portion thereof is taken under the power of eminent domain, or sold under the threat of the exercise of said power (all of which are herein called "condemnation"), this Lease shall terminate as to the part so taken as of the date the condemning authority takes title or possession, whichever first occurs (the "Condemnation Date") and the Rent shall be reduced (as of the Condemnation Date) as provided below. If (i) more than ten percent (10%) of the Premises is taken by condemnation and (ii) if the balance of the Premises remaining after such condemnation is not reasonably suitable for the use to which the Premises were being put immediately prior to the condemnation, Landlord or Tenant may, at either's option, to be exercised in writing only within ten (10) days after Landlord shall have given Tenant written notice of such taking (or in the absence of such notice, within ten (10) days of the Condemnation Date) terminate this Lease as of the Condemnation Date. If neither Landlord nor Tenant terminates this Lease in accordance with the foregoing, or in the event that that portion of the Premises taken by condemnation is not sufficiently large so as to give rise to the right to terminate this Lease as above provided, this Lease shall remain in full force and effect as to the portion of the Premises remaining, except that the Fixed Rent shall be reduced (as of the Condemnation Date) in the proportion that the area taken by condemnation bears to the total area of the Premises. (b) Award. Any award for the taking of all or any part of the Premises under the power of eminent domain or any payment made under threat of the exercise of such power shall be the property of Landlord, whether such award shall be made as compensation for diminution in value of the leasehold or for the taking of the fee, or as severance damages; provided, however, that Tenant shall be entitled to any award specifically attributed by the condemning authority to loss or damage to Tenant's trade fixtures and removable personal property or to Tenant's relocation costs. In the event that this Lease is not terminated by reason of such condemnation, Landlord shall, to the extent of severance damages received by Landlord in connection with such condemnation and not paid to or retained by the holder 27 of any mortgage or deed of trust on the Property or the Premises, repair any damage to the Premises caused by such condemnation except to the extent that Tenant has been reimbursed therefor by the condemning authority (in which event such reimbursement to Tenant shall also be applied to such repair). Tenant shall pay any amount in excess of such severance damages required to complete such repair; provided, however, if the severance damages are not sufficient to pay all of the repair costs and if any specific item of repair work shall be expected to have a useful life which extends beyond the term of this Lease (including the term of any options which Tenant may have the right to exercise), then Tenant shall be obligated to pay with respect to the identifiable cost of such item of repair only the portion of the total cost of such item of repair which bears the same ratio to the total cost of such item of repair as the remaining term of this Lease (as determined on the Condemnation Date and including the term of any options which the Tenant may have the right to exercise) bears to the reasonably anticipated useful life of such item of repair. (c) Temporary Condemnation. If the temporary use of the whole or any part of the Premises shall be taken by condemnation, the Term shall not be reduced or affected in any way, and Tenant in such event shall continue to pay in full the Rent and other charges herein reserved, without reduction or abatement, and, except to the extent that Tenant is prevented from so doing by reason of any order of the condemning authority, shall continue to perform and observe all of the other covenants, conditions and agreements of this Lease to be performed or observed by Tenant as though such taking had not occurred. In the event of any such temporary condemnation Tenant shall, so long as it is otherwise in compliance with the provisions of this Lease, be entitled to receive for itself any and all awards or payments made for such use of that portion of the Premises so taken; provided, however, that Tenant shall repair any and all damages to the Premises (whether or not covered by any award to Tenant) caused by such temporary condemnation. 16. Assignment and Subletting. (a) Consent. Tenant shall not voluntarily or by operation of law assign, transfer, mortgage, sublet, or otherwise transfer or encumber all or any part of Tenant's interest in this Lease or in the Premises without Landlord's prior written consent, which consent Landlord shall not unreasonably withhold. Landlord may, however, withhold its consent to such assignment, transfer, mortgage, subletting or other transfer or encumbrance pursuant to the preceding sentence for substantive reasons including, without limitation, the financial condition of the proposed assignee or transferee. Any attempted assignment, transfer, mortgage, subletting or encumbrance without such consent shall be void and shall constitute a breach of this Lease. The consent of Landlord to any one assignment, transfer, mortgage, subletting, or 28 encumbrance shall not be deemed to be a consent to any subsequent assignment, transfer, mortgage, subletting, or encumbrance. Subject to the provisions of subparagraph 16(f) below, the transfer of more than fifty percent (50%) of the stock or other ownership interest in Tenant, or the merger or consolidation of Tenant with or into another firm or entity, shall be deemed to be a transfer of Tenant's interest under this Lease and shall be subject to the provisions of this subparagraph (a). (b) Tenant's Continuing Liability. Regardless of Landlord's consent, no subletting or assignment shall alter the primary liability of Tenant to pay the Rent or release Tenant of Tenant's obligation to perform all other obligations to be performed by Tenant hereunder unless Landlord's written consent shall so specifically provide, and Landlord under no circumstances shall be obligated to release Tenant from any such liability. The acceptance of rent by Landlord from any other person shall not be deemed to be a waiver by Landlord of any provision hereof. (c) Information. In connection with any proposed assignment or sublease, Tenant shall submit to Landlord in writing: (i) The name of the proposed assignee or sublessee; (ii) Such information as to the financial responsibility and standing of said assignee or sublessee as Landlord may reasonably require; and (iii) All of the terms and conditions upon which the proposed assignment or subletting is to be made. (d) Excess Sublease Rental. If for any sublease or assignment, Tenant receives rent or other consideration, either directly or indirectly (by performance of Tenant's obligations or otherwise) and either initially or over the Term of the sublease or assignment, in excess of the Fixed Rent, Adjustments and additional rent called for hereunder, or in the case of the sublease or assignment of a portion of the Premises, in excess of such Fixed Rent, Adjustments and additional rent fairly allocable to such portion, after appropriate adjustments to assure that all other payments called for hereunder are appropriately taken into account, Tenant shall pay to Landlord, at the same time as Fixed Rent is due hereunder, one-half (1/2) of the excess of each such payment of rent or other consideration received by Tenant promptly after its receipt. (e) Release. Whenever Landlord conveys its interest in the Premises, Landlord shall be automatically released from the further performance of covenants on the part of Landlord herein contained, and from any and all further liability, obligations, 29 costs and expenses, demands, causes of action, claims or judgments arising from or growing out of, or connected with this Lease after the effective date of said release. The effective date of said release shall be the date the assignee executes an assumption of such an assignment whereby the assignee expressly agrees to assume all of Landlord's obligations, duties, responsibilities and liabilities with respect to this Lease. If requested, Tenant shall execute a form of release and such other documentation as may be required to effect the provisions of this paragraph. (f) Controlled Entity. Notwithstanding the provisions of this paragraph 16, Tenant may assign or sublet the Premises, or any portion thereof, without Landlord's consent, after written notice to Landlord, to any entity which controls, is controlled by, or is under common ownership with Tenant, or to any entity resulting from the merger or consolidation with Tenant, or to any person or entity which acquires all the assets of Tenant as a going concern of the business that is being conducted on the Premises, provided that said assignee assumes, in full, the obligations of Tenant under this Lease. Any such assignment shall not, in any way, affect or limit the liability of Tenant under the terms of this Lease even if after such assignment or subletting the terms of this Lease are materially changed or altered without the consent of Tenant, the consent of whom shall not be necessary for such change or alteration. (g) Attorneys' Fees. In the event that Landlord shall consent to a sublease or assignment under subparagraph (a) above, Tenant shall pay Landlord's reasonable attorneys' fees incurred in connection with the giving of such consent and review of the information submitted by Tenant. 17. Defaults; Remedies. (a) Defaults. The occurrence of any one or more of the following events shall constitute a material default and material breach of this Lease by Tenant: (i) The vacating or abandonment of the Premises by Tenant; (ii) The failure by Tenant to make any payment of Rent or any other payment required to be made by Tenant hereunder, as and when due, where such failure shall continue for a period of three (3) working days after written notice thereof from Landlord to Tenant; (iii) The failure by Tenant to observe or perform any of the covenants, conditions or provisions of this Lease to be observed or performed by Tenant, other than those described in subparagraph (ii) above, where such failure shall continue for a period of ten (10) days after written notice thereof from Landlord to Tenant; provided, however, 30 that if the nature of Tenant's default is such that it is capable of being cured but more than ten (10) days are reasonably required for its cure, then Tenant shall not be deemed to be in default if Tenant commences such cure within such ten (10) day period and thereafter diligently prosecutes such cure to completion; or (iv) The making by Tenant of any general assignment for the benefit of creditors, the filing by or against Tenant of a petition for order of relief in bankruptcy for the purpose of bankruptcy liquidation or reorganization under any law relating to bankruptcy whether now existing or hereafter enacted (including, without limitation, any petition filed by or against Tenant under any one or more of the following Chapters of the Bankruptcy Reform Act of 1978, 11 U.S.C. Sec. 101-1330 ("Bankruptcy Code") as amended: Chapter 7 or Chapter 9 or Chapter 11 or Chapter 12 or Chapter 13) except that, in the case of a filing against Tenant of such a petition, such filing shall not be a default if the petition is dismissed or discharged on or before one-hundred twenty (120) days after the filing thereof; the appointment of a trustee or receiver to take possession of all or substantially all of Tenant's assets located at the Premises or of Tenant's interest in this Lease, where possession is not restored to Tenant within sixty (60) days; or the attachment, execution or other judicial seizure of substantially all of Tenant's assets located at the Premises or of Tenant's interest in this Lease, where such seizure is not discharged within sixty (60) days. Unless Landlord's express written consent thereto is first obtained, in no event shall this Lease, or any interest herein or hereunder or any estate created hereby, be assigned or assignable by operation of law or by, in or under voluntary or involuntary bankruptcy liquidation or reorganization proceedings or otherwise and in no event shall this Lease or any rights or privileges hereunder be an asset of Tenant under any bankruptcy liquidation or reorganization proceedings. Any purported assignment or transfer in violation of the provisions of this subparagraph (iv) shall constitute a material default and breach of this Lease by Tenant and in connection with any such default and breach Landlord shall have the rights and remedies described in subparagraph (b) below, including, without limitation, the election to terminate this Lease. As used in this subparagraph (iv) the words "bankruptcy liquidation or reorganization proceedings" shall include any proceedings under any law relating to bankruptcy whether now existing or hereafter enacted (including, without limitation, proceedings under any one or more of the Bankruptcy Code as amended: Chapter 7 or Chapter 9 or Chapter 11 or Chapter 12 or Chapter 13). 