-----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, T8wV7/2155Ohsx/Kr2lM9qdjQeAfT2Lw15ljl4ReNO7NEXsKEPuVdLkjxI2v3UEY j851O1C3iIDDGZfQnxbjow== 0000927356-96-000158.txt : 19960416 0000927356-96-000158.hdr.sgml : 19960416 ACCESSION NUMBER: 0000927356-96-000158 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 4 CONFORMED PERIOD OF REPORT: 19951231 FILED AS OF DATE: 19960415 SROS: AMEX SROS: NYSE FILER: COMPANY DATA: COMPANY CONFORMED NAME: ATLAS CORP CENTRAL INDEX KEY: 0000008302 STANDARD INDUSTRIAL CLASSIFICATION: GOLD & SILVER ORES [1040] IRS NUMBER: 135503312 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-K SEC ACT: 1934 Act SEC FILE NUMBER: 001-02714 FILM NUMBER: 96546891 BUSINESS ADDRESS: STREET 1: 370 SEVENTEENTH ST STREET 2: STE 3150 CITY: DENVER STATE: CO ZIP: 80202 BUSINESS PHONE: 3038251200 MAIL ADDRESS: STREET 1: 370 SEVENTEENTH STREET STREET 2: STE 3150 CITY: DENVER STATE: CO ZIP: 80202 10-K 1 FORM 10-K FYE 12/31/95 UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-K Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 for the transition period from July 1, 1995 to December 31, 1995 For the Fiscal Period Ended December 31, 1995. COMMISSION FILE NO. 1-2714 ATLAS CORPORATION -------------------------------- (Exact name of Registrant as specified in its charter) DELAWARE 13-5503312 - ------------------ ------------------------ (State or other jurisdiction of incorporation or organization) (I.R.S. Employer identification No.) 370 Seventeenth Street, Suite 3050, Denver, CO 80202 303-629-2440 - ---------------------------------------------------- --------------------------------------- (Address of principal executive offices) (Zip Code) (Registrant's telephone number) (including area code)
Securities registered pursuant to Section 12(b) of the Act: - -------------------------------------------------------------------------------- NAME OF EACH EXCHANGE TITLE OF EACH CLASS ON WHICH REGISTERED - -------------------------------------------------------------------------------- Common Stock, par value $1 per share New York Stock Exchange Option Warrants to Purchase Common Stock American Stock Exchange Preferred Stock Purchase Rights New York Stock Exchange - ------------------------------------------------------------------------------- Securities registered pursuant to Section 12(g) of the Act: None Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the 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 disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of the Form 10-K or any amendment to this Form 10-K. [_] Aggregate market value of the 13,695,371 shares of Common Stock held by non- affiliates of the Registrant as of March 22, 1996 was $20,543,057. 1 As of March 22, 1996, Registrant had outstanding 20,092,271 shares of Common Stock, $1.00 Par Value, its only class of voting stock. DOCUMENT INCORPORATED BY REFERENCE None. 2 PART I Item 1. BUSINESS -------- GENERAL - ------- Atlas Corporation ("Atlas" or the "Company") is a New York Stock Exchange listed mining company (AZ) which is principally engaged in the exploration, development and exploitation of precious metal and industrial mineral resource properties. Atlas Corporation was incorporated under the laws of the State of Delaware on October 31, 1936. The principal office of Atlas Corporation is located at Republic Plaza, 370 17th Street, Suite 3050, Denver, Colorado, U.S.A. 80202. Atlas has three-wholly-owned subsidiaries: Atlas Precious Metals Inc., incorporated under the laws of the State of Nevada on May 4, 1983, which holds the Gold Bar claim block property; Atlas Gold Mining Inc., incorporated under the laws of the State of Nevada on April 9, 1986, which holds the assets of the Gold Bar Mine; and Atlas Perlite, Inc., incorporated under the laws of the State of Oregon on May 23, 1994, which holds the Tucker Hill Property. In addition, Atlas has a 51% interest in Phoenix Financial Holdings Inc. and owns interests in Granges Inc. and (until March 9, 1996) Dakota Mining Corporation. See "Item 1. Business - Investments". PROPOSAL TO COMBINE WITH MSV RESOURCES INC. - ------------------------------------------- Atlas and MSV Resources Inc. ("MSV") reached an agreement in principle in March, 1996 to combine the two companies through a share exchange tender offer in which (i) the existing shareholders of MSV will exchange their common shares of MSV for a new class of non-voting MSV shares which will be exchangeable at any time for Atlas Common Shares on a one-for-one basis, and (ii) Atlas would acquire all the voting shares of MSV (TSE,ME:MSV) for the equivalent of 2 Common Shares of Atlas for each 3 common shares of MSV. MSV, based in Montreal, produces gold and copper at its Copper Rand and Portage mines in Chibougamau and also owns the Eastmain gold mine in Northern Quebec. In connection with the transaction, Atlas intends to raise $[20] million in additional equity capital to be used primarily to develop the MSV properties in Quebec. Following the completion of the transaction and assuming (i) the issuance of approximately __ additional Common Shares to raise new equity, and (ii) the exchange for Atlas Common Shares of all exchangeable shares issued in the MSV transaction, the former holders of MSV common shares would hold approximately __% of the outstanding Common Shares of Atlas. Each new exchangeable share will carry voting and equity rights equivalent to the Common Shares of Atlas Corporation. After giving effect to this proposed reorganization, Atlas Corporation would own all the voting shares of MSV. In addition, it is proposed that MSV would be renamed Atlas Canada. The exchangeable Atlas Canada shares will be considered Canadian securities for Canadian taxation purposes. MSV has reported 33.1 million Common Shares outstanding as of March 20, 1996. The completion of the transaction will be subject to customary conditions including, without limitation, (i) the acceptance of the holders of at least 75% of the issued and outstanding common shares of MSV, (ii) approval by the shareholders of Atlas of (A) the terms of the transactions and (B) an amendment to its certificate of incorporation increasing the number of Common Shares of Atlas available for issuance, and (iii) approval of all regulatory authorities having jurisdiction. GOLD BAR MINE - ------------- All of the Company's gold production to date has been from its Gold Bar Resource Area. The Gold Bar Resource Area is located in and adjacent to the Roberts Mountains in Eureka County, Nevada, at elevations ranging from 6,400 to 8,800 feet above sea level. The area is reached by traveling 22 miles west of Eureka, Nevada, on U.S. Highway No. 50 and 17 miles northeast along the Eureka County Three Bars Road. The property consists of 3,297 unpatented lode claims and 182 unpatented mill site claims covering approximately 105 square miles of public lands administered by the Bureau of Land Management ("BLM"). In addition, the property contains 160 acres of fee land from patented mining claims in the Gold Bar Mine area. Approximately 70% of the property was staked by Atlas and does not presently carry a royalty burden. The remainder of the property has been purchased or leased from various parties and is burdened with production net smelter royalties ranging from three to seven percent, dependent upon the price of gold Since 1983, five gold deposits have been discovered and developed on the Gold Bar claim block. These are Gold Bar, Goldstone, Gold Ridge, Gold Pick, and Gold Canyon. In addition the Company has identified and partially defined several mineralized targets located within that portion of the Gold Bar claim block in which the Company retains a 100% interest. Resumption 3 of mining is currently planned for the Gold Pick and Gold Ridge deposits (See "Gold Bar Mine -- Proposed Mining Operations"). The Gold Pick and Gold Ridge deposits are unencumbered by royalties and are controlled by unpatented mining claims for which first-half final certificates have been issued by the BLM which will prevent federal royalties from being applied to production. All of the mineralization found to date occurs as sediment-hosted, "Carlin-type" deposits. These deposits are hosted by carbonate-rich sedimentary rocks and are characterized by micron size gold and a distinct hydrothermal alteration suite. Gold mineralization and alteration are characteristically enriched in the trace elements silver, antimony, arsenic, mercury, and thallium. HISTORY - ------- Regional exploration brought Atlas to the area in 1983. Detailed geological work led to the development of specific targets which resulted in the claim staking of most of the Gold Bar Resource Area. A drill program in late 1983 and 1984 outlined the original Gold Bar deposit. The ore body was a limestone-hosted predominantly oxidized ore body containing approximately 315,000 mineable ounces of finely disseminated gold. After completion of a positive feasibility study, a 1,500 ton per day carbon-in- leach mill was constructed at a cost of $12 million, and open pit gold production from the Gold Bar deposit began in January 1987. Due to a low stripping ratio, uniform mineralization, and low processing costs, Gold Bar was profitable for the first four years of operations, with project cash costs in the range of $150 per ounce. While producing at the Gold Bar pit, the Company conducted regional exploration which resulted in the discovery in 1987 and 1988 of three new gold bearing deposits, Goldstone, Gold Ridge and Gold Pick, clustered together in the Roberts Mountains approximately six miles northeast of the Gold Bar mine and mill. These satellite deposits, located in bedded limestone sediments, contain ore which is largely oxidized, although portions are unoxidized and contain fine- grained pyrite and carbon. With the success of mining the Gold Bar deposit and the discovery of additional reserves in 1987 and 1988, the Company expanded mill capacity from 1,500 to 3,000 tons of ore per day at a cost of $5 million in 1989. As mining progressed at the Gold Bar pit, a large stockpile of higher grade refractory ore was created. A refractory circuit designed to process the stockpiled ore was added to the mill in the first quarter of fiscal 1991 at a cost of $3.7 million. Although the refractory circ uit did not meet all design performance criteria uit did not perform as expected, stockpiled refractory material was processed over the next six month period while a haul road was completed and the new satellite deposits prestripped. As a result of an increase in the stripping ratio, the lower grade of the new satellite deposits and additional costs for the longer haul to the mill, direct mine site costs increased approximately $50 per ounce to $207 per ounce during fiscal 1991. Although the stripping ratios of the satellite 4 deposits were much improved in fiscal 1992, the continued lower grade of the satellite ores resulted in mine site costs rising to $223 per ounce. The operations, while still generating positive cash flow, experienced operating losses for fiscal 1991 and 1992 due to high non-cash charges. Two properties were purchased in 1991 and 1992 to consolidate and expand the Company's Gold Bar claim block. In 1991, the Company acquired 751 unpatented lode mining claims for 118,644 Common Shares of Atlas. Preliminary exploration of these claims identified a small mineralized deposit, called Cabin Creek, located one mile east of the haul road. In 1992, an additional 99 unpatented lode mining claims were acquired for $500,000 in cash and 178,949 Common Shares. These claims hosted the Gold Canyon deposit which provided ore for the mill from September 1993 to January 1994. Mining of ore with grades substantially less than that projected from earlier drilling reserves, operational problems and permitting delays experienced in fiscal 1993 resulted in further cost increases which precipitated a liquidity crisis for the Company. A decrease in gold production was experienced during mining of the first phase at Gold Pick East with 30% less oxide and 18% more refractory ore being produced than was forecast by the reserve model. In addition, mining encountered a zone of structurally controlled mineralization which limited the dissemination of gold and reduced the available ore tonnage. A delay in the permitting of the Gold Canyon satellite deposit also required the acceleration in prestripping of the smaller and higher stripping ratio Goldstone North deposit which was mined from March to August 1993 in order to sustain production. In May 1993, mining of this deposit was suspended for one month due to a partial collapse of the highwall. As a result of these problems, Atlas was unable to maintain payments to its mining contractor and provided the contractor with a secured $3.5 million note. This note was repaid in fiscal 1994 from cash flow from the mining of Gold Canyon, from proceeds of a private placement in September 1993 referred to below and from the sale of selected mining equipment. In September 1993, Phoenix Financial Holdings Inc. ("Phoenix") entered into an agreement with Atlas to provide $8,375,000 in exchange for 1.5 million Common Shares of Atlas, a $3.5 million, 9 percent, convertible debenture due September 1998, convertible at US $4 per share of Atlas, and warrants to purchase for three years (to September, 1996) 2 million Common Shares of Atlas at a price of US $3.625 per share. Simultaneously with closing of the transaction, Phoenix privately placed, to non-U.S. investors, through First Marathon Securities Limited, all 1.5 million Common Shares of Atlas and 750,000 of the 2 million warrants; Phoenix retained the convertible debenture and the remaining warrants. (Phoenix subsquently sold (i) the subsidiary which held the convertible debenture, and (ii) the remaining Atlas warrants prior to Atlas purchasing its 51% interest in Phoenix in November 1995.) See Item 13. "Certain Relationships and Related Transactions". In connection with the September 1993 foregoing transactions, Phoenix nominees initially assumed four of the six Atlas board seats. This was later increased to five as one of the original Atlas directors 5 subsequently resigned. In addition to the board changes, Phoenix also assumed management control of the Company, appointing David Birkenshaw, then the Chairman and Chief Executive Officer of Phoenix, Chairman and Chief Executive Officer of Atlas. Subsequent to the change in control of the Company, an extensive program was initiated to confirm and evaluate the economics of the remaining reserves at the Gold Pick, Gold Ridge and Gold Canyon deposits. One of the main concerns was the past overestimation of reserves in deposits having strong structural ore controls. A 23 hole confirmatory drill program at the Gold Canyon deposit led to the determination that mining to the originally designed pit bottom would have been uneconomical due to the occurrence of more refractory material than had been previously forecast. As a result, mining at the Gold Canyon deposit was halted in January 1994 instead of April 1994 as had been originally estimated. Although mining had ceased in January 1994, the milling of stockpiled material allowed for continued gold production through September 1994. After the depletion of stockpiled material, milling operations were suspended on September 19, 1994, and the operations were placed on standby. 6 The following table provides the operating statistics for the Gold Bar Project from fiscal years 1991 to 1995. There was no production in the Gold Bar Resource Area in the six months ended December 31, 1995. GOLD BAR RESOURCE AREA ANNUAL PRODUCTION DATA (Tons in Thousands)
Year Ended June 30, - ------------------------------------------------------------------------------------------------- 1991 1992 1993 1994 1995 - ------------------------------------------------------------------------------------------------- Gold Bar Ore tons mined 33 Grade (oz/ton) .061 - ------------------------------------------------------------------------------------------------- Goldstone Ore tons mined 704 5 195 126 10 Grade (oz/ton) .077 .080 .069 .088 .045 - ------------------------------------------------------------------------------------------------- Gold Ridge Ore tons mined 44 1,316 331 Grade (oz/ton) .043 .060 .051 - ------------------------------------------------------------------------------------------------- Gold Pick Ore tons mined 249 544 Grade (oz/ton) .071 .075 - ------------------------------------------------------------------------------------------------- Gold Canyon Ore tons mined 602 Grade (oz/ton) .065 - ------------------------------------------------------------------------------------------------- Mining Statistics: Total tons mined (includng preproduction stripping) 13,298 10,240 13,322 4,462 13 Total ore tons mined 748 1,570 1,103 728 10 - ------------------------------------------------------------------------------------------------- Strip ratio (waste: ore) 16.8:1 5.5:1 11.1:1 5.1:1 .3:1 - ------------------------------------------------------------------------------------------------- Milling Statistics: Total tons milled 1,091 1,226 1,120 1,101 199 Grade (oz/ton) .09 .07 .06 06 .04 Recovery 82% 92% 82% 79% 72% Ounces produced 80,727 81,832 55,080 51,696 6,019 - ------------------------------------------------------------------------------------------------- Average sales price ($ per oz) $379 $362 $350 $377 $387 - -------------------------------------------------------------------------------------------------
7 - ------------------------------------------------------------------------------------------------- Operating Costs ($ per oz) Cash production cost $207 $223 $323 $319 $446 Non-Cash costs 98 143 162 87 58 ---- ---- ---- ---- ---- Total $305 $366 $485 $406 $504 ==== ==== ==== ==== ==== - -------------------------------------------------------------------------------------------------
RESERVES - -------- Following the suspension of mining at Gold Canyon, management elected to delay the further planned mining of the Gold Pick and Gold Ridge deposits until they the deposits could be were more adequately drilled and until various cost cutting measures were examined. This confirmatory program included the drilling of 303 surface and 55 underground holes at the Gold Pick and Gold Ridge deposits. As a result of a geological mapping program and the additional drilling, which has reduced drill spacing to a nominal 50 to 75 foot range within these two deposits, management believes it has adequately resolved the previous problems relating to structural ore controls. The current mine plan for the Gold Pick and Gold Ridge deposits has established proven and probable mineable reserves which were independently audited by Mine Reserve Associates of Denver, Colorado in December 1994. Pincock, Allen & Holt ("PAH") of Denver, Colorado as part of its independent audit of the Gold Bar resource area, dated December 13, 1995, confirmed the following: MINEABLE RESERVES
grade (ounces ore tons of gold per ton) contained ounces(1) -------- ---------------- ------------------- Gold Pick East 1,278,000 0.073 93,939 Gold Pick West 1,009,000 0.069 69,909 Gold Ridge 391,000 0.059 23,077 --------- ----- ------- Total 2,678,000 0.070 186,925 ========= ===== =======
(1) Estimated recoverable ounces of 157,000 based upon an overall 84% recovery rate. PROPOSED MINING OPERATIONS - -------------------------- The revised mine plan calls for average production of 52,000 ounces of gold per year over a three year period. Prior to the addition of project financing costs (see below under "Proposed Mine Financing") and adjustments for preproduction costs, cash cost of production has been estimated at $249 per ounce of gold produced, with capital expenditures, on a per-ounce basis, totaling $111 per ounce. 8 Mining of the deposits will be conducted by a contract miner by conventional open pit methods. The contract miner will be responsible for drilling, blasting, loading and hauling both process feed and waste. The ore will be processed at Atlas' existing 3,000 ton per day carbon in leach milling facility, to be operated by Atlas. Atlas currently holds a variety of environmental permits, licenses and waivers required by state and federal authorities to construct, operate, and close the Gold Bar mine and process mill. There are no requirements associated with the current permits that would prohibit the restarting of mining operations. PROPOSED MINE FINANCING - ----------------------- The Company currently anticipates maximum capital outlays of approximately $10.0 million in order to resume mining operations at Gold Bar. The financing plan calls for Atlas to contribute the first $5.0 million of this capital, utilizing cash from the net proceeds of the February 1996 Exchangeable Debenture described in Note 9 to the Financial Statements, with the remaining $5.0 million to come from project financing. On October 24, 1995, the Company signed a non-binding letter of intent with Brown & Root, Inc. ("Brown & Root"), a contract mining company, establishing terms for a contract mining service agreement. In addition, the letter provides for a $5.0 million loan guarantee of project financing in return for a 20% non-operating net profits interest in the project, subject to a minimum payment of $500,000 and a maximum payment of $1.5 million. This agreement, which is still subject to the completion of due diligence by Brown & Root, the arrangement of the project financing, and the establishment of a satisfactory hedging program, is expected to be finalized in early spring 1996. If the Company is unable to reach a formal agreement with Brown & Root, Atlas will pursue the execution of an alternative mining contracting proposal which has been presented to the Company on terms similar to Brown & Root, and will attempt to secure alternative project financing for the remaining $5.0 million. Although Atlas has had preliminary discussions with financial institutions regarding such a financing, there can be no assurance that such a financing would be on attractive terms to the Company. EXPLORATION - ----------- GOLD BAR CLAIM BLOCK Atlas continues to actively explore for gold on the Gold Bar claim block. On the approximately 16 square miles of the Gold Bar claim block which is not currently subject to joint venture, Atlas has identified seven exploration targets. Mineralization has been encountered at each of these targets; however, additional mapping, sampling and drilling is required to delineate reserves determine their true potential. During the quarter ended June 30, 1995, an 18 hole drill program was conducted on an area adjacent to the original Gold Bar deposit. Holes were drilled to the northwest and southeast of the original pit. All of the thirteen holes to the northwest encountered gold mineralization, with 9 3 holes having intercepts in excess of 0.1 ounces of gold per ton over a distance of at least 20 feet and 0.055 ounces per ton over 80 feet. Further investigation of this area will be conducted by Granges as part of its newly formed joint venture with the Company (see "Joint Ventures - Granges Inc."). JOINT VENTURES During the first half of fiscal 1995, and as part of a strategic decision to accelerate the development of the entire Gold Bar claim block, Atlas entered into joint venture arrangements with three separate gold producing companies, Rayrock Yellowknife Resources Inc., Homestake Mining Company and Hemlo Gold Mines (U.S.A.), Inc. Active exploration programs were conducted by all three companies on their respective areas of interest during the 1995 field season. The companies conducted mapping, sampling and geophysical work as well as exploration drilling. In December 1995, Atlas also announced that it had completed a formal joint venture agreement with Granges. In aggregate, through the efforts of the Company and its joint venture partners, it is anticipated that over $2 million will be spent on the Gold Bar claim block during calendar 1996. Rayrock Yellowknife Resources Inc. - ---------------------------------- On August 8, 1994, the Company entered into an agreement with Rayrock Yellowknife Resources Inc. ("Rayrock") defining the terms of an exploration joint venture on approximately 1,000 claims (31 square miles) on the northern portion of the claim block. The agreement commits Rayrock to spend $1.5 million on exploration and development within three years and to complete an independent engineering report stating that a mineral deposit of economic potential has been located in order to earn a 60% undivided interest. In the event that Rayrock fails to complete an engineering report within the first three years, Rayrock has the option to spend an additional $1.5 million over the next two years. If an engineering report has not been completed after these additional expenditures, Rayrock can either carry Atlas through to the completion of such a report to earn 60% on the entire area, or earn a 60% interest in a reduced 10 square mile area. After Rayrock completes its earn-in requirements, Atlas and Rayrock will contribute on a 40%/60% basis. Homestake Mining Company - ------------------------ On September 23, 1994, the Company entered into an agreement with Homestake Mining Company ("Homestake") which defines the terms of an exploration joint venture on approximately 436 claims (15 square miles) on the southern portion of Atlas' Gold Bar claim block. The agreement commits Homestake to spend a minimum of $200,000 in exploration in the first year of the agreement. In subsequent years, Homestake is required to make the following minimum exploration expenditures to maintain the agreement in effect: Year 2 $ 500,000 Year 3 $ 600,000 Year 4 $ 700,000
10 Year 5 $1,000,000
In order to earn a 60% interest in the property, Homestake must satisfy the minimum exploration expenditures, deliver to Atlas prior to the fifth anniversary of the agreement a bankable engineering report stating that an economic mineral deposit has been located, and provide notice that Homestake is committed to proceed with commercial development of the property. Homestake has provided notice to Atlas that it intends to proceed with the second year of the program. Hemlo Gold Mines (U.S.A.), Inc. - ------------------------------- On October 26, 1994, the Company executed a letter agreement with Hemlo Gold Mines (U.S.A.), Inc. ("Hemlo"), which set forth the principal terms of an exploration agreement, which covers 138 of the Company's claims (approximately 4.5 square miles) and 42 contiguous Hemlo claims, located four miles northeast of the Company's Gold Bar claim block. In order to maintain this agreement, Hemlo must spend a minimum of $400,000 in exploration expenditures within four years. After such expenditures have been made by Hemlo, the Company will have the option to participate in exploration and development under a mining venture agreement with a 30% interest. In the event the Company declines to participate, Hemlo may, at its option, continue to explore these properties under a mining lease which provides for a production royalty on the Company's claims equal to 7% of the net operating proceeds. An advance minimum royalty of $5,000 on the first anniversary and $25,000 per year thereafter will be payable by Hemlo for the duration of the lease. Since the signing of the agreement, Hemlo has drilled and surrendered a portion of the property, reducing the property position covered under this agreement to approximately 3 square miles. Granges Inc. - ------------ Effective September 29, 1995 the Company entered into an exploration joint venture agreement with Granges with respect to approximately 34 square miles of the Company's Gold Bar claim block. In order to earn a 50% undivided interest in not more than 15 square miles within the area of interest, the terms of the agreement requires Granges to spend U.S. $2.25 million on exploration and development within three years on approximately 1,190 claims included in the area of interest, at the rate of U.S. $625,000 in each of the first two years and U.S. $1.0 million in the third year, and to complete an independent reserve report recommending development of a deposit containing a mineable reserve in excess of 300,000 ounces of gold. Granges has the right to terminate the agreement at any time prior to completing the U.S.$2.25 million of exploration and development expenditures and the independent reserve report. If a reserve study is not complete within the first three years, Granges has an option to earn a 50% interest in a reduced three square mile area by spending an additional U.S.$1.0 million in each of the next succeeding two years and completing a reserve study. Atlas has retained a two percent net smelter royalty on all claims not currently carrying third party royalties. Atlas has agreed to make available to the venture, at the time of Granges' earn in, milling throughput rights of not less than 50% of the capacity of the existing Gold Bar mill. 11 DOBY GEORGE PROPERTY - -------------------- On October 25, 1995, Atlas purchased the Doby George property from Independence Mining Company Inc. ("Independence") for the sum of $400,000 in cash plus 1.4 million Common Shares. Doby George is situated in northern Elko County, Nevada, approximately 60 air miles north of the community of Elko. Current access to the property is through Mountain City, Nevada off State Highway 225 then by dirt road to the project site. The property is comprised of 464 unpatented lode mining claims (approximately 14 square miles) of which 104 claims are held under three separate leasehold interests. There are currently no facilities or services available at the property. Water is available through existing permits which have been sold to Atlas. Additionally, Atlas believes it may be able to secure water from private landowners in the area. Atlas has established a field office in Mountain City. Obligations to maintain the properties are those prescribed by federal and state laws as well as nominal minimum advance royalty payments to the three lessors. Royalty burdens on the property range from a 1.5% net smelter royalty (ONSRO) to a 5% NSR. The current identified mineralization is burdened by NSRs ranging from 2.5% to 4.5%. Minimum annual royalty payments for calendar year 1996 total $36,600. Rock types at Doby George are dominated by Mississipian Schoonover Formation siltstones, limestones and quartzites, which host all significant mineralization on the property, Tertiary Doby tuffs and Mesozoic quartz diorite. Mineralization is generally controlled by structure and stratigraphy. High angle structures are most obvious with mineralization increasing in both grade and thickness toward major structures. Gold is fine grained and commonly occurs within quartz veins and silicified zones. The property was first identified by Felmont Oil Company, an affiliate of Homestake, in 1983. Homestake conducted exploration drilling on the property through 1991 when the property was sold to Independence. A total of 691 holes have been drilled at Doby on five separate deposits, and metallurgical testwork has confirmed that the mineralization is not refractory and is amenable to heap leach processing. The drilling and mapping to date have confirmed that a significant portion of the mineralization is shallow, varying in thickness from 15 feet to 225 feet, and may be mined by open pit. The identified mineralized zones have been estimated by Behre Dolbear & Company of Denver, Colorado, in an independent evaluation in July 1994, to contain 3.6 million tons of mineralized material at a grade of 0.06 ounces of gold per ton. In an effort to bring this material into the reserve category, Atlas is currently concluding a $600,000 work program of additional drilling, metallurgical and engineering studies on the previously identified West Ridge and Red Tail deposits in order to confirm reserves, and, if possible, expand upon the previously identified mineralization. It is anticipated that the work program will be completed by early summer 1996. Environmental baseline studies are also under way in support of a Plan of Operations scheduled to be filed with the U.S. Forest Service and Bureau of Land Management by mid 1996. 12 COMMONWEALTH PROPERTY - --------------------- On August 15, 1995, Atlas entered into an option agreement with Harvest Gold Corporation ("Harvest") pursuant to which Atlas has acquired an option to purchase substantially all of its assets. The primary asset of Harvest is the Commonwealth property situated in southeast Arizona. Additionally, Harvest holds certain royalty and development rights pertaining to 36 exploration concessions located in Argentina, a number of which are currently being evaluated by Crown Resources Corporation. The Commonwealth property is located in central Cochise County, Arizona, approximately 28 miles south of Wilcox. Current access is from U.S. 191, two miles south of the town of Sunsites, and then one mile by county road. There are numerous roads which access the property either from U.S. 191 or the county road. Water and power are available at the property. The deposit identified on the property lies within twelve patented lode claims held under an option to purchase agreement. Additionally there are two mill site claims, 17 unpatented lode claims, 14 unpatented placer claims, and 472 acres of surface held by Atlas under the option. The aggregate royalty burden on the property does not exceed a 3.6% net smelter royalty. The terms of the option provided for an initial payment of $125,000. Additionally, prior to September 3, 1996, Atlas must spend a minimum of $425,000 and make an election as to whether it wishes to exercise its option. If Atlas exercises its option, Atlas will pay Harvest $25 per equivalent ounce of recoverable gold reserve, as determined by an independent third party reserve study. The purchase price is for all of the assets of Harvest. The amount would be payable 75% in Common Shares, the value to be calculated by averaging the twenty-day trading average of Atlas stock on August 15, 1995 and the twenty- day trading average of Atlas stock on the date of exercise of the option, and the remaining 25% in cash, the cash portion not to exceed $1,300,000. The Commonwealth Mine was originally discovered in 1895 and has produced a total of 122,000 ounces of gold and 13 million ounces of silver from underground mining conducted from 1895 to 1927. The Commonwealth Mine property contains epithermal mineralization within and adjacent to shear zones that trend East/West across the primary patented claims. The oldest exposed geological unit is the Cretaceous age Bisbee Group, consisting of reddish sandstone and silt stone. Overlying the Bisbee is a Tertiary age sequence, consisting of a lower andesite, a rhyolite breccia, and an upper andesite. Two major structural zones known as the Main and North Veins transect this sequence of beds. The Main Vein has been the focus of approximately 90% of historic production. High grade mineralization occurred in shoots within the Main Vein and other structural zones and these have largely been extracted by underground methods. Lower grade gold and silver mineralization (greater than 0.01 oz Au/ton and 1.0 oz Ag/ton) occurs in the unmined portion of the structural zones and locally in the intervening sheared and 13 broken rock between the structural zones. These large areas of low-grade mineralization are the focus of the current development program interest, as they have open pit, heap leach potential. In the first quarter of 1996, Atlas met the expenditure requirement of $425,000 set forth in the option agreement and is currently conducting metallurgical and engineering studies in preparation of an internal feasibility study. If the results of such studies are positive, Atlas will employ an outside consultant to generate expand its work program with the intention of generating an independent reserve study upon which the acquisition cost of the property would be based. MUSGROVE CREEK PROPERTY - ----------------------- In October 1992, the Company leased to another mining company gold properties in Oregon (Grassy Mountain) and Idaho (Musgrove Creek) for a period of 35 years with options for three additional 10 year extensions. Atlas was recently informed that the other mining company intended to terminate its lease on the Musgrove Creek property and has reassigned it without cost to Atlas. Located in Lemhi County, Idaho, the Musgrove Creek property encompasses approximately 22 square miles within the Salmon National Forest. The land position consists of 667 unpatented claims consolidated under seven lease agreements. Since 1992, the other mining company engaged in substantial drilling, mapping, sampling and environmental work on the property. An independent consultant retained by the Company has identified a low grade gold mineralized zone containing 13.2 million tons of mineralized material at a grade of .026 ounces of gold per ton. Numerous targets exist on the property which could enlarge the mineralized zone with additional expenditures. Currently, the Company is reviewing data on the property in order to decide whether to continue work on the project or seek a partner for an exploration joint venture on the property. TUCKER HILL PROPERTY - -------------------- During the past two years, the Company has been proceeding with the necessary activities to bring its Tucker Hill perlite deposit into commercial production. This property, located in south central Oregon, approximately 35 miles northwest of Lakeview, was acquired by the Company in 1988. The 900 acre property consists primarily of unpatented mining claims. Perlite is a lightweight volcanic mineral which, when heated, expands up to 20 times its original volume. A form of environmentally friendly natural glass, perlite is used in the manufacturing of acoustic ceiling tiles, insulation products and filter material and is used as an additive for horticultural products. To date, a total of thirteen bulk samples, ranging up to 45 tons in size, have been mined from the property and sent to a variety of end users for testing. Through these tests, perlite from Tucker Hill has been demonstrated to be of high quality and capable of satisfying manufacturing requirements in a wide array of uses. Based on the results of this program, Atlas has entered into negotiations with several end users to deliver crushed and sized perlite under long term contracts. 14 The Company has now completed its definitive economic evaluations and final engineering designs for the development of a quarry and processing facility capable of generating a nominal 100,000 tons of perlite per year. Total capital costs to achieve commercial production are estimated at $1.5 million. A series of drill programs over a small portion of the perlite deposit has confirmed a proven reserve of 3.3 million tons and a probable reserve of 5.6 million tons of high grade perlite. Such a proven and probable reserve would be capable of satisfying 100% of the current U.S. demand for perlite of approximately 650,000 tons per year for a period of over 15 years. Atlas initiated its permitting process early in 1994, and a draft Environmental Impact Statement ("EIS") has recently been issued by the Bureau of Land Management. Atlas currently anticipates the receipt of all required permits by the end of Spring 1996. As outlined under "Item 1. Business-Investments-Phoenix Financial Holdings Inc.", Atlas acquired a 51% controlling position in Phoenix on November 30, 1995. See below under Item 13. "Certain Relationships and Related Transactions". On January 16, 1996 Atlas announced that it had entered into a letter of intent providing for the purchase by Phoenix of the Tucker Hill Project for $1 million in cash, $1 million in Phoenix shares and the retention by Atlas of a 2% gross proceeds royalty on the Tucker Hill Project. The proposed transaction has been approved by a committee of independent Phoenix board members but is subject to regulatory approval and is subject to regulatory approval, approval by a committee of independent Phoenix board members and approval by the a majority of the minority shareholders of Phoenix at its annual general meeting scheduled for May 1996. If acquired, Tucker Hill would be the cornerstone for the development of Phoenix into a Denver based, industrial minerals company INVESTMENTS - ----------- GRANGES INC. - ------------ Following a $50 million equity private placement by the Company in 1994, the Company in August 1994 completed the purchase of 12,694,200 shares of Granges, or 37.2% of the outstanding shares. The shares of Granges trade on both the Toronto and American Stock Exchanges under the symbol GXL. The purchase price was approximately $2.80 per share for an aggregate price of $35.8 million. On May 25, 1995, the Company purchased 20,700 common shares of Granges on the open market to hold a total of 12,714,900 common shares of Granges. Granges, a Canadian mining company, was considered an attractive acquisition to Atlas because of its existing U.S. mining operations, strong financial condition and extensive exploration portfolio. As a result of the May 1, 1995 amalgamation of Granges and its subsidiary, Hycroft Resources and Development Corporation, Atlas' interest in the amalgamated entity was reduced to 27.5%. With the acquisition of the common shares of Granges in August 1994, Atlas assumed proportional board representation and immediately initiated discussions regarding possible business combinations between the companies. During the last several months, the board has been expanded and reconstituted and a special committee has been established to further evaluate possible joint activities. Effective June 1, 1995, Michael B. Richings, formerly Atlas' President 15 and Chief Operating Officer, was appointed to the position of President and Chief Executive Officer of Granges. Mr. Richings also continues to serve on Atlas' board of directors. Operations at Granges' Crofoot/Lewis Mine, located near Winnemucca, Nevada, have consistently produced between 80,000 to 100,000 ounces of gold per year since 1989. For the year ended December 31, 1995, the Crofoot/Lewis Mine produced 101,128 ounces of gold at a cash cost of $272 per ounce versus 94,868 ounces of gold at a cash cost of $294 per ounce in the same period of the previous year. Given its identified reserves and the current level of production, Granges has stated that production is scheduled to continue through the year 2001. In addition to its mining operations, Granges is conducting active exploring for precious metals in the United States, Peru and Ecuador. Granges is currently exploring for gold on Atlas' Gold Bar claim block as part of a joint venture with Atlas. see "Item 1. Business - Exploration, Gold Bar Claim Block, Joint Ventures, Granges Inc." The Company has reported the results of Granges' operations using the equity method since the share position was acquired on August 15, 1994. For the fiscal periods ended December 31, 1995 and June 30, 1995, Atlas recorded equity losses of $1.70 million and $1.36 million, respectively, attributable to the operations of Granges. The Company intends to continue to account for the profits and losses of Granges using the equity method as long as its equity position remains above 20%, and accordingly, the operations of Granges will have an impact upon the financial affairs of the Company. In addition to recording its proportional share of Granges operating results, Atlas also records an additional amount of approximately $34 per ounce of Granges production as an amortization of AtlasO excess carrying cost above Granges book value. Since the amortization is being done on a unit of production method, future additions to Granges mineable reserve base will allow this amortization amount to be reduced. DAKOTA MINING CORPORATION - ------------------------- In March 1995, Atlas acquired 2,419,355 common shares of Dakota Mining Corporation ("Dakota") for a purchase price of $1.24 per share, or an aggregate purchase price of $3 million, such shares constituting over 9% of the outstanding shares of Dakota . Dakota is a Denver-based Canadian gold mining company with mining operations in South Dakota and Idaho, and trades on both the Toronto and American Stock Exchanges under the symbol DKT. This purchase was part of a special equity financing of $6 million by Dakota. In connection with the purchase, Atlas and Dakota executed a mutual limited release, whereby each party released the other from any liability arising out of a May 31, 1994 share purchase agreement which did not close. On March 9, 1996 Atlas sold its interest in Dakota for approximately C$6.2 million, or US$4.5 million. PHOENIX FINANCIAL HOLDINGS INC. - ------------------------------- On November 30, 1995, Atlas purchased, at arm's length, from a group of individual investors 12.2 million shares of Phoenix representing approximately 51% of the total shares outstanding, for an aggregate purchase price of Cdn. $1,781,200. See below Item 13. "Certain Relationships 16 and Related Transactions". Phoenix, a Canadian holding company whose shares are quoted on the Canadian Dealing Network, currently has cash and marketable securities of approximately Cdn. $2.3 million in addition to a collection of minor assets. With the purchase, David J. Birkenshaw, Chairman and Chief Executive Officer of Atlas, was appointed as Chairman of Phoenix and Gary Davis, Atlas' President, was appointed as Vice Chairman and Chief Executive Officer of Phoenix. On January 16, 1996, Atlas and Phoenix jointly announced the execution of a letter agreement providing for the purchase by Phoenix of all of the issued and outstanding shares of Atlas Perlite, Inc., a wholly-owned subsidiary of Atlas, whose only asset is the Tucker Hill Project. The letter agreement calls for payment to Atlas of $1 million in cash, the equivalent of $1 million in Phoenix common shares and the retention by Atlas of a royalty equivalent to 2% of the gross proceeds generated from the sale of minerals from Tucker Hill. The stock portion of the sale price, which was based on the average of the Phoenix shares and the Canadian-U.S. dollar exchange rate for the twenty trading days prior to the execution of the letter agreement will result in the issuance of an additional 11.8 million Phoenix shares to Atlas. These additional shares will result in Atlas increasing its equity position in Phoenix from approximately 51% to 67%. In addition, Phoenix will reimburse Atlas for any pre-approved expenditures made by Atlas on the Tucker Hill Project from December 1, 1995 through to the closing date. As the sale is between related parties, the transaction will require the approval by a committee of independent Phoenix directors, as well as approval by the minority shareholders of Phoenix at a meeting to be held in the second quarter of 1996. To allow a determination as to the fairness of the transaction a committee of independent Phoenix directors commissioned an outside, an independent technical report on the Tucker Hill assets as well as an independent valuation of the Tucker Hill Project and the Phoenix shares. MSV RESOURCES INC. - ------------------ During the first quarter of 1996, Atlas held discussions with MSV Resources Inc. ("MSV") which culminated in a business combination agreement dated March 5, 1996 (the "Agreement"). During April 1996, the Company was advised MSV had made significant changes to its directors and management and that the business combination would not be pursued. Atlas believes that certain actions taken by MSV may constitute a breach of the Agreement. Atlas intends to explore all available avenues of legal redress. DISCONTINUED OPERATIONS - ----------------------- URANIUM MILL SITE, MOAB, UTAH - ----------------------------- The Company continues to pursue vigorously the approval of its proposed reclamation plan at its Moab, Utah, uranium mill site which calls for reclamation in place of the 11 million tons of mill tailings. Atlas operated its milling operations from the early 1960's to mid 1980's and has been actively conducting decommissioning and reclamation activities since its decision to dismantle the mill in 1987. While the U.S. Nuclear Regulatory Commission ("NRC") is reviewing the 17 merits of the proposed reclamation plan, the Company has continued with its decommissioning plans and has now completed the placement of the interim cap on the tailings facility and has dismantled the milling and administrative facilities on the site. On January 30, 1996, the NRC released the draft Environmental Impact Statement ("EIS") and draft Technical Evaluation Report ("TER") regarding the Company's reclamation proposal. Atlas' proposed reclamation plan consists of contouring the tailings pile to allow for the natural drainage of precipitation and the addition of an earth and rock cover. The EIS process is used by the NRC to evaluate the impact to the environment of the proposed plan and of alternative proposals. The TER is used to evaluate compliance with NRC's technical and safety criteria. In the draft EIS, the NRC staff's preliminary conclusion is concluded that Atlas' proposal to reclaim the pile in place is acceptable and less costly than the alternative. The TER has identified 20 items which will need to be addressed prior to final plan approval. The requisite studies necessary to address the majority of these items, especially those of a technical nature, have recently been completed and are supportive of the proposed plan. The public comment period on both documents is scheduled to end on April 30, 1996. For further information on the Moab reclamation, see "Management's Discussion and Analysis of Financial Position and Operating Results - Environmental Matters". ASBESTOS MINE SITE, COALINGA, CALIFORNIA - ---------------------------------------- Remedial activities at the Company's former asbestos mine and mill site, located near Coalinga, California, which began in October of 1994, are substantially complete. Atlas, which operated the mine for a five year period in the 1960's was notified by the Environmental Protection Agency in fiscal 1988 that it, the Bureau of Land Management and several other subsequent owners were potentially responsible parties under the Comprehensive Environmental Response, Compensation and Liability Act for cleanup costs at the mine site. Final reclamation activities have been taking place in accordance with the EPA remedial action plan which was approved by the EPA in October 1994. For further information on the Coalinga reclamation, see "Management's Discussion and Analysis of Financial Position and Operating Results - Environmental Matters". OTHER - ----- The Company's profitability has been significantly affected by the price of gold. Gold prices fluctuate widely and are affected by numerous factors beyond the Company's control, including expectations for inflation, the strength of the United States dollar, global and regional demand, political and economic conditions and production costs in major gold producing regions, including Australia, Canada, South Africa and the former Soviet Union. The aggregate effects of these factors are impossible to predict. Gold is a product which can be easily sold on numerous markets throughout the world. It is not difficult to ascertain the market price for gold at any particular time, and gold can be sold to a large number of refiners or precious metals dealers on a competitive basis. When in operation, the Company normally sells its gold through major precious metals dealers, in some cases using hedging programs, and it is free to sell uncommitted gold to others. Any gold 18 produced at the Company's operations is mine site in the form of gold/silver alloy, which is further refined by a third party into commercially acceptable gold. The company is required to comply with various federal, state and local regulations and requirements relating to environmental matters at its mining properties operations. The Company is required to obtain permits from various governmental agencies in order to mine and mill. The Company has obtained all of the necessary permits relating to its on-going development work and planned restart of its Gold Bar operation present operations. The Company cannot anticipate whether increasing costs of environmental compliance for its gold operations will have a material adverse impact on planned its operations or competitive position. The Company competes with substantially larger companies in the production and sale of gold. The Company does not believe that it or any other competitor is a material factor in these markets, and the price it receives for its production depends almost entirely upon market conditions over which it has no control. The Company believes that it can promptly sell at current market prices all of the gold that it can produce for either present or future delivery. With respect to the acquisition of mineral interests and exploration activities, the Company competes with numerous persons and companies, many of which are substantially larger and have considerably greater resources than the Company. Item 2. PROPERTIES ---------- The Company's materially important properties consist of the gold ore-bearing properties and mill site and its Tucker Hill perlite properties described under "Item 1. Business," and approximately 14,000 square feet of leased headquarters office space in Denver, Colorado. Item 3. LEGAL PROCEEDINGS ----------------- The information called for by this Item is set forth in Note 13 to the Financial Statements and is incorporated herein by reference. Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS --------------------------------------------------- No matters were submitted to a vote of the security holders during the six months ended December 31, 1995. 19 EXECUTIVE OFFICERS OF THE COMPANY --------------------------------- Set forth below is the age and certain other information regarding each person currently serving as an executive officer of the Corporation. David J. Birkenshaw, age 40, has served as Chairman of the Board and Chief Executive Officer of the Corporation since September 21, 1993. Mr. Birkenshaw's employment history for the past five years is set forth below under "Directors". Gerald E. Davis, age 47, has served as President of the Corporation since August 18, 1995. Prior to that he had served for the Corporation in the following capacities as: Executive Vice President since May 15, 1995, Vice President-Corporate Development since September 21, 1993, Chief Operating Officer from May 1, 1993, and Vice President - Business Planning and Marketing since November 13, 1989. Mr. Davis also serves as Vice-Chairman and Chief Executive Officer of Phoenix Financial Holdings, Inc., a 51% subsidiary of the Company. 20 PART II Item 5. MARKET FOR THE COMPANY'S COMMON STOCK AND RELATED STOCKHOLDER MATTERS ------------------------------- Common Stock (Listed on the New York Stock Exchange, Symbol AZ)
Six Months Ended For the Fiscal Year Ended June 30, ---------------------------------- December 31, 1995 1995 1994 ----------------- ---- ---- Quarter Ended High Low High Low High Low - ------------------------------------------------------------------------------ September 30 $2 $1 5/8 $6 1/4 $4 1/2 $5 1/4 $3 1/8 December 31 1 3/4 1 1/8 5 2 4 7/8 3 1/4 March 31 N/A N/A 2 1/2 1 1/4 10 4 1/4 June 30 N/A N/A 2 1/8 1 3/8 9 3/4 6 1/8
No dividends were declared in the six months ended December 31, 1995 or in fiscal years 1995 or 1994. At March 29, 1996, there were approximately 16,700 holders of record of the Common Stock. Item 6. SELECTED FINANCIAL DATA ----------------------- (Amounts in Thousands except per Share Data)
For the Six Months Ended December 31, For the Year Ended June 30, ------------------------------------------------------- 1995 1994 1995 1994 1993 1992 1991 -------- --------- --------- --------- --------- --------- --------- (Unaudited) INCOME STATEMENT DATA: Mining revenue $ -- $ 2,328 $ 2,328 $ 19,478 $ 19,280 $ 29,624 $ 30,625 Loss from continuing operations (4,266) (5,804) (20,397) (12,040) (28,066) (7,177) (2,483) Income (loss from discontined operations -- 846 621 2,175 (875) (76) (3,880) Net loss (4,266) (4,958) (19,776) (9,865) (29,909) (7,253) (6,363) PER SHARE OF COMMON STOCK: Loss from continuing operations (0.22) (0.40) (1.23) (1.45) (4.43) (1.17) (0.41) Income (loss) from discontinued operations -- 0.06 0.04 0.26 (0.14) (0.01) (0.65) Net loss (0.22) (0.34) (1.19) (1.19) (4.72) (1.18) (1.06) Cash dividends per share -- -- -- -- -- -- -- BALANCE SHEET DATA: Cash and cash equivalents 1,607 11.789 4,453 3,767 1,734 552 465 Total Assets 53,040 60,249 43,497 19,847 19,549 59,212 60,060 Long-term obligations 23,684 15,874 15,160 15,767 14,807 13,726 28,442 Working capital (deficit) 9,655 8,177 5,611 (239) (2,816) (14,344) 2,293 Total stockholders' equity (deficit) $ 22,143 $ 39,453 $ 24,833 $ (2,475) $ (4,407) $ 25,502 $ 31,309 Book value per share $ 1.16 $ 2.72 $ 1.34 $ (0.26) $ (0.70) $ 4.02 $ 5.14
21 Item 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS ----------------------------------- The following comments should be read in conjunction with the Financial Statements and accompanying notes. WORKING CAPITAL, LIQUIDITY AND CAPITAL RESOURCES - ------------------------------------------------ Since September 1993, the company has financed acquisitions and raised working capital through the issuance of both debt and equity instruments. On September 20, 1993, the Company, under a Securities Purchase Agreement with Phoenix Financial Holding Inc. ("Phoenix"), closed on the sale for an aggregate of $8,375,000 of (i) 1,500,000 shares of Atlas Common Stock, (ii) a Redeemable Convertible Debenture due in 1998 in the amount of $3,500,000 which is convertible as to principal into Atlas Common Stock at the rate of $4.00 per share and bears interest at the rate of 9% per annum payable in cash or Atlas Common Stock at the rate of $4.00 per share, and (iii) Warrants to purchase for three years 2,000,000 shares of Atlas Common Stock at $3.625 per share. On January 18, 1994, the Company, in a private placement, sold 1.5 million shares of Atlas Common Stock for $5.00 per share for gross proceeds of $7.5 million. The shares were placed outside the United States with a number of gold funds and institutional investors in Canada and Europe. During the summer of 1994, the Company conducted a private placement of 9,090,909 Units, for a purchase price of $5.50 per Unit, each Unit consisting of one share of Atlas Common Stock and one-half of one warrant (exercisable for five years) to purchase one share of Atlas Common Stock at an exercise price of $7.00 per share. The $50 million equity financing closed in escrow in August 1994. Of these funds, $35.5 million was released on August 15, 1994, allowing Atlas to complete the acquisition of the common shares of Granges. The remaining $14.5 million was released on December 15, 1994, following shareholder approval of a proposal to increase the number of Common Shares of Atlas authorized for issuance. On November 10, 1995, the Company closed to escrow $10.0 million 7% Exchangeable Debentures ("Debentures") due October 25, 2000 pending certain registration and qualification requirements which were subsequently met on February 8, 1996. The holders of the Debentures have the right to exchange their Debentures, at any time prior to the repayment of the Debentures by the Company, for common shares of Granges Inc. ("Granges Shares") currently held by the Company at a rate of 42.5 Granges Shares for each $100 of principal amount of Debentures surrendered for exchange ("Exchange Rate"). On March 6, 1996, the Company announced that it had agreed in principle to combine with MSV Resources Inc., a Canadian gold and copper mining company, through a share exchange tender offer. (See "Item 1 - Business, Proposal to Combine with MSV Resources Inc."). In connection with the merger, Atlas will seek to raise additional equity which would be be utilized to develop several mining properties of the combined company, focusing primarily on MSV's properties located near Chibougamau, Quebec. Atlas believes that the combination of the equity financing, current combined working capital and operating cash flows would provide the combined company with sufficient capital resources to meet its anticipated short-term and longer term capital requirements. Working capital was $9,655,000 at December 31, 1995 and $8,218,000 at December 31, 1994. The Company's current ratio was 2.5 to 1 at December 31, 1995 and 2.7 to 1 at December 31, 1994. The $1,437,000 increase reflects the $10,000,000 escrowed proceeds from the issuance of exchangeable debentures less $2,438,000 net asbestos and uranium reclamation costs, $1,719,000 in project developments expenditures, and $4,406,000 in general and administrative costs and other working capital changes. 22 Subsequent to December 31, 1995, the Company significantly enhanced its unrestricted cash position. On February 8, 1996, the Company met certain registration and qualification requirements related to the $10.0 million exchangeable debentures which allowed for the release of the escrowed proceeds. Approximately one-half of the proceeds were used to repay the $2.0 short term credit facility, fund development of the Commonwealth and Doby George property, cover issuance costs and used for other general working capital purposes. On March 9, 1996, the Company sold its 9.1% interest in Dakota Mining Corporation for approximately $4.5 million. Working capital was $5,611,000 at June 30, 1995, which compares to a working capital deficit of $239,000 at June 30, 1994 and a deficit of $2,816,000 at June 30, 1993. The Company's current ratio was 2.60 to 1 at June 30, 1995, .96 to 1 at June 30, 1994, .69 to 1 at June 30, 1993. The positive change in working capital reflects the funds received from issuance of equity securities as described above. The proceeds from the Phoenix transaction provided relief from liquidity difficulties the Company was experiencing at June 30, 1993, by allowing for repayment of short term debt and increasing working capital. The January 18, 1994, financing provided working capital to fund development and exploration drilling programs, expand the Gold Bar claim block, and fund the $1,843,000 deposit on the Granges transaction. The June 30, 1995, working capital position was the result of funds generated from the December 15, 1994, release of escrowed private placement funds. The proceeds were used to repay a short term loan, to pay fees related to the private placement, to acquire 2.4 million shares of Dakota Mining Corp. for $3,000,000 and for continuing exploration and administration expenses. The Company intends to resume mining operations at Gold Bar during the spring of 1996. Gold Bar has a current gold reserve of 2.7 million tons at a average grade of 0.070 ounces of gold per ton, containing approximately 18757,000 recoverable ounces. The capital required to resume operations at Gold Bar is estimated at approximately $10.0 million which includes prestripping of the deposits and the expansion of the current tailings disposal area. The Company's financing plan calls for Atlas to fund approximately $5.0 million from its current cash reserves and project finance the remaining $5.0 million. On October 24, 1995, the Company signed a non-binding letter of intent with Brown & Root Inc., a contract mining company. The letter of intent provides for a $5.0 million project financing guarantee in return of a 20% non-operating net profits interest in the project subject to a minimum payment amount of $500,000 and a maximum payment of $1.5 million. The Brown & Root agreement is subject to the completion of due diligence, financing and the establishment of a satisfactory hedging program. The Company is currently negotiating terms for project financing and a related gold hedging program. A six month period of prestripping overburden removal and stockpiling will be required prior to the resumption of milling activities. During the upcoming year, the Company will focus its exploration and development efforts on four properties: Doby George, Commonwealth (under one year option from Harvest Gold Corporation), Gold Bar, and Musgrove Creek. The Company is working towards anticipates completing preliminary reserve studies on both the Commonwealth and Doby George property during Spring 1996. The Company anticipates filing a Plan of Operations for development and mining of Doby George property with the U.S. Forest Service by the end of Spring 1996. The Company will fund the continued development of the Doby George and Commonwealth properties from its current working capital and, if available, project financing. Exploration expenditures on the remaining 20% of Gold Bar currently not under joint venture agreements and Musgrove Creek, which was recently reassigned from Newmont Mining Company, will be 23 dependent on the Company's financial position. In addition to direct exploration, the Company is also reviewing other alternatives to accelerate the development of both Musgrove Creek and the 20% of Gold Bar not covered under existing joint venture agreements. As a result of the issuance of the exchangeable debentures and the sale of the common shares of Dakota Mining Corporation, the Company has adequate working capital to meet its short term cash requirements. In addition, Atlas is anticipating receipt of $1.0 million in the second quarter of 1996 as partial consideration for the sale of its Tucker Hill perlite deposit to Phoenix Financial Holdings Inc. The sale of Tucker Hill is subject to the approval by minority shareholders and independent directors of Phoenix. See "Item 1. Business, Investments". As the Gold Bar operation is not anticipated to generate significant operating cash flow until the repayment of the project financing in 1998, the Company may be required to obtain additional capital during 1997 to cover the ongoing commitments. The Company believes that it will be able to meet such capital requirements, if any, through the sale of non-core assets and/or borrowings secured by the assets of the Company. In the longer term, the Company anticipates being able to meet its obligations through operating cash flows from the Gold Bar, Doby George, Commonwealth and Musgrove properties. In order to meet its estimated long term reclamation obligations the Company will utilize its restricted cash and securities, which supports the bonding of such obligations, and reimbursements due under the Title X reimbursement program. See "Item 7. ENVIRONMENTAL MATTERS." The company continues to examine property acquisitions and business combination strategies with other mining companies. The Company's capital expenditures in the six months ended December 31, 1995 were $1,422,000, compared to $328,000 for the comparable period in 1994. During the six months ended December 31, 1995, development costs of $365,000, $353,000 and $643,000 were incurred on the Tucker Hill, Commonwealth, and Doby George properties, respectively. Substantially all of the capital expenditures incurred during the six month period ended December 31, 1994 related to Tucker Hill development costs. The Company's capital expenditures incurred during the fiscal year ended June 30, 1995 were $625,000, compared to $5,263,000 during the fiscal year ended June 30, 1994 and $3,795,000 incurred during the fiscal year ended June 30,1993. In fiscal 1995, approximately $360,000 was spent on the development of Tucker Hill with the remainder being spent on the Gold Bar property. In fiscal 1994 and 1993, substantially all of the capital expenditures were for the development of the Gold Bar property. CHANGE IN FISCAL YEAR END - ------------------------- In order to allow the timely inclusion of Granges' results from operations in the Company's financial reports, the Board of Directors authorized a change in Atlas' fiscal year-end to December 31. This change was implemented at December 31, 1995, and has resulted in financial reporting being issued for a six month period. In the future, the Company's results will be reported on a time schedule consistent with its industry peers. 