-----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, HfSNjWcDS/0gVLL64R5giYWbCiRfT4Ujj5eg8AmS4NWC6fEtjc0ghn407xsT6a+k zWy+Ak6/oM+28rNuP1v80w== 0000914233-98-000023.txt : 19980401 0000914233-98-000023.hdr.sgml : 19980401 ACCESSION NUMBER: 0000914233-98-000023 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 8 CONFORMED PERIOD OF REPORT: 19971231 FILED AS OF DATE: 19980331 SROS: NASD FILER: COMPANY DATA: COMPANY CONFORMED NAME: LA TEKO RESOURCES LTD CENTRAL INDEX KEY: 0000357281 STANDARD INDUSTRIAL CLASSIFICATION: GOLD & SILVER ORES [1040] IRS NUMBER: 870483319 STATE OF INCORPORATION: A1 FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-K SEC ACT: SEC FILE NUMBER: 000-10104 FILM NUMBER: 98582060 BUSINESS ADDRESS: STREET 1: 625 HOWE ST STREET 2: STE 500 CITY: VANCOUVER, B.C. STATE: A1 ZIP: 84101 BUSINESS PHONE: 6046880833 MAIL ADDRESS: STREET 1: 180 EAST 2100 SOUTH STREET 2: STE 204 CITY: SALT LAKE CITY STATE: UT ZIP: 84115 10-K 1 SECURITIES AND EXCHANGE COMMISSION Washington, D.C. FORM 10-K ANNUAL REPORT UNDER SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934 For the fiscal year ended DECEMBER 31, 1997 Commission file number 0-10104 LA TEKO RESOURCES LTD. (Name of small business issuer in its charter) BRITISH COLUMBIA, CANADA 87-0483319 (State or other jurisdiction of (I.R.S. Employer incorporation or organization Identification No.) SUITE 500, 625 HOWE ST. V6C 2T6 VANCOUVER, B.C. (Zip Code) Issuer's telephone number, including area code: (604) 688-0833 Securities registered under Section 12(b) of the Act: Title of each class Name of each exchange on which registered None None Securities registered under Section 12(g) of the Act: COMMON STOCK, WITHOUT PAR VALUE Indicate by check mark whether the issuer registrant (1) filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the past preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes X No Indicate by check mark if there is no disclosure of delinquent filers in response to Item 405 of Regulation S-BK is not contained in this form herein, and no disclosure will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. [ ]. The aggregate market price of the voting stock held by non-affiliates was computed at the average closing bid and asked prices in the Small Capitalization as quoted on the National Association of Securities Dealers Automatic Quotation System closing sales price on The Nasdaq Stock Market ("NASDAQ") on March 18, 1998 was approximately $17,601,000. As of March 18, 1998, the Company had outstanding 23,467,358 shares of its common stock, without par value. DOCUMENTS INCORPORATED BY REFERENCE. If the following documents are incorporated by reference, briefly describe them and identify the part of Form 10-K (e.g., Part I, Part II, etc.) Into which the document is incorporated: (1) any annual report to security holders; (2) any proxy or information statement; and (3) any prospectus filed pursuant to rule 424(b) or (c) under the Securities Act of 1933 ("Securities Act"). The listed documents should be clearly described for identification purposes (e.g., annual report to security holders for fiscal year ended December 31, 1990). NONE TABLE OF CONTENTS PREFACE PART I. Item 1. Description of Business Item 2. Description of Properties Item 3. Legal proceedings Item 4. Submission of matters to a vote of security holders PART II. Item 5. Market for registrant's common equity and related stockholder matters Item 6. Selected financial data Item 7. Management's discussion and analysis of financial condition and results of operations Item 8. Financial statements and supplementary data Item 9. Changes in and disagreements with accountants on accounting and financial disclosure PART III. Item 10. Directors and executive officers of the registrant Item 11. Executive compensation Item 12. Security ownership of certain beneficial owners and management Item 13. Certain relationships and related transactions PART IV. Item 14. Exhibits, financial statement schedules and reports on Form 8-K PREFACE CAUTION RESPECTING FORWARD-LOOKING INFORMATION This annual report contains certain forward-looking statements and information relating to the Company that are based on the beliefs of the Company or management as well as assumptions made by and information currently available to the Company or management. When used in this document, the words "anticipate", "believe", "estimate", "expect" and "intend" and similar expressions, as they relate to the Company or its management, are intended to identify forward-looking statements. Such statements reflect the current view of the Company respecting future events and are subject to certain risks, uncertainties and assumptions, including the risks and uncertainties noted. Should one or more of these risks or uncertainties materialize, or should underlying assumptions prove incorrect, actual results may vary materially from those described herein as anticipated, believed, estimated, expected or intended. In each instance, forward-looking information should be considered in light of the accompanying meaningful cautionary statements herein. Neither the Company nor any other person undertakes any obligation to revise these forward- looking statements to reflect events or circumstances after the date hereof or to reflect the occurrence or unanticipated events. PART I ITEM 1. DESCRIPTION OF BUSINESS GENERAL La Teko Resources Ltd. ("La Teko" or the "Company") explores and develops mineral properties. It has interests in several exploration properties in the Fairbanks area of central Alaska as well as one in the central Yukon and another in southern Arizona. Two of the Alaska projects, True North, under joint venture agreement with Newmont Alaska Ltd. ("Newmont"), a subsidiary of Newmont Gold Company (NYSE), and Ryan Lode, are at advanced exploration to development stage. The remaining Alaska projects, including Juniper, Twin Buttes and Discovery Gulch, are at the target definition exploration stage. The Scheelite Dome project in the Yukon is at the target definition/drill stage. The Margarita project in Arizona is under option to Oro Blanco Resources Corp. During 1997, the Company's activities were concentrated on monitoring the exploration of its True North property under a joint venture agreement with project operator Newmont, conducting mine reclamation maintenance and baseline studies on its Ryan Lode property and entering into an agreement to sell the Ryan Lode property to Silverado Gold Mines Ltd. ("Silverado"), furthering exploration of its target definition exploration stage gold prospects in Alaska and evaluating new opportunities. The Company received cash payments of $2,500,000 from Newmont during 1996, the final installment of the $6,000,000 total due the Company for its sale to Newmont of a 65% interest in the True North property. Newmont continued to incur expenditures to develop the property and as of the end of 1997 had incurred approximately $10.5 million of the $21 million requirement to vest Newmont's 65% interest. An active reverse circulation exploration drill program continued during the course of the year. A bulk sampling program was also completed using a large diameter core drilling program and surface extraction to obtain material for metallurgical testing. The project area was significantly expanded by acquiring adjacent properties (see "Item 2. Description of Properties: True North Project"). Ryan Lode activities during 1997 were focused on furthering baseline studies that would be required in order to proceed with permitting a mining operation, as well as continued reclamation work. The sale of the Ryan Lode property was negotiated with Silverado for $12 million (see "Item 2. Description of Properties: Ryan Lode Project"). During the latter part of the year, Silverado completed a drill program confirming La Teko's earlier results. On March 26, 1998 the Company was given notice by Silverado that it elected to terminate the sale agreement. During 1997 the Company continued exploration of its target definition exploration stage projects. Encouraging airborne geophysical anomalies were outlined on the Twin Buttes property and a gold-in-soil anomaly was outlined on the Discovery Gulch property. Other possible exploration and advanced development prospects were investigated and, on the basis of promising geological and geochemical results, an option on the Scheelite Dome project was acquired in the Yukon Territory, Canada. In 1998, the Company plans to continue to cooperate with Newmont with its ongoing exploration and development of the True North project. At present, the only cash requirements from La Teko for this project are for its 35% share of new property acquisition costs. In 1997, when a number of acquisitions were completed, this amounted to $155,000. The Company's evaluation and interpretation of ongoing results are required to keep its shareholders informed of progress on the project and to assist it in projecting when Newmont might be expected to complete its $21 million in exploration and development expenditures on the property and produce a positive feasibility study, and thus when contributions toward development costs from La Teko might be required. La Teko will continue its efforts to enhance shareholder value through the discovery of new mineral reserves. To this end, the Company anticipates it will continue to explore its Alaskan gold exploration projects, the Scheelite Dome property in Yukon and will, on a limited basis, seek more acquisition opportunities. The Company's strategy will be to focus on gold exploration projects with targets which warrant drill testing. The Company will consider farming out or joint venturing its exploration projects in order to reduce cost and risk to the Company. The Company was formed on November 27, 1968, under the laws of British Columbia. The registered office of the Company is 1285 West Pender Street, Suite 700, Vancouver, B.C. V6E 4B1. The head office and principal place of business of the Company is 625 Howe Street, Suite 500, Vancouver, B.C. V6C 2T6. When used herein, the terms "La Teko" or the "Company" include La Teko Resources Ltd. and its wholly-owned subsidiaries, La Teko Resources, Inc., the Nevada property-holding entity, and Ryan Lode Mines, Inc., the Alaska operating entity. EMPLOYEES As of March 1998, the Company had 3 employees, one of whom is the Company's President and a director, and one part-time bookkeeper, all based in Vancouver. The Company regularly engages consultants and other advisors to provide specific geological and other professional services. OFFICES The Salt Lake City, Utah office was consolidated with the corporate offices located at 625 Howe Street, Suite 500, Vancouver, British Columbia, on May 1, 1997. Facilities in British Columbia are leased on a month-to-month basis for $1,620 per month. During the year, the Company's Fairbanks office was closed. In the opinion of the Company, the above facilities are adequate for its foreseeable future needs. ITEM 2. DESCRIPTION OF PROPERTIES TRUE NORTH PROJECT True North is an advanced exploration and development project, located in the center of the Fairbanks Mining District, Alaska. The project was acquired by La Teko in 1993 and is now under joint venture with Newmont, subject to its right to terminate the venture and reconvey its 65% interest to the Company. Newmont, as operator of the project, is in the midst of a multi-million dollar development program which includes metallurgical testing and engineering work focused on the area of known gold mineralization plus exploration for new gold zones. Location and Access The True North project is located on the west flank of Pedro Dome, approximately 17 miles northeast of Fairbanks, Alaska. The property is accessed by a five-mile dirt and gravel road from the paved Steese Highway, which passes along the south and eastern borders of the property. Land Status The True North project, consisting of 86 leased Alaska state mining claims, aggregating 2,284 acres, was acquired by the Company's wholly-owned subsidiary, La Teko Resources, Inc., from AMAX Gold Exploration, Inc. ("AMAX") in 1994 in consideration of the Company's completion of $250,000 in exploration in each of 1994 and 1995. The Company was also required to pay to AMAX $500,000 in 1994 and $250,000 yearly thereafter to a cumulative total payment of $1,500,000 and to pay a 1% net smelter return ("NSR") royalty. All required payments to date have been paid. On June 9, 1994, La Teko Resources, Inc., entered into a joint venture agreement (the "JV Agreement") with Newmont, whereby Newmont acquired a 65% interest in True North. In order to earn that interest, Newmont paid La Teko $6 million and must complete $21 million in exploration and development work on True North (approximately $10.5 million spent as of December 31, 1997) and complete a feasibility study. The Company will receive no further cash payments from Newmont under the JV Agreement. The feasibility study was to have been completed by December 31, 1996. However, Newmont has elected to extend the date for completion. The JV Agreement allows this extension for up to six months beyond the time when Newmont ceases an active exploration program. During such extension, certain of Newmont's exploration costs are not credited against its $21 million funding commitment. After Newmont has earned its 65% interest in True North, La Teko and Newmont will each fund project development costs on a pro rata basis, with Newmont as operator. If either partner fails to contribute its share, its interest in the property will suffer corresponding dilution. Newmont can terminate the JV Agreement by reconveying its 65% interest in the property to the Company, which would then be under no obligation to reimburse Newmont for any payments or expenditures to date. Newmont and La Teko may each choose to sell their interest in the JV Agreement, and the other participant has a preemptive right for 60 days from the date of receiving a notice stating the price and terms to elect to acquire the offered interest. If the preemptive right is not exercised the offering participant has 120 days to consummate the transfer to a third party at a price and terms no less favorable than in the notice. Although Newmont has advised the Company that Newmont proposes further exploration of the True North property during 1998, Newmont's further actions respecting the True North project are beyond the ability of the Company to either control or predict. There can be no assurance that the results of further exploration, development or feasibility analysis will warrant placing the True North property into production by either the Company or Newmont. The terms and conditions of the joint venture with Newmont are more fully discussed in the Company's annual report on Form 10-K for the year ended December 31, 1995. Since acquiring the project, Newmont has added further claims by staking, purchase and options from third parties, bringing the total project acreage in early 1998 to 14,300 acres. The Company has paid its 35% share of acquisition costs so that these mineral properties have become part of the joint venture as per the terms of the JV Agreement. Exploration History Placer gold was first discovered in a creek draining the south side of Pedro Dome in 1902 by Felix Pedro. Placer mining on Dome and Eldorado Creeks, immediately adjacent to the True North property, began about eight years later. During the period 1912 to 1914, the Soo Mine reportedly produced between 4,000 and 5,000 ounces of lode gold from a quartz vein in the southern portion of the True North property. Several other small lode occurrences were prospected in the vicinity. In 1916, 200 tons of stibnite ore (antimony) was reportedly produced from the Hindenburg Mine, within the area of the presently defined Hindenburg gold deposit. A further shipment of 16 tons grading 38% antimony was reportedly made in 1942. Another prospect, the Mother Lode, adjacent to the presently defined Shepard deposit, had exploration shafts to 147 and 215 feet. AMAX first acquired an interest in the property covering the Hindenburg Mine in 1990. The property position was expanded as AMAX completed the first drill program on the property, 4,000 feet, in 1991. The table below outlines subsequent exploration on the property, including that conducted since the Company acquired it in 1993. 1992 1993 1994 1995 1996 1997 Total ------ ----- ------ ------ ------ ------ ------- RVC Drilling 5,332 3,450 51,810 14,885 40,428 57,753 173,658 Core Drilling -- -- 2,042 13,049 24,798 2,491 42,380 Geology and Mineralization The True North property lies within a broad belt of metamorphic rocks trending through central Alaska and Yukon known as the Yukon Tanana Terrane. Numerous gold occurrences are found within these rocks, including the famous Klondike gold camp in the Yukon and the Fairbanks Mining District of Alaska. Lode gold occurrences typically occur where the older metamorphic rocks have been intruded by granitic igneous rocks which were emplaced approximately 90 million years ago. Several types of gold mineralization have been exploited. The early miners sought the placer gold in streams and rivers draining the bedrock gold source areas and this mining activity continues today. Initial lode mining concentrated on quartz veins containing high grade gold values. More recently, however, large, low-grade gold deposits have been sought. The best example of this is the Fort Knox deposit, seven miles east of True North, which was placed into production by Cyprus-AMAX in December, 1996, at a mining rate of approximately 350,000 ounces gold per year. Gold mineralization on the True North property is hosted by metamorphic rock of the Chatanika Terrane, including quartz-mica schist, quartzite, eclogite, amphibolite, marble, and argillite. Some units are graphitic. Gold occurs in nearly flat-lying shear zones and along faulted contacts. These zones are typically 30 to 50 feet thick, are stacked one on top of the other, and can be correlated across the property. The three originally defined zones, Hindenburg, Central, and Shepard, now all appear to be part of a single zone with a continuous strike length of roughly 5,000 feet. Average grades are 0.07 to 0.09 ounces gold per ton (2.4 to 3.1 grams gold per tonne), although higher grades in excess of 1 ounces gold per ton occur locally. A more recently defined zone, the Zeppelin, occurs just north of the Central zone, and is higher grade, averaging approximately 0.12 ounces gold per ton (4.1 grams gold per tonne). Three other zones of significance have been discovered, the Murray Zone discovered in 1996, and the Merlyn Zone and Dome Creek Zones, discovered in 1997. Each of these zones require additional drilling to be fully evaluated. Within the first 150 to 200 feet of surface, the gold mineralization is predominantly oxidized. Below this depth there is a gradual transition to sulfide mineralization. The depth of oxidation is typically greater at higher elevations and less in the valleys, and generally reflects depth to the top of the water table. As the Murray, Merlyn and Dome Creek zones are in valleys, the depth of oxidation is less than for the zones where the resources described below occur. Resources On June 5th, 1997 the Company announced a mineral inventory calculation done by Newmont utilizing all drill data to the end of 1996 of 18,208,000 tons at an average grade of 0.072 ounces gold per ton (2.5 grams per tonne), for a total contained 1,313,899 ounces of gold. Of this total 1,011,819 ounces have been classified as oxide. Oxide is defined by Newmont as mineralization with a ratio of cyanide extractable gold to fire assay gold of 0.6 or greater. This calculation was done using a $400 per ounce of gold cone in the calculations. The Company engaged an independent consultant who confirmed the Newmont calculation through an independent review of all drill data. Subsequent to year end 1997 Newmont completed a calculation utilizing a $350 per ounce of gold cone and included further data to upgrade a portion of the resource to "Mineralized Material Not in Reserve", which Newmont included in its announced mineralized resources. The updated calculation is 10,215,000 million tons grading 0.078 ounces gold per ton (2.7 grams per tonne), a total of 796,770 ounces of gold, all of which is classified as oxide. Metallurgy Preliminary metallurgical bottle roll testing has demonstrated gold recoveries from in the order of 90% for oxidized mineralization. As the degree of oxidation decreases, gold recoveries by leaching also decrease. Bench scale flotation tests of sulfide mineralization indicate gold recoveries of 82 to 96% in the sulfide concentrate. Large diameter core samples and surface bulk samples were collected in the fall of 1997 for detailed metallurgical work. The core will be examined mineralogically followed by smaller diameter (eight inch) column leach testing while the two 25 ton bulk samples will also undergo large diameter (two foot) column leach tests. This work is currently in progress. Proposed Program The Company has been advised by Newmont that it has budgeted a total of $3.6 million for 1998 including $1.5 million for the property payments due during the year, further land acquisitions and a continued exploration program directed towards power auger sampling on areas outside the current resources area for January through June 1998. A further $2.1 million is budgeted for prefeasibility metallurgical studies described above. Subject to satisfactory test results and favorable market conditions, the metallurgical testing will lay the foundation for scoping and engineering studies scheduled for the second half of 1998. This work will encompass siting studies, geotechnical work, engineering design and detailed cost estimates. There will also be in-fill drilling for reserve definition purposes. RYAN LODE PROJECT The Ryan Lode property has a long history of gold exploration and mining, dating back to the turn of the century. During the period from 1987 to 1989, La Teko successfully produced 19,220 ounces of gold from 329,000 tons of ore mined by open pit and extracted by heap leach methods. The Company has subsequently made a substantial investment in the property, both in the reclamation of the previous mining activity and in exploration for more minable reserves. Location The Ryan Lode property is located on the southeast flank of Ester Dome, approximately eight miles west of Fairbanks, Alaska. The Parks Highway, connecting Fairbanks to Anchorage, traverses the southern boundary of the property. The property can be accessed by Gold Hill Road and then Henderson Road, for a total distance of 2.4 miles north from the highway. Power supply also runs very close to the property. Land Status The core Ryan Lode claims, consisting of 10 claims, 14 unpatented claims, and one unpatented placer claim totaling 700 acres, are subject to a lease agreement which calls for a 5% net smelter royalty on production from these claims. Annual advance royalty payments are being made, currently amounting to $150,000 per year, escalating to $200,000 per year in 2013, to $250,000 per year in 2018, to $300,000 per year in 2023, and $300,000 per year from 2028 to 2032. The lease agreement may be extended annually thereafter. A 3% net smelter return royalty is payable on the surrounding Bar and St. Patrick claims comprising a total of 289 acres. A prior lease agreement with LAC Minerals, U.S.A., requires payment of $5 million on the basis of 5% of net profits after recovery of pre-production costs, 10% of net profits after recovery of two times pre-production costs, and 20% of net profits after recovery of three times pre-production costs until the $5 million is paid. Pre-production costs are restricted to a maximum of $1 million. The Company has expanded its Ryan Lode properties so that it now holds 234 additional acres adjacent to the Ryan Lode claim group. These claims are generally subject to 3% to 4% net smelter return royalties based on mineral product mined and removed from the properties. Exploration and Development History Extensive placer mining has taken place in the vicinity of Ester Dome since the turn of the century. The first lode gold interest was during the period 1912 to 1916, when several prospect pits and two shafts were sunk. In 1916, Kennecott Copper Corporation acquired the property, sank a 500-foot shaft and carried out significant development activity. Others continued with sporadic activity and, by 1930, reserves were estimated at 1.3 million tons grading 0.158 ounces gold