31 (b) Remedies. (i) In the event of any default and breach by Tenant of any of its obligations under this Lease and notwithstanding the vacation or abandonment of the Premises by Tenant, this Lease shall continue in effect so long as Landlord does not expressly terminate Tenant's right to possession in any of the manners specified in this paragraph and Landlord may, at Landlord's option and without limiting Landlord in the exercise of any other rights or remedies which it may have by reason of such default and breach, exercise all of its rights and remedies hereunder, including, without limitation: (A) The right to declare the Term ended and to reenter the Premises and take possession thereof and remove all persons therefrom, and Tenant shall have no further claim in or to the Premises or under this Lease; or (B) The right without declaring this Lease ended to reenter the Premises, take possession thereof, remove all persons therefrom and occupy or lease the whole or any part thereof for and on account of Tenant and upon such terms and conditions and for such rent as Landlord may deem proper and to collect such rent or any other rent that may hereafter become payable and apply the same as provided in subparagraph (ii) below; or (C) The right, even though Landlord may have relet the Premises or brought an action to collect Rent and other charges without terminating this Lease, to thereafter elect to terminate this Lease and all of the rights of Tenant in or to the Premises; or (D) The right, without terminating this Lease, to bring an action or actions to collect Rent and other charges hereunder which are from time to time past due and unpaid or to enforce any other provisions of this Lease imposing obligations on Tenant, it being understood that the bringing of any such action or actions shall not terminate this Lease unless written notice of termination is given. (ii) Should Landlord relet the Premises under the provisions of subparagraph (b)(i)(B) above, Landlord may execute any lease either in its own name or in the name of Tenant, but Tenant hereunder shall have no right or authority whatever to collect any rent from the new tenant. The proceeds of any such reletting shall first be applied to the payment of the costs and expenses of reletting the Premises, including without limitation, reasonable brokerage commissions and alterations and repairs which Landlord, in its sole discretion, deems reasonably necessary and 32 advisable and to the payment of reasonable attorneys' fees incurred by Landlord in connection with the Tenant's default, the retaking of the Premises and such reletting and, second, to the payment of any indebtedness, other than Rent, due hereunder, including, without limitation, storage charges owing from Tenant to Landlord. When such costs and expenses of reletting have been paid, and if there is no such indebtedness or such indebtedness has been paid, Tenant shall be entitled to a credit for the net amount of rental received from such reletting each month during the unexpired balance of the Term, and Tenant shall pay Landlord monthly on the first day of each month as specified herein such sums as may be required to make up the rentals provided for in this Lease. Nothing contained herein shall be construed as obligating Landlord to relet the whole or any part of the Premises. (iii) Should Landlord elect to terminate this Lease under the provisions of subparagraphs (b)(i)(A) or (C) above, Landlord shall be entitled to recover immediately from Tenant (in addition to any other amounts recoverable by Landlord as provided by law), the following amounts: (A) The worth at the time of award of the unpaid rent which had been earned at the time of termination; (B) The worth at the time of award of the amount by which the unpaid rent which would have been earned after termination until the time of award exceeds the amount of such rental loss that Tenant proves could have been reasonably avoided; (C) The worth at the time of award of the amount by which the unpaid rent for the balance of the Term after the time of award exceeds the amount of such rental loss that Tenant proves could be reasonably avoided; and (D) Any other amount necessary to compensate Landlord for all the detriment proximately caused by Tenant's failure to perform its obligations under the Lease or which in the ordinary course of things would be likely to result therefrom. For purposes of computing "the worth at the time of the award" of the amount specified in subparagraph (b)(iii)(C) above, such amount shall be discounted at the discount rate of the Federal Reserve Bank of San Francisco at the time of award. For purposes of computing "the worth at the time of the award" under subparagraphs (b)(iii)(A) and (b)(iii)(B) above, an interest rate of ten percent (10%) per annum shall be utilized. 33 (iv) If Landlord shall elect to reenter the Premises as provided above, Landlord shall not be liable for damages by reason of any reentry. Tenant hereby waives all claims and demands against Landlord for damages or loss arising out of or in connection with any reentering and taking possession of the Premises and waives all claims for damages or loss arising out of or in connection with any destruction of or damage to the Premises, or for any loss of property belonging to Tenant or to any other person, firm or corporation which may be in or upon the Premises at the time of such reentry. (v) Landlord shall not be deemed to have terminated this Lease, Tenant's right to possession of the Premises or the liability of Tenant to pay Rent thereafter to accrue or its liability for damages under any of the provisions hereof by any reentry hereunder or by any action in unlawful detainer or otherwise to obtain possession of the Premises, unless Landlord shall notify Tenant in writing that Landlord has so elected to terminate this Lease. Tenant agrees that the service by Landlord of any notice pursuant to the unlawful detainer statutes or comparable statutes of the state or locality in which the Premises are located and the surrender of possession pursuant to such notice shall not (unless Landlord elects to the contrary at the time of or at any time subsequent to the service of such notice and such election shall be evidenced by a written notice to Tenant) be deemed to be a termination of this Lease or of Tenant's obligations hereunder. No reentry or reletting under this paragraph shall be deemed to constitute a surrender or termination of this Lease, or of any of the rights, options, elections, powers and remedies reserved by Landlord hereunder, or a release of Tenant from any of its obligations hereunder, unless Landlord shall specifically notify Tenant, in writing, to that effect. No such reletting shall preclude Landlord from thereafter at any time terminating this Lease as herein provided. (vi) All fixtures, furnishings, goods, equipment, chattels or other personal property of Tenant remaining on the Premises at the time that Landlord takes possession thereof may at Landlord's election be stored at Tenant's expense or sold or otherwise disposed of by Landlord in any manner permitted by applicable law. (vii) All rights, options, elections, powers and remedies of Landlord under the provisions of this Lease are cumulative of each other and of every other right, option, election, power or remedy which Landlord may otherwise have at law or in equity and all or any of which Landlord is hereby authorized to exercise. The exercise of one or more rights, options, elections, powers or remedies shall not 34 prejudice or impair the concurrent or subsequent exercise of other rights or remedies Landlord may have upon a breach and default under this Lease and shall not be deemed to be a waiver of Landlord's rights or remedies thereupon or to be a release of Tenant from Tenant's obligations thereon unless such waiver or release is expressed in writing and signed by Landlord. (viii) In the event of the exercise by Landlord of any one or more of its rights and remedies hereunder, Tenant hereby expressly waives any and all rights of redemption, if any, granted by or under any present or future laws. (c) Late Charges. Tenant hereby acknowledges that late payment by Tenant to Landlord of Rent and other sums due hereunder will cause Landlord to incur costs not contemplated by this Lease, the exact amount of which will be extremely difficult to ascertain. Such costs include, but are not limited to, processing and accounting charges, and late charges which may be imposed on Landlord by the terms of any mortgage or trust deed covering the Premises. Accordingly, if any installment of rent or any other sum due from Tenant shall not be received by Landlord or Landlord's designee within ten (10) days after such amount shall be due, Tenant shall pay to Landlord a late charge equal to five percent (5%) of such overdue amount. The parties hereby agree that such late charge represents a fair and reasonable estimate of the costs Landlord will incur by reason of late payment by Tenant. Acceptance of such late charge by Landlord shall in no event constitute a waiver of Tenant's default with respect to such overdue amount, nor prevent Landlord from exercising any of the other rights and remedies granted hereunder. (d) Payment or Performance by Landlord. Landlord may, at Landlord's option and without any obligation to do so, pay any sum or do any act which Tenant has failed to pay or do at the time Tenant was obligated to make such payment or perform such act and Landlord shall be entitled to recover from Tenant, upon demand, all sums expended by Landlord in making such payment or performing such act, together with interest thereon at the rate provided in subparagraph 18(d) from the date of expenditure until repaid by Tenant. Such sum and interest shall be deemed additional rent under this Lease. 