24 Unless otherwise indicated, the terms "fiscal 1995", "fiscal 1994", and "fiscal 1993" refer to the years ended June 30, 1995, 1994, and 1993, respectively. RESULTS OF OPERATIONS - --------------------- SIX MONTHS ENDED DECEMBER 31, 1995 COMPARED TO SIX MONTHS ENDED DECEMBER 31, - ---------------------------------------------------------------------------- 1994 - ---- REVENUES Due to the suspension of milling operations at the Gold Bar Project in September 1994, the Company had no mining revenues or gold production for the six months ended December 31, 1995. This compares to mining revenue of $2,328,000 and gold production of 6,021 ounces generated from Gold Bar during the six months ended December 31, 1994. OPERATING/PRODUCTION COSTS Operating costs for the six month period ended December 31, 1994, which was marked by the suspension of milling activities on September 19, 1994, included production costs of $2,638,000, depreciation, depletion and amortization of $348,000 and the accrual of shutdown and standby costs of $1,275,000. Production costs increased to $446 per ounce, or 115% of revenue, due to the processing of low grade ore from depleting stockpiles. The $1,275,000 accrual for shutdown and standby costs recorded in September 1994 reflected the anticipated projected shutdown and standby costs to be incurred through the remainder of fiscal 1995. EXPLORATION The Company incurred exploration costs of $307,000 during the six months ended December 31, 1995 for continued exploration efforts on the Gold Bar property, as compared to $1,105,000 for the six months ended December 31, 1994. This decrease reflects the cost savings associated with entering into the joint venture agreements covering approximately 80% of the Gold Bar claim block and the underground exploration conducted at Gold Bar during the six months ended December 31, 1994. GENERAL AND ADMINISTRATIVE General and administrative expenses for the six months ended December 31, 1995 were $1,798,000 compared to $1,372,000 for the six months ended December 31, 1994. This increase was primarily a result of an intensified property acquisition program and relocation expenses. YEAR ENDED JUNE 30, 1995 COMPARED TO YEAR ENDED JUNE 30, 1994 - ------------------------------------------------------------- In January 1994, production from the Gold Bar Property was halted after a confirmatory drill program indicated that mining to the originally designed Gold Canyon pit bottom would have been uneconomical due to the occurrence of more refractory material than had been previously forecast. Management initiated the processing of low grade stockpiled ores in an effort to avoid the suspension of milling operations. Engineering and metallurgical studies focusing on the 25 development of short term reserves were accelerated. On September 16, 1994, stockpiled ores were depleted and the Company was forced to suspend milling operations and to temporarily place the Gold Bar project on standby. As a result, the fiscal year ended June 30, 1995 reflects only three months of operations. REVENUES Revenues for the years ended June 30, 1995 and 1994 were $2,328,000 and $19,478,000, respectively. Gold production decreased to 6,021 ounces in fiscal 1995 from 51,700 ounces in fiscal 1994. The decreases in revenue and gold production in fiscal 1995 reflect the suspension of operations at the Gold Bar property after only three months of production. The average price per ounce of gold realized in fiscal 1995 was $387 versus $377 in fiscal 1994. OPERATING/PRODUCTION COSTS Production costs for fiscal 1995 and 1994 were $2,683,000 and $16,526,000, respectively. Production costs per ounce in fiscal 1995 and 1994 were $446 and $319, respectively. The decrease in production costs are a result of the suspension of operations at the Gold Bar property after only three months of production in fiscal 1995. The higher production costs per ounce reflect the lower grades run prior to the suspension of operations in 1995. The Company incurred $1,485,000 in shutdown and standby costs during the last three quarters of fiscal 1995. Such costs included severance payments, continuing onsite security and maintenance as well as general and administrative expenditures. During the fourth quarter of fiscal 1994, the Company and an independent consultant began evaluating the Gold Bar mine plan and remaining known ore reserves. As a result, the Company determined that its remaining unamortized costs could not be recovered from undiscounted cash flows over the remaining mine life and the Company recognized an impairment to adjust the carrying value of its assets with the property being written down to estimated salvage value. This adjustment resulted in a charge to operations of $5,355,000 in the fourth quarter of fiscal 1994. The Gold Bar property was written down to estimated salvage value during fiscal 1994. Depreciation, depletion and amortization charges of $348,000 in fiscal 1995 represent the flow through of non-cash costs contained in stockpiled ore inventory at the end of fiscal 1994 and the write-off of capital expenditures incurred during the three months of operations in fiscal 1995. GENERAL AND ADMINISTRATIVE General and administrative expenses decreased by $326,000 from $3,068,000 in fiscal 1994 to $2,742,000 in fiscal 1995, or 11%. The primary reason for the fiscal 1995 decrease was a $400,000 reduction in salaries and severance costs. OTHER Exploration costs of $1,911,000 were incurred in fiscal 1995, a decrease of approximately $400,000 from fiscal 1994. The decrease is attributable to the reduction of land holding costs, as current joint venture partners (see below) are responsible for land royalties and lease payments, and 26 a reduction of personnel. Exploration costs in fiscal 1994 increased $430,000 from fiscal 1993 as a result of an underground drilling program commenced in the fourth quarter of fiscal 1994 and ended during the first quarter of fiscal 1995. During the first quarter of the fiscal year ended June 30, 1995, the Company acquired a 37.2% interest in Granges Inc., and recorded an equity loss of $1,361,000 during the remainder of the year. Following the merger of Granges with its 50.5% subsidiary, Hycroft Resources and Development Corporation, Atlas re-evaluated its investment in Granges relative to the fair values implied in the amalgamation and to the known reserves at the Crofoot/Lewis mine. As a result, the Company recorded an $11,419,000 impairment of its investment in Granges as of June 30, 1995. During October 1994, Atlas recorded a $1,144,000 loss related to the forfeiture of a non-refundable deposit on the purchase of securities in Dakota Mining Corporation. Atlas' decision to forfeit the deposit was based on its Upon review of the relative market and purchase prices. Atlas decided it would forfeit the deposit. In March 1995, Atlas entered into an agreement to purchase approximately 2.4 million common shares of Dakota for $3,000,000, and whereby each company also released the other from any liability arising out of the previous agreement. In March 1996, the Company sold its interest in Dakota for approximately $4.5 million. Notes 12 and 13 to the Financial Statements provide details and a discussion of discontinued operations for the past three fiscal years. YEAR ENDED JUNE 30, 1994 COMPARED TO YEAR ENDED JUNE 30, 1993 - ------------------------------------------------------------- REVENUES Revenues for fiscal 1994 were $19,478,000, reflecting an increase of $198,000, or 1%, compared to fiscal 1993 revenues of $19,280,000. Gold production in fiscal 1994 was 51,700 ounces down from 55,100 ounces in fiscal 1993. The decrease in production was the result of processing low grade stockpiled material after the January 1994 suspension of mining operations. The decrease in production was offset by an increase in gold prices. The average gold price realized increased from $350 an ounce in fiscal 1993 to $377 an ounce in fiscal 1994. OPERATING/PRODUCTION COSTS Production costs in fiscal 1994 decreased $1,266,000, or 7%, from fiscal 1993 production costs of $17,792,000 because of lower production levels. On a unit cost basis, direct minesite cash costs decreased to $319 per ounce in fiscal 1994 versus $323 in fiscal 1993. Production cost as a percentage of mining revenue was 85% in fiscal 1994 a decrease from 92% in fiscal 1993. During fiscal 1994 Gold Bar property was written down a total of $5,355,000 to its estimated salvage value after it was determined that the remaining unamortized costs could not be recovered from undiscounted cash flows over the remaining mine life. In the fourth quarter of fiscal 1993, the Company also reduced the carrying value of its producing and nonproducing properties by $28,716,000 and $2,796,000 based upon recent operating losses and forecasted cash flows, respectively. 27 Depreciation, depletion and amortization in fiscal 1994 totaled $4,479,000, or $87 per ounce, down from $9,005,000, or $162 per ounce, in fiscal 1993. The decrease is primarily a result of the impairment adjustment recorded in fiscal 1993 which reduced the amortizable basis of the Company's assets. GENERAL AND ADMINISTRATIVE EXPENSES General and administrative expenses in fiscal 1994 were reduced by $1,081,000, or 26%, from fiscal 1993. This was primarily the result of reductions in personnel, a reduction in the use of consultants and a concentrated emphasis on cost control at the corporate level. Fiscal 1994 general and administrative expenses included approximately $390,000 in various change of control and severance costs. As a percentage of mining revenue, general and administrative expenses decreased to 16% in fiscal 1994 from 22% in fiscal 1993. OTHER In October 1992, the Company leased to another mining company gold properties in Oregon (Grassy Mountain) and Idaho (Musgrove Creek) for a period of 35 years with options for three additional 10 year extensions. The total consideration was $30 million, consisting of a $22.5 million initial payment and a $7.5 million advance royalty payment. The Company retained a 5% royalty on each of the properties which will first be applied against the advance royalty and interest thereon. A substantial portion of the proceeds from this transaction were used to repay the entire balance of the Company's bank borrowings and to provide cash collateral for a letter of credit. The balance of the proceeds were used for working capital and exploration. This transaction resulted in a gain of $17,803,000 in the second quarter of fiscal 1993. Notes 12 and 13 to the Financial Statements provide details and a discussion of discontinued operations for the past three fiscal years. The Company's revenues and operating results for the periods set forth are not necessarily indicative of the results for any future period because revenues and profits from sales of gold may vary significantly between periods depending on the amount of gold produced, production costs and gold prices. ENVIRONMENTAL MATTERS - --------------------- The Company is subject to extensive federal, state and local environmental laws and regulations. These laws, which are constantly changing, regulate the discharge of materials into the environment and may require the Company to mitigate any environmental effects caused by its operations. The Company believes that it is currently in substantial compliance with all federal, state and local environmental regulations applicable to its current and discontinued operations. The Company is obligated to decommission and reclaim its uranium mill site located near Moab, Utah. When the Company discontinued its uranium operations in 1987, estimated shut- 28 down and reclamation expenses of $17,406,000 were accrued. Reclamation and decommissioning costs (net of reimbursements, see below) of $1,189,000, $1,497,000, $1,159,000 and $623,000 have been charged against this accrual for the six months ended December 31, 1995 and the fiscal years ended June 30, 1995, 1994 and 1993, respectively. The balance of this accrual at December 31, 1995 was $4,513,000 and the reclamation plan as proposed by the Company extends over the next four to seven years. Title X of "The Comprehensive National Energy Policy Act" ("Title X"), which was enacted in October 1992, provides for reimbursement by the federal government of past and future reclamation expenses in proportion to the extent that the site's tailings were generated by Atomic Energy Commission (AEC) contracts. With respect to the Company's discontinued uranium operations, 56% of the tailings were generated by AEC contracts. Requests for reimbursement under Title X must be submitted to the Department of Energy (DOE) and are subject to review and audit. The timing on the repayment of costs approved for reimbursement is a function of Congressional appropriation. On January 30, 1996, the Nuclear Regulatory Commission ("NRC") released the draft Envirionmental Impact Statement ("EIS") and a draft Technical Evaluation Report ("TER") regarding the Company's reclamation proposal. Atlas' proposed reclamation plan consists of contouring the tailings pile to allow for the natural drainage of precipitation and the addition of an earth and rock cover. The current EIS process is being used by the NRC to evaluate the environmental impact of the Company's proposed plan and an alternative proposal. The TER is being used to evaluate compliance with NRC's technical and safety criteria. In the draft EIS, the NRC staff's preliminary conclusion is that Atlas' proposal to reclaim the pile in place is acceptable and less costly than the proposed alternative. The draft TER has identified 20 items which need to be addressed prior to final plan approval. The requisite studies necessary to address the majority of these items, especially those of a technical nature, have recently been completed and are supportive of the proposed plan. The public comment period is scheduled to end on April 30, 1996. In July 1994, the Company submitted a claim under Title X for approximately $5.0 million of reclamation costs incurred from fiscal 1986 through fiscal 1994. The Company has received notification that the DOE has given approval on approximately $4.5 million of the claim and $2.5 million in reimbursement with $0.5 million being disallowed subject to further substantiation of the claim. On December 29, 1994, the Company received $846,000 as a partial payment of the approved reimbursement which was recorded as income from discontinued operations. In June 1995, the Company submitted a second claim to the DOE under Title X for approximately $3.6 million which included reclamation costs incurred from fiscal years 1980 through fiscal year 1985, from June 1994 through May 1995, and reclamation costs previously disallowed. The DOE audit of the June 1995 has been completed and final approval is expected in Spring 1996. If the June 1995 claim is approved in full, the Company would receive reimbursement of approximately $2.0 million. On September 30, 1995, the Company received an additional $1,032,000 partial payment for amounts due on the 1994 and 1995 claims. This amount has been added to the Company's reclamation accrual. Timing of the remaining payments for approved reimbursements is a function of Congressional appropriation of Title X funding. 29 The Company is confident that the ultimate result of the EIS/TER this review process will be the approval of its reclamation plan and that its remaining accrual, when combined with anticipated reimbursements of reclamation costs under the Title X program, is sufficient to cover future reclamation costs. Estimated reclamation costs relating to the Gold Bar Resource Area are recorded based on the units of production method. Total reclamation costs expensed in the six month period ended December 31, 1995 and the fiscal years ended June 30, 1995, 1994 and 1993 were $0, $0, $732,000 and $313,000, respectively. As part of the impairment recorded during the fourth quarter of fiscal year 1994 (see results of operations, above), the Company increased its accrued expense by an additional $1,244,000. No charges were recorded in 1995 since analysis indicated the $3,342,000 accrued for reclamation costs at the Gold Bar Resource Area is adequate. Although the Gold Bar mine is currently on temporary standby, the Company expects to restart mining, subject to financing and negotiations with mining contractors. The Company believes it can meet the estimated closing and reclamation costs of its uranium and gold mining operations from internally generated funds, from the $5,659,000 in restricted cash which serves as collateral for a letter of credit and reclamation bonds relating to these costs, and from reimbursements under Title X, without a significant impact on its working capital position. It is presently anticipated that these obligations will be satisfied over the next four to seven years. During fiscal 1988, the United States Environmental Protection Agency (EPA) notified the Company that it was one of several potentially responsible parties ("PRPs") under the Comprehensive Environmental Response, Compensation and Liability Act ("CERCLA") for cleanup costs at the Company's former asbestos mine and mill site near Coalinga, California and in the City of Coalinga. A prolonged period of inquiry and administrative process concerning this matter followed. In fiscal 1993 and 1991, the Company established a reserve of, and recorded as an expense, $600,000 and $3,000,000, respectively, to cover the Company's share of costs to be incurred in connection with this matter. This accrual reflects participation by the BLM, which was also named as a another PRP. The Company instituted legal action against 13 insurance carriers which had issued insurance policies over a period of more than 25 years with respect to these sites. During fiscal 1994, the Company reached settlement with a number of these carriers and recorded a gain from discontinued operations of $2,175,000. All remaining claims with the carriers were settled in fiscal 1995. The proceeds were negligible. In October, 1994, the Environmental Protection Agency approved a remedial action plan for the sites. Due to unusually heavy rains experienced at the site during the spring and early summer of 1995, the Company experienced delays and cost overruns. As a result, the Company recorded an additional loss from discontinued operations of $225,000 in the fourth quarter of fiscal 1995. The Company believes the remaining reserve is sufficient to cover future costs incurred under the remedial action plan, which was substantially completed in the fall of 1995. 30 The Company is required to obtain permits from various governmental agencies in order to mine and mill ores. The Company has obtained all of the necessary permits relating to its present planned operations. The Company cannot anticipate whether the increasing costs of environmental compliance for its gold operations will have a material adverse impact on its future operations or competitive position. 31 Item 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA -------------------------------------------
INDEX TO FINANCIAL STATEMENTS Page Consolidated Statements of Operations for the Six Months Ended December 31, 1995 and for the Years Ended June 30, 1995, 1994 and 1993 34 Consolidated Balance Sheets as of December 31, 1995, June 30, 1995 and 1994 35 Consolidated Statement of Stockholders' Equity (Deficit) for the Six Months Ended December 31, 1995 and for the Years Ended June 30, 1995, 1994 and 1993 36 Consolidated Statements of Cash Flows for the Six Months Ended December 31, 1995, and for the Years Ended June 30, 1995, 1994 and 1993 37 Notes to Consolidated Financial Statements 38 - 58 Report of Independent Auditors 59
32 ATLAS CORPORATION CONSOLIDATED STATEMENTS OF OPERATIONS (In thousands, except earnings per share)
For the Six Months Ended For the Year Ended ------------ ------------------------------------------- December 31, June 30, June 30, June 30, 1995 1995 1994 1993 ==================================================================================================================================== Mining revenue $ -- $ 2,328 $ 19,478 $ 19,280 - ------------------------------------------------------------------------------------------------------------------------------------ Costs and expenses: Production costs -- 2,683 16,526 17,792 Depreciation, depletion and amortization -- 348 4,479 9,005 Impairment of mineral properties (Note 5) -- -- 5,355 28,716 Shutdown and standby costs (Note 5) 671 1,485 -- -- General and administrative expenses 1,798 2,742 3,068 4,149 Exploration and prospecting costs 307 1,911 2,315 1,783 Impairment of nonproducing mineral properties (Note 5) -- -- -- 2,796 - ------------------------------------------------------------------------------------------------------------------------------------ Gross operating loss (2,776) (6,841) (12,265) (44,961) - ------------------------------------------------------------------------------------------------------------------------------------ Other (income) and expense: Equity in loss of Granges Inc. (Note 8) 1,703 1,361 -- -- Impairment of investment in Granges Inc. (Note 8) -- 11,419 -- -- Forfeiture of deposit on stock purchase agreement (Note 4) -- 1,144 Gain on mineral lease transaction (Note 5) -- -- -- (17,803) Interest (income) expense, net 70 (327) 205 (148) Other (income) expense (258) (41) (430) 579 - ------------------------------------------------------------------------------------------------------------------------------------ Loss from continuing operations before income taxes and minority interest (4,291) (20,397) (12,040) (27,589) Provision for income taxes (Note 16) -- -- -- 477 - ------------------------------------------------------------------------------------------------------------------------------------ Loss from continuing operations before minority interest (4,291) (20,397) (12,040) (28,066) - ------------------------------------------------------------------------------------------------------------------------------------ Minority interest in net loss of subsidiary (Note 1) 25 -- -- -- - ------------------------------------------------------------------------------------------------------------------------------------ Loss from continuing operations (4,266) (20,397) (12,040) (28,066) - ------------------------------------------------------------------------------------------------------------------------------------ Income (loss) from discontinued operations (Note 12) -- 621 2,175 (875) - ------------------------------------------------------------------------------------------------------------------------------------ Loss before cumulative effect of postretirement benefit obligations (4,266) (19,776) (9,865) (28,941) Cumulative effect of post retirement benefit obligations (Note 15) -- -- -- (968) - ------------------------------------------------------------------------------------------------------------------------------------ Net loss $(4,266) $(19,776) $ (9,865) $(29,909) ==================================================================================================================================== Loss per share of common stock: Loss from continuing operations $(.22) $(1.23) $(1.45) $(4.43) Income (loss) from discontinued operations -- .04 .26 (.14) Cumulative effect on prior years of postretirement benefit obligations - ------------------------------------------------------------------------------------------------------------------------------------ Net loss $(.22) $(1.19) $(1.19) $(4.72) ==================================================================================================================================== Weighted average of common shares outstanding 19,148 16,549 8,264 6,336 ====================================================================================================================================
See accompanying notes 33 ATLAS CORPORATION CONSOLIDATED BALANCE SHEETS (In thousands)
December 31, June 30, June 30, 1995 1995 1994 ============================================================================================================================ ASSETS Current assets: Cash and cash equivalents $ 1,607 $ 4,453 $ 3,767 Cash held in escrow (Note 9) 10,000 -- -- Accounts receivable 365 131 970 Inventories (Note 3) 250 250 1,367 Investments in marketable equity securities (Note 4) 3,629 4,083 -- Prepaid expenses and other current assets 199 198 212 - ---------------------------------------------------------------------------------------------------------------------------- Total current assets 16,050 9,115 6,316 Property, plant and equipment (Note 5) 50,765 47,686 50,476 Less: Accumulated depreciation, depletion and amortization and impairment (44,406) (44,661) (47,637) - ---------------------------------------------------------------------------------------------------------------------------- 6,359 3,025 2,839 Investment in Granges Inc. (Notes 8 and 9) 23,756 25,452 -- Restricted cash and securities (Note 10) 5,367 5,659 7,993 Other assets (Note 10) 1,508 246 2,699 - ---------------------------------------------------------------------------------------------------------------------------- $ 53,040 $ 43,497 $ 19,847 ============================================================================================================================ LIABILITIES Current liabilities: Trade accounts payable $ 1,597 $ 601 $ 2,109 Other accrued liabilities (Note 10) 1,998 2,103 3,146 Short-term notes payable (Note 9) 2,000 -- -- Current portion of estimated uranium reclamation costs (Note 13) 800 800 1,300 - ---------------------------------------------------------------------------------------------------------------------------- Total current liabilities 6,395 3,504 6,555 Long-term debt (Notes 9 and 18) 13,500 3,500 3,500 Other liabilities, long-term (Note 10) 10,184 11,660 12,267 Commitments and contingencies (Note 13) MINORITY INTEREST 818 -- -- STOCKHOLDERS' EQUITY (DEFICIT) (NOTES 6, 7 AND 18) Common stock, par value $1 per share; authorized 50,000,000, 50,000,000 and 25,000,000; issued and 20,035 18,578 9,410 outstanding, 20,034,743, 18,577,500 and 9,410,012 at December 31, 1995, June 30, 1995 and 1994, respectively Capital in excess of par value 69,248 68,678 31,555 Deficit (67,482) (63,216) (43,440) Unrealized gain on investment in equity securities (Note 4) 442 896 -- Currency translation adjustment (100) (103) -- - ---------------------------------------------------------------------------------------------------------------------------- Total stockholders' equity (deficit) 22,143 24,833 (2,475) - ---------------------------------------------------------------------------------------------------------------------------- $ 53,040 $ 43,497 $ 19,847 ============================================================================================================================ See accompanying notes
34 ATLAS CORPORATION CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT) (In thousands)
Capital in Common Common Excess of Shares Stock Par Value Deficit Other Total - --------------------------------------------------------------------------------------------------------------- Balance at June 30, 1992 6,336 $ 6,336 $22,832 $ (3,666) -- $ 25,502 Current year loss -- -- -- (29,909) -- (29,909) - --------------------------------------------------------------------------------------------------------------- Balance at June 30, 1993 6,336 6,336 22,832 (33,575) -- (4,407) Issuance of Common stock (Note 18) 3,000 3,000 8,362 -- -- 11,362 Exercise of warrants 13 13 33 -- -- 46 Interest on Debenture 61 61 328 -- -- 389 Current year loss -- -- -- (9,865) -- (9,865) - --------------------------------------------------------------------------------------------------------------- Balance at June 30, 1994 9,410 9,410 31,555 (43,440) -- (2,475) Issuance of Common stock (Note 18) 9,091 9,091 36,965 -- -- 46,056 Exercise of Warrants 15 15 39 -- -- 54 Interest on Debenture 40 40 50 -- -- 90 Shares issued to 401(k) plan 22 22 69 -- -- 91 Unrealized gain on investment (Note 4) -- -- -- -- 896 896 Currency translation adjustment -- -- -- -- (103) (103) Current year loss -- -- -- (19,776) -- (19,776) - --------------------------------------------------------------------------------------------------------------- Balance at June 30, 1995 18,578 18,578 68,678 (63,216) 793 24,833 Issuance of Common stock for purchase of property (Note 5) 1,400 1,400 525 -- -- 1,925 Shares issued to 401(k) plan 18 18 16 -- -- 34 Interest on Debenture 39 39 29 -- -- 68 Unrealized loss on investment (Note 4) -- -- -- -- (454) (454) Currency translation adjustment -- -- -- -- 3 3 Current year loss -- -- -- (4,266) -- (4,266) - --------------------------------------------------------------------------------------------------------------- Balance at December 31, 1995 20,035 $20,035 $69,248 $(67,482) $ 342 $ 22,143 ===============================================================================================================
See accompanying notes 35 ATLAS CORPORATION CONSOLIDATED STATEMENTS OF CASH FLOW (In thousands)
For the Six Months Ended For the Year Ended ------------ --------------------------------------- December 31, June 30, June 30, June 30, 1995 1995 1994 1993 ==================================================================================================================================== Operating activities: Net loss $ (4,266) $ (19,776) $ (9,865) $ (29,909) (Income) loss from discontinued operations -- (621) (2,175) 875 Cumulative effect of postretirement -- -- -- 968 benefit obligations -- From continuing operations: Adjustments to reconcile income loss to net cash used in operations (Note 11) 1,795 14,198 9,902 23,329 Charges in operating assets and liabilities (Note 11) 1,099 (62) (2,217) (608) - ------------------------------------------------------------------------------------------------------------------------------------ (1,372) (6,261) (4,355) (5,345) - ------------------------------------------------------------------------------------------------------------------------------------ Discontinued operations: Operating income (loss) (net of tax) -- 621 2,175 (875) Adjustments to reconcile income to net cash provided by (used in) operations: Decrease (increase) in accounts receivable -- 875 (875) -- Decrease in taxes payable -- -- -- (37) Increase in accrued liabilities -- 123 -- -- Increase (decrease) in other liabilities, long-term -- 102 (101) 877 Net decrease in estimated reclamation costs (1,190) (1,497) (1,079) (623) - ------------------------------------------------------------------------------------------------------------------------------------ (1,190) 224 120 658 - ------------------------------------------------------------------------------------------------------------------------------------ Net cash used in operations (2,562) (6,037) (4,235) (6,003) - ------------------------------------------------------------------------------------------------------------------------------------ Investing activities: Net cash acquired in purchase of 220 -- -- -- subsidiary Purchase of stock in Granges Inc. -- (36,492) -- -- Investment in equity securities (180) (3,007) -- -- Proceeds from issuance of long-term debt, held in escrow (10,000) -- -- -- Proceeds from lease transaction -- -- -- 30,000 Additions to property, plant and equipment (1,422) (625) (5,263) (3,795) Proceeds from sale of equipment and reduction in other assets -- 491 434 1,479 Collateral for letter of credit -- -- -- (6,500) - ------------------------------------------------------------------------------------------------------------------------------------ Net cash provided by (used in) investing activities (11,382) (39,633) (4,829) 21,184 - ------------------------------------------------------------------------------------------------------------------------------------ Financing activities: Proceeds from borrowings on short term debt and line of credit -- 3,550 750 Principal payments on revolving line of credit and long-term debt -- -- -- (14,749) Repayment of short-term debt -- (3,550) (3,524) -- Proceeds from the issuance of common stock -- 50,054 12,421 -- Proceeds from the issuance of long-term debt 10,000 -- 3,500 -- Proceeds from the issuance of short-term notes 2,000 -- -- -- Cost of issuance of long-term debt and common stock (902) (3,698) (1,300) -- - ------------------------------------------------------------------------------------------------------------------------------------ Net cash provided by (used in) financing activities 11,098 46,356 11,097 (13,999) - ------------------------------------------------------------------------------------------------------------------------------------ Increase (decrease) in cash and cash equivalents (2,846) 686 2,033 1,182 Cash and cash equivalents at beginning of period 4,453 3,767 1,734 552 - ----------------------------------------------------------------------------------------------------------------------------------- Cash and cash equivalents at end of period $ 1,607 $ 4,453 $ 3,767 $ 1,734 =================================================================================================================================== See accompanying notes
36 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS ------------------------------------------ 1. ACCOUNTING POLICIES PRINCIPLES OF CONSOLIDATION -- The accompanying consolidated financial statements include the accounts of the Company and all majority-owned subsidiaries. All significant intercompany balances and transactions have been eliminated. Minority interest represents the 49% share of Phoenix Financial Holdings Inc. not owned by the Company. CHANGE IN FISCAL YEAR -- The Company changed its fiscal year from June 30 to December 31 effective December 31, 1995. The results for the six month period ended December 31, 1995 have been presented in the main body of the financial statements. INVENTORIES -- Inventories other than finished gold are recorded at the lower of average cost or net realizable value. Finished gold inventory is carried at realizable value. MINING COSTS -- During production periods, costs attributable to waste are charged to operations based on the average ratio of waste tonnage to ore tonnage. PROPERTY, PLANT AND EQUIPMENT -- Property, plant and equipment is stated at the lower of cost, or estimated net realizable value. Depreciation of milling facilities and depletion of mining properties is determined by the units of production method. The Company regularly assesses its ability to recover the carrying value of its assets and recognizes an impairment when it is determined that unamortized costs cannot be recovered from undiscounted cash flows over the remaining project life. Leasehold improvements are amortized on a straight-line basis over the terms of related leases or, if shorter, estimated useful life. Expenditures for maintenance and repairs are charged to operations as incurred. Expenditures for additions and major renewals are added to the property, plant and equipment accounts. Interest expense allocable to the acquisition or construction of capital assets and deferred mine development is capitalized until operations commence. INVESTMENTS -- The Company uses the equity method to account for investments in common stock of companies 20% to 50% owned. Investments in equity securities of companies which are less then 20% owned are carried at the lower of cost or market value. Marketable equity securities available for sale are recorded at fair value with unrealized gains and losses reported as a separate component of stockholders' equity. Effective June 30, 1995, the Company changed its method of recognizing the equity in earnings of companies accounted for under the equity method from reporting the results of operations on a three month lag period to reporting the results of operations on a current basis. EXCESS OF COST OVER NET ASSETS ACQUIRED -- The excess cost is being amortized on a straight-line basis over five years. Amortization expense for the six months ended December 31, 1995 and accumulated amortization at December 31, 1995 were $7,000 and $7,000, respectively. 37 FOREIGN CURRENCIES -- All assets and liabilities of foreign subsidiaries are translated into U.S. dollars using the exchange rate prevailing at the balance sheet date, while income and expense items are translated at the weighted average exchange rate prevailing during the period. Unrealized exchange gains and losses are deferred and shown as a currency translation adjustment in shareholders' equity. EXPLORATION AND MINE DEVELOPMENT -- Exploration costs are expensed as incurred. When it is determined that a property has development potential, the subsequent costs of exploration and development are capitalized. Upon commencement of production the capitalized costs are amortized using the units of production method. MINING REVENUE -- Revenues are recorded when the finished product is available for shipment. RECLAMATION -- Estimated reclamation, site restoration and closure costs for each mine are charged to operations over the expected life of the mine using the units of production method. INCOME TAXES -- Effective July 1, 1993, the Company adopted Statement of Financial Accounting Standards (SFAS) No. 109, Accounting for Income Taxes. Under SFAS 109, income taxes are provided for the tax effects of transactions reported in the financial statements and consist of taxes currently due plus deferred taxes related to certain income and expenses recognized in different periods for financial and income tax reporting purposes. Deferred tax assets and liabilities represent the future tax return consequences of those differences which will either be taxable or deductible in the future when the assets and liabilities are recovered or settled. A valuation allowance is provided if it is more likely than not that any portion of the deferred tax assets will not be realized. Deferred tax assets are also recognized for operating losses and tax credits that are available to offset future taxable income or income taxes. CASH EQUIVALENTS -- The Company considers all highly liquid investments purchased with a maturity of three months or less to be cash equivalents. EARNINGS PER SHARE -- Earnings per share have been calculated based on the weighted average number of common shares outstanding during the year. Shares issuable under options and warrants are excluded from the computation when they are not dilutive. STOCK-BASED COMPENSATION -- In October 1995, the FASB issued Statement No. 123, "Accounting and Disclosure of Stock-Based Compensation". Statement No. 123 is applicable for fiscal years beginning after December 15, 1995 and gives the option to either follow fair value accounting or to follow Accounting Principles Board Opinion No. 25, "Accounting for Stock Issued to Employees" ("APB No. 25") and related Interpretations. The Company has not yet determined whether it will elect to use fair value or to follow APB No. 25 and related Interpretations in accounting for its stock options. The Company has not yet determined the impact on its financial position or results of operations, should it decide to adopt fair value accounting. LONG-LIVED ASSETS -- In March 1995, the FASB issued Statement No. 121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to be disposed Of", which requires 38 impairment losses to be recorded on long-lived assets used in operations when indicators of impairment are present. The Company is required to adopt Statement No. 121 in the first quarter of 1996 and, based on current circumstances, does not believe the effect of adoption will be material. ACCOUNTING ESTIMATES IN THE PREPARATION OF FINANCIAL STATEMENTS -- The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amount of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. RECLASSIFICATIONS -- Certain of the comparative figures have been reclassified to conform with the current year's presentation. 2. RESULTS FOR THE SIX MONTHS ENDED DECEMBER 31, 1994 The following financial information for the six months ended December 31, 1994 is unaudited and is being presented for comparative purposes:
Six Months Ended December 31, ----------------------------- 1994 1995 (Unaudited) ------------ ----------- Mining Revenue $ -- $ 2,328 Gross Operating Loss (2,776) (4,455) Loss from continuing operations before income taxes and minority interest (4,291) (5,804) Provision for income taxes -- -- Minority interest in net loss of subsidiary 25 -- Loss from continuing operations (4,266) (5,804) Income from discontinued operations -- 846 Net loss $ (4,266) $ (4,958) ========= ========== Net loss per common share $ (.22) $ (.34) ========= ==========
3. INVENTORIES The following is a summary of inventories:
December 31, June 30, June 30, (In thousands) 1995 1995 1994 - -------------------------------------------------------------------------- Stockpiled ore $ -- $ -- $ 360 Work in process -- -- 593 Finished product -- -- 64
39
Materials and supplies 250 250 350 ----- ----- ------ $ 250 $ 250 $1,367 ===== ===== ======
4. INVESTMENTS IN MARKETABLE EQUITY SECURITIES On May 31, 1994, the Company, Dakota Mining Corporation ("Dakota") and VenturesTrident, L.P. and VenturesTrident II, L.P. entered into an agreement in principle providing for (i) the purchase of 1,500,000 common shares of Dakota from the VenturesTrident Partnerships, for $4.00 per share, and, subject to the completion of the purchase of the VenturesTrident Shares, (ii) the subscription by Atlas to 3,100,000 newly-to-be issued convertible preferred shares of Dakota. On October 28, 1994, the Company determined that, based upon the prevailing market conditions, it was in the best interests of its shareholders not to proceed with the Dakota acquisition and forfeited $1,000,000 in nonrefundable deposits to the VenturesTrident Partnerships. Costs of $144,000 incurred in conjunction with the Dakota transaction were also expensed. On March 9, 1995, Atlas and Dakota entered into a Subscription Agreement, under which Atlas purchased 2,419,355 Special Warrants of Dakota at a price of $1.24 per Special Warrant which were subsequently converted into 2,419,355 Common Shares of Dakota. As a result of such purchase, the Company owned over 9% of the outstanding Common Shares of Dakota. In connection with the purchase by the Company of Special Warrants, the Company and Dakota executed a mutual limited release, whereby each party released the other from any liability arising out of the May 31, 1994 agreement. Subsequent to December 31, 1995, the Company sold its equity holdings in Dakota, see Note 19 for the terms of the sale. The following is a summary of investments in equity securities:
December 31, June 30, June 30, (In thousands) 1995 1995 1994 - ---------------------------------------------------------------------------------- Dakota Mining Corporation Common Stock: Cost $ 3,187 $ 3,187 $ -- Gross Unrealized Gains 442 896 -- ---------- -------- --------- Estimated Fair Value $ 3,629 $ 4,083 $ -- ========== ======== =========
40 5. PROPERTY, PLANT AND EQUIPMENT The following is a summary of property, plant and equipment:
Accumulated Depreciation, Depletion Acquisition Amortization Net Book December 31, 1995 (In thousands) Costs & Impairment Value - -------------------------------------------------------------------------------------------- Property and leaseholds $ 5,507 $ 2,262 $ 3,245 Land improvements 5,734 5,734 -- Deferred exploration and development costs: Producing 3,470 3,470 -- Nonproducing 533 -- 533 Buildings and equipment 35,521 32,940 2,581 ---------- ---------- ------- Total $ 50,765 $ 44,406 $ 6,359 ========== ========== ======= Accumulated Depreciation, Depletion Acquisition Amortization Net Book June 30, 1995 (In thousands) Costs & Impairment Value - -------------------------------------------------------------------------------------------- Property and leaseholds $ 2,256 $ 2,256 $ -- Land improvements 5,734 5,734 -- Deferred exploration and development costs: Producing 3,470 3,470 -- Nonproducing 750 -- 750 Buildings and equipment 35,476 33,201 2,275 ---------- ------- ------ Total $ 47,686 $44,661 $ 3,025 ========== ======= ====== Accumulated Depreciation, Depletion, Acquisition Amortization Net Book June 30, 1994 (In thousands) Costs & Impairment Value - -------------------------------------------------------------------------------------------- Property and leaseholds $ 2,256 $ 2,256 $ -- Land improvements 5,734 5,734 -- Deferred exploration and development costs: Producing 3,470 3,470 -- Nonproducing 388 -- 388 Buildings and equipment 38,620 36,177 2,451 ---------- ---------- ------ Total $ 50,476 $ 47,637 $2,839 ========== ========== ======
41 On October 25, 1995, Atlas purchased the Doby George property from Independence Mining Company Inc. for the sum of $400,000 in cash plus 1.4 million shares of the Company's common stock. On September 13, 1995, the company completed a one year option agreement on the Commonwealth property, located in Arizona, with Harvest Gold Corporation. Under the terms of the option, Atlas must spend a minimum of $425,000 during the one year option period and, in order to exercise the option, would be required to pay Harvest $25 per equivalent ounce of recoverable gold reserve. This exercise option would be payable 75% in Atlas Common Stock and 25% in cash, with cash not to exceed $1.3 million. During September 1994, the Company placed the Gold Bar Mine on standby and recorded an expense of $1,275,000 for estimated shutdown and standby costs through the end of the fiscal year. During the fourth quarter of the fiscal year ended June 30, 1995, the Company recorded $210,000 of additional shutdown and standby costs. Also, during the six months ended December 31, 1995, the Company recorded $671,000 of additional shutdown and standby costs. During the fourth quarter of fiscal year 1994, the Company reviewed its mine plan and feasibility studies at certain Gold Bar properties. It was determined that the Company's unamortized investment could not be recovered from undiscounted cash flows over the remaining mine life, accordingly, the Company recorded an impairment of $5,355,000 in carrying value of its producing properties. This impairment is in addition to a similar reduction of $28,716,000 in the carrying value of its producing properties recorded in fiscal year 1993. The Company wrote off the $2,796,000 carrying value of certain nonproducing properties in the fourth quarter of fiscal 1993. In October 1992, the Company leased to another mining company gold properties in Oregon and Idaho for a period of 35 years with options for three additional 10 year periods. The total consideration was $30 million, consisting of a $22.5 million initial payment and a $7.5 million advance royalty payment. The Company has retained a 5% royalty on each of the properties which will first be applied against the advance royalty and interest thereon. This transaction resulted in a gain of $17.8 million in fiscal year 1993. 6. STOCKHOLDERS' EQUITY At a Special Meeting of Stockholders held on December 15, 1994, an amendment was approved to the Company's Certificate of Incorporation increasing the number of authorized shares of common stock from 25 million to 50 million. The Company is also authorized to issue 1,000,000 shares of preferred stock, par value $1 per share. The preferred stock is issuable in series, with designations, rights and preferences to be fixed by the Board of Directors. The Board of Directors has established a series of 200,000 shares of Series Preferred Stock designated Series A Junior Participating Preferred Stock ("Series A Preferred Stock"), no shares of which have been issued. At December 31, 1995, there were 875,000 shares of Common Stock reserved for the conversion of an outstanding convertible debenture and 2,032,111 shares of Common Stock reserved for Option Warrants traded on the American Stock Exchange which are exercisable at a price of $15.625 per share and have no expiration date ("Perpetual Warrants"). Since June 30, 1993, no Perpetual Warrants have been issued or exercised. Also at December 31, 1995, there were 42 6,517,955 shares of Common Stock reserved for Option Warrants issued in connection with the private placements discussed in Note 18, with the following terms and activity:
Shares Exercised ---------------------------------- Date of Exercise Expiration Shares Year Ended 6/30 Six Mo. Ended Outstanding ------------------- Issuance Price Date Issued 1994 1995 Dec. 31, 1995 Dec. 31, 1995 - ---------------------------------------------------------------------------------------------------------------- Sept. 20, 1993 $3.625 Sept. 20, 1996 2,000,000 12,500 15,000 --- 1,972,500 Aug. 15, 1994 $ 7.00 Aug. 15, 1999 3,243,405 --- --- --- 3,243,405 Dec. 15, 1994 $ 7.00 Dec. 15, 1999 1,302,050 --- --- --- 1,302,050
The Company has an Amended and Restated Rights Agreement under which a holder of Preferred Stock Purchase Rights ("Rights") is entitled to purchase from the Company 1/200th of a share of Series A Preferred Stock at a price of $45 per 1/200th of a share. Subject to action by the Board of Directors, the Rights become exercisable upon the occurrence of certain events, including acquisition by a person or group of 15% or more of the outstanding Common Stock of the Company. Upon any such acquisition, the amended Plan provides that upon exercise of Rights and payment of the purchase price, the exercising Rights holder is entitled to receive, in lieu of Series A Preferred Stock, shares of Common Stock having a market value equal to twice the purchase price. The Amended and Restated Rights Agreement was amended as of September 13, 1993 and August 15, 1994 to provide that the transactions with Phoenix Financial Holdings Inc., M.I.M. Holdings Limited and Mackenzie Financial Corporation would not cause the Rights to become exercisable (Note 18). 7. EMPLOYEE INCENTIVE PLANS The Company's Long Term Incentive Plan (the "LTIP") provides that key employees may be granted options to purchase Common Stock at the fair value of the shares on the date of grant. At a February 17, 1995 Meeting of Stockholders, the shareholders approved an amendment to the Long Term Plan (i) to increase by 850,000 to 1,745,000 the number of shares authorized for issuance under the LTIP, (ii) to provide for the automatic grant to non-employee directors of the Company of awards of stock options under the LTIP and (iii) to reduce the minimum period prior to which an option may be exercised for all options granted after January 6, 1995 from one year to six months. Options are exercisable for a maximum of ten years from the date of grant and no options may be granted after July 31, 1999.
Date Granted Exercise Price Shares - -------------------------------------------------------------------------------------------------- Granted October 1, 1986 $ 6.750 6,000 Granted January 6, 1988 16.125 6,000 Granted August 2, 1989 16.750 10,000 Granted November 13, 1989 17.250 2,000 Granted April 14, 1990 14.625 21,500 Granted July 23, 1990 12.125 8,000 Granted September 12, 1990 13.125 47,000 Granted March 6, 1991 7.375 6,450 Granted January 6, 1993 5.125 43,500 Granted March 11, 1993 2.750 30,000 - -------------------------------------------------------------------------------------------------- Balance outstanding as of June 30, 1993 180,450
43 Granted November 15, 1993 $ 4.250 815,000 Granted December 1, 1993 5.250 10,000 Granted May 2, 1994 8.000 5,000 Exercised (30,000) Cancelled (185,950) - ------------------------------------------------------------------------------------------- Balance outstanding as of June 30, 1994 794,500 Granted August 10, 1994 $ 4.750 122,500 Granted January 6, 1995 2.125 80,000 Granted January 6, 1995 4.500 450,000 Granted January 6, 1995 3.000 83,000 Granted January 6, 1995 4.000 83,000 Granted January 6, 1995 5.000 84,000 Granted May 19, 1995 2.000 235,000 Cancelled (815,000) - ------------------------------------------------------------------------------------------- Balance outstanding as of June 30, 1995 1,117,000 Granted July 12, 1995 $ 1.875 40,000 Granted August 10, 1995 2.000 225,500 Granted December 13, 1995 1.500 20,000 Granted December 15, 1995 2.000 7,800 Cancelled (347,000) - ------------------------------------------------------------------------------------------- Balance outstanding as of December 31, 1995 1,063,300 ========= Summary of options outstanding as of December 31, 1995: - ----------------------------------------------------------------------------------------- Date Exercise Price Shares - ----------------------------------------------------------------------------------------- November 15, 1993 $ 4.250 300,000 January 6, 1995 2.125 60,000 January 6, 1995 4.500 350,000 May 19, 1995 2.000 60,000 July 12, 1995 1.875 40,000 August 10, 1995 2.000 225,500 December 13, 1995 1.500 20,000 December 15, 1995 2.000 7,800 - ----------------------------------------------------------------------------------------- 1,063,300 =========
8. INVESTMENTS INVESTMENT IN GRANGES INC. On August 15, 1994, the Company completed the purchase from M.I.M. (Canada) Inc. ("M.I.M.") of 12,694,200 common shares of Granges Inc. ("Granges") which represented 37.2% of the issued and outstanding shares of Granges. The purchase price was Cdn. $4.00 per share (U.S. $2.80), or an aggregate purchase price of Cdn. $50.8 million (U.S. $35.8 million). 44 Granges is a Canadian-based precious metals mining company whose shares are traded on the Toronto Stock Exchange and the American Stock Exchange. Effective May 1, 1995, Granges amalgamated with Hycroft Resources and Development Corporation ("Hycroft"), which operates the Crofoot/Lewis mine located in Nevada,. Prior to the amalgamation, Granges had a 50.5% ownership position in Hycroft. The terms of the amalgamation called for each common share of Hycroft to be exchanged for 0.88 of a common share of "new" Granges Inc. and for each common share of Granges outstanding prior to the amalgamation, to be exchanged for one common share of "new" Granges Inc. After the amalgamation, the Company continued to hold 12,694,200 shares of "new" Granges Inc., representing 27.5% of the outstanding common shares of Granges. On May 25, 1995, the Company purchased 20,700 Common shares of Granges to hold a total of 12,714,900 Common shares of Granges. The Company has reported the results of Granges' operations on the equity method since it was acquired on August 15, 1994. Summarized Statements of Operations of Granges and summarized Balance Sheets are presented below:
Six Months Ended Twelve Months Ended STATEMENT OF OPERATIONS December 31, 1995 June 30, 1995 (U.S. GAAP, U.S. Dollars, in thousands) (unaudited) (unaudited) - ------------------------------------------------------------------------------------------- Sales $19,459 $42,833 Cost of sales 16,544 34,179 Depreciation, depletion, & amortization 4,446 4,773 ------- ------- Income (loss) from mining operations (1,531) 3,881 Net loss $(1,303) $(1,405) ======= ======= BALANCE SHEET December 31, 1995 June 30, 1995 (U.S. GAAP, U.S. Dollars, in thousands) (unaudited) - ------------------------------------------------------------------------------------------- Current assets $28,099 $34,109 Non-current assets $59,405 $53,136 Current liabilities $ 6,239 $ 5,346 Non-current liabilities $ 3,409 $ 3,206 Net equity $77,856 $78,693
Under the equity method, the Company recorded a loss of $1,703,000 and $1,361,000 for the six months ended December 31, 1995 and for the period from August 15, 1994 (date of acquisition) to June 30, 1995, respectively. In connection with May 1, 1995 amalgamation of Granges Inc. and Hycroft Resources and Development Corporation, the Company has re-evaluated its investment in Granges relative to the fair values implied in the amalgamation and to known reserves at the Crofoot/Lewis mine. As a result, the Company recorded an $11,419,000 impairment of its investment in Granges Inc. as of June 30, 1995. The impairment reduced the excess cost of the investment over the net assets attributable to Atlas' interest in Granges from approximately $20.5 million on August 15, 1994 (date of acquisition) to approximately $9.0 million at June 30, 1995. The Company amortizes the 45 excess cost of the investment related to producing properties on a unit of production (gold ounces) basis which is included in the reported loss discussed above. Effective September 29, 1995 the Company entered into an exploration joint venture agreement with Granges with respect to approximately 34 square miles of the Company's Gold Bar claim block. In order to earn a 50% undivided interest in not more than 15 square miles within the area of interest, the terms of the agreement require Granges to spend U.S.$2.25 million on exploration and development within three years on approximately 1,190 claims included in the area of interest, at the rate of U.S.$625,000 in each of the first two years and U.S.$1.0 million in the third year, and to complete an independent reserve report recommending development of a deposit containing a mineable reserve in excess of 300,000 ounces of gold. Upon execution of the agreement, Granges paid to the Company $359,000 for reimbursement of past exploration expenses. INVESTMENT IN PHOENIX FINANCIAL HOLDINGS INC. On November 30, 1995, Atlas purchased 12.2 million (51%) of the outstanding common shares of Phoenix Financial Holdings Inc. (CDN: PGML.A, PGML.B) for an aggregate purchase price of Cdn. $1,781,200. With the purchase, Atlas assumed board control, with David J. Birkenshaw, Atlas' Chairman and Chief Executive officer, appointed Chairman of Phoenix, and Gerald E. Davis, Atlas' President, being appointed Vice-Chairman and Chief Executive Officer of Phoenix. Mr. Birkenshaw had previously been Chairman of Phoenix from June 1991 until his resignation in March 1995. The results of operations of Phoenix are consolidated into the Company's financial statements using the principles of consolidation discussed in Note 1. Also see details of subsequent events regarding Atlas' investment in Phoenix discussed in Note 19. 9. CURRENT AND LONG-TERM DEBT LONG-TERM DEBT
December 31, June 30, June 30, (in thousands) 1995 1995 1994 - --------------------------------------------------------------------------------------------------- Redeemable Convertible Debenture, Due September 20, 1998, bearing interest at 9% (1) $ 3,500 $3,500 $3,500 Exchangeable Debentures, due October 25, 2000, bearing interest at 7% (2) 10,000 -- -- ------- ------ ------ Total long-term debt $13,500 $3,500 $3,500 ======= ====== ======
(1) The Convertible Debenture is convertible as to principal at the option of the holder into shares of the Company's common stock at the rate of $4.00 per share. Interest on the debenture is also payable either in cash or in common stock at the rate of $4.00 per share. (2) The Exchangeable Debentures are exchangeable, at the debentureholder's option, into common shares of Granges Inc. ("Granges Shares") at the rate of 42.5 Granges Shares for each $100 of principal amount of debentures surrendered. The Company may also redeem the debentures on or after October 25, 1998 if the average market price of the Granges Shares is at least $2.94 per share at the rate of 42.5 Granges Shares per $100 of debentures held. The Company may also 46 pay the debentures at maturity in either cash or Granges shares (at the Company's option) at a price per share equal to 95% of the average market price of the Granges shares on the date of maturity. The proceeds from the Exchangeable Debentures were placed in escrow on November 10, 1995 pending completion of certain registration and qualification requirements. On February 8, 1996, the Company met the registration and qualification requirements, releasing the escrowed funds. SHORT-TERM DEBT On November 29, 1995 the Company entered into a $2,000,000 loan facility with First Marathon Inc. maturing on the earlier of: (a) February 15, 1996, or (b) 5 days following the date on which the qualification and registration requirements for the Exchangeable Debentures were met. The Company pledged as security approximately 2.4 million common shares in Dakota Mining Corporation and 4.2 million common shares of Granges Inc. On February 8, 1996, the Company met the registration and qualification requirements related to the Exchangeable Debentures, using the released escrow funds to repay the loan facility. 10. DETAILS OF CERTAIN BALANCE SHEET CAPTIONS A summary of restricted cash and securities is as follows:
December 31, June 30, June 30, (In thousands) 1995 1995 1994 - ------------------------------------------------------------------------------------------------- Collateral for a $4,592,000 letter of credit (a)(c) $ 4,602 $ 4,869 $ -- Collateral for a $6,500,000 letter of credit (a) -- -- 6,500 Collateral for a $1,500,000 reclamation bond (b) 765 790 775 Other restricted cash (c) -- -- 718 ------- ------- ------- $ 5,367 $ 5,659 $ 7,993 ======= ======= =======
(a) Securing $6,500,000 performance bond related to the Company's uranium reclamation obligation. (b) Securing $1,500,000 performance bond related to the Company's Gold Bar reclamation obligation. (c) Securing $1,826,000 performance bond related to the Company's Gold Bar reclamation obligation. A summary of other assets is as follows:
December 31, June 30, June 30, (In thousands) 1995 1995 1994 - ------------------------------------------------------------------------------------------------- Deposit paid for Granges Inc. shares $ -- $ -- $ 1,843 Deposit paid for Dakota Mining Corporation shares (Note 4) -- -- 525 Debt issuance costs 902 -- -- Excess of cost over net assets of Phoenix Financial Holdings (Note 8) 442 -- -- Other 164 246 331 ------- ------- ------- $ 1,508 $ 246 $ 2,699 ======= ======= =======
A summary of other accrued liabilities is as follows:
December 31, June 30, June 30, (In thousands) 1995 1995 1994 - -------------------------------------------------------------------------------------------------
47
Accrued compensation $ 246 $ 230 $ 596 Mine reclamation accrual 300 300 300 Accrued asbestos reclamation costs (Notes 12 and 13) 393 566 1,400 Other 1,059 1,002 850 ------- ------- ------- $ 1,998 $ 2,103 $ 3,146 ======= ======= =======
A summary of other liabilities, long-term is as follows:
December 31, June 30, June 30, (In thousands) 1995 1995 1994 - -------------------------------------------------------------------------------------------------------------------- Long term uranium reclamation cost (Notes 12 and 13) $ 3,713 $ 4,902 $ 5,899 Pension and deferred compensation obligations 1,441 1,405 1,335 Mine reclamation accrual 2,812 3,042 3,100 Accrued postretirement benefit obligation (Note 15) 1,239 1,232 1,203 Other 979 1,079 730 ------- ------- ------- $10,184 $11,660 $12,267 ======= ======= =======
11. DETAILS OF CERTAIN STATEMENTS OF CASH FLOW CAPTIONS The components of the adjustment to reconcile loss to net cash used in operations as reflected in the Consolidated Statements of Cash Flows are as follows:
For the Six Months Ended For the Year Ended -------------------------------- December 31, June 30, June 30, June 30, (In thousands) 1995 1995 1994 1993 - ------------------------------------------------------------------------------------------------- Depreciation, depletion and amortization $ 15 $ 395 $ 4,547 $ 9,003 Equity loss in Granges Inc. 1,703 1,361 Minority interest (25) -- -- -- Forfeiture of deposit on stock purchase agreement -- 525 -- -- Write-down of investment in Granges Inc. -- 11,419 -- -- Write-down of mineral properties - producing -- -- 5,355 28,716 Write-down of mineral properties - nonproducing -- -- -- 2,796 Gain on mineral lease transaction -- -- -- (17,803) Other adjustments 102 498 -- 615 - ------------------------------------------------------------------------------------------------- $1,795 $14,198 $ 9,902 $ 23,329 =================================================================================================
The components of net changes in operating assets and liabilities is as follows:
- -------------------------------------------------------------------------------------------------- Decrease (increase) in trade accounts receivable $ (114) $ (36) $ -- $ 68 Decrease in inventories -- 843 1,024 614 Decrease (increase) in prepaid expenses and other and other current assets 273 (69) (57) 160 Decrease (increase) in other assets and restricted cash and securities 407 2,419 (2,565) (390) Increase (decrease) in trade accounts payable 924 (1,500) 860 (1,110) Decrease in other accrued liabilities (104) (1,784) (182) (1,015) Increase (decrease) in income taxes payable -- -- (477) 477 Increase (decrease) in other liabilities, long-term (287) 65 (820) 588
48 - ------------------------------------------------------------------------------------------------------ $1,099 $ (62) $(2,217) $ (608) ======================================================================================================
Net cash required for operating activities reflects cash payments for interest and income taxes as follows:
For the Six Months Ended For the Year Ended ------------ ------------------------------------- December 31, June 30, June 30, June 30, (In thousands) 1995 1995 1994 1993 - ------------------------------------------------------------------------------------------- Interest (net of amount capitalized) $20 $ 99 $ 562 $ 61 Income Taxes -- -- -- --
12. DISCONTINUED OPERATIONS During fiscal year 1995, the Company recognized income of $621,000 from discontinued operations, this included a gain of $846,000 recorded upon the receipt of a payment from the Department of Energy under Title X of the Energy Policy Act (Note 13) in connection with the reclamation of the Company's uranium mine and mill site in Moab, Utah. The gain was partially offset by a loss of $225,000 due to cost overruns at the Company's Coalinga, California asbestos mine and mill reclamation project (Note 13). During fiscal year 1994, the Company recognized income of $2,175,000 from discontinued operations primarily due to the recovery from insurance carriers of cleanup costs at the Coalinga reclamation project. During fiscal year 1993, the Company charged $912,000 ($875,000 net of tax) to discontinued operations including $600,000 for estimated reclamation costs at the Coalinga project and $312,000 for litigation related to the sale of the Atlas Building Systems Division in a prior fiscal year. The items above are included in the consolidated statements of operations under the heading "Income (loss) from discontinued operations". The following table summarizes the operating income (loss) of the discontinued businesses:
Asbestos Products & Mining & Ready-Mix Service & Period ended (In thousands) Milling Concrete Other Total - --------------------------------------------------------------------------------------- December 31, 1995 $ -- $ -- $ -- $ -- June 30, 1995 $ (225) $ -- $846 $ 621 June 30, 1994 $1,997 $ 136 $(42) $2,175 June 30, 1993 $ (600) $(312) $ -- $ (912)
49 13. COMMITMENTS AND CONTINGENCIES The Company is obligated to decommission and reclaim its uranium mill site located near Moab, Utah. The Company discontinued its uranium operations and permanently shut down its uranium mill and mines in 1987, estimated shut-down expenses and reclamation costs of $17,406,000 were accrued. The balance in this accrual at December 31, 1995 was $4,513,000. Title X of "The Comprehensive National Energy Policy Act" ("Title X"), enacted in October 1992, provides for the reimbursement of past and future reclamation expenses related to uranium sites operated under Atomic Energy Commission contracts. The Company's uranium reclamation cost will be reduced by this Government cost sharing program since 56% of its tailings were generated under government contracts. The Company believes the accrual, when combined with anticipated reimbursements under the Title X program, is sufficient to cover future reclamation costs. In July 1994, the Company submitted a claim to the Department of Energy (the "DOE") under Title X of approximately $5 million for reclamation costs incurred from fiscal year 1986 through fiscal year 1994. The DOE has given approval on approximately $4.5 million of the claim and $2.5 million in reimbursement, disallowing $.5 million pending further substantiation of the claim for reimbursement. On December 29, 1994, the Company received $846,000 as a partial payment of the approved reimbursement which was recorded as income from discontinued operations. In June 1995, the Company submitted a second claim to the DOE under Title X for approximately $3.6 million which included reclamation costs incurred from fiscal year 1980 through fiscal year 1985, from June 1994 through May 1995, and reclamation costs previously disallowed. The Company anticipates the DOE audit of the June 1995 claim will be completed in the spring of 1996. If the June 1995 claim is approved in full, the Company would receive reimbursement of approximately $2.0 million. On September 30, 1995, the Company received an additional $1,032,000 partial payment for amounts due on the 1994 and 1995 claims. This amount has been added to the Company's reclamation accrual. Timing of the remaining payments for approved reimbursements is a function of Congressional appropriation of Title X funding. During fiscal year 1988, the United States Environmental Protection Agency notified the Company that it was one of several potentially responsible parties for cleanup costs at the Company's former asbestos mine and mill site near Coalinga, California and in the City of Coalinga. A prolonged period of inquiry and administrative process concerning this matter followed. In fiscal years 1995, 1993 and 1991, the Company established a reserve, and recorded as an expense, $225,000, $600,000 and $3,000,000, respectively, to cover the Company's share of cleanup costs. In fiscal year 1992, the Company started legal action against thirteen insurance carriers which had issued insurance policies, with respect to the site. During fiscal year 1994, the Company reached settlement with a number of the carriers and recorded a gain from discontinued operations of $2,175,000. All claims with remaining carriers were settled in fiscal year 1995. The proceeds were negligible. The remedial action plan commenced October 1994 and was substantially completed in the fall of 1995. The Company anticipates receiving a certificate of final inspection from the EPA in 1996. Minimum future rental commitments under the Company's non-cancelable operating leases having a remaining term in excess of one year at December 31, 1995 are as follows: 50
Year ended December 31, (In thousands) - -------------------------------------------------------------------- 1996 $ 206 1997 205 1998 205 1999 182 2000 109 Later years 64 -------- Total minimum payments required $ 971 ========
Amounts charged to rent expense in the six months ended December 31, 1995 and the fiscal years ended June 30, 1995, 1994 and 1993 were $81,200, $550,000, $670,000 and $1,263,000, respectively. 14. EMPLOYEE RETIREMENT PLANS The Company has a trusteed and insured retirement plan covering substantially all salaried employees. The plan provides pension benefits that are based on final average compensation minus certain adjustments for primary social security benefits. The Company's funding policy for the plan is to make at least the minimum annual contributions required by applicable government regulations. Plan assets are invested primarily in equity securities, corporate and government bonds and money market funds.