per ton. In 1938, the property was acquired by Bartholomae Oil Corporation which continued with more exploration and development, culminating in the production of 620 ounces gold from 1,430 tons of ore. All operations ceased during World War II. Minor exploration was carried out from 1954 to 1958 and again from 1969 to 1970. During the period 1974 to 1978, Fourbear Enterprises, Inc., constructed a 400 tpd flotation mill, which encountered gold recovery problems, and operations ceased. St. Joe American Corporation then acquired the lease and carried out further surface and underground exploration. In 1985, the property was acquired by Citigold Mining Company, Ltd., which carried out a 10,000 ton test heap leach before 1986, when it was acquired by La Teko. In the following three years, La Teko mined and leached 329,000 tons of ore at an estimated grade of 0.09 ounces gold per ton, to recover 19,220 ounces of gold. Production ceased in 1990. From 1990 to the present, La Teko has carried out substantial exploration on the property, including 220,236 feet of drilling in 752 drill holes. The Company has also continued a program of baseline environmental monitoring and reclamation of previous mining activity. In 1997, La Teko continued the reclamation work on the A-B-C-D heap leach pads, where gold production occurred in the late 1980's, as well as the exploration trenches. Ryan Lode Mines, Inc., a wholly owned subsidiary of the Company and operator of the Ryan Lode project, was awarded the 1997 Reclamation Award from the Alaska Department of Natural Resources for this reclamation work. Also in 1997 Silverado completed 8,855 feet of drilling in 38 drill holes prior to signing the agreement described below. Geology and Mineralization The principal rock unit in the Ryan Lode area is the Cleary Sequence member of the Fairbanks Schist, consisting of varied rock types, including metamorphosed volcanic rocks, along with marble, calcareous quartz-mica schist and carbonaceous units. Granite intrusions in the area are principally concentrated near and within the Curlew deposit, south of the main Ryan Shear. The gold in both the Ryan and Curlew ore bodies occurs in mineralized quartz veins, breccias, and gouge zones within broad shear zones. The gold occurs with sulfide minerals pyrite, arsenopyrite, and locally stibnite. Higher grade gold mineralization typically occurs next to the hanging wall of the shear, with lower grade mineralization below this. The main shear zone, which reaches 150 feet in thickness in places, has been traced by drilling for over a mile and is contained in metasedimentary and metavolcanic rocks of the Cleary Sequence. The Curlew Shear, which may be an offset, southern continuation of the Ryan Shear, ranges up to 180 feet in thickness. Other subparallel shears also occur on the property, and although these are currently poorly defined, they could add to the future gold resource base. Mineralization is typically oxidized to depths of 200 to 300 feet, with an enriched or supergene zone for 50 to 100 feet below this. The oxidized and supergene zones demonstrate good gold recoveries by leaching, while rates of gold recovery by leaching decreases at increasing depths below the enriched zone. Reserves In 1994, an independent professional engineering firm engaged by the Company calculated proven and probable reserves for Ryan and the adjacent Curlew Shear to be 14.5 million tons grading 0.056 ounces gold per ton (1.9 grams gold per tonne), with a 0.015 ounces gold per ton (0.5 grams gold per tonne) cut-off and a stripping ratio of 3.8:1. This is a reserve of 822,200 contained ounces gold within a geological resource of 2.4 million ounces gold. A subsequent "high grade" pit calculation showed a reserve of 4.6 million tons grading 0.09 ounces gold per ton (3.1 grams gold per tonne) with a strip ratio of 7.5:1 and an underground reserve of 1.46 million tons grading 0.215 ounces gold per ton (7.4 grams gold per tonne) . The "high grade" pit includes only oxide and supergene mineralization, and is thus totally amenable to heap leach gold recovery. Metallurgy The ore at Ryan Lode requires crushing and agglomeration prior to leaching. Column leach tests show that gold recoveries in the range of 70% to 80% can be expected. A gravity circuit has been shown to recover 45% to 50% of the gold. Gravity separation of gold in combination with leaching would be expected to provide faster and superior gold recovery to leaching alone. Sale to Silverado Gold Mines Ltd. The Company agreed in 1997 to sell its 100% interest of the Ryan Lode property to Silverado. Subsequent to year end on March 26, 1998 the Company was given notice by Silverado that it elected to terminate the sale agreement. Proposed Program The Company will evaluate the ongoing development of the Ryan Lode property independently. It will also contact other potential parties which may be interested in purchasing or joint venturing the Ryan Lode. The Company will continue the reclamation requirements while the development and sale options are evaluated. TWIN BUTTES AND JUNIPER PROPERTIES In February 1995, the Company located 104 state of Alaska prospecting sites called the Juniper property on approximately 16,131 acres located 30 miles northeast of Fairbanks, Alaska. This property covers rocks of the Chatanika Terrane, the same as those hosting the True North deposit 15 miles to the southwest. In addition, the property lies along the same, northeast-trending structural linear which intersects both the True North and Ryan Lode gold deposits. There is little evidence of historical prospecting in the area, largely because of the thick cover of wind-blown silt and clay which masks the underlying geology and would effectively hide any bedrock mineralization. However, minor placer gold mining activity is evident in a number of streams which drain the area. In April 1996, the Company executed a five-year agreement with the University of Alaska to explore its 12,640-acre Twin Buttes property. Subsequently, the Company paid $30,000 for an exclusive development and mining lease. During 1997 the Company made its first annual option payment of $45,000. The property is located 28 miles northeast of Fairbanks, Alaska, adjoining the south side of the Company's Juniper property. The property is underlain by the same rocks as the Juniper property and has similar potential to host gold mineralization. During 1995, the Company carried out initial exploration efforts on the Juniper property, including geochemical sampling, the results of which suggested that further exploration is warranted. In 1996 the Company expanded its effort to include the Twin Buttes property and did additional geologic mapping and soil sampling. The Juniper prospecting sites were converted into 405 state claims. The gold anomalies detected were weak, possibly because of the extensive overburden cover which could mask the expression of buried mineralization. In 1997, a further program of prospecting, geological mapping and geochemical sampling was conducted over both properties and a part of the claims were flown with a low level, helicopter-borne magnetic and electromagnetic survey. The magnetic survey highlighted patterns of structural deformation and zones of low magnetic intensity on the Twin Buttes lease that are similar to those observed over the True North and Fort Knox gold deposits. The Company acquired an additional 22 prospecting sites totaling 3,360 acres to cover extensions of the identified anomalies beyond the Twin Buttes lease. The Company's plans for the 1998 summer exploration season are not yet finalized. DISCOVERY GULCH PROPERTY On May 24, 1996, the Company, through its wholly-owned subsidiary, Ryan Lode Mines, Inc., entered into a letter agreement with Mrs. Helen Warner for an option on approximately 5,000 acres known as Discovery Gulch (the Discovery, Deadwood and Tom group of claims) in the Circle Mining District near the small town of Central, Alaska. The property is on Deadwood Creek, approximately 125 miles northeast of Fairbanks. The Company paid $15,000 for an exploration lease. La Teko made the annual payment of $10,000 in 1997 and a further $10,000 is required upon the 1998 anniversary date. Subsequent annual payments, beginning with the third anniversary date, will be $35,000. The property is subject to a 2% net smelter return royalty payment. The Company will have a vested interest in the property upon a $300,000 cash payment to be made to Warner at the Company's option within one year after completion of a positive feasibility study. The minimum exploration requirement for 1997 of $30,000 was completed; the 1998 requirement is $35,000. During the fourth exploration season, the minimum exploration requirement increases to $100,000 with an additional $50,000 increase annually thereafter. The Company completed a $25,000 exploration program during 1996. This effort included geological mapping, soil sampling, and trenching. A number of samples returned anomalous gold values that confirm results of previous exploration by others. The anomalies appear to be associated with a granitic intrusion that occurs on the property. Placer gold production from the surrounding creeks is further indication that this is an area with lode gold potential. In 1997, a reconnaissance ridge top soil sampling program was conducted throughout the Discovery Gulch claim blocks to detect anomalous gold areas. Five consecutive samples, spaced 200 feet apart, returned anomalous gold and arsenic values. Subsequently, a 100 foot spaced grid oriented along the north- northwest ridge top was sampled to better define the anomaly. The grid is approximately 1000 feet long by 500 feet wide. The results continue to be encouraging, with 44 of the 78 samples returning better than 100 parts per billion (ppb) gold and elevated arsenic values. Only nine samples had gold values below the detection limit. The anomaly remains open, particularly west and east at lower elevations where the original reconnaissance soil program did not extend. Three small granodiorite outcrops were mapped within the area of the soil grid. The balance of the area is covered by overburden. In addition to the above target, the reconnaissance program returned several other high, but isolated, gold values. For example one soil sample on the Discovery claim block contained 2620 ppb Au, supported by a re-analysis of 3000 ppb Au. In 1998 La Teko expects to do additional soil sampling to further delineate the extent of the gold-in-soil anomaly followed by trenching to test for the source of the gold anomaly. ISSUES AFFECTING MINING OPERATIONS IN ALASKA Climate The climate in the Fairbanks area is variable. The record temperatures are a low of -54 degrees Celsius (-66F) and a high of 37 degrees Celsius (99F). The mean annual temperature is -3 degrees Celsius (26.5F). The average temperature for the months of April through September is 10 degrees Celsius (50.1F), the average temperature for the months of October through March is -16 degrees Celsius (2.75F). The temperature rises above 22 degrees Celsius (70F) approximately 51 days per year and drops below freezing 225 days per year. The rivers in the region begin to freeze in October and thaw in May. Average annual precipitation in Fairbanks is approximately 12 inches, which includes an average snowfall of 69.3 inches. Mining operations can be conducted in the region throughout most of the year, although exploration is restricted during the winter. GOVERNMENT REGULATIONS AND ENVIRONMENTAL CONSIDERATIONS There are extensive federal and state laws designed to conserve and prevent the degradation of the environment. These laws and regulations require obtaining various permits before undertaking certain exploration and development activities and may result in significant delays, substantial costs, and the alteration of proposed operating plans. These requirements also necessitate significant capital outlays and may result in liability to the owner of the property for damages that may result from specific operations, all of which may materially and adversely affect the business of the Company and the financial results of its operations. The Company believes that it is in material compliance with applicable environmental regulations. Ryan Lode The Ryan Lode property is located eight miles west of Fairbanks, Alaska, and 0.5 miles from rural homes. The Company initiated baseline environmental monitoring for the project in 1993, including air quality, surface water quality, ground water quality, geohydrology, biological inventory, and acid base accounting. These activities will support environmental permitting activities which will commence with the development of an operating plan. The Company expects that obtaining required permits for proposed activities on the Ryan Lode property may be adversely affected because of its location eight miles from the city of Fairbanks and approximately one-half mile from rural homes, which exposes the Company's proposed activities to greater public interest and scrutiny and increases the potential adverse impacts on humans resulting from the use, storage, or discharge of hazardous materials. If production is to occur directly on the property the Company expects that it may be required to complete an environmental impact statement and be involved in a protracted process with applicable permitting agencies and the public in obtaining required permits. There can be no assurances respecting the time involved to obtain required permits, restrictions on operations that may be imposed as a condition to obtaining such permits, or when production could commence. Further, there can be no assurance that the Company will not have to alter its plans in response to government review or public comment, which could adversely affect the financial return to the Company from its proposed activities. La Teko will be required to demonstrate substantial financial responsibility through bonding, deposits, or other means acceptable to governing agencies before resuming operations at Ryan Lode. True North The True North property is located in a relatively uninhabited area and therefore presents lesser concerns about factors such as light, noise, dust, and visibility considerations in receiving permits. The Cyprus/Amax Gold, Inc., Fort Knox property, located in close proximity to True North has been issued permits to commence production without the necessity of providing a full environmental impact statement. Production facilities have been completed and the project poured its first gold in December 1996. Newmont, as the operator of the True North project, will have the responsibility of permitting the True North project. There can be no assurance that Newmont will continue with development of the True North project or that it will be able to obtain permits without substantial delays and/or extensive expense. Other Regulation The mining and exploration operations of La Teko are also subject to both federal and state laws and regulations pertaining to employee health and safety. STATE OF ALASKA MINING LICENSE TAX, PRODUCTION ROYALTY, AND CLAIM RENTAL The State of Alaska levies a mining license tax based on net income reported to the federal government and royalties from Alaska mining property at the following rates: there is no tax on taxable income under $40,000; however, if taxable income exceeds $40,000 and is less than $50,000, the tax is 3% of the total taxable income; $50,001 to $100,000 - $1,500 plus 5% of excess over $50,000; $100,001 or over - $4,000 plus 7% of excess over $100,000. The State of Alaska also charges a production royalty of 3% of net income on state mining claims. An annual rental fee must be paid to the State of Alaska for each state claim or fraction thereof. The rent is $20 per claim for the first five years held; $40 per claim for the second five year held; and $100 per year per claim thereafter. Claims staked before 1989 are considered to be staked in 1989 for the purpose of this law. SCHEELITE DOME PROPERTY The Company has entered into an agreement dated 24 November, 1997 and amended 2 February, 1998 with Kennecott Canada Exploration Inc.(" Kennecott") to acquire 100% of the Scheelite Dome gold property in the Mayo mining district, Yukon Territory, Canada. The Company must make Canadian $135,000 ("C") in payments to the underlying property owner and carry out C$800,000 worth of exploration expenditures as follows: a) Pay C$70,000 and conduct C$150,000 of exploration in 1998; b) Pay C$65,000 and conduct C$200,000 of exploration in 1999; c) Conduct C$200,000 of exploration in 2000; and d) Conduct C$250,000 of exploration in 2001. Should the Company exercise its option and deliver a feasibility study to Kennecott, Kennecott shall have 60 days in which to elect to reacquire a 49% interest in the project by paying 150% of 49% of the expenditures incurred by the Company, or receive a 2% net smelter return royalty on production from the property. The project consists of 587 contiguous claims, totalling 28,700 acres. It is road accessible and located 16 miles northwest of Mayo, Yukon Territory. Precious metals were first discovered on the property in 1916 and exploration for both gold and tungsten continued intermittently through to 1990. In 1991, H6000 Holdings Ltd. acquired the property and explored the property for Fort Knox (Alaska) type deposits with disappointing results. Kennecott acquired the ground in 1994 as part of a regional exploration program and carried out geological mapping, geochemistry surveys, excavator trenching and, in 1995, drilled eight diamond drill holes. Results of the work identified numerous structurally controlled mineralized zones adjacent to the area explored by H6000 within an east-west oriented 0.9 miles by 2.2 miles (1.4 kilometers by 3.5 kilometers) area defined by >40 parts per billion (ppb) gold-in-soil anomaly. Work by Kennecott in 1997 included the construction of 5.6 miles (9 kilometers) of drill access road, 8 excavator trenches totaling 1.0 linear miles (1.6 kilometers) and the drilling of 13 reverse circulation drill holes totaling 3,451 feet (1,052 meters) within the 40 ppb gold-in-soil anomaly contour. Results returned significant gold values. Continuous chip samples from one trench returned and uncut average grade of 330 ppb gold over 0.5 miles (0.33 grams gold per tonne over 0.74 kilometer). A second trench returned an uncut average grade of 290 ppb gold over 0.2 miles (0.29 grams gold per tonne over 0.376 kilometers). The highest individual trench assay was 0.60 ounces gold per ton over 14.8 feet (20.60 grams gold per tonne over 4.5 meters). All the drill holes were mineralized, and individual holes ranged from 20 ppb gold over 82 feet ( 0.02 grams gold per tonne over 25 meters) to 480 ppb gold over 95 feet (0.48 grams gold per tonne over 29 meters) and 240 ppb gold over 353 feet (0.24 grams gold per tonne over 107 meters). The highest value encountered was 4,880 ppb gold over 5 feet (4.88 grams gold per tonne over 1.5 meters). Work to date has located a number of structurally controlled targets within the gold-in-soil geochemistry anomalies on the property that require trenching and drilling to determine if economic concentrations of gold exist. In 1998 the Company plans to carry out structural mapping and geophysical surveys to further define structural controls of the gold mineralization where the gold may have been localized into higher grade areas in the mineralizing system. Subject to the program results and the Company's resources, a drill program will be focused on testing various targets within the mineralized system. MARGARITA PROPERTY The Margarita property consists of 36 unpatented federal lode mining claims totaling approximately 700 acres. The property is located approximately 75 miles south of Tucson, Arizona, in the Oro Blanco Mining District, approximately three miles from the Mexican border. The property can be reached by traveling 20 miles east from Arivaca on a graded county road The Company's purchase agreement calls for a 3% net smelter return royalty. In addition, prior lessees will receive a 10% net profit interest on the first 20,000 ounces of Gold production and 15% thereafter. During January 1997, the Company executed a letter agreement with Oro Blanco Resources Corp. ("Oro Blanco") whereby Oro Blanco has an exclusive, three-year option to explore the Margarita property. During this period, Oro Blanco must complete $500,000 in exploration and issue 125,000 shares of common stock to La Teko, according to the following schedule. Common Stock to Exploration La Teko Expenditures --------------- ------------ Year 1 25,000 shares $100,000 Year 2 50,000 shares Year 3 50,000 shares At the end of the option period, Oro Blanco can acquire a 100% interest in the Margarita property by paying the Company $100,000 in cash. The Company retains a 1% net smelter return production royalty. Minimum annual royalties are payable $50,000 on the fourth anniversary date, $75,000 on the fifth anniversary date, and $100,000 on the sixth and subsequent anniversaries. Advance minimum royalties will be applied against net smelter royalties during the life of the mine. The final agreement has not been concluded and there are no assurances that Oro Blanco will complete the agreement nor complete the terms of the agreement. INTERNATIONAL FREEGOLD MINERAL DEVELOPMENT, INC. AND SILVERADO GOLD MINES LTD. INTERESTS On July 19, 1994, La Teko entered into an agreement with International Freegold Mineral Development, Inc. ("Freegold"), respecting the acquisition of its stock. Pursuant to the agreement, La Teko acquired 750,000 shares of Freegold common stock for $231,069 in July 1994 and a further 750,000 shares for $269,844 in July 1996, for a total of 1.5 million shares for $500,913. La Teko continues to own 1.5 million shares of Freegold constituting approximately 8% of the issued and outstanding stock of Freegold, which had a current market value as of December 31,1997, of $325,000, based on the closing sales price for such stock as of such date on the Vancouver Stock Exchange, converted to U.S. dollars. Because of the nature of the limited trading market for Freegold stock, there can be no assurance that the Company would be able to liquidate its position readily or without a loss if it should desire to do so. Under the terms of the agreement to sell the Ryan Lode property La Teko received 1 million shares of Silverado constituting approximately 1% of the issued and outstanding stock of Silverado, which had a current market value as of December 31, 1997 of $250,000 based on the closing sales price on Nasdaq. There can be no assurance that the Company would be able to liquidate its position readily or without a loss if it should desire to do so. LIMITED TITLE TO UNPATENTED MINING CLAIMS The Ryan Lode and the Margarita claim groups include Federal unpatented mining claims. The Ryan Lode and True North groups include Alaska unpatented mining claims. Such claims are subject to inherent uncertainties. Unpatented mining claims, when properly located, staked, and posted according to regulation, give the claimant possessory rights only. Possessory title to an unpatented mining claim, when validly initiated, endures unless lost through abandonment due to failure to perform and file proof of annual assessment work or through a forfeiture which results from an adverse location made while the prior location is in default with respect to the performance of annual assessment work. Because many of these factors involve findings of fact, title validity cannot be determined solely from an examination of the public record. The continuing validity of these claims is subject to many contingencies, including the availability of land for location at the time the location was made, compliance with federal and state regulations for locating claims, the performance of annual assessment work, the payment of annual rental fees and the making of required annual filings with the Bureau of Land Management and the appropriate state authority in which the claims are located. Failure to pay required annual rentals constitutes a statutory abandonment of the mining claim or site. Similar conditions apply to the mining claims which constitute the Scheelite Dome property in the Yukon Territory, Canada. The Company believes that it has valid possessory title to all of the unpatented federal and state mining claims described herein. ITEM 3. LEGAL PROCEEDINGS There are no material legal proceedings pending against the Company. No legal proceedings have been threatened or, to the best of the Company's knowledge, are contemplated, by any governmental authorities. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS During the last quarter of 1997 no matters were submitted to the stockholders for approval. PART II ITEM 5.MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS The Company's common stock trades on The Nasdaq Stock Market under the symbol "LAORF" and the Vancouver Stock Exchange ("VSE") under the symbol "LAO" . The high and low closing sales prices for the Company's common stock as quoted on The Nasdaq Stock Market for the quarterly periods indicated are as follows: THE NASDAQ STOCK MARKET SALES PRICES Canadian Dollar* U.S. Dollar Low High Low High 1996 ------ ------ ------ ------ 1st quarter $ 2.66 $ 4.71 $ 1.94 $ 3.44 2nd quarter 3.31 4.55 2.41 3.31 3rd quarter 2.91 4.13 2.16 3.06 4th quarter 2.54 3.46 1.88 2.56 1997 1st quarter $ 2.08 $ 2.96 $ 1.53 $ 2.18 2nd quarter 1.43 2.34 1.03 1.69 3rd quarter 1.30 1.73 0.94 1.25 4th quarter 0.66 1.59 0.47 1.13 * Quotations converted to Canadian dollars at the approximate exchange rates prevailing during the individual quarter. The high and low closing sales prices for the quarterly periods indicated on the VSE are as follows: VANCOUVER STOCK EXCHANGE SALES PRICES Canadian Dollar* U.S. Dollar Low High Low High 1996 ------ ------ ------ ------ 1st quarter $ 2.61 $ 5.00 $ 1.91 $ 3.65 2nd quarter 3.00 4.50 2.20 3.30 3rd quarter 2.75 3.95 2.04 2.93 4th quarter 2.45 3.45 1.81 2.52 1997 1st quarter $ 2.17 $ 2.72 $1.60 $ 2.00 2nd quarter 1.68 1.97 1.21 1.42 3rd quarter 1.20 1.60 0.87 1.16 4th quarter 0.75 1.60 0.53 1.13 * Quotations converted to US dollars at the approximate exchange rates prevailing during the individual quarter. As of March 18, 1998 there were 463 United States stockholders of record holding 22,078,367 common shares or approximately 94% of the shares issued and outstanding, and 122 Canadian stockholders of record holding 1,254,423 shares, or approximately 5% of the shares outstanding. DIVIDEND POLICY The Company has never paid cash dividends on the Common Stock and does not anticipate that it will pay dividends in the foreseeable future. The Company currently intends to continue a policy of using retained earnings primarily for the expansion of its business. EXCHANGE CONTROLS AND OTHER LIMITATIONS AFFECTING SECURITY HOLDERS There are no governmental laws, decrees or regulations in Canada relating to restrictions on the import of capital affecting the remittance of interest, dividends or other payments to non-resident holders of the Company's shares. Any such remittances to United States residents, however, are subject to a 15% withholding tax pursuant to Article X of the reciprocal tax treaty between Canada and the United States. Except as provided in the Investment Canada Act (the "Act"), there are no limitations under the laws of Canada, the Province of British Columbia or in the charter or any other constituent documents of the Company on the right of foreigners to hold and/or vote the shares of the Company. The Act requires a non-Canadian making an investment to acquire control of a Canadian business, the gross assets of which exceed certain defined threshold levels, to file an application for review with Investment Canada, the federal agency created by the Act. As a result of the Canada-US Free Trade Agreement, the Act was amended in January, 1989 to provide distinct threshold levels for Americans who acquire control of a Canadian business. The threshold levels for Americans were gradually raised until 1992. A Canadian business is defined in the Act as a business carried on in Canada that has a place of business in Canada, an individual or individuals in Canada who are employed or self-employed in connection with the business and assets in Canada used in carrying on the business. An American, as defined in the Act, includes: an individual who is an American national or a lawful permanent resident of the US; a government or government agency of the US; an American-controlled entity, corporation or limited partnership; and a corporation, limited partnership or trust of which two-thirds of its board of directors, general partners or trustees, as the case may be, are non-Canadians or Americans. Review by Investment Canada is required when investments by Americans for direct acquisition of control exceeds $150 million. For purposes of the Act, "direct acquisition" of control means a purchase of the voting interests of a corporation, partnership, joint venture or trust carrying on a Canadian Business, or any purchase of all or substantially all of the assets used in carrying on a Canadian business. A non-Canadian is prohibited from implementing an investment reviewable under the Act unless the investment has been reviewed and the Minister responsible for Investment Canada is satisfied or is deemed to be satisfied that the investment is likely to be of net benefit to Canada. If the Minister is not satisfied that the investment is likely to be a net benefit to Canada, the non- Canadian shall not implement the investment or if the investment has been implemented, shall divest himself of control of the business that is the subject of the investment. A non-Canadian or American making an investment to establish a new Canadian business or an investment to acquire control of a Canadian business which investment is not subject to review under the Act, must notify Investment Canada within prescribed time limits of such investments. TAXATION Generally, dividends paid by Canadian corporations to non-residents shareholders are subject to a withholding tax of 25% of the gross amount of such dividends. However, Article X of the reciprocal tax treaty between Canada and the United States reduces to 15% the withholding tax on the gross amount of dividends paid to residents of the United States. A further 5% reduction in the withholding tax rate on the gross amount of dividends is applicable when a US corporations owns at least 10% of the voting stock of the Canadian corporation paying the dividends. Prior to the redemption of its convertible debentures, the Company withheld income taxes at applicable rates and forwarded said amounts to Revenue Canada in accordance with regulations applicable to non-resident security holders receiving interest/dividends from a Canadian corporation. DISPOSITION OF SHARES BY NON-RESIDENTS OF CANADA A non-resident who holds shares of the Company as capital property will not be subject to tax on capital gains realized on the disposition of such shares unless such shares are "taxable Canadian property" within the meaning of the Income Tax Act (Canada) and no relief is afforded under any applicable tax treaty. The shares of the Company would be taxable Canadian property of a non- resident if at any time during the five-year period immediately preceding a disposition by the non-resident of such shares not less than 25% of the issued shares of any class of the Company belonged to the non-resident, to persons with whom the non-resident did not deal at arm's length or to the non-resident and any person with whom the non-resident did not deal at arm's length. RECENT SALES OF UNREGISTERED SECURITIES During 1997, the year covered by this report, the Company did not sell any securities that were not registered under the Securities Act. ITEM 6.SELECTED FINANCIAL DATA The following selected financial data should be read in conjunction with the accompanying consolidated financial statements of the Company and the notes thereto. YEARS ENDED DECEMBER 31, 1997 1996 1995 1994 1993 ------ ------ ------ ------ ------ (In thousands, except per share amounts) Statements of Operations Data: Operating revenue before $ --- $ --- $ --- $ --- $ --- expenses Income (loss) from operations (1,461) (1,493) (1,200) (1,228) (1,389) Net Income (loss) (1,462) 956 (365) (1,370) (1,559) Income (Loss) per common share (0.06) 0.04 (0.02) (0.06) (0.08) BALANCE SHEET DATA: Total Assets $12,661 $14,491 $13,871 $13,124 $12,111 Long term debt --- --- 360 1,073 1,068 Cash dividends per common --- --- --- --- --- share Accumulated deficit $ (5,756)$ (4,294)$ (5,249)$ (4,884)$ (3,515) ITEM 7.MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS GENERAL Commencing in 1990, the Company discontinued mining operations at the Ryan Lode and embarked upon an extensive exploration program to further delineate the extent of mineral reserves on the Ryan Lode property and other mineral properties, particularly the True North property. The Company has had no income from sales of mineral product since 1990 and will continue to sustain exploration, general and administrative and mine property expenses through 1998 without income from operations. The Company has provided for recent years' operations primarily from the receipt of funds from Newmont pursuant to the True North JV Agreement and the cash proceeds from issuance of common stock. It is anticipated that cash currently on hand combined with marketable securities are sufficient to cover committed 1998 expenditures. The Company is considering a sale of securities to increase the working capital of the Company. Any such sale is subject to La Teko and a financing party agreeing to price, terms and conditions of a sale of La Teko common shares. CURRENCY EXCHANGE RATES All dollar amounts included in the Company's financial statements and related discussion are in US dollars, except where noted otherwise as Canadian dollars ("C"). In accordance with SFAS No. 52, Foreign Currency Translation, any prior period adjustments resulting from transaction of Canadian dollars into US dollars have been accumulated and reported as a separate component of shareholders' equity. Prior to 1990, purchases of balance sheet items were translated at year-end exchange rates except as pertaining to certain asset acquisitions wherein exchange rates on specific dates of acquisition were used. Subsequently, all financial transactions have been reported in US dollars and Canadian transactions translated at exchange rates prevailing on specific transaction dates. Any effects of conversion of Canadian dollars to US dollars related to either current or prior period financial statements are insignificant. The following table sets forth the exchange rates utilized for converting one Canadian dollar to one US dollar for the past five years. EXCHANGE RATE - ------------------------------------------------ Year Average High Low Year-end - ---- ------- ------ ------ -------- 1993 0.7754 0.8052 0.7442 0.7567 1994 0.7325 0.7631 0.7105 0.7135 1995 0.7282 0.7514 0.7035 0.7334 1996 0.7365 0.7515 0.7234 0.7297 1997 0.7223 0.6944 0.7493 0.6990 RESULTS OF OPERATIONS Income As noted above, the Company has not received operating revenues during any of the last three years. Expenses During 1997, the Company expended approximately $551,143 for capitalized costs associated with the exploration and development of its mineral properties as further discussed in the statement of cash flows and Note 2 of the accompanying Notes to Consolidated Financial Statements. Operating and mine maintenance expenses increased 40.7% to $388,000 for 1997 as compared to $276,000 in 1996, and increased 82.3% in 1996 from $151,000 in 1995. The increases between 1997, 1996 and 1995 were due principally to changes in salaries, wages and employee benefits and contract services, primarily related to the increased level of environmental compliance and reclamation efforts associated with the Ryan Lode mine and its spent heap-leach pads. The Company has made a concentrated effort to restore the main areas of disturbance related to the earlier mining operations. In 1997 there were also costs for an environmental assessment of the property done in conjunction with the proposed sale of the property to Silverado. New prospect evaluation expenses decreased 74.1% to $14,000 for 1997 as compared to $56,000 in 1996, and $37,000 in 1995 for this effort. The decrease in the current period reflects both a shift in focus to test the Company's portfolio of projects acquired since 1995 and a more focused effort in seeking new exploration prospects. The Company's strategy is to focus on gold projects with targets suitable for drilling in Alaska and the Yukon. The Company investigates other opportunities only on a selective basis. General and administrative expenses, including corporate and project overhead, decreased 9.7% to $864,000 for 1997 as compared to $956,000 in 1996, and increased in 1996 41.8% from $675,000 in 1995. There were a number of substantial changes in the Company's organization which impacted the general and administrative expenses in 1997 compared to 1996. The Company moved its head office to Vancouver, British Columbia, and consequently, the Salt Lake City, Utah office was shut down. The Fairbanks, Alaska office was also closed at the end of 1997 as a result of the sale of the Ryan Lode property to Silverado. Overall the decrease was largely due to the compensatory stock options calculation. Some other categories increased due to costs incurred during the transition period of the organizational changes and to support increased exploration activities; costs in these categories are expected to decline hereafter as further major organizational changes are not currently planned and exploration activities are anticipated to decline in 1998. Specifically, significant items as a result of the above factors follow. The Company recognizes compensatory expense on the issuance of director and employee stock options in accordance with APB Opinion No. 25 "Accounting for Stock Issued to Employees". Compensatory stock option expense for officers, directors and employees during 1997 were $(43,000) compared to $188,000 in 1996. Salaries and employee benefits increased to $357,000 in 1997 from $307,000 in 1996. Employee termination payments due to the office closures were $47,000 in 1997. Office and general costs increased to $89,000 from $29,000 due to having three offices for a period of time, as well as including various costs in this category rather than two other categories which both declined: Other, which declined from $53,000 to $36,000 and the Shareholder Expense category, which declined to $8,000 from $32,000. Rent costs increased to $60,000 in 1997 from $28,000 in 1996; again due to having three offices for a period of time as well as having an office dedicated to the Company's business. Legal fees decreased to $58,000 in 1997 from $79,000 in 1996. Consulting fees decreased to $53,000 in 1997 from $105,922 in 1996. A major portion of the 1997 consulting fees were associated with the Toronto Stock Exchange listing application, while the 1996 cost included fees for a valuation of the Company and its gold resources to guide directors in long range strategic planning for the Company. Accounting costs increased, largely as a result of the organization changes while the move discussed above occurred, to $42,000 from $22,000. Depreciation was approximately equal for each of the last three years as the Company had no significant changes in depreciable property. Royalty and lease expenses were $150,000 in each of 1997 and 1996, and decreased 47.7% in 1996 from $287,000 in 1995. Royalty expense for the past two years have consisted only of the annual minimum royalty payment on the Ryan Lode mine inasmuch as minimum royalties associated with the True North properties were assumed by Newmont under the JV Agreement. Until June 1995, the Company paid minimum royalties on its Ryan Lode and True North properties. True North minimum royalties payable after entering into the joint venture with Newmont in June 1995, have been paid by Newmont. Other Income The Company had interest income of $64,000 in 1997 versus the small amount of $8,000 in 1996 and the interest expense of $63,000 in 1995. This change is due to a combination of the elimination of long-term debt, which was completely paid off in 1997, and the increase in cash and short-term money market instruments held by the Company. As the Company has received all cash payments from Newmont under the True North JV Agreement and did not conclude any other property transactions for cash, there was no gain on sale of mineral property in 1997. In 1996, the Company received $2,447,000, an increase of 76.9% from 1995 when $1,383,000 was received. The gains reflect the receipt of $6.0 million from Newmont for the disposition of an interest in its True North property, for which the total gain is $3,830,684. The Company abandoned $41,000 of mineral property in 1997, an increase from 1996 when there was no abandonment of mineral property, while it reported $454,000 in 1995. The 1997 abandonment relates to the Lucky Gulch property in the Denali Mining District and the 1995 abandonment relates to a claim group adjacent to the Company's Ryan Lode property. The Company recorded a loss on the sale of equipment of $24,000 in 1997 versus a small gain of $8,000 in 1996 and a small loss of $8,000 in 1995. The 1997 loss relates to realizing less than the depreciated value of equipment disposed as a result of closing the Fairbanks office and selling the Ryan Lode property to Silverado (See further details in Part I, Item 2, Properties - Ryan Lode). As a result of net operating losses carried forward for income tax reporting purposes, except as pertaining to nominal alternative minimum taxes, the Company will pay no corporate income tax on income reported form the proceeds received from Newmont. Net Income (Loss) Net income decreased to a loss of $1,462,000 or $0.06 per issued and outstanding share for 1997, as compared to positive income of $955,000, or $0.04 per issued and outstanding share for 1996, and a loss of $365,000 in 1995. The net income in 1995 and 1996 was positively impacted by the receipt of $2.5 million in 1996 and $3.5 million in 1995 from Newmont for the True North property acquisition. Fully diluted earnings per share were not materially lower than primary earnings per share during 1997. LIQUIDITY AND CAPITAL RESOURCES During 1997 and 1996, the Company relied principally on net cash provided from investing activities, namely the sale of a 65% interest in its True North property to Newmont under the JV Agreement to fund its cash requirements for general and administrative costs, ongoing exploration and development projects, and redemption of outstanding debentures. During 1995, cash provided by payments from Newmont was supplemented by cash from the sale of securities to fund operations. The Company will receive no further cash payments from Newmont under the JV Agreement. With no revenue generating operations, operating activities used net cash of $1,536,000 during 1997, a 26.4% increase over $1,215,000 used in 1996, which was a 5.3% increase from net cash of $1,155,000 used in 1995. In 1997, the $1,462,000 loss included a non-cash expense of $45,000 in depreciation and a non-cash change of $(43,000) in compensatory stock options. During 1996, the Company's $956,000 net profit was impacted by $2,500,000 cash received from Newmont resulting in a $2,447,000 gain on sale of the True North interest discussed as an investment activity below and non-cash expenses of $188,000 for compensatory stock options and $55,000 for depreciation. In 1995, the Company's $365,000 net loss was impacted by Newmont's payment of $3,500,000 resulting in a $1,383,000 gain relating to the True North transaction and non-cash expenses of $454,000 abandonment loss related to the Mohawk claims near the Ryan Lode, $64,000 in compensatory stock options and $51,000 in depreciation. Investing activities consumed net cash of $677,000 in 1997, a 138.3% decrease compared to providing net cash of $1,762,000 in 1996, a 39.4% decrease as compared to the $2,906,000 provided from such activities in 1995. In 1996 and 1995, the largest component of this item was the receipt of $2,5000,000 and $3,500,000 in 1996 and 1995, respectively, from Newmont, related to the sale by the Company of an undivided 65% interest in the True North property. The Company will receive no further cash payments from Newmont under the JV Agreement. The Company invested $761,000 in mineral properties and exploration costs during 1997. These costs were associated with the Company's 35% share of acquisitions to the True North JV, for which no costs were incurred in 1996, as well as larger programs to continue exploration, development and acquisition costs for the Ryan Lode and other early stage exploration prospects. The Company invested $413,000 in mineral properties and exploration costs during 1996 associated with the Ryan Lode, as well as other early stage exploration prospects acquired during the year. During 1995, the Company invested $595,000 in mineral properties and exploration costs, principally associated with the True North property before such costs were assumed by Newmont in June 1995 under the JV Agreement. (See Note 2 to Consolidated Financial Statements). Financing activities used net cash of $365,000 in 1997, as $373,000 of outstanding debentures were redeemed. In 1996, financing activities used net cash of $478,000 as $700,000 used to redeem outstanding debentures exceeded the $222,000 in proceeds received from the issuance of common stock on exercise of options. During 1995, financing activities provided net cash of $946,000 principally from the sale of common stock and proceeds from debt financing were approximately equal to principal reductions. On December 31, 1997, the Company had working capital of $633,000 which the Company believes, combined with its investments of $751,000 is sufficient to meet the Company's committed expenditures for 1998 as discussed below. The Company will receive no further cash payments from Newmont under the True North JV Agreement, and has no operating revenue. Therefore, the Company will be dependent on its existing capital resources to meet budgeted expenditures. During 1998 and beyond, the Company will require additional capital to provide a portion of the capital that may be required for large scale production at the True North property, or before initiating production on the Ryan Lode property if the Company elects to bring it into production without another party, or to undertake significant other exploration activities. In order to meet such long-term needs, it will be necessary to obtain required capital from the sale of securities, possible new joint venture or similar arrangements, project financing or other sources. There can be no assurance that any required additional funds will be available or can be obtained on terms favorable to the Company. The Company has outstanding options exercisable during 1998 to purchase an aggregate of 1,369,000 shares of common stock at an average exercise price of $1.84 per share, for a total of $2,513,965, but cannot predict whether any material number of such options will be exercised. The Company has outstanding options, all of which will become exercisable prior to 2000, to purchase an aggregate of 1,644,000 shares of common stock at an average exercise price of $1.81 per share, for a total of $2,967,420, but cannot predict whether any material number of such options will be exercised. PROJECTED 1998 REQUIREMENTS During 1998, the Company's plans are subject to consideration being given to a sale of securities to increase the working capital of the Company. It is not known at this time if a sale will be completed. In addition the Company was notified on March 26, 1998 that Silverado will not proceed with the purchase of the Ryan Lode property. During the period when payments due the company from Silverado for the Ryan Lode property were overdue (after January 27, 1998) and while consideration is being given to a sale of securities the Company budgeted approximately $700,000 to continue with the True North project under joint venture with Newmont, fund the continuation of basic activities at the Ryan Lode mine and other prospects and meet other ongoing operating expenses. The Company will revise the interim budget subject to the outcome of the sale of securities and evaluating the courses of action for the Ryan Lode property. True North The Company anticipates that Newmont will continue to expand the True North property through additional staking or leases or options with third parties, which will require the Company to reimburse Newmont the Company's 35% proportionate share of the initial acquisition costs. In addition, the Company will continue to monitor Newmont's exploration activities to assist the Company in evaluating its long-range participation on the project; including the feasibility of placing the property into