18. Miscellaneous. (a) Estoppel Certificate. (i) Tenant shall at any time upon not less than ten (10) days prior written notice from Landlord execute, acknowledge, and deliver to Landlord a statement in writing certifying that this Lease is unmodified and in full force and effect (or, if modified, stating the nature of such modification and certifying that this Lease, as so modified, 35 is in full force and effect) and the date to which the Rent and other charges are paid in advance, if any, and acknowledging that there are not, to Tenant's knowledge, any uncured defaults on the part of Landlord hereunder, or specifying such defaults if any are claimed. Any such statement may be conclusively relied upon by any person to whom it shall be delivered by Landlord including any prospective purchaser or encumbrancer of the Premises, the Building, the Property, or any part thereof. (ii) Tenant's failure to deliver such statement within such time shall be conclusive upon Tenant that this Lease is in full force and effect, without modification except as may be represented by Landlord; that there are no uncured defaults in Landlord's performance; and that not more than one month's Rent has been paid in advance. (iii) If Landlord desires to finance or refinance the Premises, the Building, the Property, or any part thereof, Tenant hereby agrees to deliver to any lender designated by Landlord such financial statements of Tenant as may be reasonably required by such lender. Such statements shall include the past three years financial statements of Tenant. All such financial statements shall be received by Landlord in confidence and shall be used only for the purposes herein set forth. (b) Landlord's Liability. The term "Landlord" as used herein shall mean only the owner or owners at the time in question of the fee title (or the lessee's interest in any ground or master lease) to the Premises and in the event of any transfer of such title, Landlord herein named (and in case of any subsequent transfers, the then grantor) shall be relieved from and after the date of such transfer of all liability as respects Landlord's obligations thereafter to be performed, provided that any funds in the hands of Landlord or the then grantor at the time of such transfer in which Tenant has an interest shall be delivered to the grantee. The obligations contained in this Lease to be performed by Landlord shall, subject as aforesaid, be binding on Landlord's successors and assigns only during their respective periods of ownership. (c) Construction. Paragraph captions are solely for the convenience of the parties and shall not be deemed to or be used to define, construe, or limit the terms hereof. As used in this Lease, the masculine, feminine and neuter genders shall be deemed to include the others, and the singular number shall be deemed to include the plural, whenever the context so requires. The invalidity of any provisions of this Lease as determined by a court of competent jurisdiction shall in no way affect the validity of any other provision hereof. This Lease shall be governed by the laws of the state in which the Premises are located. 36 (d) Interest on Past-Due Obligations. Except as expressly herein provided, any amount due to Landlord not paid when due shall bear interest at the lesser of (i) fifteen percent (15%) per annum or (ii) the maximum rate permitted by law, from the date due until the date such amount is paid. Payment of such interest shall be made when such amount is paid. Payment of such interest shall not excuse or cure any default by Tenant under this Lease. (e) Time of Essence. Time is of the essence of this Lease and all of the covenants and obligations hereof. (f) Counterparts. This Lease may be executed in two or more counterparts, each of which shall be deemed an original but all of which together shall constitute one and the same Lease. (g) Incorporation of Prior Agreements; Amendments. This Lease contains all agreements of the parties with respect to any matter mentioned herein. No prior agreement or understanding pertaining to any such matter shall be effective. This Lease may be modified in writing only, which writing shall be signed by the parties in interest at the time of the modification. (h) Notices. Any notices, approvals, agreements, certificates, other documents or communications between the parties hereto required or permitted under this Lease shall be in writing. Any such communications shall be deemed to have been duly given or served if delivered in hand or forty-eight (48) hours after deposit in the United States mail, certified or registered, postage and fees prepaid, return receipt requested, addressed to the parties at the addresses set forth in paragraph 1 of this Lease. The address to which any such communications shall be sent may be changed by either party hereto from time to time by a notice mailed as aforesaid. (i) Waivers. No waiver by Landlord of any provision hereof shall be deemed a waiver of any other provision hereof or of any subsequent breach by Tenant of the same or any other provision. Landlord's consent to or approval of any act shall not be deemed to render unnecessary the obtaining of Landlord's consent to or approval of any subsequent act by Tenant. The acceptance of Rent hereunder by Landlord shall not be a waiver of any preceding breach by Tenant of any provision hereof, other than the failure of Tenant to pay the particular Rent so accepted, regardless of Landlord's knowledge of such preceding breach at the time of acceptance of such Rent. (j) Recording. Tenant shall not record this Lease without Landlord's prior written consent and such recordation shall, at the option of Landlord, constitute a noncurable default of Tenant hereunder. Landlord and Tenant shall, upon the request of either party, execute, acknowledge and deliver to the other a "short form" memorandum of this Lease for recording purposes. 37 (k) Holding Over. If Tenant remains in possession of the Premises or any part thereof after the expiration of the Term or sooner termination of this Lease with the express written consent of Landlord and without executing a new lease, such occupancy shall be construed as a tenancy from month-to-month at a rental equal to one hundred fifty percent (150%) of the last monthly Rent plus all other charges payable hereunder, and upon all the terms hereof insofar as the same are applicable to a month-to-month tenancy. Nothing contained in this subparagraph shall be construed to grant Tenant the right to holdover without the express written consent of Landlord. (l) Covenants and Conditions. Each provision of this Lease performable by Tenant shall be deemed both a covenant and a condition. (m) Binding Effect. Subject to any provisions hereof restricting assignment or subletting by Tenant and subject to the provision of subparagraph (b) above, this Lease shall bind the parties and their personal representatives, successors and assigns. (n) Subordination. (i) This Lease, at Landlord's option, shall be subordinate to any ground lease, mortgage, deed of trust, or any other hypothecation for security now or hereafter placed upon the Premises, the Building or the Property, or any part or parts thereof, and to any and all advances made on the security thereof and to all renewals, modifications, consolidations, replacements and extensions thereof; provided, however, Tenant's obligation to subordinate this Lease to future ground leases, mortgages, deeds of trust or other hypothecations shall be conditioned upon the creditor under each such security transaction granting to Tenant a non-disturbance right which provides that the rights of Tenant under this Lease shall not be disturbed by such creditor so long as Tenant is not in default under this Lease. If any present or future mortgagee, trustee or ground lessor shall at any time elect to have this Lease prior to the lien of its mortgage, deed of trust or ground lease, and written notice of such election shall be given to Tenant, this Lease shall be deemed prior to such mortgage, deed of trust, or ground lease, whether this Lease is dated prior or subsequent to the date of said mortgage, deed of trust or ground lease or the date of recording thereof. (ii) Tenant agrees to execute any documents required to effectuate such subordination or to make this Lease prior to the lien of any mortgage, deed of trust or ground lease, as the case may be, and failing to do so within ten (10) days after written demand, does hereby make, constitute and 38 irrevocably appoint Landlord as Tenant's attorney in fact and in Tenant's name, place and stead, to do so. (o) Attorneys' Fee. If either party brings an action to enforce the terms hereof or declare rights under this Lease, the prevailing party in the final adjudication of any such action, on trial or appeal, shall be entitled to its costs and expenses of suit, including, without limitation, its actual attorneys' fees, to be paid by the losing party as fixed by the court. In any situation in which a dispute is settled other than by action or proceeding, Tenant shall pay all Landlord's costs and attorneys' fees relating thereto. (p) Landlord's Access. Landlord and Landlord's agents shall have the right to enter the Premises at reasonable times for the purpose of inspecting the same, showing the same to prospective purchasers or lenders, and making such alterations, repairs, improvements or additions to the Premises or the improvements as Landlord may deem necessary or desirable. Landlord may at any time place on or about the Premises any ordinary "For Sale" signs and Landlord may at any time during the last one hundred twenty (120) days of the Term place on or about the Premises any ordinary "For Lease" signs, all without rebate of rent or liability to Tenant. (q) Auctions. Tenant shall not conduct any auction on the Premises without Landlord's prior written consent. (r) Merger. The voluntary or other surrender of this Lease by Tenant, or a mutual cancellation thereof, shall not work a merger, and shall, at the option of Landlord, terminate all or any existing subtenancies or may, at the option of Landlord, operate as an assignment to Landlord of any or all of such subtenancies. During any period while Tenant is in default under this Lease, Landlord, in addition to any other rights and remedies it may have under this Lease, shall have the right to collect directly from any subtenant all rentals owing to Tenant under any subtenancy and to apply such rentals to any amounts owing to Landlord by Tenant and the payment of such amounts by the subtenant directly to Landlord shall not be a default under the subtenancy. (s) Joint and Several Liability. Each party signing this Lease as Tenant shall be jointly and severally liable for the failure on the part of Tenant to pay any sums due under the terms of this Lease or for the breach by Tenant or any of the covenants or obligations of Tenant contained herein. (t) Individual Liability. The obligations of Landlord under this Lease do not constitute personal obligations of the individual partners, directors, officers, or shareholders of Landlord, and Tenant shall look solely to the real estate that is 39 the subject of this Lease and to no other assets of Landlord for satisfaction of any liability in respect of this Lease and will not seek recourse against the individual partners, directors, officers or shareholders of Landlord or any of their personal assets for such satisfaction. (u) Attornment. Tenant shall, in the event any proceedings are brought for the foreclosure of, or in the event of exercise of the power of sale under any mortgage or deed of trust made by the Landlord, its successors or assigns, encumbering the Premises, or any part thereof, or in the event of termination of the ground lease, if any, and if so requested, attorn to the purchaser upon such foreclosure or sale or upon any grant of a deed in lieu of foreclosure and shall recognize such purchaser as the Landlord under this Lease. (v) Lenders Right to Cure. Tenant agrees to give the holder of any mortgage or trust deed encumbering the Premises, by registered mail, a copy of any notice of default or nonperformance served upon Landlord, provided that prior to such notice, Tenant has been notified in writing (by way of Assignment of Rents and Leases or otherwise) of the address of such mortgagee or trust deed holder. Tenant further agrees that Landlord shall not be in default under this Lease unless (i) Tenant has given a written notice to Landlord stating that Landlord has failed to perform Landlord's obligations under this Lease and (ii) specifying with particularity the obligations which Landlord has failed to perform, and Landlord thereafter fails to perform any of its obligations so specified within a reasonable time after Landlord's receipt of such notice. If Landlord shall fail to cure such nonperformance in a timely manner, then such mortgagee or trust deed holder shall have an additional thirty (30) days within which to cure the default, or, if such default cannot be cured within that time, then such additional time as may be necessary if within such thirty (30) days such mortgagee or trust deed holder has commenced and is diligently pursuing the remedies necessary to cure such default (including but not limited to commencement of foreclosure proceedings, if necessary to effect such cure), in which event this Lease shall not be terminated by Tenant while such remedies are being so diligently pursued. (w) Revisions to Lease. Tenant hereby agrees to make any reasonable revisions to this Lease which may be required in good faith by a bona fide construction, interim or permanent lender in connection with the financing of the Premises so long as such revisions do not adversely affect rights granted to and obligations imposed upon Tenant under this Lease or the economic benefits of Tenant hereunder. 