For the Six Months Ended For the Year Ended June 30, -------------------------------- (In thousands) Dec. 31, 1995 1995 1994 1993 - --------------------------------------------------------------------------------------------------------------- Service costs-benefits earned during the year $ 27 $ 83 $ 123 $ 195 Interest cost on projected benefit obligation 242 432 441 500 Actual return on plan assets (290) (218) (90) (252) Net amortization and deferral 80 (223) (399) (262) ----- ----- ----- ----- Net periodic pension cost for the year $ 59 $ 74 $ 75 $ 181 ===== ===== ===== ===== Assumed long-term rate of return on plan assets 8.5% 8.5% 8.5% 8.5%
The following table sets forth the plans' funded status and amounts recognized in the Company's financial statements at December 31, 1995, June 30, 1995 and June 30, 1994:
Dec. 31, June 30, June 30, (In thousands) 1995 1995 1994 - -------------------------------------------------------------------------------------------------------------- Accumulated benefit obligation based on salaries to date, including vested benefit obligation of $6,370,000, $5,449,000, and $5,338,000 for December 31, 1995, June 30, 1995, and June 30, 1994, respectively $(6,381) $(5,344) $(5,494) Additional benefit obligation based on estimated future salary levels (146) (145) (157) ------- ------- ------- Projected benefit obligation (6,527) (5,489) (5,651) Fair value of plan assets 4,952 4,971 5,342 ------- ------- ------- Funded status (1,575) (518) (309) Unrecognized net obligation at July 1, 1989 and 1988 being recognized over approximately 15.88 years 51 58 71
51 Unrecognized net loss (gain) 963 (42) (190) ------- ------- ------- Accrued pension cost $ (561) $ (502) $ (428) ======= ======= ======= Assumed discount rate 7.25% 8.25% 8.25 % Assumed rate of increase in future compensation 5.0% 5.0% 5.0 %
The Company has an Investment and Savings Plan to assist eligible employees in providing for retirement or other future financial needs. Employee contributions (up to 10% of their earnings) are matched in Company stock by the Company at a rate of 100% up to a maximum of 6% of the employee earnings. In addition, the Company provides a 4% contribution for all eligible employees compensated on an hourly scale. The Company's contributions to this Plan in the six months ended December 31, 1995 and in the fiscal years ended June 30, 1995, 1994 and 1993 were $27,000, $93,000, $179,000 and $284,000, respectively. 15. OTHER POSTRETIREMENT BENEFIT PLANS In addition to the Company's defined benefit pension plan the Company has two defined benefit postretirement plans covering most salaried employees. One plan provides medical benefits and the other provides life insurance benefits. The postretirement health care plans are contributory, with retiree contributions adjusted annually, and contain other cost-sharing features such as deductibles and coinsurance. The accounting for the health care plans anticipates future cost-sharing changes to the written plan that are consistent with the Company's expressed intent to increase the retiree contribution rate annually for the expected general inflation rate for that year. The life insurance plan is non- contributory. The Company's policy is to fund the cost of the postretirement health care benefits in amounts determined at the discretion of management and to make annual contributions to the life insurance plan in level amounts over the plan participant's expected service period. In fiscal year 1993, the Company adopted FASB Statement No. 106, Employers' Accounting for Postretirement Benefits Other Than Pensions. The effect was a one-time charge to operations of $968,000. This cumulative catch-up adjustment as of July 1, 1992 represents the discounted present value of expected future retiree health and insurance benefits attributed to employees' service rendered prior to that date. The new standard results in additional annual expense which totaled $26,000, $102,000, $149,000 and $138,000 in the six months ended December 31, 1995 and in the years ended June 30, 1995, 1994 and 1993 respectively. The following table shows the plan's combined funded status reconciled with the amounts recognized in the Company's financial statements: 52
December, June 30, June 30, (In thousands) 1995 1995 1994 - ------------------------------------------------------------------------------------------------------------------------- Accumulated postretirement benefit obligation Retirees $ (674) $ (686) $ (662) Fully eligible active plan participants -- -- -- Other Active Participants (208) (190) (282) ----------- ---------- ------------- Accrued postretirement benefit cost $ (882) $ (876) $ (944) Unrecognized prior service cost (118) (123) (132) Unrecognized net gain (222) (233) (127) Accrued postretirement benefit cost ----------- ---------- ------------- $ (1,222) $ (1,232) $ (1,203) =========== ========== =============
Six Mo. Ended Year Ended --------------------------------- December 31, June 30, June 30, (In thousands) 1995 1995 1994 - -------------------------------------------------------------------------------------------------------------------- Component of net periodic postretirement benefit cost: Service cost $ 11 $ 49 $ 67 Interest cost 31 75 82 Net amotiized and deferral (16) (22) -- --------------- ------------- ------------- Net periodic postretirement benefit $ 26 102 149 --------------- ------------- -------------
The weighted-average annual assumed rate of increase in per capita cost of covered benefits (i.e. health care cost trend rate) for the plan is 11% for fiscal year 1996 and is assumed to decrease gradually to 5% in 2002 and remain at that level thereafter. The health care cost trend rate assumption has a significant effect on the amounts reported. For example, increasing the assumed health care cost trend rates by one percent age point in each year would increase the accumulated postretirement benefit obligation for the medical plans as of December 31, 1995, June 30, 1995 and June 30, 1994 by $32,000, $32,000 and $54,000 respectively, and the aggregate of the service cost and interest cost components of net periodic postretirement benefit cost for December 31, 1995 by $5,000. The weighted-average discount rate used in determining the accumulated postretirement benefit obligation was 7.25%, 7.5% and 8.25% at December 31, 1995, June 30, 1995 and June 30, 1994, respectively. 16. INCOME TAXES Effective July 1, 1993, the Company adopted SFAS No. 109, Accounting for Income Taxes. The adoption of SFAS No. 109 resulted in no material change to the Company's deferred tax liability. Financial Statements for prior periods have not been restated. 53 The Company's provision for income tax from continuing operations consists of the following:
December 31, June 30, June 30, June 30, (in thousands) 1995 1995 1994 1993 - ----------------------------------------------------------------------------------------- Deferred $ -- $ -- $ -- $ -- Current -- -- -- 477 Income tax expense (benefit) $ -- $ -- $ -- $ 477 ======== ======== =========== ======
Deferred income taxes result from temporary differences in the timing of income and expenses for financial and income tax reporting purposes. The primary components of deferred income taxes result from exploration and development costs; depreciation, depletion, and amortization expenses; impairments; and reclamation accruals. The net deferred tax balances in the accompanying December 31, 1995, June 30, 1995 and June 30, 1994 balance sheets include the following components:
December 31, June 30, June 30, (In thousands) 1995 1995 1994 - ---------------------------------------------------------------------------------------------- Deferred tax assets: Net operating loss ("NOL") carryovers $ 34,892 $ 33,711 $ 29,877 Tax credit carryovers 572 756 964 Impairment of mineral properties 12,359 12,359 12,359 Depreciation, depletion and amortization 747 882 2,244 Reclamation accruals 1,472 3,399 4,216 Postretirement benefit accrual 502 431 421 Impairment of investment in Granges Inc. 3,997 3,997 -- Equity in Granges Inc. 1,106 512 -- -------- -------- -------- Total deferred tax assets 55,647 56,047 50,081 Deferred tax asset valuation allowance (52,031) (51,664) (45,020) -------- -------- -------- Net deferred tax assets 3,616 4,383 5,061 -------- -------- -------- Deferred tax liabilities: Depreciation, depletion, and amortization 3,461 4,069 4,853 Unrealized gain on investment of equity securities 155 314 -- Other -- -- 208 -------- -------- -------- Total deferred tax liabilities 3,616 4,383 5,061 -------- -------- -------- Net deferred tax balances $ -- $ -- $ -- ======== ======== ========
The change in the Company's valuation allowance is summarized as follows:
(In thousands) December 31, June 30, June 30, 1995 1995 1994 - ------------------------------------------------------------------------------------------------ Valuation allowance, beginning of period $ 51,664 $ 45,020 $ 41,567 Continuing Operations 1,502 7,139 4,214 Discontinued Operations -- (217) (761)
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Other (1,135) (278) -- -------- -------- -------- $ 52,031 $ 51,664 $ 45,020 ======== ======== ========
A reconciliation of expected federal income taxes on income from continuing operations at statutory rates with the expense/(benefit) for income taxes is as follows:
December 31, June 30, June 30, June 30, (in thousands) 1995 1995 1994 1993 - ------------------------------------------------------------------------------------------------------- Income tax at statutory rates $(1,502) $(7,139) $(4,214) $(9,380) Increase in deferred tax asset -- valuation allowance 1,502 7,139 4,214 Net operating loss utilization limitation -- -- -- 9,380 ------- ------- ------- ------- Income tax expense $ -- $ -- $ -- $ -- ======= ======= ======= =======
At December 31, 1995, the Company has unused NOL carryovers and investment tax credit carryovers as follows:
NOL ITC (in thousands) Expiration Date Carryovers Carryovers - ------------------------------------------------------------------------------- 1996 $ -- $ 122 1997 -- 131 1998 11,451 129 1999 10,930 19 2000 4,772 24 2001 29,782 20 2002 4,127 -- 2003 2,050 -- 2004 5,368 -- 2005 5,037 -- 2006 5,069 -- 2007 6,778 -- 2008 9,898 -- 2009 4,431 -- ------------- ------------ $ 99,693 $ 445 ============= ============
The Company has approximately $127,000 of alternative minimum tax ("AMT") credit carryover which can be carried forward indefinitely. The Company has concluded that upon completion of certain transactions affecting the ownership of the Company's stock (such as either of the transactions discussed in Notes 5 or 19), the availability 55 of the NOL, ITC, and AMT credit carryovers may be substantially limited pursuant to change of ownership provisions in the tax law. The extent of such a limitation has not yet been determined. 17. DIFFERENCES BETWEEN U.S. AND CANADIAN GENERALLY ACCEPTED ACCOUNTING PRINCIPLES (GAAP) The Company prepares its consolidated financial statements in accordance with accounting principles generally accepted in the United States. These differ in some respects from those in Canada, as described below. In accordance with U.S. GAAP, equity securities available for sale are recorded at fair value with unrealized gains and losses reported as a separate component of stockholders' equity. Accordingly, unrealized gains and losses in the investment of Dakota Mining Corporation Common Stock have been recorded as a component of stockholders' equity. Under Canadian GAAP, such investments would be recorded at the lower of cost or market. Therefore, in conformity with Canadian GAAP, the Dakota Mining investment and total stockholders' equity would approximate $3,187,000 and $21,701,000 and $3,187,000 and $23,937,000 at December 31, 1995 and June 30, 1995, respectively. U.S. GAAP requires a cumulative catch-up adjustment as of July 1, 1992 related to FASB Statement No. 106, Employers' Accounting for Postretirement Benefits Other Than Pensions. This resulted in a charge to operations of $968,000 in fiscal year 1993. Canadian GAAP allows companies to either retroactively adopt or defer and amortize the amount over the remaining service life of the employee group covered by the plan. Assuming retroactive adoption under Canadian GAAP, the net loss would approximate $28,941,000, or $4.57 per common share, for the fiscal year ended June 30, 1993. Total stockholders' equity would approximate $(3,734,000) at June 30, 1993. 18. PRIVATE PLACEMENTS The Company conducted a private placement of 9,090,909 Units of Atlas securities during the summer of 1994 for a purchase price of $5.50 per Unit, each Unit consisting of one share of the Company's common stock and one-half of a warrant (exercisable for five years) to purchase a share of the Company's common stock at an exercise price of $7.00 per share in order to finance the acquisition of 12,694,200 common shares of Granges (Note 8) and 1,500,000 common shares and 3,100,000 preferred shares of Dakota Mining Corporation ("Dakota"). The first portion of such private placement, consisting of the sale of 6,486,809 Units for an aggregate purchase price of $35,677,450, was completed on August 15, 1994, and the proceeds thereof were applied primarily to the price of the Granges shares. In connection with closing the first portion of the private placement, the Company entered into a $3.5 million secured, short-term credit agreement to cover certain expenses of the private placement. The Company pledged the Granges Shares as part of the security for such loan. On October 29, 1994, the Company determined not to proceed with acquisition of the Dakota shares (see Note 4). The second portion of the private placement, the sale of an additional 2,604,100 Units for an aggregate purchase price of $14,322,550, was completed on December 15, 1994 following the shareholder approval of an increase in the authorized share capital of the 56 Company. Upon closing the second portion of the private placement, the Company used a portion of the proceeds to repay the balance of $800,000 due on a short- term secured loan. Of the Units sold in the private placement, Mackenzie Financial Corporation ("Mackenzie Financial") acquired 1,820,000 Units, consisting of 1,820,000 shares of Common Stock and 910,000 warrants to purchase shares of Common Stock, and M.I.M. Holdings Limited ("M.I.M.") acquired 2,000,000 Units, consisting of 2,000,000 shares of Common Stock and 1,000,000 warrants to purchase shares of Common Stock. On January 18, 1994, the Company sold for $7,500,000 in gross proceeds, 1,500,000 shares of Common Stock for $5.00 per share in a private placement. The shares were placed outside the United States with a number of gold funds in Canada and European institutional investors. On September 20, 1993, the Company sold to Phoenix Financial Holdings Inc. for an aggregate of $8,375,000 (i) 1,500,000 shares of the Company's Common Stock, (ii) a Redeemable Convertible Debenture due 1998 in the principal amount of $3,500,000, which is convertible as to principal into Common Stock at the rate of $4.00 per share and bears interest at the rate of 9% per annum payable in cash or Common Stock at the rate of $4.00 per share, and (iii) Warrants to purchase for three years 2,000,000 shares of Common Stock at $3.625 per share. Of such securities, the 1,500,000 shares of the Company's Common Stock and 750,000 of the Warrants to Purchase Common Stock were sold to various investors in a private placement. 19. SUBSEQUENT EVENTS On January 16, 1996 Atlas and Phoenix Financial Holdings (a 51% subsidiary of the Company) executed a letter agreement providing for the purchase by Phoenix of all the issued and outstanding shares of Atlas Perlite, Inc., Atlas' wholly owned subsidiary whose only asset is the Tucker Hill Project. The letter agreement calls for payment to Atlas of $1 million in cash, the equivalent of $1 million in Phoenix common shares and the retention by Atlas of a royalty equivalent of 2% of the gross proceeds generated from the sale of minerals from Tucker Hill. In addition, Phoenix will reimburse Atlas for any pre-approved expenditures made by Atlas on the Tucker Hill Project from December 1, 1995 through to the closing date. The closing of the transaction is subject to regulatory, board and shareholder approval. On March 9, 1996, the Company sold its 2,419,000 common shares of Dakota Mining Corporation for Cdn $2.55 per share (U.S. $ 1.87 per share), or Cdn $6,169,000 (U.S. $4,519,000). The Company will recognize a gain in 1996 on this sale of $1,332,000. 57 REPORT OF INDEPENDENT AUDITORS THE BOARD OF DIRECTORS AND STOCKHOLDERS OF ATLAS CORPORATION We have audited the accompanying consolidated balance sheets of Atlas Corporation and subsidiaries as of December 31, 1995, June 30, 1995 and 1994, and the related consolidated statements of operations, stockholders' equity (deficit) and cash flows for the six months ended December 31, 1995 and each of the three years in the period ended June 30, 1995. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits. The financial statements of Granges Inc., (a corporation in which the Company has a 27.5% interest), have been audited by other auditors whose report has been furnished to us; insofar as our opinion on the December 31, 1995 and June 30, 1995 consolidated financial statements relates to data included for Granges Inc., it is based solely on their report. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits and the report of other auditors provide a reasonable basis for our opinion. In our opinion, based on our audits and the report of other auditors, the financial statements referred to above present fairly, in all material respects, the consolidated financial position of Atlas Corporation and subsidiaries at December 31, 1995 and June 30, 1995 and 1994, and the consolidated results of their operations and their cash flows for the six months ended December 31, 1995 and each of the three years in the period ended June 30, 1995, in conformity with generally accepted accounting principles. As discussed in Note 15 to the financial statements, in 1993 the Company changed its method of accounting for postretirement benefits other than pensions. /s/ Ernst & Young LLP Denver, Colorado February 16, 1996, except for Note 19, as to which the date is March 9, 1996 58 Item 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND ------------------------------------------------------------------- FINANCIAL DISCLOSURE -------------------- Not applicable PART III Item 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE COMPANY ----------------------------------------------- DIRECTORS The Company's directors are divided into three classes and hold office for a term of three years ending with the annual meeting of stockholders for the fiscal period ended December 31, 1995 in the case of Class II, for fiscal 1996 in the case of Class III and for fiscal 1997 in the case of Class I. There are currently seven directors. Information Concerning Directors The following table sets forth certain information concerning each director.
Principal Occupation, Past Five Years' Business Director Experience Name Since and Other Directorships Held Age ---- -------- -------------------------------- --- CLASS II (TERM OF OFFICE EXPIRES AT THE ANNUAL MEETING OF STOCKHOLDERS FOR THE FISCAL PERIOD ENDED DECEMBER 31, 1995) David J. Birkenshaw 1993 Chairman and Chief Executive Officer of the 40 Company, since September 1993; Chairman, Birkenshaw & Company, Ltd., a merchant bank. Also serves as Chairman, Phoenix Financial Holdings Inc., a holding company ( June, 1991 to March, 1995 and November, 1995 to present), Vice Chairman of Granges Inc.; and (until February 16, 1996) Director of Dakota Mining Corporation (See Item 13. "Certain Relationships and Related Transactions"). Mr. Birkenshaw's business address is that of the Company. James H. Dunnett 1995 Principal of Endeavour Financial Inc., a 46 private Canadian business specializing in arranging
60
project financing, mergers and acquisition for the mining industry. Also serves as a director of Phoenix Financial Holdings, Inc., and between August 1994 and September 1995, served as a director of Granges Inc., in which the Company holds a 27.5% interest (See Item 13. "Certain Relationships and Related Transactions"). Mr. Dunnett's business address is 1111 West Georgia St., Suite 404, Vancouver, BC, Canada V6E 4M3. Principal Occupation, Past Five Years' Business Director Experience Name Since and Other Directorships Held Age ---- -------- -------------------------------- --- C. Thomas Ogryzlo 1993 President and Chief Operating Officer, Kilborn 56 Engineering & Construction Limited; formerly a principal of Wright Engineers Limited, an engineering firm; director of Carib Gold Resources Inc. and Rio Amarillo Mining Limited. Mr. Ogryzlo's business address is 2200 Lake Shore Boulevard West, Toronto, Ontario, Canada M8V 1A4. CLASS III (TERM OF OFFICE EXPIRES AT THE ANNUAL MEETING OF STOCKHOLDERS FOR FISCAL YEAR 1996) Douglas R. Cook 1988 President of Cook Ventures Inc., a geological 70 consulting firm; Director, Pegasus Gold Corporation. Mr. Cook's business address is 2485 Greensboro Drive, Reno, Nevada 89509. Michael B. Richings 1995 President, Chief Executive Officer and 51 Director of Granges Inc., a Canadian mining company and 27.5% subsidiary of the Company, since June 1, 1995. See Item 13. "Certain Relationships and Related Transactions". Formerly President and Chief Operating Officer of the Company (January 1995 to June 1995) and President of Lac Minerals Ltd. South America (April 1993 to December 1994). Employed by the Company as Vice President - Special Projects (June 1992 to March
61
1993) and Vice President - Operations (July 1990 to May 1992). Mr. Riching's business address is 370 Seventeenth Street, Suite 3000, Denver, Colorado 80202. CLASS I (TERM OF OFFICE EXPIRES AT THE ANNUAL MEETING OF STOCKHOLDERS FOR FISCAL YEAR 1997) Philip R. Mengel 1995 Chief Executive Officer and member of the 51 Board of Glen-Gery Corporation, a leading US manufacturer of brick and concrete building materials. Member of the Board of Ibstock, PLC, the UK parent of Glen-Gery. Previously Chairman and Chief Executive Officer of Mengel and Co., Inc., an investment bank. Mr. Mengel's business address is Corporate Office, 1166 Spring St., P.O. Box 7001, Wyomissing, PA 19610-6001 David P. Hall 1993 President and Chief Executive Officer of 49 Aurizon Mines Ltd., a mineral exploration and development company and management firms; formerly President of CanGold Resources (to January 1995) and formerly President of Hughes Lang Corporation (to January 1994). Mr. Hall's business address is 1414 - 700 West Georgia St., Vancouver, BC V7Y 1A3.
It is currently anticipated that with the combination with MSV Resources discussed in Note 19 to the Financial Statements, Messrs. Mengel and Hall will resign from their offices as directors of the Company, and that Mr. Gerald Davis, President of the Company, and four representatives of MSV will be elected to the board. It is also anticipated that Mr. Birkenshaw will retain his office of Chairman, and that Mario Caron, President of MSV, will be named Executive Vice-Chairman. EXECUTIVE OFFICERS The information concerning the Company's executive officers required by this Item is included in Part I, Item 4, under the caption "Executive Officers of the Company." 62 COMPLIANCE WITH SECTION 16 OF THE EXCHANGE ACT Under Section 16 of the Exchange Act, the Corporation's directors and officers and persons holding more than 10 percent of the Corporation's Common Stock are required to report their initial ownership of Common Stock and subsequent changes to that ownership to the Securities and Exchange Commission and the New York Stock Exchange by specified due dates. All of these filing requirements were satisfied, except that Gerald Davis, President, James Jensen, Controller, Jerome Cain, Vice-President of Finance, and Richard Blubaugh, Vice-President, are filing late reports regarding the grant and cancellation of stock options under the Long Term Incentive Plan, as well as the purchase of stock under the Company's 401(k) plan; David Birkenshaw, Chairman and Chief Executive Officer, is filing late reports regarding the purchase of warrants to purchase the Company's Common Shares and the sale of his interest in Phoenix Financial Holdings Inc.; Michael Richings, a director of the Company, is filing late reports regarding the grant and cancellation of options under the Long Term Incentive Plan; Phoenix Financial Holdings Inc. is filing late reports regarding the sale of warrants to purchase the Company's Common Shares. ITEM 11. EXECUTIVE COMPENSATION The following table sets forth all compensation paid by the Corporation for the six months ended December 31, 1995 and for each of the three fiscal years ended June 30, 1995, to Messrs. David J. Birkenshaw, and Gerald E. Davis. No other person who was serving as an executive officer of the Corporation at December 31, 1995 had total cash and cash-equivalent remuneration which exceeded $100,000 during such fiscal year. SUMMARY COMPENSATION TABLE
Long Term Annual Compensation Compensation ---------------------------------- -------------------------- Name and Principal Year or Period Other Annual Stock All Other Position Ended Salary Bonus Comp Options Comp - ---------------------------------------------------------------------------- ------------------------ David J. Birkenshaw Dec. 31, 1995(5) $96,350 -- 84,462(2)(4) -- -- (Chief Executive Officer) June 30, 1995 $154,167 -- -- 350,000 -- June 30, 1994 $75,000 -- -- 300,000 -- June 30, 1993 -- -- -- -- -- Gerald E. Davis Dec. 31, 1995(5) $81,518 -- $6,312(2) 40,000 $1,875(3) (President) June 30, 1995 $134,561 $3,500 $6,813(2) 75,000 $7,560(3) June 30, 1994 $120,000 -- $45,437(1)(2) 25,000 $1,800(3) June 30, 1993 $98,150 -- $885(2) 21,000 $2,769(3) - -----------------------------------------------------------------------------------------------------------------------------------
(1) Amount includes $35,625 paid by the Company upon exercise of options to purchase 15,000 shares of Common Stock by Mr. Davis following the change in control of September 20, 1993 described below, representing the difference between the option price and the market price of such shares. (2) Includes certain perquisites, such as car allowances and life insurance premiums paid by the Company. (3) Includes contributions by the Corporation to the Investment Savings Plan for Employees of Atlas Corporation. (4) Amount includes $75,000 relocation expenses paid by the Company. 63 (5) Represents the six month period ended December 31, 1995. EMPLOYMENT AGREEMENTS. David J. Birkenshaw, the Chairman of the Board and Chief Executive Officer of the Corporation, has an employment agreement providing for his employment as an officer of the Corporation, at a minimum annual salary of $225,000, until the termination of his employment by either Mr. Birkenshaw or the Corporation or his normal retirement in accordance with the Corporation's retirement programs in place at the time. Gerald E. Davis, President of the Corporation, has an employment agreement providing for his employment as an officer of the Corporation, at a minimum annual salary of $150,000, until the termination of his employment by Mr. Davis or the Corporation or his normal retirement in accordance with the Corporation's retirement programs in place at the time. Messrs. Birkenshaw and Davis each are entitled, upon termination of such person's employment by the Corporation without "Cause" or by him with "Good Reason" (as such terms are defined in their employment contracts), to a severance payment equal to one year's salary, amounts accrued but unpaid under his employment contract and amounts payable under existing employee benefit plans; except that upon the termination of his employment by the Corporation without "Cause" or by him with "Good Reason", either within three months prior to a change of control or within two years after a change of control, each of Messrs. Birkenshaw and Davis would be entitled to an amount equal to two times his annual salary then in effect, all amounts accrued but not paid under his employment agreement and all amounts payable under existing employee benefit plans. See also, with respect to Messrs. Birkenshaw and Davis, the section entitled "Options" below. INVESTMENT AND SAVINGS PLAN. The Atlas Corporation Investment and Savings Plan benefits employees of the Corporation and its subsidiaries who have completed six months of service. Each participant under this plan must be at least 21 years of age. Under this plan, an employee may elect to contribute, pursuant to a salary reduction election, not less than 1 percent and not more than 10 percent of the employee's annual compensation. The Corporation makes a matching contribution of 100 percent of the amount contributed by the employee, but not more than 6 percent of the employee's annual compensation. In addition, the Corporation may make special contributions to this plan, but these special contributions may not exceed the maximum amount deductible under Section 404(a)(3)(A) of the Code. Employee contributions may be invested in a number of investment options, but not Common Stock of the Corporation. All matching and special contributions to this plan are invested in shares of Common Stock of the Corporation. 1978 RETIREMENT PLAN. Eligible employees, including officers, participate in the Atlas Corporation 1978 Retirement Plan (the "1978 Retirement Plan"), a noncontributory defined benefit pension plan. Benefits under the 1978 Retirement Plan are based on years of service and the participant's compensation during the participant's three consecutive highest compensated years out of the participant's final five years as a participant. Benefits under the 1978 Retirement Plan are payable upon disability, death or retirement at age 55 or later and may be distributed in the form of a lump sum, a single-life annuity, a joint and survivor annuity covering the participant and a beneficiary or installments over a term of years. Participants retiring before the age of 55 are entitled to a lump sum distribution. 64 The following table shows the estimated annual benefits payable upon retirement in the form of a single-life annuity under the 1978 Retirement Plan to persons in the specified compensation and years-of-service classifications. PENSION PLAN TABLE
Average Annual Compensation on which Retirement Benefits are Estimated Annual Retirement Benefits at Age Based 65 for Indicated Years of Credited Service - ------------------------------------------------------------------------------- (10) (15) (20) (25) (30) $ 50,000........... $8,704 $13,056 $17,408 $21,760 $23,112 $100,000........... $18,704 $28,056 $37,408 $46,760 $56,112 $150,000........... $28,704 $43,056 $57,408 $71,760 $86,112 $200,000........... $28,704 $43,056 $57,408 $71,760 $86,112 $250,000........... $28,704 $43,056 $57,408 $71,760 $86,112 $300,000........... $28,704 $43,056 $57,408 $71,760 $86,112
Retirement benefits under the 1978 Retirement Plan are based on salaries and additional compensation, such as awards under the Annual Incentive Plan. These benefits are not affected by directors' fees. Benefits listed in the table are net of an offset for part of the participant's Social Security benefits. There is no other offset. Years of service credited through December 31, 1995 under the 1978 Retirement Plan for the officers listed in the Summary Compensation Table are 2 years for Mr. Birkenshaw and 5 years for Mr. Davis. The Internal Revenue Code of 1986, as amended (the "Code"), sets limits on a participant's annual benefits on retirement under the 1978 Retirement Plan. To assure that participants' retirement benefits are not reduced in the future because of the Code limits, the Board of Directors adopted a Supplemental Executive Retirement Plan, which provides retirement benefits on an unfunded basis to selected participants whose benefits under the 1978 Retirement Plan would be limited by the Code in an amount equal to the difference between the annual retirement benefit permitted under the 1978 Retirement Plan by the Code and the amount that would have been paid but for the limitation imposed by the Code. THE LONG TERM INCENTIVE PLAN. Under the Company's Long Term Incentive Plan (the "Plan"), incentive awards in the form of restricted stock, restricted stock units, stock options or stock appreciation rights, with respect to the common stock of the Company, may be made by the Company's Compensation Committee (the "Compensation Committee") to selected key employees. An award of restricted stock entitles an employee to all the rights of a stockholder with regard to such stock, except that, during the restricted period, the stock is nontransferable and forfeitable. An award of a restricted stock unit entitles an employee to elect, at the end of the restricted period, a payment in the form of a share of stock or a cash amount of equivalent fair market value. An award of a stock option entitles an employee to purchase stock at the exercise date at a price equal 65 to or greater than the fair market value of the stock at the grant date. A stock appreciation right, which may be granted only in tandem with a stock option and the exercise of which extinguishes the related stock option, entitles an employee to receive, in stock or in cash, an amount equal to the increase in value of the related stock between the date of grant and the date of exercise. Awards may be made to selected key employees at any time during the term of the Plan, subject to the Plan provisions expressly limiting the amount of stock with respect to which awards may be made. All restrictions with regard to such awards terminate and all rights vest fully and immediately upon a change of control, as defined in the Plan. Upon a change of control, employees who have been granted stock options under the Plan have the right to surrender their options within 30 days following the change of control and to receive, in lieu of exercising their options, a cash payment in the amount by which the highest fair market value of the shares subject to the options during the 60-day period proceeding the change of control exceeds the exercise price of such options. As of December 31, 1995, no awards other than stock options were outstanding under the Plan. The Plan provides for the automatic granting of a non-qualified option to purchase 20,000 shares of Common Stock to non-employee directors as of January 6, 1995, or, for a person becoming a director after such date, as of the date such person becomes a director. The options become exercisable in three cumulative annual installments and have a term of ten years. The Compensation Committee has no power to determine eligibility for grants or the terms of grant to any non-employee director. Upon the occurrence of a change of control, as defined in the Plan, all options granted to non-employee directors become fully vested. ANNUAL INCENTIVE PLAN. Under the Corporation's Annual Incentive Plan, incentive compensation may be paid to key employees selected by the Compensation Committee based on the achievement by the Corporation and the selected employees of performance goals established for each fiscal year by the Compensation Committee. In addition to target awards, which recognize achievement of the predetermined goals, the Compensation Committee may establish threshold and maximum awards to recognize performance which has only been minimally acceptable and performance which has been significantly above target. Target, threshold and maximum awards are expressed as a percentage of the selected employees' base salary for the pertinent fiscal year. The Compensation Committee may consider the adverse impact of external circumstances on the Corporation's performance in evaluating the achievement of individual employee goals and in determining whether to exercise its authority in such circumstances to make alternative or supplemental awards. Since July 1, 1993, no awards were made under the Annual Incentive Plan. 66 OPTIONS OPTION GRANTS IN THE LAST FISCAL YEAR. The following table sets forth information relating to stock options granted during the six months ended December 31, 1995 and the fiscal year ending June 30, 1995 to Messrs. Birkenshaw and Davis.
% of Total Options Grant Number of Granted to Exercise Date Options Employees in Price(1) Expiration Present Name Granted the Fiscal Year (per share) Date Value(2) For the Six Months Ended December 31, 1995 - ------------------------------------------------------------------------------------------------------------ David J. Birkenshaw -- -- -- -- Gerald E. Davis 40,000(6) 13.64% $2.00 8/09/05 $46,000 - ------------------------------------------------------------------------------------------------------------ For the Year Ended June 30, 1995 - ------------------------------------------------------------------------------------------------------------ David J. Birkenshaw 350,000(3) 30.77% $4.50 11/15/03 $457,000 Gerald E. Davis 15,000(4) 1.32% $4.75 8/09/04 $53,000 60,000(5) 5.27% $2.00 5/18/05 $69,000 - ------------------------------------------------------------------------------------------------------------
(1) Exercise price is equal to or greater than the market value at date of grant. (2) Calculated as of the end of the applicable fiscal year using the Black- Scholes option pricing model, with reference to the most recent 60-month period for determining price volatility. The actual value, if any, that an executive may realize from the options will be the excess of the market price of the Common Stock on the day of exercising the options over the exercise price of the options. (3) Options granted on January 6, 1995, which vest in three equal installments on each of the first, second and third anniversaries from the date of grant. (4) Options subsequently cancelled on August 10, 1995. (5) Options granted on May 19, 1995, which vest in three equal installments on each of the first, second, and third anniversaries from the date of grant. (6) Options granted on August 10, 1995, which vest in two equal installments on the first and second anniversaries from the date of grant. 67 AGGREGATED OPTION EXERCISES IN THE LAST FISCAL YEAR AND FISCAL YEAR-END OPTION. The following table provides information relating to the number and value of stock options exercised in the last fiscal year and the six month ended December 31, 1995 and the number of exercisable and unexercisable stock options held by executive officers at December 31, 1995.
Number of Unexercised Options Shares Acquired Value at December 31, 1995 ------------------------------- Name on Exercise Realized Exercisable Unexercisable - --------------------------------------------------------------------------------------------------- David J. Birkenshaw -- -- 300,000 350,000 Gerald E. Davis -- -- -- 100,000 There were no unexercised, in-the-money options/SARs at December 31, 1995. - ---------------------------------------------------------------------------------------------------
On August 10, 1995, all outstanding options of the Company with an exercise value in excess of $2.00 per share were canceled and replaced (subject, in the case of options held by Mr. Birkenshaw, to shareholder approval at the next Annual Meeting of Shareholders) with options bearing an exercise price of $2.00 per share. COMPENSATION OF DIRECTORS Fees paid to directors are paid only to directors who are not employees of the Corporation and currently consist of a $7,500 annual fee, a $1,000 fee for each Board of Directors meeting attended in person, a $500 fee for each Board of Directors meeting attended by telephone and a $500 fee for each committee meeting attended. The Long-Term Incentive Plan provides for the automatic granting of an option to purchase 20,000 shares of Common Shares of the Company to non-employee directors as of January 6, 1995 or, with respect to directors elected or appointed after such date, as of the date of their election or appointment to the Board of Directors. Such option shall become exercisable in three cumulative installments and shall have a term of ten years. COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION During the six months ended December 31, 1995, Mr. C. Thomas Ogryzlo, Mr. Philip R. Mengel, and Mr. Douglas R Cook served on the Compensation Committee. None of such persons is or has been at any time an officer of the Company or any of its subsidiaries. 68 ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT Security Ownership The following table sets forth certain information at March 15, 1996, regarding the beneficial ownership, including shares of Common Stock which may be acquired upon the exercise of stock options or warrants, or the conversion of any securities, within 60 days of March 15, 1996, of the Company's Common Stock by (i) persons known to the Company to own more than 5 percent of the Company's Common Stock, (ii) each director of the Company, and (iii) all directors and executive officers as a group
Number of Shares and Nature of Percent Name Beneficial Ownership (7) of Class - ----------------------------------------------------------------------------------------- Mackenzie Financial Corporation 3,396,900(1) 16.1%(1) 150 Bloor Street West, Suite 805 Toronto, Ontario M5S 3B5 M.I.M. Holdings Limited 3,000,000(2) 14.3%(2) M.I.M. Plaza, 410 Anne St. Brisbane, Queensland, 4000 Australia David J. Birkenshaw 1,666,667(3) 7.7%(3) Douglas R. Cook 8,667(4) * James H. Dunnett 115,000(5) * Philip R. Mengel -- -- David P. Hall 6,667(4) * C. Thomas Ogryzlo 6,667(4) * Michael B. Richings -- -- All current executive officers and directors as a group (9 persons) 1,829,292(6) 8.4%(6)
* Ownership does not exceed 1 percent of class. - -------------------------------------------------------------------------------- (1) On February 13, 1996, Atlas received a copy of Schedule 13G filed with the Securities and Exchanged Commission by Mackenzie Financial reflecting beneficial ownership of 2,366,900 shares of Common Stock. To the best of the Company's knowledge, Mackenzie Financial also beneficially owns warrants issued by the Company which are exercisable into 910,000 shares of Common Stock at an exercise price of $7.00 per share and into 120,000 shares of Common Stock at an exercise price of $3.625 per share. (2) M.I.M. Holdings is the direct beneficial owner of (i) 2,000,000 shares of Common Stock and (ii) warrants issued by the Company which are exercisable into 1,000,000 shares of Common Stock at an exercise price of $7.00 per share. 69 (3) Includes (i) 416,667 shares obtainable upon exercise by Mr. Birkenshaw of options granted to him under the Long Term Incentive Plan, (ii) 1,150,000 shares obtainable upon the exercise of warrants to purchase shares of Common Stock, with an exercise price of $3.625 per share, and (iii) 100,000 shares obtainable upon the exercise of warrants to purchase shares of Common Stock, which warrants are exercisable at an exercise price of $7.00 per share. (4) Includes 6,667 shares obtainable upon exercise of options granted under the Long Term Incentive Plan. (5) James H. Dunnett may be deemed, by virtue of his 25 percent interest in Acorn Capital Financial Corporation, which is the direct beneficial owner of (i) 70,000 shares of Common Stock and (ii) warrants issued by the Company which are exercisable into 45,000 shares of Common Stock at an exercise price of $7.00 per share, to be the indirect beneficial owner of securities directly owned by Acorn Capital Financial Corporation. (6) Includes (i) 456,668 shares obtainable upon exercise of options granted under the Long Term Incentive Plan, (ii) 100,000 shares obtainable upon the exercise of warrants with an exercise price of $7.00 per share, (iii) 1,150,000 shares obtainable upon the exercise of warrants with an exercise price of $3.625 per share, (iv) 115,000 shares of Common Stock beneficially owned by Acorn Capital Financial Corporation, including 45,000 shares of Common Stock issuable upon the exercise of warrants at $7.00 per share, and (v) 7,624 shares of Common Stock directly owned. (7) Does not include shares issuable on the exercise of options which have not vested and will not vest within sixty days of this report. ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS CERTAIN RELATIONSHIPS AND OTHER TRANSACTIONS Mr. Richings, who served as the President and Chief Operating Officer of the Company from January 6, 1995, until June 1, 1995, was nominated by the Company to serve, as of June 1, 1995, as a director of Granges Inc., a 27.5 percent subsidiary of the Company, and, as of June 1, 1995, was granted a leave of absence by the Company in order to permit him to serve, at the Company's request, as President and Chief Executive Officer of Granges Inc. On December 13, 1995, Mr. Richings terminated his leave of absence and resigned all employment positions with Atlas, retaining his capacity as a director of the Company. Mr. Dunnett is a principle of the investment banking firm of Endeavour Financial Corporation, ("Endeavour") which acts as a financial advisory to the Company. Mr. Dunnett served, from April 1, 1995 until September 30, 1995 as an Atlas nominee on the Board of Directors of Granges Inc. and also serves on the Board of Directors of Phoenix Financial Holdings Inc., a 51% subsidiary of the Company. During the six months ended December 31, 1995, the Company paid Endeavour $84,000 in advisory fees. In addition, the Company has agreed to pay Endeavour a success fee of $750,000 payable upon the successful conclusion of the business combination of the Company and MSV Resources Inc. Mr. Birkenshaw, Chairman and Chief Executive Officer of the Company, serves as Vice Chaiman of Granges Inc., a 27.5% subsidiary of the Company, and served until February 16, 1996 as a director of Dakota Mining Corporation. The Company, which acquired an approximate 9% interest in Dakota in March 1995, sold its holdings in Dakota on March 9, 1996. 70 Mr. Birkenshaw served as Chairman of Phoenix Financial Holdings Inc. ("Phoenix") from June 1991 through March 1995, during which period Phoenix arranged for Atlas to receive $8,375,000 in financing and took control of Atlas' Management and Board. Upon Atlas' acquisition of 51% of Phoenix on November 29, 1995, Mr. Birkenshaw was appointed Chairman of Phoenix (See Item 1. Business, Investments, Phoenix Financial Holdings Inc.). Prior to Atlas' acquisition of the 51% interest in Phoenix, Mr. Birkenshaw purchased 1,150,000 warrants to purchase Common Shares of the Company from Phoenix, which are exercisable at $3.625 per share and mature on September 20, 1996. Mr. Birkenshaw received a non-interest bearing unsecured loan from Phoenix in the amount of Cdn.$25,000 payable upon demand, the proceeds of which were used to purchase the Atlas warrants. Mr. Birkenshaw repaid the Phoenix loan subsequent to year end. Mr. Birkenshaw serves as Chairman of Birkenshaw & Company, Ltd., a merchant bank. During the six months ended June 30, 1996, the Company paid Birkenshaw & Company $43,000 for reimbursement of expenses incurred on behalf of the Company. Mr. Birkenshaw has received from Atlas a $60,000 unsecured housing loan, bearing an 8% interest rate, in connection with his relocation to Denver, Colorado. This loan plus accrued interest is due and payable on September 30, 1996 Mr. Davis, President of the Company, serves as a director and Chief Executive Officer of Phoenix. PART IV Item 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K --------------------------------------------------------------- (a) (1) Financial Statements: See Index to Financial Statements and Schedules on page 80. (2) Financial Statement Schedules: See Index to Financial Statements and Schedules on page 80. (3) Exhibits: Exhibit Number Exhibits ----------------------------------------------------------------------- 3.1 Restated Certificate of Incorporation of the Company, dated January 3, 1990 (filed as Exhibit 3.2 to the Company's quarterly report on Form 10-Q for the quarter ended December 31, 1989, and incorporated herein by reference). 3.2 By-Laws of the Company, as amended on January 3, 1990 (filed as Exhibit 3.3 to the Company's quarterly report on Form 10- Q for the quarter ended December 31, 1989 and incorporated herein by reference). 71 3.3 By-Laws of the Company, as amended on July 12, 1995. (filed as an Exhibit 3.3 to the Company's annual report on form 10- K for the year ended June 30, 1995 and incorporated herein by reference). 4.1 Term Loan Agreement dated August 15, 1994 between the Company and Gerald Metals, Inc.(filed as an Exhibit 10.22 to the Company's annual report on Form 10-K for the year ended June 30, 1994 and incorporated herein by reference). 4.2 Security Agreement dated August 15, 1994 between the Company and Gerald Metals, Inc.(filed as an Exhibit 10.23 to the Company's annual report on Form 10-K for the year ended June 30, 1994 and incorporated herein by reference). 4.3 Pledge Agreement dated August 15, 1995 between the Company and Gerald Metals, Inc. (filed as an Exhibit 10.24 to the Company's annual report on Form 10-K for the year ended June 30, 1994 and incorporated herein by reference). 4.4 Indenture dated as of November 10, 1995 between the Company and Chemical Bank as Trustee (filed as Exhibit 4.1 to the Company's Registration Statement on Form S-3 (33-65165) as filed with the Commission on December 19, 1995 under the Securities Act of 1933 and incorporated herein by reference). 4.5 Escrow and Pledge Agreement dated as of November 10, 1995 between the Company and Chemical Bank as Trustee and Chemical Bank as Escrow Agent (filed as Exhibit 4.2 to the Company's Registration Statement on Form S-3 (33-65165) as filed with the Commission on December 19, 1995 and incorporated herein by reference). 4.6 Special Warrant Indenture dated November 9, 1995 between the Company and The Montreal Trust Company of Canada containing terms and conditions governing the issue and exercise of special debenture warrants exercisable for 7% Exchangeable Debentures due October 25, 2000 of the Company (filed as Exhibit 99.2 to the Company's Registration Statement on Form S-3 (33-65165) as filed with the Commission on December 19, 1995 and incorporated herein by reference). 4.7 Loan Agreement dated as of November 27, 1995 between the Company and First Marathon Inc. (filed as Exhibit 99.5 to the Company's Registration Statement on Form S-3 (33-65165) as filed with the Commission on December 19, 1995 and incorporated herein by reference). 4.8 Pledge Agreement dated as of November 27, 1995 between the 72 Company and First Marathon Inc. (filed as Exhibit 99.6 to the Company's Registration Statement on Form S-3 (33-65165) as filed with the Commission on December 19, 1995 and incorporated herein by reference). 10.1 Atlas Corporation Management Incentive Compensation Plan (filed as Exhibit 10.2 to the Company's annual report on Form 10-K (file no. 1-2714) for the fiscal year ended June 30, 1981 and incorporated herein by reference). 10.2 Form of Indemnity Agreement entered into between the Company and certain of its directors (filed as Exhibit 10.14 to the Company's annual report on Form 10-K for the fiscal year ended June 30, 1987 and incorporated herein by reference). 10.3 Amended and Restated Rights Agreement dated as of August 2, 1989 between the Company and Manufacturers Hanover Trust Company (filed as Exhibit 1 to the Company's current report on Form 8-K dated August 2, 1989 and incorporated herein by reference). 10.4 Long Term Incentive Plan of the Company dated November 1, 1989 (filed as Exhibit 10.28 to the Company's annual report on Form 10-K for the fiscal year ended June 30, 1989 and incorporated herein by reference). 10.5 Atlas Corporation Supplemental Executive Retirement Plan dated as of January 3, 1990 (filed as Exhibit 10.2 to the Company's quarterly report on Form 10-Q for the quarter ended March 31, 1990 and incorporated herein by reference). 10.6 Atlas Corporation Retirement Plan for Outside Directors dated April 4, 1990 (filed as Exhibit 10.3 to the Company's quarterly report on Form 10-Q for the quarter ended March 31, 1990 and incorporated herein by reference). 10.7 Restated Employment Agreement dated as of September 12, 1990 between the Company and Richard R. Weaver (filed as Exhibit 10.22 to the annual report on Form 10-K for the fiscal year ended June 30, 1990 and incorporated herein by reference). 10.8 Amendment No. 1, dated as of March 6, 1991, to the Amended and Restated Employment Agreement, dated as of September 12, 1990, between the Company and Richard R. Weaver (filed as Exhibit 10.1 to the Company's quarterly report on Form 10-Q for the quarter ended March 31, 1991 and incorporated herein by reference). 73 10.9 Atlas Corporation Annual Incentive Plan adopted by the Board of Directors of the Company on March 6, 1991(filed as Exhibit 10.20 to the Company's annual report on Form 10-K for the year ended June 30, 1991 and incorporated herein by reference). 10.10 Agreement dated September 10, 1992 among Atlas Precious Metals, Inc., the Company and Newmont Mining Corporation (filed as Exhibit 10.22 to the Company's annual report on Form 10-K for the year ended June 30, 1992 and incorporated herein by reference). 10.11 Amendment dated September 10, 1992 to the Agreement dated September 10, 1992 among Atlas Precious Metals, Inc., the Company and Newmont Mining Corporation (filed as Exhibit 10.23 to the Company's annual report on Form 10-K for the year ended June 30, 1992 and incorporated herein by reference). 10.12 Securities Purchase Agreement dated September 3, 1993 between the Company and Phoenix Financial Holdings Inc. (filed as Exhibit 2 to the Company's Report on Form 8-K filed on September 9, 1993 and incorporated herein by reference). 10.13 Amendment dated as of September 15, 1993 to the Amended and Restated Rights Agreement dated as of August 2, 1989 between the Company and Chemical Bank, as successor by merger with Manufacturers Trust Company (filed as Exhibit 10.25 to the Company's annual report on Form 10-K for the year ended June 30, 1993 and incorporated herein by reference). 10.14 Employment agreement made as of September 22, 1993, between the Company and David J. Birkenshaw (filed as Exhibit 10.1 to the Company's quarterly report on Form 10-Q for the quarter ended March 31, 1994 and incorporated herein by reference). 10.15 Amendment dated as of August 28, 1995 to the employment agreement made as of September 22, 1993, between the Company and David J. Birkenshaw (filed as exhibit 10.15 to the Company's annual report on Form 10-K for the year ended June 30, 1995 and incorprated herein by reference). 10.16 Share Purchase Agreement dated April 28, 1994 between the Company and M.I.M. (Canada) Inc. (filed as an Exhibit 10.18 to the Company's annual report on Form 10-K for the year ended June 30, 1994 and incorporated herein by reference). 10.17 Agreement dated May 10, 1994 between the Company and Granges Inc. (filed as an Exhibit 10.19 to the Company's annual report on Form 10-K for the year ended June 30, 1994 and incorporated herein 74 by reference) 10.18 Registration Rights Agreement dated August 15, 1994, between the Company and First Marathon Securities Limited (filed as Exhibit 10.20 to the Company's annual report on Form 10-K for the year ended June 30, 1994 and incorporated herein by reference). 10.19 Indemnity Agreement dated August 15, 1995 between the Company and M.I.M. Holdings Limited (filed as an Exhibit 10.21 to the Company's annual report on Form 10-K for the year ended June 30, 1994 and incorporated herein by reference). 10.20 Purchase Agreement dated May 31, 1994 among the Company, Dakota Mining Corporation, VenturesTrident L.P. and VenturesTrident II L.P. (filed as an Exhibit 10.25 to the Company's annual report on Form 10-K for the year ended June 30, 1994 and incorporated herein by reference). 10.21 Second Amendment dated as of August 15, 1994 to the Amended and Restated Rights Agreement dated August 2, 1989 between the Company and Chemical Bank, as successor by merger with Manufacturers Hanover Trust Company (filed as Exhibit 10.1 to the Company's quarterly report on Form 10-Q for the quarter ended March 31, 1995 and incorporated herein by reference). 10.22 The Company's Long Term Incentive Plan, as amended dated February 17, 1995 (filed as Exhibit 10.2 to the Company's quarterly report on Form 10-Q for the quarter ended March 31, 1995 and incorporated herein by reference). 10.23 Employment Agreement made as of January 16, 1995 between the Company and Michael B. Richings (filed as Exhibit 10.3 to the Company's quarterly report on Form 10-Q for the quarter ended March 31, 1995 and incorporated herein by reference). 10.24 Employment Agreement made as of February 17, 1995 between the Company and Richard E. Blubaugh (filed as Exhibit 10.4 to the Company's quarterly report on Form 10-Q for the quarter ended March 31, 1995 and incorporated herein by reference). 10.25 Agreement dated February 24, 1995 between the Company and Granges Inc. to vote the common shares of Granges Inc., held by the Company, in favor of the proposed amalgamation of Granges Inc. and Hycroft Resources & Development Corporation. (filed as exhibit 10.25 to the Company's annual report on Form 10-K for the year ended June 30, 1995 and incorprated herein by reference). 75 10.26 Atlas Subscription Agreement dated March 9, 1995 between the Company and Dakota Mining Corporation. (filed as exhibit 10.26 to the Company's annual report on Form 10-K for the year ended June 30, 1995 and incorprated herein by reference). 10.27 Amendment dated September 15, 1995 to the employment agreement made as of February 17, 1995 between the Company and Richard E. Blubaugh. (filed as exhibit 10.27 to the Company's annual report on Form 10-K for the year ended June 30, 1995 and incorprated herein by reference). 10.28 Employment Agreement dated June 1, 1995 between the Company and Gerald E. Davis (filed as exhibit 10.28 to the Company's annual report on Form 10-K for the year ended June 30, 1995 and incorprated herein by reference). 10.29 Amendment dated September 20, 1995 to the employment agreement dated June 1, 1995 between the Company and Gerald E. Davis (filed as exhibit 10.29 to the Company's annual report on Form 10-K for the year ended June 30, 1995 and incorprated herein by reference). 10.30 Underwriting Agreement dated as of October 25, 1995 by and among the Company, Yorkton Securities Inc. and First Marathon Securities Ltd. regarding the distribution of special debenture warrants exercisable for 7% Exchangeable Debentures due October 25, 2000 of the Company (filed as Exhibit 99.1 to the Company's Registration Statement on Form S-3 (33-65165) as filed with the Commission on December 19, 1995 and incorporated herein by reference). 10.31 Granges Registration Agreement dated as of November 10, 1995 between the Company and Granges Inc. (filed as Exhibit 99.3 to the Company's Registration Statement on Form S-3 (33- 65165) as filed with the Commission on December 19, 1995 and incorporated herein by reference). 10.32 Indemnification Agreement dated as of November 15, 1995 between the Company and Granges Inc. (filed as Exhibit 99.4 to the Company's Registration Statement on Form S-3 (33- 65165) as filed with the Commission on December 19, 1995 and incorporated herein by reference). 10.33 Option Agreement between the Company and Harvest Gold Corporation signed September 13, 1995 (filed as Exhibit 99.7 to the Company's Registration Statement on Form S-3 (33- 65165) as filed with the Commission on December 19, 1995 and incorporated herein by reference). 76 10.34 Purchase and Sale Agreement dated October 25, 1995 between the Company and Independence Mining Company Inc. (filed as Exhibit 99.8 to the Company's Registration Statement on Form S-3 (33-65165) as filed with the Commission on December 19, 1995 and incorporated herein by reference). 10.35 Registration Rights Agreement dated October 25, 1995 between the Company and Independence Mining Company Inc. (filed as Exhibit 99.9 to the Company's Registration Statement on Form S-3 (33-65165) as filed with the Commission on December 19, 1995 and incorporated herein by reference). 10.36 Agreement between the Company and Brown & Root, Inc. dated October 23, 1995 (filed as Exhibit 99.10 to the Company's Registration Statement on Form S-3 (33-65165) as filed with the Commission on December 19, 1995 and incorporated herein by reference). 10.37 Mining Venture Agreement with Granges (U.S.), Inc. dated September 29, 1995 10.38 Business combination agreement with MSV Resources Inc. dated March 5, 1996 21 Subsidiaries of the Company 23 Consent of Independent Auditors Page 81 (b) Reports on Form 8-K: Report on Form 8-K dated November 14, 1995 containing the Company's news release with respect to closing to escrow of $10 million exchangeable debentures and its financial results for the quarter ended September 30, 1995. Report on Form 8-K dated December 1, 1995 containing the Company's press release with respect to the acquisition of 51 percent of voting stock of Phoenix Financial Holdings Inc. For purposes of complying with the amendments to the rules governing Form S-8 (effective July 13, 1990) under the Securities Act of 1933, the undersigned hereby undertakes as follows, which undertaking shall be incorporated by reference into the Company's Registration Statement on Form S-8 No. 33-18316 (filed on November 3, 1987, as amended by Post Effective Amendment No. 1 filed on December 15, 1987): 77 Insofar as indemnification for liabilities arising under the Securities Act of 1933 may be permitted to directors, officers and controlling persons of the registrant pursuant to the foregoing provisions, or otherwise, the registrant has been advised that in the opinion of the Securities and Exchange Commission such indemnification is against public policy as expressed in the Securities Act of 1933 and is, therefore, unenforceable. In the event that a claim for indemnification against such liabilities (other than the payment by the registrant of expenses incurred or paid by the director, officer or controlling person of the registrant in the successful defense of any action, suit or proceeding) is asserted by such director, officer or controlling person in connection with the securities being registered, the registrant will, unless in the opinion of its counsel the matter has been settled by controlling precedent, submit to a court of appropriate jurisdiction the question whether such indemnification by it is against public policy as expressed in the Act and will be governed by the final adjudication of such issue. _____________________________ Note concerning Exhibits: The Company will furnish copies of Exhibits to security holders of the Company upon request. The Company may charge a fee in connection with such a request, which will be limited to the Company's reasonable expenses in furnishing any such Exhibit. 78 SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Company has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. ATLAS CORPORATION By: /s/ Gerald E. Davis ------------------- Gerald E. Davis President Date: 4/11/96 Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the Company and in the capacities and on the dates indicated. /s/ David J. Birkenshaw Chief Executive Office - ----------------------- David J. Birkenshaw and Director 4/11/96 /s/ Jerome C. Cain Vice-President - Finance - ------------------ Jerome C. Cain (Principal Financial Officer) 4/11/96 /s/ James R. Jensen Controller (Principal - ------------------- James R. Jensen Accounting Officer) 4/11/96 /s/ Douglas R. Cook Director 4/11/96 - ------------------- Douglas R. Cook /s/ James H. Dunnett Director 4/11/96 - -------------------- James H. Dunnett /s/ David P. Hall Director 4/11/96 - ----------------- David P. Hall /s/ Philip R. Mengel Director 4/11/96 - --------------------- Philip R. Mengel /s/ C. Thomas Ogryzlo Director 4/11/96 - ---------------------- C. Thomas Ogryzlo /s/ Michael B. Richings Director 4/11/96 - ----------------------- Michael B. Richings
79 ATLAS CORPORATION AND ITS SUBSIDIARIES INDEX TO FINANCIAL STATEMENTS AND SCHEDULES DECEMBER 31, 1995, JUNE 30, 1995, 1994 AND 1993
Page ---- FINANCIAL STATEMENTS OF ATLAS CORPORATION Consolidated Statements of Operations for the Six Months Ended December 31, 1995 and for the Fiscal Years Ended June 30, 1995, 1994 and 1993 33 Consolidated Balance Sheets as of December 31, 1995, June 30, 1995 and 1994 34 Consolidated Statements of Stockholder's Equity (Deficit) for the Six Months Ended December 31, 1995 and for the Fiscal Years Ended June 30, 1995, 1994 and 1993 35 Consolidated Statements of Cash Flows for the Six Months Ended December 31, 1995 and for the Fiscal Years Ended June 30, 1995, 1994 and 1993 36 Notes to Consolidated Financial Statements 37 - 57 Report of the Independent Auditors 58 Consent of Independent Auditors 80 SCHEDULES FOR THE SIX MONTHS ENDED DECEMBER 31, 1995 AND FOR THE FISCAL YEARS ENDED JUNE 30, 1995, 1994 AND 1993: VIII Valuation and Qualifying Accounts and Reserves 82 Consolidated Financial Statements of Granges Inc. 83-103
80 CONSENT OF INDEPENDENT AUDITORS We consent to the addition of the financial statement schedule, listed in the accompanying index to the financial statements covered by our report dated February 16, 1996, except for Note 19, as to which the date is March 9, 1996, included herein. We also consent to the incorporation by reference in Post Effective Amendment Number 19 to Registration Statement Number 2-8439 on Form S-3 dated November 10, 1983, Post Effective Amendment Number 1 to Registration Statement Number 33- 18316 on Form S-8 dated December 14, 1987, Registration Statement Number 33- 87992 on Form S-3 dated January 13, 1995 and Post Effective Amendment Number 1 to Registration Statement Number 33-65165 on Form S-3 dated February 2, 1996 and the Related Prospectuses of our report on the financial statements and schedule included in this Annual Report on Form 10-K of Atlas Corporation for the six months ended December 31, 1995. /s/ Ernst & Young LLP Denver, Colorado April 5, 1996 81 ATLAS CORPORATION AND SUBSIDIARIES SCHEDULE VIII - VALUATION AND QUALIFYING ACCOUNTS AND RESERVES For the Six Months Ended December 31, 1995 and for the Years Ended June 30, 1995, 1994 and 1993 (In thousands)
Column A Column B Column C Column E Column F - -------- -------- -------- -------- -------- Additions -------------------------- Balance at Charged to Charge to Balance at Beginning of Costs and Other (2) End of Classification Period Expenses Accounts Deductions Period - ----------------------------------------------------------------------------------------------------- SIX MONTHS ENDED DECEMBER 31, 1995 Provisions for loss from disposal of discontinued operations $ 7,050 $ -- $1,032(4) $ 2,474 $ 5,608(3) YEAR ENDED JUNE 30, 1995 Provisions for loss from disposal of discontinued operations $ 9,327 $225 $ -- $(2,502) $ 7,050 YEAR ENDED JUNE 30, 1994 Provision for loss from disposal of discontinued operations $11,689 $ -- $102(1) $(2,464) $ 9,327 YEAR ENDED JUNE 30, 1993 Provision for loss from disposal of discontinued operations $11,958 $912 $170(1) $(1,351) $11,689 - -----------------------------------------------------------------------------------------------------