production, possible costs, and sources or project funding should the nature and extent of the project exceed Newmont's obligation to provide the first $21,000,000 in funding as discussed above and in future years require the Company to bear its share of additional costs. (See "Item 2. Properties"). The Company has budgeted approximately $85,000 during 1997 for the foregoing. Newmont has advised that it intends to continue with the True North Joint Venture and that it is planning substantial metallurgical and engineering work as well as additional exploration and development work during 1998. However, decisions by Newmont respecting its True North activities are beyond the ability of the Company to predict or control. Newmont's decisions may be affected by the results of its exploration and development work to date or to other external factors impacting Newmont, that are only remotely related to the True North property or its potential. Accordingly, the Company has no guarantee that Newmont will continue. In the event of termination by Newmont, the Company will reacquire, at no cost, Newmont's 65% interest in the True North project, including subsequently acquired acreage, together with all exploration data, and the Company will then become obligated for the continuing carrying costs and expenses of the True North project. Newmont and La Teko may also each choose to sell its interest in the JV Agreement, and the other participant has a preemptive right for 60 days from the date of receiving a notice stating the price and terms to elect to acquire the offered interest. If the preemptive right is not exercised the offering participant has 120 days to consummate the transfer to a third party at a price and terms no less favorable than in the notice. As discussed in "Item 2. Description of Properties", Newmont advised La Teko of its intent to delay the completion of a feasibility study pending continued exploration and development drilling, designed to delineate the full potential of the True North project. As of December 31, 1996, development drilling, outside of the confines of the Hindenburg/Shepard current reserve area will be at Newmont's sole expense and not considered as credits towards its $18 million obligation required to place the True North property into production. Newmont represents that it has expended funds in excess of its required $3 million commitment for 1995 and 1996. Such excess expenditures will apply towards the remaining $18 million development commitment. La Teko does not have an obligation to contribute towards the True North project until such time as Newmont has expended $27 million for acquisition and development costs and completed a feasibility study which recommends placing the True North property into production. If the True North project were to substantially increase in size so as to require capital investment in excess of the $18 million budgeted by Newmont for the installation of production facilities, La Teko could be called upon to fund its 35% share and/or sustain a dilution in the project in the event it were unable to contribute the required capital. If Newmont determines that the results of the feasibility study do not warrant development of the True North property, then Newmont will be deemed to have elected to terminate the joint venture and will re-convey the 65% interest in the True North property, which as deeded to Newmont at the inception of the joint venture with no required reimbursement of monies paid to La Teko or expended on the property.If the preemptive right is not exercised the offering participant has 120 days to consummate the transfer to a third party at a price and terms no less favorable than in the notice. If Newmont determines, in its sole discretion, that the results of the feasibility study warrant development of the True North property, then the joint venture will proceed with development and the initiation of production pursuant to the terms of the joint venture agreement. In the event the Company regains control of the True North property as a result of Newmont's election not to continue or a sale of its interest in the JV Agreement, the Company would pursue other alternatives for further exploration and development of the project and, if warranted, placing it into production by obtaining the necessary funds to do so, through the sale of securities, other arrangements with third parties, project financing or other alternatives that may then be available. In the event such circumstances arise, there can be no assurance that La Teko will obtain a satisfactory joint venture partner or be in a position to acquire the funds necessary for continued development of the property of the acquisition of production facilities. Ryan Lode The Company was notified on March 26, 1998 that Silverado will not proceed with the purchase of the Ryan Lode property. The Company will consider whether to develop the Ryan Lode property as a gold mine, to joint venture or sell the project to another mining company, or to complete the reclamation program on the property without further production. The amount required for 1998 is subject to which alternative occurs. Should a development option be chosen, the Company will immediately commence the permitting application process and begin detailed drilling and engineering studies leading to a feasibility study. However, the Company has not competed any arrangement with an industry or financial partner to place the Ryan Lode project into production, and there can be no assurance that a suitable partner will be available to assist with the development of the Ryan Lode property. La Teko does not now have the necessary capital to place the Ryan Lode into production. The Company will rely principally on the sales of securities and debt financing or the procurement of an industry or financial joint venture partner to meet its future Ryan Lode capital requirements. There is no assurance that funds for these purposes will be available or that a suitable partner will be found. Future sale of additional securities could result in dilution of the financial interest of existing shareholders. Prospect Exploration and Evaluation During 1998, the Company estimates that it will spend approximately $55,000 in preliminary exploration preparations and property payments related to its Juniper, Twin Buttes, Discovery Gulch and Scheelite Dome prospects. Further amounts will be budgeted when the events described above are concluded. The Company also will continue its efforts to expand its mineral property base during 1998. The amounts spent on any single existing or potential prospect will vary, depending on the results of initial work, estimated potential and other factors. Other Operating Expenses The Company has budgeted approximately $525,000 for ongoing corporate and project general and administrative expenses. COMMITMENTS AND CONTINGENCIES Operations are subject to certain lease and royalty obligations as described in "Item 2. Description of Properties" and in Note 2 of the Notes to Consolidated Financial Statements. The Company carries insurance against property damage including insurance on its machinery and equipment and motor vehicles and also comprehensive general liability and liability policies applicable to motor vehicles. The Company has elected not to insure against business interruption. The Company cannot insure for environmental pollution and has elected not to insure for mine cave-ins's, mine flooding, earthquake and other possible natural hazards consistent with industry practice. La Teko may in the future be exposed to contingencies relating to the foregoing or liabilities that may arise under the governmental regulations relating to the environment as discussed in "Item 2. Description of Properties: Government Regulation and Environmental Considerations". The Company is not aware of any existing material contingencies respecting compliance of its previous activities with environmental requirements. The Company has implemented procedures to minimize the possibility of chemical spills, especially in its drilling and heap-leaching operations. CHANGING PRICES, CURRENCY EXCHANGE RATES, AND INFLATION The value of the Company's properties and its proposed operations have been and will continue to be affected generally by changes in gold prices. The Company's ability to obtain exploration capital through joint ventures or other arrangements with other mining firms and attract additional capital, if required, through the sale of securities or borrowings on attractive terms are also affected by gold prices. Such prices are subject to substantial fluctuations that are beyond the ability of the Company to control or predict. Currently gold prices are at low levels which were last experienced in 1985. The level of gold exploration activity has been negatively impacted in 1998 by these low prices and the equity prices of gold mining and exploration companies are also at low levels which reflect the gold prices. Should the gold price continue at the current low levels or decline further the Company's ability to obtain exploration capital through joint ventures or other arrangements with other mining firms and attract additional capital, if required, through the sale of securities or borrowings on attractive terms and, with respect to the True North project, the programs, expenditures or actions of Newmont, would likely be negatively impacted. Although certain of the Company's costs and expenses are affected by the level of inflation, inflation has not had a significant effect on the Company's operations. Similarly, the Company's operations, all of which except for its executive offices and newly acquired Scheelite Dome project are located in the United States, are not materially affected by fluctuations in the exchange rate between Canadian and US dollars. YEAR 2000 The Company uses computers principally for processing and analyzing geophysical and geological data, map making and administrative functions such as word processing, accounting, and management and financial reporting. The Company's principal computer systems have been purchased since December 31, 1996. The Company has discussed with its computer consultants Year 2000 computer problems which may occur internally. Due to the relatively small size of the Company, it is believed sufficient to conduct an evaluation in late 1998 or early 1999 to identify specific problems the Company may be exposed to with its computer hardware and software in use at that time. While the Company believes it is taking all appropriate steps to assure year 2000 compliance, it is dependent substantially on vendor compliance. The Company intends to modify or replace those systems that are not year 2000 compliant. The Company estimates that the cost to redevelop, replace or repair its technology will not be material. In addition to its own computer systems in connection with its activities in the United States and in Canada, the Company interacts with suppliers, customers, creditors and financial service organizations domestically and globally who use computer systems. Although the Company intends to interact only with those third parties that have year 2000 compliant computer systems, it is impossible for the Company to monitor all such systems, particulary those of parties in another country. There can be no assurance that such systems will not have material adverse impacts on the Company's business and operations. OTHER The Company has reviewed all recently issued, but not yet adopted, accounting standards in order to determine their effects, if any, on the results of operations or financial position of the Company. Based on that review, the Company believes that none of these pronouncements will have any significant effects on current or future operations. ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA The financial statements of the Company include the consolidated operations of La Teko Resources Ltd., a Canadian corporation, together with its wholly owned subsidiaries La Teko Resources, Inc., a Nevada corporation, and Ryan Lode Mines, Inc., an Alaska corporation. Differences exist between United States and Canadian generally accepted accounting principles for a company exploring for natural resources, related primarily to the treatment of deferred exploration costs as differentiated from administrative and finance costs. Certain administrative and finance costs related to exploration are capitalized in Canada, whereas, in the U.S., these costs are charged to operations as incurred each year. Amounts which may have been capitalized in accordance with generally accepted accounting principles in Canada have been nominal and inasmuch as the Company adheres to U.S. generally accepted accounting principles, the Company has charged all administrative and finance costs to operations since 1986. There are no material differences relative to application of accounting principles. Under U.S. generally accepted accounting principles, the computation of primary earnings per share considers the weighted average number of shares outstanding during the year, plus common stock equivalents such as common stock options. This method requires that primary earnings per share be computed as if stock options were exercised at the beginning of the year (or at the time of issuance, if later), and as if the funds obtained thereby were used to purchase common stock of the Company at its average market price during the year. Fully diluted earnings per share shows the effect on earnings per share which would result if the proceeds from the exercise of common stock options were used to purchase the Company's common stock at its market price at the end of the year. Earnings (loss) per share have been computed in accordance with the foregoing procedures. ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE None. PART III ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT The following is a listing of the current directors and officers of the Company: Name Age Position Held - ---------------- --- ---------------------------------- Robert W. Gentry 50 Chairman and Director Gerald G. Carlson 52 President, Chief Executive Officer and Director Gordon J. Fretwell 44 Secretary and Director John S. Auston 60 Director Douglas R. Beaumont 65 Director John R. Hardesty 58 Director Stuart Havenstrite 65 Director Directors have been elected to serve until the next general meeting of shareholders which is expected to be held in May or early June, 1998. Directors are elected annually and serve for a period of one year and until their successors are elected and qualified. Based upon Canadian corporate regulatory provisions, a majority of the Company's directors must be Canadian residents. The officers serve at the pleasure of the Board of Directors. BUSINESS BIOGRAPHIES Officers and Directors ROBERT W. GENTRY has held several key positions with the Ford Bank Group from 1982 through 1992 including that of Senior Vice President, First National Bank, Lubbock, Texas (July 1991 to May 1992), president/CEO of United National Bank of Denton, Texas (December 1987 to July 1991), President/CEO of First National Bank of Borger, Texas (June 1985 to January 1986), organizing president of United National Bank of Dallas, Texas (May 1984 to December 1987), and organizing Vice-chairman of Ford Capital, Ltd., Dallas, Texas (January 1986 to May 1992). Mr. Gentry is President and 50% owner of Genoa Management Company of Dallas, Texas, involved in asset and portfolio management advice to 23 Texas community Banks. He is also Chairman of the Board of Lake Cities State Bank in Lake Dallas, Texas; and President of Lake Cities Financial Corporation. Mr. Gentry is a graduate of Texas Tech University with a B.A. degree in finance. Mr. Gentry became a Director of La Teko in May 1995 and served as President from February 27, 1996 to December 2, 1996. GERALD G. CARLSON, Ph.D., P. Eng. has been involved in mineral exploration and junior exploration company management for over 25 years. Mr. Carlson's educational background includes the following degrees: B.A. Sc. 1969 from the University of Toronto; M.Sc 1974 from Michigan Technological University and Ph. D. 1978 from Dartmouth College, New Hampshire. He is past President of ConSil Corp. (June 1995 to November 1996), past Vice President, Exploration, for Dentonia Resources Ltd. (February 1994 to May 1995). Both positions included management of exploration activities in Mexico and the Northwest Territories. He became President, Chief Executive Officer and a Director of La Teko on December 2, 1996, and continues to serve as a member of the Board of Directors of Dentonia Resources Ltd. GORDON J. FRETWELL has been engaged for over 15 years in the private practice of law, in the last several years through his own law firm, in Vancouver, British Columbia. Mr. Fretwell specializes in securities and mining law and acts for several public companies engaged in the mineral resource sector. Mr. Fretwell was appointed as a Director of the Company on November 24, 1995 and was elected Corporate Secretary on February 27, 1996. JOHN S. AUSTON is a geologist with 39 years of diversified world-wide experience in the precious metals, base metals, uranium and coal mining industries in Canada, the United States, and Australia. He was involved for many years in Canadian, U.S., and Australian mineral exploration and mining activities of the Selection Trust Group of London (May 1959 to June 1980) and British Petroleum (June 1980 to September 1992). He is past president and CEO of Granges, Inc. (July 1993 to June 1995) and HyCroft Resources of Vancouver (July 1993 to June 1995). Since August 1996 he has served as Director, President and Chief Executive Officer of Ashton Mining of Canada Inc. Mr. Auston is a graduate of McGill University with the degrees of Bachelor of Science and Master of Science (Applied). He became a Director of La Teko on June 5, 1996. DOUGLAS R. BEAUMONT is a professional engineer. His forty years of mining experience include project development and design and operation of mineral processing plants. He retired in 1997 from his position as Senior Vice President - Technical for Kilborn, SNC - Lavalin, having joined the Kilborn group of companies in 1979 and serving as Executive Vice President for international operations. He became a Director of La Teko on June 5, 1996. JOHN R. HARDESTY has been for over five years the owner and president of Thermo Dynamics, Inc., Laughlin, Nevada, and Chairman of Electro Dynamics Crystal Corporation, Inc., Overland Park, Kansas. He is a previous owner of Dixson, Inc., Grand Junction, Colorado (January 1988 to March 1995). He is a graduate of Wayne State University with a B.S. degree in business administration, majoring in accounting. He is a non-practicing certified public accountant having been a past audit manager with Ernst & Young, Certified Public Accountants from 1962 through 1968. From 1968 through 1986 he was involved extensively in corporate finance and sales with other business entities. He has been an operations manager with expertise in manufacturing, finance, administration, sales and corporate strategic planning and acquisitions. Mr. Hardesty currently serves as a Director of Powerhouse Technologies. He became a La Teko Director in May 1995. STUART HAVENSTRITE has a B.S. in Geology from Stanford University. He has been President of Havenstrite Management Services Inc. since 1990. The Company provides consulting services in evaluation, exploration and development of mining properties in the United States, Canada and Mexico. From 1970 until 1990, Mr. Havenstrite held several positions, including President and Director of Silver King Mines Inc. (changed to Alta Gold Inc. in 1987). Corporate Affairs Manager MARK FIELDS, P.Geo., has a Bachelor of Commerce (Honours) from Queen's University in Kingston, Ontario in 1976 and a Bachelor of Science in Geology from the University of British Columbia in 1986. He joined the Company on August 25, 1997 as Corporate Affairs Manager. He worked with the Rio Tinto group from 1991 to 1997 where he participated in the successful acquisition and development of the Lac de Gras diamond interests. From 1988 to 1991 he was employed by First Exploration Fund which provided financing to 75 junior Canadian exploration companies for projects across Canada. Consulting Geologist RICHARD A. HUGHES was the project manager for the Ryan Lode Mine, a position which he held from March, 1993 to December, 1997. Mr. Hughes was President and Mining Consultant for BTW Mining & Exploration from 1983 to 1994. From 1988 to 1989, Mr. Hughes was employed by Valdez Creek Mining Company, Inc., as the General Manager of a large open-pit placer mining and wash plant opera- tion. Prior to that time, from 1981 to 1987, Mr. Hughes was with ARCO Alaska, Inc., as the quality assurance and safety director at Prudhoe Bay, Alaska. From 1977 to 1981, Mr. Hughes worked with Exxon Minerals Company, where he was the project manager of an underground project in New Mexico and assistant manager of a uranium operation in Wyoming. Mr. Hughes has been employed in the mining industry in various other capacities since 1960. He is a registered professional mining engineer in Alaska and Nevada. Mr. Hughes received a Bachelor of Science degree in Mining Engineering from the University of Nevada in 1960. COMPLIANCE WITH SECTION 16(A) OF THE EXCHANGE ACT Based solely upon a review of Forms 3, 4, and 5 and amendments thereto, furnished to the Company during or respecting its last fiscal year, no person who, at any time during the most recent fiscal year, was a director, officer, beneficial owner of more than 10% of any class of equity securities of the Company or any other person known to be subject to Section 16 of the Exchange Act failed to file, on a timely basis, reports required by Section 16(a) of the Exchange Act, except that Douglas Beaumont and John Hardesty failed to make timely filings of their initial ownerships after being appointed directors and Gerald Carlson failed to make timely filings of his initial ownership after being appointed an officer and director. ITEM 11. EXECUTIVE COMPENSATION Gerald G. Carlson became President and Chief Executive Officer of La Teko and was appointed to the Board of Directors on December 2, 1996. Annual compensation as an employee of the Company is approximately $104,000 per annum. SUMMARY COMPENSATION The following table sets forth the compensation for the preceding three years received by each person who served as the Chief Executive Officer of the Company during 1997 (a "Named Executive Officer"). No other executive officer received compensation in excess of $100,000 for any such year.
LONG TERM COMPENSATION ANNUAL COMPENSATION AWARDS PAYOUTS (A) (B) (C) (D) (E) (F) (G) (H) (I) OTHER SECURITIES ANNUAL RESTRICTE UNDERLYING ALL YEAR COMPEN- D STOCK OPTIONS/ LTIP OTHER NAME AND ENDED SALARY BONUS SATION AWARD(S) SARS PAYOUTS COMPEN- PRINCIPAL DEC. ($) ($) ($) ($) (NO.) ($) SATION POSITION 31, ($) - ------------ ------ ------ ----- ------- -------- --------- ------- ------ Gerald G. 1996 $8,837 -- -- -- -- -- Carlson President (CEO) 1997 104,016