40 (x) Administrative Charge. In addition to Fixed Rent, Adjustments and other charges hereunder, Tenant shall pay to Landlord an overall administrative charge of five percent (5%) of any charge which is Tenant's responsibility to pay, which Landlord pays on behalf of Tenant and for which Landlord subsequently bills Tenant. 19. Toxic Materials. (a) Definitions. (i) As used in this Lease, the term "Hazardous Material[s]" means any oil, flammable items, explosives, radioactive materials, hazardous or toxic substances, material or waste or related materials including, without limitation, any substances that pose a hazard to the Premises or to persons on or about the Premises and any substances defined as or included in the definition of "hazardous substance," "hazardous waste," "hazardous material," "toxic substance," "extremely hazardous waste," "restricted hazardous waste" or words of similar import, now or subsequently regulated in any way under applicable federal, state or local laws or regulations, including without limitation, petroleum-based products, paints, solvents, lead, cyanide, DDT, printing inks, acids, pesticides, ammonia compounds and other chemical products, asbestos, PCBs, urea formaldehyde foam insulation, transformers or other equipment containing dielectric fluid, levels of polychlorinated biphenyls, or radon gas, and similar compounds, and including any different products and materials which are subsequently found to have adverse effects on the environment or the health and safety of persons. (ii) As used herein, the term "Environmental Law[s]" means any one or all of the following: the Comprehensive Environmental Response, Compensation and Liability Act, as amended by the Superfund Amendments and Reauthorization Act of 1986 (42 U.S.C. SEC. 9601 et seq.); the Resource Conservation and Recovery Act as amended (42 U.S.C. Sec. 6901 et seq.); the Safe Drinking Water Act as amended (42 U.S.C. Sec. 300f et seq.); the Clean Water Act as amended (33 U.S.C. Sec. 1251 et seq.); the Clean Air Act as amended (42 U.S.C. Sec. 7401 et seq.); the Toxic Substances Control Act as amended (15 U.S.C. Sec. 136 et seq.); the Solid Waste Disposal Act as amended (42 U.S.C. Sec. 3251 et seq.); the Hazardous Materials Transportation Act (49 U.S.C. Sec. 1801 et seq.); the regulations promulgated under any of the foregoing; and all other laws, regulations, ordinances, standards, policies, and guidelines now in effect or hereinafter enacted by any governmental entity (whether local, state or federal) having jurisdiction or regulatory authority over the Premises or the Project or over activities conducted therein and which deal with the 44 regulation or protection of human health, industrial hygiene or the environment, including the soil, subsurface soil, ambient air, groundwater, surface water, and land use. (iii) As used herein, the term "Environmental Activity[ies]" means any generation, manufacture, production, pumping, bringing upon, use, storage, treatment, release, discharge, escaping, emitting, leaching, disposal or transportation of Hazardous Materials. (b) Prohibition on Hazardous Materials. Except as specifically provided in subparagraph (c) below, Tenant shall not cause or permit any Environmental Activities in, on or about the Premises by Tenant or Tenant's agents, employees, contractors, assignees, sublessees or invitees (hereinafter cumulatively referred to as "Tenant's Agents") without the prior written consent of Landlord. Landlord shall be entitled to take into account such factors or facts as Landlord may reasonably determine to be relevant in determining whether to consent to Tenant's proposed Environmental Activity and Landlord may attach conditions to any such consent if such conditions are reasonably necessary to protect Landlord's interests in avoiding potential liability upon Landlord or damage to Landlord's property arising from any Environmental Activity by Tenant or Tenant's Agents. In no event shall Landlord be required to consent to the installation or use of any storage tanks on the Property. (c) Exception to Prohibition. Notwithstanding the prohibition set forth in subparagraph (b) above, but subject to Tenant's covenant to comply with all Environmental Laws and with the other provisions of this paragraph 19, Tenant may bring upon, keep and use in the Premises (but not outside the Premises) (i) general office supplies typically used in an office or warehouse in the ordinary course of business, such as copier toner, liquid paper, glue, ink and janitorial supplies, so long as such supplies are used in the manner for which they were designed and in such amounts as may be normal for the business operations conducted by Tenant in the Premises; (ii) those Hazardous Materials, if any, described on Exhibit D attached hereto and by this reference made a part hereof so long as Tenant has delivered to Landlord a description of the handling, storage, use and disposal procedures to be utilized by Tenant with respect thereto; and (iii) those Hazardous Materials, if any, as to which (A) Tenant hereafter requests approval from Landlord for Tenant to bring upon, keep upon and use in the Premises such items; (B) Landlord grants such requested approval, which approval shall not be unreasonably withheld; and (C) Tenant delivers to Landlord a description of the handling, storage, use and disposal procedures to be utilized therewith. 42 (d) Compliance with Environmental Laws. Tenant shall keep and maintain the Premises in compliance with, and shall not cause or permit the Premises to be in violation of, any Environmental Laws. All Tenant's activities at the Premises shall be in accordance with all Environmental Laws. Additionally, Tenant shall obtain any and all necessary permits for Tenant's activities at the Premises. Tenant's obligations and liabilities under this paragraph 19 shall continue so long as Landlord bears any liability or responsibility under the Environmental Laws for any action that occurs on the Premises during the term of this Lease. (e) Environmental Notices. Tenant shall immediately notify Landlord of, and upon Landlord's request shall provide Landlord with copies of, the following: (i) Any correspondence, communication or notice, oral or written, to or from any governmental entity regarding the application of Environmental Laws to the Premises or Tenant's operations on the Premises including, without limitation, notices of violation, notices to comply and citations; (ii) Any reports filed pursuant to any Environmental Law or self-reporting requirements; (iii) Any permits and permit applications; and (iv) Any change in Tenant's operations on the Premises that will change or has the potential to change Tenant's or Landlord's obligations or liabilities under Environmental Laws. Tenant shall also notify the Landlord of the release of any Hazardous Material in, on, under, about or above the Premises, the Building, the Property or the Project. (f) Environmental Indemnity. Tenant shall protect, indemnify, defend (with counsel satisfactory to Landlord) and hold harmless Landlord and its directors, officers, partners, employees, agents, lenders, and ground lessees, if any, and their respective successors and assigns for, from and against any and all losses, damages, claims, costs, expenses, penalties, fines and liabilities of any kind (including, without limitation, the cost of any investigation, remediation and cleanup, and attorneys' fees) which, in Landlord's reasonable opinion, are attributable to (i) any Environmental Activity on the Property or Project or in the Building or Premises undertaken or committed by Tenant or Tenant's Agents or caused by the negligence of such persons during the Term of this Lease, (ii) any remedial or clean-up work undertaken by or for Tenant in connection with Tenant's Environmental Activities or Tenant's compliance with 43 Environmental Laws, or (iii) the breach by Tenant of any of its obligations and covenants set forth in this paragraph 19. Landlord shall have the right but not the obligation to join and participate in, and control, if it so elects, any legal proceedings initiated in connection with the Environmental Activities of Tenant or Tenant's Agents. Landlord may also negotiate, defend, approve and appeal any action taken or issued by any applicable governmental authority with regard to contamination of the Premises or any portion of the Property or Project by a Hazardous Material. Any costs or expenses incurred by Landlord for which Tenant is responsible under this paragraph 19 or for which Tenant has indemnified Landlord shall be reimbursed by Tenant on demand, as additional rent and with interest thereon, as provided by subparagraph 17(d) of this Lease. This indemnity shall survive the termination of this Lease. (g) Remedial Work. If (i) any Environmental Activity undertaken by Tenant or Tenant's Agents results in contamination of the Premises, Building, Property or Project or any portion thereof, or the soil or groundwater thereunder, or (ii) any investigation, site monitoring, containment, cleanup, removal, restoration or other remedial work of any kind or nature ("Remedial Work") is necessary or appropriate due to or in connection with Tenant's use or occupancy of the Premises, then, subject to Landlord's prior written approval and any conditions imposed by Landlord, Tenant shall promptly perform all Remedial Work, at Tenant's sole expense and without abatement of rent, as is necessary to return the affected portion of the Premises, Building, Property and/or Project and the soil and groundwater to the condition existing prior to the introduction of the contaminating Hazardous Material and to otherwise comply with all applicable Environmental Laws. Landlord's approval of such Remedial Work shall not be unreasonably withheld so long as such actions will not cause a material adverse effect on the Premises, Building, Property or Project after expiration of the Lease Term or any material adverse effect on the Premises, Building, Property or Project. Landlord shall also have the right to approve any and all contractors hired by Tenant to perform such Remedial Work. All such Remedial Work shall be performed in compliance