(1) Represents net proceeds from the disposition of assets. (2) Represents costs incurred. (3) The balance at December 31, 1995 includes $800,000 in Accrued liabilities and $3,713,000 in Other liabilities, long-term, which represent the liability for reclamation and uranium shutdown costs. (4) Represents reimbursement of costs from the U.S. Department of Energy under Title X. 82 CONSOLIDATED FINANCIAL STATEMENTS OF GRANGES INC. 83 AUDITORS' REPORT To the Shareholders of Granges Inc. We have audited the consolidated balance sheets of Granges Inc. as at December 31, 1995 and 1994 and the consolidated statements of earnings, retained earnings (deficit) and changes in cash resources for each of the years in the three year period ended December 31, 1995. These consolidated financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform an audit to obtain reasonable assurance whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. In our opinion, these consolidated financial statements present fairly, in all material respects, the financial position of the Company as at December 31, 1995 and 1994 and the results of its operation and changes in its cash resources for each of the three years ended December 31, 1995 in accordance with generally accepted accounting principles. As required by the British Columbia Company Act, we report that, in our opinion, these principles have been applied on a consistent basis. Vancouver, B.C. (signed) COOPERS & LYBRAND March 1, 1996 except as to Chartered Accountants Note 22 which is as of March 4, 1996 84 CONSOLIDATED STATEMENTS OF EARNINGS (Canadian Dollars In Thousands, Except Per Share Data)
Year ended December 31 1995 1994 1993 - -------------------------------------------------------------------------------- REVENUES $56,374 $54,432 $55,297 ------- ------- ------- EXPENSES Operating costs 46,023 44,099 48,360 Depreciation, depletion and provision for future reclamation and mine closure 5,535 3,539 5,904 Amortization of deferred stripping 304 4,246 -- ------- ------- ------- 51,862 51,884 54,264 ------- ------- ------- RESULTS OF MINING OPERATIONS 4,512 2,548 1,033 ----- ----- ----- Mineral exploration 5,650 5,423 4,878 Corporate administrative 3,365 3,645 5,061 Interest income - net (Note 5) (1,898) (2,132) (1,333) Other expense (income) 1,772 789 (704) Gain on sale of mineral properties and marketable securities (Note 6) (8,293) (12,570) (2,265) Dilution gain on issue of subsidiary shares (Note 7) -- -- (7,398) Equity in loss of Zamora Gold Corp. 704 -- -- ------- ------- ------- 1,300 (4,845) (1,761) ------- ------- ------- EARNINGS BEFORE INCOME TAXES 3,212 7,393 2,794 CURRENT INCOME TAXES (Note 8) 264 408 33 ------- ------- ------- NET EARNINGS $2,948 $6,985 $2,761 ====== ====== ====== EARNINGS PER SHARE $ 0.07 $ 0.20 $ 0.08 ====== ====== ====== WEIGHTED AVERAGE SHARES OUTSTANDING 42,074,356 34,164,260 34,095,575 ========== ========== ==========
The Accompanying Notes Are An Integral Part Of These Consolidated Financial Statements. 85 CONSOLIDATED STATEMENTS OF RETAINED EARNINGS (DEFICIT) (Canadian Dollars In Thousands)
Year ended December 31 1995 1994 1993 - ----------------------------------------------------------------------------------------- Deficit, Beginning of Year as previously reported $(75,462) $(82,447) $(85,208) Prior period adjustment (Note 4) (256) (256) (256) --------- --------- --------- Deficit, Beginning of Year restated (75,718) (82,703) (85,464) Amalgamation costs (Note 3) (1,669) -- -- Capital reduction (Note 15) 76,362 -- -- --------- --------- --------- (1,025) (82,703) (85,464) Net earnings 2,948 6,985 2,761 --------- --------- --------- Retained earnings (deficit), End of Year $ 1,923 $(75,718) $(82,703) ========= ========= =========
The Accompanying Notes Are An Integral Part Of These Consolidated Financial Statements. 86 CONSOLIDATED BALANCE SHEETS (Canadian Dollars In Thousands)
December 31 1995 1994 - ------------------------------------------------------------------------------------------------- (Restated, See Note 4) ASSETS Current Assets Cash and cash equivalents $ 20,765 $45,113 Marketable securities (Market value - $478,000) 244 327 Accounts Receivable 1,955 2,772 Inventories (Note 9) 15,140 14,027 -------- -------- 38,104 62,239 Investment in Zamora Gold Corp. (Note 10) 5,808 -- Property, Plant and Equipment (Note 6, 11) 43,756 36,661 -------- -------- $ 87,668 $ 98,900 ======== ======== LIABILITIES Current Liabilities Accounts payable and accrued liabilities (Note 13) $ 8,518 $ 20,290 Equipment notes payable (Note 14) -- 366 ------- -------- 8,518 20,656 Provisions for Future Reclamation and Closure Costs 4,654 4,179 ------- -------- 13,172 24,835 ------- -------- SHAREHOLDERS' EQUITY Common Shares, without par value (Issued 1995 - 46,042,911; 1994 - 34,177,000 shares) (Note 15) 73,980 146,227 Contributed Surplus (Note 15) -- 3,803 Retained Earnings (Deficit) 1,923 (75,718) Currency Translation Adjustment (Note 16) (1,407) (247) ------- -------- 74,496 74,065 ------ ------ $87,668 $98,900 ======= =======
Contingencies and Commitments (Note 21) APPROVED BY THE BOARD (signed) ALAN G. THOMPSON (signed) PETER WALTON Director Director The Accompanying Notes Are An Integral Part Of These Consolidated Financial Statements. 87 CONSOLIDATED STATEMENTS OF CHANGES IN CASH RESOURCES (Canadian Dollars In Thousands)
Year ended December 31 1995 1994 1993 ================================================================================= Operating Activities Net earnings $2,948 $6,985 $2,761 Items not involving cash Depreciation and depletion 4,853 2,699 4,710 Amortization of deferred stripping 304 4,246 -- Provision for future reclamation and closure costs 736 894 1,275 Deferred revenue recognized -- (572) (797) Gain on sale of equipment -- (88) (320) Gain on sale of mineral properties and marketable securities (Note 6) (8,293) (12,570) (2,121) Equity in loss of Zamora Gold Corp. 704 -- -- Dilution gain on issue of subsidiary shares (Note 7) -- -- (7,398) Foreign exchange loss -- -- (35) -------- -------- -------- 1,252 1,594 (1,925) Deferred revenue -- -- 1,136 Currency translation adjustment (602) (2) 168 Change in working capital, excluding cash and cash equivalents (Note 17) (11,985) 11,198 2,002 -------- -------- -------- (11,335) 12,790 1,381 -------- -------- -------- Investing Activities Property, plant and equipment (13,209) (21,131) (11,155) Proceeds from sale of mineral properties and marketable securities (Note 6) 15,117 32,296 2,394 Investments (Note 6, 10) (13,230) -- -- Investment in subsidiary (Note 7) -- -- (2,756) (11,322) 11,305 (10,862) -------- -------- -------- Financing Activities Equipment note proceeds (payments) net (375) (515) (311) Issue of shares for options 313 29 289 Amalgamation costs (1,669) -- -- Option payments received 40 -- -- Bank loan advances (repayments) -- (5,195) (9,782) Issue of shares for settlement of litigation (Note 15) -- -- 276 Issue of subsidiary shares (Note 7) -- -- 10,154 -------- -------- -------- (1,691) (5,681) 626 -------- -------- -------- Increase (decrease) in Cash and Cash Equivalents (24,348) 18,414 (8,855) Cash and Cash Equivalents, Beginning of Year 45,113 26,699 35,554 -------- -------- -------- Cash and Cash Equivalents, End of Year $ 20,765 $ 45,113 $ 26,699 ======== ======== ========
The Accompanying Notes Are An Integral Part Of These Consolidated Financial Statements. 88 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Tabular Information In Thousands Of Canadian Dollars, Except Per Share Data) 1. NATURE OF OPERATIONS Granges Inc. is engaged in gold mining and related activities in the United States, Canada, and Latin America, including exploration, extraction, processing, refining and reclamation. Gold bullion is the company's principal product, which is a commodity produced primarily in South Africa, the United States, Canada, Australia, and Latin America. The company's results are impacted by the price of gold. Gold prices fluctuate and are affected by numerous factors, including, but not limited to, expectations with respect to the rate of inflation, exchange rates (specifically, the U.S. dollar relative to other currencies), interest rates, global and regional political and economic crises and governmental policies with respect to gold holdings by central banks. The demand for and supply of gold affect gold prices, but not necessarily in the same manner as demand and supply affect the prices of other commodities. The supply of gold consists of a combination of new mine production and existing stocks of bullion and fabricated gold held by governments, public and private financial institutions, industrial organizations and private individuals. The demand for gold consists of jewellery and investment demand, as well as producer hedging activities. Gold can be readily sold on numerous markets throughout the world and its market value can be readily ascertained at any particular time. As a result, the company is not dependent upon any one customer for the sale of its product. 2. SIGNIFICANT ACCOUNTING POLICIES A) Generally Accepted Accounting Principles The consolidated financial statements of Granges Inc. and its subsidiaries have been prepared in accordance with accounting principles generally accepted in Canada. These principles differ in certain material respects from those accounting principles generally accepted in the United States. The differences are described in note 23. B) Principles of Consolidation The consolidated financial statements include the accounts of Granges Inc., its subsidiaries and its proportionate share of the assets, liabilities, revenues and expenses of its unincorporated joint venture. The Company's subsidiaries and its percentage ownership in these entities as at December 31, 1995 are: (see Notes 3 and 6A)
Ownership - -------------------------------------------------------------------------------- Hycroft Resources & Development, Inc. and its wholly owned subsidiary Hycroft Lewis Mine, Inc. 100% Granges (U.S.) Inc. and its wholly owned subsidiary Granges (Arizona) Inc. 100% Granges (Canada) Inc. (previously called 493744 Ontario Limited) 100%
C) Use of Estimates The preparation of consolidated financial statements in accordance with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent liabilities at the date of the consolidated financial statements and the reported amount of revenues and expenses during the reporting period. Actual results could differ from those reported. 89 D) Foreign Currency Translation Self-sustaining foreign operations are translated using the current rate method. Under this method, assets and liabilities are translated at the rate of exchange on the balance sheet date, and revenue and expenses at the average rate of exchange during the period. Exchange gains and losses are deferred and shown as a currency translation adjustment in shareholders' equity until transferred to earnings when the net investment in the foreign operation is reduced. Integrated foreign operations are translated using the temporal method. Under this method, monetary assets and liabilities are translated at the rate of exchange in effect at the balance sheet date and non-monetary assets and liabilities are translated at historical exchange rates, unless such items are carried at market, in which case they are translated at the exchange rate in effect at the balance sheet date. Revenues and expenses are translated at the rate of exchange in effect on the dates that they occur and depreciation and amortization of assets translated at historical rate are translated at the same exchange rates as the assets to which they relate. Exchange gains and losses are included in the determination of net income for the current period, except for any exchange gains or losses related to foreign currency denominated monetary items that have a fixed or ascertainable life extending beyond the end of the current fiscal period. Such gains or losses are deferred and amortized over the life of the item. Foreign currency denominated monetary items of the company, excluding its foreign operations, are translated at the year-end exchange rate. Exchange gains and losses on these items are recognized in earnings in the year they arise. E) Revenue Recognition Sales are recorded as soon as the product is considered available for sale. Gains and losses on forward sales and option contracts are deferred until the related production is sold. F) Mineral Exploration Acquisition and exploration expenditures on mineral properties are expensed when incurred until such time as the property indicates the potential of being developed into a mine, and thereafter the expenditures are capitalized. Previously capitalized expenditures are expensed if the project is determined to be uneconomic. G) Cash Equivalents Cash equivalents consist of highly liquid debt instruments such as certificates of deposit, commercial paper, and money market accounts purchased with an original maturity date of less than three months. The company's policy is to invest cash in conservative, highly rated instruments and limit the amount of credit exposure to any one institution. Cash equivalents are stated at cost plus accrued interest, which approximates market value. H) Marketable Securities Marketable securities are carried at the lower of cost or market value. I) Inventories Product inventory is valued at the lower of average cost and net realizable value. The direct cash costs associated with ore on the leach pads are inventoried and charged to operations as the contained gold is recovered. Based upon actual metal recoveries, ore grades and operating plans, management continuously evaluates and refines estimates in determining the carrying values of costs associated with ore under leach. It is possible that in the near term, estimates of recoverable ore, grade, and gold price could change causing the company to revise the value of its heap leach inventory. 90 Supplies are valued at the lower of average cost and net realizable value. J) Property, Plant and Equipment (i) Developed Mineral Properties Property acquisition and development costs are carried at cost less accumulated amortization and write downs. Amortization is provided on the unit-of-production method based on proven and probable reserves. Management reviews quarterly the carrying value of the company's interest in each property and, where necessary, these properties are written down to their estimated recoverable amount determined on a non-discounted basis. Management's estimate of gold price, recoverable proven and probable reserves, operating, capital and reclamation costs are subject to risks and uncertainties affecting the recoverability of the company's investment in property, plant and equipment. Although management has made its best estimate of these factors based on current conditions, it is possible that changes could occur in the near term that could adversely affect management's estimate of net cash flows expected to be generated from its operating properties and the need for possible asset impairment write downs. (ii) Plant and Equipment Plant and equipment are recorded at cost and depreciated using the units-of- production method or the straight-line method over their estimated useful lives. (iii) Deferred Stripping During production, mining costs associated with waste rock removal are deferred and charged to operations on the basis of the average strip ratio for the life of the mine. The average strip ratio is calculated as a ratio of the tons of waste expected to be mined to the tons of ore estimated to be mined. Although management has made its best estimate of these factors based on current conditions, it is possible that changes could occur in the near term that could adversely affect management's estimate of ore and waste in proven and probable reserves and the need for a change in the amortization rate of deferred stripping cost. K) Provision for Future Reclamation and Closure Costs All of the company's operations are subject to reclamation, site restoration and closure requirements. Costs related to ongoing site restoration programs are expensed when incurred. A provision for mine closure and site restoration costs is charged to earnings over the lives of the mines on a unit-of-production basis. The company calculates its estimates of the ultimate reclamation liability based on current laws and regulations and the expected future costs to be incurred in reclaiming, restoring and closing its operating mine sites. It is possible that the company's estimate of its ultimate reclamation liability could change in the near term due to possible changes in laws and regulation and changes in cost estimates. L) Estimates of Proven and Probable Reserves Management's calculation of proven and probable reserves is based upon engineering and geological estimates and financial estimates including gold prices and operating costs. The company depreciates some of its assets and accrues for reclamation on a unit-of-production basis over proven and probable reserves. Changes in geological interpretations of the company's ore bodies and changes in gold prices and operating costs may change the company's estimate of proven and probable reserves. It is possible that the company's estimate of proven and probable reserves could change in the near term and could result in revised charges for depreciation and reclamation in future reporting periods. 3. AMALGAMATION OF GRANGES INC. AND HYCROFT RESOURCES & DEVELOPMENT CORPORATION. 91 On March 30, 1995, the shareholders of Granges Inc. (Granges) and its 50.5 percent owned subsidiary, Hycroft Resources & Development Corporation (Hycroft), approved the amalgamation of the two companies, effective May 1, 1995 under the name Granges Inc. (Amalco). Under the terms of the amalgamation, the outstanding common shares of each of Granges and Hycroft were exchanged or cancelled on the following basis: A) each issued and outstanding common share of Granges was exchanged for one common share of Amalco; B) each issued and outstanding common share of Hycroft, except for those common shares registered in the name of Granges or its affiliates, was exchanged for 0.88 of a common share of Amalco; C) each issued and outstanding common share of Hycroft that was registered in the name of Granges or its affiliates was cancelled; and d) each authorized but unissued common share of Granges and each authorized but unissued common share of Hycroft was cancelled. No fractional shares of Amalco were issued and the number of shares received by a Hycroft shareholder was rounded down to the nearest whole number of shares of Amalco, if such a shareholder were otherwise entitled to receive a fraction of a share of Amalco. Immediately after the amalgamation, shareholders of Granges beneficially owned 34,214,500 common shares of Amalco and shareholders of Hycroft beneficially owned 11,718,416 common shares of Amalco, representing 74.5 percent and 25.5 percent of the issued and outstanding common shares of Amalco, respectively. As Granges already controlled Hycroft, the amalgamation was treated in a manner similar to a pooling of interest. Accordingly, the year-to-date results of Amalco represent the consolidated results of Granges for the four months ended April 30, 1995 and the consolidated results of Amalco for the eight months ended December 31, 1995, with all comparative figures being the consolidated results of Granges. $1.7 million of costs to carry out the amalgamation have been treated as a capital transaction and charged directly to the deficit on the date of amalgamation. 4. PRIOR PERIOD ADJUSTMENT During 1995, the company received notification from the Manitoba Department of Finance of proposed assessments for the years 1983 to 1993 under the Mining Tax Act and for the period March 1, 1989 to December 31, 1994 under the Retail Sales Tax Act. The company, subsequent to the end of the year, arrived at a settlement with the Department under which the total taxes and interest payable under both Acts amounted to $330,000, with $120,000 previously paid. This settlement has been treated as a prior period adjustment and the effect has been to increase mineral properties by $74,000, increase accounts payable by $210,000 at December 31, 1995, and by $330,000 at December 31, 1994 and to reduce beginning retained earnings by $256,000. 5. INTEREST INCOME - NET
1995 1994 1993 ======================================================================== Interest income $(2,101) $(2,286) $(1,849) Bank loan interest -- 89 463 Equipment notes interest 13 65 53 Financing fee 190 -- -- -------- -------- -------- $(1,898) $(2,132) $(1,333) ======== ======== ========
92 6. GAIN ON SALE OF MINERAL PROPERTIES AND MARKETABLE SECURITIES A) Mineral Properties On September 27, 1995, the company sold its base metal exploration properties in Manitoba and Saskatchewan to Aur Resources Inc. (Aur) for 1,250,000 shares of Aur and a royalty equal to two percent of future net smelter returns from the properties, subject to Aur's right to purchase half of the royalty for $1.0 million. The company realized a gain on the sale of these properties of $6.7 million. Effective March 31, 1994, the company sold its 29 percent interest in the Trout Lake joint venture, as well as a number of exploration properties, to its co- venturer Hudson Bay Mining and Smelting Co., Limited (HBMS) for total cash consideration of $33 million, realizing a gain of $12.6 million. As part of the terms of sale, HBMS assumed all environmental liabilities arising due to past or future activities of the Trout Lake Mine. Accordingly, the $810,000 reclamation and closure accrual related to the mine has been removed from the company's books and included in the calculation of the gain. In May 1993, the company sold its 40 percent interest in the Jualin joint venture in Alaska, and its related 22.3 percent equity investment in International Curator Resources Ltd. for proceeds of $1.7 million. The costs associated with this project had been included in mineral exploration in prior years. B) Marketable Securities In December 1995, the company sold its 1,250,000 shares of Aur, acquired in the sale of the base metal properties, for net proceeds of $7.25 million and realized a gain of $0.5 million. In June 1995, the company sold its 200,000 shares of International Curator Resources Ltd. for net proceeds of $1.2 million and realized a gain of $1.1 million. On October 7, 1993, the company sold its 200,000 shares of Pan Orvana Resources for net proceeds of $694,000 and realized a gain of $494,000. 7. SUBSIDIARY SHARE ISSUE In July 1993, the company's subsidiary, Hycroft, completed a sale of 10.5 million common shares. The company acquired 2.65 million of the 10.5 million shares, which resulted in a reduction of its interest in Hycroft from 67 percent to 50.5 percent. The net effect on the consolidated financial statements of the Company was to increase cash and cash equivalents by $7.4 million and to report a gain on the reduction of its interest in the subsidiary of the same amount. 8. INCOME TAXES A reconciliation of the combined Canadian federal and provincial income taxes at statutory rates and the company's effective income tax expenses is as follows: 93
1995 1994 1993 ========================================================================================= Income taxes at statutory rates $1,426 $3,371 $1,075 Increase (decrease) in taxes from: Resource and depletion allowance -- -- (304) Non-taxable portion of capital gain (182) (203) Non-taxable portion of dilution gain -- -- (845) Financing costs on share issue (45) (69) (348) Application of prior years' loss carry forward -- (1,379) (1,113) Utilization of resource and asset pools (2,633) (5,772) - Recovery of prior years' taxes (90) (124) (82) Deferred tax debit not recognized 1,035 4,643 1,855 U.S. Alternative Minimum Tax 257 -- -- Differences in foreign tax rates 429 (178) (254) ------- ------- ------- 197 289 (16) Large Corporations tax 67 119 49 ------- ------- ------- Income taxes per statements of earnings $264 $408 $33 ======= ======= =======
The Company has incurred income tax losses in prior periods of $24.4 million, which may be carried forward and applied against future taxable income when earned. No benefit in respect of these losses has been recorded in these accounts. The losses expire as follows:
Canada United States Total ========================================================================================= 2000 $1,911 $ -- $1,911 2001 2,312 1,767 4,079 2002 800 1,854 2,654 2003 -- 7,396 7,396 2004 -- 1,875 1,875 2008 -- 530 530 2009 -- 14 14 2010 -- 5,904 5,904 ------ ------- ------- $5,023 $19,340 $24,363 ====== ======= =======
9. INVENTORIES
1995 1994 ========================================================================================= Product inventory $11,830 $11,273 Supplies 3,310 2,754 ------- ------- $15,140 $14,027 ======= =======
10. INVESTMENT IN ZAMORA GOLD CORP. On October 6, 1995, Granges Inc. completed a private placement with Zamora Gold Corp. (Zamora) for the issuance of 8,000,000 units at US$0.60 per unit. Each unit consists of one common share of Zamora and one common share purchase warrant entitling Granges to purchase one common share for US$0.75 until October 4, 1997. Granges' 8,000,000 shares represent 41 percent of the issued and outstanding shares of Zamora and the investment is accounted for using the equity method. 94 Total initial investment $6,511 Share of net book value 6,375 ------ Excess of cost over net book value $ 136 ======
The excess of cost over net book value has been allocated to the mineral exploration properties for purposes of calculating Granges' equity in Zamora's earnings. The excess will be amortized on a units-of-production basis if such properties are developed into operating mines or written off if the properties are abandoned. 95 11. PROPERTY, PLANT AND EQUIPMENT Property, plant and equipment comprises of the following:
Property Metals Produced Acquired/Commenced Production ===================================================================================== Hycroft mine gold, silver Lewis 1987, Crofoot 1988 Tartan mine gold 1987 (suspended 1989) Trout Lake mine copper, zinc, gold, silver 1982 (interest disposed of March 31, 1994 - see note 6A)
1995 1994 (Restated, See Note 4) -------------------------------------------------- -------------------------------------------- Accumulated Accumulated Depreciation, Depreciation, Depletion, Depletion, amortization and amortization Write downs and Cost Net Cost Write downs Net - ---------------------------------------------------------------------------------------------------------------------------- Producing Mines Hycroft mine $ 85,137 $53,089 $32,048 $81,193 $49,342 $31,851 Non-Producing Mine 5,283 2,699 2,584 5,283 2,699 2,584 Tartan Lake mine Corporate Assets 1,016 357 659 1,123 565 558 ------ ------ ------ ------ ------ ------ 91,436 56,145 35,291 87,599 52,606 34,993 Deferred stripping costs - Hycroft 12,987 4,522 8,465 6,002 4,334 1,668 -------- ------- ------- ------- ------- ------- $104,423 $60,667 $43,756 $93,601 $56,940 $36,661 ======== ======= ======= ======= ======= =======
A) Deferred stripping During 1993, the amounts of waste moved per ton of ore at the Hycroft mine exceeded the average ratio expected over the life of the mine. The mining plan indicates that this will continue to be the case from time to time, whereas previously there was little variation in the ratio of waste to ore. To accommodate these variations, mining costs associated with removal of waste in excess of the life-of-mine average will be deferred and charged to operations in future periods when ratios are below the average. Stripping costs deferred this year amounted to $7,182,000 (1994 - $1,958,000; 1993 - $3,725,000). Amortization of previously deferred costs was $304,000 in 1995 (1994 -$4,246,000; 1993 - Nil). B) Royalties The Crofoot property is subject to 4 percent net profits royalties. No royalty payments were made in 1995, 1994 and 1993 because minimum royalty payments made prior to 1993 aggregating US$2.8 million were available for credit the royalty obligations. Effective 1996, the company has agreed to apply this credit to reduce the maximum cumulative royalties payable of US$10 million and to pay minimum royalty payments of US$240,000 per year. 96 The Lewis property is subject to a 5 percent net smelter royalty on gold produced from the Lewis property. During 1993, 1994 and 1995, only nominal minimum royalties were required in relation to this property. 12. JOINT VENTURE The Company proportionately consolidates its share of the assets, liabilities, revenues and expenses of its joint venture. Prior to March 31, 1994 the Company's principal joint venture was the Trout Lake mine, in which it owned 29 percent (see Note 6a). The 1994 results include the Company's share of production, revenues and expenses from the Trout Lake mine to the date of disposal. The proportionate amounts of the above joint venture included in the consolidated accounts are as follows:
1995 1994 1993 - ------------------------------------------------------------------------------- Revenue $ -- $ 3,257 $14,267 ======== ====== ======= Expenses $ -- $ 3,905 $14,568 ======== ====== =======
13. ACCOUNTS PAYABLE AND ACCRUED LIABILITIES
1995 1994 - ------------------------------------------------------------------------------- (Restated, See Note 4) Accounts payable $4,798 $ 17,893 Accrued liabilities 3,720 2,397 ------ ------- $ 8,518 $20,290 ====== =======
Accounts payable at December 31, 1994 included $13.1 million (US$9.3 million) to purchase mining equipment for the development of the Brimstone deposit, all of which was paid during 1995. 14. EQUIPMENT NOTES PAYABLE
1995 1994 - ------------------------------------------------------------------------------- Notes payable due 1994 and 1995, 7.75% to 9.85% (1995 - US$ NIL; 1994 - US$261,000) $ -- $ 366 Less: amounts due within one year -- 366 ---- ----- $ -- $ -- ==== =====
15. SHARE CAPITAL A) Authorized share capital comprises 750,000,000 common shares without par value and 750,000,000 preferred shares without par value. B) Common shares issued and outstanding:
Shares Amount - -------------------------------------------------------------------------------
97 At December 31, 1993 34,157,000 $146,198 Issued in 1994 20,000 29 -------- ----- At December 31, 1994 34,177,000 146,227 Issued upon exercise of stock options 147,500 312 Issued pursuant to amalgamation (Note 3) 11,718,411 -- Capital reduction -- (72,559) ---------- -------- At December 31, 1995 46,042,911 $ 73,980 ========== ========
C) Capital Reduction At the March 30, 1995 extraordinary meeting, the shareholders of Granges approved a special resolution to reduce the capital of the company. Under this resolution the share capital and contributed surplus were reduced by $72.6 million and $3.8 million, respectively, with a corresponding decrease to Granges' accumulated deficit of approximately $76.4 million. The effect of this capital reduction was to eliminate the consolidated accumulated deficit of Granges as of December 31, 1994 after giving effect to the estimated costs of the amalgamation. This deficit was caused primarily by prior write downs of mining assets. D) Litigation settlement Settlement of the action commenced in 1989 by Oxford Acquisitions Inc. against Granges and Outokumpu Mines Ltd. occurred in February 1993 with mutual releases. The company's only other obligation in the settlement was the issuance of 150,000 Granges shares to the plaintiff. E) Common share options At December 31, 1995, 1,320,000 common shares were reserved for issuance under options granted to directors, officers and management employees. These options expire as follows: 1996 - 65,000; 1997 - 100,000; 2001 - 30,000; 2003 - 20,000; 2004 - 25,000; 2005 - 1,080,000.
Share Options Option Price - -------------------------------------------------------------------------------- At December 31, 1993 230,000 $ 1.45 to $ 2.85 Granted in 1994 530,000 $ 2.28 to $ 3.30 Exercised in 1994 (20,000) $1.45 --------- At December 31, 1994 740,000 $ 1.45 to $ 3.30 Granted in 1995 905,000 $ 2.25 to $ 2.78 Exercised in 1995 (147,500) $ 1.45 to $ 2.28 Expired in 1995 (177,500) $ 2.28 to $ 2.70 --------- At December 31, 1995 1,320,000 $ 1.45 to $ 2.78 =========
During the year, options to purchase 35,000 shares at $ 3.30 per share were repriced to $2.78 per share. 16. CURRENCY TRANSLATION ADJUSTMENT The currency translation adjustment represents the foreign currency translation loss on the Company's investment in its self-sustaining foreign operations. 98
1995 1994 - ------------------------------------------------------------------------------------------------- Currency translation adjustment, beginning of year $ (247) $(1,234) Unrealized gain (loss) for the year (1,160) 987 ------- ------- Currency translation adjustment, end of year $(1,407) $ (247) ======= =======
17. CHANGES IN WORKING CAPITAL, EXCLUDING CASH AND CASH EQUIVALENTS
1995 1994 1993 - ------------------------------------------------------------------------------------------------ Accounts receivable $ 560 $ 2,828 $ 520 Marketable Securities 83 30 -- Inventories (1,113) (5,024) 290 Accounts payable and accrued liabilities (11,772) 13,364 1,192 -------- ------- ------ $(12,242) $11,198 $2,002 ======== ======= ======
18. RELATED PARTY TRANSACTIONS In 1994, consulting fees of $72,000 (1993 - $72,000) were paid to a director of the Company, who resigned during 1994. In 1995 no such fees were paid. 19. SEGMENTED INFORMATION The Company operates in the mining industry in Canada and the United States. Its major product is gold, and prior to 1995, it also produced copper and zinc. Geographic segments are presented below.
1995 1994 1993 - ----------------------------------------------------------------------------------------------- Sales Canada $ -- $ 3,257 $14,267 U.S. 56,374 51,175 41,030 ------- ------- ------- 56,374 $54,432 $55,297 ======= ======= ======= Results of Mining Operations Canada $ -- $ (476) $ 554 U.S. 4,512 3,024 479 ------- ------- ------- 4,512 $ 2,548 $ 1,033 ======= ======= ======= 1995 1994 - ----------------------------------------------------------------------------------------------- Identifiable assets Canada $39,450 $45,156 U.S. 48,475 53,670 ------- ------- $87,925 $98,826 ======= =======
99 20. RETIREMENT PLANS The company provides a voluntary money purchase retirement plan to permanent Canadian employees to which the company makes contributions, depending on length of employment, from 2 percent to 4 percent of salary. The company's contribution in 1995 was $35,500 (1994 - $33,300). The company provides a voluntary retirement plan to permanent U.S. employees to which the company makes contributions, depending on length of employment, from 2 percent to 4 percent of salary. The company's contribution in 1995 was US$113,200 (1994 - US$12,400). 21. CONTINGENCIES AND COMMITMENTS A) The Company is committed to U.S. dollar payments under certain operating leases for mining equipment. Future payments under these leases in each of the next five years and in the aggregate are:
Cdn. $000's U.S. $000's Equivalent - -------------------------------------------------------------------------------- 1996 1,998 2,727 1997 1,998 2,727 1998 1,055 1,440 1999 -- -- ------ ------ $5,051 $6,894 ====== ======
Letters of credit totalling US$2.8 million (1994-US$3.5 million) have been provided as security under these mine equipment operating leases. The company is also committed to payments under a lease for office space ending May 31, 1997. Annual payments under the lease, net of subtenancy receipts, are $487,000. B) As part of its gold hedging program, the company has entered into agreements with major financial institutions to deliver gold. Realization under these agreements is dependent upon the ability of those financial institutions to perform in accordance with the terms of the agreements. As at December 31, 1995, the company's consolidated hedging program consists of: (i) forward sales contracts totalling 12,000 ounces for deliveries up to December 27, 1996, at an average price of US$383.33 per ounce; (ii) matching option contracts for 19,000 ounces of gold under which the company can require the financial institution to buy gold at US$392 per ounce, while the financial institution can require the company to sell the same number of ounces at US$465 per ounce. These options have various expiry dates during 1996 and result in no net cost to the company. 22. SUBSEQUENT EVENT Subsequent to the end of the year, the company, through its subsidiary, has arranged a secured stand-by credit facility. The facility is available for drawdown until December 31, 1996, in dollars or as a gold loan, to a maximum of US$13.0 million or the gold ounce equivalent thereof (not to exceed 35,000 ounces). Drawdowns under the facility bear interest at LIBOR plus 1.60 percent for dollar loans and gold lease rates plus 1.60 percent 100 for gold loans. The loan is repayable in seven semi-annual instalments commencing the earlier of 12 months after the first drawdown or June 30, 1997. In the event, the company generates cash surpluses after debt service, it is required to make annual prepayments equal to 25 percent of its Excess Cash flow, up to a maximum of US$2.5 million annually and US$5.0 million in aggregate. In addition to the loan facility, the company has also arranged a hedging facility for up to 275,000 ounces of gold for deliveries up to the year 2001. Both the hedging and credit facilities are secured by the assets at the Hycroft mine and parent company guarantee. On February 29, 1996, the company entered into a Letter of Intent to enter into an Option Agreement with L. B. Mining Company to acquire the Guariche gold project in Southeastern Venezuela. Subject to due diligence and the company satisfying itself that, during the four-month option period, the project contains 500,000 ounces of proven and probable reserves, the company will acquire the property for US$15 million of which US$5 million is payable in Granges shares and the balance in cash. Additional proven and probable reserves above the 500,000 ounces will cost US$30 per ounce up to one million ounces. Any excess above one million proven and probable ounces attract a 7.5 percent Net Smelter Royalty. The expenditure commitment is US$600,000 during the option period, an additional US$1.0 million within the first 12-month period after the property is acquired, and a further US$1.0 million within the following 12-month period. 23. DIFFERENCES BETWEEN CANADIAN AND UNITED STATES GENERALLY ACCEPTED ACCOUNTING PRINCIPLES The significant differences between generally accepted accounting principles (GAAP) in Canada and in the United States are as follows: A) Under Canadian GAAP, interest costs relating specifically to assets under construction may be capitalized during the construction period. When construction is completed, further interest costs are expensed. Under U.S. GAAP, interest to be capitalized for qualifying assets is intended to be that portion of the interest cost incurred during the assets' acquisition periods that theoretically could have been avoided if expenditures for the assets had not been made. B) Under Canadian GAAP, the amalgamation of Granges and Hycroft was treated in a manner similar to a pooling of interest. Under U.S. GAAP, the amalgamation does not meet the conditions for pooling of interest. Accordingly, the transaction would be treated as a purchase under U.S. GAAP with the excess of proceeds over the net book value of Hycroft's net assets allocated to mineral properties. C) Under Canadian corporate law, the company underwent a capital reduction in connection with the amalgamation of Granges and Hycroft whereby share capital and contributed surplus were reduced to eliminate the consolidated accumulated deficit of Granges as of December 31, 1994, after giving effect to the estimated costs of the amalgamation. Under U.S. corporate law, no such transaction is available and accordingly is not allowed under U.S. GAAP. D) Under Canadian GAAP, corporate income taxes are accounted for using the deferral method of income tax allocation. Under this method, deferred income taxes represent a deferral to future periods of a benefit obtained or expenditures incurred currently, and are accordingly computed at current tax rates without subsequent adjustment to the accumulated balance to reflect changes in tax rates. Deferred taxes are provided on differences between accounting and taxable income due to the difference in timing of recognition of items for accounting and tax purposes ("timing differences"). Under U.S. GAAP, corporate income taxes are accounted for using the liability method of income tax allocation. Under this method, 101 deferred income taxes are considered to reflect the recognition in the current period of taxes expected to be payable or recoverable in a future period, and accordingly, the accumulated tax allocation balance is adjusted in future periods to reflect changes in tax rates. Deferred taxes are provided on "temporary differences", which is a broader concept than "timing differences." Under U.S. GAAP, deferred tax assets are reduced by a valuation allowance if, based on the weight of available evidence, it is more likely than not that some portion or all of the deferred tax assets will not be realized. As at December 31, 1994 any deferred tax assets to be recognized would have been offset by a valuation allowance. Under US GAAP, the excess of purchase price over net book value acquired would be tax affected giving rise to a credit to deferred income taxes and a debit to mineral properties. This would result in a corresponding reduction in the valuation allowance with the resulting credit being allocated against mineral properties. At December 31, 1995, the Company's deferred tax would be as follows:
1995 ------- Deferred taxes arising on: Operating losses $4,462 Excess purchase price (13,469) Temporary tax and book basis difference 13,669 ------ Subtotal 4,662 Valuation allowance (4,662) ------ $ nil ==========
E) Under U.S. GAAP, the settlement of Mining taxes described in Note 4 is a current year's expense. The significant differences in the consolidated statements of earnings and deficit relative to U.S. GAAP were as follows:
Year ended December 31 --------------------------------------------------- 1995 1994 1993 ---- ---- ---- Net earnings following Canadian GAAP $2,948 $6,985 $2,761 Net interest capitalized (amortized) (Note A) (29) (36) 55 Depreciation of excess of proceeds over net book value of assets on amalgamation (Note B) (3,629) -- -- Other Item Settlement of Mining Taxes (Note E) (256) -- -- -------- -------- -------- Net earnings (loss), following U.S. GAAP (966) 6,949 2,816 Deficit, beginning of year following U.S. GAAP (73,699) (80,648) (83,464) --------- --------- --------- Deficit, end of year following U.S. GAAP $(74,665) $(73,699) $(80,648) ========= ========= ========= Primary earnings (loss) per share $ (0.02) $ 0.20 $ 0.08 ========= ======== ========
102 The significant differences in the balance sheet as at December 31, 1995 relative to U.S. GAAP were:
Per Cdn. Cdn./U.S. Per U.S. GAAP Adj. GAAP ---- ---- ---- Current assets $38,104 38,361 Investments 5,808 5,808 Property, plant and equipment 43,756 31,535/(A),(B)/ 75,291 ------- -------- $87,668 $119,460 ======= ======== Current liabilities 8,518 8,518 Provision for reclamation and future closure costs 4,654 4,654 ------- -------- 13,172 13,172 Common shares 73,980 104,785/(B),(C)/ 178,765 Contributed surplus -- 3,803/(C)/ 3,803 Retained earnings (deficit) 1,923 (77,053)/(A),(B),(C)/ (74,873) Currency translation adjustment (1,407) (1,407) ------- -------- 87,668 119,460 ======= ========
Cash flows for the company under Canadian GAAP are presented in the consolidated statement of changes in cash resources. Under Canadian GAAP all financing and investment activities are presented on the face of the statement. Under U.S. GAAP only cash transactions are presented, with non-cash transactions disclosed separately. The gain on the sale of the company's base metal properties was a non-cash transaction. Accordingly, under U.S. GAAP the proceeds from the sale of mineral properties and marketable securities and the purchase of investments would both be reduced by $6,718,750, the value of the non-cash transaction. The company is not aware of any differences between Canadian and U.S. GAAP in classifications among categories within the cash flow statement. Supplemental Disclosures of Cash Flow Information
1995 1994 1993 - -------------------------------------------------------------------------------- Cash paid during the year for: Interest $ 203 $ 157 $ 516 Income taxes 264 416 33
103
SCHEDULE OF EXHIBITS Exhibit Number Exhibits Page ------------------------------------------------------------------------------------- 3.1 Restated Certificate of Incorporation of the Company, dated January 3, 1990 (filed as Exhibit 3.2 to the Company's quarterly report on Form 10-Q for the quarter ended December 31, 1989, and incorporated herein by reference). 3.2 By-Laws of the Company, as amended on January 3, 1990 (filed as Exhibit 3.3 to the Company's quarterly report on Form 10-Q for the quarter ended December 31, 1989 and incorporated herein by reference). 3.3 By-Laws of the Company, as amended on July 12, 1995. 4.1 Term Loan Agreement dated August 15, 1994 between the Company and Gerald Metals, Inc.(filed as an Exhibit 10.22 to the Company's annual report on Form 10-K for the year ended June 30, 1994 and incorporated herein by reference). 4.2 Security Agreement dated August 15, 1994 between the Company and Gerald Metals, Inc.(filed as an Exhibit 10.23 to the Company's annual report on Form 10-K for the year ended June 30, 1994 and incorporated herein by reference). 4.3 Pledge Agreement dated August 15, 1995 between the Company and Gerald Metals, Inc. (filed as an Exhibit 10.24 to the Company's annual report on Form 10-K for the year ended June 30, 1994 and incorporated herein by reference). 4.4 Indenture dated as of November 10, 1995 between the Company and Chemical Bank as Trustee (filed as Exhibit 4.1 to the Company's Registration Statement on Form S-3 (33-65165) as filed with the Commission on December 19, 1995 under the Securities Act of 1933 and incorporated herein by reference). 4.5 Escrow and Pledge Agreement dated as of November 10, 1995 between the Company and Chemical Bank as Trustee and Chemical Bank as Escrow Agent (filed as Exhibit 4.2 to the Company's Registration Statement on Form S-3 (33-65165) as filed with the Commission on December 19, 1995 and incorporated herein by reference).
104 4.6 Special Warrant Indenture dated November 9, 1995 between the Company and The Montreal Trust Company of Canada containing terms and conditions governing the issue and exercise of special debenture warrants exercisable for 7% Exchangeable Debentures due October 25, 2000 of the Company (filed as Exhibit 99.2 to the Company's Registration Statement on Form S-3 (33-65165) as filed with the Commission on December 19, 1995 and incorporated herein by reference). 4.7 Loan Agreement dated as of November 27, 1995 between the Company and First Marathon Inc. (filed as Exhibit 99.5 to the Company's Registration Statement on Form S-3 (33-65165) as filed with the Commission on December 19, 1995 and incorporated herein by reference). 4.8 Pledge Agreement dated as of November 27, 1995 between the Company and First Marathon Inc. (filed as Exhibit 99.6 to the Company's Registration Statement on Form S-3 (33-65165) as filed with the Commission on December 19, 1995 and incorporated herein by reference). 10.1 Atlas Corporation Management Incentive Compensation Plan (filed as Exhibit 10.2 to the Company's annual report on Form 10-K (file no. 1- 2714) for the fiscal year ended June 30, 1981 and incorporated herein by reference). 10.2 Form of Indemnity Agreement entered into between the Company and certain of its directors (filed as Exhibit 10.14 to the Company's annual report on Form 10-K for the fiscal year ended June 30, 1987 and incorporated herein by reference). 10.3 Amended and Restated Rights Agreement dated as of August 2, 1989 between the Company and Manufacturers Hanover Trust Company (filed as Exhibit 1 to the Company's current report on Form 8-K dated August 2, 1989 and incorporated herein by reference). 10.4 Long Term Incentive Plan of the Company dated November 1, 1989 (filed as Exhibit 10.28 to the Company's annual report on Form 10-K for the fiscal year ended June 30, 1989 and incorporated herein by reference). 10.5 Atlas Corporation Supplemental Executive Retirement Plan dated as of January 3, 1990 (filed as Exhibit 10.2 to the Company's quarterly report on Form 10-Q for the quarter ended March 31, 1990 and incorporated herein by reference). 105 10.6 Atlas Corporation Retirement Plan for Outside Directors dated April 4, 1990 (filed as Exhibit 10.3 to the Company's quarterly report on Form 10-Q for the quarter ended March 31, 1990 and incorporated herein by reference). 10.7 Restated Employment Agreement dated as of September 12, 1990 between the Company and Richard R. Weaver (filed as Exhibit 10.22 to the annual report on Form 10-K for the fiscal year ended June 30, 1990 and incorporated herein by reference). 10.8 Amendment No. 1, dated as of March 6, 1991, to the Amended and Restated Employment Agreement, dated as of September 12, 1990, between the Company and Richard R. Weaver (filed as Exhibit 10.1 to the Company's quarterly report on Form 10-Q for the quarter ended March 31, 1991 and incorporated herein by reference). 10.9 Atlas Corporation Annual Incentive Plan adopted by the Board of Directors of the Company on March 6, 1991(filed as Exhibit 10.20 to the Company's annual report on Form 10-K for the year ended June 30, 1991 and incorporated herein by reference). 10.10 Agreement dated September 10, 1992 among Atlas Precious Metals, Inc., the Company and Newmont Mining Corporation (filed as Exhibit 10.22 to the Company's annual report on Form 10-K for the year ended June 30, 1992 and incorporated herein by reference). 10.11 Amendment dated September 10, 1992 to the Agreement dated September 10, 1992 among Atlas Precious Metals, Inc., the Company and Newmont Mining Corporation (filed as Exhibit 10.23 to the Company's annual report on Form 10-K for the year ended June 30, 1992 and incorporated herein by reference). 10.12 Securities Purchase Agreement dated September 3, 1993 between the Company and Phoenix Financial Holdings Inc. (filed as Exhibit 2 to the Company's Report on Form 8-K filed on September 9, 1993 and incorporated herein by reference). 10.13 Amendment dated as of September 15, 1993 to the Amended and Restated Rights Agreement dated as of August 2, 1989 between the Company and Chemical Bank, as successor by merger with Manufacturers Trust Company (filed as Exhibit 10.25 to the Company's annual report on Form 10-K for the year ended June 30, 1993 and incorporated herein by reference). 106 10.14 Employment agreement made as of September 22, 1993, between the Company and David J. Birkenshaw (filed as Exhibit 10.1 to the Company's quarterly report on Form 10-Q for the quarter ended March 31, 1994 and incorporated herein by reference). 10.15 Amendment dated as of August 28, 1995 to the employment agreement made as of September 22, 1993, between the Company and David J. Birkenshaw (filed as exhibit 10.15 to the Company's annual report on Form 10-K for the year ended June 30, 1995 and incorporated herein by reference). 10.16 Share Purchase Agreement dated April 28, 1994 between the Company and M.I.M. (Canada) Inc. (filed as an Exhibit 10.18 to the Company's annual report on Form 10-K for the year ended June 30, 1994 and incorporated herein by reference). 10.17 Agreement dated May 10, 1994 between the Company and Granges Inc. (filed as an Exhibit 10.19 to the Company's annual report on Form 10-K for the year ended June 30, 1994 and incorporated herein by reference) 10.18 Registration Rights Agreement dated August 15, 1994, between the Company and First Marathon Securities Limited (filed as Exhibit 10.20 to the Company's annual report on Form 10-K for the year ended June 30, 1994 and incorporated herein by reference). 10.19 Indemnity Agreement dated August 15, 1995 between the Company and M.I.M. Holdings Limited (filed as an Exhibit 10.21 to the Company's annual report on Form 10-K for the year ended June 30, 1994 and incorporated herein by reference). 10.20 Purchase Agreement dated May 31, 1994 among the Company, Dakota Mining Corporation, VenturesTrident L.P. and VenturesTrident II L.P. (filed as an Exhibit 10.25 to the Company's annual report on Form 10-K for the year ended June 30, 1994 and incorporated herein by reference). 10.21 Second Amendment dated as of August 15, 1994 to the Amended and Restated Rights Agreement dated August 2, 1989 between the Company and Chemical Bank, as successor by merger with Manufacturers Hanover Trust Company (filed as Exhibit 10.1 to the Company's quarterly report on Form 10-Q for the quarter ended March 31, 1995 and incorporated herein by reference). 107 10.22 The Company's Long Term Incentive Plan, as amended dated February 17, 1995 (filed as Exhibit 10.2 to the Company's quarterly report on Form 10-Q for the quarter ended March 31, 1995 and incorporated herein by reference). 10.23 Employment Agreement made as of January 16, 1995 between the Company and Michael B. Richings (filed as Exhibit 10.3 to the Company's quarterly report on Form 10-Q for the quarter ended March 31, 1995 and incorporated herein by reference). 10.24 Employment Agreement made as of February 17, 1995 between the Company and Richard E. Blubaugh (filed as Exhibit 10.4 to the Company's quarterly report on Form 10-Q for the quarter ended March 31, 1995 and incorporated herein by reference). 10.25 Agreement dated February 24, 1995 between the Company and Granges Inc. to vote the common shares of Granges Inc., held by the Company, in favor of the proposed amalgamation of Granges Inc. and Hycroft Resources & Development Corporation. (filed as exhibit 10.25 to the Company's annual report on Form 10-K for the year ended June 30, 1995 and incorporated herein by reference). 10.26 Atlas Subscription Agreement dated March 9, 1995 between the Company and Dakota Mining Corporation. (filed as exhibit 10.26 to the Company's annual report on Form 10-K for the year ended June 30, 1995 and incorporated herein by reference). 10.27 Amendment dated September 15, 1995 to the employment agreement made as of February 17, 1995 between the Company and Richard E. Blubaugh. (filed as exhibit 10.27 to the Company's annual report on Form 10-K for the year ended June 30, 1995 and incorporated herein by reference). 10.28 Employment Agreement dated June 1, 1995 between the Company and Gerald E. Davis (filed as exhibit 10.28 to the Company's annual report on Form 10-K for the year ended June 30, 1995 and incorporated herein by reference). 10.29 Amendment dated September 20, 1995 to the employment agreement dated June 1, 1995 between the Company and Gerald E. Davis (filed as exhibit 10.29 to the Company's annual report on Form 10-K for the year ended June 30, 1995 and incorporated herein by reference). 10.30 Underwriting Agreement dated as of October 25, 1995 by and among the Company, Yorkton Securities Inc. and First Marathon Securities 108 Ltd. regarding the distribution of special debenture warrants exercisable for 7% Exchangeable Debentures due October 25, 2000 of the Company (filed as Exhibit 99.1 to the Company's Registration Statement on Form S-3 (33-65165) as filed with the Commission on December 19, 1995 and incorporated herein by reference). 10.31 Granges Registration Agreement dated as of November 10, 1995 between the Company and Granges Inc. (filed as Exhibit 99.3 to the Company's Registration Statement on Form S-3 (33-65165) as filed with the Commission on December 19, 1995 and incorporated herein by reference). 10.32 Indemnification Agreement dated as of November 15, 1995 between the Company and Granges Inc. (filed as Exhibit 99.4 to the Company's Registration Statement on Form S-3 (33-65165) as filed with the Commission on December 19, 1995 and incorporated herein by reference). 10.33 Option Agreement between the Company and Harvest Gold Corporation signed September 13, 1995 (filed as Exhibit 99.7 to the Company's Registration Statement on Form S-3 (33-65165) as filed with the Commission on December 19, 1995 and incorporated herein by reference). 10.34 Purchase and Sale Agreement dated October 25, 1995 between the Company and Independence Mining Company Inc. (filed as Exhibit 99.8 to the Company's Registration Statement on Form S-3 (33-65165) as filed with the Commission on December 19, 1995 and incorporated herein by reference). 10.35 Registration Rights Agreement dated October 25, 1995 between the Company and Independence Mining Company Inc. (filed as Exhibit 99.9 to the Company's Registration Statement on Form S-3 (33-65165) as filed with the Commission on December 19, 1995 and incorporated herein by reference). 10.36 Agreement between the Company and Brown & Root, Inc. dated October 23, 1995 (filed as Exhibit 99.10 to the Company's Registration Statement on Form S-3 (33-65165) as filed with the Commission on December 19, 1995 and incorporated herein by reference). 10.37 Mining Venture Agreement with Granges (U.S.), Inc. dated September 29, 1995 109 10.38 Business combination agreement with MSV Resources Inc. dated March 5, 1996 21 Subsidiaries of the Company 23 Consent of Independent Auditors 110 EX-10.37 2 MINING VENTURE AGREEMENT WITH GRANGES MINING VENTURE AGREEMENT BETWEEN GRANGES (U.S.), INC. ("GRANGES") AND ATLAS CORPORATION, ATLAS PRECIOUS METALS INC. AND ATLAS GOLD MINING INC. (COLLECTIVELY "ATLAS") DATED AS OF SEPTEMBER 29, 1995 TABLE OF CONTENTS MINING VENTURE AGREEMENT PAGE
RECITALS 1 Article I Definitions 1 1.1 "Access" 1 1.2 "Accounting Procedure"........................................................ 1 1.3 "Affiliate"................................................................... 2 1.4 "Agreement"................................................................... 2 1.5 "Area of Interest"............................................................ 2 1.6 "Assets" 2 1.7 "Atlas Gold Bar Property"..................................................... 2 1.8 "Atlas Mill Complex".......................................................... 2 1.9 "Budget" 2 1.10 "Development"................................................................. 2 1.11 "Environmental Laws".......................................................... 2 1.12 "Exploration"................................................................. 3 1.13 "Exploration and Development Expenditures".................................... 3 1.14 "Hazardous Materials"......................................................... 5 1.15 "Initial Contribution"........................................................ 5 1.16 "Joint Account"............................................................... 5 1.17 "Indemnification Procedure"................................................... 5 1.18 "Management Committee"........................................................ 7 1.19 "Manager"..................................................................... 7 1.20 "Mining" 7 1.21 "Net Profits"................................................................. 7 1.22 "Net Smelter Returns"......................................................... 7 1.23 "Operations".................................................................. 7 1.24 "Participant" and "Participants".............................................. 7 1.25 "Participating Interest"...................................................... 7 1.26 "Prime Rate".................................................................. 7 1.27 "Products".................................................................... 7 1.28 "Program"..................................................................... 7 1.29 "Properties".................................................................. 7 1.30 "Transfer".................................................................... 8 1.31 "Venture"..................................................................... 8 1.32 "$" .......................................................................... 8
i Article II Representations and Warranties; Title to Assets................................... 8 2.1 Capacity of Participants..................................................... 8 2.2 Representations and Warranties............................................... 9 2.3 Disclosures.................................................................. 11 2.4 Record Title................................................................. 11 2.5 Joint Loss of Title.......................................................... 12 Article III Name, Purposes and Term........................................................... 12 3.1 General...................................................................... 12 3.2 Name......................................................................... 12 3.3 Purposes..................................................................... 12 3.4 Limitation................................................................... 13 3.5 Effective Date and Term...................................................... 13 Article IV Relationship of The Participants.................................................. 13 4.1 No Partnership............................................................... 13 4.2 Federal Tax Elections and Allocations........................................ 13 4.3 State Income Tax............................................................. 14 4.4 Tax Returns.................................................................. 14 4.5 Other Business Opportunities................................................. 14 4.6 Waiver of Right to Partition................................................. 14 4.7 Transfer or Termination of Rights to Properties.............................. 14 4.8 Implied Covenants............................................................ 14 4.9 Relationship of Entities Comprising ATLAS.................................... 15 Article V Contributions by Participants and Additional Agreements........................... 15 5.1 Participants' Initial Contributions and Activities During Evaluation Period.. 15 5.2 Failure of GRANGES to Make Initial Contribution.............................. 23 5.3 Additional Cash Contributions................................................ 23 5.4 Personnel.................................................................... 24 5.5 Toll Milling of Products at the Atlas Mill Complex........................... 24 5.6 Preemptive Right to Include Additional Property.............................. 29 5.7 Reserved Royalty............................................................. 30 5.8 Maintenance of Claims by GRANGES............................................. 30 5.9 Revision of Mining Law....................................................... 31 Article VI Interests of Participants........................................................ 31 6.1 Initial Participating Interests.............................................. 31 6.2 Changes in Participating Interests........................................... 32 6.3 Voluntary Reduction in Participation......................................... 32
ii 6.4 Default in Making Contributions................................................. 32 6.5 Elimination of Minority Interest................................................ 34 6.6 Continuing Liabilities Upon Adjustments of Participating Interests.............. 34 6.7 Recovery of Participating Interest.............................................. 35 Article VII Management Committee................................................................. 35 7.1 Organization and Composition.................................................... 36 7.2 Decisions....................................................................... 36 7.3 Meetings........................................................................ 37 7.4 Action Without Meeting.......................................................... 38 7.5 Matters Requiring Approval...................................................... 38 Article VIII Manager 38 8.1 Appointment..................................................................... 38 8.2 Powers and Duties of Manager.................................................... 38 8.3 Standard of Care................................................................ 42 8.4 Resignation Deemed Offer to Resign.............................................. 42 8.5 Payments to Manager............................................................. 43 8.6 Transactions With Affiliates.................................................... 43 8.7 Activities During Deadlock...................................................... 43 Article IX Programs and Budgets................................................................. 44 9.1 [This section intentionally left blank.]........................................ 44 9.2 Operations Pursuant to Programs and Budgets..................................... 44 9.3 Presentation of Programs and Budgets............................................ 44 9.4 Review and Approval of Proposed Programs and Budgets............................ 44 9.5 Election to Participate......................................................... 45 9.6 Deadlock on Proposed Programs and Budgets....................................... 45 9.7 Budget Overruns; Program Changes................................................ 45 9.8 Emergency or Unexpected Expenditures............................................ 46 9.9 Reclamation Fund................................................................ 46 Article X Accounts and Settlements.............................................................. 47 10.1 Monthly Statements.............................................................. 47 10.2 Cash Calls...................................................................... 47 10.3 Failure to Meet Cash Calls...................................................... 47 10.4 Audits.......................................................................... 48 Article XI Disposition of Production............................................................. 48 11.1 Taking In Kind.................................................................. 48 11.2 Failure of Participant to Take in Kind.......................................... 49