OPTION/SAR GRANTS IN LAST FISCAL YEAR No individual grants of options and stock appreciation rights ("SARs") were made during the last completed fiscal year to a Named Executive Officer or any other other executive officer of the Company. AGGREGATE OPTION/SAR EXERCISES IN LAST FISCAL YEAR AND YEAR END OPTION/SAR VALUES The following table sets forth information respecting the exercise of options and SARs during the last completed fiscal year by Named Executive Officers of the Company and the fiscal year end values of unexercised options and SARs. (a) (b) (c) (d) (e) Name Shares Value No. of Securities Value of Acquired Realized Underlying Unexercised in- on ($) Unexercised the-money Exercise Options/SARs at Options/SARs at (No.) FY End FY End ($) Exercisable/ Exercisable/ Unexercisable Unexercisable (1) - ----------------- -------- ------ ----------------- ------------- Gerald G. Carlson --- --- 300,000/200,000(2) $0/$0 (1) Market price at December 31, 1997 was $0.75 per share. (2) Refer to Item 11. Directors' Stock Options and Compensation DIRECTORS' STOCK OPTIONS AND COMPENSATION There are presently outstanding options for directors, prior directors, consultants and employees of the Company to acquire shares of La Teko stock as follows: Name No. of Exercise Expiration Date Shares Price (mm/dd/yy) - ----------------- -------- -------------- ----------------- DIRECTORS: Gerald G. Carlson 500,000 $1.85 12/10/2001-04 Robert W. Gentry 100,000 1.60 11/16/2000-03 100,000 2.50 03/14/2001 Gordon J. Fretwell 100,000 1.60 11/16/2000-03 John R. Hardesty 100,000 1.60 11/16/2000-03 John S. Auston 100,000 2.41 06/05/2001-04 Douglas R. Beaumont 100,000 2.41 06/05/2001-04 Stuart Havenstrite 24,000 1.60 08/17/99 100,000 1.50 07/16/2002-05 OTHERS: 20,000 1.60 03/31/98 100,000 2.13 06/30/98 100,000 1.60 06/30/98 50,000 1.60 12/31/98 150,000 1.05 10/08/2002-05 --------- 1,644,000 Director options were granted for past and future services on behalf of the Company, are subject to shareholder and Vancouver Stock Exchange approval. Each of the options listed above is contingent upon the optionee's continued employment with the Company, or, in the case where employment has ceased, the expiry date indicated. Options granted to directors and employees in 1995 through 1997, except as pertaining to Gerald G. Carlson which are discussed below, are exercisable in increments of 25% of the total granted per year, 25% of the shares at the time of the grant and 25% of the shares following each anniversary date thereafter at $1.60, $2.41, $1.50 and $1.05 per share indicated in the above table. Each incremental option has a five-year maturity from the applicable date of exercise. Of the options granted to Gerald G. Carlson 300,000 are currently exercisable, a further 100,000 will be exercisable on each of December 10, 1998 and 1999 for a five-year maturity from the applicable date of exercise. The directors decided in December, 1997 that the non-employee directors fees, which were paid as to $100 for participation in each Board of Directors' meeting held by telephone and $750 for each Directors' meeting attended in person, be forgone until the Company is more robust financially. ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT The following table sets forth the Company's security ownership information as of March 17, 1998 for each director and for all officers and directors of the Company as a group. There were no shareholders believed by the Company to own beneficially more than 5% of the Company's common stock. Nature of Percent of Name of Beneficial Owner Ownership (1) Number Ownership (2) - ------------------------- --------------- ------- ------------- Directors Robert W. Gentry Common 316,200 1.3% Stock Options 175,000 0.7 --------- ---- Total 491,200 2.0 Gerald G. Carlson Common 18,000 -- Stock Options 300,000 1.2 --------- ---- Total 318,000 1.3 John R. Hardesty Common 60,000 0.2 Stock Options 75,000 0.3 --------- ---- Total 135,000 0.5 Gordon J. Fretwell Common 3,000 -- Stock Options 75,000 0.3 --------- ---- Total 78,000 0.3 John S. Auston Common 4,000 -- Stock Options 50,000 0.2 --------- ---- Total 54,000 0.2 Douglas R. Beaumont Common -- -- Stock Options 50,000 0.2 --------- ---- Total 50,000 0.2 Stuart Havenstrite Common 10,000 -- Stock Options 49,000 0.2 --------- ---- Total 59,000 0.2 All Executive Officers & Common 411,200 1.7 Directors as a group (7 persons) Stock Options 774,000 3.1 --------- ---- Total 1,185,200 4.8 (1) Unless otherwise indicated, all securities are owned beneficially and of record, and such record stockholder has sole voting, investment, and dispositive power. (2) Calculations of total percentages of ownership outstanding for each individual assumes the exercise of options exercisable as of the date this document held by that individual to which the percentage relates. Percentages calculated for totals of all executive officers and directors as a group assume the exercise of all options held by the indicated group. ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS As explained in Note 7 of the Notes to Consolidated Financial Statements and press releases on November 16, 1995, March 14, 1996 December 10, 1996, July 16, 1997 and October 8, 1997, the Company granted stock options to officers, directors and employees as listed under "Item 11, Executive Compensation" of this report. PART IV ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K (a)(1) FINANCIAL STATEMENTS. The following financial statements are included in this report: Title of Document Page Report of Bedford Curry & Co., Chartered Accountants F-1 Consolidated Statements of Operations - For the Years Ended December 31, 1995, 1996, and 1997 F-2 Consolidated Balance Sheets - As of at December 31, F-3 1996 and 1997 Consolidated Statements of Stockholders' Equity - For the Years Ended December 31, 1995 1996, and 1997 F-4 Consolidated Statements of Cash Flows - For the Years Ended December 31, 1995, 1996, and 1997 F-5 Notes to Consolidated Financial Statements F-6 (a)(2) FINANCIAL STATEMENT SCHEDULES. The financial statements schedules are omitted because of the absence of conditions under which they are required or because the information is shown in the financial statements. (a)(3) EXHIBITS. The following exhibits are included as part of this report. (See exhibit index in separate exhibit volume): SEC EXHIBIT REFERENCE NUMBER NUMBER TITLE OF DOCUMENT LOCATION ITEM 3. ARTICLES OF INCORPORATION AND BYLAWS 3.01 3 Restated and Amended Articles of Incorporated by Incorporation Reference(3) 3.02 3 Bylaws Incorporated by Reference(3) ITEM 3 INSTRUMENTS DESCRIBING THE RIGHTS OF SECURITY HOLDERS, INCLUDING DEBENTURES 4.01 4 La Teko Exchanged Debenture Certificate Incorporated by and related Debenture Agreement Reference(3) ITEM 10 MATERIAL CONTRACTS 10.01 10 Agreement dated May 11, 1979, between Incorporated by Sara L. Bartholomae and St. Joe American Reference(1) Corporation, regarding Ryan Lode claim group 10.02 10 Assignment Agreement dated May 10, 1985 Incorporated by between St. Joe American Corporation and Reference(1) Citigold Mining Company Ltd., regarding Ryan Lode claim group 10.03 10 Mineral Claim Purchase Agreement dated Incorporated by January 31, 1987, between James Sorrell, Reference(1) Newfields Minerals, (U.S.), Inc., relating to Margarita claims 10.04 10 Letter Agreement dated January 12, 1990, Incorporated by between La Teko Resources Ltd. and Reference(2) Robert Clifford Emerson regarding St. Patrick claim group 10.05 10 Mining Lease dated effective January 1, Incorporated by 1993 between Sara L. Bartholomae and La Reference(3) Teko Resources, Inc., relating to Ryan Lode claim group 10.06 10 Mineral Claim Purchase Agreement between Incorporated by La Teko Resources Ltd. and Newfields Reference(3) Minerals (U.S.), Inc., relating to Margarita claims 10.07 10 Letter Agreement dated March 18, 1988, Incorporated by amending Mineral Claim Purchase Reference(3) Agreement between James Sorrell and Newfields Minerals, Inc., relating to Margarita claims 10.08 10 Purchase Agreement respecting the Long Incorporated by Association placer claim acquired from Reference(4) the University of Alaska Foundation and the Nature Conservancy July 20, 1993 10.09 10 Evaluation and Earn-in Agreement between Incorporated by AMAX Gold Exploration, Inc. and La Teko Reference(4) Resources Ltd. respecting the True North property, August 30, 1993 10.10 10 Mining Property Transfer Agreement of Incorporated by December 6, 1993 between AMAX Gold Reference(4) Exploration, Inc., and La Teko Resources, Inc., respecting the True North property 10.11 10 Mining Property Transfer Agreement, Incorporated by Amendment No. 1 dated January 10, 1994, Reference(4) between AMAX Gold Exploration, Inc. and La Teko Resources, Inc. 10.12 10 Mining Sublease dated December 24, 1990 Incorporated by between Roger Charles Cope and AMAX Gold Reference(4) Exploration, Inc., respecting the True North property 10.13 10 Amendment to Mining Sublease dated May Incorporated by 23, 1991 between Roger Charles Cope and Reference(4) AMAX Gold Exploration, Inc. 10.14 10 Amendment No. 2 to Mining Sublease dated Incorporated by August 25, 1993 between Roger Charles Reference(4) Cope and AMAX Gold Exploration, Inc. 10.15 10 Mining Lease dated January 1, 1992 Incorporated by between M. Dennis Shepard and AMAX Gold Reference(4) Exploration, Inc. respecting the True North property 10.16 10 Amendment No. 1 to Standard Mining Lease Incorporated by dated August 25, 1993, between M. Dennis Reference(4) Shepard and AMAX Gold Exploration, Inc. 10.17 10 Second amended letter dated as of June 6, Incorporated by 1995, from Newmont Exploration Limited Reference(5) to La Teko Resources, Inc. and Ryan Lode Mines, Inc. 10.18 10 Venture Agreement dated as of June 9, Incorporated by 1995, between Newmont Exploration Reference(5) Limited, La Teko Resources, Inc., and Ryan Lode Mines, Inc. 10.19 10 Letter Agreement dated March 6, 1995 Incorporated by between Newmont Exploration Limited and Reference(6) La Teko Resources, Inc. and Ryan Lode Mines, Inc. 10.20 10 Mining Lease and agreement dated August Incorporated by 1, 1995, between Vincent F. Howard and Reference(7) Newmont Exploration Limited regarding additional True North claims in which La Teko participates 35% 10.21 10 Mining Lease and agreement dated August Incorporated by 29, 1995, between Charles B. Woodruff Reference(7) and Newmont Exploration Limited regarding additional True North claims in which La Teko participates 35% 10.22 10 Mining Lease and agreement dated August Incorporated by 29, 1995, between M. Dennis Shepard and Reference(7) Ronda D. Benish Shepard and Newmont Exploration Limited regarding additional True North claims in which La Teko participates 35% 10.23 10 Letter agreement dated December 2, 1996 Incorporated by between La Teko Resources Ltd, and Reference(9) Gerald G. Carlson wherein he is hired to become President and Chief Executive Officer of La Teko 10.24 10 Agreement regarding mining claims and Incorporated by Special Warranty Deed, each dated Reference(9) October 30, 1996, between Placer Dome U.S. Inc., La Teko Resources, Inc. and Newmont Exploration Limited - True North Project 10.25 10 Letter agreement, offer to purchase Incorporated by Margarita property by Oro Blanco Reference(9) Resources Corp. dated January 14, 1997 10.26 10 Form of Stock Option Agreement, with Incorporated by related schedule of options Reference(9) 10.27 10 Non-Qualified Stock Option dated December Incorporated by 10, 1996 granted to Gerald G. Carlson Reference(9) 10.28 10 Indemnification Agreement between La Teko Incorporated by Resources Ltd., including a schedule of Reference(9) indemnitees subject thereto 10.29 10 Letter Agreement dated July 10, 1997, This Filing between the Company and Silverado Gold Mines Ltd. respecting the Ryan Lode property 10.30 10 Option Agreement dated December 19, 1997, This Filing between the Company and Silverado Gold Mines Ltd. respecting the Ryan Lode property 10.31 10 Letter Agreement dated December 18, 1997, This Filing between the Company and Silverado Gold Mines Ltd. respecting the Company's purchase of 1,000,000 shares in partial consideration of the option Agreement dated December 19, 1997 10.32 10 Letter of Intent between the Company and This Filing Kennecott Canada Exploration Inc. dated November 24, 1997, respecting the acquisition of the Mt. Distin and Sheelite Dome projects 10.33 10 Amendment to Letter of Intent dated This Filing February 2, 1998, between the Company and Kennecott Exploration Inc. ITEM 23 CONSENTS OF EXPERTS AND COUNSEL 23.01 23 Consent of Bedford Curry Co., auditors This Filing ITEM 27 FINANCIAL DATA SCHEDULE 27.01 27 Financial Data Schedule This Filing (1) Incorporated by reference from Annual Report on Form 20-F for the fiscal year ended December 31, 1988 (2) Incorporated by reference from Annual Report on Form 20-F for the fiscal year ended December 31, 1990 (3) Incorporated by reference from the registration statement on Form S-4, SEC File No. 33-56606 (4) Incorporated by reference from the Annual Report on Form 10-K for the year ended December 31, 1993. (5) Incorporated by reference from the registration statement on Form S-2 SEC File No. 33-81886. (6) Incorporated by reference from Annual Report on Form 10-KSB for the year ended December 31, 1994. (7) Incorporated by reference from Annual Report on Form 10-KSB for the year ended December 31, 1995. (8) Incorporated by reference from the registration statement on Form S-8, SEC File No. 333-21225 (9) Incorporated by reference from Annual Report on Form 10-KSB for the year ended December 31,1996. (b) Reports on Form 8-K During the last quarter of the year ended December 31, 1997, the Company filed three interim reports on Form 8-K as follows: DATE OF EVENT REPORTED ITEM REPORTED August 13, 1997 Item 5. Other Events October 8, 1997 Item 5. Other Events November 25, 1997 Item 5. Other Events SIGNATURES In accordance with section 13 or 15(d) of the Exchange Act, the registrant has caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. Dated: March 30, l998. LA TEKO RESOURCES LTD. (Registrant) By /s/ Gerald G. Carlson President (chief executive and financial officer and controller) In accordance with the Exchange Act, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the date indicated. Dated: March 30, 1998 /s/ Gerald G. Carlson Gerald G. Carlson, Director /s/ Robert W. Gentry Robert W. Gentry, Director Gordon J. Fretwell, Director /s/ John R. Hardesty John R. Hardesty, Director /s/ John S. Auston John S. Auston, Director Douglas R. Beaumont, Director EX-10 2 Silverado Gold Mines Ltd. Suite 505, 1111 West Georgia Street Vancouver, British Columbia V6E 4M3 (604) 689-1535 (800) 665-4646 fax (604) 682-3519 July 10, 1997 La Teko Resources Ltd. Suite 500 - 625 Howe Street Vancouver, B.C. V6C 2T6 Dear Sirs: Re: Purchase of the Ryan Lode Property We are enclosing an outline Of the terms under which we are prepared to purchase all of your interest in the Ryan Lode property. If you find the terms acceptable, please return the enclosed copy of this letter with your signed acknowledgment of acceptance. This letter and your acceptance will constitute a binding letter of intent, pursuant to which we will exercise our best efforts to conclude a formal purchase agreement as contemplated in item 3, and subject to your obtaining any necessary approval of the Vancouver Stock Exchange. Yours truly SILVERADO GOLD MINES LTD. /s/ G.L. Anselmo, President We hereby acknowledge our acceptance of the foregoing terms for the sale of the Ryan Lode property and agree to forthwith apply for the approval of the Vancouver Stock Exchange to the above transaction. LA TEKO RESOURCES LTD. Per: /s/ Gerald Carlson SILVERADO GOLD MINES LTD. AND LA TEKO RESOURCES LTD. Terms for the purchase and sale of the Ryan Property 1. Due Diligence Period Silverado will have the right to enter the property and conduct work reasonable for a due diligence assessment from the date of receipt of regulatory approval referred to in 5.(o) to the later of 60 days after receipt of such approval and two weeks after receipt of an Environmental Base Line Study to be completed by a party acceptable to Silverado and La Teko (the "Acceptance Date"), provided however that the Acceptance Date shall not be later than 120 days from the date of receipt of such approval. 2. Environmental Base Line Study The parties will retain and share equally the cost of a consultant (provided however that La Teko's share shall not exceed $30,000) to identify and assess environmental problems and concerns existing on the property and establish the existing environmental status of the property at the date of his report. 3. Purchase and Sale Agreement The parties agree to exercise best efforts to settle the terms of the purchase and sale of the property by July 31, 1997, which agreement will come into force at the end of the due diligence period on Silverado's election to purchase the property. 4. Silverado's Election Silverado will have the right at any time on or before the last day of the due diligence period to elect to purchase the property. 5. Terms of the Agreement (a) Silverado will, on its election, pay La Teko $500,000 and commit to spend not less than $1 million on the property before the first anniversary of the Acceptance Date. (b) Silverado will allocate sufficient of the $1 million to rectifying the concerns identified by the Study to achieve either the resolution thereof, or the resolution thereof to the extent reasonably possible in the circumstances by the first anniversary of the Acceptance Date so as to eliminate or substantially reduce La Teko's exposure to liability for its previous work (this would be subject to any as yet unknown and major problem being identified by the Study). (c) Silverado will on or before the first anniversary of the Acceptance Date pay La Teko $300,000 and commit to spend not less than a further $1 million on the property before the second anniversary of the Acceptance Date and will again allocate a portion of those funds to the completion of the resolution of environmental concerns referred to in (b). (d) Silverado will on or before the second anniversary of the Acceptance Date pay La Teko $400,000 and commit to spend not less than a further $1 million on the property before the third anniversary of the Acceptance Date. (e) Silverado will, on or before the third anniversary of the Acceptance Date pay La Teko $700,000 and commit to construct facilities necessary to place the property into production (f) Silverado will proceed expeditiously with mill construction, however if the mill construction and tune-up is not completed and the property not in production with the mill for processing ore operating and tuned-up, by eighteen months after the third anniversary of the Acceptance Date, Silverado can extend the period for construction for one year by paying $500,000 to La Teko. 75% of such payment will be credited against the purchase price referred to in G). Silverado will have the right to extend the period for completion of mill construction for successive one year periods by paying $500,000 per year, with 75% of such payments to be applied to the purchase price referred to in (j) (g) the obligation of Silverado to make the payments to La Teko and the expenditures on the property in (c), (d), (e) and (f), and the payment of the balance of the purchase price referred to in G) is subject to the proviso that Silverado may, by notice, not make any such payment or commitment with the result that the agreement would terminate but Silverado would remain liable for, and indemnify La Teko against all costs arising from, the work and other activities of Silverado on the property from the start of the due diligence period. (h) the expenditure commitments on the property referred to in (a), (c) and (d) will be calculated on a cumulative basis. (i) all work by Silverado on the property will be done in accordance with requisite permits. (j) upon completion of construction of the milling facility and a maximum 30 day mill tune-up period, $3 million of the balance of the purchase price, which is $12 million less the cash payments made to La Teko as referred to in (a), (c), (d), (e), and (f), will be paid to La Teko, and the remainder of the balance of the purchase price will be paid 6 months thereafter. (k) any revenues derived from the sale of products or ore from the property prior to the first payment in (j) shall be paid to La Teko upon receipt by Silverado, and will be credited against the $3 million payment referred to in (j). (1) Silverado's obligations under the agreement will be subject to force majeure (which will not include lack of financing). (m) Silverado will, upon electing to purchase the property, maintain the claims, advanced royalty payments, assessments, rentals and taxes in respect of keeping the property in good standing. (n) Silverado will not process ore, heap leach or dispose of tailings on the property prior to completing the purchase of the property, provided however that Silverado may prepare the ore on the property for delivery to a processing location away from the property. (o) this proposal is subject to the approval of the Vancouver Stock Exchange. La Teko will diligently apply for and exercise its best efforts to prosecute to conclusion such approval. (p) Silverado will place the first Bartholomae property payment of $150,000 US in escrow on or before December 1, 1997. (q) the title documents are to be placed in escrow until Silverado has made the payment referred to in 5(c). (r) upon Silverado making the payment referred to in (q), the title documents are to be transferred out of escrow to Silverado and Silverado will execute a deed of trust in favor of La Teko to secure the payment obligations of Silverado. (s) all dollar amounts are in U. S. funds. EX-10 3 OPTION AGREEMENT BETWEEN LA TEKO RESOURCES LTD. LA TEKO RESOURCES, INC. SILVERADO GOLD MINES LTD. AND SILVERADO GOLD MINES INC. DATED AS OF DECEMBER 19, 1997 SCHEDULES SCHEDULE "A" LIST OF CLAIMS SCHEDULE "B" COPIES OF UNDERLYING AGREEMENTS AND PERMITTED ENCUMBRANCES SCHEDULE "C" FEASIBILITY AND PERMITTING PLAN SCHEDULE "D" LIST OF PERMITS SCHEDULE "E" COPY OF RECLAMATION PLAN EXHIBITS: EXHIBIT "A" ESCROW AGREEMENT OPTION AGREEMENT THIS AGREEMENT is made as of the 19th day of December, 1997 BETWEEN: LA TEKO RESOURCES LTD., a corporation incorporated under the laws of British Columbia, Canada (hereinafter called "La Teko") OF THE FIRST PART AND LA TEKO RESOURCES, INC., a corporation incorporated under the laws of Nevada, U.S.A.(hereinafter called "La Teko Inc.", and collectively with La Teko called the "Vendors") OF THE SECOND PART AND SILVERADO GOLD MINES LTD., a company incorporated under the laws of British Columbia, Canada (hereinafter called "Silverado") OF THE THIRD PART AND SILVERADO GOLD MINES INC., a corporation incorporated under the laws of Alaska, U.S.A.