with all applicable laws, ordinances and regulations and in such a manner as to minimize any interference with the use and enjoyment of the Premises, Building, Property and Project. All costs and expenses of such Remedial Work shall be paid by Tenant including, without limitation, the charges of such contractor(s), and the reasonable fees and costs of the attorneys and consultants for Landlord incurred in connection with monitoring or review of such Remedial Work. (h) Landlord's Option. Landlord may elect, at Landlord's sole discretion, to perform any Remedial Work. Landlord and Landlord's agents shall have the right to enter the Premises at 44 all reasonable times to inspect, monitor and/or perform Remedial Work. All expenses incurred by Landlord in connection with performing Remedial Work are payable by Tenant, upon Landlord's demand, with interest thereon, as provided by subparagraph 17(d). (i) Injunctive Relief. Tenant's failure to abide by the terms of this paragraph 19 shall be restrainable by injunction. (j) Self-Help. Landlord shall have the right of "self-help" or similar remedy in order to minimize any damages, expenses, penalties and related fees or costs arising from or related to a violation of any Environmental Law with respect to the Premises or the Project. (k) Other Tenants. Other tenants of the Project may be using, handling or storing certain Hazardous Materials in connection with such tenants' use of their premises. The failure of another tenant to comply with applicable laws and procedures could result in a release of Hazardous Materials and contamination to improvements within the Project or the soil and groundwater thereunder. In the event of such a release, the tenant responsible for the release, and not Landlord, shall be responsible for any claim, damage or expense incurred by Tenant by reason of such contamination and Tenant shall exhaust all its remedies against such other tenant without any right to seek any recovery against Landlord. (l) Environmental Inspection. Tenant shall, if reasonably required by Landlord on account of the activities or suspected activities of Tenant or Tenant's Agents, retain a recognized environmental consultant (the "Consultant") acceptable to Landlord to conduct an investigation of the Premises and of other portions of the Project deemed appropriate by Landlord ("Environmental Assessment") (i) for Hazardous Materials contamination in, about or beneath the Premises, the Building or the Project as a result of such activities and (ii) to assess all Environmental Activities of Tenant and Tenant's Agents on the Premises or the Project for compliance with all applicable laws, ordinances and regulations and for the use of procedures intended to reasonably reduce the risk of a release of Hazardous Materials. The Environmental Assessment shall be performed in a manner reasonably calculated to discover the presence of Hazardous Materials contamination and shall be of a scope and intensity reflective of the general standards of professional environmental consultants who regularly provide environmental assessment services in connection with the transfer or leasing of real property. Additionally, the Environmental Assessment shall take into full consideration the past and present uses of the Property and Project and other factors unique to the Property and Project. If Landlord obtains the Environmental Assessment because of the activities of Tenant or Tenant's Agents, Tenant shall pay Landlord on demand the cost of the Environmental 45 Assessment, with interest thereon, as additional rent and in accordance with subparagraph 17(d). If Landlord so requires, Tenant shall comply, at its sole cost and expense, with all recommendations contained in the Environmental Assessment, including any recommendation with respect to the precautions which should be taken with respect to Environmental Activities on the Premises or the Project or any recommendations for additional testing and studies to detect the presence of Hazardous Materials. Tenant covenants to reasonably cooperate with the Consultant and to allow entry and reasonable access to all portions of the Premises for the purpose of Consultant's investigation. (m) Surrender of Premises - Environmental Considerations. Prior to or after the expiration or termination of the Lease Term, Landlord may have an Environmental Assessment of the Property performed in accordance with subparagraph (l) above. Tenant shall perform, at its sole cost and expense, any Remedial Work recommended by the Consultant which is necessary to remove, mitigate or remediate any Hazardous Materials contamination of the Premises, Building, Property or Project in connection with any Environmental Activities of Tenant or Tenant's Agents. Prior to surrendering possession of the Premises, Tenant shall also, unless otherwise directed by Landlord, remove any personal property, equipment, fixture (except for any fixture installed by Landlord) and/or storage device or vessel on or about the Premises, Building, Property and/or Project which is contaminated by or contains Hazardous Materials as a result of the activities of Tenant or Tenant's Agents and repair all damage to the Premises, the Building and the Project caused by such removal. 20. Additional Security. (a) Letter of Credit. In addition to the Security Deposit required by subparagraph 6(a) of this Lease, Tenant shall deliver, or cause to be delivered, to Landlord, simultaneously with the execution and delivery of this Lease (the "LC Date") and in accordance with the provisions of this paragraph 20, a Letter of Credit satisfying the requirements set forth in Exhibit E attached hereto and by this reference made a part hereof (the "Letter of Credit"). Tenant shall, subject to renewal, substitution or release as specifically provided in Exhibit E, cause the Letter of Credit to remain in full force and effect from the date of execution of this Lease until thirty (30) days after the expiration of the Term of this Lease. If Tenant fails to have on deposit with Landlord at any time required hereunder a Letter of Credit fully satisfying the requirements of Exhibit E, such failure shall constitute a default under this Lease. Landlord shall have all remedies under subparagraph 17(b) of the Lease in the event of such a default. If the financial institution issuing the Letter of Credit for any reason indicates that the Letter of Credit will be terminated or expire prior to the date specified in Exhibit E, even if such a termination or expiration would be wrongful, Landlord may, in addition to any 46 other rights and remedies it may have under this Lease or the Letter of Credit, draw upon the Letter of Credit, treat the entire amount of the proceeds of such drawing as an increase in the amount of the Security Deposit under this Lease, and retain and/or apply such proceeds in the same manner as the initial Security Deposit may be retained and/or applied. (b) Use of Proceeds. If Tenant fails to pay Rent or any other charges payable by Tenant hereunder, or otherwise defaults with respect to any provision of this Lease (including but not limited to Tenant's obligation to have the Letter of Credit in effect as provided in subparagraph 20(a), Landlord may, in addition to any other rights and remedies it may have, at its option and from time to time draw upon the Letter of Credit and apply amounts received under the Letter of Credit (i) to remedy Tenant's defaults in the payment of Rent or any other sums payable by Tenant pursuant to the terms of this Lease; (ii) to repair any damage to the Premises, (iii) to clean and otherwise maintain the Premises, or (iv) to compensate Landlord for any other loss or damage which Landlord may suffer thereby. (c) Additional Rights and Remedies. In the event of any termination of this Lease pursuant to this paragraph 20 or pursuant to any other default by Tenant, (i) Landlord shall have no further obligation to complete the Premises or to lease the Premises to Tenant; (ii) Landlord shall be entitled to reimbursement from Tenant of, and Tenant shall promptly pay to Landlord, all expenses of Landlord incurred in connection with the preparation and negotiation of this Lease and construction of the Tenant Improvements through the date of such termination; and (iii) Landlord may deduct the reimbursement amount determined under clause (ii) above from any or all of the proceeds from a drawing under the Letter of Credit, the Security Deposit and/or any prepaid rent deposited with Landlord prior to refunding the Letter of Credit, the Security Deposit or prepaid rent to Tenant, but none of the Letter of Credit, the prepaid rent or Security Deposit shall in any manner limit Tenant's liability for the full amount of the reimbursement to which Landlord is entitled under clause (ii) above. In addition, if this Lease is not terminated as provided in this paragraph 20, Landlord may, at its option, extend the Scheduled Commencement Date by a period of time equal to the period between the LC Date and any subsequent date that the Letter of Credit (in compliance with the foregoing requirements) is furnished to and accepted by Landlord. Upon reimbursement for the cost of the Tenant Improvements as provided in clause (ii) above and any transaction privilege tax applicable thereto, the Fixed Rent owing under the Lease shall, for purposes of determining additional sums to be received by Landlord after termination of this Lease as a result of Tenant's default, be deemed reduced to that amount which would reasonably have been charged to Tenant as Fixed Rent under this 47 Lease if the Premises had originally been leased to Tenant without any obligation on the part of Landlord to make the Tenant Improvements. (d) Remedies Not Exclusive. The rights and remedies of Landlord set forth in this paragraph 20 are in addition to any other rights and remedies of Landlord set forth in this Lease and Landlord may pursue all or any of such rights and remedies in any order Landlord may elect. In particular, and not by way of limitation, Landlord may, at its option, exercise the rights and remedies set forth in paragraph 6 of this Lease at any time and from time to time, in whole or in part, even though additional security for the performance of Tenant's obligations has been furnished to Landlord pursuant to this paragraph 20. Moreover, Landlord shall not be required to exercise its rights under this paragraph 20 even if there has been a default under the Lease and Landlord may elect to exercise any other rights and remedies it may have as a result of the occurrence of such default. (e) Return of Letter of Credit and Stock. If not previously returned to Tenant under the provisions hereof or applied to Tenant's obligations under this Lease, the Letter of Credit if still held by Landlord and/or any proceeds from the drawing(s) upon the Letter of Credit shall be returned to Tenant at the same time as the Security Deposit would be returned. IN WITNESS WHEREOF, the undersigned have executed this Lease as of the date and year first above written. HEWSON/BRECKNER AIRPARK, L.L.C., a California corporation BY: HEWSON PROPERTIES, INC., an Arizona corporation, its Manager BY: /s/ Michael J. Corbett Its: Executive Vice President MAXAM GOLD CORPORATION, a Utah corporation BY: Alan E. Hubbard Its: President 48 TENANT ACKNOWLEDGMENTS: CORPORATE STATE OF ARIZONA ) ) ss. County of Maricopa ) On this the 23rd day of September, 1997, before me, the undersigned Notary Public, personally appeared Alan E. Hubbard, who acknowledged himself to be the President of MAXAM GOLD CORPORATION, a Utah corporation, and that he, as such officer, being authorized so to do, executed the foregoing instrument for the purposes therein contained, by signing the name of the corporation, by himself