iii Article XII Withdrawal and Termination............................................................ 49 12.1 Termination..................................................................... 49 12.2 Withdrawal...................................................................... 50 12.3 Continuing Obligations.......................................................... 50 12.4 Disposition of Assets on Termination............................................ 50 12.5 Non-Compete Covenants........................................................... 51 12.6 Right to Data After Termination................................................. 51 12.7 Continuing Authority............................................................ 51 Article XIII Acquisitions Within Area of Interest.................................................. 52 13.1 General......................................................................... 52 13.2 Notice to Nonacquiring Participant.............................................. 52 13.3 Option Exercised................................................................ 52 13.4 Option Not Exercised............................................................ 53 Article XIV Abandonment and Surrender of Properties............................................... 53 14.1 Surrender or Abandonment of Property............................................ 53 14.2 Reacquisition................................................................... 53 Article XV Transfer of Interest.................................................................. 54 15.1 General......................................................................... 54 15.2 Limitations on Free Transferability............................................. 54 15.3 Preemptive Right................................................................ 55 15.4 Exceptions to Preemptive Right.................................................. 56 15.5 Atlas Mill Complex.............................................................. 56 Article XVI Disputes 57 16.1 Arbitration..................................................................... 57 Article XVII Confidentiality....................................................................... 58 17.1 General......................................................................... 58 17.2 Exceptions...................................................................... 58 17.3 Duration of Confidentiality..................................................... 58 Article XVIII General Provisions.................................................................... 59 18.1 Notices......................................................................... 59 18.2 Waiver.......................................................................... 59 18.3 Modification.................................................................... 59 18.4 Force Majeure................................................................... 59 18.5 Governing Law................................................................... 60 18.6 Rule Against Perpetuities....................................................... 60
iv 18.7 Further Assurances.......................................................... 61 18.8 Survival of Terms and Conditions............................................ 61 18.9 Entire Agreement; Successors and Assigns.................................... 61 18.10 Memorandum................................................................. 61 18.11 Public Announcements....................................................... 61 18.12 Counterparts............................................................... 62 18.13 Guaranty by Granges, Inc................................................... 62 EXHIBIT A PROPERTIES AND TITLE EXCEPTIONS................................................... A-1 PART 1 MINERAL ESTATE IN AND UNDERLYING THE ATLAS MILL COMPLEX................. A-1 PART 2. LEASED PROPERTIES....................................................... A-7 PART 3. LOCATED CLAIMS.......................................................... A-8 PART 4. ACQUIRED CLAIMS:........................................................ A-34 EXHIBIT B ACCOUNTING PROCEDURE.............................................................. B-1 Article I General Provisions................................................................ B-1 1.1 General Accounting Records................................................... B-1 1.2 Bank Accounts................................................................ B-1 1.3 Statements and Billings...................................................... B-1 Article II Charges to Joint Account.......................................................... B-2 2.1 Rentals, Royalties and Other Payments........................................ B-2 2.2 Labor and Employee Benefits.................................................. B-2 2.3 Materials, Equipment and Supplies............................................ B-3 2.4 Equipment and Facilities Furnished by Manager................................ B-3 2.5 Transportation............................................................... B-3 2.6 Contract Services and Utilities.............................................. B-3 2.7 Insurance Premiums........................................................... B-3 2.8 Damages and Losses........................................................... B-4 2.9 Legal and Regulatory Expense................................................. B-4 2.10 Audit........................................................................ B-4 2.11 Taxes........................................................................ B-4 2.12 District and Camp Expense (Field Supervision and Camp Expenses).............. B-4 2.13 Administrative Charge........................................................ B-5 2.14 Other Expenditures........................................................... B-6 Article III A Basis of Charges to Joint Account............................................... B-7 3.1 Purchases.................................................................... B-7 3.2 Material Furnished by or Transferred to the Manager or a Participant......... B-7
v 3.3 Premium Prices................................................................ B-8 3.4 Warranty of Material Furnished by the Manager or Participants................. B-8 Article IV Disposal of Material............................................................... B-8 4.1 Disposition Generally......................................................... B-8 4.2 Distribution to Participants.................................................. B-8 4.3 Sales......................................................................... B-9 Article V Inventories........................................................................ B-9 5.1 Periodic Inventories, Notice and Representations.............................. B-9 5.2 Reconciliation and Adjustment of Inventories.................................. B-9 EXHIBIT C TAX MATTERS........................................................................ C-1 ARTICLE 1 TAX MATTERS PARTNER................................................................ C-1 (a) Designation of Tax Matters Partner............................................ C-1 (b) Notice........................................................................ C-1 (c) Inconsistent Treatment of Partnership Item.................................... C-1 (d) Extensions of Limitation Periods.............................................. C-1 (e) Requests for Administrative Adjustments....................................... C-1 (f) Judicial Proceedings.......................................................... C-2 (g) Settlements................................................................... C-2 (h) Fees and Expenses............................................................. C-2 (i) Survival...................................................................... C-3 ARTICLE 2 TAX ELECTIONS AND ALLOCATIONS...................................................... C-3 (a) Tax Partnership Election...................................................... C-3 (b) Tax Elections................................................................. C-3 (c) Allocations to Participants................................................... C-4 ARTICLE 3 CAPITAL ACCOUNTS; LIQUIDATION...................................................... C-7 (a) Capital Accounts.............................................................. C-7 (b) Liquidation................................................................... C-8 ARTICLE 4 SALE OR ASSIGNMENT C-9 (a) Agreement Not to Terminate.................................................... C-9 EXHIBIT D NET PROFITS INTEREST CALCULATION................................................... D-1 1. Calculation and Payment....................................................... D-1 2. Successors in Interest........................................................ D-2 3. Nature of Interest............................................................ D-2
vi EXHIBIT E INSURANCE E-1 EXHIBIT F INITIAL WORK PROGRAM AND BUDGET F-1 EXHIBIT G DEFINITION OF NET SMELTER RETURNS G-1
vii MINING VENTURE AGREEMENT This Agreement is made and entered into as of September 29, 1995, by and among Granges (U.S.), Inc., a Nevada corporation ("GRANGES"), and Atlas Corporation, a Delaware corporation, and its two wholly owned subsidiaries, Atlas Precious Metals Inc. and Atlas Gold Mining Inc., both of which are Nevada corporations (collectively "ATLAS"). RECITALS -------- A. ATLAS controls certain Properties in Eureka County, Nevada, which Properties are described in Parts 1-4 of Exhibit A attached hereto and incorporated herein by reference, and defined in Section 1.29. B. GRANGES wishes to participate with ATLAS in the exploration and evaluation, and, if warranted, development and mining of mineral resources within the Properties or any other properties acquired pursuant to the terms of this Agreement, and ATLAS is willing to grant such right to GRANGES. NOW, THEREFORE, in consideration of the covenants and agreements contained herein, ATLAS and GRANGES agree as follows: ARTICLE I --------- DEFINITIONS ------------ 1.1 "Access" shall mean the right to cross over, on or beneath the surface of property as a means of ingress and egress to and from other property for vehicles, conveyors or other materials transport systems, pipelines, utility lines, canals, ditches, and other forms of transportation or movement of people, matter, or things, and the right to construct, maintain and close roads, underground passageways, and other routes and ways, and to construct, maintain and remove equipment and facilities for such uses. 1.2 "Accounting Procedure" means the procedures set forth in Exhibit B. 1 1.3 "Affiliate" means any person, partnership, joint venture, corporation or other form of enterprise which directly or indirectly controls, is controlled by, or is under common control with, a Participant. For purposes of the preceding sentence, "control" means possession, directly or indirectly, of the power to direct or cause direction of management and policies through ownership of voting securities, contract, voting trust or otherwise. 1.4 "Agreement" means this Venture Agreement, including all amendments and modifications thereof, and all schedules and exhibits, which are incorporated herein by this reference. 1.5 "Area of Interest" means the entire area encompassed within the exterior boundaries of the Properties and the Atlas Mill Complex, as depicted on the map appended to Exhibit A. 1.6 "Assets" means the Properties, Products and all other real and personal property, tangible and intangible, held for the benefit of the Participants hereunder. 1.7 "Atlas Gold Bar Property" means the properties identified as such on the map attached to Exhibit A. 1.8 "Atlas Mill Complex" means the surface estate only of both the patented lode and millsite claims and unpatented millsite claims described in Part 1 of Exhibit A (which claims are also identified as the Atlas Mill Complex on the map appended to Exhibit A), together with all facilities, infrastructure, plants, tailings, slag, materials, stockpiles, dumps and other improvements and appurtenances on such surface estate. 1.9 "Budget" means a detailed estimate of all costs to be incurred by the Participants with respect to a Program and a schedule of cash advances to be made by the Participants. 1.10 "Development" means all preparation for the removal and recovery of Products, including the construction or installation of a mill, leaching facilities or any other improvements to be used for the mining, handling, milling, processing or other beneficiation of Products. 1.11 "Environmental Laws" means any federal, state, local or foreign statute, law, ordinance, regulation, rule, code, order, requirement or rule of common law, now or previously in effect, and any judicial or administrative interpretation thereof, including any judicial or administrative order, consent decree or judgment, relating to the environment, health, safety or Hazardous Materials, 2 including, without limitation, the Comprehensive Environmental Response, Compensation and Liability Act of 1980, as amended ("CERCLA"); the Resource Conservation and Recovery Act, 42 U.S.C. (S)(S) 6901 et seq.; the Hazardous Materials Transportation Act, 49 U.S.C. (S)(S) 6901 et seq.; the Clean Water Act, 33 U.S.C. (S)(S) 1251 et seq.; the Toxic Substances Control Act, 15 U.S.C. (S)(S) 2601 et seq.; the Clean Air Act, 42 U.S.C. (S)(S) 7401 et seq.; the Safe Drinking Water Act, 42 U.S.C. (S)(S) 300f et seq.; the Atomic Energy Act, 42 U.S.C. (S)(S) 2011 et seq.; the Federal Insecticide, Fungicide and Rodenticide Act, 7 U.S.C. (S)(S) 136 et seq.; and the Federal Food, Drug and Cosmetic Act, 21 U.S.C. (S)(S) 301 et seq. 1.12 "Exploration" means all activities directed toward ascertaining the existence, location, quantity, quality or commercial value of deposits of Products. 1.13 "Exploration and Development Expenditures" means all costs, fees, expenses, payments, liabilities and charges incurred or accrued by GRANGES in connection with Exploration and Development or other associated, related or incidental Operations upon or for the benefit of the Properties, or in discharging or performing the duties or functions of the Manager prior to the completion of GRANGES' Initial Contribution, all to be calculated in accordance with the Accounting Procedure, including without limitation: (a) All costs and expenses incurred in conducting Exploration, including aerial and surface reconnaissance; geophysical and geochemical work; geological sampling and mapping; surveying; building, maintenance or repair of necessary access roads; drill-site preparation; exploration drilling; trenching; digging test pits; shaft sinking; acquiring, diverting, and/or transporting water necessary for exploration; logging of drill holes and drill core; completion and evaluation of geological geophysical, geochemical or other exploration data and preparation of interpretive reports; and laboratory work, including assays or metallurgical analyses and tests; (b) All costs and expenses incurred in conducting Development activities; (c) All costs, expenses and liabilities incurred or accrued in obtaining and satisfying governmental permits and approvals and in performing any environmental studies, reclamation, cleanup, compliance or restoration work; (d) Salaries, wages, and benefits of GRANGES' employees engaged in operations directly relating to the Properties, including salaries of those who are temporarily assigned to and directly employed on work relating to the Properties for the periods of time such employees are engaged in such activities; (e) Salaries, wages, expenses, benefits and other payments paid to third- party consultants hired by GRANGES and engaged in Operations relating to the Properties (including amounts reimbursed to ATLAS for the services of its staff geologists); (f) All costs and expenses incurred in the preparation of feasibility studies, economic analyses, and the Report (and any Non-Gold Report, as defined in Section 5.1(B)(5)) concerning the Properties, whether carried out by GRANGES or by third parties under contract to GRANGES; (g) Payments made by GRANGES for taxes and assessments, other than income taxes, assessed or levied upon or against the Properties or any improvements situate thereon; (h) Costs of material, equipment, and supplies acquired, leased or hired, for use in conducting Exploration or Development activities relating to the Properties; provided, however, that equipment owned and supplied by GRANGES shall be chargeable at rates no greater than the most favorable rates available in the area of the Properties; (i) Costs and expenses of establishing and maintaining necessary field offices, camps, and housing facilities; (j) Costs incurred by GRANGES in performing title studies and curing and defending title to the Properties; amending, relocating, remonumenting, and patenting of unpatented claims or otherwise in maintaining the Properties; satisfying surface use or damage obligations to landowners including reclamation; or making any payments or satisfying other obligations or other property payment obligations pertaining to the Properties, including without limitation, filing, recording, rental, and maintenance fees; (k) Costs and expenses of acquiring additional property within the Area of Interest or additional interests in the Properties; and 4 (l) All costs and expenses to hold or maintain the Properties, including without limitation, payments to the Bureau of Land Management of the United States Department of the Interior and to private lessors, to the extent paid or incurred by GRANGES; (m) All costs, expenses and liabilities incurred or accrued by GRANGES in discharging or performing the duties, obligations or functions of the Manager; (n) All travel expenses incurred by GRANGES in connection with the foregoing activities and Operations; and (o) An administrative charge of three percent (3%) of the amount of all other Exploration and Development Expenditures, including without limitation those set forth above. 1.14 "Hazardous Materials" means (a) petroleum and petroleum products, radioactive materials, asbestos in any form that is or could become friable, urea formaldehyde foam insulation, and transformers or other equipment that contain polychlorinated biphenyls, or (b) any other chemical, material or substance which is (i) designated as a "hazardous substance," pursuant to Section 311 of the Clean Water Act ("CWA"), 33 U.S.C. (S) 1251, et seq. (33 U.S.C. (S) 1321) or listed pursuant to Section 307 of the CWA (33 U.S.C. (S) 1317, or (ii) defined as or included in the definition of a "hazardous waste" pursuant to Section 1004 of the Resource Conservation and Recovery Act ("RCRA"), 42 U.S.C. (S) 6901, et seq. (42 U.S.C. (S) 6903), or (iii) defined as or included in the definition of a "hazardous substance" pursuant to Section 101 of the Comprehensive Environmental Response, Compensation and Liability Act ("CERCLA"), 42 U.S.C. (S) 9601, et seq., or (iv) defined as or included in the definition of a "pollutant" or "contaminant" pursuant to the CWA, RCRA, CERCLA, the Clean Air Act, 33 U.S.C. (S) 1251 et seq., or comparable state statutes or regulations. 1.15 "Initial Contribution" means that contribution each Participant has made or agrees to make pursuant to Section 5.1. 1.16 "Joint Account" means the account maintained in accordance with the Accounting Procedure showing the charges and credits accruing to the Participants. 1.17 "Indemnification Procedure" means the following procedure by which indemnification shall take place. An indemnified Participant shall give written notice to the indemnifying Participant promptly of any claim, suit, action, the commencement of any proceeding or demand of which such indemnified Participant has received written notice from a third party and as to which such indemnified Participant believes it may be entitled to indemnification or contribution under this Agreement (provided, however, that failure to give such notice which does not materially disadvantage the indemnifying Participant shall not relieve the indemnifying Participant from liability hereunder). The indemnifying Participant will not settle or compromise any such pending claim, action or suit, without (i) the prior written consent of the indemnified Participant, which consent shall not be unreasonably withheld, and (ii) obtaining a release of the indemnified Participant from all liability in respect thereof. The indemnifying Participant shall have the right to participate in or assume and direct the defense at its own expense against any such claim, suit or demand, in its name or in the name of the indemnified Participant, as the case may be, and with counsel selected by the indemnifying Participant; provided, however, that if (i) such claim, suit or demand seeks an order, injunction or other equitable relief against the indemnified Participant or (ii) the indemnified Participant shall have reasonably concluded that there is a substantial conflict of interest between the indemnifying Participant and the indemnified Participant in the conduct of the defense of such claim, suit or demand, then the indemnified Participant may employ separate counsel and participate in and direct the defense of such claim, suit or demand to the extent necessary to protect its interest, and the indemnifying Participant will pay the reasonable fees and disbursements of such separate counsel; provided, however, that the indemnifying Participant shall not be responsible for the fees and disbursements of more than one separate counsel for all indemnified Participants in any jurisdiction or in any single proceeding. Except as provided in the preceding sentence, after notice to the indemnified Participant of its election to assume the defense thereof, the indemnifying Participant shall not be liable to the indemnified Participant for any legal or other expense incurred by the indemnified Participant in connection with such claim. Such assumed defense shall be conducted expeditiously (but with regard to obtaining the most favorable outcome reasonably likely under the circumstances, taking into account costs) and the indemnified Participant shall be advised promptly of all significant developments. The indemnified Participant shall have the right to participate fully in the defense of any claim, suit or demand so assumed, with 6 separate counsel selected by it and at its own expense. The indemnified Participant shall cooperate with the indemnifying Participant, and keep the indemnifying Participant reasonably informed, in its participation or defense of any such claim, suit or demand. 1.18 "Management Committee" means the committee established under Article VII. 1.19 "Manager" means the person or entity appointed under Article VIII to manage Operations, or any successor Manager. 1.20 "Mining" means the mining, extracting, producing, handling, milling or other processing of Products. 1.21 "Net Profits" means certain amounts calculated as provided in Exhibit D, which may be payable to a Participant under Section 6.4(b)(2) or 6.5. 1.22 "Net Smelter Returns" has the meaning set forth in Exhibit G. 1.23 "Operations" means the activities carried out under this Agreement. 1.24 "Participant" and "Participants" mean the persons or entities that from time to time have Participating Interests. 1.25 "Participating Interest" means the percentage interest representing the operating ownership interest of a Participant in Assets, and all other rights and obligations arising under this Agreement, as such interest may from time to time be adjusted hereunder. Participating Interests shall be calculated to three decimal places and rounded to two (e.g., 1.519% rounded to 1.52%). ---- Decimals of .005 or more shall be rounded up to .01, decimals of less than .005 shall be rounded down. The initial Participating Interests of the Participants are set forth in Section 6.1. 1.26 "Prime Rate" means the interest rate quoted as "Prime" by The Wall -------- Street Journal, as said rate may change from day to day (which quoted rate may - -------------- not be the lowest rate at which banks loan funds). 1.27 "Products" means all ores, minerals and mineral resources produced from the Properties under this Agreement. 1.28 "Program" means a description in reasonable detail of Operations to be conducted and objectives to be accomplished by the Manager for a year or any longer period. 7 1.29 "Properties" means those interests in real property described in Parts 1-4 of Exhibit A and all other interests in real property within the Area of Interest which are acquired and held subject to this Agreement. The Properties include, without limitation, the entire mineral estate in and underlying the Atlas Mill Complex, as described in Part 1 of Exhibit A, together with: (i) the right of Access across the surface of the Atlas Mill Complex and the right to use and consume so much of the surface of the Atlas Mill Complex as may be reasonably necessary or convenient to the Exploration, Development and Mining of such mineral estate, by whatever method is now known or subsequently developed, including without limitation by open pit or surface mining methods and; (ii) the right to use the surface of the Atlas Mill Complex for the conduct of Operations, including without limitation the treatment, processing, milling, leaching or beneficiation of Products and the disposal of tailings, overburden, waste, rock and other by-products and materials. Subject to the preceding sentence, the Atlas Mill Complex (as defined in Section 1.8) is expressly excluded from the Properties. Notwithstanding the foregoing, the Venture's right to use the surface of the Atlas Mill Complex shall not unreasonably interfere with ATLAS' operations at the Atlas Mill Complex, its use of the existing access road to the Atlas Mill Complex or ATLAS' existing haul road and ATLAS shall have the right to conduct such operations as it deems necessary at the Atlas Mill Complex. 1.30 "Transfer" means sell, grant, assign, encumber, pledge or otherwise commit or dispose of. 1.31 "Venture" means the business arrangement of the Participants under this Agreement. 1.32 "$" means US currency. ARTICLE II ---------- REPRESENTATIONS AND WARRANTIES; TITLE TO ASSETS ------------------------------------------------ 2.1 Capacity of Participants. Each of the Participants represents and ------------------------- warrants as follows: 8 (a) that it is a corporation duly incorporated and in good standing in its state of incorporation and that it is qualified to do business and is in good standing in those states where necessary in order to carry out the purposes of this Agreement; (b) that it has the capacity to enter into and perform this Agreement and all transactions contemplated herein and that all corporate and other actions required to authorize it to enter into and perform this Agreement have been properly taken; (c) that it will not breach any other agreement or arrangement by entering into or performing this Agreement; and (d) that this Agreement has been duly executed and delivered by it and is valid and binding upon it in accordance with its terms. 2.2 Representations and Warranties . ATLAS makes the following ------------------------------- representations and warranties effective the date hereof: (a) With respect to that portion of the Properties that ATLAS owns in fee simple, as set forth in Part 1.A. of Exhibit A, exclusive of the surface rights in and to the Atlas Mill Complex (which are not part of the Properties), ATLAS is in exclusive possession of and owns such portion of the Properties free and clear of all rights, titles and interests of third parties and of all liens, encumbrances or other burdens on production except those specifically identified in Part 1 of Exhibit A. (b) With respect to those portions of the Properties in which ATLAS holds an interest under leases or other contracts (the "Leased Properties"), as set forth in Part 2 of Exhibit A: (i) ATLAS is in exclusive possession of such Leased Properties; (ii) ATLAS has not received any notice of default of any of the terms or provisions of such contracts; (iii) ATLAS has the authority under such contracts to perform fully its obligations under this Agreement; (iv) to the best of ATLAS' knowledge and belief, such contracts are valid and are in good standing; and (v) to ATLAS' knowledge, the Leased Properties are free and clear of all rights, titles and interests of third parties (other than of the lessor) and of all liens, encumbrances or other burdens on production except for those specifically identified in Part 2 of Exhibit A or in such contracts. ATLAS has delivered or made available to GRANGES all information concerning title to the Leased Properties 9 in ATLAS' possession or control, including, but not limited to, true, correct and complete copies of all leases or other contracts relating to the Leased Properties of which ATLAS has knowledge, together with all amendments, modifications or supplements thereto, each of which is more particularly described in Part 2 of Exhibit A. (c) With respect to unpatented mining claims located by ATLAS or by an Affiliate of ATLAS that are included within the Properties (the "Located Claims"), as set forth in Part 1.B. and Part 3 of Exhibit A, except as provided in Part 1.B. and Part 3 of Exhibit A and subject to the paramount title of the United States: (i) the Located Claims were properly laid out and monumented; (ii) all required location and validation work was properly performed thereon; (iii) location notices and certificates covering the Located Claims were properly recorded and filed with appropriate governmental agencies; (iv) all assessment work required to hold the Located Claims has been performed in a manner consistent with that required of the Manager pursuant to Section 8.2(k) of this Agreement through the assessment year ending September 1, 1992; (v) all required state and federal filing fees, rental and maintenance fees have been timely paid for the assessment years ending September 1, 1993, 1994, 1995, and 1996; (vi) all affidavits of assessment work and other filings required to maintain the Located Claims in good standing have been properly and timely recorded or filed with appropriate governmental agencies; (vii) the claims are free and clear of all rights, titles and interests of third parties arising by, through or under ATLAS and of all liens, encumbrances or other burdens on production arising by, through or under ATLAS; and (viii) to ATLAS' knowledge, and except with respect to mining claims bordering upon the western and northern exterior boundaries of the Properties, the Located Claims are not in conflict with and do not overlap any claims held by third parties. With respect to those unpatented mining claims that were not located by ATLAS or by an Affiliate of ATLAS, but which constitute part of the Properties (whether held under lease, owned or otherwise controlled by ATLAS), ATLAS makes all of the foregoing representations and warranties (with the foregoing exceptions) to its knowledge. (d) Nothing in this Section 2.2 shall be deemed to be a representation or warranty by ATLAS that any of the Claims contains a discovery of valuable minerals. ATLAS makes no 10 representations or warranties whatsoever with respect to the existence (or non- existence) of any overlaps or conflicts between claims constituting part of the Properties that are owned by ATLAS and claims constituting part of the Properties that are leased by ATLAS, nor with respect to the existence (or non- existence) of any overlaps or conflicts between claims constituting part of the Properties and claims otherwise owned or controlled by ATLAS as of the date of the Agreement which overlap the exterior boundary line of the Area of Interest. (e) With respect to each of the unpatented mining claims comprising a portion of the Properties, ATLAS represents that they have been remonumented as necessary, and that evidence of such remonumentation has been timely and properly recorded, all in compliance with the provisions of N.R.S. (S) 517.030. (f) To ATLAS' knowledge, with respect to the Properties, there are no pending or threatened actions, suits, claims or proceedings. The representations and warranties set forth above shall survive the execution and delivery of any documents of Transfer provided under this Agreement. 2.3 Disclosures. Each of the Participants represents and warrants that it ----------- is unaware of any material facts or circumstances which have not been disclosed in this Agreement, which should be disclosed to the other Participant in order to prevent the representations in this Article II from being materially misleading. 2.4 Record Title. Title to the Assets shall be held by GRANGES for the ------------ benefit of the Participants in accordance with the terms and conditions of this Agreement. Upon execution of this Agreement, ATLAS shall simultaneously execute and deliver to GRANGES for recordation and filing appropriate instruments of conveyance (i.e., a deed and assignment of leases) conveying the Assets to GRANGES, subject to the rights, titles and interests of the Participants under this Agreement. Such instruments of conveyance shall incorporate and preserve, by reference or otherwise, ATLAS' representations and warranties of title set forth in this Agreement. Such instruments of conveyance shall reserve ATLAS' rights of Access across the Properties set forth in Section 5.1.A. All fees for filing and recording of such instruments of conveyance, either to or from ATLAS, including without limitation fees payable to the Bureau of Land Management of the -11- United States Department of the Interior in connection with the filing of a notice of transfer of interest, shall be paid solely by GRANGES and shall be credited in full against GRANGES' minimum Exploration and Development Expenditure requirements under Section 5.1.B. Upon any withdrawal or deemed withdrawal of GRANGES from this Agreement, GRANGES shall promptly execute and deliver to ATLAS appropriate instruments of conveyance, suitable for filing and recordation, reconveying the Properties to ATLAS free and clear of all liens and encumbrances arising by or through GRANGES, other than liens and encumbrances to which ATLAS has given its written consent. Upon GRANGES' selection of the Selected Properties pursuant to Section 5.1.B.(5) or (6), GRANGES shall execute and deliver to ATLAS similar instruments of conveyance covering all of the Properties other than the Selected Properties. 2.5 Joint Loss of Title. Any failure or loss of title to the Assets, and ------------------- all costs of defending title, shall be charged to the Joint Account, except that all costs and losses arising out of or resulting from breach of the representations and warranties of ATLAS shall be charged to ATLAS. ARTICLE III ----------- NAME, PURPOSES AND TERM ------------------------ 3.1 General. ATLAS and GRANGES hereby enter into this Agreement for the ------- purposes hereinafter stated, and they agree that all of their rights and all of the Operations on or in connection with the Properties or the Area of Interest shall be subject to and governed by this Agreement. 3.2 Name. The name of this Venture shall be the Gold Bar Gold Venture. The ---- Manager shall accomplish any registration required by applicable assumed or fictitious name statutes and similar statutes. 3.3 Purposes. This Agreement is entered into for the following purposes and -------- for no others, and shall serve as the exclusive means by which the Participants, or either of them, accomplish such purposes: (a) to conduct Exploration within the Area of Interest, (b) to acquire additional Properties within the Area of Interest, 12 (c) to evaluate the possible Development of the Properties, (d) to engage in Development and Mining Operations on the Properties, (e) to engage in marketing Products, to the extent permitted by Article XI, and (f) to perform any other activity necessary, appropriate or incidental to any of the foregoing, including the performance of reclamation, cleanup, and restoration. 3.4 Limitation. Unless the Participants otherwise agree in writing, the ----------- Operations shall be limited to the purposes described in Section 3.3, and nothing in this Agreement shall be construed to enlarge such purposes. 3.5 Effective Date and Term. The effective date of this Agreement shall be ------------------------ September 29, 1995 and shall continue for a term of twenty (20) years and so long thereafter as Products are produced from the Properties, unless the Agreement is earlier terminated as herein provided. ARTICLE IV ---------- RELATIONSHIP OF THE PARTICIPANTS --------------------------------- 4.1 No Partnership. Nothing contained in this Agreement shall be deemed to --------------- constitute either Participant the partner of the other, nor, except as otherwise herein expressly provided, to constitute either Participant the agent or legal representative of the other, nor to create any fiduciary relationship between them. It is not the intention of the Participants to create, nor shall this Agreement be construed to create, any mining, commercial or other partnership. Neither Participant shall have any authority to act for or to assume any obligation or responsibility on behalf of the other Participant, except as otherwise expressly provided herein. The rights, duties, obligations and liabilities of the Participants shall be several and not joint or collective. Each Participant shall be responsible only for its obligations as herein set out and shall be liable only for its share of the costs and expenses as provided herein, it being the express purpose and intention of the Participants that their ownership of Assets and the rights acquired hereunder shall be as tenants in common. Each Participant shall indemnify, defend and hold harmless the other Participant, its directors, officers, employees, agents and attorneys from and against any and all losses, claims, damages and liabilities arising out of any act or any assumption of liability by the indemnifying 13 Participant, or any of its directors, officers, employees, agents and attorneys done or undertaken, or apparently done or undertaken, on behalf of the other Participant, except pursuant to the authority expressly granted herein or as otherwise agreed in writing between the Participants. 4.2 Federal Tax Elections and Allocations. Without changing the effect of -------------------------------------- Section 4.1, the Participants agree that their relationship shall constitute a tax partnership within the meaning of Section 761(a) of the United States Internal Revenue Code of 1986, as amended. Tax elections and allocations shall be made as set forth in Exhibit C. 4.3 State Income Tax. The Participants also agree that, to the extent ----------------- permissible under applicable law, their relationship shall be treated for state income tax purposes in the same manner as it is for federal income tax purposes. 4.4 Tax Returns. The Tax Matters Partner, as defined in Exhibit C, shall ------------ prepare and shall file, after approval of the Management Committee, any tax returns or other tax forms required. 4.5 Other Business Opportunities. Except as expressly provided in this ----------------------------- Agreement, each Participant shall have the right independently to engage in and receive full benefits from business activities, whether or not competitive with the Operations, without consulting the other. The doctrines of "corporate opportunity" or "business opportunity" shall not be applied to any other activity, venture or operation of either Participant, and, except as otherwise provided in Section 12.6, neither Participant shall have any obligation to the other with respect to any opportunity to acquire any property outside the Area of Interest at any time, or within the Area of Interest after the termination of this Agreement. Except as otherwise specifically set forth in this Agreement, no Participant shall have any obligation to mill, beneficiate or otherwise treat any Products or any other Participant's share of Products in any facility owned or controlled by such Participant. 4.6 Waiver of Right to Partition. The Participants hereby waive and release ----------------------------- all rights of partition, or of sale in lieu thereof, or other division of Assets, including any such rights provided by statute. 4.7 Transfer or Termination of Rights to Properties. Except as otherwise ------------------------------------------------ provided in this Agreement, neither Participant shall Transfer all or any part of its interest in the Assets or this Agreement or otherwise permit or cause such interests to terminate. 14 4.8 Implied Covenants. There are no implied covenants contained in this ------------------ Agreement other than those of good faith and fair dealing. Except to the extent expressly set forth in this Agreement, GRANGES does not make or undertake any covenant or duty to conduct any Exploration, Development, Mining or other activities upon or with respect to the Properties. Whether or not any such activities shall at any time be conducted and the location, manner, extent, rate and timing of such activities shall be determined solely pursuant to the provisions and procedures set forth in this Agreement. 4.9 Relationship of Entities Comprising ATLAS. The liabilities and ------------------------------------------ obligations of ATLAS arising under this Agreement shall be the joint and several liabilities and obligations of each of Atlas Corporation, Atlas Precious Metals Inc. and Atlas Gold Mining Inc. Atlas Corporation shall act as the agent of all of the corporate entities comprising ATLAS for all purposes of this Agreement and shall have the exclusive right to exercise and enforce the rights and privileges of ATLAS arising under this Agreement, including without limitation the rights of ATLAS to provide and receive payments and notices, to vote Participating Interests, to be represented and cast votes on the Management Committee and otherwise to participate in the Venture. Any notice, writing, action or undertaking by Atlas Corporation shall be deemed to constitute the writing, action or undertaking of each of the corporate entities constituting ATLAS. Upon the provision of any payment or notice to Atlas Corporation (in accordance with Section 18.1), such payment or notice shall be deemed given to each of the corporate entities constituting ATLAS, and the provider thereof shall have no further responsibility, duty, obligation or liability for any further distribution thereof. ARTICLE V --------- CONTRIBUTIONS BY PARTICIPANTS AND ADDITIONAL AGREEMENTS ------------------------------------------------------- 5.1 Participants' Initial Contributions and Activities During Evaluation -------------------------------------------------------------------- Period. ------- A. By ATLAS. ATLAS, as its Initial Contribution, shall contribute and -------- does hereby contribute to the purposes of this Agreement the Properties, its knowledge concerning the Properties and all data, programs, maps, reports, analyses, samples, splits and other information, of all types and 15 descriptions and in all media whatsoever, that are in ATLAS' possession or under ATLAS' control and that relate or pertain in any way to the Properties, including both factual and interpretive materials. ATLAS, as part of its Initial Contribution and to the extent that it is reasonably and legally able to do so, further contributes to the purposes of this Agreement all permits, consents, approvals and authorizations from governmental or private entities that are held or controlled by ATLAS and that relate to the Properties (collectively, "Permits") and hereby grants unto GRANGES and the Venture the right to conduct Operations under such Permits for a period of time not to exceed 180 days from and after September 29, 1995, to allow GRANGES time to obtain any required permits in its own name for its Operations hereunder and to place separate surety as may be required by state or federal agencies. Additionally, ATLAS, unless it is contractually prohibited from doing so, shall contribute and does hereby contribute to the Venture reasonable rights of Access across lands owned or controlled by ATLAS outside of the Properties to the extent that GRANGES (prior to completion of its Initial Contribution) or the Manager (thereafter) deems such Access reasonably necessary or convenient for Operations or the exercise of any right granted under this Agreement. ATLAS further contributes to the Venture such rights of Access with respect to lands in which ATLAS has contractually reserved or otherwise acquired such rights of Access. If ATLAS decides to relinquish or Transfer all or part of its ownership or control of such lands, it shall first use reasonable good-faith efforts to ensure that GRANGES' and the Venture's rights of Access are preserved. ATLAS agrees to execute appropriate documents in recordable form that will evidence the right of Access provided herein. ATLAS hereby reserves the reasonable right of Access across the Properties in order that it may continue to conduct exploration, development, mining, processing and reclamation operations on lands adjacent to or nearby the Area of Interest or at the Atlas Mill Complex, provided that the exercise of such right of Access shall not (except with respect to ATLAS' use of the existing access road to the Atlas Mill Complex and ATLAS' existing haul road, and except as set forth in the last sentence of Section 1.29) unreasonably interfere with or cause delays to Operations hereunder. With respect to leases held by ATLAS covering both Properties subject to this Agreement and other properties, ATLAS shall exercise its reasonable efforts to work with GRANGES to have such leases partitioned into separate leases with 16 substantially the same terms and conditions. The value of ATLAS' initial contribution shall be deemed to be equal to the value of GRANGES' Initial Contribution, as described in Section 5.1 B. below. B. By GRANGES. GRANGES, as its Initial Contribution, hereby agrees to ---------- the following: (1) GRANGES, upon execution of this Agreement, shall pay to ATLAS $250,000 plus an additional sum of $109,450 as partial reimbursement for mining claim maintenance fees paid by ATLAS for the assessment year ending September 1, 1996. The $250,000 shall not be credited toward Exploration and Development Expenditures. The $109,450 payment shall be credited to Exploration and Development Expenditures incurred by GRANGES for Year 1. On or before September 29, 1996 (referred to as Year 1), GRANGES shall incur at least $625,000 in Exploration and Development Expenditures on or for the benefit of the Properties in order to keep this Agreement in full force and effect beyond Year 1. Subject to the last sentence of Section 5.1 C.(1), GRANGES' failure to incur such Exploration and Development Expenditures shall result in GRANGES' withdrawal from the Venture pursuant to Section 5.2. Exploration and Development Expenditures incurred by GRANGES prior to the date of execution of this Agreement, but subsequent to September 29, 1995, shall be credited in full against the minimum expenditure requirements for Year 1. (2) GRANGES shall incur at least an additional $625,000 in Exploration and Development Expenditures between September 30, 1996 and September 29, 1997, inclusive (referred to as Year 2) in order to keep this Agreement in full force and effect beyond Year 2. Subject to the last sentence of Section 5.1 C.(1), GRANGES' failure to incur such Exploration and Development Expenditures shall result in GRANGES' withdrawal from the Venture pursuant to Section 5.2. (3) GRANGES shall incur at least an additional $1,000,000 in Exploration and Development Expenditures between September 30, 1997 and September 29, 1998 inclusive (referred to as Year 3) in order to keep this Agreement in full force and effect beyond Year 3. Subject to the last sentence of Section 5.1 C.(1), GRANGES' failure to incur such Exploration and 17 Development Expenditures shall result in GRANGES' withdrawal from the Venture pursuant to Section 5.2. (4) Exploration and Development Expenditures that are in excess of the amounts required for Year 1, Year 2, Year 3 or any year during the Extended Term may be carried forward and applied as a credit against the requirements for any subsequent year. (5) If prior to September 29, 1998, GRANGES has not defaulted in the performance of the expenditure requirements for Year 1, 2 and 3, and has --- delivered to ATLAS a completed report (the "Report") identifying an economic gold deposit which satisfies the United States Securities and Exchange Commission criteria for reporting reserves (the "Reserves"), using reasonable economic criteria and the Accounting Procedure contemplated under this Agreement, and recommending development of a mineral deposit containing proven or probable Reserves in excess of 300,000 ounces of gold, then GRANGES shall have satisfied its Initial Contribution and shall be entitled to retain on a vested basis its 50% Participating Interest in not more than 15 square miles of the Properties, which shall be selected by GRANGES in its sole discretion by written notice to ATLAS delivered not later than October 28, 1998; provided, however, that such selection shall consist of not more than three non-contiguous tracts (hereinafter the "Selected Properties"). If, prior to September 29, 1998, GRANGES has not defaulted in the performance of applicable expenditure requirements and has delivered to ATLAS a completed report (the "Non-Gold Report") identifying an economic deposit of any mineral or minerals other than gold, which satisfies the United States Securities and Exchange Commission criteria for reporting Reserves for such minerals, using reasonable economic criteria and the Accounting Procedure contemplated under this Agreement, and recommending development of the mineral deposit, GRANGES shall vest in a 50% Participating Interest in the portion of the Properties in which such deposit is situated, together with sufficient surrounding portions of the Properties as may be required or useful for the efficient Mining of the deposit (including applicable laybacks) and for treatment plants and other surface facilities and for on-going Exploration and Development of the deposit and associated geologic structures (collectively, the "Non-Gold Properties"), provided, however, that the total area of the Non-Gold Properties shall not exceed 640 acres, and GRANGES shall be deemed to have 18 earned a vested 50% Participating Interest in those Non-Gold Properties. Expenditures incurred by GRANGES in preparing a Non-Gold Report, and GRANGES earning a 50% Participating Interest in any Non-Gold Properties, shall not have any impact on the obligations required of GRANGES to earn a 50% Participating Interest in the Selected Properties. Upon GRANGES earning a Participating Interest in any Non-Gold Property, the Participants shall enter into a joint venture agreement governing their Operations on the Non-Gold Properties on substantially the same terms and conditions set forth in this Agreement (exclusive of those set forth in Article V, except for Sections 5.1 A. and 5.7). (6) In the event that GRANGES expends those amounts required for Exploration and Development Expenditures during Year 1, 2 and 3, but fails to complete the Report, subject to its right of termination, it may continue to conduct Exploration and to evaluate the Properties under this Agreement for an additional two years (the "Extended Term"), provided that GRANGES shall incur Exploration and Development Expenditures of not less than $1,000,000 during each year of the Extended Term in order to keep the Agreement in full force and effect. Subject to the last sentence of Section 5.1 C.(1), GRANGES' failure to incur such Exploration and Development Expenditures shall result in GRANGES' withdrawal from the Venture pursuant to Section 5.2. If during such Extended Term GRANGES completes the Report, it shall earn an undivided 50% interest in not more than three square miles of the Properties (which shall be selected as set forth above by written notice to ATLAS not less than 30 days following completion of such Report and which shall also be referred to hereinafter as the "Selected Properties"). Failure by GRANGES to complete the Report prior to the end of the Extended Term shall result in termination of this Agreement. Exploration and Development Expenditures that are in excess of those amounts required for any year may be applied as a credit toward requirements for any future years. In the event that GRANGES discovers a non-gold deposit and completes a Non-Gold Report during the Extended Term, then GRANGES shall vest in a 50% Participating Interest in the Non-Gold Properties in accordance with Section 5.1 C(5), notwithstanding any failure by GRANGES to complete its Initial Contribution including delivery of a Report concerning a gold 19 deposit. The value of GRANGES' Initial Contribution shall be equal to the total of the Exploration and Development Expenditures incurred by GRANGES pursuant to this Section 5.1(B). (7) In the event that GRANGES completes a Report during Year 3 or during any Extended Term, GRANGES' Initial Contribution shall be deemed completed and GRANGES shall vest immediately in its 50% Participating Interest in the Selected Properties. Thereafter, GRANGES shall not be subject to any minimum Exploration and Development Expenditure requirements and the Participants shall fund Operations in accordance with their respective Participating Interests and in accordance with duly adopted Programs and Budgets. C. Operations During Evaluation Period. ----------------------------------- (1) Prior to the completion of its Initial Contribution (hereinafter the "Evaluation Period") and subject to GRANGES' rights of termination set forth in Section 12.1.B., GRANGES shall perform the duties and obligations of the Manager described in Article VIII, including without limitation those pertaining to maintaining title to the Properties and the performance and filing assessment work, and all costs thereof shall be credited toward required Exploration and Development Expenditures. Expenditures by GRANGES during the Evaluation Period shall not require the proposal or approval of any Program or Budget pursuant to Article IX. The Management Committee shall have no powers and shall not meet prior to the completion of GRANGES' Initial Contribution. Prior to the completion of its Initial Contribution, GRANGES shall conduct Operations as GRANGES deems appropriate, in its sole and absolute discretion, without the need for any consent, authorization or approval of ATLAS or the Management Committee; provided, however, that GRANGES shall consult with ATLAS prior to undertaking any title studies and any action to defend or cure title to the Properties. On or before December 15 of each calendar year prior to the completion of its Initial Contribution, GRANGES shall provide to Atlas a written report describing the results of its Operations conducted upon the Properties during the twelve months preceding September 29 of each calendar year and setting forth in reasonable detail the nature and amount of GRANGES' Exploration and Development Expenditures expended in connection therewith. The amount of such expenditures so claimed by GRANGES shall conclusively be deemed accepted by ATLAS unless ATLAS provides to GRANGES written notice of objection within sixty (60) days after the receipt by 20 ATLAS of GRANGES' annual written report. Prior to and in connection with the completion of its Initial Contribution, GRANGES shall have all of the rights, powers, authority and protections afforded to the Manager under this Agreement (provided that no approvals, directions, consents or authorizations from or notices or reports to the Management Committee shall be required). In the event that GRANGES fails to complete a monetary expenditure required for its Initial Contribution prior to a given deadline, GRANGES shall have the right, but not the obligation, for a period of thirty (30) days thereafter (or after receipt of notice from ATLAS if the deficiency is first raised as an objection by ATLAS and is acknowledged by GRANGES), to pay to ATLAS the difference between the amount so required and the amount actually expended by GRANGES on Exploration and Development Expenditures during the period in question, and upon making such payment GRANGES shall be deemed to have satisfied such requirement. (2) GRANGES during the Evaluation Period will comply fully with the provisions of the worker's compensation laws of the State of Nevada and will carry and maintain adequate and reasonable liability insurance for Operations in accordance with Exhibit E. GRANGES, in compliance with the Indemnification Procedure, shall defend, indemnify and hold ATLAS harmless from and against any loss, liability, claim, expense or damage, including reasonable attorney's fees, ATLAS may incur to third persons for injury or death of persons or other damages which arise out of or are the result of GRANGES conducting Operations under this Agreement on or with respect to the Properties during the Evaluation Period, unless such loss, liability, claim, expense or damage is caused by the actions or inactions of ATLAS, or by the breach of any of ATLAS' representations and warranties. In the event that this Agreement terminates prior to GRANGES' completion of its Initial Contribution, GRANGES shall be responsible to reclaim, in accordance with the requirements of applicable law and regulations, all portions of the Properties disturbed by GRANGES' activities hereunder (but only to the extent of damage caused by GRANGES' activities). In compliance with the Indemnification Procedure, GRANGES shall indemnify and hold ATLAS harmless from and against any loss, liability, claim, expense or damage, including reasonable attorneys' fees, that ATLAS may incur to third parties as a result of any violation by GRANGES of Environmental Law in connection with GRANGES' performance of Operations on the Properties. Notwithstanding the foregoing 21 provisions of this Section 5.1 C(2), in the event that GRANGES completes its Initial Contribution, the Participants shall bear all responsibility and liability with respect to disturbances caused by GRANGES during the Evaluation Period, and the reclamation thereof, in accordance with and proportion to their respective Participating Interests, so long as such disturbances were not, when made, in violation of any Environmental Law. ATLAS, in compliance with the Indemnification Procedure, shall indemnify and hold GRANGES harmless from and against any loss, liability, claim, expense or damage, including reasonable attorneys' fees, incurred by GRANGES that arise out of or result from: (i) any breach of ATLAS' representations and warranties hereunder; (ii) any condition on or at the Properties existing on or before the date of this Agreement; or (iii) any operation or activity conducted by ATLAS on or with respect to the Properties on or before the date of this Agreement. The indemnifying Participant, in accordance with the Indemnification Procedure, agrees to defend any claims brought or actions filed against the other party with respect to the subject of the indemnifying Participant's indemnity, whether such claims or actions are rightfully or wrongfully filed. The provisions of this Section 5.1(C)(2) shall survive the termination of the Agreement. (3) During the Evaluation Period, GRANGES shall, during normal business hours and upon reasonable notice from ATLAS, make available for review by ATLAS at such place or places as they are normally maintained by GRANGES, all maps, samples, assays, drill logs, core tests, analytical reports, and other information and data accumulated hereunder, and all records, accounts, and documents in the possession of GRANGES or its authorized agents which pertain to the Properties and this Agreement. ATLAS shall have the right, at its sole cost, to copy any such materials. (4) During the Evaluation Period, ATLAS and its authorized agents, at ATLAS' sole risk and expense, shall have the right, exercisable during regular business hours, and in a reasonable manner conforming to GRANGES' safety rules and regulations and so as not to unreasonably interfere with GRANGES' Operations, to go upon the Properties for the purpose of confirming that GRANGES is conducting its Operations in the manner required by this Agreement. ATLAS shall defend, indemnify and hold GRANGES, its employees, agents, and contractors harmless from all loss, liability, claim, expense or damage (including reasonable attorneys' fees) which they or 22 any of them may incur or become subject to as a result of or arising out of any entry upon the Properties by ATLAS, its agents or employees, except with respect to any death, injury or damage that results from the negligence of GRANGES, its employees, agents or contractors. If requested by GRANGES, ATLAS, its agents and employees will confirm in writing their waiver of claims against GRANGES. (5) Notwithstanding the provisions of Article XV, during the Evaluation Period, either party shall have the right to assign its interest in this Agreement upon receipt of the prior written consent of the other party, which consent shall not be unreasonably withheld. Consent may be withheld only upon a reasonable determination by the withholding party that the proposed transferee is either not technically able or financially capable of assuming the assigning party's obligations and duties hereunder. Such consent shall not be required for assignments of interests in this Agreement by either party to an Affiliate during the Evaluation Period. Any assignment made hereunder shall be made expressly subject to all of the terms, conditions and covenants of this Agreement. (6) In the event GRANGES fails to complete its Initial Contribution or elects to terminate this Agreement prior to completion of its Initial Contribution, in addition to its other obligations hereunder, GRANGES shall promptly reclaim and restore the Properties to the extent disturbed by its Operations, in compliance with all applicable federal, state and local laws, rules and regulations, and shall have a right of reasonable access therefor if such activities are performed after termination of this Agreement. The provisions of this Section 5.1(c)(6) shall survive the termination of this Agreement. 5.2 Failure of GRANGES to Make Initial Contribution. GRANGES' failure to ------------------------------------------------ make its Initial Contribution in accordance with the provisions of Article V shall be deemed to be a withdrawal of GRANGES from this Agreement and the termination of its Participating Interest hereunder. Upon such withdrawal, GRANGES shall have no further right, title or interest in the Assets. GRANGES' withdrawal shall be effective upon such failure, but such withdrawal shall not relieve GRANGES of its obligation to fund and satisfy its share of liabilities to third persons (whether such accrues before or after such withdrawal) arising out of Operations conducted prior to GRANGES' withdrawal, or any other obligations of GRANGES which have occurred prior to 23 such withdrawal. Promptly after such withdrawal, GRANGES agrees to execute and deliver to ATLAS a quitclaim deed or other form of instrument reasonably requested by ATLAS releasing to ATLAS all of GRANGES' interest in the Assets. Any such conveyance shall be free of all liens, claims or other encumbrances on the Assets arising by, through or under GRANGES. Except as set forth in this Section 5.2, GRANGES shall have no liability or obligation whatsoever to ATLAS with respect to any failure by GRANGES to complete its Initial Contribution. 5.3 Additional Cash Contributions. At such time as GRANGES has satisfied ------------------------------ and completed the requirements for its Initial Contribution, the Participants, subject to any election permitted by Section 6.3, shall be obligated to contribute funds to adopted Programs in proportion to their respective Participating Interests. 5.4 Personnel. During Year 1, GRANGES may utilize up to fifty percent of ---------- the working time of Greg French and Terry Jennings, ATLAS' current staff geologists in Reno, Nevada (the exact percentage, up to fifty percent of such individuals full-time schedules, to be determined by GRANGES, in its discretion), in connection with the conduct of Operations on or for the benefit of the Properties, as contemplated by Exhibit F and as directed by GRANGES, provided that Messrs. French and Jennings remain in ATLAS' employ. ATLAS shall invoice GRANGES on a monthly basis for the actual costs to ATLAS of such geologists' time (proportionate share of salaries and benefits); GRANGES shall promptly pay such invoices and shall credit such payments against required Exploration and Development Expenditures. After Year 1, those geologists will perform additional services in connection with Operations as are mutually agreed to by the Participants. 5.5 Toll Milling of Products at the Atlas Mill Complex. --------------------------------------------------- (a) Toll Milling Arrangement. In accordance with the provisions of this ------------------------ Section 5.5, the Venture shall have the right to have Products that are extracted from the Selected Properties processed by ATLAS at the Atlas Mill Complex on a toll milling basis. The Venture shall have no liabilities, obligations or responsibilities whatsoever with respect to the Atlas Mill Complex, or the operation or reclamation thereof, other than the payment of the toll milling charges set forth herein. ATLAS, and not the Venture, shall be the sole owner and operator of the Atlas Mill Complex. 