(hereinafter called "Silverado Inc." and collectively with Silverado called the "Purchasers") OF THE FOURTH PART WHEREAS: A. La Teko Inc. is the owner of and has the exclusive right to deal with and dispose of, free of any and all agreements, liens, charges and encumbrances, except as expressly stipulated herein, approximately 79 mineral claims, located on the southeast flank of Ester Dome, approximately eight miles west of Fairbanks in the State of Alaska, as more particularly described in Schedule "A" attached hereto; B. La Teko Inc. wishes to grant to Silverado Inc. an option to acquire all of its right, title and interest in and certain rights to prospect, explore and evaluate the Mining Property subject to the terms and conditions hereinafter provided; C. La Teko and Silverado entered into a Letter of Intent dated July 10, 1997 for the purpose of granting Silverado an option in respect of the Mining Property and the parties now wish to enter into a more formal and comprehensive Option and Purchase Agreement; D. La Teko Inc. is a wholly owned subsidiary of La Teko and Silverado Inc. is a wholly owned subsidiary of Silverado. NOW THEREFORE THIS AGREEMENT WITNESSES that in consideration of the recitals and of the mutual covenants and agreements hereinafter contained, the parties hereto agree as follows: ARTICLE 1 DEFINITIONS AND INTERPRETATION 1.1 In this Agreement, unless there is something in the subject matter or context inconsistent therewith; (a) "Affiliate" means any person, partnership, joint venture, corporation or other form of enterprise which directly or indirectly controls, is controlled by, or is under common control with, a Party. For purposes of the preceding sentence, "control" means possession, directly or indirectly, of the power to direct or cause direction of management and policies through ownership of voting securities, contract, voting trust or otherwise; (b) "Agreement", "herein", "hereby", "hereof', "hereunder", and similar expressions mean or refer to this Agreement or instrument supplementary or ancillary hereto; and the expressions "Article", "paragraph" or "subparagraph" followed by a number mean and refer to the specified Article, paragraph or subparagraph of this Agreement; (c) "Costs" means all costs incurred and monies expended by Tri-Con Mining Inc. and Tri-Con Mining Alaska Inc. and Tri-Con Mining Ltd. for or on behalf of, or by, Silverado or Silverado Inc., as the case may be, in doing Work, which shall include, but not be limited to, all costs incurred and monies expended in doing geophysical, geochemical, land or geological examinations and surveys in searching for, digging, trenching, sampling, assaying, testing, working, developing, mining or extracting Ore, minerals and metals; in doing diamond and other drilling; in erecting and installing mining plant, ancillary facilities, buildings, machinery, tools, appliances or equipment; in construction of access roads or facilities on the Mining Property and the milling plant and ancillary facilities located off the Mining Property for use in relation to the Mining Property; in transporting Ore, minerals, metals, personnel, supplies, mining or milling plant, buildings, machinery, tools, appliances or equipment in, to or from the Mining Property; in paying wages and salaries (including "fringe benefits") of contractors, subcontractors and other personnel engaged in performing such Work; in paying assessments or contributions under the worker's compensation, the unemployment insurance, statutory pension or other similar legislation or ordinances relating to such personnel; in supplying food, lodging and other reasonable needs for such personnel; in obtaining independent legal services directly relating to Work to be performed hereunder; in keeping the Mining Property in good standing under applicable legislation and regulations; all reasonable costs of improving, protecting or perfecting title to the Mining Property; in preparing engineering or, geological, studies and/or reports for the Mining Property and Work related thereto; in connection with any applications and necessary studies for the obtaining of permits, licenses, and other regulatory approvals, including without limitation, the preparation for and attendance at hearings and other meetings relating to the Mining Property; in preparing a mining feasibility study and/or any reports supplementary thereto; plus 10% of the foregoing for general overhead and administrative costs, except that: (i) during the period of two years calculated from the date hereof "Costs" shall not include costs incurred or money expended in mining, extracting or transporting Ore, minerals or metals, and (ii) in the case of Work done by Tri-Con Mining Inc., Tri-Con Mining Alaska Inc. and Tri-Con Mining Ltd., Costs shall be calculated as actual costs incurred and monies expended by such companies (which costs will to the extent reasonably practicable be incurred at competitive industry standards) plus 10% of such aggregate amount, which shall be added to compensate such companies for general overhead and administrative costs, plus an 8% markup on the amount of such Costs, notwithstanding the actual amount of charges or markup that may be agreed to between such companies and Silverado; and (iii) Costs incurred by Silverado and Silverado Inc. will not be subject to and increased by 10% for general overhead and administrative costs; (d) "Escrow Agent" means Davis & Company, barristers and solicitors, or such other party as may be mutually agreed to by the Parties; (e) "Escrow Agreement" means the agreement between Silverado, La Teko and the Escrow Agent referred to in paragraph 2.12; (f) "Feasibility and Permitting Plan " means the plan pursuant to which Work on the Mining Property is to be performed by Silverado and Silverado Inc., a copy of which is attached as Schedule "C"; (g) "Interest" means any right, title or interest of the Parties in and to the Mining Property; (h) "Letter of Intent" means the letter agreement dated July 10, 1997 between Silverado and La Teko and the attachment thereto referred to in Recital C; (i) "Mining Property" means the mineral claims referred to in the first recital to this Agreement which are more particularly described in Schedule "A" which is attached hereto and shall include any lease granted pursuant to the provisions of any applicable legislation or regulations in respect thereof; (j) "Ore" means all materials containing a mineral or minerals of commercial economic value extracted or derived from the Mining Property; (k) "Party" or "Parties" means the initial parties to this Agreement and their respective successors and permitted assigns which become parties to this Agreement; (1) "Permits" means all of the permits described in Schedule "D" attached hereto and any other permits, rights and licenses held or acquired by La Teko or La Teko Inc. or Ryan Lode Mines, Inc. relating to the Mining Property or any of their activities thereon; (m) "Permitted Encumbrances" means the encumbrances referred to in paragraph 2.1; (n) "Product" means all Ore and concentrates or other products derived from the Mining Property; (o) "Purchase Price" means the sum of $12,000,000.00 and 1,000,000 common shares in the capital of Silverado payable by Silverado to La Teko hereunder; (p) "Reclamation Plan" means the plan titled "Reclamation Plan Ryan Lode Mine Site July 1997 as submitted to the United States Bureau of Land Management, Northern District", a copy of which is attached as Schedule "E"; (q) "Silverado Option" means the right and option granted to Silverado and Silverado Inc. pursuant to the provisions of paragraph 2.1; (r) "Underlying Agreements" means those certain mining and property agreements, copies of which are attached as Schedule "B" hereto; and (s) " Work" means prospecting, exploration, assessment, evaluation, development or other mining work, environmental monitoring and reclamation work and permitting performed on or in relation to the Mining Property or any portion thereof, but does not during the period of two years calculated from the date hereof include mining work other than prospecting, exploration, assessment, evaluation or development work. 1.2 Words importing the singular number shall mean and include the plural and vice versa, and words importing the masculine gender shall include the feminine and neuter genders. 1.3 Any Schedule annexed hereto shall form part of this Agreement. 1.4 Any statement of or reference to dollar amounts in this Agreement shall mean coin or currency of the United States of America. 1.5 The division of this Agreement into Articles and paragraphs, the provision of any index hereto and the insertion of headings are for convenience of reference only and shall not affect the construction or interpretation hereof. ARTICLE 2 SILVERADO OPTION 2.1 In consideration of the payment and delivery by Silverado to La Teko, concurrently with the execution and delivery of this Agreement, of 1,000,000 common shares in the capital of Silverado, which shares will be subject to restrictions in resale only for a period of 40 days under Regulation S to the Securities Act of 1933, La Teko Inc. hereby grants the Purchasers and each of them the sole and exclusive right and option to acquire one hundred percent (100%) of all right, title and interest in and to the Mining Property and the Permits, free and clear of all encumbrances except this Agreement and except for any encumbrances referred to in Schedule "B" (the "Permitted Encumbrances"), provided that Silverado and Silverado Inc. fulfil all of their respective conditions and obligations contained in paragraphs 2.3, 2.4, 2.5, 2.7 and 2.10. 2.2 Intentionally deleted. 2.3 Silverado shall on January 30, 1998 pay to La Teko $200,000, and shall on February 27,1998 pay to La Teko $450,000, and hereby commits to spend not less than $1,000,000 on Work from the date hereof to December 1, 1998. Silverado shall, within 30 days of the end of each three month period commencing on June 1, 1998, provide to La Teko a written report summarizing in general terms the Work and the Costs incurred thereon during such three month period. If Silverado has not spent the required $1,000,000 on such Work by November 30, 1998 Silverado shall have the right, within 60 days following the delivery of the report relating to the period ending on November 30, 1998, to pay to La Teko or expend on the Mining Property, as provided in paragraph 2.13, an amount equal to the shortfall between the required $1,000,000 and the amount actually spent by Silverado on such Work by November 30, 1998, and the Silverado Option will remain in good standing, subject to the payment being made by Silverado to La Teko as referred to in paragraph 2.4. 2.4 Silverado shall on December 1, 1998 pay to La Teko $300,000, and commit to spend not less than an additional $1,000,000 on Work by December 1, 1999 to keep the Silverado Option in good standing. Silverado shall, within 30 days of the end of each three month period commencing on December 1, 1998, provide to La Teko a written report summarizing in general terms the Work and the Costs incurred thereon during such three month period. If Silverado has not spent the required $1,000,000 on such Work by November 3O, 1999 Silverado shall have the right, within 60 days following the delivery of the report relating to the period ending on November 30, 1999, to pay to La Teko or expend on the Mining Property, as provided in paragraph 2.13, an amount equal to the shortfall between the required $1,000,000 and the amount actually spent by Silverado on such Work by November 3O, 1999, and the Silverado Option will remain in good standing subject to the payment being made by Silverado to La Teko as referred to in paragraph 2.5. 2.5 Silverado shall on or before December 1, 1999 pay to La Teko $400,000 and, unless Silverado has by December 1, 1999 already made the payment to La Teko referred to in paragraph 2.10(a), commit to spend not less than an additional $1,000,000 on Work by December 1, 2000 to keep the Silverado Option in good standing. Silverado shall, within 30 days of the end of each three month period commencing on December 1, 1999, provide to La Teko a written report summarizing in general terms the Work and the Costs incurred thereon during such three month period. If Silverado has not spent the required $1,00O,000 on such Work by November 30, 2000 and has not made the payment to La Teko referred to in paragraph 2.10(a), Silverado shall have the right, within 60 days following the delivery of the report relating to the period ending on November 30, 2000, to pay to La Teko or expend on the Mining Property, as provided in paragraph 2.13, an amount equal to the shortfall between the required $1,000,000 and the amount actually spent by Silverado on such Work by November 30, 2000, and the Silverado Option will remain in good standing subject to the payment being made by Silverado to La Teko as referred to in paragraph 2.7. 2.6 The Reclamation Plan sets forth a program for reclamation, remediation and monitoring activities in respect of the Mining Property. Silverado will, in conjunction with and as a part of the Work referred to in paragraphs 2.3 and 2.4, continue the reclamation, remediation and monitoring activities during such periods substantially in accordance with the Reclamation Plan, as may be amended or subsequently negotiated between Silverado and the regulatory bodies having jurisdiction over the matters in the Reclamation Plan, recognizing that the Reclamation Plan will be modified to take into account the Work to be undertaken under the Feasibility and Permitting Plan and having regard to the necessity of Silverado completing the Work in the manner and on the schedule as outlined in the Feasibility and Permitting Plan attached hereto as Schedule "C". 2.7 Silverado shall on or before December l, 2000 pay to La Teko $700,000, and shall on or before December 1, 2000, provided all requisite permits for construction have been issued to Silverado (or if such permits have not been issued, then promptly after the issuance to Silverado of such permits), have commenced to construct the milling facilities reasonably necessary to place the Mining Property into commercial production. 2.8 The Costs of Work to be spent by Silverado referred to in paragraphs 2.3, 2.4 and 2.5 shall be calculated on a cumulative basis, and any Costs incurred in any particular period in excess of those required for that particular time period may be carried forward and applied towards the required Costs for the next succeeding time periods. 2.9 Silverado may in its sole discretion at any time elect by notice in writing to La Teko to terminate the Silverado Option granted hereunder. If Silverado gives such notice to La Teko, Silverado will not have any obligation thereafter to incur further Costs or to pay the Purchase Price hereunder, and upon such election the Silverado Option will immediately terminate and neither of the Purchasers will have any further Interest in the Mining Property, provided however that notwithstanding such termination' Silverado will thereafter remain liable for and will and does hereby indemnify La Teko for all costs required for remediation and reclamation arising from Work of Silverado or Silverado Inc. on the Mining Property during the period from July 17, 1997 to the date that Silverado elects to terminate the Silverado Option. If Silverado elects to terminate the Silverado Option, it shall as a condition of such termination: (a) make any payments that will be due and payable to third parties in respect of the Mining Property within the 60 day period following the date of the notice by Silverado to La Teko terminating the Silverado Option; and (b) deliver up to La Teko all maps, drill logs, assay results and other factual data compiled by the Purchasers or either of them relating to the Mining Property. The obligations of Silverado under paragraphs 4.2(c) and 4.2(e) shall survive the termination of the Silverado Option as provided in this paragraph 2.9. 2.10 As consideration for the purchase by the Purchasers, or either of them, of all the Interest of the Vendors in the Mining Property, Silverado shall pay the Purchase Price to La Teko. One million shares in the capital of Silverado, as referred to in paragraph 2.1, are being delivered to La Teko herewith, $1,900,000.00 of the Purchase Price shall be payable in accordance with paragraphs 2.3 (as to $500,000.00) 2.4, 2.5 and 2.7, and the balance of the Purchase Price shall be payable to La Teko as follows: (a) $3,000,000.00 will be payable upon the earlier of: (i) completion of construction of the milling facility and a maximum 30 day mill tune-up period, as described in paragraph 2.11; and (ii) 30 days after the commencement of commercial production of Ore from the Mining Property by any method; and (b) the balance of the Purchase Price, after credit has been given to Silverado for prior payments on account of the Purchase Price as referred to in paragraph 2.11, and after credit has been given for the payments by Silverado to La Teko as described in paragraphs 2.3, 2.4, 2.5 and 2.7, shall be paid six months after the date upon which payment is required under paragraph 2.10 (a). For the purpose of subparagraph 2.10 (a)(ii), "commencement of commercial production of Ore" means the first day of the month in which Ore from the Mining Property has been milled or shipped for 30 consecutive days at a rate, averaged over such 30 day period, of not less than 60% of the average daily rate for the projected capacity of the mill to be constructed for processing Ore from the Mining Property, or the first day of the first month following 60 days after the date on which Ore from the Mining Property is first milled or shipped, whichever shall first occur. The milling or shipping of bulk samples for testing purposes shall not be considered for the purpose of establishing the date of commencement of commercial production of Ore. Any revenues, payments or proceeds from the sale of Products or Ore from the Mining Property up to a maximum of $3,000,000.00 prior to Silverado making the payments referred to in paragraph 2.10(a) shall be paid to La Teko and will be credited against the payment referred to in paragraph 2.10(a). 2.11 If Silverado has made the payment referred to in paragraph 2.7 and has commenced to construct facilities as described therein, Silverado shall continue diligently with such mill construction, the intent of the Parties being that the construction shall have been completed not later than June 1, 2002. If the mill construction and tune-up is not completed and the Mining Property not placed into commercial production with a mill for processing Ore operating and tuned up by June 1, 2002, Silverado shall have the right to extend the period of construction for one year provided that it pays to La Teko $500,000 prior to June 1, 2002 (the "Extension Payment"). 75% of the Extension Payment will be credited against the Purchase Price referred to in paragraph 2.10. If the mill construction is not completed during the one year period to which the above Extension Payment relates, Silverado will have the right to extend the period for completion of mill construction for an additional period of one year, and up to a further three successive periods of one year thereafter, for a total of up to five successive one year extension periods, by paying further Extension Payments of $500,000 for each year, with 75% of such Extension Payments to be applied to the Purchase Price referred to in paragraph 2.10. 2.12 Upon execution of this Agreement La Teko shall lodge with the Escrow Agent such deeds, title documents and other evidences as may be reasonably requested by Silverado relating to the Mining Property together with any required endorsements, bills of sale, assignments and transfers of the mineral claims comprising the Mining Property to record Silverado Inc. as the registered, recorded, legal and beneficial owner of the Mining Property and the Permits, or in the case of mining claims in-which La Teko Inc. holds a leasehold interest, the registered, recorded and beneficial holder of such leasehold interest, (collectively the "Escrow Documents"), in accordance with the terms of the Escrow Agreement in the form attached hereto as Exhibit "A". La Teko shall also, upon execution of this Agreement, to the extent requested by Silverado, transfer to Silverado Inc. the Permits and any bonding or other sureties held or obtained by La Teko or La Teko Inc. or Ryan Lode Mines, Inc. in relation to the Work. La Teko shall, from time to time, as and when requested by Silverado, execute and deliver or cause to be executed and delivered all other documents, instruments and transfers which are, in the opinion of Silverado, reasonably necessary or advisable to effect legal transfer of the Mining Property to Silverado Inc., and any such documents shall be included in the Escrow Documents and shall be subject to the terms of this Agreement and the Escrow Agreement. Silverado shall have the right, upon making the payment referred to in paragraph 2.4, to obtain the release of the Escrow Documents. Upon the release from escrow of the Escrow Documents to Silverado in accordance with the terms of the Escrow Agreement a 100% undivided Interest in and to the Mining Property shall vest in Silverado Inc. free and clear of all liens, charges and encumbrances, subject only to the terms and conditions of this Agreement. 2.13 Subject to prior termination pursuant to the provisions of this Agreement, Silverado shall, not later than 30 days after December 1, 1998 and December 1, 1999, deliver to La Teko a written notice signed by an officer of Silverado either confirming that Silverado has incurred the required minimum cumulative Costs as provided herein or indicating that Silverado has not incurred such minimum cumulative Costs, and attaching thereto a report summarizing all Work done on the Mining Property. In addition, Silverado shall within 60 days after December 1, 1998 and December 1, 1999 deliver to La Teko a written statement in reasonable detail prepared by the independent accountants acting for Silverado setting out the particulars of such Costs. If the statement indicates that Silverado has incurred the required minimum cumulative Costs and if La Teko disputes the amount of expenditures on such statement, then either Silverado will agree with La Teko's calculations or La Teko and Silverado will agree with some revised calculations. In either case, Silverado will, within 60 days of agreeing to or settling the calculations, either pay the amount of the deficiency to La Teko or expend the amount of the deficiency on further Work on the Mining Property. If the dispute as to the calculation is not resolved between La Teko and Silverado, then La Teko may refer the matter to arbitration before a single arbitrator pursuant to the provisions of the Commercial Arbitration Act (British Columbia). The decision of the arbitrator shall be final and binding on the Parties hereto. If the arbitrator determines that there is a shortfall in costs incurred as set forth in the statement referred to above, then Silverado shall pay the amount of the deficiency to La Teko within 30 days of the determination, and provided such payment is made, this Agreement shall remain in full force and effect. ARTICLE 3 RIGHT TO ENTER AND DO WORK 3.1 Subject to the provisions of this Agreement, the Purchasers, their respective servants, agents, independent contractors, successors and assigns shall prior to the payment of the Purchase Price have the sole and exclusive right: (a) to enter in, under or upon the Mining Property; (b) to have exclusive and quiet possession of the Mining Property; (c) to carry out such Work as the Purchasers, in their sole discretion, consider advisable including bringing or erecting upon the Mining Property machinery, equipment and ancillary facilities including, without limiting the generality of the foregoing, housing, utility services, roads, conveyors, plants, buildings, and disposal areas or systems; and (d) to prepare Ore for delivery and remove Ore, minerals or metals from the Mining Property in reasonable quantities for the purpose of obtaining assays or making other tests and for Ore processing from the Mining Property; provided however that the Purchasers shall not, prior to payment in full of the Purchase Price, process Ore on the Mining Property or conduct heap leach operations or dispose of tailings on the Mining Property. 3.2 The Purchasers shall have the right, in their sole discretion and at their own expense, to do such acts and things as are reasonably necessary to protect and improve any right, title or interest in and to the Mining Property, which right shall include, without limitation, the right to obtain mineral leases or mining licenses for the Mining Property or any part thereof in accordance with the provisions of the applicable legislation and regulations, in which event such leases and licenses shall forthwith constitute part of the Mining Property and be subject to the terms and conditions of this Agreement. Silverado shall, during the term of this Agreement, maintain the Mining Property and the claims included therein and pay such royalty payments, assessments, rentals and taxes as are necessary to keep the Mining Property and the interests of the parties thereto in good standing. 