as such officer. IN WITNESS WHEREOF, I hereunto set my hand and official seal. /s/ Catherine Wochner Notary Public My Commission Expires: December 15, 1998 LANDLORD ACKNOWLEDGMENTS: STATE OF ARIZONA ) ) ss. County of Maricopa ) On this the 26th day of September, 1997, before me, the undersigned Notary Public, personally appeared Michael J. Corbett, who acknowledged himself to be the Executive Vice President of HEWSON PROPERTIES, INC., a California corporation and Manager of HEWSON/BRECKNER AIRPARK, L.L.C., an Arizona limited liability company, and that he, as such officer, being authorized so to do, executed the foregoing instrument for the purposes therein contained, by signing the name of the corporation as manager of Hewson/Breckner Airpark, L.L.C., by himself as such officer. IN WITNESS WHEREOF, I hereunto set my hand and official seal. J. Marie Burns Notary Public My Commission Expires: May 13, 2000 49 EXHIBIT A Diagram, not included for EDGAR filing. EXHIBIT B Diagram, not included for EDGAR filing. EXHIBIT C CERTAIN TENANT IMPROVEMENTS * Space programming, planning, contract drawings and complete architectural and engineering services. * Building permits and associated fees. * Standard office partitions, doors, door frames and associated hardware. * Drop ceiling grid with acoustical tiles. * Recessed fluorescent light fixtures. * Carpet and other typical finished floor coverings. * Heating, ventilating and air conditioning equipment and associated work ("HVAC"). * Roof insulation. * Standard toilet rooms and plumbing fixtures. * Evap-cooled warehouse area of approximately 3,132 s.f. * Fluorescent strip light fixtures. * Demising wall. * Nine (9) covered parking spaces in the rear of the building. * Tenant's signage. EXHIBIT D HAZARDOUS MATERIALS NONE 50 EXHIBIT E 15500 GREENWAY - HAYDEN LOOP, SCOTTSDALE, ARIZONA LETTER OF CREDIT REQUIREMENTS Except as hereinafter provided, Tenant shall keep in full force and effect, from the date of execution of this Lease until thirty (30) days after the expiration of this Lease, an unconditional and irrevocable letter of credit in favor of Landlord which satisfies all of the following requirements (the "Letter of Credit"): (a) The Letter of Credit shall have a term expiring not less than one (1) month after the scheduled expiration of the term of this Lease; provided, however, the Letter of Credit may have a term of not less than one (1) year if the Letter of Credit provides that it will automatically renew on an annual basis throughout the above specified period unless written notice of a non-renewal is furnished to Landlord on or before sixty (60) days prior to the expiration of the then current term of the Letter of Credit. If such a notice of non-renewal is given to Landlord, Landlord may, at any time during the period commencing thirty (30) days prior to the expiration of the Letter of Credit until expiration of the Letter of Credit, draw upon the Letter of Credit and treat the proceeds as an increase in the amount of the Security Deposit hereunder unless Tenant, on or before such drawing by Landlord, delivers to Landlord a substitute Letter of Credit complying with all of the requirements of this Exhibit E. (b) The Letter of Credit shall be in an amount not less than $220,000.00; provided, however, if no default by Tenant has occurred prior to the commencement of the fifth (5th) year of the Term of this Lease, the amount of the Letter of Credit may be reduced at any time thereafter, but only prior to the occurrence of a default, to the amount of $150,000. (c) The Letter of Credit shall be transferable by Landlord and by any subsequent Landlord under this Lease in connection with any assignment of this Lease to a new owner of the Premises. (d) The Letter of Credit shall be issued by Bank One, Arizona, NA, or other financial institution incorporated or chartered under the laws of the United States or any state thereof and approved by Landlord, which approval shall not be unreasonably withheld or delayed so long as Tenant furnishes to Landlord such information concerning the creditworthiness and financial stability of such institution as Landlord shall reasonably request, and shall otherwise be in form and substance satisfactory to Landlord. 51 (e) The Letter of Credit may be drawn upon from time to time by Landlord upon presentation by the Landlord of the Letter of Credit and a statement signed by Landlord certifying that Landlord is entitled to draw upon the Letter of Credit in the amount requested. Tenant may, at any time during the term of this Lease that Tenant is not in default under this Lease, furnish to Landlord annual financial statements for a period of three (3) consecutive years, which financial statements shall be audited and certified by a certified public accounting firm and for each year shall include but not be limited to a balance sheet, annual income statement and statement of change in financial position, together with a request that Landlord release the Letter of Credit. If such financial statements reflect three (3) consecutive years of profitable operations by the Tenant and at least two (2) of such years are within the Term of this Lease, then the Landlord will undertake a review to determine if Landlord will release the Letter of Credit. If Tenant's financial condition, history of operations, forecast of anticipated operations, and record of performance under this Lease, as evidenced by such annual financial statements and other information as may be available to or required by Landlord, have reached a level where Landlord would, in accordance with practices then being utilized by Landlord, not require any security other than the Security Deposit provided in subparagraph 1(l) of this Lease for the performance of a tenant's obligation under a lease for space similar in size, location and rental obligation to this Lease, Landlord will release the Letter of Credit to the extent not drawn upon previously. EX-24 15 MORGENSTERN & ALEXANDER CERTIFIED PUBLIC ACCOUNTANTS 350 Broadway, 4th Floor New York, NY 10013-3911 TEL: (212) 925-9490 FAX: (212)226-9134 CONSENT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS Shareholders and Board of Directors Maxam Gold Corporation and subsidiary We have issued our report dated May 20, 1997, accompanying the consolidated financial statements of Maxam Gold Corporation and subsidiary contained in the SB-2 Registration Statement. We consent tot eh use of the aforementioned report in the SB-2 Registration Statement and to the use of our name as it appears under the caption "Experts". /s/ Morgenstern & Alexander Morgenstern & Alexander Certified Public Accountants New York, New York October 20, 1997 EX-24 16 1 CONRAD C. LYSIAK Attorney and Counselor at Law 601 West First Avenue Suite 503 Spokane, Washington 99201 (509) 624-1475 FAX: (509) 747-1770 CONSENT I HEREBY CONSENT to the inclusion of my name in connection with the Form SB-2 Registration Statement filed with the Securities and Exchange Commission as attorney for the registrant, Maxam Gold Corporation and to the reference to my firm under the subcaption "Legal Matters." DATED this 23rd day of October, 1997. Yours truly, /s/ Conrad C. Lysiak EX-27 17
5 This schedule contains summary financial information extracted from the Statement of Financial Condition at June 30, 1997 (Unaudited) and the Statement of Income for the six months ended June 30, 1997 (Unaudited) and is qualified in its entirety by reference to such financial statements. 6-MOS YEAR DEC-31-1997 DEC-31-1996 JUN-30-1997 DEC-31-1996 230,025 454,406 0 400,000 66,690 83,610 0 0 0 0 309,404 942,794 1,149,474 714,338 129,888 60,189 1,415,618 1,688,199 1,088,408 630,336 0 0 0 0 0 0 455 455 0 0 1,415,618 1,688,199 0 0 11,014 21,398 0 0 0 0 743,107 1,045,314 0 0 51,348 55,627 0 0 0 0 0 0 0 0 0 0 0 0 0 0 (0.02) (0.02) (0.02) (0.02)
EX-28 18 1 WARRANT AGREEMENT MAXAM GOLD CORPORATION, a Utah corporation (the "Company"), and INTERWEST TRANSFER CO., INC. ("INTERWEST"), P. O. Box 17136, Salt Lake City, Utah 84117, a Utah corporation (the "Warrant Agent"), agree as follows: 1. Purpose. The Company proposes to publicly offer and issue 9,109,172 Warrants to purchase 9,109,172 shares of Common Stock underlying the Warrants. Warrants are being issued exclusively to shareholders of the Company. Warrants will be issued to shareholders of record on March 14, 1997. One Warrant will be issued for each five shares owned by a shareholder. Fractional Warrants will not be issued. 2. Warrants. Each Warrant will entitle the registered holder of a Warrant (the "Warrant Holder") to purchase from the Company one share of Common Stock at an exercise price of $1.00 per warrant. A Warrant Holder may exercise all of any number of Warrants resulting in the purchase of a whole number of Shares. 3. Exercise Period. The Warrants may be exercised until five years from the effective date of the Form SB-2 Registration Statement filed with the Securities and Exchange Commission on October __, 1997, (the "Expiration Date") except as provided by Section 12 of this Agreement. After the Expiration Date, any unexercised warrants will be void and all rights of Warrant Holders shall cease. 4. Detachability. A Warrant Certificates are immediately detachable from a Share certificate contained in a Unit. 5. Certificates. The Warrant Certificates shall be in registered form only and shall be substantially in the form set forth in "Exhibit A" attached to this Agreement. Warrant Certificates shall be signed by, or shall bear the facsimile signature of, the President of the Company and the Secretary of the Company and if such Warrant Certificate shall contain the signature of an officer of the Company who shall have ceased to be such officer before such Warrant Certificate is countersigned, issued and delivered, such Warrant Certificate shall be countersigned, issued and delivered with the same effect as if such person had not ceased to be such officer. Any Warrant Certificate may be signed by, or made to bear the facsimile signature of, any person who at the actual date of the preparation of such Warrant Certificate shall be a proper officer of the Company to sign such Warrant Certificate even though such person was not such an officer upon the date of the Agreement. 2 6. Countersigning. Warrant Certificates shall be manually countersigned by the Warrant Agent and shall not be valid for any purpose unless so countersigned. The Warrant Agent hereby is authorized to countersign and deliver to, or in accordance with the instructions of, any Warrant Holder any Warrant Certificate which is properly issued. 7. Registration of Transfer and Exchanges. Subject to the provisions of Section 4, the Warrant Agent shall from time to time register the transfer of any outstanding Warrant Certificate upon records maintained by the Warrant Agent for such purpose upon surrender of such Warrant Certificate to the Warrant Agent for transfer, accompanied by appropriate instruments of transfer in form satisfactory to the Company and the Warrant Agent and duly executed by the Warrant Holder or a duly authorized attorney. Upon any such registration of transfer, a new Warrant Certificate shall be issued in the name of and to the transferee and the surrendered Warrant Certificate shall be cancelled. 