24 (b) Selection of Percentage of Milling Capacity. For a period of 180 ------------------------------------------- days following completion of GRANGES' Initial Contribution, the Management Committee, on behalf of the Venture, shall have the right, by providing written notice to ATLAS, to select a percentage of the milling capacity at the Atlas Mill Complex for the processing of the Venture's Products (extracted from the Selected Properties) on a toll milling basis. Failure by the Venture within such 180 day period to select a percentage of the milling capacity shall cause such right to expire. The maximum percentage of such milling capacity that may be selected by the Venture for the toll milling of Products shall be determined based on a ratio, the numerator of which is the proven and probable Reserves of gold contained in the Selected Properties and the denominator of which is the total proven and probable Reserves of gold contained in both the Selected Properties and in the portions of the Atlas Gold Bar Property in which ATLAS then owns either a 100% working interests or the contractual right to process gold granted under another mining venture agreement. For example, and for purposes of illustration only, if the proven and probable Reserves in the Selected Properties total 400,000 ounces of gold and the proven and probable Reserves in the qualifying portions of the Atlas Gold Bar Property total 300,000 ounces of gold, then the Venture would be entitled to elect to have ATLAS dedicate up to 4/7 of the then existing capacity of the Atlas Mill Complex to the toll milling of the Venture's Products. However, in no event shall the percentage of milling capacity at the Atlas Mill Complex made available for selection by the Venture be less than 50%. The Management Committee shall have the right to select the percentage of milling capacity available to it, any lesser percentage or no percentage at all for a period of time not to exceed five years (the "Initial Period"). Within ten days after the Management Committee notifies ATLAS of the percentage of milling capacity that it elects to have dedicated to the toll milling of the Venture's Products, ATLAS will provide to the Management Committee a written notice setting forth the amount (if any) of the remaining mill capacity (the "Atlas Reserve Capacity") that ATLAS intends in good faith to utilize for its own purposes during the Initial Period. Within twenty days after receipt of ATLAS' notice, the Management Committee may elect, by written notice to ATLAS, to add all or any portion of the Atlas Reserve Capacity that ATLAS does not intend to utilize to the percentage of milling capacity dedicated to the toll milling of the Venture's Products. The total 25 percentage of the milling capacity of the Atlas Mill Complex that is selected by the Management Committee for dedication to the toll processing of the Venture's Products is referred to hereinafter as the "Venture's Toll Percentage." Three months prior to expiration of the Initial Period (and of each subsequent period, if any), the Venture's Toll Percentage shall be redetermined for a period not to exceed three years in accordance with the procedures set forth in this Section 5.5(b). Notwithstanding any provision of this Agreement to the contrary, GRANGES shall control and decide all decisions and elections of the Management Committee relative to the selection of the percentage of milling capacity of the Atlas Mill Complex for the toll milling of the Venture's Products, including without limitation all decisions of the Management Committee set forth in this Section 5.5(b). (c) Definitive Toll Milling Agreement. Within 30 days after the --------------------------------- completion of the process described in Section 5.5(b) above to determine the Venture's Toll Percentage, ATLAS and the Venture shall negotiate, prepare and enter into a definitive toll milling agreement governing ATLAS' toll milling of the Venture's Products at the Atlas Mill Complex (unless the Venture's Toll Percentage, as selected by the Management Committee, is 0%). Such agreement shall incorporate the terms and conditions set forth herein and shall provide for the operation of the Atlas Mill Complex by ATLAS in a manner that will maximize the efficiency of throughput of all ores to be milled at the Atlas Mill Complex. Such agreement shall also provide for periodic consultation between ATLAS and the Venture relative to the operation, maintenance and improvement (if any) of the Atlas Mill Complex. (d) Prohibition Against Commingling. ATLAS shall not commingle the ------------------------------- Venture's Products with ore from other properties ("Other Ore"). The Venture's Products and Other Ore will be separately stockpiled and batched for processing and, for each two-month period, or longer as may be mutually agreed (a "Batch Period") the Atlas Mill Complex will be exclusively dedicated to either the processing of the Venture's Products or the processing of Other Ore. ATLAS will determine and keep accurate records, in accordance with prudent methods and standards employed by experienced and reputable operators in the mining industry, of all inventories of the Venture's Products and of Other Ore. 26 (e) Toll Milling Charges. The Venture shall pay the following charges to -------------------- ATLAS for the toll milling of the Venture's Products at the Atlas Mill Complex: (i) Depreciation Charge. A charge of $1.50 per ton of ore extracted ------------------- from the Selected Properties and processed at the Atlas Mill Complex, to compensate ATLAS for depreciation of the existing plant and facilities at the Atlas Mill Complex; (ii) Operating Costs. All operating costs incurred by ATLAS --------------- that are attributable to the milling of the Venture's Products at the Atlas Mill Complex, exclusive of overhead and general administrative expenses associated with ATLAS' head office in Denver, Colorado; (iii) Throughput Fee. A fee in the amount of three percent (3%) of -------------- the total of all charges to the Venture for operating costs with respect to the Atlas Mill Complex under clause (ii) above; however in no event shall such fee exceed $200,000 annually nor $2,000,000 in aggregate during the term of the definitive toll milling agreement; (iv) Reclamation Charge. A charge per ton of the Venture's ------------------ Products actually milled at the Atlas Mill Complex to reimburse ATLAS for the reasonably estimated and anticipated costs of reclamation attributable thereto. Such charge shall be estimated based upon the extent to which the tonnage of the Venture's Products processed at the Atlas Mill Complex bears to the tonnage of all ores processed at the Atlas Mill Complex; and (v) Capital Expenditures. The Venture shall bear a -------------------- portion of capital expenditures relating to the Atlas Mill Complex, but only to the extent that such capital expenditures are approved and authorized in advance and in writing by the Management Committee on behalf of the Venture and only to the extent that such expenditures benefit the Venture. The Management Committee shall not be obligated to approve or authorize any such capital expenditures and ATLAS shall not be required to make any capital expenditures solely for its account on 27 behalf of the Venture. ATLAS may proceed with capital expenditures to the Atlas Mill Complex for the benefit of Other Ore, but may not charge the Venture for any portion of such expenditures. Prior to the making of any capital expenditure at the Atlas Mill Complex, with respect to which the Venture will bear a portion of the costs, the Management Committee (on behalf of the Venture) and ATLAS shall agree in writing to the amount and timing of any payments by the Venture to ATLAS in connection with such capital expenditures. (f) Indemnification. Except for toll milling charges to the Venture set --------------- forth in Section 5.5(e), ATLAS shall indemnify and hold harmless GRANGES, its Affiliates and their respective officers, directors, employees and shareholders from all costs, expenses, losses, liabilities, obligations, claims, demands, and actions, including reasonable attorneys' fees, that they or any of them may incur or become subject to as a result or arising out of either the operation of the Atlas Mill Complex or any condition at or on the Atlas Mill Complex, whether existing on, before or after the date of this Agreement. Except for the toll milling charges set forth in Section 5.5(e), and except to the extent that GRANGES conducts activities hereunder with respect to the Atlas Mill Complex (including pursuant to the rights granted to the Venture under Section 1.29 above), GRANGES shall have no liability or responsibility whatsoever with respect to the Atlas Mill Complex or the reclamation, remediation or cleanup thereof or any violation of Environmental Law associated therewith. (g) Inspections and Audits. In the event that ATLAS processes any of the ---------------------- Venture's Products at the Atlas Mill Complex, any Participant shall have the right to inspect, copy and/or audit any books, records, reports, data or other information in ATLAS' possession or under ATLAS' control relating to the Atlas Mill Complex including without limitation both operating records and reports and financial books and records. (h) Maintenance Obligations. At all times during the term of this ----------------------- Agreement, ATLAS shall maintain the Atlas Mill Complex in good condition. 28 (i) GRANGES' Appointment Rights. In the event that, during the period in --------------------------- which the Venture's Products are to be processed, ATLAS is unable, for whatever reason, to operate the Atlas Mill Complex in a prompt, diligent, dedicated, professional and competent manner, GRANGES shall have the right, but not the obligation, either to operate and manage the Atlas Mill Complex on behalf of the Venture or to appoint a third party of its selection to operate and manage the Atlas Mill Complex on behalf of the Venture, in either case in compliance with applicable permits and in accordance with the duties and obligations of the Manager set forth in Section 8.2. In that event, GRANGES shall have the right to charge the Venture all of the amounts set forth in Section 5.5(e) (ii) and (v) of this Agreement and the Venture shall pay such amounts to GRANGES and the amounts set forth in Section 5.5(e)(i), (iii) and (iv) shall be paid by the Venture to ATLAS. At all times, ATLAS shall remain solely responsible and liable for the reclamation, remediation and cleanup of the Atlas Mill Complex, except to the extent that the Venture conducts activities with respect to the Atlas Mill Complex pursuant to rights granted to the Venture under Section 1.29 (with respect to which the Venture shall be responsible and with respect to which no reclamation charge is payable to ATLAS under Section 5.5(e)(iv)). Nothing in this Section 5.5(i) shall be construed so as to limit or abrogate in any way any of ATLAS' obligations, liabilities or indemnities set forth in this Agreement relative to the Atlas Mill Complex or the operation, condition or reclamation thereof. (j) ATLAS' Bonding Obligation. At all times during the term of the ------------------------- definitive toll milling agreement, and at all times prior thereto, ATLAS shall maintain adequate surety, through a qualified and financially stable entity, to ensure complete reclamation of the Atlas Mill Complex, as required by applicable laws, regulations, leases (or other agreements) and permits. During the term set forth above, GRANGES shall have the right to audit, review and conduct such other activities as it desires to determine and confirm the adequacy of such surety. In the event that GRANGES reasonably determines at any time that such surety is not fully sufficient, it may: (i) require ATLAS to take all action necessary to render the surety fully sufficient; and (ii) pay all reclamation charges under Section 5.5(e)(iv) into escrow. 29 (k) Venture's Right to Operate Its Own Facilities. Nothing in this --------------------------------------------- Section 5.5 shall be construed as limiting or abrogating in any way the rights of the Venture under Section 1.29 to construct, establish and operate its own facilities, plants and improvements on the surface of the Atlas Mill Complex, provided that such activities do not interfere unreasonably with ATLAS' operation of the Atlas Mill Complex. 5.6 Preemptive Right to Include Additional Property. ATLAS shall promptly ------------------------------------------------ provided to GRANGES written notice of any termination, in whole or in part, of that certain Exploration Agreement with Option to Joint Venture Agreement between ATLAS and Homestake Mining Company, a short form of which is recorded in Eureka County, Nevada in Book 276 at Page 046 (the "Homestake Agreement"). Within sixty (60) days after the provision of such a notice to GRANGES, GRANGES shall have the right, at its sole discretion, to elect to include in this Agreement the properties (the "Homestake Properties") included in the Homestake Agreement. GRANGES shall make such an election by written notice to ATLAS. Failure timely to provide such written notice shall be deemed an election by GRANGES not to include the Homestake Properties in this Agreement. In the event GRANGES elects to include the Homestake Properties in this Agreement, the following shall apply: (i) the Homestake Properties shall be treated as part of the Properties for all purposes of this Agreement; (ii) GRANGES shall be required to expend an additional $955,000 in Exploration and Development Expenditures on or for the benefit of the Properties by the later of September 29, 1998, the expiration of any Extended Term or a date two years after the date on which GRANGES elects to include the Homestake Properties in this Agreement; (iii) the number of acres that GRANGES may select for inclusion in the Selected Properties pursuant to Section 5.1 B.(5) shall increase by an additional 4,028 acres and the number of acres that GRANGES may select for inclusion in the Selected Properties upon completion of the Report pursuant to Section 5.1 B.(6) shall increase by 806 acres; (iv) GRANGES' failure to complete the additional $955,000 in Exploration and Development Expenditures shall result in GRANGES' withdrawal from the Venture under Section 5.2, but GRANGES shall not otherwise be liable for such failure; and (v) the value of GRANGES' Initial Contribution to the Venture shall 30 be increased by the amount of the additional Exploration and Development Expenditures incurred by it. 5.7 Reserved Royalty. In accordance with Exhibit G, ATLAS will be entitled ----------------- to receive a two percent (2%) Net Smelter Returns royalty on production of Products from those portions of the Selected Properties that are not presently burdened by any royalty on production, as more particularly described in Parts 1 and 3 of Exhibit A. The production royalty payable to ATLAS pursuant to this Section 5.7 shall survive the relinquishment by ATLAS of its Participating Interest in this Agreement pursuant to Section 6.5. 5.8 Maintenance of Claims by GRANGES. GRANGES, prior to completion of its --------------------------------- Initial Contribution, and the Manager thereafter, unless GRANGES (or the Manager, as the case may be) withdraws from this Agreement on or before July 31 of any assessment year (i.e. noon on September 1 to noon of the following September 1), shall (i) timely pay to the United States of America (and promptly provide evidence thereof to the other Participant) such rentals and other fees and (ii) use good faith efforts to perform such additional acts and obligations as (with respect to all of the foregoing rentals, fees and other acts and obligations) are or shall be required to maintain each unpatented mining claim and mill site then constituting part of the Properties in good standing for such assessment year under applicable federal and state law, including but not limited to the United States Interior and Related Agencies Appropriations Act of 1993, as amended. For each assessment year that GRANGES or the Manager performs assessment work or such other acts or obligations or makes such payments, GRANGES (or the Manager, as the case may be) shall prepare and file such affidavits, other documents or evidence thereof as are required by state and federal law to maintain the Properties in good standing. All amounts expended by GRANGES in complying with this Section (prior to the completion of its Initial Contribution) shall be credited in full against GRANGES' minimum Exploration and Development Expenditures requirement. All amounts expended by the Manager in complying with this Section (subsequent to the completion of GRANGES' Initial Contribution) shall be a Venture expense chargeable to the Joint Venture. 5.9 Revision of Mining Law. If the Mining Law of 1872 should be amended or ----------------------- repealed during the term of this Agreement, GRANGES (prior to completion of its Initial Contribution) and 31 the Manager (thereafter), unless it promptly withdraws from this Agreement, shall use its best efforts to protect the rights or interests of the parties in any unpatented mining claim or mill site then constituting part of the Properties and to acquire from the United States of America and maintain in effect rights to explore, develop and mine and otherwise use the ground covered by each such claim and site under such other forms of mineral tenure as may exist under any federal law hereafter enacted. Any such rights, interests, and other forms or mineral tenure obtained with respect to the ground covered by any such claim or site shall be part of the Properties for all purposes of this Agreement. All amounts expended by GRANGES in complying with this Section (prior to completion of its Initial Contribution) shall be credited in full against GRANGES' minimum Exploration and Development Expenditures requirement. All amounts expended by the Manager in complying with this Section (subsequent to the completion of GRANGES' Initial Contribution) shall be a Venture expense chargeable to the Joint Venture. ARTICLE VI ---------- INTERESTS OF PARTICIPANTS -------------------------- 6.1 Initial Participating Interests. The Participants shall have the -------------------------------- following initial Participating Interests: ATLAS - 50% GRANGES - 50% 6.2 Changes in Participating Interests. A Participant's Participating ----------------------------------- Interest shall be changed as follows: (a) As provided in Section 6.5; or (b) Upon an election by a Participant pursuant to Section 6.3 to contribute less to an adopted Program and Budget than the percentage reflected by its Participating Interest; or (c) In the event of default by a Participant in making its agreed-upon contribution to an adopted Program and Budget, followed by an election by the other Participant to invoke Section 6.4(b); or 32 (d) Transfer by a Participant of less than all its Participating Interest in accordance with Article XV; or (e) Acquisition of less than all of the Participating Interest of the other Participant, however arising. 6.3 Voluntary Reduction in Participation. Except with respect to a ------------------------------------- Participant's obligation to make its Initial Contribution, as to which no election is permitted, a Participant may elect to limit its contributions to an adopted Program and Budget as follows: (a) To some lesser amount than its respective Participating Interest; or (b) Not at all. If a Participant elects to contribute to an adopted Program and Budget some lesser amount than its respective Participating Interest, or not at all, the Participating Interest of that Participant shall be recalculated at the time of election by dividing: (i) the sum of (a) the agreed value of that Participant's Initial Contribution under Section 5.1, (b) the total of all of that Participant's contributions under Section 5.3, and (c) the amount, if any, that Participant elects to contribute to the adopted Program and Budget; by (ii) the sum of (a), (b) and (c) above for all Participants; and then multiplying the result by one hundred. The Participating Interest of the other Participant shall thereupon become the difference between 100% and the recalculated Participating Interest. 6.4 Default in Making Contributions. -------------------------------- (a) If a Participant defaults in making a contribution or cash call required by an approved Program and Budget, the nondefaulting Participant may advance the defaulted contribution on behalf of the defaulting Participant and treat the same, together with any accrued interest, as a demand loan bearing interest from the date of the advance at the rate provided in Section 10.3. The failure to repay said loan upon demand shall be a default. Each Participant hereby grants to the other a lien upon its interest in the Properties and a security interest in its rights under this Agreement and in its Participating Interest in other Assets, and the proceeds therefrom, to secure any loan made hereunder, including interest thereon, reasonable attorneys' fees and all other reasonable costs and expenses incurred in recovering the loan with interest and in enforcing such lien or security interest, or both. A nondefaulting Participant may elect the applicable remedy 33 under this Section 6.4(a) or under 6.4(b), or, to the extent a Participant has a lien or security interest under applicable law, it shall be entitled to its rights and remedies at law and in equity. All such remedies shall be cumulative. The election of one or more remedies shall not waive the election of any other remedies. Each Participant hereby irrevocably appoints the other its attorney-in-fact to execute, file and record all instruments necessary to perfect oreffectuate the provisions hereof. (b) The Participants acknowledge that if a Participant defaults in making a contribution, or a cash call, or in repaying a loan, as required hereunder, it will be difficult to measure the damages resulting from such default. In the event of such default, as reasonable liquidated damages, the non-defaulting Participant may, with respect to any such default not cured within 30 days after notice to the defaulting Participant of such default, elect one of the following remedies by giving notice to the defaulting Participant: (1) For a default relating exclusively to an Exploration Program and Budget, the nondefaulting Participant may elect to have the defaulting Participant's Participating Interest permanently reduced as provided in Section 6.3, and further reduced by multiplying the result by 50%. Amounts treated as a loan pursuant to Section 6.4(a) and interest thereon shall be included in the calculation of the defaulting Participant's reduced Participating Interest. The nondefaulting Participant's Participating Interest shall, at such time, become the difference between 100% and the further reduced Participating Interest. Such reductions shall be effective as of the date of the default. (2) For a default relating to a Program and Budget covering in whole or in part Development or Mining, at the nondefaulting Participant's election, the defaulting Participant shall be deemed to have withdrawn from the Venture and to have automatically relinquished its Participating Interest to the nondefaulting Participant; provided, however, the defaulting Participant shall have the right to receive only from 5% of Net Profits (which shall be calculated as set forth in Exhibit D), if any, and not from any other source, an amount equal to the defaulting Participant's aggregate contributions pursuant to Sections 5.1 and 5.3. Except with respect to Atlas as set forth in Section 5.7, upon receipt of such amount, the defaulting Participant shall thereafter have no further right, title or interest in Assets or under this Agreement. 34 6.5 Elimination of Minority Interest. Upon the reduction of its --------------------------------- Participating Interest to less than 10%, a Participant shall be deemed to have withdrawn from this Agreement and shall relinquish its entire Participating Interest. Such relinquished Participating Interest shall be deemed to have accrued automatically to the other Participant. Upon such a deemed withdrawal, the withdrawing Participant shall be entitled to a five percent (5%) Net Profits Interest until it has recovered an amount equal to its aggregate contributions to the Venture, as set forth in Section 6.4(b)(2). 6.6 Continuing Liabilities Upon Adjustments of Participating Interests. Any ------------------------------------------------------------------- reduction of a Participant's Participating Interest under this Article VI shall not relieve such Participant of its share of any liability, whether it accrues before or after such reduction, arising out of Operations conducted prior to such reduction. For purposes of this Article VI, such Participant's share of such liability shall be equal to its Participating Interest at the time such liability was incurred. The increased Participating Interest accruing to a Participant as a result of the reduction of the other Participant's Participating Interest shall be free of royalties, liens or other encumbrances arising by, through or under such other Participant, other than those existing at the time the Properties were acquired or those to which both Participants have given their written consent. An adjustment to a Participating Interest need not be evidenced during the term of this Agreement by the execution and recording of appropriate instruments, but each Participant's Participating Interest shall be shown in the books of the Manager. However, either Participant, at any time upon the request of the other Participant, shall execute and acknowledge instruments necessary to evidence such adjustment in form sufficient for recording in the jurisdiction where the Properties are located. 6.7 Recovery of Participating Interest. Following the dilution of a ----------------------------------- Participant's Participating Interest pursuant to Section 6.3 and subject to the terms and conditions of this Section 6.7, that Participant (the "Diluted Participant") shall have the right to reacquire that portion (the "Diluted Portion") of its Participating Interest that was transferred to the other Participant pursuant to Section 6.3. The Diluted Participant shall have a period of 180 days following completion of the Program and Budget (the "Diluting Program and Budget") in which it elected (the "Dilution Election") to participate in some lesser amount than its respective Participating Interest or not at all, 35 in which to contribute to the Joint Venture, for Operations to be conducted under approved Programs and Budgets subsequent to the completion of the Diluting Program and Budget, an amount (the "Make-Up Amount") equal to the following: (a) an amount equal to the Diluted Participant's share of the actual expenditures incurred under the Diluting Program and Budget, which share shall be based upon the Diluted Participant's Participating Interest immediately prior to its making the Dilution Election, less (b) an amount equal to the funds, if any, contributed by the Diluted Participant to the Diluting Program and Budget, plus (c) an amount (the "Liquidated Damages Amount") equal to twenty five percent (25%) of the difference between (a) and (b) above. Upon funding the Make-Up amount, the Participating Interests of the Participants shall be readjusted pursuant to subsection 6.3(b). In readjusting the Diluted Participant's Participating Interest pursuant to subsection 6.3(b), the Liquidated Damages Amount shall not be included as a contribution by the Diluted Participant in either the numerator or the denominator of the calculation. Notwithstanding the provisions of Article XV, the rights of the Diluted Participant under this Section 6.7 are personal unto GRANGES and ATLAS and may not be Transferred to any other person or entity, except to an Affiliate in connection with a Transfer of Participating Interests otherwise permitted hereunder. ARTICLE VII ----------- MANAGEMENT COMMITTEE --------------------- 7.1 Organization and Composition. The Participants hereby establish a ----------------------------- Management Committee to determine overall policies, objectives, procedures, methods and actions under this Agreement. The Management Committee shall consist of one member appointed by ATLAS and one member appointed by GRANGES. Each Participant may appoint one or more alternates to act in the absence of a regular member. Any alternate so acting shall be deemed a member. Appointments shall be made or changed by written notice to the other Participant. 7.2 Decisions. --------- (a) Each Participant, acting through its appointed member shall have one vote on the Management Committee. Unless otherwise provided in this Agreement, the vote of the Participant with a Participating Interest over 50% shall determine the decisions of the Management Committee. 36 In the event of an inability to break a deadlock on any vote (other than votes regarding the Venture's Toll Percentage, which shall be determined by GRANGES), an independent third party shall cast the deciding vote (the "Referee"). The Participants hereby agree that the Referee shall be Mineral Resources Development, Inc., located in San Mateo, California (or its successor in interest, collectively referred to hereinafter as "MRDI"). Costs for MRDI's services (or the service of the alternate Referee described below) in reviewing materials and casting deciding votes shall be Venture costs chargeable to the Joint Account. If as to any particular issue MRDI is unable or unwilling to cast the deciding vote, each Participant shall select an independent third party and those third parties will jointly select an additional independent third party. That three-person panel shall then cast the deciding vote as Referee. The Manager agrees promptly to provide to MRDI or the panel acting as Referee all materials requested by them for their view in casting any deciding vote. By unanimous agreement, in writing, the Participants may at any time replace MRDI as Referee. The Referee shall make its decisions and cast its votes as it deems best for the probable net financial return to the Venture as a whole, without regard to the particular circumstances, financial or otherwise, of the individual Participants. (b) The following actions by the Venture shall require the unanimous approval of the Participants: (i) acquisition or disposition of any Asset of the Venture, the acquisition or disposition of which would materially impair or change the conduct of the ordinary business of the Venture as contemplated by this Agreement; (ii) acquisition of any interest in real property outside the Area of Interest for the benefit of the Venture; (iii) except as set forth in Section 9.6, a call for a cash contribution from the Participants not previously approved as part of a Program and Budget; and (iv) assumption, guarantee or approval of the incurrence of any obligation for borrowed money on behalf of or in the name of the Venture including (A) any obligation owed for all or any part of the purchase price of the Properties or other assets or for the cost of Properties or other assets constructed or of improvements thereto, other than accounts payable included in current liabilities and incurred in respect of property purchased in the ordinary course of business, and (B) any obligation for borrowed money secured by any encumbrance in respect of the Venture (but not 37 including Transfers of the kind described in Section 15.2 (g)), even though the Venture has not assumed or become liable for the payment of such obligation. 7.3 Meetings. The Management Committee shall hold regular meetings at least --------- annually in Reno, Nevada or at other mutually agreed places. The Manager shall give 30 days' notice to the Participants of such regular meetings. Additionally, either Participant may call a special meeting upon ten days' notice to the Manager and the other Participant. In case of emergency, reasonable notice of a special meeting shall suffice. There shall be a quorum if at least one member representing each Participant is present. Each notice of a meeting shall include an itemized agenda prepared by the Manager in the case of a regular meeting, or by the Participant calling the meeting in the case of a special meeting, but any matters may be considered with the consent of all Participants. The Manager shall prepare minutes of all meetings and shall distribute copies of such minutes to the Participants within 15 days after the meeting. The minutes, when signed by all Participants, shall be the official record of the decisions made by the Management Committee and shall be binding on the Manager and the Participants. The Manager's minutes of a Management Committee meeting shall be deemed accepted by all Participants if not objected to in writing within 20 days after circulation by the Manager. If personnel employed in Operations are required to attend a Management Committee meeting, reasonable costs incurred in connection with such attendance shall be a Venture cost. All other costs shall be paid by the Participants individually. 7.4 Action Without Meeting. In lieu of meetings, the Management Committee ----------------------- may hold telephone conferences, so long as all decisions are immediately confirmed in writing by the Participants. 7.5 Matters Requiring Approval. Except as otherwise delegated to the --------------------------- Manager in Section 8.2, and except with respect to periods prior to the completion of GRANGES' Initial Contribution, the Management Committee shall have exclusive authority to determine all management matters related to this Agreement. ARTICLE VIII ------------ MANAGER -------- 38 8.1 Appointment. The Participants hereby appoint GRANGES as the Manager ------------ with overall management responsibility for Operations, which appointment shall last through completion by GRANGES of its Initial Contribution. Upon such completion, ATLAS shall serve as Manager, and hereby agrees to serve until it resigns as provided in Section 8.4. 8.2 Powers and Duties of Manager. Subject to the terms and provisions of ----------------------------- this Agreement, the Manager shall have the following powers and duties which, other than prior to the completion of GRANGES' Initial Contribution, shall be discharged in accordance with adopted Programs and Budgets: (a) The Manager shall manage, direct and control Operations. (b) The Manager shall implement the decisions of the Management Committee, shall make all expenditures necessary to carry out adopted Programs, and shall promptly advise the Management Committee if it lacks sufficient funds to carry out its responsibilities under this Agreement. (c) The Manager shall: (i) purchase or otherwise acquire all material, supplies, equipment, water, utility and transportation services required for Operations, such purchases and acquisitions to be made on the best terms available, taking into account all of the circumstances; (ii) obtain such customary warranties and guarantees as are available in connection with such purchases and acquisitions; and (iii) keep the Assets free and clear of all liens and encumbrances, except for those existing at the time of, or created concurrent with, the acquisition of such Assets, or mechanic's or materialmen's liens, which shall be released or discharged in a diligent manner, or liens and encumbrances specifically approved by the Management Committee. (d) The Manager shall conduct such title examinations and cure such title defects as may be advisable in the reasonable judgment of the Manager. (e) Subject to the provisions of Section 5.1 C.(1), the Manager shall: (i) make or arrange for all payments required by leases, licenses, permits, contracts and other agreements related to the Assets; (ii) pay all taxes, assessments and like charges on Operations and Assets except taxes determined or measured by a Participant's sales revenue or net income. If authorized by the Management Committee, the Manager shall have the right to contest in the courts or 39 otherwise the validity or amount of any taxes, assessments or charges if the Manager deems them to be unlawful, unjust, unequal or excessive, or to undertake such other steps or proceedings as the Manager may deem reasonably necessary to secure a cancellation, reduction, readjustment or equalization thereof before the Manager shall be required to pay them, but in no event shall the Manager permit or allow title to the Assets to be lost as the result of the nonpayment of any taxes, assessments or like charges; and (iii) shall do all other acts reasonably necessary to maintain the Assets. (f) The Manager shall: (i) apply for all necessary permits, licenses and approvals; (ii) comply with applicable federal, state and local laws and regulations; (iii) notify promptly the Management Committee of any allegations of substantial violation thereof; and (iv) prepare and file all reports or notices required for Operations. The Manager shall not be in breach of this provision if a violation has occurred in spite of the Manager's good faith efforts to comply, and the Manager has timely cured or disposed of such violation through performance, or payment of fines and penalties. (g) The Manager shall prosecute and defend, but shall not initiate without consent of the Management Committee, all litigation or administrative proceedings arising out of Operations. The nonmanaging Participant shall have the right to participate, at its own expense, in such litigation or administrative proceedings. The nonmanaging Participant shall approve in advance any settlement involving payments, commitments or obligations in excess of $20,000 in cash or value. (h) The Manager shall provide insurance for the benefit of the Participants as provided in Exhibit E. (i) The Manager may dispose of Assets, whether by abandonment, surrender or Transfer in the ordinary course of business, except that Properties may be abandoned or surrendered only as provided in Article XIV. However, without prior authorization from the Management Committee, the Manager shall not: (i) dispose of Assets in any one transaction having a value in excess of $20,000; (ii) enter into any sales contracts or commitments for 40 Products, except as permitted in Section 11.2; (iii) begin a liquidation of the Venture; or (iv) dispose of all or a substantial part of the Assets necessary to achieve the purposes of the Venture. (j) The Manager shall have the right to carry out its responsibilities hereunder through agents, Affiliates or independent contractors. (k) Subject to the provisions of Section 5.1 C.(1), the Manager shall perform or cause to be performed during the term of this Agreement all assessment and other work (or payment of fees) required by law in order to maintain the unpatented mining claims included within the Properties, and take all other necessary steps required to maintain title to the Properties, including any such steps required as the result of amendments to or required by the General Mining Law of 1872 Mining Law. The Manager shall have the right to perform the assessment work required hereunder pursuant to a common plan of exploration and continued actual occupancy of such claims and sites shall not be required. The Manager shall not be liable on account of any determination by any court or governmental agency that the work performed by Manager does not constitute the required annual assessment work or occupancy for the purposes of preserving or maintaining ownership of the claims, provided that the work done is in accordance with standards acceptable in the mining industry and the adopted Program and Budget. The Manager shall timely record with the appropriate county and file with the appropriate United States agency affidavits in proper form attesting to the performance of assessment work (or payment of fees in lieu thereof) or notices of intent to hold in proper form, and allocating therein, to or for the benefit of each claim, at least the minimum amount required by law to maintain such claim or site. (l) If authorized by the Management Committee, the Manager may: (i) locate, amend or relocate any unpatented mining claim or mill site or tunnel site, (ii) locate any fractions resulting from such amendment or relocation, (iii) apply for patents or mining leases or other forms of mineral tenure for any such unpatented claims or sites, (iv) abandon any unpatented mining claims for the purpose of locating mill sites or otherwise acquiring from the United States rights to the ground covered thereby, (v) abandon any unpatented mill sites for the purpose of locating mining claims or otherwise acquiring from the United States rights to the ground covered thereby, (vi) exchange with or convey to the United States any of the Properties for the purpose of acquiring 41 rights to the ground covered thereby or other adjacent ground, and (vii) convert any unpatented claims or mill sites into one or more leases or other forms of mineral tenure pursuant to any federal law hereafter enacted. (m) The Manager shall keep and maintain all required accounting and financial records pursuant to the Accounting Procedure and in accordance with customary cost accounting practices in the mining industry. (n) The Manager shall keep the Management Committee advised of all Operations by submitting in writing to the Management Committee: (i) monthly progress reports which include statements of expenditures and comparisons of such expenditures to the adopted Budget; (ii) periodic summaries of data acquired; (iii) copies of reports concerning Operations; (iv) a detailed final report within 60 days after completion of each Program and Budget, which shall include comparisons between actual and budgeted expenditures and comparisons between the objectives and results of Programs; and (v) such other reports as the Management Committee may reasonably request. At all reasonable times the Manager shall provide the Management Committee or the representative of any Participant, upon the request of any member of the Management Committee, access to, and the right to inspect and copy, all maps, drill logs, core tests, reports, surveys, assays, analyses, production reports, operations, technical, accounting and financial records, and other information acquired in Operations. In addition, the Manager shall allow the nonmanaging Participant, at the latter's sole risk and expense, and subject to reasonable safety regulations, to inspect the Assets and Operations at all reasonable times, so long as the inspecting Participant does not unreasonably interfere with Operations. (o) The Manager shall undertake all other activities reasonably necessary to fulfill the foregoing. The Manager shall not be in default of any duty under this Section 8.2 if its failure to perform results from the failure of the nonmanaging Participant to perform acts or to contribute amounts required of it by this Agreement. 8.3 Standard of Care. The Manager shall conduct all Operations in a good, ---------------- workmanlike and efficient manner, in accordance with sound mining and other applicable industry standards and practices, and in accordance with the terms and provisions of leases, licenses, permits, contracts 42 and other agreements pertaining to Assets. The Manager shall not be liable to the nonmanaging Participant for any act or omission resulting in damage or loss except to the extent caused by or attributable to the Manager's willful misconduct or gross negligence. 8.4 Resignation Deemed Offer to Resign. Except for GRANGES, which may not ----------------------------------- resign as Manager as long as this Agreement remains in effect and it has not completed its Initial Contribution, the Manager may resign upon three months' prior notice to the other Participant, in which case the other Participant may elect to become the new Manager by notice to the resigning Participant within 30 days after receipt of the notice of resignation. If any of the following shall occur, the Manager shall be deemed to have offered to resign, which offer shall be accepted by the other Participant, if at all, within 90 days following such deemed offer: (a) The Participating Interest of the Manager becomes less than 50%; or (b) The Manager fails to perform a material obligation imposed upon it under this Agreement and such failure continues for a period of 60 days after notice from the other Participant demanding performance; or (c) The Manager fails to pay or contest in good faith its bills within 60 days after they are due (unless the vendor has agreed to an extension); or (d) A receiver, liquidator, assignee, custodian, trustee, sequestrator or similar official for a substantial part of its assets is appointed and such appointment is neither made ineffective nor discharged within 60 days after the making thereof, or such appointment is consented to, requested by or acquiesced in by the Manager; or (e) The Manager commences a voluntary case under any applicable bankruptcy, insolvency or similar law now or hereafter in effect; or consents to the entry of an order for relief in an involuntary case under any such law or to the appointment of or taking possession by a receiver, liquidator, assignee, custodian, trustee, sequestrator or other similar official of any substantial part of its assets; or makes a general assignment for the benefit of creditors; or fails generally to pay its or Venture debts as such debts become due; or takes corporate or other action in furtherance of any of the foregoing; or 43 (f) Entry is made against the Manager of a judgment, decree or order for relief affecting a substantial part of its assets by a court of competent jurisdiction in an involuntary case commenced under any applicable bankruptcy, insolvency or other similar law of any jurisdiction now or hereafter in effect. 8.5 Payments to Manager. Upon completion of the Participants' Initial -------------------- Contributions, the Manager shall be compensated for its services and reimbursed for its costs hereunder in accordance with the Accounting Procedure. 8.6 Transactions With Affiliates. If the Manager engages Affiliates to ----------------------------- provide services hereunder it shall do so on terms no less favorable than would be the case with unrelated persons in arm's-length transactions. 8.7 Activities During Deadlock. If the Management Committee for any reason --------------------------- fails to adopt a Program and Budget, subject to the contrary direction of the Management Committee and to the receipt of necessary funds, the Manager shall continue Operations sufficient to maintain the Assets, including without limitation performance of the obligations of the Manager set forth in Sections 8.2(c)-(o). For purposes of determining the required contributions of the Participants and their respective Participating Interests after the preceding Program and Budget is completed and while Operations are being conducted pursuant to this Section 8.7, such Operations shall be funded by the Participants in accordance with their Respective Participating Interests as of the date of completion of the preceding Program and Budget. ARTICLE IX ---------- PROGRAMS AND BUDGETS --------------------- 9.1 [This section intentionally left blank.] 9.2 Operations Pursuant to Programs and Budgets. Except as otherwise -------------------------------------------- provided in Sections 5.1(C)(1), 8.7, 9.6, 9.7 and Article XIII, Operations shall be conducted, expenses shall be incurred and Assets shall be acquired only pursuant to approved Programs and Budgets. 9.3 Presentation of Programs and Budgets. Proposed Programs and Budgets ------------------------------------- shall be prepared by the Manager for a period of one year or any longer period. Each adopted Program and 44 Budget, regardless of length, shall be reviewed at least once a year at the annual meeting of the Management Committee. During the period encompassed by any Program and Budget, and at least two months prior to its expiration, a proposed Program and Budget for the succeeding period shall be prepared by the Manager and submitted to the Participants. Each such proposed Program and Budget shall be in a form and reasonable degree of detail as determined by the Management Committee. 9.4 Review and Approval of Proposed Programs and Budgets. Within 15 days ----------------------------------------------------- after submission of a proposed Program and Budget, each Participant shall submit to the Management Committee: (a) Notice that the Participant approves the proposed Program and Budget; or (b) Proposed modifications of the proposed Program and Budget; or (c) Notice that the Participant rejects the proposed Program and Budget. If a Participant fails to give any of the foregoing responses within the allotted time, the failure shall be deemed to be an approval by the Participant of the Manager's proposed Program and Budget. If a Participant makes a timely submission to the Management Committee pursuant to Section 9.4(b) or (c), then the Management Committee shall seek to develop a Program and Budget acceptable to the Participants, provided that neither Participant shall be obligated to vote in favor of modifications proposed by another Participant. Following such efforts, the Management Committee shall vote on all proposed Programs and Budgets and proposed modifications thereto, and any deadlocked decision shall be referred to the Referee for decision pursuant to Section 7.2(a). 9.5 Election to Participate. By notice to the Management Committee ------------------------ within 20 days after the final vote adopting a Program and Budget, a Participant may elect to contribute to such Program and Budget in some lesser amount than its respective Participating Interest, or not at all, in which case its Participating Interest shall be recalculated as provided in Article VI. If a Participant fails to so notify the Management Committee, the Participant shall be deemed to have elected to contribute to such Program and Budget in proportion to its respective Participating Interest as of the beginning of the period covered by the Program and Budget. Notwithstanding the foregoing, the initial Programs and Budgets for activities after completion and presentation of the 45 Report, or any other Programs and Budgets for which the total expenditure for all Participants would exceed $2,500,000, will allow 180 days for the parties to obtain financing, after approval and before any contribution election is required to be made by either Participant. Either Participant may proceed with implementation of such an approved Program and Budget prior to the end of the 180 day period and fund the other Participant's share, which will be promptly repaid at the Prime Rate plus 2% when the other Participant elects to participate. If the other Participant does not elect to participate, it shall have its interest diluted in accordance with Section 6.4 taking into account the amount funded beforehand by the other Participant (including interest charges). The Participant that elects to proceed with implementation of such a Program shall be the Manager during the term of that Program. 9.6 Deadlock on Proposed Programs and Budgets. If the Participants, acting ------------------------------------------ through the Management Committee, fail to approve a Program and Budget by the beginning of the period to which the proposed Program and Budget applies, the provisions of Sections 7.2(a) and 8.7 shall apply. 9.7 Budget Overruns; Program Changes. The Manager shall immediately notify --------------------------------- the Management Committee of any material departure from an adopted Program and Budget. If the Manager exceeds an adopted Budget by more than 10%, then the excess over 10%, unless directly caused by an emergency or unexpected expenditure made pursuant to Section 9.8 or unless otherwise authorized by the Management Committee, shall be for the sole account of the Manager and such excess shall not be included in the calculations of the Participating Interests. Budget overruns of 10% or less shall be borne by the Participants in proportion to their respective Participating Interests as of the time the overrun occurs. 9.8 Emergency or Unexpected Expenditures. In case of emergency, the Manager ------------------------------------ may take any reasonable action it deems necessary to protect life, limb or property, to protect the Assets or to comply with law or government regulation. The Manager may also make reasonable expenditures for unexpected events which are beyond its reasonable control and which do not result from a breach by it of its standard of care. The Manager shall promptly notify the Participants of the emergency or unexpected expenditure, and the Manager shall be reimbursed for all resulting 46 costs by the Participants in proportion to their respective Participating Interests at the time the emergency or unexpected expenditures are incurred. 9.9 Reclamation Fund. Prior to the commencement of Mining on the ----------------- Selected Properties and from time to time thereafter, upon such direction from the Management Committee, the Manager shall reasonably estimate (i) the total cost for reclamation, abandonment and long-term care and monitoring of the project area (collectively "Environmental Costs") and (ii) the life of ------------------- commercially producible reserves in the orebody. In accordance with an approved Program and Budget, the Manager shall charge the Participants not less frequently than monthly after commencement of Mining for Environmental Costs on a basis, which taking into account the estimates in (i) and (ii) above (and interest earned on the amounts held in the Reclamation Fund) will result in the funding of such Environmental Costs over the life of commercially producible reserves through a uniform charge per unit of Products produced. The amounts so charged shall be deposited in an interest bearing escrow account with a bank mutually agreeable to all Participants (the "Reclamation Fund"), for use in ---------------- payment of the Environmental Costs. Each Participant's share of such Environmental Costs shall be in proportion to its Participating Interest at the time the liability is incurred. The Reclamation Fund shall be held by the bank serving as escrow agent pursuant to an escrow agreement between the escrow agent and the Participants, which agreement shall ensure that the Reclamation Fund is preserved and actually utilized for reclamation of the Properties. Amounts collected for such fund will be credited to accounts maintained by the Venture for each Participant. Interest actually earned on such fund will be credited quarterly in arrears to such account on the last day of each quarter. Such Reclamation Fund, including interest, shall be applied in payment of Environmental Costs as the Manager from time to time shall determine to be necessary or appropriate, and may be used as collateral for reclamation bonds upon approval of the Management Committee. After all reclamation, abandonment and long-term care and monitoring and all remediation, restoring, cleaning up and curing have been completed and/or all amounts paid in respect thereof, if there shall remain any portion (including interest) of the Reclamation Fund, it shall be distributed to the Participants in proportion to their respective contributions. If the Manager shall change, the resigning or terminating Manager shall deliver to the new Manager the Reclamation Fund, less any amounts previously expended in payment of 47 Environmental Costs. Nothing in this subsection shall limit a Participant's obligation to pay its share of such Environmental Costs in proportion to its Participating Interest. If the Reclamation Fund is not sufficient to meet all Environmental Costs, the Participants shall pay their proportionate shares of any shortfall pursuant to approved Programs and Budgets. ARTICLE X --------- ACCOUNTS AND SETTLEMENTS ------------------------- 10.1 Monthly Statements. The Manager shall promptly submit to the Management ------------------- Committee monthly statements of account reflecting in reasonable detail the charges and credits to the Joint Account during the preceding month. 10.2 Cash Calls. On the basis of the adopted Program and Budget, the Manager ----------- shall submit to each Participant prior to the last day of each month a billing for estimated cash requirements for the next month. Within 10 days after receipt of each billing, each Participant shall advance to the Manager its proportionate share of the estimated amount. Time is of the essence of payment of such billings. The Manager shall at all times maintain a cash balance approximately equal to the rate of disbursement for up to 45 days. All funds in excess of immediate cash requirements shall be invested in interest-bearing accounts with a bank to be selected by the Manager for the benefit of the Joint Account. 10.3 Failure to Meet Cash Calls. A Participant that fails to meet cash calls --------------------------- in the amount and at the times specified in Section 10.2 shall be in default, and the amounts of the defaulted cash call shall bear interest from the date due at an annual rate equal to two percentage points over the Prime Rate, but in no event shall said rate of interest exceed the maximum permitted by law. The nondefaulting Participant shall have those rights, remedies and elections specified in Section 6.4. 10.4 Audits. Upon request made by any Participant within 24 months following ------ the end of any calendar year (or, if the Management Committee has adopted an accounting period other than the calendar year, within 24 months after the end of such period), the Manager shall order an audit of the accounting and financial records for such calendar year (or other accounting period). All written exceptions to and claims upon the Manager for discrepancies disclosed by such audit shall be made not more than three months after receipt of the audit report. Failure to make any such 48 exception or claim within the three month period shall mean the audit is correct and binding upon the Participants. The audits shall be conducted by a firm of certified public accountants selected by the Manager, unless otherwise agreed by the Management Committee. ARTICLE XI ---------- DISPOSITION OF PRODUCTION -------------------------- 11.1 Taking In Kind. Each Participant shall take in kind at the refinery, --------------- if the Product is refined, or separately take its share of all Products that are not refined, in accordance with its Participating Interest. Delivery of refined Products to the Participants shall be deemed to have been made and possession shall be deemed to have begun at such time as such refined Product is segregated for the individual accounts of the Participants at the refinery. Title to such refined Product shall pass to the Participants upon delivery and, upon delivery, the Participants shall assume the risk of loss. Any extra expenditure incurred in the taking in kind or separate disposition by any Participant of its proportionate share of Products shall be borne by such Participant. Nothing in this Agreement shall be construed as providing, directly or indirectly, for any joint or cooperative marketing or selling of Products or permitting the processing of Products of any parties other than the Participants at any processing facilities constructed by the Participants pursuant to this Agreement. The Manager shall give the Participants notice at least ten (10) days in advance of the delivery date upon which their respective shares of Products will be available. If either Participant is delinquent in any cash contribution required of it pursuant to Section 10.2, the delinquent Participant shall not be permitted to take its share of production until the delinquent cash contribution has been made. If a Participant either elects not to contribute as provided in Section 6.4 or fails to contribute to a Program and Budget that provides for operating cost payments, then the production that would otherwise be that Participant's share of production shall instead be added to the Manager's share of production, and the proceeds therefrom shall be used to pay that Participant's share of costs. Any balance remaining from that Participant's share of proceeds shall be remitted to the noncontributing Participant. In the event of such sale by the Manager on behalf of that Participant, the Participant's Participating Interest shall not be reduced pursuant to Section 6.4 or 6.5, unless and only to the extent that the proceeds from such sale 49 are insufficient to pay that Participant's share of operating costs. For purposes of this Section 11.1, "operating costs" shall not include any capital expenditures, other than replacement capital costs. 11.2 Failure of Participant to Take in Kind. If a Participant fails to take --------------------------------------- in kind, the Manager shall have the right, but not the obligation, for a period of time consistent with the minimum needs of the industry, but not to exceed one year, to purchase the Participant's share for its own account or to sell such share as agent for the Participant at not less than the prevailing market price in the area. Subject to the terms of any such contracts of sale then outstanding, during any period that the Manager is purchasing or selling a Participant's share of production, the Participant may elect by notice to the Manager to take in kind. The Manager shall be entitled to deduct from proceeds of any sale by it for the account of a Participant reasonable expenses incurred in such a sale. ARTICLE XII ----------- WITHDRAWAL AND TERMINATION --------------------------- 12.1 Termination. A. Termination by Expiration or Agreement. This Agreement shall -------------------------------------- terminate as expressly provided in this Agreement, unless earlier terminated by written agreement. B. Termination by GRANGES Prior to Completion of Its ------------------------------------------------- Initial Contribution. At any time prior to completion of its Initial - ------- ------------ Contribution, GRANGES may, at its election and sole discretion, surrender and terminate this Agreement. Termination pursuant to this Section 12.1.B shall constitute a withdrawal by GRANGES from this Agreement pursuant to Section 5.2, with such withdrawal effective as of the date of GRANGE's notice of termination. The sole consequences of termination pursuant to this Section 12.1.B and the sole liabilities and responsibilities of GRANGES resulting from or surviving such termination, shall be those set forth in Sections 5.1(C)(2) and(C)(6), Section 5.2 and Section 5.8. 12.2 Withdrawal. A Participant may elect to withdraw as a Participant from ----------- this Agreement by giving notice to the other Participant of the effective date of withdrawal, which shall be the later of the end of the then current Program and Budget or at least 30 days after the date of the notice. Upon such withdrawal, this Agreement shall terminate, and the withdrawing Participant shall be deemed to have transferred to the remaining Participant, without cost and free and clear of 50 royalties, liens or other encumbrances arising by, through or under such withdrawing Participant, except those exceptions to title described in Exhibit A and those to which both Participants have given their written consent after the date of this Agreement, all of its Participating Interest in the Assets, the Reclamation Fund and in this Agreement. Any withdrawal under this Section 12.2 shall not relieve the withdrawing Participant of its share of liabilities to third persons, including without limitation liabilities for Environmental Costs (whether such accrues before or after such withdrawal), arising out of Operations conducted prior to such withdrawal, except to the extent that the withdrawing Participant's share of the Reclamation Fund covers its share of such Environmental Costs. For purposes of this Section 12.2, the withdrawing Participant's share of such liabilities shall be equal to its Participating Interest at the time such liability was incurred. 12.3 Continuing Obligations. On termination of this Agreement under Section ----------------------- 12.1, the Participants shall remain liable for continuing obligations hereunder until final settlement of all accounts and for any liability, whether it accrues before or after termination, if it arises out of Operations during the term of the Agreement. 12.4 Disposition of Assets on Termination. Promptly after termination of ------------------------------------- this Agreement under Sections 12.1.A or 12.2, the Manager shall take all action necessary to wind up the activities of the Venture, and all costs and expenses incurred in connection with the termination of the Venture shall be expenses chargeable to the Venture. The following actions shall be taken in the sequence in which they are listed: (a) First, the Assets shall be paid, applied or distributed in satisfaction of all liabilities of the Venture to third parties. The Manager shall have the right to segregate amounts which, in the Manager's reasonable judgment, are necessary to discharge continuing obligations with respect to the Properties or to purchase, for the account of the Participants, bonds or other securities for the performance of such obligations. The foregoing shall not be construed to include repayment of any Participant's capital contributions or capital account balance; (b) Second, the Assets shall be paid, applied or distributed to satisfy debts, obligations or liabilities owed to the Participants; and 51 (c) Third, the Assets shall be distributed to the Participants (in undivided interests unless otherwise agreed and in proportion to their respective Participating Interests, subject to any dilution, reduction or termination of such Participating Interests as may have occurred pursuant to the terms of this Agreement, and any Participant with a negative capital account shall restore such balance to zero, all as set forth in Exhibit C. Notwithstanding anything in this Section 12.4 or Exhibit C to the contrary, no Participant shall receive a distribution of any interest in Products or proceeds from the sales thereof if such Participant's Participating Interest has been terminated pursuant to this Agreement. 12.5 Non-Compete Covenants. A Participant that withdraws pursuant to Section ---------------------- 12.2, or is deemed to have withdrawn pursuant to Section 6.5, shall not directly or indirectly acquire any interest in property within the Area of Interest for 12 months after the effective date of withdrawal. If a withdrawing Participant, or the Affiliate of a withdrawing Participant, breaches this Section 12.5, such Participant or Affiliate shall be obligated to offer to convey to the nonwithdrawing Participant, without cost, any such property or interest so acquired. Such offer shall be made in writing and can be accepted by the nonwithdrawing Participant at any time within 45 days after it is received by such nonwithdrawing Participant. 12.6 Right to Data After Termination. After termination of this Agreement -------------------------------- pursuant to Section 12.1, each Participant shall be entitled to copies of all information acquired hereunder before the effective date of termination not previously furnished to it, but a terminating or withdrawing Participant shall not be entitled to any such copies after any other termination or any withdrawal. 12.7 Continuing Authority. On termination of this Agreement under Section --------------------- 12.1 or 12.2 or the deemed withdrawal of a Participant pursuant to Section 5.2, 6.4(b)(2) or 6.5 or the withdrawal of a Participant pursuant to Section 12.2, the Manager shall have the power and authority, subject to control of the Management Committee, if any, to do all things on behalf of the Participants which are reasonably necessary or convenient to: (a) Wind up Operations; and 52 (b) Complete any transaction and satisfy any obligation, unfinished or unsatisfied, at the time of such termination or withdrawal, if the transaction or obligation arises out of Operations prior to such termination or withdrawal. The Manager shall have the power and authority to grant or receive extensions of time or change the method of payment of an already existing liability or obligation, prosecute and defend actions on behalf of the Participants and the Venture, mortgage Assets and take any other reasonable action in any matter with respect to which the former Participants continue to have, or appear or are alleged to have, a common interest or a common liability. ARTICLE XIII ------------ ACQUISITIONS WITHIN AREA OF INTEREST ------------------------------------- 13.1 General. Any interest or right to acquire any interest in real property -------- within the Area of Interest acquired during the term of this Agreement by or on behalf of a Participant or any Affiliate shall be subject to the terms and provisions of this Agreement. 13.2 Notice to Nonacquiring Participant. Within 15 days after the ----------------------------------- acquisition of any interest or the right to acquire any interest in real property wholly or partially within the Area of Interest (except real property acquired by the Manager pursuant to a Program), the acquiring Participant shall notify the other Participant of such acquisition. The acquiring Participant's notice shall describe in detail the acquisition, the lands and minerals covered thereby, the cost thereof and the reasons why the acquiring Participant believes that the acquisition of the interest is in the best interests of the Participants under this Agreement. In addition to such notice, the acquiring Participant shall make any and all information concerning the acquired interest available for inspection by the other Participant. 13.3 Option Exercised. If, within 30 days after receiving the acquiring ----------------- Participant's notice, the other Participant notifies the acquiring Participant of its election to accept a proportionate interest in the acquired interest equal to its Participating Interest, the acquiring Participant shall convey to the other Participant, by special warranty deed, such a proportionate undivided interest therein. The acquired interest shall become a part of the Properties for all purposes of this Agreement immediately upon the notice of such other Participant's election to accept the 53 proportionate interest therein. Such other Participant shall promptly pay to the acquiring Participant its proportionate share of the latter's actual out-of- pocket acquisition costs. 