3.3 During the period subsequent to December 1, 2000 and prior to the payment in full of the Purchase Price, Silverado shall provide to La Teko, within 30 days of the end of each three month period commencing on December 1, 2000, a report summarizing the expenditures incurred on the Mining Property during such three month period. At the end of each year, calculated from December 1, 2000, the report from Silverado will include a technical report by Silverado outlining the progress of Work during the year, which report need not include supporting data or documentation. ARTICLE 4 REPRESENTATIONS AND COVENANTS 4.1 The Vendors hereby jointly and severally represent and warrant that: (a) each of La Teko and La Teko Inc. is a corporation duly incorporated and in good standing in its jurisdiction of incorporation, and La Teko Inc. is qualified to do business in the jurisdiction wherein the Mining Property is located; (b) each of La Teko and La Teko Inc. has the right to enter into this Agreement, and all corporate and/or other actions required to authorize it to enter into and perform this Agreement have been properly taken; (c) La Teko Inc. is the registered, recorded, legal and beneficial and recorded owner of all of the mineral claims and permits comprising the Mining Property free and clear of all encumbrances save and except for the Bartholomae Property and save and except for the other Permitted Encumbrances. The Bartholomae Property is owned by Sara Bartholomae as the registered and recorded owner thereof, and is subject only to the leases or other agreements (the "Bartholomae Agreements") referred to in Schedule "B", copies of which have been initialed for identification by La Teko and delivered to Silverado, and La Teko Inc. is the registered, recorded and beneficial holder of such leasehold interest. All of the Bartholomae Agreements are in good standing and all payments thereunder to date have been made in accordance with the terms thereof. (d) the Mining Property comprises all of the mineral claims and permits and mining interests owned by either of La Teko or La Teko Inc. and which are described as the Ryan Lode property in the 1996 Annual Report of La Teko; (e) there is no adverse claim or challenge against or to the ownership of or title to the Mining Property, nor to the knowledge of La Teko or La Teko Inc. is there any basis therefor, and there are no outstanding agreements or options between the Vendors or either of them and any third party whatsoever with respect to the Mining Property or any portion thereof other than as specifically described herein; (f) no person, firm or corporation has any proprietary interest in the Mining Property and no person, firm or corporation is entitled to any royalty or other payment in the nature of rent or royalty on any Ore removed from the Mining Property save for those indicated in Schedule B attached hereto; (g) to the knowledge of the Vendors, Schedule "E" contains and refers to the required reclamation, remediation and monitoring programs sufficient to fulfill all regulatory reclamation and remediation requirements for the Mining Property as of the date hereof All representations, warranties and covenants of the Vendors and each of them contained in this Agreement and contained in any certificates or documents submitted, executed or delivered pursuant to or in connection with this Agreement and the transactions herein provided for shall survive the completion of the purchase of the Mining Property by the Purchasers or either of them and shall survive the termination of this Agreement, notwithstanding the completion of the purchase or the termination of this Agreement, and regardless of any investigation by or on behalf of the Purchasers or either of them with respect thereto, shall continue in full force and effect for the benefit of the Purchasers and each of them. 4.2 The Purchasers hereby jointly and severally covenant and agree during the period of the Silverado Option prior to payment in full of the Purchase Price: (a) to carry out the Work in a prudent and miner-like manner and in accordance with good mining, processing, engineering and environmental practices generally prevailing in the mining industry and in accordance with all applicable laws and regulations and all agreements, permits and licenses relating to the Mining Property; (b) to pay and discharge all wages and accounts for materials and services and all other costs and expenses that may be incurred by them in connection with the Work on the Mining Property, and to save the Vendors harmless from and against all liens in respect of such Work which may be filed against the Mining Property, and in the event of any liens being so filed, to proceed forthwith to have the same removed, provided that the foregoing provision shall not prevent the Purchasers from properly contesting in good faith any claims for liens which they consider unjustified; (c) to maintain the Mining Property in good standing under applicable legislation and regulations; (d) to indemnify and save the Vendors, their respective directors, officers, employees or representatives harmless from all claims and demands, costs (including reasonable attorneys' fees and expenses incurred by them), damages, actions, suits or other proceedings whatsoever arising out of or attributable to the activities of the Purchasers, their respective employees or representatives under this Agreement; (e) to maintain and keep in force and, upon request by La Teko, provide reasonable documentary verification of the following insurance in respect of their activities on the Mining Property, which shall protect the interests of the Vendors within the limits of such insurance: (i) Comprehensive General Liability Insurance - covering liability for bodily injury and property damage arising from operations and activities under this Agreement. This insurance shall include coverage for the contingent liability with respect to the operations and activities of contractors and subcontractors (or coverage will be provided independently by such contractors and subcontractors), the contingent employer's liability of the Purchasers and the liability assumed by the Purchasers under this Agreement. The limits of such insurance shall be not less than $1,000,000 inclusive for any one occurrence, with aggregate coverage of not less than $2,000,000. (ii) Workers' Compensation Insurance - covering all employees engaged in the Work under this Agreement to the extent required by the laws of the State of Alaska or any other governmental authority having jurisdiction over the Purchasers' operations under this Agreement; (f) to permit La Teko, its employees or duly authorized representatives, or guests of La Teko if accompanied by a duly authorized representative of La Teko, on reasonable notice to Silverado, access to the Mining Property in order to examine any Work carried out by or on behalf of Silverado, provided, however, that neither La Teko nor its duly authorized representatives and guests shall interfere with or obstruct the operations of the Purchasers, their respective employees, agents, contractors or subcontractors on the Mining Property, and provided further that La Teko and its duly authorized representatives and guests shall enter upon the Mining Property at their own risk and expense, and La Teko hereby agrees to indemnify and save the Purchasers and their respective directors, officers, employees, representatives, contractors and subcontractors harmless from all claims and demands, costs (including reasonable attorneys' fees and expenses incurred by the Purchasers), damages, actions, suits or other proceedings whatsoever arising out of or attributable to the activities of La Teko, its employees, duly authorized representatives or guests on the Mining Property; (g) to maintain the Mining Property in good standing by the performance of work and recording of same during each assessment year; (h) to respond promptly to all reasonable requests by La Teko for information relating to Work on the Mining Property; (i) to leave the Mining Property upon termination of this Agreement, unless terminated pursuant to the provisions of paragraph 6.1(d), in a condition that will not require any reclamation work, from work performed by the Purchasers; (j) to pay all rentals and royalties necessary to maintain the Underlying Agreements in good standing; and (k) to cause any operator performing Work on the Mining Property to assume responsibility for and comply with the requirements of all existing plans and Permits relating to the Work and referred to in Schedule "D". 4.3 Silverado and Silverado Inc. hereby jointly and severally represent and warrant that: (a) each of Silverado and Silverado Inc. is a corporation duly incorporated and in good standing in its jurisdiction of incorporation and Silverado Inc. is qualified to do business in the jurisdiction wherein the Mining Property is located; and (b) each of Silverado and Silverado Inc. has the right to enter into this Agreement and all corporate and/or other actions required to authorize it to enter into and perform this Agreement have been properly taken. All representations, warranties and covenants of the Purchasers and each of them contained in this Agreement and contained in any certificates or documents submitted, executed or delivered pursuant to or in connection with this Agreement and the transactions herein provided for shall survive the completion of the purchase of the Mining Property by the Purchasers or either of them and shall survive the termination of this Agreement, notwithstanding the completion of the purchase or the termination of this Agreement, and regardless of any investigation by or on behalf of the Vendors or either of them with respect thereto, shall continue in full force and effect for the benefit of the Vendors and each of them. ARTICLE 5 RIGHT TO PRESERVE TITLE AND REMOVE ASSETS 5.1 The Parties agree that they may protect their Interests under this Agreement by registering this Agreement or a short form thereof, the transfers and documents referred to in paragraph 2.12, or any other document or documents which they may consider reasonably advisable in order to protect their rights and interests hereunder against the title to all or part of the Mining Property, provided that Silverado Inc. shall hold title to the Mining Property subject to the terms and conditions of this Agreement. 5.2 At any time, and from time to time, and for a period of one year after the termination of this Agreement if terminated prior to the completion of the purchase by the payment of the Purchase Price, Silverado may, and at La Teko's request within such period after termination, Silverado shall, at its own expense, enter upon and remove from the Mining Property any and all buildings, plant, machinery, tools and equipment or other property of Silverado or Silverado Inc. Any property not so removed within such period after termination shall become the property of La Teko. 5.3 La Teko shall, on or before January 30, 1998, remove from the Mining Property all of its equipment, tools, machinery and other personal property (except for any maps, drill logs, assay results and other factual technical data compiled by the Vendors or either of them relating to the Mining Property, all of which shall be retained by the Purchasers), and shall leave thereon all buildings, structures and other improvements thereto, including the meteorological station in its current location and attitude, for the sole and absolute benefit of the Purchasers, subject to the terms of this Agreement. All hazardous materials currently located in the laboratory portion of the on-site warehouse structure shall be removed from the Mining Property by Silverado Inc. ARTICLE 6 TERMINATION 6 1 Subject to the provisions of paragraphs 2.2, and 2.9 end the last sentence of paragraphs 2.10 and 6.2, this Agreement shall terminate as follows: (a) if Silverado both fails to incur the Costs or pay in lieu of incurring Costs on or before the relevant dates as set forth in paragraphs 2.3, 2.4 and 2.5, or fails to make the payments to La Teko on account of the Purchase Price as provided in paragraphs 2.3., 2.4, 2.5, 2.7, or 2.10, and fails to rectify said default within 30 days of receiving notice from La Teko of such default, then upon the date immediately following the expiry of such 30 day period; or (b) upon receipt by La Teko of notice from Silverado given prior to the payment in full of the Purchase Price that Silverado is terminating this Agreement; (c) if Silverado does not exercise the Silverado Option during the period of the Silverado Option, then at the expiry of the Silverado Option; or (d) upon payment of the Purchase Price in full by Silverado to La Teko. 6.2 Upon any termination hereof by Silverado, except pursuant to paragraph 6.1 (d), Silverado shall at La Teko's request, within thirty (30) days thereafter, release, quit claim and/or transfer to La Teko Inc. for an aggregate consideration of one dollar ($ 1.00), all right, title and interest in and to the Mining Property or the relevant portion thereof, provided that Silverado shall be responsible for and obligated to ensure that the Mining Property remains in good standing in respect of assessment work or credit as of the date of such termination. La Teko shall have the right, at its option, for the period of two years from the date of termination of this Agreement pursuant to paragraphs 6. l(a), (b) or (c), to take possession of any Ore taken by the Purchasers, and stockpiled off of the Mining Property. 6.3 Except as otherwise herein specifically provided, this is an option agreement only and nothing herein contained and no act done, payment made or amount expended hereunder shall obligate Silverado to do any further or other act, to make any further or other payment or to expend any further amount in doing Work hereunder, and in no event shall this Agreement or any act done, payment made or amount expended in doing Work hereunder be construed as creating an obligation on Silverado to make any other payments, or to perform any other Work hereunder or to proceed with a view to bringing the Mining Property or any part thereof into commercial production. 6.4 If this Agreement is terminated pursuant to paragraphs 6.1(a), (b) or (c), Silverado shall deliver up to La Teko all maps, drill logs, assay results and other factual data compiled by the Purchasers or either of them relating to the Mining Property. ARTICLE 7 CONFIDENTIAL INFORMATION 7.1 The Parties agree to treat this Agreement and all terms and conditions hereof, and all data, reports, records, and other information, coming into the possession of the Parties by virtue hereof as confidential except if disclosure is required by law, by regulation, by any securities commission or stock exchange or in connection with the filing of a prospectus or exchange offering prospectus by any Party or its Affiliates. Such information shall not be otherwise disclosed to any person without the prior consent of the other Parties, which consent shall not be unreasonably withheld. 7.2 Subject to paragraph 7.1 and during the period of the Silverado Option, each of the Parties may make public announcements or press releases with respect to the existence of this Agreement and with respect to activities on the Mining Property provided however that any such announcements and releases shall be communicated to the other Parties concurrently with their dissemination to the public. ARTICLE 8 TRANSFER OF INTEREST IN MINING PROPERTY 8.1 In this article, the word "assign" means sell, assign, transfer, sublet, grant an option, make a declaration of trust or otherwise convey an Interest. 8.2 Any of the Vendors or the Purchasers may assign their rights and interest in this Agreement to a third party with the prior written consent of the other parties, which consent will not be unreasonably withheld or delayed provided that the assignee shall be subject to all the terms of this Agreement. 8.3 If an assigning Party wishes to assign all, but not less than all, of its Interest to an assignee, the assigning Party shall require that such assignee shall enter into an agreement with the other Parties concurrent with such assignment containing: (a) a covenant by such assignee to be bound by this Agreement to the same extent as if this Agreement had been originally executed by the assigning Party and such assignee as joint and several obligors making joint and several covenants; and (b) a provision subjecting any further sale, transfer or other disposition of such Interest to the restrictions contained in this Article 8. 8.4 A Party may assign its Interest to an Affiliate at any time, provided that the Affiliate delivers to the other Parties concurrently with such assignment an agreement containing the covenant and provision described in paragraph 8.3, and that the assigning Party shall continue to remain principally liable to the other Parties for the performance of its obligations under this Agreement. ARTICLE 9 AREA OF INTEREST 9.1 The Vendors shall not be under any obligation to locate or otherwise acquire any mineral claims or other mining properties adjoining or in the vicinity of the Mining Property, however any right, title or interest in any other mineral claims located or other mining property acquired by the Vendors or either of them or any Affiliate thereof during the term of this Agreement in the area that is located within one mile of the outer boundary of the original mineral claims comprising the Mining Property shall be so located or acquired for the sole benefit of Silverado Inc. ARTICLE 10 NOTICES 10.1 All payments, notices, reports or other communications required or permitted by this Agreement shall be deemed to have been properly given and delivered when delivered by hand or sent by telecommunication or registered mail with all postage or delivery charges fully prepaid and addressed to the Parties, respectively, as follows: To SILVERADO And To SILVERADO INC.: SILVERADO GOLD MINES LTD. Suite 505, 1111 West Georgia Street Vancouver, British Columbia, V6E 4M3 Telecopier Number: (604) 682-3519 Attention: President To LA TEKO And To LA TEKO INC.: LA TEKO RESOURCES LTD. Suite 500 - 625 Howe Street Vancouver, British Columbia, V6C 2T6 Telecopier Number: (604) 688-0835 Attention: President or to the latest known address of the Party concerned, as furnished pursuant to paragraph 10.3. 10.2 Any payment, notice, report or communication which is mailed shall be deemed to have been received by the addressee on the fifth business day following posting thereof. In all other instances, the date of receipt by addressee shall be the date of actual delivery or receipt of the telecommunication. 10.3 A Party may change its address or telecopier number for the purpose hereof by giving written notice of such change to the other Parties at the latest address provided in accordance with this Article. ARTICLE 11 ARBITRATION 11.1 If any dispute shall arise between the Parties or any of them in respect of any matter relating to this Agreement or with respect to the interpretation of this Agreement, the same shall be submitted to arbitration in accordance with the following provisions. 11.2 The dispute shall be referred to and finally resolved by arbitration in Vancouver, British Columbia, under the rules of the British Columbia International Commercial Arbitration Centre ("BCIAC'), in accordance with its "Procedure for cases under the BCIAC Rules. " The award of the arbitrator shall be final and binding. The arbitral tribunal shall consist of a sole arbitrator selected by agreement of the Parties, failing such agreement within 20 days after the filing of the request for arbitration the sole arbitrator shall be appointed by the BCIAC from a list of ten persons submitted to the Parties. Each of the Parties shall have the right to delete four persons from such list and the arbitrator shall be one person not deleted from such list. Each person on such list shall have substantial experience and recognized expertise in the fields of the matters in dispute. The Parties hereby stipulate that the arbitrator's fee shall be a reasonably hourly rate agreed to by the Parties, multiplied by the total time of the arbitrator spent concerning the arbitration. The arbitrator shall be entitled to receive payment for reasonable disbursements. If the Parties are unable to agree on a fee within 30 days after the filing of the request for arbitration, then the fee shall be established by the BCIAC Rules. The Parties further stipulate that the administrative charge shall be a reasonable average hourly rate agreed by the Parties for the services of the BCIAC personnel administering the arbitration, plus a reasonable percentage (not to exceed 10%) for overhead, plus reasonable disbursements. Failing an agreement of the Parties within 30 days of the request for arbitration, the charge will be determined by the BCIAC. If any Party refuses to arbitrate or institutes any proceeding to stay or enjoin arbitration, the other Parties shall be awarded reimbursement of all expenses and legal fees incurred in connection with any such proceeding to stay or enjoin arbitration. 11.3 The decision of the arbitrator shall be in writing and signed by the arbitrator and shall be final and binding upon the Parties as to any question or questions so submitted to arbitration. 11.4 Unless otherwise determined by the arbitrator, the compensation and expenses of such arbitrator shall be paid as follows: (a) if the matter in dispute is determined against a Party, the compensation and expenses shall be paid by that Party; (b) if the matter in dispute is determined partly in favour of one Party and partly in favour of another Party or Parties the compensation and expenses shall be allocated among the Parties to the dispute in the same proportions, as nearly as possible, as the arbitrator's determination of the dispute; and (c) if the matter is determined otherwise that in the foregoing manner, the compensation and expenses shall be paid in equal proportions by the Parties involved in the dispute. ARTICLE 12 FORCE MAJEURE 12.1 Time shall be of the essence of this Agreement, provided, however, that the time or times within which any right hereunder may be exercised shall be extended by a period of time equal to all periods of time during which the Parties or their respective representatives, agents, contractors or employees are prevented or seriously impeded in doing any Work or performing any obligation hereunder by reason of any event of force majeure, which events shall include but shall not be limited to fire; power shortage, strike, lockout or other labour dispute; inability to obtain suitable machinery or labour; inability to arrange access to the Mining Property; inability or delay in obtaining permits or licenses, inability to arrange or unavailability of any transportation services, facilities or equipment; wars, riots or civil disorders; Acts of God or the enemies of the United States of America; governmental, whether Federal, State or Borough, laws, regulations or requirements; or any other cause beyond the reasonable control of the Parties or their respective representatives, agents, contractors or employees. The settling of labour disputes shall for the purposes of this paragraph be deemed to be beyond the control of the Parties and their respective representatives, agents, contractors, subcontractors or employees and nothing herein contained shall place any obligation upon them to settle any labour dispute. The payment of monies from one Party to another Party shall be deemed to be within the reasonable control of the Parties and the lack of funds for such payments shall not be considered an event of force majeure. 12.2 Any Party hereto claiming suspension of its obligations, as aforesaid, shall promptly notify the other Parties to that effect and shall take all reasonable steps to remove or remedy the cause and effect of the force majeure described in the said notice in so far as it is reasonably able to do so and as soon as possible; provided the terms of settlement of all labour disturbances or disputes, strikes or lockouts, shall be wholly in the discretion of the Party claiming suspension of its obligations by reason thereof; and that Party shall not be required to accede to the demands of its opponents in any such labour disturbance or dispute, strike or lockout solely to remedy or remove the force majeure thereby constituted. 12.3 The extension of time for observance of conditions or performance of obligations as a result of force majeure shall not relieve Silverado from its obligations to keep the Mining Property in good standing. ARTICLE 13 GENERAL 13.1 Each Party shall, from time to time, and at all times, perform all acts and execute and deliver the deeds and documents and give such assurances as are reasonably required in order to perform, carry out, and give effect to the terms of this Agreement. 13.2 A waiver of any breach of a provision of this Agreement shall not be binding upon a Party unless the waiver is in writing and such waiver shall not affect such Party's rights in respect of any subsequent breach. 13.3 All terms and provisions of this Agreement shall run with and be binding upon the lands and estates affected thereby during the term hereof. 13.4 The terms of this Agreement expresses and constitutes the entire agreement between the Parties 13.5 Save as aforesaid, this Agreement supersedes and replaces all previous agreements, whether written or oral, between the Parties in respect of the Mining Property. 13.6 This Agreement shall be governed by and construed in accordance with the laws of the state of Alaska and the federal laws of the United States of American applicable therein. 