8. Exercise of Warrants. Exercise of a Warrant is subject to the Company maintaining an effective registration statement with the Securities and Exchange Commission and complying with the applicable state securities laws of the residence of the Warrant Holder. Subject to the foregoing the following will applicable: a. Any one Warrant or any multiple of one Warrant evidenced by any Warrant Certificate may be exercised on or after the Exercise Date, an on or before the Expiration Date. A Warrant shall be exercised by the Warrant Holder by surrendering to the Warrant Agent the Warrant Certificate evidencing such Warrant with the exercise form on the reverse of such Warrant Certificate duly completed and executed and delivering to the Warrant Agent, by good check or bank draft payable to the order of the Company, the Exercise Price for each Share to be purchased. b. Upon receipt of a Warrant Certificate with the exercise from thereon fully executed together with payment in full of the Exercise Price for the Shares for which Warrants are then being exercised, the Warrant Agent shall requisition from any transfer agent for the Shares, and upon receipt shall make delivery of, certificates evidencing the total number of whole Shares for which Warrants are then being exercised in such names and denominations as are required for delivery to, or in accordance with the instructions of, the Warrant Holder. Such certificates for the Shares shall be deemed to be issued, and the person which such Shares are issued of record shall be deemed to have become a holder of record of such Shares, as of the date of the surrender of such Warrant Certificate any payment of the Exercise Price, which ever shall last occur, 3 provided that if the books of the Company with respect to the Shares shall be deemed to be issued, and the person to whom such Shares are issued of record shall be deemed to have become a record holder of such Shares, as of the date on which such books shall next be open (whether before, on or after the Expiration Date) but at the Exercise Price, whichever shall have last occurred, to the Warrant Agent. c. If less than all the Warrants evidenced by a Warrant Certificate are exercised upon a single occasion, a new Warrant Certificate for the balance of the Warrants not so exercised shall be issued and delivered to, or in accordance with, transfer instructions properly given by the Warrant Holder until the Expiration Date. d. All Warrant Certificates surrendered upon exercise of the Warrants shall be cancelled. e. Upon the exercise, or conversion of any Warrant, the Warrant Agent shall promptly deposit the payment into an escrow account established by mutual agreement of the Company and the Warrant Agent at a federally insured commercial bank. All funds deposited in the escrow account will be disbursed on a weekly basis to the issuer once they have been determined to be collected, the Warrant Agent shall cause the shares certificate(s) representing the exercised warrants to be issued. f. Expenses incurred by INTERWEST TRANSFER CO., INC. while acting in the capacity as Warrant Agent will be paid by the Company. These expenses, including delivery of exercised share certificate to the shareholder, will be deducted from the exercise fee submitted prior to distribution of funds to the Company. A detailed accounting statement relating to the number of shares exercised, names of registered warrant holder and the net amount of exercised, funds remitted will be given to the Issuer with the payment of each exercise amount. g. At the time of exercise of the Warrants(s), the transfer fee is to be paid by the Company. In the event the Warrant Holders must pay the fee and fails to remit same, the fee will be deducted from the proceeds prior to distribution to the Company. 9. Taxes. The Company will pay all taxes attributable to the initial issuance of Shares upon exercise of Warrants. The Company shall not, however, be required to pay any tax which may be payable in respect to any transfer involved in any issue of Warrant Certificates or in the issue of any certificates of Shares in the name other than that of the Warrant Holder upon the exercise of any Warrants. 4 10. Mutilated or Missing Warrant Certificates. If any Warrant Certificate is mutilated, lost, stolen or destroyed, the Company and the Warrant Agent may, on such terms as to indemnify or otherwise as they may in their discretion impose (which shall, in the case of a mutilated Warrant Certificate, include the surrender thereof), and upon receipt of evidence satisfactory to the Company and the Warrant Agent of such mutilation, loss, theft or destruction, issue a substitute Warrant Certificate of like denomination or tenor as the Warrant Certificate so mutilated, lost, stolen or destroyed. Applicants for substitute Warrant Certificate shall comply with such other reasonable regulations and pay any reasonable charges as the Company or the Warrant Agent may prescribe. 11. Reservation of Shares. For the purpose of enabling the Company to satisfy all obligations to issue Shares upon exercise of Warrants, the Company will at all times reserve and keep available free from preemptive rights, out of the aggregate of its authorized but unissued shares, the full number of Shares which may be issued upon the exercise of Warrants will upon issue be fully paid and nonassessable by the Company and free from all taxes, liens, charges and security interests with respect to the issue thereof. 12. Governmental Restrictions. If any Shares issuable upon the exercise of Warrants require registration or approval of any governmental authority, the Company will endeavor to secure such registration or approval; provided that in no event shall such Shares be issued, and the Company shall have the authority to suspend the exercise of all Warrants, until such registration or approval shall have been obtained; but all Warrants, the exercise of which is requested during any such suspension, shall be exercisable at the exercise Price. If any such period of suspension continues past the Expiration Date, all Warrants, the exercise of which have been requested on or prior to the Expiration Date, shall be exercisable upon the removal of such suspension until the close of business on the business day immediately following the expiration of such suspension. 13. Adjustments. If prior to the exercise of any Warrants, the Company shall have effected one or more stock split-ups, stock dividends or other increases or reductions of the number of shares of its $0.01 par value Common Stock outstanding without receiving compensation therefore in money, services or property the number of shares of Common Stock subject to the Warrant granted shall, (i) if a net increase shall have been effected in the number of outstanding shares of the Company's Common Stock, be proportionately increased, and the cash consideration payable per share shall be proportionately reduced, and, (ii) if a net reduction shall have been effected in the number of outstanding shares of the Company's Common Stock, be proportionately reduced and the cash consideration payable per share be proportionately increased. 5 14. Notice to Warrant Holders. Upon any adjustment as described in Section 13, the Company within 20 days thereafter shall (i) cause to be filed with the Warrant Agent a certificate signed by a Company officer setting forth the details of such adjustment, the method of calculation and the facts upon which such calculation is based, which certificate shall be conclusive evidence of the correctness of the matters set forth therein, and (ii) cause written notice of such adjustments to be given to each Warrant Holder as of the record date applicable to such adjustment. Also, if the Company proposes to enter into any reorganization, reclassification, sale of substantially all of its assets, consolidation, merger, dissolution, liquidation or winding up, the Company shall give notice of such fact at least 20 days prior to such action to all Warrant Holders which notice shall set forth such facts as indicated the effect of such action (to the extent such effect may be known at the date of such notice) on the Exercise Price and the kind and amount of the share or other securities and property deliverable upon exercise of the Warrants. Without limiting the obligation of the Company hereunder to provide notice to each Warrant Holder, failure of the Company to give notice shall not invalidate corporate action taken by the Company. 15. No Fractional Warrants or Shares. The Company shall not be required to issue fractions of Warrants upon the reissuance of Warrants, any adjustments as described in Section 13 or otherwise; but the Company in lieu of issuing any such fractional interest, shall round up or down to the nearest full Warrant. If the total Warrants surrendered by exercise would result in the issuance of a fractional shares, the Company shall not be required to issue a fractional share but rather the aggregate number of shares issuable will be rounded up or down to the nearest full share. 16. Rights of Warrant Holders. No Warrant Holder, as such, shall have any rights of a shareholder of the Company, either at a law or equity, and the rights of the Warrant Holders, as such, are limited to those rights expressly provided in this Agreement or in the Warrant Certificates. The Company and the Warrant Agent may treat the registered Warrant Holder in respect of any Warrant Certificates as the absolute owner thereof for all purposes notwithstanding any notice to the contrary. 17. Warrant Agent. The Company hereby appoints the Warrant Agent to act as the agent of the Company and the Warrant Agent hereby accepts such appointment upon the following terms and conditions by all of which the Company and every Warrant Holder, by acceptance of his/her Warrants, shall be bound: 6 a. Statements contained in this Agreement and in the Warrant Certificates shall be taken as statements of the Company. The Warrant Agent assumes no responsibility for the correctness of any of the same except such as describes the Warrant Agent or for action taken or to be taken by the Warrant Agent. b. The Warrant Agent shall not be responsible for any failure of the Company to comply with any of the Company's covenants contained in this Agreement or in the Warrant Certificates. c. The Warrant Agent may consult at any time with counsel satisfactory to it (who may be counsel for the Company) and the Warrant Agent shall incur no liability or responsibility to the Company or to any Warrant Holder in respect of any action taken, suffered, or omitted by it hereunder in good faith and in accordance with the opinion or the advice of such counsel, provided the Warrant Agent shall have exercised reasonable care in the selection and continued employment of such counsel. d. The Warrant Agent shall incur no liability or responsibility to the Company or to any Warrant Holder for any action taken in reliance upon any notice, resolution, wavier, consent, order, certificate or other paper, document or instrument believed by it to be genuine and to have been signed, sent or presented by the proper party or parties. e. The Company agrees to pay to the Warrant Agent reasonable compensation for all services rendered by the Warrant Agent in the execution of this Agreement, to reimburse the Warrant Agent for all expenses, taxes and governmental charge and all other charges of any kind in nature incurred by the Warrant Agent in the execution of this Agreement and to indemnify the Warrant Agent and save it harmless against any and all liabilities, including judgments, costs and counsel fees, for this Agreement except as a result of the Warrant Agents's negligence or bad faith. f. The Warrant Agent shall be under no obligation to institute any action, suit or legal proceeding or to take any other action likely to involve expense unless the Company or one or more Warrant Holders shall furnish the Warrant Agent with reasonable security and indemnity for any costs and expenses which may be incurred in connection with such action, suite or legal proceeding, but this provision shall not effect the power of the Warrant Agent to take such action as the Warrant Agent may consider proper, whether with or without any such security or indemnity. All rights of action under this Agreement or under any of the Warrants may be endorsed by the Warrant Agent without the possession 7 of any of the Warrant Certificates or the production thereof at any trail or other proceeding relative thereto, and any such action, suit or proceeding instituted by the Warrant Agent shall be brought in its name as Warrant Agent, and any recovery of judgment shall be for the ratable benefit of the Warrant Holders as their respective rights or interest may appear. g. The Warrant Agent and any shareholder, director, officer or employee of the Warrant Agent may buy, sell or deal in any of the Warrants or other securities of the Company or become pecuniarily interested in any transaction in which the Company may be interested, or contact with or lend money to the Company or otherwise act as fully and freely as though it were not Warrant Agent under this Agreement. Nothing herein shall preclude the Warrant Agent from acting in any other capacity for the Company or for any other legal entity. 