13.4 Option Not Exercised. If the other Participant does not give such --------------------- notice within the 30-day period set forth in Section 13.3, it shall have no interest in the acquired interest, and the acquired interest shall not be a part of the Properties or be subject to this Agreement. ARTICLE XIV ----------- ABANDONMENT AND SURRENDER OF PROPERTIES ---------------------------------------- 14.1 Surrender or Abandonment of Property. The Management Committee may ------------------------------------- authorize the Manager to surrender or abandon part or all of the Properties. If the Management Committee authorizes any such surrender or abandonment over the objection of a Participant, the Participant that desires to abandon or surrender shall assign to the objecting Participant, by special warranty deed and without cost to the surrendering Participant, all of the surrendering Participant's interest in the property to be abandoned or surrendered, and the abandoned or surrendered property shall cease to be part of the Properties. 14.2 Reacquisition. If any Properties are abandoned or surrendered under the -------------- provisions of this Article XIV, then, unless this Agreement is earlier terminated, neither Participant nor any Affiliate thereof shall acquire any interest in such Properties or a right to acquire such Properties for a period of one year following the date of such abandonment or surrender. If a Participant reacquires any Properties in violation of this Section 14.2, the other Participant may elect by notice to the reacquiring Participant within 45 days after it has actual notice of such reacquisition to have such properties made subject to the terms of this Agreement. In the event such an election is made, the reacquired properties shall thereafter be treated as Properties, and the costs of reacquisition shall be borne solely by the reacquiring Participant and shall not be included for purposes of calculating the Participants' respective Participating Interests. ARTICLE XV ---------- TRANSFER OF INTEREST --------------------- 54 15.1 General. A Participant shall have the right to Transfer to any third -------- party all or any part of its interest in or to this Agreement, its Participating Interest or the Assets solely as provided in this Article XV. 15.2 Limitations on Free Transferability. The Transfer right of a ------------------------------------ Participant in Section 15.1 shall be subject to the following terms and conditions: (a) No transferee of all or any part of the interest of a Participant in this Agreement, any Participating Interest or the Assets shall have the rights of a Participant unless and until the transferring Participant has provided to the other Participant notice of the Transfer, and except as provided in Sections 15.2(g) and 15.2(h), the transferee, as of the effective date of the Transfer, has committed in writing to be bound by this Agreement to the same extent as the transferring Participant; (b) No Participant, without the consent of the other Participant, shall make a Transfer which shall cause termination of the tax partnership established by the provisions of Section 4.2; (c) No Transfer permitted by this Article XV shall relieve the transferring Participant of its share of any liability, whether accruing before or after such Transfer, which arises out of Operations conducted prior to such Transfer; (d) As provided in Exhibit C, Article IV, the transferring Participant and the transferee shall bear all tax consequences of the Transfer; (e) In the event of a Transfer of less than all of a Participating Interest, the transferring Participant and its transferee shall act and be treated as one Participant; (f) No Participant shall Transfer any interest in this Agreement or the Assets except by Transfer of part or all of its Participating Interest; (g) If the Transfer is the grant of a security interest by mortgage, deed of trust, pledge, lien or other encumbrance of any interest in this Agreement, any Participating Interest or the Assets to secure a loan or other indebtedness of a Participant in a bona fide transaction, such security interest shall be subordinate to the terms of this Agreement and the rights and interests of the other Participant hereunder. Upon any foreclosure or other enforcement of rights in the security 55 interest, the acquiring third party shall be deemed to have assumed the position of the encumbering Participant with respect to this Agreement and the other Participant, and it shall comply with and be bound by the terms and conditions of this Agreement; (h) If a sale or other commitment or disposition of Products or proceeds from the sale of Products by a Participant upon distribution to it pursuant to Article XI creates in a third party a security interest in Products or proceeds therefrom prior to such distribution, such sales, commitment or disposition shall be subject to the terms and conditions of this Agreement; and (i) If, contrary to Section 15.2(b), a Transfer is made which causes termination of the tax partnership established by Section 4.2, the transferring Participant shall indemnify, defend and hold harmless the other Participant from and against any and all loss, cost, expense or damage arising from such termination. (j) Only United States currency shall be used for Transfers for consideration. 15.3 Preemptive Right. Except as otherwise provided in Section 15.4, if a ----------------- Participant desires to Transfer all or any part of its interest in this Agreement, any Participating Interest or the Assets, the other Participant shall have a preemptive right to acquire such interests as provided in this Section 15.3. (a) A Participant intending to Transfer all or any part of its interest in this Agreement, any Participating Interest or the Assets shall promptly notify the other Participant of its intentions. The notice shall state the price and all other pertinent terms and conditions of the intended Transfer. The other Participant shall have 45 days from the date such notice is delivered to notify the transferring Participant whether it elects to acquire the offered interest at the same price and on the same terms and conditions as set forth in the notice. If it does so elect, the Transfer shall be consummated promptly after notice of such election is delivered to the transferring Participant. (b) If the other Participant fails to so elect within the period provided for in Section 15.3(a), the transferring Participant shall have 90 days following the expiration of such period to consummate the Transfer to a third party at a price and on terms no less favorable to the 56 transferring Participant than those offered by the transferring Participant to the other Participant in the notice required in Section 15.3(a). (c) If the transferring Participant fails to consummate the Transfer to a third party within the period set forth in Section 15.3(b), the preemptive right of the other Participant in such offered interest shall be deemed to be revived. Any subsequent proposal to Transfer such interest shall be conducted in accordance with all of the procedures set forth in this Section 15.3. 15.4 Exceptions to Preemptive Right. Section 15.3 shall not apply to the ------------------------------- following: (a) Transfer by a Participant of all or any part of its interest in this Agreement, any Participating Interest or the Assets to an Affiliate; (b) Incorporation of a Participant, or corporate merger, consolidation, amalgamation or reorganization of a Participant by which the surviving entity shall possess substantially all of the stock, or all of the property rights and interests, and be subject to substantially all of the liabilities and obligations of that Participant; (c) The grant by a Participant of a security interest in any interest in this Agreement, any Participating Interest, or the Assets by mortgage, deed of trust, pledge, lien or other encumbrance; or (d) A sale or other commitment or disposition of Products or proceeds from sale of Products by a Participant upon distribution to it pursuant to Article XI. 15.5 Atlas Mill Complex. The Venture's rights with respect to the Atlas Mill ------------------- Complex, as set forth in Section 5.5 and elsewhere in this Agreement, shall be deemed to run with the land and shall be binding upon ATLAS, its successors and assigns. No Transfer by ATLAS to any third party, of any right, title or interest in or to the Atlas Mill Complex shall be valid or effective unless and until such third party transferee has executed a written undertaking, in form and substance reasonably satisfactory to GRANGES, agreeing to be bound in all respects by this Agreement and the Venture's and GRANGES' rights hereunder with respect to the Atlas Mill Complex and the milling of the Venture's Products at the Atlas Mill Complex. Additionally, in the event that ATLAS sells, conveys, transfers or assigns its ownership or operating rights in the Atlas Mill Complex to a third party who is not (or does not at the same time become) the Manager of the 57 Venture, GRANGES shall have all of the rights set forth in Section 5.5(i) to operate the Atlas Mill Complex on behalf of the Venture or to appoint a third party to operate the Atlas Mill Complex on behalf of the Venture. The preceding sentence shall not apply to the grant of a security interest in the Atlas Mill Complex. The provisions of this Section 15.5 shall apply only during the term of the definitive toll milling agreement and at all times prior thereto. ARTICLE XVI ----------- DISPUTES --------- 16.1 Arbitration. ------------ (a) Any disagreement or dispute arising out of or relating to this Agreement, its existence, interpretation, performance or enforcement not the subject of Section 7.2 and not resolved by the Participant within fifty days after the date on which one party notifies the other of any such disagreement or dispute shall be settled by arbitration in accordance with this Section 16. (b) Matters subject to arbitration shall be settled by arbitration before a panel of three arbitrators in Reno, Nevada, in accordance with the commercial arbitration rules of the American Arbitration Association in effect at the time of arbitration. In the event of a conflict between those commercial arbitration rules and this Section 16, this Section 16 shall control. The judgment of the arbitrators as to such matters shall be binding upon the parties to this Agreement, and judgment upon any award rendered by the arbitrators may be entered in any court having jurisdiction under the provisions of the Nevada Revised Statutes pertaining to arbitration and award as they may be amended from time to time. (c) To demand arbitration any Participant (the "demanding party") shall give written notice to the other Participant (the "responding party"). Such notice shall specify the nature of the issues in dispute, the amount involved, and the remedy requested. Within twenty days of the receipt of the notice, the responding party shall answer the demand in writing, specifying the issues that party disputes. The parties shall thereupon each select one arbitrator, who shall be qualified by skill and experience in the subject matter under dispute. Within fifteen days thereafter, the two appointed arbitrators shall jointly select a third arbitrator similarly qualified. 58 (d) Within twenty days after the third arbitrator has been selected or appointed, each party to the dispute shall submit to the arbitrators a written statement of its position as to the matter being arbitrated, including its position on the necessity for discovery or a formal hearing. The arbitrators shall, within fifteen days after submission of statements, establish a schedule for the arbitration proceedings and issues orders relating to the conduct of such proceedings, governing, among other matters, the extent and nature of any discovery to be allowed and the necessity of a formal hearing. If a hearing is held, the arbitrators shall issue a decision as to the resolution of the dispute within fifteen days after the hearing. A majority ruling by the arbitrators shall be binding on the parties. All costs, expenses and fees, plus reasonable attorneys' fees, shall be recoverable by or paid to the substantially prevailing party in any dispute resolved by arbitration. ARTICLE XVII ------------ CONFIDENTIALITY ---------------- 17.1 General. The financial terms of this Agreement and all information -------- obtained in connection with the performance of this Agreement shall be the exclusive property of the Participants and, except as provided in Section 17.2, shall not be disclosed to any third party or the public without the prior written consent of the other Participant, which consent shall not be unreasonably withheld. 17.2 Exceptions. The consent required by Section 17.1 shall not apply to a ----------- disclosure: (a) To an Affiliate, consultant, contractor or subcontractor that has a bona fide need to be informed; (b) To any third party to whom the disclosing Participant contemplates a Transfer of all or any part of its interest in or to this Agreement, its Participating Interest, or the Assets; or (c) To a governmental agency or to the public which the disclosing Participant believes in good faith is required by pertinent law or regulation or the rules of any stock exchange. In any case to which this Section 17.2 is applicable, the disclosing Participant shall give notice to the other Participant concurrently with the making of such disclosure. As to any disclosure pursuant to Section 17.2(a) or (b), only such confidential information as such third party shall have a legitimate business need to know shall be disclosed and such third party shall first agree in 59 writing to protect the confidential information from further disclosure to the same extent as the Participants are obligated under this Article XVII. 17.3 Duration of Confidentiality. The provisions of this Article XVII shall --------------------------- apply during the term of this Agreement and for two years following termination of this Agreement pursuant to Section 12.1 or 12.2, and shall continue to apply to any Participant who withdraws, who is deemed to have withdrawn or who Transfers its Participating Interest, for two years following the date of such occurrence. ARTICLE XVIII --------------------------- GENERAL PROVISIONS --------------------------- 18.1 Notices. All notices, payments and other required communications ------- ("Notices") to the Participants shall be in writing, and shall be addressed respectively as follows: ATLAS GRANGES ----- ------- Atlas Corporation Granges (U.S.) Inc. 370 17th Street, #3150 350 S. Rock Blvd., #E Denver, CO 80202 Reno, NV 89502 Ph: 303-825-1200 Ph: 702-856-2722 Fax: 303-892-8808 Fax: 702-856-1186 Attn: Land Department Attn: Exploration Manager All Notices shall be given (i) by personal delivery to the Participant, or (ii) by electronic communication, with a confirmation sent by registered or certified mail, return receipt requested, or (iii) by registered or certified mail, return receipt requested. All Notices shall be effective and shall be deemed delivered (i) if by personal delivery on the date of delivery if delivered during normal business hours, and, if not delivered during normal business hours, on the next business day following delivery, (ii) if by electronic communication, on the next business day following receipt of the electronic communication, and (iii) if solely by mail, on the next business day after actual receipt. A Participant may change its address by Notice to the other Participant. 18.2 Waiver. The failure of a Participant to insist on the strict ------- performance of any provision of this Agreement, or to exercise any right, power or remedy upon a breach hereof, shall not constitute a waiver of any provision of this Agreement or limit the Participant's right thereafter to enforce any provision or exercise any right. 60 18.3 Modification. No modification of this Agreement shall be valid unless ------------- made in writing and duly executed by the Participants. 18.4 Force Majeure. Except for the obligation to make payments when due -------------- hereunder, the obligations of a Participant shall be suspended to the extent and for the period that performance is prevented by any cause, whether foreseeable or unforeseeable, beyond its reasonable control, including, without limitation, labor disputes (however arising and whether or not employee demands are reasonable or within the power of the Participant to grant); acts of God; laws, regulations, orders, proclamations, instructions or requests of any government or governmental entity; judgments or orders of any court; inability to obtain, on reasonably acceptable terms, any public or private license, permit or other authorization; curtailment or suspension of activities to remedy or avoid an actual or alleged, present or prospective violation of federal, state or local environmental standards; acts of war or conditions arising out of or attributable to war, whether declared or undeclared; riot, civil strife, insurrection or rebellion; fire, explosion, earthquake, storm, flood, sink holes, drought or other adverse weather condition; delay or failure by suppliers or transporters of materials, parts, supplies, services or equipment or by contractors' or subcontractors' shortage of, or inability to obtain, labor, transportation, materials, machinery, equipment, supplies, utilities or services; accidents; breakdown of equipment, machinery or facilities; or any other cause, whether similar or dissimilar to the foregoing. The affected Participant shall promptly give notice to the other Participant of the suspension of performance, stating therein the nature of the suspension, the reasons therefor, and the expected duration thereof. The affected Participant shall resume performance as soon as reasonably possible. During the period of suspension, the obligations of the Participants to advance funds pursuant to Section 10.2 shall be reduced to levels consistent with Operations. The periods allowed for the performance of obligations other than the payment of money arising under this Agreement ("Performance Periods") shall be extended for a period equal to the duration of any force majeure occurring during such Performance Period. 18.5 Governing Law. This Agreement shall be governed by and interpreted in -------------- accordance with the laws of the State of Nevada, except for its rules pertaining to conflicts of laws. 61 18.6 Rule Against Perpetuities. Any right or option to acquire any interest -------------------------- in real or personal property under this Agreement must be exercised, if at all, so as to vest such interest in the acquirer within 21 years after the effective date of this Agreement. 18.7 Further Assurances. Each of the Participants agrees to take, from time ------------------- to time, such actions and execute such additional instruments as may be reasonably necessary or convenient to implement and carry out the intent and purpose of this Agreement. 18.8 Survival of Terms and Conditions. The following Sections shall survive --------------------------------- the termination of this Agreement to the full extent necessary for their enforcement and the protection of the Participant in whose favor they run: Sections 2.2, 4.5, 5.1(C)(2), 6.4, 6.6, 10.3, 12.2, 12.3, 12.4, 12.5, 12.6 and 12.7. 18.9 Entire Agreement; Successors and Assigns. This Agreement contains the ----------------------------------------- entire understanding of the Participants and supersedes all prior agreements and understandings between the Participants relating to the subject matter hereof. This Agreement shall be binding upon and inure to the benefit of the respective successors and permitted assigns of the Participants. In the event of any conflict between this Agreement and any Exhibit attached hereto, the terms of this Agreement shall be controlling. 18.10 Memorandum. At the request of either Participant, a Memorandum of ----------- this Agreement, in form and substance satisfactory to both Participants, shall be executed and recorded. This Agreement shall not be recorded. 18.11 Public Announcements. The Participants shall, in advance of making or --------------------- its parent making, a public announcement to a stock exchange or otherwise, advise the other Participant of the text of the proposed report and provide the other Participant with the opportunity to make comment upon the form and content thereof before the same is issued, provided, however, that a Participant may make a public disclosure it believes in good faith is required by applicable law or any listing or trading agreement concerning the publicly traded securities of its direct or indirect parent (in which case the disclosing Participant will use its reasonable best efforts to advise the other Participant prior to the disclosure). If the other Participant does not respond within forty-eight hours (excluding weekends and holidays) or such lesser time specified as the maximum by the 62 issuing Participant the announcement or report may be issued. The final text of same, and timing, manner, and mode of release shall be the sole responsibility of the issuing Participant who shall indemnify, defend, and hold the other Participant harmless in respect of any third party claims arising therefrom. 18.12 Counterparts. This Agreement may be executed in counterparts, all of ------------- which taken together shall constitute a single valid and fully effective agreement. Delivery of execution pages may be accomplished by FAX and shall be followed promptly by delivery of hard copy. 18.13 Guaranty by Granges, Inc. For good and valuable consideration, the -------------------------- receipt and sufficiency of which are hereby acknowledged, Granges Inc., a British Columbia corporation and the sole shareholder of GRANGES ("Granges Inc.") guarantees unto ATLAS its permitted successors and assigns the full performance by GRANGES of GRANGES' obligations, covenants, undertakings, indemnities, representations and warranties (collectively, the "Obligations") set forth in this Agreement, in accordance with and subject to the terms, conditions, limitations and qualifications set forth in this Agreement, as it may be amended from time to time by GRANGES and ATLAS. In the event that GRANGES does not fully perform any such Obligations, Granges Inc. agrees to perform such Obligations as if it were the primary obligor therefor. IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the date first above written. ATLAS CORPORATION By: __________________________________ Gary E. Davis President Attest: __________________________________ Jerome C. Cain Secretary 63 ATLAS PRECIOUS METALS INC. By: __________________________________ President Attest: __________________________________ Secretary ATLAS GOLD MINING INC. By: __________________________________ President GRANGES (U.S.) INC. By: __________________________________ President By: __________________________________ Treasurer GRANGES, INC. (as to Section 18.13 only) By: __________________________________ President By: __________________________________ Vice President, Finance 65 EXHIBIT A --------- PROPERTIES AND TITLE EXCEPTIONS ------------------------------- PART 1. MINERAL ESTATE IN AND UNDERLYING THE ATLAS MILL COMPLEX : - ------- --------------------------------------------------------- The entire mineral estate in any underlying the patented lode and millsite claims described below in Part A of this Part 1 and the entire mineral estate in and underlying the unpatented millsite claims described below in Part B of this Part 1, together with: (i) the right of Access across the surface of such claims and the right to use and consume so much of the surface of such claims as may be reasonably necessary or convenient to the Exploration, Development and Mining of such mineral estate, by whatever method is now known or subsequently developed, including without limitation by open pit or surface mining methods; and (ii) the right to use the surface of such claims for the conduct of Operations, including without limitation the treatment, processing, milling, leaching or beneficiation of Products and the disposal of tailings, overburden, waste, rock and other by-products and materials. Subject to the preceding sentence, the Atlas Mill Complex (as defined in Section 1.8 of the Agreement) is expressly excluded from the Properties. Notwithstanding the foregoing, the Venture's right to use the surface of such claims shall not interfere unreasonably with ATLAS' operations at the Atlas Mill Complex, its use of the existing access road to the Atlas Mill Complex or ATLAS' existing haul road and ATLAS shall have the right to conduct such operations as it deems necessary at the Atlas Mill Complex. A. Patent Claims (Fee Lands). The mineral estate and other rights described ------------------------- above in and to the following patented lode claims located in Sections 22, 23, 26, and 27, Township 22 North, Range 49 East, M.D.M., Eureka County, Nevada:
Claim Name Mineral Survey Number Patent Number - ---------- --------------------- ------------- WAH 29 5004 27-89-0038 WAH 31 5004 27-89-0038 WAH 33 5004 27-89-0038 WAH 35 5004 27-89-0038 WAH 37 5004 27-89-0038 WAH 39 5004 27-89-0038
The mineral estate and other rights described above in and to the following patented millsite claims located in Sections 26, 27, and 28, Township 22 North, Range 49 East, M.D.M., Eureka County, Nevada:
Claim Name Mineral Survey Number Patent Number - ---------- --------------------- ------------- AM 107 5005 27-89-0038 AM 108 5005 27-89-0038 AM 109 5005 27-89-0038
A-1
Claim Name Mineral Survey Number Patent Number - ---------- --------------------- ------------- AM 115 5005 27-89-0038 AM 116 5005 27-89-0038 AM 117 5005 27-89-0038 AM 162 5006 27-89-0038 AM 209 5007 27-89-0038
B. Unpatented Millsite Claims. The mineral estate and other rights described -------------------------- above in and to the following unpatented millsite claims located in Sections 26- 28, 33, and 34, Township 22 North, Range 49 East, M.D.M., Eureka County, Nevada:
RECORDING AMENDMENT CLAIM NAME BOOK PAGE BOOK PAGE BLM NMC NO. - ---------- ---- ---- ---- ---- ----------- AM 65 134 480 NMC 338635 AM 66 134 481 NMC 338636 AM 67 134 482 NMC 338637 AM 68 134 483 NMC 338638 AM 69 134 484 NMC 338639 AM 71 134 486 NMC 338641 AM 72 134 487 NMC 338642 AM 73 134 488 NMC 338643 AM 74 134 489 NMC 338644 AM 75 134 490 NMC 338645 AM 76 134 491 NMC 338646 AM 77 134 492 NMC 338647 AM 78 134 493 NMC 338648 AM 79 134 494 NMC 338649 AM 80 134 495 NMC 338650 AM 81 134 496 NMC 338651 AM 82 134 497 NMC 338652 AM 83 134 498 NMC 338653 AM 84 134 499 NMC 338654 AM 85 134 500 NMC 338655 AM 86 134 501 NMC 338656 AM 87 134 502 NMC 338657 AM 88 134 503 NMC 338658 AM 89 134 504 NMC 338659 AM 90 134 505 NMC 338660 AM 91 134 506 NMC 338661 AM 92 134 507 NMC 338662 AM 93 134 508 NMC 338663 AM 94 134 509 NMC 338664
A-2
RECORDING AMENDMENT CLAIM NAME BOOK RATE BOOK RATE BLM NMC NO. - ---------- ---- ---- ---- ---- ----------- AM 95 134 510 143 118 NMC 338665 AM 96 134 511 NMC 338666 AM 97 134 512 NMC 338667 AM 98 134 513 NMC 338668 AM 99 134 514 143 119 NMC 338669 AM 100 134 515 NMC 338670 AM 101 134 516 NMC 338671 AM 102 134 517 NMC 338672 AM 103 134 518 NMC 338673 AM 104 134 519 NMC 338674 AM 105 134 520 NMC 338675 AM 106 134 521 NMC 338676 AM 110 134 525 NMC 338680 AM 111 134 526 NMC 338681 AM 112 134 527 NMC 338682 AM 113 134 528 NMC 338683 AM 114 134 529 NMC 338684 AM 118 134 533 NMC 338688 AM 119 134 534 NMC 338689 AM 120 134 535 NMC 338690 AM 121 134 536 NMC 338691 AM 122 134 537 NMC 338692 AM 123 134 538 NMC 338693 AM 124 134 539 NMC 338694 AM 125 134 540 NMC 338695 AM 126 134 541 NMC 338696 AM 127 134 542 NMC 338697 AM 128 134 543 NMC 338698 AM 129 134 544 NMC 338699 AM 130 134 545 NMC 338700 AM 131 134 546 NMC 338701 AM 132 134 547 NMC 338702 AM 133 134 548 NMC 338703 AM 134 134 549 NMC 388704 AM 135 134 550 NMC 338705 AM 136 134 551 NMC 338706 AM 137 134 552 NMC 338707 AM 138 134 553 NMC 338708 AM 139 134 554 NMC 338709 AM 140 134 555 NMC 338710
A-3
RECORDING AMENDMENT CLAIM NAME BOOK RATE BOOK RATE BLM NMC NO. - ---------- ---- ---- ---- ---- ----------- AM 141 134 556 NMC 338711 AM 142 134 557 NMC 338712 AM 143 134 558 NMC 338713 AM 144 134 559 NMC 338714 AM 145 134 560 NMC 338715 AM 146 134 561 NMC 338716 AM 147 134 562 NMC 338717 AM 148 134 563 NMC 338718 AM 149 134 564 NMC 338719 AM 150 134 565 NMC 338720 AM 151 134 566 NMC 338721 AM 152 134 567 NMC 338722 AM 153 134 568 NMC 338723 AM 154 134 569 NMC 338724 AM 155 136 037 NMC 340362 AM 156 136 038 NMC 340363 AM 157 136 039 NMC 340364 AM 158 136 040 NMC 340365 AM 159 136 041 NMC 340366 AM 160 136 042 NMC 340367 AM 161 136 043 NMC 340368 AM 163 136 045 NMC 340370 AM 164 136 046 NMC 340371 AM 165 136 047 NMC 340372 AM 166 136 048 NMC 340373 AM 167 136 049 NMC 340374 AM 168 136 050 NMC 340375 AM 169 136 051 NMC 340376 AM 170 136 052 NMC 340377 AM 171 136 053 NMC 340378 AM 172 136 054 NMC 340379 AM 173 136 055 NMC 340380 AM 174 136 056 NMC 340381 AM 175 136 057 NMC 340382 AM 176 136 058 NMC 340383 AM 177 136 059 NMC 340384 AM 178 136 060 NMC 340385 AM 179 136 061 NMC 340386 AM 180 136 062 NMC 340387 AM 181 136 063 NMC 340388
A-4
RECORDING AMENDMENT CLAIM NAME BOOK RATE BOOK RATE BLM NMC NO. - ---------- ---- ---- ---- ---- ----------- AM 182 136 064 NMC 340389 AM 183 136 065 NMC 340390 AM 184 136 066 NMC 340391 AM 185 136 067 NMC 340392 AM 186 136 068 NMC 340393 AM 187 136 069 NMC 340394 AM 188 136 070 NMC 340395 AM 189 136 071 NMC 340396 AM 190 136 072 NMC 340397 AM 191 136 073 NMC 340398 AM 192 136 074 NMC 340399 AM 193 136 075 NMC 340400 AM 194 136 076 NMC 340401 AM 195 136 077 NMC 340402 AM 196 136 078 NMC 340403 AM 197 136 079 NMC 340404 AM 198 136 080 NMC 340405 AM 199 136 081 NMC 340406 AM 200 136 082 NMC 340407 AM 201 136 083 NMC 340408 AM 202 136 084 NMC 340409 AM 203 136 085 NMC 340410 AM 204 136 086 NMC 340411 AM 205 136 087 NMC 340412 AM 206 136 088 NMC 340413 AM 207 136 089 NMC 340414 AM 208 136 090 NMC 340415 AM 210 139 006 143 153 NMC 348562 AM 211 139 007 143 154 NMC 348563 AM 212 139 008 143 155 NMC 348564 AM 213 139 009 143 156 NMC 348565 AM 214 139 010 143 157 NMC 348566 AM 215 143 199 NMC 363945 AM 216 143 200 NMC 363946 AM 217 143 201 NMC 363947 AM 218 143 202 NMC 363948 AM 219 143 203 NMC 363949 AM 220 143 204 NMC 363950 AM 221 143 205 NMC 363951 AM 210 178 204 NMC 485110
A-5
RECORDING AMENDMENT CLAIM NAME BOOK PAGE BOOK PAGE BLM NMC NO. - ---------- ---- ---- ---- ---- ----------- Amended to be AM 222 181 353 AM 211 178 205 NMC 485111 Amended to be AM 223 181 354 AM 212 178 206 NMC 485112 Amended to be AM 224 181 355 AM 213 178 207 NMC 485113 Amended to be AM 225 181 356 AM 214 178 208 NMC 485114 Amended to be AM 226 181 357 AM 215 178 209 NMC 485115 Amended to be AM 227 181 358 AM 216 178 210 NMC 485116 Amended to be AM 228 181 359 AM 217 178 211 NMC 485117 Amended to be AM 229 181 360 AM 218 178 212 NMC 485118 Amended to be AM 230 181 361 AM 231 211 337 NMC 600579 AM 232 211 338 NMC 600580 AM 233 211 339 NMC 600581 AM 234 211 340 NMC 600582 AM 235 211 341 NMC 600583 AM 236 211 342 NMC 600584 AM 237 211 343 NMC 600585 AM 238 211 344 NMC 600586 AM 239 211 345 NMC 600587 AM 240 211 346 NMC 600588 AM 241 211 347 NMC 600589 AM 242 211 348 NMC 600590 AM 243 211 349 NMC 600591 AM 244 211 350 NMC 600592 AM 245 211 351 NMC 600593 AM 246 211 352 NMC 600594 AM 247 211 353 NMC 600595 AM 248 211 354 NMC 600596 AM 249 211 355 NMC 600597 AM 250 211 356 NMC 600598 AM 251 211 357 NMC 600599 AM 252 211 358 NMC 600600 AM 253 211 359 NMC 600601
A-6
RECORDING AMENDMENT CLAIM NAME BOOK RATE BOOK RATE BLM NMC NO. - ---------- ---- ---- ---- ---- ----------- AM 254 211 360 NMC 600602
PART 2. LEASED PROPERTIES: --------------------------- A. Mining Lease dated July 5, 1994, by and between Eureka Livestock Company, a California partnership, et al, Lessor, and Atlas Precious Metals Inc., a Nevada corporation, Lessee, a short form of which is recorded in Book 284, Page 187, of the Official Records of Eureka County, Nevada, covering, in part, the following fee lands: THREE BARS RANCH A 100% interest in the Surface estate and a 66.67% interest in the Mineral estate: Township 22 North, Range 49 East, M.D.M. - ---------------------------------------- Section 4: N/2 NW/4, SE/4 NW/4, W/2 NE/4, SE/4 NE/4, W/2 SE/4, NE/4 SW/4 Section 9: W/2 NE/4, W/2 SE/4 Section 16: NW/4 NE/4 Township 23 North, Range 49 East, M.D.M. - ---------------------------------------- Section 33: S/2 NW/4 SE/4, E/2 SW/4, SW/4 SW/4 Comprising approximately 700 acres. MARE'S FIELD A 100% interest in the Surface estate and a 66.67% interest in the Mineral estate: Township 22 North, Range 49 East, M.D.M. - ---------------------------------------- Section 8: S/2 SE/4 Section 17: N/2 NE/4, SE/4 NE/4 Comprising approximately 200 acres. B. Mining Lease and Option to Purchase, dated August 8, 1990, as amended, between Lana Resources (U.S.) Inc., Lessor, and Atlas Precious Metals Inc., Lessee, recorded in Book 213, Page 253 of the Official Records of Eureka County, Nevada, covering, in part, the following unpatented lode mining claims located in Sections 11-13, Township 22 North, Range 49 East, M.D.M., Eureka County, Nevada: A-7
RECORDING AMENDMENT CLAIM NAME BOOK RATE BOOK RATE BLM NMC NO. - ---------- ---- ---- ---- ---- ----------- Golden Clam 1 111 543 NMC 273622 Golden Clam 2 111 544 NMC 273623 Golden Clam 3 111 545 NMC 273624 Golden Clam 4 111 546 NMC 273625 Golden Clam 5 111 547 NMC 273626 Golden Clam 6 111 548 NMC 273627 Golden Clam 7 111 549 NMC 273628 Golden Clam 8 111 550 NMC 273629 Golden Clam 9 111 551 NMC 273630 Golden Clam 10 111 552 NMC 273631 Golden Clam 11 111 553 NMC 273632 Golden Clam 12 111 554 NMC 273633 Golden Clam 13 111 555 NMC 273634 Golden Clam 14 111 556 NMC 273635 Golden Clam 15 111 557 NMC 273636 Golden Clam 16 111 558 NMC 273637 Golden Clam 17 111 559 NMC 273638 Golden Clam 18 111 560 NMC 273639 Golden Clam 19 111 561 NMC 273640 Golden Clam 20 111 562 NMC 273641
PART 3. LOCATED CLAIMS: ------- ----------------- A. The following unpatented lode mining claims located in Sections 2-4, 9-16, 18, 19, 22-27, 29, 30, 33, and 34, Township 22 North, Range 9 East, M.D.M., and Sections 7, 8, 16-22, 26-30, 33, and 34, Township 22 North, Range 50 East, M.D.M., Eureka County, Nevada:
RECORDING AMENDMENT CLAIM NAME BOOK RATE BOOK RATE BLM NMC NO. - ---------- ---- ---- ---- ---- ----------- Jasper 0 119 126 NMC 294904 Jasper 1 115 539 NMC 288224 Jasper lA 132 209 NMC 329948 Jasper 2 115 540 NMC 288225 Jasper 3 115 541 NMC 288226 Jasper 3A 132 210 NMC 329949 Jasper 4 115 542 NMC 288227
A-8
RECORDING AMENDMENT CLAIM NAME BOOK PAGE BOOK PAGE BLM NMC NO. - ---------- ---- ---- ---- ---- ----------- Jasper 5 115 543 NMC 288228 Jasper 5A 132 211 NMC 329950 Jasper 6 115 544 NMC 288229 Jasper 7 115 545 NMC 288230 Jasper 8 115 546 NMC 288231 Jasper 9 115 547 NMC 288232 Jasper 10 115 548 NMC 288233 Jasper 11 115 549 NMC 288234 Jasper 12 115 550 NMC 288235 Jasper 13 115 551 NMC 288236 Jasper 14 115 552 NMC 288237 Jasper 15 115 553 NMC 288238 Jasper 16 115 554 NMC 288239 Jasper 17 115 555 NMC 288240 Jasper 18 115 556 NMC 288241 Jasper 19 115 557 NMC 288242 Jasper 20 115 558 NMC 288243 Jasper 21 115 559 NMC 288244 Jasper 22 115 560 NMC 288245 Jasper 23 115 561 NMC 288246 Jasper 24 115 562 NMC 288247 Jasper 25 115 563 NMC 288248 Jasper 26 115 564 NMC 288249 Jasper 27 115 565 NMC 288250 Jasper 28 115 566 NMC 288251 Jasper 29 115 567 NMC 288252 Jasper 30 115 568 NMC 288253 Jasper 31 115 569 NMC 288254 Jasper 32 115 570 NMC 288255 Jasper 33 115 571 NMC 288256 Jasper 34 115 572 NMC 288257 Jasper 35 115 573 NMC 288258 Jasper 36 115 574 NMC 288259 Jasper 37 115 575 NMC 288260 Jasper 38 115 576 NMC 288261 Jasper 39 115 577 NMC 288262 Jasper 40 115 578 NMC 288263 Jasper 41 115 579 NMC 288264 Jasper 42 115 580 NMC 288265
A-9
RECORDING AMENDMENT CLAIM NAME BOOK PAGE BOOK PAGE BLM NMC NO. - ---------- ---- ---- ---- ---- ----------- Jasper 43 115 581 NMC 288266 Jasper 44 115 582 NMC 288267 Jasper 45 115 583 NMC 288268 Jasper 46 115 584 NMC 288269 Jasper 47 115 585 NMC 288270 Jasper 48 115 586 NMC 288271 Jasper 49 115 587 NMC 288272 Jasper 50 115 588 NMC 288273 Jasper 51 115 589 NMC 288274 Jasper 52 115 590 NMC 288275 Jasper 53 115 591 NMC 288276 Jasper 54 115 592 NMC 288277 Jasper 55 115 593 NMC 288278 Jasper 56 115 594 NMC 288279 Jasper 57 115 595 NMC 288280 Jasper 58 115 596 NMC 288281 Jasper 59 115 597 NMC 288282 Jasper 60 115 598 NMC 288283 Jasper 61 115 599 NMC 288284 Jasper 62 115 600 NMC 288285 Jasper 62A 132 212 NMC 329951 Jasper 63 116 001 NMC 288286 Jasper 63A 132 213 NMC 329952 Jasper 64 116 002 NMC 288287 Jasper 64A 132 214 NMC 329953 Jasper 65 116 003 NMC 288288 Jasper 66 116 004 NMC 288289 Jasper 67 116 005 NMC 288290 Jasper 68 116 006 NMC 288291 Jasper 69 116 007 NMC 288292 Jasper 70 116 008 NMC 288293 Jasper 71 116 009 NMC 288294 Jasper 72 116 010 NMC 288295 Jasper 73 116 011 NMC 288296 Jasper 102 116 040 NMC 288325 Jasper 103 116 041 NMC 288326 Jasper 104 116 042 NMC 288327 Jasper 105 116 043 NMC 288328 Jasper 106 116 044 NMC 288329
A-10
RECORDING AMENDMENT CLAIM NAME BOOK PAGE BOOK PAGE BLM NMC NO. - ---------- ---- ---- ---- ---- ----------- Jasper 107 116 045 NMC 288330 Jasper 108 116 046 NMC 288331 Jasper 111 119 127 NMC 294905 Jasper 112 119 128 NMC 294906 Jasper 113 119 129 NMC 294907 Jasper 114 119 130 NMC 294908 Jasper 115 119 131 NMC 294909 Jasper 116 119 132 NMC 294910 Jasper 117 119 133 NMC 294911 Jasper 118 119 134 NMC 294912 Jasper 119 119 135 NMC 294913 Jasper 120 119 136 NMC 294914 Jasper 121 119 137 NMC 294915 Jasper 122 119 138 NMC 294916 Jasper 123 119 139 NMC 294917 Jasper 124 119 140 NMC 294918 Jasper 125 119 141 NMC 294919 Jasper 126 119 142 NMC 294920 Jasper 127F 119 144 NMC 294922 Jasper 128 119 145 NMC 294923 Jasper 129 119 146 NMC 294924 Jasper 130 119 147 NMC 294925 Jasper 131 119 148 NMC 294926 Jasper 132 119 149 NMC 294927 Jasper 133 119 150 NMC 294928 Jasper 134 119 151 NMC 294929 Jasper 135 119 152 NMC 294930 Jasper 136 119 153 NMC 294931 Jasper 137 119 154 NMC 294932 Jasper 138 119 155 NMC 294933 Jasper 139 119 156 NMC 294934 Jasper 140 119 157 NMC 294935 Jasper 141 119 158 NMC 294936 Jasper 142 119 159 NMC 294937 Jasper 143 119 160 NMC 294938 Jasper 144 119 161 NMC 294939 Jasper 145 119 162 NMC 294940 Jasper 146 119 163 NMC 294941 Jasper 147 119 164 NMC 294942
A-11 RECORDING AMENDMENT CLAIM NAME BOOK PAGE BOOK PAGE BLM NMC NO. - ---------- ---- ---- ---- ---- ----------- Jasper 148 119 165 NMC 294943 Jasper 149 119 166 NMC 294944 Jasper 150 119 167 NMC 294945 Jasper 151 119 168 NMC 294946 Jasper 152 119 169 NMC 294947 Jasper 153 119 170 NMC 294948 Jasper 154 119 171 NMC 294949 Jasper 155 119 172 NMC 294950 Jasper 156 119 173 NMC 294951 Jasper 158 119 175 NMC 294953 Jasper 160 119 177 NMC 294955 Jasper 162 119 179 NMC 294957 Jasper 163 119 180 NMC 294958 Jasper 164 119 181 NMC 294959 Jasper 166 119 183 NMC 294961 Jasper 170 119 187 NMC 294965 Jasper 172 119 189 NMC 294967 Jasper 200 119 206 NMC 294984 Jasper 201 119 207 NMC 294985 Jasper 202 119 208 NMC 294986 Jasper 203 119 209 NMC 294987 Jasper 204 119 210 NMC 294988 Jasper 205 119 211 NMC 294989 Jasper 206 119 212 NMC 294990 Jasper 211 119 217 NMC 294995 Jasper 212 119 218 NMC 294996 Jasper 213 119 219 NMC 294997 Jasper 214 119 220 NMC 294998 Jasper 215 119 221 NMC 294999 Jasper 216 119 222 NMC 295000 Jasper 217 119 223 NMC 295001 Jasper 218 119 224 NMC 295002 Jasper 219 119 225 NMC 295003 Jasper 220 119 226 NMC 295004 A-12 RECORDING AMENDMENT CLAIM NAME BOOK PAGE BOOK PAGE BLM NMC NO. - ---------- ---- ---- ---- ---- ----------- Jasper 221 119 227 NMC 295005 Jasper 222 119 228 NMC 295006 Jasper 223 119 229 NMC 295007 Jasper 224 119 230 NMC 295008 Jasper 225 119 231 NMC 295009 Jasper 226 119 232 NMC 295010 Jasper 227 119 233 NMC 295011 Jasper 228 119 234 NMC 295012 Jasper 229 119 235 NMC 295013 Jasper 230 119 236 NMC 295014 Jasper 231 119 237 NMC 295015 Jasper 232 119 238 NMC 295016 Jasper 233 119 239 NMC 295017 Jasper 234 120 005 NMC 296352 Jasper 235 120 006 NMC 296353 Jasper 236 120 007 NMC 296354 Jasper 237 120 008 NMC 296355 Jasper 238 120 009 NMC 296356 Jasper 239 120 010 NMC 296357 Jasper 240 120 011 NMC 296358 Jasper 241 120 012 NMC 296359 Jasper 242 120 013 NMC 296360 Jasper 243 120 014 NMC 296361 Jasper 244 120 015 NMC 296362 Jasper 245 120 016 NMC 296363 Jasper 246 120 017 NMC 296364 Jasper 247 120 018 NMC 296365 Jasper 248 120 019 NMC 296366 Jasper 249 120 020 NMC 296367 Jasper 250 120 021 NMC 296368 Jasper 251 120 022 NMC 296369 Jasper 252 120 023 NMC 296370 Jasper 253 120 024 NMC 296371 Jasper 254 120 025 NMC 296372 Jasper 255 120 026 NMC 296373 Jasper 256 120 027 NMC 296374 Jasper 257 120 028 NMC 296375 Jasper 258 120 029 NMC 296376 Jasper 259 120 030 NMC 296377 A-13 RECORDING AMENDMENT CLAIM NAME BOOK PAGE BOOK PAGE BLM NMC NO. - ---------- ---- ---- ---- ---- ----------- Jasper 260 120 031 NMC 296378 Jasper 261 120 032 NMC 296379 Jasper 262 120 033 NMC 296380 Jasper 263 120 034 NMC 296381 Jasper 264 120 035 NMC 296382 Jasper 265 120 036 NMC 296383 Jasper 266 120 037 NMC 296384 Jasper 267 120 038 NMC 296385 Jasper 268 120 039 NMC 296386 Jasper 269 120 040 NMC 296387 Jasper 270 120 041 141 587 NMC 296388 Jasper 271 120 042 135 052 NMC 296389 Jasper 271 (2nd amendment) 143 162 Jasper 272 120 043 135 054 NMC 296390 Jasper 272 (2nd amendment) 143 164 Jasper 273 120 044 135 056 NMC 296391 Jasper 274 120 045 135 058 MC 296392 Jasper 274 (2nd amendment) 143 166 Jasper 275 120 046 135 060 NMC 296393 Jasper 276 120 047 135 062 NMC 296394 Jasper 276 (2nd amendment) 143 168 Jasper 277 120 048 135 064 NMC 296395 Jasper 278 120 049 135 066 NMC 296396 Jasper 278 (2nd amendment) 143 170 Jasper 279 120 050 135 068 NMC 296397 Jasper 280 120 051 135 070 NMC 296398 Jasper 280 (2nd amendment) 143 172 Jasper 281 120 052 NMC 296399 Jasper 281A 125 126 135 072 NMC 314798 Jasper 282 120 053 NMC 296400 Jasper 282A 125 127 135 074 NMC 314799 Jasper 283 120 054 135 076 NMC 296401 Jasper 283A 135 078 NMC 339282 Jasper 284 120 055 141 588 NMC 296402 Jasper 285 120 056 135 080 NMC 296403 Jasper 286 120 057 141 589 NMC 296404 Jasper 287 120 058 135 082 NMC 296405 Jasper 288 120 059 NMC 296406 Jasper 289 120 060 135 084 NMC 296407 RECORDING AMENDMENT CLAIM NAME BOOK PAGE BOOK PAGE BLM NMC NO. - ---------- ---- ---- ---- ---- ----------- Jasper 289A 135 086 NMC 339283 Jasper 290 120 061 NMC 296408 Jasper 291 120 062 NMC 296409 Jasper 292 120 063 NMC 296410 Jasper 293 120 064 NMC 296411 Jasper 294 120 065 NMC 296412 Jasper 295 120 066 NMC 296413 Jasper 296 120 067 NMC 296414 Jasper 297 120 068 NMC 296415 Jasper 298 120 069 NMC 296416 Jasper 299 120 070 NMC 296417 Jasper 300 120 071 NMC 296418 Jasper 301 120 072 NMC 296419 Jasper 302 120 073 NMC 296420 Jasper 303 120 074 NMC 296421 Jasper 304 120 075 NMC 296422 Jasper 305 120 076 NMC 296423 Jasper 306 120 077 NMC 296424 Jasper 307 120 078 NMC 296425 Jasper 308 120 079 NMC 296426 Jasper 309 120 080 NMC 296427 Jasper 310 120 081 143 174 NMC 296428 Jasper 311 120 082 NMC 296429 Jasper 312 120 083 135 088 NMC 296430 Jasper 312 (2nd amendment) 143 176 Jasper 313 120 084 135 090 NMC 296431 Jasper 314 120 085 135 092 NMC 296432 Jasper 314A 135 094 143 178 NMC 339284 Jasper 315 120 086 135 096 NMC 296433 Jasper 316 120 087 135 098 NMC 296434 Jasper 316A 125 128 135 100 NMC 314800 Jasper 317 120 088 135 102 NMC 296435 Jasper 318 120 089 135 104 NMC 296436 Jasper 319 120 090 135 106 NMC 296437 Jasper 320 120 091 135 108 NMC 296438 Jasper 322 120 092 135 110 NMC 296439 Jasper 323 120 093 135 112 NMC 296440 Jasper 323A 135 114 NMC 339285 Jasper 324 120 094 NMC 296441 A-15 RECORDING AMENDMENT CLAIM NAME BOOK PAGE BOOK PAGE BLM NMC NO. - ---------- ---- ---- ---- ---- ----------- Jasper 325 120 095 NMC 296442 Jasper 326 120 096 NMC 296443 Jasper 327 120 097 NMC 296444 Jasper 328 120 098 NMC 296445 Jasper 329 120 099 NMC 296446 Jasper 330 120 100 NMC 296447 Jasper 331 120 101 NMC 296448 Jasper 332 120 102 NMC 296449 Jasper 333 120 103 NMC 296450 Jasper 334 120 104 NMC 296451 Jasper 335 120 105 NMC 296452 Jasper 336 120 106 NMC 296453 Jasper 337 120 107 NMC 296454 Jasper 338 120 108 NMC 296455 Jasper 339 120 109 NMC 296456 Jasper 340 120 110 NMC 296457 Jasper 341 120 111 NMC 296458 Jasper 342 120 112 NMC 296459 Jasper 343 120 113 NMC 296460 Jasper 344 120 114 NMC 296461 Jasper 345 120 115 NMC 296462 Jasper 346 120 116 NMC 296463 Jasper 347 120 117 NMC 296464 Jasper 348 120 118 NMC 296465 Jasper 349 120 119 NMC 296466 Jasper 350 120 120 NMC 296467 Jasper 351 120 121 141 590 NMC 296468 Jasper 352 120 122 143 179 NMC 296469 Jasper 353 120 123 143 181 NMC 296470 Jasper 354 120 124 NMC 296471 Jasper 355 120 125 NMC 296472 Jasper 356 120 126 NMC 296473 Jasper 357 120 127 NMC 296474 Jasper 358 120 128 135 116 NMC 296475 Jasper 358 (2nd amendment) 141 591 Jasper 359 120 129 141 593 NMC 296476 Jasper 360 120 130 135 118 NMC 296477 Jasper 362 120 132 135 120 NMC 296479 Jasper 364 120 134 135 122 NMC 296481 A-16 RECORDING AMENDMENT CLAIM NAME BOOK PAGE BOOK PAGE BLM NMC NO. - ---------- ---- ---- ---- ---- ----------- Jasper 364A 125 129 135 124 NMC 314801 Jasper 370 120 140 NMC 296487 Jasper 372 120 142 NMC 296489 Jasper 374 120 144 NMC 296491 Jasper 376 120 146 NMC 296493 Jasper 378 120 148 NMC 296495 Jasper 380 120 150 NMC 296497 Jasper 382 120 152 NMC 296499 Jasper 384 120 154 NMC 296501 Jasper 386 120 156 NMC 296503 Jasper 388 120 158 NMC 296505 Jasper 390 120 160 NMC 296507 Jasper 392 120 162 NMC 296509 Jasper 393 120 163 NMC 296510 Jasper 394 120 164 NMC 296511 Jasper 395 120 165 NMC 296512 Jasper 396 120 166 NMC 296513 Jasper 397 120 167 NMC 296514 Jasper 398 120 168 NMC 296515 Jasper 440 125 130 NMC 314802 Jasper 440A 120 210 NMC 296557 Jasper 442 120 212 NMC 296559 Jasper 444 120 214 NMC 296561 Jasper 446 120 216 NMC 296563 Jasper 448 120 218 NMC 296565 Jasper 450 120 220 NMC 296567 Jasper 452 120 222 NMC 296569 Jasper 454 120 224 NMC 296571 Jasper 456 120 226 NMC 296573 Jasper 458 120 228 NMC 296575 Jasper 460 120 230 NMC 296577 Jasper 462 120 232 NMC 296579 Jasper 464 120 234 NMC 296581 Jasper 466 120 236 NMC 296583 Jasper 468 120 238 NMC 296585 Jasper 470 120 240 NMC 296587 Jasper 472 120 242 NMC 295589 Jasper 670 120 311 NMC 296658 Jasper 671 120 312 NMC 296659 A-17 RECORDING AMENDMENT CLAIM NAME BOOK PAGE BOOK PAGE BLM NMC NO. - ---------- ---- ---- ---- ---- ----------- Jasper 672 120 313 NMC 296660 Jasper 673 120 314 NMC 296661 Jasper 674 120 315 NMC 296662 Jasper 675 120 316 NMC 296663 Jasper 676 120 317 NMC 296664 Jasper 677 120 318 NMC 296665 Jasper 678 120 319 NMC 296666 Jasper 679 120 320 NMC 296667 Jasper 680 120 321 NMC 296668 Jasper 681 120 322 NMC 296669 Jasper 682 120 323 NMC 296670 Jasper 683 120 324 NMC 296671 Jasper 684 120 325 NMC 296672 Jasper 685 120 326 NMC 296673 Jasper 686 120 327 NMC 296674 Jasper 687 120 328 NMC 296675 Jasper 688 120 329 NMC 296676 Jasper 689 120 330 NMC 296677 Jasper 690 120 331 NMC 296678 Jasper 691 120 332 NMC 296679 Jasper 692 120 333 NMC 296680 Jasper 693 120 334 NMC 296681 Jasper 694 120 335 NMC 296682 Jasper 695 120 336 NMC 296683 Jasper 696 120 337 NMC 296684 Jasper 697 120 338 NMC 296685 Jasper 698 120 339 NMC 296686 Jasper 699 120 340 NMC 296687 Jasper 700 120 341 NMC 296688 Jasper 701 120 342 NMC 296689 Jasper 702 120 343 NMC 296690 Jasper 703 120 344 NMC 296691 Jasper 704 120 345 NMC 296692 Jasper 705 120 346 NMC 296693 Jasper 706 120 347 NMC 296694 Jasper 707 120 348 NMC 296695 Jasper 708 125 262 NMC 314934 Jasper 709 120 349 NMC 296696 Jasper 710 125 263 NMC 314935 A-18
RECORDING AMENDMENT CLAIM NAME BOOK PAGE BOOK PAGE BLM NMC NO. - ---------- ---- ---- ---- ---- ----------- Jasper 711 120 350 NMC 296697 Jasper 712 125 264 NMC 314936 Jasper 713 120 351 NMC 296698 Jasper 714 125 265 NMC 314937 Jasper 715 125 266 NMC 314938 Jasper 716 125 267 NMC 314939 Jasper 717 125 268 NMC 314940 Jasper 718 125 269 NMC 314941 Jasper 719 125 270 NMC 314942 Jasper 720 125 271 NMC 314943 Jasper 721 125 272 NMC 314944 Jasper 722 125 273 NMC 314945 Jasper 723 125 274 NMC 314946 Jasper 724 125 275 NMC 314947 Jasper 725 125 276 NMC 314948 Jasper 726 125 277 NMC 314949 Jasper 727 125 278 NMC 314950 Jasper 728 125 279 NMC 319951 Jasper 729 125 280 NMC 319952 Jasper 730 125 281 NMC 314953 Jasper 731 125 282 NMC 314954 Jasper 732 125 283 NMC 314955 Jasper 732A 209 484 NMC 593926 Jasper 733A 125 284 NMC 314956 Jasper 734 125 285 NMC 314957 Jasper 735A 125 286 NMC 314958 Jasper 736 125 287 NMC 314959 Jasper 737A 125 288 NMC 314960 Jasper 738 125 289 NMC 314961 Jasper 739A 125 290 NMC 314962 Jasper 748 125 299 NMC 314971 Jasper 749 125 300 NMC 314972 Jasper 750 125 301 NMC 314973 Jasper 751 125 302 NMC 314974 Jasper 752 125 303 NMC 314975 Jasper 753 125 304 NMC 314976 Jasper 754 125 305 NMC 314977 Jasper 755 125 306 NMC 314978 Jasper 756 125 307 NMC 314979
A-19
RECORDING AMENDMENT CLAIM NAME BOOK PAGE BOOK PAGE BLM NMC NO. - ---------- ---- ---- ---- ---- ----------- Jasper 757 125 308 NMC 314980 Jasper 758 125 309 NMC 314981 Jasper 759 125 310 NMC 314982 Jasper 760 125 311 NMC 314983 Jasper 761 125 312 NMC 314984 Jasper 762 125 313 NMC 314985 Jasper 763 125 314 NMC 314986 Jasper 764 125 315 NMC 314987 Jasper 765 125 316 NMC 314988 Jasper 766 125 317 NMC 314989 Jasper 767 125 318 NMC 314990 Jasper 768 125 319 NMC 314991 Jasper 769 125 320 NMC 314992 Jasper 770 125 321 NMC 314993 Jasper 771 125 322 NMC 314994 Jasper 773 125 323 NMC 314995 Jasper 774 125 324 NMC 314996 Jasper 775 125 325 NMC 314997 Jasper 782 125 326 NMC 314998 Jasper 783 125 327 NMC 314999 Jasper 784 125 328 NMC 315000 Jasper 785 125 329 NMC 315001 Jasper 786 125 330 NMC 315002 Jasper 787 125 331 NMC 315003 Jasper 788 125 332 NMC 315004 Jasper 789 125 333 NMC 315005 Jasper 790 125 334 NMC 315006 Jasper 791 125 335 NMC 315007 Jasper 792 125 336 NMC 315008 Jasper 793 125 337 NMC 315009 Jasper 795 125 338 NMC 315010 Jasper 796 125 339 NMC 315011 Jasper 797 125 340 NMC 315012 Jasper 799 125 352 NMC 296699 Jasper 800 120 353 NMC 296700 Jasper 801 120 354 NMC 296701 Jasper 802 120 355 NMC 296702 Jasper 803 125 341 NMC 315013 Jasper 804 125 342 NMC 315014
A-20
RECORDING AMENDMENT CLAIM NAME BOOK PAGE BOOK PAGE BLM NMC NO. - ---------- ---- ---- ---- ---- ----------- Jasper 805 125 343 143 183 NMC 315015 JASPER 806 125 344 NMC 315016 Jasper 807 125 345 NMC 315017 Jasper 808 125 346 143 185 NMC 315018 Jasper 809 125 347 NMC 315019 Jasper 810 125 348 143 187 NMC 315020 Jasper 811 125 349 143 189 NMC 315021 Jasper 812 125 350 143 191 NMC 315022 Jasper 813 125 351 NMC 315023 Jasper 814 125 352 NMC 315024 Jasper 815 125 353 NMC 315025 Jasper 816 125 354 NMC 315026 Jasper 817 125 355 NMC 315027 Jasper 819 125 357 NMC 315029 Jasper 821 125 359 NMC 315031 Jasper 823 125 361 NMC 315033 Jasper 861 125 399 NMC 315071 Jasper 863 125 401 NMC 315073 Jasper 978 126 098 NMC 315795 Jasper 979 126 099 NMC 315796 Jasper 980 126 100 NMC 315797 Jasper 981 126 101 NMC 315798 Jasper 982 126 102 NMC 315799 Jasper 983 126 103 NMC 315800 Jasper 984 126 104 NMC 315801 Jasper 985 126 105 NMC 315802 Jasper 986 126 106 NMC 315803 Jasper 987 126 107 NMC 315804 Jasper 988 126 108 NMC 315805 Jasper 989 126 109 NMC 315806 Jasper 990 126 110 NMC 315807 Jasper 991 126 111 NMC 315808 Jasper 992 126 112 NMC 315809 Jasper 993 126 113 NMC 315810 Jasper 994 126 114 NMC 315811 Jasper 995 126 115 NMC 315812 Jasper 996 126 116 NMC 315813 Jasper 997 126 117 NMC 315814 Jasper 998 126 118 NMC 315815
A-21
RECORDING AMENDMENT CLAIM NAME BOOK PAGE BOOK PAGE BLM NMC NO. - ---------- ---- ---- ---- ---- ----------- Jasper 999 126 119 NMC 315816 Jasper 1000 126 120 NMC 315817 Jasper 1001 126 121 NMC 315818 Jasper 1002 126 122 NMC 315819 Jasper 1003 126 123 NMC 315820 Jasper 1004 126 124 NMC 315821 Jasper 1005 126 125 NMC 315822 Jasper 1006 126 126 NMC 315823 Jasper 1007 126 127 NMC 315824 Jasper 1008 126 128 NMC 315825 Jasper 1009 126 129 NMC 315826 Jasper 1010 126 130 NMC 315827 Jasper 1011 126 131 NMC 315828 Jasper 1012 126 132 NMC 315829 Jasper 1013 126 133 NMC 315830 Jasper 1014 126 134 NMC 315831 Jasper 1015 126 135 NMC 315832 Jasper 1016 126 136 NMC 315833 Jasper 1017 126 137 NMC 315834 Jasper 1018 126 138 NMC 315835 Jasper 1019 126 139 NMC 315836 Jasper 1020 126 140 NMC 315837 Jasper 1021 126 141 NMC 315838 Jasper 1022 126 142 NMC 315839 Jasper 1023 126 143 NMC 315840 Jasper 1024 126 144 NMC 315841 Jasper 1025 126 145 NMC 315842 Jasper 1026 126 146 NMC 315843 Jasper 1027 126 147 NMC 315844 Jasper 1028 126 148 NMC 315845 Jasper 1029 126 149 NMC 315846 Jasper 1030 126 150 NMC 315847 Jasper 1031 126 151 NMC 315848 Jasper 1032 126 152 NMC 315849 Jasper 1033 126 153 NMC 315850 Jasper 1034 126 154 NMC 315851 Jasper 1035 126 155 NMC 315852 Jasper 1036 126 156 NMC 315853 Jasper 1037 126 157 NMC 315854
A-22
RECORDING AMENDMENT CLAIM NAME BOOK PAGE BOOK PAGE BLM NMC NO. - ---------- ---- ---- ---- ---- ----------- Jasper 1038 126 158 NMC 315855 Jasper 1039 126 159 NMC 315856 Jasper 1040 126 160 NMC 315857 Jasper 1041 126 161 NMC 315858 Jasper 1042 126 162 NMC 315859 Jasper 1043 126 163 NMC 315860 Jasper 1044 126 164 NMC 315861 Jasper 1045 126 165 NMC 315862 Jasper 1046 126 166 NMC 315863 Jasper 1047 126 167 NMC 315864 Jasper 1048 126 168 NMC 315865 Jasper 1049 126 169 NMC 315866 Jasper 1050 126 170 NMC 315867 Jasper 1051 126 171 NMC 315868 Jasper 1052 126 172 NMC 315869 Jasper 1053 126 173 NMC 315870 Jasper 1054 126 174 NMC 315871 Jasper 1055 126 175 NMC 315872 Jasper 1056 126 176 NMC 315873 Jasper 1067 126 187 NMC 315884 Jasper 1068 126 188 NMC 315885 Jasper 1069 126 189 NMC 315886 Jasper 1070 126 190 NMC 315887 Jasper 1071 126 191 NMC 315888 Jasper 1072 126 192 NMC 315889 Jasper 1073 126 193 NMC 315890 Jasper 1074 126 194 NMC 315891 Jasper 1075 126 195 NMC 315892 Jasper 1076 126 196 NMC 315893 Jasper 1077 126 197 NMC 315894 Jasper 1078 126 198 NMC 315895 Jasper 1079 126 199 NMC 315896 Jasper 1080 126 200 NMC 315897 Jasper 1081 126 201 NMC 315898 Jasper 1082 126 202 NMC 315899 Jasper 1083 126 203 NMC 315900 Jasper 1084 126 204 NMC 315901 Jasper 1085 126 205 NMC 315902 Jasper 1086 126 206 NMC 315903
A-23
RECORDING AMENDMENT CLAIM NAME BOOK PAGE BOOK PAGE BLM NMC NO. - ---------- ---- ---- ---- ---- ----------- Jasper 1087 126 207 NMC 315904 Jasper 1088 126 208 NMC 315905 Jasper 1089 126 209 NMC 315906 Jasper 1090 126 210 NMC 315907 Jasper 1091 126 211 NMC 315908 Jasper 1092 126 212 NMC 315909 Jasper 1095 126 213 NMC 315910 Jasper 1096 126 214 NMC 315911 Jasper 1097 126 215 NMC 315912 Jasper 1098 126 216 NMC 315913 Jasper 1099 126 217 NMC 315914 Jasper 1100 126 218 NMC 315915 Jasper 1463 127 354 NMC 317837 Jasper 1464 127 355 NMC 317838 Jasper 1465 127 356 NMC 317839 Jasper 1466 127 357 NMC 317840 Jasper 1467 127 358 NMC 317841 Jasper 1468 127 359 NMC 317842 Jasper 1487 127 360 NMC 317843 Jasper 1488 127 361 NMC 317844 Jasper 1489 127 362 NMC 317845 Jasper 1490 127 363 NMC 317846 Jasper 1491 127 364 NMC 317847 Jasper 1492 127 365 NMC 317848 Jasper 1493 127 366 NMC 317849 Jasper 1494 127 367 NMC 317850 Jasper 1495 127 368 NMC 317851 Jasper 1496 127 369 NMC 317852 Jasper 1497 127 370 NMC 317853 Jasper 1498 127 371 NMC 317854 Jasper 1499 127 372 NMC 317855 Jasper 1500 127 373 NMC 317856 Jasper 1501 127 374 NMC 317857 Jasper 1502 127 375 NMC 317858 Jasper 1503 127 376 NMC 317859 Jasper 1504 127 377 NMC 317860 Jasper 1505 127 378 NMC 317861 Jasper 1506 127 379 NMC 317862 Jasper 1507 127 380 NMC 317863
A-24
RECORDING AMENDMENT CLAIM NAME BOOK PAGE BOOK PAGE BLM NMC NO. - ---------- ---- ---- ---- ---- ----------- Jasper 1508 127 381 NMC 317864 Jasper 1509 127 382 NMC 317865 Jasper 1510 127 383 NMC 317866 Jasper 1511 127 384 NMC 317867 Jasper 1512 127 385 NMC 317868 Jasper 1513 127 386 NMC 317869 Jasper 1514 127 387 NMC 317870 Jasper 1515 127 388 NMC 317871 Jasper 1516 127 389 NMC 317872 Jasper 1517 127 390 NMC 317873 Jasper 1518 127 391 NMC 317874 Jasper 1519 127 392 NMC 317875 Jasper 1520 127 393 NMC 317876 Jasper 1521 127 394 NMC 317877 Jasper 1522 127 395 NMC 317878 Jasper 1523 127 396 NMC 317879 Jasper 1524 127 397 NMC 317880 Jasper 1525 127 398 NMC 317881 Jasper 1544 127 399 NMC 317882 Jasper 1545 127 400 NMC 317883 Jasper 1546 127 401 NMC 317884 Jasper 1547 127 402 NMC 317885 Jasper 1548 127 403 NMC 317886 Jasper 1549 127 404 NMC 317887 Jasper 1550 127 405 NMC 317888 Jasper 1551 127 406 NMC 317889 Jasper 1552 127 407 NMC 317890 Jasper 1553 127 408 NMC 317891 Jasper 1639 135 037 143 193 NMC 339286 Jasper 1640 135 038 143 195 NMC 339287 Jasper 1641 135 039 NMC 339288 Jasper 1642 135 040 143 197 NMC 339289 Jasper 1643 135 041 NMC 339290 Jasper 1644 135 042 NMC 339291 Jasper 1645 135 043 NMC 339292 Jasper 1646 135 044 NMC 339293 Jasper 1647 135 045 NMC 339294 Jasper 1648 135 046 NMC 339295 Jasper 1649 135 047 NMC 339296
A-25 RECORDING AMENDMENT CLAIM NAME BOOK PAGE BOOK PAGE BLM NMC NO. - ---------- ---- ---- ---- ---- ----------- Jasper 1650 135 048 NMC 339297 Jasper 1651 135 049 NMC 339298 Jasper 1652 135 050 NMC 339299 Jasper 1653 135 051 NMC 339300 Jasper 1658 156 536 NMC 410407 Jasper 1659 156 537 NMC 410408 Jasper 1660 156 538 NMC 410409 Jasper 1661 156 539 NMC 410410 Jasper 1662 156 540 NMC 410411 Jasper 1663 156 541 NMC 410412 Jasper 1664 156 542 NMC 410413 Jasper 1665 156 543 NMC 410414 Jasper 1666 156 544 NMC 410415 Jasper 1667 156 545 NMC 410416 Jasper 1668 156 546 NMC 410417 Jasper 1669 156 547 NMC 410418 Jasper 1670 156 548 NMC 410419 Jasper 1671 156 549 NMC 410420 B. The following unpatented lode mining claims located Sections 27, 28, and 33, Township 22 North, Range 49 East, M.D.M., Eureka County, Nevada: RECORDING AMENDMENT CLAIM NAME BOOK PAGE BOOK PAGE BLM NMC NO. - ---------- ---- ---- ---- ---- ----------- Tail 1 255 215 NMC 684348 Tail 2 255 216 NMC 684349 Tail 3 255 217 NMC 684350 Tail 4 255 218 NMC 684351 Tail 5 255 219 NMC 684352 Tail 6 255 220 NMC 684353 Tail 7 255 221 NMC 684354 Tail 8 255 222 NMC 684355 Tail 9 255 223 NMC 684356 Tail 10 255 224 NMC 684357 Tail 11 255 225 NMC 684358 A-26 C. The following unpatented mining claims located in Sections 12, 22, 23, 26, 27, and 35 in Township 22 North, Range 49 East, M.D.M., Eureka County, Nevada: RECORDING AMENDMENT CLAIM NAME BOOK PAGE BOOK PAGE BLM NMC NO. - ---------- ---- ---- ---- ---- ----------- WAH 1 118 457 NMC 293546 WAH 2 118 458 NMC 293547 WAH 3 118 459 NMC 293548 WAH 4 118 460 NMC 293549 WAH 10 118 468 NMC 293557 WAH 11 118 470 NMC 293559 WAH 12 118 471 NMC 293560 WAH 13 118 472 NMC 293561 WAH 18 118 477 NMC 293566 WAH 19 118 478 NMC 293567 WAH 20 118 479 128 295 NMC 293568 WAH 21 118 480 128 296 NMC 293569 WAH 22 118 481 128 297 NMC 293570 WAH 23 118 482 128 298 NMC 293571 WAH 24 118 483 128 299 NMC 293572 WAH 25 118 484 128 300 NMC 293573 WAH 26 118 485 128 301 NMC 293574 WAH 27 118 486 128 302 NMC 293575 WAH 28 118 487 128 303 NMC 293576 WAH 30 118 489 128 305 NMC 293578 WAH 32 118 491 128 307 NMC 293580 WAH 34 118 493 128 309 NMC 293582 WAH 36 118 495 128 311 NMC 293584 WAH 38 118 497 128 313 NMC 293586 WAH 40 118 499 128 315 NMC 293588 WAH 41 118 500 128 316 NMC 293589 D. The following unpatented lode mining claims located Sections 4-9, 16, 17, 20-22, and 28, Township 22 North, Range 49 East, Sections 25 and 36, Township 23 North, Range 48 East, M.D.M., and Sections 28-33, Township 23 North, Range 49 East, M.D.M., Eureka County, Nevada: RECORDING AMENDMENT CLAIM NAME BOOK PAGE BOOK PAGE BLM NMC NO. - ---------- ---- ---- ---- ---- ----------- WS 1 265 130 NMC 695324 A-27 RECORDING AMENDMENT CLAIM NAME BOOK PAGE BOOK PAGE BLM NMC NO. - ---------- ---- ---- ---- ---- ----------- WS 2 265 131 NMC 695325 WS 3 265 132 NMC 695326 WS 4 265 133 NMC 695327 WS 5 265 134 NMC 695328 WS 6 265 135 NMC 695329 WS 7 265 136 NMC 695330 WS 8 265 137 NMC 695331 WS 9 265 138 NMC 695332 WS 10 265 139 NMC 695333 WS 11 265 140 NMC 695334 WS 12 265 141 NMC 695335 WS 13 265 142 NMC 695336 WS 14 265 143 NMC 695337 WS 15 265 144 NMC 695338 WS 16 265 145 NMC 695339 WS 17 265 146 NMC 695340 WS 18 265 147 NMC 695341 WS 19 265 148 NMC 695342 WS 20 265 149 NMC 695343 WS 21 265 150 NMC 695344 WS 22 265 151 NMC 695345 WS 23 265 152 NMC 695346 WS 24 265 153 NMC 695347 WS 25 265 154 NMC 695348 WS 26 265 155 NMC 695349 WS 27 265 156 NMC 695350 WS 28 265 157 NMC 695351 WS 29 265 158 NMC 695352 WS 30 265 159 NMC 695353 WS 31 265 160 NMC 695354 WS 32 265 161 NMC 695355 WS 33 265 162 NMC 695356 WS 34 265 163 NMC 695357 WS 35 265 164 NMC 695358 WS 36 265 165 NMC 695359 WS 37 265 166 NMC 695360 WS 38 265 167 NMC 695361 WS 39 265 168 NMC 695362 WS 40 265 169 NMC 695363 A-28 RECORDING AMENDMENT CLAIM NAME BOOK PAGE BOOK PAGE BLM NMC NO. - ---------- ---- ---- ---- ---- ----------- WS 41 265 170 NMC 695364 WS 42 265 171 NMC 695365 WS 43 265 172 NMC 695366 WS 44 265 173 NMC 695367 WS 45 265 174 NMC 695368 WS 46 267 001 NMC 697296 WS 47 265 175 NMC 695369 WS 48 267 002 NMC 697297 WS 49 265 176 NMC 695370 WS 50 267 003 NMC 697298 WS 51 265 177 NMC 695371 WS 52 267 004 NMC 697299 WS 53 265 178 NMC 695372 WS 54 267 005 NMC 697300 WS 55 265 179 NMC 695373 WS 57 265 180 NMC 695374 WS 59 265 181 NMC 695375 WS 61 265 182 NMC 695376 WS 63 265 183 NMC 695377 WS 65 265 184 NMC 695378 WS 67 265 185 NMC 695379 WS 69 265 186 NMC 695380 WS 71 265 187 NMC 695381 WS 72 265 188 NMC 695382 WS 73 265 189 NMC 695383 WS 74 265 190 NMC 695384 WS 75 265 191 NMC 695385 WS 76 265 192 NMC 695386 WS 77 265 193 NMC 695387 WS 78 265 194 NMC 695388 WS 79 265 195 NMC 695389 WS 80 265 296 NMC 695390 WS 81 265 197 NMC 695391 WS 82 265 198 NMC 695392 WS 83 265 199 NMC 695393 WS 84 265 200 NMC 695394 WS 85 265 201 NMC 695395 WS 86 265 202 NMC 695396 WS 87 265 203 NMC 695397 A-29 RECORDING AMENDMENT CLAIM NAME BOOK PAGE BOOK PAGE BLM NMC NO. - ---------- ---- ---- ---- ---- ----------- WS 88 265 204 NMC 695398 WS 89 265 205 NMC 695399 WS 90 265 206 NMC 695400 WS 91 265 207 NMC 695401 WS 92 265 208 NMC 695402 WS 93 265 209 NMC 695403 WS 94 265 210 NMC 695404 WS 95 265 211 NMC 695405 WS 96 265 212 NMC 695406 WS 97 265 213 NMC 695407 WS 98 265 214 NMC 695408 WS 99 265 215 NMC 695409 WS 100 265 216 NMC 695410 WS 101 265 217 NMC 695411 WS 102 267 457 NMC 697946 WS 103 267 458 NMC 697947 WS 104 267 459 NMC 697948 WS 105 267 460 NMC 697949 WS 106 267 461 NMC 697950 WS 107 267 462 NMC 697951 WS 108 267 463 NMC 697952 WS 109 267 464 NMC 697953 WS 110 267 465 NMC 697954 WS 111 267 466 NMC 697955 WS 112 267 467 NMC 697956 WS 113 468 468 NMC 697957 WS 114 267 469 NMC 697958 WS 115 267 470 NMC 697959 WS 116 267 471 NMC 697960 WS 117 267 472 NMC 697961 WS 118 267 473 NMC 697962 WS 119 267 474 NMC 697963 WS 120 267 475 NMC 697964 WS 121 267 476 NMC 697965 WS 122 267 477 NMC 697966 WS 123 267 478 NMC 697967 WS 124 267 479 NMC 697968 WS 125 267 480 NMC 697969 WS 126 267 481 NMC 697970 A-30 RECORDING AMENDMENT CLAIM NAME BOOK PAGE BOOK PAGE BLM NMC NO. - ---------- ---- ---- ---- ---- ----------- WS 127 267 482 NMC 697971 WS 128 267 483 NMC 697972 WS 129 267 484 NMC 697973 WS 130 267 485 NMC 697974 WS 131 267 486 NMC 697975 WS 132 267 487 NMC 697976 WS 133 267 488 NMC 697977 WS 134 267 489 NMC 697978 WS 135 267 490 NMC 697979 WS 136 267 491 NMC 697980 WS 137 267 492 NMC 697981 WS 138 267 493 NMC 697982 WS 139 267 494 NMC 697983 WS 140 267 495 NMC 697984 WS 141 267 496 NMC 697985 WS 142 267 497 NMC 697986 WS 143 267 498 NMC 697987 WS 144 267 499 NMC 697988 WS 145 267 500 NMC 697989 WS 146 267 501 NMC 697990 WS 147 267 502 NMC 697991 WS 148 267 503 NMC 697992 WS 149 267 504 NMC 697993 WS 150 267 505 NMC 697994 WS 151 267 506 NMC 697995 WS 152 267 507 NMC 697996 WS 153 267 508 NMC 697997 WS 154 267 509 NMC 697998 WS 155 267 510 NMC 697999 WS 156 267 511 NMC 698000 WS 157 267 512 NMC 698001 WS 158 267 513 NMC 698002 WS 159 267 514 NMC 698003 WS 160 267 515 NMC 698004 WS 161 267 516 NMC 698005 WS 162 267 517 NMC 698006 WS 163 267 518 NMC 698007 WS 164 267 519 NMC 698008 WS 165 267 520 NMC 698009 A-31 RECORDING AMENDMENT CLAIM NAME BOOK PAGE BOOK PAGE BLM NMC NO. - ---------- ---- ---- ---- ---- ----------- WS 166 267 521 NMC 698010 WS 167 267 522 NMC 698011 WS 168 267 523 NMC 698012 WS 169 267 524 NMC 698013 WS 170 267 525 NMC 698014 WS 172 267 526 NMC 698015 WS 174 267 527 NMC 698016 WS 176 267 528 NMC 698017 WS 178 267 529 NMC 698018 WS 179 267 530 NMC 698019 WS 180 267 531 NMC 698020 WS 181 267 532 NMC 698021 WS 182 267 533 NMC 698022 WS 183 267 534 NMC 698023 WS 184 267 535 NMC 698024 WS 185 267 536 NMC 698025 WS 186 267 537 NMC 698026 WS 187 267 538 NMC 698027 WS 188 267 539 NMC 698028 WS 189 267 540 NMC 698029 WS 190 267 541 NMC 698030 WS 191 267 542 NMC 698031 WS 192 267 543 NMC 698032 WS 193 267 544 NMC 698033 WS 194 267 545 NMC 698034 WS 195 267 546 NMC 698035 WS 196 267 547 NMC 698036 WS 197 267 548 NMC 698037 WS 198 267 549 NMC 698038 WS 199 267 550 NMC 698039 WS 200 267 551 NMC 698040 WS 201 267 552 NMC 698041 WS 202 267 553 NMC 698042 WS 203 267 554 NMC 698043 WS 204 268 215 NMC 698526 WS 205 268 216 NMC 698527 WS 206 268 217 NMC 698528 WS 207 268 218 NMC 698529 WS 208 268 219 NMC 698530 A-32 RECORDING AMENDMENT CLAIM NAME BOOK PAGE BOOK PAGE BLM NMC NO. - ---------- ---- ---- ---- ---- ----------- WS 209 268 220 NMC 698531 WS 210 268 221 NMC 698532 WS 211 268 222 NMC 698533 WS 212 268 223 NMC 698534 WS 213 268 224 NMC 698535 WS 214 268 225 NMC 698536 WS 215 268 226 NMC 698537 WS 216 268 227 NMC 698538 WS 217 268 228 NMC 698539 WS 218 268 229 NMC 698540 WS 219 268 230 NMC 698541 WS 220 268 231 NMC 698542 WS 221 268 232 NMC 698543 WS 222 268 233 NMC 698544 WS 223 268 234 NMC 698545 WS 224 268 235 NMC 698546 WS 225 268 236 NMC 698547 WS 226 268 237 NMC 698548 WS 227 268 238 NMC 698549 WS 228 268 239 NMC 698550 WS 229 268 240 NMC 698551 WS 230 268 241 NMC 698552 WS 231 268 242 NMC 698553 WS 232 268 243 NMC 698554 WS 233 268 244 NMC 698555 WS 234 268 245 NMC 698556 WS 235 268 246 NMC 698557 WS 236 268 247 NMC 698558 WS 237 268 248 NMC 698559 WS 238 268 249 NMC 698560 WS 239 268 250 NMC 698561 WS 240 268 251 NMC 698562 WS 241 268 252 NMC 698563 WS 242 268 253 NMC 698564 WS 243 268 254 NMC 698565 WS 244 268 255 NMC 698566 WS 245 268 256 NMC 698567 WS 246 268 257 NMC 698568 WS 247 268 258 NMC 698569 A-33 RECORDING AMENDMENT CLAIM NAME BOOK PAGE BOOK PAGE BLM NMC NO. - ---------- ---- ---- ---- ---- ----------- WS 248 268 259 NMC 698570 WS 249 268 260 NMC 698571 WS 250 268 261 NMC 698572 WS 251 268 262 NMC 698573 WS 252 268 263 NMC 698574 WS 253 268 264 NMC 698575 WS 254 268 265 NMC 698576 WS 255 268 266 NMC 698577 WS 256 268 267 NMC 698578 WS 257 268 268 NMC 698579 WS 258 268 269 NMC 698580 WS 259 268 270 NMC 698581 WS 260 268 271 NMC 698582 WS 261 268 272 NMC 698583 WS 262 268 273 NMC 698584 WS 263 268 274 NMC 698585 WS 264 268 275 NMC 698586 WS 265 268 276 NMC 698587 WS 266 268 277 NMC 698588 WS 267 268 278 NMC 698589 WS 268 268 279 NMC 698590 WS 269 268 280 NMC 698591 WS 270 269 054 NMC 699527 WS 271 269 055 NMC 699528 WS 272 269 056 NMC 699529 WS 273 269 057 NMC 699530 WS 274 269 058 NMC 699531 WS 275 269 059 NMC 699532 WS 276 269 060 NMC 699533 WS 277 269 061 NMC 699534 WS 278 269 062 NMC 699535 WS 279 269 063 NMC 699536 WS 280 269 064 NMC 699537 WS 281 269 065 NMC 699538 WS 282 269 066 NMC 699539 WS 283 269 067 NMC 699540 WS 284 269 068 NMC 699541 WS 285 269 069 NMC 699542 WS 286 269 070 NMC 699543 A-34 RECORDING AMENDMENT CLAIM NAME BOOK PAGE BOOK PAGE BLM NMC NO. - ---------- ---- ---- ---- ---- ----------- WS 287 269 071 NMC 699544 PART 4. ACQUIRED CLAIMS: --------- --------------- The following unpatented lode mining claims, subject to the Special Warranty Deed and Assignment dated May 17, 1991, by and between NERCO Exploration Company, an Alaska corporation, Grantor, and Atlas Corporation, a Delaware corporation, Grantee, which is recorded in Book 222, Page 584 of the Official Records of Eureka County, Nevada: A. Unpatented lode mining claims, located in Sections 7 and 18, Township 22 North, Range 50 East, M.D.M., and in Sections 12 and 13, Township 22 North, Range 49 East, M.D.M., Eureka County, Nevada: RECORDING AMENDMENT CLAIM NAME BOOK PAGE BOOK PAGE BLM NMC NO. - ---------- ---- ---- ---- ---- ----------- COTTON 1 118 327 NMC 291906 COTTON 2 118 328 NMC 291907 COTTON 3 118 329 NMC 291908 COTTON 4 118 330 NMC 291909 COTTON 5 118 331 NMC 291910 COTTON 6 118 332 NMC 291911 COTTON 7 118 333 NMC 291912 COTTON 8 118 334 NMC 291913 COTTON 9 118 335 NMC 291914 COTTON 10 118 336 NMC 291915 COTTON 11 118 337 NMC 291916 COTTON 12 118 338 NMC 291917 COTTON 13 118 339 NMC 291918 COTTON 14 118 340 NMC 291919 COTTON 15 118 341 NMC 291920 COTTON 16 118 342 NMC 291921 COTTON 17 118 343 NMC 291922 COTTON 18 118 344 NMC 291923 COTTON 19 118 345 NMC 291924 COTTON 20 118 346 NMC 291925 COTTON 21 118 347 NMC 291926 COTTON 22 118 348 NMC 291927 A-35 B. Unpatented lode mining claims located in Sections 5-9, 14-17, 21-23, and 27, Township 22 North, Range 50 East, M.D.M., Eureka County, Nevada: RECORDING AMENDMENT CLAIM NAME BOOK PAGE BOOK PAGE BLM NMC NO. - ---------- ---- ---- ---- ---- ----------- JAM #1 117 090 NMC 288528 JAM #2 117 091 NMC 288529 JAM #3 117 092 NMC 288530 JAM #4 117 093 NMC 288531 JAM #5 117 094 NMC 288532 JAM #6 117 095 NMC 288533 JAM #7 117 096 NMC 288534 JAM #8 117 097 NMC 288535 JAM #9 117 098 NMC 288536 JAM #10 117 099 NMC 288537 JAM #11 117 100 NMC 288538 JAM #12 117 101 NMC 288539 JAM #13 117 102 NMC 288540 JAM #14 117 103 NMC 288541 JAM #15 117 104 NMC 288542 JAM #16 117 105 NMC 288543 JAM #17 117 106 NMC 288544 JAM #18 117 107 NMC 288545 JAM #19 117 108 NMC 288546 JAM #20 117 109 NMC 288547 JAM #21 117 110 NMC 288548 JAM #22 117 111 NMC 288549 JAM #23 117 112 NMC 288550 JAM #24 117 113 NMC 288551 JAM #25 117 114 NMC 288552 JAM #26 117 115 NMC 288553 JAM #27 117 116 NMC 288554 JAM #28 117 117 NMC 288555 JAM #29 117 118 NMC 288556 JAM #30 117 119 NMC 288557 JAM #31 117 120 NMC 288558 JAM #32 117 121 NMC 288559 JAM #33 117 122 NMC 288560 JAM #34 117 123 NMC 288561 JAM #35 117 124 NMC 288562 JAM #36 117 125 NMC 288563 A-36 RECORDING AMENDMENT CLAIM NAME BOOK PAGE BOOK PAGE BLM NMC NO. - ---------- ---- ---- ---- ---- ----------- JAM #37 117 126 NMC 288564 JAM #38 117 127 NMC 288565 JAM #39 117 128 NMC 288566 JAM #40 117 129 NMC 288567 JAM #41 117 130 NMC 288568 JAM #42 117 131 NMC 288569 JAM #43 117 132 NMC 288570 JAM #44 117 133 NMC 288571 JAM #45 117 134 NMC 288572 JAM #46 117 135 NMC 288573 JAM #47 117 136 NMC 288574 JAM #48 117 137 NMC 288575 JAM #49 117 138 NMC 288576 JAM #50 117 139 NMC 288577 JAM #51 117 140 NMC 288578 JAM #52 117 141 NMC 288579 JAM #53 117 142 NMC 288580 JAM #54 117 143 NMC 288581 JAM #55 117 144 NMC 288582 JAM #56 117 145 NMC 288583 JAM #57 117 146 NMC 288584 JAM #58 117 147 NMC 288585 JAM #59 117 148 NMC 288586 JAM #60 117 149 NMC 288587 JAM #61 117 150 NMC 288588 JAM #62 117 151 NMC 288589 JAM #63 117 152 NMC 288590 JAM #64 117 153 NMC 288591 JAM #65 117 154 NMC 288592 JAM #66 117 155 NMC 288593 JAM #67 117 156 NMC 288594 JAM #68 117 157 NMC 288595 JAM #69 117 158 NMC 288596 JAM #70 117 159 NMC 288597 JAM #71 117 160 NMC 288598 JAM #72 117 161 NMC 288599 JAM #73 117 162 NMC 288600 JAM #74 117 163 NMC 288601 JAM #75 117 164 NMC 288602 A-37 RECORDING AMENDMENT CLAIM NAME BOOK PAGE BOOK PAGE BLM NMC NO. - ---------- ---- ---- ---- ---- ----------- JAM #76 117 165 NMC 288603 JAM #77 117 166 NMC 288604 JAM #78 117 167 NMC 288605 JAM #79 117 168 NMC 288606 JAM #80 117 169 NMC 288607 JAM #81 117 170 NMC 288608 JAM #82 117 171 NMC 288609 JAM #83 117 172 NMC 288610 JAM #84 117 173 NMC 288611 JAM #85 117 174 NMC 288612 JAM #86 117 175 NMC 288613 JAM #87 117 176 NMC 288614 JAM #88 117 177 NMC 288615 JAM #89 117 178 NMC 288616 CRAM #1 124 304 NMC 311504 CRAM #2 124 305 NMC 311505 CRAM #3 124 306 NMC 311506 CRAM #4 124 307 NMC 311507 CRAM #5 124 308 NMC 311508 CRAM #6 124 309 NMC 311509 CRAM #7 124 310 NMC 311510 CRAM #8 124 311 NMC 311511 CRAM #9 124 312 NMC 311512 CRAM #10 124 313 NMC 311513 CRAM #11 124 314 NMC 311514 CRAM #12 124 315 NMC 311515 CRAM #13 124 316 NMC 311516 CRAM #14 124 317 NMC 311517 CRAM #15 124 318 NMC 311518 CRAM #16 124 319 NMC 311519 CRAM #17 124 320 NMC 311520 CRAM #18 124 321 NMC 311521 CRAM #19 124 322 NMC 311522 CRAM #20 124 323 NMC 311523 CRAM #21 124 324 NMC 311524 CRAM #22 124 325 NMC 311525 CRAM #23 124 326 NMC 311526 CRAM #24 124 327 NMC 311527 CRAM #25 124 328 NMC 311528 A-38 RECORDING AMENDMENT CLAIM NAME BOOK PAGE BOOK PAGE BLM NMC NO. - ---------- ---- ---- ---- ---- ----------- CRAM #26 124 329 NMC 311529 CRAM #27 124 330 NMC 311530 CRAM #28 124 331 NMC 311531 CRAM #29 124 332 NMC 311532 CRAM #30 124 333 NMC 311533 CRAM #31 124 334 NMC 311534 CRAM #32 124 335 NMC 311535 CRAM #33 124 336 NMC 311536 CRAM #34 124 337 NMC 311537 CRAM #35 124 338 NMC 311538 CRAM #36 124 339 NMC 311539 CRAM #37 124 340 NMC 311540 CRAM #38 124 341 NMC 311541 CRAM #39 124 342 NMC 311542 CRAM #40 124 343 NMC 311543 CRAM #43 124 346 NMC 311546 CRAM #44 124 347 NMC 311547 JELLY #1 124 290 NMC 311548 JELLY #2 124 291 NMC 311549 JELLY #3 124 292 NMC 311550 JELLY #4 124 293 NMC 311551 JELLY #5 124 294 NMC 311552 JELLY #6 124 295 NMC 311553 JELLY #7 124 296 NMC 311554 JELLY #8 124 297 NMC 311555 JELLY #9 124 298 NMC 311556 JELLY #10 124 299 NMC 311557 JELLY #11 124 300 NMC 311558 JELLY #12 124 301 NMC 311559 JELLY #13 124 302 NMC 311560 JELLY #14 124 303 NMC 311561 CRAM A 214 458 NMC 606265 CRAM B 214 459 NMC 606266 A-39 EXHIBIT B --------- ACCOUNTING PROCEDURE -------------------- The financial and accounting procedures to be followed by the Manager and the Participants under the Agreement are set forth below. References in this Accounting Procedure to Sections and Articles are to those located in this Accounting Procedure unless it is expressly stated that they are references to the Venture Agreement. ARTICLE I --------- GENERAL PROVISIONS ------------------- 1.1 General Accounting Records. The Manager shall maintain detailed -------------------------- and comprehensive cost accounting records in accordance with this Accounting Procedure, including general ledgers, supporting and subsidiary journals, invoices, checks and other customary documentation, sufficient to provide a record of revenues and expenditures and periodic statements of financial position and the results of operations for managerial, tax, regulatory or other financial reporting purposes. Such records shall be retained for the duration of the period allowed the Participants for audit or the period necessary to comply with tax or other regulatory requirements. The records shall reflect all obligations, advances and credits of the Participants. 1.2 Bank Accounts. The Manager shall maintain one or more separate ------------- bank accounts for the payment of all expenses and the deposit of all cash receipts for the Venture. 1.3 Statements and Billings. The Manager shall prepare statements ----------------------- and bill the Participants as provided in Article X of the Agreement. Payment of any such billings by any Participant, including the Manager, shall not prejudice such Participant's right to protest or question the correctness thereof for a period not to exceed twenty-four (24) months following the calendar year during which such billings were received by the Participant. All written exceptions to and claims upon the Manager for incorrect charges, billings or statements shall be made upon the Manager within such twenty-four (24) month period. The time period permitted for adjustments hereunder shall not apply to adjustments resulting from periodic inventories as provided in Article V. B-1 ARTICLE II ---------- CHARGES TO JOINT ACCOUNT ------------------------- Subject to the limitations hereinafter set forth, the Manager shall charge the Joint Account with the following: 2.1 Rentals, Royalties and Other Payments. All property acquisition ------------------------------------- and holding costs, including filing fees, license fees, costs of permits and assessment work, delay rentals, production royalties, including any required advances, and all other payments made by the Manager which are necessary to acquire or maintain title to the Assets. 2.2 Labor and Employee Benefits. --------------------------- (a) Salaries and wages of the Manager's employees directly engaged in Operations, including salaries or wages of employees who are temporarily assigned to and directly employed by same. (b) The Manager's cost of holiday, vacation, sickness and disability benefits, and other customary allowances applicable to the salaries and wages chargeable under Sections 2.2(a) and 2.12. Such costs may be charged on a "when and as paid basis" or by "percentage assessment" on the amount of salaries and wages. If percentage assessment is used, the rate shall be applied to wages or salaries excluding overtime and bonuses. Such rate shall be based on the Manager's cost experience and it shall be periodically adjusted if necessary at least annually to ensure that the total of such charges does not exceed the actual cost thereof to the Manager. (c) The Manager's actual cost of established plans for employees' group life insurance, hospitalization, pension, retirement, stock purchase, thrift, bonus (except production or incentive bonus plans under a union contract based on actual rates of production, cost savings and other production factors, and similar non-union bonus plans customary in the industry or necessary to attract competent employees, which bonus payments shall be considered salaries and wages under Sections 2.2(a) or 2.12; rather than employees' benefit plans) and other benefit plans of a like nature applicable to salaries and wages chargeable under Sections 2.2(a) or 2.12, provided that the plans are limited to the extent feasible to those customary in the industry. B-2 (d) Cost of assessments imposed by governmental authority which are applicable to salaries and wages chargeable under Sections 2.2(a) and 2.12, including all penalties except those resulting from the willful misconduct or gross negligence of the Manager. 2.3 Materials, Equipment and Supplies. The cost of materials, equipment --------------------------------- and supplies (herein called "Material") purchased from unaffiliated third parties or furnished by the Manager or any Participant as provided in Article III. The Manager shall purchase or furnish only so much Material as may be required for immediate use in efficient and economical Operations. The Manager shall also maintain inventory levels of Material at reasonable levels to avoid unnecessary accumulation of surplus stock. 2.4 Equipment and Facilities Furnished by Manager. The cost of --------------------------------------------- machinery, equipment and facilities owned by the Manager and used in Operations or used to provide support or utility services to Operations charged at rates commensurate with the actual costs of ownership and operation of such machinery, equipment and facilities. Such rates shall include costs of maintenance, repairs, other operating expenses, insurance, taxes, depreciation and interest at a rate not to exceed Prime Rate plus 2% per annum. Such rates shall not exceed the average commercial rates currently prevailing in the vicinity of the Operations. 2.5 Transportation. Reasonable transportation costs incurred in -------------- connection with the transportation of employees and material necessary for the Operations. 2.6 Contract Services and Utilities. The cost of contract services ------------------------------- and utilities procured from outside sources, other than services described in Sections 2.9 and 2.13. If contract services are performed by the Manager or an Affiliate thereof, the cost charged to the Joint Account shall not be greater than that for which comparable services and utilities are available in the open market within the vicinity of the Operations. The cost of professional consultant services procured from outside sources in excess of $25,000 shall not be charged to the Joint Account unless approved by the Management Committee. 2.7 Insurance Premiums. Net premiums paid for insurance required to ------------------ be carried for Operations for the protection of the Participants. When the Operations are conducted in an area where the Manager may self-insure for Workmen's Compensation and/or Employer's Liability under B-3 state law, the Manager may elect to include such risks in its self-insurance program and shall charge its costs of self-insuring such risks to the Joint Account provided that such charges shall not exceed published manual rates. 2.8 Damages and Losses. All costs in excess of insurance proceeds ------------------ necessary to repair or replace damage or losses to any Assets resulting from any cause other than the willful misconduct or gross negligence of the Manager. The Manager shall furnish the Management Committee with written notice of damages or losses as soon as practicable after a report thereof has been received by the Manager. 2.9 Legal and Regulatory Expense. Except as otherwise provided in ---------------------------- Section 2.13, all legal and regulatory costs and expenses incurred in or resulting from the Operations or necessary to protect or recover the Assets of the Venture. All attorneys' fees and other legal costs to handle, investigate and settle litigation or claims, including the cost of legal services provided by the Manager's legal staff, and amounts paid in settlement of such litigation or claims in excess of $25,000 shall not be charged to the Joint Account unless approved by the Management Committee (unless paid prior to the completion of GRANGES' Initial Contribution, in which case approval of the Management Committee shall not be required). 2.10 Audit. All costs and expenses of services procured from ----- outside accountants with respect to the establishment, maintenance and prosecution of the Venture. This provision shall not cover the costs and expense of accountant services provided by the Manager's Direct Employees, which costs and expenses shall be charged to the Joint Venture pursuant to Section 2.13. 2.11 Taxes. All taxes (except income taxes) of every kind and nature ----- assessed or levied upon or in connection with the Assets, the production of Products or Operations, which have been paid by the Manager for the benefit of the Participants. Each Participant is separately responsible for income taxes which are attributable to its respective Participating Interest. 2.12 District and Camp Expense (Field Supervision and Camp Expenses). -------------------------------------------------------------- A pro rata portion of (i) the salaries and expenses of the Manager's superintendent and other employees serving Operations whose time is not allocated directly to such Operations, and (ii) the costs of maintaining and operating an office (herein called "the Manager's Project Office") and any necessary suboffice B-5 and (iii) all necessary camps, including housing facilities for employees, used for Operations. The expense of those facilities, less any revenue therefrom, shall include depreciation or a fair monthly rental in lieu of depreciation of the investment. The total of such charges for all properties served by the Manager's employees and facilities shall be apportioned to the Joint Account on the basis of a ratio, the numerator of which is the direct labor costs of the Operations and the denominator of which is the total direct labor costs incurred for all activities served by the Manager. 2.13 Administrative Charge. --------------------- (a) Each month, the Manager shall charge the Joint Account a sum equal to three percent of Allowable Costs, up to $250,000 annually, which shall be a liquidated amount to reimburse the Manager for its home office overhead and general and administrative expenses to conduct the Operations with respect to the Properties (but not with respect to the Atlas Mill Complex), and which shall be in lieu of any management fee. The percentage of Allowable Costs specified above as chargeable by the Manager is intended to fairly compensate and reimburse the Manager for overhead and general administrative expenses incurred by it in conducting Operations and has been set at a level commensurate with the principal that the Manager shall neither make a profit nor suffer a loss as a result of its incurring of such expenses. In the event that any Participant demonstrates to the reasonable satisfaction of the Manager that the percentage of Allowable Costs chargeable by the Manager results in either a profit or a loss for the Manager, then such percentage shall be adjusted by the Manager by written notice to the Participants; provided, that no such adjustments shall be made prior to November 1, 1996 and not more than one adjustment shall be made within any twelve (12) month period. (b) The term "Allowable Costs" as used in this Section 2.13 shall mean all charges to the Joint Account excluding (i) the administrative charge referred to herein; (ii) depreciation, depletion or amortization of tangible or intangible assets; (iii) amounts charged in accordance with Sections 2.1, 2.9 and 2.10. (c) The monthly administration charge shall be equitably apportioned among all of the properties served during such monthly period on the basis of a ratio, the numerator of which is B-5 the direct labor costs charged to a particular property and the denominator of which is the total direct labor costs incurred for all properties served by the Manager. (d) The following is a representative list of items comprising the Manager's principal business office expenses that are expressly covered by the administrative charge provided in this Section 2.13: (1) Administrative supervision, which includes services rendered by managers, department supervisors, officers and directors of the Manager for Operations, except to the extent that such services represent a direct charge to the Joint Account, as provided for in Section 2.2; (2) Accounting, data processing, personnel administration, billing and record keeping in accordance with governmental regulations and the provisions of the Venture Agreement, and preparation of reports; (3) The services of tax counsel and tax administration employees for all tax matters, including any protests, except any outside professional fees which the Management Committee may approve as a direct charge to the Joint Account; (4) Routine legal services rendered by outside sources and the Manager's legal staff not otherwise charged to the Joint Account under Section 2.9; and (5) Rentals and other charges for office and records storage space, telephone service, office equipment and supplies. (e) Except for the management fee set forth above, it is the intent of the Manager and the Participants that none of them shall lose or profit by reason of their duties and responsibilities as Manager or Participant. The Participants shall meet and in good faith endeavor to agree upon changes to the level or nature of charges to the Joint Account deemed necessary to correct any unfairness or inequity. (f) The administrative charge set forth in this Section 2.13 shall not apply prior to completion of GRANGES' Initial Contribution. Prior to completion of GRANGES' Initial Contribution the administrative charge set forth in Section 1.13(c) shall apply. B-6 2.14 Other Expenditures. Any reasonable direct expenditure, other ------------------ than expenditures which are covered by the foregoing provisions, incurred by the Manager for the necessary and proper conduct of Operations. ARTICLE III ----------- A BASIS OF CHARGES TO JOINT ACCOUNT ----------------------------------- 3.1 Purchases. Material purchased and services procured from third --------- parties shall be charged to the Joint Account by the Manager at invoiced cost, including applicable transfer taxes, less all discounts taken. If any Material is determined to be defective or is returned to a vendor for any other reason, the Manager shall credit the Joint Account when an adjustment is received from the vendor. 3.2 Material Furnished by or Transferred to the Manager or a -------------------------------------------------------- Participant. Any Material furnished by the Manager or Participant from its - ----------- stocks or transferred to the Manager or Participant shall be priced on the following basis: (a) New Material. New Material transferred from the Manager or ------------ Participant shall be priced F.0.B. the nearest reputable supply store or railway receiving point, where like Material is available, at the current replacement cost of the same kind of Material, exclusive of any available cash discounts, at the time of the transfer (herein called, "New Price"). (b) Used Material. ------------- (1) Used Material in sound and serviceable condition and suitable for reuse without reconditioning shall be priced as follows: (A) Used Material transferred by the Manager or Participant shall be priced at seventy-five percent (75%) of the New Price; (B) Used Material transferred to the Manager or Participant shall be priced (i) at seventy-five percent (75%) of the New Price if such Material was originally charged to the Joint Account as new Material, or (ii) at sixty-five percent (65%) of the New Price if such Material was originally charged to the Joint Account as good used Material at seventy-five percent (75%) of the New Price. B-7 (2) Other used Material which, after reconditioning will be further serviceable for original function as good secondhand Material, or which is serviceable for original function but not substantially suitable for reconditioning shall be priced at fifty percent (50%) of New Price. The cost of any reconditioning shall be borne by the transferee. (3) All other Material, including junk, shall be priced at a value commensurate with its use or at prevailing prices. Material no longer suitable for its original purpose but usable for some other purpose shall be priced on a basis comparable with items normally used for such other purposes. (c) Obsolete Material. Any Material which is serviceable and usable ----------------- for its original function, but its condition is not equivalent to that which would justify a price as provided above shall be priced by the Management Committee. Such price shall be set at a level which will result in a charge to the Joint Account equal to the value of the service to be rendered by such Material. 3.3 Premium Prices. Whenever Material is not readily obtainable at -------------- published or listed prices because of national emergencies, strikes or other unusual circumstances over which the Manager has no control, the Manager may charge the Joint Account for the required Material on the basis of the Manager's direct cost and expenses incurred in procuring such Material and making it suitable for use. The Manager shall give written notice of the proposed charge to the Participants prior to the time when such charge is to be billed, whereupon any Participant shall have the right, by notifying the Manager within ten (10) days of the delivery of the notice from the Manager, to furnish at the usual receiving point all or part of its share of Material suitable for use and acceptable to the Manager. 3.4 Warranty of Material Furnished by the Manager or Participants. ------------------------------------------------------------- Neither the Manager nor any Participant warrants the Material furnished beyond any dealer's or manufacturer's warranty and no credits shall be made to the Joint Account for defective Material until adjustments are received by the Manager from the dealer, manufacturer or their respective agents. ARTICLE IV ---------- DISPOSAL OF MATERIAL --------------------- B-8 4.1 Disposition Generally. The Manager shall have no obligation to --------------------- purchase a Participant's interest in Material. The Management Committee shall determine the disposition of major items of surplus Material, provided the Manager shall have the right to dispose of normal accumulations of junk and scrap Material either by sale or by transfer to the Participants as provided in Section 4.2. 4.2 Distribution to Participants. Any Material to be distributed to ---------------------------- the Participants shall be made in proportion to their respective Participating Interests, and corresponding credits shall be made to the Joint Account on the basis provided in Section 3.2. 4.3 Sales. Sales of Material to third parties shall be credited to ----- the Joint Account at the net amount received. Any damages or claims by the Purchaser shall be charged back to the Joint Account if and when paid. ARTICLE V --------- INVENTORIES ------------ 5.1 Periodic Inventories, Notice and Representations. At reasonable ------------------------------------------------ intervals, inventories shall be taken by the Manager, which shall include all such Material as is ordinarily considered controllable by operators of mining properties, and the expense of conducting such periodic inventories shall be charged to the Joint Account. The Manager shall give written notice to the Participants of its intent to take any inventory at least thirty (30) days before such inventory is scheduled to take place. A Participant shall be deemed to have accepted the results of any inventory taken by the Manager if the participant fails to be represented at such inventory. 5.2 Reconciliation and Adjustment of Inventories. Reconciliation of -------------------------------------------- inventory with charges to the Joint Account shall be made, and a list of overages and shortages shall be furnished to the Management Committee within six (6) months after the inventory is taken. Inventory adjustments shall be made by the Manager to the Joint Account for overages and shortages, but the Manager shall be held accountable to the Venture only for shortages due to lack of reasonable diligence. B-9 EXHIBIT C --------- TAX MATTERS ----------- ARTICLE 1 --------- TAX MATTERS PARTNER -------------------- (a) Designation of Tax Matters Partner. Prior to the completion of its ----------------------------------- Initial Contribution, GRANGES shall serve as the tax matters partner (hereinafter "TMP") as defined in Section 6231(a)(7) of the Internal Revenue Code of 1986 ("the Code"). Thereafter, the Manager shall serve as TMP. In the event of any change in Manager, the Participant serving as manager at the end of a taxable year shall continue as TMP with respect to all matters concerning such year. The TMP and other Participants shall use their best efforts to comply with the responsibilities outlined in this Article I and in Sections 6221 through 6233 of the Code (including any Treasury regulations promulgated thereunder) and in doing so shall incur no liability to any other party. (b) Notice. The Participants shall furnish the TMP with such information ------ (including information specified in Section 6230(e) of the Code) as it may reasonably request to permit it to provide the Internal Revenue Service with sufficient information to allow proper notice to the Participants in accordance with Section 6223 of the Code. The TMP shall keep each Participant informed of all administrative and judicial proceedings for the adjustment at the partnership level of partnership items in accordance with Section 6223(g) of the Code. (c) Inconsistent Treatment of Partnership Item. If an administrative ------------------------------------------ proceeding contemplated under Section 6223 of the Code has begun, and the TMP so requests, the Participants shall notify the TMP of their treatment of any partnership item on their federal income tax return in a manner which is inconsistent with the treatment of that item on the partnership return. (d) Extensions of Limitation Periods. The TMP shall not enter into -------------------------------- any extension of the period of limitations as provided under Section 6229 of the Code without first giving reasonable advance notice to all other Participants of such intended action. (e) Requests for Administrative Adjustments. No Participant shall --------------------------------------- file, pursuant to Section 6227 of the Code, a request for an administrative adjustment of partnership items for any C-1 partnership taxable year without first notifying all other Participants. If all other Participants agree with the requested adjustment, the TMP shall file the request for administrative adjustment on behalf of the partnership. If unanimous consent is not obtained within 30 days, or within the period required to timely file the request for administrative adjustment, if shorter, any Participant, including the TMP, may file a request for administrative adjustment on its own behalf. (f) Judicial Proceedings. Any Participant intending to file a petition -------------------- under Section 6226, 6228 or other sections of the Code with respect to any partnership item, or other tax matters involving the partnership, shall notify the other Participants of such intention and the nature of the contemplated proceeding. If the TMP is the Participant intending to file such petition, such notice shall be given within a reasonable time to allow the other Participants to participate in the choosing of the forum in which such petition will be filed. If the Participants do not agree on the appropriate forum, then the appropriate forum shall be decided by majority vote. Each Participant shall have a vote in accordance with its Participating Interest in the partnership. If a majority cannot agree, the TMP shall choose the forum. If any Participant intends to seek review of any court decision rendered as a result of a proceeding instituted under the preceding part of this Paragraph 1.6, such Participant shall notify the other Participants of such intended action. (g) Settlements. The TMP shall not bind any other Participant to a ----------- settlement agreement without first obtaining the written concurrence of any such Participant. Any other Participant who enters into a settlement agreement with respect to any partnership items, as defined by Section 6231(a)(3) of the Code, shall notify the other Participants of such settlement agreement and its terms within 90 days from the date of settlement. (h) Fees and Expenses. The TMP shall not engage legal counsel, certified ----------------- public accountants, or others without the prior written consent of a majority of the Participants. Any Participant may engage legal counsel, certified public accountants, or others in its own behalf and at its sole cost and expense. Any reasonable item of expense, including but not limited to fees and expenses for legal counsel, certified public accountants, and others which the TMP incurs in connection with any audit, assessment, litigation, or other proceeding regarding any partnership C-2 item, shall constitute proper charges to the Joint Account and shall be borne by the Participants as any other item which constitutes a direct charge to the Joint Account pursuant to the Agreement. (i) Survival. The provisions of this Article I, including but not -------- limited to the obligation to pay fees and expenses contained in Paragraph 1.8, shall survive the termination of the partnership or the termination of any Participant's interest in the partnership and shall remain binding on the Participants for a period of time necessary to resolve with the Internal Revenue Service or the Department of the Treasury any and all matters regarding the federal income taxation of the partnership for the applicable tax year(s). ARTICLE 2 --------- TAX ELECTIONS AND ALLOCATIONS ------------------------------ (a) Tax Partnership Election. It is understood and agreed that the ------------------------ Participants intend to create a partnership for United States federal and state income tax purposes, and, unless otherwise agreed to hereafter by all Participants, no Participant shall make an election to be, or have the arrangement evidenced hereby, excluded from the application of any provisions of Subchapter K of the Code, or any equivalent state income tax provision. It is understood and agreed that the Participants intend to create a partnership for federal and state and income tax purposes only. The Manager shall file with the appropriate office of the Internal Revenue Service a partnership income tax return covering the Operations. The Participants recognize that this Agreement may be subject to state income tax statutes. The Manager shall file with the appropriate offices of the state agencies any required partnership state income tax returns. Each Participant agrees to furnish to the Manager any information it may have relating to Operations as shall be required for proper preparation of such returns. The Manager shall furnish to the other Participants for their review a copy of each proposed income tax return at least two weeks prior to the date the return is filed. (b) Tax Elections. The partnership shall make the following elections for -------------- purposes of all partnership income tax returns: (a) To use the accrual method of accounting. C-3 (b) Pursuant to the provisions at Section 706(b)(1) of the Code, to use as its taxable year the calendar year. (c) To deduct currently all development expenses to the extent possible under Sections 616 and 291 of the Code. (d) Unless the Participants unanimously agree otherwise, to compute the allowance for depreciation in respect of all depreciable Assets using the maximum accelerated tax depreciation method and the shortest life permissible. (e) To treat advance royalties as deductions from gross income for the year paid or accrued to the extent permitted by law. (f) To deduct currently qualified reclamation and closing costs in accordance with, and to the extent permitted by, Section 468 of the Code. Any other election required or permitted under the Code or any state tax law shall be made as determined by the Management Committee. Each Participant will elect under Section 617(a) of the Code to deduct currently all exploration expenses to the extent possible. (c) Allocations to Participants. Allocations for tax purposes shall be --------------------------- in accordance with the following: (a) Exploration expenses and development cost deductions shall be allocated among the Participants in accordance with their respective contributions to such expenses and costs. (b) Subject to Subparagraph (l) below, depreciation and loss deductions with respect to a depreciable Asset shall be allocated among the Participants in accordance with their respective contributions to the adjusted basis of the Asset which gives rise to the depreciation or loss deduction. (c) Production and operating cost deductions shall be allocated among the Participants in accordance with their respective contributions to such costs. (d) Subject to Subparagraph (l) below, cost depletion and any loss deduction with respect to a depletable property (as defined in Section 614 of the Code) shall be allocated to C-4 the Participants in accordance with their respective contributions to the adjusted basis of the depletable property. Percentage depletion under Section 613 of the Code shall be allocated (i) first in the same manner as cost depletion to the extent it does not exceed cost depletion and (ii) second, to the extent percentage depletion exceeds cost depletion, to the Participants in the same proportion as their distributive share of gross income from the depletable property (as determined under Section 613(c) of the Code) for the year in which such depletion is allowable. (e) All deductions and losses which are not described in Subparagraph (a) through (d) above, shall be allocated among the Participants in accordance with their respective contributions to the costs producing each such deduction or the adjusted basis of the Asset producing each such loss. (f) In the event that Section 11.1 of this Agreement (directing that each Participant shall take in kind and separately dispose of its share of all Products) is interpreted to mean only that a Participant is authorized to direct the disposition of its share of Products by the partnership all income, gains or losses realized by the partnership from such disposition shall be allocated to such Participant, and any deductions arising from expenditures incurred by such Participant in connection with such disposition (to the extent they are attributed to the partnership) shall also be allocated to such Participant. If, pursuant to Section 11.2 of this Agreement, the Manager purchases a Participant's share of Product for its own account, or sells such share of Product, the net profits or losses from such sale (computed after taking into account the reasonable expenses incurred) shall be allocated to the Participant. (g) Subject to Subparagraph (l) below, any gain recognized on the sale or other disposition of a depreciable Asset shall be allocated (i) first, to the extent such gain does not exceed the amount of depreciation claimed with respect to such Asset, to the Participants in proportion to the amount of such depreciation previously allocated to, or claimed by, them; and (ii) second, to the Participants in accordance with their Participating Interests. (h) Subject to Subparagraph (l) below, any gain recognized on the sale or other disposition of a depletable property (as defined in Section 614 of the Code) shall be allocated (i) first, to the extent such gain does not exceed the total Recapturable Deductions (as defined C-5 below) with respect to such Property, to the Participants in proportion to the total Recapturable Deductions previously allocated to, or claimed by, them with respect to such property (adjusted for any recapture of such deductions previously allocated to, or recognized by, the Participants) and (ii) second, to the Participants in accordance with their Participating Interests. As used in the previous sentence, "Recapturable Deductions" shall mean depletion deductions (to the extent reflected in the capital accounts of the Participants), exploration expense deductions, and development expense deductions attributable to a depletable property, reduced (but not below zero) by any prior recapture of such deductions. (i) Subject to Subparagraph (l) below, any recapture of exploration expenses under Section 617(b)(1)(A) of the Code, and any increase in taxable income realized by reason of the disallowance of depletion under Section 617(b)(1)(B) of the Code, shall be allocated to the Participants in the same manner as the related exploration expenses were allocated to, or claimed by, them. (j) Subject to Subparagraph (l) below, all other items of income and gain shall be allocated to the Participants in accordance with their Participating Interests. (k) All tax credits shall be allocated to the Participants in proportion to the allocation of the item of income, gain, loss or deduction generated by the receipt or expenditure giving rise to the credit. Any credit recaptures shall be allocated to the Participants in the same proportion as the related credit was allocated. (l) Notwithstanding the foregoing, in the event all or substantially all the Assets (by value) are sold or otherwise disposed of, any gain or loss recognized by the partnership shall be allocated among the Participants so that, to the extent possible, the Participants' resulting capital account balances are in proportion to the Participants' Participating Interests. Any recapture for tax purposes of mining exploration and development expenditures, depreciation deductions and depletion deductions arising by reason of such a sale or other disposition shall be allocated, to the extent consistent with the allocation of gain giving rise to such recapture, to the Participant which was originally allocated, or which originally claimed, the recaptured deduction. C-6 (m) Notwithstanding the foregoing, in accordance with Section 704(c) of the Code, income, gain, loss and deduction with respect to property contributed to the partnership by a Participant shall be shared among the Participants so as to take account of the variation between the basis of the property to the partnership and its fair market value at the time of contribution. ARTICLE 3 --------- CAPITAL ACCOUNTS; LIQUIDATION ------------------------------ (a) Capital Accounts. ---------------- (a) A separate capital account shall be established and maintained for each Participant. Such capital account shall be increased by (i) the amount of money contributed by the Participant to the partnership, (ii) the fair market value of property contributed by the Participant to the partnership (net of liabilities secured by such contributed property that the partnership is considered to assume or take subject to) and (iii) allocations to the Participant of partnership income and gain (or items thereof), including income and gain exempt from tax; and shall be decreased by (iv) the amount of money distributed to the Participant by the partnership, (v) the fair market value of property distributed to the Participant by the partnership (net of liabilities secured by such distributed property and that the Participant is considered to assume or take subject to), (vi) allocations to the Participant of expenditures of the partnership not deductible in computing its taxable income and not properly chargeable to a capital account, and (vii) allocations of partnership loss and deduction (or items thereof), excluding items described in (vi) above and percentage depletion to the extent it exceeds the adjusted tax basis of the depletable property to which it is attributable. (b) In the event that the capital accounts of the Participants are computed with reference to the book value of any Asset which differs from the adjusted tax basis of such Asset, then the capital accounts shall be adjusted for depreciation, depletion, amortization and gain or loss as computed for book purposes with respect to such Asset in accordance with Treasury Regulation Section 1.704-1(b)(2)(iv)(g). C-7 (c) In the event any interest in the partnership is transferred in accordance with the terms of this Agreement, the transferee shall succeed to the capital account of the transferor to the extent it relates to the transferred interest, except as provided in Treasury Regulation Section 1.704- 1(b)(2)(iv)(1). (d) In the event property, other than money, is distributed to a Participant, the capital accounts of the Participants shall be adjusted to reflect the manner in which the unrealized income, gain, loss and deduction inherent in such property (that has not been reflected in the capital accounts previously) would be allocated among the Participants if there was a taxable disposition of such property for the fair market value of such property (taking Section 7701(g) of the Code into account) on the date of distribution. For this purpose the fair market value of the property shall be determined as set forth in Paragraph 3.2(a) below. (e) The foregoing provisions, and the other provisions of this Agreement relating to the maintenance of capital accounts and the allocations of income, gain, loss, deduction and credit, are intended to comply with Treasury Regulations Section 1.704-1(b), and shall be interpreted and applied in a manner consistent with such Regulations. In the event the Management Committee shall determine that it is prudent to modify the manner in which the capital accounts, or any debits or credits thereto, are computed in order to comply with such Regulations, the Management Committee may make such modification, provided that it is not likely to have a material effect on the amount distributable to any Participant upon liquidation of the partnership pursuant to Paragraph 3.2 of this Exhibit C. (b) Liquidation. In the event the partnership is "liquidated" within ----------- the meaning of Treasury Regulation Section 1.704-1(b)(2)(ii)(g) then, notwithstanding any other provision of this Agreement to the contrary, the following steps shall be taken: (a) The capital accounts of the Participants shall be adjusted to reflect any gain or loss which would be realized by the partnership and allocated to the Participants pursuant to the provisions of Article II of this Exhibit C if the Assets had been sold at their fair market value at the time of liquidation. The fair market value of the Assets shall be determined by the Participants provided, however, that in the event that the Participants fail to agree on the fair market value of C-8 any Asset, its fair market value shall be determined by a nationally recognized independent engineering firm or other qualified independent party approved by all Participants. (b) Following the adjustments described in Subparagraph (a) above, any Participant with a negative balance in its capital account shall contribute an amount of cash to the partnership sufficient to achieve a zero balance in its capital account. (c) Following the adjustments described in Subparagraphs (a) and (b) above, if the capital account balance of any Participant (stated as a percentage of the capital account balances of all Participants) is not equal to the Participant's Participating Interest, then any Participant whose capital account balance is less than its Participating Interest shall have the option, but not the obligation, upon ten (10) days notice by the Manager, to contribute a sufficient amount of cash to the partnership to cause its capital account balance and Participating Interest to be in parity. (d) After making the foregoing adjustments and/or contributions, all remaining Assets shall be distributed to the Participants in accordance with the balances in their capital accounts. Unless otherwise expressly agreed by all Participants, each Participant shall receive an undivided interest in each and every Asset determined by the ratio of the amount in each Participant's capital account to the total of all the Participants' capital accounts. Assets distributed to the Participants shall be deemed to have a fair market value equal to the value assigned to them pursuant to Paragraph 3.2(a) above. (e) Any contribution by a Participant to the partnership to restore the capital account of such Participant to zero, and all distributions to the Participants in respect of their capital accounts shall be made in accordance with the time requirements of Treasury Regulation Sections 1.704- 1(b)(2)(ii)(b)(2) and (3). ARTICLE 4 --------- SALE OR ASSIGNMENT ------------------- (a) Agreement Not to Terminate . The Participants agree that if any one of --------------------------- them makes a sale or assignment of its Participating Interest under this Agreement, such sale or assignment will C-9 be structured so as not to cause a termination under Section 708(b)(1)(B) of the Code. If a Section 708(b)(1)(B) termination is caused, the terminating Participant will indemnify all nonterminating Participants and save them harmless on an after tax basis for any increase in taxes, interest, and penalties or decrease in credits to the nonterminating Participants caused by the termination of the partnership. C-10 EXHIBIT D --------- NET PROFITS INTEREST CALCULATION -------------------------------- 1. Calculation and Payment. In the event either Participant (the ----------------------- "Payee") is entitled to a payment based upon the Net Profits derived from the Properties , the amounts due Payee shall be determined as of the end of each calendar quarter and shall be accounted for and distributed as follows: (a) The Payor shall establish and maintain on its books a separate net profits account (the "Account") in accordance with good accounting practices. The account shall be a noninterest-bearing account. The books and records of the Account shall be open for examination, inspection, copying and audit by Payee and its accredited representatives at all reasonable times and the Payee's sole expense. (b) The Account shall be credited with: (i) An amount equal to the sale proceeds with effect from the Effective Date of the Mining Venture Agreement (the "NPI Date") actually received by Payor for all minerals produced from the Properties. If the Product is refined gold or silver, gross revenues shall be determined as to gold by multiplying the average London Bullion Market Association daily p.m. gold fixing for the calendar quarter and as to silver by multiplying the average New York Silver Price as published by Handy & Harman for the calendar quarter by the number of ounces of gold or silver outturned to the nonwithdrawing Participant's pool account (or to a third party account for the benefit of such Participant) by an independent third-party refinery on either a provisional or final settlement basis during the calendar quarter; (ii) the net sale proceeds after sales and use taxes received by Payor from the sale of any equipment, materials or supplies, the cost of which was charged to the Account; and (iii) the amount of all judgments, awards, or revenues collected by Payor pertaining to the minerals produced from the Properties . If the Account is credited under subparagraph (1) in respect of minerals taken by the Payor in kind, the Account shall not be thereafter credited or debited for actual sale proceeds in respect of such minerals. (c) The Account shall with effect from the NPI Date be charged with all items included in Article II of Exhibit B to the Mining Venture Agreement pertaining to Payor's activities insofar and to the extent the same are properly allocable to the Properties and the following: (i) all expenses incurred relative to the sale of Products, including (to the extent actually paid) an ----------------------------- allowance for commissions at rates which are normal and customary in the industry; (ii) Interest on monies borrowed or advanced for costs and expenses of Operations, at an annual rate equal to two percentage points above the Prime - ------------- --- Rate, but in no event in excess of the maximum permitted by law; and (iii) Reasonably anticipated reclamation costs. (d) Amounts due Payee with respect to its Net Profits Interest shall be determined for each calendar quarter by deducting the aggregate of any charge balance existing in the Account at the first of such quarter, plus the total charges properly made thereto during such quarter, from the sum of any credit balance existing in the Account at the first of such quarter and total credits properly made thereto during such quarter. Payee shall receive payments attributable to its Net Profits Interest only D-1 for such calendar quarters when such credits exceed such charges and shall not receive payment of any Net Profits accrued when Payee's Net Profits Interest is created. On or before the last day of the month following the close of each calendar quarter, Payor shall furnish to Payee a detailed statement clearly reflecting the condition of the Account as of the close of business on the last day of the preceding calendar quarter. Any deficit or loss (i.e., an excess of charges over credits) reflected to any such statement shall be carried forward in the Account for the next and succeeding calendar quarters until such deficit or loss has been liquidated. In case of net profits in the Account (i.e., an excess of credits over charges) as reflected in any such statement, payment to Payee of the portion of such net profits attributable to its Net Profits Interest shall be enclosed with the statement rendered to Payee and the Account shall then be charged with an amount equal to the final amount on which the payment to Payee shall have been calculated. 2. Successors in Interest. It is the intention of the parties that --------------------- the net profits interest payable to Payee is transferable by Payee and constitutes a burden on the Properties which is an obligation of Payor or of Payor's successors in interest to the Properties. 3. Nature of Interest. The Net Profits Interest is strictly a ------------------ passive interest and the holder thereof shall have no right to participate in any management or operational decisions. The payor of Net Profits makes no representations or covenants, express or implied, as to whether any Exploration, Development, Mining or other operations will ever be conducted upon the properties subject to the Net Profits Interest. Whether or not any such operations shall ever be conducted, and the timing, extent, location, duration and manner and method of conducting same, shall be determined in the sole discretion of the Payor. D-2 EXHIBIT E --------- INSURANCE --------- The Manager shall, at all times while conducting Operations, comply fully with the applicable worker's compensation laws and purchase, or provide through self-insurance, protection for the Participants comparable to that provided under standard form insurance policies for (i) commercial general liability insurance, with policy limits for Bodily Injury and Property Damage not less than $1,000,000 per occurrence; and (ii) adequate and reasonable insurance against risk of fire and other risks ordinarily insured against in similar operations. If the Manager elects to self-insure, it shall charge to the Joint Account an amount equal to the premium it would have paid had it secured and maintained a policy or policies of insurance on a competitive bid basis in the amount of such coverage. Each Participant shall self-insure or purchase for its own account such additional insurance as it deems necessary. E-1 EXHIBIT F --------- INITIAL WORK PROGRAM -------------------- AND BUDGET ---------- Initial Program and Budget through September 29, 1996 * Data transfer and compilation * Review geophysical program * Geological mapping * Geochemical sampling program * Follow-up drill program for the mineralization identified at the northwest extension of the original Gold Bar deposit * Pediment and Range Front exploration drilling GRANGES may make such changes in the initial Program and Budget as GRANGES deems appropriate, in its sole and absolute discretion. However, the cost of the program herein contemplated shall comprise, at a minimum, $625,000.00 of Exploration and Development Expenditures. F-1 EXHIBIT G --------- DEFINITION OF ------------- NET SMELTER RETURNS ------------------- In addition to its Participating Interest, ATLAS shall be entitled to receive a production royalty equal to two percent (2%) of the Net Smelter Returns (as defined below) from the sale of any Product produced and sold from Parts 1 and 3 of Exhibit A to the Agreement that are included in the Selected Properties. The Net Smelter Returns production royalty shall not apply to production from any of the Properties that, as of the date of the Agreement, are burdened by royalties payable to any third party. "Net Smelter Returns" are defined as the gross proceeds received by the Participants from the sale of Products derived from the applicable portion of the Selected Properties (the "Royalty Properties), less (a) all costs to the Manager or Participants of weighing, sampling, determining moisture content and packaging such material and of loading and transporting it to the point of sale, including insurance and in transit security costs; (b) all charges and penalties imposed by the smelter, refinery or purchaser; and (c) ad valorem taxes, severance taxes, state royalties, and such other taxes that, as of the date of the Agreement, are imposed upon production. For purposes of calculating Net Smelter Returns in the event the Manager or Participants elect not to sell any portion of any gold derived from the Royalty Properties, but instead elect to have the final product of any such gold credited to or held for its account with any smelter, refiner or broker, such gold shall be deemed to have been sold at the Quoted Price (as defined below) on the day such gold is actually credited to or placed in such account. For purposes of determining the percentage of the royalty payable to ATLAS on gold produced from the Royalty Properties, the "Quoted Price" shall mean the price per ounce of gold as quoted on the London P.M. fix on the day prior to the date of final settlement from the smelter, refinery or other buyer of the gold on which the royalty is to be paid. In the event that, subsequent to the date of the Agreement, new severance taxes, federal or state royalties, ad valorem taxes or other taxes upon production are imposed or increased ("New or Increased Burdens"), the amounts of such New or Increased Burdens paid with respect to production from the Royalty Properties shall be credited in full against the production royalty payable to ATLAS hereunder; provided that in no event shall the production royalty payable to ATLAS hereunder be reduced by operation of such credit to less than one percent (1%) of the Net Smelter Returns realized by the Participants from the sale of any Products produced and sold from the Royalty Properties. All production royalties shall be computed and paid on a monthly basis. At the time of making each such payment, ATLAS shall receive a statement showing the amount of such production royalty and the manner in which it was determined. All records relating to the calculation of such royalties shall be available for inspection by ATLAS for the purpose of confirming the accuracy of such statements. Any such inspection shall be for a reasonable length of time during regular business hours, at a mutually convenient time, upon reasonable notice. Any complaint or objection which G-1 ATLAS may wish to raise with respect to production royalties payable hereunder shall be made by ATLAS in writing within six months after the end of the calendar year in which such payment was made to ATLAS or shall be deemed to have been waived by ATLAS. All determinations with respect to: (a) whether ore will be beneficiated, processed, milled or sold in a raw state, (b) the methods of beneficiating, processing or milling any such ore, (c) the constituents to be recovered therefrom, and (d) the purchasers to whom any ore, minerals or mineral substances may be sold, shall be made by the Manager or Participants in their sole and absolute discretion. The mineral content of Products mined and removed from the Royalty Properties (excluding ore leached in place) and the quantities of constituents recovered therefrom shall be determined by the Manager or Participants, or with respect to Products which are sold, by the mill or smelter to which the Products are sold, in accordance with standard sampling and analysis procedures, and shall be a weighted average based on the total amount of Products from the Royalty Properties crushed and sampled or the constituents recovered. Upon reasonable advance notice, ATLAS shall have the right to have representatives present at the time samples are taken for the purpose of confirming that the sampling and analysis procedure is proper. The Manager or Participants shall have the right of commingling any Products which are mined under this Agreement with any other similar ores, minerals or mineral substances, provided that the commingling is accomplished only after the volume or weight of such ore, minerals or mineral substances, as the case may be, has been fairly and accurately measured and such ore, minerals and mineral substances sampled. An accurate record of the weight or volume, along with the results of the sampling of such ore, minerals or mineral substances which are so commingled shall be kept and made available to ATLAS at all reasonable times. In the event that ATLAS owns an interest in any Products extracted from any part of the Royalty Properties which is less than the entire undivided mineral or working interest in such Products (subject to GRANGES' Participating Interest therein), then the production royalties herein reserved and attributable to ATLAS shall be paid to ATLAS only in the proportion that ATLAS' interest in such production bears to the entire undivided mineral or working interest therein. The production royalty provided for herein is strictly a passive interest and shall not entitle the holder thereof to participate in any management or operation decisions. The payor of the production royalty makes no representations or covenants, express or implied, as to whether any exploration, Development, Mining or other Operations will ever be conducted upon the Royalty Properties. Whether or not any such operations shall ever be conducted, and the timing, extent, location, duration, manner and method of conducting same, shall be determined in the sole discretion of the payor. G-2 EX-10.38 3 BUSINESS COMBINATION AGREEMENT WITH MSV ATLAS CORPORATION 370 17TH STREET SUITE 3150 DENVER, COLORADO 80202 - 5631 March 5, 1996 MSV Resources Inc. 630 Rene - Levesque Blvd. West Suite 3240 Montreal, Quebec H3B 1S6 Attention: Mario Caron, President - ---------------------------------- Dear Sirs: RE: COMBINATION OF ATLAS CORPORATION AND MSV RESOURCES INC. Further to our recent discussions, we wish to confirm the agreement in principle between Atlas Corporation ("Atlas") and MSV Resources Inc. ("MSV") to effect a business combination of Atlas and MSV. The principal terms of such combination are as follows: I. Atlas will form a wholly-owned subsidiary ("Atlas Canada") under the laws of the Canada or a province thereof for the purpose of making a share exchange take-over bid (the "Offer") for all of the outstanding common shares of MSV. Under the Offer, two Exchangeable Shares of Atlas Canada ("Exchangeable Shares") will be offered for every three common shares of MSV ("MSV Common Shares"). II. Each Exchangeable Share will be exchangeable at any time for one share of common stock of Atlas (an "Atlas Common Share") and the Exchangeable Shares will also carry rights: (i) to one vote per share at all meeting of shareholders of Atlas; (ii) to receive dividends equal to and concurrently with any dividends on the Atlas Common Shares declared by the board of directors of Atlas; and (iii) to participate equally with the Atlas Common Shares in any distribution of the assets of Atlas upon its liquidation, dissolution or winding-up. The Exchangeable Shares shall not carry any voting rights with respect to Atlas Canada. III. Completion of the Offer will be conditional upon MSV having raised a minimum of US$20,000,000 pursuant to a private placement of special warrants ("Special 112 Warrants"). Each Special Warrant will entitle the holder thereof to receive upon exercise or deemed exercise thereof, without payment of any additional consideration, one MSV Common Share. The terms of the private placement and the Special Warrants will provide that: (i) if not previously exercised, the Special Warrants will be deemed to be exercised immediately prior to the completion of the Offer; and (ii) the MSV Common Shares issuable upon exercise or deemed exercise of the Special Warrants will be tendered to the Offer. The proceeds from the private placement of the Special Warrants will be held in escrow pending the successful completion of the Offer and will be released to MSV immediately following the successful completion of the Offer. IV. The private placement of Special Warrants will be subject to approval by shareholders of MSV and all necessary regulatory approvals, including, without limitation, the approval of The Toronto Stock Exchange and the Montreal Exchange. V. Completion of the Offer will also be conditional upon: (a) not less than 66 2/3% of the outstanding MSV Common Shares (including the shares issuable on exercise of the Special Warrants) being tendered to the Offer and not withdrawn; (b) the Exchangeable Shares being approved for listing on a Canadian stock exchange; (c) the shareholders of Atlas having approved an amendment to Atlas' Certificate of Incorporation to make such changes as may be necessary to support the rights to be attached to the Exchangeable Shares; (d) receipt of all other necessary regulatory approvals including, without limitation, approval of the New York Stock Exchange; and (e) there being no material adverse changes in the business, operations or affairs of Atlas or MSV from the date hereof until expiry of the Offer. VI. Upon completion of the Offer, the board of directors of Atlas will be expanded to ten members, who will include four nominees of MSV, and Mario Caron will be appointed Executive Vice Chairman of Atlas. The board of directors of Atlas Canada will be the same as the board of directors of Atlas. VII. From and after the date hereof until the earlier of the completion of the Offer and August 1, 1996, MSV will not, either directly or through any representative, approach any other party to suggest that the other party make an offer to purchase MSV Common Shares or substantially all of the assets of MSV provided that if MSV receives an unsolicited offer 113 for or approach with respect to the purchase of MSV Common Shares or MSV's assets, it will immediately advise Atlas of the terms thereof. VIII. The board of directors of MSV will unanimously support the Offer and will unanimously recommend its acceptance to shareholders of MSV and, in the event that the Offer contemplates a second stage transaction so as to acquire the MSV Common Shares not purchased under the Offer, the Board of Directors of MSV will also support such second stage transaction. The directors' circular of MSV with respect to the Offer shall be mailed to shareholders of MSV contemporaneously with the mailing of the Offer. IX. Nothing herein shall affect the fiduciary obligations of the directors of MSV. X. From and after the date hereof until the earlier of the completion of the Offer and August 1, 1996, each of Atlas and MSV will carry on business in the ordinary and normal course and, in particular, will not, without the prior consent of the other party, effect any distribution to shareholders, issue any securities except pursuant to agreements existing at the date hereof or contemplated herein, grant any new rights of options to purchase any securities, nor without the prior consent of the other party, enter into, amend or terminate any material contracts. In addition, the management of Atlas and MSV will immediately establish a committee consisting of David Birkenshaw, Gary Davis and Mario Caron which will have responsibility for all decisions with respect to the development of the projects of Atlas and MSV pending completion of the Offer. All decisions of such committee must be unanimous. XI. Atlas and MSV acknowledge that each of them will be obligated to make public disclosure of the principal terms hereof. Atlas and MSV agree to cooperate with each other in the preparation of the required news releases and to coordinate the issuance thereof. XII. Each of Atlas and MSV will be responsible for its own expenses associated with the implementation of the terms hereof, including, without limitation, legal, accounting and financial advisory fees. It is acknowledged that this letter represents an expression of the mutual intent of the parties and the parties agree to negotiate expeditiously and in good faith a formal combination agreement which will include the terms set forth herein and other usual and customary terms and conditions. If you are in agreement with the foregoing, would you please so indicate by signing the counterpart hereof in the appropriate space below and return it to the undersigned. Yours very truly, ATLAS CORPORATION 114 By: David J. Birkenshaw Chairman and Chief Executive Officer The foregoing is hereby agreed to this ______ day of March, 1996. MSV RESOURCES INC. By: Mario Caron President 115 EX-21 4 SUBSIDIARIES OF THE COMPANY ATLAS CORPORATION LIST OF SUBSIDIARIES OF THE REGISTRANT Atlas Precious Metals, Inc. (Incorporated in Nevada) Atlas Gold Mining, Inc. (Incorporated in Nevada), a subsidiary of Atlas Precious Metals, Inc. Atlas Perlite, Inc. (Incorporated in Oregon), a subsidiary of Atlas Precious Metals, Inc. Phoenix Financial Holdings Inc. (organized under the laws of Ontario, Canada) -----END PRIVACY-ENHANCED MESSAGE-----