13.6 This Agreement shall inure to the benefit of and be binding upon the Parties hereto, their respective successors and their permitted assigns. IN WITNESS WHEREOF, the Parties hereto have entered into this Agreement effective as of the day and year first above written. LA TEKO RESOURCES LTD. LA TEKO RESOURCES, INC. /s/ Gerald G. Carlson /s/ Gerald G. Carlson Authorized Signatory Authorized Signatory SILVERADO GOLD MINES LTD. SILVERADO GOLD MINES INC. /s/ Garry L. Anselmo /s/ Garry L. Anselmo Authorized Signatory Authorized Signatory SCHEDULE "A" This is SCHEDULE "A" to the Option Agreement dated as of December 19, 1997 between LA TEKO RESOURCES LTD., LA TEKO RESOURCES, INC., SILVERADO GOLD MINES LTD. and SILVERADO GOLD MINES INC. LIST OF CLAIMS SCHEDULE "A''RYAN LODE MINES, INC. LAND STATUS AS OF 3 FEBRUARY, 1997 Claim Group Location Claim Owner - ------------------ --------------------- ----------------- Ryan Lode-Patented T1N, R2W, Sec 4, 5, 8 Sarah Bartholomae Ryan Lode Claim TIN, R2W, Sec. 32,33 P.O. Box 2701 Block-Unpatented Fairbanks Median Orange, CA 92669 Blue Bird Group T1S, R2W, Sec. 4, 5,8 La Teko Resources, Inc Bar Claim Block TIN, R2W, Sec. 32,33 180 E 2100 South Mohawk Fractions Claim Fairbanks Meridian Suite 204 Block Salt Lake City, UT 84115 La Teko Fraction Group Ace Claims St. Patrick Group Long Association Group Note: These claims are overlapped by ADL558408 through ADL558423, presently held by La Teko Resources, Inc Table 1: Ryan Lode Claim Block Table 2: Ryan Lode Claim Unpatented Federal Claims Block Patented Federal - -------------------------------- ------------------------------ Claim Name Serial Number Claim Name Serial Number - ---------- ------------- ---------- ------------- Ijim MS0826 Balboa FF061654 Eva MS0826 Bartholomae FF061656 Edna MS0826 Extension Comet FF061657 Ryan No. 1 MS0826 Comet Fraction FF061658 Montie MS0826 Curlew Extension FF061659 Gem MS1602 Evadna FF061660 Ryan No. 2 MS1603 The Golden Queen FF061661 XLCR MS1603 Iving FF061662 Curlew MS2230 Little Eva No. 2 FF061663 Combination MS2230 McDonald FF061664 Merion FF061665 Merion Extension FF061666 Olga FF061667 Rose Quartz FF061668 Democrat FF061670 Association Table 3: La Teko Fraction Group-State Claims - ---------------------------------------------- Claim Name: Serial Number - ------------------- ------------- La Teko Fraction #1 ADL558395 La Teko Fraction # 2 ADL550396 La Teko Fraction # 3 ADL558397 La Teko Fraction # 4 ADL558398 La Teko Fraction # 5 ADL558399 La Teko Fraction # 6 ADL558400 La Teko Fraction # 7 ADL558401 La Teko Fraction # 8 ADL558402 La Teko Fraction # 9 ADL558403 La Teko Fraction # 10 ADL558404 La Teko Fraction # 11 ADL558405 La Teko Fraction # 12 ADL558406 La Teko Fraction # 13 ADL558407 Table 4 Long Association Federal Patented Placer - ------------------------------------------------ Claim Name: Serial Number - ---------------- --------------- Long Association MS 847 Table 5 Blue Bird Group Patented Federal Claims - ----------------------------------------------- Claim Name: Serial Number - ---------------- -------------- Bluebird MS2170 Bluebird Fraction MS2170 Table 6 Bar Claim Block State Claims - ----------------------------------------------- Claim Name: Serial Number - ----------------- -------------- Bar #1 ADL509257 Bar #2 ADL509258 Bar #3 ADL509259 Bar #4 ADL50926O Bar #5 ADL509261 Bar #6 ADL523236 Bar Fraction #7 ADL558394 Table 7 St. Patrick Group-State Mining Claims - ----------------------------------------------- Claim Name: Serial Number - ----------------- -------------- St Patrick #1 ADL308083 St Patrick #2 ADL308084 St. Patrick #3 ADL308085 St Patrick #4 ADL308086 Table 8 Mohawk Fractions Group-State Claims - ----------------------------------------------- Claim Name: Serial Number - ----------------- -------------- Mohawk #4 ADL557975 Mohawk #5 ADL557976 Mohawk #6 ADL557977 Mohawk #7 ADL558098 Mohawk #8 ADL558389 Mohawk #9 ADL558390 Mohawk #10* ADL558391* Mohawk #11* ADL558392* Mohawk #13 ADL558393 Table 9 Ace Claims- State Claims - ----------------------------------------------- Claim Name: Serial Number - ----------------- -------------- Ace #22 ADL500119 Ace #23 ADL500120 * Quit claim deed executed by La Teko Resources Inc. November 28, 1997 SCHEDULE "B"Copies of Underlying Agreements and Permitted Encumbrances. [Omitted] EX-10 4 Silverado Gold Mines Ltd. Suite 505, 1111 West Georgia Street Vancouver, British Columbia V6E 4M3 (604) 689-1535 (800) 665-4646 Fax: (604) 682 3519 December 18, 1997 Board of Directors LaTeko Resources Ltd. Suite 500, 625 Howe Street Vancouver, BC Canada V6C 2T6 Dear Sirs: In connection with your purchase of l,000,000 shares of common stock (the "Shares") of Silverado Gold Mines Ltd., a British Columbia corporation (the "Company"), in partial consideration for the Option Agreement between the Company and your firm in a transaction intended to be exempt from registration under the Securities Act of 1933, we wish to advise you as follows: These securities are not being registered under the Securities Act of 1933 (the "Act") on the ground that this sale is exempt under Regulation S of the Act, in that it is an "offshore transaction" as defined in Regulation S. The conditions of the Regulation S exemption include, but are not limited to, the requirement that the offer and sale of the securities by the Company be made in an "offshore transaction" as defined in Regulation S, which requires, among other things, that the offering may not be made to any "U.S. Person" as defined in Regulation S. Regulation S includes certain offering restrictions, and other conditions applicable during the period of 40 days following "completion of the offering" as determined in accordance with Regulation S ("Restricted Period"). These restrictions are intended to ensure that the securities offered and sold in and "offshore transaction" will not "flow back" into the U.S. or be offered to U.S. persons without the benefit of the provision of the federal securities laws. Our reliance on such exemption is predicated in part on your representation that you are not a "U.S. Person" as that term is defined in Regulation S under the Act. You understand that the Shares covered are unregistered and during a "Restricted Period" of 40 days following their issuance may not be resold by you to any U.S. Person or into the United States, unless they are subsequently registered under the Act, or an exemption from such registration is available. You have agreed that all certificates which may be issued representing the Shares purchased hereunder shall contain the following legend, which you have read and understand: The shares represented by this Certificate have not been registered under the Securities Act of 1933 ("the Act"), and for a period of 40 days following their issuance may not be offered for sale, sold or otherwise transferred to any U.S. Person as defined in Regulation S under the Act, except pursuant to an effective registration statement under the Act, or pursuant to an exemption from registration under the Act, the availability of which is to be established to the satisfaction of the Company. You acknowledge and represent to the Company that you have been afforded the opportunity to meet with, and discuss the business, financial condition, and affairs of the Company with its executive officers and directors. In addition, you acknowledge and represent that you are a knowledgeable, sophisticated investor who can fend for yourself and have adequate means to make the investment contemplated herein; and that, in connection with this investment, you have obtained any necessary investment advice from outside sources, including your investment adviser and private attorney and/or accountant; and that you have had access to or had provided to you information concerning the financial and other affairs of the Company, including all reports filed by the Company with the Securities and Exchange Commission during the 12 month period preceding your investment. You further acknowledge that you are able to bear the economic risk of the investment and maintain your investment in the securities for an indefinite period and, further, could bear a total loss of the investment. You are aware that the Company is incorporated under the laws of British Columbia, Canada and maintains its executive office in that Province. Therefore, the Company is also subject to provisions of British Columbia law requiring that any offer or sale of securities be registered or exempt from registration. In order to qualify for an exemption from registration under the laws of British Columbia, the Shares may not be publicly traded in British Columbia until one year following their issuance, except pursuant to rules of the British Columbia Securities Commission. The Company's Common Shares are not publicly traded in British Columbia. Therefore, imposition of this restriction is not expected to materially affect you, since the restriction does not affect the transferability of the Shares in other jurisdictions, including the United States. In the event you wish to trade the Shares in the Province of British Columbia within a period of one year following the issuance of the Shares, you will be subject to the following resale restrictions in British Columbia: (a) the shareholder must file a report with the British Columbia Securities Commission within 10 days of the initial trade within British Columbia in any of the Shares by the shareholder; and (b) where the shareholder has filed such report with respect to any Shares, the shareholder is not required to file a further such report in respect of additional trades of Shares acquired on the same date and under the same exemption as the Shares which are the subject of the initial trade report referred to in paragraph (a) above. In order to avoid the requirement that certificates be legended to reflect the one year hold period under British Columbia law, you should execute the "Acknowledgment of Resale Restrictions" attached as Schedule I to this Agreement. The Company may provide this document to the British Columbia Securities Commission. If the foregoing correctly expresses your intent, understanding, acknowledgments and representations, please sign at the bottom of the accompanying copy of this letter and return it to us. Silverado Gold Mines Ltd. By /s/ Garry L. Anselmo, President CONFIRMED: We confirm that we have read the foregoing and agree to the terms thereof and acknowledge that it expresses our intent and understanding and that the facts stated therein concerning the undersigned's status as other than a "U.S. Person," our financial condition, knowledge and experience, investment intent and access to information concerning the Company, are true and correct. We agree to comply with the restrictions on resale described herein. LaTeko Resources Ltd. Date: December 19, 1997 By /s/ Gerald G. Carlson, President SCHEDULE I ACKNOWLEGMENT OF RESALE RESTRICTIONS Re: Acquisition of US $278,000 of Securities (the "Securities") issued by Silverado Gold Mines Ltd. (the "Company") The undersigned hereby represents and warrants to the Company that: 1. the undersigned must file with the British Columbia Securities Commission a report within 10 days of the initial trade within British Columbia in any of the Securities issued by the undersigned; and 2. where the undersigned has filed such report with respect to any Securities issuable thereunder, the undersigned is not required to file a further such report in respect of additional trades of Securities acquired on the same date and under the same exemption as the Securities issuable thereunder which are the subject of the initial trade report referred to in paragraph (1) above. Dated at Vancouver B.C., the 19th day of December, 1997. (city, state or country) LaTeko Resources Ltd. By /s/Gerald G. Carlson, President EX-10 5 KENNECOTT CANADA EXPLORATION INC. 24 November, 1997 Granville Square #354 - 200 Granville Street Vancouver, British Columbia V6C 1S4 Telephone: (604) 669-1880 Facsimile: (604) 669-5255 Mr. Gerald Carlson President La Teko Resources Ltd. 625 Howe Street Vancouver, British Columbia V6C 2T6 Canada Re: Mt. Distin Project, Cape Nome Recording District, Alaska Scheelite Dome Project, Mayo Mining District, Yukon Territory Dear Mr. Carlson: Further to the previous discussions between Kennecott Exploration Company and Kennecott Canada Exploration, Inc. (collectively, "Kennecott") and La Teko Resources Ltd. ("La Teko"), this letter confirms the intent of Kennecott to negotiate an agreement granting to La Teko a transfer of one hundred percent (100%) of Kennecott's interests in the above referenced projects (collectively, the "Projects"). The Projects are more particularly described in Exhibit "A" hereto. An agreement between Kennecott and La Teko should include, but not be limited to, the following terms: 1. Kennecott shall assign to La Teko one hundred percent (100%) of Kennecott's right, title and interest (the "Assignment") in the Mt. Distin Project ("MD Project"), subject to the conditions set forth in that certain Exploration Agreement and Option to Lease dated 15 May, 1995 by and between Bering Straits Native Corporation, Golden Glacier, Inc., and Kennecott; and, that certain Mineral Lease Agreement dated 5 August, 1996, by and between David L. Lajack, Daniel J. Lajack, William C. Lajack and Kennecott (collectively, the "MD Agreements") 2. As consideration for granting such Assignment, La Teko shall assume all obligations of Kennecott for payments and expenditures required by the MD Agreements as follows: Payments Expenditures Lajack Bering Straits ------------------------ -------------- 1998 US$10,000 US$15,000 US$125,000 1999 US$10,000 US$20,000 US$150,000 2000 US$25,000 US$20,000 US$150,000 2001 US$25,000 US$20,000 US$200,000 2002 US$25,000 US$20,000 US$250,000 Total US$95,000 US$95,000 US$875,000 As additional consideration for making such Assignment, La Teko shall issue to Kennecott common shares of La Teko on the following schedule: 30,000 - Closing 40,000 - First Anniversary of Option Agreement 50,000 - Second Anniversary of Option Agreement 80,000 - Third Anniversary of Option Agreement 500,000 - Product Decision Kennecott's right to receive such shares shall be contingent upon La Teko not surrendering the MD Project to Bering Straits Native Corporation. 3. Kennecott shall also grant to La Teko an exclusive option to purchase (the "Option") all of Kennecott's right, title and interest in the Scheelite Dome Project ("SD Project"), subject to Kennecott's right to reacquire an interest in the SD Project as set forth in Paragraph 6 below. As consideration for Kennecott granting such Option, La Teko shall make payments to the underlying landowner, and Exploration Expenditures for the benefit of the SD property in the following amounts: Payments Expenditures -------- ------------ 1998 C$70,000 C$150,000 1999 C$65,000 C$200,000 2000 C$0 C$200,000 2001 C$0 C$250,000 --------- ------------ Total C$135,000 C$800,000 4. If at any time after exercising its Option, La Teko intends to initiate development of the SD project, La Teko shall notify Kennecott in writing and concurrently provide Kennecott with a copy of the feasibility study recommending the operation of a mine on the SD property. Kennecott shall have the right to advise La Teko within sixty (60) days whether it wishes to reacquire a forty-nine percent (49%) interest in the SD Project. If Kennecott wishes to exercise its reacquisition right, it will do so by providing written notice of its intention to La Teko, and within thirty days thereafter providing La Teko with payment of an amount equal to one hundred and fifty percent (150%) of forty-nine percent (49%) of the expenditures incurred by La Teko on the SD Project. 5. After Kennecott has exercised its reacquisition right, Kennecott and La Teko shall operate the SD Project as a joint venture, incorporating such terms as will be negotiated before execution of the Option Agreement. Thereafter, each party shall contribute its share of development expenditures in relation to its current participating interest. La Teko shall have the option of managing the joint venture, or appointing Kennecott as manager. 6. In the event Kennecott notifies La Teko that Kennecott will not exercise its right to reacquire an interest in the SD Project, Kennecott's interest in the SD Project shall be converted automatically to the right to receive two percent (2%) of net smelter returns from any mine located thereon. 7. Exploration Expenditures shall be made at La Teko's sole discretion and on such parts of the Projects as La Teko may deem appropriate. For the purposes of satisfying the Option, Exploration Expenditures shall mean all cash, expenses and obligations spent or incurred by La Teko on exploration and development activities on or for the Projects, including but not limited to, all fees and assessment work required to keep the Projects in good standing, all expenditures for geophysical, geological and geochemical work of direct benefit to the Projects, all surveys, drilling, assaying, metallurgical testing and engineering, administration, and all other expenditures directly benefiting the Projects. If La Teko fails to make the required Exploration Expenditures or Payments in any given year, the Option Agreement will terminate automatically. The parties agree that, except for year one (1), which shall be a firm commitment, the Exploration Expenditures set forth above shall be a requirement to extend the contract from year to year, and not an obligation to make expenditures. La Teko may terminate the Option Agreement at any time for any reason or no reason, upon sixty (60) days written notice to Kennecott. 8. Until La Teko exercises its Option, Kennecott shall retain title to the Projects, as appropriate. La Teko shall reimburse Kennecott for the payment of all taxes and fees required to keep the Projects in good standing. Payment of such taxes and fees shall be included in Exploration Expenditures. Upon La Teko exercising its Option, Kennecott shall immediately transfer title of the Projects to La Teko. Such transfer shall be subject to the provisions of Paragraphs 4, 5, 6, 9 and 10. 9. La Teko may relinquish title to the Projects, or any parts thereof, at any time upon written notice to Kennecott. Kennecott shall have the right to retain, or after the Option is exercised, reacquire such claims at no cost. 10. Kennecott shall have a right of first refusal on any transfer of La Teko's interest in the SD Project. In the event Kennecott exercises its right to reacquire an interest in the SD Project, the preemptive rights contained in the joint venture agreement shall apply to transfers of interests by either party. Such preemptive right restrictions shall not apply to any transfer to an affiliated company. 11. Closing of Option and Assignment Agreements shall be subject to: (a) VSE regulatory approval; and, (b) Amendment of the agreement with Bering Straits Native Corporation on terms acceptable to both parties. 12. The paragraphs set forth above are intended by the parties to be the terms of the final Option and Assignment Agreements. The parties intend to be immediately bound by this Paragraph 11 and those set forth below. Immediately upon the execution of this Letter Agreement, and until such time as a final Option Agreement is executed between the parties, Kennecott shall grant La Teko the right to: (a) Enter in, under and upon the Projects at La Teko's sole risk; and, (b) Inspect and copy any geological or other data in Kennecott's possession relating to the Projects. 13. Kennecott represents and warrants that as of the effective date of this Letter Agreement that: (a) It has title to the claims comprising the Projects, subject to the paramount title of the United States of America and Canada; (b) To the best of its knowledge, it has paid all taxes, assessments, charges, fees and other levies imposed upon or required with respect to the Projects, and has filed all returns and reports required therefor; (c) To the best of its knowledge, there are no actual, pending, or threatened lawsuits or administrative actions affecting the Projects; and, (d) It has full authority to enter into the transaction contemplated herein. 14. The parties agree to meet at such times and places as are mutually convenient or necessary to negotiate the Option Agreement. Each party shall bear its own costs for the negotiation and registration of such Option Agreement. The parties shall close the Option Agreement prior to the close of business on 13 February, 1998. La Teko shall have until 9 January, 1998 to conduct due diligence on the Projects. On or before 9 January, 1998, La Teko shall give Kennecott written notice of its intent to close the Option Agreement. If La Teko intends to close, it shall forward a bank draft for C$30,000 to Kennecott to cover land costs on the SD Project due on 13 January, 1998. In the event that Kennecott does not receive such bank draft in the time specified, this Letter Agreement shall automatically terminate and, subject to VSE approval, La Teko shall issue 15,000 of its common shares to Kennecott as a break up fee. In the event that VSE approval is not given, La Teko shall reimburse Kennecott for its direct expenses in relation to the proposed transaction in cash. Thereafter, the parties shall have no further liability or obligation to one another. 15. Either party may assign its rights under this Letter Agreement to an affiliated company. 16. The parties agree that any confidential information exchanged shall not be disclosed to any third party without written permission. Neither party shall issue any press release or other public announcement concerning the subject matter of this letter without the written permission of the other party. 17. This agreement shall be construed under the laws of the Province of British Columbia, Canada, without regard to conflicts of law. If these terms are acceptable to you, please execute this Letter Agreement in the appropriate space below. KENNECOTT EXPLORATION COMPANY /s/ F.D. Hegner Director, Strategic Development KENNECOTT CANADA EXPLORATION, INC. /s/ F.D. Hegner Vice-President ACCEPTED: LA TEKO RESOURCES LTD. By: /s/ Gerald G. Carlson Date: 24 November 1997 [Exhibit A omitted which contains a location and description of Scheelite Dome Project] EX-10 6 AMENDMENT TO LETTER OF INTENT This Agreement and Amendment is made and entered into this 2nd day of February 1998, by and between Kennecott Canada Exploration, Inc., Kennecott Exploration Company (collectively, "Kennecott") and La Teko Resources Ltd. ("La Teko"). WHEREAS, Kennecott and La Teko entered into that certain Letter of Intent dated November 24, 1997, providing for the transfer of Kennecott's interests in the Scheelite Dome and Mt. Distin properties; and, WHEREAS, the parties now wish to amend certain provisions of such Letter of Intent; NOW, THEREFORE, in consideration of the premises, the parties agree as follows: 1. Paragraph 13 shall be amended so that it shall now read: Each party shall bear its own costs for the negotiation and registration of such Option Agreement. The parties shall fully close the Option Agreement prior to March 31, 1998. La Teko shall have until February 27, 1998 to conduct due diligence on the projects. On or before February 27, 1998, La Teko shall give Kennecott written notice of its intent to close the Option Agreement. If Kennecott does not receive such notice, the Letter Agreement shall terminate automatically and, subject to VSE approval, La Teko shall issue Kennecott 30,000 shares of its common shares as a breakup fee. In the event that VSE approval is not forthcoming, La Teko shall pay Kennecott double its direct expenses in relation to the proposed transaction in cash. Thereafter, the parties will have no further obligation to one another. If La Teko intends to close the Option Agreement, La Teko agrees to reimburse Kennecott in cash for property payments made at Scheelite Dome in January 1998. 2. The Mt. Distin project, and terms and conditions relating to the Mt. Distin project, will no longer be included in the Letter of Intent. The parties acknowledge that said Letter of Intent, as amended, is valid and in full force and effect, and for such purposes as the parties originally intended. Executed the day and year first set forth above. KENNECOTT CANADA EXPLORATION, INC. LA TEKO RESOURCES LTD. By: /s/ F.D. Hegner By: /s/ Gerald G. Carlson KENNECOTT EXPLORATION COMPANY By: /s/ F.D. Hegner EX-23 7 BEDFORD CURRY CHARTERED ACCOUNTANTS SUITE 801 1281 WEST GEORGIA STREET VANCOUVER, B.C. V6E3J7 TEL (604) 689-4352 FAX (606 ) 688-4338 Board of Directors La Teko Resources Ltd. 625 Howe Street, Suite 500 Vancouver, B.C. V6C 2T6 Dear Sirs: LETTER OF CONSENT Bedford Curry & Co. hereby consents to being named in the annual report on form 10-K at December 31, 1997 being filed by La Teko Resources Ltd., as having rendered its opinions respecting the financial statements of the Company as of December 31, 1997 and 1996. /s/ Bedford Curry Chartered Accountants March 26, 1998 SUITE 801 1281 WEST GEORGIA STREET VANCOUVER, B.C. V6E3J7 / TEL (604) 689-4352 / FAX (606 ) 688-4338 EX-27 8
5 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE BALANCE SHEET AS OF DECEMBER 31, 1997, AND STATEMENTS OF OPERATIONS FOR THE YEAR THEN ENDED, AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 12-MOS DEC-31-1997 JAN-01-1997 DEC-31-1997 613,304 0 253,981 0 0 867,285 11,851,234 (57,593) 12,660,926 234,462 0 18,182,217 0 0 (5,755,753) 12,660,926 0 0 0 (1,461,455) (770) 0 0 (1,462,225) 0 (1,462,225) 0 0 0 (1,462,225) (0.06) (0.06)
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