18. Successor Warrant Agent. Any corporation into which the Warrant Agent may be merged or converted or with which it may be consolidated, or any corporation resulting from any merger, conversion or consolidation to which the Warrant Agent shall be a party, or any corporation succeeding to the corporate trust business of the Warrant Agent, shall be the successor to the Warrant Agent hereunder without the execution or filing of any paper or any further act of a party or the parties hereto. In any such event or if the name of the Warrant Agent is changed, the Warrant Agent or such successor may adopt the countersignature of the original Warrant Agent and may countersign such Warrant Certificates either in the name of the predecessor Warrant Agent or in the name of the successor Warrant Agent. 19. Change of Warrant Agent. The Warrant Agent may resign or be discharged by the Company from its duties under this Agreement by Warrant Agent or the Company, as the case may be, giving notice in writing to the other, and by giving a date when such resignation or discharge shall take effect, which notice shall be sent at least 30 days prior to the date so specified. If the Warrant Agent shall resign, be discharged or shall otherwise become incapable of acting, the Company shall appoint a successor to the Warrant Agent. If the Company shall fail to make such appointment within a period of 30 days after it has been notified in writing of such resignation or incapacity by the resigning or incapacitated Warrant Agent or by any Warrant Holder or after discharging the Warrant Agent, then any Warrant Holder may apply to the District Court for Salt Lake County, Utah for the appointment of a successor to the Warrant Agent. Pending appointment of a successor to the Warrant Agent, either by the Company or by such Court, the duties of the Warrant Agent shall be carried out by the Company. Any successor Warrant Agent, 8 whether appointed by the Company or by such Court, shall be a bank or a trust company, in good standing, organized under the laws of the State of Utah or of the United States of America, having its principal office in Salt Lake City, Utah and having at the time of its appointment as Warrant Agent, a combined capital and surplus of at least four million dollars. After appointment, the successor Warrant Agent shall be vested with the same powers, rights, duties and responsibilities as if it had been originally named as Warrant Agent without further act or deed and the former Warrant Agent shall deliver and transfer to the successor Warrant Agent any property at the time held by it thereunder, and execute and deliver any further assurance, conveyance, act or deed necessary for effecting the delivery or transfer. Failure to give any notice provided for in the section, however, or any defect therein, shall not affect the legality or validity of the resignation or removal of the Warrant Agent or the appointment of the successor Warrant Agent, as the case may be. 20. Notices. Any notice or demand authorized by this Agreement to be given or made by the Warrant Agent or by any Warrant Holder to or on the Company shall be sufficiently given or made if sent by mail, first class, certified or registered, postage prepaid, addressed (until another address is filed in writing by the Company with the Warrant Agent), as follows: MAXAM GOLD CORPORATION 528 Fon du Lac Drive East Peoria, Illinois 61611 Any notice or demand authorized by this Agreement to be given or made by any Warrant Holder or by the Company to or on the Warrant Agent shall be sufficiently given or made if sent by mail, first class, certified or registered, postage prepaid, addressed (until another address is filed in writing by the Warrant Agent with the Company), as follows: INTERWEST TRANSFER CO., INC. P. O. Box 17136 Salt Lake City, Utah 84117 Any distribution, notice or demand required or authorized by this Agreement to be given or made by the Company or the Warrant Agent to or on the Warrant Holder shall be sufficiently given or made if sent by mail, first class, certified or registered, postage prepaid, addressed to the Warrant Holders at their last known addresses as they shall appear on the registration books for the Warrant Certificates maintained by the Warrant Agent. 9 21. Supplements and Amendments. The Company and the Warrant Agent may from time to time supplement or amend this Agreement without the approval of any Warrant Holders in order to cure any ambiguity or to correct or supplement any provision contained herein which may be defective or inconsistent with any other provisions herein, or to make any other provisions in regard to matters or questions arising hereunder with the Company and the Warrant Agent may deem necessary or desirable. 22. Successors. All the covenants and provisions of this Agreement by or for the benefit of the Company or the Warrant Agent shall bind and inure to the benefit of their respective successors and assigns hereunder. 23. Termination. This Agreement shall terminate at the close of business on the Expiration Date or such earlier date upon which all Warrants have been exercised; provided, however, that if exercise of the Warrants is suspended pursuant to Section 12 and such suspension continues past the Expiration Date, this Agreement shall terminate at the close of business on the business day immediately following expiration of such suspension. The provisions of Section shall survive such termination. 24. Governing Law. This Agreement and each Warrant Certificate issued hereunder shall be deemed to be a contract made under the laws of the State of Utah and for all purposes shall be construed in accordance with the laws of said state. 25. Benefits of this Agreement. Nothing in this Agreement shall be construed to give any person or corporation other than the Company, the Warrant Agent and the Warrant Holder any legal or equitable right, remedy or claim under this Agreement; but this Agreement shall be for the sole and exclusive benefit of the Company, the Warrant Agent and the Warrant Holders. 26. Counterparts. This Agreement may be executed in any number of counterparts, each of such counterparts shall for all purposes be deemed to be an original and all such counterparts shall together constitute but one and the same instrument. 10 Dated this _____ day of ________________, 1997. MAXAM GOLD CORPORATION (a Utah corporation) SEAL ATTEST: BY: __________________________________ Title: ___________________________ _________________________________ Secretary INTERWEST TRANSFER CO., INC. (a Utah corporation) SEAL ATTEST: BY: __________________________________ Title: ___________________________ _________________________________ Secretary 11 EXHIBIT A WARRANTS CERTIFICATE THIS IS TO CERTIFY that, for value received, or registered assigns (the "Warrant Holder"), is the registered owner of the above-indicated number of Warrants expiring at 5:00 p.m., Pacific Standard Time (PST), on _________________, 2002 (the "Expiration Date"). Each full Warrant entitles the Warrant Holder to purchase from MAXAM GOLD CORPORATION (the "Company"), a Utah corporation, until _________________, 2002, one fully paid and nonassessable share of the Company's Common Stock ($0.00001 par value per share) at the purchase price of $1.00 (the "Exercise Price") in lawful money of the United States of America for each full Warrant represented hereby upon surrender of this Warrant Certificate, with the exercise form hereon duly completed and executed, with payment of the Exercise Price at the office of INTERWEST TRANSFER CO., INC. (herein called the "Warrant Agent"), P. O. Box 17136, Salt Lake City, Utah 84117, but only subject to the conditions set forth herein and in a Warrant Agreement dated as of _______________, 1997 (the "Warrant Agreement") between the Company and the Warrant Agent. The Redeemable Warrants are exercisable at anytime after the __________, 1997 The Exercise Price, the number of shares purchasable upon exercise of each Warrant, the number of Warrants outstanding and the Expiration Date are subject to adjustments upon the occurrence of certain events set forth in the Warrant Agreement. Reference is hereby made to the provisions on the reverse side of this Warrant Certificate and the provisions of the Warrant Agreement, all of which are hereby incorporated by reference in and made a part of this Warrant Certificate and which shall for all purposes have the same effect as though fully set forth at this place. Upon due presentment for registration for transfer of this Warrant Certificate at the office of the Warrant Agent a new Warrant Certificate or Warrant Certificates of like tenor and evidencing in the aggregate a like number of Warrants, subject to any adjustments made in accordance with the provisions of the Warrant Agreement shall be issued to the transferee in exchange for this Warrant Certificate, subject to the limitations provided in the Warrant Agreement, upon payment of the transfer fee and any tax or other governmental charge imposed in connection with such transfer. The Warrant Holder of the Warrants evidenced by this Warrant Certificate may exercise all or any whole number of such Warrants during the exercise period and in the manner stated hereon. Exercise of the Warrants is subject to the Company maintaining an effective registration statement with the Securities and Exchange Commission and complying with the state securities laws of the residence of the Warrant Holder. The Exercise Price shall be payable in lawful money of the United States of America by certified or cashier's check payable to the order of the Company. Upon any exercise of any Warrants evidenced by this Warrant Certificate in an amount less than the number of Warrants so evidenced there shall be issued to the 12 Warrant Holder a new Warrant Certificate evidencing the number of Warrants not so exercised. No adjustment shall be made for any dividends on any shares issued upon exercise of this Warrant. No Warrant may be exercised after 5:00 p.m., PST, on the Expiration Date and any Warrant not exercised by such time shall become void. This Warrant Certificate shall not be valid unless manually countersigned by the Warrant Agent. IN WITNESS WHEREOF, the Company has caused this Warrant Certificate to be signed by its President and by its Secretary, each by a facsimile of his signature, and has caused a facsimile of its corporate seal to be imprinted hereon. Dated: _____________________________________, 199___. MAXAM GOLD CORPORATION BY: ____________________________ Alan Hubbard, President BY: ____________________________ _________________, Secretary Countersigned: INTERWEST TRANSFER CO., INC. BY: ________________________________ Title: _________________________ -----END PRIVACY